Budget Statement - Motion to Take Note

Part of the debate – in the House of Lords at 8:15 pm on 14th March 2017.

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Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Commercial Secretary to the Treasury 8:15 pm, 14th March 2017

My Lords, this has been a wide-ranging debate. I do not think that I will mourn the spring Budget; my noble friend Lady Wheatcroft said that she would not do so either. This is the last spring Budget and the last Lenten Budget, as the right reverend Prelate the Bishop of Chester reminded us. That I will not mourn it is perhaps surprising because I endorse what the noble Baroness, Lady Kramer, said—it has been a fascinating debate today. As the new Commercial Secretary to the Treasury, I have certainly learned a great deal.

We had a major debate yesterday, and indeed on previous days, on Brexit. I think that we can feel the influence of that debate here today. As has been said, this Budget must provide a strong and stable platform for the upcoming exit negotiations. As the Chancellor has made clear, we must be prepared for short-term economic shocks, so prudence with the public finances is even more called for than usual.

I can agree that in the negotiations with the EU we should avoid a disruptive cliff edge, which would be to no one’s advantage. We will work hard to get the best deal for the UK. We want the greatest possible access to the single market and the minimum possible disruption for business, so we will provide as much certainty as we can. We want the change from being an EU member to our new partnership to be as smooth and orderly as possible. We believe that a phased process of implementation would be strongly in the interests of both the UK and the EU, and it will allow businesses to plan and prepare.

The vote last June to leave the EU was a vote for change—to make Britain stronger and fairer. Although it was a vote to leave the EU, I emphasise that it was not a vote to leave Europe. We want to continue to be reliable partners, willing allies and close friends with European countries.

In these circumstances, we have adopted a prudent approach and given ourselves significant headroom in the public finances—£26 billion—to provide the flexibility to deal with shocks, given the wider global uncertainties, while supporting a fiscal plan to reduce the structural deficit to below 2% of GDP this Parliament. My noble friend Lord Gadhia rightly supported this contingency.

My noble friend Lord Crickhowell and the noble Lord, Lord Monks, talked about Scottish independence. As I see it, Scotland voted decisively to remain part of our United Kingdom in a referendum which the Scottish Government defined as a once-in-a-generation vote. The evidence clearly shows that a majority of people in Scotland do not want a second independence referendum. The Scottish Government should focus on delivering good government and public services for the people of Scotland.

I should add that within the EU we have always been the strongest advocate for free trade. As the noble Lord, Lord Bilimoria, said, we need to continue to invest in exports. He will be glad to know that I shall be speaking at the UK India Business Council this week. As he knows, we will continue to attract the brightest and the best to work or study in the UK, but there must be control. I can confirm that agreement on the future of EU nationals is an early priority for the Brexit negotiations.

In response to the points on customs and tariffs made by the noble Lords, Lord Razzall and Lord Wrigglesworth, I say that we want Britain to have the most frictionless and seamless trading arrangement possible with our European neighbours. We have no preconceived notions about the way in which we can achieve this but what matters is the end, not the means. This whole area is a key priority for my Treasury colleagues. I reassure noble Lords that we are working very hard on this and indeed with the industries that could be affected.

I respond to the noble Lord, Lord Monks, by saying that being out of the EU but a member of the single market would, to all intents and purposes, mean not leaving the EU. However, as I said, we want the greatest possible access to the single market.

The noble Lords, Lord Livermore, Lord Shipley, Lord Hain and Lord Palumbo, talked about our debt and our deficit, and there has been an interesting exchange on this subject. We have made progress in reducing the deficit from 9.9% of GDP in 2009-10 to 3.8% in 2015-16. Government spending as a share of GDP reduced from 44.9% to 40%. To reply to the noble Lord, Lord Bilimoria, I tell him that total government spending is forecast to fall to 37.9% of GDP in 2021-22. Returning the public finances to balance is the most reliable way of getting debt to fall and reducing our debt interest payments.

We have made real progress on reducing our deficit—it is down by two-thirds. This safeguards our economy for the longer term and keeps mortgage rates low. However, Labour left the UK with the deficit at a post-war high, at 9.9% of GDP in 2010, and—in response to the noble Lord, Lord Davies of Oldham—that is why we had to have austerity. The OBR now forecasts that the Government will reduce the deficit by almost three-quarters by 2016-17 at 2.6% of GDP. Therefore, we are making progress, but of course we need our cautious and prudent Budget.

