Finance Bill — House of Lords, 2020-07-17
Topic: Macroeconomics
Susan Kramer (Liberal Democrats, Centre to centre-left): My Lords, we must brace ourselves for high levels of unemployment in the autumn and the failure of a significant number of businesses, especially in vulnerable sectors. SMEs are likely to be among the hardest hit. Many noble Lords who spoke today identified the plight of hospitality, retail, the arts, transport, the charity sector and leisure. The call for the Government has been powerful: target support and do not remove it too soon I am now picking up anecdotally that Brexit is resulting in a wave of damage. British SMEs are being cut out of supply chains that have been a major part of their business for years. Larger companies in the UK, which anticipated shifting operations to the EU 27 over several years because of Brexit, are now accelerating those decisions. Supply networks are just not willing to put up with the costs and complications of regulatory divergence and border constraints, which now seem inevitable under every government scenario. My noble friends Lord Razzall and Lady Northover and the noble Baroness, Lady Wheatcroft, emphasised the risk Add to that the breakdown of the US-China relationship—to which the noble Lord, Lord Blunkett, drew attention—and the growing momentum for the world to divide into regional economic blocs, and we see a dangerous economic storm. I am concerned that this Government have found themselves the flotsam and jetsam between regional economic powers. They have clearly decided to hitch their wagon to the US bloc, in the hope of a trade agreement that, at best, offers very modest gains to the UK Like others, I support the Chancellor’s swift action to mitigate the immediate impact of Covid on the economy, with a huge injection of cash. The triage has been vital. But other countries, our rival economies, have been designing their rescue plans to fit a long-term strategy of building an economy for the future—a green economy, a digital economy and an economy framed by the fourth industrial revolution. Germany, as I have remarked before, has earmarked €8 billion just for hydrogen. France has committed €7 billion just for electric vehicles. At the very least, the Government could commit to a strategy of major investment in a green recovery. My noble friend Lord Oates underscored the need for urgency and the scale of the investment and commitment required I want to highlight three issues with the Chancellor’s schemes that I find outrageous. The first is the exclusion of 3 million businesses from any help, mostly self-employed contractors and freelancers who work through entirely legal personal service companies. My noble friend Lady Burt discussed this in detail. I do not buy the Government’s explanation that it cannot help this sector for fear of fraud; it stems from the Treasury’s institutional hostility to these kinds of contractors. We saw it with the loan charge, and I am grateful to my noble friend Lord Goddard for expanding on this. We still urgently need a rational basis for settlement under the loan charge of open years—something that will avoid destitution and bankruptcy. We have also seen that same attitude with the new off-payroll working rules, as described by my noble friend Lady Bowles. I know we will discuss those and the Economic Affairs Committee’s report on them another day. As the IFS reminded us this week, many of those who become unemployed because of Covid will turn to setting up their own businesses. As explained by my noble friend Lord Bruce, the solo self-employed are critical to economic recovery. If the Government do not change their attitude and provide meaningful help, there will be a long tail of unnecessary damage from Covid, and it will hit the poor, especially those with children, gig workers, women and young people the hardest The second issue is the failure to open the Bank of England term funding scheme to fintechs and alternate lenders. The Government announced their £330 billion in schemes, including CBILS, CLBILS and bounce-back. Only £46 billion has gone out the door. Did they really intend only 14% of their schemes to be used The clearing banks have been given incredibly cheap money from the Bank of England to fund these loans and have behaved in their usual way, cherry picking existing customers and the most desirable customers, and leaving out the rest. They argue that they cannot expand their balance sheets too much, but they have refused to funnel the cheap Bank of England funding money to alternate lenders, even though this would not be put on to their balance sheets, and are blatantly using public money to undermine their competition. It has left the alternate lenders accredited by the British Business Bank unable to find the cheap money that would enable them to lend under these schemes and is threatening the diversity of providers that we need for economic recovery I go further. The Government need to take an active step to support finance for SMEs. This includes facilitating equity investment—it is incomprehensible that EIS has not been included in the future funding scheme—and a review of forbearance, and requires permission for new mechanisms such as shared platforms to improve access to financing The third travesty in this Finance Bill is the restoration of Crown preference, putting HMRC ahead of the queue and collecting money from bankrupt companies. At a time of national emergency, a measure that will hit small creditors and suppliers badly—as we heard from my noble friends Lady Burt and Lady Bowles and the noble Lord, Lord Bourne—is completely unacceptable We are also debating the stamp duty land tax Bill. My concerns have been that these measures help those buying second homes with buy-to-let instead of being more targeted. The move does little to stimulate the building of affordable housing, as my noble friends Lord Shipley and Lady Bakewell described. My noble friend Lord Bruce, the noble Lords, Lord Wood, Lord Truscott and Lord Loomba, and the noble Baronesses, Lady Falkner and Lady Wheatcroft, underscored the concern. The stamp duty change does nothing for renters. I have received the same letter as the noble Baronesses, Lady Andrews and Lady Bennett, from a renter who has been told their lease will not be renewed because the landlord wants to sell to take advantage of the stamp duty reductions. I suspect that letter is the tip of the iceberg Finally, I say how disappointed I am that we still do not know how the Government plan to borrow, tax or cut its way to covering the £188 billion in crisis spending. We know that in March sterling went into free fall and the capital markets turned against the UK Government’s debt until the Chancellor intervened with his rescue package and the Bank of England announced another £200 billion in QE. We should all take note of the warnings by the noble Baroness, Lady Altmann, on QE’s down sides. I accept that right now we have to splash the cash, but we also need a long-term economic plan.