Northern Ireland Protocol
Baroness Kramer Excerpts(3 years, 11 months ago)
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Baroness Kramer (LD)
Can the Minister confirm that after transition, Northern Ireland will have to conform with the EU level playing field rules and that UK companies with interests in Northern Ireland will de facto also have to conform?
Lord True
The status of Northern Ireland under the protocol is well known and often discussed. Northern Ireland will effectively be operating within the EU single market but also within the internal market of the United Kingdom. The arrangements that we have put in place are envisaged in the protocol but, at present, the details of their implementation are under discussion.
Covid-19: Economic Package
Baroness Kramer Excerpts(4 years ago)
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Lord Agnew of Oulton
My Lords, all the details that the noble Lord has asked about are being worked out at the moment. That is why we will not be able to announce the full details until the end of this month. However, as was set out in my right honourable friend’s Statement yesterday, our overriding priority is to protect jobs in this country and to protect businesses. A balance needs to be struck to achieve those two things.
Baroness Kramer (LD)
My Lords, I have just three very quick questions for the Minister. First, will the Self-employment Income Support Scheme also be extended in the same way that the furlough scheme is being extended for those who have been in employment, which is obviously a vital decision? Secondly, in the light of leaked Treasury documents today, will he confirm or deny that the Government are looking at a two-year pay freeze in the public sector to deal with what will be an extremely high deficit, estimated at £337 billion this year? Lastly, he will be aware that alternate funders are finally getting accredited to participate in the Government’s Covid schemes, but many banks are now cornering the market because only they can access cheap money from the Bank of England. Will the Government level the playing field and open up the Bank of England’s term funding scheme to all accredited funders and do so rapidly to limit the damage?
Lord Agnew of Oulton
My Lords, the newly announced Self-employed Income Support Scheme, which opened today, will be kept open as long as it is needed. That is what we have said all along: we will do what is needed. We need to see how successful it is and how many people it gets to. I am not aware of any advanced thinking on a pay freeze on the public sector or any other measures. As my right honourable friend said yesterday, it is too early for us to be looking at these measures. We need to get through this stage of the crisis. On the noble Baroness’s third question, we have been increasing the number of lenders available on all schemes since they opened. I am sure that this will continue.
Income Equality and Sustainability
Baroness Kramer Excerpts(4 years ago)
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Baroness Kramer (LD)
My Lords, I will talk in particular about self-employment. Of course I join others in condemning self-employment that is phoney or abusive, but most of the 5 million independent contract workers prior to Covid were neither phoney nor abused. They brought flexibility to our changing economy and they included many of our most innovative and creative individuals, from IT to industrial design to the arts—a workforce critical to the new economy of the 21st century. The creative industries alone, largely made up of independent contractors, contributed over £1 billion a year to GDP.
The Government finally recognised this in their very welcome Covid self-employment support scheme and to some extent in the bounce-back scheme, although I still think they should have done more, as I have said in previous speeches. But as we move into the next phase, self-employment becomes even more critical. First, many people who have been furloughed will find that they do not have jobs to go back to. Secondly, we need to move into a new economy, not recreate 2019. That means innovation and change.
Universal credit fails to support those seeking to start a self-employed business, whether window cleaning, IT consultancy or film production. This is crazy because it becomes a serious argument for universal basic income. I am personally in two minds about UBI because I can see its pitfalls, but universal credit has proved itself so inflexible and become so much a stick to beat people on benefits rather than a support that it is time to be open to alternatives.
In addition to other arguments for UBI, most of which concern boosting demand, the Government could use such a scheme to underpin a growth shift to self-employment, allowing independent contractors to take risks. It becomes a mechanism for starting businesses as well. No one wants a crisis like Covid, but our recovery should improve the future, not return us to the past.
Budget: Economic and Fiscal Outlook
Baroness Kramer Excerpts(4 years ago)
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Baroness Kramer (LD)
My Lords, I shall begin by picking up a point made by my noble friend Lady Northover and reinforced by the noble Viscount, Lord Chandos: this is not going to be a V-shaped economic recovery. There will not be a rapid bounceback to the normality of pre Covid-19. The noble Lord, Lord Birt, was very clear in describing the global crisis that has occurred and the impact on developed and not-developed economies. The OBR took none of that into consideration when it put together its forecast. The challenge for the Government now is to prevent an L-shaped economic disaster. They can do that, but only if they take the right actions.
Much of this debate has underscored that there is overwhelming support for the Government’s willingness to pour money into minimising the damage to the UK economy, and I applaud that. But the money needs to get into the hands of businesses, and we have a pipeline that remains stuck. The banks were always going to be a problem. The CBILS original framework programme has £300 billion for support for companies, but something like only £4 billion, £5 billion or £6 billion has actually been released. The Government need to redouble efforts to bring in alternative lenders.
As the economy opens up again—my noble friend Lord Shipley made this point—support for businesses cannot be stopped at a sudden cliff edge. The furlough scheme in particular will need to be pulled back gradually, or even firms with a viable future will make many workers permanently redundant because they do not have the cash and they do not want to take on additional debt. Frankly, neither our economy nor our society can afford the long-term unemployment of so many people. I recommend to the Government the “safe to return to work” scheme proposed yesterday by a number of my colleagues.
Even under an optimistic scenario, many people will not have a job to go back to. Self-employment will be an important route for them. As we go into rebuilding the economy, innovation will be key, and independent contractors are vital in driving innovation. We need this Government to stop presuming that self-employment is primarily a tax evasion scheme. They need to understand the critical role of self-employment and to provide a fair framework for future self-employment that engages with paying tax, which should not be avoided, and provides self-employed people with proper employment rights, or recognises where they do not have those rights.
We have had too much change during this period of Covid for the economy to return to the shape of 2019. This is our opportunity, as well as our responsibility, to build a new economy. I believe the Government’s dilemma is how much to let market forces decide the shape of that new economy, and how much the Government themselves and the public at large shape that economic change. I argue that the public now have little tolerance for a capitalism that does not embed social responsibility. There is a new respect for low-paid workers, a new understanding of the privations of being on benefits and a deeper admiration for so many of our public services. The public will also not forgive any Government who ignore the need to avoid future disasters. That includes pandemics, of course, but I put climate change into that category as well. I believe the public now understand the need to prepare, plan and act. We need a green recovery.
