Economy: Budget Statement

Lord Myners Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Myners]

My Lords, I join other Members of the House in welcoming the maiden speech from the noble Lord, Lord Heseltine. I want also to mark the fact that it is a wonderful occasion that he is being given this important assignment to address the areas of the interface between government expenditure and the private sector, and that in his speech to your Lordships’ House he said that he would include examination of the roles of owners of public companies—an issue which I have come to describe as the ownerless corporation. I cannot think of anybody better suited to carrying out that review than the noble Lord, Lord Heseltine, and the Chancellor should be congratulated on that appointment.

I like digging around in the Red Book. That is where you find the real story on the Budget. If you go to paragraph 2.140, you find that herbal cigarettes are now to be taxed as tobacco cigarettes are. Paragraph 2.145 deals with non-residents playing bingo, while paragraph 2.54 tells us about a further and more favourable change to what is euphemistically known as,

“Resettlement payments to Members of Parliament”—

those who no longer hold their seats.

It is also in the Red Book that we see the dangers lingering in the undergrowth. We see in paragraph 2.71 that the Government are looking at taxation on interest. It does not say why they are looking at that issue, although one is reminded that the right honourable Chancellor of the Exchequer, when in opposition, raised the question about whether interest should be a deductible charge for taxation purposes. Is that what the Government are looking at under paragraph 2.71? At paragraph 2.40, we have a message that philanthropy is going to be a victim of the Budget. The Red Book says that it will not be impacted “significantly”, but a Government who are encouraging philanthropy for education, science and the arts appear to be contemplating a tax measure which will discourage philanthropy.

One also looks in the Budget for areas which one hopes will be addressed, but with great frustration one finds that they are not. The treatment of carried interest in private equity funds as a capital gain rather than an income is an issue on which the Minister has very kindly answered one or two Written Questions from me in the past. He is indicating two fives. It is not just the one multiple of five; the Minister’s hands are positively animated at this. I think that he overestimates, but I know that he struggles with the burden of his job and no doubt it seems that he has rather a lot of Questions to answer. If he gave me straight Answers to my Questions in the first place, he probably would not have quite as many supplementaries to answer.

I find my eye drawn to paragraph 2.179, where the Government have really caught on to something: the taxation of static caravans. This is an issue to which the Government have applied their attention, but they have not applied it to the issue of a static economy—one which is flatlining now, and has been ever since this Government came into power. I encourage noble Lords to read the contribution of the noble Lord, Lord Sassoon, in our debate this time last year, when noble Lords on this side of the House were saying that there were risks to economic growth and the Minister said that this was complete nonsense. What we have seen is barely any economic growth at all over the past 12 months and, importantly, the OBR tells us that the sum outcome of this budget will make no material difference to economic growth prospects over the forecasting period. There is no material change in its forecast.

In fact, we are looking at even more austerity. Looking at discounted cash flow, which the noble Lord is very familiar with, the way that you make the numbers come out all right on discounted cash flow is to put all the growth into infinity at the end of the process, while all of the cuts and further austerity are now being pushed beyond the date of the next election. That is the only way that the Government are able to say, “We are still achieving our targets of fiscal balance within the planning period”.

This, of course, is a Budget that will be remembered for the 45p tax and the raid on pensioners—and for the sleight of hand that we saw in a number of areas, including the treatment of the Royal Mail, where the assets of its pension fund are being brought in but the Government in national accounts are going to disregard the deficit. This is a Budget which will benefit 14,000 millionaires—14,000 people earning £1 million or more a year—by more than £40,000. How can that possibly be justified during a time of austerity? As my noble friend Lord McFall said, when the Chancellor told us yesterday about the “simplification” of pensioners’ allowances, his eyes dropped down to his papers and his voice lowered. It was quite evident to all who were watching that this was a sleight of hand, which had to be revealed when we turned to look at the Red Book.

Growth is still static. Unemployment is still rising. The OBR sees no reason to meaningfully change its forecast; that is to say that it will not be until 2014 that we achieve again the GDP output levels achieved in 2007. That is a shocking outcome for this Government to put before the nation. The OBR says, however, that the composition of growth is going to change quite dramatically. In November, it was expecting 12.5 per cent of growth to come from private consumption; it now expects that figure to be nearly 40 per cent. This will be a debt-led consumption, as again is clear in the OBR report. Business investment, according to the OBR, will now fall quite rapidly. It was expecting 7.7 per cent of economic growth in 2012 to come from business investment; that will now fall to only 0.7 per cent. In 2013, it now expects that figure to be 2.5 per cent lower than it originally forecast, and in 2014 to be 1 per cent lower. That is to say that the business community is not responding to the rosy outlook that the Chancellor is describing—nor, according to the OBR, will it respond positively to the incentives to business given in this Budget.

The noble Lord, Lord Bilimoria, asked about the National Loan Guarantee Scheme, a successor to the failed Merlin project. The OBR says that this will be too small to have much effect—too small, when it was an initiative that we waited six months for. The private sector and business investment is being squeezed, and the Government have no tangible and evident plans to address that. There are no major commitments to investment in infrastructure, just words. We continue to have to live with this odd fiscal contraction, which is meant to lead to economic expansion as the private sector steps in to the capacity being released by the public sector. There is no evidence that that is happening at all. Nothing in this Budget shows a clear, coherent and carefully articulated strategy for growth. In fact, it is a rather boring and meagre Budget, which will largely be remembered for its generosity to the paymasters of the Conservative Party—the super-rich—funded entirely, if we look at the OBR report, by the money which is being pickpocketed from the grannies. It is a poor Budget with little to offer any improved prospect for economic activity or employment.

--- Later in debate ---

[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.

[Lord Myners]

My Lords, the Chancellor used the term “simple” yesterday to describe the pickpocketing of pensioners. The Minister has now used the same term. The IFS today stated that the reduction in the allowance for the starting point of top-rate tax will take 1.5 million taxpayers into the highest tax bracket for the first time. The measure is not simple; it will expose more people to 40 per cent tax than was previously the case.

[Lord Sassoon]

My Lords, I will not repeat myself. I explained the rationale for doing this, which is to make sure that the benefit is targeted correctly. The position is completely clear.

I will address one or two issues that were raised on business taxes. The noble Lord, Lord Haskel, made the point about there being other businessmen in the Chamber. I listened hard to what he said about his recent visit to the US. I, too, was in the US recently. One place I visited was Chicago, which at the moment is the headquarters of Aon, the world’s largest risk management company. It is moving its global headquarters to the UK for a number of reasons, including our lower and more competitive tax regime. I do not remotely believe that we should follow US policies in a slavish way if we want to see a growing business base in this country.