Wednesday 3 November 2021
Arrangement of Business
My Lords, Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Motion to Take Note
My Lords, the Budget and spending review that the Chancellor set out last week delivers a stronger economy for the British people. It shows what this Government are about: investment in a more innovative, high-skilled economy, better public services, backing business, help for working families with the cost of living, and levelling up. It does not draw a line under Covid but it begins the work of preparing for an invigorated economy beyond Covid.
There are reasons for optimism. The Office for Budget Responsibility says it now expects our recovery to be quicker. It forecasts the economy to return to its pre-Covid level at around the turn of the year, several months earlier than it thought last March. In July last year, at the height of the pandemic, unemployment was expected to peak at 12%. The OBR now expects unemployment to peak at 5.2%. That is some 2 million fewer people unemployed than originally feared. Wages are rising. Compared to February 2020, they have grown in real terms by almost 3.5%. In the depths of the worst economic crisis on record, the Government set out a Plan for Jobs. The OBR forecasts confirm that the plan is working.
The Chancellor said last week that he made four fiscal judgments in the Budget and spending review: first, that the Government will meet our fiscal rules with a margin to protect ourselves against economic risks; secondly, that we will continue to support working families; thirdly, that as well as helping people at home, our improving fiscal position means we will meet our obligations to the world’s poorest, with forecasts showing that we are scheduled to return to spending 0.7% of our national income on overseas aid in 2024-25; and, fourthly, that there will be a real-terms rise in overall spending for every department, with an increase in total departmental spending over this Parliament of £150 billion.
At the start of this Parliament, resource spending on healthcare was £133 billion. Last week’s spending review confirms that by the end of this Parliament it will increase by £44 billion to over £177 billion a year. The extra revenue we are forecasting to raise from the health and social care levy is going direct to the NHS and social care, as promised.
As well as funding to deliver the Prime Minister’s reforms to social care, we are providing local government with new grant funding over the next three years of £4.8 billion. We are investing more in housing and home ownership, with a multiyear housing settlement totalling nearly £24 billion.
Last week’s Budget funds our ambition to recruit 20,000 new police officers. It provides an extra £2.2 billion for courts, prisons and probation services. It commits £3.8 billion to the largest prison-building programme in a generation.
We are delivering on our commitment to schools, with an additional £4.7 billion by 2024-25 for the core schools budget in England, over and above the 2019 spending review settlement for schools in 2022-23. Taken together, this is broadly equivalent to a cash increase of over £1,500 per pupil by 2024-25 compared to 2019-20.
As we level up public services, we are also levelling up communities—restoring the pride people feel in the places in which they live. To do that, we are providing £560 million for youth services, over £200 million to build or transform up to 8,000 community football and multiuse sport pitches across the UK, and the funding to turn more than 100 areas of derelict land into new green spaces. The first round of bids from the levelling-up fund have now been allocated. There is £1.7 billion to invest in the infrastructure of everyday life in over 100 local areas, with £170 million in Scotland, £120 million in Wales and £50 million in Northern Ireland.
Levelling up is also about protecting our culture and heritage. This is why we are investing £850 million to protect museums, galleries, libraries and local culture, and why over 100 regional museums and libraries will be renovated, restored and revived.
This is a Budget and spending review for the whole United Kingdom. Through the Barnett formula, last week’s decisions increase Scottish Government funding in each year by an average of £4.6 billion, Welsh Government funding by £2.5 billion, and funding for the Northern Ireland Executive by £1.6 billion. This delivers, in real terms, the largest block grants for the devolved Administrations since the devolution settlements of 1998.
The whole of the United Kingdom will benefit from the UK shared prosperity fund. Over time, we will ramp up funding so that total domestic UK funding will match EU receipts, averaging around £1.5 billion a year.
As we come out of the worst economic shock we have ever seen, the Government must choose whether to retrench or to invest. This Government choose to invest. Infrastructure connects our country and drives productivity. That is why our national infrastructure strategy is investing over £130 billion in economic infrastructure such as roads, railways, broadband and mobile. To connect our towns and cities, we are investing £21 billion in roads and £46 billion in railways. The Prime Minister promised an infrastructure revolution, and this Budget delivers one.
Investment in our infrastructure is just the first step. We will invest more in innovation. The Chancellor last week confirmed that we will maintain our target to increase R&D investment to £22 billion. Combined with tax reliefs, total public investment in R&D is increasing from 0.7% of GDP in 2018 to 1.1% by the end of the Parliament. Our net-zero strategy, meanwhile, is also an innovation strategy, investing £30 billion to create the new, green industries of the future. Innovation comes from the imagination, drive and risk-taking of business.
The Chancellor last week announced that we will consult on further changes to the regulatory charge cap for pension schemes, unlocking investment that will improve member outcomes, while protecting savers. He increased the British Business Bank’s regional financing programmes by over £1.6 billion, expanding their coverage and helping innovative businesses get access to the finance they need across the whole United Kingdom.
If we want greater private sector innovation, we need to make our research and development tax reliefs fit for purpose. The reliefs need to reflect how businesses conduct research in the modern world. The Chancellor last week expanded the scope of the reliefs to include cloud computing and data costs.
Last year, companies claimed UK tax relief on £48 billion of R&D spending. Yet UK business investment was around half that, at just £26 billion. This is unfair on British taxpayers. It puts us out of step with places such as Australia, Canada and the USA, which have all focused their R&D tax reliefs on domestic activity. From April 2023, we are going to do the same and incentivise greater investment here at home.
As well as investing in infrastructure and innovation, there is one further part of our plan for growth that is crucial: providing a world-class education to all our citizens. Higher skills lead to higher regional productivity, and higher productivity leads to higher wages. The Budget and spending review invest in the most wide-ranging skills agenda this country has seen in decades. We are increasing skills spending over the Parliament by £3.8billion—a cash increase of 42%.
We are expanding T-levels, building institutes of technology, rolling out the Prime Minister’s lifetime skills guarantee, upgrading our FE college estate, quadrupling the number of places on our skills bootcamps and increasing funding for apprenticeships. The Government have also announced a new UK-wide numeracy programme, Multiply. Worth £560 million, Multiply will improve functional maths skills to help change people’s lives across the whole United Kingdom.
The Prime Minister said last month:
“We are not going back to the same … broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration”.
Achieving greater productivity is not just a job for government. It is a collaborative effort, with the Government providing the infrastructure, employers moving away from relying on low-paid staff from abroad and employees embracing the opportunity to upskill. This Budget commits the Government to delivering on their part of the bargain.
We want this country to be the most exciting and dynamic place in the world for business. For that reason, the Chancellor announced a series of other changes to our tax system, including reforming our tonnage tax regime to make it simpler and more competitive and reducing air passenger duty for domestic flights from April 2023 to support the union. From April 2023, there will be a new ultra-long-haul band in air passenger duty, covering flights of over 5,500 miles, with an economy rate of £91. Less than 5% of passengers will pay more, but those who fly furthest will pay the most.
Our approach to corporate taxation strikes a responsible balance between funding public services and encouraging the investment that we need for a stronger economy. For that reason, the Chancellor announced that the £1 million annual investment allowance will not end in December as planned but be extended to March 2023. He also announced that we will retain the bank surcharge within corporation tax of 3%, meaning that the overall corporation tax rate on banks will, in 2023, increase from 27% to 28%.
Business rates are receiving a significant overhaul. The system will be fairer and timelier with more frequent revaluations occurring every three years. We are introducing support to encourage businesses to adopt green technologies such as solar panels and a new business rates improvement relief. The Chancellor announced that next year’s planned increase in the multiplier will be cancelled—a tax cut for business worth around £4.6 billion over the next five years. To help businesses hardest hit by the pandemic, he announced, for one year, a new 50% business rates discount for eligible businesses in the retail, hospitality and leisure sectors up to a £110,000 per business cap—support worth almost £1.7 billion.
The Budget takes a number of other important steps. It includes the most radical simplification of alcohol duties for over 140 years. This includes a further freeze to all alcohol duty rates for the coming year. The cancellation of the planned rise in fuel duty means a saving over the next five years of nearly £8 billion. It announced that public sector workers will see fair and affordable pay rises across the whole spending review period, as we return to the normal, independent pay-setting process. It takes action to help the lowest paid by accepting the recommendation of the Low Pay Commission to increase the national living wage by 6.6% to £9.50 an hour, meaning that a full-time worker will receive a pay rise worth approximately £1,000 a year. Finally, to make sure that work pays, it cuts the universal credit taper rate by 8%, from 63% to 55%. Because the Budget also increases the work allowance by £500 per year, this is an effective tax cut worth over £2 billion next year. Nearly 2 million families will keep, on average, an extra £1,000 a year.
To conclude, this Budget and spending review begins the work of preparing for a new economy post Covid. It helps with the cost of living; it levels up to a higher-wage, higher-skill, higher-productivity economy; and it builds a stronger economy for the British people. I beg to move.
My Lords, I owe the Committee an early apology. I resigned from the Front Bench after more than 10 years in that role, from the time that we formed the Opposition, way back in 2010. I had therefore expected to play the normal, critical Back-Bench role in this Committee meeting today and found myself suddenly precipitated into a Front-Bench role. I am not sure that I will be entirely secure in this position after 10 years of absence, but I know that my noble friends will back me up and fill in any gaps that I inadvertently leave.
The Chancellor was enormously upbeat when he presented his Budget a short while ago. The problem is that the realities that face many low-income and middle-income families are far from optimistic. As a nation, we are enjoined to be optimistic in circumstances where certain facts have to be grasped because, until they are adequately tackled, we have no basis on which to expect good results.
The Minister made no reference to the Resolution Foundation—Ministers do not and he therefore follows a good tradition—but the Resolution Foundation regards the position of public finances very differently from the Chancellor. We think that placing the highest burden on people who have the lowest income is gratuitously and outstandingly unfair. It is the Conservative Party being loyal to its principles, of course, but that does not make them any more attractive. How on earth people are expected to cope with the cuts to credit that are envisaged in the Budget I do not know. What I know is that, whereas the Chancellor talks of prosperity, certain categories of people are destined to pay a heavy price indeed.
That tends to be the case when we look across areas of government policy. I will take one area in which the Government have waxed lyrical recently—extra funding for schools. They did not preface it with any apology at all for the absolute devastation that has been forced on further education over a decade of Conservative rule; that is to be brushed under the carpet. Our side welcomes the sinner coming to repentance with the Skills and Post-16 Education Bill and development of lifelong learning, which have an important dimension of enhancement for people. But at this stage I warn the Chancellor, in case he has not recognised, as he has not for a number of other issues in his Budget, that this costs a great deal of money. We will be watching the Government and making sure that, during their time in power, they match those requirements.
With this buoyant optimism that exists all around, have the Government recognised their political optimism? “Well, we do not face the electorate for a number of years and there are certain areas where we can see the potential for favourable development.” That says nothing about the burdens on our population at present, in the high costs of food and fuel and the anxieties that people have about whether they will survive this winter, keeping warm, against the outstanding energy costs that they are obliged to meet. There was not much mention of that in the Chancellor’s speech or in the Minister’s speech this afternoon. He covered a fair amount of ground and I congratulate him on that, but he at no stage repaired the obvious damage of omission that could be seen in the Budget Statement and which the country has to live with, for the time being.
The Government pride themselves on certain increases in expenditure—certainly, schools are one. We welcome that. We also note that it only just brings schools’ expenditure per pupil up to the level in 2010, when the Government first came to power. We also recognise that schools are having to recover in a more dramatic way from the pandemic. They are going to find it very difficult, even with the limited increased resources supplied by the Government, to ensure that our students do not face irreparable loss of years of learning, which are difficult to make up.
This is a Budget which enabled the Minister to select and emphasise his favoured bits, but the country has to face the Budget as a whole. What is actually clear is how much this Budget bears heavily down on the less well off in our society, while we are seeing tax breaks for the particularly well off. It is a Conservative Budget all right, and none the better for that.
My Lords, first, I want to congratulate the House authorities on making this room as comfortable as it could be, but this debate really should have been in the Chamber and not the Moses Room.
On the face of it, the Minister and his colleagues are responsible for the highest tax since the 1950s and, as we heard from the Minister, there is a promise of record capital spending. I am not going to dwell on the Government’s philosophical U-turn to embrace tax and spend, but I am going to question the purpose and effectiveness of this Government’s approach, and I will focus largely on growth.
The Chancellor’s latest fiscal rules are predicated on the need to generate growth in the national wealth, and this begs two questions. Does this Budget leave people with the money and the confidence to create consumer-led growth, and does it ensure that businesses have confidence in government plans to invest in productivity-led growth?
First, where is the economy headed? The Minister will point to the independent Office for Budget Responsibility projection of GDP growth for next year of more than 6%, but that hides an underlying rate of little more than 1%. The 1.3% annual growth projected for the end of the spending review period is effectively no growth at all. When you take into account underlying issues such as our ageing population, it is stagnation, not growth. Set alongside this, the OBR has warned that the cost of living could rise at its fastest rate for 30 years. Its latest forecast predicts that inflation is set to jump from 3.1% to an average of 4% in 2022; others point even higher, some north of 5%. Rising inflation will no doubt bring rising interest rates and rising housing costs—and let us not forget the already banked rise in tax and national insurance.
On the personal income question, the noble Lord, Lord Davies of Oldham, quoted the Resolution Foundation; I have used the IFS, but the results are very similar. The IFS said that millions of people are set to be worse off next year amid spiralling costs and tax rises. Supporting the IFS, the OBR pointed out that, once rising prices and rising taxes are taken into account, average household incomes are set to fall next year and will not recover before 2023. Take-home pay in those average households will fall by 1%—or about £180 a year.
For lower-paid workers, the Chancellor has made much of the cut in the universal credit taper rate and the rise in the national living wage. Those are good things, but their story—their outcome—is not so good for those people. According to the IFS, as the cost of living is set to increase faster than benefit payments, low-income households will also feel “real pain”, and
“millions will be worse off in the short term.”
Let us not forget that 75% of the 4.4 million households on universal credit will be worse off as a result of the decision to take away the £20 per week uplift. Can the Minister please explain how deliberately making 3.3 million homes poorer equates with levelling up? Even if there are enough HGV drivers to put stock on the nation’s shelves, it seems unlikely that this country will enjoy consumer-led growth.
The second point of analysis is whether this Budget drives growth through investment by business. For a business to invest, it needs a strong sense of what the government plan is and confidence that the Government will stick to it. Again, I take my lead from external experts, in this case Make UK, the trade organisation that represents the vast majority of businesses that make things in this country—in other words, that help to drive prosperity. Its view is very clear and damning. At the end of a long blog, it says that
“there still remains an absence of a medium to long-term economic plan which goes beyond simply chasing the next week’s headlines”.
How can business invest in the long term when the Government are not explaining the detailed view of the future?
Meanwhile, SMEs have been kept in a state of confusion around the important issue of business rates. The Lib Dems have always advocated wholesale business rates reform, but what has been announced is another temporary fudge of a system that prolongs the uncertainty that small businesses face. If those businesses are facing uncertainty, how can they be committed to investment? Additionally, businesses that have taken on more debt during the Covid crisis will start to see rising interest rates. Perhaps the Minister could tell your Lordships what the Treasury’s projections are for every 1% increase in interest rates in terms of insolvency of small businesses.
Businesses tell us that they want a detailed plan, particularly around climate change. Yet again, the messages from BEIS and the Treasury are very mixed. There are lots of warm words, but actions such as cutting the cost of internal flights send the wrong messages. Does the Minister now realise that that has backfired and it was the wrong decision? Climate change needs big thinking. The Liberal Democrats have plans to spend £150 billion on a green recovery over the next three years—that is the sort of thing we need.
As the Minister set out, R&D is an important part of the Government’s aspirations, yet, in reality, R&D spending has been cut back by the pushback of two years. That makes achieving the 2.4% GDP target all the harder, particularly in respect of getting money from the private sector. Tax reliefs will not be enough, so can the Minister tell us what else the Government are going to do to get that money?
