Budget Statement — Motion to Take Note

– in the House of Lords at 6:33 pm on 21st July 2015.

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Moved by Lord O'Neill of Gatley

That this House takes note of the economy of the United Kingdom in the light of the Budget Statement.

Photo of Baroness Chisholm of Owlpen Baroness Chisholm of Owlpen Lord in Waiting (HM Household) (Whip) 6:34 pm, 21st July 2015

My Lords, there are 24 speakers for the debate on the Budget Statement. If Back-Bench contributions are kept to around seven minutes, the House should be able to rise at approximately 10 pm.

Photo of Lord O'Neill of Gatley Lord O'Neill of Gatley The Commercial Secretary to the Treasury

My Lords, the British economy is now fundamentally stronger than it was some years ago. We have recovered significantly from the financial crash of 2008. We have seen real GDP growth higher than that of any major advanced economy in 2014, and that is the current consensus expectation for this year as well. We have started to see rising wages and, until very recently, particularly strong increases in the rate of employment. We have also seen business investment 31.9% higher than it was in 2010. Although this all puts us in a relatively strong position, if we want to make this recovery truly secure, and truly national, there is still a lot that we need to do. We need to increase our growth; step up our productivity a gear or two; and continue reducing the budget deficit—because in normal economic times, that is the right thing to do. Of course, we also need to see our external current account deficit improve.

This Budget will continue Britain’s journey towards economic security and prosperity. The first way we achieve this relates to a continued course of deficit reduction in line with the pace set in the previous Parliament. As I have just said, in normal economic times, it is right that Governments run an overall budget surplus. That gives a Government much more room for manoeuvre in the event of an economic downturn. This is sensible fiscal policy. The fiscal path laid out in this Budget is set to take us eventually into surplus. Importantly, it takes a smoother path than had previously been set out because we can get to the same destination while keeping a steadier pace.

The budget deficit is now less than half of the 10.2% it was in 2010 and this year it is forecast to fall to 3.7% of GDP. Our fiscal plans forecast this deficit to fall further to 2.2% in 2016-17; down to 1.2% the following year; down to 0.3% the year after that; and then to a budget surplus of 0.4% in 2019-20. At the same time, our national debt share is forecast to continue falling in every single year, down from around 80.3% of GDP this year to 68.5% by 2020-21.

The spending decisions we need to make to get there are indeed tough but they are necessary. Without sound, sustainable public finances, there can be no real economic security for working people. The fiscal charter published earlier this month commits the UK to sticking to this path: achieving a budget surplus by 2019-20 and then maintaining a surplus thereafter. The only exception to the rule would be if there is a recession or a marked slowdown; that is, if the Office for Budget Responsibility judges that we have real GDP growth of less than 1% a year, as measured on a rolling four-quarter basis. There is still a view in some quarters that we are in an age of austerity but from an overall fiscal policy perspective, with strong employment and recent above-trend growth, this is surely no longer the case. The charter will bind the country to living within our means.

Under this Budget’s fiscal plan, we require some £37 billion of further consolidation over this Parliament. Some £17 billion of this comes from measures set out by the Chancellor in the other place; namely, £12 billion from welfare and £5 billion from tackling tax evasion, avoidance, non-compliance and planning, and imbalances in the tax system. The other half will be set out following this autumn’s spending review. As a point of principle, no year will see overall cuts as deep as those required in 2011-12 and 2012-13. As a second point of principle, we will make our spending decisions in a fair and balanced way.

The second way in which we can secure this country’s recovery is through improving our growth and productivity. In my maiden speech in this House I said that our productivity challenge is well known, that we can try to do a lot better and that we should see the so-called productivity gap as an exciting opportunity, as well as a challenge. The productivity plan that we recently published—all 82 pages of it—shows we are rising to that challenge. It is based on a two-pronged approach: first, encouraging long-term investment in economic capital, including infrastructure, skills and knowledge; and secondly, promoting a dynamic economy, one that encourages innovation and helps resources to flow to their most productive use. The policies introduced in this Budget will help to make that plan a reality, so I would like to outline the highlights again.

First, overhauling the vehicle excise duty system and hypothecating the money that this duty raises into a new roads fund will pay for the sustained investment in roads that this country needs over the long term. We remain committed to the £15 billion that we have already allocated for new roads for the rest of this decade.

Secondly, we will give people the skills that they need to secure a better job. Apprenticeships have been a significant success story but the rate and quality of training has been uneven, to say the least. To tackle that, the Budget will introduce an apprenticeships levy on large firms. Firms that offer apprenticeships can get back more than they put in and that money will be directly controlled by employers. This stands not only to deliver 3 million more apprenticeships but, crucially, to enable an increase in the quality of apprenticeships, paving the way for a new generation of higher-skilled workers. Our productivity plan also contains measures to improve schools education by creating more free schools, ensuring that there is a university technical college within reach of every city and training up an additional 17,500 teachers in science, technology, engineering and mathematics. The Budget will also increase the cash available to enable English students from low and middle-income back- grounds to study at university, while putting funding on a long-term sustainable position—including asking those who benefit from a university education to contribute more of the costs of their degrees once they are earning.

Thirdly, we will be building up strong, interconnected cities beyond our capital. Research that I carried out before I entered Government shows that this is central to driving growth and productivity, and revitalising many areas of Britain. Indeed, what I inelegantly called “ManSheffLeedsPool” was the spiritual precursor to the northern powerhouse. We will roll out further powers to Greater Manchester and work to have devolution deals with the Sheffield city region, the Liverpool city region, Leeds, West Yorkshire and its partner authorities and, as of very recent events, the north-east, as well as delivering a new round of enterprise zones for smaller towns and extending the coastal communities fund. To bring the towns and cities of the northern powerhouse closer together, the Budget will create a new statutory body, Transport for the North, whose remit will include an Oyster-style ticketing system across the north. While we are of course heavily focused on the northern powerhouse, we are also very focused on other engines of growth such as the West Midlands. Why not perhaps have powerhouses, too, in the east Midlands, as well as on the south and south-west coasts?

The third way in which we will give this country economic security is by helping our businesses to prosper and securing long-term investment in it. This Budget cuts the rate of corporation tax to 19% and then to 18%—the lowest in the G20, saving businesses around £6.6 billion by 2021. The employment allowance will be increased from £2,000 to £3,000, taking up to 90,000 firms out of employer NICs completely, while the annual investment allowance will be set at £200,000, eight times higher than the previous permanent rate, helping to increase investment by around 0.6% by 2020-21.

Furthermore, while we still believe that banks should make an additional contribution to the public finances, we have set out the path to a more competitive and sustainable basis of taxation: a 26% rate of corporation tax and a 0.1% levy on banks’ UK balance-sheet liabilities. The productivity plan sets out further measures to meet our ambitious export target of £1 trillion by 2020 and build stronger links with the world’s emerging markets. As a priority, the Government will remodel how they try to deliver on trade, exports, investment and prosperity, so as to have a step-change in the quantity of our exports and investments. We will focus on diversifying into more markets, increasing the integration of international service sector markets, supporting trade sector agreements beyond the EU and reviewing how SMEs finance their exports.

The fourth way in which we are securing this country’s economic recovery is by putting the welfare system on to a more sustainable footing and giving the country a pay rise. For a long time, we have been a low-wage, high-tax, high-welfare society—one which took money away from the poorest in taxes then gave it back to them in the form of tax credits and welfare. Far too many people have been trapped in a lifestyle of benefits dependency. Where we ought to be is the opposite: a high-wage, low-tax, low-welfare society—one in which it pays to work and where our benefits system targets its support towards the most vulnerable. Through the changes we are announcing in this Budget, that is where we are moving.

The Budget sets out £12 billion of welfare savings, which is what we need if we are to live within our means as a country. The cost of tax credits more than trebled in real terms over the 2000s—the so-called noughties. It is now £30 billion, so the Budget will reduce the level of earnings at which a household’s tax credits and universal credits start to be withdrawn and from April 2017, in all but the most exceptional cases, families who have a third or subsequent child will not be eligible for additional tax credit or universal credit support. All in all, these changes to tax credits will return real-terms tax credit spending to the level that it was in 2007-08. The number of families with children eligible for tax credits will fall to five out of 10 in the next financial year, down from six out of 10 currently and from nine out of 10 back in 2010. The Budget will also freeze working-age benefits, excluding statutory payments such as maternity pay and disability benefits, and reduce rents paid in the social housing sector by 1% a year for the next four years.

At the same time, we will honour our commitments to support the elderly, the vulnerable and disabled people. The Budget will roll out free childcare of up to 30 hours a week to all—all—working parents of three and four year-olds and put more money into the pockets of our working families. Next year, we will raise the tax-free personal allowance higher than previously forecast to £11,000 a year, which will mean less tax for 29 million people, and—in one of the flagship policies of this Budget—from next April we will introduce a national living wage, which will start at the rate of £7.20 an hour and rise to £9 an hour by 2020. As a result of these changes, a typical renting household with two full-time earners on minimum wage and two children will see its income rise by 12% in real terms over this Parliament, and by 2017-18 eight out of 10 working households will be better off by an estimated average of £130 a year.

The figures I have set out today make a real difference to people’s lives. They represent the security of finding employment, of having a decent living wage and of living in a strong and stable economy. The Budget includes measures to increase spending on our National Health Service and to meet our NATO defence spending commitment of 2%. It introduces important changes to inheritance tax, to the non-dom taxation system and to dividend taxes. It rebalances our welfare system, putting it on a more sustainable footing. It helps make our country and our businesses more productive. It paves the way for further significant employment increases. It cuts taxes for 29 million people and gives up to 6 million people a pay rise. The Budget sets the United Kingdom up for a stronger, more prosperous future. I am delighted to be introducing it to your Lordships.

Photo of Lord McFall of Alcluith Lord McFall of Alcluith Labour 6:50 pm, 21st July 2015

My Lords, it is a pleasure to participate in this debate. I did not think I would see the day when Tory Back-Benchers cheered a Budget which introduced higher taxes, a Chancellor ordered wages in the country to go up by unilateral government fiat and a party ordered other people who owned homes—namely housing associations—to sell those homes. Perhaps next year the Chancellor will talk about getting the trains running on time.

The Chancellor said that this is a smaller-welfare, lower-tax economy—but it is absolutely not. This was a tax-raising Budget, not one of a tax-reforming Chancellor. There are £14 billion of tax increases, partly offset by £8 billion of tax cuts. We have perverse tax changes. The Minister mentioned the bank levy, which was introduced on 1 January 2011 and was intended to encourage banks to move to less risky funding profiles. The Parliamentary Commission on Banking Standards, on which I served, identified a bias in the tax system that encouraged banks to increase leverage and use debt rather than equity. We concluded that the tax system was “misaligned with regulatory objectives”. The commission recommended that the Government consult on introducing an allowance for corporate equity. Instead, in the summer Budget, the Government announced a reduction in the bank levy, offset by a supplementary corporation tax charge of 8% of bank profits. This change penalises the smaller, safer challenger banks which we all wish to see improve competition in the market. The winners are the larger, too-big-to-fail international banks. Instead of the Government following the recommendations of the parliamentary commission, the tax system is becoming less aligned to the objective of a safer and lower-leveraged banking system.

The first headline conclusion from the Budget is that its changes are regressive: the IFS has made it very clear that the Government take from the poorer rather than the richer households. Secondly, the Budget penalises hard-working people. George Osborne has talked about strivers and shirkers, but it is the strivers being penalised in this Budget. Thirdly, the Budget will do nothing for skills, work incentives or the productivity agenda. This Government have had the worst possible record on productivity for the past six years. The Governor of the Bank of England at the time, Mervyn King—now the noble Lord, Lord King of Lothbury—came before the Treasury Committee and said that productivity was the urgent issue for government, but nothing has been done to date. Lastly, there has been no attempt, as I mentioned, to simplify or reform a creaking tax system. The key fact is that the increase in the minimum wage cannot fully compensate for the major losses experienced by tax credit recipients.

We have seen one language for the campaign trail but another for legislating for regressive change. Already, one manifesto commitment—the £72,000 limit on an individual’s liability for care—has been abandoned. When it comes to strivers, 3 million receive working tax credits, which are there to supplement income, but they will all lose a minimum of £1,000 a year. Two out of three children growing up in poverty are from working households. What will this do for aspiration and social mobility? The Government have also abandoned the child poverty targets which they signed up to in the Child Poverty Act 2010. The Welfare Reform and Work Bill currently going through Parliament removes the four child poverty targets set out in the 2010 Act and the Government’s duty to meet those targets. The remit and the name of the Social Mobility and Child Poverty Commission have now been changed so that it will become the Social Mobility Commission. The term “child poverty” has been expunged from the language of government.

However, sadly, a dominant feature of the Government’s language is the pejorative use of the term “welfare”. Let us remind ourselves what welfare is. The welfare budget is £220 billion, £90 billion of which—41%—is the state pension. That will be untouched. We have housing benefit of £24 billion, or 11%, and we have tax credits of £30 billion. So when we talk about tax credits, let us get them into perspective in terms of the welfare budget and welfare provision. The Government have decided to protect the majority of the welfare budget, but that will produce intergenerational barriers. For example, under-25s are excluded from the minimum wage, penalised on housing benefit and discriminated against in terms of student grants. That is the experience being felt on the ground today.

A Caritas Social Action Network report dropped into my postbox this morning. Its overview says that it,

“has found that the welfare changes of the past five years and the delivery of those changes in the UK are pushing claimants and support staff to the edge of their capacity”.

It adds:

“Staff of CSAN charities are under increased pressure to provide support in the face of a rigid welfare system, which they see as a return to ‘Victorian’ poverty, and which prevents them from addressing the underlying, long-term issues in their clients’ lives”.

For short-term gain, the long-term issues have been ignored. That is Caritas saying that, not anyone else.

The FT has also stepped into the argument. I am not talking about the Morning Star here, but the FT, which I have been looking at over the past few days. It has said that because of the abolition of local government watchdogs, the changing and diminishing role of local government in England has been starkly exposed. There have been £18 billion of cuts in real terms since 2010, with another £10 billion due by 2020—twice the rate of cuts to UK public spending as a whole. What does that mean? The FT is very clear what it means. That £18 billion budget cut affects the elderly: 65 out of every 1,000 people aged over 65 were receiving care in their own home in 2009-10; the equivalent figure for 2013-14 was 46. There were 694,000 children on the Children in Need register in 2009-10; the equivalent figure now is 781,200—a 12.5% increase.

