My Lords, I was sitting like a coiled spring about to praise the excellent maiden speech from my noble friend Lady Moyo when we had the interruption of the Urgent Question and the brief adjournment, so it is a pleasure and an honour to resume the debate and, although my noble friend is no longer in her seat, to say how excellent her maiden speech was. Her most recent book, Edge of Chaos: Why Democracy is Failing to Deliver Economic Growth, which is a fantastic contribution to economic debate, is very relevant for one of the points that has been made in several interventions already.
I begin by welcoming the Budget and will draw on some of the analysis we have done at the Resolution Foundation, of which I am president. The Chancellor has had some good news, with energy prices not as high as feared, inflation falling more rapidly than was expected and interest rates slightly lower than forecast, not least because of the stabilisation measures that he has introduced during his time as Chancellor. So there was a favourable backdrop to the Budget, shown in the good news that we are going to avoid recession and that he had some fiscal room for manoeuvre.
Nevertheless, I have to say, as president of the Resolution Foundation, that the overall picture on living standards is still very bleak indeed. Wages are not expected to return to their 2011 level in real terms until 2026. That is 18 years before we are back to the level before the financial crash. At the moment, with big falls in household disposable incomes this year and next totalling 5.7%, it is very likely that incomes will actually be lower in real terms at the time of the next election than they were at the last. So there is still a very sombre backdrop against which we have to judge this Budget.
The boldest and most ambitious measures in this Budget focus on improving participation in the labour force. It would be marvellous if the combined effect of the ambitious measures on childcare, helping disabled people and promoting older people returning to work bore fruit. They are more radical than expected and we can all hope that they have a significant effect—30 hours of free childcare and help particularly for people on universal credit. For disabled people, it is very welcome indeed that the work capacity requirement is being scrapped. Regarding older people, the Chancellor got into a little difficulty yesterday in referring to the Deputy Speaker in the other place as an older worker when she was born in 1958. She is a spring chicken in terms of your Lordships’ House, and it should not be a point of observation that someone born in 1958 is old and working.
We must hope that those measures do bring 110,000 extra people into work. It could be more. We have already had several exchanges on this, so I make just a couple of observations. First, it has been said with shock that the cost of the change in pension rules, divided by the increase in the number of people going to work because of that change, is about £80,000 per extra job. These are net extra jobs. When you look at the likely effect of the more ambitious and expensive childcare measures in the Budget on net actual increase in work, they also come in at a cost of £80,000. It looks as if that is about the going rate for creating an extra real job. To be honest, having worked over the years in various ways engaging with welfare-to-work programmes and welfare reform, spending that amount of money for a net effect, while a lot of the effects will be deadweight, does not come as a surprise. Therefore, I hope that in the exchanges across this Chamber we accept that this is the going rate for intervention. We must hope that there are greater impacts than that, but that is what the OBR is forecasting.
Incidentally, in his excellent speech my noble friend Lord Bridges asked about the difference between the OBR forecast and the Bank’s forecast. One of the reasons for it is that the OBR is factoring in a 110,000 increase in workers as a result of the Budget measures, while there is no such estimate in the Bank’s forecast.
Of course, the help with childcare for families with young children is also a more progressive measure than the help on pensions because, as well as getting several tens of thousands of extra people into work, it boosts the incomes of large numbers of low-income families. It also has an even bigger effect on the incomes of some middle-income families. To assess the effect of the pension measure, we must look beyond the immediate benefit for the extra people going into work, and this is clearly a measure to do with NHS activity and NHS employment. Therefore, you would have to factor in the benefits for those people who receive healthcare that they would not otherwise have received were it not for those measures. This is essentially a healthcare recovery measure, but it is being applied more widely because of what we are familiar with as hybridity rules. You cannot have one pensions tax rule specifically for NHS consultants and a different one for everyone else.
I welcome this very ambitious set of measures to boost the workforce and the number of people in work, and hope that they succeed. We could well see an effect greater than 110,000, and I hope that is what we secure.
I will briefly reflect on the fiscal situation. Again, several people, including my noble friend Lord Bridges, have already touched on this. The state is undoubtedly getting bigger. It is not getting bigger because a bunch of socialists have seized control of the levers of government; it is getting bigger for completely different reasons. It is getting bigger partly because we are in a much more dangerous security environment than we were, so there is a pledge to increase defence spending. It is getting bigger because we borrowed a lot of money during Covid and, with interest rates higher, the cost of debt interest has risen by 2% of GDP. It is getting bigger because of demographic changes. Those are the drivers pushing up public spending.
My noble friend Lord Bridges said that we must make offsetting savings elsewhere. We are making offsetting savings elsewhere; in fact, the state is being reshaped under our eyes because the demographic changes plus policy decisions are protecting healthcare and boosting pensions, and other services and benefits for other age groups are being cut. Our estimate at the Resolution Foundation is that the effect of benefit changes is to lower the income of working families by £816 a year below inflation and the effect of the triple lock and other measures is to boost the income of pensioners by £666 on top of inflation. That is a deliberate decision to reshape the state so it is a state for old people. It is a big healthcare, big pension-spend state, cutting back on other services and provisions. Democratic trends are being exacerbated by political decisions, and I have to say I do not like that. I think we should have a state that is fair across the generations, not one which is clearly being structured to benefit that age group.
I have one other comment, having looked at the Budget, on the increasing tendency to have time-limited measures that do not have a long-term effect on behavioural incentives. This important point was made by my noble friend Lady Moyo. The capital allowance for corporation tax, time-limited for three years, will bring forward some capital spending, but it will have no underlying effect on total business investment, when that is a clear problem. The only way it could have that effect is if it were committed to as a long-term permanent policy. That is the way we get a change in behaviour, but if that happened there would be different costings showing the long-term effect on government borrowing, debt or taxes.
I do not wish to go on at great length because I see there are many other people wishing to intervene. I would like briefly to comment on one other strand in the Budget, something which I very much welcome: the focus on growth. That is again an area where there is strong cross-party consensus. The Prime Minister set out in his Mais lecture the framework of investing, innovation and skills, and infrastructure. We have heard in the excellent interventions from the noble Lord, Lord O’Neill, and others about the importance of those three strands, particularly innovation and technology. I strongly support that. There are lots of exciting ideas about how we could promote it, but as we have a Treasury Minister sitting on the Front Bench, I point out that there are some specific things which are directly under the control of the Treasury. I have three suggestions, none of which are the exciting, real technology measures in the Budget—all of which I welcome, and perhaps on occasion I would add to. Our difficulties in innovation are partly shaped by processing and bureaucracies which ultimately can be traced to the Treasury itself, and I shall give three examples.
First, we are celebrating the arrival of ARIA, which will be an advanced research and innovation agency, free from many of the classic constraints that the Treasury imposes on spending departments. There have been previous attempts to give programmes supporting innovation some of the freedoms that ARIA is going to have but which have been withheld by the Treasury. If ARIA is such a good thing, there is absolutely no reason why some of the freedoms which it enjoys should not be available more widely to other bodies also providing public investment in innovation. I declare an interest as someone on the board of UKRI, where of course we comply with all the Treasury rules but it would be nice if we had some of the freedoms that ARIA is going to have, which would enable us to operate with the same flexibility and agility that is expected of ARIA.
Secondly, the Green Book is written around an assumption of conventional public procurement. It is a set of rules designed for people building a road bypass or putting up a new hospital, but they are inappropriate when applied to innovation policy. When you go to America, you see the enormous role that public procurement—particularly but not only led by the Department of Defense—plays in promoting technology and innovation in the US. I have talked to someone who had a new gadget that he was designing and prototyping in the US. I asked him how he was funding it and he answered, “I’ve already sold the first 10,000 to the DoD.” He had not yet made a single one. There they use speculative procurement expenditure to promote innovation. A British department of state could not do that under Green Book rules—you have to already have a product. One of the things that America does so successfully is currently forbidden in the UK by Green Book rules.
Thirdly, the dread words that cause me most concern whenever an innovation programme is proposed appear on page 65 of the Budget Red Book, in the context of an announcement of spending on the future of compute review:
“subject to the usual business case processes”.
The business case processes will take over a year and will involve large numbers of civil servants writing reports which will eventually confirm the decision that was announced yesterday—and this is a Government trying to cut the cost of bureaucracy. All it will mean is that, instead of getting on with the investment in exascale computing which the Chancellor announced yesterday, we will be lucky if anything happens before the election. If the Treasury wants to get on—and the Treasury has put it into its own Red Book—do we really need to waste a year on a business case process not designed to promote innovation? I can tell your Lordships that, around the rest of the world, they do not have an extra year added to every policy decision on innovation so that they can do a massive audit in advance of any spending.
I strongly support the focus of the Chancellor on growth. If it were possible to extend ARIA freedoms more widely, to have more innovative use of procurement for new products and processes, and to simplify the business case process, the Treasury itself would be doing its bit for growth.
My Lords, it is a pleasure to follow my noble friend Lord Willetts. Like him, I was pleased to hear the maiden speech of the noble Baroness, Lady Moyo. I confess that I am a fan of her books. They move us on from the patronising terms surrounding so-called overseas aid and assistance to the words we should of course use nowadays of “partnership and mutual development co-operation”, and nothing less than that. In fact, a lot of the wording in the whole area of development and the so-called developing world is a leftover from the last century and the original thinking about overseas aid and development from Walt Rostow and the American pioneers and others immediately post the Second World War and in the 1950s.
Effective co-operation and sustaining of links of all kinds in a constant and friendly manner, and with deep mutual respect, with all the countries of Africa, Asia and Latin America, is now the task of every Whitehall department, especially but not only the Foreign, Commonwealth and Development Office. That is why I think it was an error to have had a separate department for overseas development; I know that many do not agree with that, but it is my opinion. Even now, allied with the old FCO, the DfID element is inclined to silo thinking. My own view is that it would probably be best structured along the lines of the Japanese model, through a powerful agency with entrée to every department, or from the Cabinet Office or indeed No. 10 directly. I notice that in the new integrated review refresh, which was published a day or two ago, they say that the Minister should automatically have a seat on the National Security Council, which I suppose half-recognises what I am saying.
Make no mistake: this is no sideshow. This is national strategy of the most intense kind, which will allow us to determine our prosperity and security. As the Chinese and Russians advance their colonisation of the developing world, this leads us to completely new thinking about our friends and networks, and how we use our resources to help them, and it brings forward the Commonwealth network, in particular, in a completely new light. That is a message which I think the new integrated review has not quite grasped.
Coming to the Budget itself, the most notable thing about yesterday’s Budget and indeed the surrounding context in which it was delivered was how many sources and authorities have been so spectacularly wrong about the inflation rate, its real causes and the course it is taking. There is the good old Bank of England: hopelessly wrong initially about how and when it would rise—they got it a year out of date—giving a wild underestimate of the pace at which it would accelerate, and wrong, I suspect, about the pace at which it now comes down. Then there were Goldman Sachs economists going on last August about 18% to 22% inflation in 2023—miles out and really quite silly. Then there were the eager monetarist theorists, determined to prove that it was all domestically caused, ignoring the real causes from the energy side. They said it was mostly caused by quantitative easing, which I agree may have played a part, but not the main part, and all demanded higher interest rates to defeat it. And there were armies of both commentators and high officials telling us that high inflation was here to stay, that recession was inevitable and was the only answer. Now, of course, they are all busily revising their inflation figures for the second half of this year.
One can laugh a little, but the damage has been done. These inaccuracies were not harmless. On the contrary, they caused great harm in two respects. First, they led to wrong remedies being applied then, because the real sources of inflation were not understood or were ignored. It was a very different kind of inflation from that which we have dealt with in the past. Secondly, because they sounded unnecessary alarm bells, they gave militant union leaders great opportunities to set their members marching and revive outdated class war rhetoric—an opportunity which Mick Lynch and his like have eagerly seized—and frightened millions of people about even bigger real wage cuts than they are facing already. No one seemed willing to face the obvious: that the sources were overwhelmingly external and lay in soaring gas and oil prices, both long before and during the Ukraine invasion and Russian obduracy. No one seemed to concentrate on the obvious central solution, which was, and still is, short-term world production of more gas and oil.
I admit that it is always difficult for Governments and officials to say that they have been blown off course by foreign factors. Jim Callaghan, who in my view was one of our best Prime Ministers, tried that, and I agree that we on the Tory side gave him no mercy and allowed no excuses. However, being predictably blamed by the Opposition—that is their role and they will always do it—was and is no excuse for not appreciating and tackling the real root causes of our problems, or for failing to realise that in oil and gas markets, and indeed in energy markets worldwide, what goes up always comes down quickly, whatever the circumstances, and always has, in past oil shocks and in this one too. I remind the House that I was very involved in some of the oil shocks of the last century.
The adjustment to the Russian cut-off and the nastiness since its lawless invasion was bound to be initially painful but has more or less been corrected with full storage tanks—for those who have storage—throughout Europe, plenty of shale gas in America, careful conservation and now the prospect of much more production from all sorts of places around the world. Indeed, the OPEC leaders, after initially being thoroughly unhelpful to consumer nations in the West, are now planning to expand future oil and gas investment unchecked.
The background of global energy transition is of course in the wings all the time, with a steady but very gradual long-term decline in world fossil-fuel demand. However, only fools imagine that we can take undertake the greatest shift in the pattern of world industry of all time in just a few years when it is bound to take decades, and when getting supply out of sync with world demand—incidentally, fossil fuels are still 82% of all energy needs, not just power—guarantees massive volatility, major suffering and political upheaval and reaction, as we have now in this country and in many others.
The missing piece in our national recovery strategy, in both the inflation fight and in our budgetary calculations all along, has been, first, the external side—the role of foreign policy and not enough clever diplomacy in diffusing these vast external measures—and, secondly, the absolute failure to convey into the public mind and debate the acute and continuing seriousness of the situation that we and all like-minded countries now face. Instead of trying to fight every individual grievance and demand, what has been missing overall is a sober and informed reminder of the fact that everyone, for the moment, will have to face hardship. It is the timing of all these widespread demands for real wage repair that is so miserable and unfortunate. Speech after speech, including, I am afraid, from some in this Chamber, demand more for this and more for that, yet this is a time when we have to prepare for more resource to go on what we have already.
If that sounds gloomy, it is, because it is the reality. It is not quite 1940 and we are certainly not under direct attack, but we are, equally certainly, on the edge of a major war, with a mad—actually perhaps he is not mad, but certainly threatening—Putin in Moscow talking about nuclear use against us, and with us still in the recovery ward after the largest pandemic in world history, which it was by far in population terms, and from the impact of the Ukraine horror itself, including a substantial rundown of our entire armoury to help the gallant Ukrainians. There is no end in sight for that, and an invasion of Taiwan is likely just ahead on the horizon. In essence, we are on a war footing, as the noble Lord, Lord Skidelsky, has repeatedly warned this House.
In these circumstances, the message should simply have been that, while inflation is coming down as fast as it went up, there has to be a timeframe for recovery. It should have been clearly and repeatedly explained that, in due course, much better pay for nurses is entirely desirable and the same goes for doctors, junior and senior, ambulance teams and the rest. There is even no objection to train drivers being enriched—although I personally think that bus drivers do a much tougher job—nor young barristers, physiotherapists nor anyone else, nor to ensuring really good and safe pensions for all of them.
However, and this is the core of it, those better conditions that we all want to see must wait for the duration—“the duration” is a phrase that was used during the Second World War. We will and can recover and find the resources to make good for all who deserve it, just as Beveridge in the last, darkest days of the Second World War said we could do, but not yet.