I turn to the need for a fairer Britain. Whatever your background, you should have the opportunity to learn well, to earn well and to live a good life. Many contributions from noble Lords have implicitly supported that point, whether in discussing the challenges of social mobility, raising living standards or combating inequality. This is very much the Government’s objective, and we have taken a range of actions to support working people in their everyday lives. We have introduced the national living wage and will be raising the personal allowance to £12,500 in this Parliament and reducing the universal credit taper. By the end of this Parliament, we will be spending a record amount on childcare support, rising to over £6 billion a year. The statistics show real disposable household income going up. This rose per person in 2015 at its fastest rate in 14 years, reaching its highest ever level, and it is forecast to rise further over this Parliament.

We must also ensure that the tax system is fair. I take the positive points made by my noble friend Lord Lupton, who talked about global taxation. He knows that this Government have led international efforts to address tax avoidance by multinationals through the OECD, and the efforts on BEPS will continue.

Let me tackle head on the charge that changes that we have made to the tax system benefit the wealthiest at the expense of the poorest. The fact is that, as the IFS has stated recently, the highest earners have seen significant tax increases. In fact, the top 1% of taxpayers are expected to pay more than a quarter of all income tax this year.

On NICs, I agree that self-employment is vital to any dynamic economy, but the self-employed are taxed less than employees and the growth in the numbers of self-employed is eroding our tax base. Our proposals are relatively modest and fully justified in terms of fairness. I do not agree with my noble friend Lady Altmann. She said that business was being hit twice. People cannot be hit by the class 4 NICs increase and the dividend allowance cut in respect of the same business. People are affected by the dividend allowance cut if they are working through their own company because they are not paying class 4 NICs—unless of course they have a substantial investment portfolio. I was therefore very grateful to my noble friends Lord Horam and Lord Willetts and the noble Lord, Lord Macpherson, for their support in this matter of NICs. My noble friend Lord Willetts brought the Resolution Foundation’s research to our proceedings, which was very helpful. I also enjoyed the comments of the noble Lord, Lord Macpherson, on the difficulty of raising tax revenue, which I have already discovered in only two months.

My noble friend Lord Flight also warned of the limited scope for increasing taxes and highlighted the value of the self-employed as being vital to enterprise and growth. He is right. They are certainly not all tax dodgers, as I think the noble Lord, Lord Desai, almost began to suggest. My noble friend Lord Crickhowell called for evidence, consultation and continuity, and the changes will be the subject of a Bill that we have said we will introduce in the autumn when associated work has been progressed. We have also cut corporation tax to support businesses. I say to the noble Viscount, Lord Chandos, that this helps the country to be competitive. It has been cut from 28% seven years ago to just 20% today and it will fall to 17% in 2020.

The noble Lord, Lord Lupton, also talked about the benefits of venture capital and business support, of which the British Business Bank, which was mentioned, is part. My noble friends Lord Northbrook and Lord Flight and the noble Baroness, Lady Kramer, will also be glad to hear that we are giving 3.1 million small businesses and landlords an extra year until April 2019 to prepare for keeping digital tax records.

The long-term problem in social care has been widely acknowledged today. Although the Care Quality Commission currently rates about three-quarters of adult social care services as good or outstanding, the system is clearly under pressure, and this in turn puts pressure on the NHS. We have therefore provided extra funding for social care and for the NHS to deal with pressures on A&E. In a rather negative intervention, the noble Lord, Lord McKenzie, supported the extra funding for social care and for skills, as did my noble friends Lord Porter and Lord Horam.

But beyond managing short-term challenges, we are also looking to the longer term. We will set out our proposals for putting the social care system on a more secure and sustainable long-term footing in a Green Paper later this year.

Indeed, long-term planning has been a broader theme of this Budget. For example, we are looking in the medium term at how to find a better way of taxing the digital part of the economy and at how to make our tax system fairer and more certain with a commitment to set out proposals for smoother, more frequent revaluations for business rates in the autumn. I am sure that the noble Earl, Lord Lytton, will be glad to hear that, given the debates that he and I have had on rates on previous occasions.

