Spring Budget 2024

Baroness Vere of Norbiton Excerpts

Monday 18th March 2024 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That this House takes note of the Spring Budget 2024.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, it is a pleasure to open this double-header in your Lordships’ House. It is an opportunity to discuss and debate the measures brought forth by the Chancellor in the Spring Budget and to consider the National Insurance Contributions (Reduction in Rates) (No. 2) Bill, or the NICs Bill.

I start by taking this opportunity to welcome my noble friend Lord Kempsell to your Lordships’ House. He brings much experience and expertise, and I very much look forward to hearing his maiden speech today. But, before I delve into the measures announced in the Spring Budget, I shall first touch on the wider economic context.

In recent times, the UK economy has felt the impacts of a financial crisis, a pandemic and an energy shock, caused by the war in Europe. Yet, despite the most challenging economic headwinds in modern history, since 2010, growth in the UK has been higher than in every other large European economy. Unemployment has halved, absolute poverty has gone down and there are 800 more people in jobs for every single day that this Government have been in office.

The Government remain steadfast in their support for the independent Monetary Policy Committee at the Bank of England in its action to bring down inflation. Supported by the MPC’s actions and the Government’s fiscal policy, inflation has fallen significantly from its peak and is forecast to return to the 2% target in the coming months. Because of the progress we have made—because we are delivering the Prime Minister’s economic priorities—we can now help families not only with temporary cost of living support but with permanent cuts in taxation. We do this because lower tax means higher growth, and higher growth means more opportunity, more prosperity and more funding for public services.

With the pandemic behind us, we must once again build up our resilience to future shocks. That means bringing down borrowing so that we can start to reduce our debt. The OBR has confirmed that, based on the measures announced at the Spring Budget, debt will fall in every year of the forecast to 94.3% of GDP by 2028-29. Underlying debt, which excludes Bank of England debt, will be at 91.7% of GDP in 2024-25, according to the OBR, rising slightly before falling to 92.9% in 2028-29. The Government will have final-year headroom of £8.9 billion against the fiscal rule to have debt falling in the fifth year of the forecast. Our underlying debt is therefore on track to fall as a share of GDP, meeting our fiscal rule. We also meet our second fiscal rule, for public sector borrowing to be below 3% of GDP, three years early.

This is a budget for long-term growth. The ONS reported last week that GDP rose by 0.2% in January, and the OBR expects the economy to grow by 0.8% this year and 1.9% next year. We have well and truly turned a corner. Since 2010, we have grown faster than Germany, France or Italy—the three largest European economies—and, according to the IMF, we will grow faster than all three of them cumulatively in the next five years. That means we must stick to our plan of more investment, more jobs, better public services and lower taxes.

I turn first to investment. At the Autumn Statement, the Chancellor announced that the Government would introduce permanent full expensing, a £10 billion tax cut for businesses that gives the UK the most attractive investment tax regime of any large European or G7 country. At Spring Budget, we went further by announcing that the Government will soon publish draft legislation for full expensing to apply to leased assets, a change that we will bring in as soon as it is affordable.

This Government are on the side of small businesses, the backbone of our economy. As well as the business rates support and work on prompt payments announced in the autumn, the Government will provide £200 million of funding to extend the recovery loan scheme as it transitions to the growth guarantee scheme, helping 11,000 SMEs to access the finance they need. The Government will also reduce the administrative and financial impact of VAT by increasing the VAT threshold from £85,000 to £90,000 from 1 April. This is the first increase in seven years. It will bring tens of thousands of businesses out of paying VAT altogether and encourage many more to invest and grow.

Turning now to the Chancellor’s growth industries, these sectors remain a key focus of the Spring Budget. For clean energy, we will allocate up to £120 million more to the green industries growth accelerator to build supply chains for new technology. For advanced manufacturing, we have announced over £270 million of joint government and industry investment into innovative new automotive and aerospace R&D projects. For artificial intelligence, we will invest up to £100 million over the next five years in the Turing Institute, our national institute for AI and data science. We recognise that the benefits of tomorrow’s technology rely on investing today.

For life sciences, we will support research by medical charities with an additional £45 million. This will go into a wide range of diseases, including dementia, cancer and epilepsy, and, because of the Government’s support in this sector, AstraZeneca has announced plans to invest £650 million in the UK. Finally, for creative industries, we are making permanent the 45% and 40% rates of tax relief for theatres, orchestras and museums and galleries, and will be introducing a tax credit for UK independent films.

Turning to public services, in 2010 schools in the UK were behind Germany, France and Sweden in the OECD’s PISA education rankings for reading and maths. Now, we are ahead of them. Burglaries and violent crime have halved over the last 14 years and we have invested in 20,000 more police officers. Our Armed Forces remain the most professional and best funded in Europe, with defence spending already more than 2% of GDP. Overall spending on public services has gone up since 2010 and, in the case of the NHS, by over a third in real terms. However, the best way to improve public services is not always more money or more people; we also need to run them more efficiently. That is why the Chancellor has announced a landmark public sector productivity plan that restarts public service reform and changes the Treasury’s traditional approach to public spending.

Ahead of the pandemic, between 2010 and 2019, productivity in the public sector was increasing by just under 1% a year. However, today, public sector productivity is estimated to be 5.9% below pre-pandemic levels. If we can return to pre-pandemic productivity levels, the OBR states that this could save the equivalent of £20 billion.

This Government can deliver these efficiency savings. The cornerstone of our public sector productivity programme is comprehensive investment in the NHS to transform its technology, upgrading it for the years ahead. That is why the Government are providing £6 billion of additional funding to the NHS, including funding to cover the productivity plan in full.

When it comes to taxes, the Government have consistently maintained that those with the broadest shoulders should contribute a little more. That is why the Government will abolish the current complicated tax system for non-doms, getting rid of the outdated concept of domicile and the remittance basis in the tax system, and replace it with a modern, simpler and fairer residence-based system. From April 2025, individuals who opt into the new residence regime will not pay UK tax on foreign income and gains for their first four years of UK tax residence. This is a simpler, more modern regime and is highly competitive with other similar residence regimes in Europe. But after four years, those who continue to live in the UK will pay the same tax as other UK residents.

To ensure that these changes are introduced in a careful and responsible way, we will put in place transitional arrangements for individuals who are affected by these changes. This will include a two-year temporary repatriation facility from April 2025, whereby individuals can bring their foreign income and gains that accrued while they were taxed on the remittance basis to the UK, at a 12% tax rate, so that it can be invested here. This transitional arrangement will attract an additional £15 billion of foreign funds to the UK and generate more than £1 billion of extra tax. Overall, abolishing non-dom status will raise £2.7 billion a year by the end of the forecast period.

Touching further on tax measures, to discourage non-smokers from taking up vaping, we will introduce an excise duty on vaping products from October 2026. To maintain the financial incentive to choose vaping over smoking, we will also make an additional one-off increase in tobacco duty alongside introducing the vaping products duty. We are also making a one-off adjustment to rates of air passenger duty on non-economy flights only, to account for high inflation in recent years. Perhaps most importantly, we are providing HMRC with the resources it needs to ensure that everyone pays the tax they owe; this will lead to an increase in revenue collected of over £4.5 billion across the forecast period.

The Government will use this increased revenue to help cut taxes on working families, including those who rely on child benefit. Child benefit helps with the additional costs associated with having children and, when it works, it is good for children, good for parents and good for the economy. However, the current system is confusing and unfair. That is why the Chancellor has announced a consultation on moving the high-income child benefit charge to a household-based system, to be introduced in April 2026. In the meantime, the Government will introduce two changes to make the current system fairer. First, from this April, the high-income child benefit charge threshold will be raised from £50,000 to £60,000. Secondly, we will raise the top of the taper at which it is withdrawn to £80,000. This means that no one earning under £60,000 will pay the charge, taking 170,000 families out of paying it altogether. According to the OBR, this change will see an increase in hours among those already working, equivalent to around 10,000 more people entering the workforce.

This is not the only support the Government are providing to families. At the Budget, the Chancellor announced a six-month extension to the household support fund, meaning that vulnerable households will benefit from its support until September 2024. In addition, alcohol duty will remain frozen until February 2025. The Chancellor will also maintain the 5p cut in fuel duty and freeze it for a further 12 months, saving the average car driver £50 next year and bringing total savings since the 5p cut was introduced to around £250.

Because of the progress we have made in bringing down inflation, because of the additional investment that is now flowing into the economy, because we have a plan for better and more efficient public services, and because we have asked those with the broadest shoulders to pay a bit more, this Government are once again able to reduce taxes. From 6 April, the main rate of employee national insurance will be cut by another 2p, from 10% to 8%, and the main rate of self-employed national insurance will be cut from 8% to 6%.

That brings me to the NICs Bill before your Lordships’ House today. It has two measures. The first is the reduction of the main rate of employee class 1 NICs, announced by the Chancellor at the Spring Budget. This cut builds on the changes to NICs made at Autumn Statement, and we will once again support working people by reducing the main rate of employee class 1 NICs by 2 percentage points, to 8%, on earnings between £12,570 and £50,270, from 6 April 2024. This will cut taxes for over 27 million employees.

Secondly, the NICs Bill contains a further reduction in the main rate of class 4 NICs for the self-employed. The Chancellor announced at the Autumn Statement that the main rate of class 4 would be reduced from 9% to 8% from 6 April. With the introduction of this Bill, we are cutting the class 4 main rate further, by 2 percentage points, from 8% to 6%, from April 2024. As a result of the cuts to class 4 NICs at the Spring Budget, an average self-employed person on £28,000 will see a total saving of £310 in 2024-25. Combined with the cuts from the Autumn Statement, including abolishing the requirement to pay class 2 NICs, this will save an average self-employed person £650 a year. Together with the Autumn Statement cuts, this is an overall tax cut worth over £20 billion per year—the largest ever cut to employee and self-employed national insurance.

The Government are committed to tax cuts that reward and incentivise work, and which will grow the economy in a sustainable way while ensuring that inflation remains under control. These measures will not only benefit those already in work. According to the OBR, the NICs cuts announced at the Spring Budget will increase total hours worked by the equivalent of almost 100,000 full-time workers by 2028-29.

The Government are supporting not just working people. This April, pensioners will benefit from an 8.5% increase in the state pension, on top of the 10.1% increase from last year. The full yearly amount of the basic state pension is £3,700 higher, in cash terms, than it was in 2010. I am sure that all noble Lords across the House will welcome these measures.

I have outlined only some of the measures announced by the Chancellor in his Spring Budget and have touched briefly on the details of the NICs Bill, but there is certainly much more to cover. During the debate on the Autumn Statement, I listened very carefully to many noble Lords as they encouraged the Government to spend more or to make other costly changes. I noted in my closing remarks that few noble Lords set out how they planned to pay for their proposed changes. This Spring Budget is carefully balanced to focus on growth, and it is prudent, given the economic headwinds we have faced, and which have impacted our growth and level of debt. But we have now turned a corner.

As the noble Lord, Lord Macpherson, said this weekend:

“It’s very easy to get depressed about the British economy but the plain fact is that it generally grows … There is more money in people’s pockets, the worst of the energy crisis is behind us. If anything I would expect the economy to outperform expectations for the rest of this year”.


I would, too. I beg to move.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, it is a pleasure to close today’s debate on the Spring Budget and the Second Reading of the NICs Bill. As anticipated, it has been a spirited debate with very thoughtful contributions from all Benches. I am particularly grateful for the support of noble Lords on the Benches behind me—or some of them, anyway.

In particular, I welcomed the contribution from my noble friend Lord Kempsell. His maiden speech was excellent, and I appreciate his nerdy focus on the evaluation of public spending; there cannot be enough nerds in your Lordships’ House. The Evaluation Task Force of which he spoke has already proved very useful in thinking about the evaluation evidence we use at the heart of all government decisions. It was used during the spring 2021 spending review, and I am sure it will continue to be key in future decision-making.

I was very much hoping that the noble Lord, Lord Livermore, would respond to the challenge from the noble Baroness, Lady Bennett, and set out how the Labour plan—I call it a plan but that might be stretching it—is different from the well thought-through plans of this Conservative Government. Once again, sadly, it was not forthcoming.

The noble Lord, Lord Livermore, bemoaned the fact that mortgages are high—I am not sure he understands why interest rates are high; it is to bring down inflation—and he was concerned about prices going up in the shops. I am sure he recognises that wholesale prices going down in the shops across the board is actually a very bad thing, but I will leave that there. I will say that when the Chancellor delivered this Spring Budget the markets were stable, there were warm words all round, and I think it was the sort of Budget that we needed.

It is worth reflecting on growth, which many noble Lords have talked about. Many noble Lords have reflected that the performance recently demonstrates that the economy has turned a corner, and that reflects the decisions that this Government have taken. I think the doldrums narrative and some of the words being used by the Opposition are not landing any more because they do not quite reflect what is going on in reality. My advice would be to find some slightly different wording there.

We know that our economy suffered, like other economies. My noble friend Lord Tugendhat talked about the similar internal factors and wider externalities that impacted many other economies. We also know that the combined impact of the Autumn Statement and the Spring Budget will provide a permanent 0.7% increase in the level of potential output by the end of the forecast.

