Low and No-Tax Jurisdictions

Lord Livermore Excerpts

Thursday 30th January 2025 Lords Chamber

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

My Lords, I congratulate the noble Lord, Lord Sikka, on securing this debate, and thank all noble Lords for their contributions. I also take this opportunity to join others in congratulating the noble Baroness, Lady Coffey, on her maiden speech and welcoming her to your Lordships’ House.

I will seek to set out the work that the Government are doing to uphold internationally agreed principles of fair tax competition and protect the UK against profit shifting by multinational companies. If there are any specific questions raised during the debate that I am unable to answer now, I will happily write to noble Lords.

I start by underlining our commitment to growth—the number one mission of this Government—and how the corporate tax system can help deliver this mission. As the noble Baroness, Lady Neville-Rolfe, mentioned, we had to take some difficult decisions in the Budget last year to restore stability to the public finances. These were not decisions that we wanted to take, but they were necessary to clear up the mess we inherited. We recognise that this has impacted some businesses and has had impacts beyond business, too.

However, in last year’s Budget we also published a corporate tax road map to provide the best possible conditions for incentivising business investment, which is the lifeblood of a growing economy. That road map caps corporation tax at 25% for the duration of this Parliament—the lowest rate in the G7. It maintains our world-leading capital allowances system, including permanent full expensing, and the £1 million annual investment allowance. As a result of permanent full expensing, the independent OBR has forecast that business investment will increase by an extra £3 billion each year. Permanent full expensing solidifies the UK’s position at the top of the rankings of OECD countries’ plant and machinery capital allowances and among the most competitive capital allowances in the world.

The corporate tax road map also maintains generous R&D tax reliefs that will support an estimated £56 billion of business R&D expenditure. It is a road map to provide predictability, stability and certainty to business and investors from around the globe, while generating the revenue needed to invest in Britain. It comes after several years of cliff edges in investment allowances and multiple changes in rate policy, all of which have undermined global confidence in our corporate tax system. Despite the difficult fiscal position, our capital gains tax rate also remains internationally competitive and the current top rate is lower than it was between 2010 and 2016.

The Government’s objective is to maintain an internationally competitive tax system, where businesses pay their fair share of tax in the UK. As noble Lords know, under the current international framework, taxing rights are generally allocated to countries based on where the physical activities of a given business are undertaken. However, businesses rely increasingly on remote business models that allow companies to operate in and make considerable revenue from a market without a physical presence there. This is particularly true of firms providing digital services.

Added to this, business models are increasingly complex and globalised in nature, with businesses often operating in a number of jurisdictions. Intangible assets, such as intellectual property, can also be transferred to low-tax or no-tax jurisdictions more easily than physical goods. These changes are improving competitiveness and dynamism in the global economy, but we now need to ensure that our tax system, much of which dates back over a century, adapts to this changed environment.

According to the OECD, lost global tax revenues now total $100 billion to $240 billion annually—equivalent to between 4% and 10% of global corporation income tax revenues. This is why the Government are committed to addressing unfairness in the international tax system and protecting the UK against base erosion and profit shifting, where it exists.

We have a range of different measures in the UK tax code to ensure that this is the case. For example, measures on transfer pricing ensure that companies do not manipulate prices between related parties for tax reasons. Controlled foreign company rules, which the noble Lord, Lord Leigh of Hurley, mentioned, prevent multinationals shifting profits to low-tax jurisdictions using controlled foreign subsidiaries. Our anti-hybrid rules tackle tax avoidance strategies that exploit differences in the tax treatment of financial instruments or entities across jurisdictions, and our corporate interest restriction rules limit the amount of interest expense that a UK company can deduct from its taxable profits. HMRC conducts rigorous in-depth inquiries to ‎ensure that multinational companies comply with these rules, and it also works closely with international partners to gather intelligence and tackle serious and deliberate non-compliance.

Profit shifting and base erosion is a global issue by its very nature, which is why the UK has supported efforts to strengthen the international tax framework. The most significant of these is the OECD’s inclusive framework on base erosion and profit shifting project, as explained by the noble Baronesses, Lady Coffey and Lady Kramer, and my noble friend Lord Sikka. As other noble Lords have set out, this framework is the result of over 135 countries and jurisdictions working together, and comprises two pillars.

Pillar 1 looks to provide for a more stable and certain international tax system by addressing the issue I raised previously; namely, updating the system of international taxing rights to reflect the digitised nature of the economy. Under plans currently being discussed, a new system would be introduced whereby certain taxing rights are reallocated to market jurisdictions, as opposed to where the company is based.

The noble Lord, Lord Leigh of Hurley, asked about the Government’s position on pillar 1 and the digital services tax. The Government continue to support an agreement on pillar 1 and, as a temporary measure, the UK’s digital services tax currently applies a 2% levy on providers of search engines, social media platforms and online marketplaces, reflecting their UK activities. We look forward to working with the new US Administration to understand their concerns around the digital services tax and consider how these can be addressed in a way that preserves the policy objectives.

The noble Lord also asked about the VAT paid by online retailers. To summarise, as the noble Baroness, Lady Neville-Rolfe, set out, since 2021, overseas retailers are requested to register for VAT on supplies of low-value imports below £135. Where an overseas seller sells goods via an online marketplace, the marketplace is liable for VAT on goods of any value. The OBR continues to estimate that this will raise £1.8 billion by 2026-27.

Pillar 2 of the OECD inclusive framework reforms, also known as the global minimum tax, is already an internationally agreed common approach. It creates fair conditions for attracting inward investment, while protecting countries’ tax bases from large multinationals shifting their profits to low-tax jurisdictions. It does this by requiring multinationals that generate annual revenues of more than €750 million to pay an effective tax rate of 15% on their profits in every jurisdiction where they operate. Where their effective tax rate falls below this, these companies will pay a top-up tax. This effectively imposes a floor on tax competition between jurisdictions.

As the noble Baroness, Lady Kramer, said, the Government are currently legislating for the final part of the pillar 2 agreement through the Finance Bill. The undertaxed profits rule will ensure that firms cannot evade their responsibilities under the global minimum tax.

The pillar 2 agreement is historic in its scope and reach and has been implemented, or is in the process of being implemented, by the UK, all EU member states, Canada, Australia, Japan, New Zealand, South Korea and others. The UK is forecast to raise more than £15 billion over the next six years from pillar 2 to support our public services and help grow the economy.

My noble friend Lord Sikka and the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, asked about executive orders relating to pillar 2. While I know that they would not expect me to give a running commentary on every executive order or decision made by President Trump and his Administration, the UK will of course be open to discussing concerns and ways to alleviate these in a way that upholds the policy aims of pillar 2. To reiterate—here I agree with the noble Baroness, Lady Kramer—this is an international agreement signed by over 135 countries after many years of detailed negotiation. We believe it represents a fair approach to how countries compete for cross-border investment.

The UK operates a comprehensive network of tax treaties to ensure the correct allocation of taxing rights between jurisdictions. Alongside pillars 1 and 2 of the OECD scheme, we participate in a range of other tax transparency arrangements to protect the UK tax base. These include the country-by-country reporting arrangements, which require large companies to provide a detailed report of their income, taxes paid and other financial activities on a country-by-country basis.

We have committed to implementing the crypto asset reporting framework to facilitate the automatic exchange of information on ownership and transactions in crypto assets. The UK is leading international efforts to co-ordinate transparency and the exchange of beneficial ownership, including through registers.

The noble Baroness, Lady Kramer, touched briefly on the Crown dependencies and overseas territories. I recognise that that is a much longer debate but I will briefly say this. The elected Governments of the Crown dependencies and inhabited overseas territories are responsible for many fiscal matters, including tax. They are committed to upholding international tax standards. All Crown dependencies and those overseas territories with a financial centre have become members of the OECD/G20 inclusive framework on base erosion and profit shifting. They have implemented the common reporting standard, and they all meet the standard necessary for the exchange of information on request.

My noble friend Lord Sikka and the noble Baroness, Lady Kramer, asked about country-by-country reporting. As I have said, the Government are a strong supporter of greater tax transparency and efforts to ensure that multinational groups are appropriately taxed in the jurisdictions in which they operate. While public country-by-country reporting could have a role to play in supporting those objectives, the Government believe it is important that any action be co-ordinated at the international level to ensure that it is comprehensive and consistent and avoids competitive distortion.

The arrangements I have already set out sit alongside the steps this Government took at the Budget last year to protect the UK tax base and close the tax gap, which is the difference between the amount of tax owed and the amount that is collected. The measures in last year’s Budget represent the most ambitious package ever to close the tax gap, making sure that everyone who should be paying their tax is doing so. Overall, the package is expected to raise £6.5 billion in additional tax revenue per year by 2029-30. We will achieve that by investing £1.9 billion in HMRC staff and modernised IT systems, including recruiting an additional 5,000 compliance staff. This includes additional resources for HMRC transfer pricing specialists, focused on preventing multinational profits shifting.

I will briefly address the question asked by my noble friend Lord Davies of Brixton and the noble Baroness, Lady Kramer. Our plans include new proposals to close the offshore corporate tax gap. We will consult on lowering the thresholds for exemption from transfer pricing for medium-sized businesses to align with international peers, and we will seek views on introducing a requirement for businesses in scope of transfer pricing rules to report cross-border-related party transactions to HMRC.

My noble friend Lord Sikka questioned the size of the tax gap. The Government have set out data for the domestic tax gap, which has been published online, as well as initial statistics on individuals with undisclosed foreign income. We will continue to be led by this data, and we remain committed to closing the tax gap, both domestic and offshore.

This Government support fair global rules on tax competition which protect the UK against profit shifting and base erosion. Through the action we are taking domestically and through international bodies, including the OECD, we are ensuring that these rules keep pace with the changing nature of global trade and the development of digital technology. In doing so, we are being guided by our number one mission: higher and more inclusive economic growth. That growth must be underpinned by fairness in the global tax arrangements, which is at the heart of our approach, and it must be delivered through a competitive domestic tax regime, which is precisely what our world-leading corporate tax road map will help to achieve.

[Lord Leigh of Hurley (Con)]

Before the Minister sits down—admirably well within his time—I think his answer in respect of my VAT point relates to NETPs, non-established taxpayers, rather than taxpayers who falsely claim to be in the UK. I invite him to consider that particular point further, because I believe it will raise billions of pounds for HMRC if that loophole is addressed. Secondly, he very elegantly sidestepped the issue of the digital services tax. Again, while the Government are in negotiations with the US, which could stretch on for years, there is an opportunity in the meantime for us to have a look to see what extra revenue we can raise through digital services tax.

[Lord Livermore (Lab)]

I have set out as much as I am able to at the moment on the noble Lord’s latter point on the digital services tax, but I will happily raise his point on VAT with my colleague the Exchequer Secretary. We will write to the noble Lord on anything that we can usefully add.

Non-domicile Status

Lord Livermore Excerpts

Tuesday 28th January 2025 Lords Chamber

[Lord Leigh of Hurley]

To ask His Majesty’s Government what assessment they have made of the economic impact of their plans regarding abolishing non-domicile status, which will now be modified following the announcement by the Chancellor of the Exchequer at the World Economic Forum in Davos.

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

My Lords, the Government are making elements of the non-dom reforms simpler and more attractive to use while retaining the structure announced in the Budget. We do not expect these changes to impact the £33.8 billion of tax revenue which the OBR forecasts will be raised over five years from this Government’s and the previous Government’s changes to the non-dom tax regime. These changes reflect continued engagement with stakeholders to ensure that these reforms operate as intended.

[Lord Leigh of Hurley (Con)]

It is clear to me and many others that the Government do not have any idea of the amount of loss to the Revenue that the tens of thousands of people leaving this country—ultra high net worth people—will have. Adjusting the temporary repatriation facility just simply will not cut the ice or move the dial at all. I know of one City firm where 20% of the executives have left. Does the Minister not realise that insisting on subjecting wealth created and parked offshore to UK inheritance tax will drive former non-doms out of the UK? That will leave the Labour Government with a real £22 billion black hole.

[Lord Livermore (Lab)]

I am very grateful to the noble Lord, as always, for mentioning the £22 billion black hole. He mentions lost revenue. I remember the noble Lord telling me when my party was in opposition that our policy on non-doms would not raise any revenue, but in fact cost money. Just a few weeks after that, his Government performed a screeching U-turn and scored over £20 billion by implementing our policy, when they adopted it as their own. He was mistaken then, and I am very confident that he is mistaken now. The costings certified by the OBR for the previous Government’s and this Government’s reforms account for a potential behavioural response. But I do not recognise at all the figures that the noble Lord gives, which are purely speculative.

[Baroness Kramer (LD)]

My Lords, dropping the changes anticipated to the non-dom regime would not be fair to UK-domiciled taxpayers and to UK public finances. However, it is also wrong if those who have come from abroad to work here end up paying double taxation. Have the Government looked to update the UK’s tax treaties, which are meant to eliminate double taxation but currently fall short in significant areas, especially with complex tax countries such as the USA? Would he agree that it is not just a fairness issue? Sorting the many discrepancies would encourage many productive people to remain who are currently either leaving or considering leaving.

[Lord Livermore (Lab)]

I am very grateful to the noble Baroness for her question. To be clear, we are not dropping any reforms; we are making sure that they are working as intended, and we are trying to make the system as simple as possible to use so that those people are able to come to our country and invest in it. The noble Baroness asked about double taxation conventions. The Chancellor has been very clear that the reforms to the taxation of non-domiciled individuals do not affect the UK’s existing double taxation conventions, and we do not intend to change those treaties.

[Lord Mountevans (CB)]

My Lords, the legislation of successive Governments has resulted in the closure or downsizing of many international ship owners’ offices in London and the UK. This is a very important business; Britain has a world-leading maritime professional business services sector. Will the Minister ensure that all consideration is given to increasing the domicile arrangements so that they are more in line with Europe, so that the principal—himself or herself—who very often takes the very top decisions, could spend more of their time here?

[Lord Livermore (Lab)]

I am grateful to the noble Lord, and I am of course happy to look at that. Obviously, we keep this policy under review and will continue to engage with stakeholders to ensure that the system operates as it should. It is important to remember that the basis of this policy is ensuring that everyone who makes their home in the UK should pay their taxes here; that is absolutely the right thing to do. We want to ensure that our system remains internationally competitive, and the system that we are introducing as a result of these reforms is far more internationally competitive than the system that it replaces.

[Lord Sikka (Lab)]

My Lords, for far too long the wants of the few have been prioritised over the needs of the many. I cannot recall marches or petitions calling for concessions to wealthy non-doms, but despite marches and petitions, the two-child benefit cap and winter fuel payments cut for pensioners below the poverty line remain. Can the Minister offer some guidance to families and pensioners as to how they can get a concession too?

[Lord Livermore (Lab)]

The Government are committed to making sure that the wealthiest in our society pay their fair share of tax, consistent with our commitment to economic growth. That is why the Chancellor announced a series of reforms at the Budget to help to fix the public finances in as fair a way as possible. That is absolutely what we are doing, and we are ensuring the fairest treatment to those affected.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, are the Government thinking that this money they are going to raise from all the non-doms is actually going to—as the former Labour Party might have hoped—lift people out of poverty, rather than crush them even further into poverty, as seems to be happening at the moment?

[Lord Livermore (Lab)]

Yes.

[Lord Petitgas (Con)]

My Lords—

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[Lord Petitgas (Con)]

My Lords, do the Minister and the Government have any hard evidence, perhaps through a recalculation of the effects of the Bill on non-doms, that this news that was announced in Davos will have a tangible effect on the emigration of a lot of these non-doms? This does not look like a U-turn at all—for which the Government should be commended— but rather more like an L shape. The reason why I am asking this question is because the key criticism from the non-doms, and the reason why they are leaving, is that if someone lives here as a non-dom for four years they will have a 10-year tail on the inheritance on all their offshore assets. That is clearly something that is not acceptable to most of them. What I heard in Davos does not change that, and therefore I am not sure it really changes very much.

[Lord Livermore (Lab)]

I am very grateful to the noble Lord for passing on the feedback that he heard. I am assuming that he agrees with this Government’s policy on non-doms, since he was an adviser to the previous Government when they actually took our policy, implemented it, and scored £20 billion for it. So I am assuming that he approves of our policy and of the fact that we are raising that revenue. The changes that we are making to the system to make it simpler and more attractive to use are based on speaking to the relevant stakeholders and ensuring that they find it attractive to use. As I say, the system that we are implementing is actually more competitive than the system that it replaces.

