Autumn Budget 2024

Baroness Lea of Lymm Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Lea of Lymm (Con)]

I begin by noting the economic background to the Budget. The economy is growing, albeit modestly. Unemployment is around 4% and CPI inflation fell below the 2% target in September. Public sector borrowing, though still too high, has fallen from pandemic levels and is lower than during the financial crisis of the late 2000s. Speaking as a veteran economy watcher, I would not describe this as the

“worst set of economic circumstances since World War II”

—far from it. What about the £22 billion black hole in the public finances? Granted, the OBR in its recent review of departmental expenditure limits criticised the Treasury over the March Budget, but the OBR’s chair, Richard Hughes, concluded that:

“Nothing in our review was a legitimisation of that £22 billion”.


Moreover, I cannot emphasise too often that the economy has had two major shocks in recent years. First, there was the pandemic and the associated lockdown, which was enthusiastically supported by the then Opposition. It cost the Exchequer £380 billion and has weakened the labour market. According to the ONS’s latest numbers, the number of economically inactive people aged 16 to 64 is still over 700,000 higher than prior to lockdown. Secondly, the Russian invasion of Ukraine in February 2022 resulted in a major inflationary shock and a significant increase in the Bank rate.

I turn to the Budget itself. The OBR concluded that Budget policies will increase spending by almost £70 billion a year over the next five years. As a result, total managed expenditure will be around 44% to 45% of GDP, from around 40% prior to the pandemic. Note that this spending will be on an unreformed public sector, where productivity was around 6% lower at the beginning of this year than it was in Q4 of 2019 prior to the pandemic. Productivity in the public sector has fallen.

Higher taxes will fund about half of this increase in spending. They will raise about £36 billion a year and push the tax to GDP ratio to an historic high of about 38% by the financial year 2029. The rest of the increase will be funded by a £32 billion a year increase in borrowing. According to the OBR, as has already been noted, this is one of the largest fiscal loosenings of any fiscal event in recent decades. Such borrowing, of course, has to be financed, irrespective of any tweaks to the fiscal targets.

Unfortunately, the financial markets have already shown some concern. Unsurprisingly, the debt to GDP ratio remains close to 100%, at around 97% over the forecast period. In this context it is instructive to note that the OBR warned in September that the longer-term pressures on the public finances, including the ageing population, would eventually put the public finances on an unsustainable path. This was before the Autumn Statement, with its large and sustained increase in spending, taxation and borrowing.

Concerning the OBR’s economic forecasts, it was decidedly downbeat, suggesting little by way of an overall boost to growth. Granted, Budget policies would temporarily boost output in the near-term, but they would leave GDP largely unchanged in five years’ time, at the end of its forecasting period. Moreover, the OBR increased its forecast for CPI inflation and interest rates, with all the implications therein, which the Bank of England echoed last week. Disappointingly, it suggested that business investment, so vital for growth, could be partly crowded out by the increase in government spending and net fiscal loosening.

What about the impact on business, that vital engine for growth? Businesses will face sizeable increases in employer national insurance contributions, though it is possible that some of the higher costs will push through to lower wages. This is at a time when they will face the sizeable increase in the minimum wage from next April and the costs resulting from the implementation of the Employment Rights Bill, which could be up to £5 billion a year. In the meantime, they have to cope with the highest industrial electricity prices of any industrial economy, including those in the EU and the G7.

Autumn Statement 2023

Baroness Lea of Lymm Excerpts

Wednesday 29th November 2023 Lords Chamber

[Baroness Lea of Lymm (Con)]

My Lords, I was very encouraged by last week’s Autumn Statement and welcomed the policy changes, while recognising the Chancellor’s limited room for manoeuvre. However, before discussing these policy changes, I would like to put the Autumn Statement into some sort of economic context.

All too often, two recent, seismic economic events are overlooked or regarded as history, but their legacies still cast major shadows over the economy and inevitably restrict the Chancellor’s room for manoeuvre. The first event was, of course, the economic lockdown associated with the pandemic. There was a huge cost to the Exchequer, which the National Audit Office estimates at nearly £380 billion. That is about 20% of GDP. That is absolutely enormous. Unsurprisingly, the debt to GDP ratio soared and this debt needs financing. Also, lockdown severely hit the labour market. According to the ONS, the figure for the economically inactive—people aged 16 to 64 who are not in work and not looking for work; so, anyone who is over 64 is let off—was over 410,000 higher in the three months to July 2020 than in the three months to February 2020, prior to lockdown. This helps to explain the current tightness of the labour market, which is a major supply problem.

