Economy: Growth

Lord Sassoon Excerpts

Thursday 31st March 2011 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, we have had a tremendously interesting and wide-ranging debate today. I thank all noble Lords who have contributed, particularly the noble Lord, Lord Hollick, for securing what is in effect, I suppose, part two of our growth/Budget debate. I recognise what the noble Lord, Lord Haskel, kindly said about the endurance of the Minister who has to sit here, but I note that many other noble Lords have sat here throughout. I am only grateful to at least have a week between the two debates rather than have it on two consecutive days.

I completely agree with the noble Lord, Lord Davies of Oldham. It has been an overwhelmingly constructive debate, in which many positive ideas have come from all round the House, and this presents me with an additional challenge today. Last week I attempted, maybe foolhardily, to make some mention of all noble Lords’ contributions to that debate. But I know my limitations. Today, with even more speakers and an even shorter time to respond, I apologise in advance but I am not going to be able to make mention of everyone who spoke. There were lots of good ideas, not all of them workable, but it is right that you should push the envelope in imaginative ways, whether in the use of faith buildings or encouraging science in schools. There are all sorts of great ideas coming from around the House, and I will make sure that those are considered by the Treasury or the other departments responsible.

In general, the message I take away is very welcome, because I know that the temptation is for us all, or for a lot of us, to be making political points. The message that I take away is that there are many good things in the Budget and in the growth document that went with it, but that we have to work harder—I understand that—and consider lots more of the ideas that are coming up. In the phrase of the noble Lord, Lord Hollick, it is a worthy and promising start. I appreciate that. I take to heart the big challenges for us—that we must be bold and not timid as a Government. I agree, and I will come back to that. We must always remember the big picture. I agree with that. We have to live up to the challenge of the Government’s part of the bargain of delivering and not just making promises. I will come back to each of those themes in a minute.

I start by acknowledging the five excellent maiden speeches that we have heard today—from the noble Lords, Lord Kestenbaum, Lord Wood of Anfield and Lord Collins of Highbury, my noble friend Lord Popat, and of course the noble Baroness, Lady Worthington, who has confused me by moving seat. I am glad to see that she is back in the Chamber. There was a common and very important theme in those speeches, some of it put very movingly, about what this country and this House have done to foster diversity, whether of ethnicity, faith, gender or sexual orientation. Of course, we must not forget that diversity in hair colour is also a feature of life. The maiden speakers also, by their diverse backgrounds in business, academia, the unions and the environment, and by the quality of the individual speeches, could make no better case for this making a genuinely value-adding House that we are all part of. That was a great addition to what was, in any case, a very important debate.

I remind noble Lords of the context of this year’s Budget and growth plan. The Budget is about reforming the nation’s economy so that we have sustainable growth and jobs in the future. “Sustainable” is a word that has been used by a number of noble Lords. It is worth very briefly reminding ourselves, as a number of speakers have done, that this will not be possible without sticking to our deficit reduction plan. My noble friend Lord Higgins was the first to point out the constraints within which we live. It is that plan that has secured the economic stability, the international credit rating and the low interest rates that are the platform from which we must go forward with sustainable growth.

Last week’s Budget was built on clear economic principles of sound public finances—and no wavering on that—but support for private sector growth, reward for work, help with the pressure of high fuel prices in the short term and a new vision for growth. That vision for growth has four key ambitions at its heart: that Britain should have the most competitive tax system in the G20; that Britain should be the best place in Europe to start, finance and grow a business; that Britain should be a more balanced economy by encouraging exports and investment; and that Britain should have a more educated workforce that is the most flexible in Europe. Those noble Lords who had the stamina to be here during last week’s debate as well will know that I went through each of these four areas thematically. But let me today take a slightly different cut through the issues, prompted very much by the challenge of the noble Lord, Lord Hollick, that we must be bold and that timidity is not enough. That is linked to the challenge from a number of noble Lords that we must attend to the big picture.

Let me suggest to your Lordships a number of areas in which I believe we are being bold and addressing the big-picture issues. Take corporation tax: the fact that we are heading, in three years from now, down to a corporation tax headline rate of 23 per cent, which will take us to the lowest rate in the G7 and one of the lowest in the G20. I suggest that that sends the clearest signal possible around the world that this country is again open and welcoming to all businesses to come and base significant global operations here.

Deregulation is a difficult, challenging topic which the previous Government worked hard on but we have to find new ways of tackling it credibly. Again, we will be bold so we are starting right now with a new initiative to put tens of thousands of individual regulations on to a public website. Two weeks at a time, chunks of regulation related to a specific part of the economy will be open to challenge. At the end of the period of public challenge, it will be up to the departments concerned to argue why any regulations which have been challenged by the public must stay in place. The presumption of the committee led by my right honourable friend the Business Secretary will be that if people identify a regulation that has to go, it has to go unless there is an overriding reason for it to stay. I suggest that is bold.

Planning is a critical issue for growth in this country, and we will bring out some draft new planning guidelines within the next few months. They will have in them a fundamental new approach which has, at its heart, a presumption in favour of sustainable development. In addition, the new planning rules must have a process in place where the entirety of planning, including appeals, has to be finished in no more than 12 months. For those of your Lordships who have businesses stuck in planning processes that go on for three or four years, I suggest that is a bold approach.

A number of speakers brought up the field of energy and the question of setting a carbon floor price was raised. I suggest that setting a carbon floor price is a bold, difficult but necessary part of underpinning the huge amount of new energy investment which this country needs, so we will not shy away from taking the difficult decisions.

We have heard a lot about education—

[Lord Davies of Stamford]

Will the Minister not acknowledge that although setting a carbon price might be very desirable if it was based on international agreement, if it is based on a purely unilateral or national move we shall be handicapping our industry and our growth, and contributing nothing at all to the reduction of global warming?

[Lord Sassoon]

My Lords, I do not wish to be discourteous to the noble Lord, Lord Davies of Stamford, but if I am to do justice to at least some of the points that have been raised in the debate so far, he will perhaps forgive me if I do not answer his question in intervention. I would rather do justice to some of the points made in the debate.

On education and bringing people into the workforce, I could mention a number of initiatives but let me just draw attention to the apprenticeships. Those are one key plank of what has to be a bold transformation of young people’s appreciation of the different and valuable routes into work. The total number of apprenticeships that will be available over the next four years is 1.1 million, so the Government are playing their part in making the apprenticeships available. I hope that, as my noble friend Lord Newby has said, business will rise to the challenge of taking up those places. Again, these are big-picture issues and this is, I suggest, a bold approach.

Lastly, there has been mention from a number of angles of the challenge to get finance into our corporate sector, whether SMEs or the whole of industry. We have set the banks the challenge now, through the deal that we have done with them, whereby they have agreed to make up to £190 billion of credit available for new loans, and more if it is necessary. That very significant amount of money should meet the reasonable demands of growing businesses in this country. When the banks are under considerable pressure to manage their balance sheets more prudently under new capital and liquidity rules, I suggest again that getting financing through to businesses is one of the big-picture challenges and that we as a Government are rising to that challenge in a suitably bold way.

Another big-picture theme that has come up a number of times and which deserves particular recognition is that of infrastructure because, again, the size of the challenge is enormous. A number of speakers raised this, the noble Lord, Lord Hollick, first, with the noble Lord, Lord Bilimoria, and others following after. We have identified £200 billion of infrastructure investment as being required over the next five years in economic infrastructure alone: in energy, water, broadband, transport and so on. The reason that this is so important is clear. We have an ageing infrastructure which needs considerable refreshment and rebuilding and because of that, at the very start of the Government’s work on our growth plans last autumn, we put out the first ever National Infrastructure Plan. That is starting to identify, sector by sector, the vision that we have for the infrastructure that is necessary for this country over the next 25 years and more.

