Economy: Update

Lord Agnew of Oulton Excerpts

Tuesday 28th April 2020 Lords Chamber

The Statement was made in a Virtual Proceeding via video call.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, I shall now repeat a Statement on coronavirus that was made yesterday in the other place by the Chancellor of the Exchequer. The figures have changed since then, and this Statement contains more up-to-date figures. The Statement is as follows:

“Mr Speaker, thank you for giving me the opportunity to update the House on our economic response to the coronavirus. Let me say at the outset that I am grateful to Members from all sides of this House, including the new Shadow Chancellor, for their contributions to the debate.

We should be in no doubt about the seriousness of the economic situation. The Office for Budget Responsibility has published a scenario showing that the coronavirus will have very significant impacts, both at home and in the global economy. More than 1.5 million new claims have been made to universal credit; over 4 million jobs have now been furloughed. Survey evidence suggests that a quarter of businesses have paused trading. These are already tough times. There will be more to come. While our interventions have saved millions of jobs and businesses, we cannot save every job and every business. I understand, and I share, people’s anxiety but, right now, the most important thing we can do to protect our economy is to protect the health of our people.

As my right honourable friend the Prime Minister said this morning, we are making progress; we are beginning to turn the tide. But if we lose control of the virus again we risk seeing a second spike, which we all want to avoid. So the goal of our economic strategy is to provide a bridge over what will be a sharp and significant crisis by keeping as many people as possible in their existing jobs, supporting viable businesses to stay afloat, and protecting the incomes of the most vulnerable—in other words, to maintain the productive capacity of the British economy, so that once we are able to refine the public health restrictions, we can, as quickly as possible, get people back to work, businesses reopening, the self-employed trading again.

The OBR has been clear that if we had not taken the actions we have, the situation would be much worse. The IMF has said that our approach has been “aggressive” and “right”.

Taken together, I believe our response has been one of the most comprehensive of any country around the world. Working closely with the Bank of England, business groups, trade unions, banks, charities and many others around the country, we have developed a plan to protect public services, people, and businesses. Let me address each of those areas in turn.

Public services like the NHS are on the front line of the fight against coronavirus, and I repeat today that whatever resources our NHS needs, it will get. At the Budget in March, I announced the coronavirus emergency response fund, initially allocating £5 billion. We have now provided over three times that initial amount, with the NHS and other public services receiving £16 billion so far.

We are also providing extensive support for people’s jobs and incomes. Our most important and far-reaching policy is the Coronavirus Job Retention Scheme, to keep people in employment. The scheme launched on schedule last week and I am pleased to report that the first grants have just been paid. Around half a million firms have already applied for help to pay the wages of over 4 million furloughed jobs, jobs that might otherwise have been lost. HMRC are also on track to deliver the self-employed income support scheme, as promised, in early June, and we will publish detailed guidance this week. Alongside these new interventions, we have strengthened our existing safety net, with increases to universal credit, the local housing allowance and statutory sick pay. We have reinforced our social fabric, too, with £750 million for the charity sector.

Of course, the best way to support people is to protect their jobs, and that means supporting businesses. Our plan to help businesses means the following: almost half of all business properties in England will pay no business rates at all this year; almost 1 million business premises can now receive cash grants of between £10,000 and £25,000; 2.3 million businesses have been offered a VAT deferral, saving on average £30,000; another 2.7 million people will be able to defer their self-assessment payments; over 58,000 people and businesses have put new tax deferrals mechanisms, such as the time to pay arrangements, in place with HMRC; up to 2 million employers will be able to access the statutory sick pay rebate, with up to £48,000 per firm; £16 billion of lending has been issued through the Bank of England’s financing facility; and over 20,000 coronavirus business interruption loans have now been approved. Of course, that is on top of our furlough scheme, with payments now arriving.

Taken together, our plans are protecting millions of people and businesses across the country through a set of interventions in the economy on a scale we have never attempted before, and they are working. However, I know that some small businesses are still struggling to access credit. They are, in many ways, the most exposed businesses to the impact of the coronavirus and often find it harder to access credit in the first place. If we want to benefit from their dynamism and entrepreneurial spirit as we recover our economy, they will need more support to get through the crisis.

Some businesses will not want to take on more debt, which is why our focus has been on grants, tax cuts and tax deferrals. However, for others, loans will be part of the answer. Today, we are announcing a new micro loan scheme, providing a simple, quick, easy solution for those in need of smaller loans. Businesses will be able to apply for these new bounce-back loans for 25% of their turnover, up to a maximum of £50,000, with the Government paying the interest for the first 12 months.

My right honourable friend the Economic Secretary and I have been in close talks with the banks and I am pleased to say that these loans will be available from 9 am next Monday. There will be no forward-looking tests of business viability or complex eligibility criteria, just a simple, quick, standard form for businesses to fill in. For most firms, loans should arrive within 24 hours of approval, and I have decided, for this specific scheme, that the Government will support lending by guaranteeing, to the lender, 100% of the loan.

Let me address this point directly. I have heard some calls for the Government to underwrite all our loan schemes with 100% guarantees. I remain unconvinced by the case for doing that universally. We should not ask the taxpayers of today and tomorrow to bear the entire risk of lending almost unlimited sums to businesses that may, in some cases, have very little prospect of paying those loans back, and not necessarily because of the impact of coronavirus. So I am not prepared to provide 100% guarantees on all our schemes. Instead, these new bounce-back loans carefully target that extraordinary level of state support at those who need it most, and the £50,000 cap balances the risk to the taxpayer with the need to support our smallest businesses.

Right now, the most important thing for the health of our economy is the health of our people. We are making progress in our fight against the virus, but we are not there yet, so our strategy is to protect people and businesses through this crisis by backing our public services and NHS with increased funding, strengthening our safety net to support those most in need, and supporting people to stay in work and keep their businesses going. Our response is comprehensive, coherent and co-ordinated. It is, I believe, the right approach. I hope that I can continue to rely on the support and advice of all honourable and right honourable Members as I commend this Statement to the House.”

My Lords, that concludes the Statement.

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[Baroness Kramer (LD)]

My Lords, the bounce-back loans are clearly welcome, but I am going to press for more help for the self-employed who have fallen through the gaps in all the various rescue packages, especially the independent contractors who take much of their income in dividends and the newly self-employed. When we come out of lockdown, self-employment will be critical. It is a path for those who will have lost their jobs because of the pandemic and cannot return to them, and we will need innovation. As the Government know, a lot of innovation is embedded in these self-employed individuals, and I hope they will look again, because they must support this sector.

We all kept a minute’s silence today for key workers who have died, but many such key workers are very low earners with insecure work. Will the Government show their respect for these individuals by reviewing their funding of both social care and local government to ensure that those workers are properly paid, with proper employment rights, in recognition of the vital role they play and the vital contribution they make to all of us?

At the end of lockdown, public sector net debt will be at a historic high—certainly by the end of the pandemic. As the Government grapple with paying that debt down, will the noble Lord take action to tax the digital companies that have so far managed to pay very little tax in the UK though they now dominate large sectors of our economy? Indeed, they are doing well in the pandemic. I do not say that as an insult, but it increases the tax they should be contributing. Indeed, there are others who are, frankly, doing well out of the pandemic. Quite a number of traders have made windfall profits. Does the Minister agree that the Government should look for these companies to pay windfall taxes?

[Lord Agnew of Oulton]

My Lords, first, I will address the questions from the noble Lord, Lord Tunnicliffe, on universal credit. I am not aware of specific IT problems, but if the noble Lord is aware of any and would like to write to me, I will certainly investigate them. However, the point that my right honourable friend made yesterday is that we have responded to this crisis by introducing a number of measures to support those in receipt of universal credit—the £20 increase, the increase in housing allowance rates and the relaxation of the minimum income floor—and they all help. There is additional support for the vulnerable through the hardship fund and things such as the mortgage holiday. Therefore, we are very focused on those at the bottom of the income hierarchy and, as ever, we will keep a careful eye on developments.

Nobody is more concerned than the Chancellor at the speed at which the CBILS loans are going out, but the speed is picking up. As at 24 April, 20,000 were approved, worth £3.3 billion—double the amount of the previous week. As at 17 April, only 10,000 had been approved. Therefore, the pace is increasing and we are confident that that will continue.

The noble Lord is right that it is very easy to get drawn into the day-to-day crisis and to lose focus of what the long term will look like. We have to be honest: at this stage it is impossible to tell. We know that this is the biggest crisis that this country has faced in 80 years, and we also know that the Chancellor’s response to the crisis in economic terms has been a potential 15% of GDP, which is a staggering sum of money. We know, too, that we are likely to come out of this with a debt level higher than that following the Second World War. These are all very important factors. How we go about dealing with that debt will probably depend on a number of factors, such as the speed at which the infection rate comes down and whether we are able to observe social distancing well in an unlocked economy to which people will have to adjust.

One reason for the steep decline in the number of deaths over the last couple of weeks has been the effectiveness of social distancing. I have sat in on a lot of the Prime Minister’s morning meetings over the last few weeks. At the beginning of this process, there was real concern that the population would not be keen to observe social distancing. However, people have done a magnificent job and we know the sacrifices that it has involved. I assure the noble Lord that these things have all been thought about but I do not think that we are yet in a position to set out a detailed plan. We know that in the next few days the Prime Minister will announce more details on exiting the lockdown.

The noble Lord is absolutely right that the entertainment, hospitality and pub sector has been terribly hard hit and is likely to be vulnerable going forward. We have created specific support for the sector, with the business rates relief and a 100% holiday for retail, hospitality and leisure businesses, worth approximately £11 billion. There are also retail, hospitality and leisure grants worth up to about £5 billion. Therefore, we are very much focusing on the sector but I think that it is too early to give a more specific view of the future.

Turning to the questions raised by the noble Baroness, Lady Kramer, I completely agree that the self-employed make up a vital sector. I have been self-employed—or the equivalent—for most of my working life, so I absolutely relate to the pressures that that sector is under. I respectfully do not agree with the noble Baroness about accepting dividend income as a part of people’s earnings. That method of income was chosen by people for the very simple reason that they would not have to pay the national insurance premium. However, they will be eligible for the bounce-back loans, as well as the other layers of support.

I absolutely accept that key workers, particularly those working in care homes, are not well remunerated. Our track record over the last few years of moving the minimum wage upwards as fast as we have done is an indication of our support for this very important group of people. We absolutely recognise—

[The Deputy Speaker (Baroness McIntosh of Hudnall) (Lab)]

We appear to have lost the Minister temporarily. Are you still with us, Lord Agnew? I think that in the circumstances—

[Lord Agnew of Oulton]

My Lords—

[The Deputy Speaker]

Can the Minister confirm that he has concluded his remarks before I move on?