The second event, of course, relates to the soaring energy prices following Russia’s invasion of Ukraine in February 2022. This was a major inflationary shock to the economy, at a time when inflationary pressures were already building up, reflecting supply-side disruptions after lockdown. Of course, the burst of inflation triggered a cost of living crisis and has undermined real personal disposable incomes significantly. Arguably rather late in the day, the Bank of England began to tighten interest rates. Interest rates of course hit mortgage holders, along with the higher RPI inflation that the public finances by significantly boosting debt interest payments.

Despite these seismic events, the economy has proved quite resilient. Granted, overall GDP growth since 2019 has been pretty weak but it has been similar to France’s and has exceeded Germany’s. It has been more resilient than was widely expected by major forecasting bodies. It is worth remembering that the Bank was still forecasting a two-year recession for 2023-24 as recently as February this year. However, anybody who has done any economic forecasting knows that it is not an exact science—or art, I do not know which. It is all the more difficult when the ONS revises the underlying data quite significantly, as it did in September with the GDP data. This is not to criticise the ONS—your Lordships would not expect me, as an ex-member of the Government’s statistical services, to do that—but it is an attempt to provide some context to the difficulties and uncertainties underlying the Autumn Statement.

I note that the OBR concluded in its Economic and Fiscal Outlook that:

“The economy has proved to be more resilient to the shocks of the pandemic and energy crisis than anticipated”


in March. It upgraded its forecast for 2023 but cautiously downgraded its overall growth projections for the forecast period—perhaps too cautiously.

Turning to the fiscal outlook, the OBR’s forecast reduced public sector borrowing quite significantly, as higher inflation boosts revenues more than spending. This provided the Chancellor with a windfall, which he largely used for some judicious tax cuts while sticking within his main fiscal targets. Do not forget those fiscal targets.

Turning to the policy measures, there were two major tax changes, both of which were very welcome. First, there was a package of reduction of national insurance contributions, including a 2p cut in the main employee rate and help for the self-employed. Secondly, full expensing of plant and machinery costs was made permanent in order to stimulate business investment and productivity, as already mentioned. Full expensing was initially reduced in the March Budget but only up to financial year 2025.

Given the aforementioned limited room for manoeuvre, the Chancellor understandably treated these two major sets of tax changes as his priorities, and I fully understand that. Suffice it to say that it is clear that he did not have the leeway to address two key tax issues which are very close to my heart, and which noble Lords have already alluded to. First, personal income tax thresholds are due to remain frozen at financial year 2021 levels, up to and including financial year 2027. These frozen thresholds increase the personal tax burden through fiscal drag, as stronger wage growth pushes more taxpayers into higher tax bands. Secondly, again as already mentioned, the Chancellor cut the main corporation tax rate from 25% back to 19%. As I said, I appreciate that his room for manoeuvre was very limited, especially as he had his eye on those key fiscal targets. However, it is instructive to note that, as already mentioned, the tax to GDP ratio will be increasing over the next five years to a post-war high of nearly 38% by financial year 2028. This is despite the tax cuts in the Autumn Statement. Perhaps, however, there might be further tax cuts in the Budget.

Finally, I note the Chancellor’s back-to-work plan, which he announced with the Secretary of State for Work and Pensions: getting people with sickness or disability, and the long-term unemployed, back into work. This is absolutely excellent, not least considering the substantial increase in the economically inactive compared with pre-lockdown, to which I referred earlier. Therefore, the plan must be welcomed. We must get these people, if they can work, back into work, and help the economy. All in all, it was an encouraging Statement, but let us be aware of the difficulties ahead.

UK Economy: Growth, Inflation and Productivity

Baroness Lea of Lymm Excerpts

Thursday 29th June 2023 Lords Chamber

[Baroness Lea of Lymm (Con)]

I welcome the opportunity to participate in this very important debate today. It is of course a wide-ranging debate and, rather than trying to cover all the points, I shall just make some observations that I trust are relevant.

First, I would like to put our recent growth performance into some sort of context. Between 1997 and 2010, GDP grew by an average annual rate of nearly 2%, although this was depressed by the sharp recession in 2008-09, associated with the 2008 financial crisis. Between 2010 and 2019, GDP grew again by an average annual rate of nearly 2%, despite the coalition’s restrained fiscal policies, introduced to regularise public sector borrowing, which had ballooned in the 2008-09 recession. Note that the economy did not go into recession after the Brexit referendum, despite the blood-curdling warnings by the Bank and the Treasury.

