Children: Age Verification and Virtual Private Networks
(1 day, 6 hours ago)
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Baroness Benjamin
To ask His Majesty’s Government what measures have been put in place to prevent children using virtual private networks to avoid age verification to access harmful material online.
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Innovation and Technology (Baroness Lloyd of Effra) (Lab)
The Online Safety Act requires services to use highly effective age assurance to prevent children in the UK from encountering harmful content. Ofcom’s guidance makes it clear that age assurance must be robust to prevent circumvention. Services must also take steps to mitigate against circumvention methods that are easily accessible to children. Providers that do not comply with their child safety duties by deliberately promoting the use of VPNs could face enforcement action under the Act.
Baroness Benjamin (LD)
I thank the Minister for that Answer. However, Childnet has discovered an increase in the use of VPNs by children in the last three months. While younger children are deterred by age-verification checks, teenagers actively seek out and share methods to circumvent them. Many minors are downloading free VPN applications that often monetise user data and expose devices to viruses. Also, by relocating to countries with few or no internet safety laws, children can be exposed to more extreme, illegal or unmoderated content. Perhaps children under 16 should be banned from social media altogether. What action will the Government take to address the increasing number of children using VPNs? Will they instruct Ofcom to follow the lead of the Australian e-safety commissioner and require that digital services check VPN traffic for technical and behavioural red flags that suggest a user in the UK may be a child? Let us act sooner rather than later.
Baroness Lloyd of Effra (Lab)
We recognise the international efforts to better protect children online, including in Australia, and we are working with the Australian Government to understand the impact of their policies, including that one. There is currently limited evidence on how many children use VPNs, and the Government are addressing this evidence gap. We welcome any further evidence in this area, such as that quoted by the noble Baroness, Lady Benjamin, to complement our understanding. The Government will ensure that we act where we need to, as we have seen in other areas, and that future interventions are proportionate and evidence based.
Lord Vaizey of Didcot (Con)
My Lords, this is a complex and difficult area. I often praise the work of Ofcom in implementing the Online Safety Act, and everyone thinks I am applying to be the chair of Ofcom: I am not. I do however think that the suggestion of the noble Baroness, Lady Benjamin, is a very interesting one. A lot of research needs to be done, and it would be interesting to see the VPN research. There is another huge gap in researching the technology used in our schools by edtech providers, and in providing some kind of quality framework to ensure that this technology—how it collects our children’s data, and so on—is at least transparent and known about, so that requisite action can be taken in the future.
Baroness Lloyd of Effra (Lab)
The noble Lord makes a very good point about the need for accurate, evidence-based research that allows us to take the right action. As noble Lords may have seen, Ofcom published a report this morning setting out a number of methods for researching, for example, the use of VPNs by children. We should also examine technological solutions, as well as advice and guidance, and the role of Ofcom in enforcing the requirements of the Online Safety Act.
Baroness Jones of Whitchurch (Lab)
My Lords, while it is of course important that platforms maintain the standards Ofcom has set for them, does my noble friend the Minister also agree that parents have an important role to play in all of this to make sure that the parental controls on devices are implemented in full? Is there not more of a role for digital literacy for adults, to make sure they are keeping a proper eye on what their children are doing and that they comply with the regulations?
Baroness Lloyd of Effra (Lab)
My noble friend makes a very important point about the role of all of us in using the technology available to protect ourselves and to equip ourselves to be safe online, and for parents to do that in respect of their children. It is also very important that the Government support literacy campaigns, both for digital skills and online safety. The Government will play their part in supporting parents in that domain.
Lord Carlile of Berriew (CB)
On the Radio 4 “Today” programme this morning, Ofcom admitted that none of the three fines levied so far has been paid. Is it not right that Ofcom should be encouraged to take much stronger enforcement action against those who do not pay by making it clear that within a very short time, they will lose their right to appear on any screen in the United Kingdom unless their enforcement is fit for purpose?
Baroness Lloyd of Effra (Lab)
I think we all agree that enforcement is an incredibly important part of the Online Safety Act. Ofcom’s enforcement powers include fines of up to £18 million, or 10% of qualifying worldwide revenue. The Government have been very clear to Ofcom that it has our full backing to take enforcement action. We are standing right behind it to do that as effectively as possible.
Lord Clement-Jones (LD)
My Lords, the Minister says that the Government are standing right behind Ofcom. Many of us very strongly support Ofcom’s actions in fining those such as the AVS Group for not observing proper age checks on their sites. But, as the noble Lord, Lord Carlile, indicates, there is no point in having fines unless we have proper enforcement. What resource are the Government satisfied Ofcom has to pursue enforcement?
Baroness Lloyd of Effra (Lab)
We have ensured that Ofcom is resourced to implement its online safety duties and have increased the amount available to it year on year; its budget is, I think, £92 million to support all its Online Safety Act responsibilities. We believe that it has the resources it needs to effectively implement and supervise the Online Safety Act.
Lord Markham (Con)
Following on from noble Lords’ comments, to me it is quite clear that Ofcom has a lot of the powers necessary to restrict underage usage but seems to lack the will. That was abundantly clear from the Radio 4 interview this morning. My experience in such matters is that the Ofcom leadership really needs to understand the strength of feeling in this House and Parliament as a whole—that they need to be more robust in enforcement. Will the Minister agree to arrange a meeting with the Ofcom CEO and key Lords here today so that we can fully hold Ofcom to account on this?
Baroness Lloyd of Effra (Lab)
The noble Lord makes an important point about the strength of feeling here, which was replicated in the discussions yesterday in the Select Committee. I am very happy to take forward his request to set up a meeting with Ofcom.
The Lord Bishop of Norwich
My Lords, given the Church of England’s role in education, I welcome the age limits introduced for harmful material sites. However, it is very hard to police the use of VPNs, and thus education is likely to be needed in a great deal of cases, as well as enforcement. What role will Ofsted’s new framework play in ensuring that statutory relationships, sex and health education is delivered effectively with regard to this matter?
Baroness Lloyd of Effra (Lab)
I thank the right reverend Prelate for that question. The importance of digital skills and media literacy was highlighted as a recommended area in the curriculum and assessment review, and we will be responding to that. On his point about relationships education, I will have to come back to him.
Baroness Thornton (Lab)
I commend my Government for the action they are taking on the Online Safety Act. It is a bit rich for the party opposite, who dragged their heels for several years, to talk about the implementation of this. I do not know how many noble Lords here would know how to download a VPN and then choose a country which has no age-verification rules. It is clear that there are teenagers who can do this. Is Ofcom researching this? Is it assessing these risks and will it be bringing forward solutions?
Baroness Lloyd of Effra (Lab)
My noble friend highlights the complexity of some of these issues and the importance of understanding exactly the use of VPNs by adults and children, and whether they are indeed being used to circumvent the age-assurance aspects of the Online Safety Act. Ofcom, as it set out this morning, is researching the use of VPNs in many areas, particularly their use by children of all ages—older as well as younger children.
Welfare of Domestic Animals
(1 day, 6 hours ago)
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Lord Black of Brentwood
To ask His Majesty’s Government what plans they have to promote the welfare of domestic animals, including prohibiting the use of electric shock collars.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, the Government remain committed to improving the welfare of domestic animals. We are considering the available evidence around hand-controlled electronic collars and their effects on animal welfare, and we will outline our next steps in due course. More broadly, we are developing an overarching approach to animal welfare and have been engaging with key welfare organisations as part of this work. The Prime Minister has committed to publish an animal welfare strategy by the end of this year.
Lord Black of Brentwood (Con)
I know the noble Baroness will agree that the use of electronic shock collars on cats and dogs is cruel and unnecessary, causing pain, fear and stress in animals we should be caring for. Could she therefore explain why they have not yet been banned, a full seven years after a consultation on their use in 2018 showed strong support in favour of a ban from those with animal welfare expertise? The then Government, with strong backing from the noble Baroness, were fully supportive, but draft regulations brought to this House in 2023 moved with glacial speed and timed out before the election. Since then, nothing has happened, and animals are still being caused pain and suffering. I know Whitehall can move with great speed when it wants to, but is not seven years unacceptable? Can the noble Baroness, who I know is a great supporter of animal welfare and a proud cat owner, tell us when these regulations will reappear?
Baroness Hayman of Ullock (Lab)
The noble Lord is absolutely right that I have been supporting this for some time, and that seven years is an awfully long time. That is why, when I came into my position as Animal Welfare Minister, I wanted to properly review all the animal welfare legislation that had been sitting there, left over from the previous Government. It is why we have been pulling together this overarching animal welfare strategy. We are looking at the available evidence on electronic shock collars. We are looking at the potential impacts on animal welfare, livestock management, dog training, and owner responsibility, which is an important part of it. So, as I say, keep a watching eye out for the animal welfare strategy.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, the legislation on electric shock collars was written, scrutinised and approved by this House in June 2023. It lapsed on a technicality, not due to any flaw. Defra’s own research concluded that these devices cause fear and harm, offering no welfare-compatible training benefit. The Government can deliver a swift animal welfare win by immediately relaying this instrument. Will the Minister undertake to do this, instead of waiting?
Baroness Hayman of Ullock (Lab)
As I said, when I came into my role as Animal Welfare Minister, I asked for a list of animal welfare legislation and consultations, and all sorts of other things that had been undertaken by the previous Government. The list was huge, so my job was to look at where I felt we could make the best improvements for animal welfare in this country. That is why I commissioned an animal welfare strategy, which looks at what makes the biggest difference to animal welfare. If the noble Baroness looks out for that strategy, which will be published very soon, she might find many things that she will want to support.
Lord Trees (CB)
My Lords, the breeding of dogs with extreme conformations for purely fashionable reasons causes significant, and potentially lifelong, ill health. It is illegal under the Animal Welfare (Licensing of Activities Involving Animals) Regulations. A new initiative—the innate health assessment tool—has been lodged to help owners, breeders, trading standards officers, vets and others to avoid this practice in dogs. However, we are now increasingly seeing cats bred with conformations that are seriously deleterious to their health and that of their offspring. Will His Majesty’s Government amend the current regulations to include cats and to encourage the development of innate health assessment tools, or similar tools, to help reduce and avoid these abhorrent breeding practices in cats?
Baroness Hayman of Ullock (Lab)
The noble Lord is absolutely right to raise this issue. As he said, there has been quite a lot of interest and work done on dogs in this area. As a result of the concerns that have been continually and increasingly raised around the health and conformation of cats bred for sale as pets, the Government commissioned the Animal Welfare Committee to produce a report looking at the welfare implications, exactly as the noble Lord talked about. Those recommendations are now with the Government and we are carefully looking at them.
Lord Spellar (Lab)
My Lords, might I suggest to the Minister, in the same way as I did to her Conservative predecessors when I was trying to introduce legislation to ban the import of hunting trophies, that there is nothing I am aware of in the Representation of the People Act that prevents Governments undertaking popular policies? So could she overcome the institutional lethargy of Whitehall in this and other animal welfare issues and just get on with it?
Baroness Hayman of Ullock (Lab)
I think the noble Lord is probably aware that there are an awful lot of popular policies that everybody would like to see put forward immediately, which is why I wanted to spend time on getting an animal welfare strategy that actually looked right across the board at what was going to make the biggest difference for animal welfare and at different bits of legislation that were much more achievable. So again, I say to the noble Lord, as I have said to others: keep a watching eye out for the animal welfare strategy.
Lord Blencathra (Con)
My Lords, I am grateful to my noble friend Lord Black of Brentwood for raising this Question. As he said, the House did pass the last Government’s banning regulations in 2023, but they did not go through the Commons. I welcome the fact that the Government are considering all the evidence on this. As she knows, the British Veterinary Association and many dog trainers say that positive incentives are far better than shock treatment. However, many farmers say it is essential for sheepdog training, although that great sheepdog country, Wales, has banned it since 2010 without any difficulties. I suspect that I am in the same boat as the noble Baroness. If someone tried to put an electric shock collar on my cat, they themselves would get an awful shock. Can the Minister give any indication of when a conclusion may be reached in this evidence-gathering exercise? If Defra does decide to proceed with a ban, could we expect regulations similar to those we introduced in 2023?
Baroness Hayman of Ullock (Lab)
As I mentioned earlier, we are considering all the evidence around this. It is something that we want to consider how to bring forward. As the noble Lord and others have said, we supported the work that the previous Government did on this. I cannot give a date, but we are looking at the evidence now, and obviously we want to move forward.
Lord de Clifford (CB)
My Lords, I thank the Minister for her continued support on animal welfare in the UK. I declare my interest as someone who works in the veterinary industry. I hope the Minister has seen the recent report from the APPG on Animal Welfare regarding animal welfare enforcement. What are the Government doing to improve enforcement of animal welfare laws and to support local authorities and charities in protecting domestic pets from cruelty? Will she look in particular at reducing the time that local authorities have to hold seized pets?
Baroness Hayman of Ullock (Lab)
The noble Lord asks a really important question around enforcement. As I have said more than once in this House, what is the point of having laws if they are not enforced? Local authorities, the Animal and Plant Health Agency and the police do have powers to investigate allegations of animal cruelty, including breaches of any disqualification orders. The Animal Welfare Act of 2006 also enables the courts to ban offenders from owning or keeping animals following a conviction. If anyone has any concerns, they should of course report them to the police. Clearly, any legislation where the enforcement is not working needs to be looked at, and I am more than happy to do so.
Lord Brooke of Alverthorpe (Lab)
My Lords, is the Minister aware that some of us were in Downing Street yesterday, and there was a cat wandering around in Downing Street. Can she make sure that the owners are acting responsibly?
Baroness Hayman of Ullock (Lab)
Interestingly, I was in Downing Street yesterday as well, and I saw said cat. I foolishly attempted to take a photograph of it and was told that it was not acceptable and would not help the animal’s welfare.
Baroness Fookes (Con)
My Lords, I am much concerned by a piece of legislation passed by this Government that would ban the introduction of animals with mutilations that would be illegal if carried out in this country. We have the Act, but it depends on regulations. When may we see those regulations—in seven years’ time?
Baroness Hayman of Ullock (Lab)
The noble Baroness raises an important point. This relates to ear cropping, for example, and so on and so forth, which was in the Bill that got Royal Assent earlier this week. I cannot give the noble Baroness a date, but I can assure her that we are very keen to move as quickly as we possibly can to bring in the statutory instrument to allow this to actually happen as she says.
Data Adequacy Status: EU Data Protection Standards
(1 day, 6 hours ago)
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Lord Kirkhope of Harrogate
To ask His Majesty’s Government what assessment they have made of the European Commission’s decision of 24 June to extend the United Kingdom’s data adequacy status until 27 December; and what steps they are taking to ensure that the United Kingdom’s new Data (Use and Access) Act 2025 maintains alignment with the EU data protection standards needed for a future adequacy agreement.
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Innovation and Technology (Baroness Lloyd of Effra) (Lab)
My Lords, the Government welcomed the publication of the European Commission’s draft adequacy decisions in July, which concluded that the UK continues to provide an essentially equivalent level of data protection. The EU’s six-month extension allowed the Commission to consider the reforms made by the Data (Use and Access) Act. I look forward to the successful completion of the adoption process ahead of the 27 December deadline this year.
Lord Kirkhope of Harrogate (Con)
My Lords, I am very pleased with that reply from the Minister. What I am mostly concerned about is the loss of the provisions relating to law enforcement, particularly the real-time exchange of information, on which our intelligence authorities and police authorities have historically relied. That is no longer available to us; in what is undoubtedly a very dangerous world, surely that is a priority for the discussions that will take place now and in the future on the whole question of data adequacy with our European neighbours.
Baroness Lloyd of Effra (Lab)
I thank the noble Lord. He brings a great deal of experience over the years in many areas of data protection legislation, anti-money laundering and the security side. Since the UK and EU leaders’ summit on 19 May, we have been working with the EU to increase the safety and security of UK and EU citizens, to respond to shared threats, and to support police investigations, including through enhanced data exchange. We continue to work and meet closely with the EU on these matters.
Lord Clement-Jones (LD)
My Lords, the Government are trying to hit a moving target, as far as I can see. The EU is adopting a new digital omnibus, which will change EU GDPR. How confident are the Government about being able to get a decision from the EU in time?
Baroness Lloyd of Effra (Lab)
To take that question in two parts, we are confident about the EU’s scrutiny of our legislation. The Commission has started its review and published the report that I mentioned in July. The European Data Protection Board published a non-legally binding opinion on its draft decision on 20 October. We are confident that a member state vote will take place ahead of the 27 December deadline. The EU’s proposals to change its data protection framework have only recently been published. We will have a look at the details of those changes as and when they become clear and are confirmed.
Lord Hunt of Kings Heath (Lab)
My Lords, related to data security is superintelligent AI. Many recent reports have suggested that this is a huge threat to our global security. Are we discussing this with the EU and other international partners to try to mitigate some of the potential damage that could be caused by it?
Baroness Lloyd of Effra (Lab)
We continue to look at all potential AI threats and are immensely assisted in this by the work of the AI Security Institute, which has deepened our understanding of critical security threats posed by all sorts of frontier AI and the type that the noble Lord mentioned. We continue to talk about this to international partners.
Baroness Stuart of Edgbaston (CB)
My Lords, this is not just about legal frameworks; what is also important is the physical security of some of the data structures. Are we in discussions with other European partners, in particular with Ireland, to ensure that their undersea cables are secure, not just undersea but when they enter the mainland?
Baroness Lloyd of Effra (Lab)
The noble Baroness is right that there are risks to undersea cables. I shall have to come back to her on the precise discussions that we have had with Ireland, as I am not completely up to speed with those, but it is something that we are very well aware of in general. We have taken forward a lot of discussions with industry and others about it.
Lord Howell of Guildford (Con)
My Lords, when it comes to data adequacy, the Government are, of course, aware of a report from the UK Statistics Authority that said:
“Quality problems have manifested into published errors, delays, and de-accreditation of official statistics”.
That is pretty damning stuff. Can the Minister tell us what is going to be done now to improve the situation? Flying blind is surely really rather dangerous in the present world circumstances, particularly for this Government.
Baroness Lloyd of Effra (Lab)
I thank the noble Lord for his question. I think about the adequacy of the Office for National Statistics and some of the information that it provides, which we all rely on. In terms of the particular programme of enhancement, I shall need to come back to him on that point to set out what is being done in that area.
Lord Hodgson of Astley Abbotts (Con)
My Lords, if, as the Minister says, this is such an important matter, why did it not merit a single mention in the Chancellor’s speech on the Budget?
Baroness Lloyd of Effra (Lab)
On the issue of data adequacy agreements with the EU, I think we are proceeding quite adequately in terms of the process of it scrutinising our data protection regulations. We are confident that the 27 December deadline will be met.
The Earl of Clancarty (CB)
Is there a relationship here with concerns over IP and copyright, because our rules for data reuse are relevant to alignment with the EU?
Baroness Lloyd of Effra (Lab)
The noble Earl asks a very interesting question but one which I am afraid, again, I am unable to give him any deep answer on. I shall have to revert to him on IP in particular.
Lord Markham (Con)
My Lords, in view of the high stakes for UK services in digital trade with the 27 December deadline fast approaching, will the Government publish the adequacy risk assessment and correspondence that they have shared with the Commission, redacted where necessary, so that Parliament and stakeholders can see how they have satisfied themselves that the Data (Use and Access) Act is not put at risk?
Baroness Lloyd of Effra (Lab)
My understanding is that there is a lot of to and fro, and many requests between the EU and UK of a very technical nature to allow the European Commission to make its judgment. Quite a lot of those have been published already, in the European Commission report and in the European Data Protection Board’s opinion. The process by which this is set out is already transparent and clear.
Baroness Jones of Whitchurch (Lab)
My Lords, on the assumption that we get approval on 27 December, will my noble friend the Minister move quickly to make sure, as per the economic reset with the EU, that we reduce trade barriers and boost economic growth, which has been held back in this country by Brexit for far too long?
Baroness Lloyd of Effra (Lab)
My noble friend is right that the importance of digital trade to the UK and its exposure to the EU is a very significant part of our digital trade agreement, as are the relationships that underpin this. As a testament to the way in which the reset is happening, we welcome the state visit of the German President here today.
Lord Vaizey of Didcot (Con)
My Lords, to follow up on what the noble Baroness, Lady Jones, said to the Minister, digital trade is so important. The previous Government led the way with digital trade agreements, particularly with countries such as Singapore. As chair of the UK-ASEAN Business Council, I see how important these digital trade agreements are and how the UK leads the way as a member of the CPTPP and an observer at ASEAN. I hope that the Minister will keep her nerve as we start to reset our relationship with our largest trading partner, just 20 miles across the channel—the EU.
Baroness Lloyd of Effra (Lab)
That is a very good point. I was able to discuss with my Malaysian counterpart the potential for a digital trade agreement when I was in Kuala Lumpur earlier this year. I very much hope that we can progress that to promote digital trade—and likewise with the EU. I assure the noble Lord that the Government are working extremely actively to progress the EU reset.
Lord Watts (Lab)
My Lords, is this not just another example of the disaster of Brexit, which was spelled out, in all places, in the Telegraph a couple of weeks ago, demonstrating the damage that has been done to the country? Do we not need to speed up our relations and discussions to get back to some sensible agreement with our main trading partner in Europe?
Baroness Lloyd of Effra (Lab)
My noble friend is right about the importance of making swift progress to reset the relationship to promote trade and get all the agreements in place under the EU reset, which goes from everything from energy to defence and security—all sorts of areas where we can make real progress to support the UK economy.
UK Citizens in Venezuela
Baroness Rawlings
To ask His Majesty’s Government what steps they are taking to ensure the safety of UK citizens currently in Venezuela.
Baroness Hooper (Con)
My Lords, on behalf of my noble friend Lady Rawlings, and at her request, I beg leave to ask the Question standing in her name on the Order Paper.
The Minister of State, Foreign, Commonwealth and Development Office (Baroness Chapman of Darlington) (Lab)
My Lords, the FCDO continues to advise against all but essential travel to Venezuela. The safety of British nationals abroad is the FCDO’s overriding concern when determining travel advice, which remains under regular review to ensure that it reflects our latest assessment of risks to British nationals. The FCDO has been clear that consular support available to British nationals in Venezuela is limited, but we continue to support a peaceful, negotiated transition in Venezuela.
Baroness Hooper (Con)
In thanking the Minister for her reply, may I press a little on the wider region and ask whether this advice and possible support will be given to British nationals in the overseas territories in the Caribbean, for example? Further, does the FCDO have any plans to close our embassy in Venezuela, as I understand other European countries have already done?
Baroness Chapman of Darlington (Lab)
Our obligations to those in overseas territories are very different, and they are clearly prioritised in circumstances when disasters kick in. We have very limited diplomatic relations with Venezuela; at the moment, we have a chargé in Caracas. At this stage, we do not plan to withdraw that, but we are keeping a very close eye. I have spoken to the team there on many occasions, and what they are doing is still of value and their safety is assured. As long as this is the case, I do not see us withdrawing it immediately. Clearly, given the changing situation, we are keeping it under review.
Lord Woodley (Lab)
My Lords, it is very clear that our Government are nervous about directly criticising Trump. It is undeniable that the extrajudicial killings he has ordered in blowing up small boats off the coast of Venezuela are a grave violation of international law. Does the Minister agree that the notorious double strike that we heard so much about in September, which saw two people murdered while clinging to a boat, should be and must be thoroughly condemned?
Baroness Chapman of Darlington (Lab)
I am not here to second-guess legal advice or the situation in regard to any specific incident in the Caribbean. What the US does with regard to Venezuela and its position on its activities in the Caribbean are clearly a matter for the US.
Lord Alton of Liverpool (CB)
My Lords, can the Minister confirm that the 51 Venezuelans who are on our sanctions list for their role in undermining democracy and human rights remain sanctioned? Will she say whether we are considering imposing sanctions on those who have been involved in the cartels in the illegal smuggling of drugs—many of them lethal—not just into the United States but into Europe and this country too?
Baroness Chapman of Darlington (Lab)
The noble Lord knows that I am not going to talk about sanctions or whether we are about to lift or impose them, but it is absolutely true that Europe is one of the biggest markets for narcotics coming out of Latin America and central America specifically. The demand for narcotics in this country is causing misery, despair and the death of children, among others, in that part of the world.
Lord Bruce of Bennachie (LD)
My Lords, even though the Maduro Government there may be authoritarian and corrupt, the extrajudicial killings are not justified. Are we confident that British intelligence has not been used to facilitate those? How is military action against Venezuela consistent with forcing a peace settlement in Ukraine? If there is military action, what steps can be taken to protect all citizens there, including the 7,000 from the UK?
Baroness Chapman of Darlington (Lab)
I can tell the noble Lord that the UK is not involved in any way in the activities of the US in this part of the Caribbean. I am struggling to see the parallel between the situations in Venezuela and Ukraine. There are very difficult problems to address in both places. Our position on Ukraine is clear. We do not recognise the legitimacy of Maduro’s Government because of the way in which the election was conducted and the failure of the regime to publish reliable results.
The Earl of Courtown (Con)
My Lords, as the Minister has said, the situation in Venezuela is very concerning. Given our special relationship with our US allies, what conversations are ongoing with the US Government to ensure that our Government have the up-to-date information needed to safeguard British citizens in the country? I noticed that travel advice for Venezuela was last updated on 23 November. Will this be further updated?
Baroness Chapman of Darlington (Lab)
It will be updated if it needs to be changed; just because it has not changed does not mean it is not reviewed. Unfortunately, Venezuela is now in an “all but essential” category, and certain border areas are in a red category. That being said, our citizens do not always adhere to the advice of the Foreign, Commonwealth and Development Office. We estimate that there are around 500 British nationals in Venezuela. They are mostly going to be dual nationals or people who have lived there for a very long time and who understand the limited nature of the consular assistance that we are able to provide.
Lord Anderson of Swansea (Lab)
My Lords, given the limited numbers in our embassy, are we confident that we have means of communicating with those British nationals? What contingency arrangements have been or are proposed to be made with neighbouring countries such as Trinidad and Tobago?
Baroness Chapman of Darlington (Lab)
My noble friend is right that there is a limited team currently in Caracas, but it is incredibly well led and very effective. It is also served by the country-based staff, who do a tremendous job. Communications are a challenge, and knowing exactly where British nationals are—they are under no obligation to let us know—can be difficult. Most of the British nationals that we are aware of are people who are well used to living in Venezuela and are well supported. They rely on their own local networks, but our team is there to provide support, limited though it may be, should that be needed.
Lord Randall of Uxbridge (Con)
My Lords, bearing in mind that Venezuela has an unwarranted territorial claim on neighbouring Guyana, can the Minister update us on the advice the Government would have for that particular Commonwealth country?
Baroness Chapman of Darlington (Lab)
We have been very clear in our support for Guyana on this issue, and these sorts of disputes must be resolved through the legal and diplomatic means which are available. Occasionally, the Essequibo issue is raised in Venezuelan politics, and noble Lords can form their own judgments about why this might happen at any particular time. From the UK’s point of view, we are absolutely clear about where the border needs to be, and that has not changed.
Baroness Bennett of Manor Castle (GP)
My Lords, according to the US Energy Information Administration, Venezuela has about one-fifth of the world’s global oil reserves—an estimated 303 billion barrels—and the single largest-known mass of crude oil. Are the Government keeping this in mind in their approach to the issues in Venezuela, given the world’s need to keep the vast bulk of this oil in the ground in this climate emergency?
Baroness Chapman of Darlington (Lab)
One of the many tragedies of this situation is that Venezuela ought to be a prosperous, stable country that is able to provide a good life for its citizens; that is not the case. Our concerns are around civil liberties, democracy, the rule of law, the safety and protection of civilians and their rights and the fact that their wishes have not been reflected in their democratic choices. The noble Baroness is right that Venezuela ought to be doing far better than it has been able to do. Whether or not the oil comes out of the ground, it is a wonderful, spectacular country, and it is just tragic to see what has happened to it in recent years.
Lord Spellar (Lab)
My Lords, is not the fundamental, underlying problem that the prosperity of Venezuela has been destroyed by the corrupt dictatorship, which is being propped up by other dictatorships in Russia, China and Cuba? What help are our Foreign Office and other Governments giving to the legitimate opposition in Venezuela, which should be the Government were it not for the corrupt elections?
Baroness Chapman of Darlington (Lab)
I have huge admiration for María Corina Machado. I have spoken to her. She did not run for president, but she is clearly a voice for those in Venezuela who feel that their democratic wishes have not been reflected in the make-up of their Government. We continue to have conversations with groups in Venezuela and, in a limited way, with the regime in Venezuela. We want to see a negotiated transition and the wishes of all the people of Venezuela who participated in that election to be reflected in a democratic outcome.
Autumn Budget 2025
(1 day, 6 hours ago)
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Lord Livermore
That this House takes note of the Autumn Budget 2025.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
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. I look forward to listening to, and learning from, all the contributions today. We should perhaps spare a thought for the noble Lord, Lord Bridges of Headley, who, as speaker number 72, has to try to find something new to say. I do not doubt that he will succeed.
I take this opportunity to welcome the right reverend Prelate the Bishop of Portsmouth to your Lordships’ House. I very much look forward to his maiden speech.
Undeniably, this Budget has been dominated, even more than usual, by questions of process before, during and after it was delivered. There were months of speculation in advance. On the day of the Budget itself, the OBR made the serious error of releasing significant details before it was delivered and, shortly after the Budget, the OBR made the decision to publish the timeline of its forecasts. The OBR was clear in its evidence to the Treasury Select Committee this week that the Chancellor did not mislead, but I am sure that many noble Lords may, perfectly fairly, choose to focus on these questions today. In opening this debate, though, I will focus on the measures contained in this Budget and set them in the context of our wider strategy to build a stronger and more secure economy.
As noble Lords will know, we inherited an economy with serious flaws—with a crisis in our public services, a crisis in our public finances and a crisis in the cost of living. At the heart of this deep malaise had been a chronic lack of investment, both public and private, weighing down on growth and productivity. Private sector investment was the lowest in the G7, constrained by years of economic instability, a planning system that thwarted projects before they even began, a regulatory system tying businesses in red tape and a Brexit deal that cut Britain off from our largest market.
Public sector investment was no better and was even set to fall again, from 2.5% to 1.7% of GDP. That meant vital infrastructure projects constantly deferred, delayed or cancelled—roads, railways and energy projects that did not get built. Little wonder the IMF repeatedly warned that a lack of investment posed a major barrier to growth.
That is why, since day one in government, we have put increased investment at the heart of our growth strategy and made growth our number one priority. In our first Budget, last year, we changed the fiscal rules to enable and protect £120 billion of additional capital investment—the highest level in four decades—in housing, energy and transport: the infrastructure that Britain needs to grow. We have systematically begun to remove the barriers to investment faced by the private sector, with the biggest planning reforms in a generation; cutting the cost of regulation; investing in skills and apprenticeships, while reforming our visa system to attract the best global talent to Britain; pensions reform to release more capital for investment; and resetting our relationship with the EU.
All this and more is why, since the election, we have seen an additional £250 billion of private investment committed to the UK. It is why, in this Budget, the OBR upgraded Britain’s growth forecast for this year, from 1% to 1.5%. It is why we were the fastest-growing economy in the G7 for the first half of this year and are on course to be the second fastest for the year as a whole, and it is why, just this week, the OECD upgraded its prediction for Britain’s growth next year. But there is, clearly, much more to do.
Ahead of this Budget, the OBR looked back at the productivity performance of the previous decade and concluded that the chronically low levels of investment, together with the effects of Brexit and the pandemic, have weakened the economy by far more even than previously thought. This reappraisal of the productivity performance of the past has directly impacted its view of GDP going forward, driving lower growth forecasts for the remainder of the forecast period. The OBR has been clear that its review reflects not what this Government have done over the past 14 months but the legacy of the past 14 years. Nevertheless, it now falls to us to deal with the consequences.
This Budget continues that work, by taking three deliberate pro-growth choices. First, by choosing to maintain economic stability, getting inflation and interest rates down, we are giving businesses the confidence to invest and our economy the room to grow. Secondly, by choosing to reject austerity, we are protecting £120 billion of additional investment in growth-driving infrastructure. Thirdly, by choosing to back the fast-growing companies of the future, we are supporting the investment, innovation and economic dynamism that will increase growth in the next decade and beyond. Let me take each in turn.
The first pro-growth choice made by this Budget was to maintain economic stability. In the months leading up to the Budget, in countless conversations with business and investors, I heard repeatedly that the most important action the Government could take would be to reduce inflation, helping interest rates—already cut five times since the election—to continue to fall. A growing economy needs strong foundations of economic stability, with borrowing down, inflation down and investment up. So, because of this Budget, borrowing will fall as a share of GDP in every year of the forecast: from 4.5% in 2025-26 to 1.9% in 2030-31. Borrowing will fall more than in any other G7 economy. Net financial debt will be lower at the end of the forecast than it is today and the headroom against our stability rule will more than double to £21.7 billion.
The Budget also took more direct action to cut inflation. We have taken £150 off energy bills, frozen rail fares for the first time in 30 years and extended the freeze on fuel duty. All these things together take 0.4% off inflation next year. To put that in context, it is the biggest near-term reduction in inflation due to government policy ever forecast by the OBR at a single fiscal event.
The second pro-growth choice the Budget made was to protect the £120 billion of additional capital investment that we have committed over the next five years, ruling out a return to the austerity of the past. The OBR has estimated the eventual long-term growth impact of this increase in capital investment as adding 1.4% to GDP. Cutting this and returning to austerity would be the worst thing we could do for growth—the very definition of short-termism. Yet that is precisely what previous Chancellors, with previous fiscal rules, have done.
