Public Spending: Inheritance

Jeremy Hunt Excerpts

Monday 29th July 2024 Commons Chamber

[Jeremy Hunt (Godalming and Ash) (Con)]

I thank the Chancellor for advance sight of her statement, and I echo her thoughts for the people and emergency services of Southport.

Today, she will fool absolutely no one with a shameless attempt to lay the grounds for tax rises that she did not have the courage to tell us about—[Interruption.]

[Mr Speaker]

Order. I want the Cabinet to act like a Cabinet, not like a rabble that is trying to shout at the shadow Chancellor.

[Jeremy Hunt]

The Chancellor says that the information is new, but she told the Financial Times:

“You don’t need to win an election to find”

out the state of public finances, as

“We’ve got the OBR now.”

Paul Johnson of the Institute for Fiscal Studies has said:

“The state of public finances were apparent pre-election to anyone who cared to look”

which is why he and other independent figures say that her argument is not credible and will not wash.

Those public finances were audited by the OBR just 10 weeks before the election was called. We are now expected to believe that, in that short period, a £20 billion black hole has magically emerged, but for every single day in that period—in fact, since January, in line with constitutional convention—the right hon. Lady had privileged access to the Treasury permanent secretary. She could have found out absolutely anything she needed. Will she confirm to the House that she did have meetings with the permanent secretary of the Treasury before the election? Will she tell the House whether they discussed public finances? Will she tell the House whether they discussed any of the pressures that she is talking about today? If so, why are we only hearing today what she wants to do about them? That is why today’s exercise is not economic—it is political.

The Chancellor wants to blame the last Conservative Government for tax rises and project cancellations that she has been planning all along. The trouble is, even her own published numbers expose the fiction behind today’s announcement. Just four days ago, she presented to the House the Government’s estimates of spending plans for the year. Those estimates are a legal requirement. The official guidance manual is clear that Departments are responsible for ensuring that estimates are consistent with their “best forecast of requirements”. They are signed off by the most senior civil servants—the accounting officers—in every Department. Yet, four days on, she is saying that those estimates are wrong. Who is right: politically neutral civil servants or a political Chancellor? If she is right, will she ask the cabinet secretary to investigate those civil servants and apologise to the House for laying misleading estimates? Of course not, because she knows that those civil servants are right and today’s black hole is spurious, just like when she says that she inherited the

“worst set of economic circumstances”

since the second world war. When BBC Verify asked a professor at the London School of Economics about that claim, he responded:

“I struggle to find a metric that would make that statement correct.”

The metrics speak for themselves. Inflation is 2% today —nearly half what it was in 2010 when we had to clear up the mess inherited from a Labour Government. Unemployment is nearly half what it was then, with more new jobs than nearly anywhere else in Europe. So far this year, we are the fastest growing G7 economy. Over the next six years, the IMF says that we will grow faster than France, Italy, Germany and Japan.

Just two days before the election was called, the managing director of the IMF praised the previous Government’s handling of the economy, and said it was in a good place. This week, the Institute for Fiscal Studies said that it was

“not a bad situation to take charge of”

and certainly not comparable to the 1940s or 1970s. If the right hon. Lady is in charge of the economy, it is time to stop trash talking it. What is the point of going to New York or Brazil to bang the drum for more investment if she comes home with a cock and bull story about how bad everything is? She should stop playing politics with Britain’s reputation and get on with running the economy.

When it comes to public finances, will the Chancellor confirm to the House that, far from being broke and broken, as Downing Street briefed the media, the forecast deficit today is 4.4%, compared with 10.3% when Labour left office in 2010? In other words, when Labour was last in office, we were borrowing double the current levels. Will she confirm another difference between today and 2010? The Conservatives came to office then, honest about our plans and saying straightforwardly that we needed to cut the deficit. She has just won an election telling us repeatedly that taxes will not go up. How many seats were won on the back of commitments not to raise tax, while she is quietly planning to do the exact opposite?

On the details that the Chancellor has announced today, will she confirm that around half of today’s fictitious black hole comes from discretionary public sector pay awards—in other words, not something that she has to do, but something where she has a choice? Will she confirm to the House that, apart from the teachers recommendation, none of the other pay review body recommendations was seen by the last Government, as they arrived after the election was called? Today she has chosen to accept those recommendations, but before doing so, was she advised by officials to ask unions for productivity enhancements before accepting above-inflation pay awards, to help to pay for those awards, as the last Government did? If she was advised to do that, why did she reject that advice and simply tell the unions, “Here’s your money, thanks for your support”? Will she confirm—[Interruption.] I know Labour Members do not like the truth, but here it is. Will she confirm that one of the reasons for her funding gap is that she has chosen to backdate a 22% pay award to junior doctors, to cover the time when they were striking?

