Autumn Statement
Lord Razzall Excerpts(10 years ago)
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Lord Razzall (LD)
My Lords, I very much welcome the Autumn Statement—little surprise, as this is a coalition government Statement in which the Liberal Democrats have clearly had considerable involvement. I thoroughly enjoyed the demolition of the Labour Party case by the Minister. I am surprised that he did not mention one obvious point, which comes on page 6 of the Autumn Statement. For the last couple of years we have listened to the Labour Party indicate that real wages have not increased. On page 6, the Statement indicates that the OBR now forecasts that wages will exceed inflation for the next five years. I would have thought that that rather shoots the fox.
I will ask one or two questions. First, the Chancellor deals with spending cuts on page 9 of the Autumn Statement. Even as a friend, I suspect he rather glosses over the impact that spending cuts are likely to have after 2015-16. I do not know whether the Minister can add anything on where these cuts will come from. As the Minister rightly indicates, infrastructure spending has been quite significant in these proposals, not only in the Autumn Statement, but in the road scheme announced on Monday and the infrastructure plan announced on Tuesday. Does he agree with the argument that the Liberal Democrats have been making that, when looking at spending cuts in the next Parliament, infrastructure spending should be ignored because of the long-term capital effect and capital advantage of such spending? On the proposal for postgraduate loans—a topic that is obviously very dear to my right honourable friend Vince Cable—does the Minister agree that this will have a significant impact on the possibility of research into science? Finally, on the desirable attempt to extract the tax on multinational companies, the proposal is that there should be a 25% tax on the profits of a multinational company earned in the United Kingdom. Is he able to expand on that? I understand that one of the arguments of companies such as Amazon and Starbucks is that they do not make any profits in the United Kingdom.
Lord Deighton
There were five questions there. First, I obviously accept the point that my noble friend makes about real wages, although wages exceeding inflation has been coming through only in the last year. He is absolutely right that the forecast from the OBR is that that will continue and that we will see earnings outstrip inflation, which would be a good thing.
Secondly, what is the story behind the spending cuts, which are quite significant? The simple story is that we plan to continue at the rate we have successfully implemented in this Parliament. We know that we can do it. In fact, we have managed to do it every year and still end up with an underspend. My right honourable friend the Minister for the Cabinet Office put out a paper this morning on how we will find another £10 billion of efficiency reforms on top of the nearly £15 billion that we have achieved in this Parliament. There will of course be a continuing review of welfare to ensure that we are focused on getting people back to work and that we are targeting those who really need to receive it. It represents a significant amount of our public expenditure, so that has to be part of the programme.
My noble friend asked whether we would effectively ring-fence the infrastructure investment. There is a commitment—effectively a fiscal rule—that we will retain public sector gross investment at a consistent level. If we stick to that, that is what will happen. Of course, the great success of all that we have accomplished is that so much of our infrastructure has been financed by the private sector, so it is not constrained by that measure anyway.
I think that postgraduate loans are a terrific initiative because not having money was becoming a constraint on people doing research. Therefore, that is a good thing on a number of grounds.
The multinational tax measure is looking at companies which put in place elaborate structures effectively to move their profits to offshore locations with a lower tax rate. The mechanism to capture that will dismantle those structures and look at the real profits, which we can then tax.
Income and Wealth Inequality
Lord Razzall Excerpts(10 years ago)
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Lord Newby
My Lords, the commission has put great priority, in all its reports, on the importance of work in households. One of the telling statistics, for me, about what has happened in recent years is that there are now 390,000 fewer children in workless households than there were in 2010 and that the proportion of children in workless households is now at its lowest level since records began. We know that the family environment is extremely important to how children think about the workplace and to their chances of getting jobs.
Lord Razzall (LD)
My Lords, in the context of this important discussion on relative income and wealth inequality, do the Government have a view on the opinion of the Institute for Fiscal Studies, expressed yesterday, that since 2010 the position of pensioners has increased significantly relative to those in work, however palatable that might be to your Lordships’ House?
Lord Newby
My Lords, as for how resources are allocated, and where people feel more could be done or less, it is a bit like squeezing air round a balloon. It is interesting that I do not think that there has been a single question in your Lordships’ House on one aspect of the Government’s policy—the level of support the Government have given to pensioners.
