Notification of Contingent Liability
Rachel Reeves Excerpts(1 week, 4 days ago)
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The Chancellor of the Exchequer (Rachel Reeves)
The independent Monetary Policy Committee of the Bank of England decided at its meeting ending on 3 February 2022 to reduce the stocks of UK Government bonds and sterling non-financial investment-grade corporate bonds held in the asset purchase facility by ceasing to reinvest maturing securities. The Bank ceased reinvestment of assets in this portfolio in February 2022 and commenced sales of corporate bonds on 28 September 2022, and sales of gilts acquired for monetary policy purposes on 1 November 2022. The sales of corporate bonds ceased on 6 June 2023, with a small number of outstanding corporate bonds reaching maturity on 5 April 2024. Therefore, the APF is now comprised solely of gilts.
The Chancellor at the time agreed a joint approach with the Governor of the Bank of England in an exchange of letters on 3 February 2022 to reduce the maximum authorised size of the APF for asset purchases every six months, as the size of APF holdings reduces.
Since 30 April 2024 when the maximum authorised size of the APF was last reduced, the total stock of assets held by the APF for monetary policy purposes has fallen further from £704.2 billion to £654.5 billion. In line with the approach agreed with the Governor, the authorised maximum total size of the APF has therefore been reduced to £654.5 billion, comprising entirely of gilts.
The risk control framework previously agreed with the Bank will remain in place, and HM Treasury will continue to monitor risks to public funds from the APF through regular risk oversight meetings and enhanced information sharing with the Bank.
There will continue to be an opportunity for HM Treasury to provide views to the MPC on the design of the schemes within the APF, as they affect the Government’s broader economic objectives and may pose risks to the Exchequer.
The Government will continue to indemnify the Bank, the APF and its directors from any losses arising out of, or in connection with, the facility. Provision for any payment due under the liability will continue to be sought through the normal supply procedure.
A full departmental minute has been laid in Parliament providing more detail on this contingent liability.
[HCWS208]
Financial Statement and Budget Report
Rachel Reeves Excerpts(3 weeks, 3 days ago)
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The Chancellor of the Exchequer (Rachel Reeves)
Madam Deputy Speaker, on 4 July, the country voted for change. This Government were given a mandate: to restore stability to our economy and to begin a decade of national renewal; to fix the foundations and deliver change through responsible leadership in the national interest. That is our task, and I know that we can achieve it.
My belief in Britain burns brighter than ever, and the prize on offer is immense. As my right hon. Friend the Prime Minister said on Monday, change must be felt: more pounds in people’s pockets; an NHS that is there when we need it; and an economy that is growing, creating wealth and opportunity for all, because that is the only way to improve living standards. The only way to drive economic growth is to invest, invest, invest. There are no shortcuts, and, to deliver that investment, we must restore economic stability and turn the page on the last 14 years.
This is not the first time that it has fallen to the Labour party to rebuild Britain. In 1945, it was the Labour party that rebuilt our country out of the rubble of the second world war. In 1964, it was the Labour party that rebuilt Britain with the white heat of technology, and, in 1997, it was the Labour party that rebuilt our schools and our hospitals. Today, it falls to this Labour party—to this Labour Government—to rebuild Britain once again. And while this is the first Budget in more than 14 years to be delivered by a Labour Chancellor, it is the first Budget in our country’s history to be delivered by a woman. I am deeply proud to be Britain’s first ever female Chancellor of the Exchequer. To girls and young women everywhere, I say: let there be no ceiling on your ambition, your hopes and your dreams. Along with the pride that I feel standing here today, there is also a responsibility to pass on a fairer society and a stronger economy to the next generation of women.
Madam Deputy Speaker, the Conservative party failed our country: its austerity broke our national health service; its Brexit deal harmed British businesses; and its mini-Budget left families paying the price with higher mortgages. The British people have inherited the Conservative party’s failure: a black hole in the public finances; public services on their knees; a decade of low growth; and the worst Parliament on record for living standards.
Let me begin with the public finances. In July, I exposed a £22 billion black hole at the heart of the previous Government’s plans—a series of promises that they made, but had no money to deliver—covered up from the British people and covered up from this House. The Treasury’s reserve, set aside for genuine emergencies, was spent three times over just three months into the financial year. Today, on top of the detailed document that I provided to the House in July, the Government are publishing a line-by-line breakdown of the £22 billion black hole that we inherited, which shows hundreds of unfunded pressures on the public finances this year, and into the future too.
The Office for Budget Responsibility has published its own review of the circumstances around the spring Budget forecast. It says that the previous Government
“did not provide the OBR with all the information to them”
and that, had the OBR known about these
“undisclosed spending pressures that have since come to light”,
then its spring Budget forecast for spending would have been “materially different”.
Let me be clear: that means that any comparison between today’s forecast and the OBR’s March forecast is false, because the previous Government hid the reality of their public spending plans. Yet at the very same Budget, they made another £10 billion-worth of cuts to national insurance. It was the height of irresponsibility, and they knew it. They had run out of road, and they called an election to avoid making difficult choices. So let me make this promise to the British people: never again will we allow a Government to play fast and loose with the public finances and never again will we allow a Government to hide the true state of our public finances from our independent forecaster. That is why I can today confirm that we will implement in full the 10 recommendations from the independent Office for Budget Responsibility’s review.
The country has inherited not just broken public finances, but broken public services. The British people can see and feel that in their everyday lives: NHS waiting lists at record levels; children in portacabins as school roofs crumble; trains that do not arrive; rivers filled with polluted waste; prisons overflowing; crimes that are not investigated; and criminals who are not punished. That is the country’s inheritance from the Conservative Government. They had no plan to improve our public services and they had no plan to put our public finances on a sustainable footing—quite the opposite.
Since 2021, there have been no detailed plans for departmental spending set out beyond this year, and the previous Government’s plans relied on a baseline for spending this year, which we now know was wrong because it did not take into account the £22 billion black hole. They also failed to budget for costs that they knew would materialise, including funding for vital compensation schemes for victims of two terrible injustices—[Interruption.]
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. I have just spoken about respecting colleagues. The public are watching, and they want to hear what the Chancellor has to say. Simmer down.
Rachel Reeves
I would politely suggest that hon. Members listen to this, because it includes funding for vital compensation schemes for victims of two terrible injustices: the infected blood scandal and the Post Office Horizon scandal.
The Leader of the Opposition rightly made an unequivocal apology for the injustice of the infected blood scandal on behalf of the British state, but he did not budget for the costs of compensation. Today, for the very first time, we will provide specific funding to compensate those infected and those affected in full, with £11.8 billion in this Budget. I am also today setting aside £1.8 billion to compensate victims of the Post Office Horizon scandal—redress that is long overdue for the pain and injustice that they have suffered.
The leadership campaign for the Conservative party has now been going on for over three months, but in all that time there has been not one single apology for what they did to our country. The Conservative party has not changed—but this is a changed Labour party and we will restore stability to our country once again. The scale and seriousness of the situation that we have inherited cannot be underestimated. Together, the hole in our public finances this year, which recurs every year, the compensation schemes that the previous Government did not fund, and their failure to assess the scale of the challenges facing our public services, means that this Budget raises taxes by £40 billion. Any Chancellor standing here today would have to face this reality, and any responsible Chancellor would take action. That is why today I am restoring stability to our public finances and rebuilding our public services.
As a former economist at the Bank of England, I know what it means to respect our economic institutions. I put on record my thanks to the Governor of the Bank, Andrew Bailey, and the independent Monetary Policy Committee. Today, I can confirm that we will maintain the MPC’s target of 2% inflation, as measured by the 12-month increase in the consumer prices index. I thank James Bowler, the permanent secretary to the Treasury, and my team of officials. I also thank my predecessors as Chancellor of the Exchequer for their wise counsel as I have prepared for this Budget. In particular, I thank the former right hon. Member for Spelthorne for his invaluable advice in this weekend’s papers, where he concluded that his mini-Budget “wasn’t perfect”. For once, he and I are in absolute agreement. Finally, I thank Richard Hughes and his team at the Office for Budget Responsibility for their work in preparing today’s economic and fiscal outlook.
Let me take the House through that forecast. The cost of living crisis under the last Government stretched household finances to their limit, with inflation hitting a peak of above 11%. Today, the OBR says that CPI inflation will average 2.5% this year, 2.6% in 2025, 2.3% in 2026, 2.1% in 2027, 2.1% in 2028 and 2.0% in 2029.
Moving on to economic growth, today’s Budget marks an end to short-termism, so I am pleased that, for the first time, the OBR has published not only five-year growth forecasts but a detailed assessment of the growth impacts of our policies over the next decade. The new charter for Budget responsibility, which I am publishing today, confirms that this will become a permanent feature of our framework. The OBR forecasts that real GDP growth will be 1.1% in 2024, 2.0% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028 and 1.6% in 2029. The OBR is clear: this Budget will permanently increase the supply capacity of the economy, boosting long-term growth. [Interruption.] It may sound shocking to Conservative Members, but this Government are boosting long-term economic growth.
Every Budget that I deliver will be focused on our mission to grow the economy, and underpinning that mission are the seven key pillars of our growth strategy, developed and delivered alongside business, and all driven forward by our excellent Financial Secretary to the Treasury. The first and most important is to restore economic stability. That is my focus today. Secondly, increasing investment and building new infrastructure is vital for productivity, so we are catalysing £70 billion of investment through our national wealth fund, and we are transforming our planning rules to get Britain building again. Thirdly, to ensure that all parts of the UK can realise their potential we are working with the devolved Governments and partnering with our mayors to develop local growth plans. Fourthly, to improve employment prospects and skills we are creating Skills England, delivering our plans to make work pay and tackling economic inactivity.
Fifthly, we are launching our long-term modern industrial strategy and expanding opportunities for our small and medium-sized businesses to grow. Sixthly, to drive innovation, we are protecting record funding for research and development to harness the full potential of the UK’s science base. Finally, to maximise the growth benefits of our clean energy mission, we have confirmed key investments, such as carbon capture and storage, to create jobs in our industrial heartlands. Our approach is already having an impact: just two weeks ago, we delivered an international investment summit that saw businesses commit £63.5 billion of investment into our country, creating nearly 40,000 jobs across the United Kingdom. But we cannot undo 14 years of damage in one go. Economic growth will be our mission for the duration of this Parliament.
In our manifesto, we set out the fiscal rules that would guide this Government. I am confirming those today: our stability rule and our investment rule. The stability rule means that we will bring the current Budget into balance so that we do not borrow to fund day-to-day spending. We will meet that rule in 2029-30, until that becomes the third year of the forecast. From then on, we will balance the current Budget in the third year of every Budget, held annually each autumn. That will provide a tougher constraint on day-to-day spending, so that difficult decisions cannot be constantly delayed or deferred. The OBR says that the current Budget will be in deficit by £26.2 billion in 2025-26 and by £5.2 billion in 2026-27, before moving into surplus of £10.9 billion in 2027-28, £9.3 billion in 2028-29 and £9.9 billion in 2029-30, meeting our stability rule two years early.
Monthly public sector finance data show that Government borrowing in the first six months of this year was already running significantly higher than the OBR’s March forecast, and the OBR confirmed today that borrowing in this financial year is now £127 billion, reflecting the inheritance left by the Conservative party. The increase in the net cash requirement in 2024-25 is lower than the increase in borrowing, at £22.3 billion higher than the spring forecast. Because of the action that we are taking, borrowing falls from 4.5% of GDP this year to 2.1% of GDP by the end of the forecast. Public sector net borrowing will be £105.6 billion in 2025-26, £88.5 billion in 2026-27, £72.2 billion in 2027-28, £71.9 billion in 2028-29 and £70.6 billion in 2029-30.
Before I come to tax, it is vital that we are driving efficiency and reducing wasteful spending. In July, to begin dealing with our inheritance, I made £5.5 billion of savings this year. Today we are setting a 2% productivity, efficiency and savings target for all Departments to meet next year by using technology more effectively and joining up services across Government. As set out in our manifesto, I will shortly be appointing our covid corruption commissioner. They will lead our work to uncover those companies that used a national emergency to line their own pockets, because that money belongs in our public services, and taxpayers want it back. I can confirm today that David Goldstone has been appointed chair of the new office for value for money to help us realise the benefits from every pound of public spending.
Today, I am also taking three steps to ensure that welfare spending is more sustainable. First, we inherited the last Government’s plans to reform the work capability assessment. We will deliver those savings as part of our fundamental reforms to the health and disability benefits system that my right hon. Friend the Work and Pensions Secretary will bring forward.
Secondly, I can today announce a crackdown on fraud in our welfare system—often the work of criminal gangs. We will expand the DWP’s counter-fraud teams, using innovative new methods to prevent illegal activity, and provide new legal powers to crack down on fraudsters, including direct access to bank accounts to recover debt. That package saves £4.3 billion a year by the end of the forecast.
Thirdly, the Government will shortly be publishing the “Get Britain Working” White Paper, tackling the root causes of inactivity with an integrated approach across health, education and welfare, and we will provide £240 million for 16 trailblazer projects, targeted at those who are economically inactive and most at risk of being out of education, employment or training, to get people into work and reduce the benefits bill.
Before a Government can consider any change to a tax rate or threshold, they must ensure that people pay what they already owe. We will invest to modernise His Majesty’s Revenue and Customs systems using the very best technology, and recruit additional HMRC compliance and debt staff. We will clamp down on the umbrella companies that exploit workers, increase the interest rate on unpaid tax debt to ensure that people pay on time, and go after the promoters of tax avoidance schemes. Those measures to reduce the tax gap raise £6.5 billion by the end of the forecast, and I thank the Exchequer Secretary to the Treasury for his outstanding work on that agenda.
I know that for working people up and down our country, family finances are stretched and pay cheques do not go as far as they once did, so today I am taking steps to support people with the cost of living. It was the Labour Government who introduced the national minimum wage in 1999. That had a transformative impact on the lives of working people. As promised in our manifesto, we asked the Low Pay Commission to take account of the cost of living for the first time. I can confirm that we will accept the commission’s recommendation to increase the national living wage by 6.7% to £12.21 an hour, worth up to £1,400 a year for a full-time worker. And, for the first time, we will move towards a single adult rate, phased in over time by initially increasing the national minimum wage for 18 to 20-year-olds by 16.3%, as recommended by the Low Pay Commission, taking it to £10 an hour—a Labour policy to protect working people, being delivered by a Labour Government once again.
Secondly, I have heard representations from colleagues across this House, including my hon. Friends the Members for Shipley (Anna Dixon) and for Scarborough and Whitby (Alison Hume), and the right hon. Member for Kingston and Surbiton (Ed Davey), about the carer’s allowance and the impact of the current policy on carers who are looking to increase the hours that they work. Carer’s allowance currently provides up to £81.90 per week to help those with additional caring responsibilities. Today, I can confirm that we are increasing the weekly earnings limit to the equivalent of 16 hours at the national living wage per week—the largest increase in the carer’s allowance since it was introduced in 1976. That means that a carer can now earn over £10,000 a year while receiving carer’s allowance, allowing them to increase their hours where they want to, and keep more of their money. I am also concerned about the cliff edge in the current system and the issue of overpayments. My right hon. Friend the Work and Pensions Secretary has announced an independent review to look at the issue of overpayments, and we will work across the House to develop the right solutions.
Thirdly, we will provide £1 billion from next year to extend the household support fund and discretionary housing payments to help those facing financial hardship with the cost of essentials. Fourthly, having heard representations from the Joseph Rowntree Foundation, the Trussell Trust and others, I will reduce the level of debt repayments that can be taken from a household’s universal credit payment each month from 25% to 15% of their standard allowance. That means that 1.2 million of the poorest households will keep more of their award each month, lifting children out of poverty, and those who benefit will gain an average of £420 a year.
Our plan to make work pay will also protect working people. I know that Conservative Members are deeply interested in our plans. Having seen their colleagues repeatedly dismissed at short notice, I know that they are worried about their future under the right hon. Member for North West Essex (Mrs Badenoch). They should rest easy knowing that our plan will protect working people from unfair dismissal; it will safeguard them from bullying in the workplace; and it will improve their access to paternity and maternity leave. I hope the new shadow Cabinet will soon be grateful for those increased protections at work.
It is right that we protect those who have worked all their lives. In our manifesto, we promised to transfer the investment reserve fund in the mineworkers’ pension scheme to members. I have listened closely to my hon. Friends the Members for Easington (Grahame Morris), for Doncaster Central (Sally Jameson), for Blaenau Gwent and Rhymney (Nick Smith) and for Ayr, Carrick and Cumnock (Elaine Stewart) on this issue. Today, we are keeping our promise, so that working people who powered our country receive the fair pension that they are owed.
Our manifesto committed to the triple lock, meaning that spending on the state pension is forecast to rise by over £31 billion by 2029-30, to ensure our pensioners are protected in their retirement. That commitment means that while working-age benefits will be uprated in line with CPI at 1.7%, the basic and new state pension will be uprated by 4.1% in 2025-26. This means that over 12 million pensioners will gain up to £470 next year, up to £275 more than uprating by inflation. The pension credit standard minimum guarantee will also rise by 4.1%, from around £11,400 per year to around £11,850 a year for a single pensioner.
While I have sought to protect working people with measures to reduce the cost of living, I have had to take some very difficult decisions on tax. I want to set out my approach to fuel duty. Baked into the numbers that I inherited from the previous Government is an assumption that fuel duty will rise in line with the retail prices index next year and that the temporary 5p cut will be reversed. To retain the 5p cut and to freeze fuel duty again would cost over £3 billion next year. At a time when the fiscal position is so difficult, I have to be frank with the House that that is a substantial commitment to make. I have concluded that, in these difficult circumstances, while the cost of living remains high and with a backdrop of global uncertainty, increasing fuel duty next year would be the wrong choice for working people. It would mean fuel duty rising by 7p per litre, so I have decided today to freeze fuel duty next year, and I will maintain the existing 5p cut for another year, too. There will be no higher taxes at the petrol pumps next year.
The last Government made cuts of £20 billion to employees’ and self-employed national insurance in their final two Budgets. Those tax cuts were not honest, because we now know that they were based on a forecast that the OBR says would have been “materially different” had it known the true extent of the last Government’s cover-up. Since July, I have been urged on multiple occasions to reconsider those cuts—to increase the taxes that working people pay and see in their payslips—but I have made an important choice today: to keep every single commitment that we made on tax in our manifesto. I say to working people, I will not increase your national insurance, I will not increase your VAT, and I will not increase your income tax. Working people will not see higher taxes in their payslips as a result of the choices I am making today. That is a promise made and a promise fulfilled.
Any responsible Chancellor would need to make difficult decisions today to raise the revenues required to fund our public services and restore economic stability. So in today’s Budget, I am announcing an increase in employers’ national insurance contributions. We will increase the rate of employers’ national insurance by 1.2 percentage points to 15% from April 2025, and we will reduce the secondary threshold—the level at which employers start paying national insurance on each employee’s salary—from £9,100 a year to £5,000. This will raise £25 billion per year by the end of the forecast period. I know that this is a difficult choice; I do not take this decision lightly. We are asking businesses to contribute more, and I know that there will be impacts of this measure felt beyond businesses, too, as the OBR has set out today. [Interruption.]
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. Our constituents are watching—they need to be able to hear the Chancellor. Simmer down.
Rachel Reeves
In the circumstances I have inherited, it is the right choice to make. Successful businesses depend on successful schools, healthy businesses depend on a healthy NHS, and a strong economy depends on strong public finances. If the Conservative party chooses to oppose this choice, it is choosing more austerity, more chaos and more instability. That is the choice our country faces, too.
As I make this choice, I know it is particularly important to protect our smallest companies. Having heard representations from the Federation of Small Businesses and others, I am today increasing the employment allowance from £5,000 to £10,500. This means that 865,000 employers will not pay any national insurance at all next year, and over 1 million will pay the same or less than they did previously. This will allow a small business to employ the equivalent of four full-time workers on the national living wage without paying any national insurance on their wages.
Let me now come to capital gains tax. We need to drive growth, promote entrepreneurship and support wealth creation while raising the revenue required to fund our public services and restore our public finances. Today, we will increase the lower rate of capital gains tax from 10% to 18% and the higher rate from 20% to 24%, while maintaining the rates of capital gains tax on residential property at 18% and 24%. This means that the UK will still have the lowest capital gains tax rate of any European G7 economy.
Alongside these changes to the headline rates of capital gains tax, we are maintaining the lifetime limit for business asset disposal relief at £1 million to encourage entrepreneurs to invest in their businesses. Business asset disposal relief will remain at 10% this year before rising to 14% in April 2025 and to 18% from 2026-27, maintaining a significant gap compared with the higher rate of capital gains tax. Together, the OBR says that these measures will raise £2.5 billion by the end of the forecast.
In a sign of this Government’s commitment to supporting growth and entrepreneurship, we have already extended the enterprise investment and venture capital trust schemes to 2035, and we will continue to work with leading entrepreneurs and venture capital firms to ensure that our policies support a positive environment for entrepreneurship in the UK.
Next, I turn to inheritance tax. Only 6% of estates will pay inheritance tax this year. I understand the strongly held desire to pass down savings to children and grandchildren, so I am taking a balanced approach in my package today. First, the previous Government froze inheritance tax thresholds until 2028. I will extend that freeze for a further two years, until 2030. That means that the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants and £1 million when a tax-free allowance is passed to a surviving spouse or civil partner.
Secondly, we will close the loophole created by the previous Government, made even bigger when the lifetime allowance was abolished, by bringing inherited pensions into inheritance tax from April 2027. Finally, we will reform agricultural property relief and business property relief. From April 2026, the first £1 million of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1 million, inheritance tax will apply with a 50% relief at an effective rate of 20%. This will ensure that we continue to protect small family farms, with three quarters of claims unaffected by these changes.
I can also announce that we will apply a 50% relief in all circumstances on inheritance tax for shares on the alternative investment market and other similar markets, setting the effective rate of tax at 20%. Taken together, these measures raise over £2 billion by the final year of the forecast.
Next, I can confirm that the Government will renew the tobacco duty escalator for the remainder of this Parliament at RPI+2%, increase duty by a further 10% on hand-rolling tobacco this year, and introduce a flat-rate duty on all vaping liquid from October 2026, alongside an additional one-off increase in tobacco duty to maintain the incentive to give up smoking. We will increase the soft drinks industry levy to account for inflation since it was introduced, as well as increasing the duty in line with CPI each year going forward. These measures will raise nearly £1 billion per year by the end of the forecast period.
We want to support the take-up of electric vehicles, so I will maintain the incentives for electric vehicles in company car tax from 2028 and increase the differential between fully electric and other vehicles in the first-year rates of vehicle excise duty from April 2025. These measures will raise around £400 million by the end of the forecast period.
Let me update the House on our plans for air passenger duty—and I can see the Leader of the Opposition’s ears have pricked up. Air passenger duty has not kept up with inflation in recent years, so we are introducing an adjustment, meaning an increase of no more than £2 for an economy class short-haul flight. But I am taking a different approach when it comes to private jets, increasing the rate of air passenger duty by a further 50%. That is equivalent to £450 per passenger for a private jet to, say, California. [Laughter.]
Let us now turn to our high street businesses. I know that, for them, a major source of concern is business rates. From 2026-27, we intend to introduce two permanently lower tax rates for retail, hospitality and leisure properties, which make up the backbone of our high streets across the country, and it is our intention that it is paid for by a higher multiplier for the most valuable properties. The previous Government created a cliff edge next year, as temporary reliefs end, so I will today provide 40% relief on business rates for the retail, hospitality and leisure industry in 2025-26 up to a cap of £110,000 per business. Alongside this, the small business tax multiplier will be frozen next year.
Next, I can confirm that alcohol duty rates on non-draught products will increase in line with RPI from February next year. However, nearly two thirds of alcoholic drinks sold in pubs are served on draught, so today, instead of uprating these products in line with inflation, I am cutting draught duty by 1.7%—[Hon. Members: “Hear, hear!”]—which means a penny off the pint in the pub.
Alongside the changes I am making today, I am publishing a corporate tax road map, providing the business certainty called for by the CBI, the British Chambers of Commerce and the Institute of Directors. This confirms our commitment to cap the rate of corporation tax at 25%—the lowest in the G7—for the duration of this Parliament, while maintaining full expensing and the £1 million annual investment allowance, and keeping the current rates of research and development relief to drive innovation.
In our manifesto, we made a number of commitments to raising funding for our public services. First, I have always said that if you make Britain your home, you should pay your taxes here, too, so today I can confirm that we will abolish the non-dom tax regime, and we will remove the outdated concept of domicile from the tax system from April 2025. We will introduce a new, residence-based scheme, with internationally competitive arrangements for those coming to the UK on a temporary basis, while closing the loopholes in the scheme designed by the Conservative party. To further encourage investment into the UK, we will extend the temporary repatriation relief to three years and expand its scope, bringing billions of pounds of new funds into Britain. The independent Office for Budget Responsibility says that this package of measures will raise £12.7 billion over the next five years.
The fund management industry provides a vital contribution to our economy, but as our manifesto set out, there needs to be a fairer approach to the way that carried interest is taxed, so we will increase the capital gains rates on carried interest to 32% from April 2025, and from April 2026 we will deliver further reform to ensure that the specific rules for carried interest are simpler, fairer and better targeted.
In our manifesto, we committed to reforming stamp duty land tax to raise revenues, while supporting those buying their first home. We are increasing the stamp duty land tax surcharge for second homes, known as the higher rate for additional dwellings, by 2 percentage points to 5%, which will come into effect from tomorrow. This will support over 130,000 additional transactions from people buying their first home or moving home over the next five years.
Next, we are committed to reforming the energy profits levy on oil and gas companies. I can confirm today that we will increase the rate of the levy to 38%. The levy will now expire in March 2030, and we will remove the 29% investment allowance. To ensure that the oil and gas industry can protect jobs and support our energy security, we will maintain the 100% first-year allowances, and the decarbonisation allowances, too.
Finally, 94% of children in the UK attend state schools. To provide the highest-quality support and teaching that they deserve, we will introduce VAT on private school fees from January 2025, and we will shortly introduce legislation to remove their business rates relief from April 2025, too.
We said in our manifesto that these changes, alongside our measures to tackle tax avoidance, would bring in £8.5 billion in the final year of the forecast. I can confirm today that they will in fact raise over £9 billion to support our public services and restore our public finances. That is a promise made and a promise fulfilled.
