That the level of the welfare cap, as specified in the Autumn Budget and Spending Review 2021, which was laid before this House on 27 October 2021, be approved.
The charter for budget responsibility is, at its core, about fiscal responsibility. Its existence is born of the belief that stable public finances are the foundation for building a stronger economy for the whole country. Its purpose is to set out the Government’s approach to managing the nation’s finances openly so that the British people know that their money is being handled carefully and to give us a credible framework for action, underpinned by the Office for Budget Responsibility, which the OECD remarked is considered by many as a “model independent fiscal institution”.
Given the challenges that we currently face, hon. Members may reasonably ask whether this is the appropriate time for such a debate, but the credibility of the Government’s fiscal plan is what has allowed us to act as we have and will allow us to act again if we need to. In other words, we are updating the charter not simply for the sake of it, but to maintain what the Chancellor called at the Budget
“the path of discipline and responsibility”.—[Official Report, 27 October 2021; Vol. 702, c. 275.]
Almost two years ago, in the face of the pandemic, we took bold and decisive action to commit unprecedented amounts of public money to support jobs and businesses across the UK. That, including the support recently announced in response to the omicron variant, has helped to prevent long-term scarring to the British economy. The International Monetary Fund praised our
“impressive, coordinated, and extended policy response”,
while the OBR said that the costs of inaction would have been far higher.
The Government are proud of the decisions that we have taken, and that we continue to take, but we are not complacent. The pandemic has left us with the highest level of borrowing since the second world war and, at nearly 100% of GDP, public debt will reach its highest level since the early 1960s. That is clearly not sustainable over the long term.
Could my right hon. Friend comment on what difference, if any, he thinks it makes that a significant proportion of that debt is now owned by the Bank of England, which is 100% owned by the Government on behalf of the taxpayers?
The Bank of England has obviously helped to underpin our wider response to the crisis that we face. Clearly, it does have a bearing on the relevant significance of debt, but it would be simply irresponsible to leave ourselves exposed in the manner in which we risk being if we fail to constrain the borrowing, which risks otherwise becoming an unacceptable burden and which would leave us very vulnerable. A 1% rise in interest rates would cost the Exchequer £22.8 billion in 2025-26. That is a meaningful level of exposure and one which we want to take action to address.
To help the Minister, would he not also point out that, under this Government, the Bank of England has reduced the proportion of new debt issuances, which are attached to rising inflation rates? So at least, due to the actions of the Bank of England over the past two or three years, that exposure has declined.
My hon. Friend is absolutely right. We are certainly not saying that we are in an untenable situation, but we are saying that it is important to meet our fiscal rules and to get debt falling as a percentage of GDP. As Conservatives, we believe that and we have won elections four times in the past 12 years on that basis. It is important that we continue to uphold that.
Further to that point, is my right hon. Friend not quoting a gross figure for the impact of a rise in interest rates, and quite a bit of that would be credited back to the Bank of England, which, in turn, could pay it back as a dividend to the Treasury?
I think it remains the case that we need to make sure that our debt-to-GDP ratio is more sustainable than it is at present, and I do not think colleagues would significantly demur from that. I take the point that, obviously, there is an interaction—some of these interactions are of a relatively circular nature—between the Bank and Exchequer, but none the less, it is important that we control our public debt. Indeed, we were able to respond to the pandemic as comprehensively as we did precisely because of the fiscal space created since 2010. The fact that we faced two once-in-a-generation shocks in just over a decade highlights why we must have the buffers to provide support when it is needed most and why we must act to rebuild those buffers, so that we are ready for any future shocks. In its most recent “Fiscal risks report”—not an easy one to splutter out—the OBR said:
“In the absence of perfect foresight, fiscal space may be the single most valuable risk management tool”
that we have.
The third and final reason we need to keep our debt under control is simple: our public finances are the legacy we leave for future generations, and the decisions we take now will have a material impact on the lives and livelihoods of our grandchildren. They will help or hinder their future ability to tackle long-term challenges, from climate change to an ageing population, or indeed to seize the opportunities that lie ahead.
