Budget Statement

Lord Bilimoria Excerpts

Wednesday 25th March 2015 Lords Chamber

[Lord Bilimoria (CB)]

My Lords, the Government are very proud of the good things in the economy at the moment. As the Minister said in opening the debate, we have low inflation, low interest rates, high employment and growth figures et cetera, but, as he said, it is austerity to prosperity, and he admitted frankly that productivity is too low and the deficit too high.

Earlier this month, my noble friend Lord Low held a debate which I chaired. The motion was:

“This house believes that the Government’s deficit reduction plan involves cutting the deficit too far and too fast”.

The noble Lord, Lord Skidelsky, was present as well. We had Jonathan Portes, the well known economist, Simon Wren-Lewis, professor of economics at Oxford University, Roger Bootle and Doug McWilliams—all very well known economists. When the motion was put to the vote at the insistence of the noble Lord, Lord Skidelsky, it was carried quite comfortably. The point was made, as the noble Lord, Lord Skidelsky, has mentioned in the debate, that the calculations are that if austerity had not been as severe as it was, the growth rate could have been 5% to 10% higher over the five-year period. One needs just to do the sums to see the difference that that would have made. On the other hand, austerity has created confidence in the global financial markets and we have the security of a lender of last resort in the form of the Bank of England.

The Chancellor has, on the one hand, shown his commitment to long-term prosperity for the economy by sticking to the austerity agenda, but, on the other, he has not had the guts to invest in what will make this country truly competitive and increase the productivity that so many noble Lords have spoken about. For example, where in the Budget is an increase in investment in higher education? We invest less by far as a proportion of GDP than the United States, the EU average and the OECD average. This Labour proposal to reduce tuition fees to £6,000 is a red herring. What we need is more investment in higher education. What about investment in innovation? Where in the Budget is the major investment in R&D and innovation? Once again, we as a country invest way below the United States, the EU and the OECD average as a proportion of GDP. The patent box is tinkering at the edges. How can we get businesses and universities to invest more in innovation? Will the Minister tell us about that?

What about tax rates being competitive? A brilliant thing the Government have done is to bring corporation tax down to 20%. It is one of the best things they have done, attracting inward investment and making our companies more competitive. On the other hand, the Government do not have the guts to bring the income tax rate down to 40%. In his enthusiastic speech, the noble Lord, Lord Rooker, spoke about the catalogue of achievements of the Blair Government. It was the Blair Government who carried on with 40% rate of tax, until it was increased to 50%. It was the Blair Government who reduced capital gains tax to 18%, which was hugely competitive, while entrepreneurs’ relief was 10%, encouraging wealth creation, prosperity and tax competitiveness. On the other hand, the Labour Government’s mistake was to increase public spending to nearly 50% of GDP. This Government want to reduce it to 36% of GDP. I still believe that will require unrealistic and drastic cuts in the welfare state and the NHS, which make up a huge proportion of our public spending. Will the Minister explain how the Government are going to achieve that drastic cut? As the Chancellor said, the EU has 7% of the world’s population, 25% of its economy and 50% of its welfare spending. In the Chancellor’s words, we cannot go on like this. Will the Minister explain what he is going to do?

When it comes to defence, the Government refuse to commit to the 2% of GDP NATO commitment. Will the Minister commit to it? The SDSR was negligent. We do not have our Nimrods, which we now need with Russian submarine incursions. We have no aircraft carrier capability for Harriers, which we have needed several times over the past five years, let alone now with the threat in the Falklands. For one of the strongest defence countries in the world to have no carrier capability for a decade is negligent. The Army cannot even fill Wembley, which is negligent. The security of our country is our number one priority. We have physically destroyed the Nimrods and depend for carriers on the French—on the 200th anniversary of the Battle of Waterloo. Will the Minister tell us whether the back-up from the French has been effective?

When he speaks, will the noble Lord, Lord Davies, speak about Labour’s policies? We hear about the dangerous policies: the mansion tax; raising income tax to 50p; increasing corporation tax by perhaps up to 6%; employees sitting on boards of companies’ remuneration committees; employees being given first refusal when a company is sold; and employees being given a share of companies’ profits. To an entrepreneur and a businessman, these sound like real communist measures, and we know how successful communism has been. The business community has genuine concern about the leader of the Opposition and his care for, knowledge of and familiarity with business. He has missed out business in many major speeches. Will the noble Lord on the Front Bench confirm that these Labour measures will be implemented?

