House of Lords
Universities: Impact of Industrial Action on Students
(1 year, 9 months ago)
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Lord Storey
To ask His Majesty’s Government what assessment they have made of the impact on students of industrial action in universities.
The Parliamentary Under-Secretary of State, Department for Education (Baroness Barran) (Con)
My Lords, while the Government play no role in such disputes, we continue to monitor the impact of strikes with employers and their representatives. This Government set up the Office for Students in 2018, which has wide-ranging powers to ensure that students’ interests are protected and expects providers to do all they can to avoid disruption to students. I urge all sides to work together so that students do not suffer further learning loss.
Lord Storey (LD)
I am very grateful for the Minister’s reply. As she is aware, students—and not only students—have had a very difficult time over the past few years, particularly with Covid and the cost of living crisis. The Sutton Trust has found that 49% of university students are doing a second job to be financially supported. With 10 to 15 days of strike action meaning that in some universities students have not been able to have their lectures or tutorials, there is real stress and anxiety for final-year students about whether they will get certificates at the end of their course. I know that universities are autonomous, but could the Office for Students give more direct advice about how we can support students in these difficult times? Given that students have big loans, will they get some of that loan back?
Baroness Barran (Con)
On the noble Lord’s question relating to the role of the Office for Students, obviously it is the regulator of higher education in this country; it does not get involved in industrial disputes. It has a part to play in making sure that universities continue to meet their conditions of registration, which allow them to be eligible for public funding, and their obligations under consumer protection law.
Lord Vaux of Harrowden (CB)
My Lords, can I push the Minister on the last part of the noble Lord’s question? I should declare an interest: I have two sons who are at university at the moment, both of whom have lost a lot of days due to strike action. Normally when an organisation provides a service for a fee, it has to refund part of that fee if does not provide the service. Why is that not the case with universities?
Baroness Barran (Con)
Universities have obligations under their conditions of registration and under consumer law. Students can make complaints to the Office of the Independent Adjudicator. There were 2,763 new complaints in 2021, and we will shortly get the figures for 2022—that figure covers all issues but may well cover this one also. It is our expectation and hope that universities will respond and support students to receive the education to which they are entitled.
Lord Morgan (Lab)
My Lords, I became a university teacher in 1958 and I have never been on strike for a single day in that period, nor would I. However, throughout that long period, university teachers have been underpaid. There are difficulties now about their contracts, which was not the case earlier, in particular the use of younger, untrained teachers in a way that imperils jobs. Could one not give more professional power to university teachers so that they are properly treated?
Baroness Barran (Con)
I am sympathetic to the points that the noble Lord makes, but, as the House is aware, universities are autonomous. As autonomous institutions, they are responsible for pay and pension provision for their staff.
Lord Cormack (Con)
My Lords, as one who has three granddaughters who have been through university in the past three or four years—the last one is still going through—I know that they are being very short-changed. One granddaughter had not a single lecture last year at a very important and prestigious university; others are given “trigger warnings” before they can read Tennyson or Jane Austen. They really are getting a rough time.
Baroness Barran (Con)
I am not sure how to respond to the trigger warnings. I have tried to resist raising this, but, since everyone else has mentioned their family, I have a husband who is doing a part-time degree at the moment. His evening of teaching falls every single time on a strike day, so I am familiar with the issues to which the noble Lords refer. Universities are expected to take steps to avoid or limit disruption to learning. We would encourage all of them to do that.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, in her initial Answer, the Minister said that the Government play no role. Surely the Government set the whole legislative framework in which universities work and all the financial arrangements under which they operate. Is it not about time that the Government accepted their responsibility for all the industrial disputes that are taking place?
Baroness Barran (Con)
The Government absolutely accept responsibility for those areas where they are responsible, but I think there would be a lot of resistance in your Lordships’ House if they moved to reduce the autonomy of universities.
Lord Sandhurst (Con)
My Lords, I presume that the universities are not paying the lecturers on the days when they are on strike. Could those monies be used by way of restitution to the students? Might the Office for Students recommend that course, so that students could start issuing proceedings in the small claims court on a pro rata basis?
Baroness Barran (Con)
I am very happy to take back my noble friend’s recommendation to the Office for Students.
Baroness O'Grady of Upper Holloway (Lab)
My Lords, does the Minister agree that, as long as an employer does not face a financial penalty—for example, in reimbursing students, or indeed with the railways, where the Government initially said they had no responsibility for settling the dispute—there is less incentive on the employer to get around the table to negotiate a fair settlement?
Baroness Barran (Con)
Obviously, the noble Baroness brings many years of expertise to this matter, but I think that employers in universities and other sectors of the economy are suffering great penalties—financial, reputational and in terms of their relationships with their customers—which have a considerable impact on them.
Baroness Garden of Frognal (LD)
My Lords, I entirely accept that the Office for Students has overall responsibility for this issue, but, as we have heard, Ministers have a responsibility too. Is she saying that there is nothing at all that Ministers can do to try to mediate or to help in this dispute?
Baroness Barran (Con)
What I am saying is that we established the Office for Students to ensure that students’ interests are respected and upheld. The Government have no direct role in relation to the Universities Superannuation Scheme beyond the legislation that applies to all workplace pension schemes as regulated by the Pensions Regulator.
Lord Blunkett (Lab)
My Lords, there is a real complication between the pension scheme operated by universities and the pension scheme operated by the health service. Could the Minister talk to the Chancellor of the Exchequer about the contradiction between giving away £1 billion of public funding for consultants operating under the health service pension scheme and the situation faced by consultants in teaching hospitals, who have opted, or been encouraged, to take on a previous university pension scheme, which is now being completely changed? We might get some sense out of the issue of getting tutors back to work, if we could put a little of that £1 billion into resolving the pension problem for universities.
Baroness Barran (Con)
I am more than happy to pass on the noble Lord’s comments to colleagues in the Treasury.
Bus Industry Support
(1 year, 9 months ago)
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Lord Snape
To ask His Majesty’s Government what plans they have to support the bus industry in England following the end of the current bus subsidy arrangements.
Lord Berkeley (Lab)
My Lords, on behalf of my noble friend Lord Snape, I beg leave to ask the Question standing in his name on the Order Paper.
The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)
My Lords, on 17 February the Government announced that they will provide up to £80 million to extend the bus recovery grant until 30 June 2023. The department is evaluating the impact of this funding and working with local transport authorities and bus operators to develop sustainable solutions.
Lord Berkeley (Lab)
I am grateful to the Minister for her Answer, and I welcome the money that has been allocated. However, given that 80% of people who use buses have no alternative—in fact, in Northern Ireland, the community bus service has been completely cancelled from the end of April—is it not time for the Government to devolve the subsidy and funding of local bus services to local transport authorities to get a consistent and long-term service which will provide what people need and at a lower cost, and spread over the whole country the benefits that the Minister has provided?
Baroness Vere of Norbiton (Con)
I am not entirely sure that I follow the noble Lord’s thinking that, just by devolving it, the same amount of money will provide services at a lower cost. It is the case that local authorities get funding to support bus services, including from the fare cap, the bus recovery grant, BSOG and concessions. The simple answer here is that we have to make local transport authorities and bus operators work together more effectively.
Lord Moylan (Con)
My Lords, the Built Environment Committee noted in its report last year, which is yet to be debated, that without a continuation of the grant beyond March route mileage would fall by as much as 20%. Like the noble Lord, Lord Berkeley, I am grateful to hear that the grant has continued. None the less, newspapers report that overall mileage has fallen by 10% up to only a couple of weeks ago. Does my noble friend the Minister consider this to be a satisfactory situation?
Baroness Vere of Norbiton (Con)
My noble friend is right that some routes have been changed and others have been reduced. It is the case that, if an operator wants to reduce a route, it must put in an application to the local transport authority, which has the ability then to subsidise or to tender that route. We have to establish a network which matches the revised passenger demand following the pandemic.
Baroness Randerson (LD)
My Lords, the Campaign for Better Transport has done research which shows that, in the last two years, between this month and March 2021, when the Government launched their Bus Back Better campaign, there has been a 23% cut in bus services in England. Far from busing back better, the Government are actually presiding over the death of public transport in some areas. What are the Government planning to do to reverse this? Will the Minister commit today to the transformational reform of the bus service operators grant system, which is clearly not working?
Baroness Vere of Norbiton (Con)
I can absolutely say that the bus service operators grant will be reformed; reforms will be laid out later this year for consultation. On supporting services, we absolutely accept that we need to do what we can to provide a sustainable network which is fit for the future. That is why we have extended the funding and why we have the £2 bus fare cap. We need to evaluate that funding and the fare support to see what they have done to patronage.
Baroness Taylor of Stevenage (Lab)
My Lords, plans for a fantastic new zero-emission bus fleet in Stevenage and Milton Keynes, known as the ZEBRA project, came crashing down last week when private sector partner Arriva pulled out. Twice as many people use buses than trains, but buses need to be reliable to increase use, otherwise a vicious circle is created where passengers will not use them and operators will not run them. A new system giving communities a say on routes and fares is desperately needed. Will the Minister therefore produce the much-delayed bus strategy without any further delay and bring forward legislation, as my noble friend Lord Berkeley said, to devolve these powers across England?
Baroness Vere of Norbiton (Con)
I am not entirely aware of the strategy that the noble Baroness is talking about. We have a bus strategy and we absolutely stand by that strategy. We think that the elements within it work, but what we are dealing with at the moment—as indeed are many other transport modes—is a significant reduction in patronage. We therefore need to think about how we get the best value for money with the support that we can give, while also encouraging local transport operators to play their part.
Lord McLoughlin (Con)
My Lords, I declare my interest as chairman of Transport for the North. Bus usage has not gone back to the level that it was pre-pandemic; I think the figures at the end of March 2022 were 2.8 billion passengers as opposed to 4.1 billion passengers the year before the pandemic. Can my noble friend tell us what progress has been made with the announcement of the capping of bus fares nationally? Has that had an impact on usage? What are the longer-term plans for that cap?
Baroness Vere of Norbiton (Con)
My noble friend is absolutely right that the £2 bus fare cap is an important intervention for us to properly understand the relationship between bus fares and patronage. There are 140 operators over 4,700 routes that have taken up this bus fare cap and the Government are investing £135 million in it. We are evaluating it as we go along, and we will of course make public those findings as soon as we can.
Baroness Scott of Needham Market (LD)
My Lords, the noble Baroness will be aware that large parts of rural England no longer have a bus service and are dependent on community transport systems. In some areas, such as mine in Mid Suffolk, they have been set up in such a way that concessionary fares cannot be used on those services, nor do they qualify for the £2 bus fare cap. Can the Minister look at whether some sort of regulatory change might be in order so as to make sure that people who live in such areas are not disadvantaged?
Baroness Vere of Norbiton (Con)
The noble Baroness has written to me about this and I have responded. I cannot quite understand what might be going on in her area. It is fairly simple: if it is a Section 22 community transport service that is open to other people, concessions are allowed and the £2 bus fare applies. If it is a closed service under Section 19 that is not open to everybody then, rightly so, the national provisions do not apply. If she has any further information, I would be very happy to look into it.
Lord Kirkhope of Harrogate (Con)
My Lords, the noble Lord, Lord Berkeley, raised the question of the bus industry. This is an opportunity for us to congratulate the bus manufacturers of this country—whether Alexander Dennis in Scotland, Wrightbus in Northern Ireland or Optare in Yorkshire—which are producing world-leading buses and using the latest technology in hydrogen power as well as battery electrics to lead the world on behalf of this country. Can we congratulate them?
Baroness Vere of Norbiton (Con)
We can congratulate them; they do a fantastic job. Noble Lords will have seen that the Government announced £25 million of funding for zero-emission buses only recently—I believe that all the £25 million in funding went to Wrightbus in Northern Ireland, which has seen astonishing growth in jobs and skills and should be congratulated.
Baroness McIntosh of Pickering (Con)
My Lords, can my noble friend explain what the future of concessionary bus fares will be? They are particularly important in rural areas.
Baroness Vere of Norbiton (Con)
We have seen a decline in the number of people using concessionary fares since the pandemic; certainly, those are the sorts of people who we want to get back on to buses. It is so important. We are reviewing a number of elements of the concessionary fare structure and, of particular importance to local transport authorities, we are looking at and will be consulting on the reimbursement guidance and calculator during the course of 2023 to ensure that local transport authorities are getting the money back from the system that they need to fully cover concessionary fares.
Lord Marlesford (Con)
My Lords, seeing as we are considering public money for buses, will the Government consider the case in urban areas for switching to lightweight trams, which last for 20 years rather than 12 and, because they have steel wheels, do not emit toxic particulates from rubber? Most importantly, they run on biomethane, and the Government have a commitment to reduce by 30% the methane produced in this country by 2030.
Baroness Vere of Norbiton (Con)
The Government are a great supporter of trams. Indeed, much of the money that we gave to local metro mayors—about £5.7 billion, I think, in the CRSTS—is going to extending tram systems in their areas. Of course, for other local authorities, it is up to them to bring forward tram proposals, should they have them.
The Lord Speaker (Lord McFall of Alcluith)
The time has elapsed for this Question.
Housing: Conditions in Rented Sector
(1 year, 9 months ago)
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Lord Khan of Burnley
To ask His Majesty’s Government what recent steps they have taken to improve housing conditions for both social housing and privately rented properties.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
The Government set out their ambition in the levelling-up White Paper to reduce the number of non-decent rented homes by 50% by 2030, with the biggest improvement in the lowest-performing areas. We are making progress in the social rented sector by introducing a new proactive consumer regulation regime through the Social Housing (Regulation) Bill. In the private rented sector, for the first time, we consulted on applying a minimum quality standard and we remain committed to reviewing the decent homes standard.
Lord Khan of Burnley (Lab)
From the latest English Housing Survey, the private sector has the highest proportion of non-decent homes, at 23%, whereas the figure is 10% in the social housing sector. While we had the White Paper, A Fairer Private Rented Sector, last year, we are still waiting on a renters reform Bill, which would introduce a decent home standard for the private rented sector, as well as ending no-fault evictions—something promised one way or another since 2019. When will the Minister, her department and the Government get a grip and take some meaningful action to prevent a repeat of the tragic experience that Awaab Ishak and his family faced in Rochdale? I note that the Government have introduced Awaab’s law in the social housing sector, but why are they neglecting the situation in the private housing sector?
Baroness Scott of Bybrook (Con)
We are fully committed to delivering a package of reforms that deliver our manifesto commitment to abolish no-fault Section 21 evictions, strengthen private sector renting and support both tenants and good landlords. The reforms are a once in a generation opportunity for change, and it is important that we get it right. Legislation on private rented sector reform remains a top priority for this Government and we will bring forward a renters reform Bill as soon as we can within this Parliament.
Lord Young of Cookham (Con)
My Lords, further to the noble Lord’s Question, most private landlords keep their properties in a good condition, but a minority do not. In those cases, where the tenant complains to the local council about a dangerous property, that tenant can be protected from what is called “retaliatory eviction”, so long as the council serves an improvement notice on the landlord. However, this is happening in only about a quarter of such cases, meaning that three-quarters of tenants are exposed to eviction under Section 21. What can my noble friend do to ensure that more local authorities give tenants the protection that they are entitled to?
Baroness Scott of Bybrook (Con)
My noble friend is absolutely right: local councils are responsible for enforcing standards in the private rented sector and have a duty to take action where they find hazards at the most dangerous category 1 level. The Secretary of State has asked all local housing authorities to do everything in their power to improve the conditions for tenants and to have particular regard to high-score category 2 damp and mould hazards when enforcing current standards. The Secretary of State has also asked councils to provide an assessment of damp and mould issues particularly affecting private rented housing in their area. The department is currently analysing their responses to determine what needs to be done to address the issues raised by my noble friend.
Lord Best (CB)
My Lords, has the Minister’s department had a chance to look at the recommendation from the Affordable Housing Commission for a national housing conversion fund that would finance local housing associations to acquire from private landlords properties that need a lot of attention? This would increase the amount of safe, affordable, secure social housing at the same time as improving the property, ending or reducing fuel poverty and having an impact on climate change as well. Is this a real bargain for government?
Baroness Scott of Bybrook (Con)
I have not got an answer on that specific report, but I can say that this Government are investing £11.5 billion in new, good, affordable housing, £8.6 billion of which had already been allocated. So we are looking at more good housing and, at the same time, we are challenging to ensure that those responsible for social housing in particular are making sure that those houses are in good condition.
Lord Truscott (Non-Afl)
My Lords, I declare an interest as a landlord and a former renter. I am all in favour of a decent homes standard, but when will the Government introduce regulation of letting and managing agents? Some of these agencies are real cowboys. They deal in millions of pounds and they are completely unregulated. When will the Government stop dithering and introduce regulation?
Baroness Scott of Bybrook (Con)
I do not have a timescale for the introduction, but we are looking at this issue. We have found that some of these sectors are self-regulating much better than they were, but we will continue to keep an eye on this issue and forward it to legislation if necessary.
The Lord Speaker (Lord McFall of Alcluith)
The noble Lord, Lord Campbell-Savours, will make a virtual contribution.
Lord Campbell-Savours (Lab) [V]
My Lords, what additional consideration is being given to the millions of pensioners, many living in poorly heated social housing and rented property conditions, who, despite existing support schemes and fearful of escalating bills, appear unwilling to turn up the heat and too often suffer in silence? Despite the excellent work of charities such as Age Concern, should not further support be given to targeting this vulnerable group with sensitive advice and even government-sponsored visitor support programmes, perhaps through a multiplicity of agencies?
Baroness Scott of Bybrook (Con)
The noble Lord brings up a very important point. As he knows, the Government have put £37 billion into supporting all households through this difficult economic time. Specifically for older people, what I have been doing, personally, as a Minister for Faith, is talking to faith and community leaders about doing exactly this—ensuring that older people, particularly, and disabled people, know what they are entitled to, making sure that they get it and also stopping some of the fear that is happening. I also thank the many warm hubs this winter that have been opening their doors in churches and community centres in order to look after these people and make sure they know what they are entitled to.
The Lord Bishop of Exeter
My Lords, there is an important rural dimension to this issue. In north Devon, the vast majority of privately rented property has been turned into Airbnb, creating a crisis in rural housing. Does the Minister think that the ability of local authorities to levy council tax is sufficiently robust to tackle this problem? If not, what plans do His Majesty’s Government have to legislate to address this problem, which is escalating every day?
Baroness Scott of Bybrook (Con)
I thank the right reverend Prelate. If he looks at the LUR Bill, he will see that we are dealing with this exact problem at the moment. It will probably be debated next week in this Chamber and I look forward to being able to tell him further about what we are going to do.
The Earl of Courtown (Con)
My Lords, I think it is the turn of the Liberal Democrats.
Lord Foster of Bath (LD)
My Lords, during the passage of the Social Housing (Regulation) Bill, your Lordships’ House voted for an amendment that would have reduced energy costs in social housing. In the other place recently, without any explanation or debate, that amendment was removed. Is that not a gross discourtesy to this House? Can the Minister now explain why that amendment was removed?
Baroness Scott of Bybrook (Con)
No, I do not think it is a discourtesy to the House; it is part of the process and we will be discussing it further, I am sure, on Tuesday, when the Commons amendments come back to the House on the Social Housing (Regulation) Bill.
Lord Carlile of Berriew (CB)
Does the noble Baroness agree that, in those cases where the only realistic way of having a house in appalling condition repaired is to sue the landlord, including social landlords, in the county courts, it is completely unconscionable that tenants should have to wait between a year and 18 months for those cases to be heard? What are the Government going to do to deal with the backlog in the county courts?
Baroness Scott of Bybrook (Con)
My Lords, the Social Housing (Regulation) Bill that we were talking about earlier will deal with a lot of that problem, particularly with Awaab’s law that has entered that Bill in the Commons. There will be clear timescales, first, for housing providers to respond to tenants, and, secondly, for any serious safety defects in housing to also be dealt with in a good timescale.
Baroness Warwick of Undercliffe (Lab)
My Lords, I am sure the noble Baroness will agree that housing associations are very keen to do more to regenerate existing housing but are unable to do so without additional government funding. Will she confirm that the Government will look to maximise the use of the existing funding through the affordable homes programme to support housing-led regeneration right across the country?
Baroness Scott of Bybrook (Con)
My Lords, it is the responsibility of social housing providers to maintain their properties, and that includes regeneration, but we have found a £30 million fund to help Greater Manchester and the West Midlands and we will be looking at what more we can do for the sector.
The Lord Speaker (Lord McFall of Alcluith)
My Lords, I apologise to the noble Lord, Lord Kamall, for curtailing the previous Question with seven seconds to go. Hopefully, I will be more benevolent to him in the future.
Defence Spending
(1 year, 9 months ago)
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Lord West of Spithead
To ask His Majesty’s Government, further to their Integrated Review Refresh 2023, published on 13 March, whether they have any plans to increase spending on defence to three per cent of GDP.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
As the Prime Minister said on Monday, we will move away from our baseline commitment of spending at least 2% of GDP on defence to a new aspiration of 2.5% when the fiscal situation allows. There are no plans to change this aspiration to 3%. To ensure that we continue to meet the threats we face, the Chancellor is providing an extra £11 billion over five years to improve the country’s resilience and readiness.
Lord West of Spithead (Lab)
My Lords, everybody knows that our defence forces have been underfunded for some considerable time and are not in the position they should be. One could argue, I think quite reasonably, that that is part of the reason we are in the mess we are with the war in Ukraine. Autocrats such as Putin watch what we do and think, “These people are not taking life seriously”. We also know that the percentage of GDP figure is totemic. It was useful because we were able to put pressure on European allies to increase their spending, but it depends totally on what one’s GDP is. Bearing in mind that we have insufficient money for defence, does the Minister not believe that the Government should now make a clear commitment of going for 3%—let us call it of GDP—but actually attach a figure to it and start that spending now so that murderous people such as Putin see that we mean business?
Baroness Penn (Con)
My Lords, I agree with the noble Lord about the need to increase our spending on defence and start that now. That is why defence received its settlement a year earlier than other departments in the spending review 2020. It is why, alongside the integrated review refresh, we have included an uplift beyond that, including £4.95 billion for defence over the next two years to improve readiness and resilience of the Armed Forces, including bolstering our conventional stockpiles, enabling an early investment for the AUKUS submarine alliance and modernising our nuclear enterprise.
Lord Stirrup (CB)
My Lords, does the Minister recall that as recently as 2010, we were spending 2.6% of GDP on defence? Given the accounting changes that have occurred since then, that probably equates to something more like 2.8% in today’s terms. So the recent announcements putting us on a trajectory to 2.5% really cannot be seen as scaling some new peak, but rather as clawing us a little further out of the hole into which we have sunk. Does she accept that not only is there more to be done but that it needs to be done with urgency, and that saying we aspire to 2.5% when fiscal conditions permit is about the same as Government Front-Bench spokesmen saying they will bring something to this House “in due course”? It is pretty much meaningless.
Baroness Penn (Con)
I would like to reassure noble Lords that there is more money now going into defence. It is the largest sustained increase in defence spending since the end of the Cold War and, in recognition of the changing picture globally, we announced at the Budget money on top of that investment: £4.95 billion over the next two years and an extra £11 billion over the next five years to improve the country’s resilience and readiness.
Lord Robathan (Con)
My Lords, while the money announced yesterday is of course very welcome and we thank the Chancellor for that, it is £11 billion over five years. This is jam tomorrow—we need the money spent today. Has nobody noticed what is happening in Ukraine, and that our bunkers are empty of ammunition? We need to spend the money today. Will my noble friend confirm that, as she speaks, we are still cutting the number of troops, ships and aircraft in the United Kingdom defence budget?
Baroness Penn (Con)
An additional £24 billion is going in now as a result of the spending review 2020. The £11 billion announced at the Spring Budget includes £4.95 billion over the next two years. That does not include the spending on our commitments to Ukraine, which was £2.3 billion last year and will be £2.3 billion in the coming year.
Lord Tunnicliffe (Lab)
My Lords, we have got figures, figures and figures. There is only one crucial question. The Defence Secretary said in February that the Government
“have hollowed out and underfunded our armed forces”.—[Official Report, Commons, 20/2/23; col.65.]
Yesterday, some new funding was announced. Do the Government believe that yesterday really represents a reversal of the Secretary of State’s analysis and, crucially, is sufficient to secure Britain’s national defence for the future?
Baroness Penn (Con)
I think the Secretary of State for Defence has been very positive about the money announced at the Budget and previously, and this Government have overseen the largest investment in defence since the Cold War. The British Armed Forces remain among the best in the world; that is why we are a leading NATO partner. Over the last 10 years, the UK has been NATO’s second largest defence spender, after the US, and we spent almost as much on defence as 20 other NATO members combined. Future Soldier, the Army’s response to the integrated review, will deliver the largest transformation of the British Army in more than 20 years. As the threat changes, we need to change with it, and we have set out a plan to do so.
Lord Swire (Con)
I very much welcome the Prime Minister’s recent announcement about the replacement and refurbishment of the nuclear submarine fleet. Can my noble friend say from which budget that money is coming and, critically, can she confirm that the other political parties have signed up to this, given the long-term impact and programme that it will require?
Baroness Penn (Con)
I will let the other parties speak for themselves, but this is a long-term commitment to investment in our own security. The money we are investing in the defence nuclear enterprise is additional funding; it is not coming from any existing contingency, and I am happy to confirm that to the House.
Lord Campbell of Pittenweem (LD)
My Lords, since the additional money is over five years, and since we are supporting Ukraine to the tune of £2 billion a year, that additional money will all be used up in the support of Ukraine, which invites and encourages me to ask two questions. First, when will the money be made available to replace the ageing armoured vehicle, the Warrior, with a new battlefield vehicle, having regard to the shambles of the Ajax programme? Secondly, when will the Royal Air Force be provided with sufficient F35s to train its pilots to fly that aircraft, never mind taking it into combat?
Baroness Penn (Con)
I am afraid that I will have to write to the noble Lord on those two specific questions, but I should make a very important clarification of the additional funding going into our Armed Forces. Our support for Ukraine is over and above the additional investment I have mentioned, so it will not be drawn on in future years when we continue that support for as long as the conflict lasts.
Lord Anderson of Swansea (Lab)
Does the noble Baroness agree that Poland has been a model in respect of additional expenditure, and does she share the concern about the delay in Germany fulfilling its commitment? She talked about long-term commitments. Does this mean that the new expenditure will be backloaded and there will be some for several years in the future?
Baroness Penn (Con)
We welcome the contribution from all our allies and partners. I think I have been clear that nearly £5 billion of the £11 billion of additional funding is over the next two years. We have provided clarity beyond the existing scorecard period to help facilitate long-term investment in our future defence.
Lord Cormack (Con)
Can my noble friend clarify a statement she made in answering the noble Lord, Lord Campbell of Pittenweem? Did she really say that none of this money is going to be needed to replenish the armaments we have sent to Ukraine? A simple yes or no will do.
Baroness Penn (Con)
I believe I said earlier that one of the things we will be able to do with our funding is bolster our conventional stockpiles. But I want to be clear with noble Lords that the £2.3 billion commitment we made to Ukraine in 2022-23, which we are also matching going into next year, is over and above the money I have set out today.
Lord Reid of Cardowan (Lab)
My Lords, I know the Treasury likes to speak in percentages and aggregate sums, but can we cut to the chase? Will the Minister confirm that, as far as the Treasury knows, over the next few years our Armed Forces will reduce the number of soldiers, ships and planes? She may consult her colleague from the Ministry of Defence if she wishes.
Baroness Penn (Con)
I am very happy to have my noble friend sitting next to me. We constantly review our capabilities, but the vision for the future of our defence as set out in the original integrated review remains the vision for defence in this country. However, additional resource has come in as a result of the integrated review refresh, in order to reflect the new circumstances in which we find ourselves.
Supply and Appropriation (Anticipation and Adjustments) Bill
Thursday 16th March 2023
(1 year, 9 months ago)
Lords ChamberRead Full debate Supply and Appropriation (Anticipation and Adjustments) Act 2023 View all Supply and Appropriation (Anticipation and Adjustments) Act 2023 Debates Read Hansard Text
AUKUS Defence Partnership
(1 year, 9 months ago)
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Lord Coaker (Lab)
My Lords, I start by saying that His Majesty’s Opposition fully support the AUKUS defence partnership that has been announced by the Government. It is a multi-decade agreement with two of our closest and strongest allies. It is of immense importance when we look forward to the threats we face now and in the future. It strengthens our strategic security and prosperity in the Indo-Pacific. As such, it should be seen as a national endeavour and a statement of our intent, with our allies and our friends, to stand up for freedom, democracy and human rights across the world.
Can the Minister reassure us, notwithstanding the obvious immediate threat to Ukraine from Russia and the fact that the first of these new submarines is some way off, that we have the surface fleet and the strategic alliances that we need to deal with the threats that we now face in that region? Or is it the case that, if we are to commit to the Indo-Pacific tilt, more resources will be needed in numbers of ships and planes and protection for the carriers?
There will obviously be a welcome boost to defence jobs, with these new submarines being built in Barrow and with nuclear work in Derby, as well as elsewhere across our country. Given the very real current skills shortage, how will the Government work with industry to ensure that we have the necessary skilled workforce to actually do this building? Can the Minister give us some idea of how many jobs are expected to be created? Can she also confirm the number of additional submarines to be built for the UK and what size this will eventually bring the UK’s submarine fleet up to? The first SSN-AUKUS for our UK Navy will commence in the late 2020s and will be operational as early as the late 2030s. What steps are the Government taking to ensure that these costs and timelines will be kept to?
Alongside those issues, I commend the Government on the steps they have taken to work with the International Atomic Energy Agency to alleviate concerns around nuclear proliferation requirements. The agreement involves the transfer to Australia of technology, equipment and a naval nuclear propulsion capability. Can the Minister lay out clearly for the Chamber how this agreement maintains our compliance with the nuclear non-proliferation treaty and what steps the Government have taken or will take to reassure those who may be upset by this agreement? Of course, this must not prevent us taking measures for our security and that of others, but the Government quite rightly have been sensitive to the consequences, not only for countries such as China but as regards what others may think and that those countries may try to use it as a justification to act. Crucially, can the Minister confirm that the director-general of the IAEA has expressed their satisfaction with our engagement and that we will work closely with the IAEA over the coming years?
