Lord McFall’s speech in the House of Lords debate on the Budget, 22nd March 2012.
Read this speech in Hansard, the official publication of the UK Parliament.
My Lords, I am delighted to participate in this debate and particularly to follow the noble Lord, Lord Heseltine, whose civic award this week from Liverpool was richly deserved.
The power and influence of the social media in the form of Twitter were in evidence immediately after the Budget. Within minutes of the Chancellor sitting down after a carefully crafted and supposedly voter-friendly speech, it was labelled a “granny tax” Budget. The Chancellor’s tactical nous, for which he is supposedly famous, has let him down, and I suggest that there is a reason for that; every dot and comma of this Budget was publicly debated with his coalition partners. There were no surprises, save one.
As a keen observer of Chancellors and Budgets, I saw the Chancellor lose eye contact with his audience, bow his head to the Dispatch Box and say sotto voce that he was simplifying the system for age-related allowances for pensioners on the basis that they did not understand it. I along with others said, “Wow”. I suggest to your Lordships that pensioners certainly do understand the system now. Incidentally, the NAO last examined it on behalf of the Government in 2009, so the Government did not base their calculations on real-time information. This is a Budget that raises £4 billion, with £1.5 billion coming from pensioners. Almost half the revenue is coming from pensioners. I suggest that the “granny tax” storm will take some time to abate.
The Budget was big on politics but small on economics, being fiscally neutral. According to the Government, the extra £150 million of borrowing incurred on their watch left them with no room for manoeuvre: hence the Budget’s political emphasis, with the Chancellor eyeing the leadership and being the darling of the right wing of the Tory party at the expense of Nick Clegg-goodness knows why he went along with it.
Lords spiritual in this House regularly emphasise the concepts of faith, hope and charity. Let us look at those concepts in the context of the Budget. On faith, for all the emphasis on business innovation and investment, the OBR has drastically pruned its forecast for growth for 2012 following very weak figures for the last quarter of 2011. With recovery predicted at 0.8 per cent, the economy is not far from stagnation, so the Chancellor really is left on the sidelines, fingers crossed, and praying for sunny uplands in 2017. He has reduced corporation tax, which on the surface is a good initiative, but as Martin Wolf and others have described it in today’s Financial Times, this could be a zero-sum game, with global competition ensuring a race to the bottom. The interaction with personal income tax would encourage corporate retentions. We might therefore be exacerbating an investment black hole, with corporations hanging on to their money. The big issue is how we ensure confidence among those corporations to invest.
On hope, the issue of jobs and growth has been mentioned, but the Chancellor barely used the word “growth”, which I think was banned in his coverage of the Budget yesterday. However, what are we doing about the 1 million young people who are unemployed to give them any hope for the future? What are we doing about the north-south divide? I applaud the noble Lord, Lord Heseltine, for engaging in that, because instead of coherence between north and south, there is a divergence that will be to the detriment of the country. The prospects for the country will be diminished.
There is stronger case for fiscal stimulus this year than there was last year. Two members of the MPC, David Miles and Adam Posen, are calling for that-indeed, Adam Posen has long been on record as saying that the country needs a spare tyre for lending to small and medium-sized enterprises. I would have liked to see the Government ask in the Budget, “How can we create our own Mittelstand in this country, where we can support small businesses, rebalance our economy and take a renewed, fresh approach to manufacturing?”. I suggest to the Minister that it is not too late to consider the concept of a British investment bank, espoused by the noble Lord, Lord Skidelsky, and others, because banks do not lend to small and medium-sized enterprises because there is not much money in it for them. That is the basic issue that we must face. Therefore, the Government have a job to do to stimulate the economy in that area. We also have the tyranny of the PSBR, which I have cried out for Chancellors to sort out in the past. Why do we not do that, so that we could look at our economy afresh and ensure that it had a social dimension as well as a strict economic one?
On charity, the Budget will be judged on the fairness agenda. The esteemed philosopher, Amartya Sen, came to a Treasury Committee hearing quite a number of years ago and made the point that there is a connection between effort and reward, and that people judge fairness on the basis of that connection. I put it to this House that, while 14,000 people earning £1 million per annum will receive a tax cut of more than £40,000 each year, a family with children earning £20,000 will lose around £700 when the cuts and the VAT increase are taken into consideration. Undoubtedly, the winners from the Budget include the rich people, who can save lots of money, while the vast majority of taxpayers are given £14 a month as a result of the Liberal Democrat-inspired tax threshold initiative. The leader of the Liberal Democrats, Nick Clegg, has called this a Robin Hood Budget. However, far from the poor benefiting, the rich will benefit; it is the opposite way round. I suggest to noble Lords that we look at it as a Robbing Who? Budget. That will be the question reverberating around the country over the coming months.
Aspiring citizens have been hit as well. At a stroke, the Chancellor has just created an extra 300,000 new 40p higher-rate taxpayers, which has gone unnoticed, because he has reduced the tax threshold to £41,450. A family with a few children, having an income at that level, are now in the higher tax band. That will have a very serious effect on family finances. It will be the less well off, the middle-income and the aspiring and upwardly mobile citizens who in this Budget will be well and truly mugged.
There was reference in the past to Mondeo man and woman. What price Mondeo man and woman now? I suggest that with every passing day, the chances of Mondeo man and woman thumbing a lift rather than owning the vehicle will increase.