Destitution: Low Median Wage

Lord Newby Excerpts

Thursday 23rd November 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

Yesterday did bring out some very important statistics, as indeed has the entire year. The noble Lord will know that, in terms of growth, it is true that the forecasts have been revised down. However, the actual assessment of the size of the economy has been revised up; indeed, it has been revised up by 2%, which is an enormous amount—that is the equivalent of the aerospace industry. On inflation, the OBR was absolutely clear that the discretionary fiscal policy measures introduced in the Autumn Statement do not have a material impact on the path of inflation. We have already halved inflation and by 2025 it will be at 2%. On tax, the noble Lord may have forgotten, but this Government intervened enormously during Covid, including £400 billion to support lives and livelihoods and, in our support for cost of living, £100 billion to support households through some very difficult economic shocks. Those things have to be paid for, but the things we introduced yesterday in terms of tax brought down the tax burden by 0.7%.

[Lord Newby (LD)]

My Lords, I think that in answer to an earlier question the noble Baroness said that the reduction in national insurance rates would mean that people work longer hours. What evidence does she have to support that assertion?

[Baroness Vere of Norbiton (Con)]

It is the case that of course those are assessments made by people far cleverer than me, within the OBR and the Treasury, but that is the analysis. Of course, people will be able to choose whether they work longer hours, but the simple point is that if somebody does work longer hours, they get more pounds in their pocket, so it is not beyond the wit of man to understand that they might want to do more hours.

Surplus Target: Corporation Tax

Lord Newby Excerpts

Monday 4th July 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, in the interests of time, I shall try to be brief. In the framework that has existed over the past six years there has been a well-identified escape clause in the event that GDP is foreseen to go below 1% for four consecutive quarters. That is the circumstance in which our decision within the country last week has left us, hence the Chancellor’s Statement. On corporation tax, it is intended and recommended that that is an appropriate response to show to the world at large that Britain remains open for business.

[Lord Newby (LD)]

My Lords, I will pursue the response the noble Lord just gave. First, the week before the referendum result the Chancellor talked about an emergency Budget; now he is talking about a tax giveaway. Are any fiscal rules still in place? Secondly, the aim is to reduce corporation tax to at least 15%. Current government plans are to reduce it to 17% by 2020. By what year does the Chancellor intend that a 15% rate might be introduced? Finally, does the Minister accept that there will now be immediate problems for many small and medium-sized businesses, which will see many of their purchasers’ decisions put on hold while we have this tremendous uncertainty in the economy? Will he therefore ask the Chancellor to provide a line of funding to the British Business Bank to provide lending, overdraft facilities and other support to small and medium-sized businesses, particularly innovative companies, which, frankly, simply will not be around to receive any corporation tax benefits in years to come unless they are given support now?

[Lord O'Neill of Gatley]

My Lords, in repeating the Chancellor’s Statement I clearly said that tomorrow the Financial Policy Committee will report on its recommendations and the Treasury remains in a position to act on whatever advice is given with respect to support for whatever area of business—small, large or otherwise—that may or may not require additional help. On corporation tax, as I also said, that is a recommendation of an appropriate policy response in the event of the decision we have made to send a message to the world that Britain remains open for business. I imagine that a specific policy will be put in place in line with the Autumn Statement plan as envisaged previously, once we have a new Prime Minister in place.

The Economy

Lord Newby Excerpts

Thursday 28th April 2016 Lords Chamber

[Lord Newby (LD)]

My Lords, I thank the Government for initiating this debate. I also join the Minister in his tribute to Lord Peston. Anybody who, like me, has sat through many economic debates in your Lordships’ House will miss the energy and wit that he brought to every contribution he made. On a personal level, I will miss the friendship of someone who slightly took me under his wing when I was a new Member to your Lordships’ House. With him, I was a founder member of your Lordships’ Economic Affairs Committee, of which he was such a distinguished chairman.

The biggest foreseeable risk to the prosperity of the UK lies in the outcome of the EU referendum. Therefore, I intend to devote my remarks entirely to that today. In doing so, I regret the complete absence from the speakers list of the sages of the Government Privy Council Bench and, indeed, the UKIP Members of your Lordships’ House.

The heart of the economic argument about EU membership or not lies in our long-term trading prospects. The trading picture of the UK has changed significantly since we joined the EU in 1975. Then, trading was largely in goods; now, we are the leading services exporter as a proportion of output in the G7 and some 40% of our exports globally and to the EU are in services. The EU is now by far our biggest export destination as a whole, as the Minister said, with some 44% of British exports going to Europe. It is acknowledged that the increase we have seen with trade in the EU is directly linked to our membership of it. The Centre for European Reform says that it has raised trade by 55%, while the Government argue that it has done so by between 68% and 85%. Whatever the exact figure, it is hard to deny that it is a substantial amount.

What are the opportunities and threats to our trade from staying in or coming out? If we stay in, we know that the completion of the single market in services, which is moving forward with greater energy, will significantly benefit the UK simply because we are the leading provider of services. This is an area where there is the greatest potential for growth worldwide and an area where the UK is in a very strong position to benefit. We also know that the EU is well down the track of negotiating—and completing negotiation on—trade deals with some of the largest economies in the world, including the US, Japan and India. When those trade deals are completed, as they will be, we will get benefits from them by virtue of our membership of the EU.

We can see very tangibly what some of the benefits will be in terms of trade if we stay in. If we come out, however, we do not even know what the preferred trading relationship of those who advocate coming out is. Nigel Farage suggested yesterday that he preferred a relationship that was, as he put it, like that of either Switzerland or Norway. There is quite a big difference between Switzerland and Norway; it would be useful if he could narrow that down a bit. Boris Johnson said that we should have a deal like Canada’s and then, under criticism, said that we should have a deal like the WTO’s. Michael Gove surprised everybody by saying that we should have a deal that mirrored that of Iceland or Albania. I strongly recommend that noble Lords who have not done so read the article in the Times of 25 April by the Albanian Prime Minister. After describing Michael Gove’s suggestion as “weird”, he eloquently explained why seeking membership of the EU is in Albania’s interests and why, even before being a member, Albania’s aspirations to join the EU have “made the impossible possible”. Mr Gove threatens to turn that aspiration on its head for the UK and make what is possible for the UK in the EU impossible outside it.

