My Lords, it is a privilege to open this Budget debate in your Lordships’ House, and to speak alongside so many distinguished and expert noble Lords. It is, of course, a particular pleasure given it is the first Budget of a Labour Government in 14 years. I take this opportunity to welcome the noble Baroness, Lady Penn, to her place and to welcome the noble Lord, Lord Booth-Smith, to your Lordships’ House. I very much look forward to his maiden speech.
This was a Budget to fix the foundations; to restore stability by repairing the public finances; to rebuild our public services after years of neglect; to choose investment rather than decline; and to keep our promises to working people. It was a once-in-a-generation Budget, on a scale commensurate with the challenging inheritance we faced. That meant taking difficult decisions, but they were the right decisions. As a result of those decisions, we have now wiped the slate clean. We have created a foundation of stability on which we will take forward our agenda of growth and reform, delivering the mandate for change on which this Government were elected.
Let me set out first the inheritance we faced. As noble Lords will know, on her arrival at the Treasury in July, the Chancellor was informed of a £22 billion black hole in the public finances—a series of commitments made by the previous Government which they did not fund and did not disclose. Ahead of this Budget, the independent Office for Budget Responsibility conducted a review into the circumstances surrounding a meeting it held with the Treasury on 8 February this year at which the Government were obliged to disclose all unfunded pressure against the reserve.
The OBR’s review has established that at that point the previous Government concealed £9.5 billion. The OBR’s report states that they
“did not provide the OBR with all information available”.
It has made 10 recommendations to prevent this happening again, which we have accepted in full. Of course, at that point, the previous Government still had five months left in office, during which time they continued to amass unfunded commitments which they did not disclose. By the Spring Budget, Treasury records show these had reached £16.3 billion. By July, they had reached £22 billion.
The Treasury has now provided to the OBR a line-by-line breakdown of these unfunded commitments —260 separate pressures that the previous Government did not fund and did not disclose. Neither did they budget for costs which they knew would materialise, including funding for compensation schemes for two terrible injustices. So, this Budget provides, for the first time, funding of £11.8 billion to compensate victims of the infected blood scandal and sets aside £1.8 billion to compensate victims of the Post Office Horizon scandal.
However, the country did not just inherit broken public finances; it inherited broken public services too: NHS waiting lists at record levels, children in portakabins as school roofs crumbled, rivers filled with polluted waste. Yet since 2021, there had been no spending review—no detailed plans for departmental spending set out beyond this year.
My Lords, I thank the Minister for introducing this debate. I am very much looking forward to hearing the noble Lord, Lord Booth-Smith, make his maiden speech in this debate, and I welcome him to his place.
I congratulate the Minister on such an excellent performance: I slightly think that if he delivers it in one single tone, it will slip past us as if there are good things contained. Looking at the Benches behind him, I noticed there were no cheers of “Hear, hear”, no smiles and no congratulatory nods, because noble Lords, like me, see this Budget for the three things it is: dishonest, unkind and—worst of all for the sake of the British people, our economy and country—incompetent.
The Budget is dishonest because it breaches the promises Labour made to the British people. These were promises made by the Minister, his colleagues and the noble Lords I am regarding across this great historic Chamber of ours today. It is fundamentally unkind—and I never thought I would say this about a Labour Budget in this Chamber—because it hurts hard-working people at every stage of life. And I am afraid it is incompetent because, fundamentally, in almost every action, word and sentence of this Budget, there is not a single pro-growth measure. Everything is designed to make life more difficult for us to realise the best version of ourselves in whatever manner that may be.
During the general election, many Labour politicians spoke of fixing the foundations of the economy. They talked of their fiscal rules; their manifesto claimed that this changed Labour Party would be based on sound money and economic stability. Yet, in their first Budget, they have genuinely fiddled the rules. Frankly, they have plunged our country into a further £32 billion-worth of debt by the end of the Parliament. The Minister described it as a “once in a generation” Budget. Well, all I can say is, thank goodness for that, because we could not possibly put up with this year after year.
I thought that noble Lords opposite would be pleased. I could go on. There are so many other areas where the Government have driven a dagger into our economy that if your Lordships want me to, I would be delighted to carry on listing them. However, given the many speakers after me who will no doubt be repeating the points I have made and, almost assuredly, building on them in a more intelligent and capable manner, I say this. After all the promises and pledges made by Labour, we now know the truth. Working people, small business owners, farmers, charities, young people—all will be worse off under Labour. Ministers have shamefully broken the promises they made earlier this year, leaving us with an economic forecast bleaker than when they took office. This Budget is nothing less than dishonest, unkind and incompetent. I am afraid to say that, after 100 years of testing socialism to destruction, it appears that we are still giving it another try. The British people placed their trust in this Government, in all truth, and through this Budget they have shown themselves to be unworthy of this trust. I ask the Minister: why he has done these things to our country?
My Lords, it is a great pleasure to speak in this debate and to welcome the noble Lord, Lord Booth-Smith, to his place and the noble Baroness, Lady Penn, back to her place.
