Budget: Press Briefings

Lord Bridges of Headley Excerpts

Tuesday 18th November 2025 Lords Chamber

[Lord Livermore (Lab)]

My noble friend is absolutely right to say that there is always speculation ahead of a Budget. As he knows, I am not going to comment on the bond markets, but he is right to point out that the Liz Truss mini-Budget crashed the economy and sent interest rates soaring.

[Lord Bridges of Headley (Con)]

My Lords, on 10 November, the Chancellor said on BBC Radio:

“It would, of course, be possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending”.


Does that statement still stand?

[Lord Livermore (Lab)]

As I have said, I am being told by noble Lords opposite that speculation is wrong and now the noble Lord is asking me to speculate. As I have made very clear, I will not be commenting on individual tax measures.

Economic and Taxation Policies: Jobs, Growth and Prosperity

Lord Bridges of Headley Excerpts

Thursday 13th November 2025 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, I start by congratulating my noble friend Lord Elliott on securing this debate, his excellent book and all the work he has been doing on jobs. I also congratulate a number of noble Lords who have spoken, especially my noble friend Lady Noakes for her remarks—which I entirely agree with—and my noble friends Lord Young and Lord Harper, who I will return to in a moment.

When thinking about this debate, I happened to read again the lecture that the then shadow Chancellor, now Chancellor, gave at the Mais lecture last year, in which she promised a “fundamental course correction” for the British economy. As the noble Viscount, Lord Chandos, has just said, it is now 379 days since the Chancellor gave her first Budget. So how is this fundamental course correction going? There is, as I am sure we have all read and seen, a growing sense of instability fuelled by speculation, a lack of confidence in the future, and more people worrying about keeping their jobs—and that is just among members of the Cabinet. Out in the country, it is far worse. The Chancellor herself has said that the UK economy feels “stuck”, and today’s growth figures confirm that.

So why are we in this sorry predicament? My noble friends Lord Elliott and Lady Noakes made a number of points as to why this might be, and I will not repeat them in the time I have. At the top of my list is a point that my noble friend Lord Young made: the Chancellor has lost control of spending. Rather than take the right, but tough, decisions to slow down the spiralling cost of welfare—not even to stop its rise—the Chancellor backed down when Labour MPs said no. She did so despite the fact that, as my noble friend Lord Young said, the Prime Minister says the current system is unsustainable. Spending overall has overshot forecasts by over 4% since the spring of 2024. Adding to the pain is the impact of the misguided £25 billion tax rise on employers—referred to by my noble friend Lady Noakes—that is stoking unemployment and making inflation stickier.

The reason the Chancellor may have to raise income tax for the first time in 50 years—50 years—breaking Labour’s promises, is her “fundamental course correction”. But, as my noble friend Lord Harper just said, the Government refuse to accept any blame or any fault for the situation we are in. As he said, they are blaming everyone but themselves. Everyone knows this is nonsense. Last autumn, the Economic Affairs Committee, of which I was then chair, published a report warning that the Government must rebuild the nation’s fiscal buffer, given the global volatility and risks we face. The Chancellor’s reply assured the committee:

“The Budget took the necessary difficult decisions to put the public finances on a sustainable path—setting realistic plans”—


realistic plans—

“for public spending while raising revenue—to create the conditions for growth”.

She clearly thought she had done enough to rebuild our fiscal defences. She said she had built a fiscal buffer, but, in reality, it has turned out to be a wafer.

A tragedy is therefore unfolding in front of us. With an enormous majority, this Government have the ability to take tough decisions to reform our public services and cut welfare, but they have ducked those tough decisions. The Prime Minister and the Chancellor mouth the right sentiments about growth, stability and security, but their actions undermine those aspirations. What do we see 379 days after their cataclysmic Budget? The fundamental course correction the Chancellor has given us is taking us deeper into the mire. There is insecurity, instability and stagnation—the reverse of everything they promised. The fear is that it will require things to get even worse for the Prime Minister, the Chancellor and the noble Lord to do what they promised last year and give us the fundamental course correction this country really badly needs.

--- Later in debate ---

[Lord Livermore (Lab)]

I do not think I have misrepresented the situation in any way, shape or form. The OBR forecast that around two-fifths of the 4% impact had already occurred by the time the EU-UK Trade and Cooperation Agreement came into force and that GDP will be 2.7% lower by 2025, with the remaining reduction occurring by 2030, meaning the economy will be over £100 billion smaller than it otherwise would have been.

As I was saying, we have also heard from some of the most enthusiastic acolytes of Liz Truss about how to grow the economy, despite the Liz Truss mini-Budget crashing the economy and sending mortgage rates spiralling. I think we have long since abandoned any hope of an apology to the British people from the party opposite for its record on the economy over 14 years, but what is still shocking is its inability to show even the slightest hint of self-awareness for the damage it did to the British economy over the past 14 years or any awareness that that damage continues to scar our economy today, as my noble friend Lord Davies of Brixton clearly set out.

The reality of that record over 14 years is stark, as my noble friend Lord Liddle said. First, there was austerity, mentioned by my noble friend Lady O’Grady of Upper Holloway, which took demand out of the economy at exactly the wrong moment and cut investment, undermining the economy’s ability to grow, and left us ill-prepared for the future. Then a disastrous and tragically misjudged Brexit deal—interestingly, not mentioned by the noble Lord, Lord Elliott, in his opening speech—imposed new trade barriers equivalent to a 13% increase in tariffs for manufacturing and a 20% increase in tariffs for services, reducing total trade intensity by 15%. As a result, as I have said, the economy will be over £100 billion smaller by 2030.

The combined effect of these costly mistakes was devastating. Had the UK economy grown by the average of other OECD countries over those 14 years, it would be more than £150 billion larger today. The previous Parliament was the worst ever for living standards. Inflation hit 11.1% and was above target for 33 months in a row. The noble Baroness, Lady Noakes, mentioned business investment. She may recall that, under her Government, the UK had the lowest private investment levels in the whole of the G7, productivity growth entirely stalled and output per worker grew more slowly than in nearly every other G7 country.