[Lord Bruce of Bennachie (LD)]

Does my noble friend not also think that Michael Gove let the cat out of the bag when he said that what he really hoped was that once Britain left the EU, the EU would disintegrate, and that is really his objective?

[Lord Newby]

I think it may be his objective and I find it the most irresponsible statement I have ever heard, given the history of Europe through which we have lived and which we know from the history books.

Whatever the relationship with the EU is likely to be, it will not be on the same terms as now. Even in the closest feasible relationship, such as that with Norway, we will have to accept the rules and costs of membership with no say over them. This will have a negative effect on trade, particularly in services. In financial services, failure to retain the right of companies to passport their services from the UK to the rest of the EU, if we form an agreement on those lines, would undoubtedly lead to significant job losses in the City— some estimate as many as 100,000—to the benefit of Frankfurt, Paris and Dublin, which certainly have the capacity to pick up the baton. If we were unable to keep the passporting rights, rules set by the EU would undoubtedly over time, as sure as night follows day, disadvantage the City. So, whatever the post-Brexit relationship, our position re trade with the EU will be less favourable than it is now.

What do the Brexiters say? They say we do not need to worry about trade with the EU because outside the EU our trade with the rest of the world would blossom, particularly with the fastest growing countries in Asia and Latin America. This argument has been used in recent days by as wide a group as not only Michael Gove but the noble Lord, Lord Owen, and Sir Ian Botham. However, for this to be true it would have to be the case that UK companies are currently hobbled from exporting outside the EU, that we would be able to get better trade deals by negotiating on our own and that there is a reserve army of UK companies waiting in the wings ready to take up those new opportunities.

All these assertions are false. Are British companies currently constrained from exporting outside the EU because of EU rules? There is no evidence for this. True, we export less than Germany by a factor of over two to China, India, the US and Brazil. However, the fact that Germany exports so much shows that EU membership in itself is not a barrier to successfully exporting globally. Indeed, over the past decade, our exports to some of these countries has greatly increased—to China by over 70% and India by almost 30%. The reason for our relatively poor historic performance and relatively strong recent performance has had nothing to do with the EU—it is because there has been a concerted push by British exporters, backed by the Government, to increase exports to those countries which was largely lacking before. It is worth emphasising that our exports to the BRIC countries, even if you include South Africa in that definition, is well under 10% of the total, compared to 17% to the US, let alone the 44% to the EU.

The second myth is that we would get better trade deals on our own if we were not held back by the EU. This myth has been romantically advanced by Ian Botham in respect of the English-speaking, cricket-playing members of the Commonwealth.

[Lord Spicer (Con)]

One of the wisest observations on this matter of trade was made by my noble friend Lord, Lord Lawson. He said that it was all irrelevant anyway because 75% is covered by the World Trade Organization rules.

[Lord Newby]

The World Trade Organization’s rules are, in many ways, the worst option. Why are we having all these trade negotiations with countries around the world when we already have the WTO rules? The reason is that they are not good enough—otherwise we would not be spending years trying to get better deals. Incidentally, we spent years trying to get another round of WTO improvements and failed. The only reason for bilateral deals as the EU is because we could not get better deals via the WTO route.

As I was saying, all the Commonwealth countries that play cricket, as far as I am aware, have said that they wish us to remain in the EU. Indeed, the reason we have had difficulties in exporting to India is because of the protectionist policies of the Indian Government. It has ranged from difficulties in exporting Scotch whisky through to extreme difficulties for British lawyers and accountants doing business and setting up businesses in India. As to the US, President Obama made the position starkly clear last week. We would be at the end of the queue for a trade deal, a position supported by Hillary Clinton.

The third myth is that there is an army of companies champing at the bit to do business in far-flung parts of the world rather than in the EU. However, the surveys undertaken by the Federation of Small Businesses when I was a Minister pointed out that the vast bulk—well over two-thirds—of small businesses thinking of exporting for the first time looked to do so to the EU. The reason is obvious. It is inelegantly expressed in the Treasury’s equations as “dist”—that is, the distance between the UK and EU compared to other markets. Small companies often cannot afford the time, expense and complexity of undertaking sales and marketing activities in China, say, compared to France. This was borne in on me with a small manufacturing company in the high Pennines that I know. Out of the blue it got a £50,000 order from Brazil. The marketing manager was immensely excited and went to the manager saying, “I want to go to Brazil to meet these people, whoever they are, and to expand over there”. He was told, “I am terribly sorry but you can’t. We can’t afford the time or the money”. If that had been an order from France, he would have been on the next plane.

The growth rates of some of the alleged El Dorados of the BRICs and elsewhere are now lower than those in the EU and the challenges of corruption and weak legal rights in many of them have not materially abated. The overwhelming arguments about the straightforward trading advantages of being inside the EU are reinforced by the beneficial effect of membership on direct investment and productivity. The Minister has outlined those arguments and so I will not refer to them.

It seems to me that all the arguments in respect of trade are absolutely compelling and need to be deployed as effectively as possible over the coming weeks. They are set out comprehensively in the Treasury’s analysis of the long-term economic impact of EU membership and the alternatives. However, the document, despite a perfectly good summary, is not easily accessible to the lay person. Therefore my only question for the Minister is this: what is the Treasury going to do to promulgate the headline arguments in that document in a clearer and more readily understandable way?

I have not said anything about the short-term shock which leaving the EU would undoubtedly cause the UK Government, but clearly that will also be considerable. The judgment the Government have taken in having a referendum in the first place is an extremely risky one and is probably the decision by which they more than any other Government will be judged. It is in all our interests that we get it right.

Budget Statement

Lord Newby Excerpts

Wednesday 23rd March 2016 Grand Committee

[Lord Newby (LD)]

My Lords, it is a great pleasure to participate in this debate, not least because it has enabled me to hear the maiden speech of the noble Lord, Lord Price. I was very struck when he quoted the John Lewis motto that its aim was,

“to make the world a bit happier”.