The UK’s former National Security Adviser, Sir Stephen Lovegrove, said of the pact:
“It is perhaps the most significant capability collaboration anywhere in the world in the past six decades.”
He said that because it is not just about submarines but, as pillar 2 of the agreement describes, about cyber, hypersonics, artificial intelligence and so on. Little detail has been given about this, so could the Minister give us any further updates on the sort of collaboration that may take place under pillar 2?
The integrated review says that £3 billion will be invested across the defence nuclear enterprise. Can the Minister confirm that resources are there to properly fund this pact over its lifetime and that those resources will not lead to cuts in the budget elsewhere? Would not all our defence, including this, be helped by a timescale rather than an aspiration to reach 2.5% of GDP on defence spending? I remind the Minister that that has not been the case since 2010.
Finally, as I said, we can be proud of this endeavour as a country. It will help to ensure that we protect our interests, not only in Europe but beyond in the Indo-Pacific, working with others to support democracy and freedom as we have always done. As such, His Majesty’s Opposition fully support it and wish it well.
Lord Lee of Trafford (LD)
My Lords, we on these Benches very much welcome the AUKUS partnership announcement and Statement for the whole range of fairly obvious reasons that the noble Lord set out. However, has the Minister seen the comments in yesterday’s Times from Rear Admiral Philip Mathias, a former director of nuclear policy and of the Trident value-for-money review? He said:
“The performance of the Submarine Delivery Agency has been abysmal. Astute class submarines are being delivered late by BAE … HMS Vanguard’s refit by Babcock has taken more than seven years; and … The in-service date for HMS Dreadnought”—
originally 2024—now will not come through until the early 2030s. Have the Government done any work at all as regards submarine construction refit on comparing the performance of Barrow and our shipbuilding industry with the performance achieved in the United States and France? That would be a very interesting comparison. In addition, given that we are likely to have an increase in our submarine fleet, which would be very welcome, what plans are there to increase and train the number of submariners who will be needed for those future boats?
The Minister of State, Ministry of Defence (Baroness Goldie) (Con)
My Lords, I am sorry for the delay—I was caught on the hop. I thought that the noble Lord, Lord Lee, might take a little longer but, however brief his contribution, it is welcome.
I first thank the noble Lord, Lord Coaker, for his warm reception of the announcement on AUKUS. I am particularly grateful for his important recognition of the reality of the geopolitical environment in which we all exist today. I think the IR refresh has poignantly delineated that, building on what we identified in 2021 but quite rightly pointing out that events have moved at a pace that we perhaps had not anticipated. We therefore have to be ready to deal with that.
I am very grateful to the noble Lord for particularly recognising the significance of the AUKUS announcement. As a child I lived very near the Clyde, and I can remember when these sorts of events were happening. This is almost on par with the agreement of 1958 between the UK and the United States—it is that sort of seismic milestone. I think the noble Lord recognises that, and I am grateful to him for doing so.
To address the remarks from the noble Lord, Lord Lee, with reference to our preparedness to take this on, I too read the letter in yesterday’s Times and I have great respect for our former senior personnel within our Armed Forces. I think I can say on the challenges that have confronted the MoD over a period of perhaps 10 to 15 years on procurement—I have said before at this Dispatch Box that I do not in any way seek to rewrite history or pretend that these challenges did not exist—that precisely because we encountered them, we have dramatically reformed how we deal with procurement. To be fair, that has been recognised in recent years by both the National Audit Office and the Public Accounts Committee.
Very good progress has now been made on the Astute programme, as the noble Lord is probably aware. We have in the water four of our Astute-class submarines—in fact, it could even be five—but the recent one, “Agincourt” is on sea trials, and then we have one more to go. Therefore, I think we have five in the water and then “Agincourt”, and the seventh one is being completed. Very good progress is being made. I am satisfied that, with the procurement reforms that have been made within the MoD, there is a much greater resilience and a much more robust framework and process, not least because we have had a frank talk with industry, as it has to play its part in this. We are laying out our expectation from industry at a very early stage, so that there are not these extraordinary debates five years down the line about what the MoD thought it was ordering. When we manage the contract for an important procurement delivery, we now have a senior responsible officer, who will not change every five minutes but will be in place for a meaningful period during the conduct of the contract. Therefore, I seek to reassure the noble Lord that, although I absolutely respect the right of the Times letter writer to air his views, we can see tangible change, both in the MoD and in the conduct of industry, and that is bearing fruit.
The noble Lord, Lord Coaker, also asked whether the two aspirations of Euro-Atlantic security and the Indo-Pacific tilt are in some way mutually exclusive. No, they are not; they are two important tandem activities for the UK Government and for defence. As he will be aware, within the integrated review refresh, the primary immediate threat was indeed Euro-Atlantic security and the illegal incursion by Russia into Ukraine. We see that as a short to medium-term threat. However, for the reasons identified in the IR refresh, we regard the Indo-Pacific tilt as now having happened and to be sustained. He will be aware of what the MoD has been doing to sustain that, not least with the carrier strike group 21 and with the permanent deployment of our two vessels, “Tamar” and “Spey”, out in the south-east China seas. They are playing an important role.
The noble Lord asked particularly about jobs, and it is perfectly clear, with the combination of work that will come to Barrow and to Rolls-Royce in Derby, that we anticipate that thousands of jobs will be created in the UK. As he will understand, I hesitate to put a precise number on that, but no one can pretend that this is other than a very positive narrative for defence and for employment in the UK.
He also raised the important issue of skills, which are critical for how we deliver on this trilateral partnership. Two things are happening: our industry partners themselves are being proactive in engaging in initiatives and programmes to encourage the enhancement of skills and retention of skilled personnel, but we have also established within MoD a defence nuclear enterprise, people and skills programme. That is to develop a sustainable and skilled workforce to support the defence nuclear programme. A range of activities is now being undertaken to increase the nuclear sector engagement with young people and to attract talent from a more diverse background. I think I can say that for young, aspiring STEM individuals who seek a really challenging career in a field in which they are interested, this must be near the top of the attraction stakes in what it offers.
The noble Lord raised the number of submarines, and I think I covered that in responding to the noble Lord, Lord Lee. The issue of cost was also raised, and of course costs are relevant. If we take that in a twofold manner, they are, first, the immediate costs that we anticipate will be necessary. We spent £2 billion last year in both Barrow and Derby. As the noble Lord will be aware, the recent announcement intends that part of the announced £5 billion—£3 billion—will be to sustain the nuclear enterprise. The £2 billion will run for a period of three years. That is devoted to the nuclear enterprise as well, excluding Dreadnought, which is of course covered by a separate contingency funding package with the Treasury.
On the International Atomic Energy Agency, the statement the director-general issued on Tuesday was helpful. I am sure the noble Lord has looked at it. It is a very full statement, but what struck me was that it would not have been possible for him to make that statement with its detailed content if there had not been the closest engagement with the trilateral partners in AUKUS. Of course, it is not a matter of saying that we look to the director-general to approve a project or to express support for it. This is an independent testing entity, and the job of the IAEA is objectively, professionally and completely neutrally to assess what we are doing, but it is perfectly clear from the level of engagement that there is a very positive relationship with the IAEA. That will continue. The noble Lord will be aware that its board meets regularly, and the director himself proposes to submit a report to the next session of the board of governors in June 2023.
On the wider issue of non-proliferation, again there is a very good story to tell. In the document—I feel a bit like a stage manager with props here—there is a particularly interesting section at page 33, which outlines Australia’s credentials and credibility in this field. It makes a very positive read. Australia has an extremely good record with the IAEA, which should provide reassurance and comfort. We also anticipate that, as this all progresses, all three partners will be regularly reporting to and engaging with the IAEA.
As to whether this could lead to more countries wanting to acquire nuclear-propelled submarines, it might very well do, but we all recognise the fundamental difference between a mode of propulsion and a nuclear-armed submarine, which is something entirely different. Therefore, all we ask is that, if other countries are minded to pursue that technology for propulsion, they too are vigilant about these important safeguards and criteria and the need to work closely with the IAEA.
The noble Lord also asked about collaboration under pillar 2. That is obviously slightly further into the future, but it is an exceedingly exciting part of the general programme. We anticipate that, as we make progress on pillar 1, which is to build the nuclear-powered submarines, that will remain a trilateral responsibility and will not be broadened out. As we learn from that process and begin to identify in these intricate sciences—whether it is hypersonics, cyber or whatever—we will certainly be open-minded about discussing with other interested parties how we might take these issues and who might be able to make a positive contribution. It is premature to make a more specific comment about that just now, but we can anticipate a very exciting potential for discussion on pillar 2 as we progress with the programme.
The noble Lord, Lord Coaker, and perhaps the noble Lord, Lord Lee, also raised resources and the 2.5% of GDP. I am very clear that that was a welcome announcement by the Chancellor, because I see it as much more than some roseate dream we might hope to deliver in future; I see it as a statement of intent. That is what the Government are minded to do, and it is contingent only on the economy’s ability to sustain it. Because of the manifest recognition by the Prime Minister, the Chancellor and the Government of the world of threat in which we live and the character of the geopolitical complexity that now surrounds us, noble Lords will understand that this is a very potent statement of intent and a very healthy indication that this Government are prepared, even in difficult economic times, to do the heavy lifting when it comes to the security of our country and our ability to contribute to global security through our alliances and partnerships.
I think I have managed to cover the points raised. If I have omitted anything, I undertake to write to noble Lords and have a look at Hansard.
Lord Stirrup (CB)
My Lords, the AUKUS programme, if executed well, will be very good news for this country. If executed badly, it could be a disaster. The Minister has given us some comforting words on reforms to procurement processes and engagement with industry, but it must be said that the performance of BAE Systems Submarines has been pretty woeful in recent years. Of course, it is not for the Government to run private companies, but industrial performance in this programme will be of strategic importance to this country. What long-term mechanisms and processes are in place to monitor and audit industrial performance, and what leverage will the Government have over the industries concerned? Industrial underperformance in this programme will need to be dealt with swiftly and ruthlessly—something that has not happened before.
The Minister said that the senior responsible owner would be in place for a “meaningful period”. What does she mean by a “meaningful period”? With regard to skills, which are a crucial area in this programme, she talked about what the Ministry of Defence is doing, but this is surely a nationwide issue requiring a nationwide effort. If this ambitious programme is to succeed, we will need all sorts of skills and all sorts of different people. Industries across the country are suffering from shortages—they cannot find sufficient welders—so is there not a case for a government-wide approach to ensure we have a sufficient skills base for such ambitious programmes as this?
Baroness Goldie (Con)
The noble and gallant Lord makes a number of important points; let me try to deal with them.
On the management of contracts and the willingness to have teeth and bite where that is necessary, I think the noble and gallant Lord would be encouraged to see the complete difference in approach in the MoD now compared with some years ago. That is partially because the MoD has woken up to the need to be much more effective in how it manages these enormous contracts with vast sums of taxpayers’ money. To be honest, it is also because we felt the bite from teeth—from your Lordships in this Chamber, from our friends in the other place, and from entities such as the National Audit Office and the Public Accounts Committee. These were unpleasant experiences for the MoD but what they signalled was an absolute need to radically reform and revise what we were doing.
In addition to all that, the one word of comfort I can offer to the noble and gallant Lord is this: bear in mind that this is a trilateral arrangement and agreement. There is, therefore, a triumvirate interest in ensuring that nobody is slipping and everybody is keeping up to the mark. That will be an added enhancer to how we monitor and regulate the performance of the contract.
On the important matter of skills, industries are already engaged—I have seen it at first hand—in really imaginative programmes in their communities with young people. I have been hugely encouraged when I have seen how they operate in different parts of the country. They are engaging with both primary and secondary schools. They are making these critical connections with young people, many of whom then make the choice not only to follow a career in technology but to do it with a particular company. That is one very positive way of trying to increase the skills base available to our industry partners.
At government level, particularly in the Department for Education, there is a recognition of the unrelenting need to reappraise constantly how we seek to improve the provision of skills and ensure that education is aligned with what the economy and industry are asking for. I do not have at my fingertips the details of what we have done so far but I would be happy to write to the noble and gallant Lord about that.
Lord Browne of Ladyton (Lab)
My Lords, welcome as this Statement is, there is nothing at all in it about the financial or opportunity costs of this partnership. Is it true that it will cost $245 billion over three decades? How much of that cost will we bear? Which budget will it come out of? In answering a question today posed by the noble Lord, Lord Swire, on the fourth Oral Question, the Minister—the noble Baroness, Lady Penn—indicated that all nuclear capability would be charged from some other part of the budget. I do not understand that to be the case but, if it is the case, it is a change; if it comes with this, it is very welcome. How much is this going to cost, is it going to come from the existing Ministry of Defence budget and what will be the opportunity cost of that if that is correct?
Given that China poses threats in every domain, not just under the water, what assessment have we made of Australia putting so many of its eggs in this exquisite capability basket, given that we will depend on it in all these other domains to be an active ally with capability?
Baroness Goldie (Con)
On cost, the noble Lord will not be surprised that I am unable to give specific figures, for what I think are widely understood reasons. I imagine that differing levels of cost will apply because, for example, the role of the United States is based on it having an established Virginia class of submarine being built; as the noble Lord will be aware, part of the agreement is Australia seeking to buy three of those. There are now huge issues for Australia in creating the infrastructure that it will need to build the submarines, so, again, it is anticipated that its costs will be different from those of either the US or the UK.
For our own part, as is indicated, we in the UK have been investing in our submarine-building infrastructure. Some £2 billion was announced last year to support the Dreadnought class of submarines. The recent integrated review refresh announcement of £5 billion—obviously, I am rounding the figure up for ease of use—will be split into three, spread over two years, to sustain the nuclear enterprise. My understanding is that the additional £6 billion, which will be spread over three years—£2 billion per year—is also allocated to the nuclear enterprise, excluding the Dreadnought enterprise. That is money that we know is going to be there, and we are therefore able to budget appropriately.
It is important to go back to what the Prime Minister and the Chancellor have clearly indicated: that, having regard to the turbulent world in which we live, they see defence as a national primary responsibility and priority. They are prepared to work, even in difficult economic circumstances, to ensure that we do as much as we can to sustain a powerful and effective defence capability.
I turn to the last part of the noble Lord’s question, which was about this perhaps being a unique solution for Australia. Australia must make its own strategic decision about what it seeks and what it wants. Eighteen months ago, it identified that it had a need and that the best way to respond to that need was to seek a nuclear-propelled submarine. It is positive and gratifying that it then looked to the United Kingdom and the United States. As the noble Lord will be aware, we have a long-standing and close relationship on the construction of submarines. Australia has made a perfectly balanced decision that this type of submarine, propelled as it is by nuclear propulsion, offers huge advantages: it is far more effective in itself; it can circumnavigate the globe without coming up; it is difficult to detect; and it is much more efficient to run. For those who, naturally, care about the environment, it produces a cleaner form of emissions than, for example, a diesel-powered submarine.
Australia has looked at this closely and come to its own strategic, sovereign decision about what it wants. We should all feel very proud that it wants the UK to be part of this vital partnership in delivering what it seeks.
Lord Cormack (Con)
My Lords, should we not derive some comfort from the fact that the crucial meetings in the United States took place immediately after a very amicable meeting between the Prime Minister and President Macron? Is it not absolutely crucial that while we pursue AUKUS vigorously we do not neglect the fact that our European allies are extremely important, particularly bearing in mind what is going on at the moment?
Baroness Goldie (Con)
I cannot disagree with one word of what my noble friend says. As I said earlier, the IRR indicated that the primary threat at the moment is Euro-Atlantic security because of Russia illegally invading Ukraine; that is our immediate defence priority in the short to medium term. However, that is without prejudice to our sustainment of the Indo-Pacific tilt.
My noble friend is quite right: our relationship with France on a bilateral basis is strong and good. Although I am not privy to the detail of what the Prime Minister spoke to President Macron about, I am sure that they discussed a huge range of issues, including how we can promote a free and open Indo-Pacific, in which France has a very important role to play.
Lord Fox (LD)
My Lords, a number of noble Lords have mentioned concerns over industrial performance in delivering on this contract. I think I heard the Minister say that, because there are three parties involved, it would be embarrassing if we did not keep up to time. I suspect that that is just one of the things that would be a problem; it would also be extremely expensive. My noble friend asked a specific question about what benchmarking is being done between the industrial complex in this country and that available in both France and the United States. Can the Minister please answer that?
Baroness Goldie (Con)
To be absolutely accurate, I did not use the word “embarrassing”. Nothing on which I represent the MoD on at this Dispatch Box is ever to be embarrassing; it is a privilege to represent the MoD in this Chamber and to do so on such a positive occasion as this one. I do not have details as to how the benchmark will apply, nor an answer on whether there is to be some measurement of appraisal against what other countries do. I undertake to investigate that, and if there is any information that I can share with the noble Lord, I will do so.
Baroness Bennett of Manor Castle (GP)
My Lords, following on from the question asked by the noble Lord, Lord Browne of Ladyton, we are talking about a very high-cost method of military defence, financially and in terms of resources. Are the Government aware of the level of controversy in Australia about the AUKUS project? There are concerns about the secrecy of the initial signing, which the Australian Greens described as reflecting a democratic deficit, concerns about setting off a regional arms race, and concerns about where it will leave Australian sovereignty and control over its Armed Forces. Australia has signed up twice previously to have nuclear-propelled submarines and subsequently withdrawn from those projects. Are the Government taking adequate account of the political risks involved?
Baroness Goldie (Con)
The Government live in the same world as Australia. Australia, the United Kingdom, the United States and many of our partners and allies are very conscious that the level of threat confronting us is virtually unprecedented. We must be equipped to deal with that.
I will not seek to speak on behalf of the Australian Government. They made an analysis of what they required in their defence capability and to enhance their ability to preserve the rule of law and order within that region, and to ensure that international law is upheld by all parties and all countries. I can only conclude that Australia came to the view that this would be a very sensible and valuable addition to its defence capability. Certainly, in so far as addressing the challenges to which I have just referred, this would seem to be a sound decision on the part of the Australian Government. It is not for me to comment on Australian politics, but the Prime Minister of Australia has been very clear, as was evidenced by his presence in America when this announcement was made on Tuesday, that this is a very important development for Australia and a very significant addition to the ability to address any threats or breaches of law that may arise in the region.
Lord West of Spithead (Lab)
My Lords, this is a very brave and bold decision. I am delighted that it has been made. We are in an era when we need that. However, as has already been highlighted, there are problems within our submarine world. The performance by BAE Systems has not been good. The whole Astute programme has been a problem. The Minister says that we are now on top of that. I am delighted that we are, but one of the joys of this new package is that it enables our nuclear enterprise, which creeps along at the very edge of the capability of our nation, technologically, scientifically and in an engineering sense, to get a boost and maybe move up a notch.
On the SRO ensuring that this follows track, the most successful programme that we ran on a large scale in this country was the Polaris programme. That came in one day early and under budget, because one man was put in charge of it with direct access to the Prime Minister. He could chop people’s legs off if they were not doing what they were supposed to do. Will the SRO have that sort of direct line of responsibility to ensure this? If this goes wrong, my goodness me, it will be a disaster.
Baroness Goldie (Con)
If the SRO had these powers, I would be tempted to bring him into this Chamber to address some of the interrogatories.
I indicated to the noble Lord, Lord Lee, that Astute was accompanied by significant problems but, as I said earlier, boat 7—that is “Agamemnon”—will be the final in class. Boat 6 is still at build stage—that is “Agincourt”—but the other five are now operative, so I think we have a perfectly healthy situation.
The noble Lord is right that, as has already been indicated in the Chamber, a very robust assessment will need to be kept on this programme. As I said to the noble Lord, Lord Fox, it is not a question of embarrassment and falling down on the job but that, with three eyes focused on what we are trying to deliver, there is a third leg to the protections of that robust surveillance of the contract. I am sure that the senior responsible owner will be in place for a meaningful period. As the noble Lord, Lord West, is aware, my Secretary of State is very conscious of, and vigilant about, ensuring that where these major procurement projects are under way, he knows first-hand what is happening. He will be watching this like a hawk.
Lord Mountevans (CB)
My Lords, the importance of the sea lanes and underwater cables is widely known, and submarines are very valuable in this domain. It is well acknowledged that the latest generation of Russian submarines are a great deal better than what they have had in the past. Can the Minister say anything about the nature of the co-operation on this occasion and further co-operation with the United States, bringing together all the experience and expertise of the US Navy and the Royal Navy in this domain? How will it affect the design of the new AUKUS submarines?
Baroness Goldie (Con)
I am not an engineer or a naval technical expert on ship build, but I would say that he is quite right. There is now a repository of skills and experience that will contribute greatly to how this type of submarine is designed. It has already been established, because it is now being known as SSN-AUKUS, that it takes us a step further than where we originally thought that we would be with a successor to Astute. Those aggregated skills are very important, and I am sure that they will be put to very valuable effect in determining the final design of the submarine.
Lord Reid of Cardowan (Lab)
My noble friend Admiral Lord West, while welcoming the Statement, said—and I noted this carefully—that it was a very brave decision. If any of my civil servants or military advisers had said, “Minister, this is a very brave decision”, I would probably have avoided it. That has been given substance by the lack of anything concrete in terms of cost. On an enterprise of this size, there must be some idea of the ballpark figures. We already have the example of HS2. I am not going to go down that track—no pun intended—but there is a figure in the public domain, mentioned by my noble friend Lord Browne, of $245 billion over 30 years. That is a substantial amount of money, and it will be even more substantial when inevitably, like all procurement in the Ministry of Defence, it increases over the next 30 years. Can the Minister have a stab at it again and tell us the realm of possibility on which this decision was taken? It cannot have been taken without Ministers having any idea of how much it is going to cost.
Baroness Goldie (Con)
While the noble Lord’s noble friend Lord Coaker has remained positive about this, as his right honourable friend in the other place did, I am slightly disappointed at the rather despondent demeanour of the noble Lord, Lord Reid. This has been universally regarded as one of the most important and exciting announcements for UK defence and our Royal Navy capability that we have seen in decades. This is a hugely important development. I am in no doubt whatsoever that the Government have made the right decision to proceed with this. It is a tribute to the United Kingdom that Australia and the United States thought that we were a valuable and reliable partner to bring into this.
On the cost, I will not stand here uttering figures which I have no foundation to justify, however much the noble Lord might want to tempt me into doing that. We cannot put a precise figure on the cost of building one SSN-AUKUS submarine. It is a decades-long programme. The final figure will depend on a number of factors, and it will include the final design, how many we build and when we build them. We recognise in terms of cost that this is a hugely important commitment, but we also have no hesitation in saying that, for the security of the country and our ability to contribute with Australia and the United States to a more globally secure world, it is absolutely the right decision to take.
Budget Statement
(1 year, 9 months ago)
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Baroness Penn
To move that this House takes note of the Chancellor of the Exchequer’s Spring Budget 2023.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, it is a privilege to open this debate on behalf of the Government and set out how we will move our economy on to a path of long-term sustainable growth. I start by welcoming my noble friend Lady Moyo to the House. I look forward to hearing her maiden speech. Given her distinguished career to date, I expect she will hold the Government’s feet firmly to the fire, especially when it comes to economic policy, and help us get our policies right.
In the autumn, we took difficult decisions to deliver stability and sound money. Since then, 10-year gilt rates have fallen, debt servicing costs are down, mortgage rates are lower and inflation has peaked. The Office for Budget Responsibility says that because of lower gas prices and the measures we are taking, together with our measures in the Autumn Statement, the UK will now not enter recession this year. The OBR forecasts that we will meet the Prime Minister's three economic priorities. Inflation is coming down and is on track to be more than halved by the end of the year: it is action that we are taking to help bring it down.
In this Budget, we confirmed that the energy price guarantee will remain at £2,500 for the next three months, saving the typical family a further £160 on top of the support we have already announced. We have ended the premium that 4 million households, often among the poorest, have to pay on their energy bills for having a prepayment meter. We have extended the alcohol duty freeze until August and will increase the generosity of draught relief, introducing a Brexit pubs guarantee. Because inflation remains high, we will maintain the 5p cut on fuel duty and keep it frozen for a further year, saving the average driver £100 next year and £200 since the policy was introduced. Finally, with communities strained by energy prices, we are providing £63 million to keep 275 local authority swimming pools afloat.
I turn to the Prime Minister’s second priority: reducing debt. Again, we are on track. We are meeting our fiscal rules to have debt falling as a percentage of GDP by the fifth year of the forecast, and to have public sector borrowing below 3% of GDP over the same period. In fact, our deficit falls in every single year of the forecast. In the final two years of the forecast, our current budget is in surplus, meaning we borrow only for investment and not day-to-day spending. Day-to-day departmental spending will grow at 1% a year on average in real terms after 2024-25, until the end of the forecast period, and capital plans are maintained at the same level set at the Autumn Statement. At the same time, taken together, today’s measures lead to an overall lower tax burden for the rest of the Parliament, compared to the OBR’s autumn forecast.
I turn to the Prime Minister's third priority and the focus of yesterday’s Budget: growth. Thirteen years ago, we had an economy that had crashed. Since 2010, we have grown more than major countries such as France, Italy and Japan. We have halved unemployment, cut inequality and reduced the number of workless households by 1 million. The World Bank says that, out of all the big European countries, we are the best place to do business. When it comes to the industries of the future, we are world leaders. Over the last 13 years, we have become the third trillion-dollar tech economy, after the US and China. We have the largest life sciences sector in Europe and the creative industries has grown at twice the rate of the rest of the economy. We are a world leader in offshore wind and our advanced manufacturing industries produce around half of the world’s large civil aircraft wings. These strengths make me optimistic for our future growth.
We should note what the OBR forecasts say. The OBR says that, after this year, the UK economy will grow in every single year of the forecast period: by 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027. The OBR also expects unemployment to rise by less than 1%, to 4.4%, meaning 130,000 fewer people will be out of work compared to their autumn forecast.
On employment, to achieve the dynamic economy we all want, we cannot afford to waste the potential of anyone. That is why we will remove the barriers that stop people who want to work from getting into work. To help those who are sick or disabled back into work, we have published a White Paper on disability benefits reform, the biggest change to our welfare system in a decade. It will abolish the work capability assessment in Great Britain and separate benefit entitlement from an individual’s ability to work. As a result, disabled benefit claimants will always be able to seek work without fear of losing financial support. In England and Wales, we will fund a new programme called universal support. This is a new voluntary employment scheme for disabled people, where the Government will spend up to £4,000 per person to help them find appropriate jobs and put in place the support they need, funding 50,000 places every year. That comes on top of a £400 million plan to increase the availability of mental health and musculoskeletal resources and expand the individual placement and support scheme.
To help children in care enter the workforce when they reach adulthood, we are doubling the qualifying care relief to £18,140, which will increase the take-home pay of a qualifying carer by £450 a year. We will also double the funding we provide to the Staying Close programme, to help more care leavers into employment and support young people with special educational needs and disabilities to transition from education into the workplace, with a £3 million pilot expansion of the Department for Education’s supported internship programme. To encourage the 2 million people on universal credit without a health condition who are looking for work or only working a small number of hours, we will apply sanctions more rigorously to those who fail to meet strict work search requirements or choose not to take up a reasonable job offer. For those working low hours, we will increase the administrative earnings threshold from the equivalent of 15 hours to 18 hours at the national living wage for an individual claimant, meaning anyone who works below this level will receive more work coach support alongside a more intensive conditionality regime.
For those aged 50 to 64, with a wealth of experience we need in our workplaces, we will increase the number of people who will get the best possible financial, health and career guidance, well ahead of retirement, by increasing access to mid-life MoTs. The Department for Work and Pensions will increase fivefold the number of 50-plus universal credit claimants who receive mid-life MoTs, from 8,000 to 40,000. For experienced workers, we will also introduce a new apprenticeship targeted at over-50s, called “returnships”. These will bring together our existing skills programmes to make them more appealing for older workers, focusing on flexibility and previous experience to reduce training length.
We are also fully alive to the fact that many senior NHS clinicians say they are being advised to leave the workforce, just when the NHS needs them most, because of unexpected tax charges on their pensions. The NHS is our biggest employer and we will shortly publish the long-term workforce plan, but to make sure that they and other professions are not deterred from working, we will increase the pensions annual allowance to £60,000. We are abolishing the lifetime allowance altogether, to incentivise our most experienced and productive workers to stay in work across our economy for longer.
These measures will help turn us into a high-skilled, high-wage economy, but we know that one thing that holds people back is the insurmountable obstacle of high childcare costs, especially when their children are young. In 2010 there was barely any free childcare for under-fives. The Government changed that with free childcare for three and four year-olds in England, but we need to complete the job. That is why, in households where all adults are working at least 16 hours, we will introduce 30 hours of free childcare, not just for three and four year-olds but for every single child over the age of nine months. It is a package worth, on average, £6,500 every year for a family with a two year-old using 35 hours of childcare every week.
Because it is such a large reform, we will introduce it in stages to ensure that there is enough supply in the market. Working parents of two year-olds will be able to access 15 hours of free care from April 2024, helping around half a million families. From September 2024, that 15 hours will be extended to all children from nine months up, meaning a total of nearly 1 million families will be eligible. From September 2025, every single working parent of under-fives will have access to 30 hours of free childcare per week where they are eligible.
Ahead of that, we will help the 700,000 parents on universal credit who, until the reforms announced yesterday, had limited requirements to look for work. Many remain out of work because they cannot afford the upfront payment necessary to access subsidised childcare. We will increase the maximum they can claim to £951 for one child and £1,630 for two children—an increase of almost 50%. For any parent who is moving into work and wants to increase their hours, we will also pay their childcare costs up front.