These policy errors, chronic instability and low levels of investment have left deep scars on the British economy, as my noble friend Lord Eatwell set out. As mentioned by the noble Lord, Lord Harper, alongside the forthcoming Budget, the Office for Budget Responsibility will set out the conclusions of its review into the supply side of the UK economy. I will not pre-empt those conclusions today, but the OBR may downgrade the historic assessment of the UK’s productivity and may conclude that the productivity performance we inherited from the previous Government was even weaker than previously thought.

[Lord Bridges of Headley (Con)]

Can the Minister clarify that his argument is that the Government have made no policy errors regarding their economic management over the last year?

[Lord Livermore (Lab)]

I am only five minutes into my speech; let us hear my whole speech before we conclude on that.

The OBR’s productivity assessment will be a look in the rear-view mirror, but the past mistakes of the previous Government do not need to determine our country’s future. While the record of the past 14 years may be even worse than previously realised, it underlines the importance of delivering higher and more sustainable economic growth, which has been the defining mission of this Government since we entered office. The noble Lords, Lord Elliott, Lord Harper and Lord Bridges, and the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, mentioned today’s growth figures. While they are, of course, lower than any of us would want to see, they confirm that the UK was the fastest growing economy in the G7 in the first half of this year and show just how much more there is to do.

We will move further and faster with our growth strategy, set out clearly many times and built on the three pillars of ensuring economic and fiscal stability, reforming the economy and increasing investment. It is welcome that the IMF has said that this strategy focuses on the right areas to increase productivity. This strategy recognises that growth comes not from government but from businesses and investors and that there is a role for a strategic state, not to step back and let businesses fend for themselves, but to act in partnership with business by systematically removing the barriers to growth that it faces.

The first pillar, stability, is the foundation all else is built on. That began with the Government’s first Budget last October. The noble Lords, Lord Harper, Lord Swire and Lord Leigh of Hurley, could not help but mention the £22 billion black hole in the public finances we inherited, which the previous Government sought to conceal from the OBR, but once again—

National Insurance: Partnerships

Lord Bridges of Headley Excerpts

Monday 10th November 2025 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, may I ask the Minister a very simple question? In terms of his definition of a working person, is a partner in a law firm a working person?

[Lord Livermore (Lab)]

I applaud the noble Lord’s attempt at his question. I am not going to comment on individual tax measures right now.

Taxes

Lord Bridges of Headley Excerpts

Tuesday 15th July 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. It was premised on a hypothetical, and I am not going to speculate on the next Budget now. I absolutely understand the issues that she is raising, and I am very happy to take those points back to my colleagues in the Treasury.

[Lord Bridges of Headley (Con)]

My Lords, the Minister has said several times in this Chamber that the Government have no present plans to introduce a tourism levy. Will he repeat the same pledge about a wealth tax?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question, and I should start by wishing him a very happy birthday. I have said what I have said on tax. I am not going to give a running commentary on the fiscal forecast, nor am I going to speculate on tax rises now. As I said, we will do things in the usual way. The Chancellor will ask the OBR to produce a new forecast in the autumn for the annual Budget and will take decisions on that based on that forecast.

Tax on Imports under £135

Lord Bridges of Headley Excerpts

Monday 14th July 2025 Lords Chamber

[Lord Livermore (Lab)]

The Department for Business and Trade has set out our measures to try and prevent that from happening, and it will continue to monitor it, as you would expect it to.

[Lord Bridges of Headley (Con)]

My Lords, broadening the topic on taxation a little, at the weekend the Transport Secretary said that in Labour’s manifesto it committed not to put up taxes on people on modest incomes. Can the noble Lord tell us the Treasury’s definition of a modest income?

[Lord Livermore (Lab)]

The Government have pledged not to increase taxes on working people, which is why we are not increasing income tax, national insurance contributions or VAT.

National Debt: It’s Time for Tough Decisions (Economic Affairs Committee Report)

Lord Bridges of Headley Excerpts

Friday 25th April 2025 Lords Chamber

Moved by

[Lord Bridges of Headley]

That this House takes note of the Report from the Economic Affairs Committee National debt: it’s time for tough decisions (1st Report, HL Paper 5).

[Lord Bridges of Headley (Con)]

My Lords, it gives me great pleasure to open this debate. Let me start by thanking everyone who has come in on this lovely sunny day, and, in particular, the members of the committee for their hard work and commitment over the years in which I was chair. Sadly, I no longer chair the committee, but I have passed the baton to the very capable hands of the noble Lord, Lord Wood, who we look forward to hearing from later. Before I move on, I thank the committee’s clerks, both past and present, our policy adviser and our specialist adviser, Isabel Stockton, and all those who gave evidence to this report. This report showed this House, as I think of it, at its best. It was a great cross-party effort—a team effort—and I thank everyone for all that they did.

The sustainability of our national debt is, in my mind, a central issue of our time. How we manage it and ensure that it remains sustainable touches on almost every aspect of our economy and our way of life. Between the turn of the century and March last year, public sector net debt, excluding the Bank of England, trebled to just under 100% of GDP. This rise was turbocharged by successive Governments’ responses to the financial crisis, to Covid and then to the energy shock. In the past, such a sustained increase happened only during wartime. This time, as our debt grew, so did the conspiracy of silence about it. None of the major parties wanted to confront head-on the economic and social consequences of this rising tide of red ink. Therefore, at the start of last year, the Economic Affairs Committee decided to give this issue the attention it truly deserved by asking a very basic question: how sustainable is our national debt?

Before I go any further, let me define what the committee meant by sustainability. Debt sustainability depends on tax and spending policies which credibly align with expectations for economic growth and the cost of borrowing. It is the trajectory, rather than the level of debt, and our ability to service our debt which should be the principal considerations when assessing debt sustainability. A debt level risks becoming unsustainable if there is an insufficient buffer to absorb future economic shocks, or if a Government’s approach to fiscal policy creates a long-term trajectory of increasing debt service costs.

