Budget Statement

Baroness Kramer Excerpts

Tuesday 14th March 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I have had some moments of sympathy with the Chancellor as he has been variously described as decent and tidy minded—“realistic” was more complimentary. The debate this afternoon has been anything but dull. The House has been absolutely at its best across a wide range of issues on the economy. The terrible twins, as the noble Lords, Lord Skidelsky and Lord Desai, have now been named, have tackled some of the macroeconomic issues and the deficit issues. The noble Lord, Lord Haskel, focused on technical training and productivity. The noble Lord, Lord Palumbo, called for brave decisions, while the noble Lords, Lord Willetts and Lord Monks, talked about inter-generational fairness. I think that all of us on these Benches would like to see the noble Lord, Lord Porter, in the Treasury because he explicitly described our policy on council housing. The noble Lord, Lord Marlesford, called for an increase in road fuel duty, and I assume that by now he is being burned in effigy by the Road Haulage Association, perhaps supported by the noble Lord, Lord Porter. It has been a brave and fascinating gathering, and I am going to spend time reading many of the speeches, because there was so much content in them.

This has been the last spring Budget but in many ways we can look at it as the first Brexit Budget. We have seen a Chancellor with almost no room to manoeuvre, Brexit being added to the situation he faced with borrowing. Also, on the core economy, the Chancellor will be very well aware that in 2016, four-fifths of the growth came from consumer spending, as so many in this House have said, supported by eating into savings or, more significantly, by going into further debt. Consumer borrowing is now at levels we have not seen since 2008. It is entirely unsustainable, especially given the inflation that will surely follow from the 17% devaluation in sterling. The noble Lords, Lord Beecham, Lord Bhattacharyya, and Lord Gadhia, my noble friend Lord Wrigglesworth and many others focused on those issues. Others looked at the business context. Although the Chancellor did not call this the Brexit Budget, in today’s debate almost half the speakers focused on the impact of leaving the single market and the customs union—hard Brexit—and the consequences for our economy, with bad news for jobs, living standards and opportunities. All that is well reflected in the OBR figures.

I think it was the noble Lord, Lord Higgins, who said that the Chancellor did not outline the challenges, which is true. I am sure that the OBR has come up with many more scenarios than the one that ended up in our Printed Paper Office; they would have given us a far better feel for the range of options we face and the things we have to take into consideration as we try to define how to manage the economy over the coming years. I wish we had an opportunity to see those additional scenarios.

Many noble Lords have spoken tonight of the pressure on public services and focused on the NHS and social care, which are in a state of near crisis. The noble Lord, Lord Porter, said that £2 billion to support social care was really welcome. That amount in one year would have been really good, but over three years it does not meet the problem. We are going to have to bite the bullet. I am not going to get into the internal Conservative Party wranglings over the increase in national insurance contributions for the self-employed, except to say that this has not been much of a Budget for business—I will comment on that in a moment. To the noble Lord, Lord Willetts, I say that there might have been a far better reaction had the Government broken their pledge in a way that put additional levies on companies that deliberately push employees out into self-employment as a tax arbitrage, rather than focusing on people who are themselves self-employed and face the risk of unreliable income, among other challenges and burdens.

In the autumn, I called for an emergency £4 billion injection this year—half for social care and half for the NHS—to deal with this crisis. I am beginning to think that the Chancellor might wish he had heeded that call. I agree completely with the right reverend Prelate the Bishop of Chester: we have to look at a completely different way of structuring and funding the NHS and social care. Similar issues were raised by the noble Baroness, Lady Altmann, and the noble Lord, Lord Desai. They will be glad to know that Norman Lamb, my colleague in another place, has constructed an independent commission, which is well ahead in its work. It is made up of leading figures in the relevant fields of expertise and is looking at that exact issue. We will have something very significant to say on how this fundamental issue can be dealt with going forward. Other noble Lords have pointed out that the National Health Service and social care are far from the only public services that are feeling this wide range of pressures. My noble friends Lord Shipley and Lady Burt and the noble Lord, Lord Beecham, discussed many of those issues.

This has not been much of a business Budget. The noble Viscount, Lord Chandos, was the last to speak on this issue and I join with him and other noble Lords who say that the cuts in corporation tax and inheritance tax are completely inappropriate in the circumstances that we face. Cuts in corporation tax below 20%—some would say 22% was a better number—have absolutely no impact on changing the minds of companies on where they invest and what they do. If it does not have that factor, the argument for cutting makes no sense. Large businesses will have seen a benefit from those corporation tax cuts but, as we see in this Budget, it is small businesses that have been getting it in the neck. For the self-employed this is through NICs, or the changes in business rates. The transitional payments are only for one year: a small relief but nothing like sufficient. Danny Alexander, as Economic Secretary to the Treasury, put in place a review of the whole business rates system, addressing the issue of online retailers who use out-of-town premises. It makes me absolutely furious that after the last general election, when the Conservatives came into government alone, the review was gutted. Had it gone ahead, we could now make changes and small businesses would never have faced the problems they face today. I forget which noble Lord raised the issue of quarterly digital returns but I agree completely—they should be entirely voluntary for small businesses.

