- Motion to Take Note
- 2:32 pm
- Moved by
- That the Grand Committee takes note of the spending review 2020.
- My Lords, a spending review is a significant moment in the life cycle of any Government. It is an opportunity to deliver on the priorities of the British people, and, despite the most challenging of backdrops, that is what this spending review achieves.Given the circumstances, this year’s review sets out departmental resource spending and capital spending for the next financial year—2021-22—and devolved Administrations’ block grants for the same period. It includes multi-year funding certainty for some key existing projects and priority commitments, including health, schools and defence. Its immediate aim has been to protect people’s lives and livelihoods, but it also delivers stronger public services—including new hospitals, better schools and safer streets—and a once-in-a-generation investment in infrastructure.In their response to the pandemic, the Government have sought to prioritise jobs, businesses and public services. This support has come in many forms, including the furlough scheme, support for the self-employed, grants, loans and tax cuts. There has also been additional funding for councils, schools, the NHS, the charity sector and the cultural sector. This year, the Government are providing £280 billion to help get the country through the coronavirus.Next year, we will be allocating an additional £18 billion to fund programmes on testing, vaccines and personal protective equipment. We will also be providing, among other things, £3 billion to support NHS recovery, more than £2 billion in subsidies to the rail network to keep the country moving and more than £3 billion to local councils. Much of our response to the pandemic has been nationwide, but we are also providing £2.6 billion to support the devolved Administrations in Scotland, Wales and Northern Ireland. In total, public services funding to tackle coronavirus next year will be £55 billion.Your Lordships will appreciate that the economic picture is very challenging. The Office for Budget Responsibility forecasts that the economy will contract by 11.3% this year, the largest drop in at least 300 years. The OBR expects that, as restrictions are lifted, the economy will start to recover, growing by 5.5% next year, 6.6% in 2022, then 2.3%, 1.7% and 1.8% in the years following. Economic output, however, is not expected to return to pre-crisis levels until the fourth quarter of 2022. Long-term scarring means that, in 2025, the economy will be roughly 3% smaller than expected in this year’s March Budget. The dual impact of the virus and our necessary response has resulted in a significant increase in our borrowing and our debt. The UK is forecast to borrow the equivalent of 19% of GDP this year, a total of £394 billion. Borrowing is projected to drop to £164 billion next year, £105 billion in 2022-23 and then to remain at around £100 billion, approximately 4% of GDP, for the rest of the forecast.
- 2:45 pm
- My Lords, the spending review was a revelation. It revealed how the Chancellor will shape policy over the coming years. The first revelation is found in the Chancellor’s statement that“our economic emergency has only just begun.”Mr Sunak spells out the emergency: debt is“clearly unsustainable over the medium term.”—[Official Report, Commons, 25/11/20; cols. 827-28.]It is clear that Mr Sunak regards government borrowing, necessary as it may be in the face of the pandemic, as a burden on future generations. This is economic nonsense, and the foundation of the austerity that has done so much damage to Britain.Of course borrowing will need to be repaid—but to whom? Taxes are raised from British citizens to repay the debt owed to other British citizens. What borrowing and the repayment are all about is the distribution of income: funds being transferred from one group of citizens to another group. Mr Sunak has made clear who he expects the funds to come from. The first in line to pay off the borrowing are the public sector workers whose pay has been frozen.However, in so far as the Government borrow from foreigners, the borrowing can create a future burden. When funds are repaid, spending power is transferred abroad. That is why the OBR estimate of the increased foreign borrowing associated with Brexit is so worrying. Here lies the second revelation. In his review of the coming economic emergency, Mr Sunak fails to mention Brexit at all. For Mr Sunak, Brexit is the love that dare not speak its name. Yet the OBR makes it clear that the scarring from leaving the European Union with a deal is worse than the long-term scarring by the pandemic. If we leave without a deal, the scarring will be twice as bad. Yet from Mr Sunak, not a word about a policy that will add more to government borrowing in the medium term than will the pandemic. Has there ever been a more irresponsible Chancellor of the Exchequer?
