Charter for Budget Responsibility and Welfare Cap

– in the House of Commons at 8:15 pm on 10th January 2022.

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Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury 8:15 pm, 10th January 2022

I beg to move,

That the Charter for Budget Responsibility: Autumn 2021 update, which was laid before this House on 5 January, be approved.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

With this we will take the following motion:

That the level of the welfare cap, as specified in the Autumn Budget and Spending Review 2021, which was laid before this House on 27 October 2021, be approved.

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

The charter for budget responsibility is, at its core, about fiscal responsibility. Its existence is born of the belief that stable public finances are the foundation for building a stronger economy for the whole country. Its purpose is to set out the Government’s approach to managing the nation’s finances openly so that the British people know that their money is being handled carefully and to give us a credible framework for action, underpinned by the Office for Budget Responsibility, which the OECD remarked is considered by many as a “model independent fiscal institution”.

Given the challenges that we currently face, hon. Members may reasonably ask whether this is the appropriate time for such a debate, but the credibility of the Government’s fiscal plan is what has allowed us to act as we have and will allow us to act again if we need to. In other words, we are updating the charter not simply for the sake of it, but to maintain what the Chancellor called at the Budget

“the path of discipline and responsibility”.—[Official Report, 27 October 2021; Vol. 702, c. 275.]

Almost two years ago, in the face of the pandemic, we took bold and decisive action to commit unprecedented amounts of public money to support jobs and businesses across the UK. That, including the support recently announced in response to the omicron variant, has helped to prevent long-term scarring to the British economy. The International Monetary Fund praised our

“impressive, coordinated, and extended policy response”,

while the OBR said that the costs of inaction would have been far higher.

The Government are proud of the decisions that we have taken, and that we continue to take, but we are not complacent. The pandemic has left us with the highest level of borrowing since the second world war and, at nearly 100% of GDP, public debt will reach its highest level since the early 1960s. That is clearly not sustainable over the long term.

It is important to keep debt under control for three key reasons. First, our level of debt means that we are more vulnerable to changes of interest rates and to inflation. In fact, OBR analysis from July found that our sensitivity of debt interest spending to changes in interest rates is almost twice what it was before the pandemic. A single percentage point increase in interest rates and inflation would increase annual spending on debt interests by over £20 billion in 2024-25, which is more than the entire Home Office budget for that year.

Photo of John Redwood John Redwood Conservative, Wokingham

Could my right hon. Friend comment on what difference, if any, he thinks it makes that a significant proportion of that debt is now owned by the Bank of England, which is 100% owned by the Government on behalf of the taxpayers?

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

The Bank of England has obviously helped to underpin our wider response to the crisis that we face. Clearly, it does have a bearing on the relevant significance of debt, but it would be simply irresponsible to leave ourselves exposed in the manner in which we risk being if we fail to constrain the borrowing, which risks otherwise becoming an unacceptable burden and which would leave us very vulnerable. A 1% rise in interest rates would cost the Exchequer £22.8 billion in 2025-26. That is a meaningful level of exposure and one which we want to take action to address.

Photo of Richard Fuller Richard Fuller Conservative, North East Bedfordshire

To help the Minister, would he not also point out that, under this Government, the Bank of England has reduced the proportion of new debt issuances, which are attached to rising inflation rates? So at least, due to the actions of the Bank of England over the past two or three years, that exposure has declined.

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

My hon. Friend is absolutely right. We are certainly not saying that we are in an untenable situation, but we are saying that it is important to meet our fiscal rules and to get debt falling as a percentage of GDP. As Conservatives, we believe that and we have won elections four times in the past 12 years on that basis. It is important that we continue to uphold that.

Photo of John Redwood John Redwood Conservative, Wokingham

Further to that point, is my right hon. Friend not quoting a gross figure for the impact of a rise in interest rates, and quite a bit of that would be credited back to the Bank of England, which, in turn, could pay it back as a dividend to the Treasury?

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

I think it remains the case that we need to make sure that our debt-to-GDP ratio is more sustainable than it is at present, and I do not think colleagues would significantly demur from that. I take the point that, obviously, there is an interaction—some of these interactions are of a relatively circular nature—between the Bank and Exchequer, but none the less, it is important that we control our public debt. Indeed, we were able to respond to the pandemic as comprehensively as we did precisely because of the fiscal space created since 2010. The fact that we faced two once-in-a-generation shocks in just over a decade highlights why we must have the buffers to provide support when it is needed most and why we must act to rebuild those buffers, so that we are ready for any future shocks. In its most recent “Fiscal risks report”—not an easy one to splutter out—the OBR said:

“In the absence of perfect foresight, fiscal space may be the single most valuable risk management tool” that we have.

The third and final reason we need to keep our debt under control is simple: our public finances are the legacy we leave for future generations, and the decisions we take now will have a material impact on the lives and livelihoods of our grandchildren. They will help or hinder their future ability to tackle long-term challenges, from climate change to an ageing population, or indeed to seize the opportunities that lie ahead.

The charter for budget responsibility contains new fiscal rules to guide us back to fiscal sustainability in a fair and responsible way. The rules will ensure that we get debt down over the medium term. They will allow us to deliver a significant uplift in capital investment, in turn driving economic prosperity, but without burdening future generations with borrowing to fund our day-to-day spending. The new rules require that underlying public sector net debt, excluding the impact of the Bank of England, must as a percentage of GDP be falling. The current budget must be in balance, which means that everyday spending must be paid for through taxation. Both rules must be met by the third year of every forecast period, giving us the flexibility to respond to events in the near term, such as omicron, while credibly keeping the public finances under control.

Finally, a third rule will ensure that public sector net investment does not exceed 3% of GDP on average over the forecast period. This rule will allow the Government to deliver on our ambitious plans for investment over this Parliament, with the highest sustained levels of PSNI as a proportion of GDP since the late 1970s. With this rule, we are delivering on plans to invest more than £600 billion in gross public sector investment over this Parliament to spread prosperity across the UK. The £4.8 billion levelling-up fund is part of that. An unprecedented investment package of £5.7 billion for eight English city regions to transform their local transport networks is also part of it. On top of these commitments, the UK Infrastructure Bank is now open for business and is expected to support more than £40 billion of infrastructure investment. Crucially, the rule also mitigates the risk of increasing debt to an unsustainable level. Our fiscally responsible approach supports growth while keeping debt under control.

Combined, these rules will guide responsible decision making. The International Monetary Fund has noted that

“Countries that have followed a debt rule have typically managed to reverse a jump in debt...significantly faster than other countries”,

and it recently assessed that the

“new fiscal rules have anchored fiscal policy well”.

Thanks to our support for the economy and early responsible decisions to strengthen our public finances, in its October forecast, the independent Office for Budget Responsibility confirmed that the rules were met. The current budget is in surplus and underlying debt is forecast to fall in the current target year, 2024-25. The rules will guide fiscal policy for at least this Parliament and will be reviewed at the start of each Parliament to ensure they reflect the economic context and mean that we can deliver for the British people.

In addition to the rules in this charter, we will go further, becoming one of the first countries to formally consider the broader public sector balance sheet in our management of fiscal policy. The OBR will now forecast broader measures, including public sector net worth, which it says provides a fuller picture of fiscal sustainability and allows for more sophisticated analysis.

The charter also retains the welfare cap in order to keep welfare spending on a sustainable path and to support the other rules in strengthening the public finances. Since the cap was last set at Budget 2020, the covid pandemic has had a significant impact on the medium-term outlook for welfare spending. To reflect that and to align with the updated fiscal framework, the level of the cap is being reset in line with the latest forecast. That leads to an effective increase of £10.5 billion in the cap by 2024-25.

Photo of Richard Fuller Richard Fuller Conservative, North East Bedfordshire

I would like the Chief Secretary to educate me a little bit, because what I cannot appreciate is the impact of covid on welfare expenditure. In the short term, I can understand why that would be significant, but why does that move forward into the medium term, when one would anticipate that the economy is recovering and we have demand for people to go back into employment?