One-off payments for one-year awards, which are being talked about, may be justified in some cases, but only just. We may even come to our senses in all parties that may form a Government and make sure that modern capitalism works for all, and that millions of earners become owners en masse, with the dignity and security of capital to support every family. Meanwhile, for the duration, as in the darker times of war in the past, there are going to be difficulties and problems all around. I would have liked to have seen much more emphasis on that central message in the Budget—indeed, in all the statements by Ministers and opposition leaders as well—than I can detect, because that is the honest truth.
As for more investment, which is of course the key to our future strength and living standards, and to our fully generous support for the weakest in our society, I obviously hope that the Budget measures will enable more growth, investment and innovation. Perhaps the capital allowances will help. One sort of investment we could do without but which, regrettably, the Government seem poised to make is for another large-scale nuclear reactor at Sizewell in Suffolk, based on a replica design called EPR which has an utterly miserable provenance and a dud history. The official estimate for Sizewell is £20 billion, with readiness in about 2035; it is much more likely to be £30 billion and several years after that. Smaller, new-technology reactor sets, which were mentioned in the Budget, could be in place much sooner and with private instead of public money. That is the nuclear way forward, as my noble friend Lady Moyo mentioned in her maiden speech.
That colossal new expenditure, almost secretly sliding through, should be for future debate—very soon and, I hope, in this House. In the meantime, let it be explained honestly, openly and repeatedly to all the most deserving, to the strikers inflicting present misery and smashing the rights of others, and to the millions still suffering from crippling cost of living pressures that rewards and better days will come—but not, as most of the nation in past times understood intuitively, for the duration of the present world crisis that we are in and must, as a priority, overcome.
My Lords, it is a pleasure to take part in this important debate and particularly to hear the maiden speech from the noble Baroness, Lady Moyo. I am sure that she will be an asset to the debates in the House, even if I do not necessarily always agree with what she says.
It is no great surprise that I am going to focus on what the Chancellor said about pensions, but I have a couple of more general points. First, it is shocking that there is nothing in the Budget about social care. We were told by the last Prime Minister but one that this Government had an oven-ready plan. Clearly we do not even have the recipe, let alone the ingredients. Secondly, credit was taken in the speech by the Chancellor for past rises in tax thresholds, with the claim that these had lifted 400,000 pensioners out of absolute poverty. Perhaps we should now also be told how many pensioners will be pushed into poverty by the decision to freeze tax allowances for the next five years. You cannot take credit for one without taking the blame for the other. I very much hope that a forthcoming Labour Government will reverse this decision and revert to Rooker-Wise, particularly for the personal allowance.
“Pension” appears 11 times in the speech, once as part of “suspension” and a couple of times when referring to the Department for Work and Pensions. The main references to pensions were about tax allowances, which I will come to in a moment, but the Chancellor returned yet again to the issue of pension fund investment. Lots has been said on this by the Government but very little done. This time, we are promised
“measures to unlock productive investment from defined contribution pension funds and other sources”.—[
As ever, on this issue the devil is in the detail. I am a sceptic but, until we see concrete proposals, it is just so much hot air. Can the Minister tell us when the Government will actually come up with some firm proposals?
I turn to pension tax allowances. First, I welcome the decision on the aggregation of pension input amounts where employees belong to more than one scheme for the same employment. While it looks like a technical issue, and is not mentioned specifically in the Chancellor’s speech, it is one of the most significant decisions and truly to be welcomed. It is an issue I have raised several times in this House and at a meeting with the Minister for Health, so I am pleased that what seemed obvious has at last been accepted by the Government. Other Members were involved, of course, not least the noble Baroness, Lady Altmann, but I also need to mention that it was an issue of importance to the late and sadly missed Lady Masham.
I do not agree so much with the proposed abolition of the lifetime allowance. I need to mention that I have an interest in the matter, in that I could benefit from the change, but I still think it is wrong, particularly in current circumstances. Clearly, there is a crisis in the NHS—the shortage of doctors—that requires urgent action. It has been widely acknowledged, not least by the Chancellor himself as chair of the Health and Social Care Select Committee, that pensions tax was one of the factors involved and that action is required, but a more targeted approach would be better than the blunderbuss adopted by the Chancellor. I believe that the most immediate problems around retaining doctors in the NHS arise from the annual allowance, not from the lifetime allowance, so to deal with the undoubted problems, it would be better to spend money on reducing the impact of the former rather than the latter and target the problems of the NHS specifically.
Pensions taxation is a complex mess that needs thorough review. We continue to suffer from one-off decisions that increase complexity and unfairness. The Chancellor based the argument for change in the lifetime allowance on the concerns of many senior NHS clinicians, but he went on to say that he realised the issue goes wider than doctors. That was echoed by the Minister in her introduction, but in his interview this morning on the “Today” programme, the Chancellor referred only to doctors. What we do not know from the figures from the Treasury or from the OBR is how many of those being helped by this change are doctors, and how much of the resources being employed to facilitate the change are going specifically to doctors as opposed to other parts of the public service. I accept that doctors are a priority—that is clear—but the point is that it is for not the sake of the doctors but for the sake of people on the waiting lists.
The noble Lord, Lord Willetts, said we could not have a special one-off for the doctors. I am afraid that that is clearly not correct. There is already a special one-off for the judges. We passed an Act last year creating a scheme specifically for the judges that addressed exactly the same problem. I explained this in debates and was told, “There will not be any more special cases”. Well, I think doctors are a special case here, and a more targeted approach could have been adopted. Can the Minister tell us who else will benefit from the change, and why, in the current context, they represent such a priority to spend such an enormous amount of money? How much of the total cost will go to other groups of employees?
There are other more technical points that need to be clarified. Looking at the impact of abolishing the lifetime allowance, the OBR flagged this as a major uncertainty, both in relation to the cost and the numbers involved. Commentators, not least the coalition Government’s long-serving Pensions Minister, have cast considerable doubt on whether this change will actually achieve the stated objective of keeping people at work. On the other hand, I have no doubt that changing the annual allowance will have a direct impact in terms of keeping doctors working.
What research has been undertaken to ascertain the impact of the changes to the tax credits? It is worth noting that, of the total cost over the next five years, £2 billion is being spent on abolishing the lifetime allowance and only £1 billion on adjusting the annual allowance, but to my certain knowledge it is the annual allowance which is the focus of the particular problems that people face.
There are also practical issues. What about those who have agreed to retire over the next three weeks? The change will not come into effect until
Finally, on a slightly more positive note, I welcome the first step in limiting the generosity, and I use the word advisedly, of the
“anomalous but much-loved tax-free lump sum”—[
My Lords, I join other noble Lords in paying tribute to the remarkable maiden speech of the noble Baroness, Lady Moyo. It was very thoughtful and thought provoking, and I very much appreciated her reference to me—she will have a great future here.
The Budget was crafted in the shadow of disruptive world events over which the Chancellor has little or no control, but it is by its effectiveness in tackling or responding to those events that I think this Budget will be judged. The three killer apps—as one might call them—are global finance, technology and geopolitics. The global banking crisis of course caused the depression of 2008-09. The recent collapse of SVB shows, as the noble Lord, Lord Fox, noted in this House on Tuesday, what a huge proportion of our tech industry depends on finance from a single foreign bank whose solvency in turn depends on fluctuations in interest and bond rates. That is one element of huge fragility in our system.
As for technology, it simply speeds up the operation of every single movement in the economy, whether beneficial or destructive. We know about geopolitics, which threatens all our supply chains and the future of the global economy. So those three elements are really beyond the control of a Budget or a Chancellor and, together, they make the world economy more dangerous, more unstable and more uncertain.
The Minister, in introducing the Statement, stuck closely to the forecasts—but how does she explain the ludicrous divergence in the OBR’s forecasts on inflation and growth between October/November 2022 and March 2023, or the divergence in forecasts between the Treasury and the Bank of England? The noble Lord, Lord Willetts, pointed out that these different models factor in different things, but which of the factorings lead to an outcome that we can have faith in? You factor this, you factor that. What is going on is that all the models used are inadequate. They have become inadequate in the face of large structural breaks which have been occurring in the economy as a result of Covid-19 and the war in Ukraine. They are models which are still optimising around some long-forgotten equilibrium.
I am not sure that we have a better model, but it limits the confidence that we can have in these forecasts. They are trotted out almost as truths. The Chancellor said, “We will grow by” X, Y or Z per cent in the next three years, but what he meant was that the OBR model says that those will be the growth rates—and that is not a satisfactory basis for building confidence.
The speed-up of model obsolescence represents a huge break from the past. We were brought up to believe that short-term forecasts were relatively reliable—after all, how much could change in six months?—and that the longer ones were less reliable. Now, however, both are unreliable. It has infected both the short-term and long-term forecasts. The Treasury is not steering the economy—that phrase was the title of one of Sam Brittan’s great books. The economy is being tossed around by the world economy from one place to another, and that is not going away any time soon. These destructive events have wreaked havoc with the macroeconomic rules so laboriously constructed in the 1990s and 2000s, in particular that of the separation of fiscal and monetary policy, which was the architectural triumph of the Blair-Brown years.
What is it like today? What is the state of that separation today? The fact is that it has been fatally undermined. The Bank of England has been stoking up inflation when it was set up to do the exact opposite. It has been given a green mandate that conflicts with its inflation mandate, and no one knows exactly what the relationship is between fiscal and monetary policy. It has become hopelessly fuzzy, as we found out on the Economic Affairs Committee when we interviewed the Governor of the Bank of England. The whole relationship is shrouded in fictions that no one is meant to penetrate. That is not the basis for giving confidence in macroeconomic policy. In fact, the confidence has been withheld.
“Our plan is working”, said the Chancellor. What plan? To reduce inflation? To get growth? To reduce the inactivity rate? To achieve energy security? He must realise that any improvements that have been recorded since he became Chancellor, or in the last two or three months, are not due to anything the Treasury has done but result from what has been going on in the world economy. There have been beneficial developments, particularly what has happened to energy prices.
A remarkable thing about Budget making today is what it says about markets, media and policy networks. If you analyse it, you will find that there is actually very little difference between the Truss-Kwarteng and the Sunak-Hunt Budgets; the first just came at slightly the wrong time, that is all. Now, things have got a bit better. These are Budgets that depend on five-year forecasts; you cannot say that the difference of a month or two in the presentation of a Budget should have caused such panic in the market—unless, of course, no one had any real confidence in the long-term forecasts on which the Budgets were made.
At one time, there were things called “Budget leaks”. You were not meant to reveal what was in the Budget. In fact, the Chancellor of the Exchequer in 1947 resigned because of a Budget leak. Now, Budget leaks are routine; they are sort of trailers in which the Treasury lays out what it is going to do. What about the opportunities for speculation, for example, that that might give rise to? No one thinks about that any more. You have to make the newspaper headlines.
The Chancellor might have taken advantage in his Budget to display the beginnings of a coherent framework. There is one such framework—it is a very old model; no one knows about it any longer—called the balanced budget multiplier. That approach underpins the Biden Administration’s $738 billion Inflation Reduction Act, which was passed into law last year; I do not think that the Chancellor referred to it in his speech. It is based on an intelligent combination of extra investment and higher social spending to be paid for by higher taxes on the rich and the very rich. Split roughly half and half between tax and spending increases, the combined effect is forecast to secure—again, one has to make the point that it is a forecast—a cumulative reduction in the federal fiscal deficit of about $300 billion over five years. It may not happen—it probably will not—but at least there is a mechanism in it which suggests that it could happen. What we do not have in the present enthusiasm for the policy working is any mechanism or theory which gives you confidence that what the Chancellor is doing will achieve what he wants it to do.
I will make two final points—I am sorry that I have gone on a bit—about where we are in the cycle. It is very difficult to assess what is happening in the labour market; the noble Lord, Lord Bridges, talked about this. On the one hand, we have a very high inactivity rate of about 7 million altogether, which is usually connected with a slack labour market. On the other hand, we have unemployment very low at 3.7% and lots of job vacancies, which would suggest a tight labour market. What is the explanation of that puzzle? The truth, I think, is that headline unemployment figures no longer accurately measure the capacity utilisation of an economy; I think that that has been true for some time, but it has been brought to the forefront recently. A shortage of supply in some areas is combined with a general deficiency of demand in the economy. We would expect the latter to be the case, given that the economy has not grown for three years while the population has grown by 1 million and real wages have fallen substantially. Therefore, we would expect a deficiency of aggregate demand, even though there are pockets of shortage of supply. The Budget might have addressed its attention to that.
I wish that the Chancellor had argued in favour of job creation, rather than incentives to people to apply for jobs that do not exist. Gordon Brown and I, two years ago, argued for a public sector job guarantee scheme, which I still think would act as a kind of buffer stock of employment which would oscillate with the oscillations of the cycle. I am sorry that it was not adopted; it would have been—and still would be—a good method of job creation today that would also tie in with the devolution strategy.
My last point is about securing the long-term growth of the economy. Of course, I welcome the incentives that the Chancellor has provided for investment—the creation of 12 new investment zones modelled on becoming potential Canary Wharfs—but I wish he had given a bit more attention to two British institutions for investment, which I do not think that he mentioned: the UK Infrastructure Bank and the British Business Bank, both of which could be developed. As the noble Lord, Lord Eatwell, said, we know that investment has been a problem in the British economy for a long time. We also know that the share of public investment in total investment has dropped dramatically, and it has not been compensated by any increase in private investment. Here is a good opportunity to insert the state into the long-term recovery of the economy and to provide for the energy and security autonomy, which is the aim of the Government and us all.
In short, there are quite a few interesting initiatives, but I do not think that they have been properly joined-up, and we still await a commanding framework for action in a world that is spinning out of control.
My Lords, it is a great pleasure to follow my noble friend Lord Skidelsky. He is always amusing and intellectually challenging and we once again benefited from some of the things he said.
Before I start my speech, I have to congratulate my noble friend Lady Moyo on a terrific maiden speech. Some years ago, she and I worked in the same investment bank in the City of London. She came to see me one day out of frustration because they had put restrictions on what she could do and I said to her, “Dambisa, there is only one thing to do: just leave the place and go and do it because your genius will always be rebuked because of the culture of this institution.” I never thought at that time that I would be here congratulating her in your Lordships’ House on that terrific speech. She mentioned her career in her speech. She brings weight to this House which makes this House such an important part of our Parliament.
I am delighted to take part in this debate. One reason is that I think that it is an honest Budget by an honest Chancellor. I say that because on the one hand, the rate of inflation is coming down, the debt-to-income ratio is coming down and the growth rate is going up to 2%. On the other hand, the rate of productivity growth is clearly not what the Chancellor ideally wants, the tax take is up from 33% before Covid to 37.7%, the standard of living has been falling for two years and, as my noble friend Lord Willetts mentioned, it will be 18 years before it gets back to the same level it was. Although we say inflation is coming down, it is still very high. I think the Chancellor had very little room to manoeuvre in this Budget—that is what has come out to me from this debate—but I think he has put the economy in the right direction because he has faced up to reality. There are no unfunded tax cuts here. He is not gambling with public expenditure, the borrowing requirement, the deficit and so on.
There are three reasons why I am excited about the Budget. First, it is a Budget for growth. Never again can people accuse the Prime Minister or the Chancellor of not having some framework for growth. In his speech, the Chancellor said this sentence which I think is very important:
“Not just the growth that comes when you emerge from a downturn, but long-term, sustainable, healthy growth”.—[Official Report, Commons, 15/3/23; col. 833.]