In conclusion, this has been a limited, low-risk, fairly minimalist Budget because the Chancellor has been painted, and has painted himself, into a corner, and that is not a particularly healthy situation to be in.

Living Standards: Inequality

Baroness Kramer Excerpts

Tuesday 7th March 2017 Lords Chamber

[Baroness Neville-Rolfe]

I think the ONS keeps us honest; it looks at these figures over time and very helpfully updates us. The OBR forecasts are also updated all the time so that we can see what is happening. I come back to the point that the Resolution Foundation is looking at a forecast, but if we look at what has happened, five years ago it was predicted by the IFS, I think, that there would be a rise in inequality. In fact, that has not happened. Actually, things have continued to progress and we have seen a recovery. That is what we need to continue by having the right policies, which this Government are pursuing under our new Prime Minister.

[Baroness Kramer (LD)]

My Lords, I am shocked that the Minister does not recognise that young working families are facing serious financial pressure and are struggling, and that it looks as though it is going to be worse with inflation. Does she agree that part of the reason is the very high rents that most of these families face? Will she be willing, in the Budget tomorrow, to permit local councils to go out and borrow the necessary amounts of money to drive forward development of affordable rental housing? She has often acknowledged that the housing market is broken but all the Government’s solutions are on the demand side, and supply does not increase, especially not in the affordable area.

[Baroness Neville-Rolfe]

I would not want to steal the Chancellor’s thunder today. There is certainly some provision for prudential borrowing by local councils, but I come back to the support that we give to working families. The national living wage has already been mentioned by my noble friend. That has provided the fastest pay rise in 20 years. We have raised the personal allowance to £12,500 by the end of this Parliament; nobody had done that before. We are introducing universal credit, which has the benefit of making work pay, so that if you go out and work you are not held back by benefit dilemmas. We are committed to making work pay, and we believe that that is the very best way forward for the people of this country and for hard-working families, which I agree are a priority.

Tax Avoidance

Baroness Kramer Excerpts

Wednesday 18th January 2017 Lords Chamber

[Baroness Neville-Rolfe]

I am always very interested to hear from my noble friend on such issues. This is a complex point which, as a new Treasury Minister, I look forward to talking to him about to understand the implications in this important area of evasion and avoidance. Since the coalition, there has been a lot of agreement on the need to move forward sensibly, whether by statute or the intervention of the courts.

[Baroness Kramer (LD)]

My Lords, many of us have been very confused as to why the Government put so little effort into persuading the UK’s overseas territories and Crown dependencies to lift the secrecy that covers tax avoidance. Are we now finding that the answer, as the Chancellor expressed to the German Government, is that he sees a tax haven as a potential economic model, even if by default, for the UK economy—in contravention, I suggest, with long-held British values and the basis of our economy?

[Baroness Neville-Rolfe]

I think I have already made clear the context of the Chancellor’s remarks. We are seeking to get a good agreed deal, but clearly, you cannot forecast that. The CDOTs have now all signed up to the common reporting standard and started exchange of information in September last year. This is a result of the sort of international discussion and agreement that we need on these abuse issues, where I believe this country has led the way and, if I might say so, the coalition did some ground-breaking work.

Economic Forecasts

Baroness Kramer Excerpts

Tuesday 17th January 2017 Lords Chamber

[Baroness Neville-Rolfe]

I very much agree with my noble friend that we always need to look at the opportunities. As I have often said, I am glass half full, not glass half empty. Like the Prime Minister, I am determined that we should pursue a good Brexit and a bold and ambitious free trade agreement with the European Union, if I may pick up the comments that were made in relation to Mr Ricardo.

[Baroness Kramer (LD)]

My Lords, does the Minister understand some of the concerns at the kind of complacency that we have just heard expressed about a 20% devaluation of sterling, far higher than any recommended devaluation; soaring consumer debt, not quite yet at the crisis levels of 2008 but only a margin below; and inflation creeping into the system? I am sure that poor people will be glad to know that the noble Lord, Lord Lawson, celebrates the higher prices that they will be paying. Those have been recipes in the past for economic crisis. Should not the Government take more notice of what are not straws in the wind but major signals of problems ahead?