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

The reality is that much of what we have put in place—this has been a £400 billion response—will take time to filter through the economy and out the other side. Clearly we expect some of it to taper away, but there are large parts of the package that we have had to put in place to support lives and livelihoods that will undoubtedly take time to wash through the wider economic settlement. The welfare cap is designed to be an automatic stabiliser, but it is also partly a measure by which we can be held to account as a Government, because this is not like departmental spending; it is more akin to AME spending—it is not something where we can manage it in the usual way. Therefore it is important that by setting this cap, we give ourselves at least a benchmark against which our performance in managing those pressures can be measured by the end of the forecast period. It is vital to ensuring that we have a welfare system that provides fairness and accountability to the taxpayer and the House.

The updated charter delivers on our commitment to budget responsibility in a way that is appropriate to our current circumstances. I understand very well the concerns that hon. Members may have about inflation and rising prices. We have already introduced more measures to put money into people’s pockets—increasing the minimum wage and cutting the universal taper rate. Although we have had to take important steps to protect the NHS and safeguard our economy, my right hon. Friend the Chancellor said in the Budget

“my goal is to reduce taxes. By the end of this Parliament, I want taxes to be going down, not up.”—[Official Report, 27 October 2021; Vol. 702, c. 286.]

We want to reward innovation and hard work, as well as the sacrifices of the British people over the last two years. Our plan for stable public finances in the charter puts us in the best possible place to achieve this goal and to stay true to our Conservative ideals. Tonight, hon. Members have a clear choice—to vote for fiscal responsibility, a credible path back to sound public finances and a stronger economy for the British people, or to let slip the anchors and leave our economy vulnerable and adrift.

The charter balances flexibility to support the economy and our stated manifesto goals in the near term with stronger public finances in the medium to long term. It supports our vision for a stronger economy, levelling up across the UK through significant cash investment, and it safeguards a stable, prosperous future with a strong fiscal legacy for generations to come.

Photo of Pat McFadden Pat McFadden Shadow Chief Secretary to the Treasury 8:26 pm, 10th January 2022

I begin by echoing the sentiments from Mr Speaker earlier following the death of my hon. Friend Jack Dromey. I knew Jack for many years, from his time as deputy general secretary of what was then the Transport and General Workers’ Union, and later as a colleague and fellow west midlands MP. He was a tough negotiator, always determined and loquacious, but pragmatic enough to reach a deal and stick to it. We are still in shock at Jack’s sudden death on Friday. We will miss him greatly, and my sincere condolences go to my right hon. and learned Friend Ms Harman and their family.

On the motion, the Chancellor announced at the time of the Budget that he would bring this before the House. He made a big thing of it. At the time, we presumed that he would come along and display his credentials for fiscal probity. He probably thought that it was a clever move at the time, but it does not look so clever now. He has not even turned up for tonight’s debate. What happened? Where is he? When he was dishing out money, he was everywhere. We could not move for Instagram videos and pictures of his slippers or sliders, or whatever they are called. Now the crunch is coming, he is nowhere to be seen.

Was the Chancellor worried that if he turned up tonight he would be asked what he will do about the cost of living crisis facing the country? Is he avoiding the House because he has nothing to offer people facing rises in energy bills of hundreds of pounds a year? Why is it that he has done one of his disappearing acts again? He was not here last month when businesses were crying out for support as Christmas bookings were cancelled in their thousands, and he is not here again this month for what he once told us was a central plank of the Treasury’s strategy.

On the rules themselves, during the covid pandemic the Chancellor has had to borrow a great deal of money—approaching £400 billion extra. The pandemic was an emergency situation that required emergency measures. That is true in this country and around the world. Our fiscal rules, published at the time of our conference, take account of such emergency situations, because there is no point in having a set of fiscal rules that work only when times are good. Fiscal rules have to take account of all kinds of economic weather, and ours do exactly that. Crucially, our rules also allow for the investment plan needed for the transition to the lower carbon economy that we will need. The Government’s fiscal rules do neither of those things.

Indeed, when we look at what is happening in the economy right now and what families around the country face in the real world, we have to wonder what the point of this exercise is. Did the Chancellor really think that tabling this motion would take attention away from the fact that he is imposing the highest tax burden on the country for 70 years? The Tories have become a high-tax party because they are a low-growth party. They are asking the British people to stump up the cost of their economic record not for the one or two years of the pandemic but for the past 12 years. Projections from the Bank of England do not look any better, with forecasts for growth of about 1% in 2024. Does the Minister really think that, with this motion, people will not notice or remember that the Prime Minister and the Chancellor have driven a coach and horses through one of their central manifesto promises on tax with the forthcoming rise in national insurance? Is he trying to cover up for the fact that, as families face a cost of living crisis with steep rises in energy bills, he has no plan to help them?

The Minister may not have a plan, but Labour does, and it was set out yesterday by the shadow Chancellor, my hon. Friend Rachel Reeves. Our plan would offer every family £200 off bills this year. It would give a further £400 off bills for those with the lowest incomes. It would help the energy-intensive industries on which so many good jobs rely. It would be paid for, in part, by a windfall levy on the companies making the most money out of the huge spike in gas prices. It is fair, it would help the poorest most and it is fully costed. That is what people need right now—not a reheated political stunt thought up by George Osborne a decade ago.

We have to wonder what the conversation was when this was thought to be some great political idea. Did they sit around in the Treasury and say, “We’ve borrowed £400 billion. We’re putting taxes up to levels not seen since the 1950s. We’ve wasted billions on failed programmes and dodgy contracts. But let’s have a parliamentary vote to show that we are really fiscally disciplined”? It will not wash. People are seeing through it.

You do not have to take my word for it. Only today, the head of the National Audit Office drew attention to the level of waste that the Government are presiding over. He wrote that

“many of the interventions carried out by government are either not evaluated robustly or not evaluated at all. This means government…has little information in most policy areas on what difference is made by the billions of pounds being spent.”

He added that only 8% of major Government projects “had robust evaluation plans”. Perhaps that is not surprising when we have seen £3.5 billion-worth of contracts handed out to businesses run by contacts of the Conservative party, and—the Minister and I debated this last Wednesday night—£17 billion in extra costs for the taxpayer, which the Government casually legislated for last Wednesday night to pay for their own mistake in messing up public sector pensions reform.

Where is the Government’s commitment to transparency, value for money or proper procurement practices in their fiscal rules? Did they forget to include those bits? Where is the commitment to tackling the level of fraud that has been exposed in Government lending schemes? Where is the commitment to controlling the Prime Minister’s pet schemes? How much was spent on the Prime Minister’s idea of building a bridge between Scotland and Ireland before the project was abandoned? The Chancellor should have known, because the Prime Minister has got form. He could not even build a garden bridge over the River Thames, let alone a bridge across the Irish sea.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

I am always glad to hear that bridge mentioned, because I did a second-year geography project at high school that could have told the Prime Minister it was a terrible idea. Does the right hon. Gentleman agree that, given that was an infrastructure project for the people of Northern Ireland and Scotland, we should get the money that was committed to it?

Photo of Pat McFadden Pat McFadden Shadow Chief Secretary to the Treasury

I would like to know how much was committed to it. I hope the Minister clarifies that while he is wrapping up and telling us about fiscal probity.

But in the spirit of solidarity, I do have some sympathy with the Chancellor these days. It cannot be easy when his tax policies do not even have the support of his own Cabinet colleagues. The Leader of the House has made his views known. He has told all and sundry that he wants the tax rises coming in April to be cancelled and the Prime Minister has been too weak to do anything about this open breach of Cabinet discipline. Is it a free-for-all in Cabinet nowadays? Does every Cabinet member get to have their own tax policy? Have all the leadership campaigns destroyed whatever collective discipline there might once have been? The former Brexit Secretary, Mr Davis, who is not with us tonight, has even taken to using our argument about this Government resembling Ted Heath more than Margaret Thatcher. I know that is not how the Chancellor wanted to be remembered. He wanted to be regarded as a tax-cutting modern monetarist, a worshipper of the true Tory faith. But the real truth is that you cannot stand up and give a Budget that imposes the highest tax burden since the 1950s and then issue a disclaimer at the end of it. It is just not credible. It will not wash and nor will this motion today.

People want help with what they are facing now. The impending squeeze on family incomes in this country is going to take a battering ram to people’s standard of living. It is not just global factors; it is about years of regulatory neglect in the energy market that created a whole host of small energy Northern Rocks that have now had to be bailed out, and about the choices made by this Government through tax rises. Yes, there are global factors in the energy market, but the crisis has been made worse because of decisions and choices made by the Government.

