Autumn Statement

Lord Deighton Excerpts

Wednesday 3rd December 2014 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Deighton) (Con)]

My Lords, I refer the House to the Autumn Statement made by my right honourable friend the Chancellor of the Exchequer in the House of Commons, copies of which have been made available in the Printed Paper Office and the text of which will be printed in full in the Official Report.

The following Statement was made earlier in the House of Commons.

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[Lord Deighton]

I, too, look forward to the debate tomorrow. The thing that resonated with me was the noble Lord’s reference to a clear record of failure, and he should know. Let us compare records. Fortunately, the previous Government wrote its own when it left a note for the Chief Secretary, with three words: “No money left”. Let us look at the record of this Government. We have the fastest-growing economy in the G7, demonstrating well balanced growth across all the industrial sectors and spread effectively regionally. We have record levels of employment, and record falls in long-term unemployment and youth unemployment. We have restored this country’s fiscal credibility from the record deficit we inherited. We have halved the deficit this year and are still on path to eliminating it by 2018-19.

If you look at the work of the OBR, you will see that the borrowing is slightly higher this year and next year, and slightly lower in the next two years, taking us to a surplus of £4 billion in 2018-19. I fully accept that we are not as effective in reducing it as our predecessors were in increasing it, but we are doing a pretty good job, given the global economic environment. We have also seen extremely low and falling levels of inflation; we are investing in business and productivity; and we have supported people through the recovery from the depths of a savage financial crisis by reducing personal allowances, making sure that we have frozen fuel duty, freezing council taxes, capping the rise in rail fares, et cetera.

I fully accept that this country has a long-term productivity problem. I am looking forward to the debate tomorrow, in which I am sure we will get some insights into how to cure that. My right honourable friend the Chancellor was not short in his analysis or the work he is doing on that. Quite simply, productivity has to come from: increasing the Government’s own efficiency; creating space for the private sector; and increasing the dynamism of the private sector through lower taxes and infrastructure investment, which we have discussed. By the way, as regards this Government’s record on infrastructure, through this Parliament £47 billion will have been spent on infrastructure, private and public. In the previous Parliament it was £41 billion. That is a 15% increase, which, in the context of the financial environment, particularly in the first few years, is extraordinary.

The noble Lord was right to say that there has been a shortfall in tax receipts, which is the principal reason why borrowing this year is a little higher. It is higher than was forecast in the Budget, although it is still coming down and will go down every year. Everyone was prepared to say that it was going up. No, the deficit continues to come down. I should explain the situation on tax receipts, which is important. Again, it is the productivity issue: the economy has grown faster than earnings. There is also an interpretation issue; in the second half of the year, we will see tax receipts do a little better than last year, when they were front-loaded—so there is an adjustment there. The biggest reconciliation of the difference between the OBR forecast this time and at the time of the Budget is the £16 billion improvement we get in reduced interest costs because interest rates are coming down, principally because inflation is under control. I have been trying for some time to find a good reason for having a high debt level. This is the only one I can think of: when interest rates are low, the interest burden comes down. That explains two-thirds of our ability to decrease spending in a couple of years’ time to make up the shortfall in tax receipts.

I want to dwell a little longer on the earnings situation. The noble Lord is right that earnings have not recovered as fast as we all would have wanted. People have been faced with difficult challenges. I have listed the kind of measures the Government have taken to mitigate the impact on our citizens. The reason is simply because the economy recovered more slowly than we expected. That was a result of the crisis being deeper than we had understood at the time, very high commodity prices in 2011-12 and a very weak eurozone. Essentially, that delayed the recovery; that explains why it is taking longer to get the deficit down. The Government have a clear plan to get us there. In listening to the series of observations the noble Lord made, I could not, with the best will in the world, detect an alternative plan.

