National Insurance: GDP

Lord Leigh of Hurley Excerpts

Thursday 19th December 2024 Lords Chamber

[Lord Livermore (Lab)]

The question of which debates the House has is not a matter for me—I think that is somewhat above my pay grade—but my noble friend is absolutely correct to say that we hear consistent demands from the party opposite for more and more spending, but they never seem to be willing to tell us exactly where the funds for that will come from. Of course, that is exactly why we ended up with a £22 billion black hole in the public finances: because they never took the difficult decisions to pay for any of their promises.

[Lord Leigh of Hurley (Con)]

My Lords, I may only have an economics degree but, none the less, that makes me an economist in the way things are currently. As such, the OBR has made it clear there is no £22 billion black hole, which is why there is the same response from this side of the House. But what is clear is that £40 billion has been taken from the private sector to the public sector. Companies have to respond to that. Their only choices are either to increase prices, which they are, to reduce wage increases, which they are, or to reduce investment in jobs and other capital items. As a result, of course, the PMI is at its lowest level since 2009 and, within 24 hours of the Budget, the gilts went up 40 basis points. Can the Minister explain that and can he also please address the issue of care homes? I am involved in a charitable care home which has received a £1.5 million extra bill. We do not know how we are going to pay that bill. I will not name the care home, but I will take this opportunity to wish the Minister a happy Hanukkah.

[Lord Livermore (Lab)]

I am very grateful to the noble Lord for his last comment and I obviously say the same to him. I am also grateful to him for raising the £22 billion black hole again. He is possibly the only Member of this House who mentions it more often than I do and he will be absolutely aware of the outcome of the OBR’s review. It conducted a review into a meeting it had with the Treasury on 8 February, when the Government were obliged under the law to disclose all unfunded pressure against the reserve. The OBR’s review has established that, at that point, the Government concealed £9.5 billion. The OBR made 10 recommendations to stop this ever happening again, which this Government have accepted in full. But, of course, the previous Government still had five more months left in office and they continued to amass unfunded commitment after unfunded commitment that they did not disclose. By July, records show that that had reached £22 billion. The noble Lord asked a number of subsequent questions and I simply ask him: is he seriously saying that we should not have repaired the public finances? Is that his serious contention? That is absolutely what the Liz Truss mini-Budget did and we saw exactly how that ended up.

Employment: Tax Policy

Lord Leigh of Hurley Excerpts

Thursday 31st October 2024 Grand Committee

Asked by

[Lord Leigh of Hurley]

To ask His Majesty’s Government what assessment they have made of the impact of tax policy on employment.

[Lord Leigh of Hurley (Con)]

My Lords, I draw noble Lords’ attention to my entry in the register of interests, which notes the businesses I have started, invested in and grown over the years, including my main business, Cavendish Financial plc, which I started with one colleague and a PA and, I am pleased to say, now employs over 200 people.

The timing of this QSD seems remarkably fortuitous—I cannot claim it was wholly planned this way—and will perhaps allow us to consider the rationale and effect of some of yesterday’s Budget as well as reflecting on how future changes to tax policy might affect employment and related areas.

The Minister will be pleased to know that I will not be spending all my allotted time digging in the illusory black hole, as the OBR has rightly confirmed that, other than a possible contentious £9.2 billion, the £22 billion was not something that it could support—at least in respect of the reserves, where the underspend is yet to be determined. We will have to leave that matter there. I suspect that the Minister will also be pleased to know that we will not spend the whole of the next four years going over this, to our mutually enormous pleasure. That is not really the point here, other than to note that Labour created a reason to increase tax and so, like every other Labour Government, increase tax they so did.

As I am sure the noble Lord, Lord Bilimoria, will recall, we were warned by the CBI earlier this week when Mrs Newton-Smith said:

“If we see a rise in national insurance contributions paid by employers … that will make it more difficult for businesses”.


That warning was echoed by the respected economist Paul Johnson of the IFS, who pointed out that NI is a tax felt solely by working people and employers. His response to the actual rise has been to remind us that the OBR suggests that three-quarters of the impact of employer NICs will be felt by employees, even if the changes do not immediately show up on their payslips. Indeed, these tax rises partly explain why the OBR has downgraded its projections for real household income growth over the next few years. Someone will pay for the higher taxes, and it will largely be working people.

The employers’ NIC rise will further increase the incentive for employers to switch to contracting with the self-employed or, as many will have heard on today’s radio broadcasts—and this is really worrying for us here—to subcontract to overseas production. Indeed, I have talked to employers today who have said to me that they are cutting down on their future recruitment. Radio 4’s “Today” programme said it had not found one business person who thinks that yesterday’s Budget will help their business to grow and employ more people.