We committed in the growth programme and the Budget to coming up with a rolling forward programme of infrastructure projects, so that we can start to give much greater certainty than there has been to the construction and financing industry in this country. If we expect businesses and financiers to take the strain, which they will do on 60 to 70 per cent of that £200 billion of infrastructure, we need to give them some clarity about where these programmes will be directed, so that is what we will do.

In answer to the specific challenge from the noble Lord, Lord Soley—although he knows this well—it is worth restating that, yes, aviation policy is very important. That is why my right honourable friend the Transport Secretary took time to work up a consultation paper that was published yesterday. I acknowledge that it may not meet the aspirations of all interests in the aviation sector but it is the start of a critical debate. I acknowledge that that debate must be had: that is why the consultation paper has gone out on aviation policy, which is one critical component. Alongside that, I acknowledge the references that were made to our commitment as a Government to high-speed rail. We must look at transport within a holistic and complete picture.

In this general area, there were also a number of references to the desirability of a green investment bank, a national investment bank or an infrastructure bank; your Lordships expressed it in a number of ways. I entirely understand the ambitions of the noble Lord, Lord Skidelsky—the noble Lord, Lord McFall of Alcluith, made this point as well—but without going into the technical details of PSBRs and how government accounting works, the first thing to say is that having a very large national investment or infrastructure bank is simply not possible given the constraints that we have on the Government’s balance sheet. However one looks at it, this would score against the national borrowing. Even if the case were made, and there are strong proponents on both sides of the argument about how big a green or a national investment bank is required, we have to be realistic about the constraints of the public balance sheet.

Within that, we announced last week in the Budget that we have brought forward by one year the starting date for the operation of the green investment bank to 2012-13. I do not want to make political points, but this Government for the first time have committed the money—£3 billion. That is a good start. We have committed money to this project in a way that there was previously a lot of talk about over the past few years. The bank will be able to leverage in private sector money so, even though in the first couple of years of its operation it will not be able to have its own borrowing, the leveraging effect of the green investment bank, by working with private sector investors, will be materially important to the more challenging investment schemes that must be introduced in the areas of new energy and new technology.

That is to address a few of the specific points made. I end by drawing attention to one or two of the reasons to be positive, which are very welcome. Yes, there are huge challenges, but the noble Lord, Lord Rees of Ludlow, reminded us about the latest Nobel prize-winning team, working with graphene, that has been based in this country and the need to exploit that; the noble Lord, Lord Mitchell, talked about Silicon Roundabout with great passion and the way that that will translate through the Olympic legacy and Tech City into something that is really lasting; my noble friend Lord Flight talked about the 428,000 jobs that were created in the private sector last year; the noble Lord, Lord Bhattacharyya, talked about our great strengths growing again in manufacturing and exports; and my noble friend Lady Wheatcroft gave us a specific example in the design and textile world of what we can do.

This has been a wide-ranging debate. I take from it a great challenge to Government, which I assure noble Lords the Government are committed to driving through. I also take away some great strengths that we have to work on. The Government are putting our economy back on the right path. We are supporting and will support enterprise, and we are driving innovation. We are doing our part as a Government to invest in skills, jobs and infrastructure. The Budget stands firm on our plan for the recovery; it is a plan that is good for business and good for growth and will help to create the prosperous economy that the people of Britain deserve.

Tax Credits Up-rating Regulations 2011

Lord Sassoon Excerpts

Monday 28th March 2011 Lords Chamber

Moved By

[Lord Sassoon]

That the draft regulations and orders laid before the House on 15 February and 9 March be approved.

Relevant documents: 17th and 18th Reports from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 23 March.

Motions agreed.

Economy: Government Policies

Lord Sassoon Excerpts

Thursday 24th March 2011 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, we have had a tremendously interesting and wide-ranging debate, and I add my gratitude to my noble friend Lord Lawson of Blaby for having secured it on the day after the Budget. It has been a debate enriched in particular by notable maiden speeches, to which I shall return. I wish that I had the time to do justice to all the points made but I am very grateful for all the contributions, even if I am not able to cover more than a small percentage of them.

Last June’s Budget was all about rescuing the nation’s finances and paying for the mistakes of the past. Yesterday’s Budget was about reforming the nation’s economy so that we have sustainable growth and jobs. However, this will not be possible without sticking to our deficit reduction plan. It is that plan which has secured economic stability and our international credit rating, and it has been commended by the OECD, the IMF, the World Bank and many others. Therefore, I am very grateful for the starting point of my noble friend Lord Lawson, who, at the beginning of the debate, confirmed, as did many other speakers, that the prime duty of the Government—and it is what my right honourable friend the Chancellor did yesterday—is to stick to plan A to eliminate the structural deficit. That was touched on by my noble friends Lord Newby, Lord King of Bridgwater and Lord Tugendhat in particular, who stressed that these are difficult times in which we have to operate. Indeed, the consistent message across a range of speakers, including my noble friends Lord Oakeshott of Seagrove Bay, Lord Higgins and Lord Griffiths of Fforestfach, was that we must carry on with that plan. There were one or two discordant voices, but only one or two, led by the noble Lord, Lord McKenzie of Luton. But it flies in the face of all the advice, domestically and internationally, that we are getting.

I say to the noble Lord, Lord Myners, who tries to paint a very negative picture of where we are, that on the latest figures, which the EU has put out, the growth numbers for the UK this year are lower than those forecast last year, very largely due to the disappointing fourth quarter that we had last year, which flows on through to this year. I acknowledge that, but nevertheless, on the EU’s figures, the UK will grow faster this year than France; it will grow faster than the eurozone average and it will grow faster than the average of the EU. We must get out of the habit of talking down the prospects of the economy.

The action taken by the Government has allowed us to move from rescue to recovery. Yesterday’s Budget will encourage enterprise and increase investment; it will support exports, manufacturing and innovation; and it confronts a hard truth, which has been ignored for far too long, that for the past decade Britain has been losing ground in the global economy. While other nations have reduced their business tax rates, ours have increased; while other countries have removed barriers to enterprise, ours still stand; and while our competitors have improved their education systems, reformed welfare and increased exports, we have gone backwards on all those measures.

The legacy bequeathed to this Government was one where Britain’s future was gambled on a debt-fuelled model of growth that has clearly failed. It is no good saying there was growth as it was based on unsustainable debt and the private sector was crowded out. As we have been reminded, the state represents almost a half of all our national income. We simply cannot afford to continue down that path. It is a point that has been made forcefully today and most forcefully made by noble Lords on the opposite Benches, starting with the noble Lord, Lord Sugar. He made it quite clear that it was ill-discipline in the banking system—he did not quite get to say that it was ill-discipline that was allowed to go on by the previous Government. That was one element of it.

The noble Lord, Lord McFall of Alcluith, drew attention to another aspect of the legacy that we have in the too-big-to-fail challenge. My noble friend Lord Oakeshott of Seagrove Bay drew attention to excess debt and the noble Lord, Lord Haskel, again referred to debt-fuelled growth. I could not agree more. My noble friend Lady Kramer very rightly made the point that, if the growth is to be sustainable, we have to move from a debt-fuelled to a savings-fuelled basis for growth.

The noble Lord, Lord Myners, seems to have forgotten where he was on these matters only a few months ago. As he put it—I could not put it better:

“The mistake we made as a government was that we ran large deficits in the middle part of the last decade when the economy was clearly running at full capacity”.

I do not think he drew our attention to that today but, if I am wrong, I apologise—I missed it. However, the fact that we need sustainable growth is at the root of what the Government now have to fix.