Looking at our nation’s debt through this prism, our findings paint a very dark picture of our nation’s finances. Our core conclusion was that, without an appropriate fiscal policy that addresses the challenges the UK faces, there is a risk of the debt becoming unsustainable. We stated that if we wish to maintain the level and quality of public services and benefits that we have come to expect, we face a choice: taxes will need to rise, or the state will need to do less. Addressing this will demand clarity as to the responsibilities and role of the individual versus that of the state. Muddling through is not an option. If this choice is ducked in this Parliament, the UK risks being on a path to unsustainable debt.

Why did we come to this conclusion? First, the trends that helped us manage and bring down our debts in the past have been thrown into reverse. We now face what I call the Ds: higher defence spending; the pressure of demographic change; decarbonisation and the green transition; dependency, especially around labour market inactivity and welfare costs; and, of course, the cost of servicing debt itself.

Another reason for our concern was growth. If real interest rates exceed the growth of national income, there must be a primary surplus. In other words, government expenditure, net of interest payments, must be less than government revenue to prevent the debt ratio rising. With growth anaemic, we heard evidence of how the UK risks being sucked into a debt trap. Furthermore, we pointed out that while high net migration has boosted GDP growth, it cannot be the solution to debt sustainability, for it has made little impression on GDP per head.

The third reason for our concern was the structure of our debt. Successive rounds of quantitative easing have seen long-term debt exchanged for short-term debt, and a greater proportion of debt is index-linked and held by overseas investors. This has made the cost of servicing the UK’s debt more sensitive to rises in interest rates and inflation, as well as to sudden changes in investor sentiment. Given today’s geopolitical risks, the Government need a larger fiscal buffer if they are to weather future economic shocks.

Finally, we were concerned about the fiscal rules. We said that rules should hold Ministers accountable for reducing debt steadily, as a proportion of GDP, over time. The concept of a rolling target for debt creates a misleading impression as to the true state of the public finances and hides the need to take difficult decisions to secure debt sustainability in the medium to long term.

Since the report’s publication, we have had a Budget, we have had a Spring Statement, we have seen the impact of other challenges created by another D—this time Donald Trump—and we have received the Government’s written response to our report.

In that response, for which I am most grateful, the following passage stuck out. Let me quote it:

“The government agrees with the … Report that difficult decisions are required to avoid the UK’s debt being on an unsustainable path. The Budget took the necessary difficult decisions to put the public finances on a sustainable path—setting realistic plans for public spending while raising revenue—to create the conditions for growth. This will be supported by the government’s new fiscal rules”.


Let us dissect this passage. First, on the difficult decisions, tax as a share of GDP is going to rise to an historic high in 2027 and remain at that level for the rest of this Parliament. I do not think any of us would dispute that raising taxes to an historic high counts as a difficult decision, but has it put our public finances on a sustainable path and is this course of action creating growth, as the Chancellor’s letter stated?

Let us start with debt sustainability. On Wednesday, the latest figures showed that net debt as a percentage of GDP remains at levels last seen in the 1960s. Looking ahead, the OBR shows that, from 2025-26 to the end of the decade, debt will rise by an average of almost £11 billion more every year. Although public sector net debt is forecast to fall a fraction next year, it will then rise back to 96.1% in 2029-30. Obviously, the Government have changed the definition of debt that they use for their fiscal rules, but, as the OBR states, whichever of the four definitions of debt one uses, all four show debt remaining at historically high levels within the forecast period and show debt to be higher in 2029-30 than in 2024-25.

Next, are the Government creating the conditions for growth, as the Chancellor states? Growth largely stagnated over the second half of 2024 and is now forecast to be 1% this year—half of the October forecast—and that forecast could itself easily be blown off course. I make one point: were bank rates and yields on gilts issued across the forecast both 0.6% higher—this is less than the 1% volatility in 10-year gilts since early October—that alone would be enough to eliminate the minuscule headroom that the Government have to meet their fiscal mandate.

On tax and spending, the OBR assumes that the fuel duty indexation and the reversal of the 5p cut will take place and that unprotected departments’ budgets will be cut. It flags that the proposed welfare reforms are “very uncertain” and that previous reforms have saved much less than previously expected. Given all these uncertainties, the probability of meeting the fiscal target is 54% and the probability of meeting the debt target is 51%.

That brings me to the fiscal rules. The debt target is pinned to the third year in the forecast—a year that continuously moves forward. The Chancellor’s letter states that this

“avoids the need to make sharp policy adjustments in response to small changes in the forecast or economic shocks”.

I do not buy this argument for rejecting our proposal, which was for debt to hit a fixed target in a given year

“unless there are exceptional reasons”.

In other words, economic shocks would be catered for. If small changes in the forecast mean that the Government cannot meet their rule, this suggests that their plan failed to build in a fiscal buffer.

I highlight this key point: the committee proposed that the fiscal framework should show whether the Government have a sufficient fiscal buffer to withstand an economic shock. The Government’s plans show why this is so badly needed. Look at the buffer for meeting the debt rule—it has a margin of just 0.4% of GDP, or £15 billion, in 2029-30. This is not a fiscal buffer; it is a fiscal wafer, so thin and fragile that it will snap at the slightest tap, let alone an economic shock.

The central question in my mind is not whether the Government have taken tough decisions on our public finances but whether the Government have taken the right tough decisions. Yes, the world has changed since we wrote the report, but, back in September, we knew that defence spending was going to have to rise; we knew the pressures that our public services were under; we absolutely knew that, in a volatile world, we had to build up a fiscal buffer to protect us from unforeseen shocks. We knew this, and the committee said so in the report.

