Economy: Budget Statement - Motion to Take Note

Part of the debate – in the House of Lords at 6:03 pm on 13th November 2018.

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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.