The noble Lord, Lord Johnson, is taking his new job as party co-chairman very seriously. Clearly, to entertain his troops, he has turned up the rhetoric to 11. However, for all the huff and puff we have just heard, His Majesty’s loyal Opposition have no moral authority to criticise those who are picking up the mess they left. The parlous state of the economy, the near collapse of public services and the sheer level of financial mismanagement that we saw from the former Government was a disgrace.
One of the benefits of your Lordships getting to debate this Budget somewhat after it was released is that its effect is starting to crystalise, and I suspect that the Minister may be disappointed by the way it has been received. Then again, as he is a seasoned Treasury hand, I would ask him whether he was surprised by the reception the Budget got. OBR data and that of countless other analysts shows that UK households, which are still struggling to absorb the shocks from the pandemic, inflation and the energy crisis, will now be hit by the tax increases in this Budget, one way or another. Meanwhile CPI inflation is expected to rise above previous expectations and interest rate cuts will probably slow. So it cannot really be a surprise that the Chancellor failed to inspire a mood of national cheer.
Nevertheless, we are glad that the Chancellor listened to Liberal Democrat calls for more investment in the NHS in order to start repairing the damage done by the Conservatives. We will now hold the Government to account on delivering their promises, so that people can, for example, see a GP or dentist when they need to. However, we must ensure that this money is not used to paper over the cracks. Structural reform is needed, but more than that, the Government are still ignoring the elephant in the room: the social care crisis. In fact, it is likely that they are making the situation worse, because the employer national insurance increase will hit social and primary care.
I thank the Minister for his introduction to the debate. The first Budget of a new Government is always a significant event, and I am very pleased to see the emphasis on sustainable public finances.
However, I worry that in the Budget speech there was too much attention on the short-term politics of dealing with the “black holes” and, by contrast, rather insufficient attention on the lasting impact of the major worldwide shocks of the past 15 years, which continue to cast a shadow on economic performance.
At the time, there was general political consensus that these crises—the global financial crisis, the Covid crisis and the energy crisis—should be dealt with by large-scale government borrowing and spending. As a result, public sector debt increased from under 40% of GDP in 2007 to 100% today. This has inevitable consequences and implications for the cost of government borrowing, and debt interest has become a significant budgetary item.
It has also been painfully clear that, in common with many other countries, the underlying growth rate in the UK has been lower since the global financial crisis. That means a slower growth in the tax base, which of course matters hugely for public finances. For many years, we became used to a growth rate of about 2.5%. Since 2008, the annual growth rate has averaged only 1% a year.
There are other consequences of the crises. There is the continuing concern about the impact on health, as evidenced by the continuing high welfare claims for long-term sickness. Consumer prices in the services sector are still rising well above the 2% inflation target, and there is general concern about the disruptions to major public services despite a considerable increase in the number of people employed in those services.
In addition, we face major challenges over the next 15 years which will throw up problems of their own. These have been set out in recent reports by both the Lords Economic Affairs Committee and the OBR: a growing proportion of people at or above retirement age; the need to develop infrastructure for achieving our carbon targets; rising defence expenditure; and the amount of labour market inactivity among those of working age.
My Lords, I will focus on the Budget in the context of criminal justice, and declare my interest as the Anglican Bishop for HM Prisons in England and Wales.
I was encouraged to hear from the Chancellor that the Government intend to
“begin to repair the justice system”,
and I welcome the extra investment in the Ministry of Justice—although how that will be spent is vital. We need to ensure that the aim is not to finance our way out of a prison capacity crisis. Let us first address the purpose of prison and then put the resources in the right place, with a long-term vision of enabling strong and healthy families and communities. As a Christian, I hold fast to hope and transformation. Reoffending continues a pattern of broken relationships and is costly, not only to the fabric of society but in financial terms: it costs approximately £18 billion per year. Let us not increase funds simply to do more of the same, because all the evidence is that it is not working.
I am delighted that the sentencing review will look at alternatives to custody. As we know, a prison place costs more than £40,000 a year. A community sentence costs about 1/10th of that and with better results, yet the use of community sentences has been falling over the last decade. Incidentally, we are currently haemorrhaging money through the dysfunction and delays in courts and the record high numbers held on remand. In the Crown Courts, approximately 14% of people on remand are subsequently acquitted. Over 15% are then given a non-custodial sentence, but by that point a costly pressure has already been placed on prison capacity, as well as the impact on victims, families and wider communities, with monetary implications for health, care and education. Funding additional Crown Court sitting days is only scratching a symptom rather than addressing a cause.
My Lords, I must start by drawing attention to my entries in the register of interests. I also want to start by congratulating the Minister on an excellent and very detailed introduction to this debate and on what I assume will be his stamina. If this debate does go on for about eight hours, to open and close such a debate is quite a feat and I wish him well for that.
I would also like to congratulate the Chancellor on her bravery and her strength in setting out a Budget in these very difficult economic circumstances. I am sure that we will have a long debate this afternoon and this evening, going through many of the details of that Budget, but no one can doubt her commitment to the economy and the people of this country, and I wish her well in the years ahead.