What about the SNP? The leader of the Opposition says he will not go into coalition with the SNP, but what if the SNP props up a Labour Government? It wants to get rid of Trident, our nuclear deterrent. Would the noble Lord, Lord Davies, agree with that? Increase public expenditure and you have the nightmare scenario of Labour being propped up by the SNP. It reminds me that in the middle of the financial crisis, my fellow Fellow of Sidney Sussex College, Cambridge, Desmond Tutu, looked up and said, “Oh God, we know you’re up there, but can you make it a little more obvious?”.

It is a question of balance. Britain is number two in the world in inward investment. We have to protect that, and Governments have not been able to. If you look at the graphs in the Budget reports, Governments have not been able to balance their books. Public spending at 40% is the best a Government can achieve. That is what we should target, and getting a 40% tax take. With regard to debt interest, servicing it alone takes 2.5% of GDP. Will the Minister tell us what the plan is when debt interest goes up? How will the Government deal with that amount of more than £50 billion?

The Office of Tax Simplification is an oxymoron. Simplification of tax collection is in this Budget, but the tax code is still 11,000 pages long. There are huge issues here. As chancellor of the University of Birmingham, I chaired for the first time the university court and the university annual meeting. I was able proudly to say that it is a billion-dollar institution. It has revenue of more than £500 million, a healthy surplus, a healthy cash position and, most importantly, a £300 million infrastructure investment programme over the next five years, with a state-of-the-art swimming pool, libraries, a dental centre, new student accommodation and all the things that make it attractive to inward investment in terms of students and academics from around the world. If only our country could balance its books in that way and have an investment programme in the future, we would be able to get high productivity, get the deficit down and get our debt down.

--- Later in debate ---

[Lord Davies of Oldham (Lab)]

My Lords, I begin by craving the indulgence of the House. My noble friend Lord Stevenson caught my ear; I was present at the memorial service, and the defence of the arts by Lord Attenborough was a brilliant speech, reprinted in the programme. On either side of it were sayings from Mahatma Gandhi and a Shakespeare sonnet. As far as I was concerned, the service was a work of art in itself on paper before we actually heard the words being read. It was a great occasion.

I would also like to comment on my noble friend Lord Graham. He and I won adjoining seats in Enfield in 1974 and served together there for a number of years. I was delighted that he spoke this evening. I know that it was a limited area on which he spoke and probably pretty marginal to the Budget, but I think it gave cheer to us all that he puts a very high priority on service in this House in difficult times.

This has been an excellent Budget debate—but so was the debate in the House of Commons, which of course went over several days, in which many of the contributions were extremely thoughtful and well worked-through. That suggests that the debate we will have in the country in the general election may reach rather greater heights than some people suggest our political culture is now capable of. It did not start off too well because, as my noble friend Lord Lea indicated, there was pretty well nothing in the Chancellor’s speech about the macroeconomy. It is not long before the election so he indulged in a political speech, but he said little about the macroeconomy.

We had nothing on the question of our balance of payments problem. We had nothing on productivity. In fact, those issues seem to be suffused in the general aura of success, which the noble Lord, Lord Deighton, succeeded in imitating, to a degree, in his opening contribution this evening. What success? The success of the economic plan—but that economic plan became long term when it failed because the Chancellor could not deliver an end to the budget deficit in 2015. So, we have an extended plan, and that plan has some very dire implications indeed.

It is quite clear—it is all in the Red Book—that, as my noble friend Lord Stevenson and many other speakers in the debate said, we have not seen anything yet. The cuts of the past five years are going to be exceeded in three years, which will have a dramatic effect upon our economy and our society. And for why? As the noble Lord, Lord Skidelsky, identified, the Government’s original position way back in 2010 was a false analysis of the crisis leading to some pretty awful solutions to it. My noble friend Lord Layard identified very clearly the basis of the false analysis: that it was all down to excessive spending by the past Labour Government. No, it was not. This country was the second lowest in debt of the advanced countries when we left office and it was not the case that our expenditure had run out of control. What happened was that the global financial crisis, which started in the United States, as described most excellently by my noble friend Lord Rooker, reduced the receipts of government to a calamitous extent.

Of course it needed a significant response, but the idea that it called for a Government imbued with a philosophy of reducing the size of the state and doing everything that they can to get public expenditure down, irrespective of the impact upon our economy and society, it did not need and has not needed but has unfortunately received thus far under this Administration. The task of noble Lords on my side of the House is to make sure that this Government get no opportunity to extend their ill thought-through plans based upon a completely false premise.

