House of Lords
Oaths and Affirmations
Death of a Former Member: Lord Selkirk of Douglas
The Lord Speaker (Lord McFall of Alcluith)
My Lords, I regret to inform the House of the death of the noble Lord, Lord Selkirk of Douglas, on 28 November. On behalf of the House, I extend our condolences to the noble Lord’s family and friends.
General Elections: Party-political Spending
(1 year ago)
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Lord Rennard
To ask His Majesty’s Government what assessment they have made of the case for increasing the maximum limit for political parties to spend at general elections.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Penn) (Con)
It has been a long time since campaign spending limits were last adjusted for inflation—some have not changed since 2000. This means that as prices rise over time the limits are, in effect, reduced. Parliament anticipated this when the limits were set, which is why the legislation allows for them to be adjusted to account for inflation. The Government have now begun making these adjustments to ensure spending limits are restored in real terms.
Lord Rennard (LD)
My Lords, none of the last five Governments has seen fit to increase these spending limits for political parties, so I wonder what was different about this Government? In the last five elections, only one party—the Conservative Party—has come close to spending towards the election expense limit, so why does it now have to be increased by 80%? Which party will benefit? Boris Johnson managed to win the last general election spending £16 million, so why do this Government seem to think that they need to spend up to £36 million to try to be re-elected? What will their donors expect in return for this cash?
Baroness Penn (Con)
My Lords, this is not an unusual exercise. In fact, uprating has been done under successive Administrations of all political colours and is done regularly for other matters too. It is provided for in the original legislation passed by this Parliament. By using those powers, we are simply restoring the levels of spending limits that were provided for by Parliament.
Lord Swire (Con)
What is the view of the Government about the allegations that some political parties or political operatives are seeking to lure away existing elected Members of the other place with promises of money? Is that something that the Government will be looking at?
Baroness Penn (Con)
I am not sure of exactly what my noble friend refers to. None the less, it sounds like a serious matter that I would want to speak to him about after this Question.
Lord Watts (Lab)
Given the past scandals of money going into the Tory party over the last few years and influence that has been given to those people as a result, should we not reduce, and not increase, this amount of money?
Baroness Penn (Con)
Perhaps the noble Lord will be reassured that a process of consultation went on in regard to uprating these spending limits. Members of the Parliamentary Parties Panel were first consulted by the Cabinet Office in 2020. Since then, we have uprated the limits for local government elections, which I believe has passed without problem. In September 2022, the Government again wrote to members of the panel. There is a need for change; some of these limits have not changed for over 20 years. We are simply restoring the levels that were previously set out in law by Parliament.
Lord Hayward (Con)
My Lords, in relation to the last question, the accusations of providing money in dubious circumstances have applied to all political parties, unfortunately, at one point in recent years or another. I refer my noble friend back to the answer that she gave. She identified that the limits have changed in local government; we are now looking at limits in national elections. Does that not confirm that it is about time that we looked at consolidating all election law so that we do not have to deal with these things in different stages? I am not asking my noble friend to make a commitment to do so, but I ask her to acknowledge and take the message back.
Baroness Penn (Con)
My noble friend is absolutely right that the procedure for uprating spending limits has to be done through multiple statutory instruments because different procedures are attached to different limits for different elections. I know that he has been a great advocate for simplifying and consolidating electoral law. I am sure that he will continue to advocate that, and I very much look forward to engaging with him on it.
Baroness Taylor of Stevenage (Lab)
My Lords, the Government’s rejection of amendments to the National Security Act means that foreign donations can still be made to political parties here in the UK. If the department is going to consider reviewing political financing, does the Minister agree that it is time to end this security loophole to prevent covert foreign donations to political parties?
Baroness Penn (Con)
My Lords, I believe that as a result of the debates on that Act the Government took forward a commitment to ensure information sharing between the police and other relevant authorities with a view to finding a way to improve that process. The sharing of information could improve the ability of relevant authorities to identify any individuals making or facilitating donations from foreign powers and sanction them. We have a commitment to report back to Parliament next year on that work.
Lord Harries of Pentregarth (CB)
In recent elections there has been concern on the part of non-political campaigning organisations about the limits on their expenditure. Have the Government reviewed what non-political campaigning groups are able to spend at election time?
Baroness Penn (Con)
I believe that the rules regarding third-party campaigning organisations will also be uprated as part of this work.
Lord Wallace of Saltaire (LD)
My Lords, there are a number of proposals for limiting the size of donations. Have the Government taken any issue with that? I have looked at the reports on donations for the first six months of this year, and the three largest donations to the Conservative Party were two individual donations of £5 million and one of £2 million. One was from a British-Egyptian national who was a Minister in a previous Egyptian Government and whose interests appear to be based primarily in Dubai. Another was from someone listed with Companies House as an Indian national— I assume therefore resident in London—whose interests are primarily in Thailand and Indonesia. Is it not time that the Government became much stricter on the size as well as the origins of individual donations?
Baroness Penn (Con)
My Lords, the Government have no plans to limit the size of donations made. We have procedures in place to ensure that there is transparency over those donations and, as we are discussing today, spending limits for candidates and parties in elections. That is how we govern the use of money in our political system.
Lord Blunkett (Lab)
My Lords, I hope that the House and the Minister will forgive me for asking a tangential question. Is it not time that the Government restored the special fund that put those with disabilities on an equal footing in campaigning in a general election?
Baroness Penn (Con)
I hope that the noble Lord will forgive me for acknowledging that it is a slightly tangential question; I may need to write to him with a fuller answer. I remember the establishment of the fund; it was established for very good reasons, so I am happy to take that away and look at it further.
Lord Forsyth of Drumlean (Con)
My Lords, further to the questions from the Liberal Benches, would they not carry more credibility if their party had not taken £3.5 million from a fraudster who is a fugitive from justice? Any respectable political party would have paid that money back.
Baroness Penn (Con)
My Lords, all political parties should seek to abide by the rules and, if they have not, they should definitely return the money that they owe.
Lord Sikka (Lab)
My Lords, general election spending is funded by big corporations and the rich. They do not actually donate money; they invest—they expect a return. In the interests of transparency, would the Minister consider introducing a law to require political parties to state what returns they have promised and to whom?
Baroness Penn (Con)
I completely reject the premise of the noble Lord’s question. We have transparency in our system so that people can see who donates to political parties. The alternative to donations to political parties is government funding of political parties and campaigning. That is not something that we on these Benches wish to see.
Lord Cormack (Con)
My Lords, in view of the influence that the press very often has on elections, will my noble friend the Minister read the admirable article by my noble friend Lord Hague in yesterday’s Times, which indicated that it would not be a service to democracy for one of our notable daily papers and one of our notable weekly magazines to be bought by foreigners?
Baroness Penn (Con)
I always enjoy reading articles by my noble friend and I will undertake to read that one.
Lord Anderson of Swansea (Lab)
My Lords, to prove the honesty of the intention of donors and the lack of any self-interest, would it not be a good idea to ask any donors of that sort to disentitle themselves from honours?
Baroness Penn (Con)
My Lords, that is an interesting question for all sides of this House. Donors to political parties of all colours make huge contributions to our society—not only to our political parties but to many other good causes. They are often leaders in their fields. We should encourage participation in our democracy and not discourage it.
Nutrition for Growth Summit 2024
(1 year ago)
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Lord Collins of Highbury
To ask His Majesty’s Government what discussions they have had with international counterparts ahead of the Nutrition for Growth Summit in Paris in 2024.
The Minister of State, Department for Environment, Food and Rural Affairs, and Foreign, Commonwealth and Development Office (Lord Benyon) (Con)
My Lords, the UK works closely with France and other partners to promote the integration of nutrition across multiple sectors and into multilateral programmes to increase financing for nutrition and build momentum ahead of the next nutrition for growth summit. Last week’s global food security summit and last month’s UK-France development dialogue are examples of our continued partnership on global development. We will continue to work with France to ensure that it is a success.
Lord Collins of Highbury (Lab)
My Lords, I welcome the Minister’s response, and I agree that we have got some positive action here with the summit, which I attended. But the International Coalition for Advocacy on Nutrition has published its stock-take report on nutrition, which showed that the cuts to ODA disproportionately affected our spending on nutrition. Of course, we know that nutrition is a multiplier in addressing all the SDGs. So I hope the Minister can reassure us that we will be sticking to our £1.5 billion pledge over eight years. Can he tell us how much of that will be spent on nutrition-specific and nutrition-sensitive programming? Finally, can he reassure us that, in advance of Paris, he will work with civil society and NGOs in preparation for that success? The UK has been a leader in this field and I hope we can return to that situation pretty soon.
Lord Benyon (Con)
On the latter point, I can absolutely assure the noble Lord that we are working very closely with civil society—the International Coalition for Advocacy on Nutrition is just one example. I can also reassure him that, as a proportion of our various objectives and interventions, we are seeing an increase in health programmes that are nutrition-sensitive and an increase in humanitarian aid that is nutrition-sensitive. Also, in water, sanitation and health, we are increasing the proportion that we give in ODA money to nutrition and also to climate: we have recently doubled our international climate fund spending, and an increased proportion of that is on nutrition. The £1.5 billion is a floor, not a ceiling, and I hope that, when we can return to the higher levels of spending on ODA, the noble Lord will see yet more increases in this important area.
Baroness Northover (LD)
The Minister will be well aware that millions of children still die of acute malnutrition every year. I come back to a specific figure here. When will the Government restore the funding to the global nutrition budget, which they cut by 60% in 2021? When will they do that?
Lord Benyon (Con)
We are reviewing the £1.5 billion next year and we may see increases as a result of that review. Funding for child wasting, the deadliest form of malnutrition, is insufficient across the whole world, and unsustainable. Only a quarter of wasted children receive treatment and, while 75% of cases are outside of emergencies, 60% of funding is through unpredictable, short-term humanitarian channels. We have focused a lot of our spending on recent crises and want to make sure that we are also integrating it right across our donor funding streams.
Lord Purvis of Tweed (LD)
My Lords, the Minister will know that nutrition-sensitive funding is extremely broad. The noble Lord, Lord Collins, asked what proportion was nutrition-specific funding, which is the most impactful element that will have the most meaningful effect. What proportion of the funding that the Minister outlined is actually nutrition-specific funding on nutrition programmes, rather than the very general funding that is nutrition-sensitive?
Lord Benyon (Con)
I tried to address the point when I responded to the noble Lord who asked the Question. I can give the noble Lord more specific details if he wishes. From 2020 to 2021, the proportion of health programmes that were nutrition-sensitive and nutrition-specific rose respectively from 20% to 23% and from 23% to 24%. Other areas, for example water, sanitation and hygiene, are crucial, because if children are suffering from other ailments, they cannot possibly start to recover the body weight that they need. That proportion has increased from 17% to 37%, and I am very happy to give the noble Lord more details if he wishes.
Lord Jackson of Peterborough (Con)
Following on from the question from the noble Lord, Lord Purvis of Tweed, about overseas aid, is it not better, when considering reinstatement of the 0.7% target, that we look, as the Canadians do, at a project-based system that focuses on the most acute need, which will deliver the best value for our taxpayer funding and will retain strong public support?
Lord Benyon (Con)
I understand the point made by my noble friend and I would refer him to the White Paper that we published last week, which has been widely accepted by those who really understand these issues as a good attempt to try to integrate issues such as nutrition in so many different areas. We have to carry the public with us. Very often, when you ask in a public meeting what percentage people think that we spend on overseas aid, they give you a vastly greater amount than we actually do. We need to explain that it is going to change people’s lives and, hopefully, make economies better, reduce the need for people to migrate and keep stability. There are so many different strands to this, and we need to make that case, which was eloquently made in the White Paper.
Lord Kamall (Con)
My Lords, to coincide with last year’s Commonwealth Games, there was also the Commonwealth food futures 2022 summit, to discuss exactly these issues. Can the Minister tell us what other international organisations the Government are working with to ensure that we really improve the nutrition of the very poorest and most needy on this planet?
Lord Benyon (Con)
We think that the nutrition for growth dialogue on an annual basis, holding ourselves to account, is really important. We co-hosted the global food security summit, which was held last week in Lancaster House, with Somalia and the United Arab Emirates. The nutrition for growth proposal is that the next meeting should take place in Paris. We are working very closely with the French on this. My colleague, Andrew Mitchell, has met with them and with the director general, Melinda Bohannon, to try to work out how we can make this next phase really effective. In the short time that I have been in the department, I have seen how transparent we are in the quantities that we give and how we explain it. I hope that noble Lords will look at the White Paper and see how we are working with so many other different parties, particularly civil society, in achieving this.
Baroness Walmsley (LD)
My Lords, the Minister will be aware of the good work being done by Gavi on vaccination across the world. However, is he aware that Gavi is now aware of the link between vaccination effectiveness and nutrition in children? Undernourished children do not have as beneficial a response to the vaccination as they should. That is why Gavi has now linked the two things in its campaigning. Will the Government support that?
Lord Benyon (Con)
The noble Baroness says much more eloquently what I was trying to say earlier. If you deal with various other health outcomes, you have a much better chance of getting a sustained improvement, for children in particular. I absolutely agree with what she says and I am very happy to work with Gavi on this.
Lord Winston (Lab)
My Lords, following on from the previous question, can the Minister tell the House how the Government do the metrics to ensure that the impacts of the nutrition programmes are as effective as they could be, particularly, for example, in areas of health? Can he give us some indication of how that is done? I have not read the White Paper, admittedly.
Lord Benyon (Con)
The White Paper seeks to set out how we hold ourselves accountable to the amounts of ODA that we give and to which areas. I cannot, particularly in a short moment here—even if I knew it—give the noble Lord the details of the metrics, but I urge him to look at the White Paper and, if he still requires information, I would be very happy to arrange for him to meet officials or to write to him.
Baroness McIntosh of Pickering (Con)
My Lords, will the Minister look favourably on the work—and applaud the work—done by non-governmental organisations in the third world in this regard? I had the privilege, with a number of colleagues more than 10 years ago, to travel with Nestlé to see the work it was doing in Africa in regard to the provision of nutrition, water and sanitation. Will he applaud the work that it does, together with Governments, in this regard?
Lord Benyon (Con)
Non-governmental organisations and those who work for them do heroic work in some of the most difficult parts of the world. We recently debated in this House the situation in Sudan and South Sudan. One of the difficulties that we have is getting people on to the ground, getting them visas and getting them safely to places where they can deliver aid. NGOs, faith-based organisations and civil society are absolutely vital for the effective implementation of overseas development aid.
Iranian Islamic Revolutionary Guard Corps
(1 year ago)
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Lord Coaker
To ask His Majesty’s Government what plans they have to proscribe the Iranian Islamic Revolutionary Guard Corps as a terrorist organisation.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, the Government continue to take the threat of the IRGC very seriously and to condemn its actions. The Government will always consider the full range of powers available—including our robust counterterrorism powers, such as the proscription tool, where appropriate—to address the threat posed by Iran and the IRGC.
Lord Coaker (Lab)
My Lords, there is a compelling case for proscribing the IRGC. Scotland Yard says that since the start of 2022, Iran has made 15 attempts to kidnap or even kill British and UK-based people. The director-general of MI5 has warned of Tehran projects posing a threat to the UK. Would not such a proscription be in the interests of national security at home and abroad, as well as peace and security in the Middle East, as highlighted by the current conflict? With the USA and the UK’s Countering Extremism Commissioner now calling for the proscription of the IRGC, what possible reason is there for the Government to delay in outlawing a terrorist organisation that threatens security both at home and abroad?
Lord Sharpe of Epsom (Con)
My Lords, I recognise the strength of feeling in this House, and in the other place, on this subject. Let me explain what the Government have done. The Home Office is leading work on countering Iranian state threats in the UK, making full use of the breadth and expertise of government and our extraordinary and courageous police, security and intelligence agencies. On 1 November, the Security Minister announced in the other place that the Prime Minister has asked him to lead the Defending Democracy Taskforce to build further resilience within our institutions in order to safeguard against physical, personnel and cyber threats.
The National Security Act will provide another significant toolkit in the fight against individuals working for state entities such as the IRGC; it criminalises a wide range of hostile activities conducted by, for or on behalf of foreign powers. Materially assisting a foreign intelligence service in any activity in or related to the UK will be a crime.
We continue to make use of any and every opportunity to call out Iran’s malign activity—I apologise for the long answer but there is a lot to say. More than 350 Iranian individuals and entities have been sanctioned for activities, including human rights violations. Since January 2023, we have sanctioned more than 140 Iranian individuals and entities in response to the regime’s human rights violations. That is being strengthened.
Lord Pannick (CB)
My Lords, is there not a much simpler and shorter answer to the question from the noble Lord, Lord Coaker: the Foreign Office?
Lord Sharpe of Epsom (Con)
It is a shorter answer, I will certainly give the noble Lord that. The Government keep the list of proscribed organisations under review. We do not comment on whether a specific organisation is or is not being considered for proscription. This position has been informed by several considerations, including to avoid creating an expectation that the Government will proscribe a certain organisation, to reduce the risk of an organisation taking evasive action before the proscription order comes into force, and to manage the risk of any subsequent decision being vulnerable to challenge on procedural grounds. The Government will always consider the full range of powers available to tackle threats on our soil.
Lord Cormack (Con)
My Lords, not a single Member of this House, I would think, believes that there is any answer to this question other than “yes”. Can my noble friend please go back to his department and tell the Secretary of State that what we want to hear is that this organisation has been proscribed?
Lord Sharpe of Epsom (Con)
As I said earlier, I fully understand the strength of feeling in both this House and the other place, as does the Home Secretary. I am well aware that 67 cross-party parliamentarians wrote to the Prime Minister requesting proscription in early November. The Home Secretary is due to respond to that.
Baroness Suttie (LD)
My Lords, one of the very worst features of the Islamic Revolutionary Guard is its persecution of young women. Can the Minister explain why the Government still have not put in place a safe and legal route for persecuted Iranian women to seek asylum in the UK?
Lord Sharpe of Epsom (Con)
My Lords, this subject comes up frequently. As noble Lords will be aware, we work with all the relevant UN agencies to ensure safe and legal routes for people such as that.
Baroness Meacher (CB)
My Lords, I very strongly support the Question of the noble Lord, Lord Coaker. This Government proscribed Hamas as a terrorist organisation. The Iranian regime runs Hamas; it tells them what to do; it commands them what to do. Can the Minister, without any further delay, as the noble Lord, Lord Cormack, said, proscribe the Iranian regime as a terrorist organisation, which is of course what it is?
Lord Sharpe of Epsom (Con)
My Lords, we are very clear that Iran poses an unacceptable threat to Israel. We have long condemned Iran’s destabilising activity throughout the region, including its political, financial and military support of several militant and proscribed groups, including Hamas, Hezbollah and the Palestinian Islamic Jihad. As I said earlier, we are committed to working with the international community to ensure that Iran abides by international laws and norms and is held to account for its destabilising activities in the region.
Lord Reid of Cardowan (Lab)
My Lords, I understand that these are fine judgments. The suppression of terrorist organisations can often diminish our operational intelligence, so it is not an easy decision. However, the last time I intervened on this subject was in 2010 in the House of Commons. The Government have had 14 years to review the situation, which the Minister told us was constantly under review. Can he tell us anything that has happened during those 14 years which suggests that we should do other than ban this organisation?
Lord Sharpe of Epsom (Con)
I pay tribute to the noble Lord’s extensive experience in this area and his perspective on it. These are obviously finely calibrated judgments. I am afraid that I will not speculate on what information has been considered over the past 14 years; it would be unwise of me to do so.
The Lord Bishop of Chelmsford
My Lords, it is clear that the Iranian regime does support groups such as Hamas and Hezbollah, including via the IRGC. The Minister will have heard the strength of feeling in this House. However, US officials have confirmed reports that Iran did not have prior notice of Hamas’s attack on Israel on 7 October. What assessment has been made of the true extent of the links between the IRGC and Hamas, and what recent conversations have the UK Government had with Iran to chart a course towards peace in the region?
Lord Sharpe of Epsom (Con)
The right reverend Prelate asks a difficult question in terms of conversations, security and intelligence. I will avoid those subjects, but there are extensive and ongoing conversations with all our international partners to ensure that Iran is held to account on the world stage, and that includes the US.
Lord Grabiner (CB)
My Lords, on the question of the possible involvement of the IRGC on the appalling weekend of 7 October, is the Minister aware of reports at the time of Farsi having been spoken during the intrusion from Gaza into Israel? If that is correct, the implication is plain that the relationship between Hamas and the IRGC is a very strong and rather distressing one.
Lord Sharpe of Epsom (Con)
I am afraid I am not aware of those reports of Farsi having been spoken, but as I have acknowledged, we are aware that Iran funds some of the groups that are under discussion, including Hezbollah and Hamas.
Baroness Foster of Oxton (Con)
My Lords, I agree with the noble Lord, Lord Coaker, and I too asked this question on 15 November in the King’s Speech debate on foreign affairs and defence. The Islamic Revolutionary Guard Corps is a death cult run by psychopaths who think nothing of the rape, torture and beheading of civilians in Iran should they dare to dissent. It is they who pull the strings of Hamas and other terrorist groups and who share responsibility for the attack on Israel on 7 October. Can my noble friend tell us when the United Kingdom will join the European Union, the United States of America and other countries in proscribing them as such?
Lord Sharpe of Epsom (Con)
My Lords, I am afraid I have to say to my noble friend, as I have already said a couple of times, that the Government keep the list of proscribed organisations under review. We do not comment on whether a specific organisation is or is not being considered for proscription.
Baroness Foster of Aghadrumsee (Non-Afl)
My Lords, the IRGC has a violent and deep hatred of Jews, Israel, Christianity and the West. On that alone, it should be proscribed. However, proscription is not where it stops. Hamas has been proscribed for some considerable time. When will we see more action on what is happening on the streets of the United Kingdom with those who are supporting Hamas?
Lord Sharpe of Epsom (Con)
My Lords, that is an operational matter for the police, as has also been discussed at the Dispatch Box on a number of occasions. I point to last weekend’s protests, which passed off much more peacefully, it would seem, than some of their predecessors. It is probably too early to say this, but things look to be heading in the right direction regarding the noble Baroness’s question.
Net Migration
(1 year ago)
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Lord Green of Deddington
To ask His Majesty’s Government why net migration rose to 745,000 in 2022, according to data published by the Office for National Statistics on 23 November; and what plans they have to reduce it.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, the increase in net migration since 2021 reflects a number of important factors including the introduction of our humanitarian routes, such as the Ukrainian and British national (overseas) schemes, and an increase in non-EU students and workers. Earlier this year we introduced measures to tackle the substantial rise in students bringing dependants to the UK, and the Government will announce details of further measures to reduce net migration in due course.
Lord Green of Deddington (CB)
My Lords, I thank the Minister for his outline, if I may call it that. It may help the House to consider the last two years of net migration because that comes to a total of 1.2 million people, and the significance of that is that it is the population of Birmingham. When you think about that, of course you think about the enormous expenditure there will be on infrastructure, hospitals and so on in return for a large number of immigrants, many of whom are relatively low paid. The impact on housing, schools, medical services—
The Lord Privy Seal (Lord True) (Con)
My Lords, I think the House is asking if we can come to a question point. We must respect the noble Lord. Not everybody agrees with his contributions, but I think he must be heard and he must ask a question.
Lord Green of Deddington (CB)
I am so sorry; I got that in the wrong order. My question is to ask His Majesty’s Government why net migration rose to 745,000 in 2022, according to data published by the Office for National Statistics on 23 November; and what plans they have to reduce it.
Lord Sharpe of Epsom (Con)
As I alluded to in my opening Answer, there are well-understood reasons why net migration is high at present. Global events such as the world’s recovery from Covid-19, the war in Ukraine, the Taliban takeover in Afghanistan and the national security law in Hong Kong, along with policy changes introduced as part of the new immigration system and the end of EU freedom of movement, have all had an impact on migration. On 23 May the Government acted decisively by announcing a package of measures to reform the student route. We are working on further measures to prevent exploitation and manipulation of the visa system, including clamping down on those who take advantage of the flexibility of the immigration system, and we will announce details of these measures in due course.
Lord Dubs (Lab)
My Lords, will the Minister confirm that asylum seekers coming across the channel by boat are probably between 5% and 7% of the total figure? Is the hostile attention given to asylum seekers not totally disproportionate in relation to inward migration?
Lord Sharpe of Epsom (Con)
My Lords, I have enormous respect for the noble Lord, but these asylum seekers are illegal migrants. They arrive here by methods that facilitate the activities of criminal gangs, they place their own lives and the lives of others at risk while they are in the English Channel, they impose themselves on the generosity of the British taxpayer, and they are jumping the queue of legal migrants. I think there are principles at stake.
Lord Farmer (Con)
My Lords, last week it was reported that the Government will likely breach their own welfare spending cap for the fourth time since its introduction. Some 18% of Manchester is on out-of-work benefits, 20% of Birmingham, Glasgow and Liverpool, 23% of Middlesbrough and 25% of Blackpool. Where mass migration facilitates and is even required by this, porous borders are not progressive. What are the Government doing to get native Britons working again?
Lord Sharpe of Epsom (Con)
My noble friend asks a good question. The Government are encouraging all sectors to adapt, to make employment more attractive to UK domestic workers by offering training, career options and wage increases, and to invest in increased automation technology. Supporting individuals to move into and progress in work is one of the DWP’s core strategic objectives. The Government are committed to supporting individuals who are stuck in low-paid work to progress, helping them to increase their earnings and move into better-paid quality jobs. The Government are extending the support that Jobcentre Plus provides to people in work and on low incomes to help them to increase their earnings and move into better-paid quality jobs. I alert my noble friend to the back to work plan published on 16 November—a plan to get 1.1 million people back into work—and refer him to the Chancellor’s recent Statement which, while raising benefits, also referred to getting people back into work.
Baroness Brinton (LD)
My Lords, in 2021 international students added £42 billion to the UK economy through their fees, living costs and the NHS levy for them and their dependants. Why do this Government constantly portray them as a drain on the UK and why are they proposing to reduce their numbers, rather than recognising their direct contribution to our economy, communities and universities?
Lord Sharpe of Epsom (Con)
My Lords, I do not think that is what the Government are doing. Students are short-term, temporary migrants who leave at the end of their studies. We know from previous research that many also stay in the UK beyond their studies. In keeping with the UN definition of long-term migration, the Office for National Statistics has stated that it will continue to include students in its net migration statistics, and the Home Office supports that position. On the changes I referred to earlier, we should certainly welcome students here; however, we are taking steps to tackle the number of dependants who come with them. That is not inconsistent.
Lord Hannay of Chiswick (CB)
My Lords, following that last question, does the Minister recognise that the higher education sector is one of the major invisible exports that we have in this country, one in which we are truly world leading? Great care has to be taken not to damage that. Will he therefore say whether the Government have considered ways in which fee-paying students can be taken out of this equation, which is becoming so difficult to solve?