I hope he takes that motto with him into his ministerial role and attempts to fulfil it as successfully there as he has done at Waitrose. It was also a privilege to hear the valedictory speech of the noble Baroness, Lady Knight. It is sobering to think that when she was first elected, I was only 13 years-old. When I think of the changes that I remember in my lifetime, and that she has been an active participant throughout that extremely turbulent and rapidly developing period of our history, she has had a remarkable career. I have one final comment on speeches that do not flow in the main body of my speech. I have a suggestion for the right reverend prelate the Bishop of Portsmouth. I would have thought that a see of cathedrals might be a good collective noun.

The Budget has been a drama in two acts. Act I was the Budget itself and it lasted until about 24 hours after the Chancellor had sat down. The Budget exemplified the aphorism that to govern is to choose because the Government certainly chose a number of very stark priorities. First, they chose to have a budget surplus by 2019-20. Nobody believes that that is necessary for any economic purpose; it is a piece of economic posturing by the Chancellor, which is important to him and his credibility but almost certainly not necessary in terms of the long-term future of the British economy.

Secondly, the Chancellor decided to achieve this by increasing the pace of deficit reduction in the last year of this Parliament. For the next three years, the deficit reduction will go on at a rate of about £17 billion a year, and then suddenly in 2019-20 it increases to £32 billion a year. Can the Minister explain the economic rationale for that acceleration? The Chancellor decided to achieve this Budget surplus largely by regressive measures, from the now disgraced PIP changes to cutting public expenditure by £3.5 billion in 2019-20, in as yet unallocated measures. Whatever they are, given the budgets that are likely to be cut, it is highly likely they will be regressive.

Capital gains tax has been reduced. We can argue about whether the optimal rate in terms of overall revenue is 28%, 20% or something else, but for many affluent individuals that cut is a great benefit.

There are two changes to the ISA limits—the overall annual ISA limit goes up to £20,000, which is greatly above any increase justified by the rate of inflation, and can benefit only extremely affluent individuals. Having £20,000 of free cash to put away a year is beyond the dreams of the vast majority of the population. The lifetime ISA allows young people to put away up to £4,000. I accept that there is a big problem in getting young people to save for their pensions, given the short-term pressures they have with housing costs, repaying loans and many other cash calls. However, we are just in the process of introducing automatic enrolment for pensions across vast swathes of the economy. We are saying to people, “We want you to join your company scheme because if you do the company will then make a contribution and this is a wise way of saving for your pension”. Now, young people are being told, “Hang on a second, you have a new ISA”. What advice would the Minister give young people, such as my sons in their late 20s and early 30s, as to whether they should join an auto-enrolment scheme if they have not already done so or should put any spare cash they might save into a lifetime ISA?

Overall, the effect of these changes is that the poorest do worst and every other group does increasingly better. This was graphically demonstrated by the IFS but not by the Government, whose own distribution tables for the first time did not cover the effects of this Budget. They covered a decade’s worth of effects, which meant that you could not tell what the effects of this Budget were. That was why the Education Secretary was tripped up on television because she had read only the Red Book, which would not tell her that, and the distribution tables produced by the Government. She had not seen the IFS report.

Another feature has been the stunts and smoke and mirrors tricks so beloved of Gordon Brown. Three stand out. The first is deferring bringing forward the payment of corporation tax for large groups for two years, which is revenue neutral over the Parliament but backloads a large amount of cash coming in in the last years of this Parliament. The second is bringing forward capital spending in 2017-18 and 2018-19 and then reducing it by an equivalent amount in subsequent years. Given the problems that the noble Lord, Lord Darling, graphically illustrated of getting this money spent on time, can the Minister first tell us on which projects an extra £760 million is to be spent in 2017-18 and an extra £970 million in 2018-19 and then which projects will have £1,585 million less spent on them in 2019-20? The final bit of smoke and mirrors, which is damaging to the economy and the public sector, is raiding the public sector pension funds at a cost, as my noble friend Lady Kramer said, of £650 million to the NHS and more than £400 million to schools, but which miraculously pops up in the Budget figures as a gain of £2 billion to the Government.

Overall, the Budget as presented is regressive and gimmicky. It is devoid of economic rationale but dripping with political calculation. In the absence of the restraining hand of the Liberal Democrats, the Chancellor has driven a stake into the heart of one-nation conservatism and heralded the return of the nasty party.

But not so quick—that is just the end of Act I. Suddenly, 24 hours after the Budget, the curtain rises on Act II. A Back-Bench Tory rebellion reverses the PIP policy, at a cost of £4 billion, a number of VAT changes are made, IDS resigns, chaos reigns. However, yesterday the Chancellor says that we should not worry, he has seen the error of his ways, he will not make any further benefit cuts, and that IDS was a nice chap really. Can the Minister give any example in the last century when a major plank of a budget has been withdrawn within 48 hours because of a rebellion in the governing party or for any other reason? Where do the Government’s plans now stand, and in particular, to take up the point made by the noble Lord, Lord Desai, given that the Government are now about to send a Red Book to Brussels, will it be amended? We know that the Red Book no longer reflects the Budget judgment of this Government, and there is a legal requirement to send an estimate to the EU jolly quick, so it cannot wait until the Autumn Statement.

On plans unravelling, the Minister will be familiar with the mayoral devolution deal, which the Red Book claims has been agreed for East Anglia. The Minister is no doubt also aware that last night Cambridgeshire County Council rejected the deal by 64 votes to one. It did so because the proposal would have simply dropped a mayor for East Anglia on top of the existing structure of parish, district and county councils and because it believed that this would blur transparency of who was responsible for decision-making. Given this near-unanimous view of Cambridgeshire, on what basis did the Government claim in the Red Book to have got their agreement—the word “agreement” being used? Do other counties in other areas which are to get similar deals share Cambridgeshire’s view, and in the specific case of Cambridgeshire, what plans do the Government have to resurrect the deal?

