Baroness Neville-Rolfe (Con)
My Lords, the spending review Statement, delivered by the Chancellor in the other place yesterday, made it clear, in no uncertain terms, that the Treasury has lost authority in determining how the Government spend taxpayers’ money. How else can the Treasury explain a spending review in which the Government will add another £140 billion to the national bill in extra borrowing, forecast over the period set out by the Chancellor? How else can the Treasury explain a cost burden so substantially increased that the Government are unable to rule out tax rises in the autumn? How else can the Treasury explain why it is subsidising tax reductions in Mauritius, but making decisions which will limit domestic economic growth?
Ministers are lauding a spending review which does not address the fundamental issues which we have raised in your Lordships’ House many times. Only a few weeks ago, we had an excellent debate on the crisis we face in light of the scale of our national debt. This situation has been made worse as a direct consequence of the spending review. Ensuring value for money in public expenditure—another issue we have raised time and again—has been virtually ignored.
However, I thank the Minister for the long overdue investment in nuclear at Sizewell C, on small modular reactors with Rolls-Royce and on the nuclear fusion prototype in Nottinghamshire. I just hope these will not take too long. They are essential to an energy balance, so we avoid the sort of problems we have seen in Spain.
Following on from our discussions last week on the transport package, I also welcome the extension of the £3 cap on bus fares, albeit only until 2027. London-based politicians do not understand how important buses are to so many of the less well-off in this country, especially in rural areas which are bearing the brunt of this Government’s policies in other ways. The introduction of a five-year planning cycle for capital is also positive.
However, I am very concerned at the way the Chancellor has hit police spending and defence to find yet more money for the NHS. Police chiefs are very anxious, and there is still no plan to reach the 3% we need on defence. The NHS is one of the major winners from the spending review, claiming over £29 billion per year in additional funding. But unlike our Conservative record, this new money from the Labour Government has come with no productivity conditions and no demands that services be improved or patient outcomes bettered. This is a major problem. In recent years, we have seen record levels of spending poured into the health service, yet productivity has not kept pace. According to the Office for National Statistics, NHS productivity still remains below pre-pandemic levels. We have an inverse ratio: the more money the Government give the NHS, the worse it functions.
What we are witnessing is a shortage not of funding but of effective reform. The NAO and other independent bodies have highlighted how much of this new funding has been absorbed by rising costs and staff pay.
I am grateful to the Government for allowing an extra 20 minutes for Back-Benchers to ask the many questions they will have on the detail of this Statement. To be honest, I would have preferred a full debate on this, as it sets the scene on expenditure choices for the rest of the Parliament.
Moreover, in the round, the Statement is a cause for concern. As the shadow Chancellor put it succinctly, “Spend now, tax later”. The fiscal rules have been loosened so the Government can borrow more and lay out a succession of goodies in a £190 billion spending spree.
There should have been much more focus on the nearly £100 billion of interest we are now paying on our national debt and on how to get that down—a debate on how we balance the nation’s books. Investment is separated out under the fiscal rules, but I am afraid it still has to be paid for. Is this investment being wisely invested?
To mention one angle, the promised new Green Book is not a new book but the findings of a review. It concludes—as I expected, given the changes that the Conservative Government made—that the current methodology is not biased towards certain regions. However, I was surprised to read that the existing Green Book puts too much emphasis on cost-benefit ratios and that a ratio of less than one might be fine. I am really worried about this as an encouragement to the approval of white elephants.
This, of course, is against a troubling economic background. Unemployment has hit a four-year high of 4.6%. A first estimate for May showed a 109,000 decline in jobs, which, if confirmed, would be the worst month since the height of the pandemic in April 2020. Since the Spring Statement, persistently higher gilt yields have blown a £5 billion hole in the Chancellor’s £9.9 billion buffer. Productivity was 0.2% lower in the first quarter of the year compared with the same period in 2024. The UK’s total rate of investment has been the worst in the G7, on average. On top of it all, the ONS today announced a 0.3% decline in GDP growth—partly, no doubt, because of the hikes in national insurance, which have hit businesses so hard. These are facts. The Chancellor should have taken corrective action in the spending review, but we can see that more taxes and higher council tax are coming.
Finally, I will come back to the Minister on a couple of points that he keeps making. He has alleged, often and aggressively, that when many new projects were announced by the Tories, no money was provided. That is, of course, because we rightly delayed the spending round until after the election. We, like the Government, would have allocated the money for what we had planned following a classic review.
This is linked to my other concern, about which I have been very patient with the Minister: that we had and have no plans for saving money to finance necessary spending. This is an inexactitude. Apart from the strong growth trajectory at the time of the election, undermined by Labour’s doom and gloom, we were on course to reduce the public sector. Instead, the civil service has risen in the past three months to over 516,000 full-time equivalent, the highest level since 2006—in contrast, according to Civil Service World, to the total of 384,000 FTE in September 2016, when I was serving in the Conservative Government.
This Government have chosen to give pay rises to the public sector costing £9 billion—and more, if you add on the future cost of their pensions—without the kind of link to productivity that any sensible managers insist on when a generous pay package is offered. Add to that the £30 billion for the Chagos Islands, which is funding reduced taxes in Mauritius not the UK, £8 billion on Great British Energy, and the abandonment of our ambitious plans for welfare reform and our attack on waste, of which, sadly, this week’s Blue Book is a pale imitation.
The truth is that the Government are busy creating their own black hole with all of this, and it has been topped up by the £1 billion reversal in the winter fuel allowance. We all understand why that was done, but it destroys confidence in the Chancellor’s determination not to raise taxes. My fear is that we will run into the autumn with anaemic growth, persistent inflation and a large new tax bill.