I also join those who feel that the Government cannot play fast and loose with fiscal management. The noble Baroness, Lady McIntosh, touched on some of these points. She made it clear that the Bank of England will not endlessly print money. My noble friend Lord Purvis and others underscored that debt can be a burden that we have to deal with. I hope there is not an implication in the statements of the noble Baroness, Lady Bennett, that we can simply build public sector net debt constantly and continue to carry it, no matter its level.
So far, this Government have treated tax increases as anathema. Some people had suggestions of taxes that could potentially be increased, but the underlying principle that it should be the broadest shoulders that carry those increases is surely something we all ought to be able to agree on, even if we spend time discussing the exact shape of that.
This is a time of global crisis. It is a truism, but we all hang together or we all hang separately. If we need time to work out our relationship with the European Union, we need to take that time. If, within the timeframe of the year end, we cannot negotiate decent rollover free trade agreements or new free trade agreements with countries that are all preoccupied with Covid—they may have intended to negotiate rapidly with us, but that has to be down at the bottom of the list for most of those economies today—surely we ought to ask for the additional time to allow that to happen. The point my noble friend Lord Purvis made was so overlooked, certainly by the Minister, and by the noble Baronesses, Lady Noakes and Lady Deech. All the new free trade agreements, even if they were to come on tap—and remember that they are embedded in the OBR forecast; the assumption is that they will be negotiated successfully —make nothing more than a marginal contribution to our future GDP and growth.
I argue that if Covid teaches us anything, it is that we have to build co-operation, not nationalism. I heard that strongly from the noble Lord, Lord Liddle. The point was made by the noble Baroness, Lady Falkner, who underscored that our economic future is always tied into the economic success of the European Union as our major market.
I was troubled by the number of times the noble Lord, Lord True, used the word “own”—it was “own” and again “own”. The noble Baroness, Lady Noakes, picked up on this so much. If we all think “own”, and that is the framework in which we operate, tragedies such as Covid will have huge, long-term, undermining consequences—not only for our economy but for the global economy. We cannot exempt ourselves from that just by focusing on “own”.
Tax Avoidance
Baroness Kramer Excerpts(4 years ago)
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The Lord Speaker (Lord Fowler)
The noble Lord, Lord Leigh of Hurley, does not appear to be there. I call the noble Baroness, Lady Kramer.
Baroness Kramer (LD)
My Lords, quite a number of companies will make extraordinary profits as a consequence of Covid-19. At this point in time it is hard to identify which they are, but we can see that it is happening with some traders and private equity players, and it may well be happening in the digital industry, which is becoming more and more dominant and, as others have said, pays almost no tax in the UK despite the size of its presence. Following our exit from lockdown and the pandemic, will the Government look at a windfall tax so that those who have sacrificed during the pandemic understand that the burden is being spread over everyone’s shoulders?
Lord Agnew of Oulton
The noble Baroness makes a sound point. It is just too early to make those sorts of assessments. I want to pick up on the point about digital companies. We have introduced the digital services tax, which came into play on 1 April this year; it is a 2% tax on the revenues which search engines and social media platforms derive if they generate more than £2 billion over the next five years. We have made a start on this but, as the noble Baroness will probably know, these things need international collaboration. If there are excessive profits over the next few months, we will of course review things.
Economy: Update
Baroness Kramer Excerpts(4 years ago)
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Lord Tunnicliffe (Lab)
My Lords, I am grateful to the Minister for repeating yesterday’s Statement and to the entire Treasury team, Ministers and officials, for their continued work in response to coronavirus.
As the Chancellor said in his Statement, these are tough times. The Minister read out the number of new universal credit claimants, as well as the staggering figure of 4 million furloughed jobs. He also warned that things are likely to get worse before they get better. Even if the figures do not grow, they are clearly worrying in the economic context. We have seen the projections of the OBR, the statistics in relation to business confidence and the analysis of a variety of economists and think tanks. However, throughout all this we must remember that behind the numbers and statistics are real lives and hard struggles to keep households running and businesses afloat.
Yesterday, the shadow Chancellor asked what steps the Government are taking to convert initial universal credit loans into grants to ease the burden on new claimants. She noted that the issue appears to be with the IT system behind universal credit, rather than a lack of political will. In response, the Chancellor listed a number of benefit reforms introduced by the DWP. However, he failed to answer the particular point on the IT problem, so I hope the Minister can comment. For the avoidance of doubt, do the Government agree that initial universal credit loans should be converted into grants if the IT problems can be overcome? If the answer is yes, what is being done to solve those IT problems?
Turning to the wider economic response, we welcome the many measures announced thus far and have, I hope, played a constructive role on occasions such as these. My honourable friend the shadow Chancellor has had multiple meetings and exchanges of correspondence with the Chancellor; I hope she receives a speedy reply to the questions attached to her latest letter.
The announcement of so-called bounce-back loans, which will be 100% guaranteed by the Government, is a welcome step. We are grateful to the banks for getting the scheme up and running so quickly and hope it will ease some of the concerns and cash-flow issues of SMEs across the country.
Problems remain for those firms seeking more than £50,000 of support. Many will rightly question why they are not able to access funds as quickly or easily. I therefore hope that the Minister can offer assurances that the Government are looking at ways to make the main coronavirus business interruption loan scheme faster and less cumbersome. The long-term cost of not improving the system could be significant. That said, we appreciate the speed at which the Treasury has worked to formulate its response to Covid-19, and that the calls from SMEs, backed by the Labour Party, for swifter access to business loans have been heeded, at least in part.
While we accept that the initial government response had to be reactive, I hope the Minister can comment on what is being done to shift thinking towards a more proactive, whole-economy view, whereby sector-specific problems are identified earlier. It is vital that further coronavirus support schemes are designed and rolled out when they are of most use, rather than when the situation on the ground has become critical. Specifically, is cross-departmental work being undertaken to produce a whole-economy view? If the answer is yes, who is responsible? If the answer is no, why not?
