Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Finlay of Llandaff) (CB)
My Lords, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes. The time limit for this debate is one hour.
Defence Policy: Deterrence
(3 weeks ago)
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Lord Trefgarne
To ask His Majesty’s Government whether deterrence remains a core element of the United Kingdom’s defence policy.
Lord Trefgarne (Con)
My Lords, I will not detain the Committee for all the time allocated to me but will do my best to be clear and precise. Deterrence covers a wide range of defence activity. Nuclear is at the top. We have never fired a nuclear weapon in anger, following the two weapons fired by our US allies to end the Second World War. Nuclear weapons are to be used only when our “supreme national interest” so requires. So far, that has not occurred. I hope I can be assured that the new Defence Ministers in post have accepted briefings on these matters, whatever their inclinations may be.
At the other end of the scale, we cast our minds back to 1982 when HMS “Endurance” was on patrol in the south Atlantic. We withdrew it, somewhat unwisely, and the rest is history. The noble Lord, Lord West, who is not here this afternoon, played an important part in the Falklands conflict all those years ago, as I believe did the noble and gallant Lord, Lord Stirrup. Are any British forces deployed to the south Atlantic at present? It seems that potential enemies there are again making unhelpful noises about the Falkland Islands. They were easily deterred last time by a single vessel; when we withdrew it, the rest became history.
Yesterday we heard from the Chancellor about defence spending generally. I felt that her remarks were not wholly awful. But deterrence has to be credible, and I hope that point is made to Chancellor Reeves as well as to the rest of us. There are also threats elsewhere in world, not just in the south Atlantic, and I hope we are taking account of those. I do not intend to detain your Lordships any longer.
Lord Harris of Haringey (Lab)
My Lords, I am grateful to the noble Lord, Lord Trefgarne, for giving us the opportunity to debate this important issue. I will talk about deterrence in the broadest sense. In so doing, I declare my interest as chair of the National Preparedness Commission.
Deterrence is not just about the ability to hit back hard against an aggressor, thereby making that aggression less likely. It is also about demonstrating a level of preparedness against the threat posed and a degree of resilience to recover quickly from any attack mounted. The first duty of government is to keep the country safe and protect its citizens. That is an essential platform on which the nation’s economic growth and prosperity depend.
Increasingly, hostile states pursue their objectives in the grey zone between peace and open conflict. Conventional campaigns are supplemented or preceded by tactics of hybrid warfare involving cyberattacks, campaigns of misinformation and disinformation, and disruption to civil infrastructure, the economy and the vital services on which citizens and communities depend. For example, we have seen a spate of unexplained fires in installations around Europe, and in the past 24 hours have read the news with great interest in that context.
Such grey-zone operations may take place without any associated conventional military activities. They are often conducted by proxies, non-state actors or groups that may be state-controlled, state-sponsored or state-tolerated; or they may be conducted by covert means. They may be plausibly deniable and, although they may fall below the threshold of armed conflict, their consequences are likely to be just as serious as those of a more conventional attack.
Recent years have seen attacks on undersea cables and fuel pipelines; cyberattacks by state-sponsored actors, such as those leading to the SolarWinds hack in 2020 or the Hafnium attack in 2021; the jamming and spoofing of navigation satellite systems; and various sorts of drone activity, which of course can be conducted from hundreds of miles away. A preparedness to respond effectively to such attacks, or to recover quickly from them, makes them less worth while for the adversary and therefore helps to deter them.
The consequences of these grey-zone activities are not just immediate or limited only to recovering from the event itself. Of course there are costs involved in addressing the immediate challenge but, more seriously, there may be a weakening of the nation’s ability to respond effectively to other attacks. More significantly, such attacks and the failure to deal with them effectively may undermine public confidence in the state and the ability of the Government to protect their citizens. That would be a win for any adversary.
Similarly, the objective of misinformation and disinformation campaigns is to sow discord and undermine faith in a legitimate, democratic Government. Such campaigns are fuelled by social media and ever more sophisticated applications of artificial intelligence, but the intent is to undermine citizens’ faith in their Government and the democratic process itself.
Dealing with such challenges may not necessarily involve a military response. It will need a response from the rest of government, local authorities, emergency services and, indeed, the whole of society. Such a level of preparedness and resilience is an essential part of the nation’s defence capability, and it has to be a key component of modern deterrence.
Lord Stirrup (CB)
My Lords, it is a pleasure to follow the noble Lord, Lord Harris of Haringey, with whose remarks I entirely agree. The noble Lord, Lord Trefgarne, has asked whether deterrence is still at the core of the UK’s defence policy; the Minister’s answer will surely be yes, so I shall use my allotted time to highlight just four of the many consequences of that anticipated affirmative.
It is quite clear that this Government, like the last, are committed to the maintenance of our strategic nuclear deterrent, through the continuous at-sea deployment of our Trident-armed submarines. But as we transition from the Vanguard to the Dreadnought, we shall for some time need to operate both classes of boat. However, the two types are very different and will require different crews and different logistic support chains. This will place a considerable strain on the Royal Navy and on defence resources in the round. What planning has taken place to ensure that the strain can be borne without damaging other areas of defence capability?
Of course, nuclear deterrence by itself is not nearly enough. Effective conventional deterrence exercised through NATO is essential if we are to have any chance of avoiding future war. But almost everyone, perhaps most importantly the Secretary of State for Defence himself, recognises that our Armed Forces are too small and inadequately equipped to constitute much of a deterrent at present.
Remedying this will be a long, difficult and expensive task, but, as the saying goes, it is the job never started that takes longest to finish. The substantially increased investment in our fighting capability, our combat sustainability and the defence-industrial capacity that underpins both needs to start now. When will the Government give clear evidence that the security of this country and its people really is their top priority?
I have mentioned nuclear and conventional deterrence, but these cannot be considered in isolation. The NATO doctrine developed during the Cold War recognised the need for a so-called escalation ladder that provided for a graduated response to increasing levels of aggression. One important element of graduated response was the provision of an increased element of choice in the boundary between conventional and nuclear war. Moving from conventional fighting to an all-out strategic nuclear exchange was seen as far too big a step. It would present politicians with almost impossible choices and would leave little or no room for second thoughts on either side. NATO’s tactical nuclear capability is greatly reduced from the Cold War, and the UK’s is now non-existent. What thought have the Government given to these missing rungs on the escalation ladder, which are an important contribution to the overall effectiveness of a deterrence posture?
Finally, deterrence begins in the mind. One area of conflict that is attracting increased attention is termed “cognitive warfare”. It is about getting into the minds of one’s opponents and undermining their will and capacity to resist. It is not a new concept, but new technology such as AI is offering new ways of doing old things. China takes cognitive warfare very seriously, and Russia is already deeply engaged in it. We are currently poor at defending against it, and our offensive capabilities are even worse. We need to do much better if our deterrent capability is to be credible to potential aggressors. What priority are the Government giving to this crucial area of capability?
Today I have been able to do no more than scratch the surface of some very important issues. I hope that future debates will enable me to expand on them. Meanwhile, I ask the Minister to reflect on them most carefully.
Lord Harlech (Con)
My Lords, it is a pleasure to follow the noble and gallant Lord, Lord Stirrup. I declare my interests as a serving Army Reserve officer and a member of the APPG for Climate, Nature and Security. I congratulate my noble friend Lord Trefgarne on securing this important and timely debate. As noble Lords have already alluded to, deterrence is a broad subject, so I shall focus my remarks on the High North.
Due to climate change, natural resources and shifting geopolitical interests, the Arctic High North region has gained significant strategic importance for the United Kingdom. As the region warms, the melting sea-ice creates new opportunities and challenges, establishing the Arctic as a hot zone of environmental degradation, international competition and heightened insecurity. Opening new sea routes makes previously inaccessible resources such as oil, gas and minerals available, transforming the Arctic into a theatre of contest.
The Arctic region is home to critical shipping routes, such as the Northern Sea Route, which are becoming more viable due to melting ice. The NSR runs along Russia’s Arctic coast, providing a shortened connection between Europe and Asia. These routes could shorten global shipping times by nearly 40% and bypass traditional choke points such as the Suez Canal, offering significant economic advantages.
The region contains vast untapped natural resource reserves, including oil, gas and minerals. Control over these resources has become a geopolitical priority for nations with Arctic interests, including Russia, the United States and China, with China self-identifying, despite geographical terms, as a near-Arctic state. The Arctic’s proximity to critical defence zones makes it an area of military interest, particularly nuclear deterrence, early-warning radar systems and missile defence installations. In short, Arctic militarisation is amplifying strategic competition.
Russia has significantly ramped up its military presence in the Arctic, reopening old Soviet bases, building new ones and deploying advanced military capabilities, including nuclear-powered submarines and long-range missiles. The Arctic Trefoil base on Franz Josef Land is one of the most advanced installations, designed to operate all year round in extreme Arctic conditions, equipped with advanced radars, missile systems and infrastructure to support hundreds of personnel.
Russia views the Arctic as vital to its national security and economic future—Arctic oil and gas account for 20% of Russia’s GDP—and its activities there have heightened regional tensions, necessitating a strategic response from NATO and its allies. Russia has deployed sophisticated air defence systems such as the S-400 and Pantsir-S1 to protect its northern territories. These systems can intercept aircraft and missiles at long ranges, providing a protective shield over key Arctic installations and energy infrastructure. Russia has also deployed Bastion coastal missile defence systems along its Arctic coastline. These systems are designed to defend against naval incursions, allowing Russia to control access to the NSR and deter foreign naval forces from operating in the region. Russia frequently conducts large-scale exercises involving thousands of troops, warships, aircraft and submarines.
Deterrence in the Arctic will involve a combination of military preparedness, advanced technology and diplomatic efforts. For the UK, it is vital to maintain a credible deterrent by having the capability to project power in the High North, particularly naval and air power, through all-domain awareness and access considerations for airfields and port infrastructure. Can the Minister say what the United Kingdom is doing to secure supply chains and enhance crisis management capabilities in this region?
To conclude, the UK should focus on deterring aggression, mainly from Russia, and ensuring the stability of crucial Arctic waterways. Through NATO co-operation, military preparedness, and a strong naval presence, the UK can be positioned to safeguard its interests and contribute to the broader defence of the Arctic.
Lord Bilimoria (CB)
My Lords, there is direct deterrence and extended deterrence. The noble Lord, Lord Trefgarne, spoke about the credibility challenge that arises when states question the reliability of a defender’s commitment to protect allies, impacting extended deterrence.
The UK’s continuous at-sea deterrent, the CASD, has kept a nuclear-armed submarine patrolling undetected since 1969 to deter aggression. The nuclear policy in 2024 maintains a minimum credible and independent deterrent, used only in extreme self-defence and authorised solely by the Prime Minister. In 2023 the previous Conservative Government updated and prioritised an integrated multidomain deterrence strategy to counter state and transnational threats, with NATO as central. The UK’s nuclear deterrent pledged to NATO’s defence would be used only in extreme self-defence.
The Labour Government have affirmed NATO as a core to European and global security, and have committed to a new UK-EU security pact and improved defence ties with France, Germany and the Joint Expeditionary Force partners. The current Government pledge absolute support for the UK’s nuclear deterrent, including a triple-lock commitment to four nuclear submarines, continuous at-sea deterrence and future upgrades. Can the Minister confirm all this? Foreign Secretary David Lammy and Defence Secretary John Healey highlighted NATO’s role against Russia’s aggression and reinforced nuclear defence capabilities only in July this year.
Engaging with the moral implications of deterrence policy can lead to responsible decisions regarding the UK’s nuclear arsenal. Effective deterrence requires understanding and addresses complex motivations and perceptions. There are two strategies: deterrence by denial, which seeks to make aggression infeasible and relies on military presence, and deterrence by punishment, which threatens severe consequences but may be perceived as less credible. Historical evidence suggests that denial strategies are generally more reliable than punishment strategies, as they provide clearer signals of intent and capability to potential aggressors. The United States used deterrence effectively in Europe during the Cold War, leveraging its presence to complicate aggressors’ calculations and act as a trip-wire.
Combining deterrence threats with reassurance is crucial to avoiding provoking aggression, as seen with the US strategies towards North Korea. Success in deterrence requires clear communication of what is being deterred and the actions that will follow if ignored.
NATO has now been hugely strengthened by Finland and Sweden joining. At the Madrid summit in 2022, NATO identified Russia as the most significant threat to Euro-Atlantic security and terrorism as a direct, asymmetric threat. Twenty-three NATO allies are projected to meet or exceed spending 2% of GDP on defence, compared to only three allies in 2014. That is very good news. Collective defence is at the heart of the alliance, as set out in Article 5 of the North Atlantic Treaty, which is a huge deterrent in itself.
We must continue to remember that the purpose of nuclear deterrence is to preserve peace, prevent coercion and deter aggression. Collaboration is key to this—the way in which we collaborate with the United States and France on nuclear deterrence, ensuring cost-effective operations. Our independent nuclear deterrence supports thousands of jobs nationwide.
I am a proud honorary group captain in 601 Squadron of the RAF. The “but” here is that the Defence Secretary has expressed concerns that our Armed Forces are unprepared for war, emphasising the need for improved deterrent capabilities against future aggression. The outsourcing of recruits has meant that only 10% of applicants successfully joined the British Armed Forces in 2023. Does the Minister agree that that must change?
I am a member of the GREAT Campaign’s advisory board. We in the UK have the strongest combination of hard and soft power, which gives us great global influence. Our strong nuclear deterrent is a huge element in this combination of hard and soft power.
Earl Attlee (Con)
I am grateful to my noble friend Lord Trefgarne for introducing this Question for Short Debate. I used to read my father’s Hansard when my noble friend was a Minister in the Foreign Office and in the Ministry of Defence.
The noble Lord, Lord Harris of Haringey, is absolutely correct: this is not just about conventional military deterrence. He is right to be worried about the home base and society’s sentiments. If those things were damaged in a conflict, in the grey area, it could have devastating effects on our conventional operations.
I am sure that the answer to my noble friend’s Question is “yes, but”. Many noble Lords have touched on nuclear deterrence, where our defence posture and signalling are absolutely clear and effective. As we have seen, we have not been cowed by President Putin’s nuclear sabre-rattling in the conflict in Ukraine. I am pleased to observe that this Government are as sound as their predecessor on nuclear deterrence but, several years ago, the noble and gallant Lord, Lord Craig of Radley, observed that an inadequate conventional deterrent will result in the nuclear trip-wire being set too low. The noble and gallant Lord, Lord Stirrup, just asked the Minister about tactical nuclear weapons and deterrence; I look forward to his answer.
In conventional deterrence, our signalling is not positive or clear to any potential adversary. For instance, it is easy for a potential adversary to measure our land logistics capability and intent. They will note that we are still selling off perfectly serviceable, brand-new logistic vehicles to meet resource accounting and budgeting requirements. In the current situation, at the large scale of effort we ought to be able to deploy on land in 12 weeks, but I do not think we can do it at all at the moment.
I keep banging on about the essential need to undertake large-scale exercises out of area and overseas to demonstrate and test our conventional capability—or the capability that we should have. My noble friend Lord Harlech touched on the fact that the Russians regularly exercise with large numbers of troops. Yes, it is expensive to do and you can save money by not undertaking such exercises, but it is cheaper than increasing your capability and provides much more conventional deterrence. It also exposes any unrecognised weaknesses in your current capability. Currently, we have too few big exercises and the exercises we undertake are too short in duration, in order to save money.
Noble Lords must not be deluded by the wide range of military operations that we undertake all over the globe at small scale. We are now in the era of state-on-state conflict; that is what we need to deter. We will not achieve that through small operations and exercises, or the completely underresourced Armed Forces that the Minister inherited from the previous Administration.
Lord Harries of Pentregarth (CB)
My Lords, my interest in this area arises from my early academic research on the principles of discrimination and proportion in the just war tradition and their applicability in a nuclear age. This interest was further intensified in my time as dean of King’s College London during the 1980s, when I had the privilege of being a member of a number of think tanks reflecting on the nature of nuclear deterrence, many of them under the influence of the much-missed Sir Michael Quinlan, the architect of British defence policy in its strategic and ethical aspects.
I continue to support a policy of deterrence which contains a nuclear component, but I do so with moral fear and spiritual trembling. It is a morally awesome policy to support. It can be supported only in the belief that it is in principle fundamentally stable, not because human beings are any better than they were—far from it—but because, for the first time in human history, it could not conceivably be in the interest of any power to go to war with another which possessed nuclear weapons. In the words of President Reagan, a nuclear war cannot be won and must never be fought.
I was never a supporter of CND, but it performed an important role in reminding the world of the horrific nature of these weapons. I was appalled a few years ago when there was a period of tension between India and Pakistan to listen to some of the generals involved talking about using nuclear weapons as though they were like any other weapons. They are not like other weapons, and we must never forget that.
