Economy: Spring Statement

Baroness Kramer Excerpts

Thursday 31st March 2022 Grand Committee

[Baroness Kramer (LD)]

My Lords, this has been an absolutely fascinating debate. Once again, I regret that it has not happened on the Floor of the House. I think it would have been interesting to so many noble Lords with different specialisms, they would have enjoyed listening and many more would have participated.

I ask myself whether the Chancellor and Prime Minister understand the crisis that many households face now and in the immediate few months. I find the OBR to be very succinct on the issue:

“CPI inflation now forecast to peak at close to 9 per cent in the fourth quarter”.

Most people actually experience RPI, which is running at about 2% above CPI, so we are talking about people in their real lives looking at something in the 10% to 11% inflation mark. That is extraordinarily painful. The OBR goes on to say:

“Real household disposable incomes per person fall by 2.2 per cent in 2022-23, the largest fall in a single … year since ONS records began in 1956-57.”


The impact is harshest on the lowest-income households, which have received the least help, either in February or in the Spring Statement. Universal credit and other benefits are rising only by 3.1%, and 1.3 million people, including half a million children, will fall into absolute poverty. Out-of-work households, including those of disabled people, will see a fall in income this year by a dire 8%.

We had so many speeches around these issues. The right reverend Prelate the Bishop of Worcester gave a warning that he fears we are reaching a saturation point in civic society being able to pick up a great deal of this pain. The noble Lord, Lord Turnbull, talked about, in effect, a new Poor Law. The noble Baroness, Lady Boycott, warned us that the degradation in people’s food spending has nutritional and health consequences, and indeed, broader consequences. The noble Lord, Lord Bird, reminded us that poverty is an issue and here we are increasing dramatically the numbers in absolute poverty, which needs a long-life-cycle set of responses. Frankly, this Budget does not begin to enter into that territory—and it is a Budget, not a Statement.

We on these Benches understand that times are not easy, and the fundamentals are poor. We have a serious shortage of working-age population. The dependency ratio has shot up to an unsustainable 57% and the OBR estimates the scarring effect of workforce shortages to be 1.2% to GDP. We had some discussion of those issues by the noble Lord, Lord Balfe. That is really crucial scarring, and it is not an issue that you can turn around, particularly with the Government’s current set of immigration policies.

Business investment remains the lowest in the G7 by quite a margin with little improvement forecast—that is from CBI figures. Productivity continues to be in the doldrums. We had a long discussion that the noble Lord, Lord Macpherson, started, on productivity, but frankly, two key factors in enhancing productivity are market size and market access, both of which we threw out of the door with Brexit. Now the measure of improvement we need in every other factor impacting productivity is huge, and we have seen no movement in that arena.

Exports to the EU have collapsed—again, the noble Lord, Lord Northbrook, referred to this—and the increase of exports to other markets is so small it barely registers. To quote the OBR:

“The UK therefore appears to have become a less trade intensive economy, with trade as a share of GDP falling 12 per cent since 2019, two and a half times more than in any other G7 country”.


So, 2% scarring was from Covid, but 4% scarring was from Brexit. We have talked about the impact of a working-age workforce shortage.

As many have said, debt interest spending will rise to £83 billion this year—the highest nominal spending on debt interest ever. We had to borrow during Covid but our vulnerability to interest rate hikes is also due to the Treasury’s decision to issue RPI-linked gilts. To do something like that when inflation is basically on the floor is extraordinary. I can only assume that the Treasury felt under pressure to provide this extraordinary sweetener because it could not otherwise clear its various debt issuances in the market. That makes my stomach churn because, frankly, it is a real warning sign when investors require a sweetener such as that to be able to buy gilts—and that is on top of QE.

This all gets summated in the forecast for the growth of the economy. It is only 3.8% this year, down from an October forecast of 6%, and is forecast to be 1.8% next year, settling down to 1.75% in the longer term. The noble Lords, Lord Hain, Lord Macpherson and Lord Northbrook, emphasised this issue. The noble Lord, Lord Desai, went on to warn us of stagflation; he has an extraordinary record of being right on these issues.

I want to say this to the Government: the self-congratulatory approach that we hear constantly from them, with this sort of rosy picture, desperately worries me. When all the policies are put together and packaged, the number that summates where we are is the growth number—and it is appalling. On that level of growth, we cannot sustain the living standards that we have today. This figure does not even include Ukraine. I just hope that, on some level, the Government know that what they are saying is pure PR; they are not taking on board the real experience that our economy is going through.

Let me quote the OBR on wages. It said that

“real wages stagnate over much of the forecast period.”

