Spring Forecast Statement

Baroness Kramer Excerpts

Tuesday 17th March 2026 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I join the tributes to the noble Lord, Lord St John of Bletso. We do not often get to speak in the same debate, so I am delighted that he could not speak in the space debate and has joined us today. His speech was both gracious and extremely profound, and his is a voice that we are very much going to miss in this House. I thank the noble Lord and wish him all the best from all on these Benches.

This has to be one of the most frustrating debates I have participated in—I say that despite there being so many good speeches. We are talking about the Finance (No. 2) Bill, but of course we cannot amend it, and today the Chancellor made her Mais speech setting out political strategy, but too late for us to do any significant analysis of it. I did pick up one thing, which I will raise with the Minister: the Chancellor apparently told graduates burdened with a crisis in student loans that they were going to be at the back of the queue for a rescue. If that is true, it is frankly a bad decision. It is a different scheme, and the noble Lord, Lord Wilson, should go back and look.

Then we are left with the Spring Statement. We cannot blame the Chancellor for the fact that the Iran war broke out on that day, but it has obviously thrown a wrench into the programme that she tried to lay out in her Spring Statement. I am going to do my best in starting with the Spring Statement, because we might as well deal with the world as it was prior to the Iran war—we have no clue what it is going to look like as that works its way through.

The OBR’s downgrading—I am not the first to raise this; the noble Lord, Lord Skidelsky, mentioned it—of the growth numbers to 1.1% in 2026 is obviously bad news for us all. What leapt out from the numbers was the medium-term growth in real GDP per capita. The noble Lord, Lord Hintze, talked about the importance of per capita. That is growing at 1.1% a year and depends on recovery from persistently low productivity growth, which the OBR confirms is a very uncertain premise. We are now looking at the weakest sustained growth in a century if we exclude crises such as World War II and Covid.

As the noble Lord, Lord Skidelsky, said, unemployment is at 5%, but it is the 1 million young people who are NEETs—not in education, employment or training—who have us all very concerned. Older people—the economically inactive group at the older end—are returning to the workforce, but that is not happening with younger people. I have talked—as I suspect the noble Lord, Lord Skidelsky, has, because he raised this point—with businesses about the youth guarantee scheme and the other schemes, and the answer is always that they are too small to deal with the problem and not sufficiently sustained to provide the long-term support that people who have been trapped in this particular case need. Much more individual support is needed to get them to the relevant skills, and it can take years.

To pick up a point made by the noble Lord, Lord Davies of Brixton, net migration is weaker than the previous forecast, because of both a drop in immigration and a rise in the numbers emigrating—and, as the noble Lord said, it could be pushed lower by the new skilled migration regime. I recognise that that drop in migration is great news to the political right, as it may be to this Government’s Home Office, but to the rest of us trying to focus on the fact that we have an ageing population, when we look at the demographics, that drop in migration is a serious barrier to medium and long-term growth.

Even the good news in the Spring Statement is fragile. Lower inflation and interest rates are vulnerable to any kind of systemic shock. Here we are, right in the middle of the Iran war with its impact on oil prices, so we can see that the impact is already beginning to work its way through. I was more concerned that much of the additional headroom—I was glad at first to see that there was additional headroom—came from higher than expected tax receipts, largely due to a rise in equity prices leading to higher capital gains tax. As surveys have shown, that is very likely to be temporary.

In the more recent period, we have had a steep loss in business confidence. The Federation of Small Businesses is warning that SMEs, the bedrock of our economy, are saying that

“cost burdens have already started reducing growth plans, cashflow and job creation in our local communities”.

Business is in real fear of the surge of new burdens that are going to land in April, and of death by a thousand cuts. This is a warning sign, and we have to respond.

We continue to face fundamental uncertainties. Can we meet the target of raising defence spending to 3.5% by the end of this Parliament? If we continue the current spending trajectory on the NHS, which we have no choice but to do because productivity is very slow to rise, what will happen to the unprotected public sector departments and local government services, and how will people feel? Many of the tax rises that are now locked in will continue to increase the tax take, even with no improvement to living standards, and people will notice it.

The noble Lord, Lord Sikka, talked about the freezing of income tax and other thresholds, which is a major player in this additional tax take that has been built in. The Government need take no action; it is now part of an impact that people will learn about the hard way. My colleague in the other place, Daisy Cooper, pointed out that 600,000 pensioners on state pensions who are currently not paying income tax are in for a big shock when they discover that they have been captured. I say to the Government that telling people that they are better off and that the poorest will have £1,000 more in their pockets is not washing. People’s expectations are not being met.

To pick up a point made by the noble Lord, Lord Lamont, middle-income families are feeling the stress as well as people who might before have been the group on which we could exclusively focus because they were at the poorest end. We now know from the OBR forecast that any improvement in living standards—there have been improvements that have come from wage growth and the lifting of the two-child cap—will be temporary and followed by a period of stagnation and even falling living standards.

Family farmers have lived with a year of anguish after the original Budget announcement of changes to inheritance tax relief for agriculture. Thankfully, they have been partly rolled back.

The noble Lord, Lord Leigh, made the point that many people who saved through pensions now feel really stupid as they realise that 73% of their savings will go to the Treasury unless they quickly give away the contingency pot that they set aside for a care home. Women in particular have followed that behaviour. They have kept assets in case they needed to be in a care home, with the thought that they could pass those assets on to the next generation if they did not. Many of my friends have been in this situation, and I can tell the House that the advice to them is to give that money away and let the state take care of you when you need a care home. That is a place where none of us wants to see this ending up. When the Minister argues that £1 million is sheltered from inheritance tax, he assumes that everyone is in a couple and owns a home, but many are not in this advantageous position.

The tax rises in the Bill will mean that investing in your own business will become one of the least tax-friendly decisions you can make, and property price tax rises will price on to rents. Someone, somehow, has to get a grip on the Treasury, because it seems completely incapable of aligning its choices with the strategy for growth, with the industrial strategy or with pension building.

That is why my party has called for a department for growth to counterweight the Treasury and make driving the economy forward the main focus. We accept that the Government will need more money to achieve all their programmes, but frankly it makes us furious when we can see that setting up a UK-EU customs union would deliver £25 billion more a year to the Treasury, and that it is within reach. It is a prize to be grabbed, and it is more than just the reset.

There are many small reliefs that the Government could enact to deal with the worst of the administrative horrors. The noble Lord, Lord Liddle, and the noble Baroness, Lady Fairhead, talked about those administrative horrors. My colleagues in the other place tried, even on Report, to amend the finance Bill to assist bereaved families dealing with the sheer administrative challenge of new inheritance tax rules, to protect family businesses and farms from being hit with the loss of inheritance tax reliefs multiple times within 10 years—that is a real possibility—and to at least assess the cumulative impact, including the increase in alcohol duty, of the Bill on the already beleaguered hospitality sector. The Government should recognise that this sector is in an emergency condition. We call again for a temporary cut in VAT to get this sector through, at this time of extraordinary pressure.

Ultimately, we need to hear what the Government will do to cushion families if we do not soon see a de-escalation in the Iran war. The Government’s announcement yesterday on heating oil is welcome, but it is far from the proper cap that we have called for. I say to the Government that a strategy of wait and watch really is not sufficient when energy prices could surge after June, and we are in a situation where many family budgets are already close to breaking.