In conclusion, this was a time for important questions to be answered. What does the digital and green future look like and how is it funded? What does the levelling-up and rebalancing of our economy mean and how can we deliver it? What will the skills revolution actually be like and how will it be delivered? Yet, in spite of taxes being raised to the highest level in my lifetime, these questions remain unanswered. Instead, what we have seen and what people tell me they have seen is a disjointed collection of press releases. It is a shame that the Government did not use this opportunity to address the real issues facing the country.
My Lords, these past six years during which I have served as Bishop of Newcastle and as a Member of your Lordships’ House have, in a good way, been the most extraordinary years of my life. After a lifetime of living in the south, these six years in the north-east have helped me to see things from a different and much richer perspective.
The usual way to assess a Budget, the one we see in the newspapers, is to identify the winners and losers. I want strongly to resist this approach. When, aeons ago, I studied for my degree in economics, I learned that the way we spend our money shows what we value, what really matters to us. The question that matters is not what will I or we get out of this, but what kind of values does this Budget embrace—what is the moral framework undergirding it?
In Newcastle diocese I am well known—indeed, probably notorious—for citing the words of Archbishop William Temple, and references to him have not been unknown in speeches I have made in your Lordships’ House. I was therefore delighted to hear that Edward Heath shared my enthusiasm. He wrote that the impact of William Temple on his generation was immense and that the reason was not far to seek: William Temple was foremost among the leaders of the nation, temporal or spiritual, in posing challenging, radical questions about the nature of our society and its economic basis. Archbishop Temple did not often offer solutions, believing that the bishops lacked the technical expertise to do that, but he insisted that the answers to his questions had to be founded on a moral code. Archbishop Temple’s key priorities, were, first, that every child should find itself a member of a family housed with decency and dignity; secondly, that every child should have an opportunity of an education until years of maturity, which should make possible the full development of their aptitudes; and thirdly, that every citizen should be secure in possession of such income as would enable them to maintain a home and bring up children.
What would Temple make of the Budget we are debating today and what questions would he ask? Much of the Chancellor’s scope for making spending commitments depends on the forecast for economic growth, which is now expected to be 6.5% this year. Thinking of Temple’s priorities, and as chair of the North of Tyne Combined Authority Inclusive Economy Board, I believe the key question here is who will benefit from this growth. Experience suggests that the poorest are often left behind.
In terms of Temple’s priorities, there is much to welcome in this Budget, in particular the rise in the national living wage to £9.50 an hour, and it was so good to see Iain Duncan Smith’s satisfaction that the 8% cut in the universal credit taper rate at last gives us the universal credit system he designed. I also welcome the £1.7 billion levelling-up fund to be invested across the United Kingdom, which will begin to create greater interregional equity. I note that the levelling-up funding has so far focused on hard infrastructure, when we know that social infrastructure is needed as well if our communities are to flourish. I urge the Government to move further along the path of devolving funding to the regions and to trust regional and local government to make the best decisions for the areas and people they serve and know best.
One of my concerns about the Budget is that the poorest people in the world will continue to be impacted by the cut in foreign aid spending, which it seems will not be restored until at least 2024, and I remain deeply anxious for people who are on universal credit but not in work. This is a real concern in the north-east, with our relatively high level of unemployment. I understand, but nevertheless deeply regret, the Chancellor’s decision to remove the £20 a week uplift. This is a decision which hurts the most vulnerable, including many families with children.
This brings me to the question that concerns me most: are we doing the very best we can for our children and young people and the future flourishing of our country? The IFS analysis suggests that since 2010, health spending has increased by 40% while education spending will have increased by only 3%. As health spending disproportionately benefits people of my generation and older, this leads to an extraordinary and unacceptable situation of intergenerational injustice, which has been exacerbated by the pandemic. As a country we spend 5% of our GDP on education but 10% and rising on health. We should ask ourselves whether this is right. Increasing education spending will mean taking money away from something else, so there are no easy answers, but in the Temple tradition, I will not let that stop me asking to what extent we are prepared to invest in the future for our nation and our children, and what we are prepared to give up in order to achieve that.
In my maiden speech in your Lordships’ House, I said:
“The north-east is not a problem to be solved by the rest of the country but an asset to be valued.”—[Official Report, 25/5/16; col. 419.]
I have fallen deeply in love with the north-east, and most especially her people, who are warm, hospitable, proud and resilient. Human flourishing in all its forms, including economic flourishing, depends above all on our most precious resource—our people. The challenge to us as a nation is to invest in our people, particularly our young people, to equip them to thrive in the world they will live in.
I began my maiden speech by speaking of the wonderful kindness and warmth of welcome I received from your Lordships, the staff and all who work in this place. I conclude by saying that this early experience has been borne out in every way during my time here. I thank you all from the bottom of my heart and will hold your work deeply in my prayers.
My Lords, it is an extreme pleasure to follow the right reverend Prelate. I have always believed that the Bishops make a very valuable contribution to this House, which was exemplified in the wonderful speech we heard a few moments ago. She said that she would have a different perspective since she came here from the north-east; I hope she will carry back the message that there are many people here working hard for the ideals she articulated and expressed so well. I am sure she will be missed by not just her colleagues but all of us.
I agree with the noble Lord, Lord Fox, that this debate should have happened in the Chamber. I regret that. Be that as it may, Alistair Darling once observed that nobody could ever foresee the sort of situations that Chancellors of the Exchequer might have to deal with. That applies in spades to the present Chancellor, who could never have envisaged that he would have to deal first with an epidemic, then with its economic consequences—a very deep recession—and now a potential inflationary crisis.
There was some good news to be welcomed in the Chancellor’s speech. We had faster than expected growth, which validated the Bank of England’s forecast—slightly to my surprise. I will concentrate on the fiscal position. The good news there was that borrowing, which had been at 15% of GDP, or £320 billion, came down this year to 7.8% and will be 3.3% next year. These figures, if not normal, are at least getting into the territory of somewhere near normal. Similarly, the stock of debt figures did not max out at 100%, as some had been predicting, but at about 86%. However, I was puzzled—I would appreciate it if my noble friend Lord Agnew could comment on this—as to why the Chancellor quoted figures minus the Bank of England. Why should the stock of debt be quoted minus the Bank of England, when the Government choose to maintain all the time that they are not being financed by the Bank of England?
The Chancellor was helped not just by the £36 billion that he imposed in extra tax increases but by the £35 billion increase in revenues caused by the growth of the economy. He chose to split this between spending and, as was right, strengthening the fiscal position. The noble Lord, Lord Davies, whom we welcome back to his position on the Front Bench today, called this a very Conservative Budget. That was not what everybody thought; that was not the universal reception in the press. Indeed, the noble Lord, Lord Fox, hinted at that; I think one newspaper dubbed it “more Brown than Lawson”.
There seemed to be two Chancellors of the Exchequer speaking in the Budget speech: one who was enjoying trotting out all the spending and describing 800,000 playing fields being financed, and another at the very end of the peroration who was a bit doubtful about all this and expressed a degree of regret about it. At the end of his speech, he said that it was very important to recognise that government has limits. He said it should have limits. The point was very well made. Government expenditure last year reached 53% of GDP—an astonishing figure, well beyond what Roy Jenkins thought was compatible with a civilised and free society. That was 53% of GDP at a time when the tax revenues were only 36% or 37% of GDP, a gap of 17 percentage points. This year, the size of the state, if one wants to call it that, has been reduced back to 42% because of the growth in the economy, so the proportion taken up by public expenditure does not need to be permanent.
As the state grows, so does the tax burden. The noble Lord, Lord Fox, referred to this being the highest tax burden since the 1950s. The Chancellor of the Exchequer made it crystal clear that he was not entirely comfortable with the level of tax and wanted to see the tax burden going down by the end of the Parliament. I share that sentiment, but I think we have to recognise—there has been little recognition of this in some of the speeches we have heard—that we have been through a seismic series of events, which led to a massive fiscal hole. While Conservative MPs cheered the furlough and the bounce-back loans, one wondered where they thought the money would come from and how this would be financed, yet they expressed horror when the Chancellor had to impose taxes amounting to some £36 billion. I kept reading in newspaper accounts of the Budget that the Chancellor’s tax increases were the largest imposed since those of someone called Norman Lamont, so I had some sympathy for him and the situation he found himself in.
We have also to recognise that certain forces are driving up expenditure, whether we like it or not. These are primarily the demands of an ageing population, and of a health service dealing with the demands of an ageing population. The IFS has projected that, in a few years, the NHS could take 44% of programme expenditure. That has led, not for nothing, to people dubbing Britain as the NHS with a state attached to it.
It has to be noted that, while the Chancellor is taking these measures and announcing some big increases in expenditure, the survey period shows that taxes are going up as a proportion of GDP more than expenditure is. Also, our taxes are still below those of other European countries, by quite a long way. I think that only Ireland has tax levels below ours. Taxes and spending are high, perhaps too high as a percentage of GDP, but in the aftermath of a pandemic they can be justified over the short term.
I welcome the fiscal rules that the Government have announced. I hope that the Chancellor will send a copy to his neighbour in No. 10 Downing Street—it is important that he, as First Lord of the Treasury, observes them as well. I think that the Government face two challenges. The first is, as the noble Lord, Lord Fox, said, the rate of growth, which in the later years of the survey period will be below 2%. You cannot finance 3.8% growth in public expenditure on growth of 1.3% or 1.6%. The second is inflation. Many people are predicting that the 4% average inflation forecast by the Bank of England could be an underestimate, both because energy prices might go up and because supply chain interruptions might last into next year. All that will prove a big challenge to the Government. I applaud the fiscal consolidation in the Budget. The Chancellor has risen to one set of problems, but I fear that it is rather like getting to the top of the mountain and discovering that there is another mountain just beyond, which he has yet to climb.
My Lords, I should like briefly to focus on four key areas of the economy, all of which are connected: wage inflation, labour shortages, productivity and, finally, education. By way of quick introduction, since I am relatively new to this place, I should say that I am drawing chiefly on my own experience in the private sector—30 years as an entrepreneur and employer and the last seven years as an adviser and investor in start-ups. It is a particular pleasure to follow the former Chancellor of the Exchequer, the noble Lord, Lord Lamont of Lerwick, and, in her heartfelt valedictory speech, the right reverend Prelate the Bishop of Newcastle, whose comments I found myself endorsing.
The Government’s aim to build back better and create a higher-wage economy sounds good in theory but, as many employers will tell you, wage inflation without genuine increases in productivity is something of a fool’s paradise and certainly not sustainable in the long term. Wage increases ultimately need to be earned rather than given, and that applies to the private and public sectors. There really is no magic money tree, to quote one of our former Prime Ministers. The CBI director-general, Tony Danker, put it very well last week:
“Ambition on wages without action on investment and productivity is ultimately just a pathway for higher prices”.
Taking the Treasury’s own forecast alongside those of the OBR, higher wages, as we have heard, will contribute to inflation rising to 4.4% next year, although in the statement the OBR admits to the risk that it might exceed 5%, while some independent economists are now talking about 6% or 7%. Given that GDP is expected to grow by 6% next year, still with very high levels of borrowing, there is a real danger of interest rate rises coming along just at the time when many will be facing an economic squeeze.
Added to that, we have serious supply shortages, not least in the labour market itself. Businesses across the country are struggling to recruit and retain staff, not just in care homes, hospitality and retail, or HGV drivers, but in many areas of skilled labour, including middle and senior management. One leading executive search consultant in the tech sector told me only yesterday that they had never seen such an imbalance between job vacancies and the pool of available talent. This tight labour market has been made worse by the absence of a comprehensive immigration policy post Brexit. Such shortages of both skilled and unskilled labour are resulting in employers having to pay higher wages to both attract and retain staff.
To boost living standards in real terms we need sustained growth and productivity, something that we have not seen in more than 10 years. Since 2010 the UK’s productivity, as measured by GDP output per hour, has grown by just 4%, according to the OECD. That seems extraordinarily low when you consider the huge advances in technology and communication over that period. Let us put it in context: France had an 8% gain in productivity in the same period, Germany almost 10% and the US more than 10%. This spells trouble for global Britain’s place in the world marketplace, and indeed for building back better.
Why we are lagging behind is a complicated question. I shall focus on the key area of education, to follow up the comments of the right reverend Prelate the Bishop of Newcastle. Yes, innovation and productive investment are crucial too, but there is no escaping the fact that if you do not educate and train your workforce sufficiently then productivity will suffer. It is here that, to me, the Budget Statement makes particularly disturbing reading. The Chancellor states, as the noble Lord, Lord Davies, mentioned, that per-pupil funding will return to 2010 levels in real terms by 2024-25. This follows more than a decade of austerity during which schools have suffered an 8% fall in real spending per pupil, so we are talking about 15 years to return to where we were in 2009. Yes, the Chancellor announced £1.8 billion extra for education recovery post pandemic, in addition to the £1.4 billion announced in June, but the total education recovery spend falls well short of the £15 billion that Boris Johnson’s own catch-up tsar, Kevan Collins, said was necessary before resigning from his post.
Perhaps the most striking contrast lies in the different paths for health and education spending. Since 2010, health spending has increased by more than 40%, while education overall will have seen a feeble rise of just 2%. I appreciate the huge health demands brought by an ageing population, the pandemic and the historic underfunding of the NHS, but this is not a balanced approach.
Education is not a short-term fix for productivity, but the longer we fail to invest in and develop the education and training of our workforce for the future, the longer it will take to achieve these badly needed productivity gains that ultimately underpin a higher wage economy. Without real economic growth, we run the risk of fuelling inflation and interest rates, inflicting further damage on living standards.
To give the Government credit where due, they have made some welcome announcements, notably the 7.5% real-term annual increase for business, energy and industry, with the aim of encouraging innovation and boosting investment in R&D. However, the economy faces a period of labour shortages, restricted immigration, very modest growth from 2023 onwards and rising inflation. I suggest that this is not a good environment for business. Add to that stagnant spending on education and the long-term prospects for productivity do not look bright. We need a spending strategy for education, productivity and sustainable real economic growth. Finally, I suggest that levelling up makes little sense without catching up.
My Lords, a Budget provides insight into the Government’s overall economic strategy and into how the Government think the economy works. Many commentators have suggested that this Budget represented a fundamental change in economic policy by the Conservative Party: the age of austerity was banished, replaced by the era of big-state, tax-and-spend Conservatism. The Chancellor himself has seemed to many to be confused, on the one hand declaring triumphantly that
“The Conservatives are the real party of public services”,
while at the same time as he raised the tax burden to a record level he argued both that “government should have limits” and
“My goal is to reduce taxes”.
Then there are the repeated references to the need to reduce the public debt, even as government borrowing rises to record peacetime levels.
It is not hard to identify the source of the Chancellor’s dilemma. It is the pandemic. On his own Budget he confessed:
“I do not like it, but I cannot apologise for it: it is the result of the unprecedented crisis we faced and the extraordinary action we took in response.”—[Official Report, Commons, 27/10/21; col. 286.]
The Chancellor was forced into measures that he did not want to take because the pandemic laid bare the economic and social consequences of the Conservative austerity years. The decade-long destruction of the nation’s social capital in care, education, local authority services and the National Health Service has been cruelly exposed. Something had to be done.
Yet Mr Sunak’s big spending will not restore the real per capita spending on social care to the level of 2010. His big spending on “family hubs” will not make good the Conservative destruction of Sure Start. His big spending will barely restore resources per student in state schools, as we have just heard, to the level of 2010. His big spending on the NHS will not approach anywhere near the rate of growth of spending on the health service under Tony Blair and Gordon Brown.
To add to the destruction of social capital, there is, as the OBR details, the loss of output as a consequence of the Chancellor’s beloved Brexit—4% scarring of GDP year after year. That means an annual loss of around £30 billion in tax receipts year after year.
Forced to do what he adamantly insists he did not want to do, it is no good looking there for the clues to his longer-term economic thinking. Unfortunately, the Chancellor did not make his economic case any clearer by his terminology, with his characterisation of government borrowing as “immoral” and his pursuit of an economy fit for a “new age of optimism”. This is not the language of economics and economic policy. It is the language of the hedge fund lunchroom after a good lunch.
