Corporation Tax (Northern Ireland) Bill
Lord Shipley Excerpts(9 years, 2 months ago)
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Lord Shipley (LD)
My Lords, I, too, congratulate the noble Lord, Lord Hay of Ballyore, on his excellent maiden speech. I strongly welcome the opportunity to speak in this debate. Quite often, matters relating to only Northern Ireland, Scotland and Wales come to your Lordships’ House and it is important that we put them into a UK context. I agree with my noble friend Lord Trimble. These matters relate to the integrity of the UK as a united kingdom.
To be clear at the outset, I fully support this Bill. It is the right thing to do. As my noble friend Lord Alderdice said, it is about responsibilities as much as powers. I welcome the fact that the responsibility for setting a level of corporation tax can be given to the Northern Ireland Executive and Assembly. The reason I support the Bill is that Northern Ireland has a land border with the Republic of Ireland. That seems crucial when considering powers over corporation tax. I accept, too, that the land border is also relevant in considering other taxes such as air passenger duty; I have no difficulty with APD being a devolved matter for Northern Ireland. Of course, in all matters of devolved taxation, it would be for Northern Ireland to decide the level, and if there is no need to reduce a tax level or if that proves to cost too much, then the Northern Ireland Assembly would not have to do that. It is all about the responsibility that it carries.
I want to concentrate on two issues in my remaining few minutes. First, there is the principle of no detriment to other parts of the United Kingdom. Secondly, there is the need to understand better than I think we do what is happening in a constitutional and financial sense across the various parts of the United Kingdom.
In terms of this Bill, I read the debate in the House of Commons and do not wish to revisit the points raised there, except to say that great care must be taken in relation to the inward investment consequences of any lowering of the rate of corporation tax and of any consequences which might be thought to distort competition with the rest of the UK. However, I am satisfied by the evidence given by Ernst & Young on corporation tax. It said—I took this from the Library Note—that it is actually sixth in a list of factors determining where companies invest. Transport and logistic infrastructure, labour costs, telecoms infrastructure, potential for productivity increases and the legislative and regulatory environment are all said to be more important. It may not be necessary to worry too much about the practical consequences of devolution as long as we have structures in place that can assess the impact of a lower corporation tax rate on competition, inward investment and all aspects of potential profit shifting from the rest of the UK to Northern Ireland.
One possibility—my noble friend Lord Trimble talked about this—of the devolution of the powers to Northern Ireland is that Scotland or Wales may want the same powers over corporation tax. That is more likely to be the case in Scotland, but it is rightly still a reserved matter in Scotland. As both Scotland and Wales share a land border with England, the wishes of England in relation to corporation tax in Scotland and Wales must be part of any further debate on that. In my view, England’s agreement must be sought on any devolution of corporation tax rates for Scotland and Wales.
I said that there are two issues I want to concentrate on. First, there is the no-detriment principle. I want to raise the question of air passenger duty. In the case of APD, I understand that there is no detriment to the rest of the UK in Northern Ireland having the power to reduce APD—there is no land border with the rest of the UK. But there clearly would be a detriment in the case of Wales and Scotland, where a land border means that passengers can move very easily across them. In Scotland, the power to vary APD is being devolved. It is a critical issue for those parts of England close to Scotland—or to Wales, should it get APD powers—where the viability of services could be at stake. The reason for that is this: just a small movement of passengers from one airport across a land border to another can make a crucial difference to the viability of some existing air services. This can matter. My point on there being no detriment is that it needs to be taken very seriously because it matters to the integrity of the United Kingdom. I noted that, in 2012, it was a key part of the Scotland Act. It is less obvious to me today that the importance of no detriment is fully understood. In the case of the devolution of APD powers to Scotland, I do not think that it is fully understood.
A second aspect of no detriment is that those parts of the UK that secure the right to lower what hitherto has been a standard national tax should make up the loss to the rest of the UK. We have discussed that in this debate. I hope we will ensure that the fiscal consequences of this are understood, agreed and then properly applied. I make it clear that I support all that happening, but it does have to happen.
That takes me to the block grant. Under the Bill, the Northern Ireland Executive and Assembly’s budget will be reduced to make up for the lost income to the Treasury. That seems to me to be the right approach, but it begs another question: is the block grant right in the first place? I ask this because there are stark differences in the amounts that each part of the UK receives in its public spending. Treasury figures for 2013-14 published last November show that Northern Ireland has per capita spending of £10,961. To be clear, that sum may be entirely justified. However, the part of the United Kingdom that receives the lowest amount is the East of England, with £7,950. That is a per capita difference of £3,000. In addition, Scotland and Wales get more per capita than any part of England, including London. As we move towards devolving more powers over taxation, should we not also understand better than we do why there are such very wide discrepancies in these public spending figures? I think that we simply must, as we devolve more and more.
My final point relates to the legacy paper recently published by the All-Party Parliamentary Group on Reform, Decentralisation and Devolution. It says that:
“Amidst the accelerating devolution of power, it will be important to have regard to those functions that must be retained partially or wholly at the UK centre, if it is to remain a cohesive state”.
It concludes by recommending that a constitutional convention should be established to ensure that,
“the process of reform will be open, inclusive and stands the best chance of securing a UK wide settlement, fit for the long term”.
That would be, it says,
“in addition to the implementation of commitments to transfer powers across the UK”.
Therefore, what is planned now would continue. Such a convention would operate independently of government and would include members of the public as well as political parties, local authorities and the nations and regions of the UK. I think that, in the context of this Bill and many of the debates and discussions that we have had, and no doubt will have in the future, the proposal to establish such a convention is very wise. I hope that the next Government will be able to give such an initiative their full support. I say that because I believe that it matters to the future integrity of the United Kingdom.
Entrepreneurs’ Relief
Lord Shipley Excerpts(9 years, 3 months ago)
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Lord Newby
My Lords, as the noble Lord has pointed out, we have increased the cap fivefold. However, we believe at this point that the limit is necessary as part of the overall design of the relief and to ensure that the relief is well targeted and not open to misuse. As I said in my initial Answer, it is worth £3 billion already.
