Spring Statement — House of Lords, 2019-03-20
Topic: Macroeconomics
Francis Thomas Baring (Conservative, Centre-right): My Lords, it is a great pleasure to follow the noble Lord, Lord Gadhia, with his great financial experience, and a lot of what I say will be in agreement with his wise words There is much to welcome in the Chancellor’s Spring Statement. As the noble Lord, Lord Macpherson of Earl’s Court, said, and as The Financial Times put it: "A decade on from the financial and economic crisis, the chancellor can now say the deficit is fully under control" As other noble Lords have said, with the Government’s books in 2009-10 in deficit to the tune of £153 billion, amounting to 10% of national income and £1 in every four spent, public sector net borrowing is down to £22.8 billion this financial year, only just over 1% of GDP. This Chancellor deserves high praise for halving the deficit since he came to office, and this has taken place even though the annual debt interest bill is hovering around the £40 billion mark each year As the noble Lord, Lord Gadhia, has just said, the Chancellor has made his own luck by running a stable ship throughout the Brexit process. Detailed analysis shows that he has had some good assistance in certain areas. The noble Lord, Lord Macpherson, has already pointed out that unexpected strength in tax revenues explains a large amount of the drop in borrowing across the five years of the forecast. This financial year, according to the FT, all the gains in receipts come from higher than expected income tax and national insurance revenues, largely because the incomes of those on the highest pay are growing faster than the average. Surprisingly low inflation and lower interest rate expectations have also cut projected debt interest bills in future Moving on to growth forecasts, the news is not so good. As other noble Lords have pointed out, the UK economy is forecast by the OBR to grow in 2019 at its slowest pace since the post-crisis recession, cutting its outlook for growth this year to a meagre 1.2%, down from the 1.6% expansion pencilled in in last November’s predictions. In context, however, the GDP growth forecast figures are still higher than those for Germany, slightly increasing to 1.4% in 2020 and 1.6% in each of the final three years. The relatively modest recovery in GDP growth hinges on a revival in productivity and steady wage growth supporting a pick-up in consumer spending I will now consider employment and wage growth. Under the Conservative-led Government, more than 3.5 million net new jobs have been created. By 2023, the OBR expects to see 600,000 more new jobs. According to the Chancellor, last year 96% of them were full time, scotching the Opposition’s constant claims that they are zero-hours contracts. On wage growth, the OBR has revised upwards its forecast to 3% or higher in every year, with inflation around the target throughout the forecast period. This means real wage growth in every year of the forecast So the UK economy is showing surprising resilience. But this progress, and the chance to end the austerity that has sapped public services for a decade, are in jeopardy. The uncertainty over the UK’s exit from the EU must be lifted and a no-deal departure avoided. If the UK leaves the EU with an agreement, the Chancellor said the country would have real choices on how much of his notional "deal dividend" it could spend on public services or tax cuts. But, as the Chancellor said, a no-deal Brexit would deliver a significant short to medium-term reduction in the productive capacity of the British economy—so the idea that there is some simple, readily available fix that can be deployed to avoid the consequences of a no-deal Brexit is, I am afraid, just wrong I move on to an area where spending has been cut back too far. On this, for once I agree with the noble Lord, Lord Tunnicliffe. According to a 2018 paper by the Institute for Government, net expenditure on police services in England and Wales had fallen by 18% in real terms from spending in 2009-10. At the end of March 2018, there were 15% fewer police officers than in 2010. There is also a reported shortage of detectives. In its 2017 evaluation of police effectiveness, Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services reported a "national crisis" in the number of investigators, estimating a 17% shortfall of more than 5,000 staff The crisis has been brought even more into focus by the rise in knife murders in London and the increasing problems being brought about through gangs and drugs issues. If no new money is available apart from a one-off £100 million, will the Minister tell us, as a matter of priority, whether the money could be found from elsewhere? Perhaps some of our overseas aid budget—particularly that given to relatively well-off countries such as India and China—could be diverted to this much more urgent problem at home. There seems for some reason to be a stubborn resistance by the Government to spending more money in this area, which should be a key priority for the Conservative Party, as the party of law and order. This expenditure would pay for itself in the future I now turn to what the Spring Budget means for personal finances. I welcome the increase in the personal tax allowance to £12,500 and the rise in the higher-rate threshold to £50,000, but still believe that the top rate of income tax should be brought down to 40% to replicate the rate under the last Labour Government. Sarah Coles, a finance analyst at Hargreaves Lansdown, made the following comment: "The impact of inflation, wage rises and asset price growth means many more people will be paying more tax over time. By 2023-24, inheritance tax is expected to make an extra £1 billion a year and capital gains tax £4 billion" Meanwhile, income tax is forecast to rise by more than £50 billion and national insurance more than £35 billion. If you look at the other side of the equation, welfare spending is expected to increase by no less than 19%—nearly £42 billion—over the next five years, with the biggest factor being state pension expenditure, which is forecast to rise by 26% or £24.5 billion. There has to be a limit to tax increases: we are now as highly taxed as in the 1980s On offshore tax, I note that HMRC has received 5.7 million records on UK taxpayers’ offshore accounts—more than treble the records it received in 2017. I welcome the crackdown on overseas tax evasion and note the co-operation from more than 100 overseas jurisdictions. I note the decision of the OBR to categorise provisionally the increase of probate fees as a tax, which must be correct, despite what the Ministry of Justice says. What are the Minister’s views on this Finally, I welcome the Government’s proposed review into the contentious loan charge, highlighted by my noble and redoubtable friend Lady Noakes. I agree with my noble friend Lord Wakeham about some of the responsibility resting with taxpayers who went into these schemes. I await with interest the report that will be published on 30 March The Minister talked about the birds and the bees, but did not say much about the third B—Brexit. We are in a most uncertain time economically due to Brexit, but, with a difficult hand, the Chancellor has done well. The times ahead will be uncertain and the effects of no deal on the public finances could be serious. For instance, I read today that, according to Ernst & Young, financial services companies have announced plans to move £1 trillion of assets into the EU. The financial services industry accounts for roughly 12% of the UK economy and employs 2.2 million people. It estimates that it will cost the country £600 million in tax. I feel that the Prime Minister’s deal, while not being perfect, provides an adequate solution, and I would welcome it somehow getting through Parliament. The uncertainty of delay is much worse for the economy.