I have one final decision to announce on tax today. The previous Government froze income tax and national insurance thresholds in 2021, and then did so again after the mini-Budget. Extending their threshold freeze for a further two years raises billions of pounds—money to deal with the black hole in our public finances and repair our public services. Having considered the issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips. I am keeping every single promise on tax that I made in our manifesto, so there will be no extension of the freeze in income tax and national insurance thresholds beyond the decisions made by the previous Government. From 2028-29, personal tax thresholds will be uprated in line with inflation once again. When it comes to choices on tax, this Government choose to protect working people every single time.
Those are the choices I have made to restore economic stability and protect working people. My next choice is to begin to repair our public services. In recent months, we conducted the first phase of the spending review to set departmental budgets for 2024-25 and 2025-26. I thank my right hon. Friend the Chief Secretary to the Treasury for his tireless work with colleagues from across Government. Because I have taken difficult decisions on tax today, I am able to provide an injection of immediate funding over the next two years to stabilise and support our public services.
The next phase of the spending review will report in late spring, and I have set out the overall envelope today. Day-to-day spending from 2024-25 onwards will grow by 1.5% in real terms, and today departmental spending, including capital spending, will grow by 1.7% in real terms. At the election, we promised that there would be no return to austerity, and today we deliver on that promise, but given the scale of the challenge that we face in our public services, there will still be difficult choices in the next phase of the spending review. Just as we cannot tax and spend our way to prosperity, neither can we simply spend our way to better public services. We will deliver a new approach to public service reform, using technology to improve public services and taking a zero-based approach, so that taxpayers’ money is spent as effectively as possible, and so that we focus on delivering our key priorities.
In the first phase of the spending review, I have prioritised day-to-day funding to deliver on our manifesto commitments. I want every child to have the very best start in life, and the best possible start to their school day. I know that my right hon. Friend the Secretary of State for Education shares my ambition, so today I am tripling investment in breakfast clubs to fund them in thousands of schools. I am increasing the core schools budget by £2.3 billion next year to support our pledge to hire thousands more teachers in key subjects. So that our young people can develop the skills that they need for the future, I am providing an additional £300 million for further education. Finally, this Government are committed to reforming special educational needs provision, to improve outcomes for our most vulnerable children and ensure that the system is financially sustainable. To support that work, I am today providing a £1 billion uplift in funding—a 6% real-terms increase from this year.
There is no more important job for Government than keeping our country safe, and we are conducting a strategic defence review, to be published next year. As set out in our manifesto, we will set a path to spending 2.5% of GDP on defence at a future fiscal event. Today, I am announcing a total increase in the Ministry of Defence’s budget of £2.9 billion next year, ensuring that the UK comfortably exceeds our NATO commitments, and providing guaranteed military support to Ukraine of £3 billion per year for as long as it takes. Last week, alongside my right hon. Friend the Defence Secretary, I announced, in addition to that, further support for Ukraine, on top of our NATO commitment. That support comes through our £2.26 billion contribution to the G7’s extraordinary revenue acceleration agreement. That will be repaid using profits from immobilised Russian sovereign assets.
As we approach Remembrance Sunday, it is vital that we take time to remember those who have served our country so bravely. I am today announcing funding to commemorate the 80th anniversary of VE and VJ Day next year, to honour those who served at home and abroad. We must also remember those who experienced the atrocities of the Nazi regime at first hand. I would like to pay tribute to Lily Ebert, the Holocaust survivor and educator who passed away aged 100 earlier this month. I am today committing a further £2 million for Holocaust education next year, so that charities such as the Holocaust Educational Trust can continue their work to ensure that those vital testimonies are not lost, and are preserved for the future.
To repair our public services, we need to work alongside our mayors and local leaders. We will deliver a significant, real-terms funding increase for local government next year, including £1.3 billion of additional grant funding to deliver essential services, with at least £600 million in grant funding for social care and £230 million to tackle homelessness and rough sleeping. We are today confirming that Greater Manchester and the West Midlands will be the first mayoral authorities to receive integrated settlements from next year, giving mayors meaningful control of funding for their local areas. To support our high streets, we are taking action to deal with the sharp rise in shoplifting that we have seen in recent years. We will scrap the effective immunity for low-value shoplifting introduced by the Conservative party, and having listened closely to organisations such as the British Retail Consortium and the trade union USDAW, I am providing additional funding to crack down on the organised gangs that target retailers, and to provide more training for our police officers and retailers, in order to stop shoplifting in its tracks.
Finally, I am today providing funding to support public services and drive growth across Scotland, Wales, and Northern Ireland. Having discussed the matter with the First Minister of Wales, Eluned Morgan, my hon. Friend the Under-Secretary of State for Wales (Dame Nia Griffith), and my hon. Friend the Under-Secretary of State for Justice (Alex Davies-Jones), I am today providing £25 million to the Welsh Government next year for the maintenance of coal tips, to ensure that we keep our communities safe. To support growth, including in our rural areas, we will proceed with city and growth deals in Northern Ireland, in Causeway Coast and Glens, and the Mid South West. We will drive growth in Scotland, which is a key priority for Scottish Labour and our leader, Anas Sarwar, including through a city and growth deal in Argyll and Bute.
This Budget provides the devolved Governments with the largest real-terms funding settlement since devolution, delivering an additional £3.4 billion to the Scottish Government through the Barnett formula—funding that must now be used effectively in Scotland to deliver the public services that the people of Scotland deserve. This Budget also provides £1.7 billion to the Welsh Government, and £1.5 billion to the Northern Ireland Executive in 2025-26. I said there would be no return to austerity; that is the choice I have made today.
To rebuild our country, we need to increase investment. The UK lags behind every other G7 country when it comes to business investment as a share of our economy. That matters. It means that the UK has fallen behind in the race for new jobs, new industries, and new technology. By restoring economic stability, and by establishing the national wealth fund to catalyse private funding, we have begun to create the conditions that businesses need to invest, but there is also a significant role for public investment. For too long, we have seen Conservative Chancellors cut investment and raid capital budgets to plug gaps in day-to-day spending. The result is clear for all to see: hospitals without the equipment they need; school buildings not fit for our children; a desperate lack of affordable housing; and economic growth held back at every turn. Under the plans I inherited, public investment was set to fall from 2.5% to 1.7% of GDP, but in Washington last week, the International Monetary Fund was clear: more public investment is badly needed in the UK.
Having listened to the case made by the former Governor of the Bank of England, Mark Carney, the former Treasury Minister, Jim O’Neill and the former Cabinet Secretary, Gus O’Donnell, among others, I am confirming our investment rule. As was set out in our manifesto, we will target debt falling as a share of the economy. Debt will be defined as public sector net financial liabilities—or net financial debt, for short. That metric has been measured by the Office for National Statistics since 2016 and forecast by the Office for Budget Responsibility since that date, too.
Net financial debt recognises that Government investment delivers returns for taxpayers by counting not just the liabilities on a Government’s balance sheet, but the financial assets, too. That means we count the benefits of that investment, not just the costs, and we free up our institutions to invest, just as they do in Germany, France and Japan. Like our stability rule, our investment rule will apply in 2029-30, until that becomes the third year of the forecast. From that point onwards, net financial debt will fall in the third year of every forecast. Today, the OBR says that we are already meeting our target two years early, with net financial debt falling by 2027-28 and £15.7 billion of headroom in the final year.
So that we drive the right incentives in Government investments, we will introduce four key guardrails to ensure capital spending is good value for money and drives growth in our economy. First, our portfolio of new financial investments will be delivered by expert bodies, such as the national wealth fund, and must by default earn a rate of return at least as large as that on gilts. Secondly, we will strengthen the role of institutions to improve infrastructure delivery. Thirdly, we will improve certainty, setting capital budgets for five years and extending them at spending reviews every two years. Finally, we will ensure greater transparency for capital spending, with robust annual reporting of financial investments based on accounts audited by the National Audit Office and made available to the Office for Budget Responsibility at every forecast. Taken together with our stability rule, these fiscal rules will ensure that our public finances are on a firm footing, while enabling us to invest prudently alongside business.
The capital plans I now set out to drive growth across our country and repair the fabric of our nation are possible only because of our investment rule. Let me set out those investment plans. Today, we are confirming our plans to capitalise the national wealth fund to invest in the industries of the future, from gigafactories to ports to green hydrogen. Building on those investments, my right hon. Friend the Business Secretary is driving forward our modern industrial strategy, working with businesses and organisations such as Make UK to set out the sectors with the biggest growth potential. Today, we are confirming multi-year funding commitments for these areas of our economy, including nearly £1 billion for the aerospace sector to fund vital research and development, building on our industry in the east midlands, the south-west and Scotland; more than £2 billion for the automotive sector to support our electric vehicle industry and develop our manufacturing base, building on our strengths in the north-east and the west midlands; and up to £520 million for a new life sciences innovative manufacturing fund.
For our world-leading creative industries, we will legislate to provide additional tax relief for visual effect costs in TV and film, and we are providing £25 million for the North East combined authority, which it plans to use to remediate the Crown Works Studios site in Sunderland, creating 8,000 new jobs.
To unlock these growth industries of the future, we will protect Government investment in research and development, with more than £20 billion-worth of funding. This includes at least £6.1 billion to protect core research funding for areas such as engineering, biotechnology and medical science through Research England, other research councils and the national academies. We will extend the innovation accelerators programme in Glasgow, Manchester and the west midlands. With more than £500 million of funding next year, my right hon. Friend the Secretary of State for Science, Innovation and Technology will continue to drive progress in improving reliable, fast broadband and mobile coverage across our country, including in rural areas.
We committed in our manifesto to build 1.5 million homes over the course of this Parliament, and my right hon. Friend the Deputy Prime Minister is driving that work forward across government. Today, I am providing more than £5 billion of Government investment to deliver our plans on housing next year. We will increase the affordable homes programme to £3.1 billion, delivering thousands of new homes. We will provide £3 billion-worth of support in guarantees to boost the supply of homes and support our small house builders. We will provide investment to renovate sites across our country, including at Liverpool Central Docks, where we will deliver 2,000 new homes, and funding to help Cambridge realise its full growth potential.
Alongside this investment, we will put the right policies in place to increase the supply of affordable housing. Having heard representations from local authorities, social housing providers and Shelter, I can today confirm that the Government will reduce right-to-buy discounts and that local authorities will be able to retain the full receipts from any sales of social housing, so that we can reinvest them back into housing stock and into new supply. By doing that, we will give more people a safe, secure and affordable place to live.
We will provide stability to social housing providers with a social housing rent settlement of CPI plus 1% for the next five years, and we will deliver on our manifesto commitment to hire hundreds of new planning officers to get Britain building again. We will also make progress on our commitment to accelerate the remediation of homes, following the findings of the Grenfell inquiry, with £1 billion of investment to remove dangerous cladding next year.
The last Government made a number of promises on transport, but failed to fund them. Working with my right hon. Friend the Transport Secretary, I am changing that. We are today securing the delivery of the trans-Pennine upgrade to connect York, Leeds, Huddersfield and Manchester, delivering fully electric local and regional services between Manchester and Stalybridge by the end of this year, with a further electrification of services between Church Fenton and York by 2026, to help grow our economy across the north of England with faster and more reliable services.
We will deliver East West Rail to drive growth between Oxford, Milton Keynes and Cambridge, with the first services running between Oxford, Bletchley and Milton Keynes next year, and trains between Oxford and Bedford running from 2030. We are delivering railway schemes that improve journeys for people across our country, including upgrades at Bradford Forster Square station, improving capacity at Manchester Victoria and electrifying the Wigan to Bolton line.
My right hon. Friend the Transport Secretary has also set out a plan for how to get a grip of HS2. Today, we are securing delivery of the project between Old Oak Common and Birmingham, and we are committing the funding required to begin tunnelling work to London Euston station. That will catalyse private investment into the local area, delivering jobs and growth.
I am also funding significant improvements to our road network. For too long, potholes have been an all-too-visible reminder of our failure to invest as a nation. Today that changes, with a £500 million increase in road maintenance budgets next year—more than delivering on our manifesto commitment to fix an additional 1 million potholes each year. We will provide over £650 million of local transport funding to improve connections across our country, in towns such as Crewe and Grimsby and in our villages and rural areas from Cornwall to Cumbria. While the previous Government’s policy was for the bus fare cap to end this December, we understand how important bus services are for our communities, so we will extend the cap for a further year, setting it at £3 until December 2025. Finally, we will deliver £1.3 billion of funding to improve connectivity in our city regions, funding projects such as the Brierley Hill metro extension in the west midlands, the renewal of the Sheffield Supertram, and West Yorkshire mass transit, including in Bradford and Leeds.
To bring new jobs to Britain and drive growth across our country, we are delivering our mission to make Britain a clean energy superpower, led by my right hon. Friend the Energy Secretary. Earlier this month, we announced a significant multi-year investment between Government and business in carbon capture and storage, creating 4,000 jobs across Merseyside and Teesside. Today, I am providing funding for 11 new green hydrogen projects across England, Scotland and Wales—they will be among the first commercial-scale projects anywhere in the world—including in Bridgend, East Renfrewshire and Barrow-in-Furness. We are kick-starting the warm homes plan by confirming an initial £3.4 billion over the next three years to transform 350,000 homes, including a quarter of a million low-income and social homes, and we will establish GB Energy, providing funding next year to set it up at its new home in Aberdeen.
Overall, we will invest an additional £100 billion over the next five years in capital spending—that is possible only because of our investment rule. The OBR says today that this investment will drive growth across our country in the next five years and, in the longer term, increase GDP by up to 1.4%. It will crowd in private investment, meaning more jobs and more opportunities in every corner of the UK. That is the choice that I have made: to invest in our country and to grow our economy.
Today, I am setting out two final areas in which investment is so badly needed to repair the fabric of our nation. My hon. Friend the Member for Lewisham West and East Dulwich (Ellie Reeves) and I joined the Labour party because of the condition of our schools in the 1980s and 1990s under Conservative Governments. When we were at secondary school, my sixth form was a couple of prefab huts in the playground. My school, like so many others, was rebuilt by the last Labour Government, but after 14 years of Tory government, progress has gone backwards: school roofs are crumbling and millions of children are facing the same backdrop as I did. I will be the Chancellor who changes that.
Today, I am providing £6.7 billion of capital investment to the Department for Education next year—a 19% real-terms increase on this year. That includes £1.4 billion to rebuild over 500 schools in the greatest need, including St Helen’s primary school in Hartlepool, Mercia academy in Derby and so many more across our country. We will provide £2.1 billion more to improve school maintenance—£300 million more than this year—ensuring that all our children can learn somewhere safe. That will include dealing with reinforced autoclaved aerated concrete-affected schools in the constituencies of my hon. Friends the Members for Watford (Matt Turmaine), for Stourbridge (Cat Eccles) and for Hyndburn (Sarah Smith) and beyond, alongside investment in new teachers and funding for thousands of new breakfast clubs. This Government are giving our children and young people the opportunities that they deserve.
I come to our most cherished public service of all: our NHS. My right hon. Friend the Health Secretary is beginning to repair the damage of the last 14 years. In our first week in office, he commissioned an independent report into the state of our health service by Lord Darzi. Its conclusions were damning. While our NHS staff do a remarkable job, and we thank them for it, it is clear that in so many areas we are moving in the wrong direction. A hundred thousand infants waited over six hours in A&E last year. Three hundred and fifty thousand people are waiting a year for mental health support. Cancer deaths here are higher than in other countries. It is simply unforgiveable.
In the spring, we will publish a 10-year plan for the NHS to deliver a shift from hospital to community, from analogue to digital and from sickness to prevention. Today, we are announcing a down payment on that plan to enable the NHS to deliver 2% productivity growth next year. These reforms are vital, but we should be honest: the state of the NHS that we inherited after—I quote Lord Darzi—
“the most austere decade since the NHS was founded”
means that reform must come alongside investment. So today, because of the difficult decisions that I have taken on tax, welfare and spending, I can announce that I am providing a £22.6 billion increase in the day-to-day health budget and a £3.1 billion increase in the capital budget over this year and next. This is the largest real-terms growth in day-to-day NHS spending outside of covid since 2010.
Let me set out what this funding is delivering. Many NHS buildings have been left in a state of disrepair, so we will provide £1 billion of health capital investment next year to address the backlog of repairs and upgrades across our NHS. To increase capacity for tens of thousands more procedures next year, we will provide a further £1.5 billion for new beds in hospitals across our country, new capacity for over a million additional diagnostic tests, and new surgical hubs and diagnostic centres so that people waiting for their treatment can get it as quickly as possible.
My right hon. Friend the Health Secretary will be setting out further details of his review into the new hospital programme in the coming weeks and publishing in the new year, but I can tell the House today that work will continue at pace to deliver those seven hospitals affected by the RAAC crisis, including West Suffolk hospital in Bury St Edmunds and Leighton hospital in Crewe. And finally, because of this record injection of funding, the thousands of additional beds that we have secured and the reforms that we are delivering in our NHS, we can now begin to bring waiting lists down more quickly and move towards our target for waiting times to be no longer than 18 weeks by delivering on our manifesto commitment for 40,000 extra hospital appointments a week. That is the difference that this Labour Government are making.
The choices I have made today are the right choices for our country—to restore stability to our public finances, to protect working people, to fix our NHS and to rebuild Britain. That does not mean these choices are easy, but they are responsible. If the Conservatives disagree with the choices that I have made, they must answer: what choices would they make? Would they again choose the path of irresponsibility—the path taken by Liz Truss—and ignore the problems in our public finances all together? If that is their choice, they should say so. But let me be clear: if they disagree with my choices on tax, they would not be able to protect working people. If they disagree with our plans to fund public services, they would have to cut schools and hospitals. If they disagree with our investment rule, they would have to delay or cancel thousands of projects that drive growth across our country.
This is a moment of fundamental choice for Britain. I have made my choices—the responsible choices—to restore stability to our country and to protect working people. More teachers in our schools, more appointments in our NHS, more homes being built, fixing the foundations of our economy, investing in our future, delivering change and rebuilding Britain. We on the Government Benches commend those choices, and I commend this statement to the House.
Provisional Collection of Taxes
Motion made, and Question put forthwith (Standing Order No. 51(2)),
That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—
(a) Value added tax (private school fees) (motion no. 34);
(b) Stamp duty land tax (additional dwellings: purchases before 1 April 2025) (motion no. 35);
(c) Stamp duty land tax (purchases by companies) (motion no. 37);
(d) Rates of tobacco products duty (motion no. 46).—(Rachel Reeves.)
Question agreed to.
Madam Deputy Speaker (Ms Nusrat Ghani)
We come now to the motion entitled “Income Tax (Charge)”. It is on this motion that the debate will take place today and on the succeeding days. The questions on this motion and the remaining motions will be put at the end of the Budget debate on Wednesday 6 November.
Oral Answers to Questions
Rachel Reeves Excerpts(3 weeks, 4 days ago)
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Ms Polly Billington (East Thanet) (Lab)
The Chancellor of the Exchequer (Rachel Reeves)
This is likely to be the last time that the shadow Chancellor, the right hon. Member for Godalming and Ash (Jeremy Hunt), is up against me at the Dispatch Box. We have had the privilege of these exchanges for just over two years now, and I have a huge amount of respect for him. He steered our country through a very difficult time after the mini-Budget, and I wish him well in whatever he chooses to do next.
If UK living standards, as measured by real household disposable income per capita, had grown by the same amount between 2010 and 2023 as they did between 1997 and 2010, the amount would have been over £4,000 higher in 2023. We are committed to boosting economic growth to turn that around. Although it will have been welcome news for millions of families that inflation is now below 2%, there is still more to do. Earlier this month, we delivered our first international investment summit, announcing over £60 billion of investment and unlocking nearly 38,000 jobs in the UK, all focused on creating and spreading opportunities to lift living standard.
Joe Morris
The Conservatives oversaw a living standards disaster. In places such as Hexham, Prudhoe and Throckley in my constituency, people saw hardly any improvements to their incomes in over 14 years. Surely the clearest sign of whether government is working is whether working people feel better off. Does the Chancellor agree that papering over Tory failure is not enough, and that in tomorrow’s Budget we must reset the foundations of our economy?
Rachel Reeves
My hon. Friend is right: the previous Parliament was the worst ever recorded for living standards. Tomorrow’s Budget is an opportunity to fix that and turn the page so that we can start delivering for families in Hexham and all around the country.
Ms Rimmer
The bottom 50% of the population owned less than 5% of wealth in 2021, while the top 10% stacked up 57% of it—up from 52.5% in 1995. In our communities, the less well-off are struggling with energy prices and other costs. What will the Government do to ensure that the gap closes?
Rachel Reeves
We have already announced the child poverty taskforce, which is working to publish a comprehensive strategy to tackle child poverty. We will publish that strategy in spring next year. We have also provided £500 million, including the Barnett impact, to extend the household support fund in England until the end of March next year, which will help the most vulnerable households to cover the costs of essentials such as food, energy and water.
Kirsteen Sullivan
Shamefully, under the last Conservative Government, the need for food banks soared to levels even higher than during the pandemic. Recent research shows that in my Bathgate and Linlithgow constituency, the number of food parcels distributed has risen by 77% over the past five years, and that in 2022-23, 27% of children were living in poverty after housing costs. What steps are the Government taking to reduce the need for food banks in the context of child poverty?
Rachel Reeves
I thank my hon. Friend for her question and congratulate her on her great work on the Co-op’s food justice policy. As she knows, we are right behind her in our commitment to raise living standards across the country. We made a manifesto commitment to update the remit of the Low Pay Commission so that, for the first time ever, it will take into account the cost of living when making recommendations about the minimum wage.
Ms Billington
As my right hon. Friend will be aware, coastal communities such as mine struggle with a low-pay, low-skill economy. Does she acknowledge the importance of the minimum wage in tackling this problem and supporting our communities and local economies?
Rachel Reeves
My hon. Friend is absolutely right. It is why we will ensure that the Low Pay Commission takes into account the cost of living, and why we will close the gap between the youth rate of minimum wage and the overall rate, so that all adults can be paid a fair wage for their work.
Dame Harriett Baldwin (West Worcestershire) (Con)
The living standards of a 90-year-old pensioner on a £13,500 income are falling sharply this winter as a result of the Chancellor’s decision to take away the winter fuel allowance. Tomorrow, she has the chance to increase the threshold. Will she take it?
Rachel Reeves
As the hon. Lady knows, because of our commitment to the triple lock, the basic state pension and the new state pension will continue to rise. This winter, the new state pension is worth £900 more than it was a year ago, and it is likely to rise by a further £450 next April. Indeed, during the course of this Parliament, because of the triple lock, the new state pension is likely to be worth £1,700 more—much more than the value of the winter fuel payment.
Jess Brown-Fuller (Chichester) (LD)
I am sure that the Treasury was pleased to receive £1.5 billion in a windfall tax from Octopus Energy. Would the Chancellor consider using that money to reinstate the winter fuel allowance for one year until the Treasury has had the opportunity to find a better system of means-testing, so that my vulnerable residents and pensioners in Chichester are not falling off a cliff edge this winter?
Rachel Reeves
I can understand the hon. Member’s concern, but of course, that £1.5 billion was already baked into the forecast—it is not new money to spend on initiatives. As she knows, we inherited a £22 billion black hole in the public finances; we will set out the detail of that at the Budget tomorrow, but because of that, we have had to make very difficult choices. Even in those difficult circumstances, though, we have protected the winter fuel payment for the most vulnerable pensioners who are on pension credit. We have also boosted the uptake of pension credit, so that people get the support they are entitled to.
Graham Stuart (Beverley and Holderness) (Con)
Residents of Joseph Rowntree’s St Ellens Court all gathered recently to tell me about the devastating impact that the cut in the winter fuel payment will have on their living standards, and people in Withernsea gathered Saturday last to demonstrate against it. Tomorrow, the Chancellor can do the right thing; will she?
Rachel Reeves
I am sure the right hon. Gentleman told them about the £22 billion gap in the public finances that his Government left, which has required the difficult decisions this Government have had to make to clean up the mess left by the Conservative party.
Paul Holmes (Hamble Valley) (Con)
With the promised £300 cut in energy bills not materialising, the winter fuel payment scrapped for pensioners, and now the bus cap lifted for working people—whatever definition of that term the Chancellor is using today—can she honestly say that living standards will improve for everybody under this Government?
Rachel Reeves
On the bus price cap specifically, the hon. Member will know that the previous Government put no money in to extend that cap. We have put money in to ensure that the bus price cap remains at an affordable level for people, unlike the previous Government, who just had short-term gimmicks.
Dr Luke Evans (Hinckley and Bosworth) (Con)
Ben Coleman (Chelsea and Fulham) (Lab)
The Chancellor of the Exchequer (Rachel Reeves)
The Government’s growth mission will counteract 14 years of sluggish economic growth, kick-starting a decade of national renewal. We have wasted no time in getting to work: we have already launched the national wealth fund, introduced reforms to the planning system, and hosted the international investment summit, securing more than £63 billion of investments across the United Kingdom. Work continues, and I look forward to updating the House on our next steps for growth in tomorrow’s Budget.
Josh Simons
As co-chair of the Labour Growth Group, I welcome the Chancellor’s decision to unleash a revolution in investment in Britain, but the capital we must invest in is not just physical but digital. For years, Conservative Members cut capital investment in technology, depressing productivity and leaving workers with less money in their pocket. What steps is the Chancellor taking to boost long-term investment, especially in digital and technology?
Rachel Reeves
I thank my hon. Friend for his excellent work as co-chair of the Labour Growth Group. I know that he is passionate about how we can use data to boost productivity and improve public services, and he is working with Wigan council and his local NHS trust to build data-driven tools to better deliver preventive healthcare.
The Government recognise that attracting private investment into digital and technology is crucial for driving growth, which is why we have already prioritised them in the modern industrial strategy to ensure that we are creating the right conditions for investment. Since the Government took office, we have been pleased to welcome more than £25 billion of investment into UK data centres, helping to create thousands of jobs and meet the growing demand for data, artificial intelligence and machine learning.
Ms Minns
Does the Chancellor agree that a modern NHS that is fit for the future is essential to our country’s economic growth? Will she find time to visit the new Pears Cumbria School of Medicine when it opens in Carlisle next year?
Rachel Reeves
I thank my hon. Friend for that question. I absolutely recognise the important role of the NHS and the health of our nation in getting people back to work and in boosting the economy. That is why in tomorrow’s Budget we will set out further detail of how we will increase the number of elective appointments per week, delivering one of the Government’s first steps in office to reduce waiting times in the NHS.
I was delighted to meet Professor Hugh Brady from Imperial College London at the international investment summit. He shared the detail of important plans to partner with the University of Cumbria to help the next generation of medical professionals in my hon. Friend’s constituency and to address staffing shortfalls and healthcare needs in the area. I commend her work in this important area.
