Autumn Budget 2024

Lord Altrincham Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Altrincham (Con)]

I thank the Minister for hosting this debate, for listening so carefully to so many speakers one by one, and for his good grace. I also thank the Treasury officials who have pulled together this Budget in extremely difficult circumstances, and the many other officials who contributed, including at the OBR. They managed to produce, yet again, an extremely good report, written in that almost unknown language of plain English and the related dialect of plain maths that we can all understand.

The OBR—to which the Government tied themselves very tightly, as we know, in their very first Bill of this Parliament—has been somewhat unhelpful to the Government. The Chancellor’s Statement was well received by the markets in the opening minutes, until the OBR report landed, when there was a sell-off in the 10-year rates almost immediately because its statements were quite strong. Maybe the Minister can comment on whether the Government will review the overall financial framework in which they are operating, some of which was set up long ago in different times. The Bank of England was made independent when tax to GDP was fully 10 points lower than it is today, and the OBR was set up in 2012, when debt to GDP was around 70%. In fact, debt to GDP has been moving up 2% a year since our Office for Budget Responsibility was set up, so, as we have discussed before, it is a rather unaffordable kind of budget responsibility.

The overarching framework is not that ideal, and other agencies, such as the financial agencies, are also somewhat autonomous of the Treasury. The noble Lord, Lord Eatwell, referenced bank investment, but of course, that is under the PRA and the FCA, and is again at one remove from the Government. Can the Minister comment on the overarching framework in which the Government are currently operating as they pull this Budget together?

The extraordinarily sensitive number in the Budget is the 38% of tax to GDP. The noble Lord, Lord Desai, believes that it could go to 44%. Just for a moment, let us hope that it gets to 38%, as it is extraordinarily important that we can fund the state on the basis of these forecasts. Getting to 38% is sort of unknowable; that is one year sooner than the previous forecast. The reason it is unknowable—to challenge what the noble Lord, Lord Desai, said—goes back to a comment made by the noble Lord, Lord Lamont: the tax system in this country is remarkably concentrated. We are resting our tax system on around 3 million people, and they are doing half of all income tax and a good deal of the rest of the tax raised by HMRC. This tax concentration has come about because our economy has changed so much, and we are now an economy of services. Britain was the world’s first industrial nation, and we are becoming the world’s first services nation. That concentration into high-value services is creating quite a bit of difficulty with our public finances. We need those services and employees in this country to keep going to support the kind of state we have—which has not been ideal even recently, as we have heard during the debate.

There is a good deal of evidence that those jobs are moving. For example, thousands of jobs have gone from the London Insurance Market, which were high-paid jobs in the economy. The commonplace observation that the graduate entry of big accounting firms has been restricted means that it is limiting high-paid jobs in 10 or 15 years’ time in accounting services. They are jobs that will not happen in this country; they may be in Atlanta or somewhere else.

The Government are quite rightly focusing on life sciences, which I will pause on for a moment. AstraZeneca has four worldwide research bases; it has only one in the UK. GSK has five worldwide research bases; it has one in the UK. Both companies employ fewer than 20,000 people in the UK; AstraZeneca employs below 10,000. The noble Lord, Lord O’Neill, referenced obesity. There has been an enormous miss in obesity wonder drugs in life sciences, which are accruing tremendous value creation in the US, Denmark and elsewhere, but not in the UK.

Then, there is the issue of tax migration. We hope that tax migration is not going on. It is very hard to measure, because sometimes the person moves and sometimes the person does not. The US is seeing tremendous internal tax migration, and that could easily come to us. One of the reasons why the US matters so much is that we have so many citizens already in the US, making it easy for people to travel. Maybe we should take a look at that.

I will turn briefly to one other point. We should thank Jessica Pulay at the Debt Management Office, who has done such a superb job in raising debt for the Government so consistently in all markets—but the DMO could also do with a little help. Pension funds have been buying gilts because they have been de-risking, and, as noble Lords know, foreign investors buy 30% of the market. Maybe this Government should look at incentivising domestic savers to hold gilts. Can the Minister comment on that too?

School Fees: VAT

Lord Altrincham Excerpts

Thursday 10th October 2024 Lords Chamber

[Lord Livermore (Lab)]

The answer to the noble Baroness’s first question is no and the answer to her second question is that that is a matter for the spending review. I disagree fundamentally with her characterisation of this policy. I want to see excellence in education for children in places like where I grew up, whose parents will never be able to afford to pay for their education. They are every bit as ambitious for their children as any other parent.

