House of Lords
UN Convention on the Rights of the Child
(12 years, 9 months ago)
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Baroness Massey of Darwen
To ask Her Majesty’s Government when they will implement the commitment made in December 2010 that new legislation and policy will be assessed against the Convention on the Rights of the Child.
The Parliamentary Under-Secretary of State for Schools (Lord Hill of Oareford)
My Lords, the Government take their obligations under the UN Convention on the Rights of the Child very seriously and are implementing the commitment made in December 2010. The Government have used the home affairs clearance process to consider the implications of their proposals for children’s rights. The Minister for Children has also written recently to all government departments to reinforce this commitment, and departments are being given further guidance and support on the UNCRC in preparation for the next legislative Session.
Baroness Massey of Darwen
I thank the Minister for that response. However, does he agree that, despite that commitment, since 2010 only one Bill out of 11 has been scrutinised and child-proofed? Could he say what the barriers to such scrutiny and child-proofing are, particularly in light of the progress made in Wales and Scotland?
Lord Hill of Oareford
I agree with the noble Baroness that we need to make sure that the commitment that my honourable friend made in December 2010 is fulfilled. As we prepare for the next legislative Session, part of the way in which we do that is through some of the processes that I outlined. Specific guidance is being prepared by the Cabinet Office, and will go to all departments, on making sure that they take specific account of the UNCRC requirement when considering legislation. There is also a very snappy guide called the Guide to Making Legislation. Therefore, I hope that we will be able to move in the direction in which the noble Baroness wants us to move.
Baroness Walmsley
Does the Minister agree that the convention gives children the right to protection from violence in all places of learning, both secular and religious? What is his department doing to ensure that?
Lord Hill of Oareford
The Government are working to ensure that children can be educated in an orderly way in all schools. As for making sure that they are safe from violence in those settings, the noble Baroness will know that we are keen to do that in a number of ways. We are taking new measures on behaviour, and guidance on them is going to schools. All schools will want to make sure that they deliver on that commitment.
Lord Elystan-Morgan
My Lords, on the Government’s intentions in relation to adoption and accelerating adoption, will the Minister confirm that, however laudable that objective might be, adoption should always be confined to cases where it is in the best interests of the child, taking into account the child’s anticipated life, and should never be regarded as a soft option for a local authority, which might otherwise be saddled with a care order for very many years?
Lord Hill of Oareford
I am sure all noble Lords would agree that we want to make sure that adoption processes are delivered in the best interests of the child. As the noble Lord says, the Government are keen to try to accelerate the process because we know that the average length of time it takes for a child to be placed in adoption is more than two and a half years. If it is the right thing for a child, we are very keen that that process should happen as quickly as possible in a sensible way, and to try to address the great disparity in practice between different local authority areas.
Baroness McIntosh of Hudnall
My Lords, would the Minister be so kind as to return to the question asked by the noble Baroness, Lady Massey? She specifically asked what the barriers were to the proper scrutiny of Bills that have already been passed into law. I am not sure that the Minister gave us an answer to that question.
Lord Hill of Oareford
Forgive me if I did not deal with that. I do not know that there are barriers in the sense in which the question was put. We need to make sure that post-legislative scrutiny takes these factors into account; and that, while legislation is being drawn up within departments, the requirement to take into account the UNCRC obligations is taken properly into account, and that Ministers and departments are aware of that. Another factor that will help is the new powers which we hope will be given to the Children’s Commissioner, if we can get a legislative slot to do so, which will make the Children’s Commissioner more independent of my department and accountable to Parliament rather than to the department. That will also have a role in shining a spotlight on this.
Baroness Knight of Collingtree
My Lords, has my noble friend noted the number of cases being reported of children being taken from their own parents on a very extraordinary basis of reasoning? Bearing in mind that it is always best if children can have a home with their parents, does he accept that this is a serious matter that worries many of us?
Lord Hill of Oareford
I am aware of the issue and of my noble friend’s concerns about it. Clearly if one can be certain that the parental home is the right place for a child to be, that is obviously where one would want them to be: in a loving family. I know that my honourable friend Mr Loughton, who is responsible for adoption, takes those concerns seriously.
Lord Ramsbotham
My Lords, can the Minister confirm whether the instructions from the Cabinet Office will also include impact assessments in the post-legislative study of the impact of Bills such as the Legal Aid, Sentencing and Punishment of Offenders Bill, which has been going through this House?
Lord Hill of Oareford
I will need to check to find out precisely what areas that guidance covers. When I have an answer, I will reply to the noble Lord and tell him what I am able to.
Baroness Jones of Whitchurch
My Lords, may I follow up the point made by my noble friend Lady McIntosh with a particular example? The Children’s Commissioner recently concluded that the Welfare Reform Bill contravened the UN convention in a number of ways. For example, she argued that the benefit cap risks children suffering unjustified discrimination. In those circumstances, will the Minister explain how the Government took that message on board and went about modifying the legislation to bring it back into line with the convention, because being a signatory does not seem to make much difference to the way in which the legislation eventually pans out?
Lord Hill of Oareford
My Lords, the Government believe that the Welfare Reform Bill is compliant with the UNCRC. We know that those issues were debated at length in this House and concerns were expressed about the effect of the benefit cap. The Government said that transitional arrangements would be put in place to deal with some of the concerns that noble Lords expressed, and they have committed to having a report a year on as to the effect of the benefit cap. However, our core position is that if we can help and encourage more people into work, that will be good for those families and for their children.
Baroness Walmsley
Will the Minister allow me to clarify my earlier question? I was referring not to bullying by other children but to violence and ill treatment by members of staff. I particularly had in mind certain madrassahs and Christian fundamentalist Sunday schools where the treatment of children is not up to the standard that we would expect in this country.
Maldives
(12 years, 9 months ago)
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Lord Risby
To ask Her Majesty’s Government what is their assessment of the current political situation in the Maldives.
The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford)
My Lords, we remain concerned about the situation in the Maldives. We agree with the Commonwealth Ministerial Action Group that early elections are required to establish confidence in the legitimacy of those who govern the country. We welcome the appointment of Sir Don McKinnon as the Commonwealth’s special envoy. We are pressing for all sides to show calm and restraint and to work towards a sustainable political solution.
Lord Risby
My Lords, the image of the Maldives as a tropical tourist paradise is indeed correct but it was not a democracy until 2008, when elections finally took place. The individual who was selected as president by the people of the Maldives, Mohamed Nasheed, had suffered personal abuse and imprisonment and had exile in this country—a terrible personal saga. A few weeks ago he resigned, clearly under duress, and the new Government are unwilling to hold elections. If democratic underpinnings and democratic consent are the basis of the Commonwealth, unless these elections take place quickly, should not suspension of the Maldives from the Commonwealth be considered?
Lord Howell of Guildford
My noble friend is very close to the situation and has followed it over the years. On the last part of his question, it is for the Commonwealth as a whole, not for an individual member, to decide about membership. That is a decision that the Commonwealth comes to when it judges it appropriate. That has not arisen so far in this case, but the rest of my noble friend’s analysis is exactly right. We must move to encourage democratic elections, and that is what is proposed in the India-brokered plan, which we welcome and support, for there to be early elections. So far a commission of inquiry has been established, a special envoy has been appointed, the Commonwealth Ministerial Action Group was there last month on a fact-finding mission and our own high commissioner was there last week. My noble friend is right that elections are what are needed to establish legitimacy.
Lord Bilimoria
My Lords, I was privileged to get to know President Nasheed very well and was impressed by that young, dynamic world leader. As a member of the Commonwealth, are the Government doing enough to ensure that there is a genuine independent international inquiry into what happened, which some say is tantamount to a coup? Do the Government agree with that and will they press for early elections? That has to be the best solution.
Lord Howell of Guildford
We do not recognise this as a coup, although obviously there has been a change. Mr Nasheed is known to many people and greatly admired. We still need to establish the full circumstances of what occurred and we hope that the commission of inquiry will do that. Yes, the pressure is on: the Commonwealth, through Don McKinnon and others, is pressing very hard that there should be early elections and that it should be established who the legitimate Government of the Maldives are. We can then proceed calmly to repair the damage and see that the situation is restored so that the Maldives, as my noble friend has said, remains the paradise and attractive tourist area that it has always been and continues to be, because at the moment we do not judge that there is any danger in the tourist areas.
Lord Anderson of Swansea
My Lords, is it not encouraging that the Commonwealth, true to its proper role, is playing such a positive and key part—just as, for example, Chief Emeka Anyaoku did as Commonwealth Secretary-General over South Africa? Is it not therefore disappointing that the Perth CHOGM failed to reach agreement on an enhanced role for both the secretary-general and the secretariat as a whole? Is there any positive progress regarding the role of the secretariat and the secretary-general, or might it emerge over the coming year?
Lord Howell of Guildford
Yes, but the position is not quite as the noble Lord described it. They did not fail at the Heads of Government meeting to reach agreement; in fact, they agreed on a whole range of reinforcement of the upholding of standards in the Commonwealth by the Commonwealth Ministerial Action Group and the new mandate for the secretary-general. The action in the Maldives is a welcome demonstration of what I hope is a much more active role to come. A whole range of other proposals put forward by the Eminent Persons Group is being discussed. The proposals have not been shelved. They are to be discussed by a ministerial task force and analysed further when Commonwealth Foreign Ministers meet in the autumn to take them forward. My hope is that a great many of them will be implemented. Some remain difficult, I fully agree, but generally, there is a huge surge in commitment throughout the Commonwealth to be a body that truly upholds its standards of democracy, human rights, good governance and the rule of law.
Lord Avebury
My Lords, has it now been agreed that the committee of national inquiry which has been formed to investigate the legality of the transfer of power in February should be reinforced by a person nominated by the United Nations? Secondly, will the CMAG at its meeting in April look into a plan B in the event of it being unable to persuade the parties that elections should be held before the end of the year?
Lord Howell of Guildford
Both those propositions are really up to Sir Don McKinnon, the special envoy. He has been in the islands, in Male, in the past few days; I think he leaves today. He will be looking at precisely those points. Our hope and determination must be that elections are brought about. If they are not, of course we would have a new and more difficult situation that would require further resolution and effort. For the moment, we concentrate on following the plan which the Indians have so helpfully brokered.
International Criminal Court: Rome Statute
(12 years, 9 months ago)
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Baroness Stern
To ask Her Majesty’s Government what action they intend to take to raise awareness of the work undertaken by the International Criminal Court, and to provide support for it, in this 10th anniversary year of the coming into force of the Rome statute.
The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford)
My Lords, the International Criminal Court is now a cornerstone of the international criminal justice system. Since 2002, it has opened seven investigations and 15 cases have been brought before the court. It delivered its first verdict last week in the case of the Congolese militia leader, Thomas Lubanga. We are currently discussing options on how to mark the 10th anniversary occasion. I shall write to the noble Baroness with details once they have been finalised.
Baroness Stern
I thank the Minister for the support that the Government give to the International Criminal Court, which I am sure is widely welcomed in this House. The Minister will know that 118 countries have ratified, representing all regions of the world, but there are some notable absentees from the list: the United States, China, Russia and India. Does he agree that the ICC would have much more global authority if those countries decided to ratify? Have the Government made representations to those four countries about ratifying? If so, what was the outcome of those representations?
Lord Howell of Guildford
I am grateful to the noble Baroness. My brief says 120 countries, not 118, but she may be right. She is quite right to say that some key countries are not signatories. She mentioned the United States, China, India and Russia; there are also Pakistan and Turkey and some others, including Syria. Obviously, the more signatories come on board, the more effective the ICC will be in future. Do we make representations? At all times. It is known in ICC circles and international circles that it would be good to get those countries to sign. The noble Baroness asks about the response. I have to say that, so far, in relation to the United States in particular, there is not a very encouraging response. There are real internal difficulties in those other countries and in the United States which prevent them signing at the moment, but we will keep pressing.
Lord Marks of Henley-on-Thames
Does my noble friend agree that future successful referrals to the court are imperilled by the absence of the countries that the noble Baroness mentioned and also those that he mentioned? By way of example, what steps have been taken to secure commissions of inquiry into crimes committed in Myanmar and in North Korea, with a view to UN Security Council referrals to the court in respect of crimes against humanity in those two countries?
Lord Howell of Guildford
My noble friend has mentioned two more countries that are not signatories: Burma and North Korea. In reality, the only way that the ICC can raise charges, commence prosecutions or anything similar with regard to non-signatories is through a resolution from the UN Security Council. That would have to be the way forward, as it was, for instance, with Libya, Sudan and Darfur. So if the UN Security Council could agree, there could be a reference to the ICC in relation to Burma and North Korea. However, my noble friend knows as well as I do that the UN Security Council has differing opinions within it; and on many issues, including the sort he has raised, there are problems.
Lord Morris of Aberavon
My Lords, one of the driving forces for the passing of the Rome statute and the setting up of the International Criminal Court was Labour’s Foreign Secretary, the late Robin Cook, whom I had the privilege to support as Attorney-General. Regrettably, as we have been reminded this morning, the United States has failed to ratify it. Given the recent emphasis placed on the special relationship during the Prime Minister’s visit, what specific steps have been taken by Her Majesty's Government to persuade our American friends to become members of the court so that there is a venue recognised by most major states for the trying of international wrongdoers?
Lord Howell of Guildford
The noble and learned Lord is quite right that Robin Cook was the driving force when we took the legislation through the House—with support from both sides; I was sitting on that side at the time—for setting up this remarkable body. The court is getting going but that takes time, so many of the crimes and horrors of the past are still being tried under previous legislation and therefore in separate courts. However, the ICC is making progress. What can we do about the non-signatories, particularly our allies and friends in the United States? They know perfectly well our views. For reasons that I have mentioned—or hinted at—to do with internal pressures in the United States, they have not signed; and frankly, I think that they are not very likely to. However, in terms of co-operation and help in making the operations of the ICC work, the United States has been extremely constructive and extremely helpful.
Lord Alton of Liverpool
My Lords, is the Minister aware that, two weeks ago in Parliament, Dr Mukesh Kapila, a former British and United Nations official, talking about South Kordofan, said that the second genocide of the 21st century is now unfolding, with more than 1 million people now affected? The area is being bombarded and people are being raped and being killed. Given that the International Criminal Court has indicted the head of state in Sudan, Omar al-Bashir, and also the governor of South Kordofan, Ahmed Mohammed Haroun, for war crimes and crimes against humanity, how can we continue to justify full diplomatic relations with mass murderers and fugitives from justice? What is being done to assist the ICC in enforcing arrest warrants in those cases?
Lord Howell of Guildford
Diplomatic relations, as the noble Lord knows from his great experience, are always a dilemma. If you break relations off completely that will be the end of contact and the opportunity to influence. Sometimes that is necessary, but we have to make a careful judgment; and that is the one that we have made so far on this matter. As for the International Criminal Court’s jurisdiction, it is quite right that the charges are outstanding against President Bashir. I think that there would have to be a further UN Security Council reference to the ICC for it to go ahead in examining these other alleged horrors and atrocities. I do not for a moment doubt what the noble Lord says about the horrors that have been going on—I think that they have been going on. It may be that the process will get under way. However, that is the only path through which we can get the ICC qualified. It cannot itself take an initiative without the support of the established procedures through the UN.
Baroness Kinnock of Holyhead
My Lords, we should of course welcome the conviction this week by the ICC of Thomas Lubanga, who was found guilty of terrible rapes and murders in Congo. Does the Minister agree that the conviction represents real progress for international justice and confirms that the judges of the ICC were scrupulously fair? Does it not also raise questions about the work of the court? Should it learn lessons from what the judges called a flawed investigation and prosecution? The pre-trial detention of the prisoner for seven years was one example of that inefficiency.
Lord Howell of Guildford
The noble Baroness is right; there are lessons to be learnt. Certainly when I looked at the briefing I, too, remarked that it was extraordinary that we had set up the court in 2002 and the first conviction had come almost 10 years later. There must be ways of speeding up these things. However, the cases are immensely complex; all sorts of political pressures are brought to bear before people can be indicted at The Hague; and there are great difficulties in getting some of these people located, charged and transferred to The Hague. Certainly there are lessons to be learnt, and improvements can be made to make this an even more effective organisation in future.
Police and Crime Commissioners
Lord Hunt of Kings Heath
To ask Her Majesty’s Government what assessment they have made of the report issued by the Electoral Commission on 15 March on the election of police and crime commissioners.
Baroness Stowell of Beeston
My Lords, the Government recently completed a consultation with the Electoral Commission and others, which included consideration of how the public can receive information about police and crime commissioner candidates. We are looking at options, and in reaching a decision an important consideration will be ensuring that members of the public can gain access to information by a range of means.
Lord Hunt of Kings Heath
My Lords, the elections are in November. Will the noble Baroness say why so far the Home Secretary has turned down requests for the funding of election materials for distribution by candidates, which is directly contrary to the practice both for MPs and for elected mayors? Will the noble Baroness confirm that the Government’s intention is to see a low turnout in the elections?
Baroness Stowell of Beeston
My Lords, election addresses are an important and routine part of the election process. The Home Office proposes a cost-effective way of distributing election addresses for PCC candidates. As the noble Lord will know, election addresses are not the only form of communication that takes place during a campaign. The Electoral Commission is responsible for raising awareness of the election. The Government will make sure that the policy of the creation of PCCs is widely known—as it is already. The candidates must take responsibility for communicating their messages through their campaigns.
Lord Condon
My Lords, I declare my registered interests, which are police-related. Does the Minister share my concern that it seems increasingly likely that the only candidates who will succeed in November will be party-political nominees or personalities who are already household names, and that the flaws exposed by the Electoral Commission will deter talented, independent candidates from standing—or will ensure that, if they do stand, they will be frozen out by the process?
Baroness Stowell of Beeston
No, I do not agree with the noble Lord’s proposition. The system of election is open. Some high-profile candidates have come forward, including at least one Member of your Lordships’ House. There are also independent candidates who are expressing an interest in putting themselves forward for this important role. It is encouraging how many people are embracing what will be a new and very radical way of increasing public accountability and encouraging a relationship between people and the police.
Baroness Browning
Does my noble friend take some encouragement from the fact that people from both Houses of Parliament have expressed an interest in standing and that several independent candidates are now emerging? That is to be welcomed. Does she see that as a vindication, because although there was a lot of opposition to police and crime commissioners when the Bill went through, a great many people, including in this House, now believe that it is a job worth doing?
Baroness Stowell of Beeston
I agree. Indeed, I am delighted that, after such fierce opposition to elected police and crime commissioners, senior Labour politicians are now embracing this opportunity to increase public accountability. I think that the noble Lord, Lord Prescott, put it as clearly as I can when he said in some of his recent media interviews:
“The public should have much more of a say in determining the force’s priorities and responsibilities”,
and,
“That’s never been done before. That’s quite a radical reform”.
Lord Prescott
My Lords, this is a scandalous decision to deny 7 million people, according to the Electoral Commission, the right to vote simply because they do not have access to the website. In my area, Humberside, where I may well have an interest in the future that I perhaps should declare, that will mean 170,000 people, mostly elderly, will be denied their democratic right to information about the candidates. Will the Minister tell me why there appears to be two departmental positions? In the same elections, department for employment says that it will finance the mayor and exercise all democratic right to information, but then the Home Office comes along and says, “No, we will not fundamentally say that”. What is the Government’s position when there are two different departments in the same election denying democratic rights?
Baroness Stowell of Beeston
The Government are not denying anybody a democratic right. We are putting forward a proposal that will allow clear and effective communication by candidates via a website, together with a national helpline that will be well advertised and made available to people so that they can ring up and request the information on paper as well as being able to access it electronically. We think this is a cost-effective way. I am sure somebody as experienced as the noble Lord will know that election addresses, while important, are not what will secure success for any candidate. It is for the candidates themselves to ensure that they communicate very effectively to the electorate.
Arrangement of Business
Baroness Anelay of St Johns
My Lords, with the leave of the House, I shall make a short statement about business. On the first of this month, my noble friend the Leader of House announced in the usual Written Statement that the Queen will be pleased to open a new Session of Parliament on Wednesday 9 May. As this is the first mid-Parliament spring opening for many years, I should now like to say a word or two about the end of the Session and Prorogation. My right honourable friend the Leader of the House of Commons has today announced that the other place will be considering the Finance Bill in the week of 16 April. Unlike Easter, the Finance Bill is an immovable feast which follows the Budget. While the other place is in Committee of the Whole House—the Chamber—on the Finance Bill, the two Houses cannot effectively deal with ping-pong. For that reason, I now propose to add a week to the Easter Recess. We will now return from Easter on Monday 23 April instead of on Monday 16 April.
It is my intention that our legislative business on this Session’s Bills should be concluded by the end of Thursday 26 April, or thereabouts. That may include a Bill to be introduced in this House to relax the Sunday trading laws for the period of the Olympics and Paralympics, for this summer only, of course. That will go forward only if fast-track legislation on that is agreed between the usual channels. I confirm that discussion is under way at the moment in the usual channels about whether fast-track legislation may be agreed to. In short, we will return from the Easter Recess on 23 April for the outstanding Bills and, potentially, the Olympics Sunday trading Bill. Parliament will then be prorogued in the usual way a few days before the start of the new Session.
Lord Bassam of Brighton
My Lords, I have no desire to strike a discordant note at the news of your Lordships’ House having an extra week’s holiday, but I will take a moment to reflect on how we have arrived at this point.
We had an 18-month legislative programme that was extended over two years. The House was brought back for a September sitting. We had a week added to our work in October, and we had a half-term Recess cancelled last November. We have had a rather chaotic approach to legislation in the past two years. With all the pressure that has been applied to our Front Bench to conform to late sittings and early starts, it seems deeply ironic that we have ended up in a bizarre situation where the Government forgot that they had to deal with their Finance Bill before they could deal with ping-pong.
Will the noble Baroness consider taking back to the Prime Minister a request from this House for a reconsideration of the timings of the parliamentary terms? Spring to spring just does not work. We have purdah, we have Budget debates and of course we have the moveable feast of Easter. There is a disconnect. On Monday we are going to be asked to consider extending the hours in which we deliberate in Grand Committee. We are being asked to do more work yet here we are, in April, being given an extra week off. This does not strike me as a sensible way of doing business.
Baroness Anelay of St Johns
My Lords, this House is indeed a very hard-working House. The noble Lord said that he thought the House was going to be asked to do more work. There will be a debate on the Procedure Committee before the House on Monday, if the House agrees to a Motion later today. Noble Lords will be able to make their points at that stage. The opposition Chief Whip is aware that it is the Government’s intention only to make proposals with regard to Grand Committee that will enable the House to have more opportunity to scrutinise legislation without having the late finishes or early starts that were only tabled at the express request of the Opposition.
We had a September sitting last year. It proved unpopular. I listened to the House and therefore there will not be a September sitting this year. Of course, I always listen to the views of the House. Indeed, on Monday the House spoke with such a loud voice on the Health and Social Care Bill that the Government found that we no longer needed to consider that Bill at further stages in the normal procedure of ping-pong. My overwhelming duty is to ensure that this House sits because it has pressing matters of business and to provide the circumstances in which the House can do so. I am the first to applaud the work this House does and I know it will continue to do it to the best.
Baroness McIntosh of Hudnall
My Lords, can the noble Baroness clarify one point she made in her initial statement? She said that she expected the business on current legislation to be concluded by the end of business on 26 April. Was she implying that that would be the last sitting day before the opening of the next Session? Perhaps I could also remind the noble Baroness that by extending the Easter vacation she may have done irreparable damage to the audience for the Parliament Choir on 18 April.
Baroness Anelay of St Johns
My Lords, I am told just the reverse: that there is great relief that there will not be the prospect of ping-pong on the legal aid Bill on that day, and there is huge welcome around the House that I have managed to ensure that the audience—and particularly the superb performers from this House—will be able to attend and not to disappoint their Chief Whips on that occasion.
The noble Baroness is right to want further elucidation of my comment about 26 April. It is of course never the case that the Government announce the precise date of prorogation until business can be secured. I notice the noble Lord, Lord Bach, looking eagerly forward, because of course he speaks for the Opposition on the legal aid Bill. I am also aware of the number of defeats that the Government have so far faced on that, so there will be time for that Bill. I carefully said, “26 April or thereabouts”. Of course, I will be meeting with the opposition Chief Whip later today to ensure that by the end of today there is a notice of forthcoming business reissued to the House to assist the House.
Lord Cormack
My Lords, will my noble friend confirm that if the Motions to which reference has already been made are approved on Monday, that will result in most Bills going into Grand Committee rather than being taken on the Floor of the House? There are real constitutional implications here. I should be grateful for clarification.
Baroness Anelay of St Johns
My Lords, I know that my noble friend the Leader of the House will clarify the situation to make clear that my noble friend Lord Cormack is labouring under a misapprehension. That matter will be debated on Monday.
Lord Grocott
My Lords, the Chief Whip, by her statement today, has made it clear that in her estimation there is plenty of time in terms of sitting days left before we need to prorogue to complete government business and to have any essential debates. She will know that the Joint Committee on House of Lords Reform will report immediately after the Recess. Can she assure the House that, with all this spare time available, there will definitely be a full day for this House to debate its future as determined or otherwise by the Joint Committee? She says she listens to the House, so “yes” will do.
Baroness Anelay of St Johns
My Lords, the assurance that I can give to the noble Lord is that when we have all had an opportunity to see that report there will be discussions about what time should be set aside for debate. Clearly, we have not seen the report yet and I know that the committee is hard at work on it.
Lord Dubs
My Lords, given that we understand the point about the Finance Bill even if we are not sympathetic to it, and given that we understand not wishing to have September sittings for this House, apart from that, will the Government accept that it is better that the two Houses should sit at the same time? A few weeks ago, we were out of synch: we sat for one week and the Commons sat on a different week. That makes Joint Committees and all-party groups very difficult, and is probably more costly. Could we synchronise where it is possible?
Baroness Anelay of St Johns
My Lords, I cannot agree with the noble Lord, Lord Dubs, which is rather unusual because I agree with him on many things. This House has its own rhythm of business. It does not slavishly follow the business in another place in the way that it has to be scheduled. We do not have matters as yet—I hope not ever—on timetabling and guillotine. Therefore, there has to be flexibility.
I know that cost was raised before and it is really a matter for the Chairman of Committees. I can repeat the assurances that he has given by Written Statement. There is no greater cost if the two Houses sit at different times. There is only a greater cost when this House sits for more days. As one will appreciate, that is simply because of the cost of Peers’ expenses, which for a week run at about £496,000.
Baroness Taylor of Bolton
Will the noble Baroness clarify a little what she was saying about a debate on the report from the Joint Committee on House of Lords Reform? Does she agree that it would be undesirable if the Joint Committee were to publish its report when just one House is sitting and not when both Houses are sitting? Does she also agree that if we have a debate on that proposal, it probably should be more than a one-day debate because of the amount of interest in this House?
Baroness Anelay of St Johns
My Lords, reports are often published when neither House is sitting. I have given the answer that at the moment we do not have sight of that report. It is keenly awaited and has not yet even reached the last committee stage. It would be premature for me even to consider giving any undertakings as to business management and I do not propose to do so.
Lord Campbell-Savours
On the question of the £490,000 to which the noble Baroness referred, where will that now go? Could it go back into our budgets and be spent on Select Committee work? As the noble Baroness knows, the Liaison Committee has been under considerable pressure on the matter of resources.
Baroness Anelay of St Johns
I am grateful to the noble Lord, Lord Campbell-Savours, for trying to assist the House in making savings. He is a valued member of the Administration and Works Committee, a job that I know he takes very seriously since I serve on that committee with him. However, I regret to say that there will not be any savings as such because of the hard-working nature of this House. I should explain that in the calendar year 2011, whereas another place sat for 149 days, this House sat for 156 days, so we actually cost another week. I can give an assurance that in the forthcoming Session, 2012-13, we will sit overall for the same number of weeks as the House of Commons. It is just that we have a slightly different pattern of sitting days.
Lord Howarth of Newport
My Lords, reverting to the matters raised by my noble friends Lord Grocott and Lady Taylor, if I did not misunderstand the Chief Whip I think she said that there would be discussion between the usual channels after the publication of the report on Lords reform by the Joint Committee to consider when a debate might take place, but she did not say that we would have the opportunity to debate that report before the conclusion of this Session. Is it not very important that this House should be able to express its views on the report of the Joint Committee before the Government finalise the content of the Queen’s Speech?
Baroness Anelay of St Johns
My Lords, I have said two things which I am happy to clarify again. The first is that the report has not even been concluded, let alone published, and we do not yet have confirmation of the publication date. Of course, as would anyone, I would prefer to wait until publication before making decisions on the programming of business. I would expect the programming of forthcoming business to be carried out in the normal way between the usual channels.
Lord Hunt of Kings Heath
My Lords, perhaps I may come back to the point raised by my noble friend about when the report of the Joint Committee is to be published. The noble Baroness will know that there have been extremely helpful discussions in the usual channels and there has been an understanding that the report would be published when both Houses are sitting. I wonder whether the Chief Whip would take that matter back. Surely it would be respectful of this House if the report were published when it is sitting.
Baroness Anelay of St Johns
My Lords, publication of the report is a matter for the Joint Committee and I would not ever seek to interfere with the Select Committees of this House.