In the years following the financial crisis, austerity took demand out of the economy when it was needed most, undermining investment in critical infrastructure, weakening productivity and choking off growth. Unlike today’s Conservative Party, we will not repeat the mistakes of the past: the exact mistakes that led to the productivity downgrade that we must now fix. Instead, our increased investment will deliver new roads, improved transport, new homes and new energy infrastructure. We are investing in the construction of Sizewell C. We are investing in the UK’s first small modular reactors at Wylfa and in the Lower Thames Crossing, the trans-Pennine route upgrade and Northern Powerhouse Rail.
The third pro-growth choice this Budget makes is to back the fastest-growing British companies of the future. The ScaleUp Institute described it as
“a budget for scaleups and those ambitious to scale”,
and it is right. The UK is a great place to start a business, but I have heard for too many years that our companies cannot scale at the same rate as their US peers. As a result, brilliant British businesses are either acquired, choose to go abroad to raise investment, or fail. We will change that. We will make the UK the best place to start, scale and stay, because we know that today’s fast-growing firms are tomorrow’s engine of jobs and growth.
By doubling the eligibility of our enterprise tax incentives, investing billions of pounds in research and development, and delivering reforms to boost the attractiveness of UK markets, we will ensure that these companies can access the capital and talent they need to succeed. For all businesses, large and small, we are maintaining the lowest headline corporation tax in the G7 and the most generous full plant and machinery capital allowances in the OECD. To incentivise private investment and encourage growth, we are also introducing a new 40% permanent first-year allowance for main-rate plant and machinery from July 2026.
In this Budget, we faced a choice: we could have made the reckless choice to abandon our fiscal rules and let borrowing and debt increase. Instead, we made the pro-growth choice to get borrowing, debt and inflation down, more than doubling our headroom. We could have made the irresponsible choice and returned to austerity, cutting public services and undermining capital investment. Instead, we made the pro-growth choice to protect the investment in Britain’s infrastructure to build a stronger, more secure economy, but these choices need to be paid for.
The previous Government froze personal tax thresholds from 2021 until 2028. This Budget 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 said that last year; I said that last year, and I will not pretend otherwise now—but we have sought to keep their contribution as low as possible by making other fair and necessary reforms to the tax system.
A Blackpool terrace pays more council tax than a £10 million Westminster mansion, so we are introducing a high-value council tax surcharge on homes worth £2 million or more, while protecting those on low incomes. We are raising taxes on property, dividend and savings income, which currently face no equivalent of national insurance, by 2% at the basic and higher rates and by 2% at the additional rate for property and savings income. The cost of pension salary sacrifice was set to almost treble from £3 billion in 2017 to nearly £9 billion by the end of the decade, so we are capping the amount that can be salary-sacrificed into a pension without paying any employee or employer national insurance at £2,000, protecting low and middle earners while retaining in full pension tax relief worth over £70 billion a year.
Alongside this, we are making reforms so that our tax system keeps pace with a fast-changing economy by ensuring that motoring taxes cover electric vehicles via a new per mile levy; increasing taxes on online gaming and betting while protecting bingo halls and horseracing; and preventing some ride-sharing apps abusing a tax relief intended for coach tour operators to undercut black cabs. We are also supporting our high streets with permanently lower business rates for over 750,000 retail, hospitality and leisure properties, funded with higher rates for the most expensive properties, including warehouses used by online giants. These are fair choices, with increases in tax coming most from those households in the highest income decile. They are choices that underpin and enable our growth agenda of cutting borrowing and debt while refusing to cut investment.
On Monday, the Prime Minister set out the next phase of that growth strategy. First, we will reform the regulation of our nuclear industry to make it easier to invest and then extend that approach across our entire industrial strategy. Secondly, we will keep moving towards a closer trading relationship with the European Union. Thirdly, we will reform a failing welfare system. In the last five years of the previous Government, spending on welfare increased by £88 billion, yet we inherited a system where children could not afford to eat but taxpayers were asked to subsidise tax breaks on the lease of luxury cars. That is a broken system, and we are reforming it. Britain, one of the richest countries on earth, still has children growing up in poverty. A Labour Government will always fight the social injustice where children, through no fault of their own, go to bed hungry and cold, their life chances shrinking every day.
Poverty scars our society, but it scars our economy too. It drives down growth and productivity; it heaps pressure on already stretched public services. Children who grew up in poverty earn 25% less aged 30 than their peers. All this costs our economy an estimated £40 billion a year. I am proud to have worked for the previous Labour Government who cut child poverty by a million over a decade. I was angry when we had to watch the Conservative Government who succeeded us reverse all our progress and increase child poverty by 900,000, at terrible social and economic cost. Now, I am proud to be a member of a Government who, by scrapping the two-child limit, are lifting 450,000 children out of poverty in a single step. Combined with other steps we have already taken, including extending free school meals to more families, this Government will now be responsible for the largest reduction in child poverty ever achieved in a single Parliament.
I am proud too of what this Budget and this Chancellor have achieved: not just cutting child poverty but cutting energy bills by £150; cutting NHS waiting lists; cutting borrowing more than any other G7 country; cutting inflation; supporting further cuts to interest rates and rejecting austerity. These are the right choices for a stronger NHS, the right choices for investment, the right choices for business and for workers, and the right choices for Britain to continue building a stronger, more secure economy. I beg to move.
Baroness Neville-Rolfe (Con)
My Lords, I also welcome the right reverend Prelate the Bishop of Portsmouth and look forward to his maiden speech and working constructively with him in the months and years ahead.
We have all had a few days to consider last week’s Budget, and the conclusion that the vast majority of commentators have reached is, unfortunately for our country, decidedly negative. The one welcome and significant aspect is the slight increase in fiscal headroom from its low level last year, but this has been clouded over by the flow of misinformation in the run-up to the Budget. The negative aspects are numerous. I turn first to the most disappointing area.
When Labour took power, they constantly assured us that growth was their number one priority. Less than 18 months later, growth as an objective has virtually disappeared. There are few pro-growth measures in the Budget but many that will hinder growth, and there were scant mentions of the subject in the Chancellor’s speech. It seemed that growth had served its political purpose and could be cast aside. The Prime Minister tried to correct this on Monday in an unusual post-Budget speech, but he did not dispel fears that growth would become less of a priority. Since then, the OECD has warned that growth will be sluggish and that UK inflation will remain the highest of the G7 countries this year.
The Minister has said today, in an attempt to talk more about growth, that there is clearly much more to do on growth, and I agree. For growth, we need business and consumer confidence, both private and public investment, a tax system with the right incentives and supply side reforms to lift the burden of regulation. The Prime Minister is promising the latter, but the Government’s actions do not match the rhetoric.
I turn next to the extraordinary pre-Budget shenanigans, which lasted many weeks. Before the Budget was delivered, vast swathes of it, indeed pretty much all of it, were trailed, briefed out, withdrawn and then re-briefed by the Government themselves. What purpose all this activity was meant to serve is mysterious. What is clear is that the whole process, counter to all norms and indeed the rules, was contrary to the national interest. As one illustration, Andy Haldane, the former chief economist of the Bank of England, was explicit in saying:
“One of the reasons we had a very weak growth number … is … Budget speculation”.
That speculation was initiated and carried out by the Government themselves.
On process, the OBR’s view of the Government’s breaking of budgetary conventions is set out clearly for us all to see on page one of its report, in the beautifully understated yet lethal prose of the UK mandarinate led by Richard Hughes. We all suspect that he was eased out as much because he authored it as because of the admittedly serious leak of the OBR document on Budget Day, but I shall quote it so we can all enjoy the performance. Describing the production of its forecast, the OBR says:
“Given the unusual volume of speculation on the subject prior to the publication of this--
report—
“the Chair has taken the unusual step of writing to the Chair of the Commons Treasury Committee to set out the facts concerning the evolution of our forecast over the course of the past four months”.
“Unusual” indeed—it is a devastating indictment of Treasury Ministers’ behaviour over the Budget period by those in the best position to judge the facts. Anyone who thinks this is insignificant should just look at the turmoil on the bond markets between 4 November and the day of the Budget—a gift for hedge funds and investment banks, with small investors and more conservative funds left out. Indeed, savers were frightened into withdrawing record amounts from the stock market over the last few months.
The Chancellor and the Prime Minister fought the last general election with a promise of minimal tax rises. The Labour Party has now increased taxes by £40 billion and £26 billion in successive Budgets, taking the total projected burden to 38% of GDP by 2030, an all-time high. It promised that any tax increases would spare working people. So how has that fared? Badly is the answer, if we consider the freeze in income tax thresholds, or the new tax on dividends and landlords, or last year’s huge employer national insurance increase, which in time reduced pay. The hikes in IHT on family businesses, farms and pension savings, which affect many working people, are still to bite. The Chancellor has delivered a Budget not for working people, not for the country, but for the good of her party and her political career.
Last week, the Chancellor refused to rule out future tax rises. The OBR has said that this uncertainty is harming and will continue to harm our economy. It says on page 6 of the report:
“We expect quarterly growth to pick up only gradually in the near term as … domestic business and consumer confidence remains subdued, including in anticipation of further tax rises”.
But why this fear of tax rises? It is because, just over a year ago, the Chancellor told business leaders at the CBI conference that:
“We’ve put our public finances back on a firm footing. Public services now need to live within their means because I’m really clear, I’m not coming back with more borrowing or more taxes”.
She is in the happy position of providing numerous powerful quotes—for the Opposition.
The Chancellor is shoring up problems for later. Many of the tax rises, notably the increases in thresholds, only kick in between 2028 and 2031. The fall in borrowing depends on this tax tail. Is it realistic to think that this will actually happen in an election year? I think not.
It would be remiss of me not to mention SMEs. What was in it for them? There was a small positive on apprenticeships, but meagre and previously announced reforms to EMI schemes, VCTs and listing reliefs, massive new pressures on payroll from the threshold freezes, minimum wage hikes and salary sacrifice cap, a tourist tax, which will dampen demand, and a hideous mix-up over business rates which will lead to the closure of pubs and hotels.
More than 5 million people are now receiving out-of-work benefits with no work-related requirements. Since October 2024, the number of people in payrolled employment has fallen by 180,000. Yet instead of tackling this, the Government have chosen measures that make it worse. The Chancellor has raised the costs of employing people, raised personal taxes and weakened incentives to work. It is no surprise that the OBR now forecasts that unemployment in 2026 will be 240,000 higher than it expected in March. The decision to scrap the two-child limit compounds this failure. Evidence from the Centre for Social Justice shows that removing the cap interacts with the expansion of health and disability benefits to create benefit entitlements that, for many households, exceed typical earnings by a wide margin. In taxing people and businesses to make it more lucrative to stay at home and not contribute at all, the Government have not only produced an unfair Budget but produced one for benefits street, as the leader of the Opposition has shown us with such energy and verve.
What about our national debt, which is now approaching 100% of GDP? Dealing with this is vital, as in 2025-26 the OBR expects debt interest—yes, interest—to total over £110 billion. Of course, the underlying debt has been accrued over many years. Unfortunately, we do not have a strong plan to reduce it. This is not helped by the fact that we now pay more interest on debt than any OECD country bar Iceland and at a rate higher than that paid during the premiership of Liz Truss, whom the Government are quick to criticise.
The Government have pledged to raise defence spending to 3.5% by 2035, yet the executive director of the Henry Jackson Society has said that the Budget
“talks up defence investment, but the numbers … don’t match the rhetoric … the OBR shows a £32 billion black hole under its 3.5 per cent defence pledge”.
If we want to understand the real effects of this Budget on our economy, we need look no further than the OBR. Its verdict is crystal-clear: the Government’s choices have not improved the economic outlook but made it worse. The OBR has downgraded the UK’s rate of growth in productivity to 1% per annum and, because of decisions taken in the Budget, it states that this package will have
“no significant impact on output”
now, and not even by 2030. Inflation will be higher for longer; unemployment is forecast to rise; increases in household disposable income will collapse from 3% to 0.25% per annum; mortgage costs will rise; the real rate of return on investment by business has been downgraded; the forecast for business investment has been cut once again; public sector net debt rises in most years of the forecast; and a sharp fall in additions to housing stock is expected. Compared to March, the picture is even bleaker: potential output is down, productivity is down, real GDP is down, corporate profits are down and inflation is up.
The Chancellor asked the country for trust; the OBR has told us why she does not deserve it. She promised a plan for growth; the forecasts show stagnation, contraction and diminishing prospects for working people. She promised to protect households; the evidence shows higher taxes, lower incomes and rising mortgage costs. She promised to support business; the OBR shows investment down, profits down and confidence falling. She promised to repair the public finances, yet debt rises in almost every year of the forecast.
The Minister again claimed that our economic problems are all the fault of the last Government. I simply say that it is time he accepted responsibility for his and his colleagues’ failures. After all the noise, all the speculation, all the briefs and counterbriefs, we are left with this unavoidable truth: this Budget does not meet the moment. Our country deserves better than that.
Lord Razzall (LD)
My Lords, like the first two speakers, I look forward to the maiden speech of the right reverend Prelate the Bishop of Portsmouth.
The purpose of this debate is to debate the Budget. We dealt with the omnishambles of the Budget process in the debate on the Statement on Monday. Unlike the Minister, I hope that every Tory speaker is not going to repeat what was said then. Dare I say, we will otherwise assume that their repeated and offensive personal attacks on the Chancellor are only to deflect attention from their mismanagement of the economy in recent years.
There is enough to criticise in the detail of the Budget, although not all of it. We on these Benches are happy with the removal of the two-child cap, the most immediate step that could be taken to reduce child poverty. We welcome the proposals for energy price reduction, even if they do not go quite far enough, and we are glad that the Chancellor has finally listened to the calls of my noble friend Lord Foster and others to tax the big online gambling companies.
The Chancellor says that the Budget is about making choices. We agree, but we think that she has made the wrong choices. Freezing tax allowances, as referred to by the Minister, is deeply unfair to struggling families. Taxing the huge windfall profits of the large banks would have been preferable, but I think the Chancellor did not want to do that because she wanted them to announce investments, which they have subsequently done. For struggling high streets and small business, the Budget brought little hope. Our calls for an emergency VAT cut for the hospitality sector have been ignored. The Budget is silent on the ticking time bomb of social care. We need an urgent cross-party plan to fix it, as without one the National Health Service will never truly recover.
The elephant in the room is our relationship with the European Union. Noble Lords would expect us to say that from these Benches. The respected US National Bureau of Economic Research has concluded that, by 2025, Brexit had reduced UK GDP by 6% to 8%. Investment was reduced by 12% to 18%, employment by 3% to 4% and productivity by 3% to 4%. It said that the original adjustment calculation of 4% estimated by the OBR was true for the first five years but underestimated output over a decade.
My colleague Al Pinkerton, in another place, who has taken over from the noble Lord, Lord Gove, as Member of Parliament for Surrey Heath, is tabling a parliamentary Bill calling for the UK to renegotiate a bespoke new customs union with the European Union—the biggest single step we could take to boost our economy. The Government’s proposed reset with the EU, from a youth mobility scheme to a sanitary and phytosanitary agreement, has gone nowhere. We believe that the EU would welcome a bespoke new deal, which would generate over £25 billion a year for the Exchequer.
Of course, the other, rather different elephant in the room, which nobody has yet mentioned, is the impact of artificial intelligence. This is clearly the most significant invention since the internet, and the impact on the economy will be significant. Many of us suspect that the Chancellor is hoping that the impact of AI will enable her to reduce the burden of taxation by the time of the next election. Whether this forecast assumption is correct remains to be seen. I tend to agree with the American economist JK Galbraith that the only function of economic forecasting is to make astrology look respectable. Let us hope the stars are aligned for the Chancellor.
Lord Burns (CB)
My Lords, from my perspective, the Budget has been received about as well as could have been expected in the circumstances. It also seems to have satisfied the bond markets and the Government’s own Back-Benchers, which is no small feat. It has been clear for months that the background was going to be challenging, given the slow growth evident across the industrial world, and this has left us with a tax base that is not sufficient to fund planned government spending. This has been the pattern for some time.
The Government’s own actions have not helped, of course. The promise not to increase the three main tax rates was never convincing, nor was setting fiscal rules that did not provide sufficient room for manoeuvre relative to the likely scale of forecasting errors. This encouraged speculation and made the interaction with the Office for Budget Responsibility even more sensitive than usual. Flying so many tax-raising kites, and the indecision over whether income tax rates should be increased, did not help either. However, for me, the big question is whether the action taken in the Budget is enough to give us a calmer position for the future, and whether the Government can avoid the same damaging speculation before future Budgets. The Budget margin for the future is considerably larger than that set last year, and that, for me, is very welcome. The OBR gives the headroom a reasonable chance of seeing us through the next year. However, I am less sure about subsequent years, when the margin of error around forecasts is inevitably much larger and often underestimated.
There are other potential problems. I would have preferred to see income tax rates increased now; freezing allowances may be less visible, but it still bites. That comes into effect only in the later years of this Parliament and will disproportionately affect those earning under £35,000 a year.
There has also been much discussion about the fact that taxes have been running ahead of expectations, suggesting that activity has somehow or other been “tax rich”. However, I would be cautious about this. In my own experience in the Treasury, periods of surprising tax buoyancy were often followed by experiences that meant that was not sustained. The bigger challenge is that debt is not coming down decisively, either absolutely or as a percentage of GDP. In no year of the forecast is it below the ratio for 2024-25. The best that can be said is that it is essentially flat. Around 9% to 10% of total government revenues will continue to be spent on debt interest.
The help on prices is in some respects important because it impacts inflation, but it is important too that this is a short-term device. If real disposable income grows as slowly as is forecast, it will still seem like a cost of living crisis.
Getting a grip on public expenditure remains a very important issue. First, we have seen very poor productivity performance in government activities in recent years. Secondly, there is the issue of welfare payments and how to ensure that help goes to those most in need. We need to avoid the perverse incentives that keep some people out of the labour market, and we need more robust controls over those who game the system.
For me, future Budgets should give much more attention to tax reform. We need to iron out cliff-edge disincentives, widen the tax base and close down loopholes. In the absence of a surge in growth around the world, I fear that the job of fiscal retrenchment is not over. We need to make much more progress on reducing the debt ratio during the welcome calmer periods between crises, so that we are in rather better shape when the next problem arises.
The Lord Bishop of Portsmouth (Maiden Speech)
I thank the Minister for his opening speech in this debate on the Budget. In this maiden speech, I want to thank all noble Lords for their warm welcome to the House, and to thank the doorkeepers and parliamentary staff for their unfailing kindness, good humour and patience with lost Bishops, and for the support they gave in the run-up to my introduction in late October.
As Bishop of Portsmouth, I lead a vibrant, confident community of communities. The Anglican diocese of Portsmouth lives from a generous, grounded and corrigible faith, a commitment to collaboration and partnership, and a vision of the common good which includes everyone. Wonderfully, in my view, the motto for the city of Portsmouth is “Heaven’s Light Our Guide”.
Working in partnership with neighbours within the wider Christian community, and with the faith communities and voluntary and statutory sectors, the communities I lead are resolved to serve the people, neighbourhoods and communities of East Hampshire, the city of Portsmouth and the Isle of Wight, to find what is good and to strengthen it, and to work with others for the flourishing of everyone.
I also bring to this House a commitment to the flourishing of children and young people in our nation. I chair the governing body of the National Society for Education, established by royal charter over 200 years ago. Today, the society is a long-standing partner in educational delivery, working with successive Governments and serving the work of nearly 5,000 schools and 900 academies, and educating nearly 1 million children and young people. It is engaged at every level of the education system—from early years to higher education—to inspire a generation of new school and academy leaders, and to work with successive Governments in shaping policy.
In responding to the Budget Statement from His Majesty’s Government, there are two particular areas I want to highlight, with a couple of questions to conclude.
I am proud to know that in my diocese of Portsmouth, churches, faith communities, and volunteers of all faiths and none have put their shoulder to the wheel in supporting those facing poverty in these years. In the Charles Dickens ward of inner-city Portsmouth, over 50% of children live in crushing poverty. In partnership, we serve food banks and provide warm spaces and outreach projects, but none of this will have the impact of the Government’s decision to end the two-child limit, which has been a leading driver of child poverty for nearly a decade, crushing aspiration, hope and opportunity. I commend the Government for this decision, but I hope and pray that this is the beginning of a renewed commitment to investment in a generation of young people.
The second area I want to highlight, and the two questions, relate to special educational needs and disabilities. In my routine work and ministry, head teachers and trust leaders across the diocese, in a wide number of communities and across England share frequently that supporting children with SEND and disabilities has become a particularly pressing matter. I commend the families and teachers who are committed so passionately to work for the inclusion of every child. As my diocese bridges multiple local education authorities, I have seen at first hand the postcode lottery of SEND provision as it is played out for families in our communities. I know of looked-after children struggling to access education while waiting years for CAMHS referrals. We can do better than this: compounding the trauma and adverse childhood experience that have already disproportionately shaped their lives.
I note the intention to bring the cost of SEND provision into the central government spending envelope from 2028-29. This will be a relief to councils holding significant deficits, but I am deeply concerned that no indication has been given to date of how the estimated additional cost involved will be covered—according to OBR, £6 billion by 2028-29—without causing a significant fall in mainstream funding for schools. I note, too, that from 2028, the Government will not expect local authorities to fund future special educational needs costs from their general funds once the statutory override ends at the end of 2027-28.
Once again, I note and welcome the intention to end the statutory override, which keeps SEND spending deficits off councils’ books. But I would welcome some assurance from the Minister that accrued benefit deficits in local authority spending on SEND will not be paid off or reconciled by using the mainstream schools budget. Would the Minister agree with me that further cuts to per-pupil funding risk widening inequality and constraining further schools’ ability to deliver outstanding, aspirational education, perhaps especially for our most disadvantaged and vulnerable children?
Baroness Lister of Burtersett (Lab)
My Lords, it is a privilege to follow the right reverend Prelate’s inspiring maiden speech. He is a Bishop far from lost who has already found his feet, I would say. In the absence of my noble friend Lord West of Spithead, it would be remiss of me not to start by mentioning the right reverend Prelate’s affinity with the Navy. Portsmouth is also, as he said, marked by considerable area inequalities and poverty, to which he referred so movingly. They are very much on the Government’s agenda.
As his speech reflected, the right reverend Prelate brings to your Lordships’ House a passion for education, children and young people’s opportunities, the environment and tackling intergenerational unfairness: all issues that resonate so strongly with our work in this House. I look forward very much to his future contributions. They are, as he made clear, also important issues for the annual Budget, to which I now turn.
I, and I know others, shed tears of joy at the announcement that what was dubbed the “worst social policy ever” by an eminent social policy scholar is finally to be abolished. The end of the two-child limit means that not only will 450,000 fewer children be in poverty by the end of this Parliament, but the depth of poverty will be reduced for many. One mother responded:
“Finally, all my children will be seen as equals”.
To those who have reacted hysterically and in language that denigrates thousands of parents, calling it a “Budget for Benefits Street”, paid for by striving working people, I remind them that three-fifths of affected families have a parent in work, with an estimated 70% of the additional spending going to this group, and that raising children on an inadequate income is itself hard work.
I ask them, are they really happy to countenance hundreds of thousands of children suffering desperate poverty, testified to by charities and academic research, because of an ideological belief that punishes children? Are they oblivious to the costs of this poverty, not just to children whose childhoods and futures are blighted, but to the wider society and economy? Are they aware of the depth of public concern about child poverty? Polling by Public First found that this concern meant that, when provided with information about the cost-effectiveness of abolishing the limit in reducing child poverty, support for doing so soared.
Those who conjure up an image of social security claimants enjoying some kind of bonanza conveniently ignore the £50 billion a year estimated to have been chopped off the social security budget as a result of Tory cuts, freezes and restrictions. The real problem today is not the mythical so-called ballooning welfare budget but a social security system that fails to provide genuine security for both those in and out of work. One consequence has been growing reliance on food banks especially among families with children. As the Trussell Trust stated, in welcoming the Budget:
“A future without hunger will only be possible by building a social security system that works for everyone”.
Investment in social security is top of the agenda for many who have given evidence to the Child Poverty Taskforce. I hope very much that it will respond positively in the child poverty strategy. In particular, the impact of the Budget announcement on the depth of child poverty will be dampened if the benefit cap continues. An estimated one in 12 children escaping the frying pan of the two-child limit will be no better off, because they will be caught in the fire of the cap.
Together with the damaging freezing of the local housing allowance, the cap is contributing to homelessness and has a disproportionate effect on domestic abuse survivors and their children. Action on both would therefore contribute not just to the child poverty strategy but the homelessness and violence against women strategies. But, if the cap is to be retained, could my noble friend the Minister at the very least pass on to the DWP the message that its level needs to be uprated annually in line with universal credit, to prevent more and more children being caught in it? As it is, there has been only one increase since 2016 when it was cut.
Abolition of the two-child limit is, as we have heard, the single most cost-effective lever to reduce child poverty. But no one pretends it can do the job on its own—hence the importance of the forthcoming child poverty strategy. UNICEF recently warned:
“Poverty poisons childhood—and our collective future”.
This Budget will draw some of that poison from our society, to the benefit of children and us all.
Lord Lamont of Lerwick (Con)
My Lords, I congratulate the right reverend Prelate the Bishop of Portsmouth on his engaging and humorous maiden speech, which combined passion with making some very serious points. We look forward very much to working with him, and to his future contributions.
On taking office, the Prime Minister said that he wanted to put country before party. He actually said on the day he went into Downing Street that he wanted to govern for those who did not vote for him, as well as those who did. There was little sign of that in this Budget. This was a political Budget: a Labour Budget for Labour Back-Benchers.
The Government continue to blame everyone but themselves for any problems. No one believes them any longer. The Prime Minister talks about international headwinds, as though the previous Government had not faced massively bigger international headwinds, with both the financial crisis—its consequences, which went on—and Covid. Covid inevitably inflated borrowing, pushing it up to 14.7% of GDP. But, thanks to the efforts of the Government, by the time of the election it was back to 4.2%. This was no unknown black hole. As Paul Johnson of the IFS said, not so much an unknown black hole, more a known grey hole. If there was a black hole, it made no sense for the Government to have gone on a spending spree as they did in the Budget last year.
The Government, furthermore, stand accused of selective leaking of confidential information in order to support this false narrative. We shall see and people will decide for themselves but, whatever the result, it is time for the Government to face up to the consequences of their own policies. It is time to abandon the Alastair Campbell playbook.
A key mistake last year was not to allow a realistic degree of headroom against the fiscal rules. This compounded the very late Budget date. Inevitably, it put the Government on the hamster treadmill, with unprecedented speculation and uncertainty. As the noble Baroness, Lady Neville-Rolfe, pointed out, Andy Haldane, the former chief economist at the Bank of England, said that this was the reason why the economy had flatlined, because it hit confidence, profits and the property market.
I agree with the Chancellor that putting the finances on a stable footing is the precondition for growth. The question is, how is this consolidation to be achieved: by tax rises, public spending restraint or a combination of both? History shows that fiscal consolidations based on spending cuts are more successful than tax-based ones. They lead to a more sustained improvement in public finances and do less harm to growth. There are plenty of candidates for saving, of which welfare is the most obvious. Even the Prime Minister has said that the welfare bill is “unsustainable”. The OBR has said that the welfare bill is unsustainable. Yet the Government, while talking about reform, do little. They seem powerless to act.
The Chancellor says there will be “no return to austerity”, but by imposing so much of the fiscal adjustment on taxpayers and the private sector, she is inflicting her version of austerity on ordinary people. Household disposable income is set now to grow at an average of only 0.5% per year—the second-worst period for living standards since the 1950s. This is half the average of the last decade and was described by the IFS as a “dismal” prospect. The question is: will the Budget, with all its front-loaded spending increases and end-loaded tax increases just before a general election, finally be seen as sufficient to silence doubts about the UK’s fiscal credibility?
Labour has spent a lot of time camouflaging its character. All the talk about fiscal rules cannot disguise the fundamental reality: this is a high-spending and high-taxation Government. The worst thing is that they will probably be back for more next year, and the British people will pay the price.
Lord Wood of Anfield (Lab)
My Lords, it is a pleasure to follow the noble Lord, Lord Lamont, as always, and I welcome the right reverend Prelate the Bishop of Portsmouth. I welcome the main proposals of this Budget: some as important measures to combat inequality and support households; others as necessary responses to what remains a very difficult time for the British economy.
As a social democrat, I applaud the Budget’s wide-ranging package of cost of living measures, including the reduction in energy bills, the minimum wage increase, and the freezing of prescription charges and rail fares, alongside the pre-announced expansion of free childcare for working families. This was the most important issue for millions who supported Labour at last year’s election, and the Government are delivering on those concerns.
I welcome the ending of the two-child benefit cap—the single biggest policy driver of child poverty in Britain. I have been disheartened to hear Conservative and Reform voices in the past week caricature this move, which primarily benefits children in working families, as paying for welfare. Children who grow up in poverty are significantly more likely to rely on benefits in their adult life. If you support work and oppose dependency, you should support the end of the two-child cap, not denigrate it.
I also strongly welcome the increase in the minimum wage. The Government already have a proud record on wage inequality. Wages are up more in the first year of the new Government than in the first decade under the last Conservative Government. In 2015, 20% of all employees were low paid—that is, earning less than two-thirds of the median wage. That figure today is 2.5%.
The Chancellor’s commitment to an expanded headroom on her fiscal rules is also welcome. I hope it will give the Government more space to consider big decisions based on their merits rather than operating on the cliff edge of fiscal rules and living in fear of events that cause small changes in fiscal parameters or bond market reactions.
Much has been said about the OBR-Treasury relationship, and I will make just one observation. The process of dynamic scoring, estimating the long-term growth and productivity effects of major policy measures, is an important part of forecasting, but everyone can see that there are clearly issues and tensions in the way this process currently works, on both sides—in particular, which measures are considered sufficiently significant to score and using announcements to fish for dynamic scoring from the OBR. I hope this is an area where clearer rules of the game can be worked out in time for the next Budget.
I also support the Chancellor’s fiscal stance: spending and borrowing more in the early years of the Parliament, increasing taxes and tightening spending growth in the latter years, all while maintaining a significantly more expansive approach to capital spending. Yes, it is a strategy with risks, but taking a more aggressive fiscal stance now to improve growth and protect long-term investment spend is, in my view, the right approach after a decade of stagnation.
I also welcome the proposed council tax surcharge on high-value homes. There will, of course, be issues to sort out through consultation—for example, developing a system that is fair to those who are asset-rich and cash-poor, and the challenge of adding a tax system based on current prices of high-value homes on top of a council tax system that is still based on 1991 valuations.
This brings me to one last point on which the Budget had less to say: long-term tax reform. Tax policy is deeply political; nothing is more political. But, as the joint proposal from nine think tanks across the political spectrum argued last month, there are many sensible structural tax reforms that all parties could endorse and that would increase fairness and revenue, such as addressing punitive marginal tax rates, reforming the VAT tax base, updating council tax valuations, and equalising tax rates on income from different sources. In opposition, Labour spoke positively of such reforms. I hope that we will set up work to address some of these in the remainder of this Parliament.
Lord Willetts (Con)
My Lords, I welcome the maiden speech made by the right reverend Prelate the Bishop of Portsmouth. My former constituency, Havant, was within the diocese of Portsmouth, and I recognise the valuable work that the diocese does.
The media story around this Budget has been about the downgrading of the productivity estimates from the OBR. As we now know, that downgrade, which reduced forecast revenues, was off-set by a forecast of higher wages than previously expected, boosting revenues. In the neat arithmetic of the Treasury, lower productivity was off-set by higher pay. In the real world, an economy where we are less productive and paying ourselves more is not one with the best prospects. That is why it is so important to raise the growth rate.
I look across the Chamber and think of the intervention we just had. We now have a definition from the Office for Budget Responsibility of the materiality of measures as having an effect of 0.1% of GDP, and there are no measures that pass that requirement. Indeed, I rather suspect that the vote in your Lordships’ House only a couple of weeks ago to increase the period before people enjoy full employment rights from day one to six months may have done more for youth employment and the economic prospects of our country than any specific measure in the OBR.
There has been a focus on the growth of benefit spending. It is worth, however, reflecting on where this growth comes from. Of the growth in benefit spending since Covid of approximately £45 billion, £21 billion is extra spending on pensions and £24 billion is extra spending on health and disability benefits, off-set by a £1 billion cut in benefits for families of working age. Whatever one thinks about the exact size of the welfare and social security budget, is this reshaping of the welfare state away from families and towards disability benefits and pensioners the right direction in which we should go? My belief is that we are in a situation where we should focus on the problem of where the growing spending lies and not expect further sacrifices from families who are clearly not the reason for a growth in social security expenditure.
Even now, this year, when there is going to be an uprating of benefits, benefits for families will go up by 3.8% and benefits for pensioners will go up by 4.8%—despite the fact that pensioners are now less likely to be poor than families. We need at some point to rebalance this system.
Finally, we have been distracted from these issues about the need for economic growth or the balance of the welfare state by a focus on exactly whether the fiscal rule for a balanced Budget in 2029 is £10 billion pounds off or not. That is a ludicrous focus for the debate about the state of the British economy and the state of public spending. I very much hope that the increased headroom that we now see in the Budget—the main reason for the increases in taxes—means that we can now focus on the things that really matter, rather than the micro-forecasting for that Budget. It is the Government’s intention, therefore, that there shall be no fiscal measures when the spring economic forecast is produced. I would be grateful if the Minister could tell the House exactly what the Government’s plans are for handling the announcement of the spring economic forecast and whether the Chancellor will be giving a Statement on that occasion.
