Spring Statement - Motion to Take Note

– in the House of Lords at 5:37 pm on 20th March 2019.

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Moved by Lord Bates

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

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

My Lords, the Chancellor gave his Spring Statement last week which showed that the economy remains robust, despite lingering uncertainty around Brexit. It has grown for nine consecutive years, creating 3.5 million new jobs since 2010, and is now delivering the fastest wage growth in over a decade.

The Office for Budget Responsibility expects growth to continue at a rate of 1.2% this year, 1.4% in 2020 and 1.6% for each of the following three years. It also expects to see 600,000 more new jobs and wage growth of 3% or higher—that is, above inflation—in every year of the forecast.

There was positive news on public finances as well. Borrowing this year will be just 1.1% of GDP, £3 billion lower than forecast at the Autumn Budget. This fall will continue, from £29.3 billion in 2019-20 to £13.5 billion in 2023-24, the lowest level in 22 years.

This means that we remain on track to meet our fiscal targets early, with the cyclically adjusted deficit at 1.3% next year, falling to just 0.5% by 2023-24, and with debt lower in every year than forecast at the Budget, falling to 82.2% of GDP next year, then 79%, 74.9%, 74% and, finally, 73% in 2023-24.

It increases headroom against our fiscal mandate in 2020-21 from £15.4 billion at the Autumn Budget to £26.6 billion today.

We have rebuilt the public finances since the shock of the financial crash and are now in a strong enough position to bring austerity to an end. Last year, the Prime Minister announced an additional £34 billion of funding per year for the NHS—the single largest cash commitment ever made by a peacetime British Government. In the most recent Budget, the Chancellor set out an indicative five-year path of 1.2% per annum real terms increases in day-to-day spending on our public services.

Later this year, the Chancellor will launch a three-year spending review before the Summer Recess to be concluded alongside the autumn Budget. It will set departmental budgets to reflect the public’s biggest priorities, such as schools, police and the environment, while maximising value for taxpayers’ money with discipline and a focus on high-quality outcomes. If we leave the EU with a deal, and secure an orderly transition to a future economic partnership, the Government will be able to reduce the level of fiscal headroom needed for no-deal planning, giving us real choices in the spending review.

Before then, however, some pressing challenges needed addressing. First, in response to head teachers’ rising concern that some girls are missing school due to an inability to afford sanitary products, the Chancellor announced the provision of free sanitary products in secondary schools and colleges in England to be rolled out during the next school year. Secondly, he announced a £100 million fund to tackle the recent surge in knife crime. It is a tragedy that, for too many, this money will arrive too late, but it will go some way towards meeting the challenges ahead.

Ahead of the spending review, the Home Secretary will work with the police to consider how best to prioritise resources, including newly funded manpower to ensure a lasting solution. Alongside support for public services, the Government have made sure to invest in infrastructure, skills and technology—the fundamentals that boost productivity and living standards. To supplement the largest ever investment in England’s strategic roads, the biggest rail investment programme since Victorian times, and a strategy for delivering a nationwide full-fibre network by 2023, the Chancellor made a series of further pledges. These included an announcement of up to £260 million for the borderlands growth deal.

But raising our productivity is not just about investing in physical capital; it is about investing in people too. To help small businesses take on more apprentices, the Government are accelerating the reforms announced in the Budget of 2018, bringing forward a £700 million package this April. We want to drive productivity across the income distribution, with the ultimate objective of ending low pay in the UK. So we have asked Professor Arin Dube, a world-leading expert in the field, to undertake a review of the latest international evidence on minimum wages to inform future national living wage policy after 2020. This study will support our extensive discussions with employer organisations and trade unions over the coming months.

As we move forward, we are keeping the interests of businesses as a high priority, and that means giving them access to the best talent, including from overseas. From June, we will begin to abolish the need for paper landing cards at UK points of entry for citizens from the United States, Australia, New Zealand, Canada, Japan, Singapore and South Korea. They will be able to use e-gates at our airports and Eurostar terminals, alongside the EEA nationals who can already do so. From this autumn, we will completely exempt PhD-level roles from visa caps—a signal to the best and brightest across the world that we want them and welcome their expertise in the United Kingdom. Having the best people in Britain will help us remain at the forefront of the technology revolution that is transforming the global economy. To maintain our edge, the Chancellor announced a £79 million investment in a new super-computer to be hosted at Edinburgh University. We are also allocating £45 million of NPIF funding to the European Bioinformatics Institute and investing £81 million in a new extreme photonics centre in Oxfordshire.

Innovation requires careful handling by Governments, and a fair and forgiving regulatory environment. Nowhere is this more important than in the digital world, where we need to ensure a level playing field that fosters innovation, and where the giants pay their fair share. To this end, the Chancellor asked Professor Jason Furman, Barack Obama’s former chief economist, to review competition in the digital market. His report was published last week, and the Chancellor has already taken the first step in response, asking the Competition and Markets Authority to undertake a market study of the digital advertising market as soon as possible.

We must adapt to the challenges of a changing world, and that extends to the environment as much as the economy. Despite what some say, it is not the case that these are competing concerns. The UK’s 1,500 pollinator species, for example, deliver an estimated £680 million of annual value to the economy, making an obvious case for protecting the diversity of the natural world. Therefore, following consultation, the Government will use the forthcoming environment Bill to mandate biodiversity net gain for development in England, ensuring that the delivery of much-needed infrastructure is not at the expense of the birds and the bees, which help fill the air with song, and our plates with food.

Of course, climate change is our biggest environmental concern. The UK is already leading the world in this regard, reducing the carbon intensity of our economy faster than any other G20 country. Last week, the Chancellor set out plans that demonstrate a commitment to maintain this progress. First, we will publish a call for evidence on whether all passenger carriers should be required to offer genuinely additional carbon offsets, so that customers who want zero-carbon travel have that option. Secondly, we will help small businesses cut their carbon emissions and their energy bills, with a call for evidence on the business energy efficiency scheme. Thirdly, we will publish proposals to require an increased proportion of green gas in the grid, to advance decarbonisation of our mains gas supply. Finally, we will introduce a future homes standard, mandating the end of fossil-fuel heating systems in all new houses from 2025.

There will be many new houses. One of the Chancellor’s biggest motivations is to restore the dream of home ownership to millions of younger people. He has set out a five-year, £44 billion housing programme to raise annual housing supply to 300,000 by the mid-2020s. This Government have also abolished stamp duty for thousands of first-time buyers and introduced planning reform to release land in areas where the pressure is greatest. The Chancellor built on this further last week, announcing a new £3 billion affordable homes guarantee scheme to support delivery of around 30,000 affordable homes. In addition, he announced £717 million from the Housing Infrastructure Fund to unlock up to 37,000 new homes on sites in west London, Cheshire, Didcot and Cambridge, near some of the best jobs in the country.

It all means that we are stiffening the sinews of this economy. We are transforming our infrastructure, investing in innovation, and sharpening our skills. These are fundamentals of economic and personal growth, and it means that our grasp of the opportunities that lie ahead of us can be better met and reached. I commend this Statement to the House.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence), Shadow Spokesperson (Treasury), Shadow Minister (Transport) 5:48 pm, 20th March 2019

My Lords, the Chancellor set out to make a Spring Statement that did not constitute a fiscal event. This is a slightly strange objective for a Chancellor of the Exchequer, but one which he achieved, with the director of the Institute for Fiscal Studies commenting:

“We should not complain. One fiscal event a year is plenty”.

However, while the Chancellor may have cleared his own rather low bar, this Statement marks a missed opportunity. He did little to instil confidence in either the Government’s handling of Brexit or their claim that austerity has come to an end. As we have grown to expect, despite some limited additional funds and the launch of several consultations, he failed to tackle the big issues of the day. Like the Prime Minister, he kicked the can down the road.

Some may say that this is hardly a surprise, given that this Spring Statement was delivered against the backdrop of Brexit uncertainty. Indeed, with the House of Commons having convincingly rejected the Prime Minister’s withdrawal agreement for a second time the previous day, Mr Hammond delivered his speech to an impatient Chamber, with MPs more interested in voting to oppose a no-deal outcome.

The Chancellor was clear that the outlook for the economy was premised on an orderly Brexit. He warned that performance will meet expectations only if MPs pause, reflect and fall into line by backing Mrs May’s deal at a third time of asking—whenever that may be. To bring the point home, he threatened that this summer’s spending review could be delayed in the event of Britain crashing out without a deal in place. This is a worrying state of affairs, given the many hours spent debating statutory instruments in the name of ensuring life goes on after a no-deal Brexit.

Businesses up and down the country will have tuned in, expecting answers to the big questions. But, as has become customary under this Government, they were left with less certainty about the future rather than more. It is no secret that business confidence is low, that investment is falling and that jobs have unnecessarily been put at risk. In his speech, Mr Hammond claimed that by backing the withdrawal agreement, a “deal dividend” would bring about a,

“recovery in business confidence and investment”.—[Official Report, Commons, 13/3/19; col. 347.]

That is a clear acknowledgement of the problems the economy faces as a result of the Prime Minister’s botched negotiations.

Thanks to Mrs May’s red lines, however, and her Ministers’ failure to grip the detail of Brexit, much of the damage has already been done. Our manufacturing sector is struggling. Numerous employers, large and small, have announced job losses or relocations. Many food producers are in despair as they simply do not know whether they will be able to fill the shelves in a fortnight’s time. It is little wonder that the director-general of the Confederation of British Industry remarked that,

“this is no way to run a country”.

While the Chancellor tried his best to present the Office for Budget Responsibility’s economic outlook as a success story, the truth is that it is anything but. This Government have presided over the slowest economic recovery since the 1920s. The deficit has not been eliminated, despite the previous Chancellor promising to achieve that years ago. Real wages are still lower than they were 10 years ago and, according to the OBR:

“Average earnings growth remains below the rates typical before the financial crisis”.

Household debt is plugging the gap, with debt relative to income expected to increase over the forecast period. While the Prime Minister and Chancellor are living on borrowed time, too many households are relying on borrowed money.

Last week, the OBR revised GDP growth down to a level consistent with the European Commission’s winter forecast—the same one that suggests that the UK will languish at the very bottom of the European league table in future years, even in the event of a soft Brexit. Let us be clear: 1.2% annual growth is far below what our economy is capable of. If that is all that is realised, the Government will have failed in their duty to unlock the country’s potential.

Ministers are merely storing up problems for the future. Nowhere is this truer than in the Chancellor’s announcement of £100 million for police overtime to tackle knife crime. That amount covers just a fraction of the £2.7 billion of real-terms cuts in direct government funding to police forces since 2010.

Not enough is being done to future-proof our economy. Britain’s infrastructure ranks bottom in the G7 for quality, and the rate of public investment is among the lowest in the OECD. Despite this, planned public sector investment has been cut. What possible justification can there be for that? And, while the Chancellor may have mentioned the environment this time around—something he failed to do in his Autumn Budget—all we were promised are consultations and reviews, rather than action to deliver green jobs and growth.

The biggest disappointment is that, despite the warm words of the Prime Minister and the Chancellor, austerity is not over. While limited pots of money have been made available for certain projects, any major spending commitment has been postponed until the spending review at the earliest. The can has been kicked again. Even if the Government come good on their promises to end austerity, it will have taken a full year for Ministers to have taken their first tentative steps. That pace is simply unacceptable. It is not what was promised to hard-working people across the country.

At the same time as the Government’s action on tax avoidance falls well short of expectations, benefit claimants have been told that the cruel benefit freeze will continue for a fourth year. Ten million families will have lost an average of £420 a year as a result, exacerbating existing issues with in-work poverty and high rents. Concerns about universal credit continue to be raised by claimants and charities alike, yet there is no mention of the scheme, or further measures to rectify it, in the Chancellor’s speech.

Something needs to change, and not just the Chancellor’s approach to these important Statements. The Government’s priorities are wrong. Their inability to address the imbalances in our economy is stifling too many people’s life chances. Real change is needed between now and the Autumn Budget to ensure that departments have the money they need to deal with the many pressing non-Brexit issues facing the country, to ensure that legitimate concerns are listened to and acted on, and to restore faith in our democratic system. This will mean listening to local councils, which are struggling to provide services to local communities, and to schools, where teachers are having to pay for supplies out of their own pockets, and it will mean taking action on the other pressing challenges we face, be it a shortage of affordable social care, problems in prisons and a failing probation service, or rising poverty and homelessness.

As my noble friend the Leader of the Opposition has observed on a number of occasions, Brexit seems to have brought the usual business of government to a halt. Our hopes for future fiscal events, therefore, are not very high. That is why we will continue to set out our alternative approach to managing the economy, as my noble friend Lord Davies of Oldham will do in his closing remarks. In the meantime, this debate provides an opportunity for the Government to begin the listening exercise I referred to. This House has a wealth of experience. The Chancellor and his Ministers would be well advised to listen to advice and act accordingly.

Photo of Lord Shipley Lord Shipley Liberal Democrat 5:57 pm, 20th March 2019

My Lords, I remind the House that I am a vice-president of the Local Government Association. I thank the Government Chief Whip for enabling us to have this debate in the Chamber. Given the importance of Spring Statements it is the right place, even though on this occasion the economic outlook is so full of uncertainties.

In the autumn, the Chancellor declared the end of austerity, but he protected only the National Health Service, defence, and the international aid budget. A new forecast by the Office for Budget Responsibility meant that he could, for example, have spent more to help low-income families this spring by ending the five-week waiting time for universal credit, which just reinforces the feeling among claimants that the state does not care, and ending the benefits freeze, which is causing greater poverty for many families a year early. The Resolution Foundation has shown how the bottom fifth of families will be £100 worse off this year when the top 20% will be £280 better off.

For just £1.4 billion, the Chancellor could have helped those who need a bit more money the most. Yet the Government seem unwilling to redress the balance of social and financial inequalities, so there is no significant new revenue funding for public services, which impacts hardest on those who depend on those public services. There is no confirmation of the spending envelope for the forthcoming spending review, nor a date for it to take place. And now we know that, in growth terms, we have one of the weakest of the advanced economies. Growth is forecast this year to be down to 1.2% from 1.6%.

The Chancellor was right to warn of the economic damage a no-deal Brexit would cause, but wrong to suggest that the Government’s deal is the only alternative. As the Treasury Select Committee has demonstrated, there is no “deal dividend” because the Office for Budget Responsibility has already factored one into its forecasts. Anyway, the best deal dividend would be to remain in the European Union—without that, private sector investment will fall.

It is wrong in principle to let austerity continue for unprotected government departments, as the Chancellor has decided. Current spending plans will not repair the crumbling nature of our public services and waiting for the spending review later this year is not enough. Demand for local government services—which represent one-quarter of public spending—is going to rise faster than the income that councils can derive from council tax and business rates. The Government need to address this fundamental problem.

In addition, they must get the fair funding review right to ensure adequate redistribution from richer areas to poorer ones where people are more dependent on public services. They also need to think seriously about the future of business rates as a tax because they may no longer be fit for purpose, not least because of the difficulties experienced by the retail sector in the face of digital competition. Surely the time has come to examine more fully the case for land value taxation, which could overcome some of the current problems of business rates and enable more decisions on tax raising to be taken at a local level—for example, a tourist tax. A number of councils want to look at the potential of this, and should be empowered to do so.

It is the role of a Spring Statement to review the capacity of our taxation system to raise the money needed fairly and efficiently. I have concluded that we need a national debate on how public services should be funded, both locally and nationally. In my view—as I have said—local councils need more tax-raising powers. It has been estimated that there will be an overall funding gap of £3.1 billion next year, which could rise to £8 billion by 2024-25. The pressures are particularly acute in schools, policing, adult social care, children’s services, homelessness support and neighbourhood services. It is a lengthy list.

The Government must understand better than they appear to the impact of an ageing population, which will increase demand for adult care year by year without the resources increasing to match it. This year nearly all councils are raising council tax—three-quarters by more than 2.5%—and nearly all are increasing fees and charges. The Government have failed to explain why they are pushing extra tax raising to a local level on services such as adult social care away from national taxation, which historically has funded it. It is vital that the Government use the spending review to deliver truly sustainable funding for local government.

The Chancellor announced £100 million for the police to combat knife crime. Youth services generally have been cut heavily over recent years and now we find that the National Citizen Service is to have a £10 million rebranding. Yet just 12% of eligible teenagers take part in this scheme, which was only recently introduced. Would not the money be better spent on council-run youth services, which have seen a 52% reduction in funding since 2010?