Baroness Kramer (LD)
My Lords, I recognise that the Chancellor faces real constraints, and this morning’s GDP figures for April underscore the problem. However, I am not going to use this opportunity to spend a lot of time talking about growth. It is such a big issue that we need some separate debate time set aside for it.
On these Benches, we are pleased with the significant allocations for the NHS and for housing in the spending review, though we are concerned that there are no targets for social housing, since we need at least 150,000 new social homes a year. I ask the Minister: given this additional money—which I know is only £3.9 million a year, but still, it is additional money—will we see that number of social homes come through annually? That really is the need that must be met.
However, nobody will be surprised that I was disappointed—almost to the point of devastation, quite frankly—to see adult social care overlooked, with no uplift until 2028, despite the reality that the situation is grim as we speak and that, without properly functioning adult social care, improvements to the NHS will be seriously undermined. If the Casey review is the hold-up, it should be and could be completed this year.
The Chancellor also suggested that she would back the fair pay agreement for adult social care workers sought by Care England. She absolutely should—care workers deserve every penny—but did I hear correctly that she will not fund it? The total package is £2 billion a year, and just the living wage and sick pay portion is £805 million a year. That kind of money puts in jeopardy not only many care providers but many local councils. If the Minister says that there was an uplift for councils, then not only does that rely on a 5% council tax increase in most councils but the additional money will be fully swallowed up by SEND, which is also in a dire situation. Will the Minister please explain what seems completely inexplicable: the overlooking of adult social care?
I also ask for clarification on defence spending. The Chancellor said she would raise it to 2.6% by 2027—which is the right direction—but is it correct that when she spoke, she treated spending on the secret services and on the Ukraine war as defence spending? If we speak in the terms that we have all been using up to now then the 2027 spend is, in my estimate, below 2.4%. I hope the Minister will tell me I have simply misunderstood. Will he help explain what exactly is going on with this defence spending? To me, all this confusion is underscoring the importance of cross-party talks, which my party has proposed, so that we collectively find a way to reach the necessary 3% well ahead of 2034. Boy, would I appreciate some clarification on what on earth is happening within that budget.
I am pleased to see new funds for the British Business Bank, whose greatest weakness, frankly, is its tiny size. However, to which bit of its activity is the additional money to be directed? I am particularly concerned about small business lending, and it could make a serious difference if much of the new funds are directed into the BBB’s Community ENABLE fund and its growth guarantee scheme. Who will make that call, is it dedicated, and does it have a target? Could the Minister please tell us more?
I could raise a lot of other questions, but I am anxious to hear properly from the Minister. I came away from the spending review, the Blue Book and the speech asking endless questions to which I could not find answers. I thought that I was going rather brain-dead. Then, I heard Paul Johnson of the IFS talk about the documents being so opaque that he was asking questions and could not find answers. If he cannot, we need help. Could we have clarity in the future, but in the meantime could the Minister please serve as our clarity?
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their comments and questions on yesterday’s spending review Statement.
It would have been perfectly credible for the noble Baroness, Lady Neville-Rolfe, to say she cannot support any of this investment because she did not support any of the difficult decisions that we took to make this investment possible. It also would have been perfectly credible for her to come here today and say she has changed her mind, now supports the difficult decisions that we took and therefore will support the investment that those difficult decisions have permitted.
Unfortunately, the noble Baroness did neither of those things. We heard her support for the huge amounts of spending we announced yesterday for the nuclear programme—for example, £30 billion into nuclear. We heard her support the £3 bus fare cap, even though her party had refused to fund it any longer than last December. Yet she has opposed every difficult decision every time we have stood here for almost a year now. She has opposed every single difficult decision we have taken to repair the public finances and fund the public services. Even today, she was opposing the changes to the fiscal rules that enabled the additional investment spending we have made. She supported the nuclear spending, which is investment spending, but she opposed the fiscal rule change that enabled that spending. That simply is not credible.
The party opposite cannot support the investment in the spending review without supporting the money to pay for it. We all know exactly how we ended up with a £22 billion black hole in the public finances. That is exactly the approach that Liz Truss took in her mini-Budget, which crashed the economy and sent mortgage rates spiralling. We will not be repeating that mistake. The shadow Chancellor is distancing himself from the Liz Truss approach, and the noble Baroness should distance herself from that approach too. She talked about the money that is being allocated. I am not sure she understood the process of the spending review: the envelope was set by the Chancellor last spring. She cannot say in any way that we have lost control or are deviating from that envelope, because the Chancellor allocated every single penny of that envelope and not a single penny more. I fully understand what she is saying—that she understands that—but, in that case, I do not understand why she made the criticisms she did. The Chancellor was simply allocating the envelope that she set out in the spring.
The noble Baroness also said that the last Government delayed the spending review. We all know why the last Government delayed the spending review: because their sums did not add up. They had a £22 billion black hole at the heart of it, and they knew that the moment they did a spending review that black hole would be revealed. That is the reason why they delayed the spending review.
The noble Baroness talked about growth and the performance of the economy. In the first quarter of this year, the UK was the fastest-growing economy in the G7. Under the forecasts inherited from the previous Government, this year the UK would have been the slowest-growing economy in the G7. If she wants to compare growth stats, I am more than happy to do that with her all day. The figures out today show that April was a challenging month, given global headwinds. That was the month in which the tariffs were imposed by the US, and it was before we had agreed the trade agreement with the United States. If you dig into those growth figures, you can see that a lot of it is driven by a decline in exports because of that. It underlines the need to continue to deliver on our growth mission.