[Lord Grocott (Lab)]

Can I welcome very much my noble friend’s clear restatement of our commitment to this policy? It is right because it raises revenue, but it is also right in principle.

[Lord Livermore (Lab)]

I am very grateful to my noble friend for his comments. The Government are absolutely committed to addressing unfairness in the tax system so that everyone who makes their home in the UK pays their taxes here. It is absolutely right that we have the most competitive tax regime that we possibly can.

[Lord Altrincham (Con)]

Following the original question of the noble Lord, Lord Leigh, we should wish the Minister and the Government well in running after taxpayers who have left the country, many of whom, of course, are non-doms who are not British and who will be very hard to recover or bring back. But many of the departures at the moment are British: they are UK-domiciled tax residents who are leaving. Therefore, can the Minister share with us the Treasury’s best estimate for the departure of all higher-rate taxpayers during this tax year?

[Lord Livermore (Lab)]

I am slightly confused about what underlies the noble Lord’s question, given that, as I say, the previous Government introduced this party’s policy on this issue. The OBR had migration assumptions associated with that policy, as it does with this one. The OBR has factored in the potential behavioural response of affected non-domiciled individuals into its costings. It accounts for an assumed level of migration from this group, just as it did for the previous Government’s groups. So, as I understand it, the migration assumptions for the previous Government’s reforms were 10% and, for this Government’s reforms, they are 12%.

[Lord Watts (Lab)]

Does the Minister find it strange—

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[Lord Watts (Lab)]

Yes, noble Lords are going to get it. Does the Minister find it strange that members of the party opposite seem to be very worried about non-doms, when the last Government introduced taxes that hit ordinary working families and they did not utter a word of criticism about that?

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question. I find quite a lot strange about the attitude of the party opposite, not least what he says—the fact that it introduced £30 billion-worth of taxes on working people in the last Parliament, and yet it does not seem to think there is anything wrong with that and still has not apologised.

Agricultural and Business Property Reliefs: OBR Costing

Lord Livermore Excerpts

Monday 27th January 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I refer to my register of interests: a third share in two small Wiltshire fields—what is left of the marginal family farm of my childhood.

I am not surprised that the increases in agricultural and business property taxes in the Budget have proved to be friendless, except in some deeply urban areas. This was demonstrated in last week’s debate on this Question about costs in the other place.

The truth is, the Government have miscalculated. They expected a vindictive tax grab on large estates to be welcomed by those of an envious disposition. Instead, the difficulties faced by the working family farms which produce so much of our food have been noticed, even by the supermarkets. Elderly farmers are especially desperate.

The Government have the ghastly choice of brazening the matter out or making some sensible concessions. There are already whisperings about the latter. Will the Minister help to ensure that the Government reduce the harm to agricultural investment and food security of this misguided policy?

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

My Lords, I am grateful to the noble Baroness for her question. I do, however, totally dispute her characterisation of this policy. At the Budget, we had to take some very difficult decisions on welfare spending and tax that were necessary to fix the public finances and support our public services. We had to do that to address the mess that we inherited from the previous Government. We took those decisions in a way that makes the tax system fairer and more sustainable.

As a result of the measures we are taking, individuals will continue to be able to claim 100% relief for the first £1 million of combined business and agricultural assets, and 50% thereafter. Given the nil-rate bands, that means a couple can pass on up to £3 million between them to a direct descendant inheritance tax-free. In answer to the noble Baroness’s question, the measures will go ahead as planned.

[Baroness Kramer (LD)]

My Lords, my colleagues on these Benches have made it clear that we oppose this tax change; we are concerned about the impact of it on family farms and the rural economy, and the knock-on effect on food pricing and food security. We have proposed alternative taxes in lieu. However, in the spirit of compromise, I propose that the Minister looks at lifting the individual thresholds for inheritance tax and agricultural property to £3 million. It would provide great relief for the genuine small farms and would still capture those who are seeking to use investment in farm property as a loophole for tax avoidance. Frankly, having seen the OBR numbers, it would be a very little loss to the Exchequer.

--- Later in debate ---

[Lord Livermore (Lab)]

I am very grateful, as always, to the noble Baroness for her spirit of compromise. As I said in answer to the previous question, given the nil-rate bands, a couple can pass on up to £3 million between them to a direct descendant inheritance tax-free.

[Lord Carrington (CB)]

My Lords, growth, a government priority, requires investment. What assessment have the Government made of the effect of reducing the reliefs on investment in farming?

[Lord Livermore (Lab)]

The Government set out their modelling at the Budget and, more recently, the Chancellor provided very extensive additional details to the Treasury Select Committee on exactly that point, including in her follow-up letter. That modelling was backed up by the OBR, as shown in the publication last week.

[Baroness McIntosh of Pickering (Con)]

My Lords, can the Minister say how much the Government expect to raise from the abolition of APR and its consequential impact on inheritance tax relief? The Office for Budget Responsibility, in its Supplementary Forecast Information Release of 22 January, stated very clearly, in paragraph 1.11 on page four:

“The central estimate for the costing is an increase in revenue of £0.5 billion by 2029-30”.


Is that really all that the Government expect to raise from this very cruel measure?

[Lord Livermore (Lab)]

Yes, it is—and it will go a very long way to help our public services after years of neglect. I completely disagree with the noble Baroness’s characterisation of this policy.

[Baroness O’Grady of Upper Holloway (Lab)]

My Lords, does my noble friend the Minister agree that big supermarkets could do more to support farmers in Britain, who are under pressure from the squeeze on prices that big supermarkets are setting? At least one big supermarket achieved more than £2 billion of pre-tax profits—an increase of 15%—last year.

[Lord Livermore (Lab)]

I certainly agree with my noble friend on the specific point that farmers’ incomes are under pressure, and we must do everything we can, as a Government, to support farmers in that respect. It is worth adding that we will continue to work in partnership with the large supermarket chains. We are determined to work with businesses right across the country to drive economic growth.

[Lord Macpherson of Earl’s Court (CB)]

My Lords, does the Minister agree that the OBR note confirms that farmers and businesspeople have a large number of options for reducing their inheritance tax liability? Does he agree that, in so far as the measure encourages farmers to pass on their farms to younger, more dynamic successors, it is as likely to increase productivity as to reduce it?

[Lord Livermore (Lab)]

I absolutely agree with everything that the noble Lord said. Last week’s publication from the OBR does not contain any new information about its view on the fiscal impact of this policy; it remains the same as it set out in its Economic and Fiscal Outlook for the 2024 Budget. The noble Lord’s question relates to that of the noble Baroness, Lady McIntosh of Pickering. The OBR described this as “highly uncertain” because such a wide range of tax planning options are available to respond to this policy change, including being able to pass on up to £3 million tax-free. The noble Lord was also correct to say that the current system, particularly the extent to which it drives up land prices, has locked out young farmers from being able to own property—and them being able to do so is undoubtedly a good thing.

[Baroness Penn (Con)]

My Lords, the costings we have seen for this policy tend to put APR and BPR together. Can the Minister provide figures for the effects of each separately?

[Lord Livermore (Lab)]

They have been costed jointly at £0.5 billion, as the noble Baroness, Lady McIntosh of Pickering, said.

[Lord Whitty (Lab)]

My Lords, while I am not entirely happy about this policy, I recognise that it has been done and that it will stand. However, I suggest to the Treasury and Defra that, if they are looking for taxation from landowners, they should look at the companies, individuals and institutions buying agricultural land to set against their profits elsewhere—or indeed to greenwash their carbon-creating activities elsewhere—and at those who make a killing from a change of use, rather than directing their tax increases at small family farms.

[Lord Livermore (Lab)]

Just to be clear with my noble friend, we are not doing what he says at the end of his question. I think it is worth revisiting the rationale for this policy in the first place. Of course, the Government recognise the role that reliefs play in supporting farms and small businesses. Importantly, the reliefs will continue to play that role, but the reality is that the full, unlimited exemption, which was introduced in 1992, has become unsustainable. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest landowners and business owners. According to the latest data from HMRC, 40% of agricultural property relief is claimed by just 7% of estates—that is just 117 estates claiming £219 million of relief. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants.

[Lord Berkeley of Knighton (CB)]

Can I ask for clarification on one thing? Using the Minister’s figures, if a farm was worth, say, £2 million or £3 million—and of course many farms, and I would say most, are worth at least that, if not a great deal more—what would be the situation if the farmer is unmarried or does not have a civil partnership? That is not a farm that he would then be able to pass on to the next generation, given the Minister’s figures. Am I correct?

[Lord Livermore (Lab)]

They would, absolutely; of course they can pass that farm on. To be very clear: there is 100% relief for the first £1 million of combined business and agricultural assets. Above that amount there will be 50% relief. This means that inheritance tax will be paid at a reduced effective rate up to 20%, rather than the standard 40%. The reliefs also sit on top of all the other spousal exemptions and nil-rate bands. So full exemptions for transfers between spouses and civil partners will continue. I accept that in the example the noble Lord gives that is not the case, but any inheritance tax liability after that, on relevant assets, can be paid in 10 annual instalments, in most circumstances completely interest-free. All those circumstances are vastly more generous than in other parts of the tax system.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Livermore Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Baroness Neville-Rolfe (Con)]

My noble friend makes an excellent point. It is a question of the dynamics. I know, having once been a Treasury Minister, that dynamics always worry it. But the fact of the matter is that, if we can get things done and get people out of hospital quicker, as my noble friend suggests, that would make a real difference.

I feel that the proposals that we are faced with for hard-working businesspeople and for social enterprises are a huge slap in the face. They are being discussed on a day when unemployment is rising and job opportunities are falling. I believe that that reflects the impact of the £23.8 billion hit on employers’ national insurance. It is a veritable jobs tax and the gloom that the Government have admitted for the first six months of their tenure has not helped. That is why my noble friend Lord Forsyth was right to regret that we were debating this not on the Floor of the House but in Grand Committee. I hope that none the less we will attempt to give the Bill proper scrutiny here, because if we do not, that would be a big failing.

In that respect, one of the things that annoys me most is the lack of a proper impact assessment. We have a very inadequate impact note, which was published on 13 November. That gives a run of the yield to the Exchequer year by year but does not break it down into the three categories: the costs of the increase to 15%, the lowering of the threshold, which is extremely regressive, and the welcome benefit from the rise in the employment allowance—and indeed anything else included in the figure of £23.8 billion, which was by far the biggest change in the Budget and which is why so many people are here today worrying about the Bill.

There is also an unexpected dynamic effect highlighted by the OBR, which means that, following the reduction in wages, profits and employment, this tax will raise over £5 billion less than the Treasury forecast, raising £18.3 billion in 2025-26 and nearly £10 billion less than the forecast in 2026-27. So there is a great deal of pain for wealth creators and effective employers, but not a lot of gain.

I cannot see how we can scrutinise the Bill without proper impact information, and I look forward to a proper discussion during the debate on Amendment 13. However, I think the Committee would also like to have authoritative, disaggregated figures on the impact on the health and care sectors under discussion today. That is why I am raising this now, and I hope the Minister will consider what he can do to assist the Committee so that we can have proper understanding and proper scrutiny. We want to do the right thing here.

It is against that sombre background that I shall speak to my Amendments 38 and 42, which have been grouped with this amendment. They seek to increase the employment allowance in the primary care sector. My purpose is to probe the Government’s openness to helping the sector a bit more through an increase. Perhaps the Minister could clarify the facts. The BMA has said that, as public authorities, they are unable to access support via the increased allowance and the noble Lord, Lord Scriven, made a similar point in relation to dentists. The Committee needs to know whether that is true.

Mine is a probing amendment and the first of several relating to Clause 3. To reply to the noble Lord, Lord Eatwell, as someone who has tried to reform taxes in the past, originally with the help of my noble friend Lord Heseltine as part of the deregulation initiative, it is very difficult to get simplification of the tax system. That is one reason why I have tabled an amendment relating to the employment allowance, because it comes at the matter in a different way.

Primary care is vital to the Government’s plans to improve the NHS. My fear is that the NICs changes, especially the lowering of the threshold and with part-time working so common in primary care, will lead to further problems in GP surgeries, increasing chronic conditions and waiting times for appointments across the NHS, and having the perverse effect that I think we will come back to as this Committee progresses.

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

My Lords, it is a great pleasure to respond to the debate on this first group of amendments, and I thank all noble Lords who have contributed so far. It is also a pleasure to see so many noble Lords in the Grand Committee. I know that some noble Lords are unhappy about being here, but the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, in particular, and I know what it feels like to be in this Grand Committee on our own, so it is, at least, I have to say, nice to be popular.

Before I address each of the amendments in this group, I shall very briefly set out at the outset the context in which the Budget decisions contained in the Bill were taken. I would like to do so since this context is why we are here today and underpins the debates that we will have, not just on this group of amendments, but on all further groups. As noble Lords will know, the Government inherited three distinct challenges: the need to repair the public finances; the need to rebuild public services; and the need to protect working people.

The most pressing of these challenges was the need to repair the £22 billion black hole in the public finances as a result of a series of commitments made by the previous Government which they did not fund. The previous Government also made no provision for costs that they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal and £1.8 billion to compensate victims of the Post Office Horizon scandal. These pressures have to be funded, and it falls to this Government to do so.

Noble Lords will also know that the country inherited acute problems in public services, with NHS waiting lists at record levels, children in Portakabins as school roofs crumbled around them and rivers filled with polluted waste. Yet since 2021, there had been no spending review and no detailed plans for departmental spending were set out for beyond this year. Working people had also lived through a cost-of-living crisis, with inflation peaking at 11.1% and remaining above target for 33 consecutive months. Combined with the previous Government’s decision to freeze income tax thresholds—

[Baroness Noakes (Con)]

Is the Minister going to address the amendment?

[Lord Livermore (Lab)]

Yes, I am. I said that I wanted to set out some context at the outset. I know that the noble Baroness may not like that context, but it is why we are here today, after all.

That meant taking some very difficult decisions on welfare, spending and tax, including those in the Bill. I recognise that this involves asking some businesses to contribute more and that the impacts of the Bill will be felt beyond businesses. These are difficult decisions—not ones we wanted to take—and I understand and respect the very legitimate concerns that have been raised, both during today’s debate and outside this House. Crucially, however, and I may find myself making this point repeatedly during these debates, noble Lords who oppose the measures in the Bill must be clear. Do they propose instead more borrowing, lower spending or alternative tax-raising measures? That is the key question at the heart of these debates.

[Lord Forsyth of Drumlean (Con)]

If the noble Lord is going to make a Second Reading speech on an amendment, is it okay if we all do the same thing?

[Lord Livermore (Lab)]

I think the noble Lord did in his contribution; I remember him raising the minimum wage, for example. I do not think that is directly related to the amendment. We are all absolutely entitled to set out some contextual points in the points that we raise.

Let me turn directly to the amendments in the name of the noble Lord, Lord Scriven, the noble Baroness, Lady Kramer, and the noble Lord, Lord Randall of Uxbridge, which seek to exclude care providers, NHS GP practices, NHS-commissioned dentists, NHS-commissioned pharmacists, charitable providers of health and care, and those providing hospice care, from the new rate and threshold for employer national insurance. I say at the outset that I have listened very carefully to the points raised by all noble Lords during these debates and taken on board what has been said.

As I said, the difficult decisions the Government took in the Budget last year, including those in the Bill, were necessary to repair the public finances, protect working people and rebuild our public services. As a result of the measures in the Bill and wider Budget measures, the NHS will receive an extra £22.6 billion over two years to deliver 40,000 extra elective appointments a week. This investment is dependent on the Bill.

As noble Lords will know, the Government have already set out that they will provide support for departments and other public sector employers for additional employer national insurance costs. But independent contractors, including primary care providers, social care providers, charities, including hospices, and nurseries will not be supported with the costs from these changes. This follows the precedent for such national insurance measures. It is exactly the same as was the case with changes to employer national insurance rates under the previous Government’s plan for the health and social care levy.