On housing, the Chancellor claimed that the Government were on track to deliver their target of 300,000 new homes a year. However, the figures to date include many conversions and, as we now know, Help to Buy has pushed up house prices and given huge profits to some builders. The Chancellor said that the Government will build 30,000 new homes with a £3 billion affordable housing guarantee scheme for housing associations. This is one more announcement on housing but—given all the announcements over the last year on housing and other announcements in this Spring Statement, and given the absence of any detail of how the Government are delivering those commitments in practice—do all the announcements mean that the Government are well on target to delivering their commitment of building 300,000 new homes a year? Can the Minister say when the figure will be reached? Will the Government publish a detailed annual review of the milestones they achieve?

I draw the Minister’s attention to the fact that housing benefit now costs £22 billion a year. If we invested in new social homes, we could reduce this. In this respect, the recent report by Shelter on how this could be done is an important contribution to the thinking here, and I hope that the Government will think seriously about how to invest in building social housing, to save the revenue costs in housing benefit caused by high rents in the private rented sector.

It is not all criticism. I welcome the borderlands growth deal which will strengthen the deep ties across the border regions of England and Scotland, as the Chancellor said. I have concerns about the northern powerhouse—very little was said about that—and the Chancellor failed to mention the shared prosperity fund. The Government have repeatedly been pressed to explain how the EU structural funds will be replaced. They are worth £2.5 billion a year to the UK and are vital for the poorer parts of the country. Will final decisions be announced in the spending review on the shared prosperity fund, along with Transport for the North’s bid for improved public transport across the north? Both are urgently needed.

In the Written Ministerial Statement issued as part of the Spring Statement, there is a brief response to the recent consultation on planning reform. It says that the Government will:

“Introduce a package of reforms including allowing greater change of use between premises, and a new permitted development right to allow upwards extension of existing buildings to create new homes”.

I have serious concerns regarding the proposed expansion of permitted development rights in this way, and I look for the Minister’s confirmation that such proposals will be subject to full parliamentary scrutiny. The proposed expansion includes creating a new permitted development right for the demolition and redevelopment of commercial buildings for residential use, creating a new permitted development right to allow the upward extension of buildings for creating new homes or extending existing ones, and creating new permitted development rights to allow changes of use from what have been key town-centre uses.

There are huge dangers in these changes. They could undermine the planning process by denying local communities a proper voice on development. They will bypass important quality safeguards offered by the planning process, including the right to light. They will deny local planning authorities an important means of delivering planned and sustainable mixed-use environments. They will prevent local authorities from collecting planning fees and developer contributions through the planning process. This money is vital for delivering affordable local housing and infrastructure. The recent report of the Housing, Communities and Local Government Select Committee, High Streets and Town Centres in 2030, said:

“The Government should suspend any further extension of PDRs, pending an evaluation of their impact on the high street”.

I hope that the Minister will look very carefully at this, because I agree with that conclusion.

Finally, on the living wage review, I was pleased to see that the Chancellor wants the living wage to rise. It is a huge problem that two-thirds of the working-age poor are in work or live with someone who is in work. Low pay is partly responsible for this situation—the review he announced is urgent and he should be commended for initiating it. Despite some recent signs of wage growth, far too many people remain in low-paid, insecure employment. In conclusion, business confidence is low, investment is stalling, incomes are stretched and we have a divided country. It is vital that the spending review has addressing those problems as its central aim.

Photo of Lord Macpherson of Earl's Court Lord Macpherson of Earl's Court Crossbench 6:09 pm, 20th March 2019

My Lords, I begin by congratulating the Government, the Chancellor and the Minister on reducing the deficit from £153 billion at the end of the last decade to just £23 billion this year. Fiscal consolidation is notoriously difficult, and I recognise that there are differences of view about the pace and incidence of consolidation. For example, was the balance between the increases in taxes and spending reductions right? Were the Government sensible to spend so much on tax cuts? However, on the quantum of consolidation, I think the Government have it just about right. One thing is certain: you cannot run a deficit of 10% of national income for any length of time. The last Labour Government recognised this, which is why Alistair Darling initiated the consolidation programme in 2009. George Osborne and Danny Alexander chose to be more ambitious still, though in the end they delivered the quantum, if not the content, of the Darling plan. More recently, to the surprise of the pundits I think, the current Chancellor has seen consolidation through.

My noble friend Lord Hennessy of Nympsfield once put it to me that the lot of the Treasury official is to deal with disappointment. As he put it, consolidation and recovery in the post-war period has been “routinely punctuated by the greatest orgy”. There is something in that. Getting the economy back on track following a crisis is a Sisyphean task: you spend years of your life pushing a rock up a steep, inhospitable hill only to see it falling down again, sometimes in a matter of days, when the next crisis hits. So I congratulate my former colleagues on a job well done.

Turning to the Spring Statement itself, I shall make three small points. First, I have been impressed by the tax take over the last year or two. Generally, revenues tend to disappoint—that is because people generally do not like paying taxes—but because of the buoyancy of income tax revenues, revenue has been persistently surprising on the up side. The last time I remember this was in the late 1990s. The noble Lord, Lord Young of Cookham, will remember that for the whole of the early part of the consolidation of the 1990s, revenue kept disappointing on the down side, but then suddenly in 1997, somewhat unfortunately for the outgoing Government, the dam burst and revenues kept pouring in. I remember that between 1997 and 2000 the Treasury was just awash with cash, almost embarrassingly so. Of course, it did not last, so my advice to the present Government is to enjoy it but not to assume that it will last too long.

I worry about the sustainability of the tax base. As I have noted before, the tax and national insurance take is set to be 34.6% of national income this year and then to stay at that level through to 2023. Noble Lords should bear in mind that in only one year since 1950 has the tax take been that high. That leads me to think that HMRC has discovered the holy grail of tax collection—I suspect not—or national income is higher than currently assumed, which is a theme I shall return to, or the Government will fail to sustain that level of taxation. My worry is that much of the tax base is eroding. Fuel duties and tobacco duties are in secular decline; taxing capital in a world of huge capital mobility is all too difficult; the North Sea tax take is well past its best and will fall further with decommissioning; and, although local government is raising council tax a bit, over the last 20 years council tax has probably not risen enough. As my noble friend Lord Wakeham has pointed out, the current stamp duty regime discourages people from moving house: it does not surprise me that the OBR has revised its stamp duty estimates down yet again. Spending pressures are set to rise in the coming decade. The Government need to look at whether the tax system is equipped to deal with this. For my part, like the noble Lord, Lord Shipley, I recommend looking again at the taxation of land and property. The great thing about residential and commercial property is that it is fixed—it cannot move. I also think we will need to look again at a social care tax of some sort.

My second point relates to the next spending review. If ever there was a time to prioritise public investment, it is now. I was sorry to see in the OBR report that business investment has fallen for four consecutive quarters. Now is the time when the Government need to fill the gap, prioritising infrastructure and housing. To be fair, the Government are seeking to do this, but I would encourage them to be more ambitious still. Public investment needs to be focused on projects that yield the highest return. That probably means more expenditure on roads and, although I know I am in a minority of around three, that also suggests that we should cancel HS2.

Within current spending, I also hope that the Government will prioritise further education, skills and training. If Brexit achieves what its proponents suggest, we will no longer be able to rely on the Polish taxpayer to provide the economy with the skills it needs. Of course, such expenditure will need to be paid for. Here—again, I shall be unpopular—I would take a long, hard look at the so-called triple lock. I should declare an interest in that I am due to get my free bus pass in three months’ time. However, the fact is that the elderly have contributed very little to fiscal consolidation.

Finally, I shall say a few words about the macroeconomy. Yesterday’s labour market statistics were very encouraging. The level of job creation at this time of uncertainty is impressive. Earnings growth is accelerating. That is good news because it means that living standards are rising, which should provide further support for demand in the economy. Together with the revenue statistics, it also suggests to me that the ONS is underestimating the level of gross domestic product. We are at full employment and the supply of labour is likely to fall if the Government achieve their Brexit objectives. That means that the risk of inflation is increasing.

I can see why the Bank of England is reluctant to act while a no-deal Brexit remains a possibility, and that possibility has increased today, but it could have used this phoney Brexit period to reduce the impact of quantitative easing. The Bank continues to miss an obvious trick. Instead of reinvesting the proceeds in gilts when debt matures, it should take the opportunity to run down its gilt holdings and reduce quantitative easing. I can see that my noble friend Lord Gadhia agrees with me. As and when a deal is done on withdrawal, the Bank may well find that it has presided over monetary conditions that are too loose. That will mean that it will have to raise interest rates further than if it had prepared the ground now.

I end where I began. This is an encouraging Statement and the public finances are in a better state. The critical thing is to keep them that way.

Photo of The Bishop of Chester The Bishop of Chester Bishop 6:16 pm, 20th March 2019

My Lords, it is a privilege and a challenge to follow such a brilliant speech from someone who knows his way around the subject. If you want to find good things to tax, I always say that you should start with sin: find a new sin and tax it. I rather agree that HS2 is a sin, not for adding capacity, which I am all in favour of, but in doing so in such an unnecessarily expensive way. For me, trains go quite fast enough already and it could have been done far more cheaply without factoring in the speeds in a small country. As I follow the noble Lord’s speech, I think of St Paul, who once began by saying, “I speak as a fool”. I do so too, a little, after that wonderful description of the financial landscape.

Amid the gloom of the general political situation at present, I welcome the Spring Statement and the optimism it contains. I say that in strictly non-political terms. Since I was ordained 40 years ago, I have been careful not to align myself with any political party or indeed to reveal how I have voted in any election in which I have been entitled to vote. My daughters in particular resent that deeply. En passant, that even applies to the EU referendum.

Of course, the Chancellor put the best gloss possible on what he said, but there must be a welcome for the escape from the shadow cast by the banking crisis that took everyone so unawares a dozen years ago. First the Labour Government, then the coalition Government and, more recently, Conservative Governments have wrestled with the aftermath. This has been extraordinarily difficult, but I find it encouraging to see the progress that has been made—although I agree with the noble Lord, Lord Shipley, that it has been made at a price. This is also despite Brexit and the gloomy predictions made in advance of the referendum were there to be a vote to leave.

It seems to me just plain common sense that, in terms of current spending, a country must try to live within its means. This applies to individuals and, in my own sphere, to dioceses and parishes. It is good to see that this country is now on a track to do this at the level of our national life, which is no small achievement.

That said, and meant, there are important questions with which I hope the Government will continue to wrestle. There is little doubt that the improvements in government finances have been made at tremendous cost, and in some cases a very difficult cost: police, social care, welfare, defence, schools up to a point—we will all have our own lists. I am pleased that overseas aid is an honourable and important exception.

I would add to the list university student fees. I have always supported a certain level of fees, but £9,250 a year is way out of line with any other European country; indeed, within the United Kingdom, it is out of line with Scotland and Wales. I hope that the forthcoming review will start to balance student fees and costs towards a more sensible level. Of course, much of the debt will never be repaid, but it must be a huge disincentive to those who have acquired a large debt burden as they seek to make their way in life. I speak as one of the older generation who did not face that challenge. When I went to university, all the fees were paid and I was given a maintenance grant. Those were the days.

Bringing in radical reform to the structure of welfare support through the introduction of universal credit in the midst of the austerity programme was always a recipe for great difficulty, and so it has proved. It has always seemed to me that, from the start, the whole exercise needed much greater bridging financing to be introduced effectively, without shining a light on the very unfortunate losers in the process.

No doubt many other areas could be spoken of, with the NHS looming largest. It is good to know that a sustained programme of real increases is planned. The key test will be whether the money is spent efficiently and effectively, given the size of the operation. The absentee from the Statement was social care. Essentially nothing was said about it. As the noble Lord, Lord Shipley, said, it is hanging over us. The noble Lord asked: what are we going to do?

I should also like to add a word about the section of the Statement on housing. I welcome it as far as it goes, particularly as my own diocese will be included in the additional funding from the Housing Infrastructure Fund. I hope that the annual target of 300,000 new homes by 2025 can be met, but my question is whether market-based solutions alone will achieve this. They must have a major part to play, but is there not a case for more direct government action in partnership with local authorities to help address the chronic lack of low-cost and social housing in particular?

After the Second World War, council house construction was typically between 150,000 and 200,000 units a year until the mid-1950s. Indeed, I was brought up and lived for the first 20 years of my life in one of the houses built in the peak year. Given that real assets are created by house construction, is there not a case for more direct government action to complement the market-based solutions? Looking back over the last 20 or 30 years, it seems to me that the market has failed to deliver. How can we be so confident for the future?

House prices are a major issue in many areas of the country. Market forces have driven them to their current level, and presumably it will not suit the major players in the market to see house prices come down. It would hardly be popular in political terms either to have a large number of people losing nominal wealth or slipping into negative equity. In the past, inflation used to enable Governments to manage this because a static cash value could then be complemented by some drop in real value through inflation. That is just not happening in this extraordinary period of stable inflation. As I look at the housing issues, there seems to be something missing in the analysis to join it all up, putting the market-based solutions together with appropriate government initiatives. We will have to see where we go; if the market delivers 300,000 units by the mid-2020s, I shall eat my cassock.

My final example is spending on children’s and young people’s services. The noble Lord, Lord Shipley, mentioned the figure of 52% in relation to cuts. The real-terms figure I had was more like 25%. One way or another, huge cuts have been made to support services for young people through the decade of austerity. I welcome the extra £100 million for the police specifically to tackle knife crime, but that is for only one year and addresses the problem in only one dimension. We surely need a much more joined-up, multiagency approach. That will require the restoration of some of the funding cut from budgets for children’s and, especially, youth services. It is not just the symptoms of knife crime but its sources that need to be addressed. The fact that so many boys growing up in our society have no male role models to learn from is a feature of our society in terms of family dynamics and breakdown. The state cannot substitute entirely—it is a job for all of us—but it has a role. The cuts to spending on youth services over the past 10 years have been quite myopic in that regard.

An “end to austerity” is linked in the Statement to higher wages, lower taxes and increases in public spending. The balance here in the future is crucial. After a decade of well-nigh unprecedented cuts in public spending, I hope the forthcoming spending review will focus upon what needs to be done to undergird and build a safe and civilised society. Public money must be spent wisely and effectively, but in our complex and pluralist society I suspect we will need even more government action in the future to address the problems that will inevitably emerge to complement the vitality of a market economy based on individual freedom.

I know at first hand, through my family, the example which the Scandinavian countries have set. Scotland, to where I will shortly retire, is currently putting its own toe in the water of somewhat higher taxes to fund even better public services. We will have to see what the outcomes look like in due course, but the principle of tax-funded excellence in public services seems to me a noble aim. While it is there to a degree in the Statement, I wish it were just a bit more prominent.

Photo of Lord Wakeham Lord Wakeham Conservative 6:27 pm, 20th March 2019

My Lords, the right reverend Prelate should not underestimate his contribution over the years to our economic debates. I have heard him many times, and he always brings a great whift of common sense to our debates. We are very grateful for his contributions.

When I was thinking about what I was going to say today, I thought my noble friend Lord Young would be introducing the debate. I was going to tease him slightly—and as he is here, I will do it anyway. He and I entered the House of Commons 45 years ago. In the early days I was the junior Whip sitting on the bench saying nothing; he was the parliamentary Secretary of one department or another. There was one Member of Parliament sitting across the way who raised a subject on the adjournment of the House. Other noble Lords who have been in the House of Commons will know that this happens last thing at night. He did it with utter charm and good will, full of information and so on. It seemed to me that night after night he got the short straw to do it, and when he addresses the House now, as he does from time to time with great skill, he might remember those days 45 years ago when he started.

I confess I have not known my noble friend Lord Bates for 45 years, but I have known him a good many years. I greatly admire the way he has tackled his ministerial jobs and his capacity for making complex issues understandable—and he has lived up to those high standards tonight in his opening remarks.

The Spring Statement was much better than I had anticipated, and augurs well for the position of the country when we can get the uncertainty of Brexit behind us. I will touch on one or two matters that were not mentioned in the Chancellor’s Statement. The Government have taken quite a number of steps to deal with tax avoidance in the UK. They have made some sensible adjustments to their initial proposals about making taxation digital, which is a move in the right direction if they can get it right. But I am not absolutely convinced that they have done all that is necessary to make those changes. It is a massive change in the way in which we run our taxation, particularly for small businesses, and I am not convinced that they have done all that is necessary to get those changes right.

