I acknowledge that economic forecasting is as much art as science and that, five years on, the Chancellor is more experienced in a role for which he had no training. But there seems to be a gulf between rhetoric and reality. As a result, the opening words of the Chancellor’s July Statement—

“This is a Budget that puts security first”—[Official Report, Commons, 8/7/15; col. 321.]

do not fill me with hope. It is also difficult to reconcile this aim with the plethora of bribes offered by his party at the last election. Over the five-week campaign, it promised to increase health spending, give seven-day access to GPs, introduce postgraduate loans, raise the income tax threshold, offer starter homes at a discount, extend the Help To Buy scheme, create Help to Buy ISAs, offer social housing for sale, extend free childcare, raise the inheritance tax threshold, increase the 40p tax threshold and, absurdly, legislate against a rise in VAT, NI and income tax—I could go on. It seems that giveaways and democracy remain two sides of the same coin; and the means of paying for it all is, of course, debt. We should not forget that this is the Chancellor who doubled national debt from £700 billion to £1.4 trillion over the last Parliament. If he achieves a surplus in 2020, it will have taken a decade to register a single year in which this country is living within its means.

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I accept that whether to extend out the deficit is a matter of judgment. But how would we perform in the event of another recession, financial shock or other negative global event while saddled with these current levels of debt? So many risks remain: the rise in interest rates which has recently been signalled; the continuing fragility of the eurozone, not only in Greece but in countries such as Italy, France and Spain; the future of the euro itself; and a possible shock from China, Islamic terrorism, the problems in the Middle East and a resurgent Russia. With a majority Government, there was an opportunity in this Budget to take bold action to tackle Britain’s long-term problems and genuinely to put economic security first. But, as usual, politics got in the way, so there was a tweak here and a tinker there. The Chancellor did not reveal £12 billion of welfare cuts as expected, but just £7 billion, and large amounts of spending have been left untouched because of political expediency. As a result, total projected borrowing has increased by almost three times as much as welfare cuts.

In political terms, the Budget may have been a triumph in that the Chancellor has skilfully positioned his party in the centre ground and himself as its next leader. Politically, he gets a pat on the back but, economically, he gets a slap on the wrist, because the consequences may have far wider and more damaging implications for the British people.

8.49 pm

Lord Sheikh (Con): My Lords, I am pleased to have the chance to speak in this debate and to comment on the Chancellor’s Budget Statement. We are already seeing the benefits of a strong majority Government, just a couple of months into the new Parliament. Our growth is better than that of any other major advanced economy. We have created 2 million new jobs in the private sector. I look forward to seeing the Government implementing the Conservative Party manifesto in its entirety. Under the last Government, our economy began to get back on track. It is still on the mend, but it will be a long process, and that is reflected by the Government’s intention to run a surplus by 2019-20. Our economy needs to be more resilient and balanced. That is the only way to secure a better future for Britain and for our well-being.

This was indeed a positive Budget. As we move further out of the red and into the black, the Government are able to map out our future rather than just undo the mistakes of the past. I welcome the steps taken by the Chancellor of the Exchequer to trust people more with their own money. Increasing the tax-free personal allowance from £10,600 to £11,000 means that a typical taxpayer will now be £905 a year better off than previously. I place on record my support for the Government’s ambition to increase the personal allowance to £12,500 by 2020. When people work hard throughout their lives, it is only reasonable that this is rewarded and that they are able to provide a stable and secure future for themselves and their families. On this subject, I welcome steps to take the family home out of inheritance tax and to increase the higher-rate threshold to £42,385 to £43,000 next year. Also assisting in this regard will be the 30 hours of free childcare for three and four year-olds from September 2017.

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It is my belief that this Government’s work on welfare and employment is one of their greatest achievements. It is important, however, that we remember that employment is not merely a matter of statistics. Every position filled means that another family has the security of a regular pay packet. We must not forget that this pay packet is put back into the economy in both taxation and consumer spending, supporting yet more jobs and growth. Nor should we forget the great benefit to the individual’s well-being. I am sure noble Lords will agree that work gives people pride and confidence. As an employer, I know that people tend to work for two reasons: the first is to earn a living and the second is to get job satisfaction. On the other hand, being out of work sometimes creates depression and has an adverse effect on people. Work is good for people’s mental health, their physical health and their general well-being—benefits that have been demonstrated repeatedly. Dependency is not good for the country or the people. It constrains people and prevents them achieving their ambition. What is more, if we can get more people into work, some of them will receive salary progressions and improve their standard of living.

At this point, I pay tribute to the Secretary of State for Work and Pensions, who has done some marvellous work in government. His most recent success was undoubtedly securing the living wage. The manner in which he greeted its announcement in the other place shows his passion for his portfolio and for improving the lives of working people in our country. The new national living wage of £7.20 an hour from April 2016, rising to £9 an hour by 2020, will really help to secure this.