Lord Eatwell (Lab)
My Lords, the Budget contains a set of measures that reinforce the three pillars which support investment and growth: financial stability, growing demand and institutional reform. Financial instability, as many have commented, is the enemy of investment, as painfully illustrated in the years since the global financial crisis. That is why the £21 billion headroom is important, securing confidence in our financial future.
Given that stable financial framework, growing aggregate demand is the fundamental stimulus to investment. Happily, the Budget’s commitment to fairness, in the removal of the two-child cap, the commitment to an increased minimum wage, and the mansion tax, in itself stimulates demand by transferring income to those with lesser means. Those in the most challenging economic circumstances necessarily spend every pound that they receive, hence boosting demand, while those who are better off do not. The Budget also boosts demand by protecting the growth in public investment foreshadowed in the spending review. This is terribly important. Indeed, public investment is brought forward to accelerate delivery of major infrastructure projects in 2026-27.
The third component of the growth trilogy is the institutional reform that is needed to provide the resources for growth. We have heard a lot about planning reform, but the lack of equity investment for SMEs is one of the major inhibitions to growth in the UK. Britain lacks the creative venture capital sector that is enjoyed by the United States. The Budget addresses this issue. The National Wealth Fund now has £28 billion available to invest. The British Business Bank—essentially a venture fund—sees its funds boosted from £1.5 billion to £2.5 billion every year. It is not just financial reform that is needed but new sources of skills. In the Budget, £1.5 billion is made available for additional employment and skills support, including fully funded apprenticeships offered by SMEs.
These developments in the architecture of financial and labour markets are typically ignored in Budget commentary. They are seemingly too technical and perhaps too practical. Yet in the long run, they will be far more important than debates over the minutiae of taxes and allowances. However, the Budget does embody a characteristic that is unfavourable to growth, as a number of noble Lords have already mentioned; namely, it adds complexity to the tax system. As Adam Smith made clear, tax complexity is not only costly and damaging to enterprise but the cornerstone of tax avoidance and evasion. Various attempts have been made to simplify taxation over the years, but they have foundered on the pressing immediacies of political life.
The Government, in pursuit of the growth objective, should establish now a commission on the simplification of business taxation. The commission could build on the excellent work done by James Mirrlees in his IFS report, Tax by Design. For example, Mirrlees argued that the tax system should be designed as a whole, not as a patchwork of taxes and benefits. Is that recognised by noble Lords? Surely noble Lords will recognise how right Mirrlees was and how the patchwork needs to be turned into a coherent design.
Lord Young of Cookham (Con)
My Lords, it is always a pleasure to follow the noble Lord, Lord Eatwell. I want to give some relief to the Minister by not following up the justified criticism that he is receiving from my noble friends but referring to one new policy in the Budget which I approve of and which I suspect that no one else will mention: the move towards road pricing. I declare an interest as the owner of an EV.
Although there had been some speculation about this before the Budget, the announcement surprised me because on 18 September I asked the Minister whether he had any plans to introduce road pricing. He said no. He said it not just once but seven times in 10 minutes. He could have used the reply that we all grew fond of hearing, that he could not anticipate the Budget Statement, but he did not. I once held the job that the Minister has, Financial Secretary to the Treasury. I am familiar with the Budget process and the long gestation. A radical policy such as road pricing, raising over £1 billion a year and involving consultation with the DfT and the DVLA is unlikely to have been a last-minute idea, particularly when we read in the consultation document that, regarding the loss of fuel duty:
“Doing nothing about this would be fiscally irresponsible”.
Therefore, I take with a pinch of salt the statement that some nine weeks before the Budget there were no plans to introduce road pricing and that fiscal responsibility was discovered at the very last minute.
There my welcome for the policy ends because the Government have ruled out the possibility of using road pricing to reduce congestion and pollution or to help motorists in rural areas for whom there is no alternative by denying the use of telematics to introduce proper road pricing. The consultation document says:
“The government has taken an approach that protects motorists’ privacy; there will be no requirement to report where and when miles are driven or install trackers in cars”.
The notion that motorists have privacy is for the birds. All new cars manufactured since 2018 have a system called eCall, which automatically contacts emergency responders with the vehicle’s location in the case of an accident. It also enables owners to track a vehicle if it is stolen. There are now between 4 million and 6 million CCTV cameras in the UK. They are ubiquitous, with between 16 and 24 cameras for every square kilometre, one per 11 people. Also, 20% of home owners now have video doorbells that capture passing traffic. ANPR is everywhere. More and more motorists have dashcams. While some motorists switch off GPS in their car, most motorists have their mobile with them, which can be tracked. So the notion that motorists have privacy does not withstand scrutiny.
No one expects an all singing, all dancing road pricing to be introduced in the near future. A crude pence-per-mile is a start, although I have doubts about some aspects of the timing. But the UK has a chance to lead the world in this field as all countries grapple with the move away from fossil fuels to EVs and are looking at how best to replace lost revenue. The Government should have announced a progressive move over time to road pricing for all vehicles based on a smarter charging system using existing telematics. This would deliver wider benefits on congestion, decarbonisation and network management. It would also improve reliability of journey times for motorists and reflect how other transport modes are priced. By all means start with this crude pence-per-mile rate, but please do not rule out a more sophisticated system on wholly illusory grounds of invasion of privacy.
Lord Craig of Radley (CB)
My Lords, the Prime Minister made strong welcome statements to NATO allies about the UK’s commitment to defence at the summit in The Hague on 24 June. He pledged the United Kingdom to increase spending on defence and wider security to 5% of GDP by 2035, with a projected split of 3.5% for core defence and 1.5% for resilience and security. He also indicated that by 2027 the UK expects to reach 4.1% of GDP on defence and security combined. This was presented as an historic commitment, aligning national security with economic security, and signalling Britain’s determination to remain a credible and capable partner in NATO.
However, when we turn to the Treasury’s position, as expressed by Ministers in recent Statements and in the Budget, the difference in tone is striking. The noble Lord, Lord Livermore, has been all too clear. In March this year he said at the Dispatch Box,
“our fiscal rules are non-negotiable”.—[Official Report, 27/3/25; col. 1824.]
He said that decisions on major spending, including defence, would be taken in the usual way, guided by forecasts and fiscal rules. Again, in July he stated:
“The Chancellor will ask the OBR to produce a new forecast in the autumn before the annual Budget and will take decisions based on that forecast”.—[Official Report, 10/7/25; col. 1461.]
The Chancellor’s Budget Statement is largely silent on defence and security. Yes, a conditional “set to spend” 2.6% of GDP by April 2027 is floated. Is this the same as the Prime Minister’s 4.1% of GDP on defence and security combined by 2027? It is hard to tell.
Much of this money has been found at the expense of overseas aid—soft power raided to pay for hard power. There is no mention by the Chancellor of the intention to reach 3%, let alone 3.5%, of GDP in the next decade. Defence does get a mention in spending to buy, make and sell more defence products and to support newbie Team Derby. This is putting the cart before the horse. Surely the Chancellor should speak in terms of the need for stronger defences in today’s world. This should have a firmer place in important government statements of national fiscal priorities. Indeed, did the Minister once touch on national defence just now? If he did, I am afraid I missed it.
The nation should be reminded of the urgent need to start paying more to enhance our conventional forces. Credibility rests on not just words but firm resources being allocated. Armed forces cannot be built up overnight. Long-term planning and certainties are necessary. If Treasury Ministers signal hesitation, or, worse, indifference, while our Prime Minister signals resolve, that sends a mixed message to allies, to those who challenge us and to our Armed Forces themselves. To treat defence as a residual claim on the public purse is to invert the priorities that safeguard our national interests. Will the Treasury now share the Prime Minister’s strategic vision? Will the Treasury accept that increasing defence expenditure for the next decade must be planned and signalled now, not judged later by the elegance of some inflexible fiscal rules or by changeable, maybe dodgy, forecasts?
Lord Hollick (Lab)
My Lords, when the Chancellor took office, she made economic growth founded upon fiscal stability her priority to escape the fiscal straitjacket that she had inherited. She has made a good start by raising and then maintaining public investment to 2.7% of GDP throughout the forecast. That is 18% above the trend since 2010, and well above the trend data of 1.6% over the last 40 years. Our infrastructure and the public realm fail to meet the demands of a growing economy and a population which has grown by 10 million since the turn of the century. Restoring fiscal stability after the battering that it has taken over the last two decades is essential. This Budget helps to achieve that by increasing headroom to a more realistic £21.7 billion, but the spending, including the welcome decision to drop the pernicious two-child benefit cap, is front-loaded and, with fiscal consolidation, achieved only at the end of the forecast.
The many tax changes include moves to improve fairness through the introduction of a mansion tax and the taxing of unearned income nearer to the level of tax paid on earned income. It is therefore surprising that magic circle lawyers on £2 million a year continue to save £300,000 by avoiding national insurance. However, other tax changes have increased the cost of business, which will dampen growth and employment, particularly for the young. The reduction of tax-advantaged salary sacrifice to only £2,000 will reduce the level of savings and investment into the economy and weaken pension security. Many of the measures have added to the complexity and unpredictability of our tax system. The Government should publish, as my noble friend Lord Eatwell said, their strategy to make tax policy fair, simpler and predictable.
The OBR is predicting low growth and low productivity up to 2030. Radical and bold measures to address the root causes of our economic malaise must be implemented now if growth is to be delivered in the near term. The generous triple lock has given pensioners in recent years a 10% real increase in income compared with the average worker. The lock has become an unfair intergenerational transfer and an unsustainable cost. Reform is overdue.
The attempts to reform welfare need to be revisited urgently to address the unaffordable rising costs and the growth of worklessness, particularly among the young. The Chancellor has announced a welcome improved offer for under-25 apprenticeships. This should be part of a range of policies to increase training for people of all ages, many of whom will need to retrain as the adoption of AI sweeps across the workplace. The construction industry alone has assessed that 1 million additional skilled workers are needed to build 1.5 million homes and the infrastructure we are building for the 21st century.
There is an urgent need to repair some of the damage from Brexit, now described in the Telegraph, surprisingly, as an unmitigated disaster. The latest forecast of up to 8% GDP and an annual loss of £100 billion of trade means that government must accelerate the negotiations to move us closer to the trading terms of the customs union.
The recent commitment of £38 billion into UK research, innovation and AI is a welcome move to capitalise on many of the UK’s great strengths. The OBR forecast is not able to include any boost from these exciting growth opportunities, but my forecast is that AI will significantly boost both productivity and growth.
Lord Leigh of Hurley (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Hollick. Much of what he said, but not all, I agreed with. It is also a pleasure to congratulate the right reverend Prelate the Bishop of Portsmouth on his excellent maiden speech.
There is much to criticise in this Budget, which manages to increase tax rates, tax take and debt all at the same time, as my noble friend Lord Lamont so eloquently explained. However, let me try to bring out two positive areas in the Budget and look at how we may be able to improve them further.
The first relates to the EIS and VCTs, and I declare an interest as an investor. A small group of us met James Murray when he was Exchequer Secretary to the Treasury, and I am pleased to see that the Government have listened to concerns raised and have lifted some of the size restrictions on those investments. This is essential because there are real difficulties for UK companies trying to raise capital from UK investors right now. I hope that it is a subject on which we spend more time on another occasion.
I am sure the Minister will be the first to recognise and appreciate that these changes are possible only because of Brexit. We have left the EU and are no longer restricted by the EU state aid laws, other than, of course, in Northern Ireland. So, because there have been changes only to the rates but not to other restrictions, I urge the Minister to have a look at restrictions, such as the seven-year rule and the family restrictions on investing in companies to obtain EIS rates. This can now be done. As a result of the changes to the VCTs, one would hope that more people will go into the EIS directly; however, it is not clear that it will happen. A survey conducted by the Wealth Club on 1 December reveals that 85% of investors will invest less, and of that, 42% no longer invest in VCTs. Only 13% will go into the—admittedly riskier—EIS, which is, of course, what the Government wanted. So 85% of these investors believe that as a result of the move on VCTs—the restrictions—they will decrease their investment.
Another area I want to highlight are the changes to the low-value import customs duty relief, which the Minister will remember we debated in my Oral Question on 14 July 2025. Many congratulations to the Government on listening and acting. Unfortunately, it comes in only in March 2029. Why is that? I suspect the reason given by HMRC is that it is all too complicated and difficult, but that is not acceptable. I urge the Minister to get stuck in again and go back to HMRC to see whether we can bring this legislation forward, because this is having a damaging effect on small retailers up and down the country.
Finally—and not to disappoint the noble Lord, Lord Razzall—I add my name to the calls for the Chancellor to reflect on what she has done. She did mislead the public deliberately—these are not my words but those of Chris Mason of the BBC. This is not behaviour becoming of her or any public figure; as a result, it will be very difficult for her to be believed at any future press conference she gives. That is not a sustainable position for our country. I do not expect the Minister to agree with me publicly, but I hope that he will use his position of power and responsibility to deal with this unsustainable position.
Baroness Thornton (Lab)
My Lords, I am pleased to be participating in today’s debate on the Budget. I regret that the noble Lord, Lord Leigh, has continued to vilify—unfairly—my right honourable friend the Chancellor. Last Wednesday, the Chancellor delivered a Budget that eases the cost of living, reduces national debt, brings down NHS waiting lists and lifts nearly half a million children out of poverty, building on the progress made to date on delivering our plan for change with this Labour Budget.
I intend to speak about two matters. The first is the contribution of co-operative social enterprises and mutuals to the regeneration of our economy. I remind the House that I am a Labour and Co-operative Member of the House and refer noble Lords to my register of interests as founding chair of Social Enterprise UK and a senior associate of Social Business International. Secondly, I wish to raise a couple of questions on the impact of the Budget on women.
The manifesto on which my Government were elected included a commitment to supporting a diversity of businesses to tackle the growth in the economy. The Co-operative Party is committed to doubling the size of co-operatives in the UK. It will be clear that I am very keen on the growth of businesses that trade for a social purpose, but to achieve this will require change in business development support across government.
This was the first time in a generation that co-operatives were mentioned in a Chancellor’s Budget speech. I hope that the proper review of business support for co-ops will help drive this ambition forward. Will this be extended to social enterprises and mutuals?
Co-operatives and social enterprises are proven to be productive, resilient, long-lasting and equitable. They provide business models that do not extract wealth from local places and hoard power in the hands of shareholders. An example of that is the profit-gouging of companies making excess profits in providing residential care for our most vulnerable young people. At the moment, there is a lack of appropriate and encouraging legislation, regulation and access to financial measures and development support or education for social enterprises and co-operatives. I raised in my contribution to the King’s Speech debate last year that we see scattered regulation in this sector—the DBT, DCMS and the Treasury being the main regulators. Financial mutuals, for example, are excluded from the business department’s call for evidence on co-op growth because they fall under the Treasury’s remit. Will the Treasury consider launching an equivalent review on their contribution?
I turn briefly to the impact of the Budget on women. As my noble friend the Minister will be aware, women face structural inequality throughout their lives, and policy impacts differently on men and women. Some positive steps were definitely taken for women, but more ambition is needed, as the Women’s Budget Group said, and I agree. Was an equality impact assessment carried out on this Budget, and if not, will this happen for the future? Was there an assessment, for example, of the impact on women of freezing personal income thresholds? Is it the case that the majority of those who earn under the personal allowance tax band are women and freezing it means that more women will be paying income tax for the first time? Because women have lower incomes on average, does this mean that women will lose a greater proportion of their incomes through the freezing of this income tax threshold? I would really appreciate clarification on this from my noble friend.
Lord Hintze (Con)
My Lords, at a time of profound fiscal pressure, the question before us is not how we slice the pie, but whether we are expanding it. A responsible Budget must be grounded in economic reality. Incentives matter, savings matter, and what truly determines whether our citizens are becoming better off is growth per capita, not headline GDP; to do otherwise is misleading. I ask the Minister to consider the analysis. We can think about growth only as growth per capita. The 1.5% to which he alludes is more like 0.3%—if we are lucky. Without understanding what the proper economic drivers are, we cannot have proper policy formation. This is not a political point; it is a point for policy. To that end, I ask the Minister to please consider that if we fail to support those who produce, invest and innovate, we endanger the very foundations on which fairness and opportunity rest.
I turn to the economic principles that illuminate this challenge. These are principles we can work with. One of the most influential contributions to modern economics comes from the British Nobel laureate, Sir James Mirrlees. The noble Lord, Lord Eatwell, talked about him earlier. He was very effective in the IFS and looking at British tax policy 2006-11. His seminal work in 1971 on the theory of economic transfers and optimal taxation demonstrates a simple but profound truth: redistribution changes incentives. Incentives matter. When marginal taxes rise sharply, high-productivity individuals reduce effort, invest less or relocate their activity beyond the UK. Recent examples, such as the relocation of wealth creators such as Mittal, are not ideological anecdotes but precisely the behaviour that Mirrlees predicted 50 years ago. It is a principle. As a nation, we are poorer for these people leaving—not just billionaires but the young strivers who are leaving these shores to make the UAE and other places in the world richer, not us.
Likewise, when transfers become too generous relative to wages, labour participation falls. Anyone attempting to take a train on a Sunday—we all do—encounters the resulting shortages. It is a clear expression of weakened incentives in essential services. I could go on, but please can the Minister think about that: this is economics at work.
These pressures are compounded when the state grows beyond its optimal scale. The Scully curve, demonstrated through strong academic analysis by Gerald Scully in 1989—this is an old piece—shows that excessive government activity suppresses growth. A larger state requires higher taxation, which reduces the savings that form the pool of capital for investment and innovation. When the state crowds out capital formation, it crowds out the future—our children’s future. I suspect that what we are seeing in our world at the moment is that crowding out.
This argument is for fairness for working people, savers and innovators. Fairness must also protect the fragile in our society. The elderly, the sick and the disabled cannot simply “adjust incentives”; they depend on a state strong enough to provide support, yet disciplined enough to ensure that that support is sustainable. When our growth falters, it is the most vulnerable who suffer first. Thus, the defence of our fragile citizens is inseparable from the defence of economic growth.
Baroness Moyo (Non-Afl)
My Lords, I will centre my remarks on whether the Budget will help to catalyse economic growth in this country. In her Budget speech the Chancellor referred to economic growth as
“the best means of improving wages, creating jobs and supporting public services”.—[Official Report, Commons, 26/11/25; col. 385.]
I will address two persistent chokeholds on the economy: high energy prices and low private sector investment. To my mind, neither issue has been adequately addressed in this Budget.
Let us first remember where our economy lies today: the OBR has lowered the UK’s economic growth forecast to 1.4% in 2026, and it is stuck at 1.5% in all of the following four years. In September, the unemployment rate stood at 5% and, worse still, more than 15% of young people aged between 16 and 24 are unemployed or not in school or training. Inflation, although it has dipped a bit, is stubbornly at 3.6%, in excess of the 2% Bank of England target. Given this backdrop, lowering energy prices and increasing private investment levels are both urgent matters.
On the cost of energy, I note that the Government have cut the green levy to lower household energy bills. However, the Budget does not address the structural forces behind high energy costs for households, business and public services such as the NHS. Britain’s high energy cost of 40 cents per kilowatt hour is an international outlier and a distinct disadvantage. France is at 28 cents, the US is at 18 cents and both China and India are at 8 cents. Such energy costs in the United Kingdom undermine attempts to build economic growth. As I have noted in your Lordships’ Chamber before, cutting energy costs is the ultimate non-inflationary economic stimulus and one that this country urgently needs. Thus, government policy should embrace all forms of energy, including those we have in the North Sea.
On investment, I point noble Lords to my registered interests as a member of the board of directors of Starbucks and Chevron, and a member of the Oxford University Endowment investment committee, all of which have notable investment interests in the United Kingdom. A Government with a stated mission to pursue economic growth must encourage private sector investment, which supports jobs, innovation and the economy. This Budget attempts to do so, but there is, as ever, considerable scope to do much more.
The Budget outlines constructive measures such as encouraging ISAs to invest in equities as well as cash, stamp duty holidays on newly listed companies, and reforms to the Enterprise Management Incentives scheme. However, these measures will have a marginal, not transformational impact, not least because other Budget measures such as higher taxes on dividends for investors will likely offset these benefits. Only a more holistic approach can be catalytic in driving investment.
We must not lose sight of the growth objective and imperative. Therefore, the Budget trade-offs in tax, spending and debt need ultimately to stimulate growth. Lower energy prices and higher private investment are not only crucial for propelling growth; they are a pre-requisite for prosperity.
Lord Barber of Ainsdale (Lab)
My Lords, there is no disguising the scale of the economic challenges facing our country, and the Budget had commendable clarity in its central objectives: tackling the high cost of living, which has hit so many families so hard; maintaining the investment in our economy and our public services, which is crucial to delivering growth; and cutting debt and borrowing to create a more prudent level of headroom.
The evidence for the previous Government’s economic mismanagement was all around us when Labour took office: bulging NHS waiting lists, crumbling school buildings, the prison service on the point of collapse, the courts system in disarray, and wages stagnant right across the economy. I could go on. However, this gave the Government a choice: to accept the public realm descending further into chaos, or to commit to the sustained investment alongside key reforms that could begin to restore the vital public services that most of us rely on. They have made the right choice.
Sustained investment is being delivered too in our infrastructure, transport system, energy security and housing, with the £120 billion of capital investment set out in the June spending review fully maintained. These will be key factors in driving future growth. In the past, we have seen Governments turn off vital capital investment at the first sign of economic strain, but the consequences were predictable: damaged confidence, and any previous economic momentum hitting the buffers hard. This Government are rightly clear that they will not go down that blind alley. These decisions meant that, in some areas, taxes have been increased and of course nobody likes that. In a fantasy world, difficult choices can always be sidestepped, but that is not the world this Government choose to inhabit.
One critical factor that influenced the OBR’s judgment was the relatively poor productivity performance of the UK economy. Of course, a number of factors are crucial to that. How well do the capital markets work at allocating resources where the growth potential is most significant? Investment in skills is vital too. I therefore welcome the reforms to apprenticeships, and the increased support to SMEs that is now to be provided alongside the youth guarantees.
Improving productivity will require innovation in so many areas. AI will be a major driver of change and, as we meet those challenges, I hope that we do not forget about the people we need to carry with us to deliver the changes we need. Workers and their unions want to be partners in shaping lasting economic success, and the Employment Rights Bill will provide positive change in that area.
We should acknowledge that a corner is being turned, with the forecast for growth now upgraded from 1% to 1.5%. We are on course to be the second-fastest growing economy in the G7 group. New deals with important trading partners, long-sought and now at last achieved, will play their part in driving growth. Critically, real wages have seen increases after a lost decade and more under the previous Government. Falling interest rates will give an additional boost to household incomes.
Let us therefore focus on the substance of the Budget and not the confected outrage about the communications around it, accompanied by an unhealthy dose of misogyny in the cynical, over-the-top personal attacks on the Chancellor. There is of course more to do, but this Budget has not been about flash-in-the-pan gimmicks but serious and sustained reforms. It deserves our support.
Baroness Coffey (Con)
My Lords, I cannot welcome this Budget. It is a bad Budget for Britain, in terms of not only lack of growth but rising unemployment and inflation. Looked at from pretty much every angle, it is a bad Budget for the average working household. I will not get into process; the only process I care about is the payslip that people will open next April when they are paying higher taxes, having been promised by the Prime Minister and the Chancellor that that would not be the case.
The Prime Minister and the Chancellor also promised before the election last year that they would not scrap the two-child limit because they said it was not affordable or fair. I completely understand that it is open to a Government to make different political choices, but if they then say that they were not misleading anybody, that is simply not the case. I appreciate that Labour MPs were very keen on scrapping it, and I notice that the Liberal Democrats and, I think, the Reform Party also support that.
Since this Labour Government came into power, we have already seen a rise in the proportion of workless households, we have seen an increase in the proportion of households where only one person is working, we have seen more than 100,000 more people, unfortunately, join the ranks of the NEETs and we have seen a rise in the number of unemployed people. On the 450,000 figure that the Minister cites—I resent children just being considered statistics; they are individual children—I would be interested to know whether that relates to relative poverty or absolute poverty and whether it includes or excludes housing costs.
Paragraph 2.20 of the Budget book, which relates to the increase in universal credit, says:
“these reforms will have a positive impact”
on the labour supply. But that is not true, as is set out in box 3.2 of the OBR publication, which says that the cuts to benefits will increase the labour supply by about 26,000 in average hours equivalent. According to the OBR, the rise in the standard allowance, which I think will cost more than £500 million more on its introduction, will reduce the number of people working.
And what are we hearing from the Government? On the one hand, the Chief Secretary to the Prime Minister, when he was Chief Secretary to the Treasury, said that it was unsustainable to have a welfare system where people got stuck on benefits. But we are starting to see the same behaviour from this Government that they deployed in the design of other elements relating to whether people will be better off in work than not.
The tax credits regime was subsidising low wages but, more importantly, people very rationally would not work for more than 16 hours unless they were guaranteed a full-time job, because it would be to their detriment to do any more. This led to employers around the country redesigning jobs to make sure that they could accommodate more people working solely 16 hours a week. Eventually, with universal credit, we have managed to get rid of that ridiculous cliff edge, but I am concerned that we will now start to see similar calculations going on.
It is not just about the numbers; I appreciate that the Minister was very proud of the fact that other measures are being extended. But, as Darren Jones said, we have to try to encourage people to make that decision not just on whether they will be better off on benefits. Will it be the case that universal free school meals will encourage people to work more hours? The answer is no. We already know that nearly a quarter of a million households with a household income of over £35,000 will now get free school meals. In what way is this an encouragement for people to do what is best for their children and to try to have even fewer working households on benefits than there are today and to encourage people to get into work?
There is a lot to be said on this Budget, but it really worries me for the future of our children and our economy. That is why I regret that so many Budget resolutions were passed, including that on the farm tax. Therefore, I hope that the Government will reconsider when they start to see the unemployment figures rising at a ridiculous rate.
Baroness Pitkeathley (Lab)
My Lords, I congratulate the right reverend Prelate the Bishop of Portsmouth on his first contribution. I too have a couple of firsts to record in my contribution today. In my 28 years in your Lordships’ House, this is the first time I have ever spoken in a Budget debate, and it is also the first time I have spoken in the same debate as my noble kinsman Lord Pitkeathley of Camden Town.
I may be in a minority, but I am recording great and unequivocal satisfaction with a Budget announcement, and that is the announcement that the Government are to right a long-standing wrong. The Chancellor has set aside £75 million to fix systematic failures that cause hundreds of thousands of unpaid carers to be hit with huge bills after unwittingly breaching complex and confusing benefit rules. Unpaid carers who look after loved ones for at least 35 hours a week are entitled to £83.30 a week in carer’s allowance, provided their weekly earnings from part-time jobs do not exceed £196. If they exceed this limit, even by as little as a penny, under the cliff-edge rules, they must repay the entire week’s allowance. So a carer who oversteps the threshold by one penny a week for a year must repay not £52 but £4,331.60, plus a £50 civil penalty.
These draconian penalties were exacerbated by the failure of the DWP to alert all unpaid carers who overstepped the earnings limit, even though they had access to real-time data. This meant that, in some cases, overpayments were allowed to accumulate for years before unwitting carers were handed huge bills. This caused terrible distress, real hardship and even imprisonment.
This problem was known about for years. Carers UK began its campaign to alert the then Government to it in 2018. That year, the National Audit Office published a devastating report on the DWP’s handling of carer’s allowance, but we were assured that the problem was under control, even though a whistleblower revealed that this was far from the case. In April 2024, a Guardian investigation revealed that tens of thousands of carers were still being asked to repay huge sums, while others were being pursued for fraud claims. Still the DWP did nothing, although by then £357 million had been paid out in error.
It was a great relief when the incoming Labour Government launched an independent review, led by the much-respected disability campaigner Liz Sayce, and the then Secretary with responsibility for welfare pledged to fix the mistakes. In that year’s Budget, the earnings limit was hugely raised. The independent review found a catalogue of failure by the DWP. It found that the breaches of the rules were not wilful but honest mistakes made as a result of unclear guidance or administrative errors by the Government. There will be a review of hundreds of thousands of overpayment cases going back to 2015, which means scores of carers could be reimbursed and have unjust criminal convictions overturned.
This is a huge victory for carers, and the £75 million allocated in the Budget will make a start on fixing what the Secretary of State at the DWP has called a “mess”. It is a vital step towards addressing the injustices that have faced carers for far too long. Of course, it is as yet unclear how much of the funding will directly benefit carers, but we shall keep a close eye on how this progresses. For the present, I congratulate the Government and thank the Chancellor for making a start on righting this terrible wrong.
Lord Dobbs (Con)
My Lords, I have a lot of personal regard for the Minister, and I listened to his speech carefully, but I did not hear a single word about unemployment, so allow me to help him.
Many of us, sadly, are old enough to remember the Government of Harold Wilson. He came in promising “white heat” and left with more people out of work, which I suppose was unfortunate for a Government formed by the party of the workers. It was even more unfortunate when Labour next got in. It was Wilson and Jim Callaghan—Sunny Jim, a decent man whom I liked very much—but once again, when Labour left office, unemployment was up. Then came Blair and Brown and—surprise, surprise—after 13 years of the Chuckle Brothers, it was up again, at nearly 8%. How can it be that every time in living memory that Labour has got into power, it has left with more workers out of jobs than when it started?
And now, dear Keir: after just a year, and an avalanche of election promises about growth and new jobs and not taxing workers, can you guess it? Unemployment is up. “Come, friendly bombs, and fall on Slough. They all blew up; I know not how. And when I look into the sky, all I see are pigs that fly”. I hope for Santa’s sake, this Christmas, that the reindeer are going to be able to find it past all those squadrons of flying pigs.
It is really all the fault of the OBR, of course, and so its boss joins the growing list of all those who are losing their jobs under Labour. And he will not be the last. I hope that I am wrong. I hope that the Minister will give us an assurance that, by this time next year, unemployment will be lower. I ask him for that assurance, but I fear he will not give it—he cannot; that is why he did not mention it in the first place. At the last Budget, we were promised that things were sorted. “I’m not coming back for more”, the Chancellor said. Well, I bet she wishes the BBC had done one of its special editing jobs on that one and left great chunks of it on the cutting room floor.
“Those with the broadest shoulders must carry their fair share of the burden”. It is a good phrase, but those with the broadest shoulders also have the fastest feet. They are leaving, and so are the young. Almost all emigration from this country is made up of people under 35, taking their future, and ours, with them. Every time Labour gets into power, it puts more people out of work. That cannot all be the fault of Brexit, can it? The working men and women of this country deserve better than they are being given.
Lord de Clifford (CB)
My Lords, on behalf of the veterinary sector, I thank the Government for confirming in the Budget the commitment to a consultation on reform of the Veterinary Surgeons Act 1966. This is sorely needed, as the sector has seen significant structural change in the last 15 years. I was asked to note my registered interest as the operations director and a shareholder of a large, independent veterinary practice, which is an SME.
I speak today with SMEs and employees in mind. I think that many who own and work in SMEs would accept a tax rise if the extra funds could be used to reduce the national debt and encourage growth. We recognise the need to support people in need, but continued growth of spending on benefits will not support growth within our economy. I also welcome today’s announcement by the Health Minister of a review into mental health overdiagnosis to encourage those on benefits back to work, and SMEs would welcome them.
This Government came in on a manifesto promise of change to support and encourage growth in the economy. There was an opportunity for the Chancellor to make significant changes to simplify the tax system, but these were not taken in this Budget, which certainly did not encourage or support SMEs in investment and growth.
The Budget added further tax burdens to both employees and SMEs. I have three requests for the Minister to take to the Treasury for possible future adjustment to reduce those burdens. The first is to reconsider the student loan freeze on plan 2. Surely this is not a tax; it is simply a repayment process for students who invest in their future. For an economy to grow, we need aspiring individuals who want to work hard and get rewarded by higher salaries. Freezing this limit will reduce their take-home pay further, at a time when they desperately need funds for high housing costs and possibly to raise a family. Will the Chancellor please reconsider this change and remove the freeze? This would help our younger generation to aspire to a working life and not to feel that they are just paying down the country’s debt, from which they have not benefited.
The second request is to take out pension payments from the change to the salary sacrifice scheme. Businesses’ employees are encouraged to sign up to the auto-enrolment scheme, and most do, to help save for the future and to help fund retirement and not be a burden on the state. This change will take a small amount of money away from individuals’ savings and their disposable income, as NIC will be charged on auto-enrolment at 5%, which they and employers cannot avoid. The majority will be above the median salary in the UK. It will bring an additional cost to SMEs employing skilled workers whose salaries are over £40,000. It will also stop employers supporting their staff in saving for the future and increase costs. This does not help productivity or growth.
My final request is for further consideration of the IHT changes to APR and BPR in last year’s Budget. Family businesses and farms welcome the small change for the allowance of £1 million to be kept and transferred to spouses in the future, but it does not go far enough. Further relief is needed to protect family businesses with high asset values, such as land and buildings, that generate low income. Could the Government look again at increasing the limit further or even at a transitional relief—for example, for five years—to allow families to move assets to the next generation or distribute them among family members to reduce the IHT tax burden on assets that do not generate significant income, so that an unsustainable tax bill for these marginally profit-making farms and small businesses that are vital to our economy is not incurred?