The noble Lord raised two other points. I absolutely agree that our export performance is weak. It has been for some time. Addressing some of our productivity problems and improving the performance of our businesses will be at the heart of improving our export performance. The weakness of the eurozone—the customer for about 40% of our exports—is of course an important factor. We have been very focused, through our interventions with UKTI and UK Export Finance, on supporting the growth of exports to other markets, which in volume terms are, I think, up about 18% since 2010. We have to support that switch away from the slow-moving markets to the faster-growing markets. I absolutely accept that.

Before opening up to broader questions, I will mention housing. It is both a supply and a demand question. We are working very hard to increase supply, whether it is through the individual schemes that my right honourable friend the Chancellor went through at Bicester, Ebbsfleet, Barking, Brent Cross and the four London estates that are being regenerated, or at Northstowe, where we are freeing up land for building. We are also putting more money into affordable housing. If noble Lords were to add up all the schemes and initiatives in the Autumn Statement, they will come up with a very sizeable increase to supply. On the demand side, Help to Buy has been very successful. Continuing low interest rates are very successful and the radical reform to stamp duty rationalises that very inefficient tax in a way that will support home buyers, particularly at the lower end of the market.

Finally, the Government have increased spending during this Parliament by nearly £13 billion to support the National Health Service. I will not repeat the individual initiatives. As the noble Lord pointed out, we have made a down payment of an extra £2 billion, which is the pro rata amount that the chief executive of the National Health Service has asked for to get it to £8 billion by the end of the next Parliament. Again, a great plan has been established. We will finance it on the basis of its merits.

[Lord Newby (LD)]

My Lords, I remind the House that there are now 20 minutes for questions. The briefer the questions are, the more we will have time for.

[Lord Razzall (LD)]

My Lords, I very much welcome the Autumn Statement—little surprise, as this is a coalition government Statement in which the Liberal Democrats have clearly had considerable involvement. I thoroughly enjoyed the demolition of the Labour Party case by the Minister. I am surprised that he did not mention one obvious point, which comes on page 6 of the Autumn Statement. For the last couple of years we have listened to the Labour Party indicate that real wages have not increased. On page 6, the Statement indicates that the OBR now forecasts that wages will exceed inflation for the next five years. I would have thought that that rather shoots the fox.

I will ask one or two questions. First, the Chancellor deals with spending cuts on page 9 of the Autumn Statement. Even as a friend, I suspect he rather glosses over the impact that spending cuts are likely to have after 2015-16. I do not know whether the Minister can add anything on where these cuts will come from. As the Minister rightly indicates, infrastructure spending has been quite significant in these proposals, not only in the Autumn Statement, but in the road scheme announced on Monday and the infrastructure plan announced on Tuesday. Does he agree with the argument that the Liberal Democrats have been making that, when looking at spending cuts in the next Parliament, infrastructure spending should be ignored because of the long-term capital effect and capital advantage of such spending? On the proposal for postgraduate loans—a topic that is obviously very dear to my right honourable friend Vince Cable—does the Minister agree that this will have a significant impact on the possibility of research into science? Finally, on the desirable attempt to extract the tax on multinational companies, the proposal is that there should be a 25% tax on the profits of a multinational company earned in the United Kingdom. Is he able to expand on that? I understand that one of the arguments of companies such as Amazon and Starbucks is that they do not make any profits in the United Kingdom.

[Lord Deighton]

There were five questions there. First, I obviously accept the point that my noble friend makes about real wages, although wages exceeding inflation has been coming through only in the last year. He is absolutely right that the forecast from the OBR is that that will continue and that we will see earnings outstrip inflation, which would be a good thing.

Secondly, what is the story behind the spending cuts, which are quite significant? The simple story is that we plan to continue at the rate we have successfully implemented in this Parliament. We know that we can do it. In fact, we have managed to do it every year and still end up with an underspend. My right honourable friend the Minister for the Cabinet Office put out a paper this morning on how we will find another £10 billion of efficiency reforms on top of the nearly £15 billion that we have achieved in this Parliament. There will of course be a continuing review of welfare to ensure that we are focused on getting people back to work and that we are targeting those who really need to receive it. It represents a significant amount of our public expenditure, so that has to be part of the programme.

