Income Tax: Top Rate

Lord Forsyth of Drumlean Excerpts

Tuesday 15th July 2014 Lords Chamber

Asked by

[Lord Forsyth of Drumlean]

To ask Her Majesty’s Government what effect the reduction in the top rate of income tax has had on revenue received by HM Treasury.

[Lord Newby (LD)]

My Lords, the forecast Exchequer revenue effect of reducing the additional rate of income tax to 45% is estimated at around £110 million per year. This is set out in table 2.2 of Budget 2013.

[Lord Forsyth of Drumlean (Con)]

My Lords, I am astonished that my noble friend is not prepared to take more credit for the success of the Government’s policy. Is it not the case that the reduction in the top rate of tax from 50% to 45% has resulted in a record level of 28% of all tax revenue being paid by the top 1% of taxpayers? Is that not more than twice the level that was paid by the top 1% of taxpayers when the Labour Government under James Callaghan had a marginal tax rate of 98%? Is not the lesson that lower taxes and fairer taxes are needed in order to cut the deficit and preserve public services?

[Lord Newby]

My Lords, the noble Lord has a better memory than I have. I am very happy to take credit for the Government’s achievements. The proportion of income tax collected from the top 1% has gone up from about 26% to 28% during the lifetime of this Government. Certainly, income tax take from high earners is extremely resilient because they are prepared to pay it at the levels we now have.

Payday Loans: Advertisements

Lord Forsyth of Drumlean Excerpts

Thursday 3rd April 2014 Lords Chamber

[Lord Newby]

My Lords, I do not have that figure. I will write to the noble Baroness.

[Lord Forsyth of Drumlean (Con)]

My Lords, is there not a case for looking at daytime advertising? On the one hand, you have ads that are encouraging people to take out loans at very high interest rates and on the other you have people being encouraged to go on gaming sites. With hindsight, was it not a great mistake for the previous Government to abandon the principle with respect to gambling and advertising that we should not take any measures that stimulate demand?

[Lord Newby]

My Lords, it is a highly contentious issue and there are simply different views on it. As I said, personally I find those adverts distasteful, but that is not to say that I necessarily want to ban them all. One problem with a lot of adverts is that they encourage behaviour that might be thought to be irresponsible. There are a lot of ads on children’s TV for expensive toys and games that encourage children to say to their parents, “Can I have that toy and that game?”, which the parent cannot necessarily afford.

Budget Statement

Lord Forsyth of Drumlean Excerpts

Thursday 27th March 2014 Lords Chamber

[Lord Hollick (Lab)]

My Lords, I want to start with Tommy Cooper. When he was asked to explain how he did his sleight of hand magic, he said, “Watch my hands and ignore what I say”. Of course, that was easier said than done, because Cooper’s patter was utterly hilarious and compelling. Our Chancellor has a well practised line in patter, but if you watch his hands—in other words, what he actually does—you quickly detect the difference between what he says and what he does. He is adept at saying one thing while doing another.

Over the past few years, the Chancellor’s constant refrain in response to those calling for a Keynesian boost to get the economy moving has been, “You can’t cure debt with more debt”, but this is precisely what he has done—though not directly of course, although public debt has in fact significantly gone over his forecast. He has not overtly adopted a plan B; rather, he has resorted to off-balance-sheet measures to boost the economy. By making £120 billion in government guarantees available for additional mortgage borrowing, he has provided the private sector with a massive incentive to ignite the housing market and with it the feel-good factor.

That was last year. In this year’s Budget, the Chancellor tells us we are not saving enough, but in the next breath he announces that pensioners can now access their pension pots to finance consumption. The OBR forecasts that the savings ratio will fall from 7.2% in 2012 to 3.2% by 2018. That is before taking into account early pension fund withdrawals.

Anatole Kaletsky has rather colourfully dubbed the Chancellor a stealth convert to Keynesian Thatcherism. The Chancellor has arranged for the private sector to take the strain and privatise the borrowing that the economy needs to get us out of recession—all helped along, of course, by quantitative easing and ultra-low interest rates. This treatment has worked. As the Minister said, the UK’s growth rates have exceeded expectation and are ahead of all other major advanced economies. However, it could have worked earlier and the UK could have avoided three years of damaging economic underperformance if the Chancellor had adopted policies to boost borrowing earlier in the Parliament.

