Charter for Budget Responsibility and Welfare Cap

Alison Thewliss Excerpts

Monday 10th January 2022 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I begin by echoing the sentiments from Mr Speaker earlier following the death of my hon. Friend the Member for Birmingham, Erdington (Jack Dromey). I knew Jack for many years, from his time as deputy general secretary of what was then the Transport and General Workers’ Union, and later as a colleague and fellow west midlands MP. He was a tough negotiator, always determined and loquacious, but pragmatic enough to reach a deal and stick to it. We are still in shock at Jack’s sudden death on Friday. We will miss him greatly, and my sincere condolences go to my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman) and their family.

On the motion, the Chancellor announced at the time of the Budget that he would bring this before the House. He made a big thing of it. At the time, we presumed that he would come along and display his credentials for fiscal probity. He probably thought that it was a clever move at the time, but it does not look so clever now. He has not even turned up for tonight’s debate. What happened? Where is he? When he was dishing out money, he was everywhere. We could not move for Instagram videos and pictures of his slippers or sliders, or whatever they are called. Now the crunch is coming, he is nowhere to be seen.

Was the Chancellor worried that if he turned up tonight he would be asked what he will do about the cost of living crisis facing the country? Is he avoiding the House because he has nothing to offer people facing rises in energy bills of hundreds of pounds a year? Why is it that he has done one of his disappearing acts again? He was not here last month when businesses were crying out for support as Christmas bookings were cancelled in their thousands, and he is not here again this month for what he once told us was a central plank of the Treasury’s strategy.

On the rules themselves, during the covid pandemic the Chancellor has had to borrow a great deal of money—approaching £400 billion extra. The pandemic was an emergency situation that required emergency measures. That is true in this country and around the world. Our fiscal rules, published at the time of our conference, take account of such emergency situations, because there is no point in having a set of fiscal rules that work only when times are good. Fiscal rules have to take account of all kinds of economic weather, and ours do exactly that. Crucially, our rules also allow for the investment plan needed for the transition to the lower carbon economy that we will need. The Government’s fiscal rules do neither of those things.

Indeed, when we look at what is happening in the economy right now and what families around the country face in the real world, we have to wonder what the point of this exercise is. Did the Chancellor really think that tabling this motion would take attention away from the fact that he is imposing the highest tax burden on the country for 70 years? The Tories have become a high-tax party because they are a low-growth party. They are asking the British people to stump up the cost of their economic record not for the one or two years of the pandemic but for the past 12 years. Projections from the Bank of England do not look any better, with forecasts for growth of about 1% in 2024. Does the Minister really think that, with this motion, people will not notice or remember that the Prime Minister and the Chancellor have driven a coach and horses through one of their central manifesto promises on tax with the forthcoming rise in national insurance? Is he trying to cover up for the fact that, as families face a cost of living crisis with steep rises in energy bills, he has no plan to help them?

The Minister may not have a plan, but Labour does, and it was set out yesterday by the shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves). Our plan would offer every family £200 off bills this year. It would give a further £400 off bills for those with the lowest incomes. It would help the energy-intensive industries on which so many good jobs rely. It would be paid for, in part, by a windfall levy on the companies making the most money out of the huge spike in gas prices. It is fair, it would help the poorest most and it is fully costed. That is what people need right now—not a reheated political stunt thought up by George Osborne a decade ago.

We have to wonder what the conversation was when this was thought to be some great political idea. Did they sit around in the Treasury and say, “We’ve borrowed £400 billion. We’re putting taxes up to levels not seen since the 1950s. We’ve wasted billions on failed programmes and dodgy contracts. But let’s have a parliamentary vote to show that we are really fiscally disciplined”? It will not wash. People are seeing through it.

You do not have to take my word for it. Only today, the head of the National Audit Office drew attention to the level of waste that the Government are presiding over. He wrote that

“many of the interventions carried out by government are either not evaluated robustly or not evaluated at all. This means government…has little information in most policy areas on what difference is made by the billions of pounds being spent.”

He added that only 8% of major Government projects “had robust evaluation plans”. Perhaps that is not surprising when we have seen £3.5 billion-worth of contracts handed out to businesses run by contacts of the Conservative party, and—the Minister and I debated this last Wednesday night—£17 billion in extra costs for the taxpayer, which the Government casually legislated for last Wednesday night to pay for their own mistake in messing up public sector pensions reform.

Where is the Government’s commitment to transparency, value for money or proper procurement practices in their fiscal rules? Did they forget to include those bits? Where is the commitment to tackling the level of fraud that has been exposed in Government lending schemes? Where is the commitment to controlling the Prime Minister’s pet schemes? How much was spent on the Prime Minister’s idea of building a bridge between Scotland and Ireland before the project was abandoned? The Chancellor should have known, because the Prime Minister has got form. He could not even build a garden bridge over the River Thames, let alone a bridge across the Irish sea.