My noble friend asked whether we would effectively ring-fence the infrastructure investment. There is a commitment—effectively a fiscal rule—that we will retain public sector gross investment at a consistent level. If we stick to that, that is what will happen. Of course, the great success of all that we have accomplished is that so much of our infrastructure has been financed by the private sector, so it is not constrained by that measure anyway.

I think that postgraduate loans are a terrific initiative because not having money was becoming a constraint on people doing research. Therefore, that is a good thing on a number of grounds.

The multinational tax measure is looking at companies which put in place elaborate structures effectively to move their profits to offshore locations with a lower tax rate. The mechanism to capture that will dismantle those structures and look at the real profits, which we can then tax.

[Baroness Lister of Burtersett (Lab)]

My Lords, like earlier Autumn and Budget Statements since 2012, there is no reference in this Statement to the likely impact of the measures on child poverty levels, despite the legal duty to eliminate child poverty by 2020. Can the Minister therefore tell your Lordships’ House what the impact of the two-year freeze in benefits for working-age families will be on child poverty levels? Also, how did that freeze fare when set against the new family test, particularly taking into account the significant reduction in the real value of benefits for children under this Government?

[Lord Deighton]

The fundamental approach of this Government to addressing poverty is to get people back into work and to ensure that real earnings recover and outstrip inflation, as we discussed earlier. In looking at the distributional analysis to see who is contributing towards the benefits, the top 20% pay more than the remaining 80%, so that is how the balance of our distribution looks.

[Lord Forsyth of Drumlean (Con)]

My Lords—

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[Lord Myners (Non-Afl)]

I think I am actually described as non-aligned, which means that I am sort of drifting in a certain direction.

I first congratulate the Government on not achieving their deficit reduction target because, in so doing, they have played their part in contributing to a recovery in economic activity. That has allowed greater prosperity eventually to reach broader sections of society, and a fairer society that is based on a growing economy.

I have two questions. The first relates to the taxation of the profits of the likes of Google. That strikes me as rather like the game of whack-a-mole that we play at summer fairs. Whatever they do, they find another way to get round it—often with the help of the noble Lord’s previous employer, Goldman Sachs. Would it not be more sensible for us to support a global initiative to tax the owners of companies rather than the companies? Frankly, the taxation of companies is a futile game because they are getting better and better at finding ways of avoiding it.

Secondly, there is little in the Statement about monetary policy, although an accommodating monetary policy has undoubtedly helped over the last five years. If the noble Lord was still an investment banker and he had a company as a client with a large debt on one side of the balance sheet and a large asset, in the form of cash, on the other, he would advise the company to cancel them out. Why do we not do that with the gilts that have been bought through QE and at a stroke reduce borrowing as a percentage of GDP? No harm would be done; there would be no fascist printing of money because these gilts were bought for fair value in the open market. I urge the Minister to go back to the Treasury and say that the moves it has introduced are just tinkering. That is what Governments do. It is not a row of beans when these Statements come. There is no real impact on the economy. The two moves I have suggested could have a material effect.

[Lord Deighton]

I will be delighted to use my expertise as a poacher turned gamekeeper to help structure the profits diversion tax in a way that actually works. The noble Lord is quite right; it will only work ultimately if we capture this on a global basis. That, of course, is the work that is going on. The noble Lord will not be surprised to know that I will not be making any comments on monetary policy, which is a matter for the Bank.

[Lord Forsyth of Drumlean]

I congratulate my noble friend on his kindness in not repeating the Statement because it is perfectly obvious that the noble Lord would have had nothing to say by way of reply. Does my noble friend think that it is something of a nerve for the parties opposite, including those who have now flown to the Cross Benches, to complain about the Government’s progress in reducing the deficit when they have opposed every spending cut and every initiative by us to increase revenues? Are they not rather like a bunch of arsonists complaining that the fire crew is taking too long to put out the fire?

