Economy: Budget Statement - Motion to Take Note

– in the House of Lords at 3:25 pm on 13th November 2018.

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Moved by Lord Bates

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

Photo of Lord Bates Lord Bates The Minister of State, Department for International Development

My Lords, just under two weeks ago the Chancellor of the Exchequer set out the autumn Budget to show the British people that their hard work is paying off: eight straight years of economic growth, with more than 3.3 million more people in work, wages growing at their fastest pace in almost a decade and debt beginning to fall—an economy that is back on its feet again and fit for the future. This Budget signals that austerity is coming to an end but maintains fiscal discipline. This Budget rewards the British people and their cherished public services but reminds us that financial discipline must still prevail.

Let me first set out the forecast contained in the Office for Budget Responsibility’s Economic and Fiscal Outlook. The UK’s economic outlook continues to exceed expectations, and the OBR expects growth to be resilient across the forecast period, improving next year from the 1.3% forecast at the Spring Statement to 1.6%, then 1.4% in 2020 and 2021, 1.5% in 2022 and 1.6% in 2023. The Budget forecast, taking into account all announcements made since the Spring Statement, shows the deficit down from almost 10% before 2010 to less than 1.4% next year under this Government and falling to just 0.8% by 2023-24. Borrowing this year will be £11.6 billion lower than forecast at the Spring Statement—just 1.2% of GDP—and is then set to fall from £31.8 billion in 2019-20 to £26.7 billion in 2020-21, £23.8 billion in 2021-22, £20.8 billion in 2022-23 and £19.8 billion in 2023-24, its lowest level in over 20 years.

So we meet our structural borrowing target three years early and deliver borrowing of just 1.3% of GDP in 2020-21, maintaining £15.4 billion headroom against our 2% fiscal rules target. We are no longer borrowing at all to finance current spending, and the OBR confirms that our national debt peaked in 2016-17 at 85.2% of GDP, and then falls in every year of the forecast period from 83.7% this year to 74.1% in 2023-24.

Due to the hard work of the British people and this Government’s prudent public finances, we can provide additional support for public services in the spending review. The Prime Minister announced the single largest cash commitment to our public services ever made in peacetime by the Government—an £8.4 billion five-year deal for our precious National Health Service. As the Chancellor made clear, we are delivering this historic £20.5 billion real-terms increase for the NHS in full over the next five years.

As we have been remembering this past weekend, the bedrock of this nation’s security is a strong defence. Our Armed Forces are a vital pillar of the UK’s past, present, and future. This is why the Budget commits an additional £1 billion to the Ministry of Defence to cover the remainder of this year.

The Budget also made provision for £400 million in-year capital payment to schools.

Along with investing in our vital public services, this year’s Budget includes a record set of spending commitments focused on boosting industry and our world-breaking technologies: with £1.6 billion of new investment to support our modern industrial strategy, ranging from nuclear fusion to quantum computing; £150 million for fellowships to attract the brightest talent to these shores from around the world so that our scientific research can continue to lead the world; and our commitment to infrastructure, including expanding the national productivity investment fund once again to more than £38 billion by 2023-24, so that over the next five years, total public investment will grow by 30% to its highest sustained level in 40 years.

As we finalise our departure from the EU and deliver a deal that secures Britain’s future trade, we must unleash the investment that will drive our future prosperity. So the Budget increases the annual investment allowance from £200,000 to £1 million for two years, delivering on a long-standing ask of the British Chambers of Commerce. Other initiatives also boost this country’s businesses, such as targeted relief for the cost of acquiring intellectual property-rich businesses, and a permanent tax relief for new non-residential structures and buildings.

Backing business means backing every type of business: large and small; online and offline. But we must also recognise that there is one part of our economy that is currently confronting that challenge in spades: our high streets. The Budget provides £675 million of co-funding to create a future high streets fund to support councils to draw up formal plans for the transformation of their high streets. The fund will invest in the improvements they need and facilitate redevelopment of underused retail and commercial areas into residential purposes.

We will consult on how modernisation of the use classes order and compulsory purchase order regime can help to facilitate the transformation of the high street. We went further by committing to ease the burden of business rates. At the next revaluation, in 2021, rateable values will adjust to reflect changes in rental values, but I want to help retail businesses now. So for the next two years, up to that revaluation, for all retailers in England with a rateable value of £51,000 or less, business rates will be cut by a third. That is an annual saving of up to £8,000 for up to 90% of all independent shops, pubs, restaurants and cafés.

We are increasing the transforming cities fund to £2.4 billion and providing an additional £90 million to trial new models of smart transport. We are funding 10 university enterprise zones. There is £115 million for digital catapults in the north-east, Northern Ireland and the south-east and for the medicines discovery catapult in Alderley, £70 million to develop the Defence and National Rehabilitation Centre near Loughborough, £37 million of additional development funding for the northern powerhouse rail project, and £10 million for a new pilot in Manchester to support the self-employed to acquire new skills. Here, in our capital, we are supporting the delivery of a further 19,000 homes by improving the Docklands Light Railway with housing infrastructure fund money.

The decisions announced in this Budget mean, in 2020-21, an additional £950 million for the Scottish Government, £550 million for the Welsh Government and £320 million for a Northern Ireland Executive.

As well as backing all parts of the United Kingdom to invest and grow, we will make sure that British workers are equipped with the skills that they need to thrive and prosper. We have introduced a new system of T-level vocational training, we have put the first £100 million into a new national retraining scheme, and through the apprenticeship levy we are delivering 3 million high-quality apprenticeships. That system is paid for by employers, and it has to work for employers. The Budget recognises this and announces that, for smaller firms taking on apprentices, we will halve the amount that they must contribute from 10% to 5%. In total, this is a £695 million package to support apprenticeships.

As our economy evolves in the digital age, so must our tax system, to ensure that it remains fair and robust against abuse, and raises the revenues that we need to fund our public services. That is why we are proposing in the Budget a ground-breaking digital services tax to ensure that large digital firms pay their fair share of tax to support our public services. The employment allowance was introduced to incentivise businesses to take on employees, but at a flat rate of £3,000 per employer, it does not provide any real incentive for larger employers. So from April 2020, we will target it at small and medium businesses with an employer’s national insurance bill of less than £100,000 a year.

We cannot resolve the productivity challenge or deliver the high standards of living that the British people deserve without fixing our housing market. The Budget extends first-time buyers relief to all first-time buyers of shared ownership properties valued up to £500,000. It also makes this relief retrospective, so that any first-time buyer who has made such a purchase since the previous Budget will benefit. The focus on £500 million of investment for the housing infrastructure fund will unlock a further 650,000 homes; the next wave of strategic partnerships with nine housing associations will deliver 13,000 homes across England; and up to £1 billion of British Business Bank guarantees will support the revival of SME housebuilders.

The Government are continuing to roll out universal credit, which delivers long-overdue reforms to the welfare system. However, the Government recognise the genuine concerns raised in many places, including in your Lordships’ House, about the programme. This particularly focuses on the implementation and delivery of universal credit. It is an enormous undertaking, and we have been clear that we want the migration process to be as smooth as possible. This is why the Budget introduced a package of measures, worth £1 billion over the next five years, to aid the transition. We have listened to the concerns about the rates and allowances within the design of the system. In response, work allowances in universal credit are being increased by £1,000 per annum, at a cost of £1.7 billion annually once rollout is complete. That will benefit 2.4 million working families with children, and people with disabilities, by £630 per year. Universal credit is here to stay, and we are putting in place the funding it needs to make sure it is a success, because we ardently believe that work should always pay.

Under this Government, the poorest 20% have seen their real incomes grow faster than the richest 20%, and the proportion of jobs that are low paid is at its lowest level for 20 years, thanks to the national living wage introduced by a Conservative Government in 2016. From April, this will rise again, by 4.9%, from £7.83 to £8.21 per hour, handing a full-time worker a further £690 annual pay increase and taking his or her total pay rise since the introduction of the national living wage to more than £2,750 a year. We accept the Low Pay Commission’s recommendations on national minimum wage rates and will support young people and apprentices with further above-inflation increases. The Low Pay Commission’s current remit is for the national living wage to reach 60% of median earnings by 2020, subject to sustained economic growth. Next year, we will give the Low Pay Commission a new remit, beyond 2020. We will want it to be ambitious, with the ultimate objective of ending low pay in the UK. We will also want to be careful, protecting employment for lower-paid workers, so we will engage responsibly with employers, the TUC and the Low Pay Commission itself over the coming months, gathering evidence and listening to their views to ensure that we get it right.

As well as making work pay, we want working people to keep more of the money that they earn. When we came into office, the personal allowance was £6,475 and the higher rate threshold was at £43,875. In April, the Chancellor raised this figure to £11,850 and the higher rate threshold to £46,350, as steps towards our manifesto commitments of £12,500 and £50,000 respectively by 2020. The Budget met our manifesto commitment a year early, and it committed to raising the personal allowance to £12,500 and the higher rate threshold to £50,000, before indexing both in line with inflation from 2021 to 2022. That is a tax cut for 32 million people: £130 in the pocket of a typical basic rate taxpayer, meaning that, since 2015, we have taken 1.7 million people out of tax altogether and nearly 1 million people out of higher rate tax.

How successful our future is depends on how successfully our country comes together and faces the challenges and opportunities that lie in wait. More than ever, it has shown the British people that their hard work has resulted in better living standards, a stronger economy and better and more sustained funding for our great public services. As we prepare to leave the European Union, this Budget lays the foundation for an economy that is fit for the future, and I commend the Statement to the House.

Photo of Baroness Smith of Basildon Baroness Smith of Basildon Shadow Leader of the House of Lords, Shadow Spokesperson (Northern Ireland), Shadow Spokesperson (Cabinet Office) 3:39 pm, 13th November 2018

My Lords, today’s debate takes place against a backdrop of huge uncertainty for the future of this country. I listened to the Minister with great care, but I suspect that my analysis of the Budget is somewhat different from his; I do not share his great enthusiasm for some of the measures he spoke of. We have come a long way from the Prime Minister’s mantra of “Brexit means Brexit” because, under the stewardship of the Government, no one has a clue what Brexit will mean or of its implications for the economy. Yet again, we are told that it is crunch time, but today’s Cabinet did not even discuss the so-called deal; we are advised that there is “cautious optimism”—whatever that means.

At one time the Government had what they called a long-term economic plan. They said that it would make public services more efficient, ensure that work would pay, and they promised it would make our economy more resilient. To provide this, we would all need to tighten our belts through an extended period of austerity. Times would be tough, but we were all in it together, and it would be worth it as we emerged into the promised bright economic future. Now, however, it is clear that the ideological commitment to austerity has failed our country both economically and socially. It has brought misery to communities, families and individuals.

It is also clear that it has failed politically, with Theresa May telling her party’s conference that, “Austerity has ended”. But yet again, she was addressing the internal problems of the Conservative Party rather than those of the nation. The Prime Minister needs to shore up her support with her own MPs, many of whom defend the ideology of austerity but are unable to justify it to struggling constituents. So, with that long-term economic plan now abandoned, the Chancellor had to deliver a Budget, boxed in by that quite desperate political pledge, when he wanted to take a more pragmatic, longer-term approach. This was evident at last week’s Treasury Select Committee, where the Chancellor displayed a more realistic pragmatism than the Prime Minister. He advocated a balanced approach to deficit reduction rather than an ideological commitment to austerity.

Let us examine the detail of the Budget. The OBR forecasts are just slightly better than last year, although it warns of slowing growth in business investment, and unsecured debt rising as a proportion of household income. It recognises that inflation remains slightly higher than was forecast, and has revised down its growth predictions. Also, while employment has marginally increased, there has been no significant improvement in wage growth. It is hardly a rosy picture. As one commentator concluded, the Chancellor,

“claims strong growth, but it’s mostly froth”.

However, the reduced borrowing forecast from the OBR provided flexibility for the Chancellor and more money to draw on for this year. But it is described as a “gamble” by the independent IFS, given that the OBR could easily reverse that decision next year. This would leave the Chancellor in a pretty tricky situation. He is unlikely to reimpose austerity, so he would have two options: increase borrowing or raise taxes. Despite that warning, the Chancellor has chosen to spend rather than save, with decisions predicated on a smooth Brexit and a two-year transition phase. But does that spending help those who need it most or provide a coherent strategic approach to strengthen the economy?

Back in June, we welcomed the announcement of additional funding—£20 billion—for the NHS, which is repeated in this Budget. But it is now clear that other public services will pay the price. Day-to-day public service spending, outside health, is 19% lower than in 2010-11, and is set to stay broadly flat between now and 2023-24. No wonder the IFS has described the situation as unsustainable, with the likelihood of tax rises. In addition, despite extra funding for the NHS, how much of this could end up spent on existing loans and deficits?

Last year, the NHS in England overspent the Government’s budget by £4.3 billion, while trusts owe £7.8 billion in loans. That is almost £12 billion, just under 60% of the new money the Government have announced. Meanwhile, decisions on non-NHS budgets for social care, public health and training are being parked until the spending review. How can we possibly address the crisis in social care unless we look at these issues together and set out a broader strategic plan?

On education, one of the most depressing announcements in the Budget was the £400 million schools funding for—here I quote the Chancellor—those “little extras”. This is barely more than 10% of the £3.5 billion cut from education since 2010. We are still seeing a cut in pupil funding, so however clever the Government think they are being with the figures, teachers know the real impact in our schools. It continues post school, with investment also lacking in skills and training. It is not just the futures of today’s pupils that the Government are stifling, it is all our futures if we fail to properly educate and train the young people that we need to build the society of tomorrow.

The Government have talked of devolving powers and responsibility, but it is really about passing the buck because those who are given that responsibility can operate only within the financial constraints handed down by the Government. Local councils, having already borne much of the brunt of so many austerity cuts, are being hit again with reductions next year of a further £1.3 billion, leading to a funding gap of £7.8 billion by 2025. Prisons, meanwhile, face cuts of £510 million through to 2023 on top of the 21% reductions since the start of this decade. Moreover, unprotected departments will still face real day-to-day cuts of 2.9% per person through to 2024.

Elsewhere, the Government are not even trying. There was not a single penny in the Budget for regular policing where the impact of cuts continues to be felt in all of our communities. With the loss of 21,000 staff, 999 calls are not being responded to and the police are having to make decisions about the crimes they can or cannot investigate. We are all paying the price because of the lack of resources.

Then there is a sleight of hand in other areas, from defence to pothole repairs, where new money does not extend beyond a year. Does the Minister really understand the depths of frustration of police officers, teachers, those working in social care and other public servants? Pushed to the brink, they are unable to fulfil their responsibilities because of the failed austerity policies of this Government. We see a lack of strategy for welfare, a lack of strategy for health and care, a lack of strategy for education and skills, and a lack of strategy for defence, roads and policing, along with a lack of anything resembling a strategic vision for the future of our country. This seems to be a blatant attempt to apply sticking plasters to open wounds.

The Government have made much of their plans to reverse the intended cuts to welfare benefits, but in reality it is only a quarter of the £12 billion-worth of cuts planned by 2020. The other 75%, as announced in 2015, remain the Government’s policy, with half the amount yet to be rolled out impacting directly on families. Not only does the benefits freeze remain, but the tax cuts will cost far more than the changes being made to universal credit. As demonstrated by the Resolution Foundation, those tax cuts will see 84% of gains go to the top half of earners in the country, with 37% going to the top decile alone. When you take the tax cuts and universal credit changes together, the top 10% of households will see a 14 times greater benefit in cash terms than the bottom 10%.

The impact of austerity may not have reached Downing Street, but it has reached millions of our citizens, including many in low and medium-paid employment. For those workers, pay packets are not expected to return to pre-crisis levels until the end of 2024. Any extra money in their pockets is welcome, given the hit that they have already taken, but the balance is wrong. This Budget has failed to live up to the anti-austerity hype. In reality, there will be no meaningful end to austerity for hard-working people and their families.

Where are we now? Looking at this Budget alongside the disorderly approach to Brexit, it feels as though the Government are taking a blind corner at speed. In proclaiming the end of austerity but failing to offer or deliver any alternative other than disjointed giveaways, the Government have destroyed their own self-proclaimed assertion of economic competence. They have abandoned that long-term economic plan with nothing credible in its place. Talk of an emergency Budget in the event of a no-deal outcome inspires little confidence that Ministers are prepared for what could happen to the economy and to our public services in such a situation. Indeed, are they at all prepared for any kind of Brexit?

The principle objective of the Government appears to be their own survival, with short-term decisions that do nothing for the longer-term future of public services or the economy. Paul Johnson from the independent IFS has said:

“If I were a prison governor, a local authority chief executive or a head teacher, I would struggle to find much to celebrate. I would be preparing for more difficult years ahead”.

He could have said much the same about a parent or a carer. The first priority of a Government to their citizens is security and safety. But they must also offer hope and optimism—that the future will be brighter; our children will have greater opportunities; hard work, training and education will pay off; taxes will be fair and public services good; and that when things go wrong there is a reliable safety net and support. But the Government have spectacularly failed even to acknowledge this, and to understand how their policies, and lack of competence and direction impact on that hope and optimism.

This has to change. Anything less is a dereliction of duty. We should start by getting Government not just to talk of ending austerity, but to offer a new, strategic, open and forward-looking approach that invests in our people and economy and, most of all, gives a genuine reason to be optimistic for the future.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy) 3:51 pm, 13th November 2018

My Lords, it will come as no surprise to hear that those of us on this Bench do not share the ebullience that the noble Lord, Lord Bates, displayed when describing the Budget. That is because, when we are out in our communities and back at home, we see a country that is very divided. We talk to people and they are extremely cynical about what goes on in this place. When you see the Budget, you can see why they have that cynicism.

Since the banking crisis, most people have seen their livelihoods eroded. While the very latest data shows that wages are at last exceeding inflation, the story of the last 10 years has been one of people’s spending power being eroded. This is particularly true for those working in the public sector. It is no good the noble Lord or the Chancellor relying on growth to get the Government out of that hole. The latest uptick in GDP more likely reflects—I apologise to Welsh, Scottish and Irish Peers in the House—England’s success at football than it does a major change in the economy. Overall, growth remains stubbornly low and holding below 2% in the next five years of the OBR’s forecast.

That has consequences. The Resolution Foundation—while not necessarily agreeing politically with the Conservative Party, it is a well-resourced, authoritative economic group—warns that day-to-day spending on things other than the NHS, overseas aid and defence will face real-term cuts of 3% per person by 2023. That is a huge consequence, yet even this dreadful prospect is overshadowed by the damaging impact that Brexit—if it happens—will have on the UK’s public finances. These costs could reach £80 billion per year in the event of no deal, some people say. To be honest, no one can estimate it, but we do know that it will cost many tens of billions of pounds. Meanwhile, as I have said, the underlying problem of the economy remains: the wealth gap, the difference between the richest and poorest in this country, which is widening. It has not been helped by the penny-pinching and debacle over universal credit; indeed, it has been hindered massively.

That brings us back to the mood of the nation. People feel that there has been no justice, and it is easy to see why. The acknowledged source of most of the problems arising from the crash was the banking industry, yet it enjoyed massive government bailouts and support to survive, with virtually no repercussions for its collective bad behaviour and certainly with no individuals really being brought to book. Indeed, there are signs that the banking industry is still finding innovative ways of storing up problems for the future, and the Bank of England has recently warned about toxic corporate loans. Meanwhile, in the wider corporate sector, executive remuneration is pushing all the wrong buttons for the rest of the country. Therefore, is it any wonder that voters are cynical? Should we be surprised when people whose pay rates have been frozen for so long feel sore, and can we really complain when collectively they tell us that politics is wrong and has a bad name?

Budgets are as much about theatre as they are about economics, and we saw some theatre last week. Often, what they achieve is as much an indication of the direction of travel as an indication of any major movements, and so it is with this one. The noble Lord, Lord Bates, should be congratulated on his optimism. His colleague the Chancellor generally has a well-deserved reputation for dullness but, among the spectacular ruins that we see in other elements of political life today, even Philip Hammond felt the need to shed his reputation, play politics and try to do more exciting things with his Budget. We have heard from the noble Lord, Lord Bates, some of the eye-catching things that were put forward.

Of course, the Chancellor’s real wriggle room was blunted by his boss’s promise of a birthday present for the NHS. Therefore, as the noble Baroness, Lady Smith, pointed out, he spent most of the borrowing improvements in the OBS’s forecast on the NHS, and I am sure that my noble friend Lady Jolly will say more about that later in the debate. As the noble Lord, Lord Bates, pointed out, the Chancellor has left the country with £15 billion of headroom against future borrowing targets, but I am sure that he will need much more than that if Brexit occurs.

However, it is not just healthcare by which we should judge this Budget or this Government. This and any other Government should be judged by a number of fundamental criteria, and those were touched on by the noble Baroness, Lady Smith. I propose three main touchstones for seeing how well a society is performing. I would judge it, first, on how well it equips its young people to embrace the future; secondly, on how well it looks after its elderly and frail; and, thirdly, on how safe and secure people feel in their homes and neighbourhoods. On all three counts, Her Majesty’s Government are failing.

I turn, first, to schools. As we heard, the Chancellor scattered some crumbs for schools but the minimal joy that that might have given them was banished by the throwaway phrase about “little extras”. That indicated just how little the Government grasp the financial plight that our schools are in, and just how little they understand that schools are looking not for treats but for money to pay their teachers and classroom assistants. The Budget does not address the unfunded pay rises, and even more pain is looming for our schools. The spectre of increased employer contributions for pensions next spring will create another financial black hole for many schools. I was speaking to a head teacher who has just been brought in to rescue a failing school. He is already looking at what he will have to do to meet the shortfall in his budget due to increased pension contributions. It will mean losing classroom assistants and possibly teachers. I ask the noble Lord to take that back to colleagues and to remember that a big issue is looming—one that we have not really seen yet because so many other things have been going on.

There are, of course, other crises in education. The funding of children with special educational needs is really important and has plunged a lot of our councils, if not all of them, deeper into the red. As with many elements of public expenditure, the Government are underfunding the local authorities while expecting them to bear the brunt and maintain—or enhance—levels of service. The Government do not seem to understand that this cannot go on for ever. They cannot do things with nothing.

The same is true in the care of older people. There is a crisis in social care. While the NHS did get a raise, social care did not get anything near the black hole of £2 billion that it faces. It is taking a cut every day. It is up to the Government of the day to lead on this issue and fund the care needed by people up and down the country now. The here and now of social care is that many people are suffering because the system is being bled of resources. It is no good just floating ideas for future possible solutions, having yet another inquiry, and not backing that up by embracing the problem and funding the solution today. I would like to hear what the Government will do today to address today’s problems.