Baroness Warwick of Undercliffe (Lab)
My Lords, the Chancellor’s measures to combat the cost of living crisis, particularly for those on lower incomes, were the touchstone for this Budget. The Government were right to make this a priority. The Trussell Trust had to increase its provision of emergency food parcels to 1.4 million between April and September in 2024. That was a shocking 69% increase on 2019.
The most unjust and harmful impact of this is on children. As the Chancellor said,
“there is the future cost to our economy and our society, of wasted talent, and a welfare system that bears the cost of failure for decades to come”.—[Official Report, Commons, 26/11/25; col. 394.]
Any responsible Government would take action to address this. We know that removing the two-child cap is the quickest and most effective way to lift tens of thousands of children out of poverty. The Chancellor’s decision to remove the cap is a major victory for anti-poverty campaigners, but, more importantly, for the 450,000 children it will lift out of poverty.
I want to focus on social and affordable homes. One of the most transformative, sustainable and long-term ways to tackle cost of living pressures is by delivering a major programme of social and affordable housing. Analysis from the National Housing Federation found that sub-market rents in general need social housing properties and provide savings to residents of £21 billion per year, compared with what they would have to pay in the private rented sector. That represents a saving of nearly 49%. Living in social housing saves the average household more than £5,000 per year in rent. This translates to an estimated £13 billion per year saving on support for housing costs through the welfare system.
At the spending review in June, the Government announced a transformational package of investment in social and affordable homes. One of its key pillars was a decision on rent convergence, with a consultation over the summer. Certainty and urgency are needed, so that housing associations and councils are able to put in strong bids for funding in the new social and affordable homes programme to deliver on the Government’s housebuilding ambitions. Any delay to this decision would delay investment and reduce the impact on new homes within this Parliament. Can the Minister explain why this decision has been delayed? Can he confirm whether the Government still intend to implement social rent convergence from April 2026?
Can I also put in a plea for supported housing? Many schemes are closing across the country due to many previous years of cuts. Without these homes, more people face homelessness, longer stays in hospital or in-patient mental health units or homes that do not meet their care needs. Will the Minister assure us that supported housing will feature prominently within the Government’s forthcoming homelessness and long-term housing strategies?
I want finally to raise a different topic: growth in the economy and the vital role of higher education in its delivery. I congratulate the Government on their decision to link undergraduate fees to inflation. That was difficult, important and courageous. I am also thrilled at the decision to increase QR in line with inflation and the science Minister’s cast-iron commitment to curiosity-driven research. I therefore ask one final question of the Minister. What impact will the international levy have on the university sector and what is the net result of that tax, set against those improvements?
Baroness Barran (Con)
My Lords, it is a privilege to contribute to this important debate. I will confine my remarks to the Budget announcement on funding for special educational needs and disabilities, in particular how the annual and cumulative deficits historically borne by local authorities will be funded in future when they form part of overall government spending.
As I said in the House yesterday, on this side we want the Government’s SEND reforms to succeed. However, the Government’s announcement has caused considerable anxiety. The expected deficit on the dedicated schools grant is projected to be £6.3 billion in the year 2028-29, with a cumulative deficit of £14 billion by the end of this spending review period. This is not just a one-year problem. The three years of projected deficits beyond the spending review set out in the OBR document total more than £20 billion. I would be grateful if the Minister could confirm that this is correct, assuming no further reform of the system beyond what the Government have already announced but not yet published.
The Government have said clearly that this pressure will not fall on mainstream school budgets. Tom Josephs of the OBR described this to the Treasury Select Committee following the Budget as a very large pressure, estimated at around £6 billion, being shifted from the local authority sector to central government. He highlighted that the Government have not yet set out either how this will be funded or where offsetting savings will come from. In that context, can the Minister explain to parents and to schools where the £6.3 billion for 2028-29 will come from, and the £20 billion-plus for the three years to 2030-31, if it is not coming from the schools budget—and I appreciate that that has been definitively rejected? The phrase I think that has been used by Ministers is that this will be “absorbed across government”. I am tempted to speculate what the noble Lord would have said to me if I had stood at the Dispatch Box and tried to argue that that much money could be absorbed.
Turning to the cumulative £14 billion deficit, can the Minister set out what the Government’s plans are for dealing with this? The Institute for Fiscal Studies, in a recent article, has raised concerns that writing off these deficits could weaken the financial incentives for councils to control SEND spending, and suggests that the recent acceleration we have seen in that spending might indicate that this is already occurring. It is important that the Government set out how they plan to avoid this risk. I would be very grateful if the Minister could address these points when he winds up, but if he runs out of time—and I realise that that is a high probability—I would be very grateful if he could write to me to provide answers.
As I said at the outset, there is a genuine wish to see these SEND reforms. It is an incredibly complex and sensitive area that matters hugely to parents of all children. But if the Government want to build confidence in their reforms and prioritise outcomes for children, as they have so clearly said, they need to give credible answers to these questions.
Baroness Bowles of Berkhamsted (LD)
My Lords, I will focus on the Government’s support for start-ups and scale-ups, as outlined in the entrepreneurial prospectus published with the Budget, and on the work needed beyond investment to fulfil the Chancellor’s promise to become a better customer to innovative procurement. That promise, aimed at achieving revenue for companies for exports and growth to boost the economy, will remain an illusion until we eliminate Whitehall’s four horsemen of the apocalypse—pestilence, war, famine and death—rampaging deep within our procurement and innovation systems.
Pestilence commandeers intellectual property in grants and contracts, stripping innovative tech businesses of their competitive edge and deterring investors. War forces indemnities, demanding that fledgling companies shoulder risks that are impossible for them to bear. Famine blocks procurement, as in the new Department for Transport’s technology programme, which excludes the very innovators it claims to champion. Death is delivered by exercising the harshest terms in innovation loans, compelling the wind-up of viable companies, refusing flexibility and extinguishing enterprise. These are not abstract flaws: they are lived realities.
Last Wednesday, the Times exposed the strangulation trap that Innovate activated against Wootzano, with a government agency looking more like an asset stripper. It is not the only example. Crown Commercial Services publications show that the new transport technology framework rejected every single start-up and scale-up applicant. Companies such as Vivacity Labs, with nearly $20 million raised to optimise traffic networks with AI, were rejected. Caura, backed by £4 million from Lloyds Bank, and contributing to the National Parking Platform, was rejected. Liftango, advancing shared mobility with $10 million raised, was rejected. Each rejection is not only lost contracts: it is a lost opportunity for Britain’s future. Many others have given up applying, knowing they will be assessed by big-company criteria—by EBITDA—when they do not yet have revenue. That is what they need the procurement for: the Government’s role is to be first mover, not a follower.
I commend the noble Lord, Lord Vallance, for his valiant efforts to reform the IP-grabbing terms in Innovate UK contracts over this last year since I first raised the matter. But it shows the uphill task, and there are all the procurement departments yet to tackle. Therefore, in line with the prospectus promise, I appeal to the Minister to meet with me, examine the evidence and bring the Treasury’s weight to bear in all departments to bring rapid change. The Chartered Institute of Patent Attorneys, the ScaleUp Institute, which the Minister referenced in his opening remarks, and countless companies have all sounded the alarm on these issues. We are not all wrong, whatever the Government are being told. Will they stop the rampage of these horsemen?
Baroness Curran (Lab)
My Lords, I begin by offering my congratulations to the right reverend Prelate the Bishop of Portsmouth on his inspiring maiden speech. In the short time I have, I want to make two key arguments. First, the Government are right to tackle the fundamental challenges that were undermining the British economy, leading to years of sluggish economic growth. Secondly, they are also right to invest and innovate through key measures such as building infrastructure, reforming planning, developing new skills, investing in public services and taking measures to tackle the cost of living—because as this Government know, investing in public services helps an economy grow.
We have paid a heavy economic price for the policies of the last Government. According to the House of Commons Library, prolonged austerity has weakened the UK’s economic growth by suppressing demand, reducing investment and eroding public services. According to the OBR—although I note that many noble Lords have said that this is a critical underestimate—Brexit has permanently reduced UK GDP by around 4%. I firmly contend that in this Budget, the Government have got the balance right between addressing these legacy challenges and moving forward to growth, stability and economic confidence.
That balance has been brought about by a number of measures: as has been mentioned, the £150 off energy bills to tackle the cost of living, but also crucial investment in skills and apprenticeships, with £820 million set aside for a new youth guarantee of employment. There are to be increases in pay after decades of wage restraint, leading to an increase in annual earnings for about 2.4 million workers, thereby stimulating demand. The measures go further, encouraging innovation investment opportunities through increased budgets for UK research and greatly improved regulation of the nuclear industry, and opening up new development across the country. Sadly, that is not an option available for those of us in Scotland, as the SNP Government have taken the shortsighted decision to block nuclear power development, cutting Scotland off from huge opportunities for investment, jobs and skills.
I am sure the Minister will know that Anas Sarwar, Labour’s leader in Scotland, has vowed to end the seemingly “economics-free zone” of the Scottish Government, and commissioned Professor Anton Muscatelli, former principal of Glasgow University, to report on how to stimulate growth in the Scottish economy. He called for
“greater coherence in policy design”,
better use of Holyrood’s levers to support regional strengths, and
“stronger collaboration between Scotland’s governments”.
I know that the Minister will support such collaboration, so I ask him to study and consider the recommendations in the Muscatelli report.
The Minister has had a lot of asks today, and I am sure he is going through the list, but may I add one more? Can he also consider the representations of Prosper, an organisation in Scotland that brings together key stakeholders, including industry, seeking to promote economic growth? It has many insights and some direct requests—for example, that UK Government departments involve Scottish industries directly in developing targeted sector plans.
In conclusion, we should be clear in this House about the achievements of the Chancellor. She has cut NHS waiting lists, child poverty, inflation and borrowing costs. This Government are innovating and reforming the economy to ensure the stability and growth from which all citizens can benefit.
Lord Saatchi (Con)
How they laughed, my Lords. Seeking for economic growth in Britain, I went to the fount of economic wisdom at the London School of Economics and asked a roomful of professors whether anyone had a brilliant idea for how to get economic growth. How they laughed. It would take a complete change in the entire culture of the society—inconceivable; impossible.
Undeterred, I went to the citadel of economic power, the UK Treasury. Seated at a huge mahogany oval table, surrounded by gilt-framed portraits of great former Chancellors on the elegant oak-panelled walls, I told them, “You are torturing people with your tax and benefits system. You are telling people flat out not to work. Maybe they are sick, or maybe they’re not, but the one certainty is that they are not stupid. You are telling them that their after-tax income from a job is less than they get on benefits. No wonder half the population of Britain is now means-tested for benefits. This has to change. People need more incentive to work, not less, or we will never get any growth”. So I said. The response? Just that—total silence.
The top official then spoke in a stern, grave voice, adopting the tone of a strict headmaster admonishing a child brought before him for unruly behaviour in class. He advised me to regard the enormous table as if it were the universe, with the tax system as the solar system—the sun, stars, moon and planets all in their proper place. He moved the coffee cup by one inch and explained that, although that might seem a minor change in one corner of the universe, it could have untold repercussions at the other end. Bearing in mind, he said, the danger of unintended consequences, it was therefore best not to upset the balance of God’s creation.
There it is: the professors say it is impossible; the Treasury says it cannot be done. Is there any hope? Of course there is, because we have in our hands the greatest underutilised social and economic weapon of all time—tax. Long ago fallen from the grand role of social engineering, tax has been reduced to the junior role of revenue generation, as is well illustrated by this Budget. Yet it is at least on a par with the NHS or the criminal justice system in its impact on the culture of our society.
The worst of all worlds would be a continuation of the status quo, where we have to accept as inevitable the present combination of high taxes and inadequate public services. We need someone to emerge who is intelligent enough to match the massed ranks of the LSE professors and the Treasury officials. Do such people really exist? Can they exist? Of course they can, and they do. We need someone like President John F Kennedy. Had he ever left Dealey Plaza in Dallas on 22 November 1963, he would have gone to Austin, Texas to give a speech that night in which he would have addressed the American situation. We have the words of that speech. It would have ended with exactly the six words we urgently need now to end Britain’s endless economic malaise. It is not complicated; this is what is required:
“Neither conformity nor complacency will do”.
Lord Jones of Penybont (Lab)
My Lords, I thank the right reverend Prelate the Bishop of Portsmouth for his maiden speech. As I know, it is always nice to get it out of the way. There is a build-up towards it and it is a relief when it finishes.
It was my destiny—some might say my misfortune—to spend most of my term as First Minister of Wales dealing with a UK Conservative Government. There were occasions on which there was genuine co-operation. The city deals were one example but, by and large, we saw our budgets cut in real terms year after year through the block grant. Each time that happened we were accused by the Government in London of not spending the money we did not have in the first place. It is a relief and a joy now to see the money that has been allocated to Wales as a result of this Budget—£505 million extra on top of £425 million as the result of the reshaping and reconfiguring of the fiscal framework. This is welcome news indeed.
I will also refer to some of the projects that have been announced in Wales. In the past decade, I sat and watched the ending of a subsidy for solar panels, which was removed in the middle of a consultation on precisely the same point. I saw the effective banning of wind farms in England. I saw the failure to support the Swansea Bay tidal lagoon.
On top of that was the failure to support the Wylfa nuclear power station on Anglesey. This was a very good project with a reputable Japanese company involved in delivering it, so I was delighted to see that it has been resurrected in the form of an SMR. Six hundred jobs were sustained on the island of Anglesey as the result of Wylfa being there. I hope to see those jobs return to the island. I ask the Minister to consider whether Trawsfynydd, the previous site of a nuclear power station, could also be considered for an SMR. These are rural areas, but they are also areas of strength for the Welsh language. Without the jobs to sustain them, young people have to leave, with the consequent detrimental effect on the language, so this announcement is very welcome.
I also welcome the announcements regarding Cardiff Parkway and Cardiff Central railway stations, which are long overdue. I suspect that Cardiff Central is one of the most overcrowded stations in Britain; there are trains that queue to get into that station. Reshaping it and bringing it up to 21st-century standards is hugely important, and I welcome that. I contrast that with the promise made by a previous UK Conservative Government to electrify the south Wales main line to Swansea—a promise that, sadly, was never kept. The people of Wales will welcome this investment in their transport network, together, of course, with what is being done by the Welsh Government through the establishment and financing of Transport for Wales.
We have also seen extra money from the Budget for the freeports, first with £25 million in Holyhead—not too far from Wylfa—and £4 million for land reclamation at Port Talbot within the boundary of the Celtic Freeport. These are all examples of a Labour Government in London and a Labour Government in Cardiff delivering for the people of Wales. It was also good to see the investment in AI in both north and south Wales, and the proposed semiconductor cluster. Wales is one of the world leaders in the production of compound semiconductors, so to see that being taken forward and invested in is hugely important.
Many of us on these Benches will applaud the lifting of the two-child cap. Some 69,000 children in Wales alone will be taken out of poverty as a result, and many more will benefit as a result of the lifting of the minimum wage. Does the Minister agree that Wales is best served when there are Governments in London and Cardiff of like mind? That is the best way to deliver. This Budget has delivered and I look forward to seeing further delivery from both Governments working together in the future.
Lord Bird (CB)
I am not here to congratulate the Government, nor to commiserate with the Opposition. I am here to talk about what the noble Lord, Lord Saatchi, has called for, which is: not more of the same. I think that is what he asked for.
I came into the House of Lords—I am sorry that I keep repeating this—to get rid of poverty, not to make the poor more comfortable, which every Administration since the Second World War has been trying to do. As a person who comes from that class, I know darn well that if you spend all your efforts on trying to make the poor comfortable then you will destroy their future, because there is no such thing as a future if you are stuck in poverty.
I was astonished to hear from the Minister that poverty costs £40 billion. I am astonished because of the fact that roughly half of the budgets for our NHS hospitals—this is according to the doctors I have spoken to—are spent on trying to keep the poorest among us as healthy as possible. Look at the fact that 50% of people who suffer from cardiac arrests and cardiac illnesses are those who have food poverty in their background. If you look at the prison system, it is almost a poverty system. All right, we have some middle-class and upper-class people; we have had the occasional posh person join the prison estate, but it is mainly a gateway for people to go into a closed society who themselves have inherited poverty. What I do not understand about this Government, and did not understand about the previous one or the one before, and the one before them, is that they never stop and say, as the noble Lord, Lord Saatchi, is asking us to do, that it does not work.
Some years ago, I developed something called the PEC system. I am very proud of it, because it has been used by Governments elsewhere and by local authorities. I have spoken about it in the House. PEC stands for “prevention, emergency, cure”. Why is it that all Governments have a number of initiatives and projects around prevention and cure that never go mainstream? Why is it that 80% of the money that this Government are spending directly on poverty is spent in the emergency of poverty: in holding the hands of the poorest among us? When are we going to wake up to the fact that it is a great risk to democracy? We are going to see it coming down the line. Reform is riddled with poverty. The people who are getting on the boats coming over here are riddled with poverty. Yet Government after Government, department after department, Minister after Minister, still keep this shambolic governmental system, with a Treasury that is hidden from sight on most occasions and does not get down into the dirt and look at the damage done by poverty.
I will end there, but I would like to congratulate the Government on their Budget. I would love to see some real, serious intervention in this House and the other place around the idea of when we are going to dismantle poverty rather than doing these stop-gap things.
Baroness Stedman-Scott (Con)
My Lords, to be frank, I am not entirely sure where to begin. There is much to consider and even more to be concerned about. This Budget, at its core—in a deliberate political choice—is about welfare over work. We are asked to believe that this Budget strengthens the economy and supports working families, but, once you look past the presentation, a very different picture appears: rising inactivity, weakening incentives—a point made by my noble friend Lord Hintze—and a welfare system growing far faster than our economy can sustain. I hope noble Lords will forgive me if I focus my limited time on that core issue.
Politics is about choices, and the choices in this Budget are unmistakable. At every turn, the Government have chosen welfare over work. We on these Benches and, I am sure, all other Benches in the House are absolutely clear that help should be given to those who really need it, and should be given at the time that they need it. We see this most clearly in the decision to abolish the two-child limit. We are told this is an act of compassion. But compassion first requires honesty, and the evidence is clear: workless households are the strongest predictor of poverty. Removing the cap, which I have no doubt is well intentioned, will mean more children growing up in a family where no one works, at a time when the economy has already shed 180,000 payroll jobs in the past year and when labour supply growth is falling.
What makes the choice all the more striking is that Labour once knew this. As my noble friend Lady Coffey already said, the Chancellor herself argued that keeping the cap was the right thing to do. She did it so strongly that colleagues were suspended for disagreeing with her. People respond to incentives, and the incentives in this Budget are in danger of pointing people firmly away from work. Many on welfare now receive around £2,500 a month, which is more than someone earning the minimum wage takes home. Meanwhile, the Chancellor’s inflammatory policies and tax rises are stifling take-home pay for those in work.
Additionally, new analysis shows that a jobless family on combined benefits will now take home £18,000 more each year than a working family with the same number of children. Why would you go to work? We are in danger of creating lifestyles that are unsustainable through paid work. When the system pays more not to work than to work, people are not being irresponsible but responding to the incentives that the Government have created. Their choices are rational; the Government’s choices are wrong.
This is not a strategy for growth or a route to higher living standards. It is the story of a country slowly drifting into deeper dependency and a Government content to let that drift continue. We want resilience, not reliance. We want independence, not dependence.
Lord Campbell-Savours (Lab) [V]
My Lords, while I welcome much in the Budget, I will raise a single issue: the reforms to council tax. On a number of occasions over recent years, I have raised in Westminster and in the northern media anomalies in the levying of council tax. The classic example is that the levy on a Cumbrian council house is the same as the charge on a £60 million house in Mayfair. Harold Pinter would have revelled in all its absurdity.
How has this come about? We need to go back not only to the antecedent valuation date, or AVD, set in 1991, but to the potential for revenue raising being available primarily from parking revenues. With that in mind, some years ago I undertook a project comparing local authority charges in the north with charges in a selection of boroughs in the south, all charging lower rates. My findings and data were widely disseminated, provoking an avalanche of mail and the use of my data in the House.
My conclusion was simple: we need to revisit the system and introduce new bandings. Earlier this year, I proposed new bandings I, J, K and L. The Government are proposing the use of cash thresholds, and I cannot quite understand why. I am sure there will be an explanation and I wait with interest to hear it. Why can we not have new letter bandings, set perhaps at £2 million, £3 million, £4 million and £5 million-plus? We could then begin the slope of progressive movement down the scale of letter revaluations.
I am more than aware of the sensitivities in dealing with amendments to local taxation. Some say that the late Baroness Thatcher lost her leadership over her decision to introduce the community charge in the late 1980s. I understand that we need to act with care. The establishing of council tax liabilities under a 1991 AVD is becoming increasingly abused and administratively complicated. At some stage, we will have to bite the bullet and reform the system. The question is whether we can do it without generating widespread anxiety and an electoral backlash.
We have a number of options. During revaluation transition, we could freeze households to existing bandings for a number of years: let us say 20. We could freeze bandings to current occupancy or even limited successor occupancy. Whatever we do, we have to deal with a system in which problems are inherent: levels are often too high and remain unchallenged or are too low, due to factors widely recognised in the House. It is perfectly possible to progressively create a system based on current letter valuation principles, where council tax payment levels remain broadly unchanged yet which at the same time deals with the absurdities in a system that has long passed its sell-by date.
Lord Hamilton of Epsom (Con)
I pay tribute to the noble Lord, Lord Campbell-Savours. He is very courageous in the way that he still contributes to the proceedings of this House, albeit over the internet.
You do not have to be a rocket scientist to have been able to tell way before the last election that Labour was going to win it. That seems to have been a pretty well-established fact long before the general election was held, although we did not know that the majority was going to be as big as it was. We all knew that Labour was going to win, so why did it not have a more coherent policy vis-à-vis the economy of this country?
We are talking now as though the unaffordability of the welfare state is something new. It has been there for a very long time, and Labour should have known that for ages and produced ideas for how to tackle it. When it was looking around for policies to follow, surely it could have done a lot worse than many of those of the Blair Government. They were re-elected more than once as a Labour Government and can be put down as one of the successful Labour Governments in this country in recent history. Why did Labour not look at what the Blair Government did and think, “Should we be emulating that as way forward in running the economy?”
The Government have put an enormous premium on the whole matter of growth, and that is absolutely right. But the problem with infrastructure growth is that it takes a very long time to come through. Orders get disputed the whole time. There is a dispute about a major nuclear power station, I think in Essex, because there is bird sanctuary next door, and it says that a number of rare birds will be wiped out if the power station is built. It is the first time I have heard of birds being affected by building power stations; you very much feel that any excuse is better than none to try to stop the progress of building this power station. The Prime Minister himself pointed out that £100 million was spent on a bat tunnel on HS2. Going by reports in the newspapers, none of the bats has gone into the tunnel but their number has increased in the meantime. It seems that we are getting slightly carried away by all these environmental concerns which slow everything down.
The answer is to look to the private sector. Before the election, it was very keen to expand and confidence was growing. As my noble friend Lady Neville-Rolfe pointed out, there was a lot of Budget speculation which meant that a lot of people who might have taken the decision to expand their business said, “There’s so much uncertainty around, I’ll sit on my hands and wait to see what the Budget produces”. To their alarm, the first Budget produced a whole mass of taxes that were damaging to small businesses, so they not only sat on their hands for that period but continued to do so and did not expand. That is why the economy is rapidly slowing down and unemployment is rising.
There was no question of the Blair Government ever taking this view towards the private sector. Indeed, they kept most of Thatcher’s reforms in place; they did not drive away the non-doms and rich people. The noble Lord, Lord Mandelson, who was a big chief in the Blair Government, went around saying that he was very comfortable with the filthy rich. It is extraordinary that no lessons have been learned from the Blair Government, and the result is that I do not think that this Government’s mismanagement of the economy will survive the next election.
Viscount Stansgate (Lab)
My Lords, it is a pleasure to follow the noble Lord, but I will not be discussing power stations in Essex.
On Budget day, at 2.44 pm and six seconds—I know because I double-checked—the Chancellor spoke the following words:
“Our job is to make Britain the best place in the world to start up, to scale up and to stay”.—[Official Report, Commons, 26/11/25; col. 386.]
That was key message in the Budget and there was action to demonstrate the intent. The £38.6 billion that the Government have announced for UK research and innovation projects over the next four years will be crucial to the achievement of the primary objective of growth. The House should also note that the Budget gives solid backing to British-based AI in four new AI growth zones spread out within the UK—the north-east, Oxfordshire, and north and south Wales. There is also £500 million for a sovereign AI fund to back promising British businesses.
This is all very welcome, but more must be done. We need a step change in the way we fund the growth of science and technology businesses, to ensure that they scale up and stay in the UK. I am advancing today the argument put by your Lordships’ Committee on Science and Technology, chaired by my friend, the noble Lord, Lord Mair, and of which I am a member, in its report last month, Bleeding to Death: the Science and Technology Growth Emergency. This is at heart an economic report, which is why it is so relevant to today’s debate. The argument can be very simply put: this country is brilliant at research and good at start-ups but is failing at scale-ups. As a result, we are losing potentially world-class science and technology businesses, often to the USA.
As a matter of fact, a good example took place while we were conducting our inquiry. In a deal formally completed in September, Oxford Ionics, a quantum tech company based in Oxford, was bought for $1 billion by an American company. Some of the research will continue to go into the UK but the benefits and the finance will go to the USA. If we do not find a way to succeed in scaling up science and technology businesses in the UK so that the benefits and the success are felt here, we will miss out on some of the best prospects for future growth in our economy.
The Select Committee made a number of recommendations. I cannot go through them all, but I will mention a couple. First, it called for leadership at the top, from the Prime Minister and the Chancellor and across government. In our view, we need to exert this through a new national council for science, technology and growth. We have a National Security Council; now we need a growth council. It should include Ministers from all the relevant departments: DSIT, DBT, the Home Office, the MoD, the Department of Health and Social Care, DESNZ, the DWP and the Department for Education, and especially, of course, the Minister of State for Science, together with key public investment bodies and scientific advisers.
Secondly, we need to do more to encourage institutional investors. There has been a shocking decline in the proportion of domestic pension fund investments in UK equities. We need the Mansion House reforms to succeed. If countries such as Canada can amalgamate their pension fund to invest in UK science and technology, so should we.
Thirdly, we need more co-ordination among the public investment bodies that play such a key part in the growth of science and technology companies: Innovate UK, the British Business Bank and the National Wealth Fund. There is a case for amalgamating them, and there is certainly a case for what might be called a concierge service, which guides start-ups through the business of trying to get the additional money needed to scale up.
Fourthly, we must start to exploit the power of public procurement, because it can unlock the growth of innovative science and technology companies. My time is fast running out, but I will say that we should move from grants to contracts because they better enable businesses to grow. We should also have mandatory government targets to invest in UK-based SMEs.
My time is up, so I can only repeat that we need to take this question much more seriously. In the long run, success in this area will be more lasting and important than any of the transient budgetary headlines of the last week.
Lord Tyrie (Non-Afl)
I agree with a great deal of what I have just heard. I will say a few words about growth, but before I do, I will touch on a couple of other recent controversies. First, the creation of the OBR has given forecasts an air of respectability that no economic forecast should ever have. The one certainty we can be sure of with forecasting is that any forecast will be wrong—usually, seriously wrong.
However, now we have the OBR, we had better make it work. Uniquely among government appointments to senior jobs, and mirroring what is commonplace in the United States, the senior appointments to the OBR, as well as their dismissal, are subject to a veto by a parliamentary committee, the Treasury Committee. That committee should now use that power to help identify good candidates in a way that is capable of helping to restore some confidence to the OBR’s work.
The second quick point directly concerns the Chancellor’s Budget, which is largely a reflection of what happens when a Government become prisoners of their own Back Benches. I have no doubt that the farago over the pre-briefing and the row over the OBR partly owe their origins to a misguided attempt to manage Labour Back-Bench expectations. The Chancellor may have made mistakes here, but I would be surprised if she lied. I know her well. I have worked with her and I found her to be an extremely reliable and likeable counterparty.
The most important question is growth. The main planks of a policy are relatively easy to identify, although very difficult to implement. First, we need to restore our trading links with the EU. There is a huge debate about how much we have lost in GDP terms, but it is several percent, and in the studies that have been done the average estimate is about 5%. Restoring those links will bring back a sizeable proportion of growth. But no party will touch this because Reform is doing so well in the polls.
Secondly, there are the bottlenecks in the labour market, which now need to be addressed. Some of the Government’s measures make this worse. On immigration, the most sensitive issue, the crucial question should never have been how many but who. The UK must make it easier for firms to recruit from abroad, and, at least for a time, bottlenecks in the NHS and care services need to be filled by facilitating the return of good-quality and relatively inexpensive recruits from abroad. Again, Reform’s polling strength is in action here, blocking much change.
Thirdly, much greater pace needs to be injected into the reform of planning law. The shortage of houses is a major obstacle to labour mobility and growth. The problem is that, by not acting quickly, majorities are beginning to form in former Tory seats now held by Labour MPs, who know that their fragile electoral prospects would be extinguished if they voted for more houses. Fourthly, the public finances need to be put on a much sounder footing.
I will end with just one further point. I have said how difficult all those recommendations are to implement, but the Government have had at least two opportunities to create the political space to tackle such an agenda. Their first opportunity came immediately after the election, in using the argument that the legacy was worse even than they thought. They should not have got attached to £22 billion. They should have just said, “Things are worse than we thought and we have got to re-examine our pledges”. The second was provided by President Trump, when he tore up the post-war trading order and replaced it with penal tariffs on much of the rest of the world. Both those opportunities have been missed. Growth will be the major casualty. Regrettably, the Government remain trapped by their pre-election pledges.
Lord Hodgson of Astley Abbotts (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Tyrie, with whom I have made common cause on a number of issues—most notably, the evils of extraordinary rendition.
In my four minutes, I want to raise two points. The first is the strategic choices the Government have made in this Budget and how that is going to set the tone for the country’s economic performance over the rest of this Parliament. Secondly, picking up the point made by my noble friend Lord Saatchi, I will say a word on tax.
If you talk to experts about tax—I do not just mean economic experts but sociologists and so on—they will tell you that an ideal tax needs to have a clear purpose, be simple to understand and universal in its impact, raise a sufficiently large amount of money immediately to off-set the frictional costs of its introduction, and be progressive and fall more heavily on broader shoulders. Amid all the ferocious pitch-rolling before the Budget was announced, I thought I heard the Chancellor prepare to undertake an action of considerable personal, political and economic courage by raising income tax. That, as my noble friend Lord Tyrie said, would be simple and straightforward, and it meets almost all the tests that I have just outlined. However, it was not to be. Instead, we have ended up with a smorgasbord. This has broken nearly every one of those golden rules. Indeed, the Minister was good enough to say that it was regressive as far as the thresholds were concerned, though he did not say what my noble friend Lady Neville-Rolfe said—that there will be no money coming from it for several years to come.
As many other noble Lords have said, this is a strange policy choice for a Government and a party who pride themselves on claiming to be in favour of the working man. Instead, the Government fell into the trap of believing, as they say, that they can make all sad hearts glad by making a raft of changes to assuage different groups of recalcitrant Back-Benchers, a policy that is bound to fail. It was said, “Don’t offend this lot, don’t alienate that lot, and eventually you become a vaporous, borderless blur—a grey mush impossible to understand or even defend”. That quote is not from me and not from a Tory commentator, but from Andrew Marr, who is not a friend of the Conservative Party, writing in the New Statesman about this Budget.
This takes me to my second and final point, which is about the dog that did not bark: the failure in the Budget to address in any serious way the conflict between guns and butter. For 80 years, and certainly the last 40 years, we have lived comfortably under the American umbrella, and we have been able to eat a lot of butter. That umbrella is now being withdrawn and slowly dismantled, and we will have to take more responsibility for ourselves. At the same time, behind that, we as a medium-sized power can expect to be caught in the backwash of the shifting tectonic plates as the struggle between the US and China as to who will lead the world in the second half of this century intensifies. Nowhere in that Budget speech did I see any recognition of this strategic challenge. There was certainly no suggestion that we might have to draw in our belts a notch or two to provide funds to address it.
I conclude with a Russian proverb that the Government could study with advantage:
“Better bread with water than cake with trouble”.
This is a cake budget, and we are going to have some trouble.
Baroness Nichols of Selby (Lab)
My Lords, I warmly welcome a Budget which will ease the pressure of the high cost of living, continue the process of fixing the NHS and make sure that we see debt falling over the course of this Parliament. These are the priorities of the British people and that is why they are the priorities of this Government.
When I think about some of the measures contained in the Budget, I think about people back home, in Selby: those who work extra hours to make sure that they can give their children the Christmas that they deserve; those who work tirelessly to keep our public services running; and those who work long hours in their small businesses to bring employment and growth. They are the backbone of this country, but for too long working people have been failed by our country’s crumbling infrastructure. When a hard-working small-business owner hits a pothole with their van, costing hundreds of pounds that they can do without, or when a young person is signed off sick because they cannot get mental health treatment, that is damaging for them personally and for the wider economy. When the incomes of working people stagnate or fall, as they have since 2010, that is money no longer being spent in the local economy. That is bad for high streets and bad for prosperity.
That is why the measures included in this Budget give me reason for optimism. The Government are investing hundreds of millions of pounds in our roads, continuing to reform and fund the NHS with millions more appointments, and we have seen wages rise more in the first year of our Labour Government than in the first decade under the Conservatives.