Lord Sharpe of Epsom (Con)
My Lords, I just alluded to that. The ONS is operationally independent of government—its work is overseen by the UK Statistics Authority—so any decision around that methodology would be for the ONS. Its definition of a long-term migrant aligns with the UN definition and is anyone who comes to the UK for 12 months or more. Students who remain in the UK for less than 12 months will not, at present, be counted in the ONS estimates. However, I am happy to associate myself with the noble Lord’s remarks about how higher education is a massive export industry for this country. Of course, it delivers enormous soft power benefits too.
Lord Coaker (Lab)
My Lords, how has it come to the point at which net migration is three times the level of 2019, when the Government promised to reduce it? It has taken four years for the Government to come up with any sort of plan, but we do not know what it is because members of the Cabinet are fighting among themselves about what it should be. Can I make one suggestion? Do the Government agree with us that the unfair wage discount, allowing overseas recruits to be paid 20% less than the going rate, should be ended and replaced with proper training and fair pay in the UK?
Lord Sharpe of Epsom (Con)
The noble Lord is referring to the shortage occupation list. The Migration Advisory Committee is clear that immigration can be a sensible solution to occupations that are in shortage, at least in the short term, but the Government believe that no occupation should be on the list for ever. Sectors must therefore present a realistic strategy to end their reliance on migration before such jobs can be added to the list, and compelling evidence that they should remain. We asked the Migration Advisory Committee, as part of its recent review, to consider whether the discounts should be stopped. The Government are considering the recommendations of that review and will respond in due course.
Lord Johnson of Marylebone (Con)
My Lords, can my noble friend the Minister assure me that, notwithstanding former Home Secretary Suella Braverman’s suggestion that she had a deal with the Prime Minister on this matter, there is no plan to axe the graduate route for international students?
Lord Sharpe of Epsom (Con)
I am disappointed that my noble friend is referring back to that letter. I have already been very clear that there are no plans to affect the student graduate route. These measures are specifically targeted at dependants.
Baroness Smith of Newnham (LD)
My Lords, the Minister suggested that people coming on boats are illegal by definition. If somebody from Afghanistan who has an ARAP number arrives in the UK that way because it is the only way they can come here, would the Home Office not give them the asylum to which they are entitled?
Lord Sharpe of Epsom (Con)
It is a very different question if they have an ARAP number. Why would they be leaving France, which is a safe country, to come here on a boat? That makes no sense.
At-Home Early Medical Abortion (Review) Bill [HL]
Wednesday 29th November 2023
(1 year ago)
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Asylum Application (Entry to the United Kingdom) Bill [HL]
Wednesday 29th November 2023
(1 year ago)
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Israel and Hamas: Humanitarian Pause
(1 year ago)
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Lord Collins of Highbury (Lab)
My Lords, events are changing every minute, and it is very difficult to keep up to date, but I know that all our hopes and prayers are for a further extension of the cessation of hostilities, which will provide relief in Israel, Gaza and beyond. I certainly acknowledge the Government’s efforts in giving humanitarian support, which I very much welcome.
There are two specific issues that I feel Andrew Mitchell did not properly address when he had the opportunity earlier this week. One is in relation to the release by Hamas of nationals from around the world. Can the Minister give an update on the British hostages that the Government had previously reported were being held in Gaza?
My right honourable friend David Lammy has written to the Foreign Secretary, asking him to respond to Steve Brisley’s request for a response to his family’s request to meet the Foreign Secretary. I know this was raised yesterday. Can he give an assurance on it? The matter should be properly addressed without delay. It is awful that they have heard nothing from this Government about their family members who are being held as hostages.
My other point was raised by Alicia Kearns, the chair of the Foreign Affairs Committee, in relation to Netanyahu’s announcement of funds of $80 million for the expansion of settlements. Can the Minister be more explicit about the British Government’s response to that? Have we made direct representations to the Prime Minister of Israel to ensure that it complies with international law in this regard? It will hinder progress towards a two-state solution.
The Minister of State, Department for Environment, Food and Rural Affairs, and Foreign, Commonwealth and Development Office (Lord Benyon) (Con)
My Lords, I thank the noble Lord for his questions. He is right that it is a very fast-moving situation, and the hostage releases start at about 2 pm local time, which is very shortly. I can give him figures as of yesterday only: we think that a total of 81 hostages have been released under the deal.
It is wrong to call this a humanitarian pause: it is a pause to facilitate a hostage release deal. We want a humanitarian pause—we actually want a ceasefire. But the good news is that Ada Sagi, an Israeli national with a British family, was one of those released, and another 10 have been agreed for today. We hope that that is taking place as we speak.
The number of foreign nationals crossing the border while hostage exchanges are going on is none, because the hostage release has primacy. Some 245 UK-supported foreign nationals have crossed at Rafah; of those who have left, 175 are British nationals, 27 are country-based UK staff, 43 are Palestinian dependants, and 67 people are waiting to cross. There are some issues relating to people who have clearance to leave—
Lord Collins of Highbury
That was not my question; it was about British nationals who are hostages.
Lord Benyon (Con)
I take the point that the noble Lord asked about the hostages. We are working very closely with the Qataris, and my noble friend Lord Ahmad of Wimbledon has been in regular discussions with the negotiator and has made the point that we want a release. I am very happy, as is he and is the Foreign Secretary, to meet families with British connections from both sides of the conflict. Indeed, I am meeting families of the hostages after this session so I will be very happy to continue that dialogue.
Lord Purvis of Tweed (LD)
My Lords, the release of the hostages is a blessed relief for the families involved, but the humanitarian catastrophe continues. I heard the Minister say that His Majesty’s Government now favour a ceasefire rather than just a pause. These Benches would support that but I understand that it is not government policy. If he could clarify that, I would be grateful. More than 10,000 women and children have now been killed in Gaza, so does the Minister agree that the UK needs to fully replenish our humanitarian support to levels pre the ODA cut? He did not respond to the question from the noble Lord, Lord Collins, on the West Bank. The Israeli Government passed a budget this week which included over $100 million for expanded West Bank settlement and the weaponisation of some of those settlers. Surely the position of Benny Gantz and Yair Lapid, who oppose this in the Knesset, should be supported by the Government.
Lord Benyon (Con)
The Government have been very clear about the settlements on the West Bank and I apologise if I did not answer the noble Lord, Lord Collins. The noble Lord, Lord Purvis, is absolutely right that this is an emerging humanitarian crisis. We entirely support Israel’s right to defend itself and to perpetrate efforts to ensure that Hamas never commits such an appalling atrocity again. We want aid to get to people who are in a really dire state. As for language, we want the conflict to end and if that is a ceasefire or a pause I am not going to be semantic; we want to make sure that we get aid to people in the meantime. We do not want to limit the opportunity for Israel to defend itself and fight a legitimate conflict against Hamas, but we want to protect civilians and get aid in there, and we will do all we can to make sure that is happening.
Lord Sterling of Plaistow (Con)
My Lords, if the 7 October atrocities had never happened, there would never have been a war in that area at all and nobody—no man, woman or child—would have died. There were only a few weeks before the Abraham accords were going to be signed, as noble Lords all know. If that had happened, we would not have had this outrageous anti-Semitism increasing throughout the world. Does the Minister agree with that view?
Lord Benyon (Con)
The conflict has had a terrible effect of destabilising people way beyond the region. As I said earlier, we firmly support Israel’s right to defend itself but the tragedy is that, while there was still terrible poverty in Gaza, there was hope for a great many people. There was an emerging tech economy. There were things happening of a very good nature. Hamas has spent a very large amount of money on things it should not have spent money on—it should have been improving healthcare and education—and that is a tragedy. We want to support the people of Gaza and the people of the region in trying to rebuild this shattered community and make sure that Hamas never has a role in its governance again.
Lord Walney (CB)
Do the Government continue to share Israel’s assessment that that country and the world can be free from the threat of Hamas only if we see Hamas in the same terms as ISIS: in needing to completely eliminate that threat, rather than cut a deal, make a ceasefire and entrench its resistance for decades to come?
Lord Benyon (Con)
This is a matter to be settled in the region. Countries such as ours can be involved, and we are involved at a high level, particularly with negotiations on the hostages. I entirely agree with the noble Lord: Hamas is a terrorist organisation, and the horrendous attacks it perpetrated on 7 October cannot be seen as anything other than a brutal terrorist atrocity.
Baroness Whitaker (Lab)
My Lords, there have been reports of women and girls being violently raped by Hamas terrorists, but I have seen no reflection of this in UN reports or actions. Does the Minister agree with me that, since rape is a war crime, this should be reflected in the UN’s understanding of the situation?
Lord Benyon (Con)
We have very strong views where actions such as rape and torture are used to perpetrate conflict in any form whatever. I entirely agree with the noble Baroness that this matter should be investigated further and the people responsible should be held to account. We really want to ensure that the vast number of people who are affected by, and are innocent parties to, this conflict can receive the humanitarian aid they deserve.
Autumn Statement 2023
(1 year ago)
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Baroness Vere of Norbiton
That this House takes note of the Chancellor’s Autumn Statement 2023.
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, it is a pleasure to open this debate on the measures brought forth by the Chancellor in last week’s Autumn Statement. It was a Statement designed to drive growth across the country, creating jobs and giving more people more money through work. It included some big, headline-grabbing announcements—not least of which was a tax cut for 29 million working people—and over 100 other measures carefully crafted to build on the post-Covid economic recovery. Taken in combination, the measures that the Chancellor proposed could boost business investment in the UK by around £20 billion a year in a decade’s time.
I will start my remarks with some important context. The British economy has outperformed all expectations this year and has exceeded many of the forecasts. Yet in some ways we should not be surprised. When the Prime Minister took office, he set out five pledges to the British people, three of which were economic: to halve inflation, reduce debt and grow the economy—and he is a man of his word.
I turn first to inflation. At a high of 11.1% last year, it is now at 4.6%—a promise delivered. As the OBR noted, the measures in this year’s Autumn Statement are not inflationary, and inflation is forecast to continue to fall. I echo the Chancellor’s thanks to the independent Bank of England Monetary Policy Committee for its work in bringing down inflation. The Government will continue to support it to do whatever it takes until the job is done.
Secondly, I turn to debt. Before last year’s Autumn Statement, our debt was predicted to rise to almost 100% of GDP by the end of the forecast period. This is unacceptable. As the late Lord Lawson said, and as the Chancellor quoted in his speech,
“borrowing is just a deferred tax on future generations”.—[Official Report, Commons, 22/11/23; col. 328]
That is something we cannot justify.
Now, thanks to the decisions taken by the Chancellor, the OBR says that borrowing is lower this year and next, and, on average across the forecast, lower by £0.7 billion every year compared to the spring Budget forecasts. It falls from 4.5% of GDP in 2023-24 to 1.1% five years later. We meet our fiscal rule that public sector borrowing must be below 3% of GDP, not just by the final year but in almost every single year of the forecast. From a predicted rate of nearly 100%, headline debt is instead predicted to be 94%. The OBR forecasts that underlying debt will be 91.6% of GDP next year, rising to 93.2% in 2026-27, before declining in the final two years of the forecast to 92.8% in 2028-29. That is lower in every year compared to forecasts from last spring. So we meet our fiscal rule to have underlying debt falling as a percentage of GDP in the final year of the forecast, with double the headroom compared to the OBR’s March forecast. The UK continues to have the second-lowest government debt in the G7; that is lower than the United States, Canada, France, Italy or Japan—another promise delivered.
Finally, I turn to economic growth. There are one or two in your Lordships’ House who remember the economic recession that accompanied the Second World War. When this Government came to power in 2010, the UK was facing the worst recession since that era of terrible conflict. From 2010 until the pandemic, this Government presided over faster growth than many of our major competitors, including Spain, Italy, France, Germany and Japan. When the pandemic hit, followed in quick succession by an energy crisis, our economy, like so many around the world, faced a shock. As a result, last autumn, just a year ago, the OBR forecast a recession, in which the economy was expected to shrink by 1.4% in 2023. Instead, it grew. Revised numbers from the ONS now say the economy is 1.8% larger than pre-pandemic.
Looking ahead, the OBR expects the economy to be larger in every year of the forecast, compared to March. It is expected to grow by 0.6% this year and 0.7% next year. After that, growth rises to 1.4% in 2025, 2% in 2026, 2% in 2027 and 1.7% in 2028. This Government are delivering on growth. We have an economy that is bigger and stronger than people thought and, as I have already said, with double the headroom that the OBR predicted. This is where our leeway comes from, and a large part of the reason why we can introduce generous tax reforms, including cutting taxes for 29 million working people.
As I have said, this Autumn Statement is focused on economic growth, and the Government have set out a raft of measures to support long-term sustainable increases in economic output. For large businesses, full expensing has been a game changer. The likes of the CBI, Make UK, BT Openreach and Siemens, and indeed 200 other businesses and trade bodies, called for this measure to be made permanent. They all agreed that it would be the single most transformational thing we could do for business investment and growth. Full expensing means that, for every £1 million invested, a company will get £250,000 off their tax bill the very same year. That is cashflow that can be used to buy a vital new machine, expand premises, test a new product, or hire a new team to begin work on a new project.
For investment, growth and employment, that is game-changing. It means that we will soon have both the lowest headline corporation tax rate in the G7 and the most generous plant and machinery capital allowance anywhere. Once again, the OBR says that this measure will achieve our aims, and will make a huge contribution to our economy, increasing annual investment by £3 billion a year, totalling £14 billion in the forecast period.
Alongside this, the Government will provide £4.5 billion over five years to our strategic manufacturing sectors—those where we already have, or can have, a competitive advantage, and which have tremendous potential for growth in the years ahead. This will encourage the manufacturers of zero-emission vehicles, green energy solutions and aerospace and life science technologies to set up or expand in, and stay in, the UK—again, creating more jobs and more income.
As we move down the business scale, from the very largest to small and medium enterprises, we continue to provide support. The Government are extending the 75% business rate discount for retail, hospitality and leisure businesses for another year, and will freeze the small business multiplier, saving an average independent pub more than £12,800 next year.
Then we come to the smallest businesses of all—those consisting of self-employed people. The Chancellor illustrated the importance of these people in his speech last week, and it was an elegant description that I would like to repeat:
“These are the people who literally kept our country running during the pandemic: the plumbers who fixed our boilers in lockdowns, the delivery drivers who brought us our shopping and the farmers who kept food on our plates”.—[Official Report, Commons, 22/11/23; col. 333.]
Without these people, I simply cannot imagine how we could have got through the pandemic. They already give so much of their time and effort to their work that it has always seemed an unnecessary burden to ask them to fill in all sorts of tax forms, and then pay all sorts of different taxes, before they can enjoy the fruits of their labour.
So the Chancellor made two interventions: first, the abolition of class 2 national insurance, saving 2 million self-employed people an annual average of £192; then, the reduction of class 4 national insurance, down from 9 % to 8%, saving those 2 million people more again. From April next year, 2 million self-employed people will save an average of £350 a year.
Finally, the Chancellor offered one more major tax cut—a 2 percentage point reduction on national insurance for employees. That saves someone on an average salary over £450 a year, and that saving will start from January, once the legislation is passed.
I now turn to labour and welfare. The Government want to make work more available, more appealing, and more rewarding. That is why we are delivering on our commitment to end low hourly pay for full-time workers on the national living wage. Last week, the Chancellor announced the largest ever cash increase in the national living wage, increasing it by 9.8% to £11.44 an hour for workers aged 21 and over. This is worth up to £1,800 for a full-time worker. This follows a series of increases dating all the way back to 2010, when this Government first came to power. In 13 years, we have increased the national living wage by 30% in real terms.
As the Chancellor said in his speech last week, the best way to tackle poverty is through work. For tens of thousands of parents, the Chancellor’s spring announcement of 30 hours of free childcare for working parents of one and two year-olds will help them return to work without having to worry about their career prospects, or about being able to afford childcare while they are at work.
The focus of the Autumn Statement is on those with long-term health conditions and disability, and the long-term unemployed. Every year, 100,000 people are signed on to benefits, with no requirement to look for work, because of sickness or disability. Some of these people are unable to work and it is perfectly right that we support them with the uprated benefits that the Chancellor announced last week.
But for a large number of sick or disabled people, the issue is that they are not given a clear route back to work when they are ready for it. That means they are not even given a chance to reach their full potential. We should not be comfortable with that. Everyone should have the opportunity to make the most of themselves and to experience the benefits of work. So, over the next five years, the Government will commit £1.3 billion to help nearly 700,000 people with health conditions to find jobs. Over 180,000 more people will be helped through the universal support programme and nearly 500,000 more people will be offered treatment for mental health conditions, and employment support.
At the same time, there are many people in this country who have been unemployed for a long time—over a year—not because of any conditions that they have but rather because of the conditions that they find themselves in. Perhaps a surprising redundancy has left someone in their 50s, who has worked in the same role for 30 years, adrift in a modern job market for which they are not entirely equipped. Perhaps the kind of work someone in their 20s really wants to do requires qualifications which they just do not have the means to attain.
There are numerous reasons for long-term unemployment, but there is one basic truth: work lifts us up, so the Government will provide a further £1.3 billion of funding to offer extra help to the 300,000 people who have been unemployed for over a year. But if, after 18 months of intensive support, jobseekers have not found a job, the Government will require them to take part in a mandatory work placement, through a new work programme or other intensive activity, to increase their skills and improve their employability. In addition, if they choose not to engage with the work search process for six months, their case will be closed and their benefits stopped.
Other Benches may try to argue that this lacks compassion. I say that is wrong; that the inverse is true and that this is a fundamentally compassionate approach, because it prevents those who choose not to work siphoning off the finite resources that those who sincerely want to work, or those who genuinely cannot, desperately need. It protects our most vulnerable, and the people who most want and need our support, from those who would seek to exploit them by hiding among them—and the OBR says that this will work. Taken together with the labour supply measures the Chancellor announced in the spring, the OBR says that this Autumn Statement will increase the number of people in work by around 200,000 at the end of the forecast period, permanently increasing the size of the economy.
This is a wide-ranging Autumn Statement which includes bold measures to get our country growing: the largest business tax cut in modern British history over a five-year period; the largest ever cash increase to the national living wage, paired with the largest ever cut to employee and self-employed national insurance; the biggest set of welfare reforms in a decade; one of the largest ever increases to the state pension; and a focus on investment that could see business investment in the UK increase by £20 billion per year in a decade’s time.
I have outlined only some of the numerous measures announced by the Chancellor last week. There is much more to cover but, for now, I welcome this debate and look forward to hearing the views of your Lordships’ House.
Lord Eatwell (Lab)
My Lords, I first welcome the noble Baroness to the Treasury Bench. She has a hard act to follow.
A couple of weeks ago, the Institute for Government and the Chartered Institute of Public Finance and Accountancy published a detailed 300-page analysis of the impact of the pandemic on nine public services, ranging over health and social care, education, local services, criminal justice and the police. The study first evaluated performance from 2010 to the eve of the pandemic, meaning that any change in quality of service over the first nine years of the Conservative Government could not be blamed on the pandemic or the war in Ukraine.
In eight out of nine areas of public service studied, performance was found to be worse in 2019 than in 2010. In four areas—general practice, hospitals, adult social care and prisons—performance was much worse. Only in schools was performance rated as better. Between 2019 and the present day, nothing at all has improved and eight of the nine major services have deteriorated yet further. Finally, as far as the next five years are concerned, while some services are predicted to stay at the same miserable level, others, including schools and criminal justice, face further decline.
So, will the Chancellor’s Autumn Statement proposals turn this decline around? The answer given by the OBR is clearly no. As tables A.l and A.2 of the OBR outlook make clear, current spending will grow very slowly, while investment in public services will suffer major cuts. The Chancellor’s one big public services announcement was to set a productivity target of a 0.5% increase per year. Productivity is an issue in many services, particularly in the courts and hospitals, but nothing in the Autumn Statement will significantly improve the situation. Indeed, the real-terms cuts to capital budgets ensure that public services will be left with a crumbling estate, insufficient equipment and inadequate IT systems.
But of course, the main focus of the Autumn Statement, as the noble Baroness made clear, was not public services but private sector growth. If significant economic growth is indeed achieved, the positive impact on public services might be considerable. The Autumn Statement commitment of £4.5 billion-worth of support for new industries sounds impressive—until you compare it with United States funding for green investments of $360 billion and European Union plans in excess of €200 billion.
Of course, the Government deserve congratulation that taxpayers’ money has secured the new Nissan investment, and we all hope for similar encouraging results from the investment summit held on Monday. But just as when unemployment rises, some people find new jobs, so these welcome investments must be viewed not as isolated events but in the context of the overall investment picture. The Chancellor’s primary measure to stimulate investment was his decision to make so-called full expensing permanent—a positive step. According to the OBR, this is expected to increase long-run potential output by “slightly below” 0.2% of GDP per annum. However, this positive impact is, according to the OBR, offset by the reduction in
“the public capital stock as a share of GDP”,
which
“would likely also have a material, negative impact on potential output”
over the forecast period.
Here, the OBR has, sotto voce, identified a fundamental error in the Government’s approach to investment and growth: their failure to recognise that public services are complementary to the efficiency of private sector investment. Private profitability requires a thriving public sector. For example, the deterioration in the health service has been a major contributor to the record 2.5 million people out of work due to ill health. If just half these people were in work, this would add a full 1 percentage point to GDP—five times greater than the impact of full expensing. Similarly, the lack of additional support for local government will impact spending on local infrastructure, transport and skills, increasing private sector costs of production, particularly for SMEs. The complementarity of public and private investment was very clear in 2010.
George Osborne’s austerity Budget killed a growing economy stone dead. This was not the immediate effect of his expenditure cuts, which took time; it was the immediate effect of his clear declaration of intent to cut public investment and cut the growth of demand. It was the vision of austerity, together with the reality of cuts, that killed off so much private investment. The Chancellor’s 110 measures to stimulate growth may be successful, but a fundamental problem is that they do not add up to a coherent policy. They are, in Churchill’s famous phrase, “a pudding without a theme”. An economy and society in which the popular estimation is that nothing works is not an attractive place for businesses to invest.
That is why Rachel Reeves’ commitment to large-scale investment in green technologies—the undoubted technologies of the future—is so important. This defining commitment will provide the theme and coherence this Autumn Statement lacks. It is also a long-term policy, a commitment to at least one Parliament—so different from the persistent chopping and changing of the last 13 years, and providing the stable policy confidence investors need. Of course, given the public sector scorched earth that a Labour Government will inherit, an ambitious green growth investment strategy will be a considerable challenge. But it is as nothing compared to the challenges faced by our parents and grandparents in 1945, when, in far worse circumstances, a Labour Government laid the public sector foundations for the next 25 years of transformative growth, under both Conservative and Labour Administrations.
A component of Reeves’ green growth strategy is a long-term commitment to investment in and reform of the public services—reform that recognises not only service to the public but the support the public sector provides to business investment. The green investment programme will be a catalyst, defining Britain’s profitable investment future. It will herald a fundamental change in the way the British economy is managed: a fundamental reform that, as illustrated by the failure of this Autumn Statement, is desperately needed.
Baroness Pinnock (LD)
My Lords, I too welcome the noble Baroness, Lady Vere, to her new ministerial post and I remind the House of my direct interests in local government, as set out in the register. It may not perhaps be surprising that my perspective on the Autumn Statement is somewhat different from the Minister’s.
The Autumn Statement provided an opportunity for the Government to set out a coherent strategy for tackling the deep challenges facing households, businesses and public services. It contained a package of sweeteners for taxpayers, positive support for some businesses, a welcome increment to the national living wage and increases in benefit levels. However, it was not a programme that demonstrated that the Government understood the enormity of the challenges faced by both public services and many businesses.
The Government fail to understand that a successful country depends on well-funded, reliable and resilient public services. Our NHS currently has 7.7 million people on waiting lists for elective care. The latest information from Cancer Research UK shows that 20,000 cancer deaths per year are avoidable. The Autumn Statement was the chance to use the fiscal headroom available to provide the NHS with the resources it needs to reduce waiting lists and cut avoidable deaths. The NHS was not even mentioned. The Government are ignoring the consequences for individuals who are stranded on ever-increasing waiting lists to alleviate a painful hip or hernia. These are the very people who are on long-term work sickness, which results in burgeoning demands on welfare support. A strategic approach would recognise the links and attempt to address them.
The Joseph Rowntree Foundation reported in October that over 1 million children are experiencing destitution, which means that their families are struggling to provide the absolute basic needs to stay warm and have enough food and appropriate clothing. That is shocking enough, but the fact is that three quarters of those experiencing destitution are already in receipt of social security payments. The JRF recommended that universal credit should have what it called an “essentials guarantee” to ensure that everyone has a protected minimum amount of support to afford the very basic needs. The rise in benefit levels will not be sufficient to reduce this appalling picture of destitution. Maybe the Minister can say what actions the Government intend to take to substantially reduce the number of children experiencing destitution.
Increasing numbers below the breadline has consequences for other public services, particularly for local government. Yet another important piece of the jigsaw that provides for the needs of communities and families is under severe pressure, but was not referenced at all by the Government, who nevertheless expect local public services to pick up the pieces in times of stress and distress.
Local Government Association analysis shows that councils are facing funding gaps of £2.4 billion in 2023-24 and a further £1.6 billion the following year. This amount is equivalent to all local government spending on waste collection, libraries, and recreation and sport. The Institute for Fiscal Studies demonstrates that my own council of Kirklees is underfunded relative to its need by £13 million a year. Across local government there has been a reduction on average of 22% in real-terms spending, which for councils with higher levels of deprivation rises to 26%. In my own authority, this equates to a loss of £536 per household per year.
It is therefore not surprising that one in four councils are right on the brink of declaring what amounts to effective bankruptcy—this includes Conservative-led county councils, as well as Labour-led metropolitan authorities. Indeed, Nottingham City Council has this very day issued a Section 114 notice because it is unable to issue a balanced budget. Can the Minister provide any assurance that there will be funding support for councils to enable essential services to continue? For example, will councils be provided with additional funding to pay the increase in the national living wage? Many employees in councils will be affected, as will partner organisations providing essential care for adults and children.
Local authorities in more urban areas are spending around 30% of their core spending power on children’s services. Increases in central funding nowhere meet that justified level of demand, which leaves local authorities making desperate decisions. Over 70% of councils are considering scaling back leisure services. In my own council, there are current proposals which will result in the closing of swimming pools, leaving just two swimming pools for a population of 500,000 people. Again, this has consequences—for example, for those with arthritis who depend on swimming for exercise. The closure of sports centres means that the social prescribing of, say, yoga, dancing or badminton, becomes impossible, and those same people are then reliant on an already overstretched NHS. Perhaps the solution to the loss of swimming pools is to use our rivers, but the only action in the Autumn Statement in relation to tackling sewage-filled rivers is to slash the funding of the Environment Agency by 11% per year.
No doubt the Minister will respond by saying that there has been an increase in funding for adult social care, but what is never acknowledged is that over a quarter of this additional funding comes from the pockets of hard-pressed council tax payers in the form of the social care precept, which in my council amounts to £200 per household per year on top of the council tax.
