Queen’s Speech

Lord Northbrook Excerpts

Thursday 5th June 2014 Lords Chamber

[Lord Northbrook (Con)]

My Lords, at the start of his speech, the noble Lord, Lord Tope, talked about commissioning polls. May I advise him that he may need to be careful after recent Lib Dem experiences in this area? Like the noble Lord, Lord Razzall, I shall concentrate on the general economic situation rather than look at details of the Bills in the forthcoming Session. The gracious Speech comes after a generally very well received 2014 Budget. The economy continues to recover. Latest official figures showed the UK economy growing by 0.8% in the first quarter of 2014. Forecasts continue to be revised upwards. Only last Friday, the British Chambers of Commerce became the latest organisation to upgrade.

According to the Financial Times, the chambers now expects GDP growth for 2014 to be 3.1%, which is up from its previous forecast of 2.8%, continuing the strong forecasts of the first quarter and, if achieved, the highest rate since pre-crisis 2007. Separately, the CBI’s latest growth report suggests the UK economy has continued to perform strongly in the second quarter of this year, with the growth survey of its group reaching a record high, making it the best reading since it started gathering data in 2003.

At the time of the Budget, the Chancellor highlighted the Office for Budget Responsibility’s forecast for GDP growth. The annual budget deficit is coming down and the borrowing target for 2013-14 was reached. The unemployment rate is continuing to decline. Inflation forecasts remain low. Therefore, the economic background continues to improve although there is still a long way to go. Quite rightly, the Budget focused on measures to help business as well as giving important help to savers and taxpayers mainly at the lower end of the tax scale.

Looking overall at the UK economy’s improvement, a year ago at the Budget the Chancellor said that the OBR’s forecast for 2014 GDP growth was 1.8%. It is now 2.7%, which was a good sign of recovery. The 2015 figure also was adjusted upwards. Annual borrowing is also showing a marked improvement. Britain borrowed a horrendous £157 billion the year before the coalition came to office. As was pointed out by my noble friend Lord MacGregor of Pulham Market, the noble Lord, Lord Adonis, in his speech failed even to mention this by way of background to the coalition’s deficit reduction strategy.

In 2014-15, the OBR said that the budget deficit will fall to £95 billion. Although it has taken longer than expected and there is a long way to go, it predicts that it will fall 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 around £10 billion per year by 2015-16 as a result of the Government’s consolidation plans.

Unemployment figures also show an encouraging trend. The latest jobless figures published last month show that the number of people out of work fell to the lowest figure for five years. To put this into a longer period context, according to the Office for National Statistics, at the time of the Budget, employment was up by nearly 500,000 people for the year ending January 2014. According to the Budget speech, 1.3 million more people were in work than when the coalition came to power in 2010. According to the ONS, the claimant count fell by 24% in the past year, which is the largest annual fall since March 1998 according to the Budget Red Book. Youth unemployment went down by 58,000 in the past year, which also is a good sign. I applaud the imposition of the welfare cap linked to inflation, which I see is now supported by the Opposition, although I know that cyclical unemployment benefits are excluded.

The next area showing an encouraging recovery is manufacturing. The latest survey on UK manufacturing, published on Monday, stated that UK factory output is continuing to enjoy one of its strongest growth periods for 22 years according to a Markit/CIPS publication. The latest CBI industrial trends survey, published on 22 May, stated that the UK manufacturing sector remained solid in May and that output is expected to rise strongly over the next three months. The CBI quarterly industrial trends survey, published in April, stated that business optimism among manufacturers saw its sharpest improvement since 1973 on the back of strong growth in orders at home and abroad. Encouraging news also appeared in March on manufacturing pay deals. Pay settlement figures in manufacturing rose to 2.6% in the first quarter compared to last year’s average of 2.4% in the latest sign that the squeeze on living standards is easing.

The services sector is also showing a good recovery. The latest Markit/CIPS survey stated that the UK’s dominant economic sector grew at a faster rate than expected in May while employment in the sector stayed at the 17-year high recorded in April.

As other noble Lords have stated, 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 before 2018. Tuesday’s latest figures confirm the satisfactory trend.

In the 2014 Budget, there were 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, as has been an innovative move to benefit pharmaceutical companies and others with the new patent box tax regime. The second major boost for business in the Budget was the increase in the annual investment allowance from £250,000 to £500,000 till the end of 2015. This was warmly welcomed by the manufacturing and agricultural sectors.

The third major area of help was 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 manufacturing trade body, the EEF, and the employers’ group, the CBI, have praised all 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.

I now move on to measures for savers. First, I warmly welcome the Chancellor’s proposals from 2015 with regard to pensions, allowing investors free access to spend or invest their pots as they wish once they have reached the qualifying age. I remember occasions when this was nearly achieved in the past but fell at the last fence, so I am delighted to see the Chancellor finally acting to give pension savers their freedom. Also, I 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 ISAs. According to the Daily Telegraph, these tax-free accounts are now held by 24 million people. Sensibly, in a separate move, the Treasury has also allowed, encouraged by a campaign by the noble Lord, Lord Lee of Trafford, and myself, AIM stocks to be included in ISAs.

I also welcome the abolition of the 10% tax rate on savings for certain savers and basic rate taxpayers. The increase in the personal allowance is most welcome too—up to £10,500 next year from £10,000. The limited increase in the starting level for the higher-rate band is also welcome, but more needs to be done to uprate this in line with inflation and, over the long term, consideration should be given to bringing the top rate down to 40%.

Turning to the most gracious Speech, I welcome the small business, enterprise and employment Bill in particular, which has been welcomed by the CBI among others. I welcome the updated Charter for Budget Responsibility and was impressed by the Minister’s remarks on infrastructure projects with regard to planning, roads and shale gas. I was also attracted by the idea of the noble Lord, Lord Birt, for an independent commission for major infrastructure projects.

In conclusion, the Government have been right to stick to their course on deficit reduction. I listened with interest in the March economic debate to the ideas from noble Lords opposite that there should have been increased government spending earlier in the Parliament, but these do not seem to have been generally repeated today. That would have been a dangerous course because the markets could well have been upset by a perceived lack of control on government finances. The recovery is heading in the right direction. There is still a long way to go, but the coalition’s approach has been fully justified.