This is against the background of a severely weakened international system—one that, not least, has not been assisted by the debacle in Greece. We have seen one-third wiped off the value of the Chinese economy in the past month, equivalent to €1.5 trillion being destroyed, enough to write off Greece’s debt five times over. We have seen a political Chancellor directly intervening in the market, but without explanation, consultation or a measured approach. Maybe the Chancellor is master of the Treasury and the Government, but as time passes, perhaps he will be a servant of the economy.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury) 6:59 pm, 21st July 2015

My Lords, my sadness in responding to this Budget is that it begins to unravel the key achievement of the coalition years, which was to restore the economy and fiscal responsibility in a way that is fair and lets the greatest burden fall on the broadest shoulders. The Minister said that no one could any longer call this an age of austerity. But the centrepiece of the Budget is £12 billion in welfare cuts, when no more than £3 billion to £4 billion was necessary to achieve the long-term goals. It hits hardest the working poor, public sector workers such as nurses and teachers, the young and the mentally ill. It strongly favours big corporations over small businesses and it heavily advantages homeowners at the expense of renters. Frankly, if you are earning £100,000 and own a £1 million home, you love this Budget. If you earn a modest wage and have children, you need to start tightening your belt hard.

Perhaps the most cynical step in the Budget has been to hide the impact. The Treasury has for years issued a detailed distributional analysis to show honestly and transparently where the blows and the benefits fall. This year, that has been curtailed. Key years and key income groups have been excluded. The Government have that data. Will the Minister publish them or will he continue the sleight of hand?

I am particularly concerned about the impact of this Budget on the young. They lose in every way. Children with working parents on modest wages will really feel the crunch as any tax and wage benefits are more than off-set by cuts in tax credits and the changes to universal credit, especially the change in income thresholds and work allowances. Children in future large families—and such families are always few—will seriously suffer from the benefits cap. We say that we are concerned about children’s nutrition and well-being, so how does this make sense?

Young people who have grown up in areas of unemployment and who get on their bike to find an apprenticeship or job in another part of the country can no longer get housing benefit. Whose floor should they sleep on? When in work, the under-25s are excluded from the new minimum wage. We have all lauded the number of youngsters from poor homes now going to university. However, the key to this—the maintenance grant scheme—has been abolished. What is BIS’s estimate of the impact on student numbers from poor homes?

The Government talk about parity for mental health, but they have eliminated the employment and support allowance, a scheme largely populated by people with depression, bipolar disorder or schizophrenia—people with episodic illnesses who will now be given no additional support. How do the Government even attempt to justify this?

What of public sector workers, the nurses, teachers and police who carried on despite severe pay constraint through the recession? How can they possibly cope with severe pay restraint for another Parliament? When I hear the Minister say that this is not an age of austerity, is he saying it to them?

With this Budget, the Government have confirmed their bias towards big corporations rather than small businesses. We are pleased to see the increase in the minimum wage, although it is another sleight of hand to call it a living wage. However, the tax breaks to off-set this through reduced corporation tax benefit big companies, which frankly can already manage the change, and not the small and medium-sized businesses that tend to pay little corporation tax anyway. SMEs are the backbone of our future; surely the benefits could have been targeted at them, whether through NI or another mechanism—not at the big companies but at the small businesses.

The Minister has talked a great deal about productivity, which is a vital subject and on which I hope we will have a proper future debate. His paper Fixing the Foundations is in large part a reaffirmation of existing programmes and policies that we support, although in notable cases, such as the level of capital investment and devolution, it is far less daring than the measures we pushed for. However, let me just put down a marker on two issues on which we will fight what are outrageously retrograde steps.

The first is the right to buy from housing associations, aggravated by rent reductions. It is just wicked, at a time when we have a severe shortage of homes with affordable rents. It disrespects generations of work by dedicated charities, but it also destroys our cities. I have talked to estate agents, who of course will not go on the record, but who are rubbing their hands and telling me with great confidence that iconic properties—currently owned by charities such as Peabody in city centres, especially in London—will be available in five years to market to foreign buyers. Our great urban centres are already losing their mixed communities. How is productivity enhanced by diminishing them even more?

The second is the decision not to proceed with the zero-carbon homes scheme. We struggle to retrofit our historic stock of homes, which consume too much energy and leave thousands of people in fuel poverty, and now the Government ensure that even more homes are built below modern standards. Zero-carbon homes may cost marginally more to build—though that is arguable, because under the pressure of this coming regulation, construction companies have found new ways to be able to achieve that target—but homes built below those standards are certainly far more expensive to run for the homeowner or tenant than a zero-carbon home would be. I recognise that the Government pride themselves on using phrases such as “green crap”, but now they show themselves to be completely uninterested even in energy conservation.

If we talk of productivity and economic growth, why does this Budget choose to gut key support for renewable energy, an area in which British companies were just beginning to reach world competitive standards? Green industries are the future and our foreign competitors are glowing with this Government’s ideological destruction of rising key UK firms—how backward-looking and, now I must understand, how typically Conservative.

There are, obviously, measures that we support in this Budget: the increase in the tax-free personal allowance, a keystone Liberal Democrat policy, initially resisted by the Tories; devolution; increased childcare; apprenticeships; and other key Lib Dem policies. We support the move towards a better minimum wage. We support the tightening of tax rules for non-doms, though it is sadly slight and we would like more. There has been some action on pension relief and tax evasion, encouragement for R&D and investment in infrastructure. However, the truth is that the Financial Times got it right: on the basis of this budget the Tory party can,

“be seen as a lobby group for the already prosperous and propertied”.

What an opportunity lost.

Photo of The Bishop of Birmingham The Bishop of Birmingham Convenor of the Lords Spiritual 7:07 pm, 21st July 2015

My Lords, I am grateful for the Minister’s reprise of the recent Budget Statement and for the opportunity to join this debate. I welcome the expectation of a strengthened economy. I also welcome the aspiration for the common sense of living within our means and the wisdom of reducing both the deficit and national debt as a proportion of GDP.

The Minister is more aware than most of the difficulties and costs of such ambitions, as the Government seek to address the weaknesses of our economy, identified in the Budget as low investment, low skills, low wages and low productivity. Will he agree that in a Budget for a one-nation economy, the effects of resolving these difficulties and the costs they incur should be spread justly and proportionately across society, and that a transition to an economy where, as the Chancellor said, “all can prosper” will require all the rigour and vigour of an inclusive capitalism?

The aim of adjusting benefits, as the Minister has already mentioned today, to a proper level of support—indeed, the sort of support envisaged by the founders of the welfare state—and away from the drudgery of false dependency will be achieved only if there are affordable jobs providing the foundation for households that are not only self-sustaining but wealth-building. Meanwhile, as these jobs are emerging in a strengthening economy, and with our increasing ability to compete in a global market, will the Minister give details of whether the working-age benefits freeze and the changes in tax credits that have been outlined—highlighted in the calculations of the Institute for Fiscal Studies—will result in more young people being better off or worse off, even with the new living wage?

I am grateful that the Minister again waved the Fixing the Foundations document, which he encouraged us to read at Questions a few days ago. I have been pleased to do so, and found it inspiring and encouraging, as someone who formerly ran businesses and was part of the economy. There are more details in that than can be dealt with today—and I was grateful that the noble Baroness, Lady Kramer, mentioned that we might debate these in more detail at future opportunities.

Today I want to emphasise two interlinked elements of productivity: skills and the regions. The Minister knows that improved productivity, resulting in well-resourced jobs, requires a complex range of measures, including investment capital and research and development, to put into practice enterprising and risky ideas in the local economies, and ideas producing popular goods and services that people want to buy, meaning that the company and workers are rewarded for its enterprise with affordable wages. Then there are the wider issues of good infrastructure that he mentioned, such as transport, housing, healthcare and policing—but also, of course, a practical planning framework. In all this, I ask that the immediate focus in this wide menu of policies should be on the development of skills that connect directly with the opportunities of business, manufacturing, science, technology and administration.

The emphasis on universities is most welcome at that high level, and we know that we should develop more highly skilled adventurers in developing our economy, not just have to import them from overseas. But will the Minister affirm that with apprenticeships—the target of 3 million has been mentioned—there is an intentional link with education, which has been mentioned in passing, and the aspiration of independent living with this desire for enterprise and profitability? There is a joining up that needs to be done if we are to make a real difference in the lives of this generation in the life of this Parliament.

Furthermore, will the Minister encourage the streamlining not just of universities but of further education in the regions, and the provision of particular support for talented teenagers from poorly resourced backgrounds for these apprenticeships? I am thinking not only of incentives for businesses, which have been outlined in the arrangements, but for those individual, aspiring young people for whom access to travel-to-work costs and the dream of independent housing is still far out of reach. These and other measures are in my view—and, I believe, in the Government’s—best achieved with a very strong commitment to regional responsibility and autonomy. Your Lordships touched on this in the end of the previous debate.

Investment in infrastructure and public services has already been mentioned as a regional good, not least in the same breath as the northern powerhouse. But will the Government now give similar public attention to fuelling the Midlands engine? In the Midlands there is 24% of manufacturing; it is the strongest exporter, with an increase of more than 70% in the past six years, and the only region with a trade surplus with China. I urge the Government not to wait for a perfect political Midlands settlement or restructuring but to support current initiatives towards increased productivity —for example, with Midlands Connect, which is making a marvellous vision for transport infrastructure. Then there is Drive West Midlands, which is about the automotive supply chain—and, of course, returning to the skills agenda, there is the ambition for Birmingham to be a CSR city, joining professions, commerce and businesses to the most deprived schools in the most deprived wards in Birmingham.

The invaluable one-to-one mentoring that is behind the high-level macro and microeconomic policies that we are debating today, and the generous person-to-person relationships and resourcing needed to bring these new participants, who otherwise will not join in the benefits of all that we are planning today, is one of the most remarkable opportunities for what might be called a remodelled regional civic virtue, as those who have are able to bring into this wonderful country of ours the opportunities for those who have not. The test of the success of this and future Budgets for a country living within its means will be the growing number of households that are equipped and completely free to earn the means to live. I trust that the Government and the Minister, with all his expertise, will be able to provide us with measurable evidence of those new households in the months and years to come.

Photo of Lord Higgins Lord Higgins Conservative 7:14 pm, 21st July 2015

My Lords, in general over the past 50 years, it has been true that incoming Labour Governments have had a good economic inheritance and Conservative Governments have had a bad economic inheritance. Certainly, the incoming coalition Government had a quite appalling economic inheritance—so it is something of a relief to find ourselves now in a situation where we have an incoming Conservative Government and a reasonable inheritance. Of course, it is true that there is an enormous amount still to be done. None the less, employment is at record levels, and we are in a situation where there are higher wage settlements, but they are not yet inflationary. As my noble friend pointed out, business investment is rising, and so on. So we still have a very big job to do.

As has been pointed out repeatedly, this is the first Budget from a Conservative Government for a long while. In some respects, it is not entirely a Conservative Government, which was reflected in the remarks of the noble Lord, Lord McFall, who succeeded me as chairman of the Treasury Committee in another place. If there is one piece of Conservative economic dogma that has been as clear as anything it is that there is a danger that setting a minimum wage is likely to reduce employment. Therefore, it is a bit of a surprise suddenly to find that we are not in favour of a minimum wage but we are now in favour of a living wage, and so on—and that is the centrepiece of the Chancellor’s proposals. None the less, we must recognise that, given the problem on the other side of the equation with welfare cuts, this was probably necessary for balance. We must hope that it works out; there are clearly some timing problems, but it is an interesting development.

The thing that is clearly Conservative is to say that we must live within our means and we must go on reducing the deficit. It is of course the case that the date by which we are supposed to be back in the black has moved back a year from 2018-19 to 2019-20. But there is still a massive amount to do. If one looks at the publication by the Treasury today on public expenditure and so on, we are going to borrow this year an extra £50 billion. We talk too readily about billions or even trillions. If we are talking of billions, it is in this case 75 followed by nine zeros. It is a very big increase in borrowing. None the less, it is hoped that we will reduce the borrowing over this Parliament, which is tremendously important for two reasons. First, we really cannot go on lumbering future generations with the kind of level of debt reflected by the trillions of pounds that we now have. Secondly, ever since we ran into the deficit problem as a result of overspending by the previous Government, we have been in the situation whereby the normal basis of economic management—if you are in a boom you increase the surplus and if you are in a recession you run a deficit—has simply not been possible. We have been concentrating on reducing the deficit, so the normal balance has not been a feasible means of managing fiscal policy. Consequently, a huge weight has been put on monetary policy. On the whole, while initially the MPC tended to concentrate on interest rates rather than on the quantity of money, the subsequent increase in quantitative easing and so on has saved us from the disaster that would otherwise have resulted, given that we could not use fiscal policy to balance the economy.

I say in passing that I hope the Governor of the Bank of England will be a bit more restrained in his forward guidance. The first two or three examples had to be changed in a very short period. Surely we would do better to leave it to the analysis across the board by all the experts in the matter so that we can take a balanced view.

Interest rates are going to go up and in my view, though the Bank of England apparently disputes this, there is a very real danger that people have taken on mortgages that they are not going to be able to finance once interest rates go up significantly. As a Member of Parliament I lived through a period when people would come in on a Friday night saying they were in negative equity. I dare say that the right reverend Prelates may also have experienced this, and it is not something that we want to see again. None the less, the approach that we are adopting at the moment is the right one.

I had the privilege of serving on an ad hoc Select Committee on Personal Service Companies. There was some dispute because the Treasury refused to send as a witness either the Treasury Minister or any officials. None the less we produced a report, and it is somewhat gratifying to find that in this Budget the proposals we made, without Treasury advice, seem almost entirely to have been accepted.

The other aspect that is somewhat worrying is the way in which so many areas are being ring-fenced with regard to future economic management. Saying that we are not going to change income tax, value added tax or national insurance and so on is probably going to be a serious problem by the end of the Parliament, and I think that in the event it will be recognised that it is not a realistic way of proceeding. It may be a reasonable way of going into an election, but when we come to the end of the Parliament it may well have to be changed.

Generally speaking, though, the outlook is good. My noble friend has rightly stressed that we have more to do, but we have more opportunities ahead of us than we have had for some time.

Photo of Lord Bhattacharyya Lord Bhattacharyya Labour 7:22 pm, 21st July 2015

My Lords, I declare my interest as chairman of the Warwick Manufacturing Group, an academic department of the University of Warwick. It is a pleasure to debate our economic situation in such distinguished company.

