Economy: Budget Statement

Lord Fink Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Fink]

My Lords, it is my great pleasure to have the chance to speak in your Lordships’ House on the Budget, but perhaps I may start by joining the noble Lords, Lord Bilimoria and Lord Sugar, in congratulating my noble friend Lord Heseltine on a most thoughtful and elegant maiden speech. I should say that he is held in great esteem by businessmen and politicians across the political spectrum. Indeed, in my home town of Manchester, and in Liverpool where I have the privilege to sponsor an academy in Anfield, he is held in enormous esteem. Anyone who doubts the Government’s commitment to a growth agenda has only to look at my noble friend’s appointment to see the seriousness with which they take the issue of growth. I also agree with the comments of the noble Lord, Lord Sugar, about the mood music made by politicians in all categories, and how that mood music does not always help business. Sadly, that cuts across all parties.

I shall return to the Budget. In order to decide whether a Budget is good or bad, we have to look at it in the context of its time and the financial circumstances that the country is in. Given our straitened circumstances, in my view there are five questions to ask about a Budget to see if it is a good one, a bad one or, indeed, an excellent one. First, is the Budget consistent with the Government’s strategy of achieving medium-term fiscal goals? Secondly, does it help the country’s small businesses to grow and increase employment? Thirdly, does it help businesses to compete for talent and business in an increasingly competitive global marketplace? Fourthly, does it help the country’s citizens, particularly the less affluent, either by cutting their tax burden or by giving them the dignity to pay less tax and not have to claim back what is in effect their own money through benefits like working tax credit? Finally, we can add a new test that no Budget in living memory has achieved: does it provide a degree of financial transparency to taxpayers in terms of how much tax they are paying and where the money is going? These factors are much more important than the cheap populism of large giveaway Budgets, false claims of “prudence” or—dare I say?—“ending the cycle of boom and bust”.

If one takes these tests in turn one can see that, first, the Budget is clearly consistent with achieving the Government’s medium-term fiscal goals. As my noble friends Lord Higgins and Lord Sassoon have said, the Budget is fiscally neutral over a five-year period, but it does contain modest reductions in both taxation and spending. The economic forecasts agreed by the Office for Budget Responsibility agree that borrowing is on course to achieve a cyclically adjusted current balance over the next five years and debt will be falling as a percentage of national income by the end of the Parliament. That means that it is successful in this measure.

Secondly, I asked if the Budget will help small businesses to grow. As we know, growth in small businesses is key to reducing unemployment. The combination of continuing low market interest rates gained by prudent management of the deficit combined with a reduction in credit spreads, which credit easing should provide, will form a favourable backdrop for small businesses. The cuts in corporation tax rates and planning changes will also help small businesses. Finally, tax simplification, particularly cash accounting, will have a disproportionately beneficial effect on very small businesses.

The next factor to consider is how we can help larger businesses to compete. There is no doubt that the reduction in headline higher rate income tax will help to attract international talent to the UK as well as signalling, as others have said, that Britain is open for business. I know personally several ultra-high net worth individuals—and former large taxpayers, for that matter—who have moved overseas to escape the 50 per cent tax. Sadly, I do not believe that a small reduction of 5 per cent will bring them home just yet. I also know of many multinational firms which say that high-performing executives who they have wanted to poach into the UK will not come here unless they are offered income tax equalisations, something that, frankly, has not happened for 20 or 30 years.

As my noble friend the Minister said, the fact that international companies like GlaxoSmithKline are now creating hundreds of new jobs in Britain is very good news and an early sign of success in this area. Also the improvements being made to our infrastructure, particularly the expansion of northern train lines, should allow the economy, particularly in the north, to grow without too much traffic congestion. The accelerated reduction in corporation tax and support for ultra-fast broadband and wi-fi, which have become so important for many businesses, are also helping growth.

Many people say that research and development are absolutely key, but I think that most noble Lords have missed the development of The Francis Crick Institute close to St Pancras station. It is probably the most exciting biomedical development in a generation. It will employ over 1,500 scientists and is a joint venture between the Wellcome Trust, Cancer Research, the Medical Research Council and three London universities which between them are associated with five or six foundation hospitals. This is something which has not been achieved in any other country in the world, particularly not in the US. The head of the institute, Nobel scientist Paul Nurse, has said: “This project could never have been achieved in most countries around the world and is a first internationally”.

Fourthly, does the Budget help the country’s citizens, particularly the less affluent? The increase in personal allowances to £9,205 from April 2013 is a real achievement. It made no sense to tax families earning modest wages and to make them claim back similar sums in a variety of allowances. It created almost as great a dependency culture among those in work as those out of it. When income tax was originally introduced, it was designed as a temporary tax on the rich. I am proud that the Conservative-Liberal Democrat Government are stopping taxation for the less well-off and lifting many hundreds of thousands of people out of the income tax net.

Fifthly, offering taxpayers transparency on how much they pay and where it goes is an extremely good and innovative idea. It has always struck me that Governments around the world who operate PAYE-type systems seem to be able to charge and tax citizens more. I guess that it is a much less painful way of paying tax than finding a capital sum, as do people on schedule D, but perhaps the balance is wrong. If citizens knew how much they were paying and what it went towards, they might be more assertive in their views on expenditure.

Hence, on all the five measures that I have set out, this seems to be a good, possibly excellent, Budget given the financial constraints. However, lest I am seen as no more than a mere cheerleader for the Government, I will ask about the income tax reliefs of 25 per cent or £50,000. I have no problem with the principle of having limits on deductions, which could stop abuse in many areas, and I also believe that the rich should pay their fair share, but the one exception should be philanthropy. Although I was not sure whether it was normal to declare a potential conflict of interest in a general budgetary debate, I must declare it here. I chair several charities and I know that many philanthropists who support them give more than 25 per cent of their income to them. I also know that one or two of the charities that I support would not be able to operate without that generous support of the wealthy. Will my noble friend the Minister give me some assurance that he will try to intervene to help the plight of charities affected by the cap?