We must also not forget that the moral principles which apply to the use of all armed force are equally applicable in a nuclear age: I mean the principles of discrimination and proportion. There are very distinguished ethicists who believe that even the threatened use of nuclear weapons would violate these principles, but when I was most involved, British defence policy was built on the conviction that this was not inevitably the case. I trust that this is so. In that connection, I want to identify with the question raised by the noble and gallant Lord, Lord Stirrup, about graduated deterrence and the ladder of escalation, because that is fundamental to not only British deterrence policy but the possibility of maintaining the use of weapons which are discriminate and proportionate. It is a vital question to which I hope the Minister will be able to give a satisfactory response.
There is an old saying about fighting a present war with the outlook of a previous one. I believe that the major threat at the moment is not the nuclear weapons of another state but their capacity for cyberwarfare. Nuclear weapons are no deterrent to another country that has the capacity to render our whole command and control system inoperative. Although I continue to support our deterrence posture, with its nuclear component, my main concern is in relation to our ability to protect our own command and control structure and our capacity to deter other countries from disrupting it. I hope that the Government will be able to give some reassurance on that.
Lord Balfe (Con)
My Lords, I thank the noble Lord, Lord Trefgarne, for initiating this debate, and I hope that the Hansard is sent to the noble Lord, Lord Robertson of Port Ellen. Of course, deterrence must remain a cornerstone of our defence policy, otherwise there is no reason to have one at all. But it is also important to realise that other countries have a very good grasp of our defence capacity. I do not know whether other noble Lords watched the American series, “Corridors of Power”, a PBS production, from which you could see that the Americans had a much clearer grasp of the limitations of European power than we appear to have.
We need to define much more clearly what we wish to do, then we need to find the resources to do it. I am not terribly impressed with the 2.5% or 3% argument. What we need to look at is what we need and a pathway for achieving it. I was struck last Friday in our debate when the noble Lord, Lord Stevens of Birmingham, pointed out that we had given Ukraine £172 million-worth of equipment, but that it would cost £2.7 billion to replace it. That shows how out of date it was, but it also shows how much money we need to spend to bring our forces up to a level where they can do their job. That is far more important than percentages.
We need to define clearly what our role is in defence. First, it is clearly to defend the home territory. Secondly, I suggest that we need to keep our garrison in the Falklands. Thirdly, we need to keep our bases in Cyprus, which are quite valuable for operations in the Gulf. Finally, we need to pull our resources together with our Baltic allies to look at both the High North, referred to by my noble friend Lord Harlech, and the Baltics, which are within Europe but certainly threatened by Russia. Only by getting together Finland, Sweden and all the countries around the Baltic, including Poland, Germany, the Netherlands and Denmark, are we going to be able to put forward a credible defence. We have to work together and exercise together; we have to have joint exercises and revive the Arctic Council as a viable organisation to talk to the Russians, but also to protect the High North.
Finally, cables and electronic warfare are part of the future, but I often feel that they are seen as an add-on rather than as a key part of our defence capacity, as they should be.
Baroness Smith of Newnham (LD)
My Lords, like other noble Lords, I thank the noble Lord, Lord Trefgarne, for enabling us this afternoon to talk about deterrence and core aspects of UK defence. The noble Baroness, Lady Goldie, the noble Lord, Lord Coaker, and I keep meeting in this venue. We talked about the SDR two weeks ago, we were here again last week, and we are going to meet again in an hour to talk about defence expenditure—so I am not going to touch on defence expenditure, as did the noble Earl, Lord Attlee, and the noble Lord, Lord Bilimoria. I want to pay tribute to the noble Lord, Lord Coaker, and the new defence team, because one concern that the noble Lord, Lord Trefgarne, implied was that the new Government might not be serious about deterrence or about defence.
On Tuesday evening, as a trustee of the Armed Forces Parliamentary Trust, which runs the Armed Forces Parliamentary Scheme, I was at a graduation dinner. Present were the noble Lord, Lord Coaker, because he had been part of the scheme, the noble Baroness, Lady Chapman of Darlington, and Luke Pollard, Min AF. We have among our ministerial ranks people have previously taken the time from the Back Benches or from opposition to ask what defence is all about. It is important to realise that the Government are saying on defence and deterrence almost exactly the same as the previous Conservative Government and almost the same as the Liberal Democrats. We are now all committed to CASD and to the defence of the realm, and we understand the importance of deterrence.
On deterrence and preparedness, which we heard about from the noble Lord, Lord Harris of Haringey, and given that I am winding for the Liberal Democrats, I remind noble Lords of the importance not just of defence commitments but of diplomacy and development, because if we establish the right relationships before we end up in a state where we need to prepare for war, we might make better use of the British budget. Deterrence is important, CASD matters, but so do our alliances, such as NATO and the bilateral relationships which this Government are seeking to build and foster. That is all incredibly important, yet, as we have heard from various noble Lords, the challenges we face in the 21st century are rather different.
In his incredibly important contribution, the noble and right reverend Lord, Lord Harries of Pentregarth, reminded us about a range of issues that we need to think about in nuclear policy and, more broadly, about discrimination and proportionality. He reminded us that our nuclear posture was initially determined in a period of balance: the Cold War, when mutually assured destruction meant that it was unlikely that any side would use a nuclear weapon. They had their deterrent function. In the current world, we face not just state-based threats but threats from non-state actors; not just conventional threats but cyber and hybrid threats. In respect of naval policy, we have the noble Lord, Lord West, repeatedly banging the drum for maritime. Who is banging the drum to deal with hybrid threats and cyber, and to ensure that we have a fully-fledged deterrent alongside our nuclear deterrent?
Baroness Goldie (Con)
My Lords, my noble friend Lord Trefgarne is right to pose his vital Question. It gets to the heart of what a defence capability is, as he, the noble Lord, Lord Harris of Haringey, and the noble and gallant Lord, Lord Stirrup, so clearly described.
On defence capability, it is not enough to want one, it is certainly not enough to talk about one, and there is no point in having one unless it deters. I say to your Lordships that, for me, this all came into sharp relief when Scotland was confronted by the independence referendum in 2014. One of the strongest arguments for staying within the United Kingdom was defence and security, and the attempt by those seeking independence to explain what the defence capability of an independent Scotland would be was risible: no nuclear deterrent, a tiny presence of maritime assets with no strategic purpose, a very small military infantry with negligible assets and a virtually non-existent air capability. As for cyber and space, that was far too far in the future to be worrying about.
The question that such a depleted resource begged was: what is the point of having it? It did not deter, it offered no meaningful contribution to our allies and it was of little interest to NATO. However, this usefully demonstrated that you would actually be better off not having a capability, spending the money on something else and hoping that better-resourced friends would come to your aid if necessary. That is of course not where any of us would want to be and, thankfully, not where the majority of voters in the referendum wanted to be, so independence was rejected.
In fairness to the noble Lord, Lord Coaker, I thought then and still think now that the UK has a strong defence capability. Our continuous at-sea deterrent is at the disposal of NATO, one of only two nuclear powers offering that support. We have invested in the Navy, have modernised equipment for the Army and are actively progressing a successor to Typhoon. Importantly, we have also invested in the new domains of cyber and space. I have to say that I become angry when politicians of whatever stripe diminish that strength, and it is certainly unhelpful for a government Minister to call our capability into question. In fairness to the noble Lord, Lord Coaker, I have never been aware of him doing that.
Underpinning that capability by maintaining investment, demonstrating credibility and ensuring that our deterrent posture is clear requires both vigilance and action by the Government. That is why their attitude to defence, as confirmed by yesterday’s Budget, has got us to a very undesirable position. To talk incessantly about lifting defence expenditure to 2.5% of GDP, to tell everyone in sight that that is your political resolve, to raise a reasonable expectation that you will flesh out the timeline and the trajectory in the Autumn Statement and then to lapse into a deafening silence is deeply damaging on all fronts. By placing a question mark over both the timing and the level of strategic resource for defence, the Government are undermining credibility, and that immediately impacts on our ability to deter. Our allies need to know that they can trust us and that we are solid. Our adversaries need to see that investment and know that we shall not hesitate to deploy our capability when the need arises.
Later today we shall discuss more specifically the 2.5% of GDP in the debate of my noble friend Lord Trenchard, but in my opinion yesterday’s Budget was not good news for defence. It has diminished our stature, impugned our credibility and weakened our deterrence posture. I urge the Minister to use his wisdom and considerable clout to get the Government to review the position.
The Minister of State, Ministry of Defence (Lord Coaker) (Lab)
I thank all noble Lords who have contributed to this debate. I shall deal with a couple of the important questions that have been posed and then lay on the table some of the Government’s position on deterrence.
I thank the noble Lord, Lord Trefgarne, for bringing forward this important debate. The issue of deterring those who would do us harm is of real significance. The discussion about how you do that, from conventional forces right through to the effect of a continuous at-sea deterrence, is an important question for us all. The noble Lord deserves a lot of praise for bringing this forward.
I shall deal with a couple of issues that are of huge significance to this country, to our alliances and to our position in the world. A number of noble Lords have raised the nuclear deterrent. We as a new Government are 100% committed to the maintenance of the nuclear deterrent. We are committed to it with respect to the continuous at-sea deterrent, with the four new Dreadnought submarines. In answer to the point made by the noble and gallant Lord, Lord Stirrup, about the transition from Vanguard to Dreadnought, there are significant training programmes and work going on about how that transition is best done. I reassure him that considerable work is going on with respect to that.
The noble Lord, Lord Trefgarne, raised the point about the Falkland Islands. The British Government remain absolutely committed to the right of self-determination of the people of the Falkland Islands. These are hugely significant and important questions that were raised by a number of noble Lords and the position needs to be stated at the outset. There is no policy change in respect of that.
The noble Lord asked about the forces commitments there. I visited the Falkland Islands. As the noble Lord will know, there is a huge military presence there of British forces. I think other noble Lords speaking in this debate will have visited that base. There are Typhoon fighters there. There are air defence systems and numbers of troops, as well as regular naval patrols, to reassure the Falkland islanders and to make a statement about the desire and intent of His Majesty’s Government to ensure that that right is protected.
The ladder of escalation was mentioned. It is always difficult to say, as you move from one rung of the ladder to another, exactly which rung you reach is the point at which something should happen. It is particularly difficult to lay that out and say specifically when something should happen, as many others who have taken defence decisions will have found. But you can lay out general principles, and they are laid out in various treaties.
That is why we are defending and doing what we are doing with respect to Ukraine. That is why we have talked, in no uncertain terms, about our determination to work to maintain the law of the sea. That is why we have said that Article 5 of NATO remains a key component. That is why we have said that territorial integrity remains important. When a country seeks to undermine or flout that, your exact immediate response and where you draw the line will sometimes depend on the particular circumstances.
However—this is the point of deterrence, and I take the point of the noble Lord, Lord Trefgarne—it must be known that this country, with its allies, will not stand aside and watch international law or rules be flouted. That is the important statement. That is why, as noble Lords will have heard me say and will have said themselves, what we are doing in Ukraine is so important. We are saying that we will not stand to see those laws flouted. When the noble Baroness, Lady Goldie, was in my position, that is exactly what she said, quite correctly; that is what the then Government said, quite correctly. Those statements are important.
My noble friend Lord Harris was right to raise the issues of cyberwarfare, information and disinformation and the resilience of the population, which are all important matters. They are new aspects of war, especially cyberwarfare He will have visited, as I have, numerous places where we are trying to put defences in place and build resilience into computer systems, datasets and so on to resist those who would attack us. With his knowledge of local government, my noble friend has much more experience than me in the resilience of the population and in civil emergencies and defence, which we will have to address. I will just say that, when I look back in history, I see that the resilience of the British people has been immense when they have had to resist the threat of attack or have indeed been attacked. The whole area of cyberwarfare and information is important, as my noble friend said.
I thank the noble Lord, Lord Balfe, for his remarks about the importance of identifying the threats that we face and trying to configure the Armed Forces in order to meet those future threats. That is important and it is part of what the defence review seeks to do. Indeed, as the noble Earl, Lord Attlee, and I have often discussed, it is important that you know what you are seeking to do in order to configure your Armed Forces to meet a particular threat, which can sometimes be quite difficult. We have heard from numerous noble Lords about the importance of cyberwarfare, so that will be an increasing demand and it will be important for us all to work, across government, on that aspect.
We face other issues, as the noble Lord, Lord Harlech, pointed out. We talk about the threat of China as though China is thousands upon thousands of miles away; with climate change, it is now thousands of miles nearer and, indeed, is seeking to exploit the High North through the opening up of sea passages that were not available even a couple of decades ago. I know that, if you talk to Norway, Iceland and many other countries such as the Baltic states—I mentioned Finland—they are all increasingly concerned about not only Russia, of course, but the implications with respect to China.
The noble Lord can be reassured that, like the work that has happened previously, which the noble Baroness, Lady Goldie, will have been involved with, we are seeking to extend and develop our relationships with those countries. The Joint Expeditionary Force is a classic example of countries coming together to try to see how they meet common threats.
I cannot remember whether it was the noble Lord, Lord Balfe, or the noble Earl, Lord Attlee, who mentioned the importance of the Arctic Council. Going back to the point by the noble and gallant Lord, Lord Stirrup, we are seeking to reinvigorate that and work to ensure that it maintains the rule of law according to treaties that most nations of this world have signed. We will enforce those laws and expect them to be adhered to. Countries should know that there are consequences if they do not adhere to them. That is part of what we seek to do.
The noble Lord, Lord Harlech, will also be reassured that on Monday I am speaking to a conference of Norwegian military and parliamentarians about the High North. Again, it is one of those areas that, even a few years ago, we would perhaps not have thought of in the way that we do now. Many of these things are extremely important.
The noble Lord, Lord Bilimoria, also mentioned the nuclear deterrent. He heard the answer that I gave and will hopefully be reassured.
On the point by the noble and gallant Lord, Lord Stirrup, we are looking seriously at cognitive warfare, and it will have to be an increasing priority for government. It is a capability that we will need to look at to see how we develop it. I thank him very much for raising that point.
On some of the broader points made, let me say this. We talk about hard power. On deterrence, we have a NATO-first policy as a Government. The carrier strike group sailing around the Mediterranean into the Indo-Pacific, whatever route it takes in the end, visiting numerous countries there as an international alliance, says this to countries across the world: we are sailing our carrier strike group, led by the “Prince of Wales” carrier, with aircraft on it, with allies, to assert the freedom of navigation and the rule of the law of the sea, and we expect other countries to adhere to that. That is why we bothered to do that. That is why we have a nuclear deterrent.
There is an issue in the debate about what sort of Armed Forces we will need to ensure that they can fight the battles of the future. The strategic review that we have at the moment is seeking to deal with that. I will tell noble Lords one thing I heard. I thank the noble Baroness, Lady Smith, for her remarks; we will debate the points about money by the noble Baroness, Lady Goldie, more fully in the next debate, and I thank her for her remarks as well. The noble Baroness, Lady Smith, will have heard the CDS make what I thought was a very good speech at the dinner. He said that one of the things Britain should do more than it does—and I totally agree—is to rediscover its own confidence in the things it can do and the things it does to deter others from taking actions that they might. We should all reflect on that. We sometimes look at the challenges we face, which is quite right, but alongside that we should look at the things that we do and do well. This country should have pride and confidence in what it does, not only in this continent but across the globe.
Diets: Fat
(3 weeks ago)
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Lord McColl of Dulwich
To ask His Majesty’s Government what assessment they have made of the benefits of diets with adequate fat content for reducing appetite, as an alternative to the use of drugs such as Ozempic.
Lord McColl of Dulwich (Con)
My Lords, the Question in this debate lists two different treatments for the same problem: the obesity epidemic. The first treatment is as old as the hills—simply to eat the right amount of the right kind of fat. The other treatment is to use new drugs such as semaglutide, marketed as Ozempic, which have been found to act in the same way as fat. I suggest that the former—the healthy diet—should be where we concentrate our efforts to combat the epidemic.
When we consume healthy fats, gut hormones such as CCK and GLP-1 are secreted in the duodenum, delaying the emptying of the stomach and creating a natural sense of fullness that curbs overeating. When the fat has been absorbed and moves on, normal service is resumed by the stomach. This simple process helps to tackle the root cause of obesity. By contrast, the new weight-loss drugs have serious side effects, including pancreatitis and other problems, along with long-term effects that are as yet unknown.
The new weight-loss drugs require regular injections. They act in a similar way to fat but with a stark difference. Natural fats are safe, inexpensive and readily available in whole milk, nuts, butter and so on. Studies such as those showing lower obesity rates in Canadian children who were raised on whole milk underscore these benefits. Will the Minister ensure that her department considers this evidence instead of the biased propaganda of the food lobby? It was, after all, the food lobby that caused the obesity epidemic in the first place. It put profit over health by encouraging the overconsumption of the wrong types of food.
Since the 1960s the food industry has promoted a low-fat diet, allegedly to address concerns about atheroma, which tends to block arteries. As noble Lords will know from their Greek studies, atheroma is the ancient Greek word for porridge—well, it may be Greek porridge but it is no Scottish porridge, that is for sure. The food industry has excessively promoted low-fat products packed with a lot of sugar; a low-fat diet is pretty tasteless because fat is what gives food its taste. So they had to pour in vast quantities of sugar, which fuels the cravings and excessive calorie intake contributing to today’s obesity epidemic.