Primary care providers—in general practice, dentistry, pharmacy and eye care—are important independent contractors, who provide nearly £20 billion-worth of NHS services. Every year, the Government consult each sector about what services it provides and what money it is entitled to in return under its contract. As in previous years, the issues we are debating today will be dealt with as part of that process.

The Government have announced a proposed £889 million uplift for general practice in 2025-26 and have set out the proposed areas of reform that will help us to deliver on our manifesto commitments. This is the largest uplift to GP funding since the beginning of the five-year framework; it means that we are reversing a recent trend, with a rising share of total NHS resources going to general practice. We have started consulting the General Practitioners Committee of the British Medical Association on the 2025-26 GP contract in England. We will consider a range of proposed policy changes. These will be announced in the usual way, following the close of the consultation later this year.

Turning to adult social care, the Government have provided a real-terms increase in core local government spending power of 3.5% in 2025-26, including £880 million of new grant funding provided to social care. This funding can be used to address the range of pressures facing the adult social care sector. Finally, we are also supporting the hospice sector, with a £100 million boost for adult and children’s hospices to ensure that they have the best physical environment for care, and £26 million of revenue to support children and young people’s hospices.

I turn to the amendments tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, seeking to increase the employment allowance for employers in the primary care sector and for dental practices. Currently, small businesses with national insurance bills of £100,000 or less receive a £5,000 employment allowance, which means that they can deduct £5,000 from the total national insurance they pay on their employees’ wages. Under the proposals in the Bill, the employment allowance will increase to £10,500 from April 2025.

The Bill also expands the employment allowance to all eligible employers by removing the £100,000 eligibility threshold. This will simplify and reform employer national insurance contributions so that all eligible employers now benefit. Increasing the employment allowance for specific sectors, including just the primary care sector and dental practices, as my noble friend Lord Eatwell said, would add additional complexity to the tax system and would be incoherent, given the wider changes to simplify the employment allowance made in the Bill.

These changes would also create additional costs. How would these additional costs be met—through more borrowing, lower public spending or additional revenue-raising measures? If so, where would these additional taxes fall? If the Government were unable to meet these additional costs, we would be unable to provide the extra £22.6 billion for the NHS.

In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

[Baroness Neville-Rolfe (Con)]

I asked a question which, in relation to dentists, echoed by the noble Lord, Lord Scriven. It was about the definition of “public authorities” and how that affects payment of the employment allowance. I raised it at Second Reading as well. It would be helpful to have a judgment on that point.

[Lord Livermore (Lab)]

The definition is set as it was previously. We have no intention of changing that definition.

[Baroness Neville-Rolfe (Con)]

To be clear, that means these bodies will not have access to the employment allowance if they are public authorities. It would be helpful to know what the costings of that look like. I know that the Minister does not want to make any changes, but we are trying to understand what the numbers are here and in some minor areas, such as hospices. The Minister says that hospices will have extra money, but they will also have to pay a lot extra in national insurance. We are trying to understand all that to give him helpful feedback on the Bill; obviously, we are as keen as he is for it to succeed.

[Lord Livermore (Lab)]

I would be very happy to look into the specific point made by the noble Baroness. I will feed back in my responses on a subsequent group.

[Lord Scriven (LD)]

My Lords, this has been a fascinating debate—no more fascinating than my thinking I was in total agreement with the noble Lord, Lord Forsyth, until he started arguing why he did not support me. I do not feel that I have to resign from my Front-Bench position, for which I thank the noble Lord.

I have listened carefully. I believe that, regardless of which side of the Grand Committee noble Lords are on, everyone is agreed that the Bill will have consequences, both for health and social care providers and, through them, for the people who receive such services. I note that the Minister said that he had listened very carefully; I am sure that the sector and providers, who are listening carefully to this debate, will have noticed that he did not come up with any solutions to the problems they now face, such as the cuts to staff and services that they will have to make.

I also note that, in his response, the Minister did not refer to community pharmacists’ contract negotiations, which have been on hold for this financial year since the general election. They are still dealing with a lack of contract and uplift for this year, regardless of the uplift and extra costs that will come next year. As a former NHS manager, I know that the flaw in the Minister’s response about this measure being part of contract negotiations is that everything gets bundled into contract negotiations—not just this year’s pressures but the extra services that the Government will look to provide. Therefore, this amount of money will not be covered and the Government’s decision will create both pressures on and gaps in existing services.

I appreciate that the Minister gave the context, which is important, but it is the Government’s decision on how to deal with that context and the taxes that they decided to raise against these providers that are causing the problem. This is a government issue that will not go away and will put pressures on services; that is why, even though I beg leave to withdraw my amendment, believe that we will come back to this issue on Report. I look forward to the noble Lord, Lord Forsyth, supporting a vote then.

--- Later in debate ---

[Lord Altrincham (Con)]

My Lords, I rise to speak to this group of amendments surrounding the exemption of veterans’ salaries from this NI jobs tax; the lead amendment was moved by the noble Baroness, Lady Smith of Newnham. This is a helpful group of amendments to remind us—just as my noble friend Lady Noakes has reminded us—that the social costs of this taxation initiative will fall on individuals. Although we talk about economics in an aggregate manner and debate it in the aggregate, there are social costs, and they are very real.

In the aggregate, the Treasury may do quite well from this rise because of wage inflation. Wage inflation is a tremendous friend to the Treasury and will more than make up for the gap that the noble Lord mentioned at the start, which is that we need to find other sources of revenue. Wage inflation is going to support the Government quite nicely through this, but that cuts both ways: obviously, it has an aggregate and fiscal benefit, but it hits hard because the cost of employment goes up a lot. There is a double effect and we are probably seeing that right now.

Putting aside the theory about whether we lose jobs in one place and offset them somewhere else, we know that we were down 50,000 jobs in December; the OBR number is an aggregate loss of 50,000 through this initiative. That is a tremendous estimate, of course—who is to say that it has any better insight than anybody else?—but it is already down by 50,000 in December. It is probably a combination of wage inflation and expected tax rises, but that is 50,000 people who are out of a job. As we look through these amendments, we might pause and reflect. Who are these vulnerable employees? Who is actually going to bear the social cost of this change?

These amendments perfectly encapsulate the problem, which is that these changes will fall on people who are, and have already been identified as, vulnerable in one form or another. Observations about tax complexity may have been well made by the noble Lord, Lord Eatwell and, by the way, it is not just tax avoidance that is a burden to the economy. Tax compliance is a burden to the economy, as all forms of taxation in this country have become very complex and are a tremendous drag on the economy as things stand. However, that is how we manage our affairs.

While we look at this issue, we might pause and think about where the costs fall on individuals—in this case, on veterans. The previous Conservative Government ensured that veterans were a priority. They guaranteed that the funding was sufficient to support veterans in securing highly paid and skilled employment in key sectors across our economy, utilising the skills that they developed in the military.

In April 2024, veteran employment was at an all-time high of 89% owing to various initiatives, including the 12-month national insurance relief for employers hiring a veteran into their first role out of military service. This tax incentive was highly beneficial for veterans and business. Following its introduction in 2022, this relief was extended in 2023 and again in the following year, 2024. Following the Government’s decision to impact business through this tax decision, will the Minister at least confirm that they intend to continue this business relief to ensure that our veterans are able to find employment after their service and that businesses are able to benefit from their unique skills and experience?

Our military deserve the utmost respect for the service they provide to our country and, as such, the veterans deserve that same level of respect. This tax will be harmful to these people, and if the Government are unwilling to exempt them, at the very least they must explain how they have arrived at the conclusion that it will not be exceptionally detrimental to the employment rate of veterans.

[Lord Livermore (Lab)]

My Lords, I am very grateful to all noble Lords who have spoken in this debate. I will address the amendments tabled by the noble Baronesses, Lady Smith of Newnham and Lady Kramer, and the noble Lord, Lord Randall of Uxbridge, which seek to exempt veteran salaries from the employer national insurance changes. These amendments would create a different employer national insurance rate and threshold set at the current levels for salaries of veterans. The Government of course recognise the huge contributions made by the UK Armed Forces and veterans in this country, and I completely understand the intention behind these amendments.

As some noble Lords have mentioned, there is already an employer national insurance relief available for the earnings of veterans, meaning that employers are not required to pay any national insurance contributions up to £50,270 for the first year of civilian employment. At the Budget, the Government decided to extend the national insurance contributions relief for employers who hire veterans to support veterans in their first year of civilian employment for a further year. Despite the challenging fiscal inheritance this Government face, this means we are maintaining this relief and it is not changing as a result of this Bill.

Further to this, we have more than doubled the employment allowance to £10,500, meaning that more than half of businesses with national insurance liabilities either gain or see no change next year. Businesses and charities will still be able to claim employer national insurance reliefs, including those for under-21s and under-25 apprentices, where eligible.

On veterans more widely, this Government have taken action to demonstrate our commitment to renew this nation’s contract with those who have served. We have awarded £3.7 million in veterans housing grants, veterans will be exempt from the local connection test for social housing in England and veteran cards are now accepted ID for elections. We are progressing veterans support programmes at pace, including a centralised referral pathway designed to support veterans who are homeless or at risk of homelessness, an NHS mental health specialist service designed to help veterans and their families in England and an NHS physical health specialist service designed to help veterans and their families in England.

Before I sit down, I shall also address the questions raised by the noble Baroness, Lady Neville-Rolfe, about dentists, which I was unable to answer during the debate on the previous group. As I said, the criteria have not changed, including the exclusion of those doing 50% of their work in the public sector. The eligibility is down to individual businesses, and the proportion of their work in the public sector may vary year to year. All charities can claim, including hospices.

[Baroness Neville-Rolfe (Con)]

My point was in relation to the points made by the BMA and the dentists. There are two separate points. It is not in this group, but it might be as well to have a discussion on this so that we can be clear about this and on the impact on these important areas for the future of health in the NHS.

[Baroness Smith of Newnham (LD)]

Can the Minister clarify something? I understood that the national insurance contributions relief for veterans had been extended for one year and that this Bill was not going to affect veterans. Surely at some point it cuts out. Is that correct, so that this would be valid only up to 2026?

[Lord Livermore (Lab)]

The noble Lord, Lord Altrincham, set out in his speech that it was extended year by year under the previous Government. This Government have done the same thing and have extended it for a further year.

On the basis of what I have set out, I hope the noble Baroness will feel able to withdraw her amendment.

[Baroness Smith of Newnham (LD)]

I thank all noble Lords who have contributed to the group, and I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Bennett of Manor Castle (GP)]

My Lords, I apologise for speaking after the Tory Front Bench, but I thought the noble Lord, Lord Londesborough, was continuing after the voting break.

I will speak briefly in favour of Amendments 58 and 59. In doing that, perhaps I should declare an interest. I was on the board of the Fawcett Society in 2010 when it brought a judicial review against the emergency Budget of that year for its failure to honour its legal duty under the Equality Act to do with gender impact assessment. In that case, although Fawcett lost the overall case on legal grounds, it was said that the gender impact assessment requirements applied to the Budget and should have been carried out on a couple of aspects of that Budget.

With that in mind, I draw attention to the final page of the policy paper of 13 November, which I think we are regarding as an impact assessment. Under the heading “Equalities Impacts”, in this five-page document that my sub-editor’s eye tells me is in 16-point, it states:

“Secondary Class 1 NICs are levied on employers rather than individuals. There are therefore no direct equalities impacts”.


I would like to question the Minister on how it can be claimed that there are no equalities impacts. Some figures have already been raised, but I point out that 74% of part-time workers are female, 57% of involuntary part-time workers are female, 6 million women are working part time and 10 million women are working full time. According to the Resolution Foundation’s analysis of ONS data, 63% of UK workers under the £9,100 threshold are female. We are seeing national insurance charges increasing the cost of employment by nearly £700 a year for someone working 15 hours a week on the minimum wage. An additional 600,000 women workers are being brought within scope of national insurance. As others have said, on the minimum wage you need to work fewer than eight hours a week to stay below the new threshold.

Analysis of this has suggested that women workers are particularly affected by this change. Some of them may want to raise their hours, so this might turn out positive. Some of them may have caring responsibilities that mean that they cannot lift their hours and may then have to leave employment because they are being offered more or nothing. It is also worth pointing out that the Women’s Budget Group has highlighted how the overall impacts of the national insurance changes are likely significantly to increase childcare costs. That is of immediate relevance to working women with direct childcare responsibilities, but, as the Women’s Budget Group pointed out, there are also issues around grandparents, very likely grandmothers, who may find themselves being pushed, and feeling obligated, to leave employment so that they can take up childcare responsibilities. I do not think that that equalities impact can be justified and would appreciate the Minister’s comments.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords for their contributions to this debate. I will address the amendments and the new clause proposed by the noble Baroness, Lady Kramer, and the noble Lords, Lord Bruce of Bennachie and Lord Londesborough. These seek to set a reduced rate of employer national insurance for part-time workers at 7.5%. As I have said before, the difficult decisions in the Bill were necessary to repair the public finances, protect working people and invest in Britain’s future. This amendment would reduce the revenue raised from the Bill and therefore prevent the Government achieving those objectives. In policy terms, reducing the rate of employer national insurance for part-time workers would create additional complexity in the tax system and distortions in the labour market.

The Government have taken action to support those on lower pay by increasing the national minimum wage, which I was interested to hear the noble Baroness, Lady Neville-Rolfe, describe as a blow. I think that will be interesting to those on lower pay. We have also introduced important protections for workers as part of the plan to make work pay.

Employers will also continue to benefit from employer national insurance reliefs, including for hiring under-21 and under-25 apprentices, where eligible.

The noble Baroness, Lady Kramer, also spoke about umbrella companies and mini umbrella companies. I will just note that the Government are committed to closing the tax gap and have announced, as part of the closing the tax gap package in the Budget, that we will bring forward measures to tackle non-compliance in the umbrella company market, including mini umbrella company fraud.

The noble Baroness, Lady Bennett, spoke specifically about equalities impacts. I can say that they were fully considered and we are confident that they are set out in the tax information impact note that she referred to.

--- Later in debate ---

[The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab)]

My Lords, I feel that it would have been more sensible to take up residence in the Lobbies, but we have not done that. Another vote is expected imminently but, for now, I call the Minister.

[Lord Livermore (Lab)]

My Lords, in answer to the point made by the noble Baroness, Lady Neville-Rolfe, as I have said, the Government and the OBR have already set out the impacts of the policy change. The information provided is in line with the approach for other tax changes and the Government do not intend to publish additional assessments.

[Baroness Noakes (Con)]

My Lords, before the noble Baroness, Lady Kramer, speaks again to her amendment, the Minister said that what the Government have provided is in line with what they did for other tax changes. I remind him that this is not a tax. The reason we are scrutinising this Bill is that it is not a tax; it is national insurance. I do not think that the Minister can run a line saying that, just because this Bill comes from the Treasury, the Treasury is allowed to produce whatever minimalist, large-font document, with no information in, that it wants. There is an obligation on government to produce impact assessments for major policy changes—and, my goodness me, this is a major policy change and I do not think we will be giving up this particular pursuit in Committee.

[Lord Livermore (Lab)]

HMRC has provided a tax information note, as it does for all similar policy changes. The Government have no intention of publishing additional assessments.

[Lord Ahmad of Wimbledon (Con)]

My Lords, just to confirm, does the Minister honestly feel that that note is sufficient, given the importance of the issue we are debating?

[Lord Livermore (Lab)]

I believe that that note is in line with what we have done for similar policy changes.

--- Later in debate ---

[Lord Altrincham (Con)]

My Lords, I will speak to Amendments 4, 5 and 8 in this group. It is an unusual group, as the noble Lord, Lord Forsyth, mentioned, because it covers such a diverse range of services. But they are all public services, which is why I agree with the comment from the noble Lord, Lord Davies, which I may have misheard, that this special pleading does not really fit well with the concept of hurting public services. These all have in common the semi-independent provision of public service. That is the essence of the dissonance in government policy for this area, which is that the Government are protecting direct public services but have not really thought through what to do about indirect public services, of which the charity sector is a huge provider and has been now for 20 years. It is almost as if we have fooled ourselves by saying, “Well, it’s in the charity sector now so it’s not a public service”—but large charities deliver public services, as do universities. To imagine that they are entirely private and away from the Government is obviously not in line with other areas of policy.

