Economy: Budget Statement

Lord Flight Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Flight]

My Lords, I congratulate the Chancellor on his Budget which, by and large, makes the best scope of the limited manoeuvre that he has and one understands the political constraints that are upon him.

The first obvious point, that many other noble Lords have made, is not backtracking from the programme to phase out the deficit in the public finances. In overall terms, what we have is modest cuts in spending that have been able to pay for welcome increases in personal allowances.

I support the comments made earlier in this debate by my noble friend Lord Higgins about leaks and the point that they have led to unfair and wrong publicity over the abolition of additional personal allowances for older people. It is fairly clear that if you take together the increase in state pensions, the new £140 pension and the increase that is on its way in personal allowances, overall, those pensioners will be better off. I hope that that message will be put across successfully.

I welcome especially the supply-side reforms, such as the corporation tax cuts. We do not have that much to offer but it is crucial for us to be competitive on that front. I welcome the enhancement of incentives in EIS, VCT and with EMI schemes for investment in small cap business. I declare an interest as chairman of the EIS Association. I welcome the increase in personal allowances and moreover the reduction next year in the top rate of income tax.

It seems to me that the Opposition are engaging in crocodile tears and playing politics. It was quite clear for most of the period of the Labour Government from 1997 onwards that Prime Minister Blair, his advisers and his Cabinet considered that a 40 per cent tax rate was the highest tax rate compatible with a successful economy.

I also accept some of the pragmatic measures taken to stimulate growth, although I am somewhat uncomfortable with the belief that government know best on where and what to do. I certainly hope that the changed measures for North Sea oil will result in reviving production and correct what I think were mistakes made last year. Certainly, support is needed for the life-science industries and I hope that the Government will address the issues raised in the House by my noble friend Lord Ryder on the Government’s problems with EU regulations.

I support what are bluntly Keynesian initiatives to invest in infrastructure and on a public/private basis. The increase in export credit is particularly necessary. The facilities that this country has been able to offer have been very poor in comparison with, say, France or the USA. I am sceptical of some of the other particular public-sector initiatives. To me, they smack a little too much of the sort of tinkering that we saw from Gordon Brown.

The Budget has a coherent growth strategy and there is a shift from public to private-sector investment. I am also pleased that the Budget did not tinker further with tax incentives for pension savings. It seems that, by constant tinkering, this country has substantially wrecked what was a very successful pension-saving situation up until 1997. I would like to have seen a more philosophical base and framework behind the tax reform in some of the supply-side growth policies. Although I understand the political reasons for bashing the rich, my own view is that taking that line is inappropriate and unwise, particularly for a Conservative Chancellor.

The Budget includes some items on which I have concerns. First, it would have been better to leave child benefit alone and found the cuts elsewhere. Child benefit was a substitute for a very rational income tax allowance for those who had the substantial burdens of bringing up children, whether rich or poor. Even though the measures announced yesterday improve upon the initial proposals, there is a still a steep rate of tax on individuals with between £50,000 and £60,000 per annum. To me, it is fair that those with the costs of raising children should enjoy a tax benefit. The economy could not go forward unless children were raised and there to do the work for those of us as we get old.

I personally think that the 7 per cent stamp duty tax was somewhat less than wise. It is yet another burden on London and the south-east, which already subsidises the rest of the country by over £50 billion per annum. It will be counterproductive in that it will simply reduce the rate of turnover as it is reduction tax. It is also another attack on aspirants. London has the problem that house prices are far too high because of the many wealthy foreigners who come here—more than 50 per cent of the market. For those wanting to buy a house in London, it is already bad enough and too expensive. This is just putting the cost up further.

I am also extremely concerned at the proposed measures to limit tax relief to 25 per cent of people’s incomes. As it stands, that would appear to apply to charitable giving, which seems a complete madness and contrary to the whole big society concept. I am not clear, but there could be elements of retrospective taxation here. The whole EIS situation rested on the fact that venture capital investment has not been very successful in this country, largely because the public sector is far too large. A lot of these investments fail but there has been the known ability, where they fail and you lose all your money, to offset that against income. If that is removed, there is an element of retrospection to it in that people have made investments on the basis that that was there. No matter how politically justified, I am uncomfortable with all forms of retrospection in the tax area.

My main point is that the Chancellor spoke of Britain not getting left behind compared with the growing economies of Asia and South America. It is correct that this Budget has done something towards addressing that, but we have a long way to go. Being 10th in the league table of the most attractive economies is nothing to boast about. In fact, we are not a particularly attractive economy in which to do business. Many will have seen Willie Walsh’s article, and the Chinese find this a very difficult and unattractive place to do business.

We have a long way to go. In my book, we are above all dragged down by a public sector that is too large and which has negative productivity, so that the private sector has to run even faster both to offset the negative productivity in the public sector and to achieve some growth. With a 50 per cent public sector you are never going to be a successful economy; you need to get below 40 per cent and towards 35 per cent. I hope that the Government’s objectives to achieve that by 2017 will come about. But the truth is that there is still masses of waste in the public sector, with duplication of activities, quangos doing things that add nothing of any value and, basically, excess regulation. It is a pity not to see a slightly more radical approach on those fronts.

I conclude by wishing the noble Lord, Lord Heseltine, every success in the challenge that he faces. There is no one better to do that job, and I think that individuals can achieve things even in the face of difficulties. If this country is going to succeed and prosper in comparison with Asia over the next 20 years, we will not be able to continue with welfare and NHS expenditure representing over half of public expenditure, with some 25 per cent of GDP through that route. We will have to make ourselves enormously more competitive, get rid of a lot of regulation that damages this economy and address the issue of regulation that damages our economy and comes from the EU. In the 1980s and 1990s, we were focused on not wanting our economy to become sclerotic, as the economies of most of continental Europe had become. That is what has happened to us, and we need to be a lot more radical in order again to become a vibrant economy.