Budget Statement

Baroness Garden of Frognal Excerpts

Friday 12th March 2021 Lords Chamber

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, the Budget that the Chancellor set out last week has three key elements. First, it protects jobs and livelihoods and provides additional support to get the British people and businesses through the pandemic. Secondly, it is clear and honest about the need to fix the public finances. Thirdly, it starts the work of building our future economy, including by providing opportunities to level up across the country.

The Budget announced additional measures worth £65 billion to support the economy through the pandemic this year and next. Added to last November’s spending review, the number is £352 billion and, taking into account measures from the spring Budget last year, the figure rises to £407 billion. The OBR now expects the UK economy to recover to its pre-crisis level six months earlier than originally expected—in the second rather than the fourth quarter of 2022.

Importantly, the Budget extends the furlough scheme until the end of September. Support for the self-employed will also continue until September, with an additional 600,000 people now potentially eligible to claim. The universal credit uplift of £20 a week will be maintained for a further six months and working tax credit claimants will receive equivalent support over the same timeframe.

Among other things, the Budget also reaffirmed the Government’s commitment to increase the national living wage to £8.91 an hour from April. It also announced a new restart grant in April to help businesses to reopen and get going again, as well as a new recovery loan scheme to replace our earlier bounce-back loans and coronavirus business interruption loans.

The Chancellor was also open about the longer-term fiscal challenge that we now face. The Budget does not raise the rates of income tax, national insurance or VAT. Instead, it maintains personal tax thresholds on income tax, inheritance tax, the pensions lifetime allowance and the annual exempt amount in capital gains tax, with higher earners affected the most. It also announced an increase in corporation tax to 25% from 2023. Importantly, 25% is still the lowest corporation tax rate in the G7 and companies that make less than £50,000 profit annually will only be subject to a 19% tax rate. Given that the Government are providing businesses with over £100 billion of support to get through the current crisis, it is only right to ask them to contribute to our recovery.

The third component of the Budget is a series of initiatives and measures to support the investment-led recovery that the country needs. A new super deduction will, in some cases, allow companies to reduce their taxable profits by 130% of the cost of the investment that they make in plants and machinery, which is equivalent to a 25p tax cut for every pound that they invest. Worth £25 billion over the two years that it is in place, the super deduction represents the biggest business tax cut in modern British history.

The Budget also announced, among other things, the creation of the first ever UK infrastructure bank, headquartered in Leeds. Two new schemes—Help to Grow and Help to Grow: Digital—will help tens of thousands of small and medium-sized businesses to get world-class management training and help them to develop their digital skills. We are helping to ensure that we have access to the talent that we need through the reforms that we are making to our visa system.

Achieving an investment-led recovery means allowing investment to flow more freely, which is why we want to give the pensions industry more flexibility to unlock billions of pounds from pension funds into innovative new ventures. Alongside these measures, our commitment to levelling up across the United Kingdom is reflected in the £4.8 billion levelling-up fund; accelerated city and growth deals in places such as Ayrshire, Falkirk, north Wales and Swansea Bay; more than a £1 billion for 45 new towns deals; and a £150 million fund to help communities across the United Kingdom take ownership of pubs, theatres, shops or local sports clubs at risk of loss. This complements the inward investment that will be attracted through the announcement of eight new freeports in eight English regions.

The country has experienced the worst fall in GDP in three centuries—not the 1976 sterling crisis, not the Second World War, not the First World War, not the Napoleonic War; this has been harder financially than all those. In response, the Chancellor has presented a plan that will continue to protect jobs and livelihoods and to support British people and businesses through this moment of crisis. It will begin to fix the public finances and will start the work of building our future economy through investment-led recovery.

[The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)]

My Lords, I should have added that the maiden speakers all have an extra minute and the welcomers an extra 30 seconds. I call the noble Lord, Lord Eatwell.

--- Later in debate ---

[Lord Lamont of Lerwick (Con)]

My Lords, this is the first time I have ever spoken in a Budget debate in the Lords and I am making my “maiden speech” only because I want to support the Chancellor at a time when there are no easy answers—it is a very difficult situation. I always listen with respect to the noble Lord, Lord Eatwell, but I disagree with him over fiscal resilience and its importance. The central dilemma for the Chancellor in this Budget is how he can start repairing the public finances without endangering the recovery. He resolved that dilemma by delaying the increases in corporation tax and the freezing of personal allowances, again delayed for one year. This staging gives the recovery the chance to get established, and I believe that was the right judgment.

Overall, the Budget increases the tax burden by 1% of GDP, which is uncomfortable for many of my noble friends on this side of the House, but we have been through phases like this before, in the early 1980s and other periods when fiscal tightening, far from killing off growth, ushered in long periods of expansion, which is what enables us to pay for good public services. We should not succumb to the mistaken interpretations of Lafferism or Reaganomics that led America astray in the 1980s. Some will criticise the increase in corporation tax, but once you have ruled out the three main taxes, as was done in the Conservative manifesto, the Chancellor had little choice. The question remains whether such a large increase in corporation tax can be delivered: moving the tax up in one go to 25% may cause prospective investors a bit of hesitation.

The OBR talks of lowering investment in the medium term, and I would appreciate it if my noble friend Lord Agnew would comment on that very obvious reservation that the OBR expresses. I believe that the Chancellor has risen to these unprecedented challenges flexibly and pragmatically, and I support him.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

We welcome the maiden speech of the noble Lord, Lord Khan of Burnley.

--- Later in debate ---

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

The noble Lord, Lord Davies of Oldham, has withdrawn, so I call the noble Earl, Lord Caithness.