Fortifying the Fiscal Framework (Economic Affairs Committee Report)

Lord Liddle Excerpts

Tuesday 3rd November 2026 Grand Committee

Moved by

[Lord Liddle]

That the Grand Committee takes note of the Report from the Economic Affairs Committee Fortifying the fiscal framework (4th Report, HL Paper 291, Session 2024–26).

[Lord Liddle (Lab)]

This is the second occasion since being appointed chair of your Lordships’ Economic Affairs Committee that I appear before you as something of an imposter. The report that we are debating today was prepared under the guidance of my predecessor, my noble friend Lord Wood of Anfield. Having done his bit in this role to save Britain from bankruptcy, he is now more than doing his bit in the Foreign Office under Ed Miliband, so we wish him well.

It is also my pleasant duty to thank the officials who contributed so much to the report before your Lordships today—most of all, the staff of the Committee, Dervish Mertcan, James Parkin, Neil Mellor and our clerk, Matthew Manning, whose balanced judgments shine through its pages. I also thank those who served on the committee when we took most of the evidence for this report and have been rotated off since. A particularly brutal eight members were removed at the new year. I thank those members who have turned up to this debate—and I thank the three current members of the committee, the noble Lords, Lord Burns and Lord Razzall, and the noble Baroness, Lady Wolf, for participating in it today.

In preparing this report, we had the benefit of advice from two former Permanent Secretaries to the Treasury, the noble Lords, Lord Burns and Lord Turnbull. I am glad to see that the noble Lord, Lord Macpherson, is speaking today as well. Outsiders criticise the House of Lords, but what other institution in British life could boast that advice on its deliberations?

Fiscal policy is at the heart of our politics. Two key facts about it despite stand out and are rarely remarked upon. First, the OBR, the Office for Budget Responsibility, last July projected that if one simply rolled forward present trends, debt as a share of GDP would be about 270% by the early 2070s. Needless to say, witnesses in our inquiry were clear that that debt level could never in practice be achieved because the markets would stop lending to the Government well before that level was reached. The bond markets would have done their much-maligned job, especially as in Britain’s case—unlike, say, with Italy or Japan—as I think Mark Carney once said, we depend on the kindness of foreigners to fund our borrowing.

The 2070s may seem a long time away, but when I think about it, 50 years were not a particularly long time away for me. When I first started working as a special adviser in the Callaghan Government, in the midst of the IMF crisis, I would wonder whether my job would last more than a couple of months—that was 50 years ago.

The second key point that is rarely mentioned is that debt interest currently accounts for one in every 13th pound spent by the Government. We spend more servicing our public debt than we do on either education or defence, and it is nearly half what we spend on health. These are enormous numbers. A few weeks ago, I introduced the debate on our report on the demographic challenges of an ageing society. I strongly support our new Prime Minister’s ambitions for a radical reform of social care. In my view, it is fundamental to a decent society, and I admire his courage in deciding to reform the triple lock in order to help pay for it. We all know that social care is a huge commitment for the future. We also know that we have huge, unavoidable but as yet unfunded commitments on defence, which in a dangerous world we simply must meet. But in meeting those targets, let us remember that 270% figure which hangs over us on present trends.

This is why the framework within which the Government set fiscal policy is an essential ingredient ensuring that Governments can set themselves on the path towards sustainable borrowing. Our report looks at two elements of that framework: the fiscal rules themselves, which Chancellors loudly proclaim as non-negotiable; and the institution responsible for assessing the Government’s compliance with them, the much-maligned Office for Budget Responsibility.

On the rules, my personal feeling is that Chancellors protest too much. There is some benefit to the Government sticking to the existing rules, but the rules themselves have been shown to be eminently gameable. Debt is invariably shown to fall as a percentage of GDP in the final year of the plan, and the claim of sticking to the rules has limited value if the spending assumptions for the final years of the fiscal plan are of extremely dubious credibility. The risk of gaming was particularly high when the timescale for meeting the fiscal rules was set at five years. Meeting the rules depended on spending assumptions five years ahead that were unspecified.