None the less, I believe that there is a clear economic perspective to be detected in the Budget speech and the Charter for Budget Responsibility. The charter includes falling public sector net debt, a target to balance the current budget, a cap on public sector net investment and a cap on welfare spending. The persistent reference to net debt is a distinguishing feature of the speech. The Chancellor quoted approvingly the Prime Minister’s argument that
“higher borrowing today is just higher interest rates and even higher taxes tomorrow”—
a statement that even a passing acquaintance with our economic history would demonstrate to be palpably false. For the Chancellor, government borrowing is not part of the overall design of macroeconomic management; it is a burden, a limit on the passage to the smaller state that is his ultimate goal.
Yet the experience of the pandemic suggests something quite different: borrowing has not been a burden. Government spending, necessarily increased to deal with the economic shock of the pandemic, was paid for by higher borrowing, ultimately financed by the Bank of England. The Bank of England’s share of government debt has risen sharply, from 23% at the end of 2019 to 34% today. When he sums up, will the Minister explain in what way this increased holding of gilts by the Bank is a burden? Will he explain how it will lead to
“higher interest rates and even higher taxes”?
The pandemic is but one example. Another is the approach to net zero. The Treasury’s new document Net Zero Review, published in October, argues that, if the Government borrowed to fund some of the transition to net zero, the burden of expenditure would fall on future generations. What would be the greater burden on future generations—that the Government borrowed to fund net zero or that the Government did nothing and net zero was not achieved? I believe that the answer is obvious.
The problem is not government borrowing, as Mr Sunak thinks. It is the use to which money is put in the context of overarching economic goals. The composition of the funding of government expenditure, whether by taxation or borrowing, should be part of overall economic management of current levels of demand, as in the pandemic; the attainment of medium-term growth objectives, as in the transition to net zero; the investment in social capital, as in health and education; and policy on the distribution of income. Mr Sunak has a plan: it is to cut taxes and cut borrowing. The result, as the OBR makes clear, is that, once output has returned to pre-pandemic levels, the rate of growth falls to around 1.5% a year, which is totally inadequate to meet the needs of demography and climate change.
In the Financial Times, Martin Wolf argued that
“low growth … makes all policy options painful: with slow growth in revenues and strong pressure for higher spending on health, social care and pensions, either taxes must rise as a share of national income or the rest of public spending is mercilessly squeezed.”
The Chancellor, Wolf goes on, failed
“to show how the growth strategy, taxation and the ambitious climate goals fit together.”
The Chancellor provided a forceful rejection of Wolf s argument, asking,
“do we want to live in a country where the response to every question is ‘What are the Government going to do about it?’, where every time prices rise, every time a company gets in trouble, every time some new challenge emerges, the answer is always that the taxpayer must pay? Or do we choose to recognise that Government has limits? Government should have limits.”—[Official Report, Commons, 27/10/21; col. 286.]
That is a moral clarion call for the new austerity.
The Chancellor concluded by laying out his economic vision with this statement:
“Borrowing down, debt down: proving once again it is the Conservatives, and only the Conservatives, who can be trusted with taxpayers’ money.”—[Official Report, Commons, 27/10/21; col. 276.]
The problem is that this Government cannot be trusted with the economy.
My Lords, I agree with my noble friend Lord Lamont and the noble Lord, Lord Fox, that this debate should have been held in the Chamber. Indeed, 10 years ago, when the noble Lord, Lord Davies of Oldham, and I were on our respective Front Benches, it never happened and never would have, not least because we would never have accepted a time-limited debate on something as important as the Budget.
I have a problem with this Budget: it does not feel at all Conservative. Low taxes, pro-enterprise measures and small government have all gone AWOL. I therefore struggle to be upbeat about it. The Budget is of course shaped by the choices that the Government made in responding to the Covid pandemic. The Government never published a proper cost-benefit analysis of their response to the pandemic, so there was no public debate about the right balance of measures that could have been taken.
One bright bit of news emerged last week in the shape of a leaked Cabinet Office document on the current Covid plan B, which fortunately has not been implemented. It shows that the Treasury is on the case in analysing the economic benefit, and it calculates that the cost would be up to £18 billion with very weak health benefits. It is a pity that the more careful analysis for which the Treasury is renowned was not more prominent in the last year and a half.
The economic impact of the Government’s Covid choices are now very visible. The lockdown tanked the economy and required extraordinary levels of support for individuals and businesses. That has left us with debt estimates of nearly 90% of GDP, albeit lower than previously forecast but still at levels that none of us expected to see in our lifetimes, especially under a Conservative Government. The OBR has estimated the long-term effects of scarring from Covid as a permanent loss of 2% of GDP.
The non-Covid outcomes also have to be paid for, with serious backlogs in health and education. The Government are pouring astonishing amounts into the NHS. The Department of Health and Social Care’s budget starts at around £140 billion and rises to nearly £190 billion. There is not a single word in the Red Book about efficiency or value for money in the NHS; the commentary is almost all about spending, which is how the NHS likes to frame the conversation. That cannot be the right approach to public expenditure, and I hope the Minister will assure me that the Treasury will not wait until the next spending review to tackle the black hole of NHS spending.
To pay for all this, we need serious growth in the economy. I am particularly concerned about the prospects of growth beyond the current bounce-back from Covid. As we have heard, the OBR forecasts that growth in the years beyond 2022 will fall below 2%, ending at 1.4% in 2026. Doubtless part of that is a result of the estimates of scarring, to which I have already referred, and one ray of hope is that there is still massive uncertainty about those estimates so it may not have such a dramatic effect. However, if the forecasts are right then we are creating an environment in which businesses will not prosper, the tax yield will decline and enterprise and investment will find no incentives in the UK, which will in turn lead to lower employment. We could be entering a downward spiral.
However, I simply do not believe the forecasts; if I believed them, I would be preparing to leave the country. The only thing that keeps me sane is a belief that the picture painted by the OBR is simply wrong—and not just in the scarring effects, whether from Covid or from Brexit. We know the OBR is resistant to dynamic forecasting, and that may account for some of it; the contribution of trade to GDP is “negligible”, and that feels wrong; and the OBR’s growth forecasts are at the bottom end of those by independent forecasters. So, I shall not be packing my bags just yet.
There were two good bits in the Budget speech. The first was the reduction in duty on champagne. As noble Lords may know, champagne is the dieter’s drink of choice for its low calorific content, so this is clearly consistent with the Government’s obesity strategy.
The second good bit has already been referred to by my noble friend Lord Lamont and read out in full by the noble Lord, Lord Eatwell, so I do not have to take up the Committee’s time by repeating it, but I remind noble Lords that it concludes that there are limits to government involvement in the economy. It was good to hear the Chancellor saying that. It was the most Conservative thing he said in his 34-page speech. I hope he means it, and that we can return to Budgets which reduce taxes, curtail the size of the state, reduce burdens on business and support the enterprise sector to grow and prosper.
My Lords, it would be fair to say that there has been a mixed response to the Financial Statement. Noble Lords have made a number of criticisms; I would add three comments.
First, whatever the Chancellor’s justification, cutting air passenger duty for domestic flights in the context of COP 26 seems reminiscent of George Osborne’s ill-fated pasty tax. Secondly, to spend more money on a tax reduction for bankers than on the catch-up for schoolchildren seems ill-advised. Thirdly, following the Statement, independent forecasters now calculate that, by 2026, the average working person will be no better off in real terms than they were 30 years ago.
Of course, the Government blame the pandemic for much of their problems, but I fear the cat is now out of the bag, as revealed by OBR Blue Book. Brexit is much more to blame than the pandemic for our forecast economic position. The Government say that all economies are suffering, but page 7 of the executive summary in the OBR book states clearly that in the UK, unlike in other countries,
“supply bottlenecks have been exacerbated by changes in the migration and trading regimes following Brexit. Energy prices have soared, labour shortages have emerged in some occupations, and there have been blockages in some supply chains”.
Page 59 suggests that two-way trade with the EU has reduced by 15%, a large gap to be filled by trade outside the EU. This is where the OBR also says that the full effect of the referendum outcome has not yet come through.
Anyone who does not believe me should listen to Richard Hughes, the OBR chair, who gave an interview last week to the BBC in which he said that Brexit reduces UK GDP by 4% in total while the pandemic does so by only 2%, so Brexit has double the outcome for our economy of the pandemic, as the noble Lord, Lord Eatwell, said.
The dramatic effect of Brexit is illustrated also by the table of forecast GDP growth on page 50 of the OBR Blue Book. It gives a figure of 2.1% for 2023, then only 1.3% in 2024, 1.6% in 2025 and 1.7% in 2026. Where are the sunlit economic uplands that we were promised by the Prime Minister and others when we left the European Union?
The Brexiteers also promised us freedom to innovate and develop our scientific potential outside the European Union. Clearly, our continued participation in the European Union’s Horizon 2021-27 programme is a key part of our continued research and development programme, yet, although our participation was agreed in principle before Christmas, negotiations on a formal agreement have dragged on for months. Even Ukraine has beaten us to it. The president of the Royal Society, Sir Adrian Smith, has called for negotiators to stop treating the issue of research funding as a bargaining chip in other disputes with the European Union, and even Sir Bill Cash says that the delay is damaging UK businesses, although I suspect he blames the EU.
I can only assume that Brexiteers believe that there are other advantages for us of being outside Europe. As the OBR has clearly demonstrated, they are certainly not economic. I hope that the Minister will acknowledge this, although I doubt that he will.
My Lords, I first thank the right reverend Prelate the Bishop of Newcastle for a most moving and human contribution to this debate. Secondly, I could not help thinking that my noble friend Lord Lamont, sitting here, would have made a very good Chancellor in today’s difficult times.
Chancellor Sunak has delivered a bold Budget that I believe is both political and high risk. It obviously seeks to support the Government’s levelling-up policy. He has been driven by the substantial increase in UK economic growth this year, which was well above the OBR forecast of only 4%. The actual figure turned out to be 6.5%, with 6% expected next year. As a result, the Chancellor has indulged in higher spending all over the place, including £4.6 billion per annum for Scotland.
Unemployment, at 4.5%, is better than the 5% forecast by the OBR, as well. I suspect that Chancellor Sunak is hoping for a feel-good factor to underpin politics and help sustain growth. He may be under strong pressure from the Prime Minister, who clearly wants economic achievements to cash in at the next general election.
Amazingly, all government departments will have substantial fund inflows. Unbelievably, Sunak’s Budget has pledged £150 billion of extra government spending this year. Overall spending will be up 3.8% per annum in real terms, compared with the 2.5% forecast in March. The tax burden had already been increased by £36 billion in the summer Budget.
Even more strangely, Chancellor Sunak ended his speech by asking if we recognise that the Government have a limited delivery power, when he has bought into an expansion of the state to a size not seen for 70 years. Was this a Conservative Budget? I have to comment, certainly not. There was virtually nothing for businesses large and small, other than the cut for one year in business rates. Bank taxation was up from 25% to 28%. No government department had a reduction in spending.
Last year, the Government borrowed £320 billion—15% of GDP; 2020-21 borrowing will be a further £183 billion. SMEs are desperate for a reform of business rates; they got an increase from 19% to 25% in corporation tax and an increase in wages. The national living wage has been increased by 6.6% to £9.50 an hour.
The £36 billion of extra NHS spending over three years already provided for has, astonishingly, had a further £6 billion added to it. Health spending has risen from 3.9% of GDP in 1978 to 8.4% next year—in cash terms, an increase of 78% over the last decade. Experience with the NHS proves the old adage that free goods have unlimited demand. The NHS also employs 1.3 million people, far more than should be necessary if it were well run. A complete review and restructuring of NHS management and rationalisation are needed.
During the height of Covid problems, Keynesian measures were justified to keep the economy alive, but we are past this stage. The only justification of the Budget measures is to deliver higher growth and higher tax revenues. The main concern is the impact of a rise in inflation on the public sector. The reforms to universal credit, where the taper rate will come down from 63p to 55p, will cost a further £2.2 billion next year.
It is difficult to understand why Chancellor Sunak opted for large tax increases rather than spending cuts. It is tempting to surmise that the Prime Minister had some input, both in crafting an “all in it together” Budget and in improving pay, particularly in the public sector, ahead of a potential general election in two years’ time. The Government will be fortunate if the increase in inflation yet to come remains manageable. At some stage, a more traditional Conservative approach to restraining excess government spending will be required.
My Lords, as headlines scream “State spending and taxes at the highest since Clement Attlee”, I wonder whether the Budgets of 2021 and the health and social care levy could prove a turning point in our history. With the framework for debt and borrowing set out in the charter, which is not much changed from Gordon Brown’s, all that remains to be fixed are the levels of tax and spending. As others have noticed, the most interesting passage in the Budget speech was the Chancellor’s apology, regretting that taxes and spending were so high but assuring his supporters, “That is not the real me; I still believe in lower taxes and a smaller state”.
Yet there are a number of forces pushing state spending up over time as a proportion of GDP. The first is pure demography. Over the past 60 years, the proportion of the population of pensionable age has roughly doubled. Spending on healthcare and pensioner benefits combined has gone up from 6.8% of total spending to 14.2%. I do not think this will be reversed. The next is the relative price effect or, to the cognoscenti such as the noble Lord, Lord Eatwell, the Baumol effect, whereby the prices of services, especially public services, tend to rise faster than prices generally, as there is less scope for raising productivity to offset rising wage costs.
The third influence is that the basket of goods and services we may choose may change as society gets richer. The cognoscenti—again, the noble Lord, Lord Eatwell—call this the income elasticity of demand. I used to believe that, as we got richer, we would want to pay for more out of our own pockets. I now believe the opposite: as countries get richer, people want more of what the state provides—what used to be called a social wage—relative to what they finance out of their own pockets.
Why do I think this will happen in the UK? As we get richer, we may care less about getting a little bit richer, but more about protecting the standard of living we already have from the risks and vagaries of life. With its power to pool risks, the state is equipped to meet this preference by protecting us from adverse effects beyond our control. When we get ill, we want treatment. When we get frail, we want care. When a crime is committed, we want justice. When trust in the financial system collapses, we expect the state to intervene. We want to be safe on our streets. If we lose our job, we want a safety net and help back into work. We want our children educated. These are all components of our standard of living.
What strikes me about life in this country is how precarious it is and how weak is our resilience. Small events can have damaging effects. A small variation in weather patterns can trigger an energy crisis or flood our homes; even in good times, the NHS always operates on the limits, so that any shock quickly causes waiting times to grow; court cases are backing up; a small increase in traffic quickly leads to congestion. Public services need to be planned with more spare capacity.
The objection to providing a more generous social wage is said to be that it would impoverish us. But look at the standard of living in northern European countries which have much higher spending and taxes. Over the decade of Osborne/Hammond austerity, the fear narrative was that we had to pay down the deficit or we would impoverish our children. This ghastly phrase ignored the falling costs of government debt and the Government’s ability to borrow to invest. I believe this was a deliberately deceptive narrative, which used the debt argument to conceal a different policy: consciously reducing the size of the state, a policy which, if openly avowed, would have got little support.
While this greater realism about public spending is to be commended, important issues are unaddressed. Universal credit serves two different though overlapping groups: those who move in and out of work and those who rely on it for continuing support. The rate of benefit needed for the former does not need to be as high as that for the latter. People can get by for a few weeks or months if they can postpone some lumpy spending until they get back to work. However, those who depend on universal credit continuously cannot do that. Making the taper for those in work more generous is welcome, but cancelling the £20 addition for those on continued benefit is simply mean.