Britain, like any other nation, has to earn its way as the world becomes more competitive. We have to reverse the trend that has seen us drop from fourth to twelfth in the global competitiveness league. We have to ensure that growth is to the benefit of every region of the UK, not just of London and the south-east, a point that has been made this afternoon. The alternative would be to accept this country’s economic decline and a continuing fall in living standards for our population. That is why my right honourable friend the Chancellor has set out the Government’s new vision for growth. It is a vision that has four key economic ambitions at its heart: that Britain should have the most competitive tax system in the G20; that Britain should be the best place in Europe to start, finance and grow a business; that Britain should be a more balanced economy by encouraging exports and investment; and that Britain should have a more educated workforce that is the most flexible in Europe.

First, I take taxation. Britain used to have the third lowest corporate tax rate in Europe; we now have the sixth highest. Our tax code has become so complicated that it has overtaken that of India to become the longest in the world. We have to address that. Our taxes must be fair, predictable, simple to understand and easy to comply with; and they have to be efficient in supporting growth. From April this year, corporation tax will be reduced not just by one percentage point, as we announced last June, but by two, and it will continue to fall by one percentage point in each of the next three years, taking our corporate tax rate down to just 23 per cent, which is 16 per cent lower than it is in America, 11 per cent lower than in France and 7 per cent lower than in Germany, and will give us the lowest corporate tax rate in the G7.

A lot of points on tax have been rightly raised in our debate. My noble friend Lord Lawson kicked it off by taking the big picture view: drawing our attention in particular to the need to look forensically at the top rate of income tax. Yes, of course, we will look at the lessons of his dramatic reduction of the top rate from 60 per cent to 40 per cent, and factor that in. I acknowledge and note that the noble Lord, Lord Myners, did not agree, and is prepared to say so consistently, with his Government's decision to raise the top rate to 50 per cent. My right honourable friend the Chancellor has made it quite clear that that is not part of what he sees as the medium to long-term regime for income tax.

On the question of the possible combination of income tax and national insurance, I take the warnings of my noble friend Lord Lawson to heart. Yesterday, my right honourable friend described it very precisely as an operational merger. We are conscious of the difficulties. Indeed, we keep a copy of my noble friend's memoirs on the ministerial floor; it is presently in the office of my honourable friend the Exchequer Secretary. We will take the lessons to heart. It will be a measure that will certainly reduce administrative burdens for employers. It will bring the two regimes operationally together. It has the capacity to allow us to smooth out some major inconsistencies, but we will take it stage by stage through the consultation process.

On tax incentives for entrepreneurs, I very much agree with the noble Lord, Lord Sugar, and my noble friend Lord Northbrook, who drew attention to those important measures. On fairness, which underpins everything that the coalition does in the tax system, my noble friends Lady Kramer and Lord Oakeshott of Seagrove Bay, rightly drew attention to the coalition's emphasis on measures to take 1.1 million people totally out of the tax system and measures that will lower income tax for 25 million people. While we are on fairness, I say to the noble Lord, Lord Haskel, that the pain is indeed being fairly shared. As was confirmed in the distributional analysis published in the Budget document yesterday, the top 20 per cent of households by income will make the biggest contribution to deficit reduction. That is absolutely right and proper. Lastly in this area, I am grateful to my noble friend Lord Higgins for mentioning measures on charitable giving. It is expected that the inheritance tax measure will result in about £300 million additional benefit to charities when it is in full effect.

Our second ambition is for Britain to become the best place in Europe to start, finance and grow a business. In this area, I agree with many speakers that there is a pressing need for reform. In the past decade alone, countries such as Germany, Denmark and Finland have overtaken the UK in the international rankings for competitiveness. The Government’s plan for growth has many actions in it, too many actions for a few of your Lordships who made references to lollypops and so on, but it is out of a process where we had the most intensive and wide-ranging discussions with representatives of business. These measures were widely welcomed yesterday by business as responding to what it asked of us and they are measures which we have been able to afford. I assure the noble Baroness, Lady Valentine, that we will see these things through. She is quite right that it is a plan for action that will be driven through. A similar point was made by my noble friend Lord Griffiths of Fforestfach who questioned the responsibility for seeing it through. I could recite the list of ministerial responsibilities, but I assure him that implementation will be vigorous.

I note that a number of contributions stressed the regional aspects. I am always refreshed to hear my noble friend Lord Bates reminding us of the vigour with which the north-east is responding to very difficult conditions. I welcome his recognition of how some of the proposed interventions target his region. We seem to have the north-east and the south-west in coalition in that corner. It was also good to be reminded that Wiltshire has been thriving and leading the way from the mid-9th century. I am grateful to my noble friend Lord Brooke of Sutton Mandeville for that.

Another very important and separate regional dimension was raised by my noble friend Lord Lexden and the noble Lord, Lord Empey. I am grateful to my noble friend for mentioning that the Treasury has today published a document on rebalancing the Northern Ireland economy as the Northern Ireland economy faces particular challenges. Another dimension mentioned by a number of noble Lords, including, in his inimitable way, my noble friend Lord Lyell, is the industrial sector. We have it very much in our plans.

When one steps back from all the measures, it is perhaps the issues to which my noble friend Lord Lawson drew attention at the beginning of the debate that are critical. They were also mentioned by my noble friends Lord Northbrook and Lord Tugendhat. They are the broad deregulatory measures. I think a new and concerted look at the planning system is important. I am grateful to my noble friend for stressing that.

The third of the Government’s ambitions is the need to have balanced growth to encourage investment and exports. I shall highlight a few of the measures we are taking. We have put a lot of effort into the sectoral cut when discussing them with numerous sector groups. For example, in life sciences, we will radically reduce the time it takes to get approval for clinical trials, which is critical if the UK is to continue to be at the cutting edge, and in the digital and creative industries, we will improve the intellectual property regime. The noble Lord, Lord Paul, quite rightly drew attention to the mixed picture in manufacturing. On the one hand, there has been very dramatic slippage in manufacturing over the past decade, but on the other, our manufacturing sector still has very great strengths. I am pleased to say that at the moment manufacturing is growing at a record rate with 14,000 more jobs having been created in the sector in the past three months. To help this to continue and to build on this progress, the Government are creating new export credits to help smaller businesses. We are launching Britain’s first technology and innovation centre for high-value manufacturing, and we are funding a further nine new university centres for innovative manufacturing.

Several noble Lords, including the noble Lord, Lord Sugar, in his fascinating speech, drew attention to the help to SMEs, which is critical. My noble friend Lord Newby drew attention to the difficulty of getting credit and my noble friend Lord Hussain, in his very clear, direct and interesting maiden speech, could not have been clearer about a number of things, but particularly the challenge facing SMEs. I also note that there will now be at least two doughty champions for Luton in this House and we shall be reminded of all the good things that are going on there.

I assure my noble friend Lord Hodgson of Astley Abbotts that we will watch very closely the process by which SMEs get credit. I am grateful to my noble friend Lord Risby for stressing the range of support that the Government are giving SMEs. I am grateful also to my noble friend Lord Ahmad of Wimbledon for his different perspective on these issues. In a related area, my noble friend Lady Hooper rightly stressed the need for us to press on with trade arrangements that benefit small, medium and large companies. Yes, we will place new emphasis on EU bilateral free trade agreements and, yes, we are working on Latin America. Only next week, the Deputy Prime Minister will be there and of course he will promote trade as part of his visit.

On the last of our four ambitions for growth, to create a better educated workforce that is the most flexible in Europe, it is alarming to see that Britain’s working age population has lower skills than the same demographic in America, Germany and France. That perhaps is the biggest problem facing our economy and is why the Government are committed to funding new university technical colleges, which will provide 11 to 19 year-olds with vocational training that is among the best in the world. But that will not alone solve the problem. Our attention quite rightly was drawn to that issue by a number of speakers. In the maiden speech of my noble friend Lady Stedman-Scott, she could not have been clearer about the challenge of getting young people, even those furthest away from the labour market, into employment. I can only commend the work that she has done and does with Tomorrow’s People and I thank her for her contribution. These issues were also touched on by my noble friend Lord Renton of Mount Harry and the noble Lords, Lord McFall of Alcluith and Lord Haskel.

