Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
My Lords, no votes are anticipated so the Bell really should not ring, but if it does, noble Lords know the drill already, so let us kick off.
I call the noble Baroness, Lady Smith of Malvern—sorry, I see it is the noble Baroness, Lady Blake of Leeds.
Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2026
Baroness Blake of Leeds
That the Grand Committee do consider the Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2026.
Relevant document: 51st Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
Baroness in Waiting/Government Whip (Baroness Blake of Leeds) (Lab)
My Lords, unfortunately, my noble friend Lady Smith is unwell, so I shall speak to the draft Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2026. To begin with, I should take this opportunity to explain that within the Explanatory Note there was a discrepancy, in that the percentage increase for 2026-27 was stated as 2.7%, whereas it should be 2.71%, and the percentage increase for 2027-28 was stated as 2.8%, whereas it should be 2.68%. I can reassure Members that a correction slip has been arranged.
I thank the Secondary Legislation Scrutiny Committee for its scrutiny of the draft regulations. This statutory instrument, which was laid in draft on 5 February, will increase the limits on tuition fees that higher education providers can charge students studying undergraduate courses at approved fee cap providers in the 2026-27 and 2027-28 academic years. The SI preserves the fee limits for lower-fee foundation years at 2025-26 levels for 2026-27 and 2027-28. A separate SI making changes to maximum fee loans and student support for the 2026-27 academic year was laid before the House on 12 February.
As many Members have previously acknowledged in this House, our higher education sector is one of our country’s most valuable strategic assets, one that we should feel proud of and endeavour to protect, so that future generations of students can continue to benefit from it. Our higher education sector is admired across the globe. International students from all over the world choose to study here, making an enormous contribution to the sector, to the economy and to society as a whole. Our universities are home to world-leading research across a broad range of sectors including clean energy, digital technologies and life sciences.
The Government have set out a clear vision for the future of the sector in the Post-16 Education and Skills White Paper—a vision for a sector that drives economic growth, delivers a world-leading, high-quality experience for all students, provides national capability and increases the UK’s international standing, while also delivering regional impact for everyone who lives in this country.
There have been countless examples heard in this House about how providers are anchors in their communities, helping to break down barriers to opportunity, supporting local businesses, strengthening social cohesion and delivering important local jobs as well as outreach. Higher education providers transform the lives of the students who attend them, not only by enabling them to boost their incomes and progress in a career that they choose, but by enriching their lives through new experiences and allowing them to develop life skills, grow their networks and experience new perspectives.
However, this House has spoken at length about the challenges the sector faces. A growing number of providers are facing financial challenges. Analysis from the Office for Students from November 2025 suggests that, without mitigating action, 45% of providers could face a deficit in 2025-26. Indeed, English providers are contending with a number of financial pressures, one of which is the £1.7 billion aggregate loss on domestic teaching and the need for providers to draw on other income to cover it. Such challenges have been unaddressed for far too long, and seven years of frozen tuition fees plus overly optimistic strategic and financial planning and potential issues with governance have contributed to the financial challenge facing providers.
The Government took the immediate action needed and responded by increasing fee caps for the 2025-26 academic year and by also making reforms to the Office for Students. But the Government must go further to ensure that our higher education sector is put on a secure footing, to allow it to face the challenges of the next decade and to ensure that all students receive the world-class education they deserve. Government and the sector have a shared interest in fully realising the benefits of higher education for students, taxpayers, the economy and wider society. Government has a responsibility to ensure that the higher education sector is suitably funded, and the sector has a responsibility to ensure that it delivers the best value for students and maximises its contribution to our economy and society.
This SI is intended to put our higher education sector on a more secure footing and provide greater certainty over future funding, so the sector can focus on delivering quality provision. It will mean that, for the 2026-27 academic year, from 1 August 2026 onwards, tuition fee limits for undergraduate courses will increase by 2.71%, and for the 2027-28 academic year, from 1 August 2027 onwards, by a further 2.68%, in line with forecast inflation, based on the RPIX inflation measure. This means, for example, an increase from £9,535 to £9,790 for a standard full-time undergraduate course in 2026-27, and an increase to £10,050 in 2027-28.
Increasing fees for the next two academic years will mean that providers have greater certainty and can focus on delivering the Government’s ambition for a more specialised and more efficient sector that is better aligned with the needs of the economy. This will provide long-term certainty over future funding for the sector. We will then legislate, when parliamentary time allows, to increase tuition fee caps automatically for future academic years. These annual increases in fees, linked to inflation, will balance the need to give the sector stability with fairness to students and taxpayers.
I understand that this may raise concern about the affordability of higher education for students, but the Government are committed to ensuring that higher education is open to all who have the ability and desire to pursue it. The student finance system removes upfront financial barriers and provides additional support to those with the greatest needs, so that higher education is open to all. The Government are already making improvements to the student finance system that we inherited. To help students from disadvantaged backgrounds progress and excel in higher education, the Government are reintroducing targeted, means-tested maintenance grants of up to £1,000 per year, from academic year 2028-29. The Government have also committed to future-proof our maintenance support offer by increasing loans for living costs with forecast inflation every academic year from 2026-27 onwards.
The OfS has consulted on its future approach to quality. It will continue to hold providers to account for the outcomes that they achieve for their students, and this Government will ensure that only high-performing providers are able to charge the top rate of fees. Eligible students can continue to apply for upfront fee loans to meet the full cost of their tuition.
It is also important to remember that student loans come with a range of unique protections designed to support borrowers throughout the lifetime of the loan. Unlike commercial loans, student loan repayments are calculated solely on a borrower’s earnings, not on the amount borrowed or the rate of interest applied. Any outstanding balance, including interest, is cancelled at the end of the loan term, with no detriment to the borrower, and student debt is never passed on to family members or descendants.
The Government’s ambition is to have a more sustainable, more specialised and more efficient sector, which aligns with the needs of the economy. It is vital that higher education continues to contribute to closing the gap between people from disadvantaged backgrounds and their peers. The Government want to recognise each provider’s unique contribution and encourage them to capitalise on their comparative advantage. The Government are not going to force this specialisation; it is clear that the diversity of the sector is a strength, but each provider needs to be clear on its distinctive role in the system and move away from a one-size-fits-all approach. Each provider needs to be well run, collaborating with others to deliver the best value for students, and to operate as efficiently as possible.
In December, the Government announced reforms to the research excellence framework—the REF—to ensure that it better supports curiosity driven research, government missions, industrial strategy priorities, innovation and commercialisation. It will also reduce administrative burden and encourage greater collaboration and specialisation across universities. At the same time, the Government will protect and grow quality related research funding and redirect some UKRI funding toward areas of strategic national importance, while addressing sustainability challenges in the sector.
To conclude, this SI will put our higher education sector on a more secure footing, enabling it to continue to deliver the world-class higher education that current students and those in future generations deserve. I beg to move.
Lord Mohammed of Tinsley (LD)
My Lords, as we heard from the Minister, the purpose of this statutory instrument is an increase in tuition fee limits, indexed to inflation. The Minister has presented this as a technical adjustment that is necessary to maintain financial stability in our higher education sector. However, we must be clear: there is nothing merely technical about increasing the cost of accessing education. This is a decision with profound consequences for students, social mobility and the very character of our universities.
We recognise the genuine financial pressures facing higher education institutions. Years of frozen fees, rising costs and uncertainty over overseas students have created a challenging environment. Universities must be properly funded if they are to continue delivering world-class teaching and research. However, this instrument places the burden of that funding disproportionately on students, many of whom are already carrying significant debt and facing difficulties during this economic downturn. Our position is clear: we cannot support a policy that increases fees without wider, fairer reforms of higher education funding. Simply uprating fees by inflation risks entrenching a system that is already failing too many. It does nothing to address the long-term sustainability of the sector, nor does it tackle the inequalities faced by students from disadvantaged backgrounds.
Moreover, this approach lacks ambition. Many will ask, “Where is the comprehensive strategy for higher education? Where is the consideration of alternative funding models, maintenance support and lifelong learning?” Piecemeal adjustments such as this do not meet the scale of the challenge before us. There is a question of timing and fairness. At a moment when students and graduates are grappling with the cost of living, and when young people are questioning the value and affordability of higher education, this Committee should be wary of endorsing measures that risk further deteriorating participation.
In that spirit, I ask the Minister three questions. First, what assessment has been made of the impact of these increased fee limits on the participation of students from lower-income backgrounds? Secondly, can the Minister set out whether the Government intend to bring forward a comprehensive review of higher education funding—and, if so, when—rather than continuing with the incremental adjustments? Thirdly, what consideration has been given to increasing maintenance support alongside these fees changes to ensure that students are squeezed no further by the cost of living?
We must not accept a false choice between underfunded universities and overburdened students. By the way, I should declare my interest, as I have done on several occasions previously: my daughter is in the first year of her degree at Sheffield Hallam University, so she may well be impacted by this change.
The Earl of Effingham (Con)
My Lords, like the noble Lord, Lord Mohammed, I would like to register my interest: my daughter is a first-year student. These changes will probably not impact me because she pays and has a student loan, but, just for the record, I have a daughter who is at university and has a student loan.
I welcome the opportunity to speak to these higher education regulations, which His Majesty’s loyal Opposition oppose. These regulations will once again push tuition fees higher for students. The noble Lord, Lord Mohammed, quite correctly said that they will have profound consequences for students. Under this SI, the maximum fee cap will rise to £9,790 in 2027 and exceed £10,000 the following year. This comes despite repeated promises from both the Secretary of State for Education and the Prime Minister that graduates would pay less under this Government. That is simply not the case. Fees were already raised last September for the first time in eight years, and repayment thresholds have been frozen. As many noble Lords understand, this is effectively a tax rise on graduates.
Baroness Blake of Leeds (Lab)
My Lords, I will respond to the comments of both noble Lords together, since they raised similar, although not identical, themes. I thank them both for contributing to today’s debate. Of course, this is an exceptionally topical subject, on which there have been three OQs recently in as many weeks, so it has been much highlighted.
I reiterate the importance of the SI for putting our higher education sector on a secure footing and providing greater certainty over future funding. Obviously, we have heard many views today and previously about the importance of the sector, not only for students themselves but for economic growth, world-leading research and the contribution that it makes to communities. I do not want to dwell on this, but I have to wonder at the comments of the noble Earl, Lord Effingham, given the lack of action from the previous Government, when it was clear that the higher education sector was heading into very difficult circumstances yet there was no sense of commitment.
I emphasise that running through all our work on this is fairness and sustainability. There needs to be fairness to all students who apply, by making sure that access is open to all—a point which perhaps both noble Lords did not emphasise enough. To too great an extent in the past, family wealth and ability to pay were hugely determinative in whether young people went to university. This Government have made the commitment that we will make sure that quality education is open to all.
On that issue of quality, which both noble Lords raised, I again emphasise that the UK higher education sector is a world-leading sector in our economy that creates opportunities and supports local communities. But, as both noble Lords rightly said, we have to make sure that we root out any low-quality provision wherever it may exist. That is why the Office for Students has driven forward significant regulatory reform in recent years, strengthening its regulatory tools, holding higher education providers to account for the quality of their provision and investigating where there are risks to the students’ best interests.
We are determined to ensure that higher education providers go further in giving their students the best course, making sure that they work individually but with links to employment outcomes and to our industrial strategy, by ensuring that student destinations are a factor in considering providers’ performance. Sir David Behan’s independent review highlighted that, and we are working through the recommendations in supporting institutions to implement a more integrated quality system through the teaching excellence framework. The aim is for a regulatory approach that combines tackling poor quality with a greater focus on driving continuous improvement for all registered providers.
To answer the noble Lord’s concerns, that approach will be proportionate and will reward the highest-quality provision. That was clearly laid out in our Post-16 Education and Skills White Paper. In the future, the Government plan to make fee uplifts conditional on providers achieving a high-quality threshold through the OfS’s new quality regime.
I am also delighted to emphasise that the Government are bringing back maintenance grants and, through maintenance loans, helping undergraduates from the most disadvantaged backgrounds to progress and excel in higher education. The Government will future-proof the maintenance loan offer by increasing loans for living costs in line with forecast inflation every academic year from 2026-27 onwards. I hope that addresses the concerns.
We are ensuring that students from the lowest income families receive the largest year-on-year cash increases in support and providing students with long-term financial certainty on the financial support they receive while studying. Maximum loans will rise by 2.71% across 2026-27. In addition, vulnerable groups of students who are eligible for benefits—such as lone parents, some disabled students and care leavers—are all exceptionally important and we must make sure that we support them. I am delighted that many local authorities, as well as universities and other institutions, are looking at how they can further support disadvantaged students.
The noble Earl, Lord Effingham, raised the issue of repayments. I reassure him that, when it comes to students repaying their loans, their monthly repayments will not increase because of the changes to the fees or maintenance support. Student finance works very differently from standard consumer lending. Repayments are determined solely by a borrower’s income rather than the total amount borrowed or the interest that accrues. Those earning below the repayment threshold will make no payments at all. At the end of the repayment period, any outstanding balance—including any accumulated interest, which I mentioned earlier—will be cancelled in full.
We have to be realistic: we inherited a terrible fiscal situation and some of the decisions we are making are tough but necessary to protect both taxpayers and students. On the question about the review, there is a continuous review into student finance to ensure that it remains fair, sustainable and supportive of students from all backgrounds. I know there is a lot of interest in this area at the moment, so I reassure noble Lords that these matters are constantly under review. I cannot be more specific about where we may go.
I think we have agreement across the Grand Committee that the higher education sector is one of the country’s most valuable strategic assets. We need to protect it on behalf of the institutions themselves, while making sure that future generations of students can continue to benefit from it. The system of course has financial challenges but, despite that, the number of students from disadvantaged backgrounds has not diminished as was feared. That is due, I think, to the extensive work in engaging with them to make sure that they feel that the courses on offer are for them. We know that seven years of frozen fees have contributed to a significant real-terms decline in providers’ incomes. I hope that that addresses the noble Earl’s concerns.
The Government and the sector have a shared interest in fully realising the benefits. The Government have already taken decisive action to boost income, as I have outlined. We of course need to do more. We need to keep reviewing this and making sure that stability runs through this very important sector. However, to be absolutely clear again, the Government continue significantly to subsidise the HE system. In addition to the subsidised fee loans provided to students last year, the Government also provide support to world-leading research. That is why this statutory instrument will increase, for a further two years, the limits on tuition fees that higher education providers can charge students studying undergraduate courses. With those comments, I commend the regulations to the Grand Committee and hope to get approval from other noble Lords.
Further Education (Initial Teacher Training) Regulations 2026
(1 day, 4 hours ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Blake of Leeds
That the Grand Committee do consider the Further Education (Initial Teacher Training) Regulations 2026.
Relevant document: 50th Report from the Secondary Legislation Scrutiny Committee
Baroness in Waiting/Government Whip (Baroness Blake of Leeds) (Lab)
My Lords, I thank the Secondary Legislation Scrutiny Committee and the Joint Committee on Statutory Instruments for their scrutiny of this instrument. These draft regulations were laid in Parliament on 22 January 2026.
As noble Lords will be aware, the quality of teaching is critical to securing the best outcomes for pupils, learners and students in all parts of our education system, from early years right through to adult education. In October last year, the post-16 education White Paper set out an ambitious vision for the future of our skills system in England. The further education sector is the driving engine of that vision. We must ensure that high-quality teaching is hard-wired into our colleges and training providers.
We are taking decisive steps now to improve and secure the quality of teacher training for the FE sector. Ensuring that there is an accessible, attractive and high-quality training offer for new teachers will help improve the recruitment and retention of teachers in the FE sector, contributing to the Government’s commitment to recruit an additional 6,500 teachers for our schools and colleges. It will also send a clear message about our focus on securing high and rising standards of teaching in our colleges.
This instrument marks an important step towards creating a regulated system of teacher training for FE, covering the full range of providers delivering relevant courses across the sector and based on clear, evidence-based quality standards. It dovetails with the focus on quality that comes with the new Ofsted inspection framework for initial teacher education, which will now encompass significantly more FE teacher training providers than it previously did.
For many years, successive Governments have focused efforts on securing standards of teacher training for our primary and secondary schools—with considerable success—but, until recently, that focus had not been extended to how well our FE teachers are being prepared. There is excellent practice in parts of the system, and regulation must not constrain or discourage innovation and excellence. However, there is too much inconsistency across the sector, and some deeply concerning examples of poor practice in FE teacher training have emerged in recent years. Trainees have not always been guaranteed a high-quality training experience that prepares them to be great FE teachers, and employers have not always been assured that teacher training courses are equipping new teachers with the skills and knowledge they will need.
The regulatory system created by these regulations will place new requirements on all providers of specified FE teacher training courses in England. This includes universities, colleges, training providers and any other organisations delivering such courses. These providers will be required: to have regard to guidance issued by the Secretary of State on the curriculum content of FE teacher training programmes; to have regard to guidance on delivery standards for FE teacher training courses; to register with the Department for Education as a provider of FE teacher training courses; and to submit regular data and information to the Department for Education relating to any specified FE teacher training courses provided.
These measures are proportionate but significant in their intended impact. For the first time, we, employers and potential new teachers will have clear sight of what teacher training provision is being offered, where and by whom. Such transparency is a key ingredient of a quality-focused system. That focus will be enhanced further by requiring all providers of specified courses to have regard to clear, evidence-based standards on course delivery and curriculum content.
DfE officials have worked closely, over a sustained period of time, with stakeholders from the FE provider and teacher training sectors. There is widespread consensus that the approach we are pursuing will deliver a clear, positive dividend in driving up standards, while ensuring that providers continue to have the flexibility they need to exercise their own professional and expert judgment.
These measures have been shaped by public consultation, a formal call for evidence and sustained engagement with professionals from across the sector. I record my thanks to all those who have contributed their time and expertise to the process.
Particular thanks are due to the expert group convened by the Department for Education, chaired by Anna Dawe OBE, principal of Wigan and Leigh College, one of the first technical excellence colleges, which has played a pivotal role in advising on the evidence for high-quality content in FE teacher training. I beg to move.
Lord Addington (LD)
My Lords, as the noble Baroness, Lady Blake, has just said, this statutory instrument is probably well overdue. It is something that we have not looked at, because Governments of whatever colour or combination really just did not get around to it. So, I congratulate the current Government on having taken this first step.
Being as fair as I possibly can be, they are starting on a process that may not get the standards we want consistently for something like a decade. There are existing staff structures going through and there is the institution of training. Every standard will take time to bed in and normalise, and it will take time to find out where it has have worked and where it has not. This is not so much a criticism as an observation of what is obvious. It will take time.
Having said that, I do not have any objection to the SI, but it would be interesting to hear some of the things that will be needed to speed up the process of guaranteeing the quality. One is continuing professional development and how we are going to bring up the standards of those teachers already in place, who may be below the standard of what we would want. What is going to be done to intervene to do that? This will vary across the board.
We are dealing with a huge number of students here, every bit as wide as the school system. Their degree of success or failure has probably meant they have ended up in the further education system. Let us face it: as both the previous and current Government have said, even with improved career information and guidance, people are ending up there because they have not succeeded or have not been perceived to be succeeding to the highest level. How are we getting through to these students who may not have succeeded very well?
This brings me on to the subject—which I am sure the noble Baroness would have been disappointed if I had not raised—of special education needs. The new White Paper talks of early identification. The fact that it is being said that this needs to be improved means that people going through this system stand a very good chance of not having their needs identified or having the support structures there. It is a historical problem, and this Government just happen to have been brave enough to hit the wave and go through with it. So, what will they do to improve that structure to get these students through?
A high percentage of people on level 1 or 2 courses will almost certainly have special educational needs. What are we doing to identify these and make sure their teacher has the access to both the knowledge and in some cases the technology—I remind the Grand Committee of my interest with Microlink—so they use the right stuff and identify the right assistive technology to get their students through? Recognising there is a problem and not giving them more of the same is very important for these groups, because they have failed with more of the same already—so you need to work smarter to deliver.
Making sure that is done will mean we stand a better chance of getting people who are in the training phase of their lives, getting ready to go out and earn a living, to actually benefit from this. It would be normal to expect those providing this training to be able to identify whether people can do this. It also means that other support provided in adult life to enable people to do this can be identified through jobcentres et cetera. Whatever people are doing out there, it has to be identified, and they need to be accessed.
We are dealing with a historical problem here; it has been recognised by the previous Government, and we have started taking steps, but what is going to be done? In other words, we thank the Government for this, but what are we going to do to bring the rest of the staff up to the standard? When it comes to special educational needs provision, what are you going to do to identify those on the margin in particular, who are failing—often just failing—because they are not getting that little bit of help?
Baroness Garden of Frognal (LD)
My Lords, further to what my noble friend has just said, can I say that there used to be a very highly regarded City & Guilds qualification for teachers in further education, which virtually all of them held? Of course, teachers in FE are nearly always also practitioners, so they spend time actually doing the thing that they are teaching about. It is really important that that is reviewed as well.
I agree with what the Government are doing, but the biggest worry about FE is with the scale of pay. FE teachers are paid considerably below schoolteachers; they often have a bigger burden to bear—they have a very wide variety of students of different ages, and they get landed with things like the resits for GCSE maths and English, which is just iniquitous. What are the Government doing to address the pay of FE teachers, who are fundamental if we want to upgrade the skills of the country?
The Earl of Effingham (Con)
My Lords, His Majesty’s loyal Opposition agree that all initial teacher training courses should set and achieve the highest possible standards so that every learner benefits from high-quality teaching. There is no disagreement across this Committee about the importance of well-trained teachers in further education. The sector plays a crucial role in equipping people with the skills that they need to succeed and thrive, and the quality of teaching is central to that mission.
The Government’s own assessment makes clear why action is needed. The current system has led to inconsistency in provision, and Ofsted has expressed serious concerns about the quality of some courses. That is not acceptable for trainee teachers, employers or students. In that context, introducing a clearer framework for initial teacher training in further education is a reasonable step. Establishing expectations around course content and delivery and requiring providers to meet them should help to drive greater consistency across the sector.
However, there are important questions about how this framework will operate in practice. Its success will depend heavily on effective oversight and enforcement. The Government have made it clear that compliance will be monitored primarily through Ofsted inspections, yet they also acknowledge that this will place additional demands on the system, with further resourcing decisions deferred to future fiscal events. So it should be fair and reasonable to ask how the Government will ensure that Ofsted is provided with the adequate funding that it needs to carry out this role properly. Without sufficient resource, there is a real risk that these new standards will exist on paper but not be consistently upheld in practice.
More broadly, your Lordships’ House will note that the Government have left open the possibility of further intervention in future, including tighter controls over the provider market. That underlines the importance of getting this right now and ensuring that the system is both robust and workable from day one.
In conclusion, we support the principle that initial teacher training in further education must be of the highest quality. However, the Government must ensure that the necessary resources and oversight are in place so that these reforms can be meaningful in practice.
Baroness Blake of Leeds (Lab)
My Lords, I thank the noble Lords and noble Baroness for their contributions to this important discussion. I personally had the benefit of attending an FE college and, from a very early age, I recognised the extremely important contribution that FE makes to our rich landscape of educational provision.
I will try to pick up the main points made across the discussion. This Government are absolutely focused on improving the quality of teaching across the whole education system. This is an important turning point for FE teacher training. We have to be honest—— I hope noble Lords will recognise this from previous years in government—that it has been the Cinderella of the teacher training system for too long. We have to emphasise the Government’s commitment to promoting high and rising standards in teaching, recognising that there are examples of exceptionally good practice. We need to make sure that that excellence is protected and that trainee teachers and their employers have full confidence in the training they receive.
Lord Addington (LD)
Actually, there is quite a lot of good practice and basic support in virtually all further education institutions. For things such as information capture, there is a standard for everywhere. It can be used in a few ways; for example, lectures and so on can be taped and transcribed into any digital or written format you like. Have the Government looked at using this more roundly in colleges—especially those colleges that also provide higher education—as an extra way of supporting people who have problems with, for instance, note-taking? Dyslexic and dyspraxic people would be the classic example of that.
Baroness Blake of Leeds (Lab)
We are always grateful for the noble Lord’s insight into these areas, but we know that FE colleges are incredibly inclusive. We must, as I think the noble Lord is suggesting, look out for good practice and make sure that, where we see it, it is replicated and becomes the norm. That is the exact point: we have patchy provision. We want to make sure that, wherever young people go to study, there is a good standard right across the piece. We also want to make sure that the transition between different stages is smoother and information exchange between the different settings much more user-friendly. We collect data, but I do not think we use it effectively enough to assist teachers in making sure that their students get off to the flying start they need.
In her comments on pay, the noble Baroness, Lady Garden of Frognal, in fairness, highlights an important area. The latest data show that the average salary for FE college teachers increased by 6.1% in 2023-24, compared to 2022-23, but the Association of Colleges and the Sixth Form Colleges Association recommended a 4% increase for FE teachers in 2025-26. Actual pay awards are decided in colleges in line with local circumstances. In May 2025, the department announced a further investment of £190 million for colleges and other 16-to-19 providers, in addition to the £400 million of extra funding that we are planning to spend on 16-to-19 education. A significant amount of funding is going in and we want to make sure that these issues are addressed.
On the Ofsted comments, mentioned by the noble Earl, Lord Effingham, the Secretary of State recently wrote to the chief inspector confirming that funding will be made available in the year 2026-27, to ensure that Ofsted can have an impact in the first year of the new four-year inspection cycles. Future funding will, of course, be subject to fiscal events.
I have tried to gather information from, and respond to the information given in, the comments made and the questions asked. I hope noble Lords will feel reassured that every aspect has been addressed with extreme seriousness, recognising just how important the FE sector is and how important it is for learners to feel supported in every setting, responding particularly to their needs. The proposed measures enjoy wide support from across the FE and teacher training sectors and have been developed in close collaboration with leading experts and representatives from those sectors. I commend the regulations to the Committee.
Data (Use and Access) Act 2025 (Consequential Amendments and Transitional Provision) Regulations 2026
Lord Leong
That the Grand Committee do consider the Data (Use and Access) Act 2025 (Consequential Amendments and Transitional Provision) Regulations 2026.
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, these regulations were laid before the House in draft on 2 February. They make consequential amendments to references to the Information Commissioner and their office—the ICO—across the statute book. They reflect the reforms to the regulator’s governance structure introduced by the Data (Use and Access) Act 2025.
Specifically, that Act abolishes the office of the Information Commissioner, which is a corporation sole, and transfers its functions to a new body corporate—the Information Commission—led by a chair and a chief executive, as well as other executive and non-executive members with collective decision-making responsibilities. This will increase diversity and resilience at the very top of the organisation, so that the Information Commission can function effectively with integrity and independence. It will also bring the commission in line with how other regulators, such as Ofcom, are governed.
These regulations prepare the statute book in anticipation of the transfer of functions from the ICO to the new Information Commission later in spring this year. They will ensure that the statute book is coherent, consistent and provides full legal clarity to support the transition from the ICO to the Information Commission. The regulations also make amendments to the title of the regulator across relevant Scottish, Welsh and Northern Irish legislation, on which devolved Governments were consulted.
In addition, Regulation 3 contains a transitional provision that provides for the Information Commissioner to retain their existing pension arrangements for the duration of their tenure as first chair of the Information Commission, a role that the Information Commissioner assumed on commencement of Schedule 14 to its parent Act on 20 August 2025, under paragraph 2(2) of that schedule.
Finally, the regulations also contain three minor and technical amendments to the Data Protection Act 2018, in consequence of Sections 67 and 91 of the Data (Use and Access) Act. These changes are intended to signpost references correctly and to reflect numbering changes, and do not have substantive legal effect. The consequential amendments, alongside the transitional provision and other minor and technical amendments contained in these regulations, will facilitate the smooth governance transition from the Information Commissioner’s Office to the new regulator, the Information Commission. I beg to move.
Lord Clement-Jones (LD)
My Lords, I thank the Minister for his introduction. Of course, we recognise that this instrument is a technical necessity. It ensures that the statute book remains coherent as we transition from the Office of the Information Commissioner to the new Information Commission. Obviously, not to agree these regulations would be to invite legal ambiguity across hundreds of pieces of legislation, from the Public Records Act to the UK GDPR.
However, accepting the technicality of this SI does not mean that we on these Benches have moved past our deep-seated reservations regarding the original Data (Use and Access) Act 2025. The Liberal Democrats argued throughout the passage of the original Bill that the governance upgrade that the Government describe is in reality a threat to regulatory independence. By replacing a singular independent Information Commissioner with a commission, the members of which are largely appointed by the Secretary of State, the Government have increased the risk of political interference. We remain concerned that the Act has weakened the rights of citizens, as we debated during the passage of the Act, and specifically we regret the reduced independence, with the new structure allowing the Secretary of State to have a greater hand in the commission’s strategic priorities.
Viscount Camrose (Con)
My Lords, I too thank the Minister for introducing these regulations. I note that he is having a spectacularly busy day. Clearly, these regulations are essentially technical in nature, as the noble Lord, Lord Clement-Jones, said, but they play an important role in ensuring that the statute book remains coherent following the passage of the Data (Use and Access) Act 2025.
That Act, as a partial continuation of the itself much-debated DPDI Bill, made a great many important changes, not least a significant structural change to the United Kingdom’s data protection regulator, replacing the previous officeholder model with the new corporate body of the Information Commission. The purpose of these regulations is therefore straightforward. They update references across the statute book so that legislation refers to the new body rather than the former Information Commissioner’s Office.
These are consequential amendments that are technical but necessary to provide legal clarity and continuity. We on this side recognise the importance of maintaining a regulatory framework that is both clear and workable. Data protection and digital regulation now sit at the heart of our modern economic and civic lives. In an increasingly digitised world, the institutions responsible for overseeing that framework must be capable of responding to fast and far-reaching technological developments while maintaining public trust.
The creation of the Information Commission as a board-led body is intended to support that objective by strengthening governance and resilience at the top of the organisation. Needless to say, structural reform is a necessary but not a sufficient condition for the regulator’s effectiveness. The commission’s responsibilities will continue to expand as new technologies and new risks emerge. It is therefore at least as important that it has the strategic clarity and operational capacity required to discharge its functions effectively. Will the Minister explain how the Government propose to ensure, today and in future, that the commission is able to balance two objectives, both vital to the United Kingdom: protecting individuals’ rights and privacy; and enabling innovation and economic growth in our digital economy?
It seems to me that without a principles-based adaptive approach, we are going to enjoy a great many repeats of this debate, in one way or another, as the Government of the day, of whatever flavour, struggle to keep up with emerging technologies. I look forward to the Minister’s response to the points raised by myself and by the noble Lord, Lord Clement-Jones.
Lord Leong (Lab)
My Lords, first, I am really grateful to the noble Lord, Lord Clement-Jones, and the noble Viscount, Lord Camrose, for their contributions. The Government are committed to the integrity of the new data protection regulator, the Information Commission. Having regulatory powers and responsibilities shared across an independent board, rather than vested in one individual as is currently happening under the Information Commissioner, will ensure diversity and resilience in the decision-making process.
As I have outlined, the Information Commission needs modern, effective governance structures in place to enable it to perform as a dynamic regulator and sustain its well-established international reputation. This ties in with the question that the noble Lord, Lord Clement-Jones, asked earlier about independence. These regulations, in line with the governance structures established by the Data (Use and Access) Act 2025, lay the foundations to achieve this. As I mentioned, the new governance structures model will safeguard the Information Commission’s independence. It is important that the regulator continues to operate independently, and the Government believe that having its responsibilities spread across a board with executive and non-executive directors will ensure greater independence and integrity. The new governance models will create greater clarity and certainty, allow for the appropriate public appointment processes by the Government and are commonplace for UK regulators.
The noble Lord also asked about the transfer of functions from the current ICO to the Information Commission. The Government are currently concluding the public appointments process for the Information Commission’s non-executive directors. DSIT is also working closely with the ICO to ensure operational readiness and a smooth transfer of all functions from the Information Commissioner’s Office to the Information Commission. A separate instrument containing commencement and transitional provisions will bring Sections 118 and 119 of the Data (Use and Access) Act into force, abolishing the Information Commissioner’s Office and transferring all regulatory and other functions from the ICO to the new Information Commission. This is due to occur later in spring—I cannot be clearer than that, I am afraid—and I am happy to keep the House informed on progress in this area.
Lord Clement-Jones (LD)
My Lords, I am sorry to interrupt the Minister, but there must be a planning date. If any private business were transforming itself, it would have a target date of April the 5th or 6th, or whatever it might be, but there seems to be no certainty here, and therefore the Minister does not even know when this statutory instrument will actually become live. It is important that it becomes live, I am assuming, on the same day that the transfer of functions takes place.
Lord Leong (Lab)
I said earlier that the appointment process is currently taking place. The current Information Commissioner will be chair, and the current CEO will be interim CEO until the new Information Commission is set up. The composition of the governing board—the executive and non-executive directors—is currently in process; we have appointed some, but not everybody. We have to get that first before we can decide on the date that everything is rolled over. That is the situation we are in.
Regarding devolved Administrations, the power to make consequential amendments conferred on the Secretary of State by Section 139 of the DUA Act, under which this instrument is being made, does not require the consent of the devolved Administrations. Nevertheless, in line with usual practice, the department has consulted with the Northern Irish, Scottish and Welsh devolved Administrations on the changes to legislation within their competence, and they are content with the approach taken in the instrument. Additionally, the Minister for Digital Government and Data has written to the relevant devolved Ministers to inform them of the nature and scope of the changes made to devolved legislation at the time of laying this regulation.
On the point made by the noble Viscount, Lord Camrose, about the functions of innovation and growth, I will have to come back to him on that.
We look forward to being able to announce in due course the conclusion of the appointments process, as I mentioned earlier, for the non-executive members of the Information Commission board. The board will provide independent oversight alongside constructive scrutiny and challenge to the complex, wide-ranging and important regulatory work of the Information Commission.
Renewables Obligation (Amendment) Order 2026
(1 day, 4 hours ago)
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Lord Whitehead
That the Grand Committee do consider the Renewables Obligation (Amendment) Order 2026.
Relevant document: 52nd Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, the renewables obligation scheme has incentivised UK renewable electricity generation through a system of tradeable certificates called renewable obligation certificates. Three separate but complementary renewables obligation schemes cover the UK: the RO and the renewables obligation Scotland—ROS—were introduced in 2002, and the Northern Ireland renewables obligation —NIRO—was introduced in 2005. The UK Government are responsible for RO legislation in England and Wales. The Scottish Government and the Northern Ireland Executive are responsible for the legislation of their respective schemes. Ofgem administers all schemes across the UK. The scheme is now closed to new applications—indeed, it was closed in 2017—but existing sites continue to receive support until the scheme ends in 2037. The scheme has been instrumental in taking a nascent renewable energy sector to where it is today, with the scheme supporting around 30% of total UK electricity generation.
Electricity suppliers are required each year to present a set number of renewables obligation certificates to Ofgem reflecting the amount of electricity they supply. Where a supplier does not present enough certificates, it must instead pay a buy-out price for each missing certificate. Those buy-out payments are then recycled back to suppliers that have complied, which supports the overall value of certificates and ensures the scheme operates in a fair and predictable way.
Earl Russell (LD)
My Lords, I thank the Minister for his introduction. I begin by recognising that this draft Renewables Obligation (Amendment) Order 2026 makes a specific and, on the face of it, sensible change in the way the renewables obligation is updated over time. By moving from RPI to CPI calculations for inflation, it should slow the growth of RO costs and in turn ease some of the pressures on energy bills paid by households and businesses. As the Minister said, during a new energy crisis when far too many families and households are living in fuel poverty and we are seeing rapid rises in our energy costs, we remain acutely conscious that many are watching every pound being spent on their energy bills. This SI, if everything goes to plan, as the Minister said, would save £1.9 billion over the next 11 years.
We therefore welcome the measures, as they are designed to reduce the cost of energy. However, bringing down bills cannot be separated from maintaining the pace of the clean energy transition and maintaining market confidence and those who finance it. As the Minister said, the RO has been instrumental in building our capacity, particularly for mid-scale onshore wind and solar. Many have made investment decisions years ago based on an understood indexing regime. Can the Minister tell us what assessment has been made of the impact on projects that have had financing assumptions predicated on RPI? How many generators are judged to face material changes to their expected revenues as a result? What modelling has been done to check whether these measures could have a disproportionate impact on those at the smaller end of the generating scale?
There is also, for us, the question of overall approach. From the Government’s point of view, this is a small, important, but technical, pragmatic and consumer-focused change. But, for many in the industry, this is yet another incremental tweak to the legacy schemes. I note that, of the 257 responses to the consultation, most did not support either option put forward, citing a preferred option not to change the system at all, based on concerns around investor confidence, minimal consumer benefit and a need—from their point of view—for financial stability and predictability. Do the Government accept that this kind of piecemeal pattern risks the possibility of further eroding investor confidence? That would not be because any one of the individual changes is huge on its own but because it creates a sense that the rules for existing long-term investments are constantly up for potential revision.
As the Minister said, the impact is £1.9 billion. The measures will curtail the existing revenue for RO generators—reductions of around 1% for the financial year 2026-27, which will rise to 5% by the financial year 2030-31. As we know, these are large-scale, long-term investment decisions, so even relatively minor changes can have, over a prolonged period, quite large and sustained impacts on what were expected revenue returns and investment decisions. The Explanatory Memorandum says that, overall, the department does not expect that there will be a disruptive effect on small generators. What does that mean in practice? How confident is the Minister in that statement? Also, how will this be monitored going forward? I note that there is no statutory review clause here, so how will any unintended impacts or consequences of the SI, once it is passed, be monitored? Furthermore, if there are unintended consequences, would there be a willingness by the Government to look again at these changes, particularly if they happen to impact the smaller schemes?