The second omission is council tax. The Government have accepted that business properties should be revalued regularly, but council tax values and bands have not changed for 30 years and have not reflected changes in relative property values across regions. The system has become massively regressive. Three things need to happen: first, a commitment to regular revaluations; secondly, several additional bands at the top going up to, say, £2 million; and, thirdly, changing the coefficient that limits the tax on the more valuable properties to no more than 2.5 times those at the bottom. Some argue that this is turning council tax, which was meant to be a charge for local services, into a wealth tax. So be it. Wealth embodied in housing is hugely undertaxed. There would be grumblings about taxing hard-earned savings, but that is nonsense. Half my wealth is embodied in the value of my house, which has increased tenfold in 30 years. I have not paid a penny in CGT nor have I moved into a higher tax band. Far from being hard-earned savings, this is a windfall worth about £1.5 million from living in a prosperous neighbourhood in London.
There is a gaping hole in the current social care plans. It is the estimate of what on average it costs per week to provide care. Let us call it £500, although it will vary by location. If that is not built into the financing of local authorities, they will not be able to pay care home providers enough to cover their costs. The result will be that either the number of care places contracts, something that is already happening, or care providers will go on charging those who are privately funded 50% or even 100% more than is being charged for people sponsored by local social services. That is an injustice. This figure for the reasonable cost of providing care rather than what the family actually pays is important for another reason, because it is the figure that will count towards reaching the £86,000 threshold at which the state chips in. If this figure is set too low, it will take families years to benefit from the cap.
How to sum up this Budget? When George Bush Senior was seeking the presidential nomination in 1988, his catchphrase was:
“Read my lips: no new taxes”.
The Chancellor’s catchphrase should be: “Don’t read my lips: taxes will stay high”.
Before I sit down, I congratulate the right reverend Prelate the Bishop of Newcastle on her service in church and state. I was present for her maiden speech in March 2016. It was a breath of fresh air—vigorous and positive—and it led me to conclude that the bishops’ policy of retirement and refreshment may be one that other parts of the House ought to look at.
I, too, congratulate the right reverend Prelate the Bishop of Newcastle, but I have no plans to retire.
At all times we need to remind ourselves that the Tories have been in power for 11 years, since 2010. To start, I shall say a few words about the worrying trend for the Chancellor not to bother with the detail. He sent a very silly tweet to his Labour shadow Rachel Reeves seeking to embarrass her about extra money going to Leeds West. She politely pointed out that the money was going to Tory Pudsey and, according to the Observer, the people of Pudsey are not happy. He had a photo op on his beer-barrel concession and used the wrong sized barrels, which did not qualify for the concession, and while he was in Bury market he claimed that he was in the world-famous Burnley market. There is a big lack of attention to detail.
There is a brief plus: if I have read the papers correctly, getting the Chinese out of financing our nuclear programme is a real plus. If the reports that the Foreign Secretary openly stated that the Chinese are guilty of genocide are correct, it gets better. I am not really clear why Labour is so quiet on the Chinese financing new power plants.
Boasting about getting education spending back to 2010 is weird. This is only consistent with the narrative that the Tories were not in power before December 2019. That is the tale. However, I would be remiss to the memory of my late Commons colleague Audrey Wise if I did not refer to the long-term freeze on personal tax allowances. A freeze for one year with low inflation, as happened in the past, did not cause any backlash and there was no reason why it should. However, a five-year freeze with inflation on the increase is a different matter.
The noble Lord, Lord Lawson, made a major contribution to the Rooker-Wise enterprise in 1977. His part of the statutory indexation amendment was that, if the tax allowances were not raised in line with inflation, the Chancellor should seek the approval of Parliament. Of course, Geoffrey Howe and others have done that. Is the Chancellor still required to do that or will he get a five-year deal in one go?
I have news for Tory MPs: the Government’s plan will cause monumental pain for the low paid and those on very small occupational pensions. Millions who are non-taxpayers due to low income will get sucked into income tax without any announcement of a tax increase. Millions more, with just above average earnings, will become 40% taxpayers over the five-year period. The amounts will be eye-watering to the low paid.
In fact, the extra tax take from freezing allowances is larger than the national insurance surcharge. Once you get to the eighth vingtile, according to the excellent Resolution Foundation briefing, the extra tax from the freeze of allowances and the national insurance surcharge wipes out all the universal credit taper reduction. People notice change, whether they are a non-taxpayer starting to pay tax or a basic rate taxpayer starting to pay 40%. People notice these things—believe you me— which was of course the catalyst for our amendments in 1977. People were complaining like hell about the taxes that they were paying when it was said that there would be no tax increase. It is true that inflation was a lot higher, but the point of principle is exactly the same: no announcement, but more tax paid. It is tax by stealth—we had put an end to that.
Money off beer, fizzy wines and low-cost air flights will not compensate for the anger, bitterness and betrayal that people will feel over the long-term freeze on tax allowances. On top of that, of course, will be large increases in council tax and social care not fixed either. Also, there was not one word in the Budget about the stall in life expectancy since 2010—that year again. It is the first time that life expectancy has stalled since 1900; the first time in 120 years. There are fewer older people to vote Tory due to life expectancy stalling and fewer older people to vote Tory due to the high Covid killing rate. Those who survive will be paying a lot more tax. It is not a confident time to be a Tory MP in red wall or marginal seats.
My Lords, the noble Lord, Lord Rooker, was absolutely right in his reference to the Rooker-Wise amendment in 1977. I remember it all too well, though I think that he fairly acknowledged that he and the late Audrey Wise only got it through with the help of the Opposition Treasury spokesman, then one Nigel Lawson, now my noble friend Lord Lawson.
Indeed, it is the case that there is no such luck today: no indexation of that kind has been made possible by the Government. I understand why and I think that the noble Lord may well understand why as well. The fact is that Britain has, for too long, been trying to get European levels of public service and welfare at US levels of taxation. The crunch has now come. The Government have given clear indication that they prioritise maintaining, and if possible improving, public services and are therefore prepared to put up taxation to the same extent.
That is fundamentally right, because of the point that the noble Lord, Lord Turnbull, has just made. He said that, at one time, he thought that as people got richer they would spend more of that money in their own private way. Indeed, the opposite is now happening, as he pointed out. As we get richer, we need more of the services that the public sector mainly provides: education, health, care, addressing issues such as climate change, as well as levelling up—particularly from this Government.
I certainly support the levelling-up agenda. I particularly admire what the Germans are doing for some of their towns such as Dresden, Weimar and Erfurt, which were knocked about a bit during the Second World War and then went through the GDR period. However, it costs money to do that. If we are going to do the same sorts of things for our northern towns, we will need to spend a lot of money to make those improvements.
That sort of improvement for the north and the midlands, the so-called levelling-up agenda, is also good for the south. As Boris Johnson, when he was a journalist—and he was Mayor of London before he became Prime Minister—said, do we really want the south of England to be endless suburbia from Charing Cross down to the south coast? No, we do not. If there is better balance in the country, that is good news for both ends of the country.
That means that taxation has had to rise. As has been endlessly pointed out since it happened, tax as a percentage of GDP is now going to be 36.2% at the end of this Parliament as opposed to 33.3% of GDP today. As my noble friend Lord Lamont pointed out, looking at it that way is purely insular. Look at what has happened across Europe: today, by comparison with our 33.3%, the average in Europe is 41%—hugely higher. In Germany it is 37.5%, in the Netherlands 39%, in Belgium 44% and in France, amazingly, 46%. Compare that with our 33%.
Some people will argue that, if you go to a higher level of taxation, you will adversely affect growth. Is that the case? There is no evidence for it. Growth rates across Europe over the last few years are almost identical between France, Germany and us; there is very little difference at all. There is therefore no evidence that a higher tax rate, within the sort of limits that we are talking about, necessarily adversely affects the rate of growth. In fact, to bring together—maybe to their surprise —my noble friend Lady Noakes and the noble Lord, Lord Eatwell, a factor that is important is the way in which you use the money that you have raised. That is crucial.
Despite what I have just said about the link between taxation and growth, I agree with the noble Lord, Lord Fox, that this is going to be a difficult year. As Paul Johnson from the Institute for Fiscal Studies, perhaps the best and most respected commentator on these matters—I always read him first, anyway—has pointed out, living standards are going to be hit by the increase in inflation for all sorts of reasons, including Brexit, Covid and energy prices, so we are going to have a difficult year. The Chancellor has sensibly opted to hold back some of the money that he could otherwise have spent or saved for use in this period. He therefore has some firepower to deal with any faltering of growth that may occur.
One area where I would be critical is that I do not think that we should have scrapped the £20 uplift in universal credit. I appreciate that the Chancellor has put in a taper, but only 38% of people who receive universal credit are in work. The remainder are out of work and they will lose substantially. The Treasury has said that it would cost a lot to keep the £20 uplift, but the fact is that the poor in this country are very poor and they face a bleak winter. I refer to the excellent speech by the right reverend Prelate the Bishop of Newcastle, in which she referred to the moral code. Archbishop Temple, while not putting in place any particular solutions because of his reluctance to get involved in the technicalities of how we deal with these things, referred to a moral code and, because of that, I think that he would have looked askance at the Government’s failure to keep the £20 extra for universal credit. It is a pity that they have done that; as a rich nation, we could and should have afforded it.
With that blemish, though, I none the less think that the Government’s overall strategy of meeting the extra spending that is necessary, and which will inevitably be followed by extra taxation, has been broadly right.
My Lords, I follow my noble friend in adding my congratulations to the right reverend Prelate the Bishop of Newcastle on not just her speech but, as others have commented, her years of service to the Church and her public service generally. I wish her every success. As a money spider has just walked over our papers, I strongly recommend that she buys a lottery ticket before the end of the week.
I will focus on two aspects. I note the right reverend Prelate’s remarks on Temple and add my request for everyone to have the right to a warm home. I am the honorary president of National Energy Action, which is based in Newcastle, in the north-east. I am also the daughter and sister of dispensing doctors and I advise the board of the Dispensing Doctors’ Association. Many of my remarks will focus on rural areas.
I will talk, in particular, about not so much what is in the Budget but what has been left out. I regard it is a missed opportunity for the fuel poor. There are currently 1.5 million fuel-poor households and I regret to say that 25% of all electricity bills are raising and paying for the green levy. It is undoubtedly true that those on the lowest incomes have the least efficient homes and spend a higher proportion of their income on energy. It is feared that, when the price cap is removed in April 2022, a further 1.5 million households may tip into fuel poverty. The rise in energy costs before then will impact on other households, often in rural areas, which are not covered by the price cap, such as those that are dependent on coal, LPG and heating oil. One in four of Britain’s lowest-income households say that they cannot afford even a £5 increase to their monthly energy costs, so I regret that many of the fair recommendations for the Budget from National Energy Action were overlooked. In both the Budget and spending review, no measures were taken to alleviate the plight of the 4 million in fuel poverty.
I turn briefly to health and social care. The Government announced an increase in national insurance contributions in the form of the social care levy, to which my noble friend referred. This not just breaks a manifesto commitment but hits the two sectors that are trying to help the NHS and social care, as they are the two largest employers in the land. I press my noble friend on what is happening about the pledge that was made for 6,000 new GPs by 2024-25. On page 49 of the Red Book, reference is made to the increased number of nurses and appointments in primary care, but none is made to GPs. I understand that it was announced in the other place that this commitment would no longer be met by that time. It would be helpful to know, before the end of the debate, if that is the case.
I pay tribute to my right honourable friend Jeremy Hunt, who, earlier today in the other place, raised the severe labour shortages that there are in nearly every specialty in the NHS. While the Government and my noble friend said today that the proceeds of the levy will go to the NHS and social care, the Library, in preparation for today’s proceedings, highlighted that there are eight bodies that, presumably, will employ large numbers of these staff. That is not counting the ICS and clinical commissioning groups. In fact, the Red Book gives no detail on how the additional money will be spent. I press my noble friend with a direct question today: how will the money be allocated between primary and secondary care?
I have to say with regret that morale as I see it among doctors, particularly GPs, is at rock bottom. Patients have been told that they are unable to wait in waiting rooms for GP and dental appointments, and they are voting with their feet and going to accident and emergency departments. The Red Book tells us that there has been a 20% increase in the number of NHS staff in hospital and community health services since June 2011. How many of those increases have been in patient-facing positions, because that is extremely important?
There is real concern as to how the increased money announced by my noble friend today is to be allocated. It is usually allocated through the integrated care systems. What is the make-up of those? Does my noble friend agree that they are made up predominantly of secondary care rather than primary care representatives? Who monitors how this spending is allocated between primary and secondary care, and how will the budget be spread between rural and urban areas? In previous times, specific regard had to be had to rurality and sparsity of population. I understand that those conditions have now been dropped.
I end with a simple plea to my noble friend: that the Government act now to address the balance—or imbalance—between spending on GP surgeries in rural and urban areas, and hospitals, to ensure that the NHS can manage the stresses facing us this winter, not least in rural areas.
My Lords, I have always admired the Chancellor. As I have said before, I knew him before he became a Minister, and I have a very high regard for him. He did extremely well in facing the pandemic, which was a very unusual challenge for anybody, and he coped with that very well.
Having said that, I have to say that I am not all that happy with the Budget. Given that the Chancellor had favourable forecasts for GDP growth for two years in succession and given the size of those forecasts—ultimately of 6%—the first thing was to be cautious. How is the economy compared to the pre-Covid level when you have had those two growth figures? It is not all that much higher. We are not about to grow at 6% for ever and ever. As economists long ago pointed out, families spend their permanent income and not their current income—income may be high, or it may be low; you balance things out. The first thing that the Chancellor should have done was to look very carefully at the future prospects of the economy and how far we have come relative to the long-run path of the economy. That is why the economy goes down to 1.3% or 1.5%, which has been the historic growth rate of the British economy since 2010—almost since 2009. One has to be careful in fashioning a long-run strategy and not start a bonanza of champagne and this and that, giving money away frivolously.
If the Chancellor had the money, he should have restored the £20 cut in universal credit. The history of that is shameful, because it was George Osborne who took it away. It was then restored last year, and then, at the first excuse, it was again removed. Did the Chancellor know that he had a favourable growth rate forecast before he did it? If he had even a slight inkling that the growth rate was going to be favourable enough to cut champagne taxes, he should not have cut the £20 from universal credit.
Turning to the tax burden, I am a well-known friend of high taxation and I make no bones about it. People say tax is very high. I have said this before in your Lordships’ House: if you call it a taper it sounds very nice, but the 63% taper on the poorest people is a 63% rate of income tax. Then, when it is cut to 55%, everybody hails the Chancellor and says how kind he is. Why can he not go down to the average basic rate of income tax?
On the one hand, we are encouraging people to seek work; they cannot be on benefits for ever. The whole logic of the universal credit system is to encourage people to seek work. Then, when they do, you tax them 63% or 55%—no middle-class family would tolerate that. However, you can make the poor pay an incredibly high tax rate and call it a taper, and everybody is very happy. It is shameful that we have even a 55% taper on the poorest people in the country. Anything that the Chancellor can do about that, even at this late stage, would be welcome.
There has been a very welcome drift of the sentiment in today’s debate regarding this idea that we want to be a high-productivity, high-growth, high-wage economy but with a low tax burden. I think that is impossible. Let us get it straight: it is not possible, not given our growth rate and the huge backlog of things we have to correct, especially the National Health Service, social care and so on.
As many noble Lords have pointed out, the average tax burden in western Europe is 40% plus. A tax rate of at least 40% ought to be factored in, and then let us find out where we can get that money. I was very happy to hear the noble Lord, Lord Turnbull, with his Treasury credentials, propose a tax that I proposed a while ago in your Lordships’ House: a tax on the frozen capital gain that every householder has. You have to unfreeze that capital gain and put it on the council tax base, and if that can be done, we will have good social care financed by councils and a decent system of taxation. I will not go into detail because time is short.
If you want a good growth rate, do not worry too much about the debt to GDP ratio. We have been through high debt to GDP ratios and come out of them. That is old-fashioned economics: when we want to borrow, we can borrow, and we will pay it back. It is important that we correct the long-term deficiencies in the economy regarding education, health and social care. We have learnt during the pandemic that these deficiencies are costing us quite a lot. They may not be costing us financially, but they are physically and in terms of people’s health and welfare. There is still time to correct these things, and I hope that the Chancellor does it.