Baroness Farrington of Ribbleton
My Lords, I thank the government Chief Whip for the information she has given to the House on the financial implications of the changes being proposed this morning. May I seek a total assurance that when we deliberate these issues on Tuesday afternoon, all the financial implications in detail on any possible changes in procedure will be available in advance to Members of the House?
Baroness Anelay of St Johns
My Lords, I am sure that those taking part in the debate will read what the noble Baroness has said.
Lord Kennedy of Southwark
My Lords, can the noble Baroness tell the House what is to happen to the Oral Questions that have been tabled for the week beginning 16 April? I have tabled one myself.
Baroness Anelay of St Johns
That is a very fair question. I understand that the clerks are going to talk urgently to those noble Lords who have been successful in tabling their Questions.
Business of the House
Baroness Anelay of St Johns
That leave be given to advance the Motions standing in the name of the Chairman of Committees from Tuesday 27 March to Monday 26 March.
Economy: Budget Statement
(12 years, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sassoon
That this House takes note of the economy of the United Kingdom in the light of the Budget Statement.
Lord De Mauley
My Lords, I wonder if noble Lords would kindly leave the Chamber quickly and quietly so that we can proceed with the debate.
Lord Sassoon
My Lords, yesterday’s Budget reinforces this Government’s determination to restore the UK to prosperity. It is because of the decisive action that the Government have taken, starting with the June 2010 Budget, that we have secured and maintained the stability of the UK economy. The private sector has already responded vigorously. Since the election, private sector employment has risen by more than 630,000 and the Office for Budget Responsibility forecasts that between the start of 2011 and the start of 2017, some 1.7 million jobs will be created in the UK’s private sector—an extra 1.7 million jobs creating wealth, leading innovation and driving our recovery across the nation. The dynamism of UK businesses is truly remarkable. As the Government, we have to continue to reduce the burden of the state. If we do that, the economy will flourish.
Yesterday’s Budget builds on a strong foundation, safeguarding our economic stability, creating a fairer, more efficient and simpler tax system, and driving through reforms to unleash the private sector enterprise and ambition that are critical to our recovery. As my right honourable friend the Chancellor said yesterday, Britain will earn its way in the world.
We can succeed in that goal only if we continue to safeguard our economic stability by tackling the record deficit and debt that we inherited from the previous Government. It is because of our determination to tackle that legacy that we have sheltered the UK economy from the turbulence that undermines our nearest neighbours. It is because of our commitment to stick the course that, in the past two years, the cyclically adjusted primary deficit has been halved, falling from 7 per cent of GDP in 2009-10 to 3.4 per cent in 2011-12 and approaching balance in line with our fiscal mandate. Indeed, borrowing over the forecast period will now be £11 billion lower than was predicted in the Autumn Statement last year.
Stability is the vital precondition for growth and will continue to be our key priority, but as the Office for Budget Responsibility said in its report yesterday,
“the situation in the euro area remains a major risk”
to the UK’s economic forecast. The OBR also identifies a risk of a,
“further spike in oil prices.”
Despite these headlines, however, there are positive signs for the UK economy. The OBR continues to forecast positive but subdued growth. Along with the Bank of England, it forecasts that the economy will avoid recession, with this year’s growth forecast broadly unchanged at 0.8 per cent, then 2 per cent for next year, 2.7 per cent in 2014, and 3 per cent in both 2015 and 2016.
Economic stability is the vital foundation for securing that growth and the Budget reaffirms our commitment to safeguarding that stability. That is why this year’s Budget has a neutral impact on the public finances, implementing fiscal consolidation as planned. It keeps us on course to achieve a balanced structural current budget by 2016-17, with debt falling as a percentage of national income by the end of this Parliament in 2015-16.
Restoring fiscal sustainability will remain this Government’s number one priority. Such is the scale of the challenge that we must remain vigilant on spending. In particular, it is vital that we maintain control over welfare spending. That is why my right honourable friend the Chancellor announced yesterday that the additional costs of universal credit will be capped at £2.5 billion. We will also address the rising costs of an ageing population and the burden which that places on future generations. That is why there will be an automatic renewal of the state pension age to ensure that it keeps pace with increases in longevity. However, as the director of the Institute for Fiscal Studies said this morning, when you look at all the Government’s measures, you see that pensioners have not been hit as hard as other taxpayer groups.
We have also taken the difficult decision to remove child benefit from high earners. It is right that we focus support on those who need it the most, but we have to do it in a way that is fair, without setting up a cumbersome tax credit system and avoiding a cliff-edge for millions of families. That is why, instead of withdrawing child benefit all at once when people earn more than the higher-rate threshold, the benefit will be withdrawn only when someone in the household has an income of more than £50,000. And the withdrawal will be gradual, so that only those on an income of more than £60,000 lose all their child benefit. Overall, child benefit will continue to benefit 90 per cent of families with children.
These are tough choices to make, but this Government will not shirk their responsibility to restore fiscal sustainability and economic stability. We have learnt, to all our costs, the consequences of unsustainable spending and ever increasing debt.
As my right honourable friend the Chancellor said in the Budget, if Britain is to earn its way in the world, then we need to build a recovery based on private sector enterprise, investment and export, and if we are to succeed in that ambition then we have to undertake far-reaching reform to ensure that our tax system is simple, predictable, fair and supports work.
First and foremost, we are committed to creating the most competitive tax system in the G20—a tax system that supports work, encourages growth and keeps our most successful businesses here in the UK. While the previous Government increased taxes on small businesses, we have cut the tax rate on small companies to 20 per cent. While the previous Government wanted to increase national insurance on jobs, we have cut it, and while the previous Government sat idly by as our competitiveness drained away, we have already committed to reduce the headline rate of corporation tax to 23 per cent by 2014 because it is necessary to cut one of the most growth-impeding taxes there is. As we announced yesterday, we are going even further, cutting the rate of corporation tax to 22 per cent by 2014. That is a headline rate of corporation tax dramatically lower than our competitors and a spur for prosperity and job creation across the economy.
That is why we are also cutting the 50p rate of income tax. That rate was higher not just than the US, but higher than France, Italy and Germany—the highest in the G20. It was a rate that damaged our competitiveness while raising next to nothing in additional revenue. From April next year, the top rate of tax will be 45 per cent, restoring our competitiveness and galvanising our entrepreneurs and hard-working families. But at the same time, we will continue to ensure that those with the broadest shoulders carry the heaviest burden. That is why the Chancellor has announced a new cap on income tax reliefs that are currently uncapped. From next year, for anyone seeking to claim more than £50,000 of these reliefs in any one year, a cap will be set at 25 per cent of their income.
While the Chancellor ruled out a mansion tax, it is right that those with considerable assets do pay a fair share. That is why we are also introducing a new stamp duty land tax rate of 7 per cent on properties worth more than £2 million, and why we are tackling the abuse whereby people avoid stamp duty on their homes. Taking the cumulative tax, tax credit and benefit changes in the Budget together, it is the top decile of the income distribution that sees the largest reductions in income and the top quintile that makes the greatest contribution to reducing the deficit. That is exactly how it should be.
At the same time, we are taking decisive action to support working people on the lowest incomes. The Government believe that the best way to support working people on low incomes is to take them out of tax altogether. Next month, the personal allowance will rise to £8,105. Taken with the previous increase, that is more than 1 million low-earners taken out of tax. But we are going further and sooner. Yesterday, my right honourable friend the Chancellor announced the largest ever increase in the amount that people can earn tax-free—an increase from next April of £1,100 to £9,205. That means that around 2 million low-income earners will have been taken out of tax altogether and there will be a tax cut of £3.5 billion for working families. These are substantial tax reforms that demonstrate our commitment to tackling the deficit in a fair way.
But tax is only one part of our ambition to restore competitiveness, promote business and encourage investment. As your Lordships are well aware, this Government have already set out ambitious infrastructure plans, setting the stage for some £250 billion of investment in the next decade and beyond. That investment is critical to enabling Britain to compete with emerging giants in the global market. Yesterday, the Chancellor provided further details on those ambitions, for example confirming that Network Rail will extend the Northern Hub and improve the Manchester to Preston and Blackpool and Manchester to Bradford lines. We will live up to our commitment to devolve power and responsibility to local authorities. That is why we concluded a groundbreaking deal with Manchester to support £1.2 billion of investment in infrastructure, will support £150 million of tax increment financing to help local authorities promote development and are providing an extra £270 million to the Growing Places Fund to help local authorities unblock stalled infrastructure projects.
Just as we invest in our physical infrastructure, we have to invest in our digital infrastructure. That is why we are funding ultrafast broadband and wi-fi in 10 of the UK’s largest cities, providing £50 million to increase urban broadband in our smaller cities as well, and helping build on our long and rich history of scientific and technological leadership. It is right that we capitalise on and commercialise that leadership, which is why we went even further in the Budget to commit £100 million of support, with the private sector, for investment in major new university research facilities, £125 million towards making UK advanced manufacturing supply chains more competitive, and £60 million to establishing a UK centre for aerodynamics, creating a springboard for innovative businesses and entrepreneurs to lead our economic recovery. Government, local authorities, universities, businesses and entrepreneurs are working together to catalyse private-sector growth and innovation.
All this is of particular interest to my noble friend Lord Heseltine. I look forward with particular anticipation to his maiden speech today. My noble friend’s extraordinary work in Liverpool has rightly been recognised by that great city. Now, my noble friend has kindly agreed to review how spending departments and other public-sector bodies can better work with the private sector to support economic development.
Of course, while we can provide the right conditions for a private sector recovery, we also have do all we can to remove barriers to those businesses attempting to seize new opportunities. That is why we are simplifying the administration of tax for our smallest firms, consulting on a new cash basis for calculating tax for firms with turnover up to £77,000, making tax returns dramatically simpler for up to 3 million firms. Of course, bureaucracy does not end with tax. If we want those businesses to lead our economic recovery, then we have to match their “can do” attitude. That is why the Budget endorsed a fundamental overhaul of the planning system, replacing 1,000 pages of guidance with just 50, and introducing a presumption in favour of sustainable development and a new planning guarantee so that no decision should take more than 12 months, including appeals.
Just as we encourage businesses to expand at home, we want to encourage British businesses to expand overseas. It is a damning statistic that, over the past decade, our share of world exports shrank as Germany’s grew. In the past three years, UK exports have risen almost 30 per cent, rising above their pre-crisis peak, with exports to India and China nearly doubling from five years ago. But we can and must go further. By 2014-15, UK Trade and Investment will be working with 50,000 small firms a year to expand their sales abroad—double the current number. We have set the ambition to more than double the UK’s annual exports to £1 trillion by 2020.
At the same time, we have to ensure that our businesses have the finance to feed their ambition. In particular, it is critical that we support the small businesses that provide more than 50 per cent of private sector jobs and 30 per cent of private sector investment and which have the potential to become the global leaders of tomorrow. That is why we launched the National Loan Guarantee Scheme earlier this week to give smaller businesses with a turnover of up to £50 million access to cheaper loans. We have provided up to £20 billion of guarantees under the scheme. This Government’s deficit reduction strategy has earned market credibility and low interest rates, and this Government are ensuring that the full benefits of those low interest rates are passed on to businesses across the UK.
In conclusion, this Government are committed to making Britain the best place to start, grow and finance a business. We are providing businesses with the most competitive tax environment; access to low-cost finance, capitalising on record low gilt yields; reduced bureaucracy and simplified tax rules; access to emerging economic giants; world-leading physical and digital infrastructure; and investment in our technology and innovation future. That is why the OBR forecasts that between the start of 2011 and the start of 2017, 1.7 million jobs will be created in the market sector. That is why Nissan has decided to move new production to the north-east, creating more than 2,000 jobs in the region; why Jaguar Land Rover has confirmed that it is creating 1,000 new jobs in its Halewood factory, on top of the 1,000 new jobs in Solihull; why Tesco has announced that it will create 20,000 new jobs in the UK over the next two years; and why GlaxoSmithKline, Britain’s biggest pharmaceutical company, has today confirmed plans to invest more than £500 million and create up to 1,000 new jobs because of the tax incentives in the Budget.
This Government are building a sustainable and prosperous economy, a recovery that builds on our strengths across all regions of the country and all the creativity and productivity of our private sector. Whereas under the previous Government, the country borrowed its way into trouble, under this Government, we will earn our way out of trouble.
Lord Eatwell
My Lords, a year ago the Chancellor of the Exchequer presented a Budget for “enduring growth and jobs” and published a plan for growth that would,
“put fuel in the tank of the British economy”.
That was some fuel. Growth collapsed and unemployment rose by 150,000, and more than 1 million young people are now unemployed. This year, once again, the Chancellor has presented a Budget that he claims,
“helps those looking for work”,
and supports growth.
The auguries are not good. The OBR’s forecast for the growth of business investment this year is down from 7.7 per cent in November to nearly 0.7 per cent now. The forecast for growth of exports and for house-building is down. As for unemployment, another 150,000 are on the dole in 2012. No wonder that the OBR states that it has made no,
“material adjustments to our economy forecast”,
as a result of the Budget 2012 policy measures. In other words, the policy impact of the Budget on the prospects for growth and jobs is nil.
Why is the Government’s growth strategy such a spectacular failure? Why did last year’s plan for growth vanish without trace? Why does the plethora of encouraging-sounding micro-measures on energy, exports and science not make a scintilla of difference to the OBR’s growth forecast? The answer is provided by the Institute of Directors in its response to the Budget:
“The key factor blocking implementation of these”—
investment—
“plans is not cash, but confidence”.
How right it is. The Government simply do not seem to understand that it matters not how cheap finance might be, or even what the corporate tax rate might be; if companies believe that investment will yield no return, they will not invest. What is the point of investing if you have no confidence in the prospect of sales? You are simply going to lose your money.
The source of the Government’s central policy failure is revealed in a chart published in the Budget Statement. Chart 1.5 on page 20 shows what has happened to public sector net borrowing—the deficit—since 2005. Those of your Lordships who have had to suffer the interminable repetition by the noble Lord, Lord Sassoon, of the record deficit—we heard again today that the Government inherited it—may be somewhat surprised by this chart, for it shows that from 2005 to 2008 the deficit was falling from £40 billion a year to around £32 billion a year. Then, following the failure of Lehman Brothers in September 2008, the financial crisis devastated the public finances. A veritable financial tsunami cut revenues and increased spending, driving net borrowing to the peak, which we hear so often from the noble Lord, of £157 billion in May 2010.
In fact, the Government inherited a composite position: a perfectly sound financial stance, overlain by the financial consequences of the crisis. They chose to treat a unique post-war event as if it were due to policy excess. They threw the economy into reverse, devastated business confidence and cut the growth they inherited from 2 per cent to zero. That is the growth rate they inherited, and that is the consequence of their policies.
As an illustration of the Government’s folly, let us suppose that instead of a financial tsunami Britain had been hit by a real tsunami that destroyed 6 per cent of productive capacity, resulting in a sharp fall in tax revenues and an equally sharp rise in government expenditure. Would they then have chosen the path of austerity to restore the public finances? Of course not; they would have set about funding reconstruction. A sinking fund would have been established to spread the cost of restoring the economy, and would in consequence have restored the public finances, over a lengthy period. No one would have recommended bearing all the cost in just a few years, and no one would have imagined that reconstruction could be guided by market forces alone. What is the difference between this hypothetical tsunami and the all too real financial tsunami that the country has suffered? There is none, other than the Government’s failure to distinguish between a unique shock and a normal policy stance.
However, perhaps my characterisation of coalition policy as folly is a little too harsh. After all, the supposed need for austerity has provided the Government with the opportunity to dismantle the welfare state with a zeal that would never have been tolerated in normal times. To assess the impact of this budget on the bottom 50 per cent of incomes, it is necessary to include all those measures that were announced over the past year, in the 2011 Budget and in the Autumn Statement, which will come into effect next month—measures that the Institute for Fiscal Studies estimates will cost families with children an average of £530 per year.
Now set that figure of £530 against next year’s increase in the personal tax allowance announced in the Budget. Taking people out of tax sounds like a laudable goal until you remember that the poorest do not pay tax. Then consider the consequences carefully. As a result of this measure, the poorest 10 per cent of households will gain £10. The richest 10 per cent of households will benefit to the tune of £111. Indeed, of the overall cost of this measure, 70 per cent goes to the top half of the income distribution. Yet that is what Liberal Democrats call “progressive”.
Compare these crumbs thrown to the poor to the £1.6 billion of cuts to the working tax credit about to hit them this April—cuts that are supposed to increase the incentive to work, when there are no jobs. Yesterday, in addition to what has been done already, the Chancellor announced, and the noble Lord confirmed, that the coalition is planning a further £10 billion of cuts to the welfare budget. I never cease to be amazed at the savage pleasure that Tories and Liberal Democrats take in attacking the living standards of the poor. However, my credulity has been stretched to breaking point by their naked pandering to their rich friends.
It is worth examining in some detail the coalition’s case for the pre-announced cut in the 50p tax rate. HMRC’s evaluation of the impact of the tax is based on one year’s data—a sample that no self-respecting economist would ever rely on. Moreover, the self-assessment figures are clearly distorted by income being brought forward in the preceding tax year—a predominantly one-off effect.
Next, let us consider the Chancellor’s claim that as a result of changes to stamp duty and capping unlimited tax reliefs, which will yield about £500 million in a full year,
“we will be getting five times more money each and every year from the wealthiest in our society”.—[Official Report, Commons, 21/3/12; col. 806.]
The origins of this claim can be found in Table A2 of the HMRC review. The table shows that the 50p tax without what is politely called “behavioural impact”—tax avoidance—would yield £3 billion in a full year. However, extraordinarily the 45p tax will result in revenues of £2.9 billion, as the 5p difference will be enough to reverse the behavioural impact. So, while 50p triggers almost complete avoidance, 45p is paid with equanimity. If you believe that, you’ll believe anything.
There is more to come. A Government who quite rightly declare tax avoidance to be “morally repugnant” have created the perfect tax avoidance scheme. Everyone knows that the top rate will fall from 50p to 45p next year, so all those who shifted their income back to avoid the 50p rate last year will shift their income forward to avoid the 50p tax this year. This is a stealth subsidy on a grand scale. To pay for the stealth subsidy, there is the stealth tax on pensioners. Never can a £1 billion a year tax grab have been explained as “simplification” that helps the poor old dears who find the forms too complicated.
Table 2.1 of the Budget Statement provides a helpful guide to the cumulative effect of the measures taken by the Chancellor since assuming office. As of today, 90 per cent of his planned benefit cuts are still to come, resulting in a cumulative 6 per cent taken out of aggregate demand over the next four years. That is the government headwind that business in this country has to battle against.
So what are the overall effects of the Government’s policies? With total output still 4 per cent below the peak achieved in 2008, we will not return to the level of 2008 for another three years. They have transformed a shock as large as that experienced in 1930 into a depression that will last two years longer than the 1930s depression. It is no excuse to argue that everyone else is adopting the same policy. There is only one prize for the quickest lemming.
This country needs policies for growth and jobs. The coalition believes that the rich must be made richer to encourage them to work and the poor must be made poorer to encourage them to work. In the mean time, the economy stagnates, the prospects of growth retreat before our very eyes and the pain of fiscal consolidation intensifies. The Government’s stance, echoed in this mean little Budget, is fundamentally misconceived. Without measures to boost confidence in the growth of demand, supply side reforms, however worthy, will have a negligible impact. A new approach is needed. This Budget illustrates that the coalition has neither the imagination nor the will to meet that challenge.
Lord De Mauley
My Lords, perhaps I may respectfully remind noble Lords that this is a time-limited debate and that contributions, other than that of my noble friend the Minister and the noble Lord, Lord Davies of Oldham, are limited to 10 minutes.
Lord Eatwell
The noble Lord is mistaken. The Opposition have 12 minutes to reply to the opening statement by the noble Lord, Lord Sassoon.
Lord Newby
My Lords, it is a welcome break with precedent for your Lordships’ House to debate the Budget so close to Budget day. We normally do it significantly later, so I welcome the fact that the usual channels have been able to agree this.
In my 10 minutes I will concentrate my remarks on tax and growth. The specific tax measure that has given most satisfaction to those on these Benches is, needless to say, the decision to raise the tax threshold to £9,205 next year. This is an important way of giving incentives to hard-working people and taking people on modest wages out of income tax altogether. Unlike every other change in the Budget, this one has been almost universally welcomed, although doing so was beyond the noble Lord, Lord Eatwell, who—in a typically bilious speech—was unable to mention a single specific thing that his party thought should now be done.
Moving on to other changes, on pensions, the Government have, as noble Lords will be aware, implemented a record increase in the level of the state pension this month. They have introduced a triple-lock for future rises in the state pension and are moving towards a universal pension of £140. That will mean a significant increase in income for many of those who have not had adequate pension provision in the past, particularly women. In the light of those changes, the change to the pension allowance seems a reasonable measure.
Equally, given our concern about the way that changes in tax and expenditure hit people at the lower end of the income scale, it seems perfectly reasonable that those at the top should cease to get child benefit. There is an argument about what it should be and exactly how it should be done. I accept that, even with the changes made, there is something of a cliff edge and an anomaly over single-income and two-income households. However, for many years, we, the Labour Party and others have argued for individual taxation, rather than household taxation, to benefit women in particular. It seems to us that that principle should remain. Therefore, the way in which the child benefit changes take effect is inevitable.
The 50p tax rate has generated arguably the most heat, if not the most light. I may be wrong about the Labour Party, but I think all parties saw it as a temporary measure from which would move away as the economy and the fiscal position improved. It will be no surprise to noble Lords that we on these Benches would not have made that move now. However, the reasons for doing so are primarily political, not economic. The noble Lord, Lord Eatwell, may not have read it but PWC and many others argue that the optimum higher rate for revenue maximisation is 45p. Therefore, in terms of income generated for the Exchequer, a rate of 45p has much to recommend it. That is the rate in France and Germany, and it clearly does not disincentivise entrepreneurialism there. Incidentally, I hope that the Government, having made this change now, will make no further changes to the higher rate in the lifetime of this Parliament.
I take with a pinch of salt all the estimates of how much the 50p rate would generate in the medium term and the cost of bringing it down to 45p. However, it is also deeply misleading to give precise figures about how much millionaires or billionaires will gain as a result of the reduction from 50p to 45p because we know that they are not paying the 50p rate. If they were paying the 50p rate in full, the income would be significantly greater and all the arguments would be different. Therefore, those who argue that millionaire X will now be paying Y extra, or getting Y a tax rebate, just fly in the face of the evidence about the behaviour of those individuals. The argument for maintaining the 50p rate was, therefore, political because the reduction in the rate looks as though the Government are simply favouring the wealthy. In many people’s eyes, that will remain the case even though some of the other measures in the Budget go quite a way to counter that assertion. I should like to deal with three of them.
First, the treatment of high-value properties—those worth over £2 million—goes some way towards what we have been arguing for in respect of a mansion tax in four respects. All those who keep such properties within a corporate wrapper will pay an annual amount. The 7 per cent stamp duty—15 per cent if you put it into a wrapper going forward—and the capital gains tax that will be payable on the sale of these properties if you are non-resident are also extremely welcome changes and will hit the wealth of the very wealthy. The general anti-avoidance rule, which was resisted doggedly by noble Lords opposite, is long overdue and will act a bit like an electric fence. No one wants to walk into an electric fence or get too close to it, so it will stop many abusive tax schemes occurring. The limit on the previously unlimited tax reliefs is also potentially of great significance. It is one of those things which is extraordinarily arcane but will make a significant difference to the behaviour of very wealthy individuals.
I hesitate to say anything about growth, given that we are going to hear from the noble Lord, Lord Heseltine, who has such experience in this area. I almost had to pinch myself when I noted that the noble Lord is to make his maiden speech today. He knows more about growth than probably the rest of the House put together, so we look forward to hearing from him.
When the noble Lord, Lord Eatwell, says that there is a problem about confidence and then implies that confidence will be restored by a combination of Messrs Balls and Miliband, frankly, I wonder what planet he is living on. As regards what the Government are doing on growth, the area where they can make a significant medium-term difference relates to infrastructure. There are a number of very important areas in the Budget in this regard where further movement is required in my view.
On the Pension Infrastructure Platform, the first £2 billion will be spent by early next year but I think we need to go much further than that and do so more quickly. The Government have said that £20 billion is available. We need to get more than £2 billion out of the door more quickly.
I am very pleased to see the plan to pilot a programme of enterprise loans for young people. I hope very much that the Government will look at the scheme which is already doing the rounds, under which young people who want to start a business are able to take out a loan on the same basis as young people going to university and repay the loan at the point when they have a significant income. That seems to me an extremely interesting idea.
I am very pleased to see the review of employee ownership. I am particularly pleased that that is moving forward quickly, with measures to be announced in the Autumn Statement. I am also pleased to note the other physical infrastructure proposals, not least the improvements that are planned for the transpennine rail route. On one area where, as a loyal Liberal Democrat, I disagree with party policy, I am pleased to see that the Government are pressing ahead with looking for new runway space in the south-east and London because without that in the medium term our growth prospects are jeopardised.
In the short term, this Budget will not transform the prospects for growth, nor would any Budget do so. However, promoting growth must remain a top priority. What is required now is a steely focus on delivering those programmes which the Government have already announced and which will really impact on growth. It is on their ability to deliver these programmes, in tandem with the continuing deficit reduction programme, that the Government’s economic record will ultimately be judged.
The Lord Bishop of Chichester
My Lords, the Chancellor has noble aims—a stable economy, a fairer, more efficient and simpler tax system and the encouragement of growth. From these Benches, I am pleased to endorse all three of those objectives. The debate is therefore not so much about the Government’s declared intentions as whether the Chancellor’s proposals are best calculated to achieve them.
A stable economy and sustainable growth are clearly in everybody’s interests. Rising prices and rising joblessness impact especially on the least well off, so the Chancellor is right to see maintaining confidence in our public finances, tackling inflation and creating the conditions for more job creation as priorities. Within this we therefore welcome the raising of the threshold of the basic rate of tax, given the benefit that will provide for lower-paid workers. Also welcome is the Chancellor’s belated rethink about the cut-off for child benefit payments. The higher figure removes the unfairness in the previous announcement, which would have created the perverse incentive for two parents on relatively low, modest salaries both to work outside the home rather than enabling one to be devoted to the care of very young children. It would also have hit a large number of middle-income families. We are very pleased to see that the Chancellor has had second thoughts about that. Other things to welcome include the anti-tax avoidance measures, the introduction of a new gift aid small donations scheme, more money for Armed Forces accommodation and some of the proposals designed to undergird the Prime Minister’s aspiration that those with the “broadest shoulders should bear the greatest load”.
In the present situation, it also seems sensible that the Budget should, overall, be fiscally neutral. “Overall”, however, is a slippery word. It inevitably implies losers as well as winners. We shall continue from these Benches to highlight concerns for the most vulnerable in our society. We therefore note with some concern the Chancellor’s suggestion that he will be looking for further reductions in the welfare budget in the next spending review period. Of course we accept that reform is necessary, but the question is: who pays the price?
When it comes to the proposal to freeze the tax allowances for the over-65s, I need to declare a double interest. First, I am about to become one of the “poor old dears” to whom the noble Lord, Lord Eatwell, referred, but secondly, and much more importantly, from my experience as the bishop of a diocese which contains a large number of pensioners who do not often have the benefit of occupational pension schemes and are struggling under the burden they are already bearing, I know of the fear which they experienced at hearing some of yesterday’s announcements.
My second concern is about the intention to change the law to relax the restrictions on Sunday trading. I am well aware that any attempt to question what the Government have proposed in this regard will sound either like party-pooping or special pleading. These will be the first Olympic Games in this country for 64 years and it is understandable that the Government want to maximise the commercial opportunities they will provide. Therefore, I do not wish to speak against the principle of a strictly time-limited and tightly drawn element of deregulation while the Games are in progress and in locations close to the main events. To remove all restrictions for an eight-week period, however, sounds suspiciously like a stalking horse for the wider deregulation for which some large retailers have been campaigning for a long time. Therefore, we will watch this space with a degree of scepticism. It is important that the regulations are drawn in such a way as to cover the Olympics and the Paralympics equally, but I remain to be persuaded that a Bill as widely drafted as the Government seem to intend is justified. I seek an assurance that there will be time for proper scrutiny of it in this House.
Thirdly, as part of the extension of VAT, the Chancellor is intending to remove zero rating from agreed alterations to listed buildings, so that, as is already the case with repairs and maintenance, the standard rate is payable. The Treasury document says that this is targeted mainly on listed dwellings but concedes that it will also affect listed places of worship and other buildings used for charitable purposes.
I need to remind your Lordships’ House that 45 per cent of all grade 1 listed buildings in England are places of worship. About 12,300 Church of England churches are listed out of 14,500 listed places of worship altogether, and 356 of those listed buildings are in my diocese. It is welcome that the Treasury has said that DCMS will extend the eligibility rules of the listed places of worship grant scheme so that alterations as well as repairs can qualify, and of course we are grateful for the extension announced in October 2010 of a further four years for a grant scheme.
