Spring Statement

Baroness Kramer Excerpts

Wednesday 20th March 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I realise that I am being upstaged by the Prime Minister, who I understand is about to make a statement in front of 10 Downing Street. We have no idea what the content of that is. The noble Lord, Lord Hain, used the word “surreal”: that probably describes the situation. It is surreal. We have absolutely no idea when Brexit, how Brexit, or if Brexit; and all of that makes this discussion we are having on the economy essentially one of astrology, which I think was the word that my noble friend Lord Scriven used.

It is also surreal in a second way. I listened to the Chancellor’s Spring Statement and thought, “What economy is he looking at?”, when he said that the fundamentals are strong. I cannot imagine a single Member on the Conservative Benches, if they were listening to a Labour Government describing GDP growth of 1.2%, rising in the medium term to 1.5%, agreeing that that was satisfactory or acceptable. Those are appalling numbers, particularly at this stage in an economic cycle. We really have to take on board the message that that gives us about the problems and the scope that we have to deal with. I hope that at some point the Chancellor drops the PR and takes on board the very serious implications of that kind of insipid growth.

The noble Lords, Lord Bilimoria and Lord Davies, made the point about the underlying problem of chronic low productivity—running at a forecast rate of 1.2%. I say to the noble Lord, Lord Leigh, who thinks that the numbers might not be well calculated, that our running rate prior to the economic crisis was in excess of 2% a year. You can give any explanation you like; it does not cover a rise from 1.1% to 2%. This is a fundamental problem that we have to tackle. I very much agree with the analysis of the noble Lord, Lord Bilimoria: it is about not our top companies—that is where the Chancellor always focuses his efforts to increase productivity—but that long tail of small companies. We will have to take that on; it will need new ideas and investment. Quite frankly, it is a huge challenge and I wish it were being addressed more directly.

Export growth is weak, despite the cheap pound. Many noble Lords talked about the drop in business investment, which has fallen for four consecutive quarters. I pick up the point that the noble Lord, Lord Davies, made: many manufacturing jobs have moved. The noble Lord, Lord Northbrook, referred to the report from what I still call Ernst & Young, but which now calls itself EY, which estimates that the financial services industry has committed—this is no longer a “might” or a “perhaps”; it has actually committed—to moving in excess of $1 trillion of assets out of the UK to Europe. The noble Lord thought the tax impact of that was £600 million. I think that was the impact of the 7,000 jobs the financial services industry has now committed to move, and that is assuming fairly low rates of pay. It does not tackle the loss from transactions now being registered over in continental Europe, and therefore all the corporate tax that would be generated by that is gone as well; we have no estimate of those numbers. That is just one industry.

The noble Lord, Lord Davies, picked up an issue that is frequently missed, certainly by the Treasury: the decision by Bank of America to move its European headquarters to Dublin and its trading headquarters to Paris is absolutely fundamental. BofA does not move without the say-so of the US Treasury, and that message has shot right through the entire financial services industry. It is extraordinarily significant, and we need to get serious about it.

Consumer spending fell by 1.8% in February; that extends the downward trend to five months. We know we need infrastructure, but the collapse of Carillion and Interserve undermines most of the immediate-term plans to try to expand major capital projects, so we have a series of problems there.

I fully accept that the Chancellor had two pieces of good news. One is that people are paying their taxes more promptly. However, the noble Lord, Lord Macpherson, reminded us that that serendipity often turns with no warning, so we should enjoy it while we may. I am glad that taxes are coming in but we had better recognise that that could switch. The other was good numbers on employment and wages growth. I want to give a warning. The noble Lord, Lord Leigh—we had a conversation earlier in the Prince’s Chamber—picked up a point that I would make: this is a lagging indicator, not a leading indicator. I hope the Treasury knows the difference. It also matters in other senses. One is that if you are looking at a 1.2% growth rate and you have virtually full employment, this tells you that you have a problem with a shortage of working-age population. This is an issue now being picked up by the Resolution Foundation. We have a really serious demographic problem: we are short of working-age population. Frankly, all the anti-immigration language we hear can only make that problem acutely worse. It is a fundamental issue that the Chancellor will have to address.