I would like to hear from the Minister some answers to some very basic questions about the Government’s approach. First, given that the Chancellor wrote to me on 15 November, saying that her Budget had put our finances on a sustainable path, why did she then have to rewrite her plans in the Spring Statement, just 131 days later? Next, given that the Chancellor wrote in her letter that her Budget had created the conditions for growth, why has the growth forecast been halved? Thirdly, given that the Chancellor has assured us that her Budget has taken the tough decisions to put our finances on a sustainable path and that she is not going to change her fiscal rules, will the Minister repeat the Chancellor’s assertion that she is

“not coming back with more borrowing or more taxes”?

I have a sneaking suspicion that we will not get clear answers to these questions, confirming my fears that, as our report said, we will continue muddling through and not being honest about the scale of the challenges that we face and the impact that they will have on our tax and spending policies, and therefore the risk of our debt becoming unsustainable will continue to grow.

--- Later in debate ---

[Lord Bridges of Headley (Con)]

My Lords, I thank all noble Lords for an excellent debate and their fantastic speeches. The debate has shown this House at its very best and shown why our committee is able to produce such hard-hitting reports. I thank all noble Lords for their very kind words about me, which were entirely unwarranted—I have had enough compliments to last me for several years.

From this debate, it is clear that it is utterly unavoidable that we are living in a world of extreme change and high volatility, that is becoming more dangerous by the day. That said, what has not changed—a number of noble Lords made this point—are the enormous trends and challenges we face, the Ds: debt, demographics, decarbonisation, dependency and defence. All these challenges were in the report. They are extreme challenges. As my noble friends Lord Forsyth and Lord Lamont, and the noble Lord, Lord Razzall, said, these are challenges that merit much more debate than two hours on a Friday morning.

Our approach to them raises enormous questions: ones that fall into the immediate category—those about policy and process—as well as far more fundamental questions of philosophy and belief. Let me briefly touch on what we have covered this morning. On the policies and the processes, as a number of noble Lords said, we face a dire problem with growth and productivity. As my noble friend Lord Forsyth quite rightly said, the responsibility of that falls on this side of the House as much as on anyone else, but we must confront and grapple with these challenges.

Noble Lords spoke about investment in infrastructure. The noble Lord, Lord Horam, spoke about the problems of energy. The noble Lord, Lord Weir, spoke about planning. My noble friend Lord Moynihan of Chelsea spoke about the crushing tax burden and our whole tax system. The noble Baroness, Lady Kramer, spoke about trade. Each one of those is a massive issue. Then there is the fiscal rule, which, as the noble Lord, Lord King, so rightly said, is Augustinian in nature.

Another enormous issue is about how we tackle and treat the concept of borrowing for investment—and today noble Lords could see the kind of debate we have in the Economic Affairs Committee between the noble Baronesses, Lady Wolf and Lady Kramer, and the noble Lord, Lord Davies. There is the question of whether our entire fixation on fiscal rules is overwhelming us and whether we should actually look at the substance of fiscal policy, as my noble friend Lady Noakes and the noble Lords, Lord Macpherson and Lord Burns, said.

Of course, an entirely new approach could have taken: the debt break approach of the Germans and the Swiss, to which the noble Lord, Lord Griffiths, pointed. That leads us on to the role of the OBR. Are we assigning too much importance to the OBR and has it grown too big for its boots?

[Noble Lords]

Yes.

[Lord Bridges of Headley (Con)]

We hear some answers here from our Front Bench, and my noble friend Lord Howell discussed that point. Then there are the further pressures we will face: the noble Lord, Lord Browne, spoke about defence and welfare, and the noble Baronesses, Lady Cash and Lady Grey-Thompson, tackled the intergenerational issues. Each of those points merits debate in itself and deserves to be heard.

What we did not hear today was assurances that taxes will not need to rise further; instead, we heard that the Government are sticking to their course, that they believe that debt is on a sustainable path and that we are able to weather the storm we are in. I dearly hope that I am proven wrong, for I fear that we lack a credible strategy for the problems we face.

That brings me on to the bigger, more fundamental problem of philosophy and belief. If we truly want to tackle these challenges, we need to have a debate about the role of the state versus that of the individual. It boils down to a simple question: do we trust the state to do more to tackle these challenges? In which case, taxes may inexorably have to rise. If so, what will be the impact on our economy, competitiveness and growth? Alternatively, do we take a different course, and do we trust the people? If so, what does that mean for the social contract? Where does the boundary lie between the responsibilities of the state and the individual?

These are enormous questions, which this debate on our report begins to open up. My deep concern is that we will continue to kick the can down the road and not have that debate, because all these challenges—all those Ds—come head-to-head with the other, massively bigger D: the D of democracy. Having this debate—and confronting these challenges—raises the enormous and, at times, tough and unpopular decisions and difficult trade-offs that have to be faced. However, if we do not have this debate, and we continue to try to tackle these problems piecemeal in an incoherent way, I fear that not only will the solutions fail but we will lack the legitimacy to take the action required. As the noble Lord, Lord King, said, we owe it to our children and grandchildren to muster the courage and have the honesty to confront these challenges now, so as to put our debt on a sustainable path before it becomes too late.

Motion agreed.

Competition and Markets Authority Chairman

Lord Bridges of Headley Excerpts

Monday 27th January 2025 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, last weekend at Davos, the Chancellor said that growth trumps net zero. If that is the case, will the Government review and revise regulators’ remits to reflect that?

[Baroness Gustafsson (Lab)]

I thank the noble Lord for his question. As I reflect on my experience in driving investment, I do not think the two need to be mutually exclusive. When I reflect on our successes with driving investment, the green energy sector is a region in which we have seen considerable successes. This does not need to be a choice between one or the other. Executed correctly, there is an opportunity for us to drive growth while supporting sustainable energy initiatives.

Autumn Budget 2024

Lord Bridges of Headley Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, I welcome my noble friend Lord Booth-Smith to his place. I very much look forward to hearing his speech and his contributions.

