Budget Statement

Lord Fox Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Fox (LD)]

My Lords, first, I want to congratulate the House authorities on making this room as comfortable as it could be, but this debate really should have been in the Chamber and not the Moses Room.

On the face of it, the Minister and his colleagues are responsible for the highest tax since the 1950s and, as we heard from the Minister, there is a promise of record capital spending. I am not going to dwell on the Government’s philosophical U-turn to embrace tax and spend, but I am going to question the purpose and effectiveness of this Government’s approach, and I will focus largely on growth.

The Chancellor’s latest fiscal rules are predicated on the need to generate growth in the national wealth, and this begs two questions. Does this Budget leave people with the money and the confidence to create consumer-led growth, and does it ensure that businesses have confidence in government plans to invest in productivity-led growth?

First, where is the economy headed? The Minister will point to the independent Office for Budget Responsibility projection of GDP growth for next year of more than 6%, but that hides an underlying rate of little more than 1%. The 1.3% annual growth projected for the end of the spending review period is effectively no growth at all. When you take into account underlying issues such as our ageing population, it is stagnation, not growth. Set alongside this, the OBR has warned that the cost of living could rise at its fastest rate for 30 years. Its latest forecast predicts that inflation is set to jump from 3.1% to an average of 4% in 2022; others point even higher, some north of 5%. Rising inflation will no doubt bring rising interest rates and rising housing costs—and let us not forget the already banked rise in tax and national insurance.

On the personal income question, the noble Lord, Lord Davies of Oldham, quoted the Resolution Foundation; I have used the IFS, but the results are very similar. The IFS said that millions of people are set to be worse off next year amid spiralling costs and tax rises. Supporting the IFS, the OBR pointed out that, once rising prices and rising taxes are taken into account, average household incomes are set to fall next year and will not recover before 2023. Take-home pay in those average households will fall by 1%—or about £180 a year.

For lower-paid workers, the Chancellor has made much of the cut in the universal credit taper rate and the rise in the national living wage. Those are good things, but their story—their outcome—is not so good for those people. According to the IFS, as the cost of living is set to increase faster than benefit payments, low-income households will also feel “real pain”, and

“millions will be worse off in the short term.”

Let us not forget that 75% of the 4.4 million households on universal credit will be worse off as a result of the decision to take away the £20 per week uplift. Can the Minister please explain how deliberately making 3.3 million homes poorer equates with levelling up? Even if there are enough HGV drivers to put stock on the nation’s shelves, it seems unlikely that this country will enjoy consumer-led growth.

The second point of analysis is whether this Budget drives growth through investment by business. For a business to invest, it needs a strong sense of what the government plan is and confidence that the Government will stick to it. Again, I take my lead from external experts, in this case Make UK, the trade organisation that represents the vast majority of businesses that make things in this country—in other words, that help to drive prosperity. Its view is very clear and damning. At the end of a long blog, it says that

“there still remains an absence of a medium to long-term economic plan which goes beyond simply chasing the next week’s headlines”.

How can business invest in the long term when the Government are not explaining the detailed view of the future?

Meanwhile, SMEs have been kept in a state of confusion around the important issue of business rates. The Lib Dems have always advocated wholesale business rates reform, but what has been announced is another temporary fudge of a system that prolongs the uncertainty that small businesses face. If those businesses are facing uncertainty, how can they be committed to investment? Additionally, businesses that have taken on more debt during the Covid crisis will start to see rising interest rates. Perhaps the Minister could tell your Lordships what the Treasury’s projections are for every 1% increase in interest rates in terms of insolvency of small businesses.

Businesses tell us that they want a detailed plan, particularly around climate change. Yet again, the messages from BEIS and the Treasury are very mixed. There are lots of warm words, but actions such as cutting the cost of internal flights send the wrong messages. Does the Minister now realise that that has backfired and it was the wrong decision? Climate change needs big thinking. The Liberal Democrats have plans to spend £150 billion on a green recovery over the next three years—that is the sort of thing we need.

As the Minister set out, R&D is an important part of the Government’s aspirations, yet, in reality, R&D spending has been cut back by the pushback of two years. That makes achieving the 2.4% GDP target all the harder, particularly in respect of getting money from the private sector. Tax reliefs will not be enough, so can the Minister tell us what else the Government are going to do to get that money?

In conclusion, this was a time for important questions to be answered. What does the digital and green future look like and how is it funded? What does the levelling-up and rebalancing of our economy mean and how can we deliver it? What will the skills revolution actually be like and how will it be delivered? Yet, in spite of taxes being raised to the highest level in my lifetime, these questions remain unanswered. Instead, what we have seen and what people tell me they have seen is a disjointed collection of press releases. It is a shame that the Government did not use this opportunity to address the real issues facing the country.