However, the scheme is cash-limited, and I fail to see any reference to the amount of money available being increased. If so, does not the extension simply mean that the available money, which has already been reduced to £7 million this year, will have to be spread even more thinly? It rather blows any talk about the big society out of the water to make VAT non-refundable on agreed alterations by extending the VAT liability to improvements. Because the change will not affect places which charge for entry, it will increase the pressure on large churches and cathedrals to introduce admission charges. Of course, some already do that, but many, including my cathedral, as a matter of principle do not charge for admission and wish to remain in that position. The way in which the new rule will impact on them is particularly difficult.
Ordinary local people, members of local churches and communities, have been volunteers for years looking after our glorious heritage of listed buildings—and they pay for it as well. About £107 million is spent annually on Church of England churches, on the 2008 figures, and £70 million of that is raised by local people for their local parish churches. They did not choose to build those places; they inherited them. Now they are to have a 20 per cent tax on their efforts to improve them. They will be taxed for volunteering to support the nation’s built heritage in that way. They want to leave their building in an enhanced, improved state for the next generation, which has direct implications for introducing energy-saving and other improvements into medieval churches. Some joined-up thinking needs to be done here, or the impact of VAT on improvements will have a deleterious effect on some of the things that the Government think desirable.
All of that will be a bad blow for the churchwardens and parochial church council members of about 12,500 listed churches, many of whom strive tirelessly to raise money for basic improvements so that better facilities can be installed and churches are available for greater community use. I very much hope that the Government will be prepared to think again before the law is changed.
Lord Higgins
My Lords, this is an excellent and imaginative Budget and I strongly support all of what is in it, but it is singularly unfortunate that the presentation should have been spoilt by what seems to me to be a disregard for the convention that Parliament—that is to say, the House of Commons—should be the first to be told what is in the Budget and its details. It is a long time since Hugh Dalton resigned simply because he spoke to a journalist on his way into the Chamber to announce his Budget, but none the less, I believe that the convention remains extremely important—not least because of the dangers that arise with market-sensitive information in the Budget. In that context, I was worried by the front page of the Financial Times yesterday, which states:
“Mr Osborne will confirm that he is cutting the top rate of income tax from 50p to 45p, but the wealthy will be hit by a punitive array of higher levies on the purchase of expensive homes and a crackdown on avoidance schemes.
The chancellor will introduce a 7 per cent stamp duty rate on sales of property costing more than £2 million—according to officials involved in the Budget”.
That is a very worrying statement indeed. We must not allow this kind of thing to happen. I do not know whether my noble friend would care to comment on that.
The other thing is that clearly, in public relations terms, it was a disaster. Almost everything was released in advance, except for the proposals on pensions, so almost every front page this morning carries scathing remarks about pensions although, as my noble friend just said, pensioners have in fact been hit less than other taxpayers. Those headlines are misleading, but that is a worrying development.
On the specific proposals, I am very pleased to see the rise in the tax threshold which will take people completely out of tax, which is always a great advantage if it is possible. I believe that we must move more in that direction. Equally, I believe that the cut in corporation tax is very important if we are to get growth. It certainly makes us competitive with our European partners.
I am also pleased about what the Chancellor did not do. He did not, as the Labour Party had been suggesting, cut the basic rate of VAT. It is true that it has gone up, since I introduced VAT through the House of Commons at 10 per cent, to 20 per cent, but none the less, it seems to me that the present rate is necessary. I am particularly glad that the Chancellor went out of his way to reaffirm the present structure of VAT, which gives zero rating to those items most important in the household budget, something which no other VAT in Europe does. All of that is very good news.
We are debating the effect of the Budget on the economy. The reality is that the effect of the Budget on the economy will be virtually nil. It is a fiscal-neutral Budget. This is a micro tax-managing Budget—in many admirable ways—not in any way a major macroeconomic management Budget. Therefore, the reality is that the weight of economic management has been shifted from fiscal management, from the Budget, on to monetary policy. There has been a very big change in that.
I originally deplored the fact that what was called the Monetary Policy Committee was not a monetary policy committee at all, it was an interest rate committee. It went on for years and years fiddling around with one particular interest rate, rather than being concerned with the supply of money. One worry has been that monetary policy in the sense of control of supply has, until recently and the advent of quantitative easing, been virtually ignored. We now have quantitative easing. Throughout, I have come out strongly in favour of it. Given the other restraints, given the level of interest rates, it seems to me that that must be the right approach.
I was therefore delighted to see a beautifully written article—I could not possibly have written it anywhere near as well—by Mr Martin Wolf in the Financial Times of 15 March. It said absolutely everything which ought to be argued on quantitative easing. He poses two particular questions: first, is it effective and, secondly, is it dangerous? As the OBR report states, it remains to be seen whether this round of quantitative easing is as effective as the previous one, but it has certainly assisted in the growth of the economy. That is something which we should all welcome. The risks depend on inflation, but we have to take that in the context of the general state of the economy. The OBR report contains fascinating passages on that. In a section on monetary policy, it specifically points out that we must be very careful in that regard, but one has to take into account on the inflation risk the level of excess capacity in the economy. The OBR proposes, and I am sure it is right, that we should gradually increase the level of demand through monetary means until we have mopped up a large part of that excess capacity, particularly in terms of unemployment. It is none the less very important, to the point where it does become an inflation risk, that other action should be taken.
In that context, I have some queries about the way in which quantitative easing is being operated. It is undoubtedly having adverse effects, particularly on pension funds, as lower interest rates affect the pension funds’ ability to fund future pensions. Perhaps at some stage we should ask whether quantitative easing as currently operated is the right way of increasing the money supply. There might be other effective methods that do not have the adverse effects to which I referred. As we are, let us make no bones about it, printing money, dare I say that it might even be a good idea simply to print it and distribute it on an equitable basis across the population? We have, after all, an election coming up fairly soon.
Be that as it may, I think that there is some confusion about the way in which quantitative easing is operating. It is not in the least bit clear whether the Bank’s purchase of gilts from the market is the right way to do it. The tendency is for the banks to use the money to build up their balance sheets rather than to extend it in loans to small or other businesses. None the less, it is not at all clear what the Bank is going to do with these gilt-edged securities. Will it hold them in reserve until such time as the economy starts to overheat and it needs to take the opposite action from that which it is taking at present, or should it simply cancel the gilts in its portfolio? I have searched in vain throughout the mass of documentation to find out what, in pure book-keeping terms, is really happening with this operation in relation to the Debt Management Office and so on. Perhaps we should look at that in order to illuminate what is really going on.
Overall, this is an excellent Budget. I believe that it does as much as possible in the circumstances to help particular individuals and, on the economy, to increase our competitiveness abroad. Europe is still a terrible risk. At least it has dealt with the debt problem for the moment. However, it has totally failed so far to deal with the exchange rate problem in the European Union. That is certainly a big risk, which we face.
Lord Wood of Anfield
My Lords, yesterday we saw a Conservative Chancellor give a Budget at a time of stagnant growth, rising levels of unemployment not seen since the mid-1990s, youth unemployment at more than 1 million, with unemployment among certain groups such as young black males now around 50 per cent, and real living standards dropping—confirmed yesterday—for the second year in a row, which is the first time that that has happened for 36 years.
The Government would have us believe that all that is exogenous—the fault of the fallout of the economic crisis, or the previous Labour Government, or the eurozone, or spiking oil prices. Let us put aside the fact that the Government cite international factors to explain tough times on their watch but conveniently forget about them when it comes to their account of the previous Government. It would be reasonable, I think, for families, for small business and for pensioners to expect a Chancellor who finds himself in power in such an economic moment to use his Budget to respond to the squeeze and insecurities that they face. So what did we get? We got a Budget that was underpinned neither by an argument about how to counter economic stagnation nor by any measures to get growth and jobs going again. Instead we got a Budget that was focused on redistribution rather than growth—a venerable Labour tradition, you might think. However, the redistribution is in favour of the very wealthiest in our society—which, combined with the totality of decisions taken, is at the expense of pensioners and ordinary families.
I want to talk about two themes: growth and tax. I shall start with growth. Little was said about it yesterday, and I can understand why. Last year growth was expected to be 2.5 per cent this year. In his speech this year, the Chancellor sought to get credit from his own Back-Benchers because he now thinks that growth will be 0.8 per cent instead of the 0.7 per cent predicted at the time of the Autumn Statement. However, hidden in the forecasting is cause for continuing concern about the prospects for growth and the sources of growth. Despite some highly optimistic projections in the Budget documents for the growth of total investment in the next four years, the estimate of business investment growth was revised down considerably yesterday. As the National Institute of Economic and Social Research said, although some of the announcements will undoubtedly help the sectors to which they apply and should be welcomed,
“they do not address the major factor depressing business investment this year: a lack of demand”.
What about borrowing, control of which the Government have put at the heart of their economic strategy? As announced yesterday morning, net borrowing increased by £15.2 billion in February. That is a record for a monthly figure. The City had forecast that it would be half that amount. As my noble friend Lord Eatwell explained, after yesterday's Budget, the Government are still on course to borrow more than £150 billion more over the Parliament than they forecast in their spending review.
On tax, I want to look specifically at the decision to cut the 50p rate for the approximately 1 per cent of the population who earn above £150,000 a year. Assuming that there is no avoidance—I take the point—this income tax cut will give 14,000 people in Britain a windfall of, on average, £42,500 each. The justification for a higher rate of tax for those on very high incomes is that it reflects a distributional truth about our economy. Over the past 30 years, as we all know, the incomes of the very rich have taken off relative not simply to those at the very bottom but to the remaining 97 per cent of the population. Since 1979, nearly a quarter of every extra pound earned in the UK has gone into the pockets of the top 1 per cent. It is a higher rate for those whose salaries are not just higher but stratospherically higher than those of the vast majority.
What is the possible justification for prioritising, of all things, the reduction of the 50p tax rate? The advocates say, “You don’t understand. There are two effects of the 50p tax rate: first, it doesn’t bring any money in, because it is eminently avoidable; and secondly, it deters people, who will bring in wealth, from coming to this country”. You cannot have it both ways—either it is eminently avoidable, or it is an apocalyptic deterrent. If it is a deterrent that is avoidable, perhaps I may suggest that Her Majesty’s Revenue and Customs should focus resources on telling everyone how easy it is to avoid so as to bring the rich of other countries to our shores. Or perhaps we should adopt a more conventional measure—clamp down on avoidance, which makes our tax revenues less reliable, less predictable and produces greater unfairness.
What was striking yesterday was the discriminating approach that the Chancellor displayed towards tax avoidance. On stamp duty and general avoidance, George Osborne said that he will come down like a tonne of bricks on morally repugnant behaviour and sharp practices. At the same time, he was recommending the scrapping of the 50p tax rate for those earning more than £150,000 a year, on the grounds of a resignation to the unavoidability of avoidance of income tax. “But”, the defenders of the 50p tax rate continue, “you still don’t understand. The 50p rate stops people working”. Does the 50p tax rate stop people working? I have not seen any evidence of it. If it does, and if the productivity of the wealthiest in our society is dramatically on the wane, the fact that their incomes continue to rise way ahead of median and mean wages suggests that there is something deeply dysfunctional about the labour market at the very top. Perhaps that is something that a government inquiry might look at.
Even if there is evidence—although I cannot find any—that the abolition of the 50p rate will lead to people coming to Britain, there are two further questions that need to be answered. First, will the very wealthy who want to come to Britain pay income tax while they are here? Secondly, will they be wealth creators, as opposed to income gainers? On the first question, I would like to see evidence. In 2008, only 16 per cent of those who earned more than £10 million paid income tax. A policy based on worry about tax revenues that is aimed at bringing people who pay precious little income tax does not have the feel of evidence-based policy-making.
To the second question of whether they create wealth, we do not have the answer. We hear that it is important to signal that we are open for business—but is there any evidence that those who might be attracted to move here would use their wealth to create jobs and income for others? The Government had better hope so, because there was precious little in the rest of the Budget for those out of work.
The cut in the 50p rate was an ideological choice that has had its advocates scrambling around for a rationale. As the IFS said, the argument that 50p brings in no extra income is based on data for one year. This point was made by my noble friend Lord Eatwell. In the year on which the evidence was based there was a transition from 45p to 50p. The irony is that by scrapping 50p from April 2013 the Chancellor has thrown down the gauntlet to the accounting profession to meet another challenge. It has months to work out how to defer the income of its very wealthy clients for another year so that they may benefit from the 45p rate in 13 months’ time. The race is on. Perhaps the Minister will tell us whether the Treasury has factored in behavioural responses of the wealthy to this transition in its revenue calculations for the coming year.
The collection of courageous assumptions lying behind the Treasury's optimism about tax revenues made me want to applaud the Chancellor for his mathematical pyrotechnics. The Budget assumes that the ostensible cost to the Treasury of reducing the income tax rate will be only £100 million, because all those who avoided the tax at 50p will come flooding back into the tax system at 45p. This is an assumption about tax elasticity of heroic proportions. The Government are resigned to income tax avoidance but think that a 5p reduction will be sufficient to eliminate it completely. I wish them luck with that.
On the income that we will recoup from getting tough on stamp duty, the Government’s optimism continues. In contrast to their approach to income tax, they put their faith in a crackdown on corporate envelopes holding residential property. We should welcome the new stamp duty rates. However, my concern is not with them but with the idea that there is equivalence between a tax on the income or even the property of the very wealthy, and a tax on the very occasional and up until now eminently obscurable transactions on property worth more than £2 million. About 1 per cent of those earning more than £150,000 are likely to move to a house worth £2 million or more in the next year, so 99 per cent this group will enjoy a straightforward and sizeable tax cut.
I will end by focusing on two quick points. First, yet another Budget has passed without signs of a growth strategy. As a leading BBC economic journalist said on Tuesday, cutting taxes for a hedge fund manager and cutting taxes for his cleaner do not a growth strategy make. Even setting aside poor performance on growth and the escalating problems of unemployment—data were published today on consumer confidence and retail sales that should give us serious cause for concern—we will struggle to find in the Budget documents a growth strategy to meet the scale and urgency of these concerns.
Secondly, the Budget reveals something else. The Government talk constantly about tough choices. They are right that for all sorts of reasons they have to make them. However, yesterday saw the Chancellor make a decision that was big but not tough. It was a choice in straitened times to favour those who have the most. It was not the end of the Government's macroeconomic strategy—that remains in place, and we are the poorer for it—but it was the moment when their credibility as a Government who asked every section of society to bear its fair share of the pain was fatally undermined.
Baroness Randerson
My Lords, this was a highly intelligent Budget. At a time of economic austerity, it was highly intelligent to produce a Budget that has been received so positively. I have felt rather sorry for the Labour Party over the past 24 hours. It has been living in a parallel universe, responding to a Budget that it thought the Chancellor would make but which he did not. It has cast around for any stone to throw when, across the piece, there has been a very warm welcome for a very large part of the Budget.
I will concentrate my remarks on two key issues. The first is fairness and the second is economic growth. The concept of fairness is very complex. It is not just a question of tax rates. In our modern society, it has become an issue of the tax that is actually paid. The UK has a very complex tax system, which became even more complex under the Labour Government. With complexity you get a lack of transparency, inbuilt unfairness when one tax rate does not fit with another, and loopholes. Therefore, I welcome the variety of measures in the Budget to close loopholes, in order to establish the principle that the rich should not pay a lower rate of tax than the poor.
The vast majority of people regard aggressive tax avoidance as unfair if not downright immoral. I welcome the move from taxing income to taxing wealth, because it is much less likely to deter investment and entrepreneurship in this country. A property tax is ideal. Put simply, you can move your money to Belize but not your house. However, people have been moving their company to Belize—and their company, in essence, is their house. The Chancellor’s announcements on higher rates of stamp duty are therefore particularly welcome.
The exploitation of the loophole that allowed the richest people to buy properties in company names has meant that there are now thousands of companies, the majority offshore, which consist entirely of one house. I do not accept the noble Lord’s assertion that this is an unusual arrangement. Unfortunately, it has become all too common. I will give the example of One Hyde Park—not a building that I have ever visited—which is known as the world’s most expensive apartment block. It has 62 apartments. Only nine pay council tax—and five of those get a single-person discount as they are second homes. This is not a fair result from the financial arrangements of the people who own the apartments. It is the kind of tax avoidance that makes ordinary people on PAYE very angry; and it is being stopped as a result of the Budget.
The consultation on an annual charge on residences valued at more than £2 million that were purchased by companies, to begin in April next year, is also very good news—as is the extension of the capital gains tax regime, to capture gains on the sale of UK residential property, or the sale of shares in property, by non-UK companies. Finally on this issue, I welcome the proposals on the general anti-avoidance rule, following the Aaronson report, which proposed a moderate rule, targeted at abusive tax avoidance arrangements. This will enable us to tackle tax avoidance without damaging competitiveness.
I turn now to the second issue: economic growth. The Budget does not just help ordinary families, but ordinary businesses. The cut in corporation tax—24 per cent this year, going down to 22 per cent in 2014—means that we will have the lowest rate of corporation tax in the G7. The increase in the bank levy, which will raise £2.5 billion, will ensure that the banks continue to pay their share. That harks back to the public view of fairness. Measures on credit easing will help keep money flowing to businesses.
Although it is obvious that the biggest ever increase in the personal tax allowance will inevitably and rightly be seen as assistance for ordinary families, it is important to look at it also from the perspective of business, because £220 a year left in the pockets of 21 million working people will be a major stimulus to the economy. By definition, these are largely people who spend their money—and spend most of it in the UK.
We judge Budgets by how they deal with people, but this Budget should also be judged by how it dealt with the nations and regions of Britain. This coalition Government have consistently sought to rebalance the economy, which was left by Labour to rely much too heavily on the overheated financial sector concentrated in the City, with disastrous results when the bubble burst. This coalition Government have tailored their policies to assist those parts of the UK that got left behind in the scramble of the financial sector under Labour. My country of Wales gained significant benefits from this Budget, and it needs them because under the Labour Government the GDP of west Wales and the valleys declined from 79 per cent of EU average to 68 per cent of EU average, despite receiving £6 billion of EU aid. Most parts of Greece have been doing rather better than most parts of Wales, so Wales needs the economic stimulus that was in this Budget. As a low-pay economy, it will gain particularly from the increase in personal allowances—an additional 42,000 will pay no income tax at all as a result of this Budget, and there are specific measures, such as the £12 million confirmed for ultrafast broadband in Cardiff and the agreement to make 100 per cent capital allowances available for plant and machinery for designated areas in enterprise zones, most of them in Deeside, which will create 5,000 jobs. Wales’s economy has suffered, at least in part, as a result of infrastructure problems, so commitments on the consideration of the creation of an electrified valleys metro are also very welcome. I believe that the key thing in this respect is that the Budget has laid firm foundations.
Finally, I wish to refer very briefly to the creative industries, which have long been a particular interest of mine. I greatly welcome the measures in this Budget to assist them. The introduction of corporation tax reliefs for the video games, animation and high-end television industries is very welcome. It will incentivise investment, both from within the UK and from abroad. A number of competitor countries already have such incentives: France, Canada, some states of the United States, Ireland and Hungary. Those industries in Britain employ 15,000-plus people. They are mainly based in SMEs, and they have huge potential to offer our economy. These incentives go along with the Government’s policy of backing British success stories—car manufacturing and marine technology, to name but two—and they are part of laying the foundations for a successful, broadly based economy in future.
Lord Heseltine
My Lords, yesterday in another place, the Chancellor of the Exchequer announced that the Secretary of State for Business, Innovation and Skills had invited me to look at aspects of the Government’s industrial strategy and, particularly, at the interrelationships of that strategy with other parts of the economy. I thought it might be for the convenience of the House if I was to expand on this remit at rather greater length than would have been appropriate for the Budget speech itself. I am extremely grateful to have the chance to share my thoughts directly with your Lordships at the earliest opportunity.
The coverage of the Budget inevitably focuses on the economic forecasts and tax changes that represent the Government’s strategy. The tax, regulatory and spending decisions of the Budget are obviously of prime importance in the execution of that strategy, and it is well known that it is a strategy to restore the economy to growth and to enhance competitiveness. Competitiveness is measured against other economies’ performance. I have been asked to undertake a benchmarking exercise to compare our approach with that of our competitor countries and to look at the way in which those countries pursue the implementation of their industrial strategies.
I am the first to recognise that it is no easy task to define the concept of an industrial strategy. They may differ widely from country to country dependent on those country’s histories, their culture and the precise involvement of government. What cannot be denied is that one way or another all Governments play a crucial role in determining the effectiveness of their economic performance. In this exercise, we cannot, of course, look at every economy with which we compete, but I shall try to examine those that are our most formidable competitors.
There is one point I should make—although as a former Minister I was, I think, responsible for more individual acts of privatisation than any other Minister in British history—which is that wasteful subsidy or unnecessary lame duckery is not part of any thinking of mine. Competitiveness is not about headlines, and it is particularly not about headlines that imply that it is all somebody else’s fault. It is often about grinding detail over long periods of time. There are no quick wins and no easy options because all other countries are watching us, just as we watch them. Best practice is rapidly copied, so we have to look ahead. We have to determine to get ahead, and we have to have policies to keep us ahead.
I thought it might be helpful today if I simply asked some rather obvious questions that will preoccupy me in the months ahead. I do not need to be told, and nor do your Lordships, that we have some of the best companies in the world. They are out there winning every day, but is our average performance good enough and how can the underperforming tail be persuaded or encouraged to catch up? Do we set our industrial standards high enough in the modern world?
Of course, as many of your Lordships have reflected, we need to improve our infrastructure, invest in research and development and think long term, but our competitors are doing this all the time. All of us can list the new growth markets. We can put forward the exciting technologies of tomorrow. Of course, everybody is doing just that, so we have to do it just in order to keep up with where we are now, but if we want to get ahead, we have to do it better, and no matter how successful our companies may be in creating jobs in the industries of tomorrow, only a tiny proportion of our young generation now at school will actually find jobs in those exciting new industries.
There is a very proper focus on the quality of our education, and I have to say that I am one of those who is very critical of the past 100 years of government responsibility for education. Our industry depends on world-class results if it is to create and sustain first-class jobs. So can our industrialists expect to see the necessary improvements in our attainments quickly enough to meet the challenges that the markets thrust on them? As important is the need to attain standards in literary and numeracy simply to sustain jobs in the traditional industries, such as housing, retail, construction and logistics, where many more people will continue work than in the newer industries and the ones with fashionable titles. Is our training and skills agenda in line with our industrial expectation and is higher education playing a big enough role in converting the inventive genius of leading academics into jobs here in the UK?
At the heart of the growth strategy is increased priority for the private sector—quite rightly so. It is therefore important to recognise the potential for the LEPs—local enterprise partnerships—in their challenge to rebalance local decision-making towards the creation of wealth in the same way as that which underlay the rise of our cities 200 years or so ago. Over 200 years, the balance in local government has swung decisively towards social provision. There were very good political reasons for this, but it is has happened at the expense of local initiative, as more and more decisions are effectively taken by the functional departmental monopolies of Whitehall. We need to be confident that the LEPs are doing the job that the Government intended.
Every industry in this country is sponsored by a government department. What does that mean in practice? Do the government departments have the people with the skills and experience to sponsor industries effectively? Can our chambers of commerce and trade associations give their members the support that is commonplace in competing economies? Are those who claim to speak for industry and commerce prepared to tell the slowest ships in their industrial convoys that their failure may actually be their fault and not that of government or the economy?
There is much concern about what is called short-termism in our approach to industrial investment. Who owns British industry and do such owners see themselves as having any responsibility for anything other than the short-term valuations of the shares that they own? There has been a continuing debate about the destructive effect of regulation but it appears that those who express the greatest concern are reluctant to convert frequent generalised criticisms into detailed examples of the changes that they would support.
Everyone knows that we face huge challenges in this country in enhancing our competitiveness, but in practice, in everyday life, does the scale of the threat transmit itself into any sense of urgency to get decisions taken or results achieved? Your Lordships only have to think of our planning system to realise that that is a rhetorical question.
Many other issues will be raised as we seek to fulfil our remit, which, according to the letter of invitation, is to:
“undertake an independent review of how spending departments and other relevant public sector bodies interact with the private sector, and assess their capacity to deliver pro-growth policies”.
I have been asked to report by early autumn and such a timescale must act as a valuable discipline on the scale of our work. It will not be possible to visit every factory, meet every representative group or travel extensively. However, I am extremely grateful for the support not only of the Secretary of State and the Chancellor but of the Permanent Secretaries of the Whitehall departments for their co-operation in making available to me a formidable team of officials. We shall do our best to involve the private and relevant sectors extensively in the work that we undertake.
Finally, I should stress that this is not a government inquiry. I have been asked to give my views. It can therefore be only a very partial contribution to a debate about the quality of our national performance, in which we are all involved.
Lord Bilimoria
My Lords, when I found out yesterday that the noble Lord, Lord Heseltine, was going to be making his maiden speech today, luckily I was sitting down. I remember very clearly bumping into the noble Lord soon after I joined your Lordships’ House. I asked him whether it was true that he had not made his maiden speech, having already been in the House at that time for five years. He said it was absolutely true, and I asked why. He replied, in a very humble manner, “Who wants to hear from me?”
He was in the other place for 35 years; a Cabinet Minister for over 20 years; what a shame it is that we, as a House, were losing out on all that wonderful experience. Yesterday was the Chancellor’s day, as all Budget days are, but it was also the birthday of the noble Lord, Lord Heseltine. Yesterday was also a special day for me as a Zoroastrian Parsi, as it was our new year, the first day of spring. So it is an excellent new year’s resolution for the noble Lord finally to make his maiden speech, more than a decade after joining your Lordships’ House.
Look at what we have missed out on. I am sure that some of your Lordships would have wished for a decade’s silence from certain of our fellow Peers, but certainly not from the noble Lord, Lord Heseltine. We know the wonderful apocryphal story about Michael Heseltine, as a young undergraduate, jotting down his future on the back of an envelope: “Millionaire at 25, Cabinet Minister at 35, party leader at 45, Prime Minister at 55”. Of course, the noble Lord denies this, but the reality is that he has achieved so much, and he could have—and many would say should have—become Prime Minister.
The noble Lord might not have reached this final milestone, but there was never a dull moment in his career. He was in the unique position of being a truly successful entrepreneur in his own right, while also serving as a very successful politician. He was an impactful president of the Board of Trade in the early 1990s. There is no better person to have been selected by the Government to chair a review into the potential for links between the state and private sectors. How the Chancellor would have benefited from having that review before yesterday’s Budget. Thanks to this, we in this House have now had the benefit of hearing the fantastic contribution of the noble Lord, Lord Heseltine, today, and we hope that his famine of speaking will turn into a veritable feast for us in the years ahead.
Lord Bilimoria
My Lords, our economy has been in recession, and thereafter bumping along the bottom, for coming up to four years now. There is no question that the Government’s tough stance and posturing with regard to austerity have sent out the message internationally that has enabled our borrowing rates to remain extremely low. It has also sent out a message to the country that we need to tighten our belts and make sacrifices. To that extent, the Chancellor has had to try his best to balance his books. Of course, a balanced budget is a very prudent thing indeed. However, we have to ask ourselves, what is the point of a zero-sum game? As Martin Wolf said in the Financial Times today, this is:
“A Budget without economic significance”.
On the one hand, as an entrepreneur I have been thrilled with so much of what the Chancellor announced yesterday. The reduction in corporation tax rates, which will give us one of the lowest rates in the G20, is an excellent decision. The removal of the 50p rate of tax, albeit not back to 40p where it should have gone, is at least a move in the right direction and makes a huge impression in attracting investment and the brightest talent to this country from abroad. Psychologically, the 50p rate was over the tipping point, and I am happy to see it removed.
On the other hand, this Budget has hurt a great many people. Our fuel taxes are the highest in Europe by far. Consumers have been squeezed with high inflation, and in many cases falling earnings, and higher taxes such as VAT. In my own industry, as chairman of the Cobra Beer Partnership, a joint venture with Molson Coors, I have seen the damage excessive taxes have done. While we are fortunate that our brand is growing, the beer industry in Britain has shrunk by nearly 30 per cent in 30 years.
As Mark Hunter, chief executive of Molson Coors UK, said in today’s Times:
“There are no winners from the beer duty escalator. Ordinary British drinkers are paying more tax to drink less beer, reducing overall government tax revenues and forcing British brewing into a deeper, duty-fuelled decline”.
Mark Hunter also happens to be the chairman of the British Beer & Pub Association. He said further:
“Beer drinkers in Britain already pay a whopping 40 per cent of all European beer tax and yet drink only 13 per cent of the beer—and we are disappointed that the Government has chosen not to end this crippling policy”.
Sadly, we are still seeing 15 pubs close each week—pubs that are at the hearts of our communities. When you hit beer, you do not just hit pubs and the brewing and manufacturing industries, you also hit our farmers. Our beer is brewed in Burton upon Trent and 100 per cent of our barley is British, and we are proud of it.
What we have lost in this country over the past decades is a balanced economy. As president of the UK India Business Council, the origins of which are the Indo British Partnership, which was launched by the noble Lord, Lord Heseltine, when he was President of the Board of Trade in 1993, I know that India aims to have manufacturing making up 25 per cent of its GDP. In our case, manufacturing is heading towards 10 per cent of GDP. Increasing manufacturing increases jobs, and manufacturing jobs lead to services jobs, both directly and indirectly, and to jobs in the supply chain. My big concern about this Budget is that I do not believe it is doing enough to generate growth and jobs. In fact, the growth forecast is 0.7 per cent to 0.8 per cent, and then to more than double to 2 per cent next year. When can we believe any of these forecasts? Will the Minister give us some reassurance on that?