My only concern is the possible effect that this could have on businesses. I would ask my noble friend the Minister to inform the House in his closing remarks of the assessment the Government have made of this. The cut in corporation tax and the rise in the employment allowance will, I hope, give employers the boost needed to get on and employ more people.

I spoke earlier of the need to rebalance our economy. This rebalancing should be twofold—first, rebalancing between the north and the south and, secondly, rebalancing so that our economy does not rely too heavily on certain areas, such as financial services, at the expense of others, such as manufacturing, which has declined massively in recent years. While some progress has been made, the growth is not enough. I therefore very much welcome Government’s plan to increase apprenticeships. We have already doubled the number of apprenticeships to 2 million, but the intention is to create 3 million more.

I pay tribute to the Government for providing a guarantee to increase the defence budget every year and for creating a joint security fund. I take a great interest in defence matters and welcome these commitments.

Finally, I conclude that this Budget will be good for the country and the British people.

8.56 pm

Viscount Hanworth (Lab): My Lords, when one considers the Budget speech of George Osborne and the policies that it proposes, one is bound to wonder

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how much of what we heard was the product of an intentional bamboozlement and how much was the product of the Government’s self-deception.

The previous Budget speeches of George Osborne have been wilfully deceptive. As the leader of the Opposition has observed, they have been full of political traps, games and tactics, and we could have expected as much from the most recent Budget speech. But now there are indications of an undercurrent of a wholly misguided optimism regarding the prospects for the UK economy. We have been told that the British economy is growing faster than any other major advanced economy, that living standards are rising strongly, and that the Government’s long-term plan is working. However, we know that growth is slowing, that unemployment has increased, and that the rising value of the pound is threatening the viability of our export industries.

It is easy to identify the rhetorical passages of the Budget speech that are designed to mislead, because they represent the exact opposite of what most people recognise as the truth. How many people are liable to be deceived by the assertion that this was a Budget for working people from a one-nation Government, who have the intention of benefitting the whole nation? The Budget has been at the expense of the least favoured of our society—the unemployed, the young and the low earners. The current size of the welfare budget is a clear symptom of the Government’s failure to address the problems of unemployment and low pay. The Chancellor understood that he could not blatantly slash the welfare budget without resorting to a diversionary tactic. This tactic has been to promise to raise the minimum wage in a series of gradual increments. However, these increases will not compensate the low paid for the sums that they will lose from a much less generous tax regime. Nevertheless, the Chancellor has had the effrontery to tell us that those with the broadest shoulders are bearing the greatest burden, and that we are all in this together. This is utter bamboozlement.

We ought also to assess the Budget against the backdrop of the current fiscal and macroeconomic circumstances. A significant element in the fiscal equation is the sale of government assets, which this year will deliver privatisation proceeds higher than the previous record in 1987. The Chancellor’s fiscal strategy relies heavily on such fortuitous circumstances as the availability for sale of the Government’s large investment in the banks that were in danger of failing during the financial crisis. This is far from the judicious balance of taxation and spending to which the Chancellor has alluded.

The Government’s obsession with reducing the levels of taxation and state expenditure is accompanied by a serious dereliction in their duty to maintain the national capital infrastructure. We have seen endless deferments and cancellations of vital investment projects, to the extent that we can no longer claim to be a modern industrial economy capable of competing in the world’s markets. The catalogue of aborted projects is far too large to allow me to itemise it. The latest addition to the list has been the cancellation of the electrification of the Manchester, Leeds and TransPennine railway.

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The other macroeconomic account that should command our attention is our external balance of payments, which is in a perilous state. Our current account deficit is now running at over £100 billion a year, which is over 6% of our GDP. The deficit on the current account is due largely to the implosion of our manufacturing industries. Manufacturing as a proportion of GDP is now barely above 10%, and we produce too little to sell to the rest of the world to pay for our imports.

We have been balancing our payments by selling our financial and capital assets to investors from overseas. This has stimulated the demand for the pound, which is responsible for the highly favourable rate of exchange that has made it virtually impossible to sell our products abroad. This circumstance cannot prevail indefinitely, and when it ends we shall be in deep crisis.

There is a delusion in the minds of many members of the Government that is well represented by the document entitled Fixing the Foundations that accompanied the Budget. We find it asserted in red lettering that Britain is:

“A trading nation, open to international investment”.

Being open to international investment implies that we are willing to continue to sell our national assets, including our ports, airports, public utilities and so on to foreign owners. While we continue to do so, there will be no possibility of increasing our exports of goods. While we continue to do so, which can be only for a limited period, the City of London, the bankers, the financiers and those who support them will continue to profit at the expense of the rest of us.

