Finance (No. 2) Bill

Lord Livermore Excerpts

Committee negatived & 3rd reading
Tuesday 4th July 2023 Lords Chamber

[Lord Livermore (Lab)]

My Lords, the Spring Budget that this finance Bill seeks to implement was billed as a “Budget for growth”, yet growth in the UK is barely above 0%, the UK remains one of only two G7 economies to be smaller than before the pandemic, and productivity growth in the UK is the second lowest in the G7. Now, despite growth flatlining, the UK economy is already overheating. Inflation is stuck at 8.7%: the highest in the G7 and the highest in the UK since 1990. Core inflation last month rose to 7.1% —a 31-year high—while in other advanced economies, including in the eurozone and the US, it has started to fall. With growth stalled, one of the Chancellor’s most senior economic advisers has even now called on the Bank of England to “create a recession” to deal with the UK’s persistent inflation problem—a far cry from a Budget for growth.

Last autumn, the Government’s disastrous mini-Budget sent markets into meltdown. Since then, things have only got worse. Today, with inflation higher for longer than in similar economies, the two-year gilt yield stands at 5.38%—a new 15-year high, and above its US equivalent. It is the hard-working people of this country who are paying the price. Interest rates have risen 13 times to a 15-year high of 5%. The average two-year fixed-rate mortgage has increased from 2.6% to well over 6%, and average mortgage costs will this year increase by £2,900 per year. These increases in mortgage payments come after 13 years of low growth and stagnant wages, the biggest fall in living standards since records began and 25 tax rises in this Parliament alone—increases that have pushed the tax burden to its highest level for 70 years.

Spending public money is about priorities; it is about making choices to spend wisely and tax fairly. That is important at any stage for any Government, but in the middle of a cost of living crisis, when household budgets are stretched and mortgage payments are rising relentlessly, after 13 interest rate rises and 25 tax rises, it is more important than ever that we see a fair tax system and a plan to raise the living standards of everyone, in all parts of our country.

Let us look at the priorities for this Government, as revealed by what is included in, and what is absent from, this finance Bill. Although the Bill contains no mention of introducing stealth tax rises for working people, as my noble friend Lord Sikka observed, we know that is exactly what the Government are doing. We know that, in the Budget of March 2021 and the Finance Act that followed it, the then Chancellor, now the Prime Minister, froze the basic rate limit and personal allowance for four years. In the recent Autumn Statement of 2022 and in the Finance Act that followed, the current Chancellor extended those freezes by a further two years. Now, following this Budget, the Office for Budget Responsibility has made it clear that the Government’s six-year freeze in the personal allowance will take its real value in 2027-28 back down to its level in 2013-14.

We called for the freeze in fuel duty and the provisions to ensure that large multinationals pay a minimum level of 15% tax in each jurisdiction in which they operate, so we of course welcome those measures, but while the tax burden for working people is up, other important measures we have been calling for to make the tax system fairer are nowhere to be found in this Bill. There is nothing to close the loopholes in the windfall tax on oil and gas giants, which we have been urging the Government to do for so long. We pressed for an extension of the energy price freeze for many months, and we were glad that the Government followed our lead in the Budget, but it is wrong to still leave billions of pounds of windfall profits for oil and gas giants on the table when those windfalls should be helping support families through the cost of living crisis.

Also missing is any action to tackle non-dom tax status. We believe that those who make Britain their home should pay their taxes here. That patriotic point should be uncontroversial. Yet, while families across the UK face higher taxes year on year, the Government are helping a few at the top avoid paying their fairer share of tax when they keep their money overseas. The non-dom rules that allow this to happen cost more than £3 billion every year. Ending that outdated, unfair loophole and replacing it with a modern system could fund measures to strengthen our NHS, childcare and the economy.

So there are no measures to reduce the tax burden on working people and no measures to make the tax system fairer. Instead, the Government chose to abolish the lifetime limit on tax-free pension savings. In the middle of a cost of living crisis, this giveaway for the very wealthiest costs £1.2 billion, benefits only those with the biggest 1% of pension pots and increases the value of a £2 million pension pot by some £250,000. As my noble friend Lord Eatwell said, it also opens up an inheritance tax loophole, whereby it is now possible to accumulate unlimited sums within a pension fund and pass them on entirely free of inheritance tax.

The Minister said that this measure was necessary to keep doctors working rather than retiring early, but, as the noble Baroness, Lady Kramer, said, the Government could have introduced in this Bill a targeted scheme to do just that. Indeed, that is what the current Chancellor suggested less than a year ago. The British Medical Association has said that a scheme targeted at doctors could be introduced at a fraction of the cost.

The Government claim that their policy is about keeping people in work. Yet, as Paul Johnson, the director of the Institute for Fiscal Studies, says, it will cost in the region of £100,000 per job retained, and as the Resolution Foundation says, it may

“actually encourage some people to retire earlier than they otherwise would have done”.

The Government’s approach and the choice they have made fails the test of providing value for money. In the middle of a cost of living crisis, a blanket giveaway for some of the very wealthiest in our country is simply the wrong priority for more than £1 billion of public money every year.

That same failure to spend public money wisely is evident again in this Bill’s proposal to reduce air passenger duty for domestic flights. Again, at a time when public finances are under severe pressure, when household budgets are stretched in all directions and when the cost of inaction on climate change grows by the day, it is baffling that this is the Government’s priority for spending public money.

While we need action to make the tax system fairer, a proper plan for growth is the only long-term, sustainable way to make our country more prosperous and the British people better off. The UK has the lowest investment as a percentage of GDP in the G7, so it is disappointing that, as the Office for Budget Responsibility reveals, this Bill’s changes to corporation tax and allowances will make no difference whatever to medium-term levels of business investment. Rather than a long-term permanent change, these changes are for only three years. As a result, they only bring forward investment rather than increasing its overall level. The Government’s policy paper on temporary full expensing, published on the day of the Budget, makes that clear. It says:

“This measure will incentivise businesses to bring forward investment to benefit from the tax relief”.


Meanwhile, the OBR forecast makes it clear that business investment between 2022 and 2028 is essentially unchanged as a result of these measures. If anything, there is a very slight fall. That cannot be good enough. That is why, as part of Labour’s mission in government to secure the highest sustained growth in the G7, we would review the business tax system and set out a clear road map to provide certainty and boost investment. We believe that the UK’s long-term underperformance on capital investment needs long-term measures as part of a tax framework that supports and incentivises investment.

A fairer and more certain tax system, underpinned by a long-term economic plan, is crucial to helping businesses invest and grow, but an ambitious plan for growing our economy must go further, and we have made it clear that this would be Labour’s first mission in government. At the heart of our plan to grow the economy, create jobs and wealth and make everyone in our country better off is the partnership we would build between government and business. We understand, as do businesses, that growth comes from the Government supporting private enterprises to succeed in the industries of the future. That is why we would support growth in the digital economy and the life sciences, update our planning system to remove barriers to investment and improve access to capital for new and growing businesses. We would make sure that government and business work together and invest together for the good of everyone in every region and nation of the UK.

Our country needs a fairer tax system after 13 years of low growth and 25 tax rises that have pushed the tax burden to its highest level in 70 years. Britain’s businesses need stability and certainty in order to boost investment, create jobs and grow our economy. Our economy needs a credible, ambitious plan for growth that gets us off this path of managed decline, provides security for family finances and makes people across Britain better off. That it does none of these things is perhaps the greatest failure of this finance Bill and the Budget it seeks to implement.