Lord Shipley (LD)
My Lords, in noting the success of government policies in entrepreneurialism and enterprise, may I draw my noble friend’s attention to the Burt report, entitled Inclusive Support for Women in Enterprise, produced by Lorely Burt MP, the government ambassador for women in enterprise? It has a particularly helpful set of recommendations, not least on the work—and the possibilities for additional work—done by local enterprise partnerships. Do the Government have any plans to give the Burt report their very full consideration?
Lord Newby
My Lords, the Burt report contains a whole raft of really interesting proposals, which the Government will consider. The latest figures that I have show that some 990,000 SMEs are led by women. At about 20% that is a record high, as far as I am aware.
Employment: Private Sector Jobs
Lord Shipley Excerpts(10 years, 4 months ago)
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Lord Newby
My Lords, the Government recognise that there are still challenges and that we have a responsibility. That is why, for example, the Government have concluded city deals with Newcastle and Tees Valley and are helping those cities grow and why the industrial strategy around the automotive industry has had such a beneficial effect on Nissan’s employment in Sunderland.
Lord Shipley (LD)
My Lords, is the Minister aware that the inward investment arm of UKTI has no regional targets? Would it not be a good idea if it did? Otherwise it can fulfil its national targets by bringing inward investment into London and the south-east.
Barnett Formula
Lord Shipley Excerpts(10 years, 5 months ago)
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Lord Shipley
To ask Her Majesty’s Government what plans they have to review the Barnett Formula in the light of the Local Government Association’s recommendation that it be replaced with a new needs-based funding model.
Lord Shipley (LD)
My Lords, I first declare my vice-presidency of the Local Government Association, and I thank noble Lords taking part in this debate for their contributions.
I have asked to discuss the Barnett formula today for three reasons: first, because the debate that will take place over the next few months prior to the referendum on Scottish independence in September will cause the Barnett formula to be under close public scrutiny; secondly, because of the rising demand across England for devolved powers from Whitehall similar to those available to the devolved Administrations of Scotland, Wales and Northern Ireland; and thirdly, because public spending cuts in England are making people in England question why the Barnett formula exists. That is of course a question that the noble Lord, Lord Barnett, has himself asked many times. Indeed, it is unclear why it has been left alone for a generation, why it is so out of date and why it allocates more money to the devolved Administrations per capita than it does to England.
The Barnett formula was devised as a temporary measure to resolve problems over the funding allocations between England, Scotland, Northern Ireland and Wales ahead of the 1979 referendum on Scottish devolution. Many things have changed since the formula was created. As the Local Government Association chairman, Sir Merrick Cockell, said recently, it is “a historic relic”. He is right, because it has locked inequalities into its system of distribution. The consequence is that in terms of identifiable public spending by country and region, all three of the devolved Administrations have higher public spending per head of population than that of any English region, including London. The Office for National Statistics says that in 2011-12, Scotland received £10,088 per head, Wales £9,740, Northern Ireland £10,623 and England just £8,491; those are the latest available figures. It is very hard to justify England doing so relatively badly, not least because of the claim, sometimes correct, that public services in Scotland are better than in England. There is a rising tide of opinion in England that tax revenue is being raised in England but is then diverted from England to be spent in Scotland on higher standards of public services. However, that is not entirely true: the tax raised in England is actually raised in London. Furthermore, if the formula did not exist and if Scotland was independent, tax revenues from oil would broadly make up for the loss because 90% of the oil would be in Scottish waters.
A Select Committee of this House reviewed the Barnett formula in 2009. It pointed out that the formula was used to allocate over half the total public expenditure in Scotland, Wales and Northern Ireland. It also pointed out that although the annual increment in funds is made on the basis of recent population figures, the baseline, accumulated over the past 30 years, does not reflect today’s population in the devolved Administrations. It is therefore out of date and takes no account of the relative needs of any of the devolved Administrations. The Select Committee recommended a UK funding commission—which seems to me to be an extremely good idea—that would identify a small number of need indicators and oversee the transition to a new system of block grant made over between three and seven years. It has not happened, of course, but I would submit that it cannot be delayed for long.
I turn now to the rising demand for devolved powers in England. The recent London Finance Commission report, Raising the Capital, results from London’s boroughs and regional government looking closely at the issues of taxation and finance in the wider south-east region with a view to considering a Barnett formula-style settlement for the capital. That is welcome, except for one thing. I am increasingly aware of a rising tide of opinion in London that it should keep more of the taxes it raises. The implications of this are potentially very serious for the rest of the UK, which is why we need to think very hard, as a United Kingdom, about where taxes are raised and from whom, about what levels of public spending should apply in each part of the UK, and about a system in which need is the basis for distribution.
This debate now goes further than just London. The Core Cities Group, representing Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield, is calling for a suite of fiscal reforms for England’s larger cities. The aim is the devolution of property tax revenue streams, including council tax, stamp duty, land tax and business rates, with the ability to reform those taxes while retaining prudential rules for borrowing similar to recent changes in Scotland through the Scotland Act and as now proposed for Wales. The aim would be to generate funding to stimulate economic growth according to local needs, allowing cities to raise sustained investment for vital infrastructure projects. These proposals would be cost-neutral at the point of devolution, with no additional money being sought from the national pot beyond that which the core cities already receive, along with the ability to raise new local taxes. Such reforms would give practical effect to the ambition of the coalition Government to promote “radical devolution”. Together, the English core cities and London represent more than half of the UK economy and almost half the population, but they control only around 5% of the taxes raised in their areas. Empowered cities could join up public services and reduce dependency on London, which takes me to the current state of local government finances in England.
Last week’s Autumn Statement exempted local government from the further reductions that were applied to Whitehall departments. These measures are welcome. However, some council services are in serious difficulty, particularly because those councils more dependent on central grant cannot raise large sums through council tax and other fees and charges. Central grants for local government are to be cut by 43% by 2015-16, and there will be a funding gap of more than £15 billion by the end of the decade if things go on as they are. That takes me to the issue of fairness.
The way the Barnett formula is calculated is widely acknowledged to give more to Scotland and Northern Ireland compared with their relative needs, and less to England and Wales than their relative needs would justify, by more than £4 billion a year. This is unsustainable. Governments have consistently said over many years that they will not review the Barnett formula and, in the case of this Government, not until the public finances are stabilised. I understand the Government’s predicament. I do not argue that Scotland should necessarily get less because I believe in a funding system based upon a needs assessment, but I do argue that Wales and the constituent parts of England should be treated equally and empowered to create more of their own tax income.
