Cost of Living
Lord Eatwell
That this House takes note of (1) the increasing cost of living, (2) the level of economic resilience in the social capital of the United Kingdom, and (3) the case for Her Majesty’s Government to take further steps to address these issues.
Lord Eatwell (Lab)
My Lords, consider this family holiday in Britain today. Setting off for their luxury staycation in their brand new electric BMW, our family spends wearisome hours sitting in noxious traffic jams. They pass through pretty towns rendered ugly by dilapidated high streets and persistent potholes. At lunchtime, they enjoy an exquisite picnic hamper, complete with champagne, sat beside a handsome river—polluted with raw sewage. Unfortunately, their teenage son sustains a nasty cut from some broken glass and they spend hours that evening waiting in a crowded, understaffed A&E rather than enjoying their 5-star hotel. The car is vandalised overnight.
Noble Lords familiar with John Kenneth Galbraith’s book The Affluent Society will recognise that I have borrowed from his famous description of the coexistence of private affluence and public squalor. Galbraith also wrote:
“There is no blight on contemporary life so great as the enduring poverty in our great cities and of the still unseen poor in the rural regions.”
We are all aware that the British economy performed poorly after 2010, with the decade resulting in the lowest per capita growth rate since the war, and the second lowest rate of productivity growth in the G7. Then came the triumvirate of shocks of the past five years. Brexit, according to the OBR, has reduced long-run GDP by 4% per year—for ever. In the pandemic, the UK suffered the highest number of deaths and the poorest economic performance in Europe. Now we have the cost of living shock, derived from the toxic combination of Brexit, the pandemic and Russia’s invasion of Ukraine.
The UK has the highest rate of inflation in the G7. In these rankings, Britain fares worst—every time. The Minister may argue, quite rightly, that the pandemic and the war in Ukraine are global crises. However, she must explain why the UK is now battling it out with Russia for the title of the worst-performing economy of the G20. Why is Britain proving to be so lacking in resilience, compared with everyone else?
The Government must face up to the fact that the greatest damage to the UK economy—the damage that eroded our capability to stand up to these shocks and undermined national resilience—was inflicted by the austerity policies of the Conservative-led Administration since 2010. These are the very policies, by the way, that Mr Sunak declares are his desire to reinstate in his quest for a small state. This Conservative conventional wisdom attributes the national lack of resilience to limitations imposed on the so-called wealth-producing part of the economy—the private sector. We are told that it is the private sector that generates the wealth that provides the resources for the public sector; the dominant flow of wealth creation is one-way. It is the Chancellor’s oft-repeated belief that a successful private sector needs a low-tax, deregulated economy—just as he raises taxes, by the way.
In the wake of the Prime Minister’s recent humiliation, Cabinet Ministers have rushed to display their Conservative credentials by urging tax cuts. When the Minister sums up, will she tell us how tax cuts are to be paid for? This conventional wisdom is seriously flawed. For example, it is simply not the case that cutting corporation taxes increases investment; investment depends predominantly on the confident expectation of positive returns, not on marginal tax rates. More seriously, the conventional wisdom neglects the vital role of social capital in the determination of economic performance—flawed analysis has generated flawed policies.
The term “social capital” refers to our investment in society: education, health, the legal system, the police, social security and defence. These are all vital components of the glue that binds our country together. It is social capital that provides an indispensable foundation of economic activity. Without investment in social capital, the economy loses resilience. This lack of resilience has resulted in the low-growth, high-inflation and high-taxation Britain of today. Yet social capital was the target of Conservative austerity: from 2010 to 2019, real-terms public service spending was cut by 20%. Britain was ill prepared for the shocks to come, and this is the road to Mr Sunak’s small state.
Let us consider this: how resilient could the NHS be in the face of Covid, and what were the consequences for the economy? From 2010 to 2019, government health spending grew at an average real-terms rate of 1.6% per year—lower than in any previous decade in NHS history. The NHS entered the pandemic with 40,000 nursing vacancies in England, and fewer doctors, hospital beds and CT scanners per person than in many similar countries. It was underequipped and understaffed. No wonder the Government called on the nation to “protect the NHS”.
Let us consider this relevant example: the 2012 Health and Social Care Act abolished local area health bodies. Community control teams and consultants in communicable disease control were cut. We ended up with nine regional hubs serving 343 English local authority areas. This was a recipe for disaster—or, more accurately, a recipe for the waste of billions of pounds on a failed test and trace system that might have worked if there had been sufficient local directors of public health, local field epidemiologists and local environmental health officers to make it work. Yet these were the very people who had been swept away by Conservative austerity.
What of the impact on the economy? As we know, there are currently major labour shortages in many sectors. Around 1.1 million workers are missing from the labour force. Of these, around 500,000 are due to the long-term impact of Covid. If these half a million workers were still in the labour force, then, according to OBR estimates, the GDP would be more than £8 billion greater. The less resilience shown by the NHS in the face of the Covid shock, the worse the short- and medium- term impact on the economy.
Another target of Tory austerity was education. School spending per pupil in England fell by an average of 9% in real terms between 2009 and 2019, with, most disgracefully, the most deprived fifth of secondary schools experiencing the worst fall of all: 14%. According to the Institute for Fiscal Studies, this squeeze on educational resources is
“without precedent in post-war UK history.”
The result? England is today one of only a few OECD countries where the young have worse literacy and numeracy skills than 55 to 65 year-olds. Perhaps the Government were trying to balance things up, as they also cut spending on adult education by 49%. Is it any wonder there is a skills shortage? Cutting spending on education was a sure way to reduce productivity growth, making the economy less resilient in the face of the triumvirate of shocks.
The damage done by Conservative policies towards health and education has been amplified by the persistent increase in inequality. The Office for National Statistics has shown that growing inequality has been predominantly the result not of market forces but of government cuts in social security. Here is the bitter irony: there is clear evidence that the main mechanism through which inequality affects growth is by undermining education opportunities for children from poor socioeconomic backgrounds, lowering social mobility and hampering skills development. It is not an issue just for those in dire poverty. The impact of inequality on growth stems from the gap between the bottom 40% and the rest of society, not just the poorest 10%. When combined with deteriorating healthcare and underfunded education, growing inequality has helped diminish resilience yet further, limiting our ability to respond to shocks and endangering our economic future.
Recognising the crucial role of social capital suggests that improved economic resilience and growth require not Mr Sunak’s longed for small state but the reversal of the Tories’ destructive policies—not just the current desperate short-term approach of throwing money at problems but an unrelenting commitment to rebuild social capital, plus an ambitious plan for sustained investment at higher levels than in the past.
But there is a problem. It is far easier to destroy social capital than to build it. It is as if you do not bother to service your car for years until it suffers a catastrophic breakdown. The cost of repair is then far greater than the earlier “savings”—or, to take an analogy beloved of Conservative commentators, you do not “fix the roof”. It will cost more to restore our social capital than the spurious “efficiency savings” of Tory Chancellors. Fixing the roof will require well-crafted, long-term policies—policies notably absent from the record of this Conservative Government.
However, recent government decisions do embody an approach that may be part of a political solution to the long-term challenge. The social care levy, due to take over from the increase in national insurance contributions, was, when introduced, characterised by the Government as a hypothecated levy, with the funds from the levy committed to social care and the health service.
The impact of this approach was somewhat undermined by the recent increase in the NICs threshold, which automatically cut the levy funding available for social care. But, none the less, an interesting point was made. All research suggests that people are more willing to fund social capital if they can see where their money goes and if it goes to create opportunities, expertise, production and jobs in Britain.
