Economy: Budget Statement

Lord Bates Excerpts

Tuesday 13th November 2018 Lords Chamber

Moved by

[Lord Bates]

That this House takes note of the economy in the light of the Budget Statement.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, just under two weeks ago the Chancellor of the Exchequer set out the autumn Budget to show the British people that their hard work is paying off: eight straight years of economic growth, with more than 3.3 million more people in work, wages growing at their fastest pace in almost a decade and debt beginning to fall—an economy that is back on its feet again and fit for the future. This Budget signals that austerity is coming to an end but maintains fiscal discipline. This Budget rewards the British people and their cherished public services but reminds us that financial discipline must still prevail.

Let me first set out the forecast contained in the Office for Budget Responsibility’s Economic and Fiscal Outlook. The UK’s economic outlook continues to exceed expectations, and the OBR expects growth to be resilient across the forecast period, improving next year from the 1.3% forecast at the Spring Statement to 1.6%, then 1.4% in 2020 and 2021, 1.5% in 2022 and 1.6% in 2023. The Budget forecast, taking into account all announcements made since the Spring Statement, shows the deficit down from almost 10% before 2010 to less than 1.4% next year under this Government and falling to just 0.8% by 2023-24. Borrowing this year will be £11.6 billion lower than forecast at the Spring Statement—just 1.2% of GDP—and is then set to fall from £31.8 billion in 2019-20 to £26.7 billion in 2020-21, £23.8 billion in 2021-22, £20.8 billion in 2022-23 and £19.8 billion in 2023-24, its lowest level in over 20 years.

So we meet our structural borrowing target three years early and deliver borrowing of just 1.3% of GDP in 2020-21, maintaining £15.4 billion headroom against our 2% fiscal rules target. We are no longer borrowing at all to finance current spending, and the OBR confirms that our national debt peaked in 2016-17 at 85.2% of GDP, and then falls in every year of the forecast period from 83.7% this year to 74.1% in 2023-24.

Due to the hard work of the British people and this Government’s prudent public finances, we can provide additional support for public services in the spending review. The Prime Minister announced the single largest cash commitment to our public services ever made in peacetime by the Government—an £8.4 billion five-year deal for our precious National Health Service. As the Chancellor made clear, we are delivering this historic £20.5 billion real-terms increase for the NHS in full over the next five years.

As we have been remembering this past weekend, the bedrock of this nation’s security is a strong defence. Our Armed Forces are a vital pillar of the UK’s past, present and future. This is why the Budget commits an additional £1 billion to the Ministry of Defence to cover the remainder of this year.

The Budget also made provision for £400 million in-year capital payment to schools.

Along with investing in our vital public services, this year’s Budget includes a record set of spending commitments focused on boosting industry and our world-breaking technologies: with £1.6 billion of new investment to support our modern industrial strategy, ranging from nuclear fusion to quantum computing; £150 million for fellowships to attract the brightest talent to these shores from around the world so that our scientific research can continue to lead the world; and our commitment to infrastructure, including expanding the national productivity investment fund once again to more than £38 billion by 2023-24, so that over the next five years, total public investment will grow by 30% to its highest sustained level in 40 years.

As we finalise our departure from the EU and deliver a deal that secures Britain’s future trade, we must unleash the investment that will drive our future prosperity. So the Budget increases the annual investment allowance from £200,000 to £1 million for two years, delivering on a long-standing ask of the British Chambers of Commerce. Other initiatives also boost this country’s businesses, such as targeted relief for the cost of acquiring intellectual property-rich businesses, and a permanent tax relief for new non-residential structures and buildings.

Backing business means backing every type of business: large and small; online and offline. But we must also recognise that there is one part of our economy that is currently confronting that challenge in spades: our high streets. The Budget provides £675 million of co-funding to create a future high streets fund to support councils to draw up formal plans for the transformation of their high streets. The fund will invest in the improvements they need and facilitate redevelopment of underused retail and commercial areas into residential purposes.

