Peers debated the Queen’s Speech this week (Jan 9), with an emphasis on the economic announcements within it. However, most of the long debate was about the NHS and adult social care. Below is a summary of the key points in the debate, picking out tax-related mentions in particular.
Health minister Baroness Blackwood of North Oxford opened the debate, promising the Government will boost R&D funding and deliver on its pledge to bring about ‘the greatest reform of workers’ rights in 20 years’. ‘Provided economic conditions allow’, the national living wage will reach two-thirds of median earnings within five years. A Pension Schemes Bill will put protection of people’s pensions at its heart and sets out the next phase of pensions reform. She welcomes the urgent review undertaken by the DoH and Treasury into the annual allowance taper to fix the pensions system so that senior clinicians can take on extra shifts without the fear of an unexpected tax bill.
Lord Hodgson of Astley Abbotts said a proper audit regime is an essential building block in the establishment of a more responsible capitalist system, therefore it is particularly disappointing that the Government intend to bring forward such legislation only, ‘to use that famous Whitehall phrase, when time allows’. He asked the government to look at ‘pinch points’ of modern capitalism. This could include: first, an analysis of the consequences of the different tax treatment of interest on borrowing, which is tax deductible, and on dividends, which is not; secondly, consideration of whether share purchases should give immediate rights of ownership of the enterprise or whether some period of longevity should be required; and, thirdly, consideration of the asymmetric nature of the risks in modern corporate activity, with some groups able to insulate themselves and some—mostly workers in factories—unable to do so. Finally, and perhaps most controversially, it could include consideration of whether limited liability status should become a privilege, not a right, so that in cases of particularly egregious personal behaviour, individuals could face the full consequences of their actions.
Lord Hunt of Wirral promoted the 11th report from the 2017-19 Session of the European Union Committee and highlighted its recommendation that: “it may become clear that regulators are unduly constrained by their current objectives. We recommend that the Government consider and consult on the desirability of adding a duty to promote international competitiveness to these objectives.” (Labour’s Lord Hunt of Kings Heath said the same sentiment should apply to medicines and medical devices regulation).
Lord Wakeham said recent government-commissioned reports must have convinced everybody that the age of the audit report produced for the benefit of shareholders and required to show a true and fair view was ‘old hat’ and had been for many years. Shareholders are important, but so too are employees, creditors, banks, the tax authorities and many others, he said.
Baroness Neville-Rolfe hopes that the new Governor of the Bank of England, Andrew Bailey, will tackle red tape better, adding that he did this ‘brilliantly’ with his simple regulatory ‘sandbox’ for new fintech businesses. Separately, the baroness went on to say: “The wrong sort of taxes can also be an issue, for example, business rates, where the tax is badly designed and its effects have been especially malign for retail. Given the prospect of more job losses, I was delighted to see the promise to bring forward fundamental change. Radical, rapid reform is essential.”
Lord Tugendhat regrets the Prime Minister’s election pledge not to raise income tax, VAT or national insurance, saying: “I believe the public are ready for that; they want better public services and better infrastructure. If higher taxes are the price, they are willing to pay.” Agreeing with Lord Tugendhat, Lord Horam said: “Why is the income tax on earned income higher than the tax on capital gains or dividends? It did not happen that way under Mrs Thatcher and, according to Jeremy Corbyn’s analysis, this would raise no less than £14 billion. His analysis may not be arithmetically correct, but there is a lot of dibs there for someone seriously looking to be fairer on taxation.”
Lord Leigh of Hurley, a chartered tax adviser, understands the manifesto pledge to ‘review’ entrepreneurs’ relief to make sure it is not abused, but said we should recognise that this has become a foundation of our tax system that sends the clearest message to entrepreneurs: “Entrepreneurs I know have gone through their £10 million limit—good luck to them.”
Baroness Rock welcomes the pledge to increase the threshold for R&D tax credits to 13 per cent, saying it is an ‘important signal’.
Lord Northbrook said business rates clearly need to be reduced, as the high street is suffering because of the likes of Amazon. He said that the Government should not lose their nerve in raising the threshold for higher rates of income tax and the top rate should be cut to 40 per cent from 45 per cent. He opined that the pensions bill should include measures to weed out unscrupulous providers approved by HMRC without due diligence. Rather than persist with LEPs, the Government should fund sensible infrastructure projects and encourage private companies through tax breaks in certain geographical areas, he added.