[Lord Deighton]

As always—and even more so today—it is very difficult to disagree with my noble friend.

[Lord Wigley (PC)]

Can I press the Minister further on the health increase to which he referred? It was mentioned by the Chancellor in the other place that £2 billion will be spent every year. The Green Book states on page 68 that it will be an extra £2 billion for the NHS. Given that that is the case, can the Minister give an assurance that there will be full Barnett consequential of the full sum for the devolved Administrations?

[Lord Deighton]

If Barnett consequentials are appropriate, of course they will follow.

[Baroness Benjamin (LD)]

My Lords, I congratulate the Government on at last recognising the benefits in giving tax credits to children’s television productions, on which the Liberal Democrats, Pact and the Children’s Media Foundation have campaigned for many years. This is great news, as the industry has been in decline. When will the tax credit come into force? I declare an interest as a children’s television producer.

[Lord Deighton]

I thank my noble friend for that question. Obviously she was in my mind when we developed that measure. It will be part of the Finance Bill next year.

[Lord Hollick (Lab)]

Can the Minister shed some light on the increase in infrastructure spend over the forecast period? In his Statement today the Chancellor said:

“Improving productivity for all business demands a major investment in our nation’s infrastructure”.

Over the past few weeks we have been showered with press releases setting out various infrastructure projects; I stopped counting when we got to around £15 billion. I was therefore a little surprised by table 4.3, the summary of the effect of government decisions, which shows that over the forecast period there is only a £600 million increase in capital. Can the Minister tell us what the actual increase in infrastructure spend is and how it is to be financed if it is only £600 million over the next four years?

[Lord Deighton]

As I explained to the noble Lord earlier, we have made a very detailed analysis of infrastructure spend, which is running on average at £47 billion per year. The majority of that, more than 60%, is financed by the private sector, which of course is a great sign of the success of this Government. Every scheme which has been announced has a clear funding plan attached to it. The real transformation that has taken place with this Government is that instead of having a plan for roads one year at a time—if there is a bit more money you can tell the Highways Agency to build a road; if there is no money, you tell it to stop, which results in a very inefficient road-building programme—we have given it a proper organisation, a proper strategy and a proper financing plan over the next six years.

[Lord Higgins (Con)]

My Lords, does my noble friend agree that it is very good news that we have now reached the point at which the deficit has been halved, and that the Government are determined to eliminate it completely? This raises broad macroeconomic issues that we can debate tomorrow. Does he also agree that this is an extraordinarily imaginative Autumn Statement? Perhaps I may take just one example, that of the Chancellor’s decision that hospice charities should no longer be subject to VAT. That is an example of the good things in the detail of the Statement which will be very much welcomed.

[Lord Deighton]

One of the things I have enjoyed about working with my right honourable friend the Chancellor is that, right through to the end of this Parliament, the Treasury is looking at new measures and trying to continue to implement the plan that has been laid out with such effectiveness. To be sticking to the target of getting the deficit down within the context of a very challenging economic environment, while being focused on structural issues and other important things that affect the economy and broader society, is indeed the sign of a good Statement.

[Lord Stoddart of Swindon (Ind Lab)]

My Lords, does the Minister recall the promise made by Mr Osborne when he was the shadow Chancellor to the effect that, when his party came to Government, he would raise the inheritance tax threshold to £1 million? He wowed his party conference with that statement. That is said to have made Mr Brown put off the election, and indeed to increase the inheritance tax threshold to £325,000 and introduce transfers between spouses. What has happened to that promise? The threshold is still £325,000 and there is no mention of it in the Statement today, yet it was a central point of Tory policy at the last election. When are we going to hear more about this issue, or have the Government dropped that promise?