I am particularly pleased to see the level of increased investment in education, because education is undoubtedly the best investment not just for individuals, children and families but also for our economy and for our country. That educational investment contributes to a very sizeable increase in the resources available for the deployment of the Scottish Government. While I remain concerned about the continuing dependency in the relationship between Scotland and the rest of the UK, the level of investment in this Budget removes any excuse for the Scottish Government for the poor quality of public services in Scotland. They need to stop penalising taxpayers in Scotland and focus on delivery, whether that is in the education system, which has suffered so much at their hands over recent years, or even something as basic as delivering lifeline ferries to our islands.
In the middle of the pandemic, the previous Prime Minister, when he was Chancellor, cut the overseas aid budget by one-third. He did so at a moment when our interdependent world could not have been clearer, and when the world needed an integrated, comprehensive effort to secure global health provision and to preserve trade routes and other economic links.
My Lords, as the first Labour Budget for 14 years, this was bound to be a very big occasion, and indeed it was: it was a bold Budget, with bold increases in taxation, bold increases in borrowing, bold increases in spending and a bold tearing-up of everything that Labour said in the general election.
As we heard from the Minister, this is all justified on the basis of the spurious £22 billion black hole. But Paul Johnson, the IFS director, said that there was no “unknown black hole”. The OBR, despite the Government trying to enlist its support, said that nothing legitimised the figure of £22 billion. It talked of an unaccounted for £9.6 billion, but how does that justify tax increases of £40 billion?
The party opposite—the Government—says it has the worst economic inheritance since the Second World War. In fact, the UK economy is recovering faster from the twin shocks of the pandemic and the energy price rises than our EU partners and all the countries in the G7 other than the United States. The financial position—the deficit—was better than the Conservative Government inherited when they came to office as a coalition.
Labour’s fiction is necessary to justify eating their words and breaking their promises, but the truth is that Labour always intended massive increases in spending but did not dare put forward the tax increases to pay for this during the election. The Chancellor promised that she would not change the fiscal rules, but she has done exactly that and changed the definition of government debt, in effect to exclude borrowing for investment from the total. This mantra of borrowing for investment, which we first got from Gordon Brown, is questionable. First, the distinction between current spending and investment is not clearcut. Some current spending has favourable long-term impacts; Ministers frequently refer to more spending for nurses as an investment, and one understands why.
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Faced with this reality, any responsible Chancellor would have to act. Some may argue otherwise: that we should have ignored the problems in the public finances. But that is the path of irresponsibility, the path chosen by the Liz Truss mini-Budget, when mortgage costs rose by £300 a month, for which working people are still paying the price. This Government’s number one commitment is economic and fiscal stability. That is why the very first Act we passed was the Budget Responsibility Act, strengthening the OBR, and why we have established robust fiscal rules. These fiscal rules put the public finances on a sustainable path while allowing a step change in investment to drive long-term growth.
The first rule is the stability rule. This brings the current Budget into balance so we do not borrow to fund day-to-day spending. The significant fiscal consolidation over the course of this Parliament takes borrowing as a share of GDP from 4.5% to 2.1%, as we achieve the biggest current budget surplus in over 20 years. Over the past 14 years, borrowing averaged 5.6% of GDP; over this Parliament, it will average 2.6%.
But while being tough on spending, we must create the space for investment. We inherited a situation where the UK is the only G7 country with private investment levels below 20% as a share of the economy, and we inherited plans where public investment was set to fall from 2.5% to 1.7% of GDP. As the IMF has said, more public investment is badly needed in the UK. So, the second fiscal rule is the investment rule. As set out in our manifesto, we will target debt falling as a share of the economy, which will be defined as “net financial debt”, a measure that has been published by the Office for National Statistics, and forecast by the Office for Budget Responsibility, since 2016. Net financial debt recognises that government investment delivers returns for the taxpayer by counting not just the costs of investment but the benefits too. Like our stability rule, the OBR has confirmed the investment rule will also be met two years early.
To meet our stability rule, in the context of the hole in the public finances, the compensation schemes that were not funded and the need to avoid austerity in our public services, the Budget raises taxes by £40 billion. Of course, before any Government can consider changes to taxation, they must first ensure efficiency and reduce wasteful spending. The Budget set a 2% productivity target for all departments; it took steps to ensure welfare spending is more sustainable; and it ensured more people will pay the tax that they already owe.
This Budget made another important choice: to keep the manifesto commitment we made to working people to not increase their income tax, their national insurance or VAT. And we went further, by freezing fuel duty and raising the national minimum and living wage. Compare that to the choice made by the previous Government, who froze income tax thresholds, costing working people nearly £30 billion. We could have extended that freeze, but that was not the choice we made. Instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again.
However, this Budget does involve some very difficult choices. We will increase employers’ national insurance contributions by 1.2 percentage points to 15 % from April 2025 and reduce the secondary threshold from £9,100 to £5,000 per year. At the same time, to protect the smallest companies, we will increase the employment allowance from £5,000 to £10,500, meaning 865,000 employers will not pay any national insurance at all and over 1 million employers will now pay the same or less than they did before.
The lower rate of capital gains tax will be increased from 10% to 18%, and the higher rate from 20% to 24%, meaning the UK will continue to have the lowest capital gains tax rate of any European G7 economy. We have maintained the lifetime limit for business asset disposal relief at £1 million to encourage entrepreneurs to invest in their businesses. Business asset disposal relief will remain at 10% this year, before rising to 14% in April and to 18% from 2026-27, maintaining a significant gap compared to the higher rate of capital gains tax.