Levelling up is the Government’s answer to the dire state of local services, yet the investment provided is, according to SIGOMA,
“a drop in the ocean”
compared to what councils have lost, alongside the bidding regime that requires councils to spend £30,000 per bid to the various levelling-up pots. Therefore, it is not surprising that people say that they are losing a sense of pride in the place where they live and feel that the country is going downhill. Those were the sentiments that were crying out for action in the Autumn Statement; what we were given was the equivalent of a few deck chairs being moved on the “Titanic”.
Lord Macpherson of Earl’s Court (CB)
My Lords, I too congratulate the Minister on her move to the Treasury. It is a much-maligned institution, but I am confident that she will enjoy her time there. I hope that, with time, she is given a more glamourous title than Parliamentary Secretary, if only to avoid being confused with the Chief Whip, whose official title is Parliamentary Secretary to the Treasury.
As a student of fiscal Statements—I reckon that I have worked on 30, including seven that can be termed “pre-election”—I rate this one as better than average. First, I welcome the cut in national insurance. This reverses the trend of the last 40 years, which has been to raise national insurance to finance income tax cuts. Over my adult life, the basic rate of income tax has been cut from 35% to 20%, while the employers’ national insurance rate has risen from 8.75% to 13.8%, and the rate paid by employees has more than doubled from 5.75% to 12%. This sleight of hand has been bad for the economy. The fact is that national insurance is a tax on jobs—it penalises working people and the young—while income tax cuts tend to favour the old, rentiers and those who live off capital. So I welcome the 2% cut to 10%; I hope that it will start a trend. Can the Minister say whether it is now government policy to prioritise national insurance cuts over income tax cuts? Of course, whether it is affordable is another matter, and one to which I shall come back.
Secondly, I welcome the focus on growth and, in particular, the full expensing of business investment. Normally, I would favour the widest possible tax base with the lowest tax rate, but Britain has a chronic problem of underinvestment, which is a contributory factor to our low growth, so it is right to try to tilt the playing field.
Finally, I welcome the Chancellor’s commitment to fiscal rectitude, if only by 2028. He did a great job in pulling the Truss Government back from the brink a year ago and in restoring confidence. Whoever governs in the coming period will need to keep on bearing down on borrowing and get public debt on a downward path in relation to the nation’s income. We may currently be benefiting from a rally in the bond market, but we cannot be sure that that will be sustained. The fact is that debt interest is eating into resources better spent on the public services people need.
That brings me to what I see as the problem with the Autumn Statement: I fear that the public expenditure projections are simply unrealistic. The National Health Service and the state pension are accounting for an ever-increasing proportion of public spending. The triple lock is a luxury that the country can ill afford, but all our parties seem to be committed to it. Of course, there is more the Government can do on the productivity and efficiency of public services, starting with the Civil Service, but the so-called unprotected programmes, such as criminal justice, housing and local government, have already been cut too much—as the noble Baroness, Lady Pinnock, mentioned—and the results are beginning to show.
Moreover, as the international security situation deteriorates, we need to spend more on defence, diplomacy and intelligence. Demographic pressures will only increase over the next 20 years. Much of this was set out in the OBR’s fiscal sustainability report, published in July. Can the Minister assure me that that report is informing Treasury policy and will inform the Budget come March?
I fear that, sooner or later, the Government will have to grasp the nettle and reintroduce a health and social care levy. When they do so, it should be based on the income tax base, rather than that of national insurance. The better-off elderly—I should declare an interest as the possessor of a free bus pass—should pay their fair share.
My other concern is that the Government are not going far enough on growth. Here I agree with the noble Lord, Lord Eatwell, that more private investment needs to be combined with more public investment. Yet the Government are projecting that net public investment will fall over time from some £72 billion this year to £56 billion by 2028. When inflation is taken into account, that is a cut of at least 30%. One of my biggest regrets as a Treasury official was recommending the cancellation of what is now called the Elizabeth line in the early 1990s. Of course, we need to focus on investment projects with the biggest economic return— to that end, I am no fan of HS2—but we also need to ensure that infrastructure gets sufficient resources. That means consuming less and investing more. I welcome the Chancellor’s words on planning reform, but I fear they do not go far enough. We need to make it easier to build houses and to make progress on infrastructure. Only yesterday, a telecoms industry veteran told me about the planning obstacles to delivering infra- structure in Scotland, and I see little evidence to suggest that the planning system is much better in the rest of the UK.
Finally, the Autumn Statement does not go far enough on skills. Many of Britain’s problems with immigration stem from our inability to develop a labour force for the 21st century. We used to rely on the Polish and central European taxpayer to train our workforce. If on the day after the 2016 referendum the Prime Minister had said we were going to prioritise further education and vocational skills and then relentlessly focused on the problem, we might just, seven years on, be beginning to see some results, but she did not, and her successors have shown even less interest in the subject. It is not too late to put that right. If we do not rise to the productivity and growth challenge, the public finances will only get worse. This Autumn Statement represents a small step forward, but whoever forms the next Government is going to have to do a whole lot more.
Lord Howell of Guildford (Con)
My Lords, I, too, welcome my noble friend’s arrival at the Treasury, in which, a long time ago, I served as an official. I shall try to find something nice to say about the Treasury, although frankly, it is not terribly easy. I told my noble friend before this debate that I hoped to touch on three questions, and she mentioned them in her excellent opening survey of the scene which we all heard a moment ago.
The first is about the overall policy in dealing with the inflation headline, the rate of inflation and the prospects. It is a sort of mantra of the Treasury, the Bank of England and lots of experts that all cuts in taxation are inflationary: you cannot cut taxation at this delicate and fragile time without raising the rate of inflation. I am not so sure about that. I got a very interesting note from the Library—of course, these figures must be treated with caution—which pointed out that about 28% of total public expenditure, which is about £340 billion, is indexed. In other words, it goes up when the inflation rate goes up and then comes down. That is out of a total of £1,222 billion. So presumably if we can get headline inflation down by one point, straightaway we will save £3.7 billion to £4 billion; by two points, £8 billion, and so on. It is a lot of money.
One therefore asks whether there are some areas where retail taxes being reduced can have an impact on headline inflation? If they can, then you are losing revenue, but you are also saving expenditure on a very large scale. I sometimes wonder whether the Treasury has worked out some of these things. The figures are very big indeed.
That is quite distinct from the other indexing point, of course, which is that higher interest rates immediately raise the amount that the Government have to pay in debt payments for their borrowings. These were running at £116 billion a year. I think they have come down a little, but it would be interesting to know, if my noble friend can provide the figures, what a one-point interest rate fall involves in reducing public expenditure. There is a sort of swings-and-roundabout element here that we do not hear very much about. I hope that my noble friend will talk a little more about it.
The cost of debt servicing is 5.2% of total public expenditure, which is a lot. That is 3.8% of GDP, so any increase in interest rates, which the Bank of England firmly says is to cut inflation, has a big inflationary element built into it as well. These things are not straightforward. Does the Bank of England take this into account? We never hear any statement of the kind that recognises that raising interest rates, which is said to be the necessary medicine for curbing inflation, has a huge inflationary punch in it. I have been given a figure that indicates that every 1% on the inflation rate and every 1% on interest rates costs the Treasury £26 billion. That is inflation, not deflation. These are very complex matters that tend to be pushed out of the debate.
Long ago, in the time of Ted Heath, he used to get very annoyed because he felt that the Bank of England and the Treasury were playing a “one-golf club game”. All they had in their golf bag was this one club which said, “Push up interest rates and push down all forms of government expenditure and that will somehow solve the inflation problem”. It does not work out quite that way. These things are not straightforward, so anything more on that would be very helpful.
My second point is that it is rather curious that missing from the Autumn Statement and the Green Book, which we have all been given, is a rather serious item. The Green Book says that the Government are focusing on five important areas, including education, rewarding hard work—we all want that—backing British business, world-class education, building domestic and sustainable energy, and other desirable aims. That is all very nice, but one enormous thing is missing. This is where our history gets a little distorted. In the Thatcher times, it was said that Mrs Thatcher and Geoffrey Howe were very keen on balancing the budget, and certainly Geoffrey Howe—my dear friend and a wonderful man—ran a very tight ship. However, that was not our priority. Our priority was trying to restore the balance in an unbalanced economy, which was grossly overweighted on the state side. Most of our giant industries were nationalised. Half of British industry was in the state sector, and we wished to pull the pendulum back to the middle and get a better balance between the state and the private sector. To that end, we concentrated on enormous efforts that had considerable success. We succeeded in rebalancing the economy in a less socialised way. We still wanted an efficient state sector of course, as the noble Lord, Lord Eatwell, said we must have; but we did not want a greedy public sector. That was the danger right from the start: that we were being sunk again and again by a huge, overexpanded and constantly growing public sector. The mechanism for bringing that down is a very important part of the story and, at the moment, it does not appear to be there.
Thirdly, my noble friend Lord Maude is reported to be advocating that, in order to get a tougher approach on public spending, we should split the Treasury between its various functions of being a bureau of the Budget and the ministry of economics. I would be interested to hear the Government’s view on that proposition, particularly as, if we are talking about public sector capital investment, that is always the orphan. If the investment comes from the public sector, it tends to be a leftover from current pressures and political demands on the budget. That is why a great deal of the infrastructure needed in this country is going to have to come from the private sector.
That was the third matter. I have a fourth one, in my last few seconds. Please can we pay serious attention to more democratic capitalism—that is, wider share ownership and wider involvement by everybody, rather than just the few, in the growth of assets? This is not a good advertisement for capitalism. Capitalism does work but it works best of all when it is democratised, even socialised. I note that the Chancellor is trying to expand people’s involvement in the stock market and asset ownership; we need a lot more of that. Can I have a comment from the Minister on that as well?
Lord Howarth of Newport (Lab) [V]
My Lords, reducing national insurance contributions does nothing for people on the lowest incomes. Full expensing, at a cost to the Exchequer of £11 billion a year, seems an expensive way of securing an increase in annual business investment of £3 billion.
Before the Autumn Statement, the OBR projected a fall of £27 billion in borrowing in 2027-28 compared with its forecast in March. The Chancellor had a choice as to how to use this windfall between consolidating the public finances, improving public services or making tax cuts. Bullied by his party, and with an election coming up, he chose tax cuts. He has gambled that the wafer-thin margin forecast by the OBR will enable him to adhere to his fiscal rule that the debt to GDP ratio will be falling by the end of the period.
Of course, the OBR’s projection is no more than optimistic guesswork. The Chancellor has left himself with nothing in the bank for contingency, yet contingencies always occur. If the market should take the view that the fiscal framework is fanciful, the effects could be devastating. A rise in interest rates, coming on top of the vast debt service costs that the Government’s policies have already incurred—£116 billion annually—would wreck his flimsy plan. International confidence in the UK has already been weakened, not only by the Truss-Kwarteng episode but by this Government’s cavalier attitude to international law.
A different kind of unrealism and irresponsibility is apparent in the Chancellor’s decision to withhold resources for public services. Inflation that is boosting his tax revenues is also increasing the cost of public services. He claims that his tax cuts will enable public services to be better funded; the reality is that he has funded tax cuts at the expense of public services already shredded by austerity. In his plans, public spending on government departments is due to fall by £19 billion in 2028; if this were actually to happen, it would be appalling.
The Chancellor made the bizarre claim that we deliver world-class education. That is not so for those who are threading their way through our chaotic and underfunded FE system, nor for the generality of children who have seen the discrepancy in funding per pupil widen vastly between state schools and private schools. Faced with the crisis in the justice system, bound up with inadequate education—cut by 20% after 2010—the Chancellor offered nothing.
With the Home Office budget also unprotected, how are the Government going to control immigration? The Autumn Statement showed a wilful evasiveness about the challenges to the British state. To court popularity with the pensioner vote, there is an 8.5% increase in the state pension—way above the 6.7% indexation of social security benefits—yet the Chancellor knows that the triple lock is fiscally unsustainable. He ought to recognise that it is socially damaging as well, widening the gulf between generations. The defunding of universal credit over the years has widened the gulf between the affluent and the destitute. On average, the Chancellor’s measures will give £1,000 a year to the top 20% of earners but only £200 to the bottom 20%.
Who are the employers who will provide all this work at home for people with mental health and mobility problems? Although the Nuffield Trust calculates that the NHS faces a £1.7 billion deficit, the Chancellor made no significant health funding announcements. Moreover, he provided nothing to support local government to pay for better social care and public health to ease pressure on the NHS. Demographic developments mean that, with an ageing population and a deteriorating dependency ratio, the Government will be faced with reduced tax revenues from people of working age and higher outlays on health and social care. The demands of the NHS, year after year, exceed the rate of growth of the economy. The days are gone when, to pay for the welfare state, the Government could raid the defence budget, which they have now said they want to increase.
Aside from his douceur to people who live near new energy infrastructure, the Chancellor showed no recognition of the scale of public expenditure that will be required to meet our commitment to a green transition. The Climate Change Committee and the OBR estimate that the Government must spend £25 billion per year between now and 2050 to achieve net zero. Where is the provision for that? His arithmetic assumes that he will index fuel duties next spring. We shall see. What is sure, though ignored by him, is that with the phasing out of petrol and diesel-powered vehicles, fuel duty—currently raising about £25 billion—will evaporate. VAT at 5% on domestic gas and electricity use, like the freezing of fuel duty and the tax treatment of air travel, subsidises fossil fuel consumption while we struggle towards net zero.
This Chancellor shows no interest in tax reforms such as introducing a progressive carbon tax and road pricing. There is a whole agenda of tax reforms that would be beneficial to the economy. The Government should at least extract the best value they can from the existing tax system, whether by merging national insurance and income tax into a properly progressive system, tackling the chaotic complexity of VAT, addressing the damaging effects of the stamp duty regime or removing the anomalies and injustices of council tax, but the Chancellor shies away from all this. Following the Statement, he said:
“I hope we are able to reduce the tax burden still further in the future”.
Instead, he should have told the truth—that low taxes are a fantasy. We are heading towards a tax take of 38% of GDP. That will still leave public services threadbare and the great challenges I have mentioned unaddressed. He said it was
“an autumn statement for a country that has turned a corner”,—[Official Report, Commons, 22/11/23; col. 337.]
but we have not. To transform productivity so as to achieve the growth that will improve living standards and fund decent public services, far more needs to be done on education and skills, NHS waiting lists, infrastructure, availability of capital, tax reform and rejecting the lobbying of vested interests.
The legacy that this Chancellor and his Conservative predecessors will leave is dire. We need a Labour Government to grapple with it. For the next Government and for our country, the road ahead will be arduous.
Baroness Goldie (Con)
My Lords, I pay tribute to and welcome my noble friend the Minister to her new place on the Front Bench.
It is a great privilege to speak once again as a Back-Bencher. To minimise anxiety on the part of my noble friend the Minister, let me say that I intend to be very well behaved, a house-trained and biddable Back- Bencher. I shall not indulge in a meandering, auto- biographical valedictory exposition of how I was short-changed as a Minister, because I was not; of how senior colleagues failed me, because they did not; or of how the Government have lost their way, because they have not. My short letter to the Prime Minister made clear that being a Defence Minister requires reserves of energy and resilience that this old bird was finding it increasingly difficult to muster. The time had come to pass on the baton to another incumbent, who I am delighted to say is my noble friend Lord Minto. My letter also made clear my pride in serving this Prime Minister and that I would continue to support him in every way I can. The Autumn Statement is the affirmation of why I offer that support. Let me explain.
I am an old-fashioned kind of girl—a sort of political response to Eartha Kitt. I know why I am a Conservative: you do not come from Scotland and not know that. I know what kind of conservatism I believe in: a free society where everyone is encouraged to optimise their individual talents; a free enterprise economy which can flourish when supported by the state but not obstructed or oppressed by it—my noble friend Lord Howell eloquently explained why that is so important; a society where the state and its offshoots are enablers and facilitators, not a resource-sapping monolith, as is sadly the case in the devolved governance of Scotland; lastly and most importantly, a society where the privileges of these essential freedoms are balanced by a responsibility and a compassion which protects and supports those who, for whatever reason, are vulnerable. So, you will not find me in the tent of ideology and dogma; I am much more interested in pragmatism and delivery of the broad tenets I have outlined.
One of the benefits of getting on a bit is that you have at least seen a lot in life. Experiencing what the big dipper of life can sling at you can be excoriating, but it can also be instructive and enriching. This brings me to context. When I read some of the commentary on the Autumn Statement and listen to predictably partisan criticism from opposition politicians, there is one gaping void: context. When the global financial crash happened in 2008 and a UK bank had to be bailed out, there were consequences. In 2010, the Conservative-Liberal Democrat coalition had to deal with the worst recession since the Second World War. Remember the notorious note from the outgoing treasury Minister—there is no money left—something to which the noble Lord, Lord Eatwell, did not refer in his analysis. And when there is a pandemic, apart from the human cost, for the economy it is the equivalent of another war. The economic cost is high, and thanks to the decisions Rishi Sunak made as Chancellor there was a functioning economy when we came out of Covid. But the measures to ensure that was the case have consequences.
This has all been compounded by the illegal invasion by Russia of Ukraine, which created inflation and a massive hike in energy charges. The Government rightly stepped in to help households, to the tune of nearly £40 billion, but there are consequences. Then there is driving down inflation: absolutely the right thing to do. Some people may never have known inflation running at 25%, as it did under Labour in the mid-1970s; I shall never forget it. It is the most pernicious impoverisher of people’s incomes. So, since 2010 we have had cumulative, not isolated, challenges and all of that is context. A lot of the commentary about the Autumn Statement looks at it in a bubble—there have been echoes of that today —as though it is some semi-detached lacuna with context miraculously airbrushed out. For me, the Autumn Statement was a reassuring manifestation of my conservatism: rooted in pragmatism, demonstrating compassion and in short, doing what you can with what you have got.
The Autumn Statement was also part of an established and carefully calibrated approach to the economy by the Prime Minister and the Chancellor. It was back in January this year that the Prime Minister set out his three economic priorities: halve inflation, grow the economy and reduce debt. We have made progress on all three of these. So, what the Prime Minister and the Chancellor had already created to give us a meaningful “What we’ve got” was the springboard for the next step of doing what we can, which, in reality, has translated much more excitingly into “Look at what we can do!” I find this invigorating, and I could not disagree more with the noble Lord, Lord Howarth.
So, we have a serious approach to keeping inflation falling, a consistent resolve to reduce debt, and a coherent and credible approach to economic growth, building on positive progress through a laser focus on higher productivity. One hundred and ten growth measures in the Autumn Statement, boosting business investment by £20 billion a year—that is what I wanted to hear; but then rightly recognising how searing the cost of living has been, particularly for those most vulnerable and on the lowest incomes. They will benefit from our approach to universal credit and other benefits, 1.6 million households will be helped with rent, and we have honoured the triple lock for pensioners in full. For this Conservative, the Autumn Statement has delivered not just for the moment, but for the future and for the country. It is part of a journey.
Interestingly, the political challenge this poses to the Opposition is already clear. The shadow Chancellor can try to dissect the Autumn Statement in the abstract, but that approach is not credible or rooted in reality. When she embraces the reality, she is confronted by three demons. Demon 1 is a persistent Labour record of economic mismanagement whenever it has been in government. Demon 2 is that the shadow Chancellor says she will do it differently and control inflation, but with no mention of how. Instead, she is going to increase borrowing by £28 billion a year. That is bad news for the economy, flinging petrol on inflation. We need neither and the public will work that out.
Demon 3 really has got pointy ears and big horns, but she has to agree that the Conservatives are taking the correct decisions, so she cannot disagree with much in the Autumn Statement. This poses a lethal question for the shadow Chancellor: what is the point of Labour? This is a question that others may have asked in the past, but I expect more voters to be asking it in the future.
In conclusion, I know the point of being a Conservative. I shall fight the next election as a Conservative and, based on the Autumn Statement, I look forward to winning that election as a Conservative.
The Lord Bishop of Manchester
My Lords, that felt more like a speech about a future Autumn Statement from a Labour Government than about the current one before us.
I too welcome the Minister to her new role and look forward to hearing from her often in this House. However, I suspect that, even if you are a Treasury Minister, every Autumn Statement feels like a missed opportunity. There are always things that each one of us would have liked to have seen given a higher priority and areas of spend to which we would have wanted greater resources allocated. There may also be things on which we think too much money is being spent, although they may be a little less common.
I begin by being grateful for a number of items announced this time. I am not sure that I can sustain that congratulatory perspective all the way through my remarks—your Lordships know me too well to expect that—but I will at least start in a positive direction. The uprating of working-age benefits by 6.7% and the 9.8% increase in the national living wage will go some way to stemming or slowing the growth and deepening of poverty among households who are striving and struggling with low-paid and insecure employment. My belief is that the money made available to our lowest-income households should not, however, be subject to annual political whim. More than a triple lock for pensions, we need an independent mechanism to ensure that benefits always cover the basic essentials of living.
To that extent, I would, as the noble Baroness, Lady Pinnock, urged, encourage support for the Joseph Rowntree Foundation and Trussell Trust proposal for what they call an “essentials guarantee”. This would provide long-term certainty that benefits would be enough to live on for all families. It would mean that the rate of universal credit is set by an independent body which takes the cost of essentials into account. But that is for the longer term; this year’s announcement is a step in the right direction.
The uprating of local housing allowance back to the 30th percentile is also something I welcome wholeheartedly. Freezing this figure during a period when private sector rents have risen rapidly busts any myth that holding LHA down would help keep private rents affordable. Instead, we have seen rent levels become one of the principal drivers of homelessness, now including homelessness among people who are in steady employment, especially in major cities such as my own. In inner Manchester, these new rates will provide an additional £41 per week or over £2,000 per year. This uprating will go some way to addressing the worst of the problem.
However, given that the national insurance reductions will take immediate effect, I fail to see why this is being delayed beyond the coming winter months, when homelessness wreaks its greatest toll on the health and lives of our fellow citizens. I would welcome a commitment, ideally from both Front-Benchers today, to not letting this level fall back below 30% in future years.
Taken together, these changes are a welcome step in the right direction. However, the parish of St Barnabas in Oldham, which serves one of the poorest communities in Greater Manchester, now finds itself operating a free laundry service for local people—people who cannot afford a washing machine or dryer, and for whom commercial laundrettes necessitate an expensive and difficult journey. We all know what happens when you try to dry clothes in a cold house: you get the kind of damp that we have seen wreak such havoc on people’s health. I applaud that parish’s initiative, but I deplore the need for it and I do not see measures in this Statement that are sufficient to render it no longer necessary.
However, there are several areas where I feel opportunities have been missed. As time is brief and other noble Lords have, and no doubt will, refer to many of them, I will focus on one in which I have a particular interest. From my work as co-chair of the National Police Ethics Committee, as set out in the Register of Lords’ Interests, I am deeply concerned as to how much police time is wasted by officers sitting in hospital A&E departments waiting to hand over people with mental health issues to the medical professionals who can properly assess their needs and then offer treatment. One of my right reverend friends on these Benches recently observed four officers spending six hours on such duties each. This was time that could and should have been spent preventing and detecting crime.
I applaud the Right Care, Right Person initiative, which seeks to divert people with health needs from inappropriate and wasteful periods of engagement with police. However, timely handovers will not be achieved without a more significant increase in funds for mental health in our hospitals and communities. We need an increase beyond what is in the Statement, at least commensurate with the dramatic growth in levels of need we witnessed through the pandemic years and beyond. We have a mental health crisis. I would be grateful if the Minister could give this House a commitment in principle for funding in mental health care, even if it is not possible to make money available today.
Finally—and I depart here from the from the noble Baroness who spoke before me—I suspect that many of us here feel that this Autumn Statement reflects a tiredness and a lack of ambition. It may speak of
“long-term decisions for a brighter future”,
but the reality feels somewhat different. Early in my years as a parish priest, I learned that one of the saddest signs of human decline and the approach of life’s end is a narrowing of horizons, physically and metaphorically, until they barely reach beyond the bedroom walls. I hope that, when we next hold an Autumn Statement debate, whichever party is in power after the forthcoming general election, it will feel able to bring us a bold and long-term vision for Britain’s future—not, as we have before us today, a whispered croak from a governmental deathbed.
Lord Frost (Con)
My Lords, I begin by welcoming my noble friend to her new role in the Treasury. I speak in this debate more because I feel obliged to than because I really want to. I am well aware that the Government have stopped listening to Conservatives with my opinions, but I will give them anyway. I had hoped last week that we would get a Statement and set of measures that acknowledged that Britain has been on the wrong track and that a radical change of direction is needed. I am afraid that instead we got some palliatives—obviously, these are welcome—some attempts to soften the direction of travel, which remains wrong. We got a Statement that, I am sorry to say, does all too little to persuade the British people that we, as the governing party, have solutions capable of solving the country’s problems, and that makes it far too easy for voters to believe the falsehood that there is no real difference between Conservative philosophy and those of the parties opposite.
If I am honest, I am tired of pretending that I think we are on the right track. I meet many Conservative members and voters—former voters, all too often, I am afraid—and even quite a few Ministers who do not think we are either. Even with the reduced tax increases that we saw in the Autumn Statement, we are still heading for the highest levels of tax and spend ever seen in this country outside wartime. Not surprisingly, economic growth is anaemic. Yes, as my noble friend the Minister said, we are outperforming the gloomiest predictions of the OBR, let alone the pre-Brexit Treasury prophecies of doom. However, as noble Lords will see if they look at the Angus Maddison database, which has been measuring this country’s growth for the last 700 years, we have had pre-modern growth rates since the financial crash, with a per capita growth rate roughly that of Britain during Queen Victoria’s reign.
Many, perhaps most, European countries are doing just as badly as us, if not worse, but we are one of the few that has the powers to solve the problems. Instead, what are we doing? We are spending more money than ever on the National Health Service—indeed, we are one of the top 10 spenders per head globally—and getting worse and worse results for it. We are paying huge sums on welfare and pensions, yet the only solutions we have are the very gentle carrots of encouraging people back into work, rather than a bit more of the effective stick of reducing welfare for people who choose not to work.
We are sucking in huge numbers of immigrants to try to fill the gap—or rather not, because we still have a million job vacancies. We are building nowhere near enough houses. We have heard from many noble Lords already many wishes, many calls—very well justified, I am sure—for more public spending on favourite causes, but the truth is that we are trying to provide public services as if the economy were growing by 3% a year when the real figure is 1%. That just cannot be done and we are now feeling the pain.
It is not as if any of this is a secret. Outside this building, people talk about these real-world problems all the time. They do not talk about smoking bans or A-level reform. The party I am a member of has been in power for 13 years and, I am afraid to say, bears much responsibility for problems I have just outlined. I spent the best part of three years working to get this country out of the EU in a way that gave us full optionality about the future, and I believe we largely succeeded in that. But we have not fully used those powers and often seem frightened to. The Windsor Framework—trumpeted as an achievement but actually doing significant political and economic harm to the unity of this country—makes it even harder to do anything differently.