[Lord Agnew of Oulton]

Yes I have, Madam Deputy Speaker.

[The Deputy Speaker]

We now come to the 30 minutes allocated for Back-Bench questions. It would be appreciated if questions and, indeed, answers could be kept concise so that as many people as possible can contribute. I call Lord Vaux of Harrowden.

[Lord Vaux of Harrowden (CB)]

My Lords, while they are obviously very welcome, the bounce-back loans and other measures can be only a short-term fix. Many businesses that are currently allowed to operate are not doing so at the moment and others—garden centres, for example—could operate safely. Does the Minister agree that it would be better if businesses which could operate safely did so to minimise the damage to the economy? What help, financial and practical, can the Government offer to businesses which adapt their operations to enable a safe return to work as soon as possible?

[Lord Agnew of Oulton]

I am afraid the noble Lord rather broke up on me. Madam Deputy Speaker, did you hear the question?

[The Deputy Speaker]

I heard it, but I am not sure that I could repeat it. If the noble Lord, Lord Vaux, could give the salient points very briefly, that would be helpful.

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[Lord Vaux of Harrowden]

Certainly. Many businesses that are currently allowed to operate are not doing so while others that could operate safely are not currently allowed to do so. Does the Minister agree that it would be better if businesses that can operate safely do so? What help can the Government offer to businesses to alter their operations to enable a safe return to work as soon as they do so?

[Lord Agnew of Oulton]

I share the noble Lord’s concerns about businesses that could be operating. I think we are seeing a gradual return to work. Businesses have now worked out how to manage the requirements of social distancing. Putting the health of the nation first is the Prime Minister’s priority, but if we look at the existing rules, a business can ask its employees to come in if they are not able to work at home effectively, if the employee is fit and well and is not living with someone who is self-isolating for fear of infection or who is on the official medically vulnerable list and if they are able to avoid crowded public transport, which may mean more flexible working hours. The key point the noble Lord makes is that businesses can adapt to provide reasonable social distancing measures in the workplace. That is already in the rules; I expect to see further clarification.

[Baroness Neville-Rolfe (Con)]

My Lords, these are troubling times, and I am glad the Government have taken bold steps, including the new bounce-back scheme, to deal with the problems that confront us. One of my major concerns is that companies will have reassessed their strategies over the past few weeks so that when the furloughing scheme comes to an end we could be faced with redundancies and unemployment on a scale probably not seen since the 1930s. Are the Government planning ahead for such devastating prospects?

[Lord Agnew of Oulton]

The noble Baroness is right; we face a very uncertain few months and we do not honestly know how businesses will react as we come out of furlough and lockdown. We are looking at the long-term implications. The early indications are that there is optimism. While I think that an inverted-V bounce is probably too optimistic, I think a lot restricted spending will be unleashed into the economy. It is worth remembering that under the furlough arrangement employees are receiving 80% of their normal earnings without the cost of commuting or eating out in cafes or whatever when they are working. I stress that we are looking at all future scenarios.

[Lord Hain (Lab)]

My Lords, I ask that, after the lockdown is lifted, the Chancellor not impose again the savage cuts in the public sector that we have seen over the last 10 years. These left England short of 10,000 doctors, 40,000 nurses and 110,000 adult social care workers, fatally damaging the battle against the coronavirus, especially in care homes, as we have seen so tragically. After World War II, with much higher levels of debt and borrowing than followed the 2008 banking crisis, both Labour and Conservative Governments built the National Health Service, millions of homes and a welfare state, and saw much higher growth than since 2010. Surely there must be no return to this past disastrous austerity decade.

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[Lord Agnew of Oulton]

I assure the noble Lord that we are looking at all options. He makes a good point about the shortage of doctors. As the Chancellor has repeatedly said, we will give the NHS all the support it needs. Noble Lords might recall that in the Budget a few weeks ago—it seems like another era—substantial additional funding was announced for the public sector, and we will of course have our spending round, albeit delayed, in the next few months.

[Lord Fox (LD)]

I draw attention to my interests as listed in the register. Implicit in the question from the noble Baroness, Lady Neville-Rolfe, is the point that the managers of the 4 million-plus people being furloughed will start to think about whether they have a future in the business as soon as next month. A huge wall of cash will be required when these workers come out of furloughing and go back into work. That cash will endanger jobs. The flexibility that they do not have at the moment in the furloughing scheme will be very important. The furloughing scheme needs to unwrap in stages, rather than hit a brick wall. Will the Minister acknowledge that this cash drain will be potentially catastrophic for jobs? Will the Government take on this issue and do something about it?

[Lord Agnew of Oulton]

The noble Lord broke up a little. I think I got the—

[The Deputy Speaker]

We seem to have some difficulty with the participation of the noble Lord, Lord Agnew. I wonder whether it would be advisable for us to pause for a moment to see whether we can establish a better connection.

[Lord Agnew of Oulton]

Would you like me to dial in?

[The Deputy Speaker]

If that would establish a better connection, it would be very much appreciated, Lord Agnew. We will pause until you are able to do that.

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[The Deputy Speaker]

I will seek clarification on that point, but I anticipate that we will be able to do that. Now we have the noble Lord, Lord Agnew, again—splendid. Would you kindly say a few words so that we can be sure that everyone can hear you?

[Lord Agnew of Oulton]

Yes. I can repeat the bit of the question in which the noble Lord, Lord Fox, was worried about a wall of cash when the furlough ended, but I caught only about a third of what he said.

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[Lord Fox]

I reiterate that I declare my interests as set out in the register. The point at which furloughing ends is of great danger for jobs because it will cause a huge drain on cash in businesses. Those businesses have to decide whether or not they will continue to employ people as soon as next month. They need to know that the Government understand this issue and will set up a more flexible way of unfurloughing workers so that they can do it gradually. Can the Minister acknowledge that this is understood and undertake to tell businesses what will happen very soon? They need to know.

[Lord Agnew of Oulton]

I will try to offer some reassurance to the noble Lord. The most important thing to say is that the Chancellor has demonstrated enormous flexibility and dexterity over the weeks of the crisis. As the saying goes, if the facts change, he will change his mind to deal with the emerging situation. I am perhaps a little more optimistic than the noble Lord on the current position; even in the last 10 days we have seen increasing numbers of people going back to work as businesses have responded to social distancing and worked out simple things, such as how to rearrange offices. We are seeing this in the traffic stats of the volumes of people commuting. While I accept that there could be something of a big bang, I am hopeful that it will be more of a gradual return to work. If the noble Lord is right and we see that as an approaching problem, I am confident that the Government will react accordingly.

[Lord Forsyth of Drumlean (Con)]

My Lords, I draw attention to my interests in the register. I congratulate the Chancellor and Treasury Ministers on the welcome bounce-back scheme, which is a lifeboat to many small enterprises. It shows that we have indeed got a listening Chancellor, in that he has moved very quickly to the representations which have been made. Could my noble friend say what estimate the Government are working on in terms of the numbers of unemployed people they expect to see in the third quarter of this year and how that is related to the length of the lockdown?

[Lord Agnew of Oulton]

My Lords, I do not have that figure as I do not believe that that calculation has been made yet. It will depend very much on the timing and speed of exiting lockdown. The sooner we can exit, the less damage will be done, but we must balance against that the Prime Minister’s overriding concern for the health of the nation, not overwhelming the NHS and the nation’s morale if we were to get a bad second spike of the disease. It is a bit too early, but we will of course keep noble Lords informed of our thinking as it develops.

[Lord Bilimoria (CB)]

My Lords, I am sure the Minister is aware that Germany, as part of its bazooka €1.1 trillion package, is guaranteeing 100% of loans of up to €500,000 to its small and medium-sized companies and of up to €800,000 for those with up to 250 employees. The Swiss have given out 98,000 loans—six times more than the UK, and their economy is one-eighth the size of ours. They guarantee 100% up to 500,000 Swiss francs, delivered within 24 hours. As the Minister just told us, we have granted 20,000 loans under the CBILS, totalling £3.3 billion out of £330 billion. I reiterate what the noble Lord, Lord Forsyth, said; we are really grateful to the Chancellor for what he is doing, acting so swiftly six weeks ago with the vast range of programmes which now include the bounce-back loans. However, does the Minister agree that we desperately need our own 100% guaranteed CBILS loans up to £500,000? Yes, some checks would have to be made, but the Chancellor said in the Statement that he does not agree with that because he thinks the ordinary taxpayer should not bear the entire risk. However, surely it is better to do this now, to have companies existing and surviving now, rather than not having them and having instead the unemployment that will be created. We need to go from bounce-back to bazooka.

[Lord Agnew of Oulton]

I take on board the noble Lord’s point. Comparisons with other countries need to be done carefully so that one is comparing apples with apples. For example, the Swiss have not used a number of the other levers of support that we have used; this has been their main lever. Also, their furlough scheme requires employers to contribute one-fifth of the payments to the scheme, whereas in our country the furlough scheme removes that burden from businesses. In terms of the macro position, as I mentioned earlier, the Chancellor has announced support of up to 15% of GDP, which is a colossal sum of money, and he continues to be open-minded, which he demonstrated yesterday with the bounce-back loans, as to what further help the economy might need.

[Lord Oates (LD)]

My Lords, the unprecedented economic impact of the current crisis means that the recovery will inevitably be a long-term effort. Does the Minister agree that at the heart of that effort must be a green recovery strategy, and in support of such an approach will the Government accelerate plans to decarbonise the economy, focusing on job-rich opportunities such as the replacement of fossil fuel boilers and the installation of home energy measures? Finally, I note that the Minister did not address the key question raised by the noble Lord, Lord Tunnicliffe, about whether the Government supported in principle UC grants instead of loans, and I would be grateful if he would also address that point in his answer.

[Lord Agnew of Oulton]

I thank the noble Lord. Yes, I absolutely agree that the greening of the economy remains an absolute cornerstone of the future. It is worth remembering that we have done a lot more than most G20 countries in the last 10 years and it has become an increasing part of our strategy. I was delighted to discover only a few weeks ago that the contracts for difference prices on electricity generated by offshore wind turbines had reduced the cost over two years by, from memory, something colossal like 15% to 20%. We are moving to a point where this green energy generation is becoming viable in its own right. I am very optimistic about that and confident that decarbonisation will remain at the heart of it.

In terms of the specific question about transferring UC loans to grants, that is not the Government’s position at the moment. In my answer to the noble Lord, Lord Tunnicliffe, I mentioned other areas of support available for vulnerable people such as the mortgage holiday and the hardship fund. We have already allocated £500 million of that fund to support 3 million people. We have moved to protect individuals from eviction and given a lot of support to rough sleepers. I do not want the noble Lord to feel that we are in any way dismissive of the question, but at this stage the policy is to retain the loans system.

