My Lords, it is a privilege to open this debate on the spring forecast and the Second Reading of the finance Bill. I very much look forward to the valedictory speech from the noble Lord, Lord St John of Bletso.
On taking office, this Government inherited three major crises: a crisis in the public finances, a crisis in our public services and a crisis in the cost of living. That is why we have repeatedly taken the action necessary to bring stability to the economy. The choices we have made are the responsible ones. The spring forecast showed that the economic plan that we have been driving forward since the election is the right one.
In our first Budget, we took action to fix the foundations of the economy by repairing the £22 billion black hole in the public finances left by the previous Government. At the spending review last summer, we stuck to our non-negotiable fiscal rules, keeping a tight grip on day-to-day spending while investing an additional £120 billion in growth-driving infrastructure and getting debt on a downward path. In the Budget last November, we built greater resilience by doubling the headroom against the stability rule and cutting borrowing as a share of GDP in every year of the forecast.
Our economic plan is built on three pillars: stability in our public finances, investment in our infrastructure and reform to Britain’s economy. Stability is the cornerstone of this plan because it is the single most important precondition for economic growth. That is why we have committed to one fiscal event a year, limiting major policy changes to the Budget, helping to give businesses and households the certainty that they need to plan and to invest.
The forecast from the Office for Budget Responsibility, published last month, shows that our plan is working and that we enter this period of global uncertainty with the fundamentals of our economy strong. We have cut inflation, which stands now at 3%—a lower base than at the outset of Russia’s illegal invasion of Ukraine. We have prioritised growth to drive up living standards. The OBR forecast showed GDP per head set to grow more than was expected at the Budget, with growth of 5.6% over this Parliament. We have stabilised the public finances, having already reduced the deficit by £20 billion this year from 5.2% to 4.3% of GDP.
These forecasts pre-date the current conflict in the Middle East. The full economic impact of that conflict will depend on its severity and its duration. The movements on energy markets that we have seen are likely to put upward pressure on inflation in the coming months. Our economic approach will be responsive to a changing world and responsible in the national interest. As the Government have demonstrated time and again, we will take the necessary decisions to help families with the cost of living and to protect the public finances.
My Lords, my first point is that the world economic situation now is very different from that existing at the time of the Spring Statement, let alone that in place when the finance Bill was introduced—different and significantly worse. The Middle East war has overturned economic expectations, especially optimistic ones.
A major factor in this deterioration is, of course, increased oil and gas prices, which are an inevitable consequence of political instability in the Middle East. This exacerbates the unfortunate effects of the Government’s own policies, which all agree have led to the highest fuel prices in the developed world. The resulting inflation, already mentioned by the Minister, adds to of the elevated levels we have already experienced during the Chancellor’s time in office. That in turn risks pushing interest rates higher, meaning rising mortgage costs for homeowners and greater pressure on household finances.
Investors are now pricing in a 70% chance that the Bank of England will increase rates by a quarter point before the end of the year having previously expected two quarter-point cuts this year; unfortunately, gilt yields have jumped here more than in any other G7 country.
Public finances are already under severe strain. Borrowing is running higher than forecast when the Government took office, and the country is now spending well over £100 billion a year simply servicing debt.
Since this Government came into office, gilt yields are up, growth is down, inflation is up, unemployment is up, debt is up, and the UK goes into this potential energy crisis already facing some of the highest energy prices in the world. It is extraordinary that Mr Ed Miliband, at a time when we face some of the greatest fuel insecurity in modern history, is content for the country to rely on oil from the Middle East but is against investing in the oil and gas from our North Sea.
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Lord St John of Bletso (CB) (Valedictory Speech)
My Lords, it is with a mix of sadness and excitement that I address your Lordships’ House this last time. The sadness is because I shall miss participating in debates, particularly on Africa, and especially participating in the Select Committee work of your Lordships’ House and the APPG work. It has been an enormous privilege. I shall also miss seeing noble Lords who have become great friends over so many years. I had hoped to make my valedictory speech on the Space Economy report by the Select Committee so ably chaired by the noble Baroness, Lady Ashton, but sadly we have run out of time on that score.
I am enormously grateful to the doorkeepers, the refreshment department and all the staff of the Palace for the incredible support that they have given me over so many years and continue to give to all of us. I am very grateful to my noble friend Lord Kinnoull for his able stewardship and leadership of the Cross Benches.
I have to say that I joined the House of Lords more out of curiosity than desire. I say that because I was just 21 when my father died. I joined your Lordships’ House six months before the Islamic Revolutionary Guard Corps took control in Iran and six months before Margaret Thatcher became our Prime Minister. I joined for one primary reason: namely, I wanted to speak about the opportunities and challenges facing South Africa and southern Africa, and to petition for the release of Nelson Mandela, known as Madiba to all of us. After my health challenges last year, I decided that time was up. I am excited now to be spending more time in Africa. That is enough about me.
