Budget Statement

Lord Flight Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Flight (Con)]

My Lords, I first thank the right reverend Prelate the Bishop of Newcastle for a most moving and human contribution to this debate. Secondly, I could not help thinking that my noble friend Lord Lamont, sitting here, would have made a very good Chancellor in today’s difficult times.

Chancellor Sunak has delivered a bold Budget that I believe is both political and high risk. It obviously seeks to support the Government’s levelling-up policy. He has been driven by the substantial increase in UK economic growth this year, which was well above the OBR forecast of only 4%. The actual figure turned out to be 6.5%, with 6% expected next year. As a result, the Chancellor has indulged in higher spending all over the place, including £4.6 billion per annum for Scotland.

Unemployment, at 4.5%, is better than the 5% forecast by the OBR, as well. I suspect that Chancellor Sunak is hoping for a feel-good factor to underpin politics and help sustain growth. He may be under strong pressure from the Prime Minister, who clearly wants economic achievements to cash in at the next general election.

Amazingly, all government departments will have substantial fund inflows. Unbelievably, Sunak’s Budget has pledged £150 billion of extra government spending this year. Overall spending will be up 3.8% per annum in real terms, compared with the 2.5% forecast in March. The tax burden had already been increased by £36 billion in the summer Budget.

Even more strangely, Chancellor Sunak ended his speech by asking if we recognise that the Government have a limited delivery power, when he has bought into an expansion of the state to a size not seen for 70 years. Was this a Conservative Budget? I have to comment, certainly not. There was virtually nothing for businesses large and small, other than the cut for one year in business rates. Bank taxation was up from 25% to 28%. No government department had a reduction in spending.

Last year, the Government borrowed £320 billion—15% of GDP; 2020-21 borrowing will be a further £183 billion. SMEs are desperate for a reform of business rates; they got an increase from 19% to 25% in corporation tax and an increase in wages. The national living wage has been increased by 6.6% to £9.50 an hour.

The £36 billion of extra NHS spending over three years already provided for has, astonishingly, had a further £6 billion added to it. Health spending has risen from 3.9% of GDP in 1978 to 8.4% next year—in cash terms, an increase of 78% over the last decade. Experience with the NHS proves the old adage that free goods have unlimited demand. The NHS also employs 1.3 million people, far more than should be necessary if it were well run. A complete review and restructuring of NHS management and rationalisation are needed.

During the height of Covid problems, Keynesian measures were justified to keep the economy alive, but we are past this stage. The only justification of the Budget measures is to deliver higher growth and higher tax revenues. The main concern is the impact of a rise in inflation on the public sector. The reforms to universal credit, where the taper rate will come down from 63p to 55p, will cost a further £2.2 billion next year.

It is difficult to understand why Chancellor Sunak opted for large tax increases rather than spending cuts. It is tempting to surmise that the Prime Minister had some input, both in crafting an “all in it together” Budget and in improving pay, particularly in the public sector, ahead of a potential general election in two years’ time. The Government will be fortunate if the increase in inflation yet to come remains manageable. At some stage, a more traditional Conservative approach to restraining excess government spending will be required.