The noble Baroness talked about facts. The facts are that living standards are now forecast to grow four times faster than in the previous Parliament. Real wages have already grown by more in the first 10 months of this Labour Government than in the first 10 years of the previous Conservative Government. She often talks about productivity and GDP per capita, but GDP per capita fell in the last Parliament. It is now forecast to rise by 5.6% in this Parliament. On top of that, the IMF has upgraded our growth forecast, as did the OBR in the Spring Statement.
It is disappointing to me that the noble Baroness often says that she and I agree on growth, but she did not mention any of the growth-boosting measures included in this spending review. She did not mention that capital spending would increase growth by 1.4% in the long term. She did not mention the £39 billion affordable homes programme, which is vital for growth. She did not mention the record amounts of R&D funding rising to £22 billion a year. She did not mention any of the major rail projects to connect our towns and cities and make sure that growth is felt right throughout the United Kingdom. She did not mention the skills budget and the amount of money we are spending on skills. It is disappointing that she says she supports growth but then does not welcome or mention any of the investment that we are doing to get that growth.
The noble Baroness mentioned borrowing and the public finances. Average borrowing in this Parliament will be 2.8% of GDP, compared with 5.6% of GDP over the previous 14 years. She talked about the investment rule. Obviously, we have changed that fiscal rule—quite rightly—to enable the much-needed investment infrastructure to deliver stronger growth in the future. She opposes that change to that fiscal rule and yet somehow also claims to support the investment that the rule brings about.
The noble Baroness talked about tax. Yesterday’s spending review allocated the envelope set out by the Chancellor in the spring. These record settlements have been made possible only by the tough but necessary decisions we took in the Budget last October. On future decisions on tax and spending, I am not going to write four years’ worth of Budgets at this moment, even if that was in my power. The independent OBR will produce a new forecast in the autumn for the Budget. The Chancellor will take decisions at that point based on that forecast, and I will not prejudge those now.
The noble Baroness asked me about funding of the winter fuel during Question Time earlier. As she knows, we will set that out in full at the time of the Budget.
The noble Baronesses, Lady Neville-Rolfe and Lady Kramer, both asked about defence. As the Chancellor made clear yesterday, increasing defence spending is a strategic necessity, and that is why we will be spending 2.5% of GDP on defence by 2027. The noble Baroness, Lady Kramer, asked about the precise definitions: 2.5% will absolutely be the case by 2027. If she wants to include the intelligence agency spending and the other spending she mentioned, it is 2.6%, but it is 2.5% excluding those things—I can give her that absolute certainty. Our ambition is to reach 3% in the next Parliament when fiscal and economic conditions allow, but we will not be putting arbitrary dates on when we will meet that.
I have two final points: the noble Baroness, Lady Neville-Rolfe, asked about efficiency and productivity. This is the first zero-based review done into spending for 18 years. The previous Government had 14 years to do a zero-based review, if they really cared about efficiency in public spending, and they did not do one at all over the course of 14 years.
The noble Baroness did not mention any of the reforms we are doing in the NHS. In fact, she sounded quite sceptical of additional money going into the NHS, which is a great shame as we know it is the most treasured public service in this country. She did not mention digitisation, for example—putting £10 billion into the NHS app to make it far more efficient in its spending. We are doing a great deal more on efficiency savings. All departments have identified at least 5% savings and efficiencies by 2028-29.
Finally, the noble Baroness, Lady Kramer, spoke about social care. I am grateful to her for welcoming some of the other additional spending, particularly on the NHS and housing, for example. She talked about social housing: we have made the £39 billion investment into the affordable homes programme. That is crucial for growth, as she said.
I pay tribute to the noble Baroness, who has consistently campaigned on social care. The spending review provides an increase of over £4 billion available for adult social care in 2028-29, compared with 2025-26. That includes an increase to the NHS’s minimum contribution to adult social care via the better care fund, in line with the Department of Health’s spending review settlement. This will support the sector to improve adult social care, with further details to be set out shortly.
The noble Baroness asked about the fair pay agreement. As the Chancellor said yesterday, we remain committed to delivering a fair pay agreement in line with our manifesto commitment, and we will set out further details of that shortly. She also asked about the British Business Bank. There will be an increase to £25.5 billion, and it will set out further details as to how that will be allocated. In the industrial strategy in a few weeks’ time—access to finance is obviously a major issue for all those sectors—we will set out how the British Business Bank can help with those access to finance issues.
Baroness Griffin of Princethorpe (Lab)
My Lords, I also wish my noble friend Lord Livermore a very happy, significant birthday.
Communities across the country were told for years that they would be levelled up. In practice, regional investment plummeted and long-promised schemes were downgraded or pulled entirely. Does my noble friend agree that while it will take time for people to see the results of regional investment, the money allocated to English city regions and the devolved authorities will enable long-term schemes that provide jobs and growth and are genuinely transformative?
Lord Livermore (Lab)
I am grateful to my noble friend for her kind words and her good wishes. I absolutely agree with her. One of the central themes of this spending review is making sure that growth is both created in all parts of the country and felt in all parts of the country. For too long, we have been reliant on just one or two regions of our country to generate that growth. Clearly, given our growth mission and the importance of raising sustainably the level of growth in this country, making sure that every part of the country contributes to that economic growth is absolutely vital.