The Chancellor has also made some welcome initiatives in tackling some of the big international technological companies that are trading in the UK but are not paying their fair share of taxes. To be effective, tackling the tax avoidance of big international companies will require international solutions—but it is also a UK problem. UK companies paying their proper corporation tax have to compete with companies that in many cases are not paying their fair share of tax. So, while it is an international problem, it is often a UK problem as well. In my view, that unfair competition has to stop.

Christine Lagarde, the head of the IMF, stated recently that the amount of international tax avoidance was in the order of $600 billion a year. That is massive—it is something like a quarter of all the corporate taxes that are collected in the world. We are talking about big potatoes; it is big money. The IMF recently issued a discussion document making some suggestions as to how this problem might be tackled. There is no doubt that it will be difficult. At the heart of the problem is the transfer of trading profits from high-tax companies to low-tax companies by rather doubtful finance charges and massive charges for intellectual property rights, which gets the tax down in that country and puts the profits into low-tax areas.

As far as I understand it from reading the document, the IMF seems to be saying that in essence it believes that profits should be struck before finance charges and intellectual property rights. That would be part of the solution, but obviously it brings other problems as well. Will my noble friend make sure that the Chancellor understands the problem? Of course he understands the problem, but he ought to understand this as well. The British taxation system and the expertise of our people are highly regarded in many parts of the world. We ought to be making a big contribution to the world’s solutions to these problems. We cannot do it all ourselves, but we can at least make a contribution. I think that is very important.

My noble friend Lord Forsyth, who is chairman of your Lordships’ Select Committee on Economic Affairs—a position which I held at one time, God knows how many years ago now—has called into question the way that HMRC seeks to deal with the loan charge taxes that the Government seek to impose on those who, often with accounting and legal advice, entered into arrangements to receive loans that were unlikely to be called in and at the same time saved a lot of tax and national insurance.

I have a great deal of sympathy for people in that position, but the schemes came out, if I remember rightly, around the year 2000 when I was still active in companies. A number of companies that I advised came up with these fancy ideas and I persuaded every one of them that it was not the route that they ought wisely to take. So, while the Select Committee was right to say that the people who perpetuate these schemes and bring them forward have a great deal of responsibility, I cannot entirely rule out the people who have entered into them. If you are offered a scheme that means that by some fiddle-de-do you do not pay any tax at all, you ought to approach it with a great deal of caution—and I do not think that that has entirely been the case. But I think that HMRC has a case against the people who perpetuate these schemes.

I will conclude with a nice reference to stamp duty. I do not think I have ever made a speech in this House on economic matters without touching on stamp duty. I was a Treasury Minister 30 years ago and I had awful battles in the Treasury over stamp duty because it wanted me to sign a foreword to a discussion document about stamp duty and I had a frightful battle to tone down the words. The Treasury loves stamp duty because it is an easy tax to collect. It raises a lot of money and it is efficient and easy to collect. However, as my noble friend behind me said, it is an economically damaging tax. It stops downsizing in housing and is essentially a tax on change. My noble friend was right to say that the Chancellor had made some changes. However, I will go on mentioning this every time I speak, until he makes the sort of changes that I want. Good luck to him.

Photo of Lord Hain Lord Hain Labour 6:35 pm, 20th March 2019

My Lords, compared with the noble Lord, Lord Macpherson of Earl’s Court, I am an innumerate amateur. But I am aware that economists work in a statistical minefield, in which they must take care to distinguish between provisional and revised figures, between raw and seasonally adjusted data, and between nominal and real values. The Chancellor’s Spring Statement really did take us from the real to the surreal.

In the real world, the UK economy grew at its slowest rate for six years in 2018, and growth is expected by the Bank of England, by the OECD and by the Office for Budget Responsibility to slow even further this year. Business investment has gone down and productivity improvements have dried up. The risk of recession has increased at the very time that the potency of monetary policy has diminished. Additionally, there are worries from a possible looming global debt crisis, global trade wars sparked in part by President Trump’s stand-off with China, and the Chinese slowdown.

But in the surreal world of the Chancellor’s fertile imagination the economy is “fundamentally strong” and “remarkably robust”. Twice in 2017, again in 2018, once more in February this year and again in the Spring Statement, the Chancellor peddled the same line: the economy is confounding his critics by continuing to grow. That remains his stance today. He wants to sound on top of his brief while saying nothing of substance and denying any need to give a sluggish economy a fiscal boost. As Bing Crosby sang:

“We’re busy doin’ nothin’,

Workin’ the whole day through,

Tryin’ to find lots of things not to do”.

Britain is vying with Italy and Japan at the foot of the G7 growth league. We are not alone in facing worsening prospects. Germany, France, Italy and China are all experiencing a growth slowdown. They are all responding by planning a fiscal stimulus but in Britain, the Chancellor has chosen to play a waiting game. Like a cricketing nightwatchman, he is intent only on staying at the crease by meeting every delivery with a dead bat. He is waiting for whatever dawn and the outcome of the Brexit votes might bring: perhaps a revival of business investment and consumer confidence as the fog of Brexit uncertainty lifts—if it ever lifts, given the Government’s latest Brexit shenanigans and the national crisis upon us. There is no sign of that fog lifting soon. The Spring Statement put off taking action until an Autumn Budget, assuming an orderly Brexit—some chance of that. The Chancellor’s fiscal stance simply echoed Scarlett O’Hara’s response to discouraging news: “Tomorrow is another day”.

This is an Alice Through the Looking-Glass world, in which we were led to expect a Spring Statement with no new tax or spending measures but in which, days before the Chancellor’s Statement, the Prime Minister could announce an insulting seven-year, £1.6 billion investment fund, ostensibly to boost growth in Britain’s “left behind” towns, which have been ravaged by tens of billions of pounds of public spending cuts and never-ending austerity. It is a world in which in-work benefits remain frozen and public spending plans face further brutal cuts unless the Treasury eases its grip. It is a world in which the Chancellor’s claims that austerity is coming to an end are contradicted by the Office for Budget Responsibility’s reports confirming that the 10-year Tory budget squeeze remains in place—a squeeze that, by 2020, will have taken more than £150 billion of spending out of the economy in tax rises and public spending cuts. It is little comfort to know that under his predecessor’s plans, the squeeze on national spending would have been closer to £200 billion.

The Chancellor and some commentators have pointed to lower government borrowing over the past year as a portent of a brighter future. Sky’s Ed Conway recently noted that annual public borrowing is now lower than it was before the financial crisis, which is true. As a proportion of GDP, it is now about half what it was in 2007—but in 2007, GDP grew by 3%, more than twice as fast as in 2018, and business investment was increasing, not falling like last year. Faster growth makes higher public spending and higher borrowing more affordable.

There was a time when the leader of the Conservative Party embraced the idea of sharing the proceeds of growth between the public and private sectors to build a civilised society. Today’s Tories remain intent on starving public services of funds, sacrificing economic growth in the process. In the real world, the UK economy is crying out for a fiscal boost from the Chancellor to promote faster expansion and put an end to austerity once and for all. That boost should focus on infrastructure investment, social housing, skills and training, care for the elderly and low-carbon, greener growth. Decades of underinvestment in UK infrastructure, in our people and in fighting global warming need to be corrected. There is no time to lose.

The right reverend Prelate the Bishop of Chester said, absolutely correctly, that there was no mention of social care in the Chancellor’s Statement. That should be a crying priority for any Government. The noble Lord, Lord Macpherson of Earl’s Court, spoke of a social care tax. He is right: I do not think that the incredible crisis in elderly care can be solved by dumping it on families in a lottery of burden. Virtually every family in the country now faces this problem, which needs to be dealt with through extra taxation, possibly compiled with some sort of insurance as well.

The Chancellor says that he is holding £26 billion of fiscal headroom in reserve. If he has such a trump card, as he implies, keeping it up his sleeve is doing no one any good. Britain has already endured the slowest recovery from recession in the post-war period, all under this Government since 2010. Now the Chancellor is prolonging the pain of lacklustre growth. He talks a good game about ending austerity but cannot bring himself to take the decisions needed to match his words. His Spring Statement has been another missed opportunity, another squandered chance, to give the green light to the faster growth this country desperately needs.

Photo of Baroness Thornhill Baroness Thornhill Liberal Democrat 6:43 pm, 20th March 2019

My Lords, I declare my interest as a vice-president of the Local Government Association. My humble contribution will focus on the impact of the Spring Statement on local government finances and the serious concerns over the short-term crisis and future sustainability.

The Chancellor certainly attempted to morph himself from Eeyore to Tigger and inject some optimism into his Statement. But there was little to lift the gloom in local government circles. For us, it was slim pickings. However, it is churlish not to recognise that in the 2018 Budget, the Government responded to local government’s call for investment to ease some of the pressures facing local services this year. But it was just that—another one-off payment to avert a crisis, stick a finger in the dam or create a headline.

What was noticeably missing was any comment on the dire position that local government finds itself in. There was nothing on the long-overdue Green Paper on social care, which takes up some 40% of councils’ spending; nothing for children’s services, which are already expected to be the next crisis area after adult social care; and nothing to provide much-needed social housing. Your Lordships will note that I say “social housing”, given that the Government seem wedded to the so-called affordable homes that are simply not affordable to many of those on our housing list.

Will the Minister accept the views of the LGA, the IFS and local government finance officers that the current model for funding local government is broken and unsustainable? Can we be assured that there will be some urgency injected into new processes as we approach 2020? The Government will be well aware of the substantial funding black hole facing local government. A conservative estimate from the LGA places the funding gap at £8 billion by 2025 if more money is not provided for those services that in particular are experiencing a marked growth in demand. The real-world impacts are being felt by adults and children in care, homeless families and children on the streets, and millions of users of damaged local roads. These are specific services stretched to breaking point; but one cannot keep papering over the cracks that a significant reduction of funding, year after year, has caused to local services across the board.

We have an unprecedented situation where representatives of the police, head teachers, local government and hospital workers are all saying that, at the very least, they are stretched to a level that is impacting on services; at worst, they are at crisis point. Between 2010 and 2020 councils will have lost 60 pence out of every pound that the Government provide for public services. Compounding that funding gap is the now critical lack of clarity about where council funding will actually come from after this year. Many people in local government and beyond are rightly calling it a post-2020 cliff edge, and we are moving dangerously ever closer.

The proposed spending review will be setting overall departmental budgets for the coming years. That is good, but it has not even begun yet, so councils simply do not know broadly what their funding levels will be after 2020. How are they able to plan for the continued delivery of vital services? Added to that uncertainty, long-awaited reform of business rates retention and fair funding are still ongoing. Those are due to be implemented from April next year, which will leave councils with a matter of months to adapt. Some councils will inevitably be worse off, but they do not know which they are yet. Others will be eager to retain more of the business rates they collect so as to spend it locally, but are currently in the dark about whether they will be allowed to. Clarity is urgently needed. At the very least, the Government should commit to taking levels of deprivation into account when deciding what councils’ relative financial spending needs are.

In response to my recent Question on this matter, the noble lord, Lord Bourne, told me that I was wrong. If so, could he please make a statement to reassure councils that deprivation levels will be taken into account in the baseline funding when the new so-called fair funding formula is revealed? That would alleviate current concerns being felt in the sector, as this is certainly not the perceived position.

The Chancellor also mentioned a £10 billion reduction in business rates and plans for revaluation from 2021. There is also a massive backlog in appeals for revaluation on current business rate levels. Given that a significant part of a council’s resources will in the future depend on business rate levels and growth, those are both factors that inject further instability into the process. With the plans for an increase to 80% business rate retention and the implementation of the fair funding formula both progressing at a snail’s pace, it is little wonder that there is widespread concern.

It goes without saying that this continued financial uncertainty is not good for our communities. This is not about process; it is about people. Councils must be trusted to get on with the job of delivering valued services locally, creating the best solutions for their areas, which they know best. They want to help the Government meet national targets for things such as new homes, job creation and preventing ill health, but they are currently unable to do as much as they could do. Put simply, they are being handicapped by an acute lack of financial certainty, which must be urgently addressed. This in turn is hurting those who depend on the services provided by local councils, many of whom will be among the most vulnerable people in our society.

Finally, I agree with the comments made by the noble Lord, Lord Macpherson, about council tax. What is the difference between Brexit and raising council tax? With Brexit, you get only one referendum, so you cannot change your mind. But if you want to raise council tax, you can have a referendum year after year after year—so you can change your mind, depending on the circumstances. That is why council tax has not risen enough to cover needs over the last years. Local government has long asked for that to be revoked. It has not happened yet.

Photo of The Earl of Lytton The Earl of Lytton Crossbench 6:51 pm, 20th March 2019

My Lords, it is a delight to follow the noble Baroness, Lady Thornhill. As a fellow vice-president of the Local Government Association, I can relate to her comments. Like the noble Lord, Lord Hain, I declare my complete amateurship among all those who have such great knowledge here.

The Spring Statement has been likened to holding breath. I have previously expressed regret that this whole affair of our relationship with Europe has eclipsed so much else of national importance in the area of necessary self-examination and continual improvement. Although I acknowledge the welcome improvement in the national finances, it is in that context that I look behind the scenes at some of our local management—and certainly, at that concerning building an economy fit for the future, to use the Chancellor’s own term.

I would like to raise a few points, some of which are listed in the post-October 2012 initiatives table and elsewhere in the accompanying documentation. My little list now runs as follows. I start with business rates. Again, I am grateful to the noble Baroness, Lady Thornton, because she has covered so much of the local government side of things. I declare my interest professionally and as an owner of business premises. I have been through this matter on a number of occasions before. Although in its current form the system is not the sole cause of malaise in the business property sector—or, for that matter, specifically the high street—it is a material factor. The truth is that the system has been gamed by HMRC—first, on the spurious ground that the delay in the 2015 revaluation was to the benefit of and provided certainty for the business rate payer, when in fact it was solely for the maintenance of the tax yield; the certainty was one of continued rate charges based on peak market values of 2008.

Reform was promised, but what was in fact put in place was a redress system seemingly purpose-made to make it as difficult as possible for ratepayers to get fair access. I refer to the system known as “check, challenge, appeal”—an online system via the government portal that is so awkward, so poorly designed and so underresourced as to seriously fetter the necessary process of fair access to an impartial system of adjudication. This matters, given the historically high levels of rateable value. The Government point to the small business exemption, but I am afraid I do not buy the excuse of relief for small businesses, when the generality are still treated unjustly, any more than I buy that rather self-satisfied and unquestioning response deployed to justify check, challenge, appeal. New measures to address flagging high streets might usefully look at the imposition of empty rates and consequences of that as regards unlettable property before conferring additional compulsory purchase powers.

Noting the point raised by the noble Lord, Lord Shipley—I am sorry he is not in his place at the moment—I say that a revaluation to achieve land value tax comes at a significant up-front cost and, because it incorporates the concept of most valuable land use, is likely to generate a significant number of additional appeals, therefore affecting the likely yield. So we should be a little careful what we wish for—but it raises a valid point about the need to review the whole system and see whether the whole tax base cannot be stretched somewhere.

Another area of concern on my little list is personal independence payments—PIPs—a large number of unjustly refused applications for which have forced applicants to go through a long-winded process of appeal. This is often successful, provided the applicant lives long enough to collect. This simply plays games with people’s lives, and I find that objectionable.

There are changes in the probate fee arrangements. Leaving aside the level of charges, as I perceive it, both this fee and the way in which inheritance tax has to be paid rely on you getting a grant of probate first, before you can access the deceased’s assets. But the tax has to be paid in advance of that. This seems to put executors in an unprecedented cleft stick unless they can raise a loan or be bailed out by some family member. There is no appeal against this denial of a key principle of fair taxation—that you are not required to pay the tax until you have received the dosh—and I think that ought to be looked at.

HMRC recently announced its intention to progress its Making Tax Digital initiative, about which we heard earlier. This scheme requires those above the VAT exemption limit to make online returns in something approaching real time, but HMRC does not supply or, so far as I can see, approve the necessary software for it, and introduced it at relatively short notice without any proper trialling or, in my view, adequate notice. I have noticed the criticism by your Lordships’ Economic Affairs Committee. Again, there is no redress, and I will wager that if it is anything like check, challenge, appeal, it is another disaster waiting to happen.

