Motion to Take Note
My Lords, a spending review is a significant moment in the life cycle of any Government. It is an opportunity to deliver on the priorities of the British people, and, despite the most challenging of backdrops, that is what this spending review achieves.
Given the circumstances, this year’s review sets out departmental resource spending and capital spending for the next financial year—2021-22—and devolved Administrations’ block grants for the same period. It includes multi-year funding certainty for some key existing projects and priority commitments, including health, schools and defence. Its immediate aim has been to protect people’s lives and livelihoods, but it also delivers stronger public services—including new hospitals, better schools and safer streets—and a once-in-a-generation investment in infrastructure.
In their response to the pandemic, the Government have sought to prioritise jobs, businesses and public services. This support has come in many forms, including the furlough scheme, support for the self-employed, grants, loans and tax cuts. There has also been additional funding for councils, schools, the NHS, the charity sector and the cultural sector. This year, the Government are providing £280 billion to help get the country through the coronavirus.
Next year, we will be allocating an additional £18 billion to fund programmes on testing, vaccines and personal protective equipment. We will also be providing, among other things, £3 billion to support NHS recovery, more than £2 billion in subsidies to the rail network to keep the country moving and more than £3 billion to local councils. Much of our response to the pandemic has been nationwide, but we are also providing £2.6 billion to support the devolved Administrations in Scotland, Wales and Northern Ireland. In total, public services funding to tackle coronavirus next year will be £55 billion.
Your Lordships will appreciate that the economic picture is very challenging. The Office for Budget Responsibility forecasts that the economy will contract by 11.3% this year, the largest drop in at least 300 years. The OBR expects that, as restrictions are lifted, the economy will start to recover, growing by 5.5% next year, 6.6% in 2022, then 2.3%, 1.7% and 1.8% in the years following. Economic output, however, is not expected to return to pre-crisis levels until the fourth quarter of 2022. Long-term scarring means that, in 2025, the economy will be roughly 3% smaller than expected in this year’s March Budget. The dual impact of the virus and our necessary response has resulted in a significant increase in our borrowing and our debt. The UK is forecast to borrow the equivalent of 19% of GDP this year, a total of £394 billion. Borrowing is projected to drop to £164 billion next year, £105 billion in 2022-23 and then to remain at around £100 billion, approximately 4% of GDP, for the rest of the forecast.
Noble Lords may well consider this a high price to pay, but the price had we not taken the steps we have would have been much higher. The Government understand that this situation is unsustainable over the medium term and that there is a responsibility to return to a more sustainable fiscal position once the economy recovers. Importantly, we have been able to act in this way because the country entered the crisis with strong public finances. Our actions have proved to be right. Indeed, the OBR, the Bank of England and the International Monetary Fund have all said that our economic response has protected jobs, supported incomes and helped businesses stay afloat.
We have three priorities, the first being to protect health and jobs. I have already noted that the Government’s immediate priority in the spending review is protecting lives and livelihoods. We are doing more to build on the existing plan for jobs, launched in the summer. Nearly £3 billion in additional funding will be made available to deliver a new, three-year Restart programme to help more than 1 million people who have been unemployed for more than a year find new work.
Protecting jobs is also about taking tough, prudent decisions. The reality is that coronavirus has deepened the disparity between public and private sector wages. In the six months to September, private sector wages fell by nearly 1% compared to last year. Over the same period, public sector wages rose by almost 4%. Given that context, the Government cannot justify a significant across-the-board pay increase for all public sector workers. Instead, to protect public sector jobs while ensuring fairness between the public and private sectors, the Government are pausing pay rises in the public sector next year—with two important exceptions. Taking account of the pay review body’s advice, we will provide a pay rise to more than 1 million nurses, doctors and others working in the NHS. Meanwhile, the 2.1 million public sector workers who earn below the median wage of £24,000 will be guaranteed a pay rise of at least £250. The Government are also accepting in full the recommendations of the Low Pay Commission to increase the national living wage by 2.2% to £8.91 an hour, to extend this rate to those aged 23 and over and to increase national minimum wage rates. Taken together, these minimum wage increases should benefit around 2 million people.
I hope noble Lords will agree that the Government have been right to protect lives and livelihoods now, but it is also a spending review for the future. Next year, total departmental spending will be £540 billion. Over this year and next, day-to-day departmental spending will rise, in real terms, by 3.8%—the fastest growth rate in 15 years. In cash terms, day-to-day departmental budgets will increase next year by £14.8 billion. Crucially, those increases will apply across the entire country. In fact, the spending review increases Scottish Government funding by £2.4 billion, Welsh Government funding by £1.3 billion, and funding to the Northern Ireland Executive by £900 million.
Our second priority is stronger public services. This spending review recognises the priorities of the British people. In the case of the National Health Service, it honours the historic, multiyear commitment the Government have made. Next year, the core health budget will grow by £6.6 billion, allowing the delivery of 50,000 more nurses and 50 million more GP appointments. We are also increasing capital investment in health by £2.3 billion for new technologies and new hospitals. Indeed, the Government are funding the biggest hospital building programme in a generation—building 40 new hospitals and upgrading 70 more.
The Government are also investing in social care. The spending review allows local authorities to increase their core spending power by 4.5% and grants them extra flexibility for council tax and the adult social care precept which, together with £300 million of new grant funding, gives them access to an extra £1 billion to fund social care. This is all on top of the extra £1 billion social care grant provided this year, which will be maintained into next year.
The spending review also prioritises a better education for the country’s children. The Government are increasing the schools budget next year by £2.2 billion, in line with our commitment of an extra £7.1 billion by 2022-23. Every pupil will see a year-on-year funding increase of at least 2%. We are also funding the Prime Minister’s commitment to rebuild 500 schools over the next decade. Education does not end when a child walks through his or her school gate for the final time. This is why the spending review provides £291 million to pay for more young people to go into further education, £1.5 billion to rebuild colleges, and £375 million to deliver the Prime Minister’s Lifetime Skills Guarantee. We are taking steps to extend traineeships, sector-based work academies, and the national careers service, as well as improving the way the apprenticeship system works for businesses.
The people of this country also expect their Government to keep our streets safe. Next year, funding for the criminal justice system will increase by over £1 billion. We are providing more than £400 million to recruit 6,000 new police officers—well on track to recruit 20,000—and £4 billion over four years to provide 18,000 new prison places.
I have said that this Government are willing to take tough, prudent decisions. During what is a fiscal emergency, when we are seeing the highest peacetime levels of borrowing on record, it is difficult to justify spending 0.7% of our national income on overseas aid. The Government will continue to protect the world’s poorest: spending the equivalent of 0.5% of our national income on overseas aid in 2021, allocating £10 billion in this spending review, which will mean that we remain the second-highest aid donor in the G7. It is our intention to return to 0.7% when the fiscal situation allows.
There are many ways that the UK plays a constructive role in the world. This spending review includes more than £24 billion investment in defence over the next four years, the biggest sustained increase in 30 years, allowing us to provide security not just for our country but around the world. This settlement reaffirms the UK’s position as the largest European defence spender in NATO, and the second largest in the alliance. It includes an ambitious package of reform to ensure that we remain ready to meet ever-changing needs.
The third priority of the spending review is investment in infrastructure. Capital spending next year will total £100 billion—£27 billion more in real terms than last year. Indeed, our plans deliver the highest sustained level of public investment in more than 40 years. The Government are introducing a £7.1 billion National Home Building Fund, on top of the £12.2 billion Affordable Homes Programme. We are delivering faster broadband for over 5 million premises across the UK, as well as better mobile connectivity with 4G coverage across 95% of the country by 2025. We are undertaking the biggest ever investment in new roads, upgraded railways, new cycle lanes and over 800 zero-emission buses. We are also delivering the Prime Minister’s 10-point plan for climate change, and making the UK a scientific superpower with almost £15 billion of funding for research and development.
Finally, the Government have announced a new levelling-up fund worth £4 billion. This will allow local areas to directly bid for project funding for what the Chancellor has called
“the infrastructure of everyday life”—[Official Report, Commons, 1/12/20; col. 151.]
such as libraries, museums and galleries, and upgraded railway stations. All of that capital investment will help to spread opportunity, create jobs and drive economic growth in every part of the country.
This spending review has taken place at a time of great challenge, but by focusing on three key priorities—protecting health and jobs, stronger public services and investment in infrastructure—it delivers what the British people expect of this Government. The job now is to implement our plans. That is what I and my colleagues in the Government are determined to do in the months and years ahead. I beg to move.
My Lords, the spending review was a revelation. It revealed how the Chancellor will shape policy over the coming years. The first revelation is found in the Chancellor’s statement that
“our economic emergency has only just begun.”
Mr Sunak spells out the emergency: debt is
“clearly unsustainable over the medium term.”—[Official Report, Commons, 25/11/20; cols. 827-28.]
It is clear that Mr Sunak regards government borrowing, necessary as it may be in the face of the pandemic, as a burden on future generations. This is economic nonsense, and the foundation of the austerity that has done so much damage to Britain.
Of course borrowing will need to be repaid—but to whom? Taxes are raised from British citizens to repay the debt owed to other British citizens. What borrowing and the repayment are all about is the distribution of income: funds being transferred from one group of citizens to another group. Mr Sunak has made clear who he expects the funds to come from. The first in line to pay off the borrowing are the public sector workers whose pay has been frozen.
However, in so far as the Government borrows from foreigners, the borrowing can create a future burden. When funds are repaid, spending power is transferred abroad. That is why the OBR estimate of the increased foreign borrowing associated with Brexit is so worrying. Here lies the second revelation. In his review of the coming economic emergency, Mr Sunak fails to mention Brexit at all. For Mr Sunak, Brexit is the love that dare not speak its name. Yet the OBR makes it clear that the scarring from leaving the European Union with a deal is worse than the long-term scarring by the pandemic. If we leave without a deal, the scarring will be twice as bad. Yet from Mr Sunak, not a word about a policy that will add more to government borrowing in the medium term than will the pandemic. Has there ever been a more irresponsible Chancellor of the Exchequer?
My Lords, the Government’s spending on Covid has been generous—even if some has gone awry—and I do not underestimate the change in mindset that it needed in the Treasury. But lessons of history show that switching too soon into restoring finances slows recovery. The UK was not first in, or alone in, amassing Covid-related debt, and nor does it have to prove a point as it did in the financial crisis. Central banks are no longer seeing low interest rates as an abnormal blip and the IMF advises against an early return to austerity—so why take fright and cut previous growth plans now?
Much of the UK’s social infrastructure is already underfunded. Social care has been left on an unsustainable footing by Governments of all stripes, and universal credit has been cut to below liveable amounts. These are not bleeding-heart views but among the conclusions of reports from the Lords Economic Affairs Committee, chaired by the noble Lord, Lord Forsyth, of which I am a member. The very least that should be done on universal credit is to maintain the £20 increase. Post-Covid and post-Brexit life is not going to be any cheaper, and we cannot build a recovery on the backs of hungry children.
Over 1 million people are still not getting the care they need. Training more people to deliver social care and creating a valued career path can be a key route to providing jobs for the future. With an ageing population, it is time to turn the problem of social infrastructure into part of the solution. Building social infrastructure is faster at job creation than building physical infra- structure, and both are deserving.
My Lords, I support what the Government are doing to support the economy. I wish that our Covid policies had not themselves been so harmful to the economy—but we are where we are. The resultant debt and deficit forecasts are scary and leave us exposed to interest rates that will inevitably rise at some point. The fiscal challenge is huge, but my simple plea to the Government is: do not turn to taxes as a way to solve this problem.