That is the demand side. On the supply side, we will increase the funding paid to nurseries providing free childcare under the 30 hours offer by £204 million from this September, rising to £288 million next year. This is in addition to the funding provided to extend the offer to parents with children from nine months to two years old. To increase flexibility, we will change minimum staff-to-child ratios from 1:4 to 1:5 for two year-olds in England, as happens in Scotland.
To further increase the potential supply of childminders, au pairs and nannies, we will reopen the youth visa scheme unilaterally to anyone under the age of 35 from the United States, France, Spain, Germany, Italy and Holland. This will allow an additional 27,500 young people to come to work in the UK annually for up to two years.
For parents of school-age children, we will fund schools and local authorities to increase supply of wraparound care so that all parents of school-age children can drop their children off between 8 am and 6 pm. Our ambition is that all schools will start to offer wraparound childcare, either on their own or in partnership with other schools, by September 2026.
My right honourable friend the Chancellor also set out the Government’s commitment to continue to level up growth everywhere across the United Kingdom. Yesterday’s Budget announced 12 potential new investment zones, eligible for £80 million of investment, bringing together our leading research institutions with local government to remove barriers to growth in areas that need levelling up.
There is also over £200 million to fund high-quality local regeneration projects and £420 million for new levelling-up partnerships. A second round of the city region sustainable transport settlements, allocating £8.8 billion over the next five-year funding period, has been announced, and a further £200 million next year—bringing the total to £700 million—will be allocated to fix potholes.
For Scotland, Wales and Northern Ireland, this Budget delivers not only a new investment zone in each nation but an additional £320 million for the Scottish Government, £180 million for the Welsh Government and £130 million for the Northern Ireland Executive as a result of Barnett consequentials.
The Government will also consult on transferring responsibilities to support local economic development, currently delivered by local enterprise partnerships, to local authorities from April 2024.
Mayors will be given more financial autonomy with multiyear single settlements for the West Midlands and the Greater Manchester Combined Authority at the next spending review—something we envisage being rolled out to all mayoral areas over time. So that local leaders can continue to grow their own revenues by growing their local economy we have made a long-term commitment, in the next Parliament, that they can retain 100% of their business rates—again something we hope to roll out to other areas over time.
These steps will help us not just to grow but to share the benefits of growth across our country, but we must never forget that it is the private sector that helps drive this growth, so we are lowering business taxes to incentivise investment and tackle the productivity gap. Building on the increase of the annual investment allowance to £1 million, which covers the entire investment made by 99% of businesses, and following the end of the super-deduction, we will introduce a new policy of “full expensing” for the next three years. We will make this permanent as soon as we can responsibly do so. It will mean that, over that period, every single pound a company invests in new buildings, new IT or new machinery can be deducted from their taxable profits. It will mean a corporation tax cut worth £9 billion for every year that it is in place.
To encourage research and development, we are introducing an enhanced credit for small and medium-sized businesses that spend 40% or more of their total expenditure on research and development.
One of the reasons why we have succeeded in the past is our inclination toward innovation—our propensity not just to adapt but to drive change. Having left the EU, there is an opportunity to do so again.
With financial services reforms under way, we are now looking at regulations around life sciences, and we are lucky to have one of the most respected drugs regulators in the world in the MHRA. It will now move to a different model that will allow rapid and often nearly automatic sign-off for medicines already approved by trusted regulators in other countries such as the United States, Europe or Japan. At the same time, from next year it will set up a swift new approval process for the most cutting-edge medicines and devices to ensure the UK becomes a global centre for their development. An extra £10 million of funding over the next two years will put in place a plan to provide the quickest and simplest regulatory approval in the world for companies seeking rapid market access.
To strengthen our position in digital technology, we have accepted all nine of the digital tech recommendations made by Sir Patrick Vallance.
We are also making good on our pledge to direct our innovation toward a green economy by allocating up to £20 billion of support for the early development of carbon capture and storage projects across the UK as we work towards our goals in 2050. This will attract private investment, support up to 50,000 jobs and help capture 20 million to 30 million tonnes of CO2 per year by 2030.
Alongside more public investment in nuclear, we are going to class it as “environmentally sustainable” in our green taxonomy, giving it access to the same investment incentives as renewable energy. This will not only deliver against our climate change goals but afford us energy security too. To support our wider security in a more dangerous world, having announced £5 billion of funding for the Ministry of Defence, the Budget confirmed an additional £11 billion over the next five years. By 2025, we will spend 2.25% of GDP on defence and endeavour to raise it to 2.5% as soon as the fiscal and economic conditions allow.
It has not been possible to condense the entirety of the Budget and its ambition into my opening remarks, but what should be clear is that we are bringing inflation down, debt down, and growth up. We have a plan that says to people: work will pay and pay well. We have a plan that is revolutionising childcare, reforming pensions and supporting disabled people. We have a plan to tear down barriers to growth, unlocking investment, incentivising innovation. It is a credible plan that will deliver economic success, growth and prosperity. I beg to move.
Lord Eatwell (Lab)
My Lords, I am sure the whole House is grateful to the noble Baroness, Lady Penn, for introducing this important debate. We all look forward with interest and, as a professional economist myself, some excitement to the maiden speech of the noble Baroness, Lady Moyo.
The Minister who delivered this Spring Budget in another place bears the title of the Chancellor of the Exchequer, but this title does not adequately reflect Mr Hunt’s role. His real title should be the Minister for mitigating disastrous Tory economic policies. He is “The Mitigator”, a role that becomes ever more important as every parliamentary Session brings forth yet a further Conservative economic blunder.
We all recall Mr Hunt’s noble labours in reversing the appalling damage done to Britain by the Truss/Kwarteng economic regime—damage that still resonates in every mortgage holder’s higher current and/or future monthly interest payments. Now, in this Budget, he is reversing the damaging decision taken by Conservative Chancellor George Osborne in 2012 when he first cut the pension lifetime allowance and then cut it again in 2014—and it was cut again in 2016. The result, as Mr Hunt made clear, has been damaging not just for the NHS but for the availability of skilled, experienced professional expertise throughout the British economy. But, being a good Tory, even The Mitigator could not resist doing his own little bit of wasteful spending. Instead of a balanced increase in the LTA, he abolished it altogether, thus handing up to £1 billion to the wealthiest. The champagne corks were popping in the City. When she sums up, will the Minister tell us the Treasury’s full estimate of the cost of this excessive giveaway, including the cost of consequential losses in inheritance tax revenues?
These blunders are perhaps not the most serious that Mr Hunt has had to contend with. Contrary to the Minister’s rosy scenario, in the first half of 2010 the policies of Chancellor Alistair Darling had resulted in the economy growing at an annual rate of 3%, and the economy was set on the path of sustained recovery from the global financial crisis. In June, the newly elected Conservative Chancellor killed that recovery stone dead. Austerity cut demand, inflicted damage on social services, education and the health service and, by generating an aura of all-pervading economic pessimism, led to cuts in investment and growth in the private sector too. The next time a school or hospital is closed because the roof is unsafe or necessary equipment is lacking, remember Austerity George. It is no wonder that Mr Hunt is so keen to project his personal optimism.
Mr Hunt is also struggling with the consequences of the next huge Tory economic disaster: Brexit. I am well aware that Brexit was not just about the economy, and we can argue about the role of sovereignty in all aspects of our national life and whether there was a price worth paying. But, as an economic policy, Brexit has seriously damaged the country’s economic health. Noble Lords will recall that, after three years of austerity and with a general election on the horizon, economic conditions were eased by Mr Osborne and in 2013 business investment began a significant recovery. Then Brexit dealt business investment to blow from which it has not recovered to this very day. Having grown steadily as a share of GDP from 2013 to 2016, following the Brexit vote business investment fell year on year. Even with the incentive of the superdeduction in place, it is back to the austerity-induced levels of the end of 2012. As the Office for National Statistics has pointed out, the UK has the lowest average private sector investment as a percentage of GDP of any G7 nation. How ironic to hear Mr Sunak congratulating the people of Northern Ireland so enthusiastically on the extraordinary and unique economic advantages they will enjoy as members of the UK market and the EU single market. Perhaps the Minister will tell us when she sums up why what Mr Sunak declares to be so good for Northern Ireland is not good for England, Wales or Scotland.
The Mitigator, Mr Hunt, has correctly identified his task as reversing this sad tale of Tory low investment and consequential low productivity. With the end of the superdeduction cutting business support by £10 billion a year, he has introduced full expensing, which will increase business support by £9 billion. So, while incentives are not up, they are down by only £1 billion a year. Unfortunately, the new incentives are scheduled to last for only three years. As the IFS commented,
“the fact that this change is temporary and only announced now is most definitely not welcome. Today’s announcement is just the latest in a long line of changes and temporary tweaks. There’s no stability, no certainty, and no sense of a wider plan”.
Contrary to what the Minister said about the burden on companies falling, this April sees an increase in corporation tax of around £14 billion a year. When she sums up, will the Minister confirm that, as a result of this Budget, British business is now worse off by a total of around £15 billion a year? There will be no champagne corks in the boardrooms of British industry.
The other flagship scheme, the 12 new investment zones, will be good news for the successful zones but bad news for everywhere else. Long experience demonstrates that such schemes shift investment around the country without any significant impact on the overall figures. They simply shift the deckchairs. Against the new £15 billion burden on industry, the extra £1.8 billion help to
“cutting-edge companies who … are turning Britain into a science superpower”,—[Official Report, Commons, 15/03/23; col 840.]
to quote the Chancellor, welcome as it is, sounds distinctly underpowered.
Creative superpowers are built on a firm foundation of high-quality education and skills, yet where are the measures in this Budget to foster the high-wage, high-skills economy Mr Hunt seeks? What has he done to mitigate the disaster of Tory education policies? School spending per pupil in England fell an average of 9% in real terms between 2009 and 2019. According again to the Institute for Fiscal Studies, the Tory squeeze on educational resource is
“without precedent in post-war UK history”.
The result is that England is today one of the very few OECD countries where the young have worse literacy and numeracy skills than 55 to 65 year-olds. The Government have also cut adult education by half. Against this, the impact of the announced midlife MOTs and returnerships are drops in the ocean. Is it any wonder that this country has such a skills shortage?
However, instead of focusing on skills, The Mitigator focuses on numbers by providing a package of measures aimed at increasing labour market participation. The OBR costs this package at £7.1 billion. It estimates the increase in labour force participation as a result to be 110,000 people: that is, £65,000 for each extra person joining the labour force. At the same time, the OBR forecasts that trend unemployment will rise by more than 130,000. All this is in a labour force of 35 million. There is not much mitigation there. Of course, the investment in childcare is to be heartily welcomed. However, when she sums up, I would be grateful if the Minister would comment on the Sutton Trust’s estimate that, given the way in which the scheme is designed, 80% of the poorest families will be unable to access the childcare they need. Is the Sutton Trust right? In the medium term, once some of the restrictions built into Mr Hunt’s scheme have been removed, the provision of high-quality childcare will indeed herald a welcome advance in British society, extending opportunity, particularly to women, and providing greater security for poor families that need both partners in work in order to get by.
Falling real incomes define today’s economy and falling living standards blight today’s society. As the OBR notes, the 5.7% fall in real household disposable income over the next two financial years will be the largest two-year fall since records began. Even five years hence, in fiscal 2027-28, the OBR states that living standards will still be lower than pre-pandemic levels. This dismal outcome is of course due primarily to the increase in the price of energy and other tradeable goods, but is made even worse by the freezing of tax thresholds by Chancellor Sunak. The Sunak freeze ensures an extra £500 in tax for basic rate taxpayers in 2023-24 and an extra £1,000 in tax for higher-rate taxpayers—and yet more in subsequent years. Once again, matters would be worse if Mr Hunt had not mitigated the costs with the extension of the energy support measures and the commitment to increase social security benefits in April by the rate of inflation.
The problem is that mitigation is not enough when, as the Resolution Foundation pointed out this morning, the Budget leaves many government departments facing 10% real-terms cuts; it is not enough when living standards decline; and it is not enough for the Chancellor to be focused solely on mitigating the mess left by all his Conservative predecessors—with the notable exception of Nadhim Zahawi, who, perhaps fortunately, did nothing.
The chairman of Legal & General commented last week that Britain is a
“low-productivity, low-growth, low-wage economy fraught by political infighting and that has to change”.
He added:
“We need a massive step-up in investment in the UK”.
He was right. He could have added that low growth equals high taxes, even as public services deteriorate.
What was totally absent from the Budget was a medium-term strategy to turn Britain around that did not focus just on tax and spend but embodied fundamental institutional reform to link invention to innovation to investment in the skills and technology of the future. Without that institutional commitment, we will not see the investment in growth that Britain desperately needs. That is what is happening in the United States, but it is not happening here. As the clean technology race between the US, the EU and China hots up, the lack of any substantive UK response is chilling.
The result of 12 years of economic mismanagement has been stagnating productivity, the worst post-pandemic growth in the G7, higher taxes drained from a population suffering record falls in living standards and a shrinking labour force squeezed by the high cost of going to work and by long-term sickness unmitigated by an increasingly desperate NHS. However, accessing his inner Monty Python, Mr Hunt claimed this morning that he is setting out a long-term plan to make us
“one of the most prosperous countries in Europe”.
Always look on the bright side of life.
As a long-serving Conservative Health Secretary, Mr Hunt is accustomed to managing decline with an optimistic smile, always looking out for opportunities to mitigate the pain wherever he can. But mere mitigation is not what Britain needs. Britain is in a hole, and Mr Hunt can claim credit only for having slowed down the digging.
Baroness Brinton (LD) [V]
My Lords, I declare my interest as a vice-president of the Local Government Association and a vice-chair of the All-Party Parliamentary Group on Adult Social Care. It is a pleasure to follow the noble Lord, Lord Eatwell, and I also look forward to hearing the maiden speech of the noble Baroness, Lady Moyo.
The Chancellor says the OBR projection is now that Britain will avoid a “technical recession”, but ONS data shows that the UK is the only major economy in the G7 that is still smaller than it was pre pandemic. The OBR has confirmed that, after yesterday’s Budget, living standards will fall faster than any time since the 1950s, and it is evident that living standards in 2028 will be worse than in pre-pandemic years. This Conservative Government have made the British people poorer.
So, frankly, it was embarrassing yesterday to see the Conservative Government celebrate an economy that has shrunk in size on their watch and is lagging way behind our international competitors. The cost of living crisis is hitting millions of Britain’s families and pensioners, but this Budget has failed them miserably. People are desperate for real help, especially a cut in their energy bills, but all the Chancellor could offer was empty words and more unfair tax hikes—unless you are in the top 1%.
The abolition of the lifetime pension tax allowance may help a number of medical consultants, but the real problem here is that the Conservative Government have failed to act on this for years, and by now the NHS has lost far too many senior staff as a result. While it is welcome that this may encourage NHS consultants to work longer, it does nothing for our heroic nurses and other healthcare staff on low pay, who have been working to exhaustion in crumbling hospitals. That many nurses have had to access food banks should be shameful to this Government.
The Chancellor announced the four pillars of his industrial strategy—economy, enterprise, employment and education—but, within 24 hours, commentators and many people and organisations are raising serious concerns about the proposals. Why, yet again, is there no impact assessment for the Budget, as required under the Equality Act 2010? It is particularly egregious because the Government rightly ask for impact assessments in many other areas that they fund—for example, international development or even their own departments—but will not do it for their own Budget proposals. We note that the Chancellor has spent two-thirds of the windfall from the economic dip not being quite as bad as had been feared on a series of headlines, but he has failed to reduce the cost of living crisis that is hitting millions of Britain’s families and pensioners. This is why we need an impact assessment.
The Chancellor announced a harsher regime on benefits that will affect some of the most vulnerable in our society: those too unwell to work but not classified as disabled; black and ethnic-minority people; young people not in education, employment or training—the NEETs—who are often from a low socioeconomic background; and those in work but on very low pay, who are really struggling at the moment.
From these Benches, we wanted to see household energy bills cut by £500 by taking the energy price guarantee down from £2,500 to below £2,000. We wanted to extend energy support for businesses, especially local businesses, including farmers and rural communities, to keep food prices from rising and to help shops and pubs on our high streets to stay open. We also wanted to put in place a proper windfall tax so that oil and gas giants pay their fair share.
This is because the OBR says we are only half way through this period of severe cost and inflation increases and resulting pressures on the economy. It has confirmed that living standards will fall by 6% over the next two years, and we know from the last year that vulnerable communities will be worst affected. For example, Black Voice notes that 40% of black people have no access to a car, compared with 17% of white people.
Data also shows that bus and rail costs have risen disproportionately compared with fuel duty and vehicle fuel costs over the last five years. We know that bus users in rural areas are paying much higher prices, just as they watch their local bus services disappear because councils cannot afford to support them. Once again, the most vulnerable are affected.
We on these Benches believe that R&D tax credits for business are effective. However, yesterday’s announcement about the 40% intensity threshold for innovation, at a time when all types of businesses are focusing on surviving and coming out of this economic downturn, raises concern. High tech and innovation are vital for business, as I know better than most, but all businesses need to grow.
Four decades ago, I managed the new Cambridge research fund, which was the first UK seed corn investment fund for high-tech companies coming out of universities. In those early days, we learned one key fact: tech businesses are not understood well by mainstream banks and their investors. The lead time to market, and profit, is often slower than for less innovative businesses and far too many do not make it. Those elements still hold true. Can the Minister say how long the Government believe it will take before UK business sees a rate of return on these new, highly strategic R&D tax credits and why they made the decision not to fund those businesses just outside that innovation threshold, because now is also a crucial time for them to invest?
We also know that many businesses across the country are really struggling with their energy costs. Some have already had to close because their costs have gone up by such a large amount. This includes social care providers; as an aside, why was there absolutely no mention of social care in the Budget yesterday? The Government have delayed the reforms they proposed last year. They are vital but there was no news.
Methodist Homes, which has 88 care homes and 69 retirement living schemes, has found that its energy costs have risen from £5 million to £18.6 million in less than two years. Yet the support it received from the Government has reduced this burden only by less than £1 million. Social care settings were not included in the energy and trade-intensive industry support scheme, despite the fact that they run many medical appliances and cannot simply turn the thermostat down. Methodist Homes says:
“We were hoping for support in this Budget and are disappointed that our sector has been overlooked. The scale of the impact of the energy bill hikes should not be underestimated: without significant support on energy bills to the sector, we believe there is a risk of market failure and subsequent reduced provision for older and vulnerable people, with a devastating knock-on effect on peoples’ lives and patient flow in the NHS.”
What advice would the Treasury give to the many social care providers today, and what help can they receive to prevent this possible market failure and the crisis for our elderly in having nowhere to go that closures would create?
The Government’s priority of getting people back into work to really start the economy going again seems logical, at face value, but the details of how this will work are key. With 6.7 million people economically inactive, the Chancellor proposes a number of remedies.
On the childcare and nursery announcement about providing £4 billion to fund an extra 30 hours a week free for one and two year-olds, the Chancellor is also going to relax the ratio of staff to children in nurseries to help address staffing issues. In coalition, the Liberal Democrats pushed the Conservatives to start the investment for three to four year-olds, but we wanted it to go further and cover one to two year-olds too; the Conservatives disagreed. Let us be clear that, despite the Government claiming today the entire credit for the current system, the push inside the coalition for this was from Jo Swinson MP and we always said that it needed to be expanded. Our 2019 manifesto set this out and was derided at the time by the current Government.
There are holes in yesterday’s announcement regarding the proper funding of a scheme that is free to parents and does not penalise nurseries. First, the Government announced some funding, but it is not the full funding that is necessary. Since 2015, this Government have not increased the grant to nurseries in line with their actual costs. That is also why some nurseries are going out of business now.
Secondly, we have always wanted a workforce plan to professionalise and retain nursery staff and to increase the number of staff with a positive recruitment campaign. We know that effective early years free childcare and nursery support pays dividends in later education and employment. If these two issues are not fully supported now, it risks making the problems facing parents and childcare providers even worse, and many parents will find they cannot get access to the nursery places they need. Relaxing staff-to-child ratios simply is not the answer. Children’s safety should be our number one priority, rather than being reduced to a cost-cutting measure. All these key practical issues could be solved if the Government reversed the tax cuts of £4 billion a year that they have given to the big banks, on top of what they are offering now.
The proposal to abolish the work capability assessment and create enhanced universal credit for disabled people sounds attractive in theory. The WCA was—is—a flawed process and disabled people found themselves in the hands of assessors who did not understand, I am afraid sometimes deliberately, the barriers their disability presents to entering the workplace. However, the new system relies entirely on personal independence payments assessments working; they do not.
Assessors often underplay the impact of a person’s disability when they write up their recommendation. Worse, there is considerable evidence that some lie in the face of the evidence. How do we know this? An extraordinarily high percentage of disabled people whose PIP applications are rejected win on appeal, so the system is already failing. The mandatory review stage, internally in DWP, overturns only 12% of PIP cases but at the next stage, external tribunal, applicants have an astonishing 70% success rate. Are the Government planning to reform the PIP assessment process to ensure that these appalling practices cease and that people who generally need PIP support and who will get this new help will win, right at the start? By the way, there is a substantial bill to the state in fighting these appeals, and therefore to the taxpayer. Fighting appeals costs the DWP a shocking £50 million per year and if the PIP process is not sorted out, the new process will not work either.
The Government’s proposal to help those who are ill but not disabled back into work is interesting. But what happens to someone in a village who has a bad back, confirmed by their GP, and is offered a job in a town with no bus service from that village? They cannot get to that job on a bicycle. Can the Minister say if they will be sanctioned, or the doctor’s advice will take priority? DWP’s history on this is not good. We know that sanctions often do not work. There are far too many stories of despair at the draconian rules, and suicide.
Public services and their staff appear to have been almost ignored in the Budget—but then, they do not begin with an E. The Budget plans for an increase of around 1% per annum for public services over the next three years, but with promises already made for the NHS and social care—which, by the way, include the breaking news in the last half-hour of a deal for the nurses and ambulance workers—that is nowhere near what is needed for the NHS, given where inflation is.
It is not the NHS alone. All our councils, as well as police, fire and water, will struggle to deliver their statutory duties, let alone retain staff, if there is virtually no new money to pay for increases. The workforces are all struggling. There are record vacancies, particularly in the NHS and social care. We also saw a total failure to invest in fixing crumbling hospitals and supporting local health services, as well as public health. This shows that the Conservatives do not understand that you cannot get Britain back to work without fixing the real crisis in our NHS and social care.
Some good news over the last couple of months has given the Chancellor a bit of headroom, although economists are arguing that his is a high-risk strategy, given the volatility of the economy and global politics at the moment. Instead of supporting the most vulnerable—including ensuring that our public services can survive on more than 1%—and helping to kickstart the recovery that Britain so badly needs, the Chancellor chose to use the debt and deficit ratios for a number of temporary spending commitments now. The Government believe those will look good on election leaflets. The reality is that the Chancellor has built in a number of future policy liabilities, not just for next year but for the next Parliament. This will ensure that local government, the NHS and government departments all struggle even more to deliver core statutory services. It is not just a shame; it is shameful.
Lord Bridges of Headley (Con)
My Lords, I declare an interest as an adviser to and shareholder in Banco Santander. I start by saying that I very much look forward to my noble friend Lady Moyo’s maiden speech. I know that she will make a very great contribution to this House, given her enormous experience in business and many other fields—so I extend a very warm welcome to her.
The Chancellor has obviously been dealt a tough hand. Some of the challenges he faces are thanks to decisions made by his predecessors. Some of them flow from Brexit, others from the war in Ukraine and from Covid. Whatever the cause, we are in a new era of higher rates, higher inflation and, above all, higher uncertainty. So let me give credit where credit is certainly due. The Prime Minister and Chancellor have stabilised not just the ship of state but the economy. We have avoided recession.
In the Budget, the Chancellor was absolutely right to highlight the strengths of our economy: for example, our tech sector, life sciences and renewables. I support a number of the measures he outlined to help them, for example, nurturing nuclear power and the AI sandbox. In particular, I am glad that the Government have acknowledged the need to address the growth in inactivity that your Lordships’ Economic Affairs Committee reported on back in December. We highlighted, among a number of other points, the rise in the number of 50 year-olds retiring early.
On this, I do question the approach of increasing tax relief on pensions. The OBR states that this will result in employment increasing by just 15,000—maybe my noble friend could correct me if I am wrong. So this measure could cost £80,000 per worker incited back. That is a figure to focus on, but we need also to put the 15,000 figure in context. Some 37,000 50 to 64 year-olds were inactive in March 2020. The figure now—my noble friend can correct me if I am wrong—is 319,000. That is the backdrop to the 15,000. Moreover, as others have been remarking on overnight, this policy could actually encourage people to retire earlier. So I would be very grateful if my noble friend could talk us through the logic behind this policy. If it is aimed purely at stemming the exodus from the NHS, which I think a number of us are worried about, the words “sledgehammer” and “nut” come to mind.
However, let me take a step back and ask whether we are now on the path to the growth that Mr Hunt and all of us want. Will we see productivity rise from its torpor, as the noble Lord, Lord Eatwell, pointed to? Are the measures we heard about yesterday going to help make people better off, which is vital given that we are now experiencing the largest two-year fall in real disposable income in almost 70 years? I very much hope that the Budget will be one for growth; indeed, I have my fingers, my legs and my toes crossed. But it is worth noting that the OBR forecast is wildly more optimistic than that of the Bank of England, and I would be grateful if my noble friend could explain why she thinks there is this divergence. Obviously, these forecasts are bedevilled by uncertainties and risks. Those are clear in the caveats the OBR makes in numerous places in its outlook.
When we read the Budget and the OBR outlook, we can be sure of the parts of our nation that will grow. Here I fear that, while my noble friend in her opening remarks was Tigger, brimming with optimism, I am more Eeyore. Let me start with the state. It will grow, and this is the case in many other nations. It seems that we are in a new era of a bigger state. As a percentage of GDP, spending, which back in 2020 was set to decline, will reach its highest level since the 1970s.
I fully understand that the Government have had to contend with challenges that, for once, actually merit the adjective “unprecedented”. But let us look at some of the areas, other than support for energy bills, which are driving the increase. For example, we are seeing a growth in welfare spending, which will rise by £9 billion over the forecast period. Health and disability spending alone in 2026-27 will be £8 billion more than was forecast only last March. Another reason for the growth in spending is our debt and the cost of servicing it. Our stock of debt has been pushed to a 60-year high and this year we will spend £114 billion on debt interest. That is the amount we spend on education, the Home Office and defence combined. Then there is borrowing, which is £50 billion a year higher on average in the forecast this year, compared with last year’s forecast.
It is hardly surprising that, given these areas of growth, taxes are another area of growth. The tax burden is set to reach an all-time post-war high. We are growing the number of new taxpayers by 3.2 million and the number of higher rate taxpayers by 2.1 million. There is also the impact of IR35—that insidious policy that the Finance Bill Sub-Committee of this House has focused on. The yield on that has grown to £1.5 billion per year, which is double previous estimates.
As to the tax on business, the capital allowances will help compensate for the damage done by the rise in corporation tax. Again, the noble Lord, Lord Eatwell, pointed this out. But I note that, at the end of the forecast period when those new allowances are due to expire, business investment is set to fall. So it is critical that they are kept in place, not least because, as the OBR states, productivity growth settles at a measly 0.25 percentage points in the final two years of the forecast.
This brings me to another area of growth and something that has not been mentioned so far: immigration. Net migration was forecast to be 129,000 in the March 2022 forecast. Now it is forecast to be 245,000 a year and—this is the point—will contribute to 0.5% in output in 2027. Could my noble friend confirm that it is actually immigration, not the other measures announced yesterday, that will be the main driver behind the increase in our workforce?
There are two final areas of growth we can also be sure of. The first is our ageing population; that is set to grow. The population aged over 65 will rise by 1.2 million between now and 2027. That accounts for the bulk of the rise in labour inactivity. Secondly, by the end of the forecast, more than one in 10 of the working-age population will be in receipt of at least one health-related benefit.
I put all this together and, while I applaud the stability the Government have brought and welcome some of the measures in the Budget, I am afraid I do not share the optimism. I question whether we are doing anything like enough to put us on the stable path to growth we need. To do that obviously means more than just chanting “Growth, growth, growth”. Nor can it be done by irresponsible, unfunded tax cuts. From where I stand, I fear we are in danger of slipping into the groupthink that higher spending, higher taxes and a bigger state are the path to prosperity. They are not. They will snuff out the enterprise, innovation and investment we need to power growth.
More fundamentally, they conflict with the basic belief that I thought—or maybe should not think any more—most Conservatives held, that people, not Government, are best placed to spend their money as they see fit, to the benefit of all. Worst of all, far from taking the highway to prosperity, we risk going down a cul-de-sac to weak growth and flatlining productivity where we become submerged by debt. If we are to address this—again, I agree with the noble Lord, Lord Eatwell, but from a very different perspective—we need to have an honest conversation about what we want the state to do.
Let me end by quoting what the OBR highlights, tucked away on page 80 of its outlook. The UK is like many OECD countries, facing the
“growing fiscal pressures associated with ageing populations, higher stocks of debt … energy insecurity and climate change, and growing geopolitical threats. Meeting these pressures while also respecting their own fiscal objectives may require further increases in tax burdens in these countries over the remainder of this decade, unless they are prepared to significantly scale back spending in other areas”.
Some might say that a bigger state is inevitable if we are to pay for the challenges we face. To me, that is the question that overshadows this Budget. It is a very simple one: is it inevitable that the state is set to grow more and more, given the challenges we face? I think not. Others may disagree, but this is the debate that we must have urgently if we are to have the growth we need.
Lord Howarth of Newport (Lab) [V]
My Lords, I think we can all agree that the Chancellor had to maintain a—[Inaudible]—stance and drive towards a—[Inaudible]—configuration of the public finances, while improving—[Inaudible]—and encouraging productivity and investment in a green economy, though we can argue about how—[Inaudible]—his measures may be in achieving those ends.