As an example, Birmingham has called for a single funding pot at the city region level for local authority spending, health, and for expenditure by the Department for Work and Pensions. Savings are there to be made by reducing duplication. If the referendum next September in Scotland is in favour of independence the Barnett formula will be abolished. If there is a no vote there will inevitably be a debate about yet further devolution beyond the Scotland Act, and I personally would welcome that. When that debate happens there will be a rising demand for the fiscal and political devolution offered to Scotland also to be available in England, with a system of allocation based on needs. Now is the time to act and to set up the UK funding commission proposed by the Select Committee of your Lordships’ House four years ago. We should create a place-based system of finance in England. This could be based on the governance that has developed locally—combined authorities, health and well-being boards, joint committees, local enterprise partnerships and so on. We should give local government and their partner organisations the power to allow individual areas to shape public services and investment, and to incentivise local growth by devolving powers on taxes and spending to suit local needs beyond the 50% permitted from growth in business rates.
In conclusion, it is important that we are not divisive. We should learn from the wealth of evidence on this issue and have a mature discussion as a United Kingdom on how devolution can drive growth and a bigger local tax base, as well as on how resources can be allocated more fairly on the basis of need. In the mean time, as we await the local government settlement tomorrow, it will not be enough for the Government yet again to push this issue into the long grass.
Tackling Corporate Tax Avoidance: EAC Report
Lord Shipley Excerpts(10 years, 7 months ago)
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Lord Shipley (LD)
My Lords, I thank the noble Lord, Lord MacGregor of Pulham Market, for chairing our committee and for leading so effectively this speedy but very important inquiry. I also congratulate the noble Lord, Lord Leigh of Hurley, on his excellent maiden speech.
The days are long gone when tax collectors could stand at the gates of towns and cities and levy tax in cash on goods brought in for sale. They could raise taxation successfully by that means because there was a clear border and goods were visible. As we have heard, HMRC estimates our loss of tax today through avoidance, evasion and non-payment at £35 billion, which begs the question of how it knows. There is a lot of evidence to suggest that the figure is a great deal higher than that, as we heard earlier in the debate.
I remind the Minister that the coalition agreement of 2010 stated:
“The parties agree that tackling tax avoidance is essential for the new government, and that all efforts will be made to do so”.
Therefore it is reasonable for the Government to assess what has been achieved. Our report poses the question: “Is a new approach needed to tackle corporate tax avoidance in a global economy?”. The answer is, “Without a doubt”. The general public certainly agree, because they see it as an issue of fairness. Perhaps, therefore, the Government’s response to this report should have been a bit warmer. As the noble Lord, Lord Smith of Clifton, explained, that response can be construed in the verbs used. I will add one verb to his list of “agrees”, “notes” and “disagrees”. The Government “welcome” what we say just once.
The constant use of the word “notes” seems odd when the word “agrees” would be absolutely justified. For example, paragraph 138 of our report says:
“Corporation tax is a significant component of HMRC’s portfolio of taxes and makes an important contribution to the UK’s total tax revenue”.
That is self-evidently true, but rather than say that they agree, the Government in their response simply “note” what we have to say. I am puzzled as to why this should be. It seems to relate to the fact that the Government agreed at G8 that work to minimise avoidance is an international matter and that we should therefore await the progress of the OECD. It implies that there is little that the Government can do on their own. However, as we have heard, is this true? It is not.
Our report says in Chapter 1:
“It is primarily for the Government to correct the flaws in the UK’s corporation tax regime and to pursue agreement to make the international tax framework more rigorous”.
There is no doubt that following the G8 decision the latter is starting to be done. G8 and G20 countries have realised that something must be done about international rules which allow multinationals to shift profits across borders to avoid tax. Governments get less money, other taxpayers are short-changed, and the general public rightly wonder how this can be fair and what their Government will do about it.
I accept entirely that multinational solutions are needed and I welcome the OECD initiative. However, I have concluded that the Government must do more themselves to correct flaws in our corporation tax structure. Indeed, they have made 33 changes to tax law and are investing more resources in HMRC, which should repay that investment. That is welcome. However, the public expect that HMRC will be properly resourced to reduce the large amount of tax being lost. I hope that the Minister in his reply will be able to confirm that it will be resourced in the way we need.
In response to paragraph 141 of our report, the Government confirm that:
“Paying Corporation Tax is not voluntary; it is an obligation”.
Indeed it is. But if it is an obligation, will the Minister confirm whether it is true that a British multinational company can take out a loan in the UK, count it against its tax liability, and then place it in a finance company in a tax haven, which can then lend the money on to another company elsewhere in the world? If so, what if that company lent via a tax haven to a sister company? Would tax be saved twice—in the UK because the money is borrowed, and in the receiving country because it is borrowed there, too? Can the Minister tell the House how extensive this practice is thought to be, and what action HMRC is taking to block the loophole? I understand that many other countries are now doing that. Surely the UK should not encourage offshore tax havens at a financial loss to our own taxpayers.
We said in our report:
“As things stand, there are too many opportunities for multinational companies to manipulate their affairs to reduce their global tax payments”.
We also said that,
“ways are open, especially for multinationals, to shift profits between countries so as to reduce their overall tax liabilities, and to make UK corporation tax to a considerable extent voluntary for multinationals”.
Surprisingly, in response to paragraph 141 the Government have simply noted our comments saying, first, that corporation tax is not voluntary—when for some multinationals it clearly can be voluntary—and, secondly, that HMRC is to,
“step up its fight against those multinationals that do not pay their tax in accordance with the law”.
But not paying according to the law is tax evasion. Tax avoidance is about devising ways to get round the law. We have ended up with multinational companies able to avoid corporation tax and national companies unable to do so.
We refer in our report to the “tax avoidance industry”—and I think we are justified in talking about an industry because, from the evidence we received, there is clearly an industry at work. There is now little public trust in the corporate tax system and, as we have heard, it has become potentially very damaging to our democratic processes. So, why is there to be no Treasury review? Why is there no publication of corporation tax paid? Why is there to be no regulation of tax advisers? Why is there a refusal to review all statutory measures available to HMRC to combat tax avoidance, even aggressive tax avoidance? Why is there to be no Joint Committee?