More generally, is it the Government’s intention, over time, to mitigate remaining RO schemes into contracts for difference-type frameworks? Instead of having this piecemeal approach, is there a more fundamental plan, as part of this framework, to reduce bills? I welcome those measures, but is it not time that there was an overall plan for this, rather than looking at individual orders one by one? Is there not a better way of doing this, agreeing it with the investors and the market, so we can both reduce the cost for bill payers and maintain the investor confidence on which we depend to secure future investment? We generally welcome what is here, although we have a few questions about it. We do not oppose this SI in any way, but we want a bit of clarity on those points.
Lord Moynihan (Con)
My Lords, I am delighted to stand before the Committee in agreement with the noble Earl, Lord Russell, on this occasion. If I may, I will build on some of the questions he asked. Before I do, I declare my interest as the chairman of Acteon, which is a global specialist subsea services company providing integrated seabed-to-surface engineering solutions for the worldwide offshore energy sector, including oil and gas and wind energy.
During the consultation exercise for this order, almost half—48%—of respondents expressed a preference for not going ahead with either option. Many respondents raised concerns about the wide-reaching, longer-term impacts that these changes could have on investor confidence and regulatory stability. What does the Minister believe will be the effect on investor confidence in this sector?
Many argued that indexation changes could raise risk premia and depress valuations, and that they would likely increase the cost of capital on new investments, which could deter future investment and, ultimately, have an impact on consumers. Does the Minister agree with this? If not, why not? Most respondents felt that both of the options proposed by the Government would represent a breach of legitimate expectations based on prior commitments from the Government. Some believed that the proposals could attract legal challenge. Does the Minister consider legal challenge likely? If not, why not?
Some respondents warned that the estimated consumer bill savings from switching to CPI would be modest or otherwise offset elsewhere by increases to the cost of capital of future projects, and few agreed that the switch to CPI is necessary at all. The UK law firm Burges Salmon said:
“A switch to CPI or a temporary freeze to tariff/buy out levels will therefore unnerve everyone involved. Many investors have modeled returns based on RPI-linked revenues over the full support term. Any switch (whether Option 1 or 2) will therefore undoubtedly result in slower growth of support income which may, in turn, impact projected equity returns and dividends and trigger a downward adjustment in NAV estimations of affected ProjectCos”—
that is, net asset values. It went on to say:
“In addition, projects financed with RPI-linked debt may face a mismatch between the generating asset projected revenues and debt liabilities. Coupled with uncertainty around the introduction of an FPC scheme”—
that is, the fixed price certificates scheme—
“it is clear that the threat of sizable and costly changes to renewable support schemes being implemented is increasingly real and one which the industry may fight hard to resist whether by way of legal challenge or robust responses to the various consultation papers”.
What is the Minister’s response to Burges Salmon?
That firm was not alone. Commercial law firm Travers Smith wrote:
“Although many, including generators, investors and financing parties with interests in existing assets benefitting from these subsidies will be relieved that the more drastic ‘freeze-and-realign’ option (i.e. ‘Option 2’) was not taken, the immediate shift to CPI indexation is nonetheless expected to be a blow to confidence and cause headaches across the sector, with investors seeking to protect valuations and dividend capacity against erosion of RPI linked cash flows, and lenders scrutinising headroom and covenant resilience in the context of the risk of refinancing. The timing—as Government seeks to encourage a ramp-up in investment as part of its Clean Power by 2030 plan—is unfortunate”.
I was going to conclude on this point, but the Minister could not resist the opportunity to refer to the current global crisis and the need to “accelerate to homegrown energy” as his solution—that is, accelerate to intermittent power when what we need is, in essence, firm power.
As we know, three-quarters of our wind and solar power is generated through renewable obligation subsidies. This means that, every time electricity is generated, suppliers get the wholesale price, plus higher subsidies than in all other OECD countries outside China—subsidies that signal the direction of future energy prices for consumers. Every time the wind blows, some wind farms get up to three times the market price of electricity. If wholesale prices are £80 per megawatt-hour—they were roughly at that level before the crisis—wind farms are getting two renewables obligation certificates on top of that, at about £70 each. This means that they have been getting £220 per megawatt-hour, which is almost three times the market price for electricity.
As was evident to those noble Lords who were fortunate enough to see the Secretary of State on Sky News this weekend, he used the word “incredible” in most of the sentences that he spoke. Is it not incredible that the Government continue to say that gas is the problem? In the last week, the price of gas, which generates our electricity, has been high, at around £120 per megawatt-hour. But is it not incredible that the renewables on the scheme will always get more than the gas price? Right now, there are wind farms getting up to, as I mentioned, £270 per megawatt-hour because they get whatever the wholesale price is plus the subsidies on top.
Lord Whitehead (Lab)
First, I thank noble Lords for their valuable contributions to this debate. The Government have listened carefully to the concerns expressed, particularly in relation to investor confidence, which I will come back to in a moment, to policy stability and to the long-term credibility of the UK’s renewable support schemes.
In considering the valuable and detailed contributions from noble Lords, I must say one thing to start with. The noble Lord, Lord Moynihan, is tempting me into a widespread debate about energy changes, energy prices and so on, but I kindly suggest that that is not the subject of our discussion this afternoon. The points that he makes are certainly ones that need replying to, and I hope that replies are being undertaken—but of course we are undertaking those replies at a time of energy crisis, and indeed a period of great volatility and uncertainty. That perhaps underlines why it is a better idea for the long term to have homegrown sources of energy that are not volatile and which can actually inform what is happening in the domestic market without inevitable consequences on the international market. The move towards renewables and low-carbon energy sourced from within the UK is a very effective way of doing that in the long term.
Lord Moynihan (Con)
I absolutely do not want to start a debate this afternoon, because we will unquestionably have plenty of opportunities in the future to cover this ground, but there is nothing more secure, in terms of our security of supply, nothing that creates more firm power, than our natural gas in the UKCS, which is much cheaper and far less polluting than importing gas from Qatar or liquefied natural gas from the United States. That reserve is critical, and if there is one lesson that comes out of this crisis, it is that we should maximise that reserve for our own country, for our own people, in exactly the same way as the Norwegians are doing at the moment for their people—unless the Minister thinks that the Norwegians are hopelessly wrong and should have shut in their basin, which he may wish to say. I think that our differences on this subject are worthy of future debate, but I think it is important to place them on the record.
Lord Whitehead (Lab)
I thank the noble Lord for placing that on the record. The Norwegian basin, of course, is far less mature than the UK basin, and indeed the Norwegian system works on substantially the same basis of international pricing as the UK system as far as gas is concerned.
The noble Lord has used the word “incredible” on several occasions. It was incredible, over the years, how much gas we were exporting from UK fields, even at a time when it was absolutely necessary to have the maximum supplies bought and used in the UK. Indeed, even during the Ukraine invasion crisis, there were still substantial exports on to the international market of gas that had come into the UK in the first instance. It is also the case, of course, that as far as marginal cost pricing is concerned, gas still makes the market over 65% of the time, so the whole market is still informed by international gas prices and international gas market-making in a way that is inimical to the stable, homegrown future energy that we need to import so that those positions are no longer taken.
Lord Moynihan (Con)
To place it firmly on the record, Norway and ourselves share the same basin in the northern North Sea, delineated by a median line. Geology does not recognise a median line, which is why in 1990 we were, broadly speaking, producing about 2 million barrels a day each, and in 2010 we were, broadly speaking, producing about 4 million barrels a day each. Today, we have gone right down to 400,000 barrels, and the Government are driving it down lower, while the Norwegians are going north of 4 million barrels.
My second point is that yes, the Minister is absolutely right that the Norwegians are exporting it to the international market. They do that because they can satisfy their domestic demand from hydroelectricity. As a result of that, however, they have managed to set up a sovereign wealth fund that assists their healthcare and their social security. The money they are earning is fundamentally important to the success of their economy. If we had done the same thing, we would have been in a far stronger financial position and would be able to take significant tax receipts to the Treasury to assist us with the many other challenges that the Government face.
Lord Whitehead (Lab)
The noble Lord is exactly right about a sovereign wealth fund, and it is our joint regret that the UK did not pursue that path many years ago. However, that is not the fault of the current Labour Government, as those actions were taken many years ago. He is right to point out that we would be in a much better position had that path been taken, but we did not take that path. We are where we are and we need to move on from that in terms of homegrown energy of a different form.
I am anxious to make progress with the business in hand, and I am pleased to see the overall welcome for these measures from both sides of the House. I will very briefly deal with one or two concerns that were raised. For example, on the concern about the effect of these measures on investor confidence, the future investment is of course not going to be carried out through the renewables obligation. As I mentioned, the renewables obligation is a sunset measure: indeed, it closed to new entrants in 2017. We are therefore talking about the remaining years of this measure, not the years in front of us of future and present measures, which we are undertaking in order to expand and stabilise the renewables and low-carbon world. Investor confidence will, therefore, be determined by how those measures are working.
In any event, the path that was taken to not freeze the RO, but to relate it to CPI rather than RPI, actually continues to allow RO to grow, albeit at a slightly lower indexed case. Therefore, in terms of the returns that those historic companies thought they were getting as far as the RO is concerned, there is not a great deal of difference—especially since we are so far past the point at which new entrants were accepted to the scheme.
As for legal challenges, we have been very scrupulous in making sure that we have received full advice, and that we are well entitled to make these changes. It is difficult to see how a legal challenge on the basis of not liking the changes very much might succeed, as opposed to a legal challenge on the basis of making the changes in the first place.
The noble Earl, Lord Russell, asked whether there could be a more comprehensive measure as far as future ROs are concerned, and this is something I have been quite interested in doing myself. It would involve trying to move RO recipients on to a CfD contract, which can be done in various ways. I suggest that if we did that forcibly, it would probably result in a legal challenge, but there are other ways of making the change.
Electricity Supplier Payments (Amendment) Regulations 2026
(1 day, 4 hours ago)
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Lord Whitehead
That the Grand Committee do consider the Electricity Supplier Payments (Amendment) Regulations 2026.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, you have got me again. These draft regulations were laid before the House on 2 February 2026. I trust that since they are very technical in their nature and very modest in their effect, they will be agreed, because they are an essential element of making sure that our supplier payments and supplier collection work well for the future; they are an integral part of how the system works, so I hope that they will meet with general agreement.
This statutory instrument amends regulations concerning the levies used to fund the operational cost budgets for the Low Carbon Contracts Company and the Electricity Settlements Company. Before I proceed, I apologise to the Committee for the enormous number of acronyms that will no doubt emerge during this debate and in my speech. Let me start with the LCCC and the ESC, which I have already explained.
The LCCC administers the contracts for difference scheme on behalf of the Government under the Energy Act 2013. Under that Act, the LCCC also administers schemes modelled on the contracts for difference, including the dispatchable power agreement, the DPA, and the low-carbon dispatchable contracts for difference, or LCD contracts for difference. The LCCC also acts as the revenue collection counterparty for the regulated asset base for new nuclear under the Nuclear Energy (Financing) Act 2022.
It is anticipated, subject to future policy decisions and the will of Parliament, that the LCCC will conduct additional work to support government energy objectives under the Energy Act 2013. This includes work on a new scheme supporting the deployment of large-scale power bioenergy with carbon capture and storage electricity generators, work relating to DESNZ’s proposals to support nuclear generation, and work relating to DESNZ’s proposals to potentially support landfill gas generation.
The ESC administers the capacity market scheme. Those schemes will incentivise the significant investment required in our energy infrastructure to keep costs affordable for consumers and help to deliver our clean power mission, while keeping our energy supply secure.
Contracts for difference—CfDs—provide long-term price stabilisation to low-carbon generators, allowing investment to come forward at a lower cost of capital and therefore at a lower cost for consumers. AR7, the most recent CfD auction and the seventh to date, secured a record 14.7 gigawatts of new clean energy capacity across Great Britain, making it the largest round ever delivered. It brought forward a diverse range of renewable technologies while delivering a good deal for bill payers. The LCCC is currently signing 197 CfDs with projects that were successful in this auction.
Dispatchable power agreements—DPAs—under the Energy Act 2013 are agreements modelled on CfDs. They have been designed to instil confidence among investors in power carbon capture and storage projects and incentivise the availability of low-carbon, non-weather dependent dispatchable generation capacity. The LCCC signed its first DPA on 19 November 2024 for the Net Zero Teesside Power project. This pioneering project in the north-east aims to build the world’s first commercial-scale gas-fired power station with carbon capture and storage.
Over the next three years, the LCCC is expected to sign additional DPAs, which will drive the private sector investment required to bring forward further power carbon capture and storage projects by the mid-2030s. The LCCC will be the counterparty for these DPAs, as it was originally for CfDs, and funds have been included within the budgets to support this role.
The LCCC also signed its first low-carbon dispatchable CfD—LCD CfD—with Drax Power Ltd on 4 November 2025. This agreement will ensure that Drax generates electricity when needed between 2027 and 2031, thus bolstering our energy security. It is also a good agreement for consumers, saving them around £6 per year on their household bills compared to previous arrangements.
The Government also agreed heads of terms with EP Lynemouth Ltd on 6 February 2026 for an additional LCD CfD. If a full contract is concluded in the following month, this will further bolster our energy security by ensuring that Lynemouth continues to generate when needed between 2027 and 2031. Funds have been included in the budgets to support the LCCC’s role as the intended counterparty for this LCD CfD, as well as its role as counterparty for the existing contract with Drax Power Ltd.
The revenue collection contract with Sizewell C Ltd, the first project to use the regulated asset base—RAB—model for new nuclear, became effective on 4 November 2025, and funds have been included in the budget to cover the LCCC’s operational costs as a revenue collection counterparty for the RAB. As noble Lords can see, this all amounts to a large amount of additional work and activity for the LCCC, which is important in terms of this particular SI.
Turning to the ESC, the capacity market is tried and tested and is the most cost-effective way of ensuring that we have the electricity capacity we need now and in the future. It provides all forms of capacity and the right incentives to be on the system, delivering capacity when needed by increasing generation or by turning down electricity demand in return for guaranteed payments. The capacity auctions held to date have secured the capacity we need to meet the forecast peak demand out to 2028-29. A T-1 auction is currently ongoing and a T-4 auction will take place next week, securing most of the capacity we need out to 2029-30. In both the CfD and capacity market schemes, participants bid for support via a competitive auction that ensures that costs for consumers are minimised.
In the DPA, agreements are allocated through a process involving competitive assessment, followed by shortlisting then a final stage of bilateral negotiations between project developers and DESNZ. In the LCD CfD, contracts are agreed following a structured negotiation process between DESNZ and the generator. This process ensures that only those contracts are signed that offer value for money for consumers and include strict sustainability criteria.
Revenue collection contracts under the RAB model are agreed through a structured process involving DESNZ, Ofgem and the LCCC. These contracts provide a stable, regulated revenue stream to projects during construction and operation. In turn, we expect the RAB to lower the cost of financing for nuclear, one of the biggest drivers of new project costs, resulting in better value for money to consumers.
The LCCC and ESC’s effective administration of the CfD, the capacity market and other schemes to date has demonstrated their ability to deliver such schemes at least cost to consumers. It is in part for this reason that the LCCC has been working with DESNZ and other departments to develop new schemes for incentivising deployment of more low-carbon technologies. For example, the LCCC has supported DESNZ in the development of incentives for bioenergy with carbon capture and storage. Although this has not been confirmed, contracts for such projects could potentially be entered into following a process established under the Energy Act 2013. Were DESNZ to move forward with this option, the LCCC would need to undertake activity to prepare for acting as the counterparty in the next three years. Consequently, funds have been included within the budget for this purpose.
The LCCC and ESC are mindful of the need to deliver value for money, as their guiding principle is to maintain investor confidence in the schemes they deliver while minimising costs to consumers. They have taken a number of actions to date to reduce costs, such as bringing expertise in-house rather than relying on more expensive outside consultants. It is because of actions like that that CfD operational costs per contract are expected to fall by 27.3% per CfD across the budget period, despite the growing size of the CfD portfolio. It is a similar narrative for the ESC, which expects the number of capacity market electricity meters to exceed 1.2 million over the budget period, a 450% increase on current meter numbers. It estimates that costs per meter will fall by 23% over 2025-26 to 2028-29. The operational cost budgets for both companies were subject to consultation, which gave stakeholders the opportunity to scrutinise and test the key assumptions in the budgets and, importantly, ensure that they represent value for money. Subsequently, the budgets remain unchanged.
In conclusion, to summarise this rather detailed and technical narrative, the LCCC has done a great job in managing as the counterparty for taking money in for contracts, giving money out and balancing between the two—and, indeed, when it runs a surplus it gives it back to the companies that are paying the money back in. Its activities have changed very substantially over the years, and the levy that goes into those companies has not changed since 2022. Therefore, it is right that the levy coming into the LCCC and the ESC for the expanded work that they do is reviewed, which is what the Government have done, to make sure that the LCCC can cover its costs for the relevant financial years up to 2029-30.
I assure the Committee that the Government are also mindful of the uncertainties involved in setting a budget for the next three years, such as world events impacting energy demand and policy decisions on new schemes that have not yet been taken. Consequently, DESNZ will keep the companies’ budgets under careful review throughout the budget period to ensure that costs to consumers are minimised. I commend these draft regulations to the Committee.
Lord Fuller (Con)
My Lords, there is a reason why UK energy prices are some of the most expensive in the world. We are starting from a high base and we are increasingly vulnerable. At the moment, our gas prices are six times higher than you might find on an ex-NOLA basis: that is, exported from New Orleans. We are more expensive than the rest of Europe, apart from Germany, which has its own particular industrial problems, and we are increasingly vulnerable because we are trying to run our 24-hour-a-day, 365-day-a-year economy on energy sources that do not work at night or when the wind does not blow. I understand that, and I am not against using renewable energy—we need to have an energy mix—but the way we are going at the moment is to put too many eggs in the renewables basket.
With this statutory instrument, the name is on the tin: it is all about nuclear energy, but the speech that the Minister gave was not really about nuclear at all, but about the mission creep that has led to us having the world’s most expensive industry, whereby we are deindustrialising. Only today, what a shame that the Huntsman Group has announced that the Wilton facility, that last vestige of ICI at Billingham, could be closed. How ironic it is that the obituary of Sir Ronald Hampel, the architect of ICI, was in the Times this week: he must be turning in his grave.
This debate has all been about carbon capture and storage. I did not realise it was going to be, I thought it was about nuclear, but there we are. Carbon capture and storage is expensive, technically challenging and hard to implement. It does not work, it is the most expensive way of doing it and it is unproven. If it were proven, it would be eligible to be discounted against CBAM, but it is not. One of the main things by which this Government want to take carbon reduction on board—they are parroting and trumpeting carbon capture and storage—is ineligible for the headline carbon reduction process. Can noble Lords not see the incompatibility here?
What we have heard so far in this debate, and I know it is early days, is that—
Earl Russell (LD)
This is not a debate. This is an SI about the mechanism for contracts for difference. It is not a debate on energy policy.
Lord Fuller (Con)
I thank the noble Earl, but he will forgive me for having made an introduction, and now I come immediately to the substance, because what we have heard, and it came from the Minister’s mouth, is that this is all about investor confidence. This is about subsidy farming; this is about underwriting the most emitting power station in Britain, Drax, which is responsible for the desecration of huge tracts of forestry on the other side of the world, the shipping costs associated with getting it and its transport to that power station, as if it is somehow renewable. That is a fantasy.
What these regulations underpin is a false economic market that says, “No matter how high the gas price is”, and, my goodness, gas prices are high now, “we’re going to bid up the costs of renewables in an unearned income”. This is financial engineering. We are kidding ourselves that we are doing this for low carbon. We are creating a false market in unproductive assets such as carbon capture and storage. When we invest in carbon capture and storage, and I use the word “invest” advisedly, we are not investing in productive assets that will generate an economic return; we are just burying money, money that we need.
I do not deny that, as a result of this regulation, the authorities—forgive me, there are so many acronyms, I cannot remember them all, the LCCC and so forth—have to be paid for. However, this debate has exposed that it is not just about paying for the authorities, it is about financing a mission creep into all sorts of areas that collectively and cumulatively are driving the cost of our energy. Householders are paying more and industry is paying more—and, candidly, industry is now voting with its feet to go to other parts of the world because it cannot afford all this.
At some stage, we need to draw a line. I am grateful that the Minister has used the word “crisis” to describe the circumstances currently being visited on the Middle East and, by extension, on our own economy. When the facts change, you need to alter your position, and when it comes to this panoply of extra burdens on industry—not least contracts for difference—we need to have a fresh look, because the definition of insanity is doing the same thing over and over again and expecting the outcome to change. This nation cannot afford it, and neither can our industry or our householders. Clearly, we are going to note this statutory instrument, but at some stage the music needs to stop.
Baroness Redfern (Con)
My Lords, it is a pleasure to follow my noble friend and to have the opportunity to speak to this statutory instrument. I support and welcome the update levies to fund operational costs of low carbon and nuclear energy schemes. However, it is the wider context that is my concern: the continued high prices of electricity, which are among the highest in the world for our heavy industry—such as steel, which is truly disadvantaged when having to compete worldwide. Our high-energy intensive industries—not only steel, chemicals and ceramics, which are the industrial base of the UK—are, therefore, left inadequately supported.
We all know that lower electricity costs directly help to retain manufacturing reinvestment and jobs, and support the supply chains, so it is disappointing to see manufacturing jobs moving abroad in the past 12 months. For high-energy intensive industries to compete on a level playing field, confidence must be targeted, building that elusive confidence and bringing the precious private investment into the heavy sector. The Government know they have to develop and go further with serious long-term plans, and possibly introduce a two-way contract for difference to provide a competitive wholesale electricity price to support and restore our British industrial competitiveness for the next decade.
Finally, the Government must support further—rather than undermine—the UK’s wider industrial strategy and growth emissions. I look forward to the Minister’s reply.
Earl Russell (LD)
My Lords, the draft Electricity Supplier Payments (Amendment) Regulations make technical but necessary changes to the levies that electricity suppliers pay to fund three of the UK’s key energy schemes: the contracts for difference—CfD—scheme, the capacity market and the nuclear regulated asset base, or RAB model.
There is a sense of gravity on these Benches in that we fully recognise the role that CfDs have played, since they were introduced by the Liberal Democrats a long time ago, in helping to fund and secure funding for our energy transition. We recognise that these are necessary updates, and we welcome what the Minister has said to introduce these amendments. We welcome the measures that are being taken to ensure that efficiency savings are gained. Therefore, we fully support this SI.
Lord Moynihan (Con)
My Lords, I am very grateful to my noble friends Lady Redfern and Lord Fuller for their contributions. They bring a great deal of expertise to this Committee from a lifetime outside London in places where industries’ success has depended on low energy prices. For them to give up their time and dedicate it to the work of this Committee is commendable, and I associate myself with everything that both of them said.
That helps me in one way because it means that I can be short on this occasion. I will make just make four points. First, Drax has been raised. There are still major issues with Drax, as the Minister knows. Billions have been spent in public subsidies on it. As I recall, it was axed from the S&P green bond index because it clearly did not add to the net-zero objectives of either this Government or the previous one. Indeed, the burning of pellets releases CO2 immediately and does not achieve anything except for carbon debt. That undermines our net-zero goals, not least because the pellets come from the west of Canada; they are brought right the way across Canada and must then be transported to the United Kingdom by boat. The sooner we grasp the nettle and stop biomass burning, the better. In fact, it is unfair even to call it biomass: it is a CO2 pellet-driven wrong solution for Drax. Today, it has contributed a significant amount of electricity generated into the grid—not much less than comes from solar energy in the UK at the present time.
However, these are technical changes—this has been made very clear—and we on these Benches will not oppose them. I would just say three things. One is that the heart of this is, in fact, nuclear energy; look at the introduction and the rest of the statutory instrument. On the nuclear energy policy question, I welcome the fact that the Government have committed to implementing the recommendations of the Fingleton review in order to make nuclear power much cheaper. That is really important; we need to make it affordable, and it needs to be quicker and easier to build. We look forward to receiving the relevant legislation—even if I anticipate that, on that particular Bill, it will be colleagues from the left of the Labour Party and the Green Party who will give the Minister a lot of airtime because there is no doubt that the environmental impact is going to light the red touchpaper of the Labour left and the Green Party, which the Secretary of State has done so much to court.
Secondly, this Government cancelled the previous Government’s full-system cost analysis of the energy system. This statutory instrument highlights that such an analysis is important and would help all of us in this Committee—indeed, all of us in the House—to understand the cost of energy. I ask the Minister to consider reintroducing it, certainly before any further legislation comes before the House.
Finally—I was not going to make this point but I think it is important—I echo the comments made by my noble friends. The Government have not fulfilled their pledge to cut energy bills by £300. Pushing the costs on to tax bills is simply sleight of hand. The truth is that the Secretary of State’s made-up promise to cut bills by £300 has become, understandably, a national embarrassment for the Government, so they have turned to the already-struggling taxpayer for a bailout of £7 billion.
With all that said, I promised to be brief and make only a few comments on this instrument. These are technical changes, and we on this side will not oppose them, but it has been exceptionally helpful for the Committee to hear the comments made by my noble friends and the noble Earl, Lord Russell; I look forward to hearing the Minister respond to them.
Lord Whitehead (Lab)
I thank noble Lords for, as I have said on previous occasions, their valuable, extensive and wide-ranging contributions to the debate. I am similarly tempted to follow the wide-ranging comments that have been made—some of which I agree with and a lot of which I do not—but I do not think that this is the place to undertake that particular debate.
As noble Lords have reflected on, this SI is, in essence, about a practical and straightforward measure to ensure that the body that administers the working of the CfDs and an increasing amount of further contracts—acting as the counterparty and the proper regulatory body to make sure that there is value in all directions from the money that is collected—simply has the wherewithal to make sure that it can do that job. As I have said, the levels of that wherewithal were set in 2022 and have not been revised since then. They really need to be revised so that we are not in a position where the taxpayer has to come in and bail out the LCCC or similar bodies, come 2028-29, if they do not have sufficient funds to administer the contracts in the way they should.
Tertiary Education and Research (Wales) Act 2022 (Consequential Amendments) Order 2026
Lord in Waiting/Government Whip (Lord Katz) (Lab)
My Lords, this draft order was laid before the House on 2 February and is needed following the passage of the Senedd’s Tertiary Education and Research (Wales) Act 2022. The Act provides a new statutory framework for what is now known as tertiary education and research in Wales, which encompasses higher education, further education and training, apprenticeships, sixth forms, and adult community learning. The Act established the Commission for Tertiary Education and Research in Wales to regulate and fund the sector; I will refer to this body as the commission.
The Act provides the commission and Welsh Ministers with powers to fund the tertiary education sector in Wales. It repeals corresponding functions that were previously in place, including powers in the Learning and Skills Act 2000. Various pieces of UK legislation therefore currently reflect the previous system, in which the Welsh Ministers regulated and funded the sector through powers that are now being repealed.
The amendments in the order ensure that UK legislation is updated by making amendments that account for the changes introduced by the Senedd’s 2022 Act. It mainly does that by removing any references to the repealed powers and replacing them with references to the corresponding powers in the 2022 Act. These consequential amendments ensure that the legislation being amended will continue to operate in largely the same way as it does now, but with the commission integrated into the legislative framework.
Article 2 of the order updates the list of exemptions in the Value Added Tax Act 1994. It ensures that education and vocational training provision funded through powers in the 2022 Act will be an exempt supply for the purpose of value added tax. The order also amends the Income Tax (Earnings and Pensions) Act 2003. This Act makes provision about the tax treatment derived from shares in research institution spin-out companies. Article 3 of this order ensures that the definition of “research institution” in that Act includes any university or other educational institution receiving funding under powers in the 2022 Act.
Section 113 of the Higher Education and Research Act 2017 allows educational regulators across the UK to work jointly, where doing so would make delivery more efficient or effective. Article 4 of the order amends this provision to enable Welsh Ministers to exercise functions in the 2022 Act jointly with other public authorities, including the Office for Students and UK Research and Innovation.
As noble Lords may be aware, some charities are exempt from registering with the Charity Commission. The compliance of these charities with the relevant laws is instead overseen by their principal regulator. Article 5 of the order amends the Charities Act 2011 (Principal Regulators of Exempt Charities) Regulations 2013, to designate the Commission for Tertiary Education and Research as the principal regulator for specific charities in Wales. This reflects the fact that the commission will now be responsible for regulating further education and training in Wales under the 2022 Act, whereas previously Welsh Ministers were responsible. Article 5 also ensures that existing restrictions on principal charity regulators relating to the onward sharing of HMRC information are applied to the commission.
Article 6 of the order amends the Seafarers’ Wages Regulations 2024. The amendment ensures that the apprenticeship rate for seafarers can apply to those carrying out apprenticeships funded by the commission under powers in the 2022 Act.
The amendments to UK legislation in this draft order fall outside the legislative competence of the Senedd, as they relate to reserved matters such as tax, charities and employment. Taken together, these amendments ensure that existing legislation will continue to operate as intended by taking account of the changes made by the 2022 Act. The order needs to be in force by 1 April, to coincide with the Welsh Government’s commencement plan for the 2022 Act.
I welcome the continued implementation of the Senedd’s Tertiary Education and Research (Wales) Act and the positive impact that the commission is already making in Wales. This draft order will make the consequential amendments necessary to keep UK legislation up to date in light of the new legislative framework for tertiary education in Wales introduced by the 2022 Act. I beg to move.
Baroness Humphreys (LD)
My Lords, it is a pleasure to speak in the debate on this SI, which I hope is the final stage of the formation of the Commission for Tertiary Education and Research in Wales. As the draft Explanatory Memorandum to this SI explains, this consequential amendment order is made under Section 150 of the Government of Wales Act 2006, which allows the Secretary of State to make provision in consequence of Acts of Senedd Cymru. In this case, the SI makes permission in consequence of the Tertiary Education and Research (Wales) Act 2022 and of two other orders that followed the 2022 Act.
The 2022 Act brought forward welcome changes to the tertiary education sector in Wales by bringing together the higher education and research sector, the further education sector and the training sector under the umbrella of the newly created Commission for Tertiary Education and Research. As the Minister has already explained, the commission has the responsibility for funding and regulating the tertiary education sector in Wales. The 2022 Act provided a list of provisions in existing education legislation that were to be repealed. This 2026 order seeks to replace references to the repealed legislation when they appear in pieces of UK legislation. The 2026 order also takes account of the new functions of Welsh Ministers and the commission.
I was especially pleased to see that an amendment has been included that addresses the situation regarding seafarers’ wages. The amendment ensures that the apprenticeship rate can apply to seafarers carrying out apprenticeships that are provided or funded by the commission. We welcome this added incentive for young seafarers to follow their desired careers.
On these Benches, we welcome the clarity that the order provides about the powers of Welsh Ministers. As Liberal Democrats, we support the principles of devolution and believe that decisions affecting Wales should be made by democratic Welsh institutions. The SI simply implements changes to UK legislation required by legislation passed by the Senedd, and we therefore support the instrument wholeheartedly.
The Earl of Effingham (Con)
My Lords, this is a technical but necessary instrument made under the Government of Wales Act 2006, ensuring that the statute book reflects the reforms introduced by the Tertiary Education and Research (Wales) Act 2022. That Act abolished the Higher Education Funding Council for Wales and created the new Commission for Tertiary Education and Research—Medr—which became operational in August 2025. The commission now brings together responsibility for higher education, further education, apprenticeships, sixth forms, adult learning and research under a single strategic body.
The order does not revisit that policy decision; it simply updates legislation so that it continues to function properly following the creation of Medr. It transfers certain funding powers to Welsh Ministers or the commission, updates definitions relating to research institutions, enables joint exercise of functions, confirms the commission as the principal regulator of exempt FE charities and makes related amendments to reflect the new governance structure. Both the Secondary Legislation Scrutiny Committee and the Joint Committee on Statutory Instruments have considered the order and raised no concerns.
Lord Katz (Lab)
I thank the noble Earl and the noble Baroness for their valuable contributions to our short and focused debate. I appreciate the comments from the noble Baroness, Lady Humphreys, who welcomed the SI and supported how it helps to embody and enact further the devolution settlement within Wales, specifically for education.
I also thank the noble Earl, Lord Effingham, for his comments. He asked about the process of developing the commission. I can confirm that the transition has been smooth. He will be aware that the commission has undertaken a series of consultations to ensure the steps it takes to implement the 2022 Act fully are informed by the views and experience of the tertiary education sector and other partners. We take that very seriously.
The commission has made substantial progress in its role as the national steward for raising standards, delivering for learners of all ages, and improving institutional collaboration and co-ordination. It is worth noting that this has included supporting over 1,000 employees facing an uncertain future at the Port Talbot steelworks to develop new skills through an innovative programme of local learning. It is important that the order allows the full transition to the commission and the switching-on of its powers, but it is not the case that the commission has not been up and running, active and delivering good for the tertiary education sector in Wales.
Having said that, it is worth noting that the Welsh Government have taken a phased approach, which is probably the right approach, to bringing the 2022 Act into force, to ensure a smooth transition from previous arrangements and to prevent disruptions for providers and learners. As I said, the next phase of implementation will take place on 1 April, when a number of the new functions will come into force. That is why we are debating the order today, pending which we will formally move the Motion to approve the order in a few days’ time in the Chamber, to make sure that it can come into force to coincide with the Welsh Government’s commencement timetable for these powers. I hope that that satisfies the noble Earl’s question on the transition.
The order provides for a number of changes to UK law, including amendments to tax, charities and employment legislation, that are necessary following the Senedd’s Tertiary Education and Research (Wales) Act 2022. I offer my thanks for the productive manner in which the UK and Welsh Governments have worked in preparing the order, and I commend it to the Grand Committee.
House of Lords
Arrangement of Business
(1 day, 4 hours ago)
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Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
My Lords, following on from the questions I was asked yesterday, I thought today, before Oral Questions, was a good time to remind all noble Lords that at Question Time the House wants short, sharp, crisp, clear questions, not speeches. Ministers responding have an equal duty to be short, sharp, crisp and clear in their answers. The House does not want speeches in either asking or replying to questions. The same applies when we move on to Back-Bench questions on the Statement repeats—questions not speeches. In my roles as Government Chief Whip and as Captain of the Honourable Corps of Gentlemen-at-Arms, I try always to make myself available and accessible to Members on all sides of the House. My door is open. If any noble Lords have any concerns or issues, then talk to me outside the Chamber; I will always do my best to try and find a solution and deal with the issues before me.
Plan 2 Student Loans: Repayment Terms
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Lord Balfe
To ask His Majesty’s Government what plans they have to ease the repayment terms of Plan 2 student loans.
Lord Lucas (Con)
My Lords, on behalf of my noble friend Lord Balfe, and at his request, I beg leave to ask the Question standing in his name on the Order Paper.
Baroness in Waiting/Government Whip (Baroness Blake of Leeds) (Lab)
My Lords, before I answer the noble Lord’s Question, I thought it appropriate to start by mentioning the devastating news regarding the outbreak of meningitis in Kent at the weekend. Our thoughts are with the families, friends and loved ones of those who have died and with everyone who is currently unwell or affected by this terrible situation.
In response to the noble Lord’s Question, this is a complex system that remains open to review. The Prime Minister and Secretary of State for Education are looking at ways to make it fairer, and ranges of options will be considered, but we must consider how any change would be funded to be fiscally responsible. For graduates, we are working hard to tackle the cost of living by extending government-funded childcare, reducing energy bills, freezing rail fares and rolling out free breakfast clubs.
Lord Lucas (Con)
My Lords, I am grateful to the noble Baroness for that Answer, and I declare an interest as the father of a daughter who is currently accumulating these loans. Does the noble Baroness agree that, particularly for students whose courses are not of the quality required to generate returns of the order of the amount spent on them, and who have accumulated student loans, it would be a good idea to audit what universities are doing and why they are putting our children in this degree of debt?
Baroness Blake of Leeds (Lab)
In our manifesto we committed to raising teacher standards in higher education. Every student deserves the best possible quality from their investment. I am pleased to say that we are working closely with the education sector and providers to make sure that that quality is, first, across the board but also maintained.
Baroness Deech (CB)
Does the Minister agree that the situation has gone too far for tinkering? We need a fresh start. As I said yesterday, we need a Select Committee in this House on education. But does she agree that it is time for something radical, such as a graduate tax or complete exemption for those who repay their debt to society immediately—the students of medicine, teaching and nursing?
Baroness Blake of Leeds (Lab)
I always listen to the noble Baroness’s questions with interest. I do not think it would be right for me to pre-empt the ongoing discussions. I think there is a general recognition that something needs to change, but it has to be done in the spirit of fairness while maintaining access for all students and making sure, as I said at the outset, that it is fiscally responsible in a complex financial situation.
Lord Mohammed of Tinsley (LD)
My Lords, I declare my interest, as I did last week, as my son recently graduated and my daughter has just started university. Will the Government consider reducing or capping the interest rates applied to Plan 2 loans, particularly during periods of high inflation, because students may well see their debt grow while they continue to make repayments?
Baroness Blake of Leeds (Lab)
The noble Lord refers to a complex situation, and it would be completely wrong of me to make any suggestion about changing interest rates or methods of repayment. But of course, all these matters are under consideration in such an important subject.
Baroness McIntosh of Hudnall (Lab)
My Lords, does my noble friend agree that is quite difficult to determine the value of certain kinds of degree course if the only measure used is what you can earn after you have completed them? Would she further agree that there are some sectors which are extremely important to the health of our economy and our general well-being, such as the arts and the cultural sector, in which it is pretty difficult to earn very high salaries, but the value of the people who are in those sectors is worth appreciating just as much?
Baroness Blake of Leeds (Lab)
I absolutely support my noble friend’s view of the value of a university education; it cannot always be measured in monetary success. But obviously, the outcomes of students going to different institutions is a measure that is looked at—how many of them get into employment, what that employment is and whether they go on to further training. It is true that there are some narrowly held preconceived views about the value of some courses that actually do an enormous amount, not only for the well-being of the students but for the economy and well-being of the country.