I have three points to make, and one parting shot. The first is a reminder that the Laffer curve is a real thing. Yield goes down when rates rise. For example, any short-term gain from raising the rate of capital gains tax, as the Office of Tax Simplification has misguidedly suggested, will be illusory, as behaviours will change and asset markets will be distorted. Secondly, raising income tax rates should be off the agenda until the economy is much stronger. All it will do is reduce disposable income and hence demand in the economy. We will need as much demand in the economy as we can get. Thirdly, the business sector must be encouraged to invest. The best way to do that is to reduce the rate of corporation tax and return to the aim of 17% or less.
My parting shot is that the Treasury must take time to understand what it takes for businesses, especially SMEs, to be profitable and to grow. Too many initiatives, such as making tax digital, ignored the real-life problems of SMEs trying to run successful businesses. We need SMEs more than ever now to rebuild our economy.
My Lords, I will speak briefly on issues relating to climate, and I declare my interests as set out in the register, but first I will record my profound disquiet about the decision to reduce our spending on overseas development assistance. This is short-sighted in the national interest, as well as damaging to some of the poorest in the world.
I welcome the commitment in the spending review:
“Our capital plans will invest in the greener future we promised, delivering the Prime Minister’s 10-point plan for climate change.”—[Official Report, Commons, 25/11/20; col. 831.]
Equally positive are other measures such as the proposed national infrastructure bank, the potential net- zero duty for regulators, and the revising of the Green Book to take account of our climate change obligations.
However, there is a widespread understanding that, in themselves, the measures currently in place and planned by the UK are not sufficient to meet our climate change commitments. There is a large gap between aspirations and solid progress on the ground. For example, the IPPR’s recent estimates suggest that only 12% of the year-on-year spending needed to achieve net zero has been committed by the Treasury. So there is an urgent need for what has been announced to be supported by clear policy direction and by detailed sector-by-sector road maps, in addition to mechanisms that will help bring investments and new players into low-carbon markets, and by long-term funding commitments.
When the Minister replies to this debate, I hope that he will be able to assure us that, in the year leading up to our hosting of COP 26, the net-zero review will reflect the forthcoming advice of the Climate Change Committee, and that we will see a fully costed road map, including the investment commitment and the sector policies that will ensure we achieve our net-zero target by 2050.
My Lords, I was delighted to hear the Chancellor stress that the Government would continue to support the most vulnerable, but the proof of that assertion will be in how much money the Government are prepared to provide. That will be the barometer of what and who they consider most important. I therefore join my voice to those profoundly deprecating the proposed cut in development aid. I urge the Government to think again.
I also implore the Government to think again by deciding now to maintain the uplift in universal credit beyond the spring, and for it to apply to those on legacy benefits as well. That uplift has kept many from the cliff edge. They now face a winter of uncertainty, which is not ameliorated by warm words from Ministers. Moreover, 160,000 new claimants have had a grace period and not been subject to the benefit cap. That period now comes to an end, which means dreadful uncertainty for many in the run-up to Christmas. The justification that the cap incentivises work does not presently stand up; the jobs are not there to go to. Those who already have little risk suffering more. They are the new impoverished: resourceful, resilient and struggling; decent, hard-working, desperate people who cannot feed and care for themselves or their children. People are getting perilously near to the cliff edge.
It is good theology to attend to the voices of those on the margins. It is also good public policy. Leaving them in limbo is neither just nor kind.
My Lords, I follow the noble Baroness, Lady Hayman, and the right reverend Prelate in deprecating the cuts to our aid budget. In his spending review, the Chancellor said that it,
“strengthens the United Kingdom’s place in the world.”—[Official Report, Commons, 25/11/20; col. 830.]
He then cut another £4 billion from the aid and development budget. Let me clear: I welcome the much-needed increase in defence expenditure. But robbing the aid budget Peter to pay the defence budget Paul is no way to go about it. I despair. Does the Treasury still not understand that there are three ways in which we exert influence and strengthen our position in the world? The first is by a strong defence posture and capabilities; the second is by assiduous diplomacy; and the third is by extending aid and development to others.
That is not just a moral decision—though assuredly it is. It is much more. First, it is a crucial element of our soft power. Secondly, it is enlightened self-interest. Many of the huge problems that we face, from disease, to conflict, to mass migration, have their very roots in the lack of economic and social development elsewhere in the world. Therefore, such a huge reduction in our aid and development budget is decidedly the wrong thing to do in our own interest in the longer term. It is wrong and short-sighted for us, as well as being wrong for those in other parts of the world who would be the recipients of our aid and development resources.
My Lords, I first remind the Grand Committee that I am a vice-president of the Local Government Association. I want to talk about council tax and the deliberate government policy over the past five years to force it up well above the rate of inflation. These increases have been caused in part by the introduction of the adult social care precept in 2016, because central government decided to divest itself of carrying all the responsibility for rising social care costs. At the general election last year, the Conservative Party manifesto guaranteed not to increase income tax, national insurance or VAT across the next Parliament. It was a bold and, undoubtedly, a popular step. This was intended to,
“protect the incomes of hard-working families across the next Parliament.”
These three taxes bring in almost two-thirds of UK tax revenue. The decision not to increase them means that the Government intend other taxes to bear the burden through this Parliament. Council tax is one of them, and in the spending review last week, the Chancellor continued government policy towards council tax for a sixth year: that is, increasing council tax well above the rate of inflation. An increase of up to 5% is permitted next year, of which a maximum 3% increase is for the adult social care precept and 2% is for general service provision. This constant rise in council tax forced on councils impacts most of all on poorer families.
The pandemic is impacting most on poorer families. The freeze on public sector pay will impact most on poorer people. The failure to increase the living wage by more will impact most on poorer people. I understand the reason for wanting to avoid tax rises at a national level, to enable the economy to grow again, but why does this policy not apply to council tax?
My Lords, I will talk about overseas aid. First, I congratulate the Government on breaking the link with the hypothecation of government revenues, which is a bad idea in principle and has been proved to be a bad idea by the challenges that face the Chancellor at the moment.
I will speak more broadly about overseas aid. It has had a very chequered history. Much money has been wasted, there has been a lack of accountability, and indeed in places there has been abuse, as we saw with the abuse of young girls in Haiti by Oxfam. It is time that we looked radically at the whole question of overseas aid and made sure that it is more accountable to the people of this country.
I would like to see the overseas aid budget fundamentally abolished, either in part or in whole, and the money paid to people who make contributions to charity. At the moment, if I write a cheque for £100 to UNICEF, UNICEF ends up with £120 because of the 20% extra that it is given by the Exchequer. I would like to see that increased substantially. I do not know how the figures would work out, but if my £100 to UNICEF became, say, £500, there would be an enormous incentive for people to make contributions, and indeed there would be a quite massive increase in the amount of money going to our charities that help out around the world. This would transfer power from the Government to the people who make the contributions; it would make the charitable organisations working in overseas aid much more accountable to the people; and in my opinion it would encourage many more people to pay towards these charities, knowing that their contributions would be so massively increased.
Finally, I will just say that I am not expecting my noble friend the Minister to comment on this in any way whatever—but I hope that he will take it away and think about it in the Treasury.
My Lords, I too welcome the spending commitments the Government have made to help us meet net zero. However, I feel that there is a bit of a disjointed approach with some of the announcements: for example, spending vast amounts of money on roads, which will only increase emissions, and a relatively small amount of money on proven, nature-based solutions.
There is at present a great distance between the committed expenditure and the expenditure needed to get us on to the right trajectory. As the noble Baroness, Lady Hayman, has just said, the IPPR thinks that we have committed only 12% of the funds we need.
The Chancellor said at the beginning of the pandemic that he would do whatever it took to save livelihoods, but will the Treasury take the same approach to reaching net zero? When the Sixth Carbon Budget is published next week, and then the UK’s own NDCs, will the Treasury make funds available to departments so that they can enact these policies?
I do not wish to unduly criticise the Government, and I really welcome the inclusion of net zero and the environment in the Treasury’s Green Book review, as well as the confirmation that a net zero road map is in the works. It is important that the transition is well thought out, to maximise the benefits to people’s health and well-being. With that in mind, perhaps I may also ask the Minister whether that means that, going forward, all spending commitments will be compatible with the 2019 amendment to the Climate Change Act.
Following on from that, and finally, in anticipation of the publication of the Dasgupta review, I ask the Minister: is the reason that this spending review, and indeed the 10-point plan, is really light on nature that he and his colleagues are waiting to respond to the Dasgupta review before making further commitments? I am sorry to labour the point, but will the Dasgupta review form part of the foundation of the Green Book when it is finalised next year?
My Lords, fully three-quarters of the fiscal boost being provided this year is to be withdrawn next year, and over 90% by 2022, according to the OBR’s central forecast. Indeed, if the small print in the spending review is to be believed, Rishi Sunak is already planning in the next two years to withdraw fiscal support for the economy at a rate five times faster than George Osborne did so savagely in his first two years at the Treasury.
There will be a £10 billion cut in departmental day-to-day spending in 2021, compared to the levels planned in March 2020, rising to nearly £13 billion in 2024; cuts to public investment plans in the four years from 2021 averaging over £3 billion per year; nothing about raising statutory sick pay to help people testing positive for the virus who have to self-isolate at home; and no extension of the £20 a week temporary increase in universal credit beyond April 2021, even though the Chancellor expects unemployment to soar next year.
The pernicious overseas aid cut of some £4 billion is out of total public spending of over £1,100 billion, equivalent to one-fifth of one per cent of GDP, and a vanishingly small rounding error compared to total public spending. It is a disgraceful and unnecessary cut that is as repugnant as it is right-wing symbolic.
Then there is the public sector pay freeze dressed up as a “pay pause”. There is a £700 million cut in the BBC’s budget buried away in the OBR report. This is indeed a punitive spending review that will even further damage Britain’s growth prospects.
My Lords, I remind the Grand Committee of my relevant interests as a councillor and a vice-president of the Local Government Association.
The Government have a much-vaunted aim in the levelling-up agenda. Councils are key to this. Sadly, however, there is no sign of that happening in this spending review. The headline figure of a rise of 4.4% in councils’ spending power hides the fact that more than half of that is as a result of the expectation that councils will ask council tax payers to pay 3% extra as a social care precept. This sticking plaster for adult social care was introduced in 2015. All told, this means that council tax payers’ bills will rise 13% above inflation to shore up escalating social care demands. This is a regressive tax that hits the poor hardest and raises least in the poorest areas of the country, thus expanding inequalities. Perhaps the Minister can explain how this can be part of the levelling-up agenda.
Further discrimination against the poorest towns can be found in the distribution of the Towns Fund, which has resulted in the most needy towns, as defined by the Secretary of State’s own criteria, being refused funding so that other towns selected by Ministers can benefit. These two factors together illustrate that levelling up demands more than capital investment: social capital requires investment, too.
My Lords, the Chancellor has rightly prioritised the Government’s approach to spending. Understandably, priority 1 is the need to protect people’s lives and livelihoods as the Government respond to coronavirus, and I welcome the plans outlined by the Minister to spend over £280 billion through the furlough scheme, support for the self-employed, loans, grants, tax cuts and tax deferrals. The second priority is delivering stronger public services, and with departmental spending set to be £540 billion, which I think my noble friend said represents a rise in real terms of 3.8%, there will be extra funding for schools, local authorities and the NHS. The third priority, the Government’s major investment plans in infrastructure to drive growth, create jobs and level up, though, is where I will focus my comments.
