Economy: The Growth Plan 2022

Lord Forsyth of Drumlean Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Callanan (Con)]

I will certainly look at doing that but, as I said, we are preparing for the legislation. There is furious drafting going on at the moment. It will be in the House shortly. I think noble Lords will find that it addresses some of the points they are raising, but I would be happy to look at holding a seminar as well if they would find that helpful.

Once again I can only agree, as I normally do, with my noble friend Lord Forsyth’s words; what a great Budget Statement it was. He rightly noted, for instance, that investment comes from retained profits after tax. The noble Lord, Lord Bilimoria, for his part, agreed that it is absolutely right to target growth. My noble friend Lord Lamont said that going for growth is a laudable objective. My noble friend Lord Lilley said simply that growth is crucial. All were correct. I cannot agree with everything that the noble Baroness, Lady Wheatcroft, said—I do not normally agree with her very much—but she was right to say that, on growth, the problem has been about delivering.

My noble friend Lord Frost observed that the Government’s opponents think that the right way forward is more of the same, while our belief is that we have to do things differently. The measures in the growth plan represent an ambitious first step towards getting to the 2.5% target through removing barriers to the flow of private capital, supporting skilled employment, accelerating infrastructure construction, getting the housing market moving and cutting red tape for businesses. Historical experience suggests that 2.5% GDP growth is ambitious but achievable given the growth that the UK has observed in the past.

Independent economic forecasters have estimated that the energy package could reduce the headline rate of inflation by around 5% by freezing energy bills. As always, the Chancellor is of course working closely with the Governor of the Bank of England to tackle inflation and closely co-ordinate support for the economy. While more government borrowing is required in the short term to tackle high energy prices, the Chancellor is committed to seeing government debt fall over the medium term. The independence of the Bank of England is sacrosanct and the Government have reconfirmed their commitment to the monetary policy remit. The Government have full confidence in the Bank of England to take action to get inflation back to target.

The right reverend Prelate the Bishop of Durham and the noble Baroness, Lady Brinton, used the phrase “trickle-down economics” as if it is somehow official government policy. I am afraid that, as my noble friend Lord Hannan said, this phrase is a fantasy of extremely fertile left-wing imagination. We have no such policy, as my noble friend Lord Bethell said. No Minister has ever used that phrase. I cannot be clearer: it is fantasy.

The noble Baronesses, Lady Smith of Basildon, Lady Bowles of Berkhamsted and Lady Fox of Buckley, discussed the perceived market reaction to the Government’s decisions. Of course I cannot get into commenting on specific financial market movements. They are determined by a wide range of international and domestic factors. We recognise that there has been some market volatility, which is to be expected as financial markets adjust to policy decisions. The Government do not have a preferred price or yield for assets in financial markets; the price is set by that market. I note, however, my noble friend Lord Lilley’s astute observation that sterling has recovered against the US dollar.

On corporation tax—again, this was mentioned by the noble Baroness, Lady Smith of Basildon—the Government have prioritised cancelling the corporation tax rise and announcing the permanent level of the annual investment allowance to support businesses and increase the productive capacity of the economy. Importantly, the decision on corporation tax is not a cut: it is not proceeding with a previously announced increase.

Meanwhile, the income tax rate cut is being brought forward to April 2023 instead of 2024. This is the first cut to the basic rate in 15 years, supporting over 30 million taxpayers to keep more of their own income. Taxpayers in England, Wales and Northern Ireland will all gain around £170 on average.

The noble Baroness, Lady Walmsley, made the point that freezing the personal allowance is bad for low-income households.

[Lord Forsyth of Drumlean (Con)]

I apologise for interrupting my noble friend the Minister at this late hour. Can he explain why, as a result of the cut in the basic rate of income tax, it is necessary to send money to Scotland to compensate them for English taxpayers paying less?