The Earl of Effingham (Con)
My Lords, it appears that EU officials are demanding that EU students pay home fees rather than international fees in order to benefit from a UK university education under a new youth mobility scheme. This was not in the framework signed last year. It may cost our universities up to £140 million annually. Surely it is our students who deserve help. Will the Minister rule out international students paying domestic fees?
Baroness Blake of Leeds (Lab)
I think it is well above my pay grade to interfere in the ongoing negotiations with the EU. It is imperative that we let those negotiations take their full course, and then we will report back at the appropriate time.
Baroness Butler-Sloss (CB)
May I ask the Minister whether she accepts that the present system is unfair?
Baroness Blake of Leeds (Lab)
What I will say is that the imperative, for whatever comes in, is that fairness is at the centre of what we do. We have to make sure that the question of being able to afford studying is not something that puts people off. Courses should be available to all young people, regardless of their family backgrounds. That is a principle we have to hold on to and make sure is at the centre of any discussions we have going forward.
Lord Watts (Lab)
My Lords, is the Minister as amazed as I am that, after 14 years of the previous Government, when they introduced no changes and left us with a mess, they are now coming up with policies to reduce costs for students? Why did they not do it for 14 years?
Baroness Blake of Leeds (Lab)
My noble friend is absolutely right. The student loan situation is one we inherited from the Opposition. I think they have questions to answer about the approach they took. We will not take any lessons on how to do this. We are determined to move forward and do it properly on behalf of the young people of this country.
Lord Tarassenko (CB)
My Lords, the proportion of home students in full-time postgraduate study has fallen from 46% to just 29% in five years. At the start of a PhD, a home student with a typical undergraduate loan will have a debt of around £55,000. At the end of the PhD, that debt will be somewhere between £65,000 and £70,000. Most PhD students from disadvantaged backgrounds take out a doctoral loan, which also accrues interest during the PhD. Will the Government consider freezing both the undergraduate and doctoral loans at the start of a home student’s PhD so that these loans do not accrue interest during the PhD?
Baroness Blake of Leeds (Lab)
That is an interesting observation and one that I am sure will be considered in the round. These matters will be looked at and reviewed as we go forward, through the lens of fairness for all.
Lord Sandhurst (Con)
My Lords, the problem was well known before this Government came into office. The Government have been in power for 20 months or so. Why is there still no plan?
Baroness Blake of Leeds (Lab)
My Lords, a month of us being in power roughly equates to almost a year of the Opposition being in power. As I said at the beginning, we are moving forward in addressing affordability and cost-of-living measures, as well as looking at this very complicated area of student loans.
Baroness Garden of Frognal (LD)
My Lords, the presence of EU students in our universities has always been a net benefit to our students, enhancing their breadth of vision and making them understand how other people live. Is it not time we looked again at introducing better ways for EU students to attend our universities?
Baroness Blake of Leeds (Lab)
Any young person who has the opportunity to mix with other young people from around the world will talk of the benefit that brings. This area is of enormous importance. It is not only about students coming here, but where our young people want to go to achieve their future success.
BBC World Service: Sustainability
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Baroness Royall of Blaisdon
To ask His Majesty’s Government what steps they are taking to ensure the sustainability of the BBC World Service.
The Minister of State, Foreign, Commonwealth and Development Office (Baroness Chapman of Darlington) (Lab)
My Lords, the Government highly value the BBC World Service; it is a soft power asset and the world’s most trusted news provider. The significant uplift in our funding to £137 million this financial year, despite the difficult fiscal context, demonstrates our support for it. Grant-in-aid funding for the next three years is being decided through the FCDO allocations process and will be made before the 2026-27 financial year. Potential longer-term funding mechanisms will be considered through the BBC charter review.
Baroness Royall of Blaisdon (Lab)
I am grateful to my noble friend for that Answer, and I am delighted that the settlement has been announced. The BBC World Service is one of the greatest instruments of soft power that we have. It is a lifeline to many in our difficult and divided world, including those in Iran, and I pay tribute to the very brave journalists of BBC Persian. When the world is full of dangerous propaganda, the World Service projects and protects our democratic values while delivering value for money. Although I am grateful for the information provided by my noble friend, I urge her to ensure that, in due course, funding will be moved back to the Government to provide stability and long-term planning. That is important for the service and for the journalists who serve the service.
Baroness Chapman of Darlington (Lab)
I thank my noble friend. Her support for the World Service is long-standing and well known, and quite right too. The longer-term funding proposition for the World Service will need to be considered as part of the charter review. To be absolutely clear, the £137 million funding uplift that I referred to in my initial Answer is for this financial year. I think my noble friend may have misheard what I said. The allocations for next year will be made very shortly.
Lord Birt (CB)
My Lords, in a few years, we will be celebrating the centenary of one of the UK’s many great inventions, the BBC World Service, which now reaches a remarkable 400 million people each week. It is the most trusted news service on the planet and a significant contributor to promoting British values across the globe. Can the Minister articulate any argument whatever—I cannot see one—for why the BBC World Service should be majority funded by the licence fee payer rather than fully funded by the taxpayer, which, for the overwhelming majority of its history, it was?
Baroness Chapman of Darlington (Lab)
As the noble Lord will know, this is not a situation of our making but one that we inherited, and we are where we are. Our task, together with the BBC, is to make sure that the World Service is funded in a way that means it can continue to do the incredible work that it leads around the world, because, as the noble Lord says, it is the world’s most trusted source of news.
Lord Purvis of Tweed (LD)
My Lords, on 15 January, I made the case that the BBC Persian Radio service needed to be sustained, and recent events have shown that to be necessary. I welcomed the Government issuing emergency funding so that the BBC Persian Radio service could be sustained. Does the Minister not agree that that illustrates one of the problems—namely, if we have critical World Service services funded by emergency funding then we cannot plan on a sustainable future? The delay in the allocations being made is regrettable. Can the Minister assure the House that, when those allocations are made soon, they will be over a three-year period, so that the BBC World Service can plan and make sure that we sustain these vital services for our country?
Baroness Chapman of Darlington (Lab)
Multi-year allocations are incredibly important. That is why, in all the allocations that we are making as part of this process—not just for the World Service but for our teams in countries and for our partner organisations—we are seeking to do just that, because it means you get better value for every £1 you spend. We work closely with the World Service on issues around language. I am incredibly impressed and in awe of the way that the BBC has responded to the situation in Iran. Even with services having been banned, the latest figures I saw were that 28 million people are accessing that service. It is a real and good example of what can be achieved.
Lord Grade of Yarmouth (Non-Afl)
My Lords, following up the question of the noble Lord, Lord Birt, I ask the Minister a simple question: does she think it is fair that UK licence fee payers should have to pay so much towards the World Service?
Baroness Chapman of Darlington (Lab)
Do I think it is fair? I guess that depends on what you think the licence fee is for. That is part of what the charter review process will tease out. I accept that what a licence fee payer may have wanted to pay for in the 1950s and 1960s may well be different now, because things have changed. The World Service is a tremendous asset to this country. There are many licence fee payers who enjoy the World Service here in the UK, as well as around the world. What we need to achieve, certainly from my perspective, is the longer-term stability and success of the World Service.
Lord West of Spithead (Lab)
My Lords, what is the future for BBC Monitoring?
Baroness Chapman of Darlington (Lab)
BBC Monitoring provides an exceptionally important service. If noble Lords have not had the chance to look into what it does, I would highly recommend it, particularly for situations such as that in Ukraine, where it is probably the most reliable source of information on the Russian war dead. Its work on misinformation and disinformation is highly significant to our ability to bring everything we can in support of Ukraine.
Lord Callanan (Con)
My Lords, as Russia and China spend about £8 billion a year on international state broadcasters, the BBC World Service is broadcasting trusted and generally balanced reporting in over 40 languages to 300 million people a week. However, that trust is undermined when BBC Arabic journalists are reported to have celebrated attacks against Israel. What work have Ministers done with the BBC to ensure that our taxpayer-funded broadcaster is maintaining impartiality, both here and internationally?
Baroness Chapman of Darlington (Lab)
It is important that the BBC has editorial independence, but there is no doubt that there were issues that needed to be responded to following the Prescott revelations. I was pleased to see the way that the BBC reacted to that; it owned the problem and it has put in place measures to deal with it. The noble Lord started his comments by saying that we are being outspent by other nations, and that is undoubtedly true—welcome to the enlightened side of this debate.
Lord Alton of Liverpool (CB)
My Lords, has the Minister had the chance to read the debate in your Lordships’ House on 26 February about the report of the Joint Committee on Human Rights on transnational repression? Specifically, has she read the evidence that was given by Reporters Without Borders about the plight of journalists who have been reporting on events in Iran? In particular, she will see there that women journalists have been treated in the most appalling manner conceivable—independent journalists who have been left bleeding on the streets of London. Will she ensure that we take the cross-departmental action that is recommended in that report at the earliest opportunity?
Baroness Chapman of Darlington (Lab)
I have not read that evidence, but I will do. What the noble Lord describes is transnational repression and criminality. We will do whatever we need to do to stamp it out, and he is right to draw our attention to it. We are deeply concerned, and this is another reason why we must do everything we can and use our leadership to protect, preserve and enhance the vital role that journalists play across the world.
The Lord Bishop of Southwell and Nottingham
My Lords, the World Service has been particularly effective at communicating issues of faith and freedom of religion, and, notably, at addressing misinformation during times of global conflict. In the light of the increasing importance of this, what steps are the Government taking to ensure that it is well placed to play an increasing educative role in the understanding of faith?
Baroness Chapman of Darlington (Lab)
As the right reverend Prelate says, the World Service does a very good job of this, as it does in so many areas of public life. Although it is independent of government, and it is vital that that remains the case, we talk to and work closely with it on areas of priority for the government, including freedom of religion and belief, language services and geographical priorities. It is right that we do so. I highlight the work being done in Afghanistan on the education of girls in particular, which is especially impressive.
Baroness Kennedy of The Shaws (Lab)
My Lords, picking up on the question from the noble Lord, Lord Alton, the risks of transnational repression are experienced by BBC journalists and by journalists from Iran International. Are the Government aware that, only yesterday, a leading commander in the Iranian armed forces warned that if “certain institutions and countries” continue to co-operate with Iran International, a broadcasting company like the BBC, locations and infrastructure linked to the broadcaster may be included in Iran’s military targeting? Are we doing anything about that threat?
Baroness Chapman of Darlington (Lab)
I will look into the issue that my noble friend raises. I was not aware of it, but I will make sure that officials and the relevant Ministers attend to that.
Birmingham City Council and Unite: Refuse Workers’ Pay
(1 day, 4 hours ago)
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Lord Woodley
To ask His Majesty’s Government what discussions they have had with the parties involved in the industrial dispute between Birmingham City Council and Unite regarding the pay of refuse workers.
Lord Woodley (Lab)
In begging leave to ask the Question standing in my name, I declare an interest as the former general secretary of Unite the Union.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, the Government recognise the deep frustration of residents with the ongoing waste dispute. The people of Birmingham must be at the heart of resolving this issue. While the Government are not a party in this dispute, the Secretary of State has met both parties and urged them to bring about a sustainable solution to end it. We continue to monitor the situation, alongside the associated impact on local communities.
Lord Woodley (Lab)
The Minister is well aware that, almost a year ago, an agreement was reached at ACAS between the chief executive of the council and Unite to end this dispute, only for it to be vetoed by the commissioners appointed by the last Government on about £1,200 a day. Does the Minister agree that this agreement must be honoured, or the commissioners replaced, to end this rat-infested, unnecessary dispute that has cost over £33 million to date and is badly damaging services that are so important to the people of Birmingham?
Baroness Taylor of Stevenage (Lab)
We all want to see the dispute brought to a resolution as quickly as possible. The government-appointed commissioners have been in place at the council since 2023 to oversee its improvement journey. That involves working with the council to make sure that its decisions align with its statutory duties. On the waste dispute, it is not true that the commissioners are blocking a viable deal. As noble Lords would expect, the commissioners are supporting Birmingham City Council to ensure that its approach is in line with its legal obligations, including the best value duty. They report regularly to the Secretary of State, but they are independent of government and Ministers do not dictate their decisions or approve their actions.
Lord Bird (CB)
Is it possible for us to agree that one of the reasons we are in this dispute is that refuse workers are so badly paid? I am a former refuse worker —I was a road sweeper for the Royal Borough of Kensington and Chelsea—and I can honestly say that this is a disgrace. If we do not have the removal of rubbish, cities just fall apart.
Baroness Taylor of Stevenage (Lab)
The noble Lord raises an important point about the pay of public service workers, and it is very important that they are recognised for the real value they provide in our communities. But even before the strike, Birmingham’s waste service was failing residents. For example, in 2024-25 residents registered over 120,000 missed bin collections. The council now has to press ahead with the much-needed transformation to build a waste service that is fit for purpose and delivers for the people of Birmingham. That of course includes recognising the staff as they should be recognised.
Lord McLoughlin (Con)
Bearing in mind the words of the noble Lord, Lord Woodley, on the position of the commissioners, do the Government have full confidence in the commissioners appointed to do that job?
Baroness Taylor of Stevenage (Lab)
The commissioners are reporting regularly to the Secretary of State. They are independent of government, but they are carrying out valuable work in Birmingham. In their most recent report, they highlighted that the council has made very positive progress in key areas, including in service delivery. They also noted that the waste dispute has diverted attention and that the council has significant work to do to meet the best value duty. The commissioners are providing good support to Birmingham City Council, and I am sure they will continue to do so.
Baroness Thornhill (LD)
My Lords, my concern is that for a whole year, the residents of Birmingham have had to endure worsening public health conditions. What additional public health powers are Ministers prepared to use if the situation deteriorates? How bad do things have to be before the Government intervene? A year is far too long.
Baroness Taylor of Stevenage (Lab)
Throughout the dispute, the Government’s priority has been the residents of Birmingham. During the worst disruption, in spring 2025, the Government provided intensive support to local partners to respond to the public health crisis that was arising then because of the all-out strike action. The result was to establish a regular contingency waste collection service, despite the industrial action. While the contingency service delivers basic services, there have been periods of missed collections. We continue to monitor the situation and the associated impact on local communities, but for the moment the contingency service is delivering a service to the people of Birmingham.
Lord Jamieson (Con)
My Lords, last year Birmingham’s Conservative group published a clear plan to end the bin strikes, reinstate weekly collections and resolve the equal pay liabilities. Labour rejected that plan, claiming that negotiations were progressing well. Do the Government regret that decision, which could have stopped the strikes 12 months ago? Will the Government ensure that constructive opposition proposals that put residents first are properly considered?
Baroness Taylor of Stevenage (Lab)
The Conservative Party in Birmingham should not wash its hands of some of the part it played in creating the crisis that Birmingham is facing overall. Birmingham’s recent history has seen one of the largest equal pay crises in modern times. Over the past 15 years, this has cost the council and the people of Birmingham a great deal of money. In October last year, the council signed the agreement with the unions to settle the historic equal pay claims that had amounted. This was a significant step forward to move past a dark moment in the city’s history and in resetting relationships with staff and their trade union representatives. Talks are ongoing to resolve this current issue.
Baroness Jones of Moulsecoomb (GP)
My Lords, I do not quite understand what went wrong last May, because an agreement was reached and the news was that the commissioners had blocked that deal. Have the Government looked any further into this to be sure of exactly what happened, what went wrong and how it can be improved?
Baroness Taylor of Stevenage (Lab)
As I have said, it is not correct to say that the commissioners blocked a viable deal. We want to urge both parties to get back around the negotiating table to find a sustainable solution to end the dispute in the interests of residents. Of course, it is very important that both the equal pay settlement that has been agreed in Birmingham and the best value duty are met in the course of those negotiations.
Lord Hannan of Kingsclere (Con)
My Lords, is the truth not that these insanitary and insalubrious horrors being visited on our second city are the result of an act of grotesque judicial activism? Everyone understands what equal pay means: men and women should get the same for the same job. Here is a court saying that if one profession mainly has men, that allows it to intervene. That disregards what the law says in favour of what it thinks the law ought to say. How many other local authorities in this country face potential bankruptcy because of these perverse and expansionist rulings by politicised judges?
Baroness Taylor of Stevenage (Lab)
I am pleased to tell the noble Lord that this year, very recently, the council passed a balanced revenue budget without the need for exceptional financial support for the first time in recent years. This is possible because the Government delivered fairer funding, meaning that Birmingham will receive an increase in core spending power of 45% to help restore its services and the recovery of the local economy. That is very positive progress for delivering financial sustainability for the residents of Birmingham. I commend the hard work of the council leader, members and officers, and the commissioners, in getting to this point.
Lord Watts (Lab)
My Lords, would it not be a good idea for ACAS to get involved again to see whether progress can be made with this dispute? At the moment it does not seem to be going anywhere, and both the people of Birmingham and the workers are suffering.
Baroness Taylor of Stevenage (Lab)
We would certainly encourage all parties that can help with this dispute to get around the table and make sure that this is resolved. It is not in the interests of the people of Birmingham for this to carry on a day longer than it needs to.
Lord Scriven (LD)
My Lords, for two years the poor council tax payers of Birmingham have paid a 10% council tax rise and a 7.4% council tax rise but have not been able to get the basic service of having their bins emptied. What would the Minister say—other than that people need to get around the table—to those people in Birmingham to get the most basic of council services?
Baroness Taylor of Stevenage (Lab)
The noble Lord makes a point that I want to expand on. It is very important for Birmingham and the people of the West Midlands that the economy can be driven forward so that we can develop the potential that we know Birmingham has. Having this dispute hanging over both the council and the people of Birmingham is not helping that to take place. That is why I say that the sooner we can get this dispute resolved, the sooner we can start building the economy, the potential and the future for Birmingham that we know are there and waiting to happen.
Lord Evans of Rainow (Con)
My Lords, the Minister did not answer my noble friend’s question. How many other councils could be in this position on equal pay?
Baroness Taylor of Stevenage (Lab)
I think it is fair to say that the situation on equal pay has now been resolved in most councils. In my own council, it took a very long time indeed to resolve because it had not been looked at for a number of years. It often results in large costs for the councils. I cannot say specifically how many councils have not resolved it yet. I think there are probably very few, but I am happy to look into that and come back to the noble Lord.
Fujitsu: Post Office Horizon Case
(1 day, 4 hours ago)
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Lord Arbuthnot of Edrom
To ask His Majesty’s Government what representations they have made to Fujitsu regarding making an interim payment towards the costs of investigation and redress in the Post Office Horizon case.
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, I pay tribute to the noble Lord and to my noble friend Lord Beamish, whose unwavering determination, moral courage and steadfast advocacy over these years have ensured that the voices of Horizon victims were heard, believed and ultimately vindicated.
Fujitsu has acknowledged its moral responsibility and has indicated its intention to make a financial contribution. The figure will be set once the Williams inquiry publishes the final volume of its report. We have made it clear to Fujitsu that an interim payment would be a valuable demonstration of intent. However, whether to make such payment and the level of any contribution remains a decision for the company.
Lord Arbuthnot of Edrom (Con)
My Lords, I thank the Minister for that Answer. Given that Fujitsu knew from the beginning that its system was faulty; that it knew that it was altering remotely sub-postmasters’ accounts without the knowledge of the sub-postmasters; that it knew that the Government and the Post Office were denying that these things could happen while prosecuting the sub-postmasters, how can Fujitsu possibly be a fit and proper organisation to do business with anyone in this country, let alone the Government? Or are we over a barrel?
Lord Leong (Lab)
My Lords, the anger shown by the noble Lord, which I share, is completely understandable, considering the serious injustice experienced by so many sub-postmasters. These are exactly the issues that the independent inquiry is examining in detail. Fujitsu has acknowledged a moral obligation to contribute to the costs of redress, and the Government have made it absolutely clear that it should do so. Decisions regarding its future role as a government supplier will be made carefully, based on the full findings of the inquiry.
Lord Beamish (Lab)
My Lords, the situation outlined by my good friend, the noble Lord, Lord Arbuthnot, is right. Fujitsu provided the equipment for the Post Office and knew what was wrong with it, and, even worse, it had a contract to provide information in court to prosecute individual postmasters. Fujitsu was at the centre of this scandal.
My noble friend said that Fujitsu has announced that it has a moral obligation. Well, moral obligations do not pay bills. The taxpayer is on the hook already for over £1.4 billion paid out. Those postmasters—some, unfortunately, are no longer with us—need answers to this injustice. Fujitsu is hiding behind the inquiry. It could make the interim payment now. The Government must stop giving this company contracts: that is the only thing which will stop it and wake it up. Can my noble friend indicate when that decision will be made to stop giving Fujitsu work?
Lord Leong (Lab)
I share the frustrations my noble friend expresses. The Government are absolutely committed to ensuring that this inquiry takes place, and the findings will be published soon. As he will note, the first volume of the inquiry has been published, and it makes it clear that Fujitsu has an obligation to make compensation for the sufferings of all these postmasters. We are determined to ensure that Fujitsu plays its part.
Lord Fox (LD)
My Lords, it might help if your Lordships understand the scale of our commitment to Fujitsu. On my count, there are 30-plus live UK contracts, worth at least £5 billion through the lives of those contracts. Since the 2019 High Court ruling, HMRC alone has awarded eight contracts to Fujitsu. We do not need an independent inquiry to know that Fujitsu should be paying compensation, so what is stopping the Government pushing it to do that?
Lord Leong (Lab)
The noble Lord touches on several points; let me go through each of them. First, the suggestion that we should simply walk away from existing Fujitsu contracts does not take account of the impact on public services.
Lord Leong (Lab)
Bear with me. For instance, Fujitsu provides communications between our submarines at sea and HQ. It supports HMRC’s self-assessment scheme and the Home Office border operation. It is also supporting the current Horizon scheme. Although a replacement is being developed and the Government are committed to the Green Paper that we just published, we are investing £483 million over the next two years to support the transformation, replacing Horizon and transitioning away from Fujitsu.
Lord Clarke of Nottingham (Con)
My Lords, if there is sufficient evidence to support the assertions two noble Lords have made about the extent of Fujitsu’s knowledge of the failures in their system—and I believe there is such evidence—have the Government not considered taking legal action against Fujitsu to enforce what would almost certainly be its legal liability to pay compensation for the massive losses its action has caused? Why are the Government just relying on a vague indication by Fujitsu that it has a moral obligation? A very great deal of money could be recovered for the taxpayer if a successful legal action was brought against this international company.
Lord Leong (Lab)
I have the utmost respect for the noble Lord but, as a former Secretary of State and Minister, he should know that the Government speak to government lawyers on a regular basis. An inquiry is taking place, and we should wait for it to finish and for the report to be published. An interim report has been published, and Fujitsu has committed to making a payment. When and how that happens is being consulted on and discussed between the two parties.
Lord Cromwell (CB)
Can the Minister confirm that Fujitsu has a role in the national emergency alert system on which our entire society depends? If so, is it time for a rethink?
Lord Leong (Lab)
I am afraid I do not know the answer to that, but I will definitely find out and write to the noble Lord.
Lord Wigley (PC)
My Lords, is it not inconceivable, in the circumstances that have developed, that Fujitsu could get away without making a payment? Should there not now be a ring-fenced fund into which it is required to pay, so that all the liability does not land on the taxpayer?
Lord Leong (Lab)
As I mentioned earlier, we are in constant conversation with Fujitsu. It has already committed to pay compensation, but how and when that happens is currently being consulted on.
Baroness Finn (Con)
My Lords, does the Minister accept that it is wholly unacceptable for the taxpayer to be picking up the full cost of this scandal while Fujitsu, whose systems were at the heart of the failings, has yet to make any meaningful financial contribution? Can he confirm whether the Government will take advantage of the new procurement regime put in place by the previous Government, which allows the exclusion of suppliers from future procurement processes on the grounds of professional misconduct?
Lord Leong (Lab)
My Lords, the Government’s expectation is clear: Fujitsu should bear the cost of redress resulting from the Horizon scandal. We are engaging constructively with the company and have communicated our position at the highest level. I cannot go further than that. However, it is not appropriate for the taxpayer alone to bear the burden of the failure in which Fujitsu was significantly involved.
Baroness Chakrabarti (Lab)
My Lords, if the litigation strategy rightly suggested by the noble Lord, Lord Clarke of Nottingham, does not bear fruit, I would urge my noble friend and the Government to consider legislation to ensure appropriate legal restitution.
Lord Leong (Lab)
My Lords, the Government are open to all suggestions, and that is something we will consider.
Lord Clement-Jones (LD)
My Lords, in Questions answered by the Treasury, I was told that it did not have the power under procurement rules to prevent Fujitsu being awarded new contracts. If that is the case, are the Government going to change the rules?
Lord Leong (Lab)
The noble Lord mentions procurement. I am sure that the Cabinet Office is looking into whether any changes need to be made, but a live inquiry is happening at this time. We have to follow it through, and its findings will be published in due course.
Lord Sterling of Plaistow (Con)
My Lords, I make the point that my noble friend’s work has been wonderful—
Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)
I believe it is the turn of the Conservative Benches.
Lord Sterling of Plaistow (Con)
My Lords, I think the Prime Minister should personally ring the Prime Minister of Japan, who had an amazingly successful outcome in the election, and suggest that she lean—this is my word—on Fujitsu, as it is in our interests to trade with them. I know that it is a bit late to ring tonight but, first thing tomorrow morning, the Prime Minister should speak to her personally and ask her to lean on Fujitsu.
Lord Leong (Lab)
As I mentioned, the Government are having conversations with Fujitsu regularly, which I am sure are also at government level. I take the noble Lord’s point.
Grenfell Tower Memorial (Expenditure) Bill
GP Contract
(1 day, 4 hours ago)
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Lord Kamall (Con)
My Lords, I am grateful to the Government for this repeat. The Minister in the other place pointed to 1.3 million referrals being diverted through something called “advice and guidance”. This means that GPs must seek input from a specialist before making a referral, but some professional bodies have warned that this mandatory approach will risk creating barriers to patients accessing specialist care and may compromise patients’ safety if they are not referred in a timely manner. To address these concerns, can the Minister set out what clinical safeguards are in place where a GP believes a patient needs to be referred directly to a specialist but is instead referred to go through this advice and guidance process? If a patient comes to harm as a result of any delay due to not being referred directly to a specialist, who will bear responsibility for that decision and how will accountability be determined?
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
As the noble Lord said, we have seen 1.3 million people diverted since April 2025. Otherwise, they would have been added to the electives waiting list, in clinical terms, unnecessarily. The main thing I can say to the noble Lord on advice and guidance is that I think the figures speak for themselves. That is why we are embedding it into the core contract. We are recognising it as routine practice. It provides more predictable funding and removes annual sign-ups. More generally, I must emphasise to the noble Lord that it does not take away a GP’s right to refer. That remains a matter of clinical judgment and, as in all things, clinical judgment will rule the day.
Lord Scriven (LD)
My Lords, the Government have now mandated a cast-iron guarantee that GP practices’ online portals must remain open in core hours, but a portal is merely a digital letterbox, it is not a clinician. Has the department conducted a full clinical risk assessment of the danger of red-flag symptoms being buried in high volumes of routine digital traffic? If so, will the Minister publish those findings today? If not, how can the Minister guarantee that this always-on requirement is clinically safe for patients?
Baroness Merron (Lab)
When we develop digital approaches, I have to say again that the figures speak for themselves on, for example, patient satisfaction with general practice: people believe it is finally moving in the right direction. According to the Office for National Statistics, some 77% of people described contacting their GP as easy. That was in January this year, and it was up from just 60% in 2024. I think the public are giving their own view. On development of online access, we always ensure that patient safety is at its heart. I cannot give the commitment to publish that the noble Lord seeks, but I will be very happy to write to him and place a copy of the letter in the Library of the House, giving all the detail about how patient safety is assured. That is core to all our work and developments.
Baroness Bottomley of Nettlestone (Con)
My Lords, it is evident all over the country that there is an epidemic of sick notes. Is there anything that the Government are doing to strengthen the arm of GPs who try to resist giving a sick note on simple request?
Baroness Merron (Lab)
If I have understood the noble Baroness correctly—forgive me if I have not—the GP contract does not address that directly. That is obviously a more general but important point about GPs’ practices and how they deal with matters. GPs are given advice in their updated training on how to manage those situations, and I expect them to follow it.
Baroness Gerada (CB)
My Lords, the new GP contract appears to be baking in access over continuity: my GP, when I want to see him. How will the Government protect continuity of care, which is after all what keeps the NHS safe and provides value for money, and which patients welcome?
Baroness Merron (Lab)
We have already said that through our 10-year plan, and this contract very much ties into the main pillars of the plan. We found GP services in a very difficult and challenging state, as I know the noble Baroness will be more than aware. We regard GP services as the front door. We want to see that continuity of care and we expect GPs to organise it accordingly. We all understand that it is not always possible, but clearly the best form of care, whether in the community or in hospital, is on a continuous basis and wrapped around the patient’s needs, not the other way around.
The Lord Bishop of Manchester
My Lords, the Statement made in the other place refers explicitly to coastal areas and deprived places, and I welcome that. Will the Minister say something about how we can ensure that there is good access to GP services in rural areas?
Baroness Merron (Lab)
The right reverend Prelate is right to raise this. We have been very concerned for some time about the inequalities in coastal areas and areas of greatest need, where healthy life expectancy is the lowest. That includes communities with higher deprivation levels. That is why we began our reforms last year with an independent review of the outdated Carr-Hill formula. That is about the distribution of GP funding, which is fundamental to the point the right reverend Prelate makes. It is based on data that is around 25 years old in some cases, and clearly our population has changed. I look forward to updating the House when that review is concluded.
Baroness Manzoor (Con)
I welcome some of the criteria that are going to be used, particularly for deprived communities, in relation to access, but there remains a postcode lottery in terms of access to GPs, particularly in deprived communities. My concern is that, with some of the algorithms and IT being used as a postbox, patients are being referred directly to A&E departments. Will the Government assess in A&E departments which people are being referred that way so, that we can ensure that that loophole is addressed?
Baroness Merron (Lab)
It is important to say that online access does not sit alone. There is also in-person access, including telephone access if people prefer that. The intention is not—and it is not the practice—that they are just postboxes. They are dealt with. We constantly keep those approaches under review. Our expansion is about access to GPs. That includes, for example, in answer to some of the points that have been raised today, including by the noble Baroness, repurposing £292 million from primary care network incentive scheme moneys to fund additional GP sessions to create more capacity, because that is necessary whatever way people make contact. That was based on feedback from the BMA, which said this would be a more effective use of funding.
Baroness Browning (Con)
Is there any monitoring of when GPs insist on a telephone call rather than a face-to-face meeting, or when things are sent by email to the surgery and they are then triaged by others rather than their normal GP? Is there any identifying of just how many cases they miss of those very serious conditions that subsequently end in serious illness or even death? I am particularly thinking of such things as sepsis, where the symptoms are not always so overt to begin with as they are as the disease progresses. Is there any monitoring of how successful these new systems are in picking up those types of diseases?
Baroness Merron (Lab)
All the systems are under constant review. It might be helpful if I point out to the noble Baroness that one of the key things in the GP contract for 2026-27 is the requirement for all clinically urgent patients to be dealt with on the same day. That is not required currently; I think that will make a huge difference. Again, I emphasise that we will not be defining “clinically urgent”: it will be down to practices to use their clinical judgment, and that is the right place.
Lord Mandelson: Response to Humble Address Motion
(1 day, 4 hours ago)
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Baroness Finn (Con)
My Lords, in discussing this matter we must, as always, keep Jeffrey Epstein’s victims and their families at the forefront of our minds. I pay tribute to the brave women and girls who were abused by him who have spoken out and called for justice.
The Prime Minister told the House of Commons on 4 February that Peter Mandelson, when questioned about his relationship with Jeffrey Epstein, “lied repeatedly”. To date, we are yet to see evidence of those lies, but we do now have proof that the Prime Minister was directly informed that Mandelson had maintained his relationship with Epstein after the latter had been convicted for child sex offences.
Upon receipt of this information, the Prime Minister, a former Director of Public Prosecutions, did not undertake a searching inquiry for the truth but instead left it to two personal friends of Mandelson, Morgan McSweeney and Matthew Doyle—now the noble Lord, Lord Doyle—to engage in a farcical form of due diligence consisting of questions we are yet to see and answers that continue to be withheld. As if that were not concerning enough, it has been reported in the Times that no written record of the appointment of Mandelson exists. I find this extraordinary. As others who, like me, have worked in Downing Street know, there simply has to be an audit trail to transmit the Prime Minister’s decision. The decision, we are asked to believe, was made in an informal meeting with senior advisers.
The House should pause at this stage to recollect that a previous Prime Minister was heavily criticised by the House of Commons Committee of Privileges report of 15 June 2023, when, in making statements to the Commons, he relied on assurances that
“did not emanate from senior permanent civil servants or government lawyers”.
Can the Minister say whether the Prime Minister misled the House of Commons when he gave the assurance that full due diligence was followed? Does she accept that the sole basis on which the Prime Minister gave that statement was the undocumented assurances of two personal friends of Peter Mandelson?
I turn to other matters. Why was Peter Mandelson paid £70,000? The Government’s argument is that not paying him would have resulted in a claim in the employment tribunal, with associated costs to the taxpayer. Can the Minister explain why the Government did not have the courage to stand up to Mandelson to ensure that he would not receive a penny of taxpayers’ money following his dismissal? The Prime Minister has said on the record that Mandelson acted dishonestly to gain the post of ambassador. If that was true, surely Mandelson’s case would not have been successful at the tribunal. Does the Minister understand why the public are so angry about this? He should not have received a penny.
When we last repeated a Statement on the Government’s response to this humble Address, I asked whether the Government would publish a schedule that would show which documents are being withheld and which are being published. I did not get an answer then, but the Chief Secretary to the Prime Minister said in the other place
“I would need to take advice from lawyers in the Metropolitan Police before I could say whether these documents are being held for their criminal investigation”.—[Official Report, Commons, 11/3/26; col. 364.].
Yesterday, the Official Opposition reiterated the need for this, given that at least 56 documents are thought to be missing. Has that advice been sought? When will the Government give a formal answer to this important question, which has already been put to Ministers a number of times? For the sake of public confidence in the process that Ministers and officials are following in response to the humble Address, we must be able to see the amount of information that is being withheld and for what reason.
Evidence that we have already seen shows that the Prime Minister knew as a fact that Mandelson maintained his relationship with Epstein after the latter’s conviction. The Prime Minister knew that Mandelson was unfit to be our ambassador but appointed him anyway and allowed two of Mandelson’s personal friends to synthesise an entirely farcical, illusory form of due diligence. At the end of this, the Prime Minister placed into our most prestigious and pivotal diplomatic post a man who is, as a matter of public record, already known to be a serial liar. Surely the truth is that the misplaced trust is not that of the Prime Minister in Peter Mandelson but the trust that the British people placed in the Prime Minister at the last election—a trust that all too many now feel to have been entirely misplaced.
Lord Wallace of Saltaire (LD)
My Lords, we on these Benches hesitate to criticise the due diligence process by the security services and the Civil Service; it seems to have been effectively and efficiently done but disregarded by the Prime Minister’s political advisers and overridden by the Prime Minister. Presumably he thought the task of establishing and maintaining a close relationship with President Trump demanded someone like Peter Mandelson in spite of, or even because of, his flaws.
Can the Minister tell us when further files will be released? I have just looked through the first package that has been released, which is actually very thin. There is clearly an awful lot more to come out—to repeat, there is a lot to come out not just from London but from Washington, which will overlap on to this.
I am sure the whole House will be happy that the Minister has been appointed by the Prime Minister to look further into this. We will all do our best to co-operate with her in making sure that standards and procedures are improved. Can she tell us more about her work programme in her new responsibilities on ethics and standards? Will that work be primarily within government or across the parties and both Houses to make sure that, as far as possible, it gets the maximum buy-in from everyone concerned and interested in politics, and will therefore have the best chance of succeeding? Will she, for example, consider strengthening the parliamentary oversight of major public appointments, which is, after all, a common occurrence in a number of other parliamentary democracies?
How do the Government propose to strengthen further the Ministerial Code? Will they commit to regular revisions with advice from committees in both Houses?
Does the Minister recognise that the case that many of us keep making for putting the Ethics and Integrity Commission, ACOBA and a number of other bodies on a statutory basis is a matter of future-proofing? We do not know what the outcome of the next election will be but it could be extremely messy and lead to some form of coalition Government. We need to make sure that we future-proof our standards and commitments to make sure that any new Government who come in will find it easier to accept them than to override them. We have plenty of lessons from Washington of how easily things can go wrong, and we need as far as we can to prevent them similarly going wrong over here.
Can the Minister say a little about implications for the House of Lords? I note that the Conduct Committee is being charged with the rather difficult task of looking at our standards. The Leader of the House reprimanded me the other week for referring to us as a part-time House and replied that we are now effectively a full-time House. Yes, we are, but the way in which we are managed and governed still assumes that we are part-time and earn other things outside the House, and that that requires us to have a different set of concerns about private, commercial and financial interests and activities outside from those in the Commons. If we are now to be judged on the same level as the Commons as a full-time House then that is quite a radical readjustment of the way one thinks about the second Chamber.
Can I also ask a little about what happens when Peers are disbarred from the House? Will the Government consider putting before the House the idea that they should no longer be able to hold their titles? Removing them from the peerage roll would be perhaps a more important way of signalling that they no longer have a position of honour within our political system.
Of course, behind all this there are some broader issues about the financial and political culture in London, Washington, New York and Westminster. Wealth and money in politics is something we are all going to face as the Representation of the People Bill arrives in this House in a few months. We will need to look at that very carefully. I hope we may be assured that the Government will work with us to make sure that money does not override other matters in our life.
The Parliamentary Secretary, Cabinet Office (Baroness Anderson of Stoke-on-Trent)
I thank the noble Baroness and the noble Lord for their questions. It is incredibly important that these matters are addressed, not least because they now drive a huge amount of my own personal work. I will come on to that.
