Budget Statement

Lord Eatwell Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, I am sure the whole House is grateful to the noble Baroness, Lady Penn, for introducing this important debate. We all look forward with interest and, as a professional economist myself, some excitement to the maiden speech of the noble Baroness, Lady Moyo.

The Minister who delivered this Spring Budget in another place bears the title of the Chancellor of the Exchequer, but this title does not adequately reflect Mr Hunt’s role. His real title should be the Minister for mitigating disastrous Tory economic policies. He is “The Mitigator”, a role that becomes ever more important as every parliamentary Session brings forth yet a further Conservative economic blunder.

We all recall Mr Hunt’s noble labours in reversing the appalling damage done to Britain by the Truss/Kwarteng economic regime—damage that still resonates in every mortgage holder’s higher current and/or future monthly interest payments. Now, in this Budget, he is reversing the damaging decision taken by Conservative Chancellor George Osborne in 2012 when he first cut the pension lifetime allowance and then cut it again in 2014—and it was cut again in 2016. The result, as Mr Hunt made clear, has been damaging not just for the NHS but for the availability of skilled, experienced professional expertise throughout the British economy. But, being a good Tory, even The Mitigator could not resist doing his own little bit of wasteful spending. Instead of a balanced increase in the LTA, he abolished it altogether, thus handing up to £1 billion to the wealthiest. The champagne corks were popping in the City. When she sums up, will the Minister tell us the Treasury’s full estimate of the cost of this excessive giveaway, including the cost of consequential losses in inheritance tax revenues?

These blunders are perhaps not the most serious that Mr Hunt has had to contend with. Contrary to the Minister’s rosy scenario, in the first half of 2010 the policies of Chancellor Alistair Darling had resulted in the economy growing at an annual rate of 3%, and the economy was set on the path of sustained recovery from the global financial crisis. In June, the newly elected Conservative Chancellor killed that recovery stone dead. Austerity cut demand, inflicted damage on social services, education and the health service and, by generating an aura of all-pervading economic pessimism, led to cuts in investment and growth in the private sector too. The next time a school or hospital is closed because the roof is unsafe or necessary equipment is lacking, remember Austerity George. It is no wonder that Mr Hunt is so keen to project his personal optimism.

Mr Hunt is also struggling with the consequences of the next huge Tory economic disaster: Brexit. I am well aware that Brexit was not just about the economy, and we can argue about the role of sovereignty in all aspects of our national life and whether there was a price worth paying. But, as an economic policy, Brexit has seriously damaged the country’s economic health. Noble Lords will recall that, after three years of austerity and with a general election on the horizon, economic conditions were eased by Mr Osborne and in 2013 business investment began a significant recovery. Then Brexit dealt business investment to blow from which it has not recovered to this very day. Having grown steadily as a share of GDP from 2013 to 2016, following the Brexit vote business investment fell year on year. Even with the incentive of the superdeduction in place, it is back to the austerity-induced levels of the end of 2012. As the Office for National Statistics has pointed out, the UK has the lowest average private sector investment as a percentage of GDP of any G7 nation. How ironic to hear Mr Sunak congratulating the people of Northern Ireland so enthusiastically on the extraordinary and unique economic advantages they will enjoy as members of the UK market and the EU single market. Perhaps the Minister will tell us when she sums up why what Mr Sunak declares to be so good for Northern Ireland is not good for England, Wales or Scotland.

The Mitigator, Mr Hunt, has correctly identified his task as reversing this sad tale of Tory low investment and consequential low productivity. With the end of the superdeduction cutting business support by £10 billion a year, he has introduced full expensing, which will increase business support by £9 billion. So, while incentives are not up, they are down by only £1 billion a year. Unfortunately, the new incentives are scheduled to last for only three years. As the IFS commented,

“the fact that this change is temporary and only announced now is most definitely not welcome. Today’s announcement is just the latest in a long line of changes and temporary tweaks. There’s no stability, no certainty, and no sense of a wider plan”.

Contrary to what the Minister said about the burden on companies falling, this April sees an increase in corporation tax of around £14 billion a year. When she sums up, will the Minister confirm that, as a result of this Budget, British business is now worse off by a total of around £15 billion a year? There will be no champagne corks in the boardrooms of British industry.

The other flagship scheme, the 12 new investment zones, will be good news for the successful zones but bad news for everywhere else. Long experience demonstrates that such schemes shift investment around the country without any significant impact on the overall figures. They simply shift the deckchairs. Against the new £15 billion burden on industry, the extra £1.8 billion help to

“cutting-edge companies who … are turning Britain into a science superpower”,—[Official Report, Commons, 15/03/23; col 840.]

to quote the Chancellor, welcome as it is, sounds distinctly underpowered.

Creative superpowers are built on a firm foundation of high-quality education and skills, yet where are the measures in this Budget to foster the high-wage, high-skills economy Mr Hunt seeks? What has he done to mitigate the disaster of Tory education policies? School spending per pupil in England fell an average of 9% in real terms between 2009 and 2019. According again to the Institute for Fiscal Studies, the Tory squeeze on educational resource is

“without precedent in post-war UK history”.

The result is that England is today one of the very few OECD countries where the young have worse literacy and numeracy skills than 55 to 65 year-olds. The Government have also cut adult education by half. Against this, the impact of the announced midlife MOTs and returnerships are drops in the ocean. Is it any wonder that this country has such a skills shortage?

However, instead of focusing on skills, The Mitigator focuses on numbers by providing a package of measures aimed at increasing labour market participation. The OBR costs this package at £7.1 billion. It estimates the increase in labour force participation as a result to be 110,000 people: that is, £65,000 for each extra person joining the labour force. At the same time, the OBR forecasts that trend unemployment will rise by more than 130,000. All this is in a labour force of 35 million. There is not much mitigation there. Of course, the investment in childcare is to be heartily welcomed. However, when she sums up, I would be grateful if the Minister would comment on the Sutton Trust’s estimate that, given the way in which the scheme is designed, 80% of the poorest families will be unable to access the childcare they need. Is the Sutton Trust right? In the medium term, once some of the restrictions built into Mr Hunt’s scheme have been removed, the provision of high-quality childcare will indeed herald a welcome advance in British society, extending opportunity, particularly to women, and providing greater security for poor families that need both partners in work in order to get by.

Falling real incomes define today’s economy and falling living standards blight today’s society. As the OBR notes, the 5.7% fall in real household disposable income over the next two financial years will be the largest two-year fall since records began. Even five years hence, in fiscal 2027-28, the OBR states that living standards will still be lower than pre-pandemic levels. This dismal outcome is of course due primarily to the increase in the price of energy and other tradeable goods, but is made even worse by the freezing of tax thresholds by Chancellor Sunak. The Sunak freeze ensures an extra £500 in tax for basic rate taxpayers in 2023-24 and an extra £1,000 in tax for higher-rate taxpayers—and yet more in subsequent years. Once again, matters would be worse if Mr Hunt had not mitigated the costs with the extension of the energy support measures and the commitment to increase social security benefits in April by the rate of inflation.

The problem is that mitigation is not enough when, as the Resolution Foundation pointed out this morning, the Budget leaves many government departments facing 10% real-terms cuts; it is not enough when living standards decline; and it is not enough for the Chancellor to be focused solely on mitigating the mess left by all his Conservative predecessors—with the notable exception of Nadhim Zahawi, who, perhaps fortunately, did nothing.

The chairman of Legal & General commented last week that Britain is a

“low-productivity, low-growth, low-wage economy fraught by political infighting and that has to change”.

He added:

“We need a massive step-up in investment in the UK”.


He was right. He could have added that low growth equals high taxes, even as public services deteriorate.

What was totally absent from the Budget was a medium-term strategy to turn Britain around that did not focus just on tax and spend but embodied fundamental institutional reform to link invention to innovation to investment in the skills and technology of the future. Without that institutional commitment, we will not see the investment in growth that Britain desperately needs. That is what is happening in the United States, but it is not happening here. As the clean technology race between the US, the EU and China hots up, the lack of any substantive UK response is chilling.

The result of 12 years of economic mismanagement has been stagnating productivity, the worst post-pandemic growth in the G7, higher taxes drained from a population suffering record falls in living standards and a shrinking labour force squeezed by the high cost of going to work and by long-term sickness unmitigated by an increasingly desperate NHS. However, accessing his inner Monty Python, Mr Hunt claimed this morning that he is setting out a long-term plan to make us

“one of the most prosperous countries in Europe”.

Always look on the bright side of life.

As a long-serving Conservative Health Secretary, Mr Hunt is accustomed to managing decline with an optimistic smile, always looking out for opportunities to mitigate the pain wherever he can. But mere mitigation is not what Britain needs. Britain is in a hole, and Mr Hunt can claim credit only for having slowed down the digging.