The charter for budget responsibility contains new fiscal rules to guide us back to fiscal sustainability in a fair and responsible way. The rules will ensure that we get debt down over the medium term. They will allow us to deliver a significant uplift in capital investment, in turn driving economic prosperity, but without burdening future generations with borrowing to fund our day-to-day spending. The new rules require that underlying public sector net debt, excluding the impact of the Bank of England, must as a percentage of GDP be falling. The current budget must be in balance, which means that everyday spending must be paid for through taxation. Both rules must be met by the third year of every forecast period, giving us the flexibility to respond to events in the near term, such as omicron, while credibly keeping the public finances under control.
I would like the Chief Secretary to educate me a little bit, because what I cannot appreciate is the impact of covid on welfare expenditure. In the short term, I can understand why that would be significant, but why does that move forward into the medium term, when one would anticipate that the economy is recovering and we have demand for people to go back into employment?
The reality is that much of what we have put in place—this has been a £400 billion response—will take time to filter through the economy and out the other side. Clearly we expect some of it to taper away, but there are large parts of the package that we have had to put in place to support lives and livelihoods that will undoubtedly take time to wash through the wider economic settlement. The welfare cap is designed to be an automatic stabiliser, but it is also partly a measure by which we can be held to account as a Government, because this is not like departmental spending; it is more akin to AME spending—it is not something where we can manage it in the usual way. Therefore it is important that by setting this cap, we give ourselves at least a benchmark against which our performance in managing those pressures can be measured by the end of the forecast period. It is vital to ensuring that we have a welfare system that provides fairness and accountability to the taxpayer and the House.
The updated charter delivers on our commitment to budget responsibility in a way that is appropriate to our current circumstances. I understand very well the concerns that hon. Members may have about inflation and rising prices. We have already introduced more measures to put money into people’s pockets—increasing the minimum wage and cutting the universal taper rate. Although we have had to take important steps to protect the NHS and safeguard our economy, my right hon. Friend the Chancellor said in the Budget
“my goal is to reduce taxes. By the end of this Parliament, I want taxes to be going down, not up.”—[Official Report, 27 October 2021; Vol. 702, c. 286.]
We want to reward innovation and hard work, as well as the sacrifices of the British people over the last two years. Our plan for stable public finances in the charter puts us in the best possible place to achieve this goal and to stay true to our Conservative ideals. Tonight, hon. Members have a clear choice—to vote for fiscal responsibility, a credible path back to sound public finances and a stronger economy for the British people, or to let slip the anchors and leave our economy vulnerable and adrift.
I begin by echoing the sentiments from Mr Speaker earlier following the death of my hon. Friend the Member for Birmingham, Erdington (Jack Dromey). I knew Jack for many years, from his time as deputy general secretary of what was then the Transport and General Workers’ Union, and later as a colleague and fellow west midlands MP. He was a tough negotiator, always determined and loquacious, but pragmatic enough to reach a deal and stick to it. We are still in shock at Jack’s sudden death on Friday. We will miss him greatly, and my sincere condolences go to my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman) and their family.
On the motion, the Chancellor announced at the time of the Budget that he would bring this before the House. He made a big thing of it. At the time, we presumed that he would come along and display his credentials for fiscal probity. He probably thought that it was a clever move at the time, but it does not look so clever now. He has not even turned up for tonight’s debate. What happened? Where is he? When he was dishing out money, he was everywhere. We could not move for Instagram videos and pictures of his slippers or sliders, or whatever they are called. Now the crunch is coming, he is nowhere to be seen.
Was the Chancellor worried that if he turned up tonight he would be asked what he will do about the cost of living crisis facing the country? Is he avoiding the House because he has nothing to offer people facing rises in energy bills of hundreds of pounds a year? Why is it that he has done one of his disappearing acts again? He was not here last month when businesses were crying out for support as Christmas bookings were cancelled in their thousands, and he is not here again this month for what he once told us was a central plank of the Treasury’s strategy.