The Government’s recently published National Infrastructure Strategy appears to be a serious attempt finally to address decades of underinvestment in the UK’s infrastructure—a source of frustration to me for many years. I represented in my previous political life a constituency at the heart of the Oxford-Cambridge Arc: this growing regional economic powerhouse’s potential to contribute further to the economy has been constrained only by a lack of infrastructure, be that physical infrastructure—I am delighted to see the Government’s reconfirmed commitment to the east-west rail project that will connect Oxford, Milton Keynes and Cambridge—or virtual infrastructure, which is why the commitment to delivering superfast broadband is so vital. Indeed, it is made all the more essential now as we embrace a new way of working post Covid, with the creation of homeworking hubs.
With more than half of all infrastructure spending private, I particularly welcome the creation of a new national infrastructure bank to co-invest with private sector partners. However, if we are truly to unleash the economic potential of the UK through infrastructure investment, we must get the delivery right. For many years, my mantra has been “i before e”, or “infrastructure before expansion”. In areas of high growth such as the south Midlands, there remains a desperate need for new housing to attract skilled workers so that the Arc can continue to be an economic powerhouse. The commitment to a national home building fund to help to match this demand is most welcome.
Please go ahead, Lord Loomba.
We cannot hear the noble Lord. We will try to sort out the difficulties and come back. For the moment, I call the noble Lord, Lord Bradshaw.
My Lords, I want to talk about the Green Book, which was published at the same time as the spending review. It contains very welcome reference to
“Non-market Valuation and Unmonetisable Values”.
To translate that into English, it takes into account things such as effect on air quality, noise, waste, landscape, water resources and climate change. I want to ask the Minister about something that is a Treasury responsibility. In the past, most infrastructure investment in this country has been dominated by savings in the values of time of people using mostly new roads, sometimes new railways. Now, we are moving to a new, different system of appraisal. Are we going to stop the very expensive process of calculating values of time, which are the present means of justification? How much of the investment will be guided by these other important things? The value of time that is often projected in an infrastructure proposal melts away as you have traffic congestion, which almost always rises to a point where the so-called savings materialise into nothing at all. I would like to believe that, this time, the Treasury will come forward with an alternative method that really values the many, many things that people think are better and more worth while.
My Lords, as time is short, I will eschew universals and limit myself to two points.
First, on delivering public value, I thank the Chancellor for including as a priority outcome
“a sustainable and resilient local government sector that delivers priority services and empowers communities.”
I have always believed in the value of local government as the exemplar of good and innovative management. I think of Andy Street in Birmingham, Boris bikes and congestion charging. It is nice to see this strength appreciated at last during Covid and to note the £3 billion in additional support set out on page 75.
However, I have a concern about parish and town councils, which of course vary in size, from towns such as Salisbury and Tavistock to tiny villages. These are the very backbone of local democracy, yet I hear from the National Association of Local Councils that the Covid money is just not trickling down to them from the higher-tier authorities. This is despite the fact that many parish councils carry out functions such as parking, leisure and voluntary activities, and that their income is right down. Will my noble friend the Minister undertake to look into the facts and sort this out? For example, could they be eligible for the new leisure fund?
Secondly, my noble friend knows my passion for supporting small business. Recently, I expressed my concern to him on financial services. I am still researching the letter that I promised him and would welcome examples from other noble Lords. It is clearly a serious cultural problem. The spending review mentions small business or SMEs seven times, compared with 35 references to “green” or “greener”—not including the references to the Green Book. How are we going to revive our economy without a better attitude to enterprise, green or not? What are the prospects for the 5.5 million small businesses in this country? As my noble friend Lady Noakes said, we need them now more than ever.
My Lords, the spending review laid great stress on the need to preserve jobs. The Chancellor accepted that retail, hospitality and leisure have been some of the hardest-hit sectors during the pandemic, yet the review confirms that the Government are persisting in doing away with tax-free tourist shopping. The Office for Budget Responsibility says that the Government’s costings on this move are based on a “highly uncertain estimate” of how international tourists will react to the change. However, industry forecasts say that it will cost at least 40,000 jobs as tourists head to centres such as Milan and Paris to spend their money.
I must declare my interest as chairman of the Association of Leading Visitor Attractions. Our members —museums, art galleries, gardens and so on—across the country are desperate to see this measure, which will destroy jobs and reduce government revenues overall, reversed. Will the Minister re-examine this perverse decision?
Secondly, the spending review announced the laudable aims of fostering more building of social housing and the creation of a national infrastructure bank—something that we have long needed. In a report on a consultation also published last week, the Government said that the bank will be able to provide advice to local authorities on local projects. The consultation on future lending, carried out by the part of the Treasury known as the Public Works Loan Board, states that the PWLB will no longer lend to local authorities to invest in commercial property simply for yield, but the Treasury lent billions to local authorities to do just that. Those deals are now going badly wrong, as many predicted they would, so can the Minister tell the House whether he will support those local authorities which now face financial catastrophe as a result of loans fuelled by Treasury lending?
My Lords, two minutes is obviously a short time in which to deal with this significant Statement. Others have dealt with the absence of any reference to the effect of Brexit or, with outrage, mentioned the cuts to overseas aid. I want to spend my time on debt, which the Chancellor hardly touched on in his Statement.
The numbers are clear: at the end of October, government borrowing was just over £2 trillion. What the Chancellor did not say is that just under 50% of that—nearly £900 billion—is owned by the Bank of England, with interest payments obviously recycled to the Treasury. Since the start of the pandemic, 50% of government bonds issued to fund expenditure have been bought by the Bank of England. Noble Lords may think that this is rather a lot, but it is nothing compared with what is happening elsewhere. In the same period, the European Central Bank has purchased 70% of bonds issued by European Governments and the Bank of Japan has purchased 75% of Japanese Government debt issues.
Milton Friedman, the economist so beloved of the right wing of the Tory party, always said that such action by central banks was dangerous because it would lead to crowding out the private sector, resulting in falling bond prices and rising inflation—but that has just not happened this time. Despite the fears raised by the Chancellor yesterday, does the Minister accept the possibility that, first, interest rates will remain low for the foreseeable future and, secondly, that the market for the sale of gilt-edged securities to pension funds and insurance companies, underpinned by Bank of England purchases, will remain strong? Does he accept that, if these conditions continue, it is just possible that the Government can continue to borrow to fund necessary spending until the economy recovers, without the need for damaging tax increases? What a bonanza that would be for all of us.
My Lords, I thank my noble friend the Minister for introducing this debate today, but I do think the two-minute speaking time limit is absurd. I do not understand why five hours, rather than three, could not have been set aside for this important debate. If there really are good reasons why our time today is so limited, it would have been better to reduce the number of speakers by ballot.
I will therefore concentrate on just one area: the UK’s role on the world stage. Having lived and worked abroad for many years, mostly in Japan, I have never doubted that the UK possesses enormous global reach and has perhaps underestimated the extent of its own soft power. I particularly welcome the Government’s commitment in the spending review to strengthening Britain’s place in the world, and I welcome our commitment to remaining one of the largest spenders of official development assistance, committing £10 billion in 2020-21. The Government’s commitment to spending an additional £24 billion on defence will assist greatly in underpinning our influence on the world stage as a force for rules-based trade and enhanced global security.
The UK is the second-largest winner of Nobel prizes, and the decision to establish a new UK infrastructure bank to replace our reliance on the EIB, together with a commitment to providing investment of £14.6 billion in research and development, are both important to our future as a leader in scientific innovation. Does the Minister not agree that the unattractive terms of third-country participation in the Horizon Europe programme suggest that the UK would do better not to seek association but to direct available funding to wider forms of international collaboration?
My Lords, I would like to speak up for the one group largely excluded from government support in this Statement: the 3 million to 4 million self-employed and the many directors of small, limited companies who failed to qualify because of their accounting structure. Let me declare an interest: this was me many years ago, when I started in business. Then, it was prudent to become a limited company because this was the way to manage the risk and the inevitably unpredictable cash flow of a new business. It is not a tax dodge. By not paying income tax and national insurance, you hardly save after paying corporation tax, VAT, dividend tax and other taxes—and you are supporting other jobs.
The lack of assistance to these small companies means that they are massively overborrowed, which puts at risk the many millions of jobs that they are creating and supporting. Such businesses create the competition that keeps prices low. On Monday, the Competition and Markets Authority reported that the most profitable tenth of our companies enjoyed the least competitive pressure over the last 20 years. This, of course, is yet another contributor to the growing inequality that this Government say they are trying to tackle.
Fortunately, I am not alone in speaking up for these businesses. Others have done so in this debate, and the Mayors of Manchester, Liverpool and London have also spoken out, criticising the Government for sending a message that they are not with you if you start up on your own.
So I ask the Minister: is this a message the Statement is intended to give? Do the Government really want to limit competition and encourage inequality? Or is this yet another example of the Government’s incompetence and poor management, which has put us among the worst-off for economic damage caused by the pandemic?
My Lords, I am grateful for the opportunity to take part in this debate. In this brief intervention, I want to confine my comments on the Chancellor’s spending review as it applies to Wales to the impact on our farmers.
Life for Welsh farmers is always tough and uncertain, but in 2016 a great many put their futures in the hands of the Conservative Party and voted for Brexit, believing the future painted for them by our present Prime Minister and his colleagues. They were consistently told that funding for Welsh farming would be maintained after we left the EU and that they would not receive a penny less as they moved out of the CAP system. This review has now allocated £242 million for Welsh agriculture, instead of the £337 million that the Welsh Government and farmers’ leaders had planned for: a cut of 28% in the budget and a shortfall of some £95 million. The Welsh Government believe that, when projected RDP spend and a 15% Pillar transfer are taken into account, the full loss is £137 million.
However, it is the financial pressures facing farmers that should be concerning us. Some 84% of Welsh farm income comes from basic payments; any lower payments to farmers will result in hardship. Farmers are essential to future environmental projects and are the backbone of the economy of rural communities such as mine. If these payments were meant to replicate European funding, I would be grateful if the Minister could explain why the European averaging-out approach was not used to calculate the allocation of funds. I am also seeking the Minister’s assurance that there will be no reduction in basic farm payments as a result of this Statement.
I ask the noble Lord, Lord Loomba, to stand by to follow the next speaker, the noble Baroness, Lady Eaton.
My Lords, today I shall focus my remarks on the impact of the spending review on councils. Local government has been critical in the fight against Covid-19, protecting the most vulnerable, supporting our local businesses and keeping the country running. Given the commendable leadership from our local politicians and their officials, it is right that the spending review provides some financial certainty for councils next year. A potential increase of 4.5% in council spending power will help support vital local services, albeit that the increase assumes that council tax bills will rise by 5% next year—something that will place a financial burden on households at a time of economic uncertainty.
While the spending review did make progress in helping address the short-term pressures on councils, as it is a one-year settlement there is still much to do. The financial pressures facing local services have increased because of Covid, and the challenge facing councils is stark. It is time for change, which is why I support the LGA’s calls for multiyear financial settlements and place-based budgeting, which will give councils long-term certainty, sustainability and, as importantly, the power to innovate.
While every pot of money that national government announces is a tempting opportunity for a ministerial press release, we need to look again at how that approach fragments funding and creates unnecessary complications and duplications. The Levelling Up Fund would be a good place to start this conversation, along with a move back to the community budgets model that I helped pilot a decade ago. By giving councils financial sustainability, certainty and the power to do things differently, we can empower their efforts to level up inequalities and rebuild our national economy, one local economy at a time.
I call again the noble Lord, Lord Loomba.
I am sorry, we cannot hear the noble Lord, Lord Loomba. We will have to go to the next speaker, the noble Lord, Lord Davies of Brixton.