As you look back over the last 50 years in the UK, you see exactly that emergence from a recession, then you have a period of growth but it blows up. That is exactly what happened in the Barber boom in the early 1970s. It happened with Denis Healey in the mid-1970s. It actually happened with Nigel Lawson in the late 1990s, when inflation had got down to 3% after Geoffrey Howe’s tough Budget. When the Prime Minister at the time left government in 1990, the rate of inflation was 9%.
I do not want to go through the litany of things in this Budget—full expensing, new investment zones, nuclear energy, pharma and so on—but I would like to mention, which others have referred to, that getting the over-50s and people suffering from disability and long-term sickness back into work is very important.
One issue I have a slight problem with is childcare. I believe in childcare—we used it when our children were very small—but my noble friend Lord Willetts, for example, referred to these measures as radical. When I listened to the Budget speech, I thought to myself, “Do I want my great-grandchildren to be away from their home and parents from eight o’clock in the morning till 6 o’clock every day, five days a week?” I recognise that there is a demand for it, but the sheer scale of what is being introduced needs thought and debate before we rush headlong into it.
To meet the objection that the noble Lord, Lord Eatwell, made in a powerful speech, there is the embryo of a medium-term financial strategy here.
My second point is about something absolutely crucial that the Chancellor said in his speech and has said on a number of occasions. He is committed to reducing inflation to 2% a year. We know from the cost of living crisis the damage inflation does, especially to the most vulnerable in our society, who have the fewest options when their standard of living is threatened. We have heard of the problems for business—the uncertainty it creates over cost and pricing power; over what the central bank or the Government will do; over what will happen to wages, given the strikes—the resulting distrust in society and, in turn, the social conflict.
Some quite respected academics and commentators have proposed to raise the rate of inflation from 2% to 4%—which, in my judgment, would be a disaster, because as inflation rises so volatility and instability rise with it—or to move from an inflation target to money income because that gives you greater flexibility. Indeed, Andy Haldane has proposed to drop the target completely, as far as I can see. Reducing inflation, with a fixed target of 2%, is actually the bedrock of policy and is very important. One should add that inflation is actually a tax. Therefore, reducing the rate of inflation reduces tax, and this could be considered a tax-cutting Budget. The Chancellor never referred to it as such, but inflation is an onerous tax. It taxes not only people with money holdings but savings and pensioners in the private sector.
Thirdly, I support the Budget but I was always impressed by a maxim that President Reagan used to use when dealing with the Soviets: trust but verify. I raise this issue not because I do not trust the OBR but simply because I am ignorant of exactly what is happening. As I read this Budget, and having listened to the speech and so on, it is intimately bound up with and depends critically on the OBR’s numbers. But we know that OBR forecasts have not worked out. It has made mistakes, some of them pretty bad. What kind of model did it use in arriving at the numbers it generated? Was it the new Keynesian model which others were using, and who predicted that inflation was simply transitory? What about the unforeseen events—pandemics, wars, financial instability—which the noble Lord, Lord O’Neill, referred to? We had our own problems with the LDC and the pension funds, some time ago. At least two significant cryptocurrency operations in the States have gone, as has Silicon Valley Bank. Credit Suisse has had its problems for a long time in terms of compliance and so on, but one gets the feeling that more credit is being expended in the international financial system than one is happy with.
Yet the OBR is very confident. Inflation last October was 11%; it is coming down, in the last quarter of this year, to 2.9%. There is no recession in the UK and unemployment will rise only sightly, to less than 150,000. We need to be able to shed more light on this, and I hope we can do that as the discussion goes on.
I started by saying that I really do have confidence in the Chancellor, and I am sure he is a person of prudence. Frankly, I congratulate him on a good Budget in difficult circumstances, and I hope it will be the first of many.
My Lords, I have had the privilege of experiencing 30 years of Budgets in both Houses here at Westminster. As the noble Lord, Lord Skidelsky, alluded to earlier, in the old days if there was the slightest leak from a Budget, the security services would be called in. Today, we seem to have a Budget by instalments: a virtual daily leak.
When you are speaker number 13 in a Budget debate, as I am, there is really no point in repeating many of the things that have already been said. I am not even going to say what an excellent maiden speech the noble Baroness, Lady Moyo, made. I am going to focus on a few different areas, and maybe express a few personal ideas and thoughts.
On health and the lifting of the pension cap, I think the jury is out. On the one hand, it might well encourage senior consultants to stay on longer; on the other hand, it could encourage others—maybe not in the health service—to retire early. It is also vital that we increase the number of medical school places, which I am sorry there was no mention of in the Budget. We need to do something to stop the drain of nurses from our health service. We now have approximately 200 health trusts. A lot of consolidation is taking place, and many trusts are very big businesses. Their performances vary greatly, and we need more training for senior management. I suggest that we establish a standalone dedicated health business school, which would I hope bring about a significant increase in the quality of management of these large organisations.
I have asked a number of Questions recently on prescription charges, which are now rising to almost £10 an item. The total revenue the Government get is only about £600 million. Some 60% of the population do not pay, and there is some evidence now that people are forgoing their medicines because of the cost. There have been no prosecutions whatsoever for prescription charge fraud over the last 12 months. Prescription charges are free in Scotland, Wales and Northern Ireland, and I suggest they should be abolished here in England to ease the pressures on so many family budgets.
On housing, we clearly need more owner-occupancy, but we also need many more properties for rent. The rental situation, particularly for young people trying to find accommodation at a reasonable price, is a nightmare. Landlords are selling up and the stock of rental accommodation is drying up. In my view, the Government should act. They could easily reverse the disallowance of interest on landlords’ borrowings. They could abolish the extra stamp duty and perhaps even reduce capital gains tax on disposal of rental properties. If they wanted to, they could transform the rental market.
Tourism and hospitality—I declare an interest as the president of the Association of Leading Visitor Attractions; I was chairman for 30 years—is a major employer at all skill levels. It is probably the number one private sector industry in more parliamentary constituencies than any other single industry. Virtually every business in tourism and hospitality is experiencing recruitment problems. Vacancies are something like 9% nationally and 15% in London. The industry has been heavily hit by Brexit and I believe we have to and should allow more immigration in this area.
Tax-free shopping should also be reintroduced, where visitors can reclaim VAT. High-spending tourists are now deserting the United Kingdom and heading to France, Italy and Germany. Some 70% of tax-free forms validated at Eurostar Gare du Nord were from non-UK visitors—those shopping in Paris and claiming the tax back before visiting the United Kingdom. A survey of 10,000 Chinese travellers planning to visit Europe showed that only 42% were heading to the United Kingdom, whereas in 2019 over 70% headed here.
On defence, after years of neglect and denial obviously I welcome the increase in defence expenditure to 2.25% and maybe up to 2.5%, but we have to go further. In 1984, let us remember that defence expenditure was something like 5.5% of GDP. The head of the Army, General Sir Patrick Sanders, said very recently that we would struggle to mobilise a division of 10,000 troops if forced to fight a European war. Defence Secretary Wallace said very recently that we have hardly enough pilots to fly the F35s. It is commonly agreed the Army has reduced to far too low a number at 73,000. It is also questionable if we can recruit the 30,000 reservists intended to complement our regular forces.
On welfare, I think it is time we start to query the balance between the benefits we give to the old—I declare an interest as someone in his 81st year—and the young. I get free prescriptions, a free travel pass and of course a pension. Most pensioners have paid off their mortgages, whereas the young are more likely to be struggling to find a deposit for a house and have the costs of children’s clothing and childcare, as we know. Normally they are on fairly modest early salaries. I believe it is time we look again at the balance between young and old in terms of benefits.
Finally, I come to financial education—or indeed, the lack of it—in this country. There is hardly any teaching of budgeting, savings or investment in our schools, and it should be of serious concern to the Government. We have a situation where more young people speculate on cryptocurrency than invest through the stock market or in more traditional forms of investment. The Government should consider setting up—I think this is the first time it has been mentioned—what I would term a financial education fund, which would recruit and fund specialist qualified speakers to go into our schools, for the first time, to make a serious attempt to financially educate our young people.
My Lords, it gives me great pleasure to begin by congratulating the noble Baroness, Lady Moyo, on her notable maiden speech. The combination of her force and clarity made a great impression upon me and I look forward to hearing her apply those gifts on other subjects in the future.
As far as the Budget is concerned, I welcome it. I welcome its general direction, underlying philosophy and a number of its detailed proposals. However, I am going to deal with only a few. It is an extremely far-reaching speech, and I will just concentrate on a few points that I would particularly like to draw to the House’s attention.
In his speech, the Chancellor referred to something which happened before he stood up, which was the masterminding by the Government of the sale of the British arm of the Silicon Valley Bank to HSBC. It was rather overshadowed in the media by the dispute between Gary Lineker and the BBC, but it is a major coup on the part of the Government. Had the British end of the Silicon Valley Bank gone down, the crisis that would have overtaken the tech sector in this country would, as the noble Lord, Lord O’Neill, said, have created a very different atmosphere for this debate today.
The Government not only prevented a crisis, something for which they deserve a lot of marks, but did so without costing the taxpayer a penny, which has not always been the case in banking crises. The operation and the speed with which it was carried out bear eloquent testimony to what a good place Britain is in which to do business, especially for start-ups and scale-ups in exciting new areas such as tech and life sciences. I hope very much that foreign and British entrepreneurs will take note of that, and that those wondering whether to enlist in London or New York will also bear this event in mind.
Turning to what might be called the Chancellor’s micro-approach to achieving the macro-objective of improving the British economy, in the corporate sector I am sure that he is right to focus on incentivising investment rather than the headline rate of tax. This will do most to encourage established companies, in established areas such as infrastructure, and new companies in new sectors. However, it is important to remember how long projects take. Usually, they take a good deal longer than three years. Therefore, it is vital that the Chancellor fulfils his intention to make full capital expensing a permanent feature, to quote him,
“as soon as we can responsibly do so.”—[
In the personal sector, I am equally sure that the Chancellor’s pension and childcare measures are at different ends of the wealth and income spectrum, and are the right way to encourage people to stay in work and to return to work. They will have a more direct and targeted impact on the balance sheets of individuals and families than simply a cut in income tax.
I am a supporter of the Budget. I have just one caveat or warning, which refers to defence—a point made by my noble friend Lord Howell. I very much support the Government’s rhetoric and actions regarding Ukraine and China. However, I worry that our rhetoric is in danger of running ahead of our capacity to deliver. We talk a very good talk, but how many troops, ships and aircraft do we actually have at our disposal? I am delighted that we have helped the Ukrainians as much as we have, but how much do we have left? If we are to continue playing the role that we wish to play, defence is likely to cost more and perhaps a very great deal more, and we all know how that will have to be paid for.
My Lords, I have a huge apology to make to the noble Baroness, Lady Moyo, because I was not here for her maiden speech; I am very sorry about that, but I will of course read it in Hansard and congratulate her next week.
Before I start on the Budget—because that was probably the nicest thing I am going to say this afternoon—I would like to give the Leader of the House a couple of tips. First, a speaking limit in this debate might have been a good idea. Secondly, if the heating is going to be switched off before we meet, could blankets or hot water bottles be supplied? After my speech, I am going to go and get my coat, just like the noble Lord, Lord Brooke.
Noble Lords can imagine what I think about the Budget. Quite honestly, this Government do not have a clue about any sort of greening of the economy. It is ludicrous for them to talk about all the green things that they are doing when they are absolutely not green.
The IMF has forecast that the UK will be the worst-performing large advanced economy this year, but Britain’s decline, relative to those of other rich nations, is rooted in problems both old and new. Clearly, this Government have done their absolute best to trash our economy. We have had 13 years of economic mismanagement. We used to say, “Well, the thing about the Tories is that, however awful they are, at least they can manage money and know how to run an economy”. We cannot say that any more; in fact, the opposite is true. They have run our economy into the ground. I understand that Covid did not help but, in a crisis, you look to your best talents—clearly, the Tory Government did not have any. That is why we are in this situation at the moment.
Billions of pounds have been lost in bad decisions and lost investment. Millions more people are in poverty. Children and parents are going hungry. People are living in cold homes, with pensioners dying from hypothermia—and this Government have the cheek to put in their Budget the 1%, or whatever it is, for pension pots. Who is that for? It is for millionaires; it is not for people who are starving and cannot manage to pay their heating bills. It really is time that this Government understood the exact impact of what they are doing.
Today’s Budget announcement falls far short of the strong climate action needed. I have to repeat to the Government that, as Greens often say, green growth is an oxymoron. The minute you grow anything, you have to degrow in a different area. Green growth is possible but not if you do not cut somewhere else. Every time we grow the economy, we take a bite out of the planet’s resources—and it is a bite that will not grow back. Whatever this Government do, they seem to be moving in a way that is even more damaging to climate change.
Speaking to the Dutch Parliament recently, Professor Jason Hickel—his book, Less is More, should be compulsory reading for this Government—debunked the concept of green growth, saying:
“Decarbonization with growth is like trying to run down an escalator that is accelerating upwards”— you are likely to fall on your face. People have to understand that using a tonne of fossil carbon and then trying to replace it with a tonne of new trees does not work. It is not a fair exchange; it is nowhere near compensation for the fossil fuel used. Carbon offsets will not save us from the worst of climate change; they are just something that make people feel good. They are absolutely ineffective and we have got to stop.
The simplest way to solve the problem of climate change is stopping the extraction and burning of fossil fuels. The Government have not even understood that; they are still mad about digging up coal and using oil. It is incredible that after decades of Greens like me telling the Government how to mitigate climate change, they still do not get it—plus, of course, this Chancellor continued the regressive freeze on fuel duty. That shows no grasp of the situation we are in; neither does his tweaking of the pension pot while not paying nurses and doctors. It is unbelievable stupidity. I know that there is now a deal, thank goodness, but why was there not one weeks ago? Why did we have to go through this pain? Why did patients have to go through it? I simply do not understand.
By the way, nuclear is not green. I cannot tell you how many times I have said that in this Chamber. Nuclear power is not green. It is filthy, it is very expensive and it is going to cause us problems in future. It is not green and it is not sustainable.
Our Green Party MP, Caroline Lucas, said in the other place that the Chancellor could have announced a
“wealth tax on the 1% richest people”, which
“could raise up to £70 billion”—[
If you are worried about jobs, why not upscale green initiatives—green growth, if you like? For example, clean, green, abundant and affordable renewables are so much quicker, easier and cheaper than nuclear; with onshore and offshore wind, tidal and solar, we could do it and do it quickly. We must remember that growth is not necessarily prosperity; people seem to conflate the two but it is not true.
Green Alliance was very quick off the mark to give us a rapid review of the Spring Budget. It shows that the Chancellor has taken absolutely no steps on the path to a green economy. While the fiscal situation might be improving, the UK’s economy is still forecast to shrink this year, with falling living standards for households being a primary reason. It is not falling living standards for people such as us—we can manage; it is falling living standards for people who cannot even manage at the moment.