A long-term plan for the reconstruction of social capital that includes a regular audit linking payment of taxes or levies to expenditure in specific, if broadly defined, areas is what Britain needs. It would also allow a far better-informed public debate about the scale and content of public expenditure. The Government would and should be accountable to the people for their use of taxpayers’ money.
Of course, the Treasury hates hypothecation because it limits its discretion. However, careful examination of the Treasury’s record over the past dozen years suggests that limiting Treasury discretion would be no bad thing, as it has a clear propensity to cut long-term investment programmes in the face of short-term pressures. That is not a good way to build a resilient economy.
Building resilience will also require a complete rethink of the relationship between investment in social capital and industrial policy, recognising their mutual dependence. A lesson from the pandemic was that global supply chains are not just risky but downright dangerous. We must underpin the growth of social capital with production at home, repatriating our supply chains wherever we can. Investment in social capital must help build safe supply chains in Britain.
Fixing the roof will require both well-crafted long-term policies and a covenant with the British people. This covenant will provide the framework for a commitment to better-informed debate around the scale, contents and outcomes of public expenditure—a debate that will embody accountability. Secure social capital provides the bedrock on which the private sector thrives. It is an indispensable component of the resilient economy that the people of Britain deserve: no longer insecure private affluence and public squalor, but secure private affluence and public excellence.
Lord Griffiths of Fforestfach (Con)
My Lords, I thank the noble Lord, Lord Eatwell, for securing this debate. I will concentrate not on the whole panorama of government policy in its economic and political context, which he has done wonderfully, but on the number one issue of the day and the first part of his three-part Motion: the cost of living and inflation. I will make three points.
The first is about the seriousness of this situation. The inflation we have was totally unexpected. As we know, many—in fact, most—families are struggling at present with the cost of living, and low-income families are moving into destitution. The two consolations I have are that, first, whenever I turn on the radio at breakfast, one always hears of certain charities and community organisations helping people in need and, secondly, that the Chancellor of the Exchequer has now introduced two amendments to policies to help alleviate this situation. However, I have one concern: people are in such a situation that they are being forced into debt, with credit card loans and “Buy now, pay later” apps, and even into payday loans.
Some years ago, I chaired a commission for the then shadow Chancellor Oliver Letwin on the problems of low-income families getting into debt and what could be done about them. It was a very salutary commission to chair. The results of a Citizens Advice survey reckon that over 40% of people are borrowing simply to meet repayment. Can the Minister say what the Treasury is doing to make sure that the companies that can lend money in this way are acting responsibly in the loans they are providing?
My second point is that social capital is, in my judgment, absolutely crucial. I agree with the noble Lord, Lord Eatwell, that it is important in terms of public investment, but “social capital” as an expression was invented by James Coleman who was—to the best of my memory—a sociologist. Social capital is important in any society because it is really the foundation of our culture. It is the glue that binds us together as a society and it depends, more than anything else, on trust and trustworthy institutions.
It is precisely trust and trustworthy institutions which inflation undermines. Inflation creates a culture of suspicion, distrust, blame and, ultimately, social conflict. A novel in 1977—when inflation was high—said that:
“All over the country, people blamed other people for all the things that were going wrong – the trades unions, the present government, the miners, the car workers, the seamen, the Arabs, the Irish … idle good-for-nothing offspring, comprehensive education.”
That was a novel by Margaret Drabble, not the words of Margaret Thatcher. Our social capital is already being undermined by social media and inflation is simply adding to this. We have a blame culture: the local corner shop jacking up prices, Putin, the embargo on gas, China, a zero-Covid policy, supply shortages, companies with monopoly power, increasing prices, the rail unions, the Bank of England, the governor, the Monetary Policy Committee, shrinkflation from people reducing the amount of contents in a bag. And there are questions like why is Waitrose increasing prices more than Aldi or Lidl, or why are the prices at the petrol stations—BP and Shell—not coming down?
Inflation at present is really undermining the social glue that holds our society together. What therefore can be done about it? I think there are three things. First, getting inflation down should be the policy priority. Supporting the Bank of England in raising interest rates is painful but is, I believe, absolutely necessary. One would like to see the Bank increase rates in a way that there can be no recession, but I doubt if that is likely. However, we need to get inflation out of the system before we can have the kind of prosperity that the noble Lord, Lord Eatwell has demanded. Secondly, the Treasury must pursue fiscal prudence, not increasing spending by creating money. Thirdly, as this is done, the Government have a major responsibility to look after those people—the poorest in our society—who are bearing the brunt of what is happening at present.
Lord Howarth of Newport (Lab) [V]
I thank my noble friend Lord Eatwell for his incisive analysis, and it is a pleasure to follow the noble Lord, Lord Griffiths, whom I hold in enormous respect. CPI inflation at 9% is, in reality, 11% for households on low incomes who have to spend a higher proportion of their resources on energy and food. Inflation for them may hit 14% by the autumn. Families on exiguous wages and capped social benefits are in deep difficulty.
The noble Lord, Lord Griffiths, spoke rightly about how inflation is corrosive of trust. I suggest that the erosion of social capital—in the sense of strong social relationships and trust, which are a precondition of a strong economy—has been due above all to what proved to be excessive reliance since the 1980s on free market policies. Markets, for all their wealth-creating dynamic, are solvents of institutions, traditions and social bonds. The twin cults of individualism and competition have set all against all. As rewards to asset holders have exceeded the rewards to labour, there have been huge accumulations of private wealth, and inequality has reverted to the levels of a century ago. The wages of the disadvantaged and undefended in the labour market have stagnated and their lives have become more precarious. Young people see the system as stacked in favour of older generations. Toxic pathologies have been induced by such inequality. The effusion of national solidarity at the Queen’s Platinum Jubilee expressed a longing for a more solid sense of mutuality than is experienced in day-to-day life in Britain. Without it, our economy has been debilitated and lacks resilience.
Faced with a series of exogenous crises, the Government have made large-scale fiscal interventions. We are not in a good place. In 2021, the public sector net debt to GDP ratio was over 100%. We have exhausted the scope for quantitative easing that allowed government after the financial crisis of 2008 to borrow freely without affecting interest rates. Interest rates have already risen painfully, while the pound has weakened. The prospect for government outlays in interest payments, and for departmental spending limits, is grim. The Chancellor’s tax increases have hit the limit of what his party will tolerate. The labour market is tight. The outlook for growth, particularly in Britain, is darkening. Interest rates in the UK will rise yet further to douse inflation. The Bank risks precipitating recession, compounding social misery and choking off tax revenues.
Even if recession is averted, how can tax revenues be sustained, let alone increased, to enable us to address the fiscal implications of an ageing population and to fund decent services for all? A strong economy requires us to tackle our deficits in education, housing and the social determinants of health. Failure to invest in a timely transition to net-zero carbon and a green economy which generates plentiful good jobs would be catastrophic.
The Mirrlees review in 2009 exposed a tax system riddled with disincentives, incoherence, inefficiencies and poor targeting. This rickety system does not yield enough. One major source of revenue, fuel duty, is bound to fall. The Chancellor is considering how the tax regime can remedy the failure of UK businesses to invest. He should also be looking at the relative taxation of capital and labour, the taxation of land and property and the taxation of carbon. The system needs reform to channel entrepreneurial energy away from rent seeking into investment in productivity.
Productivity, which is key to non-inflationary growth and higher living standards, has hardly improved since 2010. To achieve competitive productivity requires not only tax reform but improved infrastructure, regulation, skills and access to capital. Regional differences in productivity are exceptionally large in the UK. I believe that this is significantly due to the concentration of decision-making, both in government and in business, in London. With the emasculation of local government since the 1970s, power and wealth have been concentrated in London and the south-east. George Osborne’s austerity axe fell excessively on local authorities in deprived areas, weakening their economies further. The Government’s levelling-up strategy has so far been wasteful of resources and does not offer adequate powers to the city regions and local government. We need more globally competitive cities.