The Minister talked about the £20 billion of credit easing for SMEs, which is fantastic news. But I was disappointed that, sadly, the media hardly covered this. Will the Government talk more about the scheme? Will it be like the Government’s small firms loans guarantee scheme? Will this money flow to the banks? Already I have heard that HSBC will not sign up to it. How will the Government ensure that banks lend this money to the entrepreneurs who need it? The Government urgently need to flesh out their plans and communicate this to business and to the country because it has the potential to have an enormous impact on SMEs, which are, after all, the engine of the growth of this country.
As the noble Lord, Lord Heseltine, has said, we need to invest far more in research and education if we are to make this country competitive and improve our productivity. This is, unfortunately, where the United States, time and again, is way ahead of us. While we are bumping along the bottom, the United States economy has been growing. One of the main reasons for that is that it invests far more in higher education and in research and development than we do. I do not think that this Budget has done enough to close this gap. Will the Minister respond to that please?
As regards our Armed Forces, we have been in Afghanistan longer than World War I and World War II put together. We have lost precious lives and have so many badly wounded soldiers, which has caused huge loss, pain and grief to friends and families, and to our whole nation. But the monetary cost has also been huge. I am happy to hear that the Government will be reinvesting the money saved from an early pull-out from Afghanistan by putting some of it into the accommodation which is desperately needed for our troops and their families. However, I am greatly concerned that the Government have chosen to freeze the raise of our soldiers’ salaries to only 1 per cent. The soldier’s basic salary is £7,000 lower than the national average. Is this the way for us to uphold the military covenant? Is this the way we show our gratitude to our brave Armed Forces?
The Government rushed through the SDSR, destroying Nimrod, getting rid of Harriers and getting rid of our carriers. We could have used those carriers, those Harriers and those Nimrods in Libya. Now we learn that the change to catapult-based aircraft carriers will have to be scrapped, which will result in billions of pounds wasted and in cutting our capability. We did not predict the Arab spring. We need to be prepared for what will happen in the future.
As has been said so often, this Budget has also hit our pensioners. They are currently being squeezed by low interest rates, which are necessary but are affecting their savings. They have also been hit by high inflation. As I have said, I support the reduction of the 50p rate of tax but the so-called “granny tax” that the Chancellor announced makes this look like a Budget that is helping the rich at the expense of poor pensioners. Is that the message that the Government want to send out? As we have heard, it has been a PR disaster.
I have heard that the Budget Committee of the House of Lords, of which I was a member last year, will no longer be convened this year. Hence, we will miss out on the wonderful expertise that we have in this House. Will the Minister confirm that that will be the case?
In conclusion, I am grateful to the Government for the many business-friendly measures in this Budget. It is reassuring to see further cuts in areas where cuts are required, such as in welfare, which is the largest area of spend—£10 billion. The infrastructure spend, broadband and looking at a third runway at Heathrow are all essential. But I am afraid that this Budget has not addressed enough the fundamentals of economic growth, job creation, research and education. A balanced Budget is not enough—it cannot be a zero-sum game. A good Budget balances the books, gives a more balanced economy for industry and innovation, and encourages a growing and competitive economy.
Lord Sugar
My Lords, I join the noble Lord, Lord Bilimoria, in welcoming the noble Lord, Lord Heseltine. I feel honoured to participate in a debate in which the noble Lord has made his maiden speech. I am sure that I will be joined by other noble Lords in saying that we look forward to hearing him speak a little more in the future. His maiden speech was interesting in the sense that there was no need for the normal preamble of him telling us who he is.
It is common knowledge that Governments across the world tend to spend far more money than they collect by way of taxes and hence create great piles of debt. Every so often there is a wake-up call where certain initiatives are put in place to try to reduce that debt. We are no different in this country. I understand, albeit that it is no consolation, that from 2014 we will receive itemised tax bills, which among other things will show how much each of us is paying by way of debt interest. Indeed, one may ask whether the current spending budgets of the Government are forecast to exceed income again. One thing for sure is that the debt is going to rise as we seem to be borrowing far more than was forecast since the last spending review.
The fact is that the economy of the country is supported by business. If one were to run a company in that manner—continually spending more than one’s income—we all know that that company would go bankrupt. If one of my companies did that and I started printing money, as mentioned by the noble Lord, Lord Higgins, to ease my situation, no doubt I would be put in prison for counterfeiting. We will not get this deficit down unless we have a plan for jobs and growth to get the economy moving. To do that, we need to encourage small and medium-sized businesses to invest, to be daring and to kick-start the economy and employ lots of people.
It amazes me that the Government’s Business Secretary announces a lot of hollow initiatives under the guise of helping small businesses, yet he has never been in business. He has never been on the coal face, never run a business and has never understood the needs of a small business. I am sure that if the noble Lord, Lord Sassoon, had a pain in his groin, he would not want me to remove his appendix since I am not a surgeon. That may be a stupid analogy, but I am sure that I am making my point.
Yesterday’s Budget contained the usual lip service of how the Government are going to help small business. They have continually made these statements but so far we see no evidence of it. As my noble friend Lord Eatwell mentioned, it is the same as the promise made to put fuel into the tank of the British economy. Instead, the economy has stalled and unemployment has risen, as has the aforementioned debt.
On the subject of lip service, I am concerned about politicians deflecting the real issues and placing blame elsewhere—for example, jumping on the bandwagon of bank bashing and singing the same old songs about the lack of money being lent to small to medium-sized enterprises, or bonuses being paid to bank executives. All this does nothing other than depress the business environment. It is not encouraging in any way, shape or form. It is sheer political capital. I urge all politicians to change the record and to start to instil confidence in the marketplace instead of depressing it.
One never hears outrage expressed at the bonuses payable to, say, Sir Terry Leahy, Sir Stuart Rose or Sir John Rose in their capacities as chief executives of Tesco, Marks & Spencer and Rolls-Royce. I say “quite rightly so” because that is business: you employ experienced top executives and set them targets to get things done—in other words, incentivise people. Yet when banks, some of which have a large public shareholdings, employ top executives whose sole purpose is to take over, clean up the mess, and improve the financial position and in turn the public’s investment, those executives are chastised for accepting bonuses. The reality is this: carry on doing that and those people will simply go and get a job in a different type of company where the culture of paying bonuses is not frowned upon. Replace them, pay peanuts, and you will get monkeys. There is no question about that. You will delay recovery of the billions that have been invested from the public purse.
Then there is the alleged issue of banks not lending to small and medium-sized enterprises. I had first-hand experience of this issue just under a couple of years ago when I was a government adviser. I investigated it in depth and discovered what I believe is still the position today, and that is that many companies out there are depressed by the messages of doom and gloom about the current economic situation. They are not investing, they do not wish to invest, and in fact they are tightening their belts. They do not want any money and are not asking for it because they are nervous due to the lack of confidence in the marketplace, and much of that is created by politicians jockeying for position or applause on BBC “Question Time” and a very mischievous media.
Then there are some companies that do want to borrow money. However, I regret to inform noble Lords that none of your Lordships would lend some of these businesses one brass farthing because they are simply not worthy and a bad risk. Yet it is those people who shout the loudest and make a lot of noise, which again attracts the newspaper headlines that are regretfully being used by certain politicians to popularise themselves. The noble Lord, Lord Bilimoria, mentioned the £20 billion credit-easing scheme. I am sorry to be so sceptical about this thing, which is designed to underwrite cash lent by banks to SMEs. I hope that it is not an open invitation to the banks to act in an irresponsible manner by dishing out loans that they would normally have rejected as high-risk. We must bear it in mind that they now have the Government underwriting those loans.
I have always stated that the last thing any businessperson wants is government interference. All that businesses require is an environment where enterprise can prosper, and that of course means allowing people to trade freely on a level playing field, and to work in an environment where taxation is reasonable and where there are no onerous regulations or obstacles. That is the sole job of the Government. They also need to create a more positive feeling in the marketplace to encourage small to medium-sized enterprises and indeed give people the confidence to start up their own businesses, become self-sufficient and in turn go on to employ other people.
Noble Lords have already talked about the Budget so I shall restrict my own comments. It should have contained some meaningful offerings to encourage investment and instil confidence. We need things that are tangible and can be touched, such as a reduction in VAT, a one-year national insurance holiday for small businesses taking on extra workers, a reduction in business rates and a reduction in duty on diesel. Those are just a few things that would make an immediate impact and be a genuine help to small businesses. Instead, regrettably, we have the hollow promises that we continue to hear.
Lord Fink
My Lords, it is my great pleasure to have the chance to speak in your Lordships’ House on the Budget, but perhaps I may start by joining the noble Lords, Lord Bilimoria and Lord Sugar, in congratulating my noble friend Lord Heseltine on a most thoughtful and elegant maiden speech. I should say that he is held in great esteem by businessmen and politicians across the political spectrum. Indeed, in my home town of Manchester, and in Liverpool where I have the privilege to sponsor an academy in Anfield, he is held in enormous esteem. Anyone who doubts the Government’s commitment to a growth agenda has only to look at my noble friend’s appointment to see the seriousness with which they take the issue of growth. I also agree with the comments of the noble Lord, Lord Sugar, about the mood music made by politicians in all categories, and how that mood music does not always help business. Sadly, that cuts across all parties.
I shall return to the Budget. In order to decide whether a Budget is good or bad, we have to look at it in the context of its time and the financial circumstances that the country is in. Given our straitened circumstances, in my view there are five questions to ask about a Budget to see if it is a good one, a bad one or, indeed, an excellent one. First, is the Budget consistent with the Government’s strategy of achieving medium-term fiscal goals? Secondly, does it help the country’s small businesses to grow and increase employment? Thirdly, does it help businesses to compete for talent and business in an increasingly competitive global marketplace? Fourthly, does it help the country’s citizens, particularly the less affluent, either by cutting their tax burden or by giving them the dignity to pay less tax and not have to claim back what is in effect their own money through benefits like working tax credit? Finally, we can add a new test that no Budget in living memory has achieved: does it provide a degree of financial transparency to taxpayers in terms of how much tax they are paying and where the money is going? These factors are much more important than the cheap populism of large giveaway Budgets, false claims of “prudence” or—dare I say?—“ending the cycle of boom and bust”.
If one takes these tests in turn one can see that, first, the Budget is clearly consistent with achieving the Government’s medium-term fiscal goals. As my noble friends Lord Higgins and Lord Sassoon have said, the Budget is fiscally neutral over a five-year period, but it does contain modest reductions in both taxation and spending. The economic forecasts agreed by the Office for Budget Responsibility agree that borrowing is on course to achieve a cyclically adjusted current balance over the next five years and debt will be falling as a percentage of national income by the end of the Parliament. That means that it is successful in this measure.
Secondly, I asked if the Budget will help small businesses to grow. As we know, growth in small businesses is key to reducing unemployment. The combination of continuing low market interest rates gained by prudent management of the deficit combined with a reduction in credit spreads, which credit easing should provide, will form a favourable backdrop for small businesses. The cuts in corporation tax rates and planning changes will also help small businesses. Finally, tax simplification, particularly cash accounting, will have a disproportionately beneficial effect on very small businesses.
The next factor to consider is how we can help larger businesses to compete. There is no doubt that the reduction in headline higher rate income tax will help to attract international talent to the UK as well as signalling, as others have said, that Britain is open for business. I know personally several ultra-high net worth individuals—and former large taxpayers, for that matter—who have moved overseas to escape the 50 per cent tax. Sadly, I do not believe that a small reduction of 5 per cent will bring them home just yet. I also know of many multinational firms which say that high-performing executives who they have wanted to poach into the UK will not come here unless they are offered income tax equalisations, something that, frankly, has not happened for 20 or 30 years.
As my noble friend the Minister said, the fact that international companies like GlaxoSmithKline are now creating hundreds of new jobs in Britain is very good news and an early sign of success in this area. Also the improvements being made to our infrastructure, particularly the expansion of northern train lines, should allow the economy, particularly in the north, to grow without too much traffic congestion. The accelerated reduction in corporation tax and support for ultra-fast broadband and wi-fi, which have become so important for many businesses, are also helping growth.
Many people say that research and development are absolutely key, but I think that most noble Lords have missed the development of The Francis Crick Institute close to St Pancras station. It is probably the most exciting biomedical development in a generation. It will employ over 1,500 scientists and is a joint venture between the Wellcome Trust, Cancer Research, the Medical Research Council and three London universities which between them are associated with five or six foundation hospitals. This is something which has not been achieved in any other country in the world, particularly not in the US. The head of the institute, Nobel scientist Paul Nurse, has said: “This project could never have been achieved in most countries around the world and is a first internationally”.
Fourthly, does the Budget help the country’s citizens, particularly the less affluent? The increase in personal allowances to £9,205 from April 2013 is a real achievement. It made no sense to tax families earning modest wages and to make them claim back similar sums in a variety of allowances. It created almost as great a dependency culture among those in work as those out of it. When income tax was originally introduced, it was designed as a temporary tax on the rich. I am proud that the Conservative-Liberal Democrat Government are stopping taxation for the less well-off and lifting many hundreds of thousands of people out of the income tax net.
Fifthly, offering taxpayers transparency on how much they pay and where it goes is an extremely good and innovative idea. It has always struck me that Governments around the world who operate PAYE-type systems seem to be able to charge and tax citizens more. I guess that it is a much less painful way of paying tax than finding a capital sum, as do people on schedule D, but perhaps the balance is wrong. If citizens knew how much they were paying and what it went towards, they might be more assertive in their views on expenditure.
Hence, on all the five measures that I have set out, this seems to be a good, possibly excellent, Budget given the financial constraints. However, lest I am seen as no more than a mere cheerleader for the Government, I will ask about the income tax reliefs of 25 per cent or £50,000. I have no problem with the principle of having limits on deductions, which could stop abuse in many areas, and I also believe that the rich should pay their fair share, but the one exception should be philanthropy. Although I was not sure whether it was normal to declare a potential conflict of interest in a general budgetary debate, I must declare it here. I chair several charities and I know that many philanthropists who support them give more than 25 per cent of their income to them. I also know that one or two of the charities that I support would not be able to operate without that generous support of the wealthy. Will my noble friend the Minister give me some assurance that he will try to intervene to help the plight of charities affected by the cap?
Lord McFall of Alcluith
My Lords, I am delighted to participate in this debate and particularly to follow the noble Lord, Lord Heseltine, whose civic award this week from Liverpool was richly deserved.
The power and influence of the social media in the form of Twitter were in evidence immediately after the Budget. Within minutes of the Chancellor sitting down after a carefully crafted and supposedly voter-friendly speech, it was labelled a “granny tax” Budget. The Chancellor’s tactical nous, for which he is supposedly famous, has let him down, and I suggest that there is a reason for that; every dot and comma of this Budget was publicly debated with his coalition partners. There were no surprises, save one.
As a keen observer of Chancellors and Budgets, I saw the Chancellor lose eye contact with his audience, bow his head to the Dispatch Box and say sotto voce that he was simplifying the system for age-related allowances for pensioners on the basis that they did not understand it. I along with others said, “Wow”. I suggest to your Lordships that pensioners certainly do understand the system now. Incidentally, the NAO last examined it on behalf of the Government in 2009, so the Government did not base their calculations on real-time information. This is a Budget that raises £4 billion, with £1.5 billion coming from pensioners. Almost half the revenue is coming from pensioners. I suggest that the “granny tax” storm will take some time to abate.
The Budget was big on politics but small on economics, being fiscally neutral. According to the Government, the extra £150 million of borrowing incurred on their watch left them with no room for manoeuvre: hence the Budget’s political emphasis, with the Chancellor eyeing the leadership and being the darling of the right wing of the Tory party at the expense of Nick Clegg—goodness knows why he went along with it.
Lords spiritual in this House regularly emphasise the concepts of faith, hope and charity. Let us look at those concepts in the context of the Budget. On faith, for all the emphasis on business innovation and investment, the OBR has drastically pruned its forecast for growth for 2012 following very weak figures for the last quarter of 2011. With recovery predicted at 0.8 per cent, the economy is not far from stagnation, so the Chancellor really is left on the sidelines, fingers crossed, and praying for sunny uplands in 2017. He has reduced corporation tax, which on the surface is a good initiative, but as Martin Wolf and others have described it in today’s Financial Times, this could be a zero-sum game, with global competition ensuring a race to the bottom. The interaction with personal income tax would encourage corporate retentions. We might therefore be exacerbating an investment black hole, with corporations hanging on to their money. The big issue is how we ensure confidence among those corporations to invest.
On hope, the issue of jobs and growth has been mentioned, but the Chancellor barely used the word “growth”, which I think was banned in his coverage of the Budget yesterday. However, what are we doing about the 1 million young people who are unemployed to give them any hope for the future? What are we doing about the north-south divide? I applaud the noble Lord, Lord Heseltine, for engaging in that, because instead of coherence between north and south, there is a divergence that will be to the detriment of the country. The prospects for the country will be diminished.
There is stronger case for fiscal stimulus this year than there was last year. Two members of the MPC, David Miles and Adam Posen, are calling for that—indeed, Adam Posen has long been on record as saying that the country needs a spare tyre for lending to small and medium-sized enterprises. I would have liked to see the Government ask in the Budget, “How can we create our own Mittelstand in this country, where we can support small businesses, rebalance our economy and take a renewed, fresh approach to manufacturing?”. I suggest to the Minister that it is not too late to consider the concept of a British investment bank, espoused by the noble Lord, Lord Skidelsky, and others, because banks do not lend to small and medium-sized enterprises because there is not much money in it for them. That is the basic issue that we must face. Therefore, the Government have a job to do to stimulate the economy in that area. We also have the tyranny of the PSBR, which I have cried out for Chancellors to sort out in the past. Why do we not do that, so that we could look at our economy afresh and ensure that it had a social dimension as well as a strict economic one?
On charity, the Budget will be judged on the fairness agenda. The esteemed philosopher, Amartya Sen, came to a Treasury Committee hearing quite a number of years ago and made the point that there is a connection between effort and reward, and that people judge fairness on the basis of that connection. I put it to this House that, while 14,000 people earning £1 million per annum will receive a tax cut of more than £40,000 each year, a family with children earning £20,000 will lose around £700 when the cuts and the VAT increase are taken into consideration. Undoubtedly, the winners from the Budget include the rich people, who can save lots of money, while the vast majority of taxpayers are given £14 a month as a result of the Liberal Democrat-inspired tax threshold initiative. The leader of the Liberal Democrats, Nick Clegg, has called this a Robin Hood Budget. However, far from the poor benefiting, the rich will benefit; it is the opposite way round. I suggest to noble Lords that we look at it as a Robbing Who? Budget. That will be the question reverberating around the country over the coming months.
Aspiring citizens have been hit as well. At a stroke, the Chancellor has just created an extra 300,000 new 40p higher-rate taxpayers, which has gone unnoticed, because he has reduced the tax threshold to £41,450. A family with a few children, having an income at that level, are now in the higher tax band. That will have a very serious effect on family finances. It will be the less well off, the middle-income and the aspiring and upwardly mobile citizens who in this Budget will be well and truly mugged.
There was reference in the past to Mondeo man and woman. What price Mondeo man and woman now? I suggest that with every passing day, the chances of Mondeo man and woman thumbing a lift rather than owning the vehicle will increase.
Lord Marlesford
My Lords, the toughest challenge that politicians have is to face reality. I know of no one who has in his career been better at facing reality, both in business and in politics, than my noble friend Lord Heseltine. That is why I am so glad that he will be facing, and I hope telling us how to deal with, the reality of our own competitiveness. That is a crucial issue, but facing reality is actually a challenge for all of us. It is a challenge that the financial world failed massively, especially in the United States in the years of unsound lending to unsound borrowers that led up to 2007, and the inevitable financial crisis that has created a continuing problem for the world economy.
The Chancellor started his speech by referring to two major risks to Britain’s economy—the situation in the euro area and a further spike in oil prices. I will say a brief word on both before making some comments on the tax changes and suggesting one or two further possibilities for progress.
On the euro area, everyone would now agree that the fundamental design of the euro is flawed—a single currency without a single fiscal and budgetary policy. It is a flaw that the designers must have been well aware of. Indeed, some cynics even think that the intention was to have it as a means of forcing a crisis that would result in the integration of the EU economy in a way that was, and probably still is, politically unacceptable. The real problem with the euro area is the refusal to face reality. The powers at the centre of the EU still deny that Greece is bust and has defaulted on its debt. It is assumed that the ECB backed by Germany can bail out any euro country that is threatened with default. Bailouts lead to bailouts until eventually there is a country that is too big to bail out.
Even today, the EU Commission is producing some really dangerous, ill thought-out proposals, and I will refer to one—the financial transaction tax. Were it to be introduced, it would do immense damage to the City of London, which is the world’s leading financial centre, followed by New York and Hong Kong. Financial services account for some 10 per cent of the UK’s national income and 11 per cent of government tax receipts. Perhaps more relevant is that, as it has been designed, the FTT is actually unworkable. I hope very much that when the moment comes, Her Majesty’s Government will veto it.
On oil, the price will, over the coming years, certainly fall steeply due to increasing competition from oil and gas from shale and from the revival of nuclear power. However, as the Chancellor said, there is now a risk of a sudden price hike, which of course is the equivalent of a tax increase and is therefore strongly deflationary. The risk is almost entirely political and was very well debated in your Lordships’ House last Friday. The overall conclusion of that debate was that the problems of the Middle East can now be met only by diplomatic and economic policies. Military action in that area could be catastrophic for the world economy.
I turn now to the Budget. What a change there has been in the political backdrop to Budgets in Britain. That is epitomised by an article by Chris Mullin in Monday’s Times. I do not disagree with the word of that article. Twenty-five years ago, Mr Mullin was editor of Tribune and 30 years ago he edited Tony Benn’s Arguments for Socialism. Now he writes:
“As for the Lib Dems and their ludicrous talk of mansion taxes and tycoon taxes, these are simply gimmicks”.
He ends his article by saying:
“Polls tell us that most people favour increased taxes for the rich, but that is because people tend to favour taxes they won’t have to pay. In any case, simply increasing taxes on top earners does not begin to raise the sums needed. That can only come from the middle classes. It is time politicians plucked up the courage to say so”.
That is another example of the need to face reality.
In four years, from 1975-76 to 1978-79, when the noble Lord, Lord Healey, was Chancellor, we had a top marginal rate tax of 98 per cent. That cut in at a threshold of £24,000. In today’s money, that would be £110,000. Those were the days when there was mass emigration of some of the most talented in Britain—the so-called brain drain. Had I qualified in any respect, I might well have been part of that. Yet today, the argument on all sides of the political spectrum is whether the top tax rate at £150,000 should be 50 per cent, 45 per cent or 40 per cent.
I remember very well sitting in the Press Gallery in the House of Commons in 1988 when the noble Lord, Lord Lawson, announced a top tax rate of 40 per cent. The opposition Benches exploded with anger. It is the only time in history when the House of Commons has had to be suspended in disorder during a Budget speech. However, that top rate of 40 per cent lasted more than 20 years, right through the Labour Government, and the 50 per cent rate was one of the bequests of Mr Gordon Brown to this Government.
As the excellent New Statesman, which I read every week, had on its cover last week, it is truly “the end of socialism”. Socialism was a casualty of reality—of the determination and energy of human beings, the recalcitrance of human behaviour and the inability of Governments to run business.
None of that means that further tax changes are not needed, and I have time to suggest only one. It is absurd that council tax—a well designed and efficient tax—should be allowed to get hopelessly out of date through administrative inertia. There are many houses, particularly in London, worth well over £1 million, which are not even in the existing top band, which comes in at a value of £320,000. We do not need extra bands, but the thresholds of the eight existing bands should be changed. At the moment, band A has a value of up to £40,000. That could become £100,000, with subsequent bands at £150,000, £200,000, £300,000, £500,000, £750,000, £1 million and £2 million. The differential in the rates of council tax could be changed as well if it was thought that owners of the more expensive houses should pay a reasonably non-proportionate tax. Yet the 1 per cent levy over £2 million suggested by Mr Cable is merely, to borrow from Mr Mullin, a “gimmick” to which I am afraid I would add the adjective “vindictive”.
The key to introducing such a system would be to do it only when a property changed hands. That would be administratively simple. Transfer prices have to be reported to the land registrar anyway, and stamp duty—I welcome the new rates—would continue to be payable. It would merely be a matter of reporting the change in ownership to the local authority that levies the council tax. Thus the buyer would know exactly what rate of council tax he or she would have to pay. There would be no hardship for existing occupiers. The two banding systems would exist side by side. Of course, it would take a generation before every house was in the new band. That might have some temporary depressing effect on the price of some houses, but that could be an added attraction.
Finally, I will add one other word on fairness. In my book, it is immoral to give state handouts to those who do not need them at the cost of not having enough money for those who do. For those at the bottom, a large part of their income has to be in the form of a social wage, but there are many benefits that could and should be taxed. The winter fuel allowance is an obvious one. Meanwhile, I am all in favour of getting more people at the bottom out of the tax range altogether. The Budget takes a major step in that direction.
Baroness Worthington
My Lords, I aim my comments towards the measures in the Budget that address green energy and the environment. The grouping of these topics within the Budget might imply that there is some overall cohesive vision linking our green future and energy together. Sadly, as the Budget shows, that is not the case. The Budget has been described by Greenpeace as a “polluter’s charter”. It is a ragbag of measures that appear to give great benefit to the fossil fuel industry at the expense of the green energy industry.
In opposition, the current Chancellor George Osborne made a great pretence of being green. He talked about how he would make the Treasury join DECC in championing action to tackle climate change. He said:
“The Treasury will no longer be the cuckoo in the Whitehall nest when it comes to climate change”.
He was right. It has become an albatross sitting round the neck of the low-carbon industry. We can be grateful that he seems to have dropped his more obviously outright hostility towards the UK leading on climate change but this is a long way from being a green Budget. He does not seem able to help himself. Even as he praises renewables, he then immediately undermines that by making a veiled reference to the fact that he obviously considers the renewables sector to be costing industry and consumers too much. He said:
“Renewable energy will play a crucial part in Britain’s energy mix, but I will always be alert to the costs that we are asking families and businesses to bear”.—[Official Report, Commons, 21/3/12; col. 798.]
Why single out renewables in that case? It is obviously clear that we need to subsidise low-carbon technologies but why single out renewables?
The policy that the Treasury introduced that supports investment in low-carbon technologies is the carbon floor price. It is quite a controversial policy. The announced level for 2014-15 in the Budget is now as high as £9.55 per tonne of CO2—almost double what it was—because there has been a big falling-off in carbon prices in Europe. We have to pay more to meet our desired level. We are now paying more than double the traded price in Europe. This is having an impact on businesses and consumers, but to what end? Essentially, it does not guarantee investment and it rewards existing generators who already built their infrastructure many years ago. It is accruing large amounts of money to our nuclear generators. Why no mention of the costs that nuclear puts on the consumer and business?
The Chancellor also appears to have some strange logic. He says that, “Gas is cheap”. In what way is gas cheap? If it is cheap, why would he also then have to announce a call for evidence on the barriers to investment in gas? The answer is that gas is not cheap at all—quite the opposite. Increases in gas prices are what are putting pressure on energy bills, not renewables. I am not against the increased use of gas. What concerns me is the Chancellor’s blithe disregard for the facts. People cannot invest in gas because it is expensive. There is a real possibility that it will remain so in future. Instead of making sure that we have a sensible contingency plan by giving unqualified support for renewables—a sector that is delivering investment, jobs and growth now—he sets about undermining them.
Why is gas expensive? In part, that expense has been driven by record oil prices. A couple of weeks ago, the oil price hit £80 a barrel. No one really considers or seriously believes that that will come back down in a significant way. That then makes the Chancellor’s fair fuel stabiliser policy completely redundant since it only kicks in if oil returns to £45 a barrel. Could the Minister help us understand the logic of this policy and tell the House when he expects oil prices to return to that level? That would certainly help our economy. I guess that the answer is never, and that the oil majors must be delighted to have successfully negotiated a break on the taxation of their product.
It does not stop there. They have also received more help in the form of substantial tax breaks for offshore drilling and decommissioning. In these difficult times, the Budget rewards not just rich individuals but also the most profitable businesses. Why does an industry making such huge profits need to receive yet more help from government? The noble Lord, Lord Marlesford, said that,
“it is immoral to give … handouts to those who do not need them”.
The offshore oil and gas industry is not a poor one. We do not need to spend £3 billion of lost tax revenue helping it get more oil out of sensitive areas in our seas.
It is not just the oil and gas industry that the Treasury has seen fit to help out. There is also something in the Budget for the coal lobby: an exemption from the carbon floor price for the use of coal slurry to generate electricity. That does not sound at all green to me. I struggle to see how that can be justified. This is apparently a low-carbon policy yet we are giving an exemption for a high-carbon-emitting source of fuel used to make electricity. That makes no sense. Again, could the Minister explain that logic? We do not need to give tax breaks to the coal industry under the banner of an environmental policy.