I shall restrict my comments today to the Spring Statement and not the finance Bill. There are three points that I want to raise. Clearly, the Chancellor’s forecasts have been overtaken by geopolitical events in the Middle East, leaving more questions than answers. We are now exposed, once again, to the very conditions that we thought we had escaped: energy-driven inflation and stagnating growth. The Statement underestimates the scale of the structural challenges that we now face. Surely, against a backdrop of spiralling fuel costs, now is the time to reconsider the strategic role of our domestic energy resources—more specifically, the North Sea. Would it not be wiser, during a period of geopolitical instability, to support responsible domestic production while we continue the transition to cleaner energy sources? It is not a question of abandoning our commitment to net zero but of recognising that the transition must be managed in a way that preserves resilience.
My second point is that the public procurement of goods and services now accounts for between one-quarter and one-third of all government expenditure, amounting to in excess of £300 billion a year. Even modest inefficiencies within a system of that scale can translate into tens of billions of pounds of avoidable costs. At a time of constrained fiscal headroom, it is essential that we focus not only on what the Government spend but on how effectively they spend it. What steps are His Majesty’s Government taking to deploy artificial intelligence to improve efficiencies, reduce duplication and identify cost savings across the procurement ecosystem?
What an excellent speech by the noble Lord, Lord St John of Bletso, the 22nd Baron St John of Bletso—a title that has existed for 460 years. I declare my interest: in the nearly 20 years that I have been privileged to be a Member here, my noble friend Lord St John—Anthony—has been my best friend in this House.
My noble friend entered this Chamber at 21 years old, as we have heard—the baby of the House—and he has been here for nearly 50 years. He has been a Lord in Waiting, he has phenomenal expertise in African affairs—in fact, he is the expert on Africa in this Chamber—and he has held positions such as vice-chair of the All-Party Parliamentary Group on Africa, as well as being a member of other committees on Zimbabwe and South Africa. I remember speaking in the tribute debate when Nelson Mandela passed away, and what a brilliant speech my noble friend made. He has had a very successful business career. After going to school at Bishops, the finest school in Cape Town, and the University of Cape Town, and then here at the London School of Economics, and then qualifying as a lawyer, he has brought that real-world international business experience to bear in this House. When I joined, the doorkeepers said, “Ah, there is our James Bond Lord”.
My noble friend is merely 68 years old. The average age of this House is 71. He has not even reached it. In my book, you are young until you are 60. He is middle-aged. Old age is from 80 onwards. It is so sad that the hereditary Peers are leaving the House in the way that they are, and there is no better shining example of their dedication, commitment and contribution than Anthony—my noble friend Lord St John of Bletso.
My noble friend is cheerful, energetic, charming, gracious and active, and has friends in every corner of this House. I have never heard a bad word said about him, and everyone loves him, Peers and staff alike. Although my noble friend is retiring, we look forward to seeing him back in the House regularly. I say “Farewell, my dear friend—and I mean fare well”.
The Statement on 3 March focused primarily on presenting the latest OBR forecasts, rather than announcing new policy measures. It forecast growth of about 1.1%, which is very low. It forecast inflation to fall from 3.4% to 2.3% this year. It forecast unemployment to rise to 5.3%, and net migration—which reached a peak of nearly 1 million just recently—to average just 235,000 between 2026 and 2030. But, as the noble Baroness, Lady Neville-Rolfe, brought to our notice, the forecast was prepared before the escalation of the conflict in the Middle East and is already completely out of date.
The OBR warned that the wider fiscal context remains difficult. It noted that UK public sector debt as a share of GDP has nearly tripled over the past two decades—it is now close to double the advanced economy average on a comparable basis—and borrowing has remained very high. The Chancellor referred to the growing uncertainty generated by the events in the Middle East, arguing that, in times of international volatility, the Government should prioritise economic stability, infrastructure investment and resilience to external shocks.
However, Reuters has reported that economists expect instability. Investors argue that global geopolitical tensions and surges in energy prices are going to have a dramatic effect on the state of the UK economy. Business groups have said that higher taxes and rising operating costs have discouraged firms from hiring. Financial markets have reacted cautiously: government bond yields have continued to rise and investors fear that sustained increases in gas prices could prevent the Bank of England cutting interest rates this year. In addition, motoring groups are calling on the Government to reverse their planned end to the freezing of the fuel duty in September, because of rising oil prices. Ten-year gilt yields have risen to over 4.5%. On top of this, we have nearly 1 million people—the NEETs—not in education, employment nor training.
My Lords, I echo the tribute from the noble Lord, Lord Bilimoria, to the noble Lord, Lord St John of Bletso, and pay tribute to his wonderful public service to this House over many years.
