Reducing Government Spending

Lord Livermore Excerpts

Tuesday 24th March 2026 Lords Chamber

[Lord Leigh of Hurley]

To ask His Majesty’s Government, further to (1) data released by the Office for National Statistics on 20 March showing that public sector borrowing in February was £14.3 billion, and (2) the increase in 10-year gilt yields, what plans they have to reduce Government spending.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, UK markets are of course affected by global developments, but it is long-standing convention that the Government do not comment on specific market movements. Because of this Government’s economic plan, we are more prepared for a more volatile world, with lower inflation and more resilient public finances. This year the deficit will fall by £20 billion, from 5.2% to 4.3% of GDP—its lowest level for six years and the fastest reduction in the G7. Global financial market volatility means that it is more important than ever to have a robust fiscal framework. We will not repeat the mistakes of the previous Government by returning to austerity or cutting public investment. That was a short-term fix that has created long-term problems.

[Lord Leigh of Hurley (Con)]

My Lords, the ultimate judge and arbiter of the Government’s success is the bond market. As of this afternoon, 10-year gilts are at 4.91%, higher than in the famous Liz Truss era, which Members on the opposite Benches are so keen to reflect back at us, and the highest in the G7. The OBR had said that the UK’s fiscal position is vulnerable to external events, and so it proved. Will the Minister explain to us why we are in this position and what steps HM Government are taking to reduce government spend, particularly in welfare?

[Lord Livermore (Lab)]

As I said at the outset, of course UK markets are affected by global developments but it is a long-standing convention that the Government, as an issuer in gilt markets, do not comment on specific market moves. The noble Lord will be aware that the full economic impact of the conflict will depend on its severity and duration, but we enter this period of uncertainty with the fundamentals of our economy strong. The spring forecast showed that this year borrowing falls by almost 1 percentage point to its lowest level for six years, 4.3%. That is the largest fall in the deficit since 2016. Borrowing as a share of GDP will then fall in every year of the forecast, from 4.3% in 2025 to 1.6% in 2030. Borrowing will fall more than in any other G7 economy. This year, for the first time since 2004, we will be borrowing less than the rest of the G7 on average.

The noble Lord asked about welfare. It is right to point out that in the last five years of the previous Government, spending on welfare increased by £88 billion. No one believes that the system we inherited is working: it abandoned too many people to a life on benefits, it wrote off too many people as too sick to work and it condemned too many children to be too poor to eat. That is exactly why we are reforming the welfare system.

[Lord Watts (Lab)]

My Lords, I have a suggestion for saving money in the public sector. At the moment, billionaire farmers who do not pay any tax in the UK can claim farming subsidies. Is it right that we all pay them extra money at a time when they have not paid money into the system?

[Lord Livermore (Lab)]

I am sure my noble friend makes a very interesting point. It is notable, though, that the party opposite’s first instinct is to cut spending at a moment of instability such as this. That is precisely the stop-go pattern of investment that got us into the problems that our economy is now in. Cutting investment at this point and returning to austerity would be the very worst thing that we could do for growth—the very definition of short-termism—yet that is precisely what previous Chancellors with previous fiscal rules have done. In the years following the financial crisis, austerity took demand out of the economy when it was needed most, undermining investment in critical infrastructure, weakening productivity and choking off growth. Unlike today’s Conservative Party, we will not repeat the mistakes of the past.

[Baroness Kramer (LD)]

My Lords, despite these volatile times, the Debt Management Office, on behalf of the Treasury, still seems determined to issue £20.4 billion in index-linked gilts this year. The cost of servicing the UK’s national debt is already far more vulnerable to rises in interest rates than comparable countries, thanks to past issuances which have meant that 25% of our national debt is index-linked. Surely it is time to rethink this strategy.

[Lord Livermore (Lab)]

The Debt Management Office’s operations continue to see strong demand, with efficient pricing. As I have said already, this year the Government will reduce the deficit by £20 billion since last year from 5.2% to 4.3% of GDP, and global financial market volatility means it is more important than ever to have a robust fiscal framework, with fiscal rules that provide stability, ensure our public services are sustainably funded and reduce the burden on future generations.