We could talk about many other measures, such as the Government’s double-dealing with the combined heat and power sector. We have helped the industry by giving it an exemption from the carbon floor price but we are also removing its exemptions from the climate change levy. Overall, the industry is a net loser: £45 million is saved from the carbon floor price but £110 million is lost from the CCL exemption removal.
Then we come to the carbon reduction commitments. I admit that I am not a great fan of this policy but it addresses the important point of those people not currently caught by the EU Emissions Trading Scheme. I welcome the fact that we will look again at this and the potential for a different, simpler environmental tax. I suggest that one option is to think about the extension of the upstream Emissions Trading Scheme to the suppliers of heating fuels. Since they are outside the cap, any measure to price carbon there would definitely be additional. That would be a revenue-raiser for the Treasury and could replace the CRC in creating a price signal to encourage investment in energy efficiency.
There have been many other criticisms of the Budget on green issues. The Chancellor made great play of the terrible burden that the habitats directive placed on business. That has obviously been proved to be a complete red herring. There is also the concern about the deregulation of planning leading to urban sprawl and essentially a developer’s charter. There is now a presumption in favour of sustainable development but my fear is that, having seen the Budget, “sustainable development” includes absolutely everything from coal slurry to offshore oil and gas, and gas fracking. That could all be put in under this definition of sustainable development. I would like to hear some reassurance that that is not the case.
So many things could have been different. We could have seen a proper investment in the renewable sector. The engineering giant, Alsthom, has recently invested quite heavily in creating a wind turbine manufacturing plant in France for offshore wind turbines. That is despite the fact that the overall market for offshore wind in France is very small in comparison to that in the UK; the problem is a huge amount of policy uncertainty and a sense that the Government are not pulling together behind the renewables industry. The Chancellor has a lot of responsibility for giving that impression.
One policy could have been in there and would have given a sign that the Chancellor cares and understands what will help us to achieve our low-carbon economy: providing more help for energy efficiency measures. One example is the use of voltage optimisation technology, which is an excellent example of UK expertise and has come out of the University of Liverpool. We now have world-leading technology that helps householders to save electricity without doing anything; it simply optimises their use of electricity, taking around 10 per cent off their Bills. The Government have absolutely failed to be able to provide any support for that sector, which is currently excluded from the Green Deal for reasons of huge bureaucracy rather than it not being a good technology. It is a good technology and is already used in DECC and No. 10 to save money, yet it has not been supported for others to take up the policy. A lower reduced rate of VAT could have been given for that technology; it would have boosted jobs and helped to breed a very good UK sector in something that we excel at.
Overall, the Budget fails miserably to match up to the expectations that we might have from the greenest Government ever, and I am sorry that I cannot be more positive.
Baroness Kramer
My Lords, I find a great deal to welcome in this Budget, not the least of it being the clarity of the Red Book. It is the first time that I have not needed six hands and a book of Post-its to work out exactly what was going on. That has been extremely helpful.
Noble Lords will not be surprised that, like most Liberal Democrats, to me the most important measure in the whole Budget is the raising of the starting tax threshold, which is going up to £9,205, with 20 million basic-rate taxpayers being £220 better off. That consolidates one of my goals, shared by many of my colleagues, to see at the end of this long process—and it may have to go on into the next Government—an alignment between the minimum wage and the starting point of paying tax. The kind of impact that has on the incentive to work is utterly fundamental. It is a matter not just of the numbers but of capturing that principle.
Like many of my colleagues I would not particularly have chosen to take the 50p rate off at this point in time, but it has always been a temporary measure—and the Opposition have always signed up to it as a temporary measure. What interests me is that some of the offsetting measures are permanent; because they are important offsetting measures, that permanence is something that we have to applaud. I never understood why Labour so valiantly refused to put a cap on tax reliefs. That is absolutely critical—and now it has been done. That principle is one that will stay with us and fundamentally change things, building in a degree of fairness to our tax system that had not been there previously.
Noble Lords will exclude me if I find some personal pleasure in seeing a Government tackle the problem of stamp duty avoidance. It made so many people in my local area furious to see how easy it was for people to avoid paying stamp duty through the use of corporations or trusts based in offshore areas to own property and avoid in effect paying any capital gains. The 2010 general election campaign against me was effectively funded, you could say, by avoidance of stamp duty on a major purchase of a property. Local Conservatives argued that it was a tax break that all the rich definitely deserved. So I am very glad to see a change by the Chancellor on the grounds that a sinner who repenteth should be welcomed. I never understood why the Labour Party refused to go in and close that egregious loophole.
I welcome this Budget, although as in all Budgets there will be one or two issues that one would wish to raise—and I have a couple. As people know, I am a strong supporter of tax increment financing as a mechanism for local government to go around and tap new, private sources of financing for infrastructure and regeneration—and the need, as we all know, is huge right across the country. So I am rather disappointed by the announcement in the Budget that the Government will support only £150 million in TIF; that is quite a bitter disappointment. If you spread it around the country, it comes to very little. I am concerned that that has the potential to undermine some confidence in the new localism agenda. This is a time when the market for TIF-type financing should be built up and focused on; it is the time to go out and develop that marketplace. I am concerned that the Treasury’s desire always to hang on to the strings counters what could have been a very significant opportunity. Local authorities up and down the country will be disappointed.
On what the Government are doing to provide access to credit for small business, I would never for a moment argue against the national loan guarantee scheme, which is very welcome. Business has welcomed it, but with some reserve, because its effect is to reduce the cost of loans, which the four major banks plus Aldermore would have done anyway.
The underlying problem with credit for small business is captured again in the Breedon report, which was launched last week and which underscored again the fact that the UK has one of the highest SME loan rejection rates in Europe at about 33 per cent. The decrease in the supply of loans to SMEs has been much sharper in the UK than elsewhere. Our problem is that we have a banking group that is not on the whole interested in the SME market, and certainly not in the micro market that lies within that. Some have said that it is because of balance-sheet pressures on the banks but, if you look at banks’ behaviour, you can see that they long ago retired or fired the people who understood small business lending. When they lend to small businesses now, it is typically based on the value of commercial or residential real estate and very rarely against the capacity or potential of a business plan, which is the hallmark of lending to the small and micro sector.
In this country, we lack a whole layer of banking. The local savings banks that are the backbone of small business in Germany and Switzerland, and the community banks that play the same role in the United States are frankly only in their infancy here in the UK. The advantage of those banks is that they stick with small and micro businesses through thick and thin because only if those businesses thrive do the banks thrive too. I know that the community development finance institutions in the UK benefited from the regional growth fund to the tune of £30 million, but that really was small potatoes. I am so sad that in this Budget the Government lost the opportunity to boost the whole sector by bringing it into the credit easing arrangements. I hope very much that over the year there might be some attempt to look at that and to see how to wrap the CDFIs and possibly credit unions as well into credit easing. That is a strategy that has worked very successfully in the United States, where the Obama Administration pump money into small business through that route. Frankly, if the Government do not take by the scruff of the neck the problem of that missing layer of the banking sector, in 10 years’ time we will still be moaning that we cannot get credit into small and micro business.
Finally, I know that the Breedon report and the Government are looking with some enthusiasm at online innovative financing as an alternative to the banks. The idea is difficult to describe. I have said this before in the House and everyone broke out with laughter, but the umbrella term—although it is often not accurate—is peer-to-peer lending, and the text version is P2P, which leaves my five year-old granddaughter on the floor with laughter. This is a world where the online technology is now making it possible for players to set up a whole variety of different platforms, some of which let ordinary people become lenders to businesses, while others are invoice discounters. It is also a mechanism for social enterprise bonds. There are a whole lot of different areas. The Government have looked to participate and support this sector through the Business Finance Partnership, and are adding a welcome 20 per cent increase to the £1 billion that they originally committed in this Budget. However, the Government’s commitment to cofinancing will be only for mid-sized businesses with a turnover of £500 million or so. These platforms are perfect for microbusiness and small business, so this really is another lost opportunity and an area where, frankly, I hope that the Government will look again.
These are, in a sense, relatively small comments on what has been overall a fairly masterful budget. I remind the Labour Party, when it sits down with its criticism, that it oversaw an economy with tax revenues that were pumped up by the false profits of the banks; they were not real profits, and they collapsed. It was pumped up by an asset bubble in house prices, which again has collapsed, and it was pumped up, in a sense, by a consumer demand which was fuelled by absolutely excessive consumer credit, which was going to be unsustainable. I congratulate the Chancellor on recognising that sustainability has to be at the core of economic growth and fiscal sensibility.
Lord Myners
My Lords, I join other Members of the House in welcoming the maiden speech from the noble Lord, Lord Heseltine. I want also to mark the fact that it is a wonderful occasion that he is being given this important assignment to address the areas of the interface between government expenditure and the private sector, and that in his speech to your Lordships’ House he said that he would include examination of the roles of owners of public companies—an issue which I have come to describe as the ownerless corporation. I cannot think of anybody better suited to carrying out that review than the noble Lord, Lord Heseltine, and the Chancellor should be congratulated on that appointment.
I like digging around in the Red Book. That is where you find the real story on the Budget. If you go to paragraph 2.140, you find that herbal cigarettes are now to be taxed as tobacco cigarettes are. Paragraph 2.145 deals with non-residents playing bingo, while paragraph 2.54 tells us about a further and more favourable change to what is euphemistically known as,
“Resettlement payments to Members of Parliament”—
those who no longer hold their seats.
It is also in the Red Book that we see the dangers lingering in the undergrowth. We see in paragraph 2.71 that the Government are looking at taxation on interest. It does not say why they are looking at that issue, although one is reminded that the right honourable Chancellor of the Exchequer, when in opposition, raised the question about whether interest should be a deductible charge for taxation purposes. Is that what the Government are looking at under paragraph 2.71? At paragraph 2.40, we have a message that philanthropy is going to be a victim of the Budget. The Red Book says that it will not be impacted “significantly”, but a Government who are encouraging philanthropy for education, science and the arts appear to be contemplating a tax measure which will discourage philanthropy.
One also looks in the Budget for areas which one hopes will be addressed, but with great frustration one finds that they are not. The treatment of carried interest in private equity funds as a capital gain rather than an income is an issue on which the Minister has very kindly answered one or two Written Questions from me in the past. He is indicating two fives. It is not just the one multiple of five; the Minister’s hands are positively animated at this. I think that he overestimates, but I know that he struggles with the burden of his job and no doubt it seems that he has rather a lot of Questions to answer. If he gave me straight Answers to my Questions in the first place, he probably would not have quite as many supplementaries to answer.
I find my eye drawn to paragraph 2.179, where the Government have really caught on to something: the taxation of static caravans. This is an issue to which the Government have applied their attention, but they have not applied it to the issue of a static economy—one which is flatlining now, and has been ever since this Government came into power. I encourage noble Lords to read the contribution of the noble Lord, Lord Sassoon, in our debate this time last year, when noble Lords on this side of the House were saying that there were risks to economic growth and the Minister said that this was complete nonsense. What we have seen is barely any economic growth at all over the past 12 months and, importantly, the OBR tells us that the sum outcome of this budget will make no material difference to economic growth prospects over the forecasting period. There is no material change in its forecast.
In fact, we are looking at even more austerity. Looking at discounted cash flow, which the noble Lord is very familiar with, the way that you make the numbers come out all right on discounted cash flow is to put all the growth into infinity at the end of the process, while all of the cuts and further austerity are now being pushed beyond the date of the next election. That is the only way that the Government are able to say, “We are still achieving our targets of fiscal balance within the planning period”.
This, of course, is a Budget that will be remembered for the 45p tax and the raid on pensioners—and for the sleight of hand that we saw in a number of areas, including the treatment of the Royal Mail, where the assets of its pension fund are being brought in but the Government in national accounts are going to disregard the deficit. This is a Budget which will benefit 14,000 millionaires—14,000 people earning £1 million or more a year—by more than £40,000. How can that possibly be justified during a time of austerity? As my noble friend Lord McFall said, when the Chancellor told us yesterday about the “simplification” of pensioners’ allowances, his eyes dropped down to his papers and his voice lowered. It was quite evident to all who were watching that this was a sleight of hand, which had to be revealed when we turned to look at the Red Book.
Growth is still static. Unemployment is still rising. The OBR sees no reason to meaningfully change its forecast; that is to say that it will not be until 2014 that we achieve again the GDP output levels achieved in 2007. That is a shocking outcome for this Government to put before the nation. The OBR says, however, that the composition of growth is going to change quite dramatically. In November, it was expecting 12.5 per cent of growth to come from private consumption; it now expects that figure to be nearly 40 per cent. This will be a debt-led consumption, as again is clear in the OBR report. Business investment, according to the OBR, will now fall quite rapidly. It was expecting 7.7 per cent of economic growth in 2012 to come from business investment; that will now fall to only 0.7 per cent. In 2013, it now expects that figure to be 2.5 per cent lower than it originally forecast, and in 2014 to be 1 per cent lower. That is to say that the business community is not responding to the rosy outlook that the Chancellor is describing—nor, according to the OBR, will it respond positively to the incentives to business given in this Budget.
The noble Lord, Lord Bilimoria, asked about the National Loan Guarantee Scheme, a successor to the failed Merlin project. The OBR says that this will be too small to have much effect—too small, when it was an initiative that we waited six months for. The private sector and business investment is being squeezed, and the Government have no tangible and evident plans to address that. There are no major commitments to investment in infrastructure, just words. We continue to have to live with this odd fiscal contraction, which is meant to lead to economic expansion as the private sector steps in to the capacity being released by the public sector. There is no evidence that that is happening at all. Nothing in this Budget shows a clear, coherent and carefully articulated strategy for growth. In fact, it is a rather boring and meagre Budget, which will largely be remembered for its generosity to the paymasters of the Conservative Party—the super-rich—funded entirely, if we look at the OBR report, by the money which is being pickpocketed from the grannies. It is a poor Budget with little to offer any improved prospect for economic activity or employment.
Lord Bates
My Lords, it is a pleasure to speak in this debate and I congratulate the Minister on the way that he introduced it. It is always a pleasure to follow the noble Lord, Lord Myners, but his description of the Budget as boring would not necessarily be borne out by a cursory glance at the headlines in the newspapers this morning. It seems pretty exciting. By nature, people always tend to focus on the negatives rather than the positives. If the House will bear with me, I should like to focus on a bit of good news and on a few of the positives that are coming out of the Budget as far as I am concerned, as well as the positive stories that I hear in my native north-east England. I want to pass on a few of those thoughts.
Sometimes we need to get a balance in this country and I do not think that the media help us in doing that. We had the fantastic news yesterday that the state pension is to be increased by 5.2 per cent. That is a record in recent years. It is going up by about £5.30 a week, which is an extra £250 a year. It would be nice to hear some more news of that nature as well as, rightly, hearing comments about taxation. It would be nice to hear how pensioners are benefiting in other ways through the Government getting inflation down and keeping it down. I am referring to the big picture of retaining confidence in the British economy from international markets. That is hugely important for us.
The north-east is in many ways a good place to look at as a sort of case study or test bed for how this Government’s policies are working. We have heard about the attempt to rebalance the economy away from an overreliance on the public sector to a strengthening of the private sector, and that is a very good thing. I recall a few years ago hearing the devastating news of the closure of the Corus steelworks, the shelving of plans for the Hitachi train order and the huge lay-offs at Nissan. However, the mood music is changing up there. We have heard the announcement of another 2,000 jobs at Nissan and seen the reopening of the Corus steelworks, with the Government giving the go-ahead for the Hitachi train orders, meaning 800 jobs. That is a bit of good news to hear about in the area.
We always observe weaknesses rather than focus on strengths but we should play to our strengths. One strength of the north-east is that it is the only region in the United Kingdom that exports more than it imports. In the last quarter of 2011, its exports hit a new record level. What is more, that is evidence of a resurgence in manufacturing. Just this week, an exhibition was staged here by the energy company Northern Offshore, and I talked to Keith Hunter, who helped to found the organisation. He told me that he is now working with Siemens, which last year recruited 37 apprentices to work on wind turbines in the new developments offshore in the north-east of England. This year, he will recruit another 37 apprentices, and the company intends to create another 35 to 40 new apprenticeships each year for the foreseeable future. That is real evidence of what is happening on the ground.
Today, I had the opportunity to meet Allan Cook of Arlington Real Estate and Neil McMillan of Carillion Developments, who are creating a marvellous development at Durham Gate in Spennymoor. It will be the global research and development centre for Stanley Black & Decker, providing highly skilled jobs in Durham. They are talking about the number of jobs on that site going up from 200 to 2,000. In a sense, it does not matter what I as a politician say about these things; this is what real people creating real jobs are saying. To add to that, I was very interested to discover that half the chemicals in the United Kingdom are manufactured in the north-east of England. When Andrew Witty, chief executive of GlaxoSmithKline, speaks, we all tend to stand to attention and listen. Regarding the Budget, he said that the patent box and fall in corporation tax have,
“really changed the investment decision for us”.
He is referring to the above-line R&D tax credit and the fall in corporation tax. The UK was among the highest corporation tax chargers in the world and is now one of the lowest. That is a real change and it sends out a message. It sets the mood music for decisions to be made, and companies such as GlaxoSmithKline are listening to that. That is very welcome, as is the change to the higher rate of tax.
We need to get away from a politics which is perennially based around arguments of greed and envy, and we need to focus on recognising that wealth creation is a wonderful thing. The more wealth creation we get, the more jobs are created, the more tax revenues come to the Government, and the more we can invest in our public services and care for the poor at home and around the world. That, to me, is what a good society looks like. Therefore, bringing down the higher rate of tax is a very good thing. In fact, I have an endorsement of this. I was reading the report of the debate on the Budget in the other place and came across a quotation from Tony Blair’s latest book. He is quoted as having said:
“I wanted to preserve, in terms of competitive tax rates, the essential Thatcher/Howe/Lawson legacy. I wanted wealthy people to feel at home and welcomed in the UK so that they could bring more business, create jobs and spread some of that wealth around”.
I think that Tony Blair was right, and in essence this Government are trying to build on that.
One thing that the north-east has often suffered from is that it has had far too much faith in governments of all persuasions in Whitehall and far too little faith in itself. People need the self-confidence and belief to say, “We can get out there. We can make a difference”. I was interested in a survey undertaken by the BBC—so it must be 100 per cent accurate—looking at the best places for business champions. Lo and behold, it found that according to the latest research the north-east is ranked first in England in terms of business champions. It said:
“The criteria for these include young, small companies which are less than 10 years old and with fewer than 50 employees, with directors with entrepreneurial appetite and are part of a wider corporate network”.
It is great news to be given top ranking. It is nice to see the BBC give more of a headline to that type of declaration about the north-east rather than perpetually run the region down and tell us about all the problems. We are all too well aware of our problems but we do not talk enough about our successes either as a region or as a country, and I think that that is what this Budget does. It helps us to remember that we have some fantastic businesses and some great entrepreneurs who are creating wealth in this country. We are incredibly proud of them. What they need is not a Government who are on their back but a Government who are on their side.
Viscount Hanworth
My Lords, the Budget that we are discussing today has appalled many people on this side of the House. At a time of high unemployment, when fuels bills and food prices are rising, benefits are being cut and many families are feeling painful financial pressure, the Chancellor, George Osborne, has chosen to benefit the rich. This is bound to have dire consequences for the Conservative Party and its allies when they submit themselves to the judgment of the electorate.
We understand that, before deciding to cut the top rate of tax, the Chancellor asked for an assessment of how much revenue was being derived from top-income earners and how much would be lost in consequence of this largesse. He may have been encouraged to go ahead with his cuts on learning that the tax take was less than one might imagine. To use this as a justification for cutting taxes implies an inverted logic. The reason for the revenue being less than expected is well documented in the report of the Select Committee on Economic Affairs, which tells of an estimated tax gap of £42 billion, which is a substantial proportion of the current budget deficit. The gap is defined as the difference between tax collected and the tax that should have been collected. This enormous figure represents the total of tax evasion and tax avoidance. It is a testimony to the extent to which high-income earners, aided by tax consultants who operate on an industrial scale, have managed to avoid paying their taxes. It represents a huge fiscal resource.
It is difficult to understand what justification the measures of the Budget might have had in the minds of its proponents. Can it really be true that, by taking an emollient attitude towards high-income entrepreneurs, who represent only a small proportion of the beneficiaries, the Chancellor imagined that he might stimulate the economy? Are we witnessing a reprise of the grotesque and wholly discredited doctrine of the trickle-down effect?
Perhaps we should take stock of what the Government have been doing lately to encourage industry and enterprise. We can begin with George Osborne’s trip to China. This was ostensibly a trade mission in which the Chinese would be encouraged to purchase goods manufactured in Britain, and in which direct foreign investment in the UK would be encouraged. British exports to mainland China are valued at £7 billion, which could surely be increased. As it transpired, the Chancellor did very little to encourage the purchase of British goods. He did far more to encourage inward investment. Just 24 hours after his arrival, we learnt that a Chinese sovereign wealth fund was to acquire a 9 per cent stake in Thames Water. Much more of this sort was expected to follow.
It is curious that such inward investment should acquire the unquestioning approval of so many commentators. In effect, it ensures that foreign countries will profit from the labours of British workers by reaping the profits and dividends that would otherwise accrue to Britain. The malign effects of such investment differ from the often beneficial effects of direct foreign investment in industrial capital, albeit that the two categories of investment are often confused. However, one should not overlook the manner in which foreign enterprises, such as the Japanese motor manufacturers, are liable to displace native enterprises. They are also free to repatriate the profits and the dividends.
George Osborne’s principal objective during his visit to China was to turn London into the first non-Chinese trading hub for the renminbi, China’s national currency. Such a development would be a major benefit to the City of London, which is one of the most important parts of the UK economy in his opinion, and to which he has strong allegiances. As well as such benefits, we should consider the costs that are imposed on the rest of us by the City of London. Its costs are not only the episodic ones associated with the lengthy financial crisis that began in 2008. They have been borne by the rest of the economy over a much longer period.
The City of London can be likened to a diseased organ of the body. Its hypertrophy has pre-empted the life-blood that would otherwise sustain the other organs. As I have already indicated, the massive inward investment that the City has facilitated has found its way, in the main, not into physical capital but into financial assets. The City has facilitated the acquisition by foreign investors of large tracts of British industry and many of our essential utilities. In the process, the captains of finance have greatly enriched themselves and the pound sterling has maintained a high value against other national currencies.
The consequence of this overvaluation of the pound has been the inability of our manufacturing sector to export its products. This has led, over many years, to its atrophy and decline. These consequences are manifest in a comparison of the proportion of national product that originates in manufacturing in the UK with the proportions in other European Union countries. According to figures published by the OECD, the UK proportion is around 20 per cent. Among our European neighbours it is, on average, 25 per cent or 26 per cent. In view of the disadvantage of our overvalued currency, our industry needs to be fostered carefully and protected. The Government often seem to be doing the exact opposite.
They have failed to constrain the banks and the financial sector more generally to provide much needed investment funds to small and medium-sized enterprises. That is the point that the noble Baroness, Lady Kramer, made so forcefully. They have also failed to take steps to ensure that British manufacturers have an adequate chance to gain contracts for the supply of equipment to some of our major infrastructure projects. A recent example is provided by the Thameslink project. The contract to provide the rail fleet has been awarded to the German firm of Siemens.
One investment in infrastructure that is urgent, and will remain so for many years to come, is the renewal of our energy resources. Last year, investment in wind power fell by 40 per cent compared to the year before, and the Government have failed to support an industry that could have become a major exporter. Since 2009, our nuclear industry has been in the hands of an Anglo-Franco-American consortium, in which we are decidedly the junior partners. The Government have made little attempt to ensure that the promised renaissance of the nuclear power industry will be to the benefit of British manufacturers and technologists.
Their declared intention is to rely heavily on the private sector to achieve the necessary investments in infrastructure. We have already observed that private finance initiatives, mediated by the City, have been more costly to the taxpayer than the direct investments via the erstwhile nationalised industries. Those industries ought to have been allowed to raise funds in their own right but, in the main, they were prevented from doing so.
This Budget and the statements and pronouncements that have surrounded it seem to be the products of the ideological fantasies that were inculcated to young Conservatives in the era of Margaret Thatcher. This ideology has done great damage to our economy, both in the period of the previous Conservative incumbency and—dare I say?—in later years as well. It continues to wreak havoc.
Lord Sheikh
My Lords, there can be little doubt that the state of the economy is the most important issue facing the United Kingdom at the moment. The pressures facing individual households and businesses across the country are real and very difficult. I welcome the opportunity to speak on this Motion, not least since it has a wider focus than yesterday’s Budget Statement. However, that is not to diminish the importance of what the Chancellor of the Exchequer said yesterday.
We are wrestling with economic challenges on two main fronts: our own domestic budget deficit and the wider international concerns and potential threats in relation to the eurozone and oil prices. Growth in 2011 was lower than in 2010 and lower than the Office for Budget Responsibility’s forecast at the time of last year’s Budget. Prices have inflated more than previously predicted and, as a result, people have been able to afford less in their household spending. Our Prime Minister has been consistently clear that tough times call for tough measures, while some of those measures have not been politically convenient.
It has been refreshing to see decisions taken with a long-term view to nursing our economy back to good health. I was pleased to see that this disciplined approach allowed the Chancellor to make a number of positive announcements in yesterday’s Budget Statement. I welcome the raising of the personal tax allowance to £9,205 from next year. It is the largest increase in the personal allowance for the past 30 years. I am also highly supportive of the reduction in the top rate of income tax to 45p, which will help ensure that higher earners and businesses do not take their skills and practices elsewhere. I feel that this change in taxation will provide a fair deal for persons who help to create wealth in this country. The entrepreneurs, who include the high earners, provide employment for a considerable number of people.
The phasing out of child benefit for those earning more than £50,000 is also in my view a policy that is not only fiscally responsible but will have the support of the vast majority of hard-working taxpayers. We must be clear that giving people greater power and responsibility to manage their own budgets is a big step on the journey back to economic prosperity. Families and businesses across the country are living through these difficult times and it will be these families and businesses that help our economy to flourish once again with their spending power.
Thanks to this Government’s responsible fiscal policy, the OBR states that it now expects the economy to grow by 0.8 per cent this year, before rising to 2 per cent next year and higher in the medium to long term. Inflation has been a cause of concern and getting it under control is crucial. Therefore, I welcome the forecast that inflation will fall from 2.8 per cent this year to 1.9 per cent next year.
I have enjoyed a long career in business and have a strong connection with the City of London. As a chairman of companies and an employer I feel that I have an understanding and appreciation of how businesses and employers contribute to the economy, and the challenges they face in maintaining and increasing their productivity in such difficult times.
I have visited eight different countries in the past 18 months, where I have been privileged to meet various senior figures from politics and business and to speak at a number of conferences. Engaging with our overseas partners has reasserted my long-held belief that one of the best ways we can improve our financial position, both globally and domestically, is to place a much greater focus on trade. We are the world’s seventh largest economy and, as such, Britain’s economic health is closely intertwined with wider global stability. Our trade surplus and global market share in key industries such as aerospace and pharmaceuticals provide us with a solid base in manufacturing and research, and the City of London maintains its position as a major investment powerhouse. However, we must do more. I want to see more of our goods and services exported overseas. I was very pleased to hear our Chancellor make reference to the key role of trade in yesterday’s Budget. In addition to continuing cuts in the rate of corporation tax, he stated that we must help British businesses to expand and innovate, and that we want to double British exports to £1 trillion by the end of this decade. I believe that this will play an important role in helping our immediate economic recovery and ensuring that Britain remains a strong economic force for decades to come.
I applaud the work of UK trade and industry in encouraging more of our small and medium-sized businesses to focus on exports, and particularly in shifting focus to emerging markets. In regard to overseas trade, we should, of course, maintain our connection with America and Europe but we need to look for opportunities in India, China, Brazil and the Middle East; in fact, in every part of the world. We could do more to trade with the Commonwealth countries. We, of course, have a historic connection with the Commonwealth, which is indeed an advantage. The Chancellor announced yesterday that UK Export Finance will be expanded. This is all extremely welcome.
It is important that we clamp down on tax avoidance and tax evasion. No one can fail to have been impressed by the energy with which the Government have taken forward this effort since May 2010. It is to be welcomed that the Chancellor has given additional impetus to this effort in the Budget. People have a right to know how their money is collected and spent. The concept of personal tax statements seems very simple, and might beg the question why we have not made them available sooner. However, if we are truly to engage effectively with the public on public spending choices, these statements are a useful tool.
It is also good to see both the Foreign Secretary and the Business Secretary working with UK Trade & Industry. I hope that this paves the way for greater co-operation between these and other government departments. I believe that if we are truly to realise our potential in identifying key markets and developing and promoting our products overseas, we must consider even more long-term joined-up thinking between those in the Foreign Office, the Department for Business and the Department for International Development. I, of course, welcome the fact that the Government have made headway on this. One of the most effective means of promotion will come from the networking and coverage provided by international trade missions. We should organise more trade missions to overseas countries. I am pleased that recently I was able to assist in arranging a trade mission. We provide aid to foreign countries but we must consider giving more financial assistance to properly organised trade missions. Aid and trade can go hand in hand. In addition, our ambassadors and high commissioners overseas could play a more significant role in this respect.
