Budget Statement - Motion to Take Note

Part of the debate – in the House of Lords at 7:13 pm on 14th March 2017.

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Photo of Lord Northbrook Lord Northbrook Conservative 7:13 pm, 14th March 2017

My Lords, looking at the UK economy in the light of the Budget Statement, as always I hope to give a balanced view. The good news is that forecasts for UK growth this year have been raised from 1.4% to 2%. Inflation remains low. The budget deficit continues to be forecast to be coming down. Corporation tax is being cut to a very competitive rate. Personal saving is being encouraged by a generous increase in the ISA allowance to £20,000 a year. The Government deserve good credit for all this.

It is also encouraging to see skills sitting at the heart of the Government’s plans to boost productivity and growth. The Chancellor’s plans to fund improving technical education for 16 to 19 year-olds and to introduce the new T-levels are most welcome following the Sainsbury review. This has been welcomed by the manufacturers group the EEF and the Federation of Master Builders.

So why has there been such an unfavourable reaction to parts of the Budget? The only major spring Budget spending policy decisions are £2.4 billion to pay for the cost of extra social care and £1.9 billion to extend the free schools programme and to implement the 16 to 19 technical education Sainsbury reforms. The Chancellor wanted to find ways of paying for this. An obvious route, in my view, would have been to take the money out of the overseas aid budget of £12 billion a year, my argument being that the dire crisis at home should take priority over overseas aid—but that was not to be. It was decided that a national insurance hike had to be made.

I have discovered from a friend who used to work in Downing Street recently that the Treasury has an obsession that the self-employed are paying too little by way of national insurance in particular. Examining the situation more, they do not get free company health insurance, paid holiday and automatic pension enrolment, so their national insurance rate deserves to be lower. Unfortunately the Chancellor pressed the button on this Treasury idea, despite a manifesto pledge that national insurance rates would not rise. The Federation of Small Businesses described it as,

“a £1 billion tax hike on those who set themselves up in business. This undermines the Government’s own mission for the UK to be the best place to start and grow a business, and it drives up the cost of doing business. Future growth of the UK’s 4.8 million-strong self-employed population is now at risk”.

To heap further pressure on the self-employed, the Chancellor cut the amount of tax-free dividends they can take out of their private companies. If we are trying to encourage self-employment, what sort of message do these two measures send? Why not instead go after some overseas companies that pay such a low rate of tax here? I sincerely hope that these measures will be reconsidered. They have already encountered a lot of criticism from MPs in the other place.

While on the subject of small businesses, I shall move on to the subject of making tax digital. I join the Treasury Select Committee and the FSB in welcoming the delay of one year in the implementation of mandatory quarterly tax reporting for smaller businesses with a turnover below the VAT registration threshold. I still question the principle of making tax digital and whether the £10,000 turnover exemption is nearly high enough. It would largely benefit part-time and hobby businesses. Will the Minister address this issue in her winding-up?

For individual taxpayers, while I welcome the increase in the tax-free personal allowance and the higher rate tax threshold, why cannot the top rate of tax come down to 40%, as lower rates, as proved by corporation tax forecasts, can bring higher revenue?

A measure I do not welcome, which was mooted in 2016 and confirmed this year, is the huge increase in probate fees. I accept that the Treasury may be getting unfair criticism for what was originally a MoJ proposal. In 2016, the MoJ Minister in 2016 said this was an,

“enabling investment which will transform the courts and tribunal service”.—[Official Report, Commons, 22/2/16; col. 1WS.]

However, in my view, having to pay £20,000 to get probate for a £2 million estate is really a death tax by another name. Only 2% of respondents in a prior consultation approved of this increase—but it is set to go ahead. There was a general outcry in last weekend’s press on this. The Times reported:

“Experts accused Mr Hammond … of mounting his own ‘classic attack on middle England’”.

George Hodgson, chief executive of the Society of Trust and Estate Practitioners, told the Daily Mail:

“The government calls it a probate fee. But it’s clear from the figures that it is just a backdoor tax on bereaved families”.

Where does this leave the economy after the Budget? Growth is forecast to be slower for the next three years and then to return to 2% after that. As usual, the elimination of the deficit is pushed out further, which does not seem to worry the markets at the moment, as long as international confidence remains during our Brexit negotiations.

In summary, the Government have produced a responsible budget and have sensibly not opened the spending taps too much. But when it comes to tax-raising measures, they must not allow their huge opinion poll lead to let them take the eye off the ball. They must consult more on potentially unhelpful business and personal tax proposals before going ahead with them. Overall, since Brexit, thanks to intelligent monetary and fiscal policy and strong consumer expenditure, the economy has, so far, remained strong. The future is much more uncertain.