Fiscal Rules

Baroness Vere of Norbiton Excerpts

Tuesday 29th October 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My Lords, over the next 24 hours the Chancellor is likely to break promises that she made to the British people in the run-up to the election, and I am in no doubt that that was always going to be the plan. This is why the Treasury team magicked up a fictional black hole—a black hole which, rather incredulously, contains spending decisions made by the current Government. This fictional black hole will be invoked once again at the Budget Statement tomorrow, to act as a fig leaf to cover tax rises which will put more juice into the phrase “taxing people until the pips squeak”. It is an audacious strategy, given its utter predictability, but my concern is for the people and businesses across the country who are just trying to get by and who will bear the brunt of Labour’s tax plans.

Tax rises are only part of the plan. The second part of the Chancellor’s plan is to increase borrowing—but how could she, given the fiscal rules? These are the fiscal rules that the Chancellor explicitly said she would not change. She stated that she would not “fiddle the figures” to get different debt figures. She confirmed that an incoming Labour Government

“will use the same models the government uses”.

Now the Chancellor has performed a screeching U-turn and broken her promise not to—in her words—fiddle the figures. The Chancellor has announced a £50 billion change to the UK’s fiscal rules; she announced this important change at a conference in the United States, not to Parliament. Can the Minister confirm that the announcement at a conference in the United States was made in haste to reassure the bond markets?

More worryingly, the country currently has new fiscal rules but no knowledge of what they actually are, because the Chancellor has failed to outline any details of what that new rule change involves. She also chose to make this announcement without an accompanying OBR report. I am sure the noble Lord, Lord Livermore, will remember that the very first Act passed under this Labour Government was one which gave more power to the OBR to scrutinise the Government’s actions. Does he agree that these actions with respect to the fiscal rules do not abide by the spirit of what was in that first Act passed under this Government? We are left in a situation in which the UK does not have an operational definition of public debt. Can the Minister explain what definition of public debt the Government are currently providing to lenders?

There is a debate to be had about whether these changes to the fiscal rules make things better or worse, but what is absolutely clear is that fiddling with the debt rule does not magic up free money. Indeed, the independent Institute for Fiscal Studies has specifically warned that changing the UK’s debt rule to allow for higher borrowing is not free money. The IFS has cautioned that the Government’s new fiscal rule will cease to be a constraint on borrowing. Can the Minister explain how much new borrowing the Government intend to take on under these new rules, and how much the annual interest cost of that debt will be?

I have no doubt at all that this is all part of a plan dreamt up long before the general election, and the next episode in this sorry tale is to be released tomorrow.

[Baroness Kramer (LD)]

My Lords, we on these Benches have long called for vital investment into infrastructure, not least to fix our crumbling hospitals and schools, to tackle the failings and gaps in our transport system, and to deliver the affordable housing needed by so many. Infrastructure investment, including private investment, must be scaled up to drive sustainable economic growth across the nation, including the green energy revolution. But fiscal responsibility remains crucial.

These Benches have argued before for the use of the public sector net fiscal liabilities as the appropriate measure to sit behind a borrowing rule, because it allows productive investment to be considered separately from day-to-day spending. I tried without success to persuade the noble Lord, Lord O’Neill of Gatley, to look more closely at this issue during the Conservative Government.

Changing the measure also means reshaping the borrowing rule and the guard-rails to make them appropriate to that new measure. This Statement so far offers only the vaguest language, so I hope very much that we will hear a proper discussion of the rules and the guard-rails tomorrow in the Budget. Will the draft charter for budget responsibility, which I understand should contain much of that, be among tomorrow’s documents?

There also seem to be a number of referees to oversee the rule and its implications, from the OBR to the national infrastructure and service transformation authority, an office for value for money and the NAO. How does this fit together and what oversight will be before Parliament?

We cannot have a repeat of the Truss mini-Budget, which nearly wrecked the public finances with £40 billion in unfunded tax cuts. Does the Minister agree that the Budget must be credible to the markets, the interest burden on our public finances must be tackled and, at the same time, we must make good our infrastructure deficit—investing to fix hospitals and schools but also driving economic growth? None of it is easy, but all of it is necessary.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

Does the Minister agree that the Labour Party manifesto was, in essence, just smoke and mirrors? There are smoke and mirrors surrounding not only the fiscal rule—I am still trying to understand his sentence about changing your own fiscal rules, but I will leave that there—but what a “working person” is. When one writes a manifesto, one does not do it such that one can get things round the British people; one should do it with clarity. I suspect that there is a certain lack of clarity in the Labour Party manifesto.

[Lord Livermore (Lab)]

I fully sympathise with the noble Baroness that she struggles to understand the concept of keeping manifesto commitments. She will see in the Budget tomorrow that we will keep every manifesto commitment we made to the British people.