But it is more than that. I worry we have all been captured by the socialist belief that government regulation and spending is the way to solve our economic problems, that vast taxpayer subsidies to all kinds of politically favoured industries—productive, or more often not—such as semiconductors, windmills, batteries, the hydrogen boondoggle, electric cars, zero-carbon steel or aviation are going to solve our economic problems, despite all the evidence that government direction of the economy never works out well. I would like to see policymakers paying less attention to the many snake-oil proponents of the so-called active state and spend a bit more time reminding themselves of Hayek’s essay “The Use of Knowledge in Society”.
The truth is that we need to get on to a different path if we are to boost economic growth, which is overwhelmingly what we need to do. The first duty we owe to the people of this country is honesty about the nature of our problems and how we can solve them. The only way we can get growth and incomes up again is to release the forces of the private sector—removing the crushing tax and regulatory burdens, dramatically reforming planning and building many more houses, slowing or halting the collectivist delusion of net zero, ending the war on SMEs and the self-employed, beginning to cut public spending by cutting the functions of government and by properly reforming the great public sector entities. At the same time, we must show that the Government have a grip and can perform their core functions, most obviously on immigration where we must be ready to shake ourselves free from the many constraints that seem to leave us frozen in immobility.
The Autumn Statement dips a toe in all these waters, notably with the national insurance cuts and full expensing—these are to be welcomed, as they are a signal that there is understanding of what is going wrong—but it does all too little to challenge, let alone hold back, the tide of statism, miserabilism and nannyism that risks overwhelming this country. We can still change that, so I ask my noble friend the Minister and beg my Government to show that they are listening to our voters and the country, to stop being swept along by the collectivist current and to change course—to act before the election, before it is too late.
Lord Willetts (Con)
My Lords, it gives me great pleasure to welcome my noble friend Lady Vere to her post in the Treasury. I also draw her attention to my entry in the register of interests, especially my role as president of the Resolution Foundation, on whose analysis of the Autumn Statement I will draw.
I agree with my noble friend Lord Frost that we must not fall into the trap of miserabilism, but I could not entirely work out whether his speech was example of it or an attack on it. My view is that this budget has some excellent measures and I agree with him and the noble Lord, Lord Macpherson, in particularly welcoming the full expensing of private capital investment. If anything, we think that the OBR may underestimate the effect of that measure in promoting private investment. It will of course particularly help physical investment in stuff. We should not forget that a lot of drive and innovation comes from investment in software and softer forms of investment that may not be supported; nevertheless, it is the right thing to do.
However, it is a striking contrast with the depressing cuts in the real value of public investment, partly because it will be held flat in cash, so the real value of public capital investment will fall. That means that, over the next few years, Britain will remain a country whose public capital investment is approximately half the OECD average. Where I part company with my noble friend Lord Frost is that I think the evidence is overwhelmingly that public and private capital investment can go together. They need not be alternatives; public investment in transport links can be a precondition of successful private housebuilding. It would be great if we were capable of promoting public investment as effectively as the Government are now trying to promote private investment.
There is certainly a need for a growth agenda. Again, I agree with my noble friend Lord Frost that, since the financial crash, Britain’s growth performance has been shockingly poor. We heard from the noble Lord, Lord Macpherson, about some of the areas where we should do more. I certainly agree with him on skills. I have to say that I very much regret that the Government are in the process of defunding BTECs—a widely recognised and used vocational qualification—and investing their hopes entirely in speculative T-levels, which are simply never going to come on stream and deliver qualifications to the numbers of young vocational learners currently served by BTECs.
Our analysis at the Resolution Foundation is that the fundamental problem is that Britain has become, overall, a low-mobility economy. The speed at which business sectors grow or shrink has diminished. The likelihood of people making job moves from one business sector to another has fallen—indeed, the likelihood of them making any job moves at all has fallen. We should be promoting economic change and mobility. Unlike my noble friend Lord Frost, I think that the single market and competitive pressure across Europe was an extremely good way of promoting economic change, and the evidence is that it was strongly associated with high rates of business change in the 1980s and 1990s.
However, there are other things that can be done. I would have stamp duty high up on my list of taxes to be cut, and promoting disruptive technologies—providing we do not imagine that we have the exclusive understanding of exactly how they will play out or which will have the biggest effect—can also be a very good way of challenging incumbents and promoting innovative new companies.
It is very important that we continue to promote work. Again, I agree with the noble Lord, Lord Macpherson, and my noble friend Lord Frost that the national insurance cut is very welcome. As a cut in a tax on earnings and work—a refreshing contrast to the previous preoccupation with income tax cuts—it is aimed much more directly at people in work.
That was part of a wider package promoting incomes and earnings, especially among people on benefits. We have heard about the increase in the local housing allowance. There is a very substantial increase in spending on wider benefits, notably, of course, the pension triple lock, expenditure on which—just to register its scale—will reach £172 billion by the end of the period covered by this Treasury Statement. This means that we have now reached the position in Britain where not only do the poorest 10% of pensioners, after housing costs, enjoy a higher income than the poorest 10% of non-pensioners, and middle-income pensioners, after housing costs, enjoy a higher income than middle-income people and families, but the most affluent 10% of pensioners have a higher income after housing costs than the most affluent 10% of families.
I end, therefore, by asking the Minister to reflect a little on how the shape of the state is changing. There is a debate about the size of the state; there is also a debate about the shape of the state. There is a pattern. One pattern is that, when you have such very large increases in the value of benefits and in debt interest payments—which will be running at over £120 billion a year—and a hidden cut in expenditure on many services, you essentially become a transfer payment state, not an investment or service delivery state. You put much more of your effort into paying out the pensions, the debt interest and the wider benefits, and less and less into investing in stuff and technologies. Is that a reshaping of the state that meets my noble friend Lady Goldie’s attractive account of what made her a Conservative?
It is also clearly a state focused on expenditure, services and benefits for older people and doing far less to invest in our future. A state that is for transfer payments and not investment, and which is for the old and not the young, is not the kind of state that I think should be an objective of government policy.
Lord Thomas of Gresford (LD)
My Lords, I also welcome the noble Baroness to the Treasury Bench. I think she will find it interesting to be shaping the state in the future.
The noble Lord, Lord Clarke of Nottingham, in his evidence to the Constitution Committee in June of last year, said that
“there are no votes in criminal justice”.
He continued:
“The criminal justice system is in the most appalling state. I would never have believed it”.
He added:
“The present Lord Chancellor has the misfortune of presiding over a department both the large chunks of which”—
the courts and prisons—
“are in a … dire state”—
worse than he can ever remember.
He said that the Lord Chancellor lacked the necessary political clout to get a sensible settlement from the Chancellor of the Exchequer. Well, he should know; he held both offices of state successively and, after being at the Treasury, at the Ministry of Justice he was the first to take the knee to austerity cuts in departmental budgets at the beginning of the Cameron Government. The Ministry of Justice has never recovered.
The analysis of the MoJ’s statistics published in October by the Institute for Government underlines the present crisis. First, there is a backlog of serious cases awaiting trial in the Crown Courts which, adjusted for complexity, amounts to a record high of 89,939 cases. This seriously diminishes the capacity of our courts system to deliver justice. Victims become disheartened and withdraw their complaints, to the distress of themselves and their families; the memories of witnesses fade; and juries grapple with events that occurred years before the trial. As the noble Lord, Lord Eatwell, pointed out, our prisons are overloaded with unconvicted prisoners on remand, awaiting trial—currently more than 15,000. Indeed, 28% of cases in the backlog have been waiting for over a year and 10% for over two years. This represents an increase of 54.2% in prisoners on remand between 2020 and the present.
As I said in my contribution to the debate on the King’s Speech three weeks ago, the major reasons for the backlog are a lack of judges, causing a serious decrease in the number of sitting days, and a lack of barristers, both to prosecute and defend. The diminution in criminal legal aid by 41% since 2010—the cause of the barristers’ strike—has destroyed the attractiveness of the criminal Bar as a career. So I repeat my call for incentives to aid recruitment; if the Government can fund £26,000 bursaries for young teachers to teach maths and the sciences, they need a similar scheme to fill up the vital vacancies at the criminal Bar.
The dire state of prisons was highlighted by the MoJ’s own figures. The backlog of major capital works was £1.4 billion in July 2023. It has been increasing by £220 million a year since 2019. Prisons are filthy and crumbling.
The Prison Service suffers from recruitment problems, compounded by a failure to retain staff at an increasingly alarming rate—currently 15% per year. Between December 2022 and October last, the prison population has increased at a rate of 605 prisoners per month, to reach the highest figure ever, of over 88,000.
The effect on prisoners themselves is that 42% of male prisoners are locked up for 22 hours a day during the week. Education and rehabilitation courses have been dramatically curtailed. The Guardian recently reported that the number of self-harm incidents, including cutting, overdose and hanging, reached the second-highest on record in March 2023, with 733 incidents for every 1,000 prisoners. Three-quarters of the prison population are engaged in cutting, overdose, hanging and other such activities.
Nick Vineall KC, chairman of the Bar Council, said this week that
“the consequences of underfunding are extremely serious for society as whole. Ultimately, we must have a system that properly supports victims and ensures that the guilty are punished and the innocent walk free. We no longer have such a system”.
The Government may be anxious about victims, but the aim of rehabilitation is not to give criminals an easy time; the aim is simply that there be fewer victims in the future. I could go on, but the picture is clear.
The Autumn Statement increases MoJ day-to-day spending from £9.4 billion for 2022-23 to £9.8 billion for 2023-24—a rise of 4% but in real terms a cut, set against the OBR’s projection of 7.4% inflation next year. The capital budget will fall to £1.5 billion in 2024, below the current capital budget for this year, of £1.7 billion.
Justice is not a peripheral matter: it is a central pillar of our society. When it fails, the stability of the state, and its very existence, are at risk. There are innumerable examples from history, both past and present.
The Autumn Statement is peddled with mendacious spin, with claims of tax reliefs as the actual tax burden rises. It is a final blow to the credibility of this Conservative Government. When they pack their tents and steal away next year, they will leave behind the appalling mess of the criminal justice system, to which the noble Lord, Lord Clarke, has referred. Another Government, I hope, will clean it up.
Lord Dobbs (Con)
My Lords, as a member of the ranks of the struggling self-employed, I applaud the Autumn Statement, and particularly the idea that we should cut taxes to get growth. It has been mentioned by many Members today; it is a great new idea and it might even catch on. In fact, our growth record is not as bad as we sometimes pretend. In recent years, it has been better than those of many others—I think my noble friend said that it had surpassed all expectations. I welcome her to her new role on the Front Bench, but, if she will forgive me for saying so, in truth, and for a very long time, under successive Governments it has not been anywhere near good enough.
I have been struck by how many noble Lords seem to rely so heavily on experts—too heavily, in my view. Over the years, that has allowed too many Governments to shrug off their basic responsibilities. It is 25 years since Gordon Brown handed over a great chunk of the Treasury’s responsibilities to the Bank of England. Today, we worship at the altar of the OBR.
It has been fascinating that almost every speaker today has leaned on the OBR, including my noble friend, even as on several occasions she mentioned how many of its forecasts have been wildly off target. We have put ourselves in thrall to the so-called experts. I always rely on Winston Churchill, who always has a great word. He once warned about having experts on tap, but never on top. Yet often—too often—we simply claim that we are following the science, so it is not our fault really, even though that excuse is being ripped to shreds daily at the Covid inquiry.
Our own Economic Affairs Committee got it right earlier this week in its excellent report, when it said that the Bank of England’s “expanding remit” should be cut, its responsibilities decreased and its growing “democratic deficit” remedied. That is a healthy and very timely vote of scepticism, but all recent Governments have spread our wealth around—here, there, far and wide—even before that wealth has been created. How many times have we heard that phrase from Ministers, “Whatever it takes”, meaning, of course, that we will spend whatever it takes? We will tax and borrow, and all the rest, and triple lock it. Whatever it takes: shake the money tree yet again and hope that there are not too many pigeons roosting above our heads.
That has allowed us to put off difficult decisions. One little irritant of mine is around dealing with the desperately poor public sector productivity levels, when civil servants are still working from home in vast numbers—even as productivity drops and TV daytime figures, fascinatingly, soar and as telephones do not get answered. Why is that still the case? Forgive me: I am sounding grumpy, even cynical. I know it is not like me; I think I must still be suffering from frozen thresholds.
Let me try to raise spirits by looking at what is going on in the United States for some interesting lessons. Not very long ago, it was the sun-kissed cities of the west coast that were the exciting, almost romantic, future. Yet today, so sadly, the fabled streets of San Francisco are overwhelmed with misery and homelessness, while in Los Angeles residents are moving out in record numbers. Yes, California has the sun, but it also has the highest tax rates in that union. There is something similar in the old economic heartland of the north-east: New York, New Jersey and Pennsylvania. The dynamo is slowing. The energy and ambition are moving south to states such as Texas, Florida and the Carolinas. Twenty years ago, the north-east was considerably wealthier than the south. Then its states raised their taxes, while the south’s cut theirs—and the south is where cities are now booming. If you go to Dallas, Atlanta and Miami, they almost shake with enterprise and ambition. Jeff Bezos, the founder of Amazon, is moving from the west coast to Miami. I do not want to shower this House with statistics but today the low-tax south has a higher share of the nation’s GDP than the once all-conquering north-east. I do not think that is just because of the weather.
I wholeheartedly applaud the Government’s determination to boost growth by cutting taxes. Growth may not be the answer to everything, but it is the foundation of so much of what we want for our future, our children’s future and our country’s future. Can my noble friend confirm that this commitment to cutting taxes and boosting growth is not simply a short-term expedient, or even a pre-election jolly, but rather a deeply felt and long-term mission—a crusade, even—and one that will carry this country forward? I hope we will all remember that, without better growth, very few political promises are worth the inflated paper that they are usually printed on.
Lord Sikka (Lab)
My Lords, the Budget is further evidence of the Government’s war on low and middle-income families. The 2p reduction in national insurance delivers zero benefit to 19 million adults whose annual income is less than £12,570. The two-child benefit cap continues and removes around £3,000 a year from some of the poorest families. Wages continue to be taxed at a much higher rate than capital gains, dividends or income from speculative ventures. The freezing of income tax and national insurance thresholds means that, by 2028-29, another 4 million people will be paying income tax; 3 million more will pay tax at the higher rate of 40%; and 400,000 more will end up paying tax at 45%.
The Minister referred to economic growth. Despite economic growth since 2010, the average real wage has returned to the 2007 level and the Resolution Foundation estimates that the average household will be £1,900 poorer by January 2025 than in December 2019. The Government have to remember that, in the absence of good purchasing power for the masses, the economy cannot be rejuvenated—they simply have not learned that lesson over the last 14 years.
The Government’s failures have caused huge growth in poverty. Malnutrition, scurvy and rickets have returned to the UK, and people are actually dying. Between 2012 and 2018, some 335,000 people died from government- imposed austerity—that is the excess deaths according to a paper published in a refereed scholarly journal. We had a debate in this House and I never got a decent reply from the Minister. The Government’s response is to cut real public spending by another £19 billion, which means that public sector wages will be cut, hitting women the hardest as they form the majority of the public sector workforce. Can the Minister explain why the Chancellor’s Statement is not accompanied by an impact assessment showing how many more people will die as a direct or indirect result of the Government’s policies?
On economic growth, the Government offer absolutely no vision. Despite a decade of low inflation, low interest rates and low corporation tax, and numerous incentives, the private sector has failed to invest adequately in productive assets. In the OECD table of 38 countries, the UK is ranked 35th. The private sector will not invest because people do not have good enough purchasing power, and the Government have starved the public sector of investment, which then fuels private sector activity. So the Government are not really offering to increase public sector investment.
Last week the Deputy Governor of the Bank of England told the Treasury Committee that Brexit “has chilled business investment”. It has grown by less than 1% a year in real terms since Brexit. The Government have offered absolutely no answer to Brexit woes, though they have now belatedly offered £4.5 billion for investment in advanced manufacturing, as the Minister said, over the next five years. That shows hardly any ambition. I give the example of investment in the semiconductor industry: the US has offered a package of $50 billion; China, $40 billion; India, $10 billion; and the UK, £1 billion, or $1.2 billion. That is no vision of any kind whatever.
I have some specific questions for the Minister about the public debt, which she referred to in her speech. Nearly £1 trillion of quantitative easing has pushed up asset prices and enriched a few. One study has shown that QE boosted the wealth of the richest 10% of households by between £128,000 and £322,000 per household. Instead of squeezing the poor and public services, the Government could have clawed back this gift to the richest. Can the Minister explain why the gains arising from QE have not been clawed back?
Public debt under the Conservatives has soared from around £1 trillion, or 65% of GDP, in May 2010 to £1.79 trillion, or 79% of GDP, just before the pandemic. The latest figure is £2.64 trillion, or 97.8% of GDP. What does this public debt actually consist of? Ministers have never explained. I can see no rationale whatever for treating quantitative easing balance as part of the public debt, especially as the Government hold equivalent gilts and bonds. In any case, QE is an intrastate transaction between the Bank of England and the Treasury, and the consolidated effect is zero. Can the Minister explain how much of the QE is included in the public debt amount, and why?
Through the QE, the Government have enriched speculators by pushing up the price of gilts and corporate bonds, but they are now selling them at a loss. Can the Minister explain why, as part of quantitative tightening, the Government are selling securities at a loss, how much has been lost, and why the public purse is being held responsible for that loss? The Government are also paying interest to commercial banks on what are called central bank reserves, which are created as a result of QE. Can the Minister explain why this interest is being paid on the money that has been created by the state and given away freely? How much has been paid so far, and when will the Government stop this practice? It is akin to a farmer growing carrots and giving them away, then when he wishes to have one or two carrots back he offers interest to those who will return a carrot. That is exactly what the Government are doing, and it is a crazy policy. I hope the Minister will be able to give a detailed reply to each of my questions.
Baroness Noakes (Con)
My Lords, I warmly welcome my noble friend to her new ministerial brief, but I am sorry that I cannot be as welcoming to the Autumn Statement. I know that all sides of the House, with the possible exception of our Green colleagues, who are not in their places, want to see a significant boost to the UK’s economic growth. They will not find that in this Statement.
Our growth prospects are uninspiring: the OBR says 0.7% next year and only 1.7% at the end of the forecast period. The Chancellor announced quite a lot of allegedly pro-growth policy measures, but the OBR calculated that they would increase potential output by only 0.3% at the end of the forecast period. Of course, that is better than nothing, but it does not transform our economic prospects by a very long way. I and many of my Conservative colleagues believe there are three foundations for growth: low taxes, low regulation and a small state. This Autumn Statement achieves none of these things, and for us it is not surprising that economic growth remains feeble.
On taxes, full expensing has been welcomed by the business community and by many noble Lords today, but it is very expensive and achieves very little. The policy costs £30 billion over the forecast period but produces extra investment of only £14 billion. I cannot see that this is a good use of taxpayers’ money.
A much bigger driver of business investment is the headline rate of corporation tax, which the Chancellor has kept at 25%. This is the main reason that the UK has plummeted down the competitiveness league tables for tax. The latest OECD figures show us at number 30 out of 38 countries.
I am sure that those in work will welcome the national insurance reductions, but they probably do not realise that they are paying for this themselves through fiscal drag. For all the talk in the Autumn Statement about tax cuts, there has been nothing to change the trajectory for this Parliament to be the biggest tax-raising one since the Second World War. Taxes as a percentage of GDP continue on an upward path and are even higher than at this year’s uninspiring Budget.
The Autumn Statement does nothing about reducing the size of the state, with total managed expenditure still around 43% of GDP at the end of the forecast period. The Chancellor missed another opportunity to get rid of the triple lock, which remains one of the biggest fiscal sustainability risks identified by the OBR. I applaud the efforts by my right honourable friend the Secretary of State for Work and Pensions to get more people into work, and to bear down on the bill for out-of-work benefits. However, he is barely making a dent in that bill, or cutting the nearly 9 million economically inactive people of working age who are a major drag on the economy. Apart from welfare, the Autumn Statement said nothing about cutting the size of the state.
Similarly, the Autumn Statement said nothing about cutting regulatory burdens. It bragged that the Government are
“bringing forward an ambitious package to supercharge small and medium sized enterprises”.
I got quite excited about this, until I read five meagre paragraphs. These include something on faster payments —I have lost count of the number of times that faster payments have been announced as an initiative—and something arcane about HMRC rewriting its guidance on the tax deductibility of training costs. SMEs need something more transformative than this.
The Chancellor announced in his Statement that he had 110 growth measures. I had expected the Autumn Statement documents to set them out. There are some costings covering 67 policy decisions in chapter 5 of the Statement, and a separate policy costings document which has detail under 55 headings. However, quite a lot of these could not conceivably be regarded as growth measures. Chapter 5 also has 200 paragraphs on policy decisions, some of which presumably have growth implications, but this is not always clear. The OBR has some analysis of the main policy decisions, but it does not reference the growth ones specifically, so I cannot find anything that says, “These are the 110 growth measures”. My question for my noble friend the Minister is: what are the 110? If nothing in the public domain sets them out, will she undertake to write to me and put a copy in the Library of what those 110 measures actually entail? I should be clear that if even by some miracle she has a list of the 110 measures in her briefing for this evening, this is not an invitation to her to read them out.
GDP growth of 1.7% at the end of the forecast period is nothing to be proud about. We must not be self-congratulatory about merely being in the pack with other G7 countries. This country needs more ambition and more imagination—certainly much more than this Autumn Statement provides.
Lord O'Neill of Gatley (CB)
My Lords, it also my pleasure to speak in this important debate and, as always, to hear such a vast array of different and generally extremely eloquent opinions, which somewhat intimidates me, despite my role in some of these issues in the past. In that regard, I also welcome the Minister to her new role. Having sat there myself once, I know that it is an interesting challenge.
Reflecting on some of the things that have been said already, I am still stuck in my mind, one week after the Autumn Statement, on aspects of the bizarre gaming that the system has got into. I am not quite sure whether this is what the noble Lord, Lord Dobbs, was reflecting on, but I will come back to that. At the same time, it included a number of measures that really are for economic geeks to wade through, particularly those with real expertise, notwithstanding economics being a miserable or social science. I am not sure if it was 110 measures that I would cite as particularly important. However, they are the ones that can think about the microeconomic issues of some of these so-called supply-side measures.
Indeed, the Chancellor made a point in his speech, and his follow-up media—as referenced by some others—of saying that the OBR had boosted its estimate of the trend rate of growth by an accumulated 0.5% because of the Spring Budget and what he announced last week. By the way, contrary to what the noble Baroness said just said before me, that is pretty miraculous for any country in the world to do if it turned out to be accurate, because long-term growth is driven by the nature of the labour force and its productivity.
However, I will also touch on two other things that have not yet been mentioned at all, I am pleased to say, and in this regard reflect my own current duties—or some of them—as reflected on the register. In my role as chair of the Northern Powerhouse Partnership and being involved in the whole northern powerhouse thing since it started, I really welcome the additional steps to give more mayoral powers to different areas and for a select few—so far—to have potential or theoretical access to the next spending review. I also welcome the news of a devolution deal for Hull and the East Riding after the endless years of struggle to get that through.
Also reflecting my role as chair of Northern Gritstone, the entity that is investing in start-ups coming out of northern universities, I greatly welcome the news of the enhanced powers and role for the patient capital arm of the British Business Bank, in fostering an even greater growth capital culture among our investing institutions—or perhaps a significantly greater culture. I ask the Minister in this regard if the requirement for them to repay a set amount of capital each year has indeed now be removed. If so, this should be of considerable help to giving more genuine aspiration for the BPC.
As touched on, the never-endingly discussed OBR, despite what I have just said, lowered its estimate of trend growth because of some of the underlying issues that cannot go away. However, slightly contrasting to the flavour of the speech by the noble Lord, Lord Dobbs, and almost an analogy with being thrown a favourable VAR decision, the OBR actually decided that things look about £30 billion-plus better than they did in the spring. Of course, in the game that I referred to at the start, this gave the leeway which the Chancellor exploited pretty well. I will not touch on some of the other complications of that, which others have touched on. However, it also means that, come next spring, a VAR decision might go in the opposite way. This would have some very interesting consequences for what would then happen, especially as relates to tax.
I also quickly add that despite the very passionate and often understandable pleas about lower taxes, the UK is the 20th country in the world in GDP per capita. More than half the other countries have considerably higher taxation levels than we do. What matters is how tax is used and how it is spent by the state.
In that regard, let me close with what is increasingly one of my hobbies, if not slight obsessions. I am encouraged by the focus on public sector investment by a number of other speakers. As I have said in this House on many occasions, the UK suffers deeply from poor productivity and low investment spending from both the public and private sectors. In my view, we should use an entity such as the OBR for what it is good at: focusing on things to do with the long-term growth trend and studying truly long-term things. I call for more powers for the OBR to have what it is good at and, in particular, instruction to scorecard regularly and analyse at least 20 of the biggest infra- structure projects that the independent infrastructure commission was set up for. If they turn out not to have multiplier economic benefits and lower debt, they should not happen; but if they do, why on earth are they not happening?
Lord Hunt of Wirral (Con)
My Lords, I draw attention to my interests as set out in the register, particularly as chair of the financial services division of the global commercial law firm, DAC Beachcroft.
Like many other speakers, albeit in varying degrees, I warmly welcome the Autumn Statement. I have known the Chancellor of the Exchequer, Jeremy Hunt, for many years and I am confident that the economy is now in safe hands again. His presentation of the Statement was characteristically unflashy, and the reassuringly calm response of the markets spoke volumes.
Speaking as a solicitor still practising in the City of London, the one message I hear all time is that businesses crave certainty. In this world, especially now, there can be no certainty, but Governments can still strive to create stability and productivity—that is how we encourage businesses to invest and innovate. That, it seems to me, is the hallmark of this Government’s approach.
The House does not need me to remind it of the storms the UK economy has had to navigate in recent times. The political decision taken was to leave the European Union, but the direct consequence was to leave the single market, which many of us still regard as one of Margaret Thatcher’s greatest achievements. For that, shall we say, reorientation of the economy to coincide with the first pandemic in a century would test any economy, Government or society. That now we find ourselves in relatively calm waters is quite an achievement, and the Prime Minister and Jeremy Hunt deserve much credit for that.
What I hope to hear more of now is a renewed determination to tackle the red tape that continues to stifle innovation and enterprise. Some is a legacy from our European Union years—the committee I chair is working its way through that as I speak—but so much is either homegrown or gold-plated. Of course, I am not saying that all regulation is bad, just that it must always be proportionate and targeted. The Digital Markets, Competition and Consumers Bill is an excellent example of how statutory intervention in a market can both protect consumers from unacceptable market behaviour and foster competition. I look forward to our debates on that Bill and hope for more of the same, especially as the latest innovations in financial services regulation bed down.
Buried away at the end of the Autumn Statement is a very welcome proposed consultation on a UK regime for captive insurance companies. I applaud many of the comments of the noble Lord, Lord O’Neill, on that; I think it was number 99 on the list of measures. Two years ago, the London Market Group produced an excellent plan for the future, pointing out that the UK lacks a specific regulatory regime for captives, which, by definition, present relatively low risk to the overall financial system. This is another example of regulation that is not fit for purpose, because this is a fast-growing market, estimated at over $100 billion, and we have a golden opportunity to see a repatriation of UK company captives and to be a competitive location internationally.