[Lord Blencathra (Con)]

My Lords, I warmly welcome the new bounce-back loans scheme, but would my noble friend not agree that these schemes are necessary only because our banks, which were first with their noses in the trough in 2007 for taxpayer bailouts, are adopting the usual position of failing to support British businesses? Will the Chancellor consider a special tax on their profits when all this is over?

[Lord Agnew of Oulton]

The noble Lord is a little harsh on the banks. I accept that there was some bad practice in the lead-up to the crash 12 years ago, but there have been dramatic changes in governance and lending practices since then. There is also a levy on banking profits, which goes some way to deal with the issue that he just raised. I genuinely believe that any slowness in getting these loans processed at the moment is not through any intent on their part but that they have had to completely overhaul their lending systems to react at the speed at which we expect them to. However, I am always open to hear any examples of bad practice, and if my noble friend would like to write to me, I give my assurance that I will follow it up.

[Baroness Falkner of Margravine (Non-Afl)]

My question concerns universities and support for the higher education sector, and I refer to my interests as set out in the register. I accept that, as the noble Lord has said, not every business can be saved, but universities are not traditional businesses. However, they are absolutely fundamental to our long-term recovery as we try to climb out of this deep recession. Universities are going through a short-term demand-side shock due to the collapse in international student numbers. We have been hearing in the media that the Treasury is unconvinced about providing support for them, but I would say to the Minister that it needs to hold urgent talks because they are also fundamental to their location—to their places and to their areas. The impact of universities going bankrupt will be profound across the community. Will he undertake to ensure that the Treasury takes a look at the proposal put forward by Universities UK, that conditional though it might be, that support is essential?

[Lord Agnew of Oulton]

The noble Baroness is right to say that universities play an extremely important part both in our society and in our economy, but it is worth reassuring her that they are eligible in aggregate, as business in their own right, for some £700 million-worth of coronavirus support. That support is available to them now. Very active discussions are going on, particularly about the loss of foreign students, because of course they pay a higher tariff and thus have in the past provided good cash flow for universities. It is worth making the point that universities have always been jealous of their independence, and if they need government support now, I hope that there will be a bit of humility on the part of those vice-chancellors who take very large salaries from their organisations. I would expect there to be some conversation about that if there is to be any support.

[Baroness McIntosh of Pickering]

Perhaps I may I impress upon my noble friend the Minister the plight of small and medium-sized businesses, particularly those in the tourism, hospitality and retail sectors. My noble friend will appreciate that many in the hotel and tourism sectors have already lost what is the main part of their season, from Easter, and in addition they have a great number of staff who are on zero-hour contracts. Many have chosen to take council tax payments in lieu of business rates but are also faced with commercial mortgages, on which they cannot get any form of mortgage payment holiday. Will my noble friend ensure that the Treasury directs some support particularly to those in the hospitality, tourism and retail sectors whose cash flow is at rock bottom?

[Lord Agnew of Oulton]

I share my noble friend’s concern for these particular sectors, and I understand absolutely where she is coming from. It is worth reiterating the specific support which has already been made available. I refer to the 100% holiday for business rates which is estimated to be worth £11 billion just to English businesses, as well as the grant system. Some 203,000 properties are eligible for a £10,000 grant and 120,000 properties are eligible for a £25,000 grant which in aggregate comes to around £5 billion. I also refer to the bounce-back loans which were announced yesterday since they will be some which these businesses can take advantage of. However, I repeat that I share my noble friend’s concerns.

[Lord O’Neill of Gatley (CB)]

My Lords, I would like to thank and congratulate the Chancellor and his advisers in the Treasury for speed and agility of their economic policy response. I recall that in his response to our debate on 18 March, the Minister described my proposal for a version of a people’s QE as the most radical of any that had been proposed that day, yet within two days the Government announced what were essentially half of what I proposed, particularly that which related to the furloughing scheme. I have had, and continue to have, many concerns about aspects of the loan scheme which relate to a couple of questions which have already been asked by other noble Lords. Will the Minister consider taking back to the Chancellor and the Treasury the following idea and question?

Why not, as I proposed specifically that day, link the two together and make the business support conditional on not gaming the furloughing system, and, along with that, further consider replacing aspects of the loan-based system with something more grant or equity related, where the Government could take a secondary type of equity stake, which would allow for small businesses in particular to plan for this uncertain future—especially ones such as those in hospitality. For them, the idea of taking a loan when they read and hear that a vaccine could still be 18 months in the future would, generally speaking, be a completely undesirable option. However, for the Government to directly support them in a way other than encouraging debt would be likely to be much more substantive and less damaging to the long-term outlook for the economy.

[Lord Agnew of Oulton]

I thank the noble Lord for his question and indeed for his perspicacity in the statements he made on 18 March, and on them becoming policy very shortly afterwards. In that light, if the noble Lord would like to write to me with his ideas, I assure him that I will follow that up with the Chancellor of the Exchequer and see what more we can do. I completely agree that we will need a more flexible and nuanced system as we move into the next phase of this crisis.

[Lord Flight (Con)]

May I add my congratulations to the Chancellor and the Treasury team for the dexterity with which they have brought in imaginative measures? My specific question, where I declare an interest as chairman of the EIS Association, is on whether the Government would consider introducing for the short term an increase in the size of the value of EIS tax credits? I believe that this would stimulate substantial private investment in SMEs; indeed, some £20 billion has been invested as a result of these EIS measures in the past. EIS has played a vital role encouraging the SME sector in this country.

[Lord Agnew of Oulton]

I thank my noble friend for his question and I will certainly take it back to the Treasury. It is worth remembering that the combination of the EIS, SEIS and VC schemes are pretty generous for investors, with the tax reliefs that they get. I suspect that, as an experienced investor, my noble friend Lord Flight will know that valuations will fall pretty dramatically for businesses looking for funding if they are early stage. Therefore, there will be a lot of opportunities for the entrepreneurial investor over the next few months. None the less, I will certainly take my noble friend’s suggestions back for further consideration.

[The Earl of Clancarty (CB)]

My Lords, the Chartered Institute of Personnel and Development says that the lack of support for limited companies in the self-employed income support schemes is

“not just a crack: it is a gaping hole in the package.”

It is accepted practice for freelancers to pay themselves through dividends, contrary to what the Minister says. This applies to a wide range of workers, from musicians to builders to cleaners, whose work is particularly important at present. Like the noble Baroness, Lady Kramer, I ask the Government to take another look at this.

[Lord Agnew of Oulton]

I thank the noble Earl for his point; we discussed this in a Question last week. I know that in the Chancellor’s response yesterday, he said that he had been in touch with some of the groups that the noble Earl mentioned—I think he mentioned the Musicians’ Union, and so on. I am not saying that to take income by dividend is wrong; as I said last week, a dividend is defined as a surplus of profit of a business after all its operating costs have been paid, and the tax is paid and retained profits kept for reinvestment. That is my point. But what has happened in the week between our conversation and today is that bounce-back loans are now available, and that is probably the route for those people whom the noble Earl is particularly worried about.

[Baroness Bennett of Manor Castle (GP)]

My Lords, the noble Baroness, Lady McIntosh, referred to the difficulties of the hospitality sector. UKHospitality reports that 71% of its members have had claims for business interruption insurance refused, and that of course is another potential source of income. In answer to my question on small business insurance and coronavirus last week, the noble Lord, Lord Callanan, referred to issues around infectious diseases clauses. I want to ask the Minister today about general business interruption insurance. The New Jersey and Ohio legislatures are bringing through Bills which will basically say that insurance companies have to pay out on business interruption insurance for small companies. Will the Government consider doing likewise?

The noble Baroness, Lady McIntosh, also asked about those businesses paying council tax rather than business rates. Will the Government consider doing something to help them?

[Lord Agnew of Oulton]

I thank the noble Baroness. On insurance, I did not hear my noble friend Lord Callanan’s response, so I do not want to conflict with what he may have said, but the key thing here is that when one takes out a general business policy, one has the option of an extension for pandemic cover. The problem is that I think most businesses did not elect to do that, so it would not be right then to impose that cover on insurers retrospectively through the route suggested by the noble Baroness.

On paying council tax rather than business rates, as I have mentioned before, we have put together a package of some 11 types of support for businesses, ranging from the very smallest to the largest, including such things as the deferral of tax liabilities. I believe that there are 1.3 million self-employed people on self-assessment. Deferring will provide that whole cohort with some £13 billion in cash flow. So a range of measures is there. It is important for noble Lords to look in the round at the support that we are offering.

[Baroness Altmann (Con)]

In light of my noble friend stating that record levels of debt will result from this virus, and in light of the Bank of England purchasing significant amounts of conventional gilts, might he ask his colleagues whether they are considering liaising with the DMO to issue specific gilts for pension funds which have more than £1 trillion? That could be invested in mortality or longevity gilts, CPI-linked gilts and LPI-linked gilts to assist those defined benefit schemes that have significant problems in light of the current circumstances, to match their liabilities more accurately.

[Lord Agnew of Oulton]

My noble friend makes a very good point. It is certainly an idea that I will take back to the Treasury for further discussion. We issued war loans in both of the last world wars and it took a long time to pay them off, but it is a way of ring-fencing the efforts that we will have to deploy to bring the country back from this awful business. So I thank my noble friend for her very sound suggestion.

Covid-19: Self-employed

Lord Agnew of Oulton Excerpts

Thursday 23rd April 2020 Lords Chamber

The Question was considered in a Virtual Proceeding via video call.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, the Government have taken a number of steps to support the self-employed at this difficult time. On 26 March, the Chancellor announced the self-employed income support scheme, which will provide eligible individuals with a grant worth 80% of their normal profits for three months. The Chancellor has also announced several other policies that might benefit the self-employed. These include the coronavirus business interruption loan scheme, mortgage holidays and an income tax deferral.

[The Earl of Clancarty (CB)]

My Lords, this is necessary support but there remain concerns about fairness and people falling through the cracks. Will the Government look again at the £50,000 cap—a distinct unfairness compared with the JRS? Will they review the income threshold, which at 50% excludes many for whom a mixed portfolio is the norm? Can graduates and those who have been on maternity or sick leave have unrepresentative years discounted? Does the Minister agree that, from construction workers to music teachers, those paid through dividends should not be penalised for adopting a standard accounting system actively encouraged by Conservative Governments?

[Lord Agnew of Oulton]

My Lords, delivering a scheme for the self-employed is a difficult operational challenge, particularly in the rapid timescale required. The Government’s priority is to get support to those who need it as quickly as possible, in the fairest way. The design of the scheme, including the £50,000 threshold, means that it is targeted at those who need it most, and who are most reliant on their self-employment income. Some 95% of those who are mostly self-employed will benefit; those who do not meet the eligibility criteria for the SEISS may have access to a range of other support, including the more generous universal credit and deferral of tax schemes. I hope to address the dividend points in answer to a separate question.

