Economy: Budget Statement

Baroness Kramer Excerpts

Tuesday 13th November 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I begin by echoing the words of the noble Baroness, Lady Noakes, in reference to the loan charge. I am also on the Finance Sub-Committee of the Economic Affairs Committee. This House will know that, in the other place, my colleague Stephen Lloyd, the MP for Eastbourne, put down an Early Day Motion on this issue; 100 MPs have signed it across all parties, reflecting the experiences of their constituents. These are ordinary people such as hospital cleaners, social workers and nurses, who found themselves moved out of their normal employment and did not have the scope or understanding to realise that they were being put into tax-fragile arrangements when they were moved over to work as contract workers. I ask the Minister to take this back. The public pronouncements that have been made, both by the Chancellor and the Financial Secretary, seem to suggest they do not understand that this is the kind of person affected rather than a handful of glamorous celebrities or footballers. It is crucial that that is drawn to their attention.

That was the first of the wind-up speeches; it is clear that the big announcement in the Budget was the £20.5 billion for the NHS. However, I pick up the point made by the noble Baroness, Lady Jolly, that this equates—if one looks across the whole budget for the Department of Health and Social Care—to a rise of only 2.7% in 2019-20, which is £3.2 billion short of the minimum increase of 3.3% necessary for the NHS and the full department just to stand still.

There is an impression created by the Budget that the problems in health have been solved. They have not. Health is still facing continuous cuts year on year. We have to be honest about that and many of us are very worried. Again, on mental health, to which the noble Baroness, Lady Jolly, drew attention, the money promised of £2 billion falls about £1.5 billion short of delivering the programme that was described. While additional money is welcome, it is well below the necessary promise. On social care, £650 million barely touches the borders of an overwhelming problem.

The noble Baroness, Lady Altmann, talked about how unprepared families are to deal with social care issues, saying that this Budget could have been used to deal much more widely with that underlying problem. The noble Lord, Lord Kerslake, and others referred to the LGA work which shows that by 2024-25 adult social care alone will face a £3.5 billion gap just to fund the national living wage and maintain existing standards of care. So even in health we are still in a cutting regime.

On the subject of non-protected budgets, the noble Lord, Lord Haskel, talked about further education but I should like to focus on schools. There was money for bits and bobs but we need £2.8 billion a year just to reverse the real-terms cuts per pupil since 2015. Schools need teachers to function but that has not been dealt with in this Budget.

Other non-protected budgets are those for prisons, police and local government, the latter of which was referred to by the noble Baroness, Lady Eaton. Picking up the point made by my noble friend Lord Fox, there are a few patches for this year but non-protected budgets will still be facing a 3% cut per person in real terms by 2023. I think that everyone in this House recognises the inadequacies of many of those departments when it comes to delivering the services needed by a reasonable and civilised society.

The noble Baroness, Lady Stroud, congratulated the Chancellor on the additional money for universal credit. However, I do not think it is adequate and nor, quite frankly, do most Members of this House. The money put back into work allowances equated to only about half the cuts made in 2015. The benefits freeze continues for another year and the newly self-employed continue to face overbearing minimum income requirements.

The noble Baroness, Lady Stroud, also talked about the tax credit debt rollover problem. According to the IFS, £4 billion more in welfare cuts is still to come—something that I think we all find reasonably challenging. I personally find it very unacceptable, and I wanted to pick up the point made by the noble Lord, Lord Horam. I am appalled that nothing has been done in this Budget to tackle the waiting time problem for people going on to universal credit. I have a personal friend—so I see it personally—who, because of the loan she had to take out to cover that period, is trying to live on £20 a week after rent. That is simply impossible and we should not have a universal credit system that puts people into that situation. The Chancellor missed an opportunity.

I was absolutely thrilled when the right reverend Prelate the Bishop of Chelmsford raised the green agenda, which we did not hear much about during this debate. This was a real opportunity to put down a marker, as the right reverend Prelate said, particularly after publication of the intergovernmental report on climate change. Why do we not have a 5p levy on plastic cups? I would have thought that the Treasury would welcome the money, as well as the impact that it would have on the overall plan to reduce plastics. Surely this would have been an opportunity to ban single-use plastics within three years, which is entirely doable.

The noble Baroness, Lady Altmann, talked about ultra-low emission vehicles and electric cars, the subsidies for which were cut, even though there were goodies in the Budget for oil and gas. That industry has real potential for the future of the UK. This would have been the occasion to reinforce that future and to make a substantial difference to the environment and the critical circumstances that we face.

I join various people in this House who have talked about our need to face up to the challenge of raising additional taxes. I think that we have a broken tax system and this should have been the Budget that began to deal with it. If we are to restore public services to the level at which we wish to see them and to do so in a fiscally responsible way, tax will be necessary. I do not just want a conversation on this; I want action. I have no problem with raising the personal allowance threshold for low earners, but at this time and in these circumstances it is surely inappropriate to raise the threshold for higher earners. I suspect that many, if asked, would gladly have forgone the promised £520 for the average high earner in order to help those left on the fringes of society. As one friend said to me, “It’s pretty hard to think I’m a priority when I see homeless people asleep in so many doorways”.