We will consult on how modernisation of the use classes order and compulsory purchase order regime can help to facilitate the transformation of the high street. We went further by committing to ease the burden of business rates. At the next revaluation, in 2021, rateable values will adjust to reflect changes in rental values, but I want to help retail businesses now. So for the next two years, up to that revaluation, for all retailers in England with a rateable value of £51,000 or less, business rates will be cut by a third. That is an annual saving of up to £8,000 for up to 90% of all independent shops, pubs, restaurants and cafes.

We are increasing the transforming cities fund to £2.4 billion and providing an additional £90 million to trial new models of smart transport. We are funding 10 university enterprise zones. There is £115 million for digital catapults in the north-east, Northern Ireland and the south-east and for the medicines discovery catapult in Alderley, £70 million to develop the Defence and National Rehabilitation Centre near Loughborough, £37 million of additional development funding for the northern powerhouse rail project, and £10 million for a new pilot in Manchester to support the self-employed to acquire new skills. Here, in our capital, we are supporting the delivery of a further 19,000 homes by improving the Docklands Light Railway with housing infrastructure fund money.

The decisions announced in this Budget mean, in 2020-21, an additional £950 million for the Scottish Government, £550 million for the Welsh Government and £320 million for a Northern Ireland Executive.

As well as backing all parts of the United Kingdom to invest and grow, we will make sure that British workers are equipped with the skills that they need to thrive and prosper. We have introduced a new system of T-level vocational training, we have put the first £100 million into a new national retraining scheme, and through the apprenticeship levy we are delivering 3 million high-quality apprenticeships. That system is paid for by employers, and it has to work for employers. The Budget recognises this and announces that, for smaller firms taking on apprentices, we will halve the amount that they must contribute from 10% to 5%. In total, this is a £695 million package to support apprenticeships.

As our economy evolves in the digital age, so must our tax system, to ensure that it remains fair and robust against abuse, and raises the revenues that we need to fund our public services. That is why we are proposing in the Budget a ground-breaking digital services tax to ensure that large digital firms pay their fair share of tax to support our public services. The employment allowance was introduced to incentivise businesses to take on employees, but at a flat rate of £3,000 per employer, it does not provide any real incentive for larger employers. So from April 2020, we will target it at small and medium-sized businesses with an employer’s national insurance bill of less than £100,000 a year.

We cannot resolve the productivity challenge or deliver the high standards of living that the British people deserve without fixing our housing market. The Budget extends first-time buyers relief to all first-time buyers of shared ownership properties valued up to £500,000. It also makes this relief retrospective, so that any first-time buyer who has made such a purchase since the previous Budget will benefit. The focus on £500 million of investment for the housing infrastructure fund will unlock a further 650,000 homes; the next wave of strategic partnerships with nine housing associations will deliver 13,000 homes across England; and up to £1 billion of British Business Bank guarantees will support the revival of SME housebuilders.

The Government are continuing to roll out universal credit, which delivers long-overdue reforms to the welfare system. However, the Government recognise the genuine concerns raised in many places, including in your Lordships’ House, about the programme. This particularly focuses on the implementation and delivery of universal credit. It is an enormous undertaking, and we have been clear that we want the migration process to be as smooth as possible. This is why the Budget introduced a package of measures, worth £1 billion over the next five years, to aid the transition. We have listened to the concerns about the rates and allowances within the design of the system. In response, work allowances in universal credit are being increased by £1,000 per annum, at a cost of £1.7 billion annually once rollout is complete. That will benefit 2.4 million working families with children, and people with disabilities, by £630 per year. Universal credit is here to stay, and we are putting in place the funding it needs to make sure it is a success, because we ardently believe that work should always pay.