On the regional investment that my noble friend talks about—in particular the transport investment that the noble Baroness, Lady Neville-Rolfe, referred to—the previous Government made lots of grand plans but never funded any of those grand plans. What we are doing here is setting out a very careful strategic plan to connect our cities, connect our towns to our cities, and funding that fully, so that those transport connections are made and people are able to get around cities and regions, which is absolutely vital to economic growth. It is no good having the jobs, the skills, the towns and the housing if they are not connected and people cannot travel around to them. I think that is an absolutely vital part of getting growth throughout the country.
The Earl of Clancarty (CB)
My Lords, notwithstanding the welcome moneys for the repair of cultural venues, the cuts overall to the arts are hugely disappointing. This will affect most the individual freelancer, who really had high hopes that finally there would be reinvestment in their sector. Of course, small and large organisations will be affected, too. So I ask the Minister, would he agree with me that these cuts make no sense, considering the Government have earmarked the creative industries as the linchpin of growth? They do not seem to grasp the vital role—a role in innovation—that the subsidised arts sector plays in the ecology of the creative industries as a whole. Neither is the 15% cut to staffing within the DCMS, while such cuts are not happening everywhere, a vote of confidence in the sector, so the Government do need to rethink these cuts.
Lord Livermore (Lab)
I am grateful to the noble Lord for his question. I know that he is a passionate and long-standing campaigner for the cultural sector. As outlined in the spending review yesterday, the DCMS will invest more than £2.9 billion across its entire capital programme to safeguard and modernise cultural and heritage institutions in towns and cities. I hear very much what he says about the wider cultural sector and I ask him to wait for the creative industries industrial strategy sector plan, which will be coming out shortly and which I hope will address many of the issues that he is talking about. As he says, we absolutely recognise the enormous value, both cultural and economic, that the creative industries offer. We will be setting that out in the sector plan for the industrial strategy in the coming weeks and I hope that we can discuss it at that point.
The Lord Bishop of Chichester
My Lords, there are things to welcome in the spending review: I would point in particular to His Majesty’s Government’s steps to support the most vulnerable, tackle regional inequality, increase investment in schools, social housing and healthcare and maintain some level of support for the arts and culture, recognising their importance. More support for libraries, which act as community hubs, is welcome. I hope that the benefit of churches, which are also public buildings that contribute to community life, especially in rural areas, will also be recognised and that DCMS will do this by resolving the long-term uncertainty about the future of the listed places of worship grant scheme beyond 2026 and the capping of grants, effectively, by VAT liability.
May I press, however, the Minister on two other matters that I think are important? The first is children—our nation’s future—and investment in them. While on the surface, the increased access to free school meals is welcome, could the Minister reassure the House that the Government have not uncoupled free school meal eligibility from the pupil premium? Secondly, given the impact of the cost of living on families and the growth in child and rural poverty, which I do see even in the diocese of Chichester, especially in our coastal towns, can the Minister give assurances that the much-delayed child poverty strategy will now be published as a matter of urgency, with further consideration being given to ending the two-child limit and reviewing other policies which so adversely impact the well-being and flourishing of our nation’s young people and their families?
Lord Livermore (Lab)
The right reverend Prelate set out a number of issues that he agreed with, and obviously I am grateful for his agreement with those. He talked about child poverty and he knows that—as the Prime Minister described it—our free school meals policy is a down payment on the work that we want to do to tackle and end child poverty. I was lucky enough to be part of a previous Government—I worked for a previous Chancellor—who reduced child poverty by 1 million children, so there should be no doubt about my personal commitment to reducing child poverty. I had to sit by, as did many of my noble friends, and watch the previous Government increase child poverty by 700,000. That is not something that any of us wanted to see; so he should be reassured that we absolutely prioritise this issue.
The right reverend Prelate asked about free school meals. The children of every family on universal credit will be eligible for those free school meals. He described the child poverty strategy as much delayed. I am not sure I would accept that. I think we have set out when it will come—alongside the Budget this autumn—and it will consider all the issues and representations that are put to it. There is quite a lot in this spending review to tackle child poverty. As I say, that is a down payment and I very much hope we will be able to do more.
Lord Forsyth of Drumlean (Con)
My Lords, I very much welcome the fact that the Chancellor reiterated yesterday, in the other place, a commitment to no unfunded increases in expenditure. Could the Minister reassure me about the other promise which she made in the autumn Budget—I am going to read it so I am not misrepresenting it—that there would be no further tax increases during the current Parliament? She said, “I will not increase your income tax; I will not increase your national insurance; I will not increase your VAT”. Does that promise still stand? How can it possibly stand with the Government’s debt interest bill now being £105 billion and rising and the costs of borrowing, because of the level of debt, actually being higher than they were at the time of the crisis under Liz Truss?
Lord Livermore (Lab)
I am grateful to the noble Lord for his question. On the specific question that he asked about whether the manifesto commitments that we have given to working people still stand, yes, they still stand. The manifesto very clearly says there will be no increase in working people’s income tax, national insurance or VAT. That commitment continues to stand. In terms of future decisions on tax and spending, as I have said already, I am not going to write now—it is not in my gift to write now—four years-worth of Budgets. As he knows, the OBR will produce a new forecast in the autumn for the Budget, and the Chancellor will take decisions at that point, based on that forecast. He can be assured, though, that, at all times, we will meet the fiscal rules, but I am not going to prejudge those decisions now.
I am not sure whether he was defending at that point the Liz Truss mini-Budget or not. He shakes his head vociferously. I do not blame him: I would not want to defend it either.