The noble Lord, Lord Haskel, talked about 40,000 apprenticeships for the young and unemployed. It is perhaps worth remembering that that is incremental to what the Government had already announced. It brings the total number of apprenticeships available over the next four years to 1.2 million. As a result of this Government’s policies, and because this is so critical to the future of the economy, there will be some 250,000 more apprenticeships over that period.

In summary, the Government are looking to get the economy back on the right path. I say to the noble Lord, Lord Eatwell, that we will reverse the trend of the past decade that has seen our share of world exports decline, has seen the UK’s economy becoming increasingly unbalanced and has seen our businesses held back by a mountain of bureaucracy and a myriad of red tape. That is the legacy of the previous Government. Instead, we will make the UK Europe’s leading destination for enterprise, with the most competitive tax system in the G20, the most flexible workforce in the EU and an economy that is the envy of the world. That is how we will drive growth in this country, how we will create the jobs for the future and how we will build the more dynamic, prosperous and sustainable economy that this country deserves.

Tax Credits Up-rating Regulations 2011

Lord Sassoon Excerpts

Wednesday 23rd March 2011 Grand Committee

Moved By

[Lord Sassoon]

That the Grand Committee do report to the House that it has considered the Tax Credits Up-rating Regulations 2011.

Relevant documents: 17th Report from the Joint Committee on Statutory Instruments.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I shall also speak to the draft Guardian’s Allowance Up-rating Order 2011, and the draft Guardian’s Allowance (Northern Ireland) Up-rating Order 2011. In my view, the regulations and orders are compatible with the European Convention on Human Rights.

The Government inherited an exceptional fiscal challenge. It is important to sketch out the background to these important statutory instruments and to put them into proper context. The state is borrowing one pound in every four that it spends, and just paying the interest on the nation’s debt costs £43 billion—around £120 million a day. The unprecedented scale of the deficit has meant that the Government had to make tough choices in the June 2010 Budget and in the spending review about how taxpayers’ money is allocated.

We believe that fairness starts by taking the right decisions to tackle the deficit so that future generations are not burdened with unsustainable debts, meaning higher taxes and diminished public services. Tackling the deficit in a fair and responsible way means that those that can contribute do and those who are less able to do so are supported. Analysis shows that after combining the impact of tax, tax credit and benefit and public service spending changes announced by this Government, the top 20 per cent of households will make the greatest contribution towards reducing the deficit as a percentage of their income and benefits in kind from public services. That is a statement that was true after the Budget and spending round as of last year, which encompassed the measures we are talking about, but of course it remains true and confirmed in the numbers that came out with the Budget today.

The regulations and orders before the Committee put into effect a number of reforms to tax credits, announced in the June 2010 Budget and the spending review. These changes will ensure that we tackle the deficit in a way that is fair and ensures that tax credits are targeted at those who need them most. Tax credit elements which were previously uprated by the retail prices index will be uprated this year by the consumer prices index, apart from the basic and 30-hour elements of working tax credit, which will be frozen. The rate of guardian’s allowance will also be uprated by CPI. However, significant above-indexation increases to the child tax credit will help those households with children.

Under the current system, tax credits are available to families earning up to £58,000. If households have an increase in income up to £25,000 in a year, they can earn up to £83,000 and still benefit from tax credits. This means that people in the top income decile are eligible, which is unjustifiable within the current economic climate. Reforms to tax credits included within these regulations and orders mean that support for higher income households will be reduced by increasing the rate at which tax credits are withdrawn, while reducing the threshold at which tax credits are paid. Households will also no longer experience an increase in household income of up to £25,000 without their tax credit eligibility changing. Under the current system, around nine out of 10 families with children are eligible for tax credits. Once the tax credit changes have been introduced in April this year, seven out of 10 families will still be eligible for tax credits.

Spending on tax credits has increased from £18 billion in 2003-04 to an estimated £30 billion in 2010-11. The system of tax credits under the previous Government was not only unsustainable in fiscal terms; it was also unrealistic in terms of meeting its stated policy objectives. From 2004, progress on relative poverty stalled. However, the previous Government continued to pump money into the tax credit system. They spent more than £150 billion on tax credits since 2003.

Although a large proportion of tax credit spending was directed at children, the Institute for Fiscal Studies has estimated that meeting the 2020 child poverty target would require an extra £19 billion of welfare transfers. The previous Government had a static view of poverty, believing that it could be reduced, or even eradicated, by directing money at it. The way that child poverty is currently measured means that, perversely, reducing the income tax paid by millions of lower earners, or providing additional support to low-income pensioners, could push up the poverty line. This would increase the number of children calculated as being in poverty. We want to take a long-term, strategic view to tackling poverty, which is about more than just welfare transfers. This is not about moving families and children above an arbitrary line—where one day they are in poverty and the next they are not—but is about transforming their life chances.

The Prime Minister asked Frank Field and Graham Allen to undertake reviews on poverty and life chances. Findings from both reviews have fed into the child poverty strategy, which will be published shortly. While awaiting the conclusions of these reviews, the Government have used some of the savings from withdrawing child benefit from families with a higher rate taxpayer to fund significant above-indexation increases in the child tax credit over the next two years. This means that the child tax credit will increase by £255 in 2011, benefiting 2.4 million of the poorest families. This increase is better targeted at low-income families and will ensure that the spending review will have no measurable impact on child poverty in the next two years.

As well as targeting financial support at low-income households, the spending review introduced a new fairness premium, which will fundamentally change the prospects of the poorest children by offering real opportunities to raise them out of poverty for the long term. The fairness premium is worth over £7.2 billion over the spending review period and will include a £2.5 billion premium to support the educational development of the poorest pupils. It also protects cash funding for Sure Start to support the poorest in early years and at every stage of their education.

Despite the last Government’s spending on tax credits, working-age poverty actually increased under Labour, as there are now more working-age adults in poverty than there were in 1997. The current welfare state too often traps people in dependency. Almost 2 million children are living in workless households. The spending review announced radical plans to reform the welfare state. The new universal credit, which will be introduced over two Parliaments, will replace the current complex system of means-tested working-age benefits with a single, streamlined payment. The universal credit, which will cut through the complexity of the existing benefits system, will ensure that work pays.

In that context, I commend these regulations and orders to the Committee.

[Lord Newby]

My Lords, in the context of the overall fiscal position in which we find ourselves, it is not surprising that we are having to make some pretty unpalatable changes to some tax credits. As the Minister has said, expenditure on tax credits rose in cash terms by two-thirds over the seven years from 2003. In the current environment, that is simply unsustainable.

Although there are some aspects of the changes that we find quite difficult—for example, reducing the proportion of reclaimable childcare is not something that we would have done willingly—other elements are long overdue. It is crazy that people earning £50,000 or £60,000 or even £70,000 have been able to claim an element of child tax credit. Of course, the concept that parents find themselves in financial stress when they have young children is not new; it is dealt with at great length in Malthus’s great essay on population, where he talks about how poverty comes to young families at the point when they have children. However, that was talking about an era in which most people were poor for the whole of their lives. That simply does not exist today. A circumstance in which nine out of 10 families were eligible for tax credit does not really have any sense. Even with the changes, some seven families out of 10 will continue to get tax credits. That certainly encompasses all those who could even vaguely be said to be in need.

