Autumn Budget 2024

Baroness Lea of Lymm Excerpts

Monday 11th November 2024 Lords Chamber

[Baroness Lea of Lymm (Con)]

I begin by noting the economic background to the Budget. The economy is growing, albeit modestly. Unemployment is around 4% and CPI inflation fell below the 2% target in September. Public sector borrowing, though still too high, has fallen from pandemic levels and is lower than during the financial crisis of the late 2000s. Speaking as a veteran economy watcher, I would not describe this as the

“worst set of economic circumstances since World War II”

—far from it. What about the £22 billion black hole in the public finances? Granted, the OBR in its recent review of departmental expenditure limits criticised the Treasury over the March Budget, but the OBR’s chair, Richard Hughes, concluded that:

“Nothing in our review was a legitimisation of that £22 billion”.


Moreover, I cannot emphasise too often that the economy has had two major shocks in recent years. First, there was the pandemic and the associated lockdown, which was enthusiastically supported by the then Opposition. It cost the Exchequer £380 billion and has weakened the labour market. According to the ONS’s latest numbers, the number of economically inactive people aged 16 to 64 is still over 700,000 higher than prior to lockdown. Secondly, the Russian invasion of Ukraine in February 2022 resulted in a major inflationary shock and a significant increase in the Bank rate.

I turn to the Budget itself. The OBR concluded that Budget policies will increase spending by almost £70 billion a year over the next five years. As a result, total managed expenditure will be around 44% to 45% of GDP, from around 40% prior to the pandemic. Note that this spending will be on an unreformed public sector, where productivity was around 6% lower at the beginning of this year than it was in Q4 of 2019 prior to the pandemic. Productivity in the public sector has fallen.

Higher taxes will fund about half of this increase in spending. They will raise about £36 billion a year and push the tax to GDP ratio to an historic high of about 38% by the financial year 2029. The rest of the increase will be funded by a £32 billion a year increase in borrowing. According to the OBR, as has already been noted, this is one of the largest fiscal loosenings of any fiscal event in recent decades. Such borrowing, of course, has to be financed, irrespective of any tweaks to the fiscal targets.

Unfortunately, the financial markets have already shown some concern. Unsurprisingly, the debt to GDP ratio remains close to 100%, at around 97% over the forecast period. In this context it is instructive to note that the OBR warned in September that the longer-term pressures on the public finances, including the ageing population, would eventually put the public finances on an unsustainable path. This was before the Autumn Statement, with its large and sustained increase in spending, taxation and borrowing.

Concerning the OBR’s economic forecasts, it was decidedly downbeat, suggesting little by way of an overall boost to growth. Granted, Budget policies would temporarily boost output in the near-term, but they would leave GDP largely unchanged in five years’ time, at the end of its forecasting period. Moreover, the OBR increased its forecast for CPI inflation and interest rates, with all the implications therein, which the Bank of England echoed last week. Disappointingly, it suggested that business investment, so vital for growth, could be partly crowded out by the increase in government spending and net fiscal loosening.

What about the impact on business, that vital engine for growth? Businesses will face sizeable increases in employer national insurance contributions, though it is possible that some of the higher costs will push through to lower wages. This is at a time when they will face the sizeable increase in the minimum wage from next April and the costs resulting from the implementation of the Employment Rights Bill, which could be up to £5 billion a year. In the meantime, they have to cope with the highest industrial electricity prices of any industrial economy, including those in the EU and the G7.