The IFS has spotted another important gap between words and actions. Despite the Chancellor’s protestations that he is ruthlessly holding the line on fiscal discipline, he has introduced permanent tax giveaways paid for by unspecified spending cuts and temporary tax increases, thus weakening long-term public finances. He has yet to spell out how he will achieve his target of cutting public expenditure by 2018 to the lowest share of national income since 1948.

GDP growth is being fuelled by a borrowing binge and house price inflation. We all know how that story ends. Will the Minister please explain why the Government expect the outturn will be different this time round? The long delayed recovery we are seeing is welcome but it is the worst—that is to say, taking the longest to get back to the previous peak in output—in our history. Output remains 15% below what might have been expected absent the financial crisis. The OBR forecasts that the output gap will close by 2018, with the prospect that there will be a permanent hole in UK output. If this forecast is correct, improved productivity is the only way to achieve above-trend growth and recover the lost ground, as the Minister said. The OBR notes that our productivity is exceptionally weak.

The substantial increase in employment is welcome, but it has led to a reduction in real wages and, therefore I presume, productivity. This may be explained by the move from good full-time jobs to a mix of part-time, sole trading, temporary contract and zero-hours contracts, and with many graduates and professionals now working in jobs for which they are well overqualified. The data on pay tell a grim story. Real average earnings have fallen by nearly 10% since 2008 and, measured by RPI, will show no recovery by 2018. Low pay and low productivity are no recipe for sustained growth or, indeed, for fairness.

The Chancellor flirted last autumn with the idea of a large increase in the minimum wage, but that came to nought. He could have been bolder and adopted a policy of requiring the public sector and those companies that hold government outsourcing contracts to pay the living wage. This would lift many working families off benefits and out of the clutches of payday lenders. Economic growth built on decent pay is more sustainable, let alone fairer, than growth based on excessive personal credit.

As the Minister said, increasing capital investment is essential to improving productivity. After four years of declining capital investment by both government and the private sector, there are welcome signs of a pick-up, with the OBR now forecasting 8% growth in business investment and 4.5% growth in government investment. The changes in the Budget to encourage business investment are also welcome. Now that increased funding is being promised, will the Minister tell the House what other barriers need to be removed if he is to achieve his ambitious infrastructure plan?

Investment in the energy sector is essential to getting prices down and to keeping the lights on, as the margin of electricity generating capacity over peak demand shrinks over the next few years. The shortcomings of energy policy have been laid bare by the Government’s dramatic intervention to introduce a £7 billion package to cut energy bills, secure investment in nuclear power and bring mothballed gas generating plants back into service as standby capacity.

But all that comes at a very high cost. The nuclear investment is predicated upon a gas price set at twice the current level and inflation linked for 35 years, all of which will give the investors—EDF—a very handsome 30%-plus return. The standby gas generation arrangements that the Government put in place will have to be underpinned by very expensive back-up contracts to provide gas. New offshore wind will, DECC calculates, be some 30% more expensive than the cost of new nuclear power—all this in a world in which energy prices are falling. The Chancellor promises a shale gas revolution but, to date, only one shale gas well has been fracked in the UK and, assuming that further drilling proves the reserves to be commercially viable, production will come on stream in volume only in the next decade.

The failure of energy policy to create a competitive, functioning energy market that is attractive to investors has forced the Government, in effect, to renationalise the energy sector by taking direct control of pricing and investment. This policy of intervention is not working on any level. Emissions are up because of the increased coal use, supply is less secure because of inadequate investment, and costs are up because of the high cost of new low-carbon supplies and the intermittent nature of the source of energy.

[Lord Forsyth of Drumlean (Con)]

I find myself agreeing with much of what the noble Lord is saying on energy policy, but how does he reconcile what he is saying with the Official Opposition’s policy to introduce price controls on the energy companies?

[Lord Hollick]

As the noble Lord can see, I am speaking from the Back Benches. The wide-ranging competition policy announced today is welcome, but there is a need for a root-and-branch review of our energy policy.

