Restriction of Public Sector Exit Payments Regulations 2020
Baroness Kramer Excerpts(5 years, 4 months ago)
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Baroness Kramer (LD) [V]
My Lords, the more time I spend looking at these regulations, the more concerned I have become. I start from a principle, as I suspect everyone in this House does, that employees in the public sector need to be treated fairly. We have all seen how incredibly effective and dedicated members of the public sector have been in dealing with the challenges of Covid.
These regulations were designed initially to deal with excessive payments to high-earning senior civil servants. I have not heard a single Member of the House object to that aspect of the regulations. However, again and again, one noble Lord after another has made it clear that the framing of the regulations is such that it impacts on public servants on modest incomes, whether through the issues raised by the noble Baroness, Lady Finlay, affecting junior doctors, or in the damage faced by mid-level local government workers who are made redundant, a point raised by nearly every speaker.
The biggest issue under these regulations is pension strain. Access to unreduced pensions for a worker made redundant after the age of 55 in local government is part of an agreement for local government workers enshrined in the Public Service Pensions Act 2013. We must keep in mind that salaries have been crafted with this benefit in mind. The relevant section requires the local government employer to contribute to the pension fund to offset the lost years of contribution created by a forced redundancy. That payment to the pension fund can easily exceed £95,000, even for a modestly paid worker. This is someone who gets only £14,000 or £20,000 as their redundancy payment. Now they are caught by the new cap, leaving them on a significantly reduced pension for the rest of their lives.
We understand that the Ministry of Housing, Communities and Local Government has begun a consultation on the consequences of the exit payment cap. It does not close until 9 November 2020 and regulations will take time to follow. It is beyond me, and I suspect most Members of this House, that the package has not been considered as a whole. These regulations should not be enacted without confirmation of what any mitigation might be.
I am worried by comments in the report from the Secondary Legislation Scrutiny Committee that HMT’s answer is to suggest that the redundant worker make up the contributions gap. Does it really think that a 55 year-old local government employee on a mid-level salary has a savings pot in the many thousands, especially as he or she faces redundancy? Does it then expect them to get high-paid work to enable them to contribute to make up the money that has not been paid by a local government authority?
In the original legislation, the local authority could waive the rule if approved by full council. That seems to me reasonable. Indeed, it is what the then Minister, the noble Baroness, Lady Neville-Rolfe, assured the House on 30 November 2015. Now the regulation gives that power solely to a Minister—in other words, the Secretary of State. The full council is overridden, and I join the noble Lord, Lord Wigley, in saying that this is entirely inappropriate. Taking back control is really starting to have an unpleasant new meaning.
To make matters more murky, the Government have not published their updated equality impact assessment, and women are expected to be among the hardest hit by this new regulation. None of us believes in rewarding failure, although we notice, interestingly, that the regulation makes an exemption for the banks owned by the Government. Apparently, those institutions are not to be bound by that same notion that failure should not be rewarded.
I am concerned that this regulation expresses a general hostility to civil servants, and we have seen that in other areas of government behaviour. The regulation makes exemptions for the Armed Services and for spies. I do not resent their luck in finding that they have exemptions, but that does not make it fair for others. I understand that whistleblowers and victims of discrimination are also exempt. Again, that is entirely appropriate, but, frankly, whistleblowers and victims of discrimination should not be made redundant in the first place.
This is a really badly crafted regulation. Its enactment needs to be halted so that a new version can be put in place once the whole picture is sorted and the various mitigations have been understood.
Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020
Baroness Kramer Excerpts(5 years, 5 months ago)
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Baroness Kramer (LD) [V]
My Lords, this statutory instrument is clearly necessary to enable an equivalence regime for financial services to be in place following the transition period.
We all know that financial services are critical to this country’s GDP and tax base. Historically, the sector has provided more than 2 million jobs in the UK and more than £76 billion a year in tax revenue but, in the past, one-third of the sector has relied on EU clients, nearly half of whose business has been lost due to Brexit. I note with concern that, reflecting this shift, London, according to the think tank Z/Yen, which manages the index, has lost its position as the global number one financial centre to New York.
Even more concerning, both New York and London have been losing position, although London is losing it faster than New York. The rising locations are in Asia and the EU 27. One expert described these centres, especially the EU ones, as small black holes, growing rapidly as they sweep in new and transferred operations. We cannot afford to lose any more business. Equivalence matters. My party therefore supports the passage of this SI. We note that, like all the SIs dealing with equivalence, this one represents unilateral action by the UK, without which EEA firms could not continue to access the London markets. However, to deny that access would be extreme self-harm as we would be the losers. Essentially, this SI attempts to retain some parts of the status quo.
However, I want to confirm that the arrangements in Schedule 3, which relate to benchmarks, allow Libor to be replaced by risk-free reference rates set by the eurozone and non-eurozone EEA countries. The UK equivalent will be SONIA, the sterling overnight index average. Your Lordships will know that Libor has been a disgraced benchmark since American journalists exposed that it had been corrupted and manipulated for decades under the noses of the UK Government and regulators, who were blinded by their philosophy of light-touch regulation.
