Baroness Penn
That the Grand Committee takes note of the economy in the light of the Chancellor of the Exchequer’s Spring Statement.
Baroness Penn (Con)
My Lords, over the past month the bravery of the Ukrainian people has inspired the world. In contrast, Putin’s savage and unprovoked attack on a sovereign nation has shocked us all in equal measure. This country stands with Ukraine. That is why we continue to support that brave nation with defensive weapons and humanitarian aid, and it is why we are introducing the largest and most severe economic sanctions that Russia has ever faced. These sanctions will help to cripple Putin’s war machine and degrade the Russian economy for years to come. However, as my right honourable friend the Chancellor said in the other place last week,
“behind Putin’s invasion is a dangerous calculation that democracies are divided, politically weak … and incapable of making tough long-term decisions to strengthen our economies”.—[Official Report, Commons, 23/3/22; col. 337.]
This Government are determined to show that this cynical view of the world is wrong.
That is why, on the international stage, we will continue to support Ukraine, while domestically the Government are focused on strengthening our public finances. The measures contained in this Spring Statement will help to build a resilient, robust and fast-growing economy that will allow this country to respond to crises and help our friends in their times of need.
The economy is recovering well following the coronavirus pandemic. The Government’s successful vaccine rollout and Plan for Jobs have helped support a quicker than expected recovery and a buoyant labour market. Tax receipts have been stronger than expected, which has contributed to borrowing falling this year and over the forecast period. However, the steps that the Government are taking to sanction Russia are not cost-free for the UK and pose a risk to our recovery. Higher than expected global energy and goods prices have already led to an unavoidable increase in the cost of living in the UK. Statistics published last week show that in February inflation stood at 6.2%. This was still lower than in the US and broadly in line with the euro area. Disruption to global supply chains and energy markets, combined with the economic response to Putin’s aggression, means that the Office for Budget Responsibility expects the cost of living to rise further, averaging 7.4% this year.
As noble Lords will recall, the Government have already taken significant steps to help with the cost of living. These measures include a cut to the universal credit taper rate and increases to work allowances to make sure that work pays, a £9 billion package to help households with energy bills announced this year, and a freeze to fuel and alcohol duties to help keep costs down.
In this Spring Statement the Government are taking further action. At the heart of the Statement is a three-part plan to support families with the cost of living, support growth in the economy, and ensure that the proceeds of that growth are shared fairly. Let me stress that the Government’s approach to developing this plan and our ultimate goal of a lower-tax economy will be responsible and sustainable. However, as the Chancellor has said, cutting taxes sustainably is hard. It requires prioritisation and a commitment to fiscal discipline. We will take a principled approach, maintaining space against our fiscal rules, as we have this year, continuing to take a disciplined approach to spending, and carefully considering the broader macroeconomic outlook. Such a prudent approach is more important now than ever. Next year we are forecast to spend £83 billion on debt interest. This is the highest amount on record and almost four times higher than last year. These figures underline why the Government must not shy away from tough decisions. That is why the health and social care levy that the Government announced last year will remain in place, safeguarding a dedicated source of funding for the NHS and those who require care.
I turn to the specifics of our tax plan. Under the first part of the plan, which focuses on relieving the pressures facing families and individuals as a result of the rise in the cost of living, the Government are making a range of sweeping changes to the national insurance system. As noble Lords may recall, reforming and simplifying the tax system has been a long-time goal of this Government. Since 2010, millions of people have been lifted out of income tax through successive increases to the personal allowance, raising it over that time from £6,500 to its new level of £12,570. However, the equivalent thresholds in national insurance, which define how much people can earn NIC-free, are still about £3,000 less. The Prime Minister pledged in the 2019 election that the Government would increase those thresholds. We have already taken some steps forward on that front and last week fulfilled that promise.
From July, the national insurance primary threshold will rise from £9,880 to £12,570, bringing it in line with the income tax personal allowance. This means that people will be able to earn £12,570 a year without paying a single penny of income tax or national insurance. In fact around 70% of all workers will have their NICs cut by more than the amount they will pay through the new health and social care levy. This change will save the typical employee £330 while the typical self-employed worker will receive a benefit worth over £250. This measure represents the largest increase in the starting threshold ever.
Baroness Penn (Con)
My Lords, this change to national insurance contributions is the largest single personal tax cut in a decade, reducing the tax burden by £6 billion for 30 million people across the UK. To mirror the increase in the primary threshold for employees, the national insurance lower profits limit will also rise from July to £11,908 and will increase to £12,570 from April next year.
The Government also recognise the impact of the rising cost of living on self-employed workers on low incomes. As a result, we are also reducing class 2 NIC liabilities to nil on profits between the small profits threshold and the lower profits limit. This will mean that, from April, those with profits between £6,725 and £11,908 will not pay class 2 NICs, with the upper limit rising to £12,570 from April next year. However, I assure noble Lords that these workers will still be able to build national insurance credits and will therefore remain eligible for the state pension and other contributory benefits.
Beyond the national insurance system, this Spring Statement uses the tax system to ease cost of living pressures in other ways. Fuel duty will be cut for only the second time in two decades by 5p per litre for the main rates, saving motorists around £2.4 billion over the next year. In addition, the Government are reforming VAT reliefs for households that want to install energy-saving materials in their homes, such as solar panels, heat pumps and insulation. Consumers in Britain will pay a 0% VAT rate for the installation of these items and the scope of who can access such VAT reliefs has been expanded.
Our tax plan also contains measures to help businesses cope with inflation. The employment allowance will rise from April, allowing eligible businesses to cut their employer NIC bills by up to £5,000 a year. This tax cut is worth up to £1,000 per employer and will mean that businesses will be able to employ four full-time employees on the national living wage without paying any employer NICs.
This brings me to the second part of our tax plan, which includes measures that seek to boost growth and productivity. The Government want to create a new culture of enterprise and help the private sector to invest, train and innovate more. The Government’s focus here will be on three key areas: capital, people and ideas. The plan sets out tax-cutting options on business investment and innovation, with the final decisions to be announced in the Autumn Budget.
First, on people, we are behind our international peers on adult technical skills so we will examine whether the current tax system, including the operation of the apprenticeship levy, is sufficient to incentivise businesses to invest in the right kinds of training.
Secondly, on ideas, this country is built on innovation. In recent decades, UK-born inventions such as the world wide web, carbon fibre and the ATM have changed the world. In fact, over the past 50 years, innovation has driven around half the UK’s productivity growth. However, since the financial crisis, the rate of increase in these new ideas has slowed more than it has in other countries. As the Chancellor set out last week, this country spends more on R&D tax reliefs than almost any other country yet, right now, the amount that businesses spend on R&D as a percentage of GDP is less than half the OECD average. So, the Government will reform R&D tax credits so that they are as effective as possible and provide better value for money while expanding their generosity to include data, cloud computing and pure maths. The Government will also consider what more can be done to tackle abuse—particularly in the SME scheme, where rising costs indicate that the relief is not being used as intended—and, in the autumn, will consider whether to make the R&D expenditure credit for large companies more generous.
Thirdly, on capital, we know that capital investment by our businesses is considerably lower than the OECD average. This is another cause of the UK’s productivity gap with its international peers. Once the super deduction ends next year, this country’s overall tax treatment for capital investment will be far less generous than in other advanced economies. That is why the Government have said that, at the Autumn Budget, they will cut and reform taxes on capital investment. The Government will engage with businesses on this matter in the months ahead.
Let me now turn to the final part of the Government’s tax plan, which focuses on ensuring that the proceeds of growth are shared fairly. This Government recognise that it is only right that hard-working people keep more of what they earn. As a result, the Spring Statement announced a cut to the basic rate of income tax from 20p to 19p. This will be worth an average of £175 for more than 30 million workers, pensioners and savers, and will be implemented in 2024 when it is forecast that inflation will be back under control, debt will be falling sustainably and the economy will be growing. Income tax rates have been reduced only twice in the past two decades; this is the first income tax basic rate cut in 16 years. I should point out that this cut will apply in England, Wales and Northern Ireland. The Scottish Government will receive additional funding each year through the agreed income tax block grant adjustment, which they can use to reduce taxes or increase spending.
Beyond the tax plan, the Spring Statement sets out a range of other actions that will help families with the rising cost of living, including doubling the existing household support fund through an additional £500 million to support the most vulnerable households with essentials. This money is distributed through local authorities in England, which are best suited to know how to use it in their local areas. These measures build on the support that we have already put in place to help families to deal with inflation—a package worth £22 billion in 2022-23.
This is far from an exhaustive list of all that is included in the Spring Statement. However, these measures underline our commitment to building this country’s economic strength and resilience through supporting people with the cost of living, helping businesses to expand and grow, and creating a country where everyone who works hard will see the rewards of their labour. I commend the Statement to the Committee and beg to move.
Lord Whitty (Lab)
My Lords, I thank the Minister for that exposition on the Budget, although I did not entirely recognise aspects of it. It is a Statement rather than a Budget; I need to watch my terminology.
One of my problems is that, normally, I would have been much further down the speaking order and would have therefore focused on a single point. Given that I am in a privileged position, I still want to make this point right up front: in the whole Statement, why is there no mention of the Government’s path to net zero? I ask that for a wider reason. Just before the Statement came out, there were rumours in the Conservative-supporting press that there was a serious change in tone on the Government’s approach to climate change. Despite the dramatic and impressive road to net zero Statement in the context of Glasgow, there was a pretty concerted view in the press that there had been a downplaying of commitments to net zero in government circles. I would like to know the truth of that.
I am fortified in that view by my experience the other night when the noble Lord, Lord Callanan, rejected a seemingly innocuous cross-party amendment that required the Subsidy Control Bill to take some notice of climate change policy. There was no reason for rejecting it, yet that seems to have been repeated in other parts of government through statements in the House of Commons and here. Has there been a change in the degree of emphasis on climate change? If not, why does the Government’s major Statement on economic strategy not make at least a brief reference to the need for economic and fiscal policy to take account of it? For example, there is no indication of any move towards a carbon tax. In some ways, we have short-term changes in the opposite direction. Whatever the benefit to motorists, even as a one-year wonder, the move to cut petrol and diesel tax—
Lord Whitty (Lab)
My Lords, the move on fuel duty is not in the right direction as far as the climate change agenda is concerned. Even where the Chancellor generally moved in the right direction, he did so in a very limited way—for example, exempting in his post-Brexit freedom VAT on certain energy efficiency products, of which I thoroughly approve. However, he should have gone much further; the anomaly in the construction industry is that construction and demolition do not attract VAT whereas refurbishment and retrofit do. It is no use restricting the lifting of VAT to just some areas; it puts the whole balance for developers and planners in favour of demolition and rebuild and against refitting in a climate-resilient way. Demolition and rebuild have a considerable impact on emissions, both through the disposal of construction material and through rebuild using vast amounts of material such as glass and steel, which are highly fossil fuel-intensive.
I will say a few other words about the Statement which do not relate to the Government’s agenda. The Chancellor had rather more room for manoeuvre than he expected a few months earlier. He could have used that money to tackle effectively the immediate cost of living crisis, in which the lowest quantile is most likely to suffer the most. For example, he could have restored to universal credit the £30 he had just taken away or replaced it in some other way in the social security and taxation system. In view of escalating energy bills, he could have provided additional support to low-income groups to deal with them. He could have extended help to households to meet the costs of insulation and energy. He could have reduced the initial rate of taxation, which would primarily benefit the lowest paid, instead of fiddling with the national insurance threshold—I do not object to its equalisation principle, but the move benefits everybody, and actually those in the higher tax rates more than others.
The Chancellor could have provided direct support for public transport instead of cuts in fuel duty. In addition to their environmental effects, larger cars with larger mileages tend to be driven by the more affluent groups, and many in the lower quintile do not have cars at all. The Chancellor could have spent more money on the care service or the NHS. He could have spent the money on enhancing the NHS.
We expect Chancellors to use the last few minutes of their speech for the thing they think is most important. Despite the cost of living being so high, it was very odd that this Chancellor used it to announce a future cut in income tax, which will come into play just before the next general election. He may have thought that was clever, but even his most rabid supporters in the press have not seen it that way. They have seen this as a political move which discredits him and takes some of the gloss off him. The ploy has not worked. Neither the public nor the press has thought this was a brilliant move, and reserving most of his headroom for that announcement has taken away from what he ought to be doing both in the immediate cost of living crisis and the longer-term climate challenge.
Baroness Boycott (CB)
My Lords, I am pleased to follow the noble Lord, Lord Whitty, and I agree with all he says. I will make some remarks about health and the environment.
We have not really even come out of this pandemic but we have indeed seen a spike in childhood obesity. We have had new data lately about the soaring amount of diabetes there is in this country and the cost to the NHS. People mention this all the time, yet when you look at the Spring Statement there is really very little in there to help people with their actual diets. There is such a big difference between eating healthy and unhealthy food. When families are unable to afford to eat well, it has a devastating impact on their health. Physically they are weakened because they rely on less nutritious food, and mentally they are stressed because they cannot provide for their families.
Reducing health inequalities is more important than ever. Childhood obesity rates have spiked and the gap between the richest and the poorest has widened. People on low incomes already had less healthy diets before this cost of living crisis, consuming on average much less fruit and veg, less oily fish and less fibre, and this current situation will widen.
Families choosing less healthy foods when times are tough do so because, when food prices rose during and after the 2008 financial crisis, people chose food that was cheaper per calorie but lower in nutritional quality, trading down the quality of their food choice in response to pressure on household spending. This was the only sensible economic choice for families facing budget pressures. Healthier foods are right now three times as expensive, calorie for calorie, as less healthy foods and the UK is once again facing significant food price rises and high levels of food insecurity.
CPI data shows that UK overall food and drinks prices have risen 5.1% in the 12 months to February 2022. In that period, sugar, jam and confectionary prices have risen by 3.5%, while vegetables have risen by 4.2% and fruit by 6.2%. Although food prices are rising at a slower rate than overall inflation, increases in other areas of household spending, such as energy bills, which we all know about, put pressure on food budgets. People cut down on food. You see this right through the chain, whether it is a school, a hospital or a prison: people squeeze the food budget, because they cannot negotiate about the other bills that they have to pay. A recent ONS survey reported that 81% of adults have seen their cost of living rise, and food was the most reported single rise.