The summer Budget may have been a mere sequel to the spring Budget, but it had a very different plot. I welcome the Chancellor’s decisions that the pace of deficit reduction should slow, wages must rise, non-doms need to pay more tax and departmental spending cuts should be smaller. I only wish that he had recognised these needs before the election.

However, there are several poor choices in the Budget. Take the excise duty surcharge on vehicles. The vehicle sector is one of the largest exporting sectors in this country but the Chancellor has put a duty surcharge on it. The premium automotive sector is one of our few manufacturing success stories. I do not see why the Government want to levy a punitive charge that will discourage innovation in low-emission cars and exports.

That said, it is always better to seek consensus than conflict, so I wish to focus on a problem that all parties agreed the Budget must address: our low productivity growth. The Chancellor calls it the challenge of our lifetime, and it is not hard to see why. On page 180 of the Office for Budget Responsibility forecast we see what will happen if productivity stalls: economic growth falls by one-third, we miss all our current and proposed fiscal targets and the welfare cap is breached. Economic success therefore requires an improvement in productivity.

Productivity has many components. It cannot be transformed with a glib announcement; it requires sustained focus over many years on a broad range of measures. Business investment in this country has been historically low, whether in capital or in innovation, and I welcome all measures that will help change Britain’s historic short-term mindset, which has removed most of our manufacturing industry and brought it down to 10% of GDP. Without strong support for industry, especially for inward investors, they will eventually look elsewhere. We were responsible for the biggest inward investment in this country, and those investors are also surprised by what is happening here. I deal with many such investors, and they all say that there is a lack of support for long-termism, expansion and innovation in Britain.

I am pleased that the science capital budget is protected, and I welcome the removal of the cap on student places. Equally, the reduction in corporation tax and the permanent investment allowance are positive steps. Another key to encouraging investment is a highly-skilled, productive workforce. The British skills deficit is nothing new. The solution has eluded Governments since the abolition of the industrial training boards over 30 years ago.

We have had many quangos, from TECs to the Learning and Skills Council, but the skills gap has remained the same. This is because until skills training is driven and funded by industry, it will be poorly targeted. That is why I strongly support the Budget announcement of a statutory apprenticeship levy. When I was a graduate apprentice there was a levy on my company, and that was the reason why some of the training that occurred there was wonderful. I first called for a graduate levy in this House eight years ago. If set at half of 1% of payroll, the levy would provide £2 billion for skills training each year. As a good Labour man, I note this is more than business will get from the proposed corporation tax cut.

The Government should not fudge this. If businesses benefit from reduced corporation tax, they should contribute to improving productivity. Industry should help to design the levy but it must not be delayed or watered down. A target of 3 million apprenticeships has been set. Without the levy, only cheap, low-skill apprenticeships would be offered, as is happening now. This means that the funding from the apprenticeship levy is essential to transforming technical education in Britain. The Government should set out the detail of their plans and how they will be delivered. This is a question not only of apprenticeships but of using them to reshape technical education. Many businesses sponsor the university technical colleges of the noble Lord, Lord Baker. A similar partnership is essential throughout post-16 education.

I mentioned the automotive sector earlier, so let me give a practical example. The British car industry is competing against one of the best-trained and most innovative workforces in the world in Germany. So alongside a multibillion-pound R&D budget, invested largely in British engineering, Jaguar Land Rover is forming for the first time its own learning academy, offering integrated training from apprentice to postgraduate level. JLR has 3,000 craft apprentices and 1,100 higher apprentices. This year alone it is taking 450 graduates and over 300 apprentices. These need training and skills in many different disciplines and specialities. Companies like Dyson, Rolls-Royce, JCB and BAE Systems also use a range of the best

FE colleges and universities to provide technical education for all employees. The apprenticeship levy will create demand for quality technical education from firms that cannot invest on the scale of these manufacturers, especially those down the supply chain.

That will require a transformation in skills supply. So, ahead of the levy, we should be challenging universities, colleges and business to design technical education programmes together. We have many outstanding science and engineering departments in Britain. These should be beacons of quality technical education. As we at Warwick do for JLR, universities should accredit quality and ensure multidisciplinary capability. FE colleges can ensure that technical education is accessible to all, and industry must demand that these programmes are built on real business need—and pay.

The Government should not waste money creating new institutes of technology or national colleges for apprenticeships. Instead, under the levy, industry should choose which programmes to support, from GCSE to PhD. The best would then expand organically. This bottom-up system would ensure that every worker could expect their employer to give them worthwhile skills and qualifications, and that would be a major boost for future productivity.

The Budget had many flaws but I am glad of the focus on productivity. For that, the Chancellor and the Business Secretary deserve praise. Now, the question is whether their plans will match their rhetoric. They have set themselves the right test and it is one we must hope they pass.

Photo of Lord Taverne Lord Taverne Liberal Democrat 7:30 pm, 21st July 2015

My Lords, there were good bits in the Budget, such as measures against tax avoidance and the policy of increasing real wages. The latter is particularly welcome because it will increase demand after years of severe austerity, which caused real wages to decline, reduced demand, prolonged the recession, substantially shrank our GDP and lowered productivity. It was in fact only after some relaxation of austerity, through some loosening of tight fiscal policy in 2012, that the economy began to grow again. However, this growth happened mainly because after a slump all economies rebound in time, but how far and how fast the economy rebounds depends on government policy.

In the election campaign, the Conservatives scored a major triumph, and I do not just mean their election victory. Through brilliant propaganda, they persuaded the public that they were the party of economic competence, that Labour had caused the crisis by borrowing and that the key to recovery from deep recession is a return to balancing the books. Time after time Mr Cameron taunted Mr Miliband, “You caused the crisis by borrowing. How can you propose policies that mean more borrowing, or oppose our policies, which will reduce borrowing?”.

This successful campaign—putting all the blame on borrowing—was based on a number of fallacies. Reckless borrowing was not the cause of the crash in 2008; it was the failure of the financial institutions and reckless deregulation, based on the blind belief in the efficiency of markets and the doctrine of rational expectations. The crash was caused by the bubble in the mortgage market, securitisation, gambling with derivatives and the banks ignoring risks in the drive for ever bigger and faster profits.

Furthermore, the doctrine that we must eliminate deficits and balance the books, with the substantial deep cuts in public spending that that entails, is not the basic cure for economic decline. That is going back to the 1930s and the pre-Keynesian conventional wisdom preached by Montagu Norman, the all-powerful Governor of the Bank of England at the time.

Unfortunately, the obsession with balanced budgets has spread far and wide in the European Union. I have always admired Germany, which has been one of the best-governed and best-managed countries and the least nationalistic in the European Union. It has been much more compassionate towards the Syrian refugees than we have. However, at this time its belief that borrowing is a sin and its insistence on deficit reduction by ferocious austerity threaten the survival of the eurozone and possibly even the future of the European Union itself. The reforms that countries such as Greece need cannot possibly be achieved by ruinous austerity. Indeed, we seem to have forgotten the lessons from history. The extreme, ruinous regime of austerity imposed on Germany by the Versailles Treaty led to the rise of Hitler. Keynes predicted disaster in his famous book, The Economic Consequences of the Peace.

The post-Second World War picture, by contrast, was very different. Germany’s recovery after 1953 would not have been possible without massive debt relief and other measures to revive the German economy. In Britain, reducing debt by cutting public spending was not a priority for the Attlee Government. That Government launched the welfare state and the National Health Service at a time when the ratio of debt to GDP was over 200%, and they achieved a growth rate of over 3%. Indeed, after 25 years of economic growth between 1945 and 1970, the national debt shrank from 240% of GDP to 64%. History shows that the best way to reduce deficits and achieve structural reform at the same time is through growth, not austerity.

I find it deeply depressing that the Labour leadership has swallowed the mantra about balancing the books. That is why they dare not challenge head-on the Osborne doctrine of shrinking the state by further devastating cuts in public spending and welfare, making some of the poorest poorer still. They give the game away by accepting the need for balanced budgets. I am afraid that the media, including the supposedly left-wing, anti-Conservative BBC, have swallowed the mantra of balancing the books uncritically. Most of the economic pundits on current affairs programmes on television are City economists, who take a City view. No wonder the new conventional wisdom has convinced the public.

It is time that we heard more frequently in the media from those who do not subscribe to deficit fetishism. More, please, from Nobel prize winners such as Amartya Sen, Paul Krugman and Joseph Stiglitz, or, for that matter, from our own colleague, the noble Lord, Lord Skidelsky.

Photo of Lord Tugendhat Lord Tugendhat Chair, EU External Affairs Sub-Committee 7:36 pm, 21st July 2015

My Lords, there is much to admire in the Budget—and I do admire it—but I should like to take the opportunity this evening to make what

I hope the Government will regard as some constructive criticisms. I begin by drawing attention to the Chancellor’s Statement, in which he said:

“Public spending should reflect public priorities”.—[Hansard, Commons, 8/7/15; col. 324.]

Of course it should, but those priorities are bound to change with the passage of time, and the Government need flexibility to respond accordingly. That may seem obvious, but this Government have denied, and are denying, themselves that flexibility by each year increasing the number of so-called protected departments and items. The result is to freeze priorities and to give the impression that some departments are more important than others. Thus, the protected aid budget looks, and is, treated as though it is far more important and central to the Government’s concerns than the Foreign and Commonwealth Office.

Another bad effect is that having a protected budget and guaranteed increases inhibits innovation and creative thinking. It leads to sticking to the old ways of doing things and asking for more money each year. It also means that at a time like the present, cuts have to be concentrated on the diminishing base that is unprotected, with the result that massive cuts occur in those areas in which the knife falls. I think here particularly of housing benefit and tax credits. I do not dissent from the line of the Government’s march or from the policy itself, but the cuts have been very aggressive and will not be compensated for by the living wage, which will benefit a different group of people.

So on the one hand is an ever expanding group of departments and items that are protected and, on the other, those that are being cut and cut again. I see today that some departments are being asked to produce plans involving savings of 20% to 40%. Over time, that is bound to lead to an extremely unbalanced budget and to the freezing of priorities, and getting out of that bind will be quite difficult. We have heard much in recent years of my party—the Conservative Party—breaking free from the shackles of the coalition, so it is ironic that the Chancellor should restrict his freedom of action in a manner that will become increasingly burdensome to him and make his ability to respond to changes in circumstances much more difficult.

I now turn to the living wage. As many have pointed out, this is a proposal that, if put forward by Labour, let alone by Brussels, would be attacked from these Benches as an unjustifiable invasion into the way in which business operates, particularly small businesses. The Chancellor has taken it upon himself to determine by fiat the level of wages over a wide area of the economy. Although his aim—to push wages up rather than hold them down—is different from that in the 1970s, it is a return to the policies of the Wilson and Heath Governments. Neither is usually held up as an exemplar by Ministers in this Government but we are returning to those days, as my noble friend Lord Higgins, who was in the House of Commons with me at that time, may agree. I see him nodding. Those of us who remember those days know what is likely to happen. The living wage is likely to become an instrument of electoral tactics, just as the setting of interest rates used to be before the Monetary Policy Committee was established.

I understand that the Government are aiming to improve this country’s low productivity, as the Minister pointed out in his introductory speech. He wants a high wage, high productivity economy, which is a good thing. However, the danger is that the Government may be taking us down the French route of exchanging low productivity for high productivity, coupled with high unemployment—especially among the most disadvantaged. Normally when the Conservative Government look across the channel, we do so in order to criticise the way the French do things. Here, we seem to be looking across the channel in order to copy what the French are doing, and it may very well have the same consequence.

It is right for the Government to determine the direction of the economy and take the big strategic decisions, but in a number of areas implementation is best depoliticised and left to experts. That is why I support the Monetary Policy Committee and the Low Pay Commission. I very much hope that, having neutered, or rendered null and void, the Low Pay Commission, the Chancellor will not now turn his fire on the Monetary Policy Committee.

As I said at the outset, there is much to admire in this Budget but now is the time—especially in this House—when constructive criticism is required, and I hope that the Minister will take what I have said in that spirit.

Photo of Lord Desai Lord Desai Labour 7:42 pm, 21st July 2015

My Lords, it is a pleasure to take part in this Budget debate. It is the first one in many years in which the noble Lord, Lord Skidelsky, is not speaking before or after me, so I feel a bit lonely.

I confess that, unlike the distinguished people whom the noble Lord, Lord Taverne, mentioned, I have always broadly supported the Chancellor’s economic strategy. In 2008-09, for whatever reason, the global economy had one of the biggest output shocks in 70 years. The effect was that the debt-to-GDP ratio, which was 37% in 2007, practically doubled in three years. From that point onwards there was a problem, in that output was much below its pre-crisis level, there was a big deficit and one had to find a way out. One way would have been to borrow more and raise the GDP ratio faster. The other was the direction the Chancellor took: to try to cut the deficit and go down the route of austerity. Whatever the earlier debate was, the aim of the route the Chancellor took has more or less come about, and he can now claim that the UK has the fastest growing economy in the G7—which is not saying much because the other G7 economies are not growing very fast.

I am more worried about the next five years over which the Chancellor has drawn his strategy. According to the projections, the economy is not supposed to grow above 2.5%. That is about half a percentage point below our historic growth rate, which means, given that growth in productivity and GDP are connected, that one cannot simply say that productivity will grow. If it is to grow in the way the Government think, where are the results in GDP growth? There is something missing between the growth projections and the hopes for growth in productivity.

Between 2000 and 2007, growth was roughly 3% and productivity grew by just under 2%. The situation will be difficult, and although the announced policies are no doubt very good, they relate to only a small part of the economy—the manufacturing industry. A large part of the economy is accounted for by the care sector and the service sector, which are not marketable services. I am not saying that they are a drag on the economy, but we have to factor that in when we consider why productivity is so low. That is worth doing and we have to devise a way in which the surplus-producing part of the economy can finance the welfare-producing part.

That said, the Chancellor, having succeeded in the first five years, is getting a little too ambitious. There is too great a hurry to move into surplus. He does not need to hurry that much. I hope that somewhere in the Treasury there are contingency plans in case things go wrong. I do not like the way household debt is increasing. According to the projections, if one strips out pension savings, household savings have practically collapsed. We are back to where we were when the seeds of the previous crisis were being sown. Household savings were down, household debt was up, everyone was mad about buying houses—and now, especially given the low interest rates, a new financial crisis might be bubbling up.