The present Government—they are my Government and I support them—have, to their credit, shifted to a three-year rolling target to demonstrate a falling public debt to GDP ratio. I dare say Sir Humphrey would have described this as a brave decision because it means that, from now on, the commitment to lower the debt to GDP ratio is aligned with the Government’s three-year public spending plans, and, in our case, they have to be decided next year. This year’s Red Book implies that the Government’s plans for unprotected departments—that is, other than defence and health—would face real-term cuts of some 2.5% in order to meet that target. If I were a Labour Back-Bencher in the Commons, which I am glad I am not, that commitment might cause me a few uneasy nights of lost sleep. But the whole approach to policy remains Augustinian: we are promising to be fiscally prudent, but just not quite yet.

The committee was also generally concerned with the relentless yearly focus on whether the Government have met the short-term rules for so-called headroom rather than the long-term trends, which are more important. In report after report, the OBR has clearly set out the trajectory for debt; it is manifestly unsustainable but no one seems to take any notice. The Government are ignoring this, and we as a committee were concerned that there is a lack of attention to the annual Fiscal Risks and Sustainability report that the OBR produces. Parliamentary time should be set aside for discussing the Government’s response to this report.

Perhaps one reason for the reluctance to do so is the increasingly meagre content of the response that the Treasury provides. Richard Hughes—the chairman of the OBR before, unfortunately, he had to resign—noted that the Government’s response in 2017 was 136 pages of argument, while the most recent was 19 pages, and it was in the form of a Written Statement to Parliament, which of course was never debated. That is not good enough for such a serious matter. Our committee will do what it can to draw greater attention to the Fiscal Risks and Sustainability report. We will invite the OBR and Ministers to give evidence to our committee each year following its publication. The long-term health of our economy turns on Governments grappling with the issues that the OBR repeatedly highlights.

On the OBR more generally, we welcome the change in tone of the rhetoric that was previously unfairly targeted at it. In contrast to some claims, the OBR does not police government policy; it is merely an impartial judge of the Government’s compliance with rules that they impose on themselves. The Government are always free to disagree with the OBR assessment and make their policy accordingly, if they want to. We also welcome the OBR’s approach to forecasting. Projection is not prediction, and confusion on this point underlies misguided attacks on its work.

We heard of the frustration of some at the OBR not scoring the impact of tax cuts or public investment on its growth numbers, but if the Government genuinely believe in the value of a policy, they should implement it whether or not the OBR chooses to score it. Not to do so because of its approach to scoring would be to reveal a concern with meeting a metric rather than promoting the actual well-being of the economy. The Government should be making policy on the basis of their considered view of the economic fundamentals, not on the basis of what they think will lead to narrowly passing rules that they have imposed on themselves.

In particular, the focus on headroom, and how specific decisions of the OBR affect the result of the headroom calculation, are a product of narrow margins. Between 2010 and early 2022, headroom averaged about £30 billion. One might worry that, with headroom in this October’s Budget now falling to £15 billion, we are returning to a world in which OBR decisions about scoring will again be politicised. These decisions should be dry matters, more suited to footnotes in documents than headline news stories. The amounts that we are considering are, in terms of public spending and borrowing, rounding errors compared to the Government’s total tax and revenue spending. Although we accept that buffers are there to be used in tough times, those buffers should arguably be a lot greater than they are.

Sadly, the fundamentals of our fiscal position remain difficult, and nothing in the Budget last week suggests any meaningful change in the country’s long-term debt dynamics. I am expressing a personal view here, but fiscal sustainability is not just a matter of the scale of public spending and taxation. Personally, I want the Government to throw everything they can at growth; in my book, that must include rejoining the European single market. I want a simpler, radically reformed tax and welfare system that removes the multiple disincentives to work with which we have ended up. I would like to see a much sharper focus on public sector efficiency, where the public sector trade unions recognise that the only sustainable route to higher wages lies in greater public sector productivity.

The fact is that the public finances are on an unsustainable path. Apart from the Government’s brave decision on the triple lock, which I applaud, it is unclear how we are going to address this situation. The Prime Minister says that he is in favour of radical reform of our politics and electoral system to bring more consensus to our politics. Perhaps that is a fundamental change; we will have to see. I beg to move.