On the rules themselves, during the covid pandemic the Chancellor has had to borrow a great deal of money—approaching £400 billion extra. The pandemic was an emergency situation that required emergency measures. That is true in this country and around the world. Our fiscal rules, published at the time of our conference, take account of such emergency situations, because there is no point in having a set of fiscal rules that work only when times are good. Fiscal rules have to take account of all kinds of economic weather, and ours do exactly that. Crucially, our rules also allow for the investment plan needed for the transition to the lower carbon economy that we will need. The Government’s fiscal rules do neither of those things.
I am always glad to hear that bridge mentioned, because I did a second-year geography project at high school that could have told the Prime Minister it was a terrible idea. Does the right hon. Gentleman agree that, given that was an infrastructure project for the people of Northern Ireland and Scotland, we should get the money that was committed to it?
I would like to know how much was committed to it. I hope the Minister clarifies that while he is wrapping up and telling us about fiscal probity.
But in the spirit of solidarity, I do have some sympathy with the Chancellor these days. It cannot be easy when his tax policies do not even have the support of his own Cabinet colleagues. The Leader of the House has made his views known. He has told all and sundry that he wants the tax rises coming in April to be cancelled and the Prime Minister has been too weak to do anything about this open breach of Cabinet discipline. Is it a free-for-all in Cabinet nowadays? Does every Cabinet member get to have their own tax policy? Have all the leadership campaigns destroyed whatever collective discipline there might once have been? The former Brexit Secretary, the right hon. Member for Haltemprice and Howden (Mr Davis), who is not with us tonight, has even taken to using our argument about this Government resembling Ted Heath more than Margaret Thatcher. I know that is not how the Chancellor wanted to be remembered. He wanted to be regarded as a tax-cutting modern monetarist, a worshipper of the true Tory faith. But the real truth is that you cannot stand up and give a Budget that imposes the highest tax burden since the 1950s and then issue a disclaimer at the end of it. It is just not credible. It will not wash and nor will this motion today.
People want help with what they are facing now. The impending squeeze on family incomes in this country is going to take a battering ram to people’s standard of living. It is not just global factors; it is about years of regulatory neglect in the energy market that created a whole host of small energy Northern Rocks that have now had to be bailed out, and about the choices made by this Government through tax rises. Yes, there are global factors in the energy market, but the crisis has been made worse because of decisions and choices made by the Government.
We have published a plan to help people. This is a changed Labour party coming up with real answers to a real cost-of-living crisis faced by families today, and we are facing an exhausted Conservative party that has run out of answers and has sacrificed for ever the mantle of being the party of low taxation. Perhaps there is no greater evidence for that weariness than the fact that on the question households throughout the country are most worried about, how they are going to pay the bills this year, the Government have said nothing at all.
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It is important to keep debt under control for three key reasons. First, our level of debt means that we are more vulnerable to changes of interest rates and to inflation. In fact, OBR analysis from July found that our sensitivity of debt interest spending to changes in interest rates is almost twice what it was before the pandemic. A single percentage point increase in interest rates and inflation would increase annual spending on debt interests by over £20 billion in 2024-25, which is more than the entire Home Office budget for that year.
Finally, a third rule will ensure that public sector net investment does not exceed 3% of GDP on average over the forecast period. This rule will allow the Government to deliver on our ambitious plans for investment over this Parliament, with the highest sustained levels of PSNI as a proportion of GDP since the late 1970s. With this rule, we are delivering on plans to invest more than £600 billion in gross public sector investment over this Parliament to spread prosperity across the UK. The £4.8 billion levelling-up fund is part of that. An unprecedented investment package of £5.7 billion for eight English city regions to transform their local transport networks is also part of it. On top of these commitments, the UK Infrastructure Bank is now open for business and is expected to support more than £40 billion of infrastructure investment. Crucially, the rule also mitigates the risk of increasing debt to an unsustainable level. Our fiscally responsible approach supports growth while keeping debt under control.
Combined, these rules will guide responsible decision making. The International Monetary Fund has noted that
“Countries that have followed a debt rule have typically managed to reverse a jump in debt...significantly faster than other countries”,
and it recently assessed that the
“new fiscal rules have anchored fiscal policy well”.