One example of this concerns pubs and restaurants. These businesses play a vital role in communities across the country, both in the pleasure they bring and the employment they support. However, they face perhaps the greatest uncertainty of all. They are likely to be the last to reopen and, assuming social distancing remains in place for some time, their capacity, and therefore their earning potential, will be much reduced. This raises a number of questions.
The Minister will know that Section 82 of the Coronavirus Act 2020 affords increased protections for commercial tenants, in the event of their being unable to pay rent. However, these protections will lapse at the end of June unless extended by a negative SI. Will the Government be extending this provision and, if so, until when? He will know that the equivalent protections in Section 81 for residential tenants run until the end of September, offering greater certainty. Further, can the Minister confirm whether the Government are looking at what forms of additional support may be provided for such small businesses, even once they have reopened? If firms are having to operate differently because of government guidelines, they should surely not have to accrue debt as a result.
Finally, if the earning potential of pubs and restaurants is limited for an extended period, what protections can the Government put in place to ensure that landlords do not begin to seek other tenants, such as fast-food chains or takeaway restaurants, which are likely to be perceived as safer options? There are many other examples of where long-term, proactive thinking is required, so I hope the Minister will make himself available for further exchanges in the future.
Baroness Kramer (LD)
My Lords, the bounce-back loans are clearly welcome, but I am going to press for more help for the self-employed who have fallen through the gaps in all the various rescue packages, especially the independent contractors who take much of their income in dividends and the newly self-employed. When we come out of lockdown, self-employment will be critical. It is a path for those who will have lost their jobs because of the pandemic and cannot return to them, and we will need innovation. As the Government know, a lot of innovation is embedded in these self-employed individuals, and I hope they will look again, because they must support this sector.
We all kept a minute’s silence today for key workers who have died, but many such key workers are very low earners with insecure work. Will the Government show their respect for these individuals by reviewing their funding of both social care and local government to ensure that those workers are properly paid, with proper employment rights, in recognition of the vital role they play and the vital contribution they make to all of us?
At the end of lockdown, public sector net debt will be at a historic high—certainly by the end of the pandemic. As the Government grapple with paying that debt down, will the noble Lord take action to tax the digital companies that have so far managed to pay very little tax in the UK though they now dominate large sectors of our economy? Indeed, they are doing well in the pandemic. I do not say that as an insult, but it increases the tax they should be contributing. Indeed, there are others who are, frankly, doing well out of the pandemic. Quite a number of traders have made windfall profits. Does the Minister agree that the Government should look for these companies to pay windfall taxes?
Lord Agnew of Oulton
My Lords, first, I will address the questions from the noble Lord, Lord Tunnicliffe, on universal credit. I am not aware of specific IT problems, but if the noble Lord is aware of any and would like to write to me, I will certainly investigate them. However, the point that my right honourable friend made yesterday is that we have responded to this crisis by introducing a number of measures to support those in receipt of universal credit—the £20 increase, the increase in housing allowance rates and the relaxation of the minimum income floor—and they all help. There is additional support for the vulnerable through the hardship fund and things such as the mortgage holiday. Therefore, we are very focused on those at the bottom of the income hierarchy and, as ever, we will keep a careful eye on developments.
Nobody is more concerned than the Chancellor at the speed at which the CBILS loans are going out, but the speed is picking up. As at 24 April, 20,000 were approved, worth £3.3 billion—double the amount of the previous week. As at 17 April, only 10,000 had been approved. Therefore, the pace is increasing and we are confident that that will continue.
The noble Lord is right that it is very easy to get drawn into the day-to-day crisis and to lose focus of what the long term will look like. We have to be honest: at this stage it is impossible to tell. We know that this is the biggest crisis that this country has faced in 80 years, and we also know that the Chancellor’s response to the crisis in economic terms has been a potential 15% of GDP, which is a staggering sum of money. We know, too, that we are likely to come out of this with a debt level higher than that following the Second World War. These are all very important factors. How we go about dealing with that debt will probably depend on a number of factors, such as the speed at which the infection rate comes down and whether we are able to observe social distancing well in an unlocked economy to which people will have to adjust.
One reason for the steep decline in the number of deaths over the last couple of weeks has been the effectiveness of social distancing. I have sat in on a lot of the Prime Minister’s morning meetings over the last few weeks. At the beginning of this process, there was real concern that the population would not be keen to observe social distancing. However, people have done a magnificent job and we know the sacrifices that it has involved. I assure the noble Lord that these things have all been thought about but I do not think that we are yet in a position to set out a detailed plan. We know that in the next few days the Prime Minister will announce more details on exiting the lockdown.
The noble Lord is absolutely right that the entertainment, hospitality and pub sector has been terribly hard hit and is likely to be vulnerable going forward. We have created specific support for the sector, with the business rates relief and a 100% holiday for retail, hospitality and leisure businesses, worth approximately £11 billion. There are also retail, hospitality and leisure grants worth up to about £5 billion. Therefore, we are very much focusing on the sector but I think that it is too early to give a more specific view of the future.
Turning to the questions raised by the noble Baroness, Lady Kramer, I completely agree that the self-employed make up a vital sector. I have been self-employed—or the equivalent—for most of my working life, so I absolutely relate to the pressures that that sector is under. I respectfully do not agree with the noble Baroness about accepting dividend income as a part of people’s earnings. That method of income was chosen by people for the very simple reason that they would not have to pay the national insurance premium. However, they will be eligible for the bounce-back loans, as well as the other layers of support.
I absolutely accept that key workers, particularly those working in care homes, are not well remunerated. Our track record over the last few years of moving the minimum wage upwards as fast as we have done is an indication of our support for this very important group of people. We absolutely recognise—
Budget Statement
Baroness Kramer Excerpts(4 years, 1 month ago)
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Baroness Kramer (LD)
My Lords, as the first of the wind-up speakers, I can say that I have never before spoken in a debate where there is a unanimous view. Unfortunately, that view is that we are in an economic emergency. It is quite extraordinary; these are not normal times. The usual test for any Budget, including the typical measures of fiscal prudence, are, frankly, out of the window. When the noble Lord, Lord Maude, accepts that as the appropriate view, the Government have to understand how strongly not just this House but almost anyone who has looked at the situation feels.