- 2:47 pm
- My Lords, the Government’s spending on Covid has been generous—even if some has gone awry—and I do not underestimate the change in mindset that it needed in the Treasury. But lessons of history show that switching too soon into restoring finances slows recovery. The UK was not first in, or alone in, amassing Covid-related debt, and nor does it have to prove a point as it did in the financial crisis. Central banks are no longer seeing low interest rates as an abnormal blip and the IMF advises against an early return to austerity—so why take fright and cut previous growth plans now?Much of the UK’s social infrastructure is already underfunded. Social care has been left on an unsustainable footing by Governments of all stripes, and universal credit has been cut to below liveable amounts. These are not bleeding-heart views but among the conclusions of reports from the Lords Economic Affairs Committee, chaired by the noble Lord, Lord Forsyth, of which I am a member. The very least that should be done on universal credit is to maintain the £20 increase. Post-Covid and post-Brexit life is not going to be any cheaper, and we cannot build a recovery on the backs of hungry children.Over 1 million people are still not getting the care they need. Training more people to deliver social care and creating a valued career path can be a key route to providing jobs for the future. With an ageing population, it is time to turn the problem of social infrastructure into part of the solution. Building social infrastructure is faster at job creation than building physical infra- structure, and both are deserving.
- 2:50 pm
- My Lords, I support what the Government are doing to support the economy. I wish that our Covid policies had not themselves been so harmful to the economy—but we are where we are. The resultant debt and deficit forecasts are scary and leave us exposed to interest rates that will inevitably rise at some point. The fiscal challenge is huge, but my simple plea to the Government is: do not turn to taxes as a way to solve this problem.I have three points to make, and one parting shot. The first is a reminder that the Laffer curve is a real thing. Yield goes down when rates rise. For example, any short-term gain from raising the rate of capital gains tax, as the Office of Tax Simplification has misguidedly suggested, will be illusory, as behaviours will change and asset markets will be distorted. Secondly, raising income tax rates should be off the agenda until the economy is much stronger. All it will do is reduce disposable income and hence demand in the economy. We will need as much demand in the economy as we can get. Thirdly, the business sector must be encouraged to invest. The best way to do that is to reduce the rate of corporation tax and return to the aim of 17% or less.My parting shot is that the Treasury must take time to understand what it takes for businesses, especially SMEs, to be profitable and to grow. Too many initiatives, such as making tax digital, ignored the real-life problems of SMEs trying to run successful businesses. We need SMEs more than ever now to rebuild our economy.
- 2:51 pm
- My Lords, I will speak briefly on issues relating to climate, and I declare my interests as set out in the register, but first I will record my profound disquiet about the decision to reduce our spending on overseas development assistance. This is short-sighted in the national interest, as well as damaging to some of the poorest in the world.I welcome the commitment in the spending review that:“Our capital plans will invest in the greener future we promised, delivering the Prime Minister’s 10-point plan for climate change.”—[Official Report, Commons, 25/11/20; col. 831.]Equally positive are other measures such as the proposed national infrastructure bank, the potential net-zero duty for regulators, and the revising of the Green Book to take account of our climate change obligations.However, there is a widespread understanding that, in themselves, the measures currently in place and planned by the UK are not sufficient to meet our climate change commitments. There is a large gap between aspirations and solid progress on the ground. For example, the IPPR’s recent estimates suggest that only 12% of the year-on-year spending needed to achieve net zero has been committed by the Treasury. So there is an urgent need for what has been announced to be supported by clear policy direction and by detailed sector-by-sector road maps, in addition to mechanisms that will help bring investments and new players into low-carbon markets, and by long-term funding commitments.When the Minister replies to this debate, I hope that he will be able to assure us that, in the year leading up to our hosting of COP 26, the net-zero review will reflect the forthcoming advice of the Climate Change Committee, and that we will see a fully costed road map, including the investment commitment and the sector policies that will ensure we achieve our net-zero target by 2050.