Thanks to our support for the economy and early responsible decisions to strengthen our public finances, in its October forecast, the independent Office for Budget Responsibility confirmed that the rules were met. The current budget is in surplus and underlying debt is forecast to fall in the current target year, 2024-25. The rules will guide fiscal policy for at least this Parliament and will be reviewed at the start of each Parliament to ensure they reflect the economic context and mean that we can deliver for the British people.
In addition to the rules in this charter, we will go further, becoming one of the first countries to formally consider the broader public sector balance sheet in our management of fiscal policy. The OBR will now forecast broader measures, including public sector net worth, which it says provides a fuller picture of fiscal sustainability and allows for more sophisticated analysis.
The charter also retains the welfare cap in order to keep welfare spending on a sustainable path and to support the other rules in strengthening the public finances. Since the cap was last set at Budget 2020, the covid pandemic has had a significant impact on the medium-term outlook for welfare spending. To reflect that and to align with the updated fiscal framework, the level of the cap is being reset in line with the latest forecast. That leads to an effective increase of £10.5 billion in the cap by 2024-25.
The charter balances flexibility to support the economy and our stated manifesto goals in the near term with stronger public finances in the medium to long term. It supports our vision for a stronger economy, levelling up across the UK through significant cash investment, and it safeguards a stable, prosperous future with a strong fiscal legacy for generations to come.
Indeed, when we look at what is happening in the economy right now and what families around the country face in the real world, we have to wonder what the point of this exercise is. Did the Chancellor really think that tabling this motion would take attention away from the fact that he is imposing the highest tax burden on the country for 70 years? The Tories have become a high-tax party because they are a low-growth party. They are asking the British people to stump up the cost of their economic record not for the one or two years of the pandemic but for the past 12 years. Projections from the Bank of England do not look any better, with forecasts for growth of about 1% in 2024. Does the Minister really think that, with this motion, people will not notice or remember that the Prime Minister and the Chancellor have driven a coach and horses through one of their central manifesto promises on tax with the forthcoming rise in national insurance? Is he trying to cover up for the fact that, as families face a cost of living crisis with steep rises in energy bills, he has no plan to help them?
The Minister may not have a plan, but Labour does, and it was set out yesterday by the shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves). Our plan would offer every family £200 off bills this year. It would give a further £400 off bills for those with the lowest incomes. It would help the energy-intensive industries on which so many good jobs rely. It would be paid for, in part, by a windfall levy on the companies making the most money out of the huge spike in gas prices. It is fair, it would help the poorest most and it is fully costed. That is what people need right now—not a reheated political stunt thought up by George Osborne a decade ago.
We have to wonder what the conversation was when this was thought to be some great political idea. Did they sit around in the Treasury and say, “We’ve borrowed £400 billion. We’re putting taxes up to levels not seen since the 1950s. We’ve wasted billions on failed programmes and dodgy contracts. But let’s have a parliamentary vote to show that we are really fiscally disciplined”? It will not wash. People are seeing through it.
You do not have to take my word for it. Only today, the head of the National Audit Office drew attention to the level of waste that the Government are presiding over. He wrote that
“many of the interventions carried out by government are either not evaluated robustly or not evaluated at all. This means government…has little information in most policy areas on what difference is made by the billions of pounds being spent.”
He added that only 8% of major Government projects “had robust evaluation plans”. Perhaps that is not surprising when we have seen £3.5 billion-worth of contracts handed out to businesses run by contacts of the Conservative party, and—the Minister and I debated this last Wednesday night—£17 billion in extra costs for the taxpayer, which the Government casually legislated for last Wednesday night to pay for their own mistake in messing up public sector pensions reform.
Where is the Government’s commitment to transparency, value for money or proper procurement practices in their fiscal rules? Did they forget to include those bits? Where is the commitment to tackling the level of fraud that has been exposed in Government lending schemes? Where is the commitment to controlling the Prime Minister’s pet schemes? How much was spent on the Prime Minister’s idea of building a bridge between Scotland and Ireland before the project was abandoned? The Chancellor should have known, because the Prime Minister has got form. He could not even build a garden bridge over the River Thames, let alone a bridge across the Irish sea.