One of the most important challenges for our long-term economic advance is improving productivity. It is the tide that lifts all ships and something on which the noble Lord, Lord Davies, and I seem to be in strong agreement. The Autumn Statement focused on investment in infrastructure and innovation and the new national productivity investment fund. This Budget outlined further details. We have, for example, announced funding for 110 more new free schools. Some will be selective, as has been pointed out. I see no reason to apologise for that.

I should also say a word about technical education, which I talked about at length in my opening speech, and about apprenticeships, which were mentioned by the noble Lord, Lord Haskel. I know from my own experience that these are valuable to businesses and we are working with employers to make them even better. As he said, better skills and training, and better people, will make firms stay in the UK. The apprenticeship levy is a necessary part of delivering 3 million apprenticeships. Crucially, our system puts control of funding into the hands of employees.

I was also asked about school inspections. Ofsted considers how well prepared pupils are for the next stage of their education, training and employment when it inspects schools nowadays. I think that was a concern expressed by the noble Lord, Lord Shipley, who rightly emphasised the importance of housing investment to productivity. We issued a White Paper on 7 February, setting out ambitious, lasting reforms to get more houses built faster. He and the Chamber have debated that with my noble friend Lord Young, who is on the Front Bench now and has given me such good support during this debate. My noble friend Lord Porter will be glad to know that more than 300,000 affordable homes have been delivered since 2010 and that more than double the amount of council housing has been built in the seven years since 2010 than in the 30 years before.

My noble friend Lord Willetts and the noble Lord, Lord Bhattacharyya, added useful suggestions on how we tackle the productivity dilemma, rightly referring to the work now being done by BEIS and by Greg Clark. My noble friend Lord Willetts also drew our attention to the intergenerational unfairness of younger workers having to pay to plug pension schemes. I will certainly look at the DWP consultation that my noble friend mentioned.

My noble friend Lady Altmann shared the benefit of her experience in pensions and social care. I took her point about pensions and insurance assets being possible vehicles for infrastructure and housing investment. The Green Paper on social care that I mentioned will give us an opportunity to look at some possibilities. I hope noble Lords will contribute.

My noble friend Lady Wheatcroft emphasised the importance of management to better productivity. That is certainly true in the retail trade. Sir Charlie Mayfield, whom she mentioned, is helping us with the productivity puzzle. Under his inspiration there was £13 million in the Autumn Statement to support firms to improve management skills. That work needs to cut through in the industrial strategy.

I have a little more time. The noble Lord, Lord Monks, whom I worked with for many years, talked about investment in people and in businesses. We have published a Green Paper on governance inviting views on how to have better engagement with workers in companies, as he will know. The noble Lord, Lord Skidelsky, gave his own personal perspective on productivity, but I was glad that he welcomed the investment in infrastructure that we are now beginning to make.

The noble Baroness, Lady Burt of Solihull, talked about equality. The Government are committed to fairness and the promotion of equality. That is why the old and disabled will benefit from the £2 billion to councils in England for social care services that we have discussed and the young from investment in schools and skills. As she said, we have provided some very welcome seed funding for women returners. This is an area that I am very keen on too. I know that it can make a substantial difference.

My noble friend Lord Marlesford asked why the Chancellor had not taken any action on fuel duty. The Chancellor is mindful that fuel prices are a major cost-of-living issue for a very large number of drivers. It is an important input for business.

Various other suggestions have been made, from red diesel for council lorries to better uses for the tampon tax, to help for small shops from my noble friend Lord Carrington.

This has been a very good debate and I look forward to reading Hansard with great care. I say to the right reverend Prelate the Bishop of Chester on the NHS that the Government are supporting those geographic areas with strong cases for transforming the way that services are delivered to provide better care for patients and to put the NHS on a more sustainable footing, including investing a relatively small sum of £35 million over the next three years to back the first set of sustainability and transformation plans, which are so important.

To conclude, this is a prudent and fair Budget, with investment in skills, infrastructure and social care and with the longer-term perspective we need for sustained success. It paves the way for a truly global Britain and a country that works for everyone.

Motion agreed.