G8: Eurozone and UK Growth

Baroness Kramer Excerpts

Tuesday 2nd July 2013 Lords Chamber

[Baroness Kramer]

My Lords, the summit also addressed the issue of the international tax regime. Will the Minister recommend to this House the website www.fairtaxmark.net, which ranks companies as part of its campaign for greater transparency and fairness in corporate taxation? It is rather sober reading for the Government to see who pays tax and who is transparent, and it is most helpful to us as consumers, since consumers and the Government need to work together on these issues.

[Lord Newby]

My Lords, I absolutely agree with my noble friend and I do commend the website to Members of your Lordships’ House. However, I also point out that at the G8 summit significant progress was made on tax transparency, whether in promoting the standards of the Extractive Industries Transparency Initiative, promoting a new global standard for automatic information exchange, or making more information available on beneficial ownership. These are big changes on which the UK is taking the lead.

Spending Review

Baroness Kramer Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Deighton]

The question of how we unwind QE is a matter for the Monetary Policy Committee. It is not for me to give advice here.

[Baroness Kramer]

My Lords, when it comes to not understanding, I have to say that from the conversations that I have had in the media today with members of the Labour Party and listening to today’s speech, I am unclear whether they want different cuts or more borrowing, but it seems to be one response or the other to this particular spending round. I am very pleased with many aspects of this spending round, particularly the emphasis now on future growth.

Will the Minister confirm that the decision to put more money into schools, thereby protecting the schools budget as well as being a real-terms increase in the pupil premium, is because they have proven to be successful and effective programmes? On the infrastructure area, which is his area of specialty, will he assure me that although there is the Heseltine pot for local areas, the big national infrastructure expenditures will be co-ordinated with local activity so that we can maximise the opportunities that spin off from this very substantial increase in infrastructure?

[Lord Deighton]

I thank my noble friend for her observations about the education programme being a prime example of investing in the success of an effective programme. That is absolutely right. On the local pot and infrastructure spend, it is absolutely our intention to make sure that there is a strong relationship between the regional plans—ultimately, all infrastructure operates at a local level—and that we co-ordinate those at a national level to ensure that we get the maximum leverage from the money that we are spending at both ends.

Taxation: Income Tax

Baroness Kramer Excerpts

Monday 24th June 2013 Lords Chamber

[Lord Newby]

My Lords, there is an awful lot of hype about what may or may not be achieved by reducing or retaining the higher rate of tax. HMRC produced its report on the matter last year and estimated that, in the short term, the cost to the Exchequer was £100 million. It said that the “direct yield” from the higher rate,

“might fall over time toward or beyond zero”.

[Baroness Kramer]

My Lords, since this Question looks at the impact of tax policy, can the Minister give me his assessment of the impact of raising the tax threshold in this Parliament?

[Lord Newby]

My Lords, the effect of raising the tax threshold is that some 2.7 million low-income earners will be taken out of tax by April 2014 and that 23.6 million individuals will benefit by paying less tax.

Taxation: Evasion and Avoidance

Baroness Kramer Excerpts

Thursday 6th June 2013 Lords Chamber

[Baroness Kramer]

My Lords, I, too, congratulate the noble Lord, Lord Foulkes, on bringing forward an important issue, and on giving us an opportunity to discuss it, as it were, in the general. I suspect that there will be many discussions in this House about many specific measures in this area of enormous complexity.

I say to the noble Lord, Lord Foulkes, however, that when I started to make some notes for this debate I had little intention of making more than a passing reference to the history of Labour Governments in this. However, his comments have forced me to do so. This kind of amnesia, wherein what happened in the past is irrelevant, is a very uncomfortable position from which to pass. He talked about “new in scale” as if we are suddenly coming across problems which had not existed in the past, and had now forced themselves on to our attention. I remind him that even his own Labour Party was in 1997 sufficiently aware of tax evasion on the domestic scale to look at a GAAR—a general anti-avoidance rule or anti-abuse rule—which it rejected. This Government have now brought that back into the frame; I will talk about it in a minute. Also, however, the US Senate thought this was such a crucial issue that it started its major hearings in 2001. That put into the public arena so much of the information now being used by all the parties that it is impossible that it was not going across Ministers’ desks and had not been drawn to government attention.