My noble friend thinks our troubles are due in considerable measure to Brexit. Some price has to be paid, of course, for leaving the EU single market, but Brexit should not be made a scapegoat for deep-seated and persistent weaknesses in our economy. That said, the Government’s handling of the Northern Ireland protocol and their ill-judged trade diplomacy with the EU are damaging our performance and threatening our prospects.
A responsible Government would work to develop a shared view of the needs of the economy across the whole United Kingdom. Leaving our fortunes to the market, deregulation and cheap, casualised labour, with an implausible aspiration to get back to a balanced budget and low taxes, would be an abdication of responsibility.
The Lord Bishop of St Albans
My Lords, I too want to thank the noble Lord, Lord Eatwell, for his excellent introduction to the debate. I was not going to say much about social capital. Like others, I was brought up on Robert Putnam’s Bowling Alone and reading his excellent work. I notice that the noble Lord’s analysis was very much on the economic aspect. From my perspective of having responsibility for over 400 churches across two counties, the voluntary aspect is also an important part of that work.
One of the things that I have observed over the last 40 years is that the decline in social capital is due to a whole lot of reasons, which we really ought to debate in this House, including things such as the Government’s attempts to professionalise volunteers. It has become increasingly difficult to find people to help. As an organisation that is running numerous food banks, debt advice centres, lunch clubs and breakfast clubs for children who are not going to get breakfast before school, we are very eager to be part of this, but it has got more difficult for us to deliver it. I must not stay on that too long, or I will be over my time.
The challenges we are facing are stark, starting with the massive increases in fuel and basic food costs. A Food Standards Agency survey has found that one in five people has recently either skipped or reduced the size of meals to reduce their costs. Our evidence coming in week by week at the food banks is that demand has grown massively. Nobody is engineering that; we are just getting the reports in week by week.
We do indeed need a strategy for the short and the long term. I think it is very good that the cost of living payment is going to be a welcome step to easing the pressure on those on the lowest incomes. I hope Her Majesty’s Government will look at other ways of giving immediate short-term benefits. Without that, there will be the most extraordinary crisis within a very short time.
Having said that, I want to concentrate on one other aspect of the long-term response. The cost of fuel has gone up at a time when there is a desperate need to reduce our carbon emissions. It is worrying to hear that some of the very carbon-productive forms of energy are likely to be extended when we are in a crisis. We need to think about whether some of this can come together in some new ways of thinking. Fortunately, we are not in the difficult position that, for example, Germany and some other neighbouring countries are in who are profoundly reliant on gas from Russia. Nevertheless, we are affected by markets across the world, and the war in Ukraine has revealed how vulnerable we are to fluctuations in gas and oil prices. If we had made much more progress in the past in renewables, we would not be in such a weak position today.
The grants provided by boiler upgrade schemes, which I think were referred to in Questions earlier today, will undoubtedly help in this regard, although it is going to be decades before we make sizeable inroads into that. However, at a time when families are struggling, it is questionable whether they are going to have the capital that they will need to make up the shortfall for that scheme. To make a success of the scheme, we will need further loans which will help people access that market.
Likewise, the urgent need to encourage the private adoption of solar photovoltaic panels to allow households and commercial buildings to generate their own energy will play a modest part in averting the economy’s vulnerability to fluctuations in fuel prices. There is a glaring incentive problem whereby it takes far too long for the average house or business to recoup their capital costs if they install these renewable forms of energy.
If the Government are to make the economy more resilient to better absorb future energy shocks, addressing this incentive problem will be crucial. There are various ways to address it. Of course, in the most extraordinary way, these huge hikes in the cost of fuel are in fact shortening the period over which you can then recoup the costs and begin to benefit from the installation of solar panels.
Another way to tackle this is to introduce legislation so that companies providing electricity are required to pay a much more realistic price for the surplus electricity that households sell back from their solar panels. Under the old feed-in tariff scheme, householders were receiving much more money back from their providers than they do now for their surplus energy. They now receive about one-10th of what they were receiving, depending on which provider you use. Therefore, electricity companies are making a much greater profit out of buying separate energy and selling it at a huge cost back to others. What consideration have Her Majesty’s Government given to imposing a minimum price to increase the income that householders receive back from that spare electricity, thereby incentivising people to bring in these forms of renewables much more quickly?
Lord Brooke of Alverthorpe (Lab)
My Lords, I am grateful to my noble friend Lord Eatwell for a brilliant speech. I also read his blog, which he issues every week. We go back a long way. We were friends before Labour came to power. He was one of the major architects of building the Institute for Public Policy Research, which was such an important body in giving influence to economic policies within the then Labour Government of 1997, and which of course produced so many Cabinet members as well.
As we come out of Covid and with all the additional problems now facing us, this may be an opportunity—I am primarily addressing my own party—for us to sit back and take a longer look, in a way that we have not done for quite some time, in determining what the party’s economic policy should be. I do not think I will persuade the Government to change their position much. I do not feel that the Government have learned a great deal from Covid, and there are some important lessons there which need debating—fundamental issues which have not been addressed, way beyond simply the health service.
Many people worked at home and had a different lifestyle for two years. We ought to spend a bit of time talking to people about that lifestyle change that they have gone through. Many of them do not want to go back to the work they had before, because it was poor quality and poorly paid, and they found that they were happier at home. A million people have disappeared out of the economy, and we need to get those people back in one way or another.
There is a way of getting them back in. Instead of constantly saying, “Get back to work! Get back to the office!”, is it not time that we started examining whether in fact people could work from home on a far greater scale than they have done in the past? People found they were happier, healthier, less stressed, and they were saving money on not travelling and on the very high costs of childcare that many face. These are all savings that could be made for people who are in financial difficulties if they are allowed and encouraged to work from home.
I address that appeal primarily to the Labour Party as it works out its future policy. I believe that the party that says that it is looking for a fundamental change away from people working in offices in great groups to operating in their homes, within their local communities and developing them, will have a very good policy indeed that will be very attractive to many people around the country.
Secondly, linked to that, we need an overall review of where we are going with benefit support. Just as Labour went for a minimum wage in the 1990s, so we now need to move forward and look for a minimum salary for all, whether you are working at home or not, so that you can be at home with that minimum wage, you can look after your family, your children and the people around you, and you can work from home. This is an entirely new style of life which was pointed to us in Covid. It gave us the outlines of it. It behoves us now to spend more time looking at it and to see what kind of longer-term economic policy and social structure we can develop that will be more in accord with a happier nation than we have at the moment.
Lord Desai (Non-Afl)
My Lords, it is a great pleasure to thank my friend, the noble Lord, Lord Eatwell. Like the noble Lord, Lord Brooke, I have known him for a very long time, and it is a great pleasure to be able to hear his erudition and the concern that he has always had. It was also a great pleasure to listen to my friend, the noble Lord, Lord Griffiths. I commiserate with the Minister, because she has only one good Tory friend on the Back Benches taking part in this debate, but I am sure that she will bounce back and give the answer that she has prepared.
I want to concentrate my six minutes on something that I think is worth remembering. We have been through this before. In the 1970s, when the oil price quadrupled, we had a supply shock in the energy sector like we are having now. At that time, a lot of things changed in our lives. First, we had stagflation for a very long time, with very high unemployment. That was when the consensus on a one-nation politics changed. The Butskellism collapsed, and we very soon had Thatcherism.