Incidentally, Paul Johnson also opined that a rise in employers’ NI would be a straightforward breach of Labour’s manifesto. His views on the damage to employment that the rise will cause has been echoed by normally non-political characters, such as the CEO of Lloyds Bank, and of course for certain industries, such as the hospitality sector, it will be a disaster. Mark my words: care homes will close after this Budget.

A Mrs Christina French from Birmingham, founder of Diverse Sparks Ltd, an electrical contractor, has been quoted in the press as saying that the rate rise and the threshold drop has meant that she has now to consider selling her business. Her exact words were:

“It’s rubbish because I’ve created jobs and apprenticeships for the last 12 years, and now that’s not going to be an option for us”.


That is the reality of life for business owners. Sadly, Labour’s Front Bench has not much experience of starting a business and hardly any of running a small business, so they may not be aware of the pressures facing business owners. If they are not going to listen to business creators and owners such as Mrs French and me, perhaps their friends at the OBR might persuade them that, when it points out that,

“The employer NICs rise is estimated to reduce labour supply by 50,000 average-hours equivalents”


and promptly downgrade the UK’s growth prospects, it should be listened to.

The wonderfully named Growth Commission, which one would have thought would take pride of place at Labour’s top table, has modelled a rise in NI and predicts that it leads to a negative hit to GDP, peaking all the way to 2030 but still impacting GDP negatively in 2045-6. One has to wonder whether the gamble, which has been taken to fill a hotly disputed black hole with a tax rise on jobs, really makes sense? Perhaps the Minister can explain the thinking here, particularly given the hugely respected Growth Commission’s views.

I am grateful to some other great folk, such as those at the Jobs Foundation, chaired by my noble friend Lord Elliott of Mickle Fell, who remind us that businesses and entrepreneurs provide 80% of the jobs in the UK. Their mantra comes from Winston Churchill, who famously said—though I refrain from doing the accent—that:

“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon”.


Famously, the Chancellor herself referred to an increase in NI as a jobs tax. This was in 2021, when criticising the proposals then to raise national insurance. Her point was that NI is purely a tax on people who go to work and those who employ them. She then said, revealingly, that, if you earn an income through dealing in stocks and shares, you do not pay a penny more in NI. That is revealing because it shows that Labour does not really understand and appreciate the difference between capital gains and income. Perhaps the Minister can explain to the Chancellor that dealing in stocks and shares is not a source of income: it is an activity that requires you to risk capital, which you might lose because of the great uncertainty. This brings me to my concern about the effects of other tax rises on employment.

For businesses to grow and employ more, they need capital. Many, like mine, have been to the capital markets through the Alternative Investment Market—AIM. That market has become harder and less liquid, despite the best efforts of Jeremy Hunt and the Mansion House compact. The decision taken yesterday to reduce business property relief—BPR—on inheritance tax by 50% will be a hammer blow to many entrepreneurial family businesses. When a family member passes on, they will now have to find 20% of the current value of the shares and pay for that in cash. That will simply lead to more firms closing down, selling up and having to sell assets to release cash, simply for the Exchequer.

This huge rise in IHT for private business owners has yet to be fully assessed. In its booklet, the OBR does not split out APR and BPR, so we have no idea of the true cost. We do know that this move and, of course, the potentially disastrous decision to tax the non-doms, in particular by including the EPTs in inheritance tax, means that wealth creators who create jobs are despairing at the effects that this Budget will bring to employment.

In my opinion, these measures are not just about raising tax but about ramming through ideological dislike for inherited wealth and, indeed, private enterprise. Sadly, the measures taken will, in reality, really damage everyone employed in the UK. I ask the Minister what assessment HMG have made of the impact of their tax policy on employment. I beg to move.

Fiscal Rules

Lord Leigh of Hurley Excerpts

Tuesday 29th October 2024 Lords Chamber

[Lord Livermore (Lab)]

My noble friend makes an extremely interesting point. I am grateful for his support for what I have set out and will take away his point to give it further consideration.

[Lord Leigh of Hurley (Con)]

My Lords, the Chancellor can fiddle figures all she likes to allow more borrowing, but that will simply lead to more interest payments, in excess of the £100 billion or so that we already have, which will lead to great damage in the market. The change of fiscal rules on borrowing is apparently to fix an alleged black hole, so would the Minister care to comment on the highly respected IFS director Paul Johnson’s statement that:

“The numbers may be a little bit worse than they thought at the time … but the overall picture over the next four or five years is very, very similar to what we knew before the election”?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for giving me an opportunity to talk about the £22 billion black hole left to us by the previous Government. He has done that in the past and I continue to be grateful to him. The independent Office for Budget Responsibility said at the time of the July statement that it did not know about this black hole at the heart of our finances; it established an independent review into it which will report in due course. I think there will be plenty more information on the £22 billion black hole in tomorrow’s Budget for the noble Lord to peruse.

