Lords Grand Committee
Tuesday 3rd November 2026
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15:47
Speaker 1
-
Speaker 1
Take note of our committee's report, which was called Time is Money. Our regulators can support growth. And in doing so, I'd like to pay tribute to our committee staff, to Rhiannon Williams and Dominic Cooper. Together with the invaluable support from an now secondment, Sarah Piercey and committee members including the noble Baroness , Ladies Harding and Valentine, and noble lords Fuller and Lister, who you'll hear from today together with Baroness Carbury and Lord Camoys, who are also on the committee we might hear from today. But also we're going to hear from Lord Chandos, our noble friend Lord Chandos, who was in at the start of the process.
He did then escape the good behaviour, and if I could start with an apology to my noble friend Lord Smith of Ranmore for Misnaming, his former organisation, the FSA. Obviously the agent, not the authority agency, not the authority on the table on page 11 to confess it was him that spotted that, not me. Maybe I could also thank the then relevant ministers, notably in significantly, both from the Treasury and from the Business Department and my noble friend Lord Livermore and the MP Blair McDougall, for appearing in front of the committee as indeed the noble Lord, Lord Willetts, who was.
Enormous assistance to our work. The report examines the government's attempt to help boost the growth, its growth objective via its Action plan for regulators. An objection objective I'm sure the committee will surely share. Writing in The Times on Saturday. However, the Chancellor did admit that growth cannot be commanded from Whitehall, but that it could be helped by removing the barriers to hold back investment and by bringing down costs and bureaucracy. And ministers judge that that includes regulation. That led to the question that we asked as to the impact regulation can have in either encouraging or facilitating growth, and whether the government's action plan will help regulators to achieve this objective.
Done well, regulation can boost consumer confidence. It can provide a level playing field that helps competition, and it can help provide certainty to businesses and investors, whether from here or abroad. Done badly, of course. Regulation, particularly if it's slow, can cause uncertainty costs, delays to new products, services and infrastructure. It can harm the economy and it can disadvantage consumers by denying them cheaper, improved or indeed new products. Whilst our committee welcomed the intention of the government's action plan, it wasn't always apparent what this meant for individual regulators whose responsibilities can differ greatly. The Food Standards Agency, for example, wants to become more nimble and accessible to new technologies.
But could that conflict with improved agricultural trade with the EU? Other regulators have vital objectives for safety, for health, for the environment or for consumer protection. So they need to weigh up whether any relaxation on their focus on those important issues could leave workers, shoppers or road users more exposed and carrying more risk themselves. We therefore , asked ministers to provide individual regulators with a more granular picture of what its growth agenda actually meant in practice. The government's response was that it had issued more specific goals to key regulators, although these largely related to specific activities.
Rather than clarifying how a focus on growth could should be balanced with their core objectives. However, just as the government needs to be clearer about their expectation of regulators, so regulators themselves should be clearer as to how businesses should comply with their various demands. We heard from witnesses that too often, a lack of early engagement and dialogue, and an absence of guidance led to duplication and into delay approvals. Which brings us to the question of speed or pace seems to be the in word that these days. Our recommendations here are important for the government's agenda, but I think have a resonance beyond this.
All regulators should work quicker and smarter than they often do. They are dealing with services, services and manufacturers, with developers, entrepreneurs or innovators in the real world. And as the title of our report suggests, time is money and time can sometimes Save Lives when new safety devices, drugs, or health breakthroughs could be approved with due checks, but without unnecessary red tape. And it seems that red tape is indeed the issue. Sometimes regulators have two tasks to enforce their actual regulation, but also to run an assurance scheme which checks on compliance. We did have one question, which was, is the government's 25% desired cut on admin the most important measure, or is it the cost to manufacturers of making the adjustment in in what they're producing to comply with the rules?
And the example we heard was whether it was more expensive for a fridge manufacturer to make sure the fridge was built to comply with rules, or was it the paperwork to show the regulator that they had complied with the rules? The government replied that it had identified £2 billion in admin costs, a third of the £5.6 billion target, though it said it would also address broader regulation costs to ensure businesses do benefit from reforms. We urge the government to focus on the wider issue of regulatory compliance, not just red tape, especially as this has lessons for the future.
Now in this House, those who've been here a long time will know we often jib at allowing ministers the power under secondary legislation which Parliament therefore can't influence. But in this report we found that sometimes over prescriptive rules in primary legislation means outdated requirements can't be quickly altered. Even where regulator wants to do that. So there are lessons for future legislation. Indeed, our committee, since this report, has now heard particular examples of legal regulations . And the example we give. We're looking now at defence industry is the requirement in law for life jackets on boats. And that requirement becomes a little bit meaningless when we're talking about uncrewed vehicles which can't.
