Finance Bill

Lord Altrincham Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 19th March 2025 Lords Chamber

[Lord Altrincham (Con)]

I thank the Minister for listening so carefully to this debate and welcome the noble Baroness, Lady Caine. I was so pleased that she talked about politics at the table; it is a privilege for us that she has joined this House, and we look forward to hearing from her in future.

As the noble Baroness, Lady Penn, pointed out, we are looking at a Bill from a little while back. It went in the oven more than four months ago and comes to us like a slow-roast goose. Just before it went in, the OBR was allowed to have a look and, if noble Lords remember, was rather unkind. Very soon afterwards, public market investors took a look, sold off UK gilts—the 10-year gilt has not come back to the previous level—and said they did not want to see another goose any time soon. We already know what the public markets thought about this Finance Bill at the time. It is a reminder to us, with the perspective of time, of how important fiscal policy is and how impactful a Budget can be for jobs, investment and prices. This Budget will be remembered primarily for allowing, and partly driving, a degree of unemployment through policy. It will be remembered for its impact on jobs, for slowing private sector investment and for allowing a degree of tax migration, as raised by the noble Lord, Lord Leigh.

On jobs, the Government like to talk about growth—we all want to—but unemployment among young people is moving up sharply. There are 640,000 unemployed people under 24; that is the age group in which many are in education, but that number is approaching the cohort size of the age group. Their cohort sizes are smaller than ours were when we were young. There are at least 750,000 unemployed people under 28 and the unemployment rate for under-28s is in the mid-teens at the moment. It is going up sharply and has been doing so months ahead of this national insurance change.

The noble Lord, Lord Eatwell, always helpfully updates us in these Treasury debates with a little macroeconomic insight and reminds us that there might be public or fiscal demand and a stimulus in the economy. That might be true, but it is not particularly helpful for an unemployed 24 year-old and is not coming through any time soon. It is the Keynesian thing about imagining aggregate demand, the long-term future and what might happen on a macro level. It will not help unemployed young people today. It will not help an unemployed economics graduate, who might be rather disappointed with their status.

Thinking about employment, the only source of new growth is going to be from the private sector. The problem here is that the private sector is going to need the economy to be taxed a little less than it is currently. We have the tax to GDP ratio going through 38% to now 39%. This level of taxation on the economy may be the level where the tax yield can go no higher. We may already be at the limit of yield—not of tax rates or levels, but of the actual yield, the amount of money that the Government can take out of the economy, at this current time. The reason why that is so sensitive is that the tax system is very concentrated. We have 2 million to 3 million people in the country paying the large majority of all taxation—not just of income tax but of all tax—and the concentration is close to being around 2 million people. So migrations out of the country of higher rate taxpayers in the tens of thousands could be very dilutive to our tax base, which is why the comments of my noble friend Lord Leigh about non-doms really matter.

We asked the Minister a few weeks back if the Treasury had numbers on departures of wealthy people, and the reply was that it did not, because HMRC does not collect the data. That is a real shame, because we have had a problem with population forecasting in the UK. One of the reasons why the Government have had to recognise a higher population—another million people who need public services—is that there was an underestimate of the number of people in the UK. Now, we might be misestimating the population because of population movement out. It is very important that the Government have a good grip on this, and I wonder whether the Minister could comment on that.

On non-doms, the focus of the Government’s discussion has been on foreigners and their position in the UK, and my noble friend Lord Leigh asked some good questions about that, in particular whether the yield from non-doms of £13 billion over the next five years will be achieved. It seems most unlikely, but it would be helpful to have an update on that. Much more sensitive, and not commonly talked about, is the movement of doms, of UK taxpayers moving out of the UK. They are not non-doms, they are Brits, and they may also be moving in the tens of thousands. They are not in this same topic, so we need to get a grip of what is happening here.

For example, in the Budget, they moved the inheritance tax rules to a residency basis. The issue with being UK domiciled—which we all are in this Chamber—is that inheritance tax goes with domicile, so that, even if you leave the UK, you would still be subject to inheritance tax. Everything has been moved onto a residency basis, meaning that everybody in this Chamber, and everybody in the UK, who might choose to no longer be resident, would no longer be subject to inheritance tax. It creates a tremendous incentive for certain types of wealthy people to leave the UK. Would the Minister comment on this adjustment, and to what extent the Treasury has looked at what might happen to inheritance tax? As an aside, it is relevant to an issue that came up in the elections Bill a couple of years ago. We extended the franchise out for years and years, but part of the reason for that was that people were still subject to UK taxes. Now, we have brought the tax horizon right in. It is only at about six years, at the non-res limits, when people can leave the country.

Looking at investment and the private sector, my noble friend Lady Neville-Rolfe talked about the importance of investment in the energy sector. The Budget took another look at North Sea oil in the energy profits levy, and the Government’s position seems to be somewhat fluctuating. It would be helpful to get a comment from the Minister on where he thinks this is going. It is a fraught area of public policy and everybody can see that energy policy and dependence, or non-dependence, on oil is a difficult area. Whether or not the levy is useful in increasing taxation from North Sea oil, the shutdown process is now far advanced. That is important, because this Budget may have been the last time when the Government could moderate the shutdown of North Sea oil, in case policy was to change. A future Government, even this Government, might pause before shutting down North Sea oil, which still produces a million barrels a day of crude.

The shutdown is extremely bad news for the public exchequer, so when we accelerate the shutdown, we bring the decommissioning costs much closer. These are in the tens of billions, so it is not just that North Sea oil still employs tens of thousands of people in the country today, it is that decommissioning costs are very real. Perhaps the Minister could comment on expectations of the timetable for the shutdown, and whether decommissioning is coming sooner, or can be mitigated in any way? This is the issue of the full removal of all the oil rigs and the restoration of the seabed.

More broadly, the Finance Bill may have been a missed opportunity to improve the investment incentives into the UK economy. As mentioned by my noble friend Lady Coffey, there is also the importance of whether we could moderate stamp duty and taxes for the trading of small company shares, improve the allocation of DC pension funds into the UK—that is the issue of whether they are obliged to hold only public stocks—and accelerate the Solvency II changeover for insurance companies invested in the UK. I am sure that all of these will be dealt with by the Government in due course, but, to the extent that the Minister can make any comments on allocating or incentivising domestic investment, that would be helpful. It is important at the moment, because investment in the UK is going through a moribund period and some level of government support and encouragement is important.

The noble Lord, Lord Hain, made an interesting comment about war bonds. There is another entity that needs investment, which is His Majesty’s Government. We might think, in a benign financing period, that His Majesty’s Government would always be able to raise debt. Other countries incentivise their citizens to hold government stock: Italy and Japan do. We might think creatively—it would be interesting if the Minister could comment on this—about whether we could incentivise British citizens to hold gilts. At the moment, our citizens are holding more than £1 trillion in cash. It is mostly in bank deposits, but also in other forms of savings. It is a meaningful amount of money that could be moved, somewhat, into government stock, and stabilise our own funding needs, which may be very challenged in the future because there is so much issuance coming from the United States and elsewhere. So we should at least think about how we might attract our own savers towards our own Government’s needs. Would the Minister comment on that?

Finally, I will say that the Budget is created within the constraints that the Government set themselves and are well publicised. But, in reality, the Budget comes within a financing envelope that is very constrained for the Government. Their room for manoeuvre is constrained. At the perspective of four months since the Finance Bill came out, now that we have had a little time to see this Budget, we can see that the Government went towards the edge of that envelope, and the economic consequences of going to the edge are, in a sense, all around us.