Dave Robertson
High streets in Lichfield and Burntwood in my constituency were let down as, for 14 years, the Conservative party fiddled while our high street economies burned. Can the Chancellor assure me that regenerating high streets, as the physical manifestation of how well our economy is doing, is a priority for this Treasury?
Rachel Reeves
I welcome my hon. Friend to his place, and he is doing a great job for the people of Lichfield. This Government are committed to delivering a decade of national renewal and ensuring that growth and prosperity are felt everywhere in our country. We will work in partnership with businesses and local communities to rejuvenate our high streets, which are the lifeblood of our local communities, including those in Lichfield and Burntwood. As part of this, we plan to introduce new powers to help fill vacant properties through high street rental auctions. We know that this is such an important issue for so many of our constituencies.
Ben Coleman
Thousands of my constituents in Chelsea and Fulham come from European Union countries, and they are all passionate about the UK economy doing well. Does the Chancellor agree that, for the UK to achieve its full economic growth potential, we need to deepen our trading links with the European Union? If she does, will can she say how the Treasury is working with other Government Departments to achieve this?
Rachel Reeves
I thank my hon. Friend for his question. Since taking office, this Government have been working to reset our relationship with our European friends and neighbours. The Prime Minister recently met the President of the European Commission and agreed to strengthen the UK-EU relationship to address global challenges such as the economic headwinds, geopolitical competition, irregular migration, climate change and energy prices. Improving our relationships will be good for business and good for consumers.
Harriet Cross (Gordon and Buchan) (Con)
I am not going to ask the Chancellor to pre-empt tomorrow’s Budget, although I might actually have some luck if I did, based on current form. Instead, can she confirm to me that she fully appreciates how important agricultural property relief and business property relief are to the farmers and family businesses that do so much to grow local economies across the country?
Rachel Reeves
I recognise the importance of being able to pass on to the next generation the assets people have built up, and we will be setting out more details on all of our tax policies in the Budget tomorrow.
Wendy Chamberlain (North East Fife) (LD)
Shared prosperity funding has been used by local authorities such as Fife council to drive economic growth, particularly through support for small businesses. That funding is due to end in April 2025. Can we get a commitment from the Government that funding for these kinds of schemes will continue?
Rachel Reeves
We will set out more details in the Budget tomorrow, including the consequentials that will go to the Scottish Government.
Sir Desmond Swayne (New Forest West) (Con)
Investment requires a measure of optimism, not the collapse in business confidence that the Chancellor has engineered. She would have done better to stress some of the positives that she inherited, wouldn’t she?
Rachel Reeves
It is good to have an explanation of how to do my job from one of the Conservative Members who crashed our economy. Some £63.5 billion of investment into the UK was announced at our international investment summit—investment in life sciences, investment in data centres and digital, investment in clean energy—because businesses have confidence that this Government are bringing stability back to our economy and working with businesses to seize the opportunities. I am really excited about doing that in all parts of our country and working with business to do so.
Dave Doogan (Angus and Perthshire Glens) (SNP)
Can the Chancellor tell us, to the nearest £10 billion, how much extra would be available for long-term investment were it not for the fire sale of UK Government bonds by the Bank of England, costing the taxpayer dearly?
Rachel Reeves
I started my career as an economist at the Bank of England, and unlike Conservative Members, I think it is incredibly important to recognise the independence of our economic institutions, including the Bank of England and, indeed, the Office for Budget Responsibility.
Daisy Cooper (St Albans) (LD)
Small businesses are the engine of our economy, but many of them are penalised for investing in their businesses because of the broken business rates system. Will the Chancellor ensure that investment is exempted from business rates, and will she ensure that the Budget tomorrow is the final Budget in which business rates are a permanent feature?
Rachel Reeves
I thank the hon. Lady for her question, and I too welcome her to her place.
Small businesses and high street businesses are the lifeblood of all of our communities, including hers in St Albans, and it is important that we support them. In our manifesto, we committed to reform of our business rates system. I will be setting out more details in the Budget yesterday tomorrow, as well as a business tax road map, which will give businesses certainty about the tax environment they will be working with for the next five years.
Mr Tom Morrison (Cheadle) (LD)
John Grady (Glasgow East) (Lab)
The Chancellor of the Exchequer (Rachel Reeves)
In July, a Treasury assessment of public spending showed that this Government inherited a £22 billion black hole in the public finances. I took immediate action—[Interruption.] Those on the Opposition Benches may not like it, but it is true. [Interruption.]
Mr Speaker
Order. I cannot hear the Chancellor, and I will hear the Chancellor.
Rachel Reeves
There are not many Conservative Members, but they still make quite a lot of noise.
I took immediate action by identifying savings and making reforms to the spending and fiscal framework to ensure that never again can a Government be allowed to make unfunded commitments, and to leave their successors with a massive black hole, as the Leader of the Opposition and the previous Chancellor did. As my right hon. Friend the Chief Secretary to the Treasury said to the House yesterday, the Budget will confirm the detail of the robust fiscal rules—this was set out in our manifesto—and will set out tax and spending plans, alongside an updated forecast from the independent Office for Budget Responsibility.
John Grady
Does my right hon. Friend agree that being honest and transparent about the state of public finances is the right thing to do, and that having a long-term plan to fix the foundations of our economy and the public finances is preferable to the short-term, chaotic approach taken by the SNP in Scotland, which has led to three consecutive years of emergency in-year budget cuts?
Rachel Reeves
This Government are committed to sustainable public finances, unlike two of the Opposition parties. A stable economy built on stable public finances is a key foundation for growth, which is why Labour is on the Government Benches, and the SNP and the Tories are on the Opposition Benches. The robust fiscal rules set out in our manifesto will put the public finances on a sustainable path, so that we can move the budget into balance, with day-to-day costs being met by revenues, and get debt falling as a share of our economy. Given our challenging inheritance, that will require difficult choices, but this Government will make them to fix the foundations of our economy.
Josh Babarinde (Eastbourne) (LD)
The last Government left Eastbourne borough council in a position in which it spends 49p in every pound it collects in council tax on temporary accommodation. We need a solution, because that is not sustainable for councils or families. Will the Chancellor commit to supporting councils with the cost of temporary accommodation, and to investing in preventing homelessness in the first place?
Rachel Reeves
The hon. Member is absolutely right: the number of people housed in temporary accommodation is a scandal, and the amount that costs taxpayers in Eastbourne and around the country is a double scandal. We made a commitment in our manifesto to building 1.5 million homes during this Parliament. Conservative Members oppose that, but we are determined to do it, because that is the way to bring down the cost of temporary accommodation and ensure that all families have a safe and secure roof over their heads.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
My right hon. Friend is right about the challenge it will be for the Government to balance the public finances. A stiff target of 2% in-year efficiency savings has been set for Departments. What is she doing to make sure that the target is robustly applied, and that Departments do not game it by putting off decisions, which will end up costing more?
Rachel Reeves
I thank the Chair of the Treasury Committee for that question. She is absolutely right that in our July statement, we set a 2% productivity target, not just for the Department of Health and Social Care, as the previous Government did, but for all Departments. Ministers are absolutely determined to deliver against those targets, because that is the way to ensure that we have resources for the frontline public services—our schools, hospitals and police—that we all rely on.
Nick Timothy (West Suffolk) (Con)
Under the last Government, the Chancellor said that interest rates and gilt yields were driven by Government policy. Will the Chancellor guarantee that neither will rise higher than they did under the Conservatives?
Rachel Reeves
The last Government crashed the economy with a mini-Budget and sent interest rates and mortgage rates soaring, putting huge pressure on the costs borne by families and businesses. We will set out our Budget tomorrow, including robust fiscal rules on paying for day-to-day spending through tax receipts and borrowing only to invest, whereas the previous Government borrowed for day-to-day spending, which is why we are in the mess we are in today.
Alan Mak (Havant) (Con)
Last Wednesday, in Washington, the Chancellor announced changes to the debt rules to allow Labour to borrow more. However, published Treasury advice says that increasing borrowing risks interest rates staying higher for longer. Does the Chancellor agree with her Treasury civil servants?
Rachel Reeves
Last week, when I was in Washington, I was very pleased to hear the International Monetary Fund say how important it is that countries, including the UK, borrow to invest in their capital infrastructure. Under the plans we inherited from the previous Government, capital spending as a share of GDP is due to fall from 2.6% to 1.7%. If those decisions were to go forward, it would mean plans delayed and cancelled. We will set out our plans tomorrow in the Budget, but it is crucial that we have rules ensuring that we pay for day-to-day spending through tax receipts, and that we borrow only to invest, unlike the previous Government.
Tim Roca (Macclesfield) (Lab)
The Chancellor of the Exchequer (Rachel Reeves)
The Conservative party oversaw years of chaos, which cost not only families but businesses. The Government are committed to delivering the economic stability needed for investor confidence. Our commitment to a credible Budget, strong institutions and robust fiscal rules are at the heart of that plan. Earlier this month, we announced a record-breaking £63.5 billion of investment at our international investment summit. That shows that the UK can attract investment from around the world, to boost jobs and growth here in Britain, through serious, stable Government policy.
Tim Roca
When does the Chancellor think that the Conservative party lost its fiscal credibility? Was it with the Liz Truss mini-Budget? [Interruption.] Was it when national debt rose from 65% to nearly 100% of GDP? Or was it when they made the farcical promise to abolish national insurance?
Mr Speaker
Order. Who wants to go for that cup of tea? Normally this happens at Prime Minister’s questions; I do not want it starting in Treasury questions.
Rachel Reeves
All of the above. That is why my hon. Friend is in his place and Conservative Members are on the Opposition Benches.
Jim Shannon (Strangford) (DUP)
If the Chancellor wants to increase investor confidence, the thing to do is help small and medium-sized enterprises. Tomorrow she will have the opportunity to do that. What will be done to help them? In Northern Ireland, 85% of businesses employ 10 or fewer employees. If she helps the SMEs in Northern Ireland, that will increase employment.
Rachel Reeves
I know that the hon. Gentleman is a proud supporter of businesses big and small in his constituency and across Northern Ireland. I will set out more detail in tomorrow’s Budget, including on business rates, but I recognise how important it is for us to support small businesses, so that they can grow and create jobs right across the United Kingdom.
Gareth Davies (Grantham and Bourne) (Con)
Clearly, the Chancellor is desperately trying to raise old ghosts, along with debt and taxes, but her own broken promises are coming back to haunt her and are frightening investors. It does not have to be Halloween for socialists to spook British business. Why does she think that business confidence has fallen faster in the past three months than at any point since the pandemic?
Rachel Reeves
I would judge this Government on their record: we secured £63.5 billion of investment right across the United Kingdom, creating nearly 40,000 jobs in constituencies up and down our country—good jobs that pay decent wages. That is more than twice the investment that the previous Government secured at their international investment summit. That shows how important it is to return stability to economy and work in partnership with businesses—something that the Conservative party might want to learn a lesson from.
Luke Taylor (Sutton and Cheam) (LD)
Rebecca Long Bailey (Salford) (Ind)
The Chancellor of the Exchequer (Rachel Reeves)
Tomorrow I will present my first Budget. It will be a Budget that fixes the foundations of our economy and delivers on the promise of change. It will turn the page on low growth and will be the start of a new chapter towards making Britain better off. It will mean more pounds in people’s pockets, an NHS that is there when they need it, and businesses creating wealth and opportunity for all.
Rebecca Long Bailey
I commend the Chancellor for recently outlining investment in social housing, but in the interim the Joseph Rowntree Foundation has stated that the previous Government’s decision to freeze local housing allowance rates will push 80,000 private renters on housing benefit, including 30,000 children, into deep poverty during this Parliament. Will the Chancellor now consider unfreezing the allowance and relinking it to the actual cost of local rents, so that those families can keep their heads above water?
Rachel Reeves
My hon. Friend makes a really important point, which I think is familiar to all of us in our communities, about the cost of housing outstretching people’s incomes. In our manifesto we committed to building 1.5 million new homes, including social housing, which is so important and can give security to people who would otherwise be left in insecure housing in the private rented sector.
Mr Speaker
As this is his farewell question time, let us now come to the shadow Chancellor.
Jeremy Hunt (Godalming and Ash) (Con)
This are indeed our final exchanges in the House, so before tomorrow’s fireworks I wish the Chancellor well for the future in her role. There has been a lot of common ground between us. For example, before the election she said that raising employers’ national insurance was a jobs tax that would take money out of people’s pockets. I very much agree with her on that; does she agree with herself?
Rachel Reeves
The right hon. Gentleman knows better than almost anyone else that there a was £22 billion black hole in the public finances. That will require difficult decisions, but even in those circumstances we will do everything in our power to protect the incomes of ordinary working people, so we are committed to ensuring that no working people will see higher taxes in their payslips after the Budget.
Jeremy Hunt
We all know why the Chancellor is inventing this fictitious black hole. Thirty times this year, before the election, she promised not to raise tax, and now she is planning to present the biggest tax-raising Budget in history. More consensually, however, as this is our final exchange, I welcome her announcement last week of a £2.3 billion loan for Ukraine. Does she agree that the strongest signal of resolve that we can send to Putin is a commitment to spending 2.5% of GDP on defence, and does she understand why so many people are worried by the fact that she has yet to do so?
Rachel Reeves
I have always respected the right hon. Gentleman, but I think it is important for us not to deny the seriousness of the situation that we face with the black hole in the public finances. Combined with the lashing out at independent economic institutions, it suggests that he has more in common with Liz Truss and Kwasi Kwarteng than perhaps we thought. I watched my party lurch towards an ideological extreme and deny reality, and we spent years in opposition as a result. The shadow Chancellor risks taking his party down the same path.
Adam Jogee (Newcastle-under-Lyme) (Lab)
Mr Tom Morrison (Cheadle) (LD)
Rachel Reeves
I thank the hon. Gentleman for his question. I went to school in the ’80s and ’90s, and I was taught in portacabins because there was not enough room in my school. I know how important it is that children are taught in proper facilities. We will set out more details of our capital investments at the Budget tomorrow.
Damien Egan (Bristol North East) (Lab)
Helen Maguire (Epsom and Ewell) (LD)
Rachel Reeves
Building the homes that our country needs is a top priority for this Government. In our manifesto, we committed to build 1.5 million homes in this Parliament, including social housing, so that people have access to secure and affordable accommodation and that every family have a roof over their heads. We will set out more details on all of this in the Budget tomorrow.
Mr Paul Foster (South Ribble) (Lab)
Ben Maguire (North Cornwall) (LD)
Rachel Reeves
I thank the hon. Gentleman for his question. This is an issue that resonates right across the House, with so many of us hearing terrible stories at our surgeries about the lack of support for some of the most vulnerable children in society. I know that it is a priority for the Education Secretary too, and we will set out more detail on departmental settlements in the Budget tomorrow.
Sam Carling (North West Cambridgeshire) (Lab)
Emma Foody (Cramlington and Killingworth) (Lab/Co-op)
Rachel Reeves
My hon. Friend is right to draw attention to the disastrous impacts of the Conservative mini-Budget just over two years ago, which is still having an impact on people’s lives as they pay higher mortgage bills. This Government have committed to return sustainability to the economy and to working with business to reform our planning system, our pensions system and our skills system. We have already brought in £63.5 billion of private sector investment to grow our economy in all parts of the country and deliver the jobs and better wages that constituents in Cramlington and right across the country need to see.
Saqib Bhatti (Meriden and Solihull East) (Con)
Small business owners are working people, and they are some of the hardest-working people that I know. The Labour party struggled to define them over the weekend, but does the Chancellor agree that any rise in fuel duty, which the Conservatives froze or cut for 14 years, would be a tax on those hard-working people or those hard-working small business owners?
Rachel Reeves
The previous Government factored into their forecasts an increase in fuel duty this year. I will set out our plans in the Budget tomorrow.
Caroline Voaden (South Devon) (LD)
In South Devon, the average house price is now 14 times the average salary, at £425,000. What measures is the Chancellor taking to ensure that rural and coastal areas, such as the South Hams, which face huge digital and transport connectivity problems, will be included in measures to boost economic growth?
Rachel Reeves
Our commitment to build 1.5 million homes is about ensuring that all our constituents get the chance to have a roof over their head, including in rural areas, with more social housing as well so that people can have a secure tenancy. The hon. Lady is also right to raise the issue of digital connectivity, and we will be setting out more details on infrastructure investment in the Budget tomorrow.
Sir Ashley Fox (Bridgwater) (Con)
During the last election campaign, Labour candidates across Somerset said that a Labour Government would cut energy bills by £300. Will the Chancellor set out the timescale for fulfilling that promise?
Rachel Reeves
I thank the hon. Gentleman for his question, and I note the number of Labour MPs we now have in Somerset and across the south-west of England. We will set out more detail in the Budget tomorrow, but our commitment to investing in home-grown energy will boost our energy security, create good jobs here in Britain and begin to reduce people’s bills, as will our programme to better insulate homes, which the previous Government failed to do.
Danny Beales (Uxbridge and South Ruislip) (Lab)
A hundred councils in England have come together to call for five key changes to unlock much-needed investment in new council homes. They will welcome the news of £500 million of additional grant and changes to the right-to-buy rules, but one issue they also raise is housing revenue account debt and finance. Will Treasury Ministers look specifically at debt allocations and how HRA debt is accounted for, to unlock much-needed investment in council homes?
Mr Gregory Campbell (East Londonderry) (DUP)
However “working people” is defined, does the Chancellor not accept that people on low incomes and part-time employees who earn up to £300 a week should be exempt from paying income tax?
Rachel Reeves
We will set out details of our tax policy in the Budget tomorrow, but this Government have made a commitment to working people that we will not increase their income tax, their national insurance or the value added tax they pay.
Support to Ukraine
Rachel Reeves Excerpts(1 month ago)
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The Chancellor of the Exchequer (Rachel Reeves)
The UK is committed, alongside our G7 allies, to supporting Ukraine for as long as it takes. Ensuring Ukraine’s security is in the interest of our own national security and shared values. We and our G7 partners have also repeatedly underscored that Russia’s obligations under international law are clear: Russia must pay for the damage it has caused to Ukraine.
The Government have today announced that the United Kingdom will contribute £2.26 billion—$3 billion —to the G7 “Extraordinary Revenue Acceleration” (ERA) Loans to Ukraine scheme. The ERA was announced on 14 June 2024. The scheme will provide Ukraine with approximately $50 billion of additional funding. This funding will be provided through budget support from the G7, repaid using the extraordinary profits generated on immobilised Russian sovereign assets primarily held in the EU.
This funding is additional to both the £3 billion per year of bilateral military support which the UK has committed to for as long as required, and UK Export Finance’s overall £3.5 billion capacity for Ukraine, including support for defence requirements. The UK has also committed to up to $5 billion in fiscal support through loan guarantees on World Bank lending to Ukraine since 2022.
The UK’s contribution to Ukraine under the ERA scheme will be used for budgetary support earmarked for military procurement, bolstering Ukraine’s capacity for self-defence in the face of Russia’s illegal war, and providing vital equipment and support to the front line.
The Government will introduce primary legislation, when parliamentary time allows, seeking parliamentary spending authority to provide this financial assistance. Subject to achieving Royal Assent and concluding a bilateral agreement with Ukraine, the UK will be able to begin disbursing funds to Ukraine and receiving repayments via the EU’s Ukraine Loan Co-operation Mechanism.
The Government intend to begin disbursals within this financial year.
[HCWS153]
National Wealth Fund
Rachel Reeves Excerpts(1 month, 1 week ago)
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The Chancellor of the Exchequer (Rachel Reeves)
This Government have been clear: our No. 1 mission is driving economic growth to improve the lives of the British people. To grow our economy, we need more high-quality, long-term investment. This means creating a new partnership with businesses and making sure Britain is the best place in the world to invest.
The Government are today creating the national wealth fund, the UK’s new impact investor, that will mobilise billions of pounds of investment in the UK’s world-leading clean energy and growth industries, taking forward the recommendations of the NWF taskforce.
To mobilise private investment at pace, the Government are turbocharging the UK Infrastructure Bank to become more catalytic and from today it will operate as the “national wealth fund”.
As the UK’s impact investor, the NWF will have a broader mandate, extending beyond infrastructure to support delivery of the wider industrial strategy in areas where an undersupply in private finance exists, working alongside the British Business Bank. A revised mandate and future priorities will be set following legislation, planned to be brought forward later this Session.
Building on UKIB’s leadership and expertise, the NWF will go further to catalyse more private investment.
The NWF will be empowered to make investments that maximise the mobilisation of private investment with an expansion of UKIB’s offer, including an expanded suite of financial instruments such as performance guarantees and trialling new blended finance solutions, with Government Departments, that take on additional risk to facilitate higher impact in individual deals.
The NWF will have a total capitalisation of £27.8 billion to catalyse investment that would not have otherwise taken place. It will inherit UKIB’s existing capitalisation and have an additional £5.8 billion, which will be committed over this Parliament. The Government previously announced that £7.3 billion additional funding would be allocated through the NWF—the remaining £1.5 billion has been reserved to maintain flexibility in how the Government can best deliver against our aims for the NWF. At least £5.8 billion of the NWF’s capital will focus on the five sectors announced in the manifesto: green hydrogen, carbon capture, ports, gigafactories, and green steel.
The NWF will have a larger amount of economic risk capital to free it from previous constraints. This will be used to direct the NWF’s investments towards having greater economic impact by taking risk in service of the Government’s industrial strategy, clean energy mission and growth mission.
The NWF will adopt a proactive approach, with increased resources and focus on conducting more outreach to identify expanded project pipelines and structure innovative transactions with project sponsors, industry, local authorities and Government Departments.
The NWF will have a strong regional mandate to unleash the full potential of our cities and regions to be reflected in its statement of strategic priorities and how it measures success. It will work in close partnership with Mayors to support investable propositions in their local growth plans, devolved Governments, and other local leaders to support their investment plans and priority sectoral clusters across the UK.
Finally, the NWF will review its range of success measures to demonstrate the impact of its additional capital and realising of investment, impact and outcomes across the economy.
Together, these changes will ensure that the NWF can catalyse additional investment and address the key barriers identified by the taskforce. This will result in the delivery of impactful projects that otherwise would not have happened, unlocking growth opportunities across the UK.
British Business Bank
Alongside this, the Chancellor, together with the Secretary of State for Business and Trade, announced that the Government are strengthening the British Business Bank’s ability to support the UK’s fastest growing, most innovative companies by establishing the British growth partnership.
The British growth partnership is a new, pathfinder approach to the partnership between the British Business Bank and institutional investors that will further the Government’s goal, as set out in the pensions investment review, of encouraging more UK pension fund investment into UK growth assets.
Additionally, we will implement a set of reforms to the British Business Bank’s financial framework that will increase its impact and increase its ability to respond flexibly to the market, including by putting the British Business Bank’s £7.9 billion set of commercial programmes on a permanent footing.
The British Business Bank, the UK’s largest domestic venture capital investor, will launch this new fund, the British growth partnership, to attract pension and institutional investment into venture capital and innovative businesses. These long-term investments will be made independently of Government on a fully commercial basis, leveraging the British Business Bank’s market expertise. The British Business Bank will in the coming months seek to raise hundreds of millions of pounds of investment for this model, supported by a cornerstone Government investment, with the aim of making investments by the end of 2025.
In parallel, the Government can announce that we expect both successful bidders of the Long-term Investment for Technology and Science competition, Schroders and ICG, to begin making investments via their new funds in late 2024, supported by pensions capital from Phoenix Group, with the aim of generating over a billion pounds of investment into UK science and technology companies.
Through LIFTS and the British growth partnership, the Government are acting to make the investment of UK institutional capital into high-growth companies easier. This is set to unlock greater wealth for future pensioners and higher growth in the economy.
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Fiscal Risks and Sustainability Report
Rachel Reeves Excerpts(2 months, 1 week ago)
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The Chancellor of the Exchequer (Rachel Reeves)
This Government’s No. 1 mission is to grow the economy. Sustainable public finances support the stability necessary for a successful economy; the stability that allows a family to buy their own home, for a business to thrive and for a Government to invest in public services. The Office for Budget Responsibility’s fiscal risks and sustainability report (CP 1142) laid today and based on the previous Government’s spring Budget policies, shows the substantial longer-term challenges to the sustainability of the public finances.
As set out in the public spending audit (CP 1133) laid in July, the previous Government left a challenging fiscal inheritance, with a projected overspend of £22 billion. This Government have already taken action to begin fixing the foundations, including £5.5 billion in public spending savings for 2024-25. Further difficult decisions will be needed at the autumn Budget across spending, welfare and tax in order to meet the fiscal rules and to support sustainable economic growth. This is the responsible thing to do to fix the foundations of our economy and bring back economic stability.
Sustained economic growth is the only route to the improved prosperity that the UK needs. Had the UK grown at the average rate of other OECD economies over the last 13 years, the economy would have been over £140 billion larger and this could have brought in an additional £58 billion in tax revenues in the last year alone. Growth is therefore this Government’s defining mission, and one pillar underpinning this mission is stability. Economic stability will allow us to grow the economy, maintain sustainable public finances, and keep taxes, inflation and mortgages as low as possible.
Economic stability requires respecting the institutions that are guarantors of our stability and we have already demonstrated our commitment to strengthening independent institutions, including the OBR. In July, I announced the most significant set of changes to our fiscal framework since the inception of the OBR. This included introducing the Budget Responsibility Act, ensuring that any major future fiscal announcements will be subject to an independent assessment by the OBR, as well as confirming that spending reviews will take place every two years with a minimum duration of three years in order to improve value for money and the planning of public expenditure, and to provide greater budgetary certainty. The Government are also committed to robust fiscal rules that will ensure the public finances are always managed responsibly.
The FRS— fiscal risks and sustainability report—builds on previous years’ analysis, examining the risks posed to the public finances by climate change damage, health spending and debt sustainability. The OBR’s analysis shows that the UK will face significant costs from climate-related damage, even in a scenario where the UK and the rest of the world continue with current mitigation commitments. The costs would be more severe if these commitments are not met, which is why one of the Government’s missions is to make the UK a clean energy superpower. The Government have already acted to remove the de-facto ban on onshore wind, approve three major solar projects and significantly increase the budget for the sixth contracts for difference round. The Government will work with the private sector through the newly founded Great British Energy, capitalised with £8.3 billion. Preparing for the future also means adapting to the effects of climate change. Without action, flooding, coastal erosion and other climate hazards will pose greater risks to lives, livelihoods and people’s wellbeing. The Government will explore how to further strengthen our approach to developing the country’s resilience to climate change, working to improve resilience and preparation across central Government, local authorities, local communities, and emergency services.
