Lord Agnew of Oulton
That this House takes note of the economy in light of the Budget statement.
The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)
My Lords, the Budget that the Chancellor set out last week has three key elements. First, it protects jobs and livelihoods and provides additional support to get the British people and businesses through the pandemic. Secondly, it is clear and honest about the need to fix the public finances. Thirdly, it starts the work of building our future economy, including by providing opportunities to level up across the country.
The Budget announced additional measures worth £65 billion to support the economy through the pandemic this year and next. Added to last November’s spending review, the number is £352 billion and, taking into account measures from the spring Budget last year, the figure rises to £407 billion. The OBR now expects the UK economy to recover to its pre-crisis level six months earlier than originally expected—in the second rather than the fourth quarter of 2022.
Importantly, the Budget extends the furlough scheme until the end of September. Support for the self-employed will also continue until September, with an additional 600,000 people now potentially eligible to claim. The universal credit uplift of £20 a week will be maintained for a further six months and working tax credit claimants will receive equivalent support over the same timeframe.
Among other things, the Budget also reaffirmed the Government’s commitment to increase the national living wage to £8.91 an hour from April. It also announced a new restart grant in April to help businesses to reopen and get going again, as well as a new recovery loan scheme to replace our earlier bounce-back loans and coronavirus business interruption loans.
The Chancellor was also open about the longer-term fiscal challenge that we now face. The Budget does not raise the rates of income tax, national insurance or VAT. Instead, it maintains personal tax thresholds on income tax, inheritance tax, the pensions lifetime allowance and the annual exempt amount in capital gains tax, with higher earners affected the most. It also announced an increase in corporation tax to 25% from 2023. Importantly, 25% is still the lowest corporation tax rate in the G7 and companies that make less than £50,000 profit annually will only be subject to a 19% tax rate. Given that the Government are providing businesses with over £100 billion of support to get through the current crisis, it is only right to ask them to contribute to our recovery.
The third component of the Budget is a series of initiatives and measures to support the investment-led recovery that the country needs. A new super deduction will, in some cases, allow companies to reduce their taxable profits by 130% of the cost of the investment that they make in plants and machinery, which is equivalent to a 25p tax cut for every pound that they invest. Worth £25 billion over the two years that it is in place, the super deduction represents the biggest business tax cut in modern British history.
The Budget also announced, among other things, the creation of the first ever UK infrastructure bank, headquartered in Leeds. Two new schemes—Help to Grow and Help to Grow: Digital—will help tens of thousands of small and medium-sized businesses to get world-class management training and help them to develop their digital skills. We are helping to ensure that we have access to the talent that we need through the reforms that we are making to our visa system.
Achieving an investment-led recovery means allowing investment to flow more freely, which is why we want to give the pensions industry more flexibility to unlock billions of pounds from pension funds into innovative new ventures. Alongside these measures, our commitment to levelling up across the United Kingdom is reflected in the £4.8 billion levelling-up fund; accelerated city and growth deals in places such as Ayrshire, Falkirk, north Wales and Swansea Bay; more than a £1 billion for 45 new towns deals; and a £150 million fund to help communities across the United Kingdom take ownership of pubs, theatres, shops or local sports clubs at risk of loss. This complements the inward investment that will be attracted through the announcement of eight new freeports in eight English regions.
The country has experienced the worst fall in GDP in three centuries—not the 1976 sterling crisis, not the Second World War, not the First World War, not the Napoleonic War; this has been harder financially than all those. In response, the Chancellor has presented a plan that will continue to protect jobs and livelihoods and to support British people and businesses through this moment of crisis. It will begin to fix the public finances and will start the work of building our future economy through investment-led recovery.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
My Lords, I should have added that the maiden speakers all have an extra minute and the welcomers an extra 30 seconds. I call the noble Lord, Lord Eatwell.
The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)
I call the noble Lord, Lord Mair. Can the noble Lord please unmute?
Baroness Evans of Bowes Park (Con)
My Lords, can the noble Lord unmute? Otherwise, we will move to the next speaker and return to him.
The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)
Let us try one more time. No? I call the noble Lord, Lord Blencathra; we will come back to the noble Lord, Lord Mair, as soon as we have reconnected.