But the regulation can't be dumped because it's in primary legislation. Yet the whole nature of warfare changes as we use autonomous vehicles. That's a lesson for future legislation. There's another aspect of regulators behaviour which is alleged to get in the way, and that is the tendency to risk aversion. That's easy to understand when they do something right. Nobody notices that the regulators even exist. But one fault, one accident and one serious injury or damage. And the press and parliament are down on them like a ton of bricks. So if the government wants regulators to be bolder in decision making and to be less risk averse, and they allow them to see the upsides as well as the downsides of new developments, then government is going to have to provide some political cover for regulators.
And each sponsoring secretary of state must make clear to their particular regulator that they will honour that. Indeed, the leadership of regulators is what is vital in mitigating rather than avoiding risk. And the appointment of the chair . And often the board is in the hand of ministers, as are the actual discussions that they then have on their annual reports. So ministers must make their expectations clear and their own tolerance for risk understandable to the regulators, along with the degree to which they're willing to to allow consumers to bear any resulting risks, if exact, if exact regulations are not laid down, nailed down and enforced.
Ministers are calling for a culture change amongst regulators, but it will only be achieved if they understand that the level of acceptable risk is a political decision, should be decided by government, and that it must set out its own risk appetite for regulators and give a clear steer as to when that could be sacrificed to help promote, or at least not stifle growth. The government is going to strengthen the growth duty in regulating the growth in the Regulation of Growth Bill and issue steers to to guide regulators in applying the new duty. So perhaps, my noble friend the Minister could let us know when we might expect that bill.
There's clearly significant room for regulators to improve how they work, especially the pace of decision making. Delays increase the cost of borrowing and can make the UK less attractive for investment. Time is money and speed was the main ask we heard from businesses. Whilst the action plan paid, the action man floated the idea of paid for fast lanes for approvals. We concluded that allowing some companies to pay for quicker decisions could reduce public trust. It could disadvantage small or innovative new entrants, and could remove the incentive on the regulator to speed up the whole of its processes.
Because all companies need speeds and not just the rich ones. My Lords, there are some the the pace . I think it came through most strongly. And therefore, while we acknowledge what the idea of looking for paid for regulators, it seemed to us that there were other ways to improve things, whether it was by digitisation, AI or regular and earlier dialogue and a more proportional approach. There are some areas where companies have to deal with more than one regulator, leading to a government pilot, which we welcomed with a lead environmental regulator. However, that initiative only applies to regulators within the same department, whereas many companies have to deal with more than one department.
And it also doesn't allow the decision making to move to the lead body. So perhaps the minister could also update us on the work and thinking in that regard. My Lords, the committee agrees that the government is right to turn its attention to the role of regulators, which can make a useful, though not decisive, contribution to the growth objective. Regulators can deter, though not actually create, growth, and they can certainly facilitate it. However, the government must take some strategic decisions in this regard. Ministers will have to provide political cover if they want regulators to be less risk averse, and they must use their role as sponsoring ministers to ensure regulators up their game by their processes, their speed of decision making and their openness to dialogue with the regulated community.
Even as they maintain, every regulator must maintain a solid focus on their core function, whether that is financial stability, health and safety, consumer protection or fair competition. I commend the government for its work in this area, and I look forward to seeing the outcome of its action plan in due course. I beg to move here.
He did then escape the good behaviour, and if I could start with an apology to my noble friend Lord Smith of Ranmore for Misnaming, his former organisation, the FSA. Obviously the agent, not the authority agency, not the authority on the table on page 11 to confess it was him that spotted that, not me. Maybe I could also thank the then relevant ministers, notably in significantly, both from the Treasury and from the Business Department and my noble friend Lord Livermore and the MP Blair McDougall, for appearing in front of the committee as indeed the noble Lord, Lord Willetts, who was.
Enormous assistance to our work. The report examines the government's attempt to help boost the growth, its growth objective via its Action plan for regulators. An objection objective I'm sure the committee will surely share. Writing in The Times on Saturday. However, the Chancellor did admit that growth cannot be commanded from Whitehall, but that it could be helped by removing the barriers to hold back investment and by bringing down costs and bureaucracy. And ministers judge that that includes regulation. That led to the question that we asked as to the impact regulation can have in either encouraging or facilitating growth, and whether the government's action plan will help regulators to achieve this objective.
Done well, regulation can boost consumer confidence. It can provide a level playing field that helps competition, and it can help provide certainty to businesses and investors, whether from here or abroad. Done badly, of course. Regulation, particularly if it's slow, can cause uncertainty costs, delays to new products, services and infrastructure. It can harm the economy and it can disadvantage consumers by denying them cheaper, improved or indeed new products. Whilst our committee welcomed the intention of the government's action plan, it wasn't always apparent what this meant for individual regulators whose responsibilities can differ greatly. The Food Standards Agency, for example, wants to become more nimble and accessible to new technologies.
