Autumn Statement 2022

Lord Flight Excerpts

Tuesday 29th November 2022 Lords Chamber

[Lord Flight (Con)]

My Lords, I declare my interests as chairman of the EIS and SEIS associations. Since these bodies were set up, they have channelled some £30 billion to SMEs.

I congratulate the Chancellor and his team on their sensible Budget. To some extent it is a repeat of the Osborne Budget, but rather better organised. It cannot address adequately the problem of excessive property prices, now accompanied by materially higher mortgage rates. We will also see unemployment rise and more businesses failing. However, my judgment is that the economy will withstand the worst of the inflationary problems of this era.

The Autumn Budget proposals set out to reduce total outlays by some £55 billion, roughly half to be achieved from cutting public spending and half by increasing taxes. The Chancellor also organised to spend up to an extra £150 billion on energy, if this is necessary to restrain energy price rises. The UK has performed relatively well over the last year in increasing onshore and offshore wind and solar energy supplies. A new nuclear plant is also to be built at Sizewell B. We need secure, clean and affordable energy. The Government are mistaken in not supporting fracking, where the UK is estimated to have 100 years of fracking gas supplies.

The most important immediate objective of the Budget was to stabilise our financial position and sterling. We need our fiscal and monetary policies to work together to give the world confidence in our currency and the Government, and particularly in our ability to repay our debts. Sadly, Liz Truss’s policies frightened the world as to whether we would be able to repay our debts from her tax cuts and higher spending. Confidence was restored just in time with Liz’s resignation. Since then, sterling has strengthened against the dollar and interest rates have reduced. The Government can also give primary attention to reducing inflation.

The Government have made it clear that their priority will be to look after the most vulnerable, who will need some increase in wages and some help with rents. It is a principle of Conservative policy to protect the most vulnerable. The main cause of UK inflation is energy costs—Russia and Putin driving up gas and electricity prices. The IMF estimates that, as a result, approximately a third of the world economy is now in recession.

Next comes tax policy. I hope that the Government are committed to avoiding tax increases that damage economic growth. The Government expect tax as a percentage of GDP to rise by 1% over the coming five years. I hope that a better performance of the UK economy than is forecast will provide the needed funding. It is unfortunate that the Government have reduced the income level at which the 45p tax rate will apply. After the costs of mortgages and children, there is little left over from income levels of £125,000, especially if there are more children involved. It will be interesting to note how much revenue the higher tax on unearned income delivers.

My reaction is to invest in venture capital funds, which deliver tax-free dividends. The biggest source of extra tax revenues will come from the new 45% levy on electricity generators, which is expected to raise £14 billion in tax next year.

The Government’s policy is for public spending to rise by 1% less than the economy. Schools are set to receive an increase in spending of £2.5 billion per annum. The big issue is to sort out the NHS, which is scheduled to receive £2.7 billion extra per annum for the next two years for social care funding.

For the UK Government, the key ingredients for economic growth are energy, infrastructure and innovation. This will entail changing our use of EU regulations where required. Also of importance are increasing digital technology and life sciences, an increase in green investment and financial services. Solvency II should be capable of unlocking £600 billion of industrial growth funds over the next decades.

The key remaining requirement is to get those who have withdrawn from the workforce following the pandemic back to work. The increase in pension credits should deliver around £1,470 per couple. What is needed in tax to make it attractive to return to work? The increase in working-age adults is 630,000; there is a case for continuing to pay at least part of universal credit to those in part-time work. Its removal if a recipient takes on part-time employment has proved a major disincentive to taking up part-time employment.