The Chancellor’s measures to boost saving and to stop pensioners being forced to buy annuities from a cartel that gives poor value for money are bold and welcome. When he announced the decision to allow pensioners to access their pension savings, the Chancellor acknowledged that pensioners would need free, impartial advice if they are to get the best out of the choices they now have. The promise to provide that advice must be met in full if pensioners’ interests are to be protected in what is a fiendishly complex and, frankly, rather rapacious industry.

I end on a note of caution. I was a director of the National Bus Company when it was privatised by the then Conservative Government in 1987 into more than 80 separate companies. By the way, it was not my policy but that of Nicholas Ridley. Employees were given the option of staying in the indexed final salary scheme, which had government backing, or taking their chances in a deferred contribution scheme. The pension salesmen’s seductive patter and the promise of a share of the commission generated by the transfer to a defined contribution scheme proved irresistible to many, who then saw their pensions fall short of their expectations, let alone the guaranteed level of the NBC scheme that they had left. This House has an opportunity to make sure that that sort of thing does not happen again by providing proper information and making truly independent advice available to people who are making a decision that is irreversible at an important time in their lives.

Scottish Independence: Currency Union

Lord Forsyth of Drumlean Excerpts

Wednesday 12th March 2014 Lords Chamber

[Lord Newby]

My Lords, I completely agree with my noble friend. It is highly irresponsible of the Scottish Government to have no plan B, when it has been made absolutely clear that the kind of currency union that they want is simply not on the cards. They have other interesting questions to answer in this respect. As the Governor of the Bank of England pointed out yesterday, Scotland, as a new EU applicant, would have to agree at some point to join the euro. I think at one point Mr Salmond was in favour of that; I am not so sure what his policy is on it now.

[Lord Forsyth of Drumlean (Con)]

My Lords, does my noble friend not think it extraordinary that Alex Salmond has had 40 years to think about how to answer this question and is unable to do so? Furthermore, does my noble friend not think that this is the height of irresponsibility, given that we are not discussing some abstract economic concept here, we are talking about the amount that people will have to pay on their mortgages and the future of Scotland’s families? What advice would he give to the leader of the Scottish separatists at this point?

[Lord Newby]

My Lords, I have many burdens in your Lordships’ House but, fortunately, advising the leader of the Scottish National Party is not one of them. I will point out, however, that on all the available analysis, the likelihood is that were Scotland to adopt the pound, the interest rates that would be payable in Scotland would be significantly higher than they are here—possibly up to 1.65% higher. For an average Scottish mortgage holder, that works out as an extra £1,700 to pay.

Economy

Lord Forsyth of Drumlean Excerpts

Tuesday 28th January 2014 Lords Chamber

[Lord Newby]

My Lords, the important thing about output is that it is rapidly approaching the previous peak. With every passing set of statistics, we find that output is growing more quickly than we thought. It is interesting to note that the figure today of 1.9% growth in output for the past year is significantly higher than the figure that the ONS thought even in December, when it suggested 1.4%. The message from today's figures is that growth is accelerating quicker than most forecasters thought, and all forward indicators suggest that that trend will continue.

[Lord Forsyth of Drumlean (Con)]

Does my noble friend agree that the reason we have successful growth is because of the enterprise policies of this Government? Did he note the remarks made over the weekend by the noble Lord, Lord Myners, who was a Treasury Minister at the time that the 50p tax was introduced, that the reintroduction of a 50p tax would be a return to the bad old days of old Labour and the politics of envy? Does he acknowledge that there is no greater joy in heaven than over a sinner who repenteth?

Taxation: Personal Thresholds

Lord Forsyth of Drumlean Excerpts

Monday 20th January 2014 Lords Chamber

[Lord Newby]

My Lords, the most important thing the Government can do as the economy grows is to ensure that the macroeconomic framework is conducive to greater growth. There has been a 300,000 fall in the claimant count within the past year, so that is the single biggest thing that the Government can do to promote the continued reduction in unemployment and long-term unemployment. Youth unemployment has been falling now for five quarters. It is not falling fast enough but a raft of measures, including improved vocational education and an expansion of the apprenticeship scheme, have been designed specifically to tackle that long-standing issue.

[Lord Forsyth of Drumlean (Con)]

My Lords, does my noble friend agree that one of the best ways of helping people on the minimum wage to improve their income would be to raise the threshold for national insurance and consider merging national insurance and income tax? That would help employers and those on the lowest pay.