A bespoke UK captive regime would be consistent with the new international competitiveness objectives in the Financial Services and Markets Act, strengthening the UK’s position in the international reinsurance market. The London Market Group has worked with HM Treasury to produce a detailed implementation plan setting out the legislative and regulatory changes required. Importantly, this could be done entirely through a single statutory instrument.
I therefore hope that my noble friend the Minister, whom we warmly welcome to her new role, can commit tonight to launching the consultation quickly, with a view to implementing it as soon as possible. This could have major economic benefits, and there is no time to waste. In summary, I welcome the Autumn Statement and hope for more of the same for many years to come.
Baroness Featherstone (LD)
My Lords, I welcome the Minister to her place on the Treasury Bench. I will speak on the creative industries.
The big players in the film industry are breathing a sigh of relief, having seen off the threatened restrictions on tax credit relief for commercial party transactions. They also welcome the announcement of the launch of a new consultation that could see tax relief expanded to cover expenditure on visual effects. All I say on that is, “Please hurry up”. It was good to have clarified which documentaries qualify for credit; that will now be judged by the same guidance the BFI uses.
However, as BECTU made clear in its commentary on the Autumn Statement, sectors of the industry such as opera, theatres, independent film production and live events needed a lot more than a promise of further reviews. So, may I ask the Minister about the independents—the lower-budget films? Where was the offer for them? They needed a rise in tax relief to 40%.
As I hope this House knows, the creative industries are outstripping all other growth industries. I laid out the case here in November 2021 in the Liberal Democrat debate on the creative industries, asking for them to be a growth priority because at that point, the Prime Minister had left them out of his five-point plan. Then the Communications and Digital Committee, ably chaired by the noble Baroness, Lady Stowell of Beeston, made the same case in its report, At Risk: Our Creative Future. Only then did the PM finally make this one of his five priorities for growth—but that was not reflected in the Autumn Statement. So many in the industries that make up this creative powerhouse hoped and expected more, and deserved so much more.
Tax reliefs are a proven road to putting a rocket under an industry’s capability to attract investment to this country and to boost exports. So, where were tax reliefs for the fashion industry; for publishing, where tax relief would incentivise UK production of published works; for live events, where the UK would increase its share of the market and grow skilled jobs throughout the UK; and for music production, where tax relief would incentivise the creation of new music and attract inward investment? Clarity on theatre tax relief is welcome, but why was it not made indefinite? There was also no word about museums and galleries tax relief being made permanent.
Moving from tax relief to national insurance, the Writers’ Guild acknowledges that its self-employed members will benefit from getting rid of class 2 national insurance, and from the reduction by 1% of class 4. There is a “thank you” for the changes on that, but not a big “thank you”, as it called the measures
“small crumbs of comfort when taken against the bigger picture”.
Equity’s general secretary, Paul Fleming, said:
“The Chancellor is taking the same approach to the performing arts and entertainment that has seen billions in public funding for the arts cut … The self-employed are being shortchanged by a headline-grabbing tax cut. Our self-employed members want investment to fix the holes in the social security system and public services”.
I was a designer and illustrator long ago and far away in another life, and late payment can force you out of business. When you are already living hand to mouth, even 30 days is a long time to wait for payment, let alone the liberties that big companies in particular take, with frequent waits of 90 days or more. Promising 30 days in the coming years is a promise of virtually nothing. The music industry was pretty unimpressed. Its whacking £5.8 billion contribution to the UK economy before Covid was phenomenal, but the repercussions of the lack of forethought by this Government during the Brexit process were a double whammy. The Association of Independent Festivals was disappointed that the reduction to 5% VAT on ticket sales, which the live sector desperately needs as a way to revive its post-Covid fortunes, did not materialise. As for the manifesto promise of an art premium, I must have blinked: I missed it.
We needed an Autumn Statement that respects, capitalises on and believes in the creative sector, that supports and encourages our broadcast companies, recognising their irreplaceable value as the second-largest exporter of television programmes and formats in the world. We needed a Statement that understands the BBC and supports it, rather than undermining it and continually diminishing its budget and status. I found it shocking to read that “Newsnight” is to be diminished, because trust in our democracy is already diminishing at a terrifying rate.
We needed a Statement that recognises that tax reliefs support and encourage an ecosystem that supports new and emerging talent as well as the big financial successes, and that supports freelancers, sole traders, part-timers and those with a portfolio of roles. Those are the roles that people the creative industries, and the NI changes simply do not go anywhere to support that industry. We needed an Autumn Statement that ensured that the tax and welfare system supported those freelancers to survive, thrive and earn well; that promoted the value of live events and music, small and public venues, regional theatres, local halls and festivals across the country; that addressed the real challenges that orchestras and touring are having, and gave the assurance that the 50% tax relief will remain beyond 2025.
The Publishers Association was disappointed that the Government missed the chance to axe VAT on reading and publishing once and for all by zero-rating audiobooks and article processing charges for open-access publishing. I declare an interest in ALCS, in that I get about £20 a year from it. If my book had sold more, maybe I would do better. If noble Lords are interested, it is called Equal Ever After and is about how I did same-sex marriage. I know David Cameron says it was him, but it was me who started it. ALCS had hoped and needed an increase in the public lending rights that provide such vital income for authors, ensuring that financial support reaches beyond just the bestsellers. While we welcome the extension of the 75% business rate discount for all music spaces, I probe the Minister further to clarify whether this extension applies to music studios, which are having a particularly bad time. We needed commitments to research and development and to an additional capital budget for historic buildings affected by that crumbly concrete, RAAC.
I am indebted to Creative UK, whose briefing I have used extensively this evening. The Autumn Statement I have described is the sort of Autumn Statement that our creative industries deserve.
Lord Tugendhat (Con)
My Lords, like other noble Lords, I welcome my noble friend to her new position, and I am also very pleased at the Chancellor’s decision on full expensing. When he introduced that measure earlier—I cannot remember exactly when—I argued that it would be fully effective only if it was made permanent, and I am delighted that it has been. It is the single best way to encourage capital investment available to him at the present time.
I also welcome the cut in national insurance payments, for precisely the reasons set out by the noble Lord, Lord Macpherson. There is one other thing I welcome very much. As a former chairman of the Imperial College Healthcare NHS Trust, I welcome the Chancellor’s imaginative decision to award it, along with Imperial College, £5 million to establish an Alexander Fleming centre to mark the centenary of the invention of penicillin at St Mary’s Hospital in Paddington. This sort of gesture is modest in financial terms but makes, I think, a big impression on those involved. It is a particularly welcome one on this occasion.
I want to devote my speech mainly to talking about how public expenditure and taxation are discussed in relation to GDP and the implications for policy, whether under this Government or under another. As my noble friend Lord Frost indicated in his speech, it is constantly pointed out that they are at the highest levels since the post-war years, as if this was some sort of historical aberration and a bad thing that needs to be put right —they are in fact not out of line with other similar countries. I believe that the approach epitomised by my noble friend Lord Frost is very much the wrong one. They are at these levels because we are in a situation very similar to the post-war period, by which I mean that so many of the problems our country faces, like other similar economies, are big state problems. That is to say that they are problems that primarily require government action and government expenditure to be progressed, let alone resolved. Unless that action and expenditure are forthcoming, the private sector will not be able to function effectively.
These problems are well known to us all. They are the consequences of climate change; the impact of the ageing population on the NHS, social services and the public purse generally; the need to renew our crumbling infrastructure, as well as to prepare it for the digital age; the need to rebuild our defences; and the need to prevent public debt running out of control. To get a grip on this list requires the Government to spend money and to raise money. Nothing has done more damage to the present Government’s reputation than the widespread perception that this country is not working properly. That is because too often it is true. It is because the battle is being lost on too many of these problems that growth is held back and the country is not working as it should. It is not a case of having to choose between public and private: the private depends on the public.
I hope we can stop obsessing about the weight of the overall tax burden and the proportion of public expenditure to GDP. Instead, we need to consider far more carefully how to spread the tax burden fairly and how best to use it to encourage those economic and social projects and activities that will enable our country to be more competitive and a better place to live in. Some taxes certainly can be cut, but others must yield more.
Finally, a serious Government need also to be frank with the public about which public expenditure programmes outside the protected departments they intend to prioritise in the coming years and the costs involved. With an election looming within the next 12 months or so, this Autumn Statement does not do that, and nor does the Opposition’s response. A big test of whoever is in charge after the election will be the extent to which they are willing to be frank on these matters.
Baroness Bennett of Manor Castle (GP)
My Lords, I welcome the Minister to her new post at the Treasury. That is currently a hugely and unduly powerful department. We are all familiar with departmental Ministers at the Dispatch Box, when faced with an undeniable failing, shrugging and playing the “The Treasury just won’t give me the money” card. Look at where that has got us. We have heard from many noble Lords about the state of broken Britain, so I suggest that the Minister take note of the fact that the Treasury is increasingly being held responsible for the state of the country.
I am going to look at three ways in which our system is broken. I turn first to individual and household poverty, inequality and insecurity. The Resolution Foundation has calculated that this Parliament is set to be the worst on record for household income. Incomes are projected to fall by 3.1% in real terms from December 2019 to January 2025. Many noble Lords have focused on the triple lock, but the problem is not generational. The problem is poverty and inequality, and structural changes over decades that have left our society failing to meet the most basic needs. We have, very literally, a failing economy.
Figures out today from the National Housing Federation show that the number of pre-retirement private renters in the 55 to 64 age group has increased six times the rate of the population increase in the past decade. We are going to see a huge spike in pensioners living in private rental homes that they cannot afford. The Joseph Rowntree Foundation figures show that 1 million children experienced destitution last year—a number that has almost doubled since 2019.
What is in the Green Party’s alternative Autumn Statement, released before the Chancellor stood up, for individuals? Starting with the most vulnerable, the Green Party is proposing an increase in universal credit by £40 a week, which would cost £9 billion. It is also proposing to abolish the two-child benefit cap by increasing the welfare budget by £1.3 billion. I challenge the Government, in particular the Front Bench in front of me, to say why they would not do that in order to help some of the most vulnerable who are suffering so much now.
Secondly, I turn to public poverty, inequality and insecurity. The Productivity Institute has highlighted that there has been a decade of declining spending per capita on education at all levels above primary school. Yet overall, schools have somehow—all credit to them—broadly upheld performance, as measured by the Institute for Government. They are the only group of public services, of nine in total, that has not seen a deterioration since 2010. As the Institute for Government said:
“This Government has abdicated responsibility for public services”.
There is also the question of how realistic all these plans are. The OBR has publicly doubted that the plans for further swingeing austerity in public services are actually deliverable. The director of the Institute for Fiscal Studies has described these as “implausibly tight” spending plans. It stressed the sheer impossibility of not providing a drip of bare subsistence funding to our collapsing court system, to our financially staggering local councils—as the noble Baroness, Lady Pinnock, highlighted—and to a DEFRA that is regularly failing to meet even its basic statutory responsibilities.
What is the Green Party’s plan? It is to restore the public health budget by increasing spending by £1.4 billion; to immediately increase NHS spending by £8 billion; and to increase access to NHS dentists by increasing spending by 50%, or £1.5 billion. Crucially, as many noble Lords might appreciate, we would provide the necessary powers and funding to rural local authorities to take back control of bus services, so that they can increase routes and service frequencies. This would cost £3 billion. Will the Labour Front Bench consider matching that?
Thirdly, I turn to nature’s poverty, inequality and insecurity. There was precious little in this Statement on the climate emergency and nature crisis that is clearly already hitting us so hard. The £960 million investment fund by 2030 for the green industries growth accelerator, which does not even start until 2025, is proportionately orders of magnitude smaller than the plans of the US and EU. Words are only words, but there was even austerity in the nature element of the Chancellor’s Statement: the number of nature-related terms used by the Chancellor in his speech almost took us back to the era of “cut the green crap”.
The Green Party’s plan is to turn ISAs green by linking their tax exemptions to investments in green bonds, and to invest an additional £3 billion in green transition grants for small businesses to help them prepare for and take advantage of the opportunities offered by greening the economy. Noble Lords will be seeing much more in green spending in our general election manifesto, and I hope that the Labour Front Bench will be confirming very clearly plans to stick to its previously announced policies, about which there has been considerable doubt.
The question I am sure that noble Lords might ask is: where is the money coming from in the Green plans? We have calculated that around £30 billion of additional funds would be available from rebalancing the tax system so that the super-rich pay their fair share and both people and planet benefit. There is enough money in our economy to make our country fairer and greener. What is lacking is the political will to change priorities.
Finally, I have a direct question to ask the Minister. The revenue side of the fiscal projections assumes that the 5p per litre cut in fuel duty will end in April and that the levy will then rise in line with inflation. This comes to a total of £6 billion a year, but of course fuel duty has not risen since 2011. I know that I cannot ask the Minister what will be said in the spring, but I can ask her to acknowledge that there is a significant gap in the Chancellor’s figures if he does not put fuel duty up in the spring by 8p per litre.
Lord Northbrook (Con)
My Lords, when I listened to the Autumn Statement, it seemed to contain only good news. On the economic front, public sector net borrowing is reducing; on the tax front, national insurance rates are being cut; with regards to pay, the national living wage is going up by nearly 10%; on benefits, working-age benefit is increasing by nearly 7%; pensions are receiving an 8.5% increase; and businesses are getting permanent full expensing for the cost of qualifying plant and machinery. In other areas, I welcomed help with business rates for smaller companies, reforms of the planning system, additional investment zones, assistance for landlords with housing benefit, and permission for property conversion.
All these measures are most welcome, but when you stand back and look at the overall economy, wage, benefit and tax situations, a much less rosy picture emerges. I am in the camp of my noble friends Lord Frost and Lady Noakes on this. Looking at economic growth, other noble Lords have highlighted the weak growth figures for 2024 and 2025, so I will not repeat that. However, I make a plea to the Minister to make equivalence for the asset investment management business a priority, since this industry has been thrown to the wolves since Brexit.
I move on to the borrowing situation. Our total government debt was £2.6 trillion in October and interest on the debt is forecast at a horrendous £116 billion this year. Not helping on the debt front was the fact that there was too little monitoring of some handouts, especially in the area of Covid bounce-back loans.
On the minimum wage front, the large increase could put considerable pressure on businesses struggling with their overall costs. According to the Sunday Times, business leaders are sounding the alarm that the 10% increase in the minimum wage will substantially drive up their costs and undermine efforts to reduce inflation. The jump was beyond the top of the range recommendation of the Low Pay Commission. Although business leaders recognised the moral case for the rise, they are fretting over the economic impact. Steve Morgan, the founder of the housebuilder Redrow, said that the Government
“don’t realise the knock-on effect of wage rises”
on inflation and
“on those higher up the pay scale”.
Adrian Hanrahan, who runs the Midlands-based chemical company Robinson Brothers, warned that the ripple effect would extend to skilled workers as they saw their less-skilled colleagues gaining ground on their pay. He said:
“They want a differential”.
On benefits, we have a record 2.5 million people who are economically inactive. Although I respect the problems of genuine long-term sickness and disability, this figure is still far too high.
On pensions, I feel that the triple lock system should be changed and increases tapered so that more support can be given elsewhere.
For businesses, the Chancellor failed to point out that, overall, the benefits of the full expensing of qualifying capital expenditure are more than cancelled out by the increase in the corporation tax rate from 19% to 25%. This is proven by looking at table 3.3 in the OBR’s economic and fiscal outlook and comparing it with table 4.3. The benefits of full expensing to companies forecast in the five years from 2023-24 is £19.6 billion, while the extra corporation tax burden in the same period is forecast as £42.8 billion. It does not take complicated arithmetic to work out that these corporate tax changes have an overall net cost to companies of an additional £24.2 billion.
For individuals, the tax and living standards situation is no better. I am sure the Chancellor was not happy that the OBR highlighted both these issues in its economic and fiscal outlook. According to it, the tax burden rises to 37.7% of GDP by 2027-28; that is the highest since the Second World War. The freezing of the personal allowance at £12,570—the point at which people start to pay income tax—means that, as the noble Lord, Lord Sikka, has already said, that 4 million more people will be expected to pay income tax between 2022-23 and 2028-29, according to the OBR. It also estimates that 3 million people will move into the higher rate band and 400,000 people will move into the 45% band. Living standards have recorded their largest reduction since the ONS’s records began in the 1950s.
The Government can turn round and say that all these tax rises were necessary to recoup the costs of state support during Covid and support for Ukraine. They could also point out that the inflation rate is outside their responsibility as it is meant to be controlled by the Bank of England. The sharp increase has deeply affected living standards; I am glad to see it falling. So I have some sympathy with the Government’s reasoning.
Also with regard to inflation, I repeat my previous assertion that the Governor of the Bank of England was asleep at the wheel, carrying on with quantitative easing for far too long and failing to recognise that earlier action was needed with regard to interest rates. In my view, there were obvious signs of price increases, such as in building materials, which should have raised inflationary alarm bells.
I was disappointed that the Chancellor failed to do anything on inheritance tax. I remind noble Lords that, when the then shadow Chancellor announced he would raise the threshold to £1 million in 2007, it was such a popular move that it stopped Gordon Brown holding a general election as the Conservatives surged in the opinion polls. If the Government are nervous about any change and wish to hold back until the Spring Budget, I cannot see any reason for this delay; there will be exactly the same criticism as now. The now well-respected GB News political commentator Piers Pottinger agrees with me that, while the Government are so far behind in the opinion polls, a bold measure such as this is required to win back Conservative voters.
I am also unhappy that the Government did not do anything about the “tourist VAT tax”. The extra benefits of scrapping it include the fact that it brings in additional tourists, who then spend extra money, particularly in shops, restaurants and hotels. In my view, that more than makes up for the revenue lost on VAT.
So, overall, although I am happy that the Autumn Statement did not spook the markets, I am sorry that it did little to reduce the overall tax burden—not that Labour are likely to do this; it could even increase it. The Conservatives are meant to be the party of lower taxation—something we need to remember.
Lord Davies of Brixton (Lab)
My Lords, when I first put my name down for this debate, I did so in order to get extremely angry about the announcement in the Autumn Statement on the end of free prescriptions for certain benefit claimants. However, thanks to the right reverend Prelate the Bishop of London, I can save my anger for tomorrow’s debate—save to say that it is a cruel and outrageous proposal that reflects so badly on a Government who have already lost much credibility and honour. Instead, I turn to the proposals in the Autumn Statement relating to pensions, which do not incur my anger; indeed, there are certain aspects that I positively welcome. But I do have some questions.
I welcome the Government’s continued commitment to the triple lock for increases in state pensions. Newspaper columnists and other commentators might speculate about the unpopularity of the cost of the triple lock but, in truth, there is overwhelming support for protecting state pensions, including with the triple lock, which is of particular help to those on low to middle incomes. In truth, the Government did not have any choice. This year’s increases are simply in line with the legislation and did not actually involve the triple lock.
It is worth mentioning here that everyone says pensions were increased by 8.5%, but they were not. No one’s pension was increased by 8.5%. Part of everyone’s pension was increased by 8.5%, but part of their pension was increased by 6.7%, because the triple lock applies only to the basic state pension and the new state pension.
Of course, it was not for want of trying that the Government complied with the triple lock—or the existing law, I should say. A series of kites were flown, clearly in line with government thinking. They might have fiddled with the index, although they did that two years ago and promised never to do it again. Another idea was to fiddle with the time period, but that would have been wide open to legal challenge. So, in the end, they made the right decision and complied with the law—admirable and a true reflection of public sentiment.
Turning to pensions, I welcome the new Minister to her post. I am sure that she will enjoy our future discussions on pensions, because the Autumn Statement included a whole series of proposals relating to pensions; we will have to wait and see whether anything substantial emerges from the proposals. The key of course was the Chancellor returning to his much-touted Mansion House reforms as the basis for
“a comprehensive package of pension reform that will provide better outcomes for savers, drive a more consolidated pensions market and enable pension funds to invest in a diverse portfolio”.
He oversold it a bit, I think; hope is a fine thing. However, I welcome some of the thinking behind these proposals, as they affect pension fund investment. Some of us have been arguing for years that pension funds should be invested in the productive economy and that this should be reflected in the bases used to estimate the contributions required to pay for the benefits promised.
Defined benefit schemes have had a tough time of late, but they still hold substantial funds available for investment, which should be used to grow our economy. Instead, for the past 25 years, they have been increasingly forced by regulatory errors and false concepts of what constitutes safety to invest in what the new City Minister has just called the “safest graveyard”. There was a de facto race to the graveyard for such schemes, with wind-ups seen as the preferred option.
Now, the Government have reversed their approach, with measures being promoted that they say are intended to encourage them to run on, to continue in operation, to continue in active life and to continue to pay benefits. The idea, it is argued, is that larger funds—involving some consolidation—will be able to take advantage of the expertise that is available to invest successfully and, hence, to increase growth in our economy. Can the Minister help us by indicating some sort of timetable for the implementation of these proposals?
A second key theme, looking at defined contribution schemes, is consolidation and the elimination of uneconomic “small pots”. There is also the idea of building on the success of Labour’s policy of automatic enrolment, or, to put it less charitably, “let’s learn from our mistakes so far”. The move here is to what is termed in the Statement as the “lifetime provider” model. How committed are the Government to early implementation of change in this area? I was present at a meeting yesterday with the new Pensions Minister and gathered the impression that the Government were only at an early stage of their thinking.
Finally, I want a commitment on the changes mentioned in the Statement to the rules on when surpluses can be repaid. The use of “repaid” is slightly misleading. The Statement says that this will include
“new mechanisms to protect members”.
The starting point is that the money in a pension scheme is the members’ money and should be used only where there is a benefit to the member. However, where discretionary benefits require the consent of the employer, it is possible that there is a deal to be done that can suit the employer and the members. But such a deal should be done only with the fullest disclosure to those who matter—the members—and only after consultation with them and the unions that represent them. This is obviously all subject to consultation, but I hope the noble Baroness will reaffirm the commitment in the Statement to protect members.
Baroness Lea of Lymm (Con)
My Lords, I was very encouraged by last week’s Autumn Statement and welcomed the policy changes, while recognising the Chancellor’s limited room for manoeuvre. However, before discussing these policy changes, I would like to put the Autumn Statement into some sort of economic context.
All too often, two recent, seismic economic events are overlooked or regarded as history, but their legacies still cast major shadows over the economy and inevitably restrict the Chancellor’s room for manoeuvre. The first event was, of course, the economic lockdown associated with the pandemic. There was a huge cost to the Exchequer, which the National Audit Office estimates at nearly £380 billion. That is about 20% of GDP. That is absolutely enormous. Unsurprisingly, the debt to GDP ratio soared and this debt needs financing. Also, lockdown severely hit the labour market. According to the ONS, the figure for the economically inactive—people aged 16 to 64 who are not in work and not looking for work; so, anyone who is over 64 is let off—was over 410,000 higher in the three months to July 2020 than in the three months to February 2020, prior to lockdown. This helps to explain the current tightness of the labour market, which is a major supply problem.
The second event, of course, relates to the soaring energy prices following Russia’s invasion of Ukraine in February 2022. This was a major inflationary shock to the economy, at a time when inflationary pressures were already building up, reflecting supply-side disruptions after lockdown. Of course, the burst of inflation triggered a cost of living crisis and has undermined real personal disposable incomes significantly. Arguably rather late in the day, the Bank of England began to tighten interest rates. Interest rates of course hit mortgage holders, along with the higher RPI inflation that the public finances by significantly boosting debt interest payments.
Despite these seismic events, the economy has proved quite resilient. Granted, overall GDP growth since 2019 has been pretty weak but it has been similar to France’s and has exceeded Germany’s. It has been more resilient than was widely expected by major forecasting bodies. It is worth remembering that the Bank was still forecasting a two-year recession for 2023-24 as recently as February this year. However, anybody who has done any economic forecasting knows that it is not an exact science—or art, I do not know which. It is all the more difficult when the ONS revises the underlying data quite significantly, as it did in September with the GDP data. This is not to criticise the ONS—your Lordships would not expect me, as an ex-member of the Government’s statistical services, to do that—but it is an attempt to provide some context to the difficulties and uncertainties underlying the Autumn Statement.
I note that the OBR concluded in its Economic and Fiscal Outlook that:
“The economy has proved to be more resilient to the shocks of the pandemic and energy crisis than anticipated”
in March. It upgraded its forecast for 2023 but cautiously downgraded its overall growth projections for the forecast period—perhaps too cautiously.
Turning to the fiscal outlook, the OBR’s forecast reduced public sector borrowing quite significantly, as higher inflation boosts revenues more than spending. This provided the Chancellor with a windfall, which he largely used for some judicious tax cuts while sticking within his main fiscal targets. Do not forget those fiscal targets.
Turning to the policy measures, there were two major tax changes, both of which were very welcome. First, there was a package of reduction of national insurance contributions, including a 2p cut in the main employee rate and help for the self-employed. Secondly, full expensing of plant and machinery costs was made permanent in order to stimulate business investment and productivity, as already mentioned. Full expensing was initially reduced in the March Budget but only up to financial year 2025.
Given the aforementioned limited room for manoeuvre, the Chancellor understandably treated these two major sets of tax changes as his priorities, and I fully understand that. Suffice it to say that it is clear that he did not have the leeway to address two key tax issues which are very close to my heart, and which noble Lords have already alluded to. First, personal income tax thresholds are due to remain frozen at financial year 2021 levels, up to and including financial year 2027. These frozen thresholds increase the personal tax burden through fiscal drag, as stronger wage growth pushes more taxpayers into higher tax bands. Secondly, again as already mentioned, the Chancellor cut the main corporation tax rate from 25% back to 19%. As I said, I appreciate that his room for manoeuvre was very limited, especially as he had his eye on those key fiscal targets. However, it is instructive to note that, as already mentioned, the tax to GDP ratio will be increasing over the next five years to a post-war high of nearly 38% by financial year 2028. This is despite the tax cuts in the Autumn Statement. Perhaps, however, there might be further tax cuts in the Budget.
Finally, I note the Chancellor’s back-to-work plan, which he announced with the Secretary of State for Work and Pensions: getting people with sickness or disability, and the long-term unemployed, back into work. This is absolutely excellent, not least considering the substantial increase in the economically inactive compared with pre-lockdown, to which I referred earlier. Therefore, the plan must be welcomed. We must get these people, if they can work, back into work, and help the economy. All in all, it was an encouraging Statement, but let us be aware of the difficulties ahead.
Lord Weir of Ballyholme (DUP)
My Lords, I join others in welcoming the Minister to her new role. Also, in the spirit of trying to have a balanced approach to the Autumn Statement, there are a number of aspects which I welcome. It is a relatively small intervention, but the additional finance announced by the Chancellor to combat anti-Semitism is particularly pertinent at this time, and I think the House can unite around it. Similarly, the Government’s commitment to maintain the triple lock on pensions is important. When my party entered into a confidence and supply arrangement in 2017 with the Government, we insisted that it was a key part of the agreement. It is good to see the Government honouring that.