[Baroness Neville-Rolfe]

We have a system of carefully looking with the help of the independent OBR twice a year at where things are going and making the adjustments that we need. Indeed, I agree with the noble Baroness that there are long-term problems, and I am surprised that no one has mentioned the fiscal sustainability report that was published today—an independent and objective assessment, which looks ahead to the long term and will be an important catalyst for discussing some of the challenges we have in relation to the economy and how we fund the public services appropriately.

Finance Bill

Baroness Kramer Excerpts

Tuesday 13th September 2016 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I feel rather sorry for the Bill. In the number of fascinating speeches that we have heard, the only noble Lord who focused on the Bill to any significant extent was the noble Lord, Lord Turnbull. His description of the complexities of the taxation system—added to rather than diminished by the Bill—left us with our jaws dropping and terror in our eyes. But that has been almost the extent of the discussion of the Finance Bill.

I was in Alaska over the summer. There, when a mother bear is with her cubs, if a potential new papa bear comes along he slaughters the cubs. I rather think that we are in that situation now, with the Bill set for the slaughterhouse and unlikely to survive Brexit, the new Prime Minister and the new Chancellor.

Most noble Lords who spoke today covered broad issues, mainly Brexit-driven but with a very broad scope and range. I will extract two things from the speeches. The noble Lord, Lord Kerr, laid out the timetable according to which detachment from the EU has to progress. It is an exact timetable; it is not an issue but a series of representations of the actual fact of the timetable and the length of time it will take to go through Article 50, the negotiations, the WTO process and other stages. I hope that the Government will take on board that timetable. I have now had conversations with two government Ministers who seemed to have no idea that that is the timetable that we face and that has to be part of the thinking and decision-making of the Government.

The second issue is to say to the Government that the ongoing uncertainty is simply unacceptable. “Brexit is Brexit” three months after the referendum is not a satisfactory set of answers. I speak regularly with businesses, as do many noble Lords. We have gone from being asked questions about what we think the Government might be thinking to questions about whether the Government have any competence. That is dangerous territory to get into and I honestly think that we deserve to see the framework and the basic principles. One noble Lord said just now that it is possible that they will be told to the world at the Conservative Party conference. But this is Parliament and this is the place where those principles and frameworks should be brought before us. This is a big, important issue that goes far beyond the entertainment of a party conference.

I will talk a bit about the Bill. There are a few good measures that are worth saving, including raising the personal tax allowance to £11,500, which is a good Liberal Democrat policy, and cutting business rates for small businesses—a long-overdue relief for small businesses. But I hope that the Government will treat this just as a holding measure, because the framework for business taxes in this country is frankly unfit for purpose. I do not mind quick interim measures to tackle a problem, but we need something far more fundamental. Reforms of stamp duty must be right. Improvements to ISAs matter little with interest rates so low, but they go in the right direction. The whole issue around pensions, pension inequality and the structure of pensions was not tackled in the Bill—and it must be done.

The power of the Treasury to force companies to publish how much money they make and the tax they pay in each country where they operate, and the transparency amendment which the Government accepted, are both good as part of the programme to tackle tax avoidance. But again, this is a very timid and limited programme to tackle tax avoidance. On income tax relief for irrecoverable P2P loans—a small issue that pleased me greatly—if we are going to have challenges to the major banks, as surely we must, we have to make sure that issues like that are put on a level playing field.

However, there are serious problems and omissions in the Bill. First, it was predicated on a fiscal mandate that made no sense from the beginning: creating an overall budget surplus by 2019-20, and not just in the current account. You can argue about the date but quite frankly, the way it was defined, not as a surplus in the current account but including investment spending, was always daft. That target has had the impact of diminishing the Government’s infrastructure ambitions. At a time when we need growth, that is not an acceptable way to treat investment spending, and is particularly misjudged, as other noble Lords have said, when borrowing is so cheap. We debated that to some degree in my Private Member’s Bill on Friday. The Minister today will be aware, although I am sure that he will not admit it, of our lack of ambition in housing, broadband, energy—especially renewables—hospitals, schools and even transport outside London. Today some noble Lords have criticised HS2. I remain a backer of HS2, because quite frankly the Indian system of strapping people to the roofs of trains is not acceptable. I do not know how you will deal with the number of people trying to travel north out of London without a new line, and HS2 is the answer.

The Bill cuts corporate tax rates. The Government cannot make a coherent argument for such cuts, especially when they are financed by welfare cuts to poor working families, disabled people and young people. We already have among the lowest corporate tax rates in the OECD. However, it has evidently done us absolutely no good in persuading businesses to invest in new projects or in R&D: both are already at exceptionally low levels and major companies are sitting on a mountain of cash. Further cuts in corporate tax rates may please business but we have already learned that they will not motivate it. A race to the bottom in corporate tax rates is not a wise move for any major economy. It simply becomes beggar-my-neighbour.