I hope I may be forgiven for spotting a pattern here. First, develop a scheme so complicated that the ordinary citizen cannot understand it and will be in no position to mount any challenge. Secondly, in so far as a challenge might be mounted, make sure that in practice this is unavailable or so badly designed or inadequately resourced as to achieve a similar outcome. Thirdly, ensure that tax authorities have free rein to mount a retroactive defence if things go wrong. Fourthly, peddle fake facts to make black appear white and everything appear absolutely fine. Fifthly and finally, where refunds or out-payments are due, delay as long as possible.

To me, this makes it clear why the income tax system in particular is now so complex that no normal citizen is able to comprehend it, let alone complete their own tax return, without professional assistance at significant additional cost. It demonstrates why the complicated process of making returns also contains innumerable tripwires, allied to swingeing penalties for infractions and backed by denial of fair access to adjudication. It all fits into a vicious circle. But complexity in general tax terms, which in business rates administration seems to exceed departmental capability in its own terms, also opens itself up to ever more crafty attempts at evasion or avoidance, even without the curious spectacle of HMRC having approved avoidance schemes. I note that while pursuing self-employed folk under the IR35 scheme, HMRC was simultaneously turning a blind eye to its own employment arrangements, under which new entrants set up personal service companies as required by the Revenue’s own recruitment consultants —a PAYE avoidance scheme on an industrial scale.

I have previously raised the question of the charges raised by Highways England and its contractors for remedying highway defects caused by vehicle accidents on highways. I will not go into the details, but the point here is that the sums claimed thereby from vehicle insurers—the driver’s insurance company—often bear little or no relationship to the much lower charges agreed between Highways England and its contractors. As for the enlarged claims against insurers and inflated premiums in consequence, I note simply that this unjustified practice persists at the hands of a government agency.

In passing, I mention compulsory purchase schemes such as those involved in HS2; there are others. I am told there are ongoing issues over lack of promptness in payment of compensation. I accept that lack of information may sometimes be a factor, but I believe that the acquiring authorities are hiding behind the complexity of the processes to delay paying out.

My point is, therefore, that the policies now implemented are not for the citizen but consciously arraigned against him for the purposes of greater control and coercion by the state and protection of its various departments. Those departments are themselves abusers. Further, in their complexity they have reached diminishing utility, if not actual diminishing returns, and are seriously eroding trust, confidence and adherence. That should be ringing warning bells. It matters if the organs of the state are deliberately pitched against the citizen: wherewith government of the people, by the people, for the people?

We hear about poor levels of private investment, and I see a clear connection between this apparent Scrooge mentality and its inevitable outcome in that dimension. We hear of too many botched and grossly over-budget projects. Why is there this apparent lack of competence—and what about the cost, and the waste involved?

We hear of a growing need for ethical practices in business and commerce. I observe simply that there seems to be a disconnect here. If sharp practices of obfuscation and the covering up of mistakes are going to persist in government, how can we expect the citizen to behave any better? What is to prevent an inexorable slide into the law of the jungle? I believe that we can and must fix this, and the Chancellor can start by calling his own department and its attendant Treasury-funded agencies to order. If not, there ought to be a statutory watchdog with powers to oversee an increasingly out-of-control situation.

Photo of Lord Leigh of Hurley Lord Leigh of Hurley Conservative 7:01 pm, 20th March 2019

My Lords, it is an honour to follow the wide-ranging speech of the noble Earl, Lord Lytton. I welcome the chance to contribute to today’s debate, in which we are asked to take note of the economy in the light of the Spring Statement. It is important that we take note of it; with everything else that is going on and the demands on our time with regard to exiting the European Union, we are in serious danger of missing some good economic news. As we size up our European past, present and future, it is important not to lose sight of our current economic position and its not inconsiderable strengths.

To name but a few of those, there are record numbers of people in work, household spending has never been higher, inequality is in retreat—and, of course, the deficit is at its lowest level since 2003. That is evidence, if any more were needed, that so-called austerity need not be regressive. Indeed, it is proof that the worst thing that we, as economic stewards, can do for the least well-off, is to run high deficits. There is nothing progressive about spending more and more of our national income on debt interest instead of public services.

We are meeting on a day when Toyota has announced further investment in Derbyshire, and the opening of a new production line. I believe that we have had more quarters of successive economic growth than any other G20 country, and, unusually, our FDI has gone up, as opposed to that in Europe, which went down in 2018.

I am sorry that the noble Lord, Lord Macpherson of Earl’s Court, is not in his usual place, because I do not know whether he would agree that in economic matters—or, rather, fiscal matters—there are only two statistics we can rely on. These are, first, tax receipts—hard cash—which are currently at record levels, and, secondly, the proportion of unemployment claimants, which, for the first time in decades, is lower than 4%. Coupled with real wage growth of 1.3%, that represents good news.

Critics who carp that those are lagging, not leading, indicators should note that the OBR has predicted that employment is expected to rise over the next five years, with the number of people in work rising to 33.2 million by 2023. It clearly does not see a change of Government on the horizon, as we know that no Labour Government have left office with unemployment lower than when they started.

I shall highlight some specific areas of note from the Statement. The Chancellor continues to highlight productivity. Indeed, he refers to low wages and low productivity as “twin demons”, and mentions the importance of the £37 billion National Productivity Investment Fund in helping to tackle those problems. This is an important issue, but I still wonder whether we will ever get to the root of it until we modernise our interpretation of productivity itself. After all, services, now the mainstay of our modern economy, are, in my opinion, not properly accounted for in the productivity statistics.

I have never been happy with the statistics that measure productivity as output per hour, because they fail to recognise total output, which for us is very good. Moreover, as we have full employment, we will use less productive labour. So our productivity will appear low even if that is not really the case. I say to the Chancellor, and to my noble friend the Minister, that we should not allow our opponents here or abroad to criticise our productivity levels unfairly, or unchallenged.

It is also worth highlighting measures that recognise the importance of Britain as a trading nation, open to talent and open for business. Putting an end to landing cards, as the Minister mentioned, and allowing passengers from key partner countries, particularly the United States, to use e-gates, is really important, and complements the new measures to support UK Export Finance. In particular, the general export facility, which allows UKEF to support the working capital requirements of exporters as companies, rather than just for specific projects, will have a big effect. I hope that such measures are just the beginning: we need to do more, and communicate better the support on offer for exporters, and, of course, inward investors.

Like the noble Lord, Lord Wakeham, I shall refer to the papers published by the Chancellor with the Spring Statement on tax issues, particularly avoidance and evasion, which remind us that HMRC reckons that some £900 million spent in 2010 is estimated to have brought in an additional £7 billion of revenue. The report then lists some of HMRC’s successes in fighting evasion, which I applaud. For the record, I take issue with its definition of tax avoidance, which it describes as “bending the rules”—but I totally agree that contrived and artificial schemes must be stamped out

That takes me to my final, and familiar, subject: VAT and online fraud. The Spring Statement gives important context, with a new strategy document from HMRC. This report cites a VAT tax gap of £11.7 billion for 2016-17. Yet the UK Alliance of Online Retailers suggests that the £205 million in VAT collected from overseas sellers is only 7% of what should have been collected. This suggests that current measures in place to combat fraud are not working.

For example, presently, HMRC applies “seller checks” to overseas sellers but not to UK ones. This is particularly relevant to online sellers and has led to literally thousands of overseas sellers registering as UK sellers, knowing that online marketplaces do not check whether the seller is actually the legal owner of that business name and the associated VAT number. In other words, fraud is going on under the noses of the likes of Amazon and eBay and they are taking no action. Meanwhile, the Exchequer loses out on considerable revenue and genuine UK sellers are punished.

Does the Minister agree that the solution is to get these online marketplaces to take more responsibility? First, they should collect VAT themselves and, failing that, HMRC should copy the German model whereby the sellers cannot trade without a VAT compliance certificate, which comes only after VAT returns and import invoices have been properly reviewed by HMRC. Furthermore, all anti-money laundering legislation should apply to online market places so that all business details are properly displayed and verified. HMRC’s statement is to be welcomed in the round, but in this instance we can do more with some relatively simple interventions.

I hope your Lordships agree that it is important that the UK builds on its strong economic fundamentals, demonstrated again by this year’s Spring Statement with measures that support our status as a trading nation. However, as in the case of online VAT, there is also an opportunity for the UK to play a leadership role in setting out new approaches and standards for the challenges posed by a globalised digitalised economy and not allowing competitive pressures to conflict with a sense of fairness and standing up for the rule of law.

Photo of Viscount Chandos Viscount Chandos Labour 7:09 pm, 20th March 2019

My Lords, I welcome the chance to debate the Chancellor’s Spring Statement and, as the noble Lord, Lord Shipley, noted, to do so—whatever the charms of the Moses Room—in this Chamber. I draw your Lordships’ attention to my entry in the register of interests.

As my noble friend Lord Tunnicliffe has already observed, the Chancellor of the Exchequer did not wish the Spring Statement to be a fiscal event. In that, at least, he has succeeded. It is indeed a small and imperfectly formed non-event, which I intend to mark with as brief a speech as possible.

What are the overriding responsibilities of the Government? The defence of the realm is indisputable and, although that is not the subject of this evening’s debate, it is worth noting that the Ministry of Defence’s budget has been cut by 10% in real terms between 2010-11 and 2019-20. The Secretary of State for Defence may have been noisy in his campaigning for an increase in his department’s budget but it is hard not to get the impression that he is more focused on leadership manoeuvres than naval ones, other than those that would have needlessly have jeopardised our economic and trade relations with China. These cuts, of course, are modest compared to the 40% reduction in the budget over the same period suffered devastatingly by Defra and the Ministry of Justice.

I suggest that next, after securing the security of our country, the maintenance of a stable and positive environment for business is a key responsibility of any Government. There may be varying views on different sides of the House on when and how the Government should intervene to address market failures, but the principle of maintaining confidence, domestically and internationally, in the UK as an attractive place to do business is shared right across the House. In this respect, the Government have abjectly and comprehensively failed. GDP is already 2.7% lower than was forecast three years ago, meaning that £50 billion in money, and perhaps £15 billion or more in tax revenues that could have been invested in public services, have been cut and cut over the nine years of Conservative-led Government—and we have not seen the half of it.

Even if the Prime Minister’s irresponsible brinkmanship—“reckless” in the words of her own deputy—gets her deal for Brexit approved by the House of Commons, allowing an Article 50 extension for its implementation, the chaos and uncertainty of the past month, for which the Government must take responsibility, will prove to have inflicted further damage on business confidence, with a corresponding reduction in economic activity and investment. GDP growth for the current year has already been downgraded from 1.7% to 1.2%, as I suggested was likely when your Lordships debated the Finance Bill last month. It would be no surprise if the outturn was worse still—barely no growth at all in GDP per capita—as a result of the Conservative-inflicted crisis that can only deter investment and damage confidence further.

This anaemic projected growth was posited on agreement being reached, I assume, on a timely basis with the EU. There remains, whatever the efforts of Parliament, an unnerving risk that we could in nine days’ time find ourselves tumbling into a disorderly Brexit, the adverse economic consequences of which the Chancellor reiterated in the Statement, and which the Treasury has quantified as an estimated 5% reduction in GDP. That is £100 billion in real money, of which £30 billion or more of tax revenues would be lost.

The Chancellor in his Statement described my right honourable friend the shadow Chancellor as living in a parallel world. In listening to the Minister’s introduction and re-reading the Chancellor’s Statement, I am trying to reconcile their tone with the figures I have set out, let alone the appalling hardship suffered by the least well-off in our society. I suggest it is the Minister and the Chancellor who are living in a parallel universe.

Compared to the effects of the Government’s incompetent planning and negotiation of Brexit, and the risks of a disorderly Brexit, the issues outlined in the Spring Statement are infinitesimally modest. The Chancellor has shown the zeal of the convert—which in principle I welcome—in his proposal for a review of the national living wage regime. I hope that the Dube review, and indeed the Furman review of competition in the digital market, enjoy a speedier timetable than the hugely important Augar review of further and higher education, which we still await.

The noble Lord, Lord Macpherson of Earl’s Court, who is not in his place, spoke with his undoubted authority on fiscal consolidation. I was pleased that he acknowledged that what the Conservative-led Governments have achieved has proved to be no more than that planned and started by the Labour Government and my noble friend Lord Darling, as Chancellor. He noted that Labour’s plans involved different means of achieving that fiscal consolidation, a critical difference, not just in the dispassionate Treasury analysis, but much more importantly, to those who have suffered most from the macho austerity policies pursued by this Government and their allies.

In our debate last month, I think the Minister may have misunderstood, and did not answer, my question about the implications of the decision by the ONS on accounting for student loans—which, for the avoidance of doubt, I welcome. The noble Lord, in his introduction, spoke proudly of the reductions in borrowing, and has been congratulated on them by the noble Lord, Lord Macpherson. The OBR has noted that these figures do not make any adjustments for the proposed changes to the accounting of student loans. I ask the Minister again: in conducting the spending review for the next three years, when those adjustments can be made, will the Government effectively ignore them in setting public expenditure, and not penalise the country for the imaginative accounting adopted previously?

I end by noting that the Minister highlighted the Government’s investment of £79 million in ARCHER 2, the supercomputer in Edinburgh. He did not repeat the Chancellor’s jolly quip:

“I am told that with the right algorithms it might even be able to come up with the solution to the backstop”.—[Official Report, Commons, 13/3/19; col. 350.]

I have already stressed the importance of a solution—with or without the algorithms available from ARCHER 2.

Photo of Lord Scriven Lord Scriven Liberal Democrat 7:18 pm, 20th March 2019

My Lords, I start by highlighting my declarations in the register, particularly as a vice-president of the Local Government Association and as a member of Sheffield City Council.

Listening to the Minister at the Dispatch Box coming forward with forecasts and percentages of growth made me understand why astrology was invented—because it makes Ministers’ economic forecasts seem like a precise science. Of course, they are not. So the real issue is how this Statement affects real people’s lives and what the trajectory is of improving people’s lives. I take myself away from here—I do not hunch over a calculator, as Ministers and officials probably do, and type away with steam coming out, to get the best percentage. I see how real people’s lives are improving when I go back to the north and to Sheffield.

This Statement missed three opportunities to improve people’s lives. One was mentioned, one was partly mentioned and one was ignored. The first was knife crime. This is a missed opportunity. Unfortunately, on knife crime the Spring Statement turned into a short-term knee-jerk reaction. Young people’s lives have been taken away and communities are being devastated. My own city of Sheffield, described as the safest city in the country, has seen nine fatalities from knife crime in the past year. It is a missed opportunity because we are not policing, and we will not police, our way out of knife crime: it is a complex public health issue that needs to be addressed in a much rounder way. The Home Office did some social and economic costings of crime, covering the costs of a crime, the consequences of it and the costs of dealing with it. It found that each fatality from homicide, including knife crime, cost £3.2 million in economic and social costs.

Knife crime leading to the loss of a young person goes way beyond economics: it is a human and social tragedy, and families, loved ones and communities are affected. I am clear, therefore, that the Spring Statement should have addressed real issues such as youth services. In 2014-15 £620 million was spent on youth services. By 2017-18 this was down to £410 million. Support services—good voluntary sector organisations such as the De Hood gym in Sheffield that give young people positive things to do and work with the statutory sector—are important. So I ask the Minister, what will happen with budgets in the round for things such as youth services? Will they be put on a statutory footing, which is really important if those services are not to continue to decline?

We need to be radical if we are going to deal with this—with not just the economic but the human consequences of knife crime. Can we move away from silo budgeting? It is no good just saying that you will give x more to the police, x more to youth services—it is about programme budgeting, where we have to take a radical view if it is a public health issue where the statutory sector has to work together. Can we say that we will start giving to areas—as we perhaps did with troubled families—so that they get a programme budget on issues to do with knife crime? A fixed amount will go to an area, which will then decide how to spend the money, with no strings attached, in order to tackle the public health crisis. The Government’s role will then be to hold local areas to account. It is no good slicing this budget into silos; that will just mean that the public sector will argue for who is responsible for which bit. We have to get much smarter. We need to give hope to cities and towns for knife crime to diminish.