Tax Reliefs: Theatre, Orchestra and Museums and Galleries Exhibition

Lord Leigh of Hurley Excerpts

Tuesday 15th October 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for her question. The creative industries are absolutely a major driver of economic growth in this country. She will be aware that I am unable to comment on speculation about specific taxes. In the coming Budget, we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole inherited from the previous Government, which will involve difficult decisions on spending, welfare and tax.

[Lord Leigh of Hurley (Con)]

The Minister again raises the alleged £22 billion tax hole. He was asked, this time last week, to explain what was in the £22 billion tax hole. He could identify only two items, which amounted to £9 billion—that is all he could find. It now transpires that HM Treasury’s policy paper of 2 August 2024 reveals that £9.4 billion of the so-called black hole has been created by Labour’s political decision to give public sector workers above-inflation pay grades. Does the Minister not agree with most of the House that this is a fictious black hole, created by Labour?

[Lord Livermore (Lab)]

I am extremely grateful to the noble Lord for giving me an opportunity to talk about the £22 billion black hole in the public finances, which was concealed from this Parliament and the public, and, most importantly, from the Office for Budget Responsibility, which has confirmed that it exists and set up an inquiry to establish how it happened and to ensure that it does not happen again. The noble Lord asked me to list what went into the black hole. He knows, for example, of the £6 billion overspend on the asylum system, including the failed Rwanda scheme; of the £3 billion of uncosted commitments on road and rail projects; that the reserve was overspent, three times over, just three months into the financial year; and that there was a black hole in the spending plans for the public sector pay rises because the previous Government did not hold a spending review and did not give any affordability criteria to the pay review bodies. That is why it has happened and that is what we will ensure does not happen again.

UK Economy: Capital Gains Tax

Lord Leigh of Hurley Excerpts

Wednesday 9th October 2024 Lords Chamber

Asked by

[Lord Leigh of Hurley]

To ask His Majesty’s Government what assessment they have made of the impact on the UK economy caused by speculation about rises in Capital Gains Tax and other taxes.

[Lord Leigh of Hurley (Con)]

I beg leave to ask the Question standing in my name on the Order Paper and in doing so draw your Lordships’ attention to my registered interests in this area.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, there is speculation ahead of every Budget, but the Government’s priorities for the economy are clear. We are committed to restoring growth to our economy after years of stagnation by fixing the foundations and securing investment in our country’s future; we are committed to keeping the promises we set out in our manifesto; and we are committed to rebuilding the public finances, including by addressing the £22 billion black hole we inherited from the previous Government.

[Noble Lords]

Oh!

[Lord Leigh of Hurley (Con)]

Well, the Government have managed to unite Alastair Campbell, the British Chambers of Commerce and me in identifying the damage that this delay is doing to the UK economy. If evidence is needed, entrepreneurs are leaving not in their droves but in their thousands because they are so worried about the potential impact of a rise in capital gains tax. The Chancellor has specifically ruled out certain increases. Could the Government not rule out specifically, for example, the rumoured demise of business property relief on inheritance tax, because that is hanging over the market at the moment, causing great anxiety to family companies and is an enormous cloud on the ability of companies to raise money on the AIM market?

[Lord Livermore (Lab)]

As set out in our manifesto, we are committed to not increase taxes on working people. This is why we will not increase their national insurance, the basic higher or additional rates of income tax or VAT. I know the noble Lord would not expect me to comment on speculation about any other specific taxes, but we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole—

Start-up Companies: Tax Incentives

Lord Leigh of Hurley Excerpts

Monday 29th April 2024 Lords Chamber

Asked by

[Lord Leigh of Hurley]

To ask His Majesty’s Government what assessment they have made of the pressure experienced by start-up companies arising from delays in accessing tax incentive schemes designed to support them, including the Enterprise Investment Scheme and Research and Development tax credits.

[Lord Leigh of Hurley (Con)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and draw your Lordships’ attention to my entry in the register of interests.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, HMRC is currently exceeding its published customer services aim to process R&D claims and EIS applications within 40 working days. In some cases, this will involve contact with a company to undertake further checks, rather than immediate approval or payment. This is necessary to ensure that relief is claimed only by those who are eligible.

[Lord Leigh of Hurley (Con)]

My Lords, I understand the need to check claims in certain areas. I am chair of the Finance Bill Sub-Committee of the Economic Affairs Committee, and we have reported on extensive R&D fraud, but there is no history or evidence of fraud in respect of EIS. However, there is evidence of heavy-handedness by HMRC in restricting claims, so will my noble friend agree to set up a working party that includes EIS fund managers to consider best practice and to reduce costs and unnecessary delay in granting EIS relief?