Lord Agnew of Oulton (Con)
My Lords, it is a privilege to close this debate on behalf of the Government. I thank noble Lords for their many insightful and considered contributions. In particular, I welcome the maiden speeches of the noble Lords, Lord Bellingham, Lord Benyon, Lord Cruddas and Lord Khan, and the noble Baroness, Lady Foster.
Given the number of speakers and the limited time I have available, I hope noble Lords will forgive me if I am not able to address all the points raised. Perhaps noble Lords would like to write to me if they do not feel that the issues have been addressed satisfactorily.
I start with the noble Lords, Lord Eatwell and Lord Risby, on overall spending, borrowing and debt. In 2020-21, this Government increased day-to-day departmental spending by £20 billion, with a 6% increase in nominal terms. In 2021-22, excluding Covid, there was a further increase of £22 billion, or 6% nominal. In addition to substantial near-term support, the Budget supports an investment-led economic recovery to level up across the UK while trying to be honest about the need also to repair the public finances in the medium term. Without corrective action, borrowing would rise to unsustainable levels, leaving underlying debt rising indefinitely. Although borrowing costs are affordable now, interest rates and inflation may not stay low for ever. Indeed, a 1% increase in inflation and interest rates would cost us more than £25 billion a year.
My noble friend Lord Hunt asked about jobs and full employment. The Budget sits alongside a comprehensive package to support people into jobs, as announced in the plan for jobs. The 2020 spending review built on previous commitments to provide £3.6 billion of additional funding in 2021-22 for the DWP to deliver employment support to those who need it most. This includes £1.4 billion of additional funding to sustain the doubling of the number of work coaches to 27,000, the £2 billion kick-start scheme to help young people at risk of long-term unemployment and the £2.9 billion restart programme to help those who have been unemployed for more than a year.
The right reverend Prelate the Bishop of Portsmouth and the noble Lord, Lord Watson, asked about early years and children. The Government recognise the acute impact of the pandemic on children’s lives—particularly the impact from lost learning. That is why, following the £1 billion education catch-up package announced last year, the Government are making available £700 million of further funding to help young people in England catch up on lost learning as a result of Covid.
The noble Baroness, Lady Goudie, asked about the effect of the pandemic on women’s careers. It is no doubt that many women have borne the brunt of this crisis, particularly mothers. Since March, we have provided unprecedented levels of support to businesses and individuals; cumulatively, 11 million jobs have been supported by the Coronavirus Job Retention Scheme. Provisional estimates show that the number of females furloughed increased to 2.3 million as at 31 January and the number of males to 2.2 million. Temporary measures have been put in place to restore entitlement to parents in receipt of government coronavirus support schemes who would normally be eligible for tax-free childcare and/or 30 hours of free childcare but, due to the consequences of Covid, are not able to receive it. Households with anyone aged under 14 can form a childcare bubble, which allows friends or family from one other household to provide informal childcare.
The noble Lord, Lord Eatwell, asked about stamp duty relief. Extending the stamp duty holiday will reduce the risk of a fall in house prices in the short term, which is building momentum and encouraging confidence in the housing market. The housing market drives the wider construction industry; by helping maintain momentum in the market, the extension of the stamp duty holiday will protect hundreds of thousands of jobs that rely on it.
The noble Lord, Lord Fox, asked about council tax. The Government are providing local authorities with additional funding for Covid-related pressures and giving local authorities the flexibility to raise council tax bills across their budgets. These increases are in line with similar flexibilities in previous years. To give local authorities additional flexibility in making these decisions, we will allow them to defer up to their full 3% adult social care precept in 2022-23.
My noble friend Lord Forsyth is worried about tax rises. We continue to provide substantial economic support to people in need and have committed an additional £65 billion in this Budget across 2020-21 and 2021-22. We are trying to be honest about the steps that will be taken following the record-breaking levels of borrowing and higher debt. Announcing a credible plan to repair the public finances over the medium term supports the Government to continue to have the space to borrow in the short term to support the economy. The OBR forecast is that, under the Government’s plans, the economy will rebound strongly next year.
