Economy: Budget Statement

Lord Northbrook Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Northbrook]

My Lords, it is always a pleasure to follow the noble Lord, Lord Desai. I welcome the opportunity to take note of the UK economy in light of the Budget. First, I will look at the general UK economic background and then I will move on to look at specific measures in the Budget.

Initial comments on the Budget forecasts have in general endorsed the OBR inflation forecasts, which state that it will fall back sharply though the remainder of 2012 and ease further to be close to the 2 per cent target from early 2013, as the upward pressure from commodity prices eases and spare capacity weighs upon inflation. Growth forecasts have given rise to more criticism. It is good news that the OBR has revised upward slightly the forecast for this year to 0.8 per cent, although commentators feel that the 2013, 2014 and 2015 forecasts could be a little optimistic. However, the forecasts are supported by the Bank of England, which says that the UK will avoid recession.

The Chancellor and the Minister are quite right to draw attention to two jokers in the pack, which could significantly affect the forecasts. First, there is the OBR euro area growth downgrade by 0.8 per cent. Secondly, there is the problem of a further spike in the oil price due to the Iranian situation but I hope that this might be lessened by further Saudi release of oil production on to the markets.

The budget deficit too is forecast to decrease. The Chancellor must be given credit for sticking to his guns and bringing this down. His forecast of £126 billion is £1 billion better than at the time of the Autumn Statement. Yesterday’s borrowing figures, however, although covering only a month, show that there can be no cause for complacency going forward. The Chancellor will need to continue with his fine determination to get this figure down to £21 billion, as forecast, by 2016-17 when the structural deficit, he states, will be eliminated.

Here, I should like to take issue with the noble Lord, Lord Eatwell, in his opening remarks. He stated that there was not a particular crisis in the finances before the banking crisis. However, I think that the debt figure of £36 billion was already breaking the Government’s own rules. I should also like to draw his attention to a speech made by the noble Lord, Lord Myners, when he said:

“There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation. There will need to be significant cuts in public expenditure, but there is considerable waste in public expenditure”.—[Official Report, 8/6/10; col. 625.]

The shadow Chancellor, Ed Balls, has stated that there can be no let-up or any reversal of the cuts of the Government.

How does the overall Budget help the Chancellor’s plans? According to table 1 in the OBR fiscal and economic outlook, the total fiscal impact to 2016-17, as a result of the policy decisions, will be about broadly neutral. As a result, much on the expenditure front needs to be done to get the deficit down. The Chancellor has said that if, in the next spending review, the Government maintain the same rate of reductions in departmental spending as they have done in this review, a further £10 billion of savings would have to be made to welfare by 2016. That is a challenging task.

The IFS green budget states that,

“the spending cuts are still to come”,

and that only 12 per cent of the planned total cuts to public service spending, and just 6 per cent of the cuts in current spending, will have been implemented by the end of this financial year. Page 67 of its report compares the size of the cuts planned to those of other economies. Over the next few years, the UK currently has the fifth-largest planned reduction in public expenditure as a share of national income. Only Iceland, Greece, Estonia and Ireland are planning larger cuts. They are large by historic standards. The Government’s plans will be the tightest seven-year period for spending on public services since the Second World War. Over the period April 2010 to March 2017, there will be a cumulative real-terms cut of 16 per cent, which is considerably greater than the nearly 9 per cent cut achieved from 1975 to 1982. The challenge is great but I am sure that the Chancellor will make every endeavour to achieve it.

There is much to praise about this year’s Budget. First, I would highlight the decision to cut the top rate of income tax from 50 per cent to 45 per cent. This sends a good signal to business and wealth creators. Secondly, I fully endorse the planned lowering of corporation tax. Again, this sends out a good message to entrepreneurs who should also benefit from the £20 billion national loan guarantee scheme. I also applaud the move to consult on a new cash basis for calculating tax for firms with a turnover of up to £77,000. Any move like that will make filling in tax returns dramatically simpler for up to 3 million firms, which must be a good thing and helpful to business.

For individuals I shall highlight two areas. First, the adjustment to the cliff edge withdrawal of child benefit was long overdue. The second area is the increase in personal allowances to £9,205 from next year. That is a positive step. Other measures in the Budget may not have an immediate effect, but could be a useful long-term help to the UK economy. The decision to relax the planning laws to encourage sustainable development should help business. In addition, moves to encourage the life sciences, aerospace and technology sectors are helpful. There are a few measures that I am less certain about. The abolition of the additional age-related allowance seems to have caused quite a stir, even though, as the noble Lord, Lord Newby, stated, it is made up for by the increase in the pension.