As we know, the private sector expects wage growth of around 5% this year. If public sector employees such as the nurses, teachers and transport workers whom the Government lauded so much get only 3% as rumoured—I am told that something coming out today suggests that it will be even lower—I really wonder who will remain a public sector worker. There was nothing in the Spring Statement for the public sector to absorb inflation; the noble Viscount, Lord Chandos, and the noble Lord, Lord Davies, made these points. We need to take on board why on earth we are not recognising the impact on public services of the kinds of inflationary pressures that we are seeing.

In looking at the impact of the Spring Statement, I am still concerned about funding for both health and social care. I look forward to the letter I am hoping to receive from the Minister—she promised it yesterday, which I appreciated—to understand what the impact of the increase in the NICs threshold, which I support, will be on the National Insurance Fund and any consequent funding for the NHS and social care.

I want to make just a brief comment on the Chancellor’s plan to cut income taxes in 2024. Trading standards have a rule that it is false advertising to raise the cost of goods today so that you can declare a sale on those goods tomorrow, but that is exactly what the Chancellor has done. In reality, the NICs increase of 1.25% funds the 1p cut in income tax in 2024; as I said, once you allow for the threshold, the numbers trade off almost exactly. That is not just cynical; it is cruel at a moment when families need extra money just to live. Overall, it is not cutting tax because, according to the IFS, the Chancellor will give back just a sixth of the taxes he is raising. I re-emphasise the issue that the noble Lord, Lord Macpherson, has touched on today but talked about extensively yesterday: raising NICs to fund this cut in income tax marks a real shift in taking the burden of what is effectively taxation, in both cases, away from unearned income and placing it far more heavily on work. That is retrograde and, frankly, should be far more transparent.

SMEs need help too. Today the British Chambers of Commerce came out with its quarterly economic survey, and it is awful: 62% of firms expect to raise prices and 77% cite inflation as a growing concern. In both cases, those numbers are historical highs by some margin. Many businesses which thought in December that the worst was over are now asking if they can even stay in business. To quote Make UK:

“All the evidence points to a situation where an increasing number of manufacturers face a fight for survival”.


They need at the very least a VAT cut to reduce their cost base and fire up the economy.

As so many noble Lords have said, climate change was not even covered in the Statement. We have no spare time to try to deal with that issue. Frankly, if the Government think they are not going to have to put extensive amounts of money into energy efficiency such as insulation and into pushing what the commercial sector will not support but which is crucial—namely, long-term energy storage—then they are living in a fantasy land when it comes to ever achieving their net-zero plans. The issues of climate change and net zero were emphasised by the noble Lords, Lord Whitty and Lord Bourne, the noble Baroness, Lady Boycott, and my great noble friend Lord Oates, who made the point that any important economic Statement should absolutely reference and deal with the issues of climate change and net zero.

Oil and gas companies are awash with money but are not investing large amounts of it; the noble Lord, Lord Sikka, has described the profits of some of these major companies. I was stunned to see that Shell has announced £8.5 billion in share buybacks this year; it just cannot find a place to invest it. BP expects £6 billion in share buybacks and hopes the market will be willing to take more. The Treasury, which last October forecast £8 billion in increased revenues from fiscal drag—basically coming from the freezing of tax thresholds—now expects that drag to deliver over £21 billion. The noble Lord, Lord Northbrook, was saying that over five years it will be £35 billion pounds, a huge figure. Fuel inflation will give the Government an extra unexpected £2.5 billion even after the cut in fuel duty, so this year alone, when you put all the pieces together, the Chancellor found himself with an unexpected extra £26 billion in tax revenues.

The noble Lords, Lord Horam and Lord Whitty, addressed some of these issues, and in a sense so did the noble Lord, Lord Bird, when he talked about priorities. If the Chancellor had any empathy, he would have used that windfall that the oil and gas companies are receiving, placed on it a super-profit windfall tax and combined it with the extra tax revenues; then he really would have had a pot of money to protect families now. That money could have been used for a temporary VAT cut to stimulate business, a cancellation of the NICs increase and the restoration of the £20 uplift to universal credit.

That kind of Statement would have been a proper response to a real crisis. What we have is not adequate, and I am afraid the Government will know that because it will be reflected in the daily experience of the ordinary public of the United Kingdom.

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, it is a real privilege to close this debate on behalf of the Government. It has benefited from a wide range of thoughtful contributions, so I shall focus my closing remarks on addressing as many of the points noble Lords made as I can.

