Baroness Kramer (LD)
My Lords, in the debate on the economy following the King’s Speech, I particularly noticed the speeches made by the noble Baronesses, Lady Noakes and Lady Vere, and the noble Lord, Lord Bridges, in which they lauded the state of the economy that the Conservatives were handing over. I welcome the noble Baroness, Lady Penn, back to her place on the Conservative Front Bench, but I have just heard a repeat of exactly the same. I find myself thinking today, as I thought back then, how out of touch can the Conservative Party be? Ordinary folk are seriously struggling with the cost of living; businesses are short of workforce and facing costs and barriers to trade with Europe, our major market; productivity and business investment are both stagnant; public debt and taxes are at record highs; and public services are in as dire a crisis as I can ever remember.
My party recognises that the new Government face a huge challenge to deliver both fiscal stability and economic growth, but like my colleagues in the Commons, I ask the Government whether they will give significant priority to the NHS and social care. The two are totally intertwined. It is not just a case of humanity; thousands of people who are trapped in ill health or overwhelmed by caring responsibilities are the potential workforce who could change our economy. I was very sad to hear of a further delay in the introduction of the Dilnot cap, but, frankly, I never had any confidence that a Conservative Government, had they followed the election, would ever have implemented it. However, that nettle has got to be grasped, and I very much hope we will soon hear that there is at least going to be a royal commission to get some final answers to what is an absolutely fundamental ulcer in the health of our overall economy and civil society.
During the election, my party pointed out that there are potential sources of funding: restoring the levy on the big banks, a windfall tax on oil and gas giants without huge loopholes and a fair tax on the online and tech giants are simple examples. There are ways to look at the broader shoulders in order to meet some of those funding gaps. Moreover, infrastructure cannot be neglected. I ask the Government, even if a particular transport or green project—I give those as examples—cannot lever in private funds directly, but on the other hand has the potential to release new opportunity that follows on from private investment, and which will drive economic renewal, will those projects be on the priority list as we move forward? Furthermore, a long-term, reliable industrial strategy is essential, and I very much welcome it. I also welcome and very much approve of plans for new transparency and accountability in the numbers and forecasts provided to give us a sense of the health and state of the public finances.
In closing, I repeat: will the NHS and social care be very high on the list of choices the Government will have to make? They are essential to the future of both the UK economy and the structures of civil society.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I am grateful to the noble Baronesses, Lady Penn and Lady Kramer, for their comments and questions. I thank the noble Baroness, Lady Penn, for her kind words and I welcome her to her place.
The noble Baroness, Lady Penn, asked a number of questions about the decisions we have taken to deal with the public spending inheritance, and she spoke in positive terms about the economic inheritance this Government face. The fact is that the previous Government left the worst inheritance since the Second World War: public services at breaking point, sewage in our rivers, our schools literally crumbling, taxes at a 70-year high, national debt through the roof, and an economy barely out of recession. The British people know that to be true; that is why they voted for change, and it now falls to this Government to clean up the mess left behind. The scale of that mess inherited from the previous Government is serious. The Treasury’s detailed audit of the spending situation published yesterday uncovered a projected overspend of £22 billion this year.
The noble Baroness, Lady Penn, repeated the claim that all that information was known; let us be very clear that that is not true. In her Statement, the Chancellor set out very specific instances of budgets that were overspent and unfunded promises that were made that, crucially, the OBR was not aware of when producing its March forecast.
The director of the Institute for Fiscal Studies said of the previous Government’s spending commitments that they “genuinely appear” to have been unfunded. The noble Baroness, Lady Penn, is very experienced in these matters and fully knows the rules that govern access talks prior to an election. In a letter to the Treasury Select Committee, the chair of the Office for Budget Responsibility confirmed that the OBR was made aware of these spending pressures only last week. He also says that this overspend
“would constitute one of the largest … overspends … outside of the pandemic years”.
He has initiated a review into the information provided to the OBR ahead of the spring Budget.
However, one group of people did know the true scale of what has been uncovered: the previous Government, and they covered it up. The noble Baroness, Lady Penn, mentioned the reserve; the previous Government had exhausted that reserve and spent more than three times over, only three months into the financial year, and yet continued to make unfunded commitment after unfunded commitment, which they knew they could not afford, knowing that the money was not there—and they told no one.