On a separate theme, could I ask my noble friend about the figures in table A1 for oil companies over the next five years with the change to North Sea oil and gas decommissioning? I see that it is going to cost the industry a net £1,145 billion over the next five years, which is a substantial figure. Are those figures due to last year’s Budget? Also, where does the most welcome £3 billion new field allowance for large and deep fields west of Shetland come in table A1? I can only see figures for the first two years.

While some commentators have criticised the increase in stamp duty, I find myself less concerned about it, particularly with the plan to clamp down on offshore companies avoiding the duty. Clearly this hits central London hard, so as long as the knock-on effects have been thought through, such as the effect on building work in London, I see no problem with it. Likewise, on the introduction of the general anti-avoidance rule, I take on board the comments of the noble Lord, Lord Davies of Stamford, on this. It is right to press ahead with a narrowly targeted GAAR aimed at truly artificial schemes, but supporting guidance must be practical for taxpayers as well as HMRC.

Two other areas give me cause for concern, the first of which is the 3p rise in fuel duty that is due later in the summer. This will not help the beleaguered motorist as prices are at record highs. The Government may correctly say that the price of oil is beyond their control, but I do not see why the increases cannot be delayed. Can the Minister say how much this will raise in tax? The other issue I am not happy with is the extra 300,000 people who will be dragged into the top rate of tax as the threshold for the higher rate is reduced to counteract the effect of higher personal allowances. In addition, there are still anomalies of high marginal rates for taxpayers with children and an income of between £50,000 and £60,000 and between £100,000 and £118,000, according to today’s Financial Times.

Overall, I commend the Chancellor on his Budget and for sticking to his last in cutting the budget deficit, offering sensible tax rates to individuals and companies, and setting in place longer-term projects to encourage the return of growth.

Individual Savings Accounts: AIM Shares

Lord Northbrook Excerpts

Tuesday 31st January 2012 Lords Chamber

Asked by

[Lord Northbrook]

To ask Her Majesty’s Government whether they will reconsider their decision not to allow shares traded on the Alternative Investment Market to be eligible for Individual Savings Accounts.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, individual savings accounts, or ISAs, are the Government’s main tax incentive for non-pensions savings, and they offer a simple, straightforward and trusted brand. The Government believe it is important that ISAs continue to hold these characteristics. AIM shares tend to present a higher level of risk, and can be less liquid. For those reasons, the Government do not intend to make them an eligible investment for the ISA wrapper.

[Lord Northbrook]

My Lords, I thank the Minister for his Answer, which once again is disappointing. I thought that the policy of the coalition Government was to encourage personal choice and, indeed, investment in our smaller and growing companies. The arguments for including AIM stocks in ISAs are very strong. They are supported by the Stock Exchange and the Quoted Companies Alliance, as they were by noble Lords on all sides of the House when the question was raised a year ago. Their eligibility would widen the shareholder base, improve liquidity and facilitate fund-raising. What is the logic of AIM stocks being included in SIPPs but not in ISAs?

[Lord Sassoon]

My Lords, this is a Question that we come back to on a regular basis and my answers are going to sound boringly repetitive. I see the noble Lord, Lord Myners, in his place. He answered this Question in the dying days of the previous Government. The simple fact is that the ISA is a trusted brand in which more than 23 million adults—45 per cent of the adult population—hold shares, and we need to protect that trusted brand and the suite of products within it. On the other hand, the Government have taken a range of measures to support small businesses. In relation to SIPPs, the liquidity requirements of an ISA with a 30-day withdrawal period, in particular, are very different from what might be the case when locking up shares for the long term in a pension savings product.

Finance (No. 3) Bill

Lord Northbrook Excerpts

Monday 18th July 2011 Lords Chamber

[Lord Northbrook]

My Lords, it is interesting how the noble Lord, Lord Myners, praised Alistair Darling in his opening speech but not the previous Chancellor’s budget deficit expansion. I should like to remind the House that in an interview in August last year, he reflected that the Labour Government had abandoned fiscal responsibility; that Gordon Brown “grew to forget” the golden rule; that Labour ran large deficits in the middle part of the previous decade when the economy was clearly running at full capacity; that the party needed to come clean on what cuts it would make; and that it needed to prove once again that it is a credible party of economic management. The noble Lord criticised the current shadow Chancellor. He said:

“I don't agree with Ed Balls. I do think the Labour party has to wrestle with the fact that it tends to leave office with large deficits. And I think its licence to govern is … weakened in the future—if it could not produce credible arguments … that it is capable of sound economic management through the cycle”.

The country is still recovering from the debt binge.