The noble Lord, Lord Browne, drew attention to the culture in which businesses, and those such as the CBI who speak as the trade bodies for businesses, work from the assumption that this issue should not be challenged. I think we all find that offensive. However, surely that grew out of what they saw as a very long period of complacency and a rejection by Government, who had the power to intervene, to make those interventions. Those years of neglect have played a very significant role in the culture that we now have to turn around. In the end, we have to get businesses, as well as government, to take responsibility.

I come from a party that, in conference after conference, debated these issues, put them on the agenda, introduced them into manifestos, and was treated as though it just did not understand the ways of the world and, as a consequence, business. I take some satisfaction in reading, in the coalition agreement in 2010:

“We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals”.

It is right that people should be aware that there has been a loud and pressed voice, but that it has been ignored.

I will talk very briefly about the GAAR. I had the privilege of being on the Finance Bill’s sub-committee, which took a look at the general anti-abuse rule. It is a toe in the water—a first step at looking at a principles-based approach to sit alongside a rules-based approach. I suspect that in future years we will have to look at whether or not anti-abuse is sufficient, and whether we need to move into anti-avoidance. However, I will bring to your Lordships’ attention the first of the conclusions in the summary of the report from that sub-committee. It says:

“Given resource constraints and the need to provide certainty for business and to promote UK competitiveness, we regard the narrowly focused GAAR as a reasonable starting point. However, we think it important that the scope of the GAAR should be reviewed in the light of practical experience of its operation as part of the wider review that we recommend elsewhere in this report. Such a review should consider, in particular, how the double reasonableness test”—

the most constraining part of the GAAR—is impacting on the GAAR’s deterrent capacity.

It is also crucial that we understand that the measures we take that affect our domestic tax framework do not tackle the international, multinational tax issues. I sometimes think that when people talk about GAARs and anti-avoidance measures that can be taken domestically, they create an impression among the public that those measures can deal with the multinational and international problems. This report also reminds us of that, saying:

“We are fully persuaded that the GAAR will not apply to issues involving the taxation of multinational groups or the deferral of bonuses from one tax year to another”.

It is, therefore, reminding us that even approaching anti-abuse in this country does not deal with the wider set of problems.

My frustration, particularly with the capacity of multinational companies to use their offshore reach to avoid or minimise their tax—effectively, not to pay tax—is in part because of the impact on public spending. Other noble Lords have talked about that. It is also because of the way in which it destroys the level playing field for many of our businesses, and in particular our domestic and small businesses. I note that in my own community, Qbookshop, which is one of a chain of three, has a notice in its window reminding the public that the taxes it pays support at least one nurse in the local hospital. The reality is that Amazon, for all its reach, does not do a lot more than that with the corporate taxes that it pays.

As I look for ways to do my purchasing from companies that have a proper approach to tax—as others do—I find that it is extraordinary how few exist. There are times when you are simply forced back to Amazon to carry out a transaction. This basically shows that the advantage of being able to avoid tax payments has subsidised those players in growing and squeezing out the competition that otherwise would naturally occur. We as a country are suffering from the destruction of that kind of level, competitive playing field.

I also note that when small businesses in the UK begin to grow, they are frequently sold to a foreign owner, and sometimes the owner is essentially a Luxembourg-based shell. Once again, it is almost impossible for a company to continue to compete unless it tries to enjoy the tax advantages that others in its field can access. One can see the temptation of many an investor to buy a company and move its activities or quasi-activities simply from a tax motive. I wonder how much the issue that we have often addressed, which is why we cannot get our small companies to grow into medium-sized and large companies based in this country, has a tax motive somewhere at the bottom of it.

I, like many people, have a real frustration that the kinds of rules of which these large companies take advantage were written by Governments on the understanding that it was unfair for companies to pay tax on the same economic activity in one, two or three locations. It is an entirely fair request for a company to say that it should pay tax only once. However, to take advantage of that, to work around it and to use it in order to create an environment where tax payment is in effect zero strikes me as the most extraordinary abuse and contempt, and it is absolutely necessary that we should bring it back under control.