There is one tiny thing the Chancellor did right: alcohol duty will rise in line with RPI from
A Green Party economist, Molly Scott Cato, former MEP, said that a green Chancellor would ensure major investment in a green economy. That means meaningful investment in affordable renewables and a nationwide insulation programme. We have had so many complaints about Insulate Britain, the campaign group that caused so much fuss. In fact, we should have said, “You’re absolutely right: we need to insulate Britain. It is cheap, it is fast and it helps people”. This Government got hung up on the group’s campaigns, and now we are seeing the Public Order Bill, and so on, which are trying to stop people protesting again. Just those two measures—insulation and renewables—would help tackle greenhouse gas emissions and mean that people could afford to be warm in their homes. Is that not a kinder thing to do than to cut living standards?
Other measures would include fair pay for public sector workers and 35 hours a week of free childcare for all. I support the Government’s idea of capping bus fares, although it is not in every place. The Greens would put a £1 single fare on all bus routes in England.
It really is time this Government were gone, before they cause yet more damage to us, our society and the reputation of the UK, and before they damage the planet any more than they have already.
My Lords, I add to the much deserved congratulations to my noble friend Lady Moyo on her maiden speech today.
I turn—unsurprisingly to the Minister, I am sure—to the closing part of the first part of her speech: namely, the decision to arrest the closure of public swimming pools in this country. First and foremost, my congratulations go to the Government on responding to the powerful campaign, of which I was a part, for additional Budget funding for swimming pools. Public leisure facilities with swimming pools are a critical component of the strategy to promote the nation’s health and the safety of children, and the £63 million package is indeed a welcome lifeline. I agree that Sport England is best placed to manage the one-year funding package, and local authorities will be able to avoid the wholesale closure of pools predicted in the absence of such support. Too many of our pools face underinvestment and further pressures, including escalating operational and maintenance costs, in the face of unprecedentedly high energy bills.
I suggest to the Minister that, of that £63 million package, the £40 million of the fund which has been allocated to decarbonisation and long-term energy efficiency is a masterstroke and should not be limited to a one-off, one-year policy. Pool operators that use imaginative ways of improving energy efficiency—for example, as the Minister mentioned earlier, capturing the heat generated in data centres—should not be rushed to compete in a one-off, one-year competition. I hope this initiative will be built on in the future as we move towards net zero. I also hope that the initiative taken by the Chancellor, a former Secretary of State at DCMS, will now be adopted in Scotland, Wales and Northern Ireland to support the many council pools that are under threat of closure there.
The backcloth to this announcement is not optimistic. If we look back at the decade which started with the London Olympic and Paralympic Games, in which I declare an interest, since 2010 we have lost nearly 25% of our public pools—we have lost 382 of them. Pools play a vital role in helping communities engage with sport and physical activity. The Covid pandemic and soaring energy costs accelerated the decline in those aquatic facilities at the tail-end of that decade which should have seen the sports legacy from the Olympic Games increase, not decrease, the number of facilities in the UK. More than 85 pools have been closed and not replaced since 2019—a sad decade indeed. That was made worse by the fact that the provision of sport, recreation and leisure activities by local authorities is a discretionary line item, not a mandatory line item as it is, for example, in Scotland. If we really want to address these issues, not just in swimming pools but in leisure and an active lifestyle, we need to recognise and concentrate on putting the right amount of money behind local authorities in particular and making that a mandatory, not a discretionary, line item.
This measure goes further. It recognises that swimming pools play an important role in our communities for all ages and all people. Swimming is more than a recreation; it is a key life skill. Physical inactivity is associated with one in six deaths in the UK and is estimated by the Government to cost the UK £7.4 billion annually. Deloitte has published research which shows that improving the level of physical activity in the workforce would benefit the UK economy by up to £17 billion a year.
As pointed out in the report by your Lordships’ National Plan for Sport and Recreation Committee, which was debated on
“How is it possible that the UK is world-leading in elite and professional sports, that 3 billion people across the world watch our Premier League matches in over 187 different countries and that … at Olympics after Olympics … we have failed at grass-roots level to get more people from more diverse backgrounds to be more active, despite all the investment that successive Governments have made?”—[Official Report, 2/2/22; col. 1208.]
With schoolchildren facing growing obesity, with PE marginalised in the school curriculum and no longer inspected by Ofsted, with many primary school teachers getting fewer than three hours’ training in a three-year degree course, it is not surprising that physical literacy in most of our primary schools means nothing. With the closing of swimming pools and leisure facilities, tragically we have become one of the most inactive nations in the world.
When looking for solutions, the Chancellor could do worse than turn to New Zealand, whose strength at elite level is celebrated across the globe for a nation of just 5 million people and whose success lies in a strong emphasis on participation and opportunity for all. There is a pathway for all local communities and all people wherever they live in New Zealand to become engaged in sport, health and well-being activities. From that platform, podium success for the elite is delivered because every child is assessed in order to be able to deliver their potential and every community is offered help for health, well-being and physical activity.
However, the chancellor in New Zealand goes further. The country has a well-being budget that brings health, sport and well-being together into one policy framework, delivered to Parliament by its Finance Minister, who happens to be the Deputy Prime Minister. The only way in which that could be delivered here would be to move responsibility for sport and recreation into the Department of Health, as proposed by your Lordships’ committee. Being embedded in the Department of Health, by moving the 25 civil servants responsible for the sector from the DCMS to the centre of government, would enable the Department of Health and Social Care to live up to its name—not a department of treatment but a department taking an important lead in the area of health promotion, with all the benefits that are so needed in this country today.
The evidence is clear. Systemic reforms to taxation, regulation and policy can allow the fitness, sport and leisure sector to play its fullest role in getting the UK workforce moving more and supporting our national productivity. The time for action is now. A National Plan for Sport, Health and Well-being provides an excellent starting point and, like Sir Patrick Vallance’s first published report into the regulation of emerging digital technologies referred to yesterday, the sport, health and well-being report of your Lordships’ House should have all its recommendations accepted in full.
We desperately need changes in departmental responsibility, budgetary support and enlightened policy thinking if we are to address the steady closures of sport and leisure facilities, increasing levels of inactivity and obesity and the consistent, corrosive decline in participation and active lifestyles that we have witnessed since the wonderful hosting of the Olympic and Paralympic Games here in London, now over a decade ago. Helping to save our swimming pools is very welcome, but facing the wider challenges that I have outlined is long overdue.
My Lords, I welcome the noble Baroness, Lady Moyo. I heard her speech and was very impressed, not least by her call for 3% growth in GDP over the coming years—I think she said by 2026. I have a way in which we can achieve that, but you could not achieve it as an economist; you would have to achieve it another way, which I am here to suggest.
About 10 years ago, I wrote a book called The Necessity of Poverty. It was a very simple book that looked at how important poverty has been in the life of the economy. When Chancellors talk about money and the economics of the country, I think to myself: why are they looking at the world in an arsy-versy way? “Arsy-versy” is a polite printing term for when you print something upside down. The Government are arsy-versy because they do not look at the glaring elephant in the room—in fact, I would say it is more than just an elephant; it is an elephant along with its mum, dad and children—and that is poverty.
Here is the thing about poverty. The Government have in the region of £1 trillion a year to spend; with borrowing, I think it is about £1.2 trillion. If you analyse that and look at how much money is spent on pushing the ball of poverty around, you find that the figure is 40%. So you have a Government, a Prime Minister and a Chancellor of the Exchequer all obsessed with avoiding the fact that the largest amount of money spent by government is on the collateral damage done by poverty. That is extraordinary to me.
Why is there not an economics of poverty? Why are we looking at poverty as though it is something that we just have to put up with? Why are we making as many concessions as possible to keep the poor as comfortable as possible without actually getting them out of poverty? I think that what we need is smaller government. We really need small government; there are too many people in this world who are obsessed with big government. I think we need to cut government. And how are we going to cut government? We need to cut the costs of the NHS by half. We have to do it, and we have to do it as soon as possible. So how are we going to do that—how are we going to get the 3%? I will tell you how: we are going to be bright and clever, and look at the fact that 50% of the cost of the NHS is spent on trying to keep the poor as well as possible. So, actually, if you were to grow up, and if we were to move away from the very primitive look at the economy as though the biggest part of it were not poverty, what we would do is make heavy investments in getting people out of poverty. And we are not doing it.
We spend in the region of £50 billion a year on our education system, but we know that our education system is loaded down with the problems caused by poverty. We know that the four or five children in a class who are having all sorts of problems at home, who are not getting the correct food, and whose parents are under all sorts of duress, will cost maybe 70% or 80% of the time spent by the teachers, so the educational quality of other people is hampered. I know this because I was one of them. I was actually a part of the avant-garde; I was banned from school at the age of 14. I cost an enormous amount of money. Actually, when I was put away as a wrongdoing poverty boy at the age of 14 and 15 and 16, I was costing about three times what it cost to put somebody through Eton. The poshest among us had nothing on me; in fact, you could not get into my school or my reformatory unless you did something wrong.
So we have this really weird world. I do not understand where the Government are coming from, because if you were really to do something, you would do something sensible about reducing that and slashing the NHS. Let us slash the cost to the NHS. Let us remove much of the cost of the NHS, by keeping people healthy and by, when you bring them into this world, supporting them and giving them the priority—the Rolls-Royce service—at that stage. Because if you do not, you will be paying Rolls-Royce prices until they die.
Last weekend, I was down in Canvey Island. My eldest brother is 80, he is unwell, and he costs thousands of pounds a year in his health bills. Because he is unwell, he has always lived in poverty and his children have always lived in poverty, because nobody made the investment in him at the beginning. He is in crisis, and all the people around him are in crisis. I was fortunate, as I said, because every time I got nicked, they taught me something—as I have told this House many times.
I do not want to go on too much, but I want to say another thing. We have the crisis of poverty, and we will until the Government and economists grow up and realise that they are getting rid of the largest amount of their money on poverty—40%. Unless we have that change, whether it is this Government or the next Government on the other side, and unless we have a real growing up, we are not going anywhere. All we will be doing is kicking the can of poverty down the road. We will not be making inroads or accepting the fact that, whatever has been done, it has not actually worked.
I now want to talk about the fact that what really worries me about this Government—and maybe the next Government and the last Government—is the problem that we are in now, which will go on for the next five years in some form or another. That is the problem of the terrible emergency that we are in. I can tell your Lordships that 140,000 children and their parents are in temporary housing, in transitional homes such as hostels. Do you know what that is going to do to them? I bet you a pound to a penny that at least a third of them will have all sorts of problems to do with mental well-being. I can tell your Lordships that, when they enter the workforce, those children will have been so atomised by the experience of being homeless that it will affect their ability to operate in the marketplace, to get the kind of jobs that are necessary—the jobs that will produce the 3%.
At the moment we are not addressing ourselves to the emergency but doing a bit here and a bit there and not even waking up in the morning and saying, “What are we going to do about stopping circa 300,000 families falling into poverty?” They are falling because they have been evicted as they could not pay their rent—they lost their jobs and all those sorts of things. I am absolutely frightened of the fact that, because of that, I am going to wake up in a year’s time and 50,000 people will be wanting to sell the Big Issue. At the moment our sales have gone up. Why? Because there are more people who need to sell the Big Issue. They are not homeless but, if we do not work with them, they will become homeless. Our figures went up last year by 10%. We do not know where it is going to go this year. Will it be 15% or 20%? We cannot handle that number of people. We work with about 7,000 to 9,000 people a year.
I am saying that we are in an emergency. I suggest to the Government that they bring that emergency forward, because it will echo down the next 10, 20 or 30 years and we will have the decimation and destruction of people who will be caught in poverty and will not be able to respond to the opportunities that come. I suggest that we need a COBRA. We need what we tried to do during Covid; you wake up in the morning and you get all the Ministers together and all the departments working together and—God bless them all—they get somewhere in the end. We need an emergency COBRA to address the fact that we do not want to condemn the next generation and the bit of the generation that is moving on and push them into poverty. That is the costliest thing to do—the Government will never get their 3% then, because their costs will be up and it will be 50%, but the money will be taken by the problems of poverty.
I am sorry—I am going on a bit. Normally I try to be economical. There are a couple of really wise things. Can we ask the Government to stop no-fault evictions? That would be a useful thing as it would stop hundreds of people falling into homelessness because they have been evicted by their landlord. Can we also look at why we cannot give universal credit so that it matches the requirements of the crisis that people are in at the moment, which is the crisis of inflation? Can it not match that? Otherwise, people will not pay their rent because they will use the money elsewhere, and they will fall further into poverty and be evicted.
The other thing I would like to do is to liberate our local authorities to be able to pay the rent and for central government to give local authorities enough money so that it is the rent that is expected and there is no gap, because if there is a gap between the money that the Government give and the rent, people will be thrown out on the street. Anyway, those are my arguments. Thank you very much and God bless you all.
My Lords, I certainly agree with the noble Lord in his disappointment about universal credit. That is one of the achievements of the last period of Conservative government. The noble Lord, Lord Eatwell, mentioned in his scintillating speech the economic progress—or lack of progress, in his view—of the Conservative Governments of the last 13 years, but universal credit is a significant change and improvement. Without it, we would not have got through the Covid period with the success that we did. So I agree with that point of the noble Lord, Lord Bird; he is always interesting to listen to.
I think we will find that it is always interesting to listen to the noble Baroness, Lady Moyo. I congratulate her on her maiden speech, which was excellent. I became a fan of hers when I read How the West Was Lost, which is a scintillating attack on the complacency of the western world and our strength. Much of it has indeed come to pass, although not quite in the way she envisaged, because I think the East has not been quite so successful, but the West is beginning to realise that we have to fight back. I am also glad that she has joined the House of Lords because she is another economist. I am sorry to disagree with the noble Lord, Lord Bird, on this, but I like economists. I am an economist myself, and I think economists should run the world; I really do—economists rather than lawyers. The noble and learned Lord, Lord Brown, is shaking his head—the distinguished lawyer. The interesting thing about the next general election is that it will be a lawyer versus an economist: it will be interesting to see how that pans out. Anyway, I am glad that the noble Baroness, Lady Moyo, is here: I welcome her and what she has to say.
On the Budget itself, I think the FT summed it up pretty well when it said that it is a step in the right direction: it is a step, that is all. With the constraints that were on it, I think that is the right remark. My noble friend Lord Griffiths said that the Chancellor displayed honesty and realism in what he said. I think he also displayed courage, because there was a big move before the Budget to persuade him to reduce corporation tax to 19% from the 25% it will now be. He resisted that, and I think he was right to do so, because the way he is doing it, via incentives for investment, is much more efficient than having a general corporation tax at the level it was presumed to be. As an economist, after I left university and before I came into politics, I eventually set up an economic consultancy and I know from personal experience that corporation tax was not a factor in making decisions: decisions were made on much more elementary facts, such as the quality of your product, the competition and all the rest of it, not on the level of corporation tax. I think he got that right.
The only mistake he made, I think, was to limit it for three years, because I think it should be for ever, more or less—unlimited. I think the reason for the three years is the usual Treasury mistake of rounding up the figures to make everything fit, and therefore three years was all they thought they could afford at the moment. That is the sort of mistake that Treasury officials very often make and it is a pity they feel they have to do that.
The other aspect that corporation tax brings into play is the whole level of taxation in this country, which my noble friend Lord Bridges referred to in his excellent counter to the remarks of the noble Lord, Lord Eatwell. Corporation tax brings in about £18 billion, a huge sum of money, and we have to look at taxation and have a debate about how much tax we want to pay.
