Budget Statement — House of Lords, 2017-12-04
Topic: Macroeconomics
Matthew Carrington (Conservative, Centre-right): My Lords, I am very grateful to be following my noble friend Lord Gadhia. One of the little pleasures of this place, as your Lordships will appreciate, is to be a long way down the speaking list in a debate such as this, because everything that one can possibly say has already been said, and said a great deal better than I could possibly say it. If noble Lords will bear with me, I shall make some general comments about the Budget, then go on to some issues that particularly affect London In my view, this is a good Budget—perhaps not a great, reforming Budget, but one that does what is required in a time of uncertainty. Of course, the OBR’s economic projections are disappointing but, like all projections, they are best guesses based on the facts at the moment. The problem is that, until the Brexit deal is done—or, as we heard this afternoon, not done—they must have an even wider margin for error than usual. Add into the mix the unknown terms of any trade deal with the USA and with our other major trading partners, and these economic projections become even less useful for making policy. If economic projections were any good for determining policy, our economy would be in much better shape. One of the most worrying headlines in the OBR’s projections is the downgrading of its assessment of the UK’s productivity. Measuring productivity is a complicated business in a service economy such as ours, but there is no doubt that we clearly need higher skills and greater investment, and the Green Paper on industrial strategy produced by the Department for Business, Energy and Industrial Strategy is very welcome in laying a pathway to correct this, if possibly a bit interventionist for purists such as myself. But we also have to recognise that there is a trade-off between high employment and productivity. Personally, I would accept lower productivity, balanced by higher employment, particularly of the low skilled. Some countries, such as France, seem to take the opposite view One of the greatest uncertainties is what the future holds for our financial services industry. Its importance to our economy is hard to overstate in terms of employment and tax revenues. The deal that we do with the EU 27, and the timing of that deal, is crucial, but even more important to much of the City are the relationships that we develop with the rest of the world once we are outside the EU I want to mention a couple of other challenges that particularly face London. We hear a lot about the divide between the economy in the south-east and the rest of the UK. Of course, the challenge is to bring the rest of the UK up to the economic vibrancy of London, but London is not without its serious problems. The biggest is perhaps housing, as highlighted in the Budget, and mentioned extensively in this debate. I welcome the efforts to build more homes and to help first-time buyers. House prices in London mean that no one working in central London, trying to pay for their home out of taxed income, can afford to live within a reasonable travel distance of their work. The costs of housing are directly related to the shortage in housing. The high prices in London are not caused by absentee foreign buyers; they are a small part of the problem, if an irritating one. It is more basic—a shortage of homes being built. Get the supply right, and we will get the prices down to an affordable level. New towns and ribbon developments between Oxford and Cambridge are only part of the answer, as it will still be a massive and expensive commute for most people with jobs in central London I welcome the measures in the Budget to encourage more homes to be built in London. We need to develop the large acreage of brownfield sites which exist in London and which somehow never seem to get new homes built on them. But that alone will not be enough. We have to increase the housing density in central London closer to the levels which Paris and New York have always had The second massive problem in London is business rates. They have in places—and it is a mixed picture in London overall—gone up well beyond the ability of small shops and businesses to pay them. While the measures in the Budget will help and are welcome in the short term, they are not the long-term solution. It is clear that the business rate regime, with its many advantages for government of ease of collection and difficulty in avoidance, is now damaging businesses in London. Property taxes unrelated to profitability are no longer optimal, at a time when online retailers pay very low business rates and often not much tax at all, and our high streets are dying. We need a reform of business taxation in London, with rates being replaced by a tax which better reflects the profitability and turnover of the business Finally, I was pleased that the Bank of England has started to increase interest rates at long last. With nearly 10 years of close to zero interest, we cannot be surprised that few people see any advantage in saving. The savings ratio is still bumping along at historically, catastrophically low levels, and household borrowing is getting back to the heights last seen before the 2008 crash. We need to get back to more normal levels of interest rates. I wonder if the much-praised independence of the Bank of England needs to be rethought, or at least the targets of the Monetary Policy Committee need to be enlarged to encompass other factors than just inflation This is a Budget that does what is needed at this time, but I hope that soon the Chancellor will feel able to introduce a more radical Budget, not least to tackle the complexity of our tax system. A tax simplification Budget is long overdue and, while it would be resisted by the Treasury, tax accountants and lawyers—a formidable lobby they form as well—a simpler tax regime would liberate business to get on with its job of making the wealth that we all so much like to spend.