Budget Responsibility Bill

Sarah Olney Excerpts

2nd reading
Tuesday 30th July 2024 Commons Chamber

[Sarah Olney (Richmond Park) (LD)]

It is a pleasure to see you in the Chair, Madam Deputy Speaker; congratulations on your election.

The Liberal Democrats understand the importance of a stable economy to the wellbeing of our nation, and we will support the Bill as it makes its way through Parliament. We have seen the effects of the chaos and uncertainty wrought by the previous Conservative Government in their horrendous mismanagement of the economy, and we know that future prosperity can be built only on a firm foundation.

The former Member for South West Norfolk may have intervened to prevent officials from using the phrase “disastrous” mini-Budget in the King’s Speech document, but this was a disaster for which many millions across the country continue to pay the price. Liberal Democrat MPs have been returned to this House in greater numbers than ever before, because we understand how much our constituents have suffered from the increase in mortgage payments, higher fuel bills and escalating food prices that resulted from the disastrous mini-Budget. We will do all we can to tackle the cost of living crisis being felt by so many, and we welcome the new Government’s commitment to building a strong platform for economic growth. We welcome the Bill as a symbol of strengthened fiscal responsibility and transparency, which we hope will prevent a repeat of the Conservatives’ disastrous mini-Budget under Liz Truss from ever happening again. After the turmoil of the outgoing Conservative Government, we welcome the seriousness of intent from this Government as they rebuild trust with the financial markets and the business and financial sector as a whole.

The financial irresponsibility and unfunded tax cuts in the mini-Budget sent mortgage rates soaring and continued a pattern of low growth, falling living standards and business uncertainty under the Conservatives. Millions of people across the country continue to see the devastating impact of their disastrous governance in their food and energy bills and to feel its heavy burden in their personal finances.

A recent report from the Institute for Fiscal Studies shows that 320,000 people have been pushed into poverty because of mortgage interest rate rises caused by the incompetence of the previous Conservative Government. It has been devastating to hear the stories of so many households dragged into poverty, and to know that so many families are struggling under the worst cost of living crisis in a generation. It is painful to reflect on the thousands of people who were hoping to make progress in their life and improve the circumstances of their family, but find themselves pulled backwards by the weight of the costs now piled upon them. The IFS report tells us that the number of adults unable to keep their home warm enough increased from 1.8 million in 2020 to 4.6 million in 2023. The IFS attributes that increase to the rise in mortgage interest rates during that period. The statistic lays bare in shaming detail the enormous and ongoing impact that the Conservatives’ disastrous mini-Budget had on all our lives.

The positive responses that this Bill has evoked from the broader business and finance sector are indicative of the desire for industry stability. We welcome the engagement from economists and industry experts, who advise of the Bill’s beneficial impact on confidence in public finances. Even the former Chancellor, the right hon. Member for Godalming and Ash (Jeremy Hunt), has acknowledged that he is minded to support the Bill. We will carefully scrutinise its details to ensure that it will achieve its intended aims. In particular, we will look closely at the threshold for fiscally significant measures, set out in the legislation as measures worth at least 1% of GDP or approximately £30 billion, and will consider whether that provision could be circumvented by Government announcing major changes just below that threshold.

The proposed terms set a substantial threshold that would have to be reached before the OBR could insist on intervening. That raises questions about how easy it would be for a Government to skirt the rules and avoid scrutiny from the watchdog. We understand that the bar has been set relatively high to prevent a large-scale irresponsible fiscal event, such as the disastrous mini-Budget, but we are aware of the limitations that places on the Bill. In particular, an announcement could have a largely indirect fiscal effect—it could have an impact on the economy, but come at a small up-front cost to the Government—and therefore not trigger the fiscal lock. We therefore ask the Chancellor: can a GDP measure alone adequately capture the impact of a spending or taxation measure on the economy? Should the Government examine the possibility of using additional criteria in establishing the threshold?

We must consider the wider context in which the Conservatives’ damaging mini-Budget came about to determine whether the measure that we are debating would be sufficient to prevent such a disaster ever happening again. The Conservatives’ period in government, and the last two Parliaments in particular, were characterised by a distaste for the institutions that provide checks and balances on power, and efforts to actively undermine them. Throughout the past few years, we have seen attacks on the judiciary, the civil service, the BBC, the Bank of England, the EU and any British citizen who dared express the view that the Government’s botched Brexit deal was doing enormous damage to our economy. We have seen the provisions of international treaties airily discarded. Conservative Ministers even illegally prorogued Parliament. Even now, in the Conservative party leadership contest, it seems that the one thing all candidates agree on is a promise that the UK will leave the European Court of Human Rights.

The disastrous mini-Budget emerged from the philosophy that the power of central Government, exercised by successive Conservative Prime Ministers, can trump that of other vital independent institutions, and it is precisely that philosophy that we must never again see from Government. The ongoing failure of the former Member of Parliament for South West Norfolk to apologise for the disastrous mini-Budget underlines the fact that she thinks she was both entitled and correct to unleash it on an unsuspecting country that voted for neither it nor her.

