Budget Statement

Lord Turnbull Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Turnbull (CB)]

My Lords, as headlines scream “State spending and taxes at the highest since Clement Attlee”, I wonder whether the Budgets of 2021 and the health and social care levy could prove a turning point in our history. With the framework for debt and borrowing set out in the charter, which is not much changed from Gordon Brown’s, all that remains to be fixed are the levels of tax and spending. As others have noticed, the most interesting passage in the Budget speech was the Chancellor’s apology, regretting that taxes and spending were so high but assuring his supporters, “That is not the real me; I still believe in lower taxes and a smaller state”.

Yet there are a number of forces pushing state spending up over time as a proportion of GDP. The first is pure demography. Over the past 60 years, the proportion of the population of pensionable age has roughly doubled. Spending on healthcare and pensioner benefits combined has gone up from 6.8% of total spending to 14.2%. I do not think this will be reversed. The next is the relative price effect or, to the cognoscenti such as the noble Lord, Lord Eatwell, the Baumol effect, whereby the prices of services, especially public services, tend to rise faster than prices generally, as there is less scope for raising productivity to offset rising wage costs.

The third influence is that the basket of goods and services we may choose may change as society gets richer. The cognoscenti—again, the noble Lord, Lord Eatwell—call this the income elasticity of demand. I used to believe that, as we got richer, we would want to pay for more out of our own pockets. I now believe the opposite: as countries get richer, people want more of what the state provides—what used to be called a social wage—relative to what they finance out of their own pockets.

Why do I think this will happen in the UK? As we get richer, we may care less about getting a little bit richer, but more about protecting the standard of living we already have from the risks and vagaries of life. With its power to pool risks, the state is equipped to meet this preference by protecting us from adverse effects beyond our control. When we get ill, we want treatment. When we get frail, we want care. When a crime is committed, we want justice. When trust in the financial system collapses, we expect the state to intervene. We want to be safe on our streets. If we lose our job, we want a safety net and help back into work. We want our children educated. These are all components of our standard of living.

What strikes me about life in this country is how precarious it is and how weak is our resilience. Small events can have damaging effects. A small variation in weather patterns can trigger an energy crisis or flood our homes; even in good times, the NHS always operates on the limits, so that any shock quickly causes waiting times to grow; court cases are backing up; a small increase in traffic quickly leads to congestion. Public services need to be planned with more spare capacity.

The objection to providing a more generous social wage is said to be that it would impoverish us. But look at the standard of living in northern European countries which have much higher spending and taxes. Over the decade of Osborne/Hammond austerity, the fear narrative was that we had to pay down the deficit or we would impoverish our children. This ghastly phrase ignored the falling costs of government debt and the Government’s ability to borrow to invest. I believe this was a deliberately deceptive narrative, which used the debt argument to conceal a different policy: consciously reducing the size of the state, a policy which, if openly avowed, would have got little support.

While this greater realism about public spending is to be commended, important issues are unaddressed. Universal credit serves two different though overlapping groups: those who move in and out of work and those who rely on it for continuing support. The rate of benefit needed for the former does not need to be as high as that for the latter. People can get by for a few weeks or months if they can postpone some lumpy spending until they get back to work. However, those who depend on universal credit continuously cannot do that. Making the taper for those in work more generous is welcome, but cancelling the £20 addition for those on continued benefit is simply mean.

The second omission is council tax. The Government have accepted that business properties should be revalued regularly, but council tax values and bands have not changed for 30 years and have not reflected changes in relative property values across regions. The system has become massively regressive. Three things need to happen: first, a commitment to regular revaluations; secondly, several additional bands at the top going up to, say, £2 million; and, thirdly, changing the coefficient that limits the tax on the more valuable properties to no more than 2.5 times those at the bottom. Some argue that this is turning council tax, which was meant to be a charge for local services, into a wealth tax. So be it. Wealth embodied in housing is hugely undertaxed. There would be grumblings about taxing hard-earned savings, but that is nonsense. Half my wealth is embodied in the value of my house, which has increased tenfold in 30 years. I have not paid a penny in CGT nor have I moved into a higher tax band. Far from being hard-earned savings, this is a windfall worth about £1.5 million from living in a prosperous neighbourhood in London.

There is a gaping hole in the current social care plans. It is the estimate of what on average it costs per week to provide care. Let us call it £500, although it will vary by location. If that is not built into the financing of local authorities, they will not be able to pay care home providers enough to cover their costs. The result will be that either the number of care places contracts, something that is already happening, or care providers will go on charging those who are privately funded 50% or even 100% more than is being charged for people sponsored by local social services. That is an injustice. This figure for the reasonable cost of providing care rather than what the family actually pays is important for another reason, because it is the figure that will count towards reaching the £86,000 threshold at which the state chips in. If this figure is set too low, it will take families years to benefit from the cap.

How to sum up this Budget? When George Bush Senior was seeking the presidential nomination in 1988, his catchphrase was:

“Read my lips: no new taxes”.


The Chancellor’s catchphrase should be: “Don’t read my lips: taxes will stay high”.

Before I sit down, I congratulate the right reverend Prelate the Bishop of Newcastle on her service in church and state. I was present for her maiden speech in March 2016. It was a breath of fresh air—vigorous and positive—and it led me to conclude that the bishops’ policy of retirement and refreshment may be one that other parts of the House ought to look at.