I also want to use this opportunity to ask the Minister to give the Committee an update on the status of the equivalence negotiations with the EU. Can the Government confirm that they are no longer seeking mutual recognition? Quite a number of members of the Tory party—we heard some of this again today—and the regulators have indicated that they expect and want divergence to be a significant feature of future financial services regulation. Is that correct? What will be the underpinning philosophy of divergence, since I assume that light-touch regulation remains disgraced? Are the Government making any progress on finding a mutually agreed mechanism with the EU to resolve any dispute on divergence and equivalence? Is there any progress on getting a notice period for cancellation longer than the current norm of 30 days? Without a notice period of at least two years for equivalence cancellation, firms that use London will be living with disturbing uncertainty.
How are other issues that could lead to the cancellation of equivalence to be resolved? Perhaps the most obvious issue is that of financial stability related to the supervision in the UK of central counterparties clearing trillions of euros in derivatives. Actions to protect the UK economy in a crisis could cause havoc for the euro and the EU without some mechanism for co-operation and mutual support.
The expectation of the financial services industry is not that London will collapse as a global financial centre the day after the end of the transition period but that it will be in the EU’s interest to pull business into the 27 salami slice by salami slice as capacity expands, which is at least a 10-year strategy. New York has been reasserting its dominance in dollar-based financial business. China and India, as rising economic stars, have made it clear that they have no intention of ceding control of their key financial markets to any foreign country. The UK remains a major global player only so long as it dominates European financial services. How this Government deal with equivalence will essentially determine the future of this key sector of our economy.
Finance Bill
Baroness Kramer ExcerptsFriday 17th July 2020
(5 years, 6 months ago)
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Baroness Kramer (LD) [V]
My Lords, we must brace ourselves for high levels of unemployment in the autumn and the failure of a significant number of businesses, especially in vulnerable sectors. SMEs are likely to be among the hardest hit. Many noble Lords who spoke today identified the plight of hospitality, retail, the arts, transport, the charity sector and leisure. The call for the Government has been powerful: target support and do not remove it too soon.
I am now picking up anecdotally that Brexit is resulting in a wave of damage. British SMEs are being cut out of supply chains that have been a major part of their business for years. Larger companies in the UK, which anticipated shifting operations to the EU 27 over several years because of Brexit, are now accelerating those decisions. Supply networks are just not willing to put up with the costs and complications of regulatory divergence and border constraints, which now seem inevitable under every government scenario. My noble friends Lord Razzall and Lady Northover and the noble Baroness, Lady Wheatcroft, emphasised the risk.
Add to that the breakdown of the US-China relationship—to which the noble Lord, Lord Blunkett, drew attention—and the growing momentum for the world to divide into regional economic blocs, and we see a dangerous economic storm. I am concerned that this Government have found themselves the flotsam and jetsam between regional economic powers. They have clearly decided to hitch their wagon to the US bloc, in the hope of a trade agreement that, at best, offers very modest gains to the UK.
Like others, I support the Chancellor’s swift action to mitigate the immediate impact of Covid on the economy, with a huge injection of cash. The triage has been vital. But other countries, our rival economies, have been designing their rescue plans to fit a long-term strategy of building an economy for the future—a green economy, a digital economy and an economy framed by the fourth industrial revolution. Germany, as I have remarked before, has earmarked €8 billion just for hydrogen. France has committed €7 billion just for electric vehicles. At the very least, the Government could commit to a strategy of major investment in a green recovery. My noble friend Lord Oates underscored the need for urgency and the scale of the investment and commitment required.
I want to highlight three issues with the Chancellor’s schemes that I find outrageous. The first is the exclusion of 3 million businesses from any help, mostly self-employed contractors and freelancers who work through entirely legal personal service companies. My noble friend Lady Burt discussed this in detail. I do not buy the Government’s explanation that it cannot help this sector for fear of fraud; it stems from the Treasury’s institutional hostility to these kinds of contractors. We saw it with the loan charge, and I am grateful to my noble friend Lord Goddard for expanding on this. We still urgently need a rational basis for settlement under the loan charge of open years—something that will avoid destitution and bankruptcy. We have also seen that same attitude with the new off-payroll working rules, as described by my noble friend Lady Bowles. I know we will discuss those and the Economic Affairs Committee’s report on them another day.
As the IFS reminded us this week, many of those who become unemployed because of Covid will turn to setting up their own businesses. As explained by my noble friend Lord Bruce, the solo self-employed are critical to economic recovery. If the Government do not change their attitude and provide meaningful help, there will be a long tail of unnecessary damage from Covid, and it will hit the poor, especially those with children, gig workers, women and young people the hardest.
The second issue is the failure to open the Bank of England term funding scheme to fintechs and alternate lenders. The Government announced their £330 billion in schemes, including CBILS, CLBILS and bounce-back. Only £46 billion has gone out the door. Did they really intend only 14% of their schemes to be used?
The clearing banks have been given incredibly cheap money from the Bank of England to fund these loans and have behaved in their usual way, cherry picking existing customers and the most desirable customers, and leaving out the rest. They argue that they cannot expand their balance sheets too much, but they have refused to funnel the cheap Bank of England funding money to alternate lenders, even though this would not be put on to their balance sheets, and are blatantly using public money to undermine their competition. It has left the alternate lenders accredited by the British Business Bank unable to find the cheap money that would enable them to lend under these schemes and is threatening the diversity of providers that we need for economic recovery.