The third measure was personal safety—in other words, policing. However the Government choose to judge themselves, they are not doing well on policing. It is going very badly, and this is not the fault of police officers. I know an officer in a response unit with a few years’ experience. To start with, his unit is short of 10 vehicles, which have been carted off to another region, so he already has one arm tied behind his back. Then, in addition to being asked to respond to incidents, he has been given eight cases and asked to clear those up in the meantime. This gives an indication of how front-line police officers are being stretched, and why many are considering their future in the force. Without changes, the police system is going to really collapse, and we have to do something about it. That is one anecdote, and many other police officers have similar anecdotes to tell. The situation in our police forces is not sustainable.

Those are the three factors by which we can judge a Government. Yet what does the Chancellor do? He gives a little money here and a little there, but then proposes tax cuts, which, as we have heard from the noble Baroness, Lady Smith, benefit the most well-off and not the poorest in this country. The Liberal Democrats would ensure that the wealthy paid their fair share. We have proposed alternatives that would help to fix the tax system. We would tax wealth and commercial land value, and would use that to invest in public services, schools and police. The commercial land value tax would also help hard-pressed local businesses.

At the outset, I said that a Budget indicates a direction of travel. This being the case, it is clear that the Government do not grasp the big issues facing people. In deciding to maintain cuts in corporation tax and in reducing personal tax for the most well-off in the country, the Government are rewarding the wrong people. It is the opposite of virtue signalling. Meanwhile, the majority of people are experiencing no or low growth—and sometimes falls—in their income. They are prey to catastrophically underinvested public services. This Budget, coupled with the spectre of Brexit looming over the horizon, just demonstrates that the Government have a tin ear to the real issues facing the United Kingdom.

Photo of Lord Wakeham Lord Wakeham Conservative 4:03 pm, 13th November 2018

My Lords, the last time I followed the noble Lord, I had never heard him speak before. I was at a considerable disadvantage, because I had received a message—which came from his mother—asking how he was doing. I waffled on a bit about how good and effective he was, but I had actually never heard him say a thing in the House. This year, I am at least able to report—through my friend, who is a friend of his mother’s—that he is doing pretty well. I do not agree with what he says, but he made a good contribution to the debate.

I have been around long enough to have lived with a lot of Budgets. It is surprising how often, if they are a great success in the first few days, they are not too good a week later. That is the way it normally works. This Budget was not like that at all. Members on this side of the House, both here and in the Commons, were, by and large, supportive of it, and the opposition parties were opposed to it. Frankly, not much has changed since the original Budget, which is not the normal pattern.

I want to say one or two things about the taxation policies. I have some concerns, and there are some things that I think are right. First, I want to talk about stamp duty. In my view, stamp duty is a bad tax because it is a tax on change. We want change in our country, and for all my political life, that is what we have been seeking. There are many examples of where change is not happening because of the high rate of stamp duty. Take, for example, downsizing in housing. I would like the Government to look more at the economic costs of stamp duty to see whether there are ways—I believe that there are—to raise just as much money without the same amount of damage that stamp duty causes. It must be 25 years since I was in the Treasury. Then, it absolutely loved stamp duty, because it is an easy tax to collect. Ministers will have a hard job persuading the Treasury that stamp duty is not the right way forward, but they should have a try.

Secondly, the Government are absolutely right to try to get a fairer amount of tax from the enormous tech giants, which play an important part in our economy. But this brings into focus a problem that has been around for a long time: corporation tax itself is not a terribly fair tax. A UK-based company with no overseas affiliates pays the full rate, whereas if you are part of an international group and organise yourself in the way that these companies seem to be able to do, you get a lower tax rate. The Government are right to tackle this, but there are wider issues that they have to consider. The Government are also right to be cautious about what they do, because we as a country earn a great deal of money from intellectual property that is sold abroad. If we move too quickly and without agreement on the way to deal with the problems, we might find that we are paying more tax not less. The Government have made the right start, and I want to encourage them.

The third thing I want to talk about, very briefly, is the massive change in the way that we collect taxes, which was not even mentioned in the Budget speech. I refer, of course, to making taxation digital. Originally, this required all businesses, however small, to file their accounting information online four or even five times a year. About a year ago, in a Select Committee report, some of us said that while the object is right, it was likely to have the most disastrous consequences for the way that a lot of people operated. To its credit, HMRC persuaded the Chancellor—somebody did; I am giving it the credit—to delay the introduction by one year and to exempt many smaller businesses from its proposals. It is to be congratulated on that.

There are, however, still some pretty massive problems. According to a survey by the Institute of Chartered Accountants—of which I have been a member for over 60 years; it does not even charge me a subscription anymore, I have been a member for so long—only 51% of businesses registered for VAT have ever even heard of making taxation digital, and only 58% of the businesses that next year will have to file their returns under this new system have made any provision at all to go down that road. The Government and the Inland Revenue have got to work hard if they are not to have a disaster or difficulties on their hands.

The next stage in the revolution which will come is to make everyone file their income tax information in the same way. The Government have rightly said that they will not do this until they are satisfied that the first stages of it are working properly. That is an important pledge. I am glad that they have given it and I hope that they stick to it. Let us get the first thing done. It is the right policy—I am not arguing about that—but the changes are dramatic for many people.

The last thing I wish to address—this was not in the Budget but hardly a day goes by when it is not on the front pages of newspapers regarding business affairs—is the understandable concern about the significant number of audited company accounts that turn out to be in serious error. There are legitimate calls for inquiries into the role of the auditors. I am perfectly happy that those inquiries should happen to see whether some of the things they got involved in were not quite as they should be. However, I would also make the simple point, which seems to be elective, that it is not the auditors but the directors who prepare the accounts of the companies. It is with the directors who have presented phoney or incorrect accounts for their auditors to audit that the prime responsibility for inaccurate accounts lie. I like to take every opportunity to remind people that it is not always the auditors’ fault. Sometimes it is the auditors’ fault, but not as often as it is the fault of the directors of the companies. They need to take more care and perhaps make more provision to ensure that they present to their shareholders and the tax people accurate information.

Photo of Lord Wood of Anfield Lord Wood of Anfield Labour 4:12 pm, 13th November 2018

My Lords, I will follow on seamlessly from the noble Lord, Lord Wakeham, and talk about who pays tax and how much we as a country pay in tax. Those are two points—one on which the Budget was silent and one on which it was loud but misleading.

The first is an issue that gets less attention than it should because it is important to our nation’s fiscal health—the state of our tax base. The Budget continued the trend of all Budgets since 2010 by raising, once again, the personal allowance threshold—this time to £12,500, a year earlier than planned—as well as increasing the higher-rate threshold to £50,000. I suspect that across the House there is agreement that taking low-income earners out of taxation has the right goal, at least, in mind—but the consequences of doing so for the breadth of our tax base should give us pause for thought.

The personal allowance has increased by 120% in a decade. That is 94 percentage points more than inflation. Decisions by successive Chancellors since 2010 will reduce income tax receipts by £24 billion alone through the personal allowance threshold increases. That is 1% of GDP by 2021. In the past decade the proportion of That is 2 million fewer people paying any income tax at all, despite population growth.

The narrowing of the tax base has been accelerated by the boom in self-employment, which has been concentrated among low earners. The proportion of self-employment incomes below the personal allowance threshold has nearly doubled in 10 years, from 30% to 60%. There is a similar story of narrowing the tax base elsewhere—in business rates, in stamp duty land tax and perhaps also in capital gains tax. Across the spectrum, government policy decisions mean that we are reliant on an ever-lower number of tax payers.

Why is that a problem? Because increasing our dependence on a diminishing number of taxpayers exposes the public services that they fund to the risk of economic volatility and the risk of losing tax revenue as wealthier taxpayers’ behaviour changes to reduce their tax payments or avoid them. The richest members of our country face a tax system that taxes their income but hardly makes a dent in their wealth or property. From an economic point of view, that is madness. No wonder so many high earners reduce their income tax bills by swapping 45% tax rates on their high income for considerably lower taxes on the companies they form to hold their income.

If we are to preserve the health of our tax base, we need to return to making distributional decisions through varying tax rates and using existing taxes on the books that we are scared to touch—such as the fuel duty escalator, which sits in mothballs in our tax system—rather than by eroding the tax base. We also need to extend the tax system to encompass wealth, rather than just income, to broaden the tax base and have a tax system that matches how people make their income.

The second issue is connected to the tax base. It is the question of ending austerity and how to finance the turning on of the public spending tap that the Chancellor claimed to have rediscovered in his Budget speech. The overall strategy of the Chancellor’s Budget is quite easily summarised: he got a windfall from the OBR and decided to spend the lot. I applaud much of the philosophy behind that. In particular, the Chancellor has acknowledged in theory what every decent economist has been saying since George Osborne went to the Treasury in 2010: the consequence of austerity is lower growth. In contrast to George Osborne, the Chancellor now wants to boost growth, partly through more spending—and, as the IFS remarked, he has therefore given up on meeting his surplus target by the mid-2020s.

I welcome that, as well as the decision to ensure that overall spending on day-to-day public services will rise, not fall. But we have to get real about this. First, spending the windfall in one Budget to make the direction of public spending tick upwards instead of downwards is not an end to austerity. Existing promises on spending in health, aid and defence mean that a host of public services, from prisons to social housing, social care and local government, still face cuts. As the Resolution Foundation commented, unprotected departments’,

“per capita real-terms budgets are set to be 3% lower in 2023-24 than 2019-20. If allocated equally this would mean real-terms per capita … cuts between 2009-10 and 2023-24 of 48%, 52% and 77% for the departments of Justice, Business and Transport respectively”.

The bigger point is that, even after the Budget’s spending spike, the growth in overall spending remains significantly below historic norms. In 2010 the share of GDP spent on day-to-day public services was 18%. In 2022 it will be 14%. The amount of uncommitted public spending outside protected areas is rapidly dwindling. Astonishingly, the IFS forecasts that health spending will constitute 38% of all public spending by 2023.

The truth is difficult for all parties. We are a country that does not spend enough on its public services. The Budget does not change the legacy of austerity of the past eight years for the long term. In the EU, which we are still just about in, we are ranked 21st out of 27 countries for the percentage of GDP devoted to government spending; that is 4.5% below the EU average. The Chancellor rejected his predecessor’s orthodoxy on austerity—rightly, because it has been catastrophic. But reversing it will take more than a Budget spending spree. If we want to use public spending to support growth and protect and rebuild our depleted public services in a sustainable fiscal way, we have to bite the bullet and raise the percentage of GDP we pay in tax.

There is lots we could do to make a start on this. We could whittle down the tens of billions of pounds that currently go to the best-off in our country in pension tax relief; we could examine ways of taxing wealth assets that generate so much undertaxed value for the best-off; and, as I said earlier, we could use existing taxes more rationally and fairly. The funding of public services is for our lifetimes, not just for Budgets and elections. Since 2010 we have been subjected to a multiyear experiment in what happens when you deliberately target public services and the public sphere to reduce spending. The results are now in and they are not pretty. If we are to turn the page on those years, rather than simply give lip service to the idea of the end of austerity—as I fear the Chancellor did—we need to change fundamentally our approach to the tax base and the tax system.

Photo of Lord Macpherson of Earl's Court Lord Macpherson of Earl's Court Crossbench 4:19 pm, 13th November 2018

My Lords, this is a Budget of our times, overshadowed by the interminable uncertainty of Brexit, which hangs over the economy like a dark cloud. Understandably, it is a Budget designed to offend no one and to avoid at all costs controversial votes in Parliament. It is hard to object to the measures; indeed, some of them are very sensible. I welcome the increase in resources for the National Health Service, the focus on public investment—in particular, in the roads programme—funding for the pensions dashboard and the careful and considered way in which the Government are going about preparing a digital services tax.

In passing, I should say that I agree with my noble friend, or rather the noble Lord, Lord Wakeham—he should be a friend; I want to make that clear—who made a good point about stamp duty. Stamp duty is an extraordinarily inefficient tax. It taxes mobility and transactions. This country should have followed the fine example of Ireland, which used the crisis to reduce stamp duty rates and introduce a sensible, self-assessed property tax.

It is the macroeconomic stance that I want to focus on today. We are now nine years into a recovery. The economy is at full employment. Last year was the first year since 2001 when public debt fell as a percentage of national income. Even this year, public debt will be a mere 1.5% of GDP below its peak. By way of comparison, by this point in the recovery after the 1991 recession, public debt was 8.6 percentage points below its peak.

The one thing that I learnt from 30 years at the Treasury is that, when the forecasts give you a fiscal windfall, it is imprudent to spend all of it. As Robert Chote, the chairman of the Office for Budgetary Responsibility, has said,

“what the sofa gives, the sofa can easily take away”.

But spending the windfall is what the Government have chosen to do. Next year, the Chancellor will spend some £11 billion of the £12 billion windfall. By 2022-23, he plans to spend £18.8 billion of a windfall of £18.2 billion. I question this decision for two reasons, the first structural and the second cyclical.

It is over the next decade when the long-predicted demographic time bomb finally arrives. Sound fiscal principles suggest that Britain should have followed Germany’s example and reduced the national debt now the better for future generations to shoulder the burden when spending pressures increase. To use the phrase much beloved by a previous Prime Minister, we should be fixing the roof while the sun is shining. If there is an economic downturn, the probability of which increases with each year of growth, the Government will need all the firepower available to support economic activity. If the debt level is still more than 80% and rising, their room for manoeuvre will be pitifully small.

Looking at the numbers, I see two things which make the public finances even more vulnerable. First, the revenue forecast looks difficult to sustain. This year, taxes and national insurance are projected to be 34.6% of national income. That is the highest tax take since 1969-70. I congratulate the Chancellor and Her Majesty’s Revenue and Customs on getting so much revenue in, but history suggests that such a high tax take will be difficult to sustain.

Secondly, the spending settlement for the NHS looks like the bare minimum necessary to keep the service on an even keel. The Government have yet to provide for long-term care for the medium term. They have provided extra resources for the Ministry of Defence only over this year and next. They have heralded the end of austerity, but if they are to continue to protect health, schools, the triple lock and overseas aid while providing more resources for the MoD, there is not enough in the spending projections to cover the programmes which are really coming under pressure: the police, the Prison Service and local services. At some point, the NHS will be back for more; it always is.

I encourage the Government to prepare for such an event by initiating a debate on the balance of spending and taxation in an ageing society. In my view, the triple lock uprating formula for the basic state pension is unsustainable and the case for a hypothecated tax for health and social care remains compelling. But it needs to be one which everybody pays. The elderly have had a very good run over the last 20 years. I should declare an interest: I am due to receive my free bus pass in eight months’ time. It is time for us older people to share more of the burden.

Another worry I have about the macroeconomic stance is the Bank of England’s ultra-loose monetary policy. Quantitative easing worked initially, but it is like heroin: to have any impact, the Bank needs to inject more and more money into the system. QE has distorted asset prices and, despite the Bank’s protestations, it has helped the haves over the have-nots. I am surprised that the Bank has not yet signalled its withdrawal: it has missed an elementary trick by insisting on reinvesting the proceeds of debt as it matures. Had it allowed the quantity of QE slowly to run off as debt matured, monetary policy would be in a much more sensible place. As it is, we have an expansionary fiscal and monetary policy when the economy least needs it. Both the Treasury and the Bank of England have little to fall back on if the economy stalls.

I shall finish with a few words on the Budget process itself. Here, I have great sympathy with the Treasury: in a world of considerable uncertainty I can understand why the Prime Minister and the Chancellor would want to leave decisions to the last possible moment. It was ever thus. I recall sitting in a room over in the House of Commons with John Major and Ken Clarke. John Major was arguing that we should remove VAT on fuel from the Budget which Ken Clarke was due to give the next day. I had to bring the discussion to a halt by saying that it was too late—the Red Book was already printed. Now that we have the independent Office for Budget Responsibility, it is important that that institution is given the time necessary to cost proposals and feed that into the fiscal forecast. I am troubled that the OBR points, on page 2 of its report, to,

“repeated failures to observe the forecast timetable”,

agreed with the Treasury. I note that the OBR will be seeking assurance that this will not be repeated at fiscal events. I wish them well, though I am not optimistic. I would be grateful if the Minister would tell the House whether the Chancellor or the Treasury have yet given that assurance.

Photo of Lord Higgins Lord Higgins Conservative 4:27 pm, 13th November 2018

My Lords, research in the Library reveals the extraordinary fact that I have now spoken 59 times in Budget debates. This will be my 60th. Looking back on that period, there have been many memorable Budgets—by the late Lord Howe of Aberavon, by my noble friends Lord Lawson and Lord Lamont, and so on. This, I think, will not be a particularly memorable Budget, but it is certainly unique in one respect: there has never been so much uncertainty about the overall economic situation as we have today. The Chancellor faces an immensely difficult task and I think that, on the whole, the Budget is the best that can be done at this stage, until we have a little more certainty about the outcome of Brexit.

I will mention two points of detail. The first is that I certainly welcome the measure the Chancellor has taken to help the high street. I think that it is very important and I am glad that he has taken the opportunity to do it: it may be necessary to do more. There is also rumour in the press that there will be an increase in the charge for probate—but that will not be included in the Budget. Perhaps my noble friend will say how that is to be introduced. I think that all of us know from personal experience that after a death the whole issue of probate and so on is very difficult, and to use this as a form of taxation, rather than simply covering the Government’s costs, seems wrong.

Looking at the Budget overall, the Institute for Fiscal Studies has pointed out that this is the largest discretionary fiscal loosening that we have seen since 2010. That is remarkable, but it raises the whole question of the end of austerity. I am very strongly of the view that we have had no option in recent years but to adopt the policy of austerity that we have because quite clearly we have not been living within our means, and we have to try to get back to that situation. It is therefore perhaps a little surprising that, instead of continuing, given that he had a certain amount of windfall in that progress, the Chancellor decided to spend the windfall instead on the National Health Service, help with various tax changes, and so on. The overall position is that the Prime Minister and the Chancellor have indicated that this is the end of austerity—but that does not mean that we must not continue to try to live within our means. This really must be reinforced in looking forward, particularly against the very difficult economic situation created by Brexit, which I have just mentioned.

It is not entirely clear what proposals the Chancellor has, depending on the different ways in which the Brexit problem develops. A lot of problems will be ones that cannot be helped at all by either fiscal or monetary policy. If there is no deal, for example, we are likely to find enormous problems with blockages in the Channel ports and so on. There is nothing the Chancellor can do about that. What he will need to do is make efforts to stimulate the economy if we find that the outcome of the Brexit operation creates problems, as it seems likely to do. I am slightly puzzled by his expression “Brexit dividend”. He seems to be saying that if Brexit works all right, we will not have to take the nasty measures we were otherwise going to take. That is a slightly strange interpretation of what is meant by a dividend.

At all events, we may find ourselves in a number of possible circumstances, ranging from no deal to a deal which is not too bad—although there is some debate on whether that will be Chequers—or one where we decide that we really ought not to leave at all. The reality is that the House of Commons and the House of Lords have had no opportunity to vote on the result of a referendum which was, as I have stressed many times, advisory. We did not legislate in this House or the other place for a mandatory referendum. We should therefore consider—we really have a duty to consider—whether the interests of our people and the economy depend on going ahead with Brexit in one form or another, with no deal or with whatever it may be. The people had a vote when they voted for their Members of Parliament—but their Members of Parliament, instead of being delegates, have been made representatives by the way in which the operation of the system has inhibited them from doing what needs to be done.

I am not at all clear what one might do by way of stimulus or as a more stringent approach in the light of the various Brexit changes. However, we have to consider very carefully which of the possible ways in which the situation may unfold needs to be dealt with. Having said that, this Budget seems to be as good as can be done in the circumstances. I thought that my noble friend on the Front Bench set out the Government’s position clearly—perhaps more clearly than the Chancellor, although he did not include any jokes. Be that as it may, this Budget is the best that can be done in the circumstances and we should support the Government.

Photo of Lord Livermore Lord Livermore Labour 4:35 pm, 13th November 2018

My Lords, the Budget presented two weeks ago by the Chancellor revealed a Government incapable of being honest about the true state of the British economy, about the real impact their Brexit plans will have or about the ongoing austerity the people of this country continue to face. Far from being a Budget for hard-working families, as the Chancellor claimed, it was a dishonest Budget with the sole purpose of delivering a dishonest Brexit.

In his Budget Statement, the Chancellor claimed he had an economic record “to be proud of”, as he announced growth forecasts of 1.6% in 2019 and 1.4% in 2020. What he failed to mention was that in each of those years growth was forecast before the referendum two years ago to be substantially higher, at 2.1%. Neither did he mention that for the two subsequent years, 2021 and 2022, his forecasts are now actually even lower than they were just this time last year. He also did not mention that at no point since the Second World War have there ever been five consecutive years of GDP growth below 2%, until now. Nor did he say that, having been at the top of the G7 growth league before the referendum, Britain is now at the bottom or that we are now also at the bottom of the EU growth league.

The truth is, as the director of the IFS has observed, that these growth forecasts are dreadful compared to what we thought in March 2016, dreadful by historical standards, and dreadful compared to the rest of the world. The Chancellor in his Budget also sought to highlight the new fiscal forecasts from the OBR, and of course the improvements in forecast borrowing since March are very welcome, but what he again failed to tell the country is that borrowing this year will actually be £30 billion more than was forecast in March 2015. He did not own up to the fact that borrowing next year will be £40 billion more than was forecast in March 2016, immediately before the referendum, and neither did he say that while pre-referendum plans were for a £10 billion surplus next year, he now forecasts a £30 billion deficit. The reality, which the Chancellor at no point acknowledged, is that we have seen over the past two years an enormous Brexit-induced borrowing downgrade. The Chancellor has now given up any serious desire to eliminate the deficit by the mid-2020s, and he has also abandoned his fiscal objective of achieving a budget surplus in the next decade.

Throughout his Budget Statement, the Chancellor seemed intent on concealing the damage already done to our economy by the vote to leave the European Union, but nowhere was this desire to conceal more shocking than in his denial of the longer-term economic consequences of Brexit. His claim in the Budget that he would,

“harvest a double ‘deal dividend’”,—[Official Report, Commons, 29/10/18; col. 654.] must surely be one of the most egregious falsehoods ever spoken by any Chancellor. It was disgraceful to hear a Chancellor claim what he knows to be untrue. This Government’s own impact studies, produced by his own department, show a 5% reduction in GDP from leaving the single market. They show future trade deals making up only 0.2% to 0.7% of that reduction. They show a devastating hit to every nation and every region of the UK, with an 11% reduction in GDP in the north-east and an 8% reduction in both the north-west and the West Midlands, not from no deal, but from their own preferred Brexit plans.