The situation we now find ourselves in at this end of the income scale was exemplified to me by a colleague in another place yesterday, who was telling me that she had had a letter from a constituent grumbling that the changes to tax credits and child benefit meant that she and her family would no longer be able to have their second foreign holiday that year, and asking what the MP was going to do about it. I suspect she got a fairly shirty response, but many people at upper income levels have been regarding tax credits and child benefit as not necessary for the ordinary running of the family but for luxuries, so to see that curtailed in the overall scheme is very welcome.

Slightly down the track comes the really welcome introduction of the universal credit. Just as, at the top end, people are getting some benefits who, frankly, do not need them for the good functioning of their families, at the bottom end there are still huge disincentives around work and huge anger among people who are trying to make a living and do the right thing.

At the recent Lib Dem conference in Sheffield I went to get my papers from a kiosk in the shopping centre in the centre of Sheffield, and the young woman behind the kiosk asked rather aggressively what I was doing there. I said very timorously that I was at the Lib Dem conference. She said she was a Labour voter. I was prepared for a tirade about how flinty hearted we were and I got a tirade, but the tirade I got related to the fact that because she was a single mum with two young children she could only work part-time and earn only £6,000 a year and her sister, who was 28 and had never done a day’s work in her life, was getting more from the state. At this point her colleague in the kiosk joined in. They were so intent on telling me about this injustice in the system that everybody else who was trying just to buy a paper had to come up in a very shamefaced way so as not to interrupt this flow of invective, which was being directed at politicians generally. I was able to tell her that the universal benefit was on its way and thereafter life would look somewhat fairer from her perspective.

I have two questions for the Minister around these proposals today. The first relates to what he said about Sure Start. There has been an awful lot of noise about Sure Start. He said that the Government are protecting the cash funding for Sure Start. I know that every Liberal Democrat council is able to maintain Sure Start and I know some councils cannot. Can the Minister tell me why, if the Government are protecting the cash funding for Sure Start, some councils might be choosing to cut it?

Secondly, the whole area of child poverty is to be the subject, I believe, of a child poverty strategy document due for publication shortly. Under the terms of the Child Poverty Act it is due to be produced by the end of March. It is now almost the end of March and I would like the Minister’s assurance that that document will, indeed, be winging its way to us over the next few days.

--- Later in debate ---

[Lord Sassoon]

My Lords, I am very grateful to noble Lords. As is becoming a pattern here, we have had a small, focused and to-the-point discussion. I am disappointed that the noble Lord, Lord Davies of Oldham, did not appreciate my approach this afternoon. On other occasions, when I have gone perhaps to excessive lengths to point out every detail of measures, I did not always seem to be grasping his attention right through, so I thought I would try another attempt and go for the sunny uplands this afternoon, but it seems that that has not worked either. I shall have to try some other approach next time. I do not want to be drawn too much into the big picture because, as the noble Lord, Lord Davies, said, we shall have a long debate tomorrow and another one next Thursday. However, I cannot entirely let his remarks go unanswered.

Every commentator, from the IMF to the OECD through to all the domestic commentators, has reiterated the fact that the Government need to stick to the clear deficit reduction plan. To be fair to the noble Lord, he recognises that, as he says that he understands that we cannot give away money through taxes or otherwise. I welcome his partial recognition of the reality. It is against the background of the situation last year and the background that still persists that we bring these measures forward.

Welfare spending now accounts for one-third of all public spending. As I said in my introduction, spending on tax credits has increased from £18 billion in 2003-04 to an estimated £30 billion in 2010-11. My noble friend Lord Newby made the point that in respect of what we are discussing this afternoon, it is unsustainable and, in significant respects, unfair. The reforms to tax credits outlined within these regulations and orders are fair and proportionate. They tackle the deficit in a way that ensures that tax credits are targeted at those who need them most. Again as my noble friend Lord Newby points out, it is in the broader context that the critical move to the universal credit over this and the next Parliament gets driven forward.

I was grateful to the noble Lord, Lord Davies of Oldham, for recognising that we will use some of the savings from withdrawing child benefit from families with a higher-rate taxpayer to increase the child element of the child tax credit. That is important. It is an increase of a further £30 above indexation in 2011-12, and a further £50 above indexation in 2012-13, in addition to the above-indexation increases of £150 in 2011-12 and £60 in 2012-13 announced in the previous Budget.

While we are on indexation, I hesitate to take the opportunity to give a reminder to the noble Lord, Lord Davies, who raised questions about RPI and CPI. As he says, it is correct that RPI is now 4.6 per cent. However, the previous Government were intending to uprate by applying RPI minus 1.5 per cent. Of course, 4.6 per cent less 1.5 per cent takes one back to 3.1 per cent. So, in practice, there is no difference in these rates between the old and the new policy.

I will get back to my noble friend on his specific question about funding for Sure Start because I want to make sure that I have my facts right. I certainly agree that if, under the flexibility and the money that councils are allowed, some councils are able to continue I am not sure why others cannot. I will check the details of that.

To conclude, I believe that reforms at the Budget and the spending review, of which these are an important element, have been carried out in a fair and responsible way. We have ensured that everyone who is able to contribute to the deficit does so, while those with the lowest incomes continue to be supported. The critical test is that, after combining the impact of tax, benefit and public services spending review changes, it is the highest quintile of earners who will make the greatest contribution towards reducing the deficit as a percentage of their income and benefits in kind. I commend these regulations and orders to the Grand Committee.

Motion agreed.

Guardian’s Allowance Up-rating Order 2011

Lord Sassoon Excerpts

Wednesday 23rd March 2011 Grand Committee

Moved By

[Lord Sassoon]

That the Grand Committee do report to the House that it has considered the Guardian’s Allowance Up-rating Order 2011

Relevant documents: 18th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Guardian’s Allowance Up-rating (Northern Ireland) Order 2011

Lord Sassoon Excerpts

Wednesday 23rd March 2011 Grand Committee

Moved By

[Lord Sassoon]

That the Grand Committee do report to the House that it has considered the Guardian’s Allowance Up-rating (Northern Ireland) Order 2011.

Relevant documents: 18th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Social Security (Contributions) (Amendment No. 2) Regulations 2011

Lord Sassoon Excerpts

Tuesday 22nd March 2011 Lords Chamber

Moved By

[Lord Sassoon]

That the draft order and regulations laid before the House on 3 February be approved.

Relevant documents: 16th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 16 March.

Motions agreed.

Inflation

Lord Sassoon Excerpts

Thursday 17th March 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government whether they will clarify the comments made by the Chancellor of the Exchequer to the Governor of the Bank of England in his letter of 15 February on inflation targets.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, consistent with the Monetary Policy Committee remit, the governor is required to write to the Chancellor if inflation deviates from the target of 2 per cent as measured by the 12-month increase in the consumer prices index by more than one percentage point. In his response to the governor, the Chancellor noted the Monetary Policy Committee’s assessment of inflation prospects relative to the inflation target and welcomed the committee’s determination to ensure that inflation returns to target in the medium term.

[Lord Barnett]

My Lords, I congratulate the noble Lord on the variety of ways that he finds not to answer a question. There are only two answers to the big issue on interest rates: whether or not you agree that they should go up. The Chancellor, in reply to the Governor of the Bank of England, who had said that increasing interest rates would be a futile gesture at the moment, said that he had “complete confidence” in the governor. In those circumstances, and given that this Government are the most transparent in history, can the Minister tell us the Chancellor’s view? Is he for or against an increase in interest rates?