--- Later in debate ---

[Lord Liddle (Lab)]

My Lords, I thank the Minister for an excellent response to the committee’s report. I also thank the Members who have contributed, who have all had something very interesting to say; that is not what you often get in the House of Lords, but every contribution has been of great interest. I will not talk for long, because the noble Lord, Lord Wilson of Sedgefield, will be glaring at me about how we have to terminate this debate. However, I want to say just one thing about fiscal rules.

In the 1990s, when Labour was trying to make itself credible under Gordon Brown and Tony Blair, I remember having long discussions with Brown and Ed Balls about the fiscal rules. There was this wonderful, simple idea that we came up with: we will borrow only to invest. I think that that is a good rule and principle; obviously, you need to take account of Keynesian fluctuations in the economy et cetera, and perhaps some social investment is justified, but you have to be careful that that does not become just a means of extra borrowing.

I disagree strongly with my noble friend Lord Sikka, who seems to think that you can get away with 300% borrowing to GDP or something of that kind—I do not know what he said. I would say to him that my kind of social democracy, and the reason I supported toughness in borrowing only to invest, comes from what I learnt from Sweden, the most successful social democratic country in Europe, which had always pursued a fiscally responsible policy—except for a period in the 1990s when it got it very badly wrong, and it knew it had got it badly wrong. The truth is that, if you get into a fiscal mess and you have a crisis, it is precisely the working people who you claim to defend who suffer most. That is the myth of the left, which is wrong, and we must have a sensible approach to these questions.

[Lord Sikka (Lab)]

My Lords, do I have a moment of reply, since I have been accused? Indulge me, please, because I have been incorrectly represented.

[Lord Liddle (Lab)]

No, not at all. He has not.

Government Debt

Lord Liddle Excerpts

Wednesday 16th September 2026 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords—

[Lord Liddle (Lab)]

My Lords—

[Lord Markham (Con)]

My Lords—

Spring Forecast Statement

Lord Liddle Excerpts

Tuesday 17th March 2026 Lords Chamber

[Lord Liddle (Lab)]

My Lords, I echo the tribute from the noble Lord, Lord Bilimoria, to the noble Lord, Lord St John of Bletso, and pay tribute to his wonderful public service to this House over many years.

This year, I had the great privilege of chairing a Select Committee for the first time, the Finance Bill Sub-Committee, which examined the measures in this finance Bill relating to inheritance tax on pensions and agricultural and business property reliefs. We worked quite hard. We heard evidence from 33 witnesses and accepted nearly 200 written submissions. I thank the fellow members of that committee, one of whom is sitting on the Front Bench opposite, the noble Lord, Lord Altrincham, but I particularly thank the noble Lord, Lord Leigh of Hurley, who is not in his place but who brought up lots of questions that the rest of us might not have thought of.

While we were pleased to see that the Government have made changes to their initial proposals on inheritance tax, our report raised significant concerns about how these measures would work in practice for personal representatives, businesses and farms. A particular concern is that about personal representatives as a result of unused pension funds being brought for the first time into the scope of inheritance tax. The Government told us that this would be just an extension of what personal representatives have to do when people die. However, we heard that the reality will be very different.

Pensions simply do not fit well in the framework of inheritance tax. There are contradictory timelines, imperfect information and conflicting responsibilities; all these put personal representatives in a very difficult position. Even the most diligent of them risk being charged high-interest late payments by HMRC for not getting the stuff done on time. Worse, I think that many people are unaware that these changes are coming; they are going to hit them hard at a time for many of great personal grief.

For agricultural and business property reliefs, we raised concerns that family businesses and farms will face significant administrative burdens, especially when valuing their estates. Many of these businesses, as our witnesses explained to us, tend to be asset rich and cash poor, so there is a real problem about where the money is going to come from. It was disappointing and concerning that the Government did not appear to have properly considered the liquidity challenges which estates will face as a result of these changes, and the impact they will have on the viability of businesses and farms. As someone who comes from Cumberland, I am very concerned about the impact on farming but also on family businesses, which are one of the really strong points in our community.