Lord Wood of Anfield (Lab)
My Lords, there is much to welcome in this spending review. Can I especially welcome the £39 billion of investment in social and affordable housing that the noble Baroness mentioned earlier on? Shelter yesterday called this a game-changer. The National Housing Federation said it was the most ambitious affordable homes programme in decades. All of that is extremely encouraging. I note that the ramping up of extra funding is gradual, as the noble Baroness, Lady Kramer, mentioned, reaching an additional £4 billion per annum by the end of the spending review period. What needs to be done as this money is ramped up in the next couple of years to ensure that this funding is generally transformational? In particular, I know he is passionate about improving the supply of skilled workers in the housing construction sector so that it really does result in the step change we all want in social housing.
Lord Livermore (Lab)
I thank my noble friend for his question. He is absolutely right. The Government are providing the biggest boost to social and affordable housing investment in a generation, and giving social housing providers the long-term certainty that they need to focus on development. We are putting in £39 billion for a successor to the affordable homes programme. We are making a 10-year social housing rent settlement from 2026 at CPI plus 1, alongside a consultation on how to implement social housing rent convergence. We are putting in over £1 billion of new investment to accelerate the remediation of social housing. So I think that is genuinely, as he says, transformative, and I am glad that those experts in this field have welcomed that allocation.
As my noble friend said, it is a gradual increase, which is probably sensible for public finance reasons, but probably for delivery reasons too, to ensure that it can actually be implemented, but he is absolutely right to point to skills. In this spending review, we have a record allocation in terms of skills, but also, at the time of the Spring Statement, the Chancellor set out a construction skills package, which I think is vital. Clearly, not just on housing, we are doing a lot of infrastructure investment and a lot of infrastructure spending. We must have the skilled workers to do that work; I absolutely agree with my noble friend on the vital importance of skills alongside this investment.
Lord Burns (CB)
My Lords, I declare an interest as former chairman of the South East Wales Transport Commission and the North Wales Transport Commission. I want to make a few remarks with respect to those roles, rather than comment at this stage on the macroeconomic aspects of the Statement. I very much welcome the proposals in the spending review for the investment in rail services in south-east Wales and north Wales. My understanding is that this allocation will allow most of the recommendations of the two transport commissions that I chaired to go ahead. The new stations in south Wales will provide vital commuter rail services, connecting major housing developments to sites of potential economic growth on both sides of the border. They will provide an effective alternative to many existing car journeys on heavily congested roads and will improve opportunities for those without cars, who face serious challenges with existing public transport.
In the case of south-east Wales, much of the work has already been done to progress these technical studies for both projects. The development work is largely complete and the project is ready to go. In north Wales, there are projects identified that will also improve transport connectivity to important centres of good jobs, such as Deeside and Wrexham industrial estates, the aircraft facility at Broughton and the city of Chester. There is also, would you believe, the real possibility of connecting by train those two great football cities of Liverpool and Wrexham. Does the Minister agree that these funds should be used as soon as possible?
Lord Livermore (Lab)
In the Treasury over the past months I have heard many references to the “Burns stations”, so it is a great privilege to talk to the noble Lord himself about these stations. He is absolutely right. We are investing at least £445 million into rail enhancements over 10 years to enhance rail across Wales, including at Padeswood on the Borderlands line and through upgrades to the core valley lines, as part of the 10-year infrastructure strategy that my right honourable friend the Chief Secretary will set out more details of next week.
This includes providing £48 million over four years to the Welsh Government to work with them to upgrade the core valley lines; up to £80 million for port investment to support floating offshore wind into Wales; and £2.4 million over three years to launch a new brand Wales programme promoting Welsh investment opportunities and exports around the world.
Lord Ahmad of Wimbledon (Con)
My Lords, I too wish the Minister a happy birthday. In welcoming the increase in defence spending, I am sure he will acknowledge that diplomacy goes hand in glove with our ability to deliver on our defence and trade priorities. My former department has suffered the largest reductions, of over 8.3%, in both CDEL and RDEL. What assurance can the Minister give me and all Members of your Lordships’ House that important priorities such as the integrated security fund, which focuses on cybersecurity threats and counterterrorism, will be not just sustained but, in the ever dangerous world that we live in, increased?
Lord Livermore (Lab)
I am grateful to the noble Lord for his kind wishes. He is vastly more experienced and expert in these important matters of defence than I am. To answer his very specific question on the integrated security fund, the spending review settlement enables the fund to continue to deliver programmes that support the National Security Council’s national security priorities. The integrated security fund will focus on the most pressing threats facing the UK, whether posed by hostile states, instability in volatile regions or emerging cyber and technology-enabled risks.
Baroness Keeley (Lab)
My Lords, I would like to ask about continued funding by DfE for the music and dance scheme bursaries for talented young musicians and for the outreach work of the national centres for advanced training in dance. It is right that the Government fund schemes such as these, which ensure that dance training is not just for elites and that children from any background can access a world-leading vocational music or dance education. Can my noble friend the Minister convey to the Chancellor and the Secretary of State for Education the need to protect and, when possible, to grow the funding of our leading pathway into music and dance careers for young people from deprived backgrounds?
Lord Livermore (Lab)
I will do exactly as my noble friend asks and pass that on. The important announcements yesterday that she mentions are incredibly welcome. The Secretary of State for Culture, Media and Sport and the Chancellor also announced the dormant assets initiative to get more creative industries into more schools, so that the huge advantages and benefits of that kind of creative industry are available no longer only to privileged children but to far more children in state schools.