So, that is the essence of why, in an unusual way, these amendments have been gathered. But they have this feature in common and, as we address this, we are trying to find a way through that protects public services. In her very good comments at the start, the noble Baroness, Lady Grender, used the expression “vital partner in public services”. That is what these are: they are vital partners. In essence, sectors of the economy that provide public services—which, certainly within this debate, we should assume are appropriate and are needed—will be affected and, again without a proper impact assessment or proper analysis, the cost of those impacts will almost certainly be taken by the Government. That is the essence of this area of public service delivery, which is that the Government are ultimately on the hook for all this. They are hoping that the services can be provided away from any greater demands on the Treasury, but the truth is that, when it goes wrong, it will go straight back up to the Government.

The noble Lord, Lord Sharkey, spoke so well about universities. What is going on in the university sector cannot be anything but bad news for the Treasury. It must be hoping and praying that the whole situation can just be kicked along without a huge hit coming back to the Treasury one way or another, because the sector is in trouble at the moment. But everybody knows that, when it goes wrong, it will go back up to the Treasury. So let us be careful in putting through changes that make vulnerable public service provision more vulnerable. Surely that is the essence of this area of dissonant policy that is coming out from the Bill.

Specifically on each amendment, Amendment 4 in the name of the noble Lord, Lord Storey, seeks to exempt both early years providers and universities, and indeed it is fair to say that the Government have not fully considered the impact on the education system. I look forward to further discussion on the individual aspects of the education system later in the debate. There have been calls from across the sector, from early years providers to universities, that costs will be far too much for the sector to bear, so if the Government could appropriately explain their evidence that indicates the opposite, it would be most appreciated.

Amendment 5 in the name of the noble Baroness, Lady Grender, seeks to exempt charities, and it certainly seems as though the sentiment across the sector is that this tax will leave many charities in a position where they are forced to reduce services and limit headcount, preventing them offering the same excellent services that they currently do. This tax cannot be seen as anything another than a tax raid that will damage charities across the country.

We also support Amendment 8 in the name of the noble Baroness, Lady Kramer, as the Government have contradicted themselves in regard to local councils. When publishing their local government finance policy for 2025-26, they claimed to understand the issues that councils faced and recognised that, in recent years, the costs of providing services had increased, yet the Bill completely contradicts that and highlights the Government’s chosen direction that does not react to the current situation.

The Local Government Association has claimed that councils will face a shortfall of £637 million next year as a direct result of this poorly thought through tax change. On top of that, it has estimated that it may cost up to another £1.13 billion through indirect costs on suppliers. Neither of these numbers will be offset by the £515 million compensation the Government intend to give. Will the Government say how they reached such a number and whether they will publish the data they used?

These are early questions around these areas of public services. The impacts could be quite large and quite burdensome—ultimately and unluckily, for the Government themselves.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords. I will address the amendments and proposed new clauses proposed by the noble Baronesses, Lady Grender and Lady Kramer, and the noble Lords, Lord Storey, Lord Sharkey and Lord Randall of Uxbridge, which seek to exclude early-years settings, universities, charities, housing associations and town and parish councils from the new employer national insurance rate. I have listened very carefully to all contributions made in this debate and, of course, I understand the points raised.

The Government recognise that early-years providers have a crucial role to play in driving economic growth and breaking down barriers to opportunity. We are committed to making childcare more affordable and accessible. That is why, in our manifesto, the Government committed to delivering the expansion of government-funded childcare for working parents and to opening 3,000 new or expanded nurseries through upgrading space in primary schools to support the expansion of the sector.

Despite the very challenging circumstances the Government inherited, in the Budget in October the Chancellor announced significant increases to the funding that early-years providers are paid to deliver government-funded childcare places. This means that total funding will rise to more than £8 billion in 2025-26. It is very likely that many private nurseries will be able to claim the employment allowance, as receiving public funds does not necessarily mean that work is of a public nature, and they should check HMRC guidance.

On universities, I of course recognise the great value—

[Lord Forsyth of Drumlean (Con)]

I accept that more money has been allocated to nursery and early-years provision, but providers are also facing increased costs. Does the Minister not accept that the national insurance charge is one that has been implemented by the Government, so the Government are giving with one hand and taking away with the other? The Minister is not really addressing the point that this is an unbudgeted cost that is being imposed on top of all the other costs that they face.

[Lord Livermore (Lab)]

I totally understand the points that the noble Lord is making but, as I said at the outset, there are specific reasons for the Bill. Those decisions are difficult decisions, but they are necessary decisions.

On universities, I recognise the great value of UK higher education in creating opportunity, being an engine for growth in our economy and supporting local communities. The Budget provided £6.1 billion of support for core research and confirmed the Government’s commitment to the lifelong learning entitlement, a major reform to student finance that will expand access to high-quality, flexible education and training for adults throughout their working lives.

The Secretary of State for Education has since confirmed that maximum fees will rise in the academic year 2025-26 for the first time since 2017, from £9,250 to £9,535 for a standard full-time undergraduate course. This was a difficult decision which demonstrates that the Government are serious about the need to put our world-leading higher education sector on a secure footing.

I have previously set out the Government’s position on additional impact assessments.

I turn to charities and housing associations. The Government recognise the need to protect the smallest businesses and charities, which is why we have more than doubled the employment allowance to £10,500, meaning that more than half of all businesses, including charities, with national insurance liabilities will either gain or see no change next year.

The Government also provide wider support for charities via the tax regime. The UK’s tax regime is among the most generous in the world, with tax reliefs for charities and their donors worth just over £6 billion for the tax year to April 2024.

More broadly, the Government deliver a number of grant and support programmes, including the community organisations cost of living fund last year and the ongoing social enterprise boost fund. Across 2023-24, the National Lottery community fund made grant awards totalling more than £900 million, 84% of which were under £10,000, with the majority supporting grass-roots organisations.

Regarding housing associations, the Government have announced major steps towards delivering a once-in-a-generation increase in social housing, including supporting the housing associations that deliver this. We are consulting on long-term social rent settlements to provide housing associations with the long-term stability they need to deliver crucial services. I am afraid that I cannot comment on the specific case that the noble Baroness, Lady Grender, set out, as I do not have all the information about it, but I am of course more than happy to discuss with her at any time. On the wider points, any exemptions, carve-outs or delays would of course undermine the fundamental purpose of the Bill, which I have set out before.

Finally, Amendment 8, tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Storey, seeks to exclude town and parish councils from the employer national insurance rate change. The Government have no direct role in funding parish and town councils and therefore do not intend to provide further support for the employer national insurance changes. This is in line with the approach taken for previous national insurance policy changes, including the previous Government’s health and social care levy.

All these proposed amendments would of course come at a cost. They would necessitate either higher borrowing, lower public spending or new revenue-raising measures. That is not what this Government intend to do. For the reasons I have set out, I respectfully ask noble Lords not to press their amendments.

[Lord Storey (LD)]

I am grateful to all noble Lords who have spoken in this group. I want to make one observation. My noble friend Lady Grender and the noble Lord, Lord Randall, talked about charities. Many charities provide services which nobody else pays for and they do not get government funding. For example, this will affect tremendously the hospice movement, which looks after terminally ill people. In my home city of Liverpool, there is a charity called Zoe’s Place that looks after terminally ill babies. It has had major building problems and was looking at having to close down. What happened? The local community and the business community all piled in and saved that building. These increased costs will affect that charity, as they will affect other charities too.

With thanks, I beg leave to withdraw my amendment.

Financial Assistance to Ukraine Bill

Lord Livermore Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 15th January 2025 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

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

My Lords, it is a privilege to open this debate and to speak alongside so many expert noble Lords. I take this opportunity to welcome the noble Baroness, Lady Batters, to your Lordships’ House and very much look forward to her maiden speech.

More than 1,000 days since Russia launched its illegal invasion of Ukraine, the Ukrainian people face a third winter of struggle for survival. They have paid a heavy price—thousands of lives lost, families torn apart, and whole communities destroyed beyond all recognition. Russian artillery continues to target civilian infrastructure and degrade Ukrainian energy networks, leaving ordinary people to freeze in icy cold conditions. Every day on the battlefield, Ukrainian soldiers give their lives in defence of their homeland and the common values that we share. Despite all this, the spirit of the Ukrainian people remains unbroken and Ukrainian forces continue to take the fight to their Russian aggressors with courage and conviction.

We should be under no illusion about the stakes. As the Foreign Secretary has said, Putin’s invasion of Ukraine is being driven by an “imperialist” desire to expand his

“mafia state into a mafia empire”.

It has involved forcibly seizing territory to which Russia has no legal right and for which the Russian people are paying an enormous price. It is a strategy built on corruption and the crushing of dissent—including courageous opponents such as Alexei Navalny—and is backed by the spread of disinformation at home and abroad.

Noble Lords will note that this is a fight not only for Ukraine’s territorial integrity and the safety of its people but for the future of Europe’s collective security and prosperity. The Government have consistently been clear that Putin must fail, but our words of condemnation are not in themselves enough. Action is required. That is why the UK’s support for Ukraine has never wavered, regardless, I am pleased and proud to say, of which party has been in government. I pay tribute to noble Lords opposite who stood side by side with President Zelensky and the Ukrainian people in their hour of need. We are united in saying that we will continue to stand with Ukraine for however long it takes.

Last year, the Prime Minister announced the Government’s commitment to provide £3 billion of military support to Ukraine each year for as long as is needed. Overall, the UK’s combined military, humanitarian and economic support for Ukraine now stands at £12.8 billion. That includes state-of-the-art Challenger 2 battle tanks and Storm Shadow missiles, as well as NLAW anti-tank missiles produced in Belfast that helped Ukrainian soldiers bravely repel the initial attack on Kyiv. Through the hugely successful Operation Interflex, UK Armed Forces have helped train more than 50,000 Ukrainian military personnel.

In total, the UK has now delivered around 400 different military capabilities to Ukraine, with a new £225 million package of drones, boats and munitions announced in December. This builds on the introduction of the most wide-ranging sanctions regime ever imposed on a major economy. As a result of this, we have successfully restricted Russia’s access to global financial markets, reduced its energy revenues and weakened its ability to finance this illegal war. This includes sanctions on more than 2,100 individuals and entities, amounting to over £20 billion. More than 100 ships used for transporting Russian energy have been targeted, including 93 oil tankers that form part of Russia’s shadow fleet, used to illicitly transport billions of pounds’ worth of oil across the globe. The oil price cap has reduced Putin’s tax revenues from oil by 30%.

We are continuing to keep up this pressure. Just last week, the Foreign Secretary announced the designation of two Russian oil giants that together produce more than 1 million barrels of oil per day. The UK has also taken steps to bolster the Ukrainian economy, including by signing the UK-Ukraine digital trade deal to ensure that Ukraine benefits from cheaper and quicker trade. UK Export Finance has provided over £500 million in loan guarantees, including for Ukraine’s own defence industry. We have committed £4.1 billion in fiscal support through loan guarantees on World Bank lending.

However, we cannot stop there. We must continue to back Ukraine, to help its people deter Russian aggression so that they can secure a just and lasting peace on their terms. That is why the Chancellor has committed £2.26 billion to the G7’s extraordinary revenue acceleration loans to Ukraine scheme. This scheme will provide a combined upfront loan of £50 billion from G7 lenders—including the US, Canada, Japan, the UK and the EU. This loan will be repaid from the extraordinary profits generated on holdings of immobilised Russian sovereign assets held in the Euroclear bank in the EU. Euroclear is an international central securities depository with a unique business model, allowing for these profits to be generated.

The EU has already enacted the necessary regulation to operationalise the Ukraine loan co-operation mechanism, which will distribute the profits from the immobilised sovereign assets. The UK’s contribution to the scheme will be provided to Ukraine as budgetary support earmarked for military procurement such as air defence and artillery. It will be delivered in three tranches over three financial years, with the first tranche intended to be delivered early this year. The funding will be issued from the Treasury estimate and was scored in the Budget in October. This new funding is additional to the £3 billion of bilateral military support, which, as I have said, the Government are committed to providing for as long as it takes.

I am aware that the noble Lord, Lord Blencathra, has tabled an amendment to the Motion, calling for immobilised Russian state assets to be used to fund financial assistance to Ukraine. I commend the noble Lord for his work on this issue and the support he has shown for Ukraine. The Bill does not allow for the seizure of assets themselves, in the EU or elsewhere. The Government continue to actively consider all lawful options for ensuring that Russia pays for the damage it has caused in Ukraine. Any action must be taken in tandem with the G7—this is vital to maintain the strength and unity the G7 has already shown in the face of Putin’s aggression. The Bill before your Lordships’ House is designed to deliver new funding to Ukraine as quickly as possible.

Importantly, the Government have agreed with our G7 allies to ensure that Russian sovereign assets remain immobilised across our jurisdictions until Russia ceases its war of aggression and pays for the damage it has caused to Ukraine. G7 lenders have worked closely together to design the scheme in a way that allows repayment in a scenario where profits cease and Russia pays reparations to Ukraine. The sole purpose of the Bill is therefore to provide the Government with a spending authority to deliver this contribution to the G7 scheme. It enables the Government to sign the loan agreement with Ukraine and begin dispersing funds.

By unlocking new funding backed by profits generated from immobilised Russian sovereign assets, we will enhance Ukraine’s ability to defend itself and step up international pressure on Putin’s war machine. We know that this war is already costing Putin dearly. It is a fight for land to which Russia has no right and for which the Russian people are paying an enormous price. To restore peace we must ensure that Putin has no path to military victory. That means deepening our resolve by working in partnership with G7 allies to provide the support Ukraine needs for as long as it takes, not only in defence of Ukrainian sovereignty and the safety of its people but for the liberal democratic values we cherish and the security we depend on. I beg to move.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, it is a privilege to respond to this Second Reading of the Financial Assistance to Ukraine Bill, and to the regret amendment tabled by the noble Lord, Lord Blencathra. I join others in congratulating the noble Baroness, Lady Batters, on her incredibly powerful maiden speech. She brings a wealth of experience to your Lordships’ House, particularly on agricultural and rural issues, and is widely respected for her stewardship of the National Farmers’ Union. We might not always agree, but I very much look forward to her further contributions in debates such as this.

I am grateful to all noble Lords for their contributions and for the unity the House has shown in supporting Ukraine. I am very grateful in particular to the noble Baronesses, Lady Neville-Rolfe and Lady Smith of Newnham, for their support for the Bill. Many noble Lords have spoken movingly about the ongoing plight of the Ukrainian people in the face of Russia’s illegal invasion. It is important that we keep them in our minds today as Ukraine endures a third winter at war. The consequences of Putin’s war are profound: thousands dead and wounded, families torn apart, and enormous damage wrought to Ukraine’s infrastructure and economy that will take many years to rebuild. Despite the carnage that the Russian war machine has wreaked, including scores of innocent civilians killed and thousands of communities devastated right across the front line, the spirit of the Ukrainian people endures, and their resolve to defeat Putin’s army remains undiminished.

In case it needs saying, I profoundly disagree with the contribution from the noble Lord, Lord Balfe. I am heartened by the fact that there has otherwise been near uniform support across your Lordships’ House. The Government’s position remains resolute: Putin must fail, and we must stand with Ukraine for however long it takes, including by working with our G7 allies as part of this scheme. The Government will continue to stand with Ukraine as it wages this fight for freedom. That is why, to date, the Government have provided £12.8 billion in combined military, humanitarian and economic support to Ukraine. The UK has also introduced the most wide-ranging sanctions regime ever imposed on a major economy, depriving Putin of vital finance for his war machine.

My noble friend Lord Beamish asked about circumvention of sanctions, which the noble Lord, Lord Purvis of Tweed, also mentioned. The Government are assessing and enhancing the UK’s sanctions enforcement. This includes working with international partners to build capacity and technical expertise within our own systems and to improve sanctions compliance in their private sectors, as well as deploying increased UK sanctions resources across our overseas network. This is a fight not only for Ukraine’s territorial integrity and the safety of its people but for the future of Europe’s collective security and prosperity. That is why the Prime Minister has committed to providing £3 billion annually to support Ukraine for as long as it takes.