The Government and the Chancellor announced a huge and significant package yesterday to support the economy. That is genuinely welcome, but it is my view—and, I suspect, from listening to the House the view of many—that the Government are still clearly running behind events. Much more is needed, especially speed. My noble friend Lord Oates raised that issue, but we heard it again and again, including just now from the noble Lord, Lord Naseby. People need cash and they need it now.
Many of the programmes being proposed will struggle to deliver that kind of cash in any kind of timely manner. We have had proposals from the noble Lord, Lord O’Neill, for a people’s QE. The noble Lord, Lord Desai, joined the Green Party in proposing at least a temporary basic income, as did my noble friend Lord Bruce. We have had proposals from the noble Lord, Lord Leigh, that we use the PAYE system and from others that we use the national insurance system in a sort of reverse mode to get cash out rapidly. It will be challenging to use any system that is not already in place, because we need cash to flow in the next few days. Although there is fertile opportunity for new ideas and new thinking, at this point we need to use something that can absolutely deliver and be implemented very quickly, if not instantly.
I am concerned that the Government have put so much of their support for businesses into commercial paper—which is effectively QE—and bank loans. I hope that they understand that many businesses of every size in the severely impacted sectors will need years to repay the debt that they accumulate during this crisis. It is a crisis of not weeks, but at least months; it could run longer. Some will not be able to repay and others will find that the debt burden will completely compromise their ability to invest and grow when the crisis is over. I hope that we can hear from the Minister that there is a willingness to rethink that balance of loans to other kinds of direct support, perhaps not in the heat of this week, but certainly in the very immediate future.
However, none of the measures that have been announced will be a solution for the hardest-hit sectors. I know that the Government have said that they will step forward to deal with the problems of, for example, airlines and airports; their crisis is so extreme. We have to face the fact that taxpayer bailouts will be required. Deciding how much to protect shareholders at taxpayers’ expense will be genuinely difficult. As we look at those most vulnerable parts of the economy, may I ask the Minister about the wholesale financial markets? I am really concerned that we could have spillover risk into those markets. As we know, the consequences are very widespread when that happens. We have all said that insurance companies must step up to make good on business interruption insurance. I agree, but how resilient is the commercial insurance sector as a whole? Remember that the UK is an insurance provider to companies across the globe. Those consequences worry me a great deal and I hope that the Minister can say something.
Central counterparties, especially the clearing houses—obviously we have the London Clearing House locally—clear most of the world’s interest rate swaps. The current stock on a day-to-day basis is something in the range of $30 trillion-worth of swaps. How resilient are the CCPs in a crisis such as this?
I cannot believe that the collateral quality has not been compromised. Any kind of failure in CCPs will, frankly, make 2008 look like a picnic. I really would like some answers and some reassurance.
We all agree that companies need money quickly. The big companies will be able to get their money quickly, because the Bank of England can turn on its new commercial paper facility very fast. As we have said, it is a sort of QE equivalent. The noble Lord, Lord Adonis, said that perhaps we need to attach conditions to those commercial paper facilities to make sure that they are used to support jobs. I am not quite sure how we could do that, given the nature of the commercial paper market; if anybody can come up with innovative ideas on how to do that, I suspect a phone call to the regulator would be called for. It will be very hard to ensure that the money goes exactly where we want it to. That does not mean that we should not do it, but we need to be realistic. Smaller companies, however, will have to turn to the high street banks, and I do not understand how the usual hurdles and complex approval processes will be speeded up sufficiently. As we know, businesses need money now.
If I heard correctly, alternate lenders are not included in the Government’s loan guarantee scheme, but they are typically faster and more flexible than banks, and have become a significant component of lending to small businesses and, equally importantly, to the self-employed. During the coalition years, my colleague Sir Vince Cable was able to route money far more rapidly to small businesses and the self-employed through the alternate lenders. Will they be included in the scheme?
The grant scheme and business rates holidays for small businesses in retail, hospitality and leisure are crucial and welcome. However, I point out that the grant excludes many very small businesses in London—because the rateable value of London property is so high, they do not fall within the scope of the scheme. I hope we can get some comments from the Minister on that. As the Chancellor explained, these grants in their amount are targeted to make sure that small businesses can pay their rents. The money is not intended to also cover wages. Many businesses, not in the named sectors, are having similar problems and, frankly, there is nothing in the way of grants for them. Can the Minister respond to concerns on both those fronts?
Are measures being taken to make sure that big companies pay their supply chains properly? Their instinct in a crisis is to do quite otherwise. Can the payments regulator be given greater powers to force prompt payment?
The Government tell us that they are discussing employment support schemes with the trade unions and others, which is good. Will the Minister look at the proposal from my colleague Ed Davey to guarantee that every person made redundant will receive at least 20 days’ full pay, guaranteed by the Government? People are being laid off as we speak, and a message like that would make a dramatic impact; it is clear, simple and easy to understand.
We must have action for the self-employed and those working in the gig economy. Frankly, I do not understand why we have not heard measures that will tackle this sector. Employment support allowance and universal credit will never keep most families afloat. The fragility of self-employment should have been tackled long ago; we need successful, flexible working in the 21st century.
I will say one good thing for the Government: at least they have listened to the urgings of many in this House—the noble Lord, Lord Forsyth, who is not in his place, has been an absolute star on this—and agreed to delay for a year their changes to IR35. I hope that they use that year to have a complete rethink, and drop those plans to pursue reforms that deal with employment rights and not just tax revenues in the self-employed sector.
The Government simply must use this opportunity to remedy the two greatest travesties within universal credit. First, the five-week wait is intolerable. I know from talking to people who are dealing with this that paying back the five-week advance loan, even with a longer repayment period, leaves people living for months at just above destitution. The most reverend Primate the Archbishop of Canterbury and the noble Baroness, Lady Lister, made very powerful points about that. Secondly, the right reverend Prelate the Bishop of Rochester underscored that the two-child benefit cap has to be removed. Many families will be turning to universal credit for the first time in the Covid-19 crisis, and will be horrified that the two-child cap on benefit levels does not enable larger families to put a proper meal on the table. That is quite deliberate and by policy. Indeed, with so many children dependent on free school meals in order to eat, we will need an emergency scheme when schools close, as many people speaking today have underscored.
