Autumn Statement 2023

Baroness Kramer Excerpts

Wednesday 29th November 2023 Lords Chamber

[Baroness Kramer (LD)]

My Lords, first, I welcome the noble Baroness, Lady Vere, to the Government’s Treasury Front Bench. Last week we debated a statutory instrument and I failed, until very late in the day, to congratulate her on her new role. I remain mortified by my absence of mind, so I repeat the welcome today. I also compliment her on tackling two of the most difficult topics in the portfolio: central counterparties last week and the Autumn Statement this week. I assure the noble Baroness, Lady Goldie, that no matter what the excellent qualities of her successor, in her portfolio she will be very much missed.

The headline message of the OBR is that, even after the Autumn Statement, and taking into account every government policy and promise, the forecast growth rate for the economy is essentially—and let me quote the noble Baroness, Lady Noakes—“uninspiring” and, to use my own word, stagnating. Only this Government would applaud and congratulate themselves on a Statement with that characteristic.

Living standards for ordinary people have fallen by £2,000 per household. Inflation and high interest are now expected to continue for longer. Indeed, the overhang of inflation will hold back people’s spending power for years. The cost of housing has now become a persistent crisis for many people, especially young people. On my Benches, my noble friend Lady Thornhill took us through the real-life experience, which is dire for so many people who are dependent on housing from housing associations. Typical households will soon be paying over £5,000 a year to service debt, driven largely by mortgage costs, and household saving rates have fallen sharply.

The Government use tax-cutting rhetoric, but ordinary people face a tax-rising reality for at least the next five years, thanks to the freezing of thresholds—the noble Lords, Lord Sikka, Lord Northbrook and Lord Jackson of Peterborough, all referred to this in various ways. Despite the rate cut in national insurance, a typical earner will pay £400 more next year in tax and national insurance, and a middle-income earner will pay £1,200 more. It is instructive, in understanding Conservative priorities, that the highest one-fifth of earners will receive five times as much from the national insurance rate cut as the lowest one-fifth of earners—that is a measure referred to by the noble Baroness, Lady Meacher, who is not yet in her place.

In the same vein, the Chancellor confirmed the dire message from the Department of Work and Pensions for the mentally ill and mobility-impaired members of our community: work from home or lose nearly £5,000 a year in benefits. Mental health charities are sending out almost emergency briefings, warning that home working rarely allows for hands-on support and can add to isolation, and that the costs of heating and wifi, and other necessary supports, can be prohibitive. Over the weekend, I had a conversation with some disabled people; they are genuinely frightened, having fought for the benefits they have got, only to find that they will now begin to lose them if they do not agree to home working, for which they are in no way prepared and often not capable. I do not think this is the way to save £1.3 billion a year in a civilised society.

Public services—already badly degraded, as referred to by the noble Lord, Lord Eatwell, my noble friend Lord Thomas of Gresford, and the noble Viscount, Lord Hanworth—will face real cuts, with, as others have said, the blows falling hardest on unprotected services, such as local government, which support the most vulnerable people. This was referred to in detail by my noble friend Lady Pinnock, who also pointed out that the numbers mean a cut in the clean-up of sewage, which is really going to disturb the many communities who are disgusted by the state of our rivers.

Public borrowing will still be at 94% of GDP at the end of the forecast period, and then only if we assume that fuel duty rises every year with inflation—a point made by the noble Lord, Lord Howarth. Infrastructure spending also has to be curtailed, and the public will have to accept collapsing public services.

Among advanced countries, we are now a high-debt country, and that fits with the issue raised by the noble Lord, Lord Sherbourne. I am particularly concerned and alarmed at the condition of the gilts markets, given not just the Government’s expected gilt issuances of over £200 billion a year but the determination of both the Bank of England and the pension funds to sell off gilts. The OBR worryingly concludes that private sector holdings of gilts will need to be the highest level on record next year and, over the forecast period, the highest sustained level this century. We will depend heavily on foreign buyers, and foreign buyers are volatile.