But could that conflict with improved agricultural trade with the EU? Other regulators have vital objectives for safety, for health, for the environment or for consumer protection. So they need to weigh up whether any relaxation on their focus on those important issues could leave workers, shoppers or road users more exposed and carrying more risk themselves. We therefore , asked ministers to provide individual regulators with a more granular picture of what its growth agenda actually meant in practice. The government's response was that it had issued more specific goals to key regulators, although these largely related to specific activities.
Rather than clarifying how a focus on growth could should be balanced with their core objectives. However, just as the government needs to be clearer about their expectation of regulators, so regulators themselves should be clearer as to how businesses should comply with their various demands. We heard from witnesses that too often, a lack of early engagement and dialogue, and an absence of guidance led to duplication and into delay approvals. Which brings us to the question of speed or pace seems to be the in word that these days. Our recommendations here are important for the government's agenda, but I think have a resonance beyond this.
All regulators should work quicker and smarter than they often do. They are dealing with services, services and manufacturers, with developers, entrepreneurs or innovators in the real world. And as the title of our report suggests, time is money and time can sometimes Save Lives when new safety devices, drugs, or health breakthroughs could be approved with due checks, but without unnecessary red tape. And it seems that red tape is indeed the issue. Sometimes regulators have two tasks to enforce their actual regulation, but also to run an assurance scheme which checks on compliance. We did have one question, which was, is the government's 25% desired cut on admin the most important measure, or is it the cost to manufacturers of making the adjustment in in what they're producing to comply with the rules?
And the example we heard was whether it was more expensive for a fridge manufacturer to make sure the fridge was built to comply with rules, or was it the paperwork to show the regulator that they had complied with the rules? The government replied that it had identified £2 billion in admin costs, a third of the £5.6 billion target, though it said it would also address broader regulation costs to ensure businesses do benefit from reforms. We urge the government to focus on the wider issue of regulatory compliance, not just red tape, especially as this has lessons for the future.
Now in this House, those who've been here a long time will know we often jib at allowing ministers the power under secondary legislation which Parliament therefore can't influence. But in this report we found that sometimes over prescriptive rules in primary legislation means outdated requirements can't be quickly altered. Even where regulator wants to do that. So there are lessons for future legislation. Indeed, our committee, since this report, has now heard particular examples of legal regulations . And the example we give. We're looking now at defence industry is the requirement in law for life jackets on boats. And that requirement becomes a little bit meaningless when we're talking about uncrewed vehicles which can't.
But the regulation can't be dumped because it's in primary legislation. Yet the whole nature of warfare changes as we use autonomous vehicles. That's a lesson for future legislation. There's another aspect of regulators behaviour which is alleged to get in the way, and that is the tendency to risk aversion. That's easy to understand when they do something right. Nobody notices that the regulators even exist. But one fault, one accident and one serious injury or damage. And the press and parliament are down on them like a ton of bricks. So if the government wants regulators to be bolder in decision making and to be less risk averse, and they allow them to see the upsides as well as the downsides of new developments, then government is going to have to provide some political cover for regulators.
And each sponsoring secretary of state must make clear to their particular regulator that they will honour that. Indeed, the leadership of regulators is what is vital in mitigating rather than avoiding risk. And the appointment of the chair . And often the board is in the hand of ministers, as are the actual discussions that they then have on their annual reports. So ministers must make their expectations clear and their own tolerance for risk understandable to the regulators, along with the degree to which they're willing to to allow consumers to bear any resulting risks, if exact, if exact regulations are not laid down, nailed down and enforced.
Ministers are calling for a culture change amongst regulators, but it will only be achieved if they understand that the level of acceptable risk is a political decision, should be decided by government, and that it must set out its own risk appetite for regulators and give a clear steer as to when that could be sacrificed to help promote, or at least not stifle growth. The government is going to strengthen the growth duty in regulating the growth in the Regulation of Growth Bill and issue steers to to guide regulators in applying the new duty. So perhaps, my noble friend the Minister could let us know when we might expect that bill.
There's clearly significant room for regulators to improve how they work, especially the pace of decision making. Delays increase the cost of borrowing and can make the UK less attractive for investment. Time is money and speed was the main ask we heard from businesses. Whilst the action plan paid, the action man floated the idea of paid for fast lanes for approvals. We concluded that allowing some companies to pay for quicker decisions could reduce public trust. It could disadvantage small or innovative new entrants, and could remove the incentive on the regulator to speed up the whole of its processes.