Far from delivering a boost to the public finances as the Chancellor claimed, his own figures show that the Government’s preferred Brexit outcome would result in an increase in borrowing of some £40 billion a year—a cost of Brexit of some £615 million every week. These falsehoods were made not out of strength or confidence, but out of weakness and fear. The Chancellor is now too afraid of the Brexit extremists in his own party to be able to be honest with the British people about the real impact Brexit will have. So, rather than now preparing cautiously for such an uncertain future or showing the prudence that this moment requires, when he was handed a £74 billion windfall by the OBR he was so frightened that he gambled on the public finances and spent it all, acting not in the long-term national interest but in his own narrow short-term party interest, trying to persuade his own MPs to back a deal that he knows will make this country immeasurably poorer.

The Chancellor used that short-term spending to claim that,

“the era of austerity is finally coming to an end”.—[Official Report, Commons, 29/10/18; col. 653.]

Yet he knows full well that this is not the case, either for the hard-working families of this country or for the public services on which they depend. While announcing tax cuts costing £2.8 billion—from which 90% of the gain goes to the top half of the income distribution, and nearly half of the gain goes to the top 10% alone—he chose to maintain £4 billion of cuts to working-age welfare over the next five years. As a result, a couple with children in the bottom half of the income distribution will lose £200 a year while a single parent working full-time on the minimum wage will be £1,940 a year worse off. Looking at the overall impact of tax and benefit changes since 2015, the IFS has calculated that the poorest decile will now be £1,100 a year worse off, while the poorest working-age families with children will lose £3,000 every year—15% of their income. This is hardly the end of austerity for those families.

In our public services, while extra money for the NHS is of course welcome, the Chancellor’s numbers imply ongoing cuts in other day-to-day public services, from prisons to schools and local government. Unprotected departments will see cuts in every year from 2020 and their per-capita real-terms budgets are set to be 3% lower by 2023 than in 2019. At the same time capital limits were cut in the Budget by £7 billion for 2021, further undermining long-term investment in our economy and infrastructure. Again, this is hardly the end of austerity, as the people of this country were led to believe.

The Chancellor cynically pretends that austerity is over, solely with the aim of delivering a Brexit deal that he knows will decimate the public finances, making further, far more severe and long-lasting austerity inevitable. Yet with every cynical, short-term, false promise that they make, this Government build expectations that they know can never be met, further fuelling the betrayal myth that unscrupulous politicians of both left and right are only too ready to exploit. What will the Chancellor tell the people of this country when he delivers not a “double dividend” but the destruction of jobs, living standards, livelihoods and public services?

Surely it is now time for an honest conversation about the real impact that Brexit will have. It is time for us now to ask: is this really the right path for our economy? Is it really the future we want for our country?

Photo of Baroness Jolly Baroness Jolly Liberal Democrat Lords Spokesperson (Health) 4:43 pm, 13th November 2018

My Lords, I join others in thanking the noble Lord, Lord Bates, for tabling this timely debate and for his excellent speech. I also thank fellow Peers for their thoughtful contributions so far on this topic.

I shall use my time today to discuss the health of our population, a topic that goes hand in hand with a strong economy. There are clear links between good health and good economic performance. We know that when health and social care services are limited, it is the most vulnerable in our society who lose out. When services are strong and the Government fund progressive programmes to improve health, workers are more likely to stay in their jobs, children are more likely to thrive in school and the result is that the economy is made stronger. Not all health interventions need to be large or to take place at a clinical level. There is fantastic work being undertaken in public health by businesses, communities and local authorities across the country, which indirectly helps to support our economy by keeping people healthy and in work.

The headline figure of £20.5 billion by 2024 for the NHS in the recent budget, while welcome and laudable, is not enough to continue to grow this kind of upstream support, which helps keep individuals out of hospital and relieves pressure on primary care. Indeed, I was dismayed to note a cut of almost £1 billion in the non-NHS England parts of the Department of Health and Social Care budget this year, most of which will be felt in public health and social care services. I welcome the uplift to the national minimum wage, but regret the lack of funding for local authorities which have to pay for the increase in the wages of care workers.

The economic implications of Brexit are likely to add further strains to those services, which already face a funding gap far deeper than the most recent commitment will fill. Will the Government follow the Liberal Democrats in thinking strategically and on a cross-party basis about the future funding of help, including how it relates to our economy and workplaces?

To elaborate my point, consider for a moment an issue that affects all of us in our lifetime. One in four of us will have a mental health condition, and that means that someone well known to us or to our family will be affected. Mind estimates that 70 million work days are lost each year due to mental health problems in the UK. This costs employers billions of pounds each year in lost productivity and recruitment costs for those who ultimately feel forced to leave their jobs due to illness. Investing now to protect people’s mental health will pay dividends in future for employers and employees. Although I am pleased that the Government have highlighted this important issue in the Budget, I am disappointed by the funding allocation of £2 billion, which falls far short of the amount that experts say is needed to deliver vital improvements to services and achieve real equality between mental and physical health in future.

Mental health support is also crucial for younger people, who will soon be entering the workforce. The Budget recycles commitments set out in the coalition Government’s blueprint for children’s mental health, which pledged a named mental health lead in schools, as well as a dedicated professional in specialist NHS services. Will the Government consider investigating a similar programme for the workplace, perhaps along the lines of a mental health first aider? We are used to there being a first aider in all businesses above a certain size—I think it is those employing above 12 people. Perhaps we need to consider a mental health first aider. They need not be a professional, but rather someone trained to provide confidential advice and signposting for those who are suffering with their mental health who may not know where to turn. This is in line with existing efforts of employers to support the health of their employees. Let us consider some schemes that already exist which could be adapted.

Here in the Houses of Parliament, for parliamentarians and staff alike, the Parliamentary Health and Wellbeing Service offers mental health counsellors for anyone who needs them, away from their local GP and support network. Big White Wall, which provides emotional support for employees in the workplace, uses a virtual messenger service to provide advice. Fantastic work is being done by employers to encourage people to be open about their mental health and reduce stigma. It is surely also worthy of bolstered government commitment. There are plenty of lessons to learn about how we can improve our health in a cost-effective manner and save on lost work days. Do the Government support that view, especially considering the Statement of the Secretary of State for Health and Social Care on 5 November about prioritising prevention, including strengthening public health initiatives and local authority services to reduce strain on primary care?

We should remember that a lot of health conditions are caused or influenced by people’s work. To help keep individuals in their jobs and happy in those jobs, we need to be open to recognising that. In particular, it is important to fund research into conditions that are often exacerbated by the stresses of the workplace. The Migraine Trust quotes recent research by the Work Foundation suggesting that migraine is the least publicly funded of all neurological illnesses relative to its economic impact. It is estimated that absenteeism from migraine costs £2.25 billion per year in the UK, calculated on the basis of 25 million lost working days.

In addition, there is the phenomenon of “presenteeism”, in which workers attend their jobs, but are minimally productive due to their underlying and often unappreciated health conditions. Clearly, it is difficult under the Government’s current financing to fund some of these asks. But there may be other, creative ways to source funds. Possibly some health components could be funded in future by a system such as a citizen’s wealth fund—if you like, a sovereign wealth fund for the NHS. Under this system, the fund could be used to actively invest in stocks, bonds and physical assets. It would enable the country as a whole to benefit from the returns on investment typically available only to the wealthy. Once the fund became large enough to generate a substantial annual return, it would represent a new source of public funding, which could be used, for instance, to promote underresearched areas of health, or to bolster the much underfunded public health funding. This fund could also be used to raise awareness and identify conditions that are currently underdiagnosed—for example, structural heart disease, atrial fibrillation and bipolar conditions. It could help to normalise and prevent illnesses that affect thousands every year.

Overall, I see the state of the economy, and the state of our health, as closely linked. Tackling health in the workplace, and for the workplace, makes sense. It makes sense at a pragmatic level, a moral level, and an economic level. I hope that the Minister can give me a positive response to guarantee the workforce, and so the economy, of the future.

Photo of Lord Gadhia Lord Gadhia Conservative 4:51 pm, 13th November 2018

My Lords, the adage that one should never drive a car simply by observing the rear-view mirror applies equally, if not more so, to the stewardship of the economy. The Chancellor’s room for manoeuvre in his 2018 Budget benefited significantly from the hard decisions taken over the past eight years, especially the buoyancy of current and projected tax receipts. It has also been underpinned by a relatively resilient UK economy, supported by continued global expansion, fuelled by the sugar rush from US tax cuts.

However, it is all too easy to fall victim to lazy economics by using models based on extrapolating past trends—something which even the OBR has previously experienced. Witness the way in which it badly overestimated the recovery in UK productivity. During the late stages of a business cycle the disclaimer that the past is not a reliable guide to the future applies more than ever.

Despite our 43-year record low unemployment levels, and accelerating real wage growth, the economy is showing signs of softening. One of the most reliable lead indicators, the PMI, is already on a declining trajectory and business investment is anaemic. It is possible that lifting the Brexit uncertainty could produce what the Chancellor describes as a “deal dividend” but it is equally possible that the perpetuation of uncertainty through a fudged Brexit deal could tip the economy into a more aggressive down cycle as businesses and consumers lose patience and confidence.

The world economy is undoubtedly more vulnerable to shocks as the interest rate cycle turns, trade disputes intensify and the oil price advances. Our own Brexit-related issues could amplify the domestic impact yet further. The most likely source of economic shocks will come from the global tightening of monetary policy now under way. The effect of cheap money is like morphine—the pain comes back when it is no longer there.

As we mark a full decade since the financial crisis, the biggest piece of unfinished business is how central banks should unwind their use of unconventional monetary policy, as referenced by my noble friend Lord Macpherson. Quantitative easing, or QE, in the form of large-scale asset purchases by major central banks, has swelled their combined balance sheets almost fourfold to $16 trillion. In the UK, the Bank of England has purchased £445 billion of assets, predominantly gilts, from the private sector, with the aim of stimulating the economy at a time when interest rates were already low. It created a breathing space for macroeconomic adjustment during a period when fiscal policy was severely constrained by high deficits and debt. It is welcome that the deficit is now comfortably below 2% and debt is falling.

Although the path to recovery for western economies has been slow and erratic, the original purpose of QE has been accomplished and it is now facing diminishing returns. The Bank of England has gradually tightened monetary policy, with two interest rate rises in the past year and more on the horizon as the Financial Policy Committee seeks to bring inflation back to the 2% target. However, there has been very little public discussion about how and when QE will be unwound. The Bank of England’s own website simply says: “If inflation looks like it is becoming too high, we can sell the assets we have purchased to reduce the amount of money and spending in the economy”. In effect, this is a straightforward reversal through quantitative tightening, or QT.

Behind the scenes, the Bank of England will undoubtedly have developed more detailed plans for QT. In the near term, the official position is that interest rates will remain the primary instrument of policy. Unwinding the holding in gilts, which represents 25% of all government debt, through market sales, is not a straightforward process. If executed poorly, the disposals could create a significant dislocation for financial markets with unintended real economy effects. It is also plausible that we will never completely unwind QE and there will be a permanent increase in the monetary base. That is why the Government cannot just sit back and hide behind Bank of England independence.

Rising interest rates and the implementation of QT will arguably be more important than the Budget in determining our economic prospects and the Government’s political fortunes. I have therefore suggested a more radical option for unwinding QE through transferring some of the assets—say, £100 billion—into a UK sovereign fund, mandated to liquidate the gilts gradually, over time, and reinvest into real assets, focused on infrastructure. This would expand the productive capacity of the economy in a non-inflationary way. It might also provide a more permanent structure for the national productivity investment fund—first announced by the Chancellor in his 2016 Autumn Statement and expanded further at successive fiscal events—now standing at over £38 billion. The first national infrastructure assessment, published in July, recommends the creation of a dedicated UK infrastructure finance institution, particularly if we cannot retain access to the European Investment Bank after Brexit. Coupled with the Chancellor’s block on any new PFI projects, we urgently need a coherent alternative strategy for funding UK infrastructure.

However, my proposal would blur the distinction between monetary and fiscal policy, which is seen as heresy by most central bankers, who fear the inflationary consequences. Increasingly, though, economists are revisiting this orthodoxy. Researchers at UCL have highlighted several cases where fiscal-monetary co-ordination proved useful, such as the Reconstruction Finance Corporation used to implement President Roosevelt’s New Deal after the great depression, and Canada’s Industrial Development Bank, which was created to support SMEs. QE is openly described as unconventional monetary policy. In unwinding this unprecedented intervention, it is equally appropriate that the Government and Bank of England should consider alternatives that run against convention. The idea of a UK sovereign fund is not new, but the circumstances for its creation might now be ripe as policymakers grapple with the dilemma of how to unwind QE in the most orderly way and find a sustainable vehicle for funding long-term infrastructure.

If the chain of events triggered by the collapse of Lehman Brothers 10 years ago ultimately leads to the creation of a UK sovereign fund, mandated to invest in our country’s long-term productivity and prosperity, that would be an altogether more positive legacy from the turmoil of the financial crisis, and something that I hope the Government will consider seriously.

Photo of Baroness Eaton Baroness Eaton Conservative 5:00 pm, 13th November 2018

I declare my interests as a vice-president and former chairman of the Local Government Association.

It is a pleasure to make a brief contribution to this debate on the Government’s set-piece financial statement. The 2018 Budget contained a range of measures that can be welcomed. The Chancellor’s Statement shows that the Government are beginning to listen to local government’s call for much-needed investment in local services. Much more investment will certainly be needed in the long term, but it is good that the Chancellor has acted to provide some new money for councils.

Having served as leader of Bradford Metropolitan District Council and as chairman of the LGA, I know of the pressures facing local services. Indeed, the LGA’s analysis shows that there will be an overall funding gap of £7.8 billion facing local government by 2024-25. Of this, adult social care services face a £3.56 billion gap, just to maintain existing standards of care. It is pleasing, therefore, to see a cross-party consensus that adult social care is in desperate need of support, which is why the additional funding of £240 million for winter pressures is welcome. It will allow councils to better plan their services. Although vital, that funding will address only some of the short-term pressures facing adult social care. That is why a sustainable funding model is now long overdue. I refer noble Lords to the LGA’s timely green paper, and ask the Government to work with councils as they develop their own proposals.

Children’s services are also facing significant funding pressures. The LGA’s latest study shows that social workers are starting new cases for more than 1,000 children each day. The investment of £84 million for children’s social care over five years for programmes in some areas is good news, but councils face a £1 billion shortfall in the next year alone just to keep services running at current levels. With demand rising for special educational needs and disability support, it is important that the Government consider whether adequate funding is available to councils. The proposed changes to high-needs funding should address this. As local leaders gather for the National Children and Adult Services Conference in Manchester this week, I am sure that government Ministers will be taking their messages on board.

Investing in infrastructure is also an important objective of any Government. I am glad, therefore, that Budget Day marked the official abolition of limits on councils’ borrowing to build houses. We must not underestimate what a difference this will make to many communities. Councils are now eager to get on with the job of helping to tackle the housing crisis. It is welcome that they are moving towards resuming their historic role as major housebuilders.

It was also pleasing to see the Chancellor allocate £420 million in additional spending to local roads in 2018-19. This will help councils tackle one of the most important issues for local residents, and will make an impact immediately. The LGA’s latest resident satisfaction survey found that public satisfaction with the condition of local roads is falling. Taking urgent steps to plug the £9 billion roads repair backlog will help to reverse this. Everyone is affected by damaged roads and areas across the country will benefit from the initial funding provided. To maintain our local network, we must now move towards a strategic funding stream for road maintenance.

I commend the Government on a Budget that starts to deliver for local areas. The Chancellor has laid the groundwork for the spending review to address some of the long-term funding issues in areas such as children’s services, adult social care and infrastructure. We must all speak up for these vital services. Investing in local government is good for the nation’s health and well-being, as well as for our economic growth. I know that the Government are listening to this message and I look forward to seeing them work with councils to deliver the much-needed funding for our communities.

Photo of Lord West of Spithead Lord West of Spithead Labour 5:05 pm, 13th November 2018

My Lords, I know that the House would be disappointed if I did not refer to a naval anniversary, so I thought I would mention that 15 years ago today I accompanied Prince Michael of Kent when he rededicated the RN Division memorial on Horse Guards Parade, which is well worth a visit. The division was formed by Churchill in 1914 from battalions of sailors and Royal Marines. The Royal Naval Division fought in defence of Antwerp in 1914, at Gallipoli and on the Western Front from 1916 onwards as the 63rd Division. It is little known to the general public but it suffered huge casualties and was the most highly decorated division in World War I. But enough of this digression because I intend to talk about the impact of the Budget on defence.

There is a welcome change in that defence is actually mentioned in this Budget, which it has not been for the last two. I congratulate the right honourable Gavin Williamson on pressurising the Chancellor into giving the MoD some help, although I have to say that it does not resolve the deep-rooted parlous state it finds itself in. The right honourable Philip Hammond, when he was the Secretary of State for Defence, trumpeted about a spending black hole he had discovered and how cleverly he had sorted it out. The black hole, if it can be described as such, still exists and there is a £20 billion shortfall between the planned equipment programme and the funding available.

More damaging is the hollowing out of our Armed Forces that is being undertaken to achieve the promised efficiency savings that were predicated to make the MoD programme affordable. I do not believe that anyone really believed that they were achievable. However, it would be churlish to sniff at what has been given to us in this Budget. It is a significant sum of money.

Earlier this year, £800 million was given to bring forward the Dreadnought programme and now part of the £1 billion given in the Budget is apparently going the same way. Can I ask the Minister how much of the £1 billion that is being given is for the Dreadnought programme? The remainder is for anti-submarine warfare and cyber, both of which are crucial. We have seen a staggering growth in Russian submarine operations out of area. The Russians are operating off our west coast clearly hoping to stumble across our Trident submarines. Why would they be doing that? They are threatening our undersea cables. Why would they be doing that? We have seen nothing like this since the Cold War. As regards anti-submarine warfare, it is an art as well as a science, and at the end of the Cold War we were without a doubt the best proponents of that art in the world. We have lost that edge so the extra funding is very much to be welcomed.

What is unfortunate is that the clear national requirement for a minimum of eight nuclear attack submarines—I am not asking yet again for more ships; do not worry—and indeed programme plans for eight Astute-class craft has been watered down to seven. In a Written Answer to me, the Government stated that the MoD had always planned for seven. I have to say that that was certainly not the case when the Astute programme was started by a Conservative Government in the mid-1990s or post SDR 1998. There must have been some sort of lapse of memory in the MoD about that. As for cyber, we are among the best in the world but it is absolutely crucial that the MoD and GCHQ work closely alongside each other, and the money coming through in this Budget is very welcome to help those initiatives along.

But the problem of underfunding has not gone away. If the two tranches of money from the Treasury into the Dreadnought programme are an indicator that there is an acceptance that the capital cost of the new deterrent submarines should be funded outside the defence budget, I welcome it. That will make a dramatic difference to the MoD programme. This of course was the plan until changed by George Osborne in 2010. Can the Minister tell us whether it is now the plan again? I hope that it is.

The Armed Forces are at a cliff edge; they cannot do what our nation expects of them. It will be fascinating to see what comes out of the much-delayed modernising defence initiative, which was due to report this summer and will now presumably inform next year’s spending round. That spending round will be crucial for the future defence of our nation. The House of Commons Defence Committee and others have stated that the percentage of GDP spent on defence should be higher; indeed, the figure of 3% is being bandied around. I tend to shy away from percentages, but what is needed is a clear articulation of what exactly our nation needs in defence and security terms in a highly dangerous, chaotic and uncertain world—and what is necessary needs to be properly funded.

As a simple sailor, I am delighted to see the MoD gain something from the Budget, but I am not so simple that I cannot see that it is just a temporary sticking plaster. In the final analysis, we can be wealthy only if the security of our nation and its people and global stability are assured. Strong defence forces ensure that security.

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe Conservative 5:10 pm, 13th November 2018

My Lords, I declare my interests in the register in a number of businesses that would benefit from a strong economy. As his predecessor on the Front Bench, I also express my sympathy for my noble friend the Minister in the testing task of responding to quite so many different concerns.

It is always difficult to know where to focus on these occasions and, in particular, whether to tackle the macroeconomic picture or microeconomics. Today I will devote myself to macroeconomics, with a couple of riders.

On the big picture, I want to lend my voice to those who say we are by no means out of the woods yet. The inheritance of the financial crisis and its dismal treatment by the then Labour Government lives on. Debt is now growing more slowly than GDP, albeit only just. However, we have not solved our fiscal problems; by declaring an early end to austerity and spending over £100 billion, the Chancellor has reduced his ability to cope with a crisis or a downturn. At the same time, he has promised another, tougher Budget if it is needed because of Brexit. If adopted, this would mean that we would have to impose expenditure cuts or increase taxes at a time when uncertainty will be rife and people will be blaming one another. This seems peculiar. What happened to prudence? A helpful Library Note tells us the worrying answer: the OBR expected debt to fall from the 2016-17 peak of 85.2 % of GDP to 83.8 % in the current financial year and then to 74.1% in 2023-24. Its graph shows that, as recently as 2001-02, debt was well below 30% of GDP. There is still a risk that overweening debt will cripple our grandchildren.

Our economic situation is comparatively weak and, to move on, I agree with the Red Book that the sustainable way to boost economic growth and prosperity is to increase productivity. The Chancellor chose to spend less time on this than usual, suggesting it had gone down the agenda. The truth is that, although there has been a slight ticking up recently, productivity has disappointed overall since the financial crisis and today’s ONS figures are a further wake-up call. The ONS statistical bulletin suggests that the usual spurt back to the trend rate of growth has not happened, perhaps because of a combination of hours per worker rising and weak output growth. My take is that it may also be due to a lack of the dynamism in new sectors such as we saw in information and financial services in the 1990s and in the noughties. Chapter 4 of the Red Book sets out most of the areas that can change the paradigm—innovation, investment, new technology, education and skills and regional growth—but it is bitty. On current plans, as paragraph 1.13 says, productivity growth is expected to be 0.9% in 2020 and 1.2% in 2023. The trouble is that this is poor by historic standards, and the international comparisons are not encouraging. So what do we need to do?

First, I would point to enterprise, ambition and focus. I am clear that we need a more supportive approach to enterprise in this country. Sadly, both parties often kick business, and the immediate response to a problem is often to announce further regulation. The impact on economic dynamism and the huge costs cut into profitability and raise consumer prices. This appears to be barely considered in many government circles. Impact assessments are largely ignored, and the section of the Red Book on regulation is all about new interventions and controls. We need a change of attitude and a supportive climate for enterprise, especially for smaller businesses. After all, it is the taxes paid by businesses and their employees that pay for schools, welfare, the NHS and the rest of it. All that said, the Conservatives, however bad, are never likely to challenge the anti-business sentiment of a Corbyn-led Labour Party.