First, I will provide an update following the Statement made in the other place last week by the Chief Secretary to the Prime Minister on the release of the first tranche of documents in response to the humble Address Motion of 4 February. As the Chief Secretary to the Prime Minister rightly stated:
“Jeffrey Epstein was a despicable criminal who committed … disgusting crimes that destroyed the lives of countless women and girls. What he did is … unforgivable”.
His victims must be
“our first priority. Peter Mandelson’s behaviour”—
including encouraging Jeffrey Epstein to fight his conviction for abusing a vulnerable young girl—
“was an insult to them and their suffering”.—[Official Report, Commons, 11/3/26; col. 359.]
We should also never forget that every time we discuss Epstein’s horrendous behaviour, his victims relive awful experiences. These survivors must be front and centre when we debate all issues related to Jeffrey Epstein, his network and their impact.
That is why there is a cross-party consensus in both Houses for full transparency and accountability. The Government are committed to publishing all documents relevant to the humble Address and last week published the first tranche. These documents relate specifically to the decision to appoint Peter Mandelson as ambassador to the US and the discussions that subsequently led to his dismissal. Further work is ongoing to compile the rest of the information in scope. The Government recognise the urgency with which this work must be completed and will keep your Lordships updated as it progresses.
The Prime Minister has taken personal responsibility for Peter Mandelson’s appointment as ambassador. He has acknowledged that it was a mistake and apologised, not least for believing Peter Mandelson’s lies. While the documents point to public reports of an ongoing relationship between Peter Mandelson and Jeffrey Epstein, the advice did not expose the depth and extent of their relationship, which became apparent only after the release of files by Bloomberg and then the US Department of Justice.
As the Chief Secretary to the Prime Minister set out last week, there are specific documents that this Government would like to disclose but the Metropolitan Police has asked us not to do so yet to avoid prejudicing the ongoing criminal investigation into Peter Mandelson. We have agreed to that request. We will publish these documents once the Metropolitan Police has confirmed that this will no longer prejudice its investigation.
The Government have already taken steps to address weaknesses in the system and I will update your Lordships on the further steps we will take. As noble Lords will be aware, the Government have asked the Conduct Committee of your Lordships’ House to review the Code of Conduct to consider what changes are required to ensure that Members of your Lordships’ House can be removed when they have brought the peerage into disrepute. We are also exploring whether the committee can further strengthen the rules on lobbying and paid advocacy.
The Chief Secretary to the Prime Minister also announced that the Prime Minister has asked the Ethics and Integrity Commission to conduct a review of the current arrangements relating to financial disclosures for Ministers and senior officials, transparency around lobbying, and the Business Appointment Rules, and I look forward to receiving its report before the Summer Recess. The Chief Secretary also confirmed that we will conduct a review of the national security vetting system to ensure that we learn the lessons from the policy and process weaknesses related to the Mandelson case.
With regard to some of the specifics that were asked, I think some of the questions from the noble Lord, Lord Wallace, will be slightly easier for me to answer, given that they are in my direct purview. On the questions asked by the noble Baroness, Lady Finn, we have been clear that many more documents will follow in coming tranches. The noble Baroness was concerned about who is seeing what and when. I want to be clear that, while we are withholding some documents at the request of the Metropolitan Police, we have agreed with Simon Hoare MP, the chair of PACAC in the other place, that he is seeing all documents being withheld, so a member of His Majesty’s Opposition is seeing everything as we go through it.
Given the scale of what we are doing and the fact that we are complying and will comply with both the spirit and the letter of the humble Address, it is appropriate that we are releasing the documents in such a way that is sensible given their nature, but also that the ISC is seeing them so that it can deal with them. I assure noble Lords that all the documents will be published and that noble Lords will have the opportunity to see them all—but, given the live police investigation, we have to take this step by step.
I just want to touch on the 56 documents. I have read the paperwork related to them but I do not recognise the 56 documents. The noble Baroness asked specifically whether legal advice had been taken on the schedule. I have not seen that, but I will revert to her if such advice exists. She also questioned whether the Prime Minister had misled the Commons. He absolutely has not; his comments all the way through are in line with the paperwork being released in each tranche.
On some of the specifics raised by the noble Baroness, obviously she is aware that I cannot comment on the Committee of Privileges of the other place—that was Parliament holding a former Member to account. She asked about some of the things that we have already done, as did the noble Lord, Lord Wallace. I will touch on severance payments, which were a core theme from the noble Baroness. As the documents show, Peter Mandelson initially requested a sum that was substantially larger than the final payment—more than six times the final amount—despite the fact that he was withdrawn from Washington because he had lost the confidence of the Prime Minister. As the Chief Secretary to the Prime Minister explained yesterday, the Government obviously found that to be inappropriate and unacceptable. The settlement that was agreed was to avoid even higher costs from a drawn-out legal claim at the employment tribunal, given Peter Mandelson’s employment as a civil servant rather than a Minister.
As noble Lords will know, Ministers can be dismissed without recourse to the employment tribunal—let us hope I am not experiencing that soon—but civil servants are treated differently. As can be seen from the documents, Peter Mandelson’s settlement was in line with his employment contract and standard Civil Service HR processes, avoiding the risk and high costs of drawn-out legal action and ensuring he was quickly removed from the payroll. As set out in the documents, the Chief Secretary to the Treasury approved this payment in line with standard HMT guidance on the use of severance payments.
I have already touched on the issue of vetting, but I want to spend a couple of moments responding to the questions from the noble Lord, Lord Wallace. On the question about the release of further documentation, given that this request is supported by both Houses but is about the Commons and complying with the Commons, obviously we need to lay those documents when the House is sitting. Those documents will come forward in due course, either before or after the Recess.
I look forward to discussing many details of my own work programme with Members of your Lordships’ House, not least the noble Lord, Lord Wallace. I truly believe that if we are to rebuild faith in politicians, and in what I consider to be one of the most important buildings in the country, it has to be a cross-party, cross-government and cross-Parliament project, so I will actively seek to work with all Members of your Lordships’ House on where we believe the gaps are, what we can realistically fix and how we can rebuild trust.
With regard to the Ministerial Code revisions, the noble Lord will not be surprised that, unlike his colleagues in the other place, who suggested that we may want to put it on a statutory footing, we will not be seeking to do that, but I am very aware of what he said about future-proofing standards. Many people who have been at this Dispatch Box and at Dispatch Boxes in the other place are aware that we rarely get to look at standards in the round. The last time that was done with a clear objective was in establishing the Nolan principles. I view this as a once-in-a-generation opportunity to make sure that we get this right. We have a Minister dedicated to it—I do not know the last time that happened—so it is about how we can ensure we use this moment to fix the things that typically get pushed to one side.
However, I agree with my noble friend the Leader of our House, Lady Smith: we are a full-time House with part-time Members and we are different from the other place. Noble Lords will be aware that I used to be a Member of the other place and am married to a Member of the other place; what he is expected to do and what I did before I was on the Front Bench are two very different sets of responsibilities. We need to make sure that we do not lose what is so special about this building and our Chamber, and some of the expertise we have because of people’s outside interests compared to the other place.
The noble Lord raised the Representation of the People Bill and the impact of money. He did not touch on the Rycroft review, which will be coming forward and will very much tie into our discussions on these issues.
I conclude by reiterating that Jeffrey Epstein was a despicable individual, and Peter Mandelson’s decision to put their relationship before his victims and the vulnerable is reprehensible. As the Prime Minister said, the victims of Epstein have lived with trauma that most of us can barely comprehend. They have had to relive it again and again, and they have had to see accountability delayed and too often denied. Peter Mandelson should never have been appointed. The Government will comply with the humble Address and I will provide further updates to your Lordships’ House in due course.
The Deputy Speaker (Baroness McIntosh of Hudnall) (Lab)
My Lords, the noble Lord, Lord Foulkes of Cumnock, is participating remotely and I invite him to speak now.
Lord Foulkes of Cumnock (Lab Co-op) [V]
My Lords, first, I thank my noble friend the Minister for bringing to the House this excellent Statement. I congratulate her on her very appropriate appointment, which shows the sincerity and determination of the Government to take this issue seriously. I recognise that the Liberal spokesperson asked some sensible questions, which the Minister has responded to. However, I was really disappointed that the Official Opposition took this as another opportunity to attack the Prime Minister and his integrity. That was an unfortunate lapse of judgment by their Front Bench.
Will the Minister confirm that this House needs to look at its own procedures and arrangements as well? The recent Chadlington case shows that we are not above reproach. Will she indicate that this will be a much wider look at the whole aspect of how the Government and Parliament operate? Will she indicate how much the whole long and complicated exercise might cost, because it is not without substantial cost?
Baroness Anderson of Stoke-on-Trent (Lab)
It is a true joy to see my noble friend, if only on a screen. I am so pleased that he is well enough to participate, if remotely. I cannot wait to see him back in his place.
My noble friend asked me several questions. I want to focus on the fact that there is a responsibility on every Member of your Lordships’ House and everyone who serves in this building, whether in the other place or here, as well as those who support all of us, to help rebuild trust in politics. My noble friend spent a long career door-knocking and campaigning, and we know how important this is. With regard to the costs, I do not have a total cost to give my noble friend at this time and it will not be possible to give a running update. However, I can confirm that Civil Service resource has been redeployed, meaning that this will not create any net cost to the taxpayer. Any additional costs will be set out in due course.
Lord Pannick (CB)
Would the Minister agree that one of the ironies of this sorry saga is that His Majesty’s Government had a highly competent ambassador in Washington DC, Karen Pierce, who had the confidence of the Trump Administration and was widely respected in that city? Does the Minister agree that no Government should be appointing political cronies to this type of position but should be selecting from the wide category of highly competent professional diplomats?
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Lord, as ever, raises an interesting and non-straightforward point for me to answer. On the process, while this was unusual it is not unheard of. Three Members of your Lordships’ House were political appointees from both parties to hold ambassadorial roles, both by previous Labour Governments and by the Conservative Government. There is a clear process for such appointments. The process was followed; the process did not work; the process has now changed.
Lord Clarke of Nottingham (Con)
The private lives of the decadent rich are always going to arouse interest in the media and with the general public. The Prime Minister has failed to answer some very embarrassing questions about what he knew when he made this appointment. In my opinion, this whole thing became overwhelmingly more serious when allegations were made that Lord Mandelson and Andrew Mountbatten had been repaying the hospitality they received by giving classified government financial and economic information to a financier to help him with his investments. If that is true, it is one of the most serious allegations of corruption in public life in recent years. We normally assume that we do not have that in this country. Can the Minister assure me that the Metropolitan Police is being given full support in getting on with the task of investigating that, and that there will be no suggestion of political pressure at any stage to stop the full force of the law being brought forward? Others must be deterred in future from being tempted to go in for that kind of corrupt behaviour.
Baroness Anderson of Stoke-on-Trent (Lab)
Before I answer the substance of the question, while I appreciate the issues that were raised, the private lives of the decadent rich are of no odds here. It is about abuse and violence against women and girls, and illegal behaviour; it is not about a decadent life. Regardless of whether they are rich or not, people should be held to account with the full force of the law. On classified government information, noble Lords will be aware there is a live police investigation so I cannot comment on the detail. However, I would expect the Met Police to receive absolute full support. If laws have been broken, people should be prosecuted.
Lord Swire (Con)
The noble Lord, Lord Pannick, made an extremely pertinent point about Lord Mandelson’s predecessor, Dame Karen Pierce. First, can the Minister confirm that, during the scope of this investigation, we will look at the representations the Prime Minister will have received arguing that Dame Karen should have been kept in place to handle a very unpredictable and volatile president? Can the Minister confirm what pressure the Prime Minister came under, and from whom, to replace her with Lord Mandelson? Secondly, if we are investigating Lord Mandelson’s suitability for public office of any sort historically, will the scope of that investigation be extended to his time as an EU commissioner in Brussels? There are some very serious questions and allegations surrounding his time there.
Baroness Anderson of Stoke-on-Trent (Lab)
It may be helpful to inform your Lordships’ House that the previous ambassador to America had come to the end of her tenure. The question would have been whether the tenure would be extended or not, not whether she should have been removed. I do not believe that is within the scope of the paperwork; the paperwork being released directly pertains to the appointment and withdrawal of Peter Mandelson as His Majesty’s ambassador. If I am wrong, I will write to the noble Lord. On the scope of the humble Address and the EU processes, I believe other organisations are looking at other roles and some of the history. On the scope of what is currently in play, there is a live police investigation. The matter before us relating to the humble Address concerns the immediate period before and during his appointment.
Lord Harper (Con)
My Lords, the humble Address referred on several occasions to electronic communications between officials in the Government and political appointees. Under the Freedom of Information Act, it has been long-standing practice that communications between Ministers and officials, on whatever device, and whether they are private or government emails, are within scope of freedom of information laws. Can the Minister confirm that the Government are working on the basis that all such communications, whether they are private or government emails, are within scope? Assuming they are, what steps are being taken to secure and recover such information from those officials who are no longer within the Government’s employ—specifically, the Prime Minister’s former chief of staff, Morgan McSweeney?
Baroness Anderson of Stoke-on-Trent (Lab)
To confirm, all electronic communication is in scope and will be released in future tranches of materials. On the steps being taken to secure the materials, the Permanent Secretary to the Cabinet Office has contacted all other Permanent Secretaries to make sure that materials are being secured and passed on. Those materials are currently being collated for further release. On the former chief of staff, as set out by my right honourable friend the Chief Secretary to the Prime Minister, there was correspondence between No. 10 and Lord Peter Mandelson, in which a number of follow-up questions were asked. I would assume that those materials are going to be released as well.
Lord West of Spithead (Lab)
My Lords, I understand that the complexities of employment law mean that you have to pay someone some money when they work for you. Has anyone approached Mandelson, who has done disgraceful things, to ask whether he wants to give this money to a buy-a-warship fund, or some other charity, rather than take it for himself?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, I wondered how my noble friend was going to get a warship into this question—and, as ever, he succeeded. My noble friend is right; from my perspective, Peter Mandelson should donate his severance to any charity that campaigns for, or protects, women who have been targeted and have experienced horrendous violence. That is probably the least we are owed.
Lord Redwood (Con)
My Lords, is it the Government’s case that Lord Mandelson misled them to get the appointment? Can the Minister give us a couple of examples of what he said to fool the Prime Minister?
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Lord will be able to read any and all correspondence for himself as further tranches are published.
Lord Faulks (Non-Afl)
Further to the question from the noble Lord, Lord West, I understand that the amount that Lord Mandelson is to receive is much less than he asked for. The Minister said that that was to save costs. In many cases, there is surely a commercial reason for settling, but, given that this case is of such constitutional importance, would it not be far better to see whether a court agrees that Lord Mandelson is entitled to any compensation at all?
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Lord raises an important and valid point. In this instance, it was considered a sensible move to remove Lord Mandelson from the payroll as quickly as possible.
Baroness Hoey (Non-Afl)
My Lords, the Minister quite rightly referred to Epstein as a despicable person, as did the Prime Minister and other members of the Government. However, was he not a despicable person the first time he was put in jail for the appalling abuse of young women? Peter Mandelson stayed in Epstein’s house in America after that, which the Prime Minister knew. A lot of the public will think that that must have been enough to make it clear that he could not be appointed as our ambassador.
Baroness Anderson of Stoke-on-Trent (Lab)
The noble Baroness is absolutely right that Mr Epstein was a despicable and horrendous human being. The Prime Minister was genuinely not aware of the depth of their continuing relationship, which did not become clear until after the publication of the Bloomberg papers.
Lord in Waiting/Government Whip (Lord Katz) (Lab)
My Lords, we have time to hear from both Benches. Let us go to the Labour Benches first and then the Conservative Benches.
Lord Harris of Haringey (Lab)
My Lords, this is not the first political appointment to an ambassadorship, including that in Washington, which has not been without controversy. But would the Minister confirm that there are some circumstances in which it is appropriate for there to be a political appointment, rather than one which is selected from Civil Service ranks, provided it is quite clear that that is the responsibility of the Ministers making the appointment?
Secondly, could she confirm that it is quite common for organisations that are facing what may seem quite unreasonable severance requests from individuals to make a judgment about what the cost is of fighting those arrangements and to reach a balanced decision?
In the circumstances where people are criticising the nature of some of the material being published and trying to read too much into it, is it not the case—as Bismarck said, if you ever like laws or sausages, never watch either being made—that this minute inspection, which quite properly the Opposition have demanded should be released, will reveal the imperfections of any process in government, or indeed anywhere else?
Baroness Anderson of Stoke-on-Trent (Lab)
My noble friend is absolutely right. There have been several political appointments, as I have said, including of Members of your Lordships’ House, to ambassadorial and diplomatic roles. Also, there have been direct ministerial appointments made outside this. This is not an unusual process. However, I appreciate it is rare in the diplomatic field. What we have to do is make sure that, as and when political appointees are considered to be appropriate, the nature of our politics should not suggest that we are therefore excluded from other roles, but we should make sure that due process is followed. Given recent events, we have changed due process both on direct ministerial appointments and on any future political appointments in the diplomatic space.
The noble Lord also asked about negotiations around severance payments. I am a former trade union officer and spent a great deal of time negotiating other people’s packages. Negotiations in this space are not unusual, but the noble Lord’s most important point was about imperfections in the system. I am viewing this as an opportunity to reflect on what has gone wrong and what we now need to fix. But let us be clear that there have been significant weaknesses in processes. The onus now is on this Government to strengthen the processes.
Lord Grade of Yarmouth (Non-Afl)
My diplomatic friends tell me that, if they are up for a sensitive posting abroad, the due diligence that the FCO carries out is a brutal, intrusive and pretty degrading exercise, but a very effective one. Why is the system of due diligence for a political appointment different?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, it is not. It is exactly the same in terms of the security and vetting processes. I would like to reassure noble Lords that the vetting process that was undertaken on Peter Mandelson was expedited but followed every step.
Baroness Foster of Oxton (Con)
My Lords, following the comment from my noble friend, and as I mentioned before, the vetting process is not really the issue here. We have Members of this House who are former diplomats and ambassadors, and it is very rare in my recollection that we have had any issues with those who have taken up posts abroad on our behalf. To widen this discussion into codes of conduct for Members in the future and how we must now move towards different vetting procedures is obfuscation.
The points raised by my noble friend Lady Finn on the Front Bench are the questions we need answered. The hub of this matter is that we have a Prime Minister of the United Kingdom who knowingly appointed Peter Mandelson, who had remained friends with a convicted paedophile, to represent us in one of the most key posts as ambassador to the United States of America. So, my question to the noble Baroness on the Front Bench is: given the reality that the Prime Minister of the United Kingdom clearly has no judgment and that to obfuscate and try to blame everyone else is really inappropriate, will he, on this issue, stand down, because clearly his judgment is lost?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, I have tried not to be party political on this, but I find it a little rich to be taking lectures from the Opposition Benches, given what we experienced with “partygate” for years and what Liz Truss’s Government did. I find this very difficult. Also, for the record, the idea that the appointment of a Minister—
Baroness Anderson of Stoke-on-Trent (Lab)
Noble Lords can listen to me or not, but the concept that our appointing a Minister to review the standards landscape in the whole is an obfuscation is disappointing to say the least. In terms of the Prime Minister’s responsibilities, he has apologised for appointing Peter Mandelson. He believed Peter Mandelson’s lies in response to the questions put to him. As soon as the Prime Minister became aware of this in September, Peter Mandelson was dismissed promptly.
Lord Katz (Lab)
My Lords, we will hear from somebody on the Conservative Benches.
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, we are, hopefully, discussing the concept of rebuilding trust in politics and how we talk to each other. I will answer questions from either the noble Lord or the noble Baroness, but it is for them to decide.
Lord Sherbourne of Didsbury (Con)
My Lords, is it the case that, in the course of the appointment of Lord Mandelson, the Prime Minister never spoke to him?
Baroness Anderson of Stoke-on-Trent (Lab)
Noble Lords will appreciate that there is ongoing material, which will be published. All of that will be a matter of public record in due course.
Baroness Coffey (Con)
My Lords, this feels a bit “Hear no evil, speak no evil, see no evil” in the casual way that the Prime Minister followed process in appointing the US ambassador, the then Lord Mandelson. There is a concern that, when the humble Address was passed, former chief of staff Morgan McSweeney still worked for the Government and did not resign until a few days later. Yet Darren Jones, Chief Secretary to the Prime Minister, has said that everything the Government have has been published. I am concerned that all the documents have not yet been released by the Government. What has happened to the communications between Morgan McSweeney and anybody else involved in this while he was still working for the Prime Minister?
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, I believe I have said on numerous occasions that this is the first tranche of material that has been published, as did the Chief Secretary to the Prime Minister. More material will be published in due course. I have answered several questions on that. I look forward to discussing it again with noble Lords when that is done.
Victims and Courts Bill
(1 day, 4 hours ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State, Ministry of Justice (Baroness Levitt) (Lab)
My Lords, I will make a short statement on the position regarding legislative consent on this Bill. A legislative consent Motion was received from the Senedd on 24 February 2026. The amendments voted in by your Lordships’ House on Report engage the LCM process. Conversations are ongoing with the devolved Governments on how these amendments would apply to them. It has not been possible to complete this process before Third Reading. Amendments will be made if they decline to grant approval. The amendments on court transcripts are currently drafted to extend UK wide; we presume that this is an error and that the intention is that they should extend to England and Wales only, because they use terminology specific to this jurisdiction and that has been the focus of debates on this topic.
Clause 21: Commencement and transitional provision
Amendment 1
Lord Sandhurst
Member’s explanatory statement
This amendment removes a cross-reference in the commencement provisions to a clause which was removed by an amendment in Lord Keen of Elie’s name at report stage.
Lord Sandhurst (Con)
My Lords, I am grateful to all noble Lords for their constructive engagement with this important Bill at every stage of its passage. On behalf of my noble and learned friend Lord Keen, I thank noble Lords for their contributions both in Committee and on Report. Although there were several areas of disagreement, we on these Benches believe that the Bill, as amended on Report, leaves this House as better legislation than when it entered.
I am particularly pleased that noble Lords across this House voted in favour of Amendments 16 and 20. Open and transparent justice is a fundamental principle: it underpins democracy and the rule of law. It is therefore only right that sentencing remarks, which explain judges’ reasoning for the sentences they impose, be made available to members of the public who are not present in court.
Equally, private prosecutions are an integral part of our justice system. Where the CPS is unwilling or unable to act, private prosecutions are a vital avenue for parties to get access to justice. In particular, many charities use private prosecutions to recover losses by theft and fraud. The removal of Clause 12 preserves the current system. Clause 12 would have created a state of uncertainty in the legal market. It would have had a detrimental effect on the availability of private prosecutions for those who need that service. I thank the noble Lord, Lord Marks, for his support on these points.
Amendment 1, in my name and that of the noble and learned Lord, Lord Keen, will remove a cross-reference to a clause that no longer stands part of the Bill.
I also commend the Liberal Democrats on their engagement with the Bill. It was pleasing to find areas of agreement during the Bill’s passage. I am grateful for their amendments on both notification and exceptional circumstances for unduly lenient sentence applications. I strongly urge the Government in the other place to recognise the importance of these reforms and to support all the amendments that passed on Report. Both of the amendments before us have the support of the Conservatives and of the Victims’ Commissioner.
Turning briefly to Amendment 29, it was disappointing that the Minister spoke against our opposition to the automatic release of sexual offenders and domestic abusers at the one-third point of their custodial sentences. If the Government are still committed to their manifesto pledge of halving violence against women and girls, the amendment deserves serious consideration. I thank the noble Baroness, Lady Brinton, for her expression of support on this point. We, in turn, intend to return to this issue at a later date.
I remain grateful to all noble Lords for their contributions during the various stages of the Bill. I urge the Government to reflect carefully on the amendments relating to the publication of sentencing remarks, private prosecutions and the unduly lenient sentence scheme. I have no doubt that these issues will return to your Lordships’ House in due course. I beg to move Amendment 1.
Baroness Levitt (Lab)
My Lords, this is a minor and technical amendment following Report, and the Government will not oppose it today.
Baroness Levitt (Lab)
The Bill represents a significant step forward in strengthening both the rights of victims and the way in which our courts operate. At its heart, it seeks to ensure that victims are treated with dignity, compassion and respect throughout the justice process, while ensuring that our courts are able to deliver justice more swiftly and effectively.
I thank all Members of your Lordships’ House who contributed during the debates; the officials for all their support during its passage; and all noble Lords who have given their time and expertise to scrutinising the Bill during its passage through your Lordships’ House and, through their engagement, have strengthened the Bill in the process.
I am especially grateful to the noble Baroness, Lady Brinton, the noble Lord, Lord Marks, and the noble Earl, Lord Russell, for their support for and engagement on the key measures in the Bill. I look forward to continuing to work with them on the recent amendments regarding the unduly lenient sentencing scheme, court transcripts and support for victims of homicide abroad.
I also thank the noble and learned Lord, Lord Keen, and the noble Lord, Lord Sandhurst, for their informed, thoughtful interventions and the constructive challenges that they have put forward. I look forward to discussing further their recent amendments regarding court transcripts and private prosecutions.
I am grateful for the broad support for this Bill across the House, and I look forward to working on its implementation. I beg to move.
Baroness Brinton (LD)
My Lords, on behalf of the Liberal Democrat Benches, I am very grateful that the Conservatives have already expressed their thanks for the Bill. We echo that thanks. I welcome the very constructive engagement from all sides of the House. I particularly thank my noble friends Lord Marks and Lord Russell, with whom I have worked closely on victims’ issues for many years. I also thank the House more generally. The timely passage of this Bill is unusual, and I am very pleased that we were able to conduct our business in the time allocated and still come to the end of the Bill and feel that real progress has been made.
This is where I thank the Minister and all her officials because, despite the fact that a number of votes were won on Report—we look forward to continuing to work with her—many of the items we discussed in private between Committee and Report have been resolved to some extent or another. On behalf of all the groups and the individual victims who got in touch, not only now but in the run-up to the Bill, we are grateful for the progress that has been made. That does not mean, however, that everything is done; I and many others will continue to work on those particular issues. From our side, as has already been mentioned, we particularly want to see some movement on court transcripts, homicide abroad and unduly lenient sentences. We are very grateful for the discussions that are already beginning between now and ping-pong.
Lord Hacking (Lab)
My Lords, in speaking on the Motion that the Bill do now pass, I readily start with praise and thanks for my noble friend the Minister for her entire conduct on the Bill throughout its passage in the House. I particularly thank my noble friend for her willingness to hold meetings with us on a number of occasions, despite her very heavy and busy diary.
The Bill does well in strengthening the position of victims in our judicial processes and in strengthening the powers of the Victims’ Commissioner. However, there is unfinished business relating to the victims of trafficking of women and girls, particularly related to the provision of sexual services. As I told your Lordships in Committee, the numbers are large. They are not in the hundreds but in the thousands.
As this is Third Reading, I do not seek to repeat arguments made in Committee or on Report. It suffices to say that these women and girls, who are often illegally brought into this country, are in a fraught and difficult position. For example, they are terrified, when they are drawn to the attention of the authorities, that they will be deported. They need our help. Help, I have to say, is not being provided to them either in this Bill or in the Crime and Policing Bill.
The Independent Anti-Slavery Commissioner produced an excellent report, which I strongly commend to your Lordships. I strongly urge those responsible in the Home Office to read it as obligatory reading. As she rightly says in her foreword:
“Tackling modern slavery is everyone’s business”.
Indeed it is. I recognise, when speaking to your Lordships and to my noble friend the Minister, that modern slavery is in the remit of the Home Office and not the Ministry of Justice, but I ask my noble friend to speak strongly in government of the need to give the victims of modern slavery the support that they are not currently receiving and which they need.
Lord Russell of Liverpool (CB)
My Lords, I rise briefly—conscious of my noble friend to my left—to pay tribute to the Minister for how she has handled her first Bill through your Lordships’ House with good humour and considerable judicial skill. It is always slightly challenging to put an amendment or an argument to a Minister when it is quite clear that she has understood exactly what you are trying to say and all the flaws in your argument before you have got past the first paragraph.
I thank the noble Baroness, Lady Brinton, for our working together so effectively. I also congratulate the Minister on the extraordinary achievement in having, on occasion, got the Conservative and Liberal Democrat parties to be on speaking terms, let alone voting terms.
Spring Forecast Statement
(1 day, 4 hours ago)
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Lord Livermore
That this House takes note of the Spring Forecast Statement.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, it is a privilege to open this debate on the spring forecast and the Second Reading of the finance Bill. I very much look forward to the valedictory speech from the noble Lord, Lord St John of Bletso.
On taking office, this Government inherited three major crises: a crisis in the public finances, a crisis in our public services and a crisis in the cost of living. That is why we have repeatedly taken the action necessary to bring stability to the economy. The choices we have made are the responsible ones. The spring forecast showed that the economic plan that we have been driving forward since the election is the right one.
In our first Budget, we took action to fix the foundations of the economy by repairing the £22 billion black hole in the public finances left by the previous Government. At the spending review last summer, we stuck to our non-negotiable fiscal rules, keeping a tight grip on day-to-day spending while investing an additional £120 billion in growth-driving infrastructure and getting debt on a downward path. In the Budget last November, we built greater resilience by doubling the headroom against the stability rule and cutting borrowing as a share of GDP in every year of the forecast.
Our economic plan is built on three pillars: stability in our public finances, investment in our infrastructure and reform to Britain’s economy. Stability is the cornerstone of this plan because it is the single most important precondition for economic growth. That is why we have committed to one fiscal event a year, limiting major policy changes to the Budget, helping to give businesses and households the certainty that they need to plan and to invest.
The forecast from the Office for Budget Responsibility, published last month, shows that our plan is working and that we enter this period of global uncertainty with the fundamentals of our economy strong. We have cut inflation, which stands now at 3%—a lower base than at the outset of Russia’s illegal invasion of Ukraine. We have prioritised growth to drive up living standards. The OBR forecast showed GDP per head set to grow more than was expected at the Budget, with growth of 5.6% over this Parliament. We have stabilised the public finances, having already reduced the deficit by £20 billion this year from 5.2% to 4.3% of GDP.
These forecasts pre-date the current conflict in the Middle East. The full economic impact of that conflict will depend on its severity and its duration. The movements on energy markets that we have seen are likely to put upward pressure on inflation in the coming months. Our economic approach will be responsive to a changing world and responsible in the national interest. As the Government have demonstrated time and again, we will take the necessary decisions to help families with the cost of living and to protect the public finances.
This Government are delivering the biggest uplift in defence spending since the end of the Cold War. The Chancellor has also approved access for the Ministry of Defence to the special reserve to deploy additional capabilities in the Middle East, meaning that no net additional costs of these operations will be funded by the Ministry of Defence, but instead will be funded by the Treasury.
Last week, following her call with other G7 Finance Ministers, the Chancellor set out her further priorities for international co-operation: for immediate de-escalation and a return to a diplomatic process; guaranteeing the security of vessels passing through the Strait of Hormuz; supporting a co-ordinated release of collective International Energy Agency oil reserves, the release of which has since helped to stabilise international oil markets; and setting out how the UK will play its part as the global hub of maritime insurance. On Friday, the Chancellor met petrol retailers and energy suppliers to make it clear that the Government would not tolerate any company exploiting the current situation to make excess profits at consumers’ expense.
While we do not yet know how long this conflict will last, it underlines the importance of building a stronger, more secure economy able to withstand whatever instability we may face. The strength of our economy and public finances is possible only because of the Budget last year and the measures contained in the finance Bill before us today.
That Budget had at its heart three pro-growth choices. First, by choosing to maintain economic stability, getting inflation and interest rates down, we helped give businesses the confidence to invest and our economy the room to grow. Secondly, by choosing to reject austerity, we protected £120 billion of additional investment in growth-driving infrastructure. Thirdly, by choosing to back the fast-growing companies of the future, we supported the investment, innovation and economic dynamism that will increase growth in the next decade and beyond. That includes measures in the Bill to make Britain the best place in the world for firms to start, scale and stay. We are doing that by widening eligibility for our enterprise incentives so that scale-ups can attract the talent and the capital that they need. We are expanding the enterprise management incentive so that more companies can offer tax relief share options, and we are re-engineering our enterprise investment and venture capital trust schemes so that they do not back just early-stage ideas but stay with companies as they grow. For all businesses, large and small, we are also maintaining the lowest corporation tax rate in the G7 and the joint most generous capital allowances in the OECD.
In her Mais Lecture today, the Chancellor went further on our growth agenda by setting out how we will deepen our economic relationship with our European partners, how we will back innovation and harness the power of AI, and how we will take the necessary action to build growth on a broad, stable basis right across the UK.
Of course, the pro-growth choices we made in the Budget need to be paid for, and that means asking everyone to make a contribution. The previous Government froze the main income tax thresholds from 2021 to 2028. This finance Bill maintains all income tax and equivalent national insurance thresholds at their current level for a further three years from 2028. I accept that maintaining these thresholds is a decision that will affect working people. The Chancellor and I both said this in 2024 and I will not pretend otherwise now.
However, while we are asking everyone to make a contribution, we are keeping that contribution as low as possible through reforms to our tax system to make it fairer and to ensure that the wealthiest contribute the most. That includes increasing taxes on property, dividend and savings income to narrow the gap between tax paid on work and tax paid on income from assets. Currently, a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no national insurance is charged on property, dividend or savings income. That is not fair. That is why this finance Bill increases the basic and higher rate of tax on property, savings and dividend income by 2 percentage points, and the additional rate of tax on property and savings income by 2 percentage points. Around two-thirds of the revenue from these increases are expected to come from the top 20% of households.
We are also reforming the tax system to ensure that it keeps pace with a fast-changing economy. This finance Bill increases taxes on online gaming and online betting, while protecting UK horseracing and abolishing bingo duty. It prevents private hire vehicle operators exploiting a tax administration scheme so that everyone pays fairly. We are going further to close the tax gap to ensure that everyone pays the tax that they owe. Reforms contained in this finance Bill will help to collect more unpaid taxes and modernise the tax system to make it easier for taxpayers to get their tax right first time.
We have listened carefully to feedback from the farming community and family businesses, and the Bill raises the threshold for the 100% rate of relief on agricultural property and business property from £1 million to £2.5 million. This means that a couple will now be able to pass on up to £5 million of agricultural or business assets tax free on top of the existing allowances such as the nil-rate band.
Since coming into office, this Government have implemented an economic plan to bring stability to the public finances and to strengthen Britain’s economy for the long term. The spring forecast shows that this plan is the right one, with lower inflation and borrowing, higher living standards and a growing economy. Britain today is in a stronger position to withstand whatever uncertainty comes our way, but that is possible only because of the action we took in the Budget last year and the measures contained in this finance Bill. They are the right choices to protect families and businesses in an uncertain world, and they demonstrate that this Government have the right economic plan for Britain’s future. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, my first point is that the world economic situation now is very different from that existing at the time of the Spring Statement, let alone that in place when the finance Bill was introduced—different and significantly worse. The Middle East war has overturned economic expectations, especially optimistic ones.
A major factor in this deterioration is, of course, increased oil and gas prices, which are an inevitable consequence of political instability in the Middle East. This exacerbates the unfortunate effects of the Government’s own policies, which all agree have led to the highest fuel prices in the developed world. The resulting inflation, already mentioned by the Minister, adds to of the elevated levels we have already experienced during the Chancellor’s time in office. That in turn risks pushing interest rates higher, meaning rising mortgage costs for homeowners and greater pressure on household finances.
Investors are now pricing in a 70% chance that the Bank of England will increase rates by a quarter point before the end of the year having previously expected two quarter-point cuts this year; unfortunately, gilt yields have jumped here more than in any other G7 country.
Public finances are already under severe strain. Borrowing is running higher than forecast when the Government took office, and the country is now spending well over £100 billion a year simply servicing debt.
Since this Government came into office, gilt yields are up, growth is down, inflation is up, unemployment is up, debt is up, and the UK goes into this potential energy crisis already facing some of the highest energy prices in the world. It is extraordinary that Mr Ed Miliband, at a time when we face some of the greatest fuel insecurity in modern history, is content for the country to rely on oil from the Middle East but is against investing in the oil and gas from our North Sea.
This is a very serious moment. When the global outlook darkens, our domestic economic resilience matters more than ever. Yet the Government’s stewardship of the economy has left the country more exposed to shocks like this, and, when that happens, it is ordinary taxpayers who end up paying the price.
A lot has been said about the Government’s level of preparedness on the military front, but what is also true is that they were poorly prepared on an economic front. The economy that has developed under this Government and this Chancellor is profoundly precarious—and we are finding ourselves at the mercy of events.
The Minister has again waxed lyrical about the legacy of the last Government. There were things we did wrong, notably on immigration, but I remind the House that we had to cope with the legacy of the financial crisis, Covid and the Ukraine war, but we still delivered low inflation and an economy that was growing, and we now have a new Conservative leader with a refreshing determination to change things.
I turn to the Spring Statement. This was largely a non-event. Once the rhetoric—feeble rhetoric at that—is stripped away, it is difficult to identify any clear substance in what the Chancellor had to say. There were a few fairy tales, such as the Chancellor’s willingness to blame everyone else, from Trump to Putin, for the state of our economy—when, the last time I checked, she is the Minister responsible.
Looking at the statistics, we see that unemployment is rising sharply, hitting a staggering 7.6% in the capital, including a nine-year high for young Londoners. Youth unemployment in London is above that for the eurozone because of massively tightened employment regulations and much-reduced economic incentives to employ them through changes to NICs and the minimum wage. Yesterday’s youth jobs grant is a drop in the ocean and a poor attempt by the Government to cover up the immense harm they have done to employment in this country since assuming office.