The noble Lord, Lord Whitty, kicked off contributions by asking about climate change. His comments were echoed by many noble Lords, including the noble Baroness, Lady Boycott, and the noble Lord, Lord Oates. I am glad the noble Lord, Lord Whitty, acknowledged the dramatic and impressive statement made by the Government’s road to net zero policy, at the time of the Glasgow summit. I reassure him that that commitment remains. It is backed by £30 billion of government funding, which we hope by 2030 will leverage up to £90 billion of private sector investment in tackling climate change.

Noble Lords also acknowledged the measures in the Spring Statement to remove VAT on energy saving materials. This is expected to be worth £170 million over the next five years to support decarbonisation. The noble Lords, Lord Bourne and Lord Hain, asked how this would apply to Northern Ireland, given the protocol. We look forward to engaging constructively with the EU and Ireland on our proposals in this area, and we are committed to ensuring smooth implementation of the Northern Ireland protocol, while ensuring that Northern Ireland remains an integral part of the UK market. The Northern Ireland Executive will receive a Barnett share of the value of this relief, while the Government and the EU discuss the application of the reform to Northern Ireland.

Noble Lords asked more broadly about other measures to support energy efficiency, in particular how we can help low-income households to improve their energy efficiency and reduce their bills. The Government are providing £3 billion of funding over this Parliament through schemes such as the social housing decarbonisation programme and the home upgrade grant, which will support energy efficiency for those on some of the lowest incomes. We allocated £500 million of this to support households improve their energy efficiency in the last year.

The noble Lord, Lord Whitty, also referred to a climate change amendment in the Subsidy Control Bill. While I do not know the details of that, I can think back to Bills in which I have been involved—whether the Financial Services Bill, or the skills or health Bill—where amendments on climate change have been made, recommitting the Government to our net-zero targets. I hope he is reassured by that.

The noble Lord, Lord Sikka, and others asked about a windfall tax. As he knows, the Government already place additional taxes on the extraction of oil and gas. To date, the sector has paid more than £375 billion in production taxes.

Beyond the broader commitment to net zero, as regards what the Treasury is more directly doing, there has been a huge push on green finance from the Treasury. Our ambition is to align private sector financial flows with green environmentally sustainable and resilient growth and to strengthen the competitiveness of the UK. We are committed to becoming the world’s first net-zero-aligned financial sector, we became the first country to commit to mandatory reporting under the Task Force on Climate-related Financial Disclosures, and we are introducing economy-wide sustainability reporting requirements. I could go on but, I hope that in naming some of those measures, noble Lords will hear the Government’s continued commitment to this agenda.

Another strong theme that came through in this debate was the cost of living. The Government understand the pressures people are facing with the cost of living. These are global challenges but the Government are providing support worth over £22 billion in 2022-23 to help families with these pressures. Much of our support will help those who are vulnerable and on lower incomes. We have cut the universal credit taper rate, increased the work allowance, and maintained the increase to the local housing allowance. We are also providing an additional £500 million through the household support fund as well as increasing the national living wage to £9.50 an hour. Analysis published alongside the Spring Statement shows that decisions made since spending round 2019 have on average benefited those in the lowest income deciles the most.

[Baroness Kramer (LD)]

My Lords, thanks to the noble Lord, Lord Sikka, I have just seen a copy of a Written Statement that was just put down by the Government, I assume while this debate was under way, constraining public sector pay increases for civil servants to 2%, with a 1% flexibility to go above that under special circumstances where people are particularly needed. Does the Minister really consider that this meets people’s need for additional income to cope with the cost of living in this coming year? She will undoubtedly be aware of the Statement, and I am sure that the support she has behind her has provided her with a response to the question.

[Baroness Penn (Con)]

My Lords, on public sector pay, of course there is a process to be gone through. The Government set out the parameters that the pay remit bodies then go away and look at and make recommendations to the Government. We are at only the beginning of that process and we will see those recommendations in the summer.

I was just saying that the Government will continue to keep the situation under review, recognising the high level of current uncertainty, including monitoring the ongoing impact of the Russia-Ukraine conflict on the economy, and will be ready to take further steps if needed. That may be pertinent to the noble Baroness’s point.

The noble Lords, Lord Davies of Brixton and Lord Sikka, raised the issue of pensioners in particular. I can confirm to the noble Lord, Lord Davies, that when the Chancellor was asked at the Treasury Select Committee a very direct question about whether he would guarantee the triple lock for pensioners this year, he was crystal clear that he would. On the value of the state pension more broadly, since 2011, when the triple lock was put in place, the value of the basic state pension has increased by £2,050 and is now at the highest level relative to earnings in 34 years.

The noble Baroness, Lady Boycott, asked specifically about food insecurity for the poorest households.