Despite evidence supporting the benefits of certain fats, the Department of Health still publishes on the web outdated low-fat guidelines, in part because misleading information such as the Eatwell Guide and the traffic light labelling on food packaging demonises fats without considering their positive role. After years of vilifying fats, we now turn to drugs that mimic fats’ natural benefits—a perfect case of the food industry being hoist by its own petard.
Ultra-processed foods have frequently been blamed for the obesity epidemic, but there is no scientific confirmation of this. It is clear that excessive consumption of UPF can cause obesity, of course. Unfortunately, many so-called scientific publications blur these lines, incorrectly blaming the obesity crisis on ultra-processed foods. Meanwhile, we overlook the impending disaster of nearly 40 million citizens facing premature death from obesity-related diseases.
The argument that obesity is unavoidable because we live in an obesogenic society, with factors such as genetics and thyroid dysfunction, is misleading. These claims suggest that obesity cannot be controlled, which diminishes the role of personal responsibility. The reality is that obesity results from consuming too much food or too much alcohol, regardless of genetics. It does not matter what your genetics are: there is only one way of getting obese, and that is putting too many calories into your mouth. There is no disease that causes obesity per se. A failing thyroid gland is often blamed, but it is the resulting slowing of the metabolism for such a patient that requires fewer calories. If people continue eating the same number of calories, obesity will result.
Beyond the physiological aspects, we need a transparent, evidence-based public health campaign. A well-executed campaign has been successful in the past, although this has been denied in some quarters. Let us look back in history, as most of the answers are in history. The AIDS awareness campaign launched in the UK by the then Secretary of State for Health, Norman Fowler—the noble Lord, Lord Fowler—was highly successful, as was a similar campaign in Uganda. A similar approach to obesity could save the UK economy £98 billion every year.
The Department of Health should encourage practical dietary changes, such as reducing daily intake and incorporating healthy fats, and support these choices through better regulations and labelling to clarify the benefits of healthy fats and reduce confusion about what constitutes a balanced diet. Rather than complex BMI measurements, we need only a simple assessment. For instance, if your waist measurement is more than half your height, you are eating too much of the gross national product.
It is important that this message gets through. The APPG on Obesity criticises the “nanny state” approach, yet if we seek a hands-off solution, more individual responsibility and awareness will be essential. Imagine the impact if each of the 40 million obese people in this country were to reduce their intake slightly, perhaps by skipping a meal a day or choosing foods with fats that encourage fullness. This approach could improve individual health, reduce NHS expenditure and, ultimately, save many from premature death.
Lord Brooke of Alverthorpe (Lab)
My Lords, I am most grateful to the noble Lord, Lord McColl of Dulwich, for this debate. I pay tribute to his long and consistent work in this area. He is experienced in a whole range of different aspects of this, having been a surgeon, and probably knows more about the gut than I ever will. My contribution is one of gratitude for having a peg on which I can hang a coat and pick up several other topics related to obesity.
Obesity, like drink or drugs, comes from filling the empty hole inside us. It can lead to greed, excess and, as we see in many areas, premature death, or certainly an unhealthy later life. It represents a great cost to the NHS and we have to continue working on it. I declare an interest as a member of the Food, Diet and Obesity Committee, which has just produced the report Recipe for Health. We did not focus excessively on fat, but I am sure that colleagues who are better qualified than I may make contributions on that topic.
We did not focus on the new drugs either. I am worried about what lies ahead with the changes in prospect from those drugs. I shall say a little more about that. In the committee, to the extent that I was able to attend, I focused primarily on the fundamental problem of excess sugar being consumed, particularly by children, who I worry about, and the consequences of that. The major reason why children go to hospitals and A&E is dental problems, which in the main arise from sugar.
Like our committee, I should have liked to see taxes introduced to reduce the amount of sugar that we find in soft drinks and elsewhere, but we did not get that yesterday in the Budget. Instead, we got a reduction in the price of alcohol—what a surprise. Our report did not look at the point the noble Lord, Lord McColl, raised about the effect of alcohol on obesity. I welcome my noble friend the Minister, who is listening to me again on this topic. I have been campaigning for years that we should show calories not just on menus but on all drinks. The one area of drinks that is excepted, of course, is alcohol. The previous Government were looking at that and undertaking consultation. I do not know whether they ever concluded it, so could my noble friend say whether they did? She may not have the answer to hand, but could she write to us? If it was concluded, what is the outturn of that exercise and when will we see a Labour Government prepared to introduce calories to labelling on alcohol? Some of her forebears spoke in favour of it when I was campaigning for this over a decade ago. It is sugar that worries me.
The new drugs will be used and needed, but we have to avoid some of the difficulties of lack of regulation and oversight that we have had in the past when new drugs have been introduced. I have done work over many years on addiction related to drink and drugs. I did work on heroin in the early part of this century, when methadone was introduced in lieu of heroin to try to reduce harm. We were spending next to nothing in 2005 on methadone. I cannot now get from the Government a precise or even a round figure on what we are spending currently on methadone, but the rumour is that it is about £1 billion a year, when you take into account not just producing it but the way it has to be administered and the secondary trading that takes place. This is the danger that I bring to the Committee’s attention, which we must be aware of. Unless we keep strict controls on the new drug, we could see it mushroom and spread very quickly indeed—and we could even see secondary markets start to develop. I hope that the Minister is aware of that.
Can we look for incentives to get the food and drinks industry to change its approach? I know that some of them are willing to have conversations about trying to have better formulas in foods, and I hope the Government will be prepared to move on that front.
Lord Krebs (CB)
My Lords, I declare my interests as recorded in the register, in particular my work with the World Cancer Research Fund and the fact that I am a scientific adviser to Marks & Spencer. Like the noble Lord, Lord Brooke of Alverthorpe, I was a member of the Select Committee which reported last week on diet and obesity. I congratulate the noble Lord, Lord McColl of Dulwich, on securing this debate and his introduction to it.
The idea that eating a diet with plenty of fat suppresses appetite is not new. About 50 years ago, Dr Richard Mackarness published a book entitled Eat Fat and Grow Slim. However, like so many other dietary fashions, this one ran into the sands of evidence. I will mention just one study: a double-blind randomised control trial published in the journal Nutrients in 2018. The participants—older, healthy males—were offered one of three calorie-controlled drink supplements containing different amounts of fat, protein and carbohydrate, or a control drink containing virtually no calories. The results showed that adding fat to the supplements raised levels of the gut hormone cholecystokinin, to which the noble Lord, Lord McColl, referred, but did not suppress energy intake from a subsequent buffet meal with ad libitum food. The evidence does not support the idea that eating more fat suppresses appetite.
The National Diet and Nutrition Survey shows that the population-average intake of fat is close to the recommended guideline of 35% of daily energy intake. However, the intake of saturated fat is above the guideline of 11% of daily energy intake. Saturated fat, in particular animal fat rather than fat from dairy produce, is associated with an increased risk of cardiovascular disease and stroke. Therefore, dietary advice is, correctly, to consume less saturated fat, but not because of its contribution to obesity.
Turning to obesity, I will make three points. First, the best way to tackle the obesity crisis is to prevent people putting on excess weight in the first place. This is most effectively achieved, as the noble Lord, Lord McColl, said, by reducing calorie intake rather than by trying to burn it off with exercise—if you try to burn off the calories from one energy drink, you will find out how tough it is.
Secondly, the dramatic rise in obesity during the past 30 years has been driven largely by the increased availability of cheap, highly palatable, calorie-dense food, known colloquially as “junk food”. The report of the Food, Diet and Obesity Committee published last week recommends a raft of policies to deal with this challenge. The overarching theme is that there should be a switch from the 700 or so failed policies based on individual choice to policies based on regulation of the junk food industry and the junk food environment. Does the Minister agree with that general proposition?
Thirdly, it might be tempting to see effective weight-loss drugs such as Wegovy and Ozempic as a “get out of jail free” card. They will have an important role, but they are not the answer to treating the millions of obese people in this country and a much larger number around the world. At the moment they are very expensive, although it is possible, with many drugs in development, that the price will come down. More importantly, they require a lifelong commitment: it is not just about taking the drug for a few weeks; it is about taking it for ever. Recent data from the United States, where one in eight people has tried a weight-loss drug, show that two out of every three obese people give up taking the drug within a year and then regain the weight they have lost.
The Government have said they want to shift from treatment to prevention as one of the three pillars of reforming the NHS. Can the Minister explain to us in broad terms how she envisages this shift from treatment to prevention being applied to diet and obesity, the second-biggest avoidable risk of ill health? In this context, I want to cite one example and ask the Minister to comment on it. My local sports centre, owned by Oxford City Council and which I visit regularly, has an entrance packed with junk food—sugary drinks, ice creams, doughnuts, the lot. Does the Minister think that that is an appropriate way for a local council to run a fitness centre?
The Earl of Caithness (Con)
My Lords, I declare my interests. I am a member of the committee to which noble Lords have already referred and I have a problem in keeping my weight down, so it is a subject that has been of great interest to me and I am very grateful to my noble friend Lord McColl for introducing this debate.
One of the difficulties, perhaps the greatest difficulty, when we are discussing food and diet is the tendency now to use hyperbole and oversimplification in dealing with a very difficult, complex subject. Of course, the press loves hyperbole and simplification, because it increases sales, but it does not actually solve the problem of obesity.
From our report I take out two important factors. One is that obesity has overtaken tobacco as a risk factor for disability in England. The second is that the total cost of obesity is now calculated at £100 billion a year, equivalent to a tax rate of £400 per head. So, there is a lot to be gained by getting obesity under control.
When we talk about simplification, the word “fat” is an oversimplification. There are good fats and bad fats, as my noble friend Lord McColl said. Some fats are extremely important to us. They are a source of energy; they help vitamin absorption; and they provide fatty acids, particularly omega 3 and omega 6, which are essential for keeping our nervous and brain systems healthy. Indeed, fat can be used to help reduce the urgency for food. Sarah Berry, associate professor at the Department of Nutritional Sciences at King’s College, says:
“Fat makes us feel full for longer. It delays the rate at which our stomach empties food, which again helps us create that feeling of fullness. So, it also controls our blood sugar levels as well, so that we tend to consume less calories, potentially later in the day”.
The idea that one can solve this problem of obesity with weight-loss jabs and get people back to work, which the Prime Minister seems to think is a good idea, is very flawed. Trials of the drugs have shown that people need help as well as just taking the drug. Eligible people who will require support cannot access the support to achieve behavioural change. These drugs will not work for everyone; all the trials have shown that. I repeat that obesity is a complex issue and trying to solve it with an injection is a poor cure when prevention would be far better.
There is of course the question of obesity stigma in the workplace, which is a huge barrier to satisfactory employment and leads to poor well-being and burnout. On the barriers, it is not obesity alone that causes a person to be unemployed; there are many other problems.
When we talk about oversimplification, we must remember that diets and our bodies are very complex. New research is demonstrating the importance and relevance of our gut microbiome. It demonstrates that we need to eat over 30 different plants of different colours weekly, 30 grams of fibre a day and around 100 grams of protein a day. We need to stop eating foods that are high in fat, sugar and salt, especially those that are ultra processed. There are other issues. We need to eat within a certain timeframe. All our daily consumption should be within a 12-hour period.
To pick up the point made by the noble Lord, Lord Krebs, exercise is not the panacea. I was very sorry to hear Chris Whitty say that this was going to be the new solution to obesity; it is much more complex. Exercise can help on the fringes, but it is not the main solution. The main solution is eating a healthy, balanced, varied diet, but that is not what the Eatwell Guide tells us to do. I hope the Minister will look at our report where we analyse this very carefully, because we come up with some sensible solutions, including raising tax on people that produce the wrong food for us.
Lord Mitchell (Lab)
My Lords, I thank the noble Lord, Lord McColl, for securing this short debate. It is certainly of the moment, but I come at this issue from a slightly different viewpoint.
I am not in the habit of discussing my weight in public, but this is the moment of truth; I am going to out myself. For the past two years, I have been injecting myself every week with either Ozempic or Mounjaro. As a result, I have lost over 12% of my body weight and I am keeping it off. Yes, it is expensive and, yes, I will probably have to continue my injections for the rest of my life, but to me it is worth every penny.
I was not fat, but I was in danger of getting on the wrong side of chubby. I knew the risks. I never eat desserts nor sweets nor any junk food, but still the dial went in one direction. The key to weight loss can be summarised in two words—eat less—but that is easier said than done. I suppose the corresponding two words are: exercise more. Fewer carbs, more carbs, protein only, no fruit, skip breakfast, do not eat after 6 pm, fast for 18 hours a day and of course the 5:2 diet—I tried them all. The trouble is, you work hard at it, perhaps you reach your target weight and then it creeps back again. You are always miserable.
As for exercise, those who know me can attest that I can bore for Britain on the subject. Three intense workouts every week, and my phone tells me that I average 7,200 steps per day over a year and often over 10,000 paces—all this is to no avail.
Then along came Ozempic. A weekly self-administered injection is all that it took. It suppresses the appetite and reduces the craving for food—you just lose interest. To me, the difference between dieting and Ozempic is that when you diet all you ever think about is food. When you inject, all you ever think about is the next morning’s rendezvous with a weighing machine.
However, there is more to Ozempic than just weight loss. First, there are all the other health benefits. This week, the Economist, not known for hyperbole, called it the most important drug ever. A drug that started out being used to regulate diabetes can now reduce weight. There is strong evidence that it can control the incidence of kidney and liver disease, cardiovascular issues and sleep apnoea, and reduce drug addiction and opioid inflammation. They say that it can contain ageing and even Alzheimer’s. That is a lot of things. This medication is up there with statins, Prozac, aspirin and even the contraceptive pill in changing our health and behaviour.
Then there are the economic benefits. Some 25% of the population are obese. Many are prone to illness. Their potential productivity is often diminished. At present, the annual cost of obesity to the NHS is around £6.5 billion, and it is expected to increase by 50% by 2050. It is the second-biggest preventable cause of cancer. Add to that the cost of treating all the other illnesses that I have mentioned which GLP-1 might be able to arrest, and you can see that the NHS could make some major savings from the wholesale employment of GLP-1.
If these drugs are as game-changing as I suggest they are, they will have a profound and positive effect on our health and on our economy. They are to be encouraged.
Baroness Jenkin of Kennington (Con)
My Lords, I, too, thank my noble friend Lord McColl for initiating and introducing today’s debate. He and I have shared a tiny cupboard—sorry, room—for the past 10 or so years and have spent many happy hours discussing obesity, its impact on the population and the cost to the country. It is great to be expanding those private conversations into a more public arena today. For many years, this topic was rather a niche interest; my noble friend I were almost the only people to raise it in the Chamber. However, I am delighted that more people are now aware of the urgency of the situation, as the financial and personal costs have rocketed.
I am delighted to be the fourth member of the Food, Diet and Obesity Committee, which reported last week, to speak today. I hope my noble friend and the Minister will forgive me for straying a little outside the subject of today’s debate to make some broader comments about a healthy diet, including learnings from our report. As we have heard, the report, Recipe for Health: A Plan to Fix Our Broken Food System, has been widely welcomed by food campaigners and others active in the sector. I urge noble Lords who were not on the committee, especially the Minister, to read at least the report’s conclusions and recommendations.
What became clear over the course of hours of evidence is that our food system is broken and needs to be fixed for people to have better diets and healthier lives. The statistics speak for themselves and are terrifying. Two-thirds of adults are overweight or obese, while the situation with children is as bad—and growing. The costs are enormous: at least 1% to 2% of UK GDP, with billions in healthcare costs and lost productivity.
This public health emergency is driven primarily by the overconsumption of unhealthy foods. As we have discussed, today’s debate is not about ultra-processed foods, which now make up nearly 70% of the average young person’s diet; there will be plenty of opportunity to debate those and the responsibility of the food industry in greater detail when—in the not too distant future, I hope—our report is discussed. Rather, it is about having a healthy and balanced diet, and how we can achieve that for both children and adults.
All of us in this Room—at least, those of us speaking —grew up eating real food: meats and two veg, liver, stews and roasts, all freshly cooked. There was little choice, and there was no constant marketing or encouragement to snack between meals. There were no takeaways or out-of-home delivery services, which add significantly to excess calories. Today’s children are more likely to be drinking puréed fruit from pouches than biting into an apple. They are more comfortable opening packets or takeaway trays and are hardly able even to recognise real food. Our parents would find today’s dietary patterns absolutely unrecognisable.
Only last month, the Prime Minister said that the NHS was in a critical condition and that there would be no extra money without reform. The review of the noble Lord, Lord Darzi, and the Secretary of State’s response to it confirmed the analysis of Henry Dimbleby’s food strategy and highlighted the importance of prevention, as the noble Lord, Lord Krebs, and others mentioned. It was disappointing, therefore, to see seemingly nothing in the Budget to address this matter. We have a major health problem on which, if it were a communicable epidemic, the Government would be forced to act. People want to do the right thing but need help and support. The recommendations in our report are clear; I urge the Government to act on them.