Secondly, there is investment. The Government are right to continue to set aside money for R&D, for infrastructure—as was rightly emphasised by my noble friend Lord Gadhia in his interesting speech—and for tech investment, and to do this right across the UK, for example in the northern powerhouse. The new metropolitan mayors can also be a really dynamic force and use government funding to leverage private investment. Private investment is in the doldrums because of Brexit and the helpful increased allowances announced in the Budget might, I think, encourage a post-Brexit bounce as businesses begin to spend the money sitting on their balance sheets. However, I am a bit depressed about the time that it takes in government to spend investment money. Broadband rollout has been disappointingly slow, and I just hope that we do not see the same delays with full fibre to premises and 5G mobile. I would add that I believe we have, for generations, been bad at infrastructure planning. When I stand on a crowded Tube—an increasingly common experience—I think back to the clear cost-benefit numbers that I remember as a case study in the university library and being told that the Treasury was against the proposed construction of the Victoria line, which is now obviously so vital.

Thirdly, we come to education, skills and management. The biggest long-term driver of productivity growth and international competitiveness is education. We inherited a disastrous situation, but I am glad to see the improvement in many schools, especially in London, thanks to Teach First, the introduction of phonics and the dynamic of competition from free schools and academies. However, the international PISA scores of 70 countries recorded by the OECD are depressing. We are still stuck at 27th for maths, 21st for reading and a better 17th for science. I am particularly concerned about the weakness of vocational education. The apprenticeship levy was meant to usher in a new German or Swiss-style dawn, but in fact so far it has increased business costs and reduced overall numbers. Therefore, I was very glad to learn of the review by the Exchequer Secretary and the Minister for Apprenticeships. I ask the Government to learn from employers big and small how to make this work. For many, including the board on which I sit, the levy is just a tax.

Finally, I would like to say something about retail, where I spent the heart of my career. It is a job creator and gives young people the chance to be part of a team and reach their potential in ways never imagined. It is a wonderful engine for social mobility, as Sir Terry Leahy reminded some of us again last week in a speech celebrating 30 years of Retail Week—the legacy of its first editor, my noble friend Lady Wheatcroft.

The Budget was a disappointment for retailers because the unfairness of the rating system was not tackled. The £940 million-worth of relief over two years for rates paid by small businesses was of course extremely welcome, but it is not transformational. With a very uncertain consumer outlook—confirmed by weaker advertising sales—margins are under pressure, and I had hoped for a bigger initiative. I commend the Chancellor for proposing a tax on the digital companies that are wrecking the high street, but here again it is perhaps too low and too slow.

In conclusion, I return to my central message. The Budget was a risky one. Let us hope that my worries are unfounded.

Photo of Lord Leigh of Hurley Lord Leigh of Hurley Conservative 5:19 pm, 13th November 2018

My Lords, it is, as always, a great honour to speak in what has become one of our great set-piece debates and to follow such distinguished contributors, not least my noble friend Lady Neville-Rolfe—I agree with much of what she said—and the noble Lord, Lord West of Spithead, who is not in his usual place. I was disappointed that, in his wide-ranging speech on the economy, he did not mention the enormous success and impact of the “Queen Elizabeth” visit to New York, marrying defence and the economy.

I draw your Lordships’ attention to my entry in the register of interests, not least that I am a member of the Chartered Institute of Taxation. Your Lordships will be pleased to know that I last gave tax advice in 1988—some say the recipients are still suffering.

None the less, the Budget gives me great cause for optimism, not least because of one seminal phrase, which my noble friend Lady Neville-Rolfe mentioned, in its opening paragraph. It says that higher productivity remains the only path to sustainable growth and rising living standards. The gravity of this statement should give us pause, as well as a lens through which to view this Budget, to see if its contents reflect it.

On productivity, I see two aspects. One is that we should provide, where possible, a much needed direct boost to the UK, whose productivity, at first glance, tends to compare unfavourably with that of some of our competitor nations. The second is the vital issue of how we measure it. On the first aspect, unlike some speakers this afternoon, I see much to be optimistic about, not least the National Productivity Investment Fund, which the noble Lord, Lord Gadhia, mentioned. This will provide a £37 billion boost to areas in chronic need, which have historically been subject to underinvestment in housing, transport, digital infrastructure and R&D. However, I commend the Government on what is now a long-standing commitment to R&D that has seen science largely protected from budget cuts.

But let us not kid ourselves. Productivity in the UK is also low due to the cheap labour we have had for many years. This will change after Brexit, and hopefully wages will rise—not a bad thing. Business will, as a result, invest in AI and labour efficiencies. I have been to many factories where migrant labour is predominant and where dedicated, hard-working, wonderful people give their best but perform low-paid, menial tasks. These should and must be mechanised to improve productivity as we currently define it, on an output-per-hour basis.

I will also speak on two other enablers of productivity: tax and regulation. Before I do, I ask my noble friend the Minister where we are in our quest for better measurement of productivity. We are all guilty of worshipping at the altar of a measure that is surely outdated, geared as it is toward manufacturing, not services, and surely not capturing as well as it might the transition of the UK to a digital economy, which is well under way. It fails to measure the long hours that many, particularly in services in the City of London and elsewhere, give to our economy but that, if anything, yield a lower productivity headline, because it is measured only as output per hour.

I turn now to tax, which is a significant influence on the productivity of businesses. For too long, we have operated in an environment where our economy is global but our tax system is local, with businesses able to exist betwixt and between these two paradigms. As such, numerous measures have targeted abusive corporate behaviour to ensure that tax is properly paid in the location where business activity was conducted. I am pleased to see that profit fragmentation, whereby UK businesses can arrange for UK-taxable profits to be booked to entities resident in lower tax jurisdictions, will be addressed in the Finance Bill, and this corrosive practice outlawed. This will upset our friends in the Office of Tax Simplification, owing to the reams of paper that will be required to put this on the statute book correctly, but it is the right direction of travel. Looking at the tax yield anticipated from it in the Red Book, I suggest that it is a very modest measure. In fact, I understand, from sources close to the tech companies, that they were expecting a lot worse. I ask my noble friend to encourage the Chancellor to seek ways of increasing the share of tax that these multinational, internet-based entities pay.

Similarly, I commend new legislation to create international disclosure rules on offshore structures that would facilitate tax evasion. This will complement the updated offshore tax compliance strategy, which, the Red Book confirms, is forthcoming. While I accept the tightening of the rules for entrepreneurs’ relief, it remains an absolutely key part of our offer to entrepreneurs, who really are incentivised by this opportunity to make capital to invest in businesses and then to use it to reinvest in new businesses. The implication of the Chancellor’s small tweaks and changes to entrepreneurs’ relief is that it is here to stay. Why not state that publicly, to silence the siren voices of certain left-leaning think tanks, largely run by people who have never faced the struggle of starting a business, which call for its abolition and cause so much uncertainty for entrepreneurs? Why not state that entrepreneurs’ relief is here to stay? I have some interests to declare here, as my day-to-day business advises recipients of entrepreneurs’ relief, and some eagle-eyed Members of your Lordships’ House will note that I am personally about to benefit from entrepreneurs’ relief as well.

A short word on regulation, which entrepreneurs tell me is the single biggest impediment to productivity growth. We await the Government’s response to a consultation to look at measures to boost productivity for SMEs. This is a worthwhile initiative and the gains are surely significant. However, I am concerned that, in certain respects, efforts will be undermined by an overzealous approach to regulation, not least in my area of financial services. The Red Book welcomes the FCA’s plans to expand access to the ombudsman for SMEs with a turnover of up to £6.5 million, as well as increasing the award limit to £350,000. The idea is that the ombudsman provides a more effective, and certainly cheaper, form of redress than going through the courts. However, expanding the role of the FOS at a time when questions have been raised in the financial services press over its competence, seems premature. Given its status and reach—there is barely any long-stop on cases and no right of appeal against the ombudsman’s judgments—the Government should first reflect on whether it, and the system in which it operates, is really fit for purpose.

This matter should not detract from the broader and more positive narrative emerging from this well-received and welcome Budget for economic growth. I cannot help but shudder at the alternative we might have faced last week if Labour had been in government. We would have been talking today about shutting down entrepreneurs’ relief and BPR, and raising top-rate taxes, ignoring the fact that the top 1% of people in this country pay over 25% of all income tax. To add insult to injury, Labour wants literally to take equity away from those who legally own it and give it to some fuzzy employee group.

In conclusion, in the Chancellor’s Budget there is significant investment going into physical and digital infrastructure, as well as into research. The UK is still the second-largest recipient of FDI in the world and this Budget will make the biggest difference. That will be especially true when we finally update our tools for measuring productivity to make them fit for a modern economy. On tax and regulation, two key enablers, the Government are increasingly playing a global leadership role, with an approach that is rightly optimistic and pro-business but which has fairness and transparency at its core.

Photo of Lord Hain Lord Hain Labour 5:27 pm, 13th November 2018

My Lords, in September the International Monetary Fund concluded this year’s review of the UK economy by noting that Britain had moved,

“from the top to near the bottom of the G7 growth tables”.

We are now vying with Italy and Japan for the G7’s “Bringing Up the Rear of the Year” award. The UK growth trend is downwards. The British economy is still growing, but it is also slowing: it has grown slower every year for four years in a row. Growth this year is expected to be under half what it was in 2014. The British Chambers of Commerce has warned that growth will slow to “a snail’s pace” this year—barely 1.1%. Surely we should all know why. Years of austerity have stymied UK growth, leaving most people no better off now than they were a decade ago, when the global financial crisis pitched the real economy into the great recession.

Despite this dismal record, the Chancellor would have us believe that he is the bearer of good news about public finances, that the Budget deficit is shrinking fast and that things are looking up. But good news can indeed be relative. Back in December 2014, the Chancellor’s predecessor promised that this year, 2018-19, would be the breakthrough year—the year when the Budget would finally move out of the red and into the black, from deficit to an overall £4 billion surplus. Today the OBR expects this year’s Budget still to be in deficit to the tune of £25 billion. I repeat: not the predicted £4 billion surplus but a £25 billion deficit. The slippage has not stopped. The Government are still behind schedule with their deficit-reduction plans, and still overpromising and underdelivering, despite the misery, despair and economic vandalism of never-ending austerity.

Earlier this year the Chancellor’s Spring Statement envisaged a £37 billion deficit for the current year 2018-19. That figure was the very target that George Osborne set for 2014-15 in his infamous June 2010 emergency Budget—by the way, exactly half the target set for that year by Alistair Darling in his final March 2010 Budget. It has taken the Tories eight years to hit their four-year target. All their 2010 talk about Britain being on the brink of bankruptcy and needing urgently to close the budget deficit before we sunk into the Greek abyss—all that nonsense has been exposed as the hogwash some of us always said it was.

Many Members of this House will have noticed a new study of the financial crisis that appeared during the Summer Recess—Crashed, by Professor Adam Tooze of Columbia University, New York. On page 350 he notes George Osborne’s claim that by 2015 he had slashed £98 billion in annual spending from the UK budget, and OECD evidence that only Greece, Ireland and Spain endured worse contractions than those inflicted on the British people—which is why it took GDP two years longer to recover to pre-crisis levels in the UK than in the United States, where President Obama did the very opposite: rather than cutting spending, he invested and expanded, and US growth picked up where ours went down.

For all the talk of a giveaway Budget and the Tory fiscal squeeze coming to an end, the reality is that Philip Hammond is pressing on with austerity. Office for Budget Responsibility figures show that between 2010 and March 2018, the Tories squeezed £130 billion of spending out of the economy in tax rises and public spending cuts. This latest Budget does not mark the end of austerity—it prolongs it. By 2020, 10 years of Tory austerity will have squeezed over £150 billion of spending out of the economy, 80% of which will have come from public spending cuts.

That £150 billion is 30% bigger than the whole of this year’s budget for NHS England. Figures from the House of Commons Library show that a quarter of that £150 billion in lost spending will be due to cuts in working age social security. Some of the greatest falls in living standards are being experienced by the worst off. So much for the Tory slogan, “We’re all in this together”. This is not a new chapter as the Chancellor claims: it is the same old story, and the Government plan to make it last into the mid-2020s.

Austerity is the reason why care homes are closing, why police numbers are down and why prisons are short of staff. Austerity is the reason why we hear cries of anguish over the lack of elderly care places and cries of desperation over the lack of housing for our young people. Instead of responding to Britain’s urgent social needs, the Chancellor committed nearly £10 billion to income tax cuts over the next five years, which will benefit the better off and the richest the most. Utterly wrong priorities, surely.

A disturbing new chapter in UK economic policy has now opened. The balance of fiscal and monetary policy is shifting towards monetary restraint, even before the austerity-induced slowdown has ended and before the full effects of Brexit uncertainty have become clear. Premature rises in interest rates can only hinder rather than help Britain’s recovery. Yet the fact that the Bank of England has begun to raise interest rates seems to have passed the Chancellor by. He is sticking to his tight fiscal grip when he should be offsetting the drag of higher interest rates by giving the economy a substantial Budget boost. Worse still, instead of encouraging growth he is preparing further cuts in the event of a no-deal exit from the European Union.

The economy really needs a Budget boost in infrastructure investment, skills and training, and low-carbon, greener growth. I welcome the recent call from the Institute for Public Policy Research commission on economic justice for a £15 billion increase in annual public investment spending over and above current plans, taking it to 3.5% of GDP, the average for the G7 countries. That would be double the current rate. It would help to correct decades of underinvestment in UK infrastructure and consequently generate greater growth which will in turn reduce borrowing and debt.

To those who say it cannot be done, I say this: we did it. It is exactly what the last Labour Government did at the height of the global financial crisis. We increased public investment by £14 billion in 2008 and by £15 billion in 2009, over and above previously planned levels, taking it to a 40-year high, and growth began picking up—until the Tories won in 2010 and it collapsed under the weight of savage austerity.

Maintaining infrastructure investment on a permanently higher plateau would encourage faster economic growth, deliver higher living standards and provide a better quality of life for all of our people. The Chancellor’s Budget falls short on all those criteria. He has dismally failed to provide the kind of fillip that is desperately needed for our economy—especially as the Government drives forward, lemming-like, towards an economically suicidal Brexit.

Photo of Lord Northbrook Lord Northbrook Conservative 5:36 pm, 13th November 2018

My Lords, in contrast to the noble Lord, Lord Hain, I believe there is much to welcome about the Chancellor’s recent Budget in the current circumstances. The Chancellor has been given an unexpected windfall by a major change in the independent Office for Budget Responsibility’s forecast in his favour. According to the Financial Times of 30 October:

“The magic ingredient enabling this … according to the Office for Budget Responsibility, was a ‘windfall’ of additional tax revenues and lower projected spending needs—now reflected in a huge change to the UK’s fiscal watchdog’s forecast”.

The expected windfall, amounting to £68 billion over five years, has come from higher tax revenues, and the OBR chairman, Robert Chote, has predicted that this will continue for the coming period.

Looking at the current economic scenario, I would like to focus on the latest quarterly GDP figures. There was good news that the economy grew by 0.6% in the three months to September, following 0.4% growth in the previous quarter, considerably higher than the recent trend. Less good news was that the economy lost momentum in August and September when growth and GDP fell to zero. By September, only construction was powering ahead. Retail sales after a strong start fell at the end of the quarter. Looking at 2018 as a whole, it seems sensible that the OBR has cut the GDP forecast from 1.5% to 1.3%, but it has raised the estimate for next year from 1.3% to 1.6%, which may be a little optimistic.

Considering overall the economy in the light of the Budget, it is hard to make any firm predictions because of the uncertainty over Brexit. Anecdotally, businesses seem to be delaying expenditure decisions, together with possible relocation of staff, until they see what Brexit deal, if any, emerges. For example, the exodus of the financial community from the City—such an important contributor to tax revenues—has yet to materialise. However, I am told that this could still happen due to the loss of passporting rights and could even be worse in the case of no deal.

No one has convinced me that life will be very easy for some parts of industry. The automotive sector, with its just-in-time manufacturing, will have major problems with customs procedure if a sensible deal is not reached.

Also, I worry about the Northern Ireland border situation. According to fullfact.org data of February this year, if we discount sales to the rest of the United Kingdom and count only exports to foreign countries, 35% of Northern Ireland’s exports go to the Irish Republic and £7 billion go to the EU, including the Republic, which represents almost 13% of our exports, according to Trading Economics. Disruption to the Irish border trade could have a significant effect on UK exports. I am also concerned about the customs situation at ports generally.

Another economic figure to be watched carefully is UK inflation. At the moment, it seems under reasonable control, but recent figures for wage rises of more than 3%—the fastest for a decade—could be a cause for concern and may necessitate interest rate rises if the trend continues.

There is much in the detail of the Budget that I welcome. I applaud particularly the raising of the level at which the 40p rate and the basic rate of tax start. I also applaud the sizeable increase in the investment allowance. The relief measures for business rates are also welcome. The increase in spending on roads of £29 billion over five years and the £420 million for pothole repairs are sensible. The extra digital services tax is overdue. Extra money for the NHS is necessary. In my view, however, there needs to be a major cross-party debate to determine spending priorities to stop it becoming a bottomless pit. The extra £1 billion for defence was also a good measure. The additional funding for universal credit was very sensible. I claim a small amount of credit as part of the team that made that case to the Chancellor recently.

However, I am concerned about other Budget measures. The increase in national insurance was not mentioned in the Budget speech; the announcements on it that were sneaked out later are unwelcome. Sadly, to correct my noble friend Lord Higgins, the new probate charge is not just a rumour. Essentially, it is a tax, but it was also not referred to in the Budget Statement. That seems an attack Conservative supporters, as it means a charge of no less than £6,000 at the top end of the scale. That is in addition to inheritance tax. Not surprisingly, the Daily Mail vigorously attacked it, which may or may not be helpful. Delaying cutting fixed-odds betting terminals’ maximum stakes to October next year is inexcusable. It may well be overturned in the other place, which I would applaud. I am sorry that the police are not getting more resources, as major crime problems in both cities and the countryside suggest that they desperately need them. Also, the prison situation does not look good; I am not sure how to focus extra funding there. Surely some of the international aid budget could be diverted to those two areas.

I want to focus now on the tax burden. According to the FT on 29 October, tax revenues are,

“scheduled to rise from 36.6 per cent of national income in 2017-18 to 37.2 per cent by 2023-24, the highest level since 1986-87”.

I fear that I may be in the minority in continuing to suggest that, within reason, lower taxes can yield higher revenues.

Finally, I want to return to the budget deficit. Clearly, the Chancellor’s measures will put back the days when the books will be balanced. Although the Government deserve high praise for reducing public sector net borrowing from £153 billion in 2009-10—I remind the noble Lord, Lord Hain, of that—to a forecast £40 billion in 2017-18, they keep pushing back the date when the deficit will be cleared. There seems to be a general belief that the current forecast level of deficit does not matter because many other countries are in an equally bad financial state. This budget year, debt interest alone is forecast at £41 billion, and to be in the 40s for the foreseeable future. That situation is fine as long as the markets tolerate it. However, a bad Brexit deal could upset the market and international investors could require a higher return from investing in UK debt. That could cause a serious rise in the UK deficit and have a major effect on the UK economy.

Photo of Lord Skidelsky Lord Skidelsky Crossbench 5:43 pm, 13th November 2018

My Lords, I welcome the general thrust of the Budget. As the OBR says, it represents the “largest fiscal loosening” since 2010. Noble Lords have suggested that the Chancellor is spending his windfall, but I mistrust the language of “windfalls”. Windfalls are only forecasts of revenue based on forecasts of growth; they are not there under the bed, so to speak, and should be given the credence they deserve—which is very little.

Let us put that aside. We are not here to discuss the Budget, over which we have no control. We are here to discuss, as per the terms of the debate, the economy in the light of the Budget Statement—that is, how the Budget will affect the economy. The answer is: very little. The loosening of which the OBR speaks is much too small to repair the damage caused by eight years of austerity. An adequate loosening would have required an economic understanding and a moral compass beyond the reach of this Government.

The Conservative Party’s narrative has been unchanged for 10 years. The Conservatives say that the recession was caused by the Labour Government; Mr Hammond twice called it “Labour’s Great Recession” in his Budget speech. He said that the austerity policy had nothing to do with ideology: it was simply necessary to clear up the mess Labour had left. Let me put it as bluntly as I can: this narrative is economically illiterate and morally fraudulent, yet the Conservatives have lived off it for the past eight years. That makes me very angry. Take the myth of “Labour’s Great Recession”. The idea that Labour was somehow responsible for the recession is ludicrous. The banks caused it, and Governments were left to clear up the mess. The Chancellor would have been more honest had he talked about the “Bankers’ Recession”—but no Conservative Chancellor can talk that way about his friends.

A slightly more reasonable version of Mr Hammond’s story is that the Labour Government left a fiscal mess. This does not run, either. The economist Simon Wren-Lewis of Oxford University has made a detailed—and far from uncritical—analysis of Labour’s fiscal policy between 1997 and 2010. I will quote just two sentences. He said that,

“any claim that the UK fiscal position was dire before the onset of the Great Recession is not tenable”.

He also stated:

“The line that the Labour government was responsible for leaving a disastrous fiscal position … is pure spin”.

I want to emphasise that, although Professor Wren-Lewis supports Labour, no competent analysis of Labour’s fiscal record would differ greatly from that summary. In any of its forms, the story of “Labour’s Great Recession” is a myth.

Let us exclude the myth and ask whether austerity was a necessary policy in 2010, as the Chancellor claimed and as the noble Lord, Lord Higgins, who is not in his place, accepted. The answer is no. The economics of the matter are straightforward. If the private sector reduces its spending, the Government have to increase their spending to plug the gap. If they cut their spending as well, it deepens and prolongs the recession. The only counterargument is that austerity was needed to give confidence to the markets. But the evidence is unarguable that any confidence-boosting effect of cutting spending—on the poor, it must be said—was overwhelmed by its depressive effect on total spending.

No competent economic authority now disputes that this is what happened—so why go on denying it? Martin Wolf of the FT called austerity a “large unforced error”. That well-known left-wing firebrand Mark Carney, Governor of the Bank of England, estimated at the end of 2016 that austerity had,

“on average, subtracted around 1 percentage point from demand each year”.

Cumulatively, that has left the British economy about 6% smaller than it would have been; in round numbers, it knocked £125 billion off the economy in that period. We are told that the divorce settlement from the EU will cost £35 billion or so, but the coalition Government cost the economy £125 billion.

I do not want to claim that the past eight years have been a tragedy like the First World War, which we remembered recently, or even the great depression. I do claim that the coalition Government inflicted quite unnecessary harm on the British people, which they have never acknowledged or apologised for.

The Budget has to be judged by the extent to which it sets about repairing the damage. It is not enough to say that austerity is coming to an end; it has to be reversed sufficiently to make up for the harm that it has done. This cannot happen unless the harm is acknowledged.

