Budget Statement

Lord Newby Excerpts

Wednesday 23rd March 2016 Grand Committee

[Lord Newby (LD)]

My Lords, it is a great pleasure to participate in this debate, not least because it has enabled me to hear the maiden speech of the noble Lord, Lord Price. I was very struck when he quoted the John Lewis motto that its aim was,

“to make the world a bit happier”.

I hope he takes that motto with him into his ministerial role and attempts to fulfil it as successfully there as he has done at Waitrose. It was also a privilege to hear the valedictory speech of the noble Baroness, Lady Knight. It is sobering to think that when she was first elected, I was only 13 years-old. When I think of the changes that I remember in my lifetime, and that she has been an active participant throughout that extremely turbulent and rapidly developing period of our history, she has had a remarkable career. I have one final comment on speeches that do not flow in the main body of my speech. I have a suggestion for the right reverend prelate the Bishop of Portsmouth. I would have thought that a see of cathedrals might be a good collective noun.

The Budget has been a drama in two acts. Act I was the Budget itself and it lasted until about 24 hours after the Chancellor had sat down. The Budget exemplified the aphorism that to govern is to choose because the Government certainly chose a number of very stark priorities. First, they chose to have a budget surplus by 2019-20. Nobody believes that that is necessary for any economic purpose; it is a piece of economic posturing by the Chancellor, which is important to him and his credibility but almost certainly not necessary in terms of the long-term future of the British economy.

Secondly, the Chancellor decided to achieve this by increasing the pace of deficit reduction in the last year of this Parliament. For the next three years, the deficit reduction will go on at a rate of about £17 billion a year, and then suddenly in 2019-20 it increases to £32 billion a year. Can the Minister explain the economic rationale for that acceleration? The Chancellor decided to achieve this Budget surplus largely by regressive measures, from the now disgraced PIP changes to cutting public expenditure by £3.5 billion in 2019-20, in as yet unallocated measures. Whatever they are, given the budgets that are likely to be cut, it is highly likely they will be regressive.

Capital gains tax has been reduced. We can argue about whether the optimal rate in terms of overall revenue is 28%, 20% or something else, but for many affluent individuals that cut is a great benefit.

There are two changes to the ISA limits—the overall annual ISA limit goes up to £20,000, which is greatly above any increase justified by the rate of inflation, and can benefit only extremely affluent individuals. Having £20,000 of free cash to put away a year is beyond the dreams of the vast majority of the population. The lifetime ISA allows young people to put away up to £4,000. I accept that there is a big problem in getting young people to save for their pensions, given the short-term pressures they have with housing costs, repaying loans and many other cash calls. However, we are just in the process of introducing automatic enrolment for pensions across vast swathes of the economy. We are saying to people, “We want you to join your company scheme because if you do the company will then make a contribution and this is a wise way of saving for your pension”. Now, young people are being told, “Hang on a second, you have a new ISA”. What advice would the Minister give young people, such as my sons in their late 20s and early 30s, as to whether they should join an auto-enrolment scheme if they have not already done so or should put any spare cash they might save into a lifetime ISA?

Overall, the effect of these changes is that the poorest do worst and every other group does increasingly better. This was graphically demonstrated by the IFS but not by the Government, whose own distribution tables for the first time did not cover the effects of this Budget. They covered a decade’s worth of effects, which meant that you could not tell what the effects of this Budget were. That was why the Education Secretary was tripped up on television because she had read only the Red Book, which would not tell her that, and the distribution tables produced by the Government. She had not seen the IFS report.

Another feature has been the stunts and smoke and mirrors tricks so beloved of Gordon Brown. Three stand out. The first is deferring bringing forward the payment of corporation tax for large groups for two years, which is revenue neutral over the Parliament but backloads a large amount of cash coming in in the last years of this Parliament. The second is bringing forward capital spending in 2017-18 and 2018-19 and then reducing it by an equivalent amount in subsequent years. Given the problems that the noble Lord, Lord Darling, graphically illustrated of getting this money spent on time, can the Minister first tell us on which projects an extra £760 million is to be spent in 2017-18 and an extra £970 million in 2018-19 and then which projects will have £1,585 million less spent on them in 2019-20? The final bit of smoke and mirrors, which is damaging to the economy and the public sector, is raiding the public sector pension funds at a cost, as my noble friend Lady Kramer said, of £650 million to the NHS and more than £400 million to schools, but which miraculously pops up in the Budget figures as a gain of £2 billion to the Government.