[Lord Bridges of Headley (Con)]

My Lords, in January the Chancellor said that the UK is

“in a very strong position”

to withstand new shocks to the public finances without further tax rises. Can the Minister repeat that assurance?

[Lord Livermore (Lab)]

Of course, I agree with everything the Chancellor says. Since coming to office, this Government have implemented an economic plan to bring stability to the public finances and to strengthen Britain’s economy for the long term. The forecast from the Office for Budget Responsibility, published last month, showed that our plan is working and that we enter this period of global uncertainty with the fundamentals of our economy strong. We have cut inflation, which is standing now at 3%, a lower base than at the outset of Russia’s illegal invasion of Ukraine. We have prioritised growth to drive up living standards and have stabilised the public finances, having already reduced the deficit by £20 billion this year, from 5.2% to 4.3% of GDP.

[Baroness Curran (Lab)]

My Lords, can my noble friend spell out to the House the benefits of increased public expenditure on health and how this actually contributes to economic growth? Can he spell out the benefits of increased public expenditure on defence, which contributes to the safety of the United Kingdom? Does he agree with me that the years of Tory austerity directly damaged the defence standing of this country?

[Lord Livermore (Lab)]

I absolutely agree with everything my noble friend says. The legacy of underinvestment from the previous Government still affects the economy today. When we won the election, private sector investment was the lowest in the whole G7. Public sector investment was no better and was set to fall again from 2.5% to 1.7% of GDP. We have invested £120 billion of additional capital investment. The OBR estimates the eventual growth impact of this increase in capital investment as adding 1.4% to GDP. As I have said before, cutting this and returning to austerity would be the very worst thing that we could do for growth. Unlike today’s Conservative Party, we will not repeat the mistakes of the past.

[Baroness Neville-Rolfe (Con)]

My Lords, the facts that were included in my noble friend’s Question show that we face a very troubling position on the public finances. I think the Chancellor’s Statement has done nothing to reassure the markets today. The Government’s economic policy is not fit for purpose, if it ever was. Do the Government recognise the seriousness of the position, and what do they propose to do about it?

[Lord Livermore (Lab)]

We do. As I said already, and as we know, the full economic impact of the conflict will depend on its severity and duration, but this year borrowing falls by almost one percentage point to its lowest level for six years, 4.3%. This is the largest fall in the deficit since 2016. For the first time since 2004, we will be borrowing less than the rest of the G7 on average, something the previous Government did not achieve in their 14 years in power. I should point out that these falls in borrowing are as a result of some tough decisions that we have taken on the public finances. The noble Baroness and the party opposite have opposed every single one of those decisions we have taken to get the public finances under control.

[Lord Eatwell (Lab)]

My Lords—

--- Later in debate ---

[Lord Eatwell (Lab)]

My Lords, does my noble friend agree that the Question asked by the noble Lord, Lord Leigh, and the reaction of the Opposition Front Bench illustrate three things—first, the folly of criticising a medium-term policy of stability on the basis of one month’s figures; secondly, a failure to understand that the gilt rate is determined in international markets and that, for example, the rate on US treasuries has risen rather more in percentage terms than the rate on UK gilts; and, thirdly, the persistent addiction of the Conservative Party to the economics of austerity?

[Lord Livermore (Lab)]

My noble friend is far more expert than me, and I agree entirely with all three points that he makes. I do not seek to add very much to what he says, but I agree most of all with his last point that returning to austerity would be the very worst thing we could do at this point for growth.

[Lord Dobbs (Con)]

I hope the House will forgive me, but I can scarcely keep up with the good news that the Minister keeps showering upon us, so may I ask him for an indication—not a guarantee or promise but an indication—that he will put his noble name to? One thing he has not mentioned is when unemployment will start coming down. Can he tell us whether it will be in 2027, 2028 or 2029, or have the workers’ Government forgotten about the unemployed?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. I can only go by what the OBR says, and it says it will be 2026. The OBR said that unemployment will peak later this year before falling for the remainder of the forecast period, ending the Parliament lower than the rate we inherited at the election. Clearly, the economic impact of the situation in the Middle East will depend on its severity and duration, but the OBR forecasts that over the course of this Parliament, employment will rise and the unemployment rate will fall.