Among others, my colleagues on these Benches—my noble friends Lord Shipley, Lady Thornhill and Lord Scriven—underscored the problem we face in public sector services. We have now cut too long and too deep, and we can see that it has gone into the bone by all the issues raised across the Floor today. I heard my colleagues talk about the crisis that local government faces—shortfalls in revenue amounting to something like £8 billion by 2024; the difficulties in delivering social care, not just for adults but now increasingly for children; policing; and knife crime. The noble Earl, Lord Listowel, talked eloquently about the problem of children in care. It almost does not matter which area we look at today: we still see a serious crisis in the public sector’s ability to deliver a quality of service that we find acceptable.

If I follow that logic through, I end up talking about taxes. I agree very much with the noble Lord, Lord Wakeham, that we have to make sure that the large digital companies pay their fair share. That will take creativity, aggression and determination. We are not quite sure how we are going to do it, but we have to put that near the top of the agenda.

I sit with my colleagues and say that this is the time to look at those cuts in capital gains tax. I do not think they have yielded any increase in investment, and they should therefore be reversed. There are also the cuts in corporation tax. We have not seen businesses take that tax saving and put it into the economy. If anything, it has gone into share buybacks. It is time that those cuts, too, were reversed. We also need to revise completely the way in which business rates are defined. I am in the camp that talks about looking at land value taxes—although, as the noble Earl, Lord Lytton, reminded us, that requires a transition process, to make sure that people are not injured in the passage from one system to another.

As for social care, we need a broad solution. Like many others, I think that we need to think about hypothecated taxes for the NHS and social care if we are going to deal with the problems in those areas. Yet in the Statement all those opportunities were neglected, and not taken.

My last point is about the loan charge—a subject on which I disagree with the noble Lord, Lord Wakeham. I am on the APPG on the loan charge, and I have now heard the evidence of so many individuals. They are not celebrities or high earners but, for example, people who used to be local government employees, often in social care, but who have now been outsourced. They were told that in order to carry on the same work, they would have to go to the Government’s identified recruitment agency. They had no idea that the papers they signed were putting them into an arrangement involving loan charge. All they knew was that their take-home pay before, when they were employed, and afterwards, when they were outsourced, looked pretty much identical.

Government departments are deeply embedded in this, because despite all the statements by HMRC, numerous people are now coming forward who were taken on by HMRC on an agency basis: that was the only way in which they could be employed to do that work. Those very bodies, which I assume had been pre-qualified by HMRC, and which had written the specifications for what they had to do in order to recruit, were the ones that introduced people to the schemes that have now landed them in loan charge problems. There are so many serious problems there that I hope there will be real pressure to make the response on 30 March a proper review, not just a limited report. I hope the Minister will take that message back.

--- Later in debate ---

[Lord Bates]

I am sorry—delete “even” from the record. The right reverend Prelate the Bishop of Chester, whose point about housing I will come back to in a minute, referred to it. The noble Lords, Lord Leigh, Lord Gadhia, Lord Bilimoria and Lord Suri, recognised that progress had been made despite the headwinds. It is absolutely right that we recognise that that progress has been made because British business and enterprise up and down the country—and around the world—is making a Herculean effort, creating jobs, wealth and buoyant tax revenues. These revenues are coming into the Exchequer, giving us the opportunity to look at them.

Across most of the contributions, there was a focus on public services and public spending. As I mentioned, the spending review will be in the summer and conclude in time for the Budget for the autumn, which will rely on it. Contributions effectively broke down into four areas. The noble Lords, Lord Macpherson and Lord Hain, and the noble Earl, Lord Listowel, referred to social care. The noble Lords, Lord Tunnicliffe and Lord Bilimoria, referred to policing, and the noble Lord, Lord Scriven, alluded to the tragic knife crime situation in Sheffield. The right reverend Prelate the Bishop of Chester, the noble Lord, Lord Wakeham, and the noble Baroness, Lady Thornhill, referred to housing. The noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, addressed local government finance.

Two other areas, which were grouped together, were the challenges of the changing nature of tax revenue and collection. The attraction of statutory land tax, which the noble Lord, Lord Wakeham, referred to, is that it is very easy to collect. The changing nature of tax is making collecting tax more challenging. The noble Lord, Lord Wakeham, the noble Earl, Lord Lytton, my noble friend Lord Leigh and the noble Viscount, Lord Chandos, referred to that challenge and ways to address it. Coupled with that is business confidence, which the noble Lords, Lord Gadhia, Lord Suri, Lord Northbrook and Lord Davies, referred to.