One lesson from the Budget is, as we have discussed today, that hard and fast fiscal rules are a folly. We remember the painful contortions over Gordon Brown’s golden rule, and the noble Lord, Lord Darling, as he pointed out, legislated to halve the deficit over four years. Given the way the Labour Party excoriated the coalition Government for achieving that, I suspect that had the noble Lord or one of his Labour successors still been in government, that target would probably not have been met and another one would have been required.

The current Chancellor has already broken two of the three fiscal rules he had set. To cap it all, Labour has set a fiscal credibility rule. Leaving aside the fact that you use a word like “credibility” only in a context when you have none, this rule is completely undermined by the views of the Shadow Chancellor, who in the Commons said:

“As someone who still sees the relevance of Trotsky’s transitional programme, I am attempting not to salvage capitalism but to expose its weaknesses ”.—[Official Report, Commons, 4/7/11; col. 1317.]

I am not sure that Trotsky’s transitional programme was very hot on fiscal credibility. The only lesson I learn from all these broken or ridiculous rules is that there should be only one fiscal rule, which says: “You shall have no fiscal rules”.

The final point, which I will briefly touch on, is on the discussion we have had on targets. A number of noble Lords have pointed out that at one level targets which go far into the future are ridiculous because the only thing you know about them is that they will not and cannot be met. The challenge here is that without some kind of quite detailed projections you lose credibility. However, the challenge on the other side is that Chancellors put far too much emphasis on the detail of them and will trumpet the fact that they expect a £10 billion or £20 billion this or that in five or six years as a major triumph of policy-making when clearly, whatever happens, those exact targets will not be met. It may be, as the noble Lord, Lord Skidelsky, said, a mad way to do budgeting, but I think that we need a more nuanced view of the target culture.

When historians look back at 2016, I think that we can be pretty certain that the decision that we take on 23 June will be seen as vastly more important than this Budget. That does not mean that this Budget is not regressive, unrealistic and, now, shot through with holes, but it does put it into perspective.

Taxation: Income Tax Threshold

Lord Newby Excerpts

Wednesday 16th March 2016 Lords Chamber

[Lord O'Neill of Gatley]

I anticipated that a number of things might be asked at this session so shortly after the Budget had been announced, and I encourage many noble Lords, if they have the chance before next week’s debate, to read the Red Book. They will then be more aware of the real details of what has been announced, including, I think, something in this area.

[Lord Newby (LD)]

I thank the noble Baroness for reminding the House of an extremely successful Liberal Democrat policy. Given that the Chancellor has already broken two of his three fiscal targets, will the Minister now agree that they should be abandoned along with the cuts in spending and benefits, which particularly affect the poor and the disabled and which the Chancellor claimed were necessary just to meet those failed targets?

[Lord O'Neill of Gatley]

My Lords, of course I am not going to rise to that bait, but I would like to point out—and it is another reason why I encourage people to study the Red Book in close detail—that, in contrast to the mood among many observers and certainly in the media, the target for this year’s nominal budget deficit has come in lower than forecast at the Autumn Statement. The only reason that it is at the same level as a share of GDP and that the overall current debt level to GDP is higher than desired is the evident other news that the level of nominal GDP was significantly lower than before. In terms of policy, and on the contrary to what was said in that question, the plan is very much in place and on target.

Income Inequality

Lord Newby Excerpts

Thursday 21st January 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, one of the widely regarded measures shows that inequality may have widened, which is the one that would include the broadest measures of wealth to account for house prices. That is the only one that shows that; all the others, as I have said, show the exact opposite of the tone of most of these questions. That is why we are also focused, as part of the productivity plan and otherwise, on trying to do something about broadening the supply of houses and to discourage the degree to which landlords have been influencing the housing market. These policies, along with the others I mentioned, will continue to attract the justifiable prime focus of our economic policies.

[Lord Newby (LD)]

My Lords, will the Minister confirm that yesterday’s employment figures showed a further fall in productivity? Why do the Government think that happened and what are they doing about it?

[Lord O'Neill of Gatley]

My Lords, of course one can infer some tentative implications about productivity from yesterday’s data on employment, but it would be very premature to do so. We know from the very latest productivity statistics that, if one uses a magnifying glass, there has been a modest increase in productivity in the last two quarters for which data have been reported. It is an ongoing observation that, in what are generally currently regarded as some of the most successful economies in the world, cyclically, the US included, they have, if anything, an even bigger apparent conundrum on this than we do here in the UK, because of the evidence of the past 12 months.

Queen’s Speech

Lord Newby Excerpts

Thursday 4th June 2015 Lords Chamber

[Lord Newby (LD)]

My Lords, it is a great pleasure to be able to speak in today’s debate before I re-enter the Stygian world of the Whips’ office. I welcome the noble Lord, Lord O’Neill, and congratulate him on his maiden speech. I wish him well. I also look forward to the maiden speech of the noble Lord, Lord King of Lothbury. I will say something about the economy and then something, given that it has attracted considerable interest, about the attitude on these Benches towards the passage of business in your Lordships’ House.

Although the economic position inherited by this Government is incomparably stronger than that inherited by the coalition in 2010, a combination of deep-seated problems and external risks means that we are definitely not out of the woods. As far as the macroeconomic position is concerned, great progress has been made in reducing the deficit, and clearly more needs to be done, but I urge the Government not to bring about an accelerated elimination of the deficit on the back of very significant welfare cuts for the working poor and modest earners. That is neither economically necessary nor socially justifiable.

It is said that the only reason the Conservatives included the provision of £12 billion of welfare cuts in their programme was that they knew that, in any second coalition, the Liberal Democrats would not let them get away with it. They are now embarrassed and confused because they have not the faintest idea how they will make the cuts. I will make the Minister an offer. If the Government would still like the Liberal Democrats to scupper these proposals, I am sure that, with colleagues from across the House, we are still prepared to oblige. Perhaps the Minister will tip me the wink when the welfare reform legislation comes forward, and I will see what I can do.