The Budget also set out additional tax measures including introducing a new vaping products duty and measures on tobacco duty, vehicle excise duty, air passenger duty and alcohol duty, as well as making reforms to inheritance tax on pensions and on agricultural and business property. We also delivered on our commitments to abolish the non-dom tax regime, replacing it with a new residence-based scheme, introduced a fairer approach to the way carried interest is taxed as well as reforms to the stamp duty land tax surcharge for second homes and to the energy profits levy, and we introduced VAT on private school fees.
There was no bigger failure of the previous Government than on growth. First, they introduced austerity, which choked off investment. Then their Brexit deal created new trade barriers equivalent to a 13% increase in tariffs for our manufacturing sector and a 21% increase in tariffs for our services sector, permanently reducing growth by 4%. Finally, the disastrous mini-Budget crashed the economy and sent inflation and interest rates soaring.
Had the UK economy grown over the past 14 years at the average rate of other OECD economies, it would have been £171 billion larger. When the Bank of England cut interest rates last week, it forecast that the Budget would add 0.75% to growth next year and that unemployment will now fall. Over the course of this Parliament, the OBR says that growth will be largely unchanged, in the context of a Budget that had to take some very difficult decisions to clear up the mess that we inherited; and, over the longer term, the OBR says that this Budget will permanently increase GDP by 1.4%.
The IMF has welcomed
“the Budget’s focus on boosting growth through a needed increase in public investment”,
but, of course, we need to go further and faster. That is why economic growth remains this Government’s central mission. We have set out extensive planning reforms, a new national wealth fund, new local growth plans and a modern industrial strategy. We have created Skills England and the new growth and skills levy. We will shortly publish the “Get Britain Working” White Paper to tackle inactivity, and the Chancellor will set out pension reforms in her Mansion House speech later this week—all of which will significantly boost growth and none of which are yet included in the OBR’s forecast.
Our growth strategy must also, of course, be developed and delivered alongside business. We are very aware that we are asking business to contribute more and that impacts of the rise in employer national insurance will be felt beyond business, as the OBR has set out. We know that successful businesses depend on the skilled and healthy workforce that these funds aim to deliver. But most of all, we know—because they tell us—that businesses depend on the stability that this Budget, by repairing the public finances, provides.
To ensure certainty, alongside the Budget we published a corporate tax road map, which confirms our commitment to cap the rate of corporation tax at 25%, the lowest in the G7. We are maintaining full expensing and the £1 million annual investment allowance, and continuing the current rates for research and development reliefs to drive innovation. We have announced permanently lower business rates for retail, hospitality and leisure properties. We have frozen the small business multiplier, extended the enterprise investment and venture capital trust schemes until 2035, and taken action on late payments and non-financial reporting burdens. Finally, we know that the significant new capital investment in transport and housing that this Budget delivers is vital for businesses to grow.
The difficult decisions that this Budget takes are for a purpose: not just to repair our public finances but to rebuild our public services. In this, the first phase of the spending review, we have prioritised day-to-day funding towards delivering on our manifesto commitments. Day-to-day spending from 2024-25 onwards will now grow by 1.5% in real terms. In addition, the £100 billion of capital that we set out will drive growth across our country. To unlock the growth industries of the future, we will protect investment in research and development with more than £20 billion of funding. We are providing over £5 billion to progress our manifesto commitment to build 1.5 million homes. On transport, to help grow our economy across the north of England, we are investing in faster and more reliable services, including the trans-Pennine upgrade. We will deliver east-west rail to drive growth between Oxford, Milton Keynes and Cambridge, and we have committed the funding to begin tunnelling work for HS2 to run through to Euston station.
To bring new jobs to Britain, the Budget funded 11 new green hydrogen projects across England, Scotland and Wales. We have also announced significant investment between government and business in carbon capture and storage. We are also increasing the core schools budget by £2.3 billion next year to support our pledge to hire thousands more teachers into key subjects, and we are tripling investment in breakfast clubs, putting them into thousands of schools.
Of course, we are also beginning the work of fixing the NHS after years of neglect. Because of the difficult decisions that we have taken on tax, and because of our investment rule, the Budget announced that we are now able to provide a £22.6 billion increase in the NHS budget over two years. That is the largest real-terms growth in NHS spending, outside Covid years, since 2010. Because of this record injection of funding, the thousands of additional beds that it will secure and the reforms that we are delivering, we can now bring waiting lists down more quickly, moving towards our target for an 18-week waiting time, by delivering our manifesto commitment of 40,000 extra appointments every week.
This Budget delivers on the mandate the British people gave this Government: to fix the foundations of our economy and deliver change. The choices we have made are the right choices. They are not the easy ones but the responsible ones: to repair the public finances, restore stability, rebuild our NHS, invest in the national interest and protect working people.
There are, of course, different choices that could be made. Let us be clear, however: not to make the choices we made on tax would make it impossible to protect working people; not to support the funding for public services would mean cuts to schools and the NHS; and not to support our investment rule would mean delaying or cancelling thousands of projects delivering growth right across our country. We have made our choice: restoring stability, protecting working people, fixing the foundations of our economy, investing in our future and rebuilding Britain. I beg to move.