There are many other gaps, such as renters and food banks. The noble Lord, Lord Naseby, highlighted the crisis for many charities and not-for-profits, while homeless people cannot be left on the streets but equally cannot be put into dormitory-like hostels. Perhaps the most crucial gap, which others such as my noble friend Lord Razzall and the noble Baroness, Lady Lister, have addressed, is social care. Where was social care either in the Budget or in yesterday’s announcement? Even Jeremy Hunt now admits that social care was slashed too far by the Conservatives, but in this pandemic social care is carrying out the critical task of caring for our most vulnerable while underresourced and with no built-in resilience. The Government must step forward.
I have a few comments about what happens after the crisis—because the Covid-19 pandemic will end. I very much take note of the comments from the noble Lord, Lord Skidelsky, and the noble Baroness, Lady Falkner: we are going to have to start paying. This is the first time when I have heard the noble Lord, Lord Skidelsky, use words that translate to, “There is no magic money tree”. This will have to be paid for. We will be a nation in debt. Businesses will be in debt, individuals will be in debt and the Government will be in more debt than ever. The Government were already planning to allow public sector net debt to soar. I support the additional spending, but refusing to raise taxes in the Budget struck me as extraordinarily irresponsible.
The noble Lord, Lord Livermore, has highlighted the weakness that runs through much of our economy. We will have to rebuild our fiscal position, and that is going to be exceptionally difficult. It is going to require a real willingness to tax as well as borrow. As far as I can see, we are going to have to consider a completely new framework in future because the underlying economy is weak. The noble Lord, Lord Livermore, and my noble friend Lord Bruce, were clear that growth was already forecast to be at an abysmal running rate of 1.5%, held back by friction in trade with the EU and the loss of freedom of movement. The OBR forecast demonstrates that new trade deals with the US and others add so little to the economy that they hardly even register in the numbers. Productivity growth is limping at 0.3%, and all the planned infrastructure and skills investment in the Budget is not forecast to return productivity to its historic—and even then underwhelming—level of 2% until 2030. Business investment was forecast to be continually weak, and that was before coronavirus. Interest rates were low already, so there is very little cushion for further cuts. QE has been pushed pretty much to its limits and we have now had to take it even further. We face huge costs to tackle climate change because the timetable cannot slacken if we are to avert a catastrophic crisis. Regional disparities are stark. Infrastructure, public services and welfare are underfunded.
This is not a good picture, and it is the reason why I have to say to the noble Lord, Lord Bates, that of course we have to splash the cash now, but we really need to be careful about painting a false picture of the future because that will lead us to poor decision-making. I understand why the Government want to talk about light and joy as soon as the virus passes through because they want to keep up confidence, but we in this House have to be realistic. Every economy on the globe is going to be impacted by Covid-19 so I hope that inside the Government some sober minds are coming to grips with the longer-term reality. This is going to require very substantial new thinking, new frameworks and new directions, and I am delighted that this House will have an opportunity to contribute to that.
Lord Agnew of Oulton
It is worth reassuring the noble Lord that we have acted pretty quickly. When you think where we have come over the last six or seven days, I do not believe there is any example in the history of modern government where a Government have reacted as quickly as we have. However, I take on board the challenge, and the noble Lord knows his way around the Treasury better than I do, so I am sure he will use his influence.
My noble friend Lord Lamont quite rightly makes the point that our borrowing costs are again at a 300-year low and that this provides opportunities. Indeed, with the current rate of inflation, we are borrowing at a cost below inflation, which provides some palliative to the very difficult situation that we face. That has partly reassured the Chancellor in his recent announcements. What will happen? The noble Lord, Lord Skidelsky, thinks that we could end up—
Baroness Kramer
I should have said this when I spoke, so I apologise. While we have very low interest rates, because of QE a heck of a lot of that debt is being held by the Bank of England, so in a sense it is almost circular. It is not quite as benign as it looks on the surface.
Lord Agnew of Oulton
I do not like debt at all, so I accept what the noble Baroness says. We have also not had a proper drains-up on the impact of the original QE 10 or 12 years ago. It seems to have enriched the rich—those with assets—but what did those at the bottom end of society get out of it? Also, the question no one has ever been able to answer is: what happened to all the money? Did it stay in the British economy? One figure I was given is that at least a third of it just disappeared completely. So I am certainly not in favour of another one of those kinds of QE.
Turning to the noble Lord, Lord Hain, I am afraid that there is not a lot I can agree with in his statements. He seems to think that there is a magic money tree, and seems to have forgotten that we inherited a budget deficit of 10% in 2010. As a huge Europhile, he seems to forget that the EU has a 3% ceiling on its budget deficit levels. We have had to bring that down, and it is one of the reasons why we have more flexibility in the current days to do some of the dramatic things that have been announced by the Chancellor.
Employment Allowance (Excluded Persons) Regulations 2020
Baroness Kramer Excerpts(4 years, 2 months ago)
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The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)
My Lords, I draw the House’s attention to the fact that the Secondary Legislation Scrutiny Committee described this instrument as an “instrument of interest” in its third report of 30 January.
This draft legislation will allow the Government to target the national insurance and employment allowance at those businesses that need it most. Employers pay class 1 national insurance contributions on their employees’ earnings above the secondary threshold, set at £8,632 this year. That is charged at 13.8% and contributes the largest business tax by revenue in the UK.
The employment allowance was introduced in 2014 to help businesses with employment costs and to encourage businesses to grow and hire more staff. It is claimed by more than 1 million employers to reduce their employer NIC bill by up to £3,000. Since its introduction, it has taken 590,000 businesses out of paying NIC altogether.
I remind noble Lords that the employment rate is at an all-time high of 76.2%. Since 2010, youth unemployment has halved and 3.7 million more people are in employment. This is a nationwide phenomenon. In the past year, three-quarters of employment growth was outside London and the south-east.
