Economy: Budget Statement

Lord Haskel Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Haskel]

My Lords, last month I was in the United States, another country with a very large deficit. But I could not help noticing that its policy for tackling its deficit is much closer to Labour’s policies than to the Government’s measures. I also could not help noticing that its policy seems to be working, so I hope that the Prime Minister took note of that during his visit, because a lesson is there for all of us to learn.

The Minister spoke of the Government’s intention to support business and to get more balance into the economy. He pointed to some of the successes. He mentioned Nissan and Jaguar cars, and in pharmaceuticals a decision that was made within 24 hours of the Budget. They work fast at GSK, or was it just a PR stunt? But even so, the economy is forecast hardly to move. My noble friend Lord Myners reminded us that we are still producing less than we did four years ago and that the job situation is getting worse. Indeed, unless we get the economy growing faster, it looks as if our children and grandchildren are going to have a lower standard of living than ours, in spite of the granny tax. What is the Government’s Budget going to do about it? Apparently, very little.

We all know that the way to cut the deficit is through growth, and growth needs investment. Yet as a result of what has been proposed in this Budget, as my noble friends Lord Eatwell, Lord Wood and Lord Myners told us, the OBR has reduced its forecast for investment this year and next year, partly because we all know that reducing corporation tax does little for investment but encourages retention.

There have been all kinds of policies to provide business with finance. Quite rightly, my noble friend Lord Sugar and the noble Lord, Lord Bilimoria, expressed their doubts about their validity. They are doubtful because the schemes do not seem to be working. Project Merlin had hardly any impact. Why will this one work? Funds intended for business development are being used by the banks to strengthen their balance sheets. They have borrowed €8 billion from the European Central Bank at 1 per cent interest for three years, yet business is still being starved of funds. It is no wonder that a frustrated Vince Cable wrote to the Prime Minister drawing his attention to the piecemeal policies to help business. I agree with Mr Cable. Let us unite behind an objective which has relevance to every part of the economy and every part of government, and can create jobs and encourage innovation. It should be familiar to us all and not necessarily just in terms of money.

Without this kind of objective, the outlook will feel bleak. We need something which gives people hope and business confidence—the confidence that the Institute of Directors is calling for. The noble Baroness, Lady Randerson, accused me and others on this side of the House of living in a parallel universe. Perhaps we are, but we are living in the real universe. So let us try a different approach in the real world and ask: what is it that has brought growth, progress and jobs to our economy? What is it that has helped us raise productivity and use intelligent machines to make the Jaguar and Nissan cars that we have heard about? What is it that enables us to invest in modern systems of additive and high-speed manufacturing? What is it that has enabled us to create lots of new small businesses with products and services which are exported all over the world? What is it that has enabled us to use the discoveries of genomic science to create all kinds of new health products? What is it that has enabled us to build the creative economy and the knowledge economy? The answer, in a word, is digitalisation.

Where have many of the well paying jobs come from in the past 10 years? It is the digital economy. Where have many of the improvements in productivity, in processes and services that we have seen in the past ten years come from? They have come through innovation using clever software, microelectronics and clever design. In manufacturing, in services, in communications, in health and in entertainment, digitalisation in its broadest sense has been the key to growth and progress. Before the Minister says to me, “Well, you're 10 years too late. Digitalisation is too mature. We need the next thing”, let me say that he is wrong and that it is only just starting. We are only just beginning to feel its impact and to learn what it can do. There is a long way to go.

So here is a strategy for the noble Lord, Lord Heseltine, who is searching for competitiveness, as he explained in his excellent maiden speech. Digitalisation can be the theme that unites and joins us together in our plan for growth and competitiveness. It is everywhere. Let programming be taught as a language in every school. Digitalisation is familiar to every one of the young unemployed people who concern the noble Earl, Lord Listowel. Let us use it to encourage them to get involved and to seek the training and skills which they and the economy need. The Technology Strategy Board and the technology centres of excellence are all aware of what digitalisation can do for industry. Let this be a theme for their valuable work. The same goes for healthcare and medicine. Instead of selecting industries which the Government think have a future, let us support the introduction of digitalisation in every industry. We know that it will make them more competitive. It is essential at this time when the rising cost of energy and materials affects every business. We have become very good at the innovative and clever stuff of using microprocessors, of writing clever software and of miniaturisation, and selling it. So let us use it to grow our economy faster. As other noble Lords indicated, there are a couple of pointers towards this in the Budget, such as a tax break for digital entertainment and less tax if you manufacture your patented inventions here. But that hardly scratches the surface. The Minister spoke about providing better broadband facilities in some parts of the country. The noble Lord, Lord Fink, welcomed that. But, as your Lordships’ Communications Committee was told only this week, the plans are completely inadequate and leave us far behind our competitors.