One thing I will say in defence of Thatcherism is that it was not all about cutting taxes. People have very short memories. They do not remember that the 1970s were very hard on the economy. When Mrs Thatcher got into power in 1979, the first thing that Geoffrey Howe did was to double VAT rates from 8% to 15%, if I remember correctly; it was not 16%, because they did not want to have vindicated the allegation that Labour had made that they would double VAT. They did not quite double it; it went from 8% to 15%. Then we spent all the North Sea oil revenue and all the proceeds from selling public industries on financing unemployment benefits. The tax cuts came only at the end of the 1980s. Mrs Thatcher waited quite a while before she knew that tax cuts were affordable. Right now, they are not affordable—let me say that here and now. People have already said that we need much more money for health and social care; we need much more money to restore a lot of social capital. It would be an incredible folly for the Government to listen to their Back-Benchers who are clamouring for tax cuts. What tax cuts always mean are tax cuts for the rich; they are never for the poor. The poor have wage cuts; the rich have tax cuts—that is the way this kind of policy works.
I like the suggestion made by my friend, the noble Lord, Lord Brooke—and the Greens have recommended it too—of a basic income. I have written about it over many years. A basic income is a citizen’s entitlement of income. I know that people think it is very expensive and so on, but, right now, perhaps up to 30% or 40% of families are suffering from severe hyperinflation. I have never seen things so bad in terms of people having to go to food banks and things like that. They are unable to heat their houses; their children cannot get hot meals unless they go to school.
The Government ought to treat this set of circumstances as a serious emergency. Stagflation will last about five to 10 years. It will not go away. This is not a temporary problem. Serious creative thinking is needed, just as the Government did during the pandemic, to say, “How can we, first, relieve the bottom 40%?” The key to that is not just universal credit. That does not cover everyone in that bottom 40%. How do we protect that bottom 40%?
A basic income would be the right idea. I can tell the Government more about basic income, as I have written quite a lot about it. People often say, “Oh, if you pay people to do nothing they will never work.” That is not true. Women work without pay a lot of the time to sustain the social capital. Do not worry about people not working. Try to construct a basic income platform as soon as possible. If the Government do this, rather than thinking of tax cuts, we may yet get through this stagflation with less damage than we have done so far.
Lord Davies of Brixton (Lab)
My Lords, I find this debate more intimidating than any other in which I have taken part, because I am surrounded by eminent professors. I recently threw away my undergraduate economics essays. It was a bit of a shock to see what appalling marks I received. Therefore, I suggest that these remarks are tentative, in case they receive another poor mark.
Tentatively, I make a simple point. I characterise inflation as a class issue, which has a corrosive effect on social capital. The first-order effect of inflation is to redistribute income and capital. There are second-order effects, which the noble Lord, Lord Griffiths, set out so clearly for us, but the key effect of inflation is to redistribute, and, of course, it redistributes from the poor to the rich. Over the years some of us have done well out of inflation. I include myself in that group. It is a lot more complicated than this, but to express it at its simplest, lower-income groups depend more on essentials, which are more affected by inflation, so they suffer the most. There has been discussion about this in the press but the evidence is clear that the things that are going up in price affect low-income individuals and families most.
This is impacting on low-income workers, who have suffered a standstill, if not a fallback, in their incomes over the last 10 years. This is not following a period of growth. It is the culmination of a period in which people in the groups that I am talking about have not seen their income increase. Real wages are currently falling more quickly than in any modern times.
It is ridiculous in these circumstances to argue, as central bankers and others have done, that we are verging into a wage-price spiral. The big difference between now and the 1970s, as outlined by the noble Lord, Lord Desai, is that trade unions are much weaker now than they were in the 1970s. This has a big impact on the ability of working people to defend their living standards.
We are suffering not from wages being too high, but from them being too low. The problems we face, the causes of inflation, will not be addressed by holding back wages and resisting wage demands. That is the instinctive reaction of a Conservative Government, but what working people need now is pay increases. That will reduce the inequitable impact of inflation and as a result reduce its impact on social capital. Wage increases are part of the solution, not the problem.
Baroness Jones of Moulsecoomb (GP)
My Lords, I have a confession: I do not know the noble Lord, Lord Eatwell, at all—I deeply regret that, obviously—but I thoroughly enjoyed his panoramic exposition of the Government’s failings. It occurred to me that we could carry on listening to them all day, and there would be a lot of fun in it for me, except that some of it is incredibly painful. For example, the damage that this Government have done to schools, social housing and the NHS really hurts me because those things had an enormous impact on me, growing up.
My father and my mother told me horror stories of the poverty they both grew up in. My father was born in 1905 in south Wales. He was fatherless at the age of eight because of the Senghenydd mining disaster. He walked all the way to London with one of his brothers to find a job. When I was growing up in the 1950s and 1960s, they told stories about living in a council house with an indoor loo, a bath and a larder that they could keep their food cool in. They could also go to hospital if they hurt themselves and I, and my older brother, were able to go to school to learn and then to go on to university. These things that the Government have damaged really make me angry.
What we hear again and again from this Government is that they put forward their ideas, some of them—I do not want to say “mad” because that almost diminishes it—stupid, incomprehensible and incoherent; for example, sending migrants to Rwanda or bringing back imperial measures, which we have never lost anyway. The noble Lord, Lord Eatwell, mentioned sewage discharges. We in this House amended a Bill so that not only would sewage discharges be illegal but companies would be forced to stop them. The Government took that out. They voted for illegal sewage discharges which damage our ocean. The economic cost of that is huge in terms of human and ecosystem health.
I thank the noble Lord, Lord Desai, for mentioning basic income. I will be giving him an application for Green Party membership. It is an idea that has worked in other countries. It is not a particularly communistic idea; it is actually an incredibly sensible idea. However, the Government do not like sensible ideas. They have had all these ideas, and they say, “Nobody else has come up with an idea so these are the best we have.” I am going to give them three ideas. They are really simple, very basic and can be implemented moderately quickly, especially the first one.
The first is community energy projects. They are very fast to set up, they save people money and they can happen anywhere, from tiny, remote villages to urban neighbourhoods. They can involve anything from installing a wind turbine or solar-voltaic insulation and promoting energy efficiency. They save a lot of money and they can be done. The Government should do them quickly. They should make these things easy.
Secondly, all new housing developments should be set up as community energy schemes. Why are we not doing that? It is a simple measure and can be done; people are doing it all over the place. It would add about £9,000 to the price of homes but pay back within three or four years. That is good economics, and I urge it on the Government. Combine that with community land trusts and we could produce affordable housing that stays cheap to run—and stays affordable because it is owned by that community.
I mentioned earlier the damage that this Government have done to social housing. Right to buy was the most incredibly mad—I am using “mad” again, sorry; it was a very bad idea. I say that even though I live in a flat that somebody else bought under right to buy and it is great; it is in a 1950s council block, I still have loads of council tenants as my neighbours and it is a wonderful place to live because it is actually built quite well. However, right to buy was a disaster and we have to recognise that. Home ownership is not the be-all and end-all that the Tories seem to think it is.
I have given the Government three ideas. I would like to know why they will not implement them very quickly.
Lord Sikka (Lab)
My Lords, I thank my noble friend Lord Eatwell for tabling this debate. The major reason for the erosion of our social capital and the undermining of social cohesion is the state-sponsored squeeze on household income. In 1976, workers’ share of GDP, in the form of wages and salaries, was 65.1%. The ONS reminds us that just before the pandemic that had declined to 48.7%—a decline unmatched in any other industrialised country. Some 16 million people could now be living in poverty and therefore excluded from social consumption, with dire consequences for building a sustainable economy.