In terms of the deep-seated economic problems facing the country, the last Government began to tackle some of them with some success, but much needs to be done. I will briefly mention three issues, all of them falling within the Minister’s priority of productivity. The first relates to innovation. Although the UK is a world-leading innovator in the service sector, we consistently spend less than our major competitors in this area in manufacturing. We are in fact 19th in the OECD for total expenditure and 24th for government R&D spending. We should be looking to increase the Government’s own investment in R&D to bring us much further up the OECD table. In particular, it is extremely important that we invest further in the extremely successful Technology Strategy Board, the Catapults and the sector research bodies, and that we commit to doing so over the long term.

Secondly, the housing shortage is now becoming a crisis. On current policies, the problem will get worse during the course of this Parliament rather than better. It is a particularly acute problem in London and in the social housing sector. I was therefore depressed to see that the Conservative manifesto devoted just three sentences, one of them descriptive, to affordable housing. Many changes will be needed in this area if we are going to really deal with this problem. I mention only one, which lies at the door of the Treasury and is an institutional mindset which is deeply damaging. The Treasury currently does not regard housing as part of our national infrastructure—as I discovered when I asked for a brief on infrastructure from Treasury officials last year. This must change, and the Minister is ideally placed to change it. I hope he will.

Thirdly, there is the northern powerhouse. The Chancellor, in his guise as the thieving magpie of Liberal Democrat policies, has very sensibly identified the need to give greater government impetus to the development of the north by latching on to Nick Clegg’s advocacy of greater powers for the northern cities. This is greatly to be welcomed. However, not only must the northern cities and indeed other cities be given greater powers, as is planned, but if the infrastructure of the north, particularly the transport infrastructure, is to match that of London, greater powers on their own are not enough. More resources are going to be needed if we are going to transform trans-Pennine rail links, for example, than simply giving northern cities greater powers.

Much has been said already in these debates about the Salisbury/Addison convention and how the opposition parties should behave in this Parliament. Let me make it clear that, for my part, I would not support any suggestion from any of my colleagues that we should seek to frustrate the Government by filibustering or by mounting a full-frontal attack on every aspect of the Government’s legislation. But what we shall do is to challenge aspects of legislation with which we disagree. In doing so, we will be guided by the traditions of the House. As a young and impressionable Treasury spokesman in your Lordships’ House, I learnt about these traditions during the period of the last Labour Government.

Several episodes stand out in my mind. I remember with affection the vote called on the then Financial Services and Markets Bill by the noble Lord, Lord Saatchi, at 10.45 pm on 9 May 2000. I also remember the noble Baroness, Lady Noakes, catching me almost literally napping when she called a vote at 11.35 pm in Committee on the then Banking Bill on 26 January 2009. I also remember the memorable day when the noble Lord, Lord Davies of Oldham, rang me in my office having suffered a big defeat on the first day in Committee the previous day, on an amendment to the statistics Bill, to sue for peace. In that case, the Government had brought forward a Bill which seemed calculated to give Ministers more control over official statistics when they were pledged to reduce it. A cross-party group led by the noble Lord, Lord Moser, sought fundamentally to redraft the Bill. As a result of this early defeat in Committee, the Bill was largely redrafted. I think that everybody, perhaps even the noble Lord, Lord Davies, agreed that this was the Lords doing its work.

My experience in government was that, when the Government lost the argument, they tended to lose the vote. There have been a number of the Government’s flagship proposals which we have already debated in these Queen’s Speech debates where the Government have already lost the arguments. They can expect a busy time in the Division Lobbies in the months ahead.

Finance (No. 2) Bill

Lord Newby Excerpts

Thursday 26th March 2015 Lords Chamber

Moved by

[Lord Newby]

[Lord Newby (LD)]

My Lords, I beg to move that the Bill now be read a second time.

As noble Lords are aware, when this Government took office in 2010, they faced the worst economic crisis in recent history. Since then, this Government have taken decisive action to deal with the debts we inherited and get the economy moving again. Today we are seeing the fruits of those actions, with the fastest rate of growth among the advanced economies, record levels of employment and debt falling.

The Finance Bill before us today takes further important steps to secure the recovery by helping business and enterprise, tackling tax avoidance and evasion, and helping to deliver a fairer and more efficient tax system. I will outline the contents of the Bill in a moment, but I will first say something about this year’s Finance Bill process.

Yesterday, the Bill was debated for six hours in another place. I recognise that this is a compressed timetable, which limits scrutiny of the bill. However, this Government have done what they can to enable as much scrutiny of the Bill as the parliamentary timetable allows. In December 2014, we published over 250 pages of draft Finance Bill legislation for technical consultation. This meets the Government’s commitment to publish the majority of Finance Bill clauses in draft at least three months ahead of the Bill being introduced. We have met this commitment in every year since 2011.

As a result, 80% of the legislation before us has already benefited from public scrutiny and comment. In many cases, there have been several rounds of consultation prior to the final legislation being published. In addition, this Government have taken steps to limit the size of the Bill by holding back around 50 pages of previously announced legislation which, in our judgment, could be delayed until after the election. The provisions that remain represent genuine priorities—where not proceeding with legislation would result in revenue being lost to the Exchequer, or individuals or companies being worse off or faced with considerable uncertainty.

I now turn to the specific provisions in the Bill: first, growth and investment. The Bill builds on previous Finance Bills by creating the conditions in which business and enterprise can flourish. When they took office, this Government set out their ambition to have the most competitive tax system in the G20, and we are achieving that ambition. Next week, the UK’s main rate of corporation tax will be 20%—far lower than the uncompetitive 28% rate we inherited from the previous Government, and the joint lowest in the G20. UK Trade & Investment reported that the UK had attracted more inward investment projects in 2014 than in any year since records began in 1980. Clause 6 confirms that the main rate of corporation tax will remain at 20% in 2016, giving clarity to business.

The Government are also building on their commitment to support the innovative businesses that will drive future economic growth, through generous tax credits for research and development and reliefs for the UK’s world-beating creative sector. Clause 27 increases the rate of the above-the-line R&D tax credit from 10% to 11%, and the rate of the super-deduction for small and medium enterprises from 225% to 230%. This will increase the generosity of the relief, increasing the incentive to carry on R&D and improving the competitiveness of the UK as a location for R&D investment. These reliefs support more than 15,000 firms and £13 billion of investment annually. Clause 30 introduces a new relief for makers of children’s television programmes. Clauses 29 and 31 increase the generosity of the existing film and television tax credits. Together, these clauses will provide a major boost to investment in the UK’s successful film and television sector.

