Lord Livermore
That this House takes note of the Autumn Budget 2024.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, it is a privilege to open this Budget debate in your Lordships’ House, and to speak alongside so many distinguished and expert noble Lords. It is, of course, a particular pleasure given it is the first Budget of a Labour Government in 14 years. I take this opportunity to welcome the noble Baroness, Lady Penn, to her place and to welcome the noble Lord, Lord Booth-Smith, to your Lordships’ House. I very much look forward to his maiden speech.
This was a Budget to fix the foundations; to restore stability by repairing the public finances; to rebuild our public services after years of neglect; to choose investment rather than decline; and to keep our promises to working people. It was a once-in-a-generation Budget, on a scale commensurate with the challenging inheritance we faced. That meant taking difficult decisions, but they were the right decisions. As a result of those decisions, we have now wiped the slate clean. We have created a foundation of stability on which we will take forward our agenda of growth and reform, delivering the mandate for change on which this Government were elected.
Let me set out first the inheritance we faced. As noble Lords will know, on her arrival at the Treasury in July, the Chancellor was informed of a £22 billion black hole in the public finances—a series of commitments made by the previous Government which they did not fund and did not disclose. Ahead of this Budget, the independent Office for Budget Responsibility conducted a review into the circumstances surrounding a meeting it held with the Treasury on 8 February this year at which the Government were obliged to disclose all unfunded pressure against the reserve.
The OBR’s review has established that at that point the previous Government concealed £9.5 billion. The OBR’s report states that they
“did not provide the OBR with all information available”.
It has made 10 recommendations to prevent this happening again, which we have accepted in full. Of course, at that point, the previous Government still had five months left in office, during which time they continued to amass unfunded commitments which they did not disclose. By the Spring Budget, Treasury records show these had reached £16.3 billion. By July, they had reached £22 billion.
The Treasury has now provided to the OBR a line-by-line breakdown of these unfunded commitments —260 separate pressures that the previous Government did not fund and did not disclose. Neither did they budget for costs which they knew would materialise, including funding for compensation schemes for two terrible injustices. So, this Budget provides, for the first time, funding of £11.8 billion to compensate victims of the infected blood scandal and sets aside £1.8 billion to compensate victims of the Post Office Horizon scandal.
However, the country did not just inherit broken public finances; it inherited broken public services too: NHS waiting lists at record levels, children in portakabins as school roofs crumbled, rivers filled with polluted waste. Yet since 2021, there had been no spending review—no detailed plans for departmental spending set out beyond this year.
Faced with this reality, any responsible Chancellor would have to act. Some may argue otherwise: that we should have ignored the problems in the public finances. But that is the path of irresponsibility, the path chosen by the Liz Truss mini-Budget, when mortgage costs rose by £300 a month, for which working people are still paying the price. This Government’s number one commitment is economic and fiscal stability. That is why the very first Act we passed was the Budget Responsibility Act, strengthening the OBR, and why we have established robust fiscal rules. These fiscal rules put the public finances on a sustainable path while allowing a step change in investment to drive long-term growth.
The first rule is the stability rule. This brings the current Budget into balance so we do not borrow to fund day-to-day spending. The significant fiscal consolidation over the course of this Parliament takes borrowing as a share of GDP from 4.5% to 2.1%, as we achieve the biggest current budget surplus in over 20 years. Over the past 14 years, borrowing averaged 5.6% of GDP; over this Parliament, it will average 2.6%.
But while being tough on spending, we must create the space for investment. We inherited a situation where the UK is the only G7 country with private investment levels below 20% as a share of the economy, and we inherited plans where public investment was set to fall from 2.5% to 1.7% of GDP. As the IMF has said, more public investment is badly needed in the UK. So, the second fiscal rule is the investment rule. As set out in our manifesto, we will target debt falling as a share of the economy, which will be defined as “net financial debt”, a measure that has been published by the Office for National Statistics, and forecast by the Office for Budget Responsibility, since 2016. Net financial debt recognises that government investment delivers returns for the taxpayer by counting not just the costs of investment but the benefits too. Like our stability rule, the OBR has confirmed the investment rule will also be met two years early.
