Economy: Budget Statement

Baroness Kramer Excerpts

Thursday 22nd March 2012 Lords Chamber

[Baroness Kramer]

My Lords, I find a great deal to welcome in this Budget, not the least of it being the clarity of the Red Book. It is the first time that I have not needed six hands and a book of Post-its to work out exactly what was going on. That has been extremely helpful.

Noble Lords will not be surprised that, like most Liberal Democrats, to me the most important measure in the whole Budget is the raising of the starting tax threshold, which is going up to £9,205, with 20 million basic-rate taxpayers being £220 better off. That consolidates one of my goals, shared by many of my colleagues, to see at the end of this long process—and it may have to go on into the next Government—an alignment between the minimum wage and the starting point of paying tax. The kind of impact that has on the incentive to work is utterly fundamental. It is a matter not just of the numbers but of capturing that principle.

Like many of my colleagues I would not particularly have chosen to take the 50p rate off at this point in time, but it has always been a temporary measure—and the Opposition have always signed up to it as a temporary measure. What interests me is that some of the offsetting measures are permanent; because they are important offsetting measures, that permanence is something that we have to applaud. I never understood why Labour so valiantly refused to put a cap on tax reliefs. That is absolutely critical—and now it has been done. That principle is one that will stay with us and fundamentally change things, building in a degree of fairness to our tax system that had not been there previously.

Noble Lords will exclude me if I find some personal pleasure in seeing a Government tackle the problem of stamp duty avoidance. It made so many people in my local area furious to see how easy it was for people to avoid paying stamp duty through the use of corporations or trusts based in offshore areas to own property and avoid in effect paying any capital gains. The 2010 general election campaign against me was effectively funded, you could say, by avoidance of stamp duty on a major purchase of a property. Local Conservatives argued that it was a tax break that all the rich definitely deserved. So I am very glad to see a change by the Chancellor on the grounds that a sinner who repenteth should be welcomed. I never understood why the Labour Party refused to go in and close that egregious loophole.

I welcome this Budget, although as in all Budgets there will be one or two issues that one would wish to raise—and I have a couple. As people know, I am a strong supporter of tax increment financing as a mechanism for local government to go around and tap new, private sources of financing for infrastructure and regeneration—and the need, as we all know, is huge right across the country. So I am rather disappointed by the announcement in the Budget that the Government will support only £150 million in TIF; that is quite a bitter disappointment. If you spread it around the country, it comes to very little. I am concerned that that has the potential to undermine some confidence in the new localism agenda. This is a time when the market for TIF-type financing should be built up and focused on; it is the time to go out and develop that marketplace. I am concerned that the Treasury’s desire always to hang on to the strings counters what could have been a very significant opportunity. Local authorities up and down the country will be disappointed.

On what the Government are doing to provide access to credit for small business, I would never for a moment argue against the national loan guarantee scheme, which is very welcome. Business has welcomed it, but with some reserve, because its effect is to reduce the cost of loans, which the four major banks plus Aldermore would have done anyway.

The underlying problem with credit for small business is captured again in the Breedon report, which was launched last week and which underscored again the fact that the UK has one of the highest SME loan rejection rates in Europe at about 33 per cent. The decrease in the supply of loans to SMEs has been much sharper in the UK than elsewhere. Our problem is that we have a banking group that is not on the whole interested in the SME market, and certainly not in the micro market that lies within that. Some have said that it is because of balance-sheet pressures on the banks but, if you look at banks’ behaviour, you can see that they long ago retired or fired the people who understood small business lending. When they lend to small businesses now, it is typically based on the value of commercial or residential real estate and very rarely against the capacity or potential of a business plan, which is the hallmark of lending to the small and micro sector.

In this country, we lack a whole layer of banking. The local savings banks that are the backbone of small business in Germany and Switzerland, and the community banks that play the same role in the United States are frankly only in their infancy here in the UK. The advantage of those banks is that they stick with small and micro businesses through thick and thin because only if those businesses thrive do the banks thrive too. I know that the community development finance institutions in the UK benefited from the regional growth fund to the tune of £30 million, but that really was small potatoes. I am so sad that in this Budget the Government lost the opportunity to boost the whole sector by bringing it into the credit easing arrangements. I hope very much that over the year there might be some attempt to look at that and to see how to wrap the CDFIs and possibly credit unions as well into credit easing. That is a strategy that has worked very successfully in the United States, where the Obama Administration pump money into small business through that route. Frankly, if the Government do not take by the scruff of the neck the problem of that missing layer of the banking sector, in 10 years’ time we will still be moaning that we cannot get credit into small and micro business.

Finally, I know that the Breedon report and the Government are looking with some enthusiasm at online innovative financing as an alternative to the banks. The idea is difficult to describe. I have said this before in the House and everyone broke out with laughter, but the umbrella term—although it is often not accurate—is peer-to-peer lending, and the text version is P2P, which leaves my five year-old granddaughter on the floor with laughter. This is a world where the online technology is now making it possible for players to set up a whole variety of different platforms, some of which let ordinary people become lenders to businesses, while others are invoice discounters. It is also a mechanism for social enterprise bonds. There are a whole lot of different areas. The Government have looked to participate and support this sector through the Business Finance Partnership, and are adding a welcome 20 per cent increase to the £1 billion that they originally committed in this Budget. However, the Government’s commitment to cofinancing will be only for mid-sized businesses with a turnover of £500 million or so. These platforms are perfect for microbusiness and small business, so this really is another lost opportunity and an area where, frankly, I hope that the Government will look again.

These are, in a sense, relatively small comments on what has been overall a fairly masterful budget. I remind the Labour Party, when it sits down with its criticism, that it oversaw an economy with tax revenues that were pumped up by the false profits of the banks; they were not real profits, and they collapsed. It was pumped up by an asset bubble in house prices, which again has collapsed, and it was pumped up, in a sense, by a consumer demand which was fuelled by absolutely excessive consumer credit, which was going to be unsustainable. I congratulate the Chancellor on recognising that sustainability has to be at the core of economic growth and fiscal sensibility.