Economy: Budget Statement

Baroness Smith of Basildon Excerpts

Tuesday 13th November 2018 Lords Chamber

[Baroness Smith of Basildon (Lab)]

My Lords, today’s debate takes place against a backdrop of huge uncertainty for the future of this country. I listened to the Minister with great care, but I suspect that my analysis of the Budget is somewhat different from his; I do not share his great enthusiasm for some of the measures he spoke of. We have come a long way from the Prime Minister’s mantra of “Brexit means Brexit” because, under the stewardship of the Government, no one has a clue what Brexit will mean or of its implications for the economy. Yet again, we are told that it is crunch time, but today’s Cabinet did not even discuss the so-called deal; we are advised that there is “cautious optimism”—whatever that means.

At one time the Government had what they called a long-term economic plan. They said that it would make public services more efficient, ensure that work would pay, and they promised it would make our economy more resilient. To provide this, we would all need to tighten our belts through an extended period of austerity. Times would be tough, but we were all in it together, and it would be worth it as we emerged into the promised bright economic future. Now, however, it is clear that the ideological commitment to austerity has failed our country both economically and socially. It has brought misery to communities, families and individuals.

It is also clear that it has failed politically, with Theresa May telling her party’s conference that, “Austerity has ended”. But yet again, she was addressing the internal problems of the Conservative Party rather than those of the nation. The Prime Minister needs to shore up her support with her own MPs, many of whom defend the ideology of austerity but are unable to justify it to struggling constituents. So, with that long-term economic plan now abandoned, the Chancellor had to deliver a Budget, boxed in by that quite desperate political pledge, when he wanted to take a more pragmatic, longer-term approach. This was evident at last week’s Treasury Select Committee, where the Chancellor displayed a more realistic pragmatism than the Prime Minister. He advocated a balanced approach to deficit reduction rather than an ideological commitment to austerity.

Let us examine the detail of the Budget. The OBR forecasts are just slightly better than last year, although it warns of slowing growth in business investment, and unsecured debt rising as a proportion of household income. It recognises that inflation remains slightly higher than was forecast, and has revised down its growth predictions. Also, while employment has marginally increased, there has been no significant improvement in wage growth. It is hardly a rosy picture. As one commentator concluded, the Chancellor,

“claims strong growth, but it’s mostly froth”.

However, the reduced borrowing forecast from the OBR provided flexibility for the Chancellor and more money to draw on for this year. But it is described as a “gamble” by the independent IFS, given that the OBR could easily reverse that decision next year. This would leave the Chancellor in a pretty tricky situation. He is unlikely to reimpose austerity, so he would have two options: increase borrowing or raise taxes. Despite that warning, the Chancellor has chosen to spend rather than save, with decisions predicated on a smooth Brexit and a two-year transition phase. But does that spending help those who need it most or provide a coherent strategic approach to strengthen the economy?

Back in June, we welcomed the announcement of additional funding—£20 billion—for the NHS, which is repeated in this Budget. But it is now clear that other public services will pay the price. Day-to-day public service spending, outside health, is 19% lower than in 2010-11, and is set to stay broadly flat between now and 2023-24. No wonder the IFS has described the situation as unsustainable, with the likelihood of tax rises. In addition, despite extra funding for the NHS, how much of this could end up spent on existing loans and deficits?

Last year, the NHS in England overspent the Government’s budget by £4.3 billion, while trusts owe £7.8 billion in loans. That is almost £12 billion, just under 60% of the new money the Government have announced. Meanwhile, decisions on non-NHS budgets for social care, public health and training are being parked until the spending review. How can we possibly address the crisis in social care unless we look at these issues together and set out a broader strategic plan?

On education, one of the most depressing announcements in the Budget was the £400 million schools funding for—here I quote the Chancellor—those “little extras”. This is barely more than 10% of the £3.5 billion cut from education since 2010. We are still seeing a cut in pupil funding, so however clever the Government think they are being with the figures, teachers know the real impact in our schools. It continues post school, with investment also lacking in skills and training. It is not just the futures of today’s pupils that the Government are stifling, it is all our futures if we fail to properly educate and train the young people that we need to build the society of tomorrow.