Huge amounts of wealth have been transferred from labour to capital. Indeed, the state itself has been restructured; it has become a guarantor not of the provision of public services but of corporate profits, as evidenced by PFI, privatisations and outsourcing. At the same time there is virtually no concern in state policy about the declining share attributed to labour, so labour’s share of GDP is being eroded. Hopefully, the Minister will tell us how the Government are going to increase labour’s share of GDP. Just this week Sainsbury’s CEO was paid £3.8 million—treble the salary that he collected last year—while workers got only 5.3%. Again, the Government have no policy for reducing income inequalities.
Taxation policy has been grievously misused to impoverish the masses. The poorest 10% of households pay 47.6% of their income in direct and indirect taxes compared with 33.5% for the richest 10%. I hope the Minister will tell us when the Government are going to end such regressive policies.
The Government target the poor for taxes while letting off the rich and big business. HMRC recently admitted that it has no idea how much tax is evaded by wealthy residents holding £850 billion in assets and accounts overseas, including £570 billion in tax havens. The Government are also soft on the tax-avoidance industry. I have asked many times, but the Minister has been unable to name even one big accounting firm that has been investigated, fined or prosecuted for peddling unlawful tax-avoidance schemes—that is the judgment reached by the courts.
We are now in a situation where work is penalised by government tax policy. A worker on gross wages of £30,000 takes home £24,205 after paying income tax and national insurance. In contrast, a speculator with £30,000 of capital gains takes home £28,230 after paying only £1,770 in capital gains tax—no national insurance is payable. There is absolutely no justification for such anti-work and anti-worker policies—yet all of this is central to what the Government do.
Unsurprisingly, work does not pay—41% of claimants of universal credit are in work, and 68% of families living in poverty include at least one working adult. I have received wage slips from people who are holding three jobs simultaneously and still cannot make ends meet. The Government say that the number of jobs has increased. Well, perhaps the Minister would like to meet the people who are holding down three jobs and still cannot make ends meet. No economy can thrive when the income of the masses is squeezed, and the Government need to attend to this.
We have had a decade of low interest rates and low inflation, but this has not stimulated investment in productive assets. The UK invests around 16.9% of its GDP in productive assets, compared with 20.1% in EU countries, and this low investment leads to low productivity. The Government give over 1,100 tax reliefs but have little or no idea of their economic benefits. They have become tools of tax avoidance, with accountants weaving their way through them.
Companies appease capital markets by focusing on the short term. In 1970, major companies paid out £10 of each £100 of profits in dividends; by 2015, that number reached between £60 and £70, and in some companies it is now 80%. How will these companies invest? How will the Government check this short-termism?
In conclusion, the Government need to change their economic policies. Policies that have plunged the country into crisis cannot deliver the solutions.
Viscount Stansgate (Lab)
My Lords, I rise to support my noble friend Lord Eatwell, who made a masterly speech in introducing this debate—to which there has been, if I may put it this way, a rather professorial aspect. I rather share the view of my noble friend Lord Davies that it was a little on the intimidating side—although I should say that I myself have had a lot of storage problems in life, partly because I have not yet thrown away my undergraduate essays. Of course, this is also a timely debate, not least because of yesterday’s OECD report predicting that the UK economy will slow down and that the issues we are facing today will only get worse.
In my brief contribution, I will emphasise a few of the basic facts about the current increases in the cost of living. Yesterday’s news of the biggest rise in the price of petrol in a single day for 17 years provides an ample reminder that the phrase “cost of living crisis” really means something to people. I have found that filling up my car costs more than £100, and I have the receipt to prove it—which makes me feel really old, because I can remember when petrol was two shillings and 11 pence a gallon.
Whatever the nature of the political debate about whether the Government are doing enough to mitigate the effects of these rises, it is important in this debate to get some of the basic facts on the record. Like other Members here, I am indebted to the House of Lords Library for its impartial assessment of the facts, and I hope that it will help the debate if some of these find their way into Hansard.
In late April, the Office for National Statistics published the findings of a survey undertaken in March that found the following. First, nine in 10 adults reported an increase in their cost of living in the previous month, compared with around six in 10 the previous November. Secondly, nearly a quarter of adults reported that it was “very difficult” or “difficult” to pay their usual household bills in the last month, compared with a year ago—an increase of 17% since last November.
Thirdly, around four in 10 of those who paid energy bills reported that it was “very difficult” or “somewhat difficult” to afford them. Heaven knows, this is only going to get worse. I add here one extra point: it is scandalous that people on prepayment meters, some of whom are the poorest in our society, continue to face utterly unjustifiable discrimination by being forced to pay more for their energy, at a time when energy costs are rising sharply, and will do so again in the autumn. If the Minister can find time when she replies to address the unfairness of prepayment meters, I would appreciate it.
According to the ONS survey, 30% of adults paying off a mortgage, a loan or rent on shared ownership reported that it was “very difficult” or “somewhat difficult” to afford housing costs compared to November. Some 17% of adults reported borrowing more money or using more credit than they did a year ago; and 43% of all adults reported that they would not be able to save any money in the next 12 months—the highest reported figure since the question was first asked in March 2020.
On 23 March—the very day the Chancellor introduced his Spring Statement—the Office for Budget Responsibility forecast that real household disposable incomes per person will fall by 2.2% in 2022-23, which would be the largest fall in a single financial year since 1956. This forecast was based on a projection that inflation will reach a high of 8.7% in the fourth quarter of this year, but we all know it is likely to be more.
Other bodies have reported on the current situation. The Institute for Government has reported that rising prices for living essentials have disproportionately affected poorer households, which spend more of their disposable income on food and energy and have less flexibility than richer households to absorb price increases. It is not as though the Government are responsible for every aspect of the rising cost of living. Of course they are not, and I am not suggesting they are. The effect of the Russian war in Ukraine is something no Government could reasonably have been prepared for. Its consequent impact, as we can already see, on grain availability, never mind the price, is a very serious aspect of what we currently face. However, tax and benefit changes and higher interest rates are the responsibility of this Government and they have further affected incomes and the capacity of household budgets to absorb rising living costs. We await to hear what the Minister says regarding current government policy.
There is one issue I want to raise before finishing. The rising cost of food and energy, as I say, disproportionately affects the lower-income members of our society and means their choice about what to eat is being adversely affected. I have heard people talk about being at their wits end when trying to save money. When it comes to the food they buy, to be told that they should “shop around” is an utterly inadequate response to the crisis they face in their daily lives. The use of food banks speaks for itself. People are desperate for help and, unsurprisingly, they are changing their food habits in the light of the rising cost of basic foodstuffs.
We heard earlier this week in this House about the buy-one-get-one-free policy. I have no time to talk about that now, so I will come to my final point. Today’s cost of living crisis will, in time, become a health crisis. We are storing up future health problems as people understandably react to the rising cost of living by changing their healthy eating habits. We all know that you can eat a pack of biscuits and get the calories you need for a day. That is not a healthy meal.
I hope that when the Minister replies, she will acknowledge the risks to the health of people who are being forced to eat increasingly unhealthy meals to save money. I do not want to take part in a future debate on a health crisis in which we look back on what is happening today and wish we had done more to prevent it.
Baroness Kramer (LD)
My Lords, when we discuss the cost of living crisis, we often talk in narrow economic terms, but this debate gives us the chance to look at the human impact. I thank the noble Lord, Lord Eatwell, for that opportunity, although I join the noble Lord, Lord Davies, and the noble Viscount, Lord Stansgate, in being rather intimidated by the intellectual quality of so many of the speeches. I shall do my best.
I am also thankful to the noble Viscount, Lord Stansgate, for laying out, as the noble Lord, Lord Eatwell, did too, the background economic crisis in which we currently sit, with inflation at 10%, the highest in the G7; rising interest rates; a further drop in business investment; and the slowest growth in the G20 except for Russia—and, as the noble Lord, Lord Eatwell, pointed out, no growth at all according to the OECD.