We made a number of recommendations in our report about how the Bill should be amended, in particular to extend the inheritance tax deadline. The report also has important recommendations that the Government should take forward once this Bill has passed. They must act quickly to raise awareness of the impact of the pensions reforms for personal representatives and prioritise arranging guidance and practical support. More broadly, we think that the Government should review their approach to tax policy-making. We saw the repeated redesign of these policies, with three or four changes before we got to the present, and the serious impact this uncertainty has for those affected. I look forward to the Minister’s response to our carefully considered report.

Personally, I want to make it clear that I think that wealth should be taxed more strongly than it has been. We have seen in the last 15 years great growth in wealth, at a time when most people’s wages have been stagnant. The question is how you do it properly. The best way for the Government, and they have started down this road, is to think about how we tax property more efficiently than we have in the past. I welcome the measures on the taxing of wealthy property, but if those were extended, it would give us the opportunity to get rid of or mitigate the very high levels of stamp duty, which are economically efficient in deterring people from moving house.

We have also—I am speaking from this side of the House as someone on the left of politics—got to be careful that, in taxing wealth, we do not discourage enterprise. This is very important if we are going to get the economic growth we need. We must have a society where entrepreneurs can make themselves wealthy. A lot of people always say, “Oh, the pity is that we do not have the Mittelstand as they do in Germany”. It is a great pity that we do not have a range of companies that are family owned, where people are the committed owners of those companies. But the truth is also that in Germany many of the families that own Mittelstand companies are extremely wealthy. Therefore, a balance has to be struck between taxing wealth and promoting enterprise, and we should always remember that.

Economic and Taxation Policies: Jobs, Growth and Prosperity

Lord Liddle Excerpts

Thursday 13th November 2025 Lords Chamber

[Lord Liddle (Lab)]

I open by congratulating the noble Lord, Lord Elliott, on an extremely well-argued speech—even politically balanced, at times. It was a complete contrast to the barrage of criticism that we have had from the Opposition Benches throughout this debate. It was not quite clear to me who the barrage of criticism was directed against. Is it against the 17 months of Labour Government or against, in the 17 years since the financial crisis, the 14 years in which all these people here were in power and had the opportunity to do something about the problems that they now complain about?

We know where we ended up in 2024, with public debt that had soared, a share of investment in the economy at one of the lowest in the OECD, a broken state—just look at the health service and the criminal justice system—and a social problem of huge magnitude. Some 7.1 million families were going without essentials, 5.3 million skipping meals and 4.1 million going hungry. I believe in welfare reform, as many people on the other side have argued for, but it has to be coupled with a policy of tackling child poverty. The two things went together in the Governments I worked for in the Brown and Blair years. We need welfare reform and labour market action to get more people back into work. That is what the Mayfield review is about and what the Alan Milburn review on NEETs is about.

We should provide in this Budget incentives, such as a national insurance holiday for people who take on unemployed people on welfare. We also have to look—although this is something that a lot of people on my own side will worry about—at minimum wages for young people, and whether they are not too high. I think we should get the Low Pay Commission to look at that. I support the Employment Rights Bill, but day-one rights have to be coupled with a genuine probationary period in which employers are not discouraged from taking on people with a problematic work record.

I believe that the Government’s economic strategy is on the whole right: borrowing to invest and making sure that the public investment happens, which it did not under the previous Government, but also balancing the books on current spending. If we have a deficit, which we have, in my view the best way to tackle that is through broad-based taxes, a rise in income tax and reform of property taxation, which will help economic efficiency. The truth is that income tax in this country is low by international comparisons, and tax is the price we pay for a civilised society—we must always remember that. At the same time, we must have much stronger incentives for entrepreneurship and research and development, and an ability to translate our intellectual excellence into commercial success in companies that are growing greatly.

To conclude, I commend to your Lordships the recent report of the Lords Science and Technology Committee, which has looked at the reasons why we are failing in this regard. But I am an optimist, and I am looking forward to the Budget.

Tax Increases

Lord Liddle Excerpts

Thursday 10th July 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. It is not for me to ban conversations about tax rises or cuts, but I understand what he says about tax simplification and will take his thoughts about ice cream cones back to my colleagues in the Treasury.