I go further. The Government need to take an active step to support finance for SMEs. This includes facilitating equity investment—it is incomprehensible that EIS has not been included in the future funding scheme—and a review of forbearance, and requires permission for new mechanisms such as shared platforms to improve access to financing.
The third travesty in this Finance Bill is the restoration of Crown preference, putting HMRC ahead of the queue and collecting money from bankrupt companies. At a time of national emergency, a measure that will hit small creditors and suppliers badly—as we heard from my noble friends Lady Burt and Lady Bowles and the noble Lord, Lord Bourne—is completely unacceptable.
We are also debating the stamp duty land tax Bill. My concerns have been that these measures help those buying second homes with buy-to-let instead of being more targeted. The move does little to stimulate the building of affordable housing, as my noble friends Lord Shipley and Lady Bakewell described. My noble friend Lord Bruce, the noble Lords, Lord Wood, Lord Truscott and Lord Loomba, and the noble Baronesses, Lady Falkner and Lady Wheatcroft, underscored the concern. The stamp duty change does nothing for renters. I have received the same letter as the noble Baronesses, Lady Andrews and Lady Bennett, from a renter who has been told their lease will not be renewed because the landlord wants to sell to take advantage of the stamp duty reductions. I suspect that letter is the tip of the iceberg.
Finally, I say how disappointed I am that we still do not know how the Government plan to borrow, tax or cut its way to covering the £188 billion in crisis spending. We know that in March sterling went into free fall and the capital markets turned against the UK Government’s debt until the Chancellor intervened with his rescue package and the Bank of England announced another £200 billion in QE. We should all take note of the warnings by the noble Baroness, Lady Altmann, on QE’s down sides. I accept that right now we have to splash the cash, but we also need a long-term economic plan.
Northern Ireland Protocol
Baroness Kramer Excerpts(5 years, 8 months ago)
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Baroness Kramer (LD)
Can the Minister confirm that after transition, Northern Ireland will have to conform with the EU level playing field rules and that UK companies with interests in Northern Ireland will de facto also have to conform?
Lord True
The status of Northern Ireland under the protocol is well known and often discussed. Northern Ireland will effectively be operating within the EU single market but also within the internal market of the United Kingdom. The arrangements that we have put in place are envisaged in the protocol but, at present, the details of their implementation are under discussion.
Covid-19: Economic Package
Baroness Kramer Excerpts(5 years, 8 months ago)
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Lord Agnew of Oulton
My Lords, all the details that the noble Lord has asked about are being worked out at the moment. That is why we will not be able to announce the full details until the end of this month. However, as was set out in my right honourable friend’s Statement yesterday, our overriding priority is to protect jobs in this country and to protect businesses. A balance needs to be struck to achieve those two things.
Baroness Kramer (LD)
My Lords, I have just three very quick questions for the Minister. First, will the Self-employment Income Support Scheme also be extended in the same way that the furlough scheme is being extended for those who have been in employment, which is obviously a vital decision? Secondly, in the light of leaked Treasury documents today, will he confirm or deny that the Government are looking at a two-year pay freeze in the public sector to deal with what will be an extremely high deficit, estimated at £337 billion this year? Lastly, he will be aware that alternate funders are finally getting accredited to participate in the Government’s Covid schemes, but many banks are now cornering the market because only they can access cheap money from the Bank of England. Will the Government level the playing field and open up the Bank of England’s term funding scheme to all accredited funders and do so rapidly to limit the damage?
Lord Agnew of Oulton
My Lords, the newly announced Self-employed Income Support Scheme, which opened today, will be kept open as long as it is needed. That is what we have said all along: we will do what is needed. We need to see how successful it is and how many people it gets to. I am not aware of any advanced thinking on a pay freeze on the public sector or any other measures. As my right honourable friend said yesterday, it is too early for us to be looking at these measures. We need to get through this stage of the crisis. On the noble Baroness’s third question, we have been increasing the number of lenders available on all schemes since they opened. I am sure that this will continue.
Income Equality and Sustainability
Baroness Kramer Excerpts(5 years, 9 months ago)
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Baroness Kramer (LD)
My Lords, I will talk in particular about self-employment. Of course I join others in condemning self-employment that is phoney or abusive, but most of the 5 million independent contract workers prior to Covid were neither phoney nor abused. They brought flexibility to our changing economy and they included many of our most innovative and creative individuals, from IT to industrial design to the arts—a workforce critical to the new economy of the 21st century. The creative industries alone, largely made up of independent contractors, contributed over £1 billion a year to GDP.
The Government finally recognised this in their very welcome Covid self-employment support scheme and to some extent in the bounce-back scheme, although I still think they should have done more, as I have said in previous speeches. But as we move into the next phase, self-employment becomes even more critical. First, many people who have been furloughed will find that they do not have jobs to go back to. Secondly, we need to move into a new economy, not recreate 2019. That means innovation and change.
Universal credit fails to support those seeking to start a self-employed business, whether window cleaning, IT consultancy or film production. This is crazy because it becomes a serious argument for universal basic income. I am personally in two minds about UBI because I can see its pitfalls, but universal credit has proved itself so inflexible and become so much a stick to beat people on benefits rather than a support that it is time to be open to alternatives.