My Lords, I applaud the right reverend Prelate on her valedictory speech, which I thought was a wonderful combination of common sense and compassion.
A year ago, perhaps the only way to have had any forecasting credibility regarding the environment for the recent Budget would have been to say nothing at all. Nobody could possibly have forecast such a rapid economic rebound, with labour shortages, rising wages and inflation, higher property prices and positive stock market valuations, and even some recovery in the pound sterling. It is all precisely the reverse of what every observer and commentator expected.
There are now clear Budget pointers to try to create a more enduring economic base. Historically, this has been best understood in Europe by Germany, which since the 19th century has had a sophisticated and innovative training base that has substantially avoided the technical and vocational divide with universities that has existed here. The lifetime skills guarantee put in place last year will upgrade vocational and technical education. Upskilling our workforce is essential in diminishing our poor productivity performance, and now there is additional action with new, focused investment in apprenticeships and traineeships in this Budget.
It is to be regretted that we have some of the world’s finest educational institutions juxtaposed against millions of our fellow citizens who deserve and need more life opportunities. In this spirit, I particularly welcome the Multiply programme to improve basic mathematic skills.
It is perfectly true that despite overall real-terms spending increases over 10 years pre-pandemic, there were sectors in our country which were put under constraint and pressure, but we mercifully entered the Covid pandemic with our finances in near balance, and we can be grateful that this was the case—otherwise the comprehensive, considerable support by the Government during the pandemic would simply have been impossible.
I note the new fiscal rules which have been introduced in this Budget in an attempt to give assurances and to restrain any excessive public spending and the national debt by stipulating limits, as in the Charter for Budget Responsibility. Some of your Lordships may be sceptical about these sorts of objectives. I recall that a previous Chancellor introduced something called “golden rules”, which were in practice far from golden. However, there is a clear and necessary intention that underlying UK debt will be falling by the third year of the forecast period. Of course, rising interest rates and anaemic world or domestic economic activity could undermine this objective, but it makes absolutely clear that this will be, and has to be, a period of spending restraint which, we hope, can begin to assist in reducing our now high tax levels.
If we were to make some obvious observations about the structure of our economy, we would point to the dominance of our service sector, especially financial services, and our overall weak relative export performance historically. During the pandemic, the British economy suffered because of its overdependence on the service sector. The simple truth is that many countries are reluctant to open up foreign investment and activity by banks and insurance companies, for which we have particular expertise.
The noble Lord, Lord Fox, referred to the importance of the consumer, but the United Kingdom has had an economy disproportionately propelled by domestic consumption rather than exports overall. This calls for a change, and this is now being recognised. For a number of years, as one of the Prime Minister’s trade envoys, I have witnessed a transformation of our export efforts. This is critical and should involve no party-political divide. Today, UK Export Finance is successfully financing exports and even provides money for companies abroad to get financing as long as they purchase British goods and services. Happily, there is now much greater structural coherence with overseas aid and development in the Foreign Office and the success of our embassies in many countries in working with chambers of commerce. Now it is a sophisticated operation whereby it is easy to access British goods and services with backup and access through the Department for International Trade. Over time, all this will help to rebalance our overall economy. This is surely the lesson of the past two years. I welcome the announcement of an enormous increase in R&D to come and the much needed upgrading of our digital infrastructure to enhance the base for better export performance and to help commercialise our inventive capabilities.
Many of our trade agreements have perforce been continuity agreements, but they are an important start to boost commercial and industrial activities in geographical areas of higher growth. The innovation and entrepreneurship specifically targeted in this Budget, such as the new British business bank and the global Britain investment fund, coupled with a more liberal visa regime to attract more highly qualified people to rapidly growing businesses, indicate the need and seriousness of the commitment to regenerate our economy. My noble friend may wish to elaborate on that.
It is worth noting that for the first time the combined GDP of the Commonwealth, which has so much potential, exceeds that of the EU. If we accede to the CPTPP then this grouping of countries will have an ever greater share of global trade, showing the clearly evolving patterns of global trade and commerce.
Within the inevitable post-pandemic limits of any Budget, the Chancellor has attempted to give continuing support by increasing the national living wage, focusing on upskilling and stimulating new entrepreneurial activity and export promotion—a huge challenge indeed.
My Lords, with the leave of the Committee, I apologise for my late arrival but I was attending a meeting of the Finance Committee, and I understand that it is in order for me to participate. I have heard the majority of the contributions and benefited from what has been said.
I have a single, narrow but important point relating to pensions. the Chancellor said in his speech:
“I am announcing today that we will consult on further changes to the regulatory charge cap for pensions schemes, unlocking institutional investment while protecting savers”,—[Official Report, Commons, 27/10/21; col. 280.]
that took 25 words. It takes 29 words for the Red Book to say that
“the cap can better accommodate well-designed performance fees to ensure savers can benefit from higher return investments, while unlocking institutional investment to support some of the UK’s most innovative businesses.”
It goes on to refer to barriers to institutional investment.
I have three points to make in response. First, it would have been better for the Chancellor to have made it clear in his speech and in the Red Book that the charge cap on expenses applies only to default funds under automatic enrolment. Other forms of pension where people opt for other funds under automatic enrolment, or the many arrangements that take place outside the automatic enrolment arrangements, are not subject to the charge cap. It is up to the provider and the member of the scheme to arrive at their own provisions.
Of course, in practice the great majority of pension arrangements are default schemes under automatic enrolment. The number of schemes that have been taken up is testimony to the success of the automatic enrolment introduced by the last Labour Government. I think the default schemes are popular because people simply do not want to tackle what is inevitably a difficult decision. It could be characterised as great faith in pension providers, but I would put my money on inertia in the face of a choice for which most people do not have any training or experience and where there is limited or no independent advice.
Secondly, the situation where the default fund is the de facto standard arrangement places a particular responsibility on the Government not to play fast and loose with the trust, or the inertia, of the majority of people providing themselves with pensions. Over the many years that I have spent working on behalf of pension scheme members and promoting their interests, I have all too often encountered people with bright ideas, impressed with all the money that is held in the form of pensions, coming up with ideas to seek to use those resources for purposes other than providing pensions. The money in those funds is of course the members’ money and should be used in accordance with their wishes, not the wishes of Governments or others with other objectives.
That brings me to my third point. The Chancellor’s claim that
“savers can benefit from higher return investments, while unlocking institutional investment to support some of the UK’s most innovative businesses”,
is all too reminiscent of cold-call investment hucksters making promises that are too good to be true. If the potential returns are so attractive and so dependable, why are pension providers not able to promote them on their own terms, outside the default fund? Instead, they are all too ready to make unverifiable promises depending on future optimism. Make no mistake: this provision is about higher charges on workers’ pensions, with no guarantee of anything in return.
My advice to the Government is to be very careful here. They are, in effect, providing us all, the population, with investment advice. Of course, they are not authorised to do so. There is a history of pension scandals. Can the Minister assure us that he will take personal responsibility for making sure that we do not get another one?
My Lords, I place on record my thanks to the Chancellor, the Ministers and staff in Her Majesty’s Treasury. Quite frankly, the response that they gave to our population was proactive and sensitive and showed an understanding that I did not expect to see, so I thank the Treasury. I also thank the volunteers in the health service. I had a jab on Saturday, and the number of volunteers who are helping our people is amazing.
On the Budget, I pick out the global investment fund, which my noble friend just mentioned. It seems a very significant way forward. I will just cover exports and the NHS. First, on exports, I am a marketing man by profession and spent nearly 17 years working overseas and in the UK on exports, mainly focused on south Asia. The Financial Times of a couple of days ago had a headline:
“Sluggish exports: the ‘worrying trend’”,
which is quite right; that is one of the key issues that we face.
We now also know, on the ground—my noble friend Lord Londesborough has given considerable detail on this—about the problems of the supply chains and so on. I got a letter yesterday from the Department for Transport, and I just pick out that, on HGV drivers, it says we used to have a scheme for professional and career development loans, which was closed in 2019—understandably at that point. I suggested in a Written Question that it should be reopened, and am told that there are no plans to do so and that it is the responsibility of the employers to get on and do it. That is not the way forward to co-operate and get things moving in this country.
What can we do to improve the marketing? I personally believe that, as a Minister, Liz Truss went a long way to help and I hope that some of the energetic work that she has done filters through. But the Foreign Office is still not, in my judgment, oriented enough to exporting. I believe that the number 2 in every high commission and embassy should be in charge of export and business development. The ECGD is there—it should help and it wants to help. Look at what is happening in the port at Felixstowe; why have we not got that sorted out?
We used to use the BBC external services for promotion, and we have plans for a royal yacht. Why do we not revamp the Queen’s Award for Industry towards exports, or possibly resurrect the British Export Council? Perhaps we should use more collective market research, which we used to use a lot, but do not seem to use very much at the moment. Although I understand about air passenger duty, we also have to be very careful to look after our international airports, which are fundamental to our development as a world economy. There is a lot to be done in the world of exporting, and much of it is to do with marketing.
I turn to the National Health Service, which is the biggest employer in the UK, indeed in Europe. It now takes 8.4% of our GDP. I come from a doctor household: my wife started a practice in Biggleswade and built it up to be the biggest practice in that part of England. My son, also a GP, is now a deputy coroner. I myself studied and worked on the PAC for 12 years.
Just look at the PAC’s recent Test and Trace Update: Twenty-Third Report of Session 2021-22. It says that test and trace
“has not achieved its main objective to help break chains of COVID-19 transmission and enable people to return”
to work. I will pick out one particular paragraph:
“NHST&T’s continued over-reliance on consultants is likely to cost taxpayers hundreds of millions of pounds … Despite NHST&T committing to reduce the number of consultants it employed, the number”
went up between April and December. The pay is
“£1,100 per day but some are paid more.”
Finally, it makes the point:
“Over a third of the 523 recruitment campaigns run by NHST&T up to the end of May 2021 failed to appoint anyone.”
That is not a happy scene.
I would also look at medical schools. I have consistently raised questions about numbers in our medical schools, because I have in-depth knowledge about this. I started way back on 11 October 2011, and more recently I raised a Question in 2016, five years ago. Our dear friend, the noble Lord, Lord Prior of Brampton, who was in the Department of Health at that point, said we would
“fund up to 1,500 additional medical school places”.
In my supplementary, I pointed out:
“In the last three years, we have lost 3,500 medical students, but the problem goes deeper … Today”—
that was 2016; it has worsened since then—
“56% of the intake of medical students is female. Furthermore, 70% of female GPs today work part-time, and a recent survey by the King’s Fund says that 90% of all medical students in training want to work part-time. Given that it costs £200,000 to train anybody … surely the time has come to consider a … full-time commitment of at least four years after qualification, similar to what they do in Singapore”.—[Official Report, 26/10/16; col. 197.]
The Minister said that they would study this and see whether they could produce a scheme whereby all medical students would have to be committed to four years after qualification.
Nothing has happened. Frankly, it is not good enough. It is a huge problem. The Great British public cannot get to a GP today. I feel particularly strongly about it. We need to get a grip on central expenditure, review the number of medical schools urgently and ensure that there is a contract for every single medical student such that, when they qualify, they either pay back the money if they are not going to work or sign on for four years, as they have to do for Her Majesty’s Armed Forces.
My Lords, I pay tribute to the valedictory speech by my fellow Novocastrian the right reverend Prelate the Bishop of Newcastle. I express my thanks to her for her hard work both in this House and in her diocese, and for her work in addressing issues of inequality and disadvantage so effectively.
To be a success, the Budget depends on our economy expanding and interest rates remaining low. This strategy is very risky because businesses face rising costs, particularly in energy, and shortages in the supply chain and staff in some sectors, with inflation heading over 4%. The Government’s policy of spending now to reduce taxes later may prove hard to achieve. Indeed, the OBR forecast in March that if interest rates were 1% higher than forecast, additional debt interest of £20 billion a year would be needed, which would be twice that raised by the planned health and social care levy from next April.
The Chancellor’s opening words in his Budget Statement were:
“Employment is up, investment is growing, public services are improving, the public finances are stabilising and wages are rising”.—[Official Report, Commons, 27/10/21; col. 273-4.]
He failed to add that prices are rising, taxation is rising, and that low-income families are particularly exposed to that higher inflation and those rising taxes.
Some experts have said that there will be a cost-of-living crisis for the lower-paid and that the average worker will be much worse off over the next five years, with taxes now rising to the highest level for 60 years. As the Office for Budget Responsibility has said, mortgages will no longer be cheap.
I have not understood how the Government can claim they are pursuing a levelling-up agenda while they pursue a policy of regressive taxation to fund local services. Levelling up cannot be delivered without progressive taxation. You do not level up people, or the areas in which they live, by putting up their tax bill well above either the rate of inflation or the growth in their incomes.
That takes me to council tax—I suppose I should remind the Committee that I am a vice-president of the Local Government Association. Since 2016, the Government have been pursuing a policy of increasing council tax to help fund adult social care at levels well above inflation. And council tax is a regressive tax. Council tax payers have been required to pay up to 15% more over the past five years. Council tax will go on being increased in this way through the life of this Parliament. It may even get to 6% a year. This approach means that councils able to generate higher receipts from their council tax base can raise more money for social care than poorer councils, when it is often the poorer councils that have the greatest demand for social care.
Council tax needs reform, as the noble Lord, Lord Turnbull, advocated earlier. Some poorer areas pay 20 times the level of council tax of the wealthiest areas, compared to the value of their properties. The system represents an excessive tax on poorer people. Council tax should reflect the ability to pay and should be based on up-to-date property values, yet valuations are 30 years old. Extra bands and a full revaluation are urgently needed.
Let me say something about business rates. The Government have been promising a review of business rates for several years, not least because of the damage being done to high streets by online retailing with its lower business rate levels. But now the Government have decided to avoid that full review. I am surprised, but then I suppose that a tax worth some £25 billion a year is too attractive to the Treasury even though the tax can be unfair, does not take account of the profits and losses of individual businesses, and can be a barrier to investment.
I welcome the cancellation of next year’s planned rise and the 50% temporary relief for retail, hospitality and leisure sectors and other targeted temporary reliefs, but, as my noble friend Lord Fox said earlier, it is a temporary fudge. I am disappointed that the Government will only explore the arguments for and against an online sales tax. We need a much deeper review of local taxation to include both council tax and business rates.
What consideration are the Government giving to the potential benefit of a proportional property tax, as recommended for consideration by the Housing, Communities and Local Government Committee earlier this year? It could replace council tax and business rates as well as stamp duty. To be revenue-neutral, it would need to be a flat rate charged annually at 0.48% of a property’s value. Many of the problems I have identified today could be eased by its introduction. Inevitably, it would take time and effort to achieve, but it could be fairer for those on lower incomes and with lower-value properties.
In conclusion, this Budget has introduced some temporary palliatives both in extra spending and in reduced taxation, but, as so many speakers have said, some serious underlying problems remain.
My Lords, I apologise to the Committee, as I already have to the Chair, because the group of amendments on which I have to speak in the House is one group away, so I may have to miss some of the wind-ups. I was here for all the opening speeches and remained for the debate.
The Chancellor delivered his Budget speech with his customary panache and began to bask in the warm glow of appreciation from his colleagues. How awful it was for him then to hear commentators instantly liken it to a Gordon Brown Budget—not the kind of talk likely to enhance his appeal among Tory traditionalists. Its one saving grace was that the Institute for Fiscal Studies’ Director Paul Johnson contrasted it to a George Osborne Budget, which was much more to the Chancellor’s liking.
This was in fact a see-saw Budget, with a downside in March and September when the Chancellor announced record tax rises, and an upside a few days ago when he topped up his earlier public spending plans. Grasping the implications of the Budget for the economy means assessing both sides of his balance sheet, and they make for worrying reading.