Baroness Bennett of Manor Castle (GP)
My Lords, I can only welcome the 3% increase in NHS funding in real terms, although it is below the long-term average over decades of 3.6% increases. The chief executive of the NHS Confederation has said that this
“won’t be enough to cover the increasing cost of new treatments”.
With that in mind, it is disappointing that while “public services”, “public finances” and “public debt” appear in the Chancellor’s speech, there is no use of the phrase “public health”. Given that the NHS is under such pressure, surely the Government should look to decrease the demand for healthcare by improving the health of the nation, which is, compared with comparable countries, extremely poor. That would mean measures to deal with water, air and other pollution, our broken food system and the poor quality and lack of green spaces. Will the Government look at making the nation healthier to help the NHS?
Lord Livermore (Lab)
Yes. The noble Baroness says that we are not spending enough on the health service. Over the next five years, £30 billion will be invested in day-to-day spending, with over £5 billion specifically allocated to address the most critical issues. The noble Baroness likes to tell us how she does not believe in economic growth. If we do not have economic growth, how will we find the money to fund our public services? I sat through the national insurance Bill. The noble Baroness opposed it and the additional money that it brought into our National Health Service. She says that this is not enough money. How exactly is she going to find the money? She is mouthing “wealth taxes”. If she thinks a wealth tax is going to raise that many billion pounds, I would love to see her proposals.
Baroness Wheatcroft (CB)
My Lords, the capital investment contained in the spending review will be very welcome in many parts of the country. The problem will be making sure that it is money well spent. As those of us who were here in the morning heard, public bodies often are not the greatest at making sure they can build a door, let alone a motorway. How will the Government ensure that we get value for money on our projects? Just having an office called the “office for value for money” might not be enough. I was cheered that the Chancellor said the amount of money being spent on consultants had come down. Can the Minister put a figure on that and tell us what the budget for consultants over the next few years will be?
Lord Livermore (Lab)
I do not have the specific budget for consultants over the next few years to hand. I am more than happy to write to her with that figure if it is available. She is right that we have reduced the number of consultants. It ballooned under the previous Government, who like to talk about saving money but did not always walk the walk.
We are investing an additional £113 billion in capital spending, which is enabling so many of the projects that we are discussing today. It would not be possible if we had not rewritten the fiscal rules that we inherited from the previous Government, which guaranteed neither stability nor investment. We inherited such a poor public infrastructure situation from them as they repeatedly cut investment spending to patch up the holes in their day-to-day spending. The noble Baroness mentioned the change to the fiscal rules. Alongside the fiscal rules, we have set out very clear guard-rails to ensure that that money is spent wisely and carefully through public finance institutions. I am very confident that we have set out those guard-rails and will ensure that we get the value for money that she is describing.
Baroness Altmann (Non-Afl)
My Lords, I too wish the Minister a happy birthday, and I declare my interests.
Does the Minister recognise the damage caused to UK growth by pension funds? We have the second largest pension system in the world according to the Government, the Exchequer gross contribution is £70 billion a year, and our DB and DC schemes are no longer backing Britain and are selling or underweighting UK equities and risk assets, damaging investments and corporate financing costs. DB pension funds bulk buying annuities is driving up long-term gilt yields, which many noble Lords have mentioned, as the insurer sells the gilts they tell the pension funds to buy as soon as they take over the assets, competing with the Bank of England’s QT sales. Our economy is desperate for long-term investment. Our brilliant companies are being snapped up on the cheap by foreign owners or private equity. I believe in Britain, and the Government seem to have a clear opportunity to require pension funds, if they wish to receive these generous taxpayer subsidies, to put, say, at least 25% of their new contributions into British assets to reverse the doom loop that pension funds have created for our markets and restore some growth.
Lord Livermore (Lab)
The noble Baroness and I, along with many others in this House, have discussed these issues many times before. I think she knows that what she wants and what I want and what the Government want are pretty much the same thing. She says she wants to see greater levels of investment by pension funds into UK assets, and that is exactly what we want to see as well. The Chancellor set out some proposals on that in her Mansion House speech last year. We have seen substantial pension fund reform announced by this Government, which should bring an additional £50 billion of investment into the UK. We have seen the Mansion House compact announced just last week—a voluntary scheme by pension fund providers to get more investment into the UK. The Chancellor will make her next Mansion House speech on 1 July. I hope this will include more interesting announcements on this regard. It will also include the financial services growth and competitiveness strategy, which I hope will achieve many of the things that the noble Baroness is talking about.
Lord Lemos (Lab)
My Lords, I declare my interest: from 2018 to 2025 I was the lead non-executive director of His Majesty’s Prison and Probation Service. Can my noble friend the Minister tell us how much the Government are having to spend to rectify the appalling failure of the last Government to address the prison capacity crisis and all its consequences?
Lord Livermore (Lab)
My noble friend is absolutely right, and I pay tribute to the expertise that he brings to this question. In the summer of 2024, at the time of the election, prisons were operating at over 99% capacity. Clearly, the previous Government, as I was saying before, did not believe in investment spending, because they kept cutting it. Our social fabric was in a terrible state when we took over. We are having to do a lot of investment spending now to make up for the damage done over 14 years. The Government in this spending review are providing £7 billion to deliver 14,000 new prison places by 2031.
Baroness Penn (Con)
My Lords, today’s growth figures make tax rises in the autumn all the more likely, but one rise that we do not have to wait for is the 5% increase to council tax each year planned for in this spending review. The Minister will know that council tax is a regressive tax. He will also know that this is the biggest increase since the 2001 to 2005 Parliament. Can the Minister confirm to the House how much a 5% growth in council tax each year will cost the average working family?