[Lord Sassoon]

My Lords, first, I am grateful for the congratulations, however backhanded, offered by the noble Lord, Lord Barnett, and I will bank them. We are discussing the letter from my right honourable friend the Chancellor to the governor. In that letter, as I attempted to explain in my first Answer, he does not express any view about interest rates because, as the noble Lord well knows, the setting of interest rates is an independent matter for the Monetary Policy Committee of the Bank of England. I am sorry if I have to be boring about this, but there seems to be some misunderstanding. It is absolutely not for the Chancellor to express any view on this matter. What he does, as the noble Lord recognises, is to express confidence in the governor and the MPC structure and to support their independence.

[Lord Newby]

My Lords, the Chancellor’s letter, which is suitably bland and opaque, contains an intriguing suggestion. It says that the Government are committed to reducing the drivers of inflation, including,

“demand for energy and supply constraints in food markets”.

Can the Minister say what the Government are doing on those two matters?

[Lord Sassoon]

My Lords, I am grateful to my noble friend for recognising that the Chancellor’s letter was indeed couched in suitable terms. What my right honourable friend said on these points related specifically to commodity markets with our G20 partners—this is a particular focus of the G20 presidency, now with the French—to make sure that we have some global understanding of the drivers and an analysis of what might follow from that.

[Lord Peston]

My Lords—

--- Later in debate ---

[Lord Peston]

My Lords, does the Minister agree that the problem is that the only instrument available to the MPC is the interest rate? The present rise in price levels is externally driven, which an increase in the interest rate can influence only by strengthening sterling. That would shift demand away from British markets to overseas markets and totally undermine the Government’s strategy. We know that the rules are that the Chancellor cannot say any of that, for obvious reasons, but is the Minister aware that three members of the MPC voted for a rise in interest rates, each one of whom is supposedly an economist? I do not know whether that is a source of enormous embarrassment to the Chancellor, but it certainly is to me.

[Lord Sassoon]

I am grateful to the noble Lord, Lord Peston, as ever, for his insights and for pointing out that he did not expect the Chancellor to answer the question that was posed. Therefore, by extension, he would not expect me to do so. There are a number of very serious points here, the most important of which for the Government is that we need to stick to our fiscal policies as they were set out in the Budget and the spending plans last year. Only yesterday, the OECD endorsed the Government’s fiscal consolidation plans and structural reforms, pointing out that, in its view, this rebalancing was necessary for stronger growth. That is what we must stick to as a background against which the independent MPC is best able to make its interest rate decisions.

Financial Crime: Legislation

Lord Sassoon Excerpts

Thursday 17th March 2011 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, we have had an excellent debate and I thank all noble Lords who have spoken. I particularly thank my noble friend Lady Williams of Crosby, who comes at this whole subject from a position of great authority.

The noble Lord, Lord Davies of Oldham, has pointed out the challenge that I face in attempting to respond to the huge number of points that have been made. This has been a more than normally physically challenging debate to sit through. It is one thing to watch a tennis match that is being played out in front of me, but it is even more challenging to watch one that at times has been played out intensively behind me. However, it has been a fascinating debate.

I start by reminding noble Lords that Britain is, and continues to be, a great trading nation. This Government are committed to encouraging British business to seize opportunities around the world. We all know that globalisation brings huge opportunities not just for businesses themselves but for all those who work in those businesses and for the consumers of goods. However, there are significant threats and risks in this globalised world. We have discussed some of the most insidious threats that jurisdictions around the world face. My noble friend Lady Williams talked about the most serious issues. I certainly agree that some of the most insidious threats are those posed by bribery, corruption and money-laundering. I shall take in turn bribery, tax avoidance, corruption, if I have time, and money-laundering, which were the main areas covered in the debate.

I make it absolutely clear that the Government are committed—lest anybody doubts it—to implementing the Bribery Act. We are determined to ensure that it is implemented in a way that tackles corruption while not imposing unnecessary cost and uncertainty on legitimate business and trade. Bribery should not be considered an acceptable way to win business. It distorts free markets and causes immense damage in developing and emerging economies. The Government believe that the Bribery Act will have positive benefits for UK business through an enhanced reputation for ethical standards, reduced costs incurred in doing business and a clearer business framework. The Act will contribute towards a level playing field internationally. The UK stands alongside our partners, whether in the OECD, the UN, the EU or the Council of Europe, in recognising that bribery needs to be met with robust criminal offences. Indeed, the Act modernises and clarifies the existing law, which has rightly been criticised as complex, fragmented and out of date. However, I hope that the main issue concerns not the Government’s commitment to implementation but when the Act will be implemented and whether there has been unreasonable delay, as some have painted it.

I fully respect the views on both sides of the argument. On the one side, we had the pithy intervention of my noble and learned friend Lord Mackay of Clashfern and the contributions of my noble friends Lord Thomas of Gresford, Lord Marks of Henley-on-Thames, Lord Goodhart and Lady Williams. I very much appreciate their sentiments. However, I find it slightly harder to accept the criticism of the noble Lords, Lord Eatwell and Lord Davies of Oldham, on the timetable for implementation given, as we have been reminded, that it took until 2009 for the previous Government to introduce the relevant legislation.

On the other side of the discussion, we have heard powerful and relevant interventions from my noble friends Lord Hodgson of Astley Abbotts, Lady Wheatcroft and Lord Eccles—the noble Lord, Lord Hannay of Chiswick, also recognised this—regarding some of the difficulties for business in this area. We should not minimise those. There was a depressing lack of mutual appreciation by the two camps in this debate, with one notable exception. I am grateful to my noble friend Lord Newby for his contribution, to which I listened with interest. He recognised that two distinct interests are involved in implementation that need to be reconciled and that the implementation of the Act will indeed—certainly, in the short term—impose costs on business.

One of the questions asked by my noble friend Lady Williams concerned responsibility. Responsibility for implementation is with my right honourable friend the Justice Secretary, who is concerned to ensure that the Act is implemented in a way that tackles bribery effectively but avoids imposing costs or uncertainty on business and certainly does not make this another gold mine for lawyers advising on either implementing or picking up the consequences of the Act. It is the intention of my right honourable friend and the Government to publish guidance shortly. Implementation of the Act will follow publication after three months, in order to give businesses time to prepare themselves. On the other question about responsibility, I can confirm that enforcement of the legislation will be a matter for the Serious Fraud Office and the police.

[Lord Phillips of Sudbury]

Is it fair or unfair of me to ask my noble friend what his answer is to the circumstance enunciated by the noble Lord, Lord Hodgson of Astley Abbotts, where a business is faced with either compliance with the Bribery Act or losing a valuable order?

[Lord Sassoon]

My Lords, that is a perfectly fair question, but I am not going to stand at the Dispatch Box—no Minister would—and suggest that anyone should break the law. I hope that that is a clear answer to the question.

The point that I wanted to make about implementation was that I know that my right honourable friend the Justice Secretary has been speaking regularly to the secretary-general of the OECD, because there has rightly been reference to the OECD’s important contribution to driving forward standards in this area. My right honourable friend has been speaking regularly, including this week and last month, to the secretary-general to keep the OECD informed and updated on our plans for implementation.

My noble friend Lord Phillips and the noble Lord, Lord Eatwell, mentioned the fall in the UK’s ranking. The noble Lord, Lord Eatwell, leads with the chin, but it is interesting to note that that fall in the ranking happened under the previous Administration. I hope that implementation of the Bribery Act will contribute to the UK’s ranking increasing again.

I acknowledge the point made by my noble friend Lord Hodgson about SMEs. In all that the Government are doing in the regulatory space, we need to be sensitive to the particular needs of SMEs. It is the intention to publish a quick-start guide, as it will be called, that focuses particularly on the needs of small businesses. UK Trade & Investment and overseas posts will be geared up to provide guidance and support on managing risks of corruption in particular export markets.