I will pick up on what my noble friend Lord Forsyth and the noble Lord, Lord Burns, said, and I will focus on one word: debt. Taking a step back, global public debt is expected to exceed $100 trillion this year—about 93% of global gross domestic product. As a number of noble Lords have said, our debt here is sky high, and we need to ensure that it remains sustainable and that we can service it while overcoming other challenges. I have spoken of these before, and they also begin with “d”: defence, demographics, decarbonisation and deglobalisation. As the recent Economic Affairs Committee inquiry into the sustainability of our debt concluded, tackling these challenges means that we must take tough decisions this Parliament—I stress that—if our debt is to be put on a sustainable path. The committee also said that

“to maintain the level and quality of public services and benefits that people have come to expect”,

the choice is between tax rises or the state doing less.

Meanwhile, as so many noble Lords have pointed out, we must ratchet up our growth and improve our productivity, as my noble friend Lady Neville-Rolfe just said. That obviously involves choices—about tax, spending and borrowing. So this Budget was, in so many ways, about how we choose to make our debt sustainable. My position is simple: I trust people to decide what is best for themselves and to spend money as they wish. Like my noble friend Lord Forsyth, I believe that Governments do not create growth; people do. Their hard work, inventiveness and risk-taking are what drives us forward and what Governments should reward and support, not crush. This is the best way to get the growth we need, not just to support the public services we want but to put our debt on a sustainable path.

The brutal truth is that, during 15 years of Conservative government, our record on growth and productivity was not as good as it should have been, as my noble friend Lady Neville-Rolfe said. We can all argue why this was so: we can cite Brexit, Covid and the energy shock. But, as the Chancellor said—here, I agree with her—there is no escaping the fact that we have become a high tax, low growth country. Now is decision time: on that we can agree. We have to choose how to make our debt sustainable while supporting growth.

That brings me to the Budget. As the Minister said, Labour has made its choice. It is there—£70 billion higher spending every year, paid for by historically high levels of taxes, and £32 billion more borrowing every year. We can, should and must hold Ministers to account for breaking their manifesto promises and picking their own so-called tax lock on not raising taxes on working people. But more serious, in my mind, are the consequences of this Budget and what it will do to growth. As has been remarked, after an initial sugar rush, it will lower growth in the medium term, between 2026 and 2027. As my noble friend Lord Lamont said, only some time in the next decade will growth perhaps rise to a sustainable level. When I read the Budget, the only growth I can be absolutely sure of is 5,000 more tax inspectors.

Meanwhile, underlying debt, excluding the Bank of England, rises as a share of national income in every year of the forecast. So, unsurprisingly, the Chancellor did what she said before the election that she would not do: she changed the debt rule to find more so-called “headroom”—which is, by the way, an absurd concept, as if money can be whistled up from thin air. But this is the point: even her new rule is forecast to be met by just £16 billion. That would be wiped out entirely if the Government met their commitment to spend 2.5% of GDP on defence, and it would be wiped out entirely if interest rates or bank yields were 1% higher. If annual productivity growth—which, as I said, we have struggled to improve—were just 0.5% lower, borrowing would rise by £40 billion. Put that together and it is not surprising that, just last week, the OBR told the Economic Affairs Committee that the Budget increases the risk of our debt becoming unsustainable.

So we are on a tightrope, which has become even more precarious after last week’s election in the US. How do we finance increased spending if the US pulls back? How would new US tariffs hit growth? President Trump’s plan is forecast to increase debt by a total of $7.75 trillion. Who is going to buy all that?

Labour promised to turn the page on an era of high tax and low growth. We have turned that page and what do we read? Higher taxes, lower growth. The Government promised to kick-start economic growth. Instead, they have kicked growth into touch. Finally, they said that they would build strong national finances. Instead, they have weakened the foundations, increased the risk of our debt becoming unsustainable and made matters worse.

Bank of England (Economic Affairs Committee Report)

Lord Bridges of Headley Excerpts

Thursday 2nd May 2024 Lords Chamber

Moved by

[Lord Bridges of Headley]

That this House takes note of the Report from the Economic Affairs Committee Making an independent Bank of England work better (1st Report, HL Paper 10).

[Lord Bridges of Headley (Con)]

My Lords, it gives me great pleasure to open this debate. I begin by thanking all members of the Economic Affairs Committee for their time, toil and commitment which went into producing our report, and our excellent clerk, our policy adviser, and our special adviser Professor Rosa Lastra. I also remind the House of my registered interest as an adviser to and shareholder in Banco Santander.

Our report aimed to answer a simple question about the Bank of England: how is independence working? We asked that partly because last year marked a quarter of a century since the Bank was granted operational independence over monetary policy—a decision that signified an enormous transfer of power from elected representatives to unelected officials. Since then, the Bank’s remit has grown. It has undertaken quantitative easing on a massive scale and inflation hit a 41-year high in October 2022, resulting in a loss of public confidence in Threadneedle Street. All this raises questions about the Bank’s accountability and performance. Accountability and performance are different, but clearly related. If an unaccountable body performs poorly, what then? Our committee thought it was time to kick the tyres and learn lessons. Our focus was primarily on monetary policy; we did not examine individual decisions, nor events.

Let me start with the Bank’s overall record on inflation; I stress “overall”. Inflation remained within 1% of the MPC’s target almost 90% of the time between 1997 and 2021. The precise contribution of independence to that record is difficult to quantify—we heard that globalisation contributed too—but we concluded that independence should be preserved for the simple reason, to quote one witness,

“that there is a greater likelihood of interest rates being adjusted for economic reasons, rather than to suit … political objectives”.

That said, we concluded that reforms are needed and I will highlight some of the reasons why.

The first is the Bank’s recent performance on inflation. Like many central banks, the Bank of England mistakenly thought that inflation was transitory. Possible reasons for this include a perceived lack of intellectual diversity in the Bank, as in other central banks, which contributed to insufficient challenge to modelling and forecasts. In particular, our committee was struck by the notable absence of any detailed discussions about money supply in the monetary policy reports. To quote one witness,

“money supply was ignored in a rather foolish fashion”.

