Autumn Statement 2023 Debate

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Department: HM Treasury
Wednesday 29th November 2023

(5 months, 3 weeks ago)

Lords Chamber
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Lord Desai Portrait Lord Desai (CB)
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My Lords, I wish first to commiserate with the noble Baroness on having a very hard job: of sitting here listening to people and even having to answer questions. Let me assure her that I am not going to pose any questions to her in the course of my speech.

The Statement is not a bad primer for an election manifesto. It is not a serious Autumn Statement but just an election manifesto: “We are going to do such and such”. I should confess that I am an enemy of lower taxation and have been for all of my political life. There is a fallacy in the history of the Conservative Party’s economic policy, which still prevails in this Government after 13 years. They believe that Mrs Thatcher cut taxes, but she actually did not. There are people here who were partners in that crime, so I can tell them about this.

VAT was doubled in the first term of Mrs Thatcher’s Government, from 8% to 15%. The said, “We didn’t quite double it”, because it went up only to 15%. There was money from North Sea oil and from privatisation. This allowed some tax cuts after Lawson became Chancellor of the Exchequer—this was after several years. It was miserable, I can tell you. Until about 1987, it was very miserable and taxes and interest rates were high—up to 15%. I do not want anybody to think that it was nice and happy. It was successful, but to be successful you have to be hard on the economics. You cannot go on planning picnics when you do not have any food in the larder. That is why I worry about this Government. Being a Cross-Bencher, I do not have to worry about which party will come to power, but to believe that tax cuts increase growth is a fallacy that I can disprove any time anyone wants me to. I can give the numbers for that. After the Lawson tax cut, there was a recession, as everybody remembers, and a deficit in the Major Government’s budget.

As the noble Lord, Lord O’Neill, said, if you look at other countries’ taxation, those with higher tax takes than us are richer than us and have a better growth rate. There is an idea that somehow tax cuts raise growth; there is no evidence in the British data on that—and I can tell you that as I used to do this thing for a living. What is interesting is to ask, “Why has growth been so miserably low for the last 13 or 15 years?” I am really surprised when people say, “The growth has gone from 1.5% to 1.6%—how exciting!” As a statistician, I would say that a difference of 0.1% is not statistically significant and nobody should even talk about such small numbers. Anyway, we will let that go; we are not supposed to be a numerate country, so that is all right.

The problem is that we have, at least in this Government, ample proof that, any time you talk about tax cuts, the markets panic and put up the cost of borrowing—so, please, can we stop talking about tax cuts while the deficit is high? We have some room this time, which we have given away in tax cuts, because of inflation. Thanks to inflation and fiscal drag, we had some surplus to spend. But if inflation goes, that surplus will go and the deficit will increase. So please can we not have tax cuts, because it will wreck the economy before the next Government come to power?

I want to propose one tax increase that will actually be growth enhancing. I say that because, more or less ever since the Thatcher years, we have indulged in a luxury that is costing us a lot of money. It is a luxury much beloved by the Conservative Party and by most of the middle classes—who are, according to my friend the noble Lord, Lord Balfe, the people who work. Of course the poor do not work, according to him; only the rich work, which is all right; I do not mind that. The luxury is home ownership. We treat home ownership as one of the biggest tax breaks that I can think of because, when you sell your house, land being in limited supply, you will always make profits—and of course you pay zero tax on it if it is your principal residence. All your unearned capital gain is taxed at 0%. All good middle-class people, with their children going to private schools, if they have money, do not invest in equity; they invest in house buying. Of course you would.

The Resolution Foundation has the numbers about Mum and Dad’s bank: we spend an enormous amount—about £80 billion per year, if I remember correctly. The money invested there would go into equity buying if people had decent rental property. Housing services can be rented or owned; it should make no difference to the quality of the houses. But we believe in home ownership as the foundation of our democracy. If you believe in that, you will have zero growth, because investment supplies the funds of money coming from the middle classes. It will not come if they invest in bricks and mortar. Of course, when it comes to bricks and mortar, we love inflation. Do not knock inflation; inflation has helped you—and please, do not have any tax cuts.