This year, I had the great privilege of chairing a Select Committee for the first time, the Finance Bill Sub-Committee, which examined the measures in this finance Bill relating to inheritance tax on pensions and agricultural and business property reliefs. We worked quite hard. We heard evidence from 33 witnesses and accepted nearly 200 written submissions. I thank the fellow members of that committee, one of whom is sitting on the Front Bench opposite, the noble Lord, Lord Altrincham, but I particularly thank the noble Lord, Lord Leigh of Hurley, who is not in his place but who brought up lots of questions that the rest of us might not have thought of.
While we were pleased to see that the Government have made changes to their initial proposals on inheritance tax, our report raised significant concerns about how these measures would work in practice for personal representatives, businesses and farms. A particular concern is that about personal representatives as a result of unused pension funds being brought for the first time into the scope of inheritance tax. The Government told us that this would be just an extension of what personal representatives have to do when people die. However, we heard that the reality will be very different.
Pensions simply do not fit well in the framework of inheritance tax. There are contradictory timelines, imperfect information and conflicting responsibilities; all these put personal representatives in a very difficult position. Even the most diligent of them risk being charged high-interest late payments by HMRC for not getting the stuff done on time. Worse, I think that many people are unaware that these changes are coming; they are going to hit them hard at a time for many of great personal grief.
My Lords, I join with others in saying how sad it is to say goodbye to the noble Lord, Lord St John of Bletso. He will be much missed, particularly for his contributions on Africa and the global south, and for his contributions to debate, as his powerful speech showed today. It was quite excellent.
I will concentrate my remarks on the Spring Statement. Apparently, the Chancellor wanted this to be a low-key announcement. She need not have worried; it scarcely qualified as an event. For once there were no leaks, as there was nothing to leak. I do not disagree with the Chancellor’s decision that there should be only one fiscal event a year, but, if one closed one’s eyes while listening to the Statement, it was like listening to a party political broadcast in the House. The Chancellor listed ending the two-child benefit cap as one of the Government’s great achievements, forgetting that she was particularly enthusiastic herself about the Government’s initial policy of refusing to abolish it.
She attacked the previous Conservative Government on growth and inflation, without ever mentioning Ukraine or Covid. Can we expect the Chancellor or the Minister in future to talk about the economy without mentioning oil or war? Judging by today’s speech, certainly not, but the Government surely ought to judge themselves by the same criteria as they judge others.
The Chancellor pronounced that everything that had happened was a great success, while the rapture of the OBR was somewhat more modified, with growth higher this year but lower in future and the same over Parliament as a whole. Unemployment is heading to over 5%, with, as my noble friend on the Front Bench said, a worrying rise in youth unemployment and a welfare budget ballooning to £407 billion. I am pleased that the Chancellor stuck to her fiscal rules and I welcome the increased headroom. But, of course, public sector net debt still remains at 90% of GDP and the 4.75% 10-year gilt yield is the highest in the G7, showing that the markets are not convinced that our fiscal position is under control or that it is robust enough for the potential challenges ahead. The Chancellor claimed that people would be £1,000 a year better off by the next election. The Resolution Foundation, the Rowntree Foundation and the IFS cast great doubt on this forecast. The Rowntree Foundation thinks it will be more like £40 than £1,000.
My Lords, following a distinguished former Chancellor of the Exchequer and a brilliant speech from the noble Lord, St John of Bletso, I rise with some anxiety to make a speech on the economy. Nevertheless, I want to try to bring a note of optimism into our deliberations, because optimism itself may be part of the solution to the challenges that lie ahead.
I congratulate the Chancellor, my noble friend Lord Livermore and the Treasury team for the Spring Statement and the facts set out within it. I know that it came before the conflict began, but growth and retail sales were up, and inflation and interest rates were down. There are grounds there for optimism. Of course, the conflict creates a new situation, but, as we go into that conflict, as a result of the Chancellor’s efforts over the last 18 months, we are better placed to face that storm than we would otherwise have been.
I especially welcome the emphasis in the Statement on spreading growth to “every part of Britain”. This is vital. I will emphasise three factors that will help generate growth and spread it across our country, and I will illustrate this with examples from the south-west of England, where I live. I am anxious about that as well, because the noble Earl, Lord Devon, is in the room and his family has been there for 700 years, whereas mine has been there for only 15 years. Nevertheless, it will be good to hear what he has to say about it. I declare an interest as the unpaid Chancellor of Exeter University, so I am embedded in the system there.
The first message I want to emphasise is stability. I strongly welcome the Chancellor’s emphasis on bringing stability. Of course, you have to adapt to changing circumstances, but stability really matters. The CBI welcomed it when the Statement was made and, given the uncertainty, it is more important than ever.