To meet our stability rule, in the context of the hole in the public finances, the compensation schemes that were not funded and the need to avoid austerity in our public services, the Budget raises taxes by £40 billion. Of course, before any Government can consider changes to taxation, they must first ensure efficiency and reduce wasteful spending. The Budget set a 2% productivity target for all departments; it took steps to ensure welfare spending is more sustainable; and it ensured more people will pay the tax that they already owe.
This Budget made another important choice: to keep the manifesto commitment we made to working people to not increase their income tax, their national insurance or VAT. And we went further, by freezing fuel duty and raising the national minimum and living wage. Compare that to the choice made by the previous Government, who froze income tax thresholds, costing working people nearly £30 billion. We could have extended that freeze, but that was not the choice we made. Instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again.
However, this Budget does involve some very difficult choices. We will increase employers’ national insurance contributions by 1.2 percentage points to 15 % from April 2025 and reduce the secondary threshold from £9,100 to £5,000 per year. At the same time, to protect the smallest companies, we will increase the employment allowance from £5,000 to £10,500, meaning 865,000 employers will not pay any national insurance at all and over 1 million employers will now pay the same or less than they did before.
The lower rate of capital gains tax will be increased from 10% to 18%, and the higher rate from 20% to 24%, meaning the UK will continue to have the lowest capital gains tax rate of any European G7 economy. We have maintained 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 to 18% from 2026-27, maintaining a significant gap compared to the higher rate of capital gains tax.
The Budget also set out additional tax measures including introducing a new vaping products duty and measures on tobacco duty, vehicle excise duty, air passenger duty and alcohol duty, as well as making reforms to inheritance tax on pensions and on agricultural and business property. We also delivered on our commitments to abolish the non-dom tax regime, replacing it with a new residence-based scheme, introduced a fairer approach to the way carried interest is taxed as well as reforms to the stamp duty land tax surcharge for second homes and to the energy profits levy, and we introduced VAT on private school fees.
There was no bigger failure of the previous Government than on growth. First, they introduced austerity, which choked off investment. Then their Brexit deal created new trade barriers equivalent to a 13% increase in tariffs for our manufacturing sector and a 21% increase in tariffs for our services sector, permanently reducing growth by 4%. Finally, the disastrous mini-Budget crashed the economy and sent inflation and interest rates soaring.
Had the UK economy grown over the past 14 years at the average rate of other OECD economies, it would have been £171 billion larger. When the Bank of England cut interest rates last week, it forecast that the Budget would add 0.75% to growth next year and that unemployment will now fall. Over the course of this Parliament, the OBR says that growth will be largely unchanged, in the context of a Budget that had to take some very difficult decisions to clear up the mess that we inherited; and, over the longer term, the OBR says that this Budget will permanently increase GDP by 1.4%.
The IMF has welcomed
“the Budget’s focus on boosting growth through a needed increase in public investment”,
but, of course, we need to go further and faster. That is why economic growth remains this Government’s central mission. We have set out extensive planning reforms, a new national wealth fund, new local growth plans and a modern industrial strategy. We have created Skills England and the new growth and skills levy. We will shortly publish the “Get Britain Working” White Paper to tackle inactivity, and the Chancellor will set out pension reforms in her Mansion House speech later this week—all of which will significantly boost growth and none of which are yet included in the OBR’s forecast.
Our growth strategy must also, of course, be developed and delivered alongside business. We are very aware that we are asking business to contribute more and that impacts of the rise in employer national insurance will be felt beyond business, as the OBR has set out. We know that successful businesses depend on the skilled and healthy workforce that these funds aim to deliver. But most of all, we know—because they tell us—that businesses depend on the stability that this Budget, by repairing the public finances, provides.
To ensure certainty, alongside the Budget we published a corporate tax road map, which confirms our commitment to cap the rate of corporation tax at 25%, the lowest in the G7. We are maintaining full expensing and the £1 million annual investment allowance, and continuing the current rates for research and development reliefs to drive innovation. We have announced permanently lower business rates for retail, hospitality and leisure properties. We have frozen the small business multiplier, extended the enterprise investment and venture capital trust schemes until 2035, and taken action on late payments and non-financial reporting burdens. Finally, we know that the significant new capital investment in transport and housing that this Budget delivers is vital for businesses to grow.