As we have heard, developing countries are some of the worst affected by profit shifting. Christian Aid claims that developing countries lose more revenues as a result of tax avoidance and evasion than they receive in aid. That means that while we are delivering the 0.7% target through the front door, a bigger sum is seemingly going out of the back door. The problems of developing countries are implicit in our report, but perhaps we should ensure that as the OECD, the G8 and the G20 lead reform, developing countries get involved and that due account is taken of their needs. Effective tax collection is vital if poor countries are to reduce their dependency on aid.
Will the Minister comment on the practice of trade mispricing, in which multinational companies can reduce the amount of tax they pay in a developing country by buying raw materials at below market rate and reselling them on the international market at a much higher rate? For example, Christian Aid estimates that if Zambia had received the same price for its copper exports in 2010 as Switzerland did for selling on the copper, Zambia could have doubled its GDP. There is a remedy: international guidance prices, at which I hope the OECD will look closely.
I ask the Minister two things in respect of developing countries. Following the G8 declaration, what support are the Government providing bilaterally, and through the OECD and G20, to ensure that developing countries have a say in the renegotiation of global tax rules? Secondly, what other steps are the Government taking to ensure that the UK’s own tax rules do not allow or encourage any multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions? The general public think that tax should be paid where the profit is made. The problem is not going to go away. The mispricing of transactions, and the mislocation of the profits of economic activity into a tax haven to avoid tax, have become a very big political issue.
In conclusion, I ask: are the Government doing all they can? It has been reported that last year, for example, HMRC investigated only 1,000 out of 250,000 reports of transactions that were thought to deserve further inquiry. As we have heard, the Government must lead by example. I agree entirely, and I hope that, in summing up, the Minister will be able to confirm that we will do just that.
EU: UK Membership
Lord Shipley Excerpts(10 years, 7 months ago)
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Lord Shipley
That this House takes note of the economic impact of the United Kingdom’s membership of the European Union.
Lord Shipley (LD)
My Lords, I am very grateful for this opportunity to discuss the economic impact of our membership of the European Union and I thank all those Members of the House who will contribute to the debate, particularly my noble friend Lord Wrigglesworth, a colleague over many years, who will be making his maiden speech. I thank the Library for its excellent briefing and acknowledge the excellent set of essays launched this week by Regent’s University London which cover extremely well the issues we shall be discussing today.
I am conscious that we have had a number of debates on aspects of the EU in recent months but there are two reasons why I feel that a debate on the economic benefits is very important now. First, over the summer and early autumn a number of companies and professional bodies have been making their voices heard in support of our continued membership of the EU. Secondly, I have been very concerned that discussion in the media about the EU has tended to concentrate on issues other than economic benefit. Immigration, our net budget contribution, state benefits and health tourism, for example, all feature strongly. Each of these is clearly important but some, such as health tourism, are not just an EU matter. All these areas rightly reflect public concern and so they need to be constantly reviewed and debated but, I submit, we should do this as members of the EU, just as they do in the other countries of the EU, so that we understand better, for example, state benefit rules and how they should apply between countries, given the enormous differences that exist.
However, the issue of state benefits is not just a UK matter. I was interested to note reports earlier this week that in Germany more than 10,000 British people are receiving unemployment benefit—some 10% of the British population resident in Germany. That reflects the fact that we live in a world in which national borders have less meaning. Transport is easier and cheaper than it used to be and both employers and employees want mobility of labour across borders. This is a changing world and we cannot opt out of it.
I congratulate the Mayor of London on his leadership on this matter earlier this week and on several previous occasions in explaining London’s role as an international capital. However, perhaps the Government should think further about how they can invest more quickly in public services in areas where private sector employers recruit workers in significant numbers from elsewhere in the EU, because that can strain public services. I believe that that would build support for the EU.
I mentioned a moment ago our net budget contribution, but that is less than 1% of annual government expenditure. A number of other EU states are also net contributors, but the economic benefits of our membership matter a great deal more than how much we pay each year to belong. Of course we should examine closely what we pay and fight our corner, but it is not the central issue. We should never downgrade the overriding reason for our being members of the EU. That reason is economic, because the size of our economy, our growth prospects and the creation of new jobs in a fast-changing world depend fundamentally on our continued membership of the European Union.
I cut my political teeth in the referendum in 1975, in the all-party yes campaign in the north-east of England. The EU has since then proved to be hugely important to the exporting success of the north-east of England, which is the only part of the UK with a positive balance of trade, a high proportion of which is with the EU. For that reason, I want to draw attention to two firms which have committed themselves to the north-east of England as result of foreign direct investment, both of which have made recent public, unprompted statements about our membership of the EU.
First, Nissan has made it repeatedly clear—again, only a few days ago—that the UK continuing as a member of the EU is very important for the company. More than £125 million has been committed to the Sunderland factory. It is a wonderful success story, with more than 6,000 employees making vehicles which are exported into the EU and across the world. The second firm is Hitachi. The president of Hitachi recently confirmed that he met the Prime Minister last spring and said that if the UK pulled out of the EU, it could jeopardise £1 billion of funding for Britain’s railways and nuclear energy. In August, Hitachi Rail Europe said that its investment in an £82 million factory in Newton Aycliffe resulted from its strategic decision that the UK should be its gateway to the EU single market. I also understand that the Japanese Government have warned that UK jobs could be at risk if we leave the EU.
The Engineering Employers’ Federation, which is a trade body for UK manufacturing, recently reported that 85% of manufacturers say that Britain must stay in the EU, leading from within and not putting investment and jobs at risk. They want the single market to work better, but they do not want to exit from it. They say that the UK must remain part of the EU with “no ifs or buts”. They know that the UK’s relationship with Europe and the EU is vital to our economic success because the single market is our largest export market. The British Chambers of Commerce has reported that although businesses want more decisions made in the UK, most members think that withdrawal from the EU would be bad for Britain. A CBI survey published last month of more than 400 businesses showed that almost four out of five firms favoured staying in the EU, including 77% of small and medium-sized enterprises. Just 10% think it is in their interest for the UK to leave the EU; that is 11% of SMEs. The CBI says that despite frustrations over the current relationship and the burden of some regulations, particularly employment law, the survey shows that most businesses feel that the positives more than outweigh the negatives. Those negatives are primarily seen to be unnecessary regulations. The CBI wants to see rules implemented evenly across all member states, with an end to the gold-plating of EU legislation in the UK.
