Autumn Budget 2024

Lord Burns Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Burns (CB)]

I thank the Minister for his introduction to the debate. The first Budget of a new Government is always a significant event, and I am very pleased to see the emphasis on sustainable public finances.

However, I worry that in the Budget speech there was too much attention on the short-term politics of dealing with the “black holes” and, by contrast, rather insufficient attention on the lasting impact of the major worldwide shocks of the past 15 years, which continue to cast a shadow on economic performance.

At the time, there was general political consensus that these crises—the global financial crisis, the Covid crisis and the energy crisis—should be dealt with by large-scale government borrowing and spending. As a result, public sector debt increased from under 40% of GDP in 2007 to 100% today. This has inevitable consequences and implications for the cost of government borrowing, and debt interest has become a significant budgetary item.

It has also been painfully clear that, in common with many other countries, the underlying growth rate in the UK has been lower since the global financial crisis. That means a slower growth in the tax base, which of course matters hugely for public finances. For many years, we became used to a growth rate of about 2.5%. Since 2008, the annual growth rate has averaged only 1% a year.

There are other consequences of the crises. There is the continuing concern about the impact on health, as evidenced by the continuing high welfare claims for long-term sickness. Consumer prices in the services sector are still rising well above the 2% inflation target, and there is general concern about the disruptions to major public services despite a considerable increase in the number of people employed in those services.

In addition, we face major challenges over the next 15 years which will throw up problems of their own. These have been set out in recent reports by both the Lords Economic Affairs Committee and the OBR: a growing proportion of people at or above retirement age; the need to develop infrastructure for achieving our carbon targets; rising defence expenditure; and the amount of labour market inactivity among those of working age.

This all means that it has been clear for some time that taxes were going to have to go up. This was no secret, but the previous Government struggled with the question of how to pay for the massive recent public spending interventions and too little attention was given to the need to raise more revenue. It now falls to the new Government to address how to get the debt ratio back on a downward path. As I said, the need for higher taxes has been evident for some time; however, in this first Budget, the increase in spending is well ahead of the increase in taxes, rather than the other way around. I fear that these tax increases are unlikely to be the last.

I am generally content with the new draft charter for the OBR; in particular, the emphasis on a balanced current budget and the need for the public sector debt ratio to fall over time. I also understand the separate treatment of fixed investment—not so much because I am greatly convinced that it is better for growth than day-to-day spending but because it is much easier to cut back fixed investment than current expenditure, as the costs come well before the benefits. It needs some protection, and I am pleased to see that we have in place an arrangement that will give it protection. History shows that fixed capital has often been hit disproportionately when savings are needed.

I will offer three observations about the detail of the Budget; I will leave much of that to other noble Lords. First, I agree that it is unfortunate that the Government’s manifesto pledge has led to increasing national insurance contributions on employers rather than reversing the previous cuts for employees. Secondly, it is disappointing that, once again, we are overriding the indexation of fuel duties. Fuel duty has been falling in real terms almost every year since the time of the financial crisis, despite our net-zero objective.

Finally, when the primary objective is raising revenue, my own experience in dealing with Budgets suggests that it is much better to focus on the major taxes, where the consequences are reasonably predictable. The impact of changes to taxes on wealth and inheritance are very difficult to predict. They are largely about incentives and fairness, and they are much better handled under the heading of tax reform than as part of a tax-raising Budget.