- 2:54 pm
- The Lord Bishop of Portsmouth [V]My Lords, I was delighted to hear the Chancellor stress that the Government would continue to support the most vulnerable, but the proof of that assertion will be in how much money the Government are prepared to provide. That will be the barometer of what and who they consider most important. I therefore join my voice to those profoundly deprecating the proposed cut in development aid. I urge the Government to think again.I also implore the Government to think again by deciding now to maintain the uplift in universal credit beyond the spring, and for it to apply to those on legacy benefits as well. That uplift has kept many from the cliff edge. They now face a winter of uncertainty, which is not ameliorated by warm words from Ministers. Moreover, 160,000 new claimants have had a grace period and not been subject to the benefit cap. That period now comes to an end, which means dreadful uncertainty for many in the run-up to Christmas. The justification that the cap incentivises work does not presently stand up; the jobs are not there to go to. Those who already have little risk suffering more. They are the new impoverished: resourceful, resilient and struggling; decent, hard-working, desperate people who cannot feed and care for themselves or their children. People are getting perilously near to the cliff edge.It is good theology to attend to the voices of those on the margins. It is also good public policy. Leaving them in limbo is neither just nor kind.
- 2:56 pm
- My Lords, I follow the noble Baroness, Lady Hayman, and the right reverend Prelate in deprecating the cuts to our aid budget. In his spending review, the Chancellor said that it,“strengthens the United Kingdom’s place in the world.”—[Official Report, Commons, 25/11/20; col. 830.]He then cut another £4 billion from the aid and development budget. Let me clear: I welcome the much-needed increase in defence expenditure. But robbing the aid budget Peter to pay the defence budget Paul is no way to go about it. I despair. Does the Treasury still not understand that there are three ways in which we exert influence and strengthen our position in the world? The first is by a strong defence posture and capabilities; the second is by assiduous diplomacy; and the third is by extending aid and development to others.That is not just a moral decision—though assuredly it is. It is much more. First, it is a crucial element of our soft power. Secondly, it is enlightened self-interest. Many of the huge problems that we face, from disease, to conflict, to mass migration, have their very roots in the lack of economic and social development elsewhere in the world. Therefore, such a huge reduction in our aid and development budget is decidedly the wrong thing to do in our own interest in the longer term. It is wrong and short-sighted for us, as well as being wrong for those in other parts of the world who would be the recipients of our aid and development resources.
- 2:58 pm
- My Lords, I first remind the Grand Committee that I am a vice-president of the Local Government Association. I want to talk about council tax and the deliberate government policy over the past five years to force it up well above the rate of inflation. These increases have been caused in part by the introduction of the adult social care precept in 2016, because central government decided to divest itself of carrying all the responsibility for rising social care costs. At the general election last year, the Conservative Party manifesto guaranteed not to increase income tax, national insurance or VAT across the next Parliament. It was a bold and, undoubtedly, a popular step. This was intended to,“protect the incomes of hard-working families across the next Parliament.”These three taxes bring in almost two-thirds of UK tax revenue. The decision not to increase them means that the Government intend other taxes to bear the burden through this Parliament. Council tax is one of them, and in the spending review last week, the Chancellor continued government policy towards council tax for a sixth year: that is, increasing council tax well above the rate of inflation. An increase of up to 5% is permitted next year, of which a maximum 3% increase is for the adult social care precept and 2% is for general service provision. This constant rise in council tax forced on councils impacts most of all on poorer families.The pandemic is impacting most on poorer families. The freeze on public sector pay will impact most on poorer people. The failure to increase the living wage by more will impact most on poorer people. I understand the reason for wanting to avoid tax rises at a national level, to enable the economy to grow again, but why does this policy not apply to council tax?
- 3:00 pm