Autumn Budget 2025

Lord Macpherson of Earl's Court Excerpts

Thursday 4th December 2025 Lords Chamber

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

My Lords, it is axiomatic that, if you want to land a difficult message, it is best to start with some positives: so here goes. First, all credit to the Government for sticking to their fiscal rules, and increasing their safety margin. I admit that I had my doubts this time last year. Secondly, the overall Budget judgment looks about right: supporting the economy this year and next, but tightening policy thereafter. Thirdly, the measures to reduce inflationary pressures in the coming year should help the Bank of England ease monetary policy further. I am therefore not surprised by the positive response of the gilt market. Given the size of the national debt, it will be the interest rate demanded by the market that will determine the Government’s future room for manoeuvre.

So why has the reception of the Budget been so negative? Pre-briefing is partly to blame. There is a reason, over and above market sensitivity, why Chancellors as different as Nigel Lawson and Gordon Brown have favoured Budget secrecy. It allows them to control the narrative and tell the economic story on their terms. I have considerable sympathy for the Chancellor on the OBR leak, but the endless briefing and leaking before that point was surely the Treasury’s responsibility. In 2013, following a similar leak, I carried out a review in which I recommended that the Treasury introduce a ban on the pre-release of the Budget: that is, the economic and fiscal projections, the fiscal judgment and individual tax rates, reliefs and allowances. The then Government, and I think the Official Opposition, accepted my recommendations. Can the Financial Secretary confirm that the Government still accept this recommendation?

I also worry about the Budget measures themselves. I, for one, celebrated when we were led to understand that income tax rates would be raised. I know it would have broken the manifesto commitment, but at least it could have addressed the issue of the growing number of people facing high, sometimes penal, marginal rates as child benefit, childcare support and the personal allowance are withdrawn.

I continue to worry about intergenerational fairness. I feel that better-off pensioners—I speak as one—could have contributed more. Not only is my triple-lock pension safe, but my dividends are not going to be taxed more and I still do not pay any national insurance on my earnings. I am broadly in favour of abolishing the two-child benefit cap. I do not accept the argument that it will worsen work incentives; that is the beauty of the universal credit system introduced by the previous Government. But surely this should have been announced at the same time as sickness benefit reform, the better to get the Government’s Back-Benchers to accept it.

I also worry about the timing of the proposed tax increases. I criticised the previous Government’s Augustinian approach to fiscal policy. The Government appear to be adopting the same approach, albeit with different sides of the ledger: more spending today financed by tax increases several years down the line. Given demographic pressures, the tax take has to rise, but I fear that the Government will find it all but impossible to deliver. There is a reason the tax take has been so stable over the last 75 years, never going below 28.3% or above 35.2%. Getting revenue in is a difficult business, and the tax base is less buoyant than it was.

The optimist in me hopes that the economy will grow, that some of the tax increase may prove unnecessary and that the Government can cut taxes in the run-up to the election as Mr Healey did back in 1978. But I have to say, I am less than confident.

Inheritance Tax: Pensions

Lord Macpherson of Earl's Court Excerpts

Monday 17th November 2025 Lords Chamber

[Lord Livermore (Lab)]

I very much agree with the first part of my noble friend’s question. It is very important to state that the intended purpose of pension savings is to fund retirement. The Government continue to incentivise pension savings, with tax relief on both contributions to pensions and the growth of funds held within a pension scheme. These tax incentives are very significant, costing taxpayers £78 billion a year. It is therefore right, as my noble friend said, that it is important to ensure that these tax reliefs are being used for encouraging savings for retirement, rather than ordinary taxpayers subsidising the wealthy to pass on their wealth free of inheritance tax.

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

My Lords, does the Minister agree that it is an important principle of the tax system that tax reliefs, and therefore tax expenditures, should be tightly drawn? Does he also agree that the point of pension relief is to provide a pension in retirement, and therefore that pension savers should draw down their pension, rather than using it as a device to avoid inheritance tax and to improve the lot of their descendants, rather than themselves?

