My Lords, this was a Budget of broken promises that has left Britain’s economy weaker, less resilient and unprepared as we approach the biggest challenge faced by our country in decades. It contains no plan to deal with the difficult journey that now lies ahead, but it breaks binding manifesto commitments on our nation’s finances, on working people’s incomes and on our ability to trade with the biggest market in the world.
“by 2018 we’ll be running a surplus”,
“not through tax rises on you and your family”.
Yet last week the Chancellor of the Exchequer, elected on that manifesto, not only confirmed that we would not, as promised, be running a surplus in 2018 but revealed that, far from keeping his promise not to raise taxes for working people, he would now break that promise too.
At the last general election, we were told by the Government that reducing debt and eliminating the deficit were the most important challenges facing our nation. Indeed, their manifesto described failure to do so as,
“more than an economic failing; it would be a moral failing”.
Yet, since then, the Government have failed to meet a single target on debt or deficit reduction.
On debt, the Chancellor told us in his Budget Statement:
“Britain has a debt of nearly £1.7 trillion”,
that it would rise to 86.6% of GDP this year, and would peak at 88% next year. On the deficit, immediately after the last general election, the Government delayed their target date for running a surplus from 2018 to 2021. Now, in this Budget, they have abandoned any attempt at all to close the deficit during the lifetime of this Parliament. As the Chancellor said,
“borrowing over the forecast period is still set to be £100 billion higher than predicted at Budget 2016”.
He is now not on course to achieve his fiscal objective of eliminating the deficit until 2026—a full 15 years after George Osborne started to raise taxes and cut spending. Even that the IFS describes as “a substantial challenge”, meaning that Britain is now facing a third consecutive Parliament of austerity.
The Government have failed to meet their central manifesto commitment on our nation’s finances. As a result, in this Budget, they have also broken their promise not to raise taxes for working people. The Prime Minister and the Chancellor stood for election on a manifesto that, on four separate occasions, without qualification, pledged not to raise national insurance contributions. During the general election campaign, this promise was described as a five-year tax lock with no national insurance rises and as a vow. Yet, in this Budget, the Chancellor has increased national insurance for the self-employed by 2%—a £2 billion tax rise that will cost 2.5 million people an average of £240 per year.
These manifesto commitments—to run a surplus and not to raise taxes—have been broken because the mandate won by this Government less than two years ago has now been trumped by their determination to pursue the hardest of Brexits. Indeed, in his Budget Statement, the Chancellor was largely silent on the Government’s third broken manifesto promise; their promise to safeguard Britain’s economy inside the single market. But the alternative path that they have now set us on, to pull Britain out of the single market, discarding our membership of the largest trading zone in the world, is now clearly putting our economy at risk.
Last November, the Autumn Statement revealed the first instalment of the bill that we will have to pay for leaving the European Union. Now, having taken account of the Government’s negotiating position, the OBR concludes that after Brexit,
“our trading regime will be less open than before”,
and has spelled out the further damaging consequences.
While the Chancellor sought to focus attention on this year’s growth number, the OBR has revised down its growth forecast for every subsequent year from 2018 to 2021. By the end of the forecast period in 2022, the economy is expected to be even smaller than in the downgraded forecasts in the Autumn Statement. The OBR stated that cumulative growth over the forecast as a whole is weaker than in November.
The fundamentals of our economy are also weakening. The OBR forecasts lower business investment, and a savings ratio back to the low levels last seen before the financial crisis. Average productivity growth has been downgraded again to just 1.3%, while nominal pay growth has been revised down from the second quarter of 2018 onwards. The inflationary impact of the devaluation of sterling means that real earnings are now set to fall and will return to their pre-crisis peak only in late 2022—15 years after the pay squeeze began. According to the Resolution Foundation, this is the worst decade for pay growth for 210 years, and it will be those who can afford it least who will suffer the most.
The large and regressive benefit cuts due in the coming year could see a single-earning couple with two children lose £1,630 a year from 2021. The Joseph Rowntree Foundation estimates that, by the end of this Parliament, a working family of four on universal credit will be over £1,000 worse off than they were expecting in 2015. This combination of low pay growth and benefit cuts means that the next four years will be even worse for the poorest third of households than the four years following the 2008 financial crisis. The British people did not vote to make themselves poorer. But that is precisely what this Budget will deliver.
In his introduction to the Conservative’s 2015 election manifesto, David Cameron said:
“Our friends and competitors overseas look at Britain, and they see a country … on the rise … But our national recovery … is fragile, and with the wrong decisions, it could easily be reversed”.
Much has happened since he wrote those words and the Government have indeed taken the wrong decisions. They have taken the decision not to prioritise the national economic interest, but to take Britain out of the single market and make Britain less prosperous as a result. Our friends and competitors overseas now look on not with envy, but with astonishment at this act of national self-harm. In this Budget we begin to see the likely consequence of this decision: an economy in decline and ill prepared for the very real challenges that lie ahead.