Recently, we have tried to get European levels of social welfare on American levels of tax. That is not going to work for very long and people are beginning to see that. Paul Johnson, the director of the Institute for Fiscal Studies, has written a very interesting book, Follow the Money. It is another excellent book and in it, he points out that, given what we want to do in society—what we will have to spend on the NHS in an ageing society, for example, what we are committed to do in defence, what we want to do on social care, poverty, universal credit and all those things—we are going to need a huge amount of public spending. It is no use not facing that fact, so all the calls for less taxation have to deal with that reality. We cannot have responsible levels of social welfare and low taxation, which brings me to the other point about taxation.
We have to have tax efficiency. Much of our taxation system is now inefficient. Take council tax: it is done on valuations from 1991, so a person in a modest house in Darlington can now pay the same level of taxation as someone living in Kensington. That is completely unfair and out of date, and it needs reforming. We need to look at the level of taxation and the efficiency, or otherwise, with which we level it.
Apart from tax, what businesses want more than anything else is stability and continuity, and a sense of strategy coming from government. Recently, there has been far too much politics and far too little government. We have to look at how we can change that balance, so that people feel that a course of action is being followed through in detail—the way that there was during the Thatcher period, when people understood the way that the economy was being handled and, by and large, supported it.
For example, on levelling up we have a plethora of measures to help level up the economy, most of which I welcome, as in some aspects of devolution. But look across the channel at what Germany has done: Germany was faced with similar problems to the ones we were faced with when it looked at the former areas of East Germany, which had been under Nazi rule and then part of the German Democratic Republic. I am thinking of places such as Dresden, Weimar and Rostock. What did Germany do? It put on a solidarity tax, which raised €35 billion a year.
Germany spent that solidarity tax for 30 years—it has just been abolished—and if you now go to those towns and cities in the north of Germany, you will see splendid places attracting tourism, just as we would like to see the places in the north of England and the Midlands rebuilt, while being proud of their architecture and history. That is the way they tackled it: with a consistent policy for 30 years, whereas we have changed policies endlessly. We have been dipping around from one policy to another and got nowhere near as far as Germany has in levelling up the different parts of our country.
Take manpower, which is probably the wrong word to use. Let us say staff questions, which the Chancellor addressed in his Budget with help to improve pensions, so that doctors would stay on longer, and to attract more people into the NHS. Yet at the same time, just before the Budget, the Treasury was objecting to increasing the number of medical schools. It was doing that on the grounds that they were too expensive. It was looking too carefully at the pounds, shillings and pence of it, when the need has been clear for many years. The Chancellor himself produced a report on manpower in the NHS when he was chairman of the Health and Social Care Committee in the House of Commons, so it has been clear for years that we needed a far greater understanding of what staff were required. We simply have not done it. Even now, we do not expect to have a proper understanding of what the NHS’s manpower needs are until next month yet, at the same time, the Treasury was penny-pinching over how many medical schools there should be.
HS2 is another example of short-term thinking. In my view, it probably would have been better for the coalition Government to cancel HS2 when it came in than to allow what is now happening. Inevitably, people are looking at the escalating costs and the benefits which have now been compromised by people working at home, and, as a result, lots of it has been called into question and there is uncertainty. The biggest piece of infrastructure-building in Europe is surrounded by uncertainty, and that is not the right way to run a country.
My view is that we need to come back to a more strategic view, and the Government need to come back to having a clear strategy with clear paths along the way. This is the right first step, but the Government really have to build on it.
My Lords, it seems a long time since the Minister started the debate. I congratulate her, because she took an hour-long speech from the Chancellor, went to the major points and delivered it within about 19 minutes. That was very useful indeed for my noble friend Lord Eatwell, who I congratulate on delivering his usual barnstorming and devastating attacks on the Government’s performance. He picked out the major points and went for it. As I understood it, I thought that the noble Lord, Lord Bridges was, in many respects, giving my noble friend support on a number of the criticisms he was levelling.
I too welcome to the House the noble Baroness, Lady Moyo. I am not an economist—I am a simple old trade unionist—but I came here to learn, and I learned from the economists. I look forward to listening to many similar great speeches from her in the future, and I wish her a very warm welcome indeed.
Coming so far down the speakers’ list, I note that so much has been said already. My noble friend Lord Davies made a wonderful and devasting speech on pensions.
The one thing the Chancellor has done is steady the economy, and for that we must all be grateful, regardless of whichever party we come from. A year or 15 months ago, the country was in a hell of mess, and that was nothing to do with energy. The noble Lord on the Front Bench talked about energy, but it was not energy; it was precipitated by the leadership of the Conservative Party at that time. But we have now been steadied, and for that we should be pleased.
As to whether or not we are going to get ourselves moving to the levels of productivity that we require, I am uncertain. The noble Baroness, Lady Moyo, talked about 3% GDP. We last had that when Lord Darling was the Chancellor of the Exchequer, when Labour was last in power. Let us hope that, if Labour returns to power within the next two years at the outside—I say this to the noble Lord, Lord Bird, in particular—we will really start to see some genuine attention being given to the fundamental problems of the type which he described, and that we can get the economy moving.
I am interested in the reasons why we are short in the workforce. There is a whole range of different analyses being made as to the causes for that. When responding to the Chancellor yesterday in the Commons, my leader, Keir Starmer, said that we were the “sick man of Europe”. In that context, I think he was talking primarily about the economy, because in relative terms we are doing badly on recovery compared with most European countries. We are, and have been for quite some time, the real sick nation of Europe in health terms. I was expecting and hoping that the Chancellor, given his previous long experience of working on health, might have spent a little more time addressing some of the health issues which the country faces by looking for economic solutions, in part, to some of those problems.
Without doubt, one of our fundamental problems is that we drink too much, so some steps have been taken there which I welcome. The draught duty is an innovative approach, and it gives a marker for the future that we can set different levels of taxation within alcohol and we can focus. It is good to see that we now have the freedom to increase taxation within off-sales and supermarkets in a way that we have not done previously; it is at supermarkets where you get the cheap drink, and many people suffer ill health as a consequence. That was a movement in the right direction.
The other area in which we are very poor is the quality of the food that many of our people, including me, consume. There was a case for the Chancellor moving to address that issue and seeing whether we can effect some changes. Some progress was made under Mrs May. We introduced a tax on fizzy drinks, which proved to be effective, yet that has not been applied over a wider front, notwithstanding all the calls for greater taxation on sugar. Why are we not taking the opportunity to look at an extension of the sugar tax, when sugar is at the heart of many of the problems we have with our health in this country? If we looked at the kind of food we produce and at alternatives to sugar, we could find a new industry where British food manufacturers could give a lead in producing new types of food that would not only benefit our country internally but could be exported on a wider basis. If we look at the problems of the world, particularly North America, we see that food and obesity are great issues. Projections in America around the scale of type 2 diabetes are quite worrying. They indicate that it could go up to 90% with that disease. We have to find ways overall.
Let us take our weaknesses and see whether we can convert them into our strengths by addressing the issues. I support what was said by the noble Lord, Lord Moynihan, that health is about food, drink and exercise, and that we perform badly in comparison with what happens elsewhere in Europe. Curriculums in schools in Europe and elsewhere give much more time to sport and exercise than we do in this country. Why can we not change it? There are opportunities for change.
I come back to the issue of the workforce. I have already said that our ill health is one of the reasons why we have seen a decline there. That needs to be addressed.
We need also to look at what people want. There are those who have gone into retirement and not returned to the workforce. They want to stay at home. One of the lessons of Covid was that people do not want to leave their homes in the way they have done in the past. They do not want to go back to the offices, they do not want to go back to the factories—in fact, the number of our factories is now diminishing—and there is a push to stay at home. We should recognise and acknowledge that. Rather than saying, “Come back into the cities and travel”, we must acknowledge that people are not going to do that. Instead, we have to start planning to move more work from offices into the home and for people to work from home. Civil servants are doing it to a degree, and there has been a lot of criticism. It is misplaced. What I think we are seeing there is the lead for what should be happening in many other parts of employment in the clerical and executive sphere. The work should be going home, with people then having opportunities to give attention to their children and to care for those in their family who need it, rather than having to import people in. Rather than chasing and pushing people back to work, work should be moving.
Some of us had the opportunity yesterday to see the new technology that is coming, such as the headsets. It is truly amazing what is just around the corner. Just think back to the early 1990s, when we were holding “bricks” to our ears, and compare that to what we can now do with our mobiles. With these headsets we can create a virtual reality and communicate with people in a quite different way. This is the kind of technology people will be using in their homes in the future. The technology will advance and move beyond just sight: people will be able to smell, taste and touch; and they will work from home.
I know this is long-term stuff, but it will create an entirely different kind of workforce. I hope my party will look ahead to the nature of work in five to 10 years’ time and start preparing for it. Within that time we will have an entirely different idea of work and of the opportunities available to people, particularly in areas with high unemployment. There need not be unemployment, because we can take the work there. We have pressed the Civil Service to decentralise and to move to different parts of the country. Why, as part of equalisation and levelling up, are we not pressing the major companies in London and the City similarly to decentralise and take their work to areas where there are employment opportunities?
There are many opportunities, but they have not been seized in this Budget, I am afraid. We have some stability, but we need far greater ambition. I believe that my party has that ambition to take us forward and to help people.
My Lords, I welcome the chance to speak in your Lordships’ House in the debate on the Spring Budget. I particularly welcome my noble friend Lady Moyo and congratulate her on an excellent maiden speech. I am very grateful to all your Lordships who have spoken in this debate. This is a subject dear to my heart, one on which I have worked for decades at my think tank, Politeia, with economists from Britain, Europe and indeed the United States.
I welcome the Chancellor’s determination to focus on tackling inflation, as I do the Budget and OBR forecasts that inflation in the UK is due to fall from 10.7% in the last quarter of last year to 2.9% by the end of 2023. I also welcome his determination to reduce debt as a proportion of GDP, and the forecast—with all the caveats your Lordships have given about forecasts—that the underlying debt to GDP ratio is due to start falling in 2027. However, I am a little concerned that until then, debt is due to rise from 92% of GDP to almost 95%. It is also heartening to hear that borrowing is due to fall each year, from 5.1% of GDP in 2023-24 to 1.7% in this five-year period.
However, I would like to encourage my noble friend the Minister and the Government to focus on a third problem, to which my noble friend Lord Bridges and other noble Lords have referred: the overall levels of UK public spending as a proportion of GDP. Among the G7 countries, the UK’s public spending, at 48% of GDP, may be smaller than that of other European economies, which ranges from 51% for Germany to 59% for France, but it is still more than the US economy, at 44.9%, and Japan, at 44.1%. We should not take comfort from such figures. The evidence is that economies that significantly reduce levels of public spending and debt and return to sound public finances can boost jobs and enhance growth, countering any effects of cuts. They do not necessarily result in lower outcomes for healthcare or education.
Over the last two decades, the evidence from a number of economists has been compelling. Schuknecht and Tanzi, very early in this millennium, identified expenditure-based consolidation, as did Schuknecht in a later study in 2020. It can have positive effects on the real economy and is more likely to lead to higher growth and lower debt. Antonio Alfonso, in a pre-pandemic analysis—albeit in a period when general levels of public spending across the G7 were much lower than now—showed that countries which kept public spending under 40% of GDP had among the best government performance.
Top of Alfonso’s table came countries with public spending at what now seems an almost magical figure of 32% to 33% of GDP: Switzerland and Austria, which performed well above average. Second, with slightly above average performance, came the next rank of countries: Japan, Canada and the US, whose public spending then was 37% to 40% of GDP. Germany belonged in that group in terms of performance, but its spending was slightly higher at 44%. Third came the UK, with below average performance, yet it spent about as much as Germany did at 43% to 44%. We can, however, take comfort from the fact that we still were ahead of the French, both in performance and public spending; their pre-pandemic figure was 55%.
In the same G7 economies, taking account of measures other than overall government performance, we can take heart from the evidence in areas such as economic stability, administrative performance, income distribution and social expenditure, public infrastructure—where Germany is usually top—health performance and education performance. While some countries did better and some less well, the overall message was equally encouraging: higher public spending does not necessarily lead to better performance in these areas.
It is therefore sensible that public spending plans after 2025 remain by and large unchanged, other than being topped up to reflect the defence spending and childcare changes on which your Lordships have commented with some knowledge. We will also see departmental budgets rise by 1% a year in real terms during this period. Sticking to such levels of public expenditure while raising the NHS and defence budgets will mean squeezes in other areas.
There is much to play for in adopting a more active approach to cutting overall levels of public spending. Not only has Britain’s economy prospered when government spending levels as a proportion of GDP have been kept reasonably controlled at approximately 40%; now, post pandemic, post Brexit, it is even more urgent that we encourage higher growth using the surest tool in our armoury: reducing public spending.
The UK is a market economy which benefits from freedom and competition under the rule of law. It does not prosper, as recent decades have shown, with high spending, high taxation and unnecessary regulation: it misses out on that elusive growth which successive Chancellors have chased and which has featured prominently in your Lordships’ debate today.
This economy prospers as a challenger economy into which new entrants and entrepreneurs can come and take pride, being rewarded, not penalised, for success. The high-tax, high-spending economy must be reversed. The Budget, which is to be welcomed as a step in the right direction, should be seen as work in progress. I hope that my noble friend the Minister and the Government will take a lead from the evidence that we must cut overall public spending to the 40% of GDP level, or less, if this country and its people are to use their talents and flourish, and exploit the freedoms they now have.
My Lords, this country, along with many others, has gone through hell for the past three years. There was the pandemic, followed by the sad war in Ukraine, which continues. Business and citizens have gone through hell. During the pandemic, when we thought we would bounce back and have a V-shaped recovery, it has been one crisis after another instead: inflation, supply-chain challenges, energy and cost of living crises, political crises including three Prime Ministers in one year. In September, the markets were spooked by the well-intentioned growth plans of Liz Truss and Kwasi Kwarteng, through their irrational exuberance and mini-Budget, with a reduction of 45% to 40% for the top rate of tax—absolutely the right thing to do, but the wrong time to do it—without the OBR to back up and validate their plan.
Since then, the Government have been trying to show calm and stability, quite understandably. Now, at last, six months after September, we have a proper Budget. We have a steady Prime Minister and Chancellor, both individuals from a business background and the Chancellor is a fellow entrepreneur, to boot. Whether an election takes place next year—and that is what the Government’s focus is on—or not, the path to growth and prosperity is crucial.
Earlier this week I was with the Nobel laureate Paul Krugman, the economist from the United States, at Cambridge. He said that we could get inflation down to maybe not the 2% target, but 3%. He said perhaps 3% could be the future target rather than 2%. The OBR has now said it will go down to 2.9%. He also said that unemployment might settle at around 4%; we had unemployment below 4% before the pandemic, and it has been very resilient. Where will interest rates settle down? They will be probably somewhere between 4% and 5%, which is what they used to be before the financial crisis, and thereafter we had over a decade of these near-zero rates which are completely unreal and abnormal.
The noble Baroness, Lady Lawlor, talked about government expenditure; it is now well over 44% of GDP. It should be well under 40%, and she gave evidence of how countries with lower government expenditure in proportion to GDP perform better. Our debt-to-GDP is close to 100%; it is going to be close to 100% five years from now. Had the OBR calculated Liz Truss and Kwasi Kwarteng’s growth plan, what is the bet that, ironically, the debt-to-GDP would not have been that much higher than the current Chancellor’s plans? If you look back to the end of World War II, you will see that our debt to GDP was 250%. In the last three years, we have gone through the biggest global crisis since the Second World War, and we have the lowest debt-to-GDP ratio of any G7 country. It is overprudent to say, “We don’t have the money; we have to be fiscally conservative and have a balanced budget”. What about being bold and going for growth, which will create the employment that will pay down the debt?