Lastly in this area, questions relating to extractive industries were raised by the noble Lord, Lord Hannay of Chiswick, and my noble friend Lord Newby. It is a topic that my right honourable friend the Chancellor has recently addressed. He drew particular attention to it at the February G20 Finance Ministers’ meeting in Paris, where he raised the issue of new international rules; he believes that this was the first time that that has happened. My right honourable friend, along with my right honourable friend the Business Secretary, will be arguing for a European agreement that matches the new standards set in the US in this area. This is very much on our agenda.

Let me turn now to the issue of tax avoidance. For the avoidance of doubt—I am sure that the noble Lord, Lord Haskel, has no doubt, but he raised the question—let me say again clearly that the Government are fully committed to making sure that everyone contributes to reducing the deficit by paying their fair share of tax. Tax avoidance and evasion damage the ability of the tax system to deliver its objectives. They impose additional costs on all taxpayers and undermine the tax system.

The noble Lord, Lord McFall of Alcluith, and others raised a number of questions about HMRC resources. I was grateful to the noble Lord for drawing attention to the announcement last year that more than £900 million will be made available to HMRC over the spending review period to raise additional revenues by tackling non-compliance. This is expected to bring in around £7 billion in additional tax each year by 2014-15. However, I recognise that the noble Lord bracketed, as did other noble Lords, recognition of that approach by HMRC with concerns about its resources more generally. That point was mentioned in particular by my noble friends Lord Newby and Lord Phillips of Sudbury. It is the case that HMRC workforce levels are projected to reduce. That reflects continuing improvements in the underlying efficiency in the way in which HMRC conducts its business. I should point out that, since the 2005 merger between the Inland Revenue and Her Majesty’s Customs and Excise, a reduction in headcount has had no negative impact on revenue flows. As with many other parts of the public sector, although there is a big challenge on management and implementation, HMRC has recently proved that it is able to rise to that challenge.

The noble Lords, Lord McFall and Lord Parekh, and others drew attention to the size of the tax gap, which is estimated to be around £42 billion, but I was pleased that there was recognition for some of the important steps that the Government are taking in this area, including the specific case to which my noble friend Lord Palmer of Childs Hill referred on the arrangements with Liechtenstein. That was the best answer to some of the concerns raised by my noble friend Lord Dykes. The steps that are being taken are very practical and raise considerable sums of money. In respect of Liechtenstein, the facility will run until the end of March 2015 and it is forecast that it will raise £940 million. These are considerably important initiatives to make sure that we tackle offshore financial centres and repatriate tax revenue to this country.

I recognise the questions around tax transparency. My noble friend Lord Goodhart touched on this area, but I will not repeat the names of all noble Lords who mentioned it. In the past year, we have seen unprecedented progress on tax information exchange. More than 500 tax information exchange agreements have been negotiated to the international standard. This means that there are fewer and fewer places for evaders to hide their money.

The noble Lord, Lord Haskel, raised the question of Caroline Lucas’s Bill in another place. My understanding is that the Second Reading of that 10-minute rule Bill is scheduled for June. The Government will decide at that stage whether to support it. I understand its import.

In my final couple of minutes, I will deal with the remaining two issues that were raised. The noble Lord, Lord Hannay of Chiswick, raised the issue of corruption. At the risk of stating the obvious, I stress that the Government recognise that corruption is bad for development, bad for people in developing countries and bad for business in those countries. As we maintain our aid budget, looked after by DfID, there will be great focus on raising standards of governance. It is very much on the agenda of my right honourable friend the Secretary of State.

I turn lastly to money-laundering. I am grateful to my noble friend Lady Williams for recognising that the Government have been assiduous on asset freezing. I say to the noble Lord, Lord Hannay, that we should not rely too much on reports in the newspapers. As my noble friend Lord Howell of Guildford said in the House a couple of days ago, we are investigating and watching carefully to see what links there may be between pirates and terrorism in the region linked to Somalia. However, as he said, we have no firm evidence of particular patterns of transactions, although we recognise that there may be personal, entrepreneurial or other links between groups. The noble Lord is right to emphasise that we need to be on the case, as we are. The noble Lord, Lord Parekh, raised general concerns in this area. As we discussed in the House recently, particularly in the context of Libya but also of other countries, the Government have been and continue to be at the forefront of calling for and implementing asset freezes against corrupt regimes.

My time is up. I have attempted to answer as many points as possible. It has been a very stimulating debate in which important questions were asked. I end by thanking my noble friend Lady Williams of Crosby for stimulating such an interesting two and a half hours.

Social Security (Contributions) (Amendment No. 2) Regulations 2011

Lord Sassoon Excerpts

Wednesday 16th March 2011 Grand Committee

Moved By

[Lord Sassoon]

That the Grand Committee do report to the House that it has considered the Social Security (Contributions) (Amendment No. 2) Regulations 2011.

Relevant document: 16th Report from the Joint Committee on Statutory Instruments.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I am pleased to introduce the Social Security (Contributions) (Amendment No. 2) Regulations 2011 and the Social Security (Contributions) (Re-rating) Order 2011. It is worth noting that all the changes covered by these two instruments were announced as part of a Written Ministerial Statement in December last year. As both the regulations and order deal with national insurance contributions, it seems only sensible that they should be debated together. As a matter of course, I can confirm that the provisions in the regulations and the order are compatible with the European Convention on Human Rights.

I shall begin with the social security regulations. The previous Government’s 2008 Pre-Budget Report announced an increase in class 1 and class 4 national insurance contribution rates of 0.5 per cent. These rate rises were due to come into force from the start of the 2011-12 tax year, but 12 months later the former Chancellor of the Exchequer declared his intention to double the increases. This would have placed additional burdens on businesses at a time when they are most in need of our support. While this Government confirmed that these rate rises would be implemented, we are implementing them as part of a wider package of reforms that will reduce the overall cost of employment and will support people on lower incomes. We will achieve this by increasing the income tax personal allowance, the primary threshold and the secondary threshold. The social security regulations before the Committee today are a vital part of this process.

To start with, the point at which employers will have to start paying national insurance will increase from £110 per week to £136 per week from April of this year. This is a weekly rise of £21 above indexation, which means that employers will not pay any national insurance on the first £7,072 of any worker’s earnings.

From April of this year, the class 1 primary threshold, which is the point at which employees start to pay class 1 national insurance contributions, will increase from £110 per week to £139 per week. This is an increase of £24 a week above indexation, which will help to mitigate the effects that a 1 per cent increase in the employee’s rate of national insurance contributions will have on the lower-paid.

As a result of the increases in thresholds included in today’s regulations, around 950,000 low earners will no longer pay national insurance contributions, while their contributory benefit entitlements will be protected. Employees earning under £35,000 a year will pay less both in terms of income tax and NICs. Employers will pay less in NICs on all workers earning less than £20,000 a year. In relation to NICs thresholds, employers will be better off by £150 for every employee earning above the secondary threshold.

Compared with the plans that this Government inherited, more than £3 billion a year is being returned to employers through the secondary threshold rise. Even more money will be going straight into the pockets of hard-working families due to the changes in the primary threshold.

Today’s regulations also set the level of the lower earnings limit. This takes into account changes that we are making to the way in which the basic state pension will be uprated. As part of last year’s June Budget, my right honourable friend the Chancellor announced that the basic state pension will be linked to earnings from April 2011. Not only that, we included the added guarantee that it would rise in line with either earnings, prices or 2.5 per cent, depending on which is greatest.

Now that the earnings link has been restored, the lower earnings limit is no longer legislatively linked to the basic state pension. This means that the Treasury can set its level independently of the basic state pension through affirmative resolution. As a result, large rises in the basic state pension will not result in lower earners being taken out of contributory benefit entitlement. This is fair and progressive and it will support the poorest and most vulnerable in our society. For the upcoming tax year, the lower earnings limit will increase by RPI to £102 per week, while the upper earnings limit will go down from £844 per week to £817 per week. This is to maintain the alignment with the point at which the higher rate of income tax is paid. It is also worth noting that the regulations will increase the main rate primary contributions paid by women who married before 6 April 1977, taking them up to 5.85 per cent from this April.

