Budget Statement

Lord Desai Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Desai (Non-Afl)]

My Lords, I have always admired the Chancellor. As I have said before, I knew him before he became a Minister, and I have a very high regard for him. He did extremely well in facing the pandemic, which was a very unusual challenge for anybody, and he coped with that very well.

Having said that, I have to say that I am not all that happy with the Budget. Given that the Chancellor had favourable forecasts for GDP growth for two years in succession and given the size of those forecasts—ultimately of 6%—the first thing was to be cautious. How is the economy compared to the pre-Covid level when you have had those two growth figures? It is not all that much higher. We are not about to grow at 6% for ever and ever. As economists long ago pointed out, families spend their permanent income and not their current income—income may be high, or it may be low; you balance things out. The first thing that the Chancellor should have done was to look very carefully at the future prospects of the economy and how far we have come relative to the long-run path of the economy. That is why the economy goes down to 1.3% or 1.5%, which has been the historic growth rate of the British economy since 2010—almost since 2009. One has to be careful in fashioning a long-run strategy and not start a bonanza of champagne and this and that, giving money away frivolously.

If the Chancellor had the money, he should have restored the £20 cut in universal credit. The history of that is shameful, because it was George Osborne who took it away. It was then restored last year, and then, at the first excuse, it was again removed. Did the Chancellor know that he had a favourable growth rate forecast before he did it? If he had even a slight inkling that the growth rate was going to be favourable enough to cut champagne taxes, he should not have cut the £20 from universal credit.

Turning to the tax burden, I am a well-known friend of high taxation and I make no bones about it. People say tax is very high. I have said this before in your Lordships’ House: if you call it a taper it sounds very nice, but the 63% taper on the poorest people is a 63% rate of income tax. Then, when it is cut to 55%, everybody hails the Chancellor and says how kind he is. Why can he not go down to the average basic rate of income tax?

On the one hand, we are encouraging people to seek work; they cannot be on benefits for ever. The whole logic of the universal credit system is to encourage people to seek work. Then, when they do, you tax them 63% or 55%—no middle-class family would tolerate that. However, you can make the poor pay an incredibly high tax rate and call it a taper, and everybody is very happy. It is shameful that we have even a 55% taper on the poorest people in the country. Anything that the Chancellor can do about that, even at this late stage, would be welcome.

There has been a very welcome drift of the sentiment in today’s debate regarding this idea that we want to be a high-productivity, high-growth, high-wage economy but with a low tax burden. I think that is impossible. Let us get it straight: it is not possible, not given our growth rate and the huge backlog of things we have to correct, especially the National Health Service, social care and so on.

As many noble Lords have pointed out, the average tax burden in western Europe is 40% plus. A tax rate of at least 40% ought to be factored in, and then let us find out where we can get that money. I was very happy to hear the noble Lord, Lord Turnbull, with his Treasury credentials, propose a tax that I proposed a while ago in your Lordships’ House: a tax on the frozen capital gain that every householder has. You have to unfreeze that capital gain and put it on the council tax base, and if that can be done, we will have good social care financed by councils and a decent system of taxation. I will not go into detail because time is short.

If you want a good growth rate, do not worry too much about the debt to GDP ratio. We have been through high debt to GDP ratios and come out of them. That is old-fashioned economics: when we want to borrow, we can borrow, and we will pay it back. It is important that we correct the long-term deficiencies in the economy regarding education, health and social care. We have learnt during the pandemic that these deficiencies are costing us quite a lot. They may not be costing us financially, but they are physically and in terms of people’s health and welfare. There is still time to correct these things, and I hope that the Chancellor does it.