[Lord Flight (Con)]

My Lords, will the Government give greater priority to speeding up the provision of financial assistance to SMEs, in particular through the new future fund?

[Lord Agnew of Oulton]

My Lords, the Government are making sure that people and businesses have access to the support they need as quickly as possible. We have tried to design measures that can be made operational quickly and effectively. Lenders have increased the number of loans they are approving every day and staff are working to process applications as quickly as possible. Over 12,000 CBILS loans have been made to businesses so far, meaning benefits of some £2 billion in finance and the rate of approvals is accelerating.

[Baroness Bull (CB)]

My Lords, large numbers of freelance and self-employed workers operate as personal service companies. Indeed, employers demand this of them. This means that they receive the majority of their remuneration as dividends not salary, which disbars them from the SEISS. Will the Government consider accepting proof of dividend incomes from dividend certificates and self-assessment tax returns so that freelancers can fairly claim compensation on income earned through dividends from their own personal service companies?

[Lord Agnew of Oulton]

My Lords, the policy for the proprietor of a business to take a dividend is a personal one. It is done largely to mitigate employers’ national insurance, so I do not believe that it is right for the Government to look at that as a form of income. A dividend is defined as the surplus of a business after all its expenses have been paid, profits retained and taxes paid. While we will keep an open mind, I do not think this is something we will be dealing with urgently.

[Baroness Young of Old Scone (Lab)]

The answer the Minister has just given is tremendously inadequate for many very small businesses that were advised by reputable accountants that this was the most tax-efficient way of taking, in many cases, very small levels of income from tiny businesses. I really must press the Minister. These people are not eligible for the self-employment income support scheme, find themselves now without any income, have commitments and are often operating on such tiny margins that taking out a loan is really out of the question in the medium term. Can the Minister tell us how many of these left-behind small businesses there are and what the Government will do urgently to address this and help them out, and when? It is simply not satisfactory to say, “They made that choice in the past, and now they must reap the detriment as a result.” This is very unfair.

[Lord Agnew of Oulton]

My Lords, I will not repeat the arguments I made in an earlier response. We will of course keep it under review. Some 11 measures have been made available for a variety of self-employed people and businesses. I will not list them all now, but there is a pretty strong safety net. If there is evidence that some are falling through that net, we will of course keep an open mind.

[Lord Fox (LD)]

Nothing the Minister has said will make insecure workers any more secure today, so can we try another line? There is, to coin a phrase, an oven-ready way of improving the rights and entitlements of many self-employed people. Can the Minister pledge that the Government will at last implement the Taylor review of modern working practices? It is time to give insecure workers at least some sense of security.

[Lord Agnew of Oulton]

My Lords, we will certainly keep it under review. I am not able to give a cast iron commitment on that now. It is worth restating that the package of support we have announced over the last month is very substantial. Our policy has been to make it available in a number of different ways—unlike in some countries, such as Germany, where it has been a very targeted form of support. With these 11 different measures, we are confident that the vast majority of small business proprietors will have their situations protected.

[Lord Randall of Uxbridge (Con)]

Is my noble friend the Minister able to give any clarity on the timescale of the rolling out and when the funds will be available, particularly for the self-employed? He may well be aware that there are numerous scams targeting the self-employed and a great deal of uncertainty among them.

[Lord Agnew of Oulton]

My Lords, I am very much aware of the urgency and speed with which these things need to be dealt. From midnight on 20 April, 185,000 businesses have claimed under the coronavirus job retention scheme to protect 1.3 million jobs, which totalled £1.5 billion. On the small business grant funding, as of 20 April around £6 billion had been paid out in grants, which is about half the total funding. Some 490,000 businesses have benefited—so the money is going out. I completely accept that it could go out quicker, but the rate of escalation is increasing.

[The Lord Speaker (Lord Fowler)]

Baroness Ritchie of Downpatrick. Baroness Ritchie? Okay, we will move on to the noble Lord, Lord Livermore.

[Lord Livermore (Lab)]

My Lords, as noble Lords have made clear, there are significant gaps in the current scheme. My noble friend Lady Young asked about the numbers not covered by it. How many self-employed people will now see substantial reductions in their income as a result of not being covered by the existing scheme? Will the Minister consider additional measures to provide protection for them?

[Lord Agnew of Oulton]

My Lords, we estimate that 95% of small businesses will benefit from the structure of the schemes we have been discussing. Beyond that, we have made enhancements to the universal credit system that will benefit small business proprietors who are caught and do not benefit from the broader measures. I can put into Hansard a detailed explanation of how those changes work, because they are quite complicated and I am conscious of the need for brevity.

[Lord Purvis of Tweed (LD)]

The self-employed will have to wait another month before they can start applying for support, and it will be six weeks from now until the first payments. The Canadian Government announced support packages for the self-employed and the employed on 15 March, and payments started to be processed last week for Canadian businesses. What is preventing the Government fast-tracking support for self-employed people, who have this huge uncertainty, especially women and mothers who have to look after children and on whose income this will have a real impact now?

[Lord Agnew of Oulton]

My Lords, as I mentioned earlier, we have pushed out some £6 billion of grant payments already, and when HMRC opened its Coronavirus Job Retention Scheme on 20 April some 185,000 claims had already been made. So the money is going out, but I accept that it needs to go out more quickly.

[The Lord Speaker]

My Lords, the time allowed for this Question has now elapsed, and I apologise to the two Members who have not been reached.

Budget Statement

Lord Agnew of Oulton Excerpts

Wednesday 18th March 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That this House takes note of the economy in the light of the Budget statement.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, last Wednesday, the Chancellor laid down a Budget that backed business and innovation and gave support to public services with the aim of levelling up the entire country. But in the course of a week, the world has changed. Many of the things that I will say will appear out of date, but we need to see beyond the hopefully short-term impact of this pandemic.

To start with coronavirus, the Budget set out the initial economic response, but this has quite rightly been overshadowed by a far more substantial package announced over the last few days. The initial plan included a £30 billion plan: to support the NHS needs in staff and the search for medicines; to support workers, with expanded guarantees for statutory sick pay; and to support businesses with a comprehensive and coherent package of tax reliefs and loans.

But with the worsening situation, the Chancellor has responded with further urgent action. He has expanded the amount that businesses can borrow from the new temporary coronavirus business interruption loan scheme from £1.2 million to £5 million. For those businesses affected most by essential distancing measures in the retail, hospitality and leisure sector, including shops, cinemas, restaurants, music venues, museums, art galleries, and theatres, the Government will, for this coming year, abolish their business rates altogether.

Alongside this, the Government are increasing grants to small businesses eligible for small business rate relief from £3,000 to £10,000. To cope with cash-flow problems, the Chancellor has announced a programme of loans and guarantees to support firms through the economic emergency. In total, he will make available an initial £330 billion of guarantees, equivalent to 15% of the UK’s GDP. These are extraordinary times and the Chancellor has responded at a scale to reflect this. The plan recognises that coronavirus will have a significant impact on our economy. This is a serious and sensible effort to make sure that the impact will be temporary.

This brings me to the growth forecasts. I recognise that the OBR’s calculations were completed before the full extent of the impact of coronavirus became as clear as it is now. But, even before coronavirus hit, we were facing a slowing world economy. When combined with the political uncertainty over the last few years, the OBR had trimmed our productivity forecast over the relevant period and slightly reduced forecast GDP growth, compared with the March 2019 forecast. This makes it all the more important that the Government act bravely and take decisions now for our future prosperity. Outside the coronavirus intervention, the Government are investing an additional £175 billion over the next five years in infrastructure and innovation. At the time, the OBR said that these plans could boost growth over the next two years by 0.5 percentage points. It had expected that half a million more people would be in work by 2025 and that wages would grow in real terms in every year of the forecast period. The OBR had forecast 1.4% for this year, increasing to 1.8% next year and then, for the rest of the forecast period, remaining on or around target.

Let me turn to the fiscal forecasts. The impact of coronavirus, and the Government’s necessary response, will lead to a significant increase in borrowing. But we are equipped to manage this need. The hard work of the last 10 years has left our public finances in a strong place, with the deficit down from above 10% in 2009-10 to less than 2% last year. While borrowing will increase this year, we expect this spike to be temporary. As the OBR has said, the medium-term impact on borrowing will likely be limited. The Government were elected on a manifesto that promised to maintain fiscal prudence; we are doing everything we can to honour that while also facing down the immediate risks and planning for longer-term prosperity.

The Government’s plan for prosperity starts immediately by helping people with the cost of living. Changes to the national living wage, income tax and national insurance mean that someone working full-time on the minimum wage will be more than £5,200 a year better off than in 2010. The Chancellor also confirmed that, from January next year, there will be no VAT on any women’s sanitary products, fuel duty will remain frozen for another year, the planned rise in beer duty will be cancelled, and the Government will freeze duties for cider and wine drinkers as well. For only the second time in almost 20 years, that is every one of our alcohol duties frozen. This Government promised to cut taxes and the cost of living, and we are aiming to deliver on this.

Nothing helps more with the cost of living than putting more money into people’s pockets through a thriving private sector. The Chancellor gave his full backing to business with £130 million of new funding to extend start-up loans, £200 million for the British Business Bank to invest in scale-ups, £200 million for life sciences and £5 billion for new export loans for businesses.

This was a Budget that also showed support for business through the tax system. The research and development expenditure credit will be increased from 12% to 13%—a tax cut worth £2,400 on a typical R&D claim. The structures and buildings allowance will be increased from 2% to 3%, giving an extra £100,000 of relief for those investing in a building worth £10 million. To cut taxes on employment, the Government will increase the employment allowance by a third to £4,000. That is a tax cut, this April, for nearly half a million small businesses.

The next part of the Government’s plan for prosperity is to invest in ideas, in brilliant scientists and in cutting-edge technologies that will shape the economies of the future. The Budget will increase investment in R&D to £22 billion a year, the fastest and largest increase in R&D spend ever. Detailed allocations of our new investment in ideas will be set out in the spending review, but the Budget gave us a flavour, including over £900 million in nuclear fusion, space and electric vehicles and at least £800 million in a new blue-skies funding agency to conceive the next world-changing technology. There is a further £800 million to establish two or more new carbon capture and storage clusters by 2030. This work will be needed to create the high-skilled, high-wage jobs of the future all around the country. It will also be needed to help us transition to a low-carbon economy with new green technologies.