I draw attention first to my entry in the register of interests. I simply want to focus on a single word in the spending review document. On page 20 the word “generous” appears, where the review states:
“Public service pensions are generous”.
Well, generosity has nothing to do with it. Pensions, like pay, are simply part of the terms and conditions of employment agreed between the employer and the worker. It is true that public service pensions are better than many found in the private sector, but the policy response should be to see improvements—levelling all up, one might say, at least to the levels suggested by the Pensions Commission and endorsed by my noble friend Lord Hutton in his review of public service pensions.
The choice of words is not a trivial matter, particularly at a time when public service pay is already under attack. I hope that the choice of the word does not betray any lack of commitment to the pensions deal that was reached with the many people who work so hard on behalf of the public services.
My Lords, I wish to speak about transport-related issues. The Chancellor announced an infrastructure package of £100 billion, which obviously covers more than just transport, but the total seems to be £27 billion higher than the amount announced last year, and is therefore welcome. The disappointment comes in the lack of a green strategy running through the package, and only small amounts of money specified for green projects. Likewise, the national infrastructure bank is welcome, but it lacks a green mandate. The Government would have done well to learn the lessons and recreate the principles behind the Green Investment Bank.
Only a tiny percentage of the £100 billion is specifically for reducing emissions. I am particularly concerned that a massive £27 billion has been earmarked for road building. Accepting that the £1.7 billion for road repairs is essential for the maintenance of what we have, the size of the road-building programme belies the Government’s professed commitment to reducing carbon emissions. The two are in essence incompatible. Have the Government not learned the lessons of past road projects: build the road and the traffic will come? Pent-up demand will show itself immediately. We are long past the point in the fight against climate change where we can expect to win it on the basis of free market ideology. The Government have to lead: they have to point us in the right direction, through a strategic approach to a mixture of investment and fiscal policy.
While the additional money for HS2 is welcome , it comes at a time when there are serious concerns that the Government are preparing to abandon, or at least slow down, the rollout of the eastern leg, which is so essential to transport links in the north and the Midlands.
I accept that the Government are facing challenges, but the most long-term of those challenges is climate change, and they are behaving like rabbits in the headlights, paralysed into inactivity and indecisive on which way to turn.
My Lords, the spending review refers a lot to investment: capital investment, public sector investment, investment in economic recovery and targeted investment. All this is required, it explains, in a post-Covid world. It does not refer to an equally important post-Brexit world—and, as others have already stated, it should.
Investment sounds good, as long as we can afford it, but the record of all Governments to date in making wise investment decisions and properly monitoring and controlling outcomes is pretty abysmal. There are many examples; one has only to look at defence procurement to see evidence of waste and the misdirection of funds over the years. I implore my noble friend that this review should also require better monitoring and accountability of this public expenditure, and better reporting mechanisms so that we can make better judgments on their efficacy.
Many people and businesses are anxious to hear more of how the numerous grants and support vehicles received to date from the EU are to be replicated from 2021. Regional and rural development in particular have benefited from these. There is reference in the review to the new UK shared prosperity fund, which it says
“will at least match receipts from EU structural funds”.
But are the same criteria to be applied? If not, what changes in delivery or distribution will the Government make?
There is much talk of a new “global Britain”. We have always been a global nation and all improved international collaboration is to be welcomed. But, despite our departure from a long-standing relationship with our European neighbours, I urge that this intended enhanced collaboration starts with them, and is pursued in future in a friendly and positive manner, which clearly will be much to our advantage in the coming challenging years.
My Lords, what the year has proved since the Chancellor’s first Budget in March, and now the spending review, is that no forecast can be trusted to be right. He did not expect the year that was coming when he presented his Budget in March. The spending review relies on some forecasts, but I would advise him not to trust them very much.
What we have seen is that, since the age of austerity under George Osborne, the fear of debt has gone. We concentrate much more on the cost of meeting the interest on debt, rather than the debt-to-GDP ratio. Interest rates right now are either zero or negative. Nobody expected that to happen, but we can more or less rely on interest rates remaining low and the cost of servicing debt not being very high.
We also noticed that the status of being poor, being on universal credit or being unemployed is not permanent for some. It can happen to anybody: it can happen to the self-employed and the employed, and we have furloughs and all sorts of conditions. Right now is a good chance to think of building the universal credit into a citizens’ income platform. It would take time and money, but that way you would avoid the effect of economic shocks on people’s livelihoods.
Lastly, I advise the Chancellor not to raise tax rates but to remove the concessions and loopholes in the income tax code, for example. There are 1,000 loopholes in the code that save people money. Stop them, keep the same rate and you will make much more money.
My Lords, it is disappointing that the arts are not more acknowledged in the spending review, including their longer-term economic worth. The arts are part of an ecosystem, which includes the currently equally beleaguered hospitality sector, as the Incorporated Society of Musicians pointed out in its response. Can the Minister give more detail on the reference to local arts and culture in the levelling-up fund? Pre Covid, the crisis in arts and cultural funding has primarily been about the cuts to local council grants. According to a recent Fabian Society report, £860 million of arts funding has been lost in the past 10 years in this way—a reduction of 38% since 2009. The £20 million fund for England curiously brackets the arts alongside transport and other projects. Every area should be able to nurture its arts and enable access to them, not be pitted against each other in a bidding war. The cuts to local council funding urgently need to be reversed.
The arts have been grateful for the measures taken to support them during the pandemic, but too many freelancers continue to fall through gaps in support. I welcome the call from the Creative Industries Federation, among others, for a freelance commissioner, and a future work commission. I also support those who call for a creators’ council, which would do a very different job to the Creative Industries Council in presenting their needs directly to Government.
I have questions about the announcement that funding is to be put aside for a UK alternative to Erasmus+ in the DfE settlement if we do not continue to participate in that scheme. Would this be a reciprocal scheme with all the attendant benefits? Would it cover the range of opportunities that Erasmus currently provides—not just for university students, but for schools, teachers, apprentices, sport and more—and which already has the global reach that the UK scheme intends? I hope, that in making this announcement, the Government are not taking their foot off the gas in seeking to remain a programme member of Erasmus+ because it would be a huge loss if we lost that membership.
My Lords, the situation is very challenging. I am most disappointed at the cut in overseas aid. This is disgraceful, especially as we are chairing the G7 and COP 26 next year. Sixty-one per cent of the population of the United Kingdom are women. Thirty-four per cent of public sector workers are women, working on the front line. Forty per cent of SMEs are run by women—the backbone of the United Kingdom. Childcare is becoming more expensive and, in some places, closed. We cannot lose 61% of the population. Women’s economic empowerment and participation in the leadership of business is essential to drive business performance ahead at this time. I ask the Government to reconsider and bring back reporting, from January 2021, on gender pay and the number of women on boards.
My Lords, I start with the Institute for Fiscal Studies. It says this spending review is “austere”. The dictionary says that is “having no comforts or luxuries”. That might be seen as admirable, when it is a choice, when you start from a condition of adequacy, but of course there is another form of the same word: austerity—something the UK knows a great deal about. We have had a decade of that prescription and the coronavirus has demonstrated the utter inadequacy of the economy, society and environment that that toxic medicine produced. The IFS notes, in this spending review:
“The … core … decision was to reduce public service spending, other than the £55 billion allocated for Covid, relative to March plans.”
That is on top of, outside health, a real-terms public service spending cut of 25% per person over the decade to 2020. What does this austerity mean in the real world? The abandonment of the manifesto commitment, from a year ago, to maintaining international aid spending as 0.7% of GDP means a girl in Africa—the continent from which we have extracted for our own enrichment so much in the colonial period and since—will not get an education. That will scar her entire life and that of her children. It means a family here in Sheffield, a family struggling to get by on universal credit when it had barely even heard the term a year ago, faces losing a £20 a week in April when they are already relying on the food bank now. Their house is cold now; they cannot afford to heat it. At Christmas, it will be colder still and the scant £2 billion of the green homes fund is highly unlikely to help them.
What does an austere environment look like? We already know, in one the most nature-deprived nations on earth. It means a failure to live up to the climate and biodiversity promises we made and the responsibility we have as chair of COP 26. We are not talking about cutting comforts or luxuries with this austerity. We are talking about leaching the lifeblood out of communities, out of lives and out of our natural world. Bloodletting with leeches is a medieval practice we should long ago have abandoned.
My Lords, from a Greater Manchester perspective, the commitment to rewrite the Green Book is welcome. For too long, the Government’s appraisal process for investment has unfairly favoured London and the south-east to the detriment of communities in the north of England. I hope that the refreshed Green Book will help end that imbalance.
I am pleased by the news that a national infrastructure bank will be set up and its headquarters will be in the north, hopefully in Stockport—the heart of Greater Manchester—a town with a motorway passing through the heart of it, an intercity line to London three times an hour, and the lowest Covid rates in Greater Manchester. This would show real commitment to northern communities, and that this investment could be the start of a long-term strategy to underpin what I hope are substantial investments in the north.
Everyone welcomes the commitment to increase the pay of some in our national health service and the modest pay rise for those on the lowest incomes in other public services. However, I am disappointed that the pay rise does not extend to others across our public sector who have been so integral in our fight against the pandemic. There was no mention of social care workers, who have also been working on the front line, and no mention of police officers, teachers or council workers, many of whom were redeployed at short notice to aid in the fight. They should be recognised for the work they have done.
What are the Government proposing for the 3 million people who are still currently excluded from Government support schemes? I was disappointed that the Chancellor could not mention them in his speech. These people account for 10% of the UK workforce and hundreds of thousands of working people across Greater Manchester. It was a missed opportunity by the Chancellor not to announce support for that huge number of taxpayers.
Finally, if Greater Manchester were to receive its share of the so-called levelling-up fund, it would amount to £30 million. This is simply not enough: a £30 million injection of cash for 3 million people, a city region that has suffered for years with underfunding of transport, skills, healthcare and infrastructure. Frankly, this Government must to more for the north and, in particular, Greater Manchester.
My Lords, finally we have recognised the critical need to increase, in real terms, our defence spending. The key point was the Prime Minister’s reference to a unit that will be set up to monitor procurement. Five years’ ago, industry personnel told me—lawyer speaking to lawyer—that they would welcome much more rigour in the procurement system. This is critical to counter equipment that arrives too often substandard with long lead-times for spare parts. We also need a strong focus on what inexpensive measures would significantly improve the capabilities of our armed forces personnel—such as much healthier food and natural light replacements in our modern warships—as well as the expensive hardware.
In addition, it is right to reduce to our development spend to 0.5% of GNI in the light of our economic emergency. This crisis also presents a real opportunity to fully review the DAC rules on which we classify our ODA spending.
I have just one thought regarding our spending at home: when I left the DWP, pre Covid, our welfare system was already unsustainable. Although 1,000 additional people were working each day and there were around 700,000 job vacancies, still 13.9% of all working-age households in the UK were entirely workless. This is not sustainable post Covid.
Separately, our reliance on the private sector to create the wealth to pay for all this is fundamental. However, we are now at risk of making the UK the least attractive shopping destination in Europe through changes to tax-free shopping rules that will trigger real and negative behavioural change in high-spending visitors. Post Brexit, we must showcase the very best of the British-made, high-quality and often bespoke for export goods that we manufacture right across the UK. How will these tax changes help with so-called levelling up when some of those highly skilled jobs could now be at risk? Will my noble friend the Minister agree to keep a close watch on this?
I remind noble Lords that the speaking limit for today’s debate is two minutes.
