Economy: Spring Statement

Lord Horam Excerpts

Thursday 31st March 2022 Grand Committee

[Lord Horam (Con)]

My Lords, as an economist myself—although I defer in that respect to the Treasury bloc sitting opposite—as well as a politician, I have always believed that the object of economic policy was to maximise economic growth and then distribute the rewards as realistically as is politically wise. I have to say that on fairness the Chancellor has not done well.

About a month ago there was a letter in the Sunday Times from a group of people who call themselves Patriotic Millionaires UK—appropriately their postal address is London NW3, which is probably the epicentre of worldwide wealth in this country. They wrote:

“In their article justifying the rise in national insurance”


contributions

“Boris Johnson and Rishi Sunak said: ‘We have always supported people through the pandemic.’ As a group of very wealthy people we agree: they have certainly supported us. In fact for decades”—

the Treasury bloc opposite might know for how long—

“our wealth has enjoyed incredibly low tax rates … at the cost of everyone else. So we ask the prime minister and chancellor to review their decision to raise”

national insurance,

“which is a tax on working people. They should consider taxing us, the wealthy, instead. They could start by aligning capital gains tax with income tax, generating £14 billion a year, more than is expected from the”

national insurance rise.

“The cost-of-living crisis will not hurt us but it will cripple hard-pressed families. We cannot continue on this divisive path, where the rich get endlessly richer at the expense of everyone else.”


Yours sincerely, Patriotic Millionaires UK—whoever they may be; I assume that was a real letter and not a spoof and that the Sunday Times has done its homework.

I agree with the general thrust of that letter. The fact is that the national insurance increase was a mistake: it taxes work and hits ordinary people. It would have been better to increase capital gains tax. Even the noble Lord, Lord Lawson, when he was Chancellor, agreed that there was no real reason to tax capital gains at a lower rate than income tax. Indeed, it was Gordon Brown who brought in the distinction between the two, to our endless regret.

As it happens, it was probably not necessary to increase either because, as noble Lords have already pointed out, the surge in inflation since then has been such that we have had an incredible increase in revenue from raising the threshold. In addition, corporation tax and the rejigging of student loans have meant that the Chancellor has a bonanza to play with. Therefore, it may not have been necessary to increase national insurance or capital gains tax at all, if he had only waited a bit longer. That shows the danger of making decisions too far ahead of the real events.

I acknowledge what the Chancellor has done to mitigate these tax increases, as was rightly pointed out by the noble Baroness, Lady Penn, in her excellent introduction and was mentioned by the right reverend Prelate the Bishop of Worcester. That has been worth while and important, but I am afraid it mitigated only a proportion of the tax increase that preceded it and it was not well targeted. The poor will suffer most. On this subject, I totally agree with the right reverend Prelate. He can be very proud of what the churches have done in the provision of food banks and so forth for the poor. As he pointed out, the extent to which voluntary civil society can deal with this is reaching its limit. We need the state to step in, in a major way, in the next few months.

As one or two people have already pointed out, that means an increase in universal credit. That frankly must happen. The Chancellor has not done well on that. Of course it costs a lot of money, but in this situation the poor should take priority over any other considerations. It will help with increasing demand in a macroeconomic way, which will help with the slump of growth that I suspect we will see towards the end of the year. The Prime Minister was right to say that much more needs to be done.

My second point is on economic growth, as opposed to fairness. The Chancellor has done much better on this. As my noble friend Lord Bourne pointed out, he had a very good record through Covid; he has been almost perfect in that respect. Curiously, he is now trying to pretend that he is a tax-cutting Thatcherite, when he has actually been a big-spend, big-tax, pragmatic Tory—in fact, a classical Keynesian. As a lifelong Keynesian myself, I thoroughly applaud it. This was exactly what we needed in the last few months. God knows what we would have done with a classical, right-wing, tax-cutting Thatcherite. As we look ahead, with all we know about the situation in Ukraine and the difficult problems we will face, we need his pragmatic Conservative approach more than ever.

The Chancellor is also right about productivity. As the American economist Paul Krugman said to wide approval:

“Productivity isn’t everything, but, in the long run, it is almost everything.”


If we can get our productivity up to German or even French levels, we would be much better off. What business therefore needs from the Government is more support for skills, research and development, and public investment where private investment cannot do the job.

I have confidence that the Chancellor will do a good job in maintaining economic growth through this difficult period. He will be urged on by a Prime Minister who is no economist—as he would fairly admit—but has sensible instincts, in that he wants to spend his way through. That will be a necessary policy in this next period. In addition, I am afraid the Chancellor needs to do much more than he already has on fairness.