Baroness Drake pointed out that low financial resilience is not reserved to those on low incomes; it has travelled up the income scale and over 70 per cent of those in regular work face significant volatility in monthly earnings. Falls in household financial resilience have been an unintended or unrecognised consequence of both socioeconomic and public policy changes, she said. There is a compelling case for the ONS to introduce a financial resilience index, she told the Minister, which would: map the level of resilience in households and track changes over time, highlight segments where action is most needed, improve understanding of the underlying causes and drivers of low resilience, and provide a basis against which policies or actions could be tested.
Some 80 per cent of the Government’s 10-year austerity programme has been in public spending cuts, said Lord Hain, yet Downing Street is already briefing that the highlight of the new Chancellor’s budget will be tax cuts. He spoke of his disappointment that his ideas for reforming national insurance by scrapping the upper earnings limit and introducing a financial transactions tax, to make the tax system fairer and lift the burden of paying for public services off the low paid, are off the agenda.
Lord Young of Norwood Green is concerned that the average take-up of the apprenticeship levy is only 15 per cent and it is seen somewhat negatively by some employers as an employee tax. We need more SME non-levy pay involvement, he said.
Baroness Thornton remarked that there is a crisis of low pay and stagnating wages, and the 2019 spending round was a one-off election ‘gimmick’, which did little to reverse a decade of austerity.
Lib Dem speeches
Lib Dem Lords spokesperson on business Lord Fox sounded a note of caution on the employment rights bill suggesting ‘that once these measures start to come before your Lordships, there will be a reining back’. He compared the financial services bill to ‘pushing toothpaste back into the tube’.
Baroness Jolly wants clarity from the Government that the new employment bill will contain the measures about a worker’s right to work in a safe environment that were taken out of the October EU withdrawal bill when the December bill was published
Speaking about a green paper about the benefits system and how that affects disabled people, Baroness Thomas of Winchester welcomed the news that a PIP award will now have a minimum award length to stop constant assessment. But she continued: “the whole PIP process needs to be looked at afresh. It is nothing short of a scandal that 75 per cent of PIP appeals are overturned at the tribunal stage. I ask the Minister to commit to a review of the whole PIP process, including the training of assessors. There is a very long waiting time for tribunals, which are expensive for the Government and stressful for claimants, so getting the initial assessments right and reviewing the points system must be of prime importance.”
Baroness Janke claimed changes to taxes and benefits will mean that some families are projected to lose £11,000 by 2021-22—more than 30 per cent of their income.
Government have committed themselves to keeping taxes down with no increases promised in income tax, national insurance or VAT. Lord Shipley noted that council tax was not on that list, and consequently we should conclude that the Government are intent on allowing council tax to rise above inflation over the period of this Parliament to help pay for the deficit in adult social care.
On the UK digital services tax, Lord Clement-Jones asked if this supports and build on the OECD’s proposals.
Treasury spokesperson Baroness Kramer said that the Government needs to be open to the possibility of raising taxes to achieve the fundamental programme that this country needs, criticising the ‘very tepid’ decision to keep corporation tax at 19 per cent when they could very comfortably have raised it to 21 per cent, for example.
Baroness Maddock, who as a backbench MP piloted the landmark Home Energy Conservation Act through Parliament in the 1990s, highlighted the ongoing problem of fuel poverty. Will the Government commit to increasing funds and retargeting them towards those most in need and, importantly, increasing funds focused on energy efficiency, she asked.
Crossbench and other speeches
Baroness Bull warned that in focusing on the ‘cutting edge’, the Government need to take care not to ignore everyday and foundational areas where poor productivity is a drain on the economy: low-wage, low-skill industries such as catering and retail; the public sector, which makes up one-fifth of the economy; or health and social care, where advances in biomedical science need to be balanced with research that improves productivity in the system.
Lord Skidelsky urged the Government to seriously consider a public sector job guarantee. Its purpose would be to balance fluctuations in private sector employment in a non-discretionary way. He said it would remove the discretionary element from tax and spending policies that did so much to discredit fiscal policy in the past.
The Lord Bishop of Portsmouth was delighted by the commitment to give the full living wage to those over the age of 21 rather than 25, but he urged the Government to put this into effect ‘more quickly than the long grass of five years’ time. If fairness is promised in the system of taxation, so must it be in the world of work’.
Responding to the debate for the Government, Viscount Younger of Leckie said securing our long-term future is also behind our ambitions to support our high streets by reducing the burden of business rates. Publishing a draft national security and investment Bill will strengthen the Government’s powers to investigate and intervene in business transactions, such as takeovers and mergers, to protect our national security. And the Government will ensure that, after we leave the EU, we both maintain our world-leading financial services regulatory standards and remain open to international markets, and keep the highest standards for workers’ rights. He confirmed the Government ‘are going to improve the apprenticeship levy’ though without providing further details.
The full debate can be read here.