Government unmoved on peers' concerns about Budget

30 Mar 2020

Peers got the chance to debate the Chancellor’s Budget last week (18 March). The debate covered universal basic income, welfare benefits and the taxation of entrepreneurs, within the context of the COVID-19 outbreak. The Government was unmoved on most concerns about the Chancellor’s Budget, which itself has been overtaken by more recent announcements.

The Government View

Treasury Minister Lord Agnew of Oulton (pictured thanks to said the Budget backed business and innovation and gave support to public services with the aim of ‘levelling up the UK’. Lord Agnew outlined the Chancellor’s measures to help the UK deal with coronavirus; for example to cope with cash-flow problems, the Chancellor announced a programme of loans and guarantees to support firms through the economic emergency. In total, he will make available an initial £330 billion of guarantees, equivalent to 15 per cent of the UK’s GDP, the peer said.

Even before coronavirus hit, we were facing a slowing world economy, Lord Agnew accepted. Coronavirus, and the Government’s ‘necessary response’, will lead to a significant increase in borrowing, he predicted, but he added that the UK is equipped to manage. He said: “The hard work of the last 10 years has left our public finances in a strong place, with the deficit down from above 10 per cent in 2009-10 to less than two per cent last year.” Changes to the national living wage, income tax and national insurance mean that someone working full-time on the minimum wage will be more than £5,200 a year better off than in 2010, he said.

For only the second time in almost 20 years, he said, every one of our alcohol duties had been frozen.

This was a Budget that showed support for business through the tax system, he said, pointing to the increased R&D allowance, Structures and Buildings Allowance and Employment Allowance.  He spoke of the fastest and largest increase in R&D spend ever, said that the Budget has helped UK on its journey to net zero carbon emissions by 2050, and that public net investment will, in real terms, be at its highest since 1955.  Government will, he said, review the Treasury’s Green Book to make sure that economic decision-making reflects the economic geography of the country, committing £5 billion to get gigabit-capable broadband into the hardest-to-reach places; and the Government has extended the affordable homes programme with a new, multi-year settlement of £12 billion.

Other Conservative speeches

Lord Lamont of Lerwick said in the last quarter of last year, the world economy was already teetering on the verge of recession; figures for Germany, Italy, Japan, China and the UK indicate that, he suggested. A longer-term consequence of COVID-19 might be a degree of ‘de-globalisation’, which he (Lamont) would regret.  The Chancellor was quite right to take advantage of low interest rates to invest in infrastructure, he continued. Covid-19 is not the sort of crisis that monetary policy can do a huge amount to ameliorate; it requires a fiscal response. It was therefore right that the Chancellor deployed his ‘big bazooka’ with £350 billion-worth of guarantees, a business rates holiday and the business interruption scheme, he said.  We need to find a mechanism to get money to those people who do not have any savings in reserve. His second concern is that the business take-up of loans will not go through to employees—that employers will not necessarily pay their workers. Could we consider for the future perhaps making the loans conditional on guarantees about employment in individual firms, he asked.

Lord Leigh of Hurley, a chartered tax adviser, was concerned about the ability of the British Business Bank and commercial lenders to combine quickly enough to provide the needed liquidity. Lord Leigh also suggested that the Chancellor considers more direct measures: emergency loans but delivered through the tax system via PAYE or VAT. This would be so much more direct for businesses which need it, he said. He is disappointed at the reduction of Entrepreneurs’ Relief, saying the Treasury claims that this will net an extra £2 billion or so a year, but that assumes that entrepreneurs will not change their behaviour at all. He said: “I already know of entrepreneurs who are planning to start up their next business in Singapore or to emigrate to avoid, legally, capital gains tax.” On other matters, he wants to ban MBAs from being covered by the Apprenticeship Levy. He said online marketplaces should be liable for the collection and remittance of VAT.

Baroness Finn said we must mitigate the reputational damage the change to Entrepreneurs’ Relief could do to our hard-won entrepreneurial culture.
Lord Northbrook welcomed the initial £12 billion fiscal stimulation package, directly related to the outbreak, with £7 billion going to people and businesses, but he is worried about liquidity problems for smaller companies.

Lord Naseby remarked that politicians are not good at communicating what the Government are doing to people in business.

Labour speeches

Labour spokesman Lord Tunnicliffe said Labour to a large extent supports the economic action being taken to deal with COVID-19, but there remains the question of unequal treatment. Banks are offering mortgage customers the ability to negotiate payment holidays, but there is a lack of action to ensure that renters are not adversely impacted by temporary cash-flow problems. He also warned that the current level of statutory sick pay introduces a risk that some will have to choose between health and financial hardship.
Lord Tunnicliffe welcomed the funding of local hardship funds, but said that while the headline figure of £500 million sounds significant, it will be spread across hundreds of authorities. Other than one-off schemes relating to the virus, and the commitments to reviewing business rates, there is little to offer long-term reassurance on the provision of local services. The basic wage will remain far below the level suggested by the Living Wage Foundation, he said.

The Budget failed to undo 90 per cent of the damage done nationwide by an unnecessary decade during which former chancellors George Osborne and Philip Hammond ‘squeezed’ over £150 billion of spending power out of the economy, said Lord Hain. And the big increases in public sector capital spending that the Chancellor announced caused many people to miss what is happening to the current public spending that pays for our public services. He charged: “If the sudden extra £350 billion to beat the coronavirus pandemic can be produced like a rabbit out of a hat in the last few days of government panic, the question is why appropriate extra public spending was not found from the very start of Conservative rule in 2010 to deal with the aftermath of the financial crisis, instead of plunging the country into 10 years of savage cuts.”