We have published a plan to help people. This is a changed Labour party coming up with real answers to a real cost-of-living crisis faced by families today, and we are facing an exhausted Conservative party that has run out of answers and has sacrificed for ever the mantle of being the party of low taxation. Perhaps there is no greater evidence for that weariness than the fact that on the question households throughout the country are most worried about, how they are going to pay the bills this year, the Government have said nothing at all.

Photo of John Redwood John Redwood Conservative, Wokingham 8:37 pm, 10th January 2022

Let me return to the subject of the debate, the charter for budget responsibility. I will not follow the Opposition into a debate on the general state of the UK economy, which I am sure we will have other opportunities to discuss.

I see this as the Maastricht rules tribute debate. Every year under the Maastricht treaty, whether under Labour, coalition or Conservative Governments, we used to have a debate. We had to look at the two fiscal rules, which of course both came from the European Union: rule one was that the budget deficit had to be 3% of GDP or less; and rule two was that we had to either be below 60% of GDP with our state debt, or we had to show how we were going to get down to 60% of GDP with spending cuts or tax rises. The UK normally favoured the tax rise route, rather than the spending cut route.

That was characterised by the Opposition parties of the day, once the Conservatives or the coalition were in office, as austerity economics, although they would never accept that the cause of the austerity was the rules designed in Brussels. They would point out, when I made that point, that, “Oh well, because the UK is not a member of the euro there are not the same penalties imposed if the UK fails to comply.” The fact was, however, that the whole UK economic machine—Bank, Treasury and officialdom—believed they were very serious commitments and that, as they were treaty commitments, the UK had to keep to them. So when we finally got out of the EU, I was one of those voices saying to the Government, “Let’s scrap all that. Let’s not have those Maastricht tribute debates”—although I think we had one even after we left—“and let’s have our own UK framework.” That is what we should be debating tonight.

The Government have come up with a charter for budget responsibility, which I welcome, but reading the detail, it has a familiar ring to it. What are the two main rules in the charter? One is that we must keep the budget deficit down to 3% or below. It has been repackaged in relation to investment, but it is basically the 3% Maastricht budget deficit rule. The second rule is that, by the third year, debt should be falling as a percentage of GDP. Of course, our debt is well above 60%, and it will be quite a long time before we get back to 60%, if at all. It is now built into the framework as a regular review item, although it has the extra twist that it is a three-year average, so there is a bit more scope for flexing things.

I think we can do better than this Government. We could come up with an economic framework geared to the modern needs of an independent country, and I would suggest that our charter should embed two great aims of economic policy. The first aim that it should definitely embed is controlling inflation. It is right that the so-called independent Bank of England—this House regularly changes the rules and shows that it is actually in charge of the Bank of England—is charged with the duty of keeping inflation down to around 2% on average. I have no problem with that as a target, but the Government need to adopt it as a target as well, because as Ministers must well know, we cannot do all of the heavy lift through monetary policy—we cannot do it all through interest rates or quantitative easing. We also need to have a sensible fiscal policy.

Above all, the Government, who control such a huge chunk of the economy, need to manage their own affairs well, in terms of productivity, sensible real wage growth and so forth, and they have a duty to follow an anti-inflation strategy for the public sector directly under their control as a back-up to what the Bank and monetary policy are trying to do. I think that we should embed the inflation policy more firmly in the charter and that the Treasury should have to tell us how it is contributing to controlling inflation. It will be very topical this year, because clearly inflation is considerably above where we would all like it to be and there is no immediate sign that it is about to drop down, although I think it will drop down towards the end of the year, unless policy is particularly foolish.

The second criterion or objective that I would put in the charter is a growth objective. Labour made an entirely fair point by saying that what matters is growth. The faster the growth—as long as it is not inflationary—the more we would solve our deficit and debt problems. Our economy and our figures are incredibly sensitive to the growth rate. In the first half of the current financial year, we had very fast growth. It was a recovery phase and things were going fairly well from the covid lockdowns. As always, the OBR and the Treasury completely misjudged what favourable impact growth has, so they overstated the deficit for the first six months of the year by a whopping £50 billion. The deficit tumbled by £50 billion more, with no tax rises. But there was a huge tax rise—it was called tax on growth. More people went to work, and more people earned higher wages, bonuses or salaries. More people spent more money, so there was more VAT. So income tax receipts, VAT receipts and other receipts in the economy greatly outperformed the OBR and Treasury forecast, demonstrating that, if we can go for growth, we will make much better progress on the debt and deficit, which we need to do, than if we go for austerity economics, slowing the economy with tax rises and a too abrupt monetary deceleration.

I urge the Government to look again at whether they can improve on the objectives in the charter, to reflect on it and to see how an independent Britain can have a growth policy. If the Government established a growth target—they would not always hit it, but they could establish it—it would start to inform the actions of every Government Department that has a bearing on the strength of our economy, new jobs and all the rest of it. That is what we want. We want a Whitehall that is positive about Britain, not one that is trying to hold it back. We want a Whitehall that thinks Britain can achieve things—can invest here, have more jobs here and substitute for imports—rather than a negative Whitehall that says, “Gosh, there is too much borrowing, What can we cut? What can we tax? What can we stop?” We want less stopping and more positive going. We want more ability, generated by a growth policy, to show that an independent Britain can produce more of its own energy, grow more of its own food, catch more of its own fish, and make more of its own personal protective equipment and of its own medical requirements.

Photo of David Linden David Linden Shadow SNP Spokesperson (Work and Pensions)

That speech would perhaps have done even better with “Jerusalem” on in the background. The right hon. Gentleman speaks about growing more food, but can he tell me who is going to pick that food from our fields?

Photo of John Redwood John Redwood Conservative, Wokingham

It will be picked by people paid decent wages, and if that requires wages to go up a bit, I have no problem with that. It will also be picked by the growing mechanisation of agriculture. Our agriculture is not as fully mechanised in a lot of farms as it is possible to do when there are better capitalised farms, like those that have been growing more food elsewhere. How pessimistic that was—why is the hon. Gentleman not proud of the United Kingdom, Scotland or wherever, thinking that we can achieve more and do more? Why do we always have to be stopping people doing things, and saying that nothing is going to work and so let us import all our vegetables from Spain, all our flowers from the Netherlands and all our energy from Russia, Germany or the Netherlands or wherever because we are not able to do it here in Britain? It is just not good enough. We have this huge opportunity. We have a very talented people. We have many natural resources. We have a perfectly good temperate climate for growing most of our own food. So, Government, get on with it. Having a growth target would help energise a Whitehall that still seems to be very disappointed in the country it is trying to govern and seems to be trying to hold it back.

One other thing that the Chief Secretary mentioned in his remarks, which is mentioned briefly in the text we are debating tonight, intrigues me. It says that balance-sheet items are being worked on but have not yet reached a state of development where they can be shared with the rest of us. How long does it take? Why do the officials to the Government not know the asset and net asset position for the country? I believe there are some figures we can get from public sources that show that we do have some guesses about all that, but is it not rather important that when we debate the state of the nation’s finances, we understand the balance sheet as well as the income account and that we know whether the public sector is adding value and long-term wealth or not? If it is, why do we not claim some credit for it? If it is not doing enough of that, we need to ask the difficult questions about the wisdom of the investments, the productivity of the schemes and all the things that go into making that a success.

I did ask the Chief Secretary about a balance-sheet item. I think it actually makes a difference if you have bought in your own debt, because you owe the debt to yourself. I am not asking for anything imprudent to be done. I understand why we have gone through this rather tortured process, as has the European Central Bank and the Federal Reserve Board, and as, for many years, has the Bank of Japan. But we should not then fool ourselves into thinking that we have a worse problem than we have. The fact is that all these countries and currency areas spent a lot of money and created a lot of money to buy in debt over the pandemic, and we have got away with it, with a caveat that we have a little too much inflation. That debt is purchased; it is now both an asset as well as a liability of the state, so it is wrong to think that it is just a liability. The new argument is, “We owe the Bank of England and if the short rates go up, we owe the Bank of England more interest and so forth”. Yes, but it gets the receipt. If we want to do the transaction, the Treasury pays the Bank and the Bank can pay the Treasury back, because the Treasury owns the Bank. If I had bought in my mortgage from a mortgage company, I would probably just forget the whole thing. However, on Bank of England and Treasury logic, every month I would pay interest to myself because I still owe the mortgage, but then I could take that money back and spend it because I own the mortgage company and it is no longer a proper debt.

