Budget Statement
(6 years, 5 months ago)
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Lord Bates
That this House takes note of the economy in the light of the Budget Statement.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, just under two weeks ago in the other place, the Chancellor set out a Budget to define the UK’s future. It was a Budget which acknowledged the fundamental strengths of the UK economy, responded to immediate challenges and laid the foundations for an economy that is fit for the future. It is a privilege to present this Budget to your Lordships’ House today.
The Budget demonstrated the underlying strength and resilience of the British economy, which has grown over the past year by 1.5% and has now expanded for 19 consecutive quarters. Employment has risen by 3 million since 2010 and is close to a record high, with a near record number of women in work as well. The unemployment rate has fallen as well, to its lowest level since 1975.
This is all very welcome; however, there remain challenges that need to be addressed. In particular, productivity growth remains stubbornly low. Accordingly, the independent Office for Budget Responsibility has revised downwards the outlook for productivity growth across the forecast period. This has a direct impact on its forecast for GDP growth, which the OBR now predicts to be lower in every year of the forecast period compared to that forecast in March this year. As a consequence, business investment is expected to remain subdued, while inflation is set to peak at 3% this quarter before falling back towards the target over the next year. The Budget therefore takes action to support households and businesses in the near term while investing further to improve productivity and drive future growth in the medium to long term.
The Government have made significant progress since 2010 in restoring the public finances to health, but borrowing and debt remain too high. The Government’s fiscal rules take a balanced approach, getting debt falling while continuing to invest in our key public services and keeping taxes low. The OBR reports that, having taken into account the new forecast and the measures presented in this Budget, the Government are on track to meet both their interim fiscal targets during the forecast period. It is in this context that this Budget seeks to address the future challenges and opportunities for the UK, embracing change while providing immediate support for people, businesses and our public services where it is needed most.
This Government have already set in train a series of long-term reforms to deliver real improvements in growth. We have seen more than a quarter of a trillion pounds of public and private investment in our infrastructure since 2010. We are overseeing the biggest rail programme since Victorian times, and we are transforming skills through apprenticeships and the launch of T-levels at the previous Budget.
In this Budget, the Government have taken further steps to increase our long-term prosperity through investing in the skills and infrastructure needed to compete in future. The national productivity investment fund introduced last year will be extended to 2022-23 and funding will be increased to £31 billion. The fund will support an additional £2.3 billion investment in R&D, taking total R&D spend in 2021-22 to £12.5 billion. That is the largest public-sector R&D investment programme over the past 40 years. This will be alongside an increase in the R&D expenditure tax credit from 11% to 12%, an ambition to create the most advanced regulatory environment in the world and further funding to roll out fibre-optic broadband and 5G networks across the UK.
The Government are also committed to using funding from the national productivity investment fund, along with other transport spending, to boost regional infrastructure. Plans include an ambitious strategy to maximise the growth in the Oxford to Cambridge corridor through projects such as the completion of the east-west rail that will connect Oxford to Cambridge by train. The Budget also announced an action plan to unlock £20 billion of new investment in high-growth, innovative businesses in response to the patient capital review.
On skills, the Budget invests £406 million in maths and digital skills to help everybody get the skills they need to succeed in a modern economy. These efforts are complemented by the industrial strategy, which set out a clear plan for how we can boost the productivity and earning power of people throughout the UK and ensure that our country can embrace and be empowered by the excitement of technological change.
We speak about the infrastructure our businesses need to thrive, but we also need to talk about the infrastructure people need to survive. Increasing the supply of housing in the right places supports productivity improvements. It encourages a flexible labour market and enables people to work where they can be most productive, but, more importantly, providing homes is key to building communities and giving families the stability and security they deserve. Yet home ownership has become increasingly unaffordable, with the average house price in England and Wales now almost eight times the average person’s salary, compared to 3.6 times two decades ago. The number of 25 to 34 year-olds owning their own home has dropped from 59% to just 38% over the past 13 years.
So the Budget sets out an ambition to deliver 300,000 homes a year, supported by a comprehensive package of planning reforms and targeted investment. It commits over £15 billion of financial support to boost housing supply over the next five years, bringing the total amount of support to £44 billion over this period. It makes proportionate planning reforms, focused on urban areas where people want to work and live, helping towns grow in the right way while protecting the green belt.
But we also want to take action right now to help young people who are saving for a home, so the Budget permanently reduces the up-front cost of stamp duty for over 95% of first-time buyers who pay it. This is a comprehensive plan that will deliver on the pledge that we have made of ensuring that the dream of home ownership becomes a reality for the next generation once again.
The Budget is committed to ensuring that we have the foundations in place to support growth in the long term, but it also recognises that there are immediate challenges caused by rising prices. So the Budget will boost wages, reduce the cost of living and support businesses by freezing fuel duty, reducing the burden of business rates by a further £2.3 billion, increasing minimum wages and increasing the personal allowance to £11,850, lifting some 1.2 million out of tax altogether.
Finally, I turn to our public services and the taxes we need to pay for them. I take the opportunity to point out that this is the second Budget this year. The investment this Budget provides to core parts of our public services builds on the previous funding that the Government set out, such as the additional £2 billion we invested in social care in the spring Budget. The Budget takes further steps to put the NHS on a strong, sustainable footing, with £6.3 billion of additional funding, of which £3.5 billion will be invested in upgrading NHS buildings and improving care, while £2.8 billion goes towards improving A&E performance, reducing waiting times for patients and treating more people this winter. This is a significant first step towards meeting the Government’s commitment to increase NHS spending by a minimum of £8 billion in real terms by the end of this Parliament.
The Budget also commits an extra £3 billion to prepare for Brexit over the next two years, to make sure the Government are ready on day one of exit.
On welfare, the Government are committed to building a modern welfare state that is sustainable, in which work always pays and claimants are supported to increase their earnings. That is why the Government are continuing to roll out universal credit, which delivers long-overdue reforms to the welfare system. However, the Government recognise the genuine concerns raised in many places, including in your Lordships’ House, about the operational delivery of universal credit. In response, they are introducing a £1.5 billion package of measures to address those concerns.
