Budget Statement

Baroness Penn Excerpts

Thursday 16th March 2023 Lords Chamber

Moved by

[Baroness Penn]

To move that this House takes note of the Chancellor of the Exchequer’s Spring Budget 2023.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, it is a privilege to open this debate on behalf of the Government and set out how we will move our economy on to a path of long-term sustainable growth. I start by welcoming my noble friend Lady Moyo to the House. I look forward to hearing her maiden speech. Given her distinguished career to date, I expect she will hold the Government’s feet firmly to the fire, especially when it comes to economic policy, and help us get our policies right.

In the autumn, we took difficult decisions to deliver stability and sound money. Since then, 10-year gilt rates have fallen, debt servicing costs are down, mortgage rates are lower and inflation has peaked. The Office for Budget Responsibility says that because of lower gas prices and the measures we are taking, together with our measures in the Autumn Statement, the UK will now not enter recession this year. The OBR forecasts that we will meet the Prime Minister's three economic priorities. Inflation is coming down and is on track to be more than halved by the end of the year: it is action that we are taking to help bring it down.

In this Budget, we confirmed that the energy price guarantee will remain at £2,500 for the next three months, saving the typical family a further £160 on top of the support we have already announced. We have ended the premium that 4 million households, often among the poorest, have to pay on their energy bills for having a prepayment meter. We have extended the alcohol duty freeze until August and will increase the generosity of draught relief, introducing a Brexit pubs guarantee. Because inflation remains high, we will maintain the 5p cut on fuel duty and keep it frozen for a further year, saving the average driver £100 next year and £200 since the policy was introduced. Finally, with communities strained by energy prices, we are providing £63 million to keep 275 local authority swimming pools afloat.

I turn to the Prime Minister’s second priority: reducing debt. Again, we are on track. We are meeting our fiscal rules to have debt falling as a percentage of GDP by the fifth year of the forecast, and to have public sector borrowing below 3% of GDP over the same period. In fact, our deficit falls in every single year of the forecast. In the final two years of the forecast, our current budget is in surplus, meaning we borrow only for investment and not day-to-day spending. Day-to-day departmental spending will grow at 1% a year on average in real terms after 2024-25, until the end of the forecast period, and capital plans are maintained at the same level set at the Autumn Statement. At the same time, taken together, today’s measures lead to an overall lower tax burden for the rest of the Parliament, compared to the OBR’s autumn forecast.

I turn to the Prime Minister's third priority and the focus of yesterday’s Budget: growth. Thirteen years ago, we had an economy that had crashed. Since 2010, we have grown more than major countries such as France, Italy and Japan. We have halved unemployment, cut inequality and reduced the number of workless households by 1 million. The World Bank says that, out of all the big European countries, we are the best place to do business. When it comes to the industries of the future, we are world leaders. Over the last 13 years, we have become the third trillion-dollar tech economy, after the US and China. We have the largest life sciences sector in Europe and the creative industries has grown at twice the rate of the rest of the economy. We are a world leader in offshore wind and our advanced manufacturing industries produce around half of the world’s large civil aircraft wings. These strengths make me optimistic for our future growth.

We should note what the OBR forecasts say. The OBR says that, after this year, the UK economy will grow in every single year of the forecast period: by 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027. The OBR also expects unemployment to rise by less than 1%, to 4.4%, meaning 130,000 fewer people will be out of work compared to their autumn forecast.

On employment, to achieve the dynamic economy we all want, we cannot afford to waste the potential of anyone. That is why we will remove the barriers that stop people who want to work from getting into work. To help those who are sick or disabled back into work, we have published a White Paper on disability benefits reform, the biggest change to our welfare system in a decade. It will abolish the work capability assessment in Great Britain and separate benefit entitlement from an individual’s ability to work. As a result, disabled benefit claimants will always be able to seek work without fear of losing financial support. In England and Wales, we will fund a new programme called universal support. This is a new voluntary employment scheme for disabled people, where the Government will spend up to £4,000 per person to help them find appropriate jobs and put in place the support they need, funding 50,000 places every year. That comes on top of a £400 million plan to increase the availability of mental health and musculoskeletal resources and expand the individual placement and support scheme.