I think we have to understand that something different has occurred with quantitative easing, and I do not think we should go on doing it. It is normally very inflationary and very dangerous. In the strange circumstances of a covid lockdown in which a huge amount of demand and activity were taken out of the system, we could get away with it; indeed, it was right to do it, and I supported the Government at the time and praised them for the stimulus they offered. However, that has gone, and we now need to have sensible finances. To run those well, I strongly recommend a firm inflation target—inflation is a little too high at the moment, and needs to be taken very seriously—coupled with a much more optimistic growth target, because that is the way to grow the balance sheet and get the debt and the deficit down.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury) 8:50 pm, 10th January 2022

Let me first extend my condolences to colleagues on the loss of Jack Dromey, and my condolences to his family and friends. I know how much he will be missed, because he was a brilliant Member of this House.

How nice it is to see the Chief Secretary to the Treasury here again in place of the Chancellor! It would seem that when the going gets tough, the Chancellor goes missing, or at least to California. I am not quite sure where he is today, but I am sorry we are not seeing him. Having looked at the reports of previous statements of this kind, I know that it has always been the custom for the Chancellor to make them here. It is disappointing that while he talks big in the Budget, he disappears when it comes to these debates.

No one is denying that the past 18 months have been very trying times, and that, as all Governments around the world have done, the UK Government have spent big to try and get us out of the pandemic with as little scarring as possible. Fiscal policy provided more resilience during the pandemic than we have experienced in recent memory, but as we have seen with the emergence of omicron, and as I have said repeatedly in this place, covid is not done with us yet. We are still facing considerable challenges and a period of uncertainty, so why would the Government want to tie their own hands by setting themselves some new rules?

As we have seen from Westminster Tory Governments in the past, it looks very much as though the reasons for a move back to austerity are ideological rather than economically sound. John Redwood also opposes austerity, although for different reasons. Cutting support too soon poses a big risk to our economy, especially when the UK is facing a 4% expected reduction in GDP owing to Brexit—twice as much as the scarring expected from the covid pandemic.

The OBR has said that the Chancellor has left himself with very little fiscal space. Richard Hughes told the Treasury Committee that

“Just a 1% interest rate rise could easily wipe out the Chancellor’s headroom.”

It is clear from the OBR report that the Chancellor has already missed all four of the existing legislated fiscal targets. It states:

“The fiscal mandate was missed by £274.7 billion (13.1 per cent of GDP).

The supplementary debt target was missed by 12.5 per cent of GDP.

Spending subject to the welfare cap is on course to exceed the legislated cap in 2024- 25 by £7.9 billion and to exceed the cap plus margin by £4.1 billion”— more than in March 2021—and

“The legislated fiscal objective is on course to be missed by £46.4 billion (1.7 per cent of GDP).”

In the face of all those missed targets, what have the Government done? They have, of course, set themselves a bunch of shiny new targets, on which, interestingly, the OBR has commented:

“In our central forecast, the proposed fiscal mandate and all three supplementary targets are more likely to be met than missed”.

That leads us to wonder whether this is yet more sleight of hand on the part of the UK Government. If they cannot meet the old targets but can meet the new ones, something smells pretty fishy to me.

The targets that the UK Government set themselves are also on a three-year rolling basis. If you were cynical, Madam Deputy Speaker, you could guess that there is a bit of an incentive to game those targets. Richard Hughes of the OBR told the Treasury Committee:

“The risk of having the target for it to fall is that there can be an incentive to get it to rise in the first two years, so you can get it to fall in the third.”

With this UK Government, little would surprise me. The rule to restrict Government investment seems absolutely bizarre. How can the Tories claim that they want to level up, while squeezing spending? That will have an impact on already woeful growth and productivity levels. The UK will lag behind other nations with no real plan to get back out of it, if these rules are to be believed.

Moving to the welfare cap, we can see yet more sheen for the way in which this policy works in the papers than for how it works in practice—talking tough instead of supporting those who need it most—and as with so many things that this Government do, it is all just smoke and mirrors. The OBR points out that the welfare cap

“has been raised at each of the four occasions that it has been substantively reset: twice under Chancellor Philip Hammond (in Autumn Statement 2016 and in Autumn Budget 2017);
and twice under Chancellor Rishi Sunak (in Spring Budget 2020 and in this Budget).”

If we look at page 158 of the Red Book, we will see that the UK Government have moved jobseeker’s allowance, the state pension and universal credit payments to jobseekers outside the scope of the welfare cap. Yet again, if the Government do not like the figures, they simply change the rules.

The Government have also said:

“The cap will only be breached if, at the point of formal assessment, spending within scope is forecast to be above the level of the cap and margin for any reason”,

and that if the cap is breached they will nod it through Parliament. Who would vote against that? But it is an entirely false narrative and it does not even meet the needs of those who depend on social security, who should be the real priority.

The UK Tory Government are happy to take money from the poorest families to appease the right wing of their party and to get a cheap headline, and they are happy to do so again now, during the worst cost of living crisis in our lifetime. All this talk of the rules that the UK Government set themselves in order to have the sheen of fiscal responsibility is a million miles away from the reality of life for so many of our constituents right now.

Our constituents are facing a cost of living crisis. According to the Office for National Statistics, two thirds of people have already said that their cost of living has increased in the last month, and polling released by YouGov this morning reveals that 33% of people are worried about their energy bills rising by more than they can afford. There are three main drivers of this crisis: energy price rises, general inflation and tax rises, culminating in the prediction that households are expected to experience the worst rise in living costs in a generation this year.

Paul Johnson, director of the Institute for Fiscal Studies, has said:

“The combination of substantial tax increases and big increases in prices, particularly energy prices, will be a larger shock for households on average earnings than anything at least since the financial crisis and possibly for a long time before that.”

Household electricity bills are likely to increase by more than 50% in April, when the Government’s cap on bills is lifted. Investec suggests that the price cap will rise by 56%, pushing the average bill from £1,277 to around £2,000 a year. That will disproportionately affect those at the bottom end of income distribution, who spend a larger proportion of their income on utilities and food. It will have a much bigger impact on discretionary spending for that group. The Financial Times estimates that

“the rise would reduce family discretionary spending by nearly 7 per cent for the poorest households, almost 4 per cent for people in the middle of the income scale”,

and by only

“2 per cent for the richest.”

Combined with that, the Federation of Small Businesses has pointed out the impact of the increase in energy costs on small and microbusinesses. Those small businesses are not inside the energy cap and may well have to pass the costs they face on to their consumers, again driving up the cost of living. Imagine a small corner shop, where prices are already often more expensive than those at a large chain supermarket—if that shop faces increased fuel bills, where will that cost go? It will go on to the prices at the till for the consumers who depend on that local shop.

In another of Brexit’s great rollbacks, the Prime Minister said in 2016 that one of the great benefits of Brexit would be the UK’s ability to cut VAT on energy bills. Now he says that

“it is a bit of a blunt instrument and you end up cutting fuel bills for people who don’t need the same help.”

Well, many people up and down this country, in all of our constituencies, are crying out for that help while this UK Government stick their fingers in their ears.

Rises in electricity prices will happen alongside planned increases in tax, impacting already squeezed families. The Chancellor is presiding over a £12.7 billion increase in national insurance at a time when incomes are already stretched. That is an average of £400 per employee—a tax on jobs at the very worst possible time—and an increasing number of Tory Back Benchers, as well as the Leader of the House, want the Prime Minister to scrap it. If those on the Treasury Bench will not listen to me, they should at least listen to some of their own.

On top of this, all income tax thresholds and allowances are to be frozen, bringing £1.6 billion into the Treasury coffers. The Chancellor often likes to point out that this affects higher-income taxpayers, and while it is obvious that it will affect them by the greatest absolute amount, as a proportion of income there is no doubt that poorer families will feel the effect of this policy as its eats further into the diminishing disposable income of those who had any money to spare to begin with.