Not everyone is feeling this relief yet, which is why the Government have gone further in this Budget. It will take £150 off people’s energy bills, with more for lower-income households, see rail fares and prescription fees frozen, and see hundreds of children lifted out of poverty. This Budget delivers on the pledge that we made to British pensioners, with those on state pensions receiving an almost 5% increase from April. I am particularly happy about what this Budget does for former mine workers in the BCSSS. After delivering on the miners’ pension scheme last year, the Chancellor has committed to doing the same for those recipients of the superannuation scheme, who will receive an average of £100 per week increase.
We are doing this because to govern is not to tinker around the edges to change some figures in a spreadsheet. We were elected as a Labour Government, and people wanted to see change. That is what this Budget delivers, easing the squeeze on the cost of living while reforming our tax system so that it taxes more fairly and asks everyone who drives on our roads to contribute to their funding. It will tax the most expensive homes more, beginning to right the wrong of a band D property in Blackpool paying more in council tax than a multi-million pound mansion in Mayfair.
Some have claimed that this Budget punishes aspiration, but there is nothing aspirational about an economic system that sees us spend more on servicing government debt than on defence, education or investment. There is nothing aspirational about presiding over public services that simply do not work for people. Those are the wrongs that this Budget rights, and that is why I am proud to support it.
Baroness Noakes (Con)
My Lords, it is good to see so many on the Government Benches here to support their failing Chancellor and her miserable Budget. They are in a very small minority. In polling after the Budget, only 10% thought Labour were the best party to run the economy. That is lower than the score achieved after the Truss-Kwarteng mini-Budget.
The run-up to the Budget was chaotic. Whatever the Chancellor intended with the constant press briefing and that excruciating early morning Downing Street speech, the fact is that pretty well everyone was misled about what was going to be in the Budget. This chaos was then followed by a Budget designed to please fractious Labour Back-Benchers rather than sort the economy out. The gilt markets were unimpressed and maintained our position as the advanced economy with the second-highest borrowing costs. Since the Chancellor has been appointed, the gap above the average advanced economy borrowing cost has been growing.
The Budget confirmed that this is a tax-and-spend Government. The tax burden will be a record 38.3% of GDP by the end of the forecast period, while public expenditure will be more than 44%—way above pre-pandemic levels. The Minister claimed again today that growth is the number one priority, but the OBR has pointed out that there is nothing for growth in this Budget. The Minister bragged about growth in the first half of this year, but he knows that a large chunk of that is down to one-off factors. The outlook for growth is at best lacklustre.
Businesses are in despair. We have a tax system that is ranked 32nd out of 38 countries in the tax competitiveness index, 1960s-style employment laws are about to be imposed on business, and taxes and inflation are sucking demand out of the economy. It is no surprise that the OBR sees business investment falling away. Working people too are in despair. Their taxes are rising—by stealth, largely—to fund an increasing number living on state handouts. The rich and the young are leaving the country every day, which simply compounds the problem.
The Budget dodges some tricky issues that may well derail the Budget arithmetic. I have some questions for the Minister. Like the noble and gallant Lord, Lord Craig of Radley, I want to know when the 3.5% committed to defence will be achieved. It certainly is not showing up in the current Budget numbers. Like my noble friend Lady Barran, I ask the Minister to say how much will be spent on SEND after 2027-28, which budget will pay for it and what will happen to the accumulated local authority deficits that have been growing while they have been funding the rising SEND bill over recent years. In addition, how many billions of efficiency savings after 2028-29 are still to be identified? How will the £1.8 billion bill for digital ID cards be paid for? Whose budget will that come from? One thing is clear: we need a change of leadership in the Treasury if the UK is going to have any chance of economic success.
Lord Sikka (Lab)
My Lords, I welcome the scrapping of the Conservative two-child benefit cap. Sustained economic growth is a key objective, but that cannot be achieved by eroding the spending power of the bottom 50% of the population. There is no justification for freezing the income tax threshold until 2030-31. This freeze forces 780,000 additional people—that is, the poorest—to pay income tax for the first time. Another 920,000 will be pushed into paying income tax at a higher rate. Some 24 million people already live below socially acceptable living standards, and the freeze would lengthen queues at food banks.
Just one change—taxing capital gains at the same rate as wages—could have raised around £14 billion and enabled the Chancellor to increase income tax personal allowances by more than £1,000 a year, reduce poverty and stimulate the economy. However, the Government chose to appease the rich. There is no increase in the top rate of income tax. Dividend and capital gains will still be taxed at lower rates than wages. The poorest 20% will pay a higher proportion of their income in taxes than the richest 20%. Just 1% of the population will continue to have more wealth than 70% of the population combined. That is utterly unfair.
Energy companies have made £125 billion in profit since 2020, directly fuelling poverty, but there are no curbs on profiteering and no windfall taxes. The big four banks made pre-tax profits of £45.9 billion in 2024, but there are no windfall taxes. Even worse, banks receive a hidden subsidy of over £23 billion a year in the form of interest payments on central reserves. Since 2023, the European Union has mostly stopped paying interest on central reserves to banks. The Budget makes no attempt to curb corporate welfare payments. Can the Minister explain why the Government continue to subsidise banks?
Direct investment by the state in infrastructure remains neutered. Instead, it is channelled through PFI-type arrangements. For every £1 of private investment, the Government repay £6, which is very poor value for money. Such policies guarantee corporate profits but have not stimulated growth. They burden the public purse and public bodies with extortionate costs. There are alternative ways of funding these investments. The UK invests around 19% of its GDP in productive assets, compared with 26% for France and 25% for Germany. The average for OECD countries is 23%, while China invests 40.4% and India invests 30.5%. Despite low investment, there is no reform of corporate governance and no attempt to curtail shareholders’ ability to extract vast dividends, as we have seen in the water industry, for example.
Inequalities, profiteering, regressive taxation and neutering of public investment do not provide firm foundations for the economy. We need a Budget for the masses, not just for the super-rich, bond markets and corporations.
Lord Griffiths of Fforestfach (Con)
My Lords, it is a great pleasure to take part in this debate. I thank the noble Lord, Lord Sikka. We disagree on many things, but whenever he speaks he always raises in my mind that economics is not just about money: it is about values and principles. In that sense, what he raised in his speech is a challenge to us.
I want to refer in my speech to two fundamental judgments that I believe the Chancellor and the Treasury made when they drew up this Budget. The first was the refusal to tackle the scale of the problem of public sector debt, and therefore to live with the problem of economic stability or to make it precarious. At present, public sector debt, as we have heard, stands at roughly 95% of GDP. It is twice the average of other advanced economies. The reason why our interest rates and 10-year gilts are higher than in other advanced countries is precisely that. Borrowing is set to come down annually, but national debt is not. In fact, it is due to increase annually for the next three years, as the noble Lord, Lord Burns, reminded us, and then it will come down by a very small fraction.
It is painful to tackle the problem of national debt, in both economic and political terms. Roy Jenkins found it difficult in the 1960s, as did Denis Healey in the 1970s, Geoffrey Howe in the 1980s, and my colleague and noble friend Lord Lamont in the 1990s. I believe, however, that there is no way to tackle the size of our public debt without cutting expenditure. Even though debt is rising, there are still spending risks. We do not really know what the outcome of the welfare bill is because we do not know what the demands will be. We do not know what immigration is. We have NHS strikes—will there be more? We have a defence budget that, frankly, does not really meet our defence needs. We also have the issue of public sector wages.
The OBR’s conclusion is that despite the greater headroom, which is welcome, it
“remains a small margin compared to the uncertainties”.
It mentioned, first, our economic forecast; secondly, our fiscal forecast; thirdly, the uncertain yield from tax changes; and fourthly, fundamental departmental budgets. There is one other element that is at risk, which is to do with the Bank of England. The Bank has a difficult situation: fixing interest rates, and yet not pulling them down enough to deal with the challenges of inflation.
My second point is that every successful economy needs a vibrant middle class that creates wealth. This Budget is really an attack, and a road to a two-class system between the very wealthy and workers, but with a shrinking middle class. Frankly, that is not grounds for hope through the Budget.
Lord Rosenfield (Non-Afl)
My Lords, it is a pleasure to follow the noble Lord, Lord Griffiths. I regret that this Budget falls short on both process and substance. On process, yes, there was a major error on behalf of the OBR in publishing its documents too early on Budget day. However, the real error was in not publishing the OBR forecasts even earlier—not on Budget day, but on 4 November. For let us be in no doubt: 4 November was a significant fiscal event. The Chancellor updated markets and the public on the public finances and potential policy changes. There were no supporting documents. There was no transparency. There was no rigour. It has damaged confidence.
Turning to the substance, there are three areas where I fear this Budget falls short. First, the Government are rightly committed to what they call a relentless pursuit of growth, but why does the Treasury’s own analysis show that government policies announced in this Parliament, far from driving growth, will reduce outputs in the coming years? I refer noble Lords to chart 1.5 on page 18 of the Budget document. It shows that, while there may be some long-term benefits to growth, the overall supply-side impact of the Government’s policies is to reduce output this year, next year and the year after. We now know too that the OECD believes that these negative output effects will endure for longer. Far from a relentless pursuit of growth, this will feel to many like a relentless assault on growth.
Secondly, the Chancellor sets out a laudable ambition in the Budget to outperform the OBR’s economic forecast. I would love that to be the case, but how can raising taxes on workers and savers to fund U-turns and policy choices on welfare be consistent with that ambition? We need a plan to boost employment, support private sector output and grow confidence, and I fear that this Budget does the opposite.
Thirdly, the Budget rightly emphasises responsible choices to secure the long-term sustainability of the public finances. Yet the Government’s longer-term spending plans seem to be more process than substance; reviews not policies—the review of the state pension age, the Pensions Commission, the Timms review of welfare, the Chief Secretary’s review of value for money across government spending, and the strategic review of assets. We are yet to see choices, details and costings. Even if there were detail on spending, why should anyone have confidence in this Government’s ability to deliver future action on welfare and spending, given their track record to date?
Given the importance of confidence, will the Minister, for whom I have enormous respect, take back to the Treasury the suggestion that, in the pursuit of growth and confidence, the Chancellor confirms that should the UK economy perform at least in line with the OBR’s economic forecast, there will be no further tax increases in this Parliament?
Lord Skidelsky (CB)
My Lords, first, I distance myself from the Opposition’s onslaught on Rachel Reeves. To my mind, she is a tragic figure rather than an incompetent one. She is trying to do her best for her people and the country but is in hock not just to the bond markets but to mistaken academic orthodoxy which, via the OBR, polices her choices. As Keynes wrote—this is the first time Keynes has been mentioned this afternoon—it is the ideas of economists
“which are dangerous for good or ill”.
The Treasury and OBR officials, newspaper columnists and market traders who make up today’s conventional wisdom are slaves of recently defunct economists.
The OBR gives a rare glimpse into the official mind when it writes:
“we assume that forward-looking households and firms save some of extra after-tax income from the near-term fiscal loosening, in anticipation of the future fiscal tightening”.
Economists know this as Ricardian equivalence: there is no such thing as a free lunch; do not spend more now, because you will have to pay for it later. The noble Baroness, Lady Neville-Rolfe, said much the same thing in her speech. Now, the Chancellor front-loads her rather meagre spending increases, back-loads her much larger tax increases and hopes that something good will turn up in the meantime.
A rare glimpse of sensible dissent came from the Guardian editorial of 27 November. It said:
“The state can create fiscal space whenever it chooses, and the economy will revive when it spends. Stagnation ends when the government stops starving the system”.
I have two questions to expand on this heretical insight. First, what has happened to the £900 billion quantitative easing money printed since 2009? I think the answer is that a large part of it has stayed in financial circulation, raising the price of bonds, equities and properties, but doing little to raise current output. Keynes referred to this attitude as liquidity preference. Others call it the financialisaton of the economy. The point is that money does not just fructify in the pockets of the people; it has to be spent on things which can be produced.
Secondly, there is the productivity puzzle. Where has all the productivity gone? A nation’s standard of living depends upon its productivity, and productivity largely depends on investment. When firms invest in new capital, skills and infrastructure, output per person rises. The UK is not just the lowest-investing countries in the G7; it is near the bottom of government investment as a share of GDP. It is the prolonged failure of private and public investment that has trapped us in low productivity and flat incomes.
So what is the answer? I do not decry the importance of business and supply-side reforms, but if businesses see no profit in investing, the state has to step in, not step out, and produce the additional demand that will give businesses the confidence to invest. Public investment has to be intelligently done, of course, and proper attention paid to distribution—this was a point made by the noble Lord, Lord Sikka. And this was Keynes’s message; it is not original to me. It served us well for 25 years. But now Keynes has been cancelled, leaving the Chancellor in her fiscal straitjacket and the people of this country poorer than they would otherwise have been.
Lord Parekh (Lab)
My Lords, I shall speak not so much about the results of the election but about its consequences and two important features that came up in the course of the debate: namely, the Budget and the manifesto. They raise some large theoretical questions, and I will share my thoughts on them.
The Budget is an annual event of great importance, and great preparation goes into it. There is a lot of anticipation about it, and then the date arrives. On that day, the question becomes, “Why is it so important? Why do we have a Budget every year?” The answer, obviously—although it is not that obvious—is that this is when the Government share their thoughts on what they want to earn, what they want from us and what they want shared in public services. This is a way in which the Government let people know what choices have been made—or, if we want to look at it democratically, this is a way for people to control how the Government should spend and what the limits should be.
I want to suggest that this is outdated. Simply put, it is outdated in the language itself that we use. We are beginning to realise that the Budget is largely concerned with economic matters, and economic matters are never confined to the economic life alone; they have political consequences, cultural consequences, social consequences—and therefore we cannot have a Budget in isolation. If I had time, I would take the House through the Budget item by item, clause by clause, to show how it has profound social and cultural consequences that we recognise and regret. I suggest that it might be a good idea to think of the Budget as a national event where we take the pulse of the country as a whole. We can discuss the role that economic matters play, but also the role of cultural, social, educational and other matters, and look at what progress is being made in these areas.
My second point—and I wish to touch on this very briefly—is the debate that we had with the Chancellor on a manifesto commitment not being respected in the Budget. What is the relationship between a manifesto commitment and the Budget? How does a manifesto commitment acquire its own legitimacy, so that we can take it as a point of reference and judge our policies in light of it? I think that it has this authority because it embodies the party’s vision and policies. In this case, when the party becomes the Government, the expectation is that the policies to which it committed itself would be followed through in the Budget. The manifesto should automatically translate into the Budget, so that it cannot be questioned. I want to suggest that it is never like this.
Obviously, the Government or the political party might promise lots of things they have no intention of doing, and therefore for many the commitment is critically important to catch the party and to stop it from misuse. The question is: why is it we can organise it to do this? We cannot allow for this kind of continuity. There are lots of things that can happen once you are in power. There are things that are not seen or anticipated; therefore, you have to take decisions on the basis of that information—not the information you had when you were drafting the manifesto. I suggest that the relationship between a manifesto of a party and the policies it follows should be close but not so close that it cannot be superseded.
Baroness Penn (Con)
My Lords, in my four minutes, I thought I would focus on the good, the bad and the ugly of this Budget. Starting with the good, there was the welcome emphasis from the Minister in his opening speech on some of the measures for growth. These included: raising the threshold for the enterprise management incentive scheme; expanding the limits for the EIS; stamp duty exemptions for companies listing in the UK; and, after a little extra effort and persuasion, committing to delivering the nuclear regulatory review. The problem is that this represented so little of the Budget that we are debating, which brings me to the bad.
Growth forecasts are down and taxes are going up, hurting working people, as the Minister acknowledged. Inflation and interest rates will be higher for longer. Business investment will be down, housebuilding forecasts are down and rents are forecast to go up. Living standards are forecast to be lower than they would otherwise be, and debt interest is going up. As my noble friend Lady Noakes and others noted, according to the OBR not a single measure in this Budget will have an appreciable impact on growth.
That brings me to the ugly. As the Minister acknowledged, there has never been a Budget so dominated by speculation, with briefing before, during and after the event. Before last week, the Minister valiantly claimed there was nothing unusual in this process. At least by Monday, he recognised the unique nature of the Chancellor’s pre-breakfast pre-Budget speech. Unique is one word for it, and we do not need to relitigate who said what when. The heart of the matter is that trailing the expected downgrade to productivity without the more-than-offsetting unexpected upgrade to tax receipts left people feeling misled, and that is still unacknowledged. That unexpected upgrade was still unacknowledged in Monday’s Statement and in the Minister’s speech today.
That matters for two reasons. First, we have heard from my noble friend Lady Neville-Rolfe and others that the speculation damaged growth. Secondly, and more than this, it has damaged people’s trust in the Government. People were told before the election that every policy was costed and funded. Then, in last year’s Budget, we had record tax rises. The Chancellor and the Minister told people they had wiped the slate clean and there was no coming back for more, but last week they came back for £20 billion more.
The reason the Government have been tying themselves in knots is the attempt to justify this through claiming that the facts and circumstances have changed. But the facts have not changed; it is just that the Government have changed their mind that fairness does not mean taxing working people to fund increased welfare spending. Fundamentally, they have changed their mind that growth was the number one priority and only once you have that growth can you—to coin a phrase—share the proceeds of that growth. That is the reason I ask the Minister not who said what and when, but whether he can understand why people feel misled by the Chancellor and acknowledge that the speculation in advance of the Budget did real harm? If it cannot be acknowledged, then we cannot hope that the Government will learn from the events of this Budget and the last.
If the Government can learn those lessons, we can end on a note of hope. We are only 18 months into this Government—it may feel like more—so there is still time to change course, to genuinely focus on growth. We have heard ideas today for tax reform, welfare reform, cutting energy costs and increasing private investment, because it is growth that is the means to deliver everything else, whatever the Government determine that to be: tax cuts, spending increases, driving down waiting lists, or driving up housebuilding. I hope, therefore, that the Government will return to their number one priority of growth next year, and that is something in a Budget that we can all welcome.
Lord Hannett of Everton (Lab)
My Lords, I am pleased to participate in this important debate on the Budget. When I was thinking about my contribution, I was determined not to descend into tribal politics, because four minutes would not give me the opportunity to do it justice, so I will resist the temptation. I have to say, though, having listened to the contribution of the noble Lord, Lord Dobbs, that he nearly drew me in. His view of the Labour Party, which he is entitled to have, was one that I did not recognise, and you would say, “Why would he?” I was looking for a little bit of humility in his contribution. Alas, it was not to be the case.
I understand there being many contributions about the economy, fiscal responsibility and sound judgment. Many come from different directions, and that tells us of the complexity of the challenges that Chancellors have to face. I want to place on record my congratulations to Rachel Reeves, my noble friend Lord Livermore and the rest of the Treasury because, in a short time in office, they have applied something that is very important in addition to the finances, and that is values: policies that matter on the ground. We can use terms in this Chamber, as we would and should, but in the world outside, it is policies that matter. I am confident that—be it a short time in office—if Labour is successful in achieving a lengthy period of governance, we will see the difference and the contrast; but we have to earn it, and I believe we will.
I look at the detail in the speech made by the Chancellor and at the policies, and I realise the challenge we face. At the moment, the view of politicians from outside is not exactly one of respect. We all have a responsibility to connect with the public. A way of doing that is to understand what matters to them. We do not all start from the same background, do we? Some people have come from a privileged position of good education; some have even had better economic starts, but we should not forget those who contribute substantially to our well-being but who also require extra help. That is the fundamental DNA of the Labour Party. Look at the history of the Labour Party. Yes, you may pick out certain times and certain challenges, but look at some of policy.
I served for 11 years on the Low Pay Commission. The figure that has been increased for young people is a message to them that they matter, and that work can pay. In those 11 years, we reached a unanimous agreement every year. The figure that Rachel Reeves has used for young people did not come out of the ether; it came out of research on the detail of the economy with economists, trade unions and businesses. It has survived since 1999, and it is going well today.
I also then look at poverty-related issues such as challenging child poverty. There can be no more important issue than this, because people who are born into poverty have a legacy of deprivation going forward. We debate in this Chamber many times why the ills of society are such. Perhaps one factor is that people do not have the good start in life that they require. This is why, to me, economic competence and values have to go to the root of what politicians do. There will be variations on the theme, but we should not lose sight of the fact that if politics matter, they are as much about the people at the bottom as about those at the top.
Lord Harrington of Watford (Non-Afl)
My Lords, I should mention my entry in the register of interests—I am chairman of Make UK. But that is more than an entry into a register, because it is really what my whole speech is about today.
Make UK represents 26,000 manufacturing companies in this country. People often forget that manufacturing is still very important to our economy; it is 2.6 million jobs; 42% of our exports are from manufacturing, and 48% of R&D spending is ours. The Minister is aware of this and very kindly hosted a reception for manufacturers earlier this year in No. 11. However, as anyone would know, manufacturing jobs depend on us being competitive, and all the evidence we have shows that there are many aspects where we are not competitive. I hope that in his response the Minister will comment on which part of the Budget was relevant to that and which was not.
First, on skills shortages, I congratulate the Chancellor on some improvements with the apprenticeship levy, making it easier for smaller businesses to take on apprentices, et cetera. Still, there are 50,000 skill vacancies. The Minister might be interested to know that among those vacancies are tool makers—perhaps when he is next at No. 10 Downing Street and discussing this issue with the First Lord of the Treasury, he could mention it. Why are there so many vacancies? Why has the number of apprenticeships in manufacturing gone down from 130,000 in 2016 to about one-third of that today? Something needs to be done about this, because the skills shortage is one of the things that is holding back the economy. While there was something in the Budget for it, as I have said, many things were not.
On energy prices, we had in June a huge announcement from Jonathan Reynolds, the Secretary of State, that we would have a British industrial competitiveness scheme for all manufacturers—and he thanked Make UK for lobbying very hard on behalf of them. That was 19 June, and today, six months later, it has only just gone out to consultation, with no detail as to which businesses will be affected and how it will be funded. Of course, from a business point of view, all our members want is the price of electricity and gas bills to come down. It was announced by the Secretary of State; they are not interested in consultations and mechanisms. I am afraid that the Budget, apart from announcing the consultation, showed no development in that regard.
I congratulate the Government on the increase in the money that is being spent on research and development. On access to capital, the manufacturing sector will benefit in future from the British Business Bank and the National Wealth Fund. The Government are to be applauded for that—but, in the end, this Budget was 1% of GDP extra taxation and 1% of GDP extra spending on benefits. I am afraid to say that many manufacturing businesses look at that and wonder what is in it for them. How can that really help growth? The last year has seen significant increases in energy prices and national insurance, as well as changes in minimum wage and thresholds, such that many of our members have seen a 40% increase in costs. How can that help growth?
I know that the Minister means very well, and he is always very responsive to us, but the Government have to understand that while business engagement is a good thing, it is listening and acting that are most important to most of the manufacturing sector in the UK.
Lord Brooke of Alverthorpe (Lab)
My Lords, like the financial markets, I am reasonably comfortable overall with the Budget, with its focus on endeavouring to reduce the cost of living and improve the circumstances and prospects of children and on investment in and protection of essential public services. Many of those were neglected by the previous Administration. Brexit, which was not Labour Party policy, means that we have lost 6% in the value of our way of life. Austerity was lauded as a virtue, but it had its damaging effects on public infrastructure, yet we have had low productivity and growth under the previous Governments.
We did have some growth in a particular area: we had growth in our waistlines and in obesity. The previous Government aided this. Duties on alcohol were frozen consistently over many years. I welcome the Government’s restoration of the indexing duties with RPI.
I also welcome the initiatives on gambling. The previous Government saw a great growth in gambling but took little action on it. In particular, I congratulate my friend the Financial Secretary on the interest he has taken in sugar. I am sure that members of the recent Select Committee on Food, Diet and Obesity will be similarly pleased to see so much movement taking place on tackling the problems with sugar. Announcements made last week on changes in this area will benefit our health and in particular, I hope, that of our children.
I welcome the encouragement from my noble friend Lord Wood for the Government to continue looking for other areas to raise funds for public investment. No matter who is in power, if we are to develop and grow, we need investment and money going in. That means revenue has to be found from as many sources as possible. It may not all be through income tax: there are other sources which I believe we do not explore.
We should be looking at the new, unaddressed addiction of compulsive digital use: scrolling, mobile phone dependency and so on. This is now having a wide-scale effect on health in a variety of different ways. We do not really have a public framework for digital addiction, nor any related fiscal approach to how the fastest-growing addiction in the UK should be tackled. It has measurable economic costs. We could tax digital features: those that are intentionally engineered to maximise compulsion. We could consider levies on the infinite scrolling in which so many people are now engaging. We could look at the autoplay video and bottomless “For you” feeds. There is a whole range of changes taking place where there are opportunities to raise funds. What work is being done in the Treasury in these areas?
I am personally very much in favour of AI, but it has its damaging effects and we must address them. If the Government continues to focus on it, I believe that AI will find a way to generate great growth in our economy. For those noble Lords who question the wisdom of AI, I suggest getting an app and having a look to see what it suggests on taxation and the ways that funding for public investment can be found.
Lord Bailey of Paddington (Con)
My Lords, I will speak about my fears in the Budget for the poorest communities in the country. Many of our Labour colleagues in the Chamber chuntered when they heard the words “benefits Budget”. As someone who spent 35 years working in some of the poorest communities in this country and who hails from one of those communities, I want noble Lords to be in no doubt that it will be perceived as a benefits Budget.
The Labour Party has a proud history of trying to represent those who have the least financial power in our society. A Labour Party that has forgotten that the antidote to poverty is not welfare but work, leaves those poor communities at risk. Let us be very clear: if working does not pay, people will not work. Anybody who has worked in a poor community knows that there is more to work than the pay at the end of the week: there is dignity and there is freedom. Was it not this Prime Minister who said how unfair the benefits system was, how it trapped people in benefit and how he had a lifelong mission to free people from that? Fast-forward two months and he seems to have forgotten that: I hope Labour colleagues can remind him of it.
This Budget has been part of building a welfare system with perverse incentives which trap people on welfare. That is not fair or right. The economic impact both on people’s family finances and on the country are unbelievable. The Chancellor said that the welfare bill was not sustainable. She seems to have forgotten that. Please go back and remind her.
I now want to comment on the two-child benefit cap being lifted. Many colleagues in the House have stood up and said that it will lift lots of children out of poverty. They are wrong—very wrong—and I will tell them why. When the Chancellor left those levels in place that will lift more and more people into paying tax and more people higher up the taxing, that will wipe out any saving or change to household finances that those benefits may have given. I return to my theme: make work pay. If you want to support poor people and eradicate things such as domestic violence, you have to make work pay.
We have 1.79 million unemployed people, a figure that is growing, and it is young people who bear the brunt of that. We have 111,000 fewer young people in employment than when the Government took office. This is something that they have to turn around. If young people do not learn the skill of working, they may never learn the skill of working. You have young people who cannot go to university unless they can get a job to finance themselves at university. You have households where, if a teenager or someone in their early 20s cannot get a job, the household is no longer financially stable.
One noble Lord here made a comment about not turning this into party-political gesturing. I will do my level best but, as someone who comes from a poor community, I need my Labour colleagues to remind the people in their Executive that this is not about their jobs; anyone here could fill their jobs. We need a Labour Party that is realistic for poor people, a Labour Party that will tell its Chancellor she has done the wrong thing. I ask the Minister: what happened to his leader’s lifelong passion for freeing people from the trap that is our benefits system? What will the Chancellor do about making sure that work pays for the people at the lowest end of the salary scale? That is what will make a difference to this country, that is what will help us replace our economy and that is what will help us get on with growth.
Lord Freyberg (CB)
My Lords, the implications of this Budget for our arts and cultural sector are significant. While the Government have prioritised stabilising the public finances, we must be clear about what this means for a sector that is economically vital, globally respected and central to the cultural life of communities across the country. There are welcome elements: the continuation of enhanced creative industries tax reliefs for theatres and orchestras provides stability; the 40% business rates reduction for film studios until 2034 offers long-term certainty; and the additional funding for school libraries to buy books strengthens early cultural engagement. But these sit against a stark reality.
At the June spending review, the Chancellor announced that most departments will grow in real terms by 1.5% annually to 2028-29, while DCMS will see a 1.4% annual cut. At a time when inflation, wage pressures and incomplete post-pandemic recovery continue to strain the sector, culture is the only area scheduled to shrink. The question is whether we are building a coherent strategy for cultural investment or offering selective support while underlying infrastructure erodes.
I turn first to the tourism levy. The new power for mayors to introduce a modest levy on overnight stays could be transformative. Cities such as New York, Paris and Barcelona reinvest such levies directly into culture and the public realm. Edinburgh’s 5% levy is projected to raise £50 million a year; Liverpool expects around £17 million. If well designed, this could provide the stable, long-term cultural funding that the National Lottery developed and delivered a generation ago. Concerns from the hospitality sector, raised by the noble Baroness, Lady Neville-Rolfe, must be weighed carefully, but international evidence is clear: reasonable levies do not deter visitors. The current consultation is therefore welcome and necessary.
A more urgent challenge is the business rates change facing grass-roots music venues and, equally, artists’ studios and visual arts spaces. As Music Venue Trust and UK Music warn, removing rate relief results in effective increases of around 28%, with some venues reporting rises of up to 91%. Across roughly 600 venues, this is an additional £5.6 million burden after a £7 million increase last year, far exceeding the sector’s entire gross profit of £2.5 million. Between 200 and 300 closures are forecast over the next four to five years.
The same structural vulnerability applies to artists’ studios, small galleries and artist-run spaces, as CVAN highlights. Here, I declare an interest as a former studio-holder. These studios rely heavily on retail, hospitality and leisure relief to keep rents affordable. Its removal will force rent rises on artists already at breaking point or trigger studio closures, undermining the creative workforce, community provision and the Government’s own creative industries strategy. These are the spaces where new talent is forged. Without them, the pipeline dries up.
What assessment have the Government made of these impacts? Will temporary, targeted intervention, such as restoring relief or providing bridging support, be considered until the reformed rates system takes effect? The tourism levy offers promise, but the crisis facing grassroots venues and artist studios is immediate. I urge the Government to pursue the opportunity while acting urgently to prevent irreversible cultural loss.
Baroness Carberry of Muswell Hill (Lab)
My Lords, this Budget continues to build the foundations for a more stable, more resilient and ultimately more productive economy. Some noble Lords in this debate have questioned whether this was a Budget for growth. I remind noble Lords that restoring fiscal credibility is a precondition for growth, and that is what this Chancellor has done.
The Chancellor made the right choices, not least because measures she announced will particularly benefit households on low and average incomes. Several of my noble friends today have noted all the ways in which the Budget helps families battling with the cost of living and the poorest households. I will not run through the list again, but I emphasise that the lowest-paid are going to get a real-terms pay increase next April.
That follows the Low Pay Commission’s recommendations for national living wage and minimum wage upratings. This continues an unbroken record since 1998 of Chancellors accepting or going further than the Low Pay Commission’s recommendations. Like my noble friend Lord Hannett, I served on the Low Pay Commission for many years. The independent, tripartite Low Pay Commission methodology has demonstrably stood the test of time, and that is why I ask the Minister to disregard some of the voices off that are questioning how the UK sets the pay floor.
Next April’s uprating meets the Government’s aim to see the wage floor not drop below two-thirds of median earnings, and this target was set by a Conservative Government in 2020. This year, the commission, chaired very ably by the noble Baroness, Lady Stroud, comprehensively considered the available evidence and judged that the recommendations would not damage the labour market or the economy.
Noble Lords will know that most minimum wage workers are in small and medium-sized businesses; some of these businesses are struggling, and for some the minimum wage rises will be challenging. The Government must support these businesses, and they have done so. The Budget supports our high streets. Our pubs, restaurants and leisure properties will see new lower tax rates. For the smallest businesses in those sectors, rates will be the lowest in more than 30 years; these discounts will be permanent and will benefit over 750,000 properties.
At the same time, I acknowledge that some small businesses will be hit in April by increased property valuations because of post-Covid revaluations. These revaluations are independent of the Government, who are stepping in to cap bills. I welcome the £4 billion support package for small businesses. Most small businesses with property values of under £100,000 will have increases capped at 15% or less, or at £800 for the smallest. All of this builds on measures introduced last year to help small firms grow, access finance and survive economic pressures. Pubs, cafés and shops are the heart of our high streets and provide employment for some of our lowest-paid workers, so will my noble friend the Minister ensure that the effectiveness of support for small businesses is kept under review?
Lord Elliott of Mickle Fell (Con)
My Lords, I will focus on two distinct groups in society: those on welfare requiring work; and wealth creators, who are vital to job creation. Both groups have been let down by the Budget. The welfare changes are not geared towards helping people into work, and the tax rises further repel the people who create jobs.
First, on welfare to work, according to page 65 of the OBR’s forecast, the Government’s welfare measures will help just 55,000 people into work over the next four years—a long way off the 2.2 million people who require jobs for us to get back to 80% employment. Let us not forget that the OBR’s calculations do not factor in the Employment Rights Bill, which even the Resolution Foundation recognises will hinder getting people into work.
Sir Charlie Mayfield’s review into employment for the long-term sick is a truly superb piece of work, but its conclusions need to be implemented at pace. As things stand, to get the number of people on long-term sickness down to 2019 levels, we will have to wait until 2078. This worklessness is a fiscal millstone around the economy’s neck. Paying for the £34 billion increase in universal credit and disability benefits will absorb all of the income tax receipts from Scotland, Wales, Northern Ireland, the north-east and Lincolnshire combined.
