Economy: Budget Statement
Debate between Lord De Mauley and Lord Sassoon(12 years, 9 months ago)
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Lord De Mauley
My Lords, I wonder if noble Lords would kindly leave the Chamber quickly and quietly so that we can proceed with the debate.
Lord Sassoon
My Lords, yesterday’s Budget reinforces this Government’s determination to restore the UK to prosperity. It is because of the decisive action that the Government have taken, starting with the June 2010 Budget, that we have secured and maintained the stability of the UK economy. The private sector has already responded vigorously. Since the election, private sector employment has risen by more than 630,000 and the Office for Budget Responsibility forecasts that between the start of 2011 and the start of 2017, some 1.7 million jobs will be created in the UK’s private sector—an extra 1.7 million jobs creating wealth, leading innovation and driving our recovery across the nation. The dynamism of UK businesses is truly remarkable. As the Government, we have to continue to reduce the burden of the state. If we do that, the economy will flourish.
Yesterday’s Budget builds on a strong foundation, safeguarding our economic stability, creating a fairer, more efficient and simpler tax system, and driving through reforms to unleash the private sector enterprise and ambition that are critical to our recovery. As my right honourable friend the Chancellor said yesterday, Britain will earn its way in the world.
We can succeed in that goal only if we continue to safeguard our economic stability by tackling the record deficit and debt that we inherited from the previous Government. It is because of our determination to tackle that legacy that we have sheltered the UK economy from the turbulence that undermines our nearest neighbours. It is because of our commitment to stick the course that, in the past two years, the cyclically adjusted primary deficit has been halved, falling from 7 per cent of GDP in 2009-10 to 3.4 per cent in 2011-12 and approaching balance in line with our fiscal mandate. Indeed, borrowing over the forecast period will now be £11 billion lower than was predicted in the Autumn Statement last year.
Stability is the vital precondition for growth and will continue to be our key priority, but as the Office for Budget Responsibility said in its report yesterday,
“the situation in the euro area remains a major risk”
to the UK’s economic forecast. The OBR also identifies a risk of a,
“further spike in oil prices.”
Despite these headlines, however, there are positive signs for the UK economy. The OBR continues to forecast positive but subdued growth. Along with the Bank of England, it forecasts that the economy will avoid recession, with this year’s growth forecast broadly unchanged at 0.8 per cent, then 2 per cent for next year, 2.7 per cent in 2014, and 3 per cent in both 2015 and 2016.
Economic stability is the vital foundation for securing that growth and the Budget reaffirms our commitment to safeguarding that stability. That is why this year’s Budget has a neutral impact on the public finances, implementing fiscal consolidation as planned. It keeps us on course to achieve a balanced structural current budget by 2016-17, with debt falling as a percentage of national income by the end of this Parliament in 2015-16.
Restoring fiscal sustainability will remain this Government’s number one priority. Such is the scale of the challenge that we must remain vigilant on spending. In particular, it is vital that we maintain control over welfare spending. That is why my right honourable friend the Chancellor announced yesterday that the additional costs of universal credit will be capped at £2.5 billion. We will also address the rising costs of an ageing population and the burden which that places on future generations. That is why there will be an automatic renewal of the state pension age to ensure that it keeps pace with increases in longevity. However, as the director of the Institute for Fiscal Studies said this morning, when you look at all the Government’s measures, you see that pensioners have not been hit as hard as other taxpayer groups.
We have also taken the difficult decision to remove child benefit from high earners. It is right that we focus support on those who need it the most, but we have to do it in a way that is fair, without setting up a cumbersome tax credit system and avoiding a cliff-edge for millions of families. That is why, instead of withdrawing child benefit all at once when people earn more than the higher-rate threshold, the benefit will be withdrawn only when someone in the household has an income of more than £50,000. And the withdrawal will be gradual, so that only those on an income of more than £60,000 lose all their child benefit. Overall, child benefit will continue to benefit 90 per cent of families with children.
These are tough choices to make, but this Government will not shirk their responsibility to restore fiscal sustainability and economic stability. We have learnt, to all our costs, the consequences of unsustainable spending and ever increasing debt.
