Economic Update

Lord True Excerpts

Wednesday 19th October 2022 Lords Chamber

[Lord Newby (LD)]

My Lords, when I think of the noble Lord, Lord True, a number of words normally spring to mind. However, the word which springs to mind today is not normally on that list—it is “sympathy”. I have great sympathy for the noble Lord having to defend the Government’s action on their fiscal policy as he is being asked to answer questions on the most comprehensive government U-turn in his and most of our political lives. Never mind the Prime Minister: I am sure he must have been inclined to hide under his desk. But we are extremely grateful to him that he chose not to do so.

To read or listen to the Chancellor’s Statement, you would think that the screeching reversals of policy which it contains had nothing to do with the actions of the Government themselves—actions they took only three weeks ago. The Statement stresses the necessity of there being “trust and confidence” in the national finances. It acknowledges that trust and confidence have evaporated. It therefore reverses virtually all the tax changes announced on 23 September that had not already been reversed and then says that “decisions of eye-watering difficulty” will still be needed to restore economic stability.

There is no acknowledgement that the only reason the Statement was necessary and the only reason there was a collapse in trust and confidence was because of the actions of the Government. There was no contrition or apology. Instead, as the noble Baroness pointed out, there was the ludicrous suggestion that the only reason why we have a crisis is that the 23 September Statement was not accompanied by a forecast from the Office for Budget Responsibility—one which, incidentally, the OBR offered to produce and the Government refused.

In fact, the only reason we have a crisis is that the Government acted with breathtaking irresponsibility and in the amazingly naive belief that the markets would believe that future shortfalls in government finances could be met by completely implausible projections for future growth in GDP. What the crisis has demonstrated is that the markets are not as naive as the Government and that no Government can buck the markets simply by a combination of bluster and chutzpah.

The silver lining is that, for the foreseeable future, no UK Government, inspired by either right-wing or, for that matter, left-wing ideology, will dare to try to pull the same trick again. But in the short term we are faced with the eye-wateringly difficult decisions which the Chancellor is set to announce on 31 October. It looks as though these decisions will concentrate on public expenditure cuts. There is some suggestion that the Government are revisiting the possibility of a windfall tax on the oil and gas producers to produce real revenue, which is long overdue. But that is only a small part; the main thing will be big cuts in public expenditure.

There is a whole range of questions relating to these possible cuts which I would like to put to the noble Lord. I would like to ask whether benefits will be uprated in line with inflation rather than earnings. I would like to ask about the future of social care provision. I would like to ask about possible further cuts to overseas aid. I would like to ask what level of support the Government will be able to provide for energy bills beyond next April, and what the consequences of the withdrawal of support will be on the level of inflation. I would also like to ask which infrastructure projects will be culled and, in particular, whether the Prime Minister is still committed to the creation of a new railway line across the Pennines. But I realise that there is no point asking those questions today, because the noble Lord will reply simply that everything is currently on the table and I will have to wait until 31 October and, in the case of the longer-term support for energy bills, until the Treasury review is complete.

So instead of asking those questions, I will ask him simply this. What precedent is there for a British Prime Minister being forced to completely reverse the core elements of her programme and remaining in office? What mandate do the Government have for implementing swingeing public expenditure cuts precipitated by their own incompetence? And why do they not now do the decent thing, namely resign and let the people choose who they want to sort out this mess?

[The Lord Privy Seal (Lord True) (Con)]

My Lords, if the call for my resignation was an expression of Liberal Democrat sympathy, I am very grateful for it, but I cannot oblige the noble Lord.

Noble Lords know the situation outside the United Kingdom—I was also asked about the United Kingdom and will come on to that directly. The noble Baroness opposite agreed that there are global issues related to interest rates. I do not think that, in such an intelligent House as this, we should pretend that the issue of rising interest rates across the world is something somehow confected in the City of Westminster. These are grave problems which people are not used to dealing with, having had low interest rates for a number of years, but they are problems that we will have to discuss and address in a mature way.

The noble Baroness talked about inheriting a mess. I have to say—I can share this with my Liberal Democrat colleagues—that I think the 2010 coalition Government knew a lot about inheriting an economic mess after the party opposite had driven the economy literally into the ground.