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This Government are delivering the biggest uplift in defence spending since the end of the Cold War. The Chancellor has also approved access for the Ministry of Defence to the special reserve to deploy additional capabilities in the Middle East, meaning that no net additional costs of these operations will be funded by the Ministry of Defence, but instead will be funded by the Treasury.
Last week, following her call with other G7 Finance Ministers, the Chancellor set out her further priorities for international co-operation: for immediate de-escalation and a return to a diplomatic process; guaranteeing the security of vessels passing through the Strait of Hormuz; supporting a co-ordinated release of collective International Energy Agency oil reserves, the release of which has since helped to stabilise international oil markets; and setting out how the UK will play its part as the global hub of maritime insurance. On Friday, the Chancellor met petrol retailers and energy suppliers to make it clear that the Government would not tolerate any company exploiting the current situation to make excess profits at consumers’ expense.
While we do not yet know how long this conflict will last, it underlines the importance of building a stronger, more secure economy able to withstand whatever instability we may face. The strength of our economy and public finances is possible only because of the Budget last year and the measures contained in the finance Bill before us today.
That Budget had at its heart three pro-growth choices. First, by choosing to maintain economic stability, getting inflation and interest rates down, we helped give businesses the confidence to invest and our economy the room to grow. Secondly, by choosing to reject austerity, we protected £120 billion of additional investment in growth-driving infrastructure. Thirdly, by choosing to back the fast-growing companies of the future, we supported the investment, innovation and economic dynamism that will increase growth in the next decade and beyond. That includes measures in the Bill to make Britain the best place in the world for firms to start, scale and stay. We are doing that by widening eligibility for our enterprise incentives so that scale-ups can attract the talent and the capital that they need. We are expanding the enterprise management incentive so that more companies can offer tax relief share options, and we are re-engineering our enterprise investment and venture capital trust schemes so that they do not back just early-stage ideas but stay with companies as they grow. For all businesses, large and small, we are also maintaining the lowest corporation tax rate in the G7 and the joint most generous capital allowances in the OECD.
In her Mais Lecture today, the Chancellor went further on our growth agenda by setting out how we will deepen our economic relationship with our European partners, how we will back innovation and harness the power of AI, and how we will take the necessary action to build growth on a broad, stable basis right across the UK.
Of course, the pro-growth choices we made in the Budget need to be paid for, and that means asking everyone to make a contribution. The previous Government froze the main income tax thresholds from 2021 to 2028. This finance Bill maintains all income tax and equivalent national insurance thresholds at their current level for a further three years from 2028. I accept that maintaining these thresholds is a decision that will affect working people. The Chancellor and I both said this in 2024 and I will not pretend otherwise now.
However, while we are asking everyone to make a contribution, we are keeping that contribution as low as possible through reforms to our tax system to make it fairer and to ensure that the wealthiest contribute the most. That includes increasing taxes on property, dividend and savings income to narrow the gap between tax paid on work and tax paid on income from assets. Currently, a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no national insurance is charged on property, dividend or savings income. That is not fair. That is why this finance Bill increases the basic and higher rate of tax on property, savings and dividend income by 2 percentage points, and the additional rate of tax on property and savings income by 2 percentage points. Around two-thirds of the revenue from these increases are expected to come from the top 20% of households.
We are also reforming the tax system to ensure that it keeps pace with a fast-changing economy. This finance Bill increases taxes on online gaming and online betting, while protecting UK horseracing and abolishing bingo duty. It prevents private hire vehicle operators exploiting a tax administration scheme so that everyone pays fairly. We are going further to close the tax gap to ensure that everyone pays the tax that they owe. Reforms contained in this finance Bill will help to collect more unpaid taxes and modernise the tax system to make it easier for taxpayers to get their tax right first time.
We have listened carefully to feedback from the farming community and family businesses, and the Bill raises the threshold for the 100% rate of relief on agricultural property and business property from £1 million to £2.5 million. This means that a couple will now be able to pass on up to £5 million of agricultural or business assets tax free on top of the existing allowances such as the nil-rate band.
Since coming into office, this Government have implemented an economic plan to bring stability to the public finances and to strengthen Britain’s economy for the long term. The spring forecast shows that this plan is the right one, with lower inflation and borrowing, higher living standards and a growing economy. Britain today is in a stronger position to withstand whatever uncertainty comes our way, but that is possible only because of the action we took in the Budget last year and the measures contained in this finance Bill. They are the right choices to protect families and businesses in an uncertain world, and they demonstrate that this Government have the right economic plan for Britain’s future. I beg to move.
This is a very serious moment. When the global outlook darkens, our domestic economic resilience matters more than ever. Yet the Government’s stewardship of the economy has left the country more exposed to shocks like this, and, when that happens, it is ordinary taxpayers who end up paying the price.
A lot has been said about the Government’s level of preparedness on the military front, but what is also true is that they were poorly prepared on an economic front. The economy that has developed under this Government and this Chancellor is profoundly precarious—and we are finding ourselves at the mercy of events.