India has its Budget one month before ours. In February 2021, India had a Budget in the middle of the pandemic and said that it would not increase taxes because it did not want to stifle the recovery and hamper growth. To date, India has not put up taxes, even in its latest Budget. When I was president of the CBI, I said to Rishi Sunak, who was then Chancellor, “Come on, Rishi, don’t put up taxes. This is what India has said.” What has he done? He has just put up taxes after taxes for the past two years, so we now have the highest tax burden in 70 years. Instead of reducing tax, he announced that he is going to put up corporation tax from 19% to 25%. He countered it with the super-deduction of 130% to incentivise investment, which was fantastic news. The analysis that the CBI carried out said that that super-deduction genuinely has incentivised investment, but we have ended up with the highest tax burden since World War II at 38% of GDP.
If noble Lords remember, Rishi Sunak said that he was going to reduce income tax by 2024, but we spent £400 billion doing the pandemic that we have to recover, and we cannot reduce taxes now because we are in an inflationary environment. We were in a deflationary environment. I argue that inflation has not been demand-led; it was created by the Ukraine war and by energy prices, which are now well off their peak. Energy prices have come down.
Putting up taxes is stifling growth and the recovery. As history has shown, when George Osborne reduced corporation tax from 28% to 20% and then to 19%—he actually wanted to go down to 15%—we actually increased our tax take. Will the Minister acknowledge that? By trying to get £18 billion more a year and putting up corporation tax by almost one-third in one swoop, from 19% to 25%, you are killing the goose that lays the golden egg.
We were worried that we would have a double whammy in this Budget: an increase in corporation tax and a taking away of the super-deduction. Again, I spoke to Rishi when he was Chancellor and said, “Please bring in a replacement for the super-deduction”, and he said, “I will”. The Government have stuck to that and come up with this 100% tax deduction for investment in plant, machinery and technology, which is fantastic and just what we need.
But the point about corporation tax is not the absolute tax rate itself; it affects our perception and our inward investment. Historically, this country has been the second-largest or third-largest recipient of inward investment in the world, but now we have a situation where AstraZeneca, as the latest example, with more than £300 million of investment, is going to Ireland, which has a corporation tax rate of 12.5%. We have a rate that is double that. Arm, a company that we are so proud of, which was founded in Cambridge and whose technology we all have in our mobile phones, has decided to list in New York. Although our Government keep saying that our corporation tax is the lowest in the G7, it is now higher than the OECD average. Image and impression count.
On the positive side in this Budget, the investment zones are great news. They are based on something that I and the CBI have been championing for a long time: clusters based around our world-class universities. This is great news. We need to do more of this. I was in India last month, leading a University of Birmingham delegation as its chancellor. I spoke at the QS World University Rankings annual conference. I was so proud making my keynote speech that Britain, at 1% of the world’s population, has four out of the top 10 universities in the world; America has five and Switzerland has one. We have 17 out of the top 100 universities in the world, of which Birmingham is one. But is there anything in the Budget to help our universities? They have been managing on £9,250 fees that have been frozen. If you take that in real terms, we are now managing at £6,000. How are we meant to carry on being the best in the world when we are underresourced and run on the cheap? This cannot go on for ever.
I was on the Times Education Commission that reported last year. Our private schools cover 7% of our schoolchildren and are some of the best schools in the world by far. The funding for a private school child is three times the funding for a state school child. Where is the education spending in this Budget? Investment in education in the last decade has hardly increased, whereas in areas such as health it has increased hugely. Investing in education is the best investment. It will increase productivity. That is our future.
On SMRs—small modular reactors—this Budget gives another bit of good news: prioritising nuclear and saying that it will be treated as green is spot on. The Government say that they are going to look into SMRs. Why are we “looking into” SMRs? Why are we waiting? Rolls-Royce has the technology. These small modular reactors can give power to 1 million people, and cost one-sixth of a large plant such as Sizewell. They take five years to make, and we have not even started building one. Nuclear has been neglected by every Government, whether Labour, Conservative, or the Liberal and Conservative coalition. Nuclear has been neglected to our peril and I am glad that we are giving it focus.
There was nothing about housebuilding in this Budget. We need more houses desperately.
The shortage occupation list was addressed in the Budget, but just for construction. What about hospitality, agriculture, financial services and technology? Every sector of our economy has shortages. I have said time and again to the Government: why not have a revamped Migration Advisory Committee? As the Monetary Policy Committee sets interest rates each month and the Low Pay Commission sets the minimum wage every year, have the Migration Advisory Committee advise the Government sector by sector on the shortage occupation list. Would the Minister agree that we need to do that?
Here is the point. Immigration is made into this big bogeyman. Net migration is going up, but why? Because international students are included in the figures. We are now beating all records on international students—there are 690,000—and because they stay for a minimum of one year, they are treated under UN rules as immigrants and are counted. They are not immigrants. If you take international students out of those figures, the whole picture changes. Why are the Government making a rod for their own back? Why do they not, like many other countries, report to the UN but domestically exclude international students from the net migration figures? Could the Minister respond on that please?
Let us talk about energy. It is so good that the energy cap is being maintained for consumers, who need the help, but where is the help for businesses? There is no help for businesses, which have been devastated by energy costs.
IR35 reform is needed to help self-employed people but there is nothing in the Budget. The apprenticeship levy needs reforming desperately to help skilling, but there is nothing in the Budget. Our business rates are the most expensive in Europe and need to be reformed—the Government keep saying that they are going to reform this—but there is nothing in the Budget.
Fuel duty being frozen is very welcome, but alcohol duty is increasing. Pub after pub has been closing but the Government go and put up alcohol duty. As the founder and chairman of Cobra Beer, I am very grateful that draught beer duty has been frozen.
Defence expenditure will go up to 2.5% when it can, but it needs to go up to 3% right now. There is a war in Ukraine and we need to be prepared for the worst. At the end of the excellent Ukraine debate that we had recently, I quoted my Cambridge University contemporary and friend, Brigadier Justin Maciejewski, the head of the National Army Museum:
“Armies need might and mass to win. That means good weapons, good people and enough of them to be a credible deterrent. Without effective defence, everything that you treasure is threatened. Defeat in war means you lose everything: no health, no pensions, no education and no safety”.
He ends by saying:
“We need to be prepared, and preparation has a price.”
To conclude, the IFS has just reported on the Budget. It is very gloomy and has said we are stuck in a “lost decade” of falling living standards. The stealth tax of freezing thresholds until 2028 is going to raise over £120 billion. It is going to cost people on the lowest level of tax £500 more per year. On Brexit, the IFS says that the nation’s output will be 4% lower in the long term. We are avoiding a recession thankfully, but look at what is happening on the sidelines. Look at Silicon Valley Bank and Credit Suisse. We have got to be prepared. The noble Lord, Lord O’Neill, said that the Government have a narrow vision of credible fiscal rules.
This country has so much potential. The noble Baroness, Lady Moyo, who we welcome, spoke in her excellent maiden speech about economic growth. We need to grow; we need to reduce taxes; we need to invest. Debt will then fall, and the sixth-largest economy in the world will continue to be one of the top economies in the world. We will show our excellence in combatting climate change, in wind power, and in innovation and creativity. We have to have faith; we have to have belief; and we have to be bold.
I was actually encouraged by the Chancellor’s Budget Statement yesterday. To put it in context, how very different it felt from November’s Autumn Statement, which, above all else, aimed for stability after the market chaos of late September and October.
As the OBR commented back in November, the British economy had been badly knocked by the
“global energy … supply shocks emanating from Russia’s invasion of Ukraine” since March, when the Spring Statement was released. I remember the Bank of England’s extraordinarily pessimistic forecast, released in early November, which forecasted falling GDP in both 2023 and 2024—a two-year recession. My goodness me, how the media jumped on that. The Bank noted that there was a “very challenging” outlook for the UK economy, which struck me as something of an understatement in the circumstances. In contrast, in November, even though the OBR saw GDP falling by 1.4% in 2023, it expected the economy to recover in 2024.
Since November, the economy has proved remarkably resilient, narrowly missing recession in the second half of 2022. Somewhat surprisingly, GDP was flat in the fourth quarter, after falling a marginal amount in the third quarter; doubtless the data will be revised because, believe me—I speak as an ex-government statistician—data are always revised. The OBR now expects the economy to avoid recession, as defined by two consecutive quarters of falling output, this year. However, seemingly paradoxically, it still expects GDP to slip by 0.2% this year compared with last year. Specifically, it has projected a 0.4% fall in this current quarter, with GDP expected to be flat in the second quarter and then to start recovering in the second half of this year. Thus, according to the OBR, the economy will avoid recession.
The OBR was relatively upbeat in its March Economic and Fiscal Outlook. It said:
“The economic and fiscal outlook has brightened somewhat since our previous forecast in November.”
I remind noble Lords that that is only four and a half months ago. It went on:
“The near-term economic downturn is set to be shorter and shallower; medium-term output to be higher; and the budget deficit and public debt to be lower.”
Specifically, it noted that wholesale gas prices were well down and were expected to fall further.
However, the international situation remains concerning. The war in Ukraine appears to be far from resolution and the intensifying US-Chinese tensions have potential serious implications for the global economy. There are also heightened concerns over the international banking system. No one can be complacent.
The improved fiscal situation has enabled the Chancellor to provide a sizeable stimulus to the economy by way of some judicious spending increases and tax cuts, yet according to the OBR, he has still met his self-imposed fiscal targets—they may seem a bit arcane but they are important. These targets are: first, that underlying public sector debt as a share of GDP should fall in the financial year 2027; and, secondly, that public sector borrowing should be less than 3% of GDP in the same financial year. The targets are revised frequently and are somewhat arbitrary; suffice to say, much can go astray with the economy between now and 2027. Forecasting is an imprecise art, as we know, but, as I have said, the targets are important. They provide the markets with some reassurance that, no matter how high debt is now, it is manageable and should fall as a share of GDP in future. The targets are there to avoid a repetition of last September’s chaos, when the OBR was comprehensively cut out of the loop.
What of the Chancellor’s policies? First, he has rightly sought to address the issue of the missing workers with a back-to-work Budget that has the aim of stimulating the labour market and supporting growth. The latest ONS data shows that, in the three months to January, total employment was still more than 230,000 lower than in the three months to February 2020, which was the last quarter before lockdown. The number of the economically inactive—people aged 16 to 64 who are not in work and not looking for work—was nearly 490,000, nearly half a million, higher than in the three months to February 2020. Reasons for the rise in inactivity include increases in the long-term sick and people with family caring responsibilities, and some early retirements.
Suffice it to say that several of the Chancellor’s core Budget policies were geared towards encouraging and enabling people within these groups to move into employment. They included the launch of a new universal support programme for the disabled and long-term sick who want a job, improved childcare provision and, on pensions, increasing the annual allowance and abolishing the lifetime allowance. These are all pretty good moves, and I hasten to add that this is a far from exhaustive list of the Chancellor’s policies on this issue.
Secondly, on enterprise, with the ending of the super-deduction capital allowances scheme in March 2023, the Chancellor rightly announced the new full-expensing capital allowances scheme. This is planned to run for three years initially, and the OBR apparently judges that it should help boost business investment—which we all want boosted—by around 3% a year. But I still regret the planned increase in the main corporation tax rate from 19% to 25%. Granted, this rate may be the lowest in the G7, but, to me, this slightly misses the point. It was widely reported that corporate taxes were a factor in AstraZeneca’s decision to build a new factory in Dublin rather than Cheshire. Ireland’s main corporation tax rate is 12.5%.
Finally, the Chancellor’s cost of living measures were well targeted. They included freezing fuel duty for the 13th consecutive year and extending the energy price guarantee at £2,500 until the end of June.
All in all, it was an encouraging Budget. I suppose there is always more to do—every Chancellor knows that—but let us be aware of the economic circumstances and uncertainties that we still face. We certainly cannot be complacent.
My Lords, first, I declare my interest as a paid non-exec director of four companies and two public companies. We have heard some exceptional contributions today, and I endorse all the remarks about and all that praise for my noble friend Lady Moyo on her superb maiden speech. It is always a pleasure to follow my noble friend Lady Lea and my old and good friend the noble Lord, Lord Bilimoria, who talks so much good sense.
As tail-end Charlie in this debate, I understand that I am all that stands between noble Lords and what are going to be three superb wind-ups and a very good dinner. I can see the Whip looking at me, because this debate has gone on quite a while and a lot has been said. I want to start by mentioning something about the Silicon Valley Bank crisis, which was referred to by my noble friend Lord Tugendhat and the noble Lord, Lord O’Neill. If this had not been handled in the way that it was, we would have been staring down the barrel of a full-blown tech crisis that would have completely transformed the start of Budget week. What was required was calm, competent government, and that is exactly what we got. I was impressed by a letter to the Chancellor which was signed by 340 founders and chief executives of tech companies employing nearly 20,000 people. It said:
“Thank you to you and your team for understanding the urgency, for appreciating the risk to the UK tech sector and its importance to the UK economy and for working around the clock to find a timely solution”.
That is praise indeed. Ben Marlow, the chief City correspondent on the Telegraph, is an outstanding journalist. He put it this way:
“To pull off something that complex in the space of a weekend is hugely impressive and a reminder that Britain’s most important national institutions still possess the proficiency to rise to the occasion when needed most”.
So we must pay credit to the Prime Minister, the Chancellor, the brilliant City Minister Andrew Griffith, the Bank of England and all those civil servants who worked incredibly hard that weekend to find a solution that will not cost the taxpayer one single penny.
The background to the Budget has been discussed at some length. I always listen very carefully to the noble Lord, Lord Eatwell. He said that we had been through a period of low growth, with GDP expanding by an average of 0.9% per year between 2008 and last year, which was down from a 2.7% average between 1949 and 2007. As he and other noble Lords pointed out, we have seen a period of very weak business investment and poor productivity, and frankly a gradualist decline and what I would call almost a lost decade of growth.
So the exam question is very simple. Will this Budget put in place the building blocks to reverse that? Will it welcome the start of a coherent and credible medium-term growth strategy? At a time when the tax burden will rise to 37.7% of GDP, the highest level since World War II, will the Budget really move the dial? Obviously, there is a huge onus on the Chancellor to maintain stability and above all to go on retaining the confidence of the markets—an agenda that he has worked on tirelessly since his appointment last autumn. So, in addition to his priority for growth, he has rightly made reducing inflation and bringing down debt as a percentage of GDP the other two key priorities.
How does this Budget measure up? There is a lot to like in it. I welcome a number of supply-side reforms that were announced yesterday. I like the childcare package. The 12 investment zones, which the noble Lords, Lord O’Neill and Lord Bilimoria, touched on, will be really important for generating growth and investment for wealth creation. I was very pleased with the announcement on nuclear policy and on carbon capture and storage, which was mentioned in some detail by my noble friend Lord Howell in a typically erudite and impressive speech. I also welcome the announcement of the pension lifetime allowance, which will create incentives for people of my sort of age to go back to work and to stay in work, which must be good for the wider economy.