That is why I am not happy about the promise not to raise taxes. If you do not want to raise taxes, fine, but do not promise not to raise them. We should remember when President Bush said, “Read my lips”. That is what can happen, and it is no good making promises you do not need to make. It worries me that the Government think that they can get away with not increasing income tax, VAT and so on. They will have to be inventive and find another way to raise money, perhaps by increasing vehicle excise duty or creating something really imaginative such as a tax on haircuts.

Britain has had a low-productivity economy for a long time, when compared with the other G7 countries. There are diagrams in the Budget document showing that every other G7 country except for Japan is ahead of us in productivity. This has been true for at least as long as I have been studying macroeconomics in this country —50 years. We have always had a low wage, low productivity economy. Our productivity is much lower than our wages in relative terms, which is why we have always had inflationary pressures. Low wages remain a problem, and the whole argument about tax credits was that they made low wages respectable. The Chancellor has said, “I am going to limit tax credits”—fine—“and then I will introduce the living wage”. As many noble Lords have said, it is hard to understand the macroeconomic logic in ratcheting up the wage rate. It is a very noble aim, but I like the Chancellor being Gladstone, not Disraeli: I like him as a hard-hearted, not a soft-hearted man. He has made a major macroeconomic mistake in going for the living wage. He will have to carry a larger unemployment burden; I do not see any way in which he can escape it. I wish him luck.

Photo of The Earl of Listowel The Earl of Listowel Crossbench 7:50 pm, 21st July 2015

My Lords, I thank the Minister for introducing this debate. I am grateful for many of the measures in the Budget, particularly the Government’s very successful policies in terms of making opportunities for employment much more widely available.

I can remember many years observing Louise Casey as she sought to deal with the problem of rough sleeping. In her work, she emphasised above all things the need urgently to find purposeful activity for people who had been on the streets for some time. She also quite controversially pushed for the public not to provide money to those on the street because she felt that it was a pull factor for them. From my own experience of caring for a middle-aged man who is mentally ill and has been unable to work for quite some time, I can see the degenerative effect on him of feeling that he is not helpful to anybody else. Worklessness and dependency are corrosive to the soul, so I heartily commend the Government on their successful policy in terms of raising the level of employment, which has many benefits, including raising children out of poverty.

I also welcome what was said around the Budget Statement about relaxing property development restrictions; I declare my interest as a landowner who has recently had success in gaining planning permission for residential development. There are real concerns for local property owners, which should be respected of course, but I had the feeling from time to time that we were jumping through many hoops, and seemed to have done the right thing, and then suddenly we were told no. There was great uncertainty in that process. We need to respect the local community’s concerns, but at the same time there is a need to have more homes. That needs to be addressed, too.

The topic that I seek to address is principally to do with family homelessness; that is, expectant mothers, mothers with very young children, mothers or parents who are escaping violence and the temporary accommodation that they are put into. I want also to talk about the withdrawal of housing benefit from those aged under 21 and the very poorest families.

I want to make a couple of requests to the Minister. The first relates to productivity. Will he consider looking at the role of secure families in terms of the long-term achievement of better productivity? In principle, if a child in his or her earliest days has a strong attachment to their mother and then a secure upbringing, they should be far more resilient when they reach 18 or 19, so the inevitable knocks and difficulties will not strike them back so easily. They might well be more able to learn and therefore pick up the skills necessary for the developing job market.

It is striking for me that Italy does well in productivity—

A noble Lord:

Oh!

Photo of The Earl of Listowel The Earl of Listowel Crossbench

Well, compared to us, I suppose. Perhaps I should not pursue that. Germany and France may be better examples in comparison with the United States. One would think that the United States, with its many advantages in many ways, would outstrip those two far but, in terms of family households with an absent parent, Germany has a level of 15% and France has 17%, while the US has 26% or 27%. There may be some interesting inquiries to be made there.

The second request that I make of the Minister is to look at the long-term cost of family homelessness that I have just described. A recent, important report on the cost of failing to meet the perinatal mental health needs of mothers identified a long-term cost of £8 billion a year of failing to meet those needs. So it is possible to project such costs into the future. It would be helpful in future Budgets to think, for instance, about the treatment of homeless families and to ask what the long-term cost is of failing to address their needs. The Minister might work with the Department for Communities and Local Government and perhaps commission a charity such as the Centre for Social Justice to look at the issue of family homelessness and the long-term cost, and at what the policy options might be to mitigate any harm arising from homelessness.

There are many challenges to families who are homeless. I commend the Government on continuing the work of the troubled families initiative, so ably led by Louise Casey. However, even its model of forming relationships with such families through a family support worker must be challenged if there is such a high turnover of families moving, with it being hard to intervene effectively.

I want briefly to quote from what last week’s Economist said about homelessness and the housing crisis:

“Without roofs over their heads, certain households can appeal to be put up by their local authority. Families with children, expectant mothers and those escaping domestic violence all have a legal right to emergency accommodation … At the end of March, 64,610 households in England were living in council-provided temporary housing, a quarter more than in 2010”.

The article goes on to talk about the move to private accommodation:

“Private tenancies are precarious … The number of people made homeless following the termination of a rental contract in the private sector trebled between 2009 and 2014; termination of contract is now the main cause of homelessness … Despite relying more on private landlords, councils are leaving thousands of families out in the cold. Fewer than half of all applications for temporary accommodation are accepted. Even those households that meet the sufficient conditions—having young children, being pregnant, and so on—are frequently let down. In the first three months of this year, councils failed to find homes for 6,900 households that had a legal right to emergency shelter. That is 80% more than in 2010”.

The article goes on to say that this is a growing crisis.

I welcome much of what the Government have done in the past with the support of the Liberal Democrat and their proposals for the future, but I ask the Minister whether he might look particularly at these concerns around family homelessness and its long-term impact.

Photo of Lord Freeman Lord Freeman Conservative 7:57 pm, 21st July 2015

My Lords, I want to concentrate my brief remarks on the relevance of the Budget to transport. I start by paying tribute to the noble Baroness, Lady Kramer, for her work as Minister of Transport. It is rather strange to see her sitting on that side of the Chamber rather than this side. In particular, the coalition Government made good progress, thanks in large part to the noble Baroness, in terms of a national infrastructure plan. It will take a long time both to fulfil and to perfect it, but progress was made and I congratulate her in particular on her role as Transport Minister.

I preceded the noble Baroness by almost 20 years as Transport Minister and want to concentrate my remarks on road and rail transport. In particular, I had responsibility then for HS1, which I am glad to see there are now proposals to extend up as far as Rye—I always thought that was a sensible move—and greatly to improve the economy of a rather deprived part of Kent. I was responsible also for the privatisation of large parts of British Rail, which ended up, obviously, with the privatising of the rolling stock as opposed to the infrastructure. I think that that has stood the test of time.

The Minister and my noble friend Lord Higgins referred to the relevance of a vibrant and growing economy in terms of being able to afford improvement in our infrastructure. I must say to my noble friend that I have sat at his feet for getting on for 20 years and have learned more about public finance from him than from many others. Long may he continue to participate in the Budget debate. It is always a pleasure to sit near him and listen to his words of wisdom. He emphasised once again the importance of connecting a growing and vibrant economy. In this instance I am referring to transport. In the last Parliament, the total investment in transport—not the running costs—was roughly £40 billion. The forecast in the Budget Statement for this Parliament was that over five years it would be £56 billion. That is a 40% increase and must be welcomed because it will improve the living standards and health of the national economy. I welcome what the Chancellor had to say about transportation.

First, on rail, HS2 is still in the planning stage. It seems to have been in the other place now for several years, but I understand that the Commons is getting somewhere towards approving a specific route for the first part of HS2. I hope that it will come to your Lordships’ House in due course. It is an important project in terms of increasing capacity—it is about not speed but capacity—for those travelling from the north to London and vice versa. As I said, that Commons committee is still looking at the detailed objections to the route, but I hope that the other place will make progress and that your Lordships’ House can look at this very shortly.

Many noble Lords may not be aware that the noble Lord, Lord Adonis, has just been appointed to the board of HS2. Perhaps that is why he is missing from the Benches today. I congratulate him on that appointment. He was one of the initiators of HS2. I hope that he will enjoy his position on the board. He may regret not being able to comment as freely as he otherwise would have been able to in your Lordships’ House but I pay tribute to his initiative on HS2. The noble Lord and I are joint patrons of the Independent Transport Commission. His words of wisdom there and particularly on HS2 are welcome.

In the last Parliament there wasan increase in expenditure on our trunk roads. The Chancellor mentioned in his Budget speech a figure of £15 billion for this Parliament. These are major trunk roads, many of which need desperately to be improved, particularly in the north of the country.

As far as Crossrail is concerned, which the Chancellor referred to, I congratulate Ministers in the last Parliament —perhaps the noble Baroness had part responsibility for this—for sticking to completion of construction of Crossrail 1. I calculated the cost to be about £2 billion per annum during its construction phase. I hope that the Chancellor will look favourably on extending that to Crossrail 2—that is to say, north-south alignment. Incidentally, although there was frequent comment about HS2 costing £40 billion, £50 billion or £60 billion, the annual cost I calculated to be about £4 billion per annum for construction. That is twice the cost of Crossrail.

Finally, the Budget referred to transport in the south-west. I was delighted to learn that the Chancellor calculated a budget of £7.2 billion for the south-west only in terms of major infrastructure. That is much to be welcomed. Better transport infrastructure must follow an improvement in the economy. I welcome that. I hope that in due course your Lordships will see the result of a successful Budget forecast.

Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords) 8:04 pm, 21st July 2015

My Lords, I, too, welcome the focus of this Budget on productivity. On Friday morning, I got hold of this paper and I read it and, yes, the index indicated that the paper was going to deal with the many aspects of productivity that concern us on this side of the House—so, welcome to our concerns, Minister.

I started reading the paper and fairly soon I got the same feeling you get when you take a book out of the library and, after you have read the first chapter or two, you realise that the plot is familiar. Gordon Brown’s five drivers for productivity were all there, but enterprise had been split up into resurgent cities, fair markets, infrastructure and productive finance. That was practically what Vince Cable did when he produced his industrial strategy, as the noble Baroness, Lady Kramer, has reminded us. Okay, the diagnosis has not changed, so what about the medicine?

My friends in business keep pointing out to me that what matters in the end is individual businesses becoming more competitive and raising their game. How does the business plan encourage this? At paragraph 2.13, Sir Charlie Mayfield is going to engage with other business leaders to develop proposals to encourage long-term financial thinking. Yes, investing in science and innovation is an important part of productivity, but where to invest? Sir Paul Nurse has been asked to lead an independent review. In a recent debate, the Minister himself and several other noble Lords were concerned about the way we measure productivity. True enough, on Budget day it was announced that Sir Charlie Bean will review the work of the Office for National Statistics. I think that noble Lords will get the message. There have been endless reviews, but what we need is action. We need action because next April, the low-wage subsidy is going down and the minimum wage is going up, but the IFS has told us that one does not balance the other out, in spite of the additional allowances.

The only way to deal with this is, as I say, for business to raise its game and take practical steps. I do not think that this is unreasonable because the answers already exist, as my noble friend Lord Bhattacharyya reminded us. I have been told by friends that Six Sigma, continuous improvement and lean processing are all tried and tested methods in common use. There is a modern manufacturing centre and catapult in Sheffield to help out. ISO 2001 and matching markets are all known to be effective ways of raising productivity in services, as is connecting everything digitally on standard platforms. I am sure that the Minister knows that. I can tell my noble friend Lord Desai, who is not in his place, that in the hospitality and services sectors, which are very large, productivity goes up when staff are offered a career with a clear pathway and investment is made in skills. That is largely because you get retention. Generally, there are all kinds of digital schemes to raise productivity which are supported by the noble Baroness, Lady Lane-Fox, in her capacity as a promoter.

Success does not hinge on a list of proposals, however worthy they may be. It requires the Government to reshape their political position so that all the signs point to raising productivity, but in this Budget the message is mixed. My noble friend Lord McFall mentioned some of the mixed messages. Rebalancing tax on dividends helps, but perhaps long-term investment would be better served by a higher level of tax relief on capital instead of a small, lower level reduction in corporation tax. Also, is a more generous inheritance allowance an incentive to invest?

There are other pressures. If productivity fails to increase sufficiently but wage growth continues to accelerate, the Bank of England would be forced to raise interest rates more quickly. That will help neither investment nor exports. Our balance of payments deficit has to be tackled. So my point is this: if it is the intention of the Government to help pay for the increased minimum wage and the withdrawal of in-work benefits by raising productivity, practical steps have to be taken, and they have to be taken now. In 12 months’ time, in-work benefits will decrease and the minimum wage will go up. If productivity does not fill the gap, the numbers that the Minister gave us just will not work. We will see yet more poverty and inequality, and especially more child poverty, as other noble Lords have mentioned.

The Chancellor has said that Britain deserves a pay rise. Yes, but we have to earn it, and do so through productivity. We know how to do that and many firms are already doing it, but others must raise their game and meet the challenge—and they must do it now. What are the Government going to do to encourage this?

Photo of Lord Scriven Lord Scriven Liberal Democrat 8:11 pm, 21st July 2015

My Lords, the Minister said at the beginning of the debate that this was a fair and balanced Budget, but I hope to show over the next few minutes why it is not. This is the first Budget without the coalition of the Liberal Democrats in government, so the Tories have been able to deliver their own Budget. It has come at a time when finances are improving and stability is beginning to return. At that point, one has to make a choice: do you have a fair and balanced Budget or do you penalise the poorest and the most vulnerable in our country who have made some of the hardest sacrifices over the past few years?

I can only draw on my own experience. I am from the north. I was born in the north, and it is where I was educated and have spent most of my life. Those who heard my maiden speech know that I come from a very humble background. I am the son of a refuse collector and a hospital cleaner. Many of my friends in Huddersfield where I went to school are the very people the Government say they are trying to help. They are people on low wages who get up every morning to do the best for their families and they make sure that they have the dignity of work. This Budget will hit them the hardest. I am probably relatively young for this place, and I must suppose that young people are going to be severely hit by the Budget.