The difficult decisions that this Budget takes are for a purpose: not just to repair our public finances but to rebuild our public services. In this, the first phase of the spending review, we have prioritised day-to-day funding towards delivering on our manifesto commitments. Day-to-day spending from 2024-25 onwards will now grow by 1.5% in real terms. In addition, the £100 billion of capital that we set out will drive growth across our country. To unlock the growth industries of the future, we will protect investment in research and development with more than £20 billion of funding. We are providing over £5 billion to progress our manifesto commitment to build 1.5 million homes. On transport, to help grow our economy across the north of England, we are investing in faster and more reliable services, including the trans-Pennine upgrade. We will deliver east-west rail to drive growth between Oxford, Milton Keynes and Cambridge, and we have committed the funding to begin tunnelling work for HS2 to run through to Euston station.
To bring new jobs to Britain, the Budget funded 11 new green hydrogen projects across England, Scotland and Wales. We have also announced significant investment between government and business in carbon capture and storage. We are also increasing the core schools budget by £2.3 billion next year to support our pledge to hire thousands more teachers into key subjects, and we are tripling investment in breakfast clubs, putting them into thousands of schools.
Of course, we are also beginning the work of fixing the NHS after years of neglect. Because of the difficult decisions that we have taken on tax, and because of our investment rule, the 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 Covid years, since 2010. Because of this record injection of funding, the thousands of additional beds that it will secure and the reforms that we are delivering, we can now bring waiting lists down more quickly, moving towards our target for an 18-week waiting time, by delivering our manifesto commitment of 40,000 extra appointments every week.
This Budget delivers on the mandate the British people gave this Government: to fix the foundations of our economy and deliver change. The choices we have made are the right choices. They are not the easy ones but the responsible ones: to repair the public finances, restore stability, rebuild our NHS, invest in the national interest and protect working people.
There are, of course, different choices that could be made. Let us be clear, however: not to make the choices we made on tax would make it impossible to protect working people; not to support the funding for public services would mean cuts to schools and the NHS; and not to support our investment rule would mean delaying or cancelling thousands of projects delivering growth right across our country. We have made our choice: restoring stability, protecting working people, fixing the foundations of our economy, investing in our future and rebuilding Britain. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, I am speaking from the Back Benches today about productivity, but I want to start with a thank you to the Minister on two counts. He has rightly resisted the temptation to erode further horse racing’s competitiveness, vis-à-vis France and Ireland, by increasing betting duty—I declare an interest as a member of the racing APPG. I was also pleased to hear that the Government are going to tackle the ever-exploding level of retail crime. A few years ago, from the Back Benches, I sought an amendment to the Policing and Crime Bill to achieve just that, but although I worked constructively with the noble Lord, Lord Coaker, on a proposed amendment, I could not persuade him to be sufficiently radical. This Pauline conversion is most welcome.
As a country, our greatest economic challenge is to increase the growth rate, by which I mean GDP per person. The only sustainable way to do that is to increase productivity, and I was disappointed that the Budget includes so little to advance that aim. The truth is that the productivity figures since the financial crisis of 2008 make depressing reading. The situation is not the same everywhere, and I note that, in my old sector of retail, matters are somewhat better than elsewhere. According to the BRC, productivity in retail is 8.1% higher than in Q4 2019—which was before Covid—while the equivalent figure for the whole economy is 1.45%.
What should we do? The most important change is to have efficiency in mind when taking all decisions. The Government state that growth and productivity are right at the forefront of their concerns. That is a good start, but they have to act as though they mean it. They state in the Red Book that, in the medium term, above-inflation pay awards will be funded from improved productivity—good. It is a pity they did not follow that policy when, on attaining office, they awarded public sector bodies above-inflation pay awards costing £9.4 billion without any productivity conditions. I am glad the Government have seen the light on this, but will Minister look at my proposal for a new productivity and growth assessment to accompany all legislation, which I mentioned in our debate in the House on 9 October?
Other necessities are to reduce unnecessary bureaucracy and to examine environmental requirements. On bureaucracy, I do not believe that checks to counter money laundering need to be anything like as onerous and time-consuming as they are. The march of the data society, with its many benefits, has made government, regulators and others lazy. They do too much checking and collect too much information, instead of focusing on what really matters and doing that speedily. It creates some pretty awful jobs too, in both the public and private sectors. David Graeber, in his splendid book Bullshit Jobs, stresses how depressing this can be.
