Budget Statement

Lord Fox Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord Fox (LD)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Bellingham. In fact, compared to many speeches he was very restrained in both time and content.

If I were writing a review of this debate, it would be “an eclectic debate with something for everyone”, and that is what we normally expect from your Lordships. I have to both praise and apologise to the noble Baroness, Lady Moyo: by all accounts hers was a fabulous speech, but unfortunately I was unavoidably hooked out of this Chamber during it. I look forward to reading it but also to being in the Chamber when she participates in future debates.

Yesterday, at the other end of this building, a slew of relatively modest changes, with a couple of larger long-term plans, was announced with what I would call traditional ballyhoo. It is worth putting that into some context: at the same time, across the UK, people were not listening to it because they were busy trying to negotiate the problems and impediments in their own lives. As the Chancellor rose, pensioners glanced at their smart meters and worried; parents juggled problems of childcare and work on a school strike day; a pair of young people looked at the cost of a mortgage and then went back to looking at the possibility of renting accommodation, something that my noble friend Lord Lee emphasised. Elsewhere, local businesses put “situations vacant” notices in their windows with little hope of recruiting anyone; manufacturers in their offices wrestled with paperwork that they now need to send their products to France or Germany; and in our hospitals, the effects of the first ever doctors’ strike caused the cancellation of already-delayed treatments, something that my noble friend Lady Brinton emphasised. Meanwhile, in Ukraine, young soldiers were fighting and dying for their freedom; on the beaches of Calais, refugees were wondering how or indeed if their flight from oppression would end; and around the world the global temperature rose by just a little bit more. That was the news agenda and the personal agenda that were going on as the Chancellor spoke. Nevertheless, he got his day in the sun.

We normally expect a little theatre, a flourish, but there were no rabbits—and no hat. Indeed, the childcare bunny, which had apparently been held back for theatrical purposes, had somehow escaped the night before, so instead the Chancellor had to settle for what was in the end a résumé of his department’s leaks. Still, it is convenient to have all the department’s press releases in one document. That the event held no surprises is something to be celebrated, particularly when we compare it to his immediate predecessor’s version of excitement and surprise.

Of course, as with all Budgets, the real news is not the announcement but the details and the analysis of them that emerges later, and that is just starting now. I have to say that the noble Lord, Lord Skidelsky, has done much to undermine my faith in economics. As a chemist, I have an absolute view of the world, but I fear that that is being eroded.

The first statistics concern inflation and, as we saw, the OBR predicts that that will be 2.9%. Whether or not that turns out to be true, the fact is that over the past year inflation has been running at double-digit levels so, whether or not the rate of increase falls, the place where most families find themselves today is very much higher in price and very much harder to afford than it was a year ago.

We must remember the other fact, rather than projection, is that wage increases are running at well below that rate of inflation that we have experienced: 3% to 4% in the private sector and much less in the public sector. So, as we know, real disposable incomes will continue to be hit further as we go forward.

I turn to growth. Again, the noble Lord, Lord Skidelsky, undermined these numbers, but these are the numbers that the Chancellor used. The Chancellor calls what is in essence around 2% per year over the next four years a Budget for growth. Well, as the noble Lord, Lord Bridges, so eloquently set out, 2% per year is not going to touch the growth in need that is out there, never mind the demographics, the cost of debt and all those things. This 2% per year on average is not the growth that will sustain the challenges we have ahead of us.

One thing I think we can put more stead in from the OBR is the scale of the impact of freezing the income tax thresholds. This freezing will lead to a tax rise of £12 billion in 2023-24. This compares to the cost of £3 billion in the same year of extending the energy price guarantee for three months. The Chancellor gave with one hand, but is taking away a great deal more with the other hand. Over time, this freezing of tax thresholds will lead to a total stealth tax rise of nearly £30 billion by 2027-28, or a total of £120 billion over the coming five years, with 3.2 million people dragged into paying income tax and 2.1 million paying at a higher rate. These compound the Government’s historic place as the party of high tax and more than wipe out the meagre support that families were getting over energy bills. At a time when inflation has put so many people under so much pressure, people’s budgets are being hit again, but in a way that is being sneaked in rather than properly announced. If the Chancellor had announced what I think adds up to a rise of about 4 pence in the pound in income tax, you could imagine the outcry.

Moving on, there is much talk about the UK being a science superpower and I am sure we all share ambitions of leveraging our excellent science and learning understanding in this country. Many of us felt that, after the Windsor Framework, it would clear the way for the UK rejoining the pan-European Horizon R&D programme, which by all expert analysis is something from which the UK takes far more than it puts in. But once again we have heard nothing. I ask the Minister: what is the blockage on this issue? When will a decision be announced?

Another theme that should have run through the Budget is the competitive threat posed by the US Government’s Inflation Reduction Act green subsidy programme. A number of your Lordships mentioned this. I remind your Lordships that the so-called IRA is a $369 billion subsidy package on offer throughout the US and it sits on top of a $280 billion CHIPS and Science Act as well. The IRA completely relaxes state aid rules for green industries and really has changed the global game for green investment. Across the world, big global businesses are relocating or planning to relocate their developments to the US to take advantage of this scheme. The EU has had to respond, and is going to announce its net-zero industry Act; we will see how many hundreds of billions of euros are in this pot. So where in this Budget is the equivalent British response? Well, I cannot find it.