Because all companies need speeds and not just the rich ones. My Lords, there are some the the pace . I think it came through most strongly. And therefore, while we acknowledge what the idea of looking for paid for regulators, it seemed to us that there were other ways to improve things, whether it was by digitisation, AI or regular and earlier dialogue and a more proportional approach. There are some areas where companies have to deal with more than one regulator, leading to a government pilot, which we welcomed with a lead environmental regulator. However, that initiative only applies to regulators within the same department, whereas many companies have to deal with more than one department.
And it also doesn't allow the decision making to move to the lead body. So perhaps the minister could also update us on the work and thinking in that regard. My Lords, the committee agrees that the government is right to turn its attention to the role of regulators, which can make a useful, though not decisive, contribution to the growth objective. Regulators can deter, though not actually create, growth, and they can certainly facilitate it. However, the government must take some strategic decisions in this regard. Ministers will have to provide political cover if they want regulators to be less risk averse, and they must use their role as sponsoring ministers to ensure regulators up their game by their processes, their speed of decision making and their openness to dialogue with the regulated community.
Even as they maintain, every regulator must maintain a solid focus on their core function, whether that is financial stability, health and safety, consumer protection or fair competition. I commend the government for its work in this area, and I look forward to seeing the outcome of its action plan in due course. I beg to move here.
15:59
15:59
Speaker 3
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Speaker 3
My Lords, I congratulate the noble Baroness Hayter on chairing the committee that has produced this excellent report, which does indeed give a lot of practical advice on how we can ensure that the regulatory regime is improved. I should declare an interest. I chair the Regulatory Innovation Office, in which capacity I gave evidence to the committee. Our task is to try to ensure that regulation does not stand in the way of desirable innovation and new technologies, and of course, we operate under the scrutiny of the noble Baroness Lloyd of Efra. I'd just like to pick up on three points from this report.
First of all, there is the whole issue of the growth duty and what it means and how one can promote growth, and my view is that it's absolutely right to try to be as explicit as possible about the growth duty, and it is also then legitimate for ministers within that legal framework to specify in letters to regulators and communication with regulators how they think the regulators can promote growth within the overall statutory responsibilities that regulators have. And all too often under successive governments, we've seen sort of communications from government to regulators, which are long lists of desirable things but don't give a sense of priority and aren't sufficiently granular really to provide action.
Or, as we heard from the noble Baroness kind of political cover, as she called it, for officials in those regulators. So the more specific those those guidelines are, those letters are drawing on the growth duty, the better. And as examples, they clearly can focus on timeliness. Pace is indeed an issue, and pace is a. Especially if you're a startup, if you're trying to do something different, if you have got limited resource or an impatient venture capital fund behind you, you need to get on with things. And the big moneyed incumbents are much less focused on getting things done quickly.
So dealing with things quickly helps new entrants. That is one area that can be looked at. Regulators inevitably tend to focus, if you like, on the day job, on what they're already familiar with, getting them to think about the innovative people coming in from the side who have thought of a different way of doing things and have the staff to engage with them is really important. And so one of the things we try to do at Rio is simply to shift the priorities in the regulator to ensure that the innovative technologies coming over the horizon are properly understood and the companies delivering them are engaged with.
That's another thing that's clearly pro-growth. And then there's also the frustration that companies have of concluding with one regulator to be told, finally, and now we're passing you on to the next regulator. The more that these processes can be simultaneous parallel rather than sequential, the better. And again, one thing where Rio, working with ministers, tries to make progress is convening groups of regulators to confront them as a group with some new technology, just to work out exactly who is responsible for what and how that can be communicated to innovative companies and the technology community. So there are practical things that can be done on growth.
Secondly, risk aversion and speaking now as a former member of Parliament who used to face real constituents, I can understand the difficulties of standing in front of one's voters and saying, we've got this great idea. You're going to take more risk. And it is not always a palatable message. My view is that we can make a lot of progress by looking at what we mean by risk. And often the real problem is that the definition of risk is very narrow. It's what encompasses the specific responsibilities of the regulator, and means that wider benefits are not taken into account.
And I'm going to give an example which is not invidious. And it's a slightly sort of simplified example, but there are lots of uses of drones and the CAA, with whom we have a good constructive dialogue. The CAA are worried about particularly worried about drones flying beyond visual line of sight. And they're worried about drones carrying heavy equipment, particularly electrical equipment. And so their instinct is our job is airspace and protecting airspace. And these type of drones are potentially risky. However, there are wider benefits if that drone. This is an issue raised by the Welsh Ambulance Service.
If the electrical equipment that the drone is carrying is a defibrillator and drones flying defibrillators to help people with heart attacks, which is what happens in Switzerland, is a very good overall reduction in risk for British citizens. And so we're not saying to British citizens, you have to take more risk as we're going to going to regulate drones. More likely, you're actually saying when you're looking at the risks of that bit of electrical equipment landing on someone because a drone crashes. Also, bear in mind the wider angle of it being used for medical purpose. And often that wider perspective is not one in the minds of the regulators, and we can put them in the minds of.