The FRS sets out that rising health spending is forecast to be the single most important driver of public debt increasing over the next 50 years. It also shows that a healthier population brings economic and fiscal benefits. The health mission will ensure that we build an NHS fit for the future that is there when people need it, with fewer lives lost to the biggest health-related killers, in a fairer Britain where everyone lives well for longer.
The final chapter of the report assesses the UK’s debt sustainability. Public debt is projected to reach 274% of GDP in 2073-74, based on a number of long-term spending pressures and the previous Government’s policies remaining unchanged. However, boosting the productive potential of the economy can help to reduce this rise in debt, with the OBR’s analysis showing that every 0.1% increase in annual productivity growth would reduce the increase in the debt-to-GDP ratio by 25 percentage points. A full one percentage point increase in annual productivity growth to 2.5%, equivalent to a return to pre-financial crisis rates of productivity growth, could keep debt below 100% of GDP throughout the next 50 years. This underlines the importance of tackling the UK’s weak productivity performance through the Government’s growth mission. Since the launch of the growth mission in July, the Government have wasted no time in making progress and have already announced several growth-enhancing policies, guided by the principles of stability, investment and reform.
Economic shocks have been the most significant driver of rising debt in recent years. Through the spending review process, the Government will take forward work on a number of priority themes, including a greater focus on long-termism and prevention, to improve the resilience of the economy to future shocks.
The FRS highlights the challenging fiscal outlook faced by this and future Governments, and underlines the importance of growth and stability. I am grateful to the staff of the OBR for the work and expertise that has gone into this report, which fulfils the body’s obligations in the “Charter for Budget Responsibility” to examine and report on the sustainability of, and risks to, the public finances. The Government will respond to the FRS in the spring.
[HCWS95]
Oral Answers to Questions
Rachel Reeves Excerpts(2 months, 3 weeks ago)
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Mr Peter Bedford (Mid Leicestershire) (Con)
The Chancellor of the Exchequer (Rachel Reeves)
I welcome the hon. Member to his place.
The Government encourage savings to ensure that people have decent incomes in their retirement, for instance through pension tax relief. I welcome the strong cross-party support for automatic enrolment that has been received since 2005, and the fact that 11 million more people are now saving as a result. The Government have also launched a pensions review which will ensure that money set aside for retirement is working both for pensioners and for the UK economy.
I appreciate that Members on both sides of the House will have questions for me about the tax system today. I remind them that tax announcements will be made in the Budget on 30 October, alongside an independent forecast from the Office for Budget Responsibility. This will be a Budget to fix the foundations, to rebuild Britain, and to ensure that working people are better off.
Mr Bedford
Do the Government recognise the importance of workers’ saving for their later years? Do they recognise that any moves to reduce the 25% tax-free drawdown, or reductions in tax relief on pension contributions, would be a disincentive, and would actually lead to more pensioner poverty?
Rachel Reeves
I recognise that for many people who work hard and save for retirement, that money is not enough. I believe that every penny saved in a pension should produce a decent return. Billions of pounds of investment could be unlocked in the UK economy and could work better for those saving for retirement, and we believe that the reforms we seek to introduce through the pensions review could increase their pension pots by £11,000. My right hon. Friend the Secretary of State for Work and Pensions is leading the review that I mentioned to ensure that pensioners receive a good deal in retirement, and that people who sacrifice and work hard to save for their retirement have a decent return on their investment.
Jacob Collier (Burton and Uttoxeter) (Lab)
Pubs are the lifeblood of our local communities. In my constituency, the home of British brewing, we are blessed with wonderful pubs—
Rachel Reeves
I am not going to speculate about what will be in the Budget, but I am absolutely determined to ensure that working people are better off. Under the last Government the tax burden reached its highest level for 70 years, and ordinary working people paid the price for that. This will be a Budget to fix the foundations of the economy after the mess left by the last Government, to rebuild Britain, and to make working people better off.
Alice Macdonald (Norwich North) (Lab/Co-op)
Uma Kumaran (Stratford and Bow) (Lab)
The Chancellor of the Exchequer (Rachel Reeves)
Investment is at the heart of this Government’s growth mission, alongside stability and reform. With robust fiscal rules and respect for economic institutions, the Government are building the confidence needed to deliver private sector investment. It is vital that the tax system also supports growth, and today I can confirm that the Government will outline a tax road map for business at the Budget to offer the certainty that encourages investment and gives business the confidence to grow, including our commitment to cap corporation tax at 25% for the duration of this Parliament and to retain full expensing.
Chi Onwurah
I thank the Chancellor for her response. Last year, the north-east attracted 67 foreign direct investment projects, creating over 4,000 jobs. In the key growth sectors, from advanced manufacturing to health and tech, those who know the north-east know our huge potential, and I know that the Chancellor recognises that too. What is she doing with the Mayor of the North East, Kim McGuinness, to ensure that more global investors are aware of the north-east’s strengths and that we can attract more inward investment, creating more jobs?
Rachel Reeves
My hon. Friend makes an important contribution on behalf of her constituents, based on her background of working in science and technology before entering this House. My hon. Friend is absolutely right to say that the north-east has huge potential to grow the economy through sectors including advanced manufacturing, health, technology and our creative industries, and this Government will work with our local mayors, including Kim McGuiness, to develop ambitious, long-term local growth plans that reflect the north-east’s strengths. We will look to address some of the barriers to growth and support delivery of our national industrial strategy, as well as narrowing some of the inequalities that have persisted for far too long.
Alan Gemmell
International investment is important for the aviation and aerospace sectors, and aviation and aerospace are important for my constituents in Central Ayrshire, with 55% of aerospace jobs based in Prestwick. Can my right hon. Friend tell me what more the Government will do to ensure continued international investment in these sectors?
Rachel Reeves
I thank my hon. Friend for his question, and I know that his experience as His Majesty’s trade commissioner in India means that he understands the importance of global trade and investment to the UK economy, including the Scottish economy. Last week, I had the opportunity to visit the National Manufacturing Institute Scotland and see at first hand the excellent work that is going on to promote innovation in a whole range of sectors, including aerospace and satellite technology. The UK already produces around half of the world’s large civil aircraft wings and engines, and the aerospace sector added £11 billion to the UK economy last year. The Government are putting investment at the heart of our growth strategy, including by supporting advanced manufacturing in Scotland, and I look forward to working with my hon. Friend on this endeavour.
Uma Kumaran
I thank the Chancellor for her further reassurance to businesses this morning. London is the top choice in Europe for inward investment and is home to more headquarters than any other European city, including many based in Stratford, in my constituency. How will the Government support our capital city to continue its success on the global stage, and ensure that London can help encourage onward investment and support wider economic growth around the country?
Rachel Reeves
I thank my hon. Friend for her question and welcome her to her place. The regeneration of Stratford after the Olympic games is truly phenomenal, and I know that she will be a strong voice for her constituency and help to deliver the growth mission, which is the No. 1 priority of this new Government. The success of London’s economy will be integral to delivering that mission, and we will work with the Mayor of London, Sadiq Khan, and with our MPs to ensure that economic growth benefits people in the capital and across the country, ensuring that we narrow the gap between rich and poor and also showcase the huge opportunities that London has on the international stage. We will be hosting an international investment summit in London on 14 October, bringing together some of the biggest global investors in the world, to showcase everything our great country has to offer.
Tim Farron (Westmorland and Lonsdale) (LD)
Investment in our rural economy must focus heavily on rewarding our farmers for the food they produce and the environment they protect. The last Government ringfenced £2.4 billion a year for England to support our farming sector. Through indifference or incompetence, they underspent by £100 million last year and betrayed our farmers in doing so. Will the Chancellor confirm to me, my farmers and this House that she will not bake in that underspend, which was the fault of the last Conservative Government, and that she will at least commit to ringfencing what is already invested in farming? If not, hopefully she will back the Liberal Democrats’ call to back £1 billion extra into farming so that we can feed our—
Mr Speaker
Order. Mr Farron, please do not take complete advantage. I think you have slightly strayed from the original question. Chancellor, if you want to have a go at it, by all means do so, but I will understand if you do not.
Rachel Reeves
The rural economy plays an incredibly important role in our economic prosperity as a country, and boosting food security and biodiversity is obviously incredibly important to a whole range of this Government’s objectives. I will ensure that the Secretary of State for Environment, Food and Rural Affairs hears loud and clear the message from the hon. Member, and I am sure he will include it as part of his submission to the spending review on 30 October.
Jim Shannon (Strangford) (DUP)
I thank the Chancellor for that and I welcome her to her place. It is important to encourage inward investment. It is also important to address the issue of youth unemployment. As of the first quarter of 2024, the youth unemployment rate in Northern Ireland was 5%, compared with 3.8% the month before. What discussions has the Chancellor had with the Northern Ireland Assembly Minister in charge to ensure that youth unemployment in Northern Ireland will be reduced to an acceptable figure, which should be zero?
Rachel Reeves
A huge amount of inward investment goes to Northern Ireland, as the hon. Gentleman knows, and it is important that young people are able to take advantage of those huge opportunities in our economy, whether in financial services, advanced manufacturing, shipbuilding or the many other sectors that are important to Northern Ireland. It is a travesty that something like one in five young people today are not in employment, education or training. The Secretary of State for Work and Pensions will be bringing forward a White Paper to ensure that everyone who can work does work and is given the support to succeed, both in Northern Ireland and across the United Kingdom.
Noah Law (St Austell and Newquay) (Lab)
Caroline Voaden (South Devon) (LD)
The Chancellor of the Exchequer (Rachel Reeves)
This Government support the triple lock. As a result, the state pension is worth £900 more than it was this time last year. In April, it will go up again by the highest of inflation, average wage growth or 2.5%. Our commitment to the triple lock is for not just one year but the duration of this Parliament. In addition, pensioners will continue to benefit from free eye tests, free prescriptions and free bus passes, and those pensioners most in need will continue to receive winter fuel payments alongside the pension credit.
Helen Morgan
I thank the Chancellor for her answer, but nearly 22,000 pensioners in North Shropshire are forecast to lose their winter fuel payments very soon, just as energy prices for the average household are about to go up by 10%. Many of my pensioners live in bungalows and older housing stock, which is expensive to heat. A lot of them have been in touch with me to say that they are worried sick about this winter. We know the Chancellor has difficult choices to make, and we accept that, but will she consider that the broadest shoulders are not those of pensioners who earn less than the minimum wage and are about to lose this vital support?
Rachel Reeves
I understand the concerns that the hon. Lady sets out. The state pension is worth £900 more than it was a year ago and energy bills are lower this winter than they were last winter. As she points out, we inherited a £22 billion black hole from the previous Government, who had made unfunded spending commitments with no idea how to pay for them. When I became Chancellor, I undertook an immediate audit of the spending situation to understand the scale of the challenge, and I made difficult decisions—some very difficult decisions—to put the public finances on a sustainable footing. They were tough decisions, but they were the right decisions in the circumstances we faced. They included the decision to make the winter fuel payment better targeted, so pensioners who need it most will still get it alongside pension credit. Targeting the winter fuel payment will save around £1.5 billion a year to support public finances.
Steve Darling
Some 21,000 pensioners in my constituency of Torbay will be impacted by the cut. In Devon and Cornwall, almost 90% of pensioners will be impacted by it. While many of us acknowledge that the Chancellor was left with a massive financial challenge when she came into the post, I remain extremely concerned about the residents who have reached out to me and colleagues with their major concerns about making ends meet as we enter the winter period. They have had no time to save and it is a complete shock to them. What assurances can the Chancellor give that the Government will support those who are most vulnerable? If those measures fail, what assurances can she give that she will scrap the proposal?
Rachel Reeves
I thank the hon. Gentleman for his question and welcome him to his place. He will be a powerful representative for the people of Torbay. Like him, I want to ensure that the lowest income pensioners get the support they are entitled to. Under the previous Government, 800,000 pensioner households that were entitled to pension credit did not receive it. That is why this Government are taking action to encourage the uptake of pension credit to ensure that the poorest pensioners—those who are not even receiving the minimum income guarantee—are getting it.
We are working with organisations such as Age UK and local authorities. All local authorities, including those in Torbay, have been written to about how they can play their part in identifying those pensioners who are entitled to pension credit but are not getting it. The Department for Work and Pensions will also bring together the administration of pension credit and housing benefit, so that pensioner households receiving housing benefit will also receive any pension credit they are entitled to—something the previous Government deferred for years, despite knowing that the poorest pensioners were missing out.
Caroline Voaden
The Chancellor’s announcement of cuts to the winter fuel payment was quickly followed by news of a 10% increase in the energy price cap. South Devon has a higher than average number of pensioners, many of whom, particularly those in rural areas, are living in fuel poverty. Many of my constituents are struggling to meet the cost of heating, but do not quite qualify for pension credit. They, and thousands of vulnerable people across the country, are deeply anxious about what this winter has in store for them. Will the Chancellor take this opportunity to spell out exactly how she plans to tackle fuel poverty among the elderly?
Rachel Reeves
I welcome the hon. Lady to her place. Pensioners in South Devon, in common with pensioners in all our constituencies, will receive a basic state pension that is worth £900 more than it was a year ago, and energy prices are lower this winter than they were last winter. Many of her constituents will be entitled to pension credit but, because of a failure to act by the last Government, are not currently receiving it. We all need to play our part in ensuring that everybody gets the help they are entitled to. We should all ensure that our poorest pensioners get that support from both pension credit and the winter fuel payment associated with it.
Sam Rushworth (Bishop Auckland) (Lab)
The village of Copley, in my constituency, is the snowiest in England and we have many pensioners in receipt of the basic state pension who are, none the less, in fuel poverty. They are not entitled to pension credit. They live in cold, stone-built houses. What assurance can the Chancellor give to those pensioners that this Government will help to warm their homes and ensure they do not struggle to heat their homes this winter?
Rachel Reeves
This Government have committed to insulate an additional 5 million homes during the course of this Parliament to ensure that energy bills are as low as possible, saving people money and ensuring that their homes are warmer. That will help my hon. Friend’s constituents in Copley and constituents across the country.
Peter Swallow (Bracknell) (Lab)
Will the Chancellor explain to the House the damage done to pensioners’ livelihoods by the previous Government’s economic incompetence and their decision to cover up the £22 billion black hole in the public finances?
Rachel Reeves
My hon. Friend is absolutely right to remind us of the dire inheritance that this Government face. The previous Government made spending commitment after spending commitment with absolutely no idea of how to pay for them. From road and rail projects to A-levels and the Rwanda deal, we saw £22 billion of unfunded commitments. We will fix the foundations of the economy, rebuild Britain and ensure that working people are better off. We will fix the mess that the last Government left.
Jim Dickson (Dartford) (Lab)
Will the Chancellor confirm that a state pension increase will be announced at the Budget and that it will be equivalent to wage growth, inflation or 2.5%—whichever is higher?
Rachel Reeves
The Government have committed to the triple lock not just for this year, but for the duration of this Parliament. That means that pensioners are £900 better off than they were a year ago. Based on September earnings and inflation data, we will uprate pensions next year by whichever is higher: 2.5%, inflation or average earnings. We are ensuring that pensioners get the pensions that they are entitled to and have contributed to.
Laura Trott (Sevenoaks) (Con)
Ten years ago, the now Chancellor argued in this House that winter fuel payments should be means-tested and cut for “the richest pensioners”. The Chancellor’s 10-year campaign has now come to fruition and she has proposed removing the winter fuel payment from pensioners on just £13,000 a year. Does she still think that a pensioner on £13,000 a year is rich?
Rachel Reeves
What came to an end in July was 14 years of a Conservative Government who presided over a fall in living standards, the highest tax burden in 70 years, a debt, as a share of our economy, of almost 100%, and a £22 billion black hole in the public finances just this year. What we have not heard from those on the Opposition Front Bench, or indeed from any Conservative Member of Parliament, is an apology for the mess that they have left this country in, which this Government are now picking up.
Dr Danny Chambers (Winchester) (LD)
Catherine Fookes (Monmouthshire) (Lab)
The Chancellor of the Exchequer (Rachel Reeves)
Sustained economic growth is the only route to improving the prosperity of our country and the living standards of working people. That is why we have already taken a number of actions to begin delivering on our growth mission —the No. 1 priority of this new Labour Government—which includes a series of planning reforms to get Britain building; the establishment of a national wealth fund to bring in private sector investment; the announcement of a pensions review to unlock growth, boost investment and deliver better returns to pensioners; the launch of Skills England; and the announcement of the forthcoming White Paper on getting Britain working again. This Government are determined to boost growth and improve living standards, and, by doing so, to have the money that we need to fund our vital public services.
Damien Egan
The delivery of so much of what the Chancellor describes runs through local government. What progress has been made on giving local councils longer-term funding settlements?
Rachel Reeves
My hon. Friend is absolutely right to make that point. The Government are committed to delivering longer-term certainty for local authorities, as part of our wider commitment to a more empowered, accountable and sustainable local government system that will support strong public services in all our communities. The Government will set out further details on our plans for local government funding in the upcoming Budget and spending review on 30 October.
Catherine Fookes
This year alone, two more high street bank branches have closed in Monmouthshire, bringing the total to eight in the past two years. My constituents now find themselves struggling to access basic banking services—particularly in Caldicot. I was recently handed a petition that had been signed by more than 3,500 constituents. I am sure that the Chancellor understands the importance of high street banking not only to our constituents but to local businesses and local economic growth. What progress has she made in her work with colleagues in the Welsh Government to support high street banks and hubs in Monmouthshire and across Wales?
Rachel Reeves
I welcome my hon. Friend to her place; it is already obvious that she will be a strong voice for the people of Monmouthshire. In our party manifesto, we committed to rolling out 350 banking hubs in communities like those she speaks about, which have lost multiple banks in the past few years. The Economic Secretary to the Treasury will happily meet my hon. Friend to work on achieving one such banking hub in her constituency. That is an offer to Members right across the House; so many of our constituencies have lost bank branches in the past few years. For older people, small businesses and families, the lack of access to cash can be devastating, and we are determined to reverse it with the roll-out of the new banking hubs.
Mims Davies (East Grinstead and Uckfield) (Con)
Growth and additional runway capacity at Gatwick is again on the agenda. My constituents who work at that airport and those who fly from there benefit from its stability and reach, but it needs to be recognised that any expansion of flights requires a careful balance between additional homes and jobs. Will the Chancellor confirm that suitable growth will not come at the expense of communities such as mine without proper consultation and acknowledgement of its impacts?
Rachel Reeves
I thank the hon. Lady for that question. This Government were pleased to sign off the expansion of London City airport, because we recognise how important aviation is to our economy, getting growth and investment into the UK. Of course, it is right that we always take local views into account and make sure that any investment in, or expansion of, airports comes with the infrastructure that is needed for local communities, but the answer to decisions—whether on road, rail, energy or aviation—cannot always be no. If it is, we will continue with the situation we faced over the past 14 years: low growth, deteriorating living standards and worsening public infrastructure. We cannot continue like that.
Rupert Lowe (Great Yarmouth) (Reform)
As I see it, the taxpayer is now accountable to the state. The state is not accountable to the taxpayer, and I think that a lot of our lack of growth is rooted in the fact that many of our offices run by the state are not working, and are actually strangling our economy. I would like to know what the Chancellor is going to do to ensure that Government is as accountable to the taxpayer as the taxpayer is to Government.
Rachel Reeves
That is the purpose of elections, and at the last election, this Government achieved a sizeable majority for our missions, including growing the economy, improving living standards and making working people better off. We have just got started, and that is what we are absolutely determined to do, in order to deliver on the mandate we got on 4 July.
Rachel Reeves
I thank the hon. Gentleman for that question, I think. On 14 October, we are hosting an international investment summit, welcoming to London some of the biggest investors in the world. In the two months that I have been in this role, I have met over 300 business leaders, talking to them about the huge opportunities to invest in our great country, including in life sciences, financial services, the creative industries and low-carbon technologies. The opportunities are endless, and this Government are determined to work with business to ensure that we bring good jobs, investment and prosperity right across the United Kingdom.
Mr Gagan Mohindra (South West Hertfordshire) (Con)
The Chancellor of the Exchequer (Rachel Reeves)
This Government have inherited a £22 billion black hole in the public finances, and rectifying the situation requires tough choices. We will also clamp down on egregious spending and halve Government spending on consultancy, which will save £500 million next year. Increasing consultancy spend has been rife across Government for the past four years. It is up 55% at the Department for Transport, 137% at the Foreign, Commonwealth and Development Office, and a staggering 416% at the Home Office. It is no wonder taxes are so high and public services are so poor when the last Government frittered away taxpayers’ money with no concern. I will treat taxpayers’ money with respect, and we will fix the foundations of our economy so that we can rebuild Britain and make working people better off.
Mr Mohindra
I welcome the Chancellor to her place. Notwithstanding what she has just said, can she tell the House why she has made the political decision to scrap the commitment to spend at least 2.5% of GDP on defence, undermining our support for Ukraine, and has instead prioritised giving her union paymasters inflation-busting pay rises that have only led to more unions calling for more strikes and more pay?
Rachel Reeves
Let me respond directly on the issue of Ukraine. In my first couple of weeks in this job, I had the pleasure of meeting Minister Marchenko from Ukraine, and made a commitment to him to go ahead with the extraordinary revenue acceleration programme. It is important that we work together across the House to support the Ukrainian people against the Russian invasion. In the previous Parliament, Labour always supported the Government when they took action to support the Ukrainian people, and I hope that that cross-party support can continue.
Mr Speaker
Can I remind everybody that this is topical questions? I have a big list to get through. Rachael Maskell will give us a good example.
Rachael Maskell (York Central) (Lab/Co-op)
Rachel Reeves
The basic state pension is worth £900 more than it was a year ago, and will go up again in April next year because of the triple lock, which we have committed to for the duration of this Parliament. We have already written to York council and are working with local authorities across the country to boost take-up of pension credit, because this Government, unlike the last Government, are determined to ensure that 800,000 people entitled to pension credit actually receive it.
Jeremy Hunt (Godalming and Ash) (Con)
When the Chancellor was sitting on the Opposition Benches she repeatedly attacked cronyism, so will she tell the House whether she told the Treasury permanent secretary that Ian Corfield had made a donation to her before she got him appointed as a director in the Treasury—yes or no?
Rachel Reeves
All Governments appoint people to the civil service. The donation from Ian Corfield was declared over a year ago in the proper way, and we answered all the questions in the right way that the civil service asked when we made that appointment. Ian Corfield is supporting this Government in hosting the international investment summit, which will bring hundreds of global investors to the UK next month.
Jeremy Hunt
I think that means the answer is no. The ministerial code states:
“Ministers must ensure that no conflict arises, or could reasonably be perceived to arise, between their public duties and their private interests, financial or otherwise”.
That did not happen. Will the right hon. Lady tell the House why cronyism is wrong under the Conservatives but acceptable under Labour?
Rachel Reeves
The right hon. Gentleman has a bit of a brass neck criticising this Government, after the appointments and the partying at Downing Street that we saw under the last Conservative Government, and the billions of pounds’ worth of contracts handed out to friends and donors of the Conservative party. That is why this Government are appointing a covid corruption commissioner to get that money back for taxpayers; because unlike the last Government, we are determined that taxpayers’ money is treated with respect, and not handed out to donors of the party.
Paula Barker (Liverpool Wavertree) (Lab)
Rachel Reeves
Yes, absolutely; pension credit can be backdated by up to three months, and we will ensure that that happens. We are also working closely with Liverpool city council to ensure that the constituents in Liverpool Wavertree, and indeed in all our constituencies, are getting the support that they entitled to. The poorest pensioners, who are entitled to pension credit, should get it. It is a travesty that 800,000 missed out under the last Conservative Government. We will ensure that pensioners entitled to support get it.
Greg Smith (Mid Buckinghamshire) (Con)
Rachel Reeves
Before I became a Member of Parliament I was an economist at the Bank of England and I respect the independence of the Bank of England. The previous Government undermined that independence. That contributed to the economic chaos that we saw under the last Conservative Government. This Government will never go down that route.
Chris McDonald (Stockton North) (Lab)
Ruth Cadbury (Brentford and Isleworth) (Lab)
Rachel Reeves
The Conservative party crashed the economy and then wrecked the public finances, leaving us with a £22 billion black hole. The shadow Chancellor is not willing to be straight about the damage he did, and is now trying to pass the buck to independent civil servants. I will always be honest about the public finances and take the tough decisions that we need to fix the foundations of our economy.
Gareth Bacon (Orpington) (Con)
In July, borrowing stood at £3.1 billion, well ahead of the OBR’s forecast of £0.1 billion. Does the Chancellor agree that she could have reduced the national debt had she chosen not to reward her trade union paymasters by spending £10 billion on inflation-busting pay rises?
Rachel Reeves
As the hon. Gentleman knows, Government borrowing is running at £4.7 billion higher than the OBR forecast because the previous Government made unfunded commitments without any idea of how they were going to be paid for. The previous Government set the mandate for the independent pay review bodies, and we have honoured the recommendations of those bodies to ensure that our armed forces, our police officers, our nurses and our teachers got a pay rise. I think that is the right thing to do. If he does not, I wonder how he justifies that to public sector workers in his constituency.
Kate Osborne (Jarrow and Gateshead East) (Lab)
Sir Ashley Fox (Bridgwater) (Con)
The Chancellor’s decision to cut the winter fuel payment is forecast to save £1.5 billion. Can she advise the House what other options she considered for making savings in the Department for Work and Pensions budget before deciding to make this cut?
Rachel Reeves
The black hole we inherited was £22 billion. We announced in the statement on 29 July £5.5 billion of savings to reduce the size of that black hole, but the hon. Gentleman can see there is still work to be done and we will be setting out further measures in the Budget on 30 October to get a grip of the public finances.
Joe Powell (Kensington and Bayswater) (Lab)
A forthcoming Transparency International report has identified 28 contracts worth £4.1 billion that were awarded to parties with direct political connections to the Conservative party, so can the Chancellor update us on the progress in appointing the covid corruption commissioner and whether they will take evidence from corruption campaigners such as Transparency International?
Martin Vickers (Brigg and Immingham) (Con)
The economic potential of the Brigg and Immingham constituency and the wider Humber region is heavily dependent on the renewable energy sector. However, there is a cloud on the horizon, with the future of Scunthorpe steelworks in doubt. Can the Chancellor give an assurance that if there are redundancies at Scunthorpe, there will be a generous package of support for workers and investment through the local authority to redevelop the area?
Rachel Reeves
The hon. Gentleman speaks powerfully about the huge opportunities at Immingham and on the whole east coast through renewable energy and carbon capture and storage. Part of the reason for the national wealth fund is to invest in industries such as CCS, but also in our crucial steel sector, which is important to so many of the other Government ambitions on growing our economy. We are determined to support the steel sector through that investment from the national wealth fund.