Despite toughening the tax anti-avoidance rules in line with BEPS, which I totally support, it still looks as if the online giants will have plenty of scope in the UK to limit their tax payments. Action on tax avoidance is timid in the Bill, which still focuses on abuse, leaving plenty of grey areas where many companies stake out their tax minimisation strategy. I look forward to the debate in the House we will have later tonight which addresses that issue. As Liberal Democrats, we have commissioned Vince Cable and a panel of experts to look at business tax as a whole. The annual exercise of trying to catch the loopholes has become a nonsense. We need a new framework for business tax that recognises that value has shifted from hard assets to intellectual property, from local to global, and from employees to what is optimistically called the shared economy, in which the workforce carries the risk.

As for the cut in capital gains tax, which the Minister presented as such a positive, in the coalition years we raised capital gains tax to be close to income tax, which is a genuinely sound principle. Frankly, how the Government could think of cutting capital gains tax at a time like this, when so many people are still feeling austerity, is beyond me. It shows this ongoing focus on people who are much better off rather than on ordinary people.

In closing I challenge the Government on just three narrow but important issues. The first is to join the noble Lord, Lord Hollick, in calling for much more support for small businesses to go digital in their tax filings; and to be absolutely certain that they stand by their commitment to make quarterly tax reporting voluntary and not mandatory, which is an impossible burden for many small businesses.

The apprenticeship levy—essentially a payroll tax—is structured in such a way that an employee share ownership company pays more levy than a conventional company because of the way the dividend exclusion is defined. That is wrong; we need to embrace and encourage those shared ownership and mutual companies, which should not be deliberately disadvantaged.

Young people have received numerous blows from Conservative Budgets. In this Bill they are hard-hit again by the hike in tax on insurance premiums, because young people pay—I often suspect unfairly—higher insurance premiums for just about every insurance product. The Government did not think this through and acted as if they were not aware of it. They need to remedy this rapidly.

The Bill may soon become an Act, but shortly after that it really will be forgotten. I hope that the Government will take on board what has been discussed in this debate; it has brought up a wide range of general issues, including intergenerational fairness and the oncoming impact of artificial intelligence and machine learning, which will completely change job structures in the next five or more years. There are so many issues to be looked at and this is a great opportunity to do so. I hope that the Government, before they get to the Autumn Statement, will allow this House and the other place to engage in a much broader debate on many of the issues that were raised today.

Economy: Overseas Trade Deficit

Baroness Kramer Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord O'Neill of Gatley]

I am very grateful for the accurate suggestion by my noble friend Lord Leigh as to what is really going on below the data. I emphasise—as, rather generously, Ernst & Young did yesterday in a very important report—that the recent deterioration is due to the growing attractiveness of the United Kingdom, especially areas outside London, in the minds of investors all over the world. Narrowing this deficit requires us to invest more in other places in the world that give a higher return.

[Baroness Kramer (LD)]

I wonder whether the Minister has seen today’s FT interview with the director-general of the WTO, in which he explains that, if we were to leave the EU, the UK would be required to put tariffs on imports from all 58 countries with which the EU has trade arrangements, and they in turn would be required to put a surcharge on UK exports. This is not an area where we will have a choice. We cannot say, “We’re not charging duties here”. That would be impossible and illegal. Hence, would the Minister recommend that Brexiters take note of the damage they could cause?

[Lord O'Neill of Gatley]

My Lords, I thought that I had read the Financial Times thoroughly this morning but I missed that particular piece. If we want to reduce our current account deficit by reducing our attractiveness to foreign investment, we need to be very careful on 23 June.

Queen’s Speech

Baroness Kramer Excerpts

Wednesday 25th May 2016 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I join in the warm welcome to the right reverend Prelate the Bishop of Newcastle. I suspect that her ears must have been burning, even when she took a break from the Floor. It is rare to see a new Member so warmly welcomed and so appreciated, and she earned it with her outstanding speech, which not only gave us a feel for her but was, I suspect, a small warning to the Government that they had better live up to their commitments to the north-east, because she will be looking over their shoulder from the Benches just behind them.

The Queen’s Speech started with the claim:

“My Government will use the opportunity of a strengthening economy to deliver security for working people”.

But the economy is not strengthening; it is getting weaker. The noble Baroness, Lady Jones of Whitchurch, and the noble Lord, Lord McKenzie, outlined some of the reasons, but I shall add a few more. George Osborne has borrowed £4 billion more this year than was estimated in the March Budget, and we are only in May. Economic growth slowed in the first quarter of a year, growing by only 0.4%. Construction output fell for a second quarter by 0.4%.