My Lords, there is a forecasted drop in GDP of more than 11% this year, the worst in 300 years; the fear of unemployment possibly going up to 7.5%—almost 3 million people—by Q2 2025; debt to GDP more than 100%—the last time that happened was in 1963; and a deficit of £400 billion. The amazing support that the Government have given during the Covid pandemic of almost £300 billion—and counting—and many measures in this spending review are so welcome. The new national infrastructure bank is fantastic and upgrading infrastructure is great, but does the Minister agree that broadband should be at 100% coverage of the country, not 85%?
On the plan for jobs, we need to avoid long-term unemployment. The scarring would be horrible. Young people, in particular, have suffered so much; we cannot have youth unemployment. We urgently need the energy White Paper. Can the Minister confirm that it will come soon? There must be no talk of tax rises, because what would be worst for the recovery—for businesses to bounce back after this—is stifling that recovery by increasing taxes. We need to create growth, which means keeping taxes low. It is that growth and the creation of jobs that will pay the tax that will pay for the public services. That is the best solution.
The approval of the Pfizer-BioNTech vaccine is a major breakthrough against Covid-19. After the loss of so many lives and livelihoods, it now really feels as though there is light at the end of the tunnel. Does the Minister agree that three things are now needed to shore up confidence? The first is the continued, urgent rollout of rapid, mass, affordable antigen lateral flow testing throughout the country, available in schools, workplaces, colleges and universities and at airports and factories—everywhere. That regular testing is a huge part of the solution.
Secondly, firms need clarity about the level of support through to March and beyond. Thirdly, we need transparent trigger points for exiting higher tiers and a robust, evidence-based approach to ongoing restrictions.
Lord Loomba, please stand by to speak after the next speaker. I call the noble Baroness, Lady Sheehan.
My Lords, the Chancellor says that,
“during a domestic fiscal emergency … sticking rigidly to spending 0.7% of our national income on overseas aid is difficult to justify to the British people”.
I wonder: with what evidence does he so impugn the British public? The most recent edition of the World Giving Index, commissioned by the Charities Aid Foundation and compiled by Gallup, puts Britain at number six globally and the second most generous country in Europe after Ireland. I suggest to the Minister—or the Chancellor—that, rather than having to justify helping the world’s poorest to the British public, the cut to the aid budget is in fact to pacify the right wing of his party, to the extent of breaking a manifesto pledge.
That is a shame, because evidence from diplomats to the Commons International Development Committee says otherwise. The former UK ambassador to Jordan, Peter Millett, said:
“Our aid programmes certainly enhanced our influence.”
The former UK ambassador to Yemen, Frances Guy, said that the UK’s aid
“counts towards general respect for the UK in multilateral institutions and gives the UK a bigger voice in multilateral meetings”.
It is not just the diplomats. The noble and gallant Lord, Lord Richards of Herstmonceux, said that our 0.7% aid commitment sends
“a strong signal that the UK is a reliable partner for long-term economic, social, environmental and educational advancement across the globe”
and that this is
“cheaper than fighting wars”.
Those sentiments were echoed by the noble Lord, Lord Dannatt, in your Lordships’ House just last week.
The architects of this reprehensible decision have shown that they know the price of everything and the value of nothing.
My Lords, once again I call the noble Lord, Lord Loomba.
I am sorry, Lord Loomba. Yet again we cannot hear you. I am afraid that we will have to move on to the next speaker. I call the noble Baroness, Lady Redfern.
My Lords, in this incredibly difficult year, I welcome the many positives displayed in the spending review as the Government juggle the nation’s finances. The business sector has received grants of £11.6 billion through the pandemic and is now to receive a further £159 million for 2021-22, with an additional £56.5 million supporting British Business Bank start-up loans. We must do all we can to support businesses, large and small, to build back our economy. I am pleased, too, to support the £4 billion levelling-up fund to tackle the fragmented funding system for local areas and £1.2 billion to subsidise the rollout of gigabit-capable broadband.
I turn to energy and growth, where energy demand is still outstripping growth in renewable energy supply, ensuring that declines in emissions are permanent. I welcome the commitment of £12 billion to support our green industrial revolution, prioritising green infrastructure projects and creating more green jobs. Here in this part of the UK, we are home to the largest offshore wind farm, steering the Humber to the forefront of the revolution in carbon capture and storage. I hope that the Humber will benefit from the £1 billion infrastructure fund, which in turn would support our heavy steel and manufacturing industry base.
I also welcome the Government’s commitment in the free ports bidding prospectus. What is better than being a free port—particularly here, having the port of Immingham situated on the south bank and handling more than 55 million tonnes of UK cargo annually, playing a critical part in the UK’s supply chain? There is a platform that could help to realise a global and national opportunity for the wider Humber region, the energy estuary gateway to Europe. The North Sea is certainly one of the UK’s major assets.
We are in challenging times, but as the Government aim for an agenda that can work and which emboldens the UK’s determination to do just that, I welcome this Statement.
I have two questions to put to the Minister. I declare an interest, in a sense, as a former head of the TUC economic department donkeys’ years ago. One of my jobs was as a member of the Retail Prices Index Advisory Committee. How is it that the Government have referred with prejudice, using the word “discredited”—it is all over the newspapers —to an index that has been around for the best part of 100 years to get an advantage in terms of the relationship to pensions and wages?
A second, statistics-type question relates to net zero. Why have the Government not assessed the need for a moving index of progress towards net zero by tracking the progress of the greenhouse gas coefficient of productivity growth? That is a key thing that the Government have not done. We have to persuade the green family among us that we can have economic growth by reducing the greenhouse gas coefficient.
Finally, this will not work if it is only per head. Africa’s population growth is staggering. It may come down, but at the moment it is staggering. The aid budget change that I would have made is to put a lot more effort into the interaction between family planning and the aid budget. The way to get African Governments to stop people trying to swim across the Mediterranean, which we are trying to do with prejudice, is to make sure that the budget ensures progress in governance. It is in the mutual interest of Europe and Africa to agree on that if we are not to make a nonsense of the net zero greenhouse gas coefficient.
My Lords, this spending review comes as the country faces a spaghetti junction of serious challenges. There is the Covid pandemic, where even our Panglossian Prime Minister warns that we must not get carried away by over-optimism. There are some difficult days still ahead with Covid. Then there is Brexit. Let us be clear that, whatever the outcome of negotiations, Brexit is not done, it is about to begin, and the true costs of our leaving will become clearer than what was ever put on the side of a bus. Then there are the challenges brought about by climate change, the digital revolution, the need for sustainable plans to give care to our elderly and their carers and, at the same time, to give a road map of hope to those born in this century.
I have time to make only two pleas to the Chancellor. I urge him to give further immediate and longer-term relief to workers in the creative and leisure industries, many of them freelance. Pre-Covid, these were the fastest growing sectors in our economy, and they can be so again, given the necessary support. I support the call from the noble Earl, Lord Clancarty, for us to continue to associate with Erasmus. I urge the Government and the Chancellor to look again and abandon the cut in the aid budget. Theresa May once warned that the Tory Party must not become the nasty party. This is a decision by the nasty party, for the nasty party, and the Chancellor’s smiling photoshoots will not remove this stain from his record.
Finally, I again urge the Chancellor to listen to the advice of my noble friend Lord Razzall, which can be summed up in the advice from the late Lord Healey: when you are in a hole, stop digging.
My Lords, I agree with what the noble Lords, Lord Desai and Lord Razzall, said about debt. As an economist, I am a qualified supporter of what is called modern monetary theory. MMT says that the economic policy should balance the economy, not the budget. Worrying too much about deficits is a mistake. Thus, Rishi Sunak is entirely right to borrow mind-blowing amounts of money because the essential task is to keep the economy going. Fiscal hawks will say that this all our money and it has to be paid back. Well no, it is not actually all our money. A lot of it is the Government’s money, which they generate from the printing presses of the Bank of England. We need to offset this only if we run the economy too fast for its natural speed and thus produce inflation. Then, and only then, do we have the need to raise taxes to damp down demand.
The advantage of MMT is that it enables Governments to concentrate on what should be done to improve the economy and society, and not be perpetually bogged down in arguments about how to pay for it, which often prevents necessary action. Of course, the Government of the day have to make wise choices, and, to my mind, the levelling-up agenda should be top priority at the moment. Regional inequality in the UK is much the worst in western Europe. Also, sheer poverty needs urgent action. Even after all the billions spent on Covid, we still have some fiscal space to do the things that need to be done, so we should do them, though we should, of course, prioritise. I hope that the Government have the courage and judgment to follow this path.
My Lords, I want to talk about social care. The spending review reduced planned spending by more than £10 billion per year from departmental spending plans. Given the Government’s commitments on the NHS, schools and defence, this implies an extremely tight funding situation for social care. Covid-19 hit a sector already weakened by funding shortages, with spending in real terms falling over the past decade, while the number of people needing care rose. Workforce shortages in social care, at around 122,000, added to the pressure.
The care sector finds itself in a vicious cycle. The level of unmet need in the system increases; the pressure on unpaid carers grows stronger; the supply of care providers diminishes; the strain on the care workforce continues; and the stability of the adult social care market worsens. Unfortunately, the Government’s response has been to make life even harder for the care sector. The exclusion of most care staff from the new health and care visa will impact on staff recruitment. While the Government have announced that councils will have access to over £1 billion more in funding for social care, around 70% of this must be raised by local councils through tax.
As the noble Lord, Lord Shipley, said, and the Nuffield Trust and have pointed out:
“Given the economic backdrop, councils are likely to have a very hard time raising the funds this way, with poorer areas hit harder.”
My plea to the Government is this: first, they have to stabilise the situation by increasing care packages, to give local government the ability to pay for higher costs. Secondly, we need the equivalent of the NHS people plan for social care to tackle the workforce crisis. The excellent Skills for Care is eminently qualified to do this. Finally, we must have a solution for the long-term sustainability of social care, and we need it fast.
My Lords, this restrictive spending comes in addition to long-standing, detrimental, financial decisions by this Government as we walk through the biggest slump in 300 years—the bleakest future for public services. It is, therefore, incumbent upon a Government who have consistently defied transparency to publish in full an equality impact assessment of all these proposed measures. As it stands, the equality impact is not good enough or clear enough. In particular, it should re-examine the disproportionate effect on the poorest communities, as well as those living and caring for people with disabilities, and those reliant on social care and a miserly amount of universal credit, which surely must be extended beyond March. I hope that the Government will reconsider their decision on extending the disability premium.
Women have borne the brunt of Covid, with loss of work and suffering increased violence. They are often coping alone with the additional pressures of children and other caring responsibilities, with children’s services and voluntary organisations on their knees. Will the Minister and the Government consider the ambition of ring-fencing funds allocated to local authorities to fund programmes for the economic empowerment of women and vulnerable communities?
Finally, the proposed reduction in international aid is a serious misjudgement, given the UK’s ambition to strengthen its place in the world.
My Lords, I declare an interest, as shown in the register. I start by lending my voice to the concerns of other noble Lords about the Government’s decision to step away from the 0.7% commitment on international aid. It was a flagship policy of the coalition Government and was built on very strong Conservative principles. The current approach is short-termist. While it is politically popular with some at home, it will have a damaging impact on brand Britain at a time when we need a strong brand more than ever.
Two minutes does not allow me time to respond to both matters addressed by the Chancellor in the review, less still those matters not addressed. I shall focus on only one issue: the predicted unemployment figures. The Office for Budget Responsibility’s predictions do not make for easy reading, with rates predicted to be from 5% right up to, potentially, 11%. While I welcome the £4.3 billion package of measures which the Government have announced to help people back into work, much of it is aimed at the long-term unemployed. It is not a response to those who have lost, or continue to lose, their jobs during this pandemic-and that will accelerate once the furlough scheme comes to an end.