The noble Lord, Lord Palmer, asked about the freezing of personal allowances. The decisions that we have made to increase the personal allowance over the last few years mean that fewer people than ever are paying income tax. Freezing the personal allowance and HRT is progressive and fair. The highest-earning households will contribute more of the revenue: the 20% highest-income households will contribute 15 times that of the 20% lowest-income households. Nobody’s take-home pay will be less than it is now. Anyone earning £12,570 or less in 2025-26 will still not pay income tax.
The noble Lord, Lord Bilimoria, asked about business rates. The Government have provided over £16 billion of support for businesses affected by Covid with their rates bill since March last year. This measure builds on the full business rates holiday for eligible properties in retail, hospitality, leisure and nurseries in 2021, worth over £10 billion. The Government have also decided to freeze the business rates multiplier in 2021-22, saving businesses in England an estimated £575 billion over the next five years.
The noble Lord, Lord Campbell-Savours, asked about inheritance tax. The Government are aware of recent reports, including from the Office of Tax Simplification, and will respond in due course. Inheritance tax makes an important contribution to the Exchequer of some £5 billion a year, so we need to consider carefully any wide changes to it.
My noble friend Lord Caithness asked about productivity. Building on industry best practice and our international peers, we will launch a new world-leading management skills training programme to upskill 30,000 SMEs across the UK over the next three years.
My noble friend Lady McIntosh asked about the failure to provide support to aviation. The Government recognise the challenging circumstances facing the aviation industry. We will publish a consultation on aviation tax reform in the spring. The aerospace sector and its aviation customers are being supported with almost £11 billion made available through loan guarantees, support for exporters and the Bank of England’s Covid Corporate Financing Facility, together with grants for research and development. This includes £8 billion of UK export guarantees. The Budget built on this, renewing support for airports and ground handlers through first six months of 2021-22 to help meet their fixed costs, such as business rates.
The right reverend prelate the Bishop of Portsmouth worries about social care. Throughout the pandemic we have continued to support social care providers to manage the impact of Covid. This includes over £4.6 billion in grant funding for local authorities to address Covid pressures across all their services, including adult social care; over £1.9 billion of enhanced discharge to accelerate discharge from hospital; over £1.1 billion for the infection control fund to support care providers in stopping the spread of the virus; free Covid-related PPE through the Department of Health’s PPE portal until the end of June; and £120 million for the workforce capacity fund to ease workforce pressures in adult social care. The Government remain committed to sustainable improvement of the social care system and will bring forward proposals this year.
My noble friend Lord Young of Cookham asked about council tax. We are providing £670 million of grant funding to help local authorities in 2021-2 to continue to support more than 4 million households least able to afford their council tax bills.
The noble Lords, Lord Gadhia, Lord St John of Bletso and Lord Bruce, raised apprenticeships, skills and training. The Government are making significant investment as part of our plan for growth. Apprentices of all ages will support our economic recovery and the payments to employers will be increased so that they receive £3,000 for each new apprentice hired between 1 April and 30 September of this year, regardless of the apprentice’s age. We are also investing £126 million to triple the number of traineeships next year. The Government have invested significantly in further education, including £1.5 billion of capital funding to bring the entire college estate up to a better condition.
My noble friend Lady Gardner asked about rebalancing the tax burden to help the high street. Retail is changing dramatically and the high street is too. We want to help business manage this transition. The Government published a call for evidence for the fundamental review of business rates in July 2020, which includes questions on this topic, and we will respond in due course.
The noble Lords, Lord Eatwell, Lord Hunt and Lord Fox, are concerned that the Government do not have a proper plan for growth. Build Back Better: Our Plan for Growth was published under the Covid recovery, post-Brexit transition and our longer-term economic growth strategy. The plan tackles long-term problems and helps to deliver growth that creates high-quality jobs across the UK. It strengthens the union as well as achieving the people’s priorities, levelling up the whole of the UK, supporting our transition to net zero and supporting our vision for a global Britain.
The noble Lord, Lord Hain, worries that we are cutting fiscal support too soon. We have always said that we want to protect lives and livelihoods and be guided by the best scientific advice available. This is why we have provided an unprecedented package, with a cumulative cost of some £350 billion, to protect people’s jobs and livelihoods and to support businesses and public services. The package set out by the Chancellor in this Budget allows people in businesses to plan and prepare in line with the expected easing of restrictions announced last month in the Prime Minister’s road map. Schemes such as the CJRS and SEISS and support for businesses are continuing beyond the end of the road map.