The Government are clear that everyone must pay their fair share of tax in order to support our vital public services. The actions taken by this Government since 2010 have secured a £160 billion in additional tax revenue that would have otherwise gone unpaid, and brought the UK’s tax gap down to 6%—its lowest level ever and one of the lowest in the world. The Budget will continue to collect tax due, with a package of measures that is forecast to raise £4.8 billion by 2022-23.
A sustainable tax system also needs to keep up with developments in the wider economy. The Government recognise that the development of the digital economy creates imbalances between those firms with and those without a physical presence. This is not sustainable. Therefore, the Budget sets out how the UK will ensure that all businesses—both digital and bricks and mortar—operate on a level playing field within the corporate tax system.
In summary, the Budget takes sensible actions in the light of revised forecasts to address the some of the key challenges and opportunities that lie ahead, and in doing so, lays the foundations for a prosperous future. It invests sustainably in our public services, while supporting people and businesses and continuing to invest to secure a bright future for Britain. I commend it to your Lordships’ House.
Lord Tunnicliffe (Lab)
My Lords, in opening this debate for the Opposition, I am somewhat in awe of the speakers list, in terms of both its length and, principally, its quality. I will therefore try to be brief. I look on this Budget as a confessional. Economic growth is the lowest it has been since the Tories came into office, and the Budget confirms that failure: growth is revised down in every year of the forecast. The Government have promised to eliminate the deficit by 2015, 2016, 2017 and 2020, and now I believe they say the mid-2020s, yet the answer—continuing austerity—remains the same. The long-term economic plan has been and continues to be a shambles.
The investment promise is inadequate. Labour would bring forward investment in infrastructure in every region and nation to create a high-wage, high-productivity society. Real wages are lower than they were in 2010. The Budget confirms a further hit to living standards in 2017. The national living wage will not be the £9 per hour that was promised when it was introduced; in March it was revised down to £8.75, and it has now been revised down to £8.56. By 2020, average full-time workers on the national living wage will be £900 per annum poorer. If Labour’s promise of £10 per hour had been introduced, they would be £3,000 per annum richer.
What is the overall growth effect of the Budget? This can be found in the OBR’s Economic and Fiscal Outlook, somewhat obscurely, in paragraph 1.19:
“The short-term fiscal loosening announced in this Budget boosts growth by 0.1 percentage points in 2018 and 2019, but its withdrawal then reduces it by the same amounts in the following two years”.
Plus 0.1 plus 0.1 minus 0.1 minus 0.1 equals zero. When have a Government, with an economy as in the doldrums as this one is, ever turned down an opportunity to stimulate it? So growth is low, deficit reduction has failed, investment is inadequate, real wages are static and the national living wage is down.
I turn now not so much to the Budget as to what is not in it. I would call it a hope-free Budget, looking at it from the point of view of the poor, the aspirant, the sick and the old. First I want to look at it from the point of view of the poor. I think few of us in this House really understand what it is like to be poor. I came from a modest background where my household income was certainly in the bottom quintile and probably in the bottom decile. However, they were different times: I lived in a council house where the tenancy was secure and rents were reasonable, and my father was a hospital worker but he knew he had a job and he had stability. Yes, there were things that we did not have, but we did not have fear. I put it to the House that today’s poor have fear in a way that probably very few here can understand.
So what have this Government done? By introducing universal credit, they have taken £3 billion per annum from the poor, and this Budget produces a miserly £300 million a year to try to ameliorate the impact. People will not particularly believe me because I am standing here at the Labour Front Bench, but today the Joseph Rowntree Foundation published a report whose key finding is:
“Over the last 20 years the UK has seen very significant falls in poverty among children and pensioners. Twenty years ago a third of children lived in poverty; this fell to 27% in 2011/12. In 1994/95, 28% of pensioners lived in poverty, falling to 13% in 2011/12. This progress is now at risk of reversing: poverty rates for both groups have started to rise again, to 16% for pensioners and 30% for children”.
Is there any relief in this Budget for the poor? No.
Let us turn to what I call the aspirant group. What makes society work is social mobility. In my day it was surprisingly more available than people tend to think, and I was lucky to enjoy social mobility. To be fair to previous Governments, this was recognised and a Social Mobility Commission set up, chaired by Alan Milburn. Now, all the commissioners have resigned. I quote from his resignation letter:
“For almost a decade, I have been proud to serve under Labour, Coalition and Conservative governments in various social mobility roles. I remain deeply committed to the issue, but I have little hope of the current government making the progress I believe is necessary to bring about a fairer Britain”.
Does the Budget bring any hope of improved social mobility? No.
I turn to the sick. Yes, there was money in the Budget, but because of demographic and other effects, it was effectively delivering a cut. I must commend NHS England on its openness in decision-making. It places on the web its board papers and minutes. Therefore, I was able to look at the paper that the board produced for the meeting immediately after the Budget, which took account of the Budget. Under the heading:
“Be realistic about what can be expected from the remaining available funds”,
it states:
“For example, new advisory NICE guidelines can only expect to be implemented locally across the NHS if in future they are accompanied by a clear and agreed affordability and workforce assessment at the time they are drawn up”.
That is distinctly different from the present situation, where NICE guidelines are based not on affordability but on whether they are effective and give value. That paragraph continues,
“and even assuming this year’s unprecedented elective demand management success continues, our current forecast is that—without offsetting reductions in other areas of care—NHS constitution waiting times standards, in the round, will not be fully funded and met next year”.
Press reports indicate that the paper was fully endorsed by the board. The NHS has been honest, but this does not contain hope. Is there any comfort for the NHS in the Budget? No.
Finally, I turn to the old—perhaps we have more empathy with this subject. Let us face it: we all have to think about the last few years of life. Sadly, we live in a society where, throughout our nation, we are likely to feel most insecure in our last few years, because adult social care has been steadily ignored. There is a particular crisis in the care home sector. In July this year, Andrea Sutcliffe, chief inspector of adult social care in the CQC, said:
“Last October, CQC gave a stark warning that adult social care was approaching a tipping point. This was driven by more people with increasingly complex conditions needing care but in a challenging economic climate, facing greater difficulties in accessing the care they need.
While this report focuses on our assessment of quality and not on the wider context, with the deterioration we are seeing in services rated as Good together with the struggle to improve for those with Inadequate and Requires Improvement ratings, the danger of adult social care approaching its tipping point has not disappeared. If it tips, it will mean even more poor care, less choice and more unmet need for people”.