So I have three questions today for my noble friend. First, what will be the impact of Brexit on the significant rise in unemployment predicted by the OBR? Secondly, how much of the £4.3 billion announced is directed towards those who have lost their job during their pandemic? Thirdly—if my noble friend does not have the answer, perhaps he could write to me—the new Restart scheme, which is being funded to the tune of £2.9 billion, appears to require a minimum 12-month period of unemployment before it can be accessed. Is this correct? It may well be that the guidelines have changed. Those are the only issues I want to deal with today.
My Lords, I will make three quick points—three questions for the Minister. Following on from my noble friend Lord Hunt, does he really believe that another 5% increase in council tax in the coming year is a sustainable way of funding social care in the longer term? Council tax is very inequitable and regressive. Are the Government still committed to a long-term reform of social care, and when will they announce their plans?
Secondly, I know that the Minister is passionate about education, and in particular about educational inequality. Spending on schools is due to grow over three years by 3.9%, as against 10.4% for health and 5.7% for the Home Office. This is not giving a big priority to schools and, given the way in which children—and in particular deprived children—have fallen behind, this is not the right priority at this time.
Thirdly, does the Minister think that the Government are going about the levelling-up agenda in the right way? We have a proliferation of centrally governed funds, including the Levelling Up Fund, the Towns Fund, the Shared Prosperity Fund—I think I could list about 20 of them—for which local government has to bid. MPs will play a big role in choosing how the money is spent. Is this really a sensible way to go about things? Surely, we should go back to the previous commitments that the Government made for a fair funding review, so that local authorities can be funded on a much fairer basis according to their needs. At the same time, we should push forward with a proper agenda on devolution.
My Lords, it is a great pleasure to follow the noble Lord, Lord Liddle, and I thank my noble friend Lord Agnew for introducing this debate. This short-term spending review is against a backdrop of an economy that, as my noble friend said, is in greater decline than it has been for 300 years. That is the backdrop to the challenges we face.
I believe that central to the question of the review is how bad the economic forecasts are looking, and at the heart of this is the uneven effect of the crisis on the regions and communities of the United Kingdom. I join the noble Lord, Lord Liddle, in his concluding remark by saying how central to this are decentralisation are devolution. This has to be addressed, so that we can provide more local innovation and more local solutions, and I welcome the Government’s commitment to this.
Levelling up is indeed central to this agenda, and devolution will help in that regard. Protection of the low paid and key workers is fundamental, as is helping the young, who have had their education disrupted by this pandemic, and apprenticeships of course have been lost.
The spending review confirms funding for the Government’s 10-point plan for green recovery, and I very much welcome that. I believe that more will need to be done against the background of Glasgow, COP 26 and the re-engagement of the United States via the Biden presidency embracing once more the Paris Agreement on climate change. More money and more commitment will be needed, but I very much welcome what we have done so far.
To my mind, the Chancellor and the Treasury have performed generally well in this crisis, although I do fundamentally disagree with the percentage cut in UK overseas aid. It is falling anyway, obviously, because it is a percentage of a declining income, so less is being given. I cannot help feeling that it is against our enlightened self-interest, as well as meaning that we are giving up our very strong moral leadership in the world.
My Lords, on 23 October 1984 I, like millions of others, watched Michael Buerk’s harrowing report on the Ethiopian famine. The words and images still reverberate with me today, these in particular:
“This three year-old girl was beyond any help: unable to take food, attached to a drip but too late; the drip was taken away. Only minutes later, while we were filming, she died. Her mother had lost all her four children and her husband.”
I was 14 at the time and there was something about that simple statement that overwhelmed me. It was so relatable and so devastating. That is where my politics began.
This spending review takes us back to those days, because then, just like now, the Government were cutting the share of our wealth that we spend on the poorest of the world—from 0.5% of GNI in 1979 to 0.33% in 1984 and just 0.27% in 1990. The lesson is that, once they start cutting the aid budget, they do not stop.
In later years I worked in a number of countries in Africa and saw the impact of our aid: the suffering it alleviated, the huge progress in raising people out of poverty, and the stunning success in tackling disease. So I was immensely proud to be in the Cabinet meeting when it was confirmed that the coalition had met the Liberal Democrat manifesto commitment to spend 0.7% of GNI on development. However, despite that success, we still had not met the Conservative manifesto pledge, which was to put that commitment into law. So, in 2014, my friend Mike Moore and my noble friend Lord Purvis moved decisively to rescue the Conservatives from this failure by introducing a Private Member’s Bill which became the International Development Act 2015, narrowly saving the Tories from betraying their own manifesto commitment.
My noble friends and I intend to provide that service to the Conservative Party once again, by ensuring that the December 2019 Conservative manifesto commitment is upheld, and the shameful policy of penalising the poorest in the world in their hour of greatest need is rejected.
The noble Baroness, Lady Altmann, has withdrawn, so I call the noble Lord, Lord Inglewood.
My Lords, looking across the northern business landscape, as I do, from the perspective of chair of the Cumbria Local Enterprise Partnership, the prospect is not cheerful. But the spending review is a start—a real start—on the road to employment and prosperity, which are two sides of the same coin.
Having said that, it is far from a complete solution by itself. Levelling up is hugely important and welcome, and infrastructure projects will play a part—albeit a relatively straightforward and visible part—of a much larger, more complicated and less obviously visible process of dealing with the consequences of Covid-19 and the implications of the end of the Brexit transition period. Whatever the latter may bring, there is agreement across all ranges of opinion that there is going to be real economic turbulence and upheaval, likely in many cases to be exacerbated by the existential implications of Covid having taken focus away from both its problems and its opportunities. As I have said on a number of occasions, if you are in a shipwreck, saving your baggage is low on your list of priorities.
My concern in these remarks, based on my own observations and experience, is the plight of small businesses—one-man bands, family businesses with an employee or two: that part of the economy. They do not have sharp-suited, smooth-talking lobbyists in Whitehall and Westminster. Present initiatives do not appear to be reaching them as hoped. These businesses and families are the bedrock of this country. Many have been ruined or enormously damaged financially; they are frightened by what lies ahead and their morale is low. They need the economic equivalent of what the National Health Service is giving Covid patients; they need genuine, relevant assistance and support, based on actual experience and a pragmatic understanding of the real world, not academia, think tanks or governance and administration—and they need it now. The impact of what is happening will last for years, if not decades, and the survivors of this unprecedented chapter in our history will be the launch pad for the next stage of recovery. The cure for the public finances must not be allowed to kill them, because each and every survivor is part of the future, and we need every one.
save-line3The noble Lord, Lord McKenzie of Luton, has withdrawn so I call the noble Lord, Lord Sheikh.
My Lords, I very much welcome the spending review and its priorities of protecting lives and livelihoods, strengthening public services and investing in infrastructure. The climate change emergency will be our next biggest challenge. I am pleased that there is significant funding for a green industrial revolution.
I declare an interest as co-chair of the APPG on Islamic Finance. Islamic finance can play a role in the green industrial revolution. As we will issue our first sovereign green bonds in 2021, will my noble friend the Minister consider the issuance of green sovereign sukuks?
Supporting the private sector is essential to building back the economy. Businessmen and entrepreneurs must be given the freedom to drive our economy. Does my noble friend agree that supporting the private sector is the way forward?
I have travelled to many overseas countries, and I know that what we do abroad is very much appreciated and productive. I was disappointed that ODA has been reduced to 0.5%. Can my noble friend the Minister confirm that this will be reviewed periodically?
I welcome the funding to recruit 20,000 additional police officers by 2023. What plans do the Government have to recruit an appropriate number from the BAME community?
During the pandemic, we have seen a rise in mental health issues. Can my noble friend the Minister outline how he will ring-fence money for mental health services within NHS funding?
I have a connection with the charity sector, and I note that there will be a rationing of the Office for Civil Society. Can my noble friend explain what support will be given to charities, as they are suffering financially?
Finally, as someone who supports the Armed Forces, I am happy to see that an additional £24 billion will be invested in national security over the next four years.
My Lords, on 25 November 2020, the Chancellor concluded the spending review. It contained an update on the amount of funding to be given to public services during the financial year 2020-21, as well as a new set of departmental budgets for the next financial year, 2021-22.
Although the decision to limit this year’s spending review to a single year rather than the usual three or four years is sensible, setting budgets for only one year can deprive public services leaders of the certainty they need to plan effectively and efficiently, and arguably adds to the fog of uncertainty already hanging over the wider economy. It is therefore welcome that the Government have indicated that exceptions will be made where multi-year budgets are arguably needed most, notably in funding for major investment projects.
Although this spending review will be more short-term than usual, there are still a number of important things to look out for. My biggest concern is the decision to reduce overseas aid. We have heard what some previous Prime Ministers had to say on this subject. I sincerely hope that the Government reconsider and stick to a contribution of 0.7%.
My Lords, like many noble Lords who have spoken before me today, I want to refer to the cut in the overseas aid budget from 0.7% to 0.5% of GNI, which the Chancellor asserted was “temporary”. How long is “temporary”? When will temporary become permanent? Is this cut due to rising costs as a result of the Covid pandemic, or Brexit, or a combination of both?
What makes this decision to cut international aid egregious is that the Government have backtracked on one of their manifesto commitments—an objective supported by all living past Prime Ministers—at a time when Covid is ravaging and deepening poverty in some of the world’s poorest regions. Earlier this year, we witnessed the merger of DfID with the Foreign Office, which signalled the downgrading of our overseas aid commitment. Way back in June, I stated that DfID had delivered humanitarian assistance and helped to transform lives by reducing poverty. Scrapping DfID risks jeopardising the global Covid response and the UK turning its back on the world’s poorest people. It also risks the Government being unable to make a real, meaningful contribution in responding to the greatest challenges of our time, such as climate change, when the UK is expected to chair the Climate Change Conference—COP 26—next year and is also supposed to chair the G7. Both are important organisations and meetings, dealing with commitments to foreign and overseas aid. It is time that that was reviewed.
I hope that the Minister can indicate when “temporary” will change and we will see an increase back to 0.7% of GNI.
My Lords, the OBR’s central scenario anticipates a contraction in the economy this year of 11.3% due to Covid, leading to a permanent economic scarring of 3%. Public sector net borrowing will reach 105% of GDP this year. However, it is the employment numbers, expected to peak at 7.5% next year, that will really shock the British public. Sadly, we have had a foretaste with the collapse of Arcadia and Debenhams, putting 25,000 jobs at risk and closing retailers that have underpinned town centres. Other retailers will follow, especially when the rent holiday ends.
We are in a transition. It is a time of dislocation, and the Government need to provide a soft landing. The noble Baroness, Lady Warsi, raised critical questions about mitigating the immediate impact of job losses. At the very least, furlough and related programmes need to be extended; other countries have promised support through 2021.
My colleagues and I have supported the Chancellor’s actions to pump money into the economy. Indeed, we cannot understand why 3 million self-employed people have been excluded from any kind of support. The noble Lord, Lord Haskel, made the point powerfully: it is a travesty that this spending review does nothing for the excluded.
My colleagues and I are shocked that the additional £20 a week in universal credit has not been locked into this spending review and the uplift has not been extended to legacy benefits, as was discussed by the right reverend Prelate the Bishop of Portsmouth. As others have said, the most economically fragile people do not know whether, overnight in March, they will lose 20% of their weekly income.
I also join my colleagues in calling for urgent action to support unpaid carers. I am really tired of hearing them praised but seeing them left to struggle. Many full-time carers rely on the carer’s allowance, which is only £67.25 a week. At the very least, they need a £20 uplift to match the uplift in universal credit.