[Alison Thewliss (Glasgow Central) (SNP)]

I am always glad to hear that bridge mentioned, because I did a second-year geography project at high school that could have told the Prime Minister it was a terrible idea. Does the right hon. Gentleman agree that, given that was an infrastructure project for the people of Northern Ireland and Scotland, we should get the money that was committed to it?

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

Let me first extend my condolences to colleagues on the loss of Jack Dromey, and my condolences to his family and friends. I know how much he will be missed, because he was a brilliant Member of this House.

How nice it is to see the Chief Secretary to the Treasury here again in place of the Chancellor! It would seem that when the going gets tough, the Chancellor goes missing, or at least to California. I am not quite sure where he is today, but I am sorry we are not seeing him. Having looked at the reports of previous statements of this kind, I know that it has always been the custom for the Chancellor to make them here. It is disappointing that while he talks big in the Budget, he disappears when it comes to these debates.

No one is denying that the past 18 months have been very trying times, and that, as all Governments around the world have done, the UK Government have spent big to try and get us out of the pandemic with as little scarring as possible. Fiscal policy provided more resilience during the pandemic than we have experienced in recent memory, but as we have seen with the emergence of omicron, and as I have said repeatedly in this place, covid is not done with us yet. We are still facing considerable challenges and a period of uncertainty, so why would the Government want to tie their own hands by setting themselves some new rules?

As we have seen from Westminster Tory Governments in the past, it looks very much as though the reasons for a move back to austerity are ideological rather than economically sound. The right hon. Member for Wokingham (John Redwood) also opposes austerity, although for different reasons. Cutting support too soon poses a big risk to our economy, especially when the UK is facing a 4% expected reduction in GDP owing to Brexit—twice as much as the scarring expected from the covid pandemic.

The OBR has said that the Chancellor has left himself with very little fiscal space. Richard Hughes told the Treasury Committee that

“Just a 1% interest rate rise could easily wipe out the Chancellor’s headroom.”

It is clear from the OBR report that the Chancellor has already missed all four of the existing legislated fiscal targets. It states:

“The fiscal mandate was missed by £274.7 billion (13.1 per cent of GDP).

The supplementary debt target was missed by 12.5 per cent of GDP.

Spending subject to the welfare cap is on course to exceed the legislated cap in 2024- 25 by £7.9 billion and to exceed the cap plus margin by £4.1 billion”—

more than in March 2021—and

“The legislated fiscal objective is on course to be missed by £46.4 billion (1.7 per cent of GDP).”

In the face of all those missed targets, what have the Government done? They have, of course, set themselves a bunch of shiny new targets, on which, interestingly, the OBR has commented:

“In our central forecast, the proposed fiscal mandate and all three supplementary targets are more likely to be met than missed”.

That leads us to wonder whether this is yet more sleight of hand on the part of the UK Government. If they cannot meet the old targets but can meet the new ones, something smells pretty fishy to me.

The targets that the UK Government set themselves are also on a three-year rolling basis. If you were cynical, Madam Deputy Speaker, you could guess that there is a bit of an incentive to game those targets. Richard Hughes of the OBR told the Treasury Committee:

“The risk of having the target for it to fall is that there can be an incentive to get it to rise in the first two years, so you can get it to fall in the third.”

With this UK Government, little would surprise me. The rule to restrict Government investment seems absolutely bizarre. How can the Tories claim that they want to level up, while squeezing spending? That will have an impact on already woeful growth and productivity levels. The UK will lag behind other nations with no real plan to get back out of it, if these rules are to be believed.

Moving to the welfare cap, we can see yet more sheen for the way in which this policy works in the papers than for how it works in practice—talking tough instead of supporting those who need it most—and as with so many things that this Government do, it is all just smoke and mirrors. The OBR points out that the welfare cap

“has been raised at each of the four occasions that it has been substantively reset: twice under Chancellor Philip Hammond (in Autumn Statement 2016 and in Autumn Budget 2017); and twice under Chancellor Rishi Sunak (in Spring Budget 2020 and in this Budget).”

If we look at page 158 of the Red Book, we will see that the UK Government have moved jobseeker’s allowance, the state pension and universal credit payments to jobseekers outside the scope of the welfare cap. Yet again, if the Government do not like the figures, they simply change the rules.

The Government have also said:

“The cap will only be breached if, at the point of formal assessment, spending within scope is forecast to be above the level of the cap and margin for any reason”,

and that if the cap is breached they will nod it through Parliament. Who would vote against that? But it is an entirely false narrative and it does not even meet the needs of those who depend on social security, who should be the real priority.