Numerous kinds of measures tell the same story, but I want to pick up the example given by the noble Lord, Lord Northbrook, when he talked about signs of a drop in confidence among small and medium-sized enterprises. We know from recent reports that lending to small businesses via overdrafts was down by 13% at the end of March from September 2014. As the noble Lord, Lord McFall, says, that may be something about bad bank behaviour, but it also reflects a drop in confidence by small businesses on an extraordinarily steep scale. That is an issue that the Government must take to heart, and take to heart immediately.

The weakening in the economy is a problem of the Government’s own making. This year they passed a Budget with a £7.5 billion black hole. Their fiscal plans required continued austerity to cut all public borrowing, which because of their definitions means a huge constraint on infrastructure spending for the future. As I have said before, spending on infrastructure is investment and should not be included as day-to-day spending when considering eliminating the deficit, especially at a time when we can borrow at virtually zero interest rates. If the Government doubt the need to accelerate getting infrastructure projects into the ground, I hope that they listened to the noble Earl, Lord Arran, my noble friends Lord Shutt and Lord Shipley, the noble Baroness, Lady Ford, the noble Lords, Lord Berkeley and Lord Patten, and, on broadband issues, the noble Lord, Lord Inglewood—and, indeed, others, who all gave examples of essential projects, all designed and all very close to being ready to go, which cannot be funded under the current regime.

The Government have been tearing themselves apart over the EU referendum and causing instability in the process. In this debate there was a dog that did not bark. I have so often been in debates on Brexit and found that those advocating exit have absolutely no plan for what the economy would look like, and frankly I have been shocked. I would have thought that by this stage we would have had some detailed scenarios and economic forecasts with analysis behind them, as well as pinpointing of industries that would be impacted and regions where jobs would be affected, but nothing, and again, today, nothing. That seems to me to make the argument all of itself.

Quite a number of Bills in the Queen’s Speech are covered by the theme of today’s debate. We want to see the detail and scrutinise and improve them, but I hope that we can support many of them. I shall reference just one or two.

My noble friend Lady Bowles referred to the criminal finance Bill. Many of us were very concerned because most of the content was announced in 2015 by Danny Alexander. We have been looking for this Bill for months, and if it took the Panama papers to draw it on, so be it. As my noble friend said, it will be crucial to make sure that it contains adequate transparency. Noble Lords will not be surprised that I am enthusiastic about the HS2 Bill now coming to the Lords. I am grateful that I do not have to be on the hybrid Bill committee and, boy, do I admire those who are putting their names forward to take on that very big task.

On the modern transport Bill, the work on driverless cars should be meshed with the work on electric vehicles. They go together. One of the risks is that we have siloed that because there is potential for the UK to be a real leader in this area. The noble Earl, Lord Attlee, and my noble friend Lady Randerson warned us that the Bus Services Bill has great potential for providing local control for bus networks, but it must be accompanied by the necessary resources to make it work and a check must be kept on unintended consequences on areas outside those that are covered by the new local ability to regulate.

My noble friend Lord Shipley, the noble Baroness, Lady Donaghy, and quite a few other noble Lords warned us that the local growth and jobs Bill, which devolves business rates to local authorities, is a fundamentally good idea, but we must be careful with our most deprived communities, many of which will never be able to take advantage of a business base. They must not be left out and lost as a consequence of this change in structure. As several noble Lords, including the noble Lord, Lord McKenzie of Luton, and my noble friend Lady Thornhill, have said, the neighbourhood planning and infrastructure Bill does not deal with the broken housing market—it just assumes that the only problem is planning—or with the lack of affordable social rental, which are critical housing problems.

In the last moments of my speech, I want to refer to the discussion initiated by so many on this side of the House, with no co-ordination whatever, questioning many of the fundamentals of the economy. Intergenerational unfairness is a major issue in our country, with more than 50% of young people, or people generally, assuming that young people will never have the lifestyle that their parents have had. They have been hit by the cuts in public spending, the lack of affordable rental cuts right to the heart of their life opportunities and they need to be engaged. Along with these issues, we have growing inequality, which was starkly described in this House.

I am one of those who really welcome the huge disruption that is coming with new technology—much of it was described by the noble Lord, Lord Giddens—but it means enormous job losses. Antony Jenkins, a former CEO of Barclays, has warned of 30% job losses in the banking industry within the next five years, and the British Retail Consortium has talked of more than 900,000 jobs going by 2025 as a result of automation. There is huge potential, but only if we prepare and make sure that new opportunities are provided to our young people.

We need to look at the whole structure of the way in which our economy functions. Public benefit companies in the US are an exciting new approach to understanding that for the future structures that allow growing inequality are not sustainable in the long term. We have to answer the needs of our broad population. We never want to be in the situation of having a Donald Trump sweeping away votes in this country in the way he currently is in the United States. That means keeping cohesion, coherence and a genuinely fair society underpinned by fairness in our economy.

