Spring Budget 2024

Lord Leigh of Hurley Excerpts

Monday 18th March 2024 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I join in the congratulations offered to the noble Lord, Lord Kempsell, on an excellent and inspirational maiden speech. I welcome this Budget as yet another example of prudent management of our economy while trying to stimulate growth which—I am afraid I disagree with the noble Lord, Lord Skidelsky—comes mainly through lower taxation wherever possible.

The Chancellor is under huge constraints from all sorts of directions, not least the OBR. The OBR this year had at least the grace to say:

“Inflation has receded more quickly than we expected in November and markets now expect a sharper decline in interest rates. This strengthens near-term growth prospects and should enable a faster recovery in living standards from last financial year’s record decline”.


Despite that, however, it seemed to impose a rigour on the Treasury which has frustrated it from being more generous in reducing the tax take and thus reducing the take from the state which we all want to see—certainly, on this side of the House, as was most eloquently put by the noble Baroness, Lady Noakes.

We all understand why the OBR was created. It followed a spending spree when Gordon Brown took the government debt in July 2007 from 35.5% of GDP to 56.8% in just two years. It was the beginning of all our difficulties. The noble Lord, Lord Desai, who is not currently in his place, frequently reminds us that comparing debt to income, as we always do when quoting the level of government debt, is not the best way of evaluating debt. However, many have commented that the OBR is now so obsessed with fiscal headroom that it distorts all decision-making.

Who predicted Covid, Ukraine or the Middle East war? How can anyone reasonably claim to predict what will happen in some five years’ time, least of all economic forecasters, who, as JK Galbraith reminded us, are there to make astrologers look respectable?

The forecasting errors over the years have been enormous—some £400 billion out over the last two decades, according to some—and this dependency on the OBR is no longer healthy. We must look at better ways to allow sensible policymakers to take a view on the forecasts and determine what they think is right, rather than just hoping that a few folk in the OBR, which has a very weak track record, might have cracked it this time. The OBR itself says:

“We continue to emphasise the uncertainties around our forecast in the light of rapidly changing economic conditions and the possibility that any of our key judgements could prove significantly too optimistic or”


too

“pessimistic”.

Turning to specifics, as the chairman of the Finance Bill Sub-Committee, which is a sub-committee of the Economic Affairs Committee of your Lordships’ House, I welcome HMRC’s decision to create an expert advisory panel to advise it on what is true and proper research and development. To remind your Lordships, the latest estimate of the R&D tax credit costs is some £6.5 billion, and there is so much fraud and inaccuracy in the claims in respect of R&D that HMRC’s own accounts had to be qualified over this specific uncertainty.

The change in the non-dom regime may not be quite as harsh as one might have first thought from the Chancellor’s speech. With the transitionary rules and overseas work relief being retained, and the rebasing of capital gains tax to 2019 values, it might not be too bad. Certainly, the ability to bring into the UK stockpiled gains outside of trusts at 12% is helpful, and the taxation of protective trusts has to be the right step forward if the scheme is going to work. Likewise, the inheritance tax scheme for non-doms seems fair, and a 10-year window is quite generous. I am pleased to see that the Government are open to extensive consultations on this issue, which I believe have already started. The OBR reckons this will yield some £5 billion a year, but with migration, as will inevitably happen, and other tax-planning measures, this will drop by some £2 billion to a net £3 billion, in its opinion. It is very hard to know how it could possibly have arrived at this. As it acknowledges itself, it really does not know.

We know that this deprives Labour of one of its main sources of extra income—albeit that it may have spent it several times over. It leaves Labour with only VAT on schools, which will probably lead to a net increase in cost to the Treasury, as we heard in Oral Questions this afternoon, as pupils transfer to the state system; and with taxation on carry at higher rates, which I hear Labour is already rowing back on, as it realises it will not yield extra revenue. It would be good to learn from the Labour Front Bench today, or soon, how it plans to raise extra taxes for all its extra expenses, as it is clear that its employment proposals will almost certainly lead to a huge increase in unemployment, as they always do with each and every Labour Government, meaning more strain on government resources.

I will touch on what was not in the Budget, and what might have been. I will spare my noble friend a plea for a digital services tax to try properly to tax online retailers such as Amazon, as her predecessors have clearly decided against this. I will also spare her any further reference to, as she puts it, my favourite minority sport, EIS. Again, there was nothing in the Budget, which there should have been, to raise thresholds and reduce restrictions now we are free from the yoke of the EU.

Turning to VAT, I worked with a number of Peers from across the House on the Economic Crime and Corporate Transparency Act, which was a great success in tightening up Companies House after the registration of some 11,000 companies to one flat in Wales. However, we really did not focus on why people were doing this. The answer is, of course, to evade—not avoid—VAT.

Great progress has been made in forcing online offshore retailers to pay VAT, but we really are not done yet. The National Audit Office has started an investigation into this area, and I wish it well, as we have seen many examples of companies using other people’s VAT details—even companies that are shown as not trading on Companies House. There are hundreds of companies all connected to one source of stock, with each company staying below the radar and folding if caught. The issue has not been dealt with and remains a problem.

One thing I ask my noble friend to consider is removing VAT checks on items valued £135 or less entering the UK. This is not helpful, and there is huge evasion going on. HMRC assumes that any non-UK seller who sells into the UK will sell on an online marketplace, where VAT is now collected, or register for VAT in the UK and pay the VAT direct to HMRC. This is just not happening. It is a ridiculous assumption, and there is nothing that will make a non-UK seller register for VAT in the UK, particularly if it sells on websites or marketplaces outside the UK. It is an enormous gaping hole in the UK’s virtual customs border, and it is astonishing it was ever allowed. Other European countries have removed this £135 exemption, and we should as well. I appreciate it is a bit much to ask my noble friend for a response today on this matter, which is not covered in the Budget, so I look forward to a later reply.

Finally, I end with a sentence from the Chancellor’s speech, remarked upon by my noble friend Lady Noakes, which should be cut and pasted on every wall in the Treasury:

“The Treasury and the OBR have … concluded that if we reduce the higher 28% rate that exists for residential property, we would in fact increase revenues”.—[Official Report, Commons, 6/3/24; col. 849.]