We are just three months into the financial year, so why did the Chancellor not mention today that, at the start of the year, the Treasury had a reserve of £14 billion for unexpected revenue costs, and £4 billion for unexpected capital costs? Additionally, why has she not accounted for the Treasury’s ability to manage down in-year pressures on the reserve—last year alone by £9 billion? Why has she apparently not accounted for underspends—typically £12 billion a year? Has she totally abandoned the £12 billion of welfare savings planned by the last Government? If so, will she confirm that to the House? Has she also abandoned £20 billion of annual productivity savings planned by the last Government? If not, why are they not in her numbers? Finally, for someone who claims continuously the mantle of fiscal rectitude, will she confirm that in order to pay for her public spending plans, she will not change her fiscal rules to target a different debt measure, so she can increase borrowing and debt by the back door?

Every Chancellor faces pressures on public finances. After a pandemic and an energy crisis, those pressures are particularly challenging, which is why in autumn 2022, the previous Government took painful but necessary decisions on tax and spend. But we knew that, if we continued to take difficult decisions on pay, productivity and welfare reform, we could live within our means and start to bring taxes down. She, on the other hand, knew perfectly well that a Labour Government would duck those difficult decisions. She has caved in to the unions on pay, left welfare reform out of the King’s Speech and soft-pedalled on our productivity programme. That is a choice, not a necessity.

That choice means that taxes will have to go up and the right hon. Lady chose not to tell us before the election. Instead, in 24 days—just 24 days—she has announced £7.3 billion for GB Energy, £8.3 billion for the national wealth fund and around £10 billion for public sector pay awards. That is £24 billion in 24 days: around £1 billion for every day she has been in office, leaving taxpayers to pick up the tab for her profligacy.

Doing it this way, she makes the first major misstep of her time as Chancellor, because that great office of state depends more than any on trust—[Interruption.] In her first big moment, she breaks that trust with an utterly bogus attempt to hoodwink the public about the choices she has. Over 50 times in the election, Labour told us it had no plans to raise taxes. Now, in a U-turn that will forever shame this Labour Government, she is laying the ground to break her word. When she does, her first Budget will become the biggest betrayal in history by a new Chancellor. Working families will never forgive her.

[Rachel Reeves]

The shadow Chancellor had an opportunity this afternoon to admit what he had done, the legacy he had left. Instead, he takes no responsibility. The word the country was looking for today was sorry. He could not find those words; no wonder the Conservative party so definitively lost the trust of the British people at the election three and a half weeks ago. We say never again. [Interruption.] Never again should a party that plays fast and loose with the public finances be in charge of the public finances—[Interruption.]

Economy, Welfare and Public Services

Jeremy Hunt Excerpts

Monday 22nd July 2024 Commons Chamber

[Jeremy Hunt (Godalming and Ash) (Con)]

I beg to move an amendment, at the end of the Question to add:

“but humbly regret that there is no mention in the Gracious Speech of the improved economic conditions the Government is inheriting, with the fastest recorded growth in the G7, inflation at the Bank of England’s target for the second month in a row, and unemployment at half the rate that it was in 2010; further regret that there is no mention of how to make necessary savings on welfare; urge the Government to meet the commitment set out in the Labour Party’s manifesto not to raise taxes on working people; regret that the Gracious Speech fails to make a commitment not to use changes to reliefs to raise taxes; and call on the Government to increase income tax thresholds to prevent income tax from being charged on the State Pension.”

It is an important and rather painful part of our democracy that today I am a shadow Chancellor, responding to the King’s Speech in exactly the same way that the new Chancellor responded to me just a few months ago, so I start by congratulating her, as well as Mr and Mrs Reeves. As the father of two girls, one of whom has her 10th birthday today, I warmly welcome the smashing of a glass ceiling by Britain’s first female Chancellor. As I said on election night, she has led the Labour party on a difficult journey, which has changed it for the better. Her stated commitment to fiscal responsibility, stability and economic growth has been consistent and, I am sure, not always easy. Unfortunately for us, her success in holding the line means that we face rather a lot of Labour MPs on the Government Benches, but I wish her well in her new role.

I also commend to the right hon. Lady the superb Treasury officials she now inherits, and put on record my gratitude to them the excellent work they did for me, staying up in the middle of the night ahead of fiscal events, engaging in tense negotiations with spending Departments—and occasionally, it has to be said, with No. 10—bringing me endless flat whites and Pret lunches to keep me going and, most of all, making my family feel welcome in the goldfish bowl that is Downing Street. It is part of the magic of democracy that those same officials have seamlessly transferred their allegiance from me to her, and I know that they will serve her extremely well.

