Tunnel vision risks neglecting wider issues, say some Peers

The Lords waited until Thursday (15) before debating the Chancellor’s Spring Statement. Some of the speakers reflected on Chancellor Hammond’s stating that ‘There is light at the end of the tunnel’ for the UK’s public finances.

Government

Lord Bates spoke for the Government. He said borrowing and debt remain too high, and so we need to keep debt falling because it leaves us vulnerable to future economic shocks. The Government continues to take a balanced approach to public spending by reducing the debt, investing in Britain’s future, reducing taxes for hard-working families and putting money into public services, he claimed.

Labour frontbench

For the Opposition, Lord Haskel said stagnant wages have eroded the public belief that this light at the end of the tunnel for the UK economy can lead to broad-based prosperity. He said the Spring Statement did not address ordinary people’s lives. It should have addressed matters such as “perhaps we will have to pay social insurance to help fund the care of the elderly. We may even have to have road pricing. We are a relatively low-taxed country and some forms of higher taxation may indeed be inevitable.” Haskel bemoaned the lack of decisiveness on VAT on internet sales and on tax paid by the big technology companies: “We have been consulting on this, to my knowledge, for five years.”

Other Labour speakers

Lord Livermore said that, “as a result of the tax and benefit changes that this Government have made, the entire bottom half of the income distribution will now see their incomes fall.”

There is little doubt that, with all the changes, among other things, to the workforce and employment structures, radical changes to how taxation is raised fairly and effectively are essential, said Viscount Chandos. He also complained there are ‘no signs’ of any deeper thinking by the Government about key areas of taxation, such as reform of residential property taxation. There is a need to reform IHT, such as shifting the tax base to the recipient of gifts and legacies rather than the donor or the estate. The peer expressed disappointment with the ‘limited’ remit of the OTS review of IHT. He remains concerned about conflicts of interest in regards to former Conservative Minister, Angela Knight, who is Chair of OTS. He said that for 10 years, and for 15 months while serving as chair of the OTS, Knight was a non-executive director of Brewin Dolphin, the private wealth manager. Indeed, before she was chief executive of the British Bankers’ Association, she was chief executive of the Association of Private Client Investment Managers and Stockbrokers. The Viscount wants Knight to have ‘recused’ herself from the review of certain aspects of the review of IHT.

Lord Young of Norwood Green welcomed the commitment to three million apprenticeships by 2020, but ‘it is about not just the number but getting the quality of apprenticeships right’. The recent announcement that a major training provider, learndirect, went belly-up is ’not good’, he added. 

Universal credit has already cut social security provision significantly but we all know that there is a great deal more to come in terms of the impoverishment of certain sections of our community, warned Lord Davies of Oldham.

Other Conservative speakers

Lord Higgins said: “We cannot go on calling it a ‘single fiscal event’; we should go on calling it a Budget in the autumn. I gather, from reading rather more closely what the Chancellor said, that it will continue to be known as a Budget. I also regret the fact that he will no longer publish the Red Book, which I always found a singularly convenient form of presentation, and I hope that he will reconsider that by the time we come to the autumn [Budget].” (NB. This appears to be a misunderstanding on Lord Higgins’ part – the Red Book is still expected to be published at Budget time, just not at Spring Statement)

Lord Hodgson of Astley Abbotts said robotics have tended to affect employment in manufacturing—the manufacture of things. The next wave will deal with services, and this country is very service-oriented.

Lib Dem speakers

Lib Dem Lord Taverne, who was the first director of the IFS, said respected think tanks the IFS and the Resolution Foundation revealed Hammond’s plans ‘reek of complacency’, not least because the plans depend profoundly on further deep cuts in public spending. The peer said: “Already the taxes we pay as a percentage of GDP are 13 per cent lower than in Germany, 17 per cent lower than in the Netherlands and 21 per cent lower than in France. All three have a higher standard of living than us and very much higher productivity. Lower taxes are not the path to more prosperity; they are more likely to be the way to a dysfunctional society.” He quoted American lawyer Oliver Wendell Holmes, who said ‘taxes are the price we pay for a civilised society’. 

Lib Dem Treasury spokesperson Baroness Kramer said corporation tax should return to 20 per cent; she does not believe a penny below that has encouraged any company to put more money into any investment. She also wants a reverse of the cuts in capital gains tax and IHT, ‘which would give us a bit of breathing space’. The apprenticeship levy has simply turned into a tax, not a mechanism to deliver either training or apprenticeships, she said. When it comes to taxing digital companies, we do not know how to deal with the value of things like brands and intellectual property: “We have to crack that problem now, or we will find ourselves without any effective tax base. I hope that the accounting profession will get wrapped into this, frankly.”

Crossbench and other speakers

The Lord Bishop of Portsmouth said securing our tax base, not least by making companies that for all intents and purposes earn here, pay tax here; ‘that is a matter of simple justice’.

Lord Mawson said many SMEs are pulling their hair out at the bureaucratic demands that are landing every day on their desks yet there was no mention of it in the Chancellor’s speech. On MTD, he is told the accounting community expects to do very well out of assisting clients with this change—clients who have never before had to register for online accounts other than via HMRC or the Charity Commission website. “This is seen, I am led to understand, as a huge cloud hanging over SMEs and indeed the charitable sector. A colleague of mine, a digital entrepreneur with a successful growing business working increasingly in new markets overseas, tells me that new data regulations will cost his business at least £15,000 per annum.” The Peer proposes sending civil servants drafting legislation, ‘and perhaps all members of the Better Regulation Task Force, to spend some time in small organisations and businesses, to get the view ‘up the telescope’.

Every competent authority agrees that the austerity policy lengthened the tunnel by two to three years and made the average household at least £5,000 poorer than it would have been. In doing this, it reduced the capacity of the economy to produce output.​, said Lord Skidelsky. If Chancellor, ‘I would loosen fiscal policy, expecting to create a demand draught, and I would want monetary policy tightened to any extent needed to repress inflation. We have the spare capacity. What we lack is spare imagination’.

Government response

Closing the debate, Lord Bates said moving to a recipient-based system for inheritance tax would not only increase the complexity of tax but add to the administrative and compliance burdens. The OTS will review the tax to ensure that it is fit for purpose; the review will consider a range of simplification options. Changes to the national living wage and tax thresholds is leading to some welcome and real wage increases for some of the lowest paid in our society, he added.

He said: “We believe that there is real cause for hope and that we can see a better future for the people of this country as we make a success of Brexit going forward.”

The full debate can be read here.

 

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