There are many factors that go into GDP per capita. This Government are going to focus on how we can improve our GDP per capita, and I will come on to that in due course, but it is important that we look at wider factors as well. For example, real incomes have been growing stronger than expected this year. Real wages are now higher than pre-pandemic levels and have risen for the past seven months. The OBR now expects living standards, as measured by real household disposable income per person, to grow by 0.8% in 2023-24 and to continue to grow in all financial years over the forecast horizon. I hope the noble Lord, Lord Sikka, will at least welcome that, if almost nothing else that I have to say today.

My noble friend Lady Lawlor noted the impact of migration, as did a number of noble Lords. We are clear that migration must always benefit the UK. The UK has experienced unprecedented levels of migration since the Covid pandemic, which is why we have introduced our five-point plan. We need to think about the extent to which we support our important public services such as health, social care and education but to balance that by ensuring that we attract the best and the brightest. Highly skilled migrants contribute highly to the UK’s tech sector: 49% of the UK’s fastest- growing businesses and nine of the UK’s 14 unicorns have at least one foreign-born co-founder.

To come back to the issue of increasing the number of people contributing to the GDP of our nation, the question of getting the inactive back to work was raised by my noble friends Lord Lamont and Lord Tugendhat and the noble Lord, Lord Skidelsky. It is really important that we encourage these people back to work. That is why in the 2023 Autumn Statement the Government announced a new back to work plan, worth more than £2.5 billion, to expand employment support for the long-term sick and disabled—that includes people who have poor mental health—as well as support for the long-term unemployed. This built on a £7 billion employment package previously announced in the 2023 Spring Budget. We recognise that there is a problem that needs to be fixed. I recognise that there is probably not one silver bullet but, my word, if we can make some inroads into getting those people back into meaningful employment, that really will be a game-changer.

On inflation, I think all noble Lords will agree about the work of the Monetary Policy Committee at the Bank of England in keeping interest rates high in order to reduce inflation, which sadly has a knock-on impact on mortgage rates. We welcome the OBR’s forecast for where we think inflation is going to be. I listened with interest to the contribution from my noble friend Lady Lawlor. I will read with interest the recommendations of the economic committee that she mentioned, and the Treasury will respond as appropriate.

On the point raised by the noble Lord, Lord Skidelsky, the impact of the disruption in the Red Sea is included in the OBR forecast, which shows an increase in inflation of about 0.2% in the central case.

I will briefly go back to the issue of government debt and why we are in the situation we are in. Sometimes I refer to the unprecedented challenges of the Covid pandemic and the energy crisis spawned out of the war in Ukraine. Let us go back to the pandemic. I was a Minister throughout the whole of the pandemic, and I saw vast quantities of money propping up our economy, our society and our health system. We often talk about the furlough scheme that protected nearly 12 million jobs. That was enormous, but we do not always think about the £2 billion culture recovery fund that we put in place. Public transport systems were my old patch, and I think I managed to spend part of the £12.8 billion that we put into that. The health service got an extra £81 billion of ring-fenced Covid funding, while £5 billion went towards academic recovery.

That all needs to be remembered when noble Lords turn around and criticise what has had to happen in the forecasts for our tax rates. It has to be repaid. Next time I am closing one of these debates, because it might be quite interesting, I might go through Hansard so that my speech can literally just quote all the times when various noble Lords on the Opposition Benches wanted us to spend even more or shut things down for even longer. In those two circumstances, we would be in a much worse situation than we are now.

We emerged from the pandemic quicker than many other similar nations, but I accept that it has meant we have had to make some difficult choices on tax. We have made those choices, and now we are able to make other choices that improve the situation on tax. Let us be absolutely clear, to quote the noble Lord, Lord Livermore: the cumulative impact of the tax changes over the last four fiscal events reduces the tax burden by 0.6% from what it would otherwise have been. I think that is completely clear—super clear. I absolutely accept that the tax burden is too high, that it is going up and that there are massive underlying reasons why the tax burden is as it is. I also know that many noble Lords opposite would have had us in an even worse position had we listened to them.

We have had to take a fair approach to repairing the public finances. It is the case that we have asked everyone to contribute a little more through keeping tax thresholds fixed. It is also the case that if one enters a new tax threshold, one is earning more money; one does not get there by accident. As we know, wages are going up faster than inflation, and therefore in real terms you would be earning more money.

We have now decided that the best way to grow the economy, while ensuring that inflation is kept under control, is to reward those in work. When I first heard about taxing people twice on work, it took me a little while to get it but then I thought, “Oh my goodness, that’s absolutely true”. I have been in this game for quite a long time but I had not thought about the fact that if you are a worker, you get charged tax twice. It is right that we make the tax system fairer and simpler and reward hard work in the UK. I welcome the comments from the noble Lord, Lord Macpherson, and my noble friend Lord Lamont that we are right to focus on NICS versus income tax. I tried to follow the noble Lord, Lord Davies, but I think he was calling for a large income tax rise for unearned income so I did not go down that route.

Many noble Lords have said, “This is terrible, it is an unfunded tax cut”. I am sorry. Political parties, Governments and all sorts of people state their ambition, their vision, all the time. That is simply what the Government are doing. We want to end the unfairness whereby if you get your income from a job, you pay two types of tax—NICs and income tax—but if you get it from another source, you pay only one. Therefore, it is perfectly reasonable for us to set out a long-term ambition to abolish employee and self-employed NICs entirely and end this unfairness that sits within the tax system. It is also perfectly reasonable for us to say that we will not do this overnight; it can be done only in a fiscally responsible way and when it can be achieved without compromising high-quality public services. I do not understand why that is difficult to grasp.

On the comments of the noble Baroness, Lady Lister, I recognise that some people may be concerned that this will have an impact on state pensions or contributory benefits, and would like to reassure her that it does not. We believe in the contributive principle; cutting NICs does not affect anyone’s entitlement to the state pension or contributory benefits, nor does it impact decisions on funding for the NHS. The fact that the money still goes into the national insurance fund is a bit of smoke and mirrors; as all noble Lords know, the Treasury retains the ability to top up the fund. It is not a requirement that the two go hand in hand; reducing employees’ national insurance does not mean that contributory benefits change. That is the way it is.

I appreciated the comments by the noble Lord, Lord Sikka, on the taxes on nuts. I agree that sometimes it can be a little confusing but, having been in the VAT game as a finance director, I know that systems can cope with these sorts of things. VAT has been designed as a broad-based tax on consumption; where there are exceptions to the standard case, they are strictly limited to legal and fiscal considerations. It is widely viewed as quite an economically efficient and non-distortive way of raising revenue.

I very much welcomed the insights from my noble friend Lord Leigh on VAT and VAT evasion. I will take his comments back to the Treasury and HMRC, and as I think he suspects, I will be writing.

The noble Baroness, Lady Lister, spoke of the high-income child benefit charge. I understand where she is coming from and that she would like to abolish it completely. I suspect that that will probably not be on the table at this time. I also recognise the challenge that she raised. Changing from a principle to ensure that we remove an unfairness can sometimes be okay. That is why we are consulting on how that removal will take place, and I think it will be a very interesting consultation.

To continue on the tax theme, my noble friend Lord Northbrook asked about tax-free shopping. The Government’s latest estimate for the cost of a new worldwide scheme based on 2022 costings is around £2.5 billion a year. The Government are grateful to the OBR for its review of the original costing of removing tax-free shopping. We are considering the OBR’s findings, alongside industry representations and broader data, so I encourage industry to bring forward as many data points as it can and we will consider them alongside the OBR’s findings.

My noble friend Lord Northbrook also talked about inheritance tax. The Budget was very much focused on reducing taxes on work, so we were not able to make changes to inheritance tax at this time.

I listened to my noble friend Lord Young on multiple dwellings relief, and we will engage very closely with stakeholders to make sure that it does not have any unforeseen impacts. I will raise the issue with the department and ensure that we will do what we can.

I welcomed the welcome of my noble friend Lord Leigh for the changes to non-doms. I agree that these changes are pragmatic and achieve the right balance between ensuring that those who are resident in the UK pay tax in the UK and encouraging those with high wealth to come to the UK and invest their funds. That was the balance that we were keen to achieve; we believe that introducing a new residence-based regime brings the UK into line with other countries with similar schemes, such as France, Spain and Italy, and makes us more competitive than places such as Germany and the US that do not have those schemes. The detail of the operation of the scheme will become clear in due course after consultation. I recognise that there is uncertainty around the costing: the OBR has certified the costing as reasonable and central, but as with any of these costings, some will include more uncertainty than others. My noble friend Lord Northbrook questioned its attractiveness, but as I said previously, I think we have got the level of attractiveness right versus other places.

On public spending, I shall not repeat the oft-quoted government lines about where we are. Of course, we recognise the need for good public services; we have committed to grow departmental spending 1% on average in real terms beyond 2024-25. The noble Baroness, Lady Kramer, asked for a plan. As she knows, the plan will be set out in due course, and I will write further if I can. We believe that productivity must be part of the plan. It is an unfortunate feature of modern politics that the extent to which one is perceived to care about one public service or another is measured by how many millions, hundreds of millions or billions one is seen to be spending on them. In the private sector, that would be regarded as completely and utterly nonsensical. Nobody in the private sector would increase inputs and expect outputs to come flooding out. It does not guarantee the right outcomes. We need to take stock of this. It is vital that we change our attitude by becoming relentlessly focused on outcomes and not only inputs, because it is only by providing better public services that we can provide better value for money for the taxpayer.

Many noble Lords mentioned the NHS productivity plan. I commit that we will hold the NHS leadership’s feet to the fire on this—it will be accountable for delivering the plan and its savings. There is a further £800 million going into other public services, including special free schools, police technology, children’s homes, the justice system and the DWP. The leadership will be accountable for delivering the savings that it says it can get.

My noble friends Lady Goldie and Lord Tugendhat and the noble Lords, Lord Macpherson and Lord Lee, all mentioned defence spending, and as the daughter of an Army officer, I too have a lot of interest in it. I appreciate all the comments on our Armed Forces and defence spending more broadly. We recognise that we need our forces to be ready and resilient. We remain committed to increasing defence spending to 2.5% of GDP as soon as conditions allow. The Prime Minister has been clear that the target and the path for getting to that 2.5% will be set out at the next spending review. I will write to the right reverend Prelate on official development assistance.

On the household support fund, I shall take back the comments of the noble Baroness, Lady Lister. I note too the comments of my noble friend Lord Young but will say that the household support fund is just one of the many interventions that we can make to protect the most vulnerable.

I will write to various noble Lords on local government funding. There have been pressures and the Government have stepped up to try to relieve them. There has also been some pretty poor decision-making in some local government areas, and the consequences of those sometimes come through the system.

I will write to the noble Lord, Lord Bird, on social housing and to the noble Lord, Lord Sikka, on reducing poverty because I want to spend a couple of minutes on infrastructure investment, which was mentioned by my noble friend Lord Howell. Infrastructure was also mentioned by my noble friend Lady Moyo, who focused on effective public and private infrastructure.

We absolutely recognise that high-quality infrastructure is crucial for delivering economic growth, productivity and competitiveness. I welcome the comments from my noble friend Lord Horam on investment across the UK. What we potentially do not talk enough about, because it is not a new thing, is that we are spending £600 billion on public sector investment over the next five years. That is enormous but we do not talk about it because there is a plan and it is all just going ahead, but it is possibly worth reminding noble Lords that this money continues to be spent. That is exactly where we are putting our money. We are also speeding up the planning system for significant infrastructure projects and looking at grid reforms, which will be critical, particularly for the green economy.

The UK has attracted the third-highest amount of greenfield foreign direct investment since 2010. It is about £500 billion, behind only China and the US. Indeed, in that time we have attracted more greenfield FDI than Germany and France combined. We can attract FDI and my noble friend Lord Harrington’s review identifies how the Government can go further. We are taking that review very seriously.

Allied to that, we have to think about how we are going to not only unlock the money in our pensions but improve the functioning of our capital markets. My noble friend Lady Moyo asked for specific plans and I will write to her with those, because a number of esteemed experts within the City of London have written good reports for us. These build on the Edinburgh reforms and the Mansion House reforms, which the Chancellor has already announced.

I will write to the noble Baroness, Lady Bowles, on investment companies. I do not have much of an update yet, but I promise her that I am pushing it as much as I can.

The noble Lord, Lord Lee, mentioned the NatWest shares for schools. It is right that financial literacy is supported at a young age. The Chancellor set out in his recent letter that there would be really significant delivery challenges with gifting NatWest shares. I am not entirely sure it is the right solution to a problem that the noble Lord probably recognises is there, but the Government are very committed to ensuring that financial literacy is absolutely key.

I will write to the noble Lord, Lord Macpherson, about the NatWest retail sale; I apologise for not getting to that. I will also write to the noble Baroness, Lady Sheehan, on the green economy because I have quite a lot to say on that, particularly on the green finance strategy and how to align the financial system to investment in the green economy, which is critical.