The noble Baroness, Lady Penn, also criticised some of the decisions that we are now taking to clean up the mess that they left behind, including on pay, where the previous Government failed to give any guidance on affordability, to hold a spending review, or to deal with or account for the consequences. Her comments simply remind us that, when they were in Government, they repeatedly ducked the difficult decisions. This is why we have been left with an overspend of £22 billion this year. The scale of that overspend is not sustainable. Not to act is not an option. If left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so the Chancellor rightly set out immediate action to reduce pressure on public finances by £5.5 billion this year and by over £8 billion next year.
The noble Baroness, Lady Penn, also asked about the main estimates. Page 7 of the spending audit document that the Treasury published yesterday sets out the position clearly. It reads as follows:
“The government laid Main Estimates for 2024-25 before Parliament on 18 July, the earliest available opportunity after the General Election and considerably later than the usual timetable. These Estimates were prepared before the General Election, and the government was forced to lay them unchanged in order to allow them to be voted on before the summer recess. This was necessary to avoid departments experiencing cash shortages over the summer. The pressures set out in this document represent a more realistic assessment of DEL spending. As usual, departmental spending limits will be finalised at Supplementary Estimates”.
The noble Baroness, Lady Penn, raised the difficult decision that those not in receipt of pension credit will no longer receive the winter fuel payment from this year onwards. That was not an easy decision, but the difficult reality we must face is that the previous Government repeatedly, knowingly and deliberately made commitment after commitment, without ever knowing where the money would come from. The level of the resulting overspend is not sustainable. Left unchecked, it would be a risk to economic stability, so it falls to this Government to take the difficult decisions to make the necessary in-year savings. That means incredibly tough choices; these are not decisions that we want to take or expected to take but necessary and urgent decisions that we must take.
These difficult decisions are the beginning of a process, not the end. There will be a Budget on 30 October. That will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax. Because challenging trade-offs will remain, the Chancellor also announced a multiyear spending review, which will set out departmental budgets for the next three years. To answer the noble Baroness, Lady Kramer, that spending review will prioritise our manifesto commitments on public services, as well as investment for growth.
The inheritance from the previous Government is unforgivable. After the chaos of partygate, when they knew that trust in politics was at an all-time low, they gave false hope to Britain. When people are already being hurt by their cost of living crisis, they promised solutions that they knew could never be paid for. Then in the election—this is perhaps the most shocking part—they campaigned to do it all over again: more unfunded tax cuts and more spending pledges, all the time knowing that they had no ability to pay for them, no regard for the taxpayer and no respect for working people. This can never happen again. We will take the tough decisions to restore economic stability and to fix the foundations of our economy.
Lord Fox (LD)
My Lords, I want to follow up on my noble friend’s comments on the NHS and social care. All of us who were observing the hospital programme could see that it was foundering, costing money and not progressing, so yesterday’s announcement on its future was not surprising. However, the need for new NHS facilities and to upgrade and shore up the NHS estate remains. Communities may well have been sold a pup by the Conservatives, but their needs remain. What are the Government’s plans to pick up and deal with the legacy of a crumbling NHS estate?
Lord Livermore (Lab)
I am grateful to the noble Lord for his support for the announcements on the hospital building programme yesterday. As he knows, those plans were completely unfunded, behind schedule and overbudget. It is right that we have a full review of them. As I said to the noble Baroness, Lady Kramer, the coming spending review will prioritise the manifesto commitments that we made on public services, including the NHS. We will take forward our commitment to reform adult social care, as he mentioned, and will work towards building a consensus for the reforms needed to build a national care service.
Lord Wood of Anfield (Lab)
My Lords, I thank my noble friend the Minister for his Statement. Noble Lords will remember that, in 2010, when Conservative Chancellor George Osborne set up the Office for Budget Responsibility, he said:
“That means there will be nowhere to hide the debts, no way to fiddle the figures, and no way of avoiding the difficult choices that have been put off for too long”.