[Lord Liddle (Lab)]

My Lords, is it not the case that we have a serious long-term question here, beyond what the Chancellor will do in the next year? We have underlying pressures on defence and demography, on top of which we have the reforms on disabilities and SEND in schools that the previous Government introduced, which have led to rocketing bills that something has to be done about at some stage. Will the Government therefore engage in a long-term debate about how we finance the welfare state, which most of the British population strongly adhere to?

[Lord Livermore (Lab)]

My noble friend is right to point out the long-standing and long-term challenges that we face in fiscal policy. As the noble Lord opposite said, the OBR set out some long-standing economic realities in its fiscal risks report this week. That is why it is so important that we are committed to ensuring stability in the economy through our fiscal rules. My noble friend mentioned special educational needs. He is absolutely right that, right now, the system is not working; less than half of education, health and care plans are issued within the 20-week deadline and only 22% of children with special educational needs are reaching the expected levels in maths and English. We absolutely need to deliver better support for vulnerable children and their parents, which is why we will set out wider plans for SEND reform later this year as part of the upcoming schools White Paper. On the longer-term debate that my noble friend talks about, I am always more than happy to discuss those issues with him.

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

Lord Liddle Excerpts

Friday 25th April 2025 Lords Chamber

[Lord Liddle (Lab)]

My Lords, I start by saying what an excellent and challenging report this is. It is exactly the kind of thing that the House of Lords exists to do and which political parties find very difficult to address. I congratulate the noble Lord, Lord Bridges of Headley, whom I have always seen as one of the stars of the Benches opposite, on his excellent introduction to this debate. I did not agree with some of it, but it was challenging, and he asked a lot of the right questions.

I suppose that the side of the argument that we should not be as worried about this question of debt, as the noble Lord, Lord Bridges, lays out, is that we are in the middle of the international pack. That is some reassurance. However, we live in a very unstable world—goodness knows what is going to happen in the United States. As the noble Lord pointed out, we have very particular vulnerabilities. We are dependent on the kindness of foreigners to fund our borrowing. We do not have the high domestic savings levels that countries such as Italy and Japan have. I do not want to get back into the European arguments that I have always made, but it is worth pointing out to the House that Greece now pays a lower interest rate on its debt than we do, because it has the power of the European Central Bank behind it. That is my view.

I also agree with the noble Lord, Lord Bridges, that really big challenges are coming down the track. My worry is that we must not set a debt rule that rules out investment in growth. If the interest rate is higher than the growth rate, we are in deep trouble, so we have to find a way of raising the growth rate, which requires a very strong policy of public investment, which the Government are doing. Things such as the Oxford-Cambridge link and the developments around it are very important. My own favourite development would be a massive transformation of urban connectivity in the north of England, which would have a very beneficial effect on productivity.

On spending, we must be really tough. We have to attack bureaucracy, as we are now doing in the National Health Service. We have to take on vested public interests. This is very difficult for people on our side of the House who have a lot of friends in the public sector trade unions, but we must be prepared to have a policy of reform. In addition to that, and to being tough on things such as PIP and SEND, which have got ridiculous in terms of their growth, we must be fair. I end on one this point. Being fiscally tough does not rule out fairness. One thing that I would like to see in future is a redistributive package which addresses child and pensioner poverty.

Financial Services: Mansion House Speech

Lord Liddle Excerpts

Thursday 21st November 2024 Lords Chamber

[Lord Livermore (Lab)]

I am very grateful to the noble Lord. It will not surprise anyone to hear that I agree with the sentiment behind his question. He is right that you cannot undo 14 years of damage in one Budget. Our economic strategy is based on the principles of stability, investment and reform; the Budget was about restoring stability to the public finances and therefore stability to the economy, which is the essential underpinning of any growth strategy. The Budget also talked about increasing levels of public investment in our economy; these Mansion House reforms are part of increasing private investment into our economy. The noble Lord is correct that there will be lags in that investment, but we very much hope to see growth coming through in due course.