I find it distressing to be continually told about the so-called black hole. The numbers moved around, even in his speech, from £16 billion to £22 billion to £30 billion. I still cannot keep track of where the black hole actually is. We know full well that the black hole has been created by this Government to give excessive pay rises to those people who they want to ensure support them into the future. It is a perfectly sensible political tactic; in some respects, I may even admire it slightly. But it is fiscally incompetent, it causes huge long-term damage and it is fundamentally dishonest when it comes to running the economy.
The Prime Minister was asked many times this summer whether Labour would increase taxes. Do any noble Lords remember those comments? He said time and time again the same line:
“Labour will not increase taxes on working people”.
The Labour Party’s manifesto, quoted by the Minister, was categorical. He quoted these very words:
“We will not increase national insurance, the basic or higher or additional rates of income tax or VAT”.
We know now, however, that the Office for Budget Responsibility—about which we have heard so much from the Minister—has estimated that 60% of the cost of the increased employed national insurance contributions will be passed on to working people through lower wages and higher prices. I must ask the Minister: why have they done this?
Tesco came out over the weekend and said that its additional costs would be £1 billion a year—£1 billion a year for Britian’s biggest supermarket. I hear cries that it can come out of their so-called profits or through lower dividends to pension funds—probably in which many of the unions that have backed so many of my noble colleagues opposite invest—but the reality is that it will simply result in higher costs in supermarkets, or the organisation employing fewer people as it has less capital to deploy or less money to reinvest.
I see noble Lords opposite who know this to be a fact: if you raise costs on businesses at that level, the economic costs on the economy will be substantial. It is a simple, measurable economic fact. I find it very alarming that the Minister, who with his experience understands these economic principles, is not so aware as to be honest about the true long-term economic damage that the national insurance contribution change will have across the country. It will result directly in unemployment rising.
Sadly, for me, with young children coming into the labour market—particularly sadly since I have to pay their additional school fees before they get there—they will find it even harder to find work. We see this in other European countries, where tax rates are so high on the national insurance side that, if you are a young person coming into the market, you simply cannot find work. I do not understand how that could possibly be at the core of the tenets of the Labour philosophy. Frankly, I would feel a great sense of shame if I had to present this Budget from the Government Benches because it is doing nothing at all for the social values we purport to hear from their side.
It fundamentally goes against the principles of how they campaigned in the election—that they would effectively be tax-neutral on the working person. This was fundamental, not just in technical terms. People who have been in government understand the need to be flexibly minded. I am talking not about the details—a penny here or a point there—but the principle of how this Government went into the election saying that they would not raise taxes on working people. They have, in magnificent quantities and to huge effect. I would like to hear from the Minister and his colleagues how this could possibly be justified.
This is also unfortunately an unkind Budget that harms people at every stage of their lives. The first announcement made by the Labour Administration—going into the election, in fact—was that they would raise VAT on tuition fees, which the OBR believes will affect 600,000 students. It will have huge ramifications on the private education sector, which is an enormous export. Aside from anything else, it is a crucial component of our economy. This is aside from all the specialist and small schools that provide such an enormous, essential service to people in their communities.
Why would this Government, who talk about growth and their desire to see a stronger and growing economy, want to attack aspiration? It is because of ideology. That is what I find so depressing. This should be a Budget about economics, to make people richer and make our country stronger, but it is about ideology, the dislike of people having some type of advantage and the idea that a parent does not want the best for their children. I will say one thing to the Minister: you are not attacking me. I have been to school, although it may not look like it. The people you are attacking are children. I do not understand why your first measure—I see the guilty expressions on the faces of the noble Lords opposite—should be to attack the aspirational opportunities and life chances of children. Shame on the Government for doing this. I feel sorry for my colleagues opposite for having to face their constituents and their Peers knowing what they have done to young children’s futures in the name of socialism.
The next group in the catalogue of people to whom this Government have been unkind in this Budget is the vulnerable elderly. I will not repeat the well-made arguments on the iniquities of changing the regulations on the winter fuel allowance, but I would like to come on to the second component, which is relevant. I declare an interest in that I had rather hoped to inherit relations’ pension pots tax free, but now that will not be the case. These people, who have worked all their lives, paid their taxes and built up their pension funds, will now be taxed on the point of inheritance and then further taxed when their beneficiaries and descendants try to access those funds. Can that be right?
This goes back to the Minister’s point on predictability and certainty. The Government want to bring some type of consistency back to the Budget process, which I thoroughly applaud. But how can it be considered predictable and certain? How can we make long-term investment decisions when at every turn they are making significant, radical and deadly changes to the very essence of our system of economic foundations, which is to have long-term pensions that are allowed to be invested in this economy to try to produce the growth this Government want? How does the Minister defend this concept of eating into our pensions savings and destroying the principle of the inheritability of the pensions pot?