I think noble Lords will agree that the most shocking thing about yesterday’s Statement was that it was not the Labour Government but the Office for Budget Responsibility—set up by the Conservatives—that made clear that, a week ago, £21.9 billion of unfunded pressures were revealed to it for the first time. I was glad to hear that the Minister, the Chancellor and their colleagues at the Treasury will revisit the OBR charter, but what will the nature of that revisiting be? Will it make sure that, as George Osborne intended, the OBR will not be kept in the dark by any future Government?
Lord Livermore (Lab)
I am grateful to my noble friend for his question. Yesterday’s letter from the chair of the Office for Budget Responsibility shows his views on these important overspends being kept from the OBR. My noble friend asks about the reforms that have been announced. As part of the longer-term plan to fix the foundations of the economy, we are going to introduce significant additional reforms to strengthen the fiscal framework and ensure that this can never happen again. Those initial reforms were welcomed yesterday by Richard Hughes, the chair of the OBR. He also said that he will initiate his own review to determine whether those reforms are sufficient, and he may make additional recommendations.
There are two elements to what was announced yesterday. First, we will introduce a fiscal lock, which has already been introduced in the other place as the Budget Responsibility Bill. This fiscal lock will ensure that there is always proper scrutiny of the Government’s fiscal plans. Secondly, we will increase transparency by, in future, requiring the Treasury to share with the OBR its assessment of immediate public spending pressures and enshrine that in the charter for budget responsibility, in essence so that this never happens again—no Government can ever again cover up the true state of public finances.
Baroness Altmann (Con)
My Lords, I warmly welcome the noble Lord to the Front Bench and congratulate him on his appointment. We have heard about shock today; I truly confess that I was shocked yesterday to see pensioners being picked on and yet again bearing the brunt of cost savings. This Government promised to protect the triple lock, but what they announced at a stroke yesterday, with virtually no notice, was worse than taking away the triple lock.
The winter fuel payment is worth 3% of the basic state pension for over - 80s. I urge the Government to think again about the enormity of the decision that was made. Three hundred pounds does not sound like a lot to us, but to pensioners who will also have rising energy bills, to 800,000 pensioners who are not claiming pension credit and to those just above the threshold, this is compounding the cliff edge. We have already seen that £300 was taken away in the emergency cost of living payment was last year, and I agreed with that, but I urge the Government to reconsider and think about joining the winter fuel payment with the state pension so that it becomes taxable, saving some money that way. At the very least, they should delay any such decision until they are able to carefully assess the impact on some of the very poorest pensioners.
Lord Livermore (Lab)
I am grateful to the noble Baroness for her kind words. She is extremely expert in these matters, and I have the greatest respect for her, but I think that her analysis is not correct in terms of the value of the triple lock versus the winter fuel payment. In the other place yesterday, the Chancellor confirmed that pensioners will continue to benefit from the triple lock throughout this Parliament.
On the winter fuel payment, this of course is not an easy decision and I can understand why there is disappointment about it, but it is the right decision in the circumstances. The level of overspend is not sustainable. Left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so it falls on this Government to take the difficult decisions to make the necessary in-year savings.
We will, of course, work to maximise the take-up of pension credit in two ways: bringing together the administration of housing benefit and pension credit, and working with older people’s charities and local authorities to raise awareness of pension credit and to help identify households not claiming it.
Lord Boateng (Lab)
My Lords, I congratulate the Financial Secretary on his appointment and say how glad many of us are about his return to the Treasury. We recall—as I look around, there are a number of folk who do—his excellent service last time he was in that place.
Will he also please draw to the attention of the House —and Members opposite in particular—that when he was last at the Treasury, the United Kingdom was second only to the United States in increases in productivity and indeed had the highest growth in GDP of any member of the G7? Will he reject the carping criticisms and crocodile tears that have come from Members opposite, here and in the other place? Will he reaffirm his Government’s commitment to building on human capital and innovation to support long-term growth?
Lord Livermore (Lab)
I am extremely grateful to my noble friend for his kind words. He is quite right: not only are the previous Government guilty of what we are discussing today, of running up an enormous overspend and of hiding that from Parliament, the public and the Opposition at the time, but they left us with possibly the worst economic inheritance since the Second World War. That contrasts sharply with the performance of the economy under the last Labour Government. Of course, growth is absolutely our priority. That growth will take time, but we are absolutely committed to doing what it takes to return this economy to a sustainable level of growth.