The Budget has helped us on our journey to net zero by 2050. It will raise the climate change levy on gas, extend the climate change agreements scheme for energy-intensive industries for a further two years and introduce a new plastics packaging tax that will increase the use of recycled plastic in packaging by 40%. We are also abolishing the red diesel relief for all but a few specific sectors.

As well as taxing pollution, the Government will invest in and cut taxes on clean transport with a package of reforms to make it cheaper to buy zero or low-emissions cars, vans, motorbikes and taxis. We are providing £500 million to support the rollout of new rapid charging hubs so that drivers are never more than 30 miles from being able to charge up their car. Taken together, this Budget invests £1 billion in green transport solutions.

We are providing £640 million for a new nature for climate fund to plant around 30,000 hectares of trees—a forest larger than Birmingham—and to restore 35,000 hectares of peatland, all of which helps capture carbon. This Government intend to be the first in history to leave our natural environment in a better state than we found it, while making sure that we have the means to protect ourselves when the natural environment shows its power. The recent floods devastated homes and businesses across the country; the Budget made available £120 million immediately to repair defences damaged in the winter floods and £200 million of funding to local communities to build flood resilience, and we promised to double our investment in flood defences over the next six years to £5.2 billion.

This Government have spoken a great deal about levelling up. Last week’s Budget began to make the picture much clearer. Over the next five years, this Government will invest more than £600 billion in our economic infrastructure. Public net investment will, in real terms, be at its highest since 1955. The detail will come out at the spending review, but the Chancellor laid down a few guiding principles.

First, the Government will review the Treasury’s Green Book to make sure that economic decision-making reflects the economic geography of the country. Secondly, the Government will invest more in our nations, cities and towns. We are committing an extra £640 million for the Scottish Government, £360 million for the Welsh Government and £210 million for the Northern Ireland Executive. We are providing £242 million of funding for new city and growth deals. In addition, there will be a new devolution deal in West Yorkshire, with a directly elected mayor and a funding settlement of £4.2 billion. The Government are also investing £1.2 billion in local transport in 12 further cities, including Stoke, Preston, Derby, Nottingham and Southampton.

We are investing in broadband, railway and roads. We are committing £5 billion to get gigabit-capable broadband into the hardest-to-reach places. Work is starting on HS2. There is funding for the Manchester to Leeds leg of Northern Powerhouse Rail—the biggest ever investment in strategic roads and railway—and a new £2.5 billion pothole fund.

The Chancellor made it clear that we will boost public services, recognising them as the tools by which the Government can level up and spread opportunity. In education, the Budget provided funding for specialist 16-19 maths schools and £1.5 billion of new capital over five years to dramatically improve the condition of the FE college estate.

In housing, the Government extended the affordable homes programme with a new, multiyear settlement of £12 billion. We have confirmed nearly £650 million of funding to help rough sleepers into permanent accommodation and created a new building safety fund worth £1 billion to make sure that unsafe combustible cladding will be removed from every private and social residential building above 18 metres in height.

In health, we announced over £6 billion of new funding in this Parliament to support the NHS to deliver 50,000 more nurses, 50 million more GP surgery appointments and work to start on 40 new hospitals. We are backing all that up with extra funding for HMRC to clamp down on aggressive tax avoidance, evasion and non-compliance to make sure that we have the funds we need in the future. This all means that, by the end of the Parliament, day-to-day spending on public services will be £100 billion higher in cash terms than it is today.

This is a Budget delivered in difficult times, but one which will help the country meet the challenge of the coronavirus. When this disaster is behind us, it will lay the foundation for a new decade of regeneration

--- Later in debate ---

[Lord Agnew of Oulton]

My Lords, we have had an insightful debate today and I am most grateful for the many contributions that have been made. I draw some comfort that, in these difficult times, our great democracy shows itself at its best, with some innovative ideas. I hope to tease out some of those in my response.

I will come to the points raised in turn. Many of course related to the coronavirus, so it is right to quickly restate our response. Coronavirus will, in the short term, have a profound impact on this country and, as the Chancellor said yesterday, it is an economic emergency as much as a medical and health emergency. Inevitably, workers will have to leave work to recover, businesses will struggle to access some goods, and consumer spending will slow. Supply and demand will both take a hit. This is an enormous economic shock and it sets a challenge that we must all rise to.

In the Budget, the Chancellor laid down an initial £30 billion package, and this week, in response to the fast-moving situation, he went further, supplementing that package with a range of extraordinary measures, including £330 billion of loans to help firms cope with their cash-flow problems. The Budget we have debated will likely for ever be remembered as the coronavirus Budget. But it was a Budget of more besides: one that laid down a blueprint for a new decade of infrastructure and scientific investment. This will lead to an improvement in productivity, which is the soundest way to improve living standards in the long term.

I turn to some of the points raised by noble Lords. The noble Lord, Lord Tunnicliffe, and several other noble Lords asked whether we are going far enough. Can we go further, and should we? They included the noble Lords, Lord Northbrook, Lord Stevenson and Lord Oates, and my noble friends Lord Lamont and Lady Finn. I thought it might be useful to quote some of the comments made by the Chancellor of the Exchequer last night, because I hope they will give some reassurance. He said:

“I want to reassure every British citizen, this government will give you all the tools you need to get through this. We will support jobs, we will support incomes, we will support businesses, and we will help you protect your loved ones. We will do whatever it takes.”


The noble Lord, Lord Oates, asked about grants for small businesses—only those that were already paying rates. Matters like this will be put under urgent consideration. It is my understanding that they will not be restricted, but I will certainly write to him to confirm that, and put a copy in the record.

The most reverend Primate the Archbishop of Canterbury raised a number of issues. Perhaps the most important and relevant one, given the announcement that has come during this debate, was that of school closures. I do not have any more detail on that, other than on the one area of free school meals. I have been given a statement, which says simply that we will give schools the flexibility to provide meals or vouchers to children eligible for free school meals. Some schools already doing this, and we will reimburse the costs. I hope that that will provide some reassurance.

On the most reverend Primate’s comments regarding small towns and the decline of retail there, they have been hit particularly hard.

I think we all understand that retail has gone through the most extraordinary revolution over the last 15 years. Part of the levelling-up programme and the commitments in our Budget were to try to get out to some of these poor communities and to inject some more energy and infrastructure into them. One of the initiatives which I am personally involved in is encouraging civil servants to move out of London over the next seven to 10 years. This is an enormous opportunity, because we have a staff turnover rate of about 10% to 12%, and indeed it is higher in London, so there is a real opportunity to do this. I am also the Minister for the Government Property estate, so one of the things I have done is to ensure that break clauses are activated on London leases so that we do not have foot-drag by some departments that do not really want to move out of London. However, I can assure your Lordships that this is an important personal commitment because it is a win for everybody, and it will help some of these towns. For example, I live near Yarmouth, which is a classic example of an area of deprivation.

The noble Lord, Lord O’Neill, brought forward the most dramatic proposals today, supported by the noble Lords, Lord Razzall, Lord Bruce, Lord Adonis, and Lord Desai, and the noble Baroness, Lady Bennett—whether you call it “people’s QE” or “minimum basic income”. These are all dramatic ideas, and I am sure that we will hear a lot more about them over the next days and weeks. We have to acknowledge that already in this country we have moved quite a long way towards a minimum basic income, when you think of the minimum wage and what it was even 10 years ago. Indeed, I would say, to the discredit of my own party, that we objected to the introduction of the minimum wage back in 1997, but I believe it was one of the best things that the Labour Government of the day ever did. We have accelerated the increase of the minimum wage over the last few years. In particular, there will be a 6% increase in April. Therefore, that is the start of the journey towards a minimum basic income. We already have working tax credits and, while I know that universal credit is not loved in this Chamber, it is trying to give that kind of opportunity and safety net to those on lower incomes.

However, we also have to remember that all this has to be paid for, as the noble Lord, Lord Skidelsky, said. We already have the top 1% of earners paying something like 29% of all income tax, and we just have to square the circle. Therefore, while I very much recommend and encourage the debate that the noble Lord, Lord O’Neill, suggests, we have to work out how it will work. Maybe, as he suggests, it will be for a few weeks, so that people have that certainty—but, again, one of my other concerns is the hoarding of the cash.

[Lord O’Neill of Gatley]

I apologise—I am not sure of the appropriate convention. We do not have weeks to have this debate; we need to act now.

[Lord Agnew of Oulton]

It is worth reassuring the noble Lord that we have acted pretty quickly. When you think where we have come over the last six or seven days, I do not believe there is any example in the history of modern government where a Government have reacted as quickly as we have. However, I take on board the challenge, and the noble Lord knows his way around the Treasury better than I do, so I am sure he will use his influence.

My noble friend Lord Lamont quite rightly makes the point that our borrowing costs are again at a 300-year low and that this provides opportunities. Indeed, with the current rate of inflation, we are borrowing at a cost below inflation, which provides some palliative to the very difficult situation that we face. That has partly reassured the Chancellor in his recent announcements. What will happen? The noble Lord, Lord Skidelsky, thinks that we could end up—

[Baroness Kramer]

I should have said this when I spoke, so I apologise. While we have very low interest rates, because of QE a heck of a lot of that debt is being held by the Bank of England, so in a sense it is almost circular. It is not quite as benign as it looks on the surface.

[Lord Agnew of Oulton]

I do not like debt at all, so I accept what the noble Baroness says. We have also not had a proper drains-up on the impact of the original QE 10 or 12 years ago. It seems to have enriched the rich—those with assets—but what did those at the bottom end of society get out of it? Also, the question no one has ever been able to answer is: what happened to all the money? Did it stay in the British economy? One figure I was given is that at least a third of it just disappeared completely. So I am certainly not in favour of another one of those kinds of QE.

Turning to the noble Lord, Lord Hain, I am afraid that there is not a lot I can agree with in his statements. He seems to think that there is a magic money tree, and seems to have forgotten that we inherited a budget deficit of 10% in 2010. As a huge Europhile, he seems to forget that the EU has a 3% ceiling on its budget deficit levels. We have had to bring that down, and it is one of the reasons why we have more flexibility in the current days to do some of the dramatic things that have been announced by the Chancellor.

[Lord Hain]

I do not believe in a magic money tree. I believe in Keynesian, investment-driven economics, which is what we should have been doing for the past 10 years instead of this needless, destructive austerity.

[Lord Agnew of Oulton]

I disagree that we have had needless, destructive austerity. For example, we have created some 3.5 million jobs over the past 10 years, and until this crisis hit us in the last few days we have seen steady growth in earnings over the last year to 18 months. We are probably never going to agree, I am afraid, but let us at least put our points of view on the record.

The noble Lord, Lord Leigh, asked for faster action. I think some of the points he made on liquidity and the relaxing of insolvency laws were well made. I will certainly take those back to the Treasury. If he has any more information on that, I would certainly be interested to learn about it.