Spring Budget 2024

Lord Leigh of Hurley Excerpts

Monday 18th March 2024 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I join in the congratulations offered to the noble Lord, Lord Kempsell, on an excellent and inspirational maiden speech. I welcome this Budget as yet another example of prudent management of our economy while trying to stimulate growth which—I am afraid I disagree with the noble Lord, Lord Skidelsky—comes mainly through lower taxation wherever possible.

The Chancellor is under huge constraints from all sorts of directions, not least the OBR. The OBR this year had at least the grace to say:

“Inflation has receded more quickly than we expected in November and markets now expect a sharper decline in interest rates. This strengthens near-term growth prospects and should enable a faster recovery in living standards from last financial year’s record decline”.


Despite that, however, it seemed to impose a rigour on the Treasury which has frustrated it from being more generous in reducing the tax take and thus reducing the take from the state which we all want to see—certainly, on this side of the House, as was most eloquently put by the noble Baroness, Lady Noakes.

We all understand why the OBR was created. It followed a spending spree when Gordon Brown took the government debt in July 2007 from 35.5% of GDP to 56.8% in just two years. It was the beginning of all our difficulties. The noble Lord, Lord Desai, who is not currently in his place, frequently reminds us that comparing debt to income, as we always do when quoting the level of government debt, is not the best way of evaluating debt. However, many have commented that the OBR is now so obsessed with fiscal headroom that it distorts all decision-making.

Who predicted Covid, Ukraine or the Middle East war? How can anyone reasonably claim to predict what will happen in some five years’ time, least of all economic forecasters, who, as JK Galbraith reminded us, are there to make astrologers look respectable?

The forecasting errors over the years have been enormous—some £400 billion out over the last two decades, according to some—and this dependency on the OBR is no longer healthy. We must look at better ways to allow sensible policymakers to take a view on the forecasts and determine what they think is right, rather than just hoping that a few folk in the OBR, which has a very weak track record, might have cracked it this time. The OBR itself says:

“We continue to emphasise the uncertainties around our forecast in the light of rapidly changing economic conditions and the possibility that any of our key judgements could prove significantly too optimistic or”


too

“pessimistic”.

Turning to specifics, as the chairman of the Finance Bill Sub-Committee, which is a sub-committee of the Economic Affairs Committee of your Lordships’ House, I welcome HMRC’s decision to create an expert advisory panel to advise it on what is true and proper research and development. To remind your Lordships, the latest estimate of the R&D tax credit costs is some £6.5 billion, and there is so much fraud and inaccuracy in the claims in respect of R&D that HMRC’s own accounts had to be qualified over this specific uncertainty.

The change in the non-dom regime may not be quite as harsh as one might have first thought from the Chancellor’s speech. With the transitionary rules and overseas work relief being retained, and the rebasing of capital gains tax to 2019 values, it might not be too bad. Certainly, the ability to bring into the UK stockpiled gains outside of trusts at 12% is helpful, and the taxation of protective trusts has to be the right step forward if the scheme is going to work. Likewise, the inheritance tax scheme for non-doms seems fair, and a 10-year window is quite generous. I am pleased to see that the Government are open to extensive consultations on this issue, which I believe have already started. The OBR reckons this will yield some £5 billion a year, but with migration, as will inevitably happen, and other tax-planning measures, this will drop by some £2 billion to a net £3 billion, in its opinion. It is very hard to know how it could possibly have arrived at this. As it acknowledges itself, it really does not know.

We know that this deprives Labour of one of its main sources of extra income—albeit that it may have spent it several times over. It leaves Labour with only VAT on schools, which will probably lead to a net increase in cost to the Treasury, as we heard in Oral Questions this afternoon, as pupils transfer to the state system; and with taxation on carry at higher rates, which I hear Labour is already rowing back on, as it realises it will not yield extra revenue. It would be good to learn from the Labour Front Bench today, or soon, how it plans to raise extra taxes for all its extra expenses, as it is clear that its employment proposals will almost certainly lead to a huge increase in unemployment, as they always do with each and every Labour Government, meaning more strain on government resources.

I will touch on what was not in the Budget, and what might have been. I will spare my noble friend a plea for a digital services tax to try properly to tax online retailers such as Amazon, as her predecessors have clearly decided against this. I will also spare her any further reference to, as she puts it, my favourite minority sport, EIS. Again, there was nothing in the Budget, which there should have been, to raise thresholds and reduce restrictions now we are free from the yoke of the EU.

Turning to VAT, I worked with a number of Peers from across the House on the Economic Crime and Corporate Transparency Act, which was a great success in tightening up Companies House after the registration of some 11,000 companies to one flat in Wales. However, we really did not focus on why people were doing this. The answer is, of course, to evade—not avoid—VAT.