Meanwhile, the OBR has predicted that the Government will spend £333 billion on welfare this year, at 10.9% of GDP, and by 2030-31 it is forecast to be £407 billion, at 11.7% of GDP. Working people will be asked to pay ever more in tax to fund the Government’s failure to get people back to work. Above all, the OBR has downgraded its forecast for growth from 1.4% to just 1.1%, which in truth amounts to growth that is barely there at all. When elected, the Prime Minister and the Chancellor talked endlessly about growth as their prime objective, promising planning reform, speedy infrastructure investment, world-leading AI and a skills revolution—all good things which I supported—but the delivery has been abysmal. Now, they have almost stopped talking about growth, in favour of vain efforts to subsidise the cost of living. History tells us that subsidies do not constitute a viable long-term strategy. Indeed, the OBR warns that inflation is expected to rise again, bringing with it the real prospect of higher mortgage rates and higher borrowing costs for the Government.
The reality for working people is stark. Wages are being eroded by rising prices, while taxes continue to climb. Millions more people will be dragged into higher tax bands by the so-called stealth tax of frozen income tax thresholds, now locked in place until April 2031. Despite all this, the Chancellor has boasted that her economic plan is the right one for Britain. I really doubt whether anyone believes that. What Britain needs is growth, jobs and investment. What the Chancellor has delivered is rising unemployment, ever- expanding welfare and a flatlining economy. The failure to tackle welfare reform is particularly worrying when we need to fund extra defence spending to protect ourselves and our citizens in an increasingly dangerous world. As it is, we are not yet on the path to prosperity.
I now turn to the Bill. First, perhaps the Minister can kindly confirm that the fuel duty increase of 5p provided for in the Bill is being delayed. With oil prices sky-high, this makes good sense, as we have argued.
This Bill lays bare the Government’s priorities. It makes a clear and deliberate choice to raise taxes on those who work, save and invest and to use a substantial share of that money to expand the welfare bill. In doing so, the Government are targeting and taxing precisely those people who sustain the productive heart of our economy—namely, savers who put money aside, investors who back enterprise, and the businesses that create jobs and growth.
Take the continued freezing of the income tax thresholds. This is fiscal drag on an enormous scale. Around 800,000 people will be pulled into the basic rate of income tax and around 1 million more will be dragged into the higher rate. By 2030, it is expected that one in four taxpayers will be paying either the higher or the additional rate of income tax. It does not stop there. In addition to the unfair arrangements for salary sacrifice, which this House has voted against, the repayment threshold for student loans is frozen, in effect imposing another hidden tax on younger generations starting their careers. Even those citizens who rely solely on the state pension are now at risk of being pulled into the income tax net.
The Government are reaching into the pockets of those who invest in Britain. The 2% increase in the tax on dividends, a £1.2 billion tax grab, sends exactly the wrong signal. Instead of encouraging investment in British companies and rewarding those who take risks to build and grow businesses, it penalised them. It is no surprise that 16,500 of them last year signalled their intention to move abroad.
We then come to the deeply troubling changes to IHT, the family farm and family business taxes. Just before Christmas, under enormous pressure, the Government attempted a partial retreat, but let us be clear: this so-called concession does not solve the problem. Many farms and family businesses may own valuable land or machinery, but they operate on tight margins. A paper valuation is not the same as spare cash sitting in the bank. The consequences are predictable. When faced with this kind of uncertainty, businesses do not expand; they pull back, they postpone investment, they do not buy new equipment or improve their restaurants, and, as we have seen, they reduce employee numbers.
Before I close, I should refer to the troubling letter that I have received from the Chartered Institute of Taxation about the difficulties that the various IHT changes will cause for personal representatives of the deceased, the costs in administration due to the Bill’s complexity and the defects of the tax avoidance provisions. It will not be easier for taxpayers, as the Minister suggested.
When we step back and look at the Spring Statement and the finance Bill, a clear picture emerges of the direction in which this Government are taking the country. Instead of policies that reward work, encourage investment and drive growth, we see rising taxes, a growing welfare bill and a struggling economy. The people who carry the greatest burden under this Government are precisely those who sustain our economy: the families who work hard and pay their taxes, the entrepreneurs who take risks to start and grow businesses, the investors who back innovation, and the farmers and family farms who keep our communities and supply chains alive. A healthy economy is built on confidence—the confidence to invest, the confidence to hire and the confidence to plan for the future. The Spring Statement and the finance Bill will give no confidence to anybody. On the evidence before us today, it is clear that the Government are moving in precisely the wrong direction, at a time of international challenge. Against that rather difficult background, I very much look forward to the valedictory speech of the noble Lord, Lord St John of Bletso.
Lord St John of Bletso (CB) (Valedictory Speech)
My Lords, it is with a mix of sadness and excitement that I address your Lordships’ House this last time. The sadness is because I shall miss participating in debates, particularly on Africa, and especially participating in the Select Committee work of your Lordships’ House and the APPG work. It has been an enormous privilege. I shall also miss seeing noble Lords who have become great friends over so many years. I had hoped to make my valedictory speech on the Space Economy report by the Select Committee so ably chaired by the noble Baroness, Lady Ashton, but sadly we have run out of time on that score.
I am enormously grateful to the doorkeepers, the refreshment department and all the staff of the Palace for the incredible support that they have given me over so many years and continue to give to all of us. I am very grateful to my noble friend Lord Kinnoull for his able stewardship and leadership of the Cross Benches.
I have to say that I joined the House of Lords more out of curiosity than desire. I say that because I was just 21 when my father died. I joined your Lordships’ House six months before the Islamic Revolutionary Guard Corps took control in Iran and six months before Margaret Thatcher became our Prime Minister. I joined for one primary reason: namely, I wanted to speak about the opportunities and challenges facing South Africa and southern Africa, and to petition for the release of Nelson Mandela, known as Madiba to all of us. After my health challenges last year, I decided that time was up. I am excited now to be spending more time in Africa. That is enough about me.
I shall restrict my comments today to the Spring Statement and not the finance Bill. There are three points that I want to raise. Clearly, the Chancellor’s forecasts have been overtaken by geopolitical events in the Middle East, leaving more questions than answers. We are now exposed, once again, to the very conditions that we thought we had escaped: energy-driven inflation and stagnating growth. The Statement underestimates the scale of the structural challenges that we now face. Surely, against a backdrop of spiralling fuel costs, now is the time to reconsider the strategic role of our domestic energy resources—more specifically, the North Sea. Would it not be wiser, during a period of geopolitical instability, to support responsible domestic production while we continue the transition to cleaner energy sources? It is not a question of abandoning our commitment to net zero but of recognising that the transition must be managed in a way that preserves resilience.
My second point is that the public procurement of goods and services now accounts for between one-quarter and one-third of all government expenditure, amounting to in excess of £300 billion a year. Even modest inefficiencies within a system of that scale can translate into tens of billions of pounds of avoidable costs. At a time of constrained fiscal headroom, it is essential that we focus not only on what the Government spend but on how effectively they spend it. What steps are His Majesty’s Government taking to deploy artificial intelligence to improve efficiencies, reduce duplication and identify cost savings across the procurement ecosystem?
I was fortunate way back in 2017 to be a member of the sub-committee on artificial intelligence so ably chaired by the noble Lord, Lord Clement-Jones. None of us then had any preconception about the impact that AI would have on all our lives. We now need to confront the other side of the AI revolution: the impact it is likely to have on employment. Artificial intelligence will undoubtedly drive productivity as well as growth, but it will also displace roles, particularly in admin and in the professional and middle-income sectors. We are in effect entering a period where technological progress may coincide with structural labour market disruption, and this presents a fundamental policy challenge. I cannot assume that the labour market will adjust itself organically. We need to act deliberately.
Thirdly, the noble Lord, Lord Hunt of Wirral, has been constantly questioning what measures His Majesty’s Government are taking to reduce spiralling unemployment in the UK. Can the Minister elaborate on what is being done to invest in promoting large-scale reskilling programmes, incentivising businesses to retrain their workforces and forging closer partnerships between industry, government and education? If we fail to do so, we risk creating a two-speed economy where opportunity expands for some but contracts for many.
In conclusion, the Chancellor’s spring forecast reflected a world of gradual recovery and relative stability, but the world that we now face is far more volatile, more uncertain and more complex, and this demands a shift in thinking.
I close with the Xhosa words from South Africa: “Enkosi kakhulu, sala kakuhle”, which means “Thank you very much, goodbye”.
Lord Bilimoria (CB)
What an excellent speech by the noble Lord, Lord St John of Bletso, the 22nd Baron St John of Bletso—a title that has existed for 460 years. I declare my interest: in the nearly 20 years that I have been privileged to be a Member here, my noble friend Lord St John—Anthony—has been my best friend in this House.
My noble friend entered this Chamber at 21 years old, as we have heard—the baby of the House—and he has been here for nearly 50 years. He has been a Lord in Waiting, he has phenomenal expertise in African affairs—in fact, he is the expert on Africa in this Chamber—and he has held positions such as vice-chair of the All-Party Parliamentary Group on Africa, as well as being a member of other committees on Zimbabwe and South Africa. I remember speaking in the tribute debate when Nelson Mandela passed away, and what a brilliant speech my noble friend made. He has had a very successful business career. After going to school at Bishops, the finest school in Cape Town, and the University of Cape Town, and then here at the London School of Economics, and then qualifying as a lawyer, he has brought that real-world international business experience to bear in this House. When I joined, the doorkeepers said, “Ah, there is our James Bond Lord”.
My noble friend is merely 68 years old. The average age of this House is 71. He has not even reached it. In my book, you are young until you are 60. He is middle-aged. Old age is from 80 onwards. It is so sad that the hereditary Peers are leaving the House in the way that they are, and there is no better shining example of their dedication, commitment and contribution than Anthony—my noble friend Lord St John of Bletso.
My noble friend is cheerful, energetic, charming, gracious and active, and has friends in every corner of this House. I have never heard a bad word said about him, and everyone loves him, Peers and staff alike. Although my noble friend is retiring, we look forward to seeing him back in the House regularly. I say “Farewell, my dear friend—and I mean fare well”.
Lord Bilimoria (CB)
The Statement on 3 March focused primarily on presenting the latest OBR forecasts, rather than announcing new policy measures. It forecast growth of about 1.1%, which is very low. It forecast inflation to fall from 3.4% to 2.3% this year. It forecast unemployment to rise to 5.3%, and net migration—which reached a peak of nearly 1 million just recently—to average just 235,000 between 2026 and 2030. But, as the noble Baroness, Lady Neville-Rolfe, brought to our notice, the forecast was prepared before the escalation of the conflict in the Middle East and is already completely out of date.
The OBR warned that the wider fiscal context remains difficult. It noted that UK public sector debt as a share of GDP has nearly tripled over the past two decades—it is now close to double the advanced economy average on a comparable basis—and borrowing has remained very high. The Chancellor referred to the growing uncertainty generated by the events in the Middle East, arguing that, in times of international volatility, the Government should prioritise economic stability, infrastructure investment and resilience to external shocks.
However, Reuters has reported that economists expect instability. Investors argue that global geopolitical tensions and surges in energy prices are going to have a dramatic effect on the state of the UK economy. Business groups have said that higher taxes and rising operating costs have discouraged firms from hiring. Financial markets have reacted cautiously: government bond yields have continued to rise and investors fear that sustained increases in gas prices could prevent the Bank of England cutting interest rates this year. In addition, motoring groups are calling on the Government to reverse their planned end to the freezing of the fuel duty in September, because of rising oil prices. Ten-year gilt yields have risen to over 4.5%. On top of this, we have nearly 1 million people—the NEETs—not in education, employment nor training.
I chair the International Chamber of Commerce in the UK. The British Chambers of Commerce has called for more decisive policy action to stimulate investment and growth. I was president of the Confederation of British Industry. The CBI has said that the Government still need to do more to reduce the cost of doing business, including tackling delays in planning consents, skills approvals, grid connections and access to innovation.
As my noble friend Lord St John mentioned, to shut down at this time oil and gas supplies that are sitting there and belong to us when we need them desperately—surely the Minister agrees that we need them more than ever. This is a transition, as my noble friend said, to net zero. We need to live that transition; it is not an on/off switch.
The welfare bill is now well over £300 billion. The national health and social care bill is approaching £200 billion. Our debt to GDP ratio is 100% of GDP—almost. After the Second World War, it had gone up to 250%. It took from 1945 to 1963 to bring it down to 100%, which is where we are back up to now.
Then we have a situation where 9 million people of working age are not working. We have a record number of people signed off sick, with doctors signing patients off without even doing assessments. Does the Minister agree that we need to do something to encourage people back to work?
Then there is the sad impression of London, which really annoys me when I travel abroad, where people say, “Oh, the crime in London, people have their watches stolen, their mobile phones stolen; we do not feel safe in London any more”. That is wrong. This is the greatest of the world’s great cities and people should feel safe over here.
We are splurging more on interest than on defence and policing combined. We pay a higher risk premium than Germany, Holland, Spain, Sweden, Ireland, Belgium and other countries. We had austerity after the financial crisis in 2010. That did not work. Rishi Sunak then spent over £400 billion when he was Chancellor during Covid. On top of that, we have this huge pensions commitment where public sector pensions alone are £1.4 trillion.
We all agree that we have one of the most generous welfare states in the world, but that is meant to be a safety net. The Chancellor now seems to recognise that the increase in minimum wages has harmed prospects for young people. I am all for people being paid more, but can businesses afford it, including the hospitality sector? Employers are still burdened with additional costs through increased taxes and more regulation, including employers’ national insurance, and we need to bring spending under control.
We need to focus on nuclear. We need to look at small modular reactors. We need to look at fusion on top of renewables. As the noble Lord, Lord St John, said, we need to look also at the threat and opportunity of AI and focus on skills, with industry and education working together. The reality is that lower net migration in economic terms will pose a medium-term risk to public finances, especially with the conflict going on around the world. We need an industrial strategy that will address what is going on.
I conclude. We have really high borrowing costs. We have a war going on in Iran. Oil is hitting over $100 a barrel and is forecast to go even higher. We have inflation that is not going to go down but is going up. We have had many inflationary spikes in the past five years and there is also the threat of a wage-price spiral. We need an economy that grows, but sadly the last growth figures were flat—the last quarter was 0.01%. We have the highest tax burden, 37%, since the Second World War and a cost of living crisis. This really hurts me because this country has such phenomenal strengths, institutional strengths and entrepreneurship—we have the third-highest number of unicorns, billion-dollar companies, in the world. We have the best universities in the world. We deserve better. Please, I implore the Government. There have been 15 U-turns—I say that the Government are listening when they U-turn. Would it not be better if they listened first, then they would not have to U-turn?
Lord Liddle (Lab)
My Lords, I echo the tribute from the noble Lord, Lord Bilimoria, to the noble Lord, Lord St John of Bletso, and pay tribute to his wonderful public service to this House over many years.
This year, I had the great privilege of chairing a Select Committee for the first time, the Finance Bill Sub-Committee, which examined the measures in this finance Bill relating to inheritance tax on pensions and agricultural and business property reliefs. We worked quite hard. We heard evidence from 33 witnesses and accepted nearly 200 written submissions. I thank the fellow members of that committee, one of whom is sitting on the Front Bench opposite, the noble Lord, Lord Altrincham, but I particularly thank the noble Lord, Lord Leigh of Hurley, who is not in his place but who brought up lots of questions that the rest of us might not have thought of.
While we were pleased to see that the Government have made changes to their initial proposals on inheritance tax, our report raised significant concerns about how these measures would work in practice for personal representatives, businesses and farms. A particular concern is that about personal representatives as a result of unused pension funds being brought for the first time into the scope of inheritance tax. The Government told us that this would be just an extension of what personal representatives have to do when people die. However, we heard that the reality will be very different.
Pensions simply do not fit well in the framework of inheritance tax. There are contradictory timelines, imperfect information and conflicting responsibilities; all these put personal representatives in a very difficult position. Even the most diligent of them risk being charged high-interest late payments by HMRC for not getting the stuff done on time. Worse, I think that many people are unaware that these changes are coming; they are going to hit them hard at a time for many of great personal grief.
For agricultural and business property reliefs, we raised concerns that family businesses and farms will face significant administrative burdens, especially when valuing their estates. Many of these businesses, as our witnesses explained to us, tend to be asset rich and cash poor, so there is a real problem about where the money is going to come from. It was disappointing and concerning that the Government did not appear to have properly considered the liquidity challenges which estates will face as a result of these changes, and the impact they will have on the viability of businesses and farms. As someone who comes from Cumberland, I am very concerned about the impact on farming but also on family businesses, which are one of the really strong points in our community.
We made a number of recommendations in our report about how the Bill should be amended, in particular to extend the inheritance tax deadline. The report also has important recommendations that the Government should take forward once this Bill has passed. They must act quickly to raise awareness of the impact of the pensions reforms for personal representatives and prioritise arranging guidance and practical support. More broadly, we think that the Government should review their approach to tax policy-making. We saw the repeated redesign of these policies, with three or four changes before we got to the present, and the serious impact this uncertainty has for those affected. I look forward to the Minister’s response to our carefully considered report.
Personally, I want to make it clear that I think that wealth should be taxed more strongly than it has been. We have seen in the last 15 years great growth in wealth, at a time when most people’s wages have been stagnant. The question is how you do it properly. The best way for the Government, and they have started down this road, is to think about how we tax property more efficiently than we have in the past. I welcome the measures on the taxing of wealthy property, but if those were extended, it would give us the opportunity to get rid of or mitigate the very high levels of stamp duty, which are economically efficient in deterring people from moving house.
We have also—I am speaking from this side of the House as someone on the left of politics—got to be careful that, in taxing wealth, we do not discourage enterprise. This is very important if we are going to get the economic growth we need. We must have a society where entrepreneurs can make themselves wealthy. A lot of people always say, “Oh, the pity is that we do not have the Mittelstand as they do in Germany”. It is a great pity that we do not have a range of companies that are family owned, where people are the committed owners of those companies. But the truth is also that in Germany many of the families that own Mittelstand companies are extremely wealthy. Therefore, a balance has to be struck between taxing wealth and promoting enterprise, and we should always remember that.
Lord Lamont of Lerwick (Con)
My Lords, I join with others in saying how sad it is to say goodbye to the noble Lord, Lord St John of Bletso. He will be much missed, particularly for his contributions on Africa and the global south, and for his contributions to debate, as his powerful speech showed today. It was quite excellent.
I will concentrate my remarks on the Spring Statement. Apparently, the Chancellor wanted this to be a low-key announcement. She need not have worried; it scarcely qualified as an event. For once there were no leaks, as there was nothing to leak. I do not disagree with the Chancellor’s decision that there should be only one fiscal event a year, but, if one closed one’s eyes while listening to the Statement, it was like listening to a party political broadcast in the House. The Chancellor listed ending the two-child benefit cap as one of the Government’s great achievements, forgetting that she was particularly enthusiastic herself about the Government’s initial policy of refusing to abolish it.
She attacked the previous Conservative Government on growth and inflation, without ever mentioning Ukraine or Covid. Can we expect the Chancellor or the Minister in future to talk about the economy without mentioning oil or war? Judging by today’s speech, certainly not, but the Government surely ought to judge themselves by the same criteria as they judge others.
The Chancellor pronounced that everything that had happened was a great success, while the rapture of the OBR was somewhat more modified, with growth higher this year but lower in future and the same over Parliament as a whole. Unemployment is heading to over 5%, with, as my noble friend on the Front Bench said, a worrying rise in youth unemployment and a welfare budget ballooning to £407 billion. I am pleased that the Chancellor stuck to her fiscal rules and I welcome the increased headroom. But, of course, public sector net debt still remains at 90% of GDP and the 4.75% 10-year gilt yield is the highest in the G7, showing that the markets are not convinced that our fiscal position is under control or that it is robust enough for the potential challenges ahead. The Chancellor claimed that people would be £1,000 a year better off by the next election. The Resolution Foundation, the Rowntree Foundation and the IFS cast great doubt on this forecast. The Rowntree Foundation thinks it will be more like £40 than £1,000.
There can be different views about the Statement, but what is clear is that it is now totally irrelevant. No one knows how long the conflict will last, as the Minister said. President Trump has said that it will be short. Qatar’s energy minister, who presumably knows a thing of two, has warned that the Middle East crisis could
“bring down the economies of the world”.
He predicted that all exporters in the Gulf will have to call force majeure, and European nations will feel significant pain as Asian buyers bid against them for whatever gas becomes available. If the crisis is prolonged, obviously it will bring higher inflation, higher interest rates, rising unemployment and even lower growth.
The Chancellor has indicated that, when the price cap expires in June, she wants to protect families, or is open to doing it, and she has said it will be on a targeted basis. I agree that, rather than doing something across the board, if it is necessary, it would be far better to target help where it is most needed. But where to draw the line is not easy, as the Chancellor herself found out when she tried to strip millions of people of their winter fuel payments.
Households are in a far weaker position today than in 2022. Then, the total amount of unpaid debt owed to energy companies was just over £2 billion. Today it is around £5 billion, and it is expected to reach £7 billion by the end of this year. The reality is that middle-income households now also struggle to pay their bills: that is the new normal. As the noble Lord, Lord Bilimoria, said, the Government need to end their war on the North Sea. If Britain is serious about energy security, we should use more resources from the North Sea, compatible with other policies. As President Trump pointed out, it makes little sense for the UK to be importing gas through pipelines from Norway, which extracts fossil fuels from the very same North Sea gas fields that fall inside British waters.
According to the OBR, the tax burden is forecast to reach 38.5% of GDP by the end of the decade, up from 36.3% this year and higher than the record burden in 1948. With fiscal drag, millions of taxpayers are dragged towards the painful cliff edges of the tax system. Families who get pay increases perhaps turn them down because they leave them worse off. David Miles of the OBR said that both the extent and the design of additional taxes matter. He said:
“Tax increases that increase marginal rates are likely to act as a disincentive”.
We are in “unchartered territory” with the level of taxes. Taxes are now 5% higher than before Covid. It would be a bold person to be confident that this will not hit even the modest growth rates forecast in the Statement.
Alarming as all that is, the IFS has forecast that the Chancellor may be forced to put up taxes even further. Higher inflation will increase welfare spending and the funding cost to government, forcing the Chancellor to find new measures to balance the books. If this happens, stagflation will stalk the land. For all the bluster and boasting, alas, we are far from being in the best position to weather the storm ahead.
Lord Barber of Chittlehampton (Lab)
My Lords, following a distinguished former Chancellor of the Exchequer and a brilliant speech from the noble Lord, St John of Bletso, I rise with some anxiety to make a speech on the economy. Nevertheless, I want to try to bring a note of optimism into our deliberations, because optimism itself may be part of the solution to the challenges that lie ahead.
I congratulate the Chancellor, my noble friend Lord Livermore and the Treasury team for the Spring Statement and the facts set out within it. I know that it came before the conflict began, but growth and retail sales were up, and inflation and interest rates were down. There are grounds there for optimism. Of course, the conflict creates a new situation, but, as we go into that conflict, as a result of the Chancellor’s efforts over the last 18 months, we are better placed to face that storm than we would otherwise have been.
I especially welcome the emphasis in the Statement on spreading growth to “every part of Britain”. This is vital. I will emphasise three factors that will help generate growth and spread it across our country, and I will illustrate this with examples from the south-west of England, where I live. I am anxious about that as well, because the noble Earl, Lord Devon, is in the room and his family has been there for 700 years, whereas mine has been there for only 15 years. Nevertheless, it will be good to hear what he has to say about it. I declare an interest as the unpaid Chancellor of Exeter University, so I am embedded in the system there.
The first message I want to emphasise is stability. I strongly welcome the Chancellor’s emphasis on bringing stability. Of course, you have to adapt to changing circumstances, but stability really matters. The CBI welcomed it when the Statement was made and, given the uncertainty, it is more important than ever.
Obviously, we cannot control global events, but we can control how we respond and how we act within these shores. Let me give an example from the south-west. We all agree that critical minerals are essential to the future of the economy and we all agree that they are a source of global tension, but we have critical minerals right here in Britain. In Cornwall, there are deposits of lithium, and a company called Cornish Lithium is already set up to exploit that. Tata and Agratas are building the biggest electric vehicle battery factory in Europe in Somerset. Altilium, in Devon, is recycling spent EV batteries and recovering 95% of the rare metals from them. The Camborne School of Mines, part of the University of Exeter, is at the forefront of the world’s research and innovation in these areas. These are just emerging factors, but we can see there the beginnings of the circular economy that will drive economic growth, environmental sustainability and national security. All of that is possible without setting foot out of the south-west of England. However, we can see that happen only if we have stability. That is my first point: stability is essential to getting the necessary investment and relationships.
My second point is about education and skills. This has already been mentioned in the debate and is fundamentally important. We should celebrate in this country the big improvement in our education system over the past 50 years. Fifty years ago this year, Jim Callaghan made the famous Ruskin speech, drawing attention to the problems. Successive governments of all parties have built on that, and we now have a much better education system, but there is more to do, especially in relation to skills.
In the south-west of England, traditional employment is low-skill and low-pay—it is agriculture and it is tourism. The economy of the future that is emerging will be high-skill and, I hope, high-wage. Such tech jobs, engineering jobs and software jobs absolutely depend on ever higher levels of skill right across the workforce. Navantia in Devon, Babcock in Devon, Leonardo in Somerset, Agratas in Somerset and the spaceport in Cornwall all need important and detailed engineering jobs and technical jobs. Across the UK, the Royal Academy of Engineering estimates that we will need 834,000 such jobs over the next five years— 4,000 of those will be at the Agratas plant in Somerset.
That is very demanding, and our education system will need to adapt further and faster to keep up with that demand. What we are looking for, surely, is a demand-led skill system where the employers create the opportunities and the education system empowers students to seize them. Education does not just create wealth; it spreads wealth and it turns wealth into family income. If you want to find that out, talk to the apprentices—there were some brilliant young apprentices in the Palace of Westminster yesterday. Talk to them at the Dyson Institute in Malmesbury or, if noble Lords want to come and visit us, at Exeter University, or at Sheffield University. They are doing wonderful things and they see the skills that they learn one day applied the following day.
My third message is about the speed of decision-making. In education, we need to go further, faster and deeper. The Government’s recent announcements will help us do that and are to be welcomed. Generally, however, the speed of decision-making needs to be speeded up.
Noble Lords will be aware that I spent many years in Whitehall trying to speed up the pace and effectiveness of delivery. I have heard all the excuses for delay: “Why don’t we do some more research?”; “Why don’t we try a pilot study?”; “What about another round of consultation just to check?”; or—before my time—“Why don’t we try it out in Scotland first?” These excuses are well known to the Civil Service. I love civil servants, and they too smile when they hear these excuses, because they are very familiar with them, but the problem is deeper than the Civil Service. It is about our processes and our culture, and the way we go about making decisions. It is not just in Whitehall but across local government. We need to shift the default in government across the country, at every level, from delay to delivery, from process to outcome, and from talk to action. The Government’s completion in short order of three major trade deals is a good example that you can get things done rapidly that are important to the future of the economy.
These things significantly affect the south-west. We have a number of fantastic small businesses, such as CMTG in Torrington. The last time Torrington was in the news for military purposes was in 1646, when the Royalist arsenal blew up. Now it is developing software for military helicopters. I could list a number of other businesses. California has its valley, Shoreditch has its roundabout and Devon has its defence innovation ecosystem. All these companies depend on the quality and speed of decision-making at the MoD.
I was fortunate to teach a course at Harvard for several years with the former Prime Minister of Mozambique, Luísa Diogo, a wonderful woman who died recently. She got 15% growth in a single year, as Mozambique was coming out of a civil war. I asked her how she did it. She said: “I didn’t do anything. The people of Mozambique generated that growth, especially the women. What we did was create the right context”. Stability, skills and speed of decision-making will create the right context. To conclude with her words, “If you get the context right, you unlock the music in people”. That is our task in the years ahead.
Lord Patten (Con)
My Lords, I shall certainly miss the noble Lord, Lord St John of Bletso, around the place. With his economic and business acuity, he will be sorely missed—a real person in every sense.
Today I shall address only the so-called spring forecast Statement. With respect, I cannot ever recall such an empty thing being brought before our House by any Government at any time. It is a monument to emptiness. On reading it, I was reminded inexorably of the Empty Quarter in Saudi Arabia; nothing much happens there, nothing much is seen and nothing comes out of it. It is remote from all reality and totally silent, with one exception—the Saudi Government have brilliantly managed to begin pumping wells in the middle of nowhere, getting on with the vital task of fuel enrichment. If only we had the same determination from the Government to do something about our neglected North Sea assets. The delays are shameful.
We can be certain that a substantial amount of public money was spent by the Treasury and its poor civil servants on producing this pointless exercise. This is a serious issue. In the interests of transparency, I ask the noble Lord, Lord Livermore—who is well known in this Chamber for wanting to give the fullest possible answers and maximum transparency, and not ducking difficulties—just how much in real terms it cost to produce. I would not expect him to be able to answer that during his winding-up speech, to which I look forward, but will he pledge to place an answer in writing in the Library? I hope the cost of the expensive legions of special advisers can also be taken into account, as they fail to come up anywhere in the speech—I read it with great care—or what in their dark jargon is called an “announceable”. The only phrase in the Statement that caught my eye was the claim that we have
“a state that does not stand back but steps up”.—[Official Report, Commons, 3/3/26; col. 729.]
That was striking most of all as a triumph of AI drafting. Please can we have the costs, with no hiding behind claims that answers can be provided only at disproportionate cost? We cannot have everything redacted by this Government.
I have great sympathy with and admire the Civil Service; I have had excellent help from it in many places in past years. However, any bright spark contemplating a Treasury career at the moment should be a bit cautious. They are being attacked all the time. Numbers are being reduced; they are being dismissed and categorised as an inefficient lot rightly losing their jobs. That is what most people thinking of coming in are hearing. Of course, the great ones of the Civil Service reach a pinnacle and become a Permanent Secretary, but it is distressing how Permanent Secretaries and others are now at risk of being named and shamed in a most cruel and uncaring way, as the last Cabinet Secretary found.
Lastly, as we stare stagflation in the face, how will all these expensively produced Spring Statement words help our economy? Consider our lamentable productivity. As much as one could ever reasonably expect any group of economists to agree on anything, there seems to be considerable consensus about the reasons. Here is a little list: the national disease of underinvestment; our lagging R&D spend; our escalating labour market horrors, due to the spiralling alleged sickness that we seem to be suffering from more and more; stamp duty issues getting in the way of people wanting to move house to get work; and our poor transport system, which is working against the necessary connectivity to get people to work or to arrive on time, thus increasing cost. One has only to ask the poor would-be traveller— I declare a regional interest—on South Western Railway, which is a true legend in its own timetable for lateness. Regrettably, over the last year or so, although I want to travel by rail for environmental and other reasons, my wife and I have been commuting each week by car, which is not what I want to do, but the Government are not helping. Just why are they doing so little?
Whatever the reason, it is worth noting that all these reasons seem to have led the UK to the worst productivity growth in the G7 in 2025. There is nothing in the forecast about that.
Lord Pitt-Watson (Lab)
My Lords, as many noble Lords have pointed out, we have been living in uncertain times, made considerably more uncertain in the last three weeks by the Iran war. Against that, the Spring Statement is creditable. Growth is returning, and that is the Government’s central mission. Inflation and borrowing are predicted to go down. Lots of that is through government action: beginning to balance the books, trade deals, industrial policy, planning reform, creating new sources of finance, training, sensible investment and direct investment. If I may be a bit cheeky, it has also led to a huge investment in the North Sea in offshore wind.
However, growth is not in the Government’s gift. It is not generated principally by Governments but by people, and particularly by businesses. That is what the noble Lord, Lord Bilimoria, and the noble Baroness, Lady Neville-Rolfe, were drawing our attention to. It was also the point my noble friend Lord Barber made in talking about what is happening in Devon and what Luísa Diogo was saying about releasing the music in people in Mozambique. For that reason, I will address my remarks to the role of business.
Some of the measures that the Government have taken have been tough on business. One in particular is national insurance. But I have not heard of any businessperson who says they do not want the Government to balance the books. Similarly, we need good working conditions for people. The wealth comes from them. It is hard if you are a businessperson and your competitor can undercut you by abusing zero-hours contracts, but it is tough if you are an employer and you have to pay for that. So, we should take off our hats to the businesses that are bearing this burden and that underpin our national prosperity. It is in partnership with them that growth will be delivered.
How does business feel? I was pretty encouraged by a recent interview with Andy Haldane. He is the former chief economist at the Bank of England and, I say to the noble Lord, Lord Bilimoria, the new president—taking over from the noble Baroness, Lady Lane-Fox—of the British Chambers of Commerce, which is part of the International Chamber of Commerce. In its survey, 46% of businesses said they expected to grow this year, up from 35% last year. He said that businesses have
“a pipeline of very investable projects”.
I talked to Andy about this a couple of weeks ago. Of course, Iran was a big concern to him, but he was keen that business should get on with it. He said that, given the economic challenges we face, this is a time for business to step up and lead, not lobby, demonstrating by deed what is needed to fire business dynamism, without which there will be no growth. I was delighted by that, because he is right: without business dynamism, there can be no growth.
As some noble Lords know, my own background is in finance. It is a topic that is debated greatly in the House. I have sat in debates, since my introduction a couple of months ago, on the report of the Financial Services Regulation Committee on how financial services regulators should encourage growth. This week, we are debating the pensions Bill, including provisions on how to get the UK pension funds to invest more domestically.
Here is some good news. I was talking to the chief executive of the ICGN—the International Corporate Governance Network—Jen Sisson. The ICGN, of which I am a former director, represents those responsible for the stewardship of shares and other securities: over £50 trillion of them. That is most of the world’s large institutional investors. It pointed out that international investors overweight the United Kingdom because of its accountable, honest and open capital markets, and its history of stable, code-based corporate governance. These long-term investors are keen for the UK to be proud of its position and to think about how they, the international stewardship community representing those big investments, could help our country engage business to grow and grow profitably.
The new group, the Governance for Growth Investor Campaign—with £200 billion of British pension funds, 40% of which is already invested domestically—is also eager to push for growth. I talked to its chair, Caroline Escott. She said, “Of course, we invest significantly in Britain and want to continue to do so. It is good for our returns and it is also good for the beneficiaries of our funds”. Again, the campaign is keen to work with the Government to see how best it can co-ordinate what is a mission for the nation.
I started by noting that growth was the central mission of the Government. I finish by advocating that, if growth is to be delivered, it needs to be a partnership and a national mission, particularly a mission for business. It needs to sing. The more uncertain the times, the more important that partnership is going to be. The Government already have a strong outreach to the business community. This is something they cannot do enough of. I am sure that I speak for many Members of the House, maybe not just those in my own party, when I say that, if we can help in the delivery of the growth mission, we will be more than happy to do so.
Lord Redwood (Con)
My Lords, I enjoyed the speech from the noble Lord, Lord St John, and I regret that I arrived in this place too late to hear more of his Lordship’s wisdom. I wish him every success with his new ventures.
The OBR is set up to fail. The Treasury asks it to perform an impossible task. As someone who has in past jobs had to advise and comment on economic forecast models, the one piece of advice I would give is to never have a spot forecast for something as difficult as a deficit or an inflation rate five years out. To make sure the OBR fails, the Government set it the task of forecasting without allowing it to make any variations to policy. We all know that, over a five-year period, there is going to be at least one general election, and sometimes Governments get so unpopular that there can be a very major change of Government, with a change of policy. We also know that, over a five-year period in this impatient world, Prime Ministers often get fed up with their Chancellors, or parties get fed up with their Prime Ministers, so there can be changes of personnel and a series of changes of policy from that as well. So, it is a totally unrealistic assumption.
What has the OBR done with its problems this time? The OBR tells us that inflation will be a very timely 2% in every year of the last four years of the forecast. I wish it was so, but experience says it is unlikely. The OBR says that the oil price will gently gyrate between $62 and $67 over the forecast period. I know that these are annual averages, so that reduces some of the volatile swings that we are seeing. But, again, that is a heroic or inaccurate forecast. I suggest that there will be considerably more volatility. If we got an early end to the war and things develop more favourably, you could even end up with considerably lower oil prices. In the meantime, obviously, we are all extremely nervous, the war continues, there is more disruption of oil trade and oil prices will stay very high.
One of the things that I fear the forecast is right about is that our own production of gas will halve. I fear that it will under current policies, and I add my voice to those who have already eloquently said that we should stop all this self-harm and get our own gas out, with more better-paid jobs and a lot of extra tax revenue—and, above all, less world CO2, which is the main preoccupation of the Government. What is not to like? The forecast also says that our oil production will be down by about a third. That, too, is subject to the same analysis, and it would be much more sensible for us to deliver our own oil.
The worrying thing in the forecast, which has already caused some alarm in this debate, is that the OBR thinks that the cost of government borrowing is going to rise in every year of the forecast. We should remember that this is from quite a high base by recent past history, because, over the last 15 months, under Chancellor Reeves, the Government have been paying a higher rate of interest for longer-term borrowing for the whole of the 15 months than on the worst day’s spike under Liz Truss, which they regularly condemn as being an unacceptably high level of interest rates. This OBR forecast says that the interest rates are going to be even higher progressively, in a gentle upwards progression, over the whole forecast. Clearly, the OBR is worried, as we all should be, by the weight of debt already issued and by the progressive increase in the amount of debt over the forecast.
This brings me to my advice to the Government. They should change the remit of the OBR to concentrate on years 1 and 2 of the forecast, where there is more chance of getting it right, and they should amend their fiscal rules again. I know they are bringing it down from a five-year fiscal forecast rule to a three-year fiscal forecast rule, but many of the arguments against five years still apply to three years. The number is invented and will not actually ever take place. Year 5 or year 3 never comes, because it is a rolling forecast, so, in effect, there is no control over the deficit. We need a control over the deficit in years 1 and 2 that is real and biting, at least by moral shame and preferably by government decision. Then I think they would find it easier to keep the interest rates under control.
