Budget Statement

Lord Northbrook Excerpts

Thursday 27th March 2014 Lords Chamber

[Lord Northbrook (Con)]

My Lords, this is a very timely debate, coming after a generally very well received 2014 Budget. The economy continues to recover, with forecasts for GDP growth being revised upwards once again. The budget deficit is coming down. The unemployment rate is continuing to improve. According to the latest CBI survey, manufacturing continues to recover. Inflation forecasts remain low. The economic background continues to improve, although there is still a long way to go.

The Budget has focused, quite rightly in my view, on measures to help business, as well as giving important help to savers and taxpayers, mainly at the lower end of the tax scale. My speech will focus in more detail on the above. I will also focus on the excellent report by the Economic Affairs Committee on the draft Finance Bill, published a fortnight ago. I congratulate the noble Lord, Lord MacGregor of Pulham Market, and his group on choosing the topic of proposed tax changes to limited liability partnerships, and on their thoroughness on what seems a complicated area of tax law.

Looking at the economy, first, I will highlight the Office for Budget Responsibility’s forecast for GDP improvement. As the Chancellor said in his Budget speech, a year ago the forecast for 2014 GDP growth was 1.8%. It is now 2.7%. This is a good sign of recovery. The 2015 forecast has also been revised upwards. Borrowing is also showing a marked improvement. Britain borrowed a horrendous £157 billion the year before the coalition came to power. The OBR says that in 2014-15 this will fall to £95 billion and, although it has taken longer than expected and there is a long way to go, predicts that it will come down to £18 billion by 2017-18. According to the Red Book, interest payment savings on the debt over this Parliament are expected to amount to about £10 billion per year by 2015-16 as a result of the Government’s consolidation plans.

Unemployment figures also show an encouraging trend. According to the Office for National Statistics, employment is up by nearly half a million people for the year ending January 2014. According to the Budget speech, 1.3 million more people are in work compared to when the coalition came to power. According to the ONS, the claimant count has fallen by 24% in the past year—the largest annual fall since 1998, according to the Red Book. Youth unemployment fell by 58,000 during the past year, which is also a good sign. I also applaud the imposition of the welfare cap linked to inflation—now supported by the Opposition, I see—although I know that cyclical unemployment benefits are excluded.

The next area that is showing an encouraging recovery is manufacturing. Last Thursday’s CBI Industrial Trends Survey showed a 3% rise from February in manufacturers reporting above-normal order books, suggesting that the recovery remains on track, driven largely by domestic demand. Anna Leach, head of economic analysis at the CBI, said that overall the survey of 368 manufacturers showed demand rising and robust output growth. Encouraging news emerged yesterday on manufacturing pay deals. Pay settlement figures in manufacturing rose to 2.6% in the first quarter of this year compared to last year’s average of 2.4%, in the latest sign that the squeeze on living standards is easing.

Another economic indicator performing favourably is inflation. The OBR forecasts that it will fall below the 2% target in 2014 at 1.9 %, and will not exceed it at any time until 2018. This Tuesday’s latest figures confirmed the favourable trend.

Turning to the Budget measures themselves, I will focus first on the welcome measures to help business. As the Chancellor said in his speech, when the coalition came to power the corporation tax rate was 28%. Very shortly, corporation tax will be down to 21%. The corporation tax rate cut has been a great help to companies. The second major boost for business in the Budget, as many speakers have said, is the increase in the annual investment allowance from £250,000 to £500,000 until the end of 2015. This has been warmly welcomed by the manufacturing and agricultural sectors. The third major area of help is company energy costs. The Chancellor can be congratulated on producing a £7 billion energy package that will cap a green tax and shield companies from rising renewable energy subsidy costs. The major manufacturers’ trade body, the EEF, and the employers’ group, the CBI, have praised all of the above, as well as congratulating the Chancellor on his apprenticeship funding, changes to the R&D tax credit regime, the extra support for UKEF to boost exports, and the decision to make permanent the seed enterprise investment scheme, which is such a help in financing new start-ups.

Moving on to measures for savers, first, I warmly welcome the Chancellor’s proposals with regard to pensions from 2015, allowing investors free access to spend or invest their pot as they wish once they have reached the qualifying age. I remember occasions when this was nearly achieved in the past but the efforts fell at the last fence, so I am delighted to see the Chancellor finally acting to give pension savers their freedom. I also welcome the new pensioner bonds for those over 65, paying up to 4% if held for three years.

Next, I warmly welcome the Chancellor’s plans to extend the ISA limit to £15,000 and the merger of the cash and shares ISA. According to the Daily Telegraph, these tax-free accounts are now held by no fewer than 24 million people. Sensibly, in a separate move, the Treasury has allowed—encouraged by a campaign by the noble Lord, Lord Lee of Trafford, and me, as well as by several other noble Lords from all sides of the House—AIM stocks to be included in ISAs. I also welcome the abolition of the 10% rate of tax on savings for certain savers and basic rate taxpayers. The increase in the personal allowance to £10,500 is most welcome, too. The limited increase in the starting level for the higher-rate band is also welcome, but more needs to be done to uprate this at least in line with inflation.

I turn to the excellent Economic Affairs Committee report on the draft Finance Bill. The report, not referred to by other speakers, was only recently published on 11 March. I understand that it is too soon for us to have a government response to consider today. The committee’s sensible conclusion is that the measures proposed are so different from the original proposals consulted on last summer that more time is needed to settle that question and get the legislation right. It also recommends delaying the limited liability partnership salaried members’ provisions to 2015. Can the Minister enlighten us on whether HMT will take on board the proposals? Will he respond to the recommendation put by the committee in relation to mixed member partnerships—here, I declare an interest—namely, partnerships including limited liability partnerships with corporate members? The recommendation was that HMRC amend the provisions so that they are drafted more precisely and rely less on guidance. I ask the Minister to take notice of this seemingly arcane area of tax law, because implementation of the provisions could cause chaos.

The Government have been right to stick to their course on deficit reduction. I listened with interest to the view of the noble Lords, Lord Hollick and Lord Myners, that there should have been increased government spending early in the Parliament, but this would have been a dangerous course, as the markets could well have been upset by a perceived lack of financial discipline in government finances and the cost of servicing the debt could have soared. I prefer the views of the noble Lord, Lord Desai. Recovery is heading in the right direction. There is a still long way to go, but the coalition’s approach has been fully justified. Finally, I agree with the noble Lord, Lord Flight, that this House should have more input on the Finance Bill, particularly as large chunks of it are not considered by the other place, meaning that you have legislation which is not considered by either House.