I say to my noble friend Lord Young that the Chancellor made it clear at his TSC appearance last week that there were some unintentional leaks in the lead-up to the Budget. It is disappointing that, for not only this fiscal event but the last few fiscal events, it has been very difficult to keep a lid on measures.

I have absolutely overrun and I will send a letter but, to conclude: this Spring Budget is one more step in the Chancellor’s clear plan to put us on a path to economic growth. The NICs Bill, also the subject of the debate in your Lordships’ House this evening, ensures that working people can feel the benefit of a tax cut as soon as possible.

Motion agreed.

International Women’s Day

Baroness Vere of Norbiton Excerpts

Friday 8th March 2024 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That this House takes note of International Women’s Day and the steps taken to promote the economic inclusion of women.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I am delighted that the noble Baroness, Lady Casey of Blackstock, has chosen this debate in which to make her maiden speech. She has worked tirelessly over the last 30 years in an extraordinary career dedicated to public service and helping others; she is truly a worthy addition to your Lordships’ House. I am sure that all noble Lords look forward with great interest to what she has to say.

It gives me great pleasure to open this year’s International Women’s Day debate. This day is celebrated all over the world in different ways, and I am pleased that we are recognising it in your Lordships’ House today. International Women’s Day is an opportunity to reflect on the vital contribution that women make across different spheres—political, cultural, social and economic—while also recognising that work still needs to be done to ensure the safety, security, equality and empowerment of women around the world.

The theme of today’s International Women’s Day is “Inspire Inclusion”. Inclusion is not about women being present—being in the room. How often are women in the room, but, frankly, not really expected to speak? Inclusion should mean women actually feeling able to express an opinion, playing a key part in the decision-making process at all levels of an organisation, government and across society. It means women—more women—becoming leaders. Yet, globally, women continue to be excluded from any level of the labour market, and when they are employed, they work longer hours for less pay—on average 20% less, in fact. Women represent only 30% of entrepreneurs and receive just 4% of financing. There is still much to be done for women’s inclusion, real inclusion, to be fully realised.

I turn first to international policy and aid. The UK has long been a global champion of women’s rights, and many Members of your Lordships’ House have been and continue to be at the forefront of that work; I look forward to their contributions today. Women’s rights are most under threat when they live in a country at war. We have witnessed that in Ukraine, where Russia’s illegal invasion has led to millions of families being displaced and a sharp rise in poverty. My thoughts are with the millions of women and girls who have suffered in the two years and two weeks since that conflict began. The UK continues to stand with Ukraine. The fiscal support the UK is providing contributes to maintaining public services, and our humanitarian funding protects the needs of the most vulnerable, including women and girls—for example, by supporting survivors of gender-based violence. Conflicts such as these throw into sharp relief the importance of legislation that facilitates the economic and social inclusion of women, both domestically and worldwide.

We continue to uphold our International Development (Gender Equality) Act, which sets out a legal requirement to consider gender equality in how we provide official development assistance. We continue to look at ways we can go further to prioritise women and girls in our international work. To set out an agenda that puts women and girls centre stage, we published the international women and girls strategy in March last year and the international development White Paper in November. As set out in the White Paper, our target in the UK is for at least 80% of the Foreign, Commonwealth and Development Office’s bilateral aid programmes to have a focus on gender equality by 2030.

The White Paper also announced a new global campaign for women’s economic empowerment, which will drive forward global efforts to ensure that every woman has the equal right to decent work, the freedom of safe work of her choice and the resources to reach her potential. A key part of that is integrating gender equality into our economic diplomacy, which means leading by example to create meaningful jobs for women and identifying evidence-based solutions to expand women’s voices.

A strategy that focuses on women and girls has many benefits. The evidence shows that investing in women and breaking down the barriers they face accelerates international development. That is why British International Investment, the UK’s development finance institution, continues to champion “gender-smart investing” and why it has pledged that 25% of its new investments in the period 2022-26 will focus on supporting women’s economic empowerment. In Bangladesh, for example, BII is providing a $52 million loan for the construction of a greenfield manufacturing facility, which will support new business growth in the manufacturing sector. The loan is expected to create 1,000 jobs, and 50% of these will be held by women.

Building on this, the SheTrades Commonwealth programme helps to provide women-led businesses with various elements of support, including technical assistance, networking and support from specialised business support organisations. With UK funding, SheTrades Outlook is a unique global online platform that tracks and compares countries’ progress on trade and gender equality, sharing good practice and lessons learned and promoting women’s economic empowerment.

Ideally, different policy goals must work in tandem. Later this month we are hosting a dialogue at Wilton Park on “Building Women’s Economic Empowerment into Climate Transitions”, which will bring together key actors—academics, civil society, multilateral institutions, the Government and the private sector—to explore how we can build women’s economic empowerment into the green growth agenda. The UK Government will continue to use the full weight of our diplomatic and development offer to put women and girls, in all their diversity, at the heart of everything we do.

Turning now to the domestic front and gender equality in the UK, it is encouraging to see that the gender pay gap across UK employees fell in 2022 to 14.3%, a fall of 3% over the past three years. Transparency is a key tool in tackling the gender pay gap. Back in 2017, some seven years ago, the Government introduced regulations requiring large employers to publish the differences in average salaries and bonuses for men and women. It happens to be the first piece of legislation that I took through your Lordships’ House.

These regulations have been effective, motivating employers to scrutinise their approach and improve equality in the workplace. But a key driver of the gender pay gap is lower levels of female participation in the workforce, accounting for around half the gap, which widens in the 20 years after the first child in a family is born. We know that high childcare costs present a real challenge for many women when weighing up whether or when to go back to work, and how many hours they can work when they have young children to look after.

We are dealing with this head-on through the Government’s tax-free childcare scheme for working parents. For every £8 that parents pay into their childcare accounts, the Government will add £2, up to a maximum of £2,000 in top-up per year. This applies to each child up to the age of 11. For children with disabilities, the maximum amount of government top-up is £4,000, until the child is 16.

Building on this, at the Spring Budget last year, the Government announced the biggest ever investment in childcare in England by providing eligible working parents with 30 hours of free childcare per week for 38 weeks per year. Parents can access this from when the child is nine months old until they begin school. This expansion in early years entitlement is worth an estimated £1.7 billion in the financial year 2024-25. As a result, we expect that 1.5 million mothers will increase the hours they work by 2027-28 and that around 60,000 more will enter the employment sector. At the Spring Budget this week, we confirmed that the Government are guaranteeing the hourly rate paid to childcare providers to deliver the free hours offer, which will give childcare providers the confidence to invest in expansion.

Alongside support with childcare, workplaces must offer their employees flexibility in how and when they work. Flexibility benefits women and men, but we must recognise that women still bear more of the childcare workload and face particular challenges in balancing their professional aspirations with family responsibilities. But it does not have to be this way. If we embrace adaptability in working arrangements, dismantle the rigid structures that have historically hindered women’s career progression and, in turn, offer an environment where talent, not time spent in the office sitting at a desk, is the currency of value, it will have a transformative effect on women’s inclusion.

That is why this Government have introduced the right to request flexible working from day one of an individual’s employment. This will come into force on 6 April this year and will bring around 2.6 million additional employees in scope of this entitlement. We have also passed the Employment Relations (Flexible Working) Act, which includes measures that support people who wish to discuss flexible working arrangements with their employer. These discussions are important, as we know that the extent to which flexible working is suitable will depend on both the individual’s and the business’s circumstances, so we want employers and employees to come to the arrangement that works for both parties. This will benefit fathers as well as mothers, giving them the opportunity to do their part in the home; and, more broadly, flexible working can lead to more diverse leadership, the development of innovative service and products, and more resilient organisations.

Further, we are committed to supporting pregnant women and new parents who wish to participate in the labour market. So, the Protection from Redundancy (Pregnancy and Family Leave) Act 2023 extends the existing redundancy protections that currently apply to those on maternity leave, adoption leave or shared parental leave. From 6 April, these protections will also cover the period of pregnancy and a period of time after that. This means that employers are obliged to offer a suitable alternative vacancy where one is available, giving women on maternity leave or who have recently returned from maternity leave priority over other employees who are also at risk of redundancy. This same protection applies to parents taking adoption leave or shared parental leave.

Additionally, the Government announced new measures in Wednesday’s Spring Budget to help parents balance work with looking after their children. From April, the Government will raise the threshold for the high income child benefit charge—HICBC—to £60,000, taking 170,000 families out of paying this tax charge. The Government are also raising the top of the taper at which child benefit is withdrawn to £80,000. This will reduce the marginal tax rate, which will improve people’s incentives to continue working or take up more hours. The OBR estimates that, as a result, those already working will increase their hours by a total equivalent to around 10,000 full-time individuals by 2028-29.

Beyond difficulties in entering the labour market, women can also find it more challenging to reach leadership levels in the organisations that they are part of. In 2016 the Treasury launched the Women in Finance Charter to improve female representation at senior levels with a view to improving the productivity, innovation and competitiveness of the financial services sector. More than 400 firms, employing more than 1.3 million people across the financial services sector, have signed up to the commitments of the charter, from global banks to credit unions, from leading insurance companies to new start-ups. The first wave of signatories to the charter started out with an average level of senior representation of 27%. Today, the signatory base has grown substantially and the average level of senior representation stands at 35%.

The charter’s five-year review found that the average proportion of women on UK executive committees had increased from 14% in 2016 to 22% in 2021, while the proportion of women on UK boards had increased from 23% to 32%. The increase for executive committees is nearly 60% and for boards it is nearly 40%. Average representation on boards and executive committees was higher for firms that had signed the charter— 50% higher for executive committees and 40% for boards. It is really encouraging to see that charter being emulated in other sectors, including aviation and maritime; in other countries, such as Norway, Luxembourg and Ireland; and across diversity strands, such as in the Black Talent Charter. I look forward to the charter’s next annual review report, which will be published later this month.

There is still quite a lot of work to do to continue our progress towards true gender equality and inclusion. In implementing these domestic policies and through our international leadership in putting women centre stage, the UK Government have demonstrated our unwavering commitment to women and girls around the world. I am very pleased to open this debate in your Lordships’ House, and I beg to move.

Alternative Investment Fund Designation Bill [HL]

Baroness Vere of Norbiton Excerpts

2nd reading
Friday 1st March 2024 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, I, too, congratulate my noble friend Lady Altmann both on securing this important Second Reading debate on her Bill and on her excellent contribution setting out the challenges that she hopes to fix. I am grateful to her for her engagement on this issue; I hope that it will continue as we continue our work in this area. I am also extremely grateful for all the contributions made in your Lordships’ House today. I note that there was violent agreement that something must be done; I hope to set out the Government’s plans to do this, but I will ensure that my colleague, the Economic Secretary to the Treasury, has a look at Hansard because it is important that he understands the breadth of feeling and some of the important issues that were raised.

As noble Lords have heard, this Bill would amend the Alternative Investment Fund Managers Regulations to remove listed investment companies, also known as investment trusts, from scope. It would also make amendments to other assimilated law, formerly retained EU law, in order to make changes to cost disclosure requirements for listed investment companies.

The Government share my noble friend Lady Altmann’s drive to champion the investment company sector and ensure that the UK’s capital markets continue both to thrive and to drive forward our economy. It is true that, over the past two years, there have been relatively few initial public offerings globally; the UK has not been immune to those trends. This market turbulence has also impacted the investment company sector, in which the UK is undoubtedly a world leader. However, London continues to be Europe’s leading hub for investment; it raised more capital in 2023 than Frankfurt and Amsterdam combined.

The Government are committed to building on the UK’s strong foundations in this area by taking forward, through the smarter regulatory framework, ambitious reforms to streamline the regulatory rulebook, boost investment into UK markets and improve the competitiveness of the UK as a listing destination.

Investment companies are a wonderful British—more specifically, Scottish, according to the noble Lord, Lord Macpherson; he is right—invention dating back more than 150 years. The way in which they have become such a backbone of our investment economy is quite incredible. I assure all noble Lords that the Government are committed to supporting this very important sector.

However, I must express some reservations about my noble friend Lady Altmann’s Bill, although we recognise the rationale behind its being brought forward. I will first address the amendments that would exclude listed investment companies from the Alternative Investment Fund Managers Regulations, or AIFMR. Amending the scope of these regulations could have a significant impact. It would not be appropriate for the Government to change the regulatory perimeter using this Private Member’s Bill in isolation, without proper and appropriate consultation and further consideration.

As part of building a smarter regulatory framework for financial services, the Government are already carefully considering how to make AIFMR more streamlined and more tailored to UK markets. The Government recognise the concerns about regulatory inefficiencies for listed investment companies under AIFMR. However, we are also conscious that some investment companies value being regulated financial services providers; at this point, I note the warnings put forward by my noble friend Lord Hannan.

Given the spectrum of views on this issue, it is vital that the Government provide an opportunity for all impacted stakeholders to comment. It is for this reason—this is the first time that it will be publicly known, I think—that the Government will consult in the next quarter on how the UK should approach AIFMR. This will, I believe, fulfil my noble friend Lady McIntosh’s requirement for some consultation. Obviously, we want to do this as speedily as possible, but we need to get information from the industry, the investment companies sector and beyond about how to take it forward. Once we have that, we should be able to move fairly rapidly.