The Bill also includes a comprehensive package to support the oil and gas sector and secure long-term investment in the UK continental shelf. The Government understand the challenges currently facing the UK oil and gas industry as a result of the steep fall in oil prices, and have been proactive in their response. Clause 49 introduces a new investment allowance to reward investment at all stages of the industry life cycle. This new allowance will build on the UK’s existing field allowances, and has been fast-tracked in response to feedback from industry. Clause 48 reduces the rate of the supplementary charge from 32% to 20% from 1 January 2015, and Clause 52 reduces the rate of petroleum revenue tax from 50% to 35% for chargeable periods ending after 31 December 2015, supporting incremental investment in older fields. Taken together, these measures are expected to deliver more than £4 billion in additional investment in the UK and the UK continental shelf, supporting jobs and supply chain opportunities and securing the long-term future of oil and gas exploration in the UK.

I now turn to the measures in the Bill relating to fairness. The Government believe in supporting low and middle-income earners by allowing them to keep more of the money they earn. We set an ambition for the personal allowance to increase to £10,000 by the end of this Parliament—an ambition which we achieved in April 2014, one year ahead of schedule.

In this Bill, we are going further. Clause 3 increases the personal allowance to £10,600 in 2015-16, and Clauses 4 and 5 increase the personal allowance to £10,800 in 2016-17 and then £11,000 in 2017-18. Clauses 4 and 5 also provide that the higher rate threshold, above which individuals start paying the 40% rate of income tax, will rise above inflation for the first time in seven years. As a result of increases to the personal allowance announced during this Parliament, a typical basic rate taxpayer will be £905 a year better off in 2017-18 compared with 2010-11.

The Bill contains further provisions to help hard-working families. Clause 57 extends the child exemption for air passenger duty so that children under 12 travelling on an economy ticket will be exempt from 1 May 2015 and children under 16 travelling in economy will be exempt from 1 March 2016. This measure will deliver significant savings for families going on holiday or visiting distant relatives.

Meanwhile, Clause 34 ensures that death benefits paid as annuities can be paid income tax free where the member dies before age 75, levelling the playing field with other types of death benefit. This complements the pension reforms announced by the Government at Budget 2014.

This Government believe in a fair tax system where those who can best afford it contribute the most. That is why Clause 24 increases the remittance basis charge for non-domiciled individuals to ensure that those who have resided in the UK the longest make a fairer contribution to UK tax receipts.

Clauses 37 and 39 implement important reforms to capital gains tax. Clause 37 extends capital gains tax to non-residents disposing of UK residential property, ensuring that residents and non-residents are treated in the same way when making disposals. Clause 39 ensures that access to private residence relief is limited appropriately.

Finally, this Bill makes changes to the taxation of the banking sector. The Government have been clear that the banking sector should make an additional contribution to reflect its risks to the UK economy. As the banking sector strengthens, it is only fair that this contribution increases. Clause 76 therefore increases the bank levy from 0.156% to 0.21% from 1 January 2015. In addition, Clause 32 and Schedule 2 provide that banks will only be entitled to offset existing carried-forward losses against 50% of their annual profits from 1 April 2015. This will ensure that banks’ future tax payments cannot be eliminated by losses incurred during the crisis and subsequent mis-selling scandals. Together, these banking measures will raise over £8 billion in additional revenue over the next five years.

Let me turn finally to measures designed to tackle avoidance. It is clearly not acceptable that some individuals and companies are not willing to pay their fair share of tax, and this Government have been resolute in clamping down on avoidance and evasion. Part 3 of the Bill will legislate for a new diverted profits tax. This will counter aggressive tax planning by multinational companies who go to extraordinary lengths to avoid paying UK tax. It targets contrived arrangements that are used to divert profits away from the UK. The new tax will be applied at a rate of 25% from 1 April this year. This measure has been subject to a period of technical consultation and a number of aspects have been clarified in the final legislation in response to stakeholder comments.

The diverted profits tax complements work undertaken through the G20 and OECD base erosion and profit shifting project to reform international rules to counter tax avoidance by multinationals. The UK has been playing a leading role in this work. Clause 122 further supports the BEPS project by legislating for the implementation of a new country-by-country reporting template, which will ensure that multinational companies provide tax authorities with high-level information on profits, taxes paid and certain indicators of economic activity for purposes of risk assessment.

The diverted profits tax is a significant new tool in the Government’s battle against avoidance, but this Bill also legislates for a number of other anti-avoidance measures. For example, Clause 33 and Schedule 3 target wholly artificial arrangements that seek to circumvent the UK’s rules on corporate loss relief by converting old losses into new ones that can be used immediately against unrelated profits. Meanwhile, Clause 117 and Schedule 17 strengthen the disclosure of tax avoidance scheme regime, and Clause 119 and Schedule 8 grant additional powers to HMRC to tackle promoters of high-risk tax avoidance schemes. In all, the anti-avoidance measures in this Bill will raise nearly £2.5 billion by 2019-20 to support the economic recovery.

To conclude, this is a significant Bill, which legislates for important changes to the tax system. It supports investment and innovation and secures investment in the UK’s vital oil and gas industry. It delivers further support for families and low and middle-income earners and tackles aggressive avoidance by companies and individuals. These are sensible measures, which should not wait until the next Parliament. I commend the Bill to the House.

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[Lord Newby]

My Lords, I thank all noble Lords who have spoken in this debate. I shall come back to the matters raised by the noble Lord, Lord Davies, but perhaps I may correct one point. He claimed, completely falsely, that there was no enthusiastic endorsement from my Benches for the Bill. My noble friends have been restraining themselves, because their enthusiasm is very considerable indeed. I am sorry that he has not picked that up. I certainly have and it has given me great strength.