This pattern of saying praise phrases but then actually doing harm applies to this Government’s behaviour to a large body of public sector workers, whose income is not just frozen but will actually shrink with inflation. As the Institute for Fiscal Studies has pointed out, the freeze saves the Government between £1 billion and £2 billion, which is pocket money compared to the £400 billion spent on the epidemic. The freeze reduces consumer spending, as pointed out by the noble Lord, Lord Goddard. It has to be pure politics—a deliberate kicking of public sector workers to please the Tory right.
Of course, the kicking is extended to local government. Many local authorities are close to breaking point with the added burdens of Covid, but the additional money offered to them in the spending review is largely a lift in the ceiling for local tax increases of 5%, as illustrated by the noble Lord, Lord Shipley, the noble Baroness, Lady Pinnock, and, indeed, the noble Baroness, Lady Eaton. The tax rises that the Government are avoiding they now start to dump on local authorities. Dumping the blame is the real story, especially as no true devolution goes with it.
As the IFS said, and as the noble Baroness, Lady Bennett, quoted, it was a pretty austere spending review—cutting spending plans by more than £10 billion next year and in subsequent years, with the pain falling largely on the unprotected departments. There will be no Covid-related spending after next year, nothing to deal with the demands of an ageing population on the NHS and social care, as discussed by the noble Lord, Lord Hunt, and little to match the retraining needs of a digital age.
What about the actual spending announcements? The big winner is defence. How much of that is for space projects and for OneWeb, the failed internet company purchased by the Government in their hope of rivalling Elon Musk and Jeff Bezos? It certainly does not raise this Government’s standing in the world, especially as it comes with their betrayal of their promise on overseas aid—a point powerfully made by the noble Baronesses, Lady Sheehan, Lady Warsi, Lady Uddin, Lady Ritchie and Lady Hayman, and the noble Lord, Lord Reid, Lord Hain, Lord Bhatia and Lord Sheikh, but perhaps most powerfully by my noble friend Lord Oates. Overseas aid is already reduced because our GDP is reduced, as the noble Lord, Lord Bourne, pointed out. This action removes another £3 billion just as developing countries are in need of more resources than ever to counter Covid. Like so many others, I truly respect the noble Baroness, Lady Sugg, and her decision to resign. She was a terrific Minister and she will be missed.
This spending review was hailed as a new dawn for green and infrastructure projects, but nearly every penny of capital spend is a reannouncement. I accept that public sector net investment will average twice that of recent years, but it has a lot of catching up to do. The green schemes funding especially, at £12 billion in total, is dwarfed by the equivalent commitments in Germany of £42 billion and France of £35 billion. It fails to meet our national ambitions, as pointed out by the noble Baronesses, Lady Hayman, Lady Randerson and Lady Boycott. I am shocked that the levelling-up fund requires money to be spent by the next election, and I hope that it will be free of the political interference of the towns fund. We need the best projects, not political bungs. I appreciate the points made by the noble Lords, Lord Liddle and Lord Bourne, on the need for devolution to use such funds effectively.
What the Government hate to confess is the role of Brexit in this whole bleak scenario. The economic scarring from Brexit—and that assumes a trade deal with the EU—is 4% permanent damage. No deal adds another 1.5% to 2% of permanent scarring, as the noble Lord, Lord Hain, made clear. In case the Minister mentions new trade deals, those are already built into the numbers. Brexit and Covid are a toxic combination, as the noble Lord, Lord Inglewood, described. Covid has crushed sectors such as hospitality, shop-based retail, leisure and transport. Brexit damages much of the rest of the economy, including financial services, manufacturing, life sciences, pharmaceuticals and agriculture—and, frankly, the creative industries are felled by both. If the Government do not pull their head out of the sand and understand the impact of economic Brexit, we will be in an appalling spiral.
Time is running out for this Government to get a grip. Interest rates are very low, largely thanks to £900 billion of QE by the Bank of England, but we have to remember that we are very susceptible to the slightest increase in interest rates. Productivity was at rock bottom even before Covid. New business investment fell sharply following the referendum and now has effectively disappeared. The severe depreciation in sterling since the Brexit referendum has given us wage and economic stagnation.
I will raise one very quick point at the behest of my noble friend Lord Sharkey. Medical research charities, which underpin so much research in this country, are in crisis due to Covid, with a shortfall of £310 million. Will they be allocated funds to cover the gap from the increase in research and innovation funding? If not, we will very likely lose not just the programmes but the scientists that make us a world leader in this field.
Other noble Lords have raised a range of critical issues, and done it brilliantly in two-minute speeches. The noble Baroness, Lady Humphreys, underscored the support crisis in Welsh farming; the noble Earl, Lord Clancarty, and my noble friend Lord McNally raised the challenges to the creative industries; and the noble Baroness, Lady Goudie, raised gender issues. Will the Minister at least write to answer those crucial questions and challenges if he cannot reply today?
My Lords, this has been an excellent debate, with a range of thoughtful contributions. While we have had several Treasury Statements in recent months, there has not been an opportunity either to look at the economy in the round or to hear from such a range of voices. The Back-Bench contributions may have been short in length, but the Minister has been left with plenty of questions to answer, as well as constructive ideas to take back to the Treasury.
This is the second spending review in a row to duck the challenge of setting out a medium-term plan for the UK economy. While the past two years have been highly unusual in several respects, that makes it even more important to have sight of a comprehensive action plan. We have known for some time that this exercise would be lacking in this respect, which is a disappointment when so many—ourselves included—have spent so long calling for a proper economic strategy.
Why does this matter? When they come under legitimate scrutiny, this Government often seek to turn the tables by asking why others will not simply follow their lead. The reason is simple: confidence. In cases where opposition parties, NGOs and the public have had confidence in the decision-making process, they have lent their support. However, it feels as though major policy and procurement decisions are being taken increasingly on the fly, without due process. Where this happens, it is simply not possible to have confidence in the Government.
The Chancellor’s failure to use this opportunity to present a proper economic vision further undermines confidence. That such a plan is needed is beyond doubt, particularly when looking at recent growth statistics and the OBR’s new forecasts. The UK has suffered the worst downturn of all the G7 nations. On Wednesday, the OECD forecast that our recovery will take longer than that of the rest of the G7. Even before Covid-19, the economy was posting disappointing GDP growth figures, and the OBR predicts that we will return to annual growth of less than 2% in just a few years’ time.
The Government’s failure to address structural economic problems over their decade in office means that we are stuck in a rut. This exercise both reflects and exacerbates the lack of certainty around our economic future. With just weeks until the deadline for a deal with the EU, we still have no idea whether there will be one and, if there is, what it will look like. The lack of detail and forward thinking is also a result of the Chancellor’s continued refusal to formulate an ambitious green agenda to bolster British manufacturing and create millions of new, well-paid and sustainable jobs. We need a genuine plan that matches the ambition shown by several other major economies, not just catchy headlines and soundbites.
The Minister will no doubt point to various initiatives announced last week, including the so-called levelling-up fund, as evidence of a grand plan. However, given the short-term nature of this spending review, those initiatives are unlikely to deliver the boost that our economy so desperately needs. It is also hard to have confidence in the new schemes that we have been offered, given recent experiences with both the towns fund and the procurement of PPE and medical supplies. We need government funds invested in the communities where they will make the greatest difference, rather than where senior Ministers believe they can produce a political dividend at the next election.
I am afraid to say that this spending review fails on several other important fronts. The decision to freeze the pay of many key workers who have helped to get the nation through the pandemic is, quite frankly, a disgrace. Not only does it contradict the Government’s warm words from earlier this year; it will also leave less in people’s pockets and, by extension, in the tills of businesses up and down the country. This is a time to boost consumer confidence and spending, not suppress it.
I very rarely agree with the former Prime Minister, David Cameron, but I refer noble Lords to his recent comments on the importance of the statutory commitment on overseas aid. The decision to undermine this requirement will be a real knock to those countries that rely on our assistance to address their social, economic and environmental challenges. Following the recent United Kingdom Internal Market Bill debacle, I also worry that this announcement will further undermine our reputation among international partners.
Local authorities can have no confidence in the Government’s response to their ongoing plight. They were promised the money that they needed to get through Covid-19, yet the reality has been very different. Ministers have attempted to play city regions and councils off against each other, which has done little for public morale or to foster the kind of collaborative spirit that we need between different levels of government. Rather than working with the Local Government Association and others to address long-standing concerns properly, we have instead seen the announcement of limited grant funding coupled with greater flexibility to increase council tax. This may plug gaps for now, but again, there is no comprehensive and sustainable vision for the future.
Sectors hit disproportionately hard by the pandemic and the restrictions that it has necessitated, such as hospitality, needed additional help in last week’s Statement. We support the tier system but we have always said that it must operate alongside appropriate support for those most affected. Earlier this week, we heard that some pubs in tiers 2 and 3 will receive a one-off grant. This amounts to yet another last-minute and reactionary announcement, rather than giving businesses the tools that they need to rebuild. Given the number of areas in tiers 2 and 3 and the likelihood that restrictions will continue for months rather than weeks, it is disappointing that the Government’s wider support programmes have not been reformed to address long-standing shortcomings. The self-employed and the self-isolating have also been let down.
Rather than making the £20 universal credit uplift permanent and extending it to recipients of legacy benefits, the Chancellor instead looks set to axe it from April 2021. Confidence in universal credit has been close to non-existent for some time, with its initial record of delays being replaced by a string of other problems. Once again, there has been an opportunity for action to improve the social security net for all. Sadly, Ministers have not made the responsible and proactive decision to take that opportunity.
The test for this spending review was for it to provide evidence of forward movement, instil confidence in the Government’s handling of the economy and signal a future centred around recovering jobs, retraining workers and building business. It failed all these tests. We are lagging behind our peers, yet key questions have been left unanswered for another year. Unless urgent action is taken, we cannot make our country the best to grow up and grow old in.
My Lords, I have listened with great interest to the many learned contributions, the extent of which are testament both to the expertise of noble Lords and to the importance of this spending review.
Crucially, a spending review is not an abstract policy exercise; it is about making decisions with real-world, long-lasting impacts. The immediate aim has been to protect people’s lives and livelihoods, but it also delivers stronger public services, including hospitals, better schools and safer streets. I will try to address as many of the points raised as possible but, as noble Lords, will know, there have been a great number of contributions. I will try to get to all of them in the time available.
The noble Lord, Lord Razzall, asked about the ability to carry on borrowing if interest rates remain low. The OBR has set a range of scenarios for the outlook of the public finances. In all scenarios, borrowing costs continue to be low, driven by interest rates that are low by historical standards, making the cost of servicing the current debt, and the projected increase in debt, affordable. Over time, and once the economic recovery is secure, the Government will take the necessary steps to ensure that borrowing and debt are on a sustainable path. The current high levels of uncertainty mean that now is not the right time to set out a detailed, medium-term, fiscal strategy. It is still too early to judge the full impacts of the Covid-19 epidemic and the unprecedented fiscal support that has caused the necessary increase in borrowing. However, as I have said, borrowing costs remain low. The OBR forecasts that spending on debt interest will fall further this year to just 1.1% of GDP, compared to 2.4% in 2010.
The noble Lord, Lord Horam, asked about modern monetary theory. The Government have provided one of the largest and most comprehensive packages of measures in the world, with targeted support for public services, workers and businesses. Since March, the Government have announced a total of over £280 billion of support measures.
The noble Baroness, Lady Warsi, asked about the impact of Brexit. The OBR’s central forecast assumes that the UK’s future trading relationship with the EU follows a smooth transition to a typical free trade agreement at the end of the year. In that forecast, the unemployment rate peaks at 7.5% in the second quarter of next year then starts to decline.