I assert that it is well within the powers of the Government and the central bank to lower the rates of exchange of sterling. They should be purchasing foreign currencies when they become too cheap vis-à-vis the pound. The Japanese, Chinese and Koreans are masters of this strategy, which we should also adopt and pursue vigorously.

9.02 pm

Lord Northbrook (Con): My Lords, there are many positives in the Budget Statement. On the economic front, there was confirmation that the UK economy grew by 3% last year and is forecast by the OBR to grow by 2.4% this, which is faster than America and Germany and twice as fast as France. The decision to become a founder member of the new Asian Infrastructure Investment Bank shows that the UK wishes to connect to the fastest-growing parts of the world.

On the jobs front, 2 million more people have obtained employment since 2010, and the OBR forecasts that almost 1 million more will be created over the next five years. The budget deficit is coming down and, while this is at a slower pace than had been hoped for, the IMF has importantly still given its approval to that delayed reduction. It is good news that the actual annual deficit figure has fallen from £153 billion in 2010 to a forecast £69 billion this year. More needs to be done but the trend is definitely in the right direction.

I turn to welfare savings. I applaud the plan to cut welfare benefits by £12 billion through the benefits cap, the limitation of tax credits, universal credit and housing benefit. I ask the noble Lord, Lord Davies of Oldham, if he supports these welfare cuts or the 48 rebels in the other place.

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On the tax front, I welcome the decision to raise the personal allowance to £11,000 next year and to raise the higher rate threshold, though I had hoped that the 45% rate would have been cut to 40%. I also applaud the further corporation tax cuts from 2017-18, the increasing of the employment allowance and the setting of the permanent investment allowance at £200,000. The introduction of the inheritance tax allowance of £1 million is most welcome.

Due to the continuing high deficit, though, this had to be a tax-raising Budget, and the Red Book shows that £29 billion is planned to be raised over the next six years. The tax increases come first from restrictions to pension tax relief, which I understand is an easy target although it discourages people to save for old age and may make them more dependent on the state.

Then there is an 8% corporation tax surcharge on banks. This is easy politics, but surely the time is coming when the banks are being penalised enough. As the noble Lord, Lord McFall, said, the extension to the challenger banks seems unnecessary, as they can hardly be blamed for causing the banking crisis.

The speeding-up of the corporation tax payment dates for larger companies makes sense, but I ask the Minister why the extra take falls off dramatically from 2019-20. The reforms to dividend taxation, which I shall discuss later, level up more the differential between incorporated and unincorporated business. The abolition of the non-dom status will not necessarily bring in a lot more extra revenue, as it may be negated by lower VAT and PAYE tax receipts. Insurance premium tax is also an easy target to increase.

I want to focus on two other areas covered by the Budget, turning first to the excellent document on the plan for productivity. The Minister’s hard work in producing this is acknowledged by the Chancellor in his Budget speech. This 82-page report contains an excellent analysis of what the Government wish to do to increase productivity. It shows how UK productivity has fallen behind that of leading advanced economies and it has a 15-point plan that,

“takes on the hard choices for lasting change”.

These are all very well set out. However, I should like to focus on some of the points where I feel that enhancements can be made and where I have some questions for the Minister.

Point 1 stresses a more competitive tax system, bringing business and investment to Britain. It rightly focuses on the proposed cuts in corporation tax and the raising of the personal tax thresholds. However, surely this would be even better had the Chancellor used the Budget to cut the top rate of income tax to 40% and cut the rate of capital gains tax. The tax rise on dividends taken out of a business contradicts this point and is making it harder for the founders of smaller companies to make a living. I ask the Minister for his views on the rationale for this dividend tax change.

Point 2 stresses the importance of rewards for savings and long-term investment. Great praise is due to the Chancellor for making permanent the £200,000 investment allowance. I also praise the significant increase in the ISA allowance and the new personal savings allowance.

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However, I do not see how the restriction of the pensions limit announced in the Budget squares up with this. Is this a case of short-term requirements overriding a long-term objective?