That is the CQC’s view of the world.
Interestingly, on 30 November, the Competition and Markets Authority reported on care homes. It said:
“Our assessment based on larger providers is that self-pay fees are now, on average, 41% higher than those paid by LAs in the same homes. This represents an average differential of £236 a week (over £12,000 a year)”.
It then discusses what will be the effect of that on the market. It argues that the effect is absolutely obvious: care homes will be built where there is a big market for self-pay, not built to meet the needs of local authorities. The area is approaching crisis. It goes on to say:
“Our assessment is that if local authorities were to pay the full cost of care for all residents they fund, the additional cost to them of these higher fees would be £900 million to £1.1 billion a year”.
Is there any hope in this sector? No. The care home sector is in crisis, and adult social care is in crisis. For the poor, the aspirant, the sick and the old, this is a no-hope budget.
Lord Razzall (LD)
My Lords, I am sure that all noble Lords would agree on the speech that the Chancellor of the Exchequer wishes that he could have made when he rose to his feet 10 days or so ago. In his dreams, he would have said that world growth is significantly benefiting the UK economy. In his dreams, he would have said that, as a result, company confidence has increased capital investment significantly in the UK. In his dreams, he would have said that there has been an improvement in the skills base driven in part by huge growth in apprenticeships, which is now feeding through to significant growth in productivity. Of course, he would also have said that the strong pound is reducing the inflation rate—and all those factors would be feeding through to stronger tax receipts. Sadly, noble Lords will be aware that quite the opposite is true.
On the basis of the OBR forecasts, which were set out in his Budget speech, productivity is now in the bottom quartile of all our economic competitors. The growth forecast is way below that of our competitors, with the OBR downgrading the 2021 GDP figures by £45 billion by comparison with the 2017 Budget estimates. The OBR indicates that tax receipts by 2021 will be £28 billion less than forecast.
On the Government’s own admission, a number of factors are applying to the British economy. The Government recognise that our workers lack the necessary technical skills. They recognise that infrastructure spend in the UK is not in the top 20 on World Economic Forum ratings and that R&D expenditure at 1% of GDP is below the OECD average of 2.4%, a figure that we are not aiming to reach until 2027. The Government recognise that the number of apprentices is falling. They say that that temporary fall is due to the introduction of the new procedures on the apprenticeship levy. Well, let us hope so.
Of course, there is some good news. Our creative industries are now worth £92 billion to the UK, which shows a 7.6% growth in 2015-16, twice the growth in the rest of the economy. The creative industries sector is probably bigger than our manufacturing sector, as a result. The drop in the exchange rate, as Brexiteers constantly remind us, has helped manufacturing exports—but, of course, the huge increase in import prices as a result of this drop is now starting to hit consumers, who face no real rise in their living standards for years. The Resolution Foundation says that it will see the largest squeeze on living standards for 60 years. As the noble Lord, Lord Tunnicliffe, has indicated, it is the poorest 20% of families who will be hit the hardest by this.
On the plus side, the corollary of poor productivity is a record high level of employment. It seems that, without any deliberate decision, we have sleepwalked into a world of low-paid jobs rather than improvement of skills and spend on R&D and infrastructure.
The Government’s big idea, I suppose, is the industrial strategy. It is a big idea of interventionist sector deals, which Tories traditionally baulk at—but, in this case, they are wilfully imprecise. Maybe the free market needs a strategic nudge from the Government, but a deliberate lack of detail in a chosen four industries— life sciences, construction, artificial intelligence and automotive—is worrying, and the arrangements with Nissan are, of course, still top secret. Nevertheless, we have to praise the industrial strategy. After all, its grandfather was the noble Lord, Lord Mandelson, its father was Vince Cable and its child is Mr Clark, so we cannot object to it across the Floor, but the proof obviously will be in the results.
There can be no doubt that the most challenging issue facing the British economy is Brexit. Without a successful Brexit, the business confidence and investment necessary to maintain our economy will not take place and it will continue to bump along the bottom as measured against all our economic competitors. We all know what industry wants: manufacturers want a tariff-free environment and a frictionless border. There are examples of that within Europe—for example, Sweden and Norway have an allegedly frictionless border. However, everybody knows that it is not entirely perfect. Companies such as the motor car manufacturers and Airbus want to move their components freely across borders in a tariff-free, frictionless environment. The finance industry wants to sell its services across Europe. The creative industries which, as I said, are now probably bigger than the manufacturing industry, want no restrictions on trade within Europe. Everybody wants the continuation of regulatory systems without necessarily establishing new structures employing tens of thousands of civil servants if we attempt to replicate what we have been used to in the European Union.
Time is lacking. The banks have to make key decisions on whether they relocate some of their functions outside the United Kingdom. The car manufactures have to decide where they will source new models and companies such as Airbus have to decide where they will source the next generation of their planes. Therefore, the ball is very strongly in the Government’s court. Those who advocate a hard Brexit must recognise that if we do not have something equivalent to a single market and the customs union, the OBR forecasts are likely to be grossly optimistic.
The Lord Bishop of Portsmouth
My Lords, one of the duties in which I take particular pleasure is chairing the governors at Ripon College, Cuddesdon, just outside Oxford, a theological college at which men and women are prepared for ministry. It is known by those associated with it more colloquially as a vicar factory. Notices around the college remind the residents that, after night prayer or Compline, they are expected to abide by what is known as the great silence. It is not, I suspect, adhered to with the same severity as in years past. Indeed, one has a sense that the silence masks all kinds of feverish activity, all of it associated with theology, of course.
Last week’s Budget was characterised by a great silence on two issues, and that silence too hides, I suspect, feverish activity and fevered discussions on social care and defence. On defence, I cannot help but think that behind the silence, titanic struggle is joined. We hear an echo of that struggle in the media. The new Secretary of State kept his cards close to his chest at defence Questions. My anxiety is that others will determine what cards he holds, and that he will not be dealt the hand he, or we, would hope for.
