My Lords, as speaker number 28 on the list, I shall try to avoid repeating figures mentioned by others.
I was surprised by how many speakers on the Benches opposite absolved the previous Labour Government of any responsibility for the huge budget deficit the coalition inherited. While I recognise that what happened in the USA was a major contributor to the financial crisis, the Labour Chancellor forsook the prudence of new Labour’s earlier years. As the noble Lord, Lord Rooker, stated, new Labour moved on—and Tony Blair is a classical example of that. UK debt was already high because of other reasons, including the Iraq war, and had we not as a coalition put the squeeze on public spending the markets could have panicked, interest rates could have gone through the roof and we could have been in a situation similar to Greece.
The first good economic news in the Budget was the OBR’s upgrading of growth forecasts for this year and the following two years. The Chancellor stated that business investment has grown four times higher than household consumption since 2010 and manufacturing output has increased more than four and a half times faster than it did in the entire decade before the crisis. Over the last year, the north grew faster than the south.
The job figures last week continued the tremendously good trend. When the Government set out on their strategy, the Opposition predicted more than 1 million jobs would be lost. Instead, more than 1.9 million new jobs have been created. Critics have said in the past that these are not real jobs, that they are all part-time and all in London. However, the Chancellor stated that 80% are full-time jobs, 80% are in skilled occupations and employment is growing fastest in the north-west. Of course, as many speakers have said, productivity is still a problem, although in the car industry and the retail sectors it has improved markedly. Overall, the job news is good. Low unemployment means lower rates of increase in welfare benefits. Table 4.27 of the OBR report shows downward revisions of, on average, £3.2 billion a year between 2015-16 and 2019-20.
On the budget deficit, it is a tremendous achievement to get annual borrowing down from £150 billion to £90 billion—£1 billion lower than forecast in the Autumn Statement—and the latest figures last Friday showed a £3 billion improvement over the previous year. This of course means that government gilt and interest charges compared to last December’s forecast for the next five years are now expected to be £35 billion lower due to the decline in inflation.
I turn now to government spending. Lower borrowing will continue only with a credible plan to control public spending and welfare. The Chancellor pointed out that the administrative costs of central government have fallen by 40%. This is highly commendable. However, welfare spending is still forecast to increase by nearly 10% over the next five years.
Other areas of annually managed expenditure which show eye-catching increases are central government debt interest, still increasing at more than 25%—a legacy of the previous Government’s mismanagement of the public finances—while local finance current expenditure is predicted to be up by more than 25%. As far as I am aware, no one else seems to have mentioned net public sector pensions, which are even worse at 10%. But they come up with an 18% increase because for some reason the employer’s contribution is netted off, although it seems to me that it is paid by you and me as taxpayers.
With regard to the overall spending picture, the Government should be congratulated on keeping departmental spending under control, but other expenditure does not appear to be in control. That is why total expenditure is planned to increase by 8% over the next five years.
I now move on to living standards, although most of this has been said by others. GDP per capita is up by 5%, and according to the living standards measure used by the ONS and the OECD, households are on average £900 better off than they were in 2010. Increasing the personal tax-free allowance has been a huge benefit to working people, and that is forecast to keep improving over the period. I also welcome the commitment to raise the higher rate threshold to £50,000, but I still believe that the top rate of tax should be brought down from 45% to 40%, which after all is only what it was under the last Labour Government. Lower taxes, within reason, bring in higher revenues.
I also welcome the Chancellor’s move to help savers with the four major steps which have been announced, but I support the view of the noble Lord, Lord McKenzie of Luton, that very careful surveillance is required and safeguards must be in place for those who choose to take out their lump sums and annuities. Secondly, allowing flexibility on ISA withdrawals within the tax year without losing the tax-free entitlement is a good idea. Thirdly, the Help to Buy ISA is ingenious and will help first-time buyers with their deposits, especially where houses are cheaper.
On corporation tax, which has been one of the highlights of the tax policies of the coalition over the past five years, the latest cut to 20% is especially welcome for smaller businesses, as are the national insurance exemptions for the under-21s and apprentices, along with the abolition of class 2 contributions for the self-employed. The business rates review is welcome, as is the replacement for the annual investment allowance. Can the Minister give us any more detail on what is expected on either the business rates review or the annual investment allowance?
In other business areas, the oil industry has been thrown a lifeline, and I welcome its £1.3 billion cut in taxes over the next five years. According to the Financial Times, the move has been welcomed by UK operators.
The diverted profits tax on multinationals is welcome, but several commentators are saying that it is being pushed through too quickly. The danger is that, however well intentioned it may be, the OECD review is coming out only later in the year. Might it not be better to wait for the results of that review rather than rushing this through and HMRC being subject to a flood of lawsuits? Companies might be able to challenge the legislation under European law or the UK’s treaty provisions, according to the law firm Pinsent Masons. Some £5 billion of tax is anticipated as long as the welter of new rules does not create more loopholes than it closes. The Government should be wished well in this area, but not too great haste is recommended.
Overall, I think that the Chancellor has done a good job, which I hope is appreciated by the electorate. Finally, I think that it would be very dangerous to hand the car keys back to the guys who crashed the car.