Low-income and Vulnerable Consumers

Baroness Noakes Excerpts

Thursday 6th November 2014 Lords Chamber

[Baroness Noakes (Con)]

My Lords, it is a pleasure to follow the noble Lord, Lord Haskel, with whom I often debate. I often agree with him but I am going to be taking a rather different tack today: I disagree with much of what he has said. In particular, on the point he has just made about contracting out, although I agree that the Government have not been good contractors-out, I should remind the noble Lord that it was the party opposite which took the private finance initiative—the mega contracting-out—to the illogical extremes that have left such huge problems in parts of the National Health Service. That issue cannot be laid at the door of this Government.

I congratulate the noble Lord, Lord Whitty, on securing this debate. Of course, he portrayed a very gloomy picture of the effect of government policies on the poor and vulnerable. I am not going to pretend that life has been a bed of roses for those people in our society, but I am genuinely proud of this Government’s economic record over the last four and a half years and that is why I have chosen to speak in this debate. I am absolutely convinced that, if the party opposite had remained in power, life would have been very much worse for the whole of our country and, in particular, for the very groups that the noble Lord, Lord Whitty, is so concerned about. I am going to focus my contribution on economic and public expenditure although I will, at the end, touch a little on regulatory policies.

Policies pursued by this Government have to be put in their proper context. In 1997, the party opposite inherited a booming economy. In 2010, we were bequeathed an economy on its knees. The deficit was at its highest level in peacetime history; government debt was over 60% and still rising. Under Labour, we had slipped down the international league tables of competitiveness; we had uncompetitive personal and corporate tax systems; and unemployment had increased by 20%. I could go on. We had a huge job ahead of us to restore the economy to health. Without a healthy economy, we cannot achieve all the other aims that the noble Lord desires.

My right honourable friend the Chancellor wisely ignored noisy calls from the party opposite for higher taxes, higher spending and higher borrowing. The consequences for economic growth, interest rates, the deficit and the debt of heeding those calls do not bear thinking about. Instead, my right honourable friend the Chancellor has pursued moderate policies which have targeted fiscal rebalancing at a carefully considered pace. In so doing, he has created the environment in which the economy can start to grow again, because growth is a precondition for everything else.

In line with international experience, the Government have concentrated 80% of their fiscal rebalancing on cutting expenditure. The truth about our expenditure policies is that expenditure has not been cut in cash terms: nor is this planned. We have protected key budgets, such as health. We have met the rising costs of welfare budgets, which act as a shock absorber when times get tough. Inevitably, that means other budgets have had some quite severe pruning. Overall, the public sector has seen employment reductions and limited wage increases. However, these, too, were inevitable because employment costs are around half of current public expenditure. There were no realistic alternatives to get expenditure and the deficit under control.

Taxes have deliberately borne the smaller part of the plan to eliminate the deficit—and here my right honourable friend the Chancellor has crafted a careful combination of tax cuts and tax increases. All consumers have had to bear the increase in the VAT rate but very large numbers have benefited from our income tax changes. These were somewhat dismissed a moment ago, but 3 million people have been taken out of income tax altogether and 26 million people have seen lower tax bills as a result of those changes.

Another achievement has been to base tax policy on sound economic analysis rather than on political doctrine. Corporation tax rates have been cut, as has the 50% rate of income tax. Both were underpinned by rigorous analysis of the impact on tax yields, incentives and competitiveness. The Chancellor was right to make these cuts, and I hope that he will go further still.

The Labour Party has pledged to reintroduce the 50% rate which is the worst kind of gesture politics. According to Mr Alan Milburn, the amount it would raise would be “absolutely incidental”. I believe that it is worse than that—it would be a net negative for our economy. Our tax policies have been tough but they have been fair. Even though the top rate of tax has been cut, the top 1% of taxpayers are expected to pay over 27% of income tax this year. The Institute for Fiscal Studies has produced analysis showing that the top 20% of households paid 54% of all taxes last year and that, since 2010, the top 10% have borne the brunt of the tax changes.

It is true that all parts of the income distribution have shouldered some of the burden. The job of repairing the economy was too great to be borne only by those at the top end. It is also true that those at the bottom end of the income distribution—often those dependent on benefits—have done a little less well than those in the middle of the income distribution. But the alternative would have been that hard-working families on average incomes would have suffered more, and I hope that the Benches opposite would not have supported that.

It is a fallacy to think that we can help the poor simply by taxing the rich. If the rich take their assets, their income and their businesses elsewhere, everyone loses out. If the tax system fails to incentivise effort and innovation, we all suffer. Churchill was right to say that we cannot make the poor richer by making the rich poorer. We have to be realistic about where we are. Despite the tough action to date, on current plans the deficit will not be eliminated until 2017-18. Much remains to be done after the next election to restore our economy to full health. Until we get to that position we cannot start to build in a lot of discretionary, additional policies if they cost money.

The most important thing that any Government can do is to ensure that the economy has the right conditions for growth and wealth creation. With economic growth, jobs will be created and people will share in the wealth that is created. There are no short cuts to this. The economy in the first three years of this Government was fragile but we now have the fastest growing economy in the G7. We only have to look over the Channel to France, Italy and Spain to see what happens when tough economic decisions are avoided.

Since 2010, there have been 1.8 million more people in jobs, and three-quarters of those are full-time jobs. That is 1.8 million more people earning money for their families and also contributing to the growth of the economy. Getting more people into work is good for taking children out of poverty. Children in non-working households have something like an 80% chance of living in poverty. If one parent goes into a full-time job, that falls to around 30%. If the second parent also has a part-time job, it falls to below 10%. That is why we celebrate the fact that since 2010 there are 671,000 fewer households with no one of working age in employment.

I have concentrated my remarks on the Government’s economic and public expenditure policies. I will now say a few things about regulatory policies. The most important thing for an economy is when competition flourishes in the context of a global environment without trade barriers. Competition in open markets is the best route to consumer benefit. Competition does not always work, for structural or other market reasons; and so the second most important thing is to have effective regulators and competition authorities. In large measure that is what we have in the UK. I listened carefully to the noble Lord, Lord Whitty, as he catalogued the things that did not work well, but I struggle to see what credible policies could have been followed by the Government without completely strangling markets.

I will refer to energy prices. I agree that they have not necessarily been working for consumers, but there are three things that I want to say about that. First, the right thing is to refer those markets to the Competition and Markets Authority, and that is happening. Secondly, the wrong approach would have been to impose a price freeze on the energy companies. As any student of prices and incomes policies will tell you, that is not a long-term solution. Thirdly—this is where I criticise the current and previous Governments—energy prices that hit businesses and consumers currently include a significant impact from the green subsidies that are imposed on the energy industry by government policy and the crazy targets in the Climate Change Act. At the top of my list for removing burdens on the economy, from the largest industrial consumer to the smallest vulnerable consumer, would be the repeal of that Act.

I do not want to end on a downbeat note about the Government’s policies. This Government know that the best way to help the low paid and the vulnerable in our society is to create a prosperous economy. That is what the past four years have been about. I very much hope that next May the electorate will give us another five years to conclude the job.