I comment on just one area on which I have touched before: capability. I endorse the Government’s rhetoric and aspiration on defence but remain concerned that we do not, and will not, have the resources to deliver on that rhetoric. We have responsibilities as a force for good in the world which we may not be able to meet. That is bad in itself for those we seek to assist and bad for our ability to combat evil, but it is just as bad for how Britain is perceived in the world, especially by those who would do us harm. This will be thrown into stark relief on Thursday: we will all stiffen with pride as HMS “Queen Elizabeth” is commissioned by Her Majesty in Portsmouth. Many of us will also be concerned that we do not and will not have sufficient capability to support this great ship.
My second point concerns social care—the subject of another great silence. I did not hear a syllable on it pass the Chancellor’s lips. The status quo is bad enough. The decision to link business rates to CPI, not RPI, is no arcane statistical recalibration. It may be good for business; it is surely bad for hard-pressed local authorities, reducing their already highly pressurised ability to fund social care. It goes without saying that the losers will be those who need, and deserve, care. The Government have committed to publish proposals on social care in the summer, and thereafter to consider responses. Action is not on the horizon. Somewhere over the rainbow is a long time away for a situation that is already unsustainable.
My third point is on an issue about which I have spoken before: universal credit. Here my point is also about a silence although not one, I fear, which betokens feverish activity. I recognise the care that the Government are taking over universal credit and once again confirm my support in principle for a coherent system that enables and encourages work. However, I have, alas, a degree of scepticism that the Government’s confident statement that people are moving into work faster and staying in work longer can be justified, since rollout of benefit currently covers 9% of those it will eventually apply to, and the basis for the claim is data from three years ago, albeit only published this September. Perhaps the Minister will confirm that later. This is an extrapolation too far, based on modest—to say the least—rollout and out-of-date evidence.
I also urge the Government to be careful as they consider responses to their consultation on eligibility for free school meals. One of the welcome attributes of universal credit is to encourage work and remove cliff-edge changes in support. An arbitrary, and probably low, earnings threshold for free school meals entitlement would be a return to the bad old times.
Finally, I remain animated by the moral injustice of the taper rate. I acknowledge the Government’s action in reducing it by 2% last year and that under universal credit it is lower than it was. The issue is one of equity. It is surely wrong that those on universal credit who are on the lowest incomes and are doing the right thing by going back to work are subject to a clawback or withdrawal of a minimum of 63%. That rises if you pay national insurance, to a 75% marginal rate if you earn over £11,500—a figure which is soon to rise—and are liable to income tax, and more still if housing benefit is factored in. We are invited to believe that the bulk of the population, like many in this House, behaves one way with marginal tax and national insurance rates of 32% or 42%, but those on low incomes behave in another, facing much higher rates.
The Government are showing commendable thoughtfulness in seeking to get universal credit right. These are areas where they should think again. I trust that the silence to which I have pointed will be a prelude to a burst of activity.
Lord Wakeham (Con)
My Lords, I am delighted to follow the right reverend Prelate the Bishop of Portsmouth. I do not quite live in his diocese—I live on the very edge of it, in Winchester—but I have heard him speak on many occasions. I do not usually agree with him and I am not sure that I entirely agree with him this time, but he always makes his case very persuasively and he adds greatly to the debates in the House. I congratulate him.
I first spoke in a Budget debate in the spring of 1974 following Denis Healey’s first Budget, and I have spoken in most of these debates ever since. I am pretty sceptical about the Budget forecasts that Chancellors make on growth, inflation, productivity and what have you. I am not saying that they are always wrong but they seem to be wrong as often as they are right, and it remains to be seen whether this Chancellor is right or wrong. I hope that things will be better than he suggested. I can well understand why George Osborne subcontracted the forecasting problem to an outside body, so it is not revolutionary to be somewhat cautious about Budget forecasts.
Of course, our productivity is too low, and I welcome the steps that the Chancellor is taking to improve matters, but I am particularly concerned about the way we make comparisons regarding our productivity without mentioning the level of employment in this country. Employment and low unemployment are, in their different ways, both at record levels, and I do not believe they can be totally dissociated from productivity. They are things which any civilised society ought to be proud of. If you add to that Brexit and the need to recover from the economic disaster of recent years, my view is that the Chancellor did a pretty good job in his last Budget.
Looking at the measures that have or have not been included in the Budget, I think that one or two things could have been done differently. The last time I spoke on these matters—it seems only a few days ago that my noble friend spoke from the Front Bench—I was very critical of the level of consultation between HMRC and professional bodies over taxation matters. Maybe I was a bit unfair, as I was very pleased to see from the Red Book that the Government will consult before making any changes to taxing the self-employed. That is good, but the Government have a role in that. They need to make the differences in taxation and national insurance between the self-employed and the employed as small as possible. It is not easy but, the more they can do that, the less of a problem they will have.
When I was in business years ago, Jim Callaghan, as Chancellor, gave capital allowances at more than 100% for a short while. That increased capital expenditure and was particularly valuable to a number of small businesses, and is another thing the current Chancellor could do.
Perhaps I may for a moment look back to when I ran a small businesses. My difficulty with getting working capital was due not to the cost of the capital but to my inability to persuade the banks to lend me the money that I needed. That was much more difficult than the rate of interest I had to pay. Of course I wanted the lowest rate I could possibly get, but that was not the main factor. Currently, many people who are not in business—I guess that some here today are—have money in their bank current account, whereas if they put it on deposit they would get interest of 0.5% or 1%. I just wonder whether the banks could be encouraged to find a way of lending money to smaller businesses to a greater extent than they currently do, and perhaps give a slightly greater return to those with deposits.
The Government will know—there is no need to go over the subject again—how carefully we shall be watching their progress on the Making Tax Digital initiative. What they are doing is highly desirable but, as I said in the last debate, they have set about it in the wrong way. HMRC knows what has to be done to make these desirable reforms happen. The Government need to encourage it to do it in an acceptable way.
I will finish on a much bigger issue facing us, and in particular the Treasury and HMRC. The Chancellor certainly referred to it, but we have not yet got to the problem. I think all of us realise that we are at the beginning of a massive industrial revolution in which technology will revolutionise our whole economy. Much of this is good, but there are dangers. The five biggest companies in the world are now internet companies. They will fundamentally change the fiscal landscape, and that trend will continue. We have to work out how to handle that in terms of taxation and a competitive marketplace. These enormous companies can make their profits and pay tax, I suspect, pretty much where they like, and as a result corporation tax will become yesterday’s tax before very long. The answer is that if you are a small business based in the UK, you will pay corporation tax; if you are a big, powerful company that trades internationally, you will have many other options.