There was a touching ceremony in this very Chamber last week when the Government advanced their legislation to increase income taxation by reducing the generosity of certain pension-saving allowances. The most remarkable thing about that legislation that we were asked to approve was the date of its introduction, which is to be 2029 to 2030. Why choose such a late date? Indeed, it could well be after the next election, and there could even have been a change of government by then, who might not particularly want that legislation. I assume it is great Treasury intelligence and cleverness, because that, of course, is the control year it is currently on for controlling the deficit; and so clever people in the Treasury invented a tax increase, which actually has, according to the OBR, the magic property of a large increase in tax in year 1, and then it halves for all subsequent years. You therefore get the maximum deficit-breaking effect from putting that tax in in year 5 of the forecast, probably neatly after the general election.
This is creative accounting on a grand scale, and it is a surrogate for the real job of getting that deficit down, so I would suggest to the Government that they look again at their fiscal rules. In all the years we have had OBR forecasts of deficits and fiscal rules, we have seen a mushrooming of deficits and debt under successive Governments of all parties, so it is now trebled over the OBR period. Let us therefore have an OBR with a bit of bite. Let us give it a bit of proper independence. I know it is staffed with civil servants, and they work very closely with the Treasury, but it needs to be independent enough to accurately forecast the deficit in years 1 and 2 and to help the Government control it.
Lord Sherbourne of Didsbury (Con)
My Lords, the Economist magazine got it right about the Chancellor’s speech on the spring forecast. It said that the Chancellor
“did not announce a single major policy decision that will help Britain break out of its malaise”.
The malaise is the OBR’s bleak forecasts for economic growth over the coming years— and that is before the current war in the Middle East. It is no surprise, therefore, that the right honourable Wes Streeting said in one of his WhatsApp messages that the Government had no growth strategy at all. I therefore want to focus my brief remarks today on one subject—the lack of economic growth—and I really want to make just one point.
The ultimate driver of economic growth in an economy comes from people who work in business, industry and commerce. That, I think, was the main point made by the noble Lord, Lord Pitt-Watson, earlier on. Yet all those people and those companies—this is where I disagree with the noble Lord—and all those people in business and commerce have been hit by the Government’s stream of anti-business policies.
We have had the jobs tax: the increase in employers’ national insurance contributions. We have had the burdens placed on business by the new employment regulations. We have had the tax on private pensions and the tax on private farms. And now—about to hit the self-employed—we have new and complex regulations which mean they have to submit four tax returns every year instead of one. Therefore, the question I ask is: are there enough people in government who have any idea of how to run a business?
I grew up in the north of England, and my father ran a small manufacturing company, so I was brought up, like millions of people in this country, in a business culture. I learned about the risks you take when you invest money—and it is not just your own money, because the chances are you are having to invest borrowed money. You have no guaranteed revenue and no guaranteed salary. You hope to make a profit, but your margins are tight and you watch your costs like a hawk because you cannot afford to go into loss. You hope at some point to build up some capital, and you do not want to be penalised for success.
In this House, we have a number of Ministers who have business experience—the noble Lords, Lord Stockwood and Lord Timpson, are two examples. I am sure they understand all of this very well, but—dare I say it—we could do with more MPs who have direct business experience. On the day of the spring forecast, there was published in the Times a very interesting article about how the profile of the House of Commons has changed and how different it was in the 20th century. There were many more people on both sides of the House—the Labour Benches and the Conservative Benches—who had direct experience of industry, and the article listed the names of some of those MPs. They included MPs who had been labourers, who had worked on the shop floor, who had been stokers, and who had been railwaymen. Some had risen to become trade union leaders. There were business leaders who had set up businesses in construction, engineering and manufacturing. We do not have enough such people in the House of Commons today. We should certainly welcome, therefore, the addition of a plumber who was recently elected in the by-election—I think she will be an addition to the House’s expertise.
I conclude by suggesting that it would really help business if there were more people in government who had the outside business experience to shape policy, and who understood the impact of those policies on business and companies. That would stimulate business activity, and that—I say to the Minister—would be a real strategy for growth.
Viscount Chandos (Lab)
My Lords, I am very grateful to my noble friend the Minister for his characteristically clear and cogent introduction to today’s debate on the Spring Statement and the finance Bill, timed also to allow us to take into account the Chancellor’s Mais Lecture, delivered early this afternoon. I very much enjoyed and admired the valedictory speech of the noble Lord, Lord St John, and pay tribute to his service; I also thank him for his friendship. I think he was a veteran aged 24 when I arrived in the House as a new boy of 29.
I strongly support the active and strategic state advocated in the Mais Lecture by my right honourable friend the Chancellor, with its three priorities—stability, investment and reform—which have guided her and the Government’s economic strategy since being elected in July 2024. The restoration and promotion of stability has had to be the primus inter pares of priorities for the Government over the past 21 months. The legacy from the Conservatives’ destructive time in office no longer needs enumerating in detail, but a toxic ABC combination of austerity, Brexit, and concealment has presented a formidably challenging starting point from which to rebuild confidence and stability.
Just as that task had been substantially achieved, the latest of a series of geopolitical shocks has posed new challenges. The attack on Iran by Israel and the US and the indiscriminate response by Iran, creating a wider conflict in the Middle East, will inevitably impact the global economy, including that of the UK. The Government are right to be vigilant in calling out price-gouging and profiteering in the energy and other sectors, as my noble friend has mentioned.
The rise in gilt yields and consequent increase in government borrowing costs are unwelcome but reflect the financial market’s recognition, in the US and the eurozone as much as in the UK, of potential inflationary pressures and other risks. The Bank of England will face difficult decisions in relation to interest rates against this background, with increases in energy prices having inflationary and potentially recessionary implications. I hope and believe that the MPC will strike a wise balance in that context. As my noble friend the Minister said, if the Government had not made the difficult decisions encapsulated in the finance Bill that we are debating today, the UK economy would have been less resilient and less able to absorb this latest geopolitical shock, let alone the unprecedented continuing levels of uncertainty and unpredictability that characterise the current US Administration.
The Government have, in parallel with their restoration of stability, planted the seeds to increase and stimulate investment. This has already begun to bear fruit. As my noble friend Lord Eatwell pointed out even before the Budget Statement last November, PwC predicted—and has confirmed since the Spring Statement—a record increase of £13 billion in public investment in 2026-27, unlocked by the sensible, prudent changes made by this Government as to how capital investment is treated in the public accounts and the fiscal rules.
The OBR applies a factor of 0.3 to the impact of public investment on private sector investment, so £13 billion should catalyse £4 billion of incremental private sector investment. However, it acknowledges that the factor in some circumstances could be as high as 2.0—the quality of public investment is as important as quantity, with policy, governance and management all critical determinants of that. What are the Government doing systematically to ensure that these are all pursued to the highest standards, so that the direct return from public investment is maximised and the indirect return from the highest possible factor of private sector investment is being catalysed?
I end by picking up on one point from the finance Bill. The introduction with effect from 2028 of the eVED tax band on the mileage of electric vehicles reflects a decision to balance the need to encourage the switching to EVs with the need to replace revenues from fuel duty and ensure that drivers of EVs contribute fairly to the maintenance of the road infrastructure. I support the balance that is being struck in this case.
Another stimulus for the switch to EVs is the highly concessionary levels of benefit in kind applied by HMRC to company car drivers: 3% of the on-the-road price of the car concerned, rising to 5% in 2027-28. This represents a huge tax saving for the drivers, with no cap on the price of the car to which the benefit in kind applies. By my calculation, a high-end driver of an EV may pay a tax rate that is as low as 5% on the true cost of that benefit. Does my noble friend the Minister agree that this tax should be given further scrutiny and, at the very least, that a cap on the value of cars to which the benefit in kind applies should be examined?
Baroness Fairhead (CB)
My Lords, I too congratulate the noble Lord, Lord St John of Bletso, on his long, stylish and meaningful service to this House. I wish him well in the future, be he in Africa or anywhere else in the world.
I stand before your Lordships as a member of the Finance Bill Sub-Committee, ably chaired by the noble Lord, Lord Liddle, in his sub-committee chairing debut. I will restrict my comments to the key findings of the committee regarding the inclusion of unused pensions and death benefits in the scope of IHT from April 2027. That will, as the noble Lord has said, make PRs personally liable for paying any tax due within six months of death or incurring a 7.7% increase for interest, with minimal exceptions.
I will confine myself to the practical issues that the Bill raises, which, in the words of one of the witnesses, the noble Baroness, Lady Altmann, speaking in her capacity as an independent pensions expert, will create
“massive chaos and misery to so many people, at a particularly difficult time of bereavement”.
I recognise and welcome the Government’s changes, but they are not remotely sufficient.
Adam Smith outlined four enduring canons of taxation which I will paraphrase as fairness, predictability, ease of payment and cost efficiency. The current implementation plan fails each of these. First, on fairness, after listening to the concerns of the pension scheme administrators, the Government shifted the burden of payment to PRs—not just professional PRs but lay PRs, who are often family members undertaking the task at a grim time in their lives. Personal representatives will be required to contact the relevant PSAs for information to determine exactly what tax is due. As today people retire with, on average, eight to 10 pension schemes, the scale of the task is potentially enormous. In simple cases, six months should be achievable. However, in complex cases, where probate is delayed, which can take years, it simply is not, particularly when many PSAs will not disclose the information until after the probate is granted. That is a Catch-22 situation. Often, personal representatives will not even have control of the assets of the deceased, which makes it difficult for them to pay on time. Charging interest to PRs for such late payments could fairly be regarded as a penalty for taking on the task.
I turn to predictability and ease of payments, which I group together. Many pension assets are illiquid. Their valuation is unlikely to be predictable or certain, given their complexity and the valuation bottlenecks that must surely arise. For example, the current rules for defined contribution and defined benefit schemes are complex and inconsistent. It is possible that schemes with exactly the same financial outcome can lead to the IHT being payable on DC schemes but not on DB schemes. Think about that. An unintended consequence could be that people are discouraged from investing for their retirement through DC schemes, which is counter to policy and to the desire of this and many other Governments.
In many cases, the PRs will need to recover payment from resistant beneficiaries who have already been paid. These beneficiaries might even come from previous relationships or families of the deceased. You can imagine the strain that that would put on being able to make that payment within six months. Many witnesses believe that the industry is not ready and that, should the regulations be laid out just before April next year, the unpreparedness is almost inevitable.
Finally, on cost effectiveness, the changes will increase admin costs materially, whether or not IHT is ultimately payable, as PRs are likely to require the support and guidance of advisers. Personal liability and admin difficulties may well discourage even professional PRs from serving, leaving HMRC to administer even more estates, substantially increasing government costs.
The Investing and Saving Alliance described the proposal as like
“trying to hammer a square peg into a round hole”.
Given the scale and complexity of the task, this change is being introduced without adequate notice, guidance or communication.
There are many ways the Government could improve implementation, such as safe harbours, grace periods from interest or by improving access to information or ways of payment. At a minimum, the Government should publish timely step-by-step guidance to PRs, with worked examples and clear guidance to the industry.
I urge the Government to do more and pose a couple of questions to the Minister. Would the Government consider pushing back the timeline until the most significant of these issues are resolved? If not, what further actions are they prepared to undertake to ease this unfair burden on personal representatives?
Lord Leigh of Hurley (Con)
My Lords, it is an honour to follow the noble Baroness, Lady Fairhead. I also speak as a member of the Finance Bill Sub-Committee of the Economic Affairs Committee—a lot of words on a business card. It was a delight to serve on it again, and I congratulate our chairman, the noble Lord, Lord Liddle, on his excellent work, and thank the staff and colleagues on the timely production of this report. Sadly, we will not be able to debate the report separately, so I hope the Minister finds some time to comment on some of our proposals today.
We were very troubled by the reforms to inheritance tax. We can see that the burden that will be placed on personal representatives, as the noble Baroness, Lady Fairhead, set out—I agree with every word she said—will risk dissuading anyone from accepting this role. I know that I would be extremely reluctant to accept a job as a personal representative, which I have accepted in the past.
Taxing pensions with IHT is a retrospective tax because people like me—I declare an interest—have saved money into a pension on the understanding that it would be outside my estate. The Government have reneged on that deal, and it is clear from the Bill that they are there only to support those on defined benefit schemes, which is possibly of benefit to those who drafted the Bill and all public sector employees, not those of us earning and saving from our own resources, who have been hammered by the Bill.
The Government have clearly not thought through the complexity of the interaction of BPR, APR and IHT on pensions. As a result, many small family businesses and farmers will face acute liquidity problems on the death of a family member in their business. We argued strongly for the Government to extend the deadline for payment from six to 12 months. That was not a big ask, so I urge the Minister to look at this again.
I will raise one issue that I hope the Minister will not think is political. It has not been discussed elsewhere and it will be a major problem. The proposed introduction of inheritance tax on unused DC pension funds on death will affect a disproportionately female demographic, particularly widows, single older women, lone parents, unpaid carers, disabled older women, early-death survivors and personal representatives. I know that there was an equality statement, but that was based solely on HMRC data, not ONS data. I have had a look at the ONS data and it is clear that there will be a massive impact on older women from this. Women typically live longer than men, and they will suffer as a result of these changes. I am sure that is not the Government’s intent, but that is the effect. The Government have not published any demographic modelling, so we are unaware of the resultant effect. This is a really serious issue that, from today, will gather momentum in the national press as people realise that this effect will hammer widows and women who have to be personal representatives themselves.
Can the Minister also look at the basis of valuation for businesses for IHT and BPR on the owner’s death? It is a bit absurd but, currently, HMRC looks at the value of a business the day before the death. This is completely unfair, because the value of many businesses is dependent on the owner working in that business. It is shocking that HMRC will not accept that, following the demise of a significant shareholder, that business might be worth considerably less, or even nothing. Dependants will have to pay inheritance tax based on the owner still being alive, which is absurd.
I turn to other matters. Many have concerns about tax adviser registration. The CBI, in particular, thinks this will have a chilling effect on access to advice for retail and business clients from, for example, conveyancers and pension providers. We still do not have clarity on the treatment of in-house tax teams, which is critical.
The avoidance legislation in Part 6 and the tax adviser legislation in Part 7 of the Bill is overbroad; it risks capturing legitimate tax advisers who are acting reasonably and deterring them from acting in areas of uncertainty, but not attacking tax advisers based offshore. The best solution for both the promoter and tax adviser registration rules would be to delay enactment by a year to allow HMRC to iron out concerns with professional bodies and businesses. There is no loss of tax by doing this; it would allow the further tweaks needed to be made to the legislation.
To the surprise of many in this House, I thank the Minister for the changes to the EIS and VCT restrictions. Of course, I regret the VCT relief reduction from 30% to 20%. By the way, the last time investment limits were cut by 10 percentage points—from 40% to 30% in 2006-07—the VCT funds raised dropped from £780 million to £270 million, a reduction of over 65%. Who knows what will happen this time round?
I am sure the Minister recalls me banging on to get through more changes on, for example, limits, company age, relationship restrictions in families and so on. I hope that the Government look at this again. Who other than parents will be mad enough to back a young person, so why should they not get the same tax relief?
It is intensely frustrating to many of us that we have only seven minutes to comment on the 500 pages of the Bill. There is an enormous reservoir of knowledge in this House, which has many more businesspeople and advisers than the other place, so it would be great to be invited to a round table sometime to throw out some real-world issues and solutions, as we see them.
In closing, I bid a very fond farewell to the 22nd Baron, the noble Lord, Lord St John of Bletso. I looked it up and the title was not created at the Norman Conquest, but I know that his ancestors came over then, so his family have served this country well and we are grateful. He personifies the huge loss of skill and knowledge that we will suffer with the departure of the hereditaries.
Baroness Bi (Lab)
My Lords, I begin by sharing my tribute to the noble Lord, Lord St John of Bletso. I am a newcomer, so I have not had the benefit of his expertise on southern Africa. I am sorry about that because it is a region I am very optimistic about. I also share the noble Lord’s concerns about the impact of AI on employment.
I declare my interest as the chair of Norton Rose Fulbright, an international law firm, although I speak today in a personal capacity.
Your Lordships will not be surprised to hear that I strongly support the Chancellor’s Spring Statement and the Finance (No. 2) Bill. Together with today’s Mais Lecture, they represent a clear and disciplined approach to economic management—one that prioritises stability, growth and long-term competitiveness.
Over the last decade, businesses have had to navigate an extraordinary succession of shocks: the wars in Ukraine and now the Middle East; the disruption caused by artificial intelligence and new technologies; the societal changes caused by Covid; and the profound economic and constitutional changes triggered by Brexit, which we are still experiencing. In that environment, what globally mobile businesses value above all else is not short-term gimmicks or headline-grabbing announcements but political stability combined with regulatory coherence and fiscal predictability.
Regrettably, that is not what the United Kingdom consistently offered in the period after 2016. Multiple fiscal events each year and uncertainty over our long-term economic direction weakened confidence and made it harder for the UK to compete for investment. The damage to our reputation was real, particularly in financial and professional services, where confidence and continuity are paramount.
That is why the Chancellor has been right not to make any new tax or spending announcements as part of the Spring Statement and to ensure that there is only one fiscal event per year. The Spring Statement demonstrates that this Government understand that credibility is built not through constant activity but through consistency.
The Government’s commitment to reducing borrowing, bringing down inflation and improving living standards is essential. In an era of geopolitical volatility—including, as we speak, the conflict in the Middle East, with its global economic consequences—it is important that the UK is seen as a safe harbour. Markets will tolerate short-term adjustments to forecasts, including those made by the Office for Budget Responsibility, provided the direction of travel is clear and the policy framework is stable. That is exactly what this Government are now providing.
In my own sector—international financial and professional services—the United Kingdom remains one of the world’s pre-eminent centres. The sector contributes over 12% of our economic output and employs nearly 2.5 million people, with the majority of those jobs outside London. This is not a niche interest or a City concern alone; it is a national asset that underpins prosperity across the whole United Kingdom.
At the heart of that success lies the City of London, which continues to evolve as a global hub for capital, expertise and innovation. The recent wave of mergers between leading US law firms and London-based international firms is a powerful vote of confidence in the UK’s future as a centre for global business. Firms do not make those decisions lightly. They do so because London offers an unmatched combination of expertise, legal certainty, time zone advantage and global connectivity.
Yet we cannot afford to be complacent. Our competitors, from Dublin to Singapore, have been energetic in promoting themselves. In the years following Brexit, the UK was not always seen as the obvious place to launch new products or expand new business lines. Left unchecked, that trend would lead to a gradual erosion of the City’s position and, ultimately, to reduced revenues for the Exchequer and fewer high-quality jobs across the country.
This is why the finance Bill matters. Since 2008, layers of overlapping regulation and sector-specific taxation have placed the UK at a competitive disadvantage. What businesses require is not deregulation for its own sake but clarity, coherence and alignment with international standards, combined with a competitive and clear tax regime.
That is why, as a capital markets lawyer, for example, I welcome the changes to pillar 2 in Schedule 8 to the Bill, which address long-standing ambiguities in the tax treatment of securitisation vehicles and bring the UK into line with other major European jurisdictions. This is a practical, targeted reform that enhances the UK’s attractiveness without compromising standards.
Like the noble Lord, Lord Bilimoria, I want to address the increasingly vocal attacks on London itself. In recent months, a deeply cynical narrative has taken hold—particularly on social media and among some politicians who otherwise wrap themselves up in the flag and claim to be patriotic—portraying London as a crime-ridden dystopia in decline. This caricature is not only inaccurate; it is actively harming our national interest.
To denigrate our capital for short-term political gain is to undermine one of the UK’s greatest competitive advantages. Unfortunately, international investors do not distinguish between rhetoric and reality when headlines travel globally. I therefore urge my noble friend the Minister to ensure that this Government robustly and consistently counter this disinformation through a co-ordinated, cross-government campaign to promote London internationally as the safe and business-friendly city that we all know it is.
Looking internationally, I hope financial and professional services will be central to the UK’s trade policy, including the reset of our relationship with the European Union. But while those negotiations continue, we should focus on what we can control, which is to make the UK an easy and attractive place in which to do business.
The regulatory divergence now emerging between the United States and the European Union also presents us with a strategic opportunity. As the US loosens its regulatory framework and the EU moves towards greater standardisation, we are uniquely positioned to offer a third way, combining high standards with global reach.
In conclusion, the world is looking for centres of stability, integrity and expertise. With the right policy framework, and the approach set out in the Spring Statement and the finance Bill, the UK can and should be that place.
Lord Northbrook (Non-Afl)
My Lords, the Spring Statement has been overshadowed by the escalating conflict in the Middle East. There is
“significant chance that the new forecast is already out of date before the ink has dried”,
warned Andrew Wishart of Berenberg Bank. However, even before this, the UK economic forecasts were looking grim. Growth was looking stagnant and downgraded to 1.1% for this year. While 2027 and 2028 forecasts were raised, Paul Dales at Capital Economics has warned that this could be overoptimistic. Helen Miller, director of the Institute for Fiscal Studies, said:
“The economic outlook, and therefore the outlook for borrowing, could shift more materially between now and the Budget in the autumn. The conflict in the Middle East is already pushing up”
commodity
“prices and expectations for interest rates. It could yet cause more far-reaching economic disruption”.
On the inflation front, Mr Dales also predicted that, if remaining for a medium-term period,
“the leap in energy prices will mean UK inflation”
will be
“higher than the OBR is forecasting”.
According to senior OBR official David Miles and the NIESR think tank, the rise in global energy prices, if sustained, will lead to a 1 percentage point increase in inflation. As a result, the Bank of England will have much less scope for lowering interest rates, as this rise will take inflation well beyond its target of 2%.
Moving on to the Statement’s comments on taxation, the OBR said that taxes would hit 38% of national income in 2030-31—a depressing post-war record. After the Chancellor’s decision to increase the employers’ rate of national insurance and freeze income thresholds, revenues as a result of these measures will increase by 25% in the next five years.
Welfare spending is out of control. The Government’s welfare bill, including spending on pensioners, is poised to soar by 23% over the next five years. The number of people claiming disability benefit will rise by 2.3 million over the same period. The numbers claiming incapacity benefit will also increase: this category will be up by 18% over the next five years. However, the OBR said that this could be an underestimate, as it is assuming that new incapacity benefit claimants will rise at a slower rate than in previous years. Overall, welfare expenditure is predicted to cost the country 11.2% of total GDP by 2030, which is a very worrying figure, and even the Government believe something serious must be done to control its increase.
On unemployment, the OBR predicts that almost 2 million people will be jobless by the end of the year, surpassing the highs of unemployment last seen during the Covid epidemic. It forecasts that the unemployment rate will be up to 5.3%, from 4.75% last year. According to the Times, Labour has presided over an almost 30% rise in unemployment since it came to power. The OBR warns that higher unemployment could become structural and persistent, with new technologies such as AI permanently displacing workers.
Looking at the UK economic situation, the Government clearly could not have anticipated the Middle East turmoil. However, they have done things domestically that have been foolish. The lack of business and financial experience on the House of Commons Front Bench has led to poorly thought-through decision-making. The increase in employers’ national insurance, seen as an easy way to raise tax, is a classic example. The consequences were not considered sufficiently. In a difficult economic climate anyway, it has led to businesses laying off staff rather than having to pay the extra tax.
Then there is the minimum wage. Both major parties have made the same mistake here. It is in theory good to give pay increases above inflation, but in practice, especially when the wage for younger people is raised to such an extent, it affects the profitability in particular of businesses dependent on employing this category of worker. Combined with the employers’ national insurance increase, these two measures have had a devastating effect on businesses.
When we look at a third problem, we can see what a hammer blow has hit smaller businesses in particular. It is business rates. The Government failed to realise the effect of the revaluation of properties, particularly on leisure businesses and small shops, which has led to unfair rate increases on many of them.
I made no apology for referring to three areas of tax change which, if implemented, could give a major boost to the economy. First, there is the non-domicile tax changes. Relying on mistaken forecasts of extra tax on these individuals, Governments of both parties have decided to frighten them away from the UK. These non-doms paid much more via PAYE and VAT than the potential extra tax it was claimed would be raised by their status change. This is because they employ people, use hotels and restaurants, and spend money in shops, to name but a few areas. The non-dom legislation should be scrapped.
The next area is duty-free shopping. Again, Governments of both parties have foolishly made and kept the abolition of this. Again, this is very short-sighted and based on erroneous overall calculations of tax loss. What was not factored in was the extra money that could be spent by these shoppers, who go to other European airports instead.
Finally, I turn to inheritance tax. This should be fundamentally changed or abolished. I would like, for a start, to see the UK adopt the American threshold of nearly $14 million before the tax is due, or the Government should consider the example of socialist Sweden, where the tax was abolished. It is a pernicious double tax. As a wise friend from Bexhill with extensive business experience has pointed out, fear of the tax prevents small businesses expanding and being passed on to the next generation. It also cuts back potential spending by descendants in family businesses. It encourages non-domiciled individuals to leave the country—guess who returned when Sweden abolished the tax? It is so disappointing that Conservative and Labour Governments have done nothing about it, except in the case of Labour, which made it worse. A new political approach is needed.
Lord Elliott of Mickle Fell (Con)
My Lords, I shall focus on the choice we face as a country between investing in economic inactivity versus investing in work, a theme my noble friend Lord Northbrook spoke about. The Work and Pensions Secretary announced yesterday a £1 billion investment to incentivise employers to hire young people from long-term unemployment. That is welcome news, given that almost 1 million people are not in education, employment or training. Each of those NEETs faces losing out on £1 million in lifetime earnings, with a further £1 million cost to the state—that is, to all of us as taxpayers—in welfare payments and lost tax revenue.
What struck me is that this £1 billion incentive to employers is far less than the £8 billion increase for non-pension-related welfare payments announced in the Spring Statement. The Government have therefore made an active choice—the wrong choice, in my view—to spend eight times more on paying people to stay out of work than on getting people into work. To put that in context, with £8 billion, the Government could fund almost 900,000 apprenticeships, give a tax break of £10,000 to 800,000 businesses to employ someone out of long-term unemployment, or immediately increase our defence spending to 3%. According to table 5 of the appendix to the OBR’s report, the Treasury will collect £331 billion in income tax in the current financial year, but according to table 4.6 we will spend £333 billion on welfare—a sum that is almost as big as the combined GDP of Scotland, Wales and Northern Ireland. In other words, we are now spending more to facilitate people not working through a rise in income tax from people working.
This comes at a cost—a cost that falls on us through taxation but also on the next generation through increased national debt. In 2000, the national debt per person was, in today’s money, £11,500. Today the share of the national debt for every child born is more than £41,000. This is their inheritance, and the trajectory is not improving. According to page 70 of the OBR’s report, total welfare spending will rise this year by £18 billion, further contributing to the national debt. This £18 billion increase is the equivalent of the entire annual budget of NASA, an organisation that is literally sending people around the Moon this year. Thanks to the work of NASA, we have GPS navigation, satellite weather forecasting, camera phone sensors, infrared thermometers, cordless power tools and even memory foam—technologies that have improved the lives of billions of people and underpin trillions of dollars of economic activity.
This is where the choice between investment in jobs and so-called investment in welfare comes in. The Chancellor opened her 2024 Budget by declaring:
“The only way to drive economic growth is to invest, invest, invest”.—[Official Report, Commons, 30/10/24; cols. 811-12.]
I agree. The question is, invest in what? After her 2025 Budget, she went so far as to describe welfare spending as investment. If additional welfare spending is investment, it is investment in keeping people out of work rather than giving them the joy of a job and the Exchequer a windfall. President John F Kennedy once said:
“We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard”.
I urge the Government to make the hard choice to put any additional money they have into getting people into work rather than increasing welfare spending. As the Chancellor once said:
“We are not the party of people on benefits. We don’t want to be seen, and we’re not, the party to represent those who are out of work … Labour are a party of working people, formed for and by working people”.
The spending choices in the Spring Statement speak louder than words: £8 billion is a bigger figure than £1 billion. I urge the Government to make getting people into work a higher priority than keeping them out of work, to put more focus on making the country NEET zero rather than net zero, and to go back to being, in the words of the Chancellor, the party of the worker rather than the party of people who are out of work.
Lord Davies of Brixton (Lab)
I start by paying tribute to the noble Lord, Lord St John of Bletso. I do not know whether he will mind me mentioning that we recently discovered that we share one thing in common—there may be others—which is that we are both stammerers. He is wonderful testimony to the fact that it is not a life-changing condition. In some ways it can be life-enhancing, because it forces you to do things you might not otherwise do.
The first issue I want to raise is in relation to the Spring Statement. A number of speakers have mentioned that, obviously, the war in the Middle East is affecting the figures. Another thing that will affect the figures is the sweeping immigration reforms announced by my right honourable friend the Home Secretary earlier this month to extend the default settlement period from five to 10 years, introduce an asylum visa break and reduce refugee protection grants to 30 months. If they achieve the effects that we are told they will, it is clear that they will have significant implications for the OBR’s projections.
The fiscal consequences of lower migration are, on balance, unfavourable to public finances. Oxford Economics, for example, has pointed out that falling migration
“threatens growth, strains public finances, and leaves productivity carrying the burden”.
More specifically, it estimates that, if net inward migration dips below 100,000—that is its expectation for the current year—the cumulative effect would leave the UK population 1.5 million lower than the ONS projection by 2030. So my question is: if the OBR is going to adjust its assumptions in respect of the proposed changes, what will be the effect on potential output for 2029-30? Oxford Economics estimates a reduction of 1 percentage point, implying that government borrowing will be £19 billion higher and hence wipe out most of the Chancellor’s so-called “headroom”.
The aggregate picture is, of course, much more complicated than that, but I still ask my noble friend the Minister whether the Treasury is engaged in this debate and whether the proposals from the Home Office are set in stone. Is there a chance of the Treasury explaining the potential impact that the proposals will have on the economy?
The second issue I wish to raise is that of inheritance tax on unused pension pots. A number of speakers have explained in detail some of the administrative and personal difficulties that will arise. I hope that my noble friend will be able to reply to those points, but let us not lose sight of the central fact, which is that personal estates not used for pension purposes should be subject to inheritance tax. They are part of the deceased individual’s estate and so should be subject to the inheritance tax that is due.
We are in this situation because of what, in my view, was the ill-judged adoption of the so-called policy of “freedom of choice”, which effectively shifts the focus of provision from pensions to savings. If you are going to provide a tax-advantage method of providing pensions, that is what it should do. It should not be used for the separate purpose of sheltering payments that you want to make to other people.
I was a bit puzzled by the comments of the noble Lord, Lord—
Lord Davies of Brixton (Lab)
Yes, the noble Lord, Lord Leigh of Hurley. That was a blind spot: I am sorry. I always listen with great interest to what the noble Lord says. We take part in many of the same debates. I did not really understand his suggestion that widows would be the main people to suffer from this policy. I would be happy to give up 15 seconds of my seven minutes if the noble Lord could clarify that. Is he saying that they are going to have to do the PR work? Is he saying that their pensions are going to be taxed?
Lord Leigh of Hurley (Con)
As the noble Lord has invited me to intervene, I will. The point is that women live longer than men and it is much more likely that, if a person passes away, it will be the man leaving the woman to be the PR and to pay the tax.
Lord Davies of Brixton (Lab)
Sure, but that is true only if the widow does not get a pension. My whole point is that that arrangement should be providing pensions and not providing capital sums to the widow. If the deceased does not want to place that burden on their widow—or widower: it works both ways—they have to ensure that the money is not unused but is used to provide the dependant, the spouse, with a pension. It is only lump sums that will be taxed in this way. To me, that seems right and proper because it is part of the deceased’s estate, and there are of course the normal tax-free allowances. We are here because pensions are the purpose of these arrangements. They are not for the purpose of estate planning, and yet, since the introduction of freedom of choice, that is what they have become.
I want to pick up a point made by the noble Lord, Lord Elliott of Mickle Fell. He mentioned the total welfare bill. Of course, the main part of the welfare bill is pensions. I was not entirely sure whether he was suggesting that we take the pensions away from pensioners and advise them to get a job. Was that his suggestion?
Lord Horam (Con)
I pay tribute to the noble Lord, Lord Davies, and to the noble Lord, Lord St John of Bletso, who made an excellent valedictory speech. I had no idea that both of them had a stammer. I might mention that Nye Bevan had a stammer as well. That is a rather high level of eloquence to aspire to, but none the less he did: I heard him speak once upon a time.
During this extraordinary period of history we are living through, these very troubled times, the three authoritarian regimes we face—I am thinking of Iran, Russia and China—all have extremely serious economic problems. In the case of Iran, for example, it is not simply that it has pauperised its population, which has been revolting, as we know. It cannot pay its revolutionary guards, which apparently is an even more serious problem than revolt among the ordinary people. Russia has also pauperised its population outside Leningrad and Moscow, but now 40% of the public sector is consumed by war means, and prices are rising between 20% and 40%.
We in the UK have a debt that is 95% of our GDP. In China, debt is 340% of GDP. China is trying to grow at a rate of 5% a year. Most economists think that it can manage only 2%, but to achieve 5% it is producing stuff such as solar panels and electric cars, which no one wants and they cannot sell locally, so they are having to dump them overseas. As a result, no fewer than 40 countries throughout the world have imposed tariff restraints on Chinese imports.
These are unsustainable situations. The reason is that, in all three countries, which are authoritarian dictatorships, policy and politics have triumphed over economics. They have been able to put through policies because they are dictatorships. In the case of Iran, for example, the policies include expanding Islamism throughout the Middle East and so forth, and funding proxies in various countries. In the case of Russia, as we know, the policies have included invading Ukraine and the paranoia about an invasion from NATO.
In the case of China, rather interestingly, as a result of Xi Jinping’s personal ambition, the policy is that the GDP of China should be the size of America’s by 2035. It is widely thought that Xi Jinping expects to be still alive at this point and therefore able to celebrate the great victory of the Chinese Communist Party—communism by Chinese means—as a result.
All these things are examples of politics triumphing over simple economics. To be fair to our Government, they put in their manifesto the simple point that they want to maximise economic growth. I applaud that. In the situation we face, it is clearly central that we should improve our economic growth. We live in a liberal democracy and, therefore, we should be able to adjust policies in a way that is impossible where you have a dictatorship. The problem is the execution. The execution of that aim has been defective because the Government have not been able to keep out the political problems that they face.
Take one small example, in the wider scheme of things: the Chagos decision. You can argue it either way; the Government argue one way about the legal situation and we argue another, and I quite accept that there are different points of view. What shocked me was that the Government are spending not just £100 million a year over 99 years, which is what is in the popular prints, but £145 million a year in rent plus £45 million a year in development aid. That is some £210 million a year going out from this country to Mauritius unnecessarily. That is astonishing. Why do that in a year when the public sector situation is so tight?
Then there is the question of welfare. The existing situation, with a limit on child benefit of two children, has been like that for several years. It is popular—60% of the population support only two children being supported from child benefit—but, none the less, the Government have just spent £3 billion a year on extending that to all children. As my noble friend Lord Northbrook pointed out, the OBR is pointing to the additional welfare provisions that will follow over the next few years unless something is done.
Lastly, on energy prices, we should take account of climate change. Obviously, it is something that we care about, and young people particularly care about it as an issue. We contribute 0.8% of the international problem, yet, as a result of the policies of Ed Miliband, we have the highest energy costs of any country in the western world. That is astonishing. That degree of zealotry must surely not be of cost-benefit in any sensible way, and it is going to get worse as a result of the failure to exploit North Sea oil.
Our problem, therefore, as the OBR pointed out in its forecast, is that tax will go from a general average of 32% of GDP historically to 38.5%, which is entering a wholly new area. Debt will remain at 95% a year—that will not come down—and, as a result, growth, which averaged nearly 2% for the last decade, will come down to 1.5%. That is really bad and extremely disappointing. Unless there is a change of approach, we will be subject to further disappointment.
Lord Skidelsky (CB)
My Lords, the eloquent speech this evening by the noble Lord, Lord St John, reminded me yet again of what this House is losing by chucking out its hereditary Peers.
I want to take advantage of the slightly longer time allowed to Back-Benchers to make a technical point about language, before going on to the question of policy. Whether intended or not, most of the OBR’s prose is unnecessarily unintelligible to the ordinary person. For example, paragraph 1.12 says:
“Labour market conditions continue to loosen”,
with entrants into the labour force facing “subdued hiring demand”. What this means is that unemployment continues to rise, with school leavers finding it harder to get jobs now. Why not say that? What is meant by “subdued hiring demand”? What is unsubdued hiring demand? Even in this august House, I doubt whether many Peers would be able to give an accurate answer to what unsubdued hiring demand means. There is a whole battery of theoretical assumptions behind that sort of phrase which need to be unpicked. My general point is that the OBR should spell out its theoretical positions so that the reader can grasp intuitively whether they make sense to them.
There is another issue here: the problem of forecasting, to which the noble Lord, Lord Redwood, and other noble Lords have referred. This arises from the obfuscation in OBR prose of the distinction between risk and uncertainty. In OBR-speak, those two terms are identical, but actually they are not. Risk gives you a set of probabilities; uncertainty means you do not have the foggiest what is going to happen. The whole business of forecasting outcomes over five years and then protecting oneself against inevitable failure by invoking stochastic shocks seems completely fraudulent. The biggest stochastic shock around at the moment is President Trump, yet you do not find any effect that he has on the smooth undulations of the five-year forecasts presented by the OBR.
Now for a breath of fresh air. The OBR ruminates that:
“If unemployment fell more sharply and returned to its equilibrium rate in 2027-28, two years earlier than our central forecast, borrowing could be lower by £16 billion a year on average from 2026-27”
onwards. In plain English, that means that if unemployment were lower, the budget deficit would be smaller. A striking thought: then why not make unemployment lower? There are many ways in which one might do it, but I will refer to just one. In 1929, the Liberal leader, Lloyd George, pledged to cut unemployment by half within a year by means of a £250 million investment programme. He never got the chance, but it may be of interest to translate it into today’s terms: as a share of GDP, £250 million in 1929 is equivalent to £80 billion to £90 billion today.