In addition to other arguments for UBI, most of which concern boosting demand, the Government could use such a scheme to underpin a growth shift to self-employment, allowing independent contractors to take risks. It becomes a mechanism for starting businesses as well. No one wants a crisis like Covid, but our recovery should improve the future, not return us to the past.
Budget: Economic and Fiscal Outlook
Baroness Kramer Excerpts(5 years, 9 months ago)
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Baroness Kramer (LD)
My Lords, I shall begin by picking up a point made by my noble friend Lady Northover and reinforced by the noble Viscount, Lord Chandos: this is not going to be a V-shaped economic recovery. There will not be a rapid bounceback to the normality of pre Covid-19. The noble Lord, Lord Birt, was very clear in describing the global crisis that has occurred and the impact on developed and not-developed economies. The OBR took none of that into consideration when it put together its forecast. The challenge for the Government now is to prevent an L-shaped economic disaster. They can do that, but only if they take the right actions.
Much of this debate has underscored that there is overwhelming support for the Government’s willingness to pour money into minimising the damage to the UK economy, and I applaud that. But the money needs to get into the hands of businesses, and we have a pipeline that remains stuck. The banks were always going to be a problem. The CBILS original framework programme has £300 billion for support for companies, but something like only £4 billion, £5 billion or £6 billion has actually been released. The Government need to redouble efforts to bring in alternative lenders.
As the economy opens up again—my noble friend Lord Shipley made this point—support for businesses cannot be stopped at a sudden cliff edge. The furlough scheme in particular will need to be pulled back gradually, or even firms with a viable future will make many workers permanently redundant because they do not have the cash and they do not want to take on additional debt. Frankly, neither our economy nor our society can afford the long-term unemployment of so many people. I recommend to the Government the “safe to return to work” scheme proposed yesterday by a number of my colleagues.
Even under an optimistic scenario, many people will not have a job to go back to. Self-employment will be an important route for them. As we go into rebuilding the economy, innovation will be key, and independent contractors are vital in driving innovation. We need this Government to stop presuming that self-employment is primarily a tax evasion scheme. They need to understand the critical role of self-employment and to provide a fair framework for future self-employment that engages with paying tax, which should not be avoided, and provides self-employed people with proper employment rights, or recognises where they do not have those rights.
We have had too much change during this period of Covid for the economy to return to the shape of 2019. This is our opportunity, as well as our responsibility, to build a new economy. I believe the Government’s dilemma is how much to let market forces decide the shape of that new economy, and how much the Government themselves and the public at large shape that economic change. I argue that the public now have little tolerance for a capitalism that does not embed social responsibility. There is a new respect for low-paid workers, a new understanding of the privations of being on benefits and a deeper admiration for so many of our public services. The public will also not forgive any Government who ignore the need to avoid future disasters. That includes pandemics, of course, but I put climate change into that category as well. I believe the public now understand the need to prepare, plan and act. We need a green recovery.
I also join those who feel that the Government cannot play fast and loose with fiscal management. The noble Baroness, Lady McIntosh, touched on some of these points. She made it clear that the Bank of England will not endlessly print money. My noble friend Lord Purvis and others underscored that debt can be a burden that we have to deal with. I hope there is not an implication in the statements of the noble Baroness, Lady Bennett, that we can simply build public sector net debt constantly and continue to carry it, no matter its level.
So far, this Government have treated tax increases as anathema. Some people had suggestions of taxes that could potentially be increased, but the underlying principle that it should be the broadest shoulders that carry those increases is surely something we all ought to be able to agree on, even if we spend time discussing the exact shape of that.
This is a time of global crisis. It is a truism, but we all hang together or we all hang separately. If we need time to work out our relationship with the European Union, we need to take that time. If, within the timeframe of the year end, we cannot negotiate decent rollover free trade agreements or new free trade agreements with countries that are all preoccupied with Covid—they may have intended to negotiate rapidly with us, but that has to be down at the bottom of the list for most of those economies today—surely we ought to ask for the additional time to allow that to happen. The point my noble friend Lord Purvis made was so overlooked, certainly by the Minister, and by the noble Baronesses, Lady Noakes and Lady Deech. All the new free trade agreements, even if they were to come on tap—and remember that they are embedded in the OBR forecast; the assumption is that they will be negotiated successfully —make nothing more than a marginal contribution to our future GDP and growth.
I argue that if Covid teaches us anything, it is that we have to build co-operation, not nationalism. I heard that strongly from the noble Lord, Lord Liddle. The point was made by the noble Baroness, Lady Falkner, who underscored that our economic future is always tied into the economic success of the European Union as our major market.
I was troubled by the number of times the noble Lord, Lord True, used the word “own”—it was “own” and again “own”. The noble Baroness, Lady Noakes, picked up on this so much. If we all think “own”, and that is the framework in which we operate, tragedies such as Covid will have huge, long-term, undermining consequences—not only for our economy but for the global economy. We cannot exempt ourselves from that just by focusing on “own”.
Tax Avoidance
Baroness Kramer Excerpts(5 years, 9 months ago)
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The Lord Speaker (Lord Fowler)
The noble Lord, Lord Leigh of Hurley, does not appear to be there. I call the noble Baroness, Lady Kramer.