Lord Rennard (LD)
My Lords, I am a type 2 diabetic. I overcome some embarrassment about my weight to say that I have lost more than 30 kilos over the past 30 years. More importantly, I have kept it off.
Self-evidently, however, I need to lose more weight. My diabetic control has been very difficult and required major lifestyle changes, but they were not enough. So, in the past four months, I have been assisted in improving my diabetic control and reducing my weight by a further few kilograms with the help of Mounjaro, a drug from Eli Lilly. Since being diagnosed with diabetes in 1994, I have always had great support from St Thomas’ Hospital. It advised me a few years ago that a typical type 2 diabetic like me, in their 50s and 60s, can be expected to put on an average of between one and two kilos every year. Over a decade or two, that gain of between 20 and 40 kilograms is likely to have catastrophic health consequences requiring significant and costly medical intervention.
For many people struggling with their weight and diabetic control, these new injections give great hope, but we should not see any of the different injections becoming available as a silver bullet to achieve weight loss. We should recognise first that they are helpful in improving diabetic control, which can be very difficult, as your pancreas becomes less and less effective at producing insulin and your sugar levels rise. The associated weight loss with these drugs is also helpful, but such treatment is far from appropriate as a first resort and some people struggle with unpleasant side-effects from them.
However, we should never accept an approach towards obesity or diabetic control which says little more than, “Pull your socks up, make yourself eat much less, but eat more fat”. This approach will lead only to the obesity crisis in many of the more affluent countries becoming even greater. It will result in great damage to the health of their populations, their health systems and their economies. The Atkins diet is now widely discredited after the demise of the author of the books on it.
The British Dietetic Association says that fat plays an important part in our diet and that people need a small amount of it. But it has warned against a high intake of saturated fats, which are often found in processed foods and associated with weight gain, making diabetic control harder, causing joint problems and some cancers.
The questions for us to discuss should be about how to take strong steps to help prevent people becoming obese in the first place and how to help them achieve and maintain healthier lifestyles, manage their diets better, and adopt healthier lifestyles, including regular exercise.
As the excellent report from the Select Committee on Food, Diet and Obesity, chaired by my noble friend Lady Walmsley, suggested last week, we need a broad range of measures to tackle the obesity crisis. I would begin with healthy, nutritious, and free school meals and stopping the proliferation of fried chicken and burger shops in close proximity to schools. We need, as the Select Committee says, to reduce the prevalence of marketing and advertising of unhealthy ultra-processed foods, especially to children. We need also to promote health education and physical activity in schools and after school.
Poverty must also be recognised as a significant factor in many people having unhealthy diets and suffering from health inequalities. Poor parents struggle to provide healthy diets for their families. Healthier foods are more than twice as expensive per calorie as less healthy foods. One of the most important poverty-relieving measures would be to scrap the two-child limit for universal credit or tax credits. I am disappointed that this was not in yesterday’s Budget.
In conclusion, we need to follow medical advice and look at evidence over time about the use of injections assisting diabetic control and weight loss. We cannot simply let people think that they can just resort to expensive weekly injections provided by the state. But nor can the state ignore the tremendous costs of obesity and diabetes.
Lord Kamall (Con)
My Lords, I thank my noble friend Lord McColl for securing this debate on a timely and important matter, but I also thank all noble Lords in this debate for their contributions. I warn the Minister that I tend to take a rather Socratic approach, so I will have lots of questions. The noble Baroness may not be able to answer all of them but I am happy for her to write to all of us.
The noble Earl, Lord Caithness, and the noble Lord, Lord McColl, have shared some interesting statistics: an NHS survey estimated that 28% of the population are obese, and a further 38% are classified as overweight. As other noble Lords said, this is not only a health issue but an economic problem. The question is: how do we as a society encourage people to lose weight—to help them live healthier lives but also to reduce the cost to taxpayers of the NHS treating obesity, be that through medication or lifestyle changes?
As someone who believes in personal freedom, I would not oppose anyone who decided to take Ozempic, as long as it was safe for them to do so and they were aware of the risks, as the noble Lords, Lord Mitchell and Lord Rennard, testified. However, there have been reports that the popularity of such drugs has led to a market for dangerous counterfeit drugs that mimic these effects. Can the Minister confirm whether the Government are aware of the proliferation of cheaper alternatives? Have the Government made any assessment of the safety of these alternatives and of whether some are in fact counterfeits?
While medical advancements such as Ozempic can help to manage someone’s weight, surely it is important that we explore and promote alternative approaches, as the noble Lords, Lord Brooke and Lord Krebs, said. As my noble friend Lord McColl and the noble Earl, Lord Caithness, suggested, research shows that diets with enough healthy fat content, especially unsaturated fats, can be effective in making people feel that they have eaten enough and reducing their appetite. These diets can also stabilise blood sugar levels, which is critical for weight management and overall health.
Education and prevention are just as important. Many people may not understand the impact of their dietary choices on their long-term health; they may not realise that better diets will not necessarily cost more; and they may not be aware that a small increase in physical activity can contribute to better physical health and mental well-being—although it is not a panacea, as the noble Lord, Lord Krebs, and the noble Earl, Lord Caithness, said.
Can the Minister reveal whether the NHS is prioritising cost-effective lifestyle approaches, rather than focusing on weight-loss drugs as some sort of magic bullet? I urge the NHS and the Office for Health Improvement and Disparities, as well as the department, to ensure that accessible support is available to those from all backgrounds. Often, those from the most disadvantaged backgrounds face the greatest challenges in accessing healthy food and exercise facilities, leading to higher incidences of obesity within those communities.
Noble Lords may have seen daytime television programmes—I know they work very hard, but in their rare moments of relaxation they might switch on the TV—where families are taught to cook healthier meals, which can often be cheaper than ready meals from the freezer section of a supermarket. When I was a Minister, I often wondered how you transfer these daytime TV lessons into people’s homes. I know that my noble friend Lady Jenkin has taken an interest in this issue for many years.
One of my students recently wrote an assignment on Brite Box, a fantastic project in Kingston upon Thames that provides families with ingredients and an illustrated recipe guide so that they can cook a healthy meal on a budget together. What happens is that cooking together leads to meals being family occasions rather than one parent being stuck in the kitchen. Can the Minister tell us how the NHS, the Department of Health and OHID are working with similar local community projects across the country to encourage families in poorer communities to eat healthier diets? What steps are being taken to enhance dietary and health education in our schools, workplaces and community spaces?
Finally, as weight-loss drugs such as Ozempic gain popularity and we start to see the results of the trial of tirzepatide in Manchester, we have to recognise the psychological aspect of obesity. Can the Minister tell us about how weight-management initiatives will consider the link between poor weight management and the mental health of individuals? What mental health support is available to overweight individuals with underlying mental health conditions, and how do we avoid the unintended consequences of those who suffer from eating disorders such as anorexia or bulimia?
Once again, I thank my noble friend Lord McColl for securing this debate and all noble Lords for their contributions. I look forward to the Minister’s responses.
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
My Lords, I thank the noble Lord, Lord McColl, for bringing this important issue to the fore. He is a doughty campaigner and I know he has many strong views, to which I have listened not just on this occasion but on many occasions. I welcome the airing that we are having today. I thank other noble Lords, too, for their contributions. As ever, there is a fair amount of common ground and quite a bit of divergence in the opinions about how we tackle what is an obesity crisis. I particularly thank noble Lords, including my noble friend Lord Mitchell and the noble Lord, Lord Rennard, for sharing their very personal experiences; that always assists us.
As many noble Lords have said, there is no doubt that obesity is significant in our country—and not just our country. As the noble Lord, Lord Kamall, observed, over 28% of adults are living with obesity, which puts them at risk of a whole range of health conditions. Obesity is also estimated to cost the NHS more than £11 billion per year, with total costs to the UK of £74 billion per year. The noble Baroness, Lady Jenkin, rightly referred to children’s obesity. It is shocking to realise that children with obesity are five times more likely to be living with obesity as adults. In other words, the seeds sown at the beginning are reaped in a none-too-positive way later on down the line. As mentioned by a number of noble Lords, obesity is particularly concentrated in the most deprived areas, with prevalence for children in the most deprived areas being more than double that in the least deprived areas. That gives some idea of what we are up against. As the noble Lord, Lord Krebs, and other noble Lords indicated, it is absolutely clear that we have to take action.
I share the view expressed that the challenge before us is complex. It would be wrong to see it any other way. Indeed, I share the view that obesity is primarily caused by the consumption of excess calories. We have a food environment where unhealthy foods have become cheaper and more readily available. The noble Lord, Lord Krebs, made a point about a local fitness centre display in his own area. I certainly echo his sentiment that this is not an appropriate way to assist people’s fitness. If the noble Lord has not already, I encourage him to complain to his local authority, because we need a cultural shift as well as a number of practical shifts.
In addition to the food environment that we are in, portion sizes have increased. The noble Lord, Lord McColl, rightly shines a light on this, and we are committed to addressing it. We have made a good start, and our mindset is very much about prevention over cure.
On the question from the noble Lord, Lord Krebs, we have committed to implementing junk food advertising restrictions on TV and online and to limiting schoolchildren’s access to fast food. Our 10-year health plan will also reform the NHS by shifting the focus from sickness to prevention, as noble Lords have already observed.
On the point raised by my noble friend Lord Brooke, as announced by the Chancellor yesterday we will take steps to ensure that the soft drinks industry levy remains effective and fit for purpose. That will be done by ensuring that the levy is uprated to reflect inflation since it came into force and in the future. Importantly for me, the Government will also review the soft drinks industry levy’s operation and structures, to aim to further drive down the sugar content in soft drinks. We will also review the sugar thresholds at which it applies and the exemption for milk-based drinks. I will be pleased to keep noble Lords informed on this development.
I heard the observation by the noble Lord, Lord McColl, that he considers that there is—if I may use this term—a demonisation of fats. I assure him that the dietary recommendations are about promoting a balanced diet. The advice given tells people not to avoid fat per se but—the noble Lord, Lord Krebs, referred to this—to eat foods containing saturated fats less often and in smaller quantities, and to swap to unsaturated fats where possible. The reason for this focus is that there is robust evidence that switching saturated fat for unsaturated fat lowers blood cholesterol and reduces the risk of heart disease by almost a fifth. With more than 150,000 deaths from cardiovascular disease every single year, this is crucial. Indeed, the guidance and the policies, such as junk food advertising, cover both saturated fat and sugar—something of great interest to my noble friend Lord Brooke—so it is not one thing or another, as is often the case when we are speaking about this matter.
Over 12 million people are living with obesity, so we need to provide support for them too—a number of noble Lords correctly outlined the importance of that support. The NHS and local government provide a wide range of services, including behavioural support programmes that provide advice to help people to adapt to a healthier diet.
There are more specialised services for people living with severe obesity and for associated comorbidities. These can prescribe some of the newer obesity medicines as well as offering surgery. However, I emphasise that they should be considered further down the treatment pathway. Exactly what is appropriate for any individual is down to clinicians to advise, in discussion with that patient, and to consider clinical guidance.
The noble Lord, Lord McColl, referred to Ozempic. As he will be aware, it is licensed to treat type 2 diabetes, and healthcare professionals have been reminded in guidance that it should not be prescribed solely for weight loss, although the obesity medicine Wegovy is approved for weight management on the NHS. However, obesity medicines are not a first-line treatment. Other things need to be tried first and other support needs to be in place.
I agree that the primary focus should be on supporting behavioural change, including a healthier diet, and that is confirmed through NICE guidance, but we should acknowledge that obesity medicines can be very effective at helping some people to lose considerable amounts of weight, as my noble friend Lord Mitchell and the noble Lord, Lord Rennard, have described and demonstrated. The losses are considerable—in some cases, over 20% of body weight—and that is a benefit to health.
However, as I said, these medicines should not be given alone, and support on diet and increasing physical activity, which the noble Earl, Lord Caithness, spoke about, are crucial. We need the food environment to be supportive for those managing their weight, ensuring that it is easier for people to eat more fibre, more vegetables and less sugar and salt, and to swap saturated fat for unsaturated.
I turn to the reference to “jabs for jobs”. I am grateful that noble Lords have raised this issue today, because it is an opportunity to address the media coverage. The suggestion is that the Government will somehow target people who are unemployed with such medicines to help them to get back to work. I want to be clear: the NHS continues and will continue to treat people on clinical need. We are not targeting those who are unemployed. The coverage in the media refers to a study funded by the manufacturer of one of these obesity medicines. It will build evidence to increase our understanding about the potential wider value of such medicines, and it will look at the impact on health and healthcare use and collect data on things such as change in employment status.
I turn to some of the other points raised. In answer to my noble friend Lord Brooke, we are indeed looking at incentives for reformulation and considering the balance of mandatory and voluntary measures.
I thank the noble Earl, Lord Caithness, and the noble Baroness, Lady Jenkins, for raising the work of the House of Lords committee. I am glad to see that it has recently published its final report, and I look forward to looking at it and considering the recommendations.
There are a number of specific questions that I have not been able to address, and I will be very pleased to pick up specifics in that regard.
To conclude, obesity medicines are not to be seen as the first thing to turn to—the guidance is clear on that—but they have a place for some people when other options have not worked. We and the NHS are looking at how best to make the medicines that we are considering today available in a safe and effective way.
Defence Spending
(3 weeks ago)
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Viscount Trenchard
To ask His Majesty’s Government what progress they have made in laying out the roadmap to spending 2.5 per cent of gross domestic product on defence.
Viscount Trenchard (Con)
My Lords, I must declare my interests as honorary air commodore of 600 (City of London) Squadron in the Royal Auxiliary Air Force, and as a consultant to Mitsubishi Heavy Industries Ltd.
It is timely that we have a chance to debate defence spending today. Since the passage of the Defence of the Realm Act 1914, three days after the start of the First World War, it has rightly been maintained that the first duty of the Government is to protect and safeguard the lives of their citizens. The Armed Forces covenant, promulgated in 2011, starts with these two sentences:
“The first duty of Government is the defence of the realm. Our Armed Forces fulfil that responsibility on behalf of the Government, sacrificing some civilian freedoms, facing danger and, sometimes, suffering serious injury or death as a result of their duty”.
Churchill was fond of quoting the Latin adage, “If you want peace, prepare for war”. In 1943 and 1944, more than 40% of GDP was spent on defence. If this country should again become directly embroiled in a major military conflict, it is reasonable to assume that the Government would again have to spend a huge proportion of our national output on defence to fulfil their first duty. Surely it is absolutely necessary to spend enough on defence now to make it as unlikely as possible that we will again become embroiled in a major war. We all know that we are already involved, with our NATO allies, in Ukraine’s fight for survival against the Russian invader; it is a conflict that we cannot allow Ukraine to lose.
Today’s debate is not the occasion to discuss yesterday’s Budget. It is deeply disingenuous of the Government to go on and on about the black hole against a background where tax revenues are £21 billion higher than the OBR had predicted. I expected that the Chancellor might take the opportunity provided by the Budget to set out the long-awaited road map to spending 2.5% of GDP on defence. I feared she might say that we would have to wait until the report of the strategic defence review by the noble Lord, Lord Robertson of Port Ellen—for whom I have the very highest regard—is published, but she did not even say that. She said that
“we will set a path to spending 2.5% of GDP on defence at a future fiscal event”,—[Official Report, Commons, 30/10/24; col. 822.]
but she has also said that there will be one Budget a year. Does this mean that we will not even know the pathway to spending 2.5% until the next Budget next autumn? In that case, how can the noble Lord, Lord Robertson, produce a coherent defence review next spring?
However, we surely know that we must anyway spend at least 2.5% of GDP on defence now. It is quite possible that the SDR will find that the military capabilities we need now will cost a lot more than can be afforded even by spending 2.5% of GDP on defence.
In the debate introduced by the noble Lord, Lord Robertson, on the SDR on 9 October, the noble and gallant Lord, Lord Stirrup, referred to NATO’s recent assessment that if its members are
“to contribute military capabilities adequate to the challenges that the alliance now faces, they will need to spend around 3.7% of GDP on defence”.—[Official Report, 9/10/24; col. GC 224.]
If NATO is correct, investment in defence needs to be above 3% of GDP, not the 2.5% that the Government say they aspire to but for which, even now, they have not so far set out a firm plan.
As the Committee is well aware, the world is in a more turbulent and unpredictable state than it has ever been since the end of the Second World War. The noble Lord, Lord Robertson, has described China, Russia, Iran and North Korea as the deadly quartet. As I pointed out in the debate on the SDR, the previous Government’s paper, Defending Britain: Leading in a More Dangerous World, published in April this year, explained that any delay in setting out a pathway to reaching 2.5% was likely to lead to front-line cuts at the worst possible time for our Armed Forces.