On undoing everything, which was another point that the noble Baroness made, major parts of the Government’s package to help people—I underline that—remain in being, in particular to help the most vulnerable people. I said yesterday in our brief exchanges that we have already reversed the national insurance increase, which I think was welcome, for workers and businesses across the country—I think the Labour Party was in support of that—and we are just about to discuss a major package to help people with energy bills.

I am asked about the energy review, and it is true that my right honourable friend the Chancellor said that we were going forward and would be looking at whether the forward-looking support on energy could be better focused on the most vulnerable households and those least able to pay—I believe that the parties opposite thought that help should be focused on the most vulnerable and those least able to pay. That review will continue; obviously, I cannot give a precise date for its outcome, but it will issue well in time to deliver for people a sense of what they will be in going forward. However, this winter, in the midst of the crisis, the extraordinary degree of help that the Prime Minister announced immediately on her becoming Prime Minister will go ahead, and it is important that that is not forgotten.

On mortgage rates, I apologise if I referred to a personal case; I always try to see every policy in every part of government not in a personal way but in the way it affects people—that is how you wisely make policy, not necessarily always from think tank documents. As the noble Baroness knows, the pricing of mortgages is a commercial decision for lenders, in which government does not intervene. However, the Treasury is regularly in contact with mortgage lenders on all aspects of their mortgage business to understand their position and the current lending conditions, including, recently, at the former Chancellor’s round table with retail and challenger banks on 6 October.

I repeat that interest rates and mortgage rates have been rising since last autumn in response to global trends, which include—but obviously not exclusively—as my noble friend Lord Forsyth pointed out yesterday, Putin’s illegal invasion of Ukraine. It is not just here in the UK, as I said at the outset of this response; the US Federal Reserve has been raising its base rate since March 2022. I recognise that the Government have a responsibility to provide stability for markets, including for mortgages, and that was one of the reasons why we have taken immediate action, as we have, to ensure the UK’s economic stability and provide confidence in the Government’s commitment to fiscal discipline.

Those of us who remember the terrible inflation rates of the 1970s will never forget its impact on families and businesses, and we well understand that families across the country are struggling with rising prices and higher energy bills. I repeat that this Government will prioritise help for the most vulnerable while delivering wider economic stability and driving long-term growth to help everyone.

On energy, I referred to the energy price package for the winter, which will go ahead.

I must point out that a windfall tax is a one-off tax. However, as I said yesterday, there is already a tax levy on the income of energy companies. That already exists, having been introduced by this Government.

On public spending, as the noble Lord, Lord Newby, said, a Statement will be made shortly by my right honourable friend the Chancellor, and the noble Lord knows that I cannot anticipate that. I can say, as my right honourable friend the Prime Minister said today, that the pensions triple lock will stand. I think that will give a great deal of reassurance to many noble Lords and to those following our debate.

I think my time is up but if I have not answered any questions, particularly on the point about repossessions which the noble Baroness made, I will write to noble Lords. I am sure that those factors will be taken into account by my right honourable friend, but I will get a response on that.

[Lord Forsyth of Drumlean (Con)]

My Lords, does not my noble friend the Minister think it remarkable that, with soaring interest rates worldwide, a dangerous war in Ukraine and double-digit inflation in this country and elsewhere, the opposition parties have nothing to say by way of remedy other than that we should reduce the term of the Prime Minister to less than that of a fruit-fly and plunge the country into a general election? Is that not why this country needs this Government at a time when people are worried sick about how to pay their bills?

[Lord True (Con)]

My Lords, Labour’s spending commitments are about as opaque as the Government’s current ones but at least we are going to publish ours shortly. We all wait to hear what the Labour Party might say. It will face the same constraints on tax and spending as this Government. It has committed to massive excess expenditure but we have seen few revenue-raising proposals. Indeed, the windfall tax would be a one-off and would raise significantly less than Labour suggests. In conclusion, if this does not take away from people’s problems and fears—people are worried about mortgages, interest rates and inflation—let me say that the current central bank interest rate is lower than it was in 11 of the 13 years of the Labour Government after 1997, when average rates approached 5%.