The Economy

Baroness Kramer Excerpts

Thursday 28th April 2016 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I join the tributes to Lord Peston. It is probably a hallmark of the man that so many of us from different Benches felt that we had a personal relationship with him. He was so welcoming when I came into the House. I can hardly bear the thought of going through financial services legislation without him and Lord Barnett and their constant commentary, great wisdom and endless humour, which carried on in the corridors after debates. We have suffered a great loss.

I gave my response to the Budget in Grand Committee. Therefore, I will use this opportunity to speak somewhat differently. However, I raised one point in that debate which I will not allow the Minister to escape hearing again. They say that if you hear the same point 20 times, eventually some attention is paid to it. Therefore, I ask the Government one more time to look again at the definition of a budget surplus that includes capital spend, because it is entirely inappropriate to do so. We face a situation where the markets are such that we can borrow at virtually zero coupon to begin to raise that funding for critical infrastructure in which we have underinvested for at least two generations. I am not talking just about transport, in which I have a direct interest. The pace of that investment must increase.

As regards the internet and broadband, the ambition that this country has for a speed of 20 megabytes for this vital piece of infrastructure is, frankly, tepid, given that the rest of the developed world is starting to look at 1 gigabyte speeds. Surely we have to invest in that, as we do in housing. We have a housing crisis. The noble Lord, Lord Hain, talked about that extensively. We should also recognise the need for housing to rent, at rents that ordinary people can afford. Every conversation we have with the Government is about housing to buy. However, housing to rent is critical and a necessary mechanism to maintaining our wonderfully socioeconomically mixed, complex cities, particularly London, which have been the wellspring of so much of our growth and productivity.

When I address productivity, the issue that is raised by company after company, large and small, is that of skills. Others have talked about this extensively. The noble Lords, Lord Mair and Lord Bhattacharyya, talked extensively about innovation and skills. I draw the Minister’s attention to a report to this House by the Select Committee on Social Mobility, which was published roughly a week ago, because it focused on the virtual complete collapse of support for our youngsters who do not take the academic route. That is the nearly 50% of young people whose goal is not A-levels and who are not heading for university. Apprenticeships do not meet their needs because most apprenticeships are aimed at much older people. This calls for a real look at that 14 to 19 age group to understand the need for a genuine and viable vocational structure to support our youngsters. Given proper education and support, many of those youngsters could match the skills that are in demand. That group is not stupid. We must get away from this grammar school versus secondary modern mentality which implies that if you are not academic, you are not brilliant, capable, creative and able. Among that group are future entrepreneurs, engineers, designers and many people who could be the backbone of our economy. Germany has recognised that and we need to do so. It goes far beyond apprenticeships. The Treasury needs to look at this issue and not pack it away in the education sector.

An issue that has hardly been addressed today, but which is absolutely critical, is that of access to finance. We have become quite good at starting new enterprises, as I think the noble Lord, Lord Bilimoria, said. If you look around the UK, you will see that new businesses are starting and many new entrepreneurs have come forward. There is a real energy in start-ups within this country, and they can now find initial financial support. However, it begins to fall apart as soon as they try to scale up. As noble Lords know, this is widely known as the valley of death of financing. As I talk with venture capital groups up and down the country, and the new innovative financing groups, it is clear that they cannot provide that missing element unless there is significant change. Venture capitalists are too concerned about turning over their investment in a three to five-year period. We are desperate for patient money, which in many countries such as America comes from angel finance, or other kinds of institutional sources across the continent. I see no way to begin to get that kind of long-term investment. The noble Lord, Lord Bilimoria, talked about the Judge Business School in Cambridge. Believe it or not—talk about burying old battles—that has produced a joint report, sponsored by Barclays, with the Saïd Business School in Oxford which looks again at this whole scale-up issue.

This must now become a major government focus. We need to look at using things like the British Business Bank and other kinds of mechanisms that may require government investment, government partnership and support, or changes in tax incentives to begin to deliver the financing for scale-up. I pick up on the point by the noble Viscount, Lord Hanworth, about how many of our companies end up in foreign hands. I am not anti-foreign; it happens—companies grow and sometimes they sell out. But in the UK, they have almost no option to sell to a British-owned entity because we have lost nearly all our tier 1 players. If they are going to remain based in this country, driving exports from the UK, keeping their research here, they are going to have to grow organically and that is why scale-up becomes absolutely critical. I hope that the Government will focus on it.