In opposition, we will not oppose for its own sake, and there are a number of Bills in the King’s Speech that we welcome. The right hon. Lady is right to focus on growth, and the improvements on planning will build on many reforms introduced by the last Government, including the 110 growth measures I introduced in last year’s autumn statement. Any boost to house building is also welcome. We delivered 1 million homes in the last Parliament, and she will soon find out that if she is to deliver 1.5 million, she will not be able to duck reforming environmental regulations—a change that Labour blocked in the last Parliament but will deliver an extra 100,000 homes. I caution her not to over-rely on bringing back top-down targets. In the end, we will build more houses only if we change attitudes to new housing, and that is unlikely to happen if unpopular targets are steamrollered through local communities.

We will also look carefully at the right hon. Lady’s Budget Responsibility Bill. We are proud that a Conservative Government set up the Office for Budget Responsibility, and I commend the work of Richard Hughes and his team. We did not always agree, but in the end, that is the point of an independent watchdog. We all understand the politics of a Bill that allows the Government to make endless references to the mini Budget, but if the right hon. Lady is really committed to fiscal responsibility alongside growth, I hope that she will today confirm that she will not fiddle with the five-year debt rule to allow increased debt through the back door. We—and, it has to be said, markets—will be monitoring the overall level of debt very carefully to make sure that that does not happen. I also hope that she will commission the OBR to do 10-year forecasts of our long-term growth rate rather than five-year forecasts, as at present, in order to bake long-term decision making into Treasury thinking.

[Bill Esterson (Sefton Central) (Lab)]

The shadow Chancellor was talking just now about fiscal responsibility. During the election campaign, he committed to a series of tax cuts, but I noticed that yesterday on Laura Kuenssberg’s show he said that it would not have been possible for him to proceed with those tax cuts. What has changed, and why did he make that commitment during the election campaign, knowing full well that he could not afford to carry it out?

[Jeremy Hunt]

I am grateful to the hon. Gentleman for that intervention, because it allows me to explain why he is completely mistaken in what he is saying. We offered a set of carefully and fully funded tax cuts—unlike the £38.5 billion of unfunded spending commitments that came from the Labour party—but we always said that they would be brought in over time over the next Parliament. We did not make a commitment that they would come in immediately, and indeed they would not have. We would have done it in a responsible way.

When it comes to dubious claims, the new Chancellor herself has been making some that do not withstand scrutiny. She said, for example, that the economy would have been £140 billion bigger if we had matched the average OECD growth rate, but she knows that the OECD is a diverse group of 38 countries, including many with economies very different from our own, such as Turkey, Mexico or Luxembourg. A much more meaningful comparison is with other similar G7 economies, which shows that since 2010 we have grown faster than France, Italy, Germany and Japan. Indeed, the International Monetary Fund says that thanks to difficult measures taken by the last Conservative Government, we will grow faster than any of those four countries, not just in the short term but over the next six years. One reason for that is our record on attracting investment.

Since 2010, greenfield foreign direct investment has been higher in the UK than anywhere in the world except the United States and China. In the last year alone, Nissan, Jaguar Land Rover, Tata, BMW Mini, Google and Microsoft have all voted for the UK with their dollars, not least because of cuts in business taxation, such as full expensing, introduced by the last Government. If the Chancellor now looks for back-door ways to increase business taxation, as many fear, she will risk the UK’s attractiveness to foreign investors, of which she is now the beneficiary.

[Chris McDonald (Stockton North) (Lab)]

That investment is very important to my constituents in Stockton North, where many companies are poised to make billions of pounds of industrial investment. They tell me that they prize economic stability above all else, so will the right hon. Gentleman now commit to supporting the Budget Responsibility Bill to give those investors the security they need?

[Jeremy Hunt]

Yes, we are minded to support the Bill, subject to having had a close look at it, because we think it is perfectly sensible. Whether it is completely necessary is a different question, but it is perfectly sensible.

We have grave concerns about some elements of the King’s Speech, with a Times editorial this week describing some of its Bills as

“a dose of traditional socialist dogma”.

Tony Blair came to office having removed the old clause IV of the Labour party constitution, because he knew that state-run businesses are rarely successful and usually end up being bailed out by the taxpayer. Last week, with their railway and energy plans, the Government brought forward more nationalisation than Blair ever did—indeed, more than any Government in modern times.

If the Chancellor really cares about fiscal responsibility, she should beware. The reason why unions like publicly owned utilities is that they give them more leverage on pay and more ability to demand bail-outs. Unlearning the lessons of history will mean more strikes and bigger bills for the taxpayer.

An even bigger concern for business is the impact on jobs of Labour’s new deal for workers. We have seen the creation of almost 4 million jobs since 2010, which is nearly 800 jobs for every single day that Conservative Governments were in office. The president of the Confederation of British Industry described the UK as a “job-creation factory” but, like many others, he expressed concern that the Deputy Prime Minister’s new labour laws could put that at risk.

