This is a summary of the debate on The Budget and the wider economic situation in the House of Lords this week. This debate happened two weeks after Chancellor Philip Hammond delivered his speech on November 22. Conservative speakers focused on supporting the stamp duty cut and other tax changes. while Labour peers spoke on a variety of topics. It was quite a scattergun debate with very few exchanges on tax, in contrast to the debates in the Commons on The Autumn Budget.
Minister of State at DfID Lord Bates backed the Budget and the Tories’ economic record, stating that the UK has seen more than a quarter of a trillion pounds of public and private investment in infrastructure since 2010. The national productivity investment fund will be extended to 2022-23 and funding will be increased to £31 billion, he reminded peers. The fund will support an additional £2.3 billion investment in R and D, taking total R and D spend in 2021-22 to £12.5 billion. The stamp duty changes will ensure that the ‘dream of home ownership becomes a reality for the next generation once again’. He welcomed the £1.5 billion package of measures to address concern about the roll out of universal credit. Since 2010, the Government has introduced 100 measures, including in this Budget, to tackle tax avoidance and evasion. As a result, the ‘tax gap’ is now at its lowest level and is one of the lowest in the world—some six per cent of the total forecast.
Lord Wakeham is ‘very pleased’ to see in the Red Book that the Government will consult before making any changes to taxing the self-employed. “They need to make the differences in taxation and national insurance between the self-employed and the employed as small as possible.” What the Government is doing with MTD is ‘highly desirable’ but they had set about it in the wrong way. He said the tax behaviour of digital MNCs in contrast to SMEs runs the risk of standing on its head virtually every norm on which our economy functions.
Lord Maude of Horsham said that, when he was Financial Secretary, the Inland Revenue as it then was, had a rooted belief that people became self-employed only to pay less tax. “The truth is that most people become self-employed because they want to make something happen and to have control of their destiny. We want to see a sensible, risk-weighted approach to how we tax self-employed people.”
On the Chancellor’s decision that foreign buyers of commercial properties in the UK must pay capital gains tax, Lord Freeman said it will be warmly welcomed not only by the property industry but, ‘more importantly’, by the community and electorate. He added that transparent records of foreign owners of UK property will ensure that tax is fully paid.
Lord Ryder of Wensum called for the abolition of stamp duty 30 years ago because it risked discriminating against achievers and those who, through no fault of their own, lose their jobs but secure new ones in other locations. Slicing rates on every band of stamp duty would be a fairer and more efficient option than the Chancellor’s Budget announcement because he has now erected yet another market distortion by creating a new, steep cliff edge. The Government can solve this so-called conundrum by restoring the balance between demand and supply, he argued.
The high prices in London are not caused by absentee foreign buyers; they are a small part of the problem, if an irritating one, said Lord Carrington of Fulham, explaining that the problem was more basic—a shortage of homes being built. He added that 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. A tax simplification Budget is long overdue and should lead to a ‘simpler tax regime that would liberate business to get on with its job of making the wealth that we all so much like to spend’.
Baroness Neville-Rolfe said the austerity of the last decade has been too lax in comparison to Ireland, where public service pay was cut dramatically. The rate of movement on infrastructure seems to be rather slow, she added. Lord Dobbs said it was a good Budget with no pasty tax or caravan crash in sight. Lord Balfe pointed to official government data that in 2019-20, the lowest income households will receive over £4 in public spending for every £1 they pay in tax which means that those paying the top level of income tax are paying more than £4 for every £1 they get back from the Government. He also called for a public register of the ownership of offshore companies and trusts.
Lord Tunnicliffe said the investment promised is ‘inadequate’. Labour would bring forward investment in infrastructure in every region and nation to create a high-wage, high-productivity society. Other complaints about the Government are that real wages are lower than they were in 2010, and the national living wage will not be the £9 per hour that was promised when it was introduced. “Growth is low, deficit reduction has failed, investment is inadequate, real wages are static and the national living wage is down.” By introducing universal credit, the Tories have taken £3 billion per annum from the poor, and this Budget produces a’ miserly’ £300 million a year to try to ameliorate the impact. Lord Darling of Roulanish is concerned about the growing problem of income inequality in the UK and the problems between the generations that are now building up.
Baroness Blackstone said that because there is a permanent reduction in stamp duty for first-time buyers, the OBR has calculated that it will increase the price of properties by twice the size of the tax saved. The Resolution Foundation has calculated that this change will make a tiny difference to how long it takes a first-time buyer to save for a new property. Thirty years ago, it took three years. The current estimate is 19.1 years. Removing stamp duty will lower it to—wait for it—18.5 years, said the Baroness. Lord Livermore highlighted that the abandonment of the Tory pledge to have an absolute surplus by the middle of the decade (that target has been pushed back to 2030) means that Britain is now only one-third of the way through an unprecedented 20-year programme of austerity. Speaking about the online VAT fraud measures in the Budget, Lord Campbell-Savours said online marketplaces will struggle without knowing the UK business turnover of sellers. What will happen if they are not provided with any VAT number? Will they have to establish the turnover of the UK trader to know whether they have met the VAT threshold? The stamp duty changes will work only in conditions of adequate supply, he added.
Lord Beecham was shocked that the Budget makes no extra provision for children’s services, which in 2015-16 spent £605 million more than was budgeted. Lord Haskel said we have to be more serious about dealing with the tax loopholes used by digital monopolies and platforms. Baroness Donaghy bemoaned there was nothing in the Budget about how the self-employed interact with the social security system, especially as the majority of the newly self-employed are women. Lord McKenzie of Luton said there is more to do in establishing beneficial ownership and driving transparency. The income tax changes in the Budget mean that most goes to those with the most. “The low-earning worker will see the paltry change in income tax wiped out by the spiteful freeze on in-work benefits”, added Lord Rooker. There was nothing on asking well-off pensioners to pay tax on the winter fuel allowance or those still working after the age of 65 to pay national insurance, noted the Lord.
Crossbencher Lord O'Neill of Gatley said the Chancellor was right to focus on policies to boost productivity rather than pursuing a major shift in spending or tax policy focus, given the global and domestic economic background remains ‘uncertain’. Lord Bilimoria (also a crossbencher) said the five pence carrier bag charge has reduced the use of plastic bags by 80 per cent in the past two years.
The Lord Bishop of Portsmouth said: “The decision to link business rates to CPI, not RPI, is no arcane statistical recalibration. It may be good for business; it is surely bad for hard-pressed local authorities, reducing their already highly pressurised ability to fund social care.” He has a ‘degree of scepticism’ that the Government’s confident statement that people are moving into work faster and staying in work longer (because of universal credit) can be justified, since rollout of benefit currently covers nine per cent of those it will eventually apply to, and the basis for the claim is data from three years ago, albeit only published this September.
Lord Razzall (Lib Dem) welcomed some good news, such as UK creative industries are now worth £92 billion to the UK, which shows a 7.6 per cent growth in 2015-16, twice the growth in the rest of the economy. A ‘deliberate’ lack of detail in a chosen four industries— life sciences, construction, artificial intelligence and automotive— worries him. “Those who advocate a hard Brexit must recognise that if we do not have something equivalent to a single market and the customs union, the OBR forecasts are likely to be grossly optimistic.”
Lord Gadhia, non-affiliated, said spending a little more in a targeted way and avoiding significant or contentious tax rises has allowed the Chancellor to deliver a set of measures that did not unravel in short order