Budget Statement

Lord Stoneham of Droxford Excerpts

Tuesday 21st July 2015 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, I declare my interests as chair of Housing & Care 21.

I welcome those aspects of the Budget inherited from the coalition. I accept that we have to complete putting the public finances back in order. First, I welcome the one-year delay for achieving a surplus and the smoothing of public spending trends to reduce the immediate pain of the welfare cutbacks. Secondly, I welcome the raising of tax thresholds, although I would have liked the Government to have put more emphasis now and in the future on raising the national insurance threshold. Thirdly, I welcome the phasing out of pension tax reliefs through the higher tax bands and the efforts on reducing tax avoidance.

However, there are certain contradictions in the Government’s approach. Before the Budget, the Government’s objective seemed to be to promote growth through greater competition and less regulation. As my friend Professor Nick Bosanquet of Reform has written, the return of extensive government intervention, particularly in labour markets, is quite a shocking contradiction for a Conservative Government and is not getting the attention it deserves—although I was glad that the noble Lord, Lord Tugendhat, raised this matter in his speech.

A 34% increase in a compulsory wage level, combined with a freeze in public sector pay to 1% per annum, must lead to serious distortions in the labour market. Is this the return of a statutory pay policy by stealth? Nurses’ pay will be reduced in real terms over the next five years, while some of their patients’ pay will increase by 30% in real terms. The Treasury bemoans shortages of skilled workers but the Government’s treatment of their own skilled workers is hardly a good message to other employers, nor does it show much gratitude for the very real dedication of nurses, doctors, social workers and teachers—all of whom we should be encouraging to embrace change and efficiency improvements. This public pay policy is not sustainable if private sector earnings now start to move ahead.

Despite the Government’s plans to reduce regulation, the proposals for the living wage will involve more inspections for between 2 million and 3 million more employees and the thousands of small businesses who employ them. The return to a levy system to pay for apprentices, last tried in the 1960s, could be yet another burden on small companies. The Minister might like to explain how it is more likely to work in the less corporatist world of today than it did then. As my noble friend Lady Kramer reminded us, the Chancellor has provided for some relief for businesses in the reduction of corporation tax, but this will benefit the larger established corporations, not the start-ups—the enterprising small businesses that carry the hopes for the country’s regeneration and future prosperity.

As the noble Lord, Lord Blencathra, rightly said in his challenging speech, there is a need for employers to pay more so that wages are not being subsidised by government tax credits. However, we can only hope that the initiative eventually to redefine low pay as 60% of median earnings is not being used simply to camouflage the money being cut from benefits. The living wage puts back merely £4 billion, though not necessarily to the same people. It seems good to see the Government setting a five-year target of £9 an hour, although the minimum wage might well reach £8 an hour on current policies, and the living wage will need redefining at nearer £12 an hour once working benefits are removed and inflation is accounted for. At best, as my noble friend Lord Scriven said, it will be a premium minimum wage and not a true living wage unless it is redefined. I welcome the fact that the Low Pay Commission is being retained as an independent authority to monitor and recommend the phasing-in of the changes. I hope that the Minister can reaffirm the Government’s commitment to that independence. It is essential to retain cross-party consensus on the process and on policy implementation to avoid what could be a huge gamble which could yet unravel or lead to undue disappointment. Phasing is essential to ensure that productivity rises in those sectors vulnerable to cost increases and to ease the burden on small businesses.

Housing remains a critical component of living costs. There are important Budget changes for the private and social rented sector. I always felt that the 10-year settlement for the social housing sector of annual increases of 1% above CPI to encourage development was overgenerous and encouraged complacency. Housing associations have been protected while councils have had to undergo fundamental changes. I do not doubt that the 1% cut in rent levels each year for the next four years will be challenging, but ultimately, with some exceptions, it should be sustainable through normal efficiency savings. However, it is inevitable in the short term that there will be less development and investment in housing stock than there would otherwise have been.

My real concern is not necessarily with this policy but with the whole of the Government’s commitment to and interest in social housing. They have to realise, as did Macmillan in the 1950s, that to up the game of the construction sector we need higher growth across all building sectors, whether private sales, self-build, public sector or housing associations. Without that, we will not get off the floor of building 100,000 homes a year, let alone approach 200,000

The Government have to understand that housing associations play an important role in encouraging home ownership through shared ownership as well as in meeting the need for social rent. I say slowly again to the Government that the money projected for the right to buy would be much more productive if used to widen shared ownership, as it would get many more people on the home ownership ladder and into more new homes than the right-to-buy policy with its expensive discounts will ever do.

Budgets often look better on the day than they do subsequently. That has often been the case for this Chancellor, as he has played the role of the conjuror while retaining the traits of a gambler. He has slim margins for success in cutting the deficit if the economy does not perform as projected. He is about to assume a straitjacket on his taxes policy, as the noble Lord, Lord Desai, warned us. His mixed messages, involving more state regulation and intervention and extra burdens for small businesses, contradict what the economy needs. I fear that he has an aversion to social housing.

As my noble friend Lord Palumbo said, we all respect the Chancellor’s ambition, but history suggests that an element of caution when combined with toughness is an important ingredient of all successful Chancellors.