Alongside price rises, the NFU has warned of possible vegetable shortages due to gas shortages. Farmers are already choosing to plant fewer crops this year due to unaffordable fertiliser prices; in the UK, fertiliser prices have already risen 200% in the past year, according to the NFU. The latest Food Foundation data shows that food insecurity levels are now higher than at any previous point in the pandemic; 10.8% of households—that is 5.7 million adults—experienced food insecurity in the six months to January 2022. This situation is going to deteriorate as the impacts of inflation, price rises and national insurance increases begin to be felt.
The Living Wage Foundation has found that one in five workers have had to take out a payday loan to cover the cost of essentials in the past year. That is a terrible fact. The situation is worse for those on benefits, with 40% going into debt in order to be able to eat or pay bills, according to the Trussell Trust. At Feeding Britain, which I chair, our food banks, food clubs and social supermarkets are now seeing people for the very first time who have previously lived a relatively comfortable existence. They can claw themselves out of debt on utilities and council tax only by obtaining food aid. In the 1980s, food banks became completely entrenched in the American way of life. I asked the Minister a Question in the House of Lords the other day as to how the Government saw food banks, in terms of their budgets. Do they now form part of the support structure of this country? Are the Government now committed to saying that it is okay—people will not actually starve because they can go to the food bank? I would be grateful for an answer.
There are some things that the Government could do. They could protect incomes for those from the lowest socioeconomic groups by increasing benefits levels and protecting wages. They could provide nutritional safety nets and invest in the expansion of free school meals. If they cannot do it universally, at least lower the threshold of application for it. Not everyone who claims universal credit can also get a free school meal for their kid—and, please, when can we do automatic registration for Healthy Start? The warm homes discount does this, and Healthy Start is now online; it is very easy, but a very low percentage is taking it up.
I have just heard while I have been sitting here that the Government are considering reneging on the new regulation to abolish BOGOFs—for anyone who does not know, that means “buy one, get one free”. In supermarkets, BOGOFs are always on crisps, sweets, hot dogs, buns or whatever. It is absolutely known by every marketeer that, if you buy two packets of biscuits thinking that the second will last till next week, that is rubbish—they both get eaten that week. I would be keen to hear a ministerial response as to whether that bit of news, which is flooding my email right now, is true or a rumour.
I agree with the noble Lord, Lord Whitty, that there is a worrying and scary downplaying of the seriousness of climate change, which we see through the Spring Statement and through so many Answers that we are getting to Questions in the House. We very much need the Government to lead from the front on energy efficiency. Part of this should be a public information campaign on the transition to net zero.
I will give a quick example of why this is important. Polling figures from the ECIU published this week show that only a quarter of people know that their gas boilers create nitrous oxide, one of the most potent greenhouse gases. However, once they know, nearly half of them say that this makes them much more likely to make the switch to a heat pump. So, for a relatively small amount of money, there could be a big impact. Scotland has a government-funded body, Home Energy Scotland, which provides this sort of impartial advice. Can we have something similar for England?
Nearly two years ago, the Government announced the green homes grant. It was a great idea but, by the Government’s own admission, it was poorly executed. We have heard that lessons have been learned from it, but another spending Statement has passed with no mention of its replacement. Is it now the Government’s view that they do not need to offer household assistance with insulation and energy efficient measures? Although the VAT reduction is welcome, without the other measures a large proportion of households just will not be in a position to proceed with the work.
Finally, this issue is far more pertinent now than it was when the green homes grant was initially announced. In the context of our high energy prices and the uncertainty in fossil fuel markets, the obvious answer is energy efficiency and renewables. It is in the national interest to pursue this duo, as both measures will make us much more energy secure and less vulnerable to the global market. Although it is clear that the Business Secretary and other colleagues at BEIS know this, it looks like the Chancellor and the Treasury do not. The fact that the energy security strategy has been delayed suggests that it is not a priority. If it is not a priority now, when it will have the most impact, when will it be?
Lord Bourne of Aberystwyth (Con)
My Lords, it is a great pleasure to follow the noble Baroness, who made some powerful points, if I may say so. I welcome this opportunity to speak on the Spring Statement and thank my noble friend the Minister for setting out aspects of it.
At the outset, it is worth stating that the Chancellor deserves enormous credit for his action through the pandemic, particularly on the furlough programme. We maintained a healthy position on employment, which many doubted—to accentuate the positives, it is worth stating that. However, the challenges now are very different. They include the cost of living, inflation and the cost of energy, which has been particularly exacerbated by the situation in Ukraine, to which my noble friend referred.
I differ slightly from the noble Lord, Lord Whitty, on the point about room for manoeuvre in the Budget. I agreed with much of what he said, particularly on net zero, which I will come on to. However, in relation to the position in the Budget for extra spending, it is worth stating that debt interest is set to hit £83 billion next year. That is nearly four times what it was last year and any rise in the cost of borrowing will send it up even higher; it is worth taking note of that. It is also worth stating that £83 billion exceeds the budgets on schools, the Home Office and the Ministry of Justice combined—and that is just the debt interest.
That is not to say that I do not think that more should have been done in this Budget—indeed, I think that more should have been done—but it is worth bearing in mind that this must be paid for. All those who say that we should not be going for the NI increase, of which there are many, must say where the money to pay for these extra spending elements will come from. That said, we should be spending more.
As the Minister outlined, there are things in the Spring Statement that are worthy of praise. The increase in the employment allowance will help employment. The extension of the annual investment allowance will help investment. For eligible small and medium-sized enterprises, the help with the Help to Grow digital scheme is certainly worth while.
However, I agree with the noble Lord, Lord Whitty, in relation to the dog that did not bark: the absence of any real emphasis on climate change and the fight for net zero. You cannot partially believe in the need to tackle climate change. You either believe in it or you do not. It is worth underlining that. To those who are unconvinced by the need to act, I say this: speak to people from Tuvalu, whose country will shortly disappear without effective action on climate change. We undoubtedly need to do more.
So I approve of the VAT relief on energy saving materials. It should go further, because we need to do more in the general area of climate change. I would still like to see—it may be coming down the line, so perhaps my noble friend will indicate whether an announcement will be made on it later—some help in relation to retrofitting and installing insulation in Victorian and other homes. This will not only help to increase employment but ease the pressure on the purchase of oil and gas, which is necessary in the current circumstances and indeed generally. It will also help in the fight against climate change. There is much to welcome from something that is relatively straightforward.
I will just backtrack on the measure for energy saving materials and climate change. It is good but I regret that, because of the protocol, Northern Ireland is receiving a Barnett share and is not subject to this and many other measures in the Spring Statement. Northern Ireland is in a dreadful limbo, which really needs sorting. I do not expect my noble friend to wave a magic wand and make that problem go away, but I would like her to say something about that in summing up.
Universal credit needs to rise by more than is currently planned in the Spring Statement, as outlined by my noble friend. That view is shared by the Child Poverty Action Group, Citizens Advice, the Trussell Trust and, perhaps less predictably, the Centre for Policy Studies, which, as my noble friend knows, tends to be on the right rather than the left of the political argument.
Backtracking again to the position on climate change, more needs to be done on the warm home discount scheme. Some of the poorest people benefit from this, so it needs extending. It helps those with pre-pay or pay-as-you-go meters, so this is something that could be looked at.
I have no particular criticism of the content of the Spring Statement. It just does not go far enough and we need to do far more on energy measures and for the poorest in our society, who will be up against the wall and suffering if we do nothing. Just look at the position on energy and cost of living; I do not blame the Government for this as these things are largely beyond their control and made worse by the position in Ukraine, but we need to recognise this and do something about it.
I am not sure if the noble Lord, Lord Whitty, agreed with raising the threshold for national insurance. It is not a massive measure, but it seems sensible for the threshold to be the same as it is for income tax. We have to be honest about the tax position: this has to be paid for. I agree with the national insurance increase, although it would have been better on income tax, but we need an increase in taxation to pay for the measures we are facing for the health service and social care. We also have to be realistic that it is necessary to extend universal credit and do some things on the environment, and both have to be paid for. Personally, I would look at a possible tax on online sales, or at least a one-off levy, and beyond that at oil and gas companies. I hope I have been realistic and am not just wishing for extra spending. This has to be paid for and that is how I would do it.
We need to recognise that we cannot simply say, “Let’s scrap all the tax increases, cut taxes and increase expenditure at the same time.” We have been down that road before and it does not work. The books have to be balanced, certainly in the medium to long term.
Lord Hain (Lab)
My Lords, it is a pleasure to follow the noble Lord, Lord Bourne, who was a respected Minister in this House. When he stepped down, I and many others on a cross-party basis were very disappointed. He is also respected in Wales for his service there. I agree with the point he made on Northern Ireland and, having been the Secretary of State for Northern Ireland, which is in a very unstable state at the present time—politically and in other ways—I hope the Minister will respond to that.
I take issue with one of the points the noble Lord made about debt and point out that debt following the Covid crisis was just half what it was after the Second World War, expressed in the usual way as a percentage of GDP. That being the case, what did we do after the Second World War with that huge debt which came from fighting Hitler? We built the National Health Service, we invested in a welfare state, built millions of houses and we had growth on a scale which compares much more favourably to that which we have had over the last 10 or 12 years. I would be grateful if he would bear that in mind.
Paul Johnson of the Institute for Fiscal Studies has summarised the British economy’s pre-pandemic performance under Conservative Governments since 2010 as
“a long period of feeble growth”.
Sadly, the Spring Statement heralds a return to that debilitating trend. The Office for Budget Responsibility expects growth this year to be half what it was last year, to halve again next year, and to flatline thereafter. The OBR also foresees the biggest fall in British living standards for 60 years. These are awful prospects.
The key to real recovery and to managing Britain’s public finances is to help the economy grow. Yet the Chancellor’s response to possible recession, coupled with a cost of living crisis, already announced tax rises and the war in Ukraine, is not to invest but to cut public spending, and to do so at the very moment that the Bank of England is raising interest rates.
We are in today’s difficult position because Tory Chancellors spent a decade stopping the economy from growing. The Office for Budget Responsibility has acknowledged that between 2010 and 2019 Tory Chancellors delivered “fiscal tightening” equivalent to nearly 9% of GDP, meaning that they slashed total spending in the economy by a huge amount—£220 billion in today’s figures. They did so primarily by public spending cuts which formed 82% of the total Tory squeeze, with tax rises responsible for the remaining 18%.
In the 1990s, with Ken Clarke, now the noble and learned Lord, Lord Clarke, at the Treasury, the fiscal squeeze was shared about equally between public spending cuts and tax rises. Since 2010, Tory austerity has fallen overwhelmingly on cuts in public services, public investment, and public sector pay: a £180 billion public spending squeeze. This is the source of today’s unprecedented National Health Service staff shortages, unparalleled waiting lists, and a social care crisis; all were there before—this is important—and not just after the Covid pandemic. They could have been avoided by fully funding the NHS and by investing in adult social care. Instead, Tory Chancellors subjected Britain to a decade of austerity in pursuit of debt and deficit targets, none of which was ever met. This was not just socially callous; it was economically illiterate. History shows that an expanding economy can live comfortably with a significant level of public borrowing. It is when economies stop growing that budget deficits begin to balloon and debt burdens become difficult.
Yet what is Chancellor Rishi Sunak’s top priority? To make space for pre-election tax cuts by letting inflation erode the real value of October’s public spending plans. Public sector budgets no longer stretch as far as he promised back then, and public sector workers face even deeper real-term pay cuts. The real growth in public services in 2022 planned last October could have been protected by raising spending by £4 billion, but the Chancellor did nothing.
The Treasury is also stifling new policy initiatives by refusing financial backing. Just when renewable energy should be a top priority, Treasury traditionalists are trying to rein in the Government’s green ambitions lest they involve extra public spending. Meanwhile, the Government’s levelling-up pledges have turned into empty promises of jam tomorrow. Their White Paper was not accompanied by even a post-dated cheque, let alone a credible funding plan—more unfunded Tory promises.
It is difficult to take seriously the Chancellor’s talk about the Tories having a “sacred duty” to
“leave the public finances strong”
and his vow to “always balance the books”. He invokes the spirit of Margaret Thatcher but forgets that no Tory leader delivered more budget deficits than Mrs Thatcher: 10 in her 12 years in power. Only two of the previous nine Tory Chancellors ever ran a budget surplus: Tony Barber once in the 1970s and Nigel Lawson, as he then was, twice in the 1980s. That leaves 29 budget deficits in 32 years in office. So much for the Tories’ “sacred duty” to balance the budget.
It has taken a pandemic and war in Europe to prove what a vital role the state plays in protecting society from harm, promoting the common good and defending our freedoms. All that could have been helped by boosting economic growth and putting funding for public services first. In today’s worrying domestic economic climate and dangerous international situation, pre-election tax cuts should have had no place on any Chancellor’s priority list. Public investment, including in security and defence, should have.
Lord Oates (LD)
My Lords, the Spring Statement and its accompanying documents made for pretty depressing reading, not just because of the forecasts for anaemic growth, a fall in the trade intensity of GDP and debt interest rising, but because of the lack of ambition in the climate field that has been alluded to, particularly by the noble Lords, Lord Whitty and Lord Bourne, and the noble Baroness, Lady Boycott.
Today we face an energy shock driving a cost of living spiral that has now been exponentially worsened by an international crisis. Wrapped around those immediate crises is the ongoing planetary emergency of climate change, which threatens to irreversibly damage our world but about which the Chancellor seems to have forgotten.
The worrying signs were already there in the spending to recover and build back after Covid, where there was an abject failure to ensure that that spending was focused on addressing our climate challenges. Anyone who doubts the importance of climate change has obviously not read either the IPCC report from 2021 about 1.5 degrees or the one that it published last month about impacts, adaptation and vulnerability. The IPCC leaves us in no doubt at all about the real and present dangers that the world faces. Among the observed impacts quoted in that report are that in human-induced climate change, including more frequent and widespread adverse impacts and damage to nature and people beyond climate variability across sectors and regions, the most vulnerable people and systems are observed to be disproportionately affected.
I believe that people will look back with astonishment that a Chancellor could make an important economic Statement in this period in human history and fail to mention the climate emergency even once. There were some modest, albeit still welcome, measures on the VAT cut on energy-efficiency measures but there was no reference at all in the announcement to climate change; these were seen simply as energy-efficiency measures. Of course, they are limited to those who can afford them. The Chancellor quoted a family saving £1,000 in tax on solar PV but of course they have to have the money in the first place to be able to afford that, and most families do not. There is a 5% cut in VAT on home insulation—again, welcome—but we hear that the inflationary pressures see insulation costs going up, by up to 45%.