Baroness Kramer (LD)
My Lords, quite a number of companies will make extraordinary profits as a consequence of Covid-19. At this point in time it is hard to identify which they are, but we can see that it is happening with some traders and private equity players, and it may well be happening in the digital industry, which is becoming more and more dominant and, as others have said, pays almost no tax in the UK despite the size of its presence. Following our exit from lockdown and the pandemic, will the Government look at a windfall tax so that those who have sacrificed during the pandemic understand that the burden is being spread over everyone’s shoulders?
Lord Agnew of Oulton
The noble Baroness makes a sound point. It is just too early to make those sorts of assessments. I want to pick up on the point about digital companies. We have introduced the digital services tax, which came into play on 1 April this year; it is a 2% tax on the revenues which search engines and social media platforms derive if they generate more than £2 billion over the next five years. We have made a start on this but, as the noble Baroness will probably know, these things need international collaboration. If there are excessive profits over the next few months, we will of course review things.
Economy: Update
Baroness Kramer Excerpts(5 years, 9 months ago)
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Lord Tunnicliffe (Lab)
My Lords, I am grateful to the Minister for repeating yesterday’s Statement and to the entire Treasury team, Ministers and officials, for their continued work in response to coronavirus.
As the Chancellor said in his Statement, these are tough times. The Minister read out the number of new universal credit claimants, as well as the staggering figure of 4 million furloughed jobs. He also warned that things are likely to get worse before they get better. Even if the figures do not grow, they are clearly worrying in the economic context. We have seen the projections of the OBR, the statistics in relation to business confidence and the analysis of a variety of economists and think tanks. However, throughout all this we must remember that behind the numbers and statistics are real lives and hard struggles to keep households running and businesses afloat.
Yesterday, the shadow Chancellor asked what steps the Government are taking to convert initial universal credit loans into grants to ease the burden on new claimants. She noted that the issue appears to be with the IT system behind universal credit, rather than a lack of political will. In response, the Chancellor listed a number of benefit reforms introduced by the DWP. However, he failed to answer the particular point on the IT problem, so I hope the Minister can comment. For the avoidance of doubt, do the Government agree that initial universal credit loans should be converted into grants if the IT problems can be overcome? If the answer is yes, what is being done to solve those IT problems?
Turning to the wider economic response, we welcome the many measures announced thus far and have, I hope, played a constructive role on occasions such as these. My honourable friend the shadow Chancellor has had multiple meetings and exchanges of correspondence with the Chancellor; I hope she receives a speedy reply to the questions attached to her latest letter.
The announcement of so-called bounce-back loans, which will be 100% guaranteed by the Government, is a welcome step. We are grateful to the banks for getting the scheme up and running so quickly and hope it will ease some of the concerns and cash-flow issues of SMEs across the country.
Problems remain for those firms seeking more than £50,000 of support. Many will rightly question why they are not able to access funds as quickly or easily. I therefore hope that the Minister can offer assurances that the Government are looking at ways to make the main coronavirus business interruption loan scheme faster and less cumbersome. The long-term cost of not improving the system could be significant. That said, we appreciate the speed at which the Treasury has worked to formulate its response to Covid-19, and that the calls from SMEs, backed by the Labour Party, for swifter access to business loans have been heeded, at least in part.
While we accept that the initial government response had to be reactive, I hope the Minister can comment on what is being done to shift thinking towards a more proactive, whole-economy view, whereby sector-specific problems are identified earlier. It is vital that further coronavirus support schemes are designed and rolled out when they are of most use, rather than when the situation on the ground has become critical. Specifically, is cross-departmental work being undertaken to produce a whole-economy view? If the answer is yes, who is responsible? If the answer is no, why not?
One example of this concerns pubs and restaurants. These businesses play a vital role in communities across the country, both in the pleasure they bring and the employment they support. However, they face perhaps the greatest uncertainty of all. They are likely to be the last to reopen and, assuming social distancing remains in place for some time, their capacity, and therefore their earning potential, will be much reduced. This raises a number of questions.
The Minister will know that Section 82 of the Coronavirus Act 2020 affords increased protections for commercial tenants, in the event of their being unable to pay rent. However, these protections will lapse at the end of June unless extended by a negative SI. Will the Government be extending this provision and, if so, until when? He will know that the equivalent protections in Section 81 for residential tenants run until the end of September, offering greater certainty. Further, can the Minister confirm whether the Government are looking at what forms of additional support may be provided for such small businesses, even once they have reopened? If firms are having to operate differently because of government guidelines, they should surely not have to accrue debt as a result.
Finally, if the earning potential of pubs and restaurants is limited for an extended period, what protections can the Government put in place to ensure that landlords do not begin to seek other tenants, such as fast-food chains or takeaway restaurants, which are likely to be perceived as safer options? There are many other examples of where long-term, proactive thinking is required, so I hope the Minister will make himself available for further exchanges in the future.
Baroness Kramer (LD)
My Lords, the bounce-back loans are clearly welcome, but I am going to press for more help for the self-employed who have fallen through the gaps in all the various rescue packages, especially the independent contractors who take much of their income in dividends and the newly self-employed. When we come out of lockdown, self-employment will be critical. It is a path for those who will have lost their jobs because of the pandemic and cannot return to them, and we will need innovation. As the Government know, a lot of innovation is embedded in these self-employed individuals, and I hope they will look again, because they must support this sector.