I suggest that the Chancellor’s analysis of the malaise of our economy fails to identify some crucial features. He is emphatic about the need to improve growth—an objective of my party as well. We should start by asking what sort of growth we want. The noble Lord, Lord Bridges of Headley, just now reflected on various forms of growth, not all of them welcome. The Chancellor said—[Inaudible]—sustainable and healthy growth, but what does that mean? He seems, in the conventional view of the Treasury, to envisage economic success in terms of increases in GDP. Should not the primary objective of economic policy be rather to grow the well-being of every member of our society, especially those who are worst off?
GDP, as a measure of the economy, takes no account of inequality and ignores the basic human needs of security, dignity and respect. The Chancellor alluded vaguely to the need to fund good public services. I am glad that he wants to help children in care and households with pre-payment meters, but he offered nothing in the Budget to give confidence to the great majority that they and their families will be cared for, that they will be helped to adapt their skills and make a good life, that their elderly parents will be supported in their frailty, and that their children will be well educated and in due course decently housed at an affordable cost. The Budget was not devised within a vision of a society that is equitable, humane and in harmony with nature.
The Chancellor preened himself, a little desperately, on achieving a
“slightly lower overall tax burden”
than previously forecast
“for the rest of the Parliament”,—[Official Report, Commons, 15/3/23; col. 836.]
although that will not have gratified his party, frantic for him to lower personal taxation before the election. They might reflect—and this is a consideration also from the noble Lord, Lord Bridges—that economic growth was stronger in the post-war decades, when top rates of personal tax were high and a mixed economy was the orthodoxy, than in the following decades, when policymakers put their faith in the market and sought to roll back the state with privatisation, deregulation and tax cuts for the wealthy.
There is no evidence that low personal taxes inspire people who have advantages to work harder or lead to improvements in efficiency. Low rates of tax on high incomes make it rational to provide grotesquely large remuneration and prioritise shareholder value over investment. They have caused talent to gravitate excessively to finance, narrowing the capacity of the economy and contributing to the dereliction of post-industrial areas. Natural justice requires that the winners from globalisation are taxed so as to compensate its losers. Instead, the proceeds of growth have been almost entirely extracted by the rich.
Mr Hunt’s claim that since 2010 the Government have cut inequality can be based only on the most selective statistics. The Chancellor’s policy on personal taxes is for the rich to be able to accumulate bigger pensions and thereby pay less inheritance tax while many more people on lower incomes are to be dragged into the income tax net and see their disposable income fall. He could at least have introduced tax relief on pension contributions at a flat rate, but he chose not to do so. The Budget will exacerbate inequality and national demoralisation.
Communities blighted by the forces of economic change—new technology and globalisation—need not only generous social security for individuals and their families but substantial resources for place-based regeneration, funded by taxpayers who have benefited from globalisation and administered as far as possible by local communities themselves. I am pleased, therefore, that the Chancellor has seen the need to empower elected local leaders to
“fund and deliver solutions to their own challenges.”—[Official Report, Commons, 15/3/23; col. 838.]
I hope he will move faster than he seems minded to do to extend this freedom beyond the West Midlands and Greater Manchester mayoralties. However, I suspect that his vision of 12 investment zones as “potential Canary Wharfs” will be depressing rather than inspiring for the people who live in those places. Are they to be subjected to the abandonment of properly considered urban planning and the destruction of biodiversity? Growth should not be at the expense of quality of life and life itself.
It is good that the Chancellor will bring forward measures to tackle the promoters of tax avoidance schemes, but his concern seems only to stanch the haemorrhage of tax revenue. He gave no hint that he understands the importance of cleaning up the nexus between the very wealthy and government. When people read reports of the elaborate arrangements, devised by accountants and lawyers, for rich people to avoid even such taxes as they are expected to pay, and when they read about the lobbying of government by big business and the funding of politics by the rich, they conclude that government and politics are corrupt and, to coin a phrase, a conspiracy against the public.
Resentment is intensified when political rhetoric stigmatises the poor as failures and morally defective. This Chancellor is more delicate in his language than his predecessor, George Osborne, but in the Budget yesterday he said the sanctions regime for social security claimants will be applied “more rigorously”. A society in which feelings of injustice are thus incubated will, to say the least, not be optimally productive. This is dangerous for our democracy as well as our economy. Anger, unhappily, will issue in scapegoating of politicians certainly but also of immigrants, who are perceived wrongly to depress wages, steal jobs and have a free ride on public services. If the Chancellor wants more construction workers and childminders to come here from abroad, he had better educate the Home Secretary as to why this is in the interests of our economy and try to persuade her to tone down her language about migrants.
We have no option but to embrace technological change, but we should be aware that it is not certain that we will grow faster or be happier if we become a science superpower—the Prime Minister’s dream. Historically, the technological innovations of electricity and the internal combustion engine indeed engendered high growth in an era when the size of the state and its commitment to public services was also growing hugely. The technological innovations of the digital era, also the era of the cult of the small state and globalisation, have been accompanied by weak growth of productivity, stagnation of wages and widening inequality, as well as the pathologies associated with social media. If to be a science and technology superpower means to accelerate the application of artificial intelligence, as the Chancellor proposes, then we shall need more than ever a protective state. We have to see past the circumstances of today’s tight labour market to recognise that very many livelihoods are at risk from artificial intelligence.
Following technological innovations in the 18th century that heralded the Industrial Revolution in Britain, real wages halved and then stagnated for 50 years. Great technological disruptions may benefit capital but they immiserate labour that is displaced and rejected. In this context, it is perverse for the Chancellor to continue to tax labour at a high rate through national insurance while favouring capital through generous investment allowances. Destruction takes a very long time to become creative and there is no certainty that it will do so. In such an era we need government that willingly embraces responsibility for the well-being of the vulnerable.
I now look forward very much indeed to hearing the maiden speech of the noble Baroness, Lady Moyo.
Baroness Moyo (Con) (Maiden Speech)
My Lords, I am deeply privileged to speak for the first time in your Lordships’ House. It is an honour to take my place on these distinguished Benches. I thank everyone in this august House for the warm welcome that I have received from all sides. I thank the officers and staff I have met for their support on all matters great and small. This includes Black Rod and her staff, the Clerk of the Parliaments’ Office, doorkeepers, police officers and attendants in the Library and dining areas. I also sincerely thank my supporters, the noble Baroness, Lady Baroness Manningham-Buller, and my noble friend Lord Reay.
In preparing for this occasion, I visited the archives of Hansard and read the maiden speeches of several noble Lords past and present with whom I share an interest in the economy: former Chancellors of the Exchequer my noble friends Lord Clarke of Nottingham and Lord Lawson, and the noble Lord, Lord Darling; former Bank of England Governor the noble Lord, Lord King of Lothbury; business leaders and economists my noble friend Lady Lea and the noble Baroness, Lady Fairhead, and the noble Lords, Lord O’Neill and Lord Skidelsky. Their words on the centrality of economic growth underline how much of what I wish to say today has echoed in this Chamber through the decades. Yet the theme of economic growth and its impact on all our lives is as important today as at any other point in living memory—perhaps more so.
I have been fortunate in my career to have worked through the vagaries of the world economy, including the challenges of the global financial crisis, Brexit and navigating the Covid pandemic. The perspective that I bring to this House is born of both public and private sector experiences over the past 30 years: in public policy, at the World Bank and as a non-executive director in His Majesty’s Department for Business and Trade; in finance, in the City of London, having spent nearly a decade at Goldman Sachs; and in business, on the boards of many large, global and complex organisations, including Barclays Bank and the investment committee of the Oxford University endowment.
In my career as an economist, I have long believed that the ability to create and sustain economic growth is the defining challenge of our time. I do not mean growth for growth’s sake or merely for the sake of record-keeping—for example, an economy increasing growth from 3% to 5%—but rather because economic growth is a prerequisite for vital public goods such as the quality of education, reliable healthcare, a clean environment and dependable infrastructure. Economic growth is also a precursor for innovation, improving how we communicate, travel, produce food at scale and solve seemingly intractable challenges such as the energy transition. Importantly, growth is necessary to maintain a healthy democracy. It ensures a wider share of prosperity and supports a stable, plural society. Taken together, with economic growth, we are able to put a dent in poverty and sustain human progress. Without it, lives become smaller and society atrophies.
Such is the mandate of your Lordships’ House, we must and do scrutinise the legislation of the land. Beyond this, the ultimate measure of how well we do our duty rests on how well we incorporate long-term growth consequences into the judgments that we make in our work here. In particular, in debates such as today’s on the Government’s Spring Budget, we are minded to consider the costs and consequences of our decisions on society’s long-term growth trajectory.
According to the OBR, growth projections for the UK peak at 2.5% before falling back below 2% over the next five years. Yet theory tells us that an economy needs to grow by at least 3% per year in order to double per-capita incomes in a generation, which is about 25 years, and, in so doing, make meaningful progress in living standards. From my reading of the Budget, we can see the beginnings of a credible growth plan, although it seems concerning that corporation tax in 2023-24 has been reaffirmed to rise from 19% to 25%. Surely, there is more work to be done to unburden companies from excessive regulation—after all, there is no credible path to strong, sustainable economic growth if the economy is subjected to both high tax and high regulation.
This House has an important role in reinvigorating the British economy and, relatedly, Britain’s standing in the world. Jump starting economic growth must mean multi-decade commitments and investments today in key areas, such as technology, the environment and the energy transition. To accomplish this, we need both public and private investment. In this Spring Budget, I am encouraged to see government pledges to drive investment, including corporation tax relief worth £25 billion to businesses over the next three years and investment in technology R&D worth £1.8 billion. In energy, I am pleased to see a commitment of up to £20 billion in carbon capture projects. Notably, I share the belief that investment in nuclear energy must be part of a green taxonomy; it is crucial to Britain’s energy security.
If the United Kingdom is to remain competitive in the intensifying contest for global private investment, the Government must also continue to telegraph time-consistent policies. These policies reduce economic uncertainty and offer investors confidence that, when they invest in Britain, they can reasonably expect to generate returns above the cost of capital. Crucially, policy-framing must not merely be obsessed with risk mitigation and setting rules for what we cannot and must not do; it must also point towards innovation and investments that catalyse economic growth, as we have seen in this Budget.
The world’s population has now surpassed 8 billion people, with estimates that nearly 90% of the world’s population lives in the developing world. Having been born in Zambia and having spent my formative years in Africa, I am acutely aware of how the rapid shifts and trends emerging from these developing regions—demographics, resource scarcity and geopolitics—are shaping the prospects for growth in Britain and the global economy in its entirety. The fact that I stand here today is a testament that, here too in this Chamber, there is a recognition that the perspectives from these emerging regions must continue to be represented in the important work that we do.
Lord O'Neill of Gatley (CB)
My Lords, it is quite a remarkable pleasure and an honour to welcome the noble Baroness, Lady Moyo, to this House, and to speak immediately after her excellent maiden speech. I am not sure whether the noble Baroness remembers this, but we once shared a nice dinner in Knightsbridge. I would never have imagined that I would be stood here welcoming that particular colleague, or any colleague, to this House, but here we both are—me and the noble Baroness, Lady Moyo of Knightsbridge—and it is a huge delight to do so. As she has beautifully demonstrated, I can assure the House that the noble Baroness will bring some fresh insights into aspects of how the world works, or does not work, to add to the already rich vein that is so present in this place. Because I reached out to inform a couple of our ex-colleagues, I know that many of them will be extremely proud of Dambisa, and, again, I welcome her to this place.
Before I make a few comments about the Budget, which I will return to at the end, I thought I might point out that, yet again, a fiscal event is taking place against the background of quite a bit of chaos in global financial markets. In that sense, much of what I shall reflect on and much of what has been said already, or may follow, might not be as immediately relevant if some of these events are not stabilised by the sharp minds of our global policymakers who are increasingly experienced at these far too frequently reoccurring events.
As to the Budget, first, as was very clearly pointed out by the noble Lord, Lord Eatwell, but also recognised in some ways, to their credit, by the Chancellor and by his immediate predecessor, the now Prime Minister, our weak growth performance is primarily due to a very poor investment performance, as well as, I might add, net trade. Unfortunately, I still do not see much ambition in the Government’s own direct investment plans, as the noble Lord, Lord Eatwell, suggested, to match this important recognition. There is still a persistent belief that the primary way to boost investment is to have the right investments for the private sector, and that this is all that is needed.
As I shall come on to, and as has been touched on by some prominent commentators in today’s media, the Government are still significantly constrained by their own narrow vision of credible fiscal rules. While on the one hand this is not entirely surprising, given the utter fiasco of last autumn, we do need to break out of the same old somewhat tired thinking. I call on this or any future Government to be more imaginative, while retaining credibility with financial markets, in creating a much more sophisticated modern framework to approach government investment spending and fiscal rules. Asking the OBR itself, as well as other independent bodies, as to the most credible path to achieve both of these seems to me to be as inevitable as it is necessary. Perhaps it will require another Government in the future to take these steps.
In this regard, I shall touch on the really important challenges that the noble Lord, Lord Bridges, just suggested for more debate about the kind of growth that we might want to see, and the role of the state. I agree with this challenge, but what I think his excellent idea suggests, and perhaps misses, is the crucial distinction between government investment spending—which, if aimed correctly, would boost future growth—and the Government’s persistent focus on current or maintenance spending. This self-imposed constraint aside, I find myself, a bit surprisingly given how easy I have found it to criticise Budgets of the past few years, welcoming much of the broad flavour of the policies announced yesterday to boost the supply side of the economy.
In particular, although it is with a caveat, I welcome the measures to try to boost investment spending by specifically claiming allowances for genuine investment spending, as opposed to the never-ending, nonsensical obsession with the level of corporation tax that too many retain. This is a sign, in my view, that at least some policymakers are finally living in the real world. Sadly, as the noble Lord, Lord Eatwell, pointed out, the limited duration of this policy, itself constrained by the arbitrary fiscal debt rule, will, along with the fact that there may be a change of Government within two years, limit its otherwise potentially huge positive potential.
Thirdly, noble Lords will not be surprised that I highly welcome the significantly tweaked investment zones. While the analogy to Canary Wharf is in some ways slightly unfortunate, the zones have the potential to be so much more, in my view. The reconcentration on large metropolitan areas is hugely welcome, as is using the strength of our excellent universities as the focal point for this initiative. This is consistent with the broad goals of Northern Gritstone, which I am proud to chair. It also links to the whole journey of devolution, which is a sign of a Government who finally get it—perhaps for the first time in a number of years.
Also in this regard, the detailed framework for a so-called trail-blazer devolution deal, announced for both Greater Manchester and the West Midlands, is a huge step up in the art of the possible for devolution. I truly hope that the Government will genuinely follow through on this, that other electoral mayoral areas around the country develop the same ambition as GM and the West Midlands and that future Governments take this further.
Fourthly, while these initiatives and others, such as those on skills and education, are aimed at boosting productivity, the measures aimed at boosting labour force participation, especially childcare support, are also to be welcomed. It is probably far too early to judge whether the precise numbers chosen are likely to succeed in changing the incentives of those currently outside the labour force, but they are obvious and critical areas that needed attention and I congratulate the Ministers involved for that intent.
Given that, since the financial crisis of 2008, we have experienced extremely weak productivity growth and, since 2019 and Covid, a worrying decline in labour force participation—as others have already pointed out—this is the first Budget in some time that is aimed at genuine supply-side measures, and I hope it has some seriousness attached to it. If we could adopt more ambition, as I touched on at the start, on the fiscal rules framework and the Government’s own long-term investment spending, as well as a more serious plan for the post-Brexit global trade environment—including, as the noble Baroness, Lady Moyo, so beautifully said in her maiden speech, with the big emerging nations—then perhaps the future might not be quite as bleak as it otherwise seemed it would.
In closing, I thank the Government, and the Treasury in particular, and the Bank of England for their speed and awareness in reacting to the sudden chaos that erupted late last week around Silicon Valley Bank. If they had not been so speedy, the discussion that we are having today would have been very different. That needs to be recognised.
Lord Harlech (Con)
My Lords, I suggest that we adjourn the debate on the Motion in the name of my noble friend Lady Penn in order to take the Urgent Question repeat to the Foreign, Commonwealth and Development Office.
Lord Tunnicliffe (Lab)
Could the noble Lord give us a time when we might come back?
Lord Harlech (Con)
The Urgent Question repeat may run up to 10 minutes and then my noble friend the Deputy Chief Whip will adjourn the House for 30 minutes on the conclusion of the Urgent Question, so it will be roughly 40 minutes.
Saudi Arabia: Execution of Hussein Abo al-Kheir
(1 year, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Minister of State, Foreign, Commonwealth and Development Office (Lord Ahmad of Wimbledon) (Con)
My Lords, with the leave of the House I will now repeat in the form of a Statement the Answer given by my honourable friend the Minister for Europe to an Urgent Question in another place on the execution of Hussein Abo al-Kheir. The Statement is as follows:
“Saudi Arabia remains a Foreign, Commonwealth and Development Office human rights priority country, in part because of the continued use of the death penalty. It is long-standing UK policy to oppose the death penalty in all circumstances, in all countries, as a matter of principle. The Saudi Government are well aware of the UK’s opposition to the use of the death penalty. The UK Government have consistently raised the issue of the death penalty, including the case of Jordanian national Mr Hussein Abo al-Kheir, with the Saudi authorities. The Minister for the Middle East and North Africa, and for human rights, Lord Ahmad of Wimbledon, has actively raised concerns about the death penalty and the specific case of Mr al-Kheir with the Saudi authorities on multiple occasions, including with the president of the Saudi Human Rights Commission in December 2022 and when he visited the kingdom in February 2023. Lord Ahmad also raised the case with the Saudi ambassador to the UK, including in November 2022 and in January of this year.
On learning about the imminency of the execution, which took place on Saturday 11 March, Lord Ahmad again spoke to the president of the Saudi HRC, the Saudi vice-Foreign Minister and the Saudi ambassador. Saudi Arabia is committed to an ambitious programme of economic and social reform, through ‘Vision 2030’ ... However, the human rights situation is likely to remain a key issue in our engagement for the foreseeable future. We will continue to discuss human rights and the death penalty, including individual cases of concern, with the Saudi authorities.”
Lord Collins of Highbury (Lab)
I thank the Minister for repeating the response to the Urgent Question, and I am fully aware of all the efforts he has personally made. It is a shocking case. This is a 57 year-old father of eight who did not face a fair trial and who was tortured in jail, so the evidence goes. My right honourable friend Stephen Timms asked in the other place this morning whether the Foreign Secretary had raised this case with the Saudi authorities. The response from Leo Docherty, as we have heard, was a generalised one, saying that the Saudis know our position on the death penalty and that our position is clear. He also confused the issue slightly by saying that the moratorium on the death penalty for drugs cases was about people who were users and not particularly related to this case; he corrected himself later on.
I ask the Minister the specific question that my right honourable friend Stephen Timms asked: did the Foreign Secretary make specific representations to halt the execution and if not, why not? We know that high-level interventions can have an impact. In 2015, when David Cameron and the then Foreign Secretary Philip Hammond publicly called on the Saudi authorities to prevent the execution of Ali al-Nimr, that execution was halted. I respect what the noble Lord has been trying to do as an individual Minister, but I hope he can answer my specific question.
Lord Ahmad of Wimbledon (Con)
I thank the noble Lord for his kind remarks and note the involvement of his honourable friend the Member of Parliament for Enfield, Southgate, who got in touch with me on Saturday evening. I assured him that I was already engaging in this issue.
The noble Lord rightly raises the importance of human rights, which he knows I prioritise in all my engagements. Human rights should be central to our diplomacy and our foreign policy, and in this regard I am sure I speak for my right honourable friend the Foreign Secretary, whom I have known over a number of years. When he was Minister for Middle East and North Africa, he consistently raised human rights issues directly with various authorities in the region, including the Kingdom of Saudi Arabia. Although I am the primary Minister engaging in this issue, in various recent exchanges with the Foreign Minister of Saudi Arabia he has not only discussed a broad range of bilateral issues but has emphasised the importance of human rights as a central plank of our ongoing relationship with the Kingdom.
Lord Purvis of Tweed (LD)
My Lords, I declare that I am vice-chair of the All Party Parliamentary Group on Abolition of the Death Penalty. Saudi Arabia is becoming increasingly isolated as other countries abolish capital punishment for drugs offences. This is a welcome move globally but draws attention to the Kingdom of Saudi Arabia. I too recognise the involvement of the Minister; however, I note the concerns of Conservative MPs who claimed that more could have been done.
My questions relate to the consequences of our relationship with the Kingdom. The Trade Minister, the noble Lord, Lord Johnson, recently confirmed to me that human rights were no longer to be an integral part of discussions on free trade agreements. Are there any human rights activities which would bring into question opening access to UK markets, or is human rights simply a noble aim when it comes to our investment negotiations with Saudi Arabia? Secondly, we know that the Government have had intensive discussions with authorities in the Kingdom of Saudi Arabia to seek infill for development and humanitarian assistance when there are UK cuts. Can the Minister confirm that we have not asked Saudi Arabia to infill cuts to human rights programmes, especially those relating to the use of torture, human rights and legal reform, and that UK cuts will not be infilled by Saudi Arabian Government support?
Lord Ahmad of Wimbledon (Con)
My Lords, I assure the noble Lord that in all agreements, particularly the GCC FTA currently being negotiated, and when I raise trade issues and the bilateral relationship across the Gulf, human rights are central to my thinking. As I said in response to the noble Lord, Lord Collins, in the most recent conversation my right honourable friend the Foreign Secretary had with the Saudi Foreign Minister, he took the opportunity to say that human rights remain a foundation stone of British foreign policy.
The noble Lord is right to say that we are strengthening our work on development with key partners across the Gulf. Indeed, the Saudi Arabian delegation is currently at the Foreign, Commonwealth and Development Office, and I will be leading the plenary and closing sessions with the primary principle of those discussions. From my perspective and understanding of human rights and the rule of law, we are not asking any country to fill gaps; it is about development infrastructure and support. For example, when I visited the Kingdom recently, I saw directly the work that the Kingdom of Saudi Arabia is doing through its development arm in the government-held areas in Yemen. That includes building infrastructure such as schools and hospitals, so they are making a valuable contribution to development. If there are more specifics regarding the issues the noble Lord raised, I will review them and if necessary write to him.
The Lord Bishop of St Albans
My Lords, the whole House acknowledges the contribution the Minister makes in this important area, but there are real concerns as to whether His Majesty’s Government are as intent on addressing these issues. Saudi is part of the Arab Charter on Human Rights 2004, but the problem is enforcement. Even the statute brought in 2014 does not enable enforcement. What representations are His Majesty’s Government making to the wider Arab world to work with colleagues to nudge Saudi in a new direction and stop this extraordinary range of executions, which do not seem to be abating at all?
Lord Ahmad of Wimbledon (Con)
I agree with the right reverend Prelate, and I assure him that I am raising these issues in a very wide context. When, under Islamic jurisprudence, the death penalty was established, it was done with so many caveats, thresholds and hurdles that needed to be overcome that implementation was made extremely remote, because of all the other validations that needed to be put in place. I would not say that we need to nudge the Kingdom of Saudi Arabia—countries in the Islamic world should themselves be harnessing the true principles of this—but I will ensure that this remains part of our diplomatic focus as we continue to express our opposition to the death penalty across the world.
Lord Alton of Liverpool (CB)
My Lords, although I recognise the undoubted role that the Minister plays and his undoubted concern, is not the killing of Hussein Abo al-Kheir just part of a shocking pattern that we have seen in Saudi Arabia? Can the Minister confirm that, between 2010 and 2021, at least 1,243 people were executed in Saudi Arabia; that, in 2022, at least 147 people were executed in one of the bloodiest years on record there; and that, on 12 March last year, 81 people were killed in a single day, some of them charged with things such as deviant beliefs? The executions are usually carried out by beheading with a sword and hanging is often performed in public, with decisions taken behind closed doors and court documents forbidden from being published. It even affects minors: a child of 14 was executed. Is the Minister taking this matter up with the United Nations Human Rights Council and talking to Islamic scholars about challenging things that are done under religious statutes?
Lord Ahmad of Wimbledon (Con)
My Lords, in the interests of time, let me assure the noble Lord that we discuss the death penalty very much in multilateral fora, including the Human Rights Council. As I alluded to the right reverend Prelate, we must also contextualise our approach and make it clear that the extreme nature of this is against our principles—indeed, if they are to exercise the death penalty, we must define what the nature of it should be.
Baroness Blackstone (Lab)
My Lords, following the right reverend Prelate’s intervention, can the Minister tell the House what conversations he is having with our allies—whether in the Commonwealth, in Europe or elsewhere—about the particularly barbarous practice of imprisoning children as young as 14, keeping them in prison until they are 18 then executing them? Surely this is something that the international community needs to take very seriously. Words will not be enough; action needs to be taken on Saudi Arabia in this respect.
Lord Ahmad of Wimbledon (Con)
On the specific issue of Saudi Arabia and child detention, I believe that there is only one live case of someone facing such circumstances at the moment. I assure the noble Baroness that I have made strong representations. Certain adjudications were made in particular cases that were then reviewed and overturned. I assure noble Lords that we watch this issue very carefully; indeed, when such occasions arise, we make direct representations.
As I, the right reverend Prelate and the noble Lord, Lord Alton, have said, there is a real need for countries in the Islamic world, including those in the OIC, to recognise that how they behave or act, particularly when it comes to certain issues and penalties, is not reflective of the notion, principles and intent of that structure of jurisprudence when it was created. It is a sad fact, though, that the death penalty applies not only in that part of the world but quite widely; we will continue to campaign against that. I think I speak for everyone in this House, irrespective of who stands at this Dispatch Box and when, when I say that our principled stand against the death penalty is the right one and that we should continue to advocate across the piece.
Budget Statement
(1 year, 9 months ago)
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Lord Willetts (Con)
My Lords, I was sitting like a coiled spring about to praise the excellent maiden speech from my noble friend Lady Moyo when we had the interruption of the Urgent Question and the brief adjournment, so it is a pleasure and an honour to resume the debate and, although my noble friend is no longer in her seat, to say how excellent her maiden speech was. Her most recent book, Edge of Chaos: Why Democracy is Failing to Deliver Economic Growth, which is a fantastic contribution to economic debate, is very relevant for one of the points that has been made in several interventions already.
I begin by welcoming the Budget and will draw on some of the analysis we have done at the Resolution Foundation, of which I am president. The Chancellor has had some good news, with energy prices not as high as feared, inflation falling more rapidly than was expected and interest rates slightly lower than forecast, not least because of the stabilisation measures that he has introduced during his time as Chancellor. So there was a favourable backdrop to the Budget, shown in the good news that we are going to avoid recession and that he had some fiscal room for manoeuvre.
Nevertheless, I have to say, as president of the Resolution Foundation, that the overall picture on living standards is still very bleak indeed. Wages are not expected to return to their 2011 level in real terms until 2026. That is 18 years before we are back to the level before the financial crash. At the moment, with big falls in household disposable incomes this year and next totalling 5.7%, it is very likely that incomes will actually be lower in real terms at the time of the next election than they were at the last. So there is still a very sombre backdrop against which we have to judge this Budget.
The boldest and most ambitious measures in this Budget focus on improving participation in the labour force. It would be marvellous if the combined effect of the ambitious measures on childcare, helping disabled people and promoting older people returning to work bore fruit. They are more radical than expected and we can all hope that they have a significant effect—30 hours of free childcare and help particularly for people on universal credit. For disabled people, it is very welcome indeed that the work capacity requirement is being scrapped. Regarding older people, the Chancellor got into a little difficulty yesterday in referring to the Deputy Speaker in the other place as an older worker when she was born in 1958. She is a spring chicken in terms of your Lordships’ House, and it should not be a point of observation that someone born in 1958 is old and working.
We must hope that those measures do bring 110,000 extra people into work. It could be more. We have already had several exchanges on this, so I make just a couple of observations. First, it has been said with shock that the cost of the change in pension rules, divided by the increase in the number of people going to work because of that change, is about £80,000 per extra job. These are net extra jobs. When you look at the likely effect of the more ambitious and expensive childcare measures in the Budget on net actual increase in work, they also come in at a cost of £80,000. It looks as if that is about the going rate for creating an extra real job. To be honest, having worked over the years in various ways engaging with welfare-to-work programmes and welfare reform, spending that amount of money for a net effect, while a lot of the effects will be deadweight, does not come as a surprise. Therefore, I hope that in the exchanges across this Chamber we accept that this is the going rate for intervention. We must hope that there are greater impacts than that, but that is what the OBR is forecasting.
Incidentally, in his excellent speech my noble friend Lord Bridges asked about the difference between the OBR forecast and the Bank’s forecast. One of the reasons for it is that the OBR is factoring in a 110,000 increase in workers as a result of the Budget measures, while there is no such estimate in the Bank’s forecast.
Of course, the help with childcare for families with young children is also a more progressive measure than the help on pensions because, as well as getting several tens of thousands of extra people into work, it boosts the incomes of large numbers of low-income families. It also has an even bigger effect on the incomes of some middle-income families. To assess the effect of the pension measure, we must look beyond the immediate benefit for the extra people going into work, and this is clearly a measure to do with NHS activity and NHS employment. Therefore, you would have to factor in the benefits for those people who receive healthcare that they would not otherwise have received were it not for those measures. This is essentially a healthcare recovery measure, but it is being applied more widely because of what we are familiar with as hybridity rules. You cannot have one pensions tax rule specifically for NHS consultants and a different one for everyone else.
I welcome this very ambitious set of measures to boost the workforce and the number of people in work, and hope that they succeed. We could well see an effect greater than 110,000, and I hope that is what we secure.
I will briefly reflect on the fiscal situation. Again, several people, including my noble friend Lord Bridges, have already touched on this. The state is undoubtedly getting bigger. It is not getting bigger because a bunch of socialists have seized control of the levers of government; it is getting bigger for completely different reasons. It is getting bigger partly because we are in a much more dangerous security environment than we were, so there is a pledge to increase defence spending. It is getting bigger because we borrowed a lot of money during Covid and, with interest rates higher, the cost of debt interest has risen by 2% of GDP. It is getting bigger because of demographic changes. Those are the drivers pushing up public spending.