[Baroness Wheatcroft (CB)]

My Lords, the Minister and the noble Lord, Lord Forsyth, referred to the global trends that are causing such mayhem in various countries, including our own. However, those trends were in evidence more than three weeks ago. Can the Minister tell us what the then Chancellor had in his so-called mini-Budget that was not agreed—indeed, encouraged—by the then Prime Minister?

[Lord True (Con)]

My Lords, I am not answering for my right honourable friend the former Chancellor of the Exchequer. I am stating to the House that, given the circumstances we are in and the position I have outlined, the Government, with the intention of ensuring the UK’s economic stability in response to events, have published a way forward. We have published proposals on the fiscal side and will shortly publish proposals on the spending side.

[Lord Liddle (Lab)]

My Lords, if this crisis is all a global crisis, as the noble Lord, Lord Forsyth, claims, why was the gilt market’s immediate reaction to Chancellor Kwarteng’s Statement to increase long-term interest rates in this country to higher levels than they are for Italy and Greece?

[Lord True (Con)]

My Lords, the noble Lord is pretty well informed about the economic position in other European countries. He will know well that there are grave inflationary problems and problems with interest rates across Europe. There has already been a successful gilt sale this week; I have no doubt that it will continue.

[The Archbishop of York]

My Lords, I do not pretend to know the ins and outs of exactly where we find ourselves but I serve communities in the north. I think particularly of people I have met recently in Middlesbrough and Hull, where there were great hopes for levelling up. It now seems a distant dream. I recently visited a school where children go in the morning with an empty lunch box for them to fill up with food from the food bank in the playground at the end of the day. The budget for school meals has gone up by 2% yet food inflation has gone up by more than 10%. We need to make tough decisions—I am glad to hear that the triple lock will remain in place—but, on behalf of the communities where I serve, I must ask this: will benefits rise in line with inflation? If not, millions of people will be moved into poverty. Those who recently donated to food banks are now visiting them themselves.

[Lord True (Con)]

My Lords, I reiterate that the purpose of the Government is certainly to help those who are vulnerable and those living in some anxiety at the moment. That is one of the reasons why we are looking at ways of concentrating the energy help on the most vulnerable as we go forward, after dealing with the immediate crisis. I assure the most reverend Primate that the levelling-up programme will continue. Many of the growth measures that were announced will also continue. I hope that if local authorities in his area wish, for example, to set up investment zones to attract jobs and investment in the way that the Government would like to see, then he will, with his great leadership role in the community, give support to such propositions.

[Lord Fox (LD)]

My Lords, until about a week ago, the whole Cabinet and most of the Members opposite were proclaiming that the only way to deliver growth was through a whole suite of tax cuts. We now know that almost all those tax cuts have been reversed, so what is the plan for growth, how much growth does the Minister expect, and when can we start seeing the measures that will deliver the growth that we need in this country?

[Lord True (Con)]

My Lords, we will continue to go for growth by delivering support for families who need it most—for example, by cutting the tax burden that would have taken place with the national insurance tax. That levy reversal will give 28 million people an average of £330 a year. We will go for growth by launching investment zones, as I said when responding to the most reverend Primate. We will introduce minimum service levels for transport services shortly in Great Britain, to ensure that strike action cannot derail economic growth; I look forward to support from the Liberal Democrats for that legislation. We will accelerate infrastructure projects across the country and have announced over 100 of them for transport and energy. We will also speed up delivery to undertake the complex patchwork of restrictions and EU-derived law.

[Lord Howell of Guildford (Con)]

My Lords, does my noble friend agree that, thinking about the future and the practical situation that we are in, there is quite a lot of sense in reviewing the energy cap again in April 2023, provided that it does not push up the CPI, because every time that happens it increases government expenditure elsewhere? There is a growing realisation that, next year, energy prices internationally—oil and gas—need not rise nearly as fast as they have in the past. There are some signs of fall already. Therefore, if we can organise effectively an international co-operation with other major consumer countries in persuading the powers-that-be in the production world to increase oil and gas production, including America, OPEC and other countries, the difficulties of Russian withdrawal can be overcome, and we can see a much more favourable inflation rate. That in turn will begin to unwind all these worries about benefits matched to inflation and demands for wage costs well above 5%.