We all kept a minute’s silence today for key workers who have died, but many such key workers are very low earners with insecure work. Will the Government show their respect for these individuals by reviewing their funding of both social care and local government to ensure that those workers are properly paid, with proper employment rights, in recognition of the vital role they play and the vital contribution they make to all of us?
At the end of lockdown, public sector net debt will be at a historic high—certainly by the end of the pandemic. As the Government grapple with paying that debt down, will the noble Lord take action to tax the digital companies that have so far managed to pay very little tax in the UK though they now dominate large sectors of our economy? Indeed, they are doing well in the pandemic. I do not say that as an insult, but it increases the tax they should be contributing. Indeed, there are others who are, frankly, doing well out of the pandemic. Quite a number of traders have made windfall profits. Does the Minister agree that the Government should look for these companies to pay windfall taxes?
Lord Agnew of Oulton
My Lords, first, I will address the questions from the noble Lord, Lord Tunnicliffe, on universal credit. I am not aware of specific IT problems, but if the noble Lord is aware of any and would like to write to me, I will certainly investigate them. However, the point that my right honourable friend made yesterday is that we have responded to this crisis by introducing a number of measures to support those in receipt of universal credit—the £20 increase, the increase in housing allowance rates and the relaxation of the minimum income floor—and they all help. There is additional support for the vulnerable through the hardship fund and things such as the mortgage holiday. Therefore, we are very focused on those at the bottom of the income hierarchy and, as ever, we will keep a careful eye on developments.
Nobody is more concerned than the Chancellor at the speed at which the CBILS loans are going out, but the speed is picking up. As at 24 April, 20,000 were approved, worth £3.3 billion—double the amount of the previous week. As at 17 April, only 10,000 had been approved. Therefore, the pace is increasing and we are confident that that will continue.
The noble Lord is right that it is very easy to get drawn into the day-to-day crisis and to lose focus of what the long term will look like. We have to be honest: at this stage it is impossible to tell. We know that this is the biggest crisis that this country has faced in 80 years, and we also know that the Chancellor’s response to the crisis in economic terms has been a potential 15% of GDP, which is a staggering sum of money. We know, too, that we are likely to come out of this with a debt level higher than that following the Second World War. These are all very important factors. How we go about dealing with that debt will probably depend on a number of factors, such as the speed at which the infection rate comes down and whether we are able to observe social distancing well in an unlocked economy to which people will have to adjust.
One reason for the steep decline in the number of deaths over the last couple of weeks has been the effectiveness of social distancing. I have sat in on a lot of the Prime Minister’s morning meetings over the last few weeks. At the beginning of this process, there was real concern that the population would not be keen to observe social distancing. However, people have done a magnificent job and we know the sacrifices that it has involved. I assure the noble Lord that these things have all been thought about but I do not think that we are yet in a position to set out a detailed plan. We know that in the next few days the Prime Minister will announce more details on exiting the lockdown.
The noble Lord is absolutely right that the entertainment, hospitality and pub sector has been terribly hard hit and is likely to be vulnerable going forward. We have created specific support for the sector, with the business rates relief and a 100% holiday for retail, hospitality and leisure businesses, worth approximately £11 billion. There are also retail, hospitality and leisure grants worth up to about £5 billion. Therefore, we are very much focusing on the sector but I think that it is too early to give a more specific view of the future.
Turning to the questions raised by the noble Baroness, Lady Kramer, I completely agree that the self-employed make up a vital sector. I have been self-employed—or the equivalent—for most of my working life, so I absolutely relate to the pressures that that sector is under. I respectfully do not agree with the noble Baroness about accepting dividend income as a part of people’s earnings. That method of income was chosen by people for the very simple reason that they would not have to pay the national insurance premium. However, they will be eligible for the bounce-back loans, as well as the other layers of support.
I absolutely accept that key workers, particularly those working in care homes, are not well remunerated. Our track record over the last few years of moving the minimum wage upwards as fast as we have done is an indication of our support for this very important group of people. We absolutely recognise—
Budget Statement
Baroness Kramer Excerpts(5 years, 10 months ago)
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Baroness Kramer (LD)
My Lords, as the first of the wind-up speakers, I can say that I have never before spoken in a debate where there is a unanimous view. Unfortunately, that view is that we are in an economic emergency. It is quite extraordinary; these are not normal times. The usual test for any Budget, including the typical measures of fiscal prudence, are, frankly, out of the window. When the noble Lord, Lord Maude, accepts that as the appropriate view, the Government have to understand how strongly not just this House but almost anyone who has looked at the situation feels.
The Government and the Chancellor announced a huge and significant package yesterday to support the economy. That is genuinely welcome, but it is my view—and, I suspect, from listening to the House the view of many—that the Government are still clearly running behind events. Much more is needed, especially speed. My noble friend Lord Oates raised that issue, but we heard it again and again, including just now from the noble Lord, Lord Naseby. People need cash and they need it now.