The noble Lord, Lord Bilimoria, worries about excluded groups. The Government have acknowledged that we have not been able to support everyone in the way that we might have wanted. The CJRS and SEISS are designed to target support to those who need it most and to protect taxpayers against error, fraud and abuse, while also trying to reach as many people as possible. Individuals will be able to qualify for the new SEISS grants based on their 2019-20 tax returns, with around 600,000 self-employed individuals being newly eligible. This brings the total eligibility for SEISS 4 and 5 to 3.7 million people. The furlough scheme has helped pay the wages of some 11 million jobs, with £53 billion having been claimed. Local authorities in England will receive a top-up worth a further £425 million to their allocation from the ARG, which has already provided local authorities with £1.6 billion.
The noble Baroness, Lady Bowles, my noble friend Lady Gardner and the noble Lords, Lord Monks, Lord Hain and Lord Dodds, asked about universal credit. The Government have always been clear that the £20 increase was a temporary measure. We are now shifting our focus to supporting people back into work and we have a comprehensive plan for jobs, which this Budget builds on.
The Government will spend over £55 billion in 2021 on benefits to support disabled people and those with health conditions. The Government have implemented a range of measures to make accessing disability benefits easier and to protect existing claimants during the current situation. This includes temporarily suspending face-to-face assessments.
My noble friend Lord Forsyth asked about the under-25s, who of course have particularly suffered in this pandemic. The measures in the Budget seek to address this, alongside promoting the Government’s belief in fairness and the aim to promote equality of opportunity.
My noble friend Lord Lamont and the noble Lords, Lord Macpherson and Lord Bilimoria, are worried about the rise in corporation tax. The Government are providing businesses with over £100 billion of support to get through the pandemic, so it seems fair that we ask them to contribute to the recovery. At 25%, the headline rate will remain one of the lowest—or the lowest—in the G7, and the full rate will be paid by around only 10% of companies. A small profits rate of 19% for businesses with profits of £50,000 or less means that around 70% of actively trading companies will be protected from the rate increase.
The noble Lord, Lord Eatwell, asked about the super-deduction. Many world economists are big advocates of full expensing as a tool to boost investment alongside a low corporation tax rate. With the super-deduction and one of the lowest rates of corporation tax, the UK’s business tax regime will be among the most competitive in the world. The super-deduction will help firms to become more productive, safeguarding and creating new jobs.
The noble Lord, Lord Palmer, is worried about incentives for avoidance or evasion. There are anti-avoidance provisions that apply to counteract arrangements that are contrived or abnormal or that lack a genuine commercial purpose. There are also existing capital allowance rules that apply, including the exclusion of connected party transactions from first-year allowances.
My noble friend Lord Caine worries about the differential between corporation tax in Northern Ireland and the Republic of Ireland. Despite the change, companies operating in Northern Ireland will continue to benefit from a headline rate that is competitive in the G7, and this will be payable by only a minority of corporate taxpayers in Northern Ireland.
My noble friends Lord Caithness and Lady McIntosh and the noble Lords, Lord Haskel and Lord Rooker, asked about freeports. Leaving the EU means that we have the opportunity to do these things differently. We have developed an ambitious new freeport model to ensure that towns and cities across the UK will benefit from new trade opportunities, attracting new investment and employment. In addition to a simplified customs process, our freeports will offer measures to incentivise private businesses, carefully considered planning reforms to facilitate much-needed construction and additional targeted funding for infrastructure improvements in these freeport areas to level up communities and increase employment opportunities.
On displacement, our focus is on encouraging new investment to create new businesses and new economic activity, which will create jobs in deprived communities. Specifically, bidders have had to explain how their choice of tax sites minimises the displacement of economic activity from wider local areas, especially other economically disadvantaged ones. This has been rigorously assessed as part of the assessment process, and we are confident that the risk of harmful displacement will be minimised.
