National Insurance: GDP
Lord Leigh of Hurley Excerpts(3 days, 14 hours ago)
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Lord Livermore (Lab)
The question of which debates the House has is not a matter for me—I think that is somewhat above my pay grade—but my noble friend is absolutely correct to say that we hear consistent demands from the party opposite for more and more spending, but they never seem to be willing to tell us exactly where the funds for that will come from. Of course, that is exactly why we ended up with a £22 billion black hole in the public finances: because they never took the difficult decisions to pay for any of their promises.
Lord Leigh of Hurley (Con)
My Lords, I may only have an economics degree but, none the less, that makes me an economist in the way things are currently. As such, the OBR has made it clear there is no £22 billion black hole, which is why there is the same response from this side of the House. But what is clear is that £40 billion has been taken from the private sector to the public sector. Companies have to respond to that. Their only choices are either to increase prices, which they are, to reduce wage increases, which they are, or to reduce investment in jobs and other capital items. As a result, of course, the PMI is at its lowest level since 2009 and, within 24 hours of the Budget, the gilts went up 40 basis points. Can the Minister explain that and can he also please address the issue of care homes? I am involved in a charitable care home which has received a £1.5 million extra bill. We do not know how we are going to pay that bill. I will not name the care home, but I will take this opportunity to wish the Minister a happy Hanukkah.
Lord Livermore (Lab)
I am very grateful to the noble Lord for his last comment and I obviously say the same to him. I am also grateful to him for raising the £22 billion black hole again. He is possibly the only Member of this House who mentions it more often than I do and he will be absolutely aware of the outcome of the OBR’s review. It conducted a review into a meeting it had with the Treasury on 8 February, when the Government were obliged under the law to disclose all unfunded pressure against the reserve. The OBR’s review has established that, at that point, the Government concealed £9.5 billion. The OBR made 10 recommendations to stop this ever happening again, which this Government have accepted in full. But, of course, the previous Government still had five more months left in office and they continued to amass unfunded commitment after unfunded commitment that they did not disclose. By July, records show that that had reached £22 billion. The noble Lord asked a number of subsequent questions and I simply ask him: is he seriously saying that we should not have repaired the public finances? Is that his serious contention? That is absolutely what the Liz Truss mini-Budget did and we saw exactly how that ended up.
Employment: Tax Policy
Lord Leigh of Hurley Excerpts(1 month, 3 weeks ago)
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Lord Leigh of Hurley
To ask His Majesty’s Government what assessment they have made of the impact of tax policy on employment.
Lord Leigh of Hurley (Con)
My Lords, I draw noble Lords’ attention to my entry in the register of interests, which notes the businesses I have started, invested in and grown over the years, including my main business, Cavendish Financial plc, which I started with one colleague and a PA and, I am pleased to say, now employs over 200 people.
The timing of this QSD seems remarkably fortuitous—I cannot claim it was wholly planned this way—and will perhaps allow us to consider the rationale and effect of some of yesterday’s Budget as well as reflecting on how future changes to tax policy might affect employment and related areas.
The Minister will be pleased to know that I will not be spending all my allotted time digging in the illusory black hole, as the OBR has rightly confirmed that, other than a possible contentious £9.2 billion, the £22 billion was not something that it could support—at least in respect of the reserves, where the underspend is yet to be determined. We will have to leave that matter there. I suspect that the Minister will also be pleased to know that we will not spend the whole of the next four years going over this, to our mutually enormous pleasure. That is not really the point here, other than to note that Labour created a reason to increase tax and so, like every other Labour Government, increase tax they so did.
As I am sure the noble Lord, Lord Bilimoria, will recall, we were warned by the CBI earlier this week when Mrs Newton-Smith said:
“If we see a rise in national insurance contributions paid by employers … that will make it more difficult for businesses”.
That warning was echoed by the respected economist Paul Johnson of the IFS, who pointed out that NI is a tax felt solely by working people and employers. His response to the actual rise has been to remind us that the OBR suggests that three-quarters of the impact of employer NICs will be felt by employees, even if the changes do not immediately show up on their payslips. Indeed, these tax rises partly explain why the OBR has downgraded its projections for real household income growth over the next few years. Someone will pay for the higher taxes, and it will largely be working people.