We know that only through careful consultation and consideration can we provide listed investment companies with the longer-term certainty of an appropriate regulatory framework. I agree with the noble Lord, Lord Macpherson: sometimes, it is really important to get these things right. Although some people often criticise the Treasury for taking too long and being—dare I say this as a Treasury Minister? I am not sure—a bit staid and sober, we have to get things right.

[Baroness Kramer (LD)]

I have a question for the Minister. With much of this gold-plating, I am not sure that the regulator consulted on implementing it. Why would it then have to consult on removing it?

[Baroness Vere of Norbiton (Con)]

I will come on to gold-plating. I am not entirely sure that everybody is in alignment on whether or not this regulation is implemented, but consultation is just good government. I do not see us making substantial changes to the regulatory scope on the basis of having not done it before we are not going to do it now. We need to get it right, but we absolutely support the investment company sector and want to get on with this. That is why I am so grateful to my noble friend Lady Altmann for bringing this forward, allowing us to have a conversation in the Treasury and beyond.

I turn to the second element: cost disclosures. My noble friend Lady Altmann has rightly identified that EU-derived legislation is not currently fit for purpose, as many other noble Lords, the Government and the Financial Conduct Authority would agree. The packaged retail and insurance-based investment products regulations, commonly and more easily known as PRIIPs, were originally meant to provide more transparent and standardised disclosure for retail investors across the European Union. Noble Lords are well aware that there are many problems with the EU PRIIPs regulation. It is prescriptive, misleading to retail investors and prioritises comparability over a wide range of financial products at the expense of consumer understanding.

That is why, as part of the Edinburgh reforms, the Chancellor announced that, as a priority, the Government would reform PRIIPs. We have already made significant progress on delivering this commitment. Most recently, at the Autumn Statement last year, the Government published a draft statutory instrument to replace PRIIPs with a new framework tailored to UK markets.

We understand industry’s concerns regarding broader legislation that prescribes firms to calculate their costs as they are required to do so now, and so the Government and the regulator have not stopped there. At the same Autumn Statement, the Government announced that they would bring forward the repeal of relevant cost disclosure provisions in the markets in financial instruments directive, or MiFID, alongside the replacement of PRIIPs.

Many noble Lords have mentioned that the FCA has published the forbearance statement, and some feel that it has not gone far enough. I will ensure that the FCA is made aware of the debates that noble Lords have had today. There has been significant criticism, which it will no doubt be interested in, and some suggestions of how it might be able to go forward.

I hope that this brief summary has provided sufficient reassurance to my noble friend Lady Altmann, and to all noble Lords, that the Government are treating this as a priority. We have a comprehensive plan to alleviate the harms faced by the investment company sector, but are committed to making sure that we get it right for the long term, to ensure that 150 years already gone by becomes another 150 years in the future.

I have mentioned consultation, so I will move on from that to cover some points raised in the debate on timelines. I accept that, for many noble Lords, and indeed Ministers, it is never fast enough. This was mentioned by my noble friend Lord Hannan and the noble Lord, Lord Macpherson. We are delivering a very ambitious programme to build the smarter regulatory framework for financial services. At Mansion House, the Government removed almost 100 pieces of unnecessary EU legislation from the statute book, and now we are looking at wider reforms—those mentioned in the debate today and others, including Solvency II—that will deliver the biggest potential benefits.

I note that my noble friend Lord Hannan would have liked us to go through things in a different way. The Treasury is very much focused on looking at where we can have the biggest and quickest potential benefits to economic growth. We are conducting a phased approach to bringing in this change of regulation because we must also ensure that the system and different financial sectors can cope with this change in legislation.

I note the invitation from the noble Lord, Lord Macpherson, to make commitments from the Dispatch Box on certain matters. I am not able to do so just yet—maybe soon.

There is debate around gold-plating. I hope that that will all be laid to rest as we are able to reform this and ensure that we have the right framework going forward.

My noble friend Lady Altmann mentioned investment companies being removed from platforms. We note and recognise the frustration that some investment companies feel at having been removed from investment platforms. I reassure her that, although this is a commercial decision, the Government and the FCA are well aware of this issue and are carefully considering what options are available. Ditto in the use of the EMT, the MiFID template. This is a voluntary template, but we understand that it may not be providing the best information to retail investors at the current time.

Many noble Lords have noted the competitiveness of the UK capital markets. That is what underpins the smarter regulatory framework. Despite recent challenges, the UK has many vibrant and dynamic capital markets, and they remain some of the deepest and strongest globally. However, we cannot rest on any laurels; we have to keep moving forward in this area. That is why the Government are delivering on my noble friend Lord Hill’s listings review, the wholesale markets review, and the Chancellor’s Edinburgh and Mansion House reforms.

The noble Lord, Lord Davies, mentioned the FCA’s activities and scrutiny of the regulator’s role. My noble friend Lord Reay mentioned the FCA’s D&I work, as did the noble Baroness, Lady Kramer. Parliament does have scrutiny over the FCA and many other regulators. Assimilated law is being replaced, in line with the UK’s domestic model of regulation. This means that the UK’s independent financial services regulators will generally set the detailed provisions in their rulebooks, instead of firms being required to follow EU law. This approach was following two consultations and it received broad support across the sector. Parliament debated this approach during the passage of the Financial Services and Markets Act 2023, and it secured parliamentary support then.

The Government recognise the importance of effective parliamentary scrutiny of the regulators, including their approach to rule-making and other activities that they may choose to undertake. That is why FiSMA 2023 introduced additional mechanisms to strengthen Parliament’s existing ability to scrutinise the regulators’ work, including requirements for the regulators to notify parliamentary committees, such as the new Financial Services Regulation Committee, of their consultations and to explain, when publishing final rules, how representations by parliamentary committees have been considered. I warmly welcome the formation of that committee. It will be hugely helpful, and it is quite right and proper that independent regulators are held to account by Parliament.

I will write with a few further comments on the investment in the UK capital markets by UK pension funds and on a few other issues which have arisen and need a fuller response. For the time being, I am very grateful to my noble friend Lady Altmann and many other noble Lords for their continued championing of the investment company sector.

[Baroness Bowles of Berkhamsted (LD)]

I am sure that my interruption is unwelcome, for which I apologise, but it is quite important. Further consultations have been measured and, as my noble friend Lady Kramer pointed out, the aspects of PRIIPs and MiFID where there has been gold-plating that is causing these problems were never consulted upon. It is within the gift of the FCA to make changes.

These cost disclosure issues have featured massively already in two consultations from the Treasury on PRIIPs and in evidence that was submitted to the Treasury last summer, after my own attempt to amend FiSMA 2023. On these discrete issues, legislation does not need to be amended; what the FCA is doing needs to be amended. Support has been heard from these Benches and the Labour Benches for the Government taking more intrusive action. Has that message been received or are we still bogged down in officialdom and consultations? That is what we want to know.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

As I set out in my closing remarks, the consultation is for AIFMR. It is not related to the other issues that the noble Baroness has raised, because, as she says, they have already been consulted on. That element of it is under consideration by the Economic Secretary to the Treasury. There may be more news fairly shortly.

I am grateful to all noble Lords who highlighted the substantial challenges faced by this uniquely British, nay Scottish, asset. I am also grateful that the noble Baroness brought her concerns to the Government’s attention. I hope I have reassured noble Lords directly that the Government take this issue very seriously, that we are working at pace on finding a resolution and that I will ensure that all Ministers and regulators are aware of the strength of feeling in your Lordships’ House. I hope to have further news in due course.

Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024

Baroness Vere of Norbiton Excerpts

Tuesday 27th February 2024 Grand Committee

Moved by

[Baroness Vere of Norbiton]

That the Grand Committee do consider the Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, these two sets of regulations are made each year to set the national insurance contributions—NICs—rates, limits and thresholds and to update tax credits, child benefit and the guardian’s allowance. First, the Social Security (Contributions) (Limits and Thresholds, National Insurance Funds Payments and Extension of Veterans Relief) Regulations 2024, which I will refer to, if I need to, as the social security SI, sets the NICs rates, limits and thresholds of a number of NICs classes for the 2024-25 tax year with all limits and thresholds remaining fixed at their existing level. The regulations also make provision for a Treasury grant to be paid into the National Insurance Fund, if required for the same tax year, which is a transfer of wider government funds to the National Insurance Fund, and for the veterans employer NICs relief to be extended for a year until April 2025. The scope of the regulations under discussion today is limited to the 2024-25 tax year.

NICs are social security contributions. They allow people to make contributions when they are in work and to receive contributory benefits when they are not working—for example, after they have retired or if they become unemployed. NICs receipts fund these contributory benefits, as well as supporting funding the NHS.

I will begin with NICs for employed and self-employed people. The primary threshold and lower profits limit are the points at which employees and the self-employed start paying employee class 1 and self-employed class 4 NICs respectively. At Autumn Statement 2022, the Government announced their intention to maintain the primary threshold’s alignment with the income tax personal allowance, with both rates being fixed at £12,570 until 2028.

Fixing the primary threshold at £12,570 does not affect an individual’s ability to build up entitlement towards contributory benefits, such as the state pension. For employees, this is determined by the lower earnings limit, which will remain at £6,396 per annum or £123 per week in 2024-25, and for self-employed people by the small profits threshold, which will remain at £6,725 in 2024-25. Fixing these thresholds will mean that more low-earning working people will gain entitlement to contributory benefits and build up qualifying years for their state pensions.

The upper earnings limit, the point at which the main rate of employee NICs drops to 2%, and the upper profits limit, the point at which the main rate of self-employed NICs drops to 2%, are aligned with the higher rate threshold for income tax at £50,270 per annum. It was announced previously that these thresholds would be fixed until April 2028 as part of the Government’s commitment to supporting the public finances.

These decisions are starting to pay off, with inflation falling, growth more resilient than expected this year and debt forecast to reduce. This makes it possible to return some money to working taxpayers, while keeping the public finances on track. As part of the Government’s long-term plan to grow the economy and reform the tax system, we are cutting taxes for 29 million working people. From 6 January 2024 onwards, the main employee rate of national insurance contributions was cut from 12% to 10% and, from 2024, the main rate of class 4 NICs for the self-employed will be reduced from 9% to 8%. These cuts have already been legislated for.

At Autumn Statement 2023, the Government also announced that, from 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay class 2 but will continue to accrue and receive access to contributory benefits, including the state pension. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the state pension, through a national insurance credit, without paying NICs as they currently do. Those with profits under £6,725 who choose to pay class 2 NICs voluntarily to get access to contributory benefits, including the state pension, will be able to continue to do so.

Turning to employer NICs, the secondary threshold is the point at which employers start paying employer NICs on their employees’ salaries. At Autumn Statement 2022, the Chancellor announced that this threshold will remain at £9,100 in 2023-24 and will be fixed at this level until 2028. This supports the public finances while ensuring that the largest businesses pay the most. The employment allowance, which the Government raised from £4,000 to £5,000 in April 2022, means that the smallest 40% of businesses with an employer NICs liability pay no employer NICs at all. The employment allowance supports our smallest businesses to grow by helping them with employment costs. The thresholds for employers of employees eligible for NICs relief—the relief for employers of under-21s, under-25 apprentices, veterans and new employees in freeports and investment zones—have also been fixed in these regulations at their 2023-24 levels.

The majority of national insurance contributions are paid into the National Insurance Fund, which is used to pay state pensions and other contributory benefits. The Treasury has the ability to transfer funds from wider government reserves into the National Insurance Fund. The regulations also therefore make provision for a transfer of this kind, known as a Treasury grant, of up to 5% of forecasted annual benefit expenditure to be paid into the National Insurance Fund, if needed, during 2024-25. A similar provision will be made in respect of the Northern Ireland National Insurance Fund. The Government Actuary’s Department report, which was laid alongside these regulations, states that the Treasury grant is not forecast to be required in 2024-25, so it is being legislated for as a precautionary measure, because the Government consider it prudent to make provision at this stage. This is consistent with previous years.

The regulations also make provision for the NICs relief for employers of veterans to be extended for a year until April 2025. This measure means that businesses pay no employer NICs on salaries up to the veterans’ upper secondary threshold of £50,270 for the first year of a qualifying veteran’s employment in a civilian role. This relief is part of the Government’s commitment to make the UK the best place in the world to be a veteran and it is intended to further incentivise employers to take advantage of the wide range of skills and experience that ex-military personnel offer.

I will refer to the second statutory instrument, the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024, as the “tax credits SI”. The Government are committed to delivering a welfare system that is fair for claimants and taxpayers, while providing a strong safety net for those who most need it. These regulations will ensure that the benefits for which Treasury Ministers are responsible and that His Majesty’s Revenue and Customs delivers are uprated by inflation, in April 2024. Tax credits, child benefit and guardian’s allowance will increase in line with the consumer prices index, or CPI, which had inflation at 6.7% in the year to September 2023. Uprating by the preceding September’s CPI is the Government’s typical approach.