In relation to entrepreneurs’ relief, the noble Lord, Lord Leigh, and the noble Baroness, Lady Finn, were disappointed that we had increased the tax rate. But it is worth pointing out that the capital gains rate is 20% and it was reduced from 28% in 2016. It is hardly a rapacious rate of tax. I would be surprised if that put entrepreneurs off. We all have to pay our share of tax.

The noble Baroness, Lady Jones, said we were tinkering around the edges. But to announce within four days 15% of GDP as a bailout to the economy—I just do not accept that that is tinkering around the edges. As I said when I quoted the Chancellor at the beginning, we will continue to do more. This is a very fast-moving story and we are not going to sit idly by.

It was a rare moment of sunshine to hear from the noble Lord, Lord Bates. I share some of his optimism. Perhaps I am foolish and your Lordships will be able to berate me in six months’ time, but I think we will come through this as a stronger society. I think that sometimes an event such as this gives people pause for consideration about how things work. I am not as gloomy as many noble Lords were in the debate today. Indeed, just as I sat down earlier, I had a text from someone who says that there is already a possible vaccine being tested in Japan. I have no idea, but I think we have a good chance of finding a vaccine sooner than in previous outbreaks because the science has moved on so quickly. I read two weeks ago that they had already decoded the DNA of this virus within a few weeks of it becoming known in China. Last time with SARS and so on, this took months. I am probably putting my credibility on the line here, but a little bit of sunshine cannot go amiss.

The noble Lords, Lord Bruce and Lord Adonis, were worried about the EU. I gently and quietly remind them that we had a general election which put this absolutely fair and square to the electorate and, against the wishes of the vast majority of this House, and indeed many in the Commons, they gave a resounding thumbs up to what we were trying to do. What is going to happen now, I have no idea. But I do not think it should be used as an excuse to try to get us back into the EU.

The noble Lord, Lord Adonis, also asked about international co-operation. Of course, this will be extremely important. I hope he is reassured by our changes to the emergency government structure, which were announced yesterday. We have created four strands: health and social care; public services; economic; and international. We are very aware that this needs international co-operation. We have to be realistic, though, that in the next few weeks countries are going to be looking out for themselves. That is the brutal reality when supply chains have been broken and we are not able to get the things we want because other countries will want to keep them. Likewise with the closing of borders—that is an extraordinary thing for the EU to have done. That goes against all its principles, but it has reacted in a perfectly rational way. We have to accept that that is going to be the case over the next few weeks, but I think there will be a mammoth effort to come up with a vaccine and that will be a worldwide endeavour so I remain optimistic that it will prevail.

The noble Baroness, Lady Falkner, worried about prudent levels of debt and—like the noble Lord, Lord Skidelsky—that there is no free lunch. The noble Baroness, Lady Kramer, raised this at the end when summing up. We will just have to see what happens. I am not trying to duck the question. As a person about half my age said to me a few years ago—

[Lord Desai]

There is this obsession with debt levels and the ratio of debt to GDP, which is a mistake because debt is a stock and income is a flow. The thing to do is to compare income with the cost of servicing the debt. If the cost of servicing the debt is reasonable, we should borrow. Everybody who holds a mortgage knows that it is a large proportion of their income, but if you can service the mortgage you are all right.

[Lord Agnew of Oulton]

I do not fully agree with the noble Lord. Most people who have a mortgage do not increase the amount of the mortgage every year when they get a pay rise. A country needs to be mindful of that and not do the same.

A number of noble Lords, including the right reverend Prelate the Bishop of Rochester, the noble Lord, Lord Razzall, and the noble Baroness, Lady Lister, are worrying about social care. It is perhaps worth just summarising some of the things we have done over the last year or so. Over the last three years, between 2017-18 and 2019-20, we have cumulatively given councils access to up to £10 billion of dedicated additional funding for adult social care; we are increasing the funding of that next year.

The noble Baroness, Lady Bennett, talked about the bailout of the banks in 2008 and 2010 as though we should not have done it. It is worth just putting it back on the record that if we had not done it, the whole system would have ground to a halt. We would have been plunged back into the dark ages, which would have been great for our carbon but not for the millions of people who rely on a functioning economy.

[Baroness Bennett of Manor Castle]

For clarification—perhaps I was not clear—I said that we should not have made the people, particularly the disabled, poor and young, pay for the bailout of the banks.

[Lord Agnew of Oulton]

To reassure the noble Baroness, most of that burden will have fallen on the higher-income taxpayers, as I alluded to earlier. Something like the bottom 60% of taxpayers receive more in services from the state than they pay in tax, so I do not feel that they took an unfair level of the cost of that bailout. Of course, the banks continue to pay an additional levy over and above corporation tax to try to bring about the fairness she alludes to.

The noble Baroness, Lady Finn, is keen—I was not aware of this—on a tidal power solution. We live at opposite ends of the country; I am on the east and she is on the west. If the numbers work, I—wearing my Treasury hat—would be very interested. I have a farm that runs down to the sea; I would love to create a tidal power system there, but I do not think the numbers work. To reassure our Green Members, what is happening in offshore wind is, frankly, extraordinary. There was a contract for difference auction about a month ago—they do them every two years—and the bidding price for the offshore-generated electricity was 32% lower than two years ago. It is the most incredible development. That is why I do not accept the gloom that says that we are not embracing the green economy and decarbonising. We are now creating offshore wind at a price virtually without the need for subsidy. If the noble Baroness can do that with her tidal—

[Lord Maude of Horsham]

At the risk of prolonging this, does my noble friend accept that one of the reasons the cost of offshore wind has fallen so much is that there was a subsidy that enabled the unit cost of installing it to fall? Something similar could happen with tidal power. This country is uniquely equipped with the natural resource to develop something capable of being exported very widely and generating a UK-based technology that could be of enormous value, as well as a renewable resource.

[Lord Agnew of Oulton]

My Lords, I am a huge fan of pump-priming. If there is a credible business case, I think it is worth taking the matter back to the Treasury, so I agree with the noble Lord. I am conscious that I am running out of time.

[Baroness Finn]

My intervention is about the Green Book methodology. The very outdated methodology in the Treasury was mentioned by my noble friend in his opening speech, and I referred to it in mine. I am hoping that it will rebalance some of this.

--- Later in debate ---

[Lord Agnew of Oulton]

That is excellent news. I do not want anyone to think that I am not in favour of it. We as a country have an enormous opportunity to lead the green energy revolution.

I was grateful for the calm comments of the noble Lord, Lord Brooke, and some profound questions about the value of growth itself. The problem is that growth is really the only way to improve the quality of lives of most of our population; the only other way is probably productivity. There is no doubt that this will give us the opportunity to reflect on such things as international supply chains, which have perhaps got too wide and impersonal over the last 30 years. These are the sort of moments when we should reflect on that. He asked specifically about the RPI link on the fuel escalator. The Government are nervous about putting up fuel prices because it is a very regressive tax and hits the less well-off hardest. There is a sensitivity to that; I am sure that it will be kept under review.

The noble Lord, Lord Maude, urged us that the money that we spend should be spent well. My title is Minister for Efficiency so I guess it will land on my lap if we do not spend it well. As other noble Lords have said, the key thing is to get the money out as quickly as possible. He asked about insurance. I think I have something on that which can give clarification. The Chancellor made clear in his Statement that for those businesses that have an appropriate policy that covers pandemics, the Government’s action is sufficient to allow businesses to make a claim against their insurance policy.

The noble Baroness, Lady Kramer, asked about the strength of the balance sheets for the insurance sector. It is worth remembering that they came through the 2008-10 crash very well, other than AIG, which was not really an insurance company. I would be cautiously optimistic at this stage. She seems to know about the financial sector; it has two layers above it: reinsurance and retrocession insurance above that. At this stage I would be reasonably confident but, again, this is a fast-moving picture.

The noble Lord, Lord Northbrook, if I heard him correctly, asked a question about the difference between the £451 billion and the £600 billion. The difference is depreciation; the net investment is the £451 billion. If he needs more information, he can by all means let me know. The noble Lord, Lord Judd, asked about a commitment for the charitable sector. I entirely agree that charities are often the hidden battalions helping some of the most vulnerable people. If he feels that they are not being given the focus that they should be, again, I hope he will let me know.

The noble Lord, Lord Livermore, asked about the distributional impact of the Budget. He claimed that the poorest came off worst but, in the spending round of 2019, we announced the fastest planned increase in day-to-day departmental spending for 15 years. Of course, it is those at the bottom of our society who benefit the most from our public services.

The noble Lord, Lord Stevenson, asked about the national infrastructure strategy. Yes, I am afraid it will be delayed. I do not know whether I am allowed to say this—it will definitely not happen now, anyway—but we were going to try to slot it in the middle, between last week’s Budget and the spending review, probably in July.

It is perhaps worth pointing out that, in the Budget, we put some more beef under the IPA—the Infrastructure and Projects Authority—which is the key organisation in ensuring that, we hope, a lot of the spending on infrastructure is done in a controlled and effective way. I think I am running out of time.

[Lord Adonis]

I want to ask the noble Lord something about the key issue raised by the noble Lord, Lord Lamont, and me. Could the £330 billion of coronavirus-related loans to keep companies going be made conditional on employment being maintained?

[Lord Agnew of Oulton]

That is an extremely good idea. I will certainly take it back to the Treasury, where we will investigate it.

[Lord Tunnicliffe]

If the Minister is going to write to individuals, will he copy in all noble Lords who participated in the debate?

[Lord Agnew of Oulton]

Yes, of course. I am afraid I have not had time to answer various noble Lords’ specific questions, so I will ensure that they are all copied in to my replies.

To sum up, there have been many calls today for the Government to move faster—not just by putting more money into the system but by being ever more restrictive of people’s liberty and way of life. Indeed, I was at a meeting with the Prime Minister last night. He said to the assembled group, “Even in the war, we didn’t stop people going to the pub.” We have to try to bring the country with us as we do some of the most profound things to happen in our lifetime.

I want to finish on a slightly more positive note. For those noble Lords interested in history, it is worth remembering that it was in difficult times like this that the Education Act 1944 was introduced for its Second Reading that January, nearly five months before D-day and nearly 18 months before the war was won. Parliament had the vision then to introduce legislation that would change the lives of young people in peacetime well before we had any sense that we had achieved peace. I hope we will be able to look back on this Budget in 18 months’ time and say something similar, but for the whole economy and everyone who lives in Britain.

Motion agreed.

Employment Allowance (Excluded Persons) Regulations 2020

Lord Agnew of Oulton Excerpts

Tuesday 3rd March 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the draft Regulations laid before the House on 16 January be approved.