Under this Government, the poorest 20% have seen their real incomes grow faster than the richest 20%, and the proportion of jobs that are low paid is at its lowest level for 20 years, thanks to the national living wage introduced by a Conservative Government in 2016. From April, this will rise again, by 4.9%, from £7.83 to £8.21 per hour, handing a full-time worker a further £690 annual pay increase and taking his or her total pay rise since the introduction of the national living wage to more than £2,750 a year. We accept the Low Pay Commission’s recommendations on national minimum wage rates and will support young people and apprentices with further above-inflation increases. The Low Pay Commission’s current remit is for the national living wage to reach 60% of median earnings by 2020, subject to sustained economic growth. Next year, we will give the Low Pay Commission a new remit, beyond 2020. We will want it to be ambitious, with the ultimate objective of ending low pay in the UK. We will also want to be careful, protecting employment for lower-paid workers, so we will engage responsibly with employers, the TUC and the Low Pay Commission itself over the coming months, gathering evidence and listening to their views to ensure that we get it right.

As well as making work pay, we want working people to keep more of the money that they earn. When we came into office, the personal allowance was £6,475 and the higher rate threshold was at £43,875. In April, the Chancellor raised this figure to £11,850 and the higher rate threshold to £46,350, as steps towards our manifesto commitments of £12,500 and £50,000 respectively by 2020. The Budget met our manifesto commitment a year early, and it committed to raising the personal allowance to £12,500 and the higher rate threshold to £50,000, before indexing both in line with inflation from 2021 to 2022. That is a tax cut for 32 million people: £130 in the pocket of a typical basic rate taxpayer, meaning that, since 2015, we have taken 1.7 million people out of tax altogether and nearly 1 million people out of higher rate tax.

How successful our future is depends on how successfully our country comes together and faces the challenges and opportunities that lie in wait. More than ever, it has shown the British people that their hard work has resulted in better living standards, a stronger economy and better and more sustained funding for our great public services. As we prepare to leave the European Union, this Budget lays the foundation for an economy that is fit for the future, and I commend the Statement to the House.

--- Later in debate ---

[Lord Bates]

My Lords, I begin by mentioning a moment of cross-party consensus. The noble Lord, Lord Davies, began his speech by saying that this had been an excellent debate, and I want to endorse that wholeheartedly from the Government Benches. It has indeed been an excellent debate.

It was particularly helpful, as we sat through the long hours of the debate, to hear such thoughtful contributions on the long-term issues faced by this country. I think here of the contribution on adult social care from my noble friend Lady Eaton, on which the noble Lord, Lord Kerslake, came in; the noble Baroness, Lady Jolly, referring to the funding of mental health care and how assets could be used in that context; the noble Lord, Lord Gadhia, discussing the unwinding of quantitative easing and the role of potential funding mechanisms for that, a suggestion shared by the noble Lord, Lord Macpherson; my noble friend Lady Neville-Rolfe talking about how to reintroduce dynamism into the retail sector; the noble Lord, Lord Shipley, contributing on the issue of housing, born of his great experience in that area; and my noble friend Lady Stroud, speaking also from experience, commenting on pathways out of poverty. I pay tribute to all that she has done over many years in raising this issue and seeking those pathways and ladders out of poverty for the poorest in our society. The noble Lord, Lord Leigh, made an interesting contribution on productivity measures in the information age—he shared that element of the debate with the noble Lord, Lord Skidelsky—and how we effectively measure productivity in the new economy. The noble Baroness, Lady Byford, talked about the future of the rural economy and gave a picture of the potential effect of AI, even in farming. The noble Baroness, Lady McGregor-Smith, continued on the theme of technology and spoke about how we create an economy that is fertile ground for tech start- ups in this country. It has been an excellent debate.

In the debate I was struck by a number of revelations. The outstanding opening speech of the noble Lord, Lord Fox, will be great news to Mrs Fox because my noble friend Lord Wakeham will report back on it. To add to Mrs Fox’s joy, I echo the fact that it was a very good speech. If my noble friend Lord Wakeham happens to know Mrs Bates, perhaps he might offer a similar view about my contribution. One of the most intriguing contributions was the revelation from the noble Lord, Lord Macpherson, who played a distinguished role in the Treasury, serving as Permanent Secretary to three Chancellors at least—perhaps more—of his insight into that fateful Budget for those of us on this side of the House when VAT was applied on fuel. John Major was opposed to that measure and it is reassuring to know that the reason it could not be changed was not because of opposition from the Chancellor but because the Red Book had already gone to the printers. Having suffered severely at the general election that followed on from that issue, I would have offered my services to make manuscript amendments to every copy that had been produced at that time.