Talking of hope and opportunity, I turn to the north. We have one of the most unbalanced economies in the western world. The northern powerhouse was mentioned once in the Statement. GVA in London and the south-east equates to nearly 40% of the total across the country. In the north, which includes Yorkshire, the north-east and the north-west, GVA is just 19%. I am asking not for money to be taken away from London, but for a fair share for the north. The pay gap between the south and the north is widening, as is the gap in life expectancy. If you are a male born in Blackpool, you are expected to live only 68 years. There has to be greater investment in the north. For every pound spent on transport in the north, £4 is spent in southern England. London gets £149 per head more in transport spending than the north.

UK plc is not firing on all cylinders because we do not have fair and reasonable investment across all the regions of the UK. The £1.6 billion stronger towns fund is not going to solve this, and nor are strings-attached metro mayors. That is just about existing spending being spent differently by somebody else. It is not new money or extra money; it is just moving the spending of money from the centre to the regions. Welcome as it is, we need extra investment.

This is a gigantic failure of a number of Governments, not just this Government. It goes back many years. We need much more balanced investment in the north and the regions. Why was the Spring Statement so silent on the northern powerhouse? Why has it been deprioritised? If it has not, I can tell the House that in the north that is how it feels. The Government need to charge up their cylinders if they are serious about the northern powerhouse and what can happen in that area. If they are going to give us economic independence and interdependence, we need to see real investment in the north and real and sustainable commitment to the north—not just saying that maybe they will fund Transport for the North’s business plan.

The third issue I wish to talk about is dignity and independence in old age. My noble friends Lady Thornhill and Lord Shipley mentioned the crisis in local government and one area in particular, which is social care. This is important for the future economy if people are to live with dignity and independence. There is already a £1 billion gap in social care, and it is likely to increase to £3.1 billion by 2024-25. Last year, there were more than 2 million new requests for council social care, which was a great increase. The NHS spends £850 million a year treating older people who do not need to be in hospital. In 2018, £46.2 billion of our economy—6% of GDP—was in social care. If social care continues to grow with demographic change, by 2030 the number of social care jobs will have increased by 31%. It will be a key part of the future economy and of jobs, enterprise and care, but it is not sustainable in its present form. So will the Government be radical about this? The answer cannot just be about existing tax. Will they look at the examples of Japan and Germany, which have started to get long-term social care funding on a sustainable footing? It will be key to getting a sustainable, balanced economy in the future.

So the Statement was welcome, but it was a missed opportunity. It was a missed opportunity for young people and communities blighted by knife crime; it was a missed opportunity for the north to get its fair share so that it can contribute fully to the UK’s GDP; and it was definitely a let down for older people who want to live with independence and dignity.

Photo of Lord Gadhia Lord Gadhia Conservative 7:28 pm, 20th March 2019

My Lords, Napoleon once said, “I do not want a good general, I want a lucky one”. The same logic surely applies to Chancellors and their stewardship of the economy. Faced with headwinds in the global economy and a downturn in business investment from Brexit uncertainty, the Spring Statement could easily have been a more testing experience for Mr Hammond. Instead, the Chancellor has continued to enjoy buoyant tax receipts, despite softening economic growth, enabling him to stay well within the Government’s fiscal targets and providing further headroom going into the next spending review.

The economy has maintained record employment levels and is expected to generate sustained real wage growth, especially from higher-income earners, providing what has been described as “tax-rich economic growth”. However, I note that my noble friend Lord Macpherson cast doubt on these tax projections based on his long experience at the Treasury.

The Chancellor is also lucky because he has been able to sidestep taking tough decisions while Brexit negotiations are ongoing. He is quite right to retain as much dry powder as possible to respond to the different scenarios, but at some point soon the difficult choices will need to be made and the pressures to spend more will become irresistible.

Having reduced the deficit from almost 10% of GDP at the beginning of this decade to barely 1% now; with debt to GDP declining to well below 80%; and with the debt service ratio helpfully remaining steady at around 2% of GDP, the temptation to loosen the purse strings will seduce even the most prudent of Chancellors. Hence the 2019 Spring Statement probably contains the best set of fiscal projections we will see from the UK Government for a long time.

Having harvested his good fortune and preserved his optionality, what should the Chancellor and Government do next to maximise the UK economy’s potential? As with much else in our country right now, the answer depends partly on the Brexit outcome. Until today’s latest developments, it appeared that the risk of a disorderly exit had been mitigated by last week’s votes in the House of Commons rejecting no deal and seeking an extension to Article 50. That is certainly what the strengthening value of sterling indicated at the time. It now looks like the Prime Minister is backsliding on her position—along with the value of the pound—so we remain in Brexit limbo. Faced with this continued uncertainty, our only option is to try to look through Brexit and ask what is required for the economy to prosper, regardless of the final outcome.

I would like to highlight four priorities covering points of economic policy as well as philosophy. The first is something we should not do, namely to go on a spending splurge. Restoring our fiscal credibility has been hard won, and retaining sufficient fiscal flexibility is an essential part of the macro-policy armoury. A long-standing member of the Bank of England’s Financial Policy Committee, Richard Sharp, set out this case very lucidly in a speech he delivered in November 2017 titled, “It pays to be paranoid: the importance of fiscal space”, in which he argued that,

“a highly indebted government has less capacity to react to crises: we cannot assume that further shocks do not materialise; and, evidence demonstrates that fiscal space is a vital national resource to have available to counteract such a shock. Reducing fiscal space, therefore, means financial stability is harder to achieve”.

We should take heed of this wise counsel, especially at a time when history shows us that another crisis is overdue.

Secondly, we need to re-articulate the importance of wealth creation. Some might view this as a strange and unnecessary point to highlight: surely the merits of expanding the size of the pie are self-evident. Yet whenever I travel around the world and come back to the UK, I cannot help but observe that British politics is focusing either on the zero-sum game of redistribution or reconciling itself to below-trend growth of 1% to 1.5%.

We simply cannot meet the British people’s aspirations for higher living standards and better public services without raising our sights and becoming much more ambitious about promoting prosperity. We should not be content with mediocrity and need to guard against reacquiring the British disease that became a leitmotif of this country’s stagnation in the 1970s. If the United States, an economy more than seven times the size of our own, can still grow at 3%—adding the equivalent of Sweden in a single year—then we must and can do better.

This leads me to my third and most important point: at the heart of rediscovering the art of wealth creation must be addressing our productivity gap. We need to fix the fundamentals which have left our nation’s productivity around 20 per cent lower than the trend it followed before the financial crisis.

To the Chancellor’s credit, boosting productivity has been the key underlying mission guiding many of his priorities and decisions during the last six fiscal events that he has presided over. This year’s Spring Statement contains welcome measures to underpin investment in infrastructure and housing—representing the biggest public capital investment programme for 40 years—and the funding of several new science and technology projects spanning photonics, bioinformatics, supercomputers and nuclear fusion. All these support the Government’s ambition to raise R&D investment to 2.4% of GDP by 2027. We should also welcome the exemption of PhD-level roles from the visa cap, although I hope that this will not be undermined by restrictive rules applied to the family members of such applicants.

While these and other measures are all welcome, Andy Haldane, chief economist at the Bank of England and chair of the Industrial Strategy Council, recently made the following important observation:

“The raw ingredients of improved productivity—skills, experience, infrastructure, investment—take time to build. The time lag between sowing the seeds of structural policy and harvesting its fruit in higher productivity and pay is measured in decades not months or even years”.

With our normal political cycle overlaid by polarised politics, there is an urgent need to forge a new political consensus on the basics of enhancing productivity. Such an approach would allow us to stay the course and provide longevity for the strategy without chopping and changing course every few years. For example, we now have a 10-year plan for the NHS. As Robert Halfon MP asked in the other place last week, why can we not have a 10-year plan for schools and education? We cannot solve our intractable productivity puzzle without anchoring the solutions in long-term thinking.

My fourth and final point is about our engagement with the rest of the world. As the HSBC economist Stephen King reminded us in an article earlier this week:

“Westminster is not the centre of the world—and Brexit is not the only topic of conversation. There is a world beyond our borders”.

That world is changing fast and we are off the pitch. People the world over are looking at us agog with bemusement and bewilderment as we chase our tails on Brexit. We should not underestimate the opportunity cost of the current impasse.

I started by quoting Napoleon’s remarks about lucky generals. He also had some wise words about decision-making, saying:

“Nothing is more difficult, and therefore more precious, than to be able to decide”.

It is something that I hope the House of Commons can reflect upon. To govern is to choose. If we fail to take timely decisions now about Brexit it will hold back the economic aspirations and prospects for our country for much longer than necessary and, potentially, with irreversible consequences.

Photo of Lord Northbrook Lord Northbrook Conservative 7:38 pm, 20th March 2019

My Lords, it is a great pleasure to follow the noble Lord, Lord Gadhia, with his great financial experience, and a lot of what I say will be in agreement with his wise words.

There is much to welcome in the Chancellor’s Spring Statement. As the noble Lord, Lord Macpherson of Earl’s Court, said, and as The Financial Times put it:

“A decade on from the financial and economic crisis, the chancellor can now say the deficit is fully under control”.

As other noble Lords have said, with the Government’s books in 2009-10 in deficit to the tune of £153 billion, amounting to 10% of national income and £1 in every four spent, public sector net borrowing is down to £22.8 billion this financial year, only just over 1% of GDP. This Chancellor deserves high praise for halving the deficit since he came to office, and this has taken place even though the annual debt interest bill is hovering around the £40 billion mark each year.

As the noble Lord, Lord Gadhia, has just said, the Chancellor has made his own luck by running a stable ship throughout the Brexit process. Detailed analysis shows that he has had some good assistance in certain areas. The noble Lord, Lord Macpherson, has already pointed out that unexpected strength in tax revenues explains a large amount of the drop in borrowing across the five years of the forecast. This financial year, according to the FT, all the gains in receipts come from higher than expected income tax and national insurance revenues, largely because the incomes of those on the highest pay are growing faster than the average. Surprisingly low inflation and lower interest rate expectations have also cut projected debt interest bills in future.

Moving on to growth forecasts, the news is not so good. As other noble Lords have pointed out, the UK economy is forecast by the OBR to grow in 2019 at its slowest pace since the post-crisis recession, cutting its outlook for growth this year to a meagre 1.2%, down from the 1.6% expansion pencilled in in last November’s predictions. In context, however, the GDP growth forecast figures are still higher than those for Germany, slightly increasing to 1.4% in 2020 and 1.6% in each of the final three years. The relatively modest recovery in GDP growth hinges on a revival in productivity and steady wage growth supporting a pick-up in consumer spending.

I will now consider employment and wage growth. Under the Conservative-led Government, more than 3.5 million net new jobs have been created. By 2023, the OBR expects to see 600,000 more new jobs. According to the Chancellor, last year 96% of them were full time, scotching the Opposition’s constant claims that they are zero-hours contracts. On wage growth, the OBR has revised upwards its forecast to 3% or higher in every year, with inflation around the target throughout the forecast period. This means real wage growth in every year of the forecast.

So the UK economy is showing surprising resilience. But this progress, and the chance to end the austerity that has sapped public services for a decade, are in jeopardy. The uncertainty over the UK’s exit from the EU must be lifted and a no-deal departure avoided. If the UK leaves the EU with an agreement, the Chancellor said the country would have real choices on how much of his notional “deal dividend” it could spend on public services or tax cuts. But, as the Chancellor said, a no-deal Brexit would deliver a significant short to medium-term reduction in the productive capacity of the British economy—so the idea that there is some simple, readily available fix that can be deployed to avoid the consequences of a no-deal Brexit is, I am afraid, just wrong.

I move on to an area where spending has been cut back too far. On this, for once I agree with the noble Lord, Lord Tunnicliffe. According to a 2018 paper by the Institute for Government, net expenditure on police services in England and Wales had fallen by 18% in real terms from spending in 2009-10. At the end of March 2018, there were 15% fewer police officers than in 2010. There is also a reported shortage of detectives. In its 2017 evaluation of police effectiveness, Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services reported a “national crisis” in the number of investigators, estimating a 17% shortfall of more than 5,000 staff.

The crisis has been brought even more into focus by the rise in knife murders in London and the increasing problems being brought about through gangs and drugs issues. If no new money is available apart from a one-off £100 million, will the Minister tell us, as a matter of priority, whether the money could be found from elsewhere? Perhaps some of our overseas aid budget—particularly that given to relatively well-off countries such as India and China—could be diverted to this much more urgent problem at home. There seems for some reason to be a stubborn resistance by the Government to spending more money in this area, which should be a key priority for the Conservative Party, as the party of law and order. This expenditure would pay for itself in the future.

I now turn to what the Spring Budget means for personal finances. I welcome the increase in the personal tax allowance to £12,500 and the rise in the higher-rate threshold to £50,000, but still believe that the top rate of income tax should be brought down to 40% to replicate the rate under the last Labour Government. Sarah Coles, a finance analyst at Hargreaves Lansdown, made the following comment:

“The impact of inflation, wage rises and asset price growth means many more people will be paying more tax over time. By 2023-24, inheritance tax is expected to make an extra £1 billion a year and capital gains tax £4 billion”.

Meanwhile, income tax is forecast to rise by more than £50 billion and national insurance more than £35 billion. If you look at the other side of the equation, welfare spending is expected to increase by no less than 19%—nearly £42 billion—over the next five years, with the biggest factor being state pension expenditure, which is forecast to rise by 26% or £24.5 billion. There has to be a limit to tax increases: we are now as highly taxed as in the 1980s.

On offshore tax, I note that HMRC has received 5.7 million records on UK taxpayers’ offshore accounts—more than treble the records it received in 2017. I welcome the crackdown on overseas tax evasion and note the co-operation from more than 100 overseas jurisdictions. I note the decision of the OBR to categorise provisionally the increase of probate fees as a tax, which must be correct, despite what the Ministry of Justice says. What are the Minister’s views on this?

Finally, I welcome the Government’s proposed review into the contentious loan charge, highlighted by my noble and redoubtable friend Lady Noakes. I agree with my noble friend Lord Wakeham about some of the responsibility resting with taxpayers who went into these schemes. I await with interest the report that will be published on 30 March.

The Minister talked about the birds and the bees, but did not say much about the third B—Brexit. We are in a most uncertain time economically due to Brexit, but, with a difficult hand, the Chancellor has done well. The times ahead will be uncertain and the effects of no deal on the public finances could be serious. For instance, I read today that, according to Ernst & Young, financial services companies have announced plans to move £1 trillion of assets into the EU. The financial services industry accounts for roughly 12% of the UK economy and employs 2.2 million people. It estimates that it will cost the country £600 million in tax. I feel that the Prime Minister’s deal, while not being perfect, provides an adequate solution, and I would welcome it somehow getting through Parliament. The uncertainty of delay is much worse for the economy.

Photo of Lord Davies of Stamford Lord Davies of Stamford Labour 7:48 pm, 20th March 2019

My Lords, it is a pleasure to follow the noble Lord. What he said about the transfer of businesses from the City to the European Union is absolutely right, and very worrying indeed. It is a very extraordinary situation today, something that I have never seen before or even dreamed of. Governments all over the world, generally speaking, like to present themselves as enhancing by virtue of their wise policies the prosperity and incomes of their citizens. Today in this country we face the fact that the Government admit, very honestly—I pay tribute to their transparency in making this quite public and not hiding it—that their policies are directly bringing about a very substantial reduction in our national income, from 6% to 11% depending on which part of the country you live in. It has never happened before that we have had such a massive reduction in our income, even during the 1973 oil crisis, which I remember very well. It has certainly never happened before that a Government have had to quantify the negative impact of their own policies in this dramatic way.

The Government have found that it is very easy to destroy value in life and to destroy income. We are currently in the largest and purest single market in the world—purest in the sense that there are the minimum number of obstacles to trade. If you leave a large market, what happens? You lose all its benefits. A large market gives you a much greater opportunity for specialisation, competition and economies of scale. Those are the drivers of productivity. If we are interested in productivity increases in this country—we ought to be, because several participants have reminded the House how we have a chronic problem with our productivity—it is impossible to imagine anything more damaging than leaving the single market.