That said, the Government are having more success in their efforts to reduce the rate of relative poverty. Why is that? With 16,500 millionaires set to leave the UK this year alone, relative poverty as a measure will improve as our economic prospects suffer. These wealth creators take two valuable things with them: tax revenue and jobs. A former Labour donor, Lakshmi Mittal, who has previously topped the Sunday Times rich list, has left for Switzerland. The CEO of Revolut and the founder of Improbable have both left for Dubai. Optasia has cancelled its plans to list on the London Stock Exchange, opting instead for South Africa. In the words of its founder,
“we have looked at it from every angle and it just doesn’t make sense to stay here”.
Page 82 of the OBR forecast is right to describe the predicted £34 billion revenue from last year’s non-dom tax changes as “highly uncertain”. The temporary repatriation facility will yield nothing like the sums the Government are currently banking on.
There is a long history of people leaving sclerotic economies to join prosperous ones. Whether from East Germany to West Germany, North Korea to South Korea or California to Texas, the exodus of talent and taxpayers is nothing new. Of the 693,000 people who have left the UK in the past year, a disproportionate number are entrepreneurs, investors, employers, philanthropists and, crucially, the wealth creators and job creators of the future. This brings me back to worklessness. We need to create an additional 1.4 million new jobs to get the employment rate back up to 80%. Who will create these jobs if the job creators are leaving?
When the Prime Minister launched the Labour Party’s manifesto, he said:
“With Labour, those who can work, will work. We want more people into work … to get the benefits bill down”.
He went on:
“When I say our number one mission is economic growth, you could say our number one mission is wealth creation”.
I could not put it better myself. I hope that the Government revert to this approach. Not only is it what the public want; more importantly, it is the key to prosperity through growth.
Baroness Jones of Moulsecoomb (GP)
Oh, I do feel ill at ease on these Benches. I welcome the right reverend Prelate the Bishop of Portsmouth to his place and look forward to his future contributions.
This is the second Budget from this Labour Government and I still cannot see the vision. It does not seem to be there in any direction; it is not at all clear. People voted for change and to fix broken Britain, but this looks like more of the same and it will do hardly anything to fix our public services or make bills cheaper. I hear a lot of talk from the Government about big projects and growth, but how much of that is just a taxpayer subsidy for private corporations? I welcome a new generation of local health centres, but why are taxpayers paying several times over for these via PFI schemes? I also welcome fixing our neglected sewerage system, but why are private water companies allowed to up their prices by almost half when water bill payers have already paid for this work to be done?
There is waste in the public sector and that waste is the billions of taxpayer and bill- payer money that gets siphoned off into private profits. Around a quarter of our energy bills ends up as private profit. The solutions are obvious to anyone apart from the corporate lobbyists who infest Westminster. If we want cheaper energy, then take the energy companies into public ownership. If we want lower water bills, then let the water companies fail and take them into public ownership, and free the captive consumers.
As for the Government’s green agenda, I am afraid that this Budget does not measure up. Oil and gas companies are due to get taxpayer millions to try out carbon capture and storage, which is a simply rubbish and untested idea which wastes money that should be spent on insulating homes. We have airport expansion and more pollution, but no tax on aviation fuel, private jets or frequent flyers. My fear is that much of the £1.5 billion being spent on moving the M25 to allow Heathrow to expand will end up being funded by taxpayers. Meanwhile, there are hundreds of bus and rail improvement schemes around the country which get absolutely nothing. The planning system has been changed to allow developers to make a bigger profit with a “trash for cash” approach which will impose schemes on local people which damage nature and do not meet the needs of those communities.
The Budget is meant to be about growth, but Labour is promoting the unhealthy growth of corporate profits and greenhouse gases. The Green Party solutions would cut energy bills by enabling consumers to pay for cheap electricity separately, rather than having energy prices linked to expensive and polluting gas. We would fund any policy measures via tax and reduce energy bills that way. We would also take the big six into public ownership and stop the drain of bill payers’ money into private profits.
Water companies would be expected to do their job and if they fail, they lose the licence. Instead of the Government signing off on higher and higher bills for consumers, we would take them into public ownership and consumers would no longer spend a third of their water bills paying off debt. We would bring in local rent controls, similar to those that have just been granted in Scotland, by giving local authorities the power to control rents.
We would introduce an annual wealth tax of 1% on assets over £10 million and 2% over £1 billion. This would raise at least £14.8 billion. We would also align rates of capital gains tax with income tax, and close loopholes. This would raise at least £12 billion, even after accounting for changes in behaviour. Both these measures are designed to address growing inequality, as well as providing government with the funds to bring down bills for ordinary people.
A Green Budget would be the beginning of the end for a system of privatised utilities fleecing bill payers and the ultra-rich getting away with not paying their fair share. Where is Labour? Where is its vision?
Lord Davies of Brixton (Lab)
I strongly welcome this Budget, particularly the removal of the two-child limit. The remarks made by the noble Lord, Lord Bailey of Paddington, failed to change my mind on the issue. I took them as being the latest iteration of the age-old tactic of the immiseration of those who deserve social support.
Most of my remarks are devoted to the issue of pensions. I agree with my noble friend Lady Nichols of Selby, who is not in her place, about the action on the British Coal Staff Superannuation Scheme and the fact that members will get the full value of the contributions that have been paid on their behalf. I welcome the action being taken in relation to the Pension Protection Fund and the financial assistance scheme, where credit will be given for the increases that were guaranteed before 1997.
I welcome the action on salary sacrifice. The concern that has been expressed about the change is extraordinary. Private pensions get massive tax advantages, which, broadly speaking, I support. Perhaps there should be a proper review of how they work, but taking away less than 1/20th of those advantages in a way that targets that removal of support for those on higher incomes seems an entirely appropriate and reasonable measure.
I also welcome the action on the problems that arise when there are index-linked benefits and frozen tax thresholds. There is a clear potential problem, which I have been warning of since I entered the House about five years ago. This is the first time that any Government have formally acknowledged that this is an issue that needs to be tackled.
First, it is not that it becomes a problem when the new state pension overtakes the tax threshold. It is already a problem, because many pensioners have larger than that standard level of pension, on which they are already having to pay tax. That is entirely right; I am in favour of pensioners paying tax. However, at the moment, because the state pension is not included within the PAYE system, it creates difficulties. People get a brown envelope in the post saying that they must pay a certain amount of money, or their tax codes are adjusted in ways that cause them considerable problems. So this is already an issue and will increasingly become one; action was definitely needed.
My Government have not explained in detail how this simple assessment will work. I have some fears, because whenever a system is introduced as being a simplification, it all too often ends up making things a lot more complicated. So I welcome an assurance from my noble friend the Minister that this will be taken into account when we see what the appropriate solution should be.
Baroness Meyer (Con)
My right honourable friend Kemi Badenoch hit the nail on the head when she described this Budget as one “sold on a lie”. It is a house of cards built on misleading claims about the public finances to justify sweeping tax rises. This is not responsible management; it is politics dressed up as economics.
This Budget does not simply mislead; it takes the country down a dangerous path, drifting towards the very collectivist policies that history warns us against. I say this not only as someone with a background in economics but as someone who, once a fluent Russian speaker, travelled to the Soviet Union many times from 1965. I saw what happens when a Government pursue centralised control, forced redistribution, the stripping away of private property rights and the erosion of individual incentive. It produced stagnation, corruption, loss of freedom, and eventually culminated in the collapse of the Soviet Union. Innovation withered because there was no reward for effort. Bureaucracy flourished because it was the only route to advancement.
While communist elites shopped in secret underground luxury stores filled with western goods, ordinary citizens queued for hours for basic goods. As the old Soviet joke put it, “We pretend to work, and they pretend to pay us”. With this Budget, no one will even need to pretend to work.
People aspire to wealth for security and a better future for their children. Why else do they buy lottery tickets? It is because they dream of being rich, yet the Government fuel resentment toward the rich—the very people who invest, create jobs and contribute most to HMRC’s revenue. Punishing aspiration has never produced growth; it simply drives ambition and talent away. As has been said before, more than 250,000 people have already left the country, with many more following. Companies are relocating operations overseas. Meanwhile, public spending, borrowing and unemployment are up, productivity is flat, investment and construction are falling and growth forecasts are anaemic.
Milton Friedman put it with typical clarity:
“Nobody spends somebody else’s money as carefully as he spends his own”.
Yet the Government demand ever more of the public’s money while showing ever less discipline in how they use it. This is not stability, competence, fairness or compassion, and it is certainly not a responsible plan for growth. It contradicts the Government’s own manifesto and ignores the most basic principle of economic growth. It expands the state while shrinking the economy. How can the Government look our citizens in the eye and explain that families on full benefits will receive £18,000 more a year than some working families? I do not mean rich people; I mean hard-working families. The Budget will make families poorer, businesses less competitive and our economy weaker. These policies expose inexperience and an overconfident Administration, guided not by economic reality but by rigid ideology. I ask the Minister, have this Government learned anything from history?
Lord Mohammed of Tinsley (LD)
My Lords, I start by congratulating the right reverend Prelate the Bishop of Portsmouth on his excellent speech. I look forward to working alongside him on some of the social issues he raised. As we consider the Government’s Budget, I want to focus on education, an area that should form the backbone of our nation’s future prosperity, yet one that the Budget neglects. Let us begin with SEND provision.
Local authorities across the country will breathe a sigh of relief, albeit temporary, on hearing that from 2028-29, the full cost of SEND provision will be absorbed within central government budgets. The Liberal Democrats have long called for a national body for SEND, precisely to end the postcode lottery that forces parents to fight endlessly for support that should be guaranteed. What we see before us is not a plan; it is just an announcement without substance, clarity or the financial underpinning needed to make it real. The Government have identified no offsetting savings—none whatever—to cover the estimated £6 billion this shift will require. Will the Minister comment on this when he responds? Meanwhile, local authorities, as we heard earlier, are racking up an accumulated £14 billion in SEND-related deficits by 2029. Those deficits do not disappear just because Government have centralised SEND in Whitehall.
Turning to student finance, the Budget includes yet another stealth tax, the freezing of repayment and interest thresholds for plan 2 student loans from 2027. Graduates, many earning modest wages in an increasingly uncertain job market, will now be asked to pay more simply for having pursued a university education. This is not reform, it is a quiet raid on the incomes of young people who are already facing unaffordable rents, rising living costs and shrinking opportunities.
Then we come to the education budget itself. By 2028-29, it will fall by 0.1% in real terms. Schools are already in crisis. They are expected to fund breakfast clubs, free school meals and teacher pay awards—not with new investment but by carving out even thinner slices from their already overstretched budgets. To put that into perspective, an 0.1% cut amounts to a shortfall of around £70 million in real terms. That money simply vanishes before it reaches the classrooms. This is intolerable.
Where would the Liberal Democrats get the additional investment needed to fund the education sector properly? We would raise extra funds by implementing a time-limited tax on the big banks, levied on the massive windfalls that they are able to make only thanks to a technical glitch in the financial system. These windfall profits are due to inflation interest rates shooting up. Our measures would raise around £7 billion a year. We also know that increasing taxes is not a solution to a stagnant economy, which is why the Liberal Democrats have consistently called for a new UK-EU customs union raising over £25 billion a year.
As we heard earlier, new research by the US National Bureau of Economic Research has revealed that the previous Government’s Brexit deal is costing British taxpayers £90 billion each year in lost revenue. It is time for the Government to resolve this. Under our plans, we would increase core funding for schools and colleges above inflation year on year. Teachers’ pay and free school meals would be funded properly—and not at the expense of SEND pupils’ learning. SEND provision would be managed fairly and consistently through the national body, eliminating the postcode lottery and ending the chronic underfunding. Maintenance grants for further education and higher education would be expanded without saddling universities with damaging levies.
Baroness Griffin of Princethorpe (Lab)
My Lords, I am delighted to welcome a Budget that puts fairness at the heart of decision-making. I particularly welcome the reversal of the travesty of austerity and the lifting of our most vulnerable children out of poverty. I welcome a pro-growth Budget that invests in infrastructure.
I led on energy poverty in the European Parliament, so I strongly welcome cutting the cost of living, bringing down the average energy bill and investing in green energy infrastructure. I strongly welcome our strengthened relationships with our partner economies in the EU and our beginning to mitigate the disasters of Brexit. I was particularly moved by the maiden speech of the right reverend Prelate the Bishop of Portsmouth and look forward to working with him.
As a city councillor in the 1990s, I represented the poorest ward in Liverpool. When we speak of hydrogen, it has to be green hydrogen derived from renewables. We also need to invest more in energy efficiency—after all, the cheapest fuel is the fuel that you do not use at all. Talent and potential exist in every town, city, rural economy and county. However, they are not yet evenly matched by opportunities, high GDP jobs, skills training or adequate transport links, especially in the north.
While I welcome Northern Powerhouse Rail, the Government must build on the Budget to enhance city region powers and ignite growth in every region and between northern regions, building a sustainable economy and transport links to eradicate, once and for all, socioeconomic disparity for communities such as Liverpool, Crewe and Blackpool. In the European Parliament, every time someone stood up and asked, “What about London?”, I retorted, “What about Manchester, Liverpool and Carlisle?” Our economic recovery must fully embrace the challenges and opportunities of the north.
Lord Horam (Con)
My Lord, any competent economist alive or dead recognises that a crucial part of a Government’s economic performance, particularly one which is predicated on getting more growth, is to control public spending. Margaret Thatcher, although she was not an economist but a chemist, recognised that. When she took over, public spending was 45% of GDP. After 11 years, it was 36%. As a consequence—it was obviously not the only factor—growth in the five years at the end of Margaret Thatcher’s period of office averaged 4% a year, a percentage this Government can only dream of. So, the question the Government face today—when again, public spending is 45% of GDP—is, are they willing to take the decisions about public spending and relief, and getting the private sector going, that Margaret Thatcher did?
It is obviously not easy. It is not painless. I remember that when I was a Cabinet Office Minister under John Major and my noble friend Lord Heseltine, we had a similar problem. There were five quangos—public sector bodies which collectively were losing millions of pounds. We decided to privatise them. One of them was Her Majesty’s Stationery Office. As soon as this got around, I received a call from Betty Boothroyd, who was the Speaker at the time. She had me in and said, “Minister, HMSO also prints Hansard. I will not have it”. Recognising that taking on Betty Boothroyd in full flow was rather like encountering the Brigade of Guards, I said, “Betty, what if we leave Hansard in the public sector and privatise the rest?” I got a beatific smile, and the deal was done. Today Hansard is still published by the public sector, and we saved the taxpayer £30 million by privatising the rest, as an excellent company called Banner.
That shows what can be done. It is not difficult. It is not impossible. Did this Government do that? No: instead of controlling and ameliorating the public sector and the problems of welfare and pensions which they inherited, they instead increased taxation by £26 billion. The verdict is in. The OECD yesterday published the economic growth forecast for the next few years: 1.4% this year, 1.2% next year and 1.3% in 2027. Professor David Miles, giving evidence to MPs from the OBR point of view, said that this, combined with inflation, would mean only a 0.2% average increase in living standards during the next four years. It is a complete standstill. There is no progress. None of the change that the public were entitled to expect from a Government who were elected on change has happened. It is more of the same. It is politics for decline, politics for defeatism. It simply is not good enough.
Lord Inglewood (CB)
I must begin by making a declaration relating to my interests as listed in the register: I am a farmer, a landowner and a businessman in Cumbria. We are today asked to take note of the Budget, but that cannot be done as an exercise in textual exegesis because it is set in the context of the world we live in. I believe the Government’s starting point is right. We must have growth, and secondly, the broadest shoulders should bear the heaviest burden.
We are living in an economic land of two nations. The first is the Westminster bubble writ large: the world of university theses, computer models, think tanks and digital technology that handles more or less virtual money, and so on and so forth. The other is rather less glamorous and somewhat grubbier: the world of what my children call “doing stuff”. Much of this happens outside the penumbra of cosmopolitan glitz, and many of these businesses and people are, as the Minister told us in his opening remarks—I will use a neutral phrase—experiencing hard times.
For these businesses, the intellectual elegance of the computer model is a plaything of fantasy. Many of them are the warp and weft of most of our country, at the centre of place, the bedrock of communities. Many of them are struggling to pay the wages, keep people in employment, remain solvent, and keep on trading. That is where the welfare payments come from—not to say jobs. Many of them are not branch businesses; they contribute pro bono to the communities in which they are set. The Budget is compounding their cash flow challenges as the state sucks away their working capital, just as Count Dracula sucked the blood from young women’s necks. Their economic shoulder blades are being broken, and whatever the law or a computer might say, badly broken shoulder blades cannot carry anything. To survive, their working capital must be kept in situ until it is cashed in. I believe it is as simple as that.
I would like to conclude on a more general level and look at what might be called l’Angleterre profonde—rural Britain. I hasten to add that I do not mean the Cotswolds, which I hear about with increasing incredulity through the media. I am particularly thinking of the part of the north-west of England I know best, where businesses—not only agriculture—are increasingly being starved of the lifeblood of cash, which threatens their survival. Yet they are providing a very large range of valued public goods, for which, in many instances, they receive a derisory amount of money, or none at all.
Agricultural economics has always been a discrete subject of economics more widely. In the case of the Marshallian triangle of land, labour and capital, in agriculture, land and capital are the same. This is at the heart of my own local recently elected MP’s brave and principled stand in the other place. He is standing up for his constituents, which is what my friends and neighbours sent him there to do. He, like me, sees a dismal picture. It is a dismal prospect engendered by a dismal science, which prioritises policies generated by computers, algorithms and so on over the various realities and actualities faced by businesses and those working in them the length and breadth of the land.
The Lord Bishop of Manchester
My Lords, I congratulate my right reverend friend the Bishop of Portsmouth on his excellent maiden speech. Not least as our lead Bishop on education, I believe he will have an immediate and valuable contribution to make to the remaining stages of the Children’s Wellbeing and Schools Bill. He and I first met as opponents on the cricket field many years ago; I am sure he will build as long and solid an innings here in your Lordships’ House as ever he did at the wicket.
I also join many noble Lords in adding my deepest thanks to the Government for bringing the two-child limit to an end. I never felt it right or just to push a child into poverty simply for having too many sisters or brothers; it makes even less sense when we badly need a birth rate that will provide Britain with tomorrow’s workforce without having to rely on migration to fill the labour market gaps. I look forward to seeing the wider child poverty strategy.
I further welcome moves to reduce household energy bills, changes on apprenticeships, and the freeze on rail fares. Gambling addiction remains a blight on our nation, especially online, so I support the increase in tax on online sites. My right reverend friend the Bishop of Hereford is currently attending on His Majesty and hence is not in his seat; I know that he would like attention drawn to how the Budget impacts the farming community, particularly family farms, and the rural economy. I was going to say more, but the noble Lord, Lord Inglewood, has pipped me to the post—and with rather more colourful words than I might have mustered myself.
A 19th-century Act of Parliament determined that vicars should live in their benefices. Residence ensures that parishioners have easy access to them and that the vicar is a visible face on the streets of the parish, not merely another middle-class commuter. The modern vicarage is rarely as large and luxurious as some of former times; however, it needs not only to accommodate the priest and their household but to host meetings, provide a meeting place for parishioners, and provide study and office space. In many parts of London and the south-east, location factors mean that even in a relatively poor parish, the vicarage will have a capital value over the £2 million threshold for what we are learning to call the “mansion tax”. Few parishes will be able to pay this additional tax, nor can dioceses simply absorb the costs. If we are to maintain the important principle of clergy living where they serve, including those from other denominations, I urge the Minister to meet with church representatives so that we can discuss how the existing tax exemptions applying to the residences of ministers of religion can perhaps be extended.
Finally, places of worship are often anchor buildings on our high streets and in village centres. Their work is not just on Sunday mornings but throughout the week, with activities from pre-school groups to a warm welcome for the lonely, including a growing network of baby banks—several have started in my own diocese—which tackle poverty among families with very young children. Work to repair and improve such properties is not cheap, but it is vital if they are to continue to serve their communities and help to sustain flourishing village centres and high streets. Much-needed renovation and improvement work is currently being stalled by the lack of a secure, long-term future for the listed places of worship repair scheme. Will the Minister commit to reviewing the future of this vital scheme so that it can be extended in time, and commit to withdrawing the harmful limit of £25,000 a year, which was introduced only recently and makes many larger refurbishments unaffordable?
Lord Kempsell (Con)
My Lords, this is quite rightly a wide-ranging debate and there is much to deal with when it comes to the Government’s handling of the economy, so I will confine myself to two points. One is an area that has been very gracefully elided and skated over by so many noble Lords on the opposite side of your Lordships’ House: the question of the process, rather than the policy, that led up to this Budget. Surely the distinctive nature of the Budget event was the chaotic handling of the process around it. The pre-Budget period was marked by briefing, counter-briefing, leaks, press conferences and indeed market speculation. It became—I think noble Lords will agree—a national embarrassment.
Even if we put aside the OBR’s error, an accident that is now being employed as a smokescreen by the Chancellor, we now know that, ahead of the Statement, a very large number of savers withdrew money from their pensions. For many, that was a one-off, irreversible financial decision. I refer noble Lords to the Financial Times this morning, where professional wealth managers are quoted at length on this. One said that there have been “elevated withdrawals from pensions” as a result of concerns and speculation about the removal of tax-free cash. They said that this led to
“hundreds of millions of pounds of additional outflows from our business”.
Another professional wealth manager said that people act on speculation and, if they take money out of their pension prematurely, they have damaged their pension going forward. People’s pensions have been damaged due to the speculation.
I previously served as a special adviser in government. I know exactly how the briefings and press conferences emerge. Usually, they are political chaff that can be ignored as tomorrow’s chip paper, but not in this case. We know without doubt that the political and media activity of Ministers and special advisers ahead of the Budget drove market speculation to sky-high levels, leading to real-world financial consequences for savers. So I ask the Minister: when the Treasury undertakes the investigation that I know the Chancellor has ordered into Budget leaks, will that investigation also include consideration of the deliberate media strategy in the run-up to the Budget? It was clearly planned, followed and designed by the department, including the sudden breakfast TV appearance by the Chancellor as the prime example.
Secondly and in closing, I turn to the excellent speech made by my noble friend Lord Bailey of Paddington. He adumbrated with great insight and with clear thought the difficulties that are now faced by the most struggling families in our country after this Budget. As one of the youngest Members of your Lordships’ House, and an aspirational one at that, I add that this Budget did nothing for young aspirational people across the country. We have the freezing of student loan interest rates; the tax threshold freeze; job creators and entrepreneurs who create entry-level jobs all over the country leaving as quickly as planes can carry them; the costs of employment going up for the youngest workers; and indeed the ballooning welfare budget. None of that is good for young strivers—the ambitious young families who want to build careers and wealth. So I ask the Minister: how will the Government correct their course for the youngest in our country?
Baroness Rafferty (Lab)
My Lords, it is a pleasure to add my congratulations to the right reverend Prelate the Bishop of Portsmouth on his excellent maiden speech. I look forward to working with him in the future. I speak as a nurse, past president of the Royal College of Nursing and fellow of the Queen’s Institute of Community Nursing.
I counter the challenge from the noble Baroness, Lady Jones, about the lack of vision in the Budget. When I look at the health elements of this Budget, I see that it speaks very much to the wider social determinants of health and the impact they have on health outcomes, as well as specific health-related investments. Several non-health parts of the Budget, such as housing, education and the environment, can boost future health.
As we have heard, according to government and independent estimates, changes to welfare, including removing the two-child limit and boosting support for low-income families, will lift 450,000 children out of poverty, rising to around 550,000 with the expansion of free school meals. That is no mean achievement. As a result of this, together with the cutting of energy bills, the raising of the national living wage and the protection of pensions, households are more likely to be able to afford food, heating and other essentials that underpin good physical and mental health, both for parents and for children, by reducing chronic financial stress.
I turn to health per se. The £300 million capital investment in tech infrastructure seeks to ensure co-ordination between primary and secondary care through the NHS app. This is to be welcomed as the tech “front door” to connecting care through a single user interface. In many ways, this is the digital dream come true and, if I understand it correctly, it promises to bring together patient records from different parts of the system that cannot now talk to each other. It will help patients not only to navigate and co-ordinate their own care but to deal with some of the barriers to care co-ordination that are growing in complexity with an ageing population contending with multiple comorbidities.
The Government’s establishment of 250 new neighbourhood health centres across England will help with another of the Government’s shifts: bringing care closer to home. These one-stop shops bring together a range of services to support more preventive and sustainable health care. The programmes will be provided through a combination of public investment and public/private partnerships, and I hope they will be informed by lessons from the previous PFI initiatives.
The Queen’s Nursing Institute and the Royal College of Nursing have welcomed the investment in neighbourhood health centres, but we must ensure that the Labour Government’s NHS workforce plan supports these hubs via adequate staffing. The Nuffield Trust notes a staggering 43% decline in district nurse numbers since 2009. Secure staffing is essential if the policy goal of moving care closer to home is to be achieved. Although the new centres are to be welcomed, they will require such investment to reverse the cuts to public health services such as health visiting and school nursing. Can my noble friend the Minister assure me that the investments to achieve this will be made available? I am sure he joins me in supporting the Budget’s welcome ambition of more nurses. I would welcome his reflections on how these numbers will be translated into the reality of the NHS workforce plan and its implementation.
Baroness Morrissey (Con)
My Lords, my noble friend Lord Kempsell has rightly just spoken about the shambolic orchestration of this Budget and the damage it has done: the erosion of public trust, the damage to business confidence and how it has undermined Britain’s credibility abroad. That is particularly important, because there are two other major issues that I will focus on that have created more of a problem as we try to move on from the Budget.
I hope it is fair to suggest that many Britons have an ambivalent relationship with ambition, certainly compared with Americans, who celebrate success as fulfilling the American dream. There is, sadly, no equivalent British dream, although there have been times when the Government of the day have encouraged aspiration. I was just 13 when Margaret Thatcher became Prime Minister. I attended the local state school—originally a secondary modern—and I longed for a brighter future. The Government’s approach then encouraged me to seek and to seize opportunities: to be a worker, not a shirker. Contributing to society, aiming high, being productive and self-reliant: that is what my husband and I now encourage in our family of nine children—the right reverend Prelate the Bishop of Manchester might be pleased to hear that we are doing our bit for the birth rate.
This Budget sends the opposite message. It says, “Work hard and we will come after the fruits of your labour; succeed and we will penalise you. We will tax your income, your home, your dividends, your pension, your savings, your inheritance and school fees—if you dare to send your children to private school—and we will give that money to those who do not work, including 1 million foreign nationals and 9 million working-age economically inactive British adults”. This is disastrous for the future of our country. The brain drain of the best and the brightest, referred to by my noble friends Lord Elliott of Mickle Fell and Lady Meyer, will only get worse as the ambitious and entrepreneurial leave for countries that do offer, as Margaret Thatcher put it, an
“economic background which enables … private enterprise to flourish for the benefit of the consumer, employee, the pensioner, and society as a whole”.
Without wealth creation, Britain will quickly run out of money: in fact, we already have. We are living far beyond our means. What is more worrying is that we may also quickly run out of road to borrow in order to sustain this. That is my second big concern.
I was a bond fund manager for 15 years, and now chair an endowment fund, as set out in my registered interests. In my view, the risks of investing in gilts far outweigh the potential rewards now. The gilt market is unusual in two important respects. UK Government debt is an average 14 years to maturity, much longer than in other G7 countries. In France, for example, the figure is eight and a half years. That means we have now locked in high borrowing costs for far longer than other heavily indebted counties.
The second idiosyncrasy is a much bigger proportion of index-linked bonds, 25% of the total, so stubbornly high inflation—as we have today—adds more to interest costs, and we could not inflate our way out of a debt crisis, even if we wanted to.
Both factors increase the risk of a borrowing crisis. The gilt market initially reacted benignly to the Budget, because it was not as bad as was feared. But the harsh reality is that it is a “spend now, tax later” Budget. We are increasingly dependent on the kindness of strangers to keep our credit lines open: a third of gilts are held by foreign investors. We are walking a borrowing tightrope and, without fundamental reform of our welfare system, the only route to the other side is stronger economic growth. That is clearly the Government’s objective, as the Chancellor is fond of repeating. But the reality is that her economic policy is dampening growth now, and significantly limiting its future potential. This Budget makes us dangerously exposed to the next economic crisis, and increases the chances of that happening. It takes Britain backwards at a time when we badly need to reignite optimism, economic activity, ambition and aspiration.
Lord Macpherson of Earl’s Court (CB)
My Lords, it is axiomatic that, if you want to land a difficult message, it is best to start with some positives: so here goes. First, all credit to the Government for sticking to their fiscal rules, and increasing their safety margin. I admit that I had my doubts this time last year. Secondly, the overall Budget judgment looks about right: supporting the economy this year and next, but tightening policy thereafter. Thirdly, the measures to reduce inflationary pressures in the coming year should help the Bank of England ease monetary policy further. I am therefore not surprised by the positive response of the gilt market. Given the size of the national debt, it will be the interest rate demanded by the market that will determine the Government’s future room for manoeuvre.
So why has the reception of the Budget been so negative? Pre-briefing is partly to blame. There is a reason, over and above market sensitivity, why Chancellors as different as Nigel Lawson and Gordon Brown have favoured Budget secrecy. It allows them to control the narrative and tell the economic story on their terms. I have considerable sympathy for the Chancellor on the OBR leak, but the endless briefing and leaking before that point was surely the Treasury’s responsibility. In 2013, following a similar leak, I carried out a review in which I recommended that the Treasury introduce a ban on the pre-release of the Budget: that is, the economic and fiscal projections, the fiscal judgment and individual tax rates, reliefs and allowances. The then Government, and I think the Official Opposition, accepted my recommendations. Can the Financial Secretary confirm that the Government still accept this recommendation?
I also worry about the Budget measures themselves. I, for one, celebrated when we were led to understand that income tax rates would be raised. I know it would have broken the manifesto commitment, but at least it could have addressed the issue of the growing number of people facing high, sometimes penal, marginal rates as child benefit, childcare support and the personal allowance are withdrawn.
I continue to worry about intergenerational fairness. I feel that better-off pensioners—I speak as one—could have contributed more. Not only is my triple-lock pension safe, but my dividends are not going to be taxed more and I still do not pay any national insurance on my earnings. I am broadly in favour of abolishing the two-child benefit cap. I do not accept the argument that it will worsen work incentives; that is the beauty of the universal credit system introduced by the previous Government. But surely this should have been announced at the same time as sickness benefit reform, the better to get the Government’s Back-Benchers to accept it.
I also worry about the timing of the proposed tax increases. I criticised the previous Government’s Augustinian approach to fiscal policy. The Government appear to be adopting the same approach, albeit with different sides of the ledger: more spending today financed by tax increases several years down the line. Given demographic pressures, the tax take has to rise, but I fear that the Government will find it all but impossible to deliver. There is a reason the tax take has been so stable over the last 75 years, never going below 28.3% or above 35.2%. Getting revenue in is a difficult business, and the tax base is less buoyant than it was.
The optimist in me hopes that the economy will grow, that some of the tax increase may prove unnecessary and that the Government can cut taxes in the run-up to the election as Mr Healey did back in 1978. But I have to say, I am less than confident.
Lord Moynihan of Chelsea (Con)
My Lords, we all know the economy is in a fix. We are spending far more than we can afford, taxing at dysfunctionally high levels so that businesses and people—this was laid out very clearly by my noble friend Lord Elliott—are fleeing the country, and regulating the economy to death. The future is a downward spiral of recession, inflation and economic crisis.
As we all know, the solution is economic growth, as many noble Lords have said. The Government say it is their top priority. But do our Government have any theory at all as to what produces growth? Growth does not come, as so many Lords on the opposite Benches seem to believe, from spending more money. It comes from a smaller state—the evidence is irrefutable—lower taxes and less regulation.
Please let us stop the economic illiteracy of claiming that, had we stayed in the EU, we would have grown up to 8% more. We have heard 8%, 7% and 6%. I am sure the Minister will want to up his game from the traditional 4% that he likes to trot out on all occasions when he is summing up. We hear that we would have grown 8% more than Germany, France and Italy, which we have grown at the same rate as since Brexit, had we stayed in the EU. Noble Lords may not understand—and appear not to understand—that the papers on which they rely, so-called “doppelganger papers”, say that we would have grown that much faster if we had grown at the same rate as the United States. Do they understand that or do they just read the headlines?
It is correct: had we grown at the same rate as the United States, had we adopted its economic framework, yes, we would have grown that much faster because the United States did. Therefore, we needed a deeper—not a so-called softer—Brexit if we wanted to grow faster. Our poor productivity record, which all in this House agree, it seems to me, has caused low growth, is almost entirely in the public sector. The private sector has grown its productivity by 30%. Are noble Lords asserting that, had we stayed in the EU, our civil servants would have forsworn their four-day weeks, their working from home, their gold-plated pensions, or their higher and higher salaries? I do not think they are. Are they saying that that is what would have caused us to grow faster—that, had we stayed in the EU, the public sector would have become more productive? I beseech noble Lords to think a little bit harder about the basis of their assertions.
Being kind is not going to get us out of this jam. Just to get back to Tony Blair levels requires some £300 billion less of expenditure. There are many opportunities to spend less. Our cost of electricity is the highest in the world, four times that of the US. We should stop pretending and get rid of net zero. We would be £220 billion better off had we done so.
An out-of-work family gets to be some £18,000 a year better off than a working family. That is unconscionable and unjustifiable. Work must pay more than unemployment. Benefits, therefore, must be cut by large amounts.
On regulation, we should stop thinking that we know best. Nuclear power stations in South Korea cost a quarter to one-sixth the amount that it costs to build nuclear here. Had we done that, we would never have gone with solar and wind. The construction industry has collapsed because of regulation.
