Budget Statement

Lord Bilimoria Excerpts

Wednesday 23rd March 2016 Grand Committee

[Lord Bilimoria (CB)]

My Lords, it is wonderful to follow the noble Lord, Lord Darling; this is the first time I have taken part in a debate with the noble Lord since he joined us. I remember very clearly leading a delegation to India as the chairman of the UK India Business Council, accompanying Gordon Brown, who was then Chancellor, and the noble Lord, Lord Darling, who was then Secretary of State for what is now BIS. I remember saying at one of the speeches I made there, “We have with us possibly—probably—the next Prime Minister and the next Chancellor”. Of course, on 27 June 2007 that came true. It is wonderful to have the noble Lord with us as well as the noble Lord, Lord Price, whom we welcome. I say this not just because Waitrose is a very good customer of Cobra beer. The noble Lord is a hugely respected established figure in the food and drink and retail industry—that feeling is unanimous; I have never heard a bad word said about him—and we are very lucky to have him with us.

Looking ahead, there is huge uncertainty. We have the election for the Mayor of London, the EU referendum, the Iraq inquiry report, the decision on Heathrow and Gatwick, which the noble Lord, Lord Darling, mentioned, which has been delayed until after the mayoral election, the American elections, and the Middle East situation and Daesh-IS. There is wretched, awful terrorism in places such as Paris and Brussels. What a backdrop for a Chancellor to produce a Budget against. Just look back to November, when the Chancellor was riding high—there was £27 billion extra and a rosy outlook—then within weeks he was backtracking because the outlook for the global economy was weaker, and the UK is not immune to slow-downs elsewhere.

This Budget has some excellent measures in it. Capital gains tax, which I have talked about time and again—which used to be 18% under the old Labour Government, increased to 28% and should go back to 18%—is down to 20%. That is wonderful news, and with the basic rate going down from 18% to 10%, that will help wealth creation, which I will come back to later. Entrepreneurs’ relief has also been extended, which is also fantastic. On business rate relief, 630,000 small businesses will pay no business rates at all next year, and reforms to national insurance will abolish class 2 contributions. That is all good news.

Cutting corporation tax down to 17% is absolutely tremendous and I will come to that later. Improved loans for doctoral students and loan systems for postgraduate students are also great. They are not quite where they should be but it is great progress. I declare my interest when I say that beer duty being frozen is very good. On a serious note, it is good for the pub industry, jobs and the consumer. There is investment in infrastructure—whether you agree with it or not—such as Crossrail 2 and HS3. I think that is terrific. There is also investment in roads.

However, the Government have made serious mistakes in the Budget, for example with the PIP. The IFS calculated that 370,000 people were affected by the change to the PIP criteria, and that it worked out to an average loss of £3,500 per person per year. The comments of my noble friend Lord Low on this issue have been vindicated as the public have agreed with them and the Chancellor has had to backtrack. As regards our complicated tax system, as a member of the Economic Affairs Finance Bill Sub-Committee, I know that a huge overhaul is needed vis-à-vis tax simplification, and I will come to that later.

The most important point concerns the uninspiring efforts to improve productivity, which was referred to by the noble Lord, Lord Eatwell. The OBR pointed out that productivity will be a serious issue. Chris Giles of the Financial Times said that the OBR had “flip-flopped” by giving the Chancellor,

“a £27bn windfall to play with over five years in the Autumn Statement”,

but that the OBR,

“has now removed £56bn in these Budget forecasts”.

Does the Minister agree with that?

The director-general of the Institute of Economic Affairs, Mark Littlewood, described the Budget as “slow, steady” and “rather unimaginative”. I think that is rather unfair. However, he went on to say that,

“at least the Chancellor hasn’t thrown out his target of a Budget surplus for 2020, even if he has almost no margin for error in hitting that target”.

What he said about the increase in the 40% threshold is very good. However, on the capital gains tax, he says:

“The old top rate of 28% was actually losing the government income—high CGT rates damage economic growth by encouraging individuals to hold on to assets that would be better off under different ownership”.

Therefore, I congratulate the Government on that once again.

KPMG’s chairman referred to,

“a variety of measures aimed at the more traditional butcher, baker and candlestick-maker across the country but also the digital age ‘kitchen table’ entrepreneurs”.

Robert Chote, head of the OBR, says that the OBR has revised down productivity growth, meaning that,

“the cash size of the economy is about 3 per cent smaller … than we predicted in November”.

I ask noble Lords to keep that figure in mind—3% smaller than a few months ago. Robert Chote also said that the public sector net borrowing situation was £11 billion worse than previously forecast, and that weaker GDP growth means that debt to GDP ratio would rise, rather than fall, this year. Does the Minister accept that?

