Few supportive of Sunak in Lords debate

Treasury Minister Lord Agnew of Oulton opened the debate by saying the Office for Budget Responsibility (OBR) says it expects our recovery to be quicker than previously predicted. He highlighted how, combined with tax reliefs, total public investment in R&D is increasing from 0.7 per cent of GDP in 2018 to 1.1 per cent by the end of the Parliament. He backed the expanded scope of the R&D reliefs to include cloud computing and data costs. From April 2023, we are going to incentivise greater investment here at home, he said.

The minister focused particularly on business taxation. The approach to corporate taxation strikes a responsible balance between funding public services and encouraging investment, he said. Business rates are receiving a significant overhaul to make them fairer and timelier with more frequent revaluations occurring every three years. Next year’s planned increase in the multiplier will be cancelled - Agnew called this a tax cut for business worth around £4.6 billion over the next five years.

Labour speakers

Labour spokesperson Lord Davies of Oldham said placing the highest burden on people who have the lowest income is ‘gratuitously and outstandingly unfair’. How on earth people are expected to cope with the cuts to credit that are envisaged in the Budget? asked Lord Davies. He said: “What is actually clear is how much this Budget bears heavily down on the less well off in our society, while we are seeing tax breaks for the particularly well off.”

Lord Eatwell said the loss of output because of ‘the Chancellor’s beloved Brexit’ (four per cent scarring of GDP year after year) means an annual loss of around £30 billion in tax receipts year after year. He believed the Chancellor failed to show how the growth strategy, taxation and the ambitious climate goals fit together.

Lord Rooker said millions who are non-taxpayers due to low income will get sucked into income tax without any announcement of a tax increase. Millions more, with just above average earnings, will become 40 per cent taxpayers over the five-year period. Once you get to the eighth vingtile, according to Resolution Foundation, the extra tax from the freeze of allowances and the national insurance surcharge wipes out all the universal credit taper reduction. Money off beer, fizzy wines and low-cost air flights will not compensate for the ‘anger, bitterness and betrayal’ that people will feel over the long-term freeze on tax allowances, Lord Rooker said.

Lord Sikka opined that the Chancellor’s Budget will not lead to an economic renaissance, reduce inequalities or improve household budgets. The suspension of the ‘triple lock’ on the state pension will remove £30.5 billion from pensioners over the next five year. He criticised tax relief to corporations that are already making billions of pounds in profits. Why is it that no national insurance is levied on recipients of unearned income because it could go a long way towards addressing many of our social problems? UK businesses have not shown a great deal of appetite for risky investment. He said: “The major winners from the Budget are ‘tax-dodging, champagne-sipping bankers on short-haul flights’. For most people it is a continuation of austerity. That will inevitably increase social instability.”

Lord Tunnicliffe talked about the ‘double whammy’ of high inflation and personal tax increases. He noted that the Resolution Foundation notes that despite increases in budgets, only a third of the post-2010 cuts to unprotected departments’ real-terms per-person spending will be reversed by 2024-25.

Lib Dem speakers

Lord Fox, Lib Dem business spokesperson, highlighted that although the OBR project GDP growth for next year of more than six per cent, that hides an underlying rate of little more than one per cent. Supporting the Institute for Fiscal Studies (IFS), the OBR pointed out that, once rising prices and rising taxes are considered, average household incomes are set to fall next year and will not recover before 2023. According to the IFS, the cost of living is set to increase faster than benefit payments. He added that 75 per cent of the 4.4 million households on universal credit will be worse off because of the decision to take away the £20 per week uplift. He criticised the business rates announcements as a ‘temporary fudge’ of a system that prolongs the uncertainty that small businesses face. Cutting the cost of internal flights sends the wrong messages on climate change, he argued.

Lord Razzall said cutting APD for domestic flights in the context of COP 26 seems reminiscent of George Osborne’s ill-fated pasty tax. To spend more money on a tax reduction for bankers than on the catch-up for schoolchildren seems ill-advised, he thought.

Lord Shipley warned that the Government’s policy of spending now to reduce taxes later may prove hard to achieve. Levelling up cannot be delivered without progressive taxation, he said. He was disappointed that the Government is ‘avoiding’ a review of business rates especially because of the damage being done to high streets by online retailing with its lower business rate levels.