[Lord Liddle (Lab)]

My Lords, I very much welcome the proposals on pension funds that the Chancellor has put forward. However, I have some sympathies with what the noble Baroness, Lady Kramer, said about City regulation. We must face the fact that, when the financial crisis hit us in 2008, because of the prudence of Gordon Brown as Chancellor of the Exchequer the debt to GDP ratio was less than 40%, whereas under the Conservatives over the last 14 years it has reached 100%. The chances of us being able to launch a massive rescue operation of banks in the way that Gordon Brown did with such success in 2008 will be constrained by that fact. What is the Minister’s judgment of that?

Secondly, what are the Government’s plans to improve access to finance for small and growing firms, particularly those outside London and the south-east? Lots of studies have demonstrated that growing firms find access to capital difficult. The British Business Bank is one response to that. Are the Government proposing to upscale it? That area is a key constraint on UK growth.

[Lord Livermore (Lab)]

I am grateful to my noble friend for his points. In the letter that the Chancellor sent to the chief executive of the Financial Conduct Authority, she made it very clear that the importance of competition, growth and risk-taking is to be seen in the context of its regulatory duties. She said that:

“The financial services regulators are key to driving forward”


growth;

“we must have proportionate, effective regulation that allows firms of all sizes to compete, innovate and grow, creates a stable, attractive environment which encourages businesses to establish and expand in the UK, and adequately protects consumers”.


She recognises that there are trade-offs to be made, but she would like to see a greater emphasis on achieving that secondary growth objective.

On supporting small businesses and their access to finance, my noble friend is absolutely right that, to date, the UK has been a very good place to start a business but a less good place to scale one, and access to capital is a vital part of improving that. He mentions the British Business Bank, which is incredibly important; it has been very successful in providing some of that finance, and we need to go further. Colleagues in the Department for Business and Trade will also be coming forward with proposals to help small businesses scale and grow.

Autumn Budget 2024

Lord Liddle Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Liddle (Lab)]

My Lords, I add my congratulations to the noble Lord, Lord Livermore, on his coherent and brilliant introduction to this debate.

I am also looking forward to the maiden speech of the noble Lord, Lord Booth-Smith. It occurred to me, while listening to the very powerful speech of the noble Lord, Lord Bridges, that the noble Lord is in a very good position to tell us where the Conservative Party would have done less in order to balance the books. We hear all this talk about the need for the state to do less; we never hear what it means in practice. Is it not time, after 14 years of failure on this score, for the Conservative Party to tell us what it intended to do? You see, I take a completely different view. For far too long in Britain, we have been trying to have European levels of public service with American levels of taxation, and we have to face up to that problem.

I congratulate our Chancellor, Rachel Reeves, on what she has done and the tough decisions she has taken to make sure of the possibility of a catch-up and restoration of standards in our public services. I also congratulate her on the fact that we have restored public investment to at least a sensible level. Here I agree with the noble Lord, Lord O’Neill, who is no longer in his place, that we need a sustained increase in public investment, which of course would bring in private investment, if we are to raise our rate of long-term economic growth. Investment is crucial for reform of public services and we must make sure that the money we provide is spent on reform. Simply repairing school buildings and hospital roofs is not reform; we must be very rigorous about how we spend the money.

I cannot remember who mentioned it, but I worry that the boost to public investment is not being matched by a boost in skills training and apprenticeships, and providing the people who can actually do the work. We will set up the national skills council and are committed to firm action in this area, but I would like the Government to tell us what we are going to do to make sure we do not have lots of skilled labour shortages.

I agree with the noble Lord, Lord O’Neill, that this increased public investment has to have strong guard-rails around it. We have to demonstrate, not least to the financial markets, that the investment is being spent in a wise way.

We have got to be more ambitious for growth. I think people are being a bit unfair on the Government, in that the OBR does say that the longer-term impact of increasing public investment will be to raise the rate of growth over a five to 10-year timeline.

More immediately, the big challenge we face is on trade. As the noble Lord, Lord Bridges, said, that has not been made easier by the election of Donald Trump. It is in the national interest that we prioritise getting a much better trading relationship with the European Union, our main economic partner in the world. I look forward to assurances from the Minister that that will be at the top of the Government’s priorities.