The Government have offered a carrot to businesses, with full expensing of new investment. That refers to expensing in year one; we have always had expensing over the accounting lifetime of the investment. However, read the whole paragraph; I read it in the same way as the noble Lord, Lord Eatwell. The OBR expects this to be fully offset by the faster retirement of existing capital. Modernisation of equipment and software is surely a good thing, but it is not the dramatic industrial expansion this Government seem to promise as a consequence of this particular tax change. The noble Baroness, Lady Noakes, put it well, describing it as a costly way to achieve a modest increase in investment. Meanwhile, the Government have largely neglected small businesses, which are the backbone of our economy, and certainly failed to grasp the need to wholly reform business rates.

The OBR makes it clear that the economic damage of Brexit—some 4% to 5% economic scarring—remains, and the noble Lord, Lord Sikka, drew attention to this. In her listing of all the events that have shaken the economy, it was notable that the noble Baroness, Lady Goldie, did not mention it, and yet it is the deepest and most permanent scarring, compared to the other features she carefully named—interesting. The OBR also reports that neither this Statement nor other Government policies, nor trade deals, are forecast to reverse the Brexit-driven collapse in our terms of trade by 15%. According to surveys by the Federation of Small Businesses, much of the drop in trade is tied to SMEs ceasing to export. Many British SMEs have been dropped from European supply chains, have lost buyers around the world because they can no longer guarantee European standards, or find the post-Brexit regime too costly and cumbersome.

Productivity remains below the rate before the 2008 financial crisis; frankly, no developed economy can be prosperous with productivity at this persistent level. I like very much the idea suggested by the noble Lord, Lord Londesborough, of a productivity council, and others have proposed ways in which to try to tackle this issue.

Demographics show that we are desperately short of a working-age population, given the size of our ageing population, and we are also short of skills. The situation is made far worse by the vast numbers on NHS waiting lists. My party would have reinstated the bank levy and strengthened the oil and gas windfall tax to tackle those waiting lists head-on, as key to reviving the economy—an issue referred to by my noble friend Lady Pinnock.

The Government’s Advanced Manufacturing Plan, published on 26 November, is positive news and I welcome it. The strategy is a bit scattergun, but it is definitely good news. However, it does not assure that the UK can build the industries of the future at sufficient scale. The plan itself exposes the problem, as referred to by the noble Lord, Lord Eatwell. The Government say:

“Other countries have embarked on large tax and spending sprees to claim a share of the global manufacturing market”.


The Government then claim the moral high ground in not following suit. The truth is that this Government have run this economy so badly that they cannot follow suit to compete with the US and the EU in support for the industries of the future. People might then start talking about Covid and oil prices, but they have hit all those countries as well. We have got to be in that competitive game. The noble Viscount, Lord Hanworth, talked about this in some detail, and I appreciated the advice we got from the noble Lord, Lord Harrington. I have not yet read his report, but I promise to do so immediately, because it sounds fascinating.

In this Autumn Statement, the Government found £27 billion of headroom, as referred to by the noble Lord, Lord O’Neill. But it was not the headroom that came from economic success, a point made by the noble Lords, Lord Londesborough and Lord Desai. The headroom came from two sources. The first is from the revenues that resulted from higher than forecast inflation, especially since the Government chose not to fund the hit to public services from such inflation. The second is from freezing the thresholds for income tax and national insurance. In the Autumn Statement, the Chancellor spent every penny of that headroom.

I do not claim that the Government faced an easy time in shaping the Autumn Statement—although one must admit that they have brought most of it on themselves. But where are the plans to recapture our access to European markets? Where is the investment in the NHS to rapidly cut waiting lists and allow people to return to work? Where is the capital budget to revive our faltering infrastructure? The noble Lords, Lord Macpherson and Lord Willetts, and others, talked about the importance of that public sector infrastructure investment.

I return to my earliest comments. Put the whole package together—the Statement, the promises, the policies—and the output, which surely is the measure, is economic stagnation for at least the next five years.