Economy: Spring Statement

Lord Tunnicliffe Excerpts

Thursday 31st March 2022 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, this has been an interesting debate. I shall pick up one or two themes that we have heard in the debate and then make some general comments. My noble friend Lord Whitty made reference to the omission of net zero and climate change, and that was echoed by many noble Lords. I hope the Minister can tell us that this was an accident rather than a theme of policy. The noble Baroness, Lady Boycott, brought out the issue of food insecurity and its long-term impact. We have not discussed that enough, nor the idea that we should get on top of basic things now and yield savings in the future by not having long-term problems.

My noble friend Lord Hain raised an issue that was central to my life: taking money off the Treasury. He accused it of hampering investment in key areas. I have never really got to the bottom of the Treasury; at some points it works with you in a very—I was going to say “theoretical”, but that is unfair—intellectual way, but the rest of the time you get the sense that it is fighting a rearguard action to make sure that no money actually goes out of the door. Anyway, in the long term I did quite well; I got a little railway.

The right reverend Prelate the Bishop of Worcester usefully brought out that not only do we have to worry about these absolutely crucial things such as climate change—thinking about our grandchildren and their children and what the world will be like unless our generation actually does something about it—but equally, as part of that, we have to keep vulnerable people in mind. The noble Lord, Lord Horam, used a word that is not around enough these days; he touched on the fundamental idea of fairness in the treatment of working people, and said rather flatly that the Chancellor has not done well.

The noble Lord, Lord Bird, had another go at the Treasury but I thought the idea he brought out most powerfully was that we legislators are simply too rich. We can talk about figures and so on but the question of where the next roof or meal comes from is just too far away from our day-to-day experience. It troubles me; I do not know why. Like most of us here, I suspect, I have been very lucky: although I originally came from poor parents, I never went hungry and was never in fear of the roof being taken away from me.

The noble Lord, Lord Macpherson, undertook the heroic exercise of defending the Treasury. I quite liked his overview of Marxism mixed with a long-term commitment to Keynesianism—you might get some good out of that if you put it all together. My noble friend Lord Sikka gave an analysis that public sector workers had been hit particularly hard and that the Chancellor has done nothing to deal with the structural factors that condemn us and them to poverty and hardship.

It is unusual for these debates to take place the day after related tax legislation has been fast-tracked through your Lordships’ House. Rarely do the Government move so quickly to implement their Budget or Spring Statement; even more rarely is parliamentary time used to fast-track policy changes that, on balance, still leave millions of working people out of pocket. I will not simply repeat my contributions on the then National Insurance Contributions Bill, although there will inevitably be a degree of crossover.

We supported the passage of that Bill because any help for working people is better than none. However, as I said yesterday, the Chancellor has adopted the wrong fiscal policy at the wrong time. His decision to equalise NICs and income tax thresholds from July was an attempt to convince the working public that he had understood their concerns about the health and social care levy and the rising cost of living. However, rather than scrap the levy, as many of the Government’s own Back-Benchers wish, the Chancellor believed that some accounting tricks today, coupled with the promise of a tax cut tomorrow, would win the British public over.

The Prime Minister had rolled the pitch for the Chancellor to row back on the NHS levy but Mr Sunak failed to do so. For someone so concerned about public image, his decision not to play his get-out-of-jail-free card was staggering. He also opted not to impose a windfall tax on North Sea energy firms to assist billpayers, despite those businesses making huge profits and paying substantial dividends. If we look at the early academic analysis, opinion polling and media reporting, the Chancellor got last week’s calls catastrophically wrong—even more so than his attempt to pay for petrol at a nearby Sainsbury’s.

It is not the first time that the Chancellor has got things wrong. His coronavirus support schemes were full of holes, allowing criminals to claim billions while hard-working freelancers were forced on to universal credit. Although individual components of the Spring Statement may be popular in the polls, only a very small proportion of the public believes that the package is sufficient to help them through the Conservative Party’s worsening cost of living crisis.

This debate is about the state of the economy so let us take a quick look. Inflation is currently at 6.2%—a 30-year high—yet is not even remotely close to peaking. The energy price cap increases for 22 million customers tomorrow, and probably will by the same amount again in the autumn. Even after the Spring Statement, the OBR estimates the biggest drop in living standards since records began. It is worth reminding the Committee that, contrary to the Government’s narrative, a variety of costs were on the rise months before Russia’s illegal invasion of Ukraine. The cost of living crisis is not a new problem and, although the situation in Ukraine has its implications, the public see through the Chancellor’s attempts to lay the blame at Putin’s door.

What we needed from the Chancellor last week was a great deal more empathy. When asked at Monday’s Treasury Select Committee hearing why he was prepared to plunge 1.3 million people, including 500,000 young people, into absolute poverty, the Chancellor tried to present his policies as progressive. Analysis by the Joseph Rowntree Foundation suggests that the Spring Statement will leave almost all working-age households worse off next year. That is partly the result of the NHS levy but is mainly the result of the failure to uprate benefits by inflation. That decision, which a Guardian editorial labelled an “abdication of responsibility”, means those with the least will suffer the biggest overall hit—close to 5% of their income when compared to this year.

If you are a single person who is out of work through no fault of your own, the situation is even more dire: the Resolution Foundation says that the total change in income will be in the region of £1,300, or close to 15%. These are people without proper accommodation and without any surplus or margin in their income; it is difficult to predict where that will come from although, sadly, it will probably come from illegal lenders, leading to violence in some cases.

The Resolution Foundation points out that only £1 in every £3 for the measures announced in the Spring Statement will go to the bottom half of the income distribution. Households in the top half of the income distribution will gain far more in monetary terms than the poorest fifth of households, which will be disproportionately impacted by the treatment of social security. Incomes are on course to be lower at the next election than they were at the previous one. Such an outcome, according to the Resolution Foundation, would make this the worst Parliament on record for living standards. Is that really the record that the Conservative Party wants to run the next election on?

In a sense, the starting gun for that election has been fired, with the promise of a 1% cut in the basic rate of income tax. However, as the Shadow Chancellor pointed out in her response to the Spring Statement last week, and as others have mentioned today, the Government have raised tax for working people now to fund a tax cut in 2024, which will benefit, among others, landlords and share-owners. Paul Johnson of the IFS was right when he referred to Mr Sunak as a “fiscal illusionist”. He has promised a specific future tax reduction that polls well despite knowing that, on his watch, taxes as a fraction of national income are rising to the highest level since the 1950s.

Of course the Chancellor faces difficult economic circumstances—we are not the only country experiencing inflationary pressures—but we must all accept that recent actions against Russia will have economic consequences at home. Mr Sunak has been consistent in his message that he cannot fix all of society’s ills. That may be true but political actors can choose where to focus their firepower. The last Labour Government opted to pay people more, cut poverty and reduce homelessness. The underlying problems were not eliminated but significant progress was made. With this Government and this Chancellor, it seems that the priorities are nominally out of kilter with the views and best interests of the public.

Working people are more than doing their bit. They are the engine room of our economy; they made sacrifices during the pandemic and were promised that they would reap the rewards. This Spring Statement did nothing to deliver on that promise and, while taxes are going up for working people, options such as a windfall tax were dismissed out of ideological dogma. With its forecasts of ever-higher inflation and ever-lower growth, the OBR has clearly seen through the Chancellor’s bluster—and, with each new opinion poll, it seems that the public have, too.