Coupled with this is the ability of any of these supra-national corporations to enter virtually any business they want and put the competition out of business through predatory pricing. That runs the risk of standing on its head virtually every norm on which our economy and many of the world’s economies have been run, changing them beyond recognition. I think the Government understand this, and I hope proper consideration is being given to the problem of the downsides, as well as the upsides.
Lord Darling of Roulanish (Lab)
My Lords, it is a pleasure to follow the noble Lord. I agree with everything that he said in terms of his last point on the problems that all Governments face with large corporations. I also have some sympathy with what he said about forecasts and Budgets. I presented no fewer than six separate forecasts in my time, during a rather turbulent period, so I understood what he was saying. Before I turn to the Budget, I draw the House’s attention to my entry in the Register of Lords’ Interests in that I chair the Standard Life Foundation and am a director of Morgan Stanley.
Regarding the Budget, on any view the forecasts tell us one thing: that 10 years after the financial crash, our economy has still not returned—or showing any sign of returning—to the growth levels that endured in the preceding years if not decades. That ought to worry us. Whether or not the figures are precisely right, and they probably are not, they give us a fairly strong view of what is happening in the economy—which is that the economic prospects that we thought by now would have been getting a lot better appear to be stagnating, at best, if not deteriorating. Of course, that has implications for us all.
I note simply in passing that it seems a long time ago that I was told that my assumption that you could halve the deficit between 2010 and 2015 was dangerous thinking. Here we are now, where the whole target has slipped back. As I understand it now, we are expecting to balance the books on the never-never—it is just slipping into the distance. There is a problem in that our economy seems to be stagnating, and I think it is absolute fantasy to believe that if only we were free of the European Union at the earliest opportunity, somehow things would get better. Indeed, I would argue that, at the very time when the economy has been limping along, the last possible thing we need is the biggest disruption to our economic prospects since the Second World War.
I want to say a word about infrastructure. Like everybody else, I welcome what the Chancellor said on housing. However, none of this will resolve the fundamental problem, which is that not enough housing is being built. It used to be a badge of honour of successive Governments, Conservative and Labour, after the Second World War, to say how many houses they had built in the preceding five years. Housing policies, rather like industrial policies, went out of fashion in the 1970s and 1980s. Unless and until we resolve the problems in relation to planning permission, the problem will subsist.
My noble friend Lord Tunnicliffe referred to today’s Joseph Rowntree report. One thing that it identified that is causing an increase in poverty is rising rent levels. Fundamentally, that is a problem of a lack of supply. This is not just a London problem: it is a problem in most towns and cities throughout the whole of the United Kingdom. Unless the Government accept that and find a way to speed up the planning process and remove some of the logjams, the problem will simply subsist.
I will say a word, too, about the railways. Yes, it is welcome that the investment in railways is largely being sustained. When we started doing that in the late 1990s it led to the huge increase in the number of passengers using our railways. Last week, however, we saw something that is an issue of good governance. The Government appeared to announce the prospect of reopening a whole bunch of lines closed by Beeching in the 1960s. Actually, I doubt whether we will see any one of them opened in our lifetimes. But buried in the small print of the same announcement was the fact that Virgin Trains East Coast was being allowed to hand back the keys to its franchise three years early because it was finding the going a bit tough.
There is a pattern here. Railway companies are signing up for franchises and making all sorts of assumptions but when it gets difficult, they hand the keys back. If the Government take them back without penalty we will simply see more of this. For four years I tried to make the hybrid system that we have on the railways work. I found at times that it was difficult. Bringing the two, track and train, together is essential, but it was very ad hoc. I am not sure that we have not reached a time when this model is broken and needs to be looked at again. However, we certainly cannot have a situation where all the risk lies with the taxpayer and any profit goes to the individual operator. Noble Lords will know that I am probably not the most ardent Corbynista in my party, but there is a real problem here that we need to address.
I welcome the industrial strategy. However, we are very good in this country at producing industrial strategies—what we have to master is implementing them. This one is welcome. It has lots of the stuff that my noble friend Lord Mandelson published nearly 10 years ago, and I think the coalition Government did too, but we need to do more. Some would argue, and I would argue, that perhaps the best industrial strategy to help our industry and our country would be to avoid the worst effects of Brexit. The second-best strategy would be to have a strategy as to what we want in these Brexit talks, because I cannot see that the Government actually know where they want to go. They talk about transitions but you can transition only if you are going from A to B. If you do not know where you are going, it is little more than a standstill agreement.
Even as we debate this afternoon, discussions are going on over lunch in Brussels. It must be some lunch because I understand that it is still going on. But if it is true that the Government are contemplating saying that Northern Ireland will be in the customs union and the single market in all but name, you begin to ask: why on earth are we getting into this mess in the first place? If we are really saying, “Don’t worry: nothing is going to change in Northern Ireland and the border won’t really exist”, why should not other parts of the United Kingdom get exactly the same treatment? How will it operate in practical terms if someone sends a good from Liverpool to Belfast and it then crosses the border? Obviously, in Liverpool, too, there will be no divergence in terms of construction regulations and so forth. It seems a very odd way of going about things. If it is true, it blows apart the entire argument for Brexit. If we are saying, “Actually, we’re leaving but nothing is going to change except that the European Union will make the rules and we will have no say in what they do”, it seems absolute nonsense.
We will presumably see by the end of lunch and the beginning of dinner where we get to on all of this, but if it is true, the Government need to think long and hard about the implications, as they do about what transition actually means. By the way, I welcome that it now seems to be common ground that we will have a transition agreement if for no other reason than that we have run out of time—which is a warning of where we are and are likely to be in the future.