The noble Lord, Lord Livermore, has talked of an additional £120 billion programme that this Government have authorised over the length of this Parliament, but my understanding is that that is only £20 billion more than what the Conservatives had planned, and the stimulus of £1 billion to £2 billion in the next year is vanishingly small. I may be wrong, and I will happily be corrected if I am, but one needs to be clear about what stimulus the Government are actually giving the economy at this time.
It will be argued that the output gap today is much lower than it was in 1929, but is this true? Output gap estimates depend heavily on the unemployment rate—the higher the rate, the larger the gap. With headline unemployment only 1% above the equilibrium rate, the output gap seems very small, less than 1%, but is this a proper measure of spare capacity in the economy? Of course not. Our current headline unemployment rate of 5% excludes the 3.3% of involuntarily employed part-time workers—people who say they want to work longer but do not have the chance. If we put those two together, we have something like a spare capacity, accurately measured, of 8% or 9% underemployment. I would like the OBR—maybe the Treasury could instruct it—to put two charts side by side showing the unemployment rate and the underemployment rate, and then we could really see what the extent of our output gap actually was.
My last point is that unemployment is not the only measure of spare capacity. There are 1 million NEETs—young people between the ages of 16 and 24 not in education, employment or training. The Chancellor’s youth guarantee scheme guarantees only 55,000 places after 18 months’ unemployment. What is needed, as Paul Nowak, general secretary of the TUC, has often said, is a genuine youth employment/training guarantee on a far larger scale, organised locally as well as nationally, so that the jobs and training reflect the differing needs of different communities.
We are told that we cannot do any of this because of the fiscal rules. My answer to that is what Keynes said in 1933:
“Look after unemployment, and the budget will look after itself”.
That may be too bold for our rulers today, but I say to the Chancellor that if one wishes to gain anything then one needs to dare in order to gain something. The real risk is to do nothing and be overwhelmed by events.
Lord Massey of Hampstead (Con)
My Lords, the key takeaway from the Chancellor’s speech is that the great plan for growth has now been supplanted by the more modest objective of stability. However, there are a couple of claims in the speech that need challenging.
The Chancellor claims that inflation is down but does not provide a timeframe; the reality is that inflation is higher today than when Rishi Sunak left office—3% versus 2%. She also says that interest rates are down, referencing the six cuts in base rates, which is true, but if we look at longer-term gilt prices, as my noble friend Lord Redwood mentioned, a very different picture emerges. The 10-year gilt when Sunak left office was 4.1%; it is now 4.5%—and this was prior to the Iran war. The 30-year gilt is now trading at 5.3%, higher than in the aftermath of the Truss mini-Budget, when the long gilt hit 5%. The market’s message is clear: it is more worried about long-term inflation and debt levels today than under Liz Truss, and much more worried than under Rishi Sunak.
Since July 2024, it is indeed the case that inflation is up, longer-term interest rates are up and unemployment, which was barely mentioned in the Chancellor’s speech, is at the highest level since Covid. It is surprising that unemployment was referenced only once in the speech as it is becoming a major issue worthy of more extensive consideration, especially the worrying growth in youth unemployment, mentioned by many speakers. Overall, unemployment has risen by 400,000 to 1.9 million since July 2024, which must be a major concern for a Chancellor who came into politics, as she says in her speech, to
“stand up for working people”.—[Official Report, Commons, 3/3/26; col. 732.]
The Chancellor references the OBR forecast that unemployment will peak this year and revert to lower levels later in the Parliament. But it is noticeable that this forecast is much more optimistic than the Bank of England’s and the average external forecast so should be treated with some caution. Indeed, if we read the small print, we see that the OBR warns of the “significant risks” facing the labour market. In the event of even a modest downturn, unemployment levels could rise to 7%, which is 2.3 million people, and we still do not know the effects of the NI increases or the employment impact of Al, both of which, of course, could make the situation worse. Youth unemployment now runs at 16%, with nearly 1 million NEETs, and this could be headed higher.
The Government are very aware of this, and I commend the measure announced yesterday by the Secretary of State for Work and Pensions, introducing financial incentives to employers to hire young people who have been out of work for six months or more. Using incentives in this way is the right financial path. I also agree with the theme of his speech that we need to change from being a welfare state to a working state. We need to make it easier and cheaper to employ young people but, as has been mentioned, recent government measures on the minimum wage, NI increases and extended employment rights have made it more expensive, and indeed riskier, for business to hire new people.
We are now seeing a decline in graduate employment prospects, with AI eating into entry-level jobs, as was mentioned by the noble Lord, Lord St John of Bletso, in his excellent valedictory speech. A study by Stanford researchers in the US found that the areas hardest hit by AI are entry-level occupations, with workers aged 22 to 25. They are experiencing a 16% relative decline in employment. It is likely that this trend will be repeated in the UK, so help for this graduate cohort would also be very welcome. Indeed, we have exempted under-21s earning less than £50,000 from employers’ NI and I ask the Minister whether the Government would consider extending this exemption to 24 year-olds, as graduate job creation also needs a kick-start.
The Chancellor’s objective from day one was to grow our way out of the headwinds of rising public spending and rising debts, but increasing benefits, promoting the interests of trade unions and raising taxes on wealth creators is simply not going to deliver that growth. It is just going to crowd out investment, stifle employment and demotivate entrepreneurs. As mentioned by the noble Lord, Lord Pitt-Watson, and my noble friend Lord Sherbourne, only business-friendly and employment-friendly policies will work, because at the end of the day only business can generate growth and jobs. Trying to achieve growth by bloating the state will simply not work, and we are witnessing this now in real time.
The Government want to be generous, and we saw their delight at the lifting of the two-child benefit cap, but these measures are funded by borrowing and serve to make work less financially attractive than living on benefits, as my noble friend Lord Lamont and others have said. The welfare bill grew by £16 billion last year and is on a trajectory to £400 billion. In the OBR forecast, it is one of the areas of public sector spending set to grow the most over the next five years.
The Government face a dilemma: they have to choose between advancing their political agenda and their aspiration to improve our balance sheet and generate growth. They cannot achieve both and the sooner they accept that reality, the better for our country.
Baroness Gill (Lab)
My Lords, this year’s spring forecast is not just an economic and accounting exercise; it provides clarity, alongside the latest forecasts from the OBR. It is encouraging to see the forecasts of steady growth and falling inflation, resulting in the UK having the fastest growth of any G7 country in Europe. This will give households and businesses greater confidence for the coming years.
However, in a world facing real turbulence and uncertainty, with the wars in Ukraine and the Middle East that have implications for energy prices, inflation and global trade, it is particularly important that this Government are focusing on sustainable growth, meaning that we will be sheltered from the worst of energy shocks. Building on the Government’s successes in entering trade agreements with India and the US and resetting our relationship with the European Union, it shows that by working constructively together with our nearest neighbours and other partners, the UK is in a much better place than many others.
The Chancellor has already outlined in the other place the foundations on which this Government are building a responsible and strong economy, the main components of which are: stability in our public finances, investment in our infrastructure, and emphasis on the growth agenda. These are already reforming Britain’s economy. She has clearly set out plans that support working people and children, encourage investment and keep our public finances sustainable.
The Chancellor’s focus on the digital/AI economy, regional devolution, creating opportunities, and fiscal discipline demonstrates that this Government are determined not only to manage today’s pressures but to build a stronger economy for the future. These measures will be vital in securing growth, particularly in regions and sectors looking to expand and innovate.
It is reassuring to see a clear plan that supports working people, strengthens the public finances and encourages the investment our economy needs to thrive. Yet growth is not driven by domestic policy alone. The UK’s future prosperity is closely linked to a strong and pragmatic economic partnership with our European neighbours. There is enormous potential for deepening trade, attracting investment, and collaboration on cutting-edge innovation, from green energy and low-carbon technologies to digital infrastructure and financial services.
Constructive EU engagement can also help secure supply chains, reduce costs for businesses and open new markets for UK exporters, creating jobs and opportunities across every region in the UK. The biggest prize is with the EU, as the Chancellor stated today in her Mais Lecture. Deepening partnership with the EU is the right thing to do. Britain should align with EU regulatory standards where it is in our national interest: it is a quick win that will reap benefits for businesses and households. Can my noble friend the Minister explain how the improved economic outlook, as highlighted by the OBR, together with the reforms in the finance Bill, will drive investment at home but also allow the UK to fully seize the growth opportunities offered by stronger co-operation with our European partners?
This is the time we must put country before party, militarily and economically. We can have our differences on detail and numbers, but at this time the House needs to come together in the national interest to safeguard our country’s economic future, in the same way as I have heard this House celebrate the contribution of the noble Lord, Lord St John of Bletso. I arrived too late to see the noble Lord’s work in this House: nevertheless, I wish him well in his continuing endeavours in Africa.
Lord Moynihan of Chelsea (Con)
Well, here we are again, my Lords; another spring, another Statement. In autumn 2024, the OBR forecast that 2025 GDP growth would be 2%. The reality ended up at 1.3%. Never mind: in spring 2025, the OBR forecast 2026 GDP growth would be 1.9%. In autumn 2025, it downgraded that to 1.4%, and now it has reduced it again to 1.1%. Actual growth in January, seasonally adjusted upwards, was 0%. In the unlikely event that the OBR’s forecast of 1% growth for 2026 is actually achieved, do we understand how appalling that is? It would mean that GDP per capita growth would be near to zero, which is a dog-eat-dog world. Each individual in this country can become better off by the end of the year only at the expense of someone else becoming worse off.
Year after year, the OBR waxes confident about what the future brings: always jam tomorrow, as my noble friend Lord Redwood pointed out, yet none today. Why does the OBR predict growth in 2027, 2028 and 2029 will be better than it has been for the last few years and this year? Does it, or do the Government, have any validated theory of what creates growth? Numbers are not the Government’s strong suit. The Chancellor says that increasing people’s wages is the number one mission. She claims that wages are up in the past year: well, to an extent. Public sector wages went up because the Government gave them lots more of our money. Did wages rise in the private sector? No. Inflation adjusted, wages in the private sector went down last year. Increasing private sector wages requires growing the economy and that is not happening.
Every year we talk about growth but, as speaker after speaker this evening has said, when offered growth-promoting measures, the Government reliably allow sentiment to prevail over logic: feelings, if you like, prevail over facts. They love to attack the private sector as greedy employers. They allege profiteering at the petrol pumps, but, in a free-market economy there is always another petrol station 500 yards down the road to undercut you if you raise prices by even a few pence per litre. On the other hand, the Government’s take is 55% of the petrol price, 10 times the retailer’s gross margin. When crude goes to $100, of course pump prices go up. But who profits most from that? Why, it is the Government, charging an extra 20% VAT on the uplift, with no petrol station 500 yards down the road to be found with lower fuel duty or lower VAT. How ridiculous, how anti-growth, to accuse business of profiteering when the Government snatch a windfall £1 billion a year from citizens as they go about their business trying to make ends meet. In the US, petrol is half the price it is here.
The triumph of sentiment over logic pervades the Government’s economic approach, with large public sector wage increases with no improvement in productivity and a failure to address the ballooning size of welfare payments—and, as I think the noble Lord, Lord Davies, knows well, neither the noble Lord, Lord Elliott, nor I refer there to pensioners. The minimum wage has been racked up, thus increasing unemployment, especially for youth. An avalanche of regulation is coming from the Employment Rights Act and the Act’s appointed regulator is a former Stonewall board member, trans activist and career civil servant from the Environment Agency, who will know nothing about running a business but will have the power to enter premises, seize records and run wide-ranging and costly investigations whenever they feel like it. This is crazy.
Nowhere is the Government’s logic-free approach more evident than in their disastrous net-zero policy, devastating the economy, threatening key future energy-intensive sectors such as AI, which depend on cheap electricity, and devastating household budgets with electricity costs among, as noble Lords have said, the highest in the world. Our reliance on intermittent renewables requires plenty of gas, which in addition will always have hundreds of different uses across our entire economy. The cheapest source of gas for us, with the lowest carbon footprint, is the North Sea. As my noble friend Lady Neville-Rolfe said, jobs could be created, emissions reduced, energy security transformed and large sums of tax money paid, yet this Government wage war on North Sea gas, fantasising sentiment over logic.
The overwhelming evidence is that you do not get decent economic growth without small government, low taxes and minimal and helpful regulation. Instead, the size of our government, our taxes and our growth-destroying regulation mushrooms. Individuals in even the poorest parts of America can earn twice as much in salary as we do here for the same job, exactly because the shape of the US economy promotes economic growth and ours does not.
To conclude, I respectfully urge this Government to reverse course and make it easier for entrepreneurs to start companies and hire people without fearing that they will be stuck with the employees for life. As my noble friend Lord Sherbourne and the noble Lord, Lord Pitt-Watson, rightly said, growth comes from business, not government. Close down those growth-destroying regulators and quangos and, with what you save, stop taxing enterprise so much and make it more attractive for investment to come to this country. Get the cost of electricity down by abandoning the destructive net-zero initiative so that companies can run more cheaply, home heating will be less expensive, and it will be cheaper to drive to work or on business. If you do this, there may be a chance that growth will gradually recover and, who knows, you might even rescue some of your popularity with the electorate.
Lord Sikka (Lab)
My Lords, what a heroic task this Chamber has undertaken in us having seven minutes to explore 560 pages of the Finance (No. 2) Bill, 481 pages of Explanatory Notes, 131 pages of related OBR analysis and 152 pages of Treasury statements and related policies. On top of that, there is a Spring Statement and its related documentation—and if you can get through the legalistic jargon, you are doing very well.
I welcome the abolition of the two-child benefit cap but would like to see greater emphasis on lifting parents and families out of poverty. Sustained economic growth cannot be achieved without good purchasing power for the masses.
The perpetuation of the Conservative policy of freezing annual income tax personal allowances for another three years will actually create more poverty. The number of basic rate taxpayers has increased from 26.6 million in 2021 to 30.4 million in 2025-26. These are the very people facing a cost of living crisis. The number of people over state pension age paying income tax has jumped from 6.47 million to 8.72 million. Some 25.3 million individuals live below the minimum living standard. There is no such thing as trickle-down economics. The rich have gobbled it all up and people at the bottom just buy worry beads; that is about all they can do. Some 120,000 people a year die in fuel poverty. Despite the triple lock and pension age benefits, almost one in six pensioners die in poverty. It would be helpful to hear the Government’s plans for the equitable distribution of income and wealth.
It is also disappointing that a regressive tax system remains in place. Wages are taxed at the marginal rates of 20% to 45%. In addition, national insurance contributions are levied, starting at the rate of 8% on eligible wages. In contrast, despite the changes, dividends are taxed at the rate of 8.75% to 39.35% and capital gains at rates of 18% to 32%, and the super-rich do not pay any national insurance on either of those elements. The poorest 20% pay a higher proportion of their income in direct and indirect taxes than the richest 20%. Can the Minister explain why the poorest are paying a higher proportion of their income in taxes than the richest? Is that equitable?
The student loan system remains a maze of confusing interest rates, repayment thresholds and repayment rates. It is disappointing that the repayment threshold for plan 2 student loans will remain frozen at £29,385 until April 2030, or maybe even longer. By then it will be closer to the minimum wage and way below the median wage. More graduates will be forced to repay earlier, leaving less for those wanting to buy a home or start a family or a business. Graduates with modest earnings of £31,000 a year, which is way below median wage, face a deduction at the marginal rates of 42% at the moment. That is 20% in income tax, 8% national insurance, a 9% loan repayment on income above the repayment threshold and a modest 5% contribution to a pension scheme. Does the Minister think that this rate of marginal taxation is conducive to economic growth? Would it not really be better to stimulate people’s purchasing power by abolishing tuition fees and finding a way of writing off the student debt?
HMRC’s own estimate of tax gaps suggests that between 2010 and 2024, it failed to collect around £500 billion in taxes, while alternative models put the figure at £1,400 billion. It is therefore good to see that the Government are focusing on tax avoidance. However, at the same time the Government are creating opportunities for tax avoidance: by taxing capital gains and dividends at lower rates than wages, the Government are perpetuating tax avoidance opportunities. The tax avoidance industry will inevitably arbitrage, helping the super-rich to convert income to dividends and capital gains.
I welcome the national insurance and related tax relief changes on employer salary sacrifice pension contributions and urge the Government to crack down on employer national insurance avoidance, especially by limited liability partnerships. Companies pay employer national insurance on directors’ salaries. The role and position of LLP partners is no different from that of a company director, but they receive a share of profits instead of salaries. Therefore, the firm does not pay employer national insurance. This perk enables a firm—effectively its partners—to dodge around £148,000 of national insurance for every £1 million of profit shared by partners. In 2024 the big four law firms in the City of London dodged £4 billion of employers’ national insurance. Billions more are dodged by other LLPs.
Drivers and other staff at companies such as Amazon, Evri and eCourier are treated as self-employed, even though they receive almost all their income from one source and instructions from that same source as well. As self-employed workers, they are responsible for their own tax and national insurance but one consequence is that through such arrangements, companies escape paying employers’ national insurance altogether. Can the Minister explain why the Government tolerate this kind of organised national insurance avoidance and when a crackdown will begin?
Lord Brooke of Alverthorpe (Lab)
My Lords, I think the Minister ought to get my noble friend Lord Sikka a job in HMRC. I have some connections there too. However, I start by paying great tribute to my good friend and associate, the noble Lord, Lord St John, with whom I have spent many hours together over the years. I wish his club Chelsea well, and I wish him and his family a long and happy enjoyment of many years ahead. I thank him greatly for the service he has given to the House.
I am pleased that the Spring Statement was low key and that, to a degree, we have achieved some stability, compared with where we were in 2024. We still have a lot left to do, without any doubt. With the Middle East and Trump, as the noble Lord, Lord Skidelsky, inferred, and with a great many people unemployed—if you count the total who are in part-time employment—we have a whole series of problems facing us. Unemployment could grow to be much bigger than we have seen.
In any event, the noble Lord, Lord St John, referred to AI and the changes that are coming to employment with AI. There are changes in attitude already taking place with younger people, many of whom do not want to be going into work. If you spend time with them, substantial numbers of them have an entirely different view of life from what we had. We are going to have to start looking at the issues from a quite different angle, but for the moment we look at what we have.
Contrary to the great criticisms the Minister has had to bear, I am going to say a few words of gratitude to him. The one thing that the Tories, and the Lib Dems with them, achieved between 2010 and 2024 was that we had growth. We had great growth around the waist and on the weighing scales when we got on them; we saw that particularly among our children. We had the biggest growth taking place that we had seen for a long time.
This young man, the Minister, has done some work with sugar taxes. I congratulate him on the quiet work he has done in the background by making a number of changes, with more to come, to reduce the element of sugar we have, or certainly to raise taxes on that sugar. That will be to the benefit of the youth and their health in the future. I thank him for the work he has done on that. He should keep trying to persuade the manufacturing, food and drink industries, and induce them to change the composition of many products to make them healthier. I suggest to him again that we have a look at an inducement to use stevia instead of sugar, and that the Government might think about offering tax reliefs to encourage people to switch away from sugar to that. It is much healthier and in the long term would be of great benefit to young people, but in particular to the tax we have to raise to run the National Health Service.
I come back to growth and investment. We had a debate last week with the noble Lord, Lord Hunt, complaining that we do not have enough investment in the country. The following day, we had a big debate saying, “Please do not take money from our pensions and put it into home investment”. We would like to see the voluntary Mansion House agreement working, but if it does not we should try to persuade people more strongly to put money into the UK. From the Government’s point of view, we should explore how we can offer tax incentives if people are not voluntarily willing to do it, so that we will see more capital go into investment.
I come to my repeated subject about opportunities for investment. The noble Baroness opposite shares my view on this. We have simply not done the work that we should do on public/private partnerships. The noble Lord, Lord Macpherson, the ex-head of the Treasury, is not present but has said that we need to review the old arrangements—this is not PFI, but PPPs. We should change them and extend how we define the public and the private. A real winner for us in election terms would be to extend the private to include the public, with Joe Bloggs investing on a scale that we saw in some of the periods under Margaret Thatcher. That will be a very useful means of attracting political support, and particularly for raising cash that is needed for infrastructure in the UK. There is money to be found for investment if we simply use our heads and start offering investments rather than perhaps being seen to be hitting people. I hope that my noble friend will look at that.
I have no financial interest in it, but I am linked to some dentists and some American capitalists who are waiting to put money into the UK. They want to open 40 A&E centres for people with dentistry problems, yet we can get no movement. I do not see any reason why we should not be innovative or look to involve the public in investing in such ventures attached to the NHS to remedy some of the great problems that we have with dentistry, particularly among youngsters.
There is much to be done. I hope that we might have more consensus across the House, as I did with the noble Baroness earlier, in finding solutions to these problems. We are going to be hit with changes taking place in the world and with climate change. We need to come closer together and work on solutions commonly, rather than spend so much time banging each other over the heads. There is so much to be gained from working together rather than disagreeing.
Lord Hintze (Con)
My Lords, let us examine the Chancellor’s Statement from a slightly different perspective. We are told that welfare spending will increase by roughly £18 billion. If I understand the figures correctly, that is approximately 0.63% of GDP. We need always to think about things relatively, and 0.63% of GDP is serious. I would be grateful if the Minister could confirm the precise number for the House.
We hear much from the Government about total GDP growth, which I suspect is political expedience, but total GDP, important though it is, does not tell us whether the people of this country are becoming more successful and resilient. For that, we must look at GDP per capita. If overall growth is 1.1% but population growth is 0.7%, then GDP per capita is rising only by 0.4%. That is the figure that matters for living standards and that is the figure that the current Government prefer not to dwell upon. If prosperity per person is rising by only 0.4% while welfare spending alone is increasing by something closer to 0.6% of GDP, then we are entitled to ask whether the country is moving forward at all or merely moving sideways. The House deserves a serious answer.
I ask the Minister now: why do the Government speak so often about the gross size of the economy yet say so little about the prosperity per head? Do they not accept that the true test of economic policy is whether living standards are rising? Are we, in fact, entering a transfer economy or a growth economy—an economy that supports all or supports the few? If we are entering a transfer economy then we will simply fail in the long term, as many socialist economies have failed previously. If we fail, we will hurt the poor, the vulnerable and the striving middle class disproportionately. By definition, business growth is what can bail them out—not individuals, not Governments and certainly not capital seizure, as we are seeing in some of these confiscatory taxes on pensions.
Of course no one in the House disputes the duty to protect those who are vulnerable. A civilised society must support those who cannot support themselves, but a welfare system should enable people, not simply leave them indefinitely outside the labour market. It should be, as was always intended, a safety net—not a lifestyle or a way of life. That means investment in education, healthcare and mental health support, and incentives to get back into the workforce. That is the real welfare: a job. The answer cannot be to accept even greater levels of long-term economic inactivity as though it were inevitable and simply a feature of modern life to be managed rather than challenges to be met.
At the same time, Governments of all complexions have not used the resources of the state as effectively as is prudent—“squandered” is the word. I would be less troubled by a rising tax burden if it were clearly strengthening the nation and reinforcing our resilience, capabilities and security in this more dangerous world. For years, there has been an ongoing failure to invest adequately in defence capabilities. We can see now how seriously they are required. Not to invest in them is not only dangerous but irresponsible. It weakens the country and us as a nation. I will be very clear—I said this in my maiden speech—that soft power without hard power is no power at all. It is all very well to have the sledgehammer of a nuclear weapon, but not every nail deserves a sledgehammer.
You need growth to maintain these things. Without growth, we simply get poorer. Are we building an economy in which both the nation and its citizens grow stronger together or are we purely establishing a transfer economy? I am sure the Minister understands, because he is a very well-educated man on economics—that is very clear to me—that any transfer has zero economic value. In fact, if you look at it under the transfer theorem, it has a negative value.
If the economy grows but we stymie capital growth and the success and prosperity of individuals, then we are in trouble. If the headlines improve but the lives beyond them do not—if the numbers flatter but the reality does not—then we are witnessing not economic success but an economic illusion. However artfully illusions are maintained for political purposes, they do not have a habit of lasting; rather, they fail and hurt us in our quest for economic effectiveness for the nation. This is not a political point; it is a point of good economics.
Baroness Kramer (LD)
My Lords, I join the tributes to the noble Lord, Lord St John of Bletso. We do not often get to speak in the same debate, so I am delighted that he could not speak in the space debate and has joined us today. His speech was both gracious and extremely profound, and his is a voice that we are very much going to miss in this House. I thank the noble Lord and wish him all the best from all on these Benches.
This has to be one of the most frustrating debates I have participated in—I say that despite there being so many good speeches. We are talking about the Finance (No. 2) Bill, but of course we cannot amend it, and today the Chancellor made her Mais speech setting out political strategy, but too late for us to do any significant analysis of it. I did pick up one thing, which I will raise with the Minister: the Chancellor apparently told graduates burdened with a crisis in student loans that they were going to be at the back of the queue for a rescue. If that is true, it is frankly a bad decision. It is a different scheme, and the noble Lord, Lord Wilson, should go back and look.
Then we are left with the Spring Statement. We cannot blame the Chancellor for the fact that the Iran war broke out on that day, but it has obviously thrown a wrench into the programme that she tried to lay out in her Spring Statement. I am going to do my best in starting with the Spring Statement, because we might as well deal with the world as it was prior to the Iran war—we have no clue what it is going to look like as that works its way through.
The OBR’s downgrading—I am not the first to raise this; the noble Lord, Lord Skidelsky, mentioned it—of the growth numbers to 1.1% in 2026 is obviously bad news for us all. What leapt out from the numbers was the medium-term growth in real GDP per capita. The noble Lord, Lord Hintze, talked about the importance of per capita. That is growing at 1.1% a year and depends on recovery from persistently low productivity growth, which the OBR confirms is a very uncertain premise. We are now looking at the weakest sustained growth in a century if we exclude crises such as World War II and Covid.
As the noble Lord, Lord Skidelsky, said, unemployment is at 5%, but it is the 1 million young people who are NEETs—not in education, employment or training—who have us all very concerned. Older people—the economically inactive group at the older end—are returning to the workforce, but that is not happening with younger people. I have talked—as I suspect the noble Lord, Lord Skidelsky, has, because he raised this point—with businesses about the youth guarantee scheme and the other schemes, and the answer is always that they are too small to deal with the problem and not sufficiently sustained to provide the long-term support that people who have been trapped in this particular case need. Much more individual support is needed to get them to the relevant skills, and it can take years.
To pick up a point made by the noble Lord, Lord Davies of Brixton, net migration is weaker than the previous forecast, because of both a drop in immigration and a rise in the numbers emigrating—and, as the noble Lord said, it could be pushed lower by the new skilled migration regime. I recognise that that drop in migration is great news to the political right, as it may be to this Government’s Home Office, but to the rest of us trying to focus on the fact that we have an ageing population, when we look at the demographics, that drop in migration is a serious barrier to medium and long-term growth.
Even the good news in the Spring Statement is fragile. Lower inflation and interest rates are vulnerable to any kind of systemic shock. Here we are, right in the middle of the Iran war with its impact on oil prices, so we can see that the impact is already beginning to work its way through. I was more concerned that much of the additional headroom—I was glad at first to see that there was additional headroom—came from higher than expected tax receipts, largely due to a rise in equity prices leading to higher capital gains tax. As surveys have shown, that is very likely to be temporary.
In the more recent period, we have had a steep loss in business confidence. The Federation of Small Businesses is warning that SMEs, the bedrock of our economy, are saying that
“cost burdens have already started reducing growth plans, cashflow and job creation in our local communities”.
Business is in real fear of the surge of new burdens that are going to land in April, and of death by a thousand cuts. This is a warning sign, and we have to respond.
We continue to face fundamental uncertainties. Can we meet the target of raising defence spending to 3.5% by the end of this Parliament? If we continue the current spending trajectory on the NHS, which we have no choice but to do because productivity is very slow to rise, what will happen to the unprotected public sector departments and local government services, and how will people feel? Many of the tax rises that are now locked in will continue to increase the tax take, even with no improvement to living standards, and people will notice it.
The noble Lord, Lord Sikka, talked about the freezing of income tax and other thresholds, which is a major player in this additional tax take that has been built in. The Government need take no action; it is now part of an impact that people will learn about the hard way. My colleague in the other place, Daisy Cooper, pointed out that 600,000 pensioners on state pensions who are currently not paying income tax are in for a big shock when they discover that they have been captured. I say to the Government that telling people that they are better off and that the poorest will have £1,000 more in their pockets is not washing. People’s expectations are not being met.
To pick up a point made by the noble Lord, Lord Lamont, middle-income families are feeling the stress as well as people who might before have been the group on which we could exclusively focus because they were at the poorest end. We now know from the OBR forecast that any improvement in living standards—there have been improvements that have come from wage growth and the lifting of the two-child cap—will be temporary and followed by a period of stagnation and even falling living standards.
Family farmers have lived with a year of anguish after the original Budget announcement of changes to inheritance tax relief for agriculture. Thankfully, they have been partly rolled back.
The noble Lord, Lord Leigh, made the point that many people who saved through pensions now feel really stupid as they realise that 73% of their savings will go to the Treasury unless they quickly give away the contingency pot that they set aside for a care home. Women in particular have followed that behaviour. They have kept assets in case they needed to be in a care home, with the thought that they could pass those assets on to the next generation if they did not. Many of my friends have been in this situation, and I can tell the House that the advice to them is to give that money away and let the state take care of you when you need a care home. That is a place where none of us wants to see this ending up. When the Minister argues that £1 million is sheltered from inheritance tax, he assumes that everyone is in a couple and owns a home, but many are not in this advantageous position.
The tax rises in the Bill will mean that investing in your own business will become one of the least tax-friendly decisions you can make, and property price tax rises will price on to rents. Someone, somehow, has to get a grip on the Treasury, because it seems completely incapable of aligning its choices with the strategy for growth, with the industrial strategy or with pension building.
That is why my party has called for a department for growth to counterweight the Treasury and make driving the economy forward the main focus. We accept that the Government will need more money to achieve all their programmes, but frankly it makes us furious when we can see that setting up a UK-EU customs union would deliver £25 billion more a year to the Treasury, and that it is within reach. It is a prize to be grabbed, and it is more than just the reset.
There are many small reliefs that the Government could enact to deal with the worst of the administrative horrors. The noble Lord, Lord Liddle, and the noble Baroness, Lady Fairhead, talked about those administrative horrors. My colleagues in the other place tried, even on Report, to amend the finance Bill to assist bereaved families dealing with the sheer administrative challenge of new inheritance tax rules, to protect family businesses and farms from being hit with the loss of inheritance tax reliefs multiple times within 10 years—that is a real possibility—and to at least assess the cumulative impact, including the increase in alcohol duty, of the Bill on the already beleaguered hospitality sector. The Government should recognise that this sector is in an emergency condition. We call again for a temporary cut in VAT to get this sector through, at this time of extraordinary pressure.
Ultimately, we need to hear what the Government will do to cushion families if we do not soon see a de-escalation in the Iran war. The Government’s announcement yesterday on heating oil is welcome, but it is far from the proper cap that we have called for. I say to the Government that a strategy of wait and watch really is not sufficient when energy prices could surge after June, and we are in a situation where many family budgets are already close to breaking.
Lord Altrincham (Con)
My Lords, I thank the Minister for his patience and care in listening to this debate. I declare my interest as a director at South Molton Street Capital. I thank the noble Lord, Lord St John, for speaking in our debate this evening, and for his work for this House and our country.
We are privileged to have the Minister with us, because he has been central to the Government’s economic policy and his words carry weight. He has been extremely active from the beginning of this Session. I remind everybody that the first Bill of the Session was to strengthen the powers of the OBR—that was before my noble friend Lord Redwood joined us, when the OBR was quite popular with the Government and possibly with Parliament, though maybe that is not so true anymore. We took that through as the first Bill of the Session. The timing of this evening’s debate is quite interesting because we are towards the end of the Session and we can take a view among us on where the Government’s economic strategy is. It will be particularly interesting to hear the Minister’s responses to the questions and topics raised this evening.
You do not need to be in this debate in the House of Lords to know that unemployment is moving up quite a bit. All noble lords will have family members—children, grandchildren, nephews and nieces—and maybe friends and neighbours, and will know that people in their 20s are seeing a dramatic fall away in jobs at the moment. We might start there. Some of that is part of the NEETs problem, which goes back to the previous Government and seems to have started growing around the time of Covid, but some of it is a new area of graduate unemployment, with people in their 20s unable to start work and their careers. It is a profound economic challenge, because if they are not starting in their careers then they may never start in their careers, and there may be a huge economic consequence from that. I therefore start by asking the Minister to give us some insight into what we can say to people in their 20s who are failing to get a job at the moment, and to their families, and to comment on what the Government might be able to do about that.
Perhaps we all share some responsibility for this situation. The Government would tend to blame the previous Government, but, in doing that, it is implicitly to acknowledge that government policy affects employment. Putting aside the important point that government needs to work with the private sector and the private sector creates jobs, the sheer scale of government in this country at the moment is important. Where we have taxed GDP, as mentioned by my noble friend Lord Horam, at 36% of GDP, while the spend of the Government is over 40% of GDP, they are crowding out the private sector to an extent. Therefore, whether it is that the Government can create the economic demand that is sometimes referred to on the government side as coming from public spending or whether in fact the Government create a tremendous amount of waste and misallocation of resources—potentially in healthcare, energy or wherever—what the Government do is extraordinarily important because of their scale.
In addition to that, the Government have chosen policies with important objectives, but the short-term outcomes have been unemployment. The Government have chosen, one after another, Bills that have an important element of job destruction, whether in workers’ rights or minimum wage or national insurance increases. The Government are choosing a form of policy-driven unemployment. It is almost as though the Government have a revealed preference for unemployment at the moment. That needs an important response, but it is only barely being responded to at the moment by the Government, while the numbers are moving up quite fast.
The Government might hope that unemployment is cyclical or a blip, given that there are a few things going on around the world and a few problems in energy and all the rest of it. But the OBR—which, as I say, was rather popular but is now not so popular, and has made some observations that are really quite unhelpful—has chosen this delicate moment to say that perhaps unemployment at the level we have currently is structural. If unemployment is suddenly becoming structural at 5.5%, that is a huge issue.
As the noble Lord, Lord Skidelsky, pointed out, you have to read the stuff twice to try to understand what the OBR is saying. It uses language such as “equilibrium” levels of unemployment. What that really means is that this is the minimum level baseline of unemployment and we have reached a structural change and need to work on unemployment from here. A specific question for the Minister is whether this is the Government’s position as well. Do the Government believe that unemployment at the current level is the structural level? Could the Government comment on the OBR’s forecast? I am not expecting them to agree with the OBR—they do not have to worry about that—but could they comment on its forecast that unemployment is going to pass 7% and assure us that that is not the case and is not in their plans?
All of this feeds directly into the wider economic decline highlighted today in this debate. Energy costs are rising, hence my noble friend Lady Neville-Rolfe mentioned the North Sea, along with my noble friends Lord Redwood, Lord Patten and Lord Lamont. We need to address what happens in oil and gas. Unemployment is rising, as mentioned by the noble Lords, Lord St John, Lord Bilimoria and Lord Skidelsky. The welfare bill is spiralling, mentioned by my noble friend Lord Horam, and growth is stagnant, mentioned by my noble friend Lord Massey, yet we have a Chancellor who delivers a Spring Statement devoid of any measures to turn this around. I cannot resist mentioning it again, but the Spring Statement was compared by my noble friend Lord Patten to the empty quarter in Saudi Arabia. That is a very unkind way of putting it, but I think we know what he means.
The picture is set to worsen, with looming economic headwinds, driven by the deeply uncertain and escalating situation in the Middle East, fast approaching, yet the response from the Treasury remains complacent, falling far short of the seriousness that this moment demands. I agree with the comments made by the noble Baroness, Lady Kramer, about the Treasury at the moment. Our borrowing now exceeds that of Greece and debt is set to rise in virtually every year of the OBR’s forecast period. We are living on borrowed money, paying a mounting premium simply to service our debts, while what limited resources remain are channelled into areas that do little to drive growth or productivity. Worse still, instead of backing enterprise and rewarding work, this Government are increasingly choosing to subsidise inactivity, paying more and more people to remain outside the workforce.
Several noble Lords commented on savings and pensions. It is important that we touch on this, albeit this is running in parallel Bills on the timetable at the moment, because it is of profound importance due to the enormous amounts of unfunded pension liabilities we have. The Government are not merely making life harder for those trying to begin their careers; they are also making it harder for those trying to secure dignity and security in retirement. As many noble Lords will know, the Government’s Pension Schemes Bill will do nothing to confront the fundamental challenges of pension adequacy. At the same time, the national insurance Bill actively discourages pension saving. But the picture becomes even more troubling. From 6 April 2027, as the noble Lord, Lord Liddle, and the noble Baroness, Lady Fairhead, described—and it was a central piece of the Finance Bill Sub-Committee report—most unused pension funds and certain death benefits will be brought within the scope of inheritance tax.
Incidentally, as a marker for the extraordinary work of the noble Lord, Lord Liddle, on the Finance Bill Sub-Committee, it is worth pointing out that the agricultural and business property relief issues were dealt with earlier in the sub-committee’s work. There was a quiet word from the chairman—possibly in Cumbria—to senior people in the Government and adjustments were made. Unfortunately, we did not get to inheritance tax until later, which may be why that is still outstanding. The chairman was remarkable in escalating those issues. Through our work on the Finance Bill Sub-Committee, serious concerns have been raised about the consequences of this change. It risks deterring long-term pension saving and could create deeply punitive practical effects, forcing executors to use estate cash, sell assets or even borrow simply to meet inheritance tax liabilities.