This is the third time I have participated in these debates—my noble friend Lady Neville-Rolfe has done more—and I was momentarily heartened when the noble Lord, Lord West, began his speech by saying, “I am not going to be asking for more ships”. We all breathed a sigh of relief at that point, but then he went on to ask how the money would be spent. I shall come back to that in a minute. Another thing I have learned from doing these debates is that when the noble Lord, Lord Skidelsky, whose reputation in the field of economics I have great admiration for, says that he gives the general thrust of the Budget a broad welcome, I know that is when I start quaking in my boots and hope that a flow of paper will come from the far end of the Chamber to help me out.

There has been a great number of contributions to the debate, and I will try to get through as many of the specific questions raised as possible in the time that I have. The noble Baroness, Lady Jolly, began by asking whether £2 billion is enough for mental health. Funding for mental health will grow as a share of the overall NHS budget over the next five years. The NHS will invest up to £250 million a year by 2023-24 in new crisis services for that purpose.

My noble friends Lord Wakeham and Lord Flight and the noble Lords, Lord Macpherson and Lord Shipley, touched on stamp duty land tax. My noble friend Lord Flight was particularly critical of the impact it was having. We reformed stamp duty in 2014 to improve the fairness and efficiency of the tax. The Government continue to support first-time buyers, including by increasing the price at which property becomes liable to stamp duty to £300,000 at the Autumn Budget 2017. This relief means that 80% of first-time buyers will no longer pay stamp duty.

The noble Baroness, Lady Byford, and the right reverend Prelate the Bishop of Chelmsford called for further action on plastics and food waste. The right reverend Prelate declared his passion for the flat white, which henceforth will be in a reusable cup. Defra will be publishing resources on its waste strategy in 2019, which will set out the further actions we intend to take. He also asked about what more we are doing for the environment, as did several noble Lords, including the noble Lord, Lord Hain. The Budget announced a £350 million industrial strategy transformation fund to support businesses in transitioning to a low-carbon future and action on single-use plastics as part of the Government’s wider strategy to address plastics waste, with further detail to be set out in the resources and waste strategy later this year. Subject to consultation, a tax on plastic packaging will be introduced from April 2022. It is not right to say, however, that coffee cups are so rarely recycled. However, there is no practical way to apply the tax to just hot drinks. It would have to be levied on all types of disposable plastic cups, which at this time would not be effective in encouraging reuse.

I pay tribute, as did the noble Lord, Lord Davies, to my noble friend Lord Higgins. The making of his 60th speech on the Budget is worthy of celebration. It is a diamond jubilee. I was going to say it was a diamond speech to go with that anniversary, but we all appreciate the assiduousness and the service he has given to scrutinising the public finances and fiscal measures over the years, in this House, of course, and in the other place as chair of the Treasury Select Committee.

My noble friend Lord Higgins also asked me a specific question about the change to probate fees, as did my noble friends Lord Northbrook and Lady Altmann. I will attempt to respond to it. Charging fees is an essential element of funding an effective, modern Courts & Tribunals Service, thereby ensuring and protecting access to justice. We are introducing a more progressive fee for obtaining a grant of probate, lifting 25,000 estates annually out of the need to pay a fee. The proposed fees range from £250 to £6,000, in line with the value of the estate. No estate will pay a greater fee than 0.5% of its value.

In leading off the debate, the noble Baroness, Lady Smith of Basildon, was concerned that 84% of the benefit of tax cuts goes to the top half of earners. The income tax system is highly progressive. The top 1% of income tax payers are forecasted to pay nearly 28% of all income tax in 2018-19—a higher proportion than in any year under the previous Labour Government.