As my right honourable friend the Chancellor said in the Budget, if Britain is to earn its way in the world, then we need to build a recovery based on private sector enterprise, investment and export, and if we are to succeed in that ambition then we have to undertake far-reaching reform to ensure that our tax system is simple, predictable, fair and supports work.
First and foremost, we are committed to creating the most competitive tax system in the G20—a tax system that supports work, encourages growth and keeps our most successful businesses here in the UK. While the previous Government increased taxes on small businesses, we have cut the tax rate on small companies to 20 per cent. While the previous Government wanted to increase national insurance on jobs, we have cut it, and while the previous Government sat idly by as our competitiveness drained away, we have already committed to reduce the headline rate of corporation tax to 23 per cent by 2014 because it is necessary to cut one of the most growth-impeding taxes there is. As we announced yesterday, we are going even further, cutting the rate of corporation tax to 22 per cent by 2014. That is a headline rate of corporation tax dramatically lower than our competitors and a spur for prosperity and job creation across the economy.
That is why we are also cutting the 50p rate of income tax. That rate was higher not just than the US, but higher than France, Italy and Germany—the highest in the G20. It was a rate that damaged our competitiveness while raising next to nothing in additional revenue. From April next year, the top rate of tax will be 45 per cent, restoring our competitiveness and galvanising our entrepreneurs and hard-working families. But at the same time, we will continue to ensure that those with the broadest shoulders carry the heaviest burden. That is why the Chancellor has announced a new cap on income tax reliefs that are currently uncapped. From next year, for anyone seeking to claim more than £50,000 of these reliefs in any one year, a cap will be set at 25 per cent of their income.
While the Chancellor ruled out a mansion tax, it is right that those with considerable assets do pay a fair share. That is why we are also introducing a new stamp duty land tax rate of 7 per cent on properties worth more than £2 million, and why we are tackling the abuse whereby people avoid stamp duty on their homes. Taking the cumulative tax, tax credit and benefit changes in the Budget together, it is the top decile of the income distribution that sees the largest reductions in income and the top quintile that makes the greatest contribution to reducing the deficit. That is exactly how it should be.
At the same time, we are taking decisive action to support working people on the lowest incomes. The Government believe that the best way to support working people on low incomes is to take them out of tax altogether. Next month, the personal allowance will rise to £8,105. Taken with the previous increase, that is more than 1 million low-earners taken out of tax. But we are going further and sooner. Yesterday, my right honourable friend the Chancellor announced the largest ever increase in the amount that people can earn tax-free—an increase from next April of £1,100 to £9,205. That means that around 2 million low-income earners will have been taken out of tax altogether and there will be a tax cut of £3.5 billion for working families. These are substantial tax reforms that demonstrate our commitment to tackling the deficit in a fair way.
But tax is only one part of our ambition to restore competitiveness, promote business and encourage investment. As your Lordships are well aware, this Government have already set out ambitious infrastructure plans, setting the stage for some £250 billion of investment in the next decade and beyond. That investment is critical to enabling Britain to compete with emerging giants in the global market. Yesterday, the Chancellor provided further details on those ambitions, for example confirming that Network Rail will extend the Northern Hub and improve the Manchester to Preston and Blackpool and Manchester to Bradford lines. We will live up to our commitment to devolve power and responsibility to local authorities. That is why we concluded a groundbreaking deal with Manchester to support £1.2 billion of investment in infrastructure, will support £150 million of tax increment financing to help local authorities promote development and are providing an extra £270 million to the Growing Places Fund to help local authorities unblock stalled infrastructure projects.
Just as we invest in our physical infrastructure, we have to invest in our digital infrastructure. That is why we are funding ultrafast broadband and wi-fi in 10 of the UK’s largest cities, providing £50 million to increase urban broadband in our smaller cities as well, and helping build on our long and rich history of scientific and technological leadership. It is right that we capitalise on and commercialise that leadership, which is why we went even further in the Budget to commit £100 million of support, with the private sector, for investment in major new university research facilities, £125 million towards making UK advanced manufacturing supply chains more competitive, and £60 million to establishing a UK centre for aerodynamics, creating a springboard for innovative businesses and entrepreneurs to lead our economic recovery. Government, local authorities, universities, businesses and entrepreneurs are working together to catalyse private-sector growth and innovation.