Once again, we are assembled here to debate the Finance (No. 3) Bill, the majority of which I support. We are also grateful to the noble Lord, Lord MacGregor of Pulham Market, and his committee for their excellent report, which again generally speaks favourably of the Finance (No. 3) Bill. His report applauds the introduction of a new approach to tax policy-making by the coalition Government with the aim of bringing about a clearer, more stable and more predictable tax system. This approach seeks to produce better tax legislation and more effective scrutiny of tax changes. I agree with the report’s conclusion that this has produced a Bill, the content of which has generally reflected early and fuller consideration than in the past. The report quotes two good examples of this with which I fully concur—first, corporation tax reform and, secondly, the area of changes to pensions tax relief.

However, the report rightly is critical of two other areas where this new approach has not been adopted. There is disguised remuneration. The new provisions against tax avoidance in this area take up no fewer than 60 pages of new legislation. Surely this would not have been necessary had there been more consultation beforehand. Likewise came the change to the oil and gas tax regime by way of the supplementary charge. No consultation had been made with either industry. It was not until there was a great deal of criticism that exploration in these areas would be seriously affected that at the last minute the announcement was made of an extension to the ring-fence expenditure supplement, which has persuaded companies like Statoil to resume its drilling projects.

Before moving to considering the Finance (No. 3) Bill as a whole, I wish to congratulate the Chancellor on his vigorous approach in tackling the appalling legacy of the Budget deficit left to us by the Labour Government. This had to be the first economic priority after the election. His deficit reduction policies have been approved by a whole range of organisations, including the IMF, the European Commission, the OECD, the Fitch rating agency and Timothy Geithner, the US Treasury Secretary.

Looking at the Finance (No. 3) Bill in more detail, first, I shall focus on help for businesses. I welcome the reduction in corporation tax for large companies from April this year, the reforms to the foreign profits legislation, the announcement of new enterprise zones and the proposed low rate of corporation tax for offshore finance companies. That will all be good news for larger companies. Moreover, the Chancellor has dealt a very generous hand to VCTs and EIS investors, increasing the tax relief and the amount of investment while rightly warning against abuse of the rules. The slight improvement in the capital allowance regime for short-term assets is good news. Those positive aspects of the Budget far outweigh the negative ones for a few sectors of the economy. Terry Scuoler chief executive of the EEF, the manufacturers’ association, while praising the Budget in the main, said that,

“the significant rise in energy bills threatened by the Carbon Price Floor is unwelcome”.

For smaller unincorporated businesses, the news on the tax front is more mixed. They should benefit from easier planning laws. They should also be helped by the decision to support innovation and manufacturing, with an additional £100 million this year for new science facilities and an increase in the SME rate of research and development tax credit over the next few years. However, two areas are definitely not to their advantage. The 50p income tax rate needs to be reduced as soon as possible, and the Equalities Act could well cause problems in taking on staff.

Regulation is also a major area of difficulty which I shall examine in more detail. For those not familiar with it, a new Cabinet sub-committee called the Reducing Regulation Committee was established after the coalition came to power. The committee has to review the quality and robustness of regulatory proposals. Astonishingly, its second report, which covers the period between September and December 2010, concludes that more than 40 per cent of the regulatory proposals that it considered were not fit for purpose. The main failing was a failure to produce cost-benefit analyses of proposals. This all might sound rather esoteric but is very important. If regulations are being spewed out that do not make sense, it is a big hindrance, especially to smaller businesses which do not have the back-office ability to cope with them all.

Let me give another example of difficulties for a smaller business. A friend of mine who is involved in a growing smaller company has been given the opportunity to pay his tax in instalments. However, something has recently gone wrong with the Revenue’s computer system which means that he has been asked to pay all his tax at once. He rang up the local Revenue office, which is a nightmare process, and took more than an hour to get through to anyone sensible. He was then told that this was an administrative mistake and that he need not worry. I fear that this may have happened to a lot of small businesses. Has the Minister come across any other cases in this area?

Overall, I welcome the Finance (No. 3) Bill 2011. The Chancellor has a difficult hand to play and progress may appear to be uneven at times. But his message is clear: Britain is open for business and it has produced major incentives to companies and individuals to create wealth, which I believe is the right approach for the economy.

[Lord Myners]

The noble Lord listed a number of organisations which endorsed the Chancellor’s strategy. Can he remind the House whether any of those organisations were successful in forecasting the crisis that hit us in 2007, including the credit rating agencies to which he referred?

[Lord Northbrook]

I would have to refer back to the noble Lord on those matters.

Economy: Government Policies

Lord Northbrook Excerpts

Thursday 24th March 2011 Lords Chamber

[Lord Northbrook]

My Lords, like other noble Lords, I am grateful to the noble Lord, Lord Lawson, for initiating this debate. Before I move on to discuss the very important issues that my noble friend raises, I should like to congratulate the Chancellor on his vigorous approach in tackling the appalling legacy of the Budget deficit left to us by the last Labour Government. This had to be the first economic priority after the election. His deficit reduction policies have been approved by a whole range of organisations and individuals including the IMF; the European Commission; the OECD; Fitch, the rating agency; and Timothy Geithner, the US Treasury Secretary. This is all in contrast to the last Labour Government’s legacy.