I am looking very much at the G8 to begin to make strides in that direction. We have to advocate the principle that tax is paid essentially where economic activity takes place. There are complexities around that, but it is the principal basis on which we should expect to proceed. We have to look very differently at online companies, which can move their profits, domicile and activities in such a significant way. I wonder whether we should look at whether online companies should pay tax on the basis of revenue rather than profits. We may have to be as radical as that.

Before I finish—I am not going to use my full time—I will say one thing quickly to the Government. I was struck by the fact that one of the important instruments that the United States uses is the Foreign Account Tax Compliance Act, which requires individuals, or corporations as individuals, to report the financial accounts that they hold overseas. It also requires foreign financial institutions to report to the IRS on American clients. The UK is one of the countries that are co-operating with FATCA. It was designed primarily to combat offshore tax evasion and to recoup federal tax revenues. I would like to know whether we could have a UK version of this, because transparency—the kind of exposure that comes with FATCA—can be a very important basis for trying to challenge both tax avoidance and tax evasion.

Finally, I will say that many people, like me, would like to shift their economic activities—their business, their trade—to companies that play by the rules, but it is very difficult to find out which they are. I wonder whether there is any way that the Government could assist us: a way that would enable us to understand, when we walk into a shop, deal online, or, through our corporate lives, look at setting up relationships, whether we are working with a company that, as it were, has the kitemark of paying its taxes in an appropriate way. I admit that my ingenuity on this issue is limited, but it would be very helpful, and it would allow the public to do what they have done on many other occasions, which is to use their spending power. In that way, the Government would not have to deal with the issue simply through legislation and through enforcement by HMRC, but would have the public on their side. I note that Starbucks at least decided to make a voluntary tax payment—I think that we all agree that taxes should not be voluntary—in large part because when it was exposed as a company that paid virtually no corporate tax in the United Kingdom, its customers decided that they could go to a very nice coffee shop just down the road that did actually pay tax.

Economy: Fiscal Framework

Baroness Kramer Excerpts

Tuesday 4th June 2013 Lords Chamber

[Lord Newby]

My Lords, the Government have pushed back the period during which we are going to eliminate the deficit. The rate at which we are doing it, at about 1% of GDP per annum, is exactly in line with IMF guidance to countries that find themselves in the position that we do.

[Baroness Kramer]

My Lords, I have some sympathy with the noble Lord, Lord Barnett, because he put down his Question before Ed Balls did a U-turn yesterday on the Labour policy that his Question reflects. However, would the Minister not agree that the greatest risk to recovery at the moment is the lack of credit as business returns to its growth phase and will need that credit in order to succeed? What is his assessment of the capacity of the banks to fill that need?

[Lord Newby]

My Lords, the capacity of the banks to fill that need is shown by the latest borrowing figures, which are mixed. Of the 40 banks that are participating in the Funding for Lending scheme, 27 expanded their lending and 13 contracted it. There was a small net contraction—much less than in recent quarters. There is evidence that net lending will expand as the year progresses, as a number of banks—such as Santander, which is winding down its mortgage book—come to the end of programmes.

Economy: Growth

Baroness Kramer Excerpts

Thursday 16th May 2013 Lords Chamber

[Baroness Kramer]

My Lords, I join in the congratulations to the noble Lord, Lord Solely, on obtaining this debate. He is absolutely right—there is no more important issue than growth in our economy—and we in this Parliament and the Government have to focus directly on these crucial issues.

However, I would challenge him on his analysis of how we got where we are today. I fully accept that a financial crisis came—some say like a meteor out of the sky; others, who have looked at the banks, thought it was predictable—and hit us hard in 2007-08. This country was in no position to sustain that blow. We were at a point where the former Labour Government had raised public spending and public borrowing to a point where it offered no resilience. I can understand how the Labour Government got there. They bought into the idea that boom and bust had ended and that there would be a constant flow of substantial tax receipts coming from the financial services industry and that they therefore could let loose the leash on both spending and borrowing because there would be a constant flow of money coming into the Treasury. They should have recognised that we were at the top of an economic cycle—we do not end boom and bust; economies cycle—and every Government have prudently to take cognisance of that. So that is the situation in which we found ourselves.