The noble Lord, Lord Livermore, and my noble friends Lady Altmann and Lord Suri were concerned about the impact of Brexit. They raised a number of concerns; I will not attempt to turn this into a debate on Brexit because there will be many more opportunities for that. I assure them that the Chancellor has established a £15 billion fiscal headroom to be kept aside for Brexit contingencies. With a good deal, which we all hope for, that money can be invested in public services.

The right reverend Prelate the Bishop of Chelmsford and my noble friend Lady Stroud talked about the moves on universal credit and gave some insights. I join my noble friend Lady Stroud in paying tribute to Baroness Hollis. For a brief and painful time, I was the Lords spokesman for the DWP until I put in a plea to the Chief Whip and anyone else who would listen to move off to the Department for International Development—or anywhere else—to get me out of her line of fire. The power of her delivery was incredibly effective; she always narrowed things down from the big picture and the big numbers to individual families and cases, which made what she did so powerful. I take the point made by the noble Lord, Lord McKenzie, that if she were privy to this debate, she would be urging for more and pointing out where more needed to be done.

Some noble Lords referred to comments made on this side in relation to universal credit. A couple of responses from the Resolution Foundation were cited. Its director, Torsten Bell, said that the Budget will benefit some families because it includes giveaways on both the benefits side and the tax side. He went on to say that the Chancellor has delivered a,

“very welcome … £630 boost to low-income families”,

on universal credit. This will mean that the Government’s flagship welfare reform,

“is now more generous than the benefit system it is replacing”.

The noble Lord, Lord West, asked about the increase in defence spending. In the Budget, we invested an additional £1 billion in defence. Page 76 of the Red Book highlights how that will be spent. Of course, that comes in addition to the £1.8 billion announced in the Spring Statement, which will be for defence but will also include maintaining the pace of the Dreadnought programme to ensure our continuous at-sea deterrent.

[Lord West of Spithead]

I also asked whether this presaged the Treasury’s acceptance that it will use central fund money to fund the capital cost of the Dreadnought programme, which had been agreed until 2010 when it was cancelled by Chancellor Osborne.

[Lord Bates]

Can I write to the noble Lord on that, just to make sure that I get it absolutely right? I will certainly undertake to write to him and place a copy in the Library.

The noble Lord, Lord Shipley, asked about Help to Buy and questioned its effect on house prices. He also questioned why the scheme had been extended. Housing developers need notice of any changes, and ending the scheme abruptly in 2021 could disrupt housing supply. Instead, we will have a two-year transition period.

My noble friend Lady Altmann asked about pensions. Some people who earn between £10,000 and the personal allowance are missing out on tax relief on their pension. To date it has not been possible to identify any straightforward or proportionate means to align the effects of the net pay and relief at source mechanisms more closely for the population. The Government are already committed to ensuring that we can deliver a modern digital tax system to make it more effective, more efficient and easier for customers to comply and to reduce the amount of tax lost through avoidable error. This may present opportunities to look afresh at the two systems, and I welcome my noble friend’s continued engagement in this important area.

My noble friend Lady Byford asked about digital infrastructure top lines. The Government are committed to 15 million premises being connected to full-fibre broadband by 2025, with nationwide coverage by 2023.

My noble friend Lord Northbrook struck a chord with a number of noble Lords, including the right reverend Prelate the Bishop of Chelmsford, when he talked about the delay in the introduction of the measure on fixed-odds betting terminals. I know that it is a contentious measure. Fixed-odds betting terminals have been in operation since 2001. We undertook the review. It has now been decided that the maximum stake will be cut from £100 to £2, which is extremely welcome. There has been a well-argued debate in the other place on the timing of that. The Chancellor has set out his proposal for it to be in the autumn of next year. To counter that, there has been a proposal that it should be earlier. However, whether it is in the spring or in the autumn, the reality is that, after many years, that welcome change will be brought in to help alleviate the deleterious effects of that side of the gambling industry.