I turn to two groups that particularly deserve representation. I can understand that a socialist Government do not like private schools or people who make money on capital gains. I can understand a Government who may not want people to inherit the pension pots built up by their parents and grandparents. But why would any Government want to attack small family farmers and small businesses by ending the business inheritance relief on agricultural inheritance? I do not understand that, when this entire country is based so centrally on small businesses. This is not just an economic question but a social point about the vitality of small businesses and small family-owned farms. Why would a Government want to deliberately target those two sectors of our communities and our economy, to make their lives not just difficult but impossible? It will be fundamentally impossible to inherit an average-sized farm in this country in two years’ time.
I do not know how many noble Lords on my Benches or elsewhere are from the farming community, but I ask all noble Lords, and the Minister: who on earth will feed us? Who will be the guardians and custodians of our countryside if the farming community does not take the baton from the previous generation? I am genuinely interested to know how many people have gone out today and said, “I wish to buy a 250-acre dairy farm and make that my living”. As the noble Lord has just intimated, I would have thought there is hardly anyone. The only reason why these people do what is frankly a national service is because they inherit this legacy, and it is shameful and destructive to target that community in such a way. Frankly, it is also deadly for the long-term survivability of our nation.
I turn to young people and stamp duty. The Minister calls it “stamp duty land tax”—by using as many acronyms as possible, you can cover up what is actually happening. We promised to cut the rate at which it is paid, and that has now been reversed. Again, I do not understand this. Before the election we went clearly into that process, with clear commitments from the Labour Opposition at that time—which I and many of my noble friends on this side of the House thoroughly supported, by the way—to build more homes and give more people in this country greater access to the dream of home ownership. Why on earth would the Minister and his colleagues decide to make that more difficult? Why would they decide to end—or, in fact, restrict and narrow—the passageway to owning your own home, when we all agreed that this was a central and good thing to do? This is particularly true given that I do not believe it will raise a significant amount of money for the Exchequer.
I turn to the other areas of the economy that we depend on: the voluntary sector, charities and the Government themselves. Increasing these levies on how people operate with their employees will increasingly make it incredibly difficult for so many of these smaller organisations. I know full well that so many noble Lords in this House are associated with voluntary and community organisations that will no doubt have come to them in the last week and said, “Please do something about this iniquitous change in the tax rule, which will prevent us carrying out work that people rely on”. This is not just hitting hedge fund managers or taxing carried interests in a different way; it is a hypodermic syringe of poison into the very root of our community activity. The Government have a lot of serious questions to answer about how they will ameliorate these measures for these organisations.
I turn to the third point that I made at the beginning. If noble Lords think that the Budget is both dishonest and unkind, it is also, unfortunately, incompetent, which is probably worst of all. We have had a chance to look at the OBR’s economic and fiscal outlook, and we now know how much damage this Budget will do to our economy. Across all the key metrics, the Government’s policies will leave the UK with a weaker economic future. The Minister spouted various statistics, but the OBR has actually now revised down its estimates for GDP growth. I am never quite sure how important GDP growth is, but I would have thought it is probably better if it is going up rather than down—and it is going down by nearly 0.5% from the March forecast, when the last Government were purported to have colluded with their officials to obfuscate the information given to the OBR. That is a very serious claim in its essence, and it should be looked at closely.
Instead, the Government have put taxes up and they are borrowing more. The Minister mentioned the concept of “no money without reform” but I have seen absolutely no evidence of reform. I say in all truth and sincerity, as a patriot before I am a party-political politician, that we need reform of public services—desperately. Yet I see no evidence of that at all. It is irresponsible and, frankly, bad politics to have paid out so much money at the beginning of the process without any sign of reform. I am afraid that this Government will live to regret this significantly.
If I may come to a conclusion—
Thousands of private care providers are now facing increased costs, forcing them to reduce services and increase charges or even pushing them into collapse. GPs, who are already stretched, will also be hit by this tax change. GPs and social care providers cannot afford these tax rises and you cannot fix the NHS without fixing primary and social care. We urge the Government immediately to sort out the challenges facing these health providers. They must also start cross-party talks on the long-term future of social care and get on with reforming it.
Having boxed themselves in during the election from using big tax opportunities, the Chancellor could have done what we campaigned for: reverse Tory tax cuts in the bank tax, implement an increased tax on betting companies and levy the digital giants. Instead, the Chancellor turned to business to raise a spectacular amount of tax. As a result, the UK tax take is set to rise to a historic high. This was a tough Budget for employers to swallow, particularly small and medium businesses, social enterprises and charities.
SMEs have had a tough time for years, struggling with rising energy prices, Covid loans, high interest rates and rocketing input costs. They were hammered by the previous Conservative Government, who broke their promise to reform business rates and tangled them up in red tape. Given their importance to our economy, it is wrong to hit them like this. The burden of this Budget should fall on the likes of big banks, social media giants, gambling companies and oil and gas firms—not small businesses.
Added to increased NIC costs, the living wage increases will have a big effect. Leaders in the hospitality and retail sectors told the Business Secretary that the tax bill for employing a part-time worker had increased by 73% as a result of lowering the threshold for national insurance contributions. This sort of rise cannot be absorbed in these low-margin sectors. Then there are the changes in agricultural and business property relief. Your Lordships will likely hear today—and already have—how these changes threaten the generational chain of family farm ownership. I add my voice to that. As someone from Herefordshire, I know the effect this is already having on rural communities.