All this is of particular interest to my noble friend Lord Heseltine. I look forward with particular anticipation to his maiden speech today. My noble friend’s extraordinary work in Liverpool has rightly been recognised by that great city. Now, my noble friend has kindly agreed to review how spending departments and other public-sector bodies can better work with the private sector to support economic development.
Of course, while we can provide the right conditions for a private sector recovery, we also have do all we can to remove barriers to those businesses attempting to seize new opportunities. That is why we are simplifying the administration of tax for our smallest firms, consulting on a new cash basis for calculating tax for firms with turnover up to £77,000, making tax returns dramatically simpler for up to 3 million firms. Of course, bureaucracy does not end with tax. If we want those businesses to lead our economic recovery, then we have to match their “can do” attitude. That is why the Budget endorsed a fundamental overhaul of the planning system, replacing 1,000 pages of guidance with just 50, and introducing a presumption in favour of sustainable development and a new planning guarantee so that no decision should take more than 12 months, including appeals.
Just as we encourage businesses to expand at home, we want to encourage British businesses to expand overseas. It is a damning statistic that, over the past decade, our share of world exports shrank as Germany’s grew. In the past three years, UK exports have risen almost 30 per cent, rising above their pre-crisis peak, with exports to India and China nearly doubling from five years ago. But we can and must go further. By 2014-15, UK Trade and Investment will be working with 50,000 small firms a year to expand their sales abroad—double the current number. We have set the ambition to more than double the UK’s annual exports to £1 trillion by 2020.
At the same time, we have to ensure that our businesses have the finance to feed their ambition. In particular, it is critical that we support the small businesses that provide more than 50 per cent of private sector jobs and 30 per cent of private sector investment and which have the potential to become the global leaders of tomorrow. That is why we launched the National Loan Guarantee Scheme earlier this week to give smaller businesses with a turnover of up to £50 million access to cheaper loans. We have provided up to £20 billion of guarantees under the scheme. This Government’s deficit reduction strategy has earned market credibility and low interest rates, and this Government are ensuring that the full benefits of those low interest rates are passed on to businesses across the UK.
In conclusion, this Government are committed to making Britain the best place to start, grow and finance a business. We are providing businesses with the most competitive tax environment; access to low-cost finance, capitalising on record low gilt yields; reduced bureaucracy and simplified tax rules; access to emerging economic giants; world-leading physical and digital infrastructure; and investment in our technology and innovation future. That is why the OBR forecasts that between the start of 2011 and the start of 2017, 1.7 million jobs will be created in the market sector. That is why Nissan has decided to move new production to the north-east, creating more than 2,000 jobs in the region; why Jaguar Land Rover has confirmed that it is creating 1,000 new jobs in its Halewood factory, on top of the 1,000 new jobs in Solihull; why Tesco has announced that it will create 20,000 new jobs in the UK over the next two years; and why GlaxoSmithKline, Britain’s biggest pharmaceutical company, has today confirmed plans to invest more than £500 million and create up to 1,000 new jobs because of the tax incentives in the Budget.
This Government are building a sustainable and prosperous economy, a recovery that builds on our strengths across all regions of the country and all the creativity and productivity of our private sector. Whereas under the previous Government, the country borrowed its way into trouble, under this Government, we will earn our way out of trouble.
Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2011
Debate between Lord De Mauley and Lord Sassoon(13 years, 3 months ago)
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Lord De Mauley
That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2011.
Relevant document: 27th Report from the Joint Committee on Statutory Instruments
Lord De Mauley
My Lords, the purpose of this order is to ensure that the regulation of the sale and rent-back market will operate as originally intended and deliver appropriate consumer protections. To set it in context, I hope that your Lordships will allow me to give a little background on the sale and rent-back market.