My noble friend Lord Bridges said that we must make offsetting savings elsewhere. We are making offsetting savings elsewhere; in fact, the state is being reshaped under our eyes because the demographic changes plus policy decisions are protecting healthcare and boosting pensions, and other services and benefits for other age groups are being cut. Our estimate at the Resolution Foundation is that the effect of benefit changes is to lower the income of working families by £816 a year below inflation and the effect of the triple lock and other measures is to boost the income of pensioners by £666 on top of inflation. That is a deliberate decision to reshape the state so it is a state for old people. It is a big healthcare, big pension-spend state, cutting back on other services and provisions. Democratic trends are being exacerbated by political decisions, and I have to say I do not like that. I think we should have a state that is fair across the generations, not one which is clearly being structured to benefit that age group.
I have one other comment, having looked at the Budget, on the increasing tendency to have time-limited measures that do not have a long-term effect on behavioural incentives. This important point was made by my noble friend Lady Moyo. The capital allowance for corporation tax, time-limited for three years, will bring forward some capital spending, but it will have no underlying effect on total business investment, when that is a clear problem. The only way it could have that effect is if it were committed to as a long-term permanent policy. That is the way we get a change in behaviour, but if that happened there would be different costings showing the long-term effect on government borrowing, debt or taxes.
I do not wish to go on at great length because I see there are many other people wishing to intervene. I would like briefly to comment on one other strand in the Budget, something which I very much welcome: the focus on growth. That is again an area where there is strong cross-party consensus. The Prime Minister set out in his Mais lecture the framework of investing, innovation and skills, and infrastructure. We have heard in the excellent interventions from the noble Lord, Lord O’Neill, and others about the importance of those three strands, particularly innovation and technology. I strongly support that. There are lots of exciting ideas about how we could promote it, but as we have a Treasury Minister sitting on the Front Bench, I point out that there are some specific things which are directly under the control of the Treasury. I have three suggestions, none of which are the exciting, real technology measures in the Budget—all of which I welcome, and perhaps on occasion I would add to. Our difficulties in innovation are partly shaped by processing and bureaucracies which ultimately can be traced to the Treasury itself, and I shall give three examples.
First, we are celebrating the arrival of ARIA, which will be an advanced research and innovation agency, free from many of the classic constraints that the Treasury imposes on spending departments. There have been previous attempts to give programmes supporting innovation some of the freedoms that ARIA is going to have but which have been withheld by the Treasury. If ARIA is such a good thing, there is absolutely no reason why some of the freedoms which it enjoys should not be available more widely to other bodies also providing public investment in innovation. I declare an interest as someone on the board of UKRI, where of course we comply with all the Treasury rules but it would be nice if we had some of the freedoms that ARIA is going to have, which would enable us to operate with the same flexibility and agility that is expected of ARIA.
Secondly, the Green Book is written around an assumption of conventional public procurement. It is a set of rules designed for people building a road bypass or putting up a new hospital, but they are inappropriate when applied to innovation policy. When you go to America, you see the enormous role that public procurement—particularly but not only led by the Department of Defense—plays in promoting technology and innovation in the US. I have talked to someone who had a new gadget that he was designing and prototyping in the US. I asked him how he was funding it and he answered, “I’ve already sold the first 10,000 to the DoD.” He had not yet made a single one. There they use speculative procurement expenditure to promote innovation. A British department of state could not do that under Green Book rules—you have to already have a product. One of the things that America does so successfully is currently forbidden in the UK by Green Book rules.
Thirdly, the dread words that cause me most concern whenever an innovation programme is proposed appear on page 65 of the Budget Red Book, in the context of an announcement of spending on the future of compute review:
“subject to the usual business case processes”.
The business case processes will take over a year and will involve large numbers of civil servants writing reports which will eventually confirm the decision that was announced yesterday—and this is a Government trying to cut the cost of bureaucracy. All it will mean is that, instead of getting on with the investment in exascale computing which the Chancellor announced yesterday, we will be lucky if anything happens before the election. If the Treasury wants to get on—and the Treasury has put it into its own Red Book—do we really need to waste a year on a business case process not designed to promote innovation? I can tell your Lordships that, around the rest of the world, they do not have an extra year added to every policy decision on innovation so that they can do a massive audit in advance of any spending.
I strongly support the focus of the Chancellor on growth. If it were possible to extend ARIA freedoms more widely, to have more innovative use of procurement for new products and processes, and to simplify the business case process, the Treasury itself would be doing its bit for growth.
Lord Howell of Guildford (Con)
My Lords, it is a pleasure to follow my noble friend Lord Willetts. Like him, I was pleased to hear the maiden speech of the noble Baroness, Lady Moyo. I confess that I am a fan of her books. They move us on from the patronising terms surrounding so-called overseas aid and assistance to the words we should of course use nowadays of “partnership and mutual development co-operation”, and nothing less than that. In fact, a lot of the wording in the whole area of development and the so-called developing world is a leftover from the last century and the original thinking about overseas aid and development from Walt Rostow and the American pioneers and others immediately post the Second World War and in the 1950s.
Effective co-operation and sustaining of links of all kinds in a constant and friendly manner, and with deep mutual respect, with all the countries of Africa, Asia and Latin America, is now the task of every Whitehall department, especially but not only the Foreign, Commonwealth and Development Office. That is why I think it was an error to have had a separate department for overseas development; I know that many do not agree with that, but it is my opinion. Even now, allied with the old FCO, the DfID element is inclined to silo thinking. My own view is that it would probably be best structured along the lines of the Japanese model, through a powerful agency with entrée to every department, or from the Cabinet Office or indeed No. 10 directly. I notice that in the new integrated review refresh, which was published a day or two ago, they say that the Minister should automatically have a seat on the National Security Council, which I suppose half-recognises what I am saying.
Make no mistake: this is no sideshow. This is national strategy of the most intense kind, which will allow us to determine our prosperity and security. As the Chinese and Russians advance their colonisation of the developing world, this leads us to completely new thinking about our friends and networks, and how we use our resources to help them, and it brings forward the Commonwealth network, in particular, in a completely new light. That is a message which I think the new integrated review has not quite grasped.
Coming to the Budget itself, the most notable thing about yesterday’s Budget and indeed the surrounding context in which it was delivered was how many sources and authorities have been so spectacularly wrong about the inflation rate, its real causes and the course it is taking. There is the good old Bank of England: hopelessly wrong initially about how and when it would rise—they got it a year out of date—giving a wild underestimate of the pace at which it would accelerate, and wrong, I suspect, about the pace at which it now comes down. Then there were Goldman Sachs economists going on last August about 18% to 22% inflation in 2023—miles out and really quite silly. Then there were the eager monetarist theorists, determined to prove that it was all domestically caused, ignoring the real causes from the energy side. They said it was mostly caused by quantitative easing, which I agree may have played a part, but not the main part, and all demanded higher interest rates to defeat it. And there were armies of both commentators and high officials telling us that high inflation was here to stay, that recession was inevitable and was the only answer. Now, of course, they are all busily revising their inflation figures for the second half of this year.
One can laugh a little, but the damage has been done. These inaccuracies were not harmless. On the contrary, they caused great harm in two respects. First, they led to wrong remedies being applied then, because the real sources of inflation were not understood or were ignored. It was a very different kind of inflation from that which we have dealt with in the past. Secondly, because they sounded unnecessary alarm bells, they gave militant union leaders great opportunities to set their members marching and revive outdated class war rhetoric—an opportunity which Mick Lynch and his like have eagerly seized—and frightened millions of people about even bigger real wage cuts than they are facing already. No one seemed willing to face the obvious: that the sources were overwhelmingly external and lay in soaring gas and oil prices, both long before and during the Ukraine invasion and Russian obduracy. No one seemed to concentrate on the obvious central solution, which was, and still is, short-term world production of more gas and oil.
I admit that it is always difficult for Governments and officials to say that they have been blown off course by foreign factors. Jim Callaghan, who in my view was one of our best Prime Ministers, tried that, and I agree that we on the Tory side gave him no mercy and allowed no excuses. However, being predictably blamed by the Opposition—that is their role and they will always do it—was and is no excuse for not appreciating and tackling the real root causes of our problems, or for failing to realise that in oil and gas markets, and indeed in energy markets worldwide, what goes up always comes down quickly, whatever the circumstances, and always has, in past oil shocks and in this one too. I remind the House that I was very involved in some of the oil shocks of the last century.
The adjustment to the Russian cut-off and the nastiness since its lawless invasion was bound to be initially painful but has more or less been corrected with full storage tanks—for those who have storage—throughout Europe, plenty of shale gas in America, careful conservation and now the prospect of much more production from all sorts of places around the world. Indeed, the OPEC leaders, after initially being thoroughly unhelpful to consumer nations in the West, are now planning to expand future oil and gas investment unchecked.
The background of global energy transition is of course in the wings all the time, with a steady but very gradual long-term decline in world fossil-fuel demand. However, only fools imagine that we can take undertake the greatest shift in the pattern of world industry of all time in just a few years when it is bound to take decades, and when getting supply out of sync with world demand—incidentally, fossil fuels are still 82% of all energy needs, not just power—guarantees massive volatility, major suffering and political upheaval and reaction, as we have now in this country and in many others.
The missing piece in our national recovery strategy, in both the inflation fight and in our budgetary calculations all along, has been, first, the external side—the role of foreign policy and not enough clever diplomacy in diffusing these vast external measures—and, secondly, the absolute failure to convey into the public mind and debate the acute and continuing seriousness of the situation that we and all like-minded countries now face. Instead of trying to fight every individual grievance and demand, what has been missing overall is a sober and informed reminder of the fact that everyone, for the moment, will have to face hardship. It is the timing of all these widespread demands for real wage repair that is so miserable and unfortunate. Speech after speech, including, I am afraid, from some in this Chamber, demand more for this and more for that, yet this is a time when we have to prepare for more resource to go on what we have already.
If that sounds gloomy, it is, because it is the reality. It is not quite 1940 and we are certainly not under direct attack, but we are, equally certainly, on the edge of a major war, with a mad—actually perhaps he is not mad, but certainly threatening—Putin in Moscow talking about nuclear use against us, and with us still in the recovery ward after the largest pandemic in world history, which it was by far in population terms, and from the impact of the Ukraine horror itself, including a substantial rundown of our entire armoury to help the gallant Ukrainians. There is no end in sight for that, and an invasion of Taiwan is likely just ahead on the horizon. In essence, we are on a war footing, as the noble Lord, Lord Skidelsky, has repeatedly warned this House.
In these circumstances, the message should simply have been that, while inflation is coming down as fast as it went up, there has to be a timeframe for recovery. It should have been clearly and repeatedly explained that, in due course, much better pay for nurses is entirely desirable and the same goes for doctors, junior and senior, ambulance teams and the rest. There is even no objection to train drivers being enriched—although I personally think that bus drivers do a much tougher job—nor young barristers, physiotherapists nor anyone else, nor to ensuring really good and safe pensions for all of them.
However, and this is the core of it, those better conditions that we all want to see must wait for the duration—“the duration” is a phrase that was used during the Second World War. We will and can recover and find the resources to make good for all who deserve it, just as Beveridge in the last, darkest days of the Second World War said we could do, but not yet.
One-off payments for one-year awards, which are being talked about, may be justified in some cases, but only just. We may even come to our senses in all parties that may form a Government and make sure that modern capitalism works for all, and that millions of earners become owners en masse, with the dignity and security of capital to support every family. Meanwhile, for the duration, as in the darker times of war in the past, there are going to be difficulties and problems all around. I would have liked to have seen much more emphasis on that central message in the Budget—indeed, in all the statements by Ministers and opposition leaders as well—than I can detect, because that is the honest truth.
As for more investment, which is of course the key to our future strength and living standards, and to our fully generous support for the weakest in our society, I obviously hope that the Budget measures will enable more growth, investment and innovation. Perhaps the capital allowances will help. One sort of investment we could do without but which, regrettably, the Government seem poised to make is for another large-scale nuclear reactor at Sizewell in Suffolk, based on a replica design called EPR which has an utterly miserable provenance and a dud history. The official estimate for Sizewell is £20 billion, with readiness in about 2035; it is much more likely to be £30 billion and several years after that. Smaller, new-technology reactor sets, which were mentioned in the Budget, could be in place much sooner and with private instead of public money. That is the nuclear way forward, as my noble friend Lady Moyo mentioned in her maiden speech.
That colossal new expenditure, almost secretly sliding through, should be for future debate—very soon and, I hope, in this House. In the meantime, let it be explained honestly, openly and repeatedly to all the most deserving, to the strikers inflicting present misery and smashing the rights of others, and to the millions still suffering from crippling cost of living pressures that rewards and better days will come—but not, as most of the nation in past times understood intuitively, for the duration of the present world crisis that we are in and must, as a priority, overcome.
Lord Davies of Brixton (Lab)
My Lords, it is a pleasure to take part in this important debate and particularly to hear the maiden speech from the noble Baroness, Lady Moyo. I am sure that she will be an asset to the debates in the House, even if I do not necessarily always agree with what she says.
It is no great surprise that I am going to focus on what the Chancellor said about pensions, but I have a couple of more general points. First, it is shocking that there is nothing in the Budget about social care. We were told by the last Prime Minister but one that this Government had an oven-ready plan. Clearly we do not even have the recipe, let alone the ingredients. Secondly, credit was taken in the speech by the Chancellor for past rises in tax thresholds, with the claim that these had lifted 400,000 pensioners out of absolute poverty. Perhaps we should now also be told how many pensioners will be pushed into poverty by the decision to freeze tax allowances for the next five years. You cannot take credit for one without taking the blame for the other. I very much hope that a forthcoming Labour Government will reverse this decision and revert to Rooker-Wise, particularly for the personal allowance.
“Pension” appears 11 times in the speech, once as part of “suspension” and a couple of times when referring to the Department for Work and Pensions. The main references to pensions were about tax allowances, which I will come to in a moment, but the Chancellor returned yet again to the issue of pension fund investment. Lots has been said on this by the Government but very little done. This time, we are promised
“measures to unlock productive investment from defined contribution pension funds and other sources”.—[Official Report, Commons, 15/3/23; col. 841.]
As ever, on this issue the devil is in the detail. I am a sceptic but, until we see concrete proposals, it is just so much hot air. Can the Minister tell us when the Government will actually come up with some firm proposals?
I turn to pension tax allowances. First, I welcome the decision on the aggregation of pension input amounts where employees belong to more than one scheme for the same employment. While it looks like a technical issue, and is not mentioned specifically in the Chancellor’s speech, it is one of the most significant decisions and truly to be welcomed. It is an issue I have raised several times in this House and at a meeting with the Minister for Health, so I am pleased that what seemed obvious has at last been accepted by the Government. Other Members were involved, of course, not least the noble Baroness, Lady Altmann, but I also need to mention that it was an issue of importance to the late and sadly missed Lady Masham.
I do not agree so much with the proposed abolition of the lifetime allowance. I need to mention that I have an interest in the matter, in that I could benefit from the change, but I still think it is wrong, particularly in current circumstances. Clearly, there is a crisis in the NHS—the shortage of doctors—that requires urgent action. It has been widely acknowledged, not least by the Chancellor himself as chair of the Health and Social Care Select Committee, that pensions tax was one of the factors involved and that action is required, but a more targeted approach would be better than the blunderbuss adopted by the Chancellor. I believe that the most immediate problems around retaining doctors in the NHS arise from the annual allowance, not from the lifetime allowance, so to deal with the undoubted problems, it would be better to spend money on reducing the impact of the former rather than the latter and target the problems of the NHS specifically.
Pensions taxation is a complex mess that needs thorough review. We continue to suffer from one-off decisions that increase complexity and unfairness. The Chancellor based the argument for change in the lifetime allowance on the concerns of many senior NHS clinicians, but he went on to say that he realised the issue goes wider than doctors. That was echoed by the Minister in her introduction, but in his interview this morning on the “Today” programme, the Chancellor referred only to doctors. What we do not know from the figures from the Treasury or from the OBR is how many of those being helped by this change are doctors, and how much of the resources being employed to facilitate the change are going specifically to doctors as opposed to other parts of the public service. I accept that doctors are a priority—that is clear—but the point is that it is for not the sake of the doctors but for the sake of people on the waiting lists.
The noble Lord, Lord Willetts, said we could not have a special one-off for the doctors. I am afraid that that is clearly not correct. There is already a special one-off for the judges. We passed an Act last year creating a scheme specifically for the judges that addressed exactly the same problem. I explained this in debates and was told, “There will not be any more special cases”. Well, I think doctors are a special case here, and a more targeted approach could have been adopted. Can the Minister tell us who else will benefit from the change, and why, in the current context, they represent such a priority to spend such an enormous amount of money? How much of the total cost will go to other groups of employees?
There are other more technical points that need to be clarified. Looking at the impact of abolishing the lifetime allowance, the OBR flagged this as a major uncertainty, both in relation to the cost and the numbers involved. Commentators, not least the coalition Government’s long-serving Pensions Minister, have cast considerable doubt on whether this change will actually achieve the stated objective of keeping people at work. On the other hand, I have no doubt that changing the annual allowance will have a direct impact in terms of keeping doctors working.
What research has been undertaken to ascertain the impact of the changes to the tax credits? It is worth noting that, of the total cost over the next five years, £2 billion is being spent on abolishing the lifetime allowance and only £1 billion on adjusting the annual allowance, but to my certain knowledge it is the annual allowance which is the focus of the particular problems that people face.
There are also practical issues. What about those who have agreed to retire over the next three weeks? The change will not come into effect until 6 April, so can they reverse their decision? Those who have retired over the past few years—while the Government were refusing to acknowledge the problem—will have a justified sense of grievance at having paid a substantial amount of tax that the Government now declare they should not really have paid.
Finally, on a slightly more positive note, I welcome the first step in limiting the generosity, and I use the word advisedly, of the
“anomalous but much-loved tax-free lump sum”—[Official Report, Commons, 19/3/85; col. 791.]
the words of Nigel Lawson back in 1985.
Lord Skidelsky (CB)
My Lords, I join other noble Lords in paying tribute to the remarkable maiden speech of the noble Baroness, Lady Moyo. It was very thoughtful and thought provoking, and I very much appreciated her reference to me—she will have a great future here.
The Budget was crafted in the shadow of disruptive world events over which the Chancellor has little or no control, but it is by its effectiveness in tackling or responding to those events that I think this Budget will be judged. The three killer apps—as one might call them—are global finance, technology and geopolitics. The global banking crisis of course caused the depression of 2008-09. The recent collapse of SVB shows, as the noble Lord, Lord Fox, noted in this House on Tuesday, what a huge proportion of our tech industry depends on finance from a single foreign bank whose solvency in turn depends on fluctuations in interest and bond rates. That is one element of huge fragility in our system.
As for technology, it simply speeds up the operation of every single movement in the economy, whether beneficial or destructive. We know about geopolitics, which threatens all our supply chains and the future of the global economy. So those three elements are really beyond the control of a Budget or a Chancellor and, together, they make the world economy more dangerous, more unstable and more uncertain.
The Minister, in introducing the Statement, stuck closely to the forecasts—but how does she explain the ludicrous divergence in the OBR’s forecasts on inflation and growth between October/November 2022 and March 2023, or the divergence in forecasts between the Treasury and the Bank of England? The noble Lord, Lord Willetts, pointed out that these different models factor in different things, but which of the factorings lead to an outcome that we can have faith in? You factor this, you factor that. What is going on is that all the models used are inadequate. They have become inadequate in the face of large structural breaks which have been occurring in the economy as a result of Covid-19 and the war in Ukraine. They are models which are still optimising around some long-forgotten equilibrium.
I am not sure that we have a better model, but it limits the confidence that we can have in these forecasts. They are trotted out almost as truths. The Chancellor said, “We will grow by” X, Y or Z per cent in the next three years, but what he meant was that the OBR model says that those will be the growth rates—and that is not a satisfactory basis for building confidence.
The speed-up of model obsolescence represents a huge break from the past. We were brought up to believe that short-term forecasts were relatively reliable—after all, how much could change in six months?—and that the longer ones were less reliable. Now, however, both are unreliable. It has infected both the short-term and long-term forecasts. The Treasury is not steering the economy—that phrase was the title of one of Sam Brittan’s great books. The economy is being tossed around by the world economy from one place to another, and that is not going away any time soon. These destructive events have wreaked havoc with the macroeconomic rules so laboriously constructed in the 1990s and 2000s, in particular that of the separation of fiscal and monetary policy, which was the architectural triumph of the Blair-Brown years.
What is it like today? What is the state of that separation today? The fact is that it has been fatally undermined. The Bank of England has been stoking up inflation when it was set up to do the exact opposite. It has been given a green mandate that conflicts with its inflation mandate, and no one knows exactly what the relationship is between fiscal and monetary policy. It has become hopelessly fuzzy, as we found out on the Economic Affairs Committee when we interviewed the Governor of the Bank of England. The whole relationship is shrouded in fictions that no one is meant to penetrate. That is not the basis for giving confidence in macroeconomic policy. In fact, the confidence has been withheld.
“Our plan is working”, said the Chancellor. What plan? To reduce inflation? To get growth? To reduce the inactivity rate? To achieve energy security? He must realise that any improvements that have been recorded since he became Chancellor, or in the last two or three months, are not due to anything the Treasury has done but result from what has been going on in the world economy. There have been beneficial developments, particularly what has happened to energy prices.
A remarkable thing about Budget making today is what it says about markets, media and policy networks. If you analyse it, you will find that there is actually very little difference between the Truss-Kwarteng and the Sunak-Hunt Budgets; the first just came at slightly the wrong time, that is all. Now, things have got a bit better. These are Budgets that depend on five-year forecasts; you cannot say that the difference of a month or two in the presentation of a Budget should have caused such panic in the market—unless, of course, no one had any real confidence in the long-term forecasts on which the Budgets were made.
At one time, there were things called “Budget leaks”. You were not meant to reveal what was in the Budget. In fact, the Chancellor of the Exchequer in 1947 resigned because of a Budget leak. Now, Budget leaks are routine; they are sort of trailers in which the Treasury lays out what it is going to do. What about the opportunities for speculation, for example, that that might give rise to? No one thinks about that any more. You have to make the newspaper headlines.
The Chancellor might have taken advantage in his Budget to display the beginnings of a coherent framework. There is one such framework—it is a very old model; no one knows about it any longer—called the balanced budget multiplier. That approach underpins the Biden Administration’s $738 billion Inflation Reduction Act, which was passed into law last year; I do not think that the Chancellor referred to it in his speech. It is based on an intelligent combination of extra investment and higher social spending to be paid for by higher taxes on the rich and the very rich. Split roughly half and half between tax and spending increases, the combined effect is forecast to secure—again, one has to make the point that it is a forecast—a cumulative reduction in the federal fiscal deficit of about $300 billion over five years. It may not happen—it probably will not—but at least there is a mechanism in it which suggests that it could happen. What we do not have in the present enthusiasm for the policy working is any mechanism or theory which gives you confidence that what the Chancellor is doing will achieve what he wants it to do.
I will make two final points—I am sorry that I have gone on a bit—about where we are in the cycle. It is very difficult to assess what is happening in the labour market; the noble Lord, Lord Bridges, talked about this. On the one hand, we have a very high inactivity rate of about 7 million altogether, which is usually connected with a slack labour market. On the other hand, we have unemployment very low at 3.7% and lots of job vacancies, which would suggest a tight labour market. What is the explanation of that puzzle? The truth, I think, is that headline unemployment figures no longer accurately measure the capacity utilisation of an economy; I think that that has been true for some time, but it has been brought to the forefront recently. A shortage of supply in some areas is combined with a general deficiency of demand in the economy. We would expect the latter to be the case, given that the economy has not grown for three years while the population has grown by 1 million and real wages have fallen substantially. Therefore, we would expect a deficiency of aggregate demand, even though there are pockets of shortage of supply. The Budget might have addressed its attention to that.
I wish that the Chancellor had argued in favour of job creation, rather than incentives to people to apply for jobs that do not exist. Gordon Brown and I, two years ago, argued for a public sector job guarantee scheme, which I still think would act as a kind of buffer stock of employment which would oscillate with the oscillations of the cycle. I am sorry that it was not adopted; it would have been—and still would be—a good method of job creation today that would also tie in with the devolution strategy.
My last point is about securing the long-term growth of the economy. Of course, I welcome the incentives that the Chancellor has provided for investment—the creation of 12 new investment zones modelled on becoming potential Canary Wharfs—but I wish he had given a bit more attention to two British institutions for investment, which I do not think that he mentioned: the UK Infrastructure Bank and the British Business Bank, both of which could be developed. As the noble Lord, Lord Eatwell, said, we know that investment has been a problem in the British economy for a long time. We also know that the share of public investment in total investment has dropped dramatically, and it has not been compensated by any increase in private investment. Here is a good opportunity to insert the state into the long-term recovery of the economy and to provide for the energy and security autonomy, which is the aim of the Government and us all.
In short, there are quite a few interesting initiatives, but I do not think that they have been properly joined-up, and we still await a commanding framework for action in a world that is spinning out of control.
Lord Griffiths of Fforestfach (Con)
My Lords, it is a great pleasure to follow my noble friend Lord Skidelsky. He is always amusing and intellectually challenging and we once again benefited from some of the things he said.
Before I start my speech, I have to congratulate my noble friend Lady Moyo on a terrific maiden speech. Some years ago, she and I worked in the same investment bank in the City of London. She came to see me one day out of frustration because they had put restrictions on what she could do and I said to her, “Dambisa, there is only one thing to do: just leave the place and go and do it because your genius will always be rebuked because of the culture of this institution.” I never thought at that time that I would be here congratulating her in your Lordships’ House on that terrific speech. She mentioned her career in her speech. She brings weight to this House which makes this House such an important part of our Parliament.
I am delighted to take part in this debate. One reason is that I think that it is an honest Budget by an honest Chancellor. I say that because on the one hand, the rate of inflation is coming down, the debt-to-income ratio is coming down and the growth rate is going up to 2%. On the other hand, the rate of productivity growth is clearly not what the Chancellor ideally wants, the tax take is up from 33% before Covid to 37.7%, the standard of living has been falling for two years and, as my noble friend Lord Willetts mentioned, it will be 18 years before it gets back to the same level it was. Although we say inflation is coming down, it is still very high. I think the Chancellor had very little room to manoeuvre in this Budget—that is what has come out to me from this debate—but I think he has put the economy in the right direction because he has faced up to reality. There are no unfunded tax cuts here. He is not gambling with public expenditure, the borrowing requirement, the deficit and so on.
There are three reasons why I am excited about the Budget. First, it is a Budget for growth. Never again can people accuse the Prime Minister or the Chancellor of not having some framework for growth. In his speech, the Chancellor said this sentence which I think is very important:
“Not just the growth that comes when you emerge from a downturn, but long-term, sustainable, healthy growth”.—[Official Report, Commons, 15/3/23; col. 833.]
As you look back over the last 50 years in the UK, you see exactly that emergence from a recession, then you have a period of growth but it blows up. That is exactly what happened in the Barber boom in the early 1970s. It happened with Denis Healey in the mid-1970s. It actually happened with Nigel Lawson in the late 1990s, when inflation had got down to 3% after Geoffrey Howe’s tough Budget. When the Prime Minister at the time left government in 1990, the rate of inflation was 9%.
I do not want to go through the litany of things in this Budget—full expensing, new investment zones, nuclear energy, pharma and so on—but I would like to mention, which others have referred to, that getting the over-50s and people suffering from disability and long-term sickness back into work is very important.
One issue I have a slight problem with is childcare. I believe in childcare—we used it when our children were very small—but my noble friend Lord Willetts, for example, referred to these measures as radical. When I listened to the Budget speech, I thought to myself, “Do I want my great-grandchildren to be away from their home and parents from eight o’clock in the morning till 6 o’clock every day, five days a week?” I recognise that there is a demand for it, but the sheer scale of what is being introduced needs thought and debate before we rush headlong into it.
To meet the objection that the noble Lord, Lord Eatwell, made in a powerful speech, there is the embryo of a medium-term financial strategy here.
My second point is about something absolutely crucial that the Chancellor said in his speech and has said on a number of occasions. He is committed to reducing inflation to 2% a year. We know from the cost of living crisis the damage inflation does, especially to the most vulnerable in our society, who have the fewest options when their standard of living is threatened. We have heard of the problems for business—the uncertainty it creates over cost and pricing power; over what the central bank or the Government will do; over what will happen to wages, given the strikes—the resulting distrust in society and, in turn, the social conflict.
Some quite respected academics and commentators have proposed to raise the rate of inflation from 2% to 4%—which, in my judgment, would be a disaster, because as inflation rises so volatility and instability rise with it—or to move from an inflation target to money income because that gives you greater flexibility. Indeed, Andy Haldane has proposed to drop the target completely, as far as I can see. Reducing inflation, with a fixed target of 2%, is actually the bedrock of policy and is very important. One should add that inflation is actually a tax. Therefore, reducing the rate of inflation reduces tax, and this could be considered a tax-cutting Budget. The Chancellor never referred to it as such, but inflation is an onerous tax. It taxes not only people with money holdings but savings and pensioners in the private sector.
Thirdly, I support the Budget but I was always impressed by a maxim that President Reagan used to use when dealing with the Soviets: trust but verify. I raise this issue not because I do not trust the OBR but simply because I am ignorant of exactly what is happening. As I read this Budget, and having listened to the speech and so on, it is intimately bound up with and depends critically on the OBR’s numbers. But we know that OBR forecasts have not worked out. It has made mistakes, some of them pretty bad. What kind of model did it use in arriving at the numbers it generated? Was it the new Keynesian model which others were using, and who predicted that inflation was simply transitory? What about the unforeseen events—pandemics, wars, financial instability—which the noble Lord, Lord O’Neill, referred to? We had our own problems with the LDC and the pension funds, some time ago. At least two significant cryptocurrency operations in the States have gone, as has Silicon Valley Bank. Credit Suisse has had its problems for a long time in terms of compliance and so on, but one gets the feeling that more credit is being expended in the international financial system than one is happy with.