The Government have talked of devolving powers and responsibility, but it is really about passing the buck because those who are given that responsibility can operate only within the financial constraints handed down by the Government. Local councils, having already borne much of the brunt of so many austerity cuts, are being hit again with reductions next year of a further £1.3 billion, leading to a funding gap of £7.8 billion by 2025. Prisons, meanwhile, face cuts of £510 million through to 2023 on top of the 21% reductions since the start of this decade. Moreover, unprotected departments will still face real day-to-day cuts of 2.9% per person through to 2024.

Elsewhere, the Government are not even trying. There was not a single penny in the Budget for regular policing where the impact of cuts continues to be felt in all of our communities. With the loss of 21,000 staff, 999 calls are not being responded to and the police are having to make decisions about the crimes they can or cannot investigate. We are all paying the price because of the lack of resources.

Then there is a sleight of hand in other areas, from defence to pothole repairs, where new money does not extend beyond a year. Does the Minister really understand the depths of frustration of police officers, teachers, those working in social care and other public servants? Pushed to the brink, they are unable to fulfil their responsibilities because of the failed austerity policies of this Government. We see a lack of strategy for welfare, a lack of strategy for health and care, a lack of strategy for education and skills, and a lack of strategy for defence, roads and policing, along with a lack of anything resembling a strategic vision for the future of our country. This seems to be a blatant attempt to apply sticking plasters to open wounds.

The Government have made much of their plans to reverse the intended cuts to welfare benefits, but in reality it is only a quarter of the £12 billion-worth of cuts planned by 2020. The other 75%, as announced in 2015, remain the Government’s policy, with half the amount yet to be rolled out impacting directly on families. Not only does the benefits freeze remain, but the tax cuts will cost far more than the changes being made to universal credit. As demonstrated by the Resolution Foundation, those tax cuts will see 84% of gains go to the top half of earners in the country, with 37% going to the top decile alone. When you take the tax cuts and universal credit changes together, the top 10% of households will see a 14 times greater benefit in cash terms than the bottom 10%.

The impact of austerity may not have reached Downing Street, but it has reached millions of our citizens, including many in low and medium-paid employment. For those workers, pay packets are not expected to return to pre-crisis levels until the end of 2024. Any extra money in their pockets is welcome, given the hit that they have already taken, but the balance is wrong. This Budget has failed to live up to the anti-austerity hype. In reality, there will be no meaningful end to austerity for hard-working people and their families.

Where are we now? Looking at this Budget alongside the disorderly approach to Brexit, it feels as though the Government are taking a blind corner at speed. In proclaiming the end of austerity but failing to offer or deliver any alternative other than disjointed giveaways, the Government have destroyed their own self-proclaimed assertion of economic competence. They have abandoned that long-term economic plan with nothing credible in its place. Talk of an emergency Budget in the event of a no-deal outcome inspires little confidence that Ministers are prepared for what could happen to the economy and to our public services in such a situation. Indeed, are they at all prepared for any kind of Brexit?

The principle objective of the Government appears to be their own survival, with short-term decisions that do nothing for the longer-term future of public services or the economy. Paul Johnson from the independent IFS has said:

“If I were a prison governor, a local authority chief executive or a head teacher, I would struggle to find much to celebrate. I would be preparing for more difficult years ahead”.


He could have said much the same about a parent or a carer. The first priority of a Government to their citizens is security and safety. But they must also offer hope and optimism—that the future will be brighter; our children will have greater opportunities; hard work, training and education will pay off; taxes will be fair and public services good; and that when things go wrong there is a reliable safety net and support. But the Government have spectacularly failed even to acknowledge this, and to understand how their policies, and lack of competence and direction impact on that hope and optimism.

This has to change. Anything less is a dereliction of duty. We should start by getting the Government not just to talk of ending austerity, but to offer a new, strategic, open and forward-looking approach that invests in our people and economy and, most of all, gives a genuine reason to be optimistic for the future.