My Lords, I refer noble Lords to my interests in the register. I like boring Budgets—they tend to do less harm to the economy—and this one had all the makings of a very boring Budget. With Brexit, this is not the time to be making big changes; those will undoubtedly have to come when we see the shape of our economic future outside the EU. It was a boring Budget until some minor changes blew up and swamped the good news on the economy overall. Our economy is doing quite nicely so far; we just cannot know whether the economic cycle will get boosted or blown off course by Brexit.
There are a number of warning signs that may or may not prove serious, but one that certainly looks serious and needs addressing is our poor savings ratio. So I am concerned by the reduction, even if for understandable reasons, of the dividend allowance. It is bound to hit the willingness to save. If that tax increase has to come at all, it would perhaps be better at a time of rising interest rates in order to offset the negative impact on investment.
Interest rates need to rise; the depreciation of sterling, particularly against the US dollar, is certain to lead to inflation in the next 12 months. Rising inflation will be tough for everyone but the sooner that interest rates start on an upward path, the better. A very gradual increase would allow homeowners with mortgages to adjust and allow the Treasury itself to cope with higher interest payments to fund our overweening debt burden. On the plus side, a rise in interest rates would encourage more people to save and invest. I realise that the Bank of England and the Treasury have got so badly burnt in the past that they have an almost religious belief in not worrying about the exchange rate, but businesses would greatly value a more stable sterling than our present policy seems to allow. Volatility in the exchange markets is very good for bankers but not for anyone else.
I do not want to get into the sad tale of the NIC increase other than to say that breaking what most people think was a manifesto pledge is storing up credibility problems for the future. The real problem is not the NIC rate change—after all, the financial impact of that will be small—but the NIC system itself. It is a fantasy to suggest that NIC pays directly for state pensions or welfare benefits, let alone the NHS. It does not and has not done so since the 1930s. It is another form of direct taxation, partly on employers and partly on workers, whether employed or self-employed. In other words, NIC is what we all know it is: another form of income tax coupled with an employment tax. We should take the opportunity of this time of change to merge NIC with income tax. Such a change will be full of potential pratfalls but, as this row has shown, not changing the system is now surrounded with heffalump traps.
While the Chancellor is about it, a simplification of our tax legislation is long overdue. Our tax is overcomplex and full of avoidance loopholes created intentionally or unintentionally by Governments of all persuasions.
I do, however, welcome the transitional support for business rates. This may be predominantly a London issue. Business rates in central London are now very high: a small shop in a high street with a good footfall will be paying large amounts in rates relative to its turnover. It can of course be argued that, as business rates are calculated from the rents the shops pay, they would not pay them unless they had the profits to justify it. But that, of course, masks a much bigger problem. What has happened in London is that small independent retailers and artisanal workshops have been and are being forced to close or relocate out of town. I am a Londoner born and bred with no great wish to live anywhere else. I have seen the small specialist shops which used to abound in our high streets close, to be replaced with the chain stores which often remain on the high street for only a short time while they make a quick profit, often to be replaced with charity shops, which do not pay business rates at all. Many of your Lordships will be familiar with cities such as Paris or Rome, where small artisanal shops still survive. Indeed, New York is better off than London for small independent retailers.
This is a complex problem, much broader than business rates. The planning system and zoning for planning are crucial, as are the rents that landlords can reasonably expect in a free market. And I think we have to be very careful before limiting the right of landlords to manage their properties in the way they think is in their best interests. But I do think we need to look at the problem of small retailers and artisans in our inner cities. Since nothing tried in the past has worked, perhaps now is the time to look at all the factors causing this decline and to seek a cross-departmental solution.