Yet the OBR is very confident. Inflation last October was 11%; it is coming down, in the last quarter of this year, to 2.9%. There is no recession in the UK and unemployment will rise only sightly, to less than 150,000. We need to be able to shed more light on this, and I hope we can do that as the discussion goes on.
I started by saying that I really do have confidence in the Chancellor, and I am sure he is a person of prudence. Frankly, I congratulate him on a good Budget in difficult circumstances, and I hope it will be the first of many.
Lord Lee of Trafford (LD)
My Lords, I have had the privilege of experiencing 30 years of Budgets in both Houses here at Westminster. As the noble Lord, Lord Skidelsky, alluded to earlier, in the old days if there was the slightest leak from a Budget, the security services would be called in. Today, we seem to have a Budget by instalments: a virtual daily leak.
When you are speaker number 13 in a Budget debate, as I am, there is really no point in repeating many of the things that have already been said. I am not even going to say what an excellent maiden speech the noble Baroness, Lady Moyo, made. I am going to focus on a few different areas, and maybe express a few personal ideas and thoughts.
On health and the lifting of the pension cap, I think the jury is out. On the one hand, it might well encourage senior consultants to stay on longer; on the other hand, it could encourage others—maybe not in the health service—to retire early. It is also vital that we increase the number of medical school places, which I am sorry there was no mention of in the Budget. We need to do something to stop the drain of nurses from our health service. We now have approximately 200 health trusts. A lot of consolidation is taking place, and many trusts are very big businesses. Their performances vary greatly, and we need more training for senior management. I suggest that we establish a standalone dedicated health business school, which would I hope bring about a significant increase in the quality of management of these large organisations.
I have asked a number of Questions recently on prescription charges, which are now rising to almost £10 an item. The total revenue the Government get is only about £600 million. Some 60% of the population do not pay, and there is some evidence now that people are forgoing their medicines because of the cost. There have been no prosecutions whatsoever for prescription charge fraud over the last 12 months. Prescription charges are free in Scotland, Wales and Northern Ireland, and I suggest they should be abolished here in England to ease the pressures on so many family budgets.
On housing, we clearly need more owner-occupancy, but we also need many more properties for rent. The rental situation, particularly for young people trying to find accommodation at a reasonable price, is a nightmare. Landlords are selling up and the stock of rental accommodation is drying up. In my view, the Government should act. They could easily reverse the disallowance of interest on landlords’ borrowings. They could abolish the extra stamp duty and perhaps even reduce capital gains tax on disposal of rental properties. If they wanted to, they could transform the rental market.
Tourism and hospitality—I declare an interest as the president of the Association of Leading Visitor Attractions; I was chairman for 30 years—is a major employer at all skill levels. It is probably the number one private sector industry in more parliamentary constituencies than any other single industry. Virtually every business in tourism and hospitality is experiencing recruitment problems. Vacancies are something like 9% nationally and 15% in London. The industry has been heavily hit by Brexit and I believe we have to and should allow more immigration in this area.
Tax-free shopping should also be reintroduced, where visitors can reclaim VAT. High-spending tourists are now deserting the United Kingdom and heading to France, Italy and Germany. Some 70% of tax-free forms validated at Eurostar Gare du Nord were from non-UK visitors—those shopping in Paris and claiming the tax back before visiting the United Kingdom. A survey of 10,000 Chinese travellers planning to visit Europe showed that only 42% were heading to the United Kingdom, whereas in 2019 over 70% headed here.
On defence, after years of neglect and denial obviously I welcome the increase in defence expenditure to 2.25% and maybe up to 2.5%, but we have to go further. In 1984, let us remember that defence expenditure was something like 5.5% of GDP. The head of the Army, General Sir Patrick Sanders, said very recently that we would struggle to mobilise a division of 10,000 troops if forced to fight a European war. Defence Secretary Wallace said very recently that we have hardly enough pilots to fly the F35s. It is commonly agreed the Army has reduced to far too low a number at 73,000. It is also questionable if we can recruit the 30,000 reservists intended to complement our regular forces.
On welfare, I think it is time we start to query the balance between the benefits we give to the old—I declare an interest as someone in his 81st year—and the young. I get free prescriptions, a free travel pass and of course a pension. Most pensioners have paid off their mortgages, whereas the young are more likely to be struggling to find a deposit for a house and have the costs of children’s clothing and childcare, as we know. Normally they are on fairly modest early salaries. I believe it is time we look again at the balance between young and old in terms of benefits.
Finally, I come to financial education—or indeed, the lack of it—in this country. There is hardly any teaching of budgeting, savings or investment in our schools, and it should be of serious concern to the Government. We have a situation where more young people speculate on cryptocurrency than invest through the stock market or in more traditional forms of investment. The Government should consider setting up—I think this is the first time it has been mentioned—what I would term a financial education fund, which would recruit and fund specialist qualified speakers to go into our schools, for the first time, to make a serious attempt to financially educate our young people.
Lord Tugendhat (Con)
My Lords, it gives me great pleasure to begin by congratulating the noble Baroness, Lady Moyo, on her notable maiden speech. The combination of her force and clarity made a great impression upon me and I look forward to hearing her apply those gifts on other subjects in the future.
As far as the Budget is concerned, I welcome it. I welcome its general direction, underlying philosophy and a number of its detailed proposals. However, I am going to deal with only a few. It is an extremely far-reaching speech, and I will just concentrate on a few points that I would particularly like to draw to the House’s attention.
In his speech, the Chancellor referred to something which happened before he stood up, which was the masterminding by the Government of the sale of the British arm of the Silicon Valley Bank to HSBC. It was rather overshadowed in the media by the dispute between Gary Lineker and the BBC, but it is a major coup on the part of the Government. Had the British end of the Silicon Valley Bank gone down, the crisis that would have overtaken the tech sector in this country would, as the noble Lord, Lord O’Neill, said, have created a very different atmosphere for this debate today.
The Government not only prevented a crisis, something for which they deserve a lot of marks, but did so without costing the taxpayer a penny, which has not always been the case in banking crises. The operation and the speed with which it was carried out bear eloquent testimony to what a good place Britain is in which to do business, especially for start-ups and scale-ups in exciting new areas such as tech and life sciences. I hope very much that foreign and British entrepreneurs will take note of that, and that those wondering whether to enlist in London or New York will also bear this event in mind.
Turning to what might be called the Chancellor’s micro-approach to achieving the macro-objective of improving the British economy, in the corporate sector I am sure that he is right to focus on incentivising investment rather than the headline rate of tax. This will do most to encourage established companies, in established areas such as infrastructure, and new companies in new sectors. However, it is important to remember how long projects take. Usually, they take a good deal longer than three years. Therefore, it is vital that the Chancellor fulfils his intention to make full capital expensing a permanent feature, to quote him,
“as soon as we can responsibly do so.”—[Official Report, Commons, 15/3/23; col. 839.]
In the personal sector, I am equally sure that the Chancellor’s pension and childcare measures are at different ends of the wealth and income spectrum, and are the right way to encourage people to stay in work and to return to work. They will have a more direct and targeted impact on the balance sheets of individuals and families than simply a cut in income tax.
I am a supporter of the Budget. I have just one caveat or warning, which refers to defence—a point made by my noble friend Lord Howell. I very much support the Government’s rhetoric and actions regarding Ukraine and China. However, I worry that our rhetoric is in danger of running ahead of our capacity to deliver. We talk a very good talk, but how many troops, ships and aircraft do we actually have at our disposal? I am delighted that we have helped the Ukrainians as much as we have, but how much do we have left? If we are to continue playing the role that we wish to play, defence is likely to cost more and perhaps a very great deal more, and we all know how that will have to be paid for.
Baroness Jones of Moulsecoomb (GP)
My Lords, I have a huge apology to make to the noble Baroness, Lady Moyo, because I was not here for her maiden speech; I am very sorry about that, but I will of course read it in Hansard and congratulate her next week.
Before I start on the Budget—because that was probably the nicest thing I am going to say this afternoon—I would like to give the Leader of the House a couple of tips. First, a speaking limit in this debate might have been a good idea. Secondly, if the heating is going to be switched off before we meet, could blankets or hot water bottles be supplied? After my speech, I am going to go and get my coat, just like the noble Lord, Lord Brooke.
Noble Lords can imagine what I think about the Budget. Quite honestly, this Government do not have a clue about any sort of greening of the economy. It is ludicrous for them to talk about all the green things that they are doing when they are absolutely not green.
The IMF has forecast that the UK will be the worst-performing large advanced economy this year, but Britain’s decline, relative to those of other rich nations, is rooted in problems both old and new. Clearly, this Government have done their absolute best to trash our economy. We have had 13 years of economic mismanagement. We used to say, “Well, the thing about the Tories is that, however awful they are, at least they can manage money and know how to run an economy”. We cannot say that any more; in fact, the opposite is true. They have run our economy into the ground. I understand that Covid did not help but, in a crisis, you look to your best talents—clearly, the Tory Government did not have any. That is why we are in this situation at the moment.
Billions of pounds have been lost in bad decisions and lost investment. Millions more people are in poverty. Children and parents are going hungry. People are living in cold homes, with pensioners dying from hypothermia—and this Government have the cheek to put in their Budget the 1%, or whatever it is, for pension pots. Who is that for? It is for millionaires; it is not for people who are starving and cannot manage to pay their heating bills. It really is time that this Government understood the exact impact of what they are doing.
Today’s Budget announcement falls far short of the strong climate action needed. I have to repeat to the Government that, as Greens often say, green growth is an oxymoron. The minute you grow anything, you have to degrow in a different area. Green growth is possible but not if you do not cut somewhere else. Every time we grow the economy, we take a bite out of the planet’s resources—and it is a bite that will not grow back. Whatever this Government do, they seem to be moving in a way that is even more damaging to climate change.
Speaking to the Dutch Parliament recently, Professor Jason Hickel—his book, Less is More, should be compulsory reading for this Government—debunked the concept of green growth, saying:
“Decarbonization with growth is like trying to run down an escalator that is accelerating upwards”—
you are likely to fall on your face. People have to understand that using a tonne of fossil carbon and then trying to replace it with a tonne of new trees does not work. It is not a fair exchange; it is nowhere near compensation for the fossil fuel used. Carbon offsets will not save us from the worst of climate change; they are just something that make people feel good. They are absolutely ineffective and we have got to stop.
The simplest way to solve the problem of climate change is stopping the extraction and burning of fossil fuels. The Government have not even understood that; they are still mad about digging up coal and using oil. It is incredible that after decades of Greens like me telling the Government how to mitigate climate change, they still do not get it—plus, of course, this Chancellor continued the regressive freeze on fuel duty. That shows no grasp of the situation we are in; neither does his tweaking of the pension pot while not paying nurses and doctors. It is unbelievable stupidity. I know that there is now a deal, thank goodness, but why was there not one weeks ago? Why did we have to go through this pain? Why did patients have to go through it? I simply do not understand.
By the way, nuclear is not green. I cannot tell you how many times I have said that in this Chamber. Nuclear power is not green. It is filthy, it is very expensive and it is going to cause us problems in future. It is not green and it is not sustainable.
Our Green Party MP, Caroline Lucas, said in the other place that the Chancellor could have announced a
“wealth tax on the 1% richest people”,
which
“could raise up to £70 billion”—[Official Report, Commons, 15/3/23; col. 864.]
and fund cheaper public transport, more home insulation and public sector pay rises for millions. He did not do that. He put in a measure that will benefit millionaires.
If you are worried about jobs, why not upscale green initiatives—green growth, if you like? For example, clean, green, abundant and affordable renewables are so much quicker, easier and cheaper than nuclear; with onshore and offshore wind, tidal and solar, we could do it and do it quickly. We must remember that growth is not necessarily prosperity; people seem to conflate the two but it is not true.
Green Alliance was very quick off the mark to give us a rapid review of the Spring Budget. It shows that the Chancellor has taken absolutely no steps on the path to a green economy. While the fiscal situation might be improving, the UK’s economy is still forecast to shrink this year, with falling living standards for households being a primary reason. It is not falling living standards for people such as us—we can manage; it is falling living standards for people who cannot even manage at the moment.
There is one tiny thing the Chancellor did right: alcohol duty will rise in line with RPI from 1 August. That might reduce alcohol harm in the UK while raising perhaps crucial public funds, but it is really so minor as to be almost not worth mentioning.
A Green Party economist, Molly Scott Cato, former MEP, said that a green Chancellor would ensure major investment in a green economy. That means meaningful investment in affordable renewables and a nationwide insulation programme. We have had so many complaints about Insulate Britain, the campaign group that caused so much fuss. In fact, we should have said, “You’re absolutely right: we need to insulate Britain. It is cheap, it is fast and it helps people”. This Government got hung up on the group’s campaigns, and now we are seeing the Public Order Bill, and so on, which are trying to stop people protesting again. Just those two measures—insulation and renewables—would help tackle greenhouse gas emissions and mean that people could afford to be warm in their homes. Is that not a kinder thing to do than to cut living standards?
Other measures would include fair pay for public sector workers and 35 hours a week of free childcare for all. I support the Government’s idea of capping bus fares, although it will not be in every place. The Greens would put a £1 single fare on all bus routes in England.
It really is time this Government were gone, before they cause yet more damage to us, our society and the reputation of the UK, and before they damage the planet any more than they have already.
Lord Moynihan (Con)
My Lords, I add to the much deserved congratulations to my noble friend Lady Moyo on her maiden speech today.
I turn—unsurprisingly to the Minister, I am sure—to the closing part of the first part of her speech: namely, the decision to arrest the closure of public swimming pools in this country. First and foremost, my congratulations go to the Government on responding to the powerful campaign, of which I was a part, for additional Budget funding for swimming pools. Public leisure facilities with swimming pools are a critical component of the strategy to promote the nation’s health and the safety of children, and the £63 million package is indeed a welcome lifeline. I agree that Sport England is best placed to manage the one-year funding package, and local authorities will be able to avoid the wholesale closure of pools predicted in the absence of such support. Too many of our pools face underinvestment and further pressures, including escalating operational and maintenance costs, in the face of unprecedentedly high energy bills.
I suggest to the Minister that, of that £63 million package, the £40 million of the fund which has been allocated to decarbonisation and long-term energy efficiency is a masterstroke and should not be limited to a one-off, one-year policy. Pool operators that use imaginative ways of improving energy efficiency—for example, as the Minister mentioned earlier, capturing the heat generated in data centres—should not be rushed to compete in a one-off, one-year competition. I hope this initiative will be built on in the future as we move towards net zero. I also hope that the initiative taken by the Chancellor, a former Secretary of State at DCMS, will now be adopted in Scotland, Wales and Northern Ireland to support the many council pools that are under threat of closure there.
The backcloth to this announcement is not optimistic. If we look back at the decade which started with the London Olympic and Paralympic Games, in which I declare an interest, since 2010 we have lost nearly 25% of our public pools—we have lost 382 of them. Pools play a vital role in helping communities engage with sport and physical activity. The Covid pandemic and soaring energy costs accelerated the decline in those aquatic facilities at the tail-end of that decade which should have seen the sports legacy from the Olympic Games increase, not decrease, the number of facilities in the UK. More than 85 pools have been closed and not replaced since 2019—a sad decade indeed. That was made worse by the fact that the provision of sport, recreation and leisure activities by local authorities is a discretionary line item, not a mandatory line item as it is, for example, in Scotland. If we really want to address these issues, not just in swimming pools but in leisure and an active lifestyle, we need to recognise and concentrate on putting the right amount of money behind local authorities in particular and making that a mandatory, not a discretionary, line item.
This measure goes further. It recognises that swimming pools play an important role in our communities for all ages and all people. Swimming is more than a recreation; it is a key life skill. Physical inactivity is associated with one in six deaths in the UK and is estimated by the Government to cost the UK £7.4 billion annually. Deloitte has published research which shows that improving the level of physical activity in the workforce would benefit the UK economy by up to £17 billion a year.
As pointed out in the report by your Lordships’ National Plan for Sport and Recreation Committee, which was debated on 9 February this year, it is recognised that the time has come to have a radical rethink of financial incentives and health policies, both within and outside the workforce. Members serving on that committee unanimously called for a national plan for sport, health and well-being. It was pointed out that successive Governments over decades have tried to address stagnating activity levels, with disappointing results. Nearly 40% of all adults are active for fewer than 2.5 hours not a day, but a week, which includes walking to work and the shops. It is not surprising that the noble Lord, Lord Willis, who chaired that committee, reflected:
“How is it possible that the UK is world-leading in elite and professional sports, that 3 billion people across the world watch our Premier League matches in over 187 different countries and that … at Olympics after Olympics … we have failed at grass-roots level to get more people from more diverse backgrounds to be more active, despite all the investment that successive Governments have made?”—[Official Report, 2/2/22; col. 1208.]
With schoolchildren facing growing obesity, with PE marginalised in the school curriculum and no longer inspected by Ofsted, with many primary school teachers getting fewer than three hours’ training in a three-year degree course, it is not surprising that physical literacy in most of our primary schools means nothing. With the closing of swimming pools and leisure facilities, tragically we have become one of the most inactive nations in the world.
When looking for solutions, the Chancellor could do worse than turn to New Zealand, whose strength at elite level is celebrated across the globe for a nation of just 5 million people and whose success lies in a strong emphasis on participation and opportunity for all. There is a pathway for all local communities and all people wherever they live in New Zealand to become engaged in sport, health and well-being activities. From that platform, podium success for the elite is delivered because every child is assessed in order to be able to deliver their potential and every community is offered help for health, well-being and physical activity.
However, the chancellor in New Zealand goes further. The country has a well-being budget that brings health, sport and well-being together into one policy framework, delivered to Parliament by its Finance Minister, who happens to be the Deputy Prime Minister. The only way in which that could be delivered here would be to move responsibility for sport and recreation into the Department of Health, as proposed by your Lordships’ committee. Being embedded in the Department of Health, by moving the 25 civil servants responsible for the sector from the DCMS to the centre of government, would enable the Department of Health and Social Care to live up to its name—not a department of treatment but a department taking an important lead in the area of health promotion, with all the benefits that are so needed in this country today.
The evidence is clear. Systemic reforms to taxation, regulation and policy can allow the fitness, sport and leisure sector to play its fullest role in getting the UK workforce moving more and supporting our national productivity. The time for action is now. A National Plan for Sport, Health and Well-being provides an excellent starting point and, like Sir Patrick Vallance’s first published report into the regulation of emerging digital technologies referred to yesterday, the sport, health and well-being report of your Lordships’ House should have all its recommendations accepted in full.
We desperately need changes in departmental responsibility, budgetary support and enlightened policy thinking if we are to address the steady closures of sport and leisure facilities, increasing levels of inactivity and obesity and the consistent, corrosive decline in participation and active lifestyles that we have witnessed since the wonderful hosting of the Olympic and Paralympic Games here in London, now over a decade ago. Helping to save our swimming pools is very welcome, but facing the wider challenges that I have outlined is long overdue.
Lord Bird (CB)
My Lords, I welcome the noble Baroness, Lady Moyo. I heard her speech and was very impressed, not least by her call for 3% growth in GDP over the coming years—I think she said by 2026. I have a way in which we can achieve that, but you could not achieve it as an economist; you would have to achieve it another way, which I am here to suggest.
About 10 years ago, I wrote a book called The Necessity of Poverty. It was a very simple book that looked at how important poverty has been in the life of the economy. When Chancellors talk about money and the economics of the country, I think to myself: why are they looking at the world in an arsy-versy way? “Arsy-versy” is a polite printing term for when you print something upside down. The Government are arsy-versy because they do not look at the glaring elephant in the room—in fact, I would say it is more than just an elephant; it is an elephant along with its mum, dad and children—and that is poverty.
Here is the thing about poverty. The Government have in the region of £1 trillion a year to spend; with borrowing, I think it is about £1.2 trillion. If you analyse that and look at how much money is spent on pushing the ball of poverty around, you find that the figure is 40%. So you have a Government, a Prime Minister and a Chancellor of the Exchequer all obsessed with avoiding the fact that the largest amount of money spent by government is on the collateral damage done by poverty. That is extraordinary to me.
Why is there not an economics of poverty? Why are we looking at poverty as though it is something that we just have to put up with? Why are we making as many concessions as possible to keep the poor as comfortable as possible without actually getting them out of poverty? I think that what we need is smaller government. We really need small government; there are too many people in this world who are obsessed with big government. I think we need to cut government. And how are we going to cut government? We need to cut the costs of the NHS by half. We have to do it, and we have to do it as soon as possible. So how are we going to do that—how are we going to get the 3%? I will tell you how: we are going to be bright and clever, and look at the fact that 50% of the cost of the NHS is spent on trying to keep the poor as well as possible. So, actually, if you were to grow up, and if we were to move away from the very primitive look at the economy as though the biggest part of it were not poverty, what we would do is make heavy investments in getting people out of poverty. And we are not doing it.
We spend in the region of £50 billion a year on our education system, but we know that our education system is loaded down with the problems caused by poverty. We know that the four or five children in a class who are having all sorts of problems at home, who are not getting the correct food, and whose parents are under all sorts of duress, will cost maybe 70% or 80% of the time spent by the teachers, so the educational quality of other people is hampered. I know this because I was one of them. I was actually a part of the avant-garde; I was banned from school at the age of 14. I cost an enormous amount of money. Actually, when I was put away as a wrongdoing poverty boy at the age of 14 and 15 and 16, I was costing about three times what it cost to put somebody through Eton. The poshest among us had nothing on me; in fact, you could not get into my school or my reformatory unless you did something wrong.
So we have this really weird world. I do not understand where the Government are coming from, because if you were really to do something, you would do something sensible about reducing that and slashing the NHS. Let us slash the cost to the NHS. Let us remove much of the cost of the NHS, by keeping people healthy and by, when you bring them into this world, supporting them and giving them the priority—the Rolls-Royce service—at that stage. Because if you do not, you will be paying Rolls-Royce prices until they die.
Last weekend, I was down in Canvey Island. My eldest brother is 80, he is unwell, and he costs thousands of pounds a year in his health bills. Because he is unwell, he has always lived in poverty and his children have always lived in poverty, because nobody made the investment in him at the beginning. He is in crisis, and all the people around him are in crisis. I was fortunate, as I said, because every time I got nicked, they taught me something—as I have told this House many times.
I do not want to go on too much, but I want to say another thing. We have the crisis of poverty, and we will until the Government and economists grow up and realise that they are getting rid of the largest amount of their money on poverty—40%. Unless we have that change, whether it is this Government or the next Government on the other side, and unless we have a real growing up, we are not going anywhere. All we will be doing is kicking the can of poverty down the road. We will not be making inroads or accepting the fact that, whatever has been done, it has not actually worked.
I now want to talk about the fact that what really worries me about this Government—and maybe the next Government and the last Government—is the problem that we are in now, which will go on for the next five years in some form or another. That is the problem of the terrible emergency that we are in. I can tell your Lordships that 140,000 children and their parents are in temporary housing, in transitional homes such as hostels. Do you know what that is going to do to them? I bet you a pound to a penny that at least a third of them will have all sorts of problems to do with mental well-being. I can tell your Lordships that, when they enter the workforce, those children will have been so atomised by the experience of being homeless that it will affect their ability to operate in the marketplace, to get the kind of jobs that are necessary—the jobs that will produce the 3%.
At the moment we are not addressing ourselves to the emergency but doing a bit here and a bit there and not even waking up in the morning and saying, “What are we going to do about stopping circa 300,000 families falling into poverty?” They are falling because they have been evicted as they could not pay their rent—they lost their jobs and all those sorts of things. I am absolutely frightened of the fact that, because of that, I am going to wake up in a year’s time and 50,000 people will be wanting to sell the Big Issue. At the moment our sales have gone up. Why? Because there are more people who need to sell the Big Issue. They are not homeless but, if we do not work with them, they will become homeless. Our figures went up last year by 10%. We do not know where it is going to go this year. Will it be 15% or 20%? We cannot handle that number of people. We work with about 7,000 to 9,000 people a year.
I am saying that we are in an emergency. I suggest to the Government that they bring that emergency forward, because it will echo down the next 10, 20 or 30 years and we will have the decimation and destruction of people who will be caught in poverty and will not be able to respond to the opportunities that come. I suggest that we need a COBRA. We need what we tried to do during Covid; you wake up in the morning and you get all the Ministers together and all the departments working together and—God bless them all—they get somewhere in the end. We need an emergency COBRA to address the fact that we do not want to condemn the next generation and the bit of the generation that is moving on and push them into poverty. That is the costliest thing to do—the Government will never get their 3% then, because their costs will be up and it will be 50%, but the money will be taken by the problems of poverty.
I am sorry—I am going on a bit. Normally I try to be economical. There are a couple of really wise things. Can we ask the Government to stop no-fault evictions? That would be a useful thing as it would stop hundreds of people falling into homelessness because they have been evicted by their landlord. Can we also look at why we cannot give universal credit so that it matches the requirements of the crisis that people are in at the moment, which is the crisis of inflation? Can it not match that? Otherwise, people will not pay their rent because they will use the money elsewhere, and they will fall further into poverty and be evicted.
The other thing I would like to do is to liberate our local authorities to be able to pay the rent and for central government to give local authorities enough money so that it is the rent that is expected and there is no gap, because if there is a gap between the money that the Government give and the rent, people will be thrown out on the street. Anyway, those are my arguments. Thank you very much and God bless you all.
Lord Horam (Con)
My Lords, I certainly agree with the noble Lord in his disappointment about universal credit. That is one of the achievements of the last period of Conservative government. The noble Lord, Lord Eatwell, mentioned in his scintillating speech the economic progress—or lack of progress, in his view—of the Conservative Governments of the last 13 years, but universal credit is a significant change and improvement. Without it, we would not have got through the Covid period with the success that we did. So I agree with that point of the noble Lord, Lord Bird; he is always interesting to listen to.
I think we will find that it is always interesting to listen to the noble Baroness, Lady Moyo. I congratulate her on her maiden speech, which was excellent. I became a fan of hers when I read How the West Was Lost, which is a scintillating attack on the complacency of the western world and our strength. Much of it has indeed come to pass, although not quite in the way she envisaged, because I think the East has not been quite so successful, but the West is beginning to realise that we have to fight back. I am also glad that she has joined the House of Lords because she is another economist. I am sorry to disagree with the noble Lord, Lord Bird, on this, but I like economists. I am an economist myself, and I think economists should run the world; I really do—economists rather than lawyers. The noble and learned Lord, Lord Brown, is shaking his head—the distinguished lawyer. The interesting thing about the next general election is that it will be a lawyer versus an economist: it will be interesting to see how that pans out. Anyway, I am glad that the noble Baroness, Lady Moyo, is here: I welcome her and what she has to say.
On the Budget itself, I think the FT summed it up pretty well when it said that it is a step in the right direction: it is a step, that is all. With the constraints that were on it, I think that is the right remark. My noble friend Lord Griffiths said that the Chancellor displayed honesty and realism in what he said. I think he also displayed courage, because there was a big move before the Budget to persuade him to reduce corporation tax to 19% from the 25% it will now be. He resisted that, and I think he was right to do so, because the way he is doing it, via incentives for investment, is much more efficient than having a general corporation tax at the level it was presumed to be. As an economist, after I left university and before I came into politics, I eventually set up an economic consultancy and I know from personal experience that corporation tax was not a factor in making decisions: decisions were made on much more elementary facts, such as the quality of your product, the competition and all the rest of it, not on the level of corporation tax. I think he got that right.
The only mistake he made, I think, was to limit it for three years, because I think it should be for ever, more or less—unlimited. I think the reason for the three years is the usual Treasury mistake of rounding up the figures to make everything fit, and therefore three years was all they thought they could afford at the moment. That is the sort of mistake that Treasury officials very often make and it is a pity they feel they have to do that.
The other aspect that corporation tax brings into play is the whole level of taxation in this country, which my noble friend Lord Bridges referred to in his excellent counter to the remarks of the noble Lord, Lord Eatwell. Corporation tax brings in about £18 billion, a huge sum of money, and we have to look at taxation and have a debate about how much tax we want to pay.
Recently, we have tried to get European levels of social welfare on American levels of tax. That is not going to work for very long and people are beginning to see that. Paul Johnson, the director of the Institute for Fiscal Studies, has written a very interesting book, Follow the Money. It is another excellent book and in it, he points out that, given what we want to do in society—what we will have to spend on the NHS in an ageing society, for example, what we are committed to do in defence, what we want to do on social care, poverty, universal credit and all those things—we are going to need a huge amount of public spending. It is no use not facing that fact, so all the calls for less taxation have to deal with that reality. We cannot have responsible levels of social welfare and low taxation, which brings me to the other point about taxation.
We have to have tax efficiency. Much of our taxation system is now inefficient. Take council tax: it is done on valuations from 1991, so a person in a modest house in Darlington can now pay the same level of taxation as someone living in Kensington. That is completely unfair and out of date, and it needs reforming. We need to look at the level of taxation and the efficiency, or otherwise, with which we level it.
Apart from tax, what businesses want more than anything else is stability and continuity, and a sense of strategy coming from government. Recently, there has been far too much politics and far too little government. We have to look at how we can change that balance, so that people feel that a course of action is being followed through in detail—the way that there was during the Thatcher period, when people understood the way that the economy was being handled and, by and large, supported it.
For example, on levelling up we have a plethora of measures to help level up the economy, most of which I welcome, as in some aspects of devolution. But look across the channel at what Germany has done: Germany was faced with similar problems to the ones we were faced with when it looked at the former areas of East Germany, which had been under Nazi rule and then part of the German Democratic Republic. I am thinking of places such as Dresden, Weimar and Rostock. What did Germany do? It put on a solidarity tax, which raised €35 billion a year.