The UK Tory Government are happy to take money from the poorest families to appease the right wing of their party and to get a cheap headline, and they are happy to do so again now, during the worst cost of living crisis in our lifetime. All this talk of the rules that the UK Government set themselves in order to have the sheen of fiscal responsibility is a million miles away from the reality of life for so many of our constituents right now.

Our constituents are facing a cost of living crisis. According to the Office for National Statistics, two thirds of people have already said that their cost of living has increased in the last month, and polling released by YouGov this morning reveals that 33% of people are worried about their energy bills rising by more than they can afford. There are three main drivers of this crisis: energy price rises, general inflation and tax rises, culminating in the prediction that households are expected to experience the worst rise in living costs in a generation this year.

Paul Johnson, director of the Institute for Fiscal Studies, has said:

“The combination of substantial tax increases and big increases in prices, particularly energy prices, will be a larger shock for households on average earnings than anything at least since the financial crisis and possibly for a long time before that.”

Household electricity bills are likely to increase by more than 50% in April, when the Government’s cap on bills is lifted. Investec suggests that the price cap will rise by 56%, pushing the average bill from £1,277 to around £2,000 a year. That will disproportionately affect those at the bottom end of income distribution, who spend a larger proportion of their income on utilities and food. It will have a much bigger impact on discretionary spending for that group. The Financial Times estimates that

“the rise would reduce family discretionary spending by nearly 7 per cent for the poorest households, almost 4 per cent for people in the middle of the income scale”,

and by only

“2 per cent for the richest.”

Combined with that, the Federation of Small Businesses has pointed out the impact of the increase in energy costs on small and microbusinesses. Those small businesses are not inside the energy cap and may well have to pass the costs they face on to their consumers, again driving up the cost of living. Imagine a small corner shop, where prices are already often more expensive than those at a large chain supermarket—if that shop faces increased fuel bills, where will that cost go? It will go on to the prices at the till for the consumers who depend on that local shop.

In another of Brexit’s great rollbacks, the Prime Minister said in 2016 that one of the great benefits of Brexit would be the UK’s ability to cut VAT on energy bills. Now he says that

“it is a bit of a blunt instrument and you end up cutting fuel bills for people who don’t need the same help.”

Well, many people up and down this country, in all of our constituencies, are crying out for that help while this UK Government stick their fingers in their ears.

Rises in electricity prices will happen alongside planned increases in tax, impacting already squeezed families. The Chancellor is presiding over a £12.7 billion increase in national insurance at a time when incomes are already stretched. That is an average of £400 per employee—a tax on jobs at the very worst possible time—and an increasing number of Tory Back Benchers, as well as the Leader of the House, want the Prime Minister to scrap it. If those on the Treasury Bench will not listen to me, they should at least listen to some of their own.



On top of this, all income tax thresholds and allowances are to be frozen, bringing £1.6 billion into the Treasury coffers. The Chancellor often likes to point out that this affects higher-income taxpayers, and while it is obvious that it will affect them by the greatest absolute amount, as a proportion of income there is no doubt that poorer families will feel the effect of this policy as its eats further into the diminishing disposable income of those who had any money to spare to begin with.

Prices are rising faster now than at any time in the past 10 years. Goldman Sachs estimates a 6.8% rise in prices in April, even if the Government offset the increase in energy bills. The forecast increase in inflation is much larger than the expected increases in earnings and pensions, even factoring in the 6.6% rise in the minimum wage for those on the higher rates. Benefits are to increase in April by 3.1%, but that is a real-terms cut in income for universal credit claimants, even when offset by the most conservative of forecasts of inflation.

This has all the hallmarks of a crisis, and it is a crisis that lies at the doorstep of the Chancellor and of this UK Government. The people of Scotland did not vote for this crisis, this Government and this increased cost of living. They want to see action to protect them at this most difficult time that all of us are facing. Ordinary families are bearing the brunt of the cost of living crisis, while the Prime Minister claims he cannot get by on his £157,000 salary, living in a flat redecorated with Tory donor cash.

The UK has the worst levels of poverty and inequality in north-west Europe. It is clear that action must be taken now or the Tories will push millions more into hardship. Rather than pochling the fiscal rules to get a good headline, the UK Government must bring in an emergency package of support—introducing a low-income energy payment, matching the Scottish child payment across the UK, reversing the £20 a week cut to universal credit, raising the minimum wage for all to a real living wage and raising statutory sick pay to the real living wage level of £9.90 an hour. Rather than a series of meaningless targets that shift whenever it suits the Government, building an economy where citizens can get through the winter without relying on food banks and fuel banks ought to be the true definition of fiscal responsibility in government. SNP Members will be voting against both the motions tonight.