In other words, benefit aversion is the problem, not risk aversion. It's benefit aversion. And my third and final point is that there is an important section of the report on the difficulties of over specific regulation, and we see it all the time. There's a great example in the report. The FSA of chilled foods having to be chilled in storage, not allowing the fact that the transport itself can be chilling. Now, there's an awful lot of that. And the more we can have broad regulation and then use standards and trusted bodies such as the BSI, the better.
And let us face it. My Lords, this House is sometimes one of the worst culprits in adding detail to regulation. And if one message that goes out from our debate today to our colleagues is lay off a bit, that itself, I think would be significant progress. Yeah.
First of all, there is the whole issue of the growth duty and what it means and how one can promote growth, and my view is that it's absolutely right to try to be as explicit as possible about the growth duty, and it is also then legitimate for ministers within that legal framework to specify in letters to regulators and communication with regulators how they think the regulators can promote growth within the overall statutory responsibilities that regulators have. And all too often under successive governments, we've seen sort of communications from government to regulators, which are long lists of desirable things but don't give a sense of priority and aren't sufficiently granular really to provide action.
Or, as we heard from the noble Baroness kind of political cover, as she called it, for officials in those regulators. So the more specific those those guidelines are, those letters are drawing on the growth duty, the better. And as examples, they clearly can focus on timeliness. Pace is indeed an issue, and pace is a. Especially if you're a startup, if you're trying to do something different, if you have got limited resource or an impatient venture capital fund behind you, you need to get on with things. And the big moneyed incumbents are much less focused on getting things done quickly.
So dealing with things quickly helps new entrants. That is one area that can be looked at. Regulators inevitably tend to focus, if you like, on the day job, on what they're already familiar with, getting them to think about the innovative people coming in from the side who have thought of a different way of doing things and have the staff to engage with them is really important. And so one of the things we try to do at Rio is simply to shift the priorities in the regulator to ensure that the innovative technologies coming over the horizon are properly understood and the companies delivering them are engaged with.
That's another thing that's clearly pro-growth. And then there's also the frustration that companies have of concluding with one regulator to be told, finally, and now we're passing you on to the next regulator. The more that these processes can be simultaneous parallel rather than sequential, the better. And again, one thing where Rio, working with ministers, tries to make progress is convening groups of regulators to confront them as a group with some new technology, just to work out exactly who is responsible for what and how that can be communicated to innovative companies and the technology community. So there are practical things that can be done on growth.
Secondly, risk aversion and speaking now as a former member of Parliament who used to face real constituents, I can understand the difficulties of standing in front of one's voters and saying, we've got this great idea. You're going to take more risk. And it is not always a palatable message. My view is that we can make a lot of progress by looking at what we mean by risk. And often the real problem is that the definition of risk is very narrow. It's what encompasses the specific responsibilities of the regulator, and means that wider benefits are not taken into account.
And I'm going to give an example which is not invidious. And it's a slightly sort of simplified example, but there are lots of uses of drones and the CAA, with whom we have a good constructive dialogue. The CAA are worried about particularly worried about drones flying beyond visual line of sight. And they're worried about drones carrying heavy equipment, particularly electrical equipment. And so their instinct is our job is airspace and protecting airspace. And these type of drones are potentially risky. However, there are wider benefits if that drone. This is an issue raised by the Welsh Ambulance Service.
If the electrical equipment that the drone is carrying is a defibrillator and drones flying defibrillators to help people with heart attacks, which is what happens in Switzerland, is a very good overall reduction in risk for British citizens. And so we're not saying to British citizens, you have to take more risk as we're going to going to regulate drones. More likely, you're actually saying when you're looking at the risks of that bit of electrical equipment landing on someone because a drone crashes. Also, bear in mind the wider angle of it being used for medical purpose. And often that wider perspective is not one in the minds of the regulators, and we can put them in the minds of.
In other words, benefit aversion is the problem, not risk aversion. It's benefit aversion. And my third and final point is that there is an important section of the report on the difficulties of over specific regulation, and we see it all the time. There's a great example in the report. The FSA of chilled foods having to be chilled in storage, not allowing the fact that the transport itself can be chilling. Now, there's an awful lot of that. And the more we can have broad regulation and then use standards and trusted bodies such as the BSI, the better.
And let us face it. My Lords, this House is sometimes one of the worst culprits in adding detail to regulation. And if one message that goes out from our debate today to our colleagues is lay off a bit, that itself, I think would be significant progress. Yeah.