National Insurance Contributions Bill
Lord Razzall Excerpts(10 years ago)
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Lord Razzall (LD)
My Lords, this is clearly an important Bill, bearing in mind the number of people in the workforce in the United Kingdom who are now self- employed. Indeed, there is an ever-increasing percentage in that position and I suspect the Minister will agree with me that, as so often in your Lordships’ House, the importance of this legislation is in inverse proportion to the number of people who want to speak on it.
On these Benches—as indeed, I understand, on the Labour Benches—we welcome this legislation. On the first point of tax simplification, every Government come in saying they are going to simplify the tax code and four years later the tax legislation is even more complicated than it was when they came in. Anything that can be done, even of a minor nature, to simplify tax legislation is clearly desirable. All noble Lords will welcome the attempts to reduce tax avoidance in this area—again, all Governments want to do that and having practical examples there is obviously beneficial.
In supporting the Bill, I will just raise three or four questions. First, the Minister was correct that concerns were expressed in another place regarding the position of self-employed women claiming maternity allowance, which he referred to in his remarks. I understand the answer that the Government have given, which is a combination of responses from the Treasury and the DWP. However, as I understand it, the Chartered Institute of Taxation has suggested that the Government should review these changes at the earliest opportunity—maybe in a couple of years’ time. I would be grateful if the Minister could indicate whether that is a suggestion that the Government welcome. The idea is to ensure that the introduction of these provisions has not resulted in the reduction in the number of claims for the standard rate of maternity allowance, which would obviously be hitting women who wish to claim the allowance.
Secondly, the Chartered Institute of Taxation has pointed out that there will be a gap of 22 months between the collection of class 2 payments for 2014-15 and for 2015-16, as the liability moves from a weekly basis to arising at the end of the tax year. Have the Government considered the cash-flow implications of class 2 NICs coming in up to 10 months after the end of the tax year rather than being paid in-year as they are at the moment? That is clearly quite a significant point in relation to the Government’s finances.
Thirdly, there are significant changes being brought in to the entitlement to contributory benefits. I would be grateful if the Minister could confirm that the Government are satisfied that moving class 2 into self-assessment will not adversely affect entitlement to contributory benefits. In particular, what proposals do the Government have in mind to educate and inform people as to these changes? For example, direct debits will have to be cancelled before the introduction of the programme in 2015.
Finally, I have a general question. As the Minister will well know, a number of people have advocated for some time the merging of the NIC structure with the general income tax structure. Do the Government feel that these proposals, when implemented, will be neutral, negative or positive on that issue?
Money Laundering: UK Parliamentarians
Lord Razzall Excerpts(10 years, 2 months ago)
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Lord Deighton
I can confirm that that will be precisely the message in the final negotiations on the fourth money laundering directive.
Lord Razzall
My Lords, I am sure that the Minister will accept that his answers have not entirely reassured Members of this House who are treated as politically exposed persons. Perhaps he can explain to me and to many of my colleagues who are not members of the Government: what is it that we might do, or what might be done to us, that makes us politically exposed people?
Lord Deighton
The thing to remember is that although the intention behind this approach is to catch potentially corrupt public officials around the world, defining someone as a PEP is not an end in itself—it is merely a trigger point at which an assessment should be made of the individual’s business and whether it is high risk. It is that assessment of whether it is high risk that is not working well enough at the moment.
Finance Bill
Lord Razzall Excerpts(10 years, 5 months ago)
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Lord Razzall (LD)
My Lords, I am glad that the noble Lord, Lord Lawson, has just contradicted his statement in The House magazine that the Liberal Democrats have only two policies; apparently, he has just added a third.
Many people outside your Lordships’ House regard this House as being rather pickled in aspic and stuck in procedures that have applied for the past God knows how many centuries. However, since I came to this House in 1997, there have been two significant procedural alterations. First, as demonstrated by this debate, although we cannot amend it, we now debate the Finance Bill. I remember the pressure to do that. The noble Lord, Lord MacGregor, was very much part of that and I think that the noble Lord, Lord Saatchi, also used to press for that to happen. Secondly, since 2003, we have had a Finance Bill Sub-Committee, which examines selected topics of the Finance Bill. This year, as we are debating today, it examined the detailed measures affecting changes in tax law for partnerships.