In summary, the proposed legislation fixes all the limits and thresholds for NICs at their 2023-24 levels for the 2024-25 tax year. It makes provisions for a Treasury grant, extends NICs relief for veterans’ employers and increases the rates of tax credits, child benefit and guardian’s allowance in line with prices. This legislation enacts announcements from the Autumn Statement and previous fiscal events. I beg to move.

[Baroness Lister of Burtersett (Lab)]

My Lords, I will make a couple of brief points about child benefit. While of course I welcome the inflation-proofing after all the speculation there has been about it, it is important to put on record that it still represents a cut in the real value of child benefit since 2010, according to the Child Poverty Action Group, of which I am honorary president. Even allowing for this uprating, child benefit needs to rise by 25% to restore its real value.

I can remember when child benefit was introduced. I was working at the Child Poverty Action Group at the time, and child benefit replaced personal tax allowances as well as the family allowance. The Conservative Party then accepted the argument that child benefit should be thought of as, in effect, a tax allowance for children and treated the same as personal tax allowances. An increase in the real value of child benefit now could represent an effective way to target a tax cut on those below the tax threshold, whose needs are the greatest. Given that there is all this speculation about tax cuts, that would be my recommendation.

I realise that this is not part of the SI that we are debating, but the speculation that the Chancellor is also looking, for the Budget, at the high-income charge on child benefit is relevant. The threshold has not been uprated since the charge was introduced in 2013, so fiscal drag means that a growing number of basic rate taxpayers are now affected, whereas it was originally intended purely for those who are considered better off. Could the Minister give us an update on the numbers who have been pulled into the charge—perhaps not now, because I recognise that she may not have the figures here, but in a letter, because it would be good to know where exactly we are at?

Personally, I would like to see the end of the high-income charge on child benefit, because it compromises important principles of universality in child benefit and of independent taxation, as the Women’s Budget Group pointed out. At the very least, the threshold should be restored to its original value. I hope the Minister will convey that message to the Treasury.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, in the 2022 Autumn Statement, the Chancellor announced that national insurance contribution thresholds that are in line with income tax will be fixed at their 2023-24 levels until 2027-28. As the Office for Budget Responsibility pointed out at the time, the freeze to national insurance thresholds and limits meant that

“all the main personal tax thresholds are now frozen in cash terms across our entire forecast period”

through to 2027-28.

Those freezes to allowances, limits and thresholds provide the context for the debates that we now frequently have about the rising tax burden. As Paul Johnson from the Institute for Fiscal Studies said, the changes made at the 2023 Autumn Statement

“won’t be enough to prevent this from being the biggest tax-raising parliament in modern times”.

The fact is that, after 25 tax rises in this Parliament alone, the tax burden remains on course to reach its highest-ever level at least since the Second World War. One of the central reasons for that is the freeze on income tax and national insurance thresholds through to 2027-28. This fiscal drag means that, on average, personal taxes will go up by £1,200 per household even after the 2% cut to national insurance.

To take one example, the impact of the Government’s freezes to thresholds on low and middle earners is stark. As the noble Lord, Lord Sharkey, mentioned, consumer finance expert Martin Lewis recently said that, even with the reduction in national insurance, people on incomes of between £12,500 and £26,000 will be worse off, looking at this year in isolation, as a result of threshold freezes and fiscal drag. Does the Minister agree with Mr Lewis on that point?

The Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations set the annual rates of working tax credit and child tax credit and the weekly rates of child benefit and guardian’s allowance for the coming financial year. Amid a damaging cost of living crisis, we support the increases, as any help for people who are struggling in the face of persistently high energy, food and housing costs is particularly needed. It is welcome that these social security payments are being uprated by the usual amount, September’s inflation figure. Months of uncertainty about the Government’s plans caused enormous anxiety at a time when household budgets were stretched to breaking point.

My noble friend Lady Lister spoke expertly about child poverty, as she always does. We know that 8 million households received their final means-tested cost of living payment this month. That support has been critical for millions across this country, including many children. I would therefore be grateful if the Minister could say what assessment the Government have made of the impact that the end of the cost-of-living payment will have on levels of child poverty.

[Baroness Vere of Norbiton (Con)]

I am grateful to all noble Lords who have taken part in this short debate today. I will try to get through as many questions as possible—there are definitely one or two to which I do not currently have the answer, but I will do my best.

Turning to the points raised by the noble Baroness, Lady Lister, I recognise that she has been working in the field of child poverty, child benefit and child benefits more broadly for a long time and brings with her an awful lot of expertise. She focused very much on child benefit. I would say that child benefit is just one of many interventions that the Government can and do make to help families. There is a range of different supports, and she will have seen that at spring Budget 2023, the Chancellor announced that the Government will extend the free hours offer so that eligible working parents in England will be able to access 30 hours of free childcare per week for 38 weeks per year from when their child is nine months old to when they start school.

So it is not only about cash payments which come in the form of child benefit; and it is also the case that, looking at where we are now compared with where we were back in 2010, for example, we have made progress on poverty. The Government feel that the best way to get people—and children in particular—out of poverty is by living in homes where people are able to work. We know that there are now just under 1 million vacancies, and our approach is very much to try to get people into work, particularly full-time work, to reduce the risk of poverty. That is why our intervention in childcare is so important. We know that in 2021-22, children living in workless households were five times more likely to be in absolute poverty after housing costs than those where all adults worked. The latest available data shows that in 2021-22, there was only a 5% chance of children being in absolute poverty after housing costs where both parents worked full time, compared with 52% where one or more parents in the couple was in part-time work only. That is why our focus on all sorts of different interventions to support the family is really important.

The latest statistics show that, in 2021-22, there were 1.7 million fewer people in absolute poverty after housing costs compared with 2009-10, including 400,000 fewer children. We are heading in the right direction but, of course, we must continue to do further work in this area. I welcome the work that the Government have done on universal credit: it is a very good set of reforms that endeavours to support people when they need it most to help them back to work.

The noble Baroness, Lady Lister, mentioned the high-income child benefit charge. I am pleased that she agrees about the principle of individual taxation—I know that many people would like to put it on household income, but that would mean a change of thinking at the Treasury about how one taxes individuals. The adjusted net income threshold of £50,000 ensures that the Government support the vast majority of child benefit claimants. I will write to the noble Baroness if I have information about how many lower-rate taxpayers have been pulled into that area—but we are talking about a threshold of £50,000, which is a fair amount of money.

The noble Lord, Lord Sharkey, asked a number of questions, some of which I caught but some of which my brain did not quite catch. I will write to him, but, on the Treasury grant, as I said in my opening remarks, the Government are just being prudent by including it in the statutory instrument. At this moment, the Government Actuary report forecasts that the balance of the NIF will be £80.9 billion at the end of 2024-25, which is a significant surplus.

The GAD also projects that the NIF will be in overall surplus until at least 2028, but the balance can fluctuate because it will depend on economic factors and policy changes—for example, what might happen with increases to the state pension. The Government have increased the state pension by 8.5%, in line with inflation and the highest element of the triple lock. So I will write to the noble Lord on the threshold at which the Treasury would intervene—but we are not expecting to at this moment in time. We monitor the balance of the NIF very closely and we stand ready to include a top-up grant, should we feel that the forecast for that particular year gives the impression that it might be needed.

The noble Lord talked about veterans. The Government obviously keep all taxes and reliefs under review. We have decided to extend this for another year, and the cost of that extension is approximately £5 million for the next year. But it is also fair to say that the Government regularly conduct research and evaluation as part of their role in keeping policies such as this relief under review. When an evaluation is complete, it will be published in due course and decisions can then be taken at that point.

The noble Lord, Lord Livermore, mentioned the current economic climate, without mentioning the unprecedented economic shocks that the UK economy has had to weather. Of course, the response to this was often deemed to be insufficient by the party opposite, so I am not entirely sure where we would be had it been in power. I suspect that we might be in an even more sorry economic state, because we are now turning a corner. We are absolutely seeing really positive change in our economy, and I believe that will continue.

It is worth looking at the broader impact of the freezing of the NICs threshold, alongside income tax. Quite frankly, when many people get their payslips, they just look at how much money they gave the Government. They do not necessarily focus on whether it is NICs or tax; it is just money they do not have and cannot spend because the Government are spending it for them.

But, since 2010, the Government have improved the lot of lower-earning people. We have nearly doubled the personal allowance since 2010, and it is 30% higher in real terms. That ensures that some of the lowest earners do not pay income tax. Indeed, around 30% of people do not pay income tax at all. This has also meant that it is estimated that over 3 million people will be taken out of tax by 2023-24, compared with the threshold rising in line with inflation from 2010-11. So the Government have increased the thresholds by more than inflation over a very long period of time, which has really benefited the lowest earners.

Given these unprecedented economic shocks, the Government have had to take difficult decisions, which I believe are bearing fruit. I hope that other noble Lords can recognise that. It remains the case that a UK employee can earn more money before paying income tax and social security contributions than an employee in any other G7 country. Let us not fall into the trap of thinking that we are massively overtaxed in this country.

As I say, we see the economy turning a corner and inflation falling. We hope that we can return some money to taxpayers, because I agree that it is not a comfortable feeling knowing that, in the past, we have had to raise taxes to help the nation get through the unprecedented economic shocks that we have weathered. However, now that we are in slightly sunnier uplands, I hope we will be able to do more in future. I will write with further responses to questions which I have not covered but, for the meantime, I commend this instrument to the Committee.

Motion agreed.

Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024

Baroness Vere of Norbiton Excerpts

Tuesday 27th February 2024 Grand Committee

Moved by

[Baroness Vere of Norbiton]

That the Grand Committee do consider the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2024.

Motion agreed.

Bank of England Levy (Amount of Levy Payable) Regulations 2024

Baroness Vere of Norbiton Excerpts

Tuesday 27th February 2024 Grand Committee

Moved by

[Baroness Vere of Norbiton]

That the Grand Committee do consider the Bank of England Levy (Amount of Levy Payable) Regulations 2024.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, these draft regulations will ensure the implementation of the Bank of England levy following the passage of the Financial Services and Markets Act 2023, which made provision for the replacement of the cash ratio deposits scheme with this levy. Currently, the Bank of England’s monetary policy and financial stability functions, including work on resolution, international policy, financial stability and strategy, and risk and monetary analysis, are funded by the cash ratio deposits, or CRD, scheme. Under the scheme, banks and building societies with eligible liabilities greater than £600 million are required to place a proportion of their deposit base with the Bank of England on a non-interest-bearing basis. The Bank of England invests these funds in gilts and the income generated is used to meet the cost of its monetary policy and financial stability functions.

However, due to lower than expected yields from gilts, the CRD scheme has not generated sufficient income to fully fund the Bank’s policy functions. The shortfall has been funded by the Bank’s capital and reserves. Alongside this, the scheme has led to higher than expected deposit sizes and a lack of certainty for deposit payers.

Following a review of the scheme, the Government set out their intent to replace the CRD scheme with the Bank of England levy. This will provide greater certainty to firms on their contributions, create a simpler and more transparent funding mechanism for the Bank and ensure that the shortfall in funding is addressed moving forward. Sections 70 and 71 of the Financial Services and Markets Act 2023 amend the Bank of England Act 1998 to make provision for the replacement of the CRD scheme with the Bank of England levy.

The instrument under consideration by the Committee today makes provision for the eligible institutions that do not have to pay a levy, how the cost is apportioned between the eligible institutions that do have to pay it and how appropriate adjustments will be made for years in which there is a new levy payer. The instrument does not set the overall amount of the levy. The Bank determines which of its policy functions will be funded by the levy and the amount that it reasonably requires in conjunction with the funding of those functions for the levy year.

Under the regulations, the new levy year will begin on 1 March 2024, to align with the Bank of England’s financial year. An indicative timeline for the levy year is included in the Bank of England’s levy framework document. This sets out that the first invoice will be issued to firms in July 2024, with payment due in August 2024. This payment will cover the 2024-25 levy year.

Under the levy, for each year, the Bank of England will estimate the amount it needs to meet its policy costs. It will add any shortfall from the previous year and deduct any surplus. This is the anticipated levy requirement. The Bank will require institutions to submit data about their eligible liabilities and will usually take an average of the data provided between 1 October to 31 December in the previous year to calculate an institution’s eligible liabilities.

If an eligible institution has an average liability base up to and including £600 million, it will not pay any levy that year. If the institution’s average liability base exceeds £600 million, it will obviously pay the levy. This is the same as under the CRD scheme, therefore ensuring that the levy is fair as only the largest institutions, which benefit most significantly from the Bank’s monetary policy and financial stability functions, will pay. The costs that an institution will pay under the levy will be apportioned according to the size of the institution’s eligible liabilities, meaning that larger institutions pay a larger share of the costs. This is the same as under the CRD scheme and ensures that there will be no relative winners or losers under the new levy.