At present, all businesses—from greengrocers to Goldman Sachs, butchers to Barclays and pubs to Primark—can receive a relief from the Government of up to £3,000 off their total employer NIC bill. Big businesses get the same benefit as small ones. However, for larger businesses, that £3,000 is a small amount relative to their total employment costs, and is therefore unlikely to encourage them to take on more staff. It is right to target the support at smaller businesses for which this £3,000 makes a difference to the cost of doing business. It is for this reason that the Government decided to restrict the employment allowance to smaller businesses in the 2018 Budget, which means that, from April 2020, only businesses with an employer NIC bill below £100,000 will be eligible for the employment allowance. More than 99% of micro-businesses with fewer than 10 employees and 93% of small businesses with fewer than 50 employees will remain eligible for the employment allowance. Around 80,000 employers will lose the employment allowance. This constitutes just 8% of businesses currently receiving it, all of which have a wage bill above £700,000 a year.
Targeting the employment allowance at smaller businesses means that it falls under EU de minimis state aid regulations, which relate to small amounts of aid that can be given without notifying the European Commission. Most businesses can receive up to €200,000 of de minimis state aid cumulatively in a three-year period. Under the de minimis regime, to claim the EA, businesses need to notify HMRC annually as part of the existing claims process and confirm that they can receive the employment allowance without exceeding their cap. After consulting widely, we removed the requirement to specify exactly how much state aid businesses receive, to make it easier for them to claim the reformed employment allowance. As the Prime Minister announced, we will develop our own separate and independent policy on subsidies when the transition period has ended. We will have a modern system for supporting British business in a way that fulfils British interests.
I hope that noble Lords will agree that while the employment allowance aids small businesses, giving large businesses with a wage bill of £700,000 or more £3,000 off their NIC bill is not good value for money. The Government have committed to go further with their support for small businesses. As the Government look to level up across the country, this reform will raise more than £1 billion over the course of this Parliament to fund vital public services and target support for small and medium-sized businesses.
I am grateful for the House’s consideration of these regulations and for any points that noble Lords may like to make.
Baroness Kramer (LD)
My Lords, I will be extremely brief. I am supportive of this change. It seems appropriate that the employment allowance is focused on the smallest businesses. I fully accept what the Minister says: that small businesses will be far more motivated to take on additional staff than any large business by this—in effect—grant.
On reading this, it seems that one of motivations is to make sure that the employment allowance is covered by only the de minimis regulations in the EU. Am I correct that it is the Government’s long-term policy focus to direct this aid towards small businesses, and that this is not just an accommodation to what they see as an EU framework—in other words, that it portends the future? Can the Minister give us any further assurance that any money saved will be redirected into the small business community?
Lord Tunnicliffe (Lab)
My Lords, the Explanatory Memorandum states:
“The purpose of this reform is to target the Employment Allowance to support smaller businesses.”
It directs us to Employment Allowance: Excluded Persons Regulations 2020, a document published in January this year, which repeats that statement:
“This reform is designed to focus the Employment Allowance at the original intended beneficiaries: smaller businesses.”
This is rubbish. You have businesses that can currently claim this £3,000, you have a very large group of businesses whose NI bill is less than £100,000—for which the rules will not change one iota as a result of this SI—and you have another group in the £100,000-plus category that will get nothing. It may be the Government’s intention to focus on smaller businesses, but this SI has no such effect. In fact, the sole impact of this SI is to save the Government money. I do not mind this, and the statutory instrument is perfectly reasonable. I just do not like the fact that false claims are made in this document. Unless the noble Lord is able to give me the assurance that the noble Baroness, Lady Kramer seeks, it seems improper to claim that taking money from one group while doing nothing about another somehow focuses more money on the group that you are not going to change.
Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020
Baroness Kramer Excerpts(4 years, 2 months ago)
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Baroness Lister of Burtersett (Lab)
My Lords, I wish to say a few words about child benefit. I will not repeat the general arguments about the four-year benefit freeze that I made in Grand Committee but simply want to underline the implications of that freeze for child benefit, particularly because the freeze about to end must be seen in the context of the treatment of child benefit since 2010.
Child benefit had already been frozen between 2010-11 and 2013-14 and was then increased by only 1% for two years before being subjected to the freeze in working-age benefits. This means that, with the exception of two years when inflation was really low, its value has been reduced every year since 2010. The result is that not only has its real value been reduced by around 6% because of the four-year freeze but, according to the House of Commons Library briefing, it is now worth 17% less for the first child and 16.5% less for subsequent children than it would have been had it been uprated in line with the CPI since 2010. That means a loss of nearly £370 this year for a two-child family.
The Resolution Foundation calculates that for second and subsequent children the benefit is now worth less than when it was fully introduced in 1979, is less than half as generous as it used to be compared to average earnings and, shockingly, is less generous than the post-war family allowance. For first children, it is close to an historic low. The Resolution Foundation concludes that
“it is fair to say that child benefit is at its stingiest in forty years.”
Thus, while we are of course all pleased that the freeze has come to an end, as required by law, simply uprating benefits in line with inflation is not good enough. The Minister said that an extra £800 million was going to be spent on this and tax credits. Is that £800 million simply due to inflation-proofing? If so, it is not extra at all but simply keeping things as they are. If austerity is genuinely coming to an end, the Government should make good at least some of the loss that child benefit has suffered during the past decade, as it is unfair that families with children should bear the brunt of austerity. Raising child benefit by more than inflation would be much more effective in helping low-income working families than a further rise in personal tax allowances.
It is not just the benefit that has been frozen but the thresholds for the high-income charge introduced in 2013, which are still frozen. I will spare noble Lords the principled and practical arguments against the introduction of the charge, but, having introduced it, is there not a responsibility on the Government to ensure that the thresholds keep pace with median earnings? Both the Resolution Foundation and the IFS have analysed the effects. According to the IFS, in the last financial year around 270,000 more families lost some or all of their child benefit than would have been the case had the threshold been price-indexed. The difference would be bigger still had it been earnings-indexed, which is arguably what it should be unless the Government want to hit families lower down the income distribution than originally intended.
Unless there is a change of policy, the IFS warns that by 2022 as many as a fifth of families will be affected. Moreover, if the higher-rate tax threshold continues to be indexed in line with inflation while the child benefit threshold remains frozen, it points out that
“for the first time significant numbers of families without a higher-rate taxpayer will lose some Child Benefit”,
possibly as many as 120,000 by 2022-23. Is this really what the Government want? Extrapolating further into the future, the Resolution Foundation points out that, because the income charge is applied to an individual’s income and universal credit is based on family income, there could come a point when some people are simultaneously receiving universal credit and being subjected to the high-income child benefit charge. As it observes:
“This would be somewhat absurd, as well as creating marginal tax rates of near 100 per cent.”
