Autumn Statement 2023

Lord Macpherson of Earl's Court Excerpts

Wednesday 29th November 2023 Lords Chamber

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

My Lords, I too congratulate the Minister on her move to the Treasury. It is a much-maligned institution, but I am confident that she will enjoy her time there. I hope that, with time, she is given a more glamourous title than Parliamentary Secretary, if only to avoid being confused with the Chief Whip, whose official title is Parliamentary Secretary to the Treasury.

As a student of fiscal Statements—I reckon that I have worked on 30, including seven that can be termed “pre-election”—I rate this one as better than average. First, I welcome the cut in national insurance. This reverses the trend of the last 40 years, which has been to raise national insurance to finance income tax cuts. Over my adult life, the basic rate of income tax has been cut from 35% to 20%, while the employers’ national insurance rate has risen from 8.75% to 13.8%, and the rate paid by employees has more than doubled from 5.75% to 12%. This sleight of hand has been bad for the economy. The fact is that national insurance is a tax on jobs—it penalises working people and the young—while income tax cuts tend to favour the old, rentiers and those who live off capital. So I welcome the 2% cut to 10%; I hope that it will start a trend. Can the Minister say whether it is now government policy to prioritise national insurance cuts over income tax cuts? Of course, whether it is affordable is another matter, and one to which I shall come back.

Secondly, I welcome the focus on growth and, in particular, the full expensing of business investment. Normally, I would favour the widest possible tax base with the lowest tax rate, but Britain has a chronic problem of underinvestment, which is a contributory factor to our low growth, so it is right to try to tilt the playing field.

Finally, I welcome the Chancellor’s commitment to fiscal rectitude, if only by 2028. He did a great job in pulling the Truss Government back from the brink a year ago and in restoring confidence. Whoever governs in the coming period will need to keep on bearing down on borrowing and get public debt on a downward path in relation to the nation’s income. We may currently be benefiting from a rally in the bond market, but we cannot be sure that that will be sustained. The fact is that debt interest is eating into resources better spent on the public services people need.

That brings me to what I see as the problem with the Autumn Statement: I fear that the public expenditure projections are simply unrealistic. The National Health Service and the state pension are accounting for an ever-increasing proportion of public spending. The triple lock is a luxury that the country can ill afford, but all our parties seem to be committed to it. Of course, there is more the Government can do on the productivity and efficiency of public services, starting with the Civil Service, but the so-called unprotected programmes, such as criminal justice, housing and local government, have already been cut too much—as the noble Baroness, Lady Pinnock, mentioned—and the results are beginning to show.

Moreover, as the international security situation deteriorates, we need to spend more on defence, diplomacy and intelligence. Demographic pressures will only increase over the next 20 years. Much of this was set out in the OBR’s fiscal sustainability report, published in July. Can the Minister assure me that that report is informing Treasury policy and will inform the Budget come March?

I fear that, sooner or later, the Government will have to grasp the nettle and reintroduce a health and social care levy. When they do so, it should be based on the income tax base, rather than that of national insurance. The better-off elderly—I should declare an interest as the possessor of a free bus pass—should pay their fair share.

My other concern is that the Government are not going far enough on growth. Here I agree with the noble Lord, Lord Eatwell, that more private investment needs to be combined with more public investment. Yet the Government are projecting that net public investment will fall over time from some £72 billion this year to £56 billion by 2028. When inflation is taken into account, that is a cut of at least 30%. One of my biggest regrets as a Treasury official was recommending the cancellation of what is now called the Elizabeth line in the early 1990s. Of course, we need to focus on investment projects with the biggest economic return— to that end, I am no fan of HS2—but we also need to ensure that infrastructure gets sufficient resources. That means consuming less and investing more. I welcome the Chancellor’s words on planning reform, but I fear they do not go far enough. We need to make it easier to build houses and to make progress on infrastructure. Only yesterday, a telecoms industry veteran told me about the planning obstacles to delivering infra- structure in Scotland, and I see little evidence to suggest that the planning system is much better in the rest of the UK.

Finally, the Autumn Statement does not go far enough on skills. Many of Britain’s problems with immigration stem from our inability to develop a labour force for the 21st century. We used to rely on the Polish and central European taxpayer to train our workforce. If on the day after the 2016 referendum the Prime Minister had said we were going to prioritise further education and vocational skills and then relentlessly focused on the problem, we might just, seven years on, be beginning to see some results, but she did not, and her successors have shown even less interest in the subject. It is not too late to put that right. If we do not rise to the productivity and growth challenge, the public finances will only get worse. This Autumn Statement represents a small step forward, but whoever forms the next Government is going to have to do a whole lot more.