Auto-enrolment has been one of the great policy successes of recent decades, as the Minister and the noble Baroness, Lady Sherlock, have recognised. However, as the Institute for Fiscal Studies has made clear, the system works only if people contribute beyond the statutory minimum. Without doing so, many will simply not accumulate enough to live on in retirement. Yet the Government have brought forward a pensions Bill that says nothing about adequacy, a national insurance Bill that discourages saving and inheritance tax changes that penalise those who have saved responsibly throughout their lives to secure a decent retirement. I remind the House that the inheritance tax changes come in from April next year and will cause tremendous disruption and unhappiness. In other words, those who do the right thing—who work, save and plan responsibly for the future—are the very people whom this policy framework, which the Government have chosen to create, ends up punishing. Perhaps the Minister could comment on the Government’s attitude to pension savings. We look forward to his response.
Lord Livermore (Lab)
My Lords, it is a pleasure to close this debate on the spring forecast and the Second Reading of the Finance (No. 2) Bill. I am grateful to all noble Lords for their contributions, which I have enjoyed listening to. I pay tribute to the noble Lord, Lord St John of Bletso, for his valedictory speech and his service to your Lordships’ House over many years. It was a wide-ranging speech spanning Nelson Mandela, energy policy and AI, among other issues. In this, it was a perfect representation of the experience he has brought to our debates. I wish him very well for the future.
On taking office, this Government inherited three major crises: in the public finances, in our public services and in the cost of living. That is why we have repeatedly taken the action necessary to bring stability to the economy, as welcomed by my noble friend Lord Barber of Chittlehampton. The choices we made were the responsible ones, and the spring forecast showed that the economic plan we have been driving forward since the election is the right one.
I agree with the noble Lord, Lord Sherbourne of Didsbury, that growth comes from businesses and investors. That is why our economic plan is built on the three pillars, as my noble friends Lord Chandos and Lady Gill reminded us, of stability in our public finances, investment in our infrastructure and reform of Britain’s economy.
My noble friends Lady Bi and Lord Brooke of Alverthorpe rightly spoke about the importance of having just one fiscal event a year and the stability that brings. The OBR forecast published last month showed that our plan is working and that we enter this period of global uncertainty with the fundamentals of our economy strong, as my noble friend Lord Barber said.
The noble Baroness, Lady Neville-Rolfe, spoke about inflation, neglecting to mention that it hit 11% under her Government. We have cut inflation, which now stands at 3%, a lower base than at the outset of Russia’s illegal war on Ukraine. She also mentioned interest rates, forgetting to mention not only that they have been cut six times under this Government but that they were set soaring by the Liz Truss mini-Budget.
We have prioritised growth to drive up living standards. The OBR forecast showed GDP per head set to grow more than was expected at the Budget, with growth of 5.6% over the Parliament. As my noble friend Lord Pitt-Watson said, we have stabilised the public finances, having already reduced the deficit by £20 billion this year from 5.2% to 4.3% of GDP.
The noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Moynihan of Chelsea, spoke about the growth forecast. Average growth over the next five years is broadly unchanged, with slightly lower growth this year and slightly higher growth next year and the year after that. The noble Lord, Lord Hintze, and the noble Baroness, Lady Kramer, spoke about the importance of GDP per head. GDP per capita is now set to grow faster than was forecast in the autumn; with growth of 5.6% over this Parliament, GDP per capita is £2,300 higher in the last year of the forecast compared with the first.
My noble friend Lord Davies of Brixton and the noble Baroness, Lady Kramer, spoke about the potential for falling migration to impact OBR forecasts going forward. As my noble friend Lady Gill said, Britain was the fastest-growing G7 economy in Europe last year. That is why we have the right economic plan to deliver higher long-term economic growth.
The noble Lord, Lord Skidelsky, spoke about the language used by the OBR to describe unemployment, which I am afraid I am not responsible for. Many noble Lords focused on unemployment, including the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord St John of Bletso, Lord Bilimoria, Lord Lamont of Lerwick, Lord Elliott of Mickle Fell, Lord Northbrook, Lord Altrincham and Lord Massey of Hampstead. Employment is historically high. There are only two peacetime years out of the past 150 when the average annual employment rate has been higher than it was in 2025.
Forecasts from the OBR show that unemployment will peak later this year and then fall progressively for the remainder of the Parliament, ending the Parliament lower than it was when we took office. There is, though, action needed to address in particular the number of young people out of work, something that has been focused on in the contributions of many noble Lords. That is why we are providing £2.5 billion across the youth guarantee to tackle youth unemployment and, through additional investment in the growth and skills levy, to reform apprenticeships and prioritise young people. This will support almost 1 million young people and help deliver up to 500,000 opportunities to earn or learn.
The noble Lords, Lord Lamont of Lerwick and Lord Hintze, spoke about living standards. The last Parliament was the worst on record for living standards. Living standards are now rising. GDP per capita is set to grow more than was forecast in the autumn. Real wages have grown more in the first year of this Government than in the first 10 years of the previous one.
The noble Baroness, Lady Neville-Rolfe, spoke about inflation. We have cut inflation, which now stands at 3%, a lower base than at the outset of Russia’s illegal war in Ukraine. The OBR forecasted last month that inflation would fall faster than predicted in November and will return to target this year rather than next year.
Clearly, these forecasts took place before the current conflict in the Middle East began. Movements on energy markets, as we have already seen, are likely to put upward pressure on inflation in the coming months. As the Government have demonstrated, we will take the necessary action to help families with the cost of living and protect the public finances.
My noble friend Lord Pitt-Watson talked about the need to build growth in partnership with business, something I agree very much with. The noble Lord, Lord Sherbourne, talked about business experience, and he referenced what he described as the Government’s lack of business experience compared with the previous Government. We inherited an economy from the previous Government where the UK was the only G7 country with private sector investment that was below 20% as a share of the economy.
Since the Government came to office, we have secured a record £360 billion of private investment. Retail sales are rising, and the S&P global PMI rose to a 17-month high in January. As several of my noble friends have said, business confidence comes from stability, and that stability underpins our economic plan.
I very much agree with my noble friend Lady Bi on her comments about the value of London and the international importance of the City of London in terms of financial and professional services. I also agree with my noble friend Lord Brooke of Alverthorpe about the importance of public/private partnerships.
The noble Lord, Lord St John of Bletso, spoke about procurement, the role of AI and the potential consequences of AI on the labour market. They are all timely points, following the Chancellor’s Mais Lecture this lunchtime, which focused on all the points that the noble Lord raised. I completely agree with him on the importance of using procurement wisely, and we have set out reforms today to do exactly that. On AI in the labour market, the Chancellor announced that we will establish an AI economics institute to develop policies exactly along the lines that the noble Lord mentioned in his speech.
I agree very much with what my noble friend Lady Gill said about the benefits of deepening our economic relationship with the European Union—something the Chancellor herself set out in her Mais Lecture today.
The noble Lord, Lord Patten, asked about the cost of producing the spring forecast. The Treasury does not calculate or record a stand-alone cost for producing the spring forecast; it is delivered using existing departmental resources across policy and analytical teams and forms part of routine fiscal and economic reporting obligations. As such, no additional or exceptional spending is incurred beyond normal staffing costs.
Several noble Lords, including the noble Lords, Lord Bilimoria, Lord Lamont and Lord Redwood, my noble friend Lord Davies of Brixton and the noble Baroness, Lady Kramer, spoke about the impact of the conflict in the Middle East on the OBR’s most recent forecasts. The forecasts from the OBR, of course, pre-date the current conflict in the Middle East. Clearly, the full economic impact of the conflict will depend on its severity and duration.
The movements of energy markets, as we have already seen, are likely to put upward pressure on inflation in the coming months. Our economic approach will be both responsive to a changing world and responsible in the national interest. As the Government have demonstrated time and again, we will take the necessary decisions to help families with the cost of living and protect the public finances.
Any forecast is, of course, inevitably subject to uncertainty, particularly when global events are moving quickly. Although we do not yet know how long the conflict will last, it underlines the importance of building a stronger and more secure economy that is able to withstand whatever instability we may face.
In the Budget last November, we took £150 off the costs of energy bills. Yesterday, the Government announced immediate support for vulnerable heating oil customers, providing £53 million for the households most exposed. The noble Lord, Lord Lamont, endorsed the view that any support should be targeted.
The noble Baroness, Lady Neville-Rolfe, asked about fuel duty. The UK benefits from a strong and diverse security of energy supplies. The decisions we have taken since the Budget in 2024 will save the average motorist over £90, or 8p to 11p per litre, compared with the plans we inherited from the previous Government.
As my noble friend Lord Chandos said, the Chancellor has written to the Competition and Markets Authority, asking it to remain vigilant across heating oil prices and recommending that it acts to tackle unjustified price increases. The Government are clear that we will not tolerate profiteering or unfair practices, and we urge customers to share any evidence of price manipulation with the CMA.
I agree with what many noble Lords—including the noble Baroness, Lady Neville-Rolfe, and the noble Lords, Lord St John of Bletso, Lord Bilimoria, Lord Lamont and Lord Redwood—said about the importance of the North Sea. Domestic oil and gas must continue to have an important role in the energy mix for decades to come. That is why the Chancellor met with North Sea industry to discuss the consequences of this uncertain period. I also endorse what my noble friend Lord Barber said about critical minerals.
The noble Baroness, Lady Neville-Rolfe, spoke about increasing defence spending. We are delivering the biggest uplift in defence spending since the end of the Cold War. That equates to over £270 billion invested over the spending review period. Defence spending will rise to 2.6% of GDP next year—a level not seen since 2010. We are committed to spending 3% in the next Parliament when economic and fiscal conditions allow.
Although we do not yet know how long this conflict will last, it underlines the importance of building a stronger and more secure economy that is able to withstand whatever instability we face. The strength of our economy and public finances are possible only because of the Budget last year and the measures contained in the finance Bill before us today.
I pay tribute to my noble friend Lord Liddle for chairing the Finance Bill Sub-Committee of the Economic Affairs Committee, as well as to other members of that committee: the noble Lords, Lord Altrincham and Lord Leigh of Hurley, and the noble Baroness, Lady Fairhead.
The noble Lord, Lord Lamont of Lerwick, and the noble Baroness, Lady Neville-Rolfe, asked about the impact on working people from further freezes to the national insurance thresholds. As I am sure noble Lords know, the Government are not increasing the headline rates of income tax, national insurance or VAT, in line with our manifesto, but we are clear that the decisions made in the Budget in November involve asking people to contribute more.
In reference to the points made by my noble friend Lord Sikka, this finance Bill raises revenue in a fair way, reforming the system to ensure that those with the broadest shoulders pay their fair share while limiting what we ask from ordinary workers.
My noble friend Lord Liddle focused in his comments on his concerns about the inheritance tax treatment of unused pension funds and death benefits, as did the noble Baroness, Lady Fairhead, and my noble friend Lord Davies of Brixton. This was a point also mentioned by the noble Baroness, Lady Kramer. This measure removes distortions resulting from changes that have been made to pensions tax policy over the last decade, which have led to pensions being openly used and marketed as a tax-planning vehicle to transfer wealth, rather than as a way to fund retirement. As a result of these changes, more than 90% of estates will still pay no inheritance tax each year, and most estates will not pay inheritance tax on the pension, wealth and income tax that is due only from beneficiaries on inherited pensions in certain circumstances.
My noble friends Lord Liddle and Lord Davies of Brixton, the noble Baroness, Lady Fairhead, and the noble Lord, Lord Leigh of Hurley, raised the issue of personal representatives. Personal representatives who are already responsible for administering the rest of the estate will be liable for reporting and paying inheritance tax on any unused pension funds and death benefits from 6 April 2027. This is the same as the current process for non-discretionary pension schemes and other assets which do not pass directly through the estate but are in scope of inheritance tax. Since the announcement that the liability for paying inheritance tax on pensions will sit with personal representatives, officials have been engaging directly with tax and legal industry professionals to fully understand their concerns.
Budget 2025 announced that, where personal representatives reasonably expect inheritance tax to be due, they can direct pension scheme administrators to withhold 50% of the taxable benefits for up to 15 months from the date of death. Personal representatives can then direct pension scheme administrators to pay the inheritance tax due to HMRC before releasing the rest of those benefits to pension beneficiaries. If the instruction is withdrawn or the period ends, the remaining funds can be paid out. This will not apply to exempt benefits, funds under £1,000 or continuing annuities. Personal representatives will be discharged from liability for pensions discovered after they have received clearance from HMRC.
We are reforming the tax system to ensure it keeps pace with a fast-changing economy. We are going further to close the tax gap to ensure that everyone pays the tax they owe. Having listened carefully to feedback from the farming community and family businesses, this Bill raises the 100% rate of relief on agricultural property relief and business property relief from £1 million to £2.5 million. My noble friend Lord Liddle and the noble Lord, Lord Leigh Hurley, spoke about these reforms to agricultural property relief and business property relief. The status quo is not sustainable and there is a clear need to reform agricultural property relief. A very small number of claimants benefit from a very significant amount of agricultural property and business property relief. The increase in the planned allowances from £1 million to £2.5 million further reduces the number of estates forecast to pay more inheritance tax and further reduces the liability for many of the remaining estates, meaning that a couple can leave £5 million completely free of tax on top of the usual reliefs and allowances.
My noble friend Lord Liddle spoke in favour of taxing wealth. The Government are committed to taxing wealth fairly. That is why, in the Autumn Budget Statement in 2024, we announced reforms to taxation of wealth and the wealthy that will raise over £8 billion, including reforms to non-domiciled tax, mentioned by several noble Lords this evening. We are now building on that action by reforming property taxes so that the highest value homes in England pay the most, and addressing reliefs in capital gains tax and inheritance tax that have grown in cost to the benefit of the wealthy. My noble friend Lord Liddle is absolutely right that we must reward and encourage enterprise, which we are doing, including in measures contained in this finance Bill.
Since coming to office, the Government have implemented an economic plan to bring stability to the public finances and to strengthen Britain’s economy for the long term. The spring forecast shows this plan is the right one, with lower inflation and borrowing, higher living standards and a growing economy. Britain today is in a stronger position to withstand whatever uncertainty comes our way, but that is possible only because of the action we took in the Budget last year and the measures contained in this finance Bill. They are the right choices to protect families and businesses in an uncertain world and they demonstrate that this Government have the right economic plan for Britain’s future.
Finance (No. 2) Bill
(1 day, 4 hours ago)
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Lord Livermore
That the Bill be now read a second time.
Scottish and Welsh legislative consent granted. Relevant document: 3rd Report from the Economic Affairs Committee.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
I beg to move.
National Minimum Wage (Amendment) Regulations 2026
(1 day, 4 hours ago)
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Lord Leong
That the draft Regulations laid before the House on 2 February be approved.
Relevant document: 52nd Report from the Secondary Legislation Scrutiny Committee
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, I note the regret amendment tabled by the noble Lord, Lord Sharpe.
The context of this instrument is that the regulations were laid before Parliament on 2 February and approved by the other place on 2 March. Their purpose is to increase the national living wage and national minimum wage rates. Subject to the approval of this House, the regulations will come into effect on Wednesday 1 April.
The creation of the minimum wage is one of the proudest legacies of the previous Labour Government. We will always defend working people, and the minimum wage remains a key plank of this Government’s plan to make work pay. The Opposition are wrong to suggest that we are not sufficiently taking into account employment opportunities for young people.
These increases are based on the recommendations of the Low Pay Commission, which the Government have accepted in full. We are grateful to the commission and extend our thanks to its chair, the noble Baroness, Lady Stroud, and her fellow commissioners and supporting officials. The LPC is an independent and expert body. It reaches its decisions through consensus between its employer, worker and independent commissioners, following extensive stakeholder consultation and research. The Government recognise and value the commission’s established track record of balancing a multitude of factors when making wage rate recommendations that deliver for workers and businesses alike.
The remit for the 2026 rates was to ask the LPC to recommend rates that minimised impacts on employment prospects for workers and considered the risks for younger workers. In addition, the Government are committed to helping young people get and retain good jobs—including the recent announcement of reducing the cost of hiring younger workers. The Government are also delivering a long-overdue reform to rebalance the business rates system and deliver growth-boosting support with the business growth service to unlock business potential.
Noble Lords will have seen the publication yesterday of the 2026 remit of the Low Pay Commission. The remit continues to benchmark the national living wage to two-thirds of median hourly earnings, while also considering the condition of the labour market, the cost of living, the impact on business and competitiveness and wider macroeconomic conditions. The new remit maintains the commitment to removing the discriminatory age bands for adults. We recognise that the national minimum wage and national living wage alignment must be achieved while protecting jobs and supporting labour market stability. The remit gives the LPC full flexibility to use its significant expertise and social partnership model, including employer and worker representatives, to recommend the appropriate pace and timing of aligning the 18 to 20 national minimum wage with the national living wage. We have asked the LPC to provide its recommendations to government by October. The Government will then confirm the new national living wage and national minimum wage rates to apply from April 2027.
I turn to the detail of the minimum wage regulations. The national minimum wage—the statutory minimum for workers aged 21 and over—will increase by 4.1%, or 50p, to £12.71 an hour. This represents a gross annual increase of £900 for a full-time worker. The national minimum wage for workers aged between 18 and 20 will increase by 8.5%, or 85p, to £10.85 an hour. A full-time worker on this rate will see their gross annual earnings rise by over £1,500. This continues our progress in closing the gap between this rate and the full adult rate.
The regulations will also increase the national minimum wage rate for workers aged above school-leaving age but under 18 to £8 an hour. This increase—equivalent to 45p or 6%—also applies to the apprentice national minimum wage, which relates to apprentices aged under 19 or in the first year of their apprenticeship.
Finally, the accommodation offset—the maximum daily amount an employer can charge a worker for accommodation without reducing their pay for minimum wage purposes—will increase by 4.1% or 44p to £11.10.
By approving this year’s minimum wage increases, we can deliver a significant and deserved uplift for millions of workers in the coming weeks. I refer noble Lords to the comprehensive impact assessment, which was published alongside these regulations by the Department for Business and Trade. The impact assessment contains a full equality assessment and received a green “fit for purpose” rating from the independent Regulatory Policy Committee.
The Government estimate that the minimum wage increases from these regulations will provide a direct pay uplift for approximately 2.7 million workers, while an additional 5.1 million workers may benefit from positive spillover effects as employers maintain pay differentials.
The minimum wage is rightly regarded as one of the most successful and effective economic policies of the last few decades. Since it was introduced, the share of low-paid jobs, in hourly terms, has dropped from 21.9% to just 2.5%, and the value of the national living wage is expected to be 80% higher in real terms this year than the top statutory rate was in 1999.
This progress has been achieved without the negative impact on the economy and employment that was predicted at the time by some Members. Indeed, the impact assessment sets out a range of potential economic benefits of this year’s uprating, including putting more money in the pockets of the lowest-paid workers, creating greater incentives for people to enter work and boosting consumer demand. We also recognise the importance of a robust enforcement regime in upholding workers’ right to a fair day’s pay.
Since the introduction of the minimum wage, the Government have overseen the repayment of almost £200 million to 1.5 million workers and issued over £105 million in financial penalties. The annual budget for HMRC has increased to around £30 million, and we are going further with the creation of the Fair Work Agency. The Fair Work Agency will have stronger powers and a wider remit, delivering for exploited and underpaid workers and ensuring a level playing field, so that the majority of businesses, which already do the right thing by their workers, cannot be undercut by their less scrupulous competitors.
In closing, it is worth re-emphasising the positive impact that these regulations will have on the lives of millions of working people. When the increases come into effect next month, we will continue in our progress towards our manifesto goals—ensuring a genuine living wage and extending it to all adult workers—while safeguarding employers and protecting the employment prospects of younger workers.
Amendment to the Motion
Lord Sharpe of Epsom
At end to insert “but this House regrets that the draft Regulations will make it harder for small businesses to take on staff, especially for first jobs and apprenticeships; risk worsening already elevated youth unemployment by further increasing the cost of hiring younger workers; and fail to reflect sufficiently the fragility of the youth labour market, at a time when the number of young people not in education, employment or training is approaching one million”.
Lord Sharpe of Epsom (Con)
My Lords, I am extremely grateful to the Minister for explaining and introducing this SI, to which I have tabled a regret amendment. But I am afraid I take a slightly different view from the one he has just explained.
Once again, we start with an ill-thought-out, anti-business measure by this Government. It is very interesting to note that the Minister, when he was explaining and introducing the instrument, referenced a number of government agencies that will be enforcing all sorts of fines and whatnot, but he did not really talk about its impact on business, which is regrettable. Quite frankly, this will end up being an anti-worker measure too, and it will price people out of the labour market.
No one on this side of the House opposes higher pay in principle. Of course we want people to earn more but, for that to be the case, there must be work to be had. A wage floor that is set without proper regard to hiring conditions, business confidence and the fragility of entry-level employment does not help the low paid if it helps price them out of a job altogether. That is why this SI is so troubling. From 1 April, the adult rate will rise to £12.71, while the rate for 18 to 20 year-olds will rise to £10.85 and the under-18 and apprentice rates will rise to £8.
The Government may pretend that there is no trade-off here, but everyone outside government understands that there is. If one sharply compresses the wage differentials—the Minister called them “discriminatory”—between inexperienced younger workers and older workers, one makes it less attractive to hire those with the least experience, the least confidence and the least established work history. The key word is not “discrimination”; it is “experience”. That is not only true for those aged 21 to 25 who are entering the workforce but especially true for 18 to 20 year-olds, many of whom rely on part-time, flexible and entry-level work to get that crucial first foothold in the labour market. Retailers themselves are warning that these local, flexible jobs are often the first step into work for young people, including Saturday jobs and short-hours roles around study or caring responsibilities.
Baroness Carberry of Muswell Hill (Lab)
The noble Lord, Lord Sharpe, will not be surprised to hear that I do not agree with his interpretation of the Government’s announcement yesterday of a major drive to create hundreds of thousands of jobs for young people and to radically transform apprenticeships. I suggest that it demonstrates that this Government are not reckless with the youth unemployment market and the economy.
I would like to reinforce the opening remarks of the Minister about the way that the regulations before the House this evening came about. Without labouring the point, they were the product of the painstaking examination of evidence by the Low Pay Commission, a tripartite body featuring representatives from businesses large and small, labour market economists and experts and representatives of workers. I can attest to the thoroughness of that exercise that takes place year after year because I did it myself 11 times.
The commission, as has been said, is excellently chaired by the noble Baroness, Lady Stroud. As it is directly relevant to these regulations, I shall quote briefly from her letter to the Government making recommendations to apply from April this year. She wrote:
“Having comprehensively considered the available evidence base”,
the Low Pay Commission’s judgment was that the recent national living wage increases
“have not had a significant negative impact on jobs”.
On young people specifically, the Government, as the noble Lord, Lord Sharpe, has reminded us, had asked the commission to extend the national living wage to 18 year-olds, but to do this by balancing concerns about youth unemployment. The letter from the noble Baroness, Lady Stroud, said that the Low Pay Commission acknowledged
“a concerning rise in the rate of young people not in education, employment or training”.
These were not reckless recommendations.
The Low Pay Commission also acknowledged:
“Young people are also more likely to work in hospitality and retail, which have seen significant falls in vacancies and employee numbers”
at realistic assessment. It said, however, that minimum wage effects were
“difficult to separate out … from other pressures on these sectors”.
It said that there was not enough evidence to say that previous increases in the minimum rate for 18 to 20 year-olds had
“affected young people’s employment overall”.
It is not me saying this; it was the Low Pay Commission.
The commission opted for caution and recommended waiting until 2028 or 2029 to lower the national living wage threshold to 18, and then only subject to economic conditions. It was similarly cautious and careful with the apprentice rate, keeping it the same as the rate for 16 and 17 year-olds and increasing it to only £8 an hour.
The Low Pay Commission’s wisdom and caution is reflected in the regulations before your Lordships’ House this evening. I ask the noble Lord, Lord Sharpe, to think again about his amendment and about the effects of seeking to deny the lowest paid in our society a few more pounds in their wage packets.
Lord Sikka (Lab)
My Lords, it is a sad day to be speaking on the Conservative amendment objecting to a rise in the minimum wage. I support the rise in the minimum wage and the acceleration of the rate for younger workers, who bear the full cost of living. The product of their labour is not sold for lower prices at Starbucks, Tesco or anywhere else. Some 25.3 million people live below the minimum living standard, and their voices must be heard.
Last week the Conservatives promised to reintroduce the two-child benefit cap if they ever return to office. Over 500,000 children and their families will be pushed back into poverty. That lack of empathy is on display again today, as now they are targeting low-paid workers and depriving children and their families of nourishing food, good housing and other essentials.
The Joseph Rowntree Foundation has estimated that a single person needed to earn £30,500 a year to reach a minimum acceptable living standard in 2025. A couple with two children needed to earn £74,000. Even after the forthcoming minimum wage increase, millions will be well short of that target, yet the party opposite is objecting to this.
It is striking that it is silent on soaraway executive pay. A typical FTSE 100 CEO collects an average UK wage in just two days, and the CEO-to-worker pay ratio is 141 times. Recently, the chief executive of Shell got a pay rise of 60%, rising to £13.8 million. The BP CEO’s pay has doubled to £11.7 million. Her daily pay exceeds the annual median wage of a UK employee. At Melrose Industries, the CEO-to-worker ratio is over 1,110 times.
We never hear anything from the party opposite about such rip-offs and inequalities. The party opposite objects to a rise in the pay of younger workers, but it has not offered a single suggestion for lifting young adults out of poverty. It could support calls for the abolition of university tuition fees or the abolition of prescription charges, or promise free bus passes to under-21s as in Scotland, but it does not support any of these poverty-alleviating measures.
Sadly, the opposition to the rise in the minimum wage is part of a steady decline of empathy for a large section of the population. The political discourse venerates the super-rich and scapegoats children, minorities, the poor, the disabled, the sick and the unfortunate for social problems. Empathy is the glue that holds a society together, but it is increasingly undermined by toxic political discourses. I am reminded of a quote by Hannah Arendt, who said:
“The death of human empathy is one of the earliest and most telling signs of a culture about to fall into barbarism”.
Condemning millions to poverty is barbaric. We must search our souls and aim for equitable distribution of wealth to ensure that every single person in this country can live with dignity and fulfil their life.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a great pleasure to follow the noble Lord, Lord Sikka, who makes the powerful point that there are enough resources in this country for everyone to have a decent life, and for us to look after climate and nature, if we share those resources out fairly.
I thank the Minister for introducing this SI. However, while I agree with the noble Lord, Lord Sharpe, in regretting this SI, I am going to depart in the 180-degree opposite direction from the noble Lord on the Tory Front Bench’s reason for doing so. The noble Lord was keen to quote the Tony Blair Institute. He is quoting an institute that takes its name and leadership from a Prime Minister who saw the wage share—that is, wages as a percentage of total national income—fall significantly; from the 1960s to the 1980s, it was around 60%, but in the late 1990s it fell as low as 51%. Yes, the Blair Government brought in a minimum wage, but then they allowed its real level to decline and workers to suffer, so the noble Lord’s comments were entirely in line with that Blairist approach.
I want to pick up some comments made by the Chancellor in introducing this measure. She said that
“the economy isn’t working well enough for those on the lowest incomes”,
and I agree. She said:
“Too many people are still struggling to make ends meet”—
with which I also agree—and that those on low incomes are not
“properly rewarded for their hard work”.
Again, I entirely agree, but this SI does not take us nearly as far as we need to go in those directions. Where might we actually go?
It is interesting that the statement talks about the national living wage. That term came in when George Osborne gave in to the argument of the Green Party and said there should be a real living wage and rhetorically, if not in practice, introduced the term. However, the so-called national living wage is not the real living wage. The real living wage is calculated by the Living Wage Foundation, and it is £13.45 an hour across the UK compared to the national figure of £12.71, or £14.80 in London. I am sure the Benches around me will say, “Businesses can’t afford to pay that”, but the real living wage is paid by more than 16,000 UK businesses that have chosen to transform their workers’ lives and raise the bar to a basically decent level of work. Nearly half a million employees are covered by this, and the range of employers credited by the Living Wage Foundation includes half the FTSE 100 big household names, including Nationwide, IKEA, Everton Football Club and Aviva, as well as many thousands of small and medium-sized enterprises.
I have a direct question for the Minister. Alongside this announcement is the suggestion that the increase in the rate for 18 to 20 year-olds may slow in future. I note that Labour made a manifesto commitment that the so-called national living wage would apply equally to all adults by the end of this Parliament. Is the Minister prepared to repeat that commitment tonight?
The noble Lord, Lord Sikka, has powerfully made the point that when 18 to 20 year-olds go to Tesco to buy their dinner, or when they pay their rent, they can ask for a discount because they are young but are, astonishingly, unlikely to get it. More than that—you have workers who are doing exactly the same job, shoulder to shoulder in the warehouse or in the shop, but one of them is paid less than the other simply because of their age. That simply cannot be right.
My final point is that the real living wage still does not take us nearly far enough. The Joseph Rowntree Foundation has for a long time calculated the minimum income standard. This is enough to ensure that people who are working get enough to live a decent life, as identified by the people of Britain. These are real measures of how the Government—and this SI—are not going nearly far enough.
At the current levels, a couple with two children where one parent is working full-time on the national so-called living wage and the other is not working reach 66% of the minimum income standard in 2025. That is actually worse than it was in 2024; it is a 1 percentage point decline. A single working-age adult working full-time on the national living wage reaches 76% of the minimum income standard for 2025, compared with 77% in 2024—so, again, a 1 percentage point decrease. We are going in the wrong direction.
I have one final point. I am aware that Jeremy Hunt no longer speaks officially for His Majesty’s Opposition, but he is of course still a Tory MP. He told Radio 5 yesterday that the kinds of measures that we are all looking towards to deal with energy bills—the Government helping in this crisis situation—are unsustainable. He said:
“We are going to have to wean ourselves off the habit”.
But the reality that that fails to acknowledge is that, after decades of workers getting less and less of the share of the product of their labours, they do not have any reserves left for the next shock. People have been left on the edge, and I am afraid that this SI does nothing like enough to help them re-establish stability and security in their lives.
The Earl of Effingham (Con)
My Lords, following on from my noble friend Lord Sharpe, I ask the Minister, the noble Lord, Lord Leong, who has vast, successful business experience, why he thinks that Sir Tony Blair said, via his institute, just two weeks ago that Labour’s policies—such as this SI—are
“harming growth and undermining young people’s job prospects”.
Lord Hannett of Everton (Lab)
My Lords, I declare an interest. My colleague behind me was a member of the Low Pay Commission. I served 11 years on the Low Pay Commission. In fact, I remember its introduction and the howls of despair, sometimes from people who should have known better. Today the Low Pay Commission is in existence. Every party and every Government have accepted not only its recommendations but have actually said it would be a retrograde step to remove legislation that protects—I repeat, protects—the most vulnerable. I often wonder what the rates would be if we had never had the Low Pay Commission: if it was left to the generosity of politicians and employers. It was required, it was needed, and it has sustained its value consistently.
Sometimes there is a lack of understanding of how the commission reaches an agreement. My noble friend Lady Carberry touched on it. It is a tripart commission consisting of economists, employers and trade unions, and it is an evidence-based commission. I emphasise that. It is not something where you pick a figure because you think it is what people should earn. It has to be argued for in a responsible way by taking evidence from stakeholders such as employers, trade unions and entrepreneurs, and you arrive at a settlement. The commission debates heavily the effect on employment, including youth unemployment, but, if we are about anything in politics, it has to be about values as well. It has to be about protecting the lowest paid in society, who require support. The commission has survived so long because it has proved its case. Every recommendation has been accepted, including by the previous Government, and, if it had not been introduced, I repeat that I wonder what the rates of pay would be.
I say to the Minister that, when I listen to many of the views being expressed in the Chamber about regulations that improve the life of the low-paid worker, everything is going to be the straw that breaks the camel’s back. I heard this for years when I was on the commission. But it has survived and gone from strength to strength. I regret the noble Lord’s amendment to the Motion, and I concur with everything my noble friend the Minister said in his introduction.
Lord Goddard of Stockport (LD)
My Lords, I will be relatively brief. We do not regret the minimum wage going up. We support it. What we do regret is the lack of government support for hard-working families and businesses. I have some sympathy with the views of the noble Lord, Lord Sharpe of Epsom, on some of this. Clearly, increasing the minimum wage is always welcome as it takes 2.5 million people to another level. That should be encouraged; we should be able to do that.
We had some arguments in the employment Bill over months and months about the effects of some of the employment rights. Some of that is coming to fruition now. Unless businesses can grow, do more business and create, then there will be fewer businesses and fewer opportunities for those lower-paid people to get a job. That is the problem.
It is blindingly obvious to me that the Government need to make people’s money go further. The trick is to make the money go further and create more jobs and more opportunities. For instance, I think the Minister mentioned reducing energy bills. I think the Government put £58 million in for fuel oil customers, but really they should be capping the price, as there is no cap on fuel oil for domestics. I have evidence of people who were getting charged £200 now being charged up to £800, so the money the Government are putting in is scratching the surface for those people, who might be employing someone else—a low-paid worker. They might not be able to do that now.
The Government can go further by talking about the high streets. Why do they not cut the VAT on hospitality till 2027? Do something that encourages the economy and lets the high street employ more people. To diverge a little bit from the noble Lord, Lord Sharpe, we should be going for growth with better deals with Europe. We should have closer ties with Europe and have more influence there. The NIC decision should be reversed. These measures would actually put more money in people’s pockets.
The increase in the minimum wage is welcome; it should be increased because it is the right thing to do. I have listened to trade union leaders over months, and I totally agree with that. It has taken too long to do and it is in the right direction, but you have to couple it up with how you stimulate the economy to employ those people. I think that is where the argument on the regret amendment is. I cannot support the amendment, but the Government need to be mindful that it is a two-edged sword.
There was an argument that the employment Bill was tilted a bit too much towards employment and employment laws. That is coming to fruition now, sadly. We need a better balance. We need to be reasonable and responsible—I think those were the words we used—because it goes hand in glove. It is almost as if the minimum wage goes up but the employers pay for it. This is not new money; it comes out of the entire pot of the economy. You really do not want to kill the golden goose laying the egg that pays for the minimum wage to go up. My concern is that we need to do more to put money in people’s pockets. That is how you stimulate growth and how you make the economy get stronger, not just by increasing the minimum wage and then putting tax after tax on people, making it disappear.
Lord Leong (Lab)
My Lords, I am grateful for the support for the National Minimum Wage (Amendment) Regulations 2026 and respect the thoughtful contributions from across the House. I thank my noble friend Lady Carberry for her support for the instrument and note with thanks her service on the Low Pay Commission. I also thank my noble friend Lord Sikka for his support and insightful comments.
Let me hit the nail on the head about the Tony Blair Institute. Tony Blair’s Government created the LPC and we trust its judgment to balance competing factors, including businesses, the economy and growth. In 2025, the UK was the third fastest-growing economy in the G7, behind only the US and Canada. To declare an interest, I am a personal friend of Tony Blair. There are a lot of things I agree with him on but I totally disagree with him on this matter.
Contrary to the amendment tabled, the Government are committed to helping young people to get and retain good jobs. The Low Pay Commission was specifically asked to consider the impact of the minimum wage increase on youth employment and participation in education. After thorough consultation and analysis of labour market evidence, the commission has found no clear indication that recent increases in the national minimum wage have led to a decline in employment among young people. The Government remain committed to ensuring that work pays, while making sure that any future adjustments to youth rates do not harm employment opportunities.
Building on the £1.5 billion announced at the Budget for the youth guarantee and changes to the growth and skills levy, the Secretary of State for Work and Pensions has announced an additional package of almost £1 billion in investment, unlocking up to 200,000 jobs and apprenticeship opportunities by reducing the cost of hiring young people. I agree with my noble friend Lady Carberry when she says that the youth jobs grant provides an employer with hiring incentives worth £3,000. Let us not pooh-pooh that; it is money going into employers to employ young people between the ages of 18 and 24 who have been on universal credit and looking for work for six months.
Lord Sharpe of Epsom (Con)
My Lords, I am very grateful to the Minister for his response. I was not expecting Confucius, but of course I defer to that ancient wisdom.
I listened very carefully to what was said, in particular by the noble Baroness, Lady Carberry of Muswell Hill. I think she said—she will correct me if I am wrong—that the Low Pay Commission found it difficult to separate the various cost pressures affecting the hospitality industry particularly, including the effects of higher or rising pay. I would argue, therefore, that that is not particularly evidence-based. It would seem slightly reckless to make that recommendation if you cannot determine the causes of the headwinds—but I will park that for the time being.
Baroness Carberry of Muswell Hill (Lab)
Perhaps I could recommend to the noble Lord that he takes time to read the Low Pay Commission’s report, which sets out its reasoning in full, and the evidence base it is drawing on. I may have made that point clumsily. I certainly did not mean to disparage the Low Pay Commission. I was trying to convey its sense that it could not find evidence to attribute any negative effects on the labour market for young people specifically to the national living wage as applied in the rates for those young people. It was trying to make an assessment of the extent to which the minimum wage rates were the cause of any detrimental effects on the labour market and could not find that it was the low pay rates which had that negative effect. The reasoning is set out in great detail in that report.
Lord Sharpe of Epsom (Con)
I thank the noble Baroness for that clarification. I will definitely make a point of reading that and perhaps return to it, depending on what I see.
I say to the noble Lord, Lord Hannett of Everton, who made some very good points, that the camel’s back is already broken when it comes to youth unemployment. It is at 16.1%—a point I made in my earlier remarks. That is higher than the EU average, which is a pretty woeful state of affairs. In answer to the noble Lord’s question, unemployment is at 5.2% now, but, as we also heard and as I reminded the House, the OBR has forecast that it will rise to 7%.
I am grateful to the noble Baroness, Lady Bennett of Manor Castle, for her remarks. I would also point her in the direction of the Resolution Foundation, which has a direct line into the Treasury; it was not just the Tony Blair Institute. For the time being, I rest my case on Green economics.
It is always a pleasure to hear from the noble Lord, Lord Sikka. I think his argument was, “If you agree with me politically, you have empathy; if you don’t, you haven’t”. In which case, I would argue that it is empathetic to try to keep people in jobs rather than price them out. That is empathy. I beg leave to withdraw my amendment.