Overall, the Budget as presented is regressive and gimmicky. It is devoid of economic rationale but dripping with political calculation. In the absence of the restraining hand of the Liberal Democrats, the Chancellor has driven a stake into the heart of one-nation conservatism and heralded the return of the nasty party.

But not so quick—that is just the end of Act I. Suddenly, 24 hours after the Budget, the curtain rises on Act II. A Back-Bench Tory rebellion reverses the PIP policy, at a cost of £4 billion, a number of VAT changes are made, IDS resigns, chaos reigns. However, yesterday the Chancellor says that we should not worry, he has seen the error of his ways, he will not make any further benefit cuts, and that IDS was a nice chap really. Can the Minister give any example in the last century when a major plank of a budget has been withdrawn within 48 hours because of a rebellion in the governing party or for any other reason? Where do the Government’s plans now stand, and in particular, to take up the point made by the noble Lord, Lord Desai, given that the Government are now about to send a Red Book to Brussels, will it be amended? We know that the Red Book no longer reflects the Budget judgment of this Government, and there is a legal requirement to send an estimate to the EU jolly quick, so it cannot wait until the Autumn Statement.

On plans unravelling, the Minister will be familiar with the mayoral devolution deal, which the Red Book claims has been agreed for East Anglia. The Minister is no doubt also aware that last night Cambridgeshire County Council rejected the deal by 64 votes to one. It did so because the proposal would have simply dropped a mayor for East Anglia on top of the existing structure of parish, district and county councils and because it believed that this would blur transparency of who was responsible for decision-making. Given this near-unanimous view of Cambridgeshire, on what basis did the Government claim in the Red Book to have got their agreement—the word “agreement” being used? Do other counties in other areas which are to get similar deals share Cambridgeshire’s view, and in the specific case of Cambridgeshire, what plans do the Government have to resurrect the deal?

One lesson from the Budget is, as we have discussed today, that hard and fast fiscal rules are a folly. We remember the painful contortions over Gordon Brown’s golden rule, and the noble Lord, Lord Darling, as he pointed out, legislated to halve the deficit over four years. Given the way the Labour Party excoriated the coalition Government for achieving that, I suspect that had the noble Lord or one of his Labour successors still been in government, that target would probably not have been met and another one would have been required.

The current Chancellor has already broken two of the three fiscal rules he had set. To cap it all, Labour has set a fiscal credibility rule. Leaving aside the fact that you use a word like “credibility” only in a context when you have none, this rule is completely undermined by the views of the Shadow Chancellor, who in the Commons said:

“As someone who still sees the relevance of Trotsky’s transitional programme, I am attempting not to salvage capitalism but to expose its weaknesses ”.—[Official Report, Commons, 4/7/11; col. 1317.]

I am not sure that Trotsky’s transitional programme was very hot on fiscal credibility. The only lesson I learn from all these broken or ridiculous rules is that there should be only one fiscal rule, which says: “You shall have no fiscal rules”.

The final point, which I will briefly touch on, is on the discussion we have had on targets. A number of noble Lords have pointed out that at one level targets which go far into the future are ridiculous because the only thing you know about them is that they will not and cannot be met. The challenge here is that without some kind of quite detailed projections you lose credibility. However, the challenge on the other side is that Chancellors put far too much emphasis on the detail of them and will trumpet the fact that they expect a £10 billion or £20 billion this or that in five or six years as a major triumph of policy-making when clearly, whatever happens, those exact targets will not be met. It may be, as the noble Lord, Lord Skidelsky, said, a mad way to do budgeting, but I think that we need a more nuanced view of the target culture.

When historians look back at 2016, I think that we can be pretty certain that the decision that we take on 23 June will be seen as vastly more important than this Budget. That does not mean that this Budget is not regressive, unrealistic and, now, shot through with holes, but it does put it into perspective.