The Minister has again waxed lyrical about the legacy of the last Government. There were things we did wrong, notably on immigration, but I remind the House that we had to cope with the legacy of the financial crisis, Covid and the Ukraine war, but we still delivered low inflation and an economy that was growing, and we now have a new Conservative leader with a refreshing determination to change things.
I turn to the Spring Statement. This was largely a non-event. Once the rhetoric—feeble rhetoric at that—is stripped away, it is difficult to identify any clear substance in what the Chancellor had to say. There were a few fairy tales, such as the Chancellor’s willingness to blame everyone else, from Trump to Putin, for the state of our economy—when, the last time I checked, she is the Minister responsible.
Looking at the statistics, we see that unemployment is rising sharply, hitting a staggering 7.6% in the capital, including a nine-year high for young Londoners. Youth unemployment in London is above that for the eurozone because of massively tightened employment regulations and much-reduced economic incentives to employ them through changes to NICs and the minimum wage. Yesterday’s youth jobs grant is a drop in the ocean and a poor attempt by the Government to cover up the immense harm they have done to employment in this country since assuming office.
Meanwhile, the OBR has predicted that the Government will spend £333 billion on welfare this year, at 10.9% of GDP, and by 2030-31 it is forecast to be £407 billion, at 11.7% of GDP. Working people will be asked to pay ever more in tax to fund the Government’s failure to get people back to work. Above all, the OBR has downgraded its forecast for growth from 1.4% to just 1.1%, which in truth amounts to growth that is barely there at all. When elected, the Prime Minister and the Chancellor talked endlessly about growth as their prime objective, promising planning reform, speedy infrastructure investment, world-leading AI and a skills revolution—all good things which I supported—but the delivery has been abysmal. Now, they have almost stopped talking about growth, in favour of vain efforts to subsidise the cost of living. History tells us that subsidies do not constitute a viable long-term strategy. Indeed, the OBR warns that inflation is expected to rise again, bringing with it the real prospect of higher mortgage rates and higher borrowing costs for the Government.
The reality for working people is stark. Wages are being eroded by rising prices, while taxes continue to climb. Millions more people will be dragged into higher tax bands by the so-called stealth tax of frozen income tax thresholds, now locked in place until April 2031. Despite all this, the Chancellor has boasted that her economic plan is the right one for Britain. I really doubt whether anyone believes that. What Britain needs is growth, jobs and investment. What the Chancellor has delivered is rising unemployment, ever- expanding welfare and a flatlining economy. The failure to tackle welfare reform is particularly worrying when we need to fund extra defence spending to protect ourselves and our citizens in an increasingly dangerous world. As it is, we are not yet on the path to prosperity.
I now turn to the Bill. First, perhaps the Minister can kindly confirm that the fuel duty increase of 5p provided for in the Bill is being delayed. With oil prices sky-high, this makes good sense, as we have argued.
This Bill lays bare the Government’s priorities. It makes a clear and deliberate choice to raise taxes on those who work, save and invest and to use a substantial share of that money to expand the welfare bill. In doing so, the Government are targeting and taxing precisely those people who sustain the productive heart of our economy—namely, savers who put money aside, investors who back enterprise, and the businesses that create jobs and growth.
Take the continued freezing of the income tax thresholds. This is fiscal drag on an enormous scale. Around 800,000 people will be pulled into the basic rate of income tax and around 1 million more will be dragged into the higher rate. By 2030, it is expected that one in four taxpayers will be paying either the higher or the additional rate of income tax. It does not stop there. In addition to the unfair arrangements for salary sacrifice, which this House has voted against, the repayment threshold for student loans is frozen, in effect imposing another hidden tax on younger generations starting their careers. Even those citizens who rely solely on the state pension are now at risk of being pulled into the income tax net.
The Government are reaching into the pockets of those who invest in Britain. The 2% increase in the tax on dividends, a £1.2 billion tax grab, sends exactly the wrong signal. Instead of encouraging investment in British companies and rewarding those who take risks to build and grow businesses, it penalised them. It is no surprise that 16,500 of them last year signalled their intention to move abroad.
We then come to the deeply troubling changes to IHT, the family farm and family business taxes. Just before Christmas, under enormous pressure, the Government attempted a partial retreat, but let us be clear: this so-called concession does not solve the problem. Many farms and family businesses may own valuable land or machinery, but they operate on tight margins. A paper valuation is not the same as spare cash sitting in the bank. The consequences are predictable. When faced with this kind of uncertainty, businesses do not expand; they pull back, they postpone investment, they do not buy new equipment or improve their restaurants, and, as we have seen, they reduce employee numbers.