Let us start with the north. First, this is not a Budget for the whole of the north. For example, if I lived in Cumbria, I would wonder where exactly my part of this Budget was. The Government have been microscopic in how they look at the north. I find it quite amusing that the Minister talks about transport for the north and the Oyster card. What is the point of having the Oyster card when you are being put on train pacers which are the equivalent of sheds on wheels because investment has been withdrawn? Where is that investment for the Midland Mainline? Where is that investment for the TransPennine routes? The best way to deal with productivity is to link those powerhouses of the north together, yet it is on pause. Will the Minister tell us when the pause ends? Or will Crossrail 2 take precedence over the powerhouse of the north?

I want to come on to welfare and social justice, and the new living wage. Actually, it is not a new living wage; as the OBR would say, it is a minimum wage premium. The living wage, through the Living Wage Foundation is £7.85 per hour outside London and £9.15 in London. Yesterday, IKEA said that by 2016 it would pay that real living wage.

This is a smokescreen; it is not a living wage. The reason why it has been brought out—incidentally, nobody under 25 will get it—is to hide the serious reduction the lowest paid will face through the benefit changes and, particularly, the tax credit changes that the Government are making. The Institute for Fiscal Studies stated clearly that the,

“more important tax credits are to someone’s income … the less likely they are to be compensated by the higher minimum wage”.

Why is that? The Social Mobility and Child Poverty Commission says that the cuts to tax credits will hit 45% of working families. It says that the vast majority of them—72% of those with the greatest losses—will earn less than £20,000 a year. It is estimated that 3 million people will lose £1,350 a year due to the changes. Those on earnings between £10,000 and £20,000 —some 754,000 families—will lose more than £2,000 per annum. Those earning between £20,000 and £30,000 will lose about £2,800 per annum—about 51,600 families.

We have seen what is happening in this Budget. The poorest have to have the broadest shoulders. The key fact is that the increase in the minimum wage cannot provide full compensation for the majority of losses that will be experienced. As the IFS said, it is “arithmetically impossible” for that change to be made. Why have the Government chosen to give tax breaks to dead millionaires when that will affect only 6% of all estates that will have to pay that amount of inheritance tax? It is not fair and it is not balanced.

The first step for many young people in terms of their education after leaving school is further education—the first step towards skills and productivity. This Budget takes £400 million away from further education. It is all right talking about apprenticeships but for some of the colleges or the areas where young people will go to get technical skills, £400 million has been taken away. As I said, the living wage does not even apply to the under-25s, and I do not understand the changes in housing benefit.

There are scores of young people under 21 in this country who run away from home for the sake of getting housing benefit. Let me give one statistic of young people who are lesbian and gay who leave home because they have come out—69% say that it is because they have had problems about their sexuality at home. Does anyone think that when they leave home in those circumstances they will say to an official that they are gay or lesbian so that they will be seen as an at-risk category? Of course they will not. They will be made homeless.

Is this a Budget for aspiration? No. It is Budget for financial desperation for many. Is it a Budget for the northern powerhouse? No. It is a Budget for the northern poor house, I would suggest. Finally, is it a Budget that lets young people dream and hope? No, it is more of a Budget for young people to fear, with some of the opportunities that they want taken away from them.

Photo of Lord Blencathra Lord Blencathra Conservative 8:19 pm, 21st July 2015

My Lords, it is a pleasure to follow the noble Lord, Lord Scriven. I can tell him that I have lived in Cumbria for 30 years, and I welcome the Budget. I suspect that most of my former constituents would have welcomed it as well.

I also congratulate the noble Baroness, Lady Kramer, not only on her work as a coalition Minister but because today is her birthday. Even if I could remember her age as printed in the Times, I would not dare say it—I do not want to suffer like Sir Tim Hunt and be driven out of the club for some inappropriate sexist remark—but I congratulate the noble Baroness.

I want to concentrate on the minimum wage. Fifteen years ago, I opposed the minimum wage and thought it would damage job creation and was an unnecessary interference with business. I was wrong and so were my Conservative colleagues, and we acknowledge that. The minimum wage was the best thing Tony Blair ever did, and since its introduction I thought the minimum wage was working quite well and I did not pay much attention to it.

However, two years ago I was appalled to discover that some of our largest and most profitable companies were paying the minimum wage to their employees, and that the taxpayer was having to top up those wages with housing benefit and tax credits. Okay, I know that most of your Lordships knew that long before I caught up with what was happening in the workplace. I found it obscene—and I find it obscene—that low-paid workers who are paying their taxes are subsidising many highly profitable companies who are earning their profits on cheap wages.

I became an immediate convert to the living wage and I am delighted that the Chancellor has set out a programme to implement it by 2020. I know that some critics will rightly say that it is still not enough to live on—that it is not a real living wage—but at least we are heading in the right direction, and in politics if you have the direction right and the concept right, that is not a bad start.

All my political life, the CBI has been a whinging organisation, never satisfied with any Government. As a teenager, I remember CBI spokespeople slamming the Callaghan Government in 1976, 1977 and 1979, and then a few months later, after Margaret Thatcher was elected, they were slamming her equally hard, too. What did they have to say on the living wage plans in the Budget? They said:

“To increase the minimum wage on average by 6 per cent a year in this parliament is quite a gamble for businesses, which will struggle to leverage the productivity to pay for it”.

But what did Simon Walker, the director-general of the Institute of Directors say? He said:

“There will be a bit of gulping but I think it’s right and I think our members can actually manage it”.

Quite so, and once again we see in the CBI the unacceptable face of capitalism—willing to take another cut in corporation tax but not wanting to reward the lowest-paid workers who have made the profits.

Indeed, I urge the Chancellor to go further and faster with the living wage. I know my noble friend the Minister cannot dare to comment on this in his wind-up or he will be drummed out of the club, but I suggest that all companies with profits over £500 million or with executives earning more than £5 million or handing out dividends of more than 4% per annum should be made to reach the £9 per hour by 2018. Examples of companies paying more than 4% in dividends are: GlaxoSmithKline, Shell, Wm Morrisons, Sainsbury’s, BP, Anglo American, Centrica and a dozen other large companies. It is interesting, looking at the website for London, that the companies paying the living wage in London are mainly small and medium-sized enterprises. Last year, Sainsbury’s, Morrisons and Tesco had combined profits of £3.8 billion—okay, they were down from the £3.9 billion that they made in 2013 and the £4.1 billion in 2012—yet pay only the minimum wage.

The salaries of CEOs and executives in the FTSE 100 rose by 15% in 2014 and the gap between the highest-paid executives and their lowest-paid employees has never been wider. In 1998, chief executive salaries were 57 times larger than the average worker; now, they are 178 times larger. And there is no correlation whatsoever between huge salary increases for executives and company worth, company growth or company profits. So I say to Mr Cridland of the CBI, who has just retired: if you think your companies will struggle to pay their lowest-paid workers a 6% per annum increase, they seem to have had no difficulty paying their directors 15%. Not to be left out, of course, last year BBC staff got a 2% pay rise, but their so-called stars got 22%. So even that lovely left-wing organisation treats its workers no better than the capitalists do.

Before my noble friends think I am making a bid to be Mr Jeremy Corbyn’s policy guru, I must state that I do not believe in capping top pay, but I do believe in everyone in a company sharing in its success. That is proper capitalism, and we see it practised by John Lewis and Waitrose, which already pay above the minimum wage. As has already been said, yesterday

IKEA announced that it would pay more than the minimum wage. The founding boss of Iceland Foods said last weekend as he slammed big retailers who pay only the minimum:

“Of course this is going to be painful but we’ll do it with a smile on our face. I’m all in favour of this living wage and if everyone has to pay it then it’s better all round”.

He went on to describe the claims of some supermarkets that staff discounts made up for low pay as “brainless”, and said that they had a moral duty to pay higher wages.

I turn briefly to apprenticeships. I agreed with every single word that the noble Lord, Lord Bhattacharyya, said on the apprenticeship levy. I say to my noble friend the Minister that if we can appoint the noble Lord, Lord Adonis—whom I think the Secretary of State for Transport appointed to a committee on HS2— I hope we can consult the noble Lord, Lord Bhattacharyya, or find a role for him in advising on how the levy could work. I applaud the levy for apprenticeships provided that it does not lead to the recreation of all those bureaucratic industry training boards we had in the 1970s. The CBI again criticised it, saying:

“A volunteer army is always better than conscription”.

That is not true, as we discovered in the Second World War. It would be foolish for the Chancellor to intervene if all the businesses were coming forward and training the workers we need but they are not, and it is not fair that some companies do no training and poach workers from others. So since the volunteer army of willing employers has not materialised, it is time to try conscription—but keep it simple.

When we introduce the Bill on Sunday trading, leaving aside other arguments about Sunday trading, if the big shops are to get a chance to open for longer on Sundays, I hope the Chancellor will say, “If you open for longer on Sunday and make extra profits, then you pay the full minimum wage for your Sunday workers”.

In conclusion, capitalism is the only system that works. Socialism has been tried in many countries over the past 90 years or so and has always brought poverty, famine and devastation. Free trade, private enterprise and responsible capitalism improve the living standards of everyone and make the world a safer place, but periodically it needs a harsh reminder of what responsibility is. If I may use a less vulgar anatomical word, I rather liked the comment of the unnamed Cabinet Minister who said that the Budget,

“was designed to give British industry a kick up their lazy”,

backsides. I look forward to the day—I think the right reverend Prelate the Bishop of Birmingham hinted at this—when a person working a 40-hour week gets a wage from an employer that the person can actually live on without taxpayer support. I know we are still a very long way away from reaching that goal, but this Budget has started the journey and I commend it.

Photo of The Bishop of Peterborough The Bishop of Peterborough Bishop 8:27 pm, 21st July 2015

My Lords, I begin with two heartfelt thank yous to the Government: first, for replacing the minimum wage with the new living wage. I and others on these Benches argued for a living wage in the last Parliament. Now we have it and I am grateful. Secondly, I thank the Government for spreading the pain of further austerity over three years rather than two, and so reducing the depth of the cuts in each year. On behalf of these Benches, I say thank you.

The Church of England’s General Synod decided some years ago to pay its lowest-paid employees at the level of the living wage. That has not been entirely straightforward. As the media have picked up, a few cathedrals in particular have taken longer to achieve this than many of us would have liked, but it is now happening. One of the complications has been ensuring that our contractors and subcontractors pay their staff at the right level. That has to be written into contracts, which takes time. Then monitoring and enforcing that decision can be difficult.

I am very conscious of employers across the country for whom this will not be easy. In Peterborough, for example, there are many people on, or just above, the current minimum wage, often working sessionally or seasonally in warehousing, distribution, crop picking or catering. Those people should be paid a living wage but they are not always well represented or organised, so I hope this good change will be monitored and enforced. I hope, too, that those of us who can afford it will be willing to pay a bit more for our vegetables, coffee or online purchases.

Although I fully support the Government’s clear aspiration to have a higher-wage economy, in which benefits should be much less necessary for people in work, the process of getting there and the situation of the weakest members of the working population during the transition are important. I accept that tax credits and other benefits cannot be afforded at the level at which they have been paid. But sudden significant reductions will always hit the poor hardest. In particular this time, couples with children where only one partner has a full-time job and single parents are likely to be hard hit. I urge the Government to look at ways of phasing-in these cuts, or finding other ways of supporting those people.

Yes, please help the poor out of poverty. Yes, please let us have a higher-wage economy—though local councils and other public bodies might need a bit more help to enable them to pay the new living wage. But please, as we make the transition, let us also support those employers and employees at the sharp end.

Photo of Baroness Seccombe Baroness Seccombe Conservative 8:30 pm, 21st July 2015

My Lords, I very warmly welcome this Conservative Budget. It is a balanced piece of legislation and I praise the Government for the practical position they have taken. The Chancellor said he wants to move this country from a low-wage, high-tax, high-welfare economy, to a higher-wage, lower-tax and lower-welfare one. This is a truly Conservative position, with which I wholeheartedly agree and which the British people voted for only a few weeks ago at the general election.

The best way for people to help themselves and their children out of poverty is through finding work. This Budget is clear that those who can work will be expected to look for it and to take it when offered.

Through the measures laid out by the Chancellor, we will be moving the expectation held by people currently looked after by the state back to themselves. Surely this has to be the right way forward for a country which wants to have a healthy, growing economy and to provide a better future for our children and grandchildren. It is not fair to leave them with an ever-growing welfare bill. But, more importantly, it is not fair to leave vast swathes of the population on welfare, unable to escape the poverty trap, by providing benefits and a welfare system which does not encourage hard work or aspiration.

I am particularly pleased to see the replacement of the jobseeker’s allowance for 18 to 21 year-olds with a new youth obligation. This will mean that young people are either in work or in education and are not automatically entitled to housing benefit. This will mean that worklessness is not allowed to set in at a young age and will set the younger generation off on a journey towards a fulfilling career and gainful employment.

Likewise, I welcome the promises to reform employment and support allowance, to help increase employment among those with health challenges who are able and want to work. Where people need support back into work, it will be provided. The Work and Pensions Secretary has long been committed to this laudable aim. The welfare state should be there to support people when they need it, rather than a permanent source of income for those who choose not to work. This is true of all working families and parents. I was therefore delighted to see that lone parents, who at the moment can struggle with childcare costs, will be given the same entitlement to 30 hours’ free childcare, as introduced in the Budget for working parents of three and four year-olds. I hope this will encourage back into work people who can so often be put off by childcare costs.

Jobs are being created. The greatest legacy of the previous Government is the rise in employment and job creation. As we well know, 2 million jobs have been created since 2010, and we want to create another 2 million and beat the OBR forecast that 1 million more will be created in the next five years. Let us make sure that the majority of those jobs are filled by people who are currently on out-of-work benefits. Living standards are also forecast to continue growing, as they did under the coalition Government. This was mainly due to the increase in employment that we have seen.

There is no choice. Noble Lords opposite can continue to argue over cuts and the Budget but this should not be a political move but more of an economic policy. We cannot afford for the welfare budget to go back to increasing at the rate it did under the previous Labour Government. Gordon Brown said that tax credits would cost the country £600 million annually, yet today they cost a staggering £30 billion each year. This is unaffordable and we need to change it now.

The British people accept that the country needs to live within its means, with proper and generous provision for the elderly, the vulnerable and the disabled. We should not leave burgeoning debts for future generations to sort out. My views have been endorsed this past weekend while canvassing for a county council by-election.

It is evident on the doorstep that people are looking for change, as the interim leader of the Labour Party, Harriet Harman, discovered.