Prices are rising faster now than at any time in the past 10 years. Goldman Sachs estimates a 6.8% rise in prices in April, even if the Government offset the increase in energy bills. The forecast increase in inflation is much larger than the expected increases in earnings and pensions, even factoring in the 6.6% rise in the minimum wage for those on the higher rates. Benefits are to increase in April by 3.1%, but that is a real-terms cut in income for universal credit claimants, even when offset by the most conservative of forecasts of inflation.

This has all the hallmarks of a crisis, and it is a crisis that lies at the doorstep of the Chancellor and of this UK Government. The people of Scotland did not vote for this crisis, this Government and this increased cost of living. They want to see action to protect them at this most difficult time that all of us are facing. Ordinary families are bearing the brunt of the cost of living crisis, while the Prime Minister claims he cannot get by on his £157,000 salary, living in a flat redecorated with Tory donor cash.

The UK has the worst levels of poverty and inequality in north-west Europe. It is clear that action must be taken now or the Tories will push millions more into hardship. Rather than pochling the fiscal rules to get a good headline, the UK Government must bring in an emergency package of support—introducing a low-income energy payment, matching the Scottish child payment across the UK, reversing the £20 a week cut to universal credit, raising the minimum wage for all to a real living wage and raising statutory sick pay to the real living wage level of £9.90 an hour. Rather than a series of meaningless targets that shift whenever it suits the Government, building an economy where citizens can get through the winter without relying on food banks and fuel banks ought to be the true definition of fiscal responsibility in government. SNP Members will be voting against both the motions tonight.

Photo of Richard Fuller Richard Fuller Conservative, North East Bedfordshire 9:02 pm, 10th January 2022

One of the primary reasons a Parliament was established was to protect property owners from the excessive claims of the state, and over the last quarter century this is a duty that successive Parliaments have spectacularly failed to fulfil. Encouraged by benign trends and with the irrepressible pressure of the media to spend more and take on more responsibilities, while hampered by a globalisation of capital that has moved the ownership of property offshore and therefore made it harder to tax, the political class in this country and in this Parliament appears to have lost any sense of the responsibility to pay for what they spend.

As speakers have said in this debate already, the UK now has the highest peacetime tax burden since world war two. The UK Government have direct debts of £2.6 trillion. In addition, there are unfunded pension liabilities and other off-balance sheet liabilities that take that total closer to £4.6 trillion, yet speaker after speaker, even in this debate, says, “Spend more, spend more.”

Since 2009, the Bank of England has been printing money, and notwithstanding the very clear points made by my right hon. Friend John Redwood, that £895 billion of quantitative easing is a potential debasement of the currency. Even though it may have been moving interest from one hand to the other hand between the Treasury and the Bank of England, there is a long-term understanding from capital markets that if Governments and sovereigns are quite happily able to print their own money, those who wish to lend money in the future will ask for a higher interest rate to cover that risk. UK Governments over the last 30 years have benefited from at least a 30-year decline in the yield curve, and perhaps we have grown used to an expectation that a lender will, in real terms, actually pay for the privilege of funding public expenditure.

To me, this is a very precarious financial situation for the UK Government, so what of our prospects? Mr McFadden and Alison Thewliss talked about economic growth somehow being the magic cure, saying that the United Kingdom was doing uniquely poorly and that they had a special plan. But the truth of the matter is that economic growth across all the developed OECD countries has declined from an average of over 3% per annum in the 1970s and ’80s to an average of below 2% in the period since 2000. The relative position of the UK to the OECD is better now than it was in the ’70s and ’80s, so the argument that the UK Government are missing something in their growth strategy that other countries have found is without foundation. I have heard the right hon. Member for Wolverhampton South East make this point before, and it is a neat point. That is why I went to check the figures, and I would encourage him to do likewise.

Geopolitical risks are growing, partly driven by a 50-year strategy to integrate China economically and politically into the democratic system. That is now at least in question, if not in reverse. We should think very carefully about the fact that disengaging China and its productive capacity from the global trading system risks adding to inflationary pressures. Demand from sovereign borrowers among all developed countries has risen from 70% of GDP a few years ago to over 200% of GDP—not just the UK but all developed countries. That is a level not seen since world war two, and it puts pressure on international global liquidity that increases expectations that the 30-year decline in yield curves may well go into reverse.

I am yet to see any evidence that all of us politicians have really learned how to stand up to the constant demands to spend more and involve the Government more as the answer to every single question that the media put to us. I would only hope that we pay more attention to those who have to pay for that rather than to getting the credit for saying that we can solve every problem.

Greater risks, rising interest rates, higher inflation expectations and a political class that has not really focused on the need to pay for things are the context in which we have the Government’s charter for budget responsibility. It is a welcome addition, because it makes changes that start to confront some of those pressures. There is an additional focus on assessing the affordability of public debt. It is rather a surprise that we did not have that as a focus previously. It has also added a cap on investment expenditure of 3% of GDP. I take the good point made by my right hon. Friend the Member for Wokingham that that sounds a bit reminiscent of the European Union plans. However, there does seem to be a problem of Departments bidding to the Treasury based on expectations of the rate of return they are going to make and the Treasury then having to stand back and be a barrier against all those demands on the public purse. The cap on investment expenditure is a prudent addition to make.

The charter adds a new key indicator of public sector net worth. I encourage the Minister to move very quickly to let us have the details on that. New Zealand put this together in the last millennium, so it cannot be that hard to do, although I recognise that it can be misleading as well as insightful.

One thing that is not in the charter is the consequences for breaking fiscal rules. This point was made by the hon. Member for Glasgow Central. It is good to write certain fiscal rules but it is also good for there to be consequences on behalf of taxpayers for Governments who do not meet those rules, and that should be more than just a new rewriting of the rules.

Finally, I want to make a point about long-term trends in the Bank of England. Paragraph 3.20 of the document says:

“The Treasury’s objective in relation to debt management policy is…to minimise, over the long term, the costs of meeting the government’s financing needs, taking into account risk, while ensuring that debt management policy is consistent with the aims of monetary policy.”

I like the phrase “over the long term”, which hides all sorts of problems. I thought I would try to find the long term, so I turned to the January 2020 working paper by the Bank of England, “Eight centuries of global real interest rates,” to see what it might tell us about the Bank’s thinking. I am concerned that the Bank of England has had a view about inflation rates that is a little too benign. The working paper says:

“Against their long term context, currently depressed sovereign real rates are in fact converging ‘back to historical trend’…real rates could soon enter permanently negative territory.”

This is the big question I would like the Minister to answer: is it the expectation that we are living, for the foreseeable future, in an era in which we anticipate that interest rates, in real terms, will be negative and declining? Or will that be the long-term trend, but subject to major fluctuations in the short term? People’s livelihoods depend much more crucially on that expectation than on other things we might debate in the near future.

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington 9:10 pm, 10th January 2022

I will be brief. The debate has roamed over more than just the fiscal rule and the welfare cap, and I will not tread on those other parts of the debate. My right hon. Friend Mr McFadden demonstrated the economic and political farce of the current Government. John Redwood made much of the role of Bank of England debt, which would be interesting to pursue in another debate, and Alison Thewliss pertinently drew attention to the iniquitous nature of the welfare cap. Richard Fuller made an interesting contribution, but his definition of Parliament’s role as being to protect property is something of a 17th-century view of democracy that we might want to debate elsewhere.

In our debates during the banking crash there was a popular understanding that the cause of the crash was the way in which the system had operated as a result of the finance sector’s greed and incompetence, alongside the mismanagement of financial regulation over decades. The Conservative party made a big argument at the time and subsequently that we were in a weaker position because of our deficit at the time of the crash. That is a feeble argument, but there is some substance to it, and I argued at the time that the reason for the deficit was that we did not have an adequate taxation policy to match our overall expenditure.

That argument is for another time, but I say to the hon. Member for North East Bedfordshire that I remember George Osborne ripping into Gordon Brown and others when even the concept of a fiscal rule was raised. George Osborne then ripped into the ludicrousness of a fiscal rule that no one would ever abide by and that had no sanctions. When he was appointed Chancellor in 2010 under the coalition and proposed the fiscal rule process, some of us thought it was ripe to say the least.