What then of financial services, which contribute £1 in £8 of our tax revenues? The City of London Corporation made it clear in a note this week that the financial sector based in the UK cannot be treated as distinct from Europe. The reason is that London’s role as a financial centre is international. The corporation points out that financial markets in the EU and the UK are intermeshed in a common regulatory structure. Non-European firms come to London because it is both international and within the single market at the same time. Crucially, and I quote directly from the note:
“The UK’s priority must be to oppose policies that could lead to the fragmentation of that Market. Fragmentation of the Single Market in financial services could drastically reduce the efficiency of the Single Market and European businesses’ access to capital. London’s position as the most prominent international financial centre in the world would be put at risk by an imperfect Single Market in financial services in which rules and access differed by level of membership of the EU. This could also damage the interest of euro-area headquartered firms”.
That is very clear advice. The key question we should ask those who believe that we should withdraw from the EU is this: what problem are you trying to solve? Put another way, is the UK being held back by the EU? A million extra jobs have been created here since 2010—inside the EU. The idea that leaving the EU would boost jobs more lacks evidence and credibility.
We hear it increasingly claimed that the future for Britain lies in the emerging economies; that these days, we should fly over Europe because more business can be done further away. But what those who pursue this line of reasoning fail to explain is why we cannot build trade with emerging economies as well as increasing trade within the EU.
Germany exports four times more to China by value than we do. Germany does it as a member of the EU. Norway is often cited as an exemplar for the UK inside the European Economic Area. Norway has no direct power in the EU, no seat at the table, no votes, but it still has to abide by directives and bills just as the full members do. Norway has to implement three-quarters of all EU legislation, including the working time directive, other employment laws, consumer protection, environmental policy and competition laws. It has to contribute to EU budgets. Norway’s per capita contribution is just over £100; the UK’s net per capita contribution is £128. If we joined the EEA there would be little saving.
Switzerland is often cited as another example we might emulate. But being outside the EEA, it has no right of access to the single market and has to negotiate each and every case separately. Even Switzerland contributes to EU budgets at £53 per capita.
What do other EU countries say about the EU and British concerns, particularly regulation? President Hollande said earlier this year that there might be a “differentiated” Europe. The Italian Prime Minister said in July that there might be treaty changes for a more flexible Europe in the interests of the UK but also in the interests of countries such as Italy. The Dutch Government have proposed defining subsidiarity as, “European where necessary, national where possible”. Chancellor Merkel said in May that it could be that some things “could be better done at a local level”.
All these confirm that the long history of flexible integration is alive and well in the EU today and we should build on it. Lots of people across Europe want us to do that and to show leadership in a reform programme. We should not forget that 3.5 million jobs in the UK are linked to our membership of the EU; or that 47.5% of our export of goods and services goes to other countries in the EU.
I am grateful to the French Chamber of Commerce in Great Britain for reminding me that there are 1,500 French subsidiaries in the UK employing 330,000 people, that the UK is at the top of the European foreign direct investment rankings and that the EU accounts for nearly half of foreign direct investment in the UK. With figures like that, the idea that it is somehow in our national interest to quit the EU defies belief.
There are several reasons why firms want to move into the UK, including the gateway to the single market, the English language, the quality of our legal system and our excellent workforce. For many, the single market is the most important. A single market of 500 million people means that they and we benefit from a common set of rules which enables businesses to generate wealth without having to comply with many different sets of regulations. We need to defend the single market and deepen it to drive up UK jobs and growth. We need a continuous process of reform, but completing the single market would further reduce internal barriers to trade, particularly in services, which our Government think could generate a 7% increase in GDP—a great deal higher than the 0.4% of GDP that goes to our net budget contribution. There are many discussions going on around regulation. Some of them may be justified and there are discussions that will be pursued in Brussels and elsewhere about this matter. However, we should note the success of the Government in tackling regulatory issues and their continuing work in that area. Some 1.4 million UK small businesses are now exempt from certain EU accounting rules, which demonstrates that the EU is willing to reduce red tape for small businesses and it is in the interests of all member states that this process should continue.
If we left the EU, we would probably operate within a “most favoured nation” status. That would mean that 90% of UK exports to the EU by value would face tariffs. As well as that, UK consumers would face higher prices on goods bought from the EU and from those countries with which the EU had trade agreements. These increased prices would be counterbalanced only slightly by lower food prices.
If we were in the EEA, trade would be tariff-free and, as with Norway, we would have to implement three-quarters of EU legislation in which we would have no say. We also need to be careful about the rules of origin. Goods imported into the EU via a full member of the EU can move freely once the relevant entry tariff has been paid, but those that come through an EEA country have to apply the rules of origin, a process that will take time and money.
This week we have seen a trade agreement signed with Canada after four years of negotiation. There are now 46 trade agreements in place, with a further 78 pending. If we left the EU, we would lose access to every EU trade agreement with a third party, and each would have to be renegotiated.
Exit would mean no extra funding for the poorer parts of the UK. Between 2014 and 2020, £6.2 billion will be committed in ERDF and ESF to the UK.
In conclusion, problems with the EU can be addressed. Problems related to the eurozone can also be addressed because it is not essential to be in a single currency to be part of a single market, as we have successfully demonstrated over many years.
In a recent speech at Chatham House, the Deputy Prime Minister said that,
“the idea that we can float off into the mid-Atlantic, bobbing around in a new network of relationships without a strong anchor in Europe, while countries around the world ... are working more and more in regional blocks, is clearly not a sound strategy in a fast-moving, fluid and insecure world”.
He is right. We must strengthen our economy, not weaken it, and we can do that only through continued membership of the EU, with the UK at the heart of EU decision-making. I beg to move.
Lord Shipley
My Lords, I am grateful to the Minister for his reply and to all those Members of the House who have spoken in the debate. Mention was made of Roy Jenkins. I am reminded that in 1975, when he was Home Secretary, Roy Jenkins announced when the referendum had been won that it had put the uncertainty behind us. It did for a while, but obviously there is still a debate to be had. On the balance of today’s contributions, those who are in support of continued membership of the EU have the day, but there will inevitably be a continuing debate on that. I thank noble Lords for their contributions.