There was nothing in the Statement about fiscal measures that could really have started to make a difference: nothing about a graduated stamp duty according to energy performance certificate ratings; nothing about reinstating graduation of vehicle excise duty by fuel efficiency, scrapped by the Government in 2017, except for first-year purchases; and nothing about the windfall tax on the profits of the oil and gas companies that the Liberal Democrats have proposed, as has the Labour Party. That money could have supported vulnerable households that will suffer immensely from when the energy price cap rises take effect tomorrow.
I had a case brought to my attention only yesterday: a household of three disabled people whose energy supplier sent an email saying that their bill had gone up and that the direct debit would be increased automatically. It did not reference how much it would go up to; you had to go online and access an account to see that it had gone up from £264 a month to £981. People cannot afford those sorts of price rises, and the Government had the opportunity to take more action to support them. As the noble Lord, Lord Bourne, said, more should have been done on the warm homes discount, and more should have been done to support vulnerable people, particularly those who require electricity to support medical devices, who are facing real crisis over these energy issues.
More could have also been done for our energy-intensive business users if we had taken some of those super, unexpected profits from the oil and gas companies. Instead, the Government chose to take a 5p cut in fuel duty. Most of that will not be felt by the public, either because it is not passed on or because it is absorbed by rising prices anyway. The signal it sends is the wrong one. The Chancellor will find that, although he claims that he will reinstate that 5p cut in a year’s time, politically that will be almost impossible. I would be very surprised if it happened. At the same time, public transport fares are going up as services are cut, sending exactly the wrong signals.
The most efficient things to do in the face of an energy and climate crisis would have been to really focus on energy demand reduction. Where was the urgent action to bring forward a national plan to upgrade the energy efficiency of commercial and domestic premises? Where was the skills initiative to ensure that we can actually deliver it, and not end up with another failure like the green homes grant scheme? The CBI made clear in its call for action ahead of the Spring Statement the central importance of this issue: the first of its asks was to close the public investment gap on improving the energy efficiency of buildings. But what did the Statement have to say about that? Absolutely nothing. What did it have to say about investment in energy storage and use? Absolutely nothing. What did it have to say about taking forward ideas about a carbon budget adjustment mechanism to ensure that, as our businesses decarbonise, they are able to be competitive?
The Chancellor may have cut fuel duty, but he is asleep at the wheel so far as climate change is concerned. Despite the fact that the UK remains the chair of COP 26 until later this year, it was clear as soon as the Glasgow summit had ended that the Government were going to squander the opportunity to lead and to bring the world with them. This Statement is simply confirmation of that fact and the lack of ambition and urgency on the Government’s part as regards climate change.
The Lord Bishop of Worcester
My Lords, I first put on record my appreciation of the good things the Chancellor announced in the Spring Statement. He had an extremely difficult job on his hands when preparing it. The aftermath of the pandemic made things difficult enough before the horrors unfolding in Ukraine came on to our screens. I do not envy him the immensely difficult balancing act he has to perform to ensure that the public finances do not suffer irrevocably while giving help to those facing an unprecedented squeeze on their finances.
I pay tribute to the good things announced in the Statement, particularly in providing help for the hard-pressed. Having said that, I agree with noble Lords about the need to do more on climate change. We cannot afford to take our eye off that particular ball—the most serious crisis of our times. I was moved by the experience related by archbishops of the Anglican Communion, who, as it happens, were all in Parliament this morning, particularly those whose provinces are already being devastated by the impacts of climate change.
I will concentrate on the difficulties faced by the most vulnerable in our society even before the pandemic and the war in Ukraine. The Church has been very active in seeking to alleviate poverty and everything associated with it since the crash of over 10 years ago. I draw attention to the establishment of food banks, which have already been mentioned, up and down the land and the brilliant work done by Christians Against Poverty among other agencies in civil society. The sad truth is that the problems facing people have remained great since 2010; in each survey carried out since then, the need for such agencies has not decreased or dipped at any point.
We have done our best over those years in the churches to respond to increasing need. A Church in Action survey over 2020-21 shows that 78% of Church of England parishes are running or actively supporting a food bank or related provision. This is a marked increase on previous surveys. In 2011, the equivalent was 33% of parishes; in 2015, this had increased to 66% actively supporting a food bank. Each survey has shown that support for food banks is widespread across all regions and communities, including rural and less-deprived areas. There are now not that many parishes not running a foodbank; a large number opened one during Covid despite the £20 uplift in universal credit.
In other words, during the period of austerity following 2010, churches and faith communities, among other institutions of civil society, stepped into the gap. My fear is that we are reaching saturation point on what remedial measures civil society can realistically take. As Martin Lewis, the economic commentator, memorably put it:
“We have a real absolute—not relative—poverty issue going to come in the UK, with food banks oversubscribed. Debt crisis agencies do not have any tools.”
The results of a Christians Against Poverty survey indicate that only 20% of adults feel prepared to deal with rising costs. Various groups, including the Children’s Society, have suggested that the increase in the household support fund offers only short-term, limited help to the most vulnerable—some of the most vulnerable in our society face a really terrible crisis. The Resolution Foundation has stated:
“Taking into account the measures announced by the Chancellor … in 2022-23 … a further 1.3 million people fall into absolute poverty … including 500,000 children—the first time Britain has seen such a rise in poverty outside of recessions.”
While it is clear that the measures announced in the Spring Statement and previously by the Chancellor on energy prices and other measures will help lower-income families, it is far from clear that they will compensate for price inflation. The fact is that they most likely will not. It is also the case is that while the increase in prices is universal, the support offered by these measures is not, and there will be vulnerable groups who will not feel their impact.
The Chancellor cannot be expected to solve all the problems of this country—we have heard about the necessity to keep the debt within a reasonable proportion, and we are facing these problems in common with others. However, it is important for us to acknowledge the extreme difficulties faced by the most vulnerable in our society and take cognisance of them. As I have suggested, pressure on civil society and its institutions is already great. I am proud of the way in which churches have reacted to the challenges facing the most vulnerable in our society. However, the consequence of the latest indications of increasing poverty will be a huge pressure on those institutions to step up and provide additional support to help more people through things such as food banks.
As I have intimated, I am nervous about whether we are reaching the limit of what agencies in civil society can realistically do. At the very least, I hope that the Minister might be willing to give an assurance of increased support for such agencies, including the churches, as we work together for the welfare of the most vulnerable in our society.
Lord Horam (Con)
My Lords, as an economist myself—although I defer in that respect to the Treasury bloc sitting opposite—as well as a politician, I have always believed that the object of economic policy was to maximise economic growth and then distribute the rewards as realistically as is politically wise. I have to say that on fairness the Chancellor has not done well.
About a month ago there was a letter in the Sunday Times from a group of people who call themselves Patriotic Millionaires UK—appropriately their postal address is London NW3, which is probably the epicentre of worldwide wealth in this country. They wrote:
“In their article justifying the rise in national insurance”
contributions
“Boris Johnson and Rishi Sunak said: ‘We have always supported people through the pandemic.’ As a group of very wealthy people we agree: they have certainly supported us. In fact for decades”—
the Treasury bloc opposite might know for how long—
“our wealth has enjoyed incredibly low tax rates … at the cost of everyone else. So we ask the prime minister and chancellor to review their decision to raise”
national insurance,
“which is a tax on working people. They should consider taxing us, the wealthy, instead. They could start by aligning capital gains tax with income tax, generating £14 billion a year, more than is expected from the”
national insurance rise.
“The cost-of-living crisis will not hurt us but it will cripple hard-pressed families. We cannot continue on this divisive path, where the rich get endlessly richer at the expense of everyone else.”
Yours sincerely, Patriotic Millionaires UK—whoever they may be; I assume that was a real letter and not a spoof and that the Sunday Times has done its homework.
I agree with the general thrust of that letter. The fact is that the national insurance increase was a mistake: it taxes work and hits ordinary people. It would have been better to increase capital gains tax. Even the noble Lord, Lord Lawson, when he was Chancellor, agreed that there was no real reason to tax capital gains at a lower rate than income tax. Indeed, it was Gordon Brown who brought in the distinction between the two, to our endless regret.
As it happens, it was probably not necessary to increase either because, as noble Lords have already pointed out, the surge in inflation since then has been such that we have had an incredible increase in revenue from raising the threshold. In addition, corporation tax and the rejigging of student loans have meant that the Chancellor has a bonanza to play with. Therefore, it may not have been necessary to increase national insurance or capital gains tax at all, if he had only waited a bit longer. That shows the danger of making decisions too far ahead of the real events.
I acknowledge what the Chancellor has done to mitigate these tax increases, as was rightly pointed out by the noble Baroness, Lady Penn, in her excellent introduction and was mentioned by the right reverend Prelate the Bishop of Worcester. That has been worth while and important, but I am afraid it mitigated only a proportion of the tax increase that preceded it and it was not well targeted. The poor will suffer most. On this subject, I totally agree with the right reverend Prelate. He can be very proud of what the churches have done in the provision of food banks and so forth for the poor. As he pointed out, the extent to which voluntary civil society can deal with this is reaching its limit. We need the state to step in, in a major way, in the next few months.
As one or two people have already pointed out, that means an increase in universal credit. That frankly must happen. The Chancellor has not done well on that. Of course it costs a lot of money, but in this situation the poor should take priority over any other considerations. It will help with increasing demand in a macroeconomic way, which will help with the slump of growth that I suspect we will see towards the end of the year. The Prime Minister was right to say that much more needs to be done.
My second point is on economic growth, as opposed to fairness. The Chancellor has done much better on this. As my noble friend Lord Bourne pointed out, he had a very good record through Covid; he has been almost perfect in that respect. Curiously, he is now trying to pretend that he is a tax-cutting Thatcherite, when he has actually been a big-spend, big-tax, pragmatic Tory—in fact, a classical Keynesian. As a lifelong Keynesian myself, I thoroughly applaud it. This was exactly what we needed in the last few months. God knows what we would have done with a classical, right-wing, tax-cutting Thatcherite. As we look ahead, with all we know about the situation in Ukraine and the difficult problems we will face, we need his pragmatic Conservative approach more than ever.
The Chancellor is also right about productivity. As the American economist Paul Krugman said to wide approval:
“Productivity isn’t everything, but, in the long run, it is almost everything.”
If we can get our productivity up to German or even French levels, we would be much better off. What business therefore needs from the Government is more support for skills, research and development, and public investment where private investment cannot do the job.
I have confidence that the Chancellor will do a good job in maintaining economic growth through this difficult period. He will be urged on by a Prime Minister who is no economist—as he would fairly admit—but has sensible instincts, in that he wants to spend his way through. That will be a necessary policy in this next period. In addition, I am afraid the Chancellor needs to do much more than he already has on fairness.
Viscount Chandos (Lab)
My Lords, I am delighted to follow the noble Lord, Lord Horam. It is more than 35 years since he and I were comrades-in-arms but he has just demonstrated that, although our political paths have diverged, our views remain similar in many respects.
“I am comfortable with the choices I have made.” So responded the Chancellor of the Exchequer to my honourable friend Angela Eagle’s question on Monday at the Treasury Select Committee about the decisions lying behind the Spring Statement. How revealing his language was. It conjured up visions of a Goldman Sachs trader reporting on the arbitrage trade he has taken at the morning meeting, or a hedge fund manager in the television series “Billions” justifying his trading decisions to his boss, Bobby Axelrod. I believe it was Henry Campbell-Bannerman who, when asked for his opinion of a now-obscure Chancellor of the Exchequer, responded dismissively that he thought he was “a very nimble accountant”. It is hard not to feel that the current Chancellor may have been a nimble hedge fund manager but has limited self-awareness, dubious values and poor political judgment. The independent Resolution Foundation summarised the Spring Statement as “not fit for purpose” and “focused on rebuilding” the Chancellor’s
“tax-cutting credentials within the Conservative Party.”
Viscount Chandos (Lab)
Promising a tax cut tomorrow while allowing benefits to fall today as prices soar just is not serious policy-making. But I suppose that at least the Chancellor acknowledged that he had made choices; his neighbour, the Prime Minister, does not appear to believe that choices ever really need to be made, at least not in the economic sphere—as opposed to the time and venue of the next party. On the other hand, at the time of the Thatcher Administrations—in other respects, it now seems, models of probity compared to the current Government—we were told that there was no alternative.
Rather than drilling into too much detail, I should like to examine the key choices made by the Chancellor, and ask what alternatives there are to his decisions. First, are the fiscal targets adopted before the pandemic still right? Secondly, are the amount and sources of tax revenues correct? Thirdly, are the resulting revenues and borrowing capacity used to best purpose?
In the chart in paragraph 3.13 of the OBR’s Economic and Fiscal Outlook, projected public sector net borrowing is shown, with comparisons with previous projections for the same period, from both March 2020 and October 2021. By 2024-25, net borrowing is projected to be lower than in either the October 2021 projections or even those for March 2020—essentially, pre-pandemic projections. That is despite an increase in debt service costs of £41 billion in 2022-23 and an average of £17 billion per annum thereafter, largely as a result of rocketing inflation’s effect on the cost of servicing the outstanding index-linked gilts. A year ago, in the debate on the Budget Statement, I noted that there was regret from all sides of the House at
“prioritising future fiscal consolidation over reversing the massive cuts of the past 11 years to so many unprotected areas of public services.”—[Official Report, 12/3/21; col. 1938.]
It is now 12 years. The UK’s sovereign credit remains strong and would not be damaged by a more gradual glide path towards lower levels of public net borrowing. I believe that intergenerational and other issues do not weigh too heavily against such a judgment.
Secondly, could the Government increase their targeted tax take and, if so, from what sectors? The Labour Party’s advocacy of a windfall tax on fossil fuel producers is well known, and I fully support it. My refinement would be to establish not so much a one-off windfall tax but a long-term framework for the taxation of hydrocarbon production, which would recognise and therefore balance the volatility of global energy prices. More broadly—and, in the long term, even more importantly—a fairer balance must be struck between taxation of earned income and taxation of capital and the returns from it. I look forward to the speech of the noble Lord, Lord Macpherson of Earl’s Court, as he has been a much more authoritative voice on this issue in your Lordships’ House and more widely.