Point 3 focuses on a highly skilled workforce, with employers in the driving seat. Again, this includes very good points such as toughening up exam standards and targeting “coasting” schools. It is the apprenticeship levy which has had a mixed reaction. British Aerospace, one of the largest employers of apprentices in the UK—more than 1,000 trainees at any one time—took a very positive view. Also, the CBI said that it would work with the Government to make the best effect of this measure. Concerns seem to focus mainly on the lack of detail in the proposals concerning how the levy will be introduced and how effective it may be, given that the Government are providing no new funding for apprenticeships. Other concerns seem to revolve around the definition of larger companies. EEF, the manufacturers’ organisation, calculates that the cost of a four-year training programme for an apprentice employed by some of its highly technical members could run to £90,000. However, according to the Daily Telegraph, apparently BIS’s current budget allows for £2,567 to be spent on each of the 3 million apprentices whom the Government want trained by 2020. Terry Scuoler, the chief executive of EEF, said that manufacturers would be “sceptical” about the levy, adding:

“Until we see the detail it is not clear how this will help deliver the high quality apprenticeships we urgently need. Employers must be in the driving seat on this reform to ensure we get the right quality of apprenticeships and training. There will be no tolerance for recreating the failed skills bureaucracy of the past”.

Point 9 talks about planning freedoms and more houses to buy. History has proved with the sale of council houses that those bought have not always been able to be replaced. I ask the Minister how many of the 200,000 new homes are meant to be built as replacements by housing associations. According to figures from Shelter in March, in 13 London boroughs 26,000 social rented houses have been sold and only 2,900 have been replaced.

Point 15 discusses the northern powerhouse. I wish this project well; it will be an interesting experiment to see if the combination of devolved projects, new transport, an elected mayor for Greater Manchester, and working towards devolution deals for Sheffield, Liverpool, Leeds, West Yorkshire, partner authorities and local enterprise partnerships works. Early anecdotal evidence on LEPs appears to show a mixed start.

Overall, I commend the Chancellor for his Budget. The deficit is still too high and difficult decisions had to be taken on where to raise taxes and cut spending. With a difficult hand to play, he has done well.

9.10 pm

Lord Stoneham of Droxford (LD): My Lords, I declare my interests as chair of Housing & Care 21.

I welcome those aspects of the Budget inherited from the coalition. I accept that we have to complete putting the public finances back in order. First, I welcome the one-year delay for achieving a surplus and the smoothing of public spending trends to reduce

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the immediate pain of the welfare cutbacks. Secondly, I welcome the raising of tax thresholds, although I would have liked the Government to have put more emphasis now and in the future on raising the national insurance threshold. Thirdly, I welcome the phasing out of pension tax reliefs through the higher tax bands and the efforts on reducing tax avoidance.

However, there are certain contradictions in the Government’s approach. Before the Budget, the Government’s objective seemed to be to promote growth through greater competition and less regulation. As my friend Professor Nick Bosanquet of Reform has written, the return of extensive government intervention, particularly in labour markets, is quite a shocking contradiction for a Conservative Government and is not getting the attention it deserves—although I was glad that the noble Lord, Lord Tugendhat, raised this matter in his speech.

A 34% increase in a compulsory wage level, combined with a freeze in public sector pay to 1% per annum, must lead to serious distortions in the labour market. Is this the return of a statutory pay policy by stealth? Nurses’ pay will be reduced in real terms over the next five years, while some of their patients’ pay will increase by 30% in real terms. The Treasury bemoans shortages of skilled workers but the Government’s treatment of their own skilled workers is hardly a good message to other employers, nor does it show much gratitude for the very real dedication of nurses, doctors, social workers and teachers—all of whom we should be encouraging to embrace change and efficiency improvements. This public pay policy is not sustainable if private sector earnings now start to move ahead.

Despite the Government’s plans to reduce regulation, the proposals for the living wage will involve more inspections for between 2 million and 3 million more employees and the thousands of small businesses who employ them. The return to a levy system to pay for apprentices, last tried in the 1960s, could be yet another burden on small companies. The Minister might like to explain how it is more likely to work in the less corporatist world of today than it did then. As my noble friend Lady Kramer reminded us, the Chancellor has provided for some relief for businesses in the reduction of corporation tax, but this will benefit the larger established corporations, not the start-ups—the enterprising small businesses that carry the hopes for the country’s regeneration and future prosperity.

As the noble Lord, Lord Blencathra, rightly said in his challenging speech, there is a need for employers to pay more so that wages are not being subsidised by government tax credits. However, we can only hope that the initiative eventually to redefine low pay as 60% of median earnings is not being used simply to camouflage the money being cut from benefits. The living wage puts back merely £4 billion, though not necessarily to the same people. It seems good to see the Government setting a five-year target of £9 an hour, although the minimum wage might well reach £8 an hour on current policies, and the living wage will need redefining at nearer £12 an hour once working benefits are removed and inflation is accounted for. At best, as my noble friend Lord Scriven said, it will be a premium minimum wage and not a true living wage unless it is redefined.

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I welcome the fact that the Low Pay Commission is being retained as an independent authority to monitor and recommend the phasing-in of the changes. I hope that the Minister can reaffirm the Government’s commitment to that independence. It is essential to retain cross-party consensus on the process and on policy implementation to avoid what could be a huge gamble which could yet unravel or lead to undue disappointment. Phasing is essential to ensure that productivity rises in those sectors vulnerable to cost increases and to ease the burden on small businesses.

