Budget Statement

Lord Horam Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord Horam (Con)]

My Lords, I certainly agree with the noble Lord in his disappointment about universal credit. That is one of the achievements of the last period of Conservative government. The noble Lord, Lord Eatwell, mentioned in his scintillating speech the economic progress—or lack of progress, in his view—of the Conservative Governments of the last 13 years, but universal credit is a significant change and improvement. Without it, we would not have got through the Covid period with the success that we did. So I agree with that point of the noble Lord, Lord Bird; he is always interesting to listen to.

I think we will find that it is always interesting to listen to the noble Baroness, Lady Moyo. I congratulate her on her maiden speech, which was excellent. I became a fan of hers when I read How the West Was Lost, which is a scintillating attack on the complacency of the western world and our strength. Much of it has indeed come to pass, although not quite in the way she envisaged, because I think the East has not been quite so successful, but the West is beginning to realise that we have to fight back. I am also glad that she has joined the House of Lords because she is another economist. I am sorry to disagree with the noble Lord, Lord Bird, on this, but I like economists. I am an economist myself, and I think economists should run the world; I really do—economists rather than lawyers. The noble and learned Lord, Lord Brown, is shaking his head—the distinguished lawyer. The interesting thing about the next general election is that it will be a lawyer versus an economist: it will be interesting to see how that pans out. Anyway, I am glad that the noble Baroness, Lady Moyo, is here: I welcome her and what she has to say.

On the Budget itself, I think the FT summed it up pretty well when it said that it is a step in the right direction: it is a step, that is all. With the constraints that were on it, I think that is the right remark. My noble friend Lord Griffiths said that the Chancellor displayed honesty and realism in what he said. I think he also displayed courage, because there was a big move before the Budget to persuade him to reduce corporation tax to 19% from the 25% it will now be. He resisted that, and I think he was right to do so, because the way he is doing it, via incentives for investment, is much more efficient than having a general corporation tax at the level it was presumed to be. As an economist, after I left university and before I came into politics, I eventually set up an economic consultancy and I know from personal experience that corporation tax was not a factor in making decisions: decisions were made on much more elementary facts, such as the quality of your product, the competition and all the rest of it, not on the level of corporation tax. I think he got that right.

The only mistake he made, I think, was to limit it for three years, because I think it should be for ever, more or less—unlimited. I think the reason for the three years is the usual Treasury mistake of rounding up the figures to make everything fit, and therefore three years was all they thought they could afford at the moment. That is the sort of mistake that Treasury officials very often make and it is a pity they feel they have to do that.

The other aspect that corporation tax brings into play is the whole level of taxation in this country, which my noble friend Lord Bridges referred to in his excellent counter to the remarks of the noble Lord, Lord Eatwell. Corporation tax brings in about £18 billion, a huge sum of money, and we have to look at taxation and have a debate about how much tax we want to pay.

Recently, we have tried to get European levels of social welfare on American levels of tax. That is not going to work for very long and people are beginning to see that. Paul Johnson, the director of the Institute for Fiscal Studies, has written a very interesting book, Follow the Money. It is another excellent book and in it, he points out that, given what we want to do in society—what we will have to spend on the NHS in an ageing society, for example, what we are committed to do in defence, what we want to do on social care, poverty, universal credit and all those things—we are going to need a huge amount of public spending. It is no use not facing that fact, so all the calls for less taxation have to deal with that reality. We cannot have responsible levels of social welfare and low taxation, which brings me to the other point about taxation.

We have to have tax efficiency. Much of our taxation system is now inefficient. Take council tax: it is done on valuations from 1991, so a person in a modest house in Darlington can now pay the same level of taxation as someone living in Kensington. That is completely unfair and out of date, and it needs reforming. We need to look at the level of taxation and the efficiency, or otherwise, with which we level it.

Apart from tax, what businesses want more than anything else is stability and continuity, and a sense of strategy coming from government. Recently, there has been far too much politics and far too little government. We have to look at how we can change that balance, so that people feel that a course of action is being followed through in detail—the way that there was during the Thatcher period, when people understood the way that the economy was being handled and, by and large, supported it.

For example, on levelling up we have a plethora of measures to help level up the economy, most of which I welcome, as in some aspects of devolution. But look across the channel at what Germany has done: Germany was faced with similar problems to the ones we were faced with when it looked at the former areas of East Germany, which had been under Nazi rule and then part of the German Democratic Republic. I am thinking of places such as Dresden, Weimar and Rostock. What did Germany do? It put on a solidarity tax, which raised €35 billion a year.

Germany spent that solidarity tax for 30 years—it has just been abolished—and if you now go to those towns and cities in the north of Germany, you will see splendid places attracting tourism, just as we would like to see the places in the north of England and the Midlands rebuilt, while being proud of their architecture and history. That is the way they tackled it: with a consistent policy for 30 years, whereas we have changed policies endlessly. We have been dipping around from one policy to another and got nowhere near as far as Germany has in levelling up the different parts of our country.

Take manpower, which is probably the wrong word to use. Let us say staff questions, which the Chancellor addressed in his Budget with help to improve pensions, so that doctors would stay on longer, and to attract more people into the NHS. Yet at the same time, just before the Budget, the Treasury was objecting to increasing the number of medical schools. It was doing that on the grounds that they were too expensive. It was looking too carefully at the pounds, shillings and pence of it, when the need has been clear for many years. The Chancellor himself produced a report on manpower in the NHS when he was chairman of the Health and Social Care Committee in the House of Commons, so it has been clear for years that we needed a far greater understanding of what staff were required. We simply have not done it. Even now, we do not expect to have a proper understanding of what the NHS’s manpower needs are until next month yet, at the same time, the Treasury was penny-pinching over how many medical schools there should be.

HS2 is another example of short-term thinking. In my view, it probably would have been better for the coalition Government to cancel HS2 when it came in than to allow what is now happening. Inevitably, people are looking at the escalating costs and the benefits which have now been compromised by people working at home, and, as a result, lots of it has been called into question and there is uncertainty. The biggest piece of infrastructure-building in Europe is surrounded by uncertainty, and that is not the right way to run a country.

My view is that we need to come back to a more strategic view, and the Government need to come back to having a clear strategy with clear paths along the way. This is the right first step, but the Government really have to build on it.