To help children in care enter the workforce when they reach adulthood, we are doubling the qualifying care relief to £18,140, which will increase the take-home pay of a qualifying carer by £450 a year. We will also double the funding we provide to the Staying Close programme, to help more care leavers into employment and support young people with special educational needs and disabilities to transition from education into the workplace, with a £3 million pilot expansion of the Department for Education’s supported internship programme. To encourage the 2 million people on universal credit without a health condition who are looking for work or only working a small number of hours, we will apply sanctions more rigorously to those who fail to meet strict work search requirements or choose not to take up a reasonable job offer. For those working low hours, we will increase the administrative earnings threshold from the equivalent of 15 hours to 18 hours at the national living wage for an individual claimant, meaning anyone who works below this level will receive more work coach support alongside a more intensive conditionality regime.

For those aged 50 to 64, with a wealth of experience we need in our workplaces, we will increase the number of people who will get the best possible financial, health and career guidance, well ahead of retirement, by increasing access to mid-life MoTs. The Department for Work and Pensions will increase fivefold the number of 50-plus universal credit claimants who receive mid-life MoTs, from 8,000 to 40,000. For experienced workers, we will also introduce a new apprenticeship targeted at over-50s, called “returnships”. These will bring together our existing skills programmes to make them more appealing for older workers, focusing on flexibility and previous experience to reduce training length.

We are also fully alive to the fact that many senior NHS clinicians say they are being advised to leave the workforce, just when the NHS needs them most, because of unexpected tax charges on their pensions. The NHS is our biggest employer and we will shortly publish the long-term workforce plan, but to make sure that they and other professions are not deterred from working, we will increase the pensions annual allowance to £60,000. We are abolishing the lifetime allowance altogether, to incentivise our most experienced and productive workers to stay in work across our economy for longer.

These measures will help turn us into a high-skilled, high-wage economy, but we know that one thing that holds people back is the insurmountable obstacle of high childcare costs, especially when their children are young. In 2010 there was barely any free childcare for under-fives. The Government changed that with free childcare for three and four year-olds in England, but we need to complete the job. That is why, in households where all adults are working at least 16 hours, we will introduce 30 hours of free childcare, not just for three and four year-olds but for every single child over the age of nine months. It is a package worth, on average, £6,500 every year for a family with a two year-old using 35 hours of childcare every week.

Because it is such a large reform, we will introduce it in stages to ensure that there is enough supply in the market. Working parents of two year-olds will be able to access 15 hours of free care from April 2024, helping around half a million families. From September 2024, that 15 hours will be extended to all children from nine months up, meaning a total of nearly 1 million families will be eligible. From September 2025, every single working parent of under-fives will have access to 30 hours of free childcare per week where they are eligible.

Ahead of that, we will help the 700,000 parents on universal credit who, until the reforms announced yesterday, had limited requirements to look for work. Many remain out of work because they cannot afford the upfront payment necessary to access subsidised childcare. We will increase the maximum they can claim to £951 for one child and £1,630 for two children—an increase of almost 50%. For any parent who is moving into work and wants to increase their hours, we will also pay their childcare costs up front.

That is the demand side. On the supply side, we will increase the funding paid to nurseries providing free childcare under the 30 hours offer by £204 million from this September, rising to £288 million next year. This is in addition to the funding provided to extend the offer to parents with children from nine months to two years old. To increase flexibility, we will change minimum staff-to-child ratios from 1:4 to 1:5 for two year-olds in England, as happens in Scotland.

To further increase the potential supply of childminders, au pairs and nannies, we will reopen the youth visa scheme unilaterally to anyone under the age of 35 from the United States, France, Spain, Germany, Italy and Holland. This will allow an additional 27,500 young people to come to work in the UK annually for up to two years.

For parents of school-age children, we will fund schools and local authorities to increase supply of wraparound care so that all parents of school-age children can drop their children off between 8 am and 6 pm. Our ambition is that all schools will start to offer wraparound childcare, either on their own or in partnership with other schools, by September 2026.