As the Minister will know, a lot of start-ups, and indeed other businesses in the country, are now turning to new FinTech, to innovative finance, rather than the conventional banks to fund their growth. The noble Lord, Lord McFall, raised the issue of the banks returning to past abusive practices. Both the Treasury and the regulator need to be on the alert because, in talking with the FinTech sector, it is clear that it is becoming very concerned about the behaviour of many of the conventional banks. Initially, our conventional banks ignored the new FinTechs—after all, many of them did not start until 2010 and were fringe players. The banks basically dismissed them. Now they are real players. Our third largest creator of new small loans to small businesses is, I think, Funding Circle; it is becoming a significant player and is taking away market that our banks would like to control. The banks, however, have the ability to come in and compete with that sector using subsidised taxpayer support. Their funding comes from deposits, on which they pay nothing, or next to nothing, because the taxpayer is providing guarantees against any risk. They have extraordinarily cheap sources of finance that they can direct against those new targets. I think that they have enough sense not to try to drive these new groupings out of business, but they will constrain their growth, which is unhealthy for the economy. We have to make sure that anti-competitive behaviours do not develop and that there is not cross-subsidisation undermining our new innovative finance industries.

In looking at those industries, I want to pick up on a key issue as we look at the economy, which is whether we remain in the European Union. Some will not have had the opportunity today to see that Tech City UK has done a poll of its membership. These are technology start-ups; they are one of our real high-growth sectors, and they are the industries of the future that many who have called for innovation have identified. Among both founders and investors, seven in 10 want Britain to remain in the EU. This industry is so exciting because it is the next generation. It is not run by people of my ancient age—you would be lucky to find somebody aged 40 within these groups. They are the future. I find it fascinating that, in talking about the EU with them, they cannot understand the debate that is taking place. Many are not Brits but have come to live here because this is such a good place to create these industries. But they are entirely comfortable and happy to identify as and be proud of being British and see no conflict at all with being in the EU. These businesses, almost from day one, are pan-European. They start with activity here in the UK, in Poland, Germany and Spain—they are pan-European and see the future as such. When people talk about the financial services industry potentially leaving London, they talk about Frankfurt and Paris. I think most people know that that is not terribly serious but, for this new industry, Berlin is. We should not ignore what is now becoming a great cosmopolitan city with a very large English-speaking population. It has become a magnet across Europe for new enterprise, which is a real risk for us. For these new driving industries, the potential to move to Berlin is always there as a possibility. I never hear that in the general discussions that come from the leavers about Brexit.

There are so many things that we could talk about under the heading of the economy today. Many have been addressed so well by others that I will limit my remarks to what I have already said. I thank the Minister for bringing forward an opportunity which, in a sense, required us not just to focus on the Budget but to include a much broader discussion of the economy.

Budget Statement

Baroness Kramer Excerpts

Wednesday 23rd March 2016 Grand Committee

[Baroness Kramer (LD)]

My Lords, in his Budget speech the Chancellor said that he would eliminate the Liberal Democrats—by midnight. Instead, he managed a direct hit on the Conservative Party. I think he has confirmed his reputation as a man who always misses his targets. The story of this Budget is of missed targets and the utterly unacceptable cuts in public spending on the working poor and disabled people that the Chancellor chose to cover up his failures.

Can we now have an absolute assurance that the Chancellor’s agreement to throw out the £4.3 billion of cuts to PIP will not lead to cuts in other parts of welfare? I notice the phrase “no further welfare cuts”. That needs some confirmation and definition. Will the blow fall on the pensions part of DWP? The new Secretary of State did not address that. Will it mean that public services as a whole have to find the £4.3 billion in cuts? Are we all meant just to forget the £4.3 billion in cuts? In which case the Budget is shot. I wonder if the Minister could offer some clarity.

In the coalition years, the Government worked successfully with the support of a broad majority of the British people to gradually eliminate the structural deficit, better known as the cyclically adjusted current budget—intentionally excluding both cyclical support and capital spending. This is the target that the financial markets require to assure fiscal discipline and fiscal stability. Even with the OBR’s March downgrades in the economic forecast, this measure goes into surplus in 2018. I have no idea how the changes—the mystery £4.3 billion—have impacted that outcome, but I hope the Minister will be able to tell us. Cuts or tax increases beyond balancing the CACB are an ideological choice; they are not required for fiscal discipline or fiscal stability.

Will the Minister finally accept that the Government’s decision to change the whole character of the fiscal target and to require a fiscal surplus in 2020 based on the new, far more austere definition including capital spending was a mistake and should be rapidly abandoned? The contortions in the Budget to hit the self-inflicted target—shifting taxes and capital expenditure quite blatantly between years to manipulate the numbers for 2019-20—are extraordinary. Did the Government think we would not see them? Does the Minister agree that it was utter arrogance for the Chancellor to bind his own hands in a time of global uncertainty by putting his fiscal rule into law?