As the IFS points out, cutting benefits “by stealth” in this way
“can do nothing for trust in government.”
Can the Minister explain the justification for freezing the thresholds? As a matter of urgency, could he take a message back to the Treasury asking the Chancellor to stop the rot in the next Budget and increase the thresholds, preferably in line with earnings but at the very least in line with prices, and restore them to their position when introduced?
There was a time when the Conservative Party strongly supported child benefit, which of course replaced child tax allowances as well as family allowances. It acknowledged the important role it plays in recognising that children reduce taxable capacity at every income level, in strengthening work incentives, in providing families, particularly mothers, with a degree of financial security and in supporting the next generation regardless of the family they are born into. It hailed it as “simple and well understood”, although it is rather less simple now because of the high-income charge.
Some 75 years ago, during the final stage of the then Family Allowances Bill, Eleanor Rathbone told MPs:
“In early days I used to describe meetings of employers and employed, landowners and rentiers sitting round a table competing for their share in the national income with a woman coming from behind and holding out her hand, saying, ‘I am the mother, the future citizens and workers depend on me; where is my share?’ This Bill gives the mother through her children her share, although it is only a very little share so far.”—[Official Report, Commons, 11/6/1945; cols. 1419-20.]
Can the Minister assure us that the Government are committed to ensuring that children now receive their fair share through the child benefit scheme that replaced family allowances, or are we witnessing the gradual destruction of Eleanor Rathbone’s dream?
Baroness Kramer (LD)
My Lords, we are indebted to the noble Baroness, Lady Lister, for illuminating the underlying policy issues that underpin these statutory instruments. There is a real fear in my party—and I know in hers—that the changes that are taking place today embed, in effect, austerity for those on benefits and those on the lowest incomes. However, because we are looking at statutory instruments, I am going to make my comments extremely narrow. I recognise that for the annual rerating of NIC contributions and various other benefits, we are simply implementing a mechanism that has been through a normal parliamentary process. Frequently, this has been part of a Budget; it would certainly have been debated in both Houses, and MPs would have had an opportunity to express an opinion in the Commons if they wished to make changes. However, I am somewhat at a loss—and perhaps the Minister will help me—as to how any of that applies to the changes in PT and LPL.
It is not that I have a particular objection to the changes, but it appears that their basis lies in the Conservative manifesto, not in actions taken in the other place either in the form of a Budget—because the Budget is not due for another week—or in a finance Bill, which is where I would expect fundamental changes such as this, which affect most working people, to be embedded. It is hard to accept that changes are being made to national insurance contributions, which have a major impact on the Budget, but not within the context of the Budget. I am rather concerned that the Government might be returning to a pattern that we have seen in the past, when major policy change was introduced by statutory instrument rather than through primary legislation or being put into the Budget framework, where full debate and challenge could take place. It happened with universal credit, as I think everybody who is present in the House today will remember, and I am now concerned to see this appearing here within two of these statutory instruments. So that is where I would like the Minister to focus: to explain why a change which, as far as I can see, perfectly belongs to next week’s Budget and a finance Bill, is appearing in a statutory instrument, where, by definition, the debate is extremely limited and challenge is, frankly, near impossible.
Lord Tunnicliffe (Lab)
My Lords, I will take a similar self-denying ordinance to that of the noble Baroness, Lady Kramer, and speak relatively briefly. I would like simply to put on record my support for the excellent speech by my noble friend Lady Lister. I join with the noble Baroness, Lady Kramer, in failing to understand why this is not part of the Budget. Because it is not part of the Budget, it is lacking in process. In some senses, virtually all the changes that the Minister described are designed to introduce the CPI increases of 1.7%. Insomuch as that has previously been announced in budget processes, I cannot object, except on the wider basis that my noble friend Lady Lister outlined.
There is one particular increase, however—the increase in PT, which I am told is the “primary threshold”—which is not in line with inflation. Its excuse for being introduced is that it is in the Conservative manifesto. I have a copy of that manifesto and I have to admit that I could not find it. Fortunately, a member of the Treasury was able to advise me that it was on page 15—which was conveniently not numbered, but never mind. It says:
“We not only want to freeze taxes, but to cut them too. We will raise the National Insurance threshold to £9,500 next year—representing a tax cut for 31 million workers.”
I thought that a basic rule of introducing a change of policy would be that it would be properly costed. Just to make sure that this was not trivial, I did a few sums. The effect, as the Minister said, is to increase the threshold by £868; it would have increased a little anyway because of the 1.7%, but the policy impact is something like a real £720 increase. If you multiply that by the 12% rate and the 31 million people involved, you get a figure of, say, £2.7 billion. My concern is that such a sizable sum ought to have been properly set out and illustrated.
The Explanatory Memorandum says:
“A Tax Information and Impact Note has not been prepared for this instrument as it gives effect to previously announced policy and it relates to routine changes to rates, limits and thresholds.”
Well, it does not. This one is clearly a policy change, and clearly the cost is a few billion pounds. Will the Minister tell us how much it will cost? Why was it not set out in the Explanatory Memorandum? Surely it is improper to introduce a national insurance change that is a reduction in taxation without calculating its cost and putting that in the public domain.
Lord Agnew of Oulton
With the greatest respect to the noble Baroness, the policy of our Government, progressively over the past 10 years, has been to get people into work. We are now seeing some of the highest levels of employment since the war, and in the last year we saw earnings start to outstrip inflation. That has taken a long time, but that is what we have done. We strongly believe that, if we are to help the most vulnerable people in society, the best way is through the dignity of employment and earnings, which is why we have focused on that area.
The noble Lord, Lord Tunnicliffe, asked about the primary threshold and lower profits limits. Again, this comes back to what I said to the noble Baroness, Lady Kramer, which is that, yes, this is a manifesto promise. We said on page 15, as the noble Lord quite rightly said, that we were going to do this; this is what this statutory instrument achieves today; it will be a tax cut for around 31 million people; and it is £104 a year, which, for people at the bottom end, is a meaningful improvement in their lives.
