Finance (No. 3) Bill

Lord Watson of Invergowrie Excerpts

Monday 18th July 2011 Lords Chamber

[Lord Watson of Invergowrie]

My Lords, when introducing the Budget, the Chancellor told us that it was about reforming the nation's economy so that we have enduring growth and jobs for the future and about doing what the Government could to help families with the cost of living and the high price of oil. Four months later and after 14 months of the coalition Government, that is not how it feels for many people. As the cuts begin to bite, the popular perception is that it is hurting but it is not working. Inflation remains high, the recent small drop in unemployment is not expected to be repeated when the next figures appear, and the economy is clearly not “in recovery”, as the Chancellor claimed.

That is also the view of the independent National Institute of Economic and Social Research, which has as its president the noble Lord, Lord Burns. That organisation dismissed the Chancellor’s claim that cutting the deficit more slowly would cause a collapse in market confidence as “fundamentally flawed”, adding,

“The real hit to credibility comes from sticking to unsustainable policies. If Mr Osborne really wants a budget for growth he should amend his plans”.

It is basic economics that deficit reduction will slow growth. I echo the national institute’s calls for a major house-building programme, and measures to boost youth employment, to restore the education maintenance allowance that keeps poor students in school, and to reverse the cutting of student visas, because universities are a dynamic export industry.

None the less, I concede that the Budget contained measures that are to be welcomed. Next year the personal tax allowance will be increased to more than £8,000. Temporary tax relief for small businesses is to be extended to October next year. The Chancellor deferred for a year the proposed rise in fuel duty, until April 2012, and cancelled the fuel duty escalator for the remainder of Parliament. He increased the supplementary charge levied at North Sea oil and gas companies to 32 per cent, generating a possible £2 billion, although he has since handed back around a quarter of that in exploration allowances.

Public spending measures that included an extra 40,000 apprenticeships for young people out of work, and 100,000 new work experience placements, are also to be welcomed, although I fear they will be less worth while than the genuine jobs of the future jobs fund that the coalition has axed, which paid the minimum wage. There are also doubts as to whether employers will offer the extra apprenticeships and work placements unless they are forced to do so. There is to be a consultation on long-term plans to merge income tax and national insurance, and I echo the comments of my noble friend Lord Desai that this is long overdue. This is planned with a view to simplifying the tax system, although I am disappointed that the review will not go as far as a full merger with income tax.

I will now focus on a narrow but crucial casualty of the Government’s restructuring of the economy, and one that the Chancellor failed to address properly in his Budget speech in March. In fact, it relates to an issue highlighted by the Chancellor in last year’s Budget of a commitment that the Government made then and have since failed to honour. I hope the Minister will be able to offer an explanation as to why the Government have let down low-paid workers in the public sector across the United Kingdom, to whom they made promises before the general election and in the Budget of June 2010. At that time the Chancellor of the Exchequer announced to Parliament that:

“the Government are asking the public sector to accept a two-year pay freeze, but we will protect the lowest paid … They will each receive a flat pay rise worth £250”.—[Official Report, Commons, 22/6/10; col. 171.]

He said that the earnings level at which people would qualify would be £21,000 a year, and he estimated that 1.7 million people would benefit from that pay increase. In the Budget Statement this year, the Chancellor had a different message for low-paid public sector workers, when he said:

“I can confirm today that in the coming year all workers in the armed forces, the prison service and the NHS, and teachers and civil servants, earning £21,000 a year or less will receive a pay uplift of £250”.—[Official Report, Commons, 23/3/11; col. 963.]

That is considerably less than the promise delivered nine months earlier, and it means that only about one-third of those originally earmarked will be guaranteed to receive the £250 payment. What the Chancellor meant in effect was that only those working under ministerial control, and those whose pay and conditions are subject to pay review bodies, would be guaranteed to receive the payment. Between one Budget and the next, goalposts have been shifted with a vengeance. Research commissioned by Frank Field MP from the House of Commons Library shows that the Chancellor, in his 2010 Budget Statement, could not have been referring only to workers under ministerial control and those with pay review bodies. The Chancellor’s figure of 1.7 million workers was precisely the total number of public sector workers earning less than £21,000 in 2009, which at the time of the Chancellor’s Statement were the most recent available figures.

The Commons Library further calculated that the most reliable current estimate for the number of public sector workers under ministerial control or covered by pay review bodies is 715,000. That equates to just one-third of the 1.7 million figure, and when the most recent official statistic for 2010—that is, 2.2 million—is introduced, it leaves up to 1.5 million public sector workers denied the promised pay rise, and the victims of a deception.