Lastly, how well are the Government using these revenues and resources? I hope the Minister and her officials will have read the debate last week in this Room on the Economic Affairs Committee’s report on universal credit, though her speech showed no sign of it. Last week, on the very day of the Spring Statement, every speaker, apart from the beleaguered noble Baroness, Lady Stedman-Scott, as the relevant Minister, deplored the failure of the Government to address the devastating poverty, distress and unfairness caused by the unreformed implementation of the Conservative Government’s universal credit policy. The Resolution Foundation, which I have already quoted, wrote last week:
“Cuts to income taxes have never been well targeted ways of helping the poor, but now we’ve got UC they’re useless.”
The right reverend Prelate the Bishop of Worcester has already referred to the projected increase by 1.3 million of those in poverty, of whom 500,000 would be children. That represents a 30% increase of those in poverty in the period from 2020-21 to 2025-26. More generally, as the Institute for Fiscal Studies has pointed out, there will be huge pressure on the budgets of spending departments as a result of the difference in the effect of the GDP deflator from that of CPI.
The Chancellor has made his choices. In doing so, I think he has demonstrated both his own personal priorities and those of the Government. I do not believe that is going to change until there is a change of Government.
Lord Bird (CB)
I welcome the opportunity to talk about the Spring Statement. I take a slightly different angle because I am rather cheesed off with the debates that I have been in and which I have seen in the period that I have been in the House, which is now six years, and indeed since long before that. To me, they are never about breaking the cycle; they never seem to ask why we are in this situation and what we are going to do about it.
I must declare an interest: as well as being a taxpayer, so I have a relationship with the Treasury, I have received a bounce-back loan for the Big Issue and I have received furlough. So my social business—it is not a charity—would not exist if it were not for the work that those at the Treasury carried out last year, and I thank them for that.
I want to thank them for something else too. We ran a campaign for 18 months to help people ride out the recession—to help them not to fall into homelessness because they had lost their jobs through Covid-19. It was a homelessness prevention programme for upwards of 250,000 people. I thank the Treasury for allocating £360 million pounds to it, which has hardly been spoken about; it went without even the Guardian or anybody else saying “Well done”. This was homelessness prevention, where you had people falling into homelessness who had no idea where it was coming from. They were not the socially prepared homeless people I come from—they were other people. Anyway, that is a little introduction to say thank you to the Treasury.
I think the problem is the Treasury. The Treasury, which was invented so long ago, is an office that has “No, no, no” over it. It does its job in a brilliant way because it picks and chooses what it says “Yes, yes, yes” to.
Lord Bird (CB)
With HS2 railways, you have a Treasury that can spend across the decades. That is brilliant, but does it ever use that same reasoning when it looks at social programmes or social innovation? When 70% of the time spent by both Houses of Parliament and the Government is spent considering the collateral damage created by poverty, no wonder we come to a situation where the world gets a bit funny.
People are not being educated and skilled to move away from poverty. I do not think there is anybody in this Room or in either House who suffers from fuel poverty. I do not think that people in the City of London will even know it is happening—and the reason for that is because they have been skilled; they have been educated. The investments were made by their families so that they did not ever get into a situation where £300 or £400 per month could be a sink-or-swim scenario.
That is one of the problems of the Treasury, which is there to prevent the kind of business that we need to do. We need to get rid of poverty in the same way as we did after the Second World War. I am glad the noble Lord, Lord Hain, mentioned the Second World War, because I am sick of being the only person who I know in this House who keeps referring to the wonders we did when we invested incredibly and got people out of the kind of poverty left by the fact that we were flat on our back after the Second World War. I thank him for that reference.
Could we not spend this 70% of our time more wisely? We have to reinvent the Treasury. We have to find a way for it to do things beyond the life of one Parliament. That is one of our biggest problems—how do we break the circle?
The other thing we should look at is the people suffering from fuel and food poverty. Let us look at them socially. I have found that the people I come from, the people I work with and the people I encounter who are in need all seem to have one thing in common. Do not shout me down when I say that that one thing in common is that they did not do very well at school. They did not get a lot out of it, so when they went to the job market their skills were limited to semiskilled or unskilled work.
When you talk to people in A&E departments or hospitals, many of them are suffering from nutritional problems due to poverty. A doctor at Addenbrooke’s Hospital told me that 50% of the people there were in hospital because of nutritional problems. They teach doctors about nutrition for only half a day in their seven years. Why are people falling into nutritional problems? Largely because we have not been able to morph them away from poverty, so they leave school with all sorts of problems and the only jobs they can get are ones that mean they are stuck.
We need to do very big things. In my opinion, we should double the education bill. If ever there was a universal panacea—I know we do not believe in them—it is likely to be found in and around education and skills. Let us move people away. In the middle of this emergency, let us consider how we prevent the next one.
Lord Balfe (Con)
My Lords, this is a very interesting debate. Virtually every speech from this side of the Room has been somewhat critical, so my noble friend Lord Northbrook has quite something to live up to as the last speaker from this side. It is always a pleasure to follow the noble Lord, Lord Bird, because he always says things that are different, interesting and relevant.
The truth of the matter is that, when I left the LSE in the late 1960s, my first job was at the Department of Health and Social Security as research officer for the Committee on One Parent Families. We were looking at poverty. Sadly, many of the problems we looked at are still there today. Although society is much richer, I sometimes despair when I am told that children cannot be fed by their families and about other distressing signs of poverty which were there literally 50-odd years ago. I wonder where our social policies are taking us.
I am afraid that I will disappoint the noble Lord, Lord Bird, because I have a more benevolent view of the Treasury. Many civil servants there ask the questions which should be asked by civil servants in the departments putting forward bids for money, because some of them are, frankly, lamentably thought out. The Treasury plays a useful role, but it is the place where the money is found. Politics is where the policies are found. That is what we have clearly got wrong—the basic policies.
One of the consequences of Covid is that we have spent vast, unimaginable sums of money. Think what would have happened if we had not had Covid, but had had a Labour Government under Mr Corbyn, and they decided to spend half as much as has been spent on Covid; we would probably have had a revolution by now. We are locked into a straitjacket of expenditure. We probably need to spend quite a bit more, but I wonder if, even then, we would lift people out of poverty.
I have spent a lot of my life concentrating on the Nordic countries. A country such as Sweden has exemplary levels of welfare statism, but suffers from many of the problems that we do today. We have to find a way of tackling them.
Several years ago, I was at a meeting with my now noble friend Lord Hammond of Runnymede, when he was Chancellor. This was an internal Conservative Party meeting and we were all invited to make a point. I think I was the 11th to speak and, when he replied, he said, “You are speaker number 11 but the first who has suggested any way to save money, as opposed to spending it.” People are often struck that everybody wants to spend, particularly in our House, but nobody seems to have any idea where the money is going to come from.
Let me make a few suggestions. There are many things in our society that are unequal. I will start with a couple of very small ones. Why do we not tax the heating allowance? It would be quite easy. Why do we not abolish the heating allowance? Why should we not add £4 to everybody’s weekly pension and tax it, so that you would get 40p in the pound back from people like me and save a lot of civil servants, a lot of letters and things going out?
There is another even more ridiculous payment: why do we have a bureaucracy that, in a very short time, will pay me an extra 25p a week for achieving the age of 80? We do not need it. It would be easy to legislate for a differential pension. There is a very strong case for that, but I will not go into it. If you look at pensioner poverty, one of the things that strikes you is that much of it comes flooding in around the age of 75, when the capital equipment that people have built up during their lives to have on retirement starts to wear out. The real poverty is often among the very aged rather than those who I think of as new aged. This 25p is a farce.
Moving on from that, there are lots of vacancies for jobs. If there is still poverty, the main way we should be tackling it is by looking at the minimum wage, at whether it is a living wage and whether it needs to go up. I firmly believe that work is good and we should do everything we can to encourage people to work. There is something in the old trade union saying about the dignity of work. There is something about the discipline of getting up and doing something, and being part of an institution where you have a role and are needed. I would look first at how we can get more people into work.
As I do every weekend, I took my dog for a walk last weekend. We went around the usual places and, because I envisaged being here today, I had a look and no fewer than five premises, in a walk of half an hour, had signs in their windows saying, “Hiring—staff wanted”. This was in Cambridge. There are lots of jobs around and this is one of the things we have to tackle: how we get people into jobs and how we then make the jobs pay at a level that will then lift them out of poverty.
I welcome the change in the threshold for national insurance because it has always struck me as inexplicable that there should be different thresholds for income tax and national insurance. It is surely common sense that they should start at the same level. However, if we are really serious then I would like to suggest one or two other things that we could do, and I am sure the noble Lord, Lord Sikka, will agree with these. First, we have a huge number of properties standing effectively empty, as investments, disfiguring our capital city in particular. When I was young, which is a long time ago, we had Schedule A, which was a tax on property. Is there any reason why we should not do that now?
I once had tea with a tribal chieftain in north Yemen. As things do, we got round to talking about how you finance yourself. He said, “Oh, a hut tax.” I said, “Really?” This was around the time when Thatcher was introducing her council tax reforms. He said, “Yes. No one can move their hut. We can go round and collect the money on it. We can have a look at it, see how big it is and judge how much wealth they’ve probably got.” I suggest that maybe for the most expensive properties we should have an annual tax based on their value. I live in a house that I am told by my council tax bill could be worth up to £320,000. I assume the local authority cannot count because the one next door recently sold for £1.9 million. We could also look at the American system of linking the tax to a rise in the value determined by house price inflation in an area. We constantly get ourselves in a mess with revaluation—the last one was in 1991—but you could find a way of tying it in and you could have a wider differential, and that would bring in some money.
I only have a couple more points. The next is that we need the transparency register that is often talked about. How we are going to chase Russians, goodness only knows. So many things are hidden. Look at the Questions asked by the noble Lord, Lord Sikka—I am not acting as his PR agent—about Companies House and the laughable way it works; I cannot remember exactly but I think there is someone registered as a director, one of whose names is Hitler. The fact is that we are almost totally non-transparent when it comes to these matters. If we try to sanction any Russians, we are going to find out that we cannot even work out who they are.
Right at the top of this Government, we need a tendency and a commitment to open up the state so that we know who owns what and the people who own a lot pay what is, after all, only a reasonable amount of their income towards keeping the state going. I am afraid that for far too long the system has been completely the other way around: to those of us who have some more shall be given, and those who have not shall go without. That is not the best way of running a society.
Lord Davies of Brixton (Lab)
My Lords, this is my third encounter in two days with the Minister. I am not sure whether she will be pleased about that, but I shall not repeat the detail of the criticism that I have made in our previous encounters of the increase in national insurance contributions, a relatively regressive tax being used to fund a reduction in a progressive tax. I have to restrain myself from repeating that but she knows my views on the issue.
I very much welcome the contributions of other noble Lords. As has been pointed out, their views have been relatively unanimous and critical of the Government’s position. I will take the opportunity to raise two relatively technical issues. I have found that it is always good to get such issues on the record, so that you can return to them again and again.
One of the advantages of joining your Lordships’ House is that I get to read the Times. An interesting report in today’s newspaper says that the Chancellor, the right honourable Rishi Sunak, “viscerally hates” the OBR for making “policy judgments” that over- shadowed his Spring Statement. That is hardly surprising perhaps when the office—which, by the way, was established by George Osborne—said that living standards would fall by 2.2% in the next tax year, the biggest decline since records began. It also said that the announced tax cuts would offset only just over a quarter of the tax rises announced in the October Budget. The Minister might like to comment as to whether she hates the OBR. However, I have some slight sympathy with the Chancellor. The judgments made by the office should not be regarded as holy writ; they should be open to debate and criticism, particularly at present when it can be argued that uncertainty about the economy is particularly acute.
I have two questions that relate in different ways to the OBR’s assumptions. First, under the office’s latest forecasts, the GDP deflator—that is the measured cost for government services—is forecast to grow by just 2.8% in the current year versus 7.4% growth in CPI. To some extent this is a statistical quirk following our exit, I hope, from the Covid pandemic, but we find that the price of public services is forecast to fall. The reduction in the cost of services is not expressed explicitly anywhere in the figures but I am told that, if you do a little digging, it appears that inherent in these figures is a 2% reduction in the cost of government services. In truth, this beggars belief—it is a statistical quirk. The problem is that it may encourage the Treasury to resist the need to provide additional resources for public services. I would be grateful if the Minister could give some assurance on that point—I am perfectly happy to take a letter on it. On the basis that we have been given, the statistics do not provide the whole picture.
My second point relates to the triple lock on the state pension. I will not rehash recent arguments about the Government’s recent broken promise. However, it is worth pointing out that the triple lock will not be triggered next year, with a possible increase in CPI in September of nigh on 10%, and, regrettably, earnings will be significantly behind that. I understand that we heard the announcement today of pay rises for civil servants of 3% or less, which is significantly under increases in CPI. So the issue next year is not whether the Government will break the triple lock, but there is still an issue, despite the assurances given. We know that the Government used the “exceptional circumstances” excuse for not fulfilling a promise—that is unarguable. They said that the triple lock was exceptional this year and so they would not keep their promise. How do we know that they will not decide that inflation of 8% or 9% next September is exceptional and hence provide an excuse for not fulfilling the promise? An explicit assurance on that point is important.
However, my substantive point here is that the OBR’s forecast for expenditure figures over the years, from its Spring Statement report, provides an opaque assessment of the cost of the triple lock. Although many people quote a figure, we really do not know the cost of the triple lock. It is highly contingent. Also, it affects the figures in not just the OBR’s report but the recent quinquennial review of the National Insurance Fund by the Government Actuary, who simply adopts the OBR’s assumption about the cost of the triple lock. I want to raise the issue of what the triple lock will cost as something that bears more study and explanation than we have provided. There is no explanation in this year’s OBR report as to how it derived this figure; it is lost in the mists of time. If we are to have these debates about the future trends in public expenditure—the OBR refers a number of times to the impact of the triple lock—that figure should be more fully and adequately explained.
Lord Macpherson of Earl’s Court (CB)
My Lords, it is a privilege to take part in the debate. Sadly, the noble Lord, Lord Bird, has just left the Room, otherwise I, as a former official, would have responded to his criticisms on behalf of the Treasury.