We have been given a mandate by the British people to sort the economy out, cut the welfare bill, lower taxes and increase the living wage. Now I believe it is up to this House to ensure that we listen to what people have asked for and give a wholehearted welcome to this Budget.

Photo of Lord Soley Lord Soley Labour 8:36 pm, 21st July 2015

My Lords, this is an interesting Budget, although as the noble Baroness, Lady Seccombe, almost implied, there is an interesting confusion between the politics of it and the economics of it. When the present Chancellor of the Exchequer starts writing articles in the Guardian, of all papers, and telling everybody on the Labour side to vote for it, you recognise there is a political message in this and really what he is saying is, “Look, we’re the new Blairites. You stay in the old-fashioned position because we are moving on”.

Actually, there is a more sophisticated argument than that and I think it is a pity if we focus excessively on the benefit cuts. There are some very painful cuts, which need to be faced up to and dealt with, and I think they are going to be more of a problem to the Government than they realise. But the underlying problem here is that I am not quite clear what the Government’s economic strategy is. As the Minister acknowledged in his opening remarks, the issue is that we need growth; we need improved productivity; we need greater investment, particularly in small companies; and I would argue massively for the advanced science and technology budget and the training that is linked to that. I will come back to that in a moment. I find the strategy a bit worrying.

Also, if you take the wider view, you cannot look at the British economy in isolation from what is happening in the rest of the world. The Government acknowledge that things could get blown off course by whatever happens with the euro or, indeed, the Chinese economy. All I would say is that if we carry on with this sort of arm’s-length approach to Europe, we will lose friends there, and they could be very important. It was significant in the Greek crisis that increasingly, the continental European papers were saying, particularly in France, “Where is Cameron?”. The argument was not that we should put money into saving the euro, but there was a very real opportunity for Britain to offer its good services, knowledge and experience in both finance and diplomacy to try to help Greece and the other euro countries reach an agreement which perhaps would have been better than the existing one.

I say this only as a passing comment—and the Minister, with his northern background, will know this—but the air passenger duty is still dangerously high on long-haul flights. If Newcastle airport loses its flights to the Emirates, Amsterdam and Frankfurt, which could well happen, that will be a severe blow to the region because Newcastle relies increasingly on those airports as an economic driver. As I have said in other debates, airports are indeed economic drivers; they do for the world economy what railways did for the British economy in the 19th century. We ignore that at our peril.

On the minimum wage—now the living wage—my immediate reaction, like that of many people, was that this is a step in the right direction. I listened to the noble Lord, Lord Blencathra, with interest. He acknowledged the change that he and the Tory Party had to make on this issue. That is welcome and right but there is a problem because, for a start, the Government are excluding the under-25s. Secondly, it comes in over a period of time, so whether it is a living wage or just a continuation of a minimum wage depends much on how it is uprated. As someone who was involved in these discussions when Labour was in government, I acknowledge that there is a relationship between the minimum or living wage that you set and unemployment, and that you have to get that balance right. I think we all acknowledge that. The danger is that we will push the younger generation—the under-25s who will not be eligible—into that lower-paid category when they are precisely those whom we ought to be getting into higher wages as they get more skills and experience.

I hear all that the Minister has said and I note what is being done on training in the Budget, including on science and technology education, to all of which I say: “Yep, that’s good”. But as I have said before in this House, we are missing a trick with the advanced training we could offer in digital technology. Just because a person has been on benefits for a long time or is from a damaged background does not mean that they cannot manage modern IT systems. In fact, they are sometimes remarkably good at it. Everybody who comes before a government department of some type and is unemployed, or is perhaps in a dead-end job, really ought to be offered the skills to enable them to be fully IT-literate. By that, I mean having full digital ability to design and set up their own websites.

It is remarkable how many young people set up their own websites when they leave school and start designing and selling things. A couple of years ago, I spoke to a young girl who started by buying shoes and putting her designs on them, and then putting them on her website and selling them. People do a range of such things and, as I indicated, many people from what are often regarded as failed backgrounds can do quite well. I am a great fan of what the noble Baroness, Lady Lane-Fox, is doing and we really need to give her her head and say, “Get on it, right across the system”. The aim of the strategy ought to be to make Britain, in Brian Cox’s words, the best place in the world to do science. There is another message about Europe there: we get more grant money from the European Union for research in our universities than any other European country, so we need to keep winning friends there, not losing them.

I say again that in talking about the lack of strategy, I worry about the linkage. The Government have done a lot of things to take benefits away from young people but they do not do that with older people, because pensioners tend to vote Tory. I am a pensioner and I am entitled to a free TV licence but I do not actually want one. Indeed, when it all blew up that the Government were using the economic system to make the BBC pay for those, it suddenly dawned on me that I was not claiming one. I do not intend to because I want the BBC to succeed. The BBC is a real economic driver and we ought to be supporting it, not undermining it.

My final point is that there is, as yet, no housing strategy. I note what the Government say about housing, but whether it is the private sector, the social sector or the purchase sector, we do not have a housing strategy. Until we do, a lot of people will be vulnerable and lose out on employment prospects.

Photo of Lord Palumbo of Southwark Lord Palumbo of Southwark Liberal Democrat 8:45 pm, 21st July 2015

My Lords, in September 2007, George Osborne announced that a future Conservative Government would match Labour’s spending proposals. He promised real increases in spending on public services year after year. There was not the slightest mention of spending restraint. Just six months later, this position was completely reversed. Labour, he said, had failed to fix,

“the roof when the sun was shining”,—[ Official Report , Commons, 13/3/08; col. 431.]

and was to blame for everything which had gone wrong. In June 2010, the newly elected Chancellor opened his first Budget speech by saying:

“This emergency Budget deals decisively with our country’s record debts”.—[Hansard, Commons, 22/6/10; col. 166.]

He promised to pay for the past and plan for the future, to eliminate the deficit within five years and that debt would peak at 70% of GDP in 2014. In the event, the deficit target was overshot by £165 billion and borrowing will rise to 80% of GDP in this financial year. As recently as March, the Chancellor promised he would run a surplus by 2019. Only four months later he announced that this had been pushed back—yet again, and for the fifth time—to 2020 and that the Government will borrow £18 billion more over the next five years than he had announced just four months ago.

I acknowledge that economic forecasting is as much art as science and that, five years on, the Chancellor is more experienced in a role for which he had no training. But there seems to be a gulf between rhetoric and reality. As a result, the opening words of the Chancellor’s July Statement—

“This is a Budget that puts security first”—[Hansard, Commons, 8/7/15; col. 321.]

do not fill me with hope. It is also difficult to reconcile this aim with the plethora of bribes offered by his party at the last election. Over the five-week campaign, it promised to increase health spending, give seven-day access to GPs, introduce postgraduate loans, raise the income tax threshold, offer starter homes at a discount, extend the Help To Buy scheme, create Help to Buy ISAs, offer social housing for sale, extend free childcare, raise the inheritance tax threshold, increase the 40p tax threshold and, absurdly, legislate against a rise in VAT, NI and income tax—I could go on. It seems that giveaways and democracy remain two sides of the same coin; and the means of paying for it all is, of course, debt. We should not forget that this is the Chancellor who doubled national debt from £700 billion to £1.4 trillion over the last Parliament. If he achieves a surplus in 2020, it will have taken a decade to register a single year in which this country is living within its means.

I accept that whether to extend out the deficit is a matter of judgment. But how would we perform in the event of another recession, financial shock or other negative global event while saddled with these current levels of debt? So many risks remain: the rise in interest rates which has recently been signalled; the continuing fragility of the eurozone, not only in Greece but in countries such as Italy, France and Spain; the future of the euro itself; and a possible shock from China, Islamic terrorism, the problems in the Middle East and a resurgent Russia. With a majority Government, there was an opportunity in this Budget to take bold action to tackle Britain’s long-term problems and genuinely to put economic security first. But, as usual, politics got in the way, so there was a tweak here and a tinker there. The Chancellor did not reveal £12 billion of welfare cuts as expected, but just £7 billion, and large amounts of spending have been left untouched because of political expediency. As a result, total projected borrowing has increased by almost three times as much as welfare cuts.

In political terms, the Budget may have been a triumph in that the Chancellor has skilfully positioned his party in the centre ground and himself as its next leader. Politically, he gets a pat on the back but, economically, he gets a slap on the wrist, because the consequences may have far wider and more damaging implications for the British people.

Photo of Lord Sheikh Lord Sheikh Conservative 8:49 pm, 21st July 2015

My Lords, I am pleased to have the chance to speak in this debate and to comment on the Chancellor’s Budget Statement. We are already seeing the benefits of a strong majority Government, just a couple of months into the new Parliament. Our growth is better than that of any other major advanced economy. We have created 2 million new jobs in the private sector. I look forward to seeing the Government implementing the Conservative Party manifesto in its entirety. Under the last Government, our economy began to get back on track. It is still on the mend, but it will be a long process, and that is reflected by the Government’s intention to run a surplus by 2019-20. Our economy needs to be more resilient and balanced. That is the only way to secure a better future for Britain and for our well-being.

This was indeed a positive Budget. As we move further out of the red and into the black, the Government are able to map out our future rather than just undo the mistakes of the past. I welcome the steps taken by the Chancellor of the Exchequer to trust people more with their own money. Increasing the tax-free personal allowance from £10,600 to £11,000 means that a typical taxpayer will now be £905 a year better off than previously. I place on record my support for the Government’s ambition to increase the personal allowance to £12,500 by 2020. When people work hard throughout their lives, it is only reasonable that this is rewarded and that they are able to provide a stable and secure future for themselves and their families. On this subject, I welcome steps to take the family home out of inheritance tax and to increase the higher-rate threshold to £42,385 to £43,000 next year. Also assisting in this regard will be the 30 hours of free childcare for three and four year-olds from September 2017.

It is my belief that this Government’s work on welfare and employment is one of their greatest achievements. It is important, however, that we remember that employment is not merely a matter of statistics. Every position filled means that another family has the security of a regular pay packet. We must not forget that this pay packet is put back into the economy in both taxation and consumer spending, supporting yet more jobs and growth. Nor should we forget the great benefit to the individual’s well-being. I am sure noble Lords will agree that work gives people pride and confidence. As an employer, I know that people tend to work for two reasons: the first is to earn a living and the second is to get job satisfaction. On the other hand, being out of work sometimes creates depression and has an adverse effect on people. Work is good for people’s mental health, their physical health and their general well-being—benefits that have been demonstrated repeatedly. Dependency is not good for the country or the people. It constrains people and prevents them achieving their ambition. What is more, if we can get more people into work, some of them will receive salary progressions and improve their standard of living.

At this point, I pay tribute to the Secretary of State for Work and Pensions, who has done some marvellous work in government. His most recent success was undoubtedly securing the living wage. The manner in which he greeted its announcement in the other place shows his passion for his portfolio and for improving the lives of working people in our country. The new national living wage of £7.20 an hour from April 2016, rising to £9 an hour by 2020, will really help to secure this.

My only concern is the possible effect that this could have on businesses. I would ask my noble friend the Minister to inform the House in his closing remarks of the assessment the Government have made of this. The cut in corporation tax and the rise in the employment allowance will, I hope, give employers the boost needed to get on and employ more people.

I spoke earlier of the need to rebalance our economy. This rebalancing should be twofold—first, rebalancing between the north and the south and, secondly, rebalancing so that our economy does not rely too heavily on certain areas, such as financial services, at the expense of others, such as manufacturing, which has declined massively in recent years. While some progress has been made, the growth is not enough. I therefore very much welcome Government’s plan to increase apprenticeships. We have already doubled the number of apprenticeships to 2 million, but the intention is to create 3 million more.

I pay tribute to the Government for providing a guarantee to increase the defence budget every year and for creating a joint security fund. I take a great interest in defence matters and welcome these commitments.

Finally, I conclude that this Budget will be good for the country and the British people.

Photo of Viscount Hanworth Viscount Hanworth Labour 8:56 pm, 21st July 2015

My Lords, when one considers the Budget speech of George Osborne and the policies that it proposes, one is bound to wonder how much of what we heard was the product of an intentional bamboozlement and how much was the product of the Government’s self-deception.

The previous Budget speeches of George Osborne have been wilfully deceptive. As the leader of the Opposition has observed, they have been full of political traps, games and tactics, and we could have expected as much from the most recent Budget speech. But now there are indications of an undercurrent of a wholly misguided optimism regarding the prospects for the UK economy. We have been told that the British economy is growing faster than any other major advanced economy, that living standards are rising strongly, and that the Government’s long-term plan is working. However, we know that growth is slowing, that unemployment has increased, and that the rising value of the pound is threatening the viability of our export industries.

It is easy to identify the rhetorical passages of the Budget speech that are designed to mislead, because they represent the exact opposite of what most people recognise as the truth. How many people are liable to be deceived by the assertion that this was a Budget for working people from a one-nation Government, who have the intention of benefitting the whole nation? The Budget has been at the expense of the least favoured of our society—the unemployed, the young and the low earners. The current size of the welfare budget is a clear symptom of the Government’s failure to address the problems of unemployment and low pay. The Chancellor understood that he could not blatantly slash the welfare budget without resorting to a diversionary tactic. This tactic has been to promise to raise the minimum wage in a series of gradual increments. However, these increases will not compensate the low paid for the sums that they will lose from a much less generous tax regime. Nevertheless, the Chancellor has had the effrontery to tell us that those with the broadest shoulders are bearing the greatest burden, and that we are all in this together. This is utter bamboozlement.

We ought also to assess the Budget against the backdrop of the current fiscal and macroeconomic circumstances. A significant element in the fiscal equation is the sale of government assets, which this year will deliver privatisation proceeds higher than the previous record in 1987. The Chancellor’s fiscal strategy relies heavily on such fortuitous circumstances as the availability for sale of the Government’s large investment in the banks that were in danger of failing during the financial crisis. This is far from the judicious balance of taxation and spending to which the Chancellor has alluded.

The Government’s obsession with reducing the levels of taxation and state expenditure is accompanied by a serious dereliction in their duty to maintain the national capital infrastructure. We have seen endless deferments and cancellations of vital investment projects, to the extent that we can no longer claim to be a modern industrial economy capable of competing in the world’s markets. The catalogue of aborted projects is far too large to allow me to itemise it. The latest addition to the list has been the cancellation of the electrification of the Manchester, Leeds and TransPennine railway.