On environmental protection, I read with despair that HS2 has spent £100 million on building a tunnel to protect bats. Can we have a sense of proportion? Moreover, why are our electricity prices for industrial users, which make up the most productive part of the economy, treble those in India and the US? Both phenomena seem good candidates for early study by the new Office for Value for Money.
I turn to construction, including housebuilding and infrastructure; I have two points. The first relates to planning controls, which need simplifying and speeding up. The second relates to the building-related workforce. There is much evidence that more skilled labour of every kind will be required for the foreseeable future. What plans do the Government have to help in that regard?
Likes others, I am very concerned about the triple whammy of increased national insurance—especially the lower threshold—the new national minimum wage and the new regulation on workers’ rights. I know from my own experience that these are particularly difficult for SMEs because of the extra cost and bureaucracy that they will bring. The “good news”—I suppose—from a short-term productivity point of view is that this will send the less efficient into insolvency, but that is a very hard way to improve productivity.
As our new Conservative leader has so rightly said:
“It is not the Government that creates growth, it’s business that creates growth”.
The Government’s attitude to business and public sector efficiency so far is unsatisfactory. If they are to achieve their growth ambitions—which we all share—they need another Pauline conversion.
Lord Livermore (Lab)
My Lords, it is a privilege to close today’s debate on the Budget. I am grateful to all 75 noble Lords for their insights, differing perspectives and expertise. I join others in congratulating the noble Lord, Lord Booth-Smith, on his excellent maiden speech, bringing his valuable first-hand experience of government and policy-making to your Lordships’ House. I look forward to his further contributions in debates such as this.
This was a Budget to fix the foundations; to restore stability by repairing the public finances; to rebuild our public services after years of neglect; to choose investment, rather than decline; and to keep our promises to working people. It was a Budget notable in scale, but commensurate with the challenging inheritance that we faced.
The noble Lord, Lord Johnson of Lainston, in his opening speech for the Opposition, began by denying the need to rebuild the public finances and the need to restore stability to our economy. He failed yet again to say sorry for the past 14 years, in particular for the disastrous Liz Truss mini-Budget. What he went on to defend was, in itself, very revealing. He defended second homes being bought up by foreign owners, pushing up prices for first-time buyers. He opposed reintroducing a reduced rate of inheritance tax above £3 million. He opposed VAT on private school fees, cutting £1.7 billion from state schools. He defended tax-relief pensions being used not as a retirement vehicle but as a tax-planning tool. It was very clear where the party opposite’s priorities lie, and the choices that it would make, and they would certainly not be for working people or public services.
Several noble Lords spoke in positive terms about this Government’s economic inheritance, including the noble Lord, Lord Lamont of Lerwick, and the noble Baronesses, Lady Finn and Lady Lea of Lymm. The reality is that, over the past 14 years, the UK’s economic performance was poor, as my noble friends Lord Hannett of Everton and Lord Bach, and the noble Baronesses, Lady Wheatcroft and Lady Kramer, said. Had the UK economy grown at the average rate of other OECD economies, our economy would have been £171 billion larger. Inflation peaked under the previous Government at 11.1%, as my noble friend Lady Crawley said, and was above target for 33 months in a row. It was the worst Parliament for living standards ever recorded. The UK was the only country in the G7 to have a lower employment rate and a higher inactivity rate than before Covid. As my noble friend Lord Eatwell said, public services were pushed to breaking point, with sewage in our rivers and our schools literally crumbling.
Some noble Lords focused on this Government’s fiscal inheritance and the £22 billion black hole, including the noble Lord, Lord Johnson of Lainston, who seemed to be confused by the fact that the numbers went up over time. It was mentioned also by the noble Lord, Lord Lamont of Lerwick, and the noble Baronesses, Lady Finn and Lady Lea of Lymm. The Treasury has provided to the OBR a line-by-line breakdown of the previous Government’s unfunded commitments—260 separate pressures. Noble Lords need not just listen to the OBR and the Treasury; they need look only at the outturn data. Central government current expenditure published by the ONS shows that, for the six months since March, the outturn is £11.8 billion higher than forecast. That is £11.8 billion over six months, well on course for £22 billion over the year.