However, the most iniquitous bit of that debate was the combination of introducing the individual benefits cap and the overall welfare cap. The individual benefits cap is egregious, and it has forced people into poverty and hardship. In many of our areas, it has affected people’s mental health in a way that has pushed many over the edge and some into taking their own life—that is the tragedy of that element of the cap.

The overall welfare cap is part of that political direction. The point has been made time and again that austerity was a political choice, not an economic necessity. Part of that political choice was the introduction of the cap. After austerity was introduced, people woke up to the fact that public services were being cut on a scale we had not seen before. This was impacting on the health service, education and local council expenditure, and in addition to that, there were pay freezes and in the end, because of inflation, pay cuts. There was an understandable reaction against that. I can remember the deep unpopularity of the coalition Government in those early stages.

I think that a cynical decision was made; in fact, I know that a cynical decision was made because Lord Freud, who was responsible for welfare policy and supposed welfare reform, has exposed in recent months that a cynical decision was made. It was not made on the basis of welfare reform or economic management; its purpose was to find a scapegoat. The scapegoat that was unfortunately chosen by the then coalition Government was the poorest in our society: the unemployed, the people with disabilities and, tragically, children as well. I remember the language that was used, and I have to say that it permeated many sides of this House too. Strivers were set against skivers. I remember the tales of the twitching curtain, where some would stay in bed while others went to work. That certainly did not reflect what was happening in my constituency, because everyone I came up against was desperate for a job, and more importantly, they were desperate for a job that paid a wage that would keep a roof over their head and put food on the table for their children.

That is where the welfare cap came in. Of all the expenditure, that was the area that had to be capped in some form. Other areas of expenditure that were equally demand-led were not debated. This was done specifically because a scapegoat had to be found, and we went back almost to the attitudes of the poor law and the workhouse. I remember those debates. I was offended by them, I was made angry by them, but above all else I was shamed by them and by the fact that this House could stoop to that level. That is what happened, and people suffered as a result.

This welfare cap, associated with the fiscal rule, is a base anachronism that should no longer exist. For as long as it exists, as we go through a period where the economic pressures will impact on any Government—the cost of living crisis is easy to say as a phrase, but there is a reality to it and it is already causing hardship in many of our constituencies—I fear that this Government will want to find another scapegoat, and that it will be the poor again. It will be the disabled. It will be those who cannot find a job or cannot get enough hours in a job to keep them out of poverty. The Government will use the same mechanisms, and the welfare cap will be part of them as long as it remains in statutory form. That is why I will be voting against the welfare cap tonight. In principle, this is an appalling piece of legislation. It has proved to be inhumane in its impact, and it is a weapon that will be picked up again to attack the working-class people that I represent. That is why I want to put on record tonight why I oppose it and will continue to oppose it until we have hopefully secured a Government that will throw out this abysmal piece of political weaponry against working-class people.

Photo of David Linden David Linden Shadow SNP Spokesperson (Work and Pensions) 9:18 pm, 10th January 2022

It is a pleasure to follow John McDonnell, and I agree with everything he said. He is right to take aim at the coalition Government. I note that there are no Lib Dem MPs here tonight to defend their role in that Government, particularly in relation to the welfare cap.

In the interests of time, I will focus my remarks largely on the second motion before the House tonight, but I think that this Government will at some point have to confront the blatant contradiction of their mantra on budget responsibility and fiscal discipline and how it correlates with their new buzzword of levelling up. If I understand the Government right, levelling up either means giving more money to the traditional red walls seats at the expense of the traditional Tory shire seats—something the Government deny and have denied off the back of the by-elections in North Shropshire and Chesham and Amersham—or it means spending new money in the old red wall seats, which flies in the face of the fiscal discipline this Government and the Chief Secretary to the Treasury like to talk about. They cannot have both. That is a fact that the Chancellor will need to realise, especially when he has one eye on a Tory leadership race against the Foreign Secretary. I do not know where the Chancellor is tonight. Maybe he is planning his next series of Instagram posts.

I thought it was interesting that Richard Fuller spoke about the importance of adhering to these fiscal rules once they are set in place. Perhaps the Government’s approach will be the same as that of the Secretary of State for Northern Ireland, which is that it is okay to break rules in a very specific and limited way.

I rise primarily to indicate my opposition to the principle of the welfare cap, which I will vote against tonight. We are also being asked this evening to vote on a charter for budget responsibility, but I would like the Government to bring forward a charter for societal responsibility, because it is clear that the contract between Whitehall and the most vulnerable in my constituency has been eroded to the point of breaking down entirely.

Yes, there has been limited devolution of social security powers to the Scottish Parliament, which excites me and gives me hope for the future, not least because we can implement social security policies that are underpinned by dignity, human rights and respect, but the inescapable constitutional reality is that 85% of welfare expenditure and income replacement benefits remains the responsibility of this institution and the British Government.

However, as constituency MPs we know that an arbitrary cap on welfare is neither useful nor adequate, as has been demonstrated by previous breaches of the cap. Quite simply, the welfare cap does not address the fundamental and clear structural issues that leave people relying on social security: issues such as low pay, gender inequality and wider labour market inequality.

I understand that it is easy for me, as an opposition MP, to stand up and pan the British Government’s policy agenda without offering solutions on how we can strengthen the social security net, so I want to set out where the SNP would do things differently. For a start, I think the British Government need to spend less time obsessing over the ideological plaything of a welfare cap and instead fix the fundamental flaws in our social security system. Straightaway, at the stroke of a pen, they could end the sanctions regime and conditionality. They could abolish the five-week wait for universal credit. They could end the bedroom tax in other parts of the UK. They could reinstate the £20 uplift in universal credit. Indeed, they could extend the uplift to the 2 million legacy benefit claimants who were so heartlessly left out in the cold at the beginning of the pandemic, because people with a disability have increased extra costs, and that £20 uplift should have applied to them too. The Chief Secretary to the Treasury spoke earlier about putting arms around people during the pandemic, so I remind him that those 2 million legacy benefit claimants certainly did not feel the embrace of the Government’s hug then.

Before I draw my remarks to a close, I want to focus specifically on the role of the devolved Governments in social security provision and, in particular, offer some thoughts on the Scottish context. I mentioned before that, with limited social security powers, Scotland is already making clear its intentions and priorities when it comes to supporting the most vulnerable and tackling poverty. One such example is the game-changing Scottish child payment rising to £20 per child per week. That equates to an investment of £197 million and will help lift 40,000 children out of poverty in 2023-24. Absolutely, that goes some way towards undoing the damage of years of Westminster actions to undermine and weaken the social security net.

But people in Scotland have to wake up to the fact that fighting poverty and inequality will only be hindered, not helped, by a Government in London who are fixated on a welfare cap and removing vital financial support for the least well off, because in many respects devolution is increasingly having to act as something of a sticking plaster to mitigate the very worst effects of Tory austerity and Westminster’s welfare cuts. Yes, the Chancellor—wherever he is tonight—might be a wealthy multimillionaire who thinks that £20 a week here and there does not make much difference, but for my constituents in Carmyle, Carntyne and Craigend, £20 is an awful lot of money. That £20 can mean the difference between cheap ding dinners and proper nutritious meals for their children that help fuel them to learn and grow healthily.

Yes, devolution in Scotland means doing things differently, with a focus on greater free school meal provisions, abolishing the bedroom tax, or indeed introducing the Scottish child payment. But there are limits to devolution, especially when it comes to the lack of borrowing powers. I believe that tonight’s debate again makes the case for Scottish independence, because Scottish independence means we will not have an arbitrary cap on welfare, thereby capping our ambitions to tackle structural inequality and poverty. Scottish independence is about creating a charter for societal responsibility and looking after the most vulnerable people in our communities.

Tonight’s motions show that Scotland being governed from London, and by London, will not achieve that. It was noticeable that even the Labour Front-Bench spokes-person, Mr McFadden, made hardly any reference to the welfare cap. It is clear that regardless of which party is in power, that will be an issue for people in Scotland. Only independence can tackle poverty and inequalities that are prolonged and perpetuated by an arbitrary Westminster welfare cap, which I will oppose tonight.