Lord Livermore (Lab)
The noble Baroness says that we do not have to wait for it. She is absolutely correct: we do not have to wait for it because her Government introduced it. A 5% cap in council tax is something introduced by the previous Government—we have not changed that. It is a cap. Councils do not have to increase council tax by 5%, but, under the rules, they cannot increase council tax by more than 5% without a local referendum. We have not changed that. That is to invest in things such as social care, but also, as is normal, to put money into policing.
Baroness Whitaker (Lab)
My Lords, the benefits of the infrastructure expenditure are wide-ranging and indeed thrilling. However, most of those benefits are going to be long term, and I think most people are still worried about the cost of living and their day-to-day access to public services. Can my noble friend the Minister say a little more about how the plan is going to affect ordinary people, day-to-day?
Lord Livermore (Lab)
My noble friend is absolutely right when she says that a lot of our capital spending is long term. I think that is perfectly right. For example, the noble Baroness earlier talked about pension funds. I met representatives of some of the largest Canadian-Australian pension funds recently, and they told me that one of the most attractive parts of the UK economic landscape at the moment is the long-termism of our policy-making. They want to see long-term commitments and long-term investment so that they can invest into this country. The long-term nature of the policies is important, but my noble friend is absolutely right that people need to see improvements in their lives much sooner than that, because obviously they have lived through the cost of living crisis brought about by the previous Government. We need to see those cost of living improvements quickly.
One of the funds established yesterday was the pride in place fund. It is important that people see improvements quickly in their local communities. We also announced funding for the warm homes plan, with a total of £13 billion allocated across this Parliament to improve the energy efficiency of people’s homes. We did a big boost to social and affordable housing, with £39 billion, and expanded free school meal eligibility in England to all children with a parent receiving universal credit. We invested more to fund childcare entitlements for working parents. We funded the freeze to prescription charges at below £10 over the spending review period, and we launched a new crisis and resilience fund to help families when in crisis.
Lord Lansley (Con)
My Lords, the Minister will recall the table to the spending review which lists the departmental expenditure limits. Within that there is a line for the reserve, which I assume is essentially the contingency reserve. I recall that, back in 2023-24, the contingency reserve was over £9 billion, and that was completely blown and we had to have supplementary estimates. The table shows that, for phase 2, the reserve is at 1% of the totals for DEL and does not increase over the three years: it goes from £6.7 billion, to £6.7 billion, to £7.1 billion. This seems to be an inadequate figure for contingency that far out and is not, as one would expect, a rising figure—a wedge of contingency—in the later years. I wonder whether the Minister might explain why that wedge does not appear as one would have expected.
Lord Livermore (Lab)
If I may say so, the rising wedge, as the noble Lord describes it, is his analysis. It clearly is not analysis shared by the Government. I do not know whether it is based on any economic theory. It may be, but it is clearly not one that the Government share, because they are the numbers that the Government have set out.
Baroness Andrews (Lab)
My Lords, one of the most welcome aspects of the spending review is the terrific increase in science and technology spending, which will drive innovation across the country. It is long overdue, especially as it is now linked to Horizon, with an explicit reference to the building of new partnerships and new skills. I hope we can attract some of those American scientists who are now rather destabilised, shall we say, by the Trump Administration.
My question is about how housing fits into the growth agenda—it clearly does. One of the most explicit elements is the new towns programme, which is lined up not just to fill housing need but to drive housing growth and economic growth linked to infrastructure in different parts of the country where we need that growth. Can the Minister just tell me how that fits into the £39 billion now made available for affordable and social housing?
Lord Livermore (Lab)
I absolutely agree with my noble friend—both where she started and indeed where she ended. I completely agree about the importance of innovation and the spending that we have been able to do in this spending review. As I have said before, the industrial strategy will be published in the coming weeks. Clearly, innovation and R&D are vital to those high-growth sectors. She also talked about the importance of partnership, and that sits at the heart of the industrial strategy—a partnership between government and business, helping to systematically remove the barriers to growth. As my noble friend will know, we have increased public funding on R&D to a record high of £22.6 billion in the spending review.
My noble friend talked about housing and its link to growth. I completely agree that, for too long, people have not been able to live anywhere near the jobs that they want to do because they have not been able to afford the housing to be close to those jobs. That is absolutely not good for growth. I am certain that the £39 billion we are investing will help us to begin to tackle that.
Baroness McIntosh of Pickering (Con)
My Lords, the noble Lord will recall that the Government were elected on a promise of ending the housing of refugees in hotels within 12 months of being elected to office. For what reason have the Government now decided to continue to house refugees in hotels until the end of this Parliament?
Lord Livermore (Lab)
Probably because of the inheritance that we faced from the party opposite, which did absolutely nothing to tackle or fund that issue. We have funded it in the spending review on the terms that the noble Baroness set out.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, in contrast to the moaning dirge we have from the Front Bench opposite, my inbox is full of emails congratulating the Government on the spending review, and from some unexpected sources, such as Liz Cameron, director of the Scottish Chambers of Commerce, who welcomes the Acorn carbon capture go-ahead, the defence expenditure and the Edinburgh University supercomputer. That is a great welcome, but will the Minister confirm that the money being allocated to the Scottish Government is the largest ever grant since devolution? Will he do everything he can to make sure that that money is spent efficiently, effectively and according to our priorities?