[Lord Altrincham (Con)]

Will the Minister confirm that any gains from this policy will accrue to the education budget and that any shortfall will be met by the education budget? Will he commit to sharing with this House the OBR’s impact assessment of the number of pupils moving from the private sector to the state sector and the number where the overall policy would be at a fiscal cost to the Exchequer?

[Lord Livermore (Lab)]

There were several questions there. Yes, this money will go to the state sector; I do not accept that there will be any loss from this policy; and yes, the OBR will publish the impact assessment alongside the Budget.

Budget Responsibility Bill

Lord Altrincham Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 9th September 2024 Lords Chamber

[Lord Altrincham (Con)]

My Lords, we thank the Minister for bringing forward this important Bill. Perhaps we should also thank the OBR for its very good work over these past 14 years. We in Parliament have been concerned about the supervision of financial regulators, and we did a lot of work last year on strengthening the supervision of other financial regulators in the Financial Services and Markets Act. Separately this afternoon, the Industry and Regulators Committee has been looking at a whole range of independent agency regulators with a very mixed performance.

It is worth pausing for a moment on the Office for Budget Responsibility itself, which is widely admired across government, in Parliament and, as the Minister says, by the current Government. It is to its credit that it managed to find a way to work closely with government, but independently and transparently. We should mark this with respect, given how stressed the government finances are.

A core objective of the OBR is, of course, the sustainability of the public finances. Perhaps we should look at how that has been since it was set up, following the 2011 Act. In 2012, public sector debt to GDP was 74%. One way or another—by spending the fiscal headroom across various Governments, and following the different issues that arose—we are now at 98%, which is a rise of around 2% per year in debt to GDP. This kind of budget responsibility is becoming almost unaffordable to the public exchequer, and things will have to change.

They will have to change because the scale of public spending—to the tune of £1 trillion a year—requires very good forecasting, and some of the forecasting that underpins this tight nexus between the Treasury, the OBR and their own reviews has been challenged. The OBR substantially missed the inflation change; lots of other agencies missed it—less in the private sector than in the public sector—and that is a problem because it hints at a closeness between the OBR and the Treasury because it was agencies of government that all missed the inflationary change. The OBR reviews its own forecasting very carefully, so when it reviews that error, it will tend to look at supply shocks in Ukraine and downplay quantitative easing and rates. That is one area of weakness, but there are others that will affect this concept of the fiscal announcement.

The OBR has struggled with basic numbers around population. It tended to underestimate population and is now scrambling to increase population in its model, which currently has a population of 57 million adults in the UK in 2029. This number is extraordinarily sensitive, obviously, for estimates of average wages and welfare spending. The OBR says that modelling those kinds of assumptions is very difficult because they are modelled off much lower levels of immigration than we are currently seeing, and these are the kind of numbers that would trigger enormously different fiscal outcomes in the Treasury/OBR model. There are other numbers in the forecast which are very sensitive, and the OBR itself mentioned this, but it is important that we reflect on this as we think about how this kind of fiscal brake might work. The OBR is modelling the expected tax take out of the economy to reach 37% of GDP in 2029. It is essential, of course, that it does reach that kind of level, but it is unknowable whether the economy can really sustain that level of taxation. It is a modelled outcome—we must all collectively hope it can work, but it might not, and therefore inherent in the actual forecasts are very significant fiscal risks.

One other area to mention in the OBR numbers that will underpin the Budget in October is the huge variable of accounting for the economics between the Treasury and the Bank of England. This is an extraordinarily enigmatic subject, not particularly well explained by the OBR itself, whereby the Bank can, at its discretion, impose costs on the Treasury which themselves could become very significant in these fiscal numbers. My question to the Minister is: what should we expect the costs of the asset purchase scheme to be between the Treasury and the Bank of England for this year? Will that be an area in which the Treasury can balance the numbers that it believes are a black hole? The kind of scale of adjustment is easily that big—for example, the Bank of England could easily stop issuing gilts for the coming months, seemingly at its discretion—so maybe the Minister could clarify that.

I end with the Chekhov question. Chekhov used to say that when you see a revolver on the mantelpiece in the first act, it will always be fired before the final curtain. I ask the Minister whether we can expect the fiscal announcement, beautifully described in Clause 1 as the “section 4(3) report”, to take place in this Parliament.