We have generated a great deal of uncertainty. Everybody in financial or business circles knows that uncertainty is a risk. If risk rises, the cost of capital rises. If the cost of capital rises, investment automatically falls. We have heard it referred to several times this evening, although no one dwelt on the point, that investment spending in this country has fallen over four quarters consistently every year. That is an extraordinarily serious situation. I do not think that anyone who knows the first thing about economics could fail to be extremely worried about what that says about the temperature of the patient and the prospects for our economy and prosperity. Something very urgently needs to be done.

Then there is an aspect that the noble Lord and other colleagues have referred to, although no one has taken it up to the extent to which it deserves to be emphasised. There has been a very distinct movement of businesses out of this country, particularly in manufacturing. The Government are aware of that, and they have responded by trying to bribe—perhaps I should say providing subsidies to—the companies concerned. The Government know all about the Japanese motor industry, but you cannot subsidise everybody because one person’s subsidy is another’s tax rise. That really has not worked. As far as I can see, the Government have not taken any notice of the warning they have had from EADS, which is of course now called Airbus—a key figure in British manufacturing. It would be very worrying if it moved to the continent, as it could well do and as it has said it could.

Then there is financial services, which the noble Lord referred to. I was particularly worried to see that Bank of America, the biggest bank in the world, has decided to move its European operations elsewhere. I think that the trading is going to Paris and the other operations to Dublin. Ernst & Young has been referred to once or twice. Together with Deloitte and KPMG, it is the largest accountancy firm in this country and one of the largest in the world. Of course, these days it does not spend most of its time doing audits. It is in a very big way in corporate finance, management consultancy, and, indeed, consultancy to Governments. The British taxpayer pays an enormous amount to these companies. Ernst & Young is leaving London as well. Goodness knows how many high-powered jobs earning more than £100,000 a year—real prosperity—is being shifted in this way as we speak day by day. Of course, if finally we do leave—some people are desperately hoping we find a way to avoid leaving, although they do not want to take a final decision until they have to—I am afraid there will be quite an exodus and we will suffer from it greatly. It could be that the Government’s projections will actually be proved too optimistic. This is extremely worrying.

What is to be done about it? If there is a problem one should always ask oneself what the solution is. Clearly, the solution is to allow the British public to take a view on the present situation and all the policies the Government are pursuing, all of which involve costs of some kind or another and none at all involve gains. There are no benefits. There are no gains. The other day I dealt with the problem of the Government keeping on saying that there are gains because there are going to be opportunities for new trade deals around the world. I think I demonstrated to the House that that is complete illusion.

Day after day over the last 12 months we have been debating here the problems we will have with leaving Euratom, the European Medicines Agency, Europol and the other security institutions involving automatic transfer of information from British police forces to continental police and intelligence forces and vice versa. They are enormously important. We need to turn to the British public and say: “You are now in a position to make your own balance sheet. You can see whether you think it is a good idea or not”. If the British public are allowed to take a second, more informed look at this matter—all of us on all sides of the debate must be more informed as a result of what has happened over the last two years—I think a whole dam of investment that is being held back would be released and we would greatly benefit.

If that does not happen, the Government have some much less attractive choices. We certainly will need some kind of countercyclical stimulus. Most participants in the debate this evening have urged a fiscal stimulus. The noble Lord, Lord Macpherson, and my noble friend Lord Hain spoke in favour of that. I ask them to hesitate a little before they come to that final conclusion. The history in this country of discretionary stabilisation through fiscal measures is not a happy one. Generally speaking, by the time the bureaucracy has got its act together, gone through all the planning inquiries, gone through all the tendering procedures that it has to do, the world has moved on and the cycle has turned. All the public spending contributes perhaps to overheating in the next economic phase, destabilising the economy rather than stabilising it.

Unless the Treasury is convinced that it has solved this problem—I see no evidence of that at all—I would be very hesitant indeed at placing the main burden for countercyclical stabilisation on fiscal measures of that kind. Nor can you use tax reductions. Cutting income tax or VAT is a very good way of stimulating consumer demand but that would be very irresponsible. Anybody knows that no Government can put those taxes up within sight of a general election or within two or three years of a general election. They would not be put up when they needed to be, so that would not be an honest or an effective policy to pursue. It is very dishonest and very irresponsible, in my view—not that anybody has actually suggested it, I am glad to say.

What remains is to rely on the Bank of England—on the Monetary Policy Committee. The noble Lord, Lord Macpherson, was concerned about inflation if monetary policy is relaxed in any way. We are so far from inflation at the moment. All the pressures are contractionary so I do not think that we should worry too much about that. If perhaps because of a concentration of increases in prices—because we were imposing new tariffs on ourselves—momentarily the inflation rate goes above 2%, the Bank of England MPC will always write a letter to the Treasury to explain it. I think that explanation would be accepted by the markets in present circumstances. I would be very cautious indeed about going down the fiscal route unless there are some assurances for the problems I have just listed.

We obviously have to do something and must try to restore some confidence in this country. At the moment I would say that almost any kind of fiscal or monetary stimulation would be relatively ineffective. We would need an awful lot of it to achieve any result because the confidence factor is lacking. It is lacking above all because the Government are so incompetent and the Prime Minister has now become worldwide a kind of legend of incompetence. In our country’s interest none of us should allow it to continue for too long.

Photo of Lord Bilimoria Lord Bilimoria Crossbench 7:58 pm, 20th March 2019

My Lords, three years ago, exactly at the time of the referendum, the UK was the fastest-growing economy in the western world, respected around the world, at the top table of the world, including at the European Union and then Brexit happened. In spite of this, as the noble Lords, Lord Leigh and Lord Gadhia, have said, the FT said up front:

“Britain’s economy is showing surprising resilience. Public finances are in better fettle than expected. But this progress—and the chance to end the austerity that has sapped public services for a decade—are in jeopardy. The uncertainty over the UK’s exit from the EU must be lifted, and a no-deal departure avoided”.

Those are the two key aspects: uncertainty and the risk of no deal.

The Chancellor described an economy in reasonable and in some cases excellent shape—employment is at a record high and unemployment at a record low of 3.9% —and it is still growing, albeit down from 1.6% to 1.2%. Borrowing has fallen to just 1.1% of GDP. This is down, as the noble Lord, Lord Macpherson said, from 10% a decade ago, which is brilliant. Net public debt is on a sustained downward path: it is now projected to fall from 82.2% of GDP in 2019-20 to 73% in four years. This is all very good. Then we hear about funding for high-tech research and exempting PhD-level roles from the cap on immigrant visas: that is a positive signal. The FT says very clearly:

“Against the fantasies offered by Britain’s Brexiters, the chancellor’s statement offered a dose of realism”.

The Chancellor said very clearly that now was a chance for,

“building a consensus across this House for a deal we can, collectively, support”.—[Official Report, Commons, 13/3/19; col. 352.]

That is exactly the opposite of what his boss, the Prime Minister, has been saying. The Spring Statement was sandwiched between the humiliating second defeat for the Prime Minister and the no-deal vote the following day. The Chancellor also made very clear his opposition to a no-deal Brexit, saying that it would shrink the economy, push down wages and put up prices—a national calamity. Yet what has the Prime Minister said many times? “No deal is better than a bad deal”. We have heard that so many times.

What did the CBI have to say about this? Rain Newton-Smith, the CBI chief economist, said:

“Against a hugely uncertain political backdrop the Chancellor has made an admirable attempt to set out a long-term vision for the UK economy, yet remain shackled by Brexit. This year’s forecast downgrade brings the danger of no deal to the UK economy sharply into view. It must be avoided”.

Doctor Adam Marshall, director-general of the British Chambers of Commerce, said:

“The Chancellor is right to warn of the risks that a messy and disorderly exit on March 29th would pose for the economy. Westminster must heed the fact that businesses and government agencies are simply not ready for such an abrupt change, and Parliament must take concrete action tonight and in the coming days to avoid no-deal in just a fortnight”.

This is business speaking. Business is terrified of a no-deal Brexit.

Let me go into some of the detail. I was on the Finance Bill Committee and of course we challenged HMRC about Making Tax Digital, saying that businesses and HMRC have to be ready for it. It is a burden on business and there is still not sufficient understanding of it. How will HMRC, with stretched resources at the moment, having to deal with Brexit, cope with Making Tax Digital? Will the Minister address this?

There is good news overall on many fronts, with many challenges on employment and immigration. While non-EU immigration is actually going up, EU immigration is plummeting. If we have 3.9% unemployment, which many noble Lords have referred to as full employment in economic terms, what will we do without EU immigration? We have 3.5 million people: what will we do without them? We will have an acute labour shortage. Average earnings have grown by 3.4% over the past year—their fastest in a decade. The noble Lord, Lord Macpherson, spoke about higher tax revenues. Here we have low inflation, low borrowing costs, higher wages and happy households: this is great. Business investment, on the other hand, is suffering. We have had four consecutive quarters of falling business investment. Why? Because of uncertainty over Brexit. Then there is the backdrop of global uncertainties, with the financial markets, possible recession, trade wars, trouble in China and all these challenges as well.

Getting down more to the nitty-gritty, I turn to business rates. Retailers are struggling but the Chancellor did not really address this. It has been dubbed the “high street Armageddon” by the head of the British Retail Consortium. The British high street looks as though it is reaching a really desperate point. January saw the biggest drop in footfall in five years. For many small businesses, renting a unit on the British high street is just not a possibility. The death of the high street has many implications beyond shops closing down. There are social and economic impacts, which are far more wide-ranging. Maybe the Minister will address that point as well.

We then have the so-called Brexit dividend of £26.6 billion, but again this is linked to our productivity. My noble friend Lord Gadhia talked about the challenge we face. Yes, there is good news about graduates at PhD level being allowed to come in, but was mention made in the Statement about increasing funding for universities? What about increasing funding for R&D and innovation? When it comes to productivity, let us not forget this. I chair the Manufacturing Commission and I am the proud manufacturer of Cobra Beer, which we produce here and in Europe. We are proud of manufacturing in this country because it is the best of the best. The top 10% of companies in this country are the best in the world for productivity, but it is the long tail of the 90% that is the problem that needs to be dealt with.

On higher education, we are 1% of the world’s population but we produce 16% of the leading research papers in the world. Just imagine what that could be if, instead of 1.7% being spent on R&D, our investment was the same as that of Germany and America at 2.8%, let alone Israel at 4%? The Chancellor said, “We will use the Brexit dividend to improve public services, increase spending on infrastructure, cut taxes and reduce debt”. Paul Johnson of the Institute for Fiscal Studies, however, has said that it would be,

“irresponsible to open the Treasury’s wallet before the Brexit debate had reached a conclusion”.

We return to uncertainty. We have the lowest forecast level of growth rates, at less than 2% for five years running. We are growing, but we are growing under a cloud of uncertainty. Do the Government have the money to deal with a no-deal Brexit? Is the Minister confident that they do? The Chancellor also said in a message to Brexiteers:

“The idea that there is some readily available fix to avoid the consequences of a no-deal Brexit is, I am afraid, just wrong”.

Does the Minister agree with that?

One item I should like to focus on is policing. The Chancellor says that he will immediately make available £100 million over the next year to pay for extra policing. A neighbour where I live in west London told me that the house opposite her had been burgled, the house next door had been burgled and she thought it would be her turn to be burgled next. She said, “I am so scared when I get out of a taxi or an Uber at night that I ask the driver to wait until I have gone through my door”. Last summer my daughter said that she was scared to walk home from the Tube station because of the stories of things that had happened to her friends. Just today I read that last night there was a mugging at knifepoint at our local Tube station. Numbers in the Met Police in London have fallen below 30,000 for the first time in 15 years. Our very capable commissioner, Cressida Dick, has said that a lack of resources is a factor in homicide rates reaching a 10-year high. There are more and more accusations that the Government are losing their fight against crime. What is an investment of £100 million when billions are required? Figures show that offences have risen by 14% while the number of police officers has plummeted to record lows. The surge in knife crime is front page news all the time. There have also been increases in all other crimes, including burglary, sexual offences, car theft and robberies, yet the number of police officers has fallen to 121,929, the lowest figure since comparable records began 22 years ago.

There has also been a fall in neighbourhood policing. I do not see any neighbourhood police officers in the area where I live, although I used to see them all the time. Overall, taking inflation into account, funding has fallen by 18% compared to an increase in funding of 31% between 2001 and 2010. Who was Home Secretary after 2010 for six years when all these cuts took place? Direct government funding has fallen by 25% over the same period. The number of homicides has increased hugely, with 40,000 offences involving a knife—an increase of 16%. These figures are corroborated by National Health Service hospital admission rates resulting from these crimes. With 1.1 million violent crimes recorded, an increase of 21%, the numbers continue to rise. Recorded crime has gone up by 9% in England and Wales; these are record figures throughout. Some 50% of the public have not seen a police officer in a year. This is really scary. As I say, we should be investing billions in policing, not £100 million.

In the withdrawal agreement, which runs to 585 pages, three things are agreed: the bill of £39 billion, which is a pittance compared with a £2 trillion economy; the rights of EU citizens here and UK citizens in Europe, which should simply happen—we should never use people as bargaining chips; and the backstop. Nothing has actually been agreed.

What about the political declaration? In this implementation period of less than two years we have to agree on: data protection, Union progress, tariffs, regulation, customs, services, investment, financial services, digital, capital, intellectual property, public procurement, mobility, transport, energy, fishing, global co-operation, security, law enforcement, judicial co-operation, data exchange—we use one European database 500 million times a year—operational co-operation, foreign policy, defence, cybersecurity, intelligence, space, development co-operation, health security and dispute settlement. It has taken two years to do three things.

I see that I am being asked to finish, but I am well within my time. Noble Lords may not like what I am saying, but it is the reality.

The PM’s deal now has an implementation period of less than two years. No deal is still a possibility, and that could be extended to infinity and beyond. Internal and external investment will continue to be held back. David Lidington said just six days ago:

“In the absence of a deal, seeking such a short … extension would be downright reckless … making a no-deal scenario far more, rather than less, likely”.—[Official Report, Commons, 14/3/19; col. 566.]

Now the Prime Minister is seeking a three-month extension, crossing the European Union elections, until the end of June. What is going on?

According to the latest survey from YouGov, 52% of people are in favour of an extension. The public want it. The Government are not on the public’s side. It is now said that, in a choice between May’s deal and remaining in the European Union, 62% would favour the latter. The Minister told me earlier that 7.5% of the economy would be better off under the Prime Minister’s deal compared to no deal. Compared to the PM’s deal, how much better would the economy be with an EEA-Norway option? How much better would the economy be if we remained in the European Union? It is the best option by far.

Three-quarters of newly eligible voters would back remain in a second referendum: with 2 million more youngsters and 1.5 million who have sadly passed away, 3.5 million more than last time would vote to remain. There would be an outright vote to remain if we were given a chance. That is at the crux of what we are talking about.

Photo of Lord Suri Lord Suri Conservative 8:11 pm, 20th March 2019

My Lords, this is a country in good economic health. The Chancellor’s Spring Statement confirmed that the difficult decisions made in 2010 and continued to the present day were correct, necessary and proportionate. We now stand in a much improved financial position. There have been nine consecutive years of growth, the OBR has forecast further growth every year for the next five years and the employment miracle endures.

Since 2010 more than 3.5 million people have found work, and the unemployment rate of 4% stands lower than it has at any time since the mid-1970s, when I imagine most of us entered politics. While debt did peak in 2016-17, it has now started to fall at a sustained rate, and this gives me great cause for optimism.

A country which recklessly grows its debt pile is simply storing up problems. If the Opposition were to gain power and implement many of the ideas in their manifesto, we would be burdening the younger generation with more and more debts that they would have to pay off through reduced spending or increased taxation. I am pleased that the Chancellor has recognised this reality. It seems that, after a sustained period of austerity, we are in a satisfactory position to increase spending on a range of vital services, which I am sure will be warmly received across the House.

However, this will need to be underpinned by an agreement on our withdrawal from the European Union. I have been clear since the referendum that we in this and the other place must give effect to the will of the people. The withdrawal agreement that the Prime Minister has negotiated strikes a good balance between maintaining close economic and security ties with the EU and respecting the wishes of the people to leave the bloc.

There will doubtless be an extension. Some will not mind, but they must think hard about the needs of business. We have suffered through almost three years of painful uncertainty, struggling to know what the future relationship will be for our largest export market. A further long extension would be a slap in the face for those who voted to leave and those who need certainty. It would undermine business investment, encourage lower consumption and diminish tax revenues.