Economic Prosperity and Employment
Lord Shipley Excerpts(10 years, 10 months ago)
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Lord Shipley
My Lords, I thank the noble Lord, Lord Haskel, for enabling me to say that I count myself as a progressive capitalist. I understand the importance of profit and the private sector to drive growth and tax revenues and the central role of government to intervene in market failure and to prevent abuses of capitalism when it consumes excessive wealth rather than creating it. It is for the public sector to provide leadership in infrastructure, education and training, public research and particularly leadership in business and innovation, identifying and helping to finance growth areas that will increase our competitiveness.
It is, of course, a fundamental task of government to redistribute wealth to reduce social and regional inequalities, otherwise capitalism cannot be progressive. I therefore support the concept of the enabling state. Are the present Government enabling? We have low interest rates, competitive tax rates, an increasing emphasis on science and technical subjects in education, significant investment in infrastructure and increasing access to finance. The Government have, among other things, supported innovation, seen the creation of 1 million private sector jobs and made major investment in roads and railways. There is the Green Investment Bank, the business bank and improved access to superfast broadband. This is all happening as we pursue the rebalancing of the economy away from an overreliance on London and financial services. In this respect the Regional Growth Fund, which is now worth £3.2 billion, is helping to drive that change, so, yes, I think that the present Government are an enabling Government.
There are three areas to which I wish to draw your Lordships’ attention and to which I hope my noble friend the Minister will respond. The first is skills. Employers in manufacturing, processing and engineering have problems recruiting right across the UK. It is a sad reflection of all the money that successive Governments have put into skills that we still have major skills gaps in our economy. Local growth funds may well provide an answer as they can require skills providers to be locally accountable for failures to meet demand, and much better forward planning should result. The concept of local growth funds is drawn from the report by the noble Lord, Lord Heseltine, No Stone Unturned.
Secondly, the Government are doing well on apprenticeships but we need to do much more. Fifteen per cent of our under-24s are unemployed but only 5% of graduates are unemployed. As the noble Lord, Lord Bradshaw, pointed out, we need more high-quality apprenticeships in the right high-level skills. Rightly, we compare ourselves with Germany, where there is much greater structural coherence between the private and public sectors in creating apprenticeships that turn into sustainable jobs. The Higher Apprenticeship Fund is an important contributor but we need to learn much faster from the German experience than we have done.
The third thing that I would like my noble friend the Minister to respond to relates to public procurement policy in the construction sector. We seem to be developing a procurement system between national and local government that favours big national construction companies at the expense of mid-sized regional ones. This is potentially damaging to regional growth. Building firms working up and down the country have recently bid for a place on a national procurement panel for the Priority School Building Programme. While 12 firms have been selected for the north panel and 12 for the south, nine of the firms selected are on both panels. We talk a lot about a lack of competition in the banking and audit sectors, but are we heading in the same direction in the construction sector with the big nine? It is impossible for medium-sized firms to qualify for a place on these procurement panels. Even as a joint venture with a combined annual turnover of £250 million, they are still ineligible even though they may have done excellent and relevant work in the past. Since all these firms ask for is the right to compete and to tender, it is hard to see what public interest is being served in preventing them doing so. There are serious implications for the prospects of regional firms because they will lose the opportunity to grow bigger and generate more jobs and wealth in their local areas.
Then there is the Scape framework used for procurement by some local authorities, housing associations, some parts of the NHS, some police authorities and universities. This framework requires contractors to have an annual turnover of more than £500 million to be eligible to carry out jobs starting even as low as £2 million. Very few mid-sized regional contractors can meet this turnover requirement but they could carry out the work just as well. There is a requirement to take into account local supply chains and subcontractors because they are supposed to be used by national contractors, but it seems that this is frequently not the case. That is an erosion of job opportunities for local people, often in areas of high unemployment.
Then there is the question of the reinvestment of profits. Ten of the contractors on the northern panel that I referred to are headquartered in the south. Do the surpluses made on the projects undertaken in the north of England get reinvested in the place where the work was done, or do they get siphoned off to spend elsewhere? We need to know. The Government accept the need to boost the regions but I ask the Minister to look very closely at regional procurement so that local people can get jobs, skills can be maintained and enhanced in all regions and cash surpluses can be reinvested locally to train the workforce of the future.
Government Spending Review 2013
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Lord Shipley
My Lords, I am grateful to my noble friend Lord Higgins for raising the Open University, which requires me to declare my interest as a pension holder of that institution after some 34 years’ service. I am very glad that Mrs Thatcher had the common sense not to take my noble friend’s advice, because as we all know the Open University has been the most enormous success and a world beater and world leader. It is a tribute to all those involved in setting it up and making such a success of it.
I should declare that I am a vice-president of the Local Government Association. As an adviser on cities and deputy-chair of the regional growth fund advisory panel, I strongly welcome the Government’s direction of travel on local growth. I wish to comment on some strategic issues on public service reform which I hope the Minister will consider.
I start with the Scottish referendum on independence. In last week’s debate on the Select Committee on Economic Affairs report on the economic impact of independence on the United Kingdom, it was explained that while we know the public expenditure level on Scotland, we do not know the amount of tax raised in Scotland; the data are not collected other than on a UK-wide basis. There have been some private estimates, notably by Oxford Economics, as to the tax raised. In the context of all that the Government are now doing on devolution, decentralisation and the single local growth fund, the tax raised for the constituent parts of the UK needs to be known. Part of this is about how you measure success. We will certainly have a single local growth fund between 2015 and 2020 and the Government will have to measure success, and one measure will inevitably be the tax generated from growth. You have to have a base and work has been done with Greater Manchester on its city deal and the earn-back model, which I understand has now been agreed. Hopefully, that will be an exemplar of how tax can be measured.
The spending round has been difficult and we all understand the reasons for that. If there is a headline cut of 10% in local government, for authorities that have social care responsibilities—notably the counties and unitaries—the real reduction is 2.3% because of the extra £2 billion allocated to local authorities. I make the point to the Minister that if you ring-fence the National Health Service and are content with that, you have to ring-fence health more broadly. If you do not prevent ill health through the social care system, you end up with a cost landing on the National Health Service. I am pleased that the £3.8 billion in total in the spending review that has come to the health service and local authorities is extremely helpful. I hope that if the health service continues being ring-fenced, social care will be ring-fenced as well.