Germany spent that solidarity tax for 30 years—it has just been abolished—and if you now go to those towns and cities in the north of Germany, you will see splendid places attracting tourism, just as we would like to see the places in the north of England and the Midlands rebuilt, while being proud of their architecture and history. That is the way they tackled it: with a consistent policy for 30 years, whereas we have changed policies endlessly. We have been dipping around from one policy to another and got nowhere near as far as Germany has in levelling up the different parts of our country.
Take manpower, which is probably the wrong word to use. Let us say staff questions, which the Chancellor addressed in his Budget with help to improve pensions, so that doctors would stay on longer, and to attract more people into the NHS. Yet at the same time, just before the Budget, the Treasury was objecting to increasing the number of medical schools. It was doing that on the grounds that they were too expensive. It was looking too carefully at the pounds, shillings and pence of it, when the need has been clear for many years. The Chancellor himself produced a report on manpower in the NHS when he was chairman of the Health and Social Care Committee in the House of Commons, so it has been clear for years that we needed a far greater understanding of what staff were required. We simply have not done it. Even now, we do not expect to have a proper understanding of what the NHS’s manpower needs are until next month yet, at the same time, the Treasury was penny-pinching over how many medical schools there should be.
HS2 is another example of short-term thinking. In my view, it probably would have been better for the coalition Government to cancel HS2 when it came in than to allow what is now happening. Inevitably, people are looking at the escalating costs and the benefits which have now been compromised by people working at home, and, as a result, lots of it has been called into question and there is uncertainty. The biggest piece of infrastructure-building in Europe is surrounded by uncertainty, and that is not the right way to run a country.
My view is that we need to come back to a more strategic view, and the Government need to come back to having a clear strategy with clear paths along the way. This is the right first step, but the Government really have to build on it.
Lord Brooke of Alverthorpe (Lab)
My Lords, it seems a long time since the Minister started the debate. I congratulate her, because she took an hour-long speech from the Chancellor, went to the major points and delivered it within about 19 minutes. That was very useful indeed for my noble friend Lord Eatwell, who I congratulate on delivering his usual barnstorming and devastating attacks on the Government’s performance. He picked out the major points and went for it. As I understood it, I thought that the noble Lord, Lord Bridges was, in many respects, giving my noble friend support on a number of the criticisms he was levelling.
I too welcome to the House the noble Baroness, Lady Moyo. I am not an economist—I am a simple old trade unionist—but I came here to learn, and I learned from the economists. I look forward to listening to many similar great speeches from her in the future, and I wish her a very warm welcome indeed.
Coming so far down the speakers’ list, I note that so much has been said already. My noble friend Lord Davies made a wonderful and devasting speech on pensions.
The one thing the Chancellor has done is steady the economy, and for that we must all be grateful, regardless of whichever party we come from. A year or 15 months ago, the country was in a hell of mess, and that was nothing to do with energy. The noble Lord on the Front Bench talked about energy, but it was not energy; it was precipitated by the leadership of the Conservative Party at that time. But we have now been steadied, and for that we should be pleased.
As to whether or not we are going to get ourselves moving to the levels of productivity that we require, I am uncertain. The noble Baroness, Lady Moyo, talked about 3% GDP. We last had that when Lord Darling was the Chancellor of the Exchequer, when Labour was last in power. Let us hope that, if Labour returns to power within the next two years at the outside—I say this to the noble Lord, Lord Bird, in particular—we will really start to see some genuine attention being given to the fundamental problems of the type which he described, and that we can get the economy moving.
I am interested in the reasons why we are short in the workforce. There is a whole range of different analyses being made as to the causes for that. When responding to the Chancellor yesterday in the Commons, my leader, Keir Starmer, said that we were the “sick man of Europe”. In that context, I think he was talking primarily about the economy, because in relative terms we are doing badly on recovery compared with most European countries. We are, and have been for quite some time, the real sick nation of Europe in health terms. I was expecting and hoping that the Chancellor, given his previous long experience of working on health, might have spent a little more time addressing some of the health issues which the country faces by looking for economic solutions, in part, to some of those problems.
Without doubt, one of our fundamental problems is that we drink too much, so some steps have been taken there which I welcome. The draught duty is an innovative approach, and it gives a marker for the future that we can set different levels of taxation within alcohol and we can focus. It is good to see that we now have the freedom to increase taxation within off-sales and supermarkets in a way that we have not done previously; it is at supermarkets where you get the cheap drink, and many people suffer ill health as a consequence. That was a movement in the right direction.
The other area in which we are very poor is the quality of the food that many of our people, including me, consume. There was a case for the Chancellor moving to address that issue and seeing whether we can effect some changes. Some progress was made under Mrs May. We introduced a tax on fizzy drinks, which proved to be effective, yet that has not been applied over a wider front, notwithstanding all the calls for greater taxation on sugar. Why are we not taking the opportunity to look at an extension of the sugar tax, when sugar is at the heart of many of the problems we have with our health in this country? If we looked at the kind of food we produce and at alternatives to sugar, we could find a new industry where British food manufacturers could give a lead in producing new types of food that would not only benefit our country internally but could be exported on a wider basis. If we look at the problems of the world, particularly North America, we see that food and obesity are great issues. Projections in America around the scale of type 2 diabetes are quite worrying. They indicate that it could go up to 90% with that disease. We have to find ways overall.
Let us take our weaknesses and see whether we can convert them into our strengths by addressing the issues. I support what was said by the noble Lord, Lord Moynihan, that health is about food, drink and exercise, and that we perform badly in comparison with what happens elsewhere in Europe. Curriculums in schools in Europe and elsewhere give much more time to sport and exercise than we do in this country. Why can we not change it? There are opportunities for change.
I come back to the issue of the workforce. I have already said that our ill health is one of the reasons why we have seen a decline there. That needs to be addressed.
We need also to look at what people want. There are those who have gone into retirement and not returned to the workforce. They want to stay at home. One of the lessons of Covid was that people do not want to leave their homes in the way they have done in the past. They do not want to go back to the offices, they do not want to go back to the factories—in fact, the number of our factories is now diminishing—and there is a push to stay at home. We should recognise and acknowledge that. Rather than saying, “Come back into the cities and travel”, we must acknowledge that people are not going to do that. Instead, we have to start planning to move more work from offices into the home and for people to work from home. Civil servants are doing it to a degree, and there has been a lot of criticism. It is misplaced. What I think we are seeing there is the lead for what should be happening in many other parts of employment in the clerical and executive sphere. The work should be going home, with people then having opportunities to give attention to their children and to care for those in their family who need it, rather than having to import people in. Rather than chasing and pushing people back to work, work should be moving.
Some of us had the opportunity yesterday to see the new technology that is coming, such as the headsets. It is truly amazing what is just around the corner. Just think back to the early 1990s, when we were holding “bricks” to our ears, and compare that to what we can now do with our mobiles. With these headsets we can create a virtual reality and communicate with people in a quite different way. This is the kind of technology people will be using in their homes in the future. The technology will advance and move beyond just sight: people will be able to smell, taste and touch; and they will work from home.
I know this is long-term stuff, but it will create an entirely different kind of workforce. I hope my party will look ahead to the nature of work in five to 10 years’ time and start preparing for it. Within that time we will have an entirely different idea of work and of the opportunities available to people, particularly in areas with high unemployment. There need not be unemployment, because we can take the work there. We have pressed the Civil Service to decentralise and to move to different parts of the country. Why, as part of equalisation and levelling up, are we not pressing the major companies in London and the City similarly to decentralise and take their work to areas where there are employment opportunities?
There are many opportunities, but they have not been seized in this Budget, I am afraid. We have some stability, but we need far greater ambition. I believe that my party has that ambition to take us forward and to help people.
Baroness Lawlor (Con)
My Lords, I welcome the chance to speak in your Lordships’ House in the debate on the Spring Budget. I particularly welcome my noble friend Lady Moyo and congratulate her on an excellent maiden speech. I am very grateful to all your Lordships who have spoken in this debate. This is a subject dear to my heart, one on which I have worked for decades at my think tank, Politeia, with economists from Britain, Europe and indeed the United States.
I welcome the Chancellor’s determination to focus on tackling inflation, as I do the Budget and OBR forecasts that inflation in the UK is due to fall from 10.7% in the last quarter of last year to 2.9% by the end of 2023. I also welcome his determination to reduce debt as a proportion of GDP, and the forecast—with all the caveats your Lordships have given about forecasts—that the underlying debt to GDP ratio is due to start falling in 2027. However, I am a little concerned that until then, debt is due to rise from 92% of GDP to almost 95%. It is also heartening to hear that borrowing is due to fall each year, from 5.1% of GDP in 2023-24 to 1.7% in this five-year period.
However, I would like to encourage my noble friend the Minister and the Government to focus on a third problem, to which my noble friend Lord Bridges and other noble Lords have referred: the overall levels of UK public spending as a proportion of GDP. Among the G7 countries, the UK’s public spending, at 48% of GDP, may be smaller than that of other European economies, which ranges from 51% for Germany to 59% for France, but it is still more than the US economy, at 44.9%, and Japan, at 44.1%. We should not take comfort from such figures. The evidence is that economies that significantly reduce levels of public spending and debt and return to sound public finances can boost jobs and enhance growth, countering any effects of cuts. They do not necessarily result in lower outcomes for healthcare or education.
Over the last two decades, the evidence from a number of economists has been compelling. Schuknecht and Tanzi, very early in this millennium, identified expenditure-based consolidation, as did Schuknecht in a later study in 2020. It can have positive effects on the real economy and is more likely to lead to higher growth and lower debt. Antonio Alfonso, in a pre-pandemic analysis—albeit in a period when general levels of public spending across the G7 were much lower than now—showed that countries which kept public spending under 40% of GDP had among the best government performance.
Top of Alfonso’s table came countries with public spending at what now seems an almost magical figure of 32% to 33% of GDP: Switzerland and Austria, which performed well above average. Second, with slightly above average performance, came the next rank of countries: Japan, Canada and the US, whose public spending then was 37% to 40% of GDP. Germany belonged in that group in terms of performance, but its spending was slightly higher at 44%. Third came the UK, with below average performance, yet it spent about as much as Germany did at 43% to 44%. We can, however, take comfort from the fact that we still were ahead of the French, both in performance and public spending; their pre-pandemic figure was 55%.
In the same G7 economies, taking account of measures other than overall government performance, we can take heart from the evidence in areas such as economic stability, administrative performance, income distribution and social expenditure, public infrastructure—where Germany is usually top—health performance and education performance. While some countries did better and some less well, the overall message was equally encouraging: higher public spending does not necessarily lead to better performance in these areas.
It is therefore sensible that public spending plans after 2025 remain by and large unchanged, other than being topped up to reflect the defence spending and childcare changes on which your Lordships have commented with some knowledge. We will also see departmental budgets rise by 1% a year in real terms during this period. Sticking to such levels of public expenditure while raising the NHS and defence budgets will mean squeezes in other areas.
There is much to play for in adopting a more active approach to cutting overall levels of public spending. Not only has Britain’s economy prospered when government spending levels as a proportion of GDP have been kept reasonably controlled at approximately 40%; now, post pandemic, post Brexit, it is even more urgent that we encourage higher growth using the surest tool in our armoury: reducing public spending.
The UK is a market economy which benefits from freedom and competition under the rule of law. It does not prosper, as recent decades have shown, with high spending, high taxation and unnecessary regulation: it misses out on that elusive growth which successive Chancellors have chased and which has featured prominently in your Lordships’ debate today.
This economy prospers as a challenger economy into which new entrants and entrepreneurs can come and take pride, being rewarded, not penalised, for success. The high-tax, high-spending economy must be reversed. The Budget, which is to be welcomed as a step in the right direction, should be seen as work in progress. I hope that my noble friend the Minister and the Government will take a lead from the evidence that we must cut overall public spending to the 40% of GDP level, or less, if this country and its people are to use their talents and flourish, and exploit the freedoms they now have.
Lord Bilimoria (CB)
My Lords, this country, along with many others, has gone through hell for the past three years. There was the pandemic, followed by the sad war in Ukraine, which continues. Business and citizens have gone through hell. During the pandemic, when we thought we would bounce back and have a V-shaped recovery, it has been one crisis after another instead: inflation, supply-chain challenges, energy and cost of living crises, political crises including three Prime Ministers in one year. In September, the markets were spooked by the well-intentioned growth plans of Liz Truss and Kwasi Kwarteng, through their irrational exuberance and mini-Budget, with a reduction of 45% to 40% for the top rate of tax—absolutely the right thing to do, but the wrong time to do it—without the OBR to back up and validate their plan.
Since then, the Government have been trying to show calm and stability, quite understandably. Now, at last, six months after September, we have a proper Budget. We have a steady Prime Minister and Chancellor, both individuals from a business background and the Chancellor is a fellow entrepreneur, to boot. Whether an election takes place next year—and that is what the Government’s focus is on—or not, the path to growth and prosperity is crucial.
Earlier this week I was with the Nobel laureate Paul Krugman, the economist from the United States, at Cambridge. He said that we could get inflation down to maybe not the 2% target, but 3%. He said perhaps 3% could be the future target rather than 2%. The OBR has now said it will go down to 2.9%. He also said that unemployment might settle at around 4%; we had unemployment below 4% before the pandemic, and it has been very resilient. Where will interest rates settle down? They will be probably somewhere between 4% and 5%, which is what they used to be before the financial crisis, and thereafter we had over a decade of these near-zero rates which are completely unreal and abnormal.
The noble Baroness, Lady Lawlor, talked about government expenditure; it is now well over 44% of GDP. It should be well under 40%, and she gave evidence of how countries with lower government expenditure in proportion to GDP perform better. Our debt-to-GDP is close to 100%; it is going to be close to 100% five years from now. Had the OBR calculated Liz Truss and Kwasi Kwarteng’s growth plan, what is the bet that, ironically, the debt-to-GDP would not have been that much higher than the current Chancellor’s plans? If you look back to the end of World War II, you will see that our debt to GDP was 250%. In the last three years, we have gone through the biggest global crisis since the Second World War, and we have the lowest debt-to-GDP ratio of any G7 country. It is overprudent to say, “We don’t have the money; we have to be fiscally conservative and have a balanced budget”. What about being bold and going for growth, which will create the employment that will pay down the debt?
India has its Budget one month before ours. In February 2021, India had a Budget in the middle of the pandemic and said that it would not increase taxes because it did not want to stifle the recovery and hamper growth. To date, India has not put up taxes, even in its latest Budget. When I was president of the CBI, I said to Rishi Sunak, who was then Chancellor, “Come on, Rishi, don’t put up taxes. This is what India has said.” What has he done? He has just put up taxes after taxes for the past two years, so we now have the highest tax burden in 70 years. Instead of reducing tax, he announced that he is going to put up corporation tax from 19% to 25%. He countered it with the super-deduction of 130% to incentivise investment, which was fantastic news. The analysis that the CBI carried out said that that super-deduction genuinely has incentivised investment, but we have ended up with the highest tax burden since World War II at 38% of GDP.
If noble Lords remember, Rishi Sunak said that he was going to reduce income tax by 2024, but we spent £400 billion doing the pandemic that we have to recover, and we cannot reduce taxes now because we are in an inflationary environment. We were in a deflationary environment. I argue that inflation has not been demand-led; it was created by the Ukraine war and by energy prices, which are now well off their peak. Energy prices have come down.
Putting up taxes is stifling growth and the recovery. As history has shown, when George Osborne reduced corporation tax from 28% to 20% and then to 19%—he actually wanted to go down to 15%—we actually increased our tax take. Will the Minister acknowledge that? By trying to get £18 billion more a year and putting up corporation tax by almost one-third in one swoop, from 19% to 25%, you are killing the goose that lays the golden egg.
We were worried that we would have a double whammy in this Budget: an increase in corporation tax and a taking away of the super-deduction. Again, I spoke to Rishi when he was Chancellor and said, “Please bring in a replacement for the super-deduction”, and he said, “I will”. The Government have stuck to that and come up with this 100% tax deduction for investment in plant, machinery and technology, which is fantastic and just what we need.
But the point about corporation tax is not the absolute tax rate itself; it affects our perception and our inward investment. Historically, this country has been the second-largest or third-largest recipient of inward investment in the world, but now we have a situation where AstraZeneca, as the latest example, with more than £300 million of investment, is going to Ireland, which has a corporation tax rate of 12.5%. We have a rate that is double that. Arm, a company that we are so proud of, which was founded in Cambridge and whose technology we all have in our mobile phones, has decided to list in New York. Although our Government keep saying that our corporation tax is the lowest in the G7, it is now higher than the OECD average. Image and impression count.
On the positive side in this Budget, the investment zones are great news. They are based on something that I and the CBI have been championing for a long time: clusters based around our world-class universities. This is great news. We need to do more of this. I was in India last month, leading a University of Birmingham delegation as its chancellor. I spoke at the QS World University Rankings annual conference. I was so proud making my keynote speech that Britain, at 1% of the world’s population, has four out of the top 10 universities in the world; America has five and Switzerland has one. We have 17 out of the top 100 universities in the world, of which Birmingham is one. But is there anything in the Budget to help our universities? They have been managing on £9,250 fees that have been frozen. If you take that in real terms, we are now managing at £6,000. How are we meant to carry on being the best in the world when we are underresourced and run on the cheap? This cannot go on for ever.
I was on the Times Education Commission that reported last year. Our private schools cover 7% of our schoolchildren and are some of the best schools in the world by far. The funding for a private school child is three times the funding for a state school child. Where is the education spending in this Budget? Investment in education in the last decade has hardly increased, whereas in areas such as health it has increased hugely. Investing in education is the best investment. It will increase productivity. That is our future.
On SMRs—small modular reactors—this Budget gives another bit of good news: prioritising nuclear and saying that it will be treated as green is spot on. The Government say that they are going to look into SMRs. Why are we “looking into” SMRs? Why are we waiting? Rolls-Royce has the technology. These small modular reactors can give power to 1 million people, and cost one-sixth of a large plant such as Sizewell. They take five years to make, and we have not even started building one. Nuclear has been neglected by every Government, whether Labour, Conservative, or the Liberal and Conservative coalition. Nuclear has been neglected to our peril and I am glad that we are giving it focus.
There was nothing about housebuilding in this Budget. We need more houses desperately.
The shortage occupation list was addressed in the Budget, but just for construction. What about hospitality, agriculture, financial services and technology? Every sector of our economy has shortages. I have said time and again to the Government: why not have a revamped Migration Advisory Committee? As the Monetary Policy Committee sets interest rates each month and the Low Pay Commission sets the minimum wage every year, have the Migration Advisory Committee advise the Government sector by sector on the shortage occupation list. Would the Minister agree that we need to do that?
Here is the point. Immigration is made into this big bogeyman. Net migration is going up, but why? Because international students are included in the figures. We are now beating all records on international students—there are 690,000—and because they stay for a minimum of one year, they are treated under UN rules as immigrants and are counted. They are not immigrants. If you take international students out of those figures, the whole picture changes. Why are the Government making a rod for their own back? Why do they not, like many other countries, report to the UN but domestically exclude international students from the net migration figures? Could the Minister respond on that please?
Let us talk about energy. It is so good that the energy cap is being maintained for consumers, who need the help, but where is the help for businesses? There is no help for businesses, which have been devastated by energy costs.
IR35 reform is needed to help self-employed people but there is nothing in the Budget. The apprenticeship levy needs reforming desperately to help skilling, but there is nothing in the Budget. Our business rates are the most expensive in Europe and need to be reformed—the Government keep saying that they are going to reform this—but there is nothing in the Budget.
Fuel duty being frozen is very welcome, but alcohol duty is increasing. Pub after pub has been closing but the Government go and put up alcohol duty. As the founder and chairman of Cobra Beer, I am very grateful that draught beer duty has been frozen.
Defence expenditure will go up to 2.5% when it can, but it needs to go up to 3% right now. There is a war in Ukraine and we need to be prepared for the worst. At the end of the excellent Ukraine debate that we had recently, I quoted my Cambridge University contemporary and friend, Brigadier Justin Maciejewski, the head of the National Army Museum:
“Armies need might and mass to win. That means good weapons, good people and enough of them to be a credible deterrent. Without effective defence, everything that you treasure is threatened. Defeat in war means you lose everything: no health, no pensions, no education and no safety”.
He ends by saying:
“We need to be prepared, and preparation has a price.”
To conclude, the IFS has just reported on the Budget. It is very gloomy and has said we are stuck in a “lost decade” of falling living standards. The stealth tax of freezing thresholds until 2028 is going to raise over £120 billion. It is going to cost people on the lowest level of tax £500 more per year. On Brexit, the IFS says that the nation’s output will be 4% lower in the long term. We are avoiding a recession thankfully, but look at what is happening on the sidelines. Look at Silicon Valley Bank and Credit Suisse. We have got to be prepared. The noble Lord, Lord O’Neill, said that the Government have a narrow vision of credible fiscal rules.
This country has so much potential. The noble Baroness, Lady Moyo, who we welcome, spoke in her excellent maiden speech about economic growth. We need to grow; we need to reduce taxes; we need to invest. Debt will then fall, and the sixth-largest economy in the world will continue to be one of the top economies in the world. We will show our excellence in combatting climate change, in wind power, and in innovation and creativity. We have to have faith; we have to have belief; and we have to be bold.
Baroness Lea of Lymm (Con)
I was actually encouraged by the Chancellor’s Budget Statement yesterday. To put it in context, how very different it felt from November’s Autumn Statement, which, above all else, aimed for stability after the market chaos of late September and October.
As the OBR commented back in November, the British economy had been badly knocked by the
“global energy … supply shocks emanating from Russia’s invasion of Ukraine”
since March, when the Spring Statement was released. I remember the Bank of England’s extraordinarily pessimistic forecast, released in early November, which forecasted falling GDP in both 2023 and 2024—a two-year recession. My goodness me, how the media jumped on that. The Bank noted that there was a “very challenging” outlook for the UK economy, which struck me as something of an understatement in the circumstances. In contrast, in November, even though the OBR saw GDP falling by 1.4% in 2023, it expected the economy to recover in 2024.
Since November, the economy has proved remarkably resilient, narrowly missing recession in the second half of 2022. Somewhat surprisingly, GDP was flat in the fourth quarter, after falling a marginal amount in the third quarter; doubtless the data will be revised because, believe me—I speak as an ex-government statistician—data are always revised. The OBR now expects the economy to avoid recession, as defined by two consecutive quarters of falling output, this year. However, seemingly paradoxically, it still expects GDP to slip by 0.2% this year compared with last year. Specifically, it has projected a 0.4% fall in this current quarter, with GDP expected to be flat in the second quarter and then to start recovering in the second half of this year. Thus, according to the OBR, the economy will avoid recession.
The OBR was relatively upbeat in its March Economic and Fiscal Outlook. It said:
“The economic and fiscal outlook has brightened somewhat since our previous forecast in November.”
I remind noble Lords that that is only four and a half months ago. It went on:
“The near-term economic downturn is set to be shorter and shallower; medium-term output to be higher; and the budget deficit and public debt to be lower.”
Specifically, it noted that wholesale gas prices were well down and were expected to fall further.
However, the international situation remains concerning. The war in Ukraine appears to be far from resolution and the intensifying US-Chinese tensions have potential serious implications for the global economy. There are also heightened concerns over the international banking system. No one can be complacent.
The improved fiscal situation has enabled the Chancellor to provide a sizeable stimulus to the economy by way of some judicious spending increases and tax cuts, yet according to the OBR, he has still met his self-imposed fiscal targets—they may seem a bit arcane but they are important. These targets are: first, that underlying public sector debt as a share of GDP should fall in the financial year 2027; and, secondly, that public sector borrowing should be less than 3% of GDP in the same financial year. The targets are revised frequently and are somewhat arbitrary; suffice to say, much can go astray with the economy between now and 2027. Forecasting is an imprecise art, as we know, but, as I have said, the targets are important. They provide the markets with some reassurance that, no matter how high debt is now, it is manageable and should fall as a share of GDP in future. The targets are there to avoid a repetition of last September’s chaos, when the OBR was comprehensively cut out of the loop.
What of the Chancellor’s policies? First, he has rightly sought to address the issue of the missing workers with a back-to-work Budget that has the aim of stimulating the labour market and supporting growth. The latest ONS data shows that, in the three months to January, total employment was still more than 230,000 lower than in the three months to February 2020, which was the last quarter before lockdown. The number of the economically inactive—people aged 16 to 64 who are not in work and not looking for work—was nearly 490,000, nearly half a million, higher than in the three months to February 2020. Reasons for the rise in inactivity include increases in the long-term sick and people with family caring responsibilities, and some early retirements.
Suffice it to say that several of the Chancellor’s core Budget policies were geared towards encouraging and enabling people within these groups to move into employment. They included the launch of a new universal support programme for the disabled and long-term sick who want a job, improved childcare provision and, on pensions, increasing the annual allowance and abolishing the lifetime allowance. These are all pretty good moves, and I hasten to add that this is a far from exhaustive list of the Chancellor’s policies on this issue.
Secondly, on enterprise, with the ending of the super-deduction capital allowances scheme in March 2023, the Chancellor rightly announced the new full-expensing capital allowances scheme. This is planned to run for three years initially, and the OBR apparently judges that it should help boost business investment—which we all want boosted—by around 3% a year. But I still regret the planned increase in the main corporation tax rate from 19% to 25%. Granted, this rate may be the lowest in the G7, but, to me, this slightly misses the point. It was widely reported that corporate taxes were a factor in AstraZeneca’s decision to build a new factory in Dublin rather than Cheshire. Ireland’s main corporation tax rate is 12.5%.
Finally, the Chancellor’s cost of living measures were well targeted. They included freezing fuel duty for the 13th consecutive year and extending the energy price guarantee at £2,500 until the end of June.
All in all, it was an encouraging Budget. I suppose there is always more to do—every Chancellor knows that—but let us be aware of the economic circumstances and uncertainties that we still face. We certainly cannot be complacent.
Lord Bellingham (Con)
My Lords, first, I declare my interest as a paid non-exec director of four companies and two public companies. We have heard some exceptional contributions today, and I endorse all the remarks about and all that praise for my noble friend Lady Moyo on her superb maiden speech. It is always a pleasure to follow my noble friend Lady Lea and my old and good friend the noble Lord, Lord Bilimoria, who talks so much good sense.
As tail-end Charlie in this debate, I understand that I am all that stands between noble Lords and what are going to be three superb wind-ups and a very good dinner. I can see the Whip looking at me, because this debate has gone on quite a while and a lot has been said. I want to start by mentioning something about the Silicon Valley Bank crisis, which was referred to by my noble friend Lord Tugendhat and the noble Lord, Lord O’Neill. If this had not been handled in the way that it was, we would have been staring down the barrel of a full-blown tech crisis that would have completely transformed the start of Budget week. What was required was calm, competent government, and that is exactly what we got. I was impressed by a letter to the Chancellor which was signed by 340 founders and chief executives of tech companies employing nearly 20,000 people. It said:
“Thank you to you and your team for understanding the urgency, for appreciating the risk to the UK tech sector and its importance to the UK economy and for working around the clock to find a timely solution”.
That is praise indeed. Ben Marlow, the chief City correspondent on the Telegraph, is an outstanding journalist. He put it this way:
“To pull off something that complex in the space of a weekend is hugely impressive and a reminder that Britain’s most important national institutions still possess the proficiency to rise to the occasion when needed most”.
So we must pay credit to the Prime Minister, the Chancellor, the brilliant City Minister Andrew Griffith, the Bank of England and all those civil servants who worked incredibly hard that weekend to find a solution that will not cost the taxpayer one single penny.
The background to the Budget has been discussed at some length. I always listen very carefully to the noble Lord, Lord Eatwell. He said that we had been through a period of low growth, with GDP expanding by an average of 0.9% per year between 2008 and last year, which was down from a 2.7% average between 1949 and 2007. As he and other noble Lords pointed out, we have seen a period of very weak business investment and poor productivity, and frankly a gradualist decline and what I would call almost a lost decade of growth.
So the exam question is very simple. Will this Budget put in place the building blocks to reverse that? Will it welcome the start of a coherent and credible medium-term growth strategy? At a time when the tax burden will rise to 37.7% of GDP, the highest level since World War II, will the Budget really move the dial? Obviously, there is a huge onus on the Chancellor to maintain stability and above all to go on retaining the confidence of the markets—an agenda that he has worked on tirelessly since his appointment last autumn. So, in addition to his priority for growth, he has rightly made reducing inflation and bringing down debt as a percentage of GDP the other two key priorities.
How does this Budget measure up? There is a lot to like in it. I welcome a number of supply-side reforms that were announced yesterday. I like the childcare package. The 12 investment zones, which the noble Lords, Lord O’Neill and Lord Bilimoria, touched on, will be really important for generating growth and investment for wealth creation. I was very pleased with the announcement on nuclear policy and on carbon capture and storage, which was mentioned in some detail by my noble friend Lord Howell in a typically erudite and impressive speech. I also welcome the announcement of the pension lifetime allowance, which will create incentives for people of my sort of age to go back to work and to stay in work, which must be good for the wider economy.
All that is very positive, and I welcome it enormously. I also welcome the £25 billion business relief package for business investment and, as my noble friend Lady Lea pointed out, the full-expensing arrangements. This will ensure that we have the most generous capital allowance regime in the OECD. Add to this the R&D support package for SMEs, and the extended credit scheme, and that is good news. However, I am still very concerned about the increase in the corporation tax headline rate. I absolutely 100% endorse what the noble Lord, Lord Bilimoria, said a moment ago. Would it not have been better if the £25 billion had been used to prevent this increase from 19% to 25%? The headline rate sends a strong signal. It is about the mood music and whether Britain really is the best place in the world to do business.
Another point that I picked up on yesterday was that, as a result of this, the ratio of corporation tax receipts to GDP will rise to the highest level since its inception in 1965. Bearing in mind that Nigel Lawson reduced corporation tax from 65% to 40%, that shows the impact that this will have on business. As Andrew Neil pointed out today in his article, if as an SME or a business of any size you invest £100 today, you can claim back £130 under the super-deductions before paying 90% corporation tax on profits. From April, if you invest £100 you will be able to deduct £100—which is welcome but not as good as it was before—but you then pay 25% on your profits.