The Institute of Directors—not surprisingly—welcomed the measures that will help SMEs but also questioned how the Chancellor aimed to achieve the budget surplus he has promised by 2019-20 given the downgrade in the economic forecast. Simon Walker, the director-general, said:

“The UK faces risks on many fronts, and much heavy lifting will still be required to get rid of the deficit by the end of the Parliament”.

Does the Minister think that there is a realistic chance of doing this?

The Government have had the guts to do a lot but they have not had the guts to reduce the top rate of income tax down from 45% to 40%. That is what it was under a Labour Government for many years. They have reduced CGT; they should reduce the top rate of income tax down to 40%. That would make us more competitive. Does the Minister agree?

Government spending as a share of GDP touched nearly 50% under the Labour Government. It was at 45% of GDP by 2010. The Government want this to go down to 36.9% of GDP by 2020. Is that realistic? Given that the NHS and so many other areas are ring-fenced, does the Minister really think that we can get government spending down to 36.9% of GDP? The OBR forecasts are changing all the time. The Government are relying on them when it suits them. Now it does not suit them. It is like the Governor of the Bank of England bringing in forward guidance. What a ridiculously ludicrous idea. Of course, he has had to backtrack on that completely.

The Office of Tax Simplification is an oxymoron. The Government should be simplifying tax, not complicating it, but the Office of Tax Simplification does not have the powers it needs. I would ask the Government to look into giving it more powers and consulting it more, which they are not doing at the moment.

I congratulate the Government on security, about which the Minister spoke in his remarks. We have now finally agreed to the 2% defence spending, which is the NATO commitment and is wonderful, particularly given the environment we are in. Also, the SDSR 2015 is a huge improvement on the SDSR 2010.

We should keep things in perspective. This little country comprises less than 1% of the world’s population yet we have 4% of the world’s economy and 7% of the world’s welfare spending. That cannot really go on. We have seen welfare reform that was desperately needed, but on the other hand the reforms need to be fair or we will see headlines like that in the Sun, “Beware the IDS of March”. The disability benefit proposals were a huge mistake on the part of the Government and I think that the Chancellor now regrets that. Reducing corporation tax is great, but capital allowances are not as attractive as they should be. Does the Minister agree that they also need to be more attractive?

I turn to productivity. We are caught up in a short-term, five-year election cycle when what we really need more than anything else to improve our productivity is to invest in our universities. As a percentage of GDP our spend on universities is way below that of the United States, way below the EU average, way below the OECD average, and yet along with the United States we still have the best universities in the world. Cambridge University with its 92 Nobel Prize winners has won more than any other university in the world. Just imagine how much better we could do if we were to spend the equivalent in proportion to our competitors.

Linked to that is investment in R&D and innovation. We have great research papers and amazing fundamental research, and yet as a percentage of GDP we underinvest on R&D and innovation compared with the EU and the OECD average and are way below the United States; even South Korea invests more as a percentage of GDP on R&D and innovation than we do.

I think that the noble Lord, Lord O’Neill, said that when the forecasts change, our plans have to change with them. Perhaps we should rename the noble Lord as John Maynard Keynes:

“When the facts change, I change my mind”.

The facts have changed and they are going to continue to change, but will the Government be able to adapt quickly enough to be able to cope with that? The Minister also mentioned the Oxford-Cambridge corridor. That is brilliant news. The corridor will create a golden triangle between London, Oxford and Cambridge that will help with R&D and innovation and the university excellence that we have.

I conclude by saying that last week I was in Delhi in my new role as a food champion for Britain, having been appointed by Defra. We went to launch a food festival in Delhi. It was a curry festival—taking coals to Newcastle. British curry chefs were flown out to the ITC Maurya, one of the finest hotels in India, to serve British curry—chicken tikka masala and Balti, dishes that do not exist in India—to Indians. In my speech at the opening of the festival I said that we should just look back to the 1980s. Britain was the laughing stock of the world when it came to food. British food was sneered at. Today, this country has some of the finest cuisine in the world, and indeed London is the restaurant capital of the world. In the 1980s, this country was looked upon as the sick man of Europe, but today we are the envy of Europe. In the 1980s, this country looked down on entrepreneurship—Del Boys and second-hand car salesmen—but today we celebrate it because we are one of the centres of the world. We have the best of the best capabilities in every field that can be imagined, whether it be architecture, entrepreneurship, universities, the City of London, the creative industries, or culture and sport, we are the best of the best.

The Budget is there to help us, but Governments make mistakes. I think that the Chancellor has lived up to one of my favourite sayings: good judgment comes from experience and experience comes from bad judgment. So, a fair and competitive Budget.