I have noted that there will be a council tax freeze for five years; of course, that depends on local authorities deciding to freeze their council tax, which will be up to them. I observe, however, that when central government permits a freeze of council tax, certainly over a period as long as five years, it makes local government more dependent in the long term on central government. I am not sure, given the Government’s direction of travel towards raising more tax locally and people being more responsible for their spending decisions locally, that there should be such central control of the allocation of money.
I believe strongly in localisation. I also believe strongly, for the avoidance of doubt, in the equalisation of funding on the basis of need. It is difficult to do either properly without knowing more about the tax base of an area to which power is being devolved. In England it is difficult to localise without knowing the current level of public spending in each area, either of local government—a council—or of a local enterprise partnership. Data are not being collected on that basis. They are collected on a regional basis, but they will have to be collected on a different basis to make devolutionary centralisation meaningful.
Data on tax income by local government area are simply not available at all. I hope that as part of public service transformation, the Minister will take on board the need to improve the tax income and public spending data which the Government produce. This is caused not least by the fact that community budgets—the tri-borough pilots in London, Essex, Greater Manchester and Cheshire West—have shown significant signs of savings being generated if public services can be planned together. The numbers are actually very large indeed. I am much encouraged by that. However, while this is partly about integrating health and social care it is also about integrating the work of the Department for Work and Pensions with the work of local authorities and local enterprise partnerships.
As a crucial step, I ask the Minister to look into the concept of total place accounting, which is not the same thing as total place spending. However, at the moment, departments, local authorities and those spending public money in a given locality are not accounting for their expenditure on a local basis. It is going to be important for all service providers in a local area to account formally for what is spent by them in that area and then to produce accounts that demonstrate that. It is two years before we get into the single local growth fund, but improving the data is starting to matter.
That takes me to the concept of the local treasury, because community budgeting is about all the funds available in an area for public investment to be jointly spent as a community budget. For a local treasury to succeed, we need to know what tax is raised and what public money is spent in an area, and then consider the gap so that a needs-based funding system can be applied.
According to the Local Government Association, which revised its figures yesterday on the basis of the spending review announcement, the position for 2015-16 is that some 56 councils in England will have only 86% of the money they need to meet existing commitments in 2015-16. One of the consequences will be a lowering of investment in prevention. You will see that happen despite the extra money going into social care. As I have said, if you do not prevent, you end up with a higher cost later. I have therefore concluded that community budgeting is the answer. There are other possibilities, and I fully understand why the Government do not go down the route of unitary councils in all parts of England. It is nevertheless my view that there are significant savings to be made by local government in the creation of unitary councils. I come from the north-east of England where we have only unitary councils. Some of the savings are demonstrable. The issue is, however, complicated, and such a move needs to be done with the will of those participating. Nevertheless, some of the financial problems that have been caused in some local authorities will mean that we need to do that.
I ask the Minister to read a report called Rewiring Public Services, launched yesterday at the Local Government Association conference. It is a hugely important read that extends the debate about how matters could be progressed. Here is a fact that is telling. By 2018-19, on current projections, council tax and business rates will total more than local government spending on services, excluding schools. We are close to making the central government grant obsolete and we could plan now to move away from local taxes being controlled in Whitehall towards financial independence of the sector, which itself is responsible for redistribution to meet needs. That whole issue could benefit from further work. I mentioned the local treasury concept, which would have at its disposal all the various pots of money and make the local spending decisions. A local treasury could have the power to create specific local taxes.
Finally, my noble friend Lady Kramer talked about housing. It is right to increase the housing borrowing cap for local authorities. The average debt on a council house is £17,000. There is significant headroom. We could build many more social homes by permitting local authorities to borrow more. Since April last year, the housing revenue account has been a trading account and we are the only EU country that treats borrowing in the housing revenue account as public borrowing. That need not be the case and we could build 20,000 or 30,000 houses, maybe more, if that borrowing cap were to be increased. I hope that the Minister will think further about that.
Future Investment
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Lord Newby
My Lords, the Bank of England has expressed the view that low interest rates are here to stay for a significant period ahead. Only an idiot would predict what interest rates will be in 2020 but if we look at the next three or four years, I do not think that anybody would say that interest rates were going to rise significantly, if at all. As for whether employing lots of people to build houses or roads means that fewer people are unemployed, that is self-evidently the case. That is why we are keen to get these programmes moving as quickly as we can.
Lord Shipley
My Lords, I thank the Minister for the Statement on infrastructure investment, in particular the commitment to removing bottlenecks on the A19 in Tyne and Wear, both to the south and to the north of the Tyne Tunnel. May I ask him about the proposals for the A1 north of Newcastle and the western bypass? As I understand it, there is a feasibility study to consider problems and solutions to the A1 north of Newcastle. The solution is clear; it is the dualling of the A1. I interpret the Statement as saying that the Government are now moving to the next stage of dualling the A1 north of Newcastle and that we should have cause quietly to celebrate.
May I ask him one thing on affordable housing? I welcome the Statement that has been made today. Has any further thought been given to increasing the borrowing cap on local authorities? The average debt on a council house at the moment is £17,000. There is enormous headroom to increase borrowing. It should not be on the public balance sheet, following decisions to make this a trading account from April last year. There is the capacity to deliver around 40,000 to 50,000 council houses as a consequence of raising that borrowing cap if the Government would do it.
Lord Newby
My Lords, in respect of the A1, the noble Lord is absolutely right. There is a commitment to a feasibility study. Upgrading the A1, as he says, means dualling it. I think that quiet optimism strikes the right note. Obviously, if local authorities had their borrowing powers increased they would be able to do as he says. As he knows, the Treasury down the ages has set its face very firmly against such a move. I would be happy to raise his suggestion again with my colleagues in the Treasury.
Economy: Sustainable Jobs
Lord Shipley Excerpts(10 years, 11 months ago)
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Lord Shipley
My Lords, I thank my noble friend Lady Brinton for initiating this important debate on sustainable jobs, in which the word “sustainable” is of crucial importance. This is about creating growth and long-term employment opportunities for everyone who wants to work.