The second reason we need reform is what has happened to the Bank’s remit, which, as I said, has ballooned. This complexity risks jeopardising the Bank’s ability to prioritise its primary objectives. The governor told us:

“It makes policy-making more complicated”.


Its sprawling remit risks drawing the Bank into the Government’s wider policy agenda, raising questions about accountability, which I will come on to.

Another reason we need reform is to address the blurring of monetary and fiscal policy thanks to quantitative easing. A powerful tool to combat the monetary contraction after the 2008 financial crisis, QE’s continued deployment since then swelled the Bank’s balance sheet to a record high of just under 50% of GDP and shortened the overall duration of the Government’s liabilities, increasing the vulnerability of the Government’s overall debt stock to movements in short-term rates.

Although the quantum of quantitative easing is a monetary policy decision, decisions on debt duration have consequences for debt management. Furthermore, and crucially, the taxpayer is on the hook for any losses incurred by the Bank thanks to QE. But the deed of indemnity—the contractual document between the Bank’s asset purchase facility and the Treasury—is secret. That all needs addressing.

That brings me to another reason we need reform: accountability. The growth in the Bank’s remit and QE have not been met with a commensurate increase in accountability and parliamentary scrutiny. A democratic deficit has emerged which risks undermining confidence in the Bank and its operational independence.

Given those reasons, we proposed a number of what I consider to be very reasonable steps to address all this. I shall not read out a long laundry list, but they included: pruning the Bank’s remit; reviewing hiring and appointments; a memorandum of understanding which clarifies how the interaction between monetary policy and debt management should operate; publishing the deed of indemnity; and a parliamentary review of the Bank’s remit and operations every five years. Our overarching point was simple: the framework for independence and the operations of the Bank need reform.

What was the response from the Bank and the Treasury? Let me start with our concerns around forecasting and the big issue of groupthink. As many Lords will know, the Court of the Bank of England commissioned the Bernanke review into its forecasting. That review, in itself, shows the benefit of challenge. The review’s findings were pretty scathing of the Bank’s approach to forecasting and recommended changes on which I am sure a number of noble Lords will want to comment. But the review did not go into any depth on the key issue of diversity of thought, for the simple reason that it was not included in the review’s remit. To my mind, this is odd. As the governor himself told us, the models are not like a “sausage machine”, in his words, but reflect people’s judgment. I agree with that; in fact, I would go further: the output of models are not tablets of stone. They might shape decisions, but they should not determine them. What is more, the Bernanke review’s tight remit specifically excluded looking at any past decisions or events, so it was really not set up to ask the basic question: what went wrong, and why?

What is being done to improve challenge and tackle groupthink? In the responses, we are pointed to dissenting votes on the MPC. This is obviously true, but it rather ignores the fact that, between March 2020 and September 2021, when inflation was rising, the MPC was, month after month, unanimous in its view that this rise was transitory. Next, we are told that no review of Bank appointments is necessary, as the Treasury is committed to diversity in public services in its appointments. But what kind of diversity? Is diversity reflected in the recent appointments to the Bank’s most senior positions? Might they suggest that the Treasury is the primary school for the Bank?

We are told that the MPC monitors monetary aggregates, so our recommendation, that there should be an analysis of their relevance to the Bank’s inflation outlook, was rejected. I am conscious that we might fall into the trap of groupthink that there is groupthink. However, having mulled over the evidence that we received, I think that our recommendations are measured, and that the response to them was—to be polite—somewhat defensive.

What of the other reasonable proposals we made, that the remits of the MPC and the FPC should be pruned? The Treasury’s written response states that:

“As both Committees have complex roles, it is right that their remit reflects this complexity”.


But the next paragraph says that it agrees that there is benefit in improving the clarity and focus of the remit letters—something the Chancellor confirmed to us a few weeks ago, when he told our committee that the Treasury “could probably do better” at simplification. However, he then pointed out that, despite his slimming down the remit as regards climate change, climate change objectives

“are bedded into what the Bank of England has to do anyway”.

I find all this slightly confusing, so I have a simple question for my noble friend the Minister: does the Treasury think that the remits are still too complex? Are we at the beginning, not the end, of the process of simplification?

Let me now turn to QE and QT. Both the Bank and the Treasury argue that we do not need a memorandum of understanding to clarify how the interaction between monetary policy and debt management should operate. I beg to differ. The taxpayer is ultimately bearing the risk of QE and the costs incurred, and decisions are being taken concerning huge sums of public money without regard to the usual value-for-money requirements—a position that the Treasury Select Committee in the other place concluded is “highly anomalous”. More clarity is needed.

That brings me to the need to publish the deed of indemnity. The governor told us:

“I could not see anything in it … that I think would excite people if it were published, but it is not my decision—it is the Treasury’s”.


Yet the Treasury’s response says that the document should not be published because it contains “market sensitivities” and

“operationally sensitive information relating to QE”,

which risks

“undermining the transparency of the APF”.

The Bank and the Treasury appear to be at odds on this. In my simple mind, either this document will not excite people, or it contains market-sensitive information which will. Can the Minister tell us who is right—the Governor or the Chancellor? But the bigger point is this: given that the taxpayer is bearing the cost of QE, Parliament should surely be told how the relationship between the Treasury and the Bank works and who is responsible for taking what decisions and on what grounds.

That brings me to the final issue: parliamentary accountability. Operational independence should mean just that: politicians stay out of the Bank’s day-to-day decisions. But how often does Parliament debate the Bank’s overall performance, its remit letters or issues such as QE and QT? The answer is: not much. Our focus here in Parliament is largely on fiscal policy, not monetary policy—the Treasury in the City of Westminster, not the Bank in the City of London. We need to address that democratic deficit. An overarching review of the Bank’s remit every five years, as our committee recommended, would not undermine independence but strengthen it. Such a review could look at one of the other big issues: the inflation target itself, on which we heard conflicting views as to whether 2% is the right target.

Another question a parliamentary review could consider is whether we have the right balance between accountability and independence with regard to the appointments of the most senior Bank officials and their tenure and reappointment. As I said at the start, when things go wrong, does Parliament really have sufficient means to hold the Bank’s leadership to account?