To conclude, there is no money. Until we are spending at some two-thirds of the current rate, the economy will get worse. It is a failure of leadership not to acknowledge that. We have to tell the electorate. We have to settle on how much we can afford to spend, what cuts are needed to achieve that, which taxes should then be reduced and which regulations abolished. Until we have a programme that addresses those questions, this Government are only playing at governing.
Lord Rook (Lab)
My Lords, it is an honour to speak in this debate, and to welcome the right reverend Prelate the Bishop of Portsmouth to your Lordships’ House. As someone who grew up in Portsmouth, I can say that it is great to have more of Pompey in this place, and some of the remarks from the right reverend Prelate’s excellent maiden speech will probably be echoed in my speech.
Growing up in Portsmouth afforded me many pleasures and privileges. Among these were my first attempts at youth work at a Salvation Army youth club in Southsea. I say that for a reason. This Budget marks a welcome shift toward us valuing young people in this country, and the Chancellor deserves recognition for that. Two decisions in particular provide hope. The first is the abolition of the two-child limit. This is not an expansion of welfare spending. It is fully funded, through commitments to reform Motability, reclaim waste, tackle fraud and error, and close tax loopholes. Most importantly, it is an investment in our long-term prosperity. It is quite clear that a child growing up in poverty is less likely to work, will earn far less as an adult, and will rely longer on the state for support. Child poverty is costly to us as a country. Poverty today reduces productivity tomorrow. Less support now results in a higher welfare bill in the future. Ending the two-child limit is both a morally and an economically responsible choice to make.
The second decision is the creation of the youth job guarantee. By replacing benefits for young people who have been unemployed for 18 months with a guaranteed job, apprenticeship, or training programme, we reduce the welfare bill, promote work over dependency and help young people into good work. Given the success of the future jobs fund under a past Labour Government, I ask my noble friend the Minister only whether young adults might become eligible for the programme slightly earlier, perhaps at 12 or six months out of work.
While this Budget provides a way forward, we should not ignore the reasons why we are here. Successive Governments have rightly protected and invested in greater security for older people but, at the same time, we have quietly dismantled services for children and young people. Sure Start closed, youth services were stripped back, and statutory youth work disappeared. When the pandemic struck and experts told the Government that £15 billion of investment was needed to support pupils who had fallen behind, only a fraction was provided. The current crisis is not accidental; it is the result of a continual and considerable disinvestment in our young people, and the consequences are there for all to see: a youth mental health crisis; hundreds of thousands of young adults struggling to find work; more young families relying on food banks than ever before; fraying social cohesion and fractured communities; and a generation increasingly disengaged from civic life.
A country that disinvests in its future citizens cannot expect the next generation to invest in their nation. While these Budget measures are welcome, we can all do more and better, and we must, because it takes a society to raise a generation. It takes schools and colleges, yes, but it also takes charities and employers, volunteers and youth workers, faith communities and millions of good neighbours. Today I want to argue for something ambitious and necessary: a grand coalition of the youthful, not defined by age but by all of us who have a youthful spirit and an unswerving commitment to the next generation. It should be a coalition of institutions, leaders and citizens who believe that Britain’s national renewal depends on a new deal for young people, where: no child grows up in poverty; every young person has a route to work; every community has safe spaces for young people to gather and belong; mental health care and housing are available when needed; and every young person can discover their vocation—not just a job, but a purpose. The future belongs to those who can give the next generation something to hope for. I hope that we will be a grand coalition that will give the next generation a reason to hope.
Lord Massey of Hampstead (Con)
My Lords, I will make some general comments about the Budget and then some suggestions that might help the Government to generate some growth via the financial sector. I declare my interest as a director of a financial services firm.
This was a budget for politics, not economics. Other than restoring some financial headroom, this was a Budget for ideology at the expense of the promises made to voters about tax and growth. It was a reinforcement of the culture of dependency that is slowly but surely strangling the economies of western Europe. We are living in a society where rights and entitlements are everywhere, but duties and responsibilities no longer seem to matter. Of course, there should be a safety net, but we are now in a position where in many cases it is more remunerative, as many other noble Lords have said today, to stay at home than go to work. This is a disaster for our economy, our culture, and the development of our children, as my noble friend Lord Bailey said earlier.
The abolition of the two-child benefit cap magnifies the problem—and, which has not been mentioned, adds to the pull factors attracting even more immigration to this country, both legal and illegal. The dependency culture was illustrated by a radio interview given this week by the Chief Secretary to the Prime Minister, who described the additional benefits in the Budget as
“an investment in support for poorer families”.
The UK needs more investment, but transfer payments do not add to real growth or competitiveness. What we need is investment in the businesses of the future that can create jobs and wealth.
The Government recognise the importance of private sector investment, as the Minister said in his opening speech, and of scale-ups, and sensibly increased the thresholds for qualifying EIS and venture capital trusts in the Budget. This was welcome—but in the same breath the Chancellor reduced the incentive to invest in these high-risk companies by cutting the income tax relief from 30% to 20%. The last time the Government cut relief in this way was in 2007, which led to a catastrophic reduction in inflows into venture capital. Inflows actually fell by 80% over the subsequent years, and it took 16 years to recover to the original peak.
Investor demand in high-risk companies from private investors is, understandably, very sensitive to levels of tax incentives. We are already seeing a substantial reduction in demand for AIM stocks following last year’s reduction in the BPR from 40% to 20%. I urge the Government to look again at the impact of the reduction in tax relief, which may lead to a much sharper decline in investment than is currently envisaged.
In addition, it is worth looking at these measures in relation to AIM. The reductions in BPR and VCT relief affect listed companies, but not unlisted companies. EIS and unlisted IHT schemes now have a clear advantage over AIM. This may be an unintended consequence of these measures, as I know the Government are keen to promote London public markets as they are so important for scaling up.
Another source of potential growth for UK plc is the stocks and shares ISA. ISAs attract more than £100 billion of investment from private individuals. Two-thirds of this goes into cash ISAs. The Budget reduced the investable limit from £20,000 to £12,000. I understand this decision, as cash ISAs do little to generate growth. I will make a suggestion for the future of stocks and shares ISAs, which constitute a significant £30 billion of investment. The reality is that most of the investment going into these ISAs ends up in foreign companies, as is the case with our £3 trillion defined benefit pension schemes, where only 4% is invested in UK companies. Why do we provide tax advantages to invest in Microsoft of Nvidia when there are excellent investment opportunities here which would help grow our economy? Given our urgent need for investment—on which I think we all agree—now is the time for the Government to get a return on their tax breaks and require ISA investors to buy UK companies only. There is an opportunity here to kick-start a recovery—
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
I ask the noble Lord to bring his remarks to an end, as he is over the time limit.
Baroness Deech (CB)
My Lords, this is a Budget that punishes anyone who tries to do the right thing. I have driven electric cars for 10 years, only to find that there is no benefit. I would not blame anyone who now decided to buy a petrol car while they can.
The Prime Minister hails the abolition of the two-child benefit cap as a moral advance towards reducing child poverty. Yet it could equally well be said that it is immoral when working families have to support those who have more children than they do without counting the cost or working. This is not the fairest and most effective way to tackle poverty. The cap reflected fairness. Taxpayers should not subsidise family size choices that they themselves funded.
Critics argue that children should not suffer for birth circumstances. This is true, but welfare generosity has overridden good parenting aims and work incentives. Evidence shows that removing the cap could reduce employment incentives. By 2026, an out-of-work family with three children will get more in benefits than a working household on the national living wage. For single parents, the gap is equally true. We can all see that work does not pay and there is no disincentive to dependency on benefits.
Lifting the cap does nothing to address deeper causes of poverty. Consider child maintenance. As of March, parents owed nearly £493 million in unpaid support, leaving more than 300,000 children without legally owed payments. The Child Maintenance Service has failed to enforce compliance, with hundreds of millions in arrears. One in five separated parents fails to pay full child maintenance. Enforcing maintenance payments would move 100,000 children out of absolute low income each year. It is almost taboo to say that Governments should not be incentivising family break-ups and unstable cohabitation arrangements. They need attention. I ask the Government to help the Child Maintenance Service get the money for these children.
Child poverty is predictable. Tower Hamlets, for example, now records the highest overall rate at 46.5%. Families there have higher birth rates, with the lack of extra benefit having no effect. Families from ethnic minority backgrounds are disproportionately affected, with nearly half of children from black and Asian communities living in relative poverty, compared with a quarter of white children. Up and down the country, the extra cash will go where these conditions are found, but the lifestyle is unlikely to change for the better.
There are better alternatives. Early interventions, such as more provision of affordable childcare, encouragement to girls to get as much as education as possible before starting a family, as well as encouraging women to go out to work, would bring long-term benefits for health, education and family stability. Strengthening social services and expanding childcare would address root causes more effectively than lifting the cap, and it would do more to ensure that child poverty is not handed down generation to generation.
Welfare policy is not just about handing out cash without responsibility. There is nothing wrong with suggesting to couples that they should not have more children if they cannot look after them and that they should not expect others to pick up the tab. Ending the cap may ease hardship for some families—provided the cash is spent on children—but it is a divisive, blunt instrument, seeming to be set more to please party activists than the general tax-paying public, who tend to be not in favour.
Lord Pitkeathley of Camden Town (Lab)
My Lords, I first acknowledge the maiden contribution of the right reverend Prelate the Bishop of Portsmouth, who I welcome to the House, as well as the rare privilege of speaking in the same debate as my noble kinswoman Lady Pitkeathley.
Lord Pitkeathley of Camden Town (Lab)
I could have said, “My mum”, you are right.
The headroom has pleased the markets. The currency is doing better and the Chancellor, despite noises around her, will feel that we now have a stable platform to build on. However, as I listen to today’s debate, in and outside the Chamber, I sense a direction of travel that leads me to a simple challenge. If one’s preferred response to our current position is essentially, “Well, I wouldn’t start from here”, then one may be missing the salient point: here is the only place to start from—this moment, these constraints and this inheritance, not the one we wish we had. If we get the macro picture wrong, we all know what follows, and within the limits the Chancellor has to work with the real question becomes: what else does one actually, workably, do?
Far too often, criticism without responsibility is treated as contribution. But if we are genuinely interested in solutions, then our starting point must be the real fiscal and political constraints in front of us, not a fantasy world where money is infinite, trade-offs do not exist, and the economics politely step aside while ideology enjoys itself. We all know the refrain: “Everyone needs to do their bit”, and the reply, “Yes, but why does one of them have to be me?” We all agree that we need new infrastructure and new public commons, and in the next line: “Yes, but does it absolutely have to be near me?” When we discuss tax reform, welfare reform or planning reform, we hear: “Yes, but must it really apply to people like me?” There is always a constituency for change in general and an equal constituency against change in particular.
Against this backdrop, building a strong economy is vital, so the projected increase in growth from 1% to 1.5% is welcome. Having wages rising is welcome and productivity, the eternal British riddle, seems finally to be turning, although I acknowledge that the OBR largely seems to have given up on forecasting significant gains. With likely losses in professional jobs as AI adoption accelerates, that caution is understandable.
Lower inflation and the hope of lower interest rates is a relief. The focus on helping high-potential firms to scale and stay is essential; for too long, we have been the R&D lab for the rest of the world. The entrepreneurship policy paper published alongside the Budget, which includes increasing limits for venture capital trusts and the enterprise investment scheme, more British Business Bank capital going to key industries and departments using procurement to promote innovation, is more welcome news.
Tax cuts for high-street businesses are also welcome and should, once the complexities around reliefs per hereditament—and, yes, I do know what a hereditament is—are understood, reduce bills for many, although concerns remain about how larger payers will react and the coinciding business rates revaluation inevitably makes life harder for some. And London, once again, is being asked to shoulder an ever-increasing share of the burden as if this had no consequence for the wider economy.
Two difficult truths also deserve stating. First, Brexit and austerity have been economically unhelpful. Secondly, taxing wealth a little more like we tax work is not radical; it is overdue and fair. Where today’s debate has been useful is where it has been rooted in where we actually stand. The question is not “What is the perfect solution?” but “What is the best responsible path from here?”, because here, with all its imperfections, is where the British economy lives, and it is the only place from which we can build the future we say we want. That, it seems to me, is the future the Chancellor clearly has in her sights.
Lord Ranger of Northwood (Con)
My Lords, I also welcome the right reverend Prelate the Bishop of Portsmouth and congratulate him on his maiden speech, and I thank the Minister, the whole Front-Bench team and the team at the Treasury. It is hard work delivering a Budget, and it is hard work for many out there.
This morning, while I was at my son’s nativity play, I asked a fellow parent how the Budget landed for him—an investor, an entrepreneur, a wealth creator and an employer. He said: “The damage was done last year. This year, it is just on top. But at least they did not bring in the exit tax, so the option is still open to me”. So, there is some silver lining for some people.
I will focus on the sector that I have been focused on in industry and am focused on now, which is AI—something that is driving UK businesses. I have said it before, and I will say it again: UK AI businesses are booming. I refer to my registered interest as a co-founder of the Business AI Alliance community of over 170 businesses and independent experts, and as an adviser to AI businesses. From this perspective, on the surface, this Budget offers promise, but in truth, for UK AI SMEs, it falls short.
I recognise the comments from my noble friends Lady Penn and Lord Massey on the welcome changes to the expansion of the enterprise management incentives scheme, the boosted limits in the enterprise investment scheme and the improvements to the venture capital trust framework, which will help scaling businesses attract investment. The much-needed refocusing and pledges for support through UK Research and Innovation should broadly provide more support for innovation, including in sectors such as AI. Yet these measures, while helpful, in no way amount to the comprehensive, sustained support required, as the Prime Minister has said, to make the UK one of the great AI superpowers.
How does the Budget fail UK AI start-ups and SMEs in practice? First, the scale of funding is too small, scattered too thinly. The declared support for AI, for example through new growth zones, remains modest compared to the size of the task. The AI growth zones, while laudable in ambition, do not provide sector-wide grants, infrastructure investment or access to high-end compute for thousands of AI SMEs hoping to scale. Many promising AI firms will remain outside these zones, left to scrape by without meaningful support.
Secondly, there is a lack of targeted support for AI infrastructure and data-intensive needs. AI businesses, especially those working in machine learning with large language models and data analytics, need robust infrastructure, cloud compute, hardware, data access and high-performance chips. The Budget’s nod towards an advanced market commitment for AI chips is welcome on paper, but a one-off scheme, even up to £100 million, is insufficient. It does not guarantee access to the infrastructure every AI start-up needs to train models, run inference at scale or compete globally. I appreciate the difference in scale of the US, but the US CHIPS and Science Act offers over $52 billion of subsidies. Without long-term, large-scale investment in compute infrastructure, the UK risks forcing AI firms to rely on overseas providers, undermining sovereignty and cost-efficiency and costing local job creation.
Our tax incentives are too generic. While expanding EMI, EIS and VCT rules broadly helps, it does not address the unique challenges of AI SMEs. In short, the Budget offers shallow support scattered over a few nice-to-haves, but we need more serious commitment to build a thriving global AI industry in the UK. To be the player on the world stage we need to be, to attract global capital and to create high-paid, skilled jobs, we need more than promises and incremental support. We need a vision and we must be bold. A long-term fiscal strategy, at scale and to scale, is required.
Baroness Shawcross-Wolfson (Con)
My Lords, like many previous and much more illustrious speakers, I have had the privilege of being involved in numerous Budgets. As I am sure the Minister will want me to point out, some were more successful than others. I have never regained my taste for Cornish pasties.
Those experiences mean that I appreciate how difficult it is to pull together a Budget. I pay tribute to the incredibly talented and dedicated officials in the Treasury and the OBR who work so hard on these events. I also pay tribute to Treasury Ministers. Whatever you think of the choices made in any given Budget, the process forces Ministers to spell out their trade-offs in a way that very few others in government are required to do. It is an essential discipline. With that spirit of ministerial transparency in mind, and given the wide-ranging and insightful contributions already made on tax and growth, I will concentrate my remarks on the Government’s spending plans.
In the Budget last week, we saw specific policy decisions increase welfare spending by £9 billion and the overall forecast for welfare spending in 2029-30 revised up by £16 billion. Then, on Monday, the Prime Minister reaffirmed his moral commitment to go further on welfare reform and the Chief Secretary to the Prime Minister said the Government would cut unsustainable welfare spending. I welcome those commitments. I fear that demographics and disability—what the Resolution Foundation described as an “ageing and ailing population”—will put continued pressure on the welfare state. Can the Minister clarify whether these future welfare reforms will be designed to reduce overall spending, to reduce the growth rate in spending or simply to maintain the current trajectory? To put it another way: is welfare spending a forecast that the Chancellor wants to beat?
I turn to departmental spending. Previously, the Government planned 1% real-terms growth between 2028-29 and 2029-30. Now they assume no real growth in spending between those years. I am all for spending restraint, but I question whether they will be able to deliver it. The spending plans published in June had already baked in productivity improvements, so it would be helpful to know what has changed in the last few months to give the Government confidence to go further. According to the Resolution Foundation, these spending plans imply that unprotected departments will have their budgets cut by £6.4 billion in real terms, before taking into account the additional pressures identified by the OBR, including but not limited to £6 billion-worth of spending on SEND. These are sizeable figures. I fear I know how the party opposite would have described them were the situation reversed, so can the Minister confirm that he plans to deliver these cuts at the end of the Parliament?
As your Lordships know, sadly, productivity does not materialise because Ministers mandate it to be so. It is not enough to write the numbers in the Red Book or to publish a White Paper. Meaningful productivity improvements require painstaking work: consultation, legislation, capacity building—it all takes time and often comes with upfront costs. It would be reassuring if the Minister could tell us how departments are preparing to go from real-terms spending increases to real-terms cuts. Is the investment of the next few years earmarked to fund productivity improvement for future years? Will the Treasury oversee this work?
This Budget presents an opportunity to deliver on the Prime Minister’s commitment to “rewire” the British state. However, I have learned through bitter experience, as I imagine the Government have through their efforts to reform PIP and now SEND, that making the commitment is the easy bit. If these spending plans are meant to be implemented, we now need two years of sustained technical and political work to make good the Prime Minister’s promise to build a more innovative and efficient state. I very much hope that is what we will see.
Lord Bilimoria (CB)
My Lords, I received a wonderful birthday present on 26 November: the Budget, with taxes going up by £26.6 billion on top of the £40 billion that we had last year, leading to 38% of GDP, the highest level that we have known. The UK economy growth rate has averaged 1.5% since 2024. Inflation, which was 1.7% in September 2024, is now 3.8%.
I was president of the CBI, and our chief executive, Rain Newton-Smith, said the Chancellor’s
“scattergun approach to tax risks leaving the economy stuck in neutral”.
The good news is the Government have listened to this House on the Employment Rights Bill, and they have said that they will have a six-month period as opposed to day one, which is not as good as two years, but at least the Government have listened.
There is greater complexity. Deloitte noted 88 new tax measures and the IoD did a survey of business leaders which found that 80% feel negatively about the Autumn Budget, up from 67% after the 2024 Budget. I am a trustee of Policy Exchange, which described it as a “transition Budget”. Then there was a surprisingly positive article from Ambrose Evans-Pritchard in the Telegraph:
“In defence of Reeves, the future is not that scary”.
He said:
“Public investment has averaged 1.6pc of GDP since the late 1970s against 3pc or so for our peers and 4pc or more for stellar outperformers … Labour is raising it even more to 2.6pc of GDP”.
We need that investment desperately. He also said:
“Productivity is about to soar in advanced companies open to Al diffusion. The UK has the world’s third largest AI industry by a wide margin and is the data centre capital of Europe”.
We are a very innovative country; the WIPO Global Innovation Index places us sixth in the world. The IMF says that AI could boost productivity by 1.5% a year if fully adopted, and the French Artificial Intelligence Commission says that AI is not just an incremental efficiency gain in how we do things; it vaults to another level. Does the Minister agree?
I am chair of the International Chamber of Commerce UK, the ICC being the largest business organisation in the world, with 45 million businesses. There was no mention whatever of trade in this Budget, and that is surprising, because trade amounts to 60% of the UK economy. We can invest in digital public infrastructure, and we should invest in digital trade, because companies doing that cut costs by 80% and improve productivity by 60%. I have just returned from speaking at the B20 in Johannesburg, before the G20. I was a co-chair of the digital task force, and we have managed to persuade the G20 Governments to invest in public digital infrastructure.
UKHospitality made the following point:
“Many parliamentarians understood from the Chancellor’s statement that the Budget would ease pressure on high street businesses”.
However, will the Minister acknowledge the reality that when the relief falls away, there is a huge increase in the rates? The BBPA—I am the founder of Cobra beer—says that
“both small and medium-sized pubs will see substantial increases in their rates bills, driven by higher RVs being applied to only slightly lower multipliers”.
Does the Minister agree that many pubs are facing increased bills?
In conclusion, Brent Hoberman, my friend from Founders Forum, has said:
“The Chancellor promised to listen to UK entrepreneurs. And yesterday’s budget was a first step towards delivering on this promise”.
Whether it is the EMI scheme reform, scale-up finance, tax relief for companies listing in the UK, it is really good news that the Government are listening. There is no exit tax, as was mentioned. The British Business Bank will deploy £5 billion in growth-stage funds and there are listings reforms with stamp duty relief. This is fantastic, and there is going to be a review for what more can be done for entrepreneurs. I am so glad the Government want to talk and listen to us, because we are ready to help. These are steps in the right direction. As Brent Hoberman put it,
“we need to think bigger, bolder, and longer-term, backing our most ambitious entrepreneurs to drive economic growth”.
Lord Bridges of Headley (Con)
My Lords, this has been an excellent debate. Let me start by saying that I have some sympathy for the Chancellor. Her approval ratings are now so low that she is giving even Kwasi Kwarteng a run for his money. Just 12% give her a favourable rating, and from listening to the Benches opposite, the entire 12% seem to be here today, so I congratulate the Government Chief Whip on herding them all together.
I actually agree with some of what those on the opposite Benches have been saying. The Conservatives left office with taxes, spending and debt far too high, and growth anaemic. Worse than that, we and the party opposite all colluded in a conspiracy of silence about what that meant for the nation’s finances. We did not dare level with people before the last election that spending was too high and that either taxes would need to rise, or the state would have to do less. That is the background to the tragedy unfolding before us.
With their enormous majority, I, like many others, had high hopes that this Government, a Labour Government, might be bold in the spirit of other Labour Governments and reform the state. Where are those hopes now? They are dashed. This Government are a ship adrift in a storm, its captain struggling to stop it from crashing on to the rocks and trying to control his mutinous crew, his Ministers clinging to their lines to take as if they were lifejackets.
Like others on this side, I have been in similar situations at that Dispatch Box, so I have some sympathy with the Minister. As I know how demanding these moments are, I do not want to unnecessarily make life more miserable for him. However, I expect him to clarify how this Budget delivers on the ambitions that he and his entire Government have made.
Let me pull together a number of points made by my noble friends. First, on the mission to kick-start growth, is it correct that the Budget contains no measure that materially improves the OBR’s growth forecast, that the rate of productivity growth has been downgraded, and that growth in real household disposable income will fall sharply this year and next?
Secondly, on Labour’s promise not to raise taxes on working people, is it correct that the Budget’s £26 billion tax rise will push 1.7 million more people into higher tax bands, pushing the tax take to a record level?
Thirdly, the Chancellor pledged her Budget would ease the cost of living. Is it correct that, despite the measures the Minister mentioned were contained in the Budget, the OBR now expects inflation to stay higher for longer?
Fourthly, the Chancellor pledged her Budget would “reduce the national debt”. Is it correct that by the end of the Parliament, debt will be almost two percentage points of GDP higher than in 2024-25, with debt interest higher than today?
Finally, the Prime Minister has stated, as others have noted, that the welfare bill is “unsustainable … indefensible and … unfair”. Is it correct that annual welfare spending will be £56 billion higher at the end of the Parliament than today, that by 2028-29, spending on health and disability benefits alone will be double defence spending, and that without further reform, changes will reward dependency and not work? I look forward to the Minister’s answers.
I will end with this. The Government were given an enormous majority to change this country for the better. Millions of people put their hopes in the Prime Minister and the Chancellor, trusting them to keep their word and meet the economic, social and security challenges Britain faces with credible plans. Instead, with this Budget, the Government have not merely broken their word but have dragged us all deeper into the economic mire. That is a tragedy for us all.
Baroness Kramer (LD)
My Lords, as the first of the winding speakers, let me repeat the welcome to the right reverend Prelate the Bishop of Portsmouth and say how much we enjoyed his excellent maiden speech, which I will refer to later.
To the Government, let me say that I am not quite in the “Apocalypse Now” camp that I hear from the noble Lord, Lord Bridges, and some of his colleagues, but I really thought this was going to be—and needed to be—a Budget for growth. When we were in that period of endless announcements, U-turns, leaks, chaos, et cetera, I thought there would be a real surprise on Budget Day, that we would get that project, programme and vision that would drive forward growth. I was wrong.
As others have said, the OBR makes it clear that trend productivity growth is down, and we have no proper road map for dealing with it—the noble Lord, Lord Willetts, was eloquent on that point. The OECD has predicted that the UK will face headwinds from the Budget and will have the highest inflation rates in the G7. The noble Lord, Lord Rosenfield, spoke extensively on this issue. The Budget contained no compelling argument for investing in UK business. I wish the Government had listened to the noble Viscount, Lord Stansgate, who was calling for a real step change at this point, which is exactly what we need.
I agree that there were marginal but important measures in here that support upscaling—they were described by the noble Baronesses, Lady Moyo and Lady Penn, and, to some degree, by the noble Lord, Lord Ranger—focusing on AI.
These are not easy times for growth. Global headwinds are reducing global trade forecasts, which is not good news for the UK economy. That is exactly why my party is urging the Government to go immediately beyond their lackadaisical reset with the EU and push for a bespoke customs union. Those who do not think that Brexit is a blow that is battering our economy should go and talk extensively to business. It is not just the economists; it is the people on the ground daily who are dealing with the consequences. Of all times, this is not a time when we can indulge in the glow of insularity and exceptionalism.
My party, using work from Frontier Economics and the Commons Library, calculated that joining a customs union with the EU would deliver £25 billion in additional money to the Treasury. Frankly, that dwarfs every tax-raising measure in the Budget and off-sets far more than any spending cut that the Conservatives propose.
We heard concern about Brexit from the noble Lords, Lord Hollick, Lord Tyrie and Lord Brook of Alverthorpe. My noble friend Lord Razzall referred the Government to the Private Member’s Bill being brought forward by the honourable Member for Surrey Heath, which will give an opportunity to capture these issues.
I and my party strongly take the view—as my noble friends Lord Razzall and Lord Mohammed of Tinsley said—that the Government are absolutely right to lift the two-child benefit cap. I say to the noble Baroness, Lady Deech, and the noble Lords, Lord Bailey and Lord Massey, if a safety net is not for children, who is it for? We take the strong position that poverty undermines children, it does not raise them.
Similar views were expressed by the right reverend Prelates, the Bishop of Portsmouth and the Bishop of Manchester. I pick up the question introduced by the right reverend Prelate the Bishop of Portsmouth on where the funding will come from to guarantee SEND provision when it shifts from local authorities to central government. The noble Baroness, Lady Barran, raised that issue, and my noble friend Lord Mohammed of Tinsley stressed its importance. That means that we must have an important and strong answer on this from the Minister.
The decision to remove £150 from energy bills is welcome, but, as my noble friend Lord Razzall says, it is less adequate than the Lib Dem proposal. I say to the noble Baroness, Lady Griffin of Princethorpe, that we would not have been partly funding that by cutting programmes to tackle climate change, as the Government have chosen to do. We would have fully replaced that from central government resources.
When I first heard the Budget, like others—and the noble Lord, Lord Bilimoria, has just said this—I thought that huge relief would be given to the hospitality industry through the business rates system. We in our party have proposed a VAT cut, and some people implied that this was going to be the equivalent. But UKHospitality estimates that an average pub will pay £12,900 more in business rates over three years.
The noble Lord, Lord Freyberg, stressed similar pressures on grass-roots venues. This is a serious problem and I want to hear a proper answer from the Minister. In our case, we would have paid for the cuts in energy bills and VAT by pursuing the proposals of the IPPR for attacks on the windfall that major banks are making, not from their efforts but from the technicalities of QE and the reserves that they are keeping at the central bank. Why the Government have not seized that opportunity is beyond me. However, I give them credit for seizing the proposals pushed over and over by the noble Lord, Lord Foster, for a remote gambling tax, which has not just fundraising but moral outcomes.
Why have the Government not raised the digital tax from 2% to 10%? It applies to the mega seven digital companies. Frankly, I just do not understand. These are serial tax avoiders par excellence. Our own UK digital companies are disadvantaged by their gaming of the tax system. That absolutely matters if we push on digital and AI.
Let me address the main proposals in the Budget, which raised most of the additional £26 billion in taxation and take tax levels in this country to unprecedented highs. Taxes will have gone up by £67 billion since the first freezing of tax thresholds. Labour is responsible for £13 billion of those taxes and, oh my, the Conservatives are responsible for £54 billion of those taxes. When I hear them talking as though they are a low-tax party, I wish that they would go back and look at what they did. Freezing thresholds is one of the worst ways to increase taxes on ordinary people. The noble Baroness, Lady Thornton, raised the question of the impact on women, and I hope that the Government will answer that.
It is true that many people do not realise what is happening until it is too late, a point made by the noble Lord, Lord Burns. However, we now face the extraordinary prospect that a quarter of employees will be in the high-rate tax bracket by 2030-31, not because they have become more prosperous but simply because their wages are rising just to cover inflation. The OBR forecast relies on inflation staying higher for longer, as the noble Baroness, Lady Neville-Rolfe, said. The Government hope, because their additional spending is front-loaded and the tax increases are back-loaded, that people will have not caught on that, by 2030-31, they will be paying some £1,400 more in tax. We will have had nine years of threshold freezing.
The other major tax-raiser comes from changes to the salary sacrifice scheme of some £4.7 billion. I am concerned, and I heard the same concern from the noble Lord, Lord Hollick, that, combined with the changes to pensions in the last Budget, we are going to see a move away from pension saving and long-term investment by the wage-earning middle. The consequences of that are not good for growth. I ask the Government to get a grip on this issue. They are trying to get more auto-enrolled pensions—which is a very small part of the market covered by the Mansion House compact—into UK investing, but the big part of the market is now essentially being discouraged.
I refer to the comments made by my noble friend Lady Bowles on government procurement of innovation. That is a serious issue and I hope the Government take it on board. It is much wider than the narrow issue that it is sometimes treated as.
The so-called mansion tax will raise only £400 million and likely much less, but in London the revaluation of bands F, G and H will hit social housing. The mansion tax does not but the revaluation does. Can the Minister confirm that? The answer is that the whole of council tax needs a complete rethink—I agree with the noble Lord, Lord Campbell-Savours, on that.
The timing of the taxing per mile of EVs seems perverse, when we need to accelerate the switch from petrol to diesel. I assume, along with the noble Lord, Lord Young, that this is the beginning of an evolution into road pricing. Why on earth were we not given a tax road map on this issue? Without that map, we will begin to see people become inhibited about buying EVs, perhaps unnecessarily. A road map should have accompanied a significant change on this scale.
I have one small comment—perhaps it is not so small—on the loan charge. I thought that the Government’s seeming acceptance of the McCann review, even if it did not deal with pre-2010 and already settled cases, would largely provide a resolution to this appalling mire. Then I realised that the discount that the Government are now going to use is capped at £70,000, leaving some 20% of those with open cases still absolutely in the mire. These are people who might once have been high earners but now typically are retired on modest incomes. So little more was needed for this nightmare to be resolved. I do not understand why the Government did not take that next step.
Lastly, the Government, as necessary, increased the fiscal headroom to £21.7 billion. We called loudly for such a change. I am slightly taken aback that one-third of the increase in the headroom relies on public sector efficiency savings on, frankly, a heroic scale. The noble Lords, Lord Willetts, Lord Wood and Lord Eatwell, and the noble Baroness, Lady Shawcross-Wolfson, talked about how questionable future public sector savings are, particularly on the scale included in the forecast. The markets have calmed for now, but they will not stay calm if we do not see that efficiency come through and if we do not see growth.
Meanwhile, as I wind and finish, the public sector and local government are still on their knees. Ordinary people are still struggling every day with the cost of living. Businesses’ appetite to invest is still muted. There really is only one way to make a step change out of this mess, and I am going to go back to where I started: will the Government please now accelerate the process of resurrecting a bespoke EU customs union relationship so that we can look forward to a future with resource and choice, and without facing the kinds of constraints that are evident in this Budget?
Lord True (Con)
My Lords, it is always a great pleasure to follow my noble friend—she is my noble friend from coalition days and long before. I am always entertained by her nostalgia for the weekly reports from Katya Adler in Brussels, but if we can get beyond that, she is a coherent critic of the Government—all Governments—on economic policy, and I agree with a lot that she said in her remarks.
I also thank the noble Lord, Lord Livermore, for the measured way in which he opened the debate and his exquisite courtesy in sitting here all the time during it. He has the advantage of being a bit younger than I am, and I apologise for my short departure.