Many of the programmes being proposed will struggle to deliver that kind of cash in any kind of timely manner. We have had proposals from the noble Lord, Lord O’Neill, for a people’s QE. The noble Lord, Lord Desai, joined the Green Party in proposing at least a temporary basic income, as did my noble friend Lord Bruce. We have had proposals from the noble Lord, Lord Leigh, that we use the PAYE system and from others that we use the national insurance system in a sort of reverse mode to get cash out rapidly. It will be challenging to use any system that is not already in place, because we need cash to flow in the next few days. Although there is fertile opportunity for new ideas and new thinking, at this point we need to use something that can absolutely deliver and be implemented very quickly, if not instantly.
I am concerned that the Government have put so much of their support for businesses into commercial paper—which is effectively QE—and bank loans. I hope that they understand that many businesses of every size in the severely impacted sectors will need years to repay the debt that they accumulate during this crisis. It is a crisis of not weeks, but at least months; it could run longer. Some will not be able to repay and others will find that the debt burden will completely compromise their ability to invest and grow when the crisis is over. I hope that we can hear from the Minister that there is a willingness to rethink that balance of loans to other kinds of direct support, perhaps not in the heat of this week, but certainly in the very immediate future.
However, none of the measures that have been announced will be a solution for the hardest-hit sectors. I know that the Government have said that they will step forward to deal with the problems of, for example, airlines and airports; their crisis is so extreme. We have to face the fact that taxpayer bailouts will be required. Deciding how much to protect shareholders at taxpayers’ expense will be genuinely difficult. As we look at those most vulnerable parts of the economy, may I ask the Minister about the wholesale financial markets? I am really concerned that we could have spillover risk into those markets. As we know, the consequences are very widespread when that happens. We have all said that insurance companies must step up to make good on business interruption insurance. I agree, but how resilient is the commercial insurance sector as a whole? Remember that the UK is an insurance provider to companies across the globe. Those consequences worry me a great deal and I hope that the Minister can say something.
Central counterparties, especially the clearing houses—obviously we have the London Clearing House locally—clear most of the world’s interest rate swaps. The current stock on a day-to-day basis is something in the range of $30 trillion-worth of swaps. How resilient are the CCPs in a crisis such as this?
I cannot believe that the collateral quality has not been compromised. Any kind of failure in CCPs will, frankly, make 2008 look like a picnic. I really would like some answers and some reassurance.
We all agree that companies need money quickly. The big companies will be able to get their money quickly, because the Bank of England can turn on its new commercial paper facility very fast. As we have said, it is a sort of QE equivalent. The noble Lord, Lord Adonis, said that perhaps we need to attach conditions to those commercial paper facilities to make sure that they are used to support jobs. I am not quite sure how we could do that, given the nature of the commercial paper market; if anybody can come up with innovative ideas on how to do that, I suspect a phone call to the regulator would be called for. It will be very hard to ensure that the money goes exactly where we want it to. That does not mean that we should not do it, but we need to be realistic. Smaller companies, however, will have to turn to the high street banks, and I do not understand how the usual hurdles and complex approval processes will be speeded up sufficiently. As we know, businesses need money now.
If I heard correctly, alternate lenders are not included in the Government’s loan guarantee scheme, but they are typically faster and more flexible than banks, and have become a significant component of lending to small businesses and, equally importantly, to the self-employed. During the coalition years, my colleague Sir Vince Cable was able to route money far more rapidly to small businesses and the self-employed through the alternate lenders. Will they be included in the scheme?
The grant scheme and business rates holidays for small businesses in retail, hospitality and leisure are crucial and welcome. However, I point out that the grant excludes many very small businesses in London—because the rateable value of London property is so high, they do not fall within the scope of the scheme. I hope we can get some comments from the Minister on that. As the Chancellor explained, these grants in their amount are targeted to make sure that small businesses can pay their rents. The money is not intended to also cover wages. Many businesses, not in the named sectors, are having similar problems and, frankly, there is nothing in the way of grants for them. Can the Minister respond to concerns on both those fronts?
Are measures being taken to make sure that big companies pay their supply chains properly? Their instinct in a crisis is to do quite otherwise. Can the payments regulator be given greater powers to force prompt payment?
The Government tell us that they are discussing employment support schemes with the trade unions and others, which is good. Will the Minister look at the proposal from my colleague Ed Davey to guarantee that every person made redundant will receive at least 20 days’ full pay, guaranteed by the Government? People are being laid off as we speak, and a message like that would make a dramatic impact; it is clear, simple and easy to understand.
We must have action for the self-employed and those working in the gig economy. Frankly, I do not understand why we have not heard measures that will tackle this sector. Employment support allowance and universal credit will never keep most families afloat. The fragility of self-employment should have been tackled long ago; we need successful, flexible working in the 21st century.
I will say one good thing for the Government: at least they have listened to the urgings of many in this House—the noble Lord, Lord Forsyth, who is not in his place, has been an absolute star on this—and agreed to delay for a year their changes to IR35. I hope that they use that year to have a complete rethink, and drop those plans to pursue reforms that deal with employment rights and not just tax revenues in the self-employed sector.