In my view, this Budget bears closer comparison to George Osborne’s 2010 Budget than it has received, despite significant differences, because Chancellor Sunak is following in George Osborne’s footsteps in one key respect: he is withdrawing a major fiscal stimulus that has kept the economy alive. The way he is doing it is entirely novel for a Tory Chancellor; it is the reason why there are rumblings of discontent in Tory tea rooms and outside Parliament among what Harold Macmillan used to call “the party in the country”. George Osborne squeezed spending in the British economy by following the 80:20 rule: 80% public spending cuts and 20% tax increases. Chancellor Sunak’s strategy is very different: he is withdrawing fiscal stimulus through raising taxes by more than he is raising public spending.
The key distinction, which most commentators have overlooked, is that Rishi Sunak is a man in a hurry. He is withdrawing fiscal support for the economy twice as fast as George Osborne did. George Osborne took two years to withdraw 46% of the stimulus package with which Alistair Darling had tackled the 2008 global financial crisis. Rishi Sunak is taking two years to withdraw 85% of his own 2020 fiscal stimulus. In my view, that runs the same risk that George Osborne fell victim to: of causing the economy to lose momentum, real incomes to stagnate, and debt and deficit targets to be missed by a mile. Osborne’s strategy caused economic growth to halve in 2011 and come to almost a complete stop in 2012.
Many economists fear that Rishi Sunak may be running the same risk now. Martin Sandbu, European economics commentator with the Financial Times, has pointed to the pre-Budget IMF data showing that the UK had already pencilled in a much stronger fiscal contraction than its G7 or eurozone peers on average. Office for Budget Responsibility forecasts now show UK economic growth tailing off to 2% in two years and to only 1.3% in 2024, which could easily slip. The Labour decade before the 2008 global credit crunch saw UK growth average 3% per year, which is roughly double Chancellor Sunak’s plans. That Labour achievement is the least we should be aiming for now to begin to deliver a high-productivity, high-wage economy.
I support the pre-Budget open letter from 70 economists and nine think tanks calling for continued fiscal support for the economy, specifically a stimulus package of £70 billion to £90 billion in annual spending for three years, focused on green investment, social care and childcare. That would be closer to the example of vigorous action set in the US by President Biden and pressed by shadow Chancellor Rachel Reeves in an excellent speech during the Budget last week.
The American economy is recovering from the pandemic more quickly than the UK’s because the US Government have taken much stronger discretionary action to boost the US economy. US GDP has already returned to its pre-pandemic level. Premature withdrawal of fiscal support is why Britain took longer than America and Germany to recover from the 2008 global financial crisis. The signs are already there that we are doing so again. This time we faced two added blows, from the pandemic and Brexit, with Brexit hitting the economy between two and six times as hard as the pandemic, depending on which economist you talk to. The forecasts for real household incomes look dire, especially for those on low incomes, hence the critical importance of the noble Baroness’s amendment to the social security legislation yesterday, which I hope the Government accept.
The Tory traditionalists who I mentioned at the start of my speech profess to hate high government debt and budget deficits. They crave balanced budgets, which they somehow associate with Margaret Thatcher. David Davis MP, writing in the Mail on Sunday, wonders whether Rishi Sunak can “match” her “brilliance”. Someone should tell Mr Davis that in 11 years in Downing Street Margaret Thatcher delivered only two Budget surpluses. Who delivered three in 13 years in office? Gordon Brown. Be careful what you wish for.
My Lords, I recall many years ago, when I had my first public appointment in the Greater London Council, having a meeting early on with officers. We had an expenditure proposal on the table, and I said to the finance officer, “Can we afford it?” I will always remember his reply. He said: “Mr Balfe, there has never been a shortage of money in County Hall. There has frequently been a shortage of willpower when it comes to applying it to useful propositions.”
In the last year or so, we have seen that there is not only a magic money tree but a whole forest of them. I doubt that we will ever again hear the cry that we need a new Marshall plan, because when push came to shove the Chancellor found far more money than Jeremy Corbyn ever dreamed of spending on the economy. So I begin by pointing out that, if we need money, it can be found; the question is whether we should do the finding.
One of our difficulties at the moment is that we are told we are reinventing conservatism. I put it to your Lordships that reinventing conservatism has nothing to do with spending money. Stanley Baldwin reinvented conservatism in the late 1920s. He devised the assisted areas Act, which opened up roads and motorways to the north-east, the area that the right reverend Prelate came from. Baldwin discovered that not only did this enable people to travel to Newcastle but it enabled the people of Newcastle to leave it, which they did in great numbers. I suggest that levelling up is not going to be achieved by spending money. It may be achieved by investing money in education, health and other areas, but not by just throwing a dollop of money at a problem.
The Conservative Party is clearly in the process of reinventing itself. I would like to think that maybe the Labour Party would look at itself and do a bit of reinventing, because it seems to believe in something different every week. I read the pledges on which Mr Keir Starmer was elected, and I was enough of a junkie to read his speech to the Labour Party conference —or, rather, the booklet that was released. They bear very little resemblance to each other; it seems that the policies change almost with the weather. I hope the Labour Party will put its thinking cap on and try to decide what it wishes to achieve and then how it wishes to achieve it. Although I doubt we will ever be great political friends, I must say that some of the points made by the noble Lord, Lord Sikka, often come close to defining a policy area that is well worth a closer look. I shall leave it at that.
The position has been made about education and health. I have often argued in this House that health is safe with the Conservatives. Health expenditure is safe for the very clear reason that we need to keep these people alive. It is very well known that the older people get, the more likely they are to vote Conservative, so obviously the Conservative Party is going to be in favour of a strong, well-functioning health service.
However, I ask the Minister to get his colleagues to look at the way in which it is organised. The noble Lord, Lord Naseby, was right: there is a huge need to sort out the dysfunctions of the NHS, and there are many. Its overweight bureaucracy now cannot even manage to see a patient. In our area, if you want to see the doctor, you have to be triaged and they decide whether you are going to be seen. Of course, as we know, many conditions have been missed.
The point on education is, of course, exactly the opposite. Young people do not vote and expenditure on education has been allowed to wither more than is sensible for an advanced country. I hope that the Government will look at spending on education.
My final point is that the Chancellor has said that expenditure must have its limits and clearly it must. Many people in my local association are concerned at the way in which government expenditure is going. They do not feel that it is the job of a Conservative Government to keep on pushing up expenditure; they feel it is the job of a Conservative Government to produce value for money. I hope that, when the Minister gets back to his department to reflect on this debate, he bears that in mind and looks for value for money from the expenditure that we are undertaking.
My Lords, it is a real pleasure to follow the noble Lord, Lord Balfe. The Chancellor’s Budget will not lead to an economic renaissance, reduce inequalities or improve household budgets.
The word “women” gets just one mention in the Chancellor’s Statement and there are no policies associated with women’s welfare, whether that is reducing the gender pay gap or the pension pay gap, or reducing women’s tax disadvantages. The disabled and pensioners get absolutely no mention in the Chancellor’s speech. The £10 Christmas bonus for pensioners was introduced in 1972 and is still the same. If linked to inflation, it would need to be around £140. The £100 winter fuel payment has not changed since 2011 and, if linked to energy prices, would need to be £153. The Government seem to really have it in for pensioners—they want to hurt them any way they can.
Household budgets are being squeezed by rising energy and food prices, but the Chancellor has not offered any relief by, for example, eliminating VAT on domestic fuel or perhaps offering or considering rent controls. The £4 billion tax cut for banks—from what I could add up—is part of a £54 billion tax giveaway, mainly in the form of tax relief to corporations that are already making billions of pounds in profits. The banks are a good example of that.
The Budget reduces the spending power of households and increases queues at food banks, and that will inevitably undermine the economic recovery. The suspension of the triple lock on the state pension will remove £30.5 billion from pensioners over the next five years, and some 4.4 million families will be worse off by around £4 billion a year because of the cut in universal credit.
Some £8 billion, perhaps more, is removed from household budgets by freezing personal allowances. Consequentially, 1.3 million people, generally the poorest, will be forced to pay income tax. The Johnson tax, which is the name I have given to the 1.25% levy—it does quite nicely on the internet—will remove £85 billion from people’s pockets in the next five years. Income tax begins at £12,570, but the Johnson tax is levied on an incomes from £9,500. People who do not earn enough to pay income tax have to pay national insurance and the Johnson tax. The IFS has pointed out that the Government’s relentless squeeze since 2010 will make the average worker almost £13,000 a year worse off by the middle of the 2020s compared with pre-2008 financial crash growth in wage rates.
The Government like tax perks for the rich. Capital gains are taxed at a lower rate than earned income. Dividends are taxed at a lower rate than earned income. I hope the Minister will tell us why is it that no national insurance is levied on recipients of unearned income. If it were levied, it could go a long way towards addressing many of our social problems. I have asked that question of a number of Ministers, but nobody has answered. I hope that we get an answer today, and I am looking forward to it.
Even before the pandemic, the poorest 10% of households paid 47.6% of their income in direct and indirect taxes, compared with 33.5% by the richest 10%. The Budget has increased that burden, so I have another question for the Minister. Can he explain why the poorest continue to be targeted by the Government? What is to be achieved by increasing their tax burden even more?
The Chancellor said a lot about growth and productivity as the UK lags in international league tables. We have had more than a decade of low inflation, low interest rates, low wages and low corporate taxes, but that has not delivered the much-needed investment. UK investment in productive assets is around 16% of GDP, which is almost the lowest in Europe. When the opportunity arises, I hope that, on another day, I will be able to advance my thesis about why the UK remains in the doldrums.
Historically, the UK economy has been built by the public and private sectors. UK businesses have not shown a great deal of appetite for risky investment, which is why the state had to shoulder the burden and build airlines, telecommunications, biotechnology, nuclear and computer industries. It also had to rescue and reinvigorate railways, water, gas, electricity and many other industries. However, when you withdraw the state from that arena you do not really progress that much. What is the Government’s response? It is to reduce R&D spending by £2 billion to £20 billion. We are told that by 2024 they will spend about 1% of GDP on R&D. That is almost the lowest government spend in Europe, and it is again highly problematic. It will not deliver high productivity and growth.
The Government’s mishandling of Brexit is holding back the economy. The OBR said that
“supply bottlenecks have been exacerbated by changes in the migration and trading regimes following Brexit. Energy prices have soared, labour shortages have emerged in some occupations, and there have been blockages in some supply chains. These can be expected to hold back output growth”.
Yet the Chancellor offered no remedies for these structural problems.
The much-hyped policy of free ports did not get much endorsement from the OBR either. It said:
“There is also broader uncertainty around how much of the economic activity that takes place within a freeport will have been displaced from other UK regions and how much is genuinely additional.”
The major winners from the Budget are tax-dodging, champagne-sipping bankers on short-haul flights. For most people it is a continuation of austerity. That will inevitably increase social instability.
My Lords, I echo the remarks of my noble friends Lady Noakes and Lord Lamont, as well as others. I will touch on two areas of concern. However, first, I am extremely relieved that I am not the Chancellor.
Every year that I can think of, the NHS is overwhelmed; every year, billions more are invested and yet it never seems to improve patient care. Covid aside, it is far too hit and miss. We have world-class doctors, surgeons and nurses and many others in front-line care but, as my noble friend Lord Naseby mentioned, only 11% of GPs work full-time. That was before the pandemic. It is not about the number of heads in a structure or system; it is also about the hours they are contracted to do.
I had a look at the structures, at what in Brussels we used to call an organogram—it is quite a good word. I do not pretend to be an expert in this field but, like everyone in the UK, I am a shareholder. Out of the 1.4 million employees, around 450,000 are doctors, surgeons and nurses, with many more directly supporting them. I was astonished, however, by the diagrams of the top-heavy, top-down—that is an understatement—bureaucracy. None of the 27 quangos apparently focuses on adult care or mental health. Then there are 223 trusts, clinical care groups, NHS England, healthcare providers, NICE—it goes on and on. That leaves about 700,000 administrators, which is about half the workforce. I am sure many of them are doing a very necessary and brilliant job but, of the £225 billion budget—or 10.5% of GDP—and excluding the billions that have been thrown at it for Covid, what proportion is spent on front-line care?
My second concern is quite different. The aviation and tourism sectors have been decimated by Covid and are desperately trying to recover. My interest is non-paid, but I have spent most of my life in these industries. I welcome the reduction in APD for domestic flights, but it should have been immediate, along with reduction in APD for international flights as well. Job losses and bankruptcies have taken their toll. In addition, this demonising of the airline sector is appalling, particularly at the moment at COP, when it is desperately trying to recover. Collectively, aviation and tourism employ and support nearly 4 million jobs. Before Covid, tourism raised approximately £71 billion a year, which went to the Exchequer. Aviation alone supports nearly a million jobs, with another £52 billion raised, though clearly that was very reduced during the last 18 months.
Looking at the aerospace sector, we in the UK build the cleanest, greenest aircraft ever. That is not by accident; decades ago, the industry realised that the lighter the aircraft, the more fuel efficient it could be, so the price of the ticket could cost less. It happened through competition, and we all benefited. People were able to live, travel and do business abroad at an affordable price. As an island nation, we developed the largest route network in Europe and the second largest worldwide, outside of the USA. It has given us connectivity and increased commerce. An aircraft is not just about going on holiday; every hold will contain cargo, goods and products built and grown here and exported around the world. Even orders from Amazon arrive the next day.
Let us be clear: the aviation sector—private jets included, which, by the way, are a very small proportion of the industry—creates around 3% of CO2 emissions worldwide. Engineers, scientists and the industry have over the years and decades invested heavily to continue to improve the aircraft of the future and we all support that. Let us not throw out the baby with the bathwater. These industries need confidence from government and from us, so I hope that we can have a more balanced discussion as we move forward.
Finally, this pandemic has caused havoc and we have spent billions of pounds dealing with it, but we have to get back to an economy where people keep most of the money that they earn, where businesses can plan ahead with certainty and where the Conservative principles of tax and spend return as quickly as possible.
My Lords, it is a pleasure to follow my noble friend Lady Foster of Oxton. I thank my noble friend the Minister for introducing this debate today and I congratulate the right reverend Prelate on her thoughtful and interesting valedictory speech.
I congratulate the Minister on the way in which the Treasury has reacted swiftly throughout the pandemic to support those sectors of the economy that would otherwise have suffered enormous and lasting damage. The bounce-back loan scheme and the furlough scheme have helped businesses across the board to survive through the dark months and many of them now contribute to the economy, which is recovering more strongly and quickly than many had predicted. The Culture Recovery Fund, administered by DCMS, has helped to ensure survival for many enterprises in the arts, cultural and heritage sector, helping to ensure that the UK remains the best place for talented artists to develop their careers and enrich our national life.
Many have suggested that this Budget indicates that the Government have abandoned their commitment to true Conservative principles, adopting policies providing a greater role for the state than we have seen since Lady Thatcher’s successful reforms. Some commentators argue that, following the success of the party in winning so many red wall seats, the Government now need to adopt tax and spend policies that reflect the priorities of their new supporters in constituencies that have never or not often elected Conservative MPs. However, the election of Ben Houchen as Mayor of Tees Valley on a platform of low taxes and support for innovative new companies and wealth creation shows that his supporters believe in Conservative ideals as the route to greater prosperity just as much as Conservative voters in the south-east.
I recognise that the Chancellor could not continue to borrow more and more, especially as the national debt has risen to an alarming £2.2 trillion, or 95.5% of GDP. This is the highest level since 1961. It is, however, encouraging that tax receipts in September 2021 have increased by 11.1% over the figure for September 2020 and government spending is modestly lower for that month. This is of course before the very substantial tax increases take effect. I worry that we are getting close to the optimal level above which further increases would be counterproductive, because they would stifle growth and act as a drag on GDP.
The UK has already become a relatively less attractive place to incorporate a company, because corporation taxes will increase by 6%—that is, an increase of 31.6% in the rate—from next April. On top of that is the effective 2.5% increase in national insurance, aggregating employers’ and employees’ contributions. I fear that we are likely to see a reduction in the number of start-up companies registered here. The costs of employment will act as a disincentive to the creation of jobs.