The last thing I want to touch on—there is no time to develop this theme but we will return to it again and again, and it has been adverted to by previous speakers—is the growing problem of income inequality in this country and the problems between the generations that are now building up. The Joseph Rowntree Foundation report is well worth reading. It is not just about rents. Another issue that it raises is that getting people into work cannot now be assumed to be sufficient in itself to get people out of poverty. The whole question of financial well-being is one reason why I referred to the Standard Life Foundation, which is about to commission research into that issue. We need to look at this because it is a very real problem. Every time we look at Brexit and other such events, people say that this issue must be addressed, but we do not get round to doing so. It is a real problem and one that we cannot afford to ignore.
Baroness Pinnock (LD)
My Lords, I want to focus my remarks on what was not in the Budget Statement. The right reverend Prelate the Bishop of Portsmouth has already raised concerns about social care, and I make no apology for doing the same.
Before I start, I draw the House’s attention to my interests in the register: I am a councillor on Kirklees Council and a vice-president of the Local Government Association. Therefore, I speak with some experience about the real and direct impact on people in the absence of government action on social care funding.
The Chancellor made no mention of the crisis in care for adults who depend on local authorities to fund all or part of their care. Those adults include older people—we often focus on that—and adults with complex physical and learning disabilities. The fact that there is a funding crisis is well-documented. A House of Commons Library briefing last month described adult social care as the largest discretionary budget of local authorities, and it is in crisis.
In my own council, the combined proportion of the net council budget for adults and children’s social services is 70%—70% of the council’s total net budget is spent on the care of others. That ratio has grown significantly, across my council and all councils, as cuts are made in other services, such as road repairs and keeping libraries open, to enable care to be provided.
However, the consequences of continued and substantial cuts in local authority spending by the reduction in central government grants, plus increasing numbers of older people in need of care and the rising costs in the care sector, have resulted in people not being able to get the care they need. One estimate is that there are 1 million people in this country who are not getting the care that ought to be provided. The reason for this, apart from the consequences of funding, is that councils are reducing eligibility criteria so that only those with the most urgent and complex needs qualify for care; everybody else is left to cater for themselves. The Local Government Association estimates that there will be a £2.3 billion funding gap by 2019-20. That is only for adult social care.
This is not just a local government perspective on what is going on. As has already been said by the noble Lord, Lord Tunnicliffe, the Competition and Markets Authority reported last month that the care sector is not sustainable. The Institute for Fiscal Studies analysed care funding from 2009 to 2016, and it concluded that chronic underfunding and short-term fixes are making it simply impossible for local authorities to plan effectively. On local government funding, the IFS went on to comment that it is not appropriate to use an outdated formula that everyone agrees is no longer fit for purpose. Which?, the consumer campaigning organisation, also investigated the care home market and reported last month. It concluded that the crisis is real and that urgent action is needed now.
Last month, prior to the Budget, the King’s Fund said that unless the Chancellor finds additional funding in the Budget, people will be denied the care they need. In 2016, the King’s Fund produced a report on the care sector that stated:
“Access to care depends increasingly on what people can afford – and where they live – rather than on what they need”.
It went on to state:
“Local authorities have little room to make further savings, and most will soon be unable to meet basic statutory duties”.
So the crisis is real and getting worse. That cannot be disputed.
The Government can, of course, point to some sticking-plaster fixes. They have passed on the cost of social care to some extent to hard-pressed council tax payers by enabling councils to increase council tax by adding a 3% social care precept last year and this coming year. In the spring financial statement, the Government allocated additional funds over a three-year period—which, of course, is not sustainable—and then tied that funding to NHS bed-blocking criteria, rather than trying to deal with the fundamental answer to the crisis.
We have been promised a Green Paper—we have been promised one for a long time now—to lay out a long-term solution. We have had the Dilnot report, which you would have thought would be a sufficient solution. The Green Paper is now promised for next summer, but a Green Paper is a long way from a fundamental fix for the situation. Meanwhile, people struggle with daily and basic living needs.
So I ask the Minister: do the Government agree that there is a funding crisis in adult social care and that there is duty on them to provide leadership and solutions with additional long-term funding? If so, the failure to address the need is both inexplicable and damning. I have not even referred to children’s social care, which is by some estimates facing an even greater funding crisis. I look forward to a constructive and positive response from the Minister.
Lord Maude of Horsham (Con)
My Lords, I draw attention to my entry in the register of interests. It is a pleasure to follow the noble Baroness, Lady Pinnock, and those other distinguished Members of your Lordships’ House who have spoken. I warmly commend my noble friend the Minister on the lapidary way he opened the debate, making a persuasive case, which sometimes gets lost, that most of the fundamentals of the UK’s economy are in pretty decent shape.
I will focus particularly on the Government’s fiscal stance and where it is heading, but I note in passing the tendency in this debate, as is often the case in Budget debates—I do not go back quite as far as my noble friend Lord Wakeham; my first Budget debate was my noble friend Lord Lawson’s first in 1984—to lament the lack of fiscal discipline and to plead for more public spending. I share the concerns that the date at which fiscal balance will be struck has receded. Every year it seems as far away as it was the year before. We have to accept that if we want that date to come further forward we have to exercise real discipline over public spending.
I will focus on productivity, particularly in the public sector, which got less of an airing in the Budget than productivity in the private sector. The ONS tells us that in the years between 1997 and 2010 productivity in the public sector was essentially flat, while in the private services sector—the nearest analogue we can find—it rose by nearly 30%. During the coalition Government, with the strong support of Liberal Democrat Ministers in that Government—I worked very closely with Sir Danny Alexander during that time—we discovered that we could get more for less in the public sector. There were plenty who said at the outset that it was simply impossible; we showed you can. We saved cumulatively some £50 billion from the overhead running costs of central government during that time. If we had not done that, the national debt would have risen by that amount, or there would have been tax increases, or front-line services and programmes would have been cut by that amount. In the Autumn Statement of 2014, we published a document, signed off by George Osborne, Danny Alexander and me, which showed that, by 2020, one could essentially do the same again and double those efficiency savings from central government. However, there seems to have been a sad loss of focus on that objective since. I would be grateful for some reassurance from my noble friend the Minister that this is still a priority for the Government.