The damage is most clearly seen in the low growth figures, which other noble Lords alluded to. Far from bouncing back as vigorously as is usual after a deep collapse, the British economy has been growing at less than 2% a year since 2010. That is well below its historic trend and, as the noble Lord, Lord Hain, pointed out, things are expected to get worse. The OBR forecasts growth to be 1.5% on average over the next five years.

These are dreadful figures. Britain is near the bottom of the G7 countries. If we take into account the growth in population and the large inequality in income distribution, there is little room for an improvement in the real living standards of most people in the next five years.

The reason for low economic growth is the collapse in productivity. British workers work longer hours than workers in Germany, the Netherlands, France and Denmark, but they produce less for those hours. Annual growth in productivity has plummeted from average annual rates of about 2.3% before the great recession to 0.4% in the past decade. The Resolution Foundation states that,

“had the pre-crisis trend continued, productivity would be more than 25 per cent higher than it is today”.

I agree with Andy Haldane of the Bank of England when he says that we have a “long-tail problem”, but our tail has become longer than it was because our path back to headline full employment—in itself very welcome—has consisted largely in multiplying the number of low-productivity jobs at the expense of high-skill services and manufacturing. Look at the cuts in investment in housing, education and public services since 2010 and you have a pretty good explanation for the collapse in productivity.

The Budget could at least have begun to reverse this trajectory. Instead, we are promised a bagatelle for the British Business Bank, “a little extra” for schools, public toilets and potholes, a little relief here and there—and yet another inquiry into the productivity puzzle.

Over everything hangs the fear of the deficit. Some commentators even fear that the Chancellor has given away too much, too soon if he is to balance his books—but balancing the books should never have been an objective of policy. Balancing the economy should have been the objective, with a balanced budget as the happy by-product of sensible policies for ensuring strong economic growth. The hard-working British people, whose praises the Chancellor never ceases to sing, deserve better than he is prepared to give.

Photo of Baroness Altmann Baroness Altmann Conservative 5:53 pm, 13th November 2018

My Lords, I declare my interest as chair and adviser to pension firms and as adviser to a social enterprise specialising in helping employees manage high-cost debt with workplace loans.

It is an honour to speak in this debate and to follow so many excellent contributions from noble friends and colleagues from all sides of the House. I welcome this Budget, but it may be entirely irrelevant, because Brexit and the terms on which we may leave the EU are far more important for our economy.

In general, the Budget had giveaways for many different groups. I commend the sensible, time-limited encouragement of business investment, help for the high street, the plans—albeit limited—for a digital platform services tax and the announcement of austerity coming to an end. The national productivity fund, mentioned by my noble friends Lord Gadhia and Lord Leigh, is definitely welcome. Productivity in the workplace has been impacted by ongoing financial concerns among those becoming ever more indebted. Therefore, I welcome the help for those struggling with excessive debts, the £55 million from dormant assets to help the problem of unaffordable credit and the 60-day breathing space.

It is also vital to build on the national retraining scheme plans—I welcome the £100 million from the Government to help job-specific training. I urge my noble friend the Minister to ask the Chancellor to make sure that this works for older employees, too. Men and especially women face ongoing discrimination in the labour market, within both the workforce and the recruitment process, which undoubtedly damages productivity and growth.

I welcome in particular the absence of radical pension reform—there have been so many changes. I am pleased that the basic framework remains for now while auto-enrolment continues to roll out until next April when it reaches the full rates. Small changes such as pension funds being allowed to invest in growth assets and encouragement of moves towards a pensions dashboard are also welcome. Increasing the personal tax threshold to £12,500 next April will help protect the pensions auto-enrolment programme from a rising number of opt-outs as employee contributions rise from 2% to 4% of relevant earnings.

However, this rise has a major downside because it worsens the social injustice in pensions inflicted on low earners, who are mostly women. More than 1 million people earning between £10,000 and the personal tax threshold, which is currently £11,850 but will rise sharply next April, will be forced to continue paying 25% extra for their pension if their employer chooses the wrong type of administrative arrangement, as so many have done. This scandal has been ignored time and again. I hope that my noble friend will urge the Government to show that they care about these lowest-paid workers and remedy the injustice.

There were some other missed opportunities, in particular on social care. There is no money in the system, at public sector level, local government level or at individual level, to pay for social care. We need urgently to ensure that measures are introduced to incentivise people to put money aside for funding long-term care needs. A Green Paper is promised “shortly”. Meanwhile, families are unprepared for care needs. Baby boomers, that huge demographic chunk of the population, have not planned to set aside money for care. If we were to introduce incentives to help families put some funds away to pay for care, they would be able to choose when, where and how, and what quality of care they might prefer, rather than just relying on whatever the state might provide. Eight million over-60s have more than £300 million in ISAs and billions of pounds in pensions. Those baby boomers could be incentivised to keep some of that money for their 80s in case they need care. If we do not act soon, more of that money will be spent.

I declare an interest in that I own an electric vehicle. I was disappointed that benefit-in-kind company car tax rates were not addressed in the Budget. They will rise next year from 13% to 16%, which goes entirely against the thrust of policy and the Road to Zero strategy. Sales of zero-emission cars are flat year on year, and we are falling ever further behind other countries. The rise in the benefit-in-kind tax will hit demand in that most important company car market, yet in the following year the tax will drop to 2%. Clearly, people will delay purchasing electric vehicles. I hope that the Chancellor might reconsider at the very least bringing forward the 2% tax rate or perhaps abandoning altogether for a year the company car tax for electric vehicles—the benefit-in-kind tax. If we want to be a leader in this area, it is a shame that the Chancellor has not responded favourably to the letter that I and many others sent to him requesting such action.

There is one more issue I want to mention. I understand my noble friend Lord Northbrook’s concerns about the post-Budget announcement on reform of probate fees, but I find the criticism rather harsh. I am pleased that the Government have listened to previous concerns and reduced the planned fees that they announced in 2017, but under the new plans 60% of estates will pay just £250, similar to today. The cost of legal or professional fees are far larger than this probate fee. For example, an estate of £100,000 is estimated by Which? to be charged, on average, £4,000 by a bank, while a £500,000 estate would face bank charges of closer to £10,000 to £20,000. In that context, a few hundred pounds from the probate fee is desperately needed to keep the court and tribunal system up to date and ensure that there is continued free access to justice in cases such as child support cases, domestic violence cases, mental health reviews and female genital mutilation protection cases. I think that all such cases deserve some small cross-subsidy from the biggest estates.

I was also encouraged to see the clear threat from the Chancellor that the giveaways in this Budget will not be available in a no-deal Brexit scenario—presumably to entice the ERG to support any deal put to Parliament. In that context, I remain horrified by the continued talk of no deal. Let me be clear: if we do not reach any deal with the EU, we will be undoing far more than this Budget. Our 40 years of industrial success are at risk. National security, the national health, food supplies, manufacturing jobs, peace for Northern Ireland— the list goes on. How any even semi-responsible Member of Parliament could seriously still be considering leaving the EU on so-called WTO terms is beyond my comprehension. This game of bluff must stop. Our country has large debts—it needs business success and international co-operation, especially with our nearest neighbours.

I believe that this Budget was judiciously judged, but quite frankly, whatever is pencilled in for next year or thereafter in terms of taxation and spending could be entirely swept away by a damaging Brexit. I hope that the Government will ensure that the voices in our party who seem determined to risk our future on a kamikaze no deal, or even a Canada-style agreement, are sidelined as soon as possible.

Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords) 6:03 pm, 13th November 2018

My Lords, my noble friend Lady Smith is absolutely right: this Budget is designed to deal with the political problems of the Government and not the economic and social problems of this country. Most people would simply not recognise the picture painted by the Minister in his opening speech. Perhaps this Budget had to be short term while Brexit negotiations continue, but how much more inspiring it would be if the Chancellor had also recognised the real economic and social problems described by many noble Lords and started to take steps to rectify them—steps to even out the inequality of wealth; steps to review the basis on which we pay tax; steps to get the country working more efficiently by lifting productivity and moving towards the high-wage, high-skill economy that we all seek.

The noble Lord, Lord Fox, spoke of the direction of travel. Surely the direction of travel for the Budget has to be away from an economy which puts us near the bottom of the G20 for productivity and investment yet number five in size, and where one-third of households will depend on universal credit while most of those households are in work. Low-productivity work with high employment is the classic formula for inflation. The Minister will know of numerous visits to Germany to learn why their productivity outstrips ours. They all report that it is largely due to vocational training, training which has evolved over time. Together with investment, this seems to be the key lesson. Lowering corporation tax does not seem to have encouraged this. Indeed, we have seen many companies investing in buying back their own shares to enhance executive pay.

The Minister spoke of the apprenticeship levy, which is meant to improve skills, but it is not working. He spoke of 3 million apprenticeships yet, as the noble Baroness, Lady Neville-Rolfe, told us, it is not working. Yes, the Chancellor has instituted a review of how the levy will function, but that is after 2020. What is the point of a review of the levy system when the private sector firms that deliver training are performing so poorly? The largest one, for the retail sector, went bust. Learndirect had to be rescued with public money. Virtually all the training companies received very poor ratings from Ofsted. The result is that large companies are doing it themselves or recruiting from overseas and the rest struggle with a reduced public sector.

In the public sector, FE colleges are being starved of funds and, as the House of Commons Education Select Committee recently reported, only eight of the 24 Russell group universities offer degree apprenticeships. Because of inflexibility in the education system, part-time students have dropped by 51% since 2010. This is to the detriment of reskilling and learning while remaining at work, which is an opportunity most of us would like to have. This is one reason we have low productivity, low earnings, high employment but a huge shortage of skills. It is the economy that the noble Lord, Lord Skidelsky, described. Where are the effective steps that the Budget could have taken to reverse this direction of travel?

We are told that the Government are being less rigid about austerity. That is a step in the right direction, but the size of the step the Chancellor has taken is very small. This is well illustrated on page 89 of the Red Book. Table B1 sets out the full list of expenditure items in the scope of the welfare cap. On the right are those items now not in scope; a total of five. On the left are those items still in scope of the welfare cap: a total of 26. Yes, austerity may have been moderated, but three-quarters of the £12 billion in welfare cuts, including next year’s benefits freeze, will still go ahead. What this tells us is that if we are to return to the quality of welfare and the standard of living we had before the recession, we will have to raise more government revenue. The fact is that we do not raise enough tax. I hope we will raise more tax by growing the economy and making it more productive.

Meanwhile, the Budget could have taken steps towards a fairer, more acceptable tax system that raises more revenue. For instance, it could have moved towards taxing wealth rather than income, by equalising income tax and capital gains. It could have broadened the tax base and helped local councils by revaluing property, so that expensive houses really do pay more council tax. This is long overdue and it is these disproportionate property taxes that have contributed to the rigidities of the housing market. Yes, of course it could have taxed higher earnings. A national insurance scheme for care, which includes premiums paid by pensioners, seems to have attracted interest and support and would help the NHS by reducing bed blocking in an ageing society. And what about a financial transaction tax, as a sign that the Government support their own industrial strategy, a strategy that creates wealth and does not support activities which extract wealth or simply transfer it? That would be much preferable to lowering the VAT threshold, which would place administrative burdens on a lot of small businesses, as the noble Lord, Lord Wakeham, explained.

The digital services tax—if it is ever implemented—is a small part of the taxes that Tax Watch tells us have been avoided by the main internet platforms. A so-called unitary tax would raise more money and be a lot more equitable; that is why it is finding favour in the EU. Yes, the Government have introduced a future high streets fund but this money is not new. It is allocated from the national productivity investment fund and is a good example of short-term tinkering. I put it to the Minister that increased spending by raising revenue is a lot more prudent than increasing spending based on a theoretical windfall, which came about because the OBR has rebased its calculation for the short-term forecasting of revenue. The noble Lord, Lord Macpherson, warned us about this.

There is nothing in the Budget about climate change or tackling wealth inequality, and very little about making work pay. This Budget continues to commit us to a low-growth, low-skill, low-pay and low-standard-of-living economy. We should be doing a lot better than this.

Photo of Lord Horam Lord Horam Conservative 6:11 pm, 13th November 2018

My Lords, I hope that the noble Lord, Lord Haskel, will forgive me but I am not familiar with Table B.1 on page 89 of the Red Book. I am afraid I have not got quite that far into the detail of the Budget but I want to make a couple of other points, which he might agree with.

First, the central objective of economic policy should always be to keep economic growth going at the maximum sustainable level. I am looking directly at the noble Lord, Lord Skidelsky, as I make those remarks. If you keep economic growth going in that way then every other problem, whether it is deficit, debt or inflation—I see that the noble Lord, Lord Skidelsky, is nodding and I feel a glow of pride at that—becomes more manageable. That is the point of getting economic growth at the maximum level where you can sustain it. By that token, therefore, the Chancellor is entirely right to do what he did in the Budget because the fact is that economic growth is very anaemic at the moment, as many noble Lords have pointed out. The Chancellor was right to give a boost and he did so, and all the indicators and predictions by economists are that that will give a mild stimulus—a very mild stimulus, of course—to growth.

The second good thing about the Budget is that it was a restrained boost and rightly so, because he had to keep in his back pocket or behind the sofa—wherever Chancellors put these things—some money for the difficulty that we will face if we have an even worse problem over Brexit than we appear to face at the moment. It was the right call, first, in that it gave a boost and, secondly, in that it was a restrained boost. However, it was of course short-term to face the present situation over the next six to nine months. We all know—the point has been made several times during the debate—that there are other big issues which we have to face.

Here, I think the noble Lord, Lord Haskel, will agree with me: we cannot deal with these issues other than by raising taxation. These are issues such as poverty and what has been revealed by the rolling out of universal credit, for example. There are some of the decisions that we have taken in previous years, not just on the levels of benefit—I certainly welcome the Government’s improvement on those—but on the actual framework. How has it come about that people in some circumstances have been left for five weeks between the end of benefit and the beginning of universal credit? How could anyone conceive of that being a sensible thing to do? These are people who have no savings. They probably have debt, never mind any savings. How are they to manage for five weeks with nothing coming in?

Equally, despite many people thinking the other way, I am afraid I was always opposed to having benefits paid under universal credit every four weeks. Most of these people are used to budgeting every week, not every four weeks. I know that can be changed and that there are arrangements under universal credit for it to be adjusted if circumstances dictate so, but I bet that they have to go through a very bureaucratic process to get that adjustment made. This is therefore a fundamental error, which I deplore, with the system. None the less, it is being tackled and I am very glad that it is.

The other issue, among many others I might mention, is skills. Many people in this country now have credentials, diplomas, degrees and all the rest of it but they do not have skills. Employers and businesses need skills but too many people have chalked up a huge debt from tuition fees to get something almost irrelevant to a prospective employer. That needs to be tackled in a major way.

To do these things, as well as all the other things many noble Lords have mentioned, taxes will have to rise. My noble friend Lord Northbrook quoted some figures but I slightly disagree with him. The figures I have from the Institute for Fiscal Studies suggest that, at the moment, taxes in the UK are 35% of national income. In Germany, the equivalent figure is 39%; in the Netherlands, it is 41%; in France—I love the French—it is 47%. This shows that, by comparison with our European neighbours, we are a lightly taxed country. We are also a lightly regulated country, I might add to some people who think the reverse. There is therefore room for us to increase taxes to deal with some of the serious social and economic problems that we face.

For example, why are capital gains and dividends not taxed as highly as earned income? They were under Margaret Thatcher and I am a Thatcherite on this: let us go back to what she did. They were taxed at the same rate and so they should be. Again, when councils are short of money, why is a house worth £1 million taxed at the same rate for council tax as a house worth £10 million? Why do we not have two extra bands of council tax to deal with the issues? That would surely give local authorities more money to deal with the problems that they face.

One eminent tax accountant made a point the other day about all the allowances, remissions and loopholes in the tax system. He reckoned that there are 1,200 such reliefs, taking away £400 billion from the Exchequer. He gave as an example the entrepreneur’s relief if a person sells his company or small business. Why should he get any relief at all? That costs the Exchequer £2.7 billion. If you invest in the AIM stock market, you get relief on that. Pension relief costs us £30 billion; I defer to my noble friend Lady Altmann on that, but surely anyone who can squirrel away more than £40,000 does not need a greater incentive to do so. All this is available. Then there are more unconventional ideas, such as those mentioned by my noble friend Lord Gadhia, about unwinding QE and having an infrastructure sovereign fund, which is a very attractive idea.

There are immense long-term social and economic problems that we need to face. There are the resources to deal with them if we tackle them in a sensible way. I applaud the Budget for what it was—as a short-term, judicious fix—but I hope that the next Budget is much bolder and much more ambitious.

Photo of Lord Shipley Lord Shipley Liberal Democrat 6:18 pm, 13th November 2018

My Lords, I remind the House that I am a vice-president of the Local Government Association. I appreciate the opportunity to follow the noble Lord, Lord Horam. I agreed with almost everything that he said, in particular on the need for two extra bands on council tax, which would increase local government revenue, but also his reference to the need to solve long-term economic and social problems. In that respect, he is absolutely right.

This is an important debate. It gives us an opportunity to consider some strategic issues arising from the Budget. The Chancellor said that,

“the era of austerity is finally coming to an end”.—[Official Report, Commons, 29/10/18; col. 653.]

That is not the case for the funding of local services, as we have heard, nor for low earners, who will not see much of the £3 billion in tax cuts because they earn under the threshold or because of the impact of universal credit or national insurance contributions. As the Institute for Fiscal Studies said, the Budget announcements are “sticking plasters” with no sign of a long-term strategy, particularly in relation to the need to find more money for adult social care.

I agree with all those who have said that taxes will have to rise. As my leader, Vince Cable, said, we need a mature debate about that because it will involve people paying more tax. I agree with the noble Lord, Lord Wood of Anfield, who earlier this afternoon raised the issue of the tax base and the need to think about the scope for the taxation of wealth, as opposed to just income or personal spending, to reduce the impact of an eroding tax base. I add to that the need to review business rates, which are proving very difficult for many business to pay in the face of competition from internet companies which can have significantly lower levels of business rates. The Chancellor has made a start, and I am pleased that he has, but we need to go much further and much more quickly.

I fear that the Budget will cause rising inequalities. Inequalities weaken our democracy and trust in our institutions. Inequalities show themselves greatly in housing, where there is now a very sharp divide in housing wealth that seems to be worsening, not getting better. I note that, according a report launched today by the Building Societies Association, one-third of first-time buyers now rely on family financial support. Such financial support is much bigger, the BSA tells us, than Help to Buy. Help to Buy features in the Red Book. I accept that it has been important in helping a lot of people. Without it, a lot of people might not have been able to purchase their own home. I concede that point, but I am bothered by the now substantial evidence which shows that Help to Buy has put up house prices, placed some people in negative equity, been used by many who were not first-time buyers to upgrade, and led to huge profits—and huge and utterly unjustifiable bonuses—for some large builders. The Budget has extended Help to Buy but with greater limitations. It will apply only to first-time buyers. It has been extended from 2021 to 2023. I am unclear why that is happening when there is such a need for more social housing.

In terms of housing overall, I found the Budget a disappointment because it does not deliver a fast enough build-out of housing. I welcome the lifting of the housing revenue account cap, which could build 10,000 homes a year, and the removal of stamp duty on shared ownership is also welcome.

Earlier this afternoon, the noble Lord, Lord Wakeham, talked about stamp duty being a tax on change. He has a point that we ought to consider more fully. He asked whether stamp duty could be reduced for those who are downsizing their property to release it for younger people. There is a proposal in waiting there which I hope the Government might be willing to do some work on.

The Government are committed to building 300,000 new homes, not conversions, a year and say they will do that within a few years. However, I do not think they will achieve that commitment. Indeed, I notice that in paragraph 4.54 of the Budget book it is now referred to as an ambition. Until recently, it was a firm target and prior to that it was a commitment. I will say again what I have said on a number of occasions in this Chamber: the figure will be achieved only with a large increase in the number of affordable and social homes, and that requires government intervention.

That brings me to the Letwin review, stage two of which was announced in the Budget. I welcome one or two things in the final part of the Letwin review. Large sites will be constructed as single large sites for which councils will need clear statutory powers, and I hope they will come very quickly. However, if this happens, the process of building will be speeded up, so that part of the Letwin review is right, but I cannot understand the extraordinary conclusion that there is,

“no evidence that speculative land banking is part of the business model for major house builders”.

I do not wish to get into the realm of semantics, but there is evidence of huge profits and utterly unjustifiable bonuses for major housebuilders, partly because of the shortage of housing. In other words, private builders will generally build between 150,000 and 170,000 homes a year, but we need them to build more than that, and they have to build out more quickly. We need to look again at why the Letwin review—the Government will respond to it early in the new year—thinks that the big builders are building out as quickly as they might.

There is another problem because local authorities are being threatened with losing planning control if they fail to meet housebuilding targets. This is the housing delivery test. I hope due account will be taken of the difficulties that local authorities face if big builders do not build. We must get local authorities building. We need to allow them to capture some of the rising land values created by planning permissions and give them first refusal on public land for social and affordable homes.

My last point relates to second homes. I am very pleased to see paragraph 3.38 in the Budget book, which relates to the business rate treatment of self-catering and holiday-let accommodation. A consultation is promised. As the Minister for Local Government said in a reply to the Members of Parliament for North Norfolk and Westmorland and Lonsdale a few days ago:

“We are aware of concerns that some second home-owners may be exploiting what has been termed a ‘loophole’ to reduce their local tax liability by declaring that a property is available for let, but making little realistic effort to actually let it out, potentially giving them access to Small Business Rates Relief”.

There is to be a consultation. I hope it is speedy and that legislation will speedily follow it.

Photo of Baroness Byford Baroness Byford Conservative 6:28 pm, 13th November 2018

My Lords, it is a great honour to follow my noble friend the Minister, who has so clearly set out the Budget details. This Budget reflects that the hard work of British people has created a stronger economy, with unemployment at its lowest level since 1970 and more than 3 million more people in work, which is to be welcomed.

The Government look forward to a positive future, investing in public services and supporting business across the piece. In my time, I shall look at three aspects referred to in the Budget book: first, digital infrastructure; secondly, apprenticeships and skills; and thirdly, clean growth.

I welcome the Government’s commitment to full-fibre networks, which will ensure a much faster, reliable system that is cheaper than its copper predecessor. However, it is still unacceptable that there are areas of the country where there is currently no broadband coverage and others where the speed is inadequate. To overcome this problem, the Government are allocating £200 million to pilot innovative approaches using primary schools in some of our most rural areas. This surely is to be welcomed.