It was also fundamental in the coalition years that we should be “all in it together”. That is why cuts for the wealthiest, such as cuts to capital gains tax and further cuts in corporation tax, were off the table during the coalition and, while there were cuts to benefits to the working poor, my Liberal Democrat colleagues in government constantly restrained the Chancellor, as is now evident. The Chancellor carries on using the language of “all in it together” but he does not seem to understand the meaning.

Numerous noble Lords will have read the letter of the right honourable Member for Chingford and Woodford Green. I share his outrage about the cuts to disability benefits but, more importantly, the British people share it, too. Those who voted Conservative in the last election thought they were getting a continuation of coalition policies; they did not understand they were getting a hard swing to the right.

We cannot keep slashing the budget for public services and still deliver a civilised society. The UK’s demographic profile now includes so many older people, living longer and in need of healthcare and social care, despite working more years. Ordinary people are still feeling the pressure. The Institute for Fiscal Studies confirms that,

“we should expect much of the recent fall in inequality to be undone over the next five years”,

and this is especially true for those of working age, whose incomes are still below pre-crisis levels, and the young, who have suffered the most.

Some of the worst sufferers have been our public servants—teachers, nurses, doctors, police. Surely as we reach a CACB surplus, we should increase pay for them. They will leave their professions if they know that, every day, they can be paid more and treated better in the private sector. The junior doctors are not alone; it is a straw in the wind and a warning that should be recognised.

Yet as this Budget stands now, we have a £4.3 billion hole which must be filled from somewhere. The Budget includes £3.5 billion in mystery cuts to un-ring-fenced government departments. There is a further £2 billion cut to departmental budgets to fund pension contributions —that, by the way, is a huge blow to the NHS. It is in effect a cut of £650 million from what is supposed to have been protected funding to a department which needs every penny of its promised additional £8 billion if it is to survive. The schools budget does not even rise with inflation, and none of that litany that I have just given includes the plight of local government.

I fully support the cut in business rates for small businesses. My Liberal Democrat colleagues in government fought for the review of business rates and I welcome its conclusions and implementation. But the Budget seems to anticipate that the whole cut, which we estimate will be £2 billion—perhaps the Government will tell us that it is higher—will fall on local government services: the street cleaning, rubbish collection, transport and especially the social care that people rely on for a decent community. Is that true? Is this yet another £2 billion cut to local authority budgets, already slashed in previous years?

I have so many questions. Does the sugar tax come with a proper anti-obesity strategy? Otherwise, it will deliver little. Why are the Government not taking advantage of minimal interest rates to raise their ambition and speed the timing of investment in broadband, housing, renewable energy and lifelong learning—all those foundations of economic growth? Why are the Government being so timid in taxing multinationals, closing loopholes rather than restructuring corporation tax? And who is the lifetime ISA meant to help? It works properly for people who can save £4,000 a year, but there are precious few younger people who have that kind of money.

But, frankly, all that is overshadowed. We need to see a revised Budget. The coalition worked so hard to restore confidence in the British Government’s ability to manage the economy and that is being thrown out of the window. The Government may be mollified by winning the vote in the Commons yesterday, largely—by the way—thanks to so many missing Labour votes, but the public and the markets are tougher and wiser. Especially at a time when we face questions around Brexit, it is crucial that the competence of the British Government in managing the economy is unquestioned.

Pushing through a Budget with a £4 billion black hole, £3.5 billion in mystery cuts, and £2 billion in unexpected pension provisions, including a £650 million blow to the NHS and goodness knows what damage to local authorities, is not the behaviour of a responsible and capable Government. I repeat: we need a new Budget. When will we see it?

Income Inequality

Baroness Kramer Excerpts

Thursday 21st January 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, as I suggested in my opening formal comments—and I am happy to provide plenty of data to back up the substance because it is so wide—true measures of income inequality, whether in terms of disposable income or of what is called original income, have for many years shown a decline in income inequality. How chief executives are remunerated by their companies, particularly in the quoted sector, depends on the decisions of their boards and shareholders.

[Baroness Kramer (LD)]

My Lords, do this Government expect that the planned changes to universal credit will increase or decrease the number of children living in households with below-average incomes? Given the public interest, will the Minister report back to this House on that measure?

[Lord O'Neill of Gatley]

My Lords, I am sure that we will have further debates on this topic in the weeks and months ahead, but, as has been clearly articulated by me and others on a number of occasions in this place and the other place, our prime policy is to ensure that as many people as possible throughout our society achieve employment, supported by an increase in the national living wage. I should add that I make these comments after remarkably strong employment data published yesterday.