Jayne Kirkham (Truro and Falmouth) (Lab/Co-op)
The Chancellor’s plans for growth are welcome in Cornwall, but in the meantime we are relying upon shared prosperity fund and towns deal money. The deadlines for the completion of those schemes are March 2025 and March ’26. To ensure that investment is not lost, will the Chancellor consider extending the deadlines for completion of those schemes by up to 12 months?
Rachel Reeves
I thank my hon. Friend for that question and welcome her to her place. She speaks powerfully on behalf of the people of Cornwall. The spending review will be the appropriate time to look at the shared prosperity funds and what resource we can give to the people of Cornwall, and I am sure my hon. Friend will work with the relevant Secretaries of State to ensure those representations are heard.
Dave Doogan (Angus and Perthshire Glens) (SNP)
The Chancellor would have known, in advance of the cut to the winter fuel payment and the stripping of £160 million from pensioners in Scotland, that Scottish pensioners suffer the lowest temperatures, rural Scottish pensioners live in some of the oldest houses on these islands, and most Scottish pensioners in rural areas are off the gas grid. Knowing that, what discussions did she have with her 37 new Scottish Labour MPs about pushing Scottish pensioners into fuel poverty?
Rachel Reeves
I would just note that the Scottish Government have decided to mirror what the wider UK Government are doing rather than using the tax powers that they have. That is a decision the Scottish Government have made given the fiscal situation they face; we face a similar issue with a £22 billion black hole in the public finances.
Shaun Davies (Telford) (Lab)
I welcome this Government’s plan to get Britain building again with a commitment to build 1.5 million homes across our country. There are also 1 million homes for which councils have given planning consent, and those with skin in the game need help and support to get those houses unlocked. What steps are the Government taking in that regard?
Rachel Reeves
I thank my hon. Friend for the question and welcome him to his place. As a former local government leader he knows the huge opportunities there are to build the homes our country desperately needs. We have made a commitment to build 1.5 million homes during the duration of this Parliament. That will require making choices to call in planning decisions, as we have already done in our first week in office with regard to four specific housing developments.
Wendy Morton (Aldridge-Brownhills) (Con)
Thousands of pensioners in my constituency have worked hard all their lives and are now worried at the prospect of losing their winter fuel payment, upon which they rely. Will the right hon. Lady reconsider and reverse her decision?
Rachel Reeves
The increases in the basic state pension mean those constituents are £900 better off than they were a year ago, and of course energy bills are lower this year than they were last year. But it is important that we ensure that the 800,000 people who missed out on pension credit under the previous Conservative Government now get access to that support, because they are the poorest pensioners and at the moment they are living in poverty because the previous Government failed to sign them up to pension credit.
Emily Darlington (Milton Keynes Central) (Lab)
As Departments are preparing their spending review submissions, will the Chancellor and her team consider allowing the international development budget to be on the same footing as the research and development budget, and looked at over 10 years, so that we can get back to the 0.7% figure? Will she be willing to meet me and a delegation to discuss the benefits of that approach to such an important budget?
Public Spending: Inheritance
Rachel Reeves Excerpts(3 months, 3 weeks ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Rachel Reeves)
Before I begin my statement, my thoughts and prayers are with those affected by the events in Southport, and I am sure that the whole House will join me in paying tribute to our emergency services who are dealing with this ongoing situation.
On my first day as Chancellor of the Exchequer, I asked Treasury officials to assess the state of public spending. That work is now complete and I am today presenting it to this House. In this statement, I will do three things. First, I will expose the scale—and the seriousness—of what has been uncovered; second, I will lay out the immediate action that we are taking to deal with the inheritance; and third, I will set out our longer-term plans to fix the foundations of our economy. Let me take each of these points in turn.
First, I turn to the inheritance. Before the election, I said that we would face the worst inheritance since the second world war: taxes at a 70-year high, debt through the roof, and an economy only just coming out of recession. I knew all of those things, and during the campaign, I was honest about them and about the difficult choices that they meant. The British people knew them too. That is why they voted for change. But upon my arrival at the Treasury three weeks ago, it became clear that there were things that I did not know—[Interruption.]
Mr Speaker
Order. This is an important statement for all constituents, including mine. If I am struggling to hear it, they are struggling at home as well. You will all get your chance to ask questions; I think it is more important to hear, and then comment.
Rachel Reeves
There were things that the Conservative party covered up—covered up from the Opposition, from this House and from the country. That is why today we are publishing a detailed audit of the real spending situation, a copy of which will be laid in the House of Commons Library. I take this opportunity to thank the Chief Secretary to the Treasury, my right hon. Friend the Member for Bristol North West (Darren Jones), for his leadership, and Treasury officials for all their work in producing this document.
Let me now explain what that document has uncovered. The previous Government published their plans for day-to-day spending in the spring Budget in March, but when I arrived at the Treasury, I was alerted by officials on the very first day that that was not how much the Government had expected to spend this year. It was not even close; in fact, the total pressure on those budgets across a range of areas was an additional £35 billion. Once we account for the slippage in budgets that we usually see over a year and the reserve of £9 billion designed to respond to genuinely unexpected events, that means that we have inherited a projected overspend of £22 billion. That is a £22 billion hole in the public finances now—not in the future, but now. It is £22 billion of spending this year that was covered up by the Conservative party. If left unaddressed, it would mean a 25% increase in the budget deficit this year, so today I will set out the necessary and urgent work that I have already done to reduce that pressure on the public finances by £5.5 billion this year and over £8 billion next year.
Let me be clear: I am not talking about costs for future years that the previous Government signed up to but did not include, like the compensation for infected blood, which has cross-party support. I am not talking about the state of public services in the future, like the crisis in our prisons that they have left for us to fix. I am talking about the money that the previous Government were already spending this year and had no ability to pay for, which they hid from the country. They had exhausted the reserve and they knew that, but nobody else did. They ducked the difficult decisions, put party before country, and continued to make unfunded commitment after unfunded commitment, knowing that the money was not there. That has resulted in the position that we have now inherited: the reserve was spent more than three times over only three months into the financial year, and the previous Government told no one.
The scale of this overspend is not sustainable, and to not act is simply not an option. This month, we have seen official Office for National Statistics figures showing that borrowing is higher this year than the Office for Budget Responsibility expected, and the disaster of Liz Truss’s mini-Budget shows what happens if we do not take tough decisions to maintain economic stability. Some, including the Leader of the Opposition and the shadow Chancellor, the right hon. Member for Godalming and Ash (Jeremy Hunt), have claimed that the books were open. How dare they? It is not true, and I will tell the House why: there are very clear instances of specific budgets that were overspent and unfunded promises that were made, but that—crucially—the OBR was not aware of for its March forecast. I will take each in turn.
The first is the asylum system. The forecast for the number of asylum seekers has risen dramatically since the last spending review, and costs for asylum support have risen sevenfold in the past three years, but instead of reflecting those costs in the Home Office budget for this year, the previous Government covered up the true extent of the crisis and its spending implications. The document I am publishing today reveals a projected overspend on the asylum system, including the previous Government’s failed Rwanda plan, of more than £6.4 billion for this year alone. That figure was unfunded and undisclosed.
Next, in the wake of the pandemic, demand for rail services fell. Instead of developing a proper plan to adjust to that new reality, the Government handed out cash to rail companies to make up for passenger shortfalls, but failed to budget for this adequately. Because of that, and because of industrial action, there is now an overspend of £1.6 billion in the transport budget. That was unfunded and undisclosed.
Since 2022, the Government, with the support of the whole House, have rightly provided military assistance to Ukraine in response to the Russian invasion. The spending audit found that there was not enough money set aside in the reserve to fund all these costs. We will continue to honour these commitments in full, and unlike the previous Government, we will make sure that they are always fully funded.
On top of these new pressures, since 2021 inflation was above the Bank of England’s target for 33 months in a row—hitting 11% at its peak—but the previous Government had not held a spending review since 2021, which means that they never fully reflected the impact of inflation in departmental budgets. That had a direct impact on budgets for public sector pay.
When the last spending review was conducted, it was assumed that pay awards would be 2% this year. Ordinarily, the Government are expected to give evidence to the pay review bodies on affordability, but extraordinarily, this year the previous Government provided no guidance on what could or could not be afforded to the pay review bodies. That is almost unheard of, but that is exactly what they did. Worse still, the former Education Secretary had the pay review body recommendations sitting on her desk. Instead of responding and dealing with the consequences, the Government shirked the decisions that needed to be taken.
I will not repeat the previous Government’s mistakes. Where they provided no transparency to the public, and no certainty for public services, we will be open about the decisions that are needed and the steps that we are taking. That begins with accepting in full the recommendations of the independent pay review bodies. The details of these awards are being published today. That is the right decision for the people who work in, and most importantly the people who use, our public services. It gives hard-working staff the pay rises they deserve while ensuring that we can recruit and retain the people we need.
It should not have taken this long to come to these decisions and I do not want us to be in this position again, so I will consider options to reform the timetable for responding to the pay review bodies in the future. This decision is in the best interests of our economy too: the last Government presided over the worst set of strikes in a generation, which caused chaos and misery for the British public and wreaked havoc on the public finances. Industrial action in the NHS alone cost the taxpayer £1.7 billion last year. That is why I am pleased to announce today that the Government have agreed an offer to the junior doctors that the British Medical Association is recommending to its members.
My right hon. Friend the Health Secretary will set out further details. Let me pay tribute to him: his leadership on the issue has paved the way to ending a dispute that has caused waiting lists to spiral, operations to be delayed and agony for patients to be prolonged. Today marks the start of a new relationship between the Government and staff working in our national health service, and the whole country will welcome that.
Where the previous Government ducked the difficult decisions, I am taking action. Knowing what they did about the state of the public finances, they continued to make unfunded commitment after unfunded commitment that they knew they could not afford, putting party before country and leaving us with an overspend of £22 billion this year. Where they presided over recklessness, I will bring responsibility. I will take immediate action. Let me set it out in detail.
On pay, I have today set out our decision to meet the recommendations of the pay review bodies. Because the previous Government failed to prepare for these recommendations in the departmental budgets, they come at an additional cost of £9 billion this year. The first difficult choice I am making is to ask all Departments to find savings to absorb as much of this as possible, totalling at least £3 billion. To support Departments as they do this, I will work with them to find savings ahead of the autumn Budget, including through measures to stop all non-essential spending on consultancy and Government communications. I am also taking action to ask Departments to find 2% savings in their back-office costs.
I will now deal with a series of commitments made by the previous Government that they did not fund, because if we cannot afford it, we cannot do it. First, at the Conservative party conference last year, the former Prime Minister announced the introduction of a new qualification: the advanced British standard. That is a commitment costing nearly £200 million next year, rising to billions across future years. This was supposed to be the former Prime Minister’s legacy, but it turns out that he did not put aside a single penny to pay for it. So we will not go ahead with that policy, because if we cannot afford it, we cannot do it.
Next, the Illegal Migration Act 2023, passed by the previous Government, made it impossible to process asylum applications or remove people who have no right to be here.
Instead, they relied on a doomed policy to send asylum seekers to Rwanda on planes that never took off, leaving tens of thousands of people stuck in hotels on the public purse. We need a properly controlled and managed asylum system where rules are enforced, so that those with no right to be here are swiftly removed. So we have scrapped their failed Rwanda scheme, which placed huge pressure on the Home Office budget. To bring down these costs as soon as possible, my right hon. Friend the Home Secretary has already laid legislation to remove the retrospective element of the Illegal Migration Act, which will significantly reduce the use of hotel accommodation. These measures will save nearly £800 million this year and avoid costs spiralling even further next year. This was a bad use of taxpayers’ money, and we will not do it.
The previous Government claimed they were levelling up the country. They made promise after promise to the British people, but the spending audit has uncovered that some of those commitments were not worth the paper that they were written on. At autumn statement last year, the former Chancellor announced £150 million for an investment opportunity fund, but not a single project has been supported from that fund.
So following discussions with my right hon. Friend the Deputy Prime Minister, I am cancelling it today, because if we cannot afford it, we cannot do it.
The previous Government also made a series of commitments on transport, promises that people expected to be delivered and promises that many Members across this House campaigned on in good faith, but the Conservative party has failed them. We have seen from the National Audit Office the chaos that the previous Government presided over, with projects over budget and delayed again and again. The spending audit has revealed £1 billion of unfunded transport projects that have been committed to next year, so my right hon. Friend the Transport Secretary will undertake a thorough review of these commitments. As part of that work, she has agreed not to move forwards with projects that the previous Government refused to publicly cancel, despite knowing full well that they were unaffordable. That includes proposed work on the A303 and the A27, and my right hon. Friend will also cancel the restoring your railway programme, saving £85 million next year, with individual projects to be assessed through her review. If we cannot afford it, we cannot do it.
The previous Government had plans for a retail sale of NatWest shares. We intend to fully exit our shareholding in NatWest by 2025-26. But having considered advice, I have concluded that a retail share sale offer would involve significant discounts that could cost taxpayers hundreds of millions of pounds. It would therefore not represent value for money, and it will not go ahead. It is a bad use of taxpayers’ money, and we will not do it.
Next, let me address the unfunded pressures in our NHS and our social care sector.
In October 2020, the Government announced that 40 new hospitals would be built by 2030. Since then, only one new project has opened to patients, and only six have started their main construction activity. The National Audit Office was clear that delivery was wildly off track, but since coming into office, it has become clear that the previous Government continued to maintain their commitment to 40 hospitals without anywhere close to the funding required to deliver them. That gave our constituents false hope. We need to be straight with the British people about what is deliverable and what is affordable, so we will conduct a complete review of the new hospital programme, with a thorough, realistic and costed timetable for delivery.
Adult social care was also neglected by the previous Government. The sector needs reform to improve care and to support staff. In the previous Parliament, the Government made costly commitments to introduce adult social care charging reforms, but they delayed them two years ago because they knew that local authorities were not ready and that their promises were not funded, so it will not be possible to take forward those charging reforms. This will save over £1 billion by the end of next year.
Mr Speaker
Order. I want Government Members to be quiet as well—I want to hear the Chancellor of the Exchequer.
Rachel Reeves
I can understand why people, and Members, are angry. I am angry too. The previous Government let people down. The previous Government made commitment after commitment without knowing where the money was going to come from. They did this repeatedly, knowingly and deliberately.
Today, I am calling out the Conservatives’ cover-up and I am taking the first steps to clean up what they have left behind, but the scale of the inheritance we have been left means that the decisions we have so far announced will not be enough. This level of overspend is not sustainable. Left unchecked, it is a risk to economic stability—and unlike the Conservative party, I will never take risks with our country’s economic stability. It therefore falls to us to take the difficult decisions now to make further in-year savings.
The scale of the situation we are dealing with means incredibly tough choices. I repeat today the commitment that we made in our manifesto to protect the triple lock, but today I am making the difficult decision that those not in receipt of pension credit or certain other means-tested benefits will no longer receive the winter fuel payment, from this year onwards. The Government will continue to provide winter fuel payments worth £200 to households receiving pension credit or £300 to households in receipt of pension credit with someone over the age of 80. Let me be clear: this is not a decision I wanted to make, nor is it the one that I expected to make, but these are the necessary and urgent decisions that I must make. It is the responsible thing to do to fix the foundations of our economy and bring back economic stability.
Alongside this change, I will work with my right hon. Friend the Work and Pensions Secretary to maximise the take-up of pension credit by bringing forward the administration of housing benefit and pension credit, repeatedly pushed back by the previous Government, and by working with older people’s charities and local authorities to raise awareness of pension credit and help identify households not claiming it.
This is the beginning of a process, not the end. I am announcing today that I will hold a Budget on 30 October, alongside a full economic and fiscal forecast from the Office for Budget Responsibility. I have to tell the House that the Budget will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax. [Hon. Members: “Ah!”] Mr Speaker, they still don’t get it, do they? Parties in Downing Street, crashing the economy, gambling on the election—party before country, every single time.
It will be a Budget to fix the foundations of our economy, and it will be a Budget built on the principles that this new Government were elected on. First, we will treat taxpayers’ money with respect by ensuring that every pound is well spent, and we will interrogate every line of public spending to ensure that it represents value for money. Secondly, I can repeat from the Dispatch Box our manifesto commitment that we will not increase taxes on working people. That means that we will not increase national insurance, the basic, higher or additional rates of income tax, or VAT. Today, my hon. Friend the Exchequer Secretary is publishing further detail on our manifesto commitments to close tax loopholes and clamp down on tax avoidance to ensure that we bring in that money as quickly as possible. My third principle is that we will meet our fiscal rules: we will move the current budget into balance and we will get debt falling as a share of the economy by the end of the forecast.
These are the principles that will guide me at the Budget, but let me be honest: challenging trade-offs will remain, so today I am launching a multi-year spending review. This review will set departmental budgets for at least three years, providing the long-term certainty that has been lacking for too long. As part of that process, final budgets for this year and budgets for next year, 2025-26, will be set alongside the Budget on 30 October.
I will look closely at our welfare system, because if someone can work, they should work. That is a principle of this Government, yet under the previous Government, welfare spending ballooned, while inactivity has risen sharply in recent years. We will ensure that the welfare system is focused on supporting people into employment, and we will assess the unacceptable levels of fraud and error in our welfare system and take forward action to bring that down.
To fix the foundations of our economy, we must ensure that never again can a Government keep from the public the true state of our public finances. The fiscal framework I have inherited had several flaws. It allowed the Government to run down the clock on departmental budgets to avoid difficult decisions and to push them back beyond the election, so I am announcing the most significant set of changes to our framework since the inception of the Office for Budget Responsibility. These changes will come into effect in the autumn.
First, we have introduced legislation to ensure that we can never again see a repeat of the mini-Budget. Secondly, we will require the Treasury to share with the Office for Budget Responsibility its assessment of immediate public spending pressures, and we will enshrine that rule in the charter for budget responsibility, so that no Government can ever again cover up the true state of our public finances. Finally, we will ensure that never again do public service budgets get set at only a few months’ notice. Instead, spending reviews will take place every two years, with a minimum planning horizon of three years, to avoid uncertainty for Departments and to boost stability for our public finances. I have already spoken to the chair of the Office for Budget Responsibility to brief him on the findings of our audit and our reforms.
By launching the spending review, I am also today starting the firing gun on a new approach to public service reform to drive greater productivity in the public sector. We will embed an approach to government that is mission-led, that is reform-driven, with a greater focus on prevention and the integration of services at a national and local level, and that is enabled by new technology, including through the work of my right hon. Friend the Secretary of State for Science, Innovation and Technology on the opportunities of artificial intelligence to improve our public services. We will establish a new office of value for money, with an immediate focus on identifying areas where we can reduce or stop spending, or improve its value.
We will appoint a covid corruption commissioner to bring back money that is owed to taxpayers after contracts worth billions of pounds were handed out by the previous Government during the pandemic. Ahead of the spending review, I will also review the cost of our political system, including restricting eligibility for ministerial severance payments based on time in office. I expect all levels of government to be run effectively and efficiently, and I will work with leaders across our country to deliver just that. That means effective local government, a civil service delivering good value for the British taxpayer and reform of our political institutions, including the House of Lords, to keep costs as low as possible.
The Budget and spending review will also set out further progress on our No. 1 mission: to grow our economy. Economic growth is the only way to sustainably improve our public services and our public finances, so we will use the spending review to prioritise specific areas of capital investment that leverage in billions more in private investment. It will not happen overnight—it will take time and it will take focus—but we have already made significant progress, including: planning reforms to get Britain building; a national wealth fund to catalyse private investment; a pensions investment review to unlock capital for our businesses; Skills England to create a shared national ambition to boost skills across our country; and work across government on a new industrial strategy, driven forward by a growth mission board, to ensure that we deliver on our commitments.
Our country has fundamental strengths on which we can build, and I look forward to welcoming business leaders to the international investment summit in Britain later this year. I know that if we can create the stable conditions that investors need to thrive, we will return confidence to our economy so that entrepreneurs and businesses big and small know that this is the best place in the world to start and grow a business. That is the bedrock on which economic growth must be built.
The inheritance from the previous Government is unforgiveable. After the chaos of partygate, when they knew that trust in politics was at an all-time low, they gave false hope to Britain. When people were already being hurt by their cost of living crisis, they promised solutions that they knew could never be paid for, roads that would never be built, public transport that would never arrive and hospitals that would never treat a single patient. They spent like there was no tomorrow because they knew that someone else would pick up the bill. Then, in the election—perhaps this is the most shocking part—they campaigned on a platform to do it all over again, with more unfunded tax cuts and more spending pledges, all the time knowing that they had no ability to pay for them. No regard for the taxpayer. No respect for ordinary, hard-working people.
I will never do that. I will restore our country’s economic stability. I will make the tough choices. I will fix the foundations of our economy so that we can rebuild Britain and make every part of our country better off. I commend this statement to the House.
Jeremy Hunt
The Chancellor says that the information is new, but she told the Financial Times:
“You don’t need to win an election to find”
out the state of public finances, as
“We’ve got the OBR now.”
Paul Johnson of the Institute for Fiscal Studies has said:
“The state of public finances were apparent pre-election to anyone who cared to look”
which is why he and other independent figures say that her argument is not credible and will not wash.
Those public finances were audited by the OBR just 10 weeks before the election was called. We are now expected to believe that, in that short period, a £20 billion black hole has magically emerged, but for every single day in that period—in fact, since January, in line with constitutional convention—the right hon. Lady had privileged access to the Treasury permanent secretary. She could have found out absolutely anything she needed. Will she confirm to the House that she did have meetings with the permanent secretary of the Treasury before the election? Will she tell the House whether they discussed public finances? Will she tell the House whether they discussed any of the pressures that she is talking about today? If so, why are we only hearing today what she wants to do about them? That is why today’s exercise is not economic—it is political.
The Chancellor wants to blame the last Conservative Government for tax rises and project cancellations that she has been planning all along. The trouble is, even her own published numbers expose the fiction behind today’s announcement. Just four days ago, she presented to the House the Government’s estimates of spending plans for the year. Those estimates are a legal requirement. The official guidance manual is clear that Departments are responsible for ensuring that estimates are consistent with their “best forecast of requirements”. They are signed off by the most senior civil servants—the accounting officers—in every Department. Yet, four days on, she is saying that those estimates are wrong. Who is right: politically neutral civil servants or a political Chancellor? If she is right, will she ask the cabinet secretary to investigate those civil servants and apologise to the House for laying misleading estimates? Of course not, because she knows that those civil servants are right and today’s black hole is spurious, just like when she says that she inherited the
“worst set of economic circumstances”
since the second world war. When BBC Verify asked a professor at the London School of Economics about that claim, he responded:
“I struggle to find a metric that would make that statement correct.”
The metrics speak for themselves. Inflation is 2% today —nearly half what it was in 2010 when we had to clear up the mess inherited from a Labour Government. Unemployment is nearly half what it was then, with more new jobs than nearly anywhere else in Europe. So far this year, we are the fastest growing G7 economy. Over the next six years, the IMF says that we will grow faster than France, Italy, Germany and Japan.
Just two days before the election was called, the managing director of the IMF praised the previous Government’s handling of the economy, and said it was in a good place. This week, the Institute for Fiscal Studies said that it was
“not a bad situation to take charge of”
and certainly not comparable to the 1940s or 1970s. If the right hon. Lady is in charge of the economy, it is time to stop trash talking it. What is the point of going to New York or Brazil to bang the drum for more investment if she comes home with a cock and bull story about how bad everything is? She should stop playing politics with Britain’s reputation and get on with running the economy.
When it comes to public finances, will the Chancellor confirm to the House that, far from being broke and broken, as Downing Street briefed the media, the forecast deficit today is 4.4%, compared with 10.3% when Labour left office in 2010? In other words, when Labour was last in office, we were borrowing double the current levels. Will she confirm another difference between today and 2010? The Conservatives came to office then, honest about our plans and saying straightforwardly that we needed to cut the deficit. She has just won an election telling us repeatedly that taxes will not go up. How many seats were won on the back of commitments not to raise tax, while she is quietly planning to do the exact opposite?
On the details that the Chancellor has announced today, will she confirm that around half of today’s fictitious black hole comes from discretionary public sector pay awards—in other words, not something that she has to do, but something where she has a choice? Will she confirm to the House that, apart from the teachers recommendation, none of the other pay review body recommendations was seen by the last Government, as they arrived after the election was called? Today she has chosen to accept those recommendations, but before doing so, was she advised by officials to ask unions for productivity enhancements before accepting above-inflation pay awards, to help to pay for those awards, as the last Government did? If she was advised to do that, why did she reject that advice and simply tell the unions, “Here’s your money, thanks for your support”? Will she confirm—[Interruption.] I know Labour Members do not like the truth, but here it is. Will she confirm that one of the reasons for her funding gap is that she has chosen to backdate a 22% pay award to junior doctors, to cover the time when they were striking?
We are just three months into the financial year, so why did the Chancellor not mention today that, at the start of the year, the Treasury had a reserve of £14 billion for unexpected revenue costs, and £4 billion for unexpected capital costs? Additionally, why has she not accounted for the Treasury’s ability to manage down in-year pressures on the reserve—last year alone by £9 billion? Why has she apparently not accounted for underspends—typically £12 billion a year? Has she totally abandoned the £12 billion of welfare savings planned by the last Government? If so, will she confirm that to the House? Has she also abandoned £20 billion of annual productivity savings planned by the last Government? If not, why are they not in her numbers? Finally, for someone who claims continuously the mantle of fiscal rectitude, will she confirm that in order to pay for her public spending plans, she will not change her fiscal rules to target a different debt measure, so she can increase borrowing and debt by the back door?
Every Chancellor faces pressures on public finances. After a pandemic and an energy crisis, those pressures are particularly challenging, which is why in autumn 2022, the previous Government took painful but necessary decisions on tax and spend. But we knew that, if we continued to take difficult decisions on pay, productivity and welfare reform, we could live within our means and start to bring taxes down. She, on the other hand, knew perfectly well that a Labour Government would duck those difficult decisions. She has caved in to the unions on pay, left welfare reform out of the King’s Speech and soft-pedalled on our productivity programme. That is a choice, not a necessity.
That choice means that taxes will have to go up and the right hon. Lady chose not to tell us before the election. Instead, in 24 days—just 24 days—she has announced £7.3 billion for GB Energy, £8.3 billion for the national wealth fund and around £10 billion for public sector pay awards. That is £24 billion in 24 days: around £1 billion for every day she has been in office, leaving taxpayers to pick up the tab for her profligacy.