Relevant document: 3rd Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, I draw the House’s attention to the fact that the Secondary Legislation Scrutiny Committee described this instrument as an “instrument of interest” in its third report of 30 January.

This draft legislation will allow the Government to target the national insurance and employment allowance at those businesses that need it most. Employers pay class 1 national insurance contributions on their employees’ earnings above the secondary threshold, set at £8,632 this year. That is charged at 13.8% and contributes the largest business tax by revenue in the UK.

The employment allowance was introduced in 2014 to help businesses with employment costs and to encourage businesses to grow and hire more staff. It is claimed by more than 1 million employers to reduce their employer NIC bill by up to £3,000. Since its introduction, it has taken 590,000 businesses out of paying NIC altogether.

I remind noble Lords that the employment rate is at an all-time high of 76.2%. Since 2010, youth unemployment has halved and 3.7 million more people are in employment. This is a nationwide phenomenon. In the past year, three-quarters of employment growth was outside London and the south-east.

At present, all businesses—from greengrocers to Goldman Sachs, butchers to Barclays and pubs to Primark—can receive a relief from the Government of up to £3,000 off their total employer NIC bill. Big businesses get the same benefit as small ones. However, for larger businesses, that £3,000 is a small amount relative to their total employment costs, and is therefore unlikely to encourage them to take on more staff. It is right to target the support at smaller businesses for which this £3,000 makes a difference to the cost of doing business. It is for this reason that the Government decided to restrict the employment allowance to smaller businesses in the 2018 Budget, which means that, from April 2020, only businesses with an employer NIC bill below £100,000 will be eligible for the employment allowance. More than 99% of micro-businesses with fewer than 10 employees and 93% of small businesses with fewer than 50 employees will remain eligible for the employment allowance. Around 80,000 employers will lose the employment allowance. This constitutes just 8% of businesses currently receiving it, all of which have a wage bill above £700,000 a year.

Targeting the employment allowance at smaller businesses means that it falls under EU de minimis state aid regulations, which relate to small amounts of aid that can be given without notifying the European Commission. Most businesses can receive up to €200,000 of de minimis state aid cumulatively in a three-year period. Under the de minimis regime, to claim the EA, businesses need to notify HMRC annually as part of the existing claims process and confirm that they can receive the employment allowance without exceeding their cap. After consulting widely, we removed the requirement to specify exactly how much state aid businesses receive, to make it easier for them to claim the reformed employment allowance. As the Prime Minister announced, we will develop our own separate and independent policy on subsidies when the transition period has ended. We will have a modern system for supporting British business in a way that fulfils British interests.

I hope that noble Lords will agree that while the employment allowance aids small businesses, giving large businesses with a wage bill of £700,000 or more £3,000 off their NIC bill is not good value for money. The Government have committed to go further with their support for small businesses. As the Government look to level up across the country, this reform will raise more than £1 billion over the course of this Parliament to fund vital public services and target support for small and medium-sized businesses.

I am grateful for the House’s consideration of these regulations and for any points that noble Lords may like to make.

[Baroness Kramer (LD)]

My Lords, I will be extremely brief. I am supportive of this change. It seems appropriate that the employment allowance is focused on the smallest businesses. I fully accept what the Minister says: that small businesses will be far more motivated to take on additional staff than any large business by this—in effect—grant.

On reading this, it seems that one of motivations is to make sure that the employment allowance is covered by only the de minimis regulations in the EU. Am I correct that it is the Government’s long-term policy focus to direct this aid towards small businesses, and that this is not just an accommodation to what they see as an EU framework—in other words, that it portends the future? Can the Minister give us any further assurance that any money saved will be redirected into the small business community?

--- Later in debate ---

I have another problem with this; well, it is not a problem, but I would value it if the noble Lord would write to me because I completely misunderstood it. The document of January 2020 goes into more detail about the allowance and cross-references it with the 2018 Budget, which is great. It sets out that the estimated one-off impact on administrative burden is £9.2 million for 1.2 million businesses. I have a bad habit of dividing one number by another, and this works out at £7.67 a business. Even at the national minimum wage, you get only 53 minutes of a person’s time for that. If the one-off impact of the administration is 53 minutes’ work, one then moves on to the next paragraph, numbered 7.7. Here the ongoing administrative burden for 1.2 million businesses is £600,000, which works out at 50p a business, which is 3.4 minutes at the national minimum wage. I am sure I have misunderstood this, but perhaps the noble Lord would have his officials write to me explaining where those figures came from.

[Lord Agnew of Oulton]

I thank noble Lords for their comments. I think I can answer the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, together with regard to our commitment to supporting small businesses. It is very much our intention to do this. We have a manifesto commitment to increase the employment allowance. On the issue that he raised, I hope that by freeing up some of the money that is frankly not particularly benefiting larger business, we will have some flexibility to help those at the lower end. That is very much our policy, and I hope we will hear more about this in the Budget, which I of course cannot forestall.

I turn to the noble Lord’s technical comment about burdens, and certainly commend him for his forensic analysis of those numbers. I will write if I get this wrong but I genuinely think that we are trying to make claiming this a bit easier. We are removing the need to list de minimis state aid. Therefore, to fill this form in—I hope—needs only a few minutes, as his arithmetic would indicate. However, I will write to him formally if I have got the wrong end of the stick, because I am not as well informed as he is on that item.

These regulations make important changes by restricting eligibility for the employment allowance to businesses with an NIC below £100,000. They enable the Government to target support at small and medium-sized businesses which need it most. As I have mentioned, they will raise £1 billion over this Parliament to fund public services and to continue to support small businesses. I commend these draft regulations to the House.

Motion agreed.

Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2020

Lord Agnew of Oulton Excerpts

Tuesday 3rd March 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the draft Regulations laid before the House on 30 January be approved.

Motion agreed.

Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020

Lord Agnew of Oulton Excerpts

Tuesday 3rd March 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the draft Regulations laid before the House on 30 January be approved.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, I shall also speak to the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2020.

The Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations set the national insurance contributions rates, limits and thresholds for the 2020-21 tax year. They will allow the Government to deliver on their manifesto commitment to cut national insurance contributions for 31 million hard-working people across the United Kingdom. National insurance contributions, or NICs, are social security contributions. Payment of NICs determines eligibility for the state pension and other contributory benefits. NIC receipts go towards funding the NHS and these same contributory benefits.

I will first outline the changes to the class 1 primary threshold and class 4 lower profits limit. The primary threshold and lower profits limit indicate the points at which employees and the self-employed start paying class 1 and class 4 NICs, respectively. These thresholds will rise from £8,632 to £9,500 per year. These changes, promised in our manifesto, underline the Government’s commitment to ensure that work pays, putting more money into the pockets of hard-working people. They will benefit around 31 million taxpayers, with a typical employee £104 a year better off compared to 2019-20. Increases to the primary threshold and lower profits limit do not impact on state pension eligibility. This is determined by the lower earnings limit for employees and payment of class 2 NICs for the self-employed.

The lower earnings limit will rise in line with inflation from £6,136 to £6,240 per year. The upper earnings limit, where employees start paying 2% NICs, is aligned with the higher-rate threshold. As announced at the 2018 Budget, it will be frozen and remain at £50,000 per year.

The self-employed pay both class 2 and class 4 NICs. The rate of class 2 NICs will rise in line with inflation from £3 a week to £3.05 a week. The small profits threshold is the point above which the self-employed must pay class 2 NICs. This will rise with inflation from £6,365 to £6,475 per year. For class 4 NICs, as already outlined, the lower profits limit will rise to £9,500. The upper profits limit is where the self-employed start paying 2% NICs. This is also aligned with the higher-rate threshold and will remain at £50,000 per year.

For employers, the secondary threshold determines where they start paying employer NICs. This will rise with inflation from £8,632 to £8,788 per year. The level at which employers of people aged under 21 and apprentices aged under 25 start to pay employer NICs will remain frozen at £50,000 per year.

Finally, class 3 contributions allow people voluntarily to top up their national insurance record. The rate for class 3 will increase in line with inflation from £15 to £15.30 per week.

The regulations also make provision for a Treasury grant of up to 5% of forecasted annual benefit expenditure to be paid into the National Insurance Fund, if needed, during 2020-21. A similar provision will be made in respect of the Northern Ireland National Insurance Fund. I hope that this is a useful overview of the changes we are making to bring rates of support and contributions to the Exchequer in line with inflation. I commend to the House the draft regulations.

Moving on to the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations, 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 need it most. These regulations will ensure that tax credits, child benefit and guardian’s allowance increase in line with the consumer prices index, which had inflation at 1.7% in the year to September 2019.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, I will take a similar self-denying ordinance to that of the noble Baroness, Lady Kramer, and speak relatively briefly. I would like simply to put on record my support for the excellent speech by my noble friend Lady Lister. I join with the noble Baroness, Lady Kramer, in failing to understand why this is not part of the Budget. Because it is not part of the Budget, it is lacking in process. In some senses, virtually all the changes that the Minister described are designed to introduce the CPI increases of 1.7%. Insomuch as that has previously been announced in budget processes, I cannot object, except on the wider basis that my noble friend Lady Lister outlined.

There is one particular increase, however—the increase in PT, which I am told is the “primary threshold”—which is not in line with inflation. Its excuse for being introduced is that it is in the Conservative manifesto. I have a copy of that manifesto and I have to admit that I could not find it. Fortunately, a member of the Treasury was able to advise me that it was on page 15—which was conveniently not numbered, but never mind. It says:

“We not only want to freeze taxes, but to cut them too. We will raise the National Insurance threshold to £9,500 next year—representing a tax cut for 31 million workers.”


I thought that a basic rule of introducing a change of policy would be that it would be properly costed. Just to make sure that this was not trivial, I did a few sums. The effect, as the Minister said, is to increase the threshold by £868; it would have increased a little anyway because of the 1.7%, but the policy impact is something like a real £720 increase. If you multiply that by the 12% rate and the 31 million people involved, you get a figure of, say, £2.7 billion. My concern is that such a sizable sum ought to have been properly set out and illustrated.

The Explanatory Memorandum says:

“A Tax Information and Impact Note has not been prepared for this instrument as it gives effect to previously announced policy and it relates to routine changes to rates, limits and thresholds.”


Well, it does not. This one is clearly a policy change, and clearly the cost is a few billion pounds. Will the Minister tell us how much it will cost? Why was it not set out in the Explanatory Memorandum? Surely it is improper to introduce a national insurance change that is a reduction in taxation without calculating its cost and putting that in the public domain.