[Lord Deighton]

The Government keep all taxes under review. With respect to taxes at the end of life, the focus of the Government has been much more on pension reform, which has been radical and generous in terms of how it will treat inheritance. In fact, my right honourable friend the Chancellor confirmed today that the tax on passing on a pension pot, which had been at 55%, will be removed. He has also introduced a similar arrangement for ISAs being passed on to spouses. While we have not yet made changes to inheritance tax, we have been thoughtful about taking care of some of the issues that complement it.

[Lord Lee of Trafford (LD)]

My Lords, I am sure that the Great Western Air Ambulance Charity and the Kent, Surrey and Sussex Air Ambulance Trust are worthy and deserving causes. Why are they the only two air ambulances that are being singled out for LIBOR money for new helicopters? What about the air ambulances throughout the rest of the country? I just do not know how the Government can operate on the basis of singling out two particular helicopters.

[Lord Deighton]

My noble friend has reached the point of exhausting my detailed knowledge. It is a good point. We are of course helping them with VAT in every case, but I am happy to write to my noble friend and explain how we have made those decisions.

[Baroness Blackstone (Lab)]

My Lords, while there has been a welcome increase in the number of jobs there has been a very unwelcome decline in pay. In these circumstances can the Minister say why the Government have not embraced the living wage?

[Lord Deighton]

The Government have of course embraced the most significant increase in the national minimum wage. The new rate of £6.50 came into effect on 1 October. This affects about a million people. I have already listed the other things that we have done. These include increasing the personal allowance on a consistent basis, by again another £100 to £10,600, as my right honourable friend announced today, as well as the other measures to deal with cost-of-living challenges.

[Lord Greaves (LD)]

My Lords, I congratulate the Chancellor on his Statement in noticing the shoddy disgrace in the north of England known as Pacer trains. The Statement says:

“I can today confirm that we will tender for new franchises for Northern Rail and the TransPennine Express, replacing the ancient and unpopular Pacer carriages with new and modern trains”.

Noble Lords will remember that these Pacers are four-wheel rattletraps, commonly known by people who have to travel on them as nodding donkeys. I have two questions. First, does that mean that the replacement trains will all be new and modern, or does it mean, as has been suggested, that most of them will simply be refurbished rattletraps from the London Underground or from other places? Secondly, do the Government still have the same commitment to replacing Pacer trains in other parts of the country, such as the south-west?

[Lord Deighton]

It is absolutely the Government’s policy to upgrade our infrastructure in the rolling stock. The Chancellor is the architect of the northern powerhouse, so his commitment to getting that done quickly and effectively for the north is right at the top of his priorities.

[Lord McKenzie of Luton (Lab)]

My Lords, the diverted profits tax is to be welcomed, although I suspect it will be difficult to implement. Can the Minister say whether it is intended to be applied to profits diverted from England to Northern Ireland and Scotland, should those countries end up with lower tax regimes?

[Lord Deighton]

I think that other countries will be treated in exactly the same way.

[Lord Haskel (Lab)]

Is the Minister aware that the new science and innovation strategy is being announced today? Is this so that it is overshadowed by the Autumn Statement, or is it part of the Autumn Statement? If it is, could we know what the strategy is?

[Lord Deighton]

The noble Lord is right. Though it may not have succeeded, the idea was for the Autumn Statement and the science announcement to amplify each other, but if they have had the opposite effect we will clearly have to have a word with the communications team.

Consistent with our other strategies, the science strategy is really to make sure that we are clear about what we are trying to do in the long term. We have put a financial settlement behind it that enables us to get it done. This includes a support of science as something worth while in its own right, and a very clear strategy about the things that we are good at and how they tie in to our potential economic advantage. It is likely to include the upgrading of what is effectively our laboratory base, so that that remains at the world’s cutting edge. This country has gone from about 20th in the Midlothian innovation index to second in the past five years. We want to stay there and do even better if possible. There will also be a fund for “grand challenges” where smart ideas that have great potential can apply for money. One of the most interesting things is the £250 million investment in a new advanced materials research institute in Manchester, connected to other universities. It will be called the Sir Henry Royce institute, and will be a magnificent initiative.