16:05
Speaker 4
-
Speaker 4
I'm delighted to follow the noble Lord, Lord Willetts. And we did indeed hear some interesting examples about successful sandboxes in our evidence. What didn't seem to happen, though, is that the lessons from those sandboxes are spread into the wider regulator , and that regulators behaviour. So may I first declare some interests. I work as director of place for business in the community in cities such as Blackpool or Bradford or Sheffield, and I'm chair of Heathrow Southern Railway, which plans to build a railway south from Heathrow to connect with lines to Wokingham Waterloo. In both these capacities, the interface with government is fundamental to growth.
For instance, Blackpool has just been shortlisted. If culture, which would turbocharge its tourism industry and post Hs2's northern demise. Bradford needs better rail connectivity to Manchester in all the places I work. Youth unemployment is endemic. The Department for education, the DWP, the business department, local authorities, the careers and enterprise company all have a role which leads too often to confusion and inaction for Heathrow Southern Railway. Imagine having to make sense of the different ambitions and boundary conditions involving the politics, policy and regulations around expansion of Heathrow. You have the CAA, as was referred to earlier, the DFT GBR Transport Select Committee and the Treasury to name but a few.
But I was delighted to contribute to the committee's Time is Money report. Would like to focus my remarks today on a few practical examples. So let me start with overlapping regulatory responsibilities. I mentioned the difficulty of getting good careers advice to the young unemployed. Sheffield, however, has created a one stop shop called See It, Be it for schools and businesses involving all the relevant intermediaries, with the result that there are tens of thousands of helpful interventions. One stop shops are simply a matter of will and good practice. Unfortunately, in our evidence sessions, we heard examples of departments and regulators asking for overlapping but different information or providing conflicting policy advice.
Anglian water told us that in one year it had provided 30 reports on storm overflows to Off.what Department for environment and the Drinking Water Inspectorate. The Department for environment is trialling having a lead regulator, but it doesn't go as far as sorting out agreed policy and it doesn't work across to other departments regulators. Another positive example is the Department for businesses. Provision of dedicated concierge services for financial services. Inward investors. The plethora of regulators and departments around Thames Tideway offers a parallel to Heathrow Southern Railway. The super sewer was designed to prevent London breaching European pollution limits.
The Department for the environment and what were concerned to minimise cost to the consumer. And there was the usual toing and froing about whether this would be on or off balance sheet. The eventual breakthrough was a senior reference group involving all relevant government parties, which established a clear investable pathway and the long term certainty that investors needed to commit capital. And I'm delighted to say now that the tunnel is open, the Thames has improved from being biologically dead in 1957 to harbouring millions of fish and 4000 seals. But this example throws up two common challenges.
The first is the tension between keeping prices down for today's consumer versus investing future. And the second is the Treasury. In the 90s, I had regular conversations about funding London's transport with three bright young things in the Treasury, namely Ed Balls, Ed Miliband and Trudy Vadera. Their view about on or off balance sheet was that the primary was whether the investment was good for UK plc , and whether the government made a good return on any contribution it made. The simplicity of this view gets lost in worries about ONS pacification. And looked at from the perspective of a lowly regulator.
One has the Treasury saying on the one hand he left us more open to innovation, but on the other, if your project is novel and contentious, then the Treasury's approach will be scepticism and mistrust. These seem like mixed messages. Where I have lesson with the regulators is on the subject of efficiency. It should be a given that all regulators are continuously improving their processes and their transparency about time frames, stages of decision making. I'm delighted that in two of our investigations, that of the Building Safety Regulator and the defence industry, time frames for decision and procurement , respectively, are being improved in each case with new leadership.
As the title of the report says, time is money. So let me finish with two, please. Firstly, set every regulator a key performance metric on efficiency as one of a small number of priorities. And secondly, advocate one stop shop arrangements to improve user friendliness and provide clear investable pathways for investors.
For instance, Blackpool has just been shortlisted. If culture, which would turbocharge its tourism industry and post Hs2's northern demise. Bradford needs better rail connectivity to Manchester in all the places I work. Youth unemployment is endemic. The Department for education, the DWP, the business department, local authorities, the careers and enterprise company all have a role which leads too often to confusion and inaction for Heathrow Southern Railway. Imagine having to make sense of the different ambitions and boundary conditions involving the politics, policy and regulations around expansion of Heathrow. You have the CAA, as was referred to earlier, the DFT GBR Transport Select Committee and the Treasury to name but a few.
But I was delighted to contribute to the committee's Time is Money report. Would like to focus my remarks today on a few practical examples. So let me start with overlapping regulatory responsibilities. I mentioned the difficulty of getting good careers advice to the young unemployed. Sheffield, however, has created a one stop shop called See It, Be it for schools and businesses involving all the relevant intermediaries, with the result that there are tens of thousands of helpful interventions. One stop shops are simply a matter of will and good practice. Unfortunately, in our evidence sessions, we heard examples of departments and regulators asking for overlapping but different information or providing conflicting policy advice.