Baroness Wheatcroft (CB)
My Lords, I welcome the Minister to his position on the Front Bench. As we listen to this tale of consistent overspend and budget failures being swept under the carpet, it is very hard to imagine that civil servants in several departments were not increasingly unhappy about what was going on, including a lack of a spending review since 2021—extraordinary really. Can the Minister assure those civil servants that they will not be guilty if they come forward and talk of any pressures that have been applied to them? The previous Government had form on that, and I think that there should be an amnesty for any civil servant who was put in a deeply uncomfortable position by, in effect, telling untruths to the country.
Lord Livermore (Lab)
I am grateful to the noble Baroness for her question. Of course, at the end of the day, civil servants advise and Ministers decide. We have full confidence in the Treasury and all civil servants in the way that they do their jobs. She is absolutely right that part of the problem was the continual delay to hold a spending review; the last spending review was in 2021. That sits behind so many of these problems: that budgets were never adjusted to account for any of the decisions that were taken subsequent to that spending review.
The Chancellor announced yesterday that she has commissioned the OBR to deliver a full economic and fiscal forecast, which will be presented alongside a Budget on 30 October. She also announced that the Government have launched a multi-year spending review to conclude in spring 2025, setting budgets for at least three years of the five-year forecast period. As part of this, final budgets for this year and next year will be set alongside the Budget on 30 October. The Government are also committed to holding a spending review every two years, which will set departmental expenditure limits for three years, to avoid uncertainty for departments and bring stability back to our public finances.
The Earl of Effingham (Con)
My Lords, cost of living crises are created by inflation. There was a generational shock to global supply chains during and after the pandemic, followed by the war in Ukraine, which together caused a serious spike in global energy, food and goods prices. Those factors caused inflation and the ensuing cost of living crisis, not the Government at the time. Therefore, what is the Minister’s assessment of the clause in the Statement which says that people were already being hurt by the previous Government’s cost of living crisis?
Lord Livermore (Lab)
I am grateful to the noble Earl for his question. He is absolutely right that the origins of many of the shocks that the British economy experienced were global; however, the UK suffered worse and for longer than many comparative countries. Inflation stayed higher for longer in this country than I think in any other comparative country. The reason for that is the decisions taken by the previous Government, and there were three in particular: austerity, which choked off investment; a badly handled Brexit deal; and the Liz Truss Budget, which crashed the economy and sent mortgage rates spiralling.
Lord Hain (Lab)
My Lords, I too congratulate my noble friend the Minister on his appointment, and his performance this afternoon has shown what authority he has in that post. Does he agree that capable Minister though the noble Baroness was, and respected in this House, she cannot possibly believe the guff that she has just read out, sent to her from down the Corridor, no doubt? The truth is, as the letter from the chair of the OBR confirms, they were not told the full information. There was a monumental mess left by the previous Government, who were not straight with the electorate during the election campaign, promising massive tax cuts and huge increases in defence spending which they could not possibly finance.
However, can the Minister confirm that the payments given to doctors and others in the public sector are merited? They are vital public sector workers who have been treated miserably by the previous Government, and justice is at last being done.
Lord Livermore (Lab)
I am very grateful to my noble friend for his kind words. Of course, as always, he is absolutely correct: the previous Government had exhausted the reserve. They had spent it more than three times over only three months into the financial year, yet they continued to make unfunded commitment after unfunded commitment that they knew—cynically—they could not afford, knowing the money was not there. They told no one about this. It is deeply shocking. What is more shocking, as my noble friend said, is that they continued to do this throughout the recent general election campaign. They continued to make unfunded tax and spending commitments with money that they knew, looking back at what they had in the Treasury, was not there to meet any of them. It is deeply shocking not only that they did it but that they learnt nothing from it. From the words of the noble Baroness today, it is still not clear that they have learnt anything from what they did while they were in government.
I join my noble friend in saying that the decision to meet the recommendations of the pay review bodies is absolutely the right one. Again, we have heard nothing but criticism from the other side for that. What is not right is that the previous Government—extraordinarily —published no guidance on what could or not be afforded, nor is it right that they then failed to prepare in any way for those recommendations in departmental budgets, and nor is it right that they had not held a spending review since 2021, which is the root cause for many of these problems.