Housing remains a critical component of living costs. There are important Budget changes for the private and social rented sector. I always felt that the 10-year settlement for the social housing sector of annual increases of 1% above CPI to encourage development was overgenerous and encouraged complacency. Housing associations have been protected while councils have had to undergo fundamental changes. I do not doubt that the 1% cut in rent levels each year for the next four years will be challenging, but ultimately, with some exceptions, it should be sustainable through normal efficiency savings. However, it is inevitable in the short term that there will be less development and investment in housing stock than there would otherwise have been.

My real concern is not necessarily with this policy but with the whole of the Government’s commitment to and interest in social housing. They have to realise, as did Macmillan in the 1950s, that to up the game of the construction sector we need higher growth across all building sectors, whether private sales, self-build, public sector or housing associations. Without that, we will not get off the floor of building 100,000 homes a year, let alone approach 200,000

The Government have to understand that housing associations play an important role in encouraging home ownership through shared ownership as well as in meeting the need for social rent. I say slowly again to the Government that the money projected for the right to buy would be much more productive if used to widen shared ownership, as it would get many more people on the home ownership ladder and into more new homes than the right to buy policy with its expensive discounts will ever do.

Budgets often look better on the day than they do subsequently. That has often been the case for this Chancellor, as he has played the role of the conjuror while retaining the traits of a gambler. He has slim margins for success in cutting the deficit if the economy does not perform as projected. He is about to assume a straitjacket on his taxes policy, as the noble Lord, Lord Desai, warned us. His mixed messages, involving more state regulation and intervention and extra burdens for small businesses, contradict what the economy needs. I fear that he has an aversion to social housing.

As my noble friend Lord Palumbo said, we all respect the Chancellor’s ambition, but history suggests that an element of caution when combined with toughness is an important ingredient of all successful Chancellors.

9.18 pm

Lord Davies of Oldham (Lab): My Lords, I thank the Minister for his introduction to the Budget, although I think that he will have a more exacting job to do in

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summing up this extensive, and indeed intensive, debate. I am grateful to the noble Lords, Lord Palumbo and Lord Taverne, and my noble friend Lord Hanworth, who all sought to put this Budget in the context of government policy over the past five years and the challenges which the Chancellor has been obliged to face.

The Chancellor constantly emphasises the success that he enjoys, but what success? At one stage, of course, the deficit was going to be cleared by 2015, and he fell hopelessly short of that objective. Now, he promises that we will be in surplus by 2020, just before the next general election—the same quality of promise that we had last time. But what has not been specified is how he gets there in real terms. We still do not have a clear definition of the £12 billion of welfare cuts outlined some time ago as a generalisation before the general election—nothing specific, of course. What we do appreciate is that the pace of the introduction of these cuts may be somewhat reduced.

All these cuts were concealed from the electorate before the general election and what is concealed now is the level of spending cuts being contemplated. We all know that departments have been identified as not being protected, and we also have some indication of the cuts they are likely to face. I can give one area of cuts as far as education is concerned. The cuts in further education are reaching staggering proportions. There has already been a 30% cut and a further one is promised. Yet further education, as the right reverend Prelate the Bishop of Birmingham indicated, has a part to play in increasing the skill levels of some of the more deprived sections of the population. If we want to move towards full employment, we have to see that the spread of skills goes well beyond apprentices. I welcome the proposal on apprentices, but I am somewhat doubtful about how the costs will be met. As my noble friend Lord Bhattacharyya indicated, they are a crucial part of the development of skills at a certain level, but we need basic skill levels too. That means a relationship with the colleges, but the colleges are effectively being decimated by government policy.

The Government can only conceivably believe that they will reach a surplus in 2020 if they cut public expenditure to the bone, and that will certainly include public investment. We will see a reduction in public investment in the very areas where we need it to increase productivity. The Minister will be able to wax strong on the issue of productivity because we all know his excellent record and experience before coming to this House, but even he may be stretched to identify how productivity over the next four years is going to do anything but fall, as the OBR has indicated. The imbalance that obtains between London and most of the rest of the country will show no significant signs of changing. We all know that we need to improve our productivity because, as has been said in this debate, we compare woefully with Germany, France and the United States. The average productivity of our workers is some 30% below theirs.

The departmental cuts already presaged are putting this policy of investment in productivity at risk. I heard the noble Lord, Lord Freeman, return to his old patch of transport, but he will know that one of the

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most recently identified areas for cutbacks is rail electrification in the north—and not only the north: we will have a Question tomorrow on electrification to Swansea in south Wales. Cutbacks are bound to have an impact. This investment is meant to improve productivity; it is already being postponed by the Government.