[Lord Livermore (Lab)]

I do agree with everything the noble Lord said. I enjoyed discussing these matters with him when he was a Treasury official and I was a special adviser. I probably learned a lot of this from him then, so I completely agree with what he said. To repeat, the purpose of pension savings is to fund retirement. If taxpayers are spending £78 billion a year on that, it is very important that it is used for its intended purposes rather than for estate planning, as the noble Lord says.

Gilt Yields

Lord Macpherson of Earl's Court Excerpts

Tuesday 2nd September 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. As she will know, recent gilt yield movements have risen in line with global peers, mainly driven by global factors. The recent gilt market moves have also been orderly. As she knows, our commitment to the fiscal rules is non-negotiable and we have a clear plan in place to put the public finances on a sustainable path and prioritise investment to support long-term growth. She talks about the position of the UK economy; she knows that this is an uncertain and volatile global economy, but even so the UK remains resilient and is outperforming our peers. The UK was the fastest-growing economy in the G7 in the first half of this year and our commitment to stability is paying off, creating space for the Bank of England to cut interest rates five times since the election, with business confidence now at its highest level for 12 months.

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

My Lords, the Financial Secretary is right to point out that yields on German bunds have risen almost as much as yields on gilts in the UK over the last month, but does he recognise the importance of ensuring that the UK’s economic policy does not stand out from other medium-sized countries in Europe? To that end, can he reaffirm the Government’s commitment to their fiscal rules in particular and to sound money in general?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. I am happy to reconfirm that; our commitment to the fiscal rules is non-negotiable. The Government have a clear plan in place to put the public finances on a sustainable path and prioritise investment to support long-term growth. At the Spring Statement, the OBR forecast that borrowing would fall in every single year of the forecast, from 4.8% of GDP to 2.1% of GDP in 2029-30.

The noble Lord also said it is important that our economic policy does not stand out from our peers. One area in which we did stand out when this Government came to office was in historically low levels of investment in our economy, which constrained growth. We had the lowest levels of investment in the G7, which is something that our fiscal rules seek to rectify.

UK Infrastructure: 10-year Strategy

Lord Macpherson of Earl's Court Excerpts

Tuesday 24th June 2025 Lords Chamber

[Lord Livermore (Lab)]

Well, the noble Baroness might not expect me to agree with her on that; I think the more Treasury, the better, from my point of view. So, no, I disagree with her, but of course NISTA is there to work for the whole Government and not just the Treasury. It has to be based somewhere and it makes sense for it to be based in the Treasury, given the Treasury’s responsibility for the 10-year infrastructure strategy, which it will be overseeing. Of course, NISTA’s expertise will be available to Ministers right across government.

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

My Lords, I congratulate the Treasury on this plan, which is well thought through. If the economy is going to grow, we have to ensure that public investment grows faster than public consumption. That is reflected in the Government’s plans. But, like my noble friend Lord Birt, I worked for Governments of both main parties who announced investment plans with great fanfares and good intentions, only to jettison them the first time they got into difficulty. That happened in 1976, 1992, 2008 and 2016. The Minister mentioned that fiscal rules this time will see us right but, as he knows, fiscal rules come and go. Can he assure the House, especially the sceptics among us, that, should the Government get into financial difficulties, they will protect investment, even if that means bearing down on public consumption?

[Lord Livermore (Lab)]

I am grateful to the noble Lord—I was going to say “my noble friend”—for his question. The fiscal rules are non-negotiable, as he will know. We have put them in place for exactly the reasons he described. Too often in the past, public investment has been cut to patch up holes in day-to-day spending. The reason we are setting out this 10-year plan now is to give certainty and stability to the investment horizon, and we will protect that investment going forward.

Winter Fuel Payment

Lord Macpherson of Earl's Court Excerpts

Thursday 12th June 2025 Lords Chamber

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

My Lords, as the Minister knows, I did not welcome this decision. Turning to principles, does he agree that cliff edges in the tax and benefits system are undesirable? Can he explain whether, when a pensioner’s income moves from £34,999 to £35,000, support will be tapered away, or whether £1 in extra income will result in a £300 loss of winter fuel allowance?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question. He knows much more about the tax and benefits system than I do, I suspect, having spent many more years working on it than me. The answer to his question is that it is the latter: it is up to and including £35,000, so it will be at £35,001 where that happens. At that point, they will lose the winter fuel payment in its entirety.

