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.