As a practising lawyer for over 30 years, I am well aware of the significant role that professional partnerships have played, especially the lawyers and accountants, in the development of the financial services industry. In my professional lifetime, there have been two very significant events in this area. First, a lot of people forget that, until 1967, no partnership could contain more than 20 partners. Our Victorian forefathers took the view that if you wanted to have a business with more than that, the appropriate thing to do was to have a limited liability company. Those of us who have attempted to manage professional partnerships in later years will realise their wisdom because of the significant problems of managing a large professional organisation where the owners of the business are also the means of production. The problem for the law and accountancy firms was that they could not incorporate because their professional organisations did not allow them to have limited liability. It was not until the Companies Act 1967 that, under pressure from the big firms of lawyers and accounts, the limit of 20 partners was removed. That has resulted in the huge organisations that have subsequently been created in both those industries.
The second major change was the Limited Liability Partnerships Act 2000. The major driver for that was the desire for individual firms of accountants and lawyers to obtain a limited liability to protect themselves against large negligence claims. Nowadays, almost all major professional firms have become limited liability partnerships and the structures of those organisations are well established. It would be common ground that, where a limited liability partner is in reality a salaried employee, he or she should be treated as such for tax purposes. However, as the noble Lord’s committee has indicated, there has been significant pressure from the professions that a case law test should apply to the definition of the nature of partnership rather than a legislative one. As the noble Lord, and his report, indicated, there has been significant concern that the consultation set up by the department was inadequate because the proposals on which it was based were not the same as those set out in the Finance Bill. I strongly support the recommendation by the sub-committee to delay implementation of these proposals until 15 April, not only to make sure that the rules are correct but to give a longer opportunity for firms to make any structural changes needed to comply with them. For example, this would enable them to put in place adequate resources so that the capital requirement needed by partners could be met.
As this House now has the opportunity to discuss the Finance Bill, I, like the previous speaker, cannot miss the opportunity to make an overall comment on the last effective Finance Bill before the general election. The tax provisions in the Bill must be looked at in the context of the overall economic position and the policy to reduce the deficit and the public sector borrowing requirement. As the Institute for Fiscal Studies has pointed out, no Government raise taxes in the year before an election but, surprise, surprise, taxes tend to go up straight after one. As noble Lords will be aware, both coalition parties are committed to eliminate the budget deficit in 2017-18, although there is some political difference about to how to do it. The Tories seem to propose that it should be done primarily through cuts in expenditure. I think that the Lib Dem members of the coalition think that there should be a mix between expenditure cuts and tax increases. The problem, as the Institute for Fiscal Studies has certainly demonstrated, is that if all the savings were to come from departmental cuts in order to get back to a budget equilibrium in that year, the cuts would have to accelerate from 2.3% per annum to 3.7% per annum.
Whoever is in government after 2015, if the decision is maintained to protect the National Health Service, the schools budget and overseas aid, and if they are immune to cuts in real terms, it is estimated that other departments will have to deliver annual cuts of more than 20% per annum for the three years after the election. The Home Office, the Ministry of Justice, Defra and DBIS, let alone other departments, could not deliver the current level of services if they were compelled to make cuts on that scale. Whatever political party, or combination of political parties, forms the Government after the general election, it would be impossible to achieve that in practice.
What is likely to happen? It may be that growth in tax revenues as the economy picks up will, to some extent, come to the rescue of a future Chancellor, or it may be that a future Chancellor will contemplate a modest deficit if the debt burden is falling as a share of GDP and if the economy is continuing to grow. In any case, I am sure that all noble Lords will accept that if we are forced by then to accept a drastically smaller state, a proper debate will need to take place.
Economy: Public Sector Net Borrowing
Lord Razzall Excerpts(10 years, 5 months ago)
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Lord Newby
My Lords, there are always questions when statements are made outside the House as to whether they should have been made inside the House. If the noble Baroness is concerned about it, she of course has the option of asking an Urgent Question.
Lord Razzall (LD)
My Lords, is the Minister prepared to take this opportunity, in view of the questioning, to move from the short to the long-term and comment on last week’s report by the Office for Budgetary Responsibility, which states that by 2050 the public sector borrowing requirement will be more manageable than it would have been were it not for the actions of the coalition since 2010?
Lord Newby
Yes, my Lords; my noble friend is absolutely right. The report to which he refers demonstrates two things: first, with an ageing population, there will over a long period be significant pressures on the public finances, everything being equal; secondly, that a number of steps which have been taken with cross-party support, such as raising the retirement age, are making those long-term additional burdens more acceptable and possible to deal with in a sensible fiscal framework.