[Lord True (Con)]

My noble friend, with his immense experience in the energy sector, has been something of a voice crying in the wilderness on energy policy over decades under different Governments. His point about volatility is critical and is one of the reasons why we must review the nature of support going forward. Obviously, we will need to talk, and are talking, to other energy producers. We have had a very sharp increase. There have been significant fluctuations. We introduced an energy profits levy, an additional 25% tax on the profits of oil and gas companies which, listening to people on the opposite Benches, you would not know had even happened. That is going forward and is not a one-off. It will raise £7 billion this financial year and £10 billion in the next. We are looking to iron out the contracts to help renewable energy industries and there is a package that I hope will come forward before too long.

[Baroness Lister of Burtersett (Lab)]

My Lords, the noble Lord did not answer the very specific question from the most reverend Primate about benefits uprating. On Monday, the Chancellor told MPs that

“all these decisions will be taken through the prism of the impact on the most vulnerable people in society.”—[Official Report, Commons, 17/10/22; col. 429.]

Many of the most vulnerable people in society rely on social security and, as we have already heard, the inflation rate they face is actually higher than the 10% announced today. Given this, is there not a strong case for the Government to announce now that they will uprate benefits in line with inflation to reduce the anxiety being faced by people who are, as we have heard, already struggling to make ends meet?

[Lord True (Con)]

My Lords, it is absolutely true that people across the United Kingdom are worried about the cost of living. I apologise if I did not answer the question from the most reverend Primate; I will answer it now, but it might not be the full answer required. It is not always easy to remember everything that one is asked at the Dispatch Box, so I sincerely apologise to the House. The Government have announced £37,000 million of support for the cost of living this financial year. We have the energy price guarantee and the energy bill relief scheme, which will help millions of households. We are supporting millions of vulnerable households, which will receive £1,200 in one-off support, with additional support for pensioners and those claiming disability benefits, as the noble Baroness knows.

However, obviously the issue of uprating benefits and other aspects of government spending are being considered in totality. The Work and Pensions Secretary is conducting her annual review of benefits and I promise the noble Baroness that more will be said on this in the medium-term fiscal plan.

[Lord Cromwell (CB)]

My Lords, has the noble Lord seen the recent article in the Financial Times that suggests that a future Government of any complexion will simply be a creature of the bond markets and not the other way round? Does he agree, and is that a good thing?

[Lord True (Con)]

I do not know that I do agree. I fear that I am not the most assiduous reader of the Financial Times—certainly not its editorial copy. The Government’s aspiration is to serve the people, not the bond markets.

[Baroness Kramer (LD)]

My Lords, I just point out to the Minister that, even with the list of flimsy growth measures he just described, Goldman Sachs forecast a 1% drop in output in the UK next year—so a recession. That is on the back of these policy announcements. I push him on this: today at Prime Minister’s Questions, if I understood the Prime Minister correctly, she said that there would not be cuts to public spending. She even implied that there would be growth in public spending. Could the Minister clarify if, once again, she was talking in nominal terms—or cash terms, as it is sometimes called? If it is not in real terms, swingeing cuts are on the way.

[Lord True (Con)]

If it is £1 less in real terms, that is an interesting definition of a swingeing cut. A medium-term fiscal plan is going to be published shortly. The noble Baroness and I go back a long way and I have great respect for her, but I suggest she waits for that. I believe the noble Baroness still has interests in the lovely California, so she should understand, from her knowledge of the United States, that there are international issues at play.

[Lord Young of Cookham (Con)]

My Lords, does my noble friend recognise that there will be real difficulty finding anything like the necessary savings by cutting public expenditure? There will have to be some increases in tax. Does he recall that, in the 1980s, my noble friend Lord Lawson aligned capital gains tax and income tax, and said there was no justification whatsoever in capital gains tax being less than income tax? Reintroducing that progressive Conservative policy would save some £14 billion. Will he commend that to the Chancellor?