Baroness Kramer
Could the Minister explain why it is appropriate to do that through a statutory instrument, and to what extent that undermines the ability of Parliament to hold the Government accountable? I am sure that he has great respect for his Members in the other place, but they may well have had opinions on this issue. They may have had the opportunity to express them in the sense that the SI has gone through the other place, but I very much doubt that they have had the opportunity for any kind of detailed debate or challenge. In addition, they cannot possibly know what the consequences are, because it has to be in the context of a Budget, where, presumably, the loss of revenue is made up for in some other way or by borrowing, and those are major consequences. As the noble Lord, Lord Tunnicliffe, pointed out, the numbers are not de minimis but incredibly significant.
Lord Agnew of Oulton
I respectfully repeat what I said to the noble Baroness: we are trying to focus support at the bottom end of the income scale. To deal with the noble Baroness, Lady Kramer, since 2010 we have seen over 700,000 fewer children living in workless households and over 1 million fewer workless households overall. We believe that that is how you deal with poverty and improve dignity.
The NIC regulations set the rates, limits and thresholds for the 2020-21 tax year. They allow for the collection of £120 billion of NICs to fund the state pension and contribute to NHS funding, and deliver on the Government’s promise to deliver a tax cut for 31 million working people. I commend the draft regulations to the House.
Small and Medium-sized Enterprises: Mistreatment
Baroness Kramer Excerpts(4 years, 10 months ago)
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Baroness Kramer (LD)
My Lords, RBS’s inappropriate handling of its SME customers predates the period examined by Promontory and goes back to at least 2005. We know this because there have been whistleblowers, key among them Mark Wright, who gives me permission to use his name in this debate and who alerted senior management at RBS—up to CEO level as early as 2005 and chair level as early as 2006—and followed up with successor CEOs and chairs. When he got nowhere he alerted the FSA and its successor body, the FCA. I became involved in 2016, when the whistleblower’s Member of Parliament, Norman Lamb, was reduced to utter frustration after years of attempting to get the evidence of abuse of customers properly heard and to obtain fair treatment for Mr Wright. None of this is discussed by the FCA in its report on senior management. Nor did the regulator ever act to prevent retaliation against the whistleblower; indeed, it seems it even shopped him to RBS. Needless to say, much of the whistleblower’s life has been seriously damaged.
The FCA commissioned the Promontory report not out the goodness of its heart but because of charges laid in the Tomlinson and Large reports commissioned by my good friend Vince Cable, then Secretary of State at BIS, who had heard so many stories from SMEs. Further pressure came from the Parliamentary Commission on Banking Standards, on which I served. The FCA chose not to publish Promontory and produced its own summary, which—I am being polite—watered down and undermined every criticism and applauded RBS for its tepid and inadequate voluntary compensation scheme. That was whitewash number one. We know what Promontory found thanks only to a leak to an Irish website in 2018, which triggered a demand for publication by the Treasury Select Committee. Instead of allowing Promontory to complete its work with a follow-up report on senior management and its involvement, as originally envisaged, the FCA decided to carry out that second step itself: this report. Surprise, surprise: whitewash number two.
It matters. Promontory made many key findings: one in six SMEs put into the GRG was deemed “potentially viable” but was “caused material financial distress”—in other words, driven to liquidation—as a result of serious,
“failings in GRG’s governance and oversight … and of the priorities GRG pursued”.
That included failings in “second” and “third line oversight”—compliance and audit, to you and me. The report identifies that the notorious Just Hit Budget document instructing staff,
“to get a customer to agree chunky fees and upsides”,
was not an isolated document. The West Register model—West Register was the property arm of RBS, as we have heard—
“was inappropriate and severely flawed”.
Are governance, oversight and priorities the responsibility of junior or senior management? If they fail, is there any possibility other than culpability or incompetence? While Promontory, as I have explained, was specifically required to avoid investigating senior management, it could not help identifying its collusion in this overweening focus on the bank’s interests and lack of concern for SMEs and their owners. The report again and again highlights the conflict between the “commercial interests” of the bank and its duty to its customers. Commercial interest won hands down; I could cite page after page.
That leads me to my concern with the regulator. I fully share my colleagues’ frustration at the inadequate powers of the regulator. This concept of a regulatory perimeter over which the regulator dare not step is indeed a limit, but the regulator also uses it as an excuse, enabling it to avoid rocking the established big banks, no matter where justice lies. I believe that the regulator’s motive for not cracking down is embedded in a belief that the system must not be shaken; financial stability means that SME abuse must, to a significant degree, be tolerated. In the case of RBS, propping up the share price as government seeks to sell off public ownership probably plays a role.
The FCA has never vigorously used the “fit and proper” determination. In the three years it has had the senior management regime, it has used it only once—and then to give a fine of less than 3% of his pay package to Jes Staley of Barclays for using both internal staff and private investigators to hunt down a whistleblower. The industry expected him to be fired. Rather than seize on information from whistleblowers, the FCA prevaricates and leaves them to hang. Nathan Bostock, head of risk and restructuring at RBS from 2009 to 2013, with direct oversight of GRG, has been not black-marked but rewarded, becoming chief executive of Santander UK, and his £1.8 million bonus from RBS was not withdrawn but protected.
New players are changing the landscape of SME lending, but the FCA has just taken steps to discourage people from investing in peer-to-peer platforms, even if low-risk and diverse, by requiring that investors must declare themselves to be sophisticated and experienced to put in more than 10% of their assets. Word on the street is that banks lobbied hard to get these constraints on these upstarts, who are now finally poaching their most attractive SME customers and the savers to whom the big banks never offer more than a pittance.
Will the Minister agree that we need changes? We need a change in culture in the regulator to aggressively pursue wrongdoing and the senior management on whose watch it takes place, using every power to the limit and demanding more if necessary; removal of the regulatory perimeter for all SMEs, and potentially altogether; positive encouragement to whistleblowers, including granting the FCA powers that made its US equivalent, the CFTC, a driver of global clean-up; compensation and the right of the regulator to sue any company that retaliates against a whistleblower; and finally, a rebalancing of regulation to support alternate lenders, even as they grow big and threaten the establishment, rather than to protect the established, large players.