Winter Fuel Payment

Lord Macpherson of Earl's Court Excerpts

Tuesday 10th June 2025 Lords Chamber

[Lord Livermore (Lab)]

That may be one option, but it is not the option we have chosen.

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

My Lords, as one of the few supporters of the original measure—like my friend, the noble Lord, Lord Clarke—I feel the Minister’s pain. But when the Treasury has to retreat, it is best to concede more rather than less; in that respect only, I congratulate the Minister on the proposal. Can he provide an assurance that, as and when the Government have the resources to consider further tax and benefit changes, they will prioritise working-age families rather than the elderly, who have benefited from considerable government largesse, not least through the triple lock?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his qualified support for the policy. The Government absolutely know that their number one concern and mission is to increase the living standards of working people and to do so through increasing growth in the economy, and that absolutely will be the focus of our policies going forward.

Regional Growth

Lord Macpherson of Earl's Court Excerpts

Thursday 5th June 2025 Lords Chamber

[Lord Livermore (Lab)]

No, that is not the case at all. The noble Lord refers to promises made by the previous Government, which the noble Baroness, Lady Neville-Rolfe, also referred to. Promises were made. Let us be clear: not a single penny was allocated by the previous Government to a single promise that they made. The noble Lord can compare what this Government are doing with what the previous Government did, but this Government are putting money towards those announcements.

The noble Lord then said that announcements were—in his bizarre phrase—“rushed out”. Making announcements is not rushing anything out. It is setting out very clearly what our policy is for the connectivity of the city regions. We will publish the review of the Green Book next week. That will make sure that, in future, additional investment is not biased towards any one region but that the entirety of the country is considered when it comes to those announcements. That makes perfect sense. I do not recognise the analysis that the noble Lord is putting forward.

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

My Lords, I welcome the Government’s announcements in relation to regional growth. As the sometime author of the Green Book, I welcome the direction of travel in terms of investment appraisal. However, inevitably, resources are finite. Can the Financial Secretary confirm that the Government are prioritising those projects with the greatest economic return? Does he agree that the private sector also has a critical role in delivering regional growth? Can he reaffirm the Government’s commitment to sound public finances, the better to bear down on the cost of borrowing?

[Lord Livermore (Lab)]

I agree with the noble Lord’s points. He asks about the Green Book. He has much more experience in this matter than I do. We have set out—and I hope that he agrees—that for too long the guidance in the Green Book has been biased against certain parts of the country. We want to address that. On whether we will prioritise the spending on where it has the greatest return, yes, this is key to the methodology that the Green Book sets out. The Green Book reinforced investment in areas that were already successful. It did not necessarily enable investment in areas where there was a high degree of potential. That is what we want to do. By investing in areas of high potential, there will be huge returns. We have already set this out. There could be a potential increase of about 3% of GVA if we can get the city regions up to the average productivity of the country, as the noble Baroness, Lady Neville-Rolfe, said. That is the intention and why we are doing what we are doing.

The noble Lord talked about the importance of fiscal responsibility. He will know that this Government inherited a £22 billion black hole in the public finances. Restoring fiscal responsibility is the central driving purpose of the stability pillar of our growth mission. We have set out very clear fiscal rules that require no borrowing for day-to-day spending, unlike the previous Government, who had that £22 billion black hole in their day-to-day spending. We have repaired that. At the first opportunity, when the fiscal rules were tested at the Spring Statement, we repaired the headroom against the fiscal rules in full to what it was before. We have set out very clear fiscal rules. We will stick to them, and everything that we set out in the spending review next week will be shown to be fully funded and fully in line with the fiscal rules.

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

Lord Macpherson of Earl's Court Excerpts

Friday 25th April 2025 Lords Chamber

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

My Lords, I congratulate the noble Lord, Lord Bridges, and his committee on their timely and well-argued report. I agree with pretty much all of it. The fact is that Britain’s national debt has more than doubled as a percentage of national income in 20 years and we have nothing to show for it in terms of increased productive capacity. The country is now far more vulnerable to the vagaries of the bond market, the performance of which reflects global as much as domestic factors.