Spending more will not in itself be enough. Reform of the Ministry of Defence to build a less risk-averse department and improve its procurement process is also essential. Can the Minister confirm that the fact that the SDR was to be reported to not only the Prime Minister and the Secretary of State for Defence but the Chancellor of the Exchequer was not significant? On that occasion, the Minister said:
“The Government have an absolute commitment to 2.5%. I know that that is not what some people want to hear and that there is no timeline given to it, but there is an absolute commitment to 2.5%. It is not an aspiration”.—[Official Report, 9/10/24; col. GC 262.]
We now know what that means: merely setting a path at a future fiscal event.
The noble Lord, Lord Robertson, will assess what threats we face and what capabilities we need to address them, but his task has been made all the more difficult by the Chancellor’s signal that the uplift in defence spending is not the Government’s urgent priority, which it should be. It is at least welcome that the AUKUS programme is protected.
The UK has been one of the few NATO countries to meet the 2% spending target, and our response to the Russian invasion of Ukraine was much appreciated by our allies and by the Ukrainians. However, we are now placing our ability to provide leadership in military operations at risk, because we have in recent years been increasing our defence expenditure at a much slower rate than other nations. Germany, which in 2014 was spending only 1.2% of its GDP on defence, has committed to spend $97.7 billion on defence this year, which is an increase of 29.45% over 2023. France has increased its defence budget by 6.05%, and the United States by 7.21%. Against that, we have managed to provide an uplift of only 1.73% after adjustment for the implementation of the new accounting standard, IFRS 16. That is one of the smallest increases among NATO members. It means that Germany will be spending nearly 40% more than we are. The Chancellor announced an increase of £2.9 billion for next year, but that is not nearly enough given the serious threats we face and the current underfunded state of the Armed Forces. Recruiting is badly affected by inadequate, poorly maintained accommodation and facilities. It is shocking to hear that there are now more civil servants in the MoD than the total strength of the Royal Navy and Royal Air Force.
As a precondition of deploying our aircraft carriers, or indeed any major maritime or land-based assets, to any conflict zone in partnership with our allies, it is absolutely necessary to control the air environment. That is why we need the Global Combat Air Programme —GCAP. Its advantage over alternatives includes its greater range. It will bring a contribution to NATO that nobody else can bring. If we do not fulfil our commitment to our partners Italy and Japan to deliver this project by 2035, it will be disastrous for our international relations and will signal the end of our ability to bring in partners to major defence projects. Some 70% to 85% of our defence exports in the last five years have been combat air in nature, so to fail to honour our commitments to this project would have huge implications for our defence industrial base.
Will the Minister now give a much-needed commitment, or at least say more than the Government’s position on GCAP, which is that
“we continue to progress on that”?—[Official Report, 25/7/24; col. 723.]
That is not quite the firm commitment that our Japanese and Italian friends are seeking. Having heard the Chancellor’s disappointing words yesterday, their concerns and those of all our allies will be seriously heightened.
I thank all noble Lords who are to speak in this debate, and I look forward to their contributions and to hearing what the Minister has to say.
Lord Bilimoria (CB)
My Lords, in defence expenditure as a share of GDP, Poland is at 4.12%, Estonia at 3.43%, the United States of America at 3.38%, and we come ninth at 2.33%. With 2.33% we are nowhere near 2.5%, which is supposedly the target pledged by both the Labour Government and the previous Conservative Government, and NATO’s baseline is of course 2%. If we go up to 2.5%, we will be higher than Finland and Denmark but we still below Greece, the USA, Latvia, Estonia and Poland. I say again: the Labour Government have committed to reach the 2.5% target but have not specified a completion date. The Conservative Government had a date as far away as 2030. Can the Minister give us a commitment to that?
Additional funding of £5 billion was allocated post the invasion of Ukraine, with planned annual increases through 2027-28. The Ministry of Defence faces budget gaps, including a £3 billion deficit in equipment planned for 2024-25, and a £3.9 billion gap for 2025-26. Of course, in the Budget we have had this announcement of £2.9 billion. That is good news but it is nowhere near enough.
The UK’s increased defence spending aligns with NATO’s collective defence strategy, reinforcing our commitment to alliance-readiness. I am like a stuck record: in 2019, in our debate in the Chamber on the 70th anniversary of NATO, I first said that we should be spending 3% of our GDP on defence—not 2.5% but 3%. That was five years ago. Five years ago, there was no sign of Putin invading Ukraine, or of 7 October and the tragic situation in the Middle East since. Since the end of the Cold War and the fall of the Berlin Wall in 1989, we are closer to global conflict than ever before, and then 3% will be nowhere near enough.
As a country we have provided £12.8 billion in support to Ukraine, including £7.8 billion of military support and £5 billion of non-military support. One of the proudest parts of my career was being president of the Confederation of British Industry and, within that, there is my pride at helping British industry help Ukraine, from literally days after the war started, with medical kits, ration kits, food supplies and so on.
Our support for Ukraine has been amazing. As the noble Viscount, Lord Trenchard, said, we cannot let Ukraine lose. But the defence of Ukraine is possible only if the United States continues its support. It has provided over $100 billion of support; if it pulls out its support, that war is over. The election in America is next week; the repercussions will be very serious indeed and we must be prepared for that.
I am a proud honorary group captain in 601 Squadron of the Royal Air Force, and I thank the noble Viscount, Lord Trenchard, for leading this debate. He is an honorary air commodore, so I have to salute him.
We heard in the defence debate earlier today about the outsourcing of recruitment in our Armed Forces. It is appalling. How can you outsource the esprit de corps of our finest Armed Forces? The recruitment should be done by the Armed Forces and services themselves. Please will the Minister confirm that he will stop this?
The UK should join the Quad—the Indo-Pacific alliance between the USA, Japan, Australia and India, to make it Quad Plus. We are at the top table of the world. We have a permanent seat on the UN Security Council, we are the second-biggest power in NATO, and a member of AUKUS, Five Eyes, the G7 and the G8, though sadly not the EU any more. We have the finest, most respected Armed Forces in the world, which we should all be proud of.
The “but”, as I have said before, is that, in real terms, we were spending £57 billion in 2010 and today we are spending £54 billion. Our Armed Forces are too small, at 192,760. The SDR, chaired by the noble Lord, Lord Robertson, is wonderful news, and it is crucial that we get it absolutely right.
To conclude, as I have said, the noble and gallant Lord, Lord Stirrup, has said that we have a
“shrinking and hollowing out of our Armed Forces”.—[Official Report, 9/10/24; col. GC 226.]
and the noble Lord, Lord West, has said that
“money is the elephant in the room”.—[Official Report, 9/10/24; col. GC 227.]
The price of freedom is not free. We need to spend at least 3% of GDP on defence.
Baroness Buscombe (Con)
My Lords, I am pleased to have this brief opportunity to speak of the road map to spending 2.5% of our GDP on defence, particularly given that I was unwell and therefore unable to contribute to the recent SDR debate. I will focus on the need to apply a substantial proportion of the £2.9 billion increase announced yesterday to reinvesting in our Armed Forces personnel.
Taxpayers’ money is there but the priorities for government expenditure are just wrong. A cursory comparison with our welfare spending alone makes the moral case. In April this year, the Government’s forecast for our total defence budget in 2024-25 was £55.6 billion. At the Department for Work and Pensions, figures for the same period forecast a spend of £315.8 billion on our social security system. Working-age benefits go to 9.3 million people, a huge proportion of whom are capable of working.
There are principles involved here. To give just one small but significant example, in contrast with our brilliant Armed Forces, benefit claimants receive a Christmas bonus for doing nothing. In addition, the reliance on Armed Forces charities to purchase the most basic items for wardrooms and messes, such as televisions, is scandalous, given our current expenditure on fully serviced hotels and weekly cash payments given to illegal migrants.
If we are to confront the many challenges referred to by noble Lords in the SDR debate, we must seriously invest in our Armed Forces personnel. As the noble and gallant Lord, Lord Stirrup, said in that debate, we must
“make good the shrinking and hollowing out of our Armed Forces that has been the handiwork of successive, delinquent Governments”.—[Official Report, 9/10/24; col. GC 226.]
Having listened to a brilliant ex-Army officer in January this year—I emphasise “ex”—telling me that some of his fellow officers were being asked if they would continue to serve unpaid, the picture is clear: it is dire.
My plea to the noble Lord, Lord Robertson of Port Ellen, who I am pleased to see in his place, is to visit some bases and barracks unannounced. We all know that the military is adept at putting on a good show. I experienced this myself as Minister for Armed Forces Veterans at the Department for Work and Pensions. Just turn up to an RAF or Fleet Air Arm base and listen out for a plane in the air, and you will be lucky to hear or see anything. Go into the empty wardrooms and look around the desolate acres. Visit Army barracks and more desolate acres. Check out the equipment—what equipment is there, where is it and does it actually work?
I said in your Lordships’ House on 20 May this year that Armed Forces personnel in the Navy would be better off being subject to the process of court martial from the Navy than being discharged on medical grounds, given the outdated and inhumane processes in place. Following correspondence with the Navy this summer, I am sad to say that I hold firmly to that position.
In addition, the system of what is known as holdovers, leading in some cases to training taking more than seven years instead of three because we have not invested in the right equipment for training, is, frankly, shocking. Careers are blighted before they have begun, at enormous wasted expense to the taxpayer. Furthermore, equality of opportunity, which I believe is sacrosanct, is very different from the equality, diversity and inclusion now in vogue. EDI entrenches difference. It is an expensive and divisive diversion from what needs to be done and does nothing for morale. For many, VAT on private school fees will be the last straw.
It is not enough to stamp a letterhead with the words, “Global, Modern, Ready”. If we are to confront the many challenges referenced by noble Lords in this month’s SDR debate, we must prioritise and invest in a complete review and overhaul of how we recruit, train, properly incentivise and thereby support and retain our Armed Forces. Given all the petty regulations that just grow, and the satisfaction expressed in some quarters for the status quo, that review must be independent of the MoD.
I gather that serious consideration is being given to creating an integrated force. That would of course be a radical move, but it might present the best opportunity for a total reset and renewal for the future. It would require serious investment in the short term, but I predict that the investment would prove well spent and invaluable to our future defence force.
Lord Mountevans (CB)
My Lords, I congratulate the noble Viscount, Lord Trenchard, on securing this important and timely debate. The Chancellor’s announcement yesterday in the Budget of an additional £2.9 billion for the Armed Forces, for all that it is most welcome, does not represent an adequate investment in our forces, their people and their equipment. The additional payments that seem to have become a feature of recent defence financing represent sticking plasters rather than a serious attempt to bring the forces to the level that is required in the current international and geopolitical condition.
Of course we all realise and welcome that the much respected noble Lord, Lord Robertson of Port Ellen, is currently leading the strategic defence review, but my concern is that cost will be the key decider of how much money and resource is allocated, like small boys laying out their pocket money on the shop counter to see what sweets they can afford. Money is tight at this time, but the nation and especially the Government need to rethink priorities. With a changing world order and greatly increased threats, we desperately need to reprioritise. Defence is a long-term issue, particularly in the fast-changing world that we inhabit. It is simply not possible to make up lost ground over a short period. We are seeing that now, following— I regret to say—the neglect of the Armed Forces and our defences since the so-called peace dividend following the end of the Cold War. We and the democracies in general took our eye off the ball. We now have seriously and rapidly to address our weaknesses. Most other NATO countries are doing this.
I strongly recommend an increase to 3% of national income to be allocated to defence, as proposed by the noble Lord, Lord Bilimoria, and the famous Chief of the Defence Staff from the RAF. The vast majority of our countrymen wish to be a force for good, to be able to defend the nation and to play our full part in NATO as well as, on occasion, further afield. But the Secretary of State recently admitted on a Politico podcast that the Armed Forces are not ready to fight in a war and must do more to act as a deterrent against future aggression. He added that the forces would need to become more effective if the UK had to go to war.
It is not just for our Armed Forces to try harder and work smarter. There is a chronic need for resourcing adequately. For example, the defence-industrial base needs consistent government policy and time, due to the fact that the base has been allowed to shrink so profoundly over recent decades. It requires time for the base to be expanded, and then outputs will be swifter and more lethal.
Noble Lords will be aware of the questions around American support for NATO, especially if the Republican candidate were to succeed in the US presidential election next week. More generally, it has to be faced that attention in the United States is turning towards the Indo-Pacific. Europe will be expected to take greater responsibility for its own defence.
More widely, if the US is to continue to regard the UK as a key ally, we must maintain the fabric and capabilities of our Armed Forces. If not, they will regard us differently, as having less value as an ally. Having left the EU, Britain has to reinvent itself and find a new role. The alternative is that we be regarded as a small country facing many challenges. It is important that we remain a strong contributor to the rules-based order and world peace.
Strong and effective Armed Forces are an arm of foreign policy and an asset to the UK as we shape our new role in the world post Brexit. The success of the Joint Expeditionary Force is an excellent example of where our Armed Forces can play a highly positive role. The JEF can be regarded as essentially a British initiative. The Swedes and the Finns found that they work well with other JEF participants—all NATO members, of course. The equipment was compatible, and the people liked and trusted each other. A good chemistry had been established so that, when Putin commenced his illegal war on Ukraine, generating great alarm in the Baltic, it felt natural for these two highly respected nations, Sweden and Finland, to join NATO.
The UK is also of course a key participant in the AUKUS deal. UK defence has played a role in strengthening peace prospects in the Indo-Pacific. I believe we can be very hopeful that this important co-operation project will give courage to south-east Asian and other Indo-Pacific nations that they can be part of a response to a bullying China. The GCAP agreement is similarly a positive development in alerting those facing challenge that we recognise their situation.
Some 40% of Russian state expenditure is now on the military. Should Russia be successful in Ukraine, many analysts feel that Putin will be emboldened to embark on further military action in Europe. As noted by the noble Lord, Lord Bilimoria, it is significant that prominent among NATO states with the highest proportion of national income spent on defence are Baltic countries bordering on Russia. If Britain continues to respond to the risks and challenges inadequately, it would all come back to haunt us.
There is never enough money for welfare payments. Would the Minister like to comment?
Earl Attlee (Con)
My Lords, I am grateful to my noble friend Lord Trenchard for introducing this debate. The noble Lord, Lord Bilimoria, said that our Armed Forces were the finest in the world. I have to say that I am not absolutely convinced about that, and my noble friend Lady Buscombe outlined some of the problems. My noble friend Lord Trenchard talked about the problems that the noble Lord, Lord Robertson, may have in producing a defence review when he does not know how much money he has to spend, but he does know how much he can spend—it is about 2.5% of GDP.
If a defence analyst was to analyse both me and the Minister, he would find it very difficult to get a fag paper between us. I think we both think that we want to spend at least 3% of GDP on defence, but no more than 5%. The problem is that we live in a democracy, and political parties tend to use focus groups—and they ask the focus groups what their priorities are. We know what the priorities are for focus groups: it will always be the health service at the top, and the welfare state—all the lovely things that we want to be able to do. It is understandable why the electorate want that. If you ask them about defence, the focus group will attach a very low priority. But we do not explain to the focus groups or the general public the consequences of insufficient defence expenditure; we talked about that in the last debate on the failure of deterrence and its consequences. If you asked a focus group, “Are you happy for your daughter, son, sister or brother to be compulsorily conscripted for an overseas military operation that is not doing very well?”, just as we experienced in the 1940s, I suspect you might get a rather different answer.
Lord Shinkwin (Con)
My Lords, I congratulate my noble friend Lord Trenchard on securing this debate and his powerful opening remarks. I completely agree with other noble Lords that making rapid progress in laying out the road map to spending at least 2.5% of GDP could not be more important.
The Budget states that the Government
“will set a path to spending 2.5% of GDP on defence at a future fiscal event”.—[Official Report, Commons, 30/10/2024; col. 822.]
I think this misses the point. The point is Putin. He has to be the starting point because, ultimately, it is not a future fiscal event that is going to determine UK defence spending—it is a future military event, orchestrated by Putin and his allies.
So the question is: how committed are we to ensuring that that military event is not a third world war? As noble Lords have said, it surely depends on the extent to which we are prepared to invest now in defence and deterrence as a means of averting war.
I do not question the sincerity of the Minister here and the Secretary of State in the other place, John Healey, but I fear that yesterday’s Budget will be interpreted by Putin as confirmation that we intend to continue living in a never-never land. That is reinforced by this sentence in the policy paper on the Budget:
“This underlines the government’s commitment to strengthening the Armed Forces and protecting national security during a period of geopolitical instability”.
I must say, I sense the hidden hand of Sir Humphrey in such an understated, anodyne turn of phrase. I am not sure that it quite captures the urgency of the situations in Ukraine, Lebanon, Gaza, Yemen, Iran—the terrorist puppet master—Georgia, Taiwan and North Korea. The list is long, and it is red hot.
As the excellent report from the International Relations and Defence Committee of your Lordships’ House, Ukraine: A Wake-up Call, makes clear, any increase in defence spending
“should be seen in the context of decades-long defence cuts and recent inflationary pressures on the defence budget”.