We should note some helpful trends in the overall position on jobs in the past year or so. There are almost 30 million people employed in the UK, which is up by 432,000 from a year ago. Unemployment remains stubbornly and worryingly high at 2.5 million. It is, however, down by 88,000 from a year ago. More than a million jobs today are held by the over-65s. Nearly 10% of those aged over 65 are now employed, which is the highest level since records began in 1992. I welcome that. It is in part a sign of the times and, no doubt, with the rise in the pension age that figure will continue to rise.
In vacancies, there has been another helpful trend. In the latest quarter, there were 518,000 job vacancies, up 48,000 year on year, which is the highest number of vacancies since 2008. In March—the latest figures we have—there were 24 million private sector jobs, up 46,000 from December 2012, and 5.7 million public sector jobs, down 22,000 from December 2012. We can see a reduction in public sector jobs but an increase in private sector jobs, and we should note that, despite the loss of public sector jobs, 1 million private sector jobs have been created since 2010.
Nevertheless, there are major disparities. The employment level in the south-east outside London is 75% but in my home region, the north-east of England, it is 67%. There are some 458,000 people who have been unemployed for more than two years. I agree with my noble friend Lord Kirkwood of Kirkhope about the stigmatisation of those who are unemployed through no fault of their own. We need to be very careful about our use of language. There are 458,000 people who have been unemployed for more than two years, and we need to get that figure down. There are 401,000 people aged 18 to 24 who are on jobseeker’s allowance. That figure is down 63,000 since May 2012. There are 950,000 unemployed people aged 16 to 24. That figure is down 60,000 since the previous year, but it is still worryingly high. The Government have recognised the geographical and sectoral imbalance across the country that needs to be addressed.
Sustainable jobs depend on growth. Skilled people are needed to do the jobs that drive growth, and can drive exports and reduce imports. As we know, with more people in employment, tax revenues will rise. I shall address the first of those four statements on growth. I have no doubt that government actions are helping. The funding mechanisms include: the regional growth fund that my noble friend Lady Brinton referred to, and I declare that I am deputy chair of its advisory panel; the single local growth fund which was announced yesterday by the Chancellor; the £500 million committed for superfast broadband in rural areas; the Green Investment Bank; the business bank due next year; and, as announced in the Budget, the reductions in national insurance to give employers a £2,000 cash payment to make it easier for them to take on staff.
We should note the success story on apprenticeships. This Government have created more than 1 million apprenticeships. We want to double to 200,000 the number of businesses that offer apprenticeships. There are 5 million businesses in the UK, but only 100,000 offer apprenticeships. I feel optimistic that the Government are doing a lot to deliver growth, but one of the barriers is skills and vocational education. We need to enhance the offer in vocational education to give people skills to do jobs rather than, as we have done in the previous decade, encourage very large numbers of people to go to university, at the end of which they may not have the skills to undertake some of the jobs we need done. For example, there is a critical shortage of engineers at senior levels.
I shall make a point about gender: there is a shortage of women in business. Just one in 10 engineers is a woman and just one in 20 engineering apprentices is a woman. Something needs to be done about encouraging girls at school and in education to become scientists and engineers. When I read that in half of state secondary schools not one girl is doing A-level physics, I become very concerned about the career pathways that are being discussed with pupils.
We need to understand why we have unemployment at the same time as we have skills shortages. Employers in all parts of the country say the same thing: there are serious difficulties in recruiting skilled staff in engineering, processing and manufacturing. We have a large number of young people who are unemployed—410,000 of them in receipt of JSA—but at the some time we are being told by employers that there are many jobs that they want to fill but they cannot find qualified people to fill them. We have to get a far better balance between those two things.
My noble friend Lord Teverson talked about the language issue in imports and exports. It is a major barrier for firms exporting from the UK. Another problem has emerged in a recent survey undertaken by the British Chambers of Commerce. It is the lack of knowledge about regulation in other countries. That chamber of commerce survey showed that 60% of chamber members say that they do not export. We need more companies to export, and that means that UKTI, local enterprise partnerships, British embassies and local authorities have to make it a greater priority because exports drive growth. I am proud to live in the one region of this country that has a positive balance of trade. The north-east of England exports more than it imports. We should build on the potential of that record.
One of the problems we have is that we import too much because our indigenous supply chain is not strong enough. If we imported less by building up our own supply chain, we would reduce the amount that we buy from overseas. I particularly pay tribute to the Government for the fact that we now have an industrial strategy in place, with a British supply chain as an important element.
I mentioned the number of long-term unemployed young people. Sustainable employment is part of social inclusion. We have to make sure that everybody is able to take part in the future growth of this country. That means that jobs need to be created, preferably though apprenticeships, for everybody. It is an obligation not just on government but on the private sector, the voluntary sector, the third sector and the public sector. We all have to do everything we can to get everybody who wants a job into one. There have been many schemes in recent years: the Community Programme, Employment Action, the Community Action Programme, the New Deal, Step Up, the Community Task Force and the Future Jobs Fund. History suggests that it is difficult. There have been so many of these schemes, but I was somewhat surprised to discover yesterday that there are 33 different funds and schemes supporting young people in England at a combined cost of more than £15 billion per year. There are two ways of looking at 33 schemes. You can say that each one has a specific aim and is doing a specific job, and that may well be true, but it is also possible that it simply confuses the landscape so that those who want to employ more people find it more difficult to do so and young people find it difficult to engage because they do not know where they should be engaging. We need to look at that very carefully.
I am absolutely convinced that apprenticeships are the way forward. I believe that we can double their number to 2 million. Giving people skills through an apprenticeship builds a trained workforce and the skills of employability enable an individual to move on into sustainable work.
I shall just mention self-employment. I am chair of the Prince’s Trust in the north-east of England, and I am excited by a number of projects now taking place across the country that encourage self-employment and enterprise skills in young people. A lot can be done.
My final question for the Minister is whether he agrees with me that doubt over EU membership does not help inward investment and the creation of sustainable employment, not least through the single market and access to EU trade agreements with other parts of the world. This is not helping our need for sustainable employment and I hope that the Government will do all that they can to fight for the case that membership of the European Union is absolutely central to the delivery of sustainable employment.