Lord Livermore (Lab)
I am grateful to my noble friend for giving me the feedback that he is receiving. He is absolutely right to highlight the incredibly important things we have done in the spending review for Scotland, such as the investment of £8.3 billion over the Parliament in homegrown, clean nuclear power, alongside establishing a new government campus for energy that draws on the world-leading engineering expertise in Aberdeen, the Acorn carbon capture and storage project that he mentioned, and £750 million for a new supercomputer at Edinburgh University. Those are all genuinely exciting developments.
As my noble friend said, this is a record settlement for the Scottish Government since devolution in 1998. They will receive £50.9 billion per year on average between 2026-27 and 2028-29, including an additional £2.9 billion per year on average through the operation of the Barnett formula and £451 million of targeted capital funding in addition. My noble friend asked how we will ensure that that is spent on our priorities. Obviously, the best way to do that is to ensure that people vote Labour at the next election.
Baroness Coffey (Con)
Like my noble friend on the shadow Front Bench, I was surprised that the review suggested that a benefit-cost ratio of less than one could still be considered value for money. It also committed to publishing the BCR for all the cases. Can the Minister say when that will happen and whether it will also include projects from the NHS?
Lord Livermore (Lab)
The noble Baroness referred to the review of the Green Book. Its six key findings were that there was insufficient emphasis on place-based objectives; ineffectiveness at assessing transformational change; continued overemphasis on benefit-cost ratios in decision-making; overly long and complicated guidance; inadequate capacity and capability across the public sector; and poor transparency around appraisal. We will set out the information that she requires in due course.
Lord Northbrook (Con)
My Lords, I particularly welcome the extra nuclear expenditure in the spending review. However—
Lord Brooke of Alverthorpe (Lab)
My Lords, I join the House in wishing the Minister a very happy birthday and many more of them ahead. I too welcome yesterday’s Statement. We feel as if we are turning the corner and starting to take a longer view, which we have not had expressed by politicians for quite some time. It is true that there are risks for us and, given the instability in the world, it is desirous that we are not too inflexible about how we look to change our minds as needs require it when circumstances change. I do not like to see us digging in too firmly in saying that we will not change this or that when circumstances may force it.
In looking at our tax system, investment is one of the ways in which we will see progress be made, and Statements will be made on that very shortly. One of the things the Government—and, indeed, all parties—ought to look at is the way we try to maximise opportunities for raising funds. It is high time that council tax was subject to a review. It is way out of touch with reality and is now being run very unfairly. I suggest to the Government that, as they look at wider tax reform, they look in particular at council tax and at changes to make it fairer and more productive in paying for these investments.
Lord Livermore (Lab)
I agree very much with what my noble friend said to begin with about uncertainty. I think he was talking about the increasing global headwinds we face as a country when it comes to the economy and about the importance of stability; I completely agree with him. The IMF, for example, in its most recent report when it upgraded its forecasts for the UK economy, said that our fiscal strategy is striking a
“good balance between supporting growth and safeguarding fiscal sustainability”,
and that our
“Growth Mission focuses on the right areas to lift productivity”.
On spending, it concluded that our plans are “credible and growth-friendly”, and
“are expected to provide an economic boost over the medium term”.
I am afraid that I do not agree with the points my noble friend made on council tax towards the end of his question.
Baroness Walmsley (LD)
My Lords, the Minister mentioned pride in place recently. It is understandable that people have pride in the place where they live. One of the indications of that is the number of volunteers who come forward to work in the Britain in Bloom scheme, but some volunteers have told me that there has been an enormous amount of vandalism, tearing apart the beautiful plantings that unpaid volunteers have made to beautify their local area and which have been much appreciated by local people. They say that part of the problem is there are not enough police on the beat and that, even when they have CCTV evidence and can identify the perpetrators, the police do not have time to do anything about it. I have heard from the police that the settlement for the police will not be adequate for the increased number of police that has been promised. Can the Minister give any cause for optimism to all those volunteers who work so hard?
Lord Livermore (Lab)
I am grateful to the noble Baroness for what she says, and I agree with her about the importance of pride in place and the difficulties around vandalism, graffiti, fly-tipping and so on. That is exactly why the pride in place fund was established: to tackle some of those really difficult local issues. When it comes to police funding, the Government increased investment in policing yesterday, and the spending power of our police will increase by 2.3% in every year of this Parliament, which is around £2 billion extra for the police. I hope the noble Baroness can take that back to the people she talks about and give them the optimism and reassurance she asked for.
Lord Northbrook (Con)
My Lords, I particularly welcome the extra nuclear expenditure in the spending review. However, the IFS director, Paul Johnson, said that his think tank was “baffled” by the Chancellor’s spending review. He said that the Chancellor will
“have all her fingers and all her toes crossed”,
but that OBR borrowing and growth forecasts are not downgraded for the autumn, which will
“almost certainly spark more tax rises”.
Can the Minister say whether that will be the case, or will there be more borrowing?
Secondly, supporting my noble friend Lady Altmann’s point about encouraging investment in UK-quoted equities, can the Minister give his views on how insurance companies and pension funds could be encouraged to devote more assets to the quoted areas of these markets?
Lord Livermore (Lab)
The noble Lord started by welcoming nuclear, and then seemed to say that the fiscal position was not what he would like it to be. I feel as if he needs to choose which lane he wants to be in in that respect. Will he support the measures we have taken and support the change to the fiscal rules, or support the spending? I am not sure that he can both oppose the way to raise the money but then support the way we are spending it.
On the second part of his question, we have set out very clear pension reform. We may not agree on that specific point, but I hope we agree on our objective, which is to get more pension fund investment into the UK economy.