Great progress has been made in forcing online offshore retailers to pay VAT, but we really are not done yet. The National Audit Office has started an investigation into this area, and I wish it well, as we have seen many examples of companies using other people’s VAT details—even companies that are shown as not trading on Companies House. There are hundreds of companies all connected to one source of stock, with each company staying below the radar and folding if caught. The issue has not been dealt with and remains a problem.

One thing I ask my noble friend to consider is removing VAT checks on items valued £135 or less entering the UK. This is not helpful, and there is huge evasion going on. HMRC assumes that any non-UK seller who sells into the UK will sell on an online marketplace, where VAT is now collected, or register for VAT in the UK and pay the VAT direct to HMRC. This is just not happening. It is a ridiculous assumption, and there is nothing that will make a non-UK seller register for VAT in the UK, particularly if it sells on websites or marketplaces outside the UK. It is an enormous gaping hole in the UK’s virtual customs border, and it is astonishing it was ever allowed. Other European countries have removed this £135 exemption, and we should as well. I appreciate it is a bit much to ask my noble friend for a response today on this matter, which is not covered in the Budget, so I look forward to a later reply.

Finally, I end with a sentence from the Chancellor’s speech, remarked upon by my noble friend Lady Noakes, which should be cut and pasted on every wall in the Treasury:

“The Treasury and the OBR have … concluded that if we reduce the higher 28% rate that exists for residential property, we would in fact increase revenues”.—[Official Report, Commons, 6/3/24; col. 849.]

Finance Bill

Lord Leigh of Hurley Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 21st February 2024 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, it is always a great pleasure to follow the noble Lord, Lord Desai, even though I do not agree with much of his analysis. In particular, I cannot understand why he thinks that if one takes a risk and invests capital, the rewards should be taxed at the same rate as banking a salary and working at a desk. They are two different sources of income and wealth, and therefore deserve different tax treatments, but I admire the way that he speaks so eloquently and without any notes on every occasion. I can only aspire to that.

I refer to my register of interests and remind your Lordships that I am chairman of the House of Lords Economic Affairs Finance Bill Sub-Committee, to which my noble friend alluded earlier. This sub-committee looked at the Bill with great interest and our report was published a couple of weeks ago, on 1 February. As I think this is the only time that the report will be mentioned in the House, I use this opportunity to thank the committee members, the clerk, his assistants and colleagues and, in particular, the two spads for their hard work in turning it around and delivering it in record-breaking time; as the noble Lord, Lord Desai, indicated, there was a crunch, because it followed the Autumn Statement.

The report focused on a few main areas. The main one was research and development, where we followed up on last year’s report and were pleased to see that the R&D review is now complete. We recommended that His Majesty’s Government do not make any further changes to R&D tax relief, other than some simplifications that we recommend. As my noble friend said, research and development is incredibly important to the UK economy. It is pleasing to note that gross domestic expenditure on R&D has risen from some 1.5% in 2010—to take a date at random—to nearly 3% now.

The new R&D intensive scheme needs careful monitoring and the threshold, which is a cliff edge, should be kept under review. We called for draft guidance on applying that test, as it is difficult for companies to predict whether they are going to be intensive companies. As my noble friend indicated, it is possible that the new intensive scheme will be merged with the main scheme. We hope that HMRC will enter into consultations on this issue and possibly delay its implementation until those have taken place. We also had quite a lot to say on the thorny issue of subcontracting of research and development where, in summary, we think a transitional period might be required, although we accept that this has its own challenges.

Another area we were concerned about was the changes proposed on how HMRC will collect data on issues such as hours worked. This is something different: HMRC has never collected data on anything other than tax before. We are not even sure that the Taxes Management Act allows it to do this, so we are concerned to know why it needs that data and what will be the true cost to business in supplying it. This is largely data on hours worked: HMRC has recognised that this would be difficult, so has turned it into data collection on hours paid, but we are still not convinced about the need for it.

We welcomed further attempts to punish promoters of tax avoidance schemes but have asked for some safeguards, particularly in respect of what are called stooge directors. These are people who get persuaded to become a director of a company and do not realise that the company is being used for tax avoidance, but we are not convinced that increasing prison sentences is necessarily always the answer.

Finally, in respect of our report, we were concerned about the level of resources that HMRC deploys for customer service. One obviously accepts that this is an issue across government. We recognise that steps are being taken to improve this issue—which, in my personal opinion, is not helped by civil servants working from home, but that is a wider governmental issue.