Truly addressing the causes of the systemic failure that led to the disastrous mini-Budget will take a great deal more than this Bill. It requires the Government to work alongside institutions that exist to support and challenge their decision making. It requires the Government to submit their proposed measures to parliamentary scrutiny. The Liberal Democrats think that reforms devolving power to local bodies to decentralise decision making would also strengthen our ability to take long-term decisions in the national interest. This Bill and other measures are encouraging signs of this new Government’s intention to ensure that those in power act with more integrity and transparency, but ultimately, unless all Governments are committed to upholding the principles of fiscal responsibility, transparency and sound governance, the risk of future disasters such as the mini-Budget will remain.

In our general election manifesto, we set out the need for every fiscal event to be accompanied by an independent forecast from the OBR. More broadly, we wish to see the Government foster stability, certainty and confidence by managing the public finances responsibly, getting national debt falling as a share of the economy and ensuring that day-to-day spending does not exceed the amount raised in taxes. We must make the tax system fairer by asking some of the wealthiest companies in the world to pay their fair share—the big banks, the oil and gas producers and the tech giants—instead of adding even more to the burden on hard-working families. To improve stability and growth, we need to fix our broken trading relationship with Europe and set up an industrial strategy, helping to make Britain one of the most attractive places in the world for businesses to invest. We must work in partnership with responsible, sustainable businesses to tackle the climate emergency, and spur the growth that is needed for investment in health, social care, education and other essential public services.

Responsibly managed public finances are essential if we are to have the stability, certainty and confidence that drive economic growth, and they are vital in getting mortgage rates under control, too. Under the outgoing Conservative Government, we found out just how much pain and damage can come from fiscal irresponsibility. The Liberal Democrats want a thriving British economy that provides jobs and opportunities and is attractive to businesses and investors. We welcome this Bill as a useful step in that direction that will help to improve long-term stability and responsible economic management.

[Richard Tice (Boston and Skegness) (Reform)]

On a point of order, Madam Deputy Speaker.

Budget Responsibility Bill

Sarah Olney Excerpts

Committee of the whole House
Wednesday 4th September 2024 Commons Chamber

[Ms Creasy]

It will not surprise my hon. Friend that I agree with him not just about his football team but in his analysis. The legislation is about having better fiscal rules and tougher constraints when Governments make decisions. We saw with the Liz Truss Budget how catastrophic those decisions can be.

Many Members will have come across PFI in their constituencies, but it is worth putting on the record just how big it is, because that is relevant to the legislation. We are talking about 700 projects, but each project can be hundreds of individual buildings. One of those 700 projects is made up of 80 schools, for example, which shows the scale that we are talking about. About half of PFIs are held between the Department of Health and Social Care and the Department for Education. That is how we built desperately needed schools and hospitals, but the cost is absolutely critical.

Some NHS trusts are now spending 13% of their total budget on PFI repayments—£2 billion a year for some. In practical terms, that means that some trusts are spending more to repay what is essentially a payday loan for the public sector than they are spending on drugs for their patients. It is a huge drain on our public finances. In 2020, during the pandemic, Norfolk and Norwich University Hospitals NHS Foundation Trust paid £66 million to service its PFI commitments—the same amount that it spent on lab equipment, surgical tools and personal protective equipment. University College London Hospitals NHS Foundation Trust has already paid out £200 million in dividends to the company that owns its PFI, so the money is not just going to repay a debt for building a hospital; it is going out in pure profit to those companies. That is why I draw the parallel with payday lenders and buy now, pay later companies: once you are hooked in, you have to keep paying the debt.

It is not just a problem in the NHS. Hanson academy in Bradford has reached a debt of £4.16 million because of its PFI debt. It is now referred to as the UK’s “orphan” school because nobody wants to run it or take it over, given its financial position. Liverpool city council pays £4 million a year for Parklands high school, which was, again, built under PFI but is no longer needed because of falling school rolls. The council has roughly £42 million left to pay back on that contract for an empty, dead building. The equity solutions company that owns it has posted profits of £340,000 from that project this year alone.

PFI companies have made £111 million in pre-tax profit from education projects alone. That is about £800,000 per project, and the equivalent of 5,5000 new teachers’ salaries. The companies took on the risk of those deals to rebuild our public infrastructure, but the reality is that we do not let schools and hospitals go bust, so they took on the ability to print money. That is what the deals are doing. I will wager that every new and returning MP has had a conversation with someone in local government, a local hospital or a local school who talks about the damage that PFI is doing to their budgets, as if it is non-negotiable.

My amendments are about changing that culture. One challenge is that we have let those companies run rampant. That does not mean that we should not work with the private sector; it means that we should learn lessons, and I think we could learn some very simple ones. For a start, a lot of the companies are incorporated in overseas territories, which raises questions about the amount of tax that they are paying on those deals. Tax was originally part of the Treasury assessment of the deals, which was why working in that way was considered good value for money, and why my hon. Friend the Member for Blackley and Middleton South (Graham Stringer) was told that it was the best way to get a school or hospital.