All that is very positive, and I welcome it enormously. I also welcome the £25 billion business relief package for business investment and, as my noble friend Lady Lea pointed out, the full-expensing arrangements. This will ensure that we have the most generous capital allowance regime in the OECD. Add to this the R&D support package for SMEs, and the extended credit scheme, and that is good news. However, I am still very concerned about the increase in the corporation tax headline rate. I absolutely 100% endorse what the noble Lord, Lord Bilimoria, said a moment ago. Would it not have been better if the £25 billion had been used to prevent this increase from 19% to 25%? The headline rate sends a strong signal. It is about the mood music and whether Britain really is the best place in the world to do business.
Another point that I picked up on yesterday was that, as a result of this, the ratio of corporation tax receipts to GDP will rise to the highest level since its inception in 1965. Bearing in mind that Nigel Lawson reduced corporation tax from 65% to 40%, that shows the impact that this will have on business. As Andrew Neil pointed out today in his article, if as an SME or a business of any size you invest £100 today, you can claim back £130 under the super-deductions before paying 90% corporation tax on profits. From April, if you invest £100 you will be able to deduct £100—which is welcome but not as good as it was before—but you then pay 25% on your profits.
I urge the Minister to recognise the concern about this. Even if the Chancellor cannot change his stance on this immediately, I hope very much that he will revisit it at the earliest possible opportunity. I see the Whip looking at me anxiously, very concerned that I will go on too long. So I will just say that, with that one exception, it was an imaginative and well-crafted Budget. It deserves to succeed, and I have no doubt that it will.
My Lords, it is a great pleasure to follow the noble Lord, Lord Bellingham. In fact, compared to many speeches he was very restrained in both time and content.
If I were writing a review of this debate, it would be “an eclectic debate with something for everyone”, and that is what we normally expect from your Lordships. I have to both praise and apologise to the noble Baroness, Lady Moyo: by all accounts hers was a fabulous speech, but unfortunately I was unavoidably hooked out of this Chamber during it. I look forward to reading it but also to being in the Chamber when she participates in future debates.
Yesterday, at the other end of this building, a slew of relatively modest changes, with a couple of larger long-term plans, was announced with what I would call traditional ballyhoo. It is worth putting that into some context: at the same time, across the UK, people were not listening to it because they were busy trying to negotiate the problems and impediments in their own lives. As the Chancellor rose, pensioners glanced at their smart meters and worried; parents juggled problems of childcare and work on a school strike day; a pair of young people looked at the cost of a mortgage and then went back to looking at the possibility of renting accommodation, something that my noble friend Lord Lee emphasised. Elsewhere, local businesses put “situations vacant” notices in their windows with little hope of recruiting anyone; manufacturers in their offices wrestled with paperwork that they now need to send their products to France or Germany; and in our hospitals, the effects of the first ever doctors’ strike caused the cancellation of already-delayed treatments, something that my noble friend Lady Brinton emphasised. Meanwhile, in Ukraine, young soldiers were fighting and dying for their freedom; on the beaches of Calais, refugees were wondering how or indeed if their flight from oppression would end; and around the world the global temperature rose by just a little bit more. That was the news agenda and the personal agenda that were going on as the Chancellor spoke. Nevertheless, he got his day in the sun.
We normally expect a little theatre, a flourish, but there were no rabbits—and no hat. Indeed, the childcare bunny, which had apparently been held back for theatrical purposes, had somehow escaped the night before, so instead the Chancellor had to settle for what was in the end a résumé of his department’s leaks. Still, it is convenient to have all the department’s press releases in one document. That the event held no surprises is something to be celebrated, particularly when we compare it to his immediate predecessor’s version of excitement and surprise.
Of course, as with all Budgets, the real news is not the announcement but the details and the analysis of them that emerges later, and that is just starting now. I have to say that the noble Lord, Lord Skidelsky, has done much to undermine my faith in economics. As a chemist, I have an absolute view of the world, but I fear that that is being eroded.
The first statistics concern inflation and, as we saw, the OBR predicts that that will be 2.9%. Whether or not that turns out to be true, the fact is that over the past year inflation has been running at double-digit levels so, whether or not the rate of increase falls, the place where most families find themselves today is very much higher in price and very much harder to afford than it was a year ago.
We must remember the other fact, rather than projection, is that wage increases are running at well below that rate of inflation that we have experienced: 3% to 4% in the private sector and much less in the public sector. So, as we know, real disposable incomes will continue to be hit further as we go forward.
I turn to growth. Again, the noble Lord, Lord Skidelsky, undermined these numbers, but these are the numbers that the Chancellor used. The Chancellor calls what is in essence around 2% per year over the next four years a Budget for growth. Well, as the noble Lord, Lord Bridges, so eloquently set out, 2% per year is not going to touch the growth in need that is out there, never mind the demographics, the cost of debt and all those things. This 2% per year on average is not the growth that will sustain the challenges we have ahead of us.
One thing I think we can put more stead in from the OBR is the scale of the impact of freezing the income tax thresholds. This freezing will lead to a tax rise of £12 billion in 2023-24. This compares to the cost of £3 billion in the same year of extending the energy price guarantee for three months. The Chancellor gave with one hand, but is taking away a great deal more with the other hand. Over time, this freezing of tax thresholds will lead to a total stealth tax rise of nearly £30 billion by 2027-28, or a total of £120 billion over the coming five years, with 3.2 million people dragged into paying income tax and 2.1 million paying at a higher rate. These compound the Government’s historic place as the party of high tax and more than wipe out the meagre support that families were getting over energy bills. At a time when inflation has put so many people under so much pressure, people’s budgets are being hit again, but in a way that is being sneaked in rather than properly announced. If the Chancellor had announced what I think adds up to a rise of about 4 pence in the pound in income tax, you could imagine the outcry.
Moving on, there is much talk about the UK being a science superpower and I am sure we all share ambitions of leveraging our excellent science and learning understanding in this country. Many of us felt that, after the Windsor Framework, it would clear the way for the UK rejoining the pan-European Horizon R&D programme, which by all expert analysis is something from which the UK takes far more than it puts in. But once again we have heard nothing. I ask the Minister: what is the blockage on this issue? When will a decision be announced?
Another theme that should have run through the Budget is the competitive threat posed by the US Government’s Inflation Reduction Act green subsidy programme. A number of your Lordships mentioned this. I remind your Lordships that the so-called IRA is a $369 billion subsidy package on offer throughout the US and it sits on top of a $280 billion CHIPS and Science Act as well. The IRA completely relaxes state aid rules for green industries and really has changed the global game for green investment. Across the world, big global businesses are relocating or planning to relocate their developments to the US to take advantage of this scheme. The EU has had to respond, and is going to announce its net-zero industry Act; we will see how many hundreds of billions of euros are in this pot. So where in this Budget is the equivalent British response? Well, I cannot find it.
I did hear a promise by Chancellor Hunt of funding of £20 billion over 20 years for the nascent carbon capture sector. But let us face it, set against the US model, £1 billion a year is unlikely to unlock the level of investment in carbon capture, clean energy and hydrogen infrastructure that is required to meet climate targets.
Meanwhile, by changing the taxonomy of nuclear energy, any money that could have been spent on a variety of technologies that would deliver near or medium-term progress is now likely to be diverted into Great British nuclear and SMRs. I have a word of warning on SMRs for enthusiasts: no one has built one yet. We will all be looking at the economics and the timelines—[Interruption.] The noble Lord, Lord Howell, shakes his head from a sedentary position, but there is not even a prototype.
The replacement of the super-deduction with something not quite as good is helpful for large taxpaying businesses, and the enhanced R&D tax credit is a good step towards promoting innovation. However, the large proportion of firms that fall outside the 40% intensity threshold will be left feeling mystified by the change in policy since last autumn. R&D tax credits had been a very effective way to create cutting-edge products and services in the small business community, and their loss is felt. Of course, the company has to be in a position to invest. British Chambers of Commerce highlighted in its recent survey that half of its businesses will be struggling to pay their energy bills in April, so investment or any help they might have with it is a rather theoretical exercise.
There are 5.5 million small businesses and 16 million people who work for them, and if the Chancellor hoped to woo small businesses, the signs are that he failed. Responding to the Budget, the Federation of Small Businesses said that it
“will leave many feeling short-changed. The distinct lack of new support in core areas proves that small firms are overlooked and undervalued.”
It sees support being focused on large companies. It would be interesting to hear the Minister’s view on whether small companies are being helped as much as large companies. Also, there is nothing new yet on business rate reform, so can the Minister tell us when we might see something on that?
The Chancellor announced 12 investment zones across the UK. The Minister praised Docklands as an example. Can the Treasury remember how much public money went into Docklands to make it what it is today, and is it planning to put the same level of public money into all 12 of the new investment zones? If so, where is this money coming from? We are also concerned about the lowering of good regulation for both the environment and workers’ rights. I should appreciate it if the Minister could give some assurance that there will be no dilution of employment or environmental regulations in those zones.
Your Lordships would expect me to say that a major flaw in this announcement is the total lack of an industrial strategy—something I have talked about a lot. Investment zones or freeports are no alternative to that. This hole is huge, and we are missing the overall strategy to develop future green industries such as green hydrogen, offshore wind and e-vehicles. Nothing in this Budget will deliver the gigabattery plants we need.
However, I do welcome an old friend. The £100 million innovation fund announced for Greater Manchester, the West Midlands and Glasgow has now been announced three times—so welcome back. The Chancellor and your Lordships have had a lot to say on getting more people back into the jobs market, and here I agree that there is no silver bullet. There are a lot of different measures in this Budget focusing on health, pensions, welfare and childcare, and many of your Lordships spoke at length on them, so I do not propose to reproduce those comments. In the end, success in all of these will be measured by results, and results come from effective implementation of these policies. Implementation is something many Governments have struggled with over the years.
The health checks may deliver results, but would not putting more money into delivering better primary healthcare be a way of improving the health of our age 50-plus employees? Pensions thresholds are aimed at one very specialised end of the market, and it will be interesting to see whether this achieves what is intended. My feeling is that this is a multidimensional problem that a single £1 billion solution is trying to solve. I think it unlikely that we will get what we want or, indeed, get value for the money we are putting in. However, I understand why the Government are trying.
The welfare changes are complex but should be seen in the context of the huge cuts that are already baked into the welfare system, but which do not kick in until after the end of this Parliament. I suggest that, taken with the increased pressure on people to work, the poorest will suffer the most. That is usually what happens when welfare changes.
The childcare changes are potentially very significant and are welcome, with two provisos. The first is that the services have to be available, staffed and economically viable, which comes down to delivery. Secondly, they will not happen for some time. The nine month-old baby who will benefit from this new policy has not been born.
Finally, I would like to suggest an untapped source of tens of billions of pounds. This does not mean a new tax or require cuts in public spending; it simply requires properly collecting the tax due that has not been paid. In January, the Commons Public Accounts Committee found that an “eye-watering”—its hyperbole, not mine—£42 billion in unpaid taxes are owed to HMRC. Some 5% of owed taxes remain uncollected. There seems to be neither the staff nor the will to collect this cash. I ask the Minister: why not? It is not as if we do not need the money.
The Chancellor, in delivering his speech, said that his plan is working. Others will judge that. The pensioner freezing in a cold house; the family struggling to balance their lives; the chronically ill person awaiting treatment; the business team trying to keep their enterprise afloat: they will be the judges of what is working and what is most definitely not.
My Lords, I begin by joining others in congratulating the noble Baroness, Lady Moyo, on her maiden speech. Her wide-ranging experience makes her an excellent addition to your Lordships’ House, and I very much look forward to her participation in future debates.
It is rare for your Lordships’ House to be given the opportunity to debate a Budget so soon after the Statement was made in the other place. With the Chancellor’s speech lasting for more than an hour, perhaps the hope was that colleagues would not have had sufficient time to fully digest his remarks or the Red Book. The Government’s economic plans have generally not held up to scrutiny, although the immediate reaction of many who watched yesterday’s proceedings may well have been: “Was that it?”
I am very grateful to the Minister for her introduction to this debate. Unfortunately, her speech painted a picture that many across this country simply will not recognise. Yes, the Office for Budget Responsibility’s short-term forecasts look better than in November, but growth expectations beyond 2025 have been downgraded and remain low compared to many of our neighbours and economic competitors. Yes, inflation is forecast to fall drastically by the end of this calendar year, but that does nothing to protect low and middle-income households from sharp increases in household bills—not just energy—or food inflation of around 17%.
Yes, there have also been changes to pensions to resolve specific issues faced by doctors and some other public sector workers, but the Treasury has chosen to do this in a way that also provides a handout to the richest 1%. In the words of Paul Johnson, the pension changes amount to using a
“sledgehammer to crack a … nut.”
The measure will cost taxpayers an estimated £70,000 for each person returned to the labour market, with the annual cost of maintaining the changes topping £1 billion by 2026-27. As families face rising bills, higher costs and frozen wages, this pensions bung is, as Rachel Reeves has said,
“the wrong priority, at the wrong time, for the wrong people.”
That is why a Labour Government will reverse this move, unless of course the Chancellor decides to perform yet another U-turn in the coming weeks.
As I just alluded to, life is currently a real struggle for so many across our country. Parts of this Budget may help certain people in limited ways, but the Chancellor’s Statement will have done little to instil that all-important sense of hope—I repeat, hope—for the future. The idea that 2% annual GDP growth is the pinnacle of what this great country can achieve is, frankly, laughable. That is why Labour has set the ambitious but achievable goal of securing the highest sustainable growth in the G7. We want to lead, while the Conservatives seem happy to languish at the bottom of the international league tables.
Despite various initiatives, relaunches and even ministerial reshuffles, our economy remains smaller now than it was prior to the coronavirus pandemic. I have been saying that for a year, so why does it remain true and what is the result? Not only are we the only G7 country which will see negative growth this year, but people across the UK are enduring the largest hit to their living standards, of around 6%, since comparable records begun. British families are now, on average, poorer than their French and German counterparts. Wages in real terms are lower now than 13 years ago. Real weekly wages are likely to remain below their 2008—yes, 2008—levels until 2026.
Meanwhile, the OBR says average interest rates on outstanding mortgages are now twice as high as was forecast back in 2021. A typical household remortgaging faces a Tory mortgage penalty of £1,950. Families and working people are therefore left paying the price of the Conservative Party’s failures.
As if higher mortgage bills were not enough, freezes to tax thresholds from April will mean an extra £500 on income tax for basic-rate taxpayers. The OBR believes that, by 2027-28, the threshold freeze will have brought 3.2 million people into paying basic-rate tax, with 2.1 million moving into the higher-rate bracket. People may accept that if they receive quality public services in return, but 13 years of Conservative control has seen many services sold off or run into the ground. The situation is perhaps best summed up by the Resolution Foundation, which describes Britain’s economy as being
“stuck in a deep funk”.
That respected body also says that even when people are supported into work, they are
“getting poorer, and paying more tax but seeing public services cut.”
That is not what people voted for.
Of course, there are things in this Budget that we welcome—in principle, at least. The promised expansion of childcare should be helpful for many parents. In his initial response to the Budget, Paul Johnson said that he doubted whether it would make “a big difference” to getting mothers back to work. How many people does the Treasury believe this policy will support back into employment?
We also know that childcare ratios will be relaxed, moving from 1:4 to 1:5, a move which the Early Years Alliance believes risks
“severely compromising the safety and quality of care”.
Can the Minister confirm whether this will be kept under review and, if so, how?
In addition, we welcome the decision to scrap higher tariffs for households with prepayment energy meters and to extend the £2,500 energy cap to the end of June. The Labour Party has been calling for these steps for some months, and the Government’s choice to drag this out has caused unnecessary additional anxiety for many. We do not mind the Government availing themselves of our ideas, whether on the price guarantee, the windfall tax or prepayment meters but, with billions of pounds of untaxed energy profits still left on the table, would the Chancellor also like to adopt our proposal to close the remaining holes in his energy levy?