Maintaining international pressure on Putin also requires working in close partnership with G7 allies. The Bill before your Lordships’ House does just that. It would unlock £2.26 billion of new funding for Ukraine, backed by profits generated from immobilised Russian assets as part of the G7’s extraordinary revenue acceleration loans to Ukraine scheme. The scheme demonstrates our shared commitment and solidarity in the face of Russian aggression and will provide approximately $50 billion of additional funding overall to Ukraine, taking account of the combined contributions of our G7 allies.

The noble Baroness, Lady Smith of Newnham, asked whether the Chancellor of the Exchequer raised Ukraine with her counterparts during her recent visit to China. In China last week the Chancellor was clear that, although we must co-operate in areas of mutual interest, we will confidently raise concerns where we disagree. She expressed her real economic and trade concerns with the Chinese, including on economic security. We have secured China’s commitment to improving existing channels so that we can openly discuss sensitive issues and our economy. If we do not engage with China, we cannot express our very real concerns.

The noble Lord, Lord Banner, suggested that we are not meeting or matching our words with actions, a sentiment echoed by the noble Baroness, Lady Wheatcroft. The UK has already provided £12.8 billion of military, humanitarian and economic support to Ukraine since the war began. We are committed to providing a further £3 billion of military aid each year for as long as it takes. This is a significant investment. The new spending the Government are committing as part of the G7 scheme is in addition to these existing commitments and is proportionate to our GDP share within the G7 and the EU.

The noble Baronesses, Lady Smith of Newnham and Lady Wheatcroft, and the noble Lords, Lord Banner, Lord Purvis of Tweed and Lord Kempsell, asked why the Government have not gone further by seizing Russian sovereign assets in the UK. This is also the focus of the regret amendment tabled by the noble Lord, Lord Blencathra. I fully understand that strong views exist on this issue, and I assure noble Lords that we will continue to actively consider all possible lawful avenues by which Russia can be made to meet its obligations to Ukraine under international law. I of course agree that Russia must pay for the damage it has caused in Ukraine. However, the Government believe that any action taken should only be in tandem with the G7. It is in this spirit of collaboration that we have agreed the extraordinary revenue acceleration loans to Ukraine scheme, and we continue to work closely with our G7 partners. Our focus now is on delivering this scheme rapidly to provide the immediate support that Ukraine requires.

The noble Baroness, Lady Anelay of St Johns, asked whether I am instinctively in favour of going further. I can only say that I am in favour of considering all legal routes. She also asked about those legal routes that we have taken. Due to Euroclear’s unique business model as an international central securities depository, it is able to generate extraordinary profits on the holdings of these assets, which legally accrue to Euroclear rather than to Russia. We do not believe the specific circumstances that provide profits generated in this way can be emulated in the UK as we do not believe that any UK-based financial institutions employ this business model. The UK is not required by the Ukraine loan co-operation mechanism to provide any extraordinary profits made from assets held in the UK; we are simply providing a financial contribution to that scheme.

The noble Baroness, Lady Neville-Rolfe, asked whether the UK’s contribution to this scheme will count towards the NATO target of spending 2.5% of GDP on defence. The UK’s contribution will be provided to the Government of Ukraine as a loan from the UK Government to spend on military procurement; it is not direct UK defence spending. The £2.26 billion loan will therefore not count as NATO-qualifying UK defence spending; it will be in addition to current NATO- qualifying UK defence spending. The noble Baroness also asked when the Government will meet this target, as did the noble Baroness, Lady Smith of Newnham. The Government have made a clear commitment to spend 2.5% of our GDP on defence, and this commitment has not changed. We will set out the pathway to 2.5% at a future fiscal event.

I will touch briefly on the nature of the UK’s contribution to this G7 scheme. The funding we are providing will be used for budgetary support earmarked for military procurement, bolstering Ukraine’s capacity for self-defence and providing vital equipment and support to the front line. As my noble friend Lord Beamish said, this funding is additional to the £3 billion of bilateral military support which the Government have committed to providing for as long as it takes. The Bill’s sole purpose is to provide the Government with the spending authority to deliver our contribution to this scheme, or any subsequent arrangements that supplement or modify it. It is not designed to facilitate any other spending on Ukraine or spending for any other purpose. The Bill enables the Government to sign the loan agreement with Ukraine and begin disbursing funds to it.

The noble Baroness, Lady Neville-Rolfe, asked specific questions about how disbursals from the fund will work—a point also raised by noble Lord, Lord Kempsell. The Government intend to begin disbursals early this year to ensure the funding supports our Ukrainian allies as soon as possible. We intend to disburse the UK’s £2.26 billion loan in three equal tranches over three financial years, starting in 2024-25. The G7 has agreed that all funds from this scheme will be disbursed by the end of 2027, although we plan to begin disbursals much sooner.

To further address the points raised by the noble Baroness, Lady Neville-Rolfe, this is a bilateral loan whose parties are His Majesty’s Treasury and the Ministry of Finance of Ukraine. The Government have begun talks with their Ukrainian allies to agree the terms of the provision of this funding. We do not intend for there to be geographical restrictions on where funds may be spent, and are instead ensuring that the purchase of much-needed vital military equipment is prioritised. There will be opportunities for the UK defence industry to benefit where this provides good value for money for the UK and for Ukraine. The Government are aware of the corruption risk in Ukraine and we are taking steps in our loan negotiations to mitigate it. I cannot comment on these negotiations in detail as they are still ongoing.

On the UK being repaid for this loan, as my noble friend Lady Goudie said, under the terms of the scheme the UK will be repaid by the extraordinary profits generated from immobilised Russian sovereign assets in the EU on a six-monthly basis as they accrue. The EU has already enacted the necessary regulation, known as the Ukraine loan co-operation mechanism, which will distribute the profits. This came into effect on 29 October 2024.

My noble friend Lord Browne of Ladyton spoke about international support for Ukraine, and the noble Baroness, Lady Neville-Rolfe, asked about the United States’s contribution to the scheme and the approach that will be taken by the incoming Administration. Although it would be wrong to speculate on any policy decisions that the incoming Administration may make, the UK Government have welcomed sustained bipartisan US support for Ukraine, which has been key in the international effort.

In answer to the noble Lords, Lord Balfe and Lord Purvis of Tweed, the US has already dispersed its $20 billion contribution to our financial intermediary fund at the World Bank. The EU has already passed and implemented its legislation, which covers all the European countries listed by the noble Lord, Lord Balfe.

[Lord Purvis of Tweed (LD)]

My point was less about the US providing $20 billion to the World Bank; my question related to how much Ukraine has actually received.

[Lord Livermore (Lab)]

I do not have that information to hand, but I will happily check for the noble Lord.

The noble Baroness, Lady Neville-Rolfe, asked whether the UK’s contribution to the scheme would increase if the United States or another participant chose to withdraw. I can confirm to noble Lords that this would not affect the UK’s contribution, which will remain at £2.26 billion. We are clear that that is the right and balanced approach, reflecting our fiscal pressures and Ukraine’s needs. The £2.26 billion figure is also proportionate to our GDP share within the G7 and the EU. We will of course continue to co-ordinate with G7 partners on the scheme going forward.

The noble Baroness, Lady Anelay of St Johns, asked for an update on the proceeds from the sale of Chelsea Football Club. The Government are working hard to ensure the proceeds from the sale reach humanitarian causes in Ukraine as quickly as possible. The proceeds are currently frozen in a UK bank account while a new independent foundation is established to manage and distribute the money. Creating an organisation of this scale is complex and officials continue to hold discussions with relevant parties to reach a resolution. As you would expect, we must review the details of any such arrangement to maintain the integrity of our sanctions regime.

In conclusion, we must ensure that Putin has no path to military victory in Ukraine. That means continuing to provide military and economic support to enable Ukraine to defeat Putin’s war machine. The combined $50 billion of new funding, delivered together with our allies in the G7 and backed by profits from immobilised Russian assets, will provide a crucial boost to Ukraine as it continues its third winter at war. It represents an investment not only in Ukraine’s future but in the security and prosperity of Europe more widely, and it demonstrates the shared resolve of the international community in the face of ongoing Russian aggression. I welcome the fact that noble Lords from all sides of the House have been united in saying that we must stand with Ukraine for as long as it takes. This Bill will allow us to honour that commitment.

[Baroness Neville-Rolfe (Con)]

Before the noble Lord sits down, there was one question about the announcement on the 2.5% of GDP. The noble Lord helpfully clarified that the money in this Bill was extra, which is good news, but I think several of us were concerned to know when decisions would be taken on the timing of the 2.5%.

[Lord Livermore (Lab)]

I answered that exact question from the noble Baroness. As we have said all along, we will set out a path to 2.5% at a future fiscal event.

Sterling: Rise in Yields on 30-year Gilts

Lord Livermore Excerpts

Tuesday 14th January 2025 Lords Chamber

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what assessment they have made of the impact of the rise in the yields on 30-year gilts to 5.37 per cent, the highest level since 1998, and the effect of this on sterling.

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

My Lords, the Government do not comment on specific financial market movements. Gilt yields are determined by a wide range of international and domestic factors and it is normal for the price and yields of gilts to vary when there are wider movements in global financial markets. The Government are committed to economic stability and sound public finances. Meeting the fiscal rules is non-negotiable and growth is our number one mission.

[Baroness Neville-Rolfe (Con)]

My Lords, the annual cost of servicing the national debt is now over £100 billion and is estimated to have grown by £12 billion since the Budget. Gilt yields have leaped up, with the critical 10-year rate now at 4.88%—the highest since 2008. The Government need to grasp the seriousness of the situation and the concern that the OBR report is more than two months away. Their own fiscal rules are in jeopardy. Which of their commitments do they propose to break—not cutting expenditure or not raising taxes? Can the Minister rule out an emergency Budget?

[Lord Livermore (Lab)]

As the noble Baroness knows, financial markets are always evolving so it is a long-standing convention that the Government do not comment on specific financial market movements. She will also know that the Chancellor has commissioned the Office for Budget Responsibility to carry out an updated economic and fiscal forecast for 26 March, which will incorporate the latest data. Only the OBR’s forecast can accurately predict the effect on the public finances of any changes in financial markets or the economy, and I will not pre-empt it. However, there should be absolutely no doubt of our commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable.

[Baroness Kramer (LD)]

My Lords, the issue is one of confidence in the British economy. Today, Shevaun Haviland, director-general of the British Chambers of Commerce, called again for quick action to speed up the business rates review, green-light infrastructure projects and build trade, especially with the EU. Do the Government recognise that that kind of leadership and tangible near-term action, rather than long-grass proposals, will give confidence back to the UK economy? Will they take up that challenge for near-term action?

[Lord Livermore (Lab)]

We absolutely will. I completely agree with the noble Baroness. I met Shevaun Haviland last Thursday and we had a very constructive conversation about the measures that the British Chambers of Commerce wants to see to grow the UK economy, which are exactly the same measures that we want to see. The noble Baroness is absolutely right that growth was one of the biggest failures of the previous Government. We are determined to turn that around, which is why we are going further and faster. We are reforming planning, pensions and skills, all of which will significantly boost growth in the UK economy.

[Lord Eatwell (Lab)]

My Lords, the House will be aware that this country has an outstanding Chancellor of the Exchequer at the moment. However, will the Minister enlighten me as to what influence she really has on the US treasury bill market, which has shown the same spike as in the UK, or on the market for the euro, which has fallen against the dollar to the same extent as has the pound? Is it not the case that questions from the Opposition Front Bench might have more economic relevance if they reflected some understanding of how global markets actually work?

[Lord Livermore (Lab)]

My noble friend is absolutely right and I echo his comments about the Chancellor of the Exchequer. There are limits to what she can do, but she is absolutely able to focus on the priorities of this Government. As noble Lords will know, this Government inherited a £22 billion black hole in the public finances left by the previous Government. She has taken very difficult decisions to deal with it, every single one of which has been opposed by the party opposite. However, they were the right decisions because we had to repair the public finances and ensure fiscal responsibility. She has set extremely tough fiscal rules—tougher than those of previous Governments—again, opposed by the party opposite. Meeting those fiscal rules is non-negotiable because we will not compromise on economic stability.

[Lord Morse (CB)]

My Lords, does the Minister recognise that the current rise in gilt prices, viewed alongside the market reaction to Liz Truss’s mini-Budget, shows that current market confidence in the UK can be fairly described as fragile? Does he also agree that any Government, of whatever political stripe, is likely to sow the wind and reap the whirlwind if they implement policies that ignore business confidence and stability?

[Lord Livermore (Lab)]

The noble Lord will be aware that financial markets are always evolving. It is a long-standing convention that the Government do not comment on specific financial market movements. He mentioned the Liz Truss mini-Budget, which crashed the economy. Current conditions are very different from then, when long-dated bonds were most significantly impacted due to market dysfunction. That market dysfunction was caused by unfunded tax cuts, unrealistic spending plans and undermining the institutions that are crucial to economic stability: the Treasury, the OBR and the Bank of England. It pushed up mortgage costs by £300 a month, for which working people are still paying the price. Yet there is still no apology from the party opposite, which, instead, tries to defend it.

[Earl Attlee (Con)]

My Lords, when will the Government’s planning reforms positively affect the UK economy?

[Lord Livermore (Lab)]

They already are. We have seen many planning projects already unblocked by this Government as a result of changes to planning. As soon as this House passes the planning Bill, we will see even more growth in the UK economy.

[Lord Sikka (Lab)]

My Lords, during the 14 years of the last Government, public debt increased from £1 trillion to £2.8 trillion. Public services were decimated, NHS waiting lists tripled, average real wages fell back to the 2008 level and 16 million people now live below the poverty line. Does the Minister agree that the Conservative Party owes the country an explanation?

[Lord Livermore (Lab)]

I agree that the Conservative Party owes the country an explanation—it also owes the country an apology. There was no bigger failure of the previous Government than their failure on growth. First, they introduced austerity, which choked off investment. Then, their Brexit deal created new trade barriers equivalent to a 13% increase in tariffs for our manufacturing sector, permanently reducing GDP by 4%. Finally, their disastrous mini-Budget crashed the economy and set inflation and interest rates soaring. Of course, they left us with the £22 billion black hole in the public finances.

[Baroness Redfern (Con)]

My Lords, after this Government inherited the second-lowest debt in the G7, we now see business confidence ever diminishing—and the public, too, are rightly concerned. We are also witnessing gilt levels at a 30-year high. Does the Minister agree that the gilt markets are in turmoil and therefore technically not functioning in an ordinary way? Does he stand by his Chancellor, who said that there will be no further tax rises?

[Lord Livermore (Lab)]

If I may, I will correct the noble Baroness: UK gilt markets continue to function in an orderly way. Underlying demand for the UK’s debt remains strong, with a generally well-diversified investor base. The Debt Management Office’s gilt sales operations continue to see strong demand, with the latest auction, held earlier today, receiving three times as many bids as the amount on offer. The noble Baroness mentioned what we inherited, so she will be very aware that we inherited a £22 billion black hole in the public finances. We have taken very difficult decisions to deal with that, every single one of which has been opposed by her party.

[Viscount Thurso (LD)]

My Lords, what consideration have the Government given to the Bank of England’s current policy of fairly aggressive quantitative tightening? Do they feel that this is helpful in the current market? Should the Chancellor consider issuing a direction to the Bank on this issue?

[Lord Livermore (Lab)]

The Government support the Bank of England in the actions that it takes.

[Baroness Lister of Burtersett (Lab)]

My Lords, there has been worrying talk about cuts to the social security budget. Following my noble friend Lord Sikka, I ask: will the Government consider the fact that previous Governments, over the last decade, cut £50 billion a year from the social security budget, according to the Child Poverty Action Group, and that poverty is much deeper as a result? Please will this be taken into account before any consideration is given to further cuts to social security?

[Lord Livermore (Lab)]

I completely agree with my noble friend that poverty is an absolute priority for this Government, as it should be, but so too is getting people back to work, and welfare reform is necessary to do that.

UK-China Economic and Financial Dialogue

Lord Livermore Excerpts

Tuesday 14th January 2025 Lords Chamber

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

My Lords, with the leave of the House, I will repeat the Statement given in the other place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:

“Growth is the No. 1 mission of this Labour Government. To grow the economy, we need to help Great British businesses export around the world, including to China. As the second biggest economy in the world and our fourth-largest trading partner, not engaging is simply not an option. That is why I led a delegation, including the Governor of the Bank of England, the chief executive of the Financial Conduct Authority and representatives of some of Britain’s largest financial services firms, including HSBC, Standard Chartered and Schroders, at the 2025 UK-China economic and financial dialogue—the first of its kind since 2019.