Doing it this way, she makes the first major misstep of her time as Chancellor, because that great office of state depends more than any on trust—[Interruption.] In her first big moment, she breaks that trust with an utterly bogus attempt to hoodwink the public about the choices she has. Over 50 times in the election, Labour told us it had no plans to raise taxes. Now, in a U-turn that will forever shame this Labour Government, she is laying the ground to break her word. When she does, her first Budget will become the biggest betrayal in history by a new Chancellor. Working families will never forgive her.
Rachel Reeves
The shadow Chancellor had an opportunity this afternoon to admit what he had done, the legacy he had left. Instead, he takes no responsibility. The word the country was looking for today was sorry. He could not find those words; no wonder the Conservative party so definitively lost the trust of the British people at the election three and a half weeks ago. We say never again. [Interruption.] Never again should a party that plays fast and loose with the public finances be in charge of the public finances—[Interruption.]
Mr Speaker
Order. Can I just say to the Whips, who hold responsible jobs and I expect them to keep them that way, that just because they might not be at the end of the Bench does not mean they have to chunter all the way through and pass comment? I don’t need it and I won’t put up with it.
Rachel Reeves
First, specifically on the black hole, we could not have known these numbers because the Conservative party did not tell the OBR these numbers. That is why we are in the position we are in today. That is the biggest scandal of them all.
The shadow Chancellor asks about the estimates. He should recognise the estimates we laid yesterday because he produced them. We had to lay those estimates to allow public spending to continue, but since those estimates were produced, information was given to us by Treasury officials about the true scale of the overspending by the Conservative party.
The shadow Chancellor mentions the IFS. Paul Johnson from the IFS has just said that it appears that these overspends are genuinely unfunded—words not from me, but from the independent IFS, which the shadow Chancellor referenced.
The shadow Chancellor mentions what happened to the reserve. Well, the reserve has been spent, shadow Chancellor. It was spent by you three times over. That is why we are in a position of a £22 billion in-year gap between spending that was happening and the funding to produce it.
If the shadow Chancellor could do all the things he spoke about today, why were they not in the forecasts? If he was able, as he says, to make those in-year changes on welfare and productivity, they would have been in the forecasts. They were not.
On the issue of the pay review bodies, the previous Government set the remit for those but they refused to give them any indication of affordability. That is almost unprecedented. The teachers reported before the election and that recommendation sat on the former Education Secretary’s desk. Today, we are drawing a line on the industrial action: the £1.7 billion cost to the NHS alone last year and 1.4 million cancelled appointments. We are incorporating a third of those pay increases into efficiencies in our public services, as the shadow Chancellor suggested we should.
When it comes to tax, I am not going to take any lessons from the Conservative party. The Conservative party took the tax burden to the highest level in 70 years.
The response of the shadow Chancellor just confirms what we already knew: the previous Government were deluded, out of touch and grossly irresponsible. Today, we begin to fix the mess that they have created.
Mr Clive Betts (Sheffield South East) (Lab)
In 2010, we repeatedly heard the words, “The Labour Government did not fix the roof while the sun was shining.” Is it not the case that the last Government not only did not fix the roof, but destroyed the entire foundations of our public services?
In the context of difficult decisions, I welcome two points made by my right hon. Friend. First, there was the encouragement to work with local councils to increase the take-up of pension credit. The Levelling Up, Housing and Communities Committee called for that repeatedly in the last Parliament, but it was not taken up. Secondly, can the Chancellor confirm that she intends to provide multi-year settlements, ultimately, for local councils, which—again—have called for that repeatedly? It would be a welcome step to help them with the very difficult financial situation that they are facing.
Rachel Reeves
I can confirm that we will be arranging multi-year settlements with local authorities, as well as with Departments. It is extremely important that both Departments and authorities can plan for the future knowing what money is available, rather than running down the clock towards the end of the year.
I thank my hon. Friend for welcoming the announcement that I made today about working with local government to improve the take-up of pension credit. It is woeful that it is so low. It is vital that everyone receives the money to which they are entitled, especially pensioners, which is why we have taken on those recommendations from elderly people’s charities today to ensure that we work with local government to boost take-up of that benefit.
Sarah Olney (Richmond Park) (LD)
I thank the Chancellor for advance sight of her statement. Let me associate myself with the expressions of gratitude to our emergency services; the thoughts of all Liberal Democrats are with those affected by the incident in Southport.
Years of Conservative chaos and mismanagement have left our economy on life support and in desperate need of emergency care. Things cannot go on like this any longer. We must now revive growth by getting people off NHS waiting lists and back into work, so we urge the Government to invest wisely in GPs, dentists and hospitals, not only to support patients but to improve efficiency in the NHS and deliver the growth that is so desperately needed after years of Conservative failure.
The outgoing Conservative Government will go down in the history books as one of the most damaging Administrations that our country has seen, and today’s statement has thrown that picture into even starker relief. It was not just their catastrophic mini-Budget; we saw a vicious cycle of stagnation and recession, driven by years of chaos and uncertainty. For the first time, living standards declined over the course of a Parliament as people experienced the harshest cost of living crisis in generations. Our public services were abandoned: waiting lists soared, schools crumbled, and our social care was in crisis. The dire state in which the Conservatives left our public finances is indicative of their irresponsibility.
People are painfully aware that Conservative chaos has real-life consequences. Interest rates were sent soaring, and millions of people saw their mortgage payments increase by hundreds of pounds a month. That is why, more than ever, we need to foster economic stability to draw a line under the uncertainty of the last few years. An important step in rebuilding confidence in our economy is the setting up of a long-term industrial strategy. That will help to unlock vital investment, create good jobs, and help us to tackle the climate emergency. Will the Chancellor reassure the House that the Government will start work on such a strategy as soon as practically possible?
We cannot talk about rebuilding our economy without talking about the crisis in health and social care. Millions have long-term health conditions that make them too ill to work, and millions more are stuck on NHS waiting lists. Many others cannot leave hospital because there is no care provision. The Liberal Democrats have always understood that we cannot have a thriving economy and strong public finances until we fix the crisis in health and social care, which is why we put forward detailed proposals to deliver more GPs, invest in dental services, and cut ambulance waiting times. Equally, we must give people the good-quality care that they deserve, so we urge the Government to work across party lines to implement a system of free personal care and give our unpaid carers the proper support that they need. The last Conservative Administration left people with crippling care costs. That is why it is urgent for us to have cross-party talks on social care, and I urge the Government to begin those as soon as they possibly can.
Investing in health and care is not just about giving people the fair deal that they deserve; it is also about sound management of our public finances. Will the Chancellor guarantee that the NHS and social care will be at the heart of her plans to address the Conservative party’s legacy of mismanagement? Part of that legacy is the previous Government’s promise to deliver 40 new hospitals, which was postponed, redefined and never properly funded. It turned out to be yet another empty Conservative promise, but having listened to many colleagues on these Benches over the last few years, some hospitals are clearly in dire need of investment, with crumbling roofs and buckets to catch the leaks. Will the Chancellor meet Members whose constituents will be affected by today’s announcement, to hear directly about the situation in their hospitals?
Lastly, let me turn to the other side of the equation: securing the funding that our public services so desperately need. Over the last Parliament, we saw the Conservative party raise taxes on hard-working households again and again, just to pay for its own mistakes. Does the Chancellor agree that it would be unfair to ask working people to pick up the tab a second time, after they have already suffered through years of painful tax rises? My party has set out detailed proposals to raise funding for our public services in a fair way—for example, by reversing the Conservatives’ tax cuts for big banks, putting in place a proper windfall tax on oil and gas producers, and raising the digital services tax on social media giants. I urge the Chancellor to draw from these ideas, which could raise billions of pounds by asking some of the largest companies in the world to pay their fair share.
There is no doubt that our economy, our public services and our public finances have been left in a precarious position. Now the hard work must be done to repair the damage and return stability, growth and prosperity to our country. That is what the Liberal Democrats will always champion, and we sincerely hope that the Government will look closely at our proposals to end the crisis in health and social care, grow our economy and give people a fair deal.
Rachel Reeves
I thank the hon. Lady for her contribution, particularly the theme about helping people into work and fixing our national health service. I totally agree with her about the immense damage that the Tory mini-Budget did, particularly in pushing up mortgage costs for so many of our constituents.
The hon. Lady asks about industrial strategy. My right hon. Friend the Business and Trade Secretary will be setting out more details of the modern industrial strategy, which will enable us to work in partnership with business to exploit the big opportunities that the country and the economy have for growth and prosperity in all parts of the UK.
The hon. Lady asks about health and social care. She is absolutely right to highlight the huge challenge of the waiting list—it was at 7.6 million when the Conservatives left office. I welcome the deal to get junior doctors back to work, and I am sure the whole country will, because it will mean that people can get operations and treatment when they need. After last year’s industrial action cost our economy £1.7 billion and caused 1.4 million appointments to be missed, the deal will be welcomed by people on NHS waiting lists. Of course, this Government have made a commitment to provide 40,000 additional appointments every single week. That is why we will crack down on tax avoidance and ensure that, finally, non-doms who make their home in Britain pay their fair share of tax here.
My right hon. Friend the Health Secretary will meet constituents who are affected by the previous Government’s betrayal on building 40 new hospitals, because we recognise, as the hon. Lady says, the importance of ensuring that all our constituents have the health services they deserve. I could not agree more with her that it should not be working people who pick up the tab for the Conservative party’s failure. That is why I have restated our commitment not to increase taxes on working people—there will be no increases in income tax, national insurance or VAT. That is the commitment on which we campaigned in this election, and I stand by that commitment.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I congratulate my right hon. Friend and the Labour Government on making such a strong start, and particularly on the emphasis on transparency and accountability for the hard-earned money of our tax-paying constituents. She said that the Treasury will be asked to share with the Office for Budget Responsibility its assessment of immediate public spending pressures, and that she wants to enshrine that rule in the charter for budget responsibility. Will she also make sure that that is a public document that is reported to Parliament, to maintain this vital transparency going forward?
Rachel Reeves
I thank my hon. Friend for her question. She speaks from her experience as Chair of the Public Accounts Committee, and I agree with her entirely. The charter for budget responsibility will be published. We have already introduced legislation for the new fiscal lock that we set out in our manifesto, so that we can ensure that a Government can never again do what the previous Government did, which was to overspend by £22 billion within one year.
Dame Harriett Baldwin (West Worcestershire) (Con)
What a chilling political choice, to choose to take away the winter fuel allowance from a 90-year-old on an income of £10,000 a year. And that was a political choice. I want to ask the Chancellor more about productivity. She used the word once during her speech. What discussions has she had about improving productivity, which according to the Office for Budget Responsibility is still 5% lower in the public sector and has not recovered since the levels we enjoyed before the pandemic?
Rachel Reeves
The challenge of productivity sits across both the public and private sectors. In the last 14 years, productivity has flatlined in the public and private sectors and we need to boost both. We need to boost productivity in the public sector to ensure that we get better value for money for our public services, but we also need to improve productivity in our private sector so that we can improve living standards and have the money for our public services.
Jon Trickett (Normanton and Hemsworth) (Lab)
I welcome the Chancellor’s statement about public sector pay, but is it not clear that, after savaging public services, holding down public sector pay and driving 3 million people into food banks, this crazy ideological austerity programme of the Tories has failed massively while at the same time, the richest 250 people in the country gained wealth of £500 billion? Can I tempt the Chancellor to say that, while we accept that there are hard decisions to make, we reject the ideological commitment to this form of Tory austerity?
Rachel Reeves
I thank my hon. Friend for that question. We do owe it to our armed forces, our prison officers, our police officers, our nurses and our teachers to reward them properly for their work, and that is what we did today in implementing in full the recommendations of the pay review bodies. I echo his view that a return to austerity would be no way to run our economy. It resulted in growth haemorrhaging in the last Parliament, with all the damage that that did to living standards and to the money for our public services.
Robert Jenrick (Newark) (Con)
The Chancellor is like a dodgy car mechanic. She says she has done all the searches, she gives you a fixed price, you hand in your car keys and then, a few weeks later, she has found all these new problems. The price has doubled, but it is too late—you have given her your car and you both know that this was her plan all along. Trust and credibility are critical to a Chancellor. Why has she been so careless and so quick to throw hers away?
Rachel Reeves
If the right hon. Gentleman has any chance of fixing the mess that his previous Government made, he might want to start with an apology.
Sam Carling (North West Cambridgeshire) (Lab)
I thank the Chancellor for her honesty on the incredibly serious situation that she has just outlined. Does she agree that the above-inflation pay deals agreed by this Government with our public sector staff will begin the process of rebuilding trust between them and our Government and will benefit the public purse by reducing strike action?
Rachel Reeves
I thank my hon. Friend for that question. Let us just be clear that the pay recommendations today are in line with private sector pay. These are just the pay deals that are received by the majority of workers in the private sector. My hon. Friend is right that we owe a debt of gratitude to our frontline workers, who got us through the pandemic and so many other challenges over the last few years, and they deserve to be paid properly for their work.
Seamus Logan (Aberdeenshire North and Moray East) (SNP)
During the recent election campaign, we in the SNP repeatedly warned about an £18 billion hole in the Labour party’s spending plans. Now that the Chancellor has confirmed that today, will she apologise to those voters in Scotland who supported the Labour party leader in Scotland when he said:
“Read my lips, no austerity”?
Will she also reverse the 9% cut in Scotland’s capital allocation, please?
Rachel Reeves
I am not sure if hon. Gentleman was paying attention. The £22 billion black hole is this year. The Institute for Fiscal Studies was warning about a black hole of £18 billion over the lifetime of the Parliament. Those are two very different things and both of them can be true. What we are showing today is an in-year gap of £22 billion that the hon. Gentleman did not know about, that no one on this side of the House knew about, that the OBR did not know about, and that the country did not know about. This is new information that is being published today, above and beyond what anyone knew when we were campaigning in the election.
Ms Stella Creasy (Walthamstow) (Lab/Co-op)
Frankly, the Conservatives’ response leaves something to be desired. After 14 years of stripping the engine of this country’s economy, their response is simply taking the piston.
I am so proud that we now have a Chancellor who is not penny wise and pound foolish, but is conscious that all our constituents will have to pick up the pieces after the past 14 years. Can the Chancellor tell us a little more about her audit and what it has identified about the money wasted by the previous Government and their mismanagement of capital projects? We now know, for example, that the failure to rebuild Whipps Cross hospital has cost us an extra £15 million in the last few years alone. Our constituents will pay the price of the last Government for many years to come. This new Labour Government need to be honest with them. Sorry seems to be the hardest word for the Conservatives to say, but can the Chancellor tell us just how much money it will cost?
Rachel Reeves
This country is owed a £22 billion apology by the Conservative party, and my hon. Friend is right to highlight the overspends, including on the hospitals programme; there is a £4 billion gap between what was announced and what is needed for those hospitals. There is also a £6.4 billion overspend on the asylum system. That was all unfunded and undisclosed until I disclosed it today.
Mr Mark Francois (Rayleigh and Wickford) (Con)
I welcome the affirmation of the funding for Ukraine, which I presume was already fully allocated from the Treasury reserve, in the usual way.
On the mainstream defence budget, the Chancellor has announced that all departmental spending will now be reviewed every two years. Given the speed at which Whitehall works, this means that the minute one review is finished, work will start on the next. All public spending, particularly capital spending, will effectively be under permanent review. This will not work. How can we commit to 10-year defence programmes, such as the vital new Tempest fighter, if all departmental budgets are up in the air every two years?
Rachel Reeves
First, there is a £9 billion reserve for departmental expenditure, and it was spent three times over before I arrived in the Treasury. That is why we face these problems today.
Secondly, yes, we fully intend to set longer-term budgets for capital expenditure, but we will have three-year spending reviews every two years for day-to-day departmental expenditure, which is really important for giving certainty, so that Government Departments can plan for the future. Today, no Department or local authority knows its budget beyond next March. That is no position to put Departments in, including the Ministry of Defence.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I welcome my right hon. Friend’s statement, and particularly what she said about the public sector pay award. Could she share a little more about how, given the appalling economic conditions that we now face, she will incorporate equity in her decisions on how to address the in-year deficit?
Rachel Reeves
I have to be honest that the decisions I have made today are tough decisions. They are not the decisions that I wanted to make, or that I expected to make. Given the seriousness of the inheritance that I face, they are the right decisions, the responsible decisions, and the fairest decisions that I could make in the circumstances.
Daisy Cooper (St Albans) (LD)
The legacy of the Conservatives’ new hospitals programme is dire, but the Chancellor will know that there is also a cost to delay. We have life-expired buildings that will continue to need to be patched up until they are replaced, so I urge the Chancellor, as I urged the Secretary of State for Health and Social Care last week, to give the go-ahead to those projects that are ready to go and involve life-expired buildings. Will she review the outdated rules, and allow hospitals to spend more of their capital funds on helping with repairs and rebuilds?
Rachel Reeves
I welcome you to your place, Madam Deputy Speaker. My right hon. Friend the Secretary of State for Health and Social Care will meet with people affected. We were promised a new hospital in Leeds that has never been built, so I understand the concerns that right hon. and hon. Members have about the hospital programme. However, there is a £22 billion in-year overspend, which means taking incredibly difficult decisions. They are not the decisions that we would want to make, but they are responsible ones in the circumstances, given our dire inheritance from the Conservative party.
Dr Jeevun Sandher (Loughborough) (Lab)
I used to work in the Treasury; what we have heard today about the Conservative party is shocking and shameful. The Chancellor has set out how far away the last Government were from meeting their own targets on hospital building. Does she agree that our plan, by contrast, represents a deliverable way to ensure we get waiting lists down?
Rachel Reeves
My hon. Friend is welcome on the Government Benches with his expertise. Everything in our manifesto was fully costed and fully funded, including 40,000 additional NHS appointments every single week, which will be funded by cracking down on tax avoidance and ensuring that people who make their home in Britain pay their taxes here. We will finally deal with the terrible situation of non-doms claiming that they do not live in Britain for tax purposes, despite making their home here. Those people should contribute to the public purse; under Labour, they will.
Sir Julian Lewis (New Forest East) (Con)
Congratulations on your election, Madam Deputy Speaker.
I cannot hope to match the splendid double entendre of the hon. Member for Walthamstow (Ms Creasy), but I may I say to the Chancellor that one effect of being here for a long time is a realisation that no one party has a monopoly on wisdom? Given the impartial assessment by the Library that covid cost this country between £310 billion and £410 billion, is she willing to at least concede that the previous Government did a pretty good job in getting inflation down to 2% less than two years after the pandemic?
Rachel Reeves
The pandemic is no excuse for making unfunded spending commitments, which is precisely what the previous Government did. The right hon. Gentleman mentioned the pandemic, during which the Government handed out contracts to friends and donors to their party, putting them in a VIP lane. That is why we are appointing a covid corruption commissioner. We want that money back in our public services, where it belongs.
Bill Esterson (Sefton Central) (Lab)
Welcome to your place, Madam Deputy Speaker.
It was not just the public finances that the Conservatives mismanaged over 14 years; they failed to support industry too. Figures published today demonstrate that Britain has dropped out of the top 10 countries for manufacturing for the first time since the industrial revolution. I welcome my right hon. Friend’s commitment to leveraging millions more in private investment to make up for the record low levels of private investment we saw under the previous Government. Does she agree that the latest manufacturing figures show how critical it is that the Government work closely with business and trade unions on a long-term industrial strategy?
Rachel Reeves
I too saw the numbers today that show that Britian is out of the top 10 manufacturing countries, which is shameful given our history at the heart of the industrial revolution. I pay tribute to my hon. Friend for his work, which ensured that Labour went into the election as the most pro-business party. Through the reforms that we have already announced in our first three weeks in government—planning reforms, the creation of a national wealth fund, reform of our pension system and a modern industrial strategy—we will go about making Britain the best place to start and grow a business, and the best place to invest. We look forward to holding our international investment summit in the UK later this year.
Adrian Ramsay (Waveney Valley) (Green)
I have sympathy for the Chancellor’s seeking to address the issues that she has outlined, but the solutions that she has set out today are focused on spending cuts. Will she please say more about the opportunities that she is looking at for bringing revenue into the Exchequer, so that we can have the investment that is needed, whether in new hospitals—we all know that hospitals around the country are crumbling—or in the railways, as people are stuck in traffic jams and struggling with high rail fares? In particular, has she considered introducing a wealth tax? A tax on the very wealthiest in society—people with assets of more than £10 million—would raise tens of billions of pounds during this Parliament, and it could address the fact that we have growing billionaire wealth, while ordinary people are suffering from these cuts.
Rachel Reeves
I thank the hon. Gentleman for that question. I have just set out the non-dom tax loophole closures, and my hon. Friend the Exchequer Secretary has published a written ministerial statement today setting out our manifesto commitments around the energy profits levy, VAT on private schools, and the non-dom changes, which we will consult on and introduce in the Budget. We will not be introducing a wealth tax. We want this to be a great place for investors, and a wealth tax would have the opposite effect.
Claire Hazelgrove (Filton and Bradley Stoke) (Lab)
May I thank my right hon. Friend for her transparency and openness about the dire state of our inheritance from the Conservatives? The Tory leadership race is now clearly in full swing, which is important. People across the Filton and Bradley Stoke constituency, and across the country, deserve to know why none of the contenders came clean about this black hole when they were in government. Or were they kept in the dark by the Chancellor’s predecessor as well?
Rachel Reeves
Far be it from me to give advice to Tory leadership contestants, but if I were taking part in this contest, I would want to distance myself as much as possible from the Government in the previous Parliament who caused this terrible mess.
Graham Stuart (Beverley and Holderness) (Con)
The Chancellor committed to long-term planning for capital expenditure. Last March, the then Chancellor committed £20 billion to carbon capture, usage and storage, without which a net zero future cannot be delivered. In the light of the right hon. Lady’s review, can she set out for the House what commitment this Government will make to investment, including to that £20 billion for CCUS?
Rachel Reeves
We have already created a national wealth fund, which will leverage in billions of pounds of private sector investment, including in carbon capture and storage, as well as green hydrogen and renewable-ready ports. We will set out all our spending in the spending review later this year.
Dawn Butler (Brent East) (Lab)
Congratulations on your appointment, Madam Deputy Speaker. It feels really good to be back on the Government Benches. The annual accounts of the Department of Health and Social Care show that £9.9 billion spent on personal protective equipment was written off. Does the Chancellor agree that we could claw back this money through the covid corruption commissioner, and then possibly use some of it to eradicate child poverty?
Rachel Reeves
I thank my hon. Friend for that question. It is to the previous Government’s huge shame that they spent billions of pounds of taxpayers’ money on VIP-lane contracts, and on PPE that was never used; in some cases, it has literally gone up in smoke and been burned. We are appointing a covid corruption commissioner because that money belongs not in the pockets of Tory donors, but in our public services, and we will do everything within our power to get their money back.
Ben Obese-Jecty (Huntingdon) (Con)
Last week, the Secretary of State for Health and Social Care said:
“Hospitals with reinforced autoclaved aerated concrete are at the top of my list of priorities.”—[Official Report, 23 July 2024; Vol. 752, c. 517.]
If the new hospitals programme is delayed via review, so will be the rebuilding of the five RAAC hospitals that are not among the 40 referenced. Without avoiding the question with a soundbite, what reassurances can the Chancellor give that we will break ground on any of the new RAAC replacement hospitals, and specifically Hinchingbrooke hospital in my constituency of Huntington during this Parliament?
Rachel Reeves
The hon. Gentleman should blame the previous Government for not funding the commitments that they made. My right hon. Friend the Secretary of State for Health and Social Care will meet all the people affected, including those affected by hospitals with RAAC problems, as soon as possible. As a Leeds MP, I recognise the importance of new hospitals and ensuring that our hospital estate is fit for purpose, but we cannot spend money that we do not have.
Mark Ferguson (Gateshead Central and Whickham) (Lab)
The shadow Chancellor said the books were open and that the Office for Budget Responsibility had audited the Government’s figures shortly before the election. However, the chair of the OBR has today published a letter confirming he intends to launch a review into the preparation of the March forecasts, stating:
“We were made aware of the extent of these pressures at a meeting with the Treasury last week.”
I am only new here; perhaps the Chancellor can inform me how to get the shadow Chancellor to correct the record?
Rachel Reeves
The OBR has just published a letter, as my hon. Friend said, which states:
“We were made aware of the extent of these pressures at a meeting with the Treasury last week”,
and goes on to state:
“If a significant fraction of these pressures is ultimately accommodated through higher DEL spending in 2024-25, this would constitute one of the largest year-ahead overspends against DEL forecasts outside of the pandemic years.”
This is incredibly serious. That is why I came to this House today to set out that £22 billion overspend compared with what the Government set out at the previous Budget. This letter from the chair of the Office for Budget Responsibility can leave no one in this Chamber in any doubt about the seriousness of the situation.
Dr Al Pinkerton (Surrey Heath) (LD)
I thank the Chancellor for her candour and her clarity today. There will be many residents and patients at Frimley Park hospital in my constituency—surrounded by a forest of acrow props holding up RAAC-riddled roofs—who will be deeply anxious at her announcement. Can she recommit to the Health Secretary’s commitment last week to prioritising spending, where possible, on those RAAC-affected hospitals and bring some comfort and clarity to the patients and the staff of Frimley Park hospital?
Rachel Reeves
I fully understand the hon. Gentleman’s concerns. I know that during the election campaign, like so many Members across the House, he will have campaigned in good faith, believing that the money was there. I can say in all candour today that the money was not there for this hospital programme. Although it is not my apology to make, I apologise on behalf of the Conservatives for the state of the public finances that they have left for us to sort out. My right hon. Friend the Health Secretary will meet the hon. Gentleman and everyone affected so that we can do whatever we can to make sure that we can get hospitals in the condition that his constituents, and so many of our constituents, rightly expect.
Ms Polly Billington (East Thanet) (Lab)
Will the Chancellor confirm that, despite the Conservatives’ failure to set aside money for transport commitments, Labour’s plan to modernise the network—vital for my community in East Thanet—will deliver a unified rail system that means we can deliver more for passengers and local communities?
Rachel Reeves
We have had to make difficult decisions today to cancel road and rail infrastructure projects. These are not decisions we wanted to make, but if the money is not there, we cannot go ahead with those projects. It is as simple as that. The money has to be there and the sums always have to add up, because I will not make the mistakes of the previous Government and Liz Truss, crashing the economy and sending interest rates and mortgage rates spiralling for our constituents. That is why I have had to take these actions today to get a grip on public spending and public finances. I make no apology for that, but I recognise the damage it does to so many constituents with projects that they had expected to see happening.