When my noble friend Lord Stern of Brentford was at the Treasury, he developed a methodology where you could rank individual investment projects by their social return. Obviously it was then a matter for elected Ministers to choose whether they wanted to prioritise that social return. I do not want to give away official secrets but it is fair to say that High Speed 2 was relatively low on that list—but I do not want to reopen that debate.
I want to distinguish the fiscal judgment in the Chancellor’s Statement from the individual measures. Unlike just about anybody else who has spoken today, I am broadly in favour of the fiscal judgment. The fact is that the economy is growing faster than the official figures suggest. You have only to look at the one metric that is not a statistical construct—namely the revenues coming into the Treasury week in, week out—to be pretty certain that GDP will be revised up in the months and years ahead. The anaemic growth of the supply side of the economy means that we are almost certainly operating above trend or, to put it another way, above full capacity.
The fact is that the Bank of England has left monetary policy too loose for too long. We are now paying the price with inflation. It is disingenuous to say that the rise in inflation is down to Ukraine. Inflation was always likely to rise above 7% whether Putin invaded Ukraine or not; the war is simply making a bad situation worse. At a time when inflation has been accelerating, the economy does not need a further demand-side stimulus.
The Chancellor is also right just to keep an eye on debt interest payments, which this year will be the fastest-growing programme in government. It is fair to say that in future years it will not be, if inflation comes down. The fact is, since inflation is likely to stay higher for longer, the Exchequer could be vulnerable to the consequences of index-linked gilts and to higher long-term interest rates, as quantitative easing begins to unwind. Just because there is headroom against the Chancellor’s fiscal targets does not mean that you should spend it all in every single fiscal event; it is better to keep that headroom for the rainy days that inevitably lie ahead.
I am supportive of the fiscal judgments, but I am much less sanguine about the individual measures. We debated national insurance yesterday. I do not want to get into too much detail on that, other than to note that the Chancellor has put in plain sight what other Governments have chosen to conceal—namely, when you need to increase tax you raise the rate of national insurance and, when it comes to cutting tax, you cut the basic rate of income tax, ideally in the year of a general election. That is unfair—not the general election point; that is politics—but the actual principle of moving from income tax to national insurance. It helps the old at the expense of the young—and I recognise the danger here, since there are an awful lot of old people in this Room. Nevertheless, the old have had a very good run. Also, the residual Marxist in me makes the point that it basically provides further relief to rentiers and capitalists at the expense of working people.
It is not just the balance of personal taxation that is problematic. If ever there was a time to provide further help for those in and out of work, living on the basic minimum provided by universal credit, it is now. Some will argue that next year they will get a better uprating, but that is 13 months away. Having to wait that length of time is scant consolation for people who really are living on the edge.
Another point, which I think my noble friend Lord Hain made, is the Statement’s silence on security. It is striking that our friends in Europe, particularly Germany, have already taken bold decisions. This country is going to have to spend more on defence, and it is better to take decisions now, plan accordingly and reserve some money, making a claim on the reserve for that expenditure, than to put that decision off.
My final point relates to growth. Unless we can get growth in productivity up, the Government will continue to face uncomfortable decisions on taxes and spending. Indeed, that is one reason why the tax burden is set to reach the highest level since Sir Stafford Cripps was Chancellor. As the OBR has observed, the Government’s approach to Brexit is taking its toll in terms of lower exports. That is one Treasury forecast that has proved extraordinarily accurate. I am confident that, in the long run, we will end up in a place much closer to the European Union in our trading relationship, but I suspect that that new equilibrium still lies a decade away, so we cannot expect trade to solve our productivity problems. That makes it more important than ever that the Government focus on the other drivers of growth, such as on innovation, where I am glad to see that the Government are reviewing the R&D tax credit, which I fear is increasingly exploited by firms that are really not in the innovation business at all. That also means infrastructure where, again, I would encourage the Government to focus on those projects with the highest economic return, and skills, on which I welcome the review of the apprenticeship levy. However, we will not make much progress until the Government prioritise further education at the expense of higher education.
Raising the rate of productivity is less about new policy initiatives; we have enough of those. It is about laser-like and persistent focus on ensuring that the large amounts of government expenditure on things like education and skills really make a difference. Delivering on productivity requires a long attention span. It involves building cross-party coalitions and requires leadership from the top. I am not terribly optimistic that we will see that in the short run but, if we do not grasp this nettle now, the Government will find it all but impossible to deliver the low-tax economy they so desire.
Lord Northbrook (Con)
My Lords, the Chancellor has had a most difficult series of unexpected events to cope with since he came to office. First, there were the consequences of Brexit, then Covid and, finally, the Russian invasion of Ukraine. All these have not made forward planning easy; they have had and will continue to have severe effects on the economy.
I will first look at the economic background as set out in the Statement. The reduction in current-year GDP growth forecast for this year from 6.8% to 3.8% is major but unsurprising. Forecasts for the next few years are unexciting, but I hope that the noble Lord, Lord Macpherson, is right that the forecasts will be upgraded in the future. The Budget deficit is forecast to decline, but the top annual figure—as many other noble Lords have said—for interest alone on the debt is alarmingly high at £83 billion by the end of the next tax year.
Inflation is forecast to peak at 8.7% towards the end of the year, the highest rate for 40 years. With household incomes not following suit, living standards are set to be hit hard. The forecasts of the Office for Budget Responsibility—the OBR—then predict a sharp fall to below 2% by 2024. I hope that it is right but, once higher inflation is established, it can take much longer to bring it back under control as was proven in the 1970s.
A brighter spot, as my noble friend Lord Balfe has said, is the jobs market, which is recovering in areas, with record job vacancies and some of the labour market indicators returning to pre-pandemic levels according to a recent House of Commons Library note. The inflationary effect of wage pressure, however, will need to be watched carefully.
On the subject of inflation, I am no economist, but I have noted a recent article by Tim Congdon in the Critic. He wrote:
“In the decade to February 2020 — before the Covid-related money explosion began — the compound annual growth rate of the M4x measure of broad money was 3.8 per cent a year. In an economy with a trend growth rate of real output of a bit more than 1 per cent, that was compatible with roughly on-target inflation. In the 20 months to October 2021, the Bank of England bought gilt-edged securities on such a large scale that M4x soared by almost 20 per cent. The implied annual growth rate is 11.4 per cent, more than seven per cent up on the earlier trend. I therefore expect inflation to lie between five and ten per cent for most of the next two years.”
He believes that
“a sustained reduction in money growth to under five per cent a year is … a necessary condition … of meeting the official two per cent inflation target in the current Parliament.”
For those of us for those of us with longer memories, it was the noble Lord, Lord Lawson, overlooking the huge growth in broad money supply in the late 1980s that caused a major increase in inflation. I would like to pass this ball on to the noble Lord, Lord Desai, for his comments.
An economic figure that others have not really mentioned, on which I will focus, is UK exports to the EU. According to figures released by the ONS in February, UK exports of goods to the EU fell by £20 billion in 2021, a decrease of 12% on 2018. The hardest hit commodities recorded substantial falls. Outbound shipments of clothing and footwear to the EU were down by almost 60%. Food and live animal exports were down by almost 18%, while vegetable exports dropped by almost 40%. Shipments of cars to the EU, heavily disrupted by global supply chain issues and Covid, were down by a quarter. What measures are Her Majesty’s Government taking to reverse this decline?
As always, I will try to give a balanced view on the fiscal measures in the Spring Statement. While, overall, I believe there were not enough measures to boost confidence and recovery, I welcome the reduction of VAT on energy saving measures, such as the installation of solar panels, ground source heat pumps and insulation. I ask the Minister whether there needs to be more government support to help with the cost of these.
I also approve of the 5 pence-per-litre reduction on petrol and diesel duty. The promise of a future cut on income tax is helpful. The most eye-catching measure to raise the threshold at which employees start to pay national insurance to £12,570 is most welcome. According to the Times, it means that everyone earning below £32,000 will be sheltered from the imminent national insurance hike and income tax threshold freeze.
I also approve of the Chancellor’s wish to assist businesses with additional capital allowance support, noting that it is rather the opposite to what the then Chancellor proposed in the 1980s. I welcome the Chancellor’s move to increase the employment allowance to £5,000. As noble Lords know, this relief allows eligible businesses to reduce their national insurance contributions each year and will help nearly 500,000 businesses.
Overall, the Chancellor has been careful due to the high level of UK debt. This has been respected, particularly by foreign exchange markets where sterling has remained steady. However, I think he has been overcautious if the OBR is remotely correct. The OBR calculated that additional receipts arising from higher inflation would provide a windfall of roughly £35 billion to the Chancellor over the next five years, with only some of that having to be spent on the higher costs of servicing the debt and higher pensions and benefits. A proportion of this anticipated windfall should have been used to encourage a consumer-led recovery. The Chancellor’s tax-raising measures would seem to do the opposite.
I oppose measures to increase national insurance, even diluted as mentioned previously, as they put further pressure on individuals and families already struggling with higher utility, food, clothing and other essential costs. The freezing of income tax allowance rates is an additional squeeze on standards of living.
A proportion of the windfall should also be used to help companies, but for them the news is no better. There is the prospect of a huge corporation tax rise. There is no relief for business rates or energy costs. Tony Danker, director-general of the Confederation of British Industry, said the limited plans laid out by the Chancellor were welcome
“but don’t do enough to tackle the current challenges facing firms … In reality, we cannot wait until October to get growth going. The Government needs to get moving straight away.”
He added that
“We need concrete plans now on how we get new nuclear, hydrogen … investment. We need more EV charging infrastructure … We need post Brexit regulation changes”.
Overall, he believed that the Spring Statement has not done enough to tackle the current challenges facing firms.
Elsewhere in business, Arjan Geveke, director of the Energy Intensive Users Group, called the statement “disappointing” due to the lack of support to help businesses with soaring energy costs. The Federation of Small Businesses wanted the Chancellor to cut fuel duty more, help small companies with energy bills and reform business rates to take more companies out of the system in levelling-up areas. According to the FT, tech groups were upset after the Spring Statement confirmed that the Government would not reform a share options scheme to make it easier to attract talented workers.
The temporary cut to VAT for the hospitality, hotel and holiday accommodation sectors, as well as admission to certain attractions ending on 31 March, is being reversed. I believe that it should be continued for a period. Kate Nicholls, the chief executive of UKHospitality, said that the return to the full 20% rate in April is a “real setback” for the sector. She said:
“For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal.”
Will the Minister encourage the Chancellor to retain this relief?
As a Laffer curve enthusiast, I strongly believe that lower taxes can, within reason, produce higher revenues for the Treasury. However, sadly, this Budget overall fails to aim for this course of action. I feel that the Chancellor should have made it clear that his caution was due to mistrust of the OBR forecasts; this would have helped us to understand the philosophy behind his Statement.
Lord Sikka (Lab)
My Lords, it is pleasure to participate in this debate. If I had had more time, I would have liked to dissect every sentence in the Chancellor’s Statement. However, that opportunity is not available, so I will concentrate on just a few things.
First, the Statement is really bad news for a large section of our society. Due to the high rate of inflation and tax hikes, at the next general election the real income of average households will be lower than it was at the time of the 2019 general election. According to the Resolution Foundation,
“the typical working-age household faces an income fall of 4 per cent, or £1,100, in 2022-23.”
Public sector workers will fare even worse as they have faced more than a decade of wage freezes, with the announcement of another derisory pay rise today.
With the freezing of the personal allowance and income tax thresholds, as well as hikes in national insurance, 27 million workers will pay more in income tax and national insurance by 2024-25. No Government in British history have ever negatively affected so many people in one fell swoop. The Chancellor has neither given adequate immediate relief from the cost of living crisis nor addressed the structural factors that condemn millions to poverty and hardship.
The average household energy bill is expected to increase to around £3,000 by the end of this year. Consequently, the average energy company profit per household is expected to rise from £24 to £60—two and a half times more. Energy producers, including oil companies, gas companies and other companies, are expected to increase their profit per household from £43 to £1,717—that is a fortyfold increase in their profits—yet there is no windfall tax on the producers of energy to reduce household energy costs. So my first question is this: can the Minister tell the Committee why the Government are tolerating such a high rate of profiteering? I hope that she will not come back and say that they are investing, because I already have an answer ready for that; she will have to find some other answer for that question.
The word “pensioners” appeared just once in the Chancellor’s entire speech. There is no immediate restoration of the triple lock or increase in the winter fuel payment, which has remained unchanged since 2011. The median weekly state pension of between £150.25 and £178.52 per week will rise by 3.1% from April, while the rate of inflation—RPI—is 8.2%. Food prices are forecast to increase by 15% on average while energy prices—
Lord Sikka (Lab)
My Lords, just before the Bells rang, I was referring to the plight of our senior citizens, who are facing food price rises of 15% and energy price rises of 54%. Already, 2.1 million of them live in poverty; millions more will now face hardship. It is disappointing that the Chancellor did not really have anything additional to offer them. In case the Minister is inclined to defend that, would she volunteer to live on the median state pension and see what it is like?
Before the pandemic, some 14.5 million people, including 8.1 million working-age adults and 4.3 million children, were living in poverty. The Chancellor’s cruel policies will push another 1.3 million people into poverty, including 500,000 children. That is unacceptable. UK household debt at the end of January 2022 was nearly £1.8 trillion. Millions of people just do not have a buffer of savings to help them manage the crisis. Median household gross savings are £12,500 in the UK. Some 25% of households have less than £2,100. Millions of people are just one pay cheque away from destitution, yet the Government have not offered them any help at all.
Due to inflation, the Government have higher tax receipts, but they are retaining them to bribe the electorate before the next election with an income tax cut of 1p in the pound in 2024. This will do absolutely nothing for the 18.4 million individuals whose income is below the tax-free personal allowance. According to the Institute for Fiscal Studies, only 58% of UK adults pay income tax as the other 42% are too poor and their income is less than the personal allowance. Any cut in income tax will do absolutely nothing for them either. The Government have made the poor even poorer; it has already been said that they cut universal credit last October and are now increasing benefits by just 3.1%. How does the Minister expect the poor to survive?
The Government’s tax policies are loaded against work and workers. I will give your Lordships an illustration of how they work and how unfair they are; hopefully noble Lords have a pen and paper handy to note down the numbers I am going to call out. Let us look at a case with two individuals who each have an annual income of £30,000. One is a worker in a factory and the other speculates on shares and makes capital gains. The worker has £30,000 gross income and will receive a personal allowance of £12,570 from tomorrow; that leaves a taxable income of £17,430. This worker then pays income tax at a rate of 20%, which comes to £3,486, and will now also pay 13.25% of national insurance, which comes to £2,309. Their total deductions are £5,795 and their take-home pay is £24,205 out of £30,000 gross.