These schemes allow consumers to sell their property to a public or private sector organisation and then rent it back. This allows a consumer to stay in his or her own home and avoid the distress and expense of repossession. In 2008, the Office of Fair Trading published a study of the market. It found that it was not working well for consumers and recommended that the Treasury should introduce regulation by the Financial Services Authority. This was deemed necessary because the sale and rent-back market suffers from an imbalance in the relationship between those consumers considering taking up a sale and rent-back agreement and those selling the schemes.
Sale and rent-back agreements are extremely complex contracts. The OFT study showed that consumers entering into these agreements are often vulnerable people with low levels of financial understanding. They are often already in debt and believe that their financial situation is out of control. They are unlikely to seek independent financial advice, probably because they do not know where to go. Conversely, the sellers of sale and rent-back agreements are professional salespeople, who in some cases may also play on the emotional aspects of a sale and rent-back agreement—for example, the consumer’s attachment to the family home. This results in two significant impacts on the consumer. First, there is financial loss to the consumer through a distressed sale. Evidence suggests that most sale and rent-back providers pay between 70 per cent and 90 per cent of the market value of the property. Secondly, there is a lack of security over tenure for the consumer, who may believe that they cannot ever be evicted from their home, whereas in reality, many consumers suffer rising rents or, indeed, eviction.
Following the OFT study, an interim system of FSA regulation was introduced in July 2009. This was replaced by a full regime in June 2010. Today’s order amends the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 to make clear that any provider of a sale and rent-back agreement, unless they are closely related to the consumer, will be regarded as doing so by way of business and will therefore need to be FSA-regulated.
Currently, the FSA’s regulation captures only those firms that meet the strict “by way of business” test. That test is intended to include firms who carry out the specified activity as a business arrangement but exclude those who carry it out for other purposes, such as arrangements with immediate family members. However, some providers have misunderstood whether they are entering into a regulated activity, while others, dare I say it, have chosen to interpret the rules such that they are not acting by way of business and thereby have avoided FSA regulation
The order clarifies the position. Everyone who enters into a sale and rent-back agreement, unless they are closely related to the consumer, will be regarded as doing so by way of business and will therefore need to be FSA-regulated. About 80 per cent of sale and rent-back transactions are still taking place outside regulation, despite the intention of the original regime, so the sale and rent-back market continues to generate a high level of consumer concern. In the 12 months from April 2010 to March 2011, citizens advice bureaux received more than 1,000 inquiries about sale and rent-back providers. In March this year, a report by Which? highlighted cases where a number of firms were acting outside FSA regulation. In July this year, there was an investigation by Channel 4’s “Dispatches” into sale and rent-back providers. Citizens Advice, Shelter and Which? have all publicly supported the Government’s work to address this genuine gap in the regulatory architecture and make it clear to providers when they are acting by way of business.
The costs and benefits of the order were set out in the impact assessment. The order will ensure that FSA regulation of sale and rent-back agreements operates as originally intended, when the costs were expected to be incurred at the time of the original legislation. The benefits of the order will be felt by those individuals who sell and rent back in their houses through fairer sale prices and fairer tenancy agreements. The FSA’s regulation of the sale and rent-back market attempts to address those issues through, for example, pre-sales disclosure and rules on terms and conditions of tenancy agreements.
The option for a consumer to avoid repossession and have the choice to enter into a sale and rent-back arrangement, and remain in his home when it is financially viable to do so, is important, but it is equally important that appropriate consumer protection is in place. The order is scheduled for debate in another place next week.
I hope that I have reassured your Lordships that the order merely clarifies the intent of previous efforts to address issues in that market and that the Committee will therefore give its support.
Finance (No. 3) Bill
Debate between Lord De Mauley and Lord Sassoon(13 years, 5 months ago)
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Lord De Mauley
My Lords, 21 speakers have signed up for the debate on the Second Reading of the Finance (No. 3) Bill and the report on the Finance Bill 2011. If Back-Bench contributions to the Bill are kept to seven minutes, the House should be able to rise this evening at around the target rising time of 10 pm.