I will use the bulk of my time to address the questions raised as a result of those contributions. Several noble Lords asked how the Brexit dividend might be funded. The OBR’s Spring Statement forecast that business investment is weak. The noble Baroness, Lady Kramer, referred to that, and we acknowledge that in the near term. However, as uncertainty wanes, it picks up to 2.3% in 2020 and grows stronger at this pace from 2021 onwards. GDP growth is forecast to be 1.2% in 2019 before picking up to 1.4% in 2020 and 1.6% from 2021 onwards.

The noble Lords, Lord Tunnicliffe and Lord Hain, as well as several others, referred to infrastructure. We have increased the National Productivity Investment Fund to £37 billion to support key infrastructure up and down the country. Public investment is at its highest sustained level in 40 years.

The noble Lord, Lord Bilimoria, and the noble Earl, Lord Lytton, referred to Making Tax Digital—indeed, the noble Lord, Lord Wakeham, focused on that and the noble Lord, Lord Hain, touched on it. Research now shows the high level of awareness among business and tax professionals: eight out of 10 businesses were aware at the end of last year and over 80% of those had already started preparing. Of VAT returns, 98% are already done online.

The disguised remuneration loan charge was raised quite extensively, by my noble friend Lord Northbrook; by the noble Lord, Lord Wakeham, on behalf of the noble Lord, Lord Forsyth; and by the noble Baroness, Lady Kramer, with her work on the all-party parliamentary group. Disguised remuneration schemes are and always were contrived tax avoidance. It is not normal or reasonable to be paid loans that are not repaid in practice; my noble friend Lord Wakeham was right in his sage advice on that, as in so much other advice he has given over the years. It is the individual’s responsibility to ensure the accuracy of his or her tax return. HMRC is pursuing the promoters of disguised remuneration schemes and has been investigating over 100 promoters. In the last year, HMRC has taken litigation action against 10 scheme promoters.

I turn to universal credit and welfare, which the right reverend Prelate the Bishop of Chester referred to and the noble Lord, Lord Shipley—

[Baroness Kramer]

This really is an important point on the loan charge. Regarding the action that the Minister said HMRC had taken against scheme promoters, I do not believe that any of those schemes was a loan charge scheme. Those are schemes generally, but one of the complaints is that no action has been taken against the promoters of loan charge arrangements.

[Lord Bates]

I am afraid that I do not have the answer to that. Your Lordships may recall that, after the Autumn Statement, I ended up having to write extensively on loan charges. We know that officials at the Treasury are used to dealing with disappointments and I am afraid we may have to write again on the issue to deal with that point.

On welfare, as the noble Earl, Lord Listowel mentioned, work is the best route out of poverty. I thank him for the recognition that he gave to the incredible growth in the number of people—three and a half million more—in work, and a million fewer people in workless households. These are substantial social changes happening around the country and we believe that that is the best route out of poverty. Changes to the welfare system have ensured that work pays. There is a strong safety net for people who need it, while making the system fair for taxpayers.

The noble Lords, Lord Tunnicliffe, Lord Scriven and Lord Bilimoria, all raised the issue of serious violence. Police forces are already due to receive an additional £970 million from April. Police and crime commissioners have committed to using this funding to recruit and train an extra 2,800 police officers. In addition, the Chancellor announced a package of £100 million additional funding. Of this, £80 million is new funding, which takes the total additional funding for policing this year to in excess of £1 billion.

The noble Lords, Lord Hain and Lord Bilimoria, the noble Baroness, Lady Thornhill, and the noble Earl, Lord Lytton, referred to business rates. We are providing up-front support worth over £1 billion for high streets through the new retail discount, reducing bills by one-third for up to 90% of retail property for two years, starting from 1 April 2019.

On housing, further progress has been made in implementing the Budget to achieve our ambition of 300,000 homes. I hope that the right reverend Prelate the Bishop of Chester will not called upon from his retirement home in Scotland to eat his cassock—that prospect will add extra zest to our ambition to meet the target—but £717 million from the £5.5 billion Housing Infrastructure Fund to unlock 37,000 homes is a good step in that direction; there will be £250 million for 13,000 homes at Old Oak Common in London, and there are other schemes in Cambridge.

The noble Lord, Lord Wakeham made a serious point about the tax gap. While we recognise that there is a long way to go, we have one of the lowest tax gaps on record. It has fallen from 7.3% in 2005-06 to 5.7% in 2016-17.