We also found through that process that the underlying British economy was in very weak shape. We had become so dependent on financial services that we had bled much of the life out of our other activities, both in the service industries and manufacturing industries. We had allowed the balance to swing so heavily to London and the south-east that much of the north was being sustained only by having public service activities there—the private sector had not been building and thriving for a long time—and, worst of all, we had failed to recognise for more than a generation that the backbone of the economy is our small businesses. Twenty per cent of all the small businesses in the EU are in the UK. This is a thriving location for small businesses but it has not been receiving the kind of support that it needs to grow, to take risks, to create new jobs and to build its export base.

For the past few years, the rebalancing of that shift has been the work of this coalition Government. I am encouraged by the comments of Sir Mervyn King and the CBI made earlier in the week which suggest that they can finally see that we are going into a modest recovery. It is very dangerous in this current unstable international environment to focus too much on green shoots, but the same verdict is coming back from small businesses, from the accountants who spend time up and down the country with businesses and even from the commercial section of the banks. They identify that the beginnings of a real recovery are under way, in part because of the rebalancing and redevelopment of those abandoned areas. This work will turn out to be absolutely crucial.

I have often said before that the neglect that most appalled me, not only during the Labour years but during the Conservative years before, was in the area of building skills among our young people. The fact that there was a lack of apprenticeships and that the whole apprentice structure had been allowed to collapse was irrelevant in many people’s minds. There has been a turnaround in that area: more than 1.25 million young people are now either in or have gone through apprenticeships in the past couple of years. That will be important.

We all thought that any debate introduced by the noble Lord, Lord Solely, would undoubtedly touch at some point on aviation and I admire his self-restraint in not addressing the issue of Heathrow. I shall therefore limit my comments on this issue out of common respect to his self-restraint.

However, I wonder whether he recognises the inconsistencies in his own position. I agree that regional aviation capacity is the key issue we must look at. As he knows, that is not hub aviation capacity but very much point-to-point. One of the issues that the Davies Commission will have to take on is whether we should try to build a single London-style hub as our primary connection both within the country and outside. Should we have one main hub and a number of minor hubs? Should we build a balance between one hub and a number of point-to-points? We have to come up with a solution that manages and supports the rebalancing necessary for our economy. That means that it must service the north and the west as well as London and the south-east. That is one of the arguments that leads people to think that much of the London hub should now be shifted somewhere between London and Birmingham, potentially alongside an HS2 route, but there are a number of other visions.

The noble Lord also stressed the fact that aviation, usually thought of as passenger aviation, plays a crucial role in freight. I fully accept that. However, you cannot drag those words out of most of the aviation industry because it becomes impossible to argue for the use of Heathrow, an incredibly expensive and scarce resource, when you are doing a point-to-point freight movement. So that issue has to come into the picture and it will be interesting to see where it goes.

There are two issues I wish to address before I sit down. I shall certainly not use my full time today. One is an issue which is sometimes not addressed in the context of economic growth—that is, tax avoidance. I recommend a speech made on this yesterday in the other place by my colleague, Ian Swales, MP for Redcar. As he was discussing the problem that we face—the inherent reality that most multinational companies now effectively enjoy a corporation tax rate of zero because they export their profits to somewhere such as Luxembourg or outside the G20—he said that one of the impacts of that is greatly to disadvantage those very small and medium-sized businesses in our economy that we need to grow for the future. For example, a chain of three book shops within my local community have pasted on their walls that each book shop pays for a trainee nurse through its taxes on an annual basis, whereas Amazon, their great rival, effectively contributes nothing. Yet they face this price differential because, in effect, the international community has provided a taxpayers’ subsidy to the large multinational entities. We have to tackle the tax avoidance problem for that reason in addition to the failure of those companies to contribute as they should to the public spending that, as it were, pays for the society in which they participate and provides the basis for many of their sales. I think that the level playing field argument is an incredibly powerful one.