Two weeks ago in another place, Frank Field introduced an amendment to the Finance (No. 3) Bill with the aim of securing justice for these low-paid public sector workers. Mr Field’s amendment, which he did not press to a vote, sought to reduce the tax liability of all public sector workers whose earned income does not exceed £21,000 in this tax year, by £250. That would have had the effect of ensuring that around 1.5 million public sector workers who are currently being denied that promised pay rise of £250 would have received it, as the Government had led them to believe. The total cost to the Treasury has been costed at around £500 million. To government Ministers, or indeed to your Lordships, £250 does not mean a great deal—indeed, it is less than our daily allowance—but for many people, £250 means a great deal.

In that debate on the Bill in another place, the Government's reasoning for abandoning their commitment was based on the unconvincing grounds that this protection will now be extended only to those workforces directly under ministerial control or whose pay and conditions are decided by pay review bodies. Not only was this not made clear at the time of the Statement, the figures the Chancellor quoted in his 2010 Budget speech made it clear that this was not what he intended.

David Gauke, the Exchequer Secretary to the Treasury, said in another place that civil servants, nurses, prison officers and the Armed Forces had already received the £250 increase and were to receive it again next year, but whether other public sector work forces, mainly in local government, received that payment was not a matter for the Minister. In most cases they will not receive that because, as Mr Gauke told the other place on 4 July:

“Decisions on the pay of local government work forces are for local government employers, rather than central Government, to negotiate. Provision was made in the local government settlement for local authorities to pay the £250 increase”.

So the Government have handed them that money. He continued:

“We gave them the opportunity to pursue the policy that we are pursuing at national level, but it is ultimately for them to decide how to pay their employees”.—[Official Report, Commons, 4/7/11; col. 1335.]

However, it has emerged that many local authorities have allocated the money to other budgets and have not given it to their low-paid workers. Despite that, the Government have said that they have no plans either to compel local authorities to spend the money in the way that was intended or to recall the money. Is that not a shocking example of the Government promising with one hand but taking away with the other?

I urge the Minister to take this matter on board for further discussion within the relevant departments and to reconsider this approach. The Government need to act to ensure that those promised the additional £250, those expecting it and those desperately needing it receive the payment that the Chancellor, less than a year ago, told them they would receive.

--- Later in debate ---

[Lord Sassoon]

The noble Lord says “Don’t bother” so I will not. I do not know whether other noble Lords heard; as he tells me not to write, I will not, but I have made the offer.

As to the extraordinary speech from the noble Lord, Lord Myners, which continually came back to praise the former Chancellor, Mr Darling, I can only think that he read in the Sunday newspapers, as I did, that Mr Darling is coming close to finalising his memoirs. I assume that this was a late play to make sure that Mr Darling looks favourably on the noble Lord, Lord Myners, and his part in the previous Government, but we shall see. We then got away from the pessimists but came back to one or two a bit towards the end. I am sorry that the noble Lord, Lord Haskel, joined in by talking about the Government transferring debt to the citizens. The trouble is that the government debt is the debt of the citizens and that attitude, I fear, underlay so much of what the previous Government did. They completely failed to recognise that it is the citizens who, at the end of the day, have to pick up the debt.

In terms of unrealistic ways to go about getting us out of the challenge we are in, I have to say to the noble Viscount, Lord Hanworth, that one way in which we will absolutely kill growth is if we raise further the top rate of income tax from a level which is not one that this Government wish to see in the medium term. We desperately need to encourage entrepreneurship and growth and the one thing we should not think of doing is further raising the top rate of tax. I am pleased to see the noble Lord, Lord Myners, nodding in approval.

I do not recognise the picture which the pessimists paint. However, I recognise that there are a lot of serious challenges out there, which noble Lords pointed to throughout the debate. I cannot deal with them in detail but my noble friend Lord Newby was the first—and virtually the last—speaker to refer to the European dimension, which is very difficult, while my noble friend Lord Higgins again pointed out the real challenges that there are in analysing the monetary situation and taking lessons from it.

The noble Lord, Lord Desai, raised the question of the savings rate and I completely agree with the challenge that that poses. I am delighted that the noble Lord appears to have lost none of his vigour even though it appears that Delilah may have got at Samson. It was a great reassurance that he is still on fine form. My noble friend Lord Ryder of Wensum was also on fine form. He raised a lot of points but, yes, regulation and employment are very challenging. I would point out to my noble friend that we are in the process of putting 21,000 regulations on the Red Tape Challenge website. We will indeed eliminate significant quantities of regulation while on employment law, another key area, we have already made moves on unfair dismissal to right the balance between employers and employees. My right honourable friend the Chancellor has identified five other areas where we are looking at employment regulation at the moment.

The noble Lord, Lord Watson of Invergowrie, talked about the protection that is important to lower-paid public sector workers. The Government have indeed made the £250 payment for all those within central government and are encouraging all other public sector bodies to abide by that.

[Lord Watson of Invergowrie]

On that point, the Minister mentions all other public bodies but I mentioned that local authorities have been allocated resources for this specific purpose, yet the Government appear to be allowing them to spend the money on whatever they see fit. Surely, that defeats the Government's purpose in regard to the £250 that the Minister mentioned.