Finance Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 21st February 2024 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding speakers, I will say I have some sympathy for the Minister, who has been hit with a wall of technical expertise that is probably not matched in almost any other sector of debate. I wish her great luck in answering the details.

I draw the Minister’s attention in particular to the comments of the noble Lord, Lord Davies of Brixton, on the pension allowance, because that issue is so mired in complexity, and the scheme needs complete reform. This does not really affect the private sector, which managed workarounds for this long ago; it is people in the public sector who are caught. The judges have been exempted, as the Minister will know—they have their own special scheme—but senior consultants, senior members of the military and some senior civil servants are caught up in this mess. A straightforward reform would be far more effective than this constant chipping away at the edges and getting it wrong, which is the pattern of the last few years.

This Government are, frankly, living in a parallel universe. The economy is in recession. Many people remain under crushing pressure from the cost of living. Real GDP per capita has fallen for seven successive quarters, and, as I mentioned during Questions earlier, according to the Resolution Foundation, that equates to a loss of nearly £1,500 per household. But, just as significantly, the fundamentals that power the economy and economic growth would, if they were put into a risk assessment analysis, be in the red zone for high risk. But the Government have not responded to this kind of risk and this element of real danger for the economy with a coherent strategy. They have failed to take the action that we need to achieve economic recovery and, frankly, to go out and talk more commonly with people on the doorstep, as I do. People have had enough.

The Autumn Statement of 2023, which sits behind this Finance Bill, is often described by the word “fiction”. The cut in the national insurance rate, which the Minister referred to, is in reality a small reduction in tax increases because of the effect of frozen thresholds. I am stunned that the Minister does not understand the impact of this threshold freeze and in fact suggested that thresholds had risen significantly. You would have to go back to 2010, but we are talking about our more recent period, which is what is impacting people. Frankly, if trading standards looked at the Government’s statements and flagged misleading claims from the Government the way it does with retailers, the Government would not be able to make those claims that the national insurance rate is actually a tax cut; it would be recognised as a reduction in a tax increase.

In evidence to the Economic Affairs Committee, the OBR’s chief executive, Richard Hughes, pointed to the fictional nature of the forecast headroom that the Government claimed in the Autumn Statement and I fear will claim again in the Budget. He explained that the OBR is required to use the Government’s assertions on future tax and public spending, even in the absence of either credibility or detail. I say to the noble Lord, Lord Leigh, who was talking about growth and debt reduction: go back and look at those comments from the OBR in detail.

No one believes that this is just one example, or that the fuel duty escalator—this is one of the tax examples—will be reactivated, but, without it, the tax revenue numbers in the forecast are nonsense. Look at the public spending forecast. Richard Hughes suggested that calling it “fiction” was “generous”. With fiction writers, he said,

“someone has bothered to write a work of fiction, whereas the Government have not even bothered to write down their departmental spending plans”.

Slashing future public spending continuously as a percentage of GDP, which is embedded into that forecast— it is required to be so by government—is either vicious or a con.

Every public service is in dire straits. I am not talking just about the NHS: schools face record deficits, local governments are slashing essentials, the police are short of capacity, prisons are bursting and, frankly, I could go on with every area of public sector activity. Investment in infrastructure, which is absolutely key to our economic future, has not been adjusted by a single penny for inflation, which surely is a recipe for economic self-harm.

We need to focus, with open eyes and real vigour, on economic growth. As we discussed in February, given our older population and its growing dependency, our shortage of working age population is becoming relentlessly more serious. Improving our skills base can help in some sectors, but it requires a revolution in the role of apprenticeships and a complete overhaul of the apprenticeship levy. The drag on our economy of our sick working age population—by percentage, the highest in Europe—requires us to revive the NHS, which is faltering on so many fronts, from GP appointments to long waiting lists. The Government are fiddling at the margins of these issues and not driving forward fundamental change.

A sustained and high growth in productivity is vital—a return to over 2% a year productivity growth instead of the current stagnation. This requires business investment, which continues to be painfully low and has been despite a decade of low corporate taxes—here I agree with the noble Lords, Lord Desai and Lord Sikka. Low taxes have not generated investment, and we have years of experience and evidence for that. I support the full expensing of measures in the Finance Bill, but the OBR figures show that its benefits are actually quite small, and the other measures on R&D and those for the creative industries are useful but, frankly, small fry.

The Government should learn from their own experiences. As I say, low taxes do not persuade businesses to invest, but a proper industrial strategy would attract investment. Policy certainty, instead of shifts in the wind, would attract investment. Reducing friction in our access to the EU market would attract investment. A focus on small businesses, including reforming business rates, would attract investment. In productivity terms, the Government have simply failed to take advantage of the digital revolution. Work practices have changed, but UK productivity has not benefited; it remains utterly stagnant. This Government will waste the potential of the AI revolution unless they change their mind and put in place a coherent strategy.

Trade growth is lacklustre. All the Government’s vaunted trade deals utterly fail to offset the 4% scarring of the economy from Brexit, and we now face the trade consequence of world tensions, anti-globalisation and security concerns, not least with China. I am always stunned when the Government talk about the great trade potential outside Europe—they are essentially referring to either China or countries that fall within the Chinese sphere of influence, where we have so many security and trade issues that looking for that as our rescue is, frankly, a very inadequate response.

Our national debt is running close to 100% of GDP. The OBR, if we take away the requirement that it must give this kind of fake forecast, does not see that number coming down—look at the evidence it gave to the Economic Affairs Committee. There are huge fiscal consequences to running debt at 100% of GDP. We have a very high exposure to variable interest rates, thanks to both quantitative easing and our exceptional volume of index-linked gilts—I think we have twice the amount of any other developed economy; it is extraordinary. Unlike in other major economies, our gilt markets depend on investment by foreigners. It is called the kindness of strangers, and, in volatile times, it is very risky. At times of risk, people exercise a home bias; no one needs to be investing in sterling. We have got ourselves a very risky exposure, as we try to sustain the coherence of the gilt market.

I have not yet referred to the greatest risk of all: climate change. The EU’s climate service announced that global heating exceeded 1.5 degrees across an entire year for the first time last year. That is years earlier than was anticipated. Dealing with climate change is not a “nice to do”; it is a survival issue. I say both to the Government and to Labour: if we do not progress rapidly now, the consequences will be crushing, not least for our economy.

We will soon have a Budget. It is very strange to be discussing a Finance Bill with a Budget less than two weeks away, but I hope that the Government will begin to redeem themselves. Ordinary people are still feeling pain, and that pain will get worse before it gets better. We are in recession, but the downturn in the standard of living has been far greater. The fundamentals of the economy and of economic growth are sounding the alarm. Climate change is coming relentlessly. I say to the Government that looking for the populist vote by floating tax cuts is not the answer. Leaving a scorched earth for the next Government—which I fear is what they have in mind—is not responsible. Let me repeat what I have heard on the doorstep: enough is enough.