If an institution did not meet the threshold for paying the levy in the previous year but it does for the current year, the regulations stipulate that this firm will be treated as a new levy payer. The SI allows the Bank to treat new levy payers differently so that they contribute to the estimated policy costs for that specific year, and do not have to contribute to any shortfall from the previous year or gain any benefit from any surplus. This is a fair and proportionate approach.

This SI delivers a fairer and more transparent funding mechanism for the Bank of England’s policy functions. The regulations have been widely consulted on and the levy is supported by financial firms. I beg to move.

[Lord Sharkey (LD)]

My Lords, it is obviously unacceptable that the Bank of England should be making a loss on its supervisory activities regarding the banking sector. We are happy to support this SI’s correction of that situation.

Before we allow the Bank to charge companies more, should we not ask ourselves whether there are any efficiencies that could or should be made in the Bank’s supervisory routines and systems? Could the Minister say whether the Bank has asked itself that question? If it has, perhaps the Minister could tell us what the answer was and how it was arrived at. If it has not asked the question, why not?

We note that the consultation on the levy produced only one relevant response—from, we assume, UK Finance. This response made five points; the Bank addressed four. The first was the rate of selldown of the Bank’s gilt portfolio. The concern appeared to be that this selldown would significantly increase the Bank’s costs and therefore the levy required. The Bank seemed to think that this was not an issue, but its explanation seemed very complex. May I ask the Minister for a “beginner’s guide” explanation? Is the industry right to worry about the levy increases potentially arising from a gilts selldown and, if not, why not?

The second point raised in the consultation response seemed the most important. The respondent suggested that the non-bank financial institutions, NBFIs, could in future be added as eligible levy-paying institutions in Schedule 2ZA to the Bank of England Act 1998. These NBFIs certainly seem large enough to be added. At the Managed Funds Association Global Summit in Paris in May last year, it was estimated that NBFIs now represent about 50% of global financial assets.

Addressing this point, the Bank simply says that the formal review referred to in paragraph 14.1 of the EM

“is expected to include assessment of which institutions are regarded as eligible to pay the Levy”.

I note the words “is expected to”. I also note that this review is five years away. Is not the growing size of the NBFI sector a reason for the Bank’s supervisory oversight to be much more extensive? Is it not simply unfair that NBFIs should get a free supervisory ride?

The third issue raised in the consultation and addressed by the Bank was the desirability, for planning purposes, of a five-year budget plan to help institutions plan their own budgets. The Bank has agreed to consider what is a perfectly reasonable request, but can the Minister say when it will have a substantive response to that comment from the consultation?

The fourth issue concerned the reference period; the Minister has mentioned this. The Bank concluded that the proposed reference period—the same period used for the PRA levy—is the appropriate one. Speaking of the PRA, can the Minister explain to us how the Bank of England levy and the PRA levy work together, as well as how double-charging is avoided?

Finally, why does this SI contain no coming-into-force date or commencement provisions?

[Lord Livermore (Lab)]

My Lords, we fully support the replacement of the current cash ratio deposit and the proposed mechanics of the levy. We therefore support this statutory instrument.

I have only one question, related to the timing of this measure. As I am sure the Minister would agree, providing the banking sector with certainty is essential to securing the confidence needed to incentivise investment in the real economy. Can she therefore provide clarity on when this SI will come into force?

[Baroness Vere of Norbiton (Con)]

I am grateful to noble Lords for sharing their thoughts on this SI. It is a simple switchover from one scheme to another, but I recognise that there are points that deserve a bit more insight. I hope that, by the end of my closing speech, I will have an answer to the question about the coming-into-force and commencement date, including why that has not happened.

I turn to the comments from the noble Lord, Lord Sharkey. He made good points about the amount of money that will be spent on these policy functions. I asked the same question. It is clear to me that the Bank of England is independent and sets its own budget but does so in a prudent way. Each year, as I said in my opening remarks, the Bank determines the scope of the policy functions that should be funded and, therefore, what the total levy will be. However, the Bank’s policy costs to be recovered through the levy will require approval by the Bank’s Court of Directors, which is a bit like its board, I suppose, and which is responsible for the efficient use of funds—not only those raised by the levy but across the whole of the Bank’s budget.

The levy will also feature as part of already established arrangements for regular discussions between the Bank and the Treasury covering the Bank’s financial position. The Bank continues to be accountable to Parliament in respect of its finances and budget in various ways, including but not limited to through its annual report and accounts—some significant detail about this will be set out its report and accounts—and through regular public appearances by governors and members of the court before the Treasury Select Committee.

I will now embark on a guide to the cost of transition; let us see how we do. When the Bank moves from the CRD scheme to the levy, institutions will get their deposits back as there is no longer a legal basis for the Bank to hold deposits. Through this, a total of £13 billion in cash ratio deposits will be returned to firms. They will be returned as remunerated reserves as the Bank intends to hold on to the gilt portfolio that it has purchased under the scheme and allow this to roll off naturally. This is the most appropriate course of action; I suspect that that also means it is the cheapest. It means that, during a transition period, the Bank will need to pay a bank rate on the remunerated reserves. This is a policy cost that will be covered by the levy. The cost of the transition between the CRD scheme and the levy per year will depend on the rate at which the legacy CRD gilts mature or are sold. This is because the income available from the legacy CRD gilt portfolio will reduce the amount being recouped by the Bank under the levy.

Overseas Territories: Tax Haven Status

Baroness Vere of Norbiton Excerpts

Monday 26th February 2024 Lords Chamber

[Baroness Chakrabarti (Lab)]

My Lords, in polarised times, I look across and see the significant space where the temperate voice of our friend Lord Cormack ought to be. We will all miss him. I beg leave to ask the Question standing in my name on the Order Paper.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, the UK has not made any recent quantitative assessment of the economic benefits of the overseas territories to the UK, but we continue to support the territories to build vibrant and sustainable economies, including through encouraging greater links to the UK economy. The overseas territories are an integral part of the British family. The elected Governments of inhabited overseas territories are responsible for fiscal matters, including tax, and are committed to upholding international tax standards.

[Baroness Chakrabarti (Lab)]

I am grateful to the Minister, if not exactly any the wiser. Last November, the UN General Assembly voted overwhelmingly in favour of a new framework convention on tax justice. His Majesty’s Government were among a small club of rich countries that voted against. Now that that Motion has been so overwhelmingly carried, and there will be negotiations for a treaty to deal with tax avoidance and evasion in the world, will His Majesty’s Government engage?

[Baroness Vere of Norbiton (Con)]

As the noble Baroness will know, there is an enormous amount of work going on at the moment around international tax. That has been led by the OECD and the inclusive framework, involving 130 countries and jurisdictions from around the world working on two pillars: one for the greater share of group profits to be taxed in market countries, and the second a global minimum tax, where all profits will be subject to a 15% minimum effective tax.

[Baroness Kramer (LD)]

My Lords, from these Benches I join in with the shock and sense of loss at the death of Lord Cormack. He was such a big figure in this House and I know it is a very personal feeling for many of us sitting here, as well as for those across all Benches.

On 8 February—this month—a jury in Florida found the former Premier of the British Virgin Islands guilty of drug trafficking and money laundering while in office. Do the Government understand that that kind of corruption would have been much more difficult had there been in place the long-promised public register of beneficial ownership? The Government had guaranteed to this House that it would be in place for all overseas territories by the end of last year. Where are we in this process, and do the Government recognise their crucial role in stemming corruption?

[Baroness Vere of Norbiton (Con)]

The Government absolutely recognise their crucial role in stemming corruption; we work very closely with the overseas territories on all sorts of issues when it comes to illicit finance. I refer the noble Baroness to the Written Ministerial Statement from my honourable friend in the other place, the Minister for the Americas, Caribbean and the Overseas Territories; in that is a helpful summary that sets out where each of the overseas territories is in relation to introducing a public, accessible register of beneficial ownership.

[Lord Naseby (Con)]

My Lords, I declare an interest as I have family living in the Cayman Islands. Is that particular territory not a good example that others should follow? It has a well-regulated jurisdiction with a tax-neutral framework, which supports taxes being paid where the profits are made. It has signed up to and is approved by FATF, on anti-money laundering, and also has a positive rating on the OECD Global Forum. Against that sort of background, does it not demonstrate that territories such as Cayman that are close to us have got their house in order? And, yes, against that background one would hope that any that have not would follow suit.

[Baroness Vere of Norbiton (Con)]

I am grateful for my noble friend’s support for the Cayman Islands, but it is just one of the many different overseas territories. Not wishing to detract at all from his words, I would say that the Cayman Islands is doing well, but I think it can do better. For example, the beneficial ownership register that the Cayman Islands is planning to put in place will still have a legitimate interest access filter. We believe that that is an interim step, and we would like to see fully open registers of beneficial ownership as soon as that can be implemented.

[Lord Collins of Highbury (Lab)]

My Lords, I associate myself with the comments in relation to Lord Cormack. One thing he was incredibly powerful about was encouraging others, particularly on the parliamentary fellowship across this House. He was a great person who will be sadly missed.

Perhaps I might pick up the Minister in relation to the timescale for registers of beneficial ownership. We have had some progress, I am not denying that, but the British Virgin Islands and others have got timetables that talk about five years. What are the Government doing to support these overseas territories to implement these registers in a speedier and more thorough fashion? Support is needed as well.

[Baroness Vere of Norbiton (Con)]

I absolutely agree that we need to support the overseas territories. We have the skills, capacity and capability to do that, and that is what we do—but recognising that the relationship with each of them can be very different. They have elected Governments of their own. Those Governments are responsible for their domestic affairs. The noble Lord mentioned timeframes of five years. The British Virgin Islands, which I admit is probably towards the end of introducing the beneficial ownership registers, is looking at putting a framework in place no later than quarter 2 of 2025.

[Lord Watts (Lab)]

My Lords, can the Minister explain why, at a time when British people are paying more tax than they ever have done, the richest people in the world and in this country are avoiding tax altogether—people such as the part-owner of Manchester United, who now apparently wants the taxpayer to give him billions of pounds to invest in his business? Where is the fairness in that?

[Baroness Vere of Norbiton (Con)]

Obviously, I cannot comment on any individual’s tax affairs, but it is the case that overseas territories are non-sovereign jurisdictions. They have a unique relationship as part of the British family, but they set out their own tax legislation within their own legal structures and it is certainly not for the UK Government or Parliament to drive a coach and horses through that.

[Lord Hannan of Kingsclere (Con)]

My Lords, has the Minister’s department carried out any assessment of how much higher tax rates would be in the rest of the world if there were not competition from these lower-tax jurisdictions to keep us in check?

[Baroness Vere of Norbiton (Con)]

I am afraid I have to say to the noble Lord that we have not carried out that assessment.

[Lord Sikka (Lab)]

My Lords, on 8 June, the Treasury Secretary in the other place said:

“HMRC plans to calculate and publish a new stand-alone”


estimate of the

“offshore tax not being correctly reported”

by individuals

“next year, for the ‘Measuring tax gaps’ 2023 edition”.

Well, that hat has already been published, but there is still no estimate of the offshore tax gap. Can the Minister explain why the Government are so relaxed about offshore tax avoidance?

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

The Government are not relaxed about offshore tax avoidance. We maintain that all tax avoidance needs to be stamped out, which is why we work so very closely with the overseas territories on tax avoidance, anti-money laundering and counterterrorism finance, including with registers of beneficial ownerships. We have very good relationships. We meet with our colleagues frequently to discuss how to put things in place such that they are implemented as quickly as possible.

[Lord Hamilton of Epsom (Con)]

My Lords, does my noble friend accept that, if some of the overseas territories ceased to be tax havens, they would become an even greater burden on the British taxpayer?

[Baroness Vere of Norbiton (Con)]

As I said in my opening remarks, we encourage the overseas territories to develop sustainable and successful economies. As I also said, they are responsible for setting their own tax rates, and we will think about how future tax rates may change. It is also the case that tax rates will be underpinned by, in particular, pillar 2, which will be implemented via domestic rules across all overseas territories where it is relevant.

Finance Bill

Baroness Vere of Norbiton Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 21st February 2024 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the Bill be now read a second time.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, it is a pleasure to open this debate on the Finance Bill. As I explained during a memorable debate in your Lordships’ House last year, the Autumn Statement was designed with three purposes in mind: “to drive growth” across the economy, to create jobs, and to ensure that hard-working people can keep more of what they earn.

As many noble Lords will know, since the beginning of 2023 we have been working on five priorities. Three of those priorities are economic: to halve inflation, grow the economy and reduce the national debt. I will outline our current economic picture in more detail shortly. A year on from when we set out these priorities, I am pleased to report that there has been some significant progress.

Inflation has fallen from 11.1% to 4%, and this has led to two positive outcomes: wages are rising faster than inflation, and mortgage rates are starting to come down. On growth, like some other similar economies, the UK faced challenges at the end of 2023, but overall the economy was larger at the end of the year than at the start. The Bank of England and the IMF forecast growth to increase over the next few years. Finally, our national debt is on track to fall as a share of the economy.