In that scenario, the easing of austerity that I mentioned before will simply not be possible. Additional funds will need to be diverted for more wasteful no-deal planning. I therefore urge my colleagues in the other place to pass the deal when it returns, and let us get on with delivering a solidly pro-growth, pro-jobs agenda.

I should add that I am pleased to see a fresh rise in housebuilding. Last year, England delivered more than 222,000 new homes, the highest total in all but one of the last 31 years. This is a vote of confidence in one of our most under-supplied markets and a strong step towards the 300,000 target.

I am pleased that a significant portion of this round of the housing infrastructure fund is going to large sites such as Old Oak Common and Didcot garden town. However, the Letwin review specifically mentioned the difficulties of upgrading infrastructure on large sites. Therefore, the updating of planning guidance will need to be done in time for it to be useful for this round of infrastructure upgrades, and I hope that the Government are cognisant of that reality.

Photo of The Earl of Listowel The Earl of Listowel Crossbench 8:16 pm, 20th March 2019

My Lords, it is a pleasure to hear the noble Lord, Lord Suri, remind us of the success of the Government in achieving the highest rates of employment since records began. We owe a great debt to the Government and particularly to the noble Lord, Lord Freud, who was so passionate over such a long period of time about helping people into work. He always made the case that among the many benefits of work is the benefit to the mental health of those in work. It is also encouraging to hear that the Government are proposing a low wage commission to look at low pay. Obviously, it is not just about work, the work needs to be reasonably paid. I think that 60% of children in poverty have a parent who is in work. So we need to do better, but I think that the Government are doing a very good job in that regard, and that is important.

I thank the Minister for opening the debate in the way that he did. I am not sure that I can match his speed of approach or his lyricism, but I will do my best. One aspect that I am going to emphasise is the point made so ably by the noble Lord, Lord Shipley, and by the noble Baroness, Lady Thornhill, about the need to fund local authorities better, particularly in terms of their services to children and families.

Productivity is an issue that recurs in debates about the economy. I think the noble Lords, Lord Gadhia, and Lord Macpherson of Earl’s Court, referred to it. Productivity might be very much about technology, skills and education. They are important, but so are emotional well-being, mental health and a good upbringing that provides secure relationships and security to children. We have become more aware that early experiences in life can colour the rest of one’s existence. If one wants to be a mentally healthy and resilient adult, one needs to have a secure upbringing. If you want employees who are good at communicating with other people, who turn up regularly, who are not unwell, investing in services for vulnerable children and families is very important.

My experience with looked-after children highlights this. Billions have been spent on improving the educational outcomes of looked-after children, and still only 7% go to university. We must recognise that this is not just about extra spending on tuition or designated teachers but about addressing the mental health needs of these young people. Their needs are often exceptional because of the trauma they experience coming into care. In beginning to address that, one must do both things. Above all, for many years I have heard from looked-after children and children in care that a consistent, reliable relationship with a caring, interested adult is the most important thing for their recovery and their ability to move forward. I have heard that again and again, and practitioners say it as well. A sustained, benign, reliable and consistent relationship will, over time, help children to move on.

What is true for this extreme group—extreme because of their extreme experiences—can be applied to the wider whole. All our children, particularly those who are vulnerable for one reason or another, benefit greatly from consistent and reliable relationships. We should strive for those all the time. Achieving productivity and other positive outcomes provides our children with secure early experiences. Part of that includes investing in local authorities, and children and family services. Your Lordships may be interested in Sir John Timpson, who wrote a handbook on attachment and who, together with his wife, fostered more than 90 children. He made the same point about the importance of reliable, long-term relationships.

I welcome what the Statement says about knife crime and investment, particularly in the police. That seems very important. I also welcome some investment not mentioned in the Statement: £60 million for maintained nurseries, which offer some of the best-quality early years provision in the country. If we want children to have a secure start in life, we should support that. Two or three years ago, about half of those nurseries were facing closure. However, thanks to the hard work of Lucy Powell, a Labour MP and chair of the All-Party Parliamentary Group on maintained nurseries, and the nursery managers who attended her regular meetings, the Children and Families Minister, Nadhim Zahawi, has come forward with £60 million to prevent current closures. He has also committed himself to working hard to make this case in the summer funding review. I hope that the Minister will take this back: these nurseries need continued funding over time if they are not to close. They offer the highest-quality provision. Report from your Lordships’ House have demonstrated that the most vulnerable benefit most from that high-quality provision. It is money very well spent.

Yesterday, the Secretary of State for Housing, Communities and Local Government spoke to the Centre for Social Justice about the importance of a troubled families initiative and produced an evaluation showing how much difference it made, particularly in terms of keeping children from entering care when those families support it. I warmly welcome that work and funding stream from government. I hope that the Government will look at continuing to fund it past 2020. Again, that is something for the review to consider.

Housing has been mentioned. When I think about housing, I feel so distressed. Over the course of a year, I followed a mother through her experience in moving from a domestic violence refuge into temporary accommodation. She sent me photographs from time to time. Her accommodation was very overcrowded. She was there with her daughter and granddaughter. She was so anxious about the future and had no idea where she would be placed—perhaps out of London, where she knew nobody. Today, she is in a well-balanced state, but it is an appalling failure on all our parts that 130,000 children in this country are living in bed and breakfast or hostel accommodation. Other nations, such as Germany and France, struggle but they do a far better job than we do. If we want children to have a good start in life, they must have proper, reliable shelter. I welcome the Government’s progress in this area; they have made several important advancements. I hope that in his response the Minister might confirm the Government’s commitment to social housing for low-income families, which I know they feel is very important indeed.

In my work as treasurer of the All-Party Parliamentary Group for Children, chaired by Timothy Loughton MP, a former Children’s Minister, we have had two reports over a period of three years that have looked at children’s services in local authorities. We found that the early intervention has been cut way back, as we have heard from various speakers. It is a terrible thing that vulnerable families are not getting the support they need. We are intervening far too late. We are perhaps seeing the effects of this in knife crime; in other areas, more children are being taken into care. So again, I make the case very strongly for investing in children and family services.

I recognise that it is getting late, but I will give one example. Successive reports have identified how important the work of health visitors is. Norman Lamb, the chair of the Science and Technology Committee in the other place, reported last year on the evaluation of early intervention services and highlighted the importance of health visitors. Many people recognise the importance of health visitors. Again, though, their numbers are in decline. I pay tribute to the Government for rebuilding those numbers, over several years. The Government placed health visitors in the Department of Health and Social Care and they were well funded for a period of time. For the last three years they have been placed in local government, which simply has not been able to afford to fund them. I spoke to the founder of the Institute of Health Visiting yesterday and she reported the serious decline in this very important resource.

If any of your Lordships wish to find out about the housing conditions of vulnerable families and know more about their experiences, I cannot recommend too highly going out to visit with a health visitor. I would certainly be happy to organise that with the Institute of Health Visiting. I have made such visits on several occasions: the last woman that I remember visiting was isolated and did not know a soul in this country. The health visitor was able to give her comfort and highlight that there was a children’s centre just down the road from her. I hoped very much that she would take that advice on board.

I am sure that my time is up. I will say one last thing on sixth-form colleges. Skills are so important to our economy and yet, in real terms, their funding is just about as much as it was 30 years ago. We must think about investing more in sixth-form colleges, through the review. I look forward to the Minister’s response.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 8:27 pm, 20th March 2019

My Lords, I realise that I am being upstaged by the Prime Minister, who I understand is about to make a statement in front of 10 Downing Street. We have no idea what the content of that is. The noble Lord, Lord Hain, used the word “surreal”: that probably describes the situation. It is surreal. We have absolutely no idea when Brexit, how Brexit, or if Brexit; and all of that makes this discussion we are having on the economy essentially one of astrology, which I think was the word that my noble friend Lord Scriven used.

It is also surreal in a second way. I listened to the Chancellor’s Spring Statement and thought, “What economy is he looking at?”, when he said that the fundamentals are strong. I cannot imagine a single Member on the Conservative Benches, if they were listening to a Labour Government describing GDP growth of 1.2%, rising in the medium term to 1.5%, agreeing that that was satisfactory or acceptable. Those are appalling numbers, particularly at this stage in an economic cycle. We really have to take on board the message that that gives us about the problems and the scope that we have to deal with. I hope that at some point the Chancellor drops the PR and takes on board the very serious implications of that kind of insipid growth.

The noble Lords, Lord Bilimoria and Lord Davies, made the point about the underlying problem of chronic low productivity—running at a forecast rate of 1.2%. I say to the noble Lord, Lord Leigh, who thinks that the numbers might not be well calculated, that our running rate prior to the economic crisis was in excess of 2% a year. You can give any explanation you like; it does not cover a rise from 1.1% to 2%. This is a fundamental problem that we have to tackle. I very much agree with the analysis of the noble Lord, Lord Bilimoria: it is about not our top companies—that is where the Chancellor always focuses his efforts to increase productivity—but that long tail of small companies. We will have to take that on; it will need new ideas and investment. Quite frankly, it is a huge challenge and I wish it were being addressed more directly.

Export growth is weak, despite the cheap pound. Many noble Lords talked about the drop in business investment, which has fallen for four consecutive quarters. I pick up the point that the noble Lord, Lord Davies, made: many manufacturing jobs have moved. The noble Lord, Lord Northbrook, referred to the report from what I still call Ernst & Young, but which now calls itself EY, which estimates that the financial services industry has committed—this is no longer a “might” or a “perhaps”; it has actually committed—to moving in excess of $1 trillion of assets out of the UK to Europe. The noble Lord thought the tax impact of that was £600 million. I think that was the impact of the 7,000 jobs the financial services industry has now committed to move, and that is assuming fairly low rates of pay. It does not tackle the loss from transactions now being registered over in continental Europe, and therefore all the corporate tax that would be generated by that is gone as well; we have no estimate of those numbers. That is just one industry.

The noble Lord, Lord Davies, picked up an issue that is frequently missed, certainly by the Treasury: the decision by Bank of America to move its European headquarters to Dublin and its trading headquarters to Paris is absolutely fundamental. BofA does not move without the say-so of the US Treasury, and that message has shot right through the entire financial services industry. It is extraordinarily significant, and we need to get serious about it.

Consumer spending fell by 1.8% in February; that extends the downward trend to five months. We know we need infrastructure, but the collapse of Carillion and Interserve undermines most of the immediate-term plans to try to expand major capital projects, so we have a series of problems there.

I fully accept that the Chancellor had two pieces of good news. One is that people are paying their taxes more promptly. However, the noble Lord, Lord Macpherson, reminded us that that serendipity often turns with no warning, so we should enjoy it while we may. I am glad that taxes are coming in but we had better recognise that that could switch. The other was good numbers on employment and wages growth. I want to give a warning. The noble Lord, Lord Leigh—we had a conversation earlier in the Prince’s Chamber—picked up a point that I would make: this is a lagging indicator, not a leading indicator. I hope the Treasury knows the difference. It also matters in other senses. One is that if you are looking at a 1.2% growth rate and you have virtually full employment, this tells you that you have a problem with a shortage of working-age population. This is an issue now being picked up by the Resolution Foundation. We have a really serious demographic problem: we are short of working-age population. Frankly, all the anti-immigration language we hear can only make that problem acutely worse. It is a fundamental issue that the Chancellor will have to address.

Among others, my colleagues on these Benches—my noble friends Lord Shipley, Lady Thornhill and Lord Scriven—underscored the problem we face in public sector services. We have now cut too long and too deep, and we can see that it has gone into the bone by all the issues raised across the Floor today. I heard my colleagues talk about the crisis that local government faces—shortfalls in revenue amounting to something like £8 billion by 2024; the difficulties in delivering social care, not just for adults but now increasingly for children; policing; and knife crime. The noble Earl, Lord Listowel, talked eloquently about the problem of children in care. It almost does not matter which area we look at today: we still see a serious crisis in the public sector’s ability to deliver a quality of service that we find acceptable.

If I follow that logic through, I end up talking about taxes. I agree very much with the noble Lord, Lord Wakeham, that we have to make sure that the large digital companies pay their fair share. That will take creativity, aggression and determination. We are not quite sure how we are going to do it, but we have to put that near the top of the agenda.

I sit with my colleagues and say that this is the time to look at those cuts in capital gains tax. I do not think they have yielded any increase in investment, and they should therefore be reversed. There are also the cuts in corporation tax. We have not seen businesses take that tax saving and put it into the economy. If anything, it has gone into share buybacks. It is time that those cuts, too, were reversed. We also need to revise completely the way in which business rates are defined. I am in the camp that talks about looking at land value taxes—although, as the noble Earl, Lord Lytton, reminded us, that requires a transition process, to make sure that people are not injured in the passage from one system to another.

As for social care, we need a broad solution. Like many others, I think that we need to think about hypothecated taxes for the NHS and social care if we are going to deal with the problems in those areas. Yet in the Statement all those opportunities were neglected, and not taken.

My last point is about the loan charge—a subject on which I disagree with the noble Lord, Lord Wakeham. I am on the APPG on the loan charge, and I have now heard the evidence of so many individuals. They are not celebrities or high earners but, for example, people who used to be local government employees, often in social care, but who have now been outsourced. They were told that in order to carry on the same work, they would have to go to the Government’s identified recruitment agency. They had no idea that the papers they signed were putting them into an arrangement involving loan charge. All they knew was that their take-home pay before, when they were employed, and afterwards, when they were outsourced, looked pretty much identical.

Government departments are deeply embedded in this, because despite all the statements by HMRC, numerous people are now coming forward who were taken on by HMRC on an agency basis: that was the only way in which they could be employed to do that work. Those very bodies, which I assume had been pre-qualified by HMRC, and which had written the specifications for what they had to do in order to recruit, were the ones that introduced people to the schemes that have now landed them in loan charge problems. There are so many serious problems there that I hope there will be real pressure to make the response on 30 March a proper review, not just a limited report. I hope the Minister will take that message back.

Photo of Lord Davies of Oldham Lord Davies of Oldham Shadow Spokesperson (Treasury) 8:37 pm, 20th March 2019

My Lords, this debate is occasioned by an event called the Spring Statement, which has scarcely been a fiscal event. There were no significant changes to the tax system, and only a small number of spending measures, forming not an economic strategy but almost an emergency response to the failure in government services long experienced by the British people, who are now complaining stridently about it.

Of course, as my noble friend Lord Hain pointed out, the Chancellor’s reasoning is that the Brexit shadow is still as dark as ever over the British economy. That makes economic forecasting exceptionally difficult—a position readily acknowledged by the OBR, which based its forecasts on an orderly Brexit, while warning that a disorderly one would have a severe short-term impact. We are nine days away from decisions on leaving Europe, and we have not heard any announcement this evening about what the Government’s strategy is. We are as much in the dark over Brexit as we have been—and the whole country has been—for months and months. Whether it will be a disorderly Brexit we do not know, but we certainly do not have an indication that the Government are in control of events and their policies.

The tentative forecast put forward by the OBR does not give the Government a great deal of credit. As noble Lords across the House have recognised, growth forecast has been reduced from 1.6% to 1.2% following nearly a decade when growth has been low. That is as good a measure as one can have of the Government’s failings. The OBR continues to stress that weak productivity growth is at the heart of the problem, and noble Lords in this debate have contributed to those considerations.

If, as we have had over the past decade, we have the lowest wage growth for more than a century, when investment has been low compared with other advanced countries—as my noble friend Lord Davies of Stamford emphasised in his speech—and the Government fail to hit their expressed targets, it is not surprising that there is a lack of confidence and an acute problem in the British economy. After all, austerity is an ideological objective rather than an economic necessity, and we have been governed by that for a decade. It has dominated government policy over this period, the consequences being low investment and low growth rates.

The Chancellor makes a tentative prediction that wage growth will at last be above inflation, but we have had a decade in which the growth in wages has been the lowest for more than a century. Is it a surprise therefore that demand in the economy at present is in an unhealthy position? When I say unhealthy, I mean that what demand we have seems to be correlated by the significant growth in household debt. We have been in this situation before and it is not one which encourages stability or any reason for congratulating the Government.