Additionally, I bring to my noble friend’s attention the inadequacy of mobile phone connections and connectivity. I hope the Government will take steps to ensure that universal coverage is a realistic goal, sooner rather than later. If the Government wish to encourage more small business starts, it is crucial to have good connectivity in all areas, particularly rural ones.

My noble friend Lady Neville-Rolfe spoke with great passion about the importance of small and medium-sized businesses and of enterprise and business, which brings employment and taxation, and about the need to invest in new businesses. I totally agree.

I am personally delighted to hear of the Government’s proposals to reform and strengthen the programme on apprenticeships and skills. For many younger people, university study is not necessarily the most appropriate route to take. More are looking to gain skills while working on the job but they need to be confident that this brings worthwhile qualifications for future employment. The Government have committed three sums of money to strengthen the scheme: first, by providing £240 million to halve the co-investment rate for apprentice training to 5%; secondly, with a figure of £450 million to enable levy-paying employers to transfer up to 25% of their funds to pay for apprenticeship training in their supply chains; and, thirdly, with a further £5 million in 2019-20 to identify gaps in the training provider market.

I have a question for the Minister. The third bullet point in paragraph 4.48 of the Red Book refers to this £5 million, saying that it is,

“to identify gaps in the training provider market and increase the number of employer-designed apprenticeship standards available to employers”.

It goes on to say:

“All new apprentices will start on these new, higher-quality courses from September 2020”.

Does that therefore mean that if the current courses being offered are not up to that standard, employers will no longer be able to continue giving help on the skills and retraining?

The world of work is going through an industrial revolution, with modern technologies opening up all sorts of new possibilities every day. Digital, computer, cyber, technology, robotics and precision engineering all have a direct impact on businesses. Who would have thought that, for example, a field of barley could be prepared, planted, grown and harvested by machinery without a human hand working on the machinery in that field? In future we will need a workforce who are skilled. No doubt they will hold many different jobs during their lifetime, so retraining will be essential. I welcome the Government’s commitment to that end, and am glad to see that £100 million has been allocated for the first phase of the national retraining scheme and an additional £20 million allocated to skills pilot schemes. I reiterate the comment made by my noble friend Lady Altmann about the need for older employees to be able to access that facility as well.

I turn to clean growth. The Budget Statement identifies areas in which improvements can be made to air quality, flood-risk management, plastic and waste reduction, tree funding and food waste, to name a few—there were more in there. It is a total disgrace that our country and cities are blighted by people failing to take responsibility for creating and then abandoning their own waste on other people’s doorsteps. The Government are kindly making £10 million available to the Environment Agency to clear up the worst abandoned waste sites. It is surely wrong that waste abandoned on farms or private holdings has to be cleared at a cost to the individual landowner. This illegal dumping of waste is becoming an increasing problem, particularly in rural areas, and I suggest to the Minister that a review of the current non-payment for clearance might well be undertaken.

The Government have committed £20 million to tackle plastic recycling, with additional money being available for plastic research and development projects, and are pioneering innovative approaches to boost recycling. It is dreadful that in this day and age so much is thrown away and a great deal dumped in our seas, when we could take a much more individualistic approach and take responsibility not to add to that.

Lastly, I welcome the Government’s commitment to provide some £15 million to charities and others who distribute surplus food. However, I challenge all of us to reflect on the way in which we use food. It is a precious commodity, yet we waste one-third of the food that we produce in this country. With an ever-growing population to feed, we need to be growing more food from less available land.

I have highlighted but three aspects of this Budget. Overall I believe it is a good Budget, and one that gives hope and opportunity for all.

Photo of Baroness McGregor-Smith Baroness McGregor-Smith Conservative 6:36 pm, 13th November 2018

My Lords, I declare my interests, as set out in the register of interests, in a number of businesses that would benefit from a strong economy. It is a pleasure to be able to speak today.

As I read through the Budget Statement, I was struck by the Chancellor’s comment that,

“the era of austerity is finally coming to an end”.—[Official Report, Commons, 29/10/18; col. 653.]

I really hope we can move away from the word “austerity” now, as many millennials have grown up in the UK and deserve much more positive commentary going forward.

Having spent my career working in business, I feel there needs to be a relentless focus on enterprise, and that is what I shall focus my comments on today. It is absolutely at the heart of economic growth and prosperity. The excitement that comes from running and growing businesses is truly exciting, and we need to excite more of our citizens to want to do this.

I shall start with some reflections on start-ups. Start-up companies are critical to our future success in the UK. StartUp Britain has said that over 650,000 businesses were started in 2016. I would like to see that number double. The transformation for our businesses through technology and AI provides us with an opportunity to invest significantly more into start-ups in the UK and deliver on the industrial strategy. I welcome the announcement on the new Industrial Strategy Council, which will hold the Government to account, and urge its members to look closely at the positive impact that start-up companies and our continued investment in them have on the economy.

I also welcome the announcement in the Budget to extend the start-up loans programme, backing up to 10,000 entrepreneurs, but I would like to see even more done, particularly on mentoring and the financial encouragement for more and more people to start and grow their own businesses here. The House of Commons Business Statistics paper, published in December 2017, says there were 5.7 million businesses in the UK, with over 99% of them being small and medium-sized businesses employing up to 249 people. Of those, 96% were microbusinesses employing up to nine people, and microbusinesses account for 33% of employment in the UK. As so many of us are aware, 74% of all SME businesses are service businesses, a sector that I have worked in throughout my whole career.

The investment that we make over the next few years in young emerging businesses, particularly on the technology and AI side, is critical to our future economic success. We need to be creating technology enterprise zones in every town in the United Kingdom. Please let us create a wave of excitement now about the art of the possible and ensure that the next generation of tech giants starts here.

I note many other key investments in a number of areas in the Budget, including the annual investment allowance and more incentives for business to spend on buildings, which I truly welcome. I also note the end to PFI projects. My only question here is what new commercial structures will exist to deliver largescale projects for the Government. I ask that the provisions of the social value Act are put at the heart of all public procurement going forward.

On taxation, I was delighted that we will deliver the lowest corporation tax rate in the G20. We must continue to be mindful of the fact that inward investment to the UK from many companies around the world will always consider our tax regime, and it must continue to be attractive. However, I was pleased to see the introduction of the new digital tax, which I think is a little low, despite my fundamental belief in low taxes for business. This tax must be introduced and increase while the international corporate tax framework is further developed, but that needs to be urgently assessed.

On some of the investments being made by the Government, I urge them to remember our rural areas as well as our cities. We need our rural economy for so many small businesses to thrive, and digital connectivity is still a challenge for many. The Countryside Alliance estimates that 1.1 million premises still have no access to decent broadband, meaning that 17% of our rural homes and businesses cannot receive decent broadband and 82% do not receive a 4G signal. In this environment, businesses will be driven to invest where there is excellent connectivity, and this will challenge the rural economy even further.

I also note the Future Telecoms Infrastructure Review, which sets out the changes needed to give the majority of our population access to 5G, connect 15 million premises to full-fibre broadband by 2025 and provide full-fibre coverage across all of the UK by 2033. However, the funding strategy is still not clearly defined after 2021, and I urge that to be done now. That would really support the growth of our economy.

On business rates, I am pleased that we have made a start, with premises with a rateable value of up to £51,000 being given one-third off their business rates for the next two financial years, but I urge the Government to go even further. A review of the business rate is urgently due because of the changing dynamics of the high street. As much as I am pleased that we have the new future high streets fund, I am concerned about the challenges of those who have a presence on the high street in the uncharted waters of digitalisation and online buying. As consumer buying habits fundamentally change, we cannot allow more and more organisations to fail. I agree with the evidence given by Rain Newton-Smith, chief economist of the CBI to the House of Commons Treasury Select Committee, when she described the business rates system as a “real barrier to investment”. This needs to be listened to.

Finally, on housing, it was pleasing to see that the housing infrastructure fund will be increased to £500 million and that the housing revenue cap will be abolished. That is ultimately positive for enterprise, but let us not underestimate the challenges that remain to build enough homes—successive Governments have not found this easy—and a housing strategy council to hold the Government to account on the number of houses needed, where and for whom, should be set up now to hold all of us to account.

In conclusion, from a business perspective, I saw the Budget as positive, but let us ensure that all our businesses, particularly those in the SME community, feel that every level of support is being given to them and that they are truly excited by what they can now achieve. Let us ensure that, throughout any transition on Brexit, businesses are given the continued ability to grow and prosper. We need to support them, give them certainty and put no barriers in their way. Their success is critical to the UK economy, and that will increase critical funding to all our public services.

Photo of Lord Suri Lord Suri Conservative 6:43 pm, 13th November 2018

My Lords, I am pleased at the array of policies set out in the Budget Statement, and I am confident that when they are implemented, we will continue to build on a growing and confident economy.

Amid the gloom and investment worries over Brexit, we must be careful to look at the facts, not just what we and our colleagues here in London might think. The data from the past quarter shows that our economy remains attractive to overseas investors, with 0.6% growth comparing favourably with 0.2% in the eurozone and 0.4% in France. Brexit is the defining policy of our times, and we must do our best to find a deal that safeguards jobs and investments, but the relentless talking down of the economy by those who would like another vote is simplistic and damaging. Ultimately, the other place voted to defer that decision to the people, and we can only advise when the meaningful vote comes. In the meantime, we ought to focus our energies on the new areas of policy which will be under our sovereign control when the deal is passed.

I was pleased to see the Chancellor pivot back to a more recognisably domestic agenda in his Statement, and there are plenty of policies to praise. One area on which I think that much more could be done is housebuilding. At the end of last month, the Member for West Dorset published a very good piece of work on build-out rates, to which the Chancellor alluded in his speech. Having read it, I think that it gives the Government adequate cover to pursue a significant new package of cross-party reforms designed to free this sclerotic and often monopolistic market.

I was pleased that Help to Buy is soon to come to an end. I spoke recently on how the surplus went mainly to housebuilders and landowners. There was evidence of an inflationary effect for first-time buyers. On the subject of landowners, it was Churchill who said it far better than I could:

“Roads are made, streets are made, railway services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains—and all the while the landlord sits still”.

I was disappointed not to see some more radical measures on hope values in the Budget. The new Housing Minister has shown himself to be an advocate of some groups that are put upon—namely, leaseholders and the opponents of brutalism—but not enough tenacity on tackling some serious blockages. Landowners can demand an inflated and unjustifiable price for their land, even when they do not enhance the value at all. The aforementioned report made clear that action needs to be taken to redistribute the proceeds of building so that those who put in the labour and investment get a fairer share.

I welcome the Chancellor’s plan to make funds available for regeneration of high streets. It would be un-Conservative to try to keep shops open when there is not enough demand to sustain them, which appears to be Labour policy. Turning these spaces into homes will ensure that our high streets remain thriving and happy places, rather than boarded and windy ghost towns. I am happy to endorse the Budget and look forward to seeing its rapid implementation.

Photo of Lord Kerslake Lord Kerslake Crossbench 6:48 pm, 13th November 2018

My Lords, I first declare my interests as president of the Local Government Association, chair of Peabody, and chair of Be First. My other interests are listed in the register.

In my contribution to this debate I will talk about two issues: first, the wider economic context to the 2018 Budget, and, secondly, the specific implications for local government. There are common features to both issues—some welcome short-term actions that demonstrate the Government have listened, but, at the same time, some very significant longer-term issues that have still to be properly addressed.

Taking first the wider context: this was necessarily a short-term and contingent Budget, given the uncertainties of Brexit. The Chancellor had the unplanned benefit of higher receipts and lower spending than originally anticipated, and he has chosen to spend all of this benefit, particularly on increased funding for the NHS and bringing forward the planned increase in tax thresholds. But we should not be in any doubt that a bad Brexit would quickly wipe away all of those gains. The Financial Times has calculated that the UK economy is already 1.2% smaller than it would have been without Brexit. That is equivalent to £870 per household per year. A bad Brexit, as others have pointed out, would dramatically increase the economic cost and require a fundamentally different approach to the Budget.

Brexit or no Brexit, however, there are deep and long-standing issues with the UK economy that the Budget does not adequately address. These were laid bare in the recent report from the Commission on Economic Justice, of which I was a member. Put simply, the UK economy has stopped working for most ordinary people. We have had a decade of stagnant earnings and low growth, as the noble Lord, Lord Skidelsky, said, along with low investment and productivity, rising house prices and widening inequalities of wealth. As the noble Lord, Lord Wood, pointed out, we do not at the moment have a sustainable, long-term taxation policy to fund our public services. To have any chance of addressing these deep-rooted issues, we will need to see many more radical policies than we have seen so far.

The commission report sets out in some detail what those policies might be. What is clear is that once we are clear of Brexit—in or out—we need to develop a long-term economic plan that promotes both prosperity and justice. It will not be a quick task. We have taken a while to reach this point, and it will take us a while to get out of it.

That brings me to the second area that I want to talk about—local government. By common consent, local government has borne the brunt of austerity. The Budget contained some welcome news for local government in the additional £650m funding for adult and children’s services over the next two years, and the additional investment in transport infrastructure. I personally was also very pleased to see the speedy lifting of the cap for local authority borrowing on housing and the increase in the Housing Infrastructure Fund. These are important steps towards building more genuinely affordable housing—necessary, if not sufficient. But we should be in no doubt again that, apart from lifting the cap, these measures are short-term and one-off.

Austerity continues for local government, and we have still to resolve the long-term funding challenge for social care. Local authorities have been able to manage the damage of austerity by moving away from annual budgeting and introducing long-term financial planning. This is welcome, but I have talked to a lot of local authorities and pretty much all of them say that their position will become unsustainable over the next few years unless there is action on funding and social care.

The LGA has calculated that social care services will still face a £5.8 billion funding gap by 2024-25 just to cover the costs of the national living wage and to maintain existing standards—so no improvement, just to stand still. Adult and children’s services combined represent over half of the local authority budget. If they are going to defend those care services, as they all want to, they have to make disproportionate cuts in other universal services such as street cleaning, street maintenance and libraries—which are the very services that the public think they pay council tax for. Bluntly, there is a democratic deficit.

The LGA has called for the forthcoming Green Paper to be bold and ambitious—it is right about that. It should build on the excellent Green Paper produced by the LGA itself. It also needs to be published soon; we are now some seven months beyond the planned publication date. We must have some indication of the Government’s intended direction of travel on social care well before the conclusion of the 2019 spending review, likely to be not until the autumn of next year. My view is that we need a hypothecated health and care tax, linked to a repurposed national insurance. If we have to spend a higher proportion of our national income on health and care—and there is general consensus in the House that we do—any party will find this hard to deliver unless it can say that the money is going towards health and care. That is why I support a ring-fence.

Finally on local government, I want to raise an issue that is in some sense tangential to the Budget but very important—the fair funding review. It is hard to argue against reviewing the funding formula to make it fairer, but it adds another huge level of uncertainty to the sector at a very difficult time. There are bound to be winners and losers in this review, and that will be incredibly hard to manage with falling, or even static, resources. The existing plans and provisional timetable look very challenging—unless significantly more funding is planned for local government. I would be very interested to hear the Minister’s view on this issue. In my view, it is a ticking time bomb.

The Chancellor may now be regretting his decision to move away from a spring Budget, as it has greatly limited his room for manoeuvre. Despite the rhetoric, there is a great deal of difference between actually ending austerity and moving towards ending it, particularly for those working in local government and in public services outside the NHS. Brexit or no Brexit, we desperately need a longer-term and more radical plan for renewing the UK economy.

Photo of Baroness Stroud Baroness Stroud Conservative 6:57 pm, 13th November 2018

My Lords, in the run up to this year’s Budget Statement, my message to the Chancellor was to be bold, and take action on universal credit. It was an opportunity to take a transformational step forward in restoring a robust approach to tackling levels of poverty faced by too many. Universal credit is a reform that began with universal cross-party support and which, through multiple decisions, had its potential eroded. This was the moment to correct this and the Chancellor is to be congratulated on taking that opportunity.

As we in this House know, universal credit was designed to make work pay and tackle poverty in a way that supports those who cannot work and rewards the move into work and progression in work. We all agreed that it was a better way forward, correcting many of the complexities, clawbacks and cliff edges of the benefit and tax credit system that it replaced.

The Social Metrics Commission’s new poverty measure—I refer to my entry in the Members’ register of interests—made clear the size of the poverty challenge facing policymakers today and would, I hope, have focused the Chancellor’s mind at the time of the Budget. It shows that 14.2 million people in the UK experience poverty at any one point in time: about 8.5 million working-age adults, 4.5 million children and 1.5 million pensioners. Of these, nearly 3 million people live in families where all adults work full time yet are still in poverty. These families are doing everything we could ask of them and yet they are still struggling.

However, part of the bigger picture for the Chancellor as he made his Budget decisions, is that Britain is also experiencing record high levels of employment, so as people are transitioning from no work to part-time and full- time work, they are themselves on a pathway out of poverty. This is by far the best way for a family to work themselves out of poverty. However, as the Social Metrics Commission demonstrates, for that pathway to be effective it really needs to be full-time work. Yet even then about 8% of families who work full time are still in poverty. This is a structural issue that needs to be corrected; it reveals the fragility of the lives of many of those on low incomes and the entrenched nature of poverty for some.

The situation is even more fragile than many realise. Close to one million people are living in families where someone works but they are only just above the poverty line. There are another one million people living in families where someone works who are less than 5% below the poverty line. This is why small changes in work allowances can be the difference between supporting many of these families out of poverty and tipping many of them below the poverty line. Therefore, although it has taken until 2018 to go even part of the way to restoring the investment in universal credit, I hugely welcome the Chancellor’s announcement of restoring £1.7 billion to the universal credit work allowances and investing £1 billion in smoothing the transition. This will help ensure that the situation of in-work poverty is stabilised, at least, for families with children.

This investment by the Chancellor is hugely welcome as it stops a cut in tax credits—which this House resisted—being applied to universal credit. I pause to pay tribute to Baroness Hollis for her work in preventing this cut impacting on the lives of tax credit claimants. I know that if she had been here on Budget Day she would have been relieved to hear the news about the reinvestment in universal credit. But she would also have reminded us, in the way she always did, that it does not take us forward; it prevents us going backwards.

What would it take to take us forward? The long-term ambition is, of course, to tackle poverty by helping families to a position where they are earning well above the poverty threshold. In this respect, there are a number of factors that are important in their potential impact on poverty. The Government could improve support for childcare in universal credit from 85% of costs for two children only, to all costs for multiple children. This would be one way of ensuring that, for those on low incomes, it always pays to work. The Government could also take steps towards tackling future debt problems: any action to further reduce the number of waiting days in universal credit would have the impact of reducing debt levels, as would ensuring that historic debt is not brought across from HMRC on to UC claimants. We need to consider taking action on tax credit legacy debt, to ensure that the move to universal credit does not leave people trapped in historic tax credit debt. These are some of the next challenges for the Chancellor to address in future fiscal events, along with much discussed issues such as ending the uprating freeze.

All these recommendations would ensure that the system rewards work and supports families when they need it most and when they are doing everything they can to change their family’s trajectory. By reinvesting in the work allowances, the Chancellor has taken a big step towards a comprehensive approach to tackling poverty and signalled his intent to protect living standards for those who are doing all they can to make ends meet, but who are still struggling. If the Government were going to ease austerity, this was the most impactful place to do so first, but we all know that, however much heavy lifting the Government can—and do—do, they cannot do it all themselves. People want to know that, when they go to work, it is their hard work that is supporting their family. They want to know that if they do everything right, take a job and work full time, they will not be in poverty.

There have been many debates on what constitutes an appropriate entry-level or basic wage. Some argue that if you raise wages you will create unemployment. I can even remember being part of a team at No. 10 which was concerned about whether raising the minimum wage by just 50p would cause job losses. This has not happened. Others argue that the market will set wages fairly. However, that simply is not the case when you factor in the impact of the welfare state on what should be a basic wage. Employers have no clear idea of what the real market wage is for employees who are also in receipt of tax credits, because their wages have been subsidised by the Government for so long.

The only way to fix this problem for good is for employers to be reconnected with their employees, not in a gimmicky way but by asking the very real question: can my staff actually live on the wage I am paying them? There is a solid business case for employers taking this seriously. Research has shown that companies that have moved their lowest paid on to a living wage reduce staff turnover and absenteeism and achieve greater productivity. However, this is also about businesses simply doing the right thing, investing in their people, and ensuring that nobody who goes out and works full time lives in poverty. I therefore welcome the Government’s commitment to raising the national living wage to 60% of median earnings by 2020 and to hearing from the Low Pay Commission on how it plans to exercise its ultimate remit of ending low pay.

Government is responsible for thinking through the economic systems and structures that would see all people flourish, but all companies can restore that very natural human connection between employers and employees by talking a hard look at where they could step up to make a real contribution to the lived experience of their workforce. Tackling poverty in this country will not be done by the Government alone—it will take all of us—but credit where it is due to the Chancellor for taking a big step forward to avoid any step backwards.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Shadow Spokesperson (Work and Pensions) 7:06 pm, 13th November 2018

My Lords, I thank the noble Baroness, Lady Stroud, for her comments about Patricia Hollis. If Patricia were here today, rather than pat the Government on the back for what they have done, she would be using the full power of her intellect and eloquence to point out what they have not.

Brexit overhangs this Budget just as it infects so much of our public debate. There have been various attempts to model both the longer-term macroeconomic consequences of Brexit and the short-term consequences for the UK. Despite a range of estimates, the former point overwhelmingly to a lower GDP than would otherwise have been the case. Whether or not they knew it at the time, Brexiteers voted for our country to be poorer. The extent to which there is a smaller GDP will be influenced by assumptions made about access to the EU market in the future and any restrictions we might face. There is also a view that there will be a short-term negative shock to the economy, with the main factors depending on judgments about the extent to which the referendum has deterred investment and the transitional costs of shifting to a new trade and investment regime.

The OBR forecasts are based on the assumption that there is a Brexit deal, although we are told that a disorderly Brexit would have severe short-term implications for the economy, the exchange rate, asset prices and the public finances. Given the debacle of the negotiations to date, are we under this Government not already close to the point of not securing an orderly Brexit? In any event, are the Government seriously maintaining that they can deliver a deal dividend? If so, will the Minister enlighten the House on the nature and size of it?

We should also judge this Budget, as the Government want us to, on the basis that austerity is finally coming to an end. At its least benign, this should mean no more cuts; at its most significant, a repairing of at least some of the damage which earlier measures have inflicted on people’s lives. How can austerity be over when Age UK reports that 1.4 million older people are not getting the care and support they need; when £19.6 billion is needed to stop further cuts to departmental budgets; when the extra money for universal credit—welcome as it is—is less than one-third of the £7 billion of social security cuts still to come?