This Government’s number one commitment is to economic and fiscal stability. That is why we support the fiscal framework, the OBR and the independence of the Bank of England, which the noble Lord, Lord Altrincham asked about. It is also why we have established robust fiscal rules, which put the public finances on a sustainable path while allowing a step change in investment to drive long-term growth. The stability rule brings the current Budget into balance so that we do not borrow to fund day-to-day spending, as my noble friends Lady Crawley and Lord Murphy of Torfaen said.
The noble Baroness, Lady Penn, mentioned borrowing. Borrowing as a share of GDP falls over this Parliament, from 4.5% to 2.1%, as we achieve the biggest current Budget surplus in over 20 years. Over the past 14 years, borrowing averaged 5.6% of GDP. Over this Parliament, it will average 2.6% of GDP. However, while being tough on spending, we must create the space for investment.
As the IMF has said, more public investment is badly needed in the UK, so the investment rule, as set out in our manifesto—despite the claim made by the noble Lords, Lord Lamont and Lord Bridges of Headley—will target debt falling as a share of the economy. It will be defined as net financial debt. I am grateful to the noble Lord, Lord O’Neill of Gatley, for his welcome of this move. He stressed the need for the guard-rails we have set out and the importance of what this investment is spent on. I am grateful, too, for the support of my noble friends Lord Liddle and Lord Chandos, the noble Lord, Lord Young of Cookham, and the noble Baroness, Lady Wheatcroft. As my noble friend Lady O’Grady of Upper Holloway pointed out, the previous Government planned to cut public investment, a recipe for continued decline.
To address the points made by the noble Lord, Lord Johnson of Lainston, and the noble Baroness, Lady Penn, these rules are actually tougher than those of the previous Government. To stop fiscal commitments being endlessly deferred for five years, this is the last year when the fiscal rules will target the fifth and final year of the forecast. The rules must be met by 2029-30 at this Budget, and until 2029-30 becomes the third year of the forecast, at which point both rules will target the third year of the rolling forecast period. This is a much tougher constraint than the previous Government’s borrowing rule: to borrow up to 3% of GDP by the fifth year of the forecast.
To repair our public finances and rebuild our public services, the Budget raised taxes by £40 billion. It was therefore a very significant Budget, as the noble Baroness, Lady Penn, set out. It was, though, commensurate with the challenges that we faced. The noble Lord, Lord Lamont of Lerwick, described it as bold; it was of course the most fiscally significant Budget since his Spring Budget of 1993. The Budget meant taking difficult decisions, to address the point made by the noble Lords, Lord Burns and Lord Lamont. As a result of those decisions, we have now wiped the slate clean, meaning that we never have to do a Budget like this again. We have set tough fiscal rules, which we meet two years early, and set the envelope for the second phase of the spending review, which we will stick to.
The noble Lord, Lord Johnson of Lainston, helpfully quoted our manifesto, as mentioned also by the noble Baroness, Lady Penn. Let me be clear: this Budget keeps every single manifesto commitment we made to working people—to not increase their income tax, their national insurance or VAT. We went further by freezing fuel duty, on which I disagree with the noble Lords, Lord Londesborough and Lord Young of Cookham, and my noble friend Lord Whitty, who said that it should have been raised during a time of cost of living pressures. I also disagree with the noble Lord, Lord Londesborough, who said that we should have increased employees’ national insurance.
The choice made by the previous Government was to freeze income tax thresholds, costing working people nearly £30 billion. We could have extended that freeze but instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again. The noble Lord, Lord Sherbourne of Didsbury, mentioned how many more people had been pulled into tax.
This Budget does, though, involve some very tough decisions. Several noble Lords, including the noble Lords, Lord Burns, Lord Bilimoria, Lord Londesborough, Lord Oates, Lord Shipley, Lord Gadhia, Lord Razzall and Lord Northbrook, and the noble Baronesses, Lady Wheatcroft and Lady Penn, focused on the increase in employers’ national insurance contributions by 1.2 percentage points to 15% from April 2025. We of course recognise that this involves asking businesses to contribute more. We have acknowledged that the impacts of this measure will be felt beyond businesses too, as set out by the OBR.