Now let us look at the speculator, who speculated on shares and made capital gains of £30,000. They will receive a capital gains allowance of £12,300. Chargeable gain—the phrase used—is then £17,700. This is not liable to 20%, as the worker pays in income tax, but to only 10%, so their capital gains tax is £1,770. The national insurance payable is zero because no national insurance is charged on capital gains. The total deductions paid by this speculator are £1,770 and their take-home pay is £28,230, compared with the worker’s £24,205. Why on earth are workers penalised with higher deductions?
I have some questions for the Minister. First, why is no national insurance charged on capital gains, even though the recipients use the National Health Service and social care? I hope that the Minister will answer that; hopefully we will get some straight answers. Secondly, why are workers charged a higher rate of tax than speculators? How is that conducive to levelling up and building a better society? I hope that the Minister answers that question, too. As I have said in the House many times, by taxing capital gains at the same rate as earned income and charging national insurance on it, we could raise at least £25 billion. This could be redistributed and invested in public services and higher education, as was mentioned earlier, but that is simply not done.
It is not that the Government do not like just our senior citizens, workers and people on benefits—they do not seem to like graduates either. The Chancellor did not mention that fact in his speech but, when you look at the OBR analysis, you can see that grievous harm is being done to our graduates. Under the Government’s formula, graduates will pay interest at RPI plus 3%, which will hit 11% to 12% soon. The average graduate debt is £50,000. Where exactly are graduates going to find that £6,000 in the form of interest, in addition to higher food, energy and other costs? The OBR’s analysis is that graduates will be hit by £11 billion in 2022-23 alone, and by a total of £33 billion over the next five years. That is the OBR’s actual analysis—it is in the Statement. Can the Minister explain how she expects graduates to survive? Will the Government consider revisiting their treatment of graduate debt?
There is nothing in the Chancellor’s Statement to address the deeper causes of poverty. For example, 42% of all disposable household income goes to the top 20% of households, while 7% goes to the bottom 20%. The Government have no policies for addressing this and securing an equitable distribution of income. Workers’ share of GDP in the form of wages and salaries has declined from 65.1% in 1976 to 48.7%—a decline unmatched in any other industrialised country. Yet there is no government policy that I am aware of to increase workers’ share of GDP, without which a resilient economy cannot be built. I am afraid that the Chancellor’s Statement has probably increased the possibilities of social disorder this summer.
Lord Turnbull (CB)
My Lords, a number of what Jane Austen would have called “truths universally acknowledged” have slipped into public debate about economic policy, but many are fallacies. I start with the contention that it is pointless developing the UK’s oil and gas reserves because this will not reduce the price. It is true about not reducing the price, but that misses the point. We will need hydrocarbons for several decades to come even if we are approaching net zero. So long as we do, we are better off developing our own oil and gas resources, which will also enhance security of supply. Exploiting these reserves will add to national income and so boost our tax base, and providing investment in and inputs to the sector will add to our skills base.
The next fallacy we should address, which is often heard from the Conservative Benches, is that we should not tax people’s hard-earned savings—a euphemism for “hands off the value of my house”. For most people in this Room, the value of their house forms a large part of their wealth, and the capital gains on it form a large part of the increase in that wealth. Little of this has attracted income or capital gains tax. The claim that this is hard earned is entirely bogus. In my case, it is the effect of living in the same house in a nice neighbourhood for 34 years. I have not done anything to earn that. A recent analysis showed that, for many people in this country, the increase in the value of their house was bigger than the income they earned in the year.
We have a system for taxing housing wealth but it is seriously flawed. Through stamp duty we impose very large transactions costs on those who move but relatively little on the continued ownership of housing. We should flip this over, reducing stamp duty and increasing council tax, so that all householders pay a moderate amount extra every year instead of the small number who move, often for very good reasons, paying an enormous amount in that year. The added bonus is that these revenues could accrue to local authorities, which need more money to fund social care. Of course, all this needs a revaluation and a wholesale reconstruction of the council tax bands, which are stuck at 1992 levels. That requires political courage, which is not much in evidence.
There is a mystery about where we are going on the relative taxation of earned and unearned income—one of the points the noble Lord, Lord Sikka, just made. In 1971, in my second job in the Treasury, I worked on fiscal policy. In that year the tax on earned income was 83%, to which was added an investment surcharge of 15%, bringing the combined top rate to 98%. These rates were abolished by Chancellors Howe and Lawson—now the noble Lord, Lord Lawson—and the latter sought to establish a system in which we had a top rate of 40% on all forms of income, including capital gains. This regime did not last long, being progressively dismantled by several successive Chancellors.
The proposals now before us turn 1971 on its head. National insurance contributions have been raised while income tax rates are unchanged, so that there is no extra taxation on dividends, rents, interest and so on. The result is that tax on earned income has increased relative to other forms of income, and the growth of ISAs also favours investment income. What is the logic in all this?
It gets worse. The 1p cut in income tax in 2024, which was the coup de grace of the Spring Statement, applies to both earned and investment income. When rates are going up, investment income is protected, but when rates are going down, investment income shares in the benefit. For those with investment income it is heads I win, tails you lose, leaving younger working families shouldering the burden.
Let us face it: there is no logic in all this. It is just virtue signalling to assure the party faithful that their party still believes in lower taxes. It is also a knee-jerk response to the silly gibe that taxes will be the highest since Clement Attlee. I will explain in a moment why it is a silly gibe.
The Chancellor might still dream about lower taxes but do they work for society as a whole and can they be achieved? Economists used to describe as “luxuries” goods and services which people wanted to buy proportionately more of as incomes grew, but this is not true anymore. In today’s world, the things we want proportionately more of are not luxuries but essential services such as health, care, education, access to justice and resilience against sudden loss of income. These services can, mostly, be better provided collectively.
In Attlee’s time, those over 75 were 5% of the population but now they are approaching 15%, and this share will go on rising. So the outcome for any given level of borrowing is likely to be a high-tax/high-spending combination. The risk for the Conservatives is that they are locked into their low-tax mantra, even if they do not really believe in it, while the remorseless tide of demographics carries tax levels ever upward.
Two years ago, the Lords Economic Affairs Committee identified serious problems with universal credit in both the level of support it offers and the way it is administered. The two years of the pandemic have shown it in an even harsher light. Its finding then was that universal credit had
“left some claimants with an income that is substantially lower than their essential needs.”
That is even truer today. I believe we are heading for a new Poor Law, with local authorities and food banks supporting the destitute. Even in difficult times for this country, is a new Poor Law really the best we can offer?
In skating terms, the Spring Statement as a parliamentary occasion scored well for artistic impression, but for intellectual coherence and technical merit it was pretty dire.
Lord Desai (Non-Afl)
My Lords, from looking around, I think I am the last Back-Bench speaker.
Before I say anything about the Spring Statement, I want to make an ad hoc statement. This is nothing to do with the topic but I still want to say it: there is a rumour that we have some surplus stocks of PPE worth billions and it is going to be destroyed. I suggest to anyone who is present not to destroy it; it may not be good for clinical use, but it would be useful for lots and lots of poor people around the country. Food banks and all sorts of people can use it, so please do not destroy anything valuable that you may have bought for billions. That would be a great waste. I am sorry; I wanted to get that off my chest because I have been worrying about it all night.
I pay tribute to the Office for Budget Responsibility, a great innovation of George Osborne. We have to admire it because it has considerably improved our debates about the Budget. That being said, the Chancellor was very good when he faced the pandemic; he did very well. I know there was a lot of fraud and so on, but we will not go into that because he really did meet the challenge. He was willing to break the rules when he had to in order to protect livelihoods and lives.
Here, though, I think he missed the fact that we were in another very big emergency even before the Russian invasion of Ukraine. Energy prices were already rising before then, which was very much a repetition of the oil price rise in the 1970s. Almost 50 years after the first energy shock, we are going through another one. The OBR forecasts for the growth rate in the post-pandemic recovery are all fairly small. I reckon that we are in a stagflation cycle that is going to be very serious, not just for one year but for about five.
We are not prepared to face that crisis. There is still the idea that somehow we are going to become a low-tax, high-productivity, high-this and high-that country, but no one has actually sat down and told me how this economy can be low-tax when a lot of public expenditure has been built into people’s expectations. We have an ageing population and a huge deficit in the National Health Service. Despite the increase in national insurance contributions, we have not tackled the social care financing issue that Andrew Dilnot talked about. We thought we were being given the solution with the national insurance contribution increase. I will not even go into the fact that it could be regressive, but all that money is supposed to go towards the big NHS deficit so we are still left with a gaping deficit for social care expenditure. There are all sorts of other issues too: we need to upgrade universal credit because we have been robbing the poor to pay the rich, as usual, so we will have to correct that.
The idea that a Conservative Government would have to be a tax-cutting Government is a historical fallacy. The real heavy lifting during the Thatcher Government was done in the first five years, when Geoffrey Howe came and doubled the VAT rate from 8% to 15%. That was the way in which Mrs Thatcher tackled the problems in the economy. I know everyone thinks that money supply did the trick, but it did not; it was unemployment that did the trick. I have never been a monetarist so I am not worried about that.
I am not actually going to speak on the Spring Statement much, because everybody has said everything necessary. At some stage, the Government will need to have a serious think about how they are going to tackle the problem of paying for social care. As some have said, especially my friend the noble Lord, Lord Balfe—and I have proposed it myself—we have to do something about council tax. We will have to tax the unrealised capital gains of property owners and in such a way that they do not have to sell the property but just have to pay higher tax.
I have given this example before but will give it again. I recently sold the property in which I had been living for 17 years. The property had quadrupled in price but my council tax had not changed in 17 years. There was a lot of scope to get a lot of money from me while I was in situ as, had I been paying rent, my landlord would have steadily increased that rent for those 17 years.
Just as the noble Lord, Lord Sikka, said that we do not tax capital gains, we do not realise untaxed capital gains either. We are missing a great trick here, because you ought to tax things that are not painful for people to pay. When you tax current income from work, either through national insurance or income tax, people feel the pain but, if you tax them indirectly or through unrealised capital gains, they will not feel that pain. This economy will need a much fairer tax burden than it has rather than a higher tax burden.
I do not know whether noble Lords saw the recent letter in the Financial Times that said that the 10 happiest countries in the world, by some sort of calculation, are also the most taxed countries by rate of tax to GDP. Of course, they are all Scandinavian and north European. It is a fallacy to think that a low-tax economy will be a happy economy. Some people will be happy—the better off—but a lot will be miserable, because they will not have the welfare expenditure and other things that stave off poverty.
The danger of stagflation is very serious. If not now, very soon—maybe by next March—the Chancellor will have to renege on his promise to cut tax in 2024. He should never have made such a bet anyway. It will not be feasible to cut taxes in this decade, because the stagflation we face is very serious.
It is quite uncanny that the 1970s were the era of stagflation. If you go back to the 1920s, there was also bad news for the British economy then, because it turned into an economy of high unemployment before the great depression. I think we are going in 50-year cycles but I will not dwell on that. This stagflation crisis will not go away for at least the life of one more Government, so the Chancellor ought to sober up and stop thinking about low tax.
Baroness Kramer (LD)
My Lords, this has been an absolutely fascinating debate. Once again, I regret that it has not happened on the Floor of the House. I think it would have been interesting to so many noble Lords with different specialisms, they would have enjoyed listening and many more would have participated.
I ask myself whether the Chancellor and Prime Minister understand the crisis that many households face now and in the immediate few months. I find the OBR to be very succinct on the issue:
“CPI inflation now forecast to peak at close to 9 per cent in the fourth quarter”.
Most people actually experience RPI, which is running at about 2% above CPI, so we are talking about people in their real lives looking at something in the 10% to 11% inflation mark. That is extraordinarily painful. The OBR goes on to say:
“Real household disposable incomes per person fall by 2.2 per cent in 2022-23, the largest fall in a single … year since ONS records began in 1956-57.”
The impact is harshest on the lowest-income households, which have received the least help, either in February or in the Spring Statement. Universal credit and other benefits are rising only by 3.1%, and 1.3 million people, including half a million children, will fall into absolute poverty. Out-of-work households, including those of disabled people, will see a fall in income this year by a dire 8%.
We had so many speeches around these issues. The right reverend Prelate the Bishop of Worcester gave a warning that he fears we are reaching a saturation point in civic society being able to pick up a great deal of this pain. The noble Lord, Lord Turnbull, talked about, in effect, a new Poor Law. The noble Baroness, Lady Boycott, warned us that the degradation in people’s food spending has nutritional and health consequences, and indeed, broader consequences. The noble Lord, Lord Bird, reminded us that poverty is an issue and here we are increasing dramatically the numbers in absolute poverty, which needs a long-life-cycle set of responses. Frankly, this Budget does not begin to enter into that territory—and it is a Budget, not a Statement.
We on these Benches understand that times are not easy, and the fundamentals are poor. We have a serious shortage of working-age population. The dependency ratio has shot up to an unsustainable 57% and the OBR estimates the scarring effect of workforce shortages to be 1.2% to GDP. We had some discussion of those issues by the noble Lord, Lord Balfe. That is really crucial scarring, and it is not an issue that you can turn around, particularly with the Government’s current set of immigration policies.
Business investment remains the lowest in the G7 by quite a margin with little improvement forecast—that is from CBI figures. Productivity continues to be in the doldrums. We had a long discussion that the noble Lord, Lord Macpherson, started, on productivity, but frankly, two key factors in enhancing productivity are market size and market access, both of which we threw out of the door with Brexit. Now the measure of improvement we need in every other factor impacting productivity is huge, and we have seen no movement in that arena.
Exports to the EU have collapsed—again, the noble Lord, Lord Northbrook, referred to this—and the increase of exports to other markets is so small it barely registers. To quote the OBR:
“The UK therefore appears to have become a less trade intensive economy, with trade as a share of GDP falling 12 per cent since 2019, two and a half times more than in any other G7 country”.
So, 2% scarring was from Covid, but 4% scarring was from Brexit. We have talked about the impact of a working-age workforce shortage.