[Lord True (Con)]

My Lords, I am not going to be drawn on anything in relation to what may be in the medium-term fiscal plan, but I am sure that the Chancellor reads your Lordships’ Hansard closely.

[Baroness Bennett of Manor Castle (GP)]

My Lords, my question follows on from that from the Cross Benches. A surprisingly little remarked element of the Statement is the creation of an economic advisory council with four names. These are a BlackRock portfolio manager, a hedge fund manager formerly at Deutsche Bank and JP Morgan, a hedge fund owner formerly of Goldman Sachs, and a JP Morgan employee formerly of HSBC. The financial sector represented 8.3% of the UK’s total economic output in 2021. Does the Minister see a problem with the composition of this panel? Is it appropriate in representing just a tiny, politically privileged part of the UK economy, about half of the input of which comes from London, drawing on the point made by the most reverend Primate?

[Lord True (Con)]

I am not going to comment on the appointment of advisers, but I am sure that those named, if the noble Baroness has named them correctly, will give the best advice they conceivably can. Often from Green Benches we hear attacks on the financial services sector, and it is quite astonishing that the Scottish Greens in government should adhere to this kind of visceral opposition to financial services. There are more than 2.3 million jobs in financial services, and two-thirds of those are outside London in finance hubs including Belfast, Birmingham, Cardiff, Edinburgh, Glasgow, Leeds and Manchester. Financial and professional services contributed nearly £100,000 million pounds in taxes in 2020.

[Lord Cormack (Con)]

My Lords, will my noble friend accept that what is crucial at the moment is that in the country as a whole there should be real confidence in the credibility and the competence of the Government, and that that means there has to be a Prime Minister who is entirely credible and who enjoys the full confidence of the country, as I believe the Chancellor now does.

[Lord True (Con)]

I have nothing to add to the answer I gave to the noble Lord yesterday.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, the Minister said that the triple lock is guaranteed. At the Conservative party conference, the Prime Minister said it was guaranteed. On Monday, the Chancellor said that he could not guarantee it. Today, the Prime Minister now says she can guarantee it, yet it is the Chancellor who is going to make the Statement on the 31st. Why are we expected to believe that there will not be another U-turn? Can the Minister make sure when he goes to the Cabinet that there is no such U-turn?

[Lord True (Con)]

I have set out the position to the House. That was a good try by the noble Lord but this morning the Prime Minister made a statement in the House of Commons on the pensions triple lock, and that is the position of His Majesty’s Government.

[Baroness Morris of Bolton (Con)]

Does my noble friend agree that alongside supporting families and businesses with their energy costs, it is critical that we work to secure our own long-term energy supplies?

[Lord True (Con)]

Yes, I agree with that, and my noble friend Lord Howell of Guildford has been so wise on this point for such a very long time. Again, this may involve difficult decisions and reflections, and some people may have to lay aside some of their prejudices in the national interest. We will be giving very careful thought to seeking to move towards greater energy independence. I hope that that goal, which must be in the national interest, will allow all of us from different points of views to temper some of our ardour in the collective public interest.

[Lord Stevenson of Balmacara (Lab)]

My Lords, the Minister has been very generous with his time. He has made a number of comments about the integrity of the Government now in place and has stressed the need to go forward, working with the team he has. Can he comment on the fact that the Home Secretary has now resigned?

[Lord True (Con)]

My Lords, obviously, I cannot comment on information to which the noble Lord is privy. I am here as Leader of the House of Lords to serve your Lordships’ House. I give priority to serving your Lordships’ House and have not been looking at WhatsApp during this exchange of views.

[Baroness Smith of Basildon (Lab)]

My Lords, I am grateful for that; the noble Lord is always helpful to this House. It would be helpful if we could have confirmation. The rumours are now that the Home Secretary has been sacked from her post. Given what has been said today about the necessity of a strong and stable Government, can he report back to your Lordships’ House at some point? There are probably Members of this House who would be happy to serve. That might be an answer to help out the Government.

[Lord True (Con)]

My Lords, I have nothing further to add.