Economy: Spring Statement — House of Lords, 2018-03-15
Topic: Macroeconomics
Thomas Lyttelton (Labour, Centre-left): My Lords, I too congratulate the right reverend Prelate on his excellent maiden speech. I also thank the Minister for moonlighting from his DfID duties to introduce the debate. I should draw the attention of your Lordships’ House to my entries in the register A year ago I spoke in the debate on the Budget—possibly the last Spring Budget—and there were 39 speakers. This afternoon there are 14 or 15. Although projections and forecasting are difficult, as illustrated by the OBR, my calculation is that there has been a saving of a maximum of £7,500 as a result of the reduced number of speakers We have been invited to take note of the economy in the light of the Chancellor’s Spring Statement. The question is, which portrayal of the economy—the Chancellor’s sunlit uplands or the Office for Budget Responsibility’s darker valleys? And how does the Chancellor’s upbeat assessment relate to the other evidence that all your Lordships are exposed to: crises in local government, the NHS and the provision of care for the elderly The United Kingdom has the greatest regional inequality of any country in the EU, yet, as I watched the Chancellor make the Spring Statement, he gave the impression that the only question was whether the outlook was better on St George’s Hill or in Virginia Water. Just as the American President calls any inconvenient facts "fake news", anyone who does not embrace the optimistic view of the Government has been dubbed Eeyore-ish, and the Chancellor—himself regarded as an Eeyore by his Brexit-enthusiast colleagues—has now proclaimed himself to be a veritable Tigger Even if this gentle banter feels rather less threatening than the President’s terminology, it strikes me as fundamentally trivialising important and, for millions of people, harrowing issues—squabbling over which costume in the nursery dressing box is whose, while rough sleeping, the use of food banks, child poverty and the cancellation of hospital procedures inexorably rise Seventy-five per cent of the welfare cuts introduced by the previous Conservative Chancellor in 2015 and not reversed by the current one are still to take effect, and the projections for public expenditure and borrowing in the period to 2020-21 are based on the assumption that these cuts are fully implemented I will leave it to future economic historians with longer perspective and greater objectivity to pass judgment on the Conservative and Conservative-led Governments’ measures over the past eight years to reduce the deficit arising from the consequences of the global financial crisis, but I will be surprised if a consensus conclusion does not suggest that the national finances could have been better strengthened through a significantly more equitable sharing of the burden. We cannot, however, rewrite history or easily reverse past actions, so the priority has to be to ensure that future policy does not continue to place such an unfair and intolerable burden on the least well-off. Whether or not the IFS’s projection of the need for a £30 billion to £40 billion increase in annual tax revenues by the mid-2020s proves to be in the right range, there is little doubt that, with all the changes, among other things, to the workforce and employment structures, radical changes to how taxation is raised fairly and effectively are essential. Although the Chancellor announced 30 different consultations in the Spring Statement, many of these are pretty technical and of limited potential in terms of revenue raising, and some, even if welcome, such as fair payment of commercial suppliers and prompt payment by government, have no direct relevance to the Government’s requirement for funding There appear to be no signs of any deeper thinking by the Government about key areas of taxation, however difficult they may be, as the noble Lord, Lord Macpherson, as a former Permanent Secretary to the Treasury, has previously argued in your Lordships’ House, such as the reform of residential property taxation. Even if our departure from the EU has as benign an outcome as possible, we will not have prosperity and fairness without grasping such nettles I would like to conclude, therefore, by reverting to an issue that I raised a year ago in the debate on last year’s Budget Statement: the need to reform inheritance tax. Inheritance tax is not currently a substantial contributor to public funding—around £5 billion per annum, compared to, say, 10 times that for corporation tax, even at its currently discounted level—and the most ambitious realistic reform is unlikely on its own to substantially close a £30 billion funding gap. But it could, I believe, make a useful contribution to such a target, and, as importantly, reform could create a system widely seen as much fairer. In the context of the case for inheritance tax reform, Janan Ganesh wrote in the Financial Times: "A country’s tax code is not just a mesh of rules and rates—it is a secular bible of moral signals" Although not included in the list of consultations, the Government have recently commissioned the Office of Tax Simplification to produce a review of aspects of inheritance tax. The scoping document, dated 15 February 2018, refers to, "a review of a range of aspects of IHT and how it functions today, including its economic incidence, to identify simplification opportunities … The overall aim of the review will be to identify opportunities and develop recommendations for simplifying IHT from both a tax technical and an administrative standpoint" These Benches have asked for a fundamental review of inheritance tax for many years. My noble friend Lord Eatwell argued powerfully six years ago for a review which considered the taxation base shifting to the recipient of gifts and legacies rather than the donor or the estate. Inheritance tax was introduced by the noble Lord, Lord Lawson, who is not in his place, in substitution for the capital transfer tax regime, which embraced lifetime gifts, introduced in the 1970s by the late Lord Healey I therefore find the limited remit of the review, perhaps admittedly reflecting the narrow focus of the Office of Tax Simplification, very disappointing. That disappointment turns to acute concern once I have looked at the position of the chair of the OTS, the former Conservative Minister, Angela Knight. For 10 years, and for 15 months while serving as chair of the OTS, Ms Knight was a non-executive director of Brewin Dolphin, the private wealth manager. Indeed, before she was chief executive of the British Bankers’ Association, she was chief executive of the Association of Private Client Investment Managers and Stockbrokers. As I did last year when I spoke on this subject, I spent a few minutes on the internet, this time to look at Brewin Dolphin’s site. Their guide, How to reduce an inheritance tax bill, includes topics such as how pensions can be used as an estate planning tool, and the benefits of using trusts. It states: "Many people think it is deeply unfair that the estate they have worked so hard to build up can potentially be subject to a 40% tax charge. Fortunately, there are lots of exemptions that can help mitigate the tax paid" The House of Commons Treasury Select Committee, in scrutinising Ms Knight’s appointment in January 2016, expressed concern about her potential conflicts of interest and recommended that she recuse herself from the consideration of any matters in which she had a conflict of interest. I ask the Minister, first, whether Ms Knight has recused herself and will continue to recuse herself in relation to the review of aspects of inheritance tax. Secondly, can the Minister say whether, in parallel with this limited review, the Government will conduct a wider-ranging review, as these Benches have argued Whether your Lordships rely on the OBR’s projections, the more pessimistic OECD ones or the more optimistic Bank of England ones, it is clear that the challenge of re-establishing a sustainable economy is huge. This is no time for tinkering; radical thinking is needed.