I did hear a promise by Chancellor Hunt of funding of £20 billion over 20 years for the nascent carbon capture sector. But let us face it, set against the US model, £1 billion a year is unlikely to unlock the level of investment in carbon capture, clean energy and hydrogen infrastructure that is required to meet climate targets.

Meanwhile, by changing the taxonomy of nuclear energy, any money that could have been spent on a variety of technologies that would deliver near or medium-term progress is now likely to be diverted into Great British nuclear and SMRs. I have a word of warning on SMRs for enthusiasts: no one has built one yet. We will all be looking at the economics and the timelines—[Interruption.] The noble Lord, Lord Howell, shakes his head from a sedentary position, but there is not even a prototype.

The replacement of the super-deduction with something not quite as good is helpful for large taxpaying businesses, and the enhanced R&D tax credit is a good step towards promoting innovation. However, the large proportion of firms that fall outside the 40% intensity threshold will be left feeling mystified by the change in policy since last autumn. R&D tax credits had been a very effective way to create cutting-edge products and services in the small business community, and their loss is felt. Of course, the company has to be in a position to invest. British Chambers of Commerce highlighted in its recent survey that half of its businesses will be struggling to pay their energy bills in April, so investment or any help they might have with it is a rather theoretical exercise.

There are 5.5 million small businesses and 16 million people who work for them, and if the Chancellor hoped to woo small businesses, the signs are that he failed. Responding to the Budget, the Federation of Small Businesses said that it

“will leave many feeling short-changed. The distinct lack of new support in core areas proves that small firms are overlooked and undervalued.”

It sees support being focused on large companies. It would be interesting to hear the Minister’s view on whether small companies are being helped as much as large companies. Also, there is nothing new yet on business rate reform, so can the Minister tell us when we might see something on that?

The Chancellor announced 12 investment zones across the UK. The Minister praised Docklands as an example. Can the Treasury remember how much public money went into Docklands to make it what it is today, and is it planning to put the same level of public money into all 12 of the new investment zones? If so, where is this money coming from? We are also concerned about the lowering of good regulation for both the environment and workers’ rights. I should appreciate it if the Minister could give some assurance that there will be no dilution of employment or environmental regulations in those zones.

Your Lordships would expect me to say that a major flaw in this announcement is the total lack of an industrial strategy—something I have talked about a lot. Investment zones or freeports are no alternative to that. This hole is huge, and we are missing the overall strategy to develop future green industries such as green hydrogen, offshore wind and e-vehicles. Nothing in this Budget will deliver the gigabattery plants we need.

However, I do welcome an old friend. The £100 million innovation fund announced for Greater Manchester, the West Midlands and Glasgow has now been announced three times—so welcome back. The Chancellor and your Lordships have had a lot to say on getting more people back into the jobs market, and here I agree that there is no silver bullet. There are a lot of different measures in this Budget focusing on health, pensions, welfare and childcare, and many of your Lordships spoke at length on them, so I do not propose to reproduce those comments. In the end, success in all of these will be measured by results, and results come from effective implementation of these policies. Implementation is something many Governments have struggled with over the years.

The health checks may deliver results, but would not putting more money into delivering better primary healthcare be a way of improving the health of our age 50-plus employees? Pensions thresholds are aimed at one very specialised end of the market, and it will be interesting to see whether this achieves what is intended. My feeling is that this is a multidimensional problem that a single £1 billion solution is trying to solve. I think it unlikely that we will get what we want or, indeed, get value for the money we are putting in. However, I understand why the Government are trying.

The welfare changes are complex but should be seen in the context of the huge cuts that are already baked into the welfare system, but which do not kick in until after the end of this Parliament. I suggest that, taken with the increased pressure on people to work, the poorest will suffer the most. That is usually what happens when welfare changes.

The childcare changes are potentially very significant and are welcome, with two provisos. The first is that the services have to be available, staffed and economically viable, which comes down to delivery. Secondly, they will not happen for some time. The nine month-old baby who will benefit from this new policy has not been born.

Finally, I would like to suggest an untapped source of tens of billions of pounds. This does not mean a new tax or require cuts in public spending; it simply requires properly collecting the tax due that has not been paid. In January, the Commons Public Accounts Committee found that an “eye-watering”—its hyperbole, not mine—£42 billion in unpaid taxes are owed to HMRC. Some 5% of owed taxes remain uncollected. There seems to be neither the staff nor the will to collect this cash. I ask the Minister: why not? It is not as if we do not need the money.

The Chancellor, in delivering his speech, said that his plan is working. Others will judge that. The pensioner freezing in a cold house; the family struggling to balance their lives; the chronically ill person awaiting treatment; the business team trying to keep their enterprise afloat: they will be the judges of what is working and what is most definitely not.