Anglian water told us that in one year it had provided 30 reports on storm overflows to Off.what Department for environment and the Drinking Water Inspectorate. The Department for environment is trialling having a lead regulator, but it doesn't go as far as sorting out agreed policy and it doesn't work across to other departments regulators. Another positive example is the Department for businesses. Provision of dedicated concierge services for financial services. Inward investors. The plethora of regulators and departments around Thames Tideway offers a parallel to Heathrow Southern Railway. The super sewer was designed to prevent London breaching European pollution limits.
The Department for the environment and what were concerned to minimise cost to the consumer. And there was the usual toing and froing about whether this would be on or off balance sheet. The eventual breakthrough was a senior reference group involving all relevant government parties, which established a clear investable pathway and the long term certainty that investors needed to commit capital. And I'm delighted to say now that the tunnel is open, the Thames has improved from being biologically dead in 1957 to harbouring millions of fish and 4000 seals. But this example throws up two common challenges.
The first is the tension between keeping prices down for today's consumer versus investing future. And the second is the Treasury. In the 90s, I had regular conversations about funding London's transport with three bright young things in the Treasury, namely Ed Balls, Ed Miliband and Trudy Vadera. Their view about on or off balance sheet was that the primary was whether the investment was good for UK plc , and whether the government made a good return on any contribution it made. The simplicity of this view gets lost in worries about ONS pacification. And looked at from the perspective of a lowly regulator.
One has the Treasury saying on the one hand he left us more open to innovation, but on the other, if your project is novel and contentious, then the Treasury's approach will be scepticism and mistrust. These seem like mixed messages. Where I have lesson with the regulators is on the subject of efficiency. It should be a given that all regulators are continuously improving their processes and their transparency about time frames, stages of decision making. I'm delighted that in two of our investigations, that of the Building Safety Regulator and the defence industry, time frames for decision and procurement , respectively, are being improved in each case with new leadership.
As the title of the report says, time is money. So let me finish with two, please. Firstly, set every regulator a key performance metric on efficiency as one of a small number of priorities. And secondly, advocate one stop shop arrangements to improve user friendliness and provide clear investable pathways for investors.
16:11
Speaker 5
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Speaker 5
I'm very grateful to my noble friend Lady Hayter of Kentish Town for her incisive introduction to today's debate and for her leadership of the Industry and Regulators Committee, which has produced this excellent report. As she said, I was a member of the committee for the first few weeks of its inquiry and much regret not overlapping with my noble friend, who's brought a lifetime of focus on consumer interests to her new role. I declare my interest, as disclosed in the register as a director of RSM, the Theseus Agency and Digbeth Loc Studios and adviser to the Family Office for services.
I welcome and endorse the analysis and conclusions of the report. Shining a light into what it correctly describes as a mixed picture of regulators roles in encouraging and stimulating economic growth. Successive recent governments have placed great emphasis on regulators, ensuring that they take proper account of growth as an objective. At the risk of being pedantic, I do not think it is right for regulators baldly to prioritise growth which risks a mistaken direction of the industry or the products and services concerned, as well as raising unrealistic expectations for what the regulator can achieve. Language matters. I wholeheartedly support the direction to regulators to seek, particularly in the light of the rapid innovation which the noble Lord, Lord Willetts, oversees, a better balance between consumer protection and the promotion of growth on the part of the producers of the goods and services being regulated, and hence of the economy as a whole.
But that is very different from the rhetoric of prioritising growth. The report accurately identifies the complexity of this issue, and the need to make trade offs between fostering growth and other and, and and other factors such as consumer protection and environmental standards. I'm not convinced that the government's response, shortly before the change of Prime Minister, that the proposed Regulatory Regulating for growth Bill will bring the strategic clarity that is needed to enable widely differing regulators to balance the conflicting objectives that they are having to juggle. Can I join my noble friend, Lady Hater, in asking my noble friend the Minister, to indicate the timing of the bill's introduction and her current thinking about how to define the judgments and trade offs that are needed.
The challenges in each regulated industry or sector vary significantly in financial services. Financial services overseen by the Industry and Regulators sister Committee. There is clear evidence of clumsy and onerous regulation holding back growth in this vital and world leading service sector, without commensurate improvement in consumer protection in the water industry. Under the conservative government, short term, politically influenced focus on holding down consumer prices and lax supervision of corporate behaviour led to serious detriment to the long term interests of consumers, as well as the undermining of the industry's financial resilience. The legal services industry is undergoing fundamental changes in ownership and operation, as outside capital is introduced through private equity in the stock market, akin to Big Bang in financial services 40 years ago.