Sir Desmond Swayne (New Forest West) (Con)
When the Chancellor’s legislation enables illegal entrants to leave their current accommodation, where will they go?
Rachel Reeves
Under the previous Government, no applications were being processed and so nobody was being sent home. We will process those applications and send people who have no right to be here back home.
Jim Dickson (Dartford) (Lab)
I thank my right hon. Friend the Chancellor for her excellent statement, putting public finances and public services back on their feet. Having seen how extensive this Tory cover-up has been, with unfunded commitments in multiple Departments, does she agree that it is not just her predecessor as Chancellor, but every member of the last Cabinet who is complicit in that cover-up?
Rachel Reeves
I do not believe that any member of the previous Cabinet could not have been aware of the scale of this cover-up and the scale of the overspending. They should hang their heads in shame. Instead of coming to this Chamber today and issuing platitudes, they should have done the right thing and apologised to the country.
Greg Smith (Mid Buckinghamshire) (Con)
The Chancellor has made two key political decisions this afternoon: one, to fund extraordinarily high public sector pay increases; and two, to clobber pensioners to pay for it. Will she explain to the House and every pensioner who will lose their winter fuel allowance in the process why she did not challenge the Bank of England on the taxpayer bailouts that it requires, to the tune of tens of billions of pounds, to cover its losses from bond sales?
Rachel Reeves
First, it is an extraordinary omission that the previous Government did not set affordability criteria for the independent pay review bodies, which meant that they were able to come back with these recommendations. It would be almost without precedent not to accept recommendations from an independent pay review body. If the hon. Gentleman wants to go to the doctors, nurses, teachers, police officers and those in the armed forces in his constituency and say that they do not deserve a pay increase in line with private sector wages, that is up to him, but I believe that those public sector workers deserve those pay increases.
On pensions and the winter fuel payment, this is not the decision I wanted to make and it is not the decision I expected to make, but we have to make in-year savings, which is incredibly difficult to do. Without doing that, we would put our public finances at risk. We are ensuring that everybody who is entitled to pension credit—the poorest pensioners—continue to get the winter fuel payment, and we will work with the Department for Work and Pensions, local authorities and charities to boost the take-up of pension credit.
Rachael Maskell (York Central) (Lab/Co-op)
Thank you, Madam Deputy Speaker, and welcome to your place.
I thank my right hon. Friend for her forensic approach to the nation’s finances. As she digs deeper, she will see that York, the city I represent, is at the bottom of many of the matrices for the funding formulas. Will she look at the funding formulas before the Budget so that we can see the distribution of funding? The last Government handed out, for pet projects, much of the money that she is trying to get control of now, but will she look at how that is distributed across the country?
Rachel Reeves
I know, particularly around flood defences, that there are many great needs in the York constituency that my hon. Friend represents. These decisions will all be made at the time of the spending review.
Josh Babarinde (Eastbourne) (LD)
Residents of Eastbourne will be outraged to learn that the Conservatives’ promise of a brand-new hospital for our town was not worth the paper it was written on. Eastbourne deserves better. Under-investment has consequences and, at the moment, Eastbourne district general hospital is closed for births due to that under-investment, and it has been since December. It needs investment. Will the Chancellor confirm that her Government will invest in midwives, doctors and nurses, as well as hospital buildings, to protect local services there and across the country?
Rachel Reeves
I can see, on behalf of the hon. Gentleman’s constituents, the frustration and anger that he feels at the previous Government letting his constituents down so badly by not funding the hospitals that they promised. I commit to my right hon. Friend the Health Secretary meeting everybody affected. We also have a workforce plan, to invest in the future workforce in our national health service, and we are announcing today that we are accepting in full the recommendations of the independent pay review bodies to pay properly our doctors, nurses and others who work in our NHS.
Torsten Bell (Swansea West) (Lab)
Congratulations on your new post, Madam Deputy Speaker.
There can be reasonable political debate across the House about the total levels of public spending—there was a lot of that during the election campaign, with our calling for higher levels of public investment—but there should be complete agreement about the need for the Treasury to ensure that public money is well spent. At the top of that is making sure that the policies and commitments of every Department match their budgets. We hear from experts right around the country today that they do not match those budgets, so can the Chancellor reassure this ex-Treasury official, this House and my Swansea constituents that this will never happen under this Labour Government?
Rachel Reeves
I thank my hon. Friend for that question and welcome him to his place in this House—he speaks powerfully, based on his previous experience. I will fix the mess that we have inherited, but it is a terrible mess: a £22 billion in-year gap between what was forecast to be spent and what was actually being spent by the previous Government. We will get a grip on our public finances; that requires tough choices, but that is the role of Chancellor, and it is the role of Government. These are choices that the previous Government ducked and diverted, but we will make the difficult decisions to get our public finances back on a firmer footing.
Madam Deputy Speaker (Caroline Nokes)
We could do with some masterclasses in short questions and short answers.
Nick Timothy (West Suffolk) (Con)
Earlier, the Chancellor quoted Paul Johnson of the Institute for Fiscal Studies, but she omitted the end of his comments. He said that half of the spending hole she claims is public sector pay
“over which govt made a choice”.
That is the truth, is it not? The Chancellor does a good shocked face, but she chose to create her own spending hole, did she not?
Rachel Reeves
It was the previous Government who set the mandate for the pay review bodies. It is extraordinary that they did not include in that remit a measure of affordability, but they did not, which is why the pay review bodies made these recommendations. The previous Education Secretary could have rejected those recommendations, but she let them sit on her desk, because the previous Government were not willing to make tough decisions. We have made those decisions, including making sure that a third of the cost of these pay awards is absorbed, but there is a cost to inaction: last year, there was a £1.7 billion cost to the NHS alone because of industrial action.
Derek Twigg (Widnes and Halewood) (Lab)
Under the previous Government, there was at least a £17 billion black hole in defence, and of course they had hollowed out the armed forces. However, it is a surprise to find out today that not enough money was set aside in reserve to fund all the military assistance needed for Ukraine. Would the Chancellor say a bit more about that?
Rachel Reeves
The problem that the previous Government got into was that every time they wanted to make a commitment, they said it would be paid for from the reserve. By the time I came into the Treasury on 5 July, that reserve had been spent three times over, because they put so many commitments into that reserve that they could not afford. That is the situation that we inherited, that is where the £22 billion black hole comes from, and that is why I am having to make difficult decisions today to get a grip on the public finances.
Paul Holmes (Hamble Valley) (Con)
The Chancellor spent the election campaign saying that she was going for growth through investing in infrastructure. Instead, she is cutting it, while funding inflation-busting pay deals and scrapping pension benefits for the worst-off. Does she agree that in the battle for the two faces of the Labour party, the face of tax rises, borrowing and boom and bust won, and the British people—hard-working people—will ultimately lose under her leadership?
Rachel Reeves
There is nothing pro-growth about making unfunded spending commitments. There is nothing pro-growth about a lack of respect for taxpayers’ money. We will continue to provide the winter fuel payment for the poorest pensioners, those in receipt of pension credit.
Gregor Poynton (Livingston) (Lab)
I thank the Chancellor for her statement today and for being straight with the public about the state of our finances—I know my constituents want a Government who tell it to them straight. Does she agree that ducking tough decisions and hiding bad news, as the Conservative party has done, just makes a bad situation even worse?
Rachel Reeves
The previous Government and the previous Chancellor should hang their heads in shame for the inheritance they have left for this Government to fix, but I will fix this mess: I will put our public finances and our public spending on a firmer footing. That is the responsible thing to do, and that is what I will do.
Pete Wishart (Perth and Kinross-shire) (SNP)
I welcome you to the Chair, Madam Deputy Speaker.
Everybody and their granny knew that there would be a multi-billion-pound black hole; only the Chancellor seemed to be deaf and blind to the situation. We knew that she would be here explaining the sheer scale of it, yet when we raised this issue during the election campaign, we were told that we were being misleading and that it was all mince. Well, we know now. Does cutting winter fuel payments to all pensioners not seem and feel like Tory austerity? What discussions has the Chancellor had with the Scottish Government, because as she will know, this is a devolved responsibility.
Rachel Reeves
My right hon. Friend the Chief Secretary to the Treasury briefed the Scottish Government today on these decisions. These decisions are necessary: it is not in the interests of the Scottish people to have unfunded commitments, and to put our public finances and reputation for economic stability at risk. These are not easy decisions—they are difficult decisions—but the fault for them lies with the previous Government. The hon. Gentleman claims that what I have announced today is austerity, when we have just given a pay rise to more than 2 million public sector workers—he does not know what he is talking about.
Katie White (Leeds North West) (Lab)
I thank my right hon. Friend for her clarity and candour. After 14 years of sluggish growth and low living standards, and then a cost of living crisis, how callous was it that the Tories went into the election asking for another five years in power with a manifesto of false hope, undeliverable promises and no mention of the numerous black holes that she has now uncovered? What will she do instead to offer my constituents some real hope?
Rachel Reeves
I thank my hon. Friend for that question; I am pleased to have her as a constituency neighbour in Leeds. She is absolutely right that the previous Government went into the election knowing that there was a £22 billion black hole. What did they do during that election? They made more unfunded spending commitments and more unfunded promises about tax that they knew they could not keep. That was deeply irresponsible. After all the damage that they have done, they should have come to the Chamber today and apologised.
Stuart Anderson (South Shropshire) (Con)
Would the Chancellor confirm that all the information presented today was not known to her before last Thursday, when the estimates were laid?
Rachel Reeves
When I arrived at the Treasury three weeks ago, I asked Treasury officials to do a full analysis. We concluded that analysis over the weekend and I am publishing it today for the House of Commons.
Natasha Irons (Croydon East) (Lab)
I thank the Chancellor for the urgent update. With living standards now worse than when the previous Government took office, people across the country continue to suffer the consequences of their broken promises and mismanagement, but this final fiscal mic drop is truly shocking. Does she agree that, in contrast to the unfunded fantasy promises put forward by the Conservative party, Labour’s manifesto showed cast-iron discipline in being fully costed?
Rachel Reeves
I thank my hon. Friend for the question. Everything in Labour’s manifesto was fully costed and fully funded. We now know that on top of the £22-billion black hole that the previous Government left, they made unfunded commitments during the election. That was deeply irresponsible and the country was right to reject them.
Mr Peter Bedford (Mid Leicestershire) (Con)
Does the Chancellor think that one of her first decisions to cancel infrastructure projects is consistent with her desire to grow the economy?
Rachel Reeves
There is nothing pro-growth about making commitments that we cannot afford. There is nothing pro-growth about having £22 billion of unfunded commitments. We saw that when Liz Truss did her mini-Budget less than two years ago, and right hon. and hon. Opposition Members would do well to learn that lesson.
Rachel Reeves
I thank my hon. Friend for raising this issue. I will ask my right hon. Friend the Transport Secretary to meet him and discuss it further.
Ben Lake (Ceredigion Preseli) (PC)
I am grateful for the Chancellor’s clarity on the state of the public finances and for confirming that the Government will accept the recommendations of the independent pay review bodies. She explained that doing so incurs an additional in-year cost of £9 billion and that Departments will be tasked with finding savings of up to £3 billion. Can she outline whether she anticipates that they will have to cover the entire cost of the pay review bodies’ recommendations, or does she anticipate that the Treasury will need to make additional funds available to make up the shortfall?
Rachel Reeves
I thank the hon. Gentleman for the question. We have asked Departments to absorb £3.2 billion of the pressures, but it will be different in different Departments. We know that in the Department of Health and Social Care and the Department for Education, for example, it will be harder to absorb those pay pressures, given the huge challenges that they face. It will be different in different Departments, as we will set out in written ministerial statements by the relevant Secretaries of State.
Dr Zubir Ahmed (Glasgow South West) (Lab)
I thank my right hon. Friend the Chancellor for coming to this House and outlining the difficult decisions she has had to take on behalf of us all—decisions that she would not have had to take were it not for the opaque fiscal negligence of the Conservative party. Can she reassure me that a Labour Government will always protect the vulnerable, and that under a Labour Government pensioners in this country will still be over £1,600 better off per year by the end of this Parliament?
Rachel Reeves
I thank my hon. Friend for that question. We were determined to protect the most vulnerable, which is why we made the decision to ensure that the winter fuel payment would still be paid to the poorest pensioners on pension credit. More than that, we will work with local government and charities to increase the take-up of pension credit, so that everybody who deserves pension credit gets it, and with it the winter fuel payment.
Alicia Kearns (Rutland and Stamford) (Con)
We all remember Gordon Brown’s raid on pensions. It has taken just three weeks for Labour to revert to type, and it is pensioners who are suffering most. Martin Lewis has already criticised the decision online. On the estimates, the right hon. Lady cannot claim that, when permanent secretaries were signing off these estimates—over the weekend, I assume—they did not know about these supposed holes, but if that is so and they did sign them off with holes in them, that would be a breach of their legal duties. So will she be investigating them, or will she be apologising to them for throwing them under the bus today?
Rachel Reeves
Instead of blaming civil servants, the hon. Lady should blame the people who are really responsible, and that is the previous Government. The country did the right thing by kicking them out three weeks ago. They deserve never to get their hands on power again.
Ian Lavery (Blyth and Ashington) (Lab)
During the last Parliament, the Government paid substantial amounts to the train operating companies to make good their losses during a prolonged period of industrial dispute, causing mayhem and causing chaos to the general public. At the same time, the train operating companies paid huge dividends and they also paid their executives massive increases in bonuses. Can my right hon. Friend say how much this actually cost the British taxpayer, and can she ensure that this never ever happens again?
Rachel Reeves
Yes, page 5 of the “Fixing the foundations” document that we have published today sets out the pressures on public spending. On rail services:
“Pressures have emerged on rail finances, primarily due to the weaker-than-expected recovery in passenger demand”,
as well as the cost of industrial action, have led
“to a pressure of £1.6 billion”
in this financial year alone.
Christine Jardine (Edinburgh West) (LD)
I would also like to welcome you to the Chair, Madame Deputy Speaker.
Much of what the Chancellor says I welcome—no fresh income tax, national insurance or VAT—but I am sure the Chancellor will recognise the concern that many pensioners, particularly in the coldest areas of the country, will be feeling at the announcement of the withdrawal of winter fuel payments. Although she is saying that she will work on bringing more people forward and encouraging them to sign up for credits, can she tell us how she is going to do that if she is also going to cut the Government communications budget?
Rachel Reeves
I think the hon. Lady for that question. There are a couple of things we are committed to do. First, pension credit and housing benefit are due to be amalgamated. The previous Government put that back; we will bring that forward. We know that take-up of pension credit will increase when it is merged with housing benefit. That will make an impact in ensuring that people get the money they are entitled to. However, we have also committed, as elderly people’s charities have asked, to central Government working with local government to better identify people who are entitled to pension credit, but are not claiming it today. We want to make sure that everyone who is entitled to pension credit gets it, and with it the associated winter fuel payment.
Johanna Baxter (Paisley and Renfrewshire South) (Lab)
Does my right hon. Friend agree that one of the key failures of the Conservative Government over the past 14 years was their failure to grow the economy, and that that lack of growth meant they simply did not have the money to do the things that they none the less committed to voters in this country to do? That is why we should take no lessons on trust and credibility from the Conservative party.
Rachel Reeves
If our economy had grown at just the average rate for OECD economies over the past 14 years, it would today be worth £140 billion more. That would have been worth £5,000 for every family in Britain and would have meant an additional £58 billion for our public services, without increasing tax by a single penny. That shows how important economic growth is, which is why getting our economy growing is the No. 1 mission of this Government.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
Thank you and welcome to your place, Madam Deputy Speaker.
The estimates day provisions presented by the Chancellor to the House last week included a capital departmental expenditure limit of £12.655 billion for the Department of Health and Social Care. We know that it included the funds for the new Hillingdon hospital, which was granted planning permission and where work has already started. Does the Chancellor of the Exchequer stand by what she told the House in the estimates day debate, on which we all relied when casting our vote? Can she therefore assure my constituents that that hospital project, which was fully budgeted for and where work has already started, will be delivered by this Government?
Rachel Reeves
As the hon. Gentleman knows, estimates have to be published to ensure that Government funding continues, so we had to publish those main estimates, but we will be presenting new estimates to the House based on the revelations that we have set out today.
Luke Murphy (Basingstoke) (Lab)
Can I express the anger that many of my constituents will be feeling, not just about the economic mismanagement and the litany of broken promises from the Conservative party, but about the complete failure to be transparent both with them and with the British public at large? What does the Chancellor have to say to the Conservative party about the way it behaved in office?
Rachel Reeves
We have now been in the Chamber for one hour and 40 minutes, but we have not had a single apology from any Opposition Members. They should have come to the Chamber today and apologised; they have not done so. The country kicked them out of office three and a half weeks ago, and we can tell why.
Lucy Rigby (Northampton North) (Lab)
May I point out to certain Opposition Members who might question the difficult decision that the Chancellor has taken to restrict the winter fuel payment to those on pension credit that this approach has been put forward by the Conservatives and the Lib Dems in recent manifestos? The Scottish Government’s own anti-poverty advisory body has stated that, as it stands,
“this particular instrument is extraordinarily poorly targeted as regards…addressing poverty.”
Does the Chancellor agree that although it is difficult, this decision is a sensible step towards fixing the huge Tory black hole in our public finances?
Rachel Reeves
None of the decisions that we have made today was easy. None of them was a decision that I wanted to have to make, but leaving unaddressed a £22 billion in-year hole in our public finances was not an option. We saw what happened when a previous Prime Minister and Chancellor played fast and loose with the public finances. I will not do that, which is why today I have been honest with this House about the scale of the inheritance that we now have to deal with and the necessary decisions, including on winter fuel payment, that I have had to take today.
Alberto Costa (South Leicestershire) (Con)
Richard Mitchell, the chief executive of the University Hospitals of Leicester NHS trust, emailed me only a few days ago asking for a meeting about the new hospital programme. Putting aside the politics, will the Chancellor help to arrange a meeting with Labour and Conservative MPs of Leicester and Leicestershire to discuss the matter alongside the chief executive of Leicestershire’s hospitals?
Rachel Reeves
My right hon. Friend the Health Secretary has agreed to meet all MPs affected and will, of course, also be talking to people who run our health service, to make sure that we can put right the mistakes made by the previous Government.
Anna Sabine (Frome and East Somerset) (LD)
Constituencies across the south-west, including my own, have waited years for final confirmation of plans to improve the A303 with a tunnel, a vital piece of infrastructure for our local communities and our regional economy. We now learn that, due to mismanagement of public finances by the previous Government, those plans are under severe threat. This is a hammer blow to our constituents, who have waited so long. Will the Chancellor meet me, my regional Lib Dem colleagues and the local communities who will be affected by this news?
Rachel Reeves
I understand the hon. Lady’s frustration and anger on behalf of her constituents that today we had to be honest about the scale of the inheritance we face. There was no money allocated for the A303 by the previous Government, despite their saying that it was going ahead. That is the state of affairs that we inherited. I am sure that my right hon. Friend the Transport Secretary would be happy to meet the hon. Lady and colleagues to discuss the matter.
Mr Jonathan Brash (Hartlepool) (Lab)
I thank my right hon. Friend for outlining the Conservative cover-up, for which they should apologise. One of the more shocking things to hear this afternoon is the repeated constant criticism of the idea of paying public sector workers properly. With the election of a Labour Government, are the days of scapegoating public sector workers when it comes to the public finances over?
Rachel Reeves
I know how hard our teachers, doctors, nurses, armed forces, police officers and prison guards work to keep us all safe, healthy and educated. They deserve the pay awards that we have announced today. It was the independent pay review bodies that recommended those pay increases. It would be extraordinary not to honour them, and we have done so today.
Robbie Moore (Keighley and Ilkley) (Con)
May I welcome you to the Chair, Madam Deputy Speaker? During the general election campaign, the now new Health Secretary and the local Labour party in Keighley and Ilkley told my constituents that they were fully committed to delivering the full rebuild of the Airedale hospital—one of those hospitals that struggles with aerated concrete—following my efforts to secure the full funds. With millions of pounds being spent on the project and works well under way, can I seek reassurance from the Chancellor that this new Labour Government will not deny my constituents their right to a full rebuild of Airedale hospital?
Rachel Reeves
The hon. Gentleman says he secured the funds, but he did not; the money was not there. That is why I am having to make this statement today. I share his frustration and anger, but it should be with the previous Government, who did not fund these schemes.
Jake Richards (Rother Valley) (Lab)
My constituents will be concerned about the revelations that the Chancellor has set out to the House this afternoon. Reading her statement, it is particularly shocking that the projected overspend on the asylum system, including the Conservatives’ failed Rwanda plan, will cost more than £6.4 billion this year alone. Does my right hon. Friend agree that instead of chuntering and shouting, a period of reflection would better serve the Conservatives, along with an apology to the country they have let down?
Rachel Reeves
My hon. Friend is right. The people of Rother Valley will be shocked and appalled by the gross mismanagement of public finances, including a £6.4 billion overspend on asylum. That is why we are getting a grip on the public finances and public spending to put them on a firmer footing.
Kit Malthouse (North West Hampshire) (Con)
I congratulate you on your ascension, Madam Deputy Speaker. The right hon. Lady says she is keen on transparency. Can she confirm to the House that she had extensive access talks with senior civil servants in the Treasury in the run-up to the general election? It might be helpful, for transparency purposes, if she could lay the minutes of those meetings in the House of Commons for the rest of the House to understand. I am also concerned about the issue of misleading estimates being laid before the House. May I suggest, for the elucidation of Members, that she asks the permanent secretary at the Treasury, and the permanent secretaries of those Departments impacted by the decisions she has made today, to confirm to the House in writing that none of the information that should have been in the estimates was not included—if they were correct, was it included?—so we can see for ourselves whether she is covering up?
Rachel Reeves
The cover-up was from those on the Opposition Benches. The sooner we get an apology to the British people, the better.
Deirdre Costigan (Ealing Southall) (Lab)
While the headline figures that the Chancellor has revealed are astonishing from an economic perspective, does she agree that it is important to remember the impact of Conservative mismanagement on our public services, our NHS, our education system and our national security? Indeed, how can the Conservatives be trusted to run our economy or our public services ever again?
Rachel Reeves
The response today from former Conservative Ministers just shows how deluded and out of touch they were. The British people delivered their verdict three weeks ago, and after the evidence they have seen today, they will understand that things are even worse than they had thought.
Clive Jones (Wokingham) (LD)
Welcome to your place, Madam Deputy Speaker. I wish the Chancellor well in reversing years of economic mismanagement by the previous Government. I really welcome the commitment to speak to MPs who are affected by the failure to provide 40 new hospitals, which were promised four and a half years ago. Patients and—just as importantly—staff at those hospitals will have been waiting for a long time. Will the Chancellor ensure that there is a decision soon so that the staff and patients do not have to wait another four and a half years to know what is happening with their hospitals?
Rachel Reeves
I share the hon. Gentleman’s frustration, anger and disappointment that the promises made by the previous Government turned out to be built on sand. The money simply was not there.
The decisions that we are having to take today are not easy. They are not the decisions that I want to make, but we have to put our public finances on a firmer footing. That is essential. My right hon. Friend the Health Secretary will meet the hon. Gentleman and others affected as soon as possible to talk through the next steps to ensure that all our constituents have the public services, including the hospitals, that they rightly deserve.
Oliver Ryan (Burnley) (Lab/Co-op)
The brass neck of Opposition Members is astonishing after what we have heard from the Chancellor today. My residents in Burnley, Padiham and Brierfield will be so disappointed to hear of the mismanagement over the last 14 years that she has uncovered in the Treasury—it was to be expected, anyway. Does she agree that the now shadow Chancellor should apologise and that, if he will not, he should resign?
Rachel Reeves
I find it staggering that in almost two hours in the Chamber, not a single Opposition Member has apologised for the state they left our public finances and public services in. It has fallen on this new Government to address that challenge. We will rise to that, but they should never have been left in this state.
Saqib Bhatti (Meriden and Solihull East) (Con)
I welcome you to the Chair, Madam Deputy Speaker. The Chancellor spoke about the need to lay the estimates. That is really important, and the legal duty is not just to lay them but for them to be accurate. The Chancellor is right that we have been here for nearly two hours, but we have not got an answer to the question of what she knew and when she knew it. Did she know any of the information that she has set out today before the estimates were laid? Please answer the question.
Rachel Reeves
I have done more in three and a half weeks to get a grip of our public finances than the previous Government did in 14 years. I have worked these last three and a half weeks to get a grip of the public finances and to understand the true extent and scale of the challenge. We have pulled this together over the last three weeks, and at the weekend we were able to produce the document showing the £22 billion gap between what the previous Government were spending and what they had budgeted for.
Leigh Ingham (Stafford) (Lab)
It is clear now that even the OBR, whose express purpose is to provide independent analysis of the public finances, was simply not told about the black hole in Conservative spending plans. What will the Chancellor do differently to ensure that we never end up in such a position again?
Rachel Reeves
I thank my hon. Friend for that question. In the letter that the Office for Budget Responsibility published this afternoon, the Chair said,
“I welcome the important actions announced today by HM Treasury to improve the transparency and credibility of their institutional arrangements for forecasting, planning, and controlling DEL.”
That is really important. By taking these actions, we will ensure that never again can any Government do what the Conservative party did: cause a £22 billion black hole in our public finances.
Gregory Stafford (Farnham and Bordon) (Con)
Residents in Farnham and Bordon will be concerned to hear about the scrapping of the new hospital programme, especially those living in the north of the constituency who are served by Frimley Park hospital. Will the Chancellor confirm that work on RAAC-affected hospitals, like Frimley Park, will still go ahead? Will she tell us when we can have assurance on that so that we can reassure our constituents?
Rachel Reeves
The hon. Gentleman’s constituents will be rightly angry with the previous Government for making unfunded spending commitments that they knew they could not pay for. My right hon. Friend the Health Secretary will meet all those with affected hospitals—including those affected by RAAC—to ensure that we can as quickly as possible address the challenges that his constituents and so many others now face because of the unfunded promises made by the previous Government.
Michael Payne (Gedling) (Lab)
May I congratulate you on your election, Madam Deputy Speaker? I thank the Chancellor for demonstrating today that she will always put country first and party second. The Conservative party’s response to its own failures is always to cover them up—from partygate to the state of our prisons, and now the black hole in our public finances that has been revealed today. What will my right hon. Friend do differently?
Rachel Reeves
We have already introduced legislation to Parliament for a new fiscal lock. We will publish a new charter for budget responsibility at the time of the Budget on 30 October. I have set out new institutional changes to the Office for Budget Responsibility to ensure that never again can a Government withhold information from this House, the country and the Office for Budget Responsibility.