As my noble friend Lord Soley said, aviation is of course an important driver of growth and improved productivity, but we all recognise that the Government have dithered over the additional runway in the south-east. First, they set up the commission and then they made sure that it did not respond until after the general election. There was no particular rationale for that except that my namesake, the noble Lord, Lord Davies, needed some time for adequate deliberation. However, he does not need time for deliberation once he has reported to the Government, but the delays go on while they subject the report to the necessary scrutiny within the department. That scarcely shows a commitment to urgency on the projects which are meant to improve our productivity. The noble Baroness, Lady Kramer, identified another area in which there are cutbacks: investment in renewable energy, where we would hope to see improvements in productivity.

So far, the Government’s productivity document is a patchwork of largely existing schemes. We welcome the commitment to expand areas such as apprenticeships, as the noble Lord, Lord Scriven, said, but we have to recognise that the skills we require are such that some areas are bound to need public investment and support to achieve success. However, all we get is bleakness on that front.

The noble Lord, Lord Blencathra, introduced an optimistic note with regard to the Budget. He said that the possibility of wage improvements through the living wage have brought some joy to him. It would bring joy to all of us if that represented a significant increase for working people over the next four years, but it is clear that the levels being set by the Government are really just modest increases—and not in the national living wage but in the minimum wage. That will certainly ensure that working people will receive such modest increases that they will be savaged by the reduction in the tax credits they would otherwise have received, but those are part of the Government’s necessary austerity measures. Working people—and I mean working people, some 3 million of them—will actually see very little improvement in their living standards at all on this basis. We are all in it together, but it is clear that the poor are meant to suffer more. As my noble friend Lord McFall said early in the debate, this is a truly regressive Budget.

If the noble Lord, Lord Northbrook, wants to know my personal view, yes, I find the withdrawal of benefits to a family if they have more than two children extraordinarily regressive and unacceptable, and I am glad that my friends at the other end of the building are voting against it. I accept that there must be some restriction on the amount of benefit paid, but the Government have gone about it in a most unfair and doctrinaire fashion in the policies they are pursuing. As my noble friend Lord McFall said, this will increase child poverty—if we are able to measure it. The Government are removing the criteria by which some

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elements of child poverty can be measured. It is not surprising that we on this side of the House are somewhat cynical about the measure.

Finally, we hear about deficit reduction in government expenditure, but we do not hear much about deficit reduction when it comes to our trading deficit. As my noble friend Lord Hanworth indicated, it is essential that we pay attention to the fact that Britain is not paying its way. The Chancellor had the nerve to suggest that he will increase exports to £1 trillion by 2020. The OBR said that he will be lucky if he gets to two-thirds of that target. That is a mark of the unrealistic nature of this Budget.

I apologise to noble Lords if I have not given sufficient attention to certain issues in these limited remarks. The House will recognise that we admire the Chancellor’s courage and chutzpah, but as for the reality of the Budget, we condemn it.

9.30 pm

Lord O’Neill of Gatley: My Lords, we have had a remarkably high standard of debate here this evening. I was encouraged to make that remark but, in all sincerity, I really appreciate the comments that all Members of the House have made this evening. My own maiden speech coincided with that of my good friend the noble Lord, Lord King, and I recall his comment that the general standard of discussion in this House was somewhat higher than in the other place. I have not had the benefit of participating in those debates, but after much of what I have heard over the past few hours, their standard must be pretty high if they can test many of the interesting things that I have heard today.

I must also add my birthday congratulations to the noble Baroness, Lady Kramer. I have to say that, in pursuit of the great and the good, to commit to this discussion on such a joyous day is truly remarkable. I hope I would do the same if I were in the same situation. In that regard, when I come to respond to specific comments, I may end up giving the noble Baroness more reference than others for her commendable duty.

Let me make some further brief comments before trying to do justice to many of the individual remarks. I apologise now, and will do so again later, for failing, as I am sure I will, to refer to all the individual highly valuable comments. No doubt I will make some errors in the pronunciation of some noble Lords’ names.

Before doing so, I shall make two or three general comments. Many individuals in this place have different opinions but, on balance, most noble Lords who have spoken recognise that the only way to secure a long-term economic recovery is to put our public finances on a more sustainable footing. I am grateful to hear those comments. The Government have committed to such a course. That is what they made pretty clear to the electorate and it may, among other reasons, be why they came to power with a majority.