I want to pick up first on some of the issues developed by the noble Lords, Lord Griffiths and Lord Howarth, regarding the impact on those who are the most vulnerable in our society—the people on the lowest incomes. The OBR Welfare Trends Report, and the Government’s own work, states:
“The lag in benefit uprating in the context of rapidly rising inflation means that non-pensioner benefit rates are forecast to be 6 to 7 per cent lower in real terms this year than they were in 2019-20. This would be a deeper trough than in the wake of any of the preceding three recessions”.
That gives us some sense of the extraordinary scale of the problem so many people are facing.
Picking up on issues raised by the right reverend Prelate the Bishop of St Albans, according to the Food Foundation, nearly half the households on universal credit have experienced food insecurity in the past six months. This statistic really left me aghast—that almost one in 20 of all British households say that members of their household have gone a whole day without eating because they could not afford or get access to food. Of course, that feeds into the nutrition problem that the noble Viscount, Lord Stansgate, underscored.
No one has particularly mentioned those with mental health issues. Very sadly, this affects an increasing part of our community, given the impact of Covid. The Money and Mental Health Policy Institute has taken a deep look at this issue, and its results are shocking. It says that there are deep links between money and mental health and that:
“A greater share of people with mental health problems are in debt, and those debts are harder to manage”.
It also says that:
“The stakes are incredibly high, with strong connections between financial difficulties and suicidal thoughts or attempts”.
I shall pick up on another issue, which feeds a little bit into the discussion of social capital as glue, which the noble Lord, Lord Griffiths, expanded on. A quick survey of the impact of extraordinary price rises, especially for the basics such as energy and food, absolutely makes it clear that we are not all in this together. The IFS has made the point that the 1% highest paid workers have been pulling away from the rest of us. This point was picked up by the noble Lord, Lord Davies, and to some extent by the noble Lord, Lord Sikka. At a time when most people are finding that wage increases are tiny—and one of those noble Lords made the point that real wages have actually declined—the City is once again an exception, with the FT reporting that bonuses paid to the UK’s bankers, insurance brokers and other financial sector workers have hit a record high and are rising six times faster than average wages in the UK.
I am especially concerned about the impact of all this on young people. As the Resolution Foundation has said, they were the
“hardest hit by the economic impact of the pandemic”.
Many have bounced back, and the furlough scheme played an important role, but we hear that
“1 in 3 young people who experienced worklessness during lockdown have returned to atypical contracts, which often means insecure work”.
We also hear that
“the number of young people dropping out of education and the labour market altogether has risen—especially young men”.
I do not think that I had recognised that; it is a very high-risk issue. Some 50,000 young men have quit both education and labour. Some of that may be associated with work/life balance. I buy very much into everything the noble Lord, Lord Brooke, said about needing to rethink how work is structured. That is part of social capital. But the loss of those people and the impact on social mobility is really important.
Again, let me pick up the Financial Times, because that had active quotes from young people:
“the disparities are just going to grow, the wealthy are going to grow wealthier and those that aren’t will get more and more removed.”
There is a sense of real disenfranchisement among so many of our young people, which I suggest is really dangerous. We risk a real rift between the generations. The disparity in economic security is already compounding an alienation that has risen in response to our slow response to climate change, as people realise they are going to bear the brunt of all this inaction in the future, as well as deep generational divisions, which are inherent in Brexit and which often get glossed over but are really deep and significant, if you look at the surveys of young people and their opinions.
We are also seeing self-employed people hit harder than employed people. According to IPSE, the Association of Independent Professionals and the Self-Employed, a quarter of self-employed people only have enough money to cover basic costs for three months if they are unable to work. Combine that with the impact of Brexit on trade, hitting a lot of the supply chains that involve self-employed people, and recent changes to IR35, we have, according to IPSE, seen hundreds of thousands of solo self-employed people leave the industry. Self-employment, since 2010, has been the primary source of new jobs in the UK, particularly in crucial future sectors including IT and the creative sector. If we have this crash in self-employment, the whole economy is seriously put at risk.
Small businesses are also bearing the brunt, and they are genuine engines of the economy in the UK. I quote the British Chambers of Commerce:
“For business, the toxic mix of inflation, raw material costs and supply chain disruption is the flip-side of the coin to the problems facing consumers. Unless steps are also taken to ease business costs, they will likely feed into the inflationary pressure on the economy”.
Last time I was in the debate, I quoted some of the BCC’s reports on the indebtedness that is beginning to drag down one small business after another.
We have been asked to come up with ideas, and I have to say this is an area where I have to do a great deal more work. But I am interested in something that has not been raised at all here, which is the idea of basic minimum services. It strikes me as something really worth exploring, possibly with more potential than universal basic income, because it addresses the problems of the poorest. How much does it cost to have a roof over your head and decent food on your table, to be able to access health and the basics of a lifestyle? That is an area we have to explore.
It also leads me to think we need to rethink the way we structure public finances, because as we change society, we have such a narrow concept of what an investment is rather than day-to-day spending. To me, education is investment, not day-to-day spending, for example. The transition to a green agenda, which the right reverend Prelate the Bishop of St Albans raised, which may often look like day-to-day spending, is again more in the investment category and needs to be treated completely differently in public finances.
I am coming to the end of the time I can spend, but I think there is a great deal of opportunity here to explore some new ideas and recognise we are in a changing era. We have to respond to a world that is fundamentally different from that which existed ten years ago and which, at least in my case, formed the framework for a lot of my thinking. New thinking, I do think, is required.
Lord Tunnicliffe (Lab)
My Lords, let me begin by congratulating my noble friend Lord Eatwell on securing this debate. I am grateful to the other noble Lords who have participated. This discussion comes at an important time. Parties of all stripes talk about building back better after the pandemic. If we are to do that, we must, as the debate title suggests, consider how to boost social capital and make our economy more resilient to future shocks.
Earlier, the right reverend Prelate the Bishop of St Albans made a particularly powerful contribution about the challenges faced by many individuals and communities across our country. The cost of living crisis is at the forefront of our minds at present, and rightly so. Even with the energy measures announced by the Chancellor before Recess, that crisis is going nowhere. Energy and other costs will rise further in the coming months and that may require further interventions from the Treasury.
However, we must acknowledge that as well as putting household budgets under strain, the current economic situation is subjecting people to numerous other pressures: there are concerns that personal finances may be taking a toll on people’s mental health; it may impact on the frequency and quality of interactions with friends, family and neighbours; and it may change how people interact with civic processes and institutions or core public services. Addressing these issues and, in doing so, developing social capital is not straightforward at the best of times. It requires time, political will and appropriate funding. Few in this country would consider these to be the best of times.
It is worth repeating that, despite the Government’s protestations, the current economic context is not solely the result of global trends and the war in Ukraine. As other noble Lords have noted during the debate, the situation has not been helped by the Government’s recent changes to tax and benefits, which have left many low-income people worse off in real terms. Neither has it been helped, as observed by my noble friend in his introductory remarks, by the fundamental weakening of some of our most important institutions and public services since 2010. It may not have been the policy intention, but the austerity agenda caused lasting damage to our National Health Service, to the education system and to communities through cuts to local councils and other services. We cannot have economic resilience in a broad sense if core public services lack it in their own right.