As your Lordships will appreciate, my comments are just a taster of our full report of 150-odd pages. However, this shows that our House not only gets to debate the Bill for a day but offers proper scrutiny of legislation—even if, as the noble Lord, Lord Desai, said, we cannot change it. But we are able to produce these reports, which we hope are used by Members in the other place to amend legislation. It is a little disappointing that there are so few of us speaking on this important debate, despite the fact that it is an exceptionally august selection of Peers with great depth of knowledge on the Bill.

Aside from the sub-committee report, I would like to make some additional observations and I hope that my noble friend the Minister can answer some questions that I have. The first is on the EIS, SEIS and VCT areas which she mentioned earlier. I warmly welcome the extension of the sunset clause; I have been advocating for it for some time, as she knows. I know that I have been pushing against an open door with HM Treasury and that she is convinced that I am a minority sport player with too much detail. None the less, I have to say that Clause 11 is to be commenced only by regulation, as in its subsection (2). That is a little unusual and I suspect there is a reason for it. I wonder if it is to do with some wrinkle in the Windsor agreement that is not yet quite ironed out or if we do not have permission from the EU to implement it. If so, we need some clarity that we will get that permission, and to reflect on the fact that we are trying to do things here which we are prohibited from doing by the EU, and that does not sit comfortably, particularly as we should no longer be bound by EU state aid restrictions.

I hope that my noble friend can agree to a review of all the other restrictions on EIS, SEIS and VCT, because we need to create a low-tax, low-regulation country and shed as many burdensome EU restrictions which are no longer necessary as we can. Are we restricted from doing that because of Northern Ireland issues? EIS and SEIS are incredibly important. In the year to 2022, HMRC data shows that £3.4 billion was raised to invest in SME businesses—for thousands of companies, so let us see what more we can do to enhance that scheme.

I also welcome the great progress on pillar 2, which my noble friend mentioned. I know that pillar 2 is not popular with everyone but we are committed to do it, so let us push ahead. It is good to see the transitional undertaxed profits rule safe harbour regimes, in addition to the multinational and domestic top-up tax, which is all part of the OECD global anti base erosion tax rules. This is a very complex and difficult area, with pages and pages of legislation, but it has been going for some time. In fact, it was the subject of my maiden speech almost exactly 10 years ago. We are still not there, but let us hope that the Government keep going in the direction they have taken to date.

Finally, it is worth using this debate on our proposed fiscal changes to reflect on what has been the effect of this Government’s fiscal policies to date on the economy. It is worth noting, as I am sure my noble friend will agree, that it is not just that inflation is falling from 11% to 4% but about the rate of growth in our economy compared to our European competitors. We are the fastest-growing European G7 economy and, from 2025 to 2028, our debt will come down as a huge part of the share of GDP. It is initiatives such as reducing national insurance in the Bill, and of course specifically raising allowances, which have enabled average taxpayers to be some £1,000 a year better off than they would be if those allowances had not risen since 2010. To keep up our outstandingly successful record levels in FDI, while achieving the success we have had in becoming the third-largest tech sector in the world, we have to keep the drive up for lower taxation.

As I understand it, the only tax initiatives announced by Labour are to increase taxation, such as VAT on schools, income tax for non-doms and enhanced tax for carried interests. Perversely, all these plans to raise tax by seeking to penalise successful people will, in my opinion, only lower the tax take. The direction of travel we need to stick to is a lower tax take, and a smarter tax system which encourages investment and increases growth and productivity.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, the Finance Bill that we are debating today was published following the Chancellor’s Statement in November last year, in which he claimed to be delivering an “Autumn Statement for growth”. It was the 11th such growth plan that we have seen from this Government over the past 14 years, and, over that time, the UK’s growth record has been poor.

The noble Lord, Lord Leigh of Hurley, mentioned comparative growth rates. We have languished in the bottom third of OECD countries, with 27 OECD economies growing faster than us since 2010. Looking ahead, over the next two years, no fewer than 177 countries are forecast by the IMF to grow faster than the UK. Against this backdrop, in the so-called Autumn Statement for growth, the Office for Budget Responsibility actually downgraded its forecast for growth in each of the next three years—it was revised down this year, next year and the year after that. Growth this year is forecast to be just 0.7%, which is more than halved from the 1.8% predicted in the Budget, with the economy forecast to be £40 billion smaller by 2027 than the Chancellor expected back then. Now, the Office for National Statistics has confirmed that Britain has fallen into recession. We know too, as the noble Baroness, Lady Kramer, observed, that GDP per capita fell in every single quarter of the past year.

Britain is trapped in a spiral of economic decline. Having spent 14 years in the economic slow lane, the Government have now put our economy into reverse—the latest chapter in a 14-year story of failure and economic stagnation. First, we had austerity, which choked off investment, and then years of political instability, which in turn fuelled economic instability; then Brexit without a plan; then the disastrous mini-Budget, which, as the noble Lord, Lord Desai, observed, crashed the economy, sending mortgages and interest rates soaring. We have had five Prime Ministers, seven Chancellors, and 11 plans for growth, each yielding less than the last.