Less publicised is the possible plight facing family businesses. Will the Minister say how these businesses will be valued when they are taxed? How does the introduction of this liability encourage family firm entrepreneurs to grow their business? I note that these changes raise little more than £500 million overall. Given the individual anguish they are already causing in our communities and the political trouble they are causing him, I wonder whether the Minister would rather have increased the betting tax instead.
With all this, the Chancellor looked to sweeten the pill. The Minister set out those measures very well. The message is that, in return for the pain, there will be progress: an industrial strategy, infrastructure investment, including accelerating the drive to net zero, and investment in people and skills. These Benches say “bravo” to that, and I congratulate the Chancellor on continuing the industrial strategy put in place by Vince Cable on and investing in key sectors. Capital-intensive sectors have also welcomed the commitment to long-term political stability, be it through the corporation tax road map or the full expensing regime, but what new ideas can we expect?
On infrastructure and net zero, it is all about delivery. The startling thing about the Chancellor’s projections is the very low level of growth over the next five years: 2% or less is not a good return on the investment the Government say they will make. It should also be noted that this Budget is very front end-loaded. The money going into public services in years four and five dwindles spectacularly. The Government are hoping that actual growth will increase beyond current projections to bail out those last two years. That requires delivery.
We want this Budget to succeed. The list that the Minister just rattled off was full of important things that this country needs, but we have no time to waste. We will be strong on chasing delivery. I for one worry whether the UK has the capacity to absorb investment on the scale the Government intend, not least because they are moving slowly on the skills sector. The Minister mentioned Skills England, but when will any results of that start to affect how investment is delivered? Where is the workforce going to come from to deliver the growth we need, and how will investment be delivered?
We await the Government’s 10-year infrastructure strategy. What will the vision be for infrastructure investment? How will projects be prioritised? Can the Minister please clarify how the new national infrastructure and service transformation authority will improve delivery, and when will we see all of this?
Of course, there is a golden opportunity to boost growth. If the Government are serious about growth, they have to materially fix our relationship with the EU. That means beginning the work that will set us forward towards future membership of the single market.
In summary, burdening small businesses, GPs and small care providers with a jobs tax is wrong. Small businesses have had a very tough time for years and countless small care providers are on the brink. Making things even harder for their workers is not right.
Family farms have experienced one shock after another in recent years, from spiralling energy, fertiliser and feed prices to the Conservatives’ terrible trade deals. This Government should not have dealt them another blow, especially when they are making real-terms cuts to the Defra budget. We will be standing up for family farms.
We are also calling on the Government to exempt social care providers and GPs from the employers’ national insurance tax rise, and we will continue to speak up for those struggling with the cost of living crisis, holding the Government to account on their decisions to cut the winter fuel payment and to increase bus fares. I look forward to hearing from your Lordships in the debate.
This all means that it has been clear for some time that taxes were going to have to go up. This was no secret, but the previous Government struggled with the question of how to pay for the massive recent public spending interventions and too little attention was given to the need to raise more revenue. It now falls to the new Government to address how to get the debt ratio back on a downward path. As I said, the need for higher taxes has been evident for some time; however, in this first Budget, the increase in spending is well ahead of the increase in taxes, rather than the other way around. I fear that these tax increases are unlikely to be the last.
I am generally content with the new draft charter for the OBR; in particular, the emphasis on a balanced current budget and the need for the public sector debt ratio to fall over time. I also understand the separate treatment of fixed investment—not so much because I am greatly convinced that it is better for growth than day-to-day spending but because it is much easier to cut back fixed investment than current expenditure, as the costs come well before the benefits. It needs some protection, and I am pleased to see that we have in place an arrangement that will give it protection. History shows that fixed capital has often been hit disproportionately when savings are needed.
I will offer three observations about the detail of the Budget; I will leave much of that to other noble Lords. First, I agree that it is unfortunate that the Government’s manifesto pledge has led to increasing national insurance contributions on employers rather than reversing the previous cuts for employees. Secondly, it is disappointing that, once again, we are overriding the indexation of fuel duties. Fuel duty has been falling in real terms almost every year since the time of the financial crisis, despite our net-zero objective.
Finally, when the primary objective is raising revenue, my own experience in dealing with Budgets suggests that it is much better to focus on the major taxes, where the consequences are reasonably predictable. The impact of changes to taxes on wealth and inheritance are very difficult to predict. They are largely about incentives and fairness, and they are much better handled under the heading of tax reform than as part of a tax-raising Budget.
Returning to the sentencing review, I hope that it will shape a criminal justice system that better delivers for victims as well as offenders, such that offenders are enabled to desist from crime, which will in itself have financial benefit. I reiterate that many offenders are also victims—often as children—and I do not believe that we can talk about a justice budget without looking up stream. How I long for us to look at financial resources in a person-centred way, rather than through a departmental lens.
What we spend on education, health, and social care—not least in the early years—has a knock-on effect for who does and does not enter the criminal justice system, and all that that means for subsequent generations, the wider community and, of course, public finance. For a child born today, how will the whole Budget, across departments, enable them to flourish as an individual within a network of relationships?