This dialogue has delivered a set of tangible benefits to ensure that British firms have greater access to the Chinese market, while safeguarding our national security—the first duty of any Government. In China, I met outstanding British companies, such as Brompton, Jaguar Land Rover and AstraZeneca, that will benefit from the steps that we have agreed. We have worked to lift market access barriers across a range of goods and services, particularly in the agri-food sector. On financial services, we have successfully secured new licences and quota allocations for UK firms to improve operating access in China. We agreed to co-operate further, including by renewing our shared commitment to the UK-China Stock Connect scheme, first launched in 2019, deepening our co-operation on wealth management through a UK-China wealth connect scheme and progressing initiatives on pensions and sustainable finance, delivering significant benefits for UK firms and the City of London. I am pleased that China agreed to issue its first ever overseas sovereign green bond in London during 2025, underlining the UK’s position as a global capital for high-quality sustainable finance.

The UK is a global leader in financial services. There are significant opportunities to expand our presence in new markets. The tangible outcomes that we have delivered this week will help to deliver that. These steps are part of a wider programme to make substantive progress in improving arrangements for UK exporters and investors. This is reflected in new agreements on vaccine approvals, fertiliser, whisky labelling, legal services, automotives and accountancy, which set us on course for this dialogue to unlock £1 billion of value for the UK economy.

These outcomes, agreed with my counterpart Vice-Premier He Lifeng, represent pragmatic co-operation in action and support secure and resilient growth, because security and growth go hand in hand. This means finding the right way to build a stable and balanced relationship with China in our national interest—one that recognises the importance of co-operation in addressing the global issues that we face, competing where our interests differ, and challenging robustly where that is required. In Beijing and Shanghai, I was clear that while we must co-operate on areas of mutual interest, we will confidently challenge on areas where we disagree. I expressed our country’s real economic and trade concerns to the Chinese, including trade imbalances and economic security, and I raised concerns about Russia’s illegal war in Ukraine, human rights, and the restrictions on rights and freedoms in Hong Kong, including the case of Jimmy Lai and the completely unjustified sanctions against British parliamentarians.

A key outcome of this dialogue is that we have secured China’s commitment to improve existing channels, so that we can openly discuss sensitive issues and the ways in which they impact our economy, because if we do not engage with China, we cannot raise our real concerns. This dialogue is just one part of our engagement with trading partners right across the world. Since becoming Chancellor, I have travelled to New York, Washington, Toronto and Brussels to build our global economic relationships, while my right honourable friend the Business Secretary has travelled to the Gulf to boost trade and investment, and my right honourable friend the Foreign Secretary is engaging with partners all over the world to deliver growth that benefits people across the United Kingdom.

We must continue to go further and faster in driving economic growth to make working people better off. That is why, yesterday, the Prime Minister launched our AI opportunities action plan to throw the full weight of government behind artificial intelligence in the UK, revolutionising our public services and making our economy more productive. It is why next week I will be meeting business leaders, investors and entrepreneurs at the World Economic Forum meeting in Davos to make the case that the UK is one of the best places in the world to invest. In the coming weeks, I will be setting out further details of our plans to kick-start growth in the economy after 14 years of failure from the party opposite”.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, I am grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their questions and contributions. I am grateful to the noble Baroness, Lady Neville-Rolfe, for her initial welcome for the improvements in the trading relationship and the consequences they will have. As both noble Baronesses will know, delivering economic growth is this Government’s number one mission. It is central to raising living standards, creating wealth and opportunity, and delivering well-funded public services.

While the OECD forecasts that our economy will grow faster than those of Germany, Italy, France and Japan over the next three years, the latest growth figures show the scale of the challenge we face. The Government are therefore determined to go further and faster in driving economic growth and making working people better off, including by supporting British businesses to export around the world.

I do not think that the noble Baroness, Lady Kramer, was suggesting this but, in this context, it is clearly not an option simply to ignore China, the second-biggest economy in the world and our fourth-largest trading partner. The Government will work with China on trade, investment and climate change while safeguarding our values and security. While our G7 partners invested heavily in dialogue with China in recent years, the UK fell behind due to the inconsistency in approach of the previous Government.

In addition to hampering our ability to deliver growth for the UK, this approach of disengagement also risked leaving the UK out of critical conversations on issues vital to the UK’s national security. In contrast, the UK-China economic and financial dialogue represents a decisive first step to restarting substantive engagement on important economic issues.

The noble Baroness, Lady Neville-Rolfe, asked specifically about financial services outcomes. The Government have successfully secured new licences and quota allocations for UK firms to improve operating access in China. We have progressed initiatives on pensions and sustainable finance, delivering significant benefits for UK firms and the City of London. Additionally, China has agreed to issue its first overseas sovereign green bond in London during 2025, underlining the UK’s position as a global capital for high-quality, sustainable finance.

Importantly, the UK and China also signed new agreements on vaccine approvals, fertiliser, whisky labelling, legal services, automotives and accountancy, which sets us on course for this dialogue to unlock £1 billion of value for the UK economy. The noble Baroness, Lady Neville-Rolfe, slightly questioned the value of the £600 million that has been secured, but £600 million is a lot of money and delivers significant benefits for the UK, with new agreements in several important areas.

Of course, we accept that there is still more progress to be made; we must keep the momentum going forward, particularly in green finance. The Government would also like to see the UK and China further enhancing co-operation on capital market connectivity, wealth management and pensions.

The noble Baroness, Lady Kramer, spoke extensively about security and the role of human rights, and obviously security and growth go hand in hand. That means finding the right way to build a stable and balanced relationship with China that is in our national interest—one that recognises the importance of co-operation and addressing the global issues we face, competing where interests differ and challenging robustly whenever that is required. That is why, on her visit, the Chancellor expressed the UK’s real economic and trade concerns to the Chinese, including trade imbalances and economic security. She also raised Russia’s illegal war in Ukraine, human rights and the restrictions on rights and freedoms in Hong Kong, as the noble Baroness quite rightly raised, including the case of Jimmy Lai, and the completely unjustified sanctions against British parliamentarians. Importantly, the UK also secured China’s commitment to improve existing channels so that we can openly discuss these sensitive issues and the ways in which they impact our economy. If we do not engage with China, we cannot raise these very real concerns.

The noble Baroness, Lady Kramer, raised a number of security concerns and asked about security risks. National security is at the heart of everything the Government do. Our engagement with China is pragmatic and necessary to support the UK on global interests. We must speak often and candidly across areas of contention as well as areas where co-operation is in the UK’s national interest. We firmly recognise that the UK and China will not and do not always agree. The Chancellor’s visit was a platform for respectful and consistent future relations with China, one where we can be frank and open on areas where we disagree, protect our values and security interests and find opportunities for safe trade and investment.

The noble Baroness also asked about putting China on the enhanced security tier. I am not going to get ahead of any announcements and speculate which countries might be specified on the enhanced tier at this stage, nor would I comment on matters of national security, but, as I have said, work is under way to identify which foreign powers will be placed on the enhanced tier. That will be based on a robust security and intelligence analysis.

The noble Baroness also asked whether the Chancellor challenged her Chinese counterparts on human rights. I can confirm that yes, of course, the Chancellor raised human rights. In all our engagements with the Chinese Government, we continue to challenge them robustly on human rights violations and continue to raise our concerns at the highest levels of the Chinese Government.

The noble Baroness, Lady Neville-Rolfe, asked about growth. The Government intend to build a platform for a stable long-term economic relationship with China that works squarely in our national interest. That is essential to our growth strategy. But, of course, our engagement with China is just one part of the action we are taking to drive growth. Internationally, we are engaging with key partners around the world, and that is why the Chancellor has travelled to New York, Washington, Toronto and Brussels to build global economic relationships since taking office. Domestically, only yesterday the Prime Minister launched an AI Opportunities Action Plan. Next week, the Chancellor will be meeting business, investors and entrepreneurs at the World Economic Forum in Davos, and in the coming weeks she will be setting out further details of our plans to kick-start growth in the economy.

I was surprised that the noble Baroness, Lady Neville-Rolfe, raised my favourite issue of the £22 billion black hole. I am happy to say that she is mistaken in her analysis of the composition of that black hole. She knows full well exactly the number the previous Government left behind. She is also mistaken in saying that we have made no productivity requirements in the Budget. We set out a 2% productivity requirement for every department, unlike the previous Government who had done no such thing.

The noble Baroness also asked about the fiscal rules. It is absolutely clear that we will meet the fiscal rules. They are non-negotiable. It is interesting that the noble Baroness repeated the party opposite’s opposition to every one of the tough and difficult decisions we have taken to repair the public finances and repair that £22 billion black hole in the public finances. I notice she did not speak out against what we are spending that money on but did against raising that money, which is exactly why we ended up with a £22 billion black hole in the first place. She asked about the action we will take. She should have no doubt that we will take the tough action necessary to ensure that we meet our fiscal rules.

In conclusion, establishing a stable and balanced relationship with China—our fourth-largest trading partnership—is clearly in the UK’s national interest. The Government will, of course, continue to take a consistent approach, co-operating to address the global issues we face, competing where our interests differ and challenging robustly whenever that is required. The Chancellor’s visit last week shows how pragmatic collaboration can deliver tangible outcomes that support secure and resilient growth. That is why the Government will go further and faster to drive economic growth to make working people better off, including by supporting British businesses to export around the world.

[Lord St John of Bletso (CB)]

My Lords, in welcoming this Statement, can I ask the Minister to elaborate on what bilateral agreements are being discussed on the governance of AI, which is becoming such a critical development globally?

[Lord Livermore (Lab)]

It is a very good question; I am sorry that it is the first question that I do not have an answer to. I will write to the noble Lord on that point.

[The Earl of Effingham (Con)]

My Lords, I declare an interest as stated on the register. Following on from the question from my noble friend Lady Neville-Rolfe, UK inflation was 1.7% in September, it was 2.3% in October and it was 2.6% in November, so inflation is going up. UK real GDP growth was revised down to show no growth from July to September. Sterling is falling more than other currencies. That is all UK specific. Please can the Minister give us a rough date by which he will deliver a positive UK growth number?

[Lord Livermore (Lab)]

I commend the noble Earl for his efforts to try to portray the previous Government’s record on the economy as some kind of success, whereas everyone listening both in the Chamber and outside knows that it was 14 years of total catastrophe. He mentioned inflation as if 33 months in a row above the Government’s target was something to be proud of, when we know that it hurt family finances dramatically over that time. He tried to say that the previous Government did well on growth, when we know that growth was one of their biggest failures. They took investment out of the economy at a vital moment with their austerity programme. They reduced GDP by 4% as a result of their Brexit deal, and then the Liz Truss mini-Budget crashed the economy, sending mortgage rates soaring by £300 a month, for which ordinary working people are still paying the price. I really reject the fundamental basis of the noble Earl’s question. He asked about timing. He knows very well that it is very difficult to turn around 14 years of failure. We cannot do that in six months, but we are determined to do it and will do whatever it takes to turn around the British economy.

[Baroness Neville-Rolfe (Con)]

I am not sure I am supposed to speak, but I would just say that there was also something called Covid and an energy crisis and Ukraine. It would be good if the Minister sometimes mentioned those as well as some of the other factors.

[Lord Livermore (Lab)]

I know the noble Baroness is desperate to find any scapegoat or excuse for her party’s total failure on the economy. Of course, there are international factors at play, but perhaps she could tell us why the UK was worse affected than any other country in the G7 and any other European country as a result of those things. It is because their austerity and their Brexit left this country more exposed and we therefore suffered far worse than any other country.

[Lord Grantchester (Lab)]

My Lords, this was an important visit. I welcome the Statement and endorse the importance of productive trade deals around the world leading to growth opportunities. I am pleased that the agritrade restrictions have been lifted. The UK has enjoyed a beneficial relationship with Taiwan, especially with regard to its world-leading semiconductor industry. In the visit to China over the weekend, was the position of Taiwan part of the conversations? Can the Minister assure the House regarding continuing trade relationships with Taiwan, against the background of the newly signed CPTPP deal and the pressures across the strait from Chinese challenges?

[Lord Livermore (Lab)]

I am grateful to my noble friend for raising those important trade issues. I can assure him that, having just acceded to the CPTPP trading relationship, we are absolutely committed to continuing that relationship and to building trade relationships in that manner. On Taiwan specifically, we consider the Taiwan issue one that should be settled peacefully by people on both sides of the Taiwan Strait through dialogue, not through any unilateral attempts to change the status quo.

[Baroness Bennett of Manor Castle (GP)]

My Lords, in responding to the noble Baroness, Lady Neville-Rolfe, just now, the Minister said that their austerity—referring to the Tory Government’s austerity—has left us worse off. Can the Minister assure me that we will not see further damaging austerity of the kind that has already left us with a terrible level of public health, teetering Civil Service departments that cannot keep up with their responsibilities and local government in crisis? Can he say that we are not going to see more of that from this Government?

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. I cannot remember what the Green Party’s position is on the national insurance increases that we have put in place. I certainly hope that she is not opposing those increases but supporting the extra investment that we are putting into the National Health Service as a result, because that would not be terribly coherent. We are committed to investing in our public services. The Budget we just had, in October, announced £100 billion more of capital investment. I certainly would not describe that as austerity.

[Baroness Bennett of Manor Castle (GP)]

Since the Minister came directly at me, I very much invite him to look at the Green Party manifesto from the recent election. It remains our position to raise money from a range of sources to put vastly more investment into the NHS and many other government programmes, particularly through a wealth tax. I invite the Minister to look at it.

Since I am on my feet, the question that I was originally going to ask relates to the position of Jimmy Lai, as raised by the noble Baroness, Lady Kramer. Does the Minister agree that the situation of British citizen Jimmy Lai reflects the fact that there is no rule of law in China? In encouraging British businesses to further invest and become involved in China, is there not a significant risk to both their capital and staff where there is no rule of law? I am concerned that the Statement speaks with praise of HSBC and Standard Chartered. I do not know whether the Minister is aware of the situation where those companies have refused to hand over to Hong Kongers—BNO passport-holders who have come to the UK—their own money in pension funds.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her follow-up question. I am sure that the Green Party manifesto is a cracking read and I will endeavour to read it, if I have time. I note that she did not say that she was in favour of the national insurance increase, so I take it that she is supporting the investment without supporting the means to raise that investment.

The noble Baroness asked specifically about British national Jimmy Lai. His case is a priority for the UK Government. The Chancellor raised this Government’s concerns about the case during her visit to China. The UK has called for the national security law to be repealed and for an end to the prosecution of all individuals charged under it, including Jimmy Lai. We continue to call on the Hong Kong authorities to end their politically motivated prosecution and immediately release Jimmy Lai.

Public Finances: Borrowing Costs

Lord Livermore Excerpts

Thursday 9th January 2025 Lords Chamber

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

My Lords, with the leave of the House, I will repeat as a Statement an Answer to an Urgent Question given in the other place by my right honourable friend the Chief Secretary to the Treasury. The Statement is as follows:

“Financial markets are always evolving, so it is a long-standing convention that the Government do not comment on specific financial market movements, and I will not break with that convention today. Financial market movements, including changes in government bond or gilt yields, which represent the Government’s borrowing costs, are determined by a wide range of international and domestic factors. It is normal for the price and yields of gilts to vary when there are wider movements in global financial markets, including in response to economic data.

In recent months, moves in financial markets have been largely driven by data and global geopolitical events, which is to be expected as markets adjust to new information. UK gilt markets continue to function in an orderly way. Underlying demand for the UK’s debt remains strong, with a generally well diversified investor base. The Debt Management Office’s gilt sales operations continue to see strong demand, with the latest auction held yesterday receiving three times as many bids as the amount on offer.

The Chancellor has commissioned the Office for Budget Responsibility to provide an updated economic and fiscal forecast for 26 March, which will incorporate the latest data. Only the OBR’s forecast can accurately predict the effect on the public finances of any changes in financial markets or the economy and I will not pre-empt its forecast. There should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable.