The other macroeconomic account that should command our attention is our external balance of payments, which is in a perilous state. Our current account deficit is now running at over £100 billion a year, which is over 6% of our GDP. The deficit on the current account is due largely to the implosion of our manufacturing industries. Manufacturing as a proportion of GDP is now barely above 10%, and we produce too little to sell to the rest of the world to pay for our imports.

We have been balancing our payments by selling our financial and capital assets to investors from overseas. This has stimulated the demand for the pound, which is responsible for the highly favourable rate of exchange that has made it virtually impossible to sell our products abroad. This circumstance cannot prevail indefinitely, and when it ends we shall be in deep crisis.

There is a delusion in the minds of many members of the Government that is well represented by the document entitled Fixing the Foundations that accompanied the Budget. We find it asserted in red lettering that Britain is:

“A trading nation, open to international investment”.

Being open to international investment implies that we are willing to continue to sell our national assets, including our ports, airports, public utilities and so on to foreign owners. While we continue to do so, there will be no possibility of increasing our exports of goods. While we continue to do so, which can be only for a limited period, the City of London, the bankers, the financiers and those who support them will continue to profit at the expense of the rest of us.

I assert that it is well within the powers of the Government and the central bank to lower the rates of exchange of sterling. They should be purchasing foreign currencies when they become too cheap vis-à-vis the pound. The Japanese, Chinese and Koreans are masters of this strategy, which we should also adopt and pursue vigorously.

Photo of Lord Northbrook Lord Northbrook Conservative 9:02 pm, 21st July 2015

My Lords, there are many positives in the Budget Statement. On the economic front, there was confirmation that the UK economy grew by 3% last year and is forecast by the OBR to grow by 2.4% this, which is faster than America and Germany and twice as fast as France. The decision to become a founder member of the new Asian Infrastructure Investment Bank shows that the UK wishes to connect to the fastest-growing parts of the world.

On the jobs front, 2 million more people have obtained employment since 2010, and the OBR forecasts that almost 1 million more will be created over the next five years. The budget deficit is coming down and, while this is at a slower pace than had been hoped for, the IMF has importantly still given its approval to that delayed reduction. It is good news that the actual annual deficit figure has fallen from £153 billion in 2010 to a forecast £69 billion this year. More needs to be done but the trend is definitely in the right direction.

I turn to welfare savings. I applaud the plan to cut welfare benefits by £12 billion through the benefits cap, the limitation of tax credits, universal credit and housing benefit. I ask the noble Lord, Lord Davies of Oldham, if he supports these welfare cuts or the 48 rebels in the other place.

On the tax front, I welcome the decision to raise the personal allowance to £11,000 next year and to raise the higher rate threshold, though I had hoped that the 45% rate would have been cut to 40%. I also applaud the further corporation tax cuts from 2017-18, the increasing of the employment allowance and the setting of the permanent investment allowance at £200,000. The introduction of the inheritance tax allowance of £1 million is most welcome.

Due to the continuing high deficit, though, this had to be a tax-raising Budget, and the Red Book shows that £29 billion is planned to be raised over the next six years. The tax increases come first from restrictions to pension tax relief, which I understand is an easy target although it discourages people to save for old age and may make them more dependent on the state.

Then there is an 8% corporation tax surcharge on banks. This is easy politics, but surely the time is coming when the banks are being penalised enough. As the noble Lord, Lord McFall, said, the extension to the challenger banks seems unnecessary, as they can hardly be blamed for causing the banking crisis.

The speeding-up of the corporation tax payment dates for larger companies makes sense, but I ask the Minister why the extra take falls off dramatically from 2019-20. The reforms to dividend taxation, which I shall discuss later, level up more the differential between incorporated and unincorporated business. The abolition of the non-dom status will not necessarily bring in a lot more extra revenue, as it may be negated by lower VAT and PAYE tax receipts. Insurance premium tax is also an easy target to increase.

I want to focus on two other areas covered by the Budget, turning first to the excellent document on the plan for productivity. The Minister’s hard work in producing this is acknowledged by the Chancellor in his Budget speech. This 82-page report contains an excellent analysis of what the Government wish to do to increase productivity. It shows how UK productivity has fallen behind that of leading advanced economies and it has a 15-point plan that,

“takes on the hard choices for lasting change”.

These are all very well set out. However, I should like to focus on some of the points where I feel that enhancements can be made and where I have some questions for the Minister.

Point 1 stresses a more competitive tax system, bringing business and investment to Britain. It rightly focuses on the proposed cuts in corporation tax and the raising of the personal tax thresholds. However, surely this would be even better had the Chancellor used the Budget to cut the top rate of income tax to 40% and cut the rate of capital gains tax. The tax rise on dividends taken out of a business contradicts this point and is making it harder for the founders of smaller companies to make a living. I ask the Minister for his views on the rationale for this dividend tax change.

Point 2 stresses the importance of rewards for savings and long-term investment. Great praise is due to the Chancellor for making permanent the £200,000 investment allowance. I also praise the significant increase in the ISA allowance and the new personal savings allowance.

However, I do not see how the restriction of the pensions limit announced in the Budget squares up with this. Is this a case of short-term requirements overriding a long-term objective?

Point 3 focuses on a highly skilled workforce, with employers in the driving seat. Again, this includes very good points such as toughening up exam standards and targeting “coasting” schools. It is the apprenticeship levy which has had a mixed reaction. British Aerospace, one of the largest employers of apprentices in the UK—more than 1,000 trainees at any one time—took a very positive view. Also, the CBI said that it would work with the Government to make the best effect of this measure. Concerns seem to focus mainly on the lack of detail in the proposals concerning how the levy will be introduced and how effective it may be, given that the Government are providing no new funding for apprenticeships. Other concerns seem to revolve around the definition of larger companies. EEF, the manufacturers’ organisation, calculates that the cost of a four-year training programme for an apprentice employed by some of its highly technical members could run to £90,000. However, according to the Daily Telegraph, apparently BIS’s current budget allows for £2,567 to be spent on each of the 3 million apprentices whom the Government want trained by 2020. Terry Scuoler, the chief executive of EEF, said that manufacturers would be “sceptical” about the levy, adding:

“Until we see the detail it is not clear how this will help deliver the high quality apprenticeships we urgently need. Employers must be in the driving seat on this reform to ensure we get the right quality of apprenticeships and training. There will be no tolerance for recreating the failed skills bureaucracy of the past”.

Point 9 talks about planning freedoms and more houses to buy. History has proved with the sale of council houses that those bought have not always been able to be replaced. I ask the Minister how many of the 200,000 new homes are meant to be built as replacements by housing associations. According to figures from Shelter in March, in 13 London boroughs 26,000 social rented houses have been sold and only 2,900 have been replaced.

Point 15 discusses the northern powerhouse. I wish this project well; it will be an interesting experiment to see if the combination of devolved projects, new transport, an elected mayor for Greater Manchester, and working towards devolution deals for Sheffield, Liverpool, Leeds, West Yorkshire, partner authorities and local enterprise partnerships works. Early anecdotal evidence on LEPs appears to show a mixed start.

Overall, I commend the Chancellor for his Budget. The deficit is still too high and difficult decisions had to be taken on where to raise taxes and cut spending. With a difficult hand to play, he has done well.

Photo of Lord Stoneham of Droxford Lord Stoneham of Droxford Liberal Democrat Lords Spokesperson (Business, Innovation and Skills) 9:10 pm, 21st July 2015

My Lords, I declare my interests as chair of Housing & Care 21.

I welcome those aspects of the Budget inherited from the coalition. I accept that we have to complete putting the public finances back in order. First, I welcome the one-year delay for achieving a surplus and the smoothing of public spending trends to reduce the immediate pain of the welfare cutbacks. Secondly, I welcome the raising of tax thresholds, although I would have liked the Government to have put more emphasis now and in the future on raising the national insurance threshold. Thirdly, I welcome the phasing out of pension tax reliefs through the higher tax bands and the efforts on reducing tax avoidance.

However, there are certain contradictions in the Government’s approach. Before the Budget, the Government’s objective seemed to be to promote growth through greater competition and less regulation. As my friend Professor Nick Bosanquet of Reform has written, the return of extensive government intervention, particularly in labour markets, is quite a shocking contradiction for a Conservative Government and is not getting the attention it deserves—although I was glad that the noble Lord, Lord Tugendhat, raised this matter in his speech.

A 34% increase in a compulsory wage level, combined with a freeze in public sector pay to 1% per annum, must lead to serious distortions in the labour market. Is this the return of a statutory pay policy by stealth? Nurses’ pay will be reduced in real terms over the next five years, while some of their patients’ pay will increase by 30% in real terms. The Treasury bemoans shortages of skilled workers but the Government’s treatment of their own skilled workers is hardly a good message to other employers, nor does it show much gratitude for the very real dedication of nurses, doctors, social workers and teachers—all of whom we should be encouraging to embrace change and efficiency improvements. This public pay policy is not sustainable if private sector earnings now start to move ahead.

Despite the Government’s plans to reduce regulation, the proposals for the living wage will involve more inspections for between 2 million and 3 million more employees and the thousands of small businesses who employ them. The return to a levy system to pay for apprentices, last tried in the 1960s, could be yet another burden on small companies. The Minister might like to explain how it is more likely to work in the less corporatist world of today than it did then. As my noble friend Lady Kramer reminded us, the Chancellor has provided for some relief for businesses in the reduction of corporation tax, but this will benefit the larger established corporations, not the start-ups—the enterprising small businesses that carry the hopes for the country’s regeneration and future prosperity.

As the noble Lord, Lord Blencathra, rightly said in his challenging speech, there is a need for employers to pay more so that wages are not being subsidised by government tax credits. However, we can only hope that the initiative eventually to redefine low pay as 60% of median earnings is not being used simply to camouflage the money being cut from benefits. The living wage puts back merely £4 billion, though not necessarily to the same people. It seems good to see the Government setting a five-year target of £9 an hour, although the minimum wage might well reach £8 an hour on current policies, and the living wage will need redefining at nearer £12 an hour once working benefits are removed and inflation is accounted for. At best, as my noble friend Lord Scriven said, it will be a premium minimum wage and not a true living wage unless it is redefined.

I welcome the fact that the Low Pay Commission is being retained as an independent authority to monitor and recommend the phasing-in of the changes. I hope that the Minister can reaffirm the Government’s commitment to that independence. It is essential to retain cross-party consensus on the process and on policy implementation to avoid what could be a huge gamble which could yet unravel or lead to undue disappointment. Phasing is essential to ensure that productivity rises in those sectors vulnerable to cost increases and to ease the burden on small businesses.

Housing remains a critical component of living costs. There are important Budget changes for the private and social rented sector. I always felt that the 10-year settlement for the social housing sector of annual increases of 1% above CPI to encourage development was overgenerous and encouraged complacency. Housing associations have been protected while councils have had to undergo fundamental changes. I do not doubt that the 1% cut in rent levels each year for the next four years will be challenging, but ultimately, with some exceptions, it should be sustainable through normal efficiency savings. However, it is inevitable in the short term that there will be less development and investment in housing stock than there would otherwise have been.

My real concern is not necessarily with this policy but with the whole of the Government’s commitment to and interest in social housing. They have to realise, as did Macmillan in the 1950s, that to up the game of the construction sector we need higher growth across all building sectors, whether private sales, self-build, public sector or housing associations. Without that, we will not get off the floor of building 100,000 homes a year, let alone approach 200,000

The Government have to understand that housing associations play an important role in encouraging home ownership through shared ownership as well as in meeting the need for social rent. I say slowly again to the Government that the money projected for the right to buy would be much more productive if used to widen shared ownership, as it would get many more people on the home ownership ladder and into more new homes than the right to buy policy with its expensive discounts will ever do.

Budgets often look better on the day than they do subsequently. That has often been the case for this Chancellor, as he has played the role of the conjuror while retaining the traits of a gambler. He has slim margins for success in cutting the deficit if the economy does not perform as projected. He is about to assume a straitjacket on his taxes policy, as the noble Lord, Lord Desai, warned us. His mixed messages, involving more state regulation and intervention and extra burdens for small businesses, contradict what the economy needs. I fear that he has an aversion to social housing.

As my noble friend Lord Palumbo said, we all respect the Chancellor’s ambition, but history suggests that an element of caution when combined with toughness is an important ingredient of all successful Chancellors.

Photo of Lord Davies of Oldham Lord Davies of Oldham Shadow Spokesperson (Transport), Shadow Spokesperson (Treasury) 9:18 pm, 21st July 2015

My Lords, I thank the Minister for his introduction to the Budget, although I think that he will have a more exacting job to do in summing up this extensive, and indeed intensive, debate. I am grateful to the noble Lords, Lord Palumbo and Lord Taverne, and my noble friend Lord Hanworth, who all sought to put this Budget in the context of government policy over the past five years and the challenges which the Chancellor has been obliged to face.

The Chancellor constantly emphasises the success that he enjoys, but what success? At one stage, of course, the deficit was going to be cleared by 2015, and he fell hopelessly short of that objective. Now, he promises that we will be in surplus by 2020, just before the next general election—the same quality of promise that we had last time. But what has not been specified is how he gets there in real terms. We still do not have a clear definition of the £12 billion of welfare cuts outlined some time ago as a generalisation before the general election—nothing specific, of course. What we do appreciate is that the pace of the introduction of these cuts may be somewhat reduced.

All these cuts were concealed from the electorate before the general election and what is concealed now is the level of spending cuts being contemplated. We all know that departments have been identified as not being protected, and we also have some indication of the cuts they are likely to face. I can give one area of cuts as far as education is concerned. The cuts in further education are reaching staggering proportions. There has already been a 30% cut and a further one is promised. Yet further education, as the right reverend Prelate the Bishop of Birmingham indicated, has a part to play in increasing the skill levels of some of the more deprived sections of the population. If we want to move towards full employment, we have to see that the spread of skills goes well beyond apprentices. I welcome the proposal on apprentices, but I am somewhat doubtful about how the costs will be met. As my noble friend Lord Bhattacharyya indicated, they are a crucial part of the development of skills at a certain level, but we need basic skill levels too. That means a relationship with the colleges, but the colleges are effectively being decimated by government policy.

The Government can only conceivably believe that they will reach a surplus in 2020 if they cut public expenditure to the bone, and that will certainly include public investment. We will see a reduction in public investment in the very areas where we need it to increase productivity. The Minister will be able to wax strong on the issue of productivity because we all know his excellent record and experience before coming to this House, but even he may be stretched to identify how productivity over the next four years is going to do anything but fall, as the OBR has indicated. The imbalance that obtains between London and most of the rest of the country will show no significant signs of changing. We all know that we need to improve our productivity because, as has been said in this debate, we compare woefully with Germany, France and the United States. The average productivity of our workers is some 30% below theirs.