The social security order sets out the NICs rates and thresholds for the self-employed and those paying voluntary contributions. In the case of the self-employed, it raises the small earnings exception for paying class 2 contributions. The exception will rise in April from £5,075 to £5,315 a year, which is broadly in line with prices. The rate of class 2 contributions will increase from £2.40 to £2.50 a week. The rate of voluntary class 3 contributions will also increase from £12.05 a week to £12.60 a week. Again, this is similar to the general increase in prices.

Today’s order sets the profit limits for which main rate class 4 contributions are paid. The lower limit at which these contributions are due will increase from £5,715 to £7,225 a year, in the same fashion as the class 1 primary threshold. At the other end of the scale, the upper profits limit will be reduced from £43,875 to £42,475. This maintains alignment with the upper earnings limit for employees, which, as I said, is being reduced to reflect the changes made to the higher rate of income tax. The changes to the class 4 limits will ensure that the self-employed pay contributions on a similar range of earnings to employees paying class 1 contributions. The increase in the lower profits limit will guarantee that the 1 per cent increase in the class 4 NICs main rate is offset for the self-employed. This is in much the same way as the increase in the primary threshold offsets the 1 per cent increase for employees.

The legislation included as part of today’s order and regulations is an important part of the Government’s plans to reduce the taxation of labour. It will encourage employers to take on more workers, help those on the lowest incomes and support private enterprise and employment across the country. This is important for the economy and important for the recovery. I commend the regulations and the order to the Committee.

[Lord Davies of Oldham]

My Lords, I am grateful to the Minister for the explicit way in which he outlined the contents of the regulations and the order. He will forgive me if I do not spend a great deal of time responding to them. First, it seems that the main principles adumbrated in his contribution were debated pretty thoroughly at the general election and largely resolved by crucial decisions then. Secondly, we have had the opportunity to debate national insurance contributions with some degree of intensity over the past few weeks. These issues have also already been considered by the other place. Therefore, the noble Lord will forgive me if I am not able to match the strength, force and length of his opening contribution. However, I have two specific questions to ask, to which I would like him to address his mind and respond.

The Government—or the more senior party of the coalition—made much of this in their rhetoric during the general election. Afterwards, there was in the coalition agreement this commitment—indeed, a pledge—to stop the rise in employer national insurance contributions from April 2011. However, there seems to be a difference between the expectations to which this might give rise and the reality that we see in the SI before us. What is given back to the employer through the threshold changes to class 1 secondary contributions? The threshold goes up from 12.8 to 13.8 per cent but this appears to be somewhat less than employers might have thought they were getting following the pledge to stop the rise entirely as far as employers are concerned. It looks as though the Government are giving back with a degree of generosity that does not quite fulfil their commitment. The noble Lord mentioned that he thought that as much as £3 billion was being returned. Can he confirm that figure and say whether it is consistent with employers’ expectations of what they would get back?

Secondly, I want to comment on what I am sure the noble Lord will indicate is a minor issue, although it is not minor to many of us. I refer to the contribution of married women and widows. I know that they form a limited group but I see that the increase in their contributions will be from 4.8 to 5.8 per cent. What are they getting for that increase? We know that they get no retirement pension, that they cannot get jobseeker’s allowance if they become unemployed and that they receive no sickness benefits. Yet, in all the Government’s bravado about the restrictions that they would place on increasing national insurance contributions, they could not exempt this group. That seems to be at one with an awful lot of the dispositions made by the Chancellor and by Ministers responsible for Treasury matters over the past few months. I think particularly of child benefit for women who earn more than £40,000 a year. Whether intended or not, the legislation seems to discriminate pretty heavily against women when we would have thought that, if the Government were true to the principle that the noble Lord adumbrated in his concluding remarks, which reflected some fairness, this group would have been treated more generously. Will the Minister comment on that? In more general terms, the Opposition are supportive of the regulations.

--- Later in debate ---

[Lord Sassoon]

My Lords, I thank the noble Lord, Lord Davies of Oldham, for his characteristically short, to-the-point and putting-me-on-the-spot remarks. Without getting into unnecessary detail, he extracted one or two big points, which it was very reasonable to raise. I thank also my noble friend Lord German, who succinctly pointed to the significance of the changes that the coalition Government have made to the plans that they received from the previous Government. I have not seen any specific numbers that might answer his very interesting question, but I shall go away and see whether a comparison has been made between the effect of a rise in VAT and the effect of a rise in national insurance. However, he made absolutely the right point, supported by all the economists’ evidence, that a rise in national insurance is a direct tax on jobs. Regrettable though the rise in VAT was, it was necessitated by the dire predicament that the Government inherited and in line with all the economic evidence that a rise in national insurance contributions as proposed by the previous Government would have been much more damaging. The VAT increase raises about £13 billion. That would have required a huge rise of almost 3 per cent in the employer NI rate. Without taking it any further, one can see how just how burdensome that would have been on employers.

I should address the points raised by the noble Lord, Lord Davies. He asked, first, whether we had met the expectations set out in the coalition agreement. I certainly believe that we have delivered on what could reasonably be expected of the Government. Compared with what would have happened under the plans of the previous Government, employers will be more than £3 billion better off next year, rising in future years. Indeed, although £3 billion is correct in the round, the figure is slightly more. It is exactly what employers would have expected, as it matches not only the Conservative manifesto but the coalition agreement. Yes, as a result of the coalition agreement, some of the benefit is switched from national insurance contributions to income tax. It is a point that has been made and answered before. Indeed, there will be a net rise in national insurance contribution payments, compensated by a larger fall in income tax payments. Just to underline the point, employers will be better off in respect of employees earning up to £20,000, while employers who have among the highest-earning staff will pay more national insurance contributions. We believe that that is the right and appropriate way to do it.

On the question of women, as a general point I would note that, in terms of the effects based on gender or whether someone is disabled, as well as in terms of those in other groups, the coalition Government took their responsibilities in the overall spending package last year more seriously than has ever been done before. We are certainly not in any way trying to dodge our important responsibilities to consider the effects of all our measures on different groups in society, including, of course, women.

Married women who paid national insurance contributions at the reduced rate are a unique group. They elected to pay reduced rate contributions in return for reduced benefit entitlement; these women can revoke their reduced rate election and pay contributions at the standard rate at any time they choose. It is not the case that women who opted to pay reduced rate contributions have received nothing in the way of benefits, in case there is any suggestion of that. Before 1975, such women who were employed were eligible for a full range of industrial injury benefits and, later, they became eligible for statutory sick pay and maternity pay. They can also receive a pension of up to 60 per cent of basic state pension based on their husband’s contributions when he reaches pension age. There have also been three major publicity campaigns about the married women’s option—the first in the late 1970s, the second in the late 1980s and the third in October 2000—to advise them of changes that may affect them. They also benefit from the increase in the primary threshold that is now coming in. There are around 5,000 to 10,000 married women who still have in place a reduced rate election; the numbers are falling because only women married or widowed before 1977 are entitled to pay at the reduced rate. I hope that I shall not be accused again by the noble Lord of piling Pelion on Ossa, but I thought it worth going through the position as it is and confirming that in the generality the Government take their responsibilities very seriously.

Without rehearsing again any of the important points in the regulations and the order, I am grateful for the focused and brief debate. I reiterate as a last point that more than £3 billion a year is being returned to employers through the employer threshold rise and even more to individuals through the increase in the primary threshold. I commend the regulations and the order to the Committee.

Motion agreed.