The noble Lord, Lord Kirkhope, asked about better reporting and monitoring of spending. I strongly support the noble Lord in this. There is a significant change in the way that the Treasury will monitor spending in future. It has created a public value framework, which improves governance and focuses on high-quality evaluation. We have gathered the outcomes for every department, alongside departmental settlements and metrics, through which these will be monitored, and this will be published shortly.
The noble Baroness, Lady Bennett, asked whether austerity has returned. We do not, of course, agree with that statement, but it is in the context of the huge amounts of borrowing that we have had to undertake this year—£394 billion. The spending review announced another £38 billion of support for public services in 2021, bringing the total made available this year to over £113 billion. The spending review provides £100 billion of capital investment next year, a £27 billion increase in real terms, compared to last year.
The noble Lord, Lord Bilimoria, asked about certainty on measures until March next year and a route out of tiering. To support businesses to retain their employees and protect the UK economy, the Chancellor has extended the coronavirus job retention scheme, which has helped to pay the wages of some 9.5 million jobs across the country. This has protected jobs that might otherwise have been lost. The self-employment income support scheme has had some 2.7 million claims and will continue until April 2021. Our responses are designed to complement each other, and the measures adopted with the Covid-19 winter plan. Our package will remain the same as we move out of national lockdown into a tiering system.
The noble Baroness, Lady Uddin, asked about equality impacts. The policy decisions taken by Ministers are subject to parliamentary scrutiny. There is no legal requirement to publish equality impact assessments in respect of the public sector equality duty. The legal requirement is to consider a policy’s impacts and to have due examples between the different groups. The equalities annex provides illustrative examples of what the spending review is doing for those sharing protected characteristics. The list focuses on the characteristics most likely to be disproportionately affected by decisions taken: age, disability, race and sex.
I come to the three priority areas that I set out in my opening comments, starting with health and jobs. The noble Lords, Lord Hain and Lord Tunnicliffe, the noble Baroness, Lady Kramer, and others were concerned about the public sector pay freeze. We have approached this in a very careful way. We will protect those public sector workers who most need their pay to be protected: that is 2.1 million with pay rises—those earning under £24,000—which is actually 38% of the public sector workforce. For everyone else, there will be a temporary pause on pay rises, but performance pay, overtime, pay progression, pay rises and promotion will continue. This is estimated to be worth more than 1% of pay.
It is worth restating that the pension structures for public sector pay are attractive. No one is suggesting that they are not deserved by public sector workers, but it is extremely important that they are considered when comparing the overall remuneration package between private sector pay and public sector pay. Public sector employer contributions average more than 20%. For the teachers’ pension scheme, those contributions went up from something like 16% to 23% only last September. The noble Lord, Lord Davies of Brixton, asked about pensions; I hope that I have dealt with that.
The noble Baroness, Lady Humphreys, was concerned about Welsh farmers and funding. We are delivering on our commitment to maintain the funding available to farmers and land managers in every year of this Parliament. This totals £1.1 billion in support for farmers and land managers across the UK, with £240 million going to Welsh farmers in 2021-22. This funding ensures that farmers and land managers in Wales will receive the same total funding in 2021-22 that they received in 2019. This funding is on top of the remaining EU finding that farmers and land managers in Wales will receive for agri-environmental and rural development projects.
The noble Baroness, Lady Goudie, asked about reporting on gender pay. The public sector will accord to any legal duties set out in legislation as an employer.
Several noble Lords, including the noble Baronesses, Lady Bowles and Lady Kramer, and the right reverend Prelate the Bishop of Portsmouth asked about welfare, low incomes and universal credit. The Government have supported those on low incomes through a wide-ranging package of support, of which the temporary increase of £20 a week and the working tax credit basic element forms one part. It would be wrong to make a decision now in place of extending the temporary uplift, which is place until April 2021. As we have done throughout this crisis, we will continue to assess how best to support the economy, which is why we will look at the economic and health context in the new year.
To illustrate, extending the £20 increase by a further 12 months would cost more than £6 billion a year—the equivalent of adding a penny on income tax. As it stands, spending on working-age welfare this year is more than £100 billion and already set to be at its highest level on record, both in real terms and as a percentage of national income. Additional welfare measures that the Government have introduced include the suspension of the universal credit minimum income floor to support self-employed people on low incomes. The local housing allowance rate for universal credit for the 30th percentile means that more than 1.5 million households have benefited from just over £600 per year on average in additional support. We are keeping the LHA at the same cash level in 2021-22 to ensure that the claimants continue to benefit from this increase.
The noble Lord, Lord Hain, asked about cuts to public investment for plans. The Government have expanded statutory sick pay so that employees can claim if they are asked to self-isolate. We have also changed the rules so that SSP is payable from day one rather than day four. SSP is a statutory minimum, and many employers pay more than that in occupational sick pay. More than half of employees receive more than SSP when they are off sick, so many people will not see any fall in income during their isolation period. People who are instructed to self-isolate by NHS Test and Trace and are on a low income, unable to work from home and who will lose income as a result, may be entitled to a payment of £500 from their local authority.
The noble Lord, Lord Goddard, is concerned about public sector pay. We absolutely recognise the contribution that public sector workers make and, indeed, have made this year. The temporary pausing of pay awards for the majority of the sector allows us to protect public sector jobs and investment in services, as coronavirus continues to impact the public finances. The vast majority of care workers are employed by private sector providers, which ultimately set their pay, independent of central government. Local authorities work with care providers to determine a fair rate of pay based on local market conditions. We are providing councils with access to an additional £1 billion for social care.
The noble Lord, Lord Bilimoria, and the noble Baroness, Lady Warsi, asked about our plan for jobs and support for those who have lost their jobs. The Government are taking unprecedented steps to support unemployed people; we are building on the plan for jobs, providing £3.6 billion additional funding in 2021-22 for DWP to deliver employment support to those who need it most, from helping the recently unemployed to swiftly find new work to offering greater support for people who will find that journey harder.
On support for the recently unemployed, we are investing £1.4 billion to build on the plan for jobs commitment, increase capacity in Jobcentre Plus and double the number of work coaches, who are the first point of contact when someone loses their job, providing valuable personalised support to all unemployed claimants. We are also investing around £200 million in other job-search support measures, including the job-finding support offer, which we will launch in January to provide support to those unemployed for less than three months.
The Government also recognise that young people are particularly at risk, and the £2 billion Kickstart scheme will provide young people at risk of long-term unemployment with fully subsidised jobs to give them experience and skills. All young people on universal credit will also benefit from an expanded youth offer, which provides extra support as they search for work. We have also announced a new three-year, £2.9 billion Restart programme, which will provide intensive and tailored support to more than 1 million unemployed universal credit claimants across England and Wales and help them to find work, with approximately £400 million of investment in 2021-22. A programme delivered by expert providers will offer up to 12 months of intensive employment support to universal credit claimants who have been unemployed for over a year, with some additional places available to claimants whose work coaches believe that they could benefit from this extra support.
The noble Lord, Lord Bilimoria, asked about the strategy for mass testing. It is absolutely a top priority of the Government, which is why we are investing some £15 billion in NHS Test and Trace next year, so we can maintain the testing capacity that we have built up this year, keep the transmission of the disease down and keep the economy open, which is absolutely fundamental. This is in addition to the £22 billion for NHS Test and Trace already provided this year. As the Prime Minister confirmed on 23 November, the Government are rapidly rolling out weekly or more frequent testing to all NHS staff and care workers, and in universities, to enable students to return safely home for Christmas, and in high-risk work places, such as prisons and food factories.
The noble Lord, Lord Sheikh, asked about the rise in mental health issues, which many have experienced in the past nine months. We have provided the NHS with a further £3 billion next year, which includes up to £500 million that can be used to boost access to NHS mental health services. We will be finalising arrangements in the coming weeks. This funding will address waiting times for mental health services, following the drop in referrals in the first wave. It will give more people the mental health support that they need.
The noble Baroness, Lady Kramer, expressed concern about public sector workers. The majority of public sector workers will see a pay increase next year. The Government have announced unprecedented support for the public sector: for example, the Treasury has provided £31.9 billion to support health services, much of it for wages. The public sector award was already 7% ahead of the private sector before the coronavirus. If we carried on with blanket, across-the-board pay rises, the existing gap between the public sector and the private sector award would widen significantly. That is why we believe it is right to temporarily pause while the economy recovers.
On stronger public services, the noble Lord, Lord Reid, is concerned, as many noble Lords are, about aid cuts and the armed services. I will deal with those issues together, because there is a lot of overlap. Many noble Lords expressed concern about the cuts to the aid budget. They included the noble Baronesses, Lady Ritchie, Lady Uddin, Lady Sheehan and Lady Kramer, my noble friend Lady Warsi, the noble Lords, Lord Sheikh, Lord Oates and Lord Reid, and my noble friend Lord Bourne, to name but a few. It is important to place on record some of the milestones of our commitment to overseas aid. In 2019, the US spent only 0.16% of GNI on ODA, Japan spent only 0.29% and France spent only 0.44%. All things remaining equal, the UK will be the second most generous ODA spending country in the G7 as a percentage of our national income in 2021. We will still be ahead of France, Japan, Canada, Italy and the US.
We are one of the few countries to meet the NATO 2% target as a percentage of income in the UK. We are also the world’s largest donor to the COVAX Advanced Market Commitment, the global initiative supporting the access of developing countries to Covid-19 vaccines. The UK is also the top donor to the World Bank’s lending arm for the poorest countries. The Government have committed £1.65 billion in funding over five years for Gavi, the vaccine alliance. The Prime Minister committed in 2019 to double the UK’s public international climate finance support to at least £11.6 billion between 2021 and 2025.
Various noble Lord asked about our increases in spending on defence. There is a tremendous overlap here. For example, we are currently the fifth-largest contributor to the UN peacekeeping budget. The UK has recently deployed six UN missions with nearly 600 troops and staff officers to South Sudan, the Democratic Republic of Congo, Somalia, Mali, Libya and Cyprus, and we continue to provide training for around 11,000 peacekeepers annually on the African continent. I feel that this reaffirms our commitment to overseas aid and that the big increase in defence spending will support that.
My noble friend Lady Buscombe asked for more rigour in defence procurement. As I mentioned in answer to an earlier question on the issue of value in the spending of public money, this is receiving a great deal more attention. We are investing in a long-term programme of modernisation and there will be increased accountability in how the money is spent.
Various noble Lords asked about the long-term association with Horizon. The Government are committed to enhancing the UK’s position at the forefront of global science collaboration. Negotiations over our future relationship with the EU, including Horizon, are ongoing, but of course leaving the transition period will provide options for other solutions if that does not come about.
The noble Earl, Lord Clancarty, asked about Erasmus. The Government have allocated funding to prepare for a UK-wide domestic alternative to fund global education mobilities, in the event of the UK no longer participating in Erasmus. The Government will outline further detains in due course.
The noble Lord, Lord Shipley, asked about council tax. The Government are providing local authorities with additional funding to tackle Covid-related pressures, and giving local authorities the flexibility to raise council tax. Local authorities need the ability to raise additional revenue to continue to deliver local services. However, they will need to consider the burden of tax on their ratepayers. To give local authorities additional flexibility in making these decisions, we will allow them to defer up to 3% of the ASC precept for 2022-23.
It has been flagged up to me that I am running out of time. I apologise to noble Lords whom I have not been able to answer in detail in this debate. I will follow up with written answers to those questions that I have not been able to address.
Committee adjourned at 5.05 pm.