Day one rights sound attractive, but employers fear they will mean a flood of tribunal claims, meaning it is safer not to offer a job at all. That is why the Federation of Small Businesses responded to the King’s Speech by saying that companies are worried about increased costs and risks. In the end, French-style labour laws will lead to French levels of unemployment, which are nearly double our own—indeed, they are close to what they were when the last Labour Government were in office. By contrast, the Conservatives nearly halved unemployment over the last 14 years, and it would be a tragedy for working families up and down the country if the new Government turned the clock back.

Finally, the most dubious claim of all is this nonsense about the Government having the worst economic inheritance since the second world war, which everybody knows is just a pretext for long-planned tax rises. People can see what nonsense this is by simply comparing it with the last time we had a change of Government in 2010. Inflation was 3.4%, compared with 2% today. Unemployment was 8%, compared with 4.4% today. Growth was forecast then to be among the slowest in the G7, compared with the fastest today. Instead of an economy in which markets and the pound were facing meltdown, the Chancellor has inherited an economy in which the Office for National Statistics has said that growth is “going gangbusters.”

That has been backed up by even more data since the election. May’s GDP figures show that Britain’s growth was double the rate predicted by economists, and the fastest in more than two years. New figures from S&P show that, in February, British businesses were among the most optimistic in the world—top of the league again, according to the ONS. Inflation has remained at its 2% target level.

In her BBC interview yesterday, the Chancellor glossed over those figures, putting on the most shocked expression she could muster, to pretend that public finances are worse than she expected. But the root cause of the pressure on public finances—£400 billion in pandemic support and £94 billion in cost of living support—was never a secret. Indeed, the Labour party supported those measures and, in some cases, called for us to go further. Nor were the difficult decisions we had to take to pay for them a secret either. When we had to increase borrowing, increase tax and reduce spending plans in the autumn statement of 2022, Labour did not oppose us.

Like all Chancellors, she faces fiscal challenges: welcome to the job. But that job is a whole lot easier because, faced with an economic crisis two years ago, Conservatives took decisions that her predecessor Labour Government ducked completely after the financial crisis. That is why she has a deficit of 4.4% this year compared with 10.3% left behind for the Conservatives in 2010. She did not just compare her inheritance to 2010; she claimed to have the worst inheritance since the second world war. Is she really saying that she faces conditions worse than Geoffrey Howe in 1979, with a winter of discontent, stagflation, an 83% top rate of tax and a Labour Government who went with a begging bowl to be bailed out by the IMF? The Chancellor knows perfectly well that that claim is nonsense, otherwise why, in her first week, would she announce £7.3 billion of spending on her national wealth fund, without a spending review, a budget or any external validation from the OBR? As Paul Johnson of the Institute for Fiscal Studies says, thanks to the OBR the nation’s books are “wide open” and “fully transparent”, so pretending things are worse than expected “really won’t wash.” As she establishes her reputation, it is surely unwise to base her big central argument on a claim so patently ridiculous.

But we all know exactly why the Chancellor is doing it. She wants to lay the ground for tax rises she has been planning all along, which leads to two major concerns. First, she says her No. 1 mission is growth, but all around the world, evidence suggests countries with higher taxes tend to grow more slowly. Lower taxes, when funded properly, boost growth, as we saw with full expensing and the national insurance cuts last year, both of which the OBR confirmed add to our GDP. However, keeping taxes down is hard work.

I saw the numbers the Chancellor has seen just a few weeks ago, and the official advice was clear: with public sector pay restraint, productivity plans such as those we announced in the Budget, and welfare reform, it is perfectly possible to balance the books without tax rises. It is not easy—government never is—but not impossible. Yet all those three things—pay restraint, productivity improvements and welfare reform—were glaringly omitted from the King’s Speech. Instead, she has chosen an easier path: what Labour party sources told The Guardian was a “doctor’s mandate” to raise taxes.

The Chancellor has ruled out raising income tax, national insurance and VAT, but she should not think for one second that other tax rises will not impact working people. Capital gains tax destroys the pensions people build up over their lifetimes; business tax rises are passed on to customers, leading to higher bills; and taxes on banks and energy companies lead to fewer companies operating in the UK, a lower tax take and less money for public services such as the NHS.

That is the biggest contradiction in the new programme —a Government who say they want the fastest growth in the G7 but, in the very same breath, plan tax rises that will make that growth harder, if not impossible, to achieve. Even if such an approach were misconceived, it is none the less a legitimate choice for a governing party. What is not acceptable is, just 18 days after the election, to be laying the ground for tax rises after the Chancellor promised us 50 times in the election campaign that she had no plans to raise them. Every Labour Government in history have raised taxes and raised spending. If she wanted to do the same, she should have had the courage to make the case for that before the election. Instead, she is softening us up for a colossal U-turn that will lead to lower growth, less money for public services and massive public anger, which is why I commend to the House the amendment in the Opposition’s name.