Danny Kruger (East Wiltshire) (Con)
The Chancellor claims to have discovered a black hole in this year’s Budget, yet she is proposing to cut infrastructure investment for years to come. It makes no sense. One example is the Stonehenge tunnel, which was due to cost very little money this year, yet she has cancelled the whole thing. My constituents in Shrewton, Amesbury and all the villages around the A303 will be really disappointed to hear that news. What would she say to those residents? What will she do to relieve the traffic congestion that has blighted those communities for so long?
Rachel Reeves
The hon. Gentleman’s constituents will rightly be annoyed with the previous Government for saying that they would go ahead with the A303 work but not budgeting a single penny for it. That is where the responsibility lies for these failures and for the difficult announcements that I have had to make today.
Peter Swallow (Bracknell) (Lab)
Cash-strapped councils are projected to spend £12 billion to support children with special educational needs and disabilities by 2026. That is up from £4 billion a decade ago. Does the Chancellor agree that the Tories’ failure to get to grips with the SEN crisis has put public finances at risk while letting SEN children down?
Rachel Reeves
I think every single Member of the House will have faced often very difficult constituency casework about young people who are not getting a diagnosis on time and not getting the support they need at school. We will set out all our spending plans and priorities at the spending review later this year.
Wendy Chamberlain (North East Fife) (LD)
I welcome the Chancellor of the Exchequer and her team to their place. I am concerned that I have not seen anything in the Chancellor’s statement or the accompanying report on the 1950s women who suffered maladministration of their pensions. The Parliamentary and Health Service Ombudsman, which we all utilise when doing constituency casework, was clear that maladministration was suffered. Could the Chancellor confirm whether she is considering the report and will she provide a statement before the Budget on 30 October, or is the message to WASPI women today that she will not do it?
Rachel Reeves
My right hon. Friend the Work and Pensions Secretary is considering that report as we speak.
Catherine Atkinson (Derby North) (Lab)
For my constituents, this mess goes beyond money. It is about trust in politics. Does the Chancellor agree that the damage goes even deeper than the harm to our economy that she has set out?
Rachel Reeves
My hon. Friend is absolutely right. Today’s revelations of a £22 billion in-year overspend come on top of partygate and the handing of contracts to friends and donors to the Conservative party during the pandemic. That dents public trust. I have come to the House today to be open and transparent about the state of the public finances and the action that I will take to sort out this mess.
Dr Danny Chambers (Winchester) (LD)
Congratulations on your recent election, Madam Deputy Speaker. My training as a veterinary surgeon and my work in public health programmes around the world have taught me that it is always more cost-effective to keep people healthy rather than treat them when they get sick. Our hospital in Winchester is a good example, as 20% of people in the A&E department are there because they cannot get a GP appointment. People are there with tooth abscesses because they cannot get dentist appointments, and 30% are there with a mental health crisis and often are already on a waiting list. Does the Chancellor agree that when finances are so stretched, there must not be the temptation to view primary care as a cost to be cut, because investment in dentists, doctors, public health and mental health will make the NHS more efficient, and that will be better for patients and the taxpayer in the long run?
Rachel Reeves
The hon. Gentleman is absolutely right. The spending review will focus on both integration and prevention, because we know that that saves taxpayers’ money and delivers better outcomes for people.
Matt Turmaine (Watford) (Lab)
I congratulate you on your election, Madam Deputy Speaker. I thank the Chancellor for her candour in her statement to the House. My constituents will be bitterly disappointed by the consequences of the announcement made, in particular in relation to the rebuild of Watford hospital. It was promised under the last Labour Government and scrapped by the Conservative-Liberal Democrat coalition, and then promised again and again in the run-up to the general election, when the Conservative party said that the money was definitely there. Can the Chancellor tell me: where was the money?
Rachel Reeves
We have heard today that hon. and right hon. Members across the House campaigned in good faith on projects that they thought the money was there for. The money simply was not there. We cannot go on like that, which is why I have been open, transparent and honest about the state of our public finances and the £22 billion black hole left by the previous Government. The Secretary of State for Health and Social Care, my right hon. Friend the Member for Ilford North will meet my hon. Friend the Member for Watford (Matt Turmaine) and all MPs who are affected by the problems left by the previous Government.
Dr Caroline Johnson (Sleaford and North Hykeham) (Con)
Congratulations, Madam Deputy Speaker, on your new role. This Labour Government have chosen to take the winter fuel payment away from pensioners. The right hon. Lady does say she will keep it for those on pension credit, but the threshold for that is very low. That means someone on an income of just £220 a week may find themselves receiving nothing. It is long established that being cold increases ill health among vulnerable people. What estimate has she made of what her changes will cost the NHS?
Rachel Reeves
Pension credit is paid to a single person who has an income of just under £12,000 and for a pensioner couple of just under £18,000. We will indeed keep pension credit for the poorest pensioners and boost take-up of pension credit to ensure that everybody who is entitled to it gets it, but we cannot make promises—the previous Government should not have made promises—without being able to say where the money is going to come from. That is the road to ruin. We saw that with Liz Truss, and I am afraid it was repeated under the current Leader of the Opposition and the current shadow Chancellor. They should hang their heads in shame for what they have done to our public finances and our public services.
Mr Luke Charters (York Outer) (Lab)
The OBR chair’s letter referenced earlier suggests that we could now be facing one of the largest ever year-ahead expenditures outside of a pandemic. This level of cover-up would never be tolerated in the private sector. Does my right hon. Friend agree that this is exactly why my constituents deserve transparency about the state of the public finances?
Rachel Reeves
My hon. Friend speaks powerfully on behalf of his constituents in York Outer. They voted for change because they were sick and tired of unfunded commitments, broken public services and the deterioration in living standards after 14 years of Conservative Government. Today, they found the legacy the previous Government left is even worse than we could have anticipated, with a £22 billion black hole in the public finances.
Mr Gideon Amos (Taunton and Wellington) (LD)
I congratulate you on your post, Madam Deputy Speaker, and the right hon. Lady on her position as Chancellor. Does the Chancellor share the anger of the people of Taunton and Wellington in finding that not only is the whole new hospital promised by the Conservatives not funded, but that apparently, as we now discover, even the maternity unit might not be funded. On the restoring your railways programme, will the cancellation of projects also apply to those, such as Wellington station, which have already begun funding and have had GRIP—governance for railway investment projects—stage 4 approval?
Rachel Reeves
I can fully understand why the hon. Gentleman’s constituents are so angry with the previous Government for leaving this mess and making unfunded commitments. I assure him that projects that have already started, such as the station he mentions, will go ahead.
Jim Shannon (Strangford) (DUP)
Still the strongest legs in the Chamber, Madam Deputy Speaker. Thank you for calling me to ask a question.
I am very pleased to hear the Chancellor’s statement. The clear financial predicament is one that all the United Kingdom of Great Britain and Northern Ireland is in together. Will she confirm that, in light of the budget gap and the welcome announcement of the junior doctor pay offer, savings will be made in ways that do not affect required pay increases at the expense of our health staff, but that they will focus on cutting back on unnecessary quangos, on the estimated £500 million of taxpayers’ money that has been spent on issues such as diversity and inclusion—although important, they do not deserve priority in public spending—or on vanity projects such as Casement Park in Northern Ireland?
Rachel Reeves
I thank the hon. Gentleman for his questions, and for persevering for so long. I fully agree that the focus should be on frontline public services. We have committed ourselves to back-office efficiency savings of 2% in all Government Departments, and a reining in of consultancy and Government communications spending. Those things got out of hand under the last Government, and we will rein them in.
May I end by saying this? We have been here for two hours, and in that time not a single Conservative Member on either the Front Bench or the Back Benches has apologised for the state of the public finances and the state of our public services. That says all we need to know about the outgoing Conservative Government, and they should never have their hands on power again.
Paul Holmes
On a point of order, Madam Deputy Speaker. May I raise a significant issue that I am concerned about, in relation to the Chancellor’s statement? [Interruption.] The Chancellor obviously does not want to stay in the Chamber to hear this.
In the course of her remarks, the Chancellor appeared to indicate that the Government had knowingly laid wrong or misleading estimates before the House on Thursday last week which differed significantly from what she has presented today, one working day since those estimates were laid. This, if true, is of serious concern. What steps can we take to ensure that the Government retract either the estimates laid or the document that they produced today, and can you tell me whether this possibly constitutes a breach of the ministerial code?
Economy, Welfare and Public Services
Rachel Reeves Excerpts(4 months ago)
Commons ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Rachel Reeves)
It is a pleasure to open today’s King’s Speech debate on behalf of His Majesty’s Government. I always enjoy debating with the right hon. Member for Godalming and Ash (Jeremy Hunt), though I must say I rather prefer doing so from this side of the Chamber. [Hon. Members: “Hear, hear.”]
I appreciate the shadow Chancellor’s generous words on my appointment and also his tribute to officials, who I can confirm are indeed first rate. It has been more than 14 years since a Labour Government were in office for a state opening of Parliament—14 years of chaos, 14 years of economic irresponsibility, 14 years of wasted opportunities and 14 years since there has been a Labour Chancellor of the Exchequer standing at this Dispatch Box. Today, I pay tribute to my most recent Labour predecessor, the late Lord Darling. He was an outstanding Chancellor, a kind man and a good friend.
Mr Speaker, it is also the very first time that there has been a female Chancellor of the Exchequer. On my arrival at the Treasury, I learned that there is some debate about when the first Chancellor was appointed. It could have been 800 years ago, when one Ralph de Leicester was given the title of “Chancellor of the Exchequer” for the first time, or, 900 years ago, when “Henry the Treasurer” was referenced in the Domesday Book. It could even have been 1,000 years ago, when Alfred the Great was in effect the first Master of the Mint. Whichever it is, I am sure the whole House would agree on one thing—that we have waited far too long for a woman to be the Chancellor of the Exchequer. [HON. MEMBERS: “Hear, hear.”]
I stand here today proud, but also deeply conscious of the responsibility that I now have: a responsibility to women across the country whose work is too often undervalued; and a responsibility to every young woman and girl, who should know that there is no ceiling on their ambitions and no limit on their potential.
Sarah Edwards (Tamworth) (Lab)
Seven Tory men have stood at that Dispatch Box over the past 14 years and the result has been an economic crisis, crumbling public services and a cost of living crisis. Can we expect a change of approach from the new female Chancellor of the Exchequer?
Rachel Reeves
One thing is that I hope to be in post for a bit longer than some of my predecessors.
As tempting as it is, I do not intend to conduct a full sweep of the past 1,000 years of economic history from the Dispatch Box today—[Hon. Members: “Ah”!] I am sorry. However, we must talk about the past 14 years. I warned that whoever won the general election would inherit the worst set of circumstances since the second world war, and I have seen nothing to change my mind since I arrived at the Treasury. I will update the House on our public spending inheritance before Parliament rises for recess.
I heard what the shadow Chancellor said from the Dispatch Box now and on the television yesterday, which was to claim that I should be grateful for what he has left us. That is unbelievable, because he knows the truth and is now trying to rewrite history. In doing so, he has reminded the British people why the Conservatives lost the election. They are out of touch, deluded and unable to defend the indefensible. In the weeks ahead, it will become clear what those in his party did. They stored up problems, failed to take the tough decisions and then they ran away, leaving it to us—the Labour Government—to pick up the pieces and clear up their mess.
Today, I want to focus on one thing above all else: economic growth. Since 2010, Conservative Chancellor after Conservative Chancellor, including the now shadow Chancellor, stressed the importance of growth. We have had more growth plans than we have had Prime Ministers or Chancellors, and that is quite a lot, but growth requires more than talk; it requires action. Like so much else with the previous Administration, when we scratch beneath the surface the façade crumbles, and all that is left is the evidence of 14 years of failure.
Matt Western (Warwick and Leamington) (Lab)
I congratulate my right hon. Friend on her appointment; she is making an excellent speech. Friday’s ONS report showed that public sector borrowing was 25% higher than forecast. Does she agree that that underlines why it was so important to have a fully costed and fully funded manifesto to restore confidence in the public finances, and that it was a surprise that certain other parties did not follow the same route?
Rachel Reeves
I thank my hon. Friend for that question. He speaks powerfully, and I pay tribute to his work in the last Parliament, particularly around education and skills. This is a really important point. For me, the most important pages of the manifesto that we stood on were the three grey pages at the back of it, which set out all our spending commitments and how they would be paid for. That was important, because to earn the trust of the electorate parties must be really clear about where the money will come from and what they will use it for. That is what we did in our manifesto, and it is what we will do in Government.
The shadow Chancellor made some points about GDP, comparing ours with that of other countries, but since 2010 UK GDP per capita—that is the most important measure, because it reflects how people feel and the money that they have—has grown slower than the G7 average, slower than the EU average, and slower than the OECD average. Treasury analysis that I requested when I became Chancellor shows that, had the UK economy grown at the average OECD rate these last 14 years, our economy would be over £140 billion bigger today. That could have brought in an additional £58 billion of tax revenues in the last year alone—money that could have been used for our schools, hospitals and other vital public services. Growth is about more than just lines on a chart; it is about the money in people’s pockets, and Treasury analysis shows that achieving the rate of growth of similar economies would have been worth more than £5,000 for every household in Britain.
The shadow Chancellor stood up and once again claimed that he bequeathed a great legacy. Seriously? The last Parliament was the first on record where living standards were lower at the end than at the start. The highest level of debt since the 1960s, the highest tax burden in 70 years, mortgages through the roof, the economy only just recovering after last year’s recession, economic inactivity numbers last week showing a further rise, and borrowing numbers last week showing over £3 billion more borrowing than the OBR expected—that is the Conservatives’ legacy. If that is a good inheritance, I would hate to see what a bad one looks like. I think deep down the shadow Chancellor knows that. In fact, he does know it.
Yesterday, the shadow Chancellor admitted what we all know: that the manifesto that he campaigned on was undeliverable, and the money for the tax cuts that he promised simply was not there. If he wanted to show the country that his party has listened, and learned from its mistakes, he would have used his speech this afternoon to apologise, but he did not, and that tells us everything that we need to know about this Conservative party: party first, country second; political self-interest ahead of the national interest; irresponsibility before the public good. Let me say this to the Conservative party, “We will not stop holding you responsible for the damage that you have done to our economy and to our country.” Never again will we allow the Conservatives to crash our economy. They failed this country. They shied away from tough choices, and we will not repeat their mistakes. It falls on us, this new Labour Government, to fix the foundations so that we can rebuild Britain and make every part of our country better off. We will govern through actions, not words, and we have already begun to do just that, because there is no time to waste.
Less than 72 hours after I was appointed as Chancellor, I put growth at the very heart of our work. Working alongside my right hon. Friend the Deputy Prime Minister, I set out reforms to our planning system—reforms that the Conservative party did not deliver in 14 years. Our reforms restore mandatory targets to build the homes that we desperately need, end the absurd ban on onshore wind to deliver home-grown cheap energy and recover planning appeals for projects that sat on the desks of Ministers in the last Parliament for far too long. Those are tough decisions that the Conservative party already opposes.
Why was that my first act as Chancellor? Because getting our economy growing is urgent, and this King’s Speech shows that we are getting to work.
Mr Mark Francois (Rayleigh and Wickford) (Con)
On the matter of mandatory housing targets, having been a constituency MP for 23 years and seen them tried in a number of different ways, may I humbly offer the Chancellor this, with all sincerity? There is such a thing as good development, but it only works if it is something that we do with people and not to people. This Stalinist approach will not work.
Rachel Reeves
I have been compared to a lot of things, Madam Deputy Speaker, but I have never been compared to Joseph Stalin.
Our approach is a brownfield-first approach. We will reintroduce those mandatory targets; of course it is up to local authorities and local communities to decide where the housing should be built, but the answer cannot always be no. If the answer is always no, we will continue as we are, with home ownership declining and mortgages and rents going through the roof. On the Government side of the House, we are not willing to tolerate that.
This King’s Speech shows that we are getting to work. As my right hon. Friend the Prime Minister set out, our programme for government is founded on principles of security, fairness and opportunity. Our No. 1 mission is to secure sustained economic growth in our great country through a new partnership between Government, business and working people that prioritises wealth creation for all of our communities.
We will fix the foundations of our economy so we can rebuild Britain and make every part of our country better off. There are a number of important pieces of legislation in the King’s Speech that will help us to grow the economy. In this speech, I will focus on three in particular: the Budget Responsibility Bill to restore economic stability, the national wealth fund Bill to drive investments and the pension schemes Bill to reform our economy. Those Bills speak not just to our programme for government, but also to trust in politics. They show that we will govern as we campaigned and that we will meet our promises to the British people.
In the election campaign, I said the first step we would take would be to restore economic stability, because stability is the precondition to a healthy, growing economy. It is how we keep taxes, inflation and mortgages as low as possible. After years of irresponsibility, we are putting our economy on firm ground once again. We introduced the new Budget Responsibility Bill on Thursday to deliver on our manifesto commitment to introduce a fiscal lock so that I can keep an iron grip on our country’s finances.
Kit Malthouse (North West Hampshire) (Con)
The Chancellor and I sat on the Treasury Committee together many years ago, and she will know from our time together that economics is as much art as it is science. Given that she is effectively giving a veto over economic policy to the OBR through this Bill, she must recognise that we need to understand what the people in the OBR believe, what their theories of economics are and what principles they attach themselves to. What further scrutiny of the chair of the OBR and the people doing the forecast will be available to this House, given that effectively they will be co-Chancellor with her during the next few years?
Rachel Reeves
The Treasury Committee, as the right hon. Gentleman knows, can call in the chair and other members of the Office for Budget Responsibility, but his comments show exactly why we need this Bill: so that never again can we have a repeat of the mini Budget. The Bill will require every announcement that makes significant permanent changes to tax and spending to be subject to an independent assessment by the Office for Budget Responsibility. Why? Because unfunded, reckless commitments do not just threaten our public finances; they threaten people’s incomes and they threaten people’s mortgages. We saw that in the wake of the mini-Budget presided over by the former Member for South West Norfolk. I understand that she has taken umbrage in recent days at the idea that that episode was disastrous. Well, if any Conservative Member would like to dispute that fact today, I would be more than happy to give way. [Hon. Members: “Come on then!”] They cheered it at the time, but they are not cheering it now, and I do not imagine that they would put it on their leaflets.
The Conservatives should be ashamed of what they did because people up and down the country are still paying the price for the chaos that they caused. We say: never again. The Budget Responsibility Bill will enshrine that commitment in law.
Mr Luke Charters (York Outer) (Lab)
During the pandemic, the friends and family of Conservatives were awarded contracts for work that were never fulfilled. My constituents would love to know how we can get their money back, perhaps through the covid corruption commissioner.
Rachel Reeves
I enjoyed campaigning for my hon. Friend in York Outer, and it is great to see him in his place today. Stability means a tough set of fiscal rules, but it also means spending public money wisely, as he says. The last Government hiked taxes while allowing waste and inefficiency to spiral out of control. At no time was that more evident than during the pandemic, especially when it came to personal protective equipment. The former Prime Minister, when he was Chancellor, signed cheque after cheque after cheque for billions of pounds-worth of contracts that did not deliver for the NHS when it needed it—that is simply unacceptable.
Today, I can announce that I am beginning the process of appointing a covid corruption commissioner to get back what is owed to the British people. That money, which is today in the hands of fraudsters, belongs in our public services, and we want it back. The commissioner will report to me, working with the Secretary of State for Health and Social Care, and their report will be presented to Parliament for all Members to see. I will not tolerate waste. I will treat taxpayers’ money with respect and return stability to our public finances.
The second Bill I will speak to is the national wealth fund Bill. We know that economic stability is vital for investors and for business—the small business looking to grow; the global business looking to expand in the UK; the entrepreneur looking to take their first steps. To support them, stability must sit alongside investment.
Andrew George (St Ives) (LD)
On the effective use of public funds, is the Chancellor aware not only of the alleged corruption in the way that covid aid was distributed, but of the large number of tax loopholes in this economy? For example, in Cornwall, over £500 million of taxpayers’ money was handed out to holiday home owners not only through covid aid but through the small business rate relief scheme and other tax loopholes. At the same time, only a third of that amount has gone into social housing for first-time users. Will she look at the whole issue of parity in the way public funds are used, to support people who need housing?
Rachel Reeves
I welcome the hon. Member back to this place. I enjoyed sparring with him in my early days in Parliament, and it is great to see him back in the House. He is absolutely right that we need to get value for money for all tax incentives. I will ensure that the Treasury and the Ministry of Housing, Communities and Local Government look at the changes that he suggests.
The last Government’s record on investment was dismal. We now sit behind every single member of the G7 when it comes to business investment as a share of GDP. That is not an abstract economic problem. Weak investment holds back productivity and hurts living standards; it leaves households poorer and wages lower.
The King’s Speech deals directly with the need to unlock private investment through a new national wealth fund Bill. That will be supported by an injection of capital, part funded by an increase to the windfall tax on oil and gas giants. It will make transformative investments in industries of the future, such as carbon capture and storage, and green hydrogen. It will mobilise billions of pounds-worth of additional private sector investment in our industrial heartlands and coastal communities while generating a return for taxpayers. The national wealth fund will work with local partners including mayors, as well as the devolved Administrations in Scotland, Wales and Northern Ireland, to develop an investment offer that meets the needs of all our nations and regions. It will simplify a complex landscape of support for businesses today, aligning key institutions such as the UK Infrastructure Bank and the British Business Bank under the one banner of the national wealth fund.
Barry Gardiner (Brent West) (Lab)
I heartily applaud what my right hon. Friend is saying about the renewed windfall tax. Will she also look at the fact that, in this country, we have the lowest basic rate of tax on oil and gas companies anywhere in the world? The average is 74%; in this country, it is 38%.
Rachel Reeves
As my hon. Friend knows, we committed in our manifesto to a three percentage point uplift to the current energy profits levy, which we will use to fund the national wealth fund. That fund will power jobs and prosperity in all parts of our country, and that work is already well under way. In my first week in office, I welcomed the report of the national wealth fund taskforce, and I thank the former Governor of the Bank of England, Mark Carney, and the whole taskforce for their outstanding work. This Bill will put the national wealth fund on a statutory footing with clear objectives, crowding in private investment to create wealth across Britain.
Deirdre Costigan (Ealing Southall) (Lab)
Under the Conservatives, businesses and working people were held back by a complete and abject failure to build the new homes that my constituents in Ealing Southall were crying out for, the laboratory spaces that will provide the jobs of the future, or the national infrastructure needed for businesses and working people to prosper. Will my right hon. Friend assure this House that, under her chancellorship, we will finally get Britain building again?
Rachel Reeves
I welcome the election of my hon. Friend in Ealing Southall—I think her constituents and the whole House can see what a strong advocate she will be for her local community. She is absolutely right: we have to get Britain building again. We have to build the homes and the transport, energy and digital infrastructure that our country desperately needs.
Jim Shannon (Strangford) (DUP)
I thank the Chancellor for giving me the chance to intervene. When it comes to rebuilding and the house building programme that she has suggested should happen, in the papers today, it is suggested that people on a wage of £70,000 cannot get a mortgage. In Northern Ireland, those on a smaller wage cannot get a mortgage either, so can I ask the Chancellor this direct and hopefully positive question, which will hopefully receive a positive answer: what can she do to improve access to mortgages for those who want to own their accommodation, rather than rent it? What can she do to make sure that everyone in the United Kingdom of Great Britain and Northern Ireland can benefit, as she has clearly said they will?
Rachel Reeves
I thank the hon. Gentleman for that intervention. One of the biggest challenges people face with getting a mortgage is building up the deposit. That is why we have committed to a mortgage guarantee scheme, to help those people who cannot rely on the bank of mum and dad to get on the housing ladder. That is a really important commitment, as is our commitment to build the homes: unless we build more homes, home ownership will continue to go backwards, as it did over the past few years.
Alongside stability and investment in our economy must come reform, because delivering economic growth requires tough choices. It means taking on vested interests and confronting issues that politicians have too often avoided. The last Government refused to engage with those choices, and refused to level with the British people about what was required. This Government will be different. We have already demonstrated that through a series of reforms to our planning system, and are bringing forward further legislation in the King’s Speech to get Britain building.
Today, I want to focus on another area of our economy where reform is vital: our pension schemes. People across our country work hard to save for the future; they want a better, more secure retirement with the most generous pension possible. At the same time, British businesses with high growth potential need capital to support their expansion. Pension funds are at the heart of this. There will soon be over £800 billion of assets in defined contribution pension schemes, but for too long, those assets have not been targeted towards UK markets. That has impacted British savers, and it has impacted British business.
The last Government also said that this was a problem, and I welcome that acknowledgement, but they never introduced the legislation needed to make the change. We believe in deeds, not words, so we will strengthen investment from private pension providers by bringing forward the pension schemes Bill in the King’s Speech. It will boost pension pots by over £11,000 through a new and improved value for money framework. Through an investment shift in DC schemes, just a 1% shift in asset allocation could deliver £8 billion of new productive investment into the UK economy.
To ensure that the Bill is as strong as possible, I am today launching a pensions investment review, led by the first ever joint Commons Minister appointed between the Treasury and the Department for Work and Pensions—my hon. Friend the Member for Wycombe (Emma Reynolds), the Pensions Minister. This will include a review of the local government pension scheme, the seventh largest pension fund in the world, to ensure it is getting the best value from the savings of nearly 7 million public sector workers, the majority of whom are women and the majority of whom are low-paid. They deserve a pension that is working for them. Together, these reforms will kick-start economic growth by unlocking investment that has been tied up for too long.
Madam Deputy Speaker (Dame Siobhain McDonagh)
Order. Could I just urge the House to think about interventions? There is a very long list of Members who want to speak and lots of people who want to make their maiden speech, and it would be great if they could all get in.
Rachel Reeves
Madam Deputy Speaker, you will be pleased to know that I will not apprise the House of every Bill that supports economic growth in the King’s Speech. Needless to say, there are many more—from the English devolution Bill to transfer power back into the hands of local communities to the employment rights Bill to make work pay, and the Great British Energy Bill to take back control of our country’s energy and create new jobs across the United Kingdom. Growing our economy flows through almost every word of this Address.
The British people put their trust in us on 4 July to fix the foundations of our economy, to rebuild Britain and to make every part of our great country better off. I do not take that trust for granted. We will not let people down, and I am ready to deliver the change that we need. I know it will take time and I know it will require hard work, but we are already getting on with the job by ending a reckless, chaotic approach to economic management, by putting politics back in the service of working people and by making economic growth our fundamental mission. I commend the Address to the House.