The Government could have made real headway with our public services and welfare crises if they had supported Liberal Democrat proposals to put a penny in the pound on income tax and dedicate it to the NHS and social care. Although they did not talk about the amounts, the noble Lords, Lord Kerslake and Lord Macpherson, pointed out the benefits of a hypothecated tax. The Government could have made real headway if they had returned corporation tax to 20%—I do not think that a penny of investment has been stimulated below that level. If they had restored capital gains tax to equate with income tax, if they had overhauled inheritance tax—many people talked about the importance of the challenge of taxing wealth as well as income—and if they had changed pension relief as we proposed, they could, as I said, have made real headway with our public services and welfare crises, delivering something like another £29 billion a year by 2020 to spend on those necessary and fundamental services.

Here I disagree with the noble Lord, Lord Skidelsky, because I think that fiscal responsibility is absolutely key to the future, and that is why I turn to tax-raising measures. I remember the Brown Government, and spending being based on the assumption that boom and bust had ended for ever. However, never underestimate the cycle—it comes back to bite you. His Government assumed that there would be no external events but we ended up with a phenomenal banking crisis. They also assumed a flow of taxes based on very high profits within financial services that, frankly, derived from abuse. When that abuse was ended, that revenue source disappeared. Therefore, I disagree fundamentally that there was no need for adjustment.

[Lord Skidelsky]

I intervene simply because the noble Baroness mentioned me. I am not against fiscal responsibility. Why on earth does she think that I am? I think that fiscal responsibility includes preventing crises, such as the one in 2008, and taking the right measures when a crisis has happened to restore the economy. I am not against fiscal responsibility. In fact, who is?

[Baroness Kramer]

I think that we will have to debate this off-piste or I will talk for too long.

[Lord Hain]

I am sorry to intervene. I was agreeing with everything that the noble Baroness was saying until she embarked upon a disastrous defence of her party’s complicity in Tory austerity for five years. If she looks at the record until the banking crisis blew everything out of the water, she will find that borrowing was lower than we inherited from the Tories, the deficit was lower than we inherited from the Tories and debt was lower than we inherited from the Tories. Those three indices were much lower than the average of comparable countries.

[Baroness Kramer]

And Liam Byrne left us with the message that there was no money left. I shall try to move on quickly.

Much more could have been done for small businesses. It is time to deal with the underlying problem of business rates, which is a defunct way of taxing. I very much recommend that the Government look at our call for a land value tax—the commercial landowner levy—which would reward people for investing much more in both machinery and equipment.

Much of this debate has been about growth. I say to both the noble Lord, Lord Bates, and the noble Baroness, Lady Noakes, that I join others who are stunned that the Government are satisfied with the growth rate forecast that we face. Over the next five years, the best number is 1.6%, and it looks as though it will be 1.3% this year. That is awful and completely unacceptable. I am very worried that the Government are complacent about a number like that, and the noble Lord, Lord Livermore, highlighted that issue as well. Productivity is forecast to be at a trend rate of 1.2%, which will produce no future for any of our children. This year, I think that it is running at 0.8%.

On growth and investment, this year private investment has fallen from 3.3% growth, which is much closer to its norm, to 1%. The Bank of England has said that business investment growth has been 3% to 4% lower over the past two years as a result of the referendum. Those investment numbers are absolutely devastating. When people point to full employment, I ask them to look at the demographics. We have a demographic shortage of working-age people. It is not hard, in those circumstances, to have full employment. I ask the Minister to check the dependency ratio, because—although my calculation may not be right—I believe it is currently 1.7:1. So one person supports themselves plus 0.7 of another person, rising rapidly to 1.9:1, which is completely unsustainable.

We have to face up to the issues of productivity, our rising pensioner tail and our falling working-age population. With our migration policies, we are about to make that situation significantly worse. We are certainly not going to achieve economic recovery in a Budget like this.

I have not even touched on Brexit; many people raised it and it is absolutely pertinent, as it sets the framework. We know now that there is a technical agreement between the EU and the UK. It will be fascinating to see whether tomorrow, by the time the Conservative Party has worked through it, there is anything more substantial than that.

No matter what we do, by the Government’s own figures there is no scenario for Brexit that does not harm prosperity—a point made by the noble Lord, Lord Livermore, in great detail, and by the noble Lord, Lord Kerslake. From talking to City players today, I understand that the financial services industry has either paid, or is committed to pay, something in the range of £15 billion to cover the cost of adapting to Brexit—this assumes not that there will be a no-deal Brexit but a Brexit more in the Chequers mould. I have no idea what is falling on manufacturing, but those numbers are quite damaging to any kind of economic future.

This was a sticking-plaster Budget. In this atmosphere of uncertainty, without knowing where Brexit goes, the Chancellor has chosen—perhaps rationally—to do only the few things that impact on this year. Let us not overstate what he has done. We still face huge cuts to public services on every front. We have not dealt with the challenge of putting our taxes on a long-term and sustainable basis and we have not dealt with the underlying challenges of growth and productivity.