Two years ago, this Government inherited one of the biggest budget deficits in the G20. Times since then have been turbulent and have involved taking a number of difficult and sometimes controversial decisions. Let us be under no impression that there are any quick fixes, but yesterday our Chancellor delivered a Budget Statement that will ensure we continue on our road to recovery and uphold the United Kingdom as a fair, attractive and prosperous place in which to invest. We have already had a positive reaction from GlaxoSmithKline, which has announced that the company will invest £500 million in new manufacturing facilities, creating 1,000 new jobs. I would like to conclude by saying that we are indeed on a road to recovery.
Lord Davies of Stamford
My Lords, I endorse the remarks of the noble Lord, Lord Higgins, about the extraordinary leaks of this Budget, which was more or less published verbatim before the Budget Statement. I do not need to repeat those remarks because everyone heard them, but I thoroughly agree with them. If the Minister would be so kind, would he tell the House clearly whether the leaks by the official referred to by the Financial Times and other papers were authorised by Ministers or, if not, whether the Treasury is undertaking an inquiry into them with a view to stopping such scandalous behaviour in future?
I was shocked, as I think was the whole country, by the extraordinary decision of this Government, when for the first time they had an opportunity to give away some tax breaks, to make the major priority those people earning over £150,000 a year and paying tax at 50 per cent. It is widely regarded as extraordinary, at a time when people on modest incomes and on working families tax credit are finding that that tax credit and people’s benefits are being reduced and people are being made redundant wholesale by the public sector—I think of so many sailors, soldiers and airmen whom I knew in the MoD and whom the Government are now making redundant—that the Government should want to give a present of roughly £40,000 to someone who is earning £1 million a year. That is quite obscene and extraordinarily insensitive.
It was almost as obnoxious that the Government should abolish the higher personal tax allowances for older people, which apply only to those whose total income is less than about £25,000—I cannot remember the exact cut-off figure. Surely they are some of the most deserving people in this country; they are retired and have incomes at a modest level that can have been accumulated only through quite brave and self-sacrificial efforts at saving during their careers or small occupational pensions, and now they are being denied their benefit. Again, that is an extraordinary decision, reflecting an extraordinary set of priorities and values.
The Government have got themselves into the most frightful mess about child benefit. They have introduced a taper, which admittedly is slightly better than the previous system where the benefit was simply removed at the point of earning a £40,000 income. Nevertheless, what they have done introduces serious anomalies. Between incomes of £50,000 and £60,000 there will be a high rate of withdrawal of child benefit. I do not know what that rate will be—perhaps the Government can tell me—but it will be a very high effective marginal tax rate. I remind the Government, as they appear to have forgotten, that marginal tax rates are essential in determining incentives to save, to work, to take risks, to start businesses, to work harder, to get promoted or whatever. It is most undesirable for the Government suddenly to introduce a high effective marginal tax rate for this category of earnings.
What is more, the measure leaves the distortion and the great unfairness that if two parents are both working, they can enjoy an income much greater than in the case of a single parent who is working and continue to have the full child benefit. That runs quite counter to all the rhetoric that we heard from the Government about supporting the family and so forth. Perhaps that rhetoric was nothing more than rather insincere PR, which I think is rather a sad position.
I am concerned about the consequence of putting a ceiling on all reliefs. I support the principle quite strongly but I am concerned about the impact on charities. I would be grateful if the Minister could make clear whether in some way this would limit people’s ability to offset their charitable giving against tax; it would be a very unfortunate development if that were the case. There is a complete distinction between individuals who give away their money—they no longer have it and therefore should not be taxed on it—and those taxpayers who invest their money in tax-efficient savings schemes such as SIPPs and EISs. They still continue to own those assets and have the benefit of them, so the position is completely different and in that case it is quite right to impose a ceiling. It is quite wrong to do so if it affects the income of charities and the propensity of people in this country to contribute to them.
On the detailed tax measures, I support in principle the introduction of a general anti-avoidance rule but with an important condition, and I would be greatly reassured if the Minister could assure me that that condition will be applied: that there will be a right for taxpayers to receive timely pre-transaction rulings from HMRC when it wishes to remove the uncertainty that will otherwise be created by this GAAR. The point is that, under present arrangements, if you want to know what your tax liability is, it is sufficient to read the taxes Acts and look at the jurisprudence, or pay someone else a large amount of money to do that for you. Then you know exactly where you stand. Under a general anti-avoidance rule, that will no longer be the case. You might be completely in line with the texts available, which might tell you quite correctly that a certain rate of tax should be applied, but it is then open to HMRC to challenge you and say that actually you should pay a vast increase on that, a penal rate, because the only or substantial reason that you have arranged your affairs in that way was to avoid tax.
In many cases, there may be respectable reasons for a particular structure being adopted. The structure may happen to be tax efficient as well, but there may be other reasons, market reasons, strategic reasons or risk-management reasons—foreign exchange exposure management, for example—which lead you to adopt that course. Complete uncertainty is created as to whether those reasons will prevail and be accepted by HMRC. The disincentive to invest in this country which will be introduced if that uncertainty is allowed to exist will be much greater than the value of several points off corporation tax, desirable as that is in itself.
That uncertainty must be removed. The only way to remove it is to give people a guarantee that they can get a pre-transaction ruling from HMRC, that they can clear with HMRC a particular structure or arrangement in advance in a timely fashion. There should be a limit of 30 days within which HMRC must respond. I do not know whether the Government have in mind such a provision. If they do not, they should look at that urgently. If they do, I hope that they will reassure me that they are already working along those lines. It is not easy, because I am sure that HMRC will find all sorts of arguments why it cannot or should not be done: it does not want the risk or the responsibility; it is afraid of being taken to court; it does not have the people or the time; all the usual bureaucratic reasons. I am convinced that it will have to be forced to do that, but it is important that it is if the GAAR is to come into effect.
Finally, I make some remarks on the macroeconomic management of the Government. It seems to me that their fiscal policy has been far too tight. The fact that they have successively had to revise down their growth rates proves that. The excuse of the sovereign debt crisis in the eurozone is of no use, because that did not begin to affect the markets and confidence until last autumn. It is clear that they got their judgment wrong. It would have been much better to have continued on the general curve of reduction of public expenditure and the deficit which they inherited from the previous Labour Government.
That said, clearly the Monetary Policy Committee takes the same view and thought that it was necessary to do something by way of a monetary boost. Because, at the present rates of interest, it cannot use the traditional interest rate instrument, it has gone for the quantitative easing instrument. I have nothing against that in principle, but it raises two problems: a short-term and a longer-term problem. The short-term problem is that it is not very efficient. You need an awful lot of quantitative easing to get a given amount of credit creation—£200 billion or £300 billion each time. Part of the reason for that is that we are in a deleveraging recession or near recession in which there is not a great propensity on the part of households to take on more debt; they are trying to get rid of their existing debt. Part of the problem is the confidence in the economy at the present time, and part of the problem is that the Government are in contradiction with themselves, because they are trying to impose on banks the new Basel rules for high capital ratios, and that runs against the idea of the banks using that money to leverage a large amount of lending. That is the short-term problem.
Then there is the longer-term problem of what the Government do with all the instruments that they are buying—or the Bank of England, on their behalf, is buying. If they are cancelled, that represents a substantial increase in the money supply, which could be extremely dangerous once the output gap is reduced, narrowed. On the other hand, if the intention is to reverse the transaction, there will be great pressure on the markets, which will of course compete with the gilt issue and the need to renew the considerable amount of government debt in future. It will mean that interest rates are likely to be higher at that stage in the cycle than they otherwise would be, because of the need to reverse the transaction.
I agree with the noble Lord, Lord Higgins, on that. There has been nothing like enough discussion in this House or among the public about the monetary easing by means of quantitative easing. There is all too great a temptation to see this as a free lunch, a cost-free exercise with only benefits attached to it. I should be grateful if the Minister would address those problems in his summing up.
The Earl of Listowel
My Lords, I shall address the issue of childcare and related issues. Professor Melhuish, in his presentation to the OECD in 2011, highlighted that China had invested more than any other nation as a percentage of its GDP in childcare in the past 15 years. The PISA organisation, which looks across the globe at educational performance, finds a very close connection between good-quality early years care and long-term educational outcomes. Although, in the past, Finland has been at the top of the PISA tables for numeracy, literacy and science, Shanghai is now at the top of those tables of achievement.
I thank the Minister for introducing the debate. I am grateful to him for reminding us of the investment by GlaxoSmithKline in Cumbria, and in the creation of jobs. The noble Lord, Lord Sheikh, also mentioned that. A number of other companies are also investing in this country and that is very good news. I noted what the Minister said about our infrastructure plans and the emerging economic giants, such as China. I shall return to that subject. I also noted what the noble Baroness, Lady Kramer, said about credit for small and medium-sized businesses. That is a recurring theme whenever I speak to owners of smaller and medium-sized enterprises. I welcome what the Government are doing in this direction although I wonder whether they might not go further still. I particularly welcome what might be seen as a small thing—the 5 per cent rise, or 37p increase, in the cost of a packet of cigarettes. Cigarettes are the bane of the nation’s health and that increase should be highlighted.
I am sure that all noble Lords are very concerned about the exceedingly high rate of youth unemployment, which stands at more than 1 million. I hope that the Minister will say something about the long or medium-term forecast on youth employment and that he will be able to offer some encouragement in that regard.
As I am a trustee of a child welfare organisation, the Michael Sieff Foundation, I would like to address three key points: childcare, strong family attachments and getting the professionals in place who can support families to be strong. I have already mentioned the importance of childcare. Recently, however, when speaking with Save the Children, I was reminded that the United Kingdom is among the three most expensive nations for childcare. Although I welcome the steps which this and the previous Government have taken to make childcare much more widely available, its provision is still very expensive. I hope that we might move towards the situation in many other nations where childcare is as freely available as school and health provision. If we want to compete in the future, we need to have easy access to good-quality childcare.
The noble Lord has referred to investing in the physical infrastructure, in roads, in universities and in academic research. I would like to say something about investing in the social infrastructure. If we want young educated people who do well, we have to acknowledge the importance of schools. It was interesting to listen to the comments this week of the Chief Inspector of Schools about the importance of school leadership and excellent teachers. In his view, we have the best cadre of new teachers, which is wonderful news. We are grateful to the previous Government as well as to the current one for their commitment to teachers and to education.
Academics say, however, that schools can make only a 10 or 20 per cent difference to the educational outcome for children, and that the biggest difference is determined by what happens at home. The principal indicator of whether a child will succeed in education is how successful their parents were in education. So we need to support families better. If a family experiences domestic violence in the home, if the parents are alcoholic, or if they are simply at loggerheads all the time, even the most enthusiastic and able teacher will find it difficult to get the child in that family to concentrate and do well in school.
We have a real issue with so many young men growing up without contact with their fathers. That issue again came to the surface in a recent report from the Children’s Commissioner on school exclusions. This report highlighted the large number of Afro-Caribbean boys being excluded from schools. A documentary that I saw a few years ago about a young Caribbean boy in a children’s home reminded me of the greater number of Afro-Caribbean boys in local authority care. We saw this boy at Christmas and on his birthday. His father had told him that he would visit but never turned up. The educational and life outcomes of so many young men are being seriously diminished because they do not have a father or steady male role model who will take a continuing interest in their education, and support and encourage them. I only have to think back to my own father to recognise how important he was to me and to my education. We must address this as a nation if we are to be as productive as we can be in future.
To do that, we need the right professionals in place. I spoke of the welcome recruitment of excellent teachers to the profession. The previous and present Governments have done good work with health visitors, and with child and family social workers. It was very encouraging to hear from Tim Loughton MP, the Minister in the Department for Education responsible for child protection. He took the trouble to spend a month last year in a social services department, shadowing social workers. He has a long-standing commitment to raising the status of social work. The Government, under David Willetts and Michael Gove, have raised the threshold of entry to social work. Many agree that the new generation of social workers is of the best quality that has been seen for a very long time. This is extremely good news.
We need to invest in these people. If we invest in accountants and lawyers, we pay the best money for the best people because our capital investment is so important. We need to take the same view with vulnerable children and families. If we fail them and they grow up without an education, dependent on the state and entering the criminal justice system, there will be huge costs to us. We have an ageing population and we need to make the most of every young person in the country. We cannot afford to depend on immigrant labour. Many other nations are competing for it. We must make the best of the resources available to us.
I am very grateful for the work of the right honourable Iain Duncan Smith, Secretary of State for Work and Pensions. He has worked for a long time with the Centre for Social Justice, which he set up to look at what he called broken Britain, and the families that are not functioning as they need to, and to support early intervention. It was encouraging last week to hear about his social justice strategy, and the mooting of an early intervention foundation funded by business to intervene early and effectively with families. The Labour MP for Nottingham North, Graham Allen, has worked with Iain Duncan Smith on these important developments.
I mentioned the costs of failing to intervene early, so I will wind up. We are of course in a terrible recession. Difficult decisions have been made about cuts, particularly to local authority budgets. Authorities have had to make tough choices and have chosen in particular to cut funding to charities that support families. One hears that many charities that supported struggling families are no longer there to do so. As soon as we can, we should start reinvesting in supporting those vulnerable families. We need to recruit social workers who will develop a network of foster carers, because they depend for support on good-quality social workers. We need teachers and early-years workers. In general, we need to think about the familial infrastructure of the country as well as the concrete infrastructure if we are to compete in future with countries such as China. We must think about how to make good-quality childcare more affordable and available. I look forward to the Minister’s response.
Lord Desai
My Lords, it is a great pleasure to take part in this debate on the Budget. When I came into the House 21 years ago, I was able to extract a concession from the then Government that the Budget would be discussed. I was proud to open the debate on the Budget from the Back Benches. That practice was discontinued in 1997, when my party came to power. I am glad that after a few years we have resumed this practice, and I hope it continues. Of course, I should add that we have had an excellent maiden speech from the noble Lord, Lord Heseltine. It was a treat to be able to listen to what I can only call a class act. We look forward to many more interventions from him.
I have been known to be partisan about the policy of a rapid elimination of the deficit. Indeed, before the election, I was one of the people who wrote the letter to the Sunday Times saying that a total elimination of the deficit within a Parliament was absolutely essential, so I make no question about the overall strategy that the Chancellor has adopted. Unlike many previous Chancellors who in two or three years attempted to deviate from the path they set for themselves, the present Chancellor has kept to that path at considerable cost to his popularity.
I am not going to dwell on matters of tax policy and so on as other people have spoken about that. I do not find it shocking that the Conservative Party benefits the rich and taxes the poor. What else is it for? That is what economists call rational expectations. That is what we expect to happen, so I regret that none of that shocks me. However, what does shock me—and I think nobody else has mentioned this so far—is that the Chancellor had an excellent opportunity to revive growth and has made a tactical blunder in not taking it.
So far, when we have mentioned plan B, or something like that, the Chancellor has correctly said that he cannot hatch a plan B or give more money to the green bank because if he does that the debt numbers will go up. I quite agree that he has set a path for five or six years, whatever it is, and has to stick to it. However, he earned himself a windfall of £28 billion from the Royal Mail pension transaction. I take the view that he should have spent this windfall in reviving the economy rather than salted it away repaying the debt. People may consider that that contradicts what I said before, but once the Chancellor has set a timescale of five or six years, and it has been approved by the market, he does not need to overegg the pudding. On the other hand, as the OBR points out, there is a one-in-four chance that 2012 will see a recession, a drop in growth. The OBR predictions of 0.8 per cent this year, 2 per cent next year and so on are all right, but they are not very exciting. If he had had the courage to take this £28 billion and put it into the economy—and I shall come to how I would put it into the economy—put it into the green bank, done an infrastructure project or whatever, he could have shown that he is doing something to get growth in the economy without affecting his long-run strategic plan to eliminate the deficit. This is a matter of choice. I would do it, he would not do it, but he is the Chancellor and I am not. However, he is missing a good opportunity that will not come again in the next three or four years.
Now £28 billion is okay, but it is not a large sum of money. One of the frustrating things about reading the Red Book and so on is that nowhere do you find the figure for the total GDP of the country. You have proportions and percentages and you have to divide one by the other to find out. I think it is roughly £1.7 trillion, give or take a few hundred billion, so £28 billion is around 1.5 per cent of GDP. It would be a good spending boost to give the economy—maybe in one year, maybe over two years—and if you admit that the multiplier is, I do not know, one and a half, you will be able to revive the economy to the extent of, say, £2 billion to £3 billion. That would be a high growth rate. If that came on top of the 0.8 per cent, you would have a 2 per cent-plus growth rate.
There was a choice for the Chancellor to make here. He has deliberately not made it. He mentioned in his Budget speech that he was not going to spend the £28 billion but he is going to repay the debt. If you look at the debt numbers given in the Budget, it gives him a slight advantage this year, but there is really not that much difference in the path to debt repayment. I would have liked the OBR, which has done an excellent job, to have tried out the stimulation effect on the economy if the Chancellor had taken the liberty of spending £28 billion this year.
Of course, some people may prefer to give it to the green bank. If the noble Lord, Lord Skidelsky, had been here, he would have argued once again for his investment bank. I would prefer something much quicker. Twenty-eight billion pounds is roughly £1,000 per household. Give every household a £1,000 Diamond Jubilee voucher on the condition that it cannot be saved; it has to be spent. If the Chancellor had done that, it would not only have tremendously lifted the doom and gloom from the economy and been a good celebration for the Diamond Jubilee, it would have been an excellent boost to growth. This would have been a win-win situation, instead of which the repayment of debt disappears somewhere in the footnotes of a table.
As the OBR has said, the Budget does not alter the growth path of the economy one tiny bit, so the repayment has brought no advantage to the Chancellor. He did not ask me, but had he guessed what I might say and done it before I said it, it would have been a tremendous boost to the economy. If there is any chance even now to recook the books and go back and forth, that would be a very good idea. It is desperately needed if we are to avoid what is very likely to be an output drop this year. There is sufficient excess capacity in the economy not to worry about inflation. A £28 billion boost would have been a good thing.
Finally, I welcome the idea that the Chancellor wants to float perpetual bonds, taking advantage of the lower interest rates. I only have one suggestion: they should be called Gideons.
Lord Northbrook
My Lords, it is always a pleasure to follow the noble Lord, Lord Desai. I welcome the opportunity to take note of the UK economy in light of the Budget. First, I will look at the general UK economic background and then I will move on to look at specific measures in the Budget.
Initial comments on the Budget forecasts have in general endorsed the OBR inflation forecasts, which state that it will fall back sharply though the remainder of 2012 and ease further to be close to the 2 per cent target from early 2013, as the upward pressure from commodity prices eases and spare capacity weighs upon inflation. Growth forecasts have given rise to more criticism. It is good news that the OBR has revised upward slightly the forecast for this year to 0.8 per cent, although commentators feel that the 2013, 2014 and 2015 forecasts could be a little optimistic. However, the forecasts are supported by the Bank of England, which says that the UK will avoid recession.
The Chancellor and the Minister are quite right to draw attention to two jokers in the pack, which could significantly affect the forecasts. First, there is the OBR euro area growth downgrade by 0.8 per cent. Secondly, there is the problem of a further spike in the oil price due to the Iranian situation but I hope that this might be lessened by further Saudi release of oil production on to the markets.
The budget deficit too is forecast to decrease. The Chancellor must be given credit for sticking to his guns and bringing this down. His forecast of £126 billion is £1 billion better than at the time of the Autumn Statement. Yesterday’s borrowing figures, however, although covering only a month, show that there can be no cause for complacency going forward. The Chancellor will need to continue with his fine determination to get this figure down to £21 billion, as forecast, by 2016-17 when the structural deficit, he states, will be eliminated.
Here, I should like to take issue with the noble Lord, Lord Eatwell, in his opening remarks. He stated that there was not a particular crisis in the finances before the banking crisis. However, I think that the debt figure of £36 billion was already breaking the Government’s own rules. I should also like to draw his attention to a speech made by the noble Lord, Lord Myners, when he said:
“There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation. There will need to be significant cuts in public expenditure, but there is considerable waste in public expenditure”.—[Official Report, 8/6/10; col. 625.]
The shadow Chancellor, Ed Balls, has stated that there can be no let-up or any reversal of the cuts of the Government.
How does the overall Budget help the Chancellor’s plans? According to table 1 in the OBR fiscal and economic outlook, the total fiscal impact to 2016-17, as a result of the policy decisions, will be about broadly neutral. As a result, much on the expenditure front needs to be done to get the deficit down. The Chancellor has said that if, in the next spending review, the Government maintain the same rate of reductions in departmental spending as they have done in this review, a further £10 billion of savings would have to be made to welfare by 2016. That is a challenging task.
The IFS green budget states that,
“the spending cuts are still to come”,
and that only 12 per cent of the planned total cuts to public service spending, and just 6 per cent of the cuts in current spending, will have been implemented by the end of this financial year. Page 67 of its report compares the size of the cuts planned to those of other economies. Over the next few years, the UK currently has the fifth-largest planned reduction in public expenditure as a share of national income. Only Iceland, Greece, Estonia and Ireland are planning larger cuts. They are large by historic standards. The Government’s plans will be the tightest seven-year period for spending on public services since the Second World War. Over the period April 2010 to March 2017, there will be a cumulative real-terms cut of 16 per cent, which is considerably greater than the nearly 9 per cent cut achieved from 1975 to 1982. The challenge is great but I am sure that the Chancellor will make every endeavour to achieve it.
There is much to praise about this year’s Budget. First, I would highlight the decision to cut the top rate of income tax from 50 per cent to 45 per cent. This sends a good signal to business and wealth creators. Secondly, I fully endorse the planned lowering of corporation tax. Again, this sends out a good message to entrepreneurs who should also benefit from the £20 billion national loan guarantee scheme. I also applaud the move to consult on a new cash basis for calculating tax for firms with a turnover of up to £77,000. Any move like that will make filling in tax returns dramatically simpler for up to 3 million firms, which must be a good thing and helpful to business.
For individuals I shall highlight two areas. First, the adjustment to the cliff edge withdrawal of child benefit was long overdue. The second area is the increase in personal allowances to £9,205 from next year. That is a positive step. Other measures in the Budget may not have an immediate effect, but could be a useful long-term help to the UK economy. The decision to relax the planning laws to encourage sustainable development should help business. In addition, moves to encourage the life sciences, aerospace and technology sectors are helpful. There are a few measures that I am less certain about. The abolition of the additional age-related allowance seems to have caused quite a stir, even though, as the noble Lord, Lord Newby, stated, it is made up for by the increase in the pension.
On a separate theme, could I ask my noble friend about the figures in table A1 for oil companies over the next five years with the change to North Sea oil and gas decommissioning? I see that it is going to cost the industry a net £1,145 billion over the next five years, which is a substantial figure. Are those figures due to last year’s Budget? Also, where does the most welcome £3 billion new field allowance for large and deep fields west of Shetland come in table A1? I can only see figures for the first two years.
While some commentators have criticised the increase in stamp duty, I find myself less concerned about it, particularly with the plan to clamp down on offshore companies avoiding the duty. Clearly this hits central London hard, so as long as the knock-on effects have been thought through, such as the effect on building work in London, I see no problem with it. Likewise, on the introduction of the general anti-avoidance rule, I take on board the comments of the noble Lord, Lord Davies of Stamford, on this. It is right to press ahead with a narrowly targeted GAAR aimed at truly artificial schemes, but supporting guidance must be practical for taxpayers as well as HMRC.
Two other areas give me cause for concern, the first of which is the 3p rise in fuel duty that is due later in the summer. This will not help the beleaguered motorist as prices are at record highs. The Government may correctly say that the price of oil is beyond their control, but I do not see why the increases cannot be delayed. Can the Minister say how much this will raise in tax? The other issue I am not happy with is the extra 300,000 people who will be dragged into the top rate of tax as the threshold for the higher rate is reduced to counteract the effect of higher personal allowances. In addition, there are still anomalies of high marginal rates for taxpayers with children and an income of between £50,000 and £60,000 and between £100,000 and £118,000, according to today’s Financial Times.
Overall, I commend the Chancellor on his Budget and for sticking to his last in cutting the budget deficit, offering sensible tax rates to individuals and companies, and setting in place longer-term projects to encourage the return of growth.
Lord Haskel
My Lords, last month I was in the United States, another country with a very large deficit. But I could not help noticing that its policy for tackling its deficit is much closer to Labour’s policies than to the Government’s measures. I also could not help noticing that its policy seems to be working, so I hope that the Prime Minister took note of that during his visit, because a lesson is there for all of us to learn.
The Minister spoke of the Government’s intention to support business and to get more balance into the economy. He pointed to some of the successes. He mentioned Nissan and Jaguar cars, and in pharmaceuticals a decision that was made within 24 hours of the Budget. They work fast at GSK, or was it just a PR stunt? But even so, the economy is forecast hardly to move. My noble friend Lord Myners reminded us that we are still producing less than we did four years ago and that the job situation is getting worse. Indeed, unless we get the economy growing faster, it looks as if our children and grandchildren are going to have a lower standard of living than ours, in spite of the granny tax. What is the Government’s Budget going to do about it? Apparently, very little.
We all know that the way to cut the deficit is through growth, and growth needs investment. Yet as a result of what has been proposed in this Budget, as my noble friends Lord Eatwell, Lord Wood and Lord Myners told us, the OBR has reduced its forecast for investment this year and next year, partly because we all know that reducing corporation tax does little for investment but encourages retention.
There have been all kinds of policies to provide business with finance. Quite rightly, my noble friend Lord Sugar and the noble Lord, Lord Bilimoria, expressed their doubts about their validity. They are doubtful because the schemes do not seem to be working. Project Merlin had hardly any impact. Why will this one work? Funds intended for business development are being used by the banks to strengthen their balance sheets. They have borrowed €8 billion from the European Central Bank at 1 per cent interest for three years, yet business is still being starved of funds. It is no wonder that a frustrated Vince Cable wrote to the Prime Minister drawing his attention to the piecemeal policies to help business. I agree with Mr Cable. Let us unite behind an objective which has relevance to every part of the economy and every part of government, and can create jobs and encourage innovation. It should be familiar to us all and not necessarily just in terms of money.
Without this kind of objective, the outlook will feel bleak. We need something which gives people hope and business confidence—the confidence that the Institute of Directors is calling for. The noble Baroness, Lady Randerson, accused me and others on this side of the House of living in a parallel universe. Perhaps we are, but we are living in the real universe. So let us try a different approach in the real world and ask: what is it that has brought growth, progress and jobs to our economy? What is it that has helped us raise productivity and use intelligent machines to make the Jaguar and Nissan cars that we have heard about? What is it that enables us to invest in modern systems of additive and high-speed manufacturing? What is it that has enabled us to create lots of new small businesses with products and services which are exported all over the world? What is it that has enabled us to use the discoveries of genomic science to create all kinds of new health products? What is it that has enabled us to build the creative economy and the knowledge economy? The answer, in a word, is digitalisation.
Where have many of the well paying jobs come from in the past 10 years? It is the digital economy. Where have many of the improvements in productivity, in processes and services that we have seen in the past ten years come from? They have come through innovation using clever software, microelectronics and clever design. In manufacturing, in services, in communications, in health and in entertainment, digitalisation in its broadest sense has been the key to growth and progress. Before the Minister says to me, “Well, you're 10 years too late. Digitalisation is too mature. We need the next thing”, let me say that he is wrong and that it is only just starting. We are only just beginning to feel its impact and to learn what it can do. There is a long way to go.
So here is a strategy for the noble Lord, Lord Heseltine, who is searching for competitiveness, as he explained in his excellent maiden speech. Digitalisation can be the theme that unites and joins us together in our plan for growth and competitiveness. It is everywhere. Let programming be taught as a language in every school. Digitalisation is familiar to every one of the young unemployed people who concern the noble Earl, Lord Listowel. Let us use it to encourage them to get involved and to seek the training and skills which they and the economy need. The Technology Strategy Board and the technology centres of excellence are all aware of what digitalisation can do for industry. Let this be a theme for their valuable work. The same goes for healthcare and medicine. Instead of selecting industries which the Government think have a future, let us support the introduction of digitalisation in every industry. We know that it will make them more competitive. It is essential at this time when the rising cost of energy and materials affects every business. We have become very good at the innovative and clever stuff of using microprocessors, of writing clever software and of miniaturisation, and selling it. So let us use it to grow our economy faster. As other noble Lords indicated, there are a couple of pointers towards this in the Budget, such as a tax break for digital entertainment and less tax if you manufacture your patented inventions here. But that hardly scratches the surface. The Minister spoke about providing better broadband facilities in some parts of the country. The noble Lord, Lord Fink, welcomed that. But, as your Lordships’ Communications Committee was told only this week, the plans are completely inadequate and leave us far behind our competitors.
Digitalisation can have an impact even on those industries that we have all but written off. Is the Minister aware that the first new yarn dyeing plant for 20 years was opened in Yorkshire recently? It is competitive thanks to digitalisation.
The Prime Minister must be in favour of this because recently he signed a letter together with 11 other EU Prime Ministers calling for the creation of a truly digital single market by 2015. That is not central planning: it is a way of encouraging everybody to pull in the same direction—a co-ordinated, cohesive strategy accountable to Parliament, to industry and the public, designed to create growth.
In the Budget, I would have liked to have seen digitalisation become a crusade which unites the piecemeal efforts that Mr Cable is so unhappy about. It will help us to create jobs, find investment and find the growth that we all seek. It could be the start of something that is not only made in Britain but imagined in Britain.