The noble Lords, Lord Fox and Lord Northbrook, the noble Earl, Lord Devon, and the noble Baroness, Lady Kramer, mentioned small businesses and their importance to the economy. We are protecting the smallest companies by increasing the employment allowance from £5,000 to £10,500, meaning that 865,000 employers will not pay any national insurance at all, and that more than 1 million employers will now pay the same or less than they did before. The Federation of Small Businesses said in its Budget response:
“Against a challenging backdrop, today’s Budget shows a clear direction in business policy now for the whole of this Parliament to target support at small businesses … prioritising everyday entrepreneurs working in local communities in all parts of the country”.
Some noble Lords raised the issue of compensation, including the noble Lord, Lord Fox, and the noble Baronesses, Lady Tyler of Enfield and Lady Kramer. The Government have chosen to compensate the public sector with £5.1 billion to ensure there is sufficient funding to support our vital public services, including the NHS. We will work with departments to ensure that the funding set aside is allocated appropriately. The Department of Health will confirm funding for GPs for 2025-26 as part of the usual GP contract process later in the year, including through consultation with the sector. The spending review includes an investment of £100 million. The Government also provided a significant funding top-up to local government, which can be used for pressures including adult social care.
The Government of course recognise the need to protect the smallest charities. Like any other eligible business, they will benefit from the significant changes to the employment allowance, which mean more than half of businesses with NICs liabilities either gain or see no change next year. Charities will still be able to claim employer NICs reliefs, including those for under 21s and under 25 apprentices, where eligible.
The noble Lord, Lord Dobbs, asked about the impact on employment. Following the Budget, the Bank of England now expects that rather than unemployment increasing, as it had previously forecast, unemployment will now fall. According to the OBR, employment will grow over the forecast period by 1.2 million.
The noble Lord, Lord Bilimoria, and the noble Baroness, Lady Penn, asked about the impact on living standards. The last Parliament saw living standards stagnate and was the worst Parliament for living standards ever recorded. The OBR forecast shows that real household disposable income will increase by an average of 0.5% in real terms each year. That is a world away from the stagnating living standards we saw under the last Government, and in the context of a Budget where we had to take some very difficult decisions to clean up the mess that we inherited.
Many noble Lords focused their contributions on economic growth. As several noble Lords mentioned, there was no bigger failure of the previous Government than their failure on growth. My noble friend Lord Whitty and the noble Lord, Lord Skidelsky, mentioned their austerity, their Brexit deal—which permanently reduced growth by 4%—and their disastrous mini-Budget, which, as my noble friend Lady Liddell rightly said, crashed the economy.
My noble friend Lord Liddle, the noble Lords, Lord Fox, Lord Razzall and Lord Shipley, and the noble Baroness, Lady Kramer, were right to reinforce the importance of this Government’s European reset to address the trade barriers that businesses now face.
When last week the Bank of England cut interest rates, it forecast that the Budget would add 0.75% to growth next year. Over the course of this Parliament, the OBR says growth is largely unchanged. The noble Lord, Lord Johnson of Lainston, said this Budget did nothing for growth, but over the longer term the OBR says that this Budget will permanently increase GDP by 1.4% due to the investment that his party is opposing. The noble Lord, Lord Lamont, also opposed that investment but called for more growth.
As the noble Lords, Lord Burns and Lord Young of Cookham, and my noble friend Lord Liddle said, we need to go further and we need to go faster. That is why economic growth remains this Government’s central mission.
The noble Baroness, Lady Neville-Rolfe, rightly focused on GDP per head and productivity. She raised an interesting suggestion which I will happily look at.
The noble Lord, Lord Bridges of Headley, mentioned debt. The OBR shows that the best way to make debt sustainable is to increase productivity.
As my noble friend Lord Eatwell set out, long-term reforms are vital. We have set out extensive planning reforms, a new national wealth fund and a modern industrial strategy, and created Skills England. I totally agree with my noble friends Lord Liddle and Lord Monks on skills and that we must go further.
We will shortly publish the “Get Britain Working” White Paper to tackle inactivity, and the Chancellor will set out pension reforms—which the noble Lord, Lord Howell of Guildford, asked about, and the noble Lord, Lord Gadhia, commented on—in her Mansion House speech later this week. All of these things will significantly boost growth, and none of them, as the noble Lord, Lord Gadhia, observed, are yet included in the OBR’s forecast.