This has been a compelling debate—compelling in one sense in the admirable loyalty of so many noble Lords opposite in circling their wagons around this failing economic policy and accepting the repudiation of a core manifesto promise not to raise taxes on working people. It has also been compelling in the clinical dissection and challenging of that policy by so many noble Lords, although not all have come at it from the vintage Corbynista direction of the noble Lord, Lord Sikka, or, indeed, agreed with the catalogue of nationalisations and tax increases being demanded by the noble Baroness, Lady Jones of Moulsecoomb. I wondered whether she was trying to catch the eye of her new leader. The noble Lord, Lord Sikka, certainly seemed to me to be being attracted to the Green Party as he listened to the noble Baroness.
The contribution by my noble friend Lord Bridges of Headley was challenging and pithy. He was pithy in his honesty, and one of the things he was honest about was that the previous Conservative Government spent, borrowed and taxed too much. We did, but some of those who criticised that might for a moment also remember that we had to confront the savage cost of the Covid pandemic. My noble friend was also brutal in exposing how this Budget and the previous one, taken together, pile more spending on top of overspending, more borrowing on top of overborrowing, and more taxation—£66,000 million in two Budgets—on already overtaxed families and businesses. As my noble friend Lord Moynihan of Chelsea said in a brilliant speech that shot a few Brexit foxes—he ought to circulate it around the House—this policy is simply not sustainable. There is also a glaring absence of serious supply-side reform in this Budget. Will the Minister tell us when we will see real deregulation?
This House likes it very much when it has a Minister who has real influence inside government. There is one sitting opposite me now. The noble Lord is very much respected. Sometimes he could lighten up a bit; we love him when he smiles. His hands are all over the Budget. He was there beside the Chancellor when she held up her red box last week. I read the words of a loquacious aide who told Tim Shipman, that indefatigable journalist, that the noble Lord and Torsten Bell dined with the Chancellor twice a week in July to plan this Budget. We are told that they waved away Treasury officials who came with spreadsheets and scorecards, saying that they were not interested in numbers—they had decided their strategy. Part of that, as we now find, was £406 billion on welfare by the end of the survey period. I submit again that that is simply not sustainable. I hope when he winds up that the noble Lord will answer the specific challenges on the welfare figures and what has been said about them, as levelled by my noble friend Lady Shawcross-Wolfson.
The other thing I have to refer to that the Chancellor and the noble Lord planned was that long autumn of “project fear”. The noble Lord complained in his opening remarks about leaks and speculation, but where did all that come from? Who was talking to whom? I think my noble friend Lord Kempsell probably knows a thing or two about that. Never have we had such a maelstrom of spin; never have more kites been flown; never have more proposals been leaked. It culminated in the carefully planned spectacle of the Chancellor herself, weeks before the Budget, organising a press conference with all the panoply of the state—the union jacks—to tell the world that she was going to put up income tax.
History will judge the truth of what the Treasury team knew from the OBR and when. I agree with the noble Lord, Lord Razzall, that we should not waste time on that; we will come to know. But my noble friend Lord Kempsell was right to refer to the real-life effects of the spin—the uncertainty. We now know that hundreds of millions of pounds were moved in those weeks. That, as the noble Lord, Lord Macpherson, said, is the Treasury’s responsibility. I agree with him and the noble Lord, Lord Burns, with their immense and peculiar experience, that this should never happen again.
We now know that, to justify massive tax increases, the Chancellor and the noble Lord dug their own bogus black hole. You can see the soil there under the noble Lord’s fingernails. We now know that they did not need to tax and borrow so much. Higher tax was a choice—a deliberate choice to take money from the successful, the hard-working and the wealth creators and spend it on welfare. To be fair, they are proud of it; they planned it. Many on the other side have declared that today. My noble friend Lord Lamont of Lerwick was the first of many to point out that this was a political Budget—a Labour Budget. It is what socialist Governments do. As my noble friend Lord Dobbs reminded us, Labour tax, borrowing and spend policies fail every time.
I have been struck by how many noble Lords in this debate have drawn attention to continuing black holes in this Budget. Take SEND funding, referred to by the noble Baroness, Lady Kramer. The right reverend Prelate the Bishop of Portsmouth, who I greatly welcome, was right to ask a fundamental question in his notable maiden speech about how the costs will be met. This was followed up in more detail by my noble friend Lady Barran. Can we please have the answers? The OBR could not have been clearer that
“no savings have been identified to offset the estimated £6 billion pressure”.
Where will the money be found? Can the noble Lord tell us when he winds up?
Let us take the £5 billion negative impact of the Employment Rights Bill, where my noble friend Lord Willetts observed—rightly, probably—that your Lordships’ House has done more to benefit youth employment by blocking day-one rights than anything in the Budget. Can the Minister tell us whether that Bill’s effect been scored by the OBR? Can he also tell us, when he replies, the latest estimate of the cost to the NHS of the recent UK-US pharmaceutical deal? The Government must have that cost. They have signed a deal. Even if you are signing a deal with President Trump, you must have some sense of what it is going to cost the NHS and the country. This is Parliament: can he tell us what the cost will be and whether it has been scored?
Again, what of defence? The noble and gallant Lord, Lord Craig of Radley, and my noble friend Lord Hodgson of Astley Abbotts, among others, referred to this. To reach the 3.5% commitment, the OBR calculates that the Government face a £32 billion shortfall today. Again, we have no hint in these documents of how that will be funded. When will we be told? The survey period reaches into the next decade.
While these uncertainties remain, what we are certainly told is that we face a splurge of spending and a boom in borrowing. The borrowing and spending are coming now, but the tax—or much of it—is, as the noble Lord, Lord Macpherson, said, only coming later. The Minister spoke of a fiscal consolidation that reduces public sector net borrowing by £12 billion in 2029-30. However, this figure of course relies on £26 billion of tax increases. Can he confirm that borrowing will be higher than the March forecast in four of the next five years? Does he agree that total borrowing over the period to 2029-30 will be £57 billion higher than was forecast just eight months ago? The noble Lord, Lord Burns, in a notable speech based on, as I say, unique experience, gave a sober warning to the House at the outset of the debate about the continued burden of debt: £110 billion at the end of the survey period. This theme was picked up by many others.
The Government are also failing on their central claim to be a Government for growth. This has in fact been the major area of concern from all sides of the House. We respect the Government’s desire to secure growth: the trouble is that their policies are designed to stunt it. There are positives, including incentives for start-ups, and I hope the Minister will listen carefully to the constructive points that I think he will agree were made by my noble friends Lord Leigh of Hurley and Lord Massey of Hampstead and the noble Baroness, Lady Bowles of Berkhamsted. There are other considerations that we must have on growth. My noble friend Lord Hintze was right to counsel us about the importance of considering growth per capita. We must do that; we do not talk about it enough.
The Minister declares that the OBR has mildly uprated forecasts for growth this year—and then the tape stops. He skates over the fact that forecasts are revised down for all the succeeding years. The OBR estimates that this Budget’s policies will have “no significant impact” on growth by 2030. As a keen allotmenteer, I like growing my own vegetables, and Britain will need a lot more people like me if Ed Miliband goes on covering up good farmland with solar farms. By the way, how right the noble Baroness, Lady Moyo, was to point out the disastrous structural impact of high energy prices on the UK economy. Collectively, across all parties, we must have the courage to address that. However, I have to tell the Minister that, from my experience, if you plant vegetables and you want them to grow, they do not do so if you keep battering them with a big stick day after day. This Government are mercilessly battering businesses, particularly small businesses, with the big sticks of taxation and regulation, and it cannot succeed.
Last year’s devastating NIC increases have brutally impacted business confidence and jobs, particularly in SMEs, which many of your Lordships—led, in a distinguished speech, by the noble Lord, Lord Eatwell—so rightly said we need. Unemployment is grimly rising every month, small business by small business, place by place, as it ever does, although it is the big closures that catch the news. As the noble Baroness, Lady Kramer, and others said, the hospitality industry and the high streets, which were told that they should be rejoicing at what was in the large print of the Budget, are now reeling at the prospects of the business rates stealth tax that was hidden in the small print. Today, their trade body has warned of a further 100,000 jobs at risk in the hospitality sector as a result of the cumulative impact of this Government’s policies on SMEs and hospitality in particular.
Taken together, the last two Budgets and the Employment Rights Bill have devastated business confidence and the prospect of jobs for young people. The Federation of Small Businesses, the IoD and the CBI are all saying it. Frankly, one thing is stark staring obvious, including to the many noble Lords opposite who stayed away from our votes on the Employment Rights Bill: if you penalise employers, you penalise employment. In its Economic and Fiscal Outlook, the OBR is clear that unemployment is set to go on rising—all without taking into account the effects of the Employment Rights Bill.
My noble friend Lord Dobbs was devastating, in his particular and idiosyncratic way, on unemployment. We must not go down that road again. Then there is the central issue of welfare, on which we have heard differences across the House. As my noble friend Lord Bridges said, and I agree with him, this Government have a huge majority in the other place and a clearly stated will to reform the welfare state, which the Prime Minister seemed to reiterate this week. They must use that majority and, as my leader has said, we will support them in difficult decisions to cut welfare spending.
Welfare is increasingly shifting from being a source of temporary support to a form of long-term income for an ever-increasing number of people, and that stifles hope. Around 5,000 people a day are being signed off work and on to long-term sickness benefits. It could have been a historic task for the Labour Party to carry out this reform. As the noble Lords, Lord Wood of Anfield, Lord Eatwell, and others referred to, it has opportunities to do remarkable things on this and on tax simplification. In a brilliant and balanced speech, the noble Lord, Lord Hollick, pointed out many significant realities, good and bad, which we all collectively have to address. This country is underperforming: not because of this Government but because of systemic problems—but they are being accentuated by mistaken choices now being made.
Instead of dealing with the welfare challenge, faced with dissent in their ranks, the Cabinet ran away—enfeebled prisoners of their own Back-Benchers, as the noble Lord, Lord Tyrie, and my noble friend Baroness Noakes said, panicking at the frailty of a majority in the high hundreds. Now, with this Budget, they are leading the stampede further in the opposite direction. It cannot and need not go on, as my noble friend Lord Saatchi and the noble Lord, Lord Bird, in their different ways, challenged us.
We on this side have set out carefully costed plans for some initial savings. But we must surely all agree that the purpose of the welfare system is to support as many people as possible into work. We must not create a system, as we seem to be doing, where for far too many, being on welfare is an alternative to getting a job. Too often, you can be better off. That is the very reverse of what was intended when universal credit was introduced. My noble friend Lady Coffey made a searching speech with piercing questions on this, and the noble Baroness, Lady Deech, made a powerful contribution on family. As my noble friends Lady Stedman-Scott and Lord Bailey of Paddington, in a striking speech, reminded us, the best way to tackle poverty is a J-O-B: a job. The Government can help by supporting businesses to open, hire and grow. I think that is what they truly want, but the OBR has made it clear that the Government simply have not done this in their Budget. Not a single measure is said by the OBR to promote growth—and working people will pay the price.
The Government have given us the first death tax on family farmers, the first death tax on family businesses, the first tax on family homes, the first tax on children’s learning—a shameful worldwide first, that one—and the first tax on green electric vehicles. They have even given us the first tax on milkshakes—I wonder who, in No. 11, thought that one up. Hit after hit at the struggling green shoots of growth and at success. When the Chancellor said she wanted a more “innovative” economy, we did not know that she meant inventing new taxes.
This was a fundamentally dishonest Budget, founded on a bogus black hole of the Chancellor’s own digging. The Government did not need to raise the income-tax take; it was a choice. They said that they would not tax working people, but they have. They said they wanted to help workers, but they have given us a Budget for non-workers. They said that they wanted to create growth, but they have pummelled the very businesses, and SMEs in particular, that create it. They said that they wanted the UK open for business, and the Minister repeated it, but they have reinvented the brain drain, as my noble friends Lord Elliott of Mickle Fell and Lady Morrissey said. They even talk of an exit tax to stem an outflow that they could see themselves. The only high streets that are booming are in Dubai.
The British people have been given higher taxes, higher borrowing and a Budget as unserious in its strategy as it was cynical in its spin. Huge costs have been imposed on the private sector, with a rising toll on jobs, as my noble friend Lord Lamont observed. It cannot and must not go on.
Lord Livermore (Lab)
My Lords, it is a pleasure to close this debate on the Budget this evening. I have enjoyed listening to all 73 contributions from noble Lords today. I congratulate the right reverend Prelate the Bishop of Portsmouth on his excellent maiden speech. I very much look forward to his further contributions to this House. I was struck particularly by one thing he said,
“to find what is good and to strengthen it”.
That must be right. Having sat through the debate this evening, though, I am aware that opinions may differ on how well we are achieving that in this Budget.
It is a privilege to speak in a debate with the noble Lord, Lord True—I do not often have that pleasure. My noble friends Lord Barber of Ainsdale and Lady Curran set out the record of the noble Lord’s Government that we inherited. The combined effect of austerity, Brexit and the Liz Truss mini-Budget was devastating to the economy. Had the economy grown by the average of other OECD countries over those 14 years, it would be more than £150 billion larger today. The previous Parliament was the worst ever for living standards. Inflation hit 11% and was above target for 33 months in a row. The UK had the lowest private investment levels in the whole of the G7. Productivity growth had entirely stalled, with output per worker growing more slowly than in nearly every other G7 country.
The need to deal with that inheritance is why we have made growth our number one priority. This Budget made pro-growth choices to get borrowing down, with increased headroom to cut the cost of living and get inflation down to support Britain’s fast-growing companies and, most of all, to protect the investment needed to support growth by avoiding a return to austerity. This is real substance, and these are real policies to get real growth and enable the British people to lead better lives in the years ahead.
As I said in opening the debate, this was a Budget dominated, even more so than usual, by process—before, during and after it was delivered. This was a point raised by the noble Lords, Lord True, Lord Rosenfield, Lord Kempsell, Lord Leigh of Hurley, and the noble Baronesses, Lady Neville-Rolfe, Lady Noakes and Lady Penn.
Let me address those directly. Let me be clear that the Chancellor was completely honest and consistent with the public in everything she said. Professor David Miles, the acting head of the OBR, in his evidence to the Treasury Select Committee on Tuesday, confirmed that what the Chancellor said before the Budget had not been misleading. The Chancellor said before the Budget that her priorities were cutting the cost of living, NHS waiting lists, debt and borrowing. The Budget delivered on all those priorities.
The Chancellor was clear that a productivity review would mean lower tax receipts. The OBR confirmed they were £16 million lower. The Chancellor said she intended to build more headroom; she built more headroom to £21.7 billion. The Chancellor was clear in the summer that policy choices would need to be paid for. The Budget shows that those cost £6.9 billion. The Chancellor was clear that challenging decisions would be needed on tax and spending, and she froze thresholds for a further three years.
Let me be clear too that the Government are committed to the independence of the Office for Budget Responsibility and its role at the heart of economic and fiscal policy-making. The strength of that institution is a vital pillar in the Government’s commitment to economic stability. As noble Lords know, and as the noble Lord, Lord Rosenfield, for example, commented, the economic and fiscal outlook was accessed prematurely ahead of the Budget. That was a very serious leak of highly sensitive information. The OBR took full responsibility for this and conducted a review into what happened.
That report was published on Monday. Following that publication, as the noble Lord, Lord Dobbs, said, Richard Hughes, the chair of the OBR, resigned. The Chancellor has written to Mr Hughes to thank him for his many years of public service. I have previously put my own thanks on record in your Lordships’ House. That decision was a matter for Mr Hughes. The suggestion otherwise from the noble Baroness, Lady Neville-Rolfe, is categorically untrue. The noble Lord, Lord Tyrie, spoke rightly about future appointments being subject to approval by the Treasury Select Committee.
The noble Lord, Lord Lamont, criticised the impact of pre-Budget speculation, as did the noble Lords, Lord Hamilton of Epsom, Lord Macpherson of Earl’s Court and Lord True, and the noble Baronesses, Lady Neville-Rolfe and Lady Penn. Let me say clearly that we take the Budget process very seriously, and we put the utmost weight on Budget secrecy. As referred to by the noble Lord, Lord Kempsell, a leak inquiry is now under way into the FT reporting on the 13 November, with the full support of the Chancellor and the whole Treasury team.
The noble Baroness, Lady Penn, spoke about learning lessons. The Permanent Secretary to the Treasury will now conduct a review of the Treasury security processes to inform future fiscal events. We will also work closely with the OBR to ensure that robust security arrangements are in place before the spring forecast and for all future forecasts. The noble Lord, Lord Willetts, asked about the arrangements for the Spring Statement. As the Chancellor said in the Budget, to support just one fiscal event a year the OBR will not assess the margin against the fiscal rules in the spring and the Government will not make a fiscal response.
The noble Lord, Lord Macpherson, asked whether the Treasury still accepts his recommendations from 2013. The answer is yes, and I can tell him that the current Permanent Secretary to the Treasury referred to that review in an email he sent to all Treasury staff.
The noble Lord, Lord Skidelsky, spoke about the productivity puzzle. Much of the context of this Budget was the OBR supply-side review, as mentioned by the noble Lords, Lord Willetts and Lord Bridges of Headley, and my noble friend Lord Hollick. The OBR looked back at the productivity performance of the previous decade and concluded that the chronically low levels of investment, together with the effects of Brexit and the pandemic, have weakened the economy by far more even than previously thought. This reappraisal of the productivity performance of the past has directly impacted its view of GDP going forward, driving lower growth forecasts for the remainder of the forecast period. The noble Lord, Lord True, together with the noble Baronesses, Lady Neville-Rolfe and Lady Moyo, noted its impact on future growth forecasts. But they all ignored the fact that it was the verdict on the previous 14 years, not the previous 14 months.
This review has had both a fiscal and a growth impact. In terms of fiscal policy, because of this Budget, borrowing will fall as a share of GDP in every year of the forecast, from 4.5% in 2025-26 to 1.9% in 2030-31. Borrowing will fall more quickly than in any other G7 economy. Despite what the noble Lord, Lord Bridges of Headley, said, net financial debt will be lower at the end of this forecast than it is today. The headroom against our stability rule will more than double to £21.7 billion—this was supported, I think, by the noble Lords, Lord Lamont, Lord Willetts and Lord Macpherson of Earl’s Court, and my noble friends Lord Wood of Anfield and Lord Hollick.
The Budget also took more direct action to cut inflation. We have taken £150 off energy bills, frozen rail fares for the first time in 30 years and extended the freeze on fuel duty. All these things together take 0.4% off inflation. In answer to the noble Lord, Lord Bridges of Headley, to put that in context, it is the biggest near-term reduction in inflation due to government policy ever forecast by the OBR at a single fiscal event.
Some noble Lords said consolidation was back-loaded, including the noble Baroness, Lady Morrissey, and the noble Lords, Lord Macpherson of Earl’s Court and Lord True. I do not accept that. In the Budget, we doubled the headroom to the stability rule to £21.7 billion. We have also set out a credible and front-loaded consolidation plan that is working. Borrowing this year is set to be the lowest for six years and falls in every year of the forecast, from 4.5% of GDP this year to 3% of GDP in 2027-28, and to 1.9% in 2030-31. In answer to the noble Baroness, Lady Shawcross-Wolfson, we will deliver a further £2.8 billion in efficiencies and savings in 2028-29, rising to £5 billion in 2030, on top of almost £14 billion announced at the spending review.
My noble friend Lord Sikka spoke about the distributional impact of this Budget. The Government’s distributional analysis shows tax, welfare and public service spending decisions taken from the autumn Budget 2024 onwards are progressive and benefit households in the lowest income deciles the most. The increases in tax are concentrated on the highest-income households. On average, all but the richest 10% of households will benefit from policy decisions in 2028-29.
The right reverend Prelate spoke passionately about children with special educational needs, joined by the noble Baronesses, Lady Barran, Lady Noakes and Lady Kramer, and the noble Lords, Lord Mohammed of Tinsley and Lord True. We know and have long said that the system is in need of reform to, first and foremost, support children and families effectively. The OBR has based its estimate on unreformed pressures. It has not accounted for planned reforms to deliver a sustainable SEND system that works better for children and families. The detail of this will be set out in our reform plan early in the new year. The OBR has only used mainstream schools as an indicative example, whereas the Government have confirmed that residual SEND pressures will be absorbed within the overall Government DEL budget from 2028-29 onwards. The Government will not make final decisions until reform plans are confirmed and Budgets from 2028-29 onwards remain subject to the spending review in 2027.
Several noble Lords, including the noble Lords, Lord True and Lord Hodgson of Astley Abbotts, the noble and gallant Lord, Lord Craig of Radley, and the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, spoke about defence spending. The UK will spend 2.6% of GDP on defence spending by April 2027. The Government have set an ambition to spend 3% of GDP on defence in the next Parliament, when economic and fiscal conditions allow. Changes to the defence spending envelope will be considered at the next spending review in 2027.
The noble Lord, Lord Freyberg, spoke about the creative industries, and I agree with him on their importance to the economy. We have made creative industries central to our industrial strategy and he is right that the new discretionary power to introduce a visitor levy would allow local leaders to drive growth in their regions.
Turning now to growth, I disagree with the noble Baroness, Lady Penn, about the importance that we place on growth. It is without question our number one priority. My noble friends Lord Barber of Ainsdale and Lord Pitkeathley of Camden Town said that, in this Budget, the OBR upgraded Britain’s growth forecast for this year from 1% to 1.5%. We were the fastest-growing economy in the G7 for the first half of this year and we are on course to be the second-fastest for the year as a whole. Just this week, the OECD upgraded its prediction for Britain’s growth next year. Just last week, following the Budget, JPMorgan announced a $10 billion investment in Britain to build its new landmark tower in Canary Wharf. CEO and chair Jamie Dimon said:
“The UK government’s priority of economic growth has been a critical factor in helping us make this decision”.
Despite what the noble Lord, Lord Horam, called for, my noble friend Lord Hollick spoke about the importance of protecting the additional capital spending that we have allocated to the economy. The noble Lord, Lord Lamont, said that the previous Government had to deal with the aftermath of the financial crisis. Of course he is right, but I would contend that they did so in exactly the wrong way, by taking demand out of the economy at exactly the worst moment. The very worst thing that we could do now for growth would be to follow the Conservative Party recommendation and return to austerity, cutting investment just as previous Chancellors with previous fiscal rules have done. We will not repeat those mistakes of the past: the exact mistakes that led to the productivity downgrade that we must now fix.
This Government are committed to delivering growth in every nation and region of the UK. My noble friend Lady Griffin of Princethorpe specifically spoke about growth between northern city regions, and I absolutely agree with her. It is precisely why we have committed to the northern growth corridor, including Northern Powerhouse Rail, to boost connectivity and access to markets across the north. More widely, this Budget transfers significant new fiscal powers into the hands of local leaders.
The noble Lord, Lord Razzall, and the noble Baroness, Lady Kramer, spoke about the importance to growth of moving closer to the European Union. As they know, I agree. The noble Lord, Lord Tyrie, also supported this point, as did my noble friend Lord Brooke. The Prime Minister said the same in his speech on Monday this week.
The noble Baroness, Lady Moyo, and the noble Lord, Lord Harrington of Watford, are right to say that there is much more to do elsewhere, and they rightly identified the importance of reducing energy costs for businesses, which must of course be a priority.
My noble friend Lady Warwick of Undercliffe spoke about housing and asked specifically about social rent convergence. The Government remain committed to implementing social rent convergence, but we must take the time to get the details right and take into account the benefits to the supply and quality of social affordable housing, the impact on rent payers and affordability. We will respond to the consultation on this issue in full and announce a decision about how social rent convergence will be implemented in January. My noble friend also asked about supported housing; as she mentioned, the Government will shortly publish a new cross-government homelessness strategy. I cannot speculate on the contents of that right now, but we will be working closely with mayors and local councils to get us back on track to ending homelessness.
My noble friend Lady Thornton raised co-operatives. The Government are progressing a number of measures to support the growth of the mutual sector, including modernising the Building Societies Act. We have endorsed the industry-led Mutual and Co-operative Sector Business Council, and the Department for Business and Trade has announced a call for evidence, which will explore business support for co-operatives.
Several noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord de Clifford and Lord Razzall, spoke about the importance of small businesses. I agree with all of them on the importance of small businesses to the economy. As my noble friend Lady Carberry of Muswell Hill said, for small and medium-sized businesses the Budget supports high streets, with permanently lower tax rates for 750,000 retail and hospitality properties. It backs entrepreneurs by doubling eligibility for tax breaks that make it easier for fast-growing start-ups to scale and stay in the UK, makes the training for under-25 apprenticeships completely free for SMEs, and maintains the lowest rate of corporation tax in the G7.
The noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Bilimoria and Lord Razzall, spoke specifically about pubs. Most pubs are protected by a £4.3 billion business rate support package, capping bills and saving a typical independent pub £4,800 next year, compared to what it would pay without intervention. The Government have also cut the business rates tax rate paid by small retail, hospitality and leisure properties to the lowest level since 1990-91.
My noble friends Lord Hollick and Lady Curran mentioned the importance of apprenticeships, particularly given the infrastructure commitments that we have made—a point also mentioned by the noble Lord, Lord Harrington, and I pay tribute to his work at Make UK. The Government are making more than £1.5 billion available over the spending review period for investment in employment and skills support. This includes £725 million for the growth and skills levy, to help support apprenticeships for young people and fully fund SME apprenticeships for under-25s. We will also introduce new reforms to simplify the apprenticeship system and make it more efficient when short courses are introduced from April 2026.
My noble friend Lady Curran spoke about the importance of growth in Scotland, and I will of course look carefully at the report she mentions. The Budget invests in Scotland’s economic potential, supporting Scotland’s energy industry, driving up economic growth across Scotland and investing in the important projects that she mentioned.
My noble friend Lord Jones of Penybont, who is far more expert in this matter than I am, spoke about the importance of growth in Wales. As he said, we are supporting the Wales energy industry by announcing that Wylfa will pioneer the UK’s first small modular reactor, supporting up to 3,000 jobs. We are also investing to deliver growth in Wales by establishing AI growth zones in north and south Wales, each backed with £5 million investment in local AI adoption and skills.
I turn to tax, which of course so many noble Lords mentioned in the debate. We faced a choice at the Budget. We could have made the reckless choice to abandon our fiscal rules and let borrowing and debt increase, but instead we made the pro-growth choice to get borrowing, debt and inflation down, more than doubling our headroom. We could have made the irresponsible choice and returned to austerity, cutting public services and undermining capital investment. Instead, we made the pro-growth choice to protect the investment in Britain’s infrastructure to build a stronger and more secure economy. But, as I said at the outset, these choices do need to be paid for.
The noble Baroness, Lady Neville-Rolfe, raised the impact of that on working people, as did several other noble Lords during the course of this debate. The Chancellor made very clear in her Budget how much maintaining the tax thresholds at their current level would impact working people. We have sought to minimise this by establishing certain other necessary tax reforms.
Several noble Lords touched on the subject of tax reform, including initially the noble Lord, Lord Burns, who was supported by my noble friends Lord Wood of Anfield, Lord Eatwell and Lord Hollick. I recognise that perhaps this Budget has not gone as far as they would have liked, but we have made a start on reforming some important tax reliefs within the system.
My noble friend Lord Davies of Brixton asked about the impact of tax thresholds on pensioners paying tax on their state pension. We gave a clear commitment to this in the Budget. We are now exploring the best way to achieve it and will set out more detail early next year.
My noble friend Lady Thornton raised the impact of the Budget on women. Increases in the national minimum wage, for example, will benefit women more. To answer her specific point, alongside the Finance Bill, impact assessments will be published in relation to each individual measure and their impacts on women.
My noble friend Lord Campbell-Savours spoke about the high value council tax surcharge, a point which was also raised by the noble Baroness, Lady Kramer. The Valuation Office will identify homes which will need to pay the surcharge through a targeted revaluation. The new charge will ensure that those with the most valuable properties pay their fair share.
Several noble Lords mentioned the impact of salary sacrifice measures, including my noble friend Lord Hollick and the noble Lord, Lord de Clifford, who expressed some concern about it. I agree with my noble friend Lord Davies of Brixton that the measures are proportionate. The Government rightly provide generous tax relief for people paying into a pension, relieving income tax on all contributions. This Budget makes no changes to those reliefs or to the tax-free lump sum. Salary sacrifice for pensions, which was intended to be a small part of our pensions system, is now forecast to nearly treble in cost from under £3 billion to £8 billion in 2030, with the most benefit going to higher earners.
The noble Lord, Lord Elliott of Mickle Fell, spoke about non-dom reforms. I have justified this policy in the past, so I will not do so again now.
I was pleased to see the issue about low-value imports that the noble Lord, Lord Leigh of Hurley, has campaigned on for so long make progress. I know he expressed concern about how long this is taking. We will do what we can to speed up the implementation of the reforms, for which the noble Lord has called.
The noble Lord, Lord Young of Cookham, spoke expertly about electric VED. I believe I was correct in saying that we are not introducing road pricing, since electric VED does not mean that motorists will be charged based on when or where they drive, nor will there be any new national charges to drive on specific roads. Electric VED only requires a vehicle’s mileage to be estimated.
I am grateful to several noble Lords, including the noble Lords, Lord Leigh of Hurley and Lord Massey of Hampstead, and the noble Baroness, Lady Penn, for their support for the further scale-up measures that we introduced as well as for expanding the enterprise management incentives, the enterprise investment scheme and the venture capital trust investment limits. I will happily take away the suggestions from the noble Lord, Lord Leigh, as to how we might go further in that regard.
I am also grateful to my noble friend Lord Stansgate for what he said in support of the measures to help ensure that the fastest-growing businesses in our country start, scale and stay, particularly by backing breakthrough technologies and regional clusters with £7 billion of UKRI funding and a new £130 million growth catalyst fund to help frontier firms scale.
I agree with a lot of what the noble Baroness, Lady Bowles of Berkhamsted, spoke so passionately about on the need for procurement reforms.
The noble Lords, Lord Lamont of Lerwick and Lord Bridges of Headley, and the noble Baroness, Lady Penn, spoke about the impact on living standards. As they will know, real household disposable income fell by 1.8% in the last Parliament, making it the only Parliament since records began in which living standards fell. This fall has already been reversed. RHDI per capita was £800 higher in the first year of this Parliament compared with the final year of the previous Parliament. The OBR forecasts growth to continue, with RHDI per capita projected to grow by 2.9% over this Parliament. It also forecasts that, as a result of the action taken by this Government, RHDI per capita will grow by a further 0.2 percentage points in 2026-27.
Many noble Lords spoke about the importance of tackling welfare reform, including the noble Lords, Lord Burns, Lord Willetts, Lord de Clifford, Lord Saatchi and Lord Hamilton of Epsom, and the noble Baronesses, Lady Coffey, Lady Stedman-Scott and Lady Shawcross-Wolfson. Last year, we delivered the largest fraud and error package in recent history, saving £4.3 billion in 2029-30. This Budget goes further to ensure that our welfare system is sustainable for the long term. It increases face-to-face assessments for health benefits and offers 18 to 21 year-olds who have been on universal credit and looking for work for 18 months paying work, instead of benefits. It ensures that people living abroad can no longer buy a state pension on the cheap and reforms the Motability scheme’s tax reliefs, saving the taxpayer over £1 billion across five years.
Our new youth guarantee will also offer 18 to 20 year-olds paid work rather than benefits and we will examine extending it, as my noble friend Lord Rook asked. We recognise the need to do more, which is why the Government will continue to look at other reforms, including through the Timms review, the Milburn review and the Pensions Commission.
As my noble friend Lord Rook said, we have raised taxes on gambling companies and launched a crackdown on tax evasion to pay for the scrapping of the two-child limit. I am still amazed that the party opposite opposed these measures, when three-quarters of households impacted by this change have at least one parent or carer in work. Reducing child poverty is not only a moral imperative but an investment in the country’s future. Under the Conservatives, child poverty rose by 900,000, yet they still oppose the action we are taking to tackle child poverty.
The cost to the economy of child poverty is some £40 billion a year. It damages the life chances of the children affected and it hits growth, because children who grow up in poverty earn 25% less aged 30 than those who do not. The right reverend Prelate the Bishop of Portsmouth described how 50% of children in one of his wards live in poverty. Removing the two-child limit will lift 450,000 children out of poverty in the final year of this Parliament, yet the noble Baroness, Lady Neville-Rolfe, on behalf of the Official Opposition, opposed it. When combined with other measures announced this year, it will lift around 550,000 children out of poverty. The noble Baroness, Lady Coffey, asked about this measurement: it is relative child poverty after housing costs.
The noble Lord, Lord Bird, spoke rightly about the intergenerational nature of poverty and said that we should prevent poverty in the first place. Child poverty makes it harder for children to get on in life and it hurts our economy in the long term. Reducing child poverty will help to increase educational outcomes and attainment, and therefore improve economic outcomes.
Finally, my noble friend Lady Pitkeathley also spoke passionately about carers. As my noble friend said, 26,000 carers will now have their overpayment debt written off or reimbursed.
We will continue to rebuild the economy after 14 years of failure from the party opposite. Where they delivered the slowest projected growth in the G7, our growth in the first half of this year was the fastest in the G7. Where they presided over the worst Parliament ever for living standards, living standards have already increased by 2.1% since the election. Where they oversaw the worst pay growth in a century, real wages grew more in the first 10 months of this Government than in the first 10 years of the previous Government, and where they continually cut capital spending and deterred investment, we are investing for the long term, with £120 billion extra over the next five years.
Now, in this Budget, we are going further: not just cutting child poverty but cutting energy bills by £150; cutting NHS waiting lists; cutting borrowing faster than any other G7 country; cutting inflation and supporting further cuts in interest rates. This is a Budget that rejects austerity, a Budget for a stronger, more secure economy, and a Budget for a Britain built for all.