The Government simply must use this opportunity to remedy the two greatest travesties within universal credit. First, the five-week wait is intolerable. I know from talking to people who are dealing with this that paying back the five-week advance loan, even with a longer repayment period, leaves people living for months at just above destitution. The most reverend Primate the Archbishop of Canterbury and the noble Baroness, Lady Lister, made very powerful points about that. Secondly, the right reverend Prelate the Bishop of Rochester underscored that the two-child benefit cap has to be removed. Many families will be turning to universal credit for the first time in the Covid-19 crisis, and will be horrified that the two-child cap on benefit levels does not enable larger families to put a proper meal on the table. That is quite deliberate and by policy. Indeed, with so many children dependent on free school meals in order to eat, we will need an emergency scheme when schools close, as many people speaking today have underscored.
There are many other gaps, such as renters and food banks. The noble Lord, Lord Naseby, highlighted the crisis for many charities and not-for-profits, while homeless people cannot be left on the streets but equally cannot be put into dormitory-like hostels. Perhaps the most crucial gap, which others such as my noble friend Lord Razzall and the noble Baroness, Lady Lister, have addressed, is social care. Where was social care either in the Budget or in yesterday’s announcement? Even Jeremy Hunt now admits that social care was slashed too far by the Conservatives, but in this pandemic social care is carrying out the critical task of caring for our most vulnerable while underresourced and with no built-in resilience. The Government must step forward.
I have a few comments about what happens after the crisis—because the Covid-19 pandemic will end. I very much take note of the comments from the noble Lord, Lord Skidelsky, and the noble Baroness, Lady Falkner: we are going to have to start paying. This is the first time when I have heard the noble Lord, Lord Skidelsky, use words that translate to, “There is no magic money tree”. This will have to be paid for. We will be a nation in debt. Businesses will be in debt, individuals will be in debt and the Government will be in more debt than ever. The Government were already planning to allow public sector net debt to soar. I support the additional spending, but refusing to raise taxes in the Budget struck me as extraordinarily irresponsible.
The noble Lord, Lord Livermore, has highlighted the weakness that runs through much of our economy. We will have to rebuild our fiscal position, and that is going to be exceptionally difficult. It is going to require a real willingness to tax as well as borrow. As far as I can see, we are going to have to consider a completely new framework in future because the underlying economy is weak. The noble Lord, Lord Livermore, and my noble friend Lord Bruce, were clear that growth was already forecast to be at an abysmal running rate of 1.5%, held back by friction in trade with the EU and the loss of freedom of movement. The OBR forecast demonstrates that new trade deals with the US and others add so little to the economy that they hardly even register in the numbers. Productivity growth is limping at 0.3%, and all the planned infrastructure and skills investment in the Budget is not forecast to return productivity to its historic—and even then underwhelming—level of 2% until 2030. Business investment was forecast to be continually weak, and that was before coronavirus. Interest rates were low already, so there is very little cushion for further cuts. QE has been pushed pretty much to its limits and we have now had to take it even further. We face huge costs to tackle climate change because the timetable cannot slacken if we are to avert a catastrophic crisis. Regional disparities are stark. Infrastructure, public services and welfare are underfunded.
This is not a good picture, and it is the reason why I have to say to the noble Lord, Lord Bates, that of course we have to splash the cash now, but we really need to be careful about painting a false picture of the future because that will lead us to poor decision-making. I understand why the Government want to talk about light and joy as soon as the virus passes through because they want to keep up confidence, but we in this House have to be realistic. Every economy on the globe is going to be impacted by Covid-19 so I hope that inside the Government some sober minds are coming to grips with the longer-term reality. This is going to require very substantial new thinking, new frameworks and new directions, and I am delighted that this House will have an opportunity to contribute to that.
Lord Agnew of Oulton
It is worth reassuring the noble Lord that we have acted pretty quickly. When you think where we have come over the last six or seven days, I do not believe there is any example in the history of modern government where a Government have reacted as quickly as we have. However, I take on board the challenge, and the noble Lord knows his way around the Treasury better than I do, so I am sure he will use his influence.
My noble friend Lord Lamont quite rightly makes the point that our borrowing costs are again at a 300-year low and that this provides opportunities. Indeed, with the current rate of inflation, we are borrowing at a cost below inflation, which provides some palliative to the very difficult situation that we face. That has partly reassured the Chancellor in his recent announcements. What will happen? The noble Lord, Lord Skidelsky, thinks that we could end up—
Baroness Kramer
I should have said this when I spoke, so I apologise. While we have very low interest rates, because of QE a heck of a lot of that debt is being held by the Bank of England, so in a sense it is almost circular. It is not quite as benign as it looks on the surface.
Lord Agnew of Oulton
I do not like debt at all, so I accept what the noble Baroness says. We have also not had a proper drains-up on the impact of the original QE 10 or 12 years ago. It seems to have enriched the rich—those with assets—but what did those at the bottom end of society get out of it? Also, the question no one has ever been able to answer is: what happened to all the money? Did it stay in the British economy? One figure I was given is that at least a third of it just disappeared completely. So I am certainly not in favour of another one of those kinds of QE.
Turning to the noble Lord, Lord Hain, I am afraid that there is not a lot I can agree with in his statements. He seems to think that there is a magic money tree, and seems to have forgotten that we inherited a budget deficit of 10% in 2010. As a huge Europhile, he seems to forget that the EU has a 3% ceiling on its budget deficit levels. We have had to bring that down, and it is one of the reasons why we have more flexibility in the current days to do some of the dramatic things that have been announced by the Chancellor.