We achieved those savings by strong leadership from the centre of government, particularly with central authorities for those cross-cutting functions of government which receive far too little attention, either from the Civil Service or from politicians. Let me give a couple of examples. We persuaded a reluctant Treasury to put in place a full-time head of financial management for government. In any big, complex organisation in the private sector, it would be automatic that such a post would exist, with finance directors in disparate parts of the organisation having a strong reporting line to that head of financial management. That has now been disbanded. The head of financial management for Her Majesty’s Government is now the finance director in the Ministry of Justice. He is a very talented individual, but he is looking after a budget of some £20 billion, and he cannot possibly give the leadership to financial management that it requires. The Government Digital Service, now copied in many places around the world, which saved vast amounts of money by putting services online, supported a burgeoning tech sector in this country and got the UK Government to the top of the UN’s ranking for digital government last year, seems largely to have been marginalised.
Two weeks ago in this House, we discussed the case of the chief executive of the Student Loans Company, who has been summarily dismissed having been brought in as a seasoned and robust operational leader to turn around that failing organisation. Productivity in the public sector will not improve if seasoned operational leaders brought in to turn around failing organisations in the public sector are driven out at the very moment when they are beginning to get to grips with those failings.
The other side of sound money is the need for the country to earn it before it is spent. I want to say a quick word about the industrial strategy. I am an old, unreconstructed Thatcherite, proud to have served in the Thatcher Government in the 1980s, when the whole idea of an industrial strategy was deeply unfashionable. I think that what we now see as an industrial strategy is a very different beast from what was regarded very poorly at that time. Then, the focus was on very large companies, often state owned, and on the companies themselves rather than on the sectors that could benefit from support. This time—and great credit is due to Vince Cable for the work he did in making the case for an industrial strategy in the coalition Government—the focus has been much more on the need to support the seeding, expansion and growth of smaller businesses, particularly through things such as the catapults, which were a feature of the coalition Government.
That requires a relentless focus on enterprise. Making that case should be an open door for the millennial generation. The young people of the generation of my children, in their 20s and early 30s, are much more likely than was my generation to be doing their own thing, to be starting something up—sometimes speculatively, sometimes developing something very serious indeed. The case for enterprise as the mainspring of economic growth, wealth and prosperity for all is more important today than it has ever been.
I echo the point made by my noble friend Lord Wakeham that when the Revenue takes the approach that it has sought to take towards the taxation of self-employed people, we need to be very careful. When I was Financial Secretary, the Inland Revenue, as it then was, had a rooted belief that people became self-employed only to pay less tax. The truth is that most people become self-employed because they want to make something happen and to have control of their destiny. They are taking a risk, which we as a society ought to be encouraging. I encourage my noble friend to take back from this debate to the Treasury that we want to see a sensible, risk-weighted approach to how we tax self-employed people.
Baroness Blackstone (Lab)
My Lords, I declare an interest: I chair the board of the Orbit Group, a large housing association, and it is on housing that I want to focus all my remarks. It seems appropriate to do so as we were told some time before Budget day that housing was to be the centrepiece of the Chancellor’s announcements. While there are some welcome proposals in the Budget, unfortunately the actuality does not match the preceding hype. Andrew Sentance, a former member of the MPC of the Bank of England, described the Budget as a whole as,
“a bits and pieces budget”,
with “small measures” and “little impact”. I describe the housing sections as medium-sized measures with a likelihood of limited impact when very large measures are needed to have a substantial impact on the serious housing crisis we face. The Government’s White Paper which came out before the 2017 general election recognised that the housing market was bust and proposed some, although not enough, radical measures to address the massive problems we face. The Budget picks up on some of the proposals in that White Paper but is not nearly ambitious enough if we are to crack these problems.
As my noble friend Lord Darling said, at the heart of the issue is a problem of supply. We simply do not have enough houses to go around, especially in London and the south-east, but elsewhere too. Moreover, there is an acute shortage of social and affordable houses for rent. This supply-side problem has driven up the price of houses for sale, making them unaffordable for most first-time buyers, yet until now the Government have fiddled around with demand-side measures, such as Help to Buy, that have driven prices up further. I congratulate the Chancellor on recognising that we need to build 300,000 new homes per annum, which is a big increase on the 140,000 average over recent years, but it is a sad reflection on our failure to give new housing the importance it deserves that the last time this country built more than 250,000 new homes a year was under the Labour Government of the 1970s.
The target is to achieve this supply increase by the mid-2020s. I recognise that it will take time to achieve the target but I wonder whether there is enough urgency in the Government’s proposals and whether the £15 billion of new money will be enough to get us there. Incidentally, it is not the £44 billion that was hyped up earlier. I welcome the decision to loosen the housing revenue account borrowing cap on local authorities in areas of high demand for housing. This was a central recommendation of the Economic Affairs Select Committee, on which I sat, in its report on the housing market.
We must be pragmatic and go for a mixed economy in the building of new homes, to which public and private sectors both contribute. I remind the House that in the 1970s 40% of new accommodation was built by local authorities. The ideology of the 1980s and 1990s, of cutting them out and leaving it to the private sector, has contributed to the mess that we are now in. Local government must return to building more social housing for rent, sometimes in joint ventures with housing associations. Allowing them to borrow to do so is vital. I agree with the LGA, the RICS and others that the lifting of the cap does not go far enough to get to the scale that is needed to reach the 300,000 target.
It is obviously crucial to building new homes that land is available and that better use is made of it. Sadly, this Budget fails to address this issue adequately. The National Housing Federation is right to say that the Government must stop selling public land at the highest possible price. They should update their guidance on best value so that all public bodies are required to set a price for their land that will support the delivery of more affordable housing. The Government should also insist that unused brownfield sites owned by their own departments should be sold off in areas of high need. A more radical approach to support social and affordable housing would require new developments on private sites to set aside 35% for it and for public-owned land to deliver 50% affordable housing.
Turning to the related subject of planning reform, I accept that focusing on urban areas and avoiding the green belt avoids a political storm in many Conservative constituencies but I wonder why the Government have not been brave enough to include a policy of green-belt swaps so that suitable sites on the edge of urban areas could be made available for housing. Perhaps the Minister could say whether this will be considered in the review of the planning system that was announced in the Budget. Resolving the scandal of the discrepancy between planning permission levels and the building-out rate should not be batted into the future by including it in the proposed review. We need action now so that developers are forced to get on with the job after permissions are granted. The suggestion that densities in urban areas should be increased and more small sites should be made available is welcome, and I congratulate the Mayor of London on announcing his intention to adopt this approach.