We heard a considerable number of contributions on the very important issue of health and social care, which featured significantly in the Autumn Budget as well as in the Spring Statement last year.

Over the last three years, we have given councils access to around £10 billion of dedicated additional funding for adult social care. This includes £240 million this year and next for adult social care so that people can leave hospital when they are ready, and £410 million next year for councils to use to improve social care for older people, people with disabilities and children. This was announced in the Autumn Budget of 2018. The offer of the noble Earl, Lord Listowel, for us to see the incredible work done by many involved in social care and health visitors is one that many will want to take up.

I was immensely grateful to my noble friend Lord Leigh, for summarising a lot of the very positive, good news around, as did my noble friends Lord Suri and Lord Northbrook. My noble friend Lord Leigh spoke particularly about the measurement of productivity, and I think he is on to a point here. We had a discussion about this after the last Autumn Budget, and that was one of the conversations that led to the commissioning of Professor Sir Charles Bean to undertake an independent review of UK economic statistics to find out, among many things, whether that point about how financial services are treated and whether their full value is considered is right. To help address challenges, the Treasury has today provided the ONS with £16 million of funding so that we can continue to have world-leading statistics that capture what is happening in the modern economy.

The noble Baroness, Lady Thornhill, talked about the funding of local government. I recognise the experience that she draws on when she does that. The Budget of 2018 and the 2019-20 local government finance settlement delivered a real-terms increase in core spending power for local authorities in 2019-20. We expect authorities to receive final funding allocations in the normal timetable. Councils in England can access more than £200 billion for local services from 2015 to 2020. The 2019 spending review will be launched in the summer and conclude in the autumn and will no doubt receive many representations.

I am sorry about not addressing the point made by the noble Viscount, Lord Chandos, about student loans. I remember answering an Urgent Question at the time of the last debate and I thank him for that. This will be taken up in the Augar review. In the Spring Statement, the Chancellor of the Exchequer announced that the post-18 education and funding review will conclude at the spending review, so that will be in the summer. This is a delay from the original timetable, in part due to the decision by the ONS to change how student loans are accounted for in public expenditure. That will be covered in the review.

The noble Lord, Lord Shipley, mentioned the importance of the northern powerhouse. That is crucially important: we have seen spending of more than £13 billion—the largest in history—in the northern powerhouse. We hail from the same area of Tyne and Wear and we have all rejoiced at the increase in infrastructure there, including the Tyne and Wear metro upgrade, which will make a very big difference.

The noble Lord, Lord Bilimoria, asked whether we would have the necessary money in the event of no deal. The Chancellor has been clear that leaving without a deal would mean significant disruption in the short and medium term, and a smaller economy in the long term. However, he also laid out ways in which it is possible for the Government to prepare us, including holding a £26.6 billion headroom against our borrowing target.

I again thank noble Lords for their contributions. Several noble Lords referred to investment into the UK. I want to put some points on the record, which noble Lords might have touched on. We need to remember that Forbes magazine, which knows a thing or two about business, surveyed 153 economies to find out which was the best country in the world for business investment. It arrived at the UK in 2018—and again in 2019; it is the number one place for investment. That is backed up not just in a survey but with the significant increase in overseas investment between 2016 and 2017—the last numbers available were announced just last year.

[Baroness Kramer]

My Lords—

[Lord Bates]

I am on a roll. Can I go a little further with the good news before we get reminded that every silver lining has a cloud wrapped around it? There was a £149 billion, or 12.6%, increase in the stock of overseas investment in the UK. It is now the third-largest in the world and the largest in Europe. London is the top city for property investment, not way past when, but in 2018. It was £16.2 billion compared with £12 billion in Paris and £8.4 billion in Hong Kong. Exports are at near-record levels and have risen more than 50% since 2010. They rose by £17 billion last year.

We have many challenges in this country and face many headwinds, but one of the things we can all have confidence in is that the world has confidence in this country. We should have more confidence in ourselves. I commend the Statement to the House.

[Baroness Kramer]

I do not want to entirely ruin what the Minister is saying. I know that the noble Lord, Lord Leigh, knows exactly what I will say in this particular instance. The Minister is quite right that a lot of the investment in the UK is property development. It is overseas moguls buying very expensive properties in London and elsewhere. If that is removed from the numbers, I am afraid that the picture is exceedingly different.

Motion agreed.