I urge the Minister to recognise the concern about this. Even if the Chancellor cannot change his stance on this immediately, I hope very much that he will revisit it at the earliest possible opportunity. I see the Whip looking at me anxiously, very concerned that I will go on too long. So I will just say that, with that one exception, it was an imaginative and well-crafted Budget. It deserves to succeed, and I have no doubt that it will.
Lord Fox (LD)
My Lords, it is a great pleasure to follow the noble Lord, Lord Bellingham. In fact, compared to many speeches he was very restrained in both time and content.
If I were writing a review of this debate, it would be “an eclectic debate with something for everyone”, and that is what we normally expect from your Lordships. I have to both praise and apologise to the noble Baroness, Lady Moyo: by all accounts hers was a fabulous speech, but unfortunately I was unavoidably hooked out of this Chamber during it. I look forward to reading it but also to being in the Chamber when she participates in future debates.
Yesterday, at the other end of this building, a slew of relatively modest changes, with a couple of larger long-term plans, was announced with what I would call traditional ballyhoo. It is worth putting that into some context: at the same time, across the UK, people were not listening to it because they were busy trying to negotiate the problems and impediments in their own lives. As the Chancellor rose, pensioners glanced at their smart meters and worried; parents juggled problems of childcare and work on a school strike day; a pair of young people looked at the cost of a mortgage and then went back to looking at the possibility of renting accommodation, something that my noble friend Lord Lee emphasised. Elsewhere, local businesses put “situations vacant” notices in their windows with little hope of recruiting anyone; manufacturers in their offices wrestled with paperwork that they now need to send their products to France or Germany; and in our hospitals, the effects of the first ever doctors’ strike caused the cancellation of already-delayed treatments, something that my noble friend Lady Brinton emphasised. Meanwhile, in Ukraine, young soldiers were fighting and dying for their freedom; on the beaches of Calais, refugees were wondering how or indeed if their flight from oppression would end; and around the world the global temperature rose by just a little bit more. That was the news agenda and the personal agenda that were going on as the Chancellor spoke. Nevertheless, he got his day in the sun.
We normally expect a little theatre, a flourish, but there were no rabbits—and no hat. Indeed, the childcare bunny, which had apparently been held back for theatrical purposes, had somehow escaped the night before, so instead the Chancellor had to settle for what was in the end a résumé of his department’s leaks. Still, it is convenient to have all the department’s press releases in one document. That the event held no surprises is something to be celebrated, particularly when we compare it to his immediate predecessor’s version of excitement and surprise.
Of course, as with all Budgets, the real news is not the announcement but the details and the analysis of them that emerges later, and that is just starting now. I have to say that the noble Lord, Lord Skidelsky, has done much to undermine my faith in economics. As a chemist, I have an absolute view of the world, but I fear that that is being eroded.
The first statistics concern inflation and, as we saw, the OBR predicts that that will be 2.9%. Whether or not that turns out to be true, the fact is that over the past year inflation has been running at double-digit levels so, whether or not the rate of increase falls, the place where most families find themselves today is very much higher in price and very much harder to afford than it was a year ago.
We must remember the other fact, rather than projection, is that wage increases are running at well below that rate of inflation that we have experienced: 3% to 4% in the private sector and much less in the public sector. So, as we know, real disposable incomes will continue to be hit further as we go forward.
I turn to growth. Again, the noble Lord, Lord Skidelsky, undermined these numbers, but these are the numbers that the Chancellor used. The Chancellor calls what is in essence around 2% per year over the next four years a Budget for growth. Well, as the noble Lord, Lord Bridges, so eloquently set out, 2% per year is not going to touch the growth in need that is out there, never mind the demographics, the cost of debt and all those things. This 2% per year on average is not the growth that will sustain the challenges we have ahead of us.
One thing I think we can put more stead in from the OBR is the scale of the impact of freezing the income tax thresholds. This freezing will lead to a tax rise of £12 billion in 2023-24. This compares to the cost of £3 billion in the same year of extending the energy price guarantee for three months. The Chancellor gave with one hand, but is taking away a great deal more with the other hand. Over time, this freezing of tax thresholds will lead to a total stealth tax rise of nearly £30 billion by 2027-28, or a total of £120 billion over the coming five years, with 3.2 million people dragged into paying income tax and 2.1 million paying at a higher rate. These compound the Government’s historic place as the party of high tax and more than wipe out the meagre support that families were getting over energy bills. At a time when inflation has put so many people under so much pressure, people’s budgets are being hit again, but in a way that is being sneaked in rather than properly announced. If the Chancellor had announced what I think adds up to a rise of about 4 pence in the pound in income tax, you could imagine the outcry.
Moving on, there is much talk about the UK being a science superpower and I am sure we all share ambitions of leveraging our excellent science and learning understanding in this country. Many of us felt that, after the Windsor Framework, it would clear the way for the UK rejoining the pan-European Horizon R&D programme, which by all expert analysis is something from which the UK takes far more than it puts in. But once again we have heard nothing. I ask the Minister: what is the blockage on this issue? When will a decision be announced?
Another theme that should have run through the Budget is the competitive threat posed by the US Government’s Inflation Reduction Act green subsidy programme. A number of your Lordships mentioned this. I remind your Lordships that the so-called IRA is a $369 billion subsidy package on offer throughout the US and it sits on top of a $280 billion CHIPS and Science Act as well. The IRA completely relaxes state aid rules for green industries and really has changed the global game for green investment. Across the world, big global businesses are relocating or planning to relocate their developments to the US to take advantage of this scheme. The EU has had to respond, and is going to announce its net-zero industry Act; we will see how many hundreds of billions of euros are in this pot. So where in this Budget is the equivalent British response? Well, I cannot find it.
I did hear a promise by Chancellor Hunt of funding of £20 billion over 20 years for the nascent carbon capture sector. But let us face it, set against the US model, £1 billion a year is unlikely to unlock the level of investment in carbon capture, clean energy and hydrogen infrastructure that is required to meet climate targets.
Meanwhile, by changing the taxonomy of nuclear energy, any money that could have been spent on a variety of technologies that would deliver near or medium-term progress is now likely to be diverted into Great British nuclear and SMRs. I have a word of warning on SMRs for enthusiasts: no one has built one yet. We will all be looking at the economics and the timelines—[Interruption.] The noble Lord, Lord Howell, shakes his head from a sedentary position, but there is not even a prototype.
The replacement of the super-deduction with something not quite as good is helpful for large taxpaying businesses, and the enhanced R&D tax credit is a good step towards promoting innovation. However, the large proportion of firms that fall outside the 40% intensity threshold will be left feeling mystified by the change in policy since last autumn. R&D tax credits had been a very effective way to create cutting-edge products and services in the small business community, and their loss is felt. Of course, the company has to be in a position to invest. British Chambers of Commerce highlighted in its recent survey that half of its businesses will be struggling to pay their energy bills in April, so investment or any help they might have with it is a rather theoretical exercise.
There are 5.5 million small businesses and 16 million people who work for them, and if the Chancellor hoped to woo small businesses, the signs are that he failed. Responding to the Budget, the Federation of Small Businesses said that it
“will leave many feeling short-changed. The distinct lack of new support in core areas proves that small firms are overlooked and undervalued.”
It sees support being focused on large companies. It would be interesting to hear the Minister’s view on whether small companies are being helped as much as large companies. Also, there is nothing new yet on business rate reform, so can the Minister tell us when we might see something on that?
The Chancellor announced 12 investment zones across the UK. The Minister praised Docklands as an example. Can the Treasury remember how much public money went into Docklands to make it what it is today, and is it planning to put the same level of public money into all 12 of the new investment zones? If so, where is this money coming from? We are also concerned about the lowering of good regulation for both the environment and workers’ rights. I should appreciate it if the Minister could give some assurance that there will be no dilution of employment or environmental regulations in those zones.
Your Lordships would expect me to say that a major flaw in this announcement is the total lack of an industrial strategy—something I have talked about a lot. Investment zones or freeports are no alternative to that. This hole is huge, and we are missing the overall strategy to develop future green industries such as green hydrogen, offshore wind and e-vehicles. Nothing in this Budget will deliver the gigabattery plants we need.
However, I do welcome an old friend. The £100 million innovation fund announced for Greater Manchester, the West Midlands and Glasgow has now been announced three times—so welcome back. The Chancellor and your Lordships have had a lot to say on getting more people back into the jobs market, and here I agree that there is no silver bullet. There are a lot of different measures in this Budget focusing on health, pensions, welfare and childcare, and many of your Lordships spoke at length on them, so I do not propose to reproduce those comments. In the end, success in all of these will be measured by results, and results come from effective implementation of these policies. Implementation is something many Governments have struggled with over the years.
The health checks may deliver results, but would not putting more money into delivering better primary healthcare be a way of improving the health of our age 50-plus employees? Pensions thresholds are aimed at one very specialised end of the market, and it will be interesting to see whether this achieves what is intended. My feeling is that this is a multidimensional problem that a single £1 billion solution is trying to solve. I think it unlikely that we will get what we want or, indeed, get value for the money we are putting in. However, I understand why the Government are trying.
The welfare changes are complex but should be seen in the context of the huge cuts that are already baked into the welfare system, but which do not kick in until after the end of this Parliament. I suggest that, taken with the increased pressure on people to work, the poorest will suffer the most. That is usually what happens when welfare changes.
The childcare changes are potentially very significant and are welcome, with two provisos. The first is that the services have to be available, staffed and economically viable, which comes down to delivery. Secondly, they will not happen for some time. The nine month-old baby who will benefit from this new policy has not been born.
Finally, I would like to suggest an untapped source of tens of billions of pounds. This does not mean a new tax or require cuts in public spending; it simply requires properly collecting the tax due that has not been paid. In January, the Commons Public Accounts Committee found that an “eye-watering”—its hyperbole, not mine—£42 billion in unpaid taxes are owed to HMRC. Some 5% of owed taxes remain uncollected. There seems to be neither the staff nor the will to collect this cash. I ask the Minister: why not? It is not as if we do not need the money.
The Chancellor, in delivering his speech, said that his plan is working. Others will judge that. The pensioner freezing in a cold house; the family struggling to balance their lives; the chronically ill person awaiting treatment; the business team trying to keep their enterprise afloat: they will be the judges of what is working and what is most definitely not.
Lord Tunnicliffe (Lab)
My Lords, I begin by joining others in congratulating the noble Baroness, Lady Moyo, on her maiden speech. Her wide-ranging experience makes her an excellent addition to your Lordships’ House, and I very much look forward to her participation in future debates.
It is rare for your Lordships’ House to be given the opportunity to debate a Budget so soon after the Statement was made in the other place. With the Chancellor’s speech lasting for more than an hour, perhaps the hope was that colleagues would not have had sufficient time to fully digest his remarks or the Red Book. The Government’s economic plans have generally not held up to scrutiny, although the immediate reaction of many who watched yesterday’s proceedings may well have been: “Was that it?”
I am very grateful to the Minister for her introduction to this debate. Unfortunately, her speech painted a picture that many across this country simply will not recognise. Yes, the Office for Budget Responsibility’s short-term forecasts look better than in November, but growth expectations beyond 2025 have been downgraded and remain low compared to many of our neighbours and economic competitors. Yes, inflation is forecast to fall drastically by the end of this calendar year, but that does nothing to protect low and middle-income households from sharp increases in household bills—not just energy—or food inflation of around 17%.
Yes, there have also been changes to pensions to resolve specific issues faced by doctors and some other public sector workers, but the Treasury has chosen to do this in a way that also provides a handout to the richest 1%. In the words of Paul Johnson, the pension changes amount to using a
“sledgehammer to crack a … nut.”
The measure will cost taxpayers an estimated £70,000 for each person returned to the labour market, with the annual cost of maintaining the changes topping £1 billion by 2026-27. As families face rising bills, higher costs and frozen wages, this pensions bung is, as Rachel Reeves has said,
“the wrong priority, at the wrong time, for the wrong people.”
That is why a Labour Government will reverse this move, unless of course the Chancellor decides to perform yet another U-turn in the coming weeks.
As I just alluded to, life is currently a real struggle for so many across our country. Parts of this Budget may help certain people in limited ways, but the Chancellor’s Statement will have done little to instil that all-important sense of hope—I repeat, hope—for the future. The idea that 2% annual GDP growth is the pinnacle of what this great country can achieve is, frankly, laughable. That is why Labour has set the ambitious but achievable goal of securing the highest sustainable growth in the G7. We want to lead, while the Conservatives seem happy to languish at the bottom of the international league tables.
Despite various initiatives, relaunches and even ministerial reshuffles, our economy remains smaller now than it was prior to the coronavirus pandemic. I have been saying that for a year, so why does it remain true and what is the result? Not only are we the only G7 country which will see negative growth this year, but people across the UK are enduring the largest hit to their living standards, of around 6%, since comparable records begun. British families are now, on average, poorer than their French and German counterparts. Wages in real terms are lower now than 13 years ago. Real weekly wages are likely to remain below their 2008—yes, 2008—levels until 2026.
Meanwhile, the OBR says average interest rates on outstanding mortgages are now twice as high as was forecast back in 2021. A typical household remortgaging faces a Tory mortgage penalty of £1,950. Families and working people are therefore left paying the price of the Conservative Party’s failures.
As if higher mortgage bills were not enough, freezes to tax thresholds from April will mean an extra £500 on income tax for basic-rate taxpayers. The OBR believes that, by 2027-28, the threshold freeze will have brought 3.2 million people into paying basic-rate tax, with 2.1 million moving into the higher-rate bracket. People may accept that if they receive quality public services in return, but 13 years of Conservative control has seen many services sold off or run into the ground. The situation is perhaps best summed up by the Resolution Foundation, which describes Britain’s economy as being
“stuck in a deep funk”.
That respected body also says that even when people are supported into work, they are
“getting poorer, and paying more tax but seeing public services cut.”
That is not what people voted for.
Of course, there are things in this Budget that we welcome—in principle, at least. The promised expansion of childcare should be helpful for many parents. In his initial response to the Budget, Paul Johnson said that he doubted whether it would make “a big difference” to getting mothers back to work. How many people does the Treasury believe this policy will support back into employment?
We also know that childcare ratios will be relaxed, moving from 1:4 to 1:5, a move which the Early Years Alliance believes risks
“severely compromising the safety and quality of care”.
Can the Minister confirm whether this will be kept under review and, if so, how?
In addition, we welcome the decision to scrap higher tariffs for households with prepayment energy meters and to extend the £2,500 energy cap to the end of June. The Labour Party has been calling for these steps for some months, and the Government’s choice to drag this out has caused unnecessary additional anxiety for many. We do not mind the Government availing themselves of our ideas, whether on the price guarantee, the windfall tax or prepayment meters but, with billions of pounds of untaxed energy profits still left on the table, would the Chancellor also like to adopt our proposal to close the remaining holes in his energy levy?
We also endorse the decision to go through with the increase to corporation tax, given that it is accompanied by improved allowances for firms that invest in their UK operations. As outlined previously in relation to income tax, the personal tax burden is at the highest level since the Second World War. It is almost five percentage points higher than at the start of the pandemic, with no sign of the Chancellor finding the fiscal headroom needed to bring personal taxes down. Meanwhile, corporation tax rates in this country have gone up and down like a yo-yo. Not only has that shifted more of the tax burden on to working people, but it has created uncertainty that has made it harder for businesses to plan long term and to invest in this country’s future. Business taxes should not be unduly high, but firms must pay their fair share. Labour has committed to reviewing the business tax system across the board. It is only by adopting a new, fair and long-term framework that we can move past the short-term focus on share buybacks and dividends, towards a system with investment and job creation at its heart.
To conclude, this Budget was the chance for the Government to unlock the enormous promise and potential of Britain. Instead, it merely papered over the cracks of 13 years of Conservative economic failure. Despite the ministerial merry-go-round and policy U-turns of last summer, our economy remains on track to contract overall this year. We may avoid a recession, but the fact that Ministers are celebrating that shows just how low the bar has been set. People’s living standards remain on track to fall by an unprecedented 6% over two years, and the UK will remain towards the bottom of international league tables. The Budget has done nothing to change those facts or to resolve many of the major issues of the day, with many of the difficult decisions left until after the next election. Crucially, it has done nothing to give people a sense of hope for the future. Instead, it appears to be the latest step in our managed decline, as Conservative Britain once again becomes the sick man of Europe.
Baroness Penn (Con)
My Lords, I thank all noble Lords for their contributions to this debate. Given the range of expertise that has been contributed today and the range of topics we have covered, I will spend my time directly answering as many of noble Lords’ comments as possible.
Many noble Lords reflected on the economic circumstances we find ourselves in. The current high levels of inflation we face, with increased costs for households and businesses, have a clear impact on growth. As my noble friend noted, the best tax cut we can give households and businesses is to get inflation back under control, and that is exactly what the OBR forecasts will happen.
My noble friend Lord Bridges asked about the difference between the Bank of England’s forecast and the OBR’s forecast, and the noble Lord, Lord Skidelsky, also spoke about the difficulties of producing forecasts in these times. Specifically on those differences, the Bank of England made its latest forecast in February and it was based on different market determinants from the time. In its economic and fiscal outlook, the OBR reports that the difference is driven by falling energy prices and interest rates since the Bank’s forecast and, as my noble friend Lord Willetts noted, a predicted greater recovery in labour force participation following the measures announced in the Budget.
Inflation will reach 2.9% by the end of the year, but we recognise that the next 12 months will put real pressure on people, particularly when it comes to their energy bills. The noble Baroness, Lady Brinton, said that this Budget did nothing to help with that and I really must correct her. Not only did it extend the energy price guarantee at £2,500 for the next three months, it removed the pre-payment meter premium, which is something that this House has called for many times. It is also important to remember that significant further help announced in the Autumn Statement is still to be delivered to households across the country.
The noble Lord, Lord Bird, asked for universal credit to keep pace with inflation and that is exactly what will happen. Those relying on universal credit, the state pension and other means-tested benefits will see them go up in April by more than 10%, and we have further cost of living support payments worth £900 to be paid over the next year to 8 million households on means-tested benefits. Support payments of £300 will go to more than 8 million pensioner households next winter and £150 will be paid to those on disability benefits. It is very important that people know that further support with the cost of living is on its way. In fact, support to households to help with higher bills is worth £94 billion, or an average of £3,300 per household across this year and next.
The noble Lord, Lord Bilimoria, said that there was no support for businesses with their energy bills. But the energy bills discount scheme will provide all eligible businesses and other non-domestic energy users with a discount on high energy bills until 31 March 2024, following the end of the current energy bill relief scheme. It will also provide businesses in sectors with particularly high levels of energy use and trade intensity with a higher level of support.
The noble Baroness, Lady Brinton, asked why no equality impact assessment had been produced with this Budget. I reassure noble Lords that His Majesty’s Treasury has rigorous processes in place to ensure that we comply with our legal requirements. We go beyond these by publishing a summary of equality impacts for tax measures within the tax information and impact notes alongside the Finance Bill.
When it comes to distributional analysis, that was published in the 2023 Spring Budget and it shows that the typical household at any income level will see a net benefit next year following government decisions made in the Autumn Statement 2022 and onwards. Low-income households will receive the largest benefit in cash terms and as a percentage of income from government decisions. Furthermore, looking across all tax, welfare and spending decisions made since the 2019 spending round, the impact of government action continues to be progressive, with the poorest households receiving the largest benefit both in cash terms and as a percentage of income in 2024.
The noble Lords, Lord Eatwell, Lord Bilimoria and Lord Tunnicliffe, and many others spoke about the impact of the freeze on tax thresholds, announced last spring and extended in the Autumn Statement. It is true that, after a colossal effort to fight Covid, with the Government spending over £370 billion on measures to support the NHS and our economy, we have had to take difficult decisions to get our public finances back on track.
We have frozen tax thresholds and, as we will come to, we have asked businesses to contribute more, through increased corporation tax rates. However, I say to my noble friend Lord Bellingham and others that 70% of businesses will see no change to their corporation tax headline rate, because small businesses are exempted, and only 10% of businesses will pay that top rate of 25%.
When it comes to the personal tax threshold freeze, noble Lords should note that, even after the freezes that we are putting in place, the changes we have put in place since 2010 mean that someone on an average salary will still pay £1,000 less in income tax and national insurance next year than if thresholds had gone up in line with inflation since 2010. Thresholds will be higher at the end of the period of the freeze than if they had been simply increased with inflation since 2010.
We had to take some difficult decisions on the public finances but that does mean—I hope this offers some reassurance to my noble friends Lord Bridges and Lady Lawlor—that we are bearing down on debt and have the deficit falling in every year of the OBR forecast. That means we are projected to meet the Prime Minister’s second pledge: to get debt falling. Indeed, total managed expenditure as a percentage of GDP is forecast to fall in each year of the forecast. We have also launched an efficiency and spending review; as part of the Autumn Statement 2022, departments have been asked to identify further efficiencies, building on the 5% efficiency challenge set at the 2021 spending review.
This brings me to the third pledge from the Prime Minister on our economy: to get it growing. My noble friend Lady Moyo spoke so eloquently about the importance of growth as a prerequisite of good public services, as a precursor to innovation and as a necessity for a healthy democratic society. That is why the Chancellor focused on making this a Budget for growth.
The noble Lord, Lord O’Neill, spoke of his frustration at what he saw as the artificial constraints that the design of fiscal rules has placed on investing in growth. I welcome that debate; although we may have different views on their design, I hope we can both agree on the importance of having a framework in place to maintain fiscal credibility, as was well expressed by my noble friend Lady Lea of Lymm.
I very much agree with noble Lords on the importance of investment. I welcome the point made by the noble Lord, Lord O’Neill, that, when it comes to areas such as corporation tax, we should not focus solely on the headline rate—although that remains the lowest in the G7—but look at how we build incentives into that tax. Full expensing will be a tax cut for businesses investing, worth around £9 billion a year, and I acknowledge that noble Lords would like that to be made permanent. The Chancellor has said he would like that too, when fiscal circumstances allow. However, it is worth noting that the increase in the annual allowance to £1 million is permanent and amounts to full expensing for 99% of businesses in this country.
I reassure the noble Lord, Lord O’Neill, that the Government do not see the solution to investment in this country as something for only the private sector to do. We are continuing to deliver the biggest programme of capital investment in 40 years, and public sector net investment will be 2.5% of GDP on average over the forecast period, delivering more than £600 billion of planned public sector gross investment over the next five years.
My noble friend Lady Moyo spoke of the most effective investment being multidecade in timeframe, and when public and private sources of investment come together. That is exactly what we are seeking to do through our commitment to £20 billion of support to the early deployment of carbon capture, usage and storage, allowing the Government to enter commercial negotiations with successful emitter projects and providing certainty over revenue streams to stimulate private investment.
The noble Lord, Lord Fox, spoke about our response to the US Inflation Reduction Act, and other noble Lords mentioned plans in Europe. Our approach to CCUS shows that we have a plan to stimulate investment in our green industries but in our own way, building on the success that we have had, for example, on contracts for difference with offshore wind, which has led us to be the second-largest producer of offshore wind in the world, behind only China. Further, the launch of Great British Nuclear and the competition for small modular reactors, along with our commitment to Sizewell C, show an ongoing commitment to the UK nuclear industry and to meeting our net-zero targets.
Many noble Lords, including the noble Lord, Lord Bilimoria, welcomed the announcement of investment zones, which will grow clusters in one of our five future growth sectors, partnering great research institutions with local areas. I say to the noble Lord, Lord Fox, that each investment zone will have access to up to £80 million of funding, but this is also about policy flexibility, to allow for greater collaboration and to address the needs of each individual area. He asked about environmental standards in investment zones. I reassure him that the Government are committed to ensuring that investment zones uphold the UK’s high environmental standards and meet our international commitments.
As well as our plans to support investment, many noble Lords focused on the workforce measures that we included in this Budget. The noble Baroness, Lady Brinton, asked about the Government’s planned changes to remove the work capability assessment and whether we will also reform the PIP assessment process. While many people claiming health and disability benefits have a positive experience, we want to improve the overall experience and trust in the benefits system for disabled people. We are doing this by making it easier to communicate and engage with us by improving the accessibility of our services and buildings. We are also testing new initiatives to make it easier to apply for and receive health and disability benefits.
The noble Baroness, Lady Brinton, also asked why there was no mention of social care. She will know that the Government are investing record levels of funding in response to the pressures facing both health and social care services. It was at the Autumn Statement 2022 that we made available up to £6.1 billion for the next year and £8 billion in 2024 in additional funding for the NHS and adult social care.
That brings me on to the pension tax changes made in this Budget, which were remarked on by many noble Lords, including the noble Lord, Lord Davies of Brixton, the noble Baroness, Lady Jones of Moulsecoomb, and my noble friends Lord Bridges and Lord Willetts. I will try to address the different points raised. The aim of our pension tax changes is to incentivise highly skilled and experienced individuals to remain in the labour market, bringing the benefit of their knowledge and experience to the UK labour force. Some noble Lords said that this measure is too expensive. My noble friend Lord Willetts helped me on this in terms of the cost per additional worker in the workforce being similar for this measure compared with childcare measures.
Noble Lords then said that it was poorly targeted because, while the childcare measures have the benefit of helping potentially lower-income households, these measures will be targeted at those people who are relatively better off. Again, my noble friend Lord Willetts helped me by pointing to the benefits of the policy being not only about the recipient of the tax relief but about its wider effect. Here, we are focused on a big change in retaining senior clinicians in our NHS workforce. The noble Lord, Lord Davies of Brixton, was sceptical about the difference that this policy change would make to retaining those clinicians. I have two quotes: the shadow Health Secretary, Wes Streeting, said that the cap on doctors’ pensions was “crazy” and it would “inevitably save lives” to scrap it; and the BMA said that scrapping the lifetime allowance is
“an incredibly important step forward and … potentially transformative for the NHS as senior doctors will no longer be forced to retire early and can continue to work within the NHS, providing vital patient care.”
The BMA went on to say that
“the Chancellor has acted decisively to avert a major workforce crisis”.
The noble Lord, Lord Davies of Brixton, then asked why we did not focus the measure solely on doctors. He gave one of the answers himself, saying that we passed a law to change pension provision for senior judges. We can bring in this tax change by April for the start of the new tax year. Another reason why we have not limited it to one profession, as the noble Lord will also know as he has raised other cases with me in the past, is that these reforms will benefit experienced key workers, including head teachers, police chiefs, senior personnel in the Armed Forces, air traffic controllers and prison governors.
The noble Lord, Lord Eatwell, asked about the interaction with inheritance tax. I reassure him that the costings produced and published at Spring Budget with regard to the lifetime allowance included the inheritance tax impacts for the scorecard period. I further say to him that the primary purpose of a pension is to provide an income in retirement. If someone dies before they get to use it, we think it is right that beneficiaries can inherit those funds, and they are not usually part of someone’s estate for inheritance tax purposes. We are aware that some people may use their pensions to try to reduce their inheritance tax liabilities rather than to provide for their retirement. We do not think that pensions should be used as a vehicle primarily for inheritance tax planning and we will keep all aspects of the tax system under review.
I turn last, but by no means least, to the Government’s plans for childcare. In my enthusiasm for announcing our substantial reforms in this area, I made an error in my speech. I made reference to youth mobility schemes. I need to clarify that those schemes have not been agreed but are something that we would like to explore with international partners over coming months and years. I apologise for inadvertently misleading the House on that matter.
However, I was pleased to hear so many noble Lords welcome the policy on childcare; it will be truly transformative. The noble Baroness, Lady Brinton, asked whether the free hours would be adequately funded. I reassure noble Lords that the Government will provide £4.1 billion of funding by 2027-28 to provide 33 hours for nine months to three years, and we will provide £204 million from September next year to uplift the existing rates for providers. The noble Lord, Lord Tunnicliffe, asked about the changes to ratios. Noble Lords will know that this move is in line with many other comparator countries in Europe and indeed Scotland. The change is optional for providers, but DfE will continue to closely monitor the quality of care in early years settings, including through Ofsted.
The noble Lord, Lord Eatwell, quoted the Sutton Trust. He is right that the aim of the policy is to remove the costs of childcare as a barrier for parents who want to return to work, so the extension of free hours is for working parents. To make that transition even easier, for those who are on universal credit we have increased the amount that they can claim for childcare through universal credit and are paying that amount up front.
The noble Lord, Lord Tunnicliffe, asked what impact the policy would have on employment. The OBR expects that by 2027-28 around 60,000 more people will enter employment, and around 1.5 million mothers will increase the hours they work as a result of this policy. The OBR has further said that the policy has by far the largest impact on potential output in this Budget.
In my speech, I may have been the Tigger to my noble friend Lord Bridges’ Eeyore, but I reassure noble Lords that the Government are under no illusions about the challenges that we face both at home and with the increased threat picture abroad. To my noble friends Lord Howell of Guildford and Lord Tugendhat, I say that that is why in this Budget we have provided an additional £11 billion for defence and national security priorities over the next five years, with nearly £5 billion going in during the next two years to improve the resilience and readiness of our Armed Forces. This is on top of the spending review 2020 cash uplift of £24 billion over the spending review period for defence, which is the largest sustained increased since the end of the Cold War.
What of the Government’s final goal of growth? The Spring Budget made the biggest increase to supply reforms that the OBR has ever scored in its forecast, bringing 110,000 workers into the workforce and increasing GDP by 0.2%. My noble friend Lord Bridges is also correct that population change contributes a further 0.5% to potential output.
The noble Lord, Lord Tunnicliffe, asked about the recovery of our economy since the Covid pandemic. When you look at private sector output, you see that our economy has more than recovered since the pandemic. The picture is different on public sector output, but that makes the figure not very comparable with other international countries as we measure our statistics in a different way.
Overall, supported by policy and underlying conditions, the OBR has revised GDP upwards in every single year of this forecast. With inflation down, debt falling, growth going up, and transformative policies for investment in our growth and in childcare to get people back to work, this is a Budget that I can commend to the House.