The departmental cuts already presaged are putting this policy of investment in productivity at risk. I heard the noble Lord, Lord Freeman, return to his old patch of transport, but he will know that one of the most recently identified areas for cutbacks is rail electrification in the north—and not only the north: we will have a Question tomorrow on electrification to Swansea in south Wales. Cutbacks are bound to have an impact. This investment is meant to improve productivity; it is already being postponed by the Government.

As my noble friend Lord Soley said, aviation is of course an important driver of growth and improved productivity, but we all recognise that the Government have dithered over the additional runway in the south-east. First, they set up the commission and then they made sure that it did not respond until after the general election. There was no particular rationale for that except that my namesake, the noble Lord, Lord Davies, needed some time for adequate deliberation. However, he does not need time for deliberation once he has reported to the Government, but the delays go on while they subject the report to the necessary scrutiny within the department. That scarcely shows a commitment to urgency on the projects which are meant to improve our productivity. The noble Baroness, Lady Kramer, identified another area in which there are cutbacks: investment in renewable energy, where we would hope to see improvements in productivity.

So far, the Government’s productivity document is a patchwork of largely existing schemes. We welcome the commitment to expand areas such as apprenticeships, as the noble Lord, Lord Scriven, said, but we have to recognise that the skills we require are such that some areas are bound to need public investment and support to achieve success. However, all we get is bleakness on that front.

The noble Lord, Lord Blencathra, introduced an optimistic note with regard to the Budget. He said that the possibility of wage improvements through the living wage have brought some joy to him. It would bring joy to all of us if that represented a significant increase for working people over the next four years, but it is clear that the levels being set by the Government are really just modest increases—and not in the national living wage but in the minimum wage. That will certainly ensure that working people will receive such modest increases that they will be savaged by the reduction in the tax credits they would otherwise have received, but those are part of the Government’s necessary austerity measures. Working people—and I mean working people, some 3 million of them—will actually see very little improvement in their living standards at all on this basis. We are all in it together, but it is clear that the poor are meant to suffer more. As my noble friend Lord McFall said early in the debate, this is a truly regressive Budget.

If the noble Lord, Lord Northbrook, wants to know my personal view, yes, I find the withdrawal of benefits to a family if they have more than two children extraordinarily regressive and unacceptable, and I am glad that my friends at the other end of the building are voting against it. I accept that there must be some restriction on the amount of benefit paid, but the Government have gone about it in a most unfair and doctrinaire fashion in the policies they are pursuing. As my noble friend Lord McFall said, this will increase child poverty—if we are able to measure it. The Government are removing the criteria by which some elements of child poverty can be measured. It is not surprising that we on this side of the House are somewhat cynical about the measure.

Finally, we hear about deficit reduction in government expenditure, but we do not hear much about deficit reduction when it comes to our trading deficit. As my noble friend Lord Hanworth indicated, it is essential that we pay attention to the fact that Britain is not paying its way. The Chancellor had the nerve to suggest that he will increase exports to £1 trillion by 2020. The OBR said that he will be lucky if he gets to two-thirds of that target. That is a mark of the unrealistic nature of this Budget.

I apologise to noble Lords if I have not given sufficient attention to certain issues in these limited remarks. The House will recognise that we admire the Chancellor’s courage and chutzpah, but as for the reality of the Budget, we condemn it.

Photo of Lord O'Neill of Gatley Lord O'Neill of Gatley The Commercial Secretary to the Treasury 9:30 pm, 21st July 2015

My Lords, we have had a remarkably high standard of debate here this evening. I was encouraged to make that remark but, in all sincerity, I really appreciate the comments that all Members of the House have made this evening. My own maiden speech coincided with that of my good friend the noble Lord, Lord King, and I recall his comment that the general standard of discussion in this House was somewhat higher than in the other place. I have not had the benefit of participating in those debates, but after much of what I have heard over the past few hours, their standard must be pretty high if they can test many of the interesting things that I have heard today.

I must also add my birthday congratulations to the noble Baroness, Lady Kramer. I have to say that, in pursuit of the great and the good, to commit to this discussion on such a joyous day is truly remarkable. I hope I would do the same if I were in the same situation. In that regard, when I come to respond to specific comments, I may end up giving the noble Baroness more reference than others for her commendable duty.

Let me make some further brief comments before trying to do justice to many of the individual remarks. I apologise now, and will do so again later, for failing, as I am sure I will, to refer to all the individual highly valuable comments. No doubt I will make some errors in the pronunciation of some noble Lords’ names.

Before doing so, I shall make two or three general comments. Many individuals in this place have different opinions but, on balance, most noble Lords who have spoken recognise that the only way to secure a long-term economic recovery is to put our public finances on a more sustainable footing. I am grateful to hear those comments. The Government have committed to such a course. That is what they made pretty clear to the electorate and it may, among other reasons, be why they came to power with a majority.

It is also the case, as articulated by the Chancellor, and supported by the balance of measures, that the Government believe that the best route out of poverty is through employment. It is right that if you are working full-time, your wages should not be unnecessarily topped up by the state. In that regard, as reflected in the overall balance of areas of contention, it is not surprising to hear that there is a lot of concern about the scale of some specific spending cuts. However, let me also point out—here I speak from my experience before I joined this Government—that it is important to protect areas of public spending that are probably more likely to contribute to long-term productivity gains than welfare would, including, in particular, education, health, public sector investment spending and, in my view, our commitment to foreign aid. It follows that, if you do that, the remaining areas will suffer the brunt of public expenditure cuts if the Government are to be as committed as they should be to this path of fiscal deficit reduction.

It is also the case, as many Members have said this evening, that many interesting issues are raised by the notion of introducing a national living wage, which, as a number of people commented, will effectively be the equivalent of trying to increase the national minimum wage. I shall come back to talk about that. However, reflective of the Government’s clear priorities, and as I believe was generally made clear at the election, it is the Government’s desire, as articulated so clearly by the Chancellor, to reward people who work and to give them their own rights in how we contribute policy-wise to a fairer outcome for all of the nation, including those who earn income and pay taxes.

I turn now to specific points made by noble Lords in their speeches. In doing so, I shall try to structure my remarks and be as brief as possible, although that does mean I may neglect to respond to some specific things—again, I apologise in advance.

First, on the economy and public finances, the noble Lord, Lord Davies, ended today’s very rich discussion by talking about the context of the Budget. On the one hand, many noble Lords talked about how there is far too much concern about deficit reduction—the noble Lord, Lord Taverne, talked at some length about the risks of too much focus on this—but many others, including the noble Lord, Lord Palumbo, suggested the complete opposite. As a trained macroeconomist, I know that it is always a judgmental decision—appropriately so, given the many uncontrollable external forces, especially from the rest of the world—around the appropriate pace of reduction and, especially, around the evidence about the absolute level of debt, never mind the level of deficit per se, that is consistent with higher living standards and, in particular, with contributing to improving productivity.

In that regard, I turn also to some of the comments of the noble Lord, Lord Desai. He talked, I think, about evidence of the historical growth performance being in excess of 3%, but it is widely recognised today—subject to the vagaries of how economists can recognise any of these things and agree on them—that our trend rate of growth is in the vicinity of 2.4%. The way to address that, as I will talk about in a second, to improve the trend rate and bring it back to what might have been a very long-term performance, is almost definitely through steps to boost productivity and not, at least in my judgment, through the specific stance on fiscal policy.

In that regard, if I understood the noble Lord correctly —others also suggested this—in bemoaning the goal of moving towards a budget surplus, there appeared to be a contradictory concern about what would happen in the event of some of these shocks coming from the rest of the world, as we would not have the ability to respond. However, an additional reason for moving to a healthier set of public finances when the economy is on a reasonably strong footing, as it appears to be, is indeed that, in the event of some external shock, you would have the latitude to respond.

As in my opening comments I emphasise again that, in the event of the economy slowing to a positive 1% growth, the OBR has a responsibility to shift to a different cyclical stance on fiscal policy, if it deems it appropriate. Generally speaking, that seems to me pretty sensible.

I turn to some further specifics about fiscal consolidation on spending, which I touched on briefly in my opening summary. As I have just mentioned, a number of noble Lords focused on the Budget seemingly having tougher spending cuts than might have been envisaged. Indeed, I think a couple of noble Lords implied that they were tougher than was suggested before the Budget. However, as some others have pointed out, the Budget is indeed less restrictive in its overall fiscal stance than the previous Budget, and the overall reductions in public spending are not as stringent as they might have been. As I have already indicated, given the commitments to areas such as health, education, public sector investment, defence and foreign aid, other departments are likely to take the brunt of cuts. The case for those has been well articulated and widely debated in this House and, of course, in the other place on a number of occasions, including earlier today.

I turn to the very important topic of productivity. I am particularly pleased to hear that so many noble Lords have read the 80-page document, which, in responding to an Oral Question a few days ago, I suggested they should read. I think that a date is being found to enable us to have a full length-debate on the issues surrounding productivity, including the long-known historical challenges to achieving success in raising it and the specific steps that this Government propose to undertake in that regard.

Going back to what I said in my opening comments, and as many noble Lords are aware, over the long term economic growth is essentially driven by two factors: the number of people who work and their productivity. There has been much focus on this issue, correctly in my view. I think it is fair to say that, in the last Parliament, we had more success than one might have expected in terms of increasing employment. It is therefore appropriate now to switch attention to trying to do more about the key driver—that is, productivity. There is a very large amount of evidence that those countries with the best productivity performance typically have not only the best living standards but greater equality than many other places. Therefore, it is very important in my judgment that this issue receives appropriate attention.

I am pleased that there will be a formal review of our economic statistics led by Professor Sir Charles Bean. I have long felt—this precedes my joining the Government—that further work needs to be done in a number of areas ranging from our external trade data to the accurate measurement of our GDP and the implied productivity data. I cannot resist alluding to the irony of doing that, given that the latest evidence on productivity indicates that it may be accelerating. I also note that both the Bank of England and the independent OBR are separately forecasting a rise in productivity over this Parliament.

In relation to infrastructure spending, I think the noble Lord, Lord Davies, said that public sector investment spending will decline over this Parliament. There is certainly no plan for that to happen. Public sector investment is very importantly linked to the productivity goals and many aspects of the northern powerhouse, and there is a conscious decision to ensure there is no decline in spending and that it is protected in real terms. In fact, under current plans, from 2018-19 onward, it will start to rise in line with GDP.

I am spending a considerable amount of time on infrastructure in my ministerial role. We hope, in the not too distant future, to come back with a detailed national infrastructure plan. I say to the noble Lords, Lord Freeman and Lord Higgins, and the noble Baroness, Lady Kramer—who was correctly complimented for her role in the coalition, focusing on the transport aspects of this—that we need to have a bolder and perhaps longer -term national infrastructure plan, that thinks about the potential state-of-the-art long-term infrastructure that the country may need but not necessarily have immediately introduced. This may give us a framework to consider the challenges and opportunities that may prevail going forward. I acknowledge the supportive comments of a number of noble Lords about the commitment in this Parliament, despite the challenges, to spend more on a number of key parts of national infrastructure, including both roads and trains.

I jump to the very important topic of the northern powerhouse and city and regional devolution. A number of noble Lords made comments about that, including the noble Lords, Lord McFall, Lord Scriven and Lord Soley, the noble Viscount, Lord Hanworth, and the right reverend Prelate the Bishop of Birmingham. This project led to me becoming a member of the Government. I am very passionate about it and I think it is fair to say, from everything he has said, that the Chancellor is too. I will make a number of quick comments, and I apologise for not responding to some of the very important points raised.

On the topical issue of the supposed cancellation of the electrification of the Leeds to Manchester route, I say that it has not been cancelled: it has been delayed. That announcement was made in the context of trying to create a new and healthier environment for the leadership of Network Rail. I am just as agitated as many others about that decision, not least because it happened to be announced on the day of my first speech as a Minister about the northern powerhouse in Manchester. I assure your Lordships that it is getting a lot of attention and I hope that further initiatives will come forth. I add—in contrast to what I heard, I think from the noble Lord, Lord Scriven—that having Transport for the North and a northern Oyster is exceptionally important. In order for the northern powerhouse to be anything other than a number of cities, geographically identified with a pin, in the north of England, and for it to generate lasting economic change, it is important that the cities are joined together on an economic basis, if not an administrative one, in a way that has not been pursued before. There is enormous evidence from the great successes in recent years of Transport for London that having something like that technology, whereby individuals can find out very quickly the ease at which they can travel, knowing the costs as well as the facilities available, is important. I think it has boosted by 30% the movement of people around Greater London. If that was done between many of these northern cities, it would play a major role in boosting the economic fortunes of the north of England.

There are many other points that I have not responded to. I will very quickly turn to two other areas and I apologise for missing some out. It was a joy to hear so many Members talking about the importance of skills. If I had to pick one area that is so important to our productivity—and perhaps why we have had so many challenges going back for so long—it is something to do with the challenges facing particularly the most disadvantaged and their ability to get skills. Obviously, that links to our basic, further and higher education. As far as I am having some influence on the productivity plan, we are very eager to pursue the initiatives we have introduced in it.

Lastly, and without enough time to focus on the very interesting comments made about work and welfare, I think it is openly acknowledged that to introduce a policy to deliberately encourage an implied higher minimum wage—announced as a national living wage—carries a risk of some costs to employment. Indeed, the OBR said in its own independent analysis that it would directly lead to the loss of 60,000 jobs, although it added that in the context of the Budget Statement and all the other initiatives, this would be more than offset by the distributional effects of so many people receiving higher incomes, as well as a number of the other policies.

The last thing I would say—and it is not doing justice to this considerable topic—linked to what I said about employment and productivity, is that in an environment where employment has been so strong, if you are going to pursue such an initiative, it is best to do it when the employment market is as strong as it is. As I think I mentioned the last time I stood at this Dispatch Box, in a number of countries some of the new academic thinking is suggesting that while it is risky, this may be a way of trying to explore boosting productivity.

I will stop there. My time is up. It is very late in the day. The noble Baroness, Lady Kramer, has to go and celebrate her birthday and I am sure everybody else has lots of other things to do. I commend the Budget to the House.

Motion agreed.

House adjourned at 9.52 pm.