However, GDP slumped by 11% in 2020, during lockdown. This appears to be much more severe than other major economies experienced, although, as the ONS has pointed out, this partly reflects methodological differences. Believe me, international comparisons are fraught with statistical problems. GDP has just about reached its pre-pandemic level now, but it has been a hard and cruel path. Given the severity of the lockdown, any impact on the economy from Brexit is incredibly difficult to assess. It is reasonable to suggest that the introduction of various trade frictions would dampen trade, but the data show that the goods trade picked up strongly in 2022 after weakness in 2020 and 2021, which was more connected with the lockdowns.

Looking ahead, growth prospects are not encouraging. Granted, the IMF, the OECD, the Bank of England—Uncle Tom Cobley and all—have all revised up the exceptionally gloomy forecasts they made earlier this year and so far the UK has avoided recession, unlike Germany. Even so, the forecasts remain disappointing. For example, in May the Bank projected growth of just 0.25% for this year, followed by 0.75% next year and in 2025. Moreover, given possible further monetary tightening to tame inflation, I still do not rule out a possible recession.

Secondly, it cannot be exaggerated how profound the economic hangover from lockdown has been. Three things stand out for me. The first is the huge cost to the Exchequer, which the National Audit Office estimates to have been nearly £380 billion. The second is the continuing hit to output, and hence to productivity, of public services, including education and health. I welcomed the Chancellor’s recent announcement of a public sector productivity review

“with the Treasury acting as an enabler of reform”.

Well, come on, Treasury—enable. The third thing is the decline in the workforce, which the Chancellor sought to address in the March Budget with his “back to work” measures. According to the ONS, in the three months to April the number of “economically inactive” people, those aged between 16 and 64 who are not in work and not looking for work, was still 350,000 higher than in the three months to February 2020. This helps to explain the tightness of the labour market, which is a major supply problem.

Thirdly, I agree that inflation has to be a major concern. The CPI inflation rate was 8.7% in May, unchanged from April. The core rate picked up to 7.1%. As we know, inflation started picking up in mid-2021, reflecting supply-side constraints and disruptions after lockdown. I remember the Bank’s then chief economist Andy Haldane warning about inflation; he was very clear. Incidentally, he voted to curtail QE in May 2021. The rest of the Bank, unfortunately, was not listening.

This was followed by the specific energy price shock following the Russian invasion of Ukraine in February 2022, which gave another kick to price inflation, and an understandable pick-up in wages enabled by the tight labour market. Now, even though producer price inflation abates, these higher labour costs are feeding into consumer prices—the wage-price spiral of old. Rather late in the day, the Bank began tightening policy. Despite voices urging a pause—after all, monetary policy acts with long lags—more interest rate rises seem likely. As I have already implied, this risks recession.

Finally, and briefly, I come to productivity, which is usually taken to mean labour productivity as calculated by output divided by a measure of labour inputs—whether hours, jobs or workers. At one level this is just a statistical calculation and not an end in itself. Any policies that increase output growth, excluding policies specifically geared towards increasing labour market inputs, will increase productivity growth. But we all know that productivity growth is not just a matter of statistics. If we are to improve our growth prospects, we must raise our productivity game, especially given the tightness of the labour market. This includes encouraging capital investment and, of course, investment in people and skills.

Budget Statement

Baroness Lea of Lymm Excerpts

Thursday 16th March 2023 Lords Chamber

[Baroness Lea of Lymm (Con)]

I was actually encouraged by the Chancellor’s Budget Statement yesterday. To put it in context, how very different it felt from November’s Autumn Statement, which, above all else, aimed for stability after the market chaos of late September and October.

As the OBR commented back in November, the British economy had been badly knocked by the

“global energy … supply shocks emanating from Russia’s invasion of Ukraine”

since March, when the Spring Statement was released. I remember the Bank of England’s extraordinarily pessimistic forecast, released in early November, which forecasted falling GDP in both 2023 and 2024—a two-year recession. My goodness me, how the media jumped on that. The Bank noted that there was a “very challenging” outlook for the UK economy, which struck me as something of an understatement in the circumstances. In contrast, in November, even though the OBR saw GDP falling by 1.4% in 2023, it expected the economy to recover in 2024.