If the UK economy had grown at the average rate of the OECD over the past decade, it would now be £140 billion larger, equivalent to £5,000 per household every year. This would mean an additional £50 billion in tax revenues to invest in our public services. Instead, with growth so weak, taxes have risen remorselessly, with less and less to show for it. While our public services crumble, we have seen 25 tax rises in this Parliament alone. The tax burden now rises every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever, with an average tax rise of £1,200 per household.

However, there is one small group of people who will continue to be protected from this Government’s tax rises on much of their income. Missing from this Finance Bill, once again, is any action to tackle non-dom tax status: those people who live in Britain but do not pay UK taxes on their income from overseas. Closing this loophole and replacing this archaic status with a residence scheme like other countries have could raise crucial funding to bring NHS waiting lists down. Labour believes that those who make Britain their home should pay their taxes here. That patriotic point should be uncontroversial; yet, while families across the UK face higher taxes year on year, the Government continue to enable those who keep their money overseas to avoid paying their fair share of tax. So, while we have yet another Finance Bill that leaves this loophole open, families across the UK face a tax burden that is climbing to a post-war high.

The chair of the UK Statistics Authority rebuked Government Ministers this week for making misleading claims about their record on tax. Let us be clear: while the cut in national insurance announced in the Autumn Statement was welcome, it was more than eclipsed by increases in taxes that the Government had previously announced. For example, as my noble friend Lord Davies of Brixton mentioned, the freezing of national insurance and income tax thresholds for six years is now expected to cost taxpayers £45 billion. This fiscal drag means that nearly 4 million more people will pay income tax and 3 million more people will pay the higher rate. To quote Paul Johnson from the Institute of Fiscal Studies, the cut in national insurance rates

“pales into … insignificance alongside the … increase in personal taxes created by the six year freeze in allowances and thresholds”.

The IFS has calculated that, extraordinarily, almost every single person in the UK who is liable for income tax or national insurance will now be paying higher taxes overall. As a result, the tax burden will now reach 37.7% of GDP by the end of the forecast period, an increase equivalent to an astonishing £4,300 additional tax for every household in the country.

We have an economy in recession, the tax burden rising to its highest ever level and the biggest fall in living standards since records began. We must break this spiral of economic decline. Increasing growth is clearly the biggest economic challenge that our country faces. In government, Labour’s defining economic mission will be to restore growth to Britain, with good jobs and productivity growth in every part of our country. Our plan to deliver that mission, supported by British business and developed in partnership with British business, is built on three pillars: stability, investment and reform.

Stability will be brought about by strong, robust and respected economic institutions. Rather than criticising the Bank of England, as a number of prominent Conservative politicians have, we will protect its independence, and we will strengthen the Office for Budget Responsibility. We will introduce a new fiscal lock and tough new fiscal rules. Iron discipline will ensure that every policy we announce, and every line in our manifesto, is fully costed and fully funded. With a Labour Government, never again will a Prime Minister or Chancellor be allowed to repeat the mistakes of the Liz Truss Budget. Never again can we allow a repeat of the devastation that that Budget brought to family finances or allow a plan to be pushed through that is uncosted, unscrutinised and wholly detached from economic reality.

We prize stability and predictability for business, as we know how highly businesses that are considering investing in the UK prize stability, predictability and a long-term plan. This Finance Bill contains a number of measures that we have been calling for for some time. We welcome the Government finally making full expensing permanent after so many years of chopping and changing capital allowances; we have made it clear we will maintain this policy if we are in government. We have also made it clear that we will maintain the system of R&D tax credits introduced by this Finance Bill—again, after so many years of this Government chopping and changing the design of the scheme.

Of course, there is still a general election to face, so I use this opportunity to invite the Minister to put on the record whether the Government will follow our lead. Will she confirm that, should they win the general election, they will maintain permanent full expensing? I am sure that many businesses would welcome the certainty that comes from knowing that both main parties are going into the election fully committed to keeping this policy in place.

Let me be clear about another area where we will provide certainty, should we win the next general election. As the shadow Chancellor has set out, we believe that the current corporation tax rate strikes the right balance between what our public finances need and maintaining our competitiveness in the global economy. That is why we are pledging to cap the headline rate of corporation tax at its current rate for the whole of the next Parliament. We would take action if tax changes in other advanced economies threatened to undermine UK competitiveness. That choice provides predictability and has a clear rationale; that is the pro-business and pro-growth choice. So, again, to offer businesses as much certainty as possible, I ask the Minister whether the Government will follow our lead and also pledge, today, to cap corporation tax at its current rate for the next Parliament?