Digitalisation can have an impact even on those industries that we have all but written off. Is the Minister aware that the first new yarn dyeing plant for 20 years was opened in Yorkshire recently? It is competitive thanks to digitalisation.

The Prime Minister must be in favour of this because recently he signed a letter together with 11 other EU Prime Ministers calling for the creation of a truly digital single market by 2015. That is not central planning: it is a way of encouraging everybody to pull in the same direction—a co-ordinated, cohesive strategy accountable to Parliament, to industry and the public, designed to create growth.

In the Budget, I would have liked to have seen digitalisation become a crusade which unites the piecemeal efforts that Mr Cable is so unhappy about. It will help us to create jobs, find investment and find the growth that we all seek. It could be the start of something that is not only made in Britain but imagined in Britain.

--- Later in debate ---

[Lord Sassoon]

My Lords, the simple fact is that if you talk to businesses around the world about why they are not moving business into this country and are not moving high-earning individuals back to this country, you will find that it is simply because of the disincentive effect of the 50p tax rate. It is entirely consistent that there is a disincentive effect on business decisions, even though the net take is nothing. I listened to what the real businesspeople in this House—the noble Lord, Lord Bilimoria, and my noble friend Lord Fink—said about the damaging effect of high rates of tax. Their voices present the true position.

[Lord Haskel]

We have some real businesspeople on this side of the House as well.

[Lord Sassoon]

Indeed, there are distinguished businesspeople, including the noble Lord, Lord Haskel, on the other Benches, but I do not think that the noble Lord, Lord Haskel, made this particular point. He made other points which, if I do not have more interruptions, I might be able to turn to. There is also the noble Lord, Lord Sugar. I shall refer to as many speakers as I can, if noble Lords want to hear me rather than make additional points themselves.

My noble friends Lady Randerson and Lady Kramer importantly referred to the significance of our new anti-avoidance regime, particularly in relation to homes with a value of more than £2 million. Some issues have been raised on the measures that will claw back five times the amount of the cost of a 5p drop in the top rate of tax. My noble friend Lord Fink, and the noble Lord, Lord Davies of Stamford, in particular, raised the question of the capping of tax reliefs and the effect on philanthropists and charities. The Government will explore with philanthropists ways to ensure that the new limit will not significantly impact on charities that depend on large donations. It is an important restriction, but we will make sure that charities are protected.

On other areas of tax and tax avoidance, the noble Lord, Lord Davies of Stamford, asked about the general anti-avoidance rule. Under the new structure, a pre-clearance system will no longer be warranted. GAAR’s focus will be on artificial and abusive tax avoidance schemes. We will have a completely different construct from the present one, and it is not proposed that there should be a clearance system.

A certain amount was said in different ways on the question of distributional impact by the noble Lords, Lord Liddle and Lord Myners, the noble Viscount, Lord Hanworth, and others. Again, since the Government came to power, we have in the Red Book done the transparent thing and made it absolutely clear what the distributional effect is of Budget after Budget—something that the previous Government never did. I set out the figures in my opening speech. In cash terms, losses for the households in the top 10 per cent will be almost five times the average, and more than eight times those of the bottom 10 per cent by income. We have real and deep concern for the distributional effects of our tax and spending policies.

My noble friend Lord Northbrook, and the noble Lord, Lord McFall of Alcluith, asked about the lowering of the starting point of the 40p band. There is nothing untoward about this; it is simply a partial offset of the effect of the increase in the personal allowance, so that higher-rate taxpayers will receive only a partial benefit rather than the full one, which is targeted principally and rightly at lower earners.