It is also the case, as articulated by the Chancellor, and supported by the balance of measures, that the Government believe that the best route out of poverty is through employment. It is right that if you are working full-time, your wages should not be unnecessarily topped up by the state. In that regard, as reflected in the overall balance of areas of contention, it is not

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surprising to hear that there is a lot of concern about the scale of some specific spending cuts. However, let me also point out—here I speak from my experience before I joined this Government—that it is important to protect areas of public spending that are probably more likely to contribute to long-term productivity gains than welfare would, including, in particular, education, health, public sector investment spending and, in my view, our commitment to foreign aid. It follows that, if you do that, the remaining areas will suffer the brunt of public expenditure cuts if the Government are to be as committed as they should be to this path of fiscal deficit reduction.

It is also the case, as many Members have said this evening, that many interesting issues are raised by the notion of introducing a national living wage, which, as a number of people commented, will effectively be the equivalent of trying to increase the national minimum wage. I shall come back to talk about that. However, reflective of the Government’s clear priorities, and as I believe was generally made clear at the election, it is the Government’s desire, as articulated so clearly by the Chancellor, to reward people who work and to give them their own rights in how we contribute policy-wise to a fairer outcome for all of the nation, including those who earn income and pay taxes.

I turn now to specific points made by noble Lords in their speeches. In doing so, I shall try to structure my remarks and be as brief as possible, although that does mean I may neglect to respond to some specific things—again, I apologise in advance.

First, on the economy and public finances, the noble Lord, Lord Davies, ended today’s very rich discussion by talking about the context of the Budget. On the one hand, many noble Lords talked about how there is far too much concern about deficit reduction—the noble Lord, Lord Taverne, talked at some length about the risks of too much focus on this—but many others, including the noble Lord, Lord Palumbo, suggested the complete opposite. As a trained macroeconomist, I know that it is always a judgmental decision—appropriately so, given the many uncontrollable external forces, especially from the rest of the world—around the appropriate pace of reduction and, especially, around the evidence about the absolute level of debt, never mind the level of deficit per se, that is consistent with higher living standards and, in particular, with contributing to improving productivity.

In that regard, I turn also to some of the comments of the noble Lord, Lord Desai. He talked, I think, about evidence of the historical growth performance being in excess of 3%, but it is widely recognised today—subject to the vagaries of how economists can recognise any of these things and agree on them—that our trend rate of growth is in the vicinity of 2.4%. The way to address that, as I will talk about in a second, to improve the trend rate and bring it back to what might have been a very long-term performance, is almost definitely through steps to boost productivity and not, at least in my judgment, through the specific stance on fiscal policy.

In that regard, if I understood the noble Lord correctly —others also suggested this—in bemoaning the goal of moving towards a budget surplus, there appeared

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to be a contradictory concern about what would happen in the event of some of these shocks coming from the rest of the world, as we would not have the ability to respond. However, an additional reason for moving to a healthier set of public finances when the economy is on a reasonably strong footing, as it appears to be, is indeed that, in the event of some external shock, you would have the latitude to respond.

As in my opening comments I emphasise again that, in the event of the economy slowing to a positive 1% growth, the OBR has a responsibility to shift to a different cyclical stance on fiscal policy, if it deems it appropriate. Generally speaking, that seems to me pretty sensible.

I turn to some further specifics about fiscal consolidation on spending, which I touched on briefly in my opening summary. As I have just mentioned, a number of noble Lords focused on the Budget seemingly having tougher spending cuts than might have been envisaged. Indeed, I think a couple of noble Lords implied that they were tougher than was suggested before the Budget. However, as some others have pointed out, the Budget is indeed less restrictive in its overall fiscal stance than the previous Budget, and the overall reductions in public spending are not as stringent as they might have been. As I have already indicated, given the commitments to areas such as health, education, public sector investment, defence and foreign aid, other departments are likely to take the brunt of cuts. The case for those has been well articulated and widely debated in this House and, of course, in the other place on a number of occasions, including earlier today.

I turn to the very important topic of productivity. I am particularly pleased to hear that so many noble Lords have read the 80-page document, which, in responding to an Oral Question a few days ago, I suggested they should read. I think that a date is being found to enable us to have a full length-debate on the issues surrounding productivity, including the long-known historical challenges to achieving success in raising it and the specific steps that this Government propose to undertake in that regard.

Going back to what I said in my opening comments, and as many noble Lords are aware, over the long term economic growth is essentially driven by two factors: the number of people who work and their productivity. There has been much focus on this issue, correctly in my view. I think it is fair to say that, in the last Parliament, we had more success than one might have expected in terms of increasing employment. It is therefore appropriate now to switch attention to trying to do more about the key driver—that is, productivity. There is a very large amount of evidence that those countries with the best productivity performance typically have not only the best living standards but greater equality than many other places. Therefore, it is very important in my judgment that this issue receives appropriate attention.