In my last comments I wish to pick up on the remarks of the noble Lord, Lord Marland, on exports. I agree completely that building the exports of our SMEs is absolutely vital. However, sometimes I disagree with BIS about its focus on saying to small businesses, “Come on, go to China, Brazil and India”. It is wonderful if small businesses can export to those countries and I have no problem with that, but when you talk to these businesses, you find that many of them have had very bad experiences when they have tried to do it. It is quite risky to export to China if you have a patent you wish to protect. It is very difficult to export to the United States because of all its non-trade barriers. I have talked to quite a few small businesses, but I shall not use their names because they are quite hesitant about this, which have found that in the end they had to form a joint venture to sell into the United States and essentially surrender most of the upside of their additional revenues and the exports from their US operations. Instead, they just accept royalty payments because, without a joint venture relationship, it is impossible for them to operate on American soil.

From the small business perspective, the ongoing debate that David Cameron was leading on in the United States in his discussions with President Obama on an EU/UK trade negotiation to tackle many of these non-tariff barriers, is absolutely crucial. There is a real need for an awareness that this is the kind of thing we can tackle only as part of the EU. I lived in the United States for 20 years and I know a lot of people in the Administration. The chance that they would ever waste time on a UK/US debate along these lines is close to zero. I suspect the same for China and, indeed, for the various developing economies of the world.

We are at an exceedingly exciting point where there is great potential. We are starting to see movement in the economy, but it is crucial that we have sustainable growth, not growth created by a sudden surge in public spending that sparks a short-term response and transient behaviours. We need long-term, sustainable growth by getting new businesses off the ground and encouraging them to export. Any discussion is too much to try to include in this speech, but it is also crucial that the banks back up that growth with a credit supply, because it will be in huge demand as businesses begin take off when they see the end of the recession and can move into a much more investment-focused and expansionary mode. We are at a very interesting point at which the decisions and the way we shape this growth must be such as to set us up well for future years.

Queen’s Speech

Baroness Kramer Excerpts

Monday 13th May 2013 Lords Chamber

[Baroness Kramer]

My Lords, I do not flatter myself that so many noble Lords have remained in this Chamber for my speech, but rather for the speech of the noble Baroness, Lady Lane-Fox, who will follow me—and quite right, too. I very much hope that she will address the issues of entrepreneurship in such a cutting-edge industry. That will be fascinating, not just on a personal level, but because it lends itself so much to the issues of economic growth that we are talking about today.

The opening phrases of the gracious Speech indicated that the Government’s purpose is to focus on building a stronger economy and promoting a fairer society. Let me wholeheartedly endorse those two principles, which must go hand in hand. This country has, at times in its history, pursued one but not the other, and that has damaged us as an economy and a society.

Much of the work of rebuilding the economy is already under way. I will pick up on the latest measure that was in the Queen’s Speech, which is extremely positive, namely the commitment to introduce a new employment allowance of £2,000, not least because its simplicity should make it very attractive to small businesses. We have heard again today, from the right reverend Prelate the Bishop of Birmingham, and others, that small businesses are key to the future of this country’s economy. This should be a spur to new hirers.

I commend the Government on resisting the temptation to constantly think up more legislation in the finance area, where we already have crucial banking reform legislation to deal with. I am on the Parliamentary Commission on Banking Standards, and our report will come out in the next few weeks. The Government slightly surprised me today by saying that that Bill will come to this House before the Summer Recess. It is very important that the issues raised in our final report have the opportunity to be properly considered, and, on many fronts, incorporated into that legislation. I therefore ask the Government to take a serious look at the timing.

I agree with one part of the speech made today by the noble Lord, Lord Forsyth: it is sometimes a relief that we have a Government who do not constantly try to address every problem by producing yet another piece of legislation. When we heard the noble Lord, Lord Eatwell, essentially complaining that there were not enough new laws in the Treasury field for this section, I thought, “Labour’s continuing with its old habits of legislation”. I am glad that he finally agrees that implementation and governance are the right answers, but those are not the words that his colleagues have used.