The right reverend Prelate the Bishop of Newcastle and my noble friend Lord Sahota spoke about the importance of regional growth. In the Budget we set out the first steps in our approach to spreading growth across the country through devolution, investment and reform. We gave mayors greater control of their budgets by announcing the first integrated settlements for the West Midlands and Greater Manchester from 2025-26. We invested in major railway projects, and we confirmed funding for investment zones and freeports.
The noble Lords, Lord Fox, Lord Gadhia and Lord Forsyth, spoke about inflation and interest rates. The OBR is forecasting that inflation and interest rates will fall over the course of this Parliament. That is very different from the previous Parliament, when inflation peaked at 11.1% and was above target for 33 consecutive months, and when mortgages rose by an average of £300 a month following the Liz Truss mini-Budget.
My noble friend Lord Bradley spoke about the importance of growth to investment, and I agree with the points that he made. As several noble Lords set out, including the noble Lord, Lord Bilimoria, and the noble Baronesses, Lady Finn and Lady Moyo, private investment is a vital part of addressing the growth challenge. That is why this Budget delivers stability by putting on a sustainable path the public finances, which are an essential foundation for growth and investment. To ensure certainty, in the Budget we published a Corporate Tax Roadmap, which confirms our commitment to cap the rate of corporation tax at 25%, the lowest in the G7.
The noble Lord, Lord Londesborough, asked about enterprise. We have extended the enterprise investment and venture capital trust schemes until 2035. We have also taken action on late payments and non-financial reporting burdens. As my noble friend Lady Liddell said, at the recent international investment summit we saw over £60 billion of new investment creating nearly 40,000 new jobs.
I was surprised that the noble Lord, Lord Fox, spoke against the increase in the national living wage.
Lord Fox (LD)
I did not speak against the rise in the living wage. If the Minister goes through Hansard, he will find that to be the case.
Lord Livermore (Lab)
I will check, but it did sound very much like it to me.
The noble Baroness, Lady Neville-Rolfe, spoke against the plan to make work pay. But, as my noble friends Lady O’Grady of Upper Holloway, Lord Monks and Lord Hallett of Everton pointed out, there is now a wealth of evidence that greater in-work security, better pay, more skills and more autonomy in the workplace have substantial economic benefits. A more secure and productive workforce is good for business and good for working people, because each depends on the success of the other.
Many noble Lords focused on some of the other tax measures contained in the Budget. The noble Lord, Lord Londesborough, asked about stamp duty, which was also mentioned by the noble Lord, Lord Elliott of Mickle Fell. We are reforming stamp duty land tax so that those who buy second homes pay two percentage points more than before. This will support an estimated 130,000 additional people to buy their first home.
Many noble Lords mentioned agricultural property relief. They included the noble Lords, Lord Fox, Lord Forsyth, Lord Bilimoria, Lord Dobbs, Lord de Clifford, Lord Young of Cookham, Lord Empey, Lord Berkeley of Knighton, Lord Northbrook and Lord Shipley, the noble Earl, Lord Devon, the noble Duke, the Duke of Wellington, the noble Baronesses, Lady Mallalieu and Lady Humphreys, and the right reverend Prelate the Bishop of Newcastle. In terms of inheritance tax, currently the largest estates pay a lower effective tax rate than smaller estates. That cannot be right, so we are reforming agricultural property relief and business property relief to reduce this unfairness, while protecting small family farms. Almost three-quarters of estates claiming the relief will be unaffected. It is expected to affect around 500 claims next year.
We should be clear that agricultural property relief is given on top of the normal inheritance tax thresholds. Individuals can pass up to £500,000 to a direct descendant, and then agricultural property relief will provide another £1 million tax-free allowance. This means a couple can pass up to £3 million tax free. Above that, there is a 50% discount on inheritance tax, so it is a rate of only 20% and any liability can be paid in 10 yearly instalments which, to answer the noble Earl, Lord Devon, will be interest free.
The noble Lord, Lord Fox, asked about valuing property for business property relief. There is an established process for valuing business property, which will continue to apply.
On inheritance tax on pensions, the noble Lord, Lord Johnson of Lainston, seemed unsure whether pensions are a savings vehicle or a tax planning vehicle. The fact is, as my noble friend Lord Davies of Brixton said, that these reforms remove distortions resulting from pensions tax policy over the past decade, which have led to pensions being openly used and marketed as a tax planning vehicle to transfer wealth rather than to fund retirement.