[Lord Soley]

As to my noble friend Lord Davies’s speech, the reason why so many people were on the government Benches, none of whom were speaking, is that they were trying to give subtle support to my noble friend Lord Haskel’s point that you can increase numbers without productivity. That is clearly the problem.

--- Later in debate ---

[Lord Newby]

As my noble friend said, a nice try. The big theme of several speakers related to productivity, and I will deal with that as best I can. I should like again to correct the noble Lord, Lord Haskel, about GDP per capita. This year, 2015, it will in fact be 5% higher than it was in 2010, so it is simply not the case that while GDP overall has risen, GDP per capita has fallen.

There is, I think, widespread acceptance that we need to increase productivity. As the noble Lord, Lord Haskel, is aware, there has been a productivity gap between this country and some of our competitors in Europe and the States for a long time. It fell and has risen slightly again. There is an interesting argument to be had about whether, particularly in times of austerity, it is better to have rapid employment growth, even if productivity does not increase as quickly, than to have higher unemployment and higher productivity. Personally, I think that over the last five years the fact that there has been rapid employment growth has been of crucial importance. We are now beginning to see some increase in productivity, and I obviously share his view that we wish this to accelerate.

I should like, though, to tackle head-on the assertion of the noble Lord, Lord Haskel, that the Government have no view or strategy on improving productivity. How do we do it? One of the key points is that we have to improve the qualification and skill levels of the workforce. Everybody agrees on that. We accept that there are far too many people who have far too few skills. That is why, for example, we have accelerated the academies programme to improve teaching in schools.

[Lord Davies of Oldham]

Does the noble Lord recall the figures of the projected cuts in the further education budget for the trainers of a great number of these people without skills?

[Lord Newby]

Given the policy of the noble Lord’s party on further education, and given that if you talk to anybody in a university about their absolute fears about what will happen if a Labour Government comes in, with their policies to cut grants, and their views on what that does to university funding, I would have thought that the best thing for the Labour Party to do for the future of universities is to pursue a policy of as much silence as it can manage. In this Parliament we have seen record numbers of young people going to university, including record numbers of girls and of young people from poorer backgrounds. That is exactly the sort of change and development that I thought the Labour Party supported. We have recognised that there is a need to improve skills below university level. As I was saying, we have supported the creation of university technology colleges and overseen the increase in the number of apprentices to 2 million, which is vastly more than obtained during the previous Government.

The noble Lord, Lord Soley, quite rightly talked about the absolute importance of science and technology and the transfer of basic research into business success. We have maintained resource funding and increased capital for science in real terms during the lifetime of this Parliament. Over the period ahead, we are planning some £5.9 billion of investment in the science infrastructure. On how we get that science applied, we have consistently put money into the catapults, the purpose of which is to act as a bridge between universities and firms. These have been extremely successful: the high-end engineering ones have been very successful. I saw the National Composites Centre in Bristol, which is doing tremendous work. It is possible to do that work only because it is a partnership between government, the universities and business. This concept began under the last Government, but we have strongly supported it. We need to do more, first, because it is successful and, secondly, because all our competitors are doing something like it.

Furthermore, in science we have initiated a grand challenge fund, which will deliver some £400 million of funding on a competitive basis for new, world-leading scientific infrastructure. Within the overall area of science and technology, we have put a £100 million investment, for example, into the research and development of intelligent mobility, which is one of the leading potential growth areas on which this country wishes to be, and remain, in the lead.

The noble Lord, Lord Desai, reminded us that the Labour Party legislated to halve the deficit over a four-year period, which is almost precisely what has happened under this Government. On his radical plans for changing the basis of corporate taxes and taxation more generally, this Government increased indirect taxation on consumption by increasing VAT and they have reduced taxation on income by putting up the personal allowance. Clearly that process, at least as far as indirect taxation is concerned, will not be pursued by any party in the next Government, as we heard yesterday.

On the noble Lord’s more radical ideas on taxing consumption, I am not a tax radical, I am afraid, partly because I started my working life as a tax man. I think that grand taxation schemes often have a whole raft of unanticipated consequences. Of course, those who suffer from any tax change make about 100 times as much noise as those who benefit, so politically I wish the noble Lord luck with the sort of grand scheme that he has in mind, but I hope that I am never called upon to try to do something equally ambitious.

The noble Lord, Lord Soley, made a number of interesting and useful points. I am pleased that he welcomed the changes to gift aid, and I wish him well in finishing the funding for the Mary Seacole statue. Having been in charge of fundraising for the Lloyd George statue in Parliament Square, I know just how stressful the process is, and I hope very much that it is quickly brought to a successful conclusion.

I will pass back to my colleagues in the Treasury and the Department for Transport the point that the noble Lord made about subsidising the establishment of charging points for electric vehicles. I have considerable sympathy with what he said about the power of attorney. I have power of attorney for my mother, and trying to work out how to exercise it is really quite difficult. Having gone through the whole process, I found that it was remarkably anachronistic. As we are moving into a period where power of attorney will be required by more and more families, there is an argument for looking a bit more fundamentally at the whole thing and not just at the way in which it can be used once it has been granted.

[Lord Soley]

I agree with the noble Lord’s general point, but I ask him to do one thing before the House prorogues. Will he ask his officials to put a reference to power of attorney on the tax website so that people can follow the link and find out what to do? That is not difficult to do, actually.

[Lord Newby]

I will do that very readily. Finally, the noble Lord, Lord Davies of Oldham, described this as a mean-spirited Bill, and he did not have a huge number of positive things to say about the Government’s track record during this Parliament. This is now the end of the Parliament and we have been in government for five years. We came into the coalition to turn the public finances around and to put the economy on a positive track, and that is what has happened. I think of the position that we were in, even when I first stood at this Dispatch Box three years ago, on growth, employment and our prospects in virtually every respect, and I look at the situation now. We have the quickest growth in the G7, the claimant count has come down a third in this Parliament, there are 400,000 fewer households with children with no one in work, and record numbers of women, both absolute and proportionately, at work.