Since November, the economy has proved remarkably resilient, narrowly missing recession in the second half of 2022. Somewhat surprisingly, GDP was flat in the fourth quarter, after falling a marginal amount in the third quarter; doubtless the data will be revised because, believe me—I speak as an ex-government statistician—data are always revised. The OBR now expects the economy to avoid recession, as defined by two consecutive quarters of falling output, this year. However, seemingly paradoxically, it still expects GDP to slip by 0.2% this year compared with last year. Specifically, it has projected a 0.4% fall in this current quarter, with GDP expected to be flat in the second quarter and then to start recovering in the second half of this year. Thus, according to the OBR, the economy will avoid recession.

The OBR was relatively upbeat in its March Economic and Fiscal Outlook. It said:

“The economic and fiscal outlook has brightened somewhat since our previous forecast in November.”


I remind noble Lords that that is only four and a half months ago. It went on:

“The near-term economic downturn is set to be shorter and shallower; medium-term output to be higher; and the budget deficit and public debt to be lower.”


Specifically, it noted that wholesale gas prices were well down and were expected to fall further.

However, the international situation remains concerning. The war in Ukraine appears to be far from resolution and the intensifying US-Chinese tensions have potential serious implications for the global economy. There are also heightened concerns over the international banking system. No one can be complacent.

The improved fiscal situation has enabled the Chancellor to provide a sizeable stimulus to the economy by way of some judicious spending increases and tax cuts, yet according to the OBR, he has still met his self-imposed fiscal targets—they may seem a bit arcane but they are important. These targets are: first, that underlying public sector debt as a share of GDP should fall in the financial year 2027; and, secondly, that public sector borrowing should be less than 3% of GDP in the same financial year. The targets are revised frequently and are somewhat arbitrary; suffice to say, much can go astray with the economy between now and 2027. Forecasting is an imprecise art, as we know, but, as I have said, the targets are important. They provide the markets with some reassurance that, no matter how high debt is now, it is manageable and should fall as a share of GDP in future. The targets are there to avoid a repetition of last September’s chaos, when the OBR was comprehensively cut out of the loop.

What of the Chancellor’s policies? First, he has rightly sought to address the issue of the missing workers with a back-to-work Budget that has the aim of stimulating the labour market and supporting growth. The latest ONS data shows that, in the three months to January, total employment was still more than 230,000 lower than in the three months to February 2020, which was the last quarter before lockdown. The number of the economically inactive—people aged 16 to 64 who are not in work and not looking for work—was nearly 490,000, nearly half a million, higher than in the three months to February 2020. Reasons for the rise in inactivity include increases in the long-term sick and people with family caring responsibilities, and some early retirements.

Suffice it to say that several of the Chancellor’s core Budget policies were geared towards encouraging and enabling people within these groups to move into employment. They included the launch of a new universal support programme for the disabled and long-term sick who want a job, improved childcare provision and, on pensions, increasing the annual allowance and abolishing the lifetime allowance. These are all pretty good moves, and I hasten to add that this is a far from exhaustive list of the Chancellor’s policies on this issue.

Secondly, on enterprise, with the ending of the super-deduction capital allowances scheme in March 2023, the Chancellor rightly announced the new full-expensing capital allowances scheme. This is planned to run for three years initially, and the OBR apparently judges that it should help boost business investment—which we all want boosted—by around 3% a year. But I still regret the planned increase in the main corporation tax rate from 19% to 25%. Granted, this rate may be the lowest in the G7, but, to me, this slightly misses the point. It was widely reported that corporate taxes were a factor in AstraZeneca’s decision to build a new factory in Dublin rather than Cheshire. Ireland’s main corporation tax rate is 12.5%.

Finally, the Chancellor’s cost of living measures were well targeted. They included freezing fuel duty for the 13th consecutive year and extending the energy price guarantee at £2,500 until the end of June.

All in all, it was an encouraging Budget. I suppose there is always more to do—every Chancellor knows that—but let us be aware of the economic circumstances and uncertainties that we still face. We certainly cannot be complacent.

Autumn Statement 2022

Baroness Lea of Lymm Excerpts

Tuesday 29th November 2022 Lords Chamber

[Baroness Lea of Lymm (Con) (Maiden Speech)]

My Lords, it is a great honour and privilege to make my maiden speech in this House today. I would like to thank everybody in the House, from all sides, for their kindness and support. I am deeply grateful for the guidance and advice offered by all the officers and staff I have met. Black Rod and her staff, the Clerk of the Parliaments’ Office, the doorkeepers, the attendants and the police officers have all been incredibly helpful, not least because I keep getting lost.