The Government proposed at the Autumn Statement to put money back in people’s pockets, cut taxes and “back British business”. That is why the National Insurance Contributions Act has reduced national insurance from 12% to 10%, delivered a tax cut for 29 million working people, and saved the average worker £450 a year. But I recognise that times are still far too tough for far too many. That is why we need to stick to our plan, so we can deliver the long-term change our country needs to deliver a brighter future for Britain, and improve economic security and opportunity for everyone.

As part of delivering our broader long-term plan, we need to deliver our Autumn Statement commitments. This Finance Bill does exactly that. First, it will support British businesses by allowing them to invest for less. Secondly, it will support employment, by ensuring that hard work pays, through reforms to our pensions system. Finally, its measures will improve and simplify our tax system, ensuring that it is fit for purpose. Indeed, the Finance Bill covers 36 different measures in total, some more technical than others.

Before I delve into the specifics of these measures, I will first outline some of the economic context behind this Finance Bill. As noble Lords will be aware, inflation—and the subsequent impact on the cost of living—has been the Government’s key challenge since Vladimir Putin’s illegal invasion of Ukraine in 2022. Therefore, it is significant that, as I noted previously, inflation has more than halved, from 11.1% in late 2022 to 4% in February. Our key priority remains getting inflation back to the 2% target, to drive sustainable growth. The recent GDP figures are a reminder that, while inflation has more than halved from 11% to 4%, wages are rising, mortgage rates are falling and taxes are being cut. But we are not out of the woods yet; there is more to do. The OBR has projected that the 2023 Autumn Statement policies will have “lasting supply-side effects”. Combined with policies from the Spring Budget in 2023, this approach will permanently boost output by 0.5% by 2028-29.

I will now outline the measures in the Bill which will back British business, reward work, and support a modern and simpler tax system. I turn to the suite of measures to back British business. First, we will make full expensing permanent, thus allowing businesses to invest for less. As a result, firms will save £10 billion a year—the most generous plant and machinery capital allowances of any major economy. This will drive 0.1% GDP growth over the next five years, and that number will increase to 0.2% every year over the longer term. It is forecast to unlock an additional £3 billion of investment per year.

The Government’s second measure recognises the importance of research and development. R&D is important because of its dual role: driving economic growth and bringing benefits to wider society through innovation. Therefore, we will merge two government programmes: the R&D expenditure credit scheme and the small to medium-size enterprises scheme. This will have two key impacts: it will simplify the system and provide greater support for UK firms to drive innovation. These changes will apply from 2024 onwards. I note that the Government have consulted widely on proposed changes to the R&D tax credit system over a considerable period. We have decided to proceed with an April 2024 implementation date to move the system to a more stable footing at the earliest opportunity.

In the Bill we have gone even further, by introducing greater support for loss-making R&D-intensive SMEs. In addition, we will also lower the R&D intensity threshold required to access this support to 30%. As a result, around 5,000 extra SMEs will now be covered by the support and will receive £27 per £100 of qualifying R&D invested.

I note that noble Lords on the Economic Affairs Finance Bill Sub-Committee want us to simplify this scheme further by bringing it within the merged scheme at a higher rate of relief. It is worth being aware that the intensive scheme will share many of the merged scheme’s rules, including on subcontracting, albeit with a different rate mechanism given that the merged scheme is above the line. While there is potentially an option to simplify in the future, further work is needed to establish how that would operate while still targeting the scheme effectively.

These measures will significantly increase support to firms’ R&D efforts by about £280 million per year by 2028-29. We will also extend the sunset clause for two more programmes: the enterprise investment scheme and the venture capital trust scheme. Both will be extended to 6 April 2035, providing support to young companies in their endeavours to raise capital.

The UK’s creative industries grew 1.5 times faster than the wider economy between 2010 and 2019. It is therefore right that the Government offer them their fullest support. That is why we will reform tax reliefs to refundable expenditure credits for the film, TV and video games industries. In addition, we have designed targeted measures to boost investment in three areas: animated film, animated TV and children’s TV programmes. These areas will now be eligible for a 5% uplift in tax relief to a 39% credit rate.

This Government believe that hard work must be appropriately rewarded. That is why we are using this Bill to legislate for the abolition of the lifetime allowance. The OBR estimates that this will retain 15,000 workers annually in the UK labour market. The British Medical Association described it as

“potentially transformative for the NHS”,

because many of the individuals will be highly skilled, including senior doctors. We will effect this transformation with the right incentives. The removal of pension tax limits will motivate individuals to work harder for longer so that they can reap the rewards in future years.

Finally, I turn to measures in support of the third objective of our Finance Bill, a simpler and modernised tax system. This Bill, as I previously mentioned, makes full expensing permanent, which is a huge simplification for larger firms, but we are also supporting more than 4 million smaller, growing traders by expanding the “cash basis”. This will simplify the process for them to calculate their profits and pay income tax. We have closely consulted industry and, as result, the Government will legislate to remove three of the main restrictions on using the cash basis, completely removing limits on the size of businesses able to use the basis, interest deductions and the loss relief available.

We must also make sure that HMRC delivers on its strategic objective to collect the right tax at the right time. The Bill will deliver this by enabling HMRC to reduce the off-payroll working PAYE liability of a deemed employer which is responsible for ensuring that PAYE is calculated and sent to HMRC correctly. This will apply where that engagement was incorrectly treated as self-employed for tax purposes.

Of course, we need to ensure that UK plc is following, adopting and influencing developments on taxation on the global stage. That is why in the spring we legislated to implement OECD pillar 2 in the UK. This built on a historic international agreement to a two-pillar solution to the tax challenges of a globalised digital economy. This Bill goes on to make technical amendments to the main pillar 2 rules, as identified from stakeholder consultation, and ensures that the UK remains consistent with the latest internationally agreed guidance.

We will also take forward other technical measures, such as improving the data HMRC collects from its customers. These will result in a trusted, modern tax administration system. However, a simple, modernised tax system must also be fundamentally fair. Therefore, this Bill will create a criminal offence for promoters of tax avoidance specifically where persons continue to promote a scheme after the receipt of a stop notice. The Bill will also ensure that HMRC is empowered to respond more quickly to tackle promoters of tax avoidance. It will do so by introducing a new power for HMRC to bring disqualification action against the directors of companies involved in promoting tax avoidance. The scope of that power will include being applicable against those who control or exercise influence over a company.

Further to that objective of fairness, our next measure under this objective will amend the construction industry scheme to reduce the scope for tax fraud in that industry. To do so, the amendment will add VAT to the gross payment status test. This means two things: VAT compliance will now be checked as part of this process and HMRC powers to remove gross payment status will be enhanced. We will also legislate to confirm that, in line with the retained EU law Act, where UK law is incompatible with EU law, UK VAT and excise law will prevail. This measure also ensures the stability of the VAT and excise regimes while providing legal certainty for business following the changes in the retained EU law Act taking effect. This protects billions of pounds for the Exchequer.

This Finance Bill delivers some of the Chancellor’s key announcements at Autumn Statement 2023. As I have set out, it backs British business, rewards hard work and supports a modern and simpler tax system. I beg to move.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, I had better intervene quickly, before that continues. I am grateful to my noble friend, but I am sure he is well aware that that was not the usual procedure.

I am very grateful to all noble Lords who have taken part in the debate this evening. It has been a spirited debate, as ever, and I can definitely say at the outset that I am unable to agree with everything that has been said—by some noble Lords more than others, and by one or two almost entirely. But let us leave it at that.

There have been many excellent contributions and points raised. I am very grateful to the noble Lord, Lord Davies, who kicked off the debate with some wonderful tax questions about pensions. Clearly, the issue around pensions catching up with the personal allowance is not something that I can comment on now, but it is something that people are aware of and it will be addressed over a period of time. It is the case, too, that many political parties are committed to the triple lock. Pensioners whose sole income is the new state pension and who do not have deferred or received protected payments currently do not pay any income tax, as noble Lords will know. This year we provided the biggest ever cash increase to payments—a 10.1% rise.

The Government have doubled the personal allowance since 2010, ensuring that those with the lowest incomes do not pay income tax at all. Many noble Lords are concerned about the level of the personal allowance. I believe that over the longer period of time, looking back to 2010, there have been significant increases, such that 30% of people do not pay tax at all. I accept that, given external headwinds, certain decisions had to be made—and were made quite rightly—to freeze the personal allowance over a period of time. However, it is one of the goals of this Government that, as we return to the sort of growth that I think all noble Lords would like to see, it would be a possibility in future that we would be able to address how those personal allowances are going to change over time.

If a person has to pay tax that cannot be collected through PAYE, whether because they have no employment or they have an occupational private pension, and they are not already a self-assessment taxpayer, HMRC may issue them with a simple assessment to explain what tax they owe and how to pay it. That would be well in advance of any payment being needed. But, of course, that assumes that personal allowances and the state pension collide in future. I would not want to say that that is the case, but it is an issue that people are aware of.

The issue around the tax threshold freezes comes up quite a lot in your Lordships’ House. I absolutely accept that we have had to make some incredibly difficult choices but, having done so, a UK employee can earn more before paying income tax and social security contributions than an employee in any other G7 country. We do not tax our employees as highly as other people do, and that is to our credit. We have taken a fair approach to repairing the public finances, so we have asked everybody to contribute a little through keeping tax thresholds fixed. However, that ensures that those with the broadest shoulders pay the most. As I say, now that inflation is falling and the economy has turned a corner, we must continue with our plan, and we can responsibly return some money to taxpayers to slightly change the shift and the amount of tax that people will now pay, versus what they were going to pay in the past. But it is important that we do that in a way that supports the work and grows a sustainable economy for the future. Prioritising those in work is the best way in which to get the economy growing and reducing national insurance contributions is the best way in which to target those individuals.

I will check through the comments made by the noble Lord—

[Lord Sikka (Lab)]

I am grateful to the Minister. Is she saying that we cut taxes for people? Earlier she mentioned 29 million people. Can she also confirm that 17.8 million UK adults with an income of less than £12,570 a year received a zero cut in national insurance or taxes in last year’s Budget?

[Baroness Vere of Norbiton (Con)]

Yes, but let us also remember that the national living wage has gone up by 25% in real terms since 2010. There are all sorts of different things that the Government have done to protect the most vulnerable; the noble Lord is picking on just one thing. We are always looking at the most vulnerable to ensure that, for them too, work pays. That includes lifting the national living wage.

[Lord Sikka (Lab)]

I am happy to respond to the Minister—this could get interesting. The £12,570 threshold —and, as I said, 17.8 million adults have less than that —is after taking account of the increases in minimum wage. Many people have zero-hours contracts, work part-time or are maybe on a pension. That is after taking account of all the increases that the Minister said have been handed out.

[Baroness Vere of Norbiton (Con)]

Does the noble Lord want me to give them a tax cut for taxes that they do not pay? I am not following here at all, but I am not willing to get into a long debate about this right now. The noble Lord may write, and I will respond, if he would like to get into that in detail, but I am not willing to get into the debate right now.

Moving on to other issues raised by the noble Lord, Lord Davies, I will write in more detail around the specific things; I was doing very well for 80% of his speech but I lost him towards the end, around the taxation of negative pension growth, or gains. I will write on that point.

The noble Lord, Lord Desai, noted that the Bill is too late. Obviously, this is beyond a humble Minister like me. The House authorities will have guided it through. I know that it took a while to get through the Commons, and we addressed it in your Lordships’ House as quickly as we could once it had finished in the Commons. I would like to push the blame down to the other place and leave it there. However, it is always our ambition to get our Finance Bills into and through Parliament as quickly as possible, because it is a really important thing that we do.

I suspect that, particularly as we go into the Spring Budget, there will be many more debates around growth. I say again that, since 2010, we have had the fastest growth of any European G7 nation. I also suspect that there will be counterarguments to that, and that those will continue. In many of these circumstances, particularly some of the points raised by the noble Lord, Lord Desai, it is just a case of economists not agreeing. Not all economists agree—it is an art, not a science. For those of us who studied economics at university, it is clear that there are sometimes fundamental differences, as noble Lords have said today. My noble friend Lord Leigh is also a very experienced person in these matters. As he pointed out, he does not agree with much of the analysis. Sometimes, that is the case.

I am incredibly grateful to my noble friend Lord Leigh, his committee and the officials for the report of their sub-committee. I reassure him that we take those reports very seriously. Officials read them to ensure that we take into account the considerations and the recommendations made. On research and development, I think he agrees with us that we want to keep things as stable as possible. We do not intend to make any further changes. However, there are a few small areas where we will continue to engage, and any changes will be done cautiously. We hear what he and his committee say, and we will consider it carefully.

My noble friend noted the issue around HMRC data and tax administration. The Government’s economic response to the coronavirus pandemic was made possible through the powerful use of all sorts of data. However, it highlighted that there are gaps in the data that HMRC holds. New or improved data collected by HMRC, such as detailed information on employee hours and start and end dates on self-employment, will help government to address some of the gaps, building a tax system which is more resilient. I reassure him that the Government are taking a proportionate response and collecting improved data in areas where taxpayers already hold it, to minimise administrative burdens. The existing safeguards are robust, well-established and well-understood. I reassure him that we expect all taxpayers to have this information already and be able to provide it to HMRC. HMRC will take a reasonable and proportionate approach to the application of any fees or penalties in this regard. These changes will not take effect before April 2025, to give the system some time to adjust.