Nobody can claim that the economy has yet reached a state of perfection—that will never happen—but looking at the progress that this Government have made in turning the economy around and making it fit for the challenges that we face, I am very happy to fight a general election on that basis. This Finance Bill completes the process by the Government in that respect and I commend it to the House.

[Lord Haskel]

Is the noble Lord aware that the figure I used for productivity per person comes from the Institute for Fiscal Studies? I think it can be considered to be pretty good and independent. On skills and qualifications, the Minister spoke of numbers, but it is important to speak of standards, because that is what will help our economy. We do not need what the OBR calls the rollercoaster attitude towards science; we need the continuous support over many, many years.

Economy: Public Finances

Lord Newby Excerpts

Tuesday 24th March 2015 Lords Chamber

[Lord Vinson]

To ask Her Majesty’s Government, further to the Written Answer by Lord Deighton on 13 February (HL 4675), what plans they have to reduce the deficit and to make the public more aware of the effect on living standards of the United Kingdom’s debt servicing costs, which are currently £766 per annum per person or £1,841 per household.

[Lord Newby (LD)]

My Lords, the Office for Budget Responsibility forecasts that this year the Government will cut the deficit in half as a percentage of GDP from its post-war peak in 2009-10. It is forecast to fall every following year, reaching a surplus in 2018-19. The Government set out in the Budget document that reducing debt as a share of GDP will help to control debt interest and reduce the burden of these costs on future generations.

[Lord Vinson (Con)]

I thank the Minister for his very sagacious reply. Does he agree that, if the public were more aware of our huge national indebtedness, they would be more receptive to the need to put it right? So when he is a Minister in the next Government, will he ensure that every effort is made to encourage the nation to save more, export more, import less and reduce subsidies generally, not least the £14 billion a year net that we give to the European Union, which should be treated as overseas aid?

[Lord Newby]

My Lords, I thank the noble Lord for his optimism about my future career prospects. I agree with what he says about savings in particular. That is why the Chancellor announced at the Budget a new personal savings allowance of up to £1,000 for basic rate taxpayers, more flexibility in the operation of ISAs and a new Help to Buy ISA for first-time homebuyers.

[Lord Davies of Oldham (Lab)]

My Lords, is the Minister aware that Labour has today made a clear pledge to the British people that in government we will not raise the rate of VAT nor extend its coverage? Will the Minister, close as he is to the Chancellor, give a similar pledge to my party; or will the coalition parties follow the pattern of 2010, with the Liberals warning of a VAT tax bombshell and the Tories staying silent—and, in the weeks after, in coalition, increasing VAT from 17.5% to 20%?

--- Later in debate ---

[Lord Newby]

My Lords, any commitment by the Labour Party would have a lot more credibility if we had even the vaguest clue as to how it was going to get the deficit down.

[Lord Bilimoria (CB)]

Would the Minister agree that one reason for the credit crunch and the financial crisis seven years ago was the prolonged low rate of interest of 5% a year? Now that the Government have extortionate debt servicing costs at a 0.5% base rate, what plans do they have when interest rates go up, as they will? How will they service those costs, and at what rate are they borrowing for long-term debt at the moment?

[Lord Newby]

My Lords, one of the main reasons why we need to get debt under control is that the long-term borrowing costs are very significant. Whatever the interest rate, even with current low rates of interest, we are spending 2.5% of GDP per annum on servicing it, significantly more than we spend on the aid budget. Because interest rates are low and because we have a very credible economic policy, we have been able to borrow long term at low interest rates—but none the less we need to get the debt down because we want to get the borrowing costs down.

[Lord Deben (Con)]

Does my noble friend accept that the Government’s change of heart, which has meant that every taxpayer now has a proper breakdown of where their tax goes, is an enormous advantage? If you read it carefully, you see that the cost of our membership of the European Union is extremely small, very good value and that is where we should stay.

[Lord Newby]

I completely agree with the noble Lord.

[Lord Grocott (Lab)]

In the interests of clarity, when the Minister refers to the Budget, is he referring to the George Osborne Budget or the Danny Alexander Budget?

[Lord Newby]

My Lords, I was referring to the Government’s Budget.

[The Earl of Listowel (CB)]

My Lords, does the Minister agree that the public should also keep in mind the fact that nearly half of local government spending is on adult social care and the care of children, and that includes 14.63% on children? While local government has risen to the challenges to its funding over recent years, there is real concern that it cannot take much more.

[Lord Newby]

My Lords, the way in which we ensure that local government and all other aspects of government are funded effectively and appropriately is by having a very strong, thriving, sustainable economy. The fact that our growth rate is the highest among the G7, unemployment is down and employment is up, is the biggest long-term guarantor of a sustainable funding basis for local government and, indeed, all other forms of government expenditure.

[Lord Lea of Crondall (Lab)]

My Lords, the noble Lord, Lord Vinson, mentioned exports as if they were doing rather well. I do not think that they were mentioned in the Budget but does the Minister agree that our trade balance is a disaster, as is our productivity, which has not grown at all since 2010? Would not the Government be better served by looking at these fundamental factors in the real economy?

[Lord Newby]

My Lords, last month’s trade figures were the best for 15 years. No doubt the noble Lord would say that that is not good enough. However, we have spent more money more effectively through UKTI in building up our trade with less traditional countries such as China. Further support was given to that in the Budget.

[Lord McFall of Alcluith (Lab)]

My Lords, in 2010 the Government inherited £786 billion of debt. Five years later that figure is now £1,540 billion—almost double. The Chancellor in his Budget said that the Government were paying the debt down. Was he telling the truth?

[Lord Newby]

My Lords, it is no secret that this Government have borrowed over half a trillion pounds as we have slowly got to grips with the mess we inherited. Debt has come down by about 1% of GDP for each year we have been in government—the level of consolidation that the IMF says is most appropriate in these sorts of circumstances.

Mortgage Credit Directive Order 2015

Lord Newby Excerpts

Tuesday 24th March 2015 Lords Chamber

Moved by

[Lord Newby]

That the draft orders laid before the House on 26 January and 2 February be approved.

Relevant documents: 23rd and 24th Reports from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 19 March.

Motions agreed.