As many have said, debt interest spending will rise to £83 billion this year—the highest nominal spending on debt interest ever. We had to borrow during Covid but our vulnerability to interest rate hikes is also due to the Treasury’s decision to issue RPI-linked gilts. To do something like that when inflation is basically on the floor is extraordinary. I can only assume that the Treasury felt under pressure to provide this extraordinary sweetener because it could not otherwise clear its various debt issuances in the market. That makes my stomach churn because, frankly, it is a real warning sign when investors require a sweetener such as that to be able to buy gilts—and that is on top of QE.
This all gets summated in the forecast for the growth of the economy. It is only 3.8% this year, down from an October forecast of 6%, and is forecast to be 1.8% next year, settling down to 1.75% in the longer term. The noble Lords, Lord Hain, Lord Macpherson and Lord Northbrook, emphasised this issue. The noble Lord, Lord Desai, went on to warn us of stagflation; he has an extraordinary record of being right on these issues.
I want to say this to the Government: the self-congratulatory approach that we hear constantly from them, with this sort of rosy picture, desperately worries me. When all the policies are put together and packaged, the number that summates where we are is the growth number—and it is appalling. On that level of growth, we cannot sustain the living standards that we have today. This figure does not even include Ukraine. I just hope that, on some level, the Government know that what they are saying is pure PR; they are not taking on board the real experience that our economy is going through.
Let me quote the OBR on wages. It said that
“real wages stagnate over much of the forecast period.”
As we know, the private sector expects wage growth of around 5% this year. If public sector employees such as the nurses, teachers and transport workers whom the Government lauded so much get only 3% as rumoured—I am told that something coming out today suggests that it will be even lower—I really wonder who will remain a public sector worker. There was nothing in the Spring Statement for the public sector to absorb inflation; the noble Viscount, Lord Chandos, and the noble Lord, Lord Davies, made these points. We need to take on board why on earth we are not recognising the impact on public services of the kinds of inflationary pressures that we are seeing.
In looking at the impact of the Spring Statement, I am still concerned about funding for both health and social care. I look forward to the letter I am hoping to receive from the Minister—she promised it yesterday, which I appreciated—to understand what the impact of the increase in the NICs threshold, which I support, will be on the National Insurance Fund and any consequent funding for the NHS and social care.
I want to make just a brief comment on the Chancellor’s plan to cut income taxes in 2024. Trading standards have a rule that it is false advertising to raise the cost of goods today so that you can declare a sale on those goods tomorrow, but that is exactly what the Chancellor has done. In reality, the NICs increase of 1.25% funds the 1p cut in income tax in 2024; as I said, once you allow for the threshold, the numbers trade off almost exactly. That is not just cynical; it is cruel at a moment when families need extra money just to live. Overall, it is not cutting tax because, according to the IFS, the Chancellor will give back just a sixth of the taxes he is raising. I re-emphasise the issue that the noble Lord, Lord Macpherson, has touched on today but talked about extensively yesterday: raising NICs to fund this cut in income tax marks a real shift in taking the burden of what is effectively taxation, in both cases, away from unearned income and placing it far more heavily on work. That is retrograde and, frankly, should be far more transparent.
SMEs need help too. Today the British Chambers of Commerce came out with its quarterly economic survey, and it is awful: 62% of firms expect to raise prices and 77% cite inflation as a growing concern. In both cases, those numbers are historical highs by some margin. Many businesses which thought in December that the worst was over are now asking if they can even stay in business. To quote Make UK:
“All the evidence points to a situation where an increasing number of manufacturers face a fight for survival”.
They need at the very least a VAT cut to reduce their cost base and fire up the economy.
As so many noble Lords have said, climate change was not even covered in the Statement. We have no spare time to try to deal with that issue. Frankly, if the Government think they are not going to have to put extensive amounts of money into energy efficiency such as insulation and into pushing what the commercial sector will not support but which is crucial—namely, long-term energy storage—then they are living in a fantasy land when it comes to ever achieving their net-zero plans. The issues of climate change and net zero were emphasised by the noble Lords, Lord Whitty and Lord Bourne, the noble Baroness, Lady Boycott, and my great noble friend Lord Oates, who made the point that any important economic Statement should absolutely reference and deal with the issues of climate change and net zero.
Oil and gas companies are awash with money but are not investing large amounts of it; the noble Lord, Lord Sikka, has described the profits of some of these major companies. I was stunned to see that Shell has announced £8.5 billion in share buybacks this year; it just cannot find a place to invest it. BP expects £6 billion in share buybacks and hopes the market will be willing to take more. The Treasury, which last October forecast £8 billion in increased revenues from fiscal drag—basically coming from the freezing of tax thresholds—now expects that drag to deliver over £21 billion. The noble Lord, Lord Northbrook, was saying that over five years it will be £35 billion pounds, a huge figure. Fuel inflation will give the Government an extra unexpected £2.5 billion even after the cut in fuel duty, so this year alone, when you put all the pieces together, the Chancellor found himself with an unexpected extra £26 billion in tax revenues.
The noble Lords, Lord Horam and Lord Whitty, addressed some of these issues, and in a sense so did the noble Lord, Lord Bird, when he talked about priorities. If the Chancellor had any empathy, he would have used that windfall that the oil and gas companies are receiving, placed on it a super-profit windfall tax and combined it with the extra tax revenues; then he really would have had a pot of money to protect families now. That money could have been used for a temporary VAT cut to stimulate business, a cancellation of the NICs increase and the restoration of the £20 uplift to universal credit.
That kind of Statement would have been a proper response to a real crisis. What we have is not adequate, and I am afraid the Government will know that because it will be reflected in the daily experience of the ordinary public of the United Kingdom.
Lord Tunnicliffe (Lab)
My Lords, this has been an interesting debate. I shall pick up one or two themes that we have heard in the debate and then make some general comments. My noble friend Lord Whitty made reference to the omission of net zero and climate change, and that was echoed by many noble Lords. I hope the Minister can tell us that this was an accident rather than a theme of policy. The noble Baroness, Lady Boycott, brought out the issue of food insecurity and its long-term impact. We have not discussed that enough, nor the idea that we should get on top of basic things now and yield savings in the future by not having long-term problems.
My noble friend Lord Hain raised an issue that was central to my life: taking money off the Treasury. He accused it of hampering investment in key areas. I have never really got to the bottom of the Treasury; at some points it works with you in a very—I was going to say “theoretical”, but that is unfair—intellectual way, but the rest of the time you get the sense that it is fighting a rearguard action to make sure that no money actually goes out of the door. Anyway, in the long term I did quite well; I got a little railway.
The right reverend Prelate the Bishop of Worcester usefully brought out that not only do we have to worry about these absolutely crucial things such as climate change—thinking about our grandchildren and their children and what the world will be like unless our generation actually does something about it—but equally, as part of that, we have to keep vulnerable people in mind. The noble Lord, Lord Horam, used a word that is not around enough these days; he touched on the fundamental idea of fairness in the treatment of working people, and said rather flatly that the Chancellor has not done well.
The noble Lord, Lord Bird, had another go at the Treasury but I thought the idea he brought out most powerfully was that we legislators are simply too rich. We can talk about figures and so on but the question of where the next roof or meal comes from is just too far away from our day-to-day experience. It troubles me; I do not know why. Like most of us here, I suspect, I have been very lucky: although I originally came from poor parents, I never went hungry and was never in fear of the roof being taken away from me.
The noble Lord, Lord Macpherson, undertook the heroic exercise of defending the Treasury. I quite liked his overview of Marxism mixed with a long-term commitment to Keynesianism—you might get some good out of that if you put it all together. My noble friend Lord Sikka gave an analysis that public sector workers had been hit particularly hard and that the Chancellor has done nothing to deal with the structural factors that condemn us and them to poverty and hardship.
It is unusual for these debates to take place the day after related tax legislation has been fast-tracked through your Lordships’ House. Rarely do the Government move so quickly to implement their Budget or Spring Statement; even more rarely is parliamentary time used to fast-track policy changes that, on balance, still leave millions of working people out of pocket. I will not simply repeat my contributions on the then National Insurance Contributions Bill, although there will inevitably be a degree of crossover.
We supported the passage of that Bill because any help for working people is better than none. However, as I said yesterday, the Chancellor has adopted the wrong fiscal policy at the wrong time. His decision to equalise NICs and income tax thresholds from July was an attempt to convince the working public that he had understood their concerns about the health and social care levy and the rising cost of living. However, rather than scrap the levy, as many of the Government’s own Back-Benchers wish, the Chancellor believed that some accounting tricks today, coupled with the promise of a tax cut tomorrow, would win the British public over.
The Prime Minister had rolled the pitch for the Chancellor to row back on the NHS levy but Mr Sunak failed to do so. For someone so concerned about public image, his decision not to play his get-out-of-jail-free card was staggering. He also opted not to impose a windfall tax on North Sea energy firms to assist billpayers, despite those businesses making huge profits and paying substantial dividends. If we look at the early academic analysis, opinion polling and media reporting, the Chancellor got last week’s calls catastrophically wrong—even more so than his attempt to pay for petrol at a nearby Sainsbury’s.
It is not the first time that the Chancellor has got things wrong. His coronavirus support schemes were full of holes, allowing criminals to claim billions while hard-working freelancers were forced on to universal credit. Although individual components of the Spring Statement may be popular in the polls, only a very small proportion of the public believes that the package is sufficient to help them through the Conservative Party’s worsening cost of living crisis.
This debate is about the state of the economy so let us take a quick look. Inflation is currently at 6.2%—a 30-year high—yet is not even remotely close to peaking. The energy price cap increases for 22 million customers tomorrow, and probably will by the same amount again in the autumn. Even after the Spring Statement, the OBR estimates the biggest drop in living standards since records began. It is worth reminding the Committee that, contrary to the Government’s narrative, a variety of costs were on the rise months before Russia’s illegal invasion of Ukraine. The cost of living crisis is not a new problem and, although the situation in Ukraine has its implications, the public see through the Chancellor’s attempts to lay the blame at Putin’s door.
What we needed from the Chancellor last week was a great deal more empathy. When asked at Monday’s Treasury Select Committee hearing why he was prepared to plunge 1.3 million people, including 500,000 young people, into absolute poverty, the Chancellor tried to present his policies as progressive. Analysis by the Joseph Rowntree Foundation suggests that the Spring Statement will leave almost all working-age households worse off next year. That is partly the result of the NHS levy but is mainly the result of the failure to uprate benefits by inflation. That decision, which a Guardian editorial labelled an “abdication of responsibility”, means those with the least will suffer the biggest overall hit—close to 5% of their income when compared to this year.
If you are a single person who is out of work through no fault of your own, the situation is even more dire: the Resolution Foundation says that the total change in income will be in the region of £1,300, or close to 15%. These are people without proper accommodation and without any surplus or margin in their income; it is difficult to predict where that will come from although, sadly, it will probably come from illegal lenders, leading to violence in some cases.
The Resolution Foundation points out that only £1 in every £3 for the measures announced in the Spring Statement will go to the bottom half of the income distribution. Households in the top half of the income distribution will gain far more in monetary terms than the poorest fifth of households, which will be disproportionately impacted by the treatment of social security. Incomes are on course to be lower at the next election than they were at the previous one. Such an outcome, according to the Resolution Foundation, would make this the worst Parliament on record for living standards. Is that really the record that the Conservative Party wants to run the next election on?
In a sense, the starting gun for that election has been fired, with the promise of a 1% cut in the basic rate of income tax. However, as the Shadow Chancellor pointed out in her response to the Spring Statement last week, and as others have mentioned today, the Government have raised tax for working people now to fund a tax cut in 2024, which will benefit, among others, landlords and share-owners. Paul Johnson of the IFS was right when he referred to Mr Sunak as a “fiscal illusionist”. He has promised a specific future tax reduction that polls well despite knowing that, on his watch, taxes as a fraction of national income are rising to the highest level since the 1950s.
Of course the Chancellor faces difficult economic circumstances—we are not the only country experiencing inflationary pressures—but we must all accept that recent actions against Russia will have economic consequences at home. Mr Sunak has been consistent in his message that he cannot fix all of society’s ills. That may be true but political actors can choose where to focus their firepower. The last Labour Government opted to pay people more, cut poverty and reduce homelessness. The underlying problems were not eliminated but significant progress was made. With this Government and this Chancellor, it seems that the priorities are nominally out of kilter with the views and best interests of the public.
Working people are more than doing their bit. They are the engine room of our economy; they made sacrifices during the pandemic and were promised that they would reap the rewards. This Spring Statement did nothing to deliver on that promise and, while taxes are going up for working people, options such as a windfall tax were dismissed out of ideological dogma. With its forecasts of ever-higher inflation and ever-lower growth, the OBR has clearly seen through the Chancellor’s bluster—and, with each new opinion poll, it seems that the public have, too.
Baroness Penn (Con)
My Lords, it is a real privilege to close this debate on behalf of the Government. It has benefited from a wide range of thoughtful contributions, so I shall focus my closing remarks on addressing as many of the points noble Lords made as I can.
The noble Lord, Lord Whitty, kicked off contributions by asking about climate change. His comments were echoed by many noble Lords, including the noble Baroness, Lady Boycott, and the noble Lord, Lord Oates. I am glad the noble Lord, Lord Whitty, acknowledged the dramatic and impressive statement made by the Government’s road to net zero policy, at the time of the Glasgow summit. I reassure him that that commitment remains. It is backed by £30 billion of government funding, which we hope by 2030 will leverage up to £90 billion of private sector investment in tackling climate change.
Noble Lords also acknowledged the measures in the Spring Statement to remove VAT on energy saving materials. This is expected to be worth £170 million over the next five years to support decarbonisation. The noble Lords, Lord Bourne and Lord Hain, asked how this would apply to Northern Ireland, given the protocol. We look forward to engaging constructively with the EU and Ireland on our proposals in this area, and we are committed to ensuring smooth implementation of the Northern Ireland protocol, while ensuring that Northern Ireland remains an integral part of the UK market. The Northern Ireland Executive will receive a Barnett share of the value of this relief, while the Government and the EU discuss the application of the reform to Northern Ireland.
Noble Lords asked more broadly about other measures to support energy efficiency, in particular how we can help low-income households to improve their energy efficiency and reduce their bills. The Government are providing £3 billion of funding over this Parliament through schemes such as the social housing decarbonisation programme and the home upgrade grant, which will support energy efficiency for those on some of the lowest incomes. We allocated £500 million of this to support households improve their energy efficiency in the last year.