Lord Sikka (Lab)
My Lords, around 2 million pensioners are caught in the income tax net because of frozen tax thresholds. Now, we are taking away another £300 from the same people through a measure that was not in our manifesto. I have already received many messages from pensioners expressing great concern about this. The Government could have introduced a taper to lessen the pain to help many pensioners. Will the Minister give a commitment to have another look at that? Also, this document, produced by the Treasury, has lots of financial numbers but there is no mention of any human cost whatever. Last year, 5,000 pensioners died of cold because they were unable to afford heating. Has he made any estimates of how many more will die because £300 will be taken away from them?
Lord Livermore (Lab)
As my noble friend perhaps did not acknowledge, this is not an easy decision and I understand why there is disappointment about it, but it is the right decision in the circumstances. The level of overspend we inherited is simply not sustainable. Left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so it falls on this Government to take the difficult decisions to make the necessary in-year savings.
Earl Attlee (Con)
My Lords, the noble Lord, Lord Boateng, correctly drew attention to our productivity problems. How much scope does the Minister think there is for improving our productivity? There are, obviously, the welcome planning reforms but how far does he think he can improve our productivity in percentage terms, and to what timescale?
Lord Livermore (Lab)
I am grateful to the noble Earl for that question. He is absolutely right: productivity must be increased because growth is a central mission of this Government, and we will not increase growth sustainably unless we increase productivity. Growth will not, of course, happen overnight. He asked for a timescale. It is difficult to judge, but we have already made significant progress—probably more progress on growth measures—in the first three weeks of being in government than were made over the past 14 years. They include planning reforms to get Britain building; a national wealth fund to catalyse private investment; a pensions investment review to unlock capital; skills England to boost skills across our country; and work across government on a new industrial strategy.
Lord Sentamu (CB)
My Lords, I declare an interest. My title is Lord Sentamu, of Lindisfarne, which is in Northumberland. In Berwick, where I live, a hospital is being built. Will the building continue, or is there a question mark because of the finances? Secondly, I want to return to the question of the noble Baroness, Lady Kramer, and the Minister’s colleague, regarding the health service. The Secretary of State for the Department of Health and Social Care said that social care is not fit for purpose. How long are we to wait for the implementation of Dilnot? If social care really is not fit for purpose, I did not hear in the Chancellor’s statement what is going to be done about that challenge to a lot of our citizens. Over the past six months, I have attended a lot of hospitals. The challenge for those who are sick is so big that somebody has got to do something about it.
Lord Livermore (Lab)
I am grateful to the noble and right reverend Lord for his question. As was set out yesterday, we will conduct a complete review of the new hospital building programme, with a thorough, realistic and costed timetable for delivery. I cannot give him any specific information on the project he mentioned. As I said to other noble Lords, we are absolutely committed to reforming adult social care to create a sustainable system that delivers for the people who draw on that care, their families and the social care workforce. We will work to build consensus for the reforms needed to build a national care service.
Lord Eatwell (Lab)
My Lords, with respect to the details revealed in the Chancellor’s statement yesterday, on some of which the noble Baroness, Lady Penn, casts some doubt, has the Minister noticed the statement published by the IFS yesterday evening? It stated:
“some of the specifics are indeed shocking, and raise some difficult questions for the last government. If the scale of these overspends and spending pressures was apparent in the spring—and in lots of cases, there’s no reason to suppose otherwise—then it is hard to understand why they weren’t made clear or dealt with in the Spring Budget. Jeremy Hunt’s £10 billion cut to national insurance looks ever less defensible”.
Does the Minister agree that the Spring Budget was another example of the economic mismanagement and fiscal irresponsibility that is a persistent characteristic of this Conservative Party?
Lord Livermore (Lab)
I am grateful to my noble friend for drawing the House’s attention to yesterday’s remarks from the IFS. It is clear that it is as shocked at the rest of us at the scale of this overspend. I 100% agree with my noble friend that the Spring Budget was just the latest and, fortunately, last episode in 14 years of failure from the party opposite.