However, one thing is clear: it would be unfair to accuse the Chancellor of producing a Budget for defence—including, as my noble friend Lord Attlee alluded to, the defence of items of expenditure such as the NHS, which focus groups say are so important to them, bearing in mind Putin’s fondness for targeting maternity hospitals and other crucial civilian infrastructure. Sadly, yesterday’s Budget was a vital missed opportunity, because it was in no way a wake-up call for Vladimir Putin. In fact, I suspect that he is laughing at us—laughing at our increased indebtedness and our reduced readiness for war.
I conclude with one question for the Minister, who will know that the economic and financial dialogue between the UK and China was paused after the imposition of the national security law in Hong Kong. Since more than 60% of the components used to prosecute Putin’s illegal war in Ukraine come from China, can the Minister assure the Committee that the UK will not seek to deepen trade relations with China, which is making not only the continuation of conflict in Ukraine possible but a third world war far more likely?
Baroness Smith of Newnham (LD)
My Lords, like other noble Lords, I thank the noble Viscount, Lord Trenchard, for giving us the opportunity to discuss defence expenditure. I fear that already, after not yet four months in office, the Minister may be getting a little tired of the record that says, “All the main parties committed to 2.5%, but when on earth are this Government going to deliver?”, because it is clear that whether the Government deliver the 2.5% of GDP is in the hands not so much of the Secretary of State for Defence or the Minister of State for Defence as of the Treasury.
The noble Baroness, Lady Goldie, keeps suggesting that the Minister—or the noble Lord, Lord Robertson of Port Ellen, when doing his review, where he is capped at 2.5%—should go to the Treasury and say, “Give us more money”. Yes, we need to be spending at least 2.5% of GDP, but I want to raise something that we have not really talked about: how we are spending that money. The aspiration is important, but when looking at defence procurement matters, we need to think about more than just what pennies we have in the sweetshop. I thought that was quite a good analogy, because you do not get many sweets for pennies now; you need pound coins and so on. Similarly, if we are looking at pennies for defence, we are not in the right quantum.
It is already clear that if we are going to backfill what we have given to Ukraine then we are looking at costs that are in billions rather than millions of pounds. There are real questions about how we are going to procure the kit that we need, for which there are already black holes, and to backfill the equipment which we have rightly given to Ukraine. So how we spend matters, how we procure matters and moving beyond the exquisite is important.
There are two or three other economic factors that matter. The Prime Minister and the Chancellor of the Exchequer have talked a lot about growth. In a growing economy, 2.3% of GDP being spent on defence, which is roughly what we have at the moment, would be of far greater interest than in an economy that is stagnant —and at the moment we appear to be in a stagnant economy. So the 2.5% matters, but so does the economic growth that would mean that we could increase defence in real terms. Inflation is currently low, but traditionally defence inflation runs much higher than RPI. The exchange rate also matters, and at the moment the dollar exchange rate is relatively good. All those factors are outside the influence of the MoD, but they all make a real difference to what we can deliver. Although I join other noble Lords in saying we need that timeline to understand when defence expenditure will increase in terms of GDP, it is vital that we see economic growth to be able to expand our defence budget.
I very much agree with the suggestion by the noble Baroness, Lady Buscombe, that we should be putting a lot of the additional £2.9 billion into personnel, but one of the headlines in the Budget was how much is going on employers’ national insurance. Of the £2.9 billion, how much is the additional wage bill for the MoD arising from the increase in the employer’s national insurance contribution? It is sort of a cost on the Armed Forces but certainly not one that will benefit our service personnel—and we need that.
We need to find a pathway, but we also need to think about how best to deploy our limited resources to make sure that we are as capable as we desire to be. We have had the best Armed Forces in the world, and we should ensure that we continue to. I pay tribute to all our service personnel and veterans and their families.
Baroness Goldie (Con)
My Lords, it is clear from the contributions today how informed about and engaged in the defence of our nation your Lordships are. That knowledge was manifest in my noble friend Lord Trenchard’s contribution, and I am grateful to him for bringing this debate before us.
I am not going to patronise noble Lords with a preamble about why defence is the most important obligation of any Government; it is, and we know why. I am going to examine how the current Government are discharging that responsibility.
It all flows from budget—the money—because, quite simply, that is what shapes the capability. Yesterday, after all the repeated rhetoric and reassurances over many months from the Prime Minister downwards that the Government believe in defence, are committed to 2.5% of GDP and will lay out the trajectory to that point, we held our breath and waited. Notably, the Minister for the Armed Forces, Luke Pollard, addressing air and space chiefs at a London conference in July this year, said:
“How we get to 2.5% will be laid out by the Chancellor, Rachel Reeves, at a fiscal event, which is government code for a budget, or an autumn statement. So looking at that, she will be setting up the path to that”.
We are still holding our breath. What did we get? Clarity? No. Leadership? No. Instead, we got a deafening and supine silence. We got a sticking plaster of £2.9 billion for 2025-26. In defence budget terms, we know that that is sticking a finger in the dam and hoping for the best. There is nothing strategic about it, no trajectory to anywhere. While this response says a lot about the Government, and I do not expect the noble Lord, Lord Coaker, to comment on that, I am much more concerned about what it says to our allies, friends and global partners.
We are a respected global power, a perception underwritten by our defence capability. As a Minister, regularly visiting south-east Asia, I saw at first hand how many of these countries value their relationship with the United Kingdom; how carrier strike group 21 had a massive impact in the region and on the stature of the UK in that area; how the legacy of the permanent deployment of HMS “Tamar” and HMS “Spey” through the region had a tangible effect; and how so many of these countries wanted to pursue a closer engagement with the United Kingdom. I know that the Minister has diligently and effectively prosecuted these relationships.
How is the Government’s ambivalence on defence spend likely to play out to our European friends, our NATO allies, our partners and friends across the globe? Well, 2.5%, as my noble friend Lord Trenchard indicated, is the minimum we need to spend to keep up with allies and competitors. The current NATO estimates for 2024 spending put the UK as the third highest spender in NATO, now overtaken by Germany, and we stand at 2.33% of GDP. The difference between 2.33% and 2.5% is significant but not massive, and the previous Government committed to that by 2030. Just to clarify for the benefit of the noble Baroness, Lady Smith, that is the position I supported then and it is the position I support now.
The present Government have been talking about this for months—they have now been in Government for nearly four months—and that is why the failure by the Chancellor yesterday to bring clarity is so serious. The Government are saying to our allies, “We cannot tell you anything about our strategic defence spend and we do not know when we will be able to”. What a message. What about our adversaries? They must be rubbing their hands in glee: this chaos is music to their ears. The only message any onlooker can infer from this mess is that neither the Prime Minister nor his Chancellor get defence. I know that the noble Lord, Lord Coaker, does get defence, and I have sympathy with him. He will put up a stout and loyal response to this debate, but his position is unenviable.
Let me mention the Government’s imposition of VAT on school fees having an immediate and deeply damaging impact on defence families. Approximately 4,000 children of service personnel get the continuity of education allowance, which is to mitigate the disruption to education of regular postings. It does not cover the full fees, and many parents, despite that CEA, will struggle to meet the additional cost created by VAT. All that has been offered is a proportionate increase in the CEA, but it is the balance over and above that that many service families will find unaffordable. I am at a loss to understand how the Chancellor does not get that. It seems an extraordinary insult to our Armed Forces personnel. The Government need to exempt the children of all military personnel from VAT on school fees with immediate effect.
I have the highest regard for the Minister, and I know that defence has a doughty advocate in him, so I exhort him to relay the pungent message that he has heard this afternoon to his colleagues in government.
The Minister of State, Ministry of Defence (Lord Coaker) (Lab)
I start by thanking the noble Baroness, Lady Goldie, for that ringing endorsement. My colleagues always read your Lordships’ debates with intense interest and scrutiny, so they will no doubt look at that. I thank the noble Baroness, Lady Goldie, for the way in which she puts her remarks strongly but also in a proper and challenging way—I appreciate that.
I will come on to some of the specifics about the 2.5% but before I forget, I want to take on the point the noble Baroness, Lady Smith, made, and I will put my head above the parapet on this one. My understanding of employer national insurance is that the public sector does not pay it. I think that answers her question. I have given that answer out of my own knowledge and professional experience of these matters, plus the fact that I heard Kate McCann on Times Radio yesterday. The question was asked about the impact of employer national insurance on the National Health Service, to which the reply was that the National Health Service does not pay employer national insurance because it is a public sector body. If I am wrong, I will write to the noble Baroness and to every other member of the Committee, but I think I am right. If I am not, I will correct the record, because it is an important question, but I do not think that the Armed Forces pay it.
I will answer the specific questions of noble Lords, but the position of the Government is as was laid out in the Budget, and it is on the various pages in the Autumn Budget report, which noble Lords will have read. There is not a scintilla of difference between any of us about the desire to protect our nation, to have the Armed Forces that we need and to meet all those threats. There is a discussion and a debate about how we get to 2.5% and when we should do that. Indeed, as the noble Lord, Lord Bilimoria, raised, as well as the noble Lord, whose name escapes me—
Lord Coaker (Lab)
Yes. They talked about 3% and beyond. I have even heard people then start to talk about 3.5% or 4% or whatever. So, there will be a debate on what one considers to be right, but the Government have said that we have seen what the policy is and 2.5% will be at a future fiscal event. That will be laid out, and the additional £2.9 billion for next year will be laid out with that.
Of course, alongside that, the defence review is looking at various issues. A number of your Lordships —the noble Earl, Lord Attlee, the noble Baroness, Lady Smith, and others—talked about the fact that how we actually spend that money is as important as the actual amount. What are the threats that we need to face in the future? With those few introductory remarks, that is the position of the Government, and that is where we are, so let me turn to some of the specifics raised in the debate. I know that the noble Baroness, Lady Goldie, will be disappointed, but that is the position of the Government, which I am reiterating to the Committee.
I thank the noble Viscount, Lord Trenchard, very much for ensuring that we have this debate. He was very fortunate that it came the day after the Budget—I might have preferred it the day before the Budget, but there we go. The serious point is that he has brought forward an important debate, he made the points about the Budget and I responded in the way I have by laying out the Government’s position.
I want to go through some of the questions that were raised, alongside the whole issue of the Budget. The noble Viscount is absolutely right about AUKUS and the importance of that within the defence review, and it is protected within that. There will be a debate and a discussion about the best way of delivering that. It was started under the last Government—the noble Baroness, Lady Goldie, was involved. That is protected within the overall strategy of the defence review, although there will be a discussion about the best way of delivering it, and the noble Viscount would expect nothing else.
The noble Viscount is a firm and stout defender of the Indo-Pacific. He will know that, notwithstanding the Government’s NATO-first policy, we also understand the importance of the Indo-Pacific. He will know that when I have been there, I have talked about the indivisibility of conflict: that what happens in the Indo-Pacific impacts on Europe, and what happens in Europe impacts on the Indo-Pacific, on the south of our globe and on the High North. All those things are interrelated. The challenge of the future and of funding for the future, not just for our country but for others, is how we establish that global alliance of free, democratic nations in response to the threat from Russia, China, North Korea and Iran. There will be debate and discussion about how we do that, but it is very important.
The noble Viscount, Lord Trenchard, talked about the sixth-generation global combat aircraft. Last week I was at the Italian embassy, and the week before at the Japanese embassy. He will know that, time and again, I go and discuss with them the sixth-generation fighter and its importance within the defence review, which will come to its own conclusions. He will also know that we have just signed the treaty allowing the governance of that project, and we continue to make progress.
I know the noble Lord, Lord Bilimoria, will be disappointed by my remarks about the Government’s position, but that is our position and it is an absolute commitment. Our Treasury Minister is here, who will also have heard it. The 2.5% commitment will absolutely be delivered. At present, we cannot give a timeline, but we are determined to deliver it and will do so when we are able. We all know how much the noble Lord has helped Ukraine, not just with military support but with the medical and other support that he has given. He is to be much congratulated on that work.
I cannot predict the outcome of the American presidential election. It is not for me to discuss that or say who we would want to win, but I will say that the importance of the US-Europe relationship is crucial to the defence of democracy and the free world. We will have to ensure that, whatever the outcome, we work with our American colleagues and friends, and the American system, to deliver that. I believe that the American system, founded on one of the greatest declarations of independence and the establishment of freedom, will not forget its roots.
The noble Lord and the noble Baronesses, Lady Buscombe and Lady Smith, mentioned the problem of recruitment and retention. A review is ongoing on that; it has not yet reported but it will look at many of the matters that noble Lords have mentioned, including the inability to recruit the numbers that we need, skilled labour shortages, retention and the important point about accommodation and welfare. All of those will be looked at as a package. We are starting to try to invest the money in housing, some of which is not acceptable.
Baroness Buscombe (Con)
I am sorry to interrupt, but is that review independent of the MoD?
Lord Coaker (Lab)
No; it is being conducted within the MoD. I am pleased that the review is taking place, and it is being done without fear or favour. We want it to come forward with proposals on those very real problems, and I have great confidence in that being done.
The noble Lord, Lord Mountevans, mentioned the crucial question of the defence industrial base. There is no doubt that we and our allies have not looked at how we ensure that we have the defence industry capability that we need to prosecute a war of some length. That has caused all of us to reflect on what we do about it. Our response has been to appoint a National Armaments Director—I believe we have already done so but, if not, we will—who will look at how we ensure that we have the armaments we need. One of the most distressing things about Ukraine—the noble Baroness, Lady Goldie, would have witnessed it; it might have happened when she was the Minister—was to read about Ukrainian troops having to retreat because they did not have sufficient ammunition or shells. That is not acceptable to us. Everyone is looking at what we do there.
The noble Baroness, Lady Smith, made a point about procurement. We absolutely need to look at that. She heard what I had to say about the National Armaments Director. She was right to make the point about economic growth: of course, 2.5% of a growing economy is more than 2.5% of a declining one. One of the arguments that might be made about the Government’s economic strategy is that, in the short term, they are making difficult choices to allow the economy to grow in a way it might not otherwise do; that will be of benefit, notwithstanding the short-term discomfort it may cause some of us.
I have, I think, dealt with most of the major points made. I finish on something said by the noble Lord, Lord Shinkwin, because it is a really important point that I want to make sure is heard by our allies and friends. It is important for us in these debates—in this Committee, in the Chamber and in the Commons—to have the confidence to let our allies know that, notwithstanding our debates and discussions on the right configuration of our Armed Forces and the right amount to spend on them, we as a country are determined, alongside our allies, to defend freedom and democracy wherever they are threatened across the world. That is the message Putin should hear and understand.
We will not relent or step back in the face of Russia’s illegal invasion of Ukraine. This country has never stepped back when it has faced an adversary in this way; that is the message we should take forward. The fact that we can discuss what we are debating today in a democracy, without fear or favour—even if our opinions are unpopular—is something that we have fought for long and hard. Whatever our disagreements about the Budget, that is the message that Putin, China, as one noble Lord mentioned, Russia, Iran and North Korea should hear. This country has always stood up for democracy and always will.
Employment: Tax Policy
(3 weeks ago)
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Lord Leigh of Hurley
To ask His Majesty’s Government what assessment they have made of the impact of tax policy on employment.
Lord Leigh of Hurley (Con)
My Lords, I draw noble Lords’ attention to my entry in the register of interests, which notes the businesses I have started, invested in and grown over the years, including my main business, Cavendish Financial plc, which I started with one colleague and a PA and, I am pleased to say, now employs over 200 people.
The timing of this QSD seems remarkably fortuitous—I cannot claim it was wholly planned this way—and will perhaps allow us to consider the rationale and effect of some of yesterday’s Budget as well as reflecting on how future changes to tax policy might affect employment and related areas.
The Minister will be pleased to know that I will not be spending all my allotted time digging in the illusory black hole, as the OBR has rightly confirmed that, other than a possible contentious £9.2 billion, the £22 billion was not something that it could support—at least in respect of the reserves, where the underspend is yet to be determined. We will have to leave that matter there. I suspect that the Minister will also be pleased to know that we will not spend the whole of the next four years going over this, to our mutually enormous pleasure. That is not really the point here, other than to note that Labour created a reason to increase tax and so, like every other Labour Government, increase tax they so did.
As I am sure the noble Lord, Lord Bilimoria, will recall, we were warned by the CBI earlier this week when Mrs Newton-Smith said:
“If we see a rise in national insurance contributions paid by employers … that will make it more difficult for businesses”.
That warning was echoed by the respected economist Paul Johnson of the IFS, who pointed out that NI is a tax felt solely by working people and employers. His response to the actual rise has been to remind us that the OBR suggests that three-quarters of the impact of employer NICs will be felt by employees, even if the changes do not immediately show up on their payslips. Indeed, these tax rises partly explain why the OBR has downgraded its projections for real household income growth over the next few years. Someone will pay for the higher taxes, and it will largely be working people.
The employers’ NIC rise will further increase the incentive for employers to switch to contracting with the self-employed or, as many will have heard on today’s radio broadcasts—and this is really worrying for us here—to subcontract to overseas production. Indeed, I have talked to employers today who have said to me that they are cutting down on their future recruitment. Radio 4’s “Today” programme said it had not found one business person who thinks that yesterday’s Budget will help their business to grow and employ more people.