[Lord Agnew of Oulton]

My Lords, I will try to deal with the queries raised by the noble Baronesses and the noble Lord. I will start with the question asked by the noble Baroness, Lady Lister, on the impact of the historic benefit freeze. We have to put all these events into some context. When the freeze was originally announced in 2010, we were putting the public finances back on track. For example, before 2010, welfare spending was rising at an unsustainable rate. Between 1997-98 and 2010-11, welfare spending rose by £84 billion in real terms—a 65% increase. The Government are committed to building a welfare system that ensures that work pays, that there is a strong safety net for people who need it, and that the system is fair for claimants and taxpayers. As I mentioned in my earlier comments, this is a substantial payment back into the system to support some of our most needy and vulnerable people. However, the Government are not able to provide a blank cheque for an unlimited uprating from the years of austerity that we have had to come through.

--- Later in debate ---

[Baroness Lister of Burtersett]

I asked some specific questions, which I do not believe the noble Lord has answered. I will not get into a long debate about sustainability and so forth, although I addressed that in Grand Committee—there is no evidence at all that it was unsustainable. First, I asked about the extra £800 million to which the noble Lord referred. What is that? Is it simply raising in line with inflation? If so, that is not new money. I asked him what the justification was for continuing to freeze the high-income charge threshold, and whether the Government were still committed to child benefit.

[Lord Agnew of Oulton]

The answer to the first part of the noble Baroness’s question is that this is what it will cost; the figure I mentioned earlier in my comments, which I think was £800 million, is the cost. The second question was: what about the people at the top end? Again, I am proud to represent a Government who are focusing our attention on those at the very bottom end of income, so this is where we are at the moment. I cannot speak for the Budget—

[Lord Tunnicliffe]

Can I just check the Minister? The area that I was concerned about, which is the increase in the PT, affects virtually every taxpayer and is not in any way concentrated at the bottom end of employment.

--- Later in debate ---

[Lord Agnew of Oulton]

I was dealing with questions asked by the noble Baroness, Lady Lister; if I understand correctly, she was concerned—

[Baroness Lister of Burtersett]

I point out that if the Government were really concerned about those at the bottom end, they would put more money into child benefit rather than personal tax allowances. Personal tax allowances are no good at all to families at the bottom end, whereas child benefit is extremely helpful to them. If they were really concerned about people at the bottom end, as I argued in Grand Committee, they would be raising basic benefits by more than inflation this year to start making up for the freeze, which was much bigger than expected because inflation was higher than anticipated. I therefore ask the Minister not to say that the Government care most about people at the bottom end.

[Lord Agnew of Oulton]

With the greatest respect to the noble Baroness, the policy of our Government, progressively over the past 10 years, has been to get people into work. We are now seeing some of the highest levels of employment since the war, and in the last year we saw earnings start to outstrip inflation. That has taken a long time, but that is what we have done. We strongly believe that, if we are to help the most vulnerable people in society, the best way is through the dignity of employment and earnings, which is why we have focused on that area.

The noble Lord, Lord Tunnicliffe, asked about the primary threshold and lower profits limits. Again, this comes back to what I said to the noble Baroness, Lady Kramer, which is that, yes, this is a manifesto promise. We said on page 15, as the noble Lord quite rightly said, that we were going to do this; this is what this statutory instrument achieves today; it will be a tax cut for around 31 million people; and it is £104 a year, which, for people at the bottom end, is a meaningful improvement in their lives.

[Baroness Kramer]

Could the Minister explain why it is appropriate to do that through a statutory instrument, and to what extent that undermines the ability of Parliament to hold the Government accountable? I am sure that he has great respect for his Members in the other place, but they may well have had opinions on this issue. They may have had the opportunity to express them in the sense that the SI has gone through the other place, but I very much doubt that they have had the opportunity for any kind of detailed debate or challenge. In addition, they cannot possibly know what the consequences are, because it has to be in the context of a Budget, where, presumably, the loss of revenue is made up for in some other way or by borrowing, and those are major consequences. As the noble Lord, Lord Tunnicliffe, pointed out, the numbers are not de minimis but incredibly significant.

[Lord Agnew of Oulton]

I respectfully repeat what I said to the noble Baroness: we are trying to focus support at the bottom end of the income scale. To deal with the noble Baroness, Lady Kramer, since 2010 we have seen over 700,000 fewer children living in workless households and over 1 million fewer workless households overall. We believe that that is how you deal with poverty and improve dignity.

The NIC regulations set the rates, limits and thresholds for the 2020-21 tax year. They allow for the collection of £120 billion of NICs to fund the state pension and contribute to NHS funding, and deliver on the Government’s promise to deliver a tax cut for 31 million working people. I commend the draft regulations to the House.

[Baroness Lister of Burtersett]

I have another question. I asked specifically: are the Government still committed to child benefit? The Conservative Party used to be committed to it; are the Government still committed to it? The Minister gave me no answer, which implies that he is not.

[Lord Agnew of Oulton]

My Lords, I have absolutely no indication that we are not committed to child benefit.

Motion agreed.

Brexit: Financial Assistance for Businesses

Lord Agnew of Oulton Excerpts

Wednesday 26th February 2020 Lords Chamber

[Baroness Ritchie of Downpatrick]

To ask Her Majesty’s Government what financial assistance they have provided to businesses in the United Kingdom to deal with the ongoing costs of staff training and administration as a result of the new customs rules brought in due to the United Kingdom’s departure from the European Union.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, the Government are committed to supporting businesses in preparing for new customs processes. Since November 2018, HMRC has provided grants to help support traders, hauliers and the customs intermediary sector. This has seen some £34 million set aside to support employee recruitment, customs training and improvements to IT. Earlier this month, the Government announced the extension of the grant programme until 31 January 2021. Approximately £7.5 million of funding is still available.

[Baroness Ritchie of Downpatrick (Non-Afl)]

My Lords, I thank the Minister for his Answer. Given the statement from the Secretary of State for Northern Ireland this week that there will not be a regulatory border in the Irish Sea, and that EU Ministers warned the UK Government yesterday that the chance of reaching a trade deal will be damaged unless preparations begin for checks on goods coming into Northern Ireland ports from Great Britain, could he clear up the confusion in an unequivocal manner regarding the regulatory border issue? I understand that the London Port Health Authority has not received any such resources as those that he referred to, and I do not think that ports in Great Britain serving the Northern Ireland ports have either, so what additional resources have been made available to deal with customs preparations in terms of staff training and administration in order to comply with the Ireland/Northern Ireland protocol, as Northern Ireland will still operate under EU rules for agriculture and manufacturing products at the end of the transition period?

--- Later in debate ---

[Lord Agnew of Oulton]

The noble Baroness asked rather a lot of questions there; I will try to answer one or two of them. Northern Ireland will continue to be part of the UK customs territories, and practical information will be required for goods moving from the rest of the UK to Northern Ireland. This will be provided electronically, and the Government will work with the EU to minimise the impact to traders. Through the grant system that I mentioned in my Answer, we have seen 3,000 customs agents trained over the last 18 months, and that process will continue.

[Lord Empey (UUP)]

My Lords, the Minister has effectively conceded that there will be a regulatory border in the Irish Sea, but there is confusion over that because the Prime Minister is saying that there will not be. Either there is or there is not. Will the Minister confirm that any additional costs attributed to administering that will in fact be met by Her Majesty’s Government and that businesses will not be disadvantaged in any way?

[Lord Agnew of Oulton]

My Lords, the negotiation is a dynamic process; we are at the beginning of what will be a very fractious negotiation over the next nine months. I tell those noble Lords with a gentle stomach that what we are seeing today are the opening remarks of the EU: it is going to get a lot hotter over the next nine months, and we will know more clearly probably by the middle of December.

[Lord Davies of Oldham]

My Lords, I welcome the Minister to his new responsibilities. I remind him that government Finance Ministers do not last much more than a year in the role, so he will not have to put up with too much. I want to make it quite clear that he is reflecting uncertainty and doubt, because that can only be the position that we are all in prior to the negotiations. He must know that the negotiations might even fail to such an extent that no deal at all is struck. Are the Government not in fact just putting hope over practicality when it comes to these issues? Have government answers with regard to Northern Ireland not been quite inadequate on every occasion?

[Lord Agnew of Oulton]

I thank the noble Lord for his kind and warm words but pessimistic outlook for my tenure in this post; I now have a challenge to be standing here in 13 months’ time. We are in a negotiation. I cannot speak for what will or will not happen over the next few months. We have given certainty to businesses. We have said that we will be trading with the rest of the world in the same way as with the EU from 1 January next year. The level of tariffs and frictionality will be revealed over the course of the negotiations.

[Lord McCrea of Magherafelt and Cookstown (DUP)]

My Lords, I welcome the statement made by the Secretary of State concerning no border down the Irish Sea and the assurance of the Prime Minister. Will the Minister assure the House that unfettered and tariff-free access will be maintained for produce between Great Britain and Northern Ireland?

--- Later in debate ---

[Lord Agnew of Oulton]

My Lords, as the Prime Minister’s spokesman said a couple of days ago, Britain will comply with the obligations set out in the Northern Ireland protocol but does not see that entailing new checks on goods.

[Lord Bruce of Bennachie (LD)]

My Lords, the Prime Minister has given the impression that he wants to get round the protocol, yet the government website tells businesses to prepare for checks at the border and for the costs of employing people to advise them on how to deal with customs. Indeed, the Institute for Government says there could be a hundredfold increase in the number of checks. Is it not the fact that “taking back control” means a massive increase in red tape, costs and potential delays? Do the businesses of this country not have the right to expect the Government to support them?

[Lord Agnew of Oulton]

I am not sure if the noble Lord is talking about Northern Ireland or the United Kingdom in general. We have intensively engaged with the 3,000 UK/EU-only high-value traders over the last 18 months—that is, £250,000 or more. They report a high level of readiness; 71% reported themselves ready in October, and that number is going up every month. Yes, there will be frictionality. When we went into the general election, our simple message was “Get Brexit done. Restore sovereignty to this country.” I know there are many noble Lords who are not comfortable with that but it is our direction of travel.

[Lord Hannay of Chiswick (CB)]

My Lords, will the Minister recognise that he has indulged in a little bit of selective quotation? He has quite correctly referred to the statement that Northern Ireland remains within the UK customs arrangements, but he has not quoted the statement which is equally in the agreement and says that the customs rules of the European Union will apply to Northern Ireland after the end of the transitional period, as well as during it. Could he just tell us where those rules will be applied, physically and geographically?

[Lord Agnew of Oulton]

My Lords, the protocol protects the all-Ireland economy. It also makes clear that Northern Ireland is and remains part of the UK’s customs territory, and it allows the UK to ensure unfettered market access for goods moving from Northern Ireland and Great Britain. In October, the Prime Minister told the House of Commons that there would be no checks between Great Britain and Northern Ireland but that there would be some light-touch measures. That was reiterated by my right honourable friend the Chancellor of the Duchy of Lancaster, when he too said there would be light-touch administration.