I will end with one of the few tax changes announced in the Budget: the abolition of stamp duty for first- time buyers purchasing a property costing £500,000 or less for the first £300,000 of the price. Apparently, Conservatives in another place cheered this announcement. Perhaps they should think again. The cost of the concession is an enormous £3 billion and it helps only a tiny proportion of those with housing need. Because this is a permanent reduction in stamp duty for first-time buyers, the OBR has calculated that it will increase the price of properties by twice the size of the tax saved; in other words, a first-time buyer of an average-price property will experience a £3,200 price increase to offset a £1,600 tax cut. This really is a nonsense. Moreover, the OBR calculates that the change will increase the number of first-time buyers by just 3,200.
In addition, the Resolution Foundation has calculated that this change will make a tiny difference to how long it takes a first-time buyer to save for a new property. Thirty years ago, it took three years. The current estimate is 19.1 years. Removing stamp duty will lower it to—wait for it—18.5 years. This is not a gain that young people would think worth a celebratory drink in their local pub. The £3.2 million spent on tax relief would be enough to provide government funding to support building 400,000 social rented properties in high-demand areas or to see around 140,000 properties built through the Government’s own Housing Infra- structure Fund. Would the Minister care to comment on this in his reply, especially since these figures are from the OBR?
In conclusion, of course there are elements in the Budget’s housing provisions to welcome. However, I regret that the Government have not been radical in devising policies to ensure that they reach their targets. I fear that the Government have not matched the expectations we had of them after the PM dedicated her premiership to fixing “the broken housing market” and the Chancellor trailed this Budget as the “housing Budget”. It has been a lost opportunity. What is needed most is a big, comprehensive housebuilding programme directly commissioned by the Government, working with local authorities and housing associations. Then and only then will the target of 300,000 new homes per annum be reached, and then and only then will the poor and the just about managing have the housing and, in the words of the Minister in his opening remarks, “the stability and security they deserve”.
Lord O'Neill of Gatley (CB)
My Lords, despite a lot of obvious things that—understandably—worry many people around the world, in fact the world economy has strengthened quite notably in 2017. Based on many of the indicators that I have followed for a very long time, the world economy is ending 2017 on a cyclically rather strong footing. I suspect that when we look back, world GDP growth may have been in the vicinity of 4% this year. In addition, eight of the 10 largest economies in the world have accelerated at the same time. The other two, India and—surprise, surprise—the UK, have weakened. Rather interestingly, even both of those have in recent weeks shown some better signs after their previous disappointments.
This level of global economic activity is probably the best that we have seen for 10 years and some of the economies most relevant to us here in the UK are showing particularly good signs, ironically including the eurozone. Its November purchasing managers’ index, published just last Friday, was the strongest since 2000. Of course, this is merely the cycle and, as I said, there are all sorts of things that worry people all the time, many of which could derail the global economy at any stage. But I say all this because it is important to remember it as the backdrop to the Budget.
In this regard, it is disappointing that the UK economy has slowed, although there may be a reason why the economy has not slowed as much as some might have thought. Looking forward, if this global environment were to remain so benign, it might help us more than many of us have previously thought with some of the challenges ahead, including of course Brexit. As I have stated in this House before, as important as I believe Brexit to be, we have bigger challenges here in the UK which, if addressed, could actually help diminish the dilemmas of Brexit, as well as forming an appropriate response to the challenge. At the core of these are weak productivity, poor educational outcomes for a country with our development, poor skills and regional and intergenerational inequality.
I therefore re-emphasise that some recent signs in the UK, albeit tentative, show surprising improvements. Our own November purchasing managers’ index, also published last Friday, was the strongest for four years. Moreover, and in my judgment of greater importance, there are tentative signs of regional economic change, especially in parts of the so-called northern powerhouse. Many people are still unaware that we have regional purchasing managers’ indicators: up to October, those regional PMIs show the north-west in particular, but also now Yorkshire, continuing to outperform London as they have for most of this year. Employment trends have also been stronger in some of these areas in recent months. On top of this, there are perhaps growing signs that the peaking of house prices in London is not yet being followed elsewhere in the country; indeed in parts of the north and elsewhere, house prices are picking up somewhat. If for some reason these trends were to persist—this is very tentative—they would be highly welcome developments which, among other things, would have a large impact on regional inequality in the UK.
Against this global and domestic background, and given the rather emotional political environment, I believe that the Budget was quite sensible. The Chancellor is to be commended for avoiding some of the considerable pressures for major shifts in taxation or spending. It is also possible that with the abandonment of its acknowledged previous multi- year anticipation of a future improvement in productivity, the OBR could still turn out to be wrong but in a different direction. While there are obvious reasons that can explain our persistent productivity weakness, some of which I have spent far more time looking at than I sometimes think I would like to have done, many aspects of them remain a bit of a mystery. It is also the case that despite persistent tightening of the labour market our productivity could suddenly start to improve—even if we do not know why—especially if wages were to accelerate.
The whole issue remains quite uncertain, as it was even without the OBR’s shift. Whatever path follows on this score, the Chancellor was right to focus on policies to boost productivity rather than pursuing a major shift in spending or tax policy focus. It was especially heartening, after a gap of more than 12 months, to see fresh policy measures, albeit modest, with respect to devolution. In this regard, I congratulate those in North Tyneside as well as the Government for their persistence in these endeavours, and encourage others in the remaining urban areas of England to put aside their ongoing petty squabbling and seize these greater opportunities. There may be many reasons why the north-west economy has recently started outperforming elsewhere, but being a trailblazer in the context of devolution certainly has not been a hindrance. Let us have some more of these policies as we may have found something that is actually working.
I shall finish quickly with a cautious welcome of the industrial strategy launched a few days after the Budget. It is so easily fashionable to dismiss it as merely a set of good concepts and wishes, which indeed it is, but it is generally the right sort of framework in which to deliver further long-term economic improvement, especially in helping to contain the damage from Brexit and other inevitable things that lie ahead. The focus on significantly boosting government support for R&D as well as more financial support for those emergent sectors that might develop as world-class industries are the right sort of policies, as are even more ambitious policies with respect to place-based devolution. The Government should get on and deliver them.