The Chancellor is optimistic about economic growth and the Government now need to deliver on pro-growth supply side policies that will support it. Can my noble friend tell your Lordships whether the Government recognise that we must be swifter and bolder in adopting a less cumbersome regulatory rule book for both services and goods? That means fewer quangos, not more. Many of the new Acts of Parliament being taken through your Lordships’ House establish new committees and commissions, often with increased regulatory powers. This is not what the country voted for in 2016. The Prime Minister welcomed the report of the Taskforce on Innovation, Growth and Regulatory Reform and he and my noble friend Lord Frost have said that the Government will drive forward necessary changes. Could the Minister confirm that the Government are indeed doing that?
My right honourable friend said in another place that the
“Budget increases total departmental spending over this Parliament by £150 billion. That is the largest increase this century, with spending growing by 3.8% a year in real terms. As a result of this spending review, and contrary to speculation, there will be a real-terms rise in overall spending for every single Department”.—[Official Report, Commons, 27/10/21; col. 277.]
However, the average annual growth figure shown in the Autumn Budget and spending review for the Foreign, Commonwealth and Development Office, on page 103, shows a reduction of 5% over the five years from 2019-20 to 2024-25. The FCDO is the only department facing a real-terms cut over that five-year period.
Is that the reason why the FCDO has been forced to propose the sale of around half the British embassy estate in Tokyo? Global Britain, our enhanced bilateral trade agreement, our application for accession to the CPTPP and our deepening collaboration in defence and security are all reasons why our relationship with Japan has become, without any doubt, one of our most important global partnerships. History and tradition are highly valued in Japan. Our embassy in Tokyo is the source of the special and unique status that the British Government and British people hold in Japanese society. If the embassy reduces its size, Japan will see it as the symbol of a smaller Britain. I ask my noble friend to recognise that the Treasury’s failure to provide the appropriate level of funding for our diplomatic presence around the world has led to this highly damaging proposal, which should be reconsidered as a matter of urgency.
My Lords, I start with a sad farewell to the right reverend Prelate the Bishop of Newcastle. I hope that her words today on the importance of investing in our children will be heard by all parties and all sides—not only by those sitting in this debate but by their colleagues. The work that she has done in this area has been important in driving the thinking within this House—again, on all Benches. So I say farewell and thank you from all of us.
On a very different note, I say to the Minister that I hope that the message has now been received that the Budget and the spending review are issues that should be debated in the main Chamber. I hope that we never see this decision to be in Grand Committee cited as a precedent for future debates on Budgets and spending reviews.
Many people who have spoken today have talked about the huge challenges facing our economy, whether they are recent through Covid or deeply embedded, and I want to capture a few of them as part of my winding summary. The OBR has confirmed that the economy is permanently severely scarred by 2% from Covid but, far more significantly, by 4% due to—as we heard in detail from the noble Lord, Lord Eatwell, and my noble friend Lord Razzall—a loss in tax receipts of £30 billion per year as a consequence just of the Brexit scarring. In fact, several noble Lords have stated that 4% is probably a rather conservative calculation of the level of permanent damage.
UK productivity continues its malaise, repeatedly growing at something in the area of only 1.3%. I completely agree with the noble Lord, Lord Londesborough, that this, in a sense, is the basis for the economic struggle that we face. Our rival economies have continued to do far better on productivity. We have to tackle that issue; it is a long-term deficiency, as the noble Lord, Lord Desai, essentially discussed.
I wanted to say, however—and I think that the noble Lord, Lord Londesborough, raised this question—that the Government talk about us being a high-wage economy. I know the noble Lord was afraid of the consequences if that is not driven by productivity, but may I refer him to the OBR? Its forecast shows that real wages will have grown just 2.4% between 2008 and 2024. That is not a high-wage economy, and is one of the fundamental problems that we have to address.
Business investment—mentioned by several people—continues to be weak; both foreign direct investment and domestic investment are at very low levels. According to the publication Credit Strategy,
“52% of businesses are now saddled with ‘toxic debt’”.
Of course, that is not even through all the various sectors, but many of our key sectors will be struggling with the debt burden for years to come, holding back their growth. UK corporate debt was up in 2020 from £1.9 trillion to £6.6 trillion. It is an eye-watering number.
To pick up the point from the noble Lord, Lord Razzall, exports to the EU are down sharply, but I say to others who have talked about new trade agreements, new opportunity and so on that, according to the forecasts, they are very far from being offset by new opportunities elsewhere. I am picking up on ONS figures. It has led to real concerns that the UK is losing overall competitiveness.
Again, as many have said, we have a rapidly ageing and increasingly dependent population. I was looking at the dependency ratio, which rose in 2020 to 57.6%, up from 51.7% in 2010; that comes from World Bank figures. The issue that lies behind this is that it is pretty much unsustainable, particularly when that dependency is coming from an older population and not a group of youngsters who will be future workers.
Taxes are the highest since the 1950s and on a path to exceed 36% of national income. However, I want to pick up the issue that my noble friend Lord Shipley raised, which is the tax burden of local councils and is not included in those tax numbers that are quoted by the OBR. There is a 5% increase in council taxes, which will be a burden distributed most unfairly under a regressive system. The noble Lord, Lord Turnbull, talked about completely reforming the council tax system and, again, my noble friend Lord Shipley raised the same issue. This is an area that must be fundamentally addressed because of the damage it does to many of the least well-off in our society at a critical time.
Public service net debt is forecast by the OBR to reach 98.2% of GDP and not to start falling until the end of the three-year period. It will just squeak through the Chancellor’s new rule, if the OBR numbers are right. The number that I think frightens most of us is that CPI is forecast to exceed 4%—many are now saying 5% or perhaps even higher. Because it seems to be based very much on essential purchases such as food and energy, its impact will be on the poorest in our society.
Facing all that, I hope—and I join the noble Lord, Lord Hain, in this—that the Government will now accept the amendment from the noble Baroness, Lady Altmann, which was passed yesterday. It would reshape the definition of the triple lock for this year in such a way that it does not leave pensioners utterly impoverished.
If all that were not enough, we have two of the greatest existential challenges of any age: the scourge of climate change and the challenge, which has hardly been spoken about, of the digital revolution. To me, that says one thing—that we needed a transformational Budget—and what we got was simply underwhelming. There was a sort of scattering of seed as if across the bird table. There were quite a number of good things in it, and quite a number of attractive things, but nothing that could sustain an economy in the long term, just as the feed on the bird table cannot sustain birds through the entire winter.
If anyone doubts the fundamental weakness of the Budget they just need to look at the OBR forecast. This was addressed by my noble friends Lord Fox and Lord Razzall, the noble Lord, Lord Lamont, and the noble Baroness, Lady Noakes. It forecast growth of GDP of 1.3% in 2024 and 1.6% in 2025. I know that the noble Baroness, Lady Noakes, is optimistic that those numbers are fundamentally wrong, but, my goodness, that is a long shot. These are the best numbers we have to work with, and we are scared. I mentioned a list of challenges: if we had just a few of them, they would be tough to deal with in that kind of limp economic growth, but when we look at the full list—and I suspect people will add others—we are looking at a serious risk to our standard of living and, frankly, not all the hot air of boosterism will change any of that.
I shall refer to a few particular policies because I think I must. I realise that I cannot go on too long. I join others in not understanding the cruelty to the 3.5 million people on universal credit who are unable to work or able to work only part-time. They are being pushed into penury by removal of the £20 universal credit uplift, which is made worse by the pressure of inflation. All the talk about optimism will not stop people being hungry, and I pick up the point made by the noble Baroness, Lady McIntosh of Pickering, that every one of them has the right to a warm home. These issues were addressed by the noble Lords, Lord Turnbull, Lord Horam and Lord Desai. That does not mean that I do not welcome the taper in the UC rate, which will help people in work full-time, and the boost to the national living wage, but I pick up the point made by the noble Lord, Lord Desai, that it still leaves those people facing effectively a 55% marginal tax rate, which is simply unsustainable and outrageous. I also pick up the issue recognised by the noble Lord, Lord Sikka, which is that national insurance starting at a much lower threshold is an additional pressure on those individuals. I quote the IFS:
“the working age benefit system is overall substantially less generous than it was in 2015.”
I am also very worried that the increases in spending for most government departments are a sort of unannouncement of previously announced budget cuts—perhaps the Minister can confirm this—and that most of the money that is being restored is for capital spend, when we desperately need day-to-day spend.
I shall finish by focusing on what I think is the key issue of the day, which is climate change. Our Government call themselves a global leader in tackling climate change. If that is their ambition, why is this not a proper net-zero Budget? It contains announcements of modest, scattergun green investments, which are all welcome, but they are insubstantial compared with our economic rivals. I shall give a direct comparison: £620 million over the next three years to encourage us to use electric vehicles and to walk and cycle. In Germany for the equivalent period there is €5.5 billion just for electric vehicle charging infrastructure. It is dramatic and transformational in Germany and in the margins in the UK.
Businesses are critical to net zero. They have told the CBI and anyone who will listen that they need a long-term fiscal plan of incentives and disincentives to reach net zero, including disincentives to support fossil fuels. Long-term fiscal certainty is the only way in which they will maximise their investment. There was no plan in the net-zero strategy. I think all of us thought it would be in the Budget but it is not.
The Chancellor’s proposals today are to use disclosure and embarrassment to get companies to push hard to net zero, but most of us in this Room are not naïve. To get businesses and the financial world to focus on delivering net zero to the timetable needs that combination of rewards and costs. It should have been in this, so we need to hear from the Government why there has been no such plan.
I would love to talk about other issues, such as reforming interest rates. I feel strongly about education. Many noble Lords said that spending per student is only just returning to 2010 levels. There is one suggestion I want to make to the Government on that: if they delayed that cut in the banker’s levy by one year, they could use that money to provide catch-up for all the kids who are struggling as a consequence of two years of inadequate education because of Covid. If they do not catch up, they will lose permanently. We have proposed that as a party and here is an opportunity to do it.
Just about everybody was displeased with this Budget in one way or another. For a brief second, I thought that the noble Lord, Lord Naseby, would be fully supportive, but then he talked about the dreadful track and trace system, which wasted something close to £37 billion. The noble Baroness, Lady Foster of Oxton, said she was glad that she was not the Chancellor, but it is the job of Chancellors, in times like this, to make the transformational change, to step up to the struggle the country faces and make those big shifts. That was what was required from this Budget, but it was not what was delivered.
My Lords, I, too, thank the right reverend Prelate the Bishop of Newcastle for her speech and her contribution to our Chamber over the years. I particularly liked her focus on education as a key issue for our society to regard. I wish her well for the future. We are probably forgetting what our Chamber was like when we had only male bishops. Everything from the reading of the psalm to the breadth of speeches has improved as a result of our women bishops.
As ever, I also admire the detailed response to the debate from the noble Baroness, Lady Kramer. Unfortunately, I am not so skilled, so I just marked every speaker as favourable, neutral or unfavourable. I hate to share with the Minister that I came out with 20 unfavourable, three neutral and three favourable, so I wish him luck.
Despite the Chancellor’s upbeat delivery during last week’s Autumn Budget Statement, the reality facing many low-income and middle-income households is far from optimistic. In recent years, we have become accustomed to single-year spending decisions, rather than the usual multi-year settlements. Committing to certain courses of action was deemed too complicated, but the Chancellor’s new fiscal rules have afforded him the luxury of a longer-term view. This spending review contains caveats, especially on issues including overseas aid spending, but it at least gives us, especially those responsible for planning and delivering public services, an idea of what is to come.
The detail of the Red Book fails to live up to the cheerful tone adopted by Mr Sunak. Following last week’s Statement in the other place, the Resolution Foundation promptly warned that millions are facing a “grim reality”. The Institute for Fiscal Studies sees “real pain” arising from the double whammy of high inflation and personal tax increases. Wider circumstances, including the ongoing energy crisis, mean that the cost of living is likely to skyrocket in the coming months. Despite this, we saw no meaningful measures to support crucial parts of the industry in the long term or to help bill payers in the short term.
The change to the universal credit taper rate, which is expected by 1 December, will provide some assistance to certain households. However, its impact will be felt differently depending on an individual’s circumstances. Some will recoup what they have lost through the withdrawal of the £20 weekly uplift, where others will just lose out. A single unemployed person aged over 25 will go from £411 per month to £324. I do not know many people in this House who could contemplate living on £324 a month. It is a matter of £20 a week. Most people in this House—perhaps not all—losing £20 a week would not notice it. I certainly would not. However, we always have to bring our minds back to the fact that these policies will have a real, serious impact on real people. This is an unkind and, indeed, almost vicious move. The concept that if you threaten people with getting poorer, they are more likely to work, is simply unrealistic, unfair and cruel.
We welcome the increase to the national living wage, but it falls short of Labour’s commitment to at least £10 per hour. Working families must also wait until April and the actual benefit—if there is one, given rising costs—will be marginal.
Overall, households will be paying an astounding £3,000 a year more in tax than when Boris Johnson became Prime Minister, yet many of our public services are simply not up to scratch.
A Budget provides an unparalleled opportunity to examine an Administration’s priorities. While the Prime Minister may present himself as being on the side of ordinary people, last week showed that he is anything but. Taxes on working people are going up to the highest level in 70 years, while allowances or loopholes amounting to billions of pounds have been put in place for bankers and large corporations.
The fine print of the Red Book and its supplementary documents reveal some hidden hits to working people. Next April, many families will find themselves subject to yet another council tax bombshell, while there will also be a £1.7 billion stealth raid on the self-employed over the next five years.
Even in the cases where the Government wants us to think it has seen the light, the reality is very different. We welcome the speed with which the Government are amending the universal credit taper rate, but even this supposed concession gives rise to several questions. Recently, both Houses were asked to fast-track legislation for the health and social care levy—a further burden on working people—with minimal scrutiny on the basis that the Budget would come too late to allow HMRC to update its systems. How could HMRC have been deemed unable to implement its changes between November and April, yet the Department for Work and Pensions can make and publicise fundamental changes to the benefits system within four weeks?
We should also remember that the Government’s supposed generosity on universal credit was never their plan. Ministers insisted on scrapping the weekly £20 uplift despite overwhelming evidence of the severe hardship it would cause. They refuse to do anything about the five-week wait, even though that also pushes people into financial difficulty.
The Chancellor was almost gloating when noting that the cut from 63% to 55% equated to “the rate originally envisaged” by Iain Duncan Smith. Therein lies the problem. The idea behind universal credit was a good one. However, reducing the share of earnings that went into claimants’ pockets repeatedly came top of the list of cuts during the Conservatives’ austerity programme.
As we discussed during a debate secured by the noble Lord, Lord Bird, last week, poverty is neither new nor inevitable. It is, in many senses, a policy choice. Why, then, has it taken until now for us to see change? Ultimately and sadly, only two things secure action from No. 10: political benefit and disquiet on the Back Benches. The recent NHS levy Bill was rushed through to ensure minimal opposition from Back-Bench Conservative MPs, while the revised taper rate is a response to unease at the end of the £20 uplift. We have also seen it with sewage in recent times, with Ministers miraculously acknowledging public health and environmental concerns—not when they were raised in March 2020 but when 22 Back-Benchers rebelled and more threatened to.
The Office for Budget Responsibility’s analysis demonstrates what Labour has been saying for months: that the UK took the hardest economic hit during the Covid-19 pandemic and is seeing the slowest recovery among the G7 nations. Even departmental spending settlements are not all they seem to be. Yes, there has been a loosening of the purse strings, but the shadow of austerity still looms large over Whitehall. The Resolution Foundation notes that despite increases in budgets, only a third of the post-2010 cuts to unprotected departments’ real-terms per-person spending will be reversed by 2024-25.
Ultimately, this Budget fails Labour’s key tests, and according to recent YouGov figures, it falls short of the public’s expectations too. It hammers working people while giving banks a tax cut. It offers no concerted plan to shift the tax burden from working families to those with the broadest shoulders. It contains little to tackle the worsening cost-of-living crisis, nor puts the UK on the path to strong, sustained growth. There is nothing to cushion the blow of higher energy prices over the winter months. The OBR says that pay increases will be cancelled out by spiralling inflation and tax rises, probably in late 2023. Changes to universal credit will benefit only a third of claimants, leaving others facing difficult winters.