My right honourable friend the Chancellor also set out the Government’s commitment to continue to level up growth everywhere across the United Kingdom. Yesterday’s Budget announced 12 potential new investment zones, eligible for £80 million of investment, bringing together our leading research institutions with local government to remove barriers to growth in areas that need levelling up.

There is also over £200 million to fund high-quality local regeneration projects and £420 million for new levelling-up partnerships. A second round of the city region sustainable transport settlements, allocating £8.8 billion over the next five-year funding period, has been announced, and a further £200 million next year—bringing the total to £700 million—will be allocated to fix potholes.

For Scotland, Wales and Northern Ireland, this Budget delivers not only a new investment zone in each nation but an additional £320 million for the Scottish Government, £180 million for the Welsh Government and £130 million for the Northern Ireland Executive as a result of Barnett consequentials.

The Government will also consult on transferring responsibilities to support local economic development, currently delivered by local enterprise partnerships, to local authorities from April 2024.

Mayors will be given more financial autonomy with multiyear single settlements for the West Midlands and the Greater Manchester Combined Authority at the next spending review—something we envisage being rolled out to all mayoral areas over time. So that local leaders can continue to grow their own revenues by growing their local economy we have made a long-term commitment, in the next Parliament, that they can retain 100% of their business rates—again something we hope to roll out to other areas over time.

These steps will help us not just to grow but to share the benefits of growth across our country, but we must never forget that it is the private sector that helps drive this growth, so we are lowering business taxes to incentivise investment and tackle the productivity gap. Building on the increase of the annual investment allowance to £1 million, which covers the entire investment made by 99% of businesses, and following the end of the super-deduction, we will introduce a new policy of “full expensing” for the next three years. We will make this permanent as soon as we can responsibly do so. It will mean that, over that period, every single pound a company invests in new buildings, new IT or new machinery can be deducted from their taxable profits. It will mean a corporation tax cut worth £9 billion for every year that it is in place.

To encourage research and development, we are introducing an enhanced credit for small and medium-sized businesses that spend 40% or more of their total expenditure on research and development.

One of the reasons why we have succeeded in the past is our inclination toward innovation—our propensity not just to adapt but to drive change. Having left the EU, there is an opportunity to do so again.

With financial services reforms under way, we are now looking at regulations around life sciences, and we are lucky to have one of the most respected drugs regulators in the world in the MHRA. It will now move to a different model that will allow rapid and often nearly automatic sign-off for medicines already approved by trusted regulators in other countries such as the United States, Europe or Japan. At the same time, from next year it will set up a swift new approval process for the most cutting-edge medicines and devices to ensure the UK becomes a global centre for their development. An extra £10 million of funding over the next two years will put in place a plan to provide the quickest and simplest regulatory approval in the world for companies seeking rapid market access.

To strengthen our position in digital technology, we have accepted all nine of the digital tech recommendations made by Sir Patrick Vallance.

We are also making good on our pledge to direct our innovation toward a green economy by allocating up to £20 billion of support for the early development of carbon capture and storage projects across the UK as we work towards our goals in 2050. This will attract private investment, support up to 50,000 jobs and help capture 20 million to 30 million tonnes of CO₂ per year by 2030.

Alongside more public investment in nuclear, we are going to class it as “environmentally sustainable” in our green taxonomy, giving it access to the same investment incentives as renewable energy. This will not only deliver against our climate change goals but afford us energy security too. To support our wider security in a more dangerous world, having announced £5 billion of funding for the Ministry of Defence, the Budget confirmed an additional £11 billion over the next five years. By 2025, we will spend 2.25% of GDP on defence and endeavour to raise it to 2.5% as soon as the fiscal and economic conditions allow.

It has not been possible to condense the entirety of the Budget and its ambition into my opening remarks, but what should be clear is that we are bringing inflation down, debt down, and growth up. We have a plan that says to people: work will pay and pay well. We have a plan that is revolutionising childcare, reforming pensions and supporting disabled people. We have a plan to tear down barriers to growth, unlocking investment, incentivising innovation. It is a credible plan that will deliver economic success, growth and prosperity. I beg to move.