Tax Cuts: Fiscal Impact Question 15:40:00 Asked by Lord Hain To ask Her Majesty’s Government what assessment they have made of the fiscal impact of tax cuts. Baroness Penn (Con) Her Majesty’s Treasury does not produce fiscal forecasts; the independent Office for Budget Responsibility sets out its projections for the economy, including fiscal indicators, in the Economic and Fiscal Outlook, which will be updated and published alongside future fiscal events. This process includes certifying costings for and any changes to government tax policy. The Government keep all taxes under review and will set out any reforms at future fiscal events. Lord Hain (Lab) I thank the Minister for all that. With social care falling apart, the NHS teetering, abysmal UK productivity and skills, our Armed Forces underfunded and millions, including universal credit recipients, struggling with record food, fuel and energy costs as inflation surges, how on earth can Tory leadership candidates credibly outbid each other with tax cuts? Britain has suffered more than 10 years of savage Tory austerity, and now the Tories are promising even more, destroying any hope of kickstarting growth, currently the lowest in the G7. After a mendacious serial rule-breaker as Prime Minister, can we please have some honesty and responsibility from his would-be successors? Baroness Penn (Con) My Lords, all I can talk about is this Government’s record, rather than speculating on the future. That is a record of repairing the public finances, protecting jobs during the pandemic through the furlough scheme, delivering cost of living support worth £37 billion this year to help people, and investing in the future in skills, infrastructure, levelling up and cutting carbon from our economy faster than any other G7 nation. Lord Bilimoria (CB) My Lords, do the Government agree that our growth is forecast to be somewhere between 0% and 1% next year and our level of business investment is the lowest in the G7? Should we not be prioritising investment that leads to growth of at least 2% a year? Should we not cut taxes rather than have the highest tax burden in 70 years, which hampers growth and investment, including inward investment? Baroness Penn (Con) My Lords, I hope the noble Lord will join me in welcoming the better than expected growth figures that we saw today, but he is right we need to continue to invest in our economy. That is why we are investing in our future skills system and more in infrastructure across the UK, and we will continue to do so to drive growth in our economy. Baroness Kramer (LD) My Lords, the cruel inflation which has hurt so many families and so many businesses has delivered the Government a bumper windfall in value added tax, now estimated to be well north of £40 billion. Will she campaign to her friends in the other place and ask them to use that money to get rid of the increase in national insurance contributions, for the sake of individuals, but also of businesses, which need that money? Will she also ask them to keep the increase in the threshold? Baroness Penn (Con) My Lords, I think my friends in the other place are doing a good job of campaigning themselves. My understanding is that, although VAT receipts are higher, the fact that individuals are spending more of their money on things such as energy, which have a lower rate of VAT, means that the latest OBR forecasts saw overall government receipts from VAT reducing in the next year. Lord Sikka (Lab) My Lords, the contenders for the Conservative Party leadership, which include the Chancellor, have promised tax cuts adding up to £235 billion, without any consideration of their funding or the consequences of such cuts. Will the Minister publish a list of the courses the Chancellor has attended on economic literacy? Baroness Penn (Con) My Lords, as I said, the Government do not produce fiscal forecasts, the OBR does, and it produces forecasts based on government policy. Baroness Altmann (Con) My Lords, does my noble friend agree that there would be widespread opportunity for cutting taxes for millions of people across the country if the tax base was widened, such as by taxing large online companies or being rather less generous on offshore taxation? There is also the potential for reform of council tax and business rates, which could bring in more revenue. Baroness Penn (Con) My Lords, the Government have taken a number of initiatives in the areas that my noble friend refers to, including the reform of business rates and looking at an online sales tax. She is right that, as our economy changes, we must always look at how our tax system can keep up with it. On tax cuts, the most recent tax change brought in by this Government happened this month, the largest ever increase in a personal tax starting threshold, which took an additional 2.2 million people out of paying class 1 and class 4 national insurance contributions. Lord Tunnicliffe (Lab) My Lords, the Government argue that rising inflation is a global challenge. However, the IMF and the OECD have warned that when put alongside comparable economies, the UK carries a much bigger risk of persistent high rates. This is bad for household budgets and consumer confidence. What is it about 12 years of Conservative control of the economy that has left us in this position? Baroness Penn (Con) The noble Lord will know that it is international factors that are driving high rates of inflation, including supply chain disruption after the pandemic and the war in Ukraine. However, he is right that the UK has a combination of factors. It is more exposed to higher energy prices than economies such as the US and it has a tighter labour market than fellow European countries. These put us in a slightly different position. However, people should be reassured that the Government are absolutely determined to tackle inflation. We have a plan that will bring it back under control. Baroness Wheatcroft (CB) My Lords, the Minister said that the Government have been successful in repairing the country’s finances. However, at the end of April, the net public sector deficit stood at nearly 95.7% of GBP, almost an all-time high for this country. Of course, Covid accounts for part of that, but can she elaborate on how the country’s finances have been rebuilt? Baroness Penn (Con) The noble Baroness says that Covid accounts for part of that. The Covid pandemic caused the biggest recession that we have seen in a generation. The response was the biggest galvanising of government action, in both our healthcare response and our response to support the economy. We were in a position to do that because we had taken responsible decisions in the lead-up to that period. If we look at how we are coming out of that period, the public finances will be returning to a more stable footing. Baroness Foster of Oxton (Con) My Lords, the three lockdowns during the pandemic cost the economy £370 billion, and that was without the added costs for Covid. The taxes on fuel and energy are not being passed on to the consumer when we are putting reductions in place. Can my noble friend pleased look into this, as the cost of bills and fuel for the transport sector is absolutely excruciating? This must be addressed urgently. Baroness Penn (Con) My noble friend talked about the impact of the lockdowns. They had a significant economic impact but also a significant social impact—for example, on children who were unable to go to school during those periods. However, our vaccine rollout meant that we could come out of that cycle of lockdowns earlier than many other countries. On her point about the tax cuts on fuel that we put in place to help with the cost of living, we have been very clear that they must be passed on to consumers. The Competition and Markets Authority has also been clear to retailers that this is the expectation. Lord Rooker (Lab) Given that we still have many social security benefits based on contributions, can the Minister explain how taking people out of being able to pay the national insurance contributions does not, in the medium and long-term, affect their right to contributory benefits? Baroness Penn (Con) I can reassure the noble Lord that the threshold at which the tax is paid is different from that at which the credits towards contributory benefits are earned, so increasing the threshold where people are paying the tax has not affected their ability to accrue those rights. Baroness Ritchie of Downpatrick (Lab) My Lords, could the Minister explain how the Government will reconcile tax cuts, which seem to be the subject for the majority of Conservative Party leadership candidates, with the pressing need to bear down on inflation and high costs? Baroness Penn (Con) It is possible to put more money into people’s pockets—for example, through the national insurance threshold rise—without having a disproportionate impact on inflation. Similarly, we have been able to make our cost of living payments while bearing in mind the noble Baroness’s exact point: we need to be careful of inflation as we make those policy changes.