We could also learn from payday lending by capping what the companies pay. After all, we cap the returns on defence projects. It makes no economic or ethical sense that we cap what can be earned from a military contract, but when someone builds a school or a hospital, they have free rein.

Above all, we need to know how much we owe, because even the Infrastructure and Projects Authority within Government could not get a grip on the total reality of our PFI commitments to date. That is partly because this has been done at a local government level, through devolution and in silos within companies, but it seems a very simple thing: even if those debts are being held overseas, the people paying them are very much here. In Northampton, there are 42 schools costing £30 million per annum, including £4.2 million in pre-tax profits in 2021-22, and Northampton’s budgets as a local authority are in a very difficult position right now. The firm that owns all those schools is based in Guernsey. In Birmingham, 11 schools are part of the Birmingham Schools Partnership, owned by Innisfree. Innisfree owns 260 schools across this country, as well as my local hospital in Whipps Cross. It is based in Jersey and is making millions of pounds in profit from these deals. We have never consolidated those loans to ask ourselves whether we could renegotiate them as a country and therefore claw some money back, because we do not know who we owe what to, or how much it is going to cost.

Amendments 6 and 7 deal with the challenges posed by the threshold of this legislation. It is absolutely right to set a threshold for what is fiscally significant, and individual PFIs would not go anywhere near a threshold of 1% of GDP, which is about £28 billion. However, when we add them up, it is very clear from what we already know about our PFI commitments that they do. As such, these amendments are intended to probe the Government about how we deal with debts and spending that might not meet that threshold individually, but might do so cumulatively, and to look at what we can do in the future to make sure that if we work with the private sector—again, I am not saying that we should never do so; I am saying that we should learn from PFI—we make better decisions. After all, this legislation is about making better-informed, independent decisions.

That is why I also tabled amendment 8, to learn the lessons from trade deals. The hon. Member for Arundel and South Downs is right: the Government’s decision to go for the trade and co-operation agreement—the hardest of Brexits—has cost us an estimated 4% of GDP, so again, that would be a fiscally significant decision. It would be as catastrophic as that Liz Truss Budget—indeed, many of us can see that it has been—but we did not have an independent assessment. Amendment 6 and amendment 7, which is an enabling amendment, would ensure that we have an independent assessment of cumulative spending looking at these issues.

I know that the Minister is as interested as I am in what we can do to tackle the drain that PFI represents and work better with the private sector. I hope that this legislation and the concept of putting PFI on the books is the start of a conversation about better public spending, and I hope that Toad of Toad Hall will recognise that maybe this time it is good that they are in the passenger seat.

[Sarah Olney (Richmond Park) (LD)]

I will speak in favour of amendments 1 to 4, which were tabled in my name. Once again, I welcome this Bill and this Government’s intent to rebuild trust with the financial markets and across our economy as a whole. The Liberal Democrats are optimistic about the new Government’s stated commitment to building a strong platform for economic growth, particularly after years of Conservative turmoil. I remain hopeful that this Bill can support fiscal responsibility and transparency and help prevent a repeat of the Conservatives’ disastrous mini-Budget. The amendments tabled in my name would strengthen the legislation so that that aim can be achieved.

I welcome the concern that the hon. Member for Arundel and South Downs (Andrew Griffith) has shown for my constituents in Richmond Park and their thoughts about this legislation, but I wonder where his concern for my constituents was when the Government of which he was a part cheered on, championed and voted for that disastrous mini-Budget that so undermined our stable economy, to the detriment of the wellbeing of individuals, communities and businesses.

Liberal Democrats understand how much our constituents have suffered from the increase in mortgage payments, higher fuel bills and escalating food prices. We understand the disastrous effects of the chaos and uncertainty wrought by the previous Conservative Government in their horrendous mismanagement of the economy, and we know that future prosperity can only be built upon a firm foundation. We know the heavy burden that our constituents continue to feel in their pockets and their personal finances, and we know that they deserve better.

As I have previously acknowledged, the broad positive response that this Bill has evoked across the business and finance sector is indicative of the desire for stability, and we welcome the engagement from economists—such as the new hon. Member for Loughborough (Dr Sandher), who I wish well in the beard of the year contest—and industry experts who advise of the beneficial impact this Bill will have on confidence in the public finances. We have carefully scrutinised the details of the Bill to make sure it will achieve its intended aims.

In particular, we have looked closely at the threshold for fiscally significant measures, which will be set at 1% of GDP or approximately £30 billion, and whether the proposed fiscal lock could be circumvented by Governments announcing major changes that fall just below that threshold. Although we understand that the bar has been set relatively high to prevent a large-scale irresponsible fiscal event such as the disastrous mini-Budget, we are aware of the limitations this places on the Bill, especially when it comes to measures that might have relatively small up-front costs to the Government but significant indirect fiscal or economic effects. I therefore ask Treasury Ministers whether a GDP measure alone can adequately capture the impact on the economy of a spending or taxation measure, and whether the Government should examine the possibility of using additional criteria when setting the threshold.