Lord Flight
My Lords, I congratulate the Chancellor on his Budget which, by and large, makes the best scope of the limited manoeuvre that he has and one understands the political constraints that are upon him.
The first obvious point, that many other noble Lords have made, is not backtracking from the programme to phase out the deficit in the public finances. In overall terms, what we have is modest cuts in spending that have been able to pay for welcome increases in personal allowances.
I support the comments made earlier in this debate by my noble friend Lord Higgins about leaks and the point that they have led to unfair and wrong publicity over the abolition of additional personal allowances for older people. It is fairly clear that if you take together the increase in state pensions, the new £140 pension and the increase that is on its way in personal allowances, overall, those pensioners will be better off. I hope that that message will be put across successfully.
I welcome especially the supply-side reforms, such as the corporation tax cuts. We do not have that much to offer but it is crucial for us to be competitive on that front. I welcome the enhancement of incentives in EIS, VCT and with EMI schemes for investment in small cap business. I declare an interest as chairman of the EIS Association. I welcome the increase in personal allowances and moreover the reduction next year in the top rate of income tax.
It seems to me that the Opposition are engaging in crocodile tears and playing politics. It was quite clear for most of the period of the Labour Government from 1997 onwards that Prime Minister Blair, his advisers and his Cabinet considered that a 40 per cent tax rate was the highest tax rate compatible with a successful economy.
I also accept some of the pragmatic measures taken to stimulate growth, although I am somewhat uncomfortable with the belief that government know best on where and what to do. I certainly hope that the changed measures for North Sea oil will result in reviving production and correct what I think were mistakes made last year. Certainly, support is needed for the life-science industries and I hope that the Government will address the issues raised in the House by my noble friend Lord Ryder on the Government’s problems with EU regulations.
I support what are bluntly Keynesian initiatives to invest in infrastructure and on a public/private basis. The increase in export credit is particularly necessary. The facilities that this country has been able to offer have been very poor in comparison with, say, France or the USA. I am sceptical of some of the other particular public-sector initiatives. To me, they smack a little too much of the sort of tinkering that we saw from Gordon Brown.
The Budget has a coherent growth strategy and there is a shift from public to private-sector investment. I am also pleased that the Budget did not tinker further with tax incentives for pension savings. It seems that, by constant tinkering, this country has substantially wrecked what was a very successful pension-saving situation up until 1997. I would like to have seen a more philosophical base and framework behind the tax reform in some of the supply-side growth policies. Although I understand the political reasons for bashing the rich, my own view is that taking that line is inappropriate and unwise, particularly for a Conservative Chancellor.
The Budget includes some items on which I have concerns. First, it would have been better to leave child benefit alone and found the cuts elsewhere. Child benefit was a substitute for a very rational income tax allowance for those who had the substantial burdens of bringing up children, whether rich or poor. Even though the measures announced yesterday improve upon the initial proposals, there is a still a steep rate of tax on individuals with between £50,000 and £60,000 per annum. To me, it is fair that those with the costs of raising children should enjoy a tax benefit. The economy could not go forward unless children were raised and there to do the work for those of us as we get old.
I personally think that the 7 per cent stamp duty tax was somewhat less than wise. It is yet another burden on London and the south-east, which already subsidises the rest of the country by over £50 billion per annum. It will be counterproductive in that it will simply reduce the rate of turnover as it is reduction tax. It is also another attack on aspirants. London has the problem that house prices are far too high because of the many wealthy foreigners who come here—more than 50 per cent of the market. For those wanting to buy a house in London, it is already bad enough and too expensive. This is just putting the cost up further.
I am also extremely concerned at the proposed measures to limit tax relief to 25 per cent of people’s incomes. As it stands, that would appear to apply to charitable giving, which seems a complete madness and contrary to the whole big society concept. I am not clear, but there could be elements of retrospective taxation here. The whole EIS situation rested on the fact that venture capital investment has not been very successful in this country, largely because the public sector is far too large. A lot of these investments fail but there has been the known ability, where they fail and you lose all your money, to offset that against income. If that is removed, there is an element of retrospection to it in that people have made investments on the basis that that was there. No matter how politically justified, I am uncomfortable with all forms of retrospection in the tax area.
My main point is that the Chancellor spoke of Britain not getting left behind compared with the growing economies of Asia and South America. It is correct that this Budget has done something towards addressing that, but we have a long way to go. Being 10th in the league table of the most attractive economies is nothing to boast about. In fact, we are not a particularly attractive economy in which to do business. Many will have seen Willie Walsh’s article, and the Chinese find this a very difficult and unattractive place to do business.
We have a long way to go. In my book, we are above all dragged down by a public sector that is too large and which has negative productivity, so that the private sector has to run even faster both to offset the negative productivity in the public sector and to achieve some growth. With a 50 per cent public sector you are never going to be a successful economy; you need to get below 40 per cent and towards 35 per cent. I hope that the Government’s objectives to achieve that by 2017 will come about. But the truth is that there is still masses of waste in the public sector, with duplication of activities, quangos doing things that add nothing of any value and, basically, excess regulation. It is a pity not to see a slightly more radical approach on those fronts.
I conclude by wishing the noble Lord, Lord Heseltine, every success in the challenge that he faces. There is no one better to do that job, and I think that individuals can achieve things even in the face of difficulties. If this country is going to succeed and prosper in comparison with Asia over the next 20 years, we will not be able to continue with welfare and NHS expenditure representing over half of public expenditure, with some 25 per cent of GDP through that route. We will have to make ourselves enormously more competitive, get rid of a lot of regulation that damages this economy and address the issue of regulation that damages our economy and comes from the EU. In the 1980s and 1990s, we were focused on not wanting our economy to become sclerotic, as the economies of most of continental Europe had become. That is what has happened to us, and we need to be a lot more radical in order again to become a vibrant economy.
Lord Liddle
My Lords, this has been a very good debate about what I found the profoundly depressing event that was yesterday’s Budget. The only bright spark in that Budget was the announcement that the noble Lord, Lord Heseltine, was going to take a thorough, long-term look at the competitive challenges facing the country. He spoke about that with sharpness and authority today. However, much of the rest of the Budget—its main themes—was about politics and about holding together an increasingly fractious coalition, with the Chancellor positioning himself for the future leadership of a rightward-trending Conservative Party. That is what the Budget was about; it was not about achieving the necessary national unity and consensus that we need to address the long-term challenges.
Some of these challenges, as the noble Lord, Lord Heseltine, said in his remarkable speech, have been with us for a century. But we have also been hit, as my noble friend Lord Eatwell described in a wonderful metaphor, by a tsunami of a banking crisis. It was a global banking crisis that has led to the deepest slump that we have experienced since the 19th century; it is the gravest banking crisis since 1825, as some economic historian friend of mine was telling me. The likelihood is that we will not recover the level of output that we achieved in the UK in 2007 until 2013 or 2014 at the earliest.
This was a crisis that few anticipated. The occasional economist did so; Mr Vince Cable claims to have anticipated it as well. But certainly the majority of the political establishment, such as the Governor of the Bank of England and the Treasury mandarins, never saw it coming for a moment. It was a global crisis; not a crisis of public debt in Britain, but in origin a crisis of the total debt of a banking system and private debt bubble which has reached more than 500 per cent of British GDP. As a result of the explosion of that private debt bubble, we have had our tax revenues in this country decimated. That explains the rising deficit, not the Labour Government’s irresponsibility. We have had a banking system which is now completely dysfunctional, and is still unreformed and not lending to the economy in a proper way. We have had an economy which is badly out of balance, a trading sector that is too small and manufacturing that has shrunk.
Here, I accept that Labour was slow on its watch in seeing what was happening to manufacturing during its period of office. British manufacturing was, to a large extent, crucified by an artificially high exchange rate, which rose far too high in the past decade as a result of the banking system pulling in capital from overseas, with its assets rising from 200 per cent to 500 per cent of GDP. In other words, there was a repetition of a problem we have been familiar with in Britain: of the interests of the City of London being different from the interests of the manufacturing sector of the economy. In the essence of a policy for manufacturing, one key element has to be a policy for the exchange rate. Yet this is still something we do not talk about in polite company in this country, and we have to change that.
As a result of this crisis, we face very tough times, and on this side of the House we, of course, accept that. There is no alternative to spending cuts and tax rises, or to many difficult decisions. For my part, I certainly accept that there are severe, practical limits to the scope for Keynesianism in one country. However, there is more room for manoeuvre on the deficit than the Government have so far been willing to exploit. On youth unemployment, the Government are doing less than the Thatcher Government did with the Manpower Services Commission in the 1980s. On mobilising investment, we are still short of the action necessary to get the huge investments in energy and housing that we need. There is still scope for prioritising within public expenditure social investments such as training, research and higher education, which will strengthen our position in the knowledge economy—exactly the sort of thing that the Swedes did in response to their banking crisis in the 1990s. On a prudent view of public finance, those kinds of expenditures on youth unemployment and social investments would pay for themselves within a very short period. We ought to be doing more to put money into these areas as part of our growth strategy.
Most of all, we need a more coherent industrial strategy for Britain. It is a great pity that when it was first elected the coalition, instead of building on my noble friend Lord Mandelson’s industrial activism, chose to distance itself from it. Instead of reforming the regional development agencies and using them as an instrument for the Regional Jobs Fund which the noble Lord, Lord Heseltine, chairs, it chose to abolish this means of getting money out into the productive economy. There has been, as Vince Cable said in his leaked letter to the Prime Minister, no “compelling vision” of our future. That is why we look with great expectation to the work that the noble Lord, Lord Heseltine, is now undertaking. In my view, the noble Lord has to think very radically. We have to look again at the proposals that the noble Lord, Lord Skidelsky, has put forward for a state investment bank or national investment bank of some kind to resolve the relationship between finance and industry. None of the schemes being promoted at the moment is really effective. We have to do something more radical.
The Kay review looks very carefully at the shareholder relationship and how the relationship between shareholders and the managers of companies needs to improve. In terms of local business engagement and local initiatives, the new enterprise partnerships can, in my view, work only if they are accompanied by much more radical decentralisation within Whitehall so that questions such as how training budgets are spent are not decided by some central bureaucracy but are effectively devolved to the cities and regions that are in a position to know what best suits their local economy.
We have to change the Treasury mindset. The noble Lord, Lord Heseltine, said that he was not in favour of wasteful spending. When I advised the noble Lord, Lord Mandelson, my experience was that the Treasury appeared to think that any kind of industrial spending was wasteful. We also have to break what I fear has become a Whitehall mindset that Ministers and markets do not mix. I believe that in the right circumstances public policy and markets can mix and that you can promote an active industrial policy more successfully than we have done.
The Budget does nothing in those areas. Instead, it cuts the top rate of tax. The noble Lord, Lord Flight, talked about Blair and Brown advisers. I was one of them, and I was in favour of sticking with the 40p rate. However, in the circumstances of the 2008 crisis, when sacrifices were going to be required all round, there is no doubt in my mind that the increase in the top rate was justified, and I cannot see what has caused the Chancellor to change that judgment.
This is a fiscal consolidation that is to last seven years and we are at the end of only the first two. Even if the amount of money to be raised from these taxes were not substantial, the fact is that we have been debating in this House scandalous cuts in welfare spending, such as depriving disabled people of an extra bedroom in their rented home. We have been saying that that kind of expenditure cannot be afforded and, at the same time, are cutting the 50p rate of tax.
I feel sorriest for my friends in the Liberal Democrats. They have thrown away the 50p rate for nothing. There is no progress whatever towards the taxation of wealth in this Budget. They have shown themselves to be weak and irrelevant in this coalition. They are like the National Liberals in the 1930s and they should draw the lessons from this Budget: they have no power to influence anything.
Lord Davies of Oldham
My Lords, this has been an excellent and wide-ranging debate, and therefore it is all the more difficult to wind up the issues from this side. Before we came into the Chamber, the Minister was kind enough to indicate that it is always the senior figure, in the Commons and here, who introduces the debate and the poor junior who has to cope with winding up. Of course, the Minister is playing both roles, so he has my greatest sympathy.
I hope that in responding to the debate the Minister will find time to address himself, in particular, to specific points that Members of the House have raised. They are difficult for me to develop in the limited time available but I think they are well worthy of consideration. My noble friend Lady Worthington drew attention to the extent to which this Budget challenges the Government’s green credentials, and the noble Lord, Lord Marlesford, indicated that property taxes are a pressing issue that we ought to address. My noble friend Lord Desai said that the Minister ought to consider what should have been done with the windfall of Royal Mail resources. The noble Lord, Lord Northbrook, indicated something that is of great concern to the nation—the imposition of an extra 3p on fuel duty later this year unless the Chancellor takes action.
In the limited time that I have, I will concentrate on the main themes of this debate. The main theme is obvious: this is a Budget presented in an age of austerity. That is why the country sought to respond to the concept that was presented a year or so ago—we are all in this together. The Government said that they were concerned about fairness in the necessary privations that would be visited on the nation as it emerged from these great difficulties. We were somewhat reassured last year when the Chancellor said that it was not the right time to remove the 50p tax rate, when others in society on much lower incomes were being asked to make sacrifices. Exactly, but what has changed? Only that the least well-off in our society—the poor; those who are losing their jobs as mass unemployment begins to emerge across the nation; those who are losing their benefits; those who are finding their pay frozen; and those who are threatened with regional pay rates at a lower level than they enjoyed in the past—are making sacrifices while the Government reduces the 50p rate of tax. It is payoff time for the Government’s supporters but payback time when the nation regards this issue as appallingly unfair.
Of course, the Budget did not come as a shock. As the noble Lord, Lord Higgins, indicated, there was very little left in the Budget that could cause any surprise because the press had been well briefed. My noble friend Lord Davies of Stamford asked whether Ministers knew that this briefing was going on. Is it conceivable that even the challenging folk in the Treasury would have been so brave as to give these leaks without sanction? Of course not; this was a carefully prepared position.
What was not revealed in the leaks beforehand was the granny tax. That emerged from the finer print of the Budget. As my noble friends Lord Wood and Lord Myners, who both demolished the totally contradictory defences that the Government have erected for the reduction in the higher rate of income tax, pointed out, everyone is scandalised by the Government attacking pensioners in such an obscure way. The reason for doing so is straightforward and has nothing to do with the Government’s defence of, “We haven’t hit pensioners hard enough yet so it’s their turn”, which seems an odd idea of fairness. Pensioners are on fixed incomes, with fixed expectations; that is why the change to the terms of trade in pensions is so acute and causes such anxiety. Members of the Government ought to appreciate just how significant that is in the response to the Budget.
However, even then, we are still discussing minor matters in relation to the economy. I think the noble Lord, Lord Higgins, first voiced the opinion, which was subsequently reinforced by a number of noble Lords, that the Budget did not have a great deal to do with the real economy. Given its neutral stance, it will have a marginal impact on the real economy. However, this debate is about the real economy and some of the interesting contributions have addressed that.
In a central part of an extremely challenging speech, my noble friend Lord Eatwell indicated that one of the crucial figures is that business investment, which was anticipated to be 7.7 per cent, is down to 0.8 per cent at present. That ought to be a source of real anxiety for us all. Is it because businesses lack cash? That is not what the Institute of Directors says. Its director-general says that we do not lack cash but we do lack consumers. Certainly, many of our major companies are cash-rich at present. However, they do not have confidence in the market. They are not confident that they will get a return on their investment. This is not the case to the same extent with the SMEs, which may not be so cash-rich. As my noble friend Lord Sugar pointed out, there ought to be a role for government. He was not the only speaker to voice this point but he was probably the first to do so. We need an investment bank that directs itself to provide resources for what would be the rapid growth areas of the economy, if we can only prime them successfully.
The problem is that the Government are massively reducing demand. They are reducing the resources available to people to spend. I am not, of course, talking about those who will benefit from the reduced rate of taxation and can afford to buy sports cars costing £40,000 to £60,000. The only tragedy about that is that those cars are almost certain to be German and therefore British industry gains little from those transactions. However, the vast majority of the population are exhorted not to spend what they do not have. The problem is that they have less, or they are anticipating that they are about to have less.
We are used to a Conservative Party which in times of austerity has a history of being quite prepared to run the country with high levels of unemployment. Reference has been made to the lessons of the 1930s, but there was high unemployment in the 1980s and we are now approaching similar levels of unemployment. That is a tragedy for all those who are unemployed. Those who think that the 1 million young people who are unemployed are unemployed because they prefer to hang around on generous benefits know nothing about the young people of this country. No young man or woman wants to be in a position where there is no possibility of getting a job or career. The reason why they are unemployed is because the jobs do not exist. The Government ought to address those issues a great deal more intensively than they do. Encouraging higher growth would give people a chance to get jobs.
The noble Lord, Lord Bates, and the noble Baroness, Lady Randerson, referred to the north-east and Wales respectively. Those areas, which have relatively low levels of income, are now being threatened by cuts in public sector employment, which will result in even lower levels of income. I heard what the noble Baroness, Lady Randerson, said about the Welsh economy. However, I have also heard representatives of the other place speak of their great concern for the Principality.
The great highlight of this debate was of course the presence and contribution of the noble Lord, Lord Heseltine. We all congratulate him on his maiden speech, although that phrase sits ill with me due to his contributions at Westminster over the years. We wish him well in the role that he is to play, particularly because, despite all the trials and tribulations of the immediate future, it is important that we have a longer-term perspective.
International comparisons can be of great benefit to us. We can learn from the way in which others tackle their business, not least because—let me make the obvious point—the US economy grew by 2 per cent last year. When the US car giants threatened to collapse, the US Government moved in. It might be that this Government should have a bit more confidence in doing so.
Lord Sassoon
My Lords, I welcome the debate that we have had today and the valuable contributions that have been made, including particularly those from noble Lords in all parts of the House who have drawn attention to the many initiatives in the Budget that I did not have time to highlight in my opening speech. I am grateful for the opportunity to reply to as many of the points raised as I can, but I will not have the time to reply to everything—there have been a lot of questions.
I reiterate this Government’s number one economic priority: tackling the record peacetime deficit that we inherited from the previous Government and restoring economic stability. We will stick to our deficit reduction plans; I assure my noble friend Lord Flight of that. I noted the contributions from a number of Peers—the first was probably from the right reverend Prelate the Bishop of Chichester—acknowledging the need for a fiscally neutral Budget at this time. As my noble friend Lord Higgins pointed out, a combination of tight fiscal policy and loose monetary policy is the balance that we are taking forward. I assure my noble friend that the Bank’s holding of gilts under quantitative easing is completely transparent; it is updated day by day on the Bank’s website and the position will be unwound in due course.
Nevertheless, we have a steady stream of noble Lords from the Benches opposite who still preach the idea of free spending with as much money as is out there, with no fiscal discipline. They do not seem to have learnt lessons. I am not surprised by the noble Lord, Lord Liddle, espousing that but I am a little surprised at the noble Lord, Lord Desai, saying that we should spend this £28 billion from the Royal Mail pension plan. We inherit £28 billion of assets but we inherit liabilities to the pensioners that are considerably higher than that. Is it really right that we should spend that money? No, we will not. As for suggestions that we might like to recook the books, I think that we had enough of cooking the books under the previous Government. We will not go there. As it happens, the noble Lord, Lord Desai, was doing what I had been doing a little earlier to look for the GDP number. I assure him that it is there in table D2 of the Red Book, but I agree that you have to look some way into the document.
We will stick to fiscal rectitude. Even if we were to decide to hand out vouchers, which we will not, I do not know how we would be assured about where they would be spent—we could not be sure that they would all be spent on goods produced in this country.
I was rather hoping to keep away from too much historical analysis of how we got to where we are, but perhaps I should be grateful to the noble Lord, Lord Eatwell, for drawing our attention to chart 1.5 of the Red Book. He seemed to suggest that it showed what a good job the previous Government did to keep the deficit under control. Perhaps he would like to look closer at that chart. It exposes to the full glare of daylight exactly what the previous Government were doing. It shows that the Labour Government continued to borrow £30 billion to £40 billion a year while the sun was shining. That illustrates precisely the nature of the structural problem that we inherited: running budget deficits year after year to create the illusion of growth until the credit card finally ran out. We will not go back to that.
Having talked about the basic stance of the Government, let me deal with the question of leaks, because it relates directly to the way that the previous Government used to conduct their business. As the Chancellor said in the Budget Statement, a Budget produced within a coalition is different. The days of the Chancellor coming up with a Budget in secret are—whatever we think about the rights and wrongs—gone. This was not a Conservative or a Liberal Democrat Budget, it was a coalition Budget, as we have heard from the broad agreement from coalition Peers this afternoon. As the noble Lord, Lord McFall of Alcluith, recognised, that makes this Budget different.
In the course of coalition Budget negotiations, various proposals were raised, discussed and debated. I come back to what we have been used to in previous years. It has been more widely debated than in previous years, when the Chancellor briefed the Prime Minister on what was in the Budget the day before, if the Prime Minister was lucky, and even more than in the dying days of the previous Government, when the Prime Minister told the Chancellor what should be in the Budget the night before. We do not need lessons from Members opposite on how to conduct ourselves in the run-up to a Budget.
Lord Higgins
That was not quite the point I was making. I understand about negotiations within the coalition, but it appears—for example, from the front page of the Financial Times—that officials told the Financial Times before the Budget was announced what was going to be in it. I believe that the House of Commons has the right to hear first.
Lord Sassoon
That issue has been the subject of an Urgent Question in another place this afternoon, and the Government have explained their position in an answer there.
I have said that we will stick to our fiscal position. That means that there continue to be tough choices to be made. Some of those tough choices have been highlighted this afternoon. I start with my noble friend Lord Newby, who gave a fair and good analysis of the issues about pensioners and the fair deal that they are getting. However, because the noble Lords, Lord McFall, Lord Myners and Lord Davies of Oldham, and others raised the issue, let me underline it again. The Government are committed to supporting pensioners. The IFS confirmed today that that is indeed the case. Pensioners will get the largest ever rise in the basic state pension this April to £107.45 a week. The Government are protecting pension benefits, including winter fuel payments, free prescriptions and eye tests, free bus travel, free TV licences and, of course, the triple lock on the basic state pension is being introduced. The single-tier state pension will be introduced and has been estimated to be likely to be £140 in current terms. I refute the suggestions that pensioners have been poorly treated. We are all in this together.
My noble friends Lord Fink and Lord Sheikh have quite properly raised the issue of tax transparency. I agree with them on the importance of the new annual statements, which will show everyone who pays tax what they are paying and where the money will be spent across the different categories of expenditure. I am sure that will raise a healthy debate.
On tax reform, I am very confused about where the Opposition stand on the 50p tax rate. Are they really still saying that the Chancellor of the Exchequer should justify the continuation of a tax that is shown to produce next to no revenue for the country and which materially affects our global competitiveness? The noble Lord, Lord Eatwell, quotes approvingly the Institute of Directors, but the main part of the institute’s statement after the Budget called for the tax rate to be reduced to 40p. Is that what the noble Lord, Lord Eatwell, wants? The noble Lord, Lord Wood of Anfield, who is not in his place at the moment, questioned whether the Government had been fully transparent on this. The forestalling number that he was looking for is set out in bold type on page 51 of the Red Book, a complete contrast to what the previous Government did in not even recognising that there was a forestalling problem. The tax raised less than a third of the estimates that they put out. I believe that they are in no position to question the basis on which we have looked at the evidence in coming forward with a 45p rate.
Lord Davies of Stamford
How can a 50p tax rate possibly be devastating to our competiveness and at the same time raise no money? If people do not pay it, it will not have any effect on their behaviour.
Lord Sassoon
My Lords, the simple fact is that if you talk to businesses around the world about why they are not moving business into this country and are not moving high-earning individuals back to this country, you will find that it is simply because of the disincentive effect of the 50p tax rate. It is entirely consistent that there is a disincentive effect on business decisions, even though the net take is nothing. I listened to what the real businesspeople in this House—the noble Lord, Lord Bilimoria, and my noble friend Lord Fink—said about the damaging effect of high rates of tax. Their voices present the true position.
Lord Haskel
We have some real businesspeople on this side of the House as well.
Lord Sassoon
Indeed, there are distinguished businesspeople, including the noble Lord, Lord Haskel, on the other Benches, but I do not think that the noble Lord, Lord Haskel, made this particular point. He made other points which, if I do not have more interruptions, I might be able to turn to. There is also the noble Lord, Lord Sugar. I shall refer to as many speakers as I can, if noble Lords want to hear me rather than make additional points themselves.
My noble friends Lady Randerson and Lady Kramer importantly referred to the significance of our new anti-avoidance regime, particularly in relation to homes with a value of more than £2 million. Some issues have been raised on the measures that will claw back five times the amount of the cost of a 5p drop in the top rate of tax. My noble friend Lord Fink, and the noble Lord, Lord Davies of Stamford, in particular, raised the question of the capping of tax reliefs and the effect on philanthropists and charities. The Government will explore with philanthropists ways to ensure that the new limit will not significantly impact on charities that depend on large donations. It is an important restriction, but we will make sure that charities are protected.
On other areas of tax and tax avoidance, the noble Lord, Lord Davies of Stamford, asked about the general anti-avoidance rule. Under the new structure, a pre-clearance system will no longer be warranted. GAAR’s focus will be on artificial and abusive tax avoidance schemes. We will have a completely different construct from the present one, and it is not proposed that there should be a clearance system.
A certain amount was said in different ways on the question of distributional impact by the noble Lords, Lord Liddle and Lord Myners, the noble Viscount, Lord Hanworth, and others. Again, since the Government came to power, we have in the Red Book done the transparent thing and made it absolutely clear what the distributional effect is of Budget after Budget—something that the previous Government never did. I set out the figures in my opening speech. In cash terms, losses for the households in the top 10 per cent will be almost five times the average, and more than eight times those of the bottom 10 per cent by income. We have real and deep concern for the distributional effects of our tax and spending policies.
My noble friend Lord Northbrook, and the noble Lord, Lord McFall of Alcluith, asked about the lowering of the starting point of the 40p band. There is nothing untoward about this; it is simply a partial offset of the effect of the increase in the personal allowance, so that higher-rate taxpayers will receive only a partial benefit rather than the full one, which is targeted principally and rightly at lower earners.
Lord Myners
My Lords, the Chancellor used the term “simple” yesterday to describe the pickpocketing of pensioners. The Minister has now used the same term. The IFS today stated that the reduction in the allowance for the starting point of top-rate tax will take 1.5 million taxpayers into the highest tax bracket for the first time. The measure is not simple; it will expose more people to 40 per cent tax than was previously the case.
Lord Sassoon
My Lords, I will not repeat myself. I explained the rationale for doing this, which is to make sure that the benefit is targeted correctly. The position is completely clear.
I will address one or two issues that were raised on business taxes. The noble Lord, Lord Haskel, made the point about there being other businessmen in the Chamber. I listened hard to what he said about his recent visit to the US. I, too, was in the US recently. One place I visited was Chicago, which at the moment is the headquarters of Aon, the world’s largest risk management company. It is moving its global headquarters to the UK for a number of reasons, including our lower and more competitive tax regime. I do not remotely believe that we should follow US policies in a slavish way if we want to see a growing business base in this country.
Lord Eatwell
As the noble Lord brought up the point, does he agree that Aon announced its decision to move here before there was any intimation that top-rate tax would be reduced?
Lord Sassoon
My Lords, as I understand it, Aon based its decision principally on the very clear road map on corporation tax. However, I believe that the change in top-rate tax will see many other companies reconsider their location.
On oil taxation, my noble friend Lord Northbrook asked about the apparent position in the Red Book that shows that receipts are rising. Indeed, that is the case, but it is because decommissioning certainty and the new field allowances will lead to new investment that will in turn give rise to additional tax receipts, so it is a clear win-win situation.
Turning to one or two of the pro-growth policy questions that were raised, infrastructure remains very important, but I would say to my noble friend Lord Newby, who presses, quite rightly, on this important point, that the initial commitment to £2 billion of investment by the pension funds is good news, as he recognises. It is for the pension funds to decide how much further and faster they want to go. From my experience, I observe that rapid investment decisions sometimes lead to poor investments, but that is for the pension funds. The other thing is that there is only a limited pipeline of shovel-ready projects, but as projects come through, the appetite is there.
The right reverend Prelate the Bishop of Chichester asked about Sunday trading and the Olympics. I can assure him that there will be proper time for debate in this House. I know that the right reverend Prelate the Bishop of London has written to the Chancellor today and the Chancellor will be responding shortly. I will make sure that the right reverend Prelate gets a copy of that response.
Outstanding in the contributions on the Government’s pro-business policies was, of course, the maiden speech of my noble friend Lord Heseltine. It was a one-of-a-kind maiden speech in my experience and, I am sure, the experience of all of us. He set out in a very measured and realistic way the scope of the challenge that he is taking on in the benchmarking exercise, as he characterised it. We all very much look forward to the early autumn when, I think, we will get the fruits of his deliberations.
Turning to other pro-business areas, there were a number of questions from the noble Lords, Lord Bilimoria and Lord Sugar, and other noble Lords about the National Loan Guarantee Scheme. Let me assure your Lordships that there is now lots of publicity on the participating banks’ websites and in their branches. There is clear branding of the scheme. HSBC is not in it because its funding structure is different. There is nothing about it other than its funding structure. As to where the risk falls, it falls on the banks that make the loans. The credit risk remains there.