Incidentally, Paul Johnson also opined that a rise in employers’ NI would be a straightforward breach of Labour’s manifesto. His views on the damage to employment that the rise will cause has been echoed by normally non-political characters, such as the CEO of Lloyds Bank, and of course for certain industries, such as the hospitality sector, it will be a disaster. Mark my words: care homes will close after this Budget.
A Mrs Christina French from Birmingham, founder of Diverse Sparks Ltd, an electrical contractor, has been quoted in the press as saying that the rate rise and the threshold drop has meant that she has now to consider selling her business. Her exact words were:
“It’s rubbish because I’ve created jobs and apprenticeships for the last 12 years, and now that’s not going to be an option for us”.
That is the reality of life for business owners. Sadly, Labour’s Front Bench has not much experience of starting a business and hardly any of running a small business, so they may not be aware of the pressures facing business owners. If they are not going to listen to business creators and owners such as Mrs French and me, perhaps their friends at the OBR might persuade them that, when it points out that,
“The employer NICs rise is estimated to reduce labour supply by 50,000 average-hours equivalents”
and promptly downgrade the UK’s growth prospects, it should be listened to.
The wonderfully named Growth Commission, which one would have thought would take pride of place at Labour’s top table, has modelled a rise in NI and predicts that it leads to a negative hit to GDP, peaking all the way to 2030 but still impacting GDP negatively in 2045-6. One has to wonder whether the gamble, which has been taken to fill a hotly disputed black hole with a tax rise on jobs, really makes sense? Perhaps the Minister can explain the thinking here, particularly given the hugely respected Growth Commission’s views.
I am grateful to some other great folk, such as those at the Jobs Foundation, chaired by my noble friend Lord Elliott of Mickle Fell, who remind us that businesses and entrepreneurs provide 80% of the jobs in the UK. Their mantra comes from Winston Churchill, who famously said—though I refrain from doing the accent—that:
“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon”.
Famously, the Chancellor herself referred to an increase in NI as a jobs tax. This was in 2021, when criticising the proposals then to raise national insurance. Her point was that NI is purely a tax on people who go to work and those who employ them. She then said, revealingly, that, if you earn an income through dealing in stocks and shares, you do not pay a penny more in NI. That is revealing because it shows that Labour does not really understand and appreciate the difference between capital gains and income. Perhaps the Minister can explain to the Chancellor that dealing in stocks and shares is not a source of income: it is an activity that requires you to risk capital, which you might lose because of the great uncertainty. This brings me to my concern about the effects of other tax rises on employment.
For businesses to grow and employ more, they need capital. Many, like mine, have been to the capital markets through the Alternative Investment Market—AIM. That market has become harder and less liquid, despite the best efforts of Jeremy Hunt and the Mansion House compact. The decision taken yesterday to reduce business property relief—BPR—on inheritance tax by 50% will be a hammer blow to many entrepreneurial family businesses. When a family member passes on, they will now have to find 20% of the current value of the shares and pay for that in cash. That will simply lead to more firms closing down, selling up and having to sell assets to release cash, simply for the Exchequer.
This huge rise in IHT for private business owners has yet to be fully assessed. In its booklet, the OBR does not split out APR and BPR, so we have no idea of the true cost. We do know that this move and, of course, the potentially disastrous decision to tax the non-doms, in particular by including the EPTs in inheritance tax, means that wealth creators who create jobs are despairing at the effects that this Budget will bring to employment.
In my opinion, these measures are not just about raising tax but about ramming through ideological dislike for inherited wealth and, indeed, private enterprise. Sadly, the measures taken will, in reality, really damage everyone employed in the UK. I ask the Minister what assessment HMG have made of the impact of their tax policy on employment. I beg to move.
Lord Davies of Brixton (Lab)
I thank the noble Lord, Lord Leigh of Hurley, for raising this issue. As he says, the debate is extremely timely. I have set up and run a small business—not at all on the sort of scale that he has achieved but it has given me a perspective that he perhaps suggested in his speech did not exist on this side of the discussion. Many noble Lords who take the Labour whip have been successful in business, so I think the suggestion that we on this side of the Committee do not know what is required to achieve success in business is wrong.
I will not pursue the issue of the £22 billion, which has been well trodden, but will pick up on the noble Lord’s comment that Labour created a reason to increase tax. It was not Labour that created the reason; it was 14 years of Conservative mismanagement of our economy that created the situation that has led to increases in tax.
I spoke briefly to the noble Lord, Lord Leigh, yesterday, and we agreed that it is a general issue and not just about the Budget. Looking at the issue in general, it is quite clear that if firms have to pay higher tax then there will be impacts on employment, on the pay that can be given to employees, and presumably on profits. Of course, profits does not just mean entrepreneurs; it means pension funds and other investors who hold those investments. Clearly, those effects exist—I do not think anyone would argue about that.
However, in truth, it is a lot more complicated, because the Government receive the money and then spend the money—they do not bury it in a hole in the ground. The Government increase their revenue and use it to create employment, through providing their own services, and to create the society infrastructure that is required for business to operate. Higher quality infrastructure means more successful businesses. The Government also purchase, using that money significantly to buy from the private sector—and much of the private sector depends on government revenues for its economic success. There are two sides to that equation and we cannot assume, a priori, that one side is more significant than the other. We have to look at the evidence.
I thank the Library for its relatively short briefing. It identifies that this whole area is contested, at the least. It is very difficult to identify cause and effect in this area because the whole system is moving on. It is not an isolated, scientific experiment, with a control for all the variables involved; to reach a definitive conclusion is not straightforward. For example, there is the vexed issue of incentives and disincentives. The situation as it works in practice is not quite as clear-cut as the anecdotes that are often advanced to try to argue on one side or the other. The general issue, as I say, is a lot more complicated than perhaps was suggested by the noble Lord in asking his Question.
The noble Lord quite rightly identifies that we have an interesting case study in yesterday’s Budget of what the effect of the increase in national insurance contributions will be on employment. The Office for Budget Responsibility’s report makes for interesting reading. Of the net effect of the measures in yesterday’s Budget, principally the increase in national insurance contributions, it says that:
“The unemployment rate is forecast to average 4.3% in 2024, a small increase on 2023, before remaining close to 4.0%. The employment rate (for those aged 16 and over) is expected to remain close to 60% over the forecast”.
Whatever the impact of the increase in national insurance contributions by itself, the overall effect of the Budget is to maintain employment and, ultimately, provide the basis on which our Government will move forward and achieve the sort of growth we need to repair our public services.
Lord Bilimoria (CB)
My Lords, the Government, the Chancellor and the Prime Minister keep talking about growth. The investment summit at the Guildhall had a huge sign saying “Growth”. But, to do that, the private sector has to be supported to grow. It is private sector growth that creates the jobs that pay for the taxes that pay for public services—no growth; no taxes. If you put up taxes, you get no growth. That is the paradox.
I thank the noble Lord, Lord Leigh, for his excellent opening speech. Taxes on employment generate £454.8 billion. That accounts for 45% of total public sector receipts. It is huge. Employment tax revenues represent almost 17% of UK GDP. For a married worker with two children earning an average salary, the UK has a tax wedge of 27%, above the OECD average of 25.7%. Higher employment taxes can discourage firms from hiring, reduce wages and affect workers’ decisions to enter the workforce or seek higher-paid jobs. Corporate and consumption taxes also influence that. Employment corporate taxes can deter investments in jobs. I am sorry but the previous Government have to be blamed for raising taxes to their highest level in 70 years and, in particular, putting up corporation tax from 19% to 25%. That was a huge mistake and should not have been done.
Consumption taxes create a wedge affecting labour, demand and supply. Higher taxation is associated with reduced labour supply, and studies show that a 1% rise in tax correlates to a 0.5% drop in hours worked. Of the 17 OECD studies, only five found no significant negative impact of taxes on unemployment. The remaining studies indicate that higher labour taxes increase unemployment levels. A 10% reduction in the tax wedge could lower equilibrium unemployment by 2.8% and raise the employment rate by 3.7%. That is what we are talking about. The fiscal drag that the previous Government put in place until 2028 is also hugely damaging, affecting 7 million tax payers.
The Labour Party has promised to maintain corporation tax at 25% and not raise income tax, employees’ NI or VAT. That is all great, but the noble Lord, Lord Leigh, mentioned the hugely damaging effect of the taxes on non-doms and the removal of the non-dom regime. Inheritance tax reforms will drive investment away from this country. I know many people who have already left. Some 75,000 non-doms pay £9 billion of tax; they spend and invest in this country. Those people are mobile and that money will fly.
The increase of capital gains tax from 20% to 24% was not as bad as we thought, but the elephant in the room is the £40 billion of tax increases. The OBR warned that this could weaken long-term growth in the UK economy. Sure enough, the forecasts for growth do not even reach 2% in the years ahead, at about 1.5% or 1.6%. Increasing national insurance by 1.2% to 15%, raising approximately £25 billion, is a tax on jobs. I agree with the noble Lord, Lord Davies, that if you spend more and increase infrastructure then that should help productivity, but our public spending will reach 44% of GDP by the end of the decade, funded by tax and borrowing. Businesses are bearing the brunt of this £40 billion tax increase. The threshold of NI going down from £9,100 to £5,000 will bring many more people in as well. The business rates discount put in place by the previous Government of 75%, which has really helped, is going down to 40%. How many pubs and restaurants and how much of the high street will be able to take that?
On top of that, we have a £5 billion cost on the impact of employment regulation, and we have flexible employment, which is a huge advantage over a country such as France. If you make our workforce less flexible, it has a cost to it, and it makes us less attractive for investment. Inflation is now predicted to go up to 2.5% or 2.6%.
To conclude, since 2008, over those 16 years of financial crisis, austerity, the Covid pandemic, the Ukraine war, with inflation up to 11%, energy inflation, the cost of living crisis, 7 October and the tragedy of that day and the tragedy since, and with the uncertainty in every direction you look in the world, how much more can business put up with? How much can business deal with? How resilient can our businesses be? As the noble Lord, Lord Leigh, said, 80% of the jobs are provided by it, and then there are the 5 million SMEs and the jobs that they provide. How can we carry on and deal with just one challenge after another? Then we get this Halloween Budget, burdening business with higher taxes. This is a tax, borrow and spend Budget, not a growth Budget. It is not a pro-business Budget or a pro-entrepreneurship Budget. The Government’s job is to be a catalyst and create the environment for businesses and entrepreneurship to flourish and grow. The Budget does exactly the opposite.
Lord Elliott of Mickle Fell (Con)
My Lords, I congratulate my noble friend Lord Leigh on securing this timely debate, which feels like a dress rehearsal for the actual Autumn Budget debate on 11 November.
I wish to contribute three points today. First, I want to share some views from business leaders outside London on employment taxes. Secondly, I want to highlight what appears to be an inconsistency in government policy. Thirdly, I want to focus on the need to encourage UK-born entrepreneurs to stay here and create jobs rather than going overseas.
On my first point, I draw the attention of noble Lords to a report launched by the Jobs Foundation this week. As my noble friend Lord Leigh kindly mentioned, I am president of the Jobs Foundation, as declared in the register of interests. The report is called: Two Million Jobs: How Businesses Play a Crucial Role in Helping People from Welfare into Work. It is a ground-breaking piece of research that tries to help the Government to deliver on their highly commendable ambition to increase the employment rate to 80% by helping 2 million people from welfare into work.
The author interviewed business leaders, employees and stakeholders in four locations—Sheffield, Loughborough, Hartlepool and Pembrokeshire. These locations were chosen to cover the length and breadth of Britain, and represent the individual needs of a city, a town, a coastal community and a rural community. Many policy areas were discussed, and I know from these conversations that some elements of the Budget will have been very much welcomed, including the measures to improve transport links. But a consistent theme from the interviews was a concern about increasing taxes on employment, so I know that many of the business leaders spoken to, who are all involved in helping people from welfare into work, will be concerned about the announcement on employers’ NI in yesterday’s Budget.
That brings me on to my second point. Listening to the Budget, I was struck by the apparent inconsistency in government tax policy. On the one hand, the Chancellor announced an increase in the soft drinks levy, presumably to discourage people from buying sugary drinks; a rise in alcohol duties to discourage drinking; and an increase in tobacco duty
“to maintain the incentive to give up smoking”.—[Official Report, Commons, 30/10/2024; col. 819.]
All these tax rises are premised on the correct assumption that increasing taxation reduces consumption. But, on the other hand, there seems to be little recognition that increasing taxes on jobs by increasing employers’ NI will similarly reduce demand for employees, and potentially reduce the number of people in work. If increasing taxes on tobacco is designed to reduce smoking, surely increasing taxes on employment reduces the number of jobs? I would be interested to know whether the Minister expects the number of jobs in the UK to fall with the increase in employers’ NI. If that is the case, will it not hinder the Government’s laudable efforts to get 2 million people from welfare into work?
My third and final point is that we need to focus on how taxation affects where entrepreneurs locate themselves and their businesses. Earlier this month, I attended the GITEX conference in Dubai, which gathered together over 6,500 entrepreneurs from over 180 countries. It was a wonderful window into the future and so inspiring to see innovators enacting their ideas and creating the world of tomorrow. However, something was painfully striking: the number of young UK-born entrepreneurs who had left the UK to pursue their dreams and ambitions. I asked them why they had chosen to do this, and a consistent theme was the UK’s business environment, including, but not solely, the level of taxation. One might ask: why is this a problem? It is a problem because start-ups create far more new jobs than established companies.
A report by the Ewing Marion Kauffman Foundation in 2022 looked at the United States and found that, in 2019, companies in their first year created 5.24 new jobs each, while companies older than that created, at most, 0.4 new jobs each. Therefore, it is essential that we incentivise start-ups to locate here in the UK to create some of the 2 million jobs required to increase the UK’s employment rate. Sadly, some entrepreneurs are already looking to vote with their feet. A recent survey by the Startup Coalition found that more than 80% of the start-up founders it represents were considering leaving the UK. We need the young entrepreneurs I met in Dubai to want to stay here in the UK to build their companies and create jobs, and that requires a tax system that encourages entrepreneurship and incentivises wealth creation.
Lord Petitgas (Con)
My Lords, I thank my noble friend Lord Leigh of Hurley for this debate about the impact of tax policy on employment. I repeat the title, because I can see that the exam question has moved to the impact of the Budget on business. Unfortunately, I will probably fail as well.
I talked about a “boom in gloom” in the short debate on foreign investment in September. At that time, business had already grown fearful about slowing growth, with a foreboding that we were heading away from a market economy towards big state-led economic management. Confidence was waning. Employment is a barometer of business confidence and investment, so will this Budget shore up or further blunt such confidence? The answer boils down to whether business trusts the Government to spend their higher tax and new borrowings productively and deliver the future growth dividend ultimately to balance the books.
Many, if not most, are sceptical about this tax, borrow and spend Budget package. It seems doubtful that it can deliver the innovative entrepreneurial economy that the UK should aspire to. The OBR’s own revised forecasts on inflation, rates and growth made for poor reading overnight, while sovereign yields widened in the gilt market. That is not anecdotal; it was on the Financial Times website all day. Rates will stay higher for longer, increasing the cost of capital for the economy, the Treasury and mortgage holders.
The impact of these tax measures on employment is the key for growth. I shall frame this around three observations, first addressing the impact on business and employment. Business is facing a trifecta of a high minimum wage, increased NI and a new set of labour rights. Let us not pretend that, by taxing business, the impact will not fall on working people and consumers themselves. This is taxing employees through the backdoor. It will sap confidence, increase costs and hurt employment. An increase in income tax, although equally regrettable, would at least have been more transparent and given workers a clearer idea of the impact on them. It is rather complicated to get to the same money. The OBR report says:
“The rise in employer NICs in this Budget will further erode profits and we assume firms are only able to pass on around 60 per cent of the cost to employees in the short term”—
probably rising to more than 80%. Moreover, uncertainty about new labour rights represents a policy risk.
All this will feed into the real economy through high prices, low consumer spending and a slow labour market. This painful trifecta will raise costs for business, discourage expansion, and hurt staffing levels and hiring plans. Certain sectors, such as hospitality and retail, and SMEs, which cannot cushion from shocks easily, will have to pass on these higher costs if they can and, if they cannot, they may need to lay off. It is misleading to suggest that, by taxing business, you are not taxing employees—unless, of course, they are in the public sector. What analysis has been prepared, sector by sector and for SMEs, on the impact of these measures on employment?
My second point concerns inflation. We, along with the OBR, should worry about continued inflation. The “tax, borrow and spend” spree is happening at pace while the returns of large public investments, if any, will come through only in the long term. As the noble Lord, Lord Davies, said, a fundamental issue is the mismatch between borrowing the money now and spending it and the long-term returns; that is not to say we do not need more infrastructure. Confidence is therefore crucial to seeing us through the interim years. However, so far, the OBR, the markets and business are all showing grave misgivings. The costs of capital and of doing business in the UK have gone up. It is a difficult quandary and a real dilemma. Did the Government assess the impact of their new labour rights, raised minimum wage and public sector awards on inflation?
