Spring Statement — House of Lords, 2019-03-20
Topic: Macroeconomics
Susan Kramer (Liberal Democrats, Centre to centre-left): My Lords, I realise that I am being upstaged by the Prime Minister, who I understand is about to make a statement in front of 10 Downing Street. We have no idea what the content of that is. The noble Lord, Lord Hain, used the word "surreal": that probably describes the situation. It is surreal. We have absolutely no idea when Brexit, how Brexit, or if Brexit; and all of that makes this discussion we are having on the economy essentially one of astrology, which I think was the word that my noble friend Lord Scriven used It is also surreal in a second way. I listened to the Chancellor’s Spring Statement and thought, "What economy is he looking at?", when he said that the fundamentals are strong. I cannot imagine a single Member on the Conservative Benches, if they were listening to a Labour Government describing GDP growth of 1.2%, rising in the medium term to 1.5%, agreeing that that was satisfactory or acceptable. Those are appalling numbers, particularly at this stage in an economic cycle. We really have to take on board the message that that gives us about the problems and the scope that we have to deal with. I hope that at some point the Chancellor drops the PR and takes on board the very serious implications of that kind of insipid growth The noble Lords, Lord Bilimoria and Lord Davies, made the point about the underlying problem of chronic low productivity—running at a forecast rate of 1.2%. I say to the noble Lord, Lord Leigh, who thinks that the numbers might not be well calculated, that our running rate prior to the economic crisis was in excess of 2% a year. You can give any explanation you like; it does not cover a rise from 1.1% to 2%. This is a fundamental problem that we have to tackle. I very much agree with the analysis of the noble Lord, Lord Bilimoria: it is about not our top companies—that is where the Chancellor always focuses his efforts to increase productivity—but that long tail of small companies. We will have to take that on; it will need new ideas and investment. Quite frankly, it is a huge challenge and I wish it were being addressed more directly Export growth is weak, despite the cheap pound. Many noble Lords talked about the drop in business investment, which has fallen for four consecutive quarters. I pick up the point that the noble Lord, Lord Davies, made: many manufacturing jobs have moved. The noble Lord, Lord Northbrook, referred to the report from what I still call Ernst & Young, but which now calls itself EY, which estimates that the financial services industry has committed—this is no longer a "might" or a "perhaps"; it has actually committed—to moving in excess of $1 trillion of assets out of the UK to Europe. The noble Lord thought the tax impact of that was £600 million. I think that was the impact of the 7,000 jobs the financial services industry has now committed to move, and that is assuming fairly low rates of pay. It does not tackle the loss from transactions now being registered over in continental Europe, and therefore all the corporate tax that would be generated by that is gone as well; we have no estimate of those numbers. That is just one industry The noble Lord, Lord Davies, picked up an issue that is frequently missed, certainly by the Treasury: the decision by Bank of America to move its European headquarters to Dublin and its trading headquarters to Paris is absolutely fundamental. BofA does not move without the say-so of the US Treasury, and that message has shot right through the entire financial services industry. It is extraordinarily significant, and we need to get serious about it Consumer spending fell by 1.8% in February; that extends the downward trend to five months. We know we need infrastructure, but the collapse of Carillion and Interserve undermines most of the immediate-term plans to try to expand major capital projects, so we have a series of problems there I fully accept that the Chancellor had two pieces of good news. One is that people are paying their taxes more promptly. However, the noble Lord, Lord Macpherson, reminded us that that serendipity often turns with no warning, so we should enjoy it while we may. I am glad that taxes are coming in but we had better recognise that that could switch. The other was good numbers on employment and wages growth. I want to give a warning. The noble Lord, Lord Leigh—we had a conversation earlier in the Prince’s Chamber—picked up a point that I would make: this is a lagging indicator, not a leading indicator. I hope the Treasury knows the difference. It also matters in other senses. One is that if you are looking at a 1.2% growth rate and you have virtually full employment, this tells you that you have a problem with a shortage of working-age population. This is an issue now being picked up by the Resolution Foundation. We have a really serious demographic problem: we are short of working-age population. Frankly, all the anti-immigration language we hear can only make that problem acutely worse. It is a fundamental issue that the Chancellor will have to address Among others, my colleagues on these Benches—my noble friends Lord Shipley, Lady Thornhill and Lord Scriven—underscored the problem we face in public sector services. We have now cut too long and too deep, and we can see that it has gone into the bone by all the issues raised across the Floor today. I heard my colleagues talk about the crisis that local government faces—shortfalls in revenue amounting to something like £8 billion by 2024; the difficulties in delivering social care, not just for adults but now increasingly for children; policing; and knife crime. The noble Earl, Lord Listowel, talked eloquently about the problem of children in care. It almost does not matter which area we look at today: we still see a serious crisis in the public sector’s ability to deliver a quality of service that we find acceptable If I follow that logic through, I end up talking about taxes. I agree very much with the noble Lord, Lord Wakeham, that we have to make sure that the large digital companies pay their fair share. That will take creativity, aggression and determination. We are not quite sure how we are going to do it, but we have to put that near the top of the agenda I sit with my colleagues and say that this is the time to look at those cuts in capital gains tax. I do not think they have yielded any increase in investment, and they should therefore be reversed. There are also the cuts in corporation tax. We have not seen businesses take that tax saving and put it into the economy. If anything, it has gone into share buybacks. It is time that those cuts, too, were reversed. We also need to revise completely the way in which business rates are defined. I am in the camp that talks about looking at land value taxes—although, as the noble Earl, Lord Lytton, reminded us, that requires a transition process, to make sure that people are not injured in the passage from one system to another As for social care, we need a broad solution. Like many others, I think that we need to think about hypothecated taxes for the NHS and social care if we are going to deal with the problems in those areas. Yet in the Statement all those opportunities were neglected, and not taken My last point is about the loan charge—a subject on which I disagree with the noble Lord, Lord Wakeham. I am on the APPG on the loan charge, and I have now heard the evidence of so many individuals. They are not celebrities or high earners but, for example, people who used to be local government employees, often in social care, but who have now been outsourced. They were told that in order to carry on the same work, they would have to go to the Government’s identified recruitment agency. They had no idea that the papers they signed were putting them into an arrangement involving loan charge. All they knew was that their take-home pay before, when they were employed, and afterwards, when they were outsourced, looked pretty much identical. Government departments are deeply embedded in this, because despite all the statements by HMRC, numerous people are now coming forward who were taken on by HMRC on an agency basis: that was the only way in which they could be employed to do that work. Those very bodies, which I assume had been pre-qualified by HMRC, and which had written the specifications for what they had to do in order to recruit, were the ones that introduced people to the schemes that have now landed them in loan charge problems. There are so many serious problems there that I hope there will be real pressure to make the response on 30 March a proper review, not just a limited report. I hope the Minister will take that message back.