Finance: Fiscal Devolution
Lord Razzall Excerpts(10 years, 5 months ago)
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Lord Newby
My Lords, the first point that the noble Lord makes is summed up very well in the introduction to the report to which his Question refers, in which Tony Travers, who chaired it, says:
“Devolution and localism face little opposition apart from national politicians’ cautious approach to constitutional change in Britain”.
That sums up the position very well, and I think that there has been considerable movement under this Government. I will take back the noble Lord’s second point to my colleagues in the Treasury.
Lord Razzall (LD)
Does the Minister agree that every political party during his adult lifetime has fought elections on the basis that it wants greater devolution of power to the regions or the cities and then, when it gets into power, it finds a reason not to do so?
Lord Newby
I am afraid that there has been a very chequered history of attempts to devolve power—within England, at least. This Government, by devolving half the income generated by business rates, have begun a process. The growth deals announced at the beginning of this week—under which, over a period, £12 billion will be devolved to local enterprise partnerships, whereas it would otherwise have been administered by central government departments—is a big move towards greater devolution. I suspect that in the next Parliament there will be much more pressure to do more.
Tax: Aggressive Tax Avoidance
Lord Razzall Excerpts(10 years, 5 months ago)
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Lord Razzall (LD)
My Lords, at the G8 meeting last year—it is now the G7—the Prime Minister led on the question of tax avoidance by the multinational companies that we all know, such as Starbucks, Amazon and Google. They seem to do significant business in the UK but pay very little tax. What progress has been made in that area?
Lord Newby
My Lords, the work in that area has been carried forward by the OECD, which produced a comprehensive 15-point action plan. Work on all those points is now under way. The first deliverables, on transport pricing, are due in September this year. At the EU level, noble Lords will have seen that the EU is currently investigating the tax position in Luxembourg, Ireland and the Netherlands, specifically with Amazon, Apple and Starbucks in mind.
Payday Loans: Debt Collection
Lord Razzall Excerpts(10 years, 5 months ago)
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Lord Newby
My Lords, the noble Lord is right that there is a question over whether Wonga in this case might have infringed both the Fraud Act and the Theft Act. The Law Society has asked the Solicitors Regulation Authority to investigate whether Wonga might also have breached Section 21 of the Solicitors Act 1974 and the Legal Services Act 2007. There is plenty of scope for legal action. On the fit-and-proper test, payday loan companies have been regulated by the FCA only since April. A full fit-and-proper test of each company will be undertaken in the autumn.
Lord Razzall (LD)
My Lords, is the Minister aware that the debt collection practice with which we are concerned has also been introduced by the Student Loans Company? Will he confirm that no other government agency follows the same practice and agree that it is difficult to complain about Wonga when a government agency is involved in similar activities?
Lord Newby
My Lords, there have been recent reports about the Student Loans Company. My right honourable friend David Willetts is in the process of establishing the facts of the practice. The offending letters that the SLC sent out are no longer being sent. Certainly, if it is found that the SLC or any other arm of government has adopted unsatisfactory practices, appropriate and firm action will be taken.
Budget Statement
Lord Razzall Excerpts(10 years, 8 months ago)
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Lord Razzall (LD)
My Lords, since the days of Asquith your Lordships’ House has been excluded from any direct influence on the Budget process, but the number of noble Lords who have put their names down to speak in this debate demonstrates how much we appreciate the opportunity to comment on the state of the economy and the potential political consequences that flow from it.
However cautious the Chancellor of the Exchequer and other Treasury Ministers have been, there can be no doubt that the UK economy is on the mend. Output is growing at its fastest rate since before the financial crash; unemployment is falling as new jobs are created in the private sector, as the Minister indicated—more than replacing those lost in the public sector; inflation at 1.7% last month is the lowest for four years and is now below the Bank of England target of 2%; and it is now estimated that by the last quarter of 2014 the economy will be greater in size than it was before the 2008 collapse.
For the two coalition parties the political challenge is clear. The result of the Fixed-term Parliaments Act means that we now know that the date of the next election will be the first Thursday in May 2015. To do well in that election, both our parties will have to demonstrate that the economic policies of the coalition are working and that a return to a Labour Government would put the economic recovery at risk.
As noble Lords will be aware, the coalition has been successful in persuading the electorate that the financial crisis in 2008 was the result of the Labour Government’s profligacy. I accept that this is slightly unfair as it ignores the effect of the subprime mortgage collapse in the United States, but the success of the argument is demonstrated by polling figures, which have consistently shown that the Government are better trusted to manage the economy than Labour. Of course, Labour has not been helped by the refusal of the shadow Chancellor, Mr Balls, to show any remorse for Labour’s period of economic stewardship.