The Bank and the Treasury are staffed by many professional, committed public servants. I certainly do not want to trash either institution, but I fear that the tone of the Bank’s and the Treasury’s responses to our report and its reasonable recommendations reminded me of a policeman at the scene of a crash. Concerned onlookers want to know what has happened and why, but the policeman politely shuffles them off, saying, “Nothing to see here. Just an unfortunate incident. Move along, please”. Well, I am staying put. Yes, operational independence should be preserved, but reforms are needed.

--- Later in debate ---

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, what an outstanding debate. I particularly thank my noble friend Lord Bridges for so skilfully opening it, and the Economic Affairs Committee. So many of its members have spoken today, and I thank them for their contributions, for the thoughtful and detailed way in which they carried out the inquiry and the report on the Bank of England, and for the breadth of witnesses they chose to interview. I am delighted that my noble friend Lord Moynihan of Chelsea chose a Treasury debate in which to make his maiden speech—of course, I am not surprised. He will make a great contribution to your Lordships’ House for many years to come, and we look forward to it.

Price stability is essential for a strong economy and, consequently, strong public finances. It is widely recognised that an operationally independent central bank is the best way to achieve price stability. That is why the UK enshrines the Bank of England’s operational independence in law, with price stability as the primary objective of the Bank’s Monetary Policy Committee. The Treasury and the Government remain committed to not only independence but the objective of price stability, and I am delighted that I therefore agree wholeheartedly with the noble Baroness, Lady Kramer, and the noble Lord, Lord Livermore—not a frequent occurrence in my life—with both Front Benches also wishing to retain the independence of the Bank of England.

My right honourable friend the Chancellor wrote to the chair of the EAC in January this year. It is worth briefly summarising some of the commitments that he made in his letter. At the outset he noted the operationally independent monetary policy, which is so important within the broader macroeconomic framework, and indeed the importance of the separation of fiscal and monetary policy in the effective delivery of monetary policy. The Chancellor noted the negative impacts of inflation on so many elements of society and our economy when it is greater or lower than 2%, and he again resolved not to change the definition of price stability. This aligns with the view of the EAC, but it should also be noted that the Federal Reserve and the European Central Bank have the same inflation targets. The Chancellor also noted the Government’s previous review of the monetary policy framework in 2013, which drew the same conclusions.

The Chancellor went on to note the Government’s commitment to ensuring that fiscal and monetary policy remain aligned to support the Bank’s efforts to return inflation sustainably to 2%. This is in agreement with the conclusions of the committee. This has meant reducing the level of government borrowing in a way that gradually withdraws support from the economy, as demonstrated by the declining path for the cyclically adjusted primary deficit.

On the relationship between the Bank and the Debt Management Office—the DMO, which many noble Lords have mentioned today—the Chancellor noted that monetary policy and debt management are distinct areas with separate mandates and decision-making processes. Given the institutional separation of monetary and debt management policy, in addition to existing public documents clarifying the relevant governance structure, the Government do not consider that an additional memorandum of understanding between the two organisations is necessary to clarify their relationship further.

On the committee’s call—and indeed that of many noble Lords, including the noble Baroness, Lady Liddell, and the noble Viscount, Lord Chandos—for the Government to publish the deed of indemnity, the Chancellor reiterated in his response that the Government would not. The deed contains operationally sensitive information relating to government cash management practices. It is not government practice to release information of this kind, and nor is it in the public interest. However, crucially, the Government are confident that this does not undermine the transparency of these arrangements, given the publication of other relevant reports and accounts, in addition to public comment and costings from the Office for Budget Responsibility, or OBR, on this topic.

[Lord Bridges of Headley (Con)]

Can my noble friend explain why, then, the Governor of the Bank of England told our committee that the publication of the deed of indemnity would not excite people?

--- Later in debate ---

[Lord Bridges of Headley (Con)]

My Lords, this has been an absolutely terrific debate and I thank all speakers who have taken part. In particular, I congratulate my noble friend Lord Moynihan of Chelsea on his maiden speech, and I very much look forward to his further contributions. In passing, I would like to congratulate the noble Lord, Lord King, on moving from looking after the MPC to looking after the MCC, where I am sure he will root out groupthink and shoddy forecasting.

We covered an enormous amount of ground and your Lordships will be delighted, given that I am sure everyone wants to get a very late lunch, that I will not try to repeat it all. I will just summarise what I have heard by saying that I can sense broad consensus—I stress “broad”; there is not unanimity—on four key points.

The first is about independence itself. It is clear from this debate that the vast majority of speakers think that independence should be preserved. Some have questioned its contribution more than others, but as far as I can sense noble Lords think that independence should be kept. On the framework for operational independence, here I sense that there is a consensus that that framework is, as our report stated, under quite considerable strain. A number of noble Lords—the noble Lords, Lord Burns and Lord Turnbull, for example—spoke of the blurring of the distinction between operational independence and policy independence. A number of your Lordships referred to the blurring of the lines between fiscal and monetary policy. Why has this happened? Obviously, we debated that: the remit being expanded, QE and QT and the enormous fiscal and economic impact of that. Therefore, there seems to be consensus that there is quite a significant challenge we need to face on the framework.

The second area where there seems to be consensus is, pretty obviously, that the Bank failed to control inflation in recent years. Again, there was consensus on the need for much more focus on intellectual diversity, not just forecasting—although my noble friend Lord Lamont made a very good speech on that. We need to look at both people and process.

Area number three where I sense there is broad consensus—here I stress “broad”—is about what should be done. Let us just try to divide this up. There is performance: issues that need to be tackled to improve performance. I do not think there is consensus on the remit; I sense from noble Baronesses opposite that there is opposition, obviously, to some of the points that were made in our report. However, I stress—I will come back to this in a moment—that those differing views highlight the need for much more debate and scrutiny of the remit letter. That said, there is consensus that a lot more needs to be done on the hiring and appointment processes within the Bank, and again, for different reasons. The noble Baroness, Lady Bennett, has a different view to mine on this, but I think that we would all welcome that and, again, more scrutiny and accountability are necessary there.