Then there is the issue of how money is spent on prisons so that they can be places of transformation, including purposeful activity, therapy, education and developing healthy relationships. We do not need more prisons: what we do need is to replace and repair much of what we already have. Let us not forget that, for many people, prison is a place of work. I pay tribute to the committee of prison officers, governors, chaplains and all those who work in prison, often out of sight and too often out of mind. I note a minimum additional investment over the next two years of £500 million to recruit new prison and probation staff. Yet extra resource for recruitment will work only if it is coupled with resources for staff training, development and boosting morale, not least so that existing staff are retained. Unless there is good and adequate resourcing and valuing of probation, it will not be possible to have alternatives to custody or to reduce reoffending through community-focused solutions.
With spending front-loaded for the first two years of this Parliament, I fear we run the risk of short-termism. Reforming the criminal justice system is a long-term and overdue project, but the financing cannot be separated from areas of spending in other departments. We must ensure that our approach is well co-ordinated and far-sighted. In the meantime, this Budget is a step in the right direction for criminal justice, and I look forward to engaging with the Government further on this vital work.
The uncertainty over Britain’s development aid, over recent years, and the level of spending on refugees in the UK from that aid budget have diminished our reputation internationally and damaged the lives of many poor people around the world. So I have to say that it was with profound disappointment that I saw, in the Budget, that the new Government will cut the overseas aid budget from £15.3 billion in 2023 to £14.3 billion in 2025.
I do not think there is a moral case for spending a third of our aid budget, in country, on asylum seekers, refugees and the work of the Home Office and the borders agency. If we want to be a reliable partner internationally and to restore our global reputation, I believe that spending that money better and ultimately, eventually, spending more will be a central part of that. I hope that the Minister will be willing to take that message back to the Chancellor and that there will be a review in future spending rounds.
Finally, on the 11th day of the 11th month, today we all remember the impact of conflict. We remember that deeply. Many in your Lordships’ House have personal memories, in their families or even themselves, of that impact. For maybe 15 or 17 years, the United Kingdom has had a pooled approach to spending on conflict prevention, peacebuilding and peacekeeping. More recently, the last Government created the Integrated Security Fund from what was previously the Conflict, Stability and Security Fund—a development of Labour’s own Conflict Pool back at the end of the last Labour Government. It is not clear from the Budget what will happen to that Integrated Security Fund; there is an opaque reference to an amount that might be available in the FCDO budget, although the fund lies within the responsibilities of the Cabinet Office. So, in closing, I ask the Minister to spell out in more detail whether its budget has been cut. If so, when will we get a Statement on that and what will be the priorities of the new fund, moving forward?
Borrowing for investment is justified, so the theory goes, because it supports growth as long as the return exceeds the cost of borrowing. But this assumes that projects are well-designed and completed to time and on cost. I need highly emphasise that our record, nationally, does not need very much emphasising.
The argument for borrowing to invest might apply to power stations or infrastructure, but not all public investment yields an economic return. We welcome investment in health or education—it is a good thing in itself—but it earns an economic return only very slightly and over the very long term. If we are serious about sustainable public finances, borrowing for investment should not be accounted for outside the Government’s measure for meeting their own debt target. The truth is that this is not a Budget for growth or investment; it is simply a Budget for the public sector.
There is no ideal target for debt sustainability. What the markets are interested in is a country’s ability to service its debt. Note that, under the plans that the Government have put forward, interest payments have now risen to over £120 billion—over 3% of GDP; over 7% of public spending. The Chancellor believes massive borrowing for public investment will lead to growth, but that is not what the OBR’s forecasts show. They show that growth in the next five years will be less than it said it would be in the next five years during the last Conservative Government at the time of the Budget in March.
The OBR says that the Budget will have little positive effect until 2032 or later. The Government fought the election saying that they intended to have the fastest rate of growth in the G7; they never said they intended to have the fastest rate of growth in the G7 in 10 years’ time.
Debt remains at just under 100% of GDP at a time when the IMF has warned that, internationally, government debt is becoming a problem worldwide. The OBR has warned that UK debt is on trend to reach an unsustainable level of 270% of GDP. You may say, “That won’t happen”, but it will not happen only if we have our eye on the long term and make some very difficult decisions.
The Prime Minister a few weeks ago said that this Government were all about “wealth creation”. When I heard that, I am afraid I laughed out loud. Then he said that the Budget would be a Budget for business. It is a strange Budget for business which has a main tax increase aimed fairly and squarely at the corporate sector.
Many observers question whether the increase in national insurance contributions will raise the £25 billion forecast for it. Paul Johnson of the IFS has forecast that the Government will have to come back for more tax increases in the next couple of years. One can make the pips squeak, but our tax base is relatively narrow. The top 1% of all taxpayers paid 29% of all income tax and the top 10% paid 61%. Those individuals involved are not numerous, and so it does not require a big change in behaviour by these top earners to do huge damage to the country’s tax revenues.
The Prime Minister talks about putting “country before party”. He talked about governing for people who had not voted for him. Where is the sign of that in this Budget? It is massively divisive, it is a massive gamble and it has massive increases in spending and borrowing and a new high for taxation. If the gamble fails, the country, alas, will pay a painful price.