Photo of Beth Winter Beth Winter Labour, Cynon Valley 9:25 pm, 10th January 2022

We are here this evening to discuss the welfare cap that is referred to in the autumn Budget. Introduced in 2014, it is designed to limit spending on social security. This is notable as it reflects the Conservative hostility to properly fund a social security safety net for the most vulnerable and disadvantaged groups in society.

The welfare cap is repugnant and regressive, and is driven by a Conservative ideological approach to stigmatising those in poverty and experiencing hardship. It does absolutely nothing to tackle the underlying causes of people’s reliance on social security, which is a failure of the economic and social policies of successive Tory Governments.

When it was introduced in 2014, my right hon. Friend Ms Abbott said in this Chamber:

“Everyone in the House wants to bring down welfare spending, because welfare spending is the price of Government and social failure…This benefits cap is arbitrary and bears no relationship to need, as our benefits system should.”—[Official Report, 26 March 2014; Vol. 578, c. 389.]

She was absolutely right. The cap was also condemned by economists from the National Institute for Economic and Social Research, and the New Economics Foundation. Even the OBR questioned whether the welfare cap has any meaningful impact on spending plans and outcomes.

The cap covers carer’s allowance, disability living allowance, personal independence payments, universal credit and the winter fuel payment. It is wrong in principle to subject these to an arbitrary cap. The cap itself does not reduce the need for social security.

As others have said, we are facing a crisis in the cost of living. The Joseph Rowntree Foundation estimates a third of low-income households—some 3.8 million people—are already behind on their bills, and 4.4 million households took out new or increased borrowing during the pandemic. If inflation stays at its December rate into April this year, the number of people being pulled into deep poverty will be around 200,000. Do the Government believe that this amounts to a negative shock? At what point do they consider rising poverty a shock? In the coming months, I expect—indeed, I know—that many more people in my constituency of Cynon Valley, and across Britain, will face a negative shock.

The covid pandemic has had a devastating effect in my constituency, and it will be exacerbated by the continuation of the welfare cap. That is partly why I recently commissioned independent research by a think-tank in Wales—the Bevan Foundation—on my constituency, called “The Cynon Valley after covid: action for recovery and renewal.” The findings are absolutely shocking.

In Cynon Valley, the rates of unemployment doubled during the pandemic and by March 2021 we had the highest rate of economic inactivity of all constituencies, not just in Wales but in Britain—a staggering 42% of people of working age. Many of these people, through no fault of their own, are now reliant on benefits that come within the scope of the welfare cap. We have 6,000 people on universal credit and over 5,000 still on legacy benefits. They are also now suffering from the £20 cut to universal credit.

How many more are going to have to join them this year due to the Government’s failure to lift minimum pay to a real living wage, end insecure work and zero hours contracts, control rip-off energy bills or properly invest in building sufficient affordable and suitable housing? I could not visit my local citizen’s advice bureau in Mountain Ash or the local food bank in Aberdare and say that I backed this welfare cap. It is gesture politics of the worst kind, grounded in demonisation and hostility to social security recipients—the most vulnerable and disadvantaged in our society who need our support. The priority must be to lift incomes, reduce reliance on social security and maintain a sufficient safety net for those in need. That is why I oppose this welfare cap.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health) 9:30 pm, 10th January 2022

I say respectfully to the Minister that I want to speak on the welfare cap and endorse the comments that others have made, using cases from my own constituency of Strangford. I see the issues very clearly. To be fair to the Minister, I absolutely understand the rationale behind capping the amount that the state spends on welfare. We cannot hold on to what we do not have in our hand, and we cannot give what is not ours to give. We do have to be responsible, but we also need to ensure that the funding that we are allocating to NHS reform and to the latest stages of the covid battle is adequate, while keeping an eye on the amount borrowed, which is beyond belief in my opinion. Richard Fuller said that it is hard to understand just how much money has had to be borrowed.

However, at the same time, it must be said that people are struggling and that they need more help, and that is what I am going to say on behalf of my constituents of Strangford. For many people, the withdrawal of the covid lifeline of the £20 uplift to universal credit has left them in a precarious situation. I can see that. I know that. Let me provide the evidential base for what I am saying; others have done so and I want to do the same. I know because the number of referrals to the food bank in my constituency has doubled. I spoke to the guys there just last week. I asked whether I was right in saying that the number of people applying to the food bank this year was greater than ever before. The answer was yes. I can see that statistically from my office. I can also see the levels of hardship and poverty to which David Linden referred. People are struggling. They are the working poor. They are the people on low wages who are finding it incredibly difficult to make ends meet. I see families whose income has stayed the same and yet, in Northern Ireland, they are facing increased costs due to the Northern Ireland protocol. Let me give Members an idea of the prices that are being asked and where they are going—where they were before and where they are now.

One local business in my town is renowned for bargains. It carries a range of £1 products. The business owner informed me that his range of 600 £1 products now cost between £1.15 to £1.29 each. That is for bleach, dishcloths, toilet rolls—the things that people need every day. These are not luxury items; they are the essentials. The owner informs me that he has not made 1p more on these products. His income is up because prices are up, but his profits are down because people cannot afford to be buying his goods. The impact is felt even in a pound shop where the products are sold for only £1 or thereabouts.

There has been a 15% rise on groceries alone. Add into this a 30% gas rise and a 20% electric rise, and the problem is clear. This is why it is right and proper for this Government to review the welfare spending cap and then lift it due to the dire circumstances that working families and those who are ill and vulnerable find themselves. John McDonnell referred to those who are disabled. Things are hard enough for those who are able-bodied, but it is even worse for the disabled.

I wish to pose a question to the Minister—I do it respectfully and he knows that. This is a genuine question and not a political point. Will the rise be sufficient to make a meaningful difference to families on the poverty line? Is the increase proposed today enough to do the job and to do it right? The cap set at the spring Budget 2020 was restated following some methodological changes. In 2024-25, it was set at £126.8 billion, with a margin of 3%. The new aim is that the cap in 2024-25 will be £138.3 billion, with a margin of 2%. Will that be enough for those who need it?

I know that all families in Northern Ireland are bearing the brunt of the intransigence of Brussels in its refusal to do the right thing and allow us to trade with the rest of the UK. This is not the debate on the Northern Ireland protocol, but its effects are felt in my constituency. There can be no discussion about people on the brink of the poverty line without acknowledging the effect of the protocol on the finances of every person who buys anything in Northern Ireland. This is about every mother unable to purchase gifts on Amazon and paying astronomical amounts for Christmas presents for their children as they were outside delivery areas, and every business owner paying more for products to cover the cost of the procedures. All those people show that Northern Ireland is much poorer financially for the protocol, as well as culturally.

I support the uplift of the welfare cap. I am no smarter than everybody else, but I understand the issue because my constituents tell me. I understand the reservations of those who do not want to borrow more, but we must get our local businesses back to earning and paying tax, which covid has removed. Wages for the working poor mean disposable income that is spent in the local economy, and people having enough to heat their homes and clean them. There is work to be done on the economy of this nation to encourage business and enterprise to tap into the global market. In the meantime, we must have enough money to spend on our vulnerable and needy. I have never seen anything quite like this year, and if this measure is needed as a first step, we must take that step today.

Photo of Dan Carden Dan Carden Labour, Liverpool, Walton 9:36 pm, 10th January 2022

I will be brief, Madam Deputy Speaker. This debate seems to be the definition of a pointless exercise. While there is total economic uncertainty, we are setting out fiscal rules that, if the Government break them, they will change next year. I am here to put on record and speak in opposition to the welfare cap. I represent some of the most deprived communities in England, and the welfare cap is simply a continuation of a policy that is designed to appease those intent on demonising the least well-off. It is political weaponry of the worst order. People are struggling with day-to-day costs, and there is a cost of living crisis that soaring energy prices and inflation threaten to make much worse—this year, next year and the year after.

What possible sense can there be in wasting time here and now, putting arbitrary caps on the winter fuel payment, on cold weather payments, on carers allowance, on support for the disabled, on in-work universal credit or on support for people’s housing costs? It is nonsense. Even the Government’s own organisation, the OBR, has questioned the welfare cap’s usefulness.