I am pleased that there will be a formal review of our economic statistics led by Professor Sir Charles Bean. I have long felt—this precedes my joining the Government—that further work needs to be done in a number of areas ranging from our external trade data

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to the accurate measurement of our GDP and the implied productivity data. I cannot resist alluding to the irony of doing that, given that the latest evidence on productivity indicates that it may be accelerating. I also note that both the Bank of England and the independent OBR are separately forecasting a rise in productivity over this Parliament.

In relation to infrastructure spending, I think the noble Lord, Lord Davies, said that public sector investment spending will decline over this Parliament. There is certainly no plan for that to happen. Public sector investment is very importantly linked to the productivity goals and many aspects of the northern powerhouse, and there is a conscious decision to ensure there is no decline in spending and that it is protected in real terms. In fact, under current plans, from 2018-19 onward, it will start to rise in line with GDP.

I am spending a considerable amount of time on infrastructure in my ministerial role. We hope, in the not too distant future, to come back with a detailed national infrastructure plan. I say to the noble Lords, Lord Freeman and Lord Higgins, and the noble Baroness, Lady Kramer—who was correctly complimented for her role in the coalition, focusing on the transport aspects of this—that we need to have a bolder and perhaps longer -term national infrastructure plan, that thinks about the potential state-of-the-art long-term infrastructure that the country may need but not necessarily have immediately introduced. This may give us a framework to consider the challenges and opportunities that may prevail going forward. I acknowledge the supportive comments of a number of noble Lords about the commitment in this Parliament, despite the challenges, to spend more on a number of key parts of national infrastructure, including both roads and trains.

I jump to the very important topic of the northern powerhouse and city and regional devolution. A number of noble Lords made comments about that, including the noble Lords, Lord McFall, Lord Scriven and Lord Soley, the noble Viscount, Lord Hanworth, and the right reverend Prelate the Bishop of Birmingham. This project led to me becoming a member of the Government. I am very passionate about it and I think it is fair to say, from everything he has said, that the Chancellor is too. I will make a number of quick comments, and I apologise for not responding to some of the very important points raised.

On the topical issue of the supposed cancellation of the electrification of the Leeds to Manchester route, I say that it has not been cancelled: it has been delayed. That announcement was made in the context of trying to create a new and healthier environment for the leadership of Network Rail. I am just as agitated as many others about that decision, not least because it happened to be announced on the day of my first speech as a Minister about the northern powerhouse in Manchester. I assure your Lordships that it is getting a lot of attention and I hope that further initiatives will come forth. I add—in contrast to what I heard, I think from the noble Lord, Lord Scriven—that having Transport for the North and a northern Oyster is exceptionally important. In order for the northern powerhouse to be anything other than a number of cities, geographically identified with a pin, in the north of England, and for it to generate lasting economic

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change, it is important that the cities are joined together on an economic basis, if not an administrative one, in a way that has not been pursued before. There is enormous evidence from the great successes in recent years of Transport for London that having something like that technology, whereby individuals can find out very quickly the ease at which they can travel, knowing the costs as well as the facilities available, is important. I think it has boosted by 30% the movement of people around Greater London. If that was done between many of these northern cities, it would play a major role in boosting the economic fortunes of the north of England.

There are many other points that I have not responded to. I will very quickly turn to two other areas and I apologise for missing some out. It was a joy to hear so many Members talking about the importance of skills. If I had to pick one area that is so important to our productivity—and perhaps why we have had so many challenges going back for so long—it is something to do with the challenges facing particularly the most disadvantaged and their ability to get skills. Obviously, that links to our basic, further and higher education. As far as I am having some influence on the productivity plan, we are very eager to pursue the initiatives we have introduced in it.

Lastly, and without enough time to focus on the very interesting comments made about work and welfare, I think it is openly acknowledged that to introduce a

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policy to deliberately encourage an implied higher minimum wage—announced as a national living wage—carries a risk of some costs to employment. Indeed, the OBR said in its own independent analysis that it would directly lead to the loss of 60,000 jobs, although it added that in the context of the Budget Statement and all the other initiatives, this would be more than offset by the distributional effects of so many people receiving higher incomes, as well as a number of the other policies.

The last thing I would say—and it is not doing justice to this considerable topic—linked to what I said about employment and productivity, is that in an environment where employment has been so strong, if you are going to pursue such an initiative, it is best to do it when the employment market is as strong as it is. As I think I mentioned the last time I stood at this Dispatch Box, in a number of countries some of the new academic thinking is suggesting that while it is risky, this may be a way of trying to explore boosting productivity.

I will stop there. My time is up. It is very late in the day. The noble Baroness, Lady Kramer, has to go and celebrate her birthday and I am sure everybody else has lots of other things to do. I commend the Budget to the House.

Motion agreed.

House adjourned at 9.52 pm.