[Lord Newby]

My Lords, the Government have looked at merging national insurance and income tax. It is one of those ideas that is perennially discussed but every time the Government look at it they back off because it is extremely difficult to achieve. The problem with what the noble Lord’s suggests is principally the cost. However, I would remind him that the Government are introducing in the National Insurance Contributions Bill a tax-free national insurance allowance of £2,000 which will benefit every firm but particularly small firms. The Federation of Small Businesses has said that the single biggest consequence of that change will be increased employment.

National Savings and Investments

Lord Forsyth of Drumlean Excerpts

Tuesday 14th January 2014 Lords Chamber

[Lord Newby]

My Lords, NS&I needs to be able to compete effectively with best practice across the financial services sector. The truth is that NS&I has been behind the curve. It is undertaking a major programme to get all its customers online. Bear in mind that NS&I has 25 million customers in this country. That is a massive operation. When it is finished, it will be able to give information to the standard that people expect from the best of the other high street brands.

[Lord Forsyth of Drumlean (Con)]

Did my noble friend really say that it was the role of National Savings to get the best return for the Government? Surely its role is to provide a safe haven—as it advertises— for savers. Are not the savers getting a poor return because the Government are indulging in quantitative easing, which is a transfer of money from those who have done the right thing to those who have borrowed?

[Lord Newby]

My Lords, the Government are not doing quantitative easing, the Bank of England is. On the rate payable on National Savings, as the noble Lord will know, the role of National Savings is to contribute to the Government’s funding requirements. In doing that it has to operate in line with market rates because otherwise the Government are paying more for their money via National Savings than through the gilts market.

Thames Garden Bridge

Lord Forsyth of Drumlean Excerpts

Thursday 9th January 2014 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, can my noble friend tell me how many people’s entire income tax paid over the whole of their working life would be needed in order to fund this £30 million?

[Lord Deighton]

That depends which people you choose. Obviously I take the point of the question. That is why, before we commit the £30 million, we will ensure that it passes a strong business case and why, before we go ahead with the project, the Garden Bridge Trust, under the chairmanship of the noble Lord, Lord Davies of Abersoch, will have to raise £90 million so that there will be no further call on the Treasury.

Pensions

Lord Forsyth of Drumlean Excerpts

Thursday 12th December 2013 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, will my noble friend, in making his statement that it is important that those who have saved throughout their life get the best return on their savings, bear in mind that the Government’s quantitative easing programme is one of the major reasons that annuities are so poor? Can we have some indication of when the Government might abandon QE?

[Lord Newby]

My Lords, we have discussed many times the fact that low interest rates are a key determinant in supporting growth, and that growth is in the long-term interest of the entire community. The Bank of England has given forward guidance in respect of when interest rates might rise. Monetary policy is firmly in its purview rather than the Government’s.

National Infrastructure Plan

Lord Forsyth of Drumlean Excerpts

Wednesday 4th December 2013 Lords Chamber

[Lord Deighton]

That particular project, along with five or six others, is the subject of a feasibility study to determine the right solution. Next year, when all those studies are complete, we will make a decision to go ahead with the proposed solution.

[Lord Forsyth of Drumlean (Con)]

My Lords, will the Minister confirm that, had the Government stuck to Labour’s spending plans, capital expenditure would have been cut by considerably more and that, in coming into Government, we actually increased the allocation for capital expenditure? I congratulate him on his initiative, but how are the Government’s proposals to reduce the cost of electricity consistent with promoting offshore wind farms, which are the most expensive possible form of renewable energy and which will have to be paid for through people’s electricity bills?

[Lord Deighton]

With the first part of his question, as always, my noble friend forensically brings us to the detail. It is quite true that the Opposition’s plans for capital expenditure were lower than this Government’s. Subsequently, we switched current spend into capital spend in the Autumn Statements in 2011 and 2012, which further exacerbated this side’s advantage on investment. On my noble friend’s observation about offshore wind strike prices, the purpose of today’s announcement was to give the industry certainty in order to be able to get on with the building that we need, not only in nuclear but in wind and, over time, with the capacity mechanism, in gas. There are of course a variety of views about the speed at which we should decarbonise and the value of that, but the current status reflects our view on getting a diversified supply of energy.