Before I close, I should refer to the troubling letter that I have received from the Chartered Institute of Taxation about the difficulties that the various IHT changes will cause for personal representatives of the deceased, the costs in administration due to the Bill’s complexity and the defects of the tax avoidance provisions. It will not be easier for taxpayers, as the Minister suggested.
When we step back and look at the Spring Statement and the finance Bill, a clear picture emerges of the direction in which this Government are taking the country. Instead of policies that reward work, encourage investment and drive growth, we see rising taxes, a growing welfare bill and a struggling economy. The people who carry the greatest burden under this Government are precisely those who sustain our economy: the families who work hard and pay their taxes, the entrepreneurs who take risks to start and grow businesses, the investors who back innovation, and the farmers and family farms who keep our communities and supply chains alive. A healthy economy is built on confidence—the confidence to invest, the confidence to hire and the confidence to plan for the future. The Spring Statement and the finance Bill will give no confidence to anybody. On the evidence before us today, it is clear that the Government are moving in precisely the wrong direction, at a time of international challenge. Against that rather difficult background, I very much look forward to the valedictory speech of the noble Lord, Lord St John of Bletso.
I was fortunate way back in 2017 to be a member of the sub-committee on artificial intelligence so ably chaired by the noble Lord, Lord Clement-Jones. None of us then had any preconception about the impact that AI would have on all our lives. We now need to confront the other side of the AI revolution: the impact it is likely to have on employment. Artificial intelligence will undoubtedly drive productivity as well as growth, but it will also displace roles, particularly in admin and in the professional and middle-income sectors. We are in effect entering a period where technological progress may coincide with structural labour market disruption, and this presents a fundamental policy challenge. I cannot assume that the labour market will adjust itself organically. We need to act deliberately.
Thirdly, the noble Lord, Lord Hunt of Wirral, has been constantly questioning what measures His Majesty’s Government are taking to reduce spiralling unemployment in the UK. Can the Minister elaborate on what is being done to invest in promoting large-scale reskilling programmes, incentivising businesses to retrain their workforces and forging closer partnerships between industry, government and education? If we fail to do so, we risk creating a two-speed economy where opportunity expands for some but contracts for many.
In conclusion, the Chancellor’s spring forecast reflected a world of gradual recovery and relative stability, but the world that we now face is far more volatile, more uncertain and more complex, and this demands a shift in thinking.
I close with the Xhosa words from South Africa: “Enkosi kakhulu, sala kakuhle”, which means “Thank you very much, goodbye”.
I chair the International Chamber of Commerce in the UK. The British Chambers of Commerce has called for more decisive policy action to stimulate investment and growth. I was president of the Confederation of British Industry. The CBI has said that the Government still need to do more to reduce the cost of doing business, including tackling delays in planning consents, skills approvals, grid connections and access to innovation.
As my noble friend Lord St John mentioned, to shut down at this time oil and gas supplies that are sitting there and belong to us when we need them desperately—surely the Minister agrees that we need them more than ever. This is a transition, as my noble friend said, to net zero. We need to live that transition; it is not an on/off switch.
The welfare bill is now well over £300 billion. The national health and social care bill is approaching £200 billion. Our debt to GDP ratio is 100% of GDP—almost. After the Second World War, it had gone up to 250%. It took from 1945 to 1963 to bring it down to 100%, which is where we are back up to now.
Then we have a situation where 9 million people of working age are not working. We have a record number of people signed off sick, with doctors signing patients off without even doing assessments. Does the Minister agree that we need to do something to encourage people back to work?
Then there is the sad impression of London, which really annoys me when I travel abroad, where people say, “Oh, the crime in London, people have their watches stolen, their mobile phones stolen; we do not feel safe in London any more”. That is wrong. This is the greatest of the world’s great cities and people should feel safe over here.
We are splurging more on interest than on defence and policing combined. We pay a higher risk premium than Germany, Holland, Spain, Sweden, Ireland, Belgium and other countries. We had austerity after the financial crisis in 2010. That did not work. Rishi Sunak then spent over £400 billion when he was Chancellor during Covid. On top of that, we have this huge pensions commitment where public sector pensions alone are £1.4 trillion.
We all agree that we have one of the most generous welfare states in the world, but that is meant to be a safety net. The Chancellor now seems to recognise that the increase in minimum wages has harmed prospects for young people. I am all for people being paid more, but can businesses afford it, including the hospitality sector? Employers are still burdened with additional costs through increased taxes and more regulation, including employers’ national insurance, and we need to bring spending under control.
We need to focus on nuclear. We need to look at small modular reactors. We need to look at fusion on top of renewables. As the noble Lord, Lord St John, said, we need to look also at the threat and opportunity of AI and focus on skills, with industry and education working together. The reality is that lower net migration in economic terms will pose a medium-term risk to public finances, especially with the conflict going on around the world. We need an industrial strategy that will address what is going on.