I end by saying I am pleased that the right honourable Gentleman is holding this Government to account on our stewardship of the economy. It is important that he does so, because he will remember when his party crashed the economy with unfunded tax cuts, unrealistic public spending plans and a clear disregard for the consequences on family finances. Families across the country are still paying the price of its disastrous performance on the economy, with higher mortgages and bills. If there was one clear reason why the Conservative Party suffered such an historic defeat at the last general election, it was its performance on the economy—and presumably why the shadow Chancellor himself admitted in December that the lack of trust in the Conservative Party’s management of the economy has left a ‘deep and painful scar’ in the pockets of every person across Britain. Let me tell him what has changed.

This Labour Government have in their first six months exposed the £22 billion black hole in the public finances left by the previous Government. They have dealt with that problem with the Chancellor’s Autumn Budget, protecting working people, wiping the slate clean from the mess the Conservative Party left the country in and investing in our NHS and schools. We have given the independent Office for Budget Responsibility enhanced powers of oversight, so that we never get into the situation again where a £22 billion black hole in the public finances can be covered up, and set tough fiscal rules that are non-negotiable, with a Budget settlement for public services that we must all live within. We have also kick-started growth in this country—the number one mission of this Government—by unlocking investment and bringing forward reforms in planning and in the Mansion House speech.

Might I just say to the right honourable Gentleman that this is in stark contrast to the negligent, shameful horror of a circus performance that the Conservative Party unleashed on this country when they were in government only a few months ago? Until he can come to this House with an apology for the British people, I will not take any lectures from the Conservative Party about how to run the economy”.

[Baroness Neville-Rolfe (Con)]

My Lords, the Government made their first objective high economic growth and, so far, they have not had that much success. Another prime objective, reiterated by the Minister, was economic stability; again, they have not yet got very far with that. Survey after survey has shown that business confidence has simply collapsed and we can see this in the market. In the last 48 hours, borrowing costs have reached a 27-year high and, of course, every pound that we spend on debt interest is money that we cannot spend on public services. In the Budget, the Chancellor hiked up taxes, increased borrowing by an average of £32 billion a year and conveniently adjusted her fiscal rules. Given that she appears to be about to break those rules, does the Minister stand by the Chancellor’s statement that she is not coming back with more taxes? Yes or no? We are keen to have a clear answer.

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. She is absolutely right that growth was one of the biggest failures of the previous Government. We are determined to turn that around. She is also correct to say that there should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is absolutely non-negotiable. I am not going to pre-empt future fiscal events or spending reviews now, but the Chancellor has been absolutely clear that she would not repeat the likes of the October Budget and is focused on growing the economy so that people in every corner of the UK see an improvement in living standards. We have set very tough fiscal rules, tougher than those of the previous Government, which we meet two years early. We have set the envelope for the second phase of the spending review, which we will stick to. That will involve tough choices on spending, but they are choices we are prepared to make, and our reform agenda will be central to improving services going forward.

[Baroness Kramer (LD)]

My Lords, the Minister used the phrase “meeting the fiscal rules is non-negotiable”. A few minutes ago in the other place, my colleague the honourable Member for Wokingham asked for a similar reassurance that promised investment in the NHS and care is also non-negotiable. The reply, I hope inadvertently, was somewhat soft and went no stronger than commitment. Can the Minister use the term “non-negotiable”, because we need reassurance that there will be no scaling back of the committed investment in the NHS and care?

--- Later in debate ---

[Lord Livermore (Lab)]

I am grateful to the noble Baroness. As she says, there should be absolutely no doubt of the Government’s commitment to economic stability and sound public finances. She is right to say that meeting the fiscal rules is, for this Government, non-negotiable. We have set very tough fiscal rules which we meet two years early. We have set the envelope for the second phase of the spending review, which we will stick to, but I say again that will involve very tough choices on spending and they are choices that we are prepared to make.

[Baroness Blackstone (Lab)]

My Lords, does my noble friend the Minister agree that the global uncertainty we are now witnessing reinforces the need for economic growth, through both the policies that the Government are now pursuing and other means?

[Lord Livermore (Lab)]

I absolutely agree with my noble friend. Growth was one of the biggest failures of the previous Government and we are determined to turn that around. The OECD recently upgraded our growth forecast, which means that the UK’s economy is now growing faster than those of Germany, France, Italy and Japan over the next three years. Following the Budget, the OBR increased its forecast for GDP for 2024 and 2025 and, for the first time, it has looked at the growth impact across a decade. It is particularly clear that capital investment, which the party opposite opposes, will lead to a significant increase in growth over the longer term.

[Lord Howell of Guildford (Con)]

My Lords, the Minister will be aware—at least, I hope he is—that global Governments’ debt at present is running at about $95 trillion. That is expected to rise to $130 trillion in three years’ time. He is right that there are some countries where the debt is higher than ours at present, but does he accept that it is about not only the size of the borrowing but the bond markets’ and world opinion about the commitment of a Government to enterprise and growth and to dynamic economic policies, particularly affecting small and medium-sized business, which of course is 99% of all business? Will he therefore have a word with the Chancellor to ensure that she recognises that in her next Budget, as she did not seem to in her last Budget, because it would greatly improve our standing and may save us a few tens of billions in interest on our present enormous debt?

[Lord Livermore (Lab)]

I am happy to say to the noble Lord that the Government are absolutely committed to working in partnership with business to grow the economy and to doing what is required to do so. As he knows, the Government are committed to economic and fiscal stability. We have put in place those robust fiscal rules, and there is a significant fiscal consolidation during the course of this Parliament, taking borrowing as a share of GDP from 4.5% to 2.1%. If achieved, this would be the biggest current budget surplus in over 20 years.

[Lord Fox (LD)]

My Lords, the growth of which the Minister speaks will need investment and, given the state of the public finances, a significant proportion of that investment has to come from the private sector. In my experience, that sort of investment requires not just a realistic analysis of the present but a persuasive picture of the future. The Minister has rehearsed the analysis of the present, but does he agree that the Government have to step up and better articulate their vision of the future in order to attract the investment that this country so desperately needs?

[Lord Livermore (Lab)]

I agree with a lot of what the noble Lord says. He and I are both strong supporters of an industrial strategy. The Government’s new modern industrial strategy is a core component of what the noble Lord is asking for. We are introducing a new industrial strategy that will give the private sector the guidance it requires about the sectors that we would like to see investment coming into. We are doing planning reform, which is one of the biggest reforms that we can possibly do to unlock new levels of private sector investment in the economy. We are doing pension reform, which the Chancellor set out in her Mansion House speech. We are doing skills reform—another key component of unlocking investment in our economy. All those things will significantly boost growth in our economy, but none of them is yet included in the OBR’s forecast.

[Baroness Foster of Aghadrumsee (Non-Afl)]

My Lords, how concerned are the Minister and His Majesty’s Treasury that £9.6 billion of cash was withdrawn last year from the London Stock Exchange—the highest amount on record?

[Lord Livermore (Lab)]

Clearly, ensuring that UK businesses have access to finance is crucial to this Government’s economic policy.

[Lord Londesborough (CB)]

My Lords, further to the point from the noble Lord, Lord Fox, about investor sentiment, the pound has suffered its biggest three-day slide in two years, and this morning’s yield on 30-year government bonds has risen to 5.385%. That is the highest level seen since 1998. Does the Minister accept that the pound’s weakness and the bond sell-off signal that investors are sceptical about the Government’s growth ambitions and particularly the impact of the October Budget?

[Lord Livermore (Lab)]

I repeat to the noble Lord what I said in my opening remarks. Financial markets are always evolving, so it is a long-standing convention that the Government do not comment on specific financial market movements. I will not break that convention today. Financial market movements, including changes in government bond or gilt yields, which represent the Government’s borrowing costs, are determined by a wide range of international and domestic factors.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, the Minister quite rightly said that the Opposition, when in government, had been irresponsible in their economic policies, but does he not agree that their unfair and unjustified criticism of this Government is equally irresponsible and unhelpful?

[Lord Livermore (Lab)]

I am happy to agree with my noble friend that any criticism of this Government is unhelpful.

[Noble Lords]

Oh!

[Lord Livermore (Lab)]

I am grateful to my noble friend for reminding me to remind the House of when Liz Truss crashed the economy with unfunded tax cuts and unrealistic spending plans, undermining the institutions that are crucial to economic stability—the Treasury, the OBR and the Bank of England—and when she pushed up mortgage rates by £300 a month, for which working people of this country are still paying the price. It is extraordinary that we have had no apology from the party opposite for that.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Livermore Excerpts

Wednesday 8th January 2025 Lords Chamber

Moved by

[Lord Livermore]

That the bill be committed to a Grand Committee.

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

My Lords, the substance of this Bill was addressed during the Second Reading debate in your Lordships’ House on Monday. However, I briefly remind noble Lords that, in the Budget last year, the Government set out a plan to repair the public finances while protecting working people and restoring public services. This meant taking some very difficult decisions, some of which are contained in this Bill. I of course understand and respect the legitimate concerns that have been raised, both inside and outside your Lordships’ House, in relation to the Bill, which is why the Government are committed to ensuring thorough and detailed scrutiny of the legislation.

I am aware that an amendment is before the House that the Bill should be considered in a Committee of the whole House, rather than in Grand Committee. There is clear precedent for the latter. Every national insurance contributions Bill since 2006 that has not been fast tracked has been considered in Grand Committee. The Grand Committee has proven to be entirely capable of providing the detailed scrutiny that a Bill such as this requires. Since Committee stages began being held in Grand Committee in 2002, the Grand Committee has been the normal venue for smaller or more technical Bills, including those that have made substantial changes. The precedent set over the past two decades demonstrates that Grand Committees are well equipped to handle the detailed examination required for such legislation. This Bill, while significant, follows the same technical nature, and the Government believe that there is no reason for treating it differently from its predecessors.

As noble Lords know, unless there is an intention to vote in Committee stage, which would be highly unusual for a Bill of this type, there is very limited procedural difference between the Grand Committee and a Committee of the whole House. Both venues afford the same opportunities for thorough scrutiny and debate. Proceedings of the Grand Committee are fully transparent and are recorded in Hansard, just as they are in this Chamber. Members of the public and the media have access to the debates, ensuring that the process remains open and accountable. However, there are important practical considerations and time constraints for this Bill. If it were necessary to wait for a slot in a Committee of the whole House, the Government would be concerned about meeting the resource budgeting and accounting deadlines for the Bill. The Grand Committee offers a timely and efficient solution, ensuring that we can meet our obligations without unnecessary delays.

I look forward to addressing in Committee all the concerns that noble Lords have raised about this Bill. The Government believe that the Grand Committee is the most appropriate forum for detailed scrutiny of this legislation, following the precedent of the past two decades, ensuring that we can proceed in a timely and efficient manner. I beg to move.

Amendment to the Motion

Moved by

--- Later in debate ---

[Baroness Lawlor (Con)]

My Lords, I do not like to disagree with the Minister, but I cannot help thinking that describing this Bill as a technical Bill is rather far-fetched. If you compare the Bills that we have seen in Grand Committee, such as the Financial Services and Markets Bill, which was a very large and technical Bill, or indeed the Product Regulation and Metrology Bill, which went through last time round, you see that these are indeed very technical Bills—of a short and long nature. But this Bill is one of the tiniest Bills I have seen. It is very short. It proposes two simple measures. One is to lower the threshold at which employers will pay national insurance, the consequences of which were pointed out on Monday. The second is to raise the percentage of national insurance paid by employers on every salary, notwithstanding the raising of a certain employment allowance. I therefore cannot help but think that this is a very simple proposition for this country and a very serious one, and to describe it as a technical Bill is a slight exaggeration—perhaps the noble Lord will agree.

[Lord Livermore (Lab)]

I am very grateful to all noble Lords for their contributions to this debate. This Bill is significant and should of course be subject to thorough scrutiny by your Lordships’ House. As I said, the Government believe that the Ground Committee provides the best forum for that scrutiny. It was notable in the comments of the noble Baroness, Lady Williams of Trafford, that she sought to revisit all the arguments that were debated thoroughly during Second Reading of the Bill on Monday and did not address a single question of precedent.

[Baroness Williams of Trafford (Con)]

Oh!

[Lord Livermore (Lab)]

I am sorry. I apologise; I meant procedure. The noble Baroness did not address a single question of procedure. She sought to relitigate all the arguments that were made extensively at Second Reading. That shows that we are far from seeking somehow, as the noble Lord, Lord Forsyth, said, to shy away from debate. Both he and I sat through six hours of debate on the Bill on the Floor of the House just on Monday, so in no way am I or the Government seeking to shy away from debate. I am very happy to debate these matters on the Floor of the House any time, as the noble Lord knows.

As I said in my opening remarks, every national insurance contributions Bill since 2006—in answer to the noble Baroness, Lady Williams of Trafford, this one has not been fast-tracked; the two she mentioned were fast-tracked—has been considered in Grand Committee. This has been the normal venue for small or technical Bills—and, as the noble Baroness said, this is indeed a small Bill—including some that have made substantial changes. She mentioned some that made extremely substantial changes that were considered in Grand Committee.

The precedent set over the past two decades demonstrates that Grand Committees are well equipped to handle the detailed examination that is required for such legislation. This Bill follows the same technical nature and the Government believe that it should be treated in the same manner as all its predecessors. We of course understand and respect the legitimate concerns that have been raised in relation to the Bill. We are committed to ensuring thorough and detailed scrutiny of the legislation which, following the precedent of the past two decades, we believe will be best achieved in Grand Committee.

[Lord Forsyth of Drumlean (Con)]

Will the Minister take the opportunity to correct his noble friend and confirm that Divisions are not allowed in Grand Committee?

--- Later in debate ---

[Lord Livermore (Lab)]

I am not as expert in procedure as the noble Lord. I am happy to defer to my noble friend.

[Captain of the Honourable Corps of Gentlemen-at-Arms and Chief Whip (Lord Kennedy of Southwark) (Lab Co-op)]

I am happy to confirm that you cannot have Divisions in Grand Committee.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Livermore Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

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

My Lords, I wish all noble Lords a happy new year. It is a pleasure to open this debate. I am aware that the noble Baroness, Lady Kramer, has tabled a regret amendment expressing concern about the measures in the Bill. While I of course understand and respect the points raised in it, this Government had to take some very difficult decisions—not decisions we wanted to take, but necessary decisions to clear up the mess we inherited.

In the time I have available today, I will seek to explain why not acting was simply not an option, and why this Bill is necessary to repair the public finances, while protecting working people and rebuilding our public services.

I will begin by setting out the economic context in which the Budget decisions contained in this Bill were taken. As noble Lords will know, on her arrival at the Treasury last July, the Chancellor was informed of a £22 billion black hole in the public finances—a series of commitments made by the previous Government which they did not fund and did not disclose. Ahead of the Budget, the independent Office for Budget Responsibility had conducted a review into the circumstances surrounding a meeting it held with the Treasury on 8 February last year, at which the previous Government were obliged to disclose all unfunded pressure against the reserve.

The OBR’s review established that at that point the previous Government concealed £9.5 billion. However, as we now know, during the remaining five months they had left in office, the previous Government continued to amass unfunded commitments, which they did not disclose. By the time of the spring Budget, Treasury records show these had reached £16.3 billion. By July, they had reached £22 billion.

The Treasury has provided to the OBR a line-by-line breakdown of these unfunded commitments: 260 separate pressures which the previous Government did not fund and did not disclose. Neither did they make any provision for costs they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal, and £1.8 billion to compensate victims of the Post Office Horizon scandal.

The country inherited not just broken public finances but broken public services: NHS waiting lists at record levels, children in Portakabins as school roofs crumbled and rivers filled with polluted waste. Yet, since 2021, there had been no spending review and no detailed plans for departmental spending set out beyond this year.

Faced with this reality of broken public finances and broken public services, any responsible Chancellor would have had to act. Some noble Lords, during today’s debate, may argue otherwise: that we should have ignored the black hole in the public finances. But this is the path of irresponsibility, the path chosen by the Liz Truss mini-Budget, when mortgage costs increased by £300 a month, and for which working people are still paying the price.

That is not the path chosen by this Government. Our number one commitment is economic and fiscal stability. That is why, as a result of the Budget—and only because of the measures contained in this Bill, combined with other difficult decisions we have taken—instead of £22 billion of unfunded spending plans, within three years not a single penny of day-to-day government spending will be funded by borrowing.