Many noble Lords will have seen recent footage of an A&E nurse at the Princess Alexandra Hospital in Harlow. She was filmed informing patients that they faced a wait of up to 13 hours, and that there might not even be a bed for them when eventually assessed and admitted. A 13-hour wait in A&E is not the result of a Covid backlog, nor, sadly, is it an isolated incident in 2022 Britain. Rather, it is symptomatic of wider issues with the direction of the health services since 2010, including the watering down of proven targets and a failure to properly address related issues such as social care. The Government argue that they are trying to address those issues through the health and social care levy, but that is taking more out of people’s pockets at the worst possible time.
There have been many other signs of our ever-decreasing economic resilience. While efforts are being made to measure things such as social capital, GDP growth remains the dominant economic indicator. Nobody can dispute that the UK economy has endured a disappointing time since the global financial crisis: we have averaged just 1.8% annual GDP growth since the change of Government in 2010. While other countries’ economies rebound strongly from Covid, our recovery has been inconsistent and stop-start. That cannot be blamed solely on Covid restrictions, as some other countries moved earlier and maintained them for longer. Although it is true that there is a global surge in inflation, the most recent figures suggest the UK is performing worse than any other G7 nation. The end-result of these different factors is that the UK economy now stands on the brink of recession. Indeed, just yesterday the OECD confirmed these fears, warning that growth will grind to a halt next year, with only Russia performing worse than the UK among the G20 nations.
An economic downturn would inflict even more pain on people up and down the country at the worst possible time. Of course, there is no single answer to the challenges we face. However, as I said earlier, change can be achieved given time, political will and funding. In her response, I am sure that the Minister will cite the Government’s levelling-up agenda and their spending on related initiatives. It will take time to measure the impacts of that agenda, but it is hard to have any confidence in it when the earlier White Paper left so many questions unanswered.
Elsewhere, the Chancellor has acknowledged the need to boost productivity, calling for increases to capital investment and a rapid improvement of skills in the workforce. Those ambitions are worthy, but do not seem to be backed up by concrete initiatives to bring them about. While the answer can never be public spending alone, we know that public investment in key sectors of the economy not only produces jobs but also unlocks private sector money. This has been acknowledged by the Treasury itself through its establishment of the UK Infrastructure Bank, which aims to achieve crowding in of private funds. There is no magic money tree, but there is room for spending wisely, taxing fairly and getting the economy firing on all cylinders.
The Chancellor recently adopted Labour’s policy of a windfall tax on energy producers, and perhaps he could adopt another. Is now not the time to accelerate investment in insulating homes and taking other steps to fight climate change? The first step would create immediate jobs, while sustained investment in the green transition would facilitate the high-skilled roles of the future. The Government clearly need to take control of the current economic situation. If they were to adopt some of the suggestions outlined today, perhaps the UK could achieve the higher levels of growth, resilience and social capital so desperately desired by my noble friend Lord Eatwell.
Baroness Penn (Con)
My Lords, I too thank the noble Lord, Lord Eatwell, for bringing about this important debate. If the noble Lord, Lord Davies of Brixton, thinks that it is intimidating to contribute, maybe he has some sympathy for the Minister trying to reply.
It is right to start with the first part of the question put before us: the cost of living challenges that millions of families up and down the country face. They are worried about high inflation, and many are struggling to make their incomes stretch. As the Chancellor previously set out, the Government remain deeply committed to helping with those challenges. We stand behind people, and while we cannot solve all the problems of inflation—especially the complex and global supply chain challenges and other causes of inflation—we will help the British people where we can, just as we did throughout the pandemic. However, alleviating these pressures alone will not be enough. We must continue our work to address the structural challenges that make some of our communities and households more vulnerable to these kinds of shocks. Our levelling-up agenda is precisely about ensuring that more communities are economically and socially resilient to the current and future shocks they may face.
It would be wrong for me to pretend that the cost of living pressures that we are all facing will soon subside. Worldwide shocks continue to be a major force in why we are experiencing such high inflation, as noble Lords have noted. Responsible fiscal policy is also essential for controlling inflation. It must be appropriately utilised to ensure that we meet our fiscal rules and keep public finances sustainable in the long run, while supporting the country in times of need. That is why the Government are providing support for the cost of living, but it is timely and targeted at those with the greatest need. In the announcement made a couple of weeks ago by the Chancellor, the Government said that the majority of households will benefit from at least £550 of support this financial year to help with rising energy prices. In addition to that, the most vulnerable households will receive at least £1,200 of support in total this year to help with the cost of living.
The noble Baroness, Lady Kramer, talked about the uprating of benefits, and the support that we have provided through this scheme will be more generous than if the uprating of benefits were brought forward from its planned date. Alongside the support for energy bills that is being provided now, the Chancellor has made clear that, next year, benefits will be uprated with the September inflation figure, which we expect to be high —and higher than the following April, so we have that commitment to those who are least well-off. My noble friend Lord Griffiths made the point that the long-term solution is to get inflation under control. I may have had only one noble friend on my Benches to support me, but I am glad to say that I agreed with everything he said.
The Government have a three-pronged approach, as expressed by my noble friend. In terms of setting interest rates, there is the independent monetary policy of the Bank of England; it is worth noting that, since the Bank of England got its independence, inflation has averaged 2%. There is also responsible fiscal policy, which involves investment in public services and support for the most vulnerable, but it must be paid for and within our fiscal rules. I thought the comments made by the noble Lord, Lord Eatwell, about the health and social care levy, and the link for the public between the taxes they pay and the services they receive, was an interesting one. The Government do produce a summary for people of where their taxes go.
Several noble Lords talked about fiscal policy and the balance between spending on public services and tax cuts. The noble Lord, Lord Desai, gave us a good history lesson about the Thatcher years and the affordability of tax cuts. My right honourable friend the Chancellor has been absolutely clear that he is a Thatcherite, not a Reaganite, and all tax cuts must be affordable. After the difficult years of the pandemic and the unprecedented support that the Government put in place for people, we had to make some difficult decisions to consolidate our public finances. I disagree with the noble Lord, Lord Desai, when he says tax cuts are for the rich. One of the first decisions that the Chancellor took last autumn was to cut the universal credit taper rate, which is, in effect, a tax cut for some of the poorest in our society. As the cost of living challenges became more apparent this spring, we increased the national insurance threshold, while keeping the health and social care levy in place. That has allowed us to provide more support for the poorest in our society, while also ensuring that there is funding for our National Health Service, which we heard about a lot in this debate, to improve outcomes for people after the pandemic and to invest in social care, which is a pressing area for reform in this country.
I do not think the noble Lords, Lord Desai and Lord Brooke, or the noble Baroness, Lady Jones, will be surprised to hear that the Government do not agree with them on the idea of a universal basic income.
In addition to the two approaches of an independent monetary policy and responsible fiscal policy, there is also supply-side activism. The Government’s energy security strategy will, over the long term, reduce bills by increasing energy supply and improving energy efficiency. We heard from the right reverend Prelate the Bishop of St Albans about the current energy crisis as an opportunity to invest in renewables. He will know as well as I do that the UK is the G7 country that has gone furthest and fastest in decarbonisation, but of course we have a lot more to do. He is right that we heard in a Question earlier today about the challenges of decarbonising our homes and buildings, but the Government are committed to tackling this through the heating and building strategy. And it is not all bad news on that front: the most effective part of that scheme was the social building decarbonisation fund, which has the joint benefit of reducing bills for those who may need the most support.
The right reverend Prelate asked a specific question about the feed-in tariff price; if I may, I will write to him on that. The noble Baroness, Lady Jones, also gave me several suggestions in this area which I will take back to the Government.