On the Government’s basic competence, the chief financial objective in 2010 of the Conservative Chancellor at that time was to balance the books by 2015. We all remember the long-term economic plan. However, despite all the hardships caused by this policy of austerity, this Chancellor does not expect the objective to be realised until 2025. The decade of austerity has brought havoc in public provision, with the stress so great in some public services that the Chancellor has been obliged at this stage to apply a minor sticking plaster to acute wounds. We see the police budget increased by £100 million—a tiny fraction of the overall police budget—but it is meant to indicate to a disbelieving population that it will address knife crime satisfactorily. The Government continue to deny that there is any significance between the reduction in police numbers and increased crime rates, especially knife crime. They say that it has nothing to do with fewer policemen in action.

The Chancellor managed to conjure together token additional grants for schools to address the school crisis which is causing such discontent among parents and teachers alike. The Chancellor’s phrase was that he was going to apply small remedies to the problem. We all know that the educational system is in crisis. It used to be enough when parents expressed their concern. Then we got accustomed to older students, sixth-formers and so on expressing anxiety. We certainly got very used to the teachers expressing their anxiety about school funding. Now the children are making the argument to the Government. Is that an indication that the policy of austerity has gone too far?

It has not been mentioned much in the House today, so I am grateful to the noble Earl, Lord Listowel, for emphasising the problems where children are concerned. In social policy we have seen the continued erosion in the value of tax credits and social benefits, which is to continue for the foreseeable future. The problems with universal credit remain a major feature in the lives of so many of our less well-off citizens. Furthermore, there has been no mention this evening about the very desperate people—generally young people—who sleep rough.

The noble Baroness, Lady Thornhill, emphasised her anxieties about the services provided by local authorities, and said that the system of financing local government was broken. Did anyone—there are plenty of people from that party in this House—anticipate that it would be Conservative county councils, namely Northamptonshire and Wiltshire, that would complain about their inability to provide basic statutory services? That impacts greatly on those most dependent on such services—often those in our society with fewer resources.

Finally, we have had the signal that the Government are making such a success of increasing employment. What the Government have created is large numbers of workers on low pay and long hours and in precarious employment. That is why productivity is not reflecting the buoyancy of employment. The figures look good from the perspective of the Government and elite staff but, for many, employment is based on severe job insecurity. Nearly 3 million people are working for less than 15 hours per week, and one in nine have insecure jobs.

Our society is evolving the need for a more skilled population. With regard to enhanced skills, whose importance we all recognise, there have been government failures in both education and training. Policies are clear for all to see. The cutbacks in schools and further education have produced protests. Colleges, which traditionally provide a crucial opportunity for young people to gain specific employment skills, have had their budgets cut by almost a quarter since 2010. That is how far-sighted the Government are about our manpower needs.

A future Labour Government will pursue an entirely different strategy from the failed economic policies of this Government. We will end austerity and make the wealthy pay their fair share to strengthen the public services on which we all rely. We will establish a national investment bank and a network of regional development banks to support small and medium-sized enterprises and upgrade Britain’s infrastructure. We will introduce a financial transaction tax, to curb speculative behaviour that threatens economic stability. We will establish a strategic investment board to guide private investment towards productivity-enhancing and green productive lending. We will reform company law to provide worker representatives on boards, and mandate a maximum pay ratio of 20:1 in public companies and companies bidding for public contracts.

We will seek to increase investment in our key industries and will ensure a close relationship between the financial sector and the world of manufacturing and productivity. We will improve our public services, particularly education, which is so crucial to skills enhancement, and guarantee that the health service obtains the resources required. We will create a fairer society where those on lower incomes and welfare share in the increased prosperity of the nation. This Government have a disreputable past based on austerity, a totally incompetent present illustrated by the Brexit fiasco and no vision of a better future for our people, which this inadequate Spring Statement clearly demonstrates.

Photo of Lord Bates Lord Bates The Minister of State, Department for International Development 8:50 pm, 20th March 2019

My Lords, I thank all noble Lords who have participated in this debate, which will probably go down in history. The purpose of the Spring Statement was to focus attention on the autumn as the single fiscal event and to be a light-touch, mid-year Statement simply to update the OBR forecast. This Spring Statement might go down in history for the reason alluded to by the noble Lord, Lord Bilimoria: there was some other business on the day of the Spring Statement. I think we have now spent twice as long scrutinising the Spring Statement as the other place managed. It all heads down to that.

I want to be associated with some of the thanks expressed by noble Lords. The noble Lord, Lord Shipley, thanked the business managers who intervened and drew us out of the Moses Room into what I refer to as “Centre Court” to debate in the main Chamber. That has added to the number of contributions.

Photo of Lord Hain Lord Hain Labour

We should thank my noble friend Lord Foulkes.

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

Yes, we should thank the noble Lord, Lord Foulkes, in his absence, for making that plea, which the business managers were able to accommodate. I also wish to associate myself with my noble friend Lord Wakeham’s generous tribute to my good friend, colleague and mentor on the Front Bench, my noble friend Lord Young. I had not realised they were celebrating 45 years. I associate myself with my noble friend Lord Wakeham’s generous remarks to my noble friend about his service in both Houses.

I shall try to provide some taxonomy of the contributions, which ranged very widely but more or less settled down in the following areas. The first was, unsurprisingly, Brexit. I began repeating the Spring Statement by referring to what the Chancellor said about Brexit: it is dominating thinking not only in this place but in business. The noble Lords, Lord Tunnicliffe, Lord Davies of Stamford, Lord Davies of Oldham and Lord Bilimoria, the noble Viscount, Lord Chandos, my noble friends Lord Gadhia and Lord Northbrook, and the noble Baroness, Lady Kramer, made points about that headwind. The only area of difference between us is that we say that the opposition parties hold it within their gift to dispel that cloud of uncertainty by backing the deal before us, but matters are unfolding. If there is any news to report I hope that a Box note will make its way along to me.

There was—I shall not overegg it—support for and recognition of the progress which has been made, notwithstanding the uncertainty. We enjoyed the noble Lord, Lord Macpherson, describing Treasury civil servants having to deal with disappointment, and I am sure that was enjoyed within my earshot. The reality is that this Statement was able to unfold some positive news about levels of debt, employment and the general fiscal situation. The noble Lords, Lord Macpherson, Lord Wakeham and Lord Northbrook, referred to the positivity. Even the right reverend Prelate the Bishop of Chester—

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

I am sorry—delete “even” from the record. The right reverend Prelate the Bishop of Chester, whose point about housing I will come back to in a minute, referred to it. The noble Lords, Lord Leigh, Lord Gadhia, Lord Bilimoria and Lord Suri, recognised that progress had been made despite the headwinds. It is absolutely right that we recognise that that progress has been made because British business and enterprise up and down the country—and around the world—is making a Herculean effort, creating jobs, wealth and buoyant tax revenues. These revenues are coming into the Exchequer, giving us the opportunity to look at them.

Across most of the contributions, there was a focus on public services and public spending. As I mentioned, the spending review will be in the summer and conclude in time for the Budget for the autumn, which will rely on it. Contributions effectively broke down into four areas. The noble Lords, Lord Macpherson and Lord Hain, and the noble Earl, Lord Listowel, referred to social care. The noble Lords, Lord Tunnicliffe and Lord Bilimoria, referred to policing, and the noble Lord, Lord Scriven, alluded to the tragic knife crime situation in Sheffield. The right reverend Prelate the Bishop of Chester, the noble Lord, Lord Wakeham, and the noble Baroness, Lady Thornhill, referred to housing. The noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, addressed local government finance.

Two other areas, which were grouped together, were the challenges of the changing nature of tax revenue and collection. The attraction of statutory land tax, which the noble Lord, Lord Wakeham, referred to, is that it is very easy to collect. The changing nature of tax is making collecting tax more challenging. The noble Lord, Lord Wakeham, the noble Earl, Lord Lytton, my noble friend Lord Leigh and the noble Viscount, Lord Chandos, referred to that challenge and ways to address it. Coupled with that is business confidence, which the noble Lords, Lord Gadhia, Lord Suri, Lord Northbrook and Lord Davies, referred to.

I will use the bulk of my time to address the questions raised as a result of those contributions. Several noble Lords asked how the Brexit dividend might be funded. The OBR’s Spring Statement forecast that business investment is weak. The noble Baroness, Lady Kramer, referred to that, and we acknowledge that in the near term. However, as uncertainty wanes, it picks up to 2.3% in 2020 and grows stronger at this pace from 2021 onwards. GDP growth is forecast to be 1.2% in 2019 before picking up to 1.4% in 2020 and 1.6% from 2021 onwards.

The noble Lords, Lord Tunnicliffe and Lord Hain, as well as several others, referred to infrastructure. We have increased the National Productivity Investment Fund to £37 billion to support key infrastructure up and down the country. Public investment is at its highest sustained level in 40 years.

The noble Lord, Lord Bilimoria, and the noble Earl, Lord Lytton, referred to Making Tax Digital—indeed, the noble Lord, Lord Wakeham, focused on that and the noble Lord, Lord Hain, touched on it. Research now shows the high level of awareness among business and tax professionals: eight out of 10 businesses were aware at the end of last year and over 80% of those had already started preparing. Of VAT returns, 98% are already done online.

The disguised remuneration loan charge was raised quite extensively, by my noble friend Lord Northbrook; by the noble Lord, Lord Wakeham, on behalf of the noble Lord, Lord Forsyth; and by the noble Baroness, Lady Kramer, with her work on the all-party parliamentary group. Disguised remuneration schemes are and always were contrived tax avoidance. It is not normal or reasonable to be paid loans that are not repaid in practice; my noble friend Lord Wakeham was right in his sage advice on that, as in so much other advice he has given over the years. It is the individual’s responsibility to ensure the accuracy of his or her tax return. HMRC is pursuing the promoters of disguised remuneration schemes and has been investigating over 100 promoters. In the last year, HMRC has taken litigation action against 10 scheme promoters.

I turn to universal credit and welfare, which the right reverend Prelate the Bishop of Chester referred to and the noble Lord, Lord Shipley—

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

This really is an important point on the loan charge. Regarding the action that the Minister said HMRC had taken against scheme promoters, I do not believe that any of those schemes was a loan charge scheme. Those are schemes generally, but one of the complaints is that no action has been taken against the promoters of loan charge arrangements.

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

I am afraid that I do not have the answer to that. Your Lordships may recall that, after the Autumn Statement, I ended up having to write extensively on loan charges. We know that officials at the Treasury are used to dealing with disappointments and I am afraid we may have to write again on the issue to deal with that point.

On welfare, as the noble Earl, Lord Listowel mentioned, work is the best route out of poverty. I thank him for the recognition that he gave to the incredible growth in the number of people—three and a half million more—in work, and a million fewer people in workless households. These are substantial social changes happening around the country and we believe that that is the best route out of poverty. Changes to the welfare system have ensured that work pays. There is a strong safety net for people who need it, while making the system fair for taxpayers.

The noble Lords, Lord Tunnicliffe, Lord Scriven and Lord Bilimoria, all raised the issue of serious violence. Police forces are already due to receive an additional £970 million from April. Police and crime commissioners have committed to using this funding to recruit and train an extra 2,800 police officers. In addition, the Chancellor announced a package of £100 million additional funding. Of this, £80 million is new funding, which takes the total additional funding for policing this year to in excess of £1 billion.

The noble Lords, Lord Hain and Lord Bilimoria, the noble Baroness, Lady Thornhill, and the noble Earl, Lord Lytton, referred to business rates. We are providing up-front support worth over £1 billion for high streets through the new retail discount, reducing bills by one-third for up to 90% of retail property for two years, starting from 1 April 2019.

On housing, further progress has been made in implementing the Budget to achieve our ambition of 300,000 homes. I hope that the right reverend Prelate the Bishop of Chester will not called upon from his retirement home in Scotland to eat his cassock—that prospect will add extra zest to our ambition to meet the target—but £717 million from the £5.5 billion Housing Infrastructure Fund to unlock 37,000 homes is a good step in that direction; there will be £250 million for 13,000 homes at Old Oak Common in London, and there are other schemes in Cambridge.

The noble Lord, Lord Wakeham made a serious point about the tax gap. While we recognise that there is a long way to go, we have one of the lowest tax gaps on record. It has fallen from 7.3% in 2005-06 to 5.7% in 2016-17.

We heard a considerable number of contributions on the very important issue of health and social care, which featured significantly in the Autumn Budget as well as in the Spring Statement last year.

Over the last three years, we have given councils access to around £10 billion of dedicated additional funding for adult social care. This includes £240 million this year and next for adult social care so that people can leave hospital when they are ready, and £410 million next year for councils to use to improve social care for older people, people with disabilities and children. This was announced in the Autumn Budget of 2018. The offer of the noble Earl, Lord Listowel, for us to see the incredible work done by many involved in social care and health visitors is one that many will want to take up.

I was immensely grateful to my noble friend Lord Leigh, for summarising a lot of the very positive, good news around, as did my noble friends Lord Suri and Lord Northbrook. My noble friend Lord Leigh spoke particularly about the measurement of productivity, and I think he is on to a point here. We had a discussion about this after the last Autumn Budget, and that was one of the conversations that led to the commissioning of Professor Sir Charles Bean to undertake an independent review of UK economic statistics to find out, among many things, whether that point about how financial services are treated and whether their full value is considered is right. To help address challenges, the Treasury has today provided the ONS with £16 million of funding so that we can continue to have world-leading statistics that capture what is happening in the modern economy.

The noble Baroness, Lady Thornhill, talked about the funding of local government. I recognise the experience that she draws on when she does that. The Budget of 2018 and the 2019-20 local government finance settlement delivered a real-terms increase in core spending power for local authorities in 2019-20. We expect authorities to receive final funding allocations in the normal timetable. Councils in England can access more than £200 billion for local services from 2015 to 2020. The 2019 spending review will be launched in the summer and conclude in the autumn and will no doubt receive many representations.

I am sorry about not addressing the point made by the noble Viscount, Lord Chandos, about student loans. I remember answering an Urgent Question at the time of the last debate and I thank him for that. This will be taken up in the Augar review. In the Spring Statement, the Chancellor of the Exchequer announced that the post-18 education and funding review will conclude at the spending review, so that will be in the summer. This is a delay from the original timetable, in part due to the decision by the ONS to change how student loans are accounted for in public expenditure. That will be covered in the review.

The noble Lord, Lord Shipley, mentioned the importance of the northern powerhouse. That is crucially important: we have seen spending of more than £13 billion—the largest in history—in the northern powerhouse. We hail from the same area of Tyne and Wear and we have all rejoiced at the increase in infrastructure there, including the Tyne and Wear metro upgrade, which will make a very big difference.

The noble Lord, Lord Bilimoria, asked whether we would have the necessary money in the event of no deal. The Chancellor has been clear that leaving without a deal would mean significant disruption in the short and medium term, and a smaller economy in the long term. However, he also laid out ways in which it is possible for the Government to prepare us, including holding a £26.6 billion headroom against our borrowing target.

I again thank noble Lords for their contributions. Several noble Lords referred to investment into the UK. I want to put some points on the record, which noble Lords might have touched on. We need to remember that Forbes magazine, which knows a thing or two about business, surveyed 153 economies to find out which was the best country in the world for business investment. It arrived at the UK in 2018—and again in 2019; it is the number one place for investment. That is backed up not just in a survey but with the significant increase in overseas investment between 2016 and 2017—the last numbers available were announced just last year.

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

I am on a roll. Can I go a little further with the good news before we get reminded that every silver lining has a cloud wrapped around it? There was a £149 billion, or 12.6%, increase in the stock of overseas investment in the UK. It is now the third-largest in the world and the largest in Europe. London is the top city for property investment, not way past when, but in 2018. It was £16.2 billion compared with £12 billion in Paris and £8.4 billion in Hong Kong. Exports are at near-record levels and have risen more than 50% since 2010. They rose by £17 billion last year.

We have many challenges in this country and face many headwinds, but one of the things we can all have confidence in is that the world has confidence in this country. We should have more confidence in ourselves. I commend the Statement to the House.

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

I do not want to entirely ruin what the Minister is saying. I know that the noble Lord, Lord Leigh, knows exactly what I will say in this particular instance. The Minister is quite right that a lot of the investment in the UK is property development. It is overseas moguls buying very expensive properties in London and elsewhere. If that is removed from the numbers, I am afraid that the picture is exceedingly different.

Motion agreed.

House adjourned at 9.11 pm.