The major attack from Labour, which the noble Lord, Lord Hollick, touched on, has been that growth is not resulting in an improvement in living standards. There are probably two main reasons for this, of which only one is the direct result of government policies. Clearly, the increase in VAT to 20% had a significant impact on household budgets which is still working its way through, but the major factor outside government control which is not often mentioned has been a significant adverse movement in trade prices. As Ben Broadbent, a member of the Monetary Policy Committee, has recently noted, for many years the terms of trade were in our favour. The emergence of China as a source of cheap labour sharply reduced the real price of goods. Our trading strength lay in services, the price of which rose steadily. However, this trend started to reverse in 2003. Growing demand from emerging markets produced a large rise in the price of commodities, of which we are a net importer, and the price of tradable services rose less quickly. Therefore, after a decade in which global trends helped to push down the real price of consumption for UK consumers, the past 10 years have seen the opposite.
On both those issues, it seems that the news is quite good for the coalition. Indirect taxes such as VAT are under government control, so I would have thought that before the election the Government would be unlikely to increase direct taxes, as they did between 2009 and 2011. The cost of imports seems to have stabilised and the prices of our services have started to rise.
The second big political argument in recent months has been over spending plans for the five years after 2015. The legacy inherited by the coalition in 2010 was the double whammy of an unsustainable deficit of government spending over income and a crippling government debt burden. George Osborne and Danny Alexander, the two relevant Treasury Ministers, have committed their respective parties to further steps to eliminate the deficit and reduce debt after 2015, although naturally there are disagreements to come between the two parties as to how in practice this will be achieved. In the mix of tax increases and spending cuts, I suspect that the Tories will be more likely to avoid the former, whereas the Liberal Democrats will not wish to rely solely on the latter. However, the two parties are united in opposition to Ed Balls’s recent proposals, which appear to concentrate solely on deficit reduction, ignoring the debt burden.
Will the coalition parties be able to claim in a year’s time that the economy has recovered on their watch? The portents are good at present. The polls are indicating a surge in economic confidence from both business and the consumer. Surveys by the employer organisations indicate a significant increase in proposals to invest. Although the overwhelming factor in the return of growth obviously comes from what Keynes described as “animal spirits”, the Government can claim some credit. I have often thought of government policy as analogous to a swan, sailing serenely on while declaring that there is no alternative to the austerity programme but underneath the water the legs are paddling furiously to create initiatives to promote economic activity: infrastructure spending, with Crossrail the largest infrastructure scheme in Europe; the regional growth fund; the Green Investment Bank and the business bank; the development of an industrial strategy by the Department for Business, Innovation and Skills, with concentration on key areas of industry; and the stimulation of the housing market by the Help to Buy scheme.
So far as concerns the Labour attack on the reduction in living standards, which the noble Lord, Lord Hollick, referred to, I think that the news is also good. The increase in the personal allowance to £10,500 will clearly help the standard of living of the less well-off, and the improvement in living standards is beginning to show in the figures. The 1.7% headline rate of inflation was identical to the rise in pay in December and January. If you strip out the lumpy effect of bonuses, pay in January went up 1.8%, so incomes are now back to rising more than the rate of inflation.
Notwithstanding the return of confidence in the economy, I see two main pitfalls ahead. The first, to which the Minister referred, is our productivity record. Although real output is now more than 6% higher than in 2009, total real wages are lower. The feel-good factor from economic growth is not there, and by far the major factor in this has been the fall in productivity. Workers are simply producing less output than in the past. As the Minister indicated, a major key to increasing productivity and reversing the downward trend is more business investment, so the Government must pray that the confidence expressed in business surveys follows through to actual expenditure.
Secondly—I turn to a number of our Tory colleagues here—there is Europe. If the recovery in the eurozone stalls, as it is our biggest trading partner we will clearly feel the chill. More particularly, I have little doubt that if there is any chance of a referendum on Europe resulting in a vote to leave, business investment—the key to jobs and productivity increases, as we all accept—will falter. In 2012 for the first time ever Britain exported more cars than it imported. Can we imagine the multinational companies which own our major manufacturers committing significant new investment if they felt that the United Kingdom would leave the European Union?