My noble friend Lord Griffiths asked what the Government are doing to ensure responsible lending, as people may turn to credit in these times. The Government legislated to require the FCA to introduce a cap on the cost of payday loans, which came into force in 2015. We are also taking action to regulate “buy now, pay later” providers, although it is important to note that they provide an interest-free service, so it is not considered high-cost lending. None the less, the pace of expansion of those services means that regulation is important. We have also provided record levels of funding to the Money and Pensions Service this year, which includes free debt advice.
The noble Viscount, Lord Stansgate, asked about prepayment meters. I was asked about this when we announced our support for the cost of living just before the Recess, and was able to reassure noble Lords that the support for energy bills will go to people on prepayment meters, either through being added directly to those meters if they are smart or through vouchers. However, I have an outstanding letter to write on the higher tariffs that people can face on those meters, and I will ensure that all noble Lords receive a copy of that. He also mentioned the impact of cost of living pressures on nutrition. The Government have extended free school meals and the holiday activity and food programme will be really important in ensuring that children have access to healthy meals not just in term-time but in holidays.
The noble Baroness, Lady Kramer, talked about the pressures of the cost of living on mental health. After the pandemic, the Government instituted the mental health recovery plan, which has seen significant additional investment in mental health services in 2021-22. As part of the long-term plan, we have committed to increasing spending on mental health as a proportion of health service spending each and every year.
In terms of government action on the cost of living, we will continue to tackle the underlying, long-term factors driving cost of living challenges. In addition to these measures, we must also focus on building successful and resilient places. That is at the heart of the Government’s levelling-up White Paper. The noble Lord, Lord Eatwell, has given us the opportunity to discuss social capital, and the right reverend Prelate talked about the work of Robert Putnam, whom I was lucky enough to study under. I think we actually need a bit more sociology in our policy-making; fashions for it have come and gone in people’s thinking. I have found that it can be a really useful tool for analysis, but it can be a much more challenging job to turn that into concrete policy solutions. That is something the Government have been trying to do through their levelling-up agenda.
The levelling-up White Paper highlights six capitals, including social capital, which must be strong in order for places to flourish—if one is deficient, it has knock-on impacts on others. The 12 levelling-up missions will support stronger places by 2030, by boosting productivity, jobs and pay, spreading opportunity, improving public services, restoring local pride and empowering local leaders. For example, those places with poor educational outcomes often experience lower pay and productivity, and are some of the areas where people are hit hardest by cost of living pressures. As part of our levelling-up strategy, we have 55 education investment areas across England, in the lowest-performing third of places, to which we will give additional investment.
However, I need to challenge the picture painted in this debate of education in this country. Some 87% of schools are now rated good or outstanding, up from 68% in 2010. On inputs, we are the top spender in the G7 on schools and colleges, but it is also about outputs—from 2011 to 2019, the gap between disadvantaged children and others narrowed at each assessed stage from primary to secondary school. There is a different side of the education picture to the one we have heard today.
My noble friend Lord Griffiths also expressed very well the importance of strong, empowered local institutions. We are extending and deepening devolution in England. Our mission is that every area that wants one will have a devolution deal by 2030, allowing places to take greater control of their own destiny.
As well as robust institutions, strong economies are also built on strong communities, as we have heard. There is a clear correlation between the most deprived places in the UK and those with the lowest scores for social capital, the lowest scores for positive community relationships and infrastructure, and where there are fewer quality places for people to meet. We are trying to help strengthen the heart of communities through investment in pride in place, and funds such as the levelling-up fund, the UK shared prosperity fund and the towns fund will all enable local authorities to invest in local priorities.
We are significantly increasing spending on arts and culture outside of London, investing in sports pitches and tennis courts across the UK, and taking forward a new national youth guarantee to give young people in England greater opportunities for out-of-school activities. Our new approach to regeneration will see towns across England transformed. The community ownership fund, which notably supported fans of Bury FC to assure the future of their club, has recently been expanded to help more communities take ownership of their treasured local assets.
The levelling-up White Paper is very much the start of a process, not the end of it. Levelling up is now the golden thread throughout our domestic policy. Our forthcoming strategy for community spaces and relationships will further set out our approach to strengthening community infrastructure and social capital across the UK.
This has been a wide-ranging and important debate on an issue of crucial social, as well as economic, importance. I would like to thank all noble Lords for their contributions. The Government’s position on this is clear: levelling up the entire nation and supporting households through the cost-of-living challenges up ahead continue to be a key priority. We have taken significant action this year in terms of support for the cost of living, with £37 billion of support announced, targeted at those most in need, and in the longer term, in terms of social capital, through the commitments made in our levelling-up White Paper. There is much more to do, but improving living standards, restoring local pride, spreading opportunity and empowering local leaders across the country are at the heart of this Government’s agenda.
Lord Eatwell (Lab)
My Lords, I am grateful to all participants in this debate, which has been I think both timely and interesting.
There have been two background themes in what people have had to say. One has been concern about the very bad place that Britain is in now, whether we are referring to inflation, as did the noble Lord, Lord Griffiths, and my noble friends Lord Davies and Lord Stansgate; whether we are discussing energy issues and how the crisis is perhaps pushing energy and green issues in the wrong direction, as was suggested by the right reverend Prelate the Bishop of St Albans, the noble Baroness, Lady Jones, and my noble friend Lord Tunnicliffe; or whether we are referring to the issue of trust in society, going back to Robert Putnam’s famous Bowling Alone—and the way in which the glue of trust is being eroded by inflation as the noble Lord, Lord Griffiths, most powerfully argued—about which the right reverend Prelate the Bishop of St Albans, was also concerned, as was the noble Baroness, Lady Kramer, in particular with her reference to young people, and my noble friend Lord Tunnicliffe. There has also been the overall despair at the rise in poverty in this country at this time, expressed very powerfully again by the noble Lord, Lord Griffiths, by my noble friends Lord Sikka, Lord Davies and Lord Stansgate, and by the noble Baroness, Lady Kramer. This is the sort of desperate concern about the position we are in.
But the other theme has been “Well, what are we going to do about it? How do we rebuild?” Do we learn, as the noble Lord, Lord Desai, argued, from when it happened before, with respect to the experience of the 1970s? Are we willing to undertake the sort of radical reconstruction of our economy and our society, of the basic arrangements by which this country operates, to create the resilience so that this does not happen again on the same scale of desperation as we have had now?
My noble friends Lord Howarth, Lord Sikka and Lord Tunnicliffe made reference to issues of taxation, and there has been discussion of basic income as a way of completely reforming the underlying structure of support in society. But looking forward, the noble Baroness, Lady Penn, having acknowledged and discussed the extremely difficult position of the economy, society and particularly the poorer members of our community —by which I mean not the bottom 10% but the bottom 40% or 50% of society, a good half, who are suffering—focused very much on the levelling-up White Paper. This was something of a surprise for me, because I was very struck when the levelling-up White Paper was published that the communities to which it referred regarded it as a complete damp squib. It was very striking that this central theme in government policy seemed to be so amorphous or inadequate.
The noble Baroness is right that we need a Government to provide real economic leadership for change and to provide some credible vision for a better future. We have plenty of romantic and colourful visions coming from the Prime Minister—it is just that none of them is credible. We need a real rethink. This could be part of her levelling-up agenda, and that could be turned into credibility, but it has to be part of a wider concern about economic change. We cannot have a situation where we sit back and allow the largest chip-producing company in the world—a British company—to be sold off to a Saudi-funded hedge fund. We cannot any longer tolerate the position in which Britain is just blown around with the storms of international economic markets.
I hope that what we can take from this debate is both the enormous concern around the House—I am leaning very heavily on the noble Lord, Lord Griffiths, when I say “around the House”—about the situation in which the people of Britain find themselves, and the equally great concern that we have to change. We have to think about a different way of organising our economic and social structure. I thank everyone who has participated in the debate.