This Autumn Budget was an opportunity to tax fairly, spend wisely and grow our economy in a way that helps the environment and supports British business. As we have so often seen, the Government have ducked the challenge. Instead, they have prioritised narrow corporate interests and the management of internal party politics. This is no way of doing business and, regrettably, the people of this country will be worse off as a result.
My Lords, it is a privilege to close this debate on behalf of the Government. Let me thank noble Lords for the many insightful and considered contributions that we have heard today. Given the number of speakers and the time that I am allocated, I will try to respond to as many of them as possible, but forgive me if I do not cover everybody.
On the economic and fiscal picture, the noble Lord, Lord Fox, raised the issue of inflation. The Bank of England is responsible for controlling inflation, and CPI inflation has averaged around its 2% target rate since the Bank became responsible. The Government are taking targeted action worth more than £10 billion over the next five years to help families with the cost of living, and the Plan for Jobs is helping people get into work and gain the skills they need to progress, which is the best approach to managing the cost of living in the longer term.
The noble Lord, Lord Tunnicliffe, is worried about real wage growth. Wages have continued to grow since the start of the pandemic, which, frankly, none of us would ever have conceived even if we go back a year, but they are now 4.4% higher compared to February of last year.
Looking at the labour market more broadly, the OBR has revised down the unemployment rate peak on at least two occasions, to 5.2% for the end of this year, which is down from 6.5% in the March 2021 forecasts and from 7.5% in the November 2020 forecasts—that is 460,000 fewer people expected to be out of work than in only March this year.
My noble friend Lord Lamont asked about the approach to the quoting of debt figures for the Bank of England. The Government have chosen to focus on public sector net debt excluding the Bank of England because excluding the Bank’s contribution to public sector net debt—for example, through the QE programme —reflects the impact of government decisions. The IFS has said that
“it is often appropriate to focus on debt excluding the Bank of England when evaluating the fiscal situation.”
Public sector net debt is falling and by a larger amount again over the forecast horizon. It peaks at 98.2% of GDP this year and then falls in every year of the forecast to reach 88% in 2026-27. The Treasury will continue to monitor public sector net debt excluding the Bank of England, providing a better overview of the public finances.
The noble Lord, Lord Londesborough, asked about supply shortages exacerbating inflation. The Government are working hard with international partners to tackle this problem. We must acknowledge that this is not a local issue; it is happening across the world. When the whole world has woken up from Covid, the enormous suppressed demand combined with the huge fiscal interventions, with money in people’s pockets, means that people are bursting back into spending much quicker than anyone could have imagined.
We are trying to support those at the more vulnerable end with increases in the national living wage and the Household Support Fund. The fund is ring-fenced so at least 50% will be spent on households with children. The fund has been set at a level that will allow local authorities in England to support, for example, 3 million to 4 million vulnerable households with an average payment of £100 each.
The noble Lord, Lord Eatwell, asked about the increased holding of gilts leading to higher interest rates. Given that I have heard from the noble Lord, Lord Turnbull, that the noble Lord is one of the cognoscenti, I must be careful in how I respond. As I understand it, while debt is forecast to fall over the medium term, it will remain significantly above pre-pandemic levels. That means that we are vulnerable to shocks, which means that we would be spending a lot more money on debt servicing. A 1% increase in both inflation and interest rates would increase spending on debt interest by around £22 billion in 2026-27, which is almost twice the impact than if it had been in 2014.
The noble Lord, Lord Davies of Oldham, and my noble friend Lady McIntosh are concerned about energy prices. Ofgem’s energy price cap has protected consumers during the recent fluctuation in gas prices. Millions of low-income households will be supported with the cost of essentials through the warm home discount scheme, which helps 2.2 million low-income households with their energy costs, and the winter fuel programme, which provides £200 towards energy bills for households with a member at or above state pension age and £300 for households with a member at or above 80 years of age, a significant £2 billion contribution to winter fuel bills.
The noble Lords, Lord Fox, Lord Desai, Lord Turnbull, Lord Rooker and Lord Tunnicliffe, and the right reverend Prelate the Bishop of Newcastle are all concerned about universal credit and I very much hear their concerns. However, the Government have always been clear that the £20 uplift was a temporary measure to support households whose incomes and earnings were affected by the economic shock of Covid. The taper means that 1.9 million working households will be able to keep substantially more of what they earn. That effectively represents a tax cut worth around £2.2 billion a year in 2022-23 for the lowest-paid in society.
Linked to that is the concern of the noble Lord, Lord Tunnicliffe, that there are many people on universal credit who are not in work. This comes back to the whole jobs revolution. We seem to forget that it is an extraordinary position to have so many vacancies in our economy. The Government are building on the success of the plan for jobs with a total of £6 billion over the SR period providing targeted additional support to help these at-risk groups to find work, including those coming off furlough, younger and older age groups, the long-term unemployed and people with disabilities.
The national living wage is increasing by 6.6% to £9.50 an hour in April next year, which will benefit 2 million people. Since its introduction in 2016 the national living wage has increased the pre-tax earnings of a full-time worker by over £5,000 a year. This increase is consistent with the Government’s target to go even further and raise the national living wage to two-thirds of median earnings for over-21s by 2024, provided that economic conditions allow.
The noble Lords, Lord Davies of Oldham and Lord Londesborough, and the right reverend Prelate the Bishop of Newcastle asked about educational recovery. The SR21 reaffirms and expands the Government’s commitment to helping the most disadvantaged pupils recover learning lost due to the pandemic, bringing total investment to specifically support educational recovery to £4.9 billion since the academic year 2020-21. It provides more than £3.2 billion over the SR period. This includes a £1 billion recovery premium for the next two academic years for schools. Primary schools will continue to benefit from an additional £145 per eligible pupil, while the amount for eligible pupils in secondary schools will nearly double. In broad terms, this will mean an average secondary school could attract around an additional £70,000 a year.
Many noble Lords mentioned skills. I want to provide a bit of detail on the Multiply scheme that I touched on briefly in my opening speech. This will provide £560 million across the SR to give people the opportunity to develop their numeracy skills. We are targeting around half a million adults. What is important about this is that adults with poor numeracy are more than twice as likely to be unemployed at the age of 30 as those with competent numeracy. Getting these numeracy skills is one of most valuable things we can do to help people get on. It is the equivalent of a level 2 numeracy standard. Statistics show that this will increase wages by an average of 14% after seven years, compared with 4% for that wider cohort.
This is one example of dealing with productivity, which the noble Lord, Lord Londesborough, and many other noble Lords raised. Our highest priority is to unlock the addiction we have had in this economy to low wages. I am optimistic that we will, because the ability to take the easy way out by bringing in cheap eastern European labourers will no longer be available. Noble Lords will know that, until a couple of years ago, employers were not even advertising jobs in the UK; they were just using agencies in eastern Europe and bringing people over wholesale. That has now stopped.
Some £1 billion will be invested across the SR to help children and young people get the best start. This includes £500 million for start for life services and family help, including new family hubs, investment in maternity services and infant and perinatal health, and a £200 million increase in funding for the existing Supporting Families programme to reach 300,000 families. There will be 300 new youth facilities as part of the £560 million funding for youth services.
I turn to net zero. The noble Lord, Lord Eatwell, and the noble Baroness, Lady Kramer, raised concerns. The fiscal consequences of the transition to net zero will need to be managed in line with the Government’s broader fiscal strategy. As the economy recovers from the pandemic, borrowing will be reduced to sustainable levels.
On the concerns raised by the noble Baroness, Lady Kramer, that there were not many initiatives in the Budget, I want to put a few of them on record. For example, there is a much more ambitious focus on nuclear energy, with £1.7 billion direct investment to enable a large-scale nuclear project. We confirmed a £120 million future nuclear enabling fund. There was £155 million for critical nuclear infrastructure; a £385 million advanced nuclear fund; £380 million for the offshore wind sector and for putting in place a more efficient approach to connecting offshore windfarms; and a doubling of the spending on energy innovation with confirmation of a total of £1.3 billion in energy innovation funding. There are similar items on buildings and transport, but I do not have the time to deal with all of them. I think that that we have led the G20 in our carbon reductions in the last 15 years and I feel that the noble Baroness, Lady Kramer, is being a little bit hard on us.
The noble Lord, Lord Eatwell, and my noble friends Lord Naseby and Lady Noakes worried that, even though we are increasing taxation, we will not restore health spending levels to the 2010 inflation-adjusted rate. To fund the significant increase, the Government have taken the very difficult decision of the new 1.25% health and social care levy. We have also increased the rate of dividend tax by 1.25% to support that package. This will allow for around £13 billion average annual investment over the next three years to tackle the elective backlog in the NHS as it recovers from Covid. Alongside this, the Government have reaffirmed their commitment to 50,000 additional nurses and 50 million primary care appointments. We have already seen number of nurses increase by 21,000 since June 2019.
While the Government have taken the difficult decision to raise taxes, the health and social care levy is a progressive way to raise the money for households which will benefit from further investment. Analysis from the Resolution Foundation and the Government shows that our policies are set to boost incomes for those at the bottom of the distribution and that higher taxes will mostly impact middle to higher-income households.
The noble Lord, Lord Fox, had some queries about levelling up. Levelling up means making sure that people’s opportunities are not limited by the areas in which they live. Put simply, we are trying to bring opportunities to talent, which is something this country has been very poor at in the past. We are doing this via targeted action worth more than £10 billion over the next five years, which I referred to earlier. We are spreading opportunity and improving public services by investing £3.8 billion in skills over the Parliament by 2024-25 and providing funding for at least 100 community diagnostic centres. We are boosting living standards by launching the new £1.4 billion global Britain investment fund, which will help spread economic opportunities more evenly across the UK. We are empowering local communities and leaders, for example through the UK shared prosperity fund, which is worth more than £2.6 billion over the spending review period, to help people access new opportunities in places in need, working in partnership with local leaders. The levelling up White Paper will set out further detail on how the Government are levelling up in the UK.
The noble Lord, Lord Razzall, asked about the impact of EU trade. The Chancellor has been clear in his view that the agility, flexibility and freedom provided by Brexit will be more valuable in the 21st-century global economy than just proximity. As noble Lords will know, we are already in discussions with Australia and New Zealand, which form an important part of the CPTPP trade bloc. We aspire to join that trade bloc, which is growing far more quickly than any activity in the EU.
The noble Lords, Lord Fox, Lord Sikka and Lord Londesborough, and my noble friend Lord Risby asked about investment for business. The Government are putting our plan for growth into action. The Budget and SR provide support to the UK’s most innovative firms, leveraging private sector investment and driving innovation to boost productivity across the UK. This includes providing £2.5 billion for Innovate UK core funding and launching the scale-up, high potential individual and global business mobility visas to attract highly skilled people. It also includes funding the delivery of Help to Grow schemes, which will enable more than 100,000 small and medium-sized businesses to boost their productivity, supporting the Made Smarter adoption programme to boost the productivity of manufacturing and SMEs and the £1.4 billion global Britain investment fund, which will support new investment in manufacturing industries.
On R&D tax reliefs, in this SR the Government are increasing direct spending on R&D to record levels, providing £20 billion per year across the UK in 2024-25. On the concerns about Horizon, in the event that the UK is unable to associate to Horizon Europe, the funding allocated to the Horizon association will go to UK government R&D programmes, including those to support new international partnerships.
It is also worth reminding noble Lords that the tax relief granted for EIS investments has become a significant way of investing in early-stage businesses. In 2015-16, around 3,500 companies raised funds from that mechanism, and that rose to 4.200 in 2019-20—which is just under £2 billion for those years.
On tax and business rates, the noble Lords, Lord Fox, Lord Turnbull and Lord Davies of Oldham, and my noble friends Lord Flight and Lady McIntosh of Pickering are concerned that people will be worse off because of tax measures such as the new levy. The highest-earning 15% will pay more than half of the revenue for the new social care levy, while 6.1 million people earning less than the primary threshold—that is £9,880 in 2022-23—will not pay the levy. If we had used income tax rates as the base for the levy, rates would have had to rise by more than 1.25% and therefore the impact on individual taxpayers would have been higher.
The decision to maintain the personal allowance and the higher rate threshold at 2021-22 levels out to 2025-26 was a progressive approach to fund good-quality public services and rebuild the public finances after the huge intervention of the Covid crisis. Nobody’s take-home pay will be less than it is now as a result of this policy, and for most taxpayers any real-terms losses are small next year. The average basic rate taxpayer will be around £75 worse off in real terms in 2022-23.
The Government have raised the personal allowance by nearly 50% in real terms in the last decade. It is the highest basic personal tax allowance of all countries in the G20 and remains one of the most generous internationally. A typical basic rate taxpayer will still be more than £600 better off in 2025-26 than they would have been if the Government had not taken this action to increase the personal allowance above inflation since 2010-11.
We have spent more than £350 billion on Covid mitigation, and freezing indexation is part of the way of addressing this. The income tax system is still highly progressive, with the top 5% projected to pay nearly 50% of all income tax in 2021-22 and the top 1% projected to pay more than a quarter of all income tax in that year. Even with maintaining income tax threshold levels, around 80% of income tax payers will pay no more than the basic rate.
The noble Lords, Lord Fox and Lord Shipley, and my noble friend Lord Flight asked about business rates. The business rates review provides £750 million-worth of support over the next five years for businesses to improve and decarbonise their properties, supporting them to become greener. The review commits to changes to improve the business rates system, such as more frequent revaluations to make business rates more adjustable to economic change and hence fairer for small businesses in the longer term. From 2023, the Government will introduce a new business rates improvement relief, so no business will face higher business rate bills as a result of qualifying improvements to a property they occupy for 12 months. This will enable businesses to adapt to meet rising demand and make improvements to their premises that support net zero and enhance productivity as employees return to the workplace.
On the APD, we have decided to introduce a new reduced domestic band to support regional connectivity. The noble Lord, Lord Balfe, spoke about supporting the industry. Domestic aviation accounted for less than 1% of the UK’s total emissions in 2019, and we have taken considerable action to support decarbonisation of the sector, including investment of £180 million at SR21 for a competition to support the commercialisation of sustainable aviation fuel plants in the UK, the launch of the Jet Zero Council and the inclusion of aviation within the UK emissions trading scheme.
To wrap up, in this debate the Government have been criticised by noble Lords—I was going to say “opposite me”, but we are in a mixed economy today. The noble Lord, Lord Tunnicliffe, is right that I have not been met with universal adulation, but we all know that we do not go into politics for gratitude. My noble friend Lord Balfe and the noble Lord, Lord Rooker, made the very important point that the piece often missing in these debates is how well all this money is spent. If it is spent well, both sides will be wrong; if it is not spent well, everyone will be right and our citizens will lose out twice over, once from the taxes they have had taken and once from the failure of the services to improve.
We have a huge job of work to get the enlarged state to spend money properly. Too often, the default setting is simply to call for more money, not to spend what is available better. If someone can tell me with a straight face, as happened to me a week ago, that it is perfectly reasonable to spend £25,000 moving, not buying, furniture in and out of an office about the size of a one-bedroom flat, we have a problem. Noble Lords know all about test and trace, which was raised by my noble friend Lady Noakes. The total sum spent there in 15 months exceeded what has been spent on building new schools over the past 10 years. We all know that individuals spending their own money almost always achieve far more with it than the state does when spending other people’s money, so my call is to all noble Lords to help play their part in scrutinising the organs of government to ensure that money is spent effectively. The Treasury cannot do it on its own.
I thank noble Lords again for their constructive contributions. As the Chancellor said last week, notwithstanding my comments:
“Employment is up, investment is growing, public services are improving, the public finances are stabilising and wages are rising.”—[Official Report, Commons, 27/10/21; col. 273.]
This is a Budget and a spending review which builds the economy for a new age of optimism. Above all, it is a Budget which delivers a stronger economy for the British people.
Committee adjourned at 7.51 pm.