We also endorse the decision to go through with the increase to corporation tax, given that it is accompanied by improved allowances for firms that invest in their UK operations. As outlined previously in relation to income tax, the personal tax burden is at the highest level since the Second World War. It is almost five percentage points higher than at the start of the pandemic, with no sign of the Chancellor finding the fiscal headroom needed to bring personal taxes down. Meanwhile, corporation tax rates in this country have gone up and down like a yo-yo. Not only has that shifted more of the tax burden on to working people, but it has created uncertainty that has made it harder for businesses to plan long term and to invest in this country’s future. Business taxes should not be unduly high, but firms must pay their fair share. Labour has committed to reviewing the business tax system across the board. It is only by adopting a new, fair and long-term framework that we can move past the short-term focus on share buybacks and dividends, towards a system with investment and job creation at its heart.
To conclude, this Budget was the chance for the Government to unlock the enormous promise and potential of Britain. Instead, it merely papered over the cracks of 13 years of Conservative economic failure. Despite the ministerial merry-go-round and policy U-turns of last summer, our economy remains on track to contract overall this year. We may avoid a recession, but the fact that Ministers are celebrating that shows just how low the bar has been set. People’s living standards remain on track to fall by an unprecedented 6% over two years, and the UK will remain towards the bottom of international league tables. The Budget has done nothing to change those facts or to resolve many of the major issues of the day, with many of the difficult decisions left until after the next election. Crucially, it has done nothing to give people a sense of hope for the future. Instead, it appears to be the latest step in our managed decline, as Conservative Britain once again becomes the sick man of Europe.
My Lords, I thank all noble Lords for their contributions to this debate. Given the range of expertise that has been contributed today and the range of topics we have covered, I will spend my time directly answering as many of noble Lords’ comments as possible.
Many noble Lords reflected on the economic circumstances we find ourselves in. The current high levels of inflation we face, with increased costs for households and businesses, have a clear impact on growth. As my noble friend noted, the best tax cut we can give households and businesses is to get inflation back under control, and that is exactly what the OBR forecasts will happen.
My noble friend Lord Bridges asked about the difference between the Bank of England’s forecast and the OBR’s forecast, and the noble Lord, Lord Skidelsky, also spoke about the difficulties of producing forecasts in these times. Specifically on those differences, the Bank of England made its latest forecast in February and it was based on different market determinants from the time. In its economic and fiscal outlook, the OBR reports that the difference is driven by falling energy prices and interest rates since the Bank’s forecast and, as my noble friend Lord Willetts noted, a predicted greater recovery in labour force participation following the measures announced in the Budget.
Inflation will reach 2.9% by the end of the year, but we recognise that the next 12 months will put real pressure on people, particularly when it comes to their energy bills. The noble Baroness, Lady Brinton, said that this Budget did nothing to help with that and I really must correct her. Not only did it extend the energy price guarantee at £2,500 for the next three months, it removed the pre-payment meter premium, which is something that this House has called for many times. It is also important to remember that significant further help announced in the Autumn Statement is still to be delivered to households across the country.
The noble Lord, Lord Bird, asked for universal credit to keep pace with inflation and that is exactly what will happen. Those relying on universal credit, the state pension and other means-tested benefits will see them go up in April by more than 10%, and we have further cost of living support payments worth £900 to be paid over the next year to 8 million households on means-tested benefits. Support payments of £300 will go to more than 8 million pensioner households next winter and £150 will be paid to those on disability benefits. It is very important that people know that further support with the cost of living is on its way. In fact, support to households to help with higher bills is worth £94 billion, or an average of £3,300 per household across this year and next.
The noble Lord, Lord Bilimoria, said that there was no support for businesses with their energy bills. But the energy bills discount scheme will provide all eligible businesses and other non-domestic energy users with a discount on high energy bills until
The noble Baroness, Lady Brinton, asked why no equality impact assessment had been produced with this Budget. I reassure noble Lords that His Majesty’s Treasury has rigorous processes in place to ensure that we comply with our legal requirements. We go beyond these by publishing a summary of equality impacts for tax measures within the tax information and impact notes alongside the Finance Bill.
When it comes to distributional analysis, that was published in the 2023 Spring Budget and it shows that the typical household at any income level will see a net benefit next year following government decisions made in the Autumn Statement 2022 and onwards. Low-income households will receive the largest benefit in cash terms and as a percentage of income from government decisions. Furthermore, looking across all tax, welfare and spending decisions made since the 2019 spending round, the impact of government action continues to be progressive, with the poorest households receiving the largest benefit both in cash terms and as a percentage of income in 2024.
The noble Lords, Lord Eatwell, Lord Bilimoria and Lord Tunnicliffe, and many others spoke about the impact of the freeze on tax thresholds, announced last spring and extended in the Autumn Statement. It is true that, after a colossal effort to fight Covid, with the Government spending over £370 billion on measures to support the NHS and our economy, we have had to take difficult decisions to get our public finances back on track.
We have frozen tax thresholds and, as we will come to, we have asked businesses to contribute more, through increased corporation tax rates. However, I say to my noble friend Lord Bellingham and others that 70% of businesses will see no change to their corporation tax headline rate, because small businesses are exempted, and only 10% of businesses will pay that top rate of 25%.
When it comes to the personal tax threshold freeze, noble Lords should note that, even after the freezes that we are putting in place, the changes we have put in place since 2010 mean that someone on an average salary will still pay £1,000 less in income tax and national insurance next year than if thresholds had gone up in line with inflation since 2010. Thresholds will be higher at the end of the period of the freeze than if they had been simply increased with inflation since 2010.
We had to take some difficult decisions on the public finances but that does mean—I hope this offers some reassurance to my noble friends Lord Bridges and Lady Lawlor—that we are bearing down on debt and have the deficit falling in every year of the OBR forecast. That means we are projected to meet the Prime Minister’s second pledge: to get debt falling. Indeed, total managed expenditure as a percentage of GDP is forecast to fall in each year of the forecast. We have also launched an efficiency and spending review; as part of the Autumn Statement 2022, departments have been asked to identify further efficiencies, building on the 5% efficiency challenge set at the 2021 spending review.
This brings me to the third pledge from the Prime Minister on our economy: to get it growing. My noble friend Lady Moyo spoke so eloquently about the importance of growth as a prerequisite of good public services, as a precursor to innovation and as a necessity for a healthy democratic society. That is why the Chancellor focused on making this a Budget for growth.
The noble Lord, Lord O’Neill, spoke of his frustration at what he saw as the artificial constraints that the design of fiscal rules has placed on investing in growth. I welcome that debate; although we may have different views on their design, I hope we can both agree on the importance of having a framework in place to maintain fiscal credibility, as was well expressed by my noble friend Lady Lea of Lymm.
I very much agree with noble Lords on the importance of investment. I welcome the point made by the noble Lord, Lord O’Neill, that, when it comes to areas such as corporation tax, we should not focus solely on the headline rate—although that remains the lowest in the G7—but look at how we build incentives into that tax. Full expensing will be a tax cut for businesses investing, worth around £9 billion a year, and I acknowledge that noble Lords would like that to be made permanent. The Chancellor has said he would like that too, when fiscal circumstances allow. However, it is worth noting that the increase in the annual allowance to £1 million is permanent and amounts to full expensing for 99% of businesses in this country.
I reassure the noble Lord, Lord O’Neill, that the Government do not see the solution to investment in this country as something for only the private sector to do. We are continuing to deliver the biggest programme of capital investment in 40 years, and public sector net investment will be 2.5% of GDP on average over the forecast period, delivering more than £600 billion of planned public sector gross investment over the next five years.
My noble friend Lady Moyo spoke of the most effective investment being multidecade in timeframe, and when public and private sources of investment come together. That is exactly what we are seeking to do through our commitment to £20 billion of support to the early deployment of carbon capture, usage and storage, allowing the Government to enter commercial negotiations with successful emitter projects and providing certainty over revenue streams to stimulate private investment.
The noble Lord, Lord Fox, spoke about our response to the US Inflation Reduction Act, and other noble Lords mentioned plans in Europe. Our approach to CCUS shows that we have a plan to stimulate investment in our green industries but in our own way, building on the success that we have had, for example, on contracts for difference with offshore wind, which has led us to be the second-largest producer of offshore wind in the world, behind only China. Further, the launch of Great British Nuclear and the competition for small modular reactors, along with our commitment to Sizewell C, show an ongoing commitment to the UK nuclear industry and to meeting our net-zero targets.
Many noble Lords, including the noble Lord, Lord Bilimoria, welcomed the announcement of investment zones, which will grow clusters in one of our five future growth sectors, partnering great research institutions with local areas. I say to the noble Lord, Lord Fox, that each investment zone will have access to up to £80 million of funding, but this is also about policy flexibility, to allow for greater collaboration and to address the needs of each individual area. He asked about environmental standards in investment zones. I reassure him that the Government are committed to ensuring that investment zones uphold the UK’s high environmental standards and meet our international commitments.
As well as our plans to support investment, many noble Lords focused on the workforce measures that we included in this Budget. The noble Baroness, Lady Brinton, asked about the Government’s planned changes to remove the work capability assessment and whether we will also reform the PIP assessment process. While many people claiming health and disability benefits have a positive experience, we want to improve the overall experience and trust in the benefits system for disabled people. We are doing this by making it easier to communicate and engage with us by improving the accessibility of our services and buildings. We are also testing new initiatives to make it easier to apply for and receive health and disability benefits.
The noble Baroness, Lady Brinton, also asked why there was no mention of social care. She will know that the Government are investing record levels of funding in response to the pressures facing both health and social care services. It was at the Autumn Statement 2022 that we made available up to £6.1 billion for the next year and £8 billion in 2024 in additional funding for the NHS and adult social care.
That brings me on to the pension tax changes made in this Budget, which were remarked on by many noble Lords, including the noble Lord, Lord Davies of Brixton, the noble Baroness, Lady Jones of Moulsecoomb, and my noble friends Lord Bridges and Lord Willetts. I will try to address the different points raised. The aim of our pension tax changes is to incentivise highly skilled and experienced individuals to remain in the labour market, bringing the benefit of their knowledge and experience to the UK labour force. Some noble Lords said that this measure is too expensive. My noble friend Lord Willetts helped me on this in terms of the cost per additional worker in the workforce being similar for this measure compared with childcare measures.
Noble Lords then said that it was poorly targeted because, while the childcare measures have the benefit of helping potentially lower-income households, these measures will be targeted at those people who are relatively better off. Again, my noble friend Lord Willetts helped me by pointing to the benefits of the policy being not only about the recipient of the tax relief but about its wider effect. Here, we are focused on a big change in retaining senior clinicians in our NHS workforce. The noble Lord, Lord Davies of Brixton, was sceptical about the difference that this policy change would make to retaining those clinicians. I have two quotes: the shadow Health Secretary, Wes Streeting, said that the cap on doctors’ pensions was “crazy” and it would “inevitably save lives” to scrap it; and the BMA said that scrapping the lifetime allowance is
“an incredibly important step forward and … potentially transformative for the NHS as senior doctors will no longer be forced to retire early and can continue to work within the NHS, providing vital patient care.”
The BMA went on to say that
“the Chancellor has acted decisively to avert a major workforce crisis”.
The noble Lord, Lord Davies of Brixton, then asked why we did not focus the measure solely on doctors. He gave one of the answers himself, saying that we passed a law to change pension provision for senior judges. We can bring in this tax change by April for the start of the new tax year. Another reason why we have not limited it to one profession, as the noble Lord will also know as he has raised other cases with me in the past, is that these reforms will benefit experienced key workers, including head teachers, police chiefs, senior personnel in the Armed Forces, air traffic controllers and prison governors.
The noble Lord, Lord Eatwell, asked about the interaction with inheritance tax. I reassure him that the costings produced and published at Spring Budget with regard to the lifetime allowance included the inheritance tax impacts for the scorecard period. I further say to him that the primary purpose of a pension is to provide an income in retirement. If someone dies before they get to use it, we think it is right that beneficiaries can inherit those funds, and they are not usually part of someone’s estate for inheritance tax purposes. We are aware that some people may use their pensions to try to reduce their inheritance tax liabilities rather than to provide for their retirement. We do not think that pensions should be used as a vehicle primarily for inheritance tax planning and we will keep all aspects of the tax system under review.
I turn last, but by no means least, to the Government’s plans for childcare. In my enthusiasm for announcing our substantial reforms in this area, I made an error in my speech. I made reference to youth mobility schemes. I need to clarify that those schemes have not been agreed but are something that we would like to explore with international partners over coming months and years. I apologise for inadvertently misleading the House on that matter.
However, I was pleased to hear so many noble Lords welcome the policy on childcare; it will be truly transformative. The noble Baroness, Lady Brinton, asked whether the free hours would be adequately funded. I reassure noble Lords that the Government will provide £4.1 billion of funding by 2027-28 to provide 33 hours for nine months to three years, and we will provide £204 million from September next year to uplift the existing rates for providers. The noble Lord, Lord Tunnicliffe, asked about the changes to ratios. Noble Lords will know that this move is in line with many other comparator countries in Europe and indeed Scotland. The change is optional for providers, but DfE will continue to closely monitor the quality of care in early years settings, including through Ofsted.
The noble Lord, Lord Eatwell, quoted the Sutton Trust. He is right that the aim of the policy is to remove the costs of childcare as a barrier for parents who want to return to work, so the extension of free hours is for working parents. To make that transition even easier, for those who are on universal credit we have increased the amount that they can claim for childcare through universal credit and are paying that amount up front.
The noble Lord, Lord Tunnicliffe, asked what impact the policy would have on employment. The OBR expects that by 2027-28 around 60,000 more people will enter employment, and around 1.5 million mothers will increase the hours they work as a result of this policy. The OBR has further said that the policy has by far the largest impact on potential output in this Budget.
In my speech, I may have been the Tigger to my noble friend Lord Bridges’ Eeyore, but I reassure noble Lords that the Government are under no illusions about the challenges that we face both at home and with the increased threat picture abroad. To my noble friends Lord Howell of Guildford and Lord Tugendhat, I say that that is why in this Budget we have provided an additional £11 billion for defence and national security priorities over the next five years, with nearly £5 billion going in during the next two years to improve the resilience and readiness of our Armed Forces. This is on top of the spending review 2020 cash uplift of £24 billion over the spending review period for defence, which is the largest sustained increased since the end of the Cold War.
What of the Government’s final goal of growth? The Spring Budget made the biggest increase to supply reforms that the OBR has ever scored in its forecast, bringing 110,000 workers into the workforce and increasing GDP by 0.2%. My noble friend Lord Bridges is also correct that population change contributes a further 0.5% to potential output.
The noble Lord, Lord Tunnicliffe, asked about the recovery of our economy since the Covid pandemic. When you look at private sector output, you see that our economy has more than recovered since the pandemic. The picture is different on public sector output, but that makes the figure not very comparable with other international countries as we measure our statistics in a different way.
Overall, supported by policy and underlying conditions, the OBR has revised GDP upwards in every single year of this forecast. With inflation down, debt falling, growth going up, and transformative policies for investment in our growth and in childcare to get people back to work, this is a Budget that I can commend to the House.
House adjourned at 6.21 pm.