The next area where I sense there is consensus is the need for more transparency and more clarity. I am sorry to have intervened on my noble friend, but I am still completely baffled as to why we cannot have the deed of indemnity published. It is an absolutely critical document. Billions of pounds are at stake here, and I find it very odd that we in Parliament cannot be told the details around the deed of indemnity. I find it extraordinary just simply to be told it is market sensitive when the governor told our committee a very different thing. We will have to return to that. Likewise, I think that there is a need for clarity on debt management. I will not repeat the points there, but I want to stress points made by my noble friends Lady Noakes and Lord Blackwell. It is important that, at times, we take a step back and ask ourselves whether we are absolutely clear as to where our responsibility for fiscal and monetary policy lies. As I said, I think this framework is being challenged. We should not see it as pickled in aspic. We should be courageous enough to ask questions about it, as the noble Baroness, Lady Kramer, said. Challenge strengthens independence.

Finally, therefore, I think that there is broad consensus on the need for Parliament to up its game. Indeed, this debate, lasting three hours, shows the value of constructive criticism and challenge. I note what my noble friend Lord Gadhia said. Of course we need to be mindful of the tightrope between independence and accountability, and to be respectful of what operational independence means. However, that is no reason to say that we should not up our game.

Ahead of this debate, I asked the House of Lords Library to look up how many debates have taken place in this Chamber and the other place specifically on issues relating to the Bank’s performance. How many do we think there might have been over the last five years—10? There has been one in this House on QE, one Private Notice Question and none in the other place. I completely agree with what my noble friend said. There are opportunities for parliamentarians to question the operational framework of the Bank, the remit letters and so on. We are delighted to welcome the Governor of the Bank and the Chancellor to the Treasury Committee—or, in our case, the Economic Affairs Committee—but given the magnitude of the topics that we have been discussing today, enormous issues such as climate change and QE, is that really enough?

We may differ on the role and remit of the Bank, or on monetary policy, but surely we all agree that if we are giving these enormous powers to unelected officials, we need more transparency, more scrutiny, more accountability and more action in Parliament. Overall, reform is needed.

Motion agreed.

King’s Speech

Lord Bridges of Headley Excerpts

Monday 13th November 2023 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, I very much look forward to the speeches by my noble friend Lord Gascoigne and the right reverend Prelate the Bishop of Norwich. I see that there is a pub called the “Lord Gascoigne”, which puts him in a unique and elite clique alongside the noble Lord, Lord Cromwell, and the noble Duke, the Duke of Wellington—sadly, there is no “Lord Bridges” yet, although I live in hope.

Here is a striking sentence from His Majesty’s gracious Speech:

“My Government view with grave concern the economic situation of the United Kingdom about which a full disclosure must be made to the nation”.


This sentence was not what we heard last Tuesday. It was in the gracious Speech of the last King, George VI, in 1951, but it is as relevant today as then. Given the talk about the Chancellor having headroom for tax cuts in the Autumn Statement and the fact that we might hear some good news at last on inflation this week, your Lordships might well ask why I am being Eeyore when I should be being Tigger. I could point to last week’s spluttering, flatlining GDP figures but, worrying though they are, that misses a much bigger picture.

Let us start with our debt. Earlier this year the OBR said:

“The 2020s are turning out to be a very risky era for the public finances … This rapid succession of shocks has … pushed government borrowing to its highest level since the mid-1940s, the stock of government debt to its highest level since the early 1960s, and the cost of servicing that debt to its highest since the late 1980s … UK … borrowing costs have risen more than in any other G7 economy … The rise in global interest rates has fed through to the UK’s debt servicing costs more than twice as fast as in the past or elsewhere”.


Debt is just one of the challenges we face. We have heard of others: demographics—our ageing population; decarbonisation, as the noble Lord, Lord Stern, mentioned; digitalisation, the need to retrain and skill our workforce; and defence, the need to strengthen our Armed Forces. These are the five Ds—the challenges that loom over all our debates. Let us consider what these challenges will mean for the public finances, not off in some distant date in 2050 or suchlike but in the life of the next Parliament. According to the OBR, the little list of greening our power, buildings and industry, increasing defence spending and higher health-related welfare benefits will alone cost about £40 billion a year of extra spending. That is before we get on to other topics, such as debt interest.

Some say that this spending is inevitable. I have heard it said many times over the last few months that our government will grow and that we are back in an era of big government. This is therefore an acceptance that we will have to pay more taxes, so that the Government can do more. That is a respectable argument, and many in this House will make it. I profoundly disagree with it because it suffers from a fatal flaw; the only way we will be able to overcome these challenges is to become more productive and more attractive for investment so that we grow more. If we do not grow, we will not be able to pay for the public services we all want. The road to growth is not paved by bigger government and higher taxes, yet I very much fear that this is the path we are on.

Too many people, particularly after years of QE, think we inhabit a forest of magic money trees in which the Government have the ability to spend their way out of any national disaster and to pick up the Bill for any personal misfortune. Too many people believe that government can, should and must regulate and legislate to stamp out or at least mitigate risk and bail out business failures. I strongly believe that, if we want to encourage the enterprise and innovation that power growth, this approach and mindset—I stress that word—are unsustainable. While a tax cut may cheer some this week and while there are some measures in this gracious Speech that I might be able to support, I fear that we are in danger of lulling ourselves into a false sense of security and that we are not rising to the challenges.

We need a coherent strategy to confront those five Ds, and it must ask and answer a very basic question: what do we want the state to do? What is the state’s responsibility and where does the responsibility for the individual lie? For that debate to happen, we need full disclosure about the state we are in and the precarious nature of our finances. Without that brutal honesty, we will stumble and stagnate. In the words of His late Majesty George VI, this overshadows “all other domestic matters”.