In these uncertain times in which we live, it is unwise to overestimate green shoots in the economy. However, I have been struck by the very positive tone that I now hear from a wide range of those working in small businesses, in business accountancy, and even in the commercial sector of the banking industry. Help to buy is having a very big impact on the housing market; Barratts has reported the highest demand for five years, and now warns of a possible skills shortage in construction, which it is combating by planning for 600 new apprentices and graduates over the next three years. The CBI report also reinforces the sense that there is momentum.

We have seen these signs before. In 2011 confidence began to grow, but was knocked back with the problems in Greece, and in 2012 we began again to see gathering confidence, which was then shaken by concerns over Italy and Spain. This time, however, there is a broader base, with a pickup in the service sector, non-EU exports, manufacturing output and retail sales. I would love to hear from the Government about retail sales, but I understand that much of the pickup comes from the over-45 age group, which, frankly, was much less impacted by unemployment and by wage compression. That group has the capacity to spend, and if it is starting to again, that is a very important message for the economy.

Of course, any return to recovery has its own risks. A few months ago it was fashionable to suggest that many companies in the UK were essentially zombie companies—the walking dead that would collapse in an economic revival. Thank goodness that theory has largely been discarded because it does not fit the facts. However, it is true that as the economy improves many companies will quickly chew through their cash reserves, and it will be absolutely critical that we have a banking sector able to meet the demands especially of small and medium-sized businesses. I confess that this worries me.

The Government’s decision in the Budget to continue and expand Funding for Lending, with much more emphasis on small business lending, was significant and welcome. The big banks have been clearing their balance sheets and trying to retrain their staff to look at the sector, and they should have enhanced lending capacity—although I remain sceptical about the low levels of demand that they insist exist in the economy. However, as the economy recovers we will definitely see a very significant pickup in demand for credit. It will come not in steady increments but in waves of expansion. We cannot afford for the banks to fail us again. If they are correct that only lack of demand has been holding back the flow of credit, we should see that change. In case they do not, I hope very much that the Government are looking at additional contingencies. It would be terrible to lose the opportunity of a rising economy because our banking sector, which has never focused very much on the real economy in the UK, failed to live up to expectations.

In the long run, new banking players and non-banking players will enter the credit market. We must never again depend on just four institutions, as essentially we do today. I am very pleased that we are close to achieving a proper regulatory framework for peer-to-peer lenders, and that they are getting support from the business bank. I congratulate the regulators, the FCA and the PRA, on a complete about-face in historical strategy. They are now setting out to remove barriers to the entry of new banks. Measures such as seven-day account switching will finally let ordinary people change their banks to get a better service, and will open the opportunity for new players to thrive. The Chancellor has proposed that the regulator should take on the payment system—the plumbing of financial services and banking—which has been in a sclerotic state and made it almost impossible for any new players to enter the market. We are moving towards an environment where competition is encouraged.

I am still concerned that waiting for banking and credit markets to grow organically and provide us with new players of any size will take longer than we can wait, and longer than one economic cycle. For that reason, I urge the Government to look closely at RBS, and possibly Lloyds, and consider splitting them up. People talked about splitting RBS into a good bank and a bad bank. That would have made sense five years ago but we are past that point now. Much more interesting would be a split into a number of regional banks that could identify and focus on the needs of each regional business base. For decades we have let the market shape our banking industry. It has been a disaster; we have seen nothing but consolidation and homogenisation. We now need the Government to tackle the failings in the structure of the industry, not just the failings of individual banks, which they are tackling with capital requirements, ring-fencing and other measures, so that it is fit for purpose, and the purpose is serving the real economy.

I know that Lloyds and RBS have had trouble selling off the pieces of their own banks that they have been forced to sell by European law. Two points are relevant here. One is the appalling legacy technology that the institutions are burdened with, which has not been brought up to date. The other is a general expectation that they will simply consolidate into another new big bank rather than remain sustainable as regional organisations. Economies of scale have dropped sharply and dramatically with modern technology. Highly competitive regional banks have proved viable across the globe. If national banks cannot serve our businesses and regional banks can, we should seize the once-in-a-generation opportunity of returning two major banks to the private sector to build the banking structure that best supports our economy.