Our commitment to stability will be matched by a commitment to investment, through partnership with the private sector, to power the industries of the future with a modern industrial strategy; a new national wealth fund to invest alongside business, in our automotive sector, in our ports, and in the future of our steel industry; and a new national champion in homegrown power, leading the way on floating offshore wind, tidal and nuclear power, to ignite growth, boost our economic security, drive down energy bills, and create good, well-paid jobs across Britain. This will be combined with our commitment to reform, starting with our planning system, taking on vested interests to get Britain building again. Stability, investment, reform—the foundations of a plan to break free from the vicious cycle over 14 years of stagnant growth, rising taxes, and falling living standards.

[Lord Leigh of Hurley (Con)]

Can the noble Lord clarify a point that he made in response to a point that I made about non-dom taxation? I understand that the Labour Party originally thought that taxing non-doms in the way that he described would raise £3 billion—it then reduced it to £2 billion and I think that it now thinks that it is £1 billion. It would be very helpful to have precision and clarity on the estimate that this will raise. Will he also confirm, now that Labour Party officials are talking to the Treasury, that they have asked the Treasury for its figures on the Labour Party’s proposals on non-doms, which, as I understand it, show a net loss to HMRC in respect of those proposals?

[Lord Livermore (Lab)]

I do not think that I am at liberty to divulge the exact nature of those discussions, but I can certainly say that that is not correct.

[Lord Leigh of Hurley (Con)]

Does the noble Lord have an answer to my question on the specific amount that the non-dom tax proposals will raise?

[Lord Livermore (Lab)]

I do not have the exact number to hand.

UK Economy

Lord Leigh of Hurley Excerpts

Wednesday 21st February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

Obviously, I cannot comment on any potential tax cuts. I am sure the noble Baroness will agree that the US has a very different economic structure from the UK and tends to offer slightly less support to those at the bottom end of the ladder. She mentioned those who are the most vulnerable. Personal allowances have gone up by 30% in real terms than in 2010. That means that 30% of people now pay no tax. We are focusing our interventions on people at the lower end of the income scale, but we are also focusing them on growing business.

[Lord Leigh of Hurley (Con)]

Would my noble friend agree that comparisons with the United States are not really appropriate, particularly given cheap energy costs in the States due to fracking, which we do not have? It might be better to compare us with European countries. Since 2010, the UK has had the fastest growth of any European G7 country—faster than Italy, Spain, Germany and France. Will she welcome today’s news that the budget surplus for net borrowing, excluding banks, shows a surplus for January of £16.76 billion, and today’s announcement that the UK purchasing managers index rose in January to 52.9? Rather than knocking the economy, let us celebrate the good news.

[Baroness Vere of Norbiton (Con)]

I agree with my noble friend—let us celebrate good news, and I believe there will be more good news to come. He mentioned debt. It is fair to reassure noble Lords that we are on track for debt to fall as a share of the economy. Public sector net debt as a percentage of GDP is expected to fall next year to the end of the forecast. If one were to exclude Bank of England debt, it will fall in the final year, and public sector net borrowing as a percentage of GDP is forecast to fall every single year. We also have the second-lowest debt as a share of GDP in the G7.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

I will take that idea back to the Bank of England.

[Lord Leigh of Hurley (Con)]

Does my noble friend agree that it is highly complimentary to Liz Truss and Kwasi Kwarteng to suggest that their actions are responsible for interest rates in every country around the world, which are broadly comparable to ours?

[Baroness Vere of Norbiton (Con)]

As I think I said earlier on in answering this question, all sorts of countries have faced the challenges that the UK has. There have been a number of countries, over the second half of 2023—either in Q3 or Q4—that saw a small technical contraction in their economy. Andrew Bailey, the Governor of the Bank of England, believes that the technical recession may already be over. I expect us to return to growth very soon.

Pension Investments

Lord Leigh of Hurley Excerpts

Tuesday 23rd January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I am grateful to the noble Baroness for raising this issue, about which I had a meeting last week with a number of fund managers. Some felt that the fiduciary duty needs to be changed, while others were content with it. The Government remain committed to considering how the fiduciary duty can be clarified. The financial markets group that she referenced is independent of government and includes various law firms and pension schemes. We look forward to the publication of its final report, but, as I say, it is independent of government and it will publish its report when it is ready.

[Lord Leigh of Hurley (Con)]

Does my noble friend not agree that this issue needs not just a meeting with the noble Baroness, Lady Altmann, but wider discussion in this House? It is incredibly important to facilitate investment in UK plc. The issue is not unlisted investment; it is investing in the UK market, and it is not just about defined contributions. What progress has been made in respect of direct benefit in encouraging local government pension schemes to invest in UK plc?