Economy: Budget Statement

Lord Newby Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Newby]

My Lords, it is a welcome break with precedent for your Lordships’ House to debate the Budget so close to Budget day. We normally do it significantly later, so I welcome the fact that the usual channels have been able to agree this.

In my 10 minutes I will concentrate my remarks on tax and growth. The specific tax measure that has given most satisfaction to those on these Benches is, needless to say, the decision to raise the tax threshold to £9,205 next year. This is an important way of giving incentives to hard-working people and taking people on modest wages out of income tax altogether. Unlike every other change in the Budget, this one has been almost universally welcomed, although doing so was beyond the noble Lord, Lord Eatwell, who—in a typically bilious speech—was unable to mention a single specific thing that his party thought should now be done.

Moving on to other changes, on pensions, the Government have, as noble Lords will be aware, implemented a record increase in the level of the state pension this month. They have introduced a triple-lock for future rises in the state pension and are moving towards a universal pension of £140. That will mean a significant increase in income for many of those who have not had adequate pension provision in the past, particularly women. In the light of those changes, the change to the pension allowance seems a reasonable measure.

Equally, given our concern about the way that changes in tax and expenditure hit people at the lower end of the income scale, it seems perfectly reasonable that those at the top should cease to get child benefit. There is an argument about what it should be and exactly how it should be done. I accept that, even with the changes made, there is something of a cliff edge and an anomaly over single-income and two-income households. However, for many years, we, the Labour Party and others have argued for individual taxation, rather than household taxation, to benefit women in particular. It seems to us that that principle should remain. Therefore, the way in which the child benefit changes take effect is inevitable.

The 50p tax rate has generated arguably the most heat, if not the most light. I may be wrong about the Labour Party, but I think all parties saw it as a temporary measure from which would move away as the economy and the fiscal position improved. It will be no surprise to noble Lords that we on these Benches would not have made that move now. However, the reasons for doing so are primarily political, not economic. The noble Lord, Lord Eatwell, may not have read it but PWC and many others argue that the optimum higher rate for revenue maximisation is 45p. Therefore, in terms of income generated for the Exchequer, a rate of 45p has much to recommend it. That is the rate in France and Germany, and it clearly does not disincentivise entrepreneurialism there. Incidentally, I hope that the Government, having made this change now, will make no further changes to the higher rate in the lifetime of this Parliament.

I take with a pinch of salt all the estimates of how much the 50p rate would generate in the medium term and the cost of bringing it down to 45p. However, it is also deeply misleading to give precise figures about how much millionaires or billionaires will gain as a result of the reduction from 50p to 45p because we know that they are not paying the 50p rate. If they were paying the 50p rate in full, the income would be significantly greater and all the arguments would be different. Therefore, those who argue that millionaire X will now be paying Y extra, or getting Y a tax rebate, just fly in the face of the evidence about the behaviour of those individuals. The argument for maintaining the 50p rate was, therefore, political because the reduction in the rate looks as though the Government are simply favouring the wealthy. In many people’s eyes, that will remain the case even though some of the other measures in the Budget go quite a way to counter that assertion. I should like to deal with three of them.

First, the treatment of high-value properties—those worth over £2 million—goes some way towards what we have been arguing for in respect of a mansion tax in four respects. All those who keep such properties within a corporate wrapper will pay an annual amount. The 7 per cent stamp duty—15 per cent if you put it into a wrapper going forward—and the capital gains tax that will be payable on the sale of these properties if you are non-resident are also extremely welcome changes and will hit the wealth of the very wealthy. The general anti-avoidance rule, which was resisted doggedly by noble Lords opposite, is long overdue and will act a bit like an electric fence. No one wants to walk into an electric fence or get too close to it, so it will stop many abusive tax schemes occurring. The limit on the previously unlimited tax reliefs is also potentially of great significance. It is one of those things which is extraordinarily arcane but will make a significant difference to the behaviour of very wealthy individuals.

I hesitate to say anything about growth, given that we are going to hear from the noble Lord, Lord Heseltine, who has such experience in this area. I almost had to pinch myself when I noted that the noble Lord is to make his maiden speech today. He knows more about growth than probably the rest of the House put together, so we look forward to hearing from him.

When the noble Lord, Lord Eatwell, says that there is a problem about confidence and then implies that confidence will be restored by a combination of Messrs Balls and Miliband, frankly, I wonder what planet he is living on. As regards what the Government are doing on growth, the area where they can make a significant medium-term difference relates to infrastructure. There are a number of very important areas in the Budget in this regard where further movement is required in my view.

On the Pension Infrastructure Platform, the first £2 billion will be spent by early next year but I think we need to go much further than that and do so more quickly. The Government have said that £20 billion is available. We need to get more than £2 billion out of the door more quickly.

I am very pleased to see the plan to pilot a programme of enterprise loans for young people. I hope very much that the Government will look at the scheme which is already doing the rounds, under which young people who want to start a business are able to take out a loan on the same basis as young people going to university and repay the loan at the point when they have a significant income. That seems to me an extremely interesting idea.

I am very pleased to see the review of employee ownership. I am particularly pleased that that is moving forward quickly, with measures to be announced in the Autumn Statement. I am also pleased to note the other physical infrastructure proposals, not least the improvements that are planned for the transpennine rail route. On one area where, as a loyal Liberal Democrat, I disagree with party policy, I am pleased to see that the Government are pressing ahead with looking for new runway space in the south-east and London because without that in the medium term our growth prospects are jeopardised.

In the short term, this Budget will not transform the prospects for growth, nor would any Budget do so. However, promoting growth must remain a top priority. What is required now is a steely focus on delivering those programmes which the Government have already announced and which will really impact on growth. It is on their ability to deliver these programmes, in tandem with the continuing deficit reduction programme, that the Government’s economic record will ultimately be judged.