I also welcome the increases in the national living wage and in the benefits uplift. While there is a bit of a mixed bag on personal taxation, at least the reduction in the national insurance contributions will offset some of the pressures that are there from the failure of the Government to alter the rates at which personal taxation is paid. Similarly, from a business point of view, some of the interventions around incentivising capital investment are also to be welcomed. To that extent, I do not take great issue with a lot of the things announced in the Autumn Statement; I have a greater problem with its missed opportunities.
The Government have rightly said—the Minister raised it today—that they place at the heart of the Autumn Statement economic growth, productivity and trying to ensure that the private sector grows at a much faster rate than the public sector. Those aspirations are all to be welcomed, but I do not necessarily see corresponding measures in the Autumn Statement that will help facilitate them. It is a great disappointment that the headline rate of corporation tax remains at 25%. Although there have been some small adjustments, and even the slightly lower rate of 19% for some businesses, it leaves the United Kingdom in a less competitive position than it should be when it comes to attracting international investment.
When one talks about corporation tax, it is easy to get drawn into the cliché of seeing this as some sort of device for global corporatism to benefit, but that is quite a short-sighted approach. Similarly, there has been a myopic approach taken that does not realise that a reduction in corporation tax can lead to a much greater tax yield. One looks to our near neighbour, the Republic of Ireland, which for many years has maintained a corporation tax rate of 12.5%. Look at the impact of that rate on its economy: a country less than 1/10th the size of the United Kingdom is projected to have a budget surplus of around £56 billion or £57 billion in 2027. It is noticeable that at the low point for the Republic of Ireland in the economic crisis of 2008-09, when in effect it had to be bailed out by Europe, with contributions from United Kingdom, and faced a range of austerity measures, the one thing it held on to as an economic tool was maintaining that low level of corporation tax. We are being short-sighted in our approach to corporation tax in this nation, and the opportunities for it to be a major driver for economic growth have been abandoned for the moment.
Secondly, on attracting people back into the workforce, we know that the Government’s own statistics in the last quarter identified job vacancies at around 957,000. That was slightly down on the previous quarter, but the failure to fill vacancies quickly is still a major drag on our economy. Although there were very welcome announcements on childcare in the Spring Budget, this Autumn Statement not only fails to follow up on those measures but probably provides additional barriers to their implementation. For example, from the point of view of parents choosing and being able to afford childcare, the tax-free childcare allowance has remained unaltered. Similarly, it has been highlighted by early years organisations that, although they welcome the increase in the national living wage, creating a situation in which a large number of their workers are getting a considerable boost to their incomes comes with a severe cost to those organisations. Without corresponding government support for those childcare organisations, the sector’s capacity to deliver what are ambitious targets for the expansion of childcare is, in effect, meaningless. It has been estimated by the National Day Nurseries Association that the number of nurseries closing in this country increased by 50% in the last financial year. If we are to deliver on childcare, which has such a major impact on our economy and children’s life chances, we need to ensure we have a joined-up approach to ensure that we can deliver that.
Finally, I will mention a more parochial issue: the Government’s failure in the Autumn Statement to look at the fiscal floor for regions of the United Kingdom. Although there is a Barnett consequential in the Autumn Statement of £185 million for Northern Ireland, £75 million is immediately absorbed through paying back overspend for the previous year, leaving £110 million for this year. Yet the Northern Ireland Fiscal Council indicates that if Northern Ireland was on the same needs-based analysis as Wales and other regions, our budget should have been £300 million higher last year, £450 million higher this year and more than £0.5 billion higher next year. There has been an absence of any commitment by the Government to deal with that.
In conclusion, this Autumn Statement produces some short-term benefits—perhaps that is what we should expect in what is likely to be an election year—but the ability to grasp long-term economic solutions for the whole United Kingdom has been missed on this occasion, and that is a severe disappointment.
Lord Balfe (Con)
My Lords, I also welcome the Minister to the Treasury bit of the Front Bench, having dealt with her extensively in her previous job as Aviation Minister.
I look at the Autumn Statement and I think it is fair enough, but there is no inspiration in it. Next year we are going to be going to the country and asking people to vote for our party to continue in government. A random selection of my friends yielded no one who was particularly happy with this Statement; they think it is a Statement for other people. Within this House we are always hearing about the poor, but we never hear about the people who make the money that keeps this country going. They are people who go to work every morning, have qualifications and work hard. In a democracy there is no such thing as gratitude; people look to Governments to improve their standard of living. That has not happened recently and, indeed, there is a feeling abroad that the British state has been captured by the Civil Service and the woke brigade. The biggest example of that is the National Health Service. It has never had more money or more staff, and it has never had more problems, which it appears incapable of solving. All we get are calls for more and more money when, quite clearly, the system itself is not working.
I will give the Minister three things that I would like her to take back to the department and look at. First is the reform of death duties—inheritance tax. No one will believe you if you put it into the next manifesto. They will say that George Osborne promised this in 2007 and it was never delivered. Do we, on this side of the House, honestly believe that an incoming Labour Government will reform inheritance tax? I think it will be well down their list of priorities. But many people in Britain, particularly in the middle classes who keep this country running, hope to inherit part of a house, and about 30% of them believe that they will end up paying inheritance tax. The Minister has not only to reform it but to get it into law before the election. If it is in the manifesto, no one will believe we will carry it out because we have not done so in the past.
Secondly, I will mention the freeze on tax thresholds. Every year, the Britons who are just managing may get an increase in their income, and then they are pulled into higher-rate taxation. There is virtually no incentive to do anything. To say it is frozen until 2028 because of various government things is marvellous for the Government, but that is not going to incentivise anyone to vote for the Government. No one is going to get up and say, “Oh goody, by the time this Government come to an end, they may or may not have delivered on some promises that they have made and, frankly, do not have much of a record in carrying out”.
The third thing is child benefit. Its withdrawal rate has been frozen at £50,000 for 10 years, which means that more and more families are losing out. If the Minister thinks that a family with two children and an income of £50,000 a year is a rich family, she needs to think again. They are not; they are struggling. Even paying nursery fees is difficult. I ask the Government to look at this, please—look at increasing the threshold, changing the taper or doing something to help the hard-working middle class, which is losing its benefits all the time. I declare an interest here, because this affects two of my three children. My third child does not have any children, so this affects both of those who do.
My daughter was a convinced Conservative long before I was. At nine years old, she stood as the Conservative candidate in her school election in 1997. Note that it was 1997, and she was a Conservative candidate. She actually came second and was beaten by the Green—you can tell it was a private school. She said to me on the weekend, “Dad, what are they actually offering families like ours at the end of the Statement?” The Minister will have to go back to the Treasury team meetings—I know it is not within her gift to change these things—to ram home that we need changes in these areas for the hard-working, middle-income, middle class.
My final point might please the noble Lord, Lord Sikka, although he is not in his place. We somehow need to find a way to tax the billionaires who jet in from Monte Carlo and keep their savings in the British Virgin Islands and all over the place. We seem to put no effort into taxing them. This is not just for Britain—it needs an international move—but there is no sign of anything happening. Can we please get together? If people thought that the Government were trying to get some money out of these tax dodgers, they might feel warm towards them. At the moment, the feeling—and this applies equally to the Labour Party—is that they are not bothered. Could the Minister please remember that you have to win an election, as well as have a nice and very sound economic statement? We need to win an election, please.
Lord Londesborough (CB)
My Lords, just two weeks ago during the debate in this place on the King’s Speech, I admitted to being baffled by the Prime Minister’s comments in his introduction. He talked about a “vibrant economy”, which had “turned the comer” and was making investors excited. I should declare that I am an investor in British SMEs, so I was somewhat concerned, rather than excited, to see that the Chancellor appears to have been drinking from the same bottle of Kool-Aid.
In his introduction to the Autumn Statement, the Chancellor says that he is delivering
“the biggest business tax cut in modern British history”
backing
“British business with 110 growth measures”.—[Official Report, Commons, 22/11/23; cols. 325-36.]
He said that we sit in “Europe’s most innovative economy”, which is soon to become an “AI powerhouse”.
That is mouth-watering stuff but, before I rush to invest, let me indulge in some due diligence with the help of the OBR. First, GDP growth of 0.6% this year will accelerate to only 0.7% next year. The tax burden will continue to rise over the next five years to 38% of GDP, the highest rate in modern history, and our interest payments on debt will grow to £122 billion per annum. That is triple what it was a few years ago, raising questions around debt sustainability. Your Lordships may well ask how 110 growth measures deliver so little growth. Is the OBR being excessively pessimistic? Apparently, it is not; the Bank of England is forecasting 0.1% growth next year and just 0.2% in 2025, and most independent forecasters are more bearish than the OBR.
Whichever forecast we take, the problem remains: there is virtually no growth momentum in the economy. As we know, that so-called fiscal headroom to usher in £20 billion of tax cuts was driven by inflation. That is fiscal drag, not economic growth, and it is set to continue. That is why we are heading for the highest tax burden in 70 years: it is a percentage of something that has ceased to grow. Our GDP is stuck at around £2.3 trillion, which is not sufficient to finance public services for an ageing and increasingly unfit population of 67 million, let alone to invest in the nation’s infrastructure.
The Chancellor is rightly concerned about our low productivity, especially in the public sector, yet there is little in this Statement to address that, bar reducing the size of the Civil Service. If we are serious about the “long term”, which is an expression that the Prime Minister and the Chancellor keep harping on about, we need relentless focus on our productivity, which continues to lag behind France, Germany and the US by disturbing margins.
This is not just about pushing up low levels of business investment or providing tax breaks, such as full expensing—welcome though those measures are. Ask employers around this country what the biggest block to productivity is and they will tell you that it is the workforce, not just the supply of labour but the calibre. We need a long-term qualitative approach to improving worker productivity. That involves skills, training and proper levels of investment in education, yet our education budget is not even keeping pace with inflation. In fact, we will pay more interest on our debt this year than we will spend on the Department for Education’s entire budget.
We are still waiting for per-pupil funding to return to 2010 levels, in real terms—a pledge, incidentally, that Rishi Sunak made several years ago as Chancellor. We now have 9 million adults in England who have low basic literacy and numeracy skills. That is a huge productivity blocker in itself.
At the other end of the spectrum, 40% of our graduates are leaving university unable to find graduate-level employment, while saddled with an average £40,000 debt that they will struggle ever to repay. That is a damaging mismatch of skills and vacancies, and a terrible waste of talent and money. We need to address it.
As for skills and training, the Chancellor is stumping up a derisory £50 million over the next two years to increase the number of apprentices in engineering and “other key growth sectors”. To put that in perspective, it is less in annual terms than the wage bill of a second- tier football club such as Norwich City—no disrespect to the Canaries.
I find myself, for the fourth time in my relatively short career in this place, urging the Government to set up a permanent productivity council, headed not by politicians but by leading practitioners from both the private and public sectors, to address the long-term challenges of generating real economic growth. I would appreciate the Minister’s response to this suggestion, for we are in desperate need of a long-term plan for the economy and to generate a growth culture. This Autumn Statement, like its predecessors, simply misses the mark.
Lord Harrington of Watford (Con)
My Lords, I join the long line of people welcoming my noble friend to the Treasury and the Front Bench today. I have a lot of respect for her personally and she has done the jobs she has held within government extremely well. Before she was in this House, she had a very noble cause as well, which we worked on together in 2016. I hope that her current position is more successful for her than that was for us.
I am here today to speak about a document. For those who got all their papers from the Printed Paper Office, or from the Table Office in the House of Commons, there was a separate one buried deep within them called the Harrington Review of Foreign Direct Investment. I feel that I should restrict my comments to that, and I will happily test any Member of this House to see whether they have read it—I am looking at the Minister. It is only 125 pages. I do not think that it will get in the Amazon bestseller list of books, but I feel it is of some significant interest, not least as the Chancellor in his Autumn Statement fully accepted its principal recommendations. What the report has brought out will be a basis for some reorganisation of government to make it more friendly towards foreign direct investment.
The background to the review is that the Chancellor asked to see me and said that he was disappointed that we were losing some significant foreign direct investment deals. That does not mean that it is a disaster—we are good at foreign direct investment—but he wanted me to look deeply into some of the deals that we had lost, find out exactly the reasons why and come up with some recommendations to deal with them. Of course, it is very easy for some people to say that it is all because of Brexit—I would have liked to have said that—and for other people to say that it is all because of corporation tax. However, the evidence we got from interviewing more than 200 companies—sovereign wealth funds, pension funds and multinational companies, mainly—is far more complex.
This country basically has what I call a 15-love advantage, as in a tennis game: the clichés about companies liking the rule of law, the language and the fact that they can get executives who want to live and work here are absolutely true. That is where the 15-love comes in. However, there is then a story of a number of factors that seem to get in the way of investment. The grant system, the investment system that the Government have, which is comparatively generous—more generous than I first thought—is very difficult to get hold of. It takes a long time, and there is a general feeling that prospective investors are moved from one department to another. There is then a series of other obstacles, such as planning, visas, skills, the grid, et cetera. These are all well documented.
With the time available—noble Lords are very fortunate, as my last speech on this subject was 55 minutes long and I have only three more minutes to go—I note that we have a number of suggested solutions to this: restructuring the government, having a senior-level committee for investment chaired by the Chancellor and having an Investment Minister over three departments. Their responsibility would basically be to supervise all investment decision processes from the beginning of the inquiry through to their completion. Each relevant department would have a Minister and a senior member of the Civil Service, part of whose responsibility would be to push forward investment. No longer would the Home Office say that it deals with visas and the investment angle is not really its problem; nor would the DfE say that it does skills but does not take investment decisions into consideration.
In the end, I found in the evidence I received that the view of some Members of these Benches about the future of how government should organise itself—basically to do as little as possible, cut taxes and leave it to the market—is completely fallacious. In a business—as far as attracting investment, the Government are one—you must do what your competitors do. People have a small-state fantasy about countries such as Singapore and others—that we can be Singapore-on-Thames. But these countries get totally involved in investment decisions, and many of them throw money at companies to entice them to come here.
We are not market-makers but market-takers, and we must do what our competitors do. We must give companies the incentives to come here; we must provide a quick and efficient package to include the money, energy and all the things they look at for an investment decision; and, above all, we need consistency of policy. This has been shown with net zero: policy on internal combustion engines has changed three times since we published the industrial strategy in 2016. We need consistency of policy and very efficient government machinery to deliver it. I hope all noble Lords will read the report, and I look forward to discussing it in future.
Lord Lee of Trafford (LD)
My Lords, I want to focus my remarks this evening on the 39% stake that the Government still have in the NatWest bank. In the Autumn Statement, the Chancellor indicated that the Government were considering disposing of their holding over a period, suggesting also that they might go down the “Tell Sid” route of early privatisations.
I want to suggest something very radical. I think it is accepted that, in this country, there is near zero financial education in our state schools. I suggest that the Government gift, say, £5,000 worth of the NatWest shares that they own to the 4,400 state secondary schools, to be held for the long term. That would cost the Government only something like £22 million. That £5,000 worth of shares would annually produce a dividend income of about £350. My suggestion is that the pupils themselves could decide, by voting, how that £350 is spent. Maybe it could be on an item for the school or to subsidise a school trip, something along those lines, or maybe even go to a local charity, but the pupils would decide. Similarly, they could participate digitally in the NatWest AGM.
In my judgment, this suggestion would raise awareness of how banks and the stock market operate. I am very pleased to say that, when I put this idea to the noble Lord, Lord Baker of Dorking, who drove the programme of introducing computers into secondary schools when he was IT Minister, he was very supportive. I was also very pleased to hear the noble Lord, Lord Howell, talk about wider share ownership a little earlier.
The Government also could and should provide a little money to enable approved speakers to go into schools to talk about financial education. Parallel to all this, I hope we can encourage PLCs, particularly those in the regions, to gift shares in their companies to the state secondary schools in their area, from which they draw recruitment or will in years to come. I put this idea yesterday to a public company chief executive and FD of a company that I am invested in; they immediately said that, yes, they would sign up and thought it was an excellent idea.
I realise that the Minister will not be able to give a reaction immediately, and I would not expect her to, but I hope that she will take this idea to the Treasury with her and that they will give it serious consideration. I hope that the Labour Front Bench will also perhaps consider this, because the opportunity may well come to them in a few months’ time.
Moving on, I was hoping that the Autumn Statement would reverse two early mistakes that I believe were made by this Government. First is the mistake that George Osborne made when he disallowed mortgage interest for landlords on their borrowings, which has had a massively negative effect on the private rented market. As we know, landlords are leaving the market and selling up, and I was hoping that would be reversed. Secondly, there is the decision that I believe the present Prime Minister made when he was Chancellor of the Exchequer to disallow overseas visitors from reclaiming VAT. There has been a massive campaign, as the Minister and the House will know, by our hoteliers and virtually all our leading retailers and restaurateurs to try and reverse the present situation and give us back a level playing field.
Finally, if the Government and the Treasury are looking to save money, I suggest that they look at the 60,000 civilians employed by the Ministry of Defence. It is an extraordinarily high figure—we have only about 70,000 in our Army—and has hardly changed over the last five years. In fact, if anything, it has slightly increased, despite the fact that our forces have been reduced. Almost every large employer in the country will have reduced their headcount over the last few years. We have had developments in automation, video conferencing and similar, yet the civilians employed by the MoD stay stubbornly at this figure of 60,000. I suggest that the Government and the Treasury look at this and see if they cannot reduce that headcount and move the money saved from the blunt end, as it were, to the sharper end of our Armed Forces and equipment for our Armed Forces.
Baroness Lawlor (Con)
My Lords, it is a great pleasure to welcome the Minister to the Front Bench and I wish her every success. I am very glad to follow the noble Lord, Lord Lee of Trafford, with his very interesting suggestions on educating youngsters, particularly on investment and shares, and applaud his work over many years in that area.
I declare an interest as the founder and research director of Politeia, a think tank which has published a great deal on many of the matters raised by your Lordships today and in the Autumn Statement, particularly on levels of tax and public expenditure and their impact on the economy and inflation. Other noble Lords have commented on many aspects of tax and public spending. My noble friend Lady Lea spoke on the wider economic context. My noble friends Lady Noakes and Lord Frost considered the overall context and the impact of the size and power of the state on economic growth. We heard an interesting vignette from my noble friend Lord Dobbs earlier on what happened in the United States economy when we saw success moving from the sunshine state and the north-east and New York down to Texas. There are lessons for this country there.
I welcome the lower inflation figure of 4.6% and the forecast that inflation is due to fall to 2.8% by 2024 and to reach the 2% target in 2025. My noble friend Lord Northbrook commented on inflation and asked very pertinent questions about the role of the Bank of England and its governor. Perhaps I might reflect on questions prompted by the Bank’s remit of the inflation figure target of 2% of GDP. Given that inflation in the 28 years to 2020 was 2%—a rise of 2% in the CPI—what were the authorities in the Bank thinking when inflation went up five times that much over the next two years to reach 11% in October last year? Did they expect it? If not, why not? We might recall the question asked by Her Majesty the late Queen Elizabeth when visiting the LSE at the time of the financial crisis in 2008: “Why did nobody notice it?” It was a question to which economists were then just beginning to turn their attention. Indeed, one answer given in 2021 to our current problems and since was that the rise in inflation was due to external shocks: Covid, the Ukraine war, escalating fuel prices and so on.
The noble Lord, Lord Dobbs, has already referred to the House of Lords Economic Affairs Committee report Making an Independent Bank of England Work Better, and I too congratulate its chairman and committee. The report, published this week, noted the importance of an independent Bank in achieving price stability, but mentioned that public confidence had fallen in the Bank of England, given that inflation has remained above target. While the report referred to supply shocks, it also noted that the
“above-target inflation over this period also reflects errors in the conduct of monetary policy, including an over-reliance on inadequate forecasting models”.
Although not alone among central banks in failing to anticipate the high and persistent inflation, the report suggested that there may be
“a lack of diversity of view in the Bank of England and wider central bank community”,
and that
“Some witnesses … considered that the inflationary potential of elevated rates of money supply growth were given insufficient attention by the Bank”.
Here I agree with the noble Lord, Lord Dobbs, that perhaps Governments pay too much attention to the specialist advisers on whom they rely. The problem raised by the House of Lords Economic Affairs Committee highlights one of the significant changes in the measures and arrangements used by official bodies—that the money supply and the growth in money supply no longer tend to be used or considered to matter. Put less delicately, there may a tendency to groupthink.
The economist John Greenwood recently drew attention to the data available then and now on money supply growth, noting that each period of high inflation was preceded by a rapid growth in the money supply. This is a subject which the monetary economic and former Treasury adviser Professor Tim Congdon has considered over decades. Indeed, in April 2020 in the Wall Street Journal, Congdon predicted the return of inflation in the US with the highest annual rate of money growth since World War II. I welcome the Government’s commitment outlined in the Statement to lower inflation and their support for an independent Bank, but might it now be timely to include in the Bank’s letter a requirement, as Professor Congdon proposed, that the Governor of the Bank of England would write to the Chancellor when
“money growth is too high or too late relative to the 2 per cent inflation target”
and tell the Chancellor
“why the … quantity of money will prove compatible with future inflation close to the 2 per cent target”?
Such a requirement would be fully consistent with the operational independence of the Bank and, combined with other proposals from the House of Lords Economic Affairs Committee, would help the Bank as well as the Government, the Treasury and their economic advisers to take account of the diversity of data and view and ensure the right course is followed. No longer need a potential reluctance to take account of money supply growth be a factor in decisions which can have such a devastating effect on our economy and the lives and livelihoods of the people.
Baroness Meacher (CB)
My Lords, I, too, welcome the Minister to her new role on the Front Bench. I will speak briefly to express my concern about the regressive impact of the Autumn Statement on working households. I like and respect Jeremy Hunt and fear that the Autumn Statement reflects the undue influence of the right wing of the Conservative Party at present.
The OBR considered the tax changes of this Government, including those in the Autumn Statement, and concluded that tax as a share of the economy will rise every year to a post-war high of 37.7% of GDP by 2028-29, most of it driven by tax threshold freezes and strong nominal earnings growth, which together hit hard-pressed working families particularly hard. The Institute for Public Policy Research suggests that the national insurance contribution reductions announced in the Autumn Statement will largely benefit the best-off households. For every £100 spent on these cuts, £46 will benefit the richest fifth of households and only £3 of every £100 will go to the worst-off families.
Paul Johnson points out that the tax cuts in the Autumn Statement are funded by the promise of years of very low real-terms increases in public service spending. Of course, these services benefit the poor disproportionately. The Lib Dem Treasury spokesperson described the public services as on their knees after 13 years of Conservative Government. Clearly things are not going to improve.
A very small but highly regressive tax change is that on tobacco products. For me, this small tax change epitomises the unfairness of the Autumn Statement. In general, tobacco taxes will increase by RPI plus 2%. However, duties on hand-rolling tobacco products will increase by RPI plus 12%. These products are overwhelmingly used by low-paid people. Again, they are being penalised.
Finally, as the Minister mentioned, the national living wage will increase by 9.8% to £11.44 an hour from 1 April 2024. This will not compensate for the price inflation and tax changes in recent years. Again, those on low incomes will suffer.
Lord Horam (Con)
My Lords, viewed from the position of strict Treasury orthodoxy, this was a highly intelligent Autumn Statement. Indeed, the noble Lord, Lord Macpherson of Earl’s Court, who spoke earlier, said that it was above average, which I think is high praise in mandarin-speak. It was well thought out. I very much doubt whether it will fall apart, as some have in the past, and expectations in particular were well managed.
The main point, as is surely right, was help for business. The Chancellor said he was actioning 110 different ways to help business. Personally, I think that was about 100 too many, but none the less the thought was clearly right. In particular there was making investment fully expensed against corporation taxation. I know from my business career how important it was, when we came to that part of the year when we made investment decisions, to have the feeling that those investments were fully set against corporation tax. That would be a huge relief and a big incentive.
I also support the initiative the Government have taken in asking my noble friend Lord Harrington to produce a special report on foreign direct investment. He has come up with some interesting ideas, such as a concierge service for such investment. He is not in his seat at the moment, but he might be amused that the film “Barbie”, which is the epitome of sunny California, was actually made in his former constituency of Watford. What we can do in this country is quite remarkable. I even saw some distinctly British scenarios lurking in the background of the film “Napoleon”, which was rather interesting. Our creative industries are clearly in great shape. So we are supporting our innovative industries.
Looking at all of this, it seems that we are getting towards what I would describe as an industrial strategy: if it walks like an industrial strategy and talks like an industrial strategy, it probably is an industrial strategy, and I am delighted that we have got there.
I was also pleased with the support for the lower paid. I am always in favour of increasing the minimum wage. I also appreciate the 2% cut in employees’ national insurance. I agree that that is more debatable in view of the pressures on public spending, but people need a little bit of cheer at the moment and it does help growth. However, I suspect that the noble Lord, Lord Macpherson, is right that we will soon be back to talking about higher taxation, in view of all the inevitable demands there will be on public services.
That is the short term. In the longer term, I am afraid to say that we have been running the economy since what I call the Blair-Brown days in a very sub-optimal way, because it has relied on high and increasing levels of immigration. Some people think that mass immigration is good for the economy; it is not. It increases the size of the economy but GDP per head, which is what matters, is not necessarily increased. Indeed, large-scale immigration may decrease productivity. Putting it in the simplest terms, a worker needs capital to become productive. An immigrant does not bring capital with him. Therefore, the country has to develop capital to make him productive, on top of the capital it needs to develop for the existing population. Frankly, we are not very good at that—or we have not been recently. As we know, immigration also has very big downsides, which I will not go on to in this speech.
It need not be like this. When Margaret Thatcher and John Major were Prime Ministers, net immigration was usually around 50,000 per annum and the annual rate of GDP growth was greater than it has been in the last 20 years. I do not believe for a minute that Margaret Thatcher would ever have agreed to allow immigration to get to the level of 745,000, which it was last year. I do not believe for one minute that she would have authorised that.
We can also look abroad. We have recently had a visit from the President of South Korea. That country had a ruinous civil war that ended only in 1953, but its gross domestic product per capita, measured on purchasing power parity, is now virtually the same as ours—and it has almost no immigration. The same can be said for Taiwan and Singapore, which have no immigration to speak of and are as rich or richer than we are—so it can be done.
I suggest that the Government at the centre, in Downing Street or the Cabinet Office, take a long-term, holistic view of the demographic, environmental, societal and economic trends in the country and start to adjust the economic model that we have been pursuing over the last 20 or 30 years. Otherwise, I fear that the quality of life in Britain will continue to deteriorate and other countries that take a more rational or long- term view will continue to overtake us.
Viscount Hanworth (Lab)
My Lords, I was deeply perplexed when I listened to the monarch’s speech at the opening of Parliament and, equally, to the budgetary speech of the Chancellor of the Exchequer. The question I ask is: to what extent do these speeches represent an attempt at bamboozling the public, and to what extent do they represent acts of self-deception on the part of the Government? I have not reached any firm conclusion.