Several noble Lords raised the issue of VAT on private schools, including the noble Lords, Lord Johnson of Lainston, Lord Forsyth, Lord Berkeley of Knighton, Lord Moynihan of Chelsea, Lord Lexden and Lord Borwick. This raises £1.7 billion a year—money to benefit the 94% of pupils who attend state schools. The new leader of the Opposition has that said she will reverse this measure, so she will of course need to say where her cuts to state schools will fall. The impact assessment, published alongside the Budget, shows that 35,000 pupils will move to state schools—less than 0.5% of the state school population and lower than previous estimates had suggested.
The noble Lord, Lord Shinkwin, asked about children with special educational needs. Children with the most acute needs, whose places in a private school have been deemed necessary by local authorities, are protected from the VAT impacts because local authorities can reclaim VAT. To improve outcomes for the most vulnerable children and to ensure that the system is financially sustainable, the Budget provided a £1 billion uplift in funding for special educational needs—a 6% real-terms increase.
The difficult decisions this Budget takes are for a purpose—not just to repair our public finances but to rebuild our public services, as my noble friend Lord Bach observed. I happily join my noble friend Lady Thornton in welcoming the work of the Women’s Budget Group.
We have set the envelope for the second phase of the spending review, which we will stick to. That will involve some tough choices on spending. Several noble Lords asked about reform, including the noble Baronesses, Lady Finn and Lady Neville-Rolfe, and the noble Lord, Lord Young of Cookham. Our reform agenda will be central to improving services going forward, including our 2% efficiency target for all government departments.
My noble friend Lady Ramsey of Wall Heath set out the increased funding that the Budget provides to the NHS. The noble Baroness, Lady Tyler of Enfield, asked what the NHS funding pays for—it is for 40,000 more appointments a week, £1.5 billion for new diagnostic scanners and new surgical hubs, and an expansion of mental health support, to name just a few. I think I heard the noble Baroness saying that more should be spent while opposing the increase in employer national insurance contributions that pays for it.
As the noble Baroness, Lady Lea of Lymm, observed, and the noble Baroness, Lady Penn, mentioned, the situation we inherited from the previous Government—the only major economy where inactivity has not returned to pre-pandemic levels—is completely unacceptable. We will publish a White Paper to get Britain working; my noble friend Lord Davies of Brixton asked for a date, and I tell him that it will be later this month. Next year, we will publish a White Paper on sickness benefit reform.
The noble Lord, Lord Desai, spoke about the importance of the welfare state. My noble friends Lady Lister of Burtersett and Lady Wilcox of Newport mentioned that we provided £1 billion to extend the household support fund and discretionary housing payments to help those facing financial hardship with the cost of essentials. We have reduced the level of debt repayments that can be taken from a household’s universal credit payment each month, meaning that 1.2 million of the poorest households will keep more of their award each month, lifting children out of poverty.
As my noble friends Lord McConnell, Lady Liddell, Lady Wilcox of Newport and Lord Murphy of Torfaen said, we are providing funding to support public services and drive growth across Scotland, Wales and Northern Ireland, with the largest real-terms funding since devolution.
My noble friend Lord McConnell and the noble Lord, Lord Oates, spoke about spending on overseas development assistance. ODA budgets have been set for the next two years to enable the UK to spend 0.5% of GNI. I reassure them that the Government remain committed to restoring development spending to 0.7% of GNI as soon as the fiscal circumstances allow.
My noble friend Lord McConnell also asked about the Integrated Security Fund. The ODA programme budget, including the Integrated Security Fund, will increase by 2025-26 to £9.2 million.
I am short of time, so I shall write to my noble friend Lady Warwick of Undercliffe about her housebuilding and social housing questions.
The difficult decisions that we made in this Budget, which have been debated here today, were made for a purpose—to repair the public finances, restore stability, rebuild our NHS, invest in the national interest and protect working people. It was, of course, possible to make different choices, to ignore the problems in our public finances, to not rebuild public services or invest in the fabric of our nation and to fail to protect working people. But we should remember that, at the last election, the country voted for change. As many of my noble friends have pointed out, the British people did not overwhelmingly reject the previous Government 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 change. That is exactly the mandate that this Budget delivers on.
We have made our choices. They are the only responsible choices—to protect working people, restore stability and invest in Britain’s future.