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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.