Banking: Quantitative Easing

Baroness Kramer Excerpts

Wednesday 27th March 2013 Lords Chamber

[Lord Newby]

I do not think that there is any sleight of hand. Since 1998, the Bank of England has introduced a number of innovative measures within the remit and the terms of the Bank of England Act. Quantitative easing, which, in 1998, many of us could hardly spell, far less understand, has happened on a big scale and finance for lending has been introduced. These innovative things have been introduced under the terms of the Bank of England Act. The remit change reflected in this year’s statement by the Chancellor accepts that there have been a lot of changes since 1998 and suggests that the Bank should look at introducing further innovative operations.

[Baroness Kramer]

My Lords, the Minister will be aware of a recent speech by Spencer Dale, the chief economist of the Bank of England, which identifies the constraint on growth, not on the demand side but far more on the supply side, because the banks are not back to normal lending, so does he see monetary activism as a mechanism to return to normal lending or are we relying much more on actions such as the business bank? Is that where the Government’s emphasis should be placed?

[Lord Newby]

My Lords, we need to pursue more than one course at the same time. The Green Investment Bank and the new business bank are one way forward; further innovation by the MPC is another. We need the full range of tools at our disposal to promote growth.

Budget Statement

Baroness Kramer Excerpts

Thursday 21st March 2013 Lords Chamber

[Baroness Kramer]

My Lords, the Chancellor yesterday gave us a Budget that fits the tough economic times that we all acknowledge. I congratulate him on not succumbing to the blandishments of the Opposition. I listened very closely to the noble Lord, Lord Eatwell, and thought that he summarised his own speech by saying that insanity is repeating again and again the failures of the past. He gave us exactly the formula of spend and borrow that the previous Government pursued and that left our economy so structurally weak that, when the financial crisis struck, we found ourselves in dire circumstances, overburdened with debt, and with a structural deficit, no resilience and a fundamental underlying economy that had been neglected for a generation. He now repeats that formula.

The measures in yesterday’s Budget were focused on helping ordinary families with the cost of living, on stimulating new jobs, especially in small and medium-sized businesses, and breathing life into the housing market. Let me make just a few comments on each of the three.

Ordinary families, as we all know, have been feeling the squeeze on their finances. For that reason, I am particularly pleased with a further lifting of the income tax threshold to £10,000 next year. My party promised it and it will be delivered a year early. With this step, nearly 3 million people will be out of income tax altogether; 24 million people will pay £700 a year less in income tax—a genuinely meaningful amount of money; and a person earning the minimum wage will have seen their income tax bill cut in half. I find it frankly extraordinary that, rather than embracing this progress, Labour wishes to substitute a 10p tax band. Under Labour, poorer people would today be paying more income tax than under the coalition. I find that the most extraordinary notion of “fairness”. If one adds to that the measures on fuel duty, childcare and even beer, one sees that ordinary working families now have a little more breathing space.

Childcare is an area where I once worked on Liberal Democrat policy. We made a very difficult decision not to include plans much like those announced this week in our manifesto, because when we looked at the economy that Labour had left us we saw that it was clearly unaffordable in the face of the economic collapse and uncontrolled borrowing environment. But childcare is one of the most challenging issues for working families. I took evidence from many mothers, and sometimes fathers, trying to weigh the long-term financial benefit of growing a career by returning to work against the immediate burden of the most expensive childcare in Europe. The coalition has already made 16 hours a week of free care available to two year-olds in the least well-off families and taken a more intelligent approach to the staff/child ratio in childcare, but we have all known that more is needed and this scheme will make a real difference to working families.

However, I agree that the question of growth is the one on which we have to focus. I looked at Bank of England numbers yesterday which came out ahead of the Budget and the OBR’s forecast. They made it absolutely clear that the most significant cause of undershooting our growth projections is the weakness in the eurozone and the damage it has done to our exports.