Fiscal Rules

Lord Liddle Excerpts

Tuesday 29th October 2024 Lords Chamber

[Lord Livermore (Lab)]

I am not aware that the Government have any such plans, but I hope that tomorrow’s Budget will include good news for Wales.

[Lord Liddle (Lab)]

My Lords, the new policy on investment that has been announced will be widely welcomed on this side of the House as giving an opportunity for the public sector, in partnership with the private sector, to raise the dismal rate of growth that we experienced under the last Government. Will my noble friend not let noble Lords opposite get away with the total unsustainability of their fiscal plan to cut public investment from 2.6% of GDP to 1.9%, which would have had disastrous consequences for growth and public services?

[Lord Livermore (Lab)]

I am extremely grateful to my noble friend for that point and for his support for what we have set out. He is absolutely right to draw attention to the record we inherited. As he says, the UK lags behind every other G7 country on business investment as a share of our economy, and the plans we inherited from the previous Government would have seen public sector investment decline to the lowest level in over 10 years. Nothing we have heard so far today suggests that they think there is anything wrong with that.

My noble friend also drew attention to the importance of partnership with the private sector. To rebuild our country, it is vital that we increase investment in partnership with the private sector. As he says, we must first create the conditions for the private sector to invest by stabilising our economy and introducing reforms to things such as planning and skills. The Government must invest alongside business, through expert bodies such as the new national wealth fund, to catalyse more private sector money. As we have been discussing today, there is also a significant role for public investment to play.

Budget Responsibility Bill

Lord Liddle Excerpts

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

[Lord Liddle (Lab)]

My Lords, I strongly support this Bill and congratulate the Financial Secretary on the very able speech with which he introduced it. I do not see how an attempt to prevent a repeat of Liz Truss can be regarded as performative. Surely everybody would want to see that consequence.

My worry is that this Bill does not go far enough. In the past two years, we have seen a real failure of fiscal responsibility in the way in which Rishi Sunak and Jeremy Hunt justified big cuts in national insurance on the basis of public spending forecasts that were, as the noble Lord, Lord Macpherson hinted, completely unrealistic. This has now landed us in a very difficult position. When they made their public spending forecasts, they did not take account of public sector pay, which is part of Chancellor Reeves’ black hole of £22 billion. They did not take account of the need for social care reform, without which, as Wes Streeting has said, there cannot be any wider reform of the NHS.

In an excellent report published just today by Unison, we learn that local councils are at risk of going bust. There is also a crisis in our courts and prison system. The Conservatives committed themselves to a defence target of 2.5%, which they seriously said could be achieved by “efficiency savings”. These were completely unrealistic public spending forecasts on which tax decisions were taken. Worst of all, in order to finance them, the Government pencilled in a cut in public investment from about 2.6% of GDP to 1.9%, which is actually the reverse of what the country needs: a big increase in investment.

So, we have a big structural deficit on our current account that we have to correct. We can try efficiency savings, benefit freezes or putting off change and reform in the hope that growth will naturally increase, but I argue that tax will have to be part of the solution to this, because the public were misled by the last Government. However, when I say “tax”, I do not believe some people from our own side, who seem to think that we can deal with this problem by simply taxing the top 1%. Yes, the broadest back should bear the heaviest burden, but it should be broader than that to work without economic damage.

We need tons of investment to launch a new nuclear energy programme, invest in our railway infrastructure, reconfigure the national grid, apply AI to public services, build new towns which have adequate social housing and fund the modern industrial strategy based on promoting a new wave of entrepreneurialism from our excellent science base. I believe that we need tough fiscal rules; we have to plan for current spending and revenue to be brought quickly into balance. But at the same time, I agree with my noble friend Lord Eatwell that the rules have to be sufficiently flexible to accommodate worthwhile, spend-to-save measures in public services and invest-to-grow measures for the wider economy. I believe that, although fiscal rules matter, a convincing growth strategy matters even more to the financial markets, and the bond markets will back our ambitions as long as our investment plans are well conceived.

Labour has a unique or huge opportunity ahead of it. We certainly need prudence and certainly need to be disciplined, but we also need radicalism—a radicalism from what I would describe as the politics of the centre ground.