[Lord Callanan (Con)]

My noble friend is tempting me down a difficult road with the Barnett formula. I am sure that he will allow his point to stand, but I will not get into an argument about it at this late stage.

The Government equalised the primary threshold and the lower profits limit, the point at which employees and the self-employed respectively start paying class 1 and class 4 NICs, with the personal allowance at £12,570 from July 2022. This was the largest ever increase to a personal tax starting threshold, with an almost 30% increase. About 2.2 million working people have been taken out of paying NICs altogether, on top of the 6.1 million who already do not pay NICs.

The right reverend Prelates the Bishop of Durham and the Bishop of Derby both spoke on the importance of benefits, and I know that the House had a discussion on this earlier today. The next annual review of government-provided benefits is due to commence this autumn, and the Government will announce their outcome following this review.

Achieving economic growth is about a good deal more than just cutting tax, crucial though that is. The Government have announced a series of complementary steps to support that growth. As my noble friend Lord Wolfson of Aspley Guise rightly noted, supply-side reforms are key, and the Chancellor made a series of announcements to achieve those reforms.

The noble Lord, Lord Davies of Brixton, asked about IR35. The Government recognise that administering the reforms places a high burden on businesses that engage contractors. The Government’s overarching priority is growth, so now is the right time to simplify the tax system and reduce those burdens, so that businesses can focus once again on core profit-making activities.

The noble Lord, Lord Hendy, questioned the Government’s plans on strike legislation, which were also mentioned by my noble friend Lord Northbrook. On this, I agree with my noble friend Lord Dobbs that the Government should be on the side of the workers trying to get to work. I confirm that the Government will indeed legislate to implement our manifesto commitment on minimum service levels. Our plans will also ensure that staff in organisations that are in active industrial disputes always have the opportunity to resolve disputes when fair and meaningful pay offers are made from employers. The measure will make it simpler to end industrial disputes over pay and ensure that trade union leaders do not have undue influence in causing disruptive strike action through rejecting fair pay offers without the consent of their members.

The noble Lord, Lord Patel, noted the importance of capital investment, particularly in research, science and innovation. The Government are committed to their target to increase R&D investment to 2.4% of GDP across the economy, which I know that the noble Lord will welcome. At the 2021 spending review, the Government committed to £20 billion by the end of the SR period, £5 billion more than in 2021-22 and the largest ever sustained uplift in public research and development spending.

The noble Lord, Lord Inglewood, asked about the business rates offer in investment zones. Investment zones could benefit from a range of time-limited tax incentives over the next 10 years, such as reliefs on business rates, stamp duty, land tax and employer national insurance contributions. Businesses in designated areas and investment zones will benefit from 100% business rates relief on newly occupied and expanded premises.

Crucially, the Government understand that growth and sustainable finances go hand in hand and that maintaining fiscal discipline will provide the confidence and stability to underpin long-term growth. As the Chancellor said last week, there is no path to higher sustainable growth without fiscal responsibility.

The noble Lord, Lord Liddle, said that he did not believe that the numbers could be made to add up. The point of the medium-term fiscal plan, three weeks from now, is to do exactly that. My noble friend Lord Lamont rightly said that fiscal responsibility is not the enemy of growth and furthermore noted that the Chancellor has the resolve and determination to face these challenges.

Given the exceptional circumstances, we moved quickly to provide significant support for households and businesses in the first days and we are acting swiftly to set out a growth plan. The Chancellor has brought forward the medium-term fiscal plan and OBR forecast date to 31 October, alongside the publication of the medium-term fiscal plan. This reflects the Chancellor’s desire to provide clarity and certainty, by setting out a plan to get debt falling and by publishing a full economic and fiscal forecast.

The core economic mission of this Government is growth. We have a plan to achieve it. The Prime Minister promised that this would be a tax-cutting Government and we are keeping that promise. Most importantly, we promised to release the enormous potential of our great country, and that is what the growth plan does and what this Government are determined to deliver.