Economy: Spring Statement

Lord Davies of Brixton Excerpts

Thursday 31st March 2022 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, this is my third encounter in two days with the Minister. I am not sure whether she will be pleased about that, but I shall not repeat the detail of the criticism that I have made in our previous encounters of the increase in national insurance contributions, a relatively regressive tax being used to fund a reduction in a progressive tax. I have to restrain myself from repeating that but she knows my views on the issue.

I very much welcome the contributions of other noble Lords. As has been pointed out, their views have been relatively unanimous and critical of the Government’s position. I will take the opportunity to raise two relatively technical issues. I have found that it is always good to get such issues on the record, so that you can return to them again and again.

One of the advantages of joining your Lordships’ House is that I get to read the Times. An interesting report in today’s newspaper says that the Chancellor, the right honourable Rishi Sunak, “viscerally hates” the OBR for making “policy judgments” that over- shadowed his Spring Statement. That is hardly surprising perhaps when the office—which, by the way, was established by George Osborne—said that living standards would fall by 2.2% in the next tax year, the biggest decline since records began. It also said that the announced tax cuts would offset only just over a quarter of the tax rises announced in the October Budget. The Minister might like to comment as to whether she hates the OBR. However, I have some slight sympathy with the Chancellor. The judgments made by the office should not be regarded as holy writ; they should be open to debate and criticism, particularly at present when it can be argued that uncertainty about the economy is particularly acute.

I have two questions that relate in different ways to the OBR’s assumptions. First, under the office’s latest forecasts, the GDP deflator—that is the measured cost for government services—is forecast to grow by just 2.8% in the current year versus 7.4% growth in CPI. To some extent this is a statistical quirk following our exit, I hope, from the Covid pandemic, but we find that the price of public services is forecast to fall. The reduction in the cost of services is not expressed explicitly anywhere in the figures but I am told that, if you do a little digging, it appears that inherent in these figures is a 2% reduction in the cost of government services. In truth, this beggars belief—it is a statistical quirk. The problem is that it may encourage the Treasury to resist the need to provide additional resources for public services. I would be grateful if the Minister could give some assurance on that point—I am perfectly happy to take a letter on it. On the basis that we have been given, the statistics do not provide the whole picture.

My second point relates to the triple lock on the state pension. I will not rehash recent arguments about the Government’s recent broken promise. However, it is worth pointing out that the triple lock will not be triggered next year, with a possible increase in CPI in September of nigh on 10%, and, regrettably, earnings will be significantly behind that. I understand that we heard the announcement today of pay rises for civil servants of 3% or less, which is significantly under increases in CPI. So the issue next year is not whether the Government will break the triple lock, but there is still an issue, despite the assurances given. We know that the Government used the “exceptional circumstances” excuse for not fulfilling a promise—that is unarguable. They said that the triple lock was exceptional this year and so they would not keep their promise. How do we know that they will not decide that inflation of 8% or 9% next September is exceptional and hence provide an excuse for not fulfilling the promise? An explicit assurance on that point is important.

However, my substantive point here is that the OBR’s forecast for expenditure figures over the years, from its Spring Statement report, provides an opaque assessment of the cost of the triple lock. Although many people quote a figure, we really do not know the cost of the triple lock. It is highly contingent. Also, it affects the figures in not just the OBR’s report but the recent quinquennial review of the National Insurance Fund by the Government Actuary, who simply adopts the OBR’s assumption about the cost of the triple lock. I want to raise the issue of what the triple lock will cost as something that bears more study and explanation than we have provided. There is no explanation in this year’s OBR report as to how it derived this figure; it is lost in the mists of time. If we are to have these debates about the future trends in public expenditure—the OBR refers a number of times to the impact of the triple lock—that figure should be more fully and adequately explained.