Yes, it was a significant Budget, on a scale commensurate with the challenging inheritance we faced. And yes, it did mean taking difficult decisions. As a result, however—and only made possible by the measures contained in this Bill—we have now wiped the slate clean, creating a platform of stability in the public finances.

The Budget made another very important choice: to keep the manifesto commitments we made to working people to not increase their income tax, their national insurance or VAT. Compare that with the choices made by the previous Government, who chose to freeze income tax thresholds, costing working people nearly £30 billion. This Government could have chosen to extend that freeze, but that was not the choice we made. Instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again. However, keeping those promises to working people, while repairing the public finances and rebuilding our public services, did mean we had to take some very difficult decisions on spending, welfare and tax, including those in the Bill before your Lordships’ House today.

The Bill contains three key measures: first, an increase to the rate of employer secondary class 1 national insurance contributions from 13.8% to 15%; secondly, a decrease of the secondary threshold for employers—the threshold above which employers begin to pay employer national insurance contributions on their employees’ salaries—from £9,100 to £5,000; and, thirdly, measures to protect small businesses by more than doubling the current employment allowance from £5,000 to £10,500. The Bill will also expand the eligibility of the employment allowance by removing the £100,000 threshold so that more employers now benefit.

I of course understand that some of these measures mean asking businesses to contribute more, and I fully acknowledge that some impacts will be felt beyond businesses too. These are difficult decisions, and I understand and respect the legitimate concerns that have been raised, including by business. However, taken together, the measures in the Bill mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease. Some 865,000 employers will now not pay any national insurance at all, and over 1 million employers will pay the same or less than they did before. All eligible employers will now be able to employ up to four full-time workers on the national living wage and pay no employer national insurance contributions. The Government are also setting aside support for the public sector of £5.1 billion by 2029-30, ensuring that there is sufficient funding for our vital public services, including the NHS.

I also recognise that concerns have been raised about the wider economic consequences of the measures contained in the Bill—concerns I am sure we will hear in today’s debate. Let me be clear: not to act was not an option. The choices we have made were the only route to putting the public finances back on a stable path, while protecting working people and rebuilding the public services. The economic data we have seen in recent months is, of course, disappointing; in particular, the recent growth figures show the sheer scale of the challenge we face. However, there would have been far greater costs to continuing with the irresponsibility and instability that has been a near-constant feature of the past 14 years: from the chaos of Brexit and the disastrous deal that followed, through to the Liz Truss mini-Budget, which crashed the economy and devastated family finances.

Let us remember that the OECD now expects the UK to be the fastest growing European G7 economy, and at the Budget, the independent Office for Budget Responsibility was clear that, with particular reference to our capital investments, the Budget will increase the size of the economy in the long term. On living standards, the OBR forecast shows that real household disposable income will increase in real terms in each year of this Parliament; the level of real wages will rise by 3% over the next five years; and the number of people in employment will rise by 1.2 million over the course of this Parliament. Our planning reforms, pension reforms, skills reforms and industrial strategy will all contribute to higher growth, but none are yet included in the OBR’s forecast.

The measures contained in the Bill also contribute to significant new investment in the NHS. That vital investment—amounting to £25.7 billion extra for the NHS over this year and next—is only possible because of this Bill. It includes £1.5 billion for new surgical hubs; more than £1.25 billion to deliver over 1 million additional diagnostic tests; over £2 billion for technology and digital improvements to increase NHS productivity and save staff time; and £880 million more in local government spending to support social care. All of that will support the NHS to deliver an extra 40,000 elective appointments a week, helping us to bring waiting lists down more quickly.

The choices we have made are the right choices. They are not the easy ones, but the responsible ones: to rebuild the public finances, to protect working people and to invest in Britain’s future. None of those things would be possible without the Bill. It is of course possible to make different choices: to ignore the problems in the public finances, to continue to neglect our public services or to fail to protect working people. Noble Lords may wish to argue for that during today’s debate, but this Government were elected with a mandate to fix the foundations of our economy. The Bill delivers on that mandate and provides a foundation of stability on which we will now build long-term, sustainable growth. I beg to move.

Amendment to the Motion

Moved by

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, it is a pleasure to respond to this Second Reading of the national insurance contributions Bill, and in doing so to respond to the points raised by the amendment in the name of the noble Baroness, Lady Kramer. I am grateful to all noble Lords for their contributions during today’s debate. The Budget in October involved taking some very difficult decisions: to clear up the mess that we inherited, to repair the public finances, to protect working people and to rebuild our public services. Faced with the reality of broken public finances and broken public services, not acting was not an option, which is why this Bill is necessary, as my noble friends Lord Chandos and Lord Layard observed.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, the noble Lords, Lord Forsyth of Drumlean, Lord Ahmad of Wimbledon and Lord Mackinlay of Richborough, and the noble Viscount, Lord Trenchard, focused on the Government’s fiscal inheritance and sought to deny the £22 billion black hole that the previous Government left behind. I am, of course, very grateful to all noble Lords who mentioned the £22 billion black hole and thank them for doing so.

The Treasury has provided to the OBR a line-by-line breakdown of the previous Government’s unfunded commitments—260 separate pressures. Noble Lords need not just listen to the OBR and the Treasury. They need look only at the out-turn data: central government current expenditure, published by the ONS, shows that for the six months since March the out-turn is £11.8 billion higher than forecast. That is £11.8 billion over six months—well on course for £22 billion over the year. The noble Lord, Lord Moynihan of Chelsea, asked why the money is not there. I politely suggest to him that it is because of the policies he supported under the previous Government.

Faced with this reality, as the Chancellor was, any responsible Chancellor would have to act. Ignoring this black hole, as my noble friend Lord Eatwell said, would have taken us down a path of irresponsibility—the path chosen by Liz Truss in her mini-Budget, for which working people are still paying the price.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe, Lady Noakes, Lady Bray of Coln and Lady Porter of Fulwood, the noble Lords, Lord Jackson of Peterborough and Lord Mackinlay of Richborough, and the noble Viscount, Lord Trenchard, sought to argue that the Bill breaches the Government’s manifesto commitments. That is clearly not the case. Despite the pressures on the public finances, the Government made a clear choice at the Budget to keep our promises to working people by not increasing their income tax, national insurance or VAT, and we went further by freezing fuel duty. Compare this with the decision made by the previous Government to freeze income tax thresholds—a decision which cost working people over £30 billion. Instead, our Budget ensures that, from 2028-29, personal tax thresholds will be uprated in line with inflation once again.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Moyo, the noble Lords, Lord Londesborough, Lord Forsyth of Drumlean, Lord Ahmad of Wimbledon and Lord Ashcombe, my noble friend Lord Eatwell and the noble Viscount, Lord Trenchard, focused on the impact of these measures on employers. We heard a lot during today’s debate from the noble Lords opposite about how much they know about business. One does wonder, then, why the economy was such a catastrophe over the past 14 years.

I accept, though, that the Bill will require some employers to contribute more. These are difficult decisions and not ones we wanted to take. I understand and respect the legitimate concerns that have been raised, including by some businesses. But, taken together, the measures in the Bill mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease. As my noble friend Lady O’Grady of Upper Holloway said, 865,000 employers will now pay no national insurance at all, and over 1 million employers will pay the same or less than they did before. In answer to the noble Viscount, Lord Trenchard, around 250,000 employers will see their liabilities decrease. Around 940,000 will see an increase and 820,000 will see no change.

The noble Lord, Lord Macpherson of Earl’s Court, asked about reducing distortions. Recent changes, such as reforms of the off-payroll working rules, have reduced distortions and we will keep this issue under review.

To all those noble Lords who asked, we have no plans to combine income tax and national insurance. Relative to other countries, our tax burden on employers hiring average earners remains low. The UK will remain below the OECD average and the third lowest in the G7, below France, Italy, Germany and Japan.

The noble Lord, Lord Jackson of Peterborough, asked about the impact of these changes on the public sector. We have set aside funding to protect the spending power of the public sector, including the NHS, from the direct impact of the changes, totalling £4.7 billion next year, rising to £5.1 billion in 2029-30. We are now working with departments to ensure that this funding is allocated appropriately, and specific allocations will be set out in due course.

In answer to the noble Lord, Lord Bruce of Bennachie, the Barnett formula will apply in the usual way. My right honourable friend the Chief Secretary to the Treasury is in regular contact with the Scottish Government on funding, including on the application of the Barnett formula.

Some noble Lords, including the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, and the noble Lords, Lord Scriven and Lord Sharkey, spoke about the impact of the Bill on GPs, dentists and pharmacists. As the noble Lords will know, every year, the Government consult with each sector about both what services they provide and the money that providers are entitled to in return under their contracts. As in previous years, this issue will be dealt with as part of that process. The Department of Health and Social Care will shortly confirm funding for GPs, dentistry and pharmacy.

The noble Baroness, Lady Kramer, and the noble Lords, Lord Forsyth of Drumlean, Lord Scriven, Lord Udny-Lister and Lord Sharkey, asked about adult social care providers. The Government are providing a real-terms increase in core local government spending power of 3.5% in 2025-26. To support social care authorities to deliver key services, we also announced a further £200 million for adult and children’s social care at the provisional local government finance settlement last month. This will be allocated via the social care grant, bringing the total increase of this grant in 2025-26 to £880 million, meaning that up to £3.7 billion of additional funding will be provided to social care authorities in 2025-26.

Several noble Lords—including the noble Baronesses, Lady Porter of Fulwood, Lady Bray of Coln, Lady Sater and Lady Neville-Rolfe, the right reverend Prelate the Bishop of Southwark and the noble Lord, Lord Blackwell—focused on the impact on charities, including hospices. We are supporting the hospice sector with a £100 million boost for adult and children’s hospices, to ensure that they have the best physical environment for care, and £26 million revenue to support children and young people’s hospices. More widely, the Government provide support for charities, including hospices, via the tax regime, which is among the most generous of anywhere in the world. Tax reliefs for charities and their donors were worth just over £6 billion for the tax year to April 2024.

The right reverend Prelate the Bishop of Southwark asked about listed places of worship. The outcome of this programme is currently being assessed by the DCMS, as it finalises its financial allocation for 2025-26. The right reverend Prelate also asked about SEN transport. In the Budget, the Government announced £2 billion of new grant funding for local government in 2025-26. This includes £515 million to support councils with the increase in employer national insurance contributions, which covers special educational needs home-to-school transport schemes.

The noble Baronesses, Lady Kramer and Lady Neville-Rolfe, asked about childcare and the impact on the rollout of the expanded entitlement. Early years providers play a crucial role in driving economic growth, which is why we have committed to open 3,000 new school-based nurseries in this Parliament. At the Budget, the Chancellor announced that total funding will rise to over £8 billion in 2025-26 to support providers. On top of this, last month, the Department for Education confirmed an additional £75 million to help the sector expand next year, and a further £25 million to support childcare for disadvantaged children through the early years pupil premium.

The noble Baroness, Lady Sater, asked when the impact assessment will be published. The tax information and impact note was published on 13 November, alongside the legislation when it was introduced. The latest forecasts for tax revenues were published alongside the Office for Budget Responsibility’s October Economic and Fiscal Outlook.

Many noble Lords—including the noble Baroness, Lady Neville-Rolfe, the noble Lords, Lord Macpherson of Earl’s Court, Lord Forsyth of Drumlean, Lord Londesborough, Lord Ahmad of Wimbledon and Lord Mackinlay of Richborough, and the right reverend Prelate the Bishop of Southwark—focused on the wider macroeconomic impact of the Bill. As I said in my opening speech, not to act was not an option. The choices we have made were the only route to putting the public finances back on a stable path while protecting working people and rebuilding public services. The economic data we have seen in recent months is disappointing. In particular, the recent growth figures show the sheer scale of the challenge we face, and the noble Lord, Lord Horam, set out the dire inheritance that we faced on growth.

The fact is that there would have been far greater cost to continuing with the irresponsibility and instability that has been a near-constant feature of the past 14 years—from the chaos of Brexit and the disastrous deal that followed, which reduced GDP by 4%, through to the Liz Truss mini-Budget that crashed the economy and devastated family finances. Let us remember that the Office for Budget Responsibility has also been clear that, with particular reference to our capital investments, the Budget will increase the size of the economy in the long term.

The noble Lord, Lord Blackwell, rightly identified the problem of inactivity, which is higher than it was before the pandemic. He rightly identified the issues in the benefits system that contribute to that. The Government will bring forward proposals in this area in the coming months. The noble Lord also asked about public sector productivity. Unlike the previous Government, we have introduced a 2% productivity target for all government departments and have said that above-inflation pay awards will be affordable only if they can be funded from improved productivity.

The noble Baronesses, Lady Neville-Rolfe and Lady Moyo, spoke about the impact on inflation. The independent Office for Budget Responsibility says that it expects inflation to remain close to the 2% target throughout the forecast period. This is of course very different from the previous Parliament, when inflation peaked at 11.1% and was above target for 33 consecutive months, and when mortgages rose by an average of £300 a month following the Liz Truss mini-Budget.

The noble Baronesses, Lady Neville-Rolfe and Lady Noakes, and the noble Lords, Lord Howard of Rising, Lord Elliott of Mickle Fell and Lord Altrincham, spoke about employment. The Office for Budget Responsibility’s October forecast, which takes into account all tax measures announced in the Budget, forecasts that the unemployment rate will now fall to 4.1% next year and remain low until 2029. It also expects the number of people in employment to rise by 1.2 million over the course of this Parliament. As I have said to the noble Lord, Lord Elliott of Mickle Fell, on previous occasions, we remain committed to the 80% employment ambition.

The noble Baroness, Lady Neville-Rolfe, asked about the impact of this Bill on living standards. As noble Lords will be aware, the previous Parliament was the worst for living standards ever recorded. The Office for Budget Responsibility’s forecast shows that real household disposable income will increase in real terms every year over the course of this Parliament.

The noble Lord, Lord Forsyth of Drumlean, and the noble Baroness, Lady Noakes, asked about the impact of the Bill on wages. The independent Office for Budget Responsibility expects real wages to increase by 3% over the next five years.

This Bill also serves another key purpose: to fix our broken NHS and put an end to over a decade of underinvestment, neglect and inequality, as my noble friend Lady O’Grady of Upper Holloway said. That is because this Government inherited not only broken public finances but an NHS experiencing the worst crisis in its history. It is for this reason that the Budget included extra investment of £25.7 billion for the NHS over this year and next—investment that is possible only because of the measures in this Bill.

This Government had to take some very difficult decisions, reflected in the Bill we have debated today; not decisions we wanted to take, but necessary decisions to clear up the mess we inherited. Some noble Lords have today argued otherwise. The noble Baroness, Lady Neville-Rolfe, set out her position eloquently, but I did not hear a single alternative proposal. What is her alternative—that we should have ignored the black hole in the public finances? That is the path of irresponsibility and a repeat of the path chosen by the Liz Truss mini-Budget. That is not the path chosen by this Government. Yes, it was a significant Budget, on a scale commensurate with the challenging inheritance that we faced.

I recognise that the measures in this Bill involve asking some businesses to contribute more. However, as a result, and made possible only by the measures contained in this Bill, we have now wiped the slate clean, creating a platform of stability in the public finances. In doing so, and in contrast to the previous Government’s choice to freeze income tax thresholds, we have protected working people, keeping our manifesto commitments not to raise their income tax, their national insurance, or VAT. Again, as my noble friend Lord Eatwell pointed out, the noble Baroness, Lady Neville-Rolfe, said that this was the wrong tax to raise, but gave no detail about what other taxes she would raise. Would she have raised taxes on working people instead? The noble Lord, Lord Forsyth, at least suggested taxing some pensioners more, but from the Official Opposition there simply is no plan.

We have made historic new investment in our NHS and begun to put an end to years of underfunding and neglect. The choices that we have made to repair the public finances, protect working people and invest in Britain’s future are the only responsible choices in the circumstances that we faced. None of these things would be possible without this Bill. This Government were elected on a mandate to fix the foundations of our economy, and that is exactly what we will do. The Bill delivers on that mandate and provides a foundation of stability upon which we will now build long-term sustainable growth so we can rebuild our public services and make working people better off.