How can austerity be over when the Budget has not provided a penny extra for day-to-day costs in our schools, given the 8% loss since 2010? How can austerity be over when 1.3 million people still avail themselves of food banks in the rich country that we are? In making a judgment on whether the economy is working for all, we might reflect on the recent publication from Credit Suisse which reported that the ranks of the ultra-rich in the UK have risen by some 400 over the last year—that is those with assets of over $50 million.

But we know the UK economy is not working for everyone, and this Budget does not change that. This is the stark message from the IPPR commission, referred to by the noble Lord, Lord Kerslake—I congratulate him and his colleagues on the work that they have done. The economy is no longer delivering rising living standards for a majority of the population. Too many people, the commission says, are in insecure jobs; young people are set to be poorer than their parents; and the nations and regions of the UK are diverging further.

What are the causes? They are not fundamentally addressed by this Budget: continuing weakness in productivity, investment and trade. We are not faced with a choice between a fair economy and a strong economy. We should strive for both. I agree with the point that it is not a quick fix. We do not have to deal with things on an incremental basis. We were bold in the 1940s and, as my noble friend Lord Hain said, we were bold in tackling the banks’ recession in the 2000s. Of course, being bold does not mean that we are always right; we were also bold in the 1980s.

The Red Book makes reference to the Government’s efforts to crack down on avoidance, evasion, aggressive tax planning and unfair outcomes. It claims that they have secured over £185 billion in tax that would otherwise have gone unpaid. We obviously support such efforts but, for the avoidance of doubt, can the Minister set down for the record which taxes and which years are included in that calculation? It has always been a bit of a mystery. Perhaps he could also set down how the Government calculate the tax gap, which is claimed as 5.7%, and in particular the treatment of profits diverted from the UK.

We welcome the announcement that the Government are to proceed with a ban on pensions cold calling, and now is the time to make progress. Too many people have lost out to scams, although some recent press reporting may offer some comfort.

The digital services tax is a belated attempt to get the tech giants to pay their fair share and is to be welcomed, notwithstanding the low level of its ambition: some £400 million a year by 2022-23. It is understood that this is to be a holding measure until the reform of the international corporate tax framework is secure, but I wonder what consideration has been given to the fact that the DST is seemingly a tax on revenue, not profits, and what the double tax relief implications of this might be.

We note the determination for the pensions dashboard to proceed, but express our concern about its potential governance. As originally envisaged, this was to be delivered by the DWP—an ambition we shared with the Government. If it is to work—and the need for it has been made very clear by recent press coverage of pensions pots being unaccessed—there will be a need for robust governance arrangements.

It appears to be the case that the Budget does not herald any change of approach to a long-standing anomaly referred to by the noble Baroness, Lady Altmann, concerning how tax relief on an employee’s pension contributions can be given. In short, as we have heard, there are two systems, one of which—net pay arrangements—does not secure effective relief up to a point for the lower paid. It is the employer who determines which of the two systems is to operate. HMRC has previously suggested that it would not be straightforward to unravel this, but the Chartered Institute of Taxation begs to differ. Perhaps the Minister will undertake to look at this.

Given the uncertainty described by my noble friend Lady Smith at the start of this debate, which has been reinforced by many other noble Lords who have spoken today, we should stand ready to revisit all of this before too long, given the spectre of Brexit.

Photo of The Bishop of Chelmsford The Bishop of Chelmsford Bishop 7:14 pm, 13th November 2018

My Lords, for many on these Benches there are measures to welcome in this Budget: for instance, the decision to increase the work allowances within universal credit for families with children and people with disabilities, as other noble Lords have mentioned. This goes a substantial way towards reversing the cuts announced in 2015. Likewise, the announcement of measures to aid the transition to universal credit, worth £1 billion over five years, is also welcome, as is the additional and non-repayable run-on support for new claimants to help people manage during the five-week waiting period before their first payment. However, I am disappointed that the run-on support does not cover the child elements of universal credit.

This House has heard my views before, and indeed the views of many Bishops, on the two-child limit. We hoped the Budget might have addressed this. A policy that penalises children through no fault of their own seems unfair and damaging. Furthermore, there is disappointment that, having made the courageous decision to reduce fixed-odds betting limits from £100 to £2, the Government have delayed implementation. As many are saying, if it is right to do, it is right to do as soon as possible. However, the subject of this debate is,

“the economy in the light of the Budget Statement”,

and some of us were hoping for a greener economy as a result of this Budget. I express some dismay that hardly any mention of this has been made from all sides of our House, although with some exceptions.

There are some things to welcome, such as the investment of £20 million next year to,

“improve sustainability and innovation in tackling single-use plastic waste”,

which will be a benefit if plastic producers actually modify their methods to increase recycled content above 30%. I know that this coming Thursday the noble Baroness, Lady Neville-Rolfe, is to move,

“that this House takes note of the threat of plastic to the environment”.

The urban tree-planting initiative will do something to help offset our carbon output and improve the immediate environment for many of our citizens. The £20 million for local authorities to tackle air quality is also welcome. It remains to be seen whether the Government’s industrial energy transformation fund to encourage businesses with high energy use to switch to greener sources will be effective, especially in light of the discontinuation of enhanced allowances for energy and waste-efficient equipment.

However, it seems that these measures in the Budget, although welcome, simply do not go far enough to tackle and reduce our contribution to climate change and the ongoing damage to animal and bird habitats in this country and beyond. Some of your Lordships may recall the damage that was done to Wanstead Flats, in the diocese where I serve, this summer at the height of the heatwave. Over 200 firefighters battled for four days to contain a grass fire. Wanstead Flats is a magnificent resource for the people of east London. It is the gateway to Epping Forest and a home to rare skylarks and migrating birds. Of course, urban grass fires always have and always will break out, but we can no longer ignore the evidence that our hottest summers are, on average, getting hotter and our coldest winters are getting colder. It is therefore more likely that rural and urban wildfires, and all kinds of other disasters, will be more common and more devastating. Yet although this Budget came in the wake of the Intergovernmental Panel on Climate Change and the warning that we have about 12 years to substantially cut our emissions, it did not substantially address our increasingly desperate environmental situation and the stark predictions that the IPCC reports. What was needed was a Budget containing measures that would seriously reduce our carbon emissions through more wide-ranging environmental taxes and a more intentional shift in departmental spending budgets away from activities and suppliers that damage our environment.

Care for our environment is about survival, of course, but it is also the bedrock of human flourishing. Fiscal policies and investment that enhance our environment will create a decent and productive place in which all of us can live and work. Now, I am well known as being a prolific drinker of the highly delicious flat white, which seems to have the right proportion of coffee to frothy milk. I drink a lot of it. Nevertheless, I was disappointed that even a simple thing like a reusable cup levy was rejected in this Budget. I am sure that it would have had an immediate effect, like the very successful plastic bag levy, and I for one will go on the record as being happy to try to carry a reusable cup, just as I now carry a “bag for life”. As the Government consider spending £291 million to extend the Docklands Light Railway to help serve the 18,000 new homes that are planned in east London and they consult on the creation of a “Great Thames Park”, the Budget has missed the opportunity to gird these exciting developments with strong environmental protection.

Like the Government and all of us, I am sure that the Church of England must do much more to improve its environmental position. The Church will do all it can to help and is indeed leading the way on issues such as ethical investment, but so much more is needed. It is the earth itself that is crying out. The poorest in the world are suffering first and suffering most. We have a moral duty to keep global warming well below the 2 degrees centigrade above pre-industrial levels and limit temperature increase to 1.5 degrees, as the Paris Agreement commits us to, and we simply need to develop policies that will make this happen.

Christians say the following words several times every day—indeed, we say them each day in this House—“give us today our daily bread”. It means learning what constitutes enough and not asking for or expecting anything more. It is an uncomfortable but urgently necessary economic corrective to many of our policies and all our expectations. My hope, and indeed my prayer, is that the Treasury will begin work now on planning for and scoping more profound environmental measures as it prepares for the next Budget. I fear that our planet cannot sustain many more missed opportunities.

Photo of Lord Flight Lord Flight Conservative 7:23 pm, 13th November 2018

My Lords, I welcome this pragmatic Budget, which addresses a lot of the issues that voters have seen as needing to be fixed for some time. There is within the Budget an exhaustive list of such issues, both large and small. The Chancellor is fortunate that the public finances have improved substantially at a particularly convenient time. Economic growth for next year has been revised upwards to 1.6%, while employment has been revised up by 800,000 more jobs, and wages are forecast to rise above inflation for the next five years, considerably increasing living standards. We have met our borrowing target three years early and the annual deficit is down to 1.9% of GDP. Borrowing is £11.6 billion lower than forecast. We have also met our debt target three years early and delayed recovery from the 2009 recession implies that tax revenues are likely to continue to be better than forecast for some time, as was the case in the recovery from the 1990 to 1992 recession, for over 10 years.

Some improvement in productivity growth is forecast, but not enough; growth is forecast at 1.65% per annum rather than 2.6%. The main cause remains that it is cheaper and lower risk to produce more by taking on more staff than by committing to major capital investment. The 800,000 increase in employment by 2022 reflects this very point. The increase in the minimum wage addresses this issue in part, but employees will still benefit substantially from wage subsidies channelled via universal credit. History has shown us that where pay is subsidised by the state, productivity suffers.

Most of the budget stimulus comes from increased government spending as opposed to tax reductions, in particular the huge increases in NHS spending, amounting to some £20 billion per annum over five years. Interestingly, this is mostly NHS England catch-up. The other main increases in government spending are on universal credit at more than £1.7 billion, £1 billion on defence and £1.6 billion on local authorities, along with a total, looking seven years ahead, of £28 billion of investment in roads.

The main items of lower taxation are the increases in personal allowances and the higher rate of income tax band, together costing £2.8 billion, and reducing business rates by a third for values below £51,000. PFI has been abolished, but leaving some £200 billion to be paid off. The extent to which this and some £50 billion of student loans that are unlikely to be repaid have been provided for is not clear. There is also an undefined spending provision of £58 billion in the Red Book for “other, including EU transactions”. I wonder what that is about.

There are three main measures to help more people into home ownership, which others have addressed in more detail. I am disappointed and surprised that the Chancellor has not addressed the crackpot stamp duty regime introduced by George Osborne that is killing the housing market in London and the south-east and preventing people of my age trading down, thus vacating larger houses for people with young families. Among the welter of statistics in the Budget is one showing that the 2004 stamp duty take was a disaster. The confiscatory tax on more expensive property failed to raise the expected revenues. The Government got it wrong and forgot about the Laffer curve. Stamp duty revenue is forecast to fall by £1 billion this year and to decline in each of the next five years. At an affordable level of stamp duty, revenues should be at least double. The uncommercial hike in stamp duty flies in the face of the long-standing economic truth that if marginal rates are too high, revenues will fall. The Government should forget about being scared of cutting for fear of being attacked by Labour as the party of the rich. Osborne’s stamp duty was a mistake that has damaged the housing market and needs correcting urgently.

Photo of Baroness Noakes Baroness Noakes Conservative 7:28 pm, 13th November 2018

My Lords, I will not pretend that speaking at the tail end of the Back-Bench speakers is a pleasure. I have clearly upset the Chief Whip in some unknown way. When I saw my place on the list, I contemplated the pleasure of an early night, but I want to use the opportunity of this debate to talk about something that was omitted from this Budget and is the cause of much distress to a large number of individuals.

Before I get to that, however, I should like to congratulate the Government on their economic stewardship over the past eight years. I will not repeat what my noble friends have said, but the highlights of the economy are record levels of employment—the lowest rate of unemployment since 1975; rising real wages; solid growth, even in the face of Brexit uncertainty; and, of course, no sign of the recession that the Treasury’s “Project Fear” promised us if we dared to vote to leave the EU. As an optimistic Brexiteer, I am hopeful that our exit from the EU will open prospects for economic growth that will outperform the cautious OBR forecasts, but I fear that whatever Brexit deal has apparently been concluded today will cast a long shadow over that; I shall save my views on that for another debate.

The underlying message of the Budget is that, even with the cautious OBR forecasts, the economy is doing well. The Chancellor had room to reduce the deficit and see the total debt burden on a downward path. At the same time, he reduced the burden of taxes on individuals and increased spending, particularly on the NHS. The Budget may not have set many pulses racing, but it was unashamedly good news.

I will not go on about how well the Government are managing the nation’s finances, much as my noble friend Lord Bates might like me to do so. I want to devote the rest of my remarks to a little-noticed change first launched in the 2016 Budget, the impact of which is now being felt. This concerns the 2019 loan charge, which is part of the attack on tax avoidance. It came to my attention during the Finance Bill Sub-Committee of the Economic Affairs Committee, which is ably chaired by my noble friend Lord Forsyth of Drumlean. This year we are looking at making tax digital for VAT and HMRC powers, and we issued a call for evidence on that basis. Our reports on both aspects will be available shortly for those of you who I know cannot wait.

What the sub-committee did not expect was a deluge of evidence from individuals and their advisers about the impact of the 2019 loan charge. The loan charge is expected to produce over £2.5 billion of tax revenue, with the largest part this year and next. It is thus not an insignificant part of the fiscal arithmetic underpinning the Budget. The legislation is in the Finance (No. 2) Act 2017. It is highly technical and I will not weary noble Lords with the details. In summary, some taxpayers worked as contractors rather than employees and received income in the form of loans that were not taxed. The legislation treats these loans as income received on 5 April next year; since it goes back as far as 1999, as much as 20 years’ worth of income could be taxed in one go.

When the provisions were debated in the other place in Committee, there were approximately two Hansard columns of general commentary by the Financial Secretary and his opposite number on the theme of tax avoidance. The actual legislation was not scrutinised in detail and the impact on the individuals affected was not explored. The upshot was that the provisions found their way into law with ease. I remark—as I have before in your Lordships’ House—that the expertise of this House as a revising Chamber could be put to extremely good use if we were allowed to cover finance Bills.

That aside, what is now becoming very apparent is the profound impact on the individuals caught by these provisions. None of us has much sympathy with tax avoidance schemes. We probably feel little sympathy for all those famous names now facing big bills from film schemes or other exotic schemes which do not work to shelter large amounts of income from taxation. The loan charge is not like that. It deals with ordinary people earning ordinary levels of income. At the lower end are people on the minimum wage; for example, low-wage employees made redundant and immediately re-employed via agencies who put them into companies which operated these schemes. There are some who earned higher amounts; for example, IT contractors who chose to work under contract rather than as employees. But the people caught up are not the ultra-rich. They all entered into schemes that were cleverly marketed and appeared to have HMRC approval, which of course they did not. These schemes are not illegal, as the Financial Secretary has often said; they just do not work for tax purposes.

It is easy, with the benefit of hindsight, to say that if something looks too good to be true it probably is, but the tax returns were often not challenged by HMRC at the time, which led many to believe they were in the clear. A demand for tax on 20 years’ income has come as a massive and unsustainable shock to many. I have no doubt that many people were foolish. What is very clear from the cases I have seen, however, is that the individuals concerned have spent the money on living expenses. They would find it difficult to pay one year’s worth of tax, let alone 20 years’ worth. Faced with HMRC’s demands, many now face losing their homes. Some will opt for bankruptcy. The Government knew this when the legislation was enacted. Their December 2016 impact statement chillingly stated:

“The Government anticipate that some of these individuals will become insolvent as a result”.

That is now coming to pass.

It has been reported that some people are suicidal and that personal relationships have often been destroyed. The financial demands appear overwhelming. HMRC has some arrangements in place for deferred payment but this will often not mitigate the extraordinary impact of the debts now being created. I hope there is a beating heart somewhere in the Treasury that will understand the personal misery and havoc that this legislation is creating. It is clear that the individuals have obtained an unwarranted tax and national insurance advantage, but is the cure worse than the disease?

I know my noble friend the Minister has a strong sense of right and wrong. My only request to him is to go back to the Treasury after this debate and judge for himself whether what is being done is fair.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 7:37 pm, 13th November 2018

My Lords, I begin by echoing the words of the noble Baroness, Lady Noakes, in reference to the loan charge. I am also on the Finance Sub-Committee of the Economic Affairs Committee. This House will know that, in the other place, my colleague Stephen Lloyd, the MP for Eastbourne, put down an Early Day Motion on this issue; 100 MPs have signed it across all parties, reflecting the experiences of their constituents. These are ordinary people such as hospital cleaners, social workers and nurses, who found themselves moved out of their normal employment and did not have the scope or understanding to realise that they were being put into tax-fragile arrangements when they were moved over to work as contract workers. I ask the Minister to take this back. The public pronouncements that have been made, both by the Chancellor and the Financial Secretary, seem to suggest they do not understand that this is the kind of person affected rather than a handful of glamorous celebrities or footballers. It is crucial that that is drawn to their attention.

That was the first of the wind-up speeches; it is clear that the big announcement in the Budget was the £20.5 billion for the NHS. However, I pick up the point made by the noble Baroness, Lady Jolly, that this equates—if one looks across the whole budget for the Department of Health and Social Care—to a rise of only 2.7% in 2019-20, which is £3.2 billion short of the minimum increase of 3.3% necessary for the NHS and the full department just to stand still.

There is an impression created by the Budget that the problems in health have been solved. They have not. Health is still facing continuous cuts year on year. We have to be honest about that and many of us are very worried. Again, on mental health, to which the noble Baroness, Lady Jolly, drew attention, the money promised of £2 billion falls about £1.5 billion short of delivering the programme that was described. While additional money is welcome, it is well below the necessary promise. On social care, £650 million barely touches the borders of an overwhelming problem.

The noble Baroness, Lady Altmann, talked about how unprepared families are to deal with social care issues, saying that this Budget could have been used to deal much more widely with that underlying problem. The noble Lord, Lord Kerslake, and others referred to the LGA work which shows that by 2024-25 adult social care alone will face a £3.5 billion gap just to fund the national living wage and maintain existing standards of care. So even in health we are still in a cutting regime.

On the subject of non-protected budgets, the noble Lord, Lord Haskel, talked about further education but I should like to focus on schools. There was money for bits and bobs but we need £2.8 billion a year just to reverse the real-terms cuts per pupil since 2015. Schools need teachers to function but that has not been dealt with in this Budget.

Other non-protected budgets are those for prisons, police and local government, the latter of which was referred to by the noble Baroness, Lady Eaton. Picking up the point made by my noble friend Lord Fox, there are a few patches for this year but non-protected budgets will still be facing a 3% cut per person in real terms by 2023. I think that everyone in this House recognises the inadequacies of many of those departments when it comes to delivering the services needed by a reasonable and civilised society.

The noble Baroness, Lady Stroud, congratulated the Chancellor on the additional money for universal credit. However, I do not think it is adequate and nor, quite frankly, do most Members of this House. The money put back into work allowances equated to only about half the cuts made in 2015. The benefits freeze continues for another year and the newly self-employed continue to face overbearing minimum income requirements.

The noble Baroness, Lady Stroud, also talked about the tax credit debt rollover problem. According to the IFS, £4 billion more in welfare cuts is still to come—something that I think we all find reasonably challenging. I personally find it very unacceptable, and I wanted to pick up the point made by the noble Lord, Lord Horam. I am appalled that nothing has been done in this Budget to tackle the waiting time problem for people going on to universal credit. I have a personal friend—so I see it personally—who, because of the loan she had to take out to cover that period, is trying to live on £20 a week after rent. That is simply impossible and we should not have a universal credit system that puts people into that situation. The Chancellor missed an opportunity.

I was absolutely thrilled when the right reverend Prelate the Bishop of Chelmsford raised the green agenda, which we did not hear much about during this debate. This was a real opportunity to put down a marker, as the right reverend Prelate said, particularly after publication of the intergovernmental report on climate change. Why do we not have a 5p levy on plastic cups? I would have thought that the Treasury would welcome the money, as well as the impact that it would have on the overall plan to reduce plastics. Surely this would have been an opportunity to ban single-use plastics within three years, which is entirely doable.

The noble Baroness, Lady Altmann, talked about ultra-low emission vehicles and electric cars, the subsidies for which were cut, even though there were goodies in the Budget for oil and gas. That industry has real potential for the future of the UK. This would have been the occasion to reinforce that future and to make a substantial difference to the environment and the critical circumstances that we face.

I join various people in this House who have talked about our need to face up to the challenge of raising additional taxes. I think that we have a broken tax system and this should have been the Budget that began to deal with it. If we are to restore public services to the level at which we wish to see them and to do so in a fiscally responsible way, tax will be necessary. I do not just want a conversation on this; I want action. I have no problem with raising the personal allowance threshold for low earners, but at this time and in these circumstances it is surely inappropriate to raise the threshold for higher earners. I suspect that many, if asked, would gladly have forgone the promised £520 for the average high earner in order to help those left on the fringes of society. As one friend said to me, “It’s pretty hard to think I’m a priority when I see homeless people asleep in so many doorways”.

The Government could have made real headway with our public services and welfare crises if they had supported Liberal Democrat proposals to put a penny in the pound on income tax and dedicate it to the NHS and social care. Although they did not talk about the amounts, the noble Lords, Lord Kerslake and Lord Macpherson, pointed out the benefits of a hypothecated tax. The Government could have made real headway if they had returned corporation tax to 20%—I do not think that a penny of investment has been stimulated below that level. If they had restored capital gains tax to equate with income tax, if they had overhauled inheritance tax—many people talked about the importance of the challenge of taxing wealth as well as income—and if they had changed pension relief as we proposed, they could, as I said, have made real headway with our public services and welfare crises, delivering something like another £29 billion a year by 2020 to spend on those necessary and fundamental services.

Here I disagree with the noble Lord, Lord Skidelsky, because I think that fiscal responsibility is absolutely key to the future, and that is why I turn to tax-raising measures. I remember the Brown Government, and spending being based on the assumption that boom and bust had ended for ever. However, never underestimate the cycle—it comes back to bite you. His Government assumed that there would be no external events but we ended up with a phenomenal banking crisis. They also assumed a flow of taxes based on very high profits within financial services that, frankly, derived from abuse. When that abuse was ended, that revenue source disappeared. Therefore, I disagree fundamentally that there was no need for adjustment.

Photo of Lord Skidelsky Lord Skidelsky Crossbench

I intervene simply because the noble Baroness mentioned me. I am not against fiscal responsibility. Why on earth does she think that I am? I think that fiscal responsibility includes preventing crises, such as the one in 2008, and taking the right measures when a crisis has happened to restore the economy. I am not against fiscal responsibility. In fact, who is?

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

I think that we will have to debate this off-piste or I will talk for too long.

Photo of Lord Hain Lord Hain Labour

I am sorry to intervene. I was agreeing with everything that the noble Baroness was saying until she embarked upon a disastrous defence of her party’s complicity in Tory austerity for five years. If she looks at the record until the banking crisis blew everything out of the water, she will find that borrowing was lower than we inherited from the Tories, the deficit was lower than we inherited from the Tories and debt was lower than we inherited from the Tories. Those three indices were much lower than the average of comparable countries.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

And Liam Byrne left us with the message that there was no money left. I shall try to move on quickly.