My noble friend Lord Leigh also mentioned HMRC customer service. Noble Lords will have heard me say this before, and indeed I have had the discussion directly with HMRC: it acknowledges that its customer service levels are simply not as good as they should be. Levels on the phone and in the post are below service standards from last year. HMRC has been working very hard to improve services for those people who need to call, but encourages people to use the digital services as much as possible, as they can be very efficient and get very good ratings from customers.

My noble friend Lord Leigh once again brought up his minority sport—a very important sport—of EIS and VCT, and why these are being extended by regulation. He hinted about it being something to do with the Windsor Framework, the EU, Northern Ireland, and the trade and co-operation agreement, and he is right. These are important schemes, and the vast majority of UK subsidies will need to comply only with the UK’s domestic subsidy regime, as noble Lords would expect. The Windsor Framework also means that the EU-UK Trade and Cooperation Agreement will now serve as the primary framework governing subsidy control between the UK and the EU. For the EIS and the VCT scheme, we are engaging with the EU on approval for extension, due to Northern Ireland’s unique access to the EU single market. We are working to meet all relevant obligations. We believe that the systems are consistent with subsidy control principles and address evidence of market failure, and therefore we think those conversations will go well.

My noble friend mentioned the complexity of Pillar 2. I agree that it is complex and difficult to administer—it is necessarily complex, because of the wide variety of different corporate structures which exist. However, we are reassured that we have simplified processes as much as we possibly can, such that compliance from business will be at the sorts of levels that we want to see.

On stooge directors, as noble Lords would expect, these measures are targeted at the promoters of tax avoidance schemes. Stooges enable these promoters to hide their activities, and, frankly, that is not what we are after at all. The Government understand the need for strengthened HMRC powers to be proportionate and balanced. Those are the two words that are absolutely key. Nobody wants to put anybody in jail because they did something under the duress of somebody else.

The noble Lord, Lord Sikka, raised a number of points and many rhetorical questions, and, I suspect, lots of really good ideas for the Labour Party manifesto. I, unfortunately, cannot agree with much of what he said, particularly his insistence that the state needs to substantially increase investment which is traditionally private sector activity. The state does invest, but it invests in those areas where we feel it is right for the public sector to be investing. We believe that the private sector is much better at picking up that sort of investment.

The noble Lord seemed to imply that the Government have done nothing against tax avoidance and that it is all terrible out there, etcetera. I am afraid that is just not right. The amount of money lost to the Exchequer from tax avoidance has fallen from £3.6 billion in 2010—to pick a year—to £1.4 billion in 2021-22. That is a significant reduction in the amount of tax avoidance. Again, I do not expect the noble Lord to agree with me. He went on to ask me for specific examples. HMRC already prosecutes promoters. Since 2016, more than 20 individuals have been convicted of offences relating to arrangements which have been promoted and marketed as tax avoidance. Our interventions are working, and there are interventions in the Bill to make our levers stronger. This Government do not tolerate tax avoidance and we will do whatever we can to stop it.

The noble Baroness, Lady Kramer, raised a number of issues. I have already mentioned thresholds; from the Government’s perspective, we understand what had to happen over that time. She raised the issue of public spending, which I note is going up in real terms by 0.75% over the forecast period. What slightly concerns me now is the question of where it would stop. If it is going up in real terms every single year, after how many years would we say that that is enough? However, I also put it to her that, as important as productivity is in the public sector, in the private sector you would not get away with the lack of focus on productivity. That is why the Chief Secretary to the Treasury is looking at a productivity review across all areas of government, to ensure that public spending is the right amount. At the end of the day, the best way to increase the amount of money that we have available for public spending is to grow the economy, and that is exactly what this Government are doing.

The noble Baroness mentioned productivity. It has been estimated that supply-side measures from the Autumn Statement 2023 could close up to half of our productivity gap with France, Germany and the US. We feel that we are making good progress, investing in the right areas to improve productivity.

The noble Baroness mentioned climate change, which is incredibly important. It is also interesting that she mentioned Labour in her appeal to keep climate change front of mind, because Labour still has its very unachievable climate plans, with now literally no funding. It used to have £28 billion of funding, which shadow Front-Bench Members managed to commit to over 300 times. Unfortunately, that £28 billion has now disappeared, but all the policy seems to remain in the same place. That goes back to the point that the noble Lord, Lord Livermore, made. Apparently, in the stability, investment and something else he said—their plan to deliver, which I am still looking for the detail on—all Labour policies will be fully costed, apart from those on climate change. Is that right? I am looking forward to it. I do not know; the £28 billion has disappeared but the policies have not.

The noble Lord asked me to commit to certain things for the Conservative Party manifesto, which I will not do, but the Government have just introduced permanent full expensing. It would be a great surprise to me if, all of a sudden, it were to disappear again, because we believe that it is a very valuable thing to do.

The noble Lord mentioned non-domiciled individuals. I, too, am very interested in that and will keep an eye out for how much money will be raised from the changes to non-domiciled individuals’ tax arrangements. I suspect that it will not be anywhere close to the amount of money that Labour platitudes and unfunded promises will need as we head into the election. But we believe that non-UK domiciled individuals play an important role in funding our public services through their tax contributions. The Government want the UK to be a destination that will attract talented people to work and do business, and that includes people from overseas. It is only right that those who choose to live here for a long time pay their fair share of taxes—namely, that they cease to become non-domiciled.

I believe that I owe various noble Lords a letter, which I will ensure gets to them as soon as possible. In the meantime, I commend the Bill to the House.

Bill read a second time. Committee negatived. Standing Order 44 having been dispensed with, the Bill was read a third time and passed.

UK Economy

Baroness Vere of Norbiton Excerpts

Wednesday 21st February 2024 Lords Chamber

[Lord Livermore (Lab)]

My Lords, the UK’s growth forecast was recently downgraded for every single year for the next three years. Debt is set to surpass £3 trillion for the first time ever. We are seeing the biggest ever fall in living standards and the tax burden is set to reach its highest ever level. Now, the ONS has confirmed that Britain has fallen into recession, with GDP per capita falling in every single quarter of the past year. Yet the Chancellor says, “Our plan is working”. Was it part of the Government’s plan, having spent 14 years in the economic slow lane, to now put our economy into reverse?

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

I absolutely believe that our plan is working. It is critical that we continue along the path that we have set out. One of the biggest challenges we have faced in this country over recent months is high inflation. That is the biggest barrier to growth and that is why halving it is still our top priority. Thanks to decisive action, supported by the Government, inflation has fallen. If one looks at what happens when inflation falls, one sees that interest rates can also fall, which will also mean that growth will begin to rise. The noble Lord mentioned growth. It is the case that the Government have very clear policies for growth. Noble Lords will discuss them with me shortly, as we debate the Finance Bill.

[Baroness Kramer (LD)]

My Lords, the Resolution Foundation has reported that GDP per capita is now 4.2% below its path before the cost of living crisis. That is the equivalent of a loss of nearly £1,500 per household. The OBR has said that we are set to see the biggest fall in living standards since 1950. Do the Government understand that, for ordinary people, their plan is delivering real day-to-day pain and often deprivation? Nothing she has said or proposes to do changes that, as she will see if she looks at the forecasts.

[Baroness Vere of Norbiton (Con)]

What is absolutely clear is that the forecasts show that the UK is forecast to grow, and very strongly. The IMF has forecast that we are to grow faster than Japan, Germany, France and Italy over the next five years. I absolutely accept that the economy has seen some very significant challenges over recent years, with global instability in Ukraine and in the Middle East, and the legacy of Covid. I was a Minister throughout that period, and at no time did I ever hear any ideas from the party opposite or the Liberal Democrats that would have put the economy in a better situation than it is in now. They called always for more spending, for longer periods. We must fix the issues that appeared, mostly due to external factors, which is exactly what we are doing. The economy is turning a corner—indeed, it has turned a corner, thanks to our decisive action.

[Baroness Falkner of Margravine (CB)]

My Lords, the Minister referred to global headwinds. Would she accept that an economy such as the United States has experienced exactly the same headwinds? Instead of opening our newspapers and reading that the Chancellor intends to give enormous universal tax cuts on 6 March, would it not be more sensible for the Government to acknowledge that the people who are hurting the most from the cost of living crisis are the people at the bottom lower income deciles? Those are the people who should be targeted for assistance if there is any money going.

[Baroness Vere of Norbiton (Con)]

Obviously, I cannot comment on any potential tax cuts. I am sure the noble Baroness will agree that the US has a very different economic structure from the UK and tends to offer slightly less support to those at the bottom end of the ladder. She mentioned those who are the most vulnerable. Personal allowances have gone up by 30% in real terms than in 2010. That means that 30% of people now pay no tax. We are focusing our interventions on people at the lower end of the income scale, but we are also focusing them on growing business.

[Lord Leigh of Hurley (Con)]

Would my noble friend agree that comparisons with the United States are not really appropriate, particularly given cheap energy costs in the States due to fracking, which we do not have? It might be better to compare us with European countries. Since 2010, the UK has had the fastest growth of any European G7 country—faster than Italy, Spain, Germany and France. Will she welcome today’s news that the budget surplus for net borrowing, excluding banks, shows a surplus for January of £16.76 billion, and today’s announcement that the UK purchasing managers index rose in January to 52.9? Rather than knocking the economy, let us celebrate the good news.

[Baroness Vere of Norbiton (Con)]

I agree with my noble friend—let us celebrate good news, and I believe there will be more good news to come. He mentioned debt. It is fair to reassure noble Lords that we are on track for debt to fall as a share of the economy. Public sector net debt as a percentage of GDP is expected to fall next year to the end of the forecast. If one were to exclude Bank of England debt, it will fall in the final year, and public sector net borrowing as a percentage of GDP is forecast to fall every single year. We also have the second-lowest debt as a share of GDP in the G7.

[Lord Sikka (Lab)]

My Lords, the Minister talked about curbing inflation. The Government have a very strange policy. I characterise it as somebody who has an ailment and goes to see their doctor, who dusts off a 100 year-old book in which, regardless of the reasons for the ailment, the answer is the same remedy. Whether inflation is caused by wage rises, inequalities or profiteering, it is the same policy: we must increase interest rates and force ordinary people to hand over their wealth to the banks. That is no policy, because it causes other ailments. Will the Minister tell us what other ailments have been caused by this remedy adopted by the Government?

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

As the noble Lord will know, interest rates are just one of the levers that the Bank of England has to influence inflation. The Government can also play a key role in tackling inflation —for example, by ensuring that public sector pay awards are kept within reasonable bounds.

[Lord Sikka (Lab)]

Can I have another bite here? The Minister said that public sector wages are within reasonable bounds, which suggests that the Government think wage rises are inflationary. But that does not apply to executive pay, profiteering, dividends or share buybacks—are they not inflationary as well? If they are, why are the Government not curbing them?

[Baroness Vere of Norbiton (Con)]

The noble Lord well knows that inflation is caused by a vast amount of different factors. When we announced our interventions at the Autumn Statement, the OBR said that they were not inflationary. That is another way in which the Government put downward pressure on inflation. As we have seen, the proof is in the pudding; we have gone from 11% in October 2022 to 4% in January 2024.

[Lord Berkeley of Knighton (CB)]

My Lords, I am glad that the Minister feels encouraged by the latest figures. Can she understand why some people who have inflated mortgages feel they have them because of the antics of Liz Truss and Kwasi Kwarteng—which is admittedly not the responsibility of the noble Baroness?

[Baroness Vere of Norbiton (Con)]

As the noble Lord will be aware, the reason interest rates are particularly high is to control inflation. The Bank of England now expects inflation to get back to the target of around 2% in the early summer. If that can happen, then of course interest rates would be able to come down.

[Baroness Lawlor (Con)]

Will my noble friend consider a longer-term anti-inflationary policy such as ensuring that the Monetary Policy Committee of the Bank of England, and the governor, build into their forecasting model a measure to take account of the growth in money supply each year?

[Baroness Vere of Norbiton (Con)]

I will take that idea back to the Bank of England.

[Lord Leigh of Hurley (Con)]

Does my noble friend agree that it is highly complimentary to Liz Truss and Kwasi Kwarteng to suggest that their actions are responsible for interest rates in every country around the world, which are broadly comparable to ours?

[Baroness Vere of Norbiton (Con)]

As I think I said earlier on in answering this question, all sorts of countries have faced the challenges that the UK has. There have been a number of countries, over the second half of 2023—either in Q3 or Q4—that saw a small technical contraction in their economy. Andrew Bailey, the Governor of the Bank of England, believes that the technical recession may already be over. I expect us to return to growth very soon.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024

Baroness Vere of Norbiton Excerpts

Wednesday 14th February 2024 Lords Chamber

Moved by

[Baroness Vere of Norbiton]

That the draft Order laid before the House on 18 December 2023 be approved.

Considered in Grand Committee on 13 February.

Motion agreed.