I noted with interest the wise words of the noble Lord, Lord Myners, in his interview with the Guardian in August last year, when he reflected that the Labour Government had abandoned fiscal responsibility, that the former Prime Minister “grew to forget” the golden rule, and that Labour ran large deficits in the middle part of the last decade when the economy was clearly running at full capacity, that the party needed to come clean on what cuts it would make, and that it needed to prove once again that it is a credible party of economic management. The noble Lord criticised the current shadow Chancellor. He said:

“I don't agree with Ed Balls. I do think the Labour party has to wrestle with the fact that it tends to leave office with large deficits. And I think its licence to govern is weakened—and it would be weakened in the future—if it could not produce credible arguments to show that it is capable of sound economic management through the cycle”.

The Chancellor, having set out his fiscal policy, can now concentrate on promoting enterprise and growth. His key message was that he was boosting manufacturing, growth and jobs by cutting taxes for businesses and entrepreneurs, scrapping burdensome regulations, radically reforming the planning system, investing in science and innovation, and providing more support for young people with 50,000 apprenticeships and 100,000 work experience places. I will look at most of these areas in turn.

First, I shall focus on the help for business. I welcome the extra reduction in corporation taxes for large companies from April 2011, the reforms to the foreign profits legislation, the announcement of new enterprise zones and the proposed low rate of corporation tax for offshore finance companies. That will all be good news for larger businesses. Also, the Chancellor has dealt a very generous hand to VCTs and EIS investors, increasing the tax relief and the amount of investment while rightly warning against abuse of the rules. The slight improvement in the capital allowance regime for short-term assets is good news. I also welcome the relaxation of the rules for non-doms, allowing them to offset tax on money remitted here to invest in the UK.

Those positive aspects of the Budget far outweigh the negative ones for a few sectors of the economy. Terry Scuoler, chief executive of EEF, the manufacturers’ organisation, while praising the Budget in the main, said that,

“the significant rise in energy bills threatened by the Carbon Price Floor is unwelcome”.

The Financial Times today has also pointed out that the medium-sized oil companies will suffer from the new output levy:

“Britain’s offshore oil and gas industry is one of the biggest losers in the Budget, with industry representatives warning the surprise increase in the tax on production would not only deter investment in the North Sea but could also raise dependence on imports”.

In the banking sector, banks such as HSBC might be more inclined to move their headquarters overseas after yet another levy. Nor do I see much help for unincorporated smaller businesses on the tax front. Although they might benefit from scrapping existing regulation and easier planning laws, there is little assistance for them elsewhere—except in the R&D area, which I shall come to—particularly if they are in the manufacturing sector. New employment laws will come into force later this year, which might hinder companies taking on staff.

I move on to the subject of regulation. The Chancellor unveiled a series of useful measures, scrapping existing regulation that costs businesses £350 million a year and a moratorium on new domestic regulation for firms with fewer than 10 employees. However, the approach to regulation remains ad hoc, unfocused and, in the long run, in danger of being unsuccessful. The Government need to do three things: first, stem the flow of new regulation; secondly, rationalise existing regulation and eliminate barriers to competition and innovation; and, thirdly, reduce the costs of compliance. Without that strategic cross-departmental approach, the regulatory regime, rather than our growth rate, will keep growing.

In support of my view, I refer to the second report of the Regulatory Policy Committee issued in February this year. This committee advises the Business Secretary and is charged with reducing unnecessary regulations. It reviewed no fewer than 189 impact assessments in the last quarter of 2010. Of those 189, 57 were EU-sourced and 132 were from Whitehall. The RPC concluded that no fewer than 44 per cent of the impact assessments that it scrutinised were inadequate. It does not split the inadequacy between Whitehall and Brussels. In fact, its report is far less useful than it might have been, but at least it highlights that the tide of new regulation is even higher under this Government than the last.

Next, I come on to the proposed reforms of the planning system. These radical reforms to planning and regulation are to support economic development, including a presumption in favour of sustainable development. However, I ask the Minister how this change to the planning system squares with the current coalition policy of local plans?

Moving on to the area of science and innovation, I applaud the decision to support innovation and manufacturing with an additional £100 million this year for new science facilities and an increase in the SME rate of research and development tax credit over the next two years.

Overall, I welcome the 2011 Budget. The Chancellor has a difficult hand to play and no money in the kitty. His message is clear: Britain is open for business and it has produced major incentives to companies and individuals to create wealth, which I believe is the right approach for the future growth of the UK economy.