Much more could have been done for small businesses. It is time to deal with the underlying problem of business rates, which is a defunct way of taxing. I very much recommend that the Government look at our call for a land value tax—the commercial landowner levy—which would reward people for investing much more in both machinery and equipment.

Much of this debate has been about growth. I say to both the noble Lord, Lord Bates, and the noble Baroness, Lady Noakes, that I join others who are stunned that the Government are satisfied with the growth rate forecast that we face. Over the next five years, the best number is 1.6%, and it looks as though it will be 1.3% this year. That is awful and completely unacceptable. I am very worried that the Government are complacent about a number like that, and the noble Lord, Lord Livermore, highlighted that issue as well. Productivity is forecast to be at a trend rate of 1.2%, which will produce no future for any of our children. This year, I think that it is running at 0.8%.

On growth and investment, this year private investment has fallen from 3.3% growth, which is much closer to its norm, to 1%. The Bank of England has said that business investment growth has been 3% to 4% lower over the past two years as a result of the referendum. Those investment numbers are absolutely devastating. When people point to full employment, I ask them to look at the demographics. We have a demographic shortage of working-age people. It is not hard, in those circumstances, to have full employment. I ask the Minister to check the dependency ratio, because—although my calculation may not be right—I believe it is currently 1.7:1. So one person supports themselves plus 0.7 of another person, rising rapidly to 1.9:1, which is completely unsustainable.

We have to face up to the issues of productivity, our rising pensioner tail and our falling working-age population. With our migration policies, we are about to make that situation significantly worse. We are certainly not going to achieve economic recovery in a Budget like this.

I have not even touched on Brexit; many people raised it and it is absolutely pertinent, as it sets the framework. We know now that there is a technical agreement between the EU and the UK. It will be fascinating to see whether tomorrow, by the time the Conservative Party has worked through it, there is anything more substantial than that.

No matter what we do, by the Government’s own figures there is no scenario for Brexit that does not harm prosperity—a point made by the noble Lord, Lord Livermore, in great detail, and by the noble Lord, Lord Kerslake. From talking to City players today, I understand that the financial services industry has either paid, or is committed to pay, something in the range of £15 billion to cover the cost of adapting to Brexit—this assumes not that there will be a no-deal Brexit but a Brexit more in the Chequers mould. I have no idea what is falling on manufacturing, but those numbers are quite damaging to any kind of economic future.

This was a sticking-plaster Budget. In this atmosphere of uncertainty, without knowing where Brexit goes, the Chancellor has chosen—perhaps rationally—to do only the few things that impact on this year. Let us not overstate what he has done. We still face huge cuts to public services on every front. We have not dealt with the challenge of putting our taxes on a long-term and sustainable basis and we have not dealt with the underlying challenges of growth and productivity.

Photo of Lord Davies of Oldham Lord Davies of Oldham Shadow Spokesperson (Treasury) 7:52 pm, 13th November 2018

My Lords, this has been an excellent debate. The Minister began it in the normal way that Ministers do; he described the Budget and took us through it in considerable detail as if these were normal times. The noble Lord, Lord Higgins, said it was his 60th Budget, and he is therefore in a position to know that there is something a little abnormal about this Budget. The noble Lord, Lord Skidelsky, called on us to talk about the economy and not the Budget. The Budget, in a sense, was not the Chancellor’s creation. We cannot recall him earlier talking about the end of austerity or the sunny uplands now facing the economy. He is always referred to as the cautious, somewhat gloomy Chancellor. But there was a conference speech by the Prime Minister on the necessity of ending austerity, and the Chancellor found himself forced by that speech—and by the pressure of public opinion; we should not underestimate the extent to which the country is reacting against austerity—to follow her will as a consequence. He took the opportunity to follow the somewhat fortuitous forecasting advantages and found himself able to predict greater expenditure than he otherwise would have done.

As my noble friend Lord Wood of Anfield pointed out early in the debate, the expenditure proposals fall a long way below the level necessary to make a real dent in austerity. The most graphic area of government responsibility identified has been local government, as the noble Lord, Lord Kerslake, referred to, among others. It is quite clear that the kind of crisis that came to public attention in the Conservative authority of Northamptonshire—and is common to so many other local authorities—is not remediable by a small, one-off addition from the Chancellor. It may be an earnest of intent—that if things go well with other matters, such as Brexit, local authorities may be promised greater resources—but at present everybody is aware that there is a crisis, to whose resolution this Budget makes a very limited contribution indeed.

The Budget terminates not austerity but the long-term economic plan. Do we all remember that Chancellor Osborne in 2010 set out to eliminate the deficit by 2015? There was a slight extension, which enabled the Conservative Party to edge the next election—shedding its colleagues in coalition as it went—on the basis that it was still fully in control of the major priority that it had identified for the nation: the elimination of the deficit. The Conservatives would do it in three years—fairly shortly after the 2015 election. There is none of this nonsense from this Chancellor, is there? He does not make any pretence or question that the realisation of that objective will obtain in the mid-2020s. Most commentators, even the OBR, think that is rather optimistic. The major priority of the Conservative Administration over the past eight years—carrying all the consequences, some of them very detrimental indeed, for so many people—has been the elimination of the deficit. They are nowhere near achieving even that as yet. But they have hit departmental spending, and the services that the Government are responsible for providing to the nation, very hard indeed. The Chancellor indicated that we should not take the present situation quite so seriously, because departmental decisions would be taken next year, when he deals with the spending plans. So this Budget gives a very limited indication of what is to be done; the real work comes in almost a year’s time. Perhaps that helps to explain why, as every noble Lord who has spoken in this debate in any kind of critical mode has identified, extra expenditure for departments falls a long way from the position that the departments actually face. It does not matter which area of policy one chooses. It is quite clear that the Chancellor’s decisions at this stage are inadequate to be much more than even a token towards ending austerity.

The second point the Chancellor makes is that this is a very difficult time in which to draw up a meaningful Budget. Have we ever seen greater uncertainties? The answer almost certainly is no. Brexit is creating such turmoil across the whole economy, and no one can foresee the outcome with great accuracy. You can see enough, and with sufficient accuracy, to put a spending plan for a huge amount of money on the side of a bus, but no one who is actually serious about allocating public resources thinks that this is a time in which fruitful decisions can be taken. The Chancellor indicated that he might have to bring another Budget in mighty soon if, in fact, the Brexit position proves that to be necessary. Far from this Budget being the focal point of a change in the economy and a big advance in the nation’s fortunes, it is pretty well a holding mechanism until things begin to clear, so that the Chancellor can identify his priorities later.

That does not alter the fact that in every policy area, as my noble friends were keen to point out in this Budget debate, the additional resources that the Chancellor has allocated are inadequate. The most insulting concern the schools budget. In circumstances where schools have taken cuts over the past eight years, that they should be beneficiaries of the “little extra” that the Chancellor can find seems a gratuitous insult.

I applaud the recognition on the other side of the Chamber that, however welcome the £1.7 billion towards social credit is—and it is of course welcome—it is a long way below the amount necessary to pick up all the needs of those who depend on benefits. The Chancellor would have to allocate £7 billion if he was going to ensure that the freeze on the rates of working-age benefits destined for next April would be taken off the agenda. So the story goes on, through all policy areas.

I pick up a point made most strongly by colleagues on my side of the House, I must admit, but that should be borne in mind by the whole House: austerity has failed the economy. As the noble Lord, Lord Skidelsky, said from the Cross Benches, and my noble friends Lord Hain and Lord Livermore said from behind me, this past eight years has in fact been a period of growth below the period after the Second World War. It has cost this country dear. When you operate from a position of 1.6% growth, you are selling the country short on economic success. In that period, we saw not just the fall in government resources available to people but wages not rising for the most extraordinary length of time.

As my noble friend Lord Haskel presented in his very clear speech, investment is falling in the United Kingdom. At present, UK business investment is the lowest in the G7, and public sector investment is £18 billion less than it was in 2010. There was also, of course, considerable discussion on the issue of the United Kingdom’s productivity. I agree that we need to think clearly about what would improve our productivity. But it is absolutely clear that this Government, in almost every Budget speech, continually emphasise their concern about productivity, yet it is 15% lower than in the other major economies in the G7. As my noble friend indicated, if in fact we had been serious about improving productivity, we would have put more investment into training and into supporting those sectors that specialise in vocational education. Instead, those sectors have been decimated. Further education colleges have taken a devastating cut over these past eight years and part-time education, which was always looked upon as a possible source of people changing jobs in a changing economy, has been almost wiped out.

This is not a Budget of success. It is an indication by the Chancellor of the fact that he had to pay more than lip service to the question of austerity. He would never have chosen that as his objective, given the mammoth task that awaits the country in ridding itself of the costs of austerity. But the Chancellor did what he was obliged to do. He presented a Budget that the whole party on the other side will try to sell to the nation as a huge success, and as the end of austerity and the expansion of the economy, even when the predicted growth rates are lower than they have been over recent years.

Photo of Lord Bates Lord Bates The Minister of State, Department for International Development 8:07 pm, 13th November 2018

My Lords, I begin by mentioning a moment of cross-party consensus. The noble Lord, Lord Davies, began his speech by saying that this had been an excellent debate, and I want to endorse that wholeheartedly from the Government Benches. It has indeed been an excellent debate.

It was particularly helpful, as we sat through the long hours of the debate, to hear such thoughtful contributions on the long-term issues faced by this country. I think here of the contribution on adult social care from my noble friend Lady Eaton, on which the noble Lord, Lord Kerslake, came in; the noble Baroness, Lady Jolly, referring to the funding of mental health care and how assets could be used in that context; the noble Lord, Lord Gadhia, discussing the unwinding of quantitative easing and the role of potential funding mechanisms for that, a suggestion shared by the noble Lord, Lord Macpherson; my noble friend Lady Neville-Rolfe talking about how to reintroduce dynamism into the retail sector; the noble Lord, Lord Shipley, contributing on the issue of housing, born of his great experience in that area; and my noble friend Lady Stroud, speaking also from experience, commenting on pathways out of poverty. I pay tribute to all that she has done over many years in raising this issue and seeking those pathways and ladders out of poverty for the poorest in our society. The noble Lord, Lord Leigh, made an interesting contribution on productivity measures in the information age—he shared that element of the debate with the noble Lord, Lord Skidelsky—and how we effectively measure productivity in the new economy. The noble Baroness, Lady Byford, talked about the future of the rural economy and gave a picture of the potential effect of AI, even in farming. The noble Baroness, Lady McGregor-Smith, continued on the theme of technology and spoke about how we create an economy which is fertile ground for tech start- ups in this country. It has been an excellent debate.

In the debate I was struck by a number of revelations. The outstanding opening speech of the noble Lord, Lord Fox, will be great news to Mrs Fox because my noble friend Lord Wakeham will report back on it. To add to Mrs Fox’s joy, I echo the fact that it was a very good speech. If my noble friend Lord Wakeham happens to know Mrs Bates, perhaps he might offer a similar view about my contribution. One of the most intriguing contributions was the revelation from the noble Lord, Lord Macpherson, who played a distinguished role in the Treasury, serving as Permanent Secretary to three Chancellors at least—perhaps more—of his insight into that fateful Budget for those of us on this side of the House when VAT was applied on fuel. John Major was opposed to that measure and it is reassuring to know that the reason it could not be changed was not because of opposition from the Chancellor but because the Red Book had already gone to the printers. Having suffered severely at the general election that followed on from that issue, I would have offered my services to make manuscript amendments to every copy that had been produced at that time.

This is the third time I have participated in these debates—my noble friend Lady Neville-Rolfe has done more—and I was momentarily heartened when the noble Lord, Lord West, began his speech by saying, “I am not going to be asking for more ships”. We all breathed a sigh of relief at that point, but then he went on to ask how the money would be spent. I shall come back to that in a minute. Another thing I have learned from doing these debates is that, when the noble Lord, Lord Skidelsky, whose reputation in the field of economics I have great admiration for, says that he gives the general thrust of the Budget a broad welcome, I know that is when I start quaking in my boots and hope that a flow of paper will come from the far end of the Chamber to help me out.

There have been a great number of contributions to the debate, and I will try to get through as many of the specific questions raised as possible in the time that I have. The noble Baroness, Lady Jolly, began by asking whether £2 billion is enough for mental health. Funding for mental health will grow as a share of the overall NHS budget over the next five years. The NHS will invest up to £250 million a year by 2023-24 in new crisis services for that purpose.

My noble friends Lord Wakeham and Lord Flight and the noble Lords, Lord Macpherson and Lord Shipley, touched on stamp duty land tax. My noble friend Lord Flight was particularly critical of the impact it was having. We reformed stamp duty in 2014 to improve the fairness and efficiency of the tax. The Government continue to support first-time buyers, including by increasing the price at which property becomes liable to stamp duty to £300,000 at the Autumn Budget 2017. This relief means that 80% of first-time buyers will no longer pay stamp duty.

The noble Baroness, Lady Byford, and the right reverend Prelate the Bishop of Chelmsford called for further action on plastics and food waste. The right reverend Prelate declared his passion for the flat white, which henceforth will be in a reusable cup. Defra will be publishing resources on its waste strategy in 2019, which will set out the further actions we intend to take. He also asked about what more we are doing for the environment, as did several noble Lords, including the noble Lord, Lord Hain. The Budget announced a £350 million industrial strategy transformation fund to support businesses in transitioning to a low-carbon future and action on single-use plastics as part of the Government’s wider strategy to address plastics waste, with further detail to be set out in the resources and waste strategy later this year. Subject to consultation, a tax on plastic packaging will be introduced from April 2022. It is not right to say, however, that coffee cups are so rarely recycled. However, there is no practical way to apply the tax to just hot drinks. It would have to be levied on all types of disposable plastic cups, which at this time would not be effective in encouraging reuse.

I pay tribute, as did the noble Lord, Lord Davies, to my noble friend Lord Higgins. The making of his 60th speech on the Budget is worthy of celebration. It is a diamond jubilee. I was going to say it was a diamond speech to go with that anniversary, but we all appreciate the assiduousness and the service he has given to scrutinising the public finances and fiscal measures over the years, in this House, of course, and in the other place as chair of the Treasury Select Committee.

My noble friend Lord Higgins also asked me a specific question about the change to probate fees, as did my noble friends Lord Northbrook and Lady Altmann. I will attempt to respond to it. Charging fees is an essential element of funding an effective, modern Courts & Tribunals Service, thereby ensuring and protecting access to justice. We are introducing a more progressive fee for obtaining a grant of probate, lifting 25,000 estates annually out of the need to pay a fee. The proposed fees range from £250 to £6,000, in line with the value of the estate. No estate will pay a greater fee than 0.5% of its value.

In leading off the debate, the noble Baroness, Lady Smith of Basildon, was concerned that 84% of the benefit of tax cuts goes to the top half of earners. The income tax system is highly progressive. The top 1% of income tax payers are forecasted to pay nearly 28% of all income tax in 2018-19—a higher proportion than in any year under the previous Labour Government.

The noble Lord, Lord Livermore, and my noble friends Lady Altmann and Lord Suri were concerned about the impact of Brexit. They raised a number of concerns; I will not attempt to turn this into a debate on Brexit because there will be many more opportunities for that. I assure them that the Chancellor has established a £15 billion fiscal headroom to be kept aside for Brexit contingencies. With a good deal, which we all hope for, that money can be invested in public services.

The right reverend Prelate the Bishop of Chelmsford and my noble friend Lady Stroud talked about the moves on universal credit and gave some insights. I join my noble friend Lady Stroud in paying tribute to Baroness Hollis. For a brief and painful time, I was the Lords spokesman for the DWP until I put in a plea to the Chief Whip and anyone else who would listen to move off to the Department for International Development—or anywhere else—to get me out of her line of fire. The power of her delivery was incredibly effective; she always narrowed things down from the big picture and the big numbers to individual families and cases, which made what she did so powerful. I take the point made by the noble Lord, Lord McKenzie, that if she were privy to this debate, she would be urging for more and pointing out where more needed to be done.

Some noble Lords referred to comments made on this side in relation to universal credit. A couple of responses from the Resolution Foundation were cited. Its director, Torsten Bell, said that the Budget will benefit some families because it includes giveaways on both the benefits side and the tax side. He went on to say that the Chancellor has delivered a,

“very welcome … £630 boost to low-income families”,

on universal credit. This will mean that the Government’s flagship welfare reform,

“is now more generous than the benefit system it is replacing”.

The noble Lord, Lord West, asked about the increase in defence spending. In the Budget, we invested an additional £1 billion in defence. Page 76 of the Red Book highlights how that will be spent. Of course, that comes in addition to the £1.8 billion announced in the Spring Statement, which will be for defence but will also include maintaining the pace of the Dreadnought programme to ensure our continuous at-sea deterrent.

Photo of Lord West of Spithead Lord West of Spithead Labour

I also asked whether this presaged the Treasury’s acceptance that it will use central fund money to fund the capital cost of the Dreadnought programme, which had been agreed until 2010 when it was cancelled by Chancellor Osborne.

Photo of Lord Bates Lord Bates The Minister of State, Department for International Development

Can I write to the noble Lord on that, just to make sure that I get it absolutely right? I will certainly undertake to write to him and place a copy in the Library.

The noble Lord, Lord Shipley, asked about Help to Buy and questioned its effect on house prices. He also questioned why the scheme had been extended. Housing developers need notice of any changes, and ending the scheme abruptly in 2021 could disrupt housing supply. Instead, we will have a two-year transition period.

My noble friend Lady Altmann asked about pensions. Some people who earn between £10,000 and the personal allowance are missing out on tax relief on their pension. To date it has not been possible to identify any straightforward or proportionate means to align the effects of the net pay and relief at source mechanisms more closely for the population. The Government are already committed to ensuring that we can deliver a modern digital tax system to make it more effective, more efficient and easier for customers to comply and to reduce the amount of tax lost through avoidable error. This may present opportunities to look afresh at the two systems, and I welcome my noble friend’s continued engagement in this important area.

My noble friend Lady Byford asked about digital infrastructure top lines. The Government are committed to 15 million premises being connected to full-fibre broadband by 2025, with nationwide coverage by 2023.

My noble friend Lord Northbrook struck a chord with a number of noble Lords, including the right reverend Prelate the Bishop of Chelmsford, when he talked about the delay in the introduction of the measure on fixed-odds betting terminals. I know that it is a contentious measure. Fixed-odds betting terminals have been in operation since 2001. We undertook the review. It has now been decided that the maximum stake will be cut from £100 to £2, which is extremely welcome. There was been a well-argued debate in the other place on the timing of that. The Chancellor has set out his proposal for it to be in the autumn of next year. To counter that, there has been a proposal that it should be earlier. However, whether it is in the spring or in the autumn, the reality is that, after many years, that welcome change will be brought in to help alleviate the deleterious effects of that side of the gambling industry.

My noble friend Lord Horam talked about the importance of growth in raising all boats and solving all problems. We agree with that and we need to do more to address that issue.

I was with my noble friend Lord Northbrook almost all the way through his excellent speech until he trespassed on the holy ground of the international aid budget, at which point I broke away a little, because that 0.7% is a badge of hope to the world—I see it day in, day out around the world. We live in a world where 29,000 children under the age of five die every day from completely preventable diseases, which makes us realise that, whatever the demands we face in this country, there are some immense needs around the world, and we have rightly been recognised for introducing that and standing by it.

My noble friend Lady Altmann asked what we are doing for skills. We have funded a £20 million skills pilot to help workers develop digital skills. The noble Lord, Lord Kerslake, asked about measures for local authorities in the short term. The spending review will set budgets from 2020-21 onwards, but the Chancellor used the Budget to announce additional funding to support services. This includes an additional £240 million in the current year.

The noble Baroness, Lady Smith, and the noble Lords, Lord Fox and Lord Macpherson, asked about the effect of ongoing spending on unprotected areas. The Government have been clear that the NHS is their number one spending priority, with an £84 billion increase over the next five years. The noble Baroness also mentioned policing. Police funding was protected in real terms in the 2015 spending review. The 2018-19 settlement gave an additional £450 million to police forces.

The noble Lord, Lord McKenzie of Luton, asked which taxes had helped to recover the more than £185 billion in tax. Since 2010, the Government have secured and protected more than £185 billion of tax that otherwise would have gone unpaid. The noble Lord, Lord Gadhia, asked about PFI and an infrastructure bank. We already have a range of financing support options to deliver infrastructure, including the UK Guarantees Scheme and the British Business Bank.

My noble friend Lady McGregor-Smith talked about the importance of corporate tax revenues and rates for encouraging start-ups, as did my noble friend Lord Wakeham. It is great that we have seen the corporation tax rate fall from 28% to 19% today, and have legislated for it to fall further to 17%.

My noble friend Lady Neville-Rolfe asked what we are doing to increase productivity. The national productivity investment fund has been increased from £31 billion to £37 billion, driving key investments to boost productivity and innovation. I have been given a highly technical note on the points made by the noble Lords, Lord Gadhia and Lord Macpherson, on quantitative easing. In the interest of time, I may write to them on that and place a copy of the letter in the Library.

I have to mention my noble friend Lady Noakes, simply because I noticed from social media that she asked whether I would be listening to her, so I have to show that I did—it is easier for me than replying on social media. My noble friend and the noble Baroness, Lady Kramer, talked about the disguised remuneration loan scheme. There are a number of points here—I think that my noble friend, for whom I have great respect, covered most of them—but HMRC actively encourages anybody who is worried about being able to pay what they owe to get in touch as soon as possible. I will undertake to take her concerns back to the Treasury and respond to them.

I want to end on a note of optimism. I share with the noble Baroness, Lady Smith, that desire for optimism: my blood group is B positive and I like to think that I do not disappoint, so I just say to the noble Baroness that employment is at record levels and wages are growing at their fastest rate for 10 years. Income inequality is at its lowest level since the 1980s. The number of people living in workless households is at a record low. Unemployment is at its lowest level since 1975. Some 1.74 million people have been taken out of tax. We have the highest sustained level of public investment of all time. We have doubled the amount of free childcare. Debt is falling as a percentage of GDP. The deficit is down by four-fifths. The income of the lowest-paid 20% is growing faster than that of the highest-paid 20%. We have seen the largest peacetime increase in spending on the NHS in its 70 years and in the public record. Forbes has declared that the UK is the number one place to do business in the current year, despite all. Exports are at record levels— £620 billion and rising. Some 2,265 overseas investments have been made in the UK. Britain’s hard work is paying off and our economy is fit for the future. I commend the Statement to the House.

Motion agreed.

House adjourned at 8.31pm.