I confess that I spent much of my final decade at the Treasury crying wolf about the potential inflection point in the gilt market. I was proved wrong at the time; helped by QE, the gilt market navigated the global financial crisis and Brexit. But every dog has its day. The Truss Government tested the bond market to destruction and, since 2022, funding the national debt has caused the Treasury more worry than at any time since 1976.

In recent years, fiscal rules have come and gone at alarming speed. Of course, “rule” is a misnomer. They are not rules any more than the inflation target is a rule, and successive Governments have found there are few consequences for breaking them—you just claim force majeure and adopt a new one. I accept that Governments need a fiscal framework, and that the guard-rail the rules provide helps the Chancellor manage her Cabinet colleagues. But, like my noble friend Lady Wolf, I worry that excessive focus on so-called rules can discourage Governments from focusing on the substance. As my noble friend Lord King put it, the rules, especially those of a rolling variety, allow Governments to pursue an Augustinian policy. We never quite get fiscal consolidation, invariably because spending projections prove undeliverable.

I broadly welcome the changes the Government have made to the framework, but what matters is not whether the Government stay within the rules. Much more important is the substance of fiscal policy. Is the deficit being reduced at sufficient speed? When will debt begin to fall in relation to national income? Is the proportion of public expenditure accounted for by debt interest on a downward path? Are fiscal policy decisions addressing long-term pressures, and are the policies the Government are putting in place likely to facilitate economic growth or to hinder it? The Government have taken some tough decisions over the last six months, but I fear they will have to take many more if they are going to deliver a sensible fiscal policy.

I shall finish with two small points. First, I encourage the Chancellor to agree a new framework for future bouts of quantitative easing, which will give the Treasury a greater locus to debate the implications for fiscal policy with the Bank of England and make the Treasury more accountable for the outcome. This did not seem necessary when the then Chancellor Alistair Darling agreed the first framework with my noble friend Lord King back in 2008. QE was thought to be an emergency measure that would not last long. But future rounds of QE, whether or not they were necessary—and I have my doubts—have changed the relationship between monetary and fiscal policy and we need to recognise this.

Secondly, my final point is that the Government should do all they can to raise the profile of the OBR’s fiscal risks and sustainability report. For my part, like my noble friend Lord King, I would amend the Industry Act so that the Government no longer have to produce two economic forecasts a year. Instead, the parliamentary time set aside for the Spring Statement should be devoted to a debate on the OBR’s fiscal risks and sustainability report, to raise its profile in the country and to encourage a greater focus on long-term projects. Who knows? It might even result in better proposals when the Chancellor comes forward with her annual Budget.

Capital Investment and Share Ownership

Lord Macpherson of Earl's Court Excerpts

Thursday 13th March 2025 Lords Chamber

[Lord Livermore (Lab)]

I am very interested in what the noble Baroness says, and I will look at that further. As I say, the 10-year infrastructure strategy will be the point at which we set out the Government’s approach to private investment in infrastructure. I cannot say more than that at this point.

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

My Lords, does the Financial Secretary agree that, generally, the quality of PFI projects has improved over time, with an increasing number transferring risk successfully to the private sector and the projects being delivered on budget and on time? Given that the ONS now classifies pretty much all PFI projects as being on balance sheet, can he encourage the Treasury to provide sufficient expenditure cover in the spending review to support innovative public/private partnership proposals?

Growing the UK Economy

Lord Macpherson of Earl's Court Excerpts

Monday 3rd February 2025 Lords Chamber

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

My Lords, the history of direct support for industrial investment is not a happy one, with much money wasted and few jobs created. Can the Financial Secretary confirm that the Treasury will continue to take a rigorous approach to assessing support for inward investment, based on the best value for money principles?

[Lord Livermore (Lab)]

Yes, I can, and I am happy to say that I cut my teeth in the Treasury when the noble Lord was Permanent Secretary to the Treasury, and I learnt a lot from him. I very much agree with his view of the Treasury’s role within Whitehall.