Treasury spokesperson Baroness Kramer said there is a five per cent increase in council taxes, which will be a burden distributed most unfairly under a regressive system. People are being ‘pushed into penury’ by removal of the £20 universal credit uplift, which is made worse by the pressure of inflation. She suggested the Government delay the cut in the bank surcharge by one year and use that money to provide catch-up for all the kids who are struggling as a consequence of two years of inadequate education because of COVID-19.

Conservative backbench speakers

Former Chancellor Lord Lamont of Lerwick remarked that while Conservative MPs cheered the furlough and the bounce-back loans, one wondered where they thought the money would come from and how this would be financed. Taxes are still below those of other European countries, by quite a long way, he told the House. He said: “Taxes and spending are high, perhaps too high as a percentage of GDP, but in the aftermath of a pandemic they can be justified over the short term.”

Baroness Noakes said ‘low taxes, pro-enterprise measures and small government have all gone AWOL’. If the OBR forecasts are right then we are creating an environment in which businesses will not prosper, the tax yield will decline and enterprise and investment will find no incentives in the UK, which will in turn lead to lower employment.

Lord Flight said there was ‘virtually nothing’ for businesses large and small, other than the cut for one year in business rates. It is difficult to understand why Chancellor Sunak opted for large tax increases rather than spending cuts, he said.

Lord Horam said there is no evidence that a higher tax rate necessarily adversely affects the rate of growth. Only 38 per cent of people who receive universal credit are in work, with the remainder are out of work and they will lose substantially.

Lord Risby said the Chancellor has attempted to give continuing support by increasing the national living wage, focusing on upskilling and stimulating new entrepreneurial activity and export promotion. Baroness Foster of Oxton said the aviation and tourism sectors have been decimated by COVID-19 and the reduction in APD for domestic flights should have been immediate, along with reduction in APD for international flights. Viscount Trenchard said ‘we are getting close to the optimal level [of tax] above which further increases would be counterproductive, because they would stifle growth and act as a drag on GDP’.

Other speakers

A crossbench peer, Lord Londesborough, remarked that the economy faces a period of labour shortages, restricted immigration, very modest growth from 2023 onwards and rising inflation, which ‘is not a good environment for business’.

Lord Turnbull, the former Treasury Permanent Secretary and Cabinet Secretary, remarked that the Government have accepted that business properties should be revalued regularly, but council tax values and bands have not changed for 30 years. He suggested regular revaluations, several additional bands at the top going up to, say, £2 million and changing the co-efficient that limits the tax on the more valuable properties to no more than 2.5 times those at the bottom. Wealth embodied in housing is hugely undertaxed, he added.

The Lord Bishop of Newcastle (in a valedictory speech, ahead of his retirement from the Lords) was deeply anxious for people who are on universal credit but not in work. The Chancellor’s decision to remove the £20 a week uplift is a decision which hurts the most vulnerable, including many families with children.

Lord Desai, a non-affiliated peer, said if you call it a taper it sounds very nice, but the 63 per cent taper on the poorest people is a 63 per cent rate of income tax. Then, when it is cut to 55 per cent, everybody hails the Chancellor and says how kind he is. He asked why can Sunak did not go down to the average basic rate of income tax?
Government response to the debate

Lord Agnew of Oulton closed the debate by saying wages have continued to grow since the start of the pandemic, public sector net debt is falling and by a larger amount again over the forecast horizon and the Government has always been clear that the £20 uplift was a temporary measure. He suggested people on universal credit should get a job because of the ‘extraordinary position to have so many vacancies in our economy’.

On Brexit, the minister claimed the ‘agility, flexibility and freedom’ provided by Brexit will be more valuable in the 21st century global economy than just proximity. The tax relief granted for EIS investments has become a significant way of investing in early-stage businesses. The highest-earning 15 per cent will pay more than half of the revenue for the new social care levy. The decision to maintain the personal allowance and the higher rate threshold at 2021-22 levels out to 2025-26 was a progressive approach to pay for COVID-19, he argued.

From 2023, the Government will introduce a new business rates improvement relief, so no business will face higher business rate bills because of qualifying improvements to a property they occupy for 12 months, Agnew said. On APD, we have decided to introduce a new reduced domestic band to support regional connectivity.

A transcript of the session is here.

Blog by Hamant Verma, CIOT Senior External Relations Officer