The Chancellor’s recent Autumn Statement is full of doubtful claims about the success of the economy. We hear, for example, that under the Conservatives our technology sector has grown to become the third-largest in the world—that is, double the size of the German sector and three times that of France. This seems to be patently untrue, and one may wonder what statistics are being misused to support such a claim. The truth is that our manufacturing sector has sunk to a proportionate level that is way below the corresponding levels of those other economies. What, then, is the technology sector to which the Chancellor refers?
In appraising the Autumn Statement, it is clear that many of its provisions, which include significant reductions in taxes, are intended to enhance the electoral prospects of the Conservatives. However, given how dim these prospects seem to be, one wonders about the extent to which the provisions are intended to embarrass a succeeding Labour Government.
The Autumn Statement has the intention of reducing public expenditure in the early years of the succeeding Government. It severely restricts the financial leeway available to them unless they are prepared to increase taxes. A Labour Government would be intent on repairing the damage that Conservative Administrations have inflicted on public services. Damage has been done to the health service, care for the aged and the finances of local government. Our schools are in a state of physical disrepair, as are our prisons, which are severely overcrowded. Much else needs to be repaired, and public sector wages need to be restored in some measure. However, if the trajectory that has been defined in the Autumn Statement were followed, none of these repairs would be possible. There is also an urgent need to repair the physical infrastructure of the economy, which includes the transport and energy infrastructure. Our water supply and sewerage system also require urgent attention.
Beyond these needs, there are huge and looming costs associated with the transition to a green economy and the fulfilment of the programme to achieve net-zero carbon emissions. Government support is required both to sustain technological innovation and to assist in establishing the facilities that are available to a net-zero economy. So far, little has been forthcoming. An example of the shortfall has been in the failure to satisfy the requirements of the automobile industry in converting to the manufacture of electrically powered vehicles. A precondition for a successful transition is the existence of an adjacent industry for manufacturing lithium-ion batteries. The Government failed to avert the collapse of the Britishvolt project to establish a mega-factory for manufacturing batteries. The project faltered for want of sufficient investment from the private sector—this is at a time when foreign Governments are investing heavily to establish those facilities.
The derelictions of the Government can be attributed, in large measure, to the prevalence of a political philosophy that limits state interventions and proposes that our industrial infrastructure can be sustained by private capital and the initiatives of free enterprise. State interventions are necessary to achieve the transition of our energy sector. The programme to restore our nuclear power faltered because the Government failed to recognise that it could not be achieved by the private sector alone.
Their response has been to imagine that instead we can rely on so-called renewable sources of energy. But here, the intermittence of these resources necessitates a means of storing the energy. In order to accommodate lengthy and unpredictable periods when the sun is masked and the wind does not blow, there is a need for a large amount of long-term storage. It is doubtful whether effective incentives can be devised to encourage the private sector to make the necessary provisions, yet the Government and the Civil Service blithely assume that they can devise a commercial model which will allow them to avoid any direct participation in providing the energy storage.
I earnestly hope that an incoming Labour Government will not suffer from the same delusions. They must take an active role in repairing the damage and in fostering the technological transformation of our economy.
Lord Jackson of Peterborough (Con)
My Lords, it would be churlish not to admit that the Government have faced some very difficult headwinds with the Covid pandemic and Ukraine. That is, of course, the economic background to the Autumn Statement. But this Autumn Statement is rather like a Christmas gift from an eccentric aunt—I have really tried to like it, but I just cannot. To paraphrase Walter Mondale in 1984: “Where’s the beef?”
It is very much an incremental Budget and does not seem to have a coherent, long-term narrative. I cannot work out, in fact, if it is the apotheosis or the coda of social and economic liberalism. Yes, there are some good parts—the 110 growth measures, the work capability assessments to get people back into meaningful work, the increase in the national living wage, pension fund reforms and the permanent full expensing of capital allowances—but that is against the background of huge demographic change, low productivity, low growth and a lack of meaningful reform after 13 years in social care, housing, planning, the National Health Service, government and the Civil Service. Of course, stagnant real wages are the largest reduction in living standards since the 1950s—under a Conservative Government.
Indeed, there are other good measures as well, such as the national insurance contribution changes, but even that is a sleight of hand by frozen allowances and fiscal drag. It is actually giving a tax cut via further borrowing, which was deprecated just a year ago when the same people criticised Liz Truss and her Administration. Debt will remain high, at 93% of GDP by 2029. On tax, we will be bringing an extra 4 million people into income tax in that period, and 3 million into the top rate. On public expenditure, our proportion of GDP will still be approximately 43% by 2028-29.
I will just challenge the Minister on a specific issue. The Resolution Foundation maintains that the spending power of unprotected departments, such as the Ministry of Justice and the Home Office, will be cut by 16% in the next five years. I think that is unsustainable for the delivery of public services, and I say that as a Thatcherite Conservative. Just today, the OBR said that there were no public spending plans beyond 2025, and that is a very worrying issue for any Government who are elected. Perhaps the Minister will answer that point later.
Economics is about the efficient allocation of resources, so I will mention three sins of omission and commission when we are talking about tough choices. The first is the triple lock. Paying 8.5% in pensions to people, many of whom have a very high disposable income, and uprating in line with inflation—effectively bribing a cohort with £30 billion—and making a capital transfer of funds from young people to older people is unfair, unsustainable and, frankly, cynical politics. I think that the Chancellor will look at that issue in the Budget in 2024.
I also need to make the point about immigration. We have increased the number of people in England and Wales alone by 3.3 million in the last 11 years. The most damning statistic in the Green Book is that per capita GDP is actually going down this year because we have so many people coming into the country, sharing the admittedly modest increase of 0.6% of GDP. That cannot be right. Immigration is important and is to be supported if you have a plan, but the net immigration figures of 672,000 announced last week are not a plan. The figure in 1997 was 107,000, and even in 2010 it was 294,000.
We must do something about the liberalised international student regime. There has been a 40% increase, to over 200,000, in work visas given to dependants. The definition of skilled work is now meaningless. Even the Labour Party is ridiculing this Conservative Government for the salary threshold policy, which is completely wrong. Yesterday, S&P Global research showed that less than a quarter of those coming to this country in the last year or so have come seeking work. It is an unsustainable position.
I know big business is addicted to cheap foreign labour, but it embeds welfare dependency, destroys social solidarity and cohesion, and is corrosive of democratic legitimacy when you have stood for election saying that you are going to reduce immigration. It kills incentives to train resident workers, to innovate and to improve productivity. If uncontrolled, unmitigated immigration is such a great thing, why is growth so flat and productivity so poor? There is no evidence that the level of immigration is anything other than cost-neutral. Most new migrants, particularly recently, are in fact net recipients of public expenditure and not contributors. They are an overall net fiscal cost. I certainly welcome the prospect of emergency legislation to address these issues urgently, but it may be too little and too late.
Previous speakers have mentioned welfare. Our system is broken. We will be spending £30 billion on universal credit in the next five years—a 40% increase. There will be 3.4 million people on sickness benefits. In 2010, 3,000 people each week were found by work capability assessments to be unable to work. That figure is now more than 35,000 a week; it is an unsustainable position. Demographic change and the triple lock mean that the system is creaking and falling apart.
In conclusion, whatever Government are elected next year, immigration and welfare must be a priority for tough choices to save our economy and public services from being overwhelmed. This Autumn Statement could have been a catalyst for those long-term decisions, and I hope that they will be taken into account in the Budget. It pains me to say that this was a very sad missed opportunity.
Baroness Thornhill (LD)
My Lords, amid such a body of economic expertise and experience, I intend to focus simply on some of the main headline-grabbing announcements on housing in the Autumn Statement. Interestingly, I will echo some of the thread of criticism made by many noble Lords.
Despite the rise in universal credit, pensions and the national living wage, the welcome big announcement, for those of us involved in housing, was the unfreezing of the local housing allowance to restore it to the 30th percentile. With homelessness at a record high, rising rents and a cost of living crisis, unfreezing housing benefits to cover the bottom third of local rents is an essential lifeline to keep people in their homes. But—and there has to be a but—it is still not restored to the 50th percentile, which was the benchmark in 2010, and, regrettably, it will not come into play until next April. It is nearly December. Surely the Government realise that this will leave many families facing an uncertain cold winter, with many facing the threat of eviction and subsequent homelessness, or spending their Christmas in one-room temporary accommodation—a grim situation for the most vulnerable. Will the Government reconsider and bring this decision forward?
The additional sting in the tail is that this rise is for one year only and will be frozen again from 2025, when the whole depressing cycle will start again. These delayed starts and later freezes are no way to run either a benefits or a housing system. Meanwhile, the increases in the local housing allowance, and benefits in general, will also bring more people within the scope of the benefits cap. Although that was increased last year, it has been frozen this year. Do we see a pattern? It is still way below what it was 10 years ago.
We also see in this Autumn Statement clever examples of smoke and mirrors—or, as the previous speaker said, sleights of hand. Take the amounts of money given to the extension of the affordable homes guarantee scheme: a £3 billion extension—good news. But these are loans to housing associations to allow them to build more affordable homes for rent. All good—but a loan compensates only partially for the lack of enough real new money being put into a system already creaking under the costs of decarbonisation, building safety, spiralling material and labour costs, and all the other factors significantly squeezing associations’ budgets. As they are the main providers of affordable and social homes, it is important that we recognise the precarious financial situation of some of the sector.
The social housing regulator has recently announced the downgrading of “a couple of dozen” associations over their financial viability, with the lower V2 assessment becoming “the new normal”. That reflects the economic reality for the sector. But the consequence of this harsh reality is that many have had to reduce their building and development aspirations, or put them on hold completely. This is a very poor state of affairs when the need for social homes has never been greater.
The Minister will rightly say that there is some new money. But take the third round of the local authority housing fund. It is hoped that £450 million will provide 2,400 new homes. Interestingly, the criteria for this fund have been tweaked to include use for temporary accommodation and housing Afghan refugees. Both those groups need secure permanent accommodation, but there are already more than 100,000 families in temporary accommodation, and about 21,000 Afghans have been resettled under different schemes and a further 1,054 entered the UK in the first three months of this year, requiring homes. It must be recognised that this has put real constraints on council budgets. Put quite bluntly, in areas of high-cost housing, properties are simply not there at an affordable price. Councils are now in the invidious position of competing with ordinary citizens to find homes to rent for their groups, putting more pressure on an already overheated market, with soaring rental prices.
Add to this the increasing waiting lists for social housing and, according to the most recent English Housing Survey, some 750,000 families living in overcrowded conditions—sleeping in hallways and living rooms, and sharing beds with parents or siblings. It is not an exaggeration to say that this money, however welcome, is a drop in the ocean.
There were also interesting headline announcements on planning. One was that there would be a new premium planning incentive, whereby local planning authorities would be able to recover the costs of major business applications, in return for guaranteed faster timelines. That will undoubtedly help cash-strapped councils, and hopefully speed up applications—but, given that only 15% of planning applications currently come from such businesses, it will be helpful but merely a plaster on the wound.
The fear is that council officers will concentrate on those cash-earning applications, while the vast majority of applications will be placed in the pile labelled, “To be dealt with as and when we can”. Given the serious recruitment issues that the sector faces, this will be a tough challenge. The Autumn Statement promises a pot of money for additional planning officers, but there are simply not enough trained planning officers in the system to make a difference in the short term. The bodies are simply not out there, and many go straight to work for the housebuilders, because—guess what—they can get significantly more money by doing so. Importantly, as with all the areas in development construction, the industry skills shortage is acute. This is probably the most significant barrier to speeding up planning applications and improving build-out rates. We need a longer-term training and recruitment strategy across all the skills within the construction industry and its supply chains. Never has the need been more urgent.
Lord Leigh of Hurley (Con)
My Lords, I will start where the Chancellor started, with his opening remarks. If I have to criticise those remarks, it is because he was far too modest. We have a growing economy. We are doing a lot better than he gave us credit for. The recent IMF figures show that average real GDP growth from 2010 to 2023—to take a period at random—was 1.53%. That is not great, you might say, but look at the lower figures for Germany, at 1.45%; France, at 1.18%; Spain, at 1%; and the Euro average, at 1.25%. Tick, I say.
Thankfully, my noble friend covered this in her opening remarks. She is a welcome addition to the Treasury team, and I give her a warm welcome. Congratulations as well to my noble friend Lord Harrington on producing his inward investment report, which was so well received.
Some would say “Well done the Tory team” on the growth to date, but I also congratulate the Chancellor on his first and opening pledge—not widely reported—to offer up to £7 million to the Holocaust Educational Trust and related organisations. For full disclosure, I am a donor to the HET. I believe it is so important to educate on and fight anti-Semitism, and I was proud to do so in Parliament Square this weekend.
This Budget struck me as perfect for the time: balanced and hopeful, with clear benefits for most as the economy recovers, and without any irresponsible giveaways. It promotes considered policies that make sense. For example, there were no changes to IHT, or even its abolition, as widely sought by some. Labour, on the other hand, seems to be flip-flopping on its previous announcements, which were to abolish business property relief for IHT. I do not know where they stand on it but, if they kept their word to abolish that, it would dramatically knock the AIM market which relies on it and almost every single private family company would be at risk of collapse when a shareholder passed away. I declare my interests, as in the register, but, even though it would probably help my business if business property relief were withdrawn, as everybody would have to sell, it would be a disaster for the country. Can my noble friend the Minister write and tell me how much inheritance tax is currently sheltered by business property relief, so that we can have a proper debate about it?
I welcome the announcements on research and development. However, as the chairman of the Finance Bill Sub-committee of the Economic Affairs Committee, I can confirm that we are producing a report on R& D tax credits in the near future, so I will not speak further on the detail of that today.
I am pleased to see a commitment to OECD Pillar 2. I know it is not popular with every member of my party, but the tax treatment of multinationals, in my opinion, needs urgent attention. If we do not get that right, I still want to see a digital sales tax, which I have consistently advocated.
I want to focus my remarks on just over three lines in the Green Book, in section 5.76. They were not even mentioned in the Chancellor’s speech and are on EIS and VCT. My noble friend will recall that, in the Conservative Party’s 2019 manifesto, a pledge on page 34 assures us that EIS and SEIS will continue—and there you go, it pops up in the Autumn Statement as a pledge to legislate to extend the sunset clause. I have to ask why we need to legislate. HM Treasury knows that this can easily be resolved by Treasury regulation. Perhaps I can help my noble friend by explaining the problem.
While we regard EIS as a tax relief or tax break, the EU regards it as state aid. As such, it is governed by the Windsor Framework, in as far as it includes companies which trade in goods—not services, just goods. Although at first sight this should apply only to those companies physically based in Northern Ireland, because Northern Ireland is still in the single market, I am afraid that the EU regards the regulations as applying to all of the UK, as it is possible for a company in, say England, to have a subsidiary company in Northern Ireland that might benefit from what it regards as state aid and we regard as tax breaks. To the extent that there is trade between Northern Ireland and the rest of the UK, the EU is concerned that this could give an unfair advantage to the Northern Irish company.
The Windsor Framework helps us by trying to offer a pragmatic route out of this. But it does not clarify whether we can say, with certainty, that we can abolish the sunset clause, or indeed make other changes that I would like to see in respect of EIS rules, which are currently too restrictive, without any EU permission. In the past, when we were a member of the EU, that permission would be granted by the EU if we could show—indeed, we had to prove—that there was an equity gap which meant that EIS was needed as state aid. It will be impossible to provide proof that there is an equity gap in Northern Ireland, mainly because the equity gap figures for Northern Ireland are simply not available. In theory, we could remove all companies engaged in goods from EIS—but what a disaster that would be.
So I think we are not looking at getting rid of the sunset clause that easily at all; at best, we might put it back a further 10 years. However, the financial services industry and the savings industry really need an urgent answer from the Treasury, if not today from the Dispatch Box then very soon afterwards, as to whether this proposal, which is in the Autumn Statement, has been squared with the EU. Do the Government have the permission of the EU to abolish the sunset clause, as is claimed? How depressing it would be to discover that we are still dependent on EU approvals for an otherwise excellent Autumn Statement.
Lord Desai (CB)
My Lords, I wish first to commiserate with the noble Baroness on having a very hard job: of sitting here listening to people and even having to answer questions. Let me assure her that I am not going to pose any questions to her in the course of my speech.
The Statement is not a bad primer for an election manifesto. It is not a serious Autumn Statement but just an election manifesto: “We are going to do such and such”. I should confess that I am an enemy of lower taxation and have been for all of my political life. There is a fallacy in the history of the Conservative Party’s economic policy, which still prevails in this Government after 13 years. They believe that Mrs Thatcher cut taxes, but she actually did not. There are people here who were partners in that crime, so I can tell them about this.
VAT was doubled in the first term of Mrs Thatcher’s Government, from 8% to 15%. The said, “We didn’t quite double it”, because it went up only to 15%. There was money from North Sea oil and from privatisation. This allowed some tax cuts after Lawson became Chancellor of the Exchequer—this was after several years. It was miserable, I can tell you. Until about 1987, it was very miserable and taxes and interest rates were high—up to 15%. I do not want anybody to think that it was nice and happy. It was successful, but to be successful you have to be hard on the economics. You cannot go on planning picnics when you do not have any food in the larder. That is why I worry about this Government. Being a Cross-Bencher, I do not have to worry about which party will come to power, but to believe that tax cuts increase growth is a fallacy that I can disprove any time anyone wants me to. I can give the numbers for that. After the Lawson tax cut, there was a recession, as everybody remembers, and a deficit in the Major Government’s budget.
As the noble Lord, Lord O’Neill, said, if you look at other countries’ taxation, those with higher tax takes than us are richer than us and have a better growth rate. There is an idea that somehow tax cuts raise growth; there is no evidence in the British data on that—and I can tell you that as I used to do this thing for a living. What is interesting is to ask, “Why has growth been so miserably low for the last 13 or 15 years?” I am really surprised when people say, “The growth has gone from 1.5% to 1.6%—how exciting!” As a statistician, I would say that a difference of 0.1% is not statistically significant and nobody should even talk about such small numbers. Anyway, we will let that go; we are not supposed to be a numerate country, so that is all right.
The problem is that we have, at least in this Government, ample proof that, any time you talk about tax cuts, the markets panic and put up the cost of borrowing—so, please, can we stop talking about tax cuts while the deficit is high? We have some room this time, which we have given away in tax cuts, because of inflation. Thanks to inflation and fiscal drag, we had some surplus to spend. But if inflation goes, that surplus will go and the deficit will increase. So please can we not have tax cuts, because it will wreck the economy before the next Government come to power?
I want to propose one tax increase that will actually be growth enhancing. I say that because, more or less ever since the Thatcher years, we have indulged in a luxury that is costing us a lot of money. It is a luxury much beloved by the Conservative Party and by most of the middle classes—who are, according to my friend the noble Lord, Lord Balfe, the people who work. Of course the poor do not work, according to him; only the rich work, which is all right; I do not mind that. The luxury is home ownership. We treat home ownership as one of the biggest tax breaks that I can think of because, when you sell your house, land being in limited supply, you will always make profits—and of course you pay zero tax on it if it is your principal residence. All your unearned capital gain is taxed at 0%. All good middle-class people, with their children going to private schools, if they have money, do not invest in equity; they invest in house buying. Of course you would.
The Resolution Foundation has the numbers about Mum and Dad’s bank: we spend an enormous amount—about £80 billion per year, if I remember correctly. The money invested there would go into equity buying if people had decent rental property. Housing services can be rented or owned; it should make no difference to the quality of the houses. But we believe in home ownership as the foundation of our democracy. If you believe in that, you will have zero growth, because investment supplies the funds of money coming from the middle classes. It will not come if they invest in bricks and mortar. Of course, when it comes to bricks and mortar, we love inflation. Do not knock inflation; inflation has helped you—and please, do not have any tax cuts.
Lord Sherbourne of Didsbury (Con)
My Lords, it is always a great pleasure to follow the noble Lord, Lord Desai. He always makes everything sound so seductive and simple.
This afternoon, we have heard many speeches from noble Lords welcoming the excellent provisions in the Autumn Statement. I therefore hope that the Minister, whom I also welcome warmly to the Treasury, will forgive me if I do not go down that avenue, because I want to focus on one point this evening, and that is the national debt that we have in this country. We are, at present, paying £100 billion a year servicing the debt. That is £100,000 million, or 10% of government revenue, and it does not pay for a single service. It is more than we spend on education, twice as much as we spend on defence and five times as much as we spend on local government, housing and communities. Of course, government spending is still outstripping government revenue, so each year we go on adding to our total national debt.
Imagine you have built up a huge credit card bill and that you cannot pay the interest, so you have to borrow to pay. That adds more to your debt and eventually the bank is going to say that you cannot go on borrowing. Germany is already in some difficulty. It has a constitutional court which constrains it, of course, but there may well be an emergency budget in Germany, and that may well put at risk its coalition Government. On Monday, here in the UK, the chief executive of JP Morgan described America’s fiscal stimulus as “drugs in the system”. He is reported as having said:
“we’re now spending a lot of money … That money is like heroin”.
There are only two ways to deal with overspending: more borrowing, which the Government are committed to reducing; or more taxation, and we should not pile more taxes on business or individuals. The answer has to be control of public spending. That means that this Government, and any Government, must sometimes say no. It is not easy, especially for Ministers in this House, because they are then given a very hard time by Members opposite. If there were to be a Labour Government —I hope there will not be, but if there were to be—we would soon see what stuff Labour Ministers in charge of spending departments were made of. I suspect they would be under enormous pressure to give in, and we would end up with higher taxation.
I want to make two observations about public spending. First, I believe that recent decisions to ring-fence the spending of certain government departments is unhelpful. Economic circumstances change. Priorities change. Giving some government departments protected status means that they are let off the hook in having to argue their case against competing and often more deserving demands from other government departments. My second observation is that it is very easy to call for efficiency savings, but these rather glib words conceal the deep-seated and complicated workings of public bodies. Take, for example, the health service. Yes, for millions of patients, NHS nurses and doctors provide outstanding care, but talk to them and they will often complain about lack of executive grip and lack of accountability, despite—or maybe because of—the layers of management. I accept that public bodies have a real difficulty because they are not subject to the market and competitive pressures, which should keep a commercial company on its toes.
Another problem is the difficulty which public bodies often have in letting go people who, decent and honourable as they may be, are not really up to the job. Only today, the National Audit Office is reported as saying that one in five government departments did not know how many underperforming workers they had, and that a majority did not know what happened to staff who were told to improve. If public bodies are to become more efficient and to manage resources better, there will have to be fundamental changes in administration, in personnel and in culture, and that cannot be done quickly. It will take time. The public sector needs executive managers with the right business experience and expertise. We already have some, but we need more, we need to retain them and we need to attract them. Of course, rewarding people of talent at all levels costs money, and public services cost money, so if we are going to cut borrowing and avoid further taxation, we will soon have to answer one of the toughest questions of the next Parliament: what should the state do and what should the state not do?
Baroness Kramer (LD)
My Lords, first, I welcome the noble Baroness, Lady Vere, to the Government’s Treasury Front Bench. Last week we debated a statutory instrument and I failed, until very late in the day, to congratulate her on her new role. I remain mortified by my absence of mind, so I repeat the welcome today. I also compliment her on tackling two of the most difficult topics in the portfolio: central counterparties last week and the Autumn Statement this week. I assure the noble Baroness, Lady Goldie, that no matter what the excellent qualities of her successor, in her portfolio she will be very much missed.
The headline message of the OBR is that, even after the Autumn Statement, and taking into account every government policy and promise, the forecast growth rate for the economy is essentially—and let me quote the noble Baroness, Lady Noakes—“uninspiring” and, to use my own word, stagnating. Only this Government would applaud and congratulate themselves on a Statement with that characteristic.
Living standards for ordinary people have fallen by £2,000 per household. Inflation and high interest are now expected to continue for longer. Indeed, the overhang of inflation will hold back people’s spending power for years. The cost of housing has now become a persistent crisis for many people, especially young people. On my Benches, my noble friend Lady Thornhill took us through the real-life experience, which is dire for so many people who are dependent on housing from housing associations. Typical households will soon be paying over £5,000 a year to service debt, driven largely by mortgage costs, and household saving rates have fallen sharply.
The Government use tax-cutting rhetoric, but ordinary people face a tax-rising reality for at least the next five years, thanks to the freezing of thresholds—the noble Lords, Lord Sikka, Lord Northbrook and Lord Jackson of Peterborough, all referred to this in various ways. Despite the rate cut in national insurance, a typical earner will pay £400 more next year in tax and national insurance, and a middle-income earner will pay £1,200 more. It is instructive, in understanding Conservative priorities, that the highest one-fifth of earners will receive five times as much from the national insurance rate cut as the lowest one-fifth of earners—that is a measure referred to by the noble Baroness, Lady Meacher, who is not yet in her place.
In the same vein, the Chancellor confirmed the dire message from the Department of Work and Pensions for the mentally ill and mobility-impaired members of our community: work from home or lose nearly £5,000 a year in benefits. Mental health charities are sending out almost emergency briefings, warning that home working rarely allows for hands-on support and can add to isolation, and that the costs of heating and wifi, and other necessary supports, can be prohibitive. Over the weekend, I had a conversation with some disabled people; they are genuinely frightened, having fought for the benefits they have got, only to find that they will now begin to lose them if they do not agree to home working, for which they are in no way prepared and often not capable. I do not think this is the way to save £1.3 billion a year in a civilised society.
Public services—already badly degraded, as referred to by the noble Lord, Lord Eatwell, my noble friend Lord Thomas of Gresford, and the noble Viscount, Lord Hanworth—will face real cuts, with, as others have said, the blows falling hardest on unprotected services, such as local government, which support the most vulnerable people. This was referred to in detail by my noble friend Lady Pinnock, who also pointed out that the numbers mean a cut in the clean-up of sewage, which is really going to disturb the many communities who are disgusted by the state of our rivers.
Public borrowing will still be at 94% of GDP at the end of the forecast period, and then only if we assume that fuel duty rises every year with inflation—a point made by the noble Lord, Lord Howarth. Infrastructure spending also has to be curtailed, and the public will have to accept collapsing public services.
Among advanced countries, we are now a high-debt country, and that fits with the issue raised by the noble Lord, Lord Sherbourne. I am particularly concerned and alarmed at the condition of the gilts markets, given not just the Government’s expected gilt issuances of over £200 billion a year but the determination of both the Bank of England and the pension funds to sell off gilts. The OBR worryingly concludes that private sector holdings of gilts will need to be the highest level on record next year and, over the forecast period, the highest sustained level this century. We will depend heavily on foreign buyers, and foreign buyers are volatile.
The Government have offered a carrot to businesses, with full expensing of new investment. That refers to expensing in year one; we have always had expensing over the accounting lifetime of the investment. However, read the whole paragraph; I read it in the same way as the noble Lord, Lord Eatwell. The OBR expects this to be fully offset by the faster retirement of existing capital. Modernisation of equipment and software is surely a good thing, but it is not the dramatic industrial expansion this Government seem to promise as a consequence of this particular tax change. The noble Baroness, Lady Noakes, put it well, describing it as a costly way to achieve a modest increase in investment. Meanwhile, the Government have largely neglected small businesses, which are the backbone of our economy, and certainly failed to grasp the need to wholly reform business rates.