The employers’ NIC rise will further increase the incentive for employers to switch to contracting with the self-employed or, as many will have heard on today’s radio broadcasts—and this is really worrying for us here—to subcontract to overseas production. Indeed, I have talked to employers today who have said to me that they are cutting down on their future recruitment. Radio 4’s “Today” programme said it had not found one business person who thinks that yesterday’s Budget will help their business to grow and employ more people.
Incidentally, Paul Johnson also opined that a rise in employers’ NI would be a straightforward breach of Labour’s manifesto. His views on the damage to employment that the rise will cause has been echoed by normally non-political characters, such as the CEO of Lloyds Bank, and of course for certain industries, such as the hospitality sector, it will be a disaster. Mark my words: care homes will close after this Budget.
A Mrs Christina French from Birmingham, founder of Diverse Sparks Ltd, an electrical contractor, has been quoted in the press as saying that the rate rise and the threshold drop has meant that she has now to consider selling her business. Her exact words were:
“It’s rubbish because I’ve created jobs and apprenticeships for the last 12 years, and now that’s not going to be an option for us”.
That is the reality of life for business owners. Sadly, Labour’s Front Bench has not much experience of starting a business and hardly any of running a small business, so they may not be aware of the pressures facing business owners. If they are not going to listen to business creators and owners such as Mrs French and me, perhaps their friends at the OBR might persuade them that, when it points out that,
“The employer NICs rise is estimated to reduce labour supply by 50,000 average-hours equivalents”
and promptly downgrade the UK’s growth prospects, it should be listened to.
The wonderfully named Growth Commission, which one would have thought would take pride of place at Labour’s top table, has modelled a rise in NI and predicts that it leads to a negative hit to GDP, peaking all the way to 2030 but still impacting GDP negatively in 2045-6. One has to wonder whether the gamble, which has been taken to fill a hotly disputed black hole with a tax rise on jobs, really makes sense? Perhaps the Minister can explain the thinking here, particularly given the hugely respected Growth Commission’s views.
I am grateful to some other great folk, such as those at the Jobs Foundation, chaired by my noble friend Lord Elliott of Mickle Fell, who remind us that businesses and entrepreneurs provide 80% of the jobs in the UK. Their mantra comes from Winston Churchill, who famously said—though I refrain from doing the accent—that:
“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon”.
Famously, the Chancellor herself referred to an increase in NI as a jobs tax. This was in 2021, when criticising the proposals then to raise national insurance. Her point was that NI is purely a tax on people who go to work and those who employ them. She then said, revealingly, that, if you earn an income through dealing in stocks and shares, you do not pay a penny more in NI. That is revealing because it shows that Labour does not really understand and appreciate the difference between capital gains and income. Perhaps the Minister can explain to the Chancellor that dealing in stocks and shares is not a source of income: it is an activity that requires you to risk capital, which you might lose because of the great uncertainty. This brings me to my concern about the effects of other tax rises on employment.
For businesses to grow and employ more, they need capital. Many, like mine, have been to the capital markets through the Alternative Investment Market—AIM. That market has become harder and less liquid, despite the best efforts of Jeremy Hunt and the Mansion House compact. The decision taken yesterday to reduce business property relief—BPR—on inheritance tax by 50% will be a hammer blow to many entrepreneurial family businesses. When a family member passes on, they will now have to find 20% of the current value of the shares and pay for that in cash. That will simply lead to more firms closing down, selling up and having to sell assets to release cash, simply for the Exchequer.
This huge rise in IHT for private business owners has yet to be fully assessed. In its booklet, the OBR does not split out APR and BPR, so we have no idea of the true cost. We do know that this move and, of course, the potentially disastrous decision to tax the non-doms, in particular by including the EPTs in inheritance tax, means that wealth creators who create jobs are despairing at the effects that this Budget will bring to employment.
In my opinion, these measures are not just about raising tax but about ramming through ideological dislike for inherited wealth and, indeed, private enterprise. Sadly, the measures taken will, in reality, really damage everyone employed in the UK. I ask the Minister what assessment HMG have made of the impact of their tax policy on employment. I beg to move.
Fiscal Rules
Lord Leigh of Hurley Excerpts(1 month, 3 weeks ago)
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Lord Livermore (Lab)
My noble friend makes an extremely interesting point. I am grateful for his support for what I have set out and will take away his point to give it further consideration.