I conclude. We have really high borrowing costs. We have a war going on in Iran. Oil is hitting over $100 a barrel and is forecast to go even higher. We have inflation that is not going to go down but is going up. We have had many inflationary spikes in the past five years and there is also the threat of a wage-price spiral. We need an economy that grows, but sadly the last growth figures were flat—the last quarter was 0.01%. We have the highest tax burden, 37%, since the Second World War and a cost of living crisis. This really hurts me because this country has such phenomenal strengths, institutional strengths and entrepreneurship—we have the third-highest number of unicorns, billion-dollar companies, in the world. We have the best universities in the world. We deserve better. Please, I implore the Government. There have been 15 U-turns—I say that the Government are listening when they U-turn. Would it not be better if they listened first, then they would not have to U-turn?
For agricultural and business property reliefs, we raised concerns that family businesses and farms will face significant administrative burdens, especially when valuing their estates. Many of these businesses, as our witnesses explained to us, tend to be asset rich and cash poor, so there is a real problem about where the money is going to come from. It was disappointing and concerning that the Government did not appear to have properly considered the liquidity challenges which estates will face as a result of these changes, and the impact they will have on the viability of businesses and farms. As someone who comes from Cumberland, I am very concerned about the impact on farming but also on family businesses, which are one of the really strong points in our community.
We made a number of recommendations in our report about how the Bill should be amended, in particular to extend the inheritance tax deadline. The report also has important recommendations that the Government should take forward once this Bill has passed. They must act quickly to raise awareness of the impact of the pensions reforms for personal representatives and prioritise arranging guidance and practical support. More broadly, we think that the Government should review their approach to tax policy-making. We saw the repeated redesign of these policies, with three or four changes before we got to the present, and the serious impact this uncertainty has for those affected. I look forward to the Minister’s response to our carefully considered report.
Personally, I want to make it clear that I think that wealth should be taxed more strongly than it has been. We have seen in the last 15 years great growth in wealth, at a time when most people’s wages have been stagnant. The question is how you do it properly. The best way for the Government, and they have started down this road, is to think about how we tax property more efficiently than we have in the past. I welcome the measures on the taxing of wealthy property, but if those were extended, it would give us the opportunity to get rid of or mitigate the very high levels of stamp duty, which are economically efficient in deterring people from moving house.
We have also—I am speaking from this side of the House as someone on the left of politics—got to be careful that, in taxing wealth, we do not discourage enterprise. This is very important if we are going to get the economic growth we need. We must have a society where entrepreneurs can make themselves wealthy. A lot of people always say, “Oh, the pity is that we do not have the Mittelstand as they do in Germany”. It is a great pity that we do not have a range of companies that are family owned, where people are the committed owners of those companies. But the truth is also that in Germany many of the families that own Mittelstand companies are extremely wealthy. Therefore, a balance has to be struck between taxing wealth and promoting enterprise, and we should always remember that.
There can be different views about the Statement, but what is clear is that it is now totally irrelevant. No one knows how long the conflict will last, as the Minister said. President Trump has said that it will be short. Qatar’s energy minister, who presumably knows a thing of two, has warned that the Middle East crisis could
“bring down the economies of the world”.
He predicted that all exporters in the Gulf will have to call force majeure, and European nations will feel significant pain as Asian buyers bid against them for whatever gas becomes available. If the crisis is prolonged, obviously it will bring higher inflation, higher interest rates, rising unemployment and even lower growth.
The Chancellor has indicated that, when the price cap expires in June, she wants to protect families, or is open to doing it, and she has said it will be on a targeted basis. I agree that, rather than doing something across the board, if it is necessary, it would be far better to target help where it is most needed. But where to draw the line is not easy, as the Chancellor herself found out when she tried to strip millions of people of their winter fuel payments.
Households are in a far weaker position today than in 2022. Then, the total amount of unpaid debt owed to energy companies was just over £2 billion. Today it is around £5 billion, and it is expected to reach £7 billion by the end of this year. The reality is that middle-income households now also struggle to pay their bills: that is the new normal. As the noble Lord, Lord Bilimoria, said, the Government need to end their war on the North Sea. If Britain is serious about energy security, we should use more resources from the North Sea, compatible with other policies. As President Trump pointed out, it makes little sense for the UK to be importing gas through pipelines from Norway, which extracts fossil fuels from the very same North Sea gas fields that fall inside British waters.
According to the OBR, the tax burden is forecast to reach 38.5% of GDP by the end of the decade, up from 36.3% this year and higher than the record burden in 1948. With fiscal drag, millions of taxpayers are dragged towards the painful cliff edges of the tax system. Families who get pay increases perhaps turn them down because they leave them worse off. David Miles of the OBR said that both the extent and the design of additional taxes matter. He said:
“Tax increases that increase marginal rates are likely to act as a disincentive”.
