Budget Statement — House of Lords, 2017-12-04
Topic: Macroeconomics
William David McKenzie (Labour, Centre-left): My Lords, it is a particular pleasure to follow and hear the noble Lord, Lord Skidelsky. There can seldom have been greater disparity between the upbeat rhetoric of a Chancellor and the seriousness of our economic situation. The reality, as we have heard, is a bleak canvas where real wages are lower than in 2010 and living standards are set to fall in 2017. Economic growth has been revised downwards in every year of the forecast as households’ real income and spending is squeezed by higher inflation. Perhaps most worrying is the downward revision of productivity growth and what that means for our economic future. Just this morning, we saw headlines from the CBI contrasting the gloom over the UK economy with the strength of the global economy, including members of the eurozone. That could not be more pertinent as we stumble towards an exit from the EU A variety of assessments have been undertaken about the effect on the UK economy of our departure from the EU in both the short and the long term. These reflect assumptions around reductions in trade with EU countries and increasing tariff barriers, reductions in foreign direct investment, especially related services, and reduction in the UK’s net fiscal contribution. They do not make happy reading. The NIESR estimates the long-run impact of leaving the EU will mean GDP between 1.5% and 3.7% lower than baseline in 2030 and real wages between some 2.2% and 6.3% lower. Other studies show different outcomes pretty much all with a lower GDP Where we end up of course depends on negotiations, which will presumably get under way at some stage, but not apparently today. Lack of progress is creating uncertainty, which is in danger of inhibiting the investment that we need to improve productivity. The projected lack of growth has reduced the Chancellor’s headroom against his fiscal mandate, but we should acknowledge a modest loosening of the fiscal policy—a loosening of the squeeze in my noble friend Lord Hain’s terminology, or perhaps a modest change of heart So far as debt falling as a share of GDP, we know that that has been achieved only with the help of the reclassification of some £70 billion of housing association debt. As the OBR pointed out, the DCLG Secretary of State confirmed in his evidence to our Secondary Legislation Scrutiny Committee that the regulations under review were introduced only to enable a reclassification. That is a pretty cynical approach. Will the Government really stand aside should a housing association fall into severe financial difficulty What have been the Chancellor’s priorities in dealing with this headroom? There is £3 billion, as we have heard, for Brexit—no additional funding for social care but funding to help us extricate ourselves from the single market at a time when its economies are growing strongly and ours is struggling. That is perverse indeed. Can the Minister tell us how this sum will be allocated across departments? What is the strategy and what are the economic risks of the various options The Chancellor has allocated nowhere near enough extra resources to address the NHS funding crisis, although a new payment with new money is to be welcomed—as is an additional £10 billion of capital, notwithstanding that most of that is coming from selling parts of the NHS estate. Recently, we have debated the very minimum of changes to universal credit, with nowhere near enough being done to end the misery caused by that programme: nothing for the self-employed, second earners, lone parents or disabled people; no rolling back of the cuts of £3 billion a year; nothing to ease the effects of a decade of cuts to social security on the incomes of families with children; and a million more children heading for poverty. It is no wonder that the social mobility commissioners have had enough. It appears that the Government are too busy with Brexit to address the needs and aspirations of their citizens As for the abolition of SDLT for first-time buyers, we share the reservations that this does too little to help too few of the young people who wish to buy a home of their own; it risks further pushing up prices. Government focus on the need to build more homes is to be welcomed, but we need more affordable homes and we need delivery. Garden cities have not blossomed since announcements four years ago. My noble friend Lord O’Neill took us back to the time when Nye Bevan was in charge of housing, with his insistence on maintaining standards and the use of councils to deliver many of these properties, which are now applauded. Of course, that was at a time when materials were difficult to obtain, being just after the Second World War. There is much to learn from what he did The switch from RPI to CPI for business rates is welcome, if a little late. As for other tax measures, the Government have published an array of policy measures, announced in the Budget as part of the new annual tax policy-making cycle. They range from setting tax rates and allowances to anti-avoidance rules for offshore trusts, accommodation allowances for the Armed Forces and hybrid mismatch rules. There are over 100 of them. Of course, they justify an increase in resources for HMRC, but they demonstrate how complex our system is, how difficult it is to simplify it and how the fiscal landscape is changing However, there are broader issues, of which we were reminded with the release into the public domain of what have been termed the Panama and Paradise papers. They show vast amounts of wealth swashing around in offshore entities—some in the UK, some in British Crown dependencies or British Overseas Territories. We acknowledge that it is not just a matter of political will to secure an appropriate tax take from such sources, where there may be competing claims on who has the taxing rights, and we accept that the Government have been active in supporting the OECD in its base erosion and profit-shifting initiatives. However, there is more to do in establishing beneficial ownership and driving transparency. The weekend press suggested that the EU was ready this week to approve a list of those countries, island states and former colonies that it deemed to be non-co-operative jurisdictions, which would be blacklisted with suggested appropriate sanctions. Unanimity is required for this decision. How will the Government approach this matter The Chancellor invited us to share his vision of an economy fit for the future, but frankly, we should decline. We would rather he spelled out the real challenges we face so that we can be enjoined to face the reality of those challenges.