The OBR makes it clear that the economic damage of Brexit—some 4% to 5% economic scarring—remains, and the noble Lord, Lord Sikka, drew attention to this. In her listing of all the events that have shaken the economy, it was notable that the noble Baroness, Lady Goldie, did not mention it, and yet it is the deepest and most permanent scarring, compared to the other features she carefully named—interesting. The OBR also reports that neither this Statement nor other Government policies, nor trade deals, are forecast to reverse the Brexit-driven collapse in our terms of trade by 15%. According to surveys by the Federation of Small Businesses, much of the drop in trade is tied to SMEs ceasing to export. Many British SMEs have been dropped from European supply chains, have lost buyers around the world because they can no longer guarantee European standards, or find the post-Brexit regime too costly and cumbersome.
Productivity remains below the rate before the 2008 financial crisis; frankly, no developed economy can be prosperous with productivity at this persistent level. I like very much the idea suggested by the noble Lord, Lord Londesborough, of a productivity council, and others have proposed ways in which to try to tackle this issue.
Demographics show that we are desperately short of a working-age population, given the size of our ageing population, and we are also short of skills. The situation is made far worse by the vast numbers on NHS waiting lists. My party would have reinstated the bank levy and strengthened the oil and gas windfall tax to tackle those waiting lists head-on, as key to reviving the economy—an issue referred to by my noble friend Lady Pinnock.
The Government’s Advanced Manufacturing Plan, published on 26 November, is positive news and I welcome it. The strategy is a bit scattergun, but it is definitely good news. However, it does not assure that the UK can build the industries of the future at sufficient scale. The plan itself exposes the problem, as referred to by the noble Lord, Lord Eatwell. The Government say:
“Other countries have embarked on large tax and spending sprees to claim a share of the global manufacturing market”.
The Government then claim the moral high ground in not following suit. The truth is that this Government have run this economy so badly that they cannot follow suit to compete with the US and the EU in support for the industries of the future. People might then start talking about Covid and oil prices, but they have hit all those countries as well. We have got to be in that competitive game. The noble Viscount, Lord Hanworth, talked about this in some detail, and I appreciated the advice we got from the noble Lord, Lord Harrington. I have not yet read his report, but I promise to do so immediately, because it sounds fascinating.
In this Autumn Statement, the Government found £27 billion of headroom, as referred to by the noble Lord, Lord O’Neill. But it was not the headroom that came from economic success, a point made by the noble Lords, Lord Londesborough and Lord Desai. The headroom came from two sources. The first is from the revenues that resulted from higher than forecast inflation, especially since the Government chose not to fund the hit to public services from such inflation. The second is from freezing the thresholds for income tax and national insurance. In the Autumn Statement, the Chancellor spent every penny of that headroom.
I do not claim that the Government faced an easy time in shaping the Autumn Statement—although one must admit that they have brought most of it on themselves. But where are the plans to recapture our access to European markets? Where is the investment in the NHS to rapidly cut waiting lists and allow people to return to work? Where is the capital budget to revive our faltering infrastructure? The noble Lords, Lord Macpherson and Lord Willetts, and others, talked about the importance of that public sector infrastructure investment.
I return to my earliest comments. Put the whole package together—the Statement, the promises, the policies—and the output, which surely is the measure, is economic stagnation for at least the next five years.
Lord Livermore (Lab)
My Lords, I join others in welcoming the noble Baroness to her new role. It is a privilege to take part in today’s debate, and a pleasure to hear contributions from so many eminent and expert noble Lords.
All of us here have benefited from the intervening week between the Autumn Statement and today’s debate, allowing us to consider in greater detail the Green Book and the Office for Budget Responsibility’s report, as well as analysis from other independent forecasters. What has become clear is the extraordinary difference between the story told to us by the Chancellor and the reality revealed to us by the numbers themselves.
The Chancellor told us the economy had turned a corner but in reality, growth was downgraded—revised down next year, the year after and the year after that. The Chancellor told us inflation had fallen, but he omitted to mention that the inflation forecast has actually been increased every single year for the next three years. The Chancellor told us that debt will be lower. What he did not tell us was that debt will actually now be 28% higher than when this Government came to power 13 years ago and is set to surpass £3 trillion for the first time ever. The Chancellor told us that take-home pay is going up, but he did not reveal that real household disposable income is set to fall next year, or that we are now seeing the biggest ever fall in living standards since records began. Of course, the Chancellor also told us he was cutting taxes, when in reality the tax burden will now rise every single year for the next five years, making this the biggest tax-raising Parliament ever, with the tax burden now set to reach its highest ever level.
Increasing growth is clearly the biggest economic challenge our country faces, with the Governor of the Bank of England warning since the Autumn Statement that the current economic outlook is the worst he has ever seen. It is therefore no surprise that many noble Lords mentioned growth in their contributions to this debate, including my noble friend Lord Eatwell in his excellent opening speech, and the noble Lords, Lord Macpherson of Earl’s Court, Lord Willetts, Lord Dobbs, Lord O’Neill of Gatley, Lord Londesborough, Lord Leigh of Hurley, and Lord Desai, and the noble Baronesses, Lady Noakes and Lady Lea. The UK’s growth record over the past 13 years has been poor. We have languished in the bottom third of OECD countries, with 27 OECD economies growing faster than us since 2010. Looking ahead, over the next two years no fewer than 177 countries are forecast by the IMF to grow faster than the UK. For this year and next, we will be 35th out of 38 OECD countries for growth.
Against this backdrop, we were told to expect an Autumn Statement for growth, and several noble Lords have mentioned the Chancellor’s 110 measures for growth. Yet, the Office for Budget Responsibility, having seen those measures, actually downgraded its growth forecast in each of the next three years. The economy is now forecast to be £40 billion smaller by 2027 than the Chancellor expected as recently as March. The latest outturn figures for GDP show that there was no growth at all in the third quarter of this year. Growth in 2024 is now forecast to be just 0.7%—more than halved from the 1.8% predicted in the Budget. The Bank of England’s view is that even this is too optimistic. Its latest forecast shows no growth at all in any of the next three years: no growth this year, next year or in 2025. Restoring growth to Britain must be our priority, and Labour has set out a plan to deliver that mission. Indeed, many of the Chancellor’s announcements last week were simply pale imitations of measures we have already set out.
As my noble friend Lord Davies of Brixton mentioned, the Chancellor spoke about unlocking capital by reforming pensions. However, Labour has already announced that we would go further, encouraging investment in British start-up and scale-up firms. On planning, the Government are simply attempting to follow Labour’s lead on how to encourage communities to host grid infrastructure, and on speeding up planning decisions. We also welcome the Chancellor’s announcing permanent full expensing—another measure we have been calling for. However, that does not make up for the years of uncertainty businesses have faced. How many billions of pounds of investment has our economy missed out on because of the Government’s delay?
Several noble Lords focused on inflation, including the noble Lord, Lord Howell of Guildford, the noble Baroness, Lady Lawlor, and the noble Baroness, Lady Goldie, in her very enjoyable speech. In the Autumn Statement, the Chancellor tried to suggest that the cost of living crisis is now behind us. In reality, the inflation forecast was actually increased by the OBR in every single year of the forecast period, and consumer prices in 2027-28 are now set to be 7% higher than previously expected in March. Inflation is still more than double the Bank of England’s target rate, and the Bank now expects inflation to stay above target throughout next year, with interest rates remaining at their current levels for “an extended period”. Indeed, on Monday of this week, the Governor of the Bank of England warned that interest rates will not be cut “in the foreseeable future”.
Interest rates have now risen 14 times to a 15-year high of 5.25%, while the average two-year fixed-rate mortgage at one point rose from 2.6% to over 6%. As a result, those re-mortgaging since July have seen their mortgage payments rise by an average of £220 a month. Some 1.6 million families have seen their mortgage deals end this year; next year, a further 1.5 million families will face a similar fate.
Therefore, the outlook for living standards remains truly bleak. It is of course welcome that the Chancellor has accepted this year’s recommendation of the Low Pay Commission on the minimum wage, but real wages are set to fall this year and real average weekly earnings are now set to remain below their 2008 level until 2028—a shocking two full decades of pay stagnation. According to the Resolution Foundation, this Parliament is now on track to be the first ever in which real household incomes fall, and we are now seeing the biggest ever fall in living standards since records began.
The centrepiece of the Autumn Statement was of course the Chancellor’s claim to be cutting taxes. Several noble Lords spoke about the Chancellor’s tax plans, including my noble friends Lord Howarth of Newport and Lord Sikka, the noble Lords, Lord Macpherson of Earl’s Court, Lord Tugendhat, Lord Northbrook, Lord Balfe, Lord Horam and Lord Desai, and the noble Baronesses, Lady Noakes, Lady Featherstone and Lady Meacher. The reality of this Autumn Statement is that the tax burden now rises every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever.
We on this side have argued that taxes on working people are too high and that we want them to be lower. We opposed the manifesto-breaking increase in national insurance that the Prime Minister tried to implement last year when he was Chancellor. Going into this Autumn Statement, the Government had already put in place 25 tax rises, amounting to £90 billion. That is the equivalent of a 10p increase in national insurance. So, while welcome, the 2p cut does not remotely compensate for the tax increases already announced. Indeed, the Resolution Foundation has calculated that, even after the measures announced by the Chancellor, households will still be £1,900 worse off.
As several noble Lords have observed, greater than expected fiscal drag also means that nearly 4 million more people will pay income tax, and 3 million more people will pay the higher rate. The combined effect is an average tax rise of £1,200 per household. According to Paul Johnson from the Institute for Fiscal Studies, the cut in national insurance rates
“pales into … insignificance alongside the long-term increase in personal taxes created by the six year freeze in allowances and thresholds”.
The IFS has calculated that—extraordinarily—almost every single person in the UK liable for income tax or national insurance will now be paying higher taxes overall. As a result, the tax burden will now reach 37.7% of GDP by the end of the forecast period, an increase equivalent to an extra £4,300 in tax for every household. This was not an Autumn Statement that cut taxes.
The reality of this Autumn Statement is very different from the story presented to us last week by the Chancellor. Despite the picture he tried to paint, the reality is that the economy is just as weak, if not weaker, after this Autumn Statement than it was before. The Government cannot undo the damage done over 13 years, because their economic approach simply is not working.
Growth was low before this Autumn Statement; it is even lower now. Living standards were falling before this Autumn Statement; they are now seeing the biggest fall on record. Taxes were high before this Autumn Statement; they are now set to be the highest in history. Far from turning a corner, as the Chancellor claimed, the economy is stuck with low growth and high taxes, and working people are still worse off.
Baroness Vere of Norbiton (Con)
My Lords, I am enormously grateful to all noble Lords for their very valuable and interesting contributions to today’s debate and for their kind words in welcoming me to my new role. I have to be honest that there were some very undignified ministerial tears leaving Transport after four and a half years, but of course I am absolutely delighted to be at the Treasury—it seems like such an easy job.
I am very grateful to all noble Lords who, wholly or partially, welcomed the Autumn Statement for what it is: a well-thought-through plan to grow our economy, thereby improving prosperity and well-being across the country.
Baroness Vere of Norbiton (Con)
Is that genuinely funny or is it just performative?
It will not surprise noble Lords to learn that I did not agree with all the points raised, but there have been others that have truly piqued my interest and I will take them away for further consideration.
I will first set out the context, which was noted by my noble friend Lady Goldie in her very spirited speech for an “old bird”. It is very important to think about the context of where we are and where we have come from. There were some notable exceptions, because many noble Lords just glossed the past few years and said, “Oh, it’s all the Government’s fault”. I note that my noble friend Lady Lea gave an excellent speech, with a very authoritative analysis of where we are.
We have faced a global pandemic and global economic headwinds generated by Putin’s illegal war in Ukraine. As a result of those things, we have made decisions. Other countries did not make exactly the same decisions as us; therefore, they had a different experience. The decisions we took included the Covid support of over £350 billion, and the cost of living support to dampen the impact of rising bills has exceeded £100 billion. I invite noble Lords to recall these interventions, because I do not, in my years on the Front Bench in this House, recall any time when the Opposition Benches, in particular, argued against them. In fact, in nearly all cases, I seem to recall many saying that it was just not enough and that more needed to be done during Covid and the recent cost of living challenge.
Therefore, when noble Lords turn around and complain about various elements of the state of our economy, I say that we have not lived in usual times. That is why this Autumn Statement is a blueprint to get our debt down, to get business investment up, to get inflation controlled, output boosted and taxes cut; and this is an Autumn Statement plan for growth. I reassure my noble friend Lord Dobbs that economic growth is and will be at the heart of this Government’s plans, and that the Government will do more on tax cuts when the circumstances allow. I understand that my noble friend Lady Noakes will probably never be happy with what the Government propose and their speed for the interventions that she would like, but I hope that she appreciates that we are making steps in the right direction.
On a minority sport, I also welcome the support of the noble Lord, Lord O’Neill, for the devolution deals: they do not get enough love and, combined with good local scrutiny, can make huge differences to parts of the country. One has only to look at the West Midlands and the great mayor we have there.
Turning to a few of the issues raised and trying to deal with them, I turn to my noble friend Lord Dobbs and his comment about experts and forecasters. When I was quite young, I was an investment banker for many years. I am well aware that forecasts are rarely 100% right. They are forecasts; we know that. However, it is important that we have a framework for decision-making, so I agree with him that forecasts are not gospel. It might have been my noble friend Lady Lea who said that they can be both an art and a science, and of course they get slightly less certain the further out you get. However, we need a framework to make our decisions, and that is why it is really important that we forecast where we think the economy is going to be and that we have the OBR to check our thinking. It is an educated view—a snapshot in time—but one that I believe is useful.
My noble friend Lady Lawlor made some very good points about inflation and its contributing factors. She talked about the role of the Bank of England and mentioned the report on that. I have to confess that I have not yet read that report, but I intend to very soon. I have already brought it to the attention of my officials, and I look forward to debating the report in due course.
My noble friend Lord Northbrook asked why we did not stop QE sooner. Of course, decisions on the size of the APF, which means something that escapes me now—oh, I believe that it is the asset purchase fund—and the pace of purchases and sales are those of the independent Monetary Policy Committee, and the Government do not comment on MPC actions.
My noble friend Lord Howell talked about the impact of high interest rates on government debt payments, and my noble friend Lord Sherbourne of Didsbury also mentioned debt, the size of interest payments and the consequences of those high levels. That is why this Government are absolutely committed to getting debt down, so that the actual cash cost of the debt comes down too. I cannot speculate on bank rates, of course, but we feel that by 2028-29 underlying debt will be 92.8% of GDP.
The noble Lord, Lord Livermore, whom I have not yet congratulated on his new role as shadow Exchequer Secretary—so that is all good news—talked a lot about the tax burden, and I hope I was able to demonstrate in my opening remarks why the tax burden is necessarily high, because we must pay off the debt that we had to accumulate, given the economic circumstances that we were in. He said that he did not think this was a tax-cutting budget, but the OBR has confirmed that decisions made by the Chancellor in this Autumn Statement reduce the tax by 0.7% of GDP—which is a tax cut. I am confused, but I am sure we will sort all that out.
Lord Eatwell (Lab)
The Minister just made a mistake. What the OBR argued is that the cut in national insurance means that taxes have risen less rapidly than they would have done otherwise, but that they have risen none the less.
Baroness Vere of Norbiton (Con)
The noble Lord is exactly right. But the counterfactual is what happened before the Autumn Statement. People are, in general, paying less than they would have done previously. Yes? Okay. We got there in the end.
Lord Eatwell (Lab)
People are paying more. In other words, the Minister is arguing a case for cuts in taxation. This is not a cut in taxation; it is a reduction in the rate at which taxes are increasing, but they are increasing none the less.
Baroness Vere of Norbiton (Con)
We are both correct.
The noble Lord, Lord Macpherson, asked whether it was the Government’s policy now to favour national insurance reductions over income tax reductions. I think I can say yes. It certainly was true for the Autumn Statement—so, for this moment in time, I think I am covered.
A couple of noble Lords mentioned inheritance tax: my noble friends Lord Northbrook and Lord Balfe. I can assure noble Lords that more than 93% of estates are forecast to have no liability in each year up to and including 2028-29. Those that do are very important in contributing to public finances and in helping to fund vital public services. However, as all noble Lords know, the Government keep all taxes under review, including inheritance tax. That also goes for the stamp duty suggestions mentioned by my noble friend Lord Willetts and the fuel duty suggestions from the noble Baroness, Lady Bennett.
I turn now to public spending. Many noble Lords called for increased public spending during this debate. I would read out the names, but it is actually nearly all noble Lords, apart from notable exceptions on the Benches behind me. Those who called for more public spending included the noble Baronesses, Lady Pinnock, Lady Featherstone, Lady Bennett and Lady Meacher; the noble Lords, Lord Howarth, Lord Macpherson and Lord Thomas; the noble Viscount, Lord Hanworth, and the right reverend Prelate the Bishop of Manchester. The list is extraordinary. However, on the list of noble Lords who came up with a plan for how to pay for those spending increases—a medal goes to the noble Baroness, Lady Bennett. She did come up with a medal.
Baroness Vere of Norbiton (Con)
A medal? I am going to come up with a medal. She is going to get it, because she came up with a plan. Of course, her plan was more taxes—but we knew that was going to happen, so that is okay. There was one other person who came up with a plan for how to pay for this increased public spending, and that was the noble Viscount, Lord Hanworth. He said to ditch the tax cuts. So there were two people. Everybody else just wanted to increase spending, and therein lies the problem.
Looking in more detail at some of the public spending that noble Lords were concerned about—and obviously I can reflect some of these concerns as well—the noble Baroness, Lady Pinnock, called for additional funding for councils so that essential services could continue. The Government stand behind councils up and down the country. The 2023-24 local government finance settlement provides councils with a 9% increase in core spending power in total, making available almost £5 billion in additional resources. It should be noted that local councils can also raise funds from local taxpayers for local services.
Personally, I live in Kingston-upon-Thames, which all noble Lords well know has a Liberal Democrat council—and my word, my council tax is eye-watering. I think it is one of the highest in the country. What makes me slightly laugh about this is that, despite having some of the highest council tax in the country, the Liberal Democrats have closed the swimming pool. The noble Baroness, Lady Pinnock, is very concerned about swimming pools. I suggest that she go to Kingston-upon-Thames and get them to open it again. There is not a lot of happiness around that.
Public spending also needs to be efficient and not greedy, as noted by my noble friend Lord Howell. It is really important that we set public spending on sustainable trajectories, delivering high-quality public services effectively and efficiently. This is why my honourable friend the Chief Secretary is leading an ambitious public sector productivity review. I hope that my noble friend Lord Sherbourne will share his thoughts with her, because we need to reimagine the way that government delivers public services. So often we fall into the trap where the amount of money put into something equates directly to its outputs. That would never happen in the private sector. It just does not happen. Outputs can be independent of the money that one puts in, and it is very important that, within the public sector, we get that and we try to do that.
I take on board the comments made by the noble Lord, Lord Lee of Trafford, about the 60,000 civil staff in defence. My former Secretary of State is now the Defence Secretary; I know him well, and I am fairly sure that he will already have looked at this in great detail, but I will nudge him in case he has not.
The noble Lord, Lord Macpherson, asked to what extent the Autumn Statement was informed by the OBR’s report on fiscal risks and sustainability. That report did inform the Autumn Statement, as I am sure the noble Lord thought I would say. The Government’s agreement to respond at a subsequent fiscal event establishes this feedback loop, which demonstrates the Government’s commitment to thoroughly assessing and actively mitigating fiscal risks.
The noble Lord, Lord Sikka, asked a question I was a little surprised by; I thought he may have known this, but perhaps it is not well known. He asked about the inclusion of QE in public debt. The UK’s fiscal rules target public sector net debt. This metric excludes the Bank of England and all its subsidiaries, including the asset purchase facility. This changed in 2021 as it was felt that excluding the Bank of England’s contributions to public sector net debt through the valuation effects associated with its quantitative easing programme and term funding schemes better reflected the impact of government decisions.
I will write to noble Lords on MoJ funding and the maintenance of schools. I want to talk about the cost of living because the amount of support that the Government have given, and will continue to give, is not fully recognised. There has been some good feedback about the local housing allowance rates going up, and not enough noble Lords welcomed where we are on the national living wage.
Lord Sikka (Lab)
Can the Minister tell the House how much of QE is included in the public debt now? Why is it the case that, when the left hand of government transacts with the right, the Treasury with the central bank, it somehow creates debt?
Baroness Vere of Norbiton (Con)
I will probably write to the noble Lord with clarity on that, because I would like to make a little progress.
A number of noble Lords tried to pull out one element of the Autumn Statement and made the point that it will benefit rich people more than poor. One cannot look at one measure in isolation. The Government have conducted extensive assessment of the policies announced both in this Autumn Statement and in previous years. It shows that, across all government decisions dating back to the 2019 spending round, the combined impact of tax, welfare and public services spending measures has benefited the lowest-income households the most.
I will touch briefly on welfare reforms. I am grateful to my noble friend Lord Jackson for his support for these reforms. We want to see people who can work be able to work; we are absolutely willing to provide support for them.
The right reverend Prelate the Bishop of Manchester mentioned mental health. I agree with him that we must confront this issue in our country. It remains a priority for the Government. Alongside other recent mental health interventions, the back to work plan includes nearly £800 million over five years to expand talking therapies for those with mild or moderate conditions, as well as individual placements and support to be delivered within community mental health schemes for those with more serious conditions.
I will write to noble Lords on a couple of other things. I come back to growth because it is undeniable that growth in many developed nations has been difficult. Since 2010, when this Government first came to power, the UK has grown faster than many of its competitors, including France, Germany, Italy, Spain and Japan. Would I like to see us grow even faster than we currently are? Absolutely—indeed, the growth trajectory is on an upward trend after the first two years. The noble Lord, Lord Livermore, did not quite get to those numbers but they are higher, peaking at 2% a year. This Autumn Statement is focused on creating sustainable growth without adding to inflation or overall borrowing. It is sensible supply-side interventions that boost business investment.
This is in stark contrast to the plans set out by the party opposite, such as they are. It is not clear to me which parts of the Autumn Statement the Labour Party actively oppose or would do substantially differently, and the noble Lord, Lord Livermore, has not enlightened me. So not only do we have a cut-and-paste shadow Chancellor; it seems we have a cut-and-paste shadow Exchequer Secretary too. It is worth reflecting on the much-vaunted flagship Labour spending policy of £28 billion. For clarity, that is £28 billion per year. In the absence of significant tax rises or substantial cuts to public spending—and only the former is in the traditional Labour playbook—this £28 billion per year will just add to our national debt, piling pressure on future generations and busting through fiscal rules. As I said, this Conservative Autumn Statement is about sensible supply-side reforms to support British businesses and boost productivity.
The noble Lord, Lord Howarth, asked whether full expensing represents value for money. The Government have prioritised the business tax cut as a targeted way to support businesses which invest. It does this by reducing the cost of capital for UK companies. This policy will drive 0.1% GDP growth in the next five years, increasing to slightly below 0.2% in the long run. Whereas the benefits of the policy will grow over time, the costs will reduce. Full expensing brings forward relief that would otherwise be claimed over decades, meaning that the costs are highest in the policy’s introduction.
The noble Lord, Lord Londesborough, talked about a productivity council. The Government take a range of advice on matters of growth and productivity from all sorts of organisations, including public sector organisations such as the National Infrastructure Commission and the Competition and Markets Authority, but also from academics, think tanks and businesses. While I respect his idea, at the moment we will probably not take it forward.
There was some interesting comment around the pension reforms. The noble Lord, Lord Davies, welcomed the proposals. He asked for the timing of implementation of changes to retired benefit schemes. This will become clearer when the consultation period has completed. I will write on the second question about pensions, because I am conscious that I will imminently run out of time.
My noble friend Lord Northbrook and the noble Lord, Lord Lee of Trafford, asked why the Government are not bringing back the VAT retail export scheme. The Government continue to accept representations from industry regarding the tourist tax and are considering all returns carefully. It is about providing very robust evidence on this. At the moment, we feel that it is a little lacking.
The noble Baroness, Lady Featherstone, talked about the creative industries. There is a large number of specific asks for a very specific sector, so I will certainly write.
It is also worth noting some of the more general discussions that noble Lords had today, and I hope will continue to have in the future. There were considerations around the size and shape of the state, the amount of contributions that should come from taxpayers, and, from the noble Lord, Lord O’Neill, public versus private sector investment. My noble friend Lord Willetts talked about the shape of the state. These are things to mull on, definitely. They will not change government policy today or in the near future but are really important issues that should be debated.
I second what my noble friend Lady Noakes said about regulation. We need to look at regulation as our economy develops. It is most helpful for the Government when noble Lords can go into specifics. I am always very happy to hear about specific regulations that we feel are not fit for purpose and which need to be improved.
Also, to my noble friend Lady Noakes, on the 100-plus measures, I say that the details can be found in the “Policy Decisions” chapter of the Autumn Statement document.
Baroness Noakes (Con)
My request was quite simple. I did say that there were 200 paragraphs in Chapter 5 and a number of policy costings, but none of them actually shows what amounts to the 110, which was one of the leading statements made by my right honourable friend the Chancellor in his Autumn Statement. I am simply asking: which are the 110? Does my noble friend undertake to let me have that information if she cannot provide it now?
Baroness Vere of Norbiton (Con)
I will go away and see what we can do. I said over 100 because it is now much more than 110. There are a lot of measures, and I will see what I can do to get together some sort of list.
Lord Eatwell (Lab)
Can I support the noble Baroness, Lady Noakes, in her request? It would be enormously helpful if the Minister would commit herself to provide an annotated list of the 110 measures and place it in the Library.
Baroness Vere of Norbiton (Con)
As I said to my noble friend Lady Noakes, I will do my best.
It is worth spending some time on my noble friend Lord Harrington’s review. I am enormously grateful for his work. This is an area in which he has great interest and, indeed, great expertise. His speech today added colour to his thinking set out in the report; I know that all noble Lords will be keen to see it, and I hope will be able to speak to him about his conclusions. The Government have accepted all the headline recommendations and, as a result, are establishing a new ministerial investment group and backing it with additional resources for the Office for Investment. I have worked with the Office for Investment; it is very good and works across government, pulling together all the bits of government one needs to make a successful strategic investment. I have some minority-sport questions on EIS and VCT on which I will have to write, important though they are.
I believe I should conclude. The measures in the Autumn Statement are important and bold, and rightly so. As a country we find ourselves in a moment when inflation is reducing, borrowing is reducing, and growth is improving. The measures announced by the Chancellor last week will support efforts to boost business investment in the UK, and they will help businesses of all sizes to spend more of their money on the things that bring them success: premises, people, ideas and products. Our measures will get thousands of people working and reward them with better pay. By delivering for the British people, we will see economic growth leading to increased prosperity and well-being for all.