My noble friend Lord Horam talked about the importance of growth in raising all boats and solving all problems. We agree with that and we need to do more to address that issue.

I was with my noble friend Lord Northbrook almost all the way through his excellent speech until he trespassed on the holy ground of the international aid budget, at which point I broke away a little, because that 0.7% is a badge of hope to the world—I see it day in, day out around the world. We live in a world where 29,000 children under the age of five die every day from completely preventable diseases, which makes us realise that, whatever the demands we face in this country, there are some immense needs around the world, and we have rightly been recognised for introducing that and standing by it.

My noble friend Lady Altmann asked what we are doing for skills. We have funded a £20 million skills pilot to help workers develop digital skills. The noble Lord, Lord Kerslake, asked about measures for local authorities in the short term. The spending review will set budgets from 2020-21 onwards, but the Chancellor used the Budget to announce additional funding to support services. This includes an additional £240 million in the current year.

The noble Baroness, Lady Smith, and the noble Lords, Lord Fox and Lord Macpherson, asked about the effect of ongoing spending on unprotected areas. The Government have been clear that the NHS is their number one spending priority, with an £84 billion increase over the next five years. The noble Baroness also mentioned policing. Police funding was protected in real terms in the 2015 spending review. The 2018-19 settlement gave an additional £450 million to police forces.

The noble Lord, Lord McKenzie of Luton, asked which taxes had helped to recover the more than £185 billion in tax. Since 2010, the Government have secured and protected more than £185 billion of tax that otherwise would have gone unpaid. The noble Lord, Lord Gadhia, asked about PFI and an infrastructure bank. We already have a range of financing support options to deliver infrastructure, including the UK Guarantees Scheme and the British Business Bank.

My noble friend Lady McGregor-Smith talked about the importance of corporate tax revenues and rates for encouraging start-ups, as did my noble friend Lord Wakeham. It is great that we have seen the corporation tax rate fall from 28% to 19% today, and have legislated for it to fall further to 17%.

My noble friend Lady Neville-Rolfe asked what we are doing to increase productivity. The national productivity investment fund has been increased from £31 billion to £37 billion, driving key investments to boost productivity and innovation. I have been given a highly technical note on the points made by the noble Lords, Lord Gadhia and Lord Macpherson, on quantitative easing. In the interest of time, I may write to them on that and place a copy of the letter in the Library.

I have to mention my noble friend Lady Noakes, simply because I noticed from social media that she asked whether I would be listening to her, so I have to show that I did—it is easier for me than replying on social media. My noble friend and the noble Baroness, Lady Kramer, talked about the disguised remuneration loan scheme. There are a number of points here—I think that my noble friend, for whom I have great respect, covered most of them—but HMRC actively encourages anybody who is worried about being able to pay what they owe to get in touch as soon as possible. I will undertake to take her concerns back to the Treasury and respond to them.

I want to end on a note of optimism. I share with the noble Baroness, Lady Smith, that desire for optimism: my blood group is B positive and I like to think that I do not disappoint, so I just say to the noble Baroness that employment is at record levels and wages are growing at their fastest rate for 10 years. Income inequality is at its lowest level since the 1980s. The number of people living in workless households is at a record low. Unemployment is at its lowest level since 1975. Some 1.74 million people have been taken out of tax. We have the highest sustained level of public investment of all time. We have doubled the amount of free childcare. Debt is falling as a percentage of GDP. The deficit is down by four-fifths. The income of the lowest-paid 20% is growing faster than that of the highest-paid 20%. We have seen the largest peacetime increase in spending on the NHS in its 70 years and in the public record. Forbes has declared that the UK is the number one place to do business in the current year, despite all. Exports are at record levels— £620 billion and rising. Some 2,265 overseas investments have been made in the UK. Britain’s hard work is paying off and our economy is fit for the future. I commend the Statement to the House.

Motion agreed.