Lord Livermore said replacing simply the OBR’s forecast for this year and next with the OECD’s forecast brings the UK’s annual growth down to an average of just 1.2 per cent—the worst average annual growth forecast for the UK ever recorded. As a result of the tax and benefit changes announced in this Budget, the poorest decile is worse off in cash terms, while the eighth and ninth-richest deciles are the biggest winners, gaining over £100 a year, he told peers.

Lord Adonis said we should put Brexit on hold after this COVID-19 crisis.

Like a barium meal, the current crisis is illuminating painfully the inadequacies of our care services and social security system, depleted of resource after a decade of austerity, said Baroness Lister of Burtersett. A key driver has been the four-year freeze, which has cut the value of working-age and children’s benefits by around six per cent. Overall, they are now worth about nine per cent less than if CPI indexation had applied since 2010. Elsewhere, she said ‘levelling up’ has to be about not just places but individuals.

Lord Brooke of Alverthorpe said we should look at the sugar tax and see whether it should be extended and widened beyond what it is already operated on because of major problems with obesity.

Lord Desai said the COVID-19 crisis is the opportunity for us to institute a temporary citizen’s income.

Lord Stevenson of Balmacara remarked that bringing austerity to a close on current spending is new, and very welcome, but the sober truth is that in less than five years the Government’s ambitions have gone from shrinking the state in order to run an absolute budget surplus to growing public spending to almost 41 per cent of GDP and actively aiming to borrow around £60 billion each year. Lord Stevenson is concerned that the Government did not set out how it intends to address the increasing productivity gap between UK workers and those in the largest EU economies. The peer said that while on paper the Chancellor’s new lending measures seem appropriate in scale, they are very supply-side focused and assume that there will be uptake and demand from SMEs but, as we know from the global financial crisis, uncertainty typically leads to reduced demand. On the Covid-19 measures, he said chasing loans for SMEs, which will be hard and slow to administer, may also encourage bad effects in a nation which already suffers from a personal debt problem.

Lib Dem speeches
Lord Oates called on the Government to look also at how they can direct money to support payroll immediately and directly because of coronavirus and relieve unnecessary burdens on business. We face a paradoxical situation, where our economy is facing overall collapse in demand, while at the same time suffering an excess of demand in specific areas, he explained.

Lord Razzall was disappointed that there was no real mention of adult social care. On the impact of coronavirus, he suggested the idea of a citizens’ dividend or business dividend has a reasonable pedigree.

Lord Bruce of Bennachie called for an extension of the Brexit transition period so that we can concentrate on bringing COVID-19 under control before we conclude a future trade agreement, and said we should not cut ourselves off from health and security co-operation across the EU. Looking further ahead, we should also address the supply-side weaknesses and encourage investment in skills development in new sectors such as robotics, the digital economy, AI and climate change, he added.

Baroness Kramer worried about the resilience of the UK’s world leading commercial insurance sector. Kramer welcomed the grant scheme and said business rates holidays for small businesses in retail, hospitality and leisure are crucial. But, she warned, the grant excludes many very small businesses in London—because the rateable value of London property is so high, they do not fall within the scope of the scheme. The fragility of self-employment should have been tackled long ago; we need successful, flexible working in the 21st century, she said. The Government must use this opportunity to remedy the ‘two greatest travesties’ within universal credit: the ‘intolerable’ five-week wait; and the two-child benefit cap.

Crossbench and other speeches

Lord O’Neill of Gatley pointed out that the Chinese economy probably fell by about 20 per cent year on year in February alone because of COVID-19. That equates to taking off something close to $3 trillion worth of GDP in a month. The peer said ‘we need smart, persuasive, ‘People’s QE’ and quickly’, perhaps by issuing bonds.
Lord Skidelsky said a combination of informal rationing, which has already started, staying at home and voluntary saving, should be considered.

Baroness Valentine called for the rollout of 4G and better digital infrastructure to perhaps be prioritised for left behind areas under the Government’s ‘levelling up’ agenda.
The Archbishop of Canterbury said that during a crisis, keeping the long-term direction is as important as tackling the short-term problem. There has been decline for many years, particularly, as we all know, for many of those on the coast and in remote areas. COVID-19 may well be the last straw for some. He noted food banks are most needed when people move on to universal credit; 45 per cent or so of those who come to food banks come because of problems with credit, he said.

The Lord Bishop of Rochester ‘hugely welcomes’ the long-overdue extension of higher-rate housing benefit for care leavers until the age of 25, thus giving stability in their accommodation beyond their 22nd birthday. The £1 billion promised in last year’s spending review for social care is welcome but, not least in the new circumstances, it does not come close to what is needed, he said. He questioned whether there is something slightly perverse about committing extra funding to substance misuse programmes, including those related to alcohol abuse, while at the same time putting a freeze on the duty.

The virus is now exposing the weakness that has been cultivated by this Government: local authorities that have been cut to the bone; the NHS at breaking point; families with lots of debt and barely any savings; and a job system that has moved so heavily to precarious contract work that we now have a record number of unemployed, said Baroness Jones of Moulsecoomb, Green.

Baroness Falkner of Margravine, non-affiliated, said foresight, not panic, should be the order of the day for both the Government and the public

Government response

Wrapping up the debate, Lord Agnew of Oulton spoke about Entrepreneurs’ Relief and pointed out that the capital gains rate is 20 per cent and it was reduced from 28 per cent in 2016. He said: “It is hardly a rapacious rate of tax. I would be surprised if that put entrepreneurs off. We all have to pay our share of tax.” He said COVID-19 should not be used an excuse to try and get back into the EU. He also remarked that most people who have a mortgage do not increase the amount of the mortgage every year when they get a pay rise. A country needs to be mindful of that and not do the same.

The full session can be found here.

By Hamant Verma.