Lord Leigh of Hurley (Con)
My Lords, the Chancellor can fiddle figures all she likes to allow more borrowing, but that will simply lead to more interest payments, in excess of the £100 billion or so that we already have, which will lead to great damage in the market. The change of fiscal rules on borrowing is apparently to fix an alleged black hole, so would the Minister care to comment on the highly respected IFS director Paul Johnson’s statement that:
“The numbers may be a little bit worse than they thought at the time … but the overall picture over the next four or five years is very, very similar to what we knew before the election”?
Lord Livermore (Lab)
I am grateful to the noble Lord for giving me an opportunity to talk about the £22 billion black hole left to us by the previous Government. He has done that in the past and I continue to be grateful to him. The independent Office for Budget Responsibility said at the time of the July statement that it did not know about this black hole at the heart of our finances; it established an independent review into it which will report in due course. I think there will be plenty more information on the £22 billion black hole in tomorrow’s Budget for the noble Lord to peruse.
Tax Reliefs: Theatre, Orchestra and Museums and Galleries Exhibition
Lord Leigh of Hurley Excerpts(2 months, 1 week ago)
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Lord Livermore (Lab)
I am grateful to my noble friend for her question. The creative industries are absolutely a major driver of economic growth in this country. She will be aware that I am unable to comment on speculation about specific taxes. In the coming Budget, we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole inherited from the previous Government, which will involve difficult decisions on spending, welfare and tax.
Lord Leigh of Hurley (Con)
The Minister again raises the alleged £22 billion tax hole. He was asked, this time last week, to explain what was in the £22 billion tax hole. He could identify only two items, which amounted to £9 billion—that is all he could find. It now transpires that HM Treasury’s policy paper of 2 August 2024 reveals that £9.4 billion of the so-called black hole has been created by Labour’s political decision to give public sector workers above-inflation pay grades. Does the Minister not agree with most of the House that this is a fictious black hole, created by Labour?
Lord Livermore (Lab)
I am extremely grateful to the noble Lord for giving me an opportunity to talk about the £22 billion black hole in the public finances, which was concealed from this Parliament and the public, and, most importantly, from the Office for Budget Responsibility, which has confirmed that it exists and set up an inquiry to establish how it happened and to ensure that it does not happen again. The noble Lord asked me to list what went into the black hole. He knows, for example, of the £6 billion overspend on the asylum system, including the failed Rwanda scheme; of the £3 billion of uncosted commitments on road and rail projects; that the reserve was overspent, three times over, just three months into the financial year; and that there was a black hole in the spending plans for the public sector pay rises because the previous Government did not hold a spending review and did not give any affordability criteria to the pay review bodies. That is why it has happened and that is what we will ensure does not happen again.
UK Economy: Capital Gains Tax
Lord Leigh of Hurley Excerpts(2 months, 1 week ago)
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Lord Leigh of Hurley
To ask His Majesty’s Government what assessment they have made of the impact on the UK economy caused by speculation about rises in Capital Gains Tax and other taxes.
Lord Leigh of Hurley (Con)
I beg leave to ask the Question standing in my name on the Order Paper and in doing so draw your Lordships’ attention to my registered interests in this area.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, there is speculation ahead of every Budget, but the Government’s priorities for the economy are clear. We are committed to restoring growth to our economy after years of stagnation by fixing the foundations and securing investment in our country’s future; we are committed to keeping the promises we set out in our manifesto; and we are committed to rebuilding the public finances, including by addressing the £22 billion black hole we inherited from the previous Government.
Lord Leigh of Hurley (Con)
Well, the Government have managed to unite Alastair Campbell, the British Chambers of Commerce and me in identifying the damage that this delay is doing to the UK economy. If evidence is needed, entrepreneurs are leaving not in their droves but in their thousands because they are so worried about the potential impact of a rise in capital gains tax. The Chancellor has specifically ruled out certain increases. Could the Government not rule out specifically, for example, the rumoured demise of business property relief on inheritance tax, because that is hanging over the market at the moment, causing great anxiety to family companies and is an enormous cloud on the ability of companies to raise money on the AIM market?
Lord Livermore (Lab)
As set out in our manifesto, we are committed to not increase taxes on working people. This is why we will not increase their national insurance, the basic higher or additional rates of income tax or VAT. I know the noble Lord would not expect me to comment on speculation about any other specific taxes, but we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole—