Spring Forecast Statement
Lord Hintze Excerpts(4 days, 18 hours ago)
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Lord Hintze (Con)
My Lords, let us examine the Chancellor’s Statement from a slightly different perspective. We are told that welfare spending will increase by roughly £18 billion. If I understand the figures correctly, that is approximately 0.63% of GDP. We need always to think about things relatively, and 0.63% of GDP is serious. I would be grateful if the Minister could confirm the precise number for the House.
We hear much from the Government about total GDP growth, which I suspect is political expedience, but total GDP, important though it is, does not tell us whether the people of this country are becoming more successful and resilient. For that, we must look at GDP per capita. If overall growth is 1.1% but population growth is 0.7%, then GDP per capita is rising only by 0.4%. That is the figure that matters for living standards and that is the figure that the current Government prefer not to dwell upon. If prosperity per person is rising by only 0.4% while welfare spending alone is increasing by something closer to 0.6% of GDP, then we are entitled to ask whether the country is moving forward at all or merely moving sideways. The House deserves a serious answer.
I ask the Minister now: why do the Government speak so often about the gross size of the economy yet say so little about the prosperity per head? Do they not accept that the true test of economic policy is whether living standards are rising? Are we, in fact, entering a transfer economy or a growth economy—an economy that supports all or supports the few? If we are entering a transfer economy then we will simply fail in the long term, as many socialist economies have failed previously. If we fail, we will hurt the poor, the vulnerable and the striving middle class disproportionately. By definition, business growth is what can bail them out—not individuals, not Governments and certainly not capital seizure, as we are seeing in some of these confiscatory taxes on pensions.
Of course no one in the House disputes the duty to protect those who are vulnerable. A civilised society must support those who cannot support themselves, but a welfare system should enable people, not simply leave them indefinitely outside the labour market. It should be, as was always intended, a safety net—not a lifestyle or a way of life. That means investment in education, healthcare and mental health support, and incentives to get back into the workforce. That is the real welfare: a job. The answer cannot be to accept even greater levels of long-term economic inactivity as though it were inevitable and simply a feature of modern life to be managed rather than challenges to be met.
At the same time, Governments of all complexions have not used the resources of the state as effectively as is prudent—“squandered” is the word. I would be less troubled by a rising tax burden if it were clearly strengthening the nation and reinforcing our resilience, capabilities and security in this more dangerous world. For years, there has been an ongoing failure to invest adequately in defence capabilities. We can see now how seriously they are required. Not to invest in them is not only dangerous but irresponsible. It weakens the country and us as a nation. I will be very clear—I said this in my maiden speech—that soft power without hard power is no power at all. It is all very well to have the sledgehammer of a nuclear weapon, but not every nail deserves a sledgehammer.
You need growth to maintain these things. Without growth, we simply get poorer. Are we building an economy in which both the nation and its citizens grow stronger together or are we purely establishing a transfer economy? I am sure the Minister understands, because he is a very well-educated man on economics—that is very clear to me—that any transfer has zero economic value. In fact, if you look at it under the transfer theorem, it has a negative value.
If the economy grows but we stymie capital growth and the success and prosperity of individuals, then we are in trouble. If the headlines improve but the lives beyond them do not—if the numbers flatter but the reality does not—then we are witnessing not economic success but an economic illusion. However artfully illusions are maintained for political purposes, they do not have a habit of lasting; rather, they fail and hurt us in our quest for economic effectiveness for the nation. This is not a political point; it is a point of good economics.
Autumn Budget 2025
Lord Hintze Excerpts(3 months, 2 weeks ago)
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Lord Hintze (Con)
My Lords, at a time of profound fiscal pressure, the question before us is not how we slice the pie, but whether we are expanding it. A responsible Budget must be grounded in economic reality. Incentives matter, savings matter, and what truly determines whether our citizens are becoming better off is growth per capita, not headline GDP; to do otherwise is misleading. I ask the Minister to consider the analysis. We can think about growth only as growth per capita. The 1.5% to which he alludes is more like 0.3%—if we are lucky. Without understanding what the proper economic drivers are, we cannot have proper policy formation. This is not a political point; it is a point for policy. To that end, I ask the Minister to please consider that if we fail to support those who produce, invest and innovate, we endanger the very foundations on which fairness and opportunity rest.
I turn to the economic principles that illuminate this challenge. These are principles we can work with. One of the most influential contributions to modern economics comes from the British Nobel laureate, Sir James Mirrlees. The noble Lord, Lord Eatwell, talked about him earlier. He was very effective in the IFS and looking at British tax policy 2006-11. His seminal work in 1971 on the theory of economic transfers and optimal taxation demonstrates a simple but profound truth: redistribution changes incentives. Incentives matter. When marginal taxes rise sharply, high-productivity individuals reduce effort, invest less or relocate their activity beyond the UK. Recent examples, such as the relocation of wealth creators such as Mittal, are not ideological anecdotes but precisely the behaviour that Mirrlees predicted 50 years ago. It is a principle. As a nation, we are poorer for these people leaving—not just billionaires but the young strivers who are leaving these shores to make the UAE and other places in the world richer, not us.
Likewise, when transfers become too generous relative to wages, labour participation falls. Anyone attempting to take a train on a Sunday—we all do—encounters the resulting shortages. It is a clear expression of weakened incentives in essential services. I could go on, but please can the Minister think about that: this is economics at work.
These pressures are compounded when the state grows beyond its optimal scale. The Scully curve, demonstrated through strong academic analysis by Gerald Scully in 1989—this is an old piece—shows that excessive government activity suppresses growth. A larger state requires higher taxation, which reduces the savings that form the pool of capital for investment and innovation. When the state crowds out capital formation, it crowds out the future—our children’s future. I suspect that what we are seeing in our world at the moment is that crowding out.
This argument is for fairness for working people, savers and innovators. Fairness must also protect the fragile in our society. The elderly, the sick and the disabled cannot simply “adjust incentives”; they depend on a state strong enough to provide support, yet disciplined enough to ensure that that support is sustainable. When our growth falters, it is the most vulnerable who suffer first. Thus, the defence of our fragile citizens is inseparable from the defence of economic growth.
Forthcoming Fiscal Changes
Lord Hintze Excerpts(3 months, 3 weeks ago)
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Lord Livermore (Lab)
Why do we not just compare their records? Where the previous Government delivered the slowest projected growth in the G7, growth in the first half of this year was the fastest in the G7. Where they presided over the worst Parliament ever for living standards, living standards have increased by 2.1% since the election. Where they oversaw the worst pay growth in a century, real wages grew more in the first 10 months of this Government than in the first 10 years of the previous Government. Where they continually cut capital spending and deterred investment, we are investing for the long term, with £120 billion extra over the next five years. We will continue to rebuild the economy after 14 years of failure from the party opposite.
Economic Growth
Lord Hintze Excerpts(6 months ago)
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Lord Hintze (Con)
My Lords, what analysis has been done between tax rates and the growth rate? Ignoring that ignores the effects of the Scully curve and crowding out in the economy.
Lord Livermore (Lab)
The points the noble Lord makes are perfectly fair. Obviously, the Chancellor has to balance at any fiscal event the importance of fiscal responsibility and sustainability and the need to grow the economy. She will do so in the forthcoming Budget in the way that she always does.
Tax on Imports under £135
Lord Hintze Excerpts(8 months, 1 week ago)
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Lord Livermore (Lab)
I think that is a fair definition of that phrase, yes.
Lord Hintze (Con)
My Lords, I have a question to the Minister: why are we always talking about taxation and not being more efficient with our spending?
Lord Livermore (Lab)
We have just completed a zero-based review of the whole of government spending. If the noble Lord has areas of spending that he would like to cut, I am very happy to hear them.