Spring Budget 2024

Lord Northbrook Excerpts

Monday 18th March 2024 Lords Chamber

[Lord Northbrook (Con)]

My Lords, I start by highlighting some positive decisions in the 2024 Budget. The 2% cut in national insurance is good. I also welcome the cut in capital gains tax and the increase in the limits for full and partial child benefit. The fuel duty freeze continuation is sensible. The introduction of the £5,000 annual ISA in UK shares is innovative. The new tax on vaping products has health benefits, as well as being a pragmatic measure. The increase in the VAT threshold for small businesses is also a good move. On the broader economy, the fall in inflation back towards its 2% target can be considered useful progress. That is the good news.

However, like my noble friend Lady Noakes, overall I found the Budget a big disappointment. With the party 20% behind in the opinion polls, it needed much more to change the public mood towards the Government. Opinion polls since the Budget have shown no change in this position. On the broader economic front, growth forecasts are disappointing. It is interesting to note that the OBR is much more optimistic than the Bank of England and slightly more than the independent forecasters surveyed in February. It is worrying that the OBR reports that 2022-23 remains the fiscal year with the largest year-on-year drop in living standards since ONS records began in the 1950s.

Looking in more detail at government income, I find it depressing that the tax take from business rates is forecast to increase by 33% in the next five years— a huge extra burden on already struggling businesses. When items such as welfare expenditure are forecast to rise by 38% and funded sector public pension schemes by 25%, it can be seen that the revenue is needed. However, business rates need reform to make sure that the larger out-of-town warehouses pay a fairer share and that smaller ones are not clobbered.

Further, on the government receipts side, the figures disprove the statement that, overall, taxes are being reduced for the individual. Of course this is the case with the national insurance reductions, but the freezing of tax allowances for the next five years much more than cancels that out. OBR figures show that the extra tax due in this period, due to fiscal drag, amounts to £187 billion, which is offset by the NI reductions only to the extent of £105 billion, hence taxpayers are on the hook for an extra £81 billion. Central government debt interest merely stabilises at a still worrying annual £110 billion in 2028-29, as against £111 billion in the last tax year.

On the government expenditure side, I note that, according to the OBR, the net cost to the taxpayer of unwinding quantitative easing, assuming interest rates remain the same as now, is forecast to be £104 billion. If gilt yields go up by 1%, the OBR says that this will increase to £157 billion; if they go down by 1%, it will be only £47 billion. This is a worrying extra black hole for the taxpayer. This is a huge incentive for any Government to keep inflation under control, so that interest rates may be reduced.

I turn to individual tax measures. I cannot see the sense in getting rid of the non-domiciled status. In my view, this was a political move to outsmart the proposed policy declared by Labour, without fully thinking through the economic consequences. The forecast of the extra tax gain is highly optimistic, as these non-doms can easily move to countries such as Italy and Portugal which offer them attractive regimes. The UK also loses the benefits of these non-doms running businesses and employing people, as well as VAT on their spending on goods and services. Does not the Minister believe that, overall, the UK is likely to lose tax revenue because of this move?

Secondly, I believe that the Government missed a huge opportunity through timidity by not changing inheritance tax. As the respected political commentator Andrew Pierce pointed out recently, when George Osborne announced in 2007 that the limit before IHT was due was to rise to £1 million, the Labour lead in the opinion polls collapsed and it stopped Gordon Brown calling a general election. Despite advice from Conservative Peers and others, the Chancellor brushed the idea aside—as I understand it, he felt it was too elitist a measure. I think he underestimated the overall popularity it might have gained, as evidenced by Osborne’s 2007 decision. Can the Minister comment?

The next disappointment was the failure to reinstate tax-free shopping for foreign visitors. In November 2020, the OBR forecast that the abolition would generate a £1.8 billion saving to the Treasury, with the caveat that the figures are highly uncertain. Why could not the Chancellors have continued the scheme to clarify this uncertainty? A key challenge for the OBR analysis, highlighted by economic forecasters such as Oxford Economics, is that the research did not examine the impact of TFS schemes on retail expenditure and its broad multiplier effects—for instance, increased economic activity in other sectors beyond retail, such as tourism and more job retention and creation.

The modelling by Oxford Economics of the decision’s impact suggests that the reintroduction of duty-free shopping would have a significant positive effect on GDP, tax yield and job creation. It is not just economic forecasting organisations that support this reinstatement. In August 2023, the Mail on Sunday stated that 350 retailers had backed its campaign—it is now up to 500— along with 40 Conservative MPs. Why should it not be introduced, even on an experimental basis? If I am asked how these tax changes should be financed, how about looking at the welfare budget, which is forecast to increase by nearly 40% over the next five years?

While the Labour Party would likely produce no better tax measures, this Budget was a chance to put blue water between the political parties. Sadly, after careful review, I feel that the Chancellor has missed a huge opportunity to demonstrate that we are a low-tax party. We seem to have forgotten this, as now, despite the NI cuts, we are the most highly taxed since the Second World War.