We are in “unchartered territory” with the level of taxes. Taxes are now 5% higher than before Covid. It would be a bold person to be confident that this will not hit even the modest growth rates forecast in the Statement.
Alarming as all that is, the IFS has forecast that the Chancellor may be forced to put up taxes even further. Higher inflation will increase welfare spending and the funding cost to government, forcing the Chancellor to find new measures to balance the books. If this happens, stagflation will stalk the land. For all the bluster and boasting, alas, we are far from being in the best position to weather the storm ahead.
Obviously, we cannot control global events, but we can control how we respond and how we act within these shores. Let me give an example from the south-west. We all agree that critical minerals are essential to the future of the economy and we all agree that they are a source of global tension, but we have critical minerals right here in Britain. In Cornwall, there are deposits of lithium, and a company called Cornish Lithium is already set up to exploit that. Tata and Agratas are building the biggest electric vehicle battery factory in Europe in Somerset. Altilium, in Devon, is recycling spent EV batteries and recovering 95% of the rare metals from them. The Camborne School of Mines, part of the University of Exeter, is at the forefront of the world’s research and innovation in these areas. These are just emerging factors, but we can see there the beginnings of the circular economy that will drive economic growth, environmental sustainability and national security. All of that is possible without setting foot out of the south-west of England. However, we can see that happen only if we have stability. That is my first point: stability is essential to getting the necessary investment and relationships.
My second point is about education and skills. This has already been mentioned in the debate and is fundamentally important. We should celebrate in this country the big improvement in our education system over the past 50 years. Fifty years ago this year, Jim Callaghan made the famous Ruskin speech, drawing attention to the problems. Successive governments of all parties have built on that, and we now have a much better education system, but there is more to do, especially in relation to skills.
In the south-west of England, traditional employment is low-skill and low-pay—it is agriculture and it is tourism. The economy of the future that is emerging will be high-skill and, I hope, high-wage. Such tech jobs, engineering jobs and software jobs absolutely depend on ever higher levels of skill right across the workforce. Navantia in Devon, Babcock in Devon, Leonardo in Somerset, Agratas in Somerset and the spaceport in Cornwall all need important and detailed engineering jobs and technical jobs. Across the UK, the Royal Academy of Engineering estimates that we will need 834,000 such jobs over the next five years— 4,000 of those will be at the Agratas plant in Somerset.
That is very demanding, and our education system will need to adapt further and faster to keep up with that demand. What we are looking for, surely, is a demand-led skill system where the employers create the opportunities and the education system empowers students to seize them. Education does not just create wealth; it spreads wealth and it turns wealth into family income. If you want to find that out, talk to the apprentices—there were some brilliant young apprentices in the Palace of Westminster yesterday. Talk to them at the Dyson Institute in Malmesbury or, if noble Lords want to come and visit us, at Exeter University, or at Sheffield University. They are doing wonderful things and they see the skills that they learn one day applied the following day.
My third message is about the speed of decision-making. In education, we need to go further, faster and deeper. The Government’s recent announcements will help us do that and are to be welcomed. Generally, however, the speed of decision-making needs to be speeded up.
Noble Lords will be aware that I spent many years in Whitehall trying to speed up the pace and effectiveness of delivery. I have heard all the excuses for delay: “Why don’t we do some more research?”; “Why don’t we try a pilot study?”; “What about another round of consultation just to check?”; or—before my time—“Why don’t we try it out in Scotland first?” These excuses are well known to the Civil Service. I love civil servants, and they too smile when they hear these excuses, because they are very familiar with them, but the problem is deeper than the Civil Service. It is about our processes and our culture, and the way we go about making decisions. It is not just in Whitehall but across local government. We need to shift the default in government across the country, at every level, from delay to delivery, from process to outcome, and from talk to action. The Government’s completion in short order of three major trade deals is a good example that you can get things done rapidly that are important to the future of the economy.
These things significantly affect the south-west. We have a number of fantastic small businesses, such as CMTG in Torrington. The last time Torrington was in the news for military purposes was in 1646, when the Royalist arsenal blew up. Now it is developing software for military helicopters. I could list a number of other businesses. California has its valley, Shoreditch has its roundabout and Devon has its defence innovation ecosystem. All these companies depend on the quality and speed of decision-making at the MoD.
I was fortunate to teach a course at Harvard for several years with the former Prime Minister of Mozambique, Luísa Diogo, a wonderful woman who died recently. She got 15% growth in a single year, as Mozambique was coming out of a civil war. I asked her how she did it. She said: “I didn’t do anything. The people of Mozambique generated that growth, especially the women. What we did was create the right context”. Stability, skills and speed of decision-making will create the right context. To conclude with her words, “If you get the context right, you unlock the music in people”. That is our task in the years ahead.