Budget Statement

Baroness Lea of Lymm Excerpts

Thursday 16th March 2023 Lords Chamber

[Baroness Lea of Lymm (Con)]

I was actually encouraged by the Chancellor’s Budget Statement yesterday. To put it in context, how very different it felt from November’s Autumn Statement, which, above all else, aimed for stability after the market chaos of late September and October.

As the OBR commented back in November, the British economy had been badly knocked by the

“global energy … supply shocks emanating from Russia’s invasion of Ukraine”

since March, when the Spring Statement was released. I remember the Bank of England’s extraordinarily pessimistic forecast, released in early November, which forecasted falling GDP in both 2023 and 2024—a two-year recession. My goodness me, how the media jumped on that. The Bank noted that there was a “very challenging” outlook for the UK economy, which struck me as something of an understatement in the circumstances. In contrast, in November, even though the OBR saw GDP falling by 1.4% in 2023, it expected the economy to recover in 2024.

Since November, the economy has proved remarkably resilient, narrowly missing recession in the second half of 2022. Somewhat surprisingly, GDP was flat in the fourth quarter, after falling a marginal amount in the third quarter; doubtless the data will be revised because, believe me—I speak as an ex-government statistician—data are always revised. The OBR now expects the economy to avoid recession, as defined by two consecutive quarters of falling output, this year. However, seemingly paradoxically, it still expects GDP to slip by 0.2% this year compared with last year. Specifically, it has projected a 0.4% fall in this current quarter, with GDP expected to be flat in the second quarter and then to start recovering in the second half of this year. Thus, according to the OBR, the economy will avoid recession.

The OBR was relatively upbeat in its March Economic and Fiscal Outlook. It said:

“The economic and fiscal outlook has brightened somewhat since our previous forecast in November.”


I remind noble Lords that that is only four and a half months ago. It went on:

“The near-term economic downturn is set to be shorter and shallower; medium-term output to be higher; and the budget deficit and public debt to be lower.”


Specifically, it noted that wholesale gas prices were well down and were expected to fall further.

However, the international situation remains concerning. The war in Ukraine appears to be far from resolution and the intensifying US-Chinese tensions have potential serious implications for the global economy. There are also heightened concerns over the international banking system. No one can be complacent.

The improved fiscal situation has enabled the Chancellor to provide a sizeable stimulus to the economy by way of some judicious spending increases and tax cuts, yet according to the OBR, he has still met his self-imposed fiscal targets—they may seem a bit arcane but they are important. These targets are: first, that underlying public sector debt as a share of GDP should fall in the financial year 2027; and, secondly, that public sector borrowing should be less than 3% of GDP in the same financial year. The targets are revised frequently and are somewhat arbitrary; suffice to say, much can go astray with the economy between now and 2027. Forecasting is an imprecise art, as we know, but, as I have said, the targets are important. They provide the markets with some reassurance that, no matter how high debt is now, it is manageable and should fall as a share of GDP in future. The targets are there to avoid a repetition of last September’s chaos, when the OBR was comprehensively cut out of the loop.

What of the Chancellor’s policies? First, he has rightly sought to address the issue of the missing workers with a back-to-work Budget that has the aim of stimulating the labour market and supporting growth. The latest ONS data shows that, in the three months to January, total employment was still more than 230,000 lower than in the three months to February 2020, which was the last quarter before lockdown. The number of the economically inactive—people aged 16 to 64 who are not in work and not looking for work—was nearly 490,000, nearly half a million, higher than in the three months to February 2020. Reasons for the rise in inactivity include increases in the long-term sick and people with family caring responsibilities, and some early retirements.

Suffice it to say that several of the Chancellor’s core Budget policies were geared towards encouraging and enabling people within these groups to move into employment. They included the launch of a new universal support programme for the disabled and long-term sick who want a job, improved childcare provision and, on pensions, increasing the annual allowance and abolishing the lifetime allowance. These are all pretty good moves, and I hasten to add that this is a far from exhaustive list of the Chancellor’s policies on this issue.

Secondly, on enterprise, with the ending of the super-deduction capital allowances scheme in March 2023, the Chancellor rightly announced the new full-expensing capital allowances scheme. This is planned to run for three years initially, and the OBR apparently judges that it should help boost business investment—which we all want boosted—by around 3% a year. But I still regret the planned increase in the main corporation tax rate from 19% to 25%. Granted, this rate may be the lowest in the G7, but, to me, this slightly misses the point. It was widely reported that corporate taxes were a factor in AstraZeneca’s decision to build a new factory in Dublin rather than Cheshire. Ireland’s main corporation tax rate is 12.5%.

Finally, the Chancellor’s cost of living measures were well targeted. They included freezing fuel duty for the 13th consecutive year and extending the energy price guarantee at £2,500 until the end of June.

All in all, it was an encouraging Budget. I suppose there is always more to do—every Chancellor knows that—but let us be aware of the economic circumstances and uncertainties that we still face. We certainly cannot be complacent.