We have to recognise that the expenditure cuts that are coming are coming against a base where cuts have been so sharp already that we are getting right to the bone. How can the police meet their obligations with the kinds of cuts that are likely to face them? What about defence? After all, that has, on the whole, been an issue that has concerned the Conservative Party in particular over the years. What does it think about this debate about the 2% figure if defence is to bear its share of the cuts? As defence is an unprotected sector, it is going to, if this Government were returned to power.

What about other areas of expenditure? Local government spends a very great deal of its expenditure on social support and welfare for children and the aged. It is going to get a massive cut in those resources if this Government continue in office.

The challenge is clear. We need to establish that this Government have presided over failure and the slowest recovery for over a century, with a desperate price being exacted from ordinary people.

What about the bedroom tax? The Government recoil at Labour’s proposal on the mansion tax directed towards the wealthy in our society and those who take advantage of the London housing position, to which the noble Baroness, Lady Valentine, referred. Housing in London is critical. We cannot keep the economy of London running if there is a flight of large numbers of people from the city because housing is too expensive because of foreign investment. That is so obvious, but what did the Government say about housing in the Chancellor’s Budget speech? Nothing of any significance.

We have a major task to tackle after what has been a desperate decline in growth, lost revenues, as the noble Lord, Lord Skidelsky, identified so very clearly, and then a little bit of a spurt before the general election, which is about to be put at enormous risk if the Government carry on with their existing policies. It is quite clear that we have a low-wage, low-productivity economy in which people get poor returns for their work and, as the right reverend Prelate the Bishop of Portsmouth, identified, many of them are still subject to a marginal rate of taxation—if you take taxation plus national insurance—which renders it difficult for them to sustain their living standards.

We know that the success of an economy cannot be based on low wages and low productivity, not least because the only way in which it has been continued thus far is because migration figures are so high and large numbers of our labour force are earning low wages and doing jobs in circumstances where wider society is more reluctant to respond.

We have 1.8 million zero-hours contracts in this country at present. The tax and national insurance combination has extended to considerable levels. We have a £300 billion deficit on our balance of payments. I will just mention the success story of 2011-12: we lost our triple A credit status. This Chancellor dares to come before the country to say, “Give me a renewal of the mandate because I am doing so well”. In fact, what is reflected is a colossal failure.

That means that we need to take different measures. Labour is quite clear what we are going to do. We intend to raise living standards by increasing the minimum wage, because we do not think that a low-wage economy makes any sense. We intend to safeguard the National Health Service, because we are terrified that such is the level of cuts promised in this Budget, they are bound to impact on the health service. They do in any case, because cuts in social welfare thrust people into the health service through the accident and emergency service. The leakage is already there, but it is due to get a great deal worse if this Government are able to follow through on their plans.

We intend to cut business rates for 1.5 million small business properties by not reducing corporation tax—with a slight increase to corporation tax. We also intend to deal with housing in the only way that one can, which is to build houses. It is not a problem of illegitimate demand—it is a problem of supply. I should have thought that the party of Macmillan in the 1950s would recognise that Governments can put their back into creating supply of houses if they are prepared to do it and it is defined as a priority. By heavens, it ought to be a priority in our country at present.

We are also going to balance the budget and the books in a fair way. That means we shall take a slightly different view on the bedroom tax, which we intend to scrap, and on tax cuts for the very wealthy in our society—the millionaires.

[Lord Bilimoria]

I thank the noble Lord for giving way. Did he just say that there would be a slight increase in corporation tax?

[Lord Davies of Oldham]

My Lords, the Government are promising a reduction. We are not going to carry out that reduction. That is putting it as fairly as I possibly can in comparison between the parties. We will keep it where it is. The Government intend, for reasons best known to themselves, to cut it.

That means that a change of government is absolutely essential. The greatest need is the one that was expressed by my noble friends Lord McFall and Lord Layard, by the right reverend Prelate the Bishop of Portsmouth and by my noble friend Lady Thornton, who talked about the position of women in society. It is that we need an improved public morality. We need to recognise that there is more to life than just the economy of getting and spending. Life for people, when it is enriched, is about relationships, fairness and degrees of co-operation to help those who have greater needs—to have some degree of common endeavour. Those are the values of my party, and we intend to carry them out in government.