The noble Lords, Lord Fox, Lord Oates and Lord Haskel, my noble friend Lord Lansley and the noble Baronesses, Lady Jones and Lady Hayman, asked about our commitment to climate change and net zero. The spending review committed to spend £12 billion on green measures to support the Prime Minister’s 10-point plan and boost the UK’s global leadership on green infrastructure and technologies, ahead of COP 26 next year.
This Budget builds on this by encouraging private investment, using the tax system and continuing with the direct government support announced at the spending review. This is supported by Budget measures that continue to lay the foundations for the transition to net zero—for example, the green gilts and plans for a linked green retail product to be offered by NS&I and the UK infrastructure bank.
A number of noble Lords asked about the NHS. The Government are completely committed to the long-term plan, which provides a cash increase of £33.9 billion a year by 2023-24, with a £6.3 billion uplift in the next financial year. Those plans have not changed. The spending review 2020 announced a further £3 billion for the NHS next year to support its recovery from the impact of Covid and confirmed our commitment to ensuring that the NHS has the certainty it needs to plan. We continue to be committed to ensuring that the NHS gets the support it needs for the pandemic, as evidenced by some £58.9 billion of resource spending that we have committed this year, with £18 billion for the NHS.
The allocation of any funding beyond 2021-22 will be a matter for the spending review later this year. We have already announced in the last spending review in 2020 a £1.5 billion injection to improve NHS waiting lists, for mental health and for the workforce. This funding will help to tackle backlogs in the 2021-22 year as part of the £55 billion to support public services.
On NHS pay specifically, no pay award has yet been announced for NHS staff for 2021-22. As is normal practice, the Department of Health and Social Care has published evidence setting out what figure is affordable within its budgets. The independent NHS Pay Review Body and Doctors and Dentists Remuneration Review Body will report on pay for 2021-22 later this year. The pay review bodies will consider the unique circumstances that NHS staff are working in and the need to recruit, train and motivate suitably able and qualified people, as well as the Government’s financial circumstances.
The noble Lord, Lord Rooker, asked about the levelling-up fund and is worried about pork-barrel politics. The methodology note for the levelling-up fund index was published yesterday. The £4.8 billion levelling-up fund will prioritise bids from places in England, Scotland and Wales with the most significant need.
Deputy Speaker, might I indulge in a couple more minutes?
The Deputy Speaker (Lord Faulkner of Worcester) (Lab)
You should ask your Whip that question.
Lord Agnew of Oulton (Con)
Thank you. The noble Lord, Lord Wigley, asked about funding for Wales. All four nations will receive above average levels of investment from EU structural funds in 2021-22, continuing to support existing projects and programmes. Levels of investment from the EU structural funds will also be higher in England, Scotland, Wales and Northern Ireland in 2021-22 versus the current year. We will ramp up new HMG funding over time so that total domestic UK-wide funding will at least match EU receipts, reaching around £1.5 billion a year. In addition, to help local areas to prepare over 2021-22 for the introduction of this new fund, we are providing £220 million through the community renewal fund to support our communities to pilot programmes and new approaches.
The noble Lords, Lord Empey and Lord Taverne, are worried about the NI protocol being bad for trade. We are absolutely committed to ensuring that Northern Ireland makes the most of the arrangement, and the Budget announces that almost half of the £400 million new deal for Northern Ireland funding package has been allocated across four areas, subject to business case. I offer my own personal reassurance that I am working on this as the HMRC Borders Minister and doing everything that I can to make the friction as minimal as possible for traders in Northern Ireland.
Lastly, noble Lords asked about the movement of civil servants out of London. Again, this is important to me as the Government’s Property Minister. As noble Lords will know, we recently announcedly moving MHCLG to Wolverhampton and the Treasury to Darlington. There will be an announcement on the Cabinet Office’s second HQ shortly. The key is not about numbers of civil servants but the percentage of the senior Civil Service that is outside London. At the moment, a shocking 68% of senior civil servants are in London. That is what we are trying to address.
I thank noble Lords again for their contributions. The Chancellor has been clear about the challenges we face. This is a Budget that, as he rightly said, meets the moment, that continues to protect jobs and livelihoods, and which starts the work on the building of the economy. I beg to move.