Despite that, the private sector has created 1.25 million new jobs, and many of those are in SMEs. Twenty per cent of all the SMEs in the EU are here in the UK. Small and medium-sized businesses are providing more than half the jobs, more than half the exports and, even now, more than half the patent applications. The Government’s employment allowance is therefore just what SMEs need to start adding that “one more job”. Often, that one more job will be a young person, especially if we continue to provide support through apprenticeships and the youth contract. It is right that the employment allowance should become a permanent feature of the structure of British business taxes.

The abolition of stamp duty for AIM will also make a difference, although it must be just part of building a proper framework for raising finance in this country. I have talked now to quite a number of small businesses that simply sold out to the Americans because they could not access the equity that they needed to grow. I have not seen the announcements that my colleague Vince Cable is making today, but if we can combine a revived AIM with the business bank, that, together with proper reform of our still dysfunctional banking system—and I address the noble Lord, Lord Eatwell, who structured this dysfunctional banking system, and the party opposite—we can get a vigorous and rebalanced business base that will provide well paid jobs for our people, especially our young people, who deserve the best.

Earlier in this coalition, we returned large areas of decision-making to local communities but not the funding that would give real power to that decision-making. Last week’s decision to draw departmental money for local growth schemes into a single fund, known now as the Heseltine pot, should overcome that. My noble friend Lord Shipley will speak more extensively for my party on these issues because he is the expert, but I just want to say this, particularly to noble Lord, Lord Deighton, because he is a man of wonderful practicality: I seriously hope that the Heseltine pot will finally release the capacity to get TIF 1 and TIF 2 going—tax increment financing for infrastructure projects, small as well as large, identified by local communities as key to growth.

Of course, though, the big news in the Budget was housing. We have a housing shortage at crisis levels, particularly in affordable housing and especially in London and the south-east. We are building scarcely one-third of what we need. Housebuilding played a key role in enabling the UK to avoid the worst of the Depression in the 1930s, and it has always seemed a no-brainer to drive forward house construction now. I have a strong suspicion that when Vince Cable wrote in the New Statesman that the Government could use their ability to borrow cheaply to support new infrastructure, especially housing, he had this expansion of help to buy in mind.

Help to buy uses existing institutions, so it should be able to take off pretty quickly. It is a massive injection into the housebuilding industry. I am going by the newspaper estimates of £12 billion in total. I notice also that on the back of this announcement, new shares in the housebuilding industry immediately soared—Barratt Developments was up 6.5% by late yesterday—and that response tells you that the market sees this as a way to get construction going. Once again, my noble friend Lord Shipley will say more.

I would very much like the opportunity for a more extensive discussion of monetary policy and monetary activism, because this is a new arena and it cannot be dealt with in the context of a brief debate like this. However, I am so glad that we are engaging in imaginative thinking and opening our minds, not just sticking constantly with conventional wisdom. This is a new opportunity. We are building a stronger economy in a fairer society, and this Budget furthers that goal.

Bank of England: Monetary Policy

Baroness Kramer Excerpts

Tuesday 19th March 2013 Lords Chamber

[Lord Newby]

My Lords, inflation has been higher than the 2% target for a number of years. The MPC has taken the view that the target would be met in the medium term and that, because the principal reasons for inflation did not include excessive domestic demand and are therefore less capable of being moderated by increases in our own interest rates, it was wiser to “see through” the temporary increase in inflation above 2% but to work, as the MPC has, on the basis that, in the medium term, inflation would indeed come down to 2%.

[Baroness Kramer]

My Lords, Paul Tucker has floated the notion that the Bank of England could charge banks for holding reserves at the Bank as an incentive to get them to lend to the real economy. Is that an issue that has been actively discussed with the Treasury and what is the Government’s view?

[Lord Newby]

My Lords, again, that is a matter for the Bank of England. To the extent that the Chancellor—and the Treasury—wishes to change the way in which the Bank of England operates, he will have an opportunity tomorrow to set out what any changes might be.