In particular, I thank my supporters: my noble friend Lady Noakes, who is also my excellent mentor, and my noble friend Lord Blackwell, who was my excellent chairman when I was the director of the Centre for Policy Studies. I am really grateful. Indeed, I cannot thank them enough.

When I was appointed to this House, it struck me how my life had gone almost in a complete circle, because I began my career several decades ago—I am not telling your Lordships how many—on the other side of Parliament Square, in the Treasury. So I think I can find the way. In my 16 years in the Civil Service, I was attached to several government departments. I worked on, among other things, economic forecasting and the compilation of the economic accounts. It was always fascinating, and it was a terrific foundation for the rest of my career. After the Civil Service, I worked at the Mitsubishi Bank, Lehman Brothers—yes, that one—ITN, the Institute of Directors, the aforementioned Centre for Policy Studies and, lately, the Arbuthnot Banking Group.

Unsurprisingly, I have simply lost count of the number of Budgets, Spring Statements and Autumn Statements I have followed throughout my career. That brings me to this year’s Autumn Statement. I will not discuss the policy aspects of the Autumn Statement—that would be far too controversial—but will confine my remarks to some general reflections on the nature, difficulties and uncertainties relating to economic forecasts. There are many, which makes me naturally sympathetic to the OBR when it forecasts the economy and the public finances for these important fiscal statements.

First, there are uncertainties relating to the underlying data which are the basis of any forecast. I remember well being involved in the estimation and compilation of the balance of payments accounts when I was in the Central Statistical Office, the precursor of the Office for National Statistics. It taught me that, with the best will in the world, there are likely to be significant measurement errors and sampling errors in these accounts, and this applies in equal measure to much of the rest of the ONS’s output. Moreover, the data can be substantially revised as later information becomes available—history gets rewritten. This is not to criticise the ONS or question its integrity, professionalism or competence—far from it. I have the greatest respect for the ONS; I merely emphasise the inherent problems in estimating economic data.

Secondly, there are daunting problems relating to modelling and estimating the interrelationships between the variables in a complex system such as the economy. Moreover, in a changing economy, the interrelationships are not even stable—they change, adding to uncertainty. If you want a bit of light relief, look at the OBR’s website. You will see its macroeconomic model, which provides a useful, if not formidable, rundown of the variables identified within the model and how they interrelate. The model was first put together by the Treasury in the 1970s and is now jointly maintained and developed by the OBR and the Treasury.

Thirdly, any forecast is dependent on some fairly heroic assumptions. In its November Economic and Fiscal Outlook, the OBR referred to the intensification of

“the global energy … supply shocks emanating from Russia’s invasion of Ukraine”

since March’s Spring Statement. It discussed the significant knock-on effects for inflation and interest rates. Crucially, it had to make some fairly heroic assumptions about the future paths of energy prices and interest rates based on market expectations for its latest forecasts. These may or may not be fulfilled; probably not. In some sense, they are always wrong. The issue is whether these assumptions look plausible. To me, the assumptions in the Autumn Statement look perfectly plausible.

So economic forecasts are inevitably subject to great uncertainties, which the OBR and the Bank are at pains to point out. Indeed, the Bank has been using so-called fan charts around its central projections since the 1990s. These fan charts provide a useful indication of forecast uncertainties of the main economic variables: GDP, unemployment and inflation. I notice that the OBR has recently started to use fan charts for its projections of the key fiscal variables relating to the Government’s fiscal targets. This is a useful development.

Digressing for a moment, I feel I should add that it is not just economic models and forecasts that are inherently subject to uncertainties. So are epidemiological models and forecasts, and so are climate change models and forecasts. But that is for another day.

Finally, given the uncertainties surrounding the OBR’s forecasts—and, indeed, the Bank’s—some commentators have been rather dismissive, questioning the purpose of them. I would defend them. Crucially, they provide a valuable, if not invaluable, framework for analysing the economic and fiscal implications of government policy, and they offer a thought-through and informed assessment of where they think the economy is going. Moreover, I understand that the OBR’s record has been perfectly respectable when compared with other forecasts. On that upbeat note, I shall end. I thank noble Lords for their patience in listening to me today.