Economy: Budget Statement — House of Lords, 2018-11-13
Topic: Macroeconomics
William David McKenzie (Labour, Centre-left): My Lords, I thank the noble Baroness, Lady Stroud, for her comments about Patricia Hollis. If Patricia were here today, rather than pat the Government on the back for what they have done, she would be using the full power of her intellect and eloquence to point out what they have not Brexit overhangs this Budget just as it infects so much of our public debate. There have been various attempts to model both the longer-term macroeconomic consequences of Brexit and the short-term consequences for the UK. Despite a range of estimates, the former point overwhelmingly to a lower GDP than would otherwise have been the case. Whether or not they knew it at the time, Brexiteers voted for our country to be poorer. The extent to which there is a smaller GDP will be influenced by assumptions made about access to the EU market in the future and any restrictions we might face. There is also a view that there will be a short-term negative shock to the economy, with the main factors depending on judgments about the extent to which the referendum has deterred investment and the transitional costs of shifting to a new trade and investment regime The OBR forecasts are based on the assumption that there is a Brexit deal, although we are told that a disorderly Brexit would have severe short-term implications for the economy, the exchange rate, asset prices and the public finances. Given the debacle of the negotiations to date, are we under this Government not already close to the point of not securing an orderly Brexit? In any event, are the Government seriously maintaining that they can deliver a deal dividend? If so, will the Minister enlighten the House on the nature and size of it We should also judge this Budget, as the Government want us to, on the basis that austerity is finally coming to an end. At its least benign, this should mean no more cuts; at its most significant, a repairing of at least some of the damage which earlier measures have inflicted on people’s lives. How can austerity be over when Age UK reports that 1.4 million older people are not getting the care and support they need; when £19.6 billion is needed to stop further cuts to departmental budgets; when the extra money for universal credit—welcome as it is—is less than one-third of the £7 billion of social security cuts still to come? How can austerity be over when the Budget has not provided a penny extra for day-to-day costs in our schools, given the 8% loss since 2010? How can austerity be over when 1.3 million people still avail themselves of food banks in the rich country that we are? In making a judgment on whether the economy is working for all, we might reflect on the recent publication from Credit Suisse which reported that the ranks of the ultra-rich in the UK have risen by some 400 over the last year—that is those with assets of over $50 million But we know the UK economy is not working for everyone, and this Budget does not change that. This is the stark message from the IPPR commission, referred to by the noble Lord, Lord Kerslake—I congratulate him and his colleagues on the work that they have done. The economy is no longer delivering rising living standards for a majority of the population. Too many people, the commission says, are in insecure jobs; young people are set to be poorer than their parents; and the nations and regions of the UK are diverging further What are the causes? They are not fundamentally addressed by this Budget: continuing weakness in productivity, investment and trade. We are not faced with a choice between a fair economy and a strong economy. We should strive for both. I agree with the point that it is not a quick fix. We do not have to deal with things on an incremental basis. We were bold in the 1940s and, as my noble friend Lord Hain said, we were bold in tackling the banks’ recession in the 2000s. Of course, being bold does not mean that we are always right; we were also bold in the 1980s The Red Book makes reference to the Government’s efforts to crack down on avoidance, evasion, aggressive tax planning and unfair outcomes. It claims that they have secured over £185 billion in tax that would otherwise have gone unpaid. We obviously support such efforts but, for the avoidance of doubt, can the Minister set down for the record which taxes and which years are included in that calculation? It has always been a bit of a mystery. Perhaps he could also set down how the Government calculate the tax gap, which is claimed as 5.7%, and in particular the treatment of profits diverted from the UK We welcome the announcement that the Government are to proceed with a ban on pensions cold calling, and now is the time to make progress. Too many people have lost out to scams, although some recent press reporting may offer some comfort The digital services tax is a belated attempt to get the tech giants to pay their fair share and is to be welcomed, notwithstanding the low level of its ambition: some £400 million a year by 2022-23. It is understood that this is to be a holding measure until the reform of the international corporate tax framework is secure, but I wonder what consideration has been given to the fact that the DST is seemingly a tax on revenue, not profits, and what the double tax relief implications of this might be We note the determination for the pensions dashboard to proceed, but express our concern about its potential governance. As originally envisaged, this was to be delivered by the DWP—an ambition we shared with the Government. If it is to work—and the need for it has been made very clear by recent press coverage of pensions pots being unaccessed—there will be a need for robust governance arrangements It appears to be the case that the Budget does not herald any change of approach to a long-standing anomaly referred to by the noble Baroness, Lady Altmann, concerning how tax relief on an employee’s pension contributions can be given. In short, as we have heard, there are two systems, one of which—net pay arrangements—does not secure effective relief up to a point for the lower paid. It is the employer who determines which of the two systems is to operate. HMRC has previously suggested that it would not be straightforward to unravel this, but the Chartered Institute of Taxation begs to differ. Perhaps the Minister will undertake to look at this Given the uncertainty described by my noble friend Lady Smith at the start of this debate, which has been reinforced by many other noble Lords who have spoken today, we should stand ready to revisit all of this before too long, given the spectre of Brexit.