As to our progress on the rest of our plan for growth, I draw the attention of the noble Lord, Lord Eatwell, to the progress report that was put up on the HM Treasury website yesterday.
I come back to what I heard from my noble friend Lord Bates and others who reminded us of the very positive things that are happening in business and particularly in challenged areas, such as the north-east. That is an important reminder to us of what is really going on in the economy.
Lastly on areas of business policy, I say to the noble Baroness, Lady Worthington, that we took an important step forward in our energy policy in a joined-up way between DECC and HM Treasury yesterday when the Chancellor confirmed the important look at a gas strategy as part of our overall energy mix going forward. The picture I got from talking this morning to the chief executive of one of our largest companies invested in renewable energy in this country was that the company is very supportive of the Budget, while noting, quite rightly, that there are many policy areas in this area that we have to consider.
In conclusion, we will build a recovery in this country through the ambition of those who aspire to do better for themselves and their families. I am particularly encouraged by what I have heard from noble Lords with business experience on all sides of the House.
This Government are building a sustainable and prosperous economy and a recovery that builds on our strengths across all regions of the country and all the creativity and productivity of our private sector.
EUC Report: Healthcare Professionals
(12 years, 9 months ago)
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Baroness Young of Hornsey
That this House takes note of the report of the European Union Committee, Safety First: Mobility of Healthcare Professionals in the EU (22nd Report, HL Paper 201).
Baroness Young of Hornsey
My Lords, domestic healthcare has been high on the agenda of this House for the last six months or so. As with most other policies, there is a European dimension. This afternoon I would like to draw the House’s attention to the mobility of healthcare professionals within the EU.
I am sure that noble Lords will be aware of the debate that took place in the House on 8 September 2011 concerning the disparities between EEA and non-EEA healthcare professionals, as moved by the noble Viscount, Lord Bridgeman—who subsequently joined my committee, I am very pleased to say. On 11 January 2012, a Question for Short Debate asked by the noble Lord, Lord Kakkar, touched on the mobility issues but also considered other EU measures such as the working time and clinical trials directives.
Since its inception in 1948, the NHS has relied heavily on overseas-trained nurses and doctors to bolster its workforce. Their contribution has been significant and, since our accession to the European Union, what began with legal migration under the Commonwealth has been superseded by legal migration from other European countries.
We launched our inquiry into the mobility of healthcare professionals in May, shortly before the Commission published its Green Paper on revising the professional qualifications directive. Our report was published last October and considered the operation of the directive as it relates to the healthcare professions that are covered by its system of automatic recognition. The report not only made a number of recommendations to the Government but acted as our response to the Commission’s Green Paper consultation.
From the outset, we supported the principle that the mobility of healthcare professionals can bring significant benefits to patients, professionals and the EU in general. None of our witnesses challenged this assumption. However, we also recognised that the current directive failed to command the confidence of patients and professionals. Major UK regulators including the General Medical Council and the Nursing and Midwifery Council expressed strong concerns in their evidence to us that discrepancies in the current system forced them to admit individuals who did not meet the standards otherwise required of UK or non-EEA professionals, thereby putting patients at potentially serious risk. Incidents related to the failures of the directive have been statistically low. However, high-profile examples have had fatal results. This has undermined confidence in the directive and led to fears in some quarters that mobility has been prioritised over patient safety.
We examined the minimum training requirements contained in the current directive and concluded that they were out of date and badly in need of updating in order to reflect modern practice. We also considered whether there should be more stringent requirements for professionals to undertake continuing professional development, and whether a more competency- based approach to training and professional development should be adopted. We examined how fitness-to- practise information was shared between competent authorities in each member state, and we were alarmed to hear that competent authorities often fail to share information and that in some member states there are a plethora of different competent authorities, causing added confusion.
We concluded that the use of existing mechanisms such as the internal market information system needed to be enhanced and become more routine, representing a simpler and more cost-effective way of improving information-sharing than the Commission’s favoured option of introducing a European professional card.
Communication between patients and healthcare professionals is vital, and everybody agreed that professionals must be able to communicate effectively in the language of the host member state. We believe that the directive fails to ensure this and needs to be clarified so that language testing is permitted at the point of registration if deemed necessary for patient safety by the relevant regulator.
In the report’s conclusion we reached the view that encouraging mobility should never be at the expense of patient safety and that this must be the overriding concern in all circumstances. We believe that the current directive strikes the wrong balance and therefore welcome the Commission’s review, and we call on all parties, including the Government, to act quickly to ensure that serious failings in the current regime, which places patients at unacceptable risk, are remedied. Such changes would not represent a barrier to free movement but would instead strengthen it by rebuilding confidence.
The Government’s response was published on 19 December 2011, the same day as the Commission’s proposal for a revised directive. There is clearly a lot of common ground between our views and the Government’s views on the issues that we dealt with in our report. The Commission’s proposal to revise the directive goes some way to remedying the shortcomings in the original directive that we identified in our report. An alert mechanism will be introduced so that regulatory bodies must warn each other if, for example, a doctor or nurse has been struck off or suspended from a register and attempts to register in another member state.
The minimum training requirements for healthcare professionals will also be updated to reflect modern practices, and regulatory bodies will be able to check the language skills of health professionals. However, there is some confusion here. On the one hand, the GMC says that it is not currently allowed to systematically test language skills. On the other hand, the Commission says that it is. The situation is clearly ambiguous and we call on the Government and the Commission to work together to achieve what seems to be a common goal: to achieve clarity on this crucial issue. The Government’s proposed amendments to the Medical Act should happen in accord with any changes agreed to the EU directive in this area.
We also welcome the proposed exemption of healthcare professionals from the partial access provisions, in the interests of patient safety. We note that with the support of the relevant professional bodies, the Government are intending to push for veterinary surgeons and architects to be exempted. However, we also note that the Commission’s proposal contains no reference to the importance of continuing professional development. We reiterate our report’s recommendation that it should include an obligation on member states to require healthcare professionals to undertake CPD, but without being too prescriptive, and leaving the detail to each member state’s competent authorities. Although we remain to be convinced of the merits of the professional card, we note that the proposal seems to suggest that the introduction of professional cards for different professions will not be mandatory.
Although UK regulators have welcomed the introduction of an alert mechanism, they have questioned why it should apply only to the automatically recognised professions and not to the general professions. They also stress that the mechanism should flag up any conditions, restrictions or limitations placed on an individual’s right to practise, rather than just removals from registers. We share their concerns in this regard.
Data protection concerns have been raised in regard to the proposed alert mechanism, including by the European data protection supervisor. We touched on that in our report and note that the Government are already alive to this issue. We hope that they can successfully address these concerns during the negotiations, particularly in the context of the separate proposals for a revised data protection directive.
We have not yet received the Commission’s response. However, since the publication of our report I have participated in two conferences in Brussels which have included health regulators from across Europe who are working closely together on the proposals for a revised directive. During each event, interest in and awareness of our report was high. It therefore provided an excellent opportunity to reinforce the EU Committee’s views on this matter. I would also say that there was a good deal of consensus around the table among healthcare professionals from across the EU.
I also had the pleasure of hosting a roundtable meeting with senior representatives of all the automatically recognised professionals in the UK—that is, doctors, nurses, midwives, dentists, pharmacists, vets and architects. I hosted this event on 26 January and their views have helped to inform the committee’s ongoing scrutiny of the Commission’s proposal. We know that the Government have already worked closely with UK regulators in an effort to reflect their concerns during the negotiations on the proposal, which we commend.
In conclusion, I hope that my remarks demonstrate that the impact of the committee’s work in this area, as well as its proactive stakeholder engagement, has been successful and resulted in an ongoing scrutiny rather than, as it were, writing a report and leaving it on the shelf. The committee hopes that all parties to the negotiations on the revised directive, which are likely to continue until the end of this year, will strive to achieve real and practical improvements to the draft provisions. I look forward to hearing from other noble Lords, and of course from the noble Earl, Lord Howe, on behalf of the Government regarding this important matter. I beg to move.
Viscount Bridgeman
My Lords, I thank the noble Baroness, Lady Young of Hornsey, for initiating this debate and I congratulate her on the excellence of the report. I am in a position to say that as I only joined the committee after it had been published. The noble Baroness has set out the timetable for the various consultation papers which have appeared, possibly inconveniently, at the same time as the report. It has to be said that the Commission’s draft on the amendments to the 2006 directive, on which many had pinned high hopes, at first glance is disappointing on the matter of language testing. However I am assured by a number of competent authorities—regulators—I have spoken to that, in reality, slow but sure progress is being made. Again, the noble Baroness has confirmed this.
Let me take one or two specific points relating to language testing. Proportionality, a basic concept of the European Union, has been replaced in the amending document with “when strictly necessary”. I am assured that either of these expressions, each of them as long as a piece of string, is fundamental to the EU principles and that this concept has been upheld in several cases before the European Court. I simply ask the Minister whether, in his negotiations with the Commission together with BIS, the Commission has fully taken on board that healthcare is the most prominent among a small group of professions where patient safety is a vital consideration, in addition to but quite discrete from other factors such as a mutual recognition of qualifications that goes right across the group. In talking to some of the UK bodies, I wonder if the Commission has fully taken this on board. I remain suspicious that patient safety remains as it has been to date; that is, sidelined in favour of single market dogma. Is there not a fundamental complacency about this?
I note that at paragraph 73 of the report, Emma McClarkin MEP is reported as saying in evidence that there have only been “occasional problems” with competent authorities over the issue of language testing. One death that is attributable to language misunderstanding is one death too many. As I have read somewhere, the difference between a milligram and a microgram in dosage can be a coffin—a smart bit of journalism, but surely that says it all. So there is almost universal agreement that the draft amending regulations as they apply to language testing are not sufficiently specific. I hope that both departments will take on board the message from this debate that they should aim towards unequivocal drafting which ensures that, in this matter, patient safety transcends any other consideration.
The committee’s report makes the point with elegant moderation:
“We consider that the Directive currently strikes the wrong balance between facilitating mobility and ensuring patient safety, which must be the overriding concern. Furthermore the current system undermines public and professional confidence in the mobility of healthcare professionals within the EU”.
I would take this point further. The regulations as they stand inhibit the status of the regulators within their own respective disciplines. After all, what is the raison d’être of a regulating body if it cannot adequately monitor its membership?
Perhaps I may make my own position quite clear. In my view, our aim must be that Article 53 is amended so that healthcare authorities in each member state have the power to impose whatever language testing they think fit. In some cases this may amount to blanket language testing, something the Commission has set its heart against. In other cases, the regulators may consider that some lower level of testing is adequate.
The sub-committee’s report covers the matter of language testing with clarity and common sense, and its proposals are admirably set out in paragraphs 82 to 85. These include provisions for monitoring the language skills of self-employed professionals, an area which in the Commission’s own admission is inadequately covered. There is also the very practical suggestion that, in view of the length of time required to effect legislative change, a code of conduct is an effective and relatively speedy route for clarifying with competent authorities what the directive currently permits with regard to language testing. Finally, the committee is not in favour of restricting language testing to those professionals who come into contact with patients.
In talks with various regulators, I am reassured that slow but steady progress is being made by the Department of Health and BIS in their negotiations with the Commission. I feel that we are all talking to the same purpose and this is very welcome. But perhaps I may ask the Minister whether he will continue to make the point that, whereas proportionality is a fundamental principle going back to the treaty of Rome, the matter of patient safety is quite frankly even more fundamental than that, and that it is patient safety which must in the end prevail.
Lord Dykes
My Lords, from these Benches, I thank most warmly the noble Baroness, Lady Young of Hornsey, and her sub-committee’s members for this excellent report in what is an incredibly complicated area. A good deal of thought has gone into its construction. I think that the evidence taken from a large number of very impressive people helped the sub-committee’s deliberations. It is good also to see, as usual, the chairman of the European Union Select Committee in his place listening to this debate.
As noble Lords have said, what is striking about the report is that it is not just to be put on a shelf and then forgotten; this is a matter of crucial importance where the report has breathed life into the Government’s own deliberations and conclusions, some of which I am sure we will hear from the Minister today. We will then await the European directive.
I also thank from these Benches the noble Viscount, Lord Bridgeman, for his comments, partly because of his very close connections with and experience of the medical profession and well known hospitals. He has acquired great knowledge over many years. I hope that we can perhaps use instead of “single market dogma” the more congenial “single market objective”, because that is a legitimate objective of the European Union—indeed, it is set down in European Union law and applies to us as well because we obey European Union law, I hope, in all respects. When all the complexities have been ironed out, the mobility of healthcare professionals will be an important part of the growing single market not only in the European Union but in the EEA as well. Therefore, we await the terms and contents of the directive.
I commend the way in which the Commission has very patiently and carefully conducted its hearings and produced its Green Paper. It has consulted and listened to all sorts of advice in a way that happens more often in Brussels than in member states, where Governments sometimes legislate too quickly depending on the individual characteristics of the parliamentary system that they enjoy or suffer from, as the case may be.
This process will lead to a directive and member states will then bring in their own national legislation. That will be the crucial moment for HMG to implant into it those important requirements that we have heard about at the beginning of this debate and the primary considerations of the committee as described by the noble Baroness, Lady Young of Hornsey.
I again thank the chairman of the European Union Select Committee. I think that it is now in order to quote a letter from him to the members of the committee because it is in the public and parliamentary domain. The last but one paragraph of his letter of 16 March, referring to the report from the committee of the noble Baroness, Lady Young, states:
“The Committee considered that to ensure that professionals’ qualifications and skills were adequate and reflected modern practice, the training requirements of the Directive needed updating”.
That will surely be one of the most important components of the directive that we await. The letter continues:
“The Committee proposed that mandatory use of the Internal Market Information System by competent authorities in Member States to exchange information about healthcare professionals would be simpler and more cost-effective than the European professional card”.
From these Benches, I agree with that very much indeed. In the longer-term future there may be a European-wide single market healthcare professional electronic identity card that can be used, but that is further down the track.
Public confidence is important, not only in this country. There are individual medical stories in the dramatic press in other member states too about things that go wrong with a doctor, healthcare professional or nurse practitioner where something tragic happens—or if someone suffers prolonged illness rather than the tragedy of death. Those people have come with inadequate language qualifications, or other details of their training were substandard, and therefore they were not able to perform as the public would want.
But there are very small numbers of those cases. The press with its lurid headlines is bound to highlight them. In this case it does a good service. We often grumble about the press and its dramatic headlines, but in this case it is good to make sure that patients’ safety is the real priority. But it is a small number, so we should not go too far down the other path. That is something to which we are prone in this country, with our excessively nationalistic press: saying that in all respects British standards are higher and better than in other member states, including large member states in the European Union where more and more now the standards are getting very similar. There is a high level of quality and of protection. It is easy and tempting to go down that path, but it is a flawed path and misleading and one that I think the Government would be wise to discourage as much as possible and explain the realities behind these matters.
We wish the report well. We look forward to the final judgment of the Commission, the publication of the proposed new European directive and the Government's conclusions pro tem today. I also thank the noble Earl, Lord Howe, for coming here only three days after the end of his herculean efforts on the Health and Social Care Bill to deal with this important matter. We thank him for that and support the conclusions that he may lead us to this afternoon.
Baroness Thornton
My Lords, it does indeed feel that normal service has been resumed in the Chamber. I thank the noble Baroness, Lady Young, for the report and for the coherent way that she introduced it. I congratulate her and her committee on a brilliant job.
It is true that in September we had a preview of the report. We even saw some of it circulated during the debate initiated by the noble Viscount, Lord Bridgeman. During that debate in September, the Minister said:
“This summer we have been working constructively with other government departments and the health regulators themselves to formulate our response to the European Commission’s Green Paper on reforms to the directive. On that Green Paper there is very little on which the department and our partners disagree regarding areas of the directive that need strengthening. We agree that the harmonised training standards underpinning automatic recognition need updating and that a mechanism for regular updates is required. We would also like to see a focus over time on competencies in training rather than particular length of training”.—[Official Report, 8/9/11; col. 457.]
The Minister then goes on to talk about those negotiations. Those remarks were very important because they showed that we were making progress and moving forward together in the UK. What further progress is being made on that? I ask because it is not completely clear from the Government’s response to the report what the scale of progress is in the different areas that are covered by this report.
It seems to me that government policy, the report and the response are all broadly in the right place and there has been agreement in the House many times, not least because the noble Viscount has championed this issue for some time.
As well as being grateful for the report from the noble Baroness’s committee, we also need a report back on how the Government are progressing with these negotiations, what they expect the outcomes will be and at what times. This is indeed an issue of patient safety but, as the noble Lord, Lord Dykes, said, we also have to recognise that it is an issue from our NHS benefiting from the free movement of health professionals across Europe. Which one of us has not been treated by a nurse, doctor or health professional from some part of the European Union? That will absolutely be the case and is quite right. In the vast majority of cases, we do not even think about the fact that we may be treated by a German doctor, a Scandinavian nurse or whatever because we assume that they will be competent. In the vast majority of cases, they will be.
I hope that the unanimity in this House will help to inform the Government’s position on this review and indeed strengthen the Minister’s arm in these negotiations. However, I have a question about what and how much impact the Government’s position on light-touch regulation will have on these negotiations. That is slightly going back to the Health and Social Care Bill, where we had a discussion about that. I would like to know what impact that might have. It seems clear that the language skills clarity and the continuing professional development are still very important issues that need to be resolved. However, finally, there is no question that the EU Committee has done a great favour for patient safety not only in the UK but also across the whole of the European Union.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, I echo the comments just made by the noble Baroness, Lady Thornton. I, too, am extremely grateful to the noble Baroness, Lady Young, for her work and the work of her sub-committee in undertaking the inquiry that it did and for producing the report which has proved extremely valuable to us. Like the noble Baroness, Lady Young, I welcome the European Commission’s review of the directive on the mutual recognition of professional qualifications. It is a priority for the Government to ensure an appropriate balance between free movement and patient safety in the new directive. I will come on to say something more about that.
To start with, I broadly agree with the findings of the sub-committee’s report. As the Committee’s report highlighted, there have been significant concerns expressed by partners and stakeholders as to the applicability of aspects of the directive and its provisions to health professionals. The proposal published by the European Commission in December contains some welcome amendments that should, if introduced effectively, contribute significantly to tightening the European regulatory framework and improving patient and public safety. The Government’s negotiating position on the new directive has been informed by the sub-committee’s recommendations as well as the views of the devolved Administrations and our partners within the healthcare sector. There are a number of aspects in the proposals where we will seek clarification. I shall come on to those one by one.
First, the noble Baroness referred to information sharing. A key consideration for the Government is supporting the proposed new alert mechanism. As she mentioned, there is a proposal for a proactive alert mechanism for healthcare professionals falling within the sectoral professions—that is, those subject to automatic recognition of their qualification—in Article 56a(1). This looks positive. A different system will apply to healthcare professionals that fall within the general system under Article 56a(2)—the regime applicable for professionals under the general system that do not fall within the scope of the services directive. While this difference is not ideal, it arises from the different legislative bases across the European Union. However, the system should be workable if there is clear guidance from the Commission as to what can be shared and when, and if competent authorities under the general system comply with and take their responsibilities seriously and notify member states as appropriate. Having said that, I believe that there are points of detail we still need to clarify regarding the practicalities of administering the system. Ensuring proactive sharing of information when concerns arise about a healthcare professional is one of our top priorities, and we welcome the proposals in the new directive for the alert mechanism.
The legislative formulation of the proposals for alert mechanisms is complex, because the provisions differ for the sectoral professions. The Commission needs to ensure that all European competent authorities fully understand their obligations. At this point, we require further clarity on the application of the alert mechanisms for the general system and the implications of data protection overall.
We share some of the concerns of our partners about the proposal for a European professional card, an electronic card that links to the internal market information system, or IMI, and can be used by individual professionals for identification purposes. The new proposal, underpinned by the use of IMI, is a positive development, but the time limits proposed for decision-making when an application is made are potentially problematic and may prove to be counterproductive. In cases where satisfactory information has not been provided to the host member state competent authority within the time limit, it would be likely to have to reject an application. More generally, our view is that the whole concept needs to be properly piloted. While there may be some benefits in a professional card, proposals for it need more work—and I agreed with the remarks of my noble friend Lord Dykes on this issue. We need to ensure that the impact on competent authorities and professionals is properly considered so that patient safety is protected. We await with interest the results of the pilots. Our overriding concern in this area is to protect UK patients from healthcare professionals who may not be properly skilled to do the job.
The proposed move to a minimum duration of medical training from six to five years is also welcomed, as it provides greater flexibility to adapt medical training to meet the UK’s needs. We would eventually like to see a competence-based system of training standards, but we recognise the scale of such an undertaking in the short term. The move to modernise training over time, through a process for updating the core subjects that must be covered by training for the sectoral professions and by providing the Commission with delegated powers in this area, is a move in the right direction.
My noble friend Lord Bridgeman focused on an issue that he has consistently championed—that of language testing. This Government have made it clear that we want to stop foreign healthcare professionals working in the NHS unless they have passed robust language and competence tests. While the proposed new directive would not allow language checks by a competent authority before recognition of the qualification of a professional, it makes it clear that controls on language checks are permissible and can be undertaken before a professional is able to practise. The proposals in respect of language checks do not go as far as the GMC would like, as they do not enable checks at the point of registration, but would permit healthcare competent authorities to undertake language controls following registration when there are serious or concrete doubts about a doctor’s language ability, or following a request by the NHS or patient organisation. There is evidence of the Commission having considered the views of the UK Government in its proposals, and there have been positive developments in the proposals in relation to patient safety overall.
As I said, the Commission’s proposed draft would not appear to allow the GMC to undertake systematic language testing at the point of registration. The GMC would be required, as it is now, to consider the recognition of the qualification and, if accepted, to register the EEA migrant. However, the proposals appear to give greater scope for the GMC to be able to apply language checks after registration where serious concerns are identified, which is a positive development. We believe that what the Commission is proposing would be consistent with the proposed model for a strengthened system of checks, overseen by responsible officers, that we are working up in conjunction with the GMC. I will now come on to that.
In the UK, we have implemented a system of checks at a local level through duties on primary care trusts and guidelines to local NHS employers. We have already taken steps to strengthen the system and, since 2011, all designated bodies have been required to nominate or appoint a responsible officer—for example, a medical director in an NHS trust. In England, the responsible officer’s duties include ensuring that medical practitioners have the qualifications and experience they need for their area of work, and that references are checked, but we think that we can and should do more. We expect to consult shortly on new guidelines for responsible officers, which will build on the existing role of responsible officers in England to explicitly check for language ability.
We are also working with the GMC to develop further proposals and amend the Medical Act. This will mean the GMC is better able to take action where language concerns arise as part of the registration process and when a licence to practise has already been issued. The proposed changes to the directive would appear to facilitate the implementation of our preferred approach to language controls, which I have described.
In common with the sub-committee, the Government are disappointed that the proposals do not include a clearer requirement for all member states to have continuous professional development for their healthcare professionals. We think that all member states should be required to have a system of CPD in place for the healthcare professions within their territories, since out-of-date training presents a much greater risk for healthcare workers than for other non-health professions covered by the directive. We would not be prescriptive on the CPD system used by the member states. However, migrant professionals should be expected to demonstrate that they have kept up with latest developments in practice, and that recognition should be linked to them being able to do so. Overall, the key issue is that health professions should be able to demonstrate relevant recent practice.
The noble Baroness, Lady Thornton, referred to training. Negotiations on the directive commenced in January, with the aim of reaching agreement by the end of 2012. However, training has not yet been discussed in any detail at European level. We will continue to work with stakeholders on that important topic. As regards the use of delegated and implementing acts by the Commission, the Government recognise the need for those acts to facilitate the effective functioning of the European Union and the freedom of movement of professionals. However, we seek further clarity on the appropriateness of some of the proposed changes to the use of delegated and implementing acts and the surrounding processes.
We are pleased that the European Commission has proposed a “transparency” process under Article 59, which is likely to bring significant benefits in terms of increased trade and ease of doing business across Europe. Member states are obliged to check that their regulation of professionals is necessary and proportionate, while allowing member states ultimately to decide whether to regulate professions, which is of particular significance for health and caring sectors, to ensure patient safety. Inherently, in the context of European law, there is a balance to be struck here.
That balance was something to which the noble Baroness, Lady Young, and my noble friend Lord Bridgeman referred. I very much take the points that they made. Naturally, we believe in proportionality in regulation, but the Government have previously made their view absolutely clear that in places there needs to be a stronger focus on patient safety in the directive. Some of what is proposed in the draft new directive will help to achieve a better balance, and that is to be welcomed. Our approach to the negotiations over the coming months will be to ensure an appropriate and improved balance between freedom of movement and patient safety.
I listened with care to my noble friend Lord Dykes and agreed with much of what he said. We should not assume that our standards in this country are necessarily higher than those in other countries. Having said that, I think that there is one issue here of which we should not lose sight. As highlighted in evidence given by the General Pharmaceutical Council and the Nursing and Midwifery Council to the House of Lords inquiry last year, a small but significant risk is posed by professionals who are entitled to automatic recognition and seek establishment in the UK but who have not practised their profession for some years. As a result, in the Government’s Green Paper response to the Commission, we asked for the addition of a requirement of two years’ experience in the last five years, unless the applicant graduated in the last three years. However, this suggestion was not included in the Commission’s recent legislative proposals.
The Government will continue to work with the Commission to ensure that safeguards are in place. However, we come back in the end, I think, to the role of employers and commissioners in this context, because that is clearly vital in ensuring the suitability of the individuals they seek to contract with for the specific role they intend them to undertake, including acceptable relevant experience.
There is no question that overall the UK healthcare system benefits from the free movement of professionals. I think we all agree about that. However, the Government will continue to prioritise and promote satisfactory safeguards for the health professions and to ensure that the principles of free movement are balanced with the need for adequate safeguards for patients.
Baroness Young of Hornsey
My Lords, I thank all noble Lords who have taken part in today’s debate. It was heartening to hear so much consensus across the House on the issues that have been raised by the inquiry and in our subsequent report. As I said earlier, I was pleased that the noble Viscount, Lord Bridgeman, joined the committee after having initiated a debate about language. I am very grateful to him for his diligence in pursuing that issue. It has to be said that he also has a very well rounded view of the whole set of issues involved in this report, although his focus has been on language-testing and so on. I think we all want to see something unequivocal and unambiguous in relation to language-testing to which we can subscribe.
I am grateful, too, to the noble Lord, Lord Dykes, for helping to put the report in a wider context. That is important, as is flagging up the fact that we feel that mobility is a good thing. We benefit from it, as we have done for many years and will continue to do. The question is really how we make the balance between the desirability of mobility and patient safety work. Of course, the noble Lord is correct to point out that we are talking about a very low incidence of fatal and serious impacts arising from the mobility of inappropriate practitioners. By the same token, as I think the noble Viscount, Lord Bridgeman, said, one is one too many, and that is what we have to tackle. In fact, somebody brought to my attention another very worrying incident concerning a doctor who has left a trail behind him on mainland Europe. Therefore, we have to be vigilant on those issues.
The noble Baroness, Lady Thornton, again emphasised the issue of benefiting from free movement. It can sometimes be easy to lose sight of that when we discuss and focus on what are, essentially, problems. I am glad that she raised continuing professional development, which the Minister picked up and went into in some depth. Again, many of us would agree that it is an absolutely crucial area.
During our evidence-taking, we heard the example of someone from outside the UK who had trained as a midwife 20 years ago and had no professional development subsequent to that. That is an area in which there have been lots of advances in many different ways. The idea that someone who first trained 20 years ago and has not practised since could come into midwifery here is quite disturbing. Therefore, CPD is very important.
I will not pick up on everything; it has been a long day. I will just deal with the professional card, which is another area on which we agree. It is interesting to note that at the conference called by Healthcare Professionals Crossing Borders in Brussels a couple of weeks ago, that was something of which some people were in favour while others had deep concerns about it.
I should also say that most people at that gathering had deep concerns about language. It is not only us who have these anxieties about how and at what point we test language. Part of the problem is that the complexity is there anyway but there are other layers of complexity to do with all the different systems that are in place in different member states. There are even different ways of thinking about registration. Some member states separate registration from licensing, which we do not. Therefore, if we say that something can come into play at the point of registration, it will mean something different in different places. All that complexity means that it is even more crucial that we have absolute clarity and push forward.
I reiterate how pleased I am that there is so much consensus on the areas in which we need to make progress, and that the Government are taking up those areas and working with organisations such as the GMC to ensure that we maintain and enhance a balance between mobility and patient safety.
In conclusion, it is absolutely right for me to acknowledge the unequivocal pleasure and delight of working with Sub-Committee G and my colleagues on it, who are represented today by the noble Viscount, Lord Bridgeman. We worked very hard on the report, as noble Lords can see. We did a lot of questioning and reflecting, which paid off in producing a report that many people have referred to. When I go to meetings in Brussels and elsewhere, people brandish copies of the report, which is heartening to see. I also thank the staff, particularly Talitha Rowland and Alistair Dillon, for their work on the report.
The debate today has, typically, been very informative and well informed. It points to the ways in which different parts of the House and our society can work together to ensure that we achieve the balance that we all seek. I beg to move.