The noble Lord, Lord Whitty, also referred to a climate change amendment in the Subsidy Control Bill. While I do not know the details of that, I can think back to Bills in which I have been involved—whether the Financial Services Bill, or the skills or health Bill—where amendments on climate change have been made, recommitting the Government to our net-zero targets. I hope he is reassured by that.
The noble Lord, Lord Sikka, and others asked about a windfall tax. As he knows, the Government already place additional taxes on the extraction of oil and gas. To date, the sector has paid more than £375 billion in production taxes.
Beyond the broader commitment to net zero, as regards what the Treasury is more directly doing, there has been a huge push on green finance from the Treasury. Our ambition is to align private sector financial flows with green environmentally sustainable and resilient growth and to strengthen the competitiveness of the UK. We are committed to becoming the world’s first net-zero-aligned financial sector, we became the first country to commit to mandatory reporting under the Task Force on Climate-related Financial Disclosures, and we are introducing economy-wide sustainability reporting requirements. I could go on but, I hope that in naming some of those measures, noble Lords will hear the Government’s continued commitment to this agenda.
Another strong theme that came through in this debate was the cost of living. The Government understand the pressures people are facing with the cost of living. These are global challenges but the Government are providing support worth over £22 billion in 2022-23 to help families with these pressures. Much of our support will help those who are vulnerable and on lower incomes. We have cut the universal credit taper rate, increased the work allowance, and maintained the increase to the local housing allowance. We are also providing an additional £500 million through the household support fund as well as increasing the national living wage to £9.50 an hour. Analysis published alongside the Spring Statement shows that decisions made since spending round 2019 have on average benefited those in the lowest income deciles the most.
Baroness Kramer (LD)
My Lords, thanks to the noble Lord, Lord Sikka, I have just seen a copy of a Written Statement that was just put down by the Government, I assume while this debate was under way, constraining public sector pay increases for civil servants to 2%, with a 1% flexibility to go above that under special circumstances where people are particularly needed. Does the Minister really consider that this meets people’s need for additional income to cope with the cost of living in this coming year? She will undoubtedly be aware of the Statement, and I am sure that the support she has behind her has provided her with a response to the question.
Baroness Penn (Con)
My Lords, on public sector pay, of course there is a process to be gone through. The Government set out the parameters that the pay remit bodies then go away and look at and make recommendations to the Government. We are at only the beginning of that process and we will see those recommendations in the summer.
I was just saying that the Government will continue to keep the situation under review, recognising the high level of current uncertainty, including monitoring the ongoing impact of the Russia-Ukraine conflict on the economy, and will be ready to take further steps if needed. That may be pertinent to the noble Baroness’s point.
The noble Lords, Lord Davies of Brixton and Lord Sikka, raised the issue of pensioners in particular. I can confirm to the noble Lord, Lord Davies, that when the Chancellor was asked at the Treasury Select Committee a very direct question about whether he would guarantee the triple lock for pensioners this year, he was crystal clear that he would. On the value of the state pension more broadly, since 2011, when the triple lock was put in place, the value of the basic state pension has increased by £2,050 and is now at the highest level relative to earnings in 34 years.
The noble Baroness, Lady Boycott, asked specifically about food insecurity for the poorest households.
Lord Sikka (Lab)
On the state pension, I referred to the median figures, which are half the national minimum wage. Does the noble Baroness consider that a state pension of half the median wage is adequate for millions of our senior citizens to live on?
Baroness Penn (Con)
My Lords, I make two points. One is that we have been increasing the value of the state pension, as I just said. Secondly, for those who rely solely on the state pension for their income, there is pension credit in addition. We are doing a lot of work to drive an increase in the take-up of pension credit so that people who are entitled to that extra support access it.
On food insecurity, the latest statistics from the DWP on households with below-average income, which came out today, show that the percentage of individuals in food-insecure households fell from 8% in 2019-20 to 6% in 2020-21. I completely acknowledge that that is still too many and that, of course, the nature of those statistics means that they lag behind by a year. I have already mentioned the household support fund that the Government have put in place but, beyond that, we have increased the value of Healthy Start food vouchers and are investing more than £200 million a year from 2022 to continue our holiday activities and food programme, which already provides enriching activities and healthy meals to children in all English local authorities.
The noble Baroness, Lady Boycott, asked about BOGOF promotions. We recognise that there will be costs to businesses associated with implementing this policy. However, the cost of obesity to individuals, society and the NHS is significant; the benefits of reducing calorie intake across the population are therefore substantial and outweigh the costs of that policy.
In the longer term, we can best support people to cope with the rising cost of living by helping them into work—not just into jobs but into better-paid jobs. The noble Lord, Lord Bird, talked about long-term investment in social programmes. In July 2020, the Government launched their plan for jobs, which is one of the most comprehensive and ambitious plans in the world, to protect, support and create jobs across our country. That plan is working, as demonstrated by unemployment falling for 12 consecutive months back to below pre-pandemic rates.
The Government have been building on the measures announced in the 2021 spending review to support people in finding work and increasing their earnings. We will spend more than £6 billion on labour market support over the next three years. That includes extending for a further 12 months the Department for Work and Pensions’ train and progress programme, whereby those on universal credit can spend up to 12 weeks in training, or up to 16 weeks in training in subjects with skills at boot camps, instead of eight weeks. That will allow those who have recently become unemployed or are at risk of unemployment to retrain into priority sectors.
Further, we have doubled the number of work coaches in the system to 27,000 and we have the KickStart scheme, which has supported 130,000 young people into KickStart jobs. We have also announced more than £1.1 billion of funding over the next three years for programmes that enable people with disabilities or long-term health conditions to find and sustain employment. This includes continuing the Access to Work scheme, which offers financial and practical assistance in making workplace adaptions, and the work and health programme, which provides tailored support for individuals to overcome their specific obstacles to employment.
Beyond this, in terms of support for wages, the Government have introduced the national living wage. As I said, this will increase in April by 6.6%. There is also a new in-work progression offer. This means that, for the first time, people who are on universal credit and are already in work can access individualised work coach support that focuses on helping them to increase their earnings and progress in their jobs. The other element to support that progression is investment in skills. We will invest £3.8 billion in skills in England by 2024-25.
The point about investment in skills allows me to touch on another point made by the noble Lord, Lord Bird, about the importance of education. It is absolutely essential. In the House, we dealt with the skills Bill as part of the Government’s plans to ensure that technical and further education get the support in this country that they rightly deserve. This week, we published the schools White Paper and the SEND Green Paper, which focus on improving educational outcomes for children. We have narrowed the attainment gap for children in the poorest households but there is so much more to do. The noble Lord, Lord Macpherson, talked about the need for long-term action in this area, building cross-party alliances. I do not pretend that there is agreement on all aspects of our plans but, on skills and education, the policies we have designed and the Government’s approach are definitely in that spirit.
This brings me to the question of public sector spending and the comments of the noble Lord, Lord Hain, who talked about cuts to public spending. I have to disagree with the noble Lord. The spending review in 2021 set departmental budgets up to 2024-25 and, based on these plans, total departmental spending is set to grow in real terms by 3.7% a year on average over this Parliament; that is £150 billion in cash terms and an increase of £88 billion in real terms.
I will address the point made by the noble Lord, Lord Davies, about the GDP deflator. Of course, the GDP deflator is a broader measure of inflation than CPI, which just measures the inflation felt by consumers. Government operates across the whole of the economy and therefore it is appropriate to use the wider measure of inflation. This is the measure that is always used to look at these questions.
The noble Lord, Lord Hain, also questioned whether, as we meet our fiscal rules, we should use the additional headroom to allow people to keep more of the money they earn, and suggested that we might have set our priorities in the wrong place. I disagree with the noble Lord; I think his own Front Bench may disagree with the noble Lord also. It is partly for this reason: the size of the state is expected to grow to 41.3% of the economy in 2024-25—up from 39.9% in 2007-08. So, when we are in a position to do so, we should look at cutting taxes for ordinary working people to put more money back into their pockets.
On the subject of spending, the noble Lord, Lord Macpherson, raised defence spending. He will know that defence spending has been prioritised by this Government. In the spending review 2020, the MoD was awarded the largest sustained spending increase since the end of the Cold War. Underpinning that spending review decision was The Integrated Review of Security, Defence, Development and Foreign Policy, which recognised that Russia remained
“the most acute threat to our security”
and that:
“NATO will remain the foundation of collective security in … the Euro-Atlantic”.
I was previously accused of being complacent on this subject, and I reassure noble Lords that I and the Government are not. All I would say to the noble Lord, Lord Macpherson, is that we are only five weeks into the conflict in Ukraine. I think it is something that will develop and unfold over a longer time period, so I caution against changing long-term plans and decisions based on the length of experience so far.
I turn to a subject where I agree with many noble Lords: the question of growth. The noble Lords, Lord Desai, Lord Horam, Lord Macpherson, Lord Hain, and others all pointed to the fundamental need to get more growth into our economy. That is why the second part of our tax plan is focused on exactly that.
On infrastructure, we have launched the UK Infra- structure Bank and confirmed a total of £100 billion of investment in economic infrastructure over the spending review period. On skills, I have already referred to the important investment we have made, including things such as the lifelong learning entitlement and the development of skills bootcamps. On innovation, we are increasing public investment in R&D to £20 billion by 2024-25 and we are focused on boosting small and medium enterprise productivity through the help to grow scheme. I could go on, but I am conscious of time.
Many noble Lords asked about the 1p cut to income tax in 2024. We have had a wider debate in this Committee about the merits of taxing earned versus unearned income. As the Government’s tax plan made clear, we want to spread the proceeds of growth. That is why the tax cut applies to a broad set of taxpayers. I am very aware of the concerns about how we are treating earned versus unearned growth. As I assured noble Lords yesterday, the tax cut does not apply to dividend income. Dividend tax rates will rise as planned this April and not reduce in 2024.
The Government have also taken significant steps to ensure that rental income is taxed fairly, including restricting the finance cost relief so that landlords can no longer get relief at the marginal rate if they are a higher or additional taxpayer. Purchases of additional properties are also subject to higher additional rates of stamp duty.
The noble Lord, Lord Sikka, raised the question of charging national insurance on capital gains. He will be well aware of the history of national insurance contributions as part of the UK’s social security system. That system is based on a long-standing contributory principle around paid employment and self-employment, with employers, employees and the self-employed paying towards the protection of those who have been in the labour market. That is why NICs focus on the tax base that they do.
The noble Lord, Lord Turnbull, talked about housing wealth funding social care, while the noble Lord, Lord Davies of Brixton, asked me yesterday whether there are any plans to change NICs treatment for the self-employed. I was clear to him then that the Government do not have any plans in this area. The proposal to use housing wealth to fund social care was included in the Conservative Party manifesto but was not welcomed by any party—perhaps including the Conservative Party—in that election. I do not make that point flippantly; it is important that policies put forward to be delivered, particularly as we discuss them in the unelected House, have the consent of the public. If we want to enact change, ultimately, we need people’s support for those changes. Some of the debates that we have today ultimately translate into broader debates across the country.
I heard the points that the noble Baroness, Lady Kramer, made. I hope she will forgive me for pointing to the fact that it was a Lib Dem policy to raise the income tax threshold to £10,000 while adding a penny to national insurance to pay for the NHS. I might be out of date on their approach now but that is worth bearing in mind.
Underlying a lot of this debate are the choices that the Government have made.
Lord Bird (CB)
Would it not be true to say that what we are experiencing here is that it is very expensive to keep people poor?
Baroness Penn (Con)
I absolutely agree with the noble Lord. That is why I tried in my speech to point to all the investment that the Government are making in helping people to move out of poverty and have a better life than they otherwise would.
In fact, the noble Lord’s point about the choices we have made in this Spring Statement and overall as a Government is a good one. I pointed to the distributional analysis published with the 2022 Spring Statement. Our modelling shows that the poorest 66% of houses receive more in public spending than they contribute in tax and, on average, households in the lowest income decile will receive more than £4 in public spending for every £1 that they pay in tax. The impact of government policy since the 2019 spending round on the bottom four deciles is expected to be worth more than £1,000 a year, while there has been a net benefit on average for the poorest 80% of households.
Lord Sikka (Lab)
I am grateful to the noble Baroness for giving way. It has been a long day and she has great powers of perseverance, which are all on display. She referred to capital gains. The point is that capital gains are not subject to any kind of national insurance, so zero is paid. The second point I made was when I compared a worker with £30,000 of gross income and a speculator with £30,000 of gross income, and the worker was paying £4,000 more in income tax and national insurance deductions than the speculator. What is the logic in taxing workers more and then having them queue up for universal credit and other benefits, or at food banks, in order to survive? What is the economic and social logic? I would be grateful for some discussion or explanation of that. Why are workers penalised with higher rates of taxes and deductions?
Baroness Penn (Con)
My Lords, I understood the noble Lord’s points and attempted to describe why we have evolved a system of national insurance contributions that is separate from our income tax system. I am sure this will not be the last time we debate this subject, particularly with the noble Lord.
I was just talking about the choices we have made with this Spring Statement and since then. If you look at them in the round, they benefit the poorest households most. This Spring Statement recognises the impact of growing pressures on the cost of living. We continued with the health and social care levy because it will provide additional funding for the public’s priority of the NHS and, in time, as those reforms come on stream, for social care. I believe it was the right choice to do that and raise the thresholds for national insurance rather than to scrap or cut the health and social care levy altogether. If we were to do that, as advocated in the policy of the shadow Chancellor, because half the revenues from the health and social care levy come from the highest 15% of earners, a reversal would not be targeted at the lowest and middle earners.
The same goes for support to tackle energy bills. The shadow Chancellor has talked about scrapping VAT on domestic energy, which would also benefit high-income households most. There are choices to be made and they are really difficult—I do not shy away from that. But this Spring Statement provides a tax cut to support millions of people with the cost of living. We have set out how we plan to use taxes to support higher growth in this country in years to come and how, when we are on the path to that and to meeting our fiscal rules, we will share the proceeds of that growth.
I thank noble Lords for their patience with the length of my—
Lord Northbrook (Con)
Before the Minister sits down, can I kindly ask whether, in the interests of time, she would kindly write to me? I had some queries.
Baroness Penn (Con)
I will be happy to write to the noble Lord on his specific points. I apologise for not being able to cover them in my response. With that, I commend this Motion to the Committee.