The Government have broken the current cap twice in recent years, so they are left continually raising the cap and changing its scope, for no other reason than it is not prudent, and it does not work. If the Government wanted to bring down the nation’s welfare bill, they would focus relentlessly on tackling the causes of the cost of living crisis; by tackling insecure, low-paid work and boosting wages; by controlling extortionate rents; and by ending the scandal of rip-off energy bills that only fuel corporate profits. Instead they choose to waste time playing games and posturing.

The people I represent need a social security system that supports and enables them, not one that punishes them and strips away their dignity. In these difficult, uncertain times, the Government are not being serious by continuing with this unworkable, arbitrary cap.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury) 9:39 pm, 10th January 2022

Today could have been a chance for Treasury Ministers to come to the House and set out plans to help people facing the rising costs of living in 2022. They could have come here to offer immediate help to people now, alongside a plan to invest what is needed in the long-term future of our country, but that is, sadly, not what we have seen. Despite widespread anxiety across the country about soaring energy bills, we have heard nothing on that front from the Government today.

Nor it seems did the Chancellor reflect over Christmas on the Government’s plans to ratchet up national insurance contributions in April. Treasury Ministers could have come here today to announce that they would not go ahead with the tax hike on working people and their jobs, but we have heard nothing from them on that front, either. Instead, we have seen Ministers defending their harmful and economically illiterate cap on investment in our country’s future.

Treasury Ministers should be using their first outing of the new year at the Dispatch Box to explain how they will help with the rising cost of living, which, as my right hon. Friend John McDonnell and my hon. Friends the Members for Cynon Valley (Beth Winter) and for Liverpool, Walton (Dan Carden) all pointed out, is affecting so many of our constituents. If the Government do not know what to do, they are welcome to use Labour’s plans. As the shadow Chancellor, my hon. Friend Rachel Reeves, set out over the weekend and as my right hon. Friend Mr McFadden set out earlier, our plan would bring energy bills down this year, partly funded by a one-off windfall tax on North sea gas and oil profits. It is a bold and balanced package that would help everyone in the country, and it is a fair and fully costed plan that would help families on low incomes the most.

The Government could also follow Labour’s lead when it comes to their national insurance increase on working people and their jobs. As we set out in September last year, that tax hike is wrong when the burden should be borne by those with the broadest shoulders. While the Conservatives’ failure to help people now will cause hardship for many in 2022, their failure to invest in our country’s future will cause damage for years to come. Their approach shows that they have learned nothing from their failures of 12 years in power. They are not listening to business groups and economists, who have made clear how vital they think investment in our country is, and they have learned nothing from countries overseas. Even if the Government get investment up to their 3% of GDP target, we will still be at the bottom of the OECD countries behind Ireland, the US and Mexico. Is that really their vision for global Britain?

The truth is that the Government’s position simply confirms that Ministers do not understand what our country needs for the future, and their failure to invest has a direct impact on people’s lives. Their failure to invest what was needed in the past 12 years in gas storage and additional energy sources has made the jump that we face in energy bills far worse. Their failure to invest in safe and affordable housing has made the housing crisis that we face far worse. Their cap on investment now means that they will fail to invest what is needed to decarbonise our economy, making the damage to our country in the long run far worse, too.

Ministers could have come here today to follow Labour’s lead by committing to £28 billion of capital investment in our country’s green transition in every year of this decade. Our fiscal rules set out how we would make that investment in the future while balancing the books and getting debt falling. That level of capital investment is needed to tackle the climate crisis and to create jobs for the future, from insulating homes across the country to ensuring that wind turbines are manufactured here in Britain. However, that would not be possible under the Chancellor’s charter, which as a result will cost our economy and our country more in the future.

When the case for investment is so strong, why is the Chancellor so keen to stop it? We would ask him, but, as my right hon. Friend the Member for Wolverhampton South East drew to the House’s attention, he has not turned up. We wondered where he was and whether he was in California again. I can tell you, Madam Deputy Speaker, that he has been spotted in the building. He is so contemptuous of his own fiscal rules that he has not even bothered attending the debate. I suspect he has realised that he has called it wrong—the stunt has not worked—and, true to form, when he finds questions too uncomfortable or too difficult, he is nowhere to be seen. He may have thought it was clever to have a parliamentary vote to distract from the Government’s record of high taxes, high prices and high levels of waste, but his plan to cap investment will only make things worse by stunting the economy and trapping us further in the Tories’ low-growth cycle.

The Tories are putting up taxes on working people in 2022 despite energy bills being set to soar, and they are spending their time struggling to defend their damaging investment cap rather than tackling the climate crisis, creating jobs and heeding calls from business to invest in the future. The Opposition will not vote to lock us further into a low-growth, high-tax cycle. We will back British businesses and workers by supporting the investment needed in net zero growth to create jobs for the future, fund first-class public services and improve living standards for everyone in our country.

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury 9:44 pm, 10th January 2022

I would like to start by agreeing with the remarks of the shadow Chief Secretary to the Treasury, Mr McFadden, concerning the great sadness at the passing of Jack Dromey at the weekend. I debated some legislation with him three years ago and he was a man of the greatest integrity. He was one of the best of us and he shall be missed across the House. My thoughts and prayers are with his family, especially Ms Harman, at this difficult time.

It is a privilege to close the debate on behalf of the Government and I thank Members, who have made informed contributions. In a few moments, I will turn to the substantive points that they have raised.

The pandemic has left us with levels of borrowing unparalleled in our peacetime history. Without considered action, something that was necessary in the short term could easily become unaffordable in the long term. The British people look to us now for a clear commitment that we will address that threat. As a Government, we will always be responsible with their money and, once the crisis has passed, deliver on our promise to strengthen the nation’s finances.

The charter represents a world-leading framework to guide us—a clear path back to fiscal sustainability—and it sets out a route to prosperity. On the one hand, we will get debt falling and rebuild our fiscal defences. On the other hand, we will support the economy to the best of our ability and invest in the future. To do otherwise would mean failing to fulfil our own potential and denying future generations the chance to fulfil theirs. Instead, we choose a plan that will enable us to rebuild the fiscal buffers, create the conditions for a strong economy and deliver on our historically significant investment plans. It also provides a sustainable welfare system while increasing the level of the cap, to reflect the impacts of the pandemic on our society, as the Chief Secretary to the Treasury set out in his opening remarks. In the plainest terms, to vote for the welfare cap motion is to vote simply to increase its level.

I want to turn now to some of the substantive points made in the debate. I do not recognise the characterisation by my right hon. Friend John Redwood of this debate as a “Maastricht tribute debate”, but I do recognise his enthusiasm for growth and his desire to target growth. That is obviously a critical element of the Government’s strategy. It is absolutely clear that we need to focus on greater productivity and it is important that, as set out in our plan for growth, with a focus on skills, infrastructure and innovation, we will deliver the key priorities of levelling up and net zero. I do not think that we disagree about the importance of economic growth and productivity, but because of the actions that we took to support our economy, we have been more successful than previously feared in preventing the long-term economic damage of covid. In its latest forecast, the OBR revised down its scarring assumption, from 3% to 2%.

The remarks of Alison Thewliss were echoed in part by the hon. Members for Glasgow East (David Linden) and for Cynon Valley (Beth Winter) and John McDonnell. I make it really clear to the House that the £10.5 billion increase to the cap provides the headroom above the forecast to allow for fluctuation in cap spending, and the cap only formally applies in 2024-25. The hon. Lady referred to rolling rules. Obviously, they can absorb some of the shocks and endurable challenges we face. I also draw her attention to the remarks of the Institute for Government:

“The rationale for a rolling target is that it provides flexibility should the economic situation change.”

I turn now to the very thoughtful and characteristically well-informed speech by my hon. Friend Richard Fuller, who set out the historic perspective but also recognised the changing macro-economic realities globally.

I thank hon. Members for their speeches. None of us in this House takes stewardship of the public finances lightly. It is important that we recognise that we take all steps that we can to ensure that this country is set on the right course. Therefore, I commend the motions to the House.

Question put.

Division number 156 Charter for Budget Responsibility and Welfare Cap

Aye: 309 MPs

No: 206 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Abstained: 1 MP

Abstaineds: A-Z by last name

The House divided: Ayes 309, Noes 206.

Question accordingly agreed to.

Resolved,

That the Charter for Budget Responsibility: Autumn 2021 update, which was laid before this House on 5 January, be approved.