Let me end on the NHS. It is, as I see it, one of the case studies on investing in infrastructure for the long term. It binds two key aims: ensuring a healthy workforce, and the productive use of money. These are crucial, because the welfare bill is growing faster than GDP while too many working-age people are unfit to work. The Government have rightly said that they want greater emphasis on preventive care—I appreciate that this is not necessarily the Minister’s area of expertise—but preventive care is about telling people how to live their lives in healthier ways. Is money the obstacle, therefore, or is it more about finding the right language and legitimacy for the state to have these conversations? I say that not to belittle the huge issues facing the NHS, including its need for money, but to highlight the fact that it is not always about spending more money—and the same applies to education. It is also about setting productivity targets and changing the culture.
Lord Razzall (LD)
My Lords, the noble Lord, Lord Petitgas, suggested that this QSD would make a good exam question. I have often thought of it as a possible topic for PhD study; perhaps somebody has done it already.
Before I get on to the detail of the Budget, let us look at the positive use of tax policy in this country’s economy. I can think of three good examples. Let us take the agriculture industry: without the use of tax subsidies since the Second World War, we would not have the farming industry we currently have. Secondly, let us take the use of tax relief for microbreweries, which the Government want to encourage—I think that is somewhere in these documents. The tax relief given to microbreweries has created a lot of employment in the sector for people creating small breweries. Thirdly, the obvious example is the use of tax relief for the film and television industry, which provided a massive subsidy. If you make a film that qualifies in the UK with a budget of £100 million, you get back £25 million to £30 million in cash the moment you deliver the product. This has meant a huge increase in the number of films made in the UK; almost every Hollywood studio no longer makes its films in Hollywood but in the UK, entirely as a result of the positive use of the tax system to benefit our economy.
Inevitably, as the noble Lord, Lord Leigh, said, we must touch on what happened in the Budget. I do not think that I have so far heard anybody defend what happened in terms of the use of NI to raise £25 billion. Actually, it is not just the use of NI that is potentially damaging to small businesses, care homes, pubs and restaurants. It is also the triple whammy of the possibility of an NI increase, the increase in the minimum wage and the changes to zero-hours contracts. Nobody quite knows how those will impact on small businesses, particularly in the entertainment sector. The OBR says—this is common ground, I think—that, as a result of these policies, at least 50,000 jobs that would not have been lost otherwise will be lost and that our growth rate will be a lot lower than it would have been otherwise.
I am slightly disappointed that I have not yet heard a speaker in this debate say what they would have done as an alternative. We have heard all the arguments as to why this is a lot of rubbish; the noble Lords, Lord Bilimoria, Lord Leigh and Lord Petitgas, all suggest that it is what they would not have done, but we have not heard what they would have done. There seems to be some common ground; although the noble Lord, Lord Leigh, denied the existence of the £22 billion black hole, which I do not want to get into, I do not believe anyone thinks we do not need to raise more revenue to improve our public services. In that case, how do we do it? Bearing in mind that the Labour Government boxed themselves in by saying they were not going to increase income tax, VAT or NI, they had to do something.
Personally, I would not have done this. Our policy would have been to look to raise tax revenues elsewhere. We would have looked again at a better windfall tax on the oil and gas companies. We might have reversed the tax cuts that the Tories gave to the banks, and we might have looked at the obvious group that can provide more revenue for us: the large social media companies. We could have found creative ways to raise the money without doing this, which in a lot of ways is a tax on jobs.
We are all very pessimistic at the moment, but I have always been a bit optimistic. I remember standing in the Chamber in about 1998 or 1999 when the Labour Government introduced the minimum wage, and every speaker on this side said, “This is going to be a complete disaster; the minimum wage will destroy jobs and destroy our country as we know it”. It did not, and I hope this does not either.
Baroness Vere of Norbiton (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Razzall. I agreed with some of what he had to say, which is a bonus for me today, so I am enormously grateful for his contribution. I am also grateful to my friend Lord Leigh for tabling this debate. Who knew that it was going to be so well timed? Like many others, I too will fall into the trap of focusing on the Budget because it is top of mind at the moment, and not in a good way.
I have to say, from listening to my noble friend Lord Leigh’s opening remarks, that he brings extraordinary expertise of commerce and the private sector, as of course do many other speakers in this short debate today, notably my noble friend Lord Petitgas and of course the noble Lord, Lord Bilimoria. Unfortunately, that is more than can be said of the current Chancellor and indeed the wider Cabinet—I think some analysis has been done, and private sector experience is somewhat lacking—so I hope that the suggestion made by the noble Lord, Lord Davies of Brixton, that some of the Labour Peers are promoted to positions of greatness such that they can share their private sector expertise, is taken up. It is definitely the case that there is private sector expertise on the Labour Benches; it just does not seem to have got up to the top levels.
Yesterday the new Labour Government raised the tax burden to the highest level in our country’s history. Despite making an outright promise not to raise taxes on people, they raised taxes on working people. In hiking the employers’ national insurance contributions—NICs for short—to raise a headline figure of £25 billion, the Government have committed a straightforward breach, according to the IFS, of their manifesto. Furthermore, there are numerous examples of the now Prime Minister and Chancellor promising before the election not to hike taxes. Can the Minister give the Committee any insight into how the discussions went when drafting the section of the manifesto about no increase in taxes on working people? Was it a cunning sleight of hand that left the words “national insurance contributions” unencumbered by the “employees’” qualifier, or was it just incompetence?
The noble Lord, Lord Bilimoria, made an excellent contribution. I appreciate his comments about the last Government. As a Conservative, I can say that no one wants to see taxes go up—it is just not in our DNA.
I remember many debates when I was a Treasury Minister and the noble Lord, Lord Livermore, in opposition, would slam me for tax rises. I was going to come up with various quotes today about the number of times he has previously slammed me for tax rises, but I thought that would be really cruel.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
Could the noble Baroness not be bothered to do so?
Baroness Vere of Norbiton (Con)
No; my speech is already six minutes long, but I will do it next time.
Of course, at that time, we were dealing with the pandemic and its fallout, and the fallout from the energy price support we had given. Therefore, we had a very firm footing on which to raise taxes.
The Minister will try to bring out his fictitious black hole; I sincerely hope that he will not, given what the OBR has now said about it—I am starting to feel a bit embarrassed for him. Plainly and simply, promises have been broken, and we need to now think about what we can do to ensure growth in the private sector. The views of the private sector on this are now well known. Can the Minister share with me whether anyone in the private sector thinks the rise in employer NI is a good idea?
I want also to look at what the OBR has to say in its economic and fiscal outlook. My noble friend Lord Elliott is right. It is like beer, which is going down by 1p in a pint—that is huge, is it not?—and wine: the more you tax it, the less you get. The noble Lord, Lord Razzall, was very helpful in this regard. If you tax the film and creative industries less, they grow more. Unfortunately, we have seen taxes go up, so—surprise, surprise—the labour supply is forecast to come down by 0.2%. I do not know whether the Minister is happy with this, but I wonder what the Government will do to mitigate for those people who would otherwise have been in a good job.
But it is worse than that. Real earnings will then stall in 2026 and 2027, as firms rebuild their margins and pass on the costs of higher employer NICs. Real wages are not expected to resume growing in line with productivity until beyond the forecast horizon. What interventions will the Minister set out in terms of increasing productivity such that we can get some sort of real wage growth going?
It is not just the OBR that has an issue here; it is also HMRC, which reflects that 940,000 employers will lose an average of £800 per employee. This is not good news for employment, and it is not good news for growth. Labour’s No. 1 mission is to secure the highest sustained growth in the G7. I am an optimist, but this Budget literally has the forecasts for growth coming down. I cannot see how that is compatible with Labour’s No. 1 mission.
The noble Lord, Lord Razzall, asked for alternatives. I will give him two that are still on the table. First, if we increased productivity to pre-pandemic levels, we would get £20 billion a year. Secondly, reforms to adult welfare would save £34 billion a year. That was our plan; we did have a plan but, unfortunately, we were not able to put it in place.
Lord Livermore (Lab)
My Lords, I congratulate the noble Lord, Lord Leigh of Hurley, on securing this debate and on his opening speech. I thank all noble Lords for their contributions.
The manifesto this Government were elected on promised to invest in our public services and prioritise working people. Keeping those promises was at the core of yesterday’s Budget. Many noble Lords focused today on specific tax decisions made in the Budget, and the impact and analysis of those decisions as set out by the independent Office for Budget Responsibility. It may be helpful to noble Lords if I begin by explaining the background to the decisions we made.
First, in July, as the noble Lord, Lord Leigh of Hurley, kindly mentioned, the Chancellor exposed a £22 billion black hole at the heart of the previous Government’s plans—a series of promises they made but had no money to deliver. This Government yesterday published a line-by-line breakdown of that £22 billion black hole, and the OBR published its own review of the circumstances surrounding the Spring Budget forecast.
For the benefit of the noble Baroness, Lady Vere, the OBR’s report says that the previous Government “did not provide” them “with all the information” that was available and that, had the OBR known about these
“undisclosed … pressures that have since come to light”,
its spring forecast would have been “materially different”.
Secondly, the country inherited not just broken public finances but broken public services too, with NHS waiting lists at record levels, schools literally crumbling, and rivers filled with waste. Yet, since 2021, there had been no spending review—no detailed plans for departmental spending set out beyond this year.
Thirdly, the previous Government had failed to budget for costs which they knew would materialise, including funding for compensation schemes for the infected blood scandal and the Post Office Horizon scandal.
Put together, these three things—the black hole in our public finances, the compensation payments which they did not fund and their failure to assess the scale of the challenges facing our public services—meant that, in order to meet our first fiscal rule, yesterday’s Budget needed to raise taxes by £40 billion.
So, we had in yesterday’s Budget some very difficult decisions to take in order to rebuild our public finances and our public services. In doing so, we made an important choice: to keep every single commitment we made on tax in our manifesto. We did not raise taxes on working people—their income tax, their national insurance or VAT—and we were able to go further, by not increasing fuel duty and by not extending the last Government’s freeze of income tax thresholds, which hit working people so hard, as the noble Lord, Lord Bilimoria, mentioned.
Of course, in the circumstances I describe, any responsible Chancellor would need to take difficult decisions to raise the revenue required to fund our public services and to repair our public finances. So, in yesterday’s Budget, the Chancellor announced an increase in employers’ national insurance contributions by 1.2 percentage points to 15% from April, and that the secondary threshold would be reduced from £9,100 per year to £5,000.
We know that it is particularly important to protect our smallest companies, so we also increased the employment allowance from £5,000 to £10,500, meaning that 865,000 employers will not pay any national insurance at all next year, and over 1 million will pay the same or less than they did previously. In the Budget, we also increased the lower rate of capital gains tax from 10% to 18%, and the higher rate from 20% to 24%, which means that the UK will continue to have the lowest capital gains tax rate of any European G7 country.
Alongside these changes to the headline rates of capital gains tax, we are also maintaining the lifetime limit for business asset disposal relief at £1 million, to encourage entrepreneurs to invest in their businesses. Business asset disposal relief will remain at 10% this year before rising to 14% in April and 18% from 2026-27, maintaining a significant gap compared with the higher rate of capital gains tax.
We also published a Corporate Tax Roadmap, which confirms our commitment to cap the rate of corporation tax at 25%—the lowest in the G7—for the duration of this Parliament, while maintaining full expensing and the £1 million annual investment allowance and keeping the current rates for research and development reliefs to drive innovation.
The Budget also set out additional tax measures, including reforming inheritance tax and measures on tobacco duty, vehicle excise duty, air passenger duty and alcohol duty.
We also delivered on our other commitments, which some noble Lords addressed during this debate: to abolish the non-dom tax regime and replace it with a new residence-based scheme; a new approach to the way carried interest is taxed; reforms to the stamp duty land surcharge tax for second homes, and to the energy profits levy; and we introduced VAT on private school fees. In total, these changes—alongside our measures to tackle tax avoidance—will raise over £9 billion to support our public services and restore our public finances.
We are asking businesses to contribute more, and the Chancellor acknowledged in her speech that the impacts of this measure will be felt beyond businesses, too, as the OBR has set out and as noble Lords raised in today’s debate. In addition, as my noble friend Lord Davies of Brixton observed, the employment rate will increase by 1.2 million over the forecast. These are, however, very difficult choices, and not ones that the Chancellor took lightly. But, in the circumstances we inherited, we believe they are the right choices to make.
Several noble Lords mentioned growth, and it was of course welcome that the OBR was so clear: this Budget will permanently increase the supply capacity of the economy, boosting long-term growth. However, there is of course much more to do.
It is important that we also consider in this debate the purpose of the difficult decisions we have taken on tax, which enable us not just to repair the public finances but to begin to rebuild our public services. It is worth noting that, in this debate, some noble Lords spoke in favour of some of this investment, but without supporting the taxation necessary to fund it. Because of the difficult decisions the Chancellor has taken on tax, day-to-day spending from 2024-25 onwards will grow by 1.5% in real terms, while total departmental spending, including capital spending, will grow by 1.7% in real terms.
In this, the first phase of the spending review, the Chancellor has prioritised day-to-day funding to deliver on our manifesto commitments. We will increase the core schools budget by £2.3 billion next year to support our pledge to hire thousands more teachers into key subjects; to triple investment in breakfast clubs to put them into thousands of schools; and to provide an additional £300 million to our further education colleges, while taking steps to transform the apprenticeship levy into a more flexible growth and skills levy.
We will deliver a real-terms funding increase for local government next year, including £1.3 billion of additional grant funding to deliver essential services and £200 million to tackle homelessness and rough sleeping. We are also providing funding to support public services and drive growth across Scotland, Wales and Northern Ireland, with the largest real-terms funding settlement since devolution delivering an additional £3.4 billion to the Scottish Government, £1.7 billion to the Welsh Government and £1.5 billion to the Northern Ireland Executive in 2025-26.
Finally, we are fixing the NHS after years of neglect. Because of the difficult decisions the Chancellor has taken on tax, which we are debating today, and because of our commitment to a new investment rule, yesterday’s Budget announced that we are now able to provide a £22.6 billion increase in the NHS budget over two years. That is the largest real-terms growth in NHS spending outside of Covid years since 2010. Many NHS buildings were left by the previous Government in a state of disrepair, so we will provide £1 billion of health capital investment next year to address the backlog of repairs and upgrades across the NHS estate. To increase capacity for tens of thousands more procedures next year, we are providing a further £1.5 billion for new beds in hospitals across the country and more than 1 million additional diagnostic tests, as well as new surgical hubs and diagnostic centres, so that the people waiting for treatment can get it as quickly as possible. Because of this record injection of funding, the thousands of additional beds that we will secure and the reforms that we are delivering in our NHS, we can now begin to bring waiting lists down more quickly and move towards our target of an 18-week waiting time by delivering our manifesto commitment for 40,000 extra elective appointments a week.
The difficult decisions on tax that we made in yesterday’s Budget, which have been debated here today, were made for a purpose. We made choices to rebuild the public finances and our public services, to invest in the national interest and to keep our manifesto commitment to prioritising working people. It is perfectly possible to make different choices, of course, but noble Lords should keep in mind that, at the last election, the country voted for change. They did not reject the previous Government so overwhelmingly because they thought the choices they had made were the right ones; they gave this Government a mandate to fix the foundations of our economy and to deliver the change they voted for.
As the noble Lord, Lord Razzall, observed, we did not hear very much about any credible alternative during this debate. We believe that any responsible Chancellor would have had to take action in the circumstances we faced, but, of course, it was possible to choose not to act. Some noble Lords may think that it would have been better to choose the path of irresponsibility and ignore the problems in the public finances altogether. If that is their choice, they should say so. I believe that the choices the Chancellor set out at the Budget are the right choices for our country, to repair our public finances, to protect working people, to fix our NHS and to rebuild Britain.
Other choices could have been made, of course, but let me be clear: not making the choices that we have made would make it impossible to protect working people; not funding public services in the way that we have would mean cuts to schools and hospitals; not supporting our investment rule would mean delaying or cancelling thousands of projects that drive growth across our country. We have made our choices—the only responsible choices—to protect working people, to fix the foundations of our economy and to invest in Britain’s future.
Baroness Vere of Norbiton (Con)
Before the Minister sits down, if I may say so—he has a minute left—I am concerned that he is answering the wrong exam question, as he did not seem to mention employment. However, he did mention the NHS and the £22 billion for it. How much of that sum is the RDEL compensation for the public sector, which will not have to pay employers NI?
Also, I would like the Minister to write, if possible, to cover the question from my noble friend Lord Petitgas about any sector-by-sector analysis of the impact of this tax policy on employment.
Lord Livermore (Lab)
I am very happy to write. I did mention employment: I set out that there would be an increase of 1.2 million over the course of the forecast. That is the question I was asked.