Regulation of legal services is diffuse and dare I say it, incestuous, currently and questionably fit for purpose. As these developments change, the motivation and behaviour of firms can my noble friend the Minister, say whether she believes that the regulation of legal services provision strikes the right balance of independence, growth and consumer protection? The report makes only passing reference to generative AI and AGI, as the committee's remit was very much focused on existing regulators, but this area poses the starkest challenge in balancing growth and consumer. Indeed, human protection at a time when leading companies in this field acknowledge in their initial public offering documentation the non-trivial possibility of devastating systemic harm to mankind.
Can my noble friend the Minister, provide any update on the government's intentions for the overarching regulation of AI? I will end by unashamedly asserting the primacy of consumer protection in regulation, reflecting the asymmetry in power in most cases between consumers and producers and providers. As the report argues, stable, fair consumer protection is a necessary condition for producers and providers growth anyway, and the most efficient and streamlined application of well-designed regulation is a complementary factor in stimulating that growth. This report gives a compelling summary of the challenges facing the government in achieving this balance, and therefore deserves the closest possible attention and action.
I welcome and endorse the analysis and conclusions of the report. Shining a light into what it correctly describes as a mixed picture of regulators roles in encouraging and stimulating economic growth. Successive recent governments have placed great emphasis on regulators, ensuring that they take proper account of growth as an objective. At the risk of being pedantic, I do not think it is right for regulators baldly to prioritise growth which risks a mistaken direction of the industry or the products and services concerned, as well as raising unrealistic expectations for what the regulator can achieve. Language matters. I wholeheartedly support the direction to regulators to seek, particularly in the light of the rapid innovation which the noble Lord, Lord Willetts, oversees, a better balance between consumer protection and the promotion of growth on the part of the producers of the goods and services being regulated, and hence of the economy as a whole.
But that is very different from the rhetoric of prioritising growth. The report accurately identifies the complexity of this issue, and the need to make trade offs between fostering growth and other and, and and other factors such as consumer protection and environmental standards. I'm not convinced that the government's response, shortly before the change of Prime Minister, that the proposed Regulatory Regulating for growth Bill will bring the strategic clarity that is needed to enable widely differing regulators to balance the conflicting objectives that they are having to juggle. Can I join my noble friend, Lady Hater, in asking my noble friend the Minister, to indicate the timing of the bill's introduction and her current thinking about how to define the judgments and trade offs that are needed.
The challenges in each regulated industry or sector vary significantly in financial services. Financial services overseen by the Industry and Regulators sister Committee. There is clear evidence of clumsy and onerous regulation holding back growth in this vital and world leading service sector, without commensurate improvement in consumer protection in the water industry. Under the conservative government, short term, politically influenced focus on holding down consumer prices and lax supervision of corporate behaviour led to serious detriment to the long term interests of consumers, as well as the undermining of the industry's financial resilience. The legal services industry is undergoing fundamental changes in ownership and operation, as outside capital is introduced through private equity in the stock market, akin to Big Bang in financial services 40 years ago.
Regulation of legal services is diffuse and dare I say it, incestuous, currently and questionably fit for purpose. As these developments change, the motivation and behaviour of firms can my noble friend the Minister, say whether she believes that the regulation of legal services provision strikes the right balance of independence, growth and consumer protection? The report makes only passing reference to generative AI and AGI, as the committee's remit was very much focused on existing regulators, but this area poses the starkest challenge in balancing growth and consumer. Indeed, human protection at a time when leading companies in this field acknowledge in their initial public offering documentation the non-trivial possibility of devastating systemic harm to mankind.
Can my noble friend the Minister, provide any update on the government's intentions for the overarching regulation of AI? I will end by unashamedly asserting the primacy of consumer protection in regulation, reflecting the asymmetry in power in most cases between consumers and producers and providers. As the report argues, stable, fair consumer protection is a necessary condition for producers and providers growth anyway, and the most efficient and streamlined application of well-designed regulation is a complementary factor in stimulating that growth. This report gives a compelling summary of the challenges facing the government in achieving this balance, and therefore deserves the closest possible attention and action.
16:18
Speaker 6
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Speaker 6
My Lords, I declare my interest as an employee of Marsh. My Lords, can I warmly welcome this report and congratulate the noble lady, Baroness Hayter, and her Committee on what is, in my view, an extremely useful piece of work looking at the cost of issue. It gets to the heart of the debate we have returned to many times in this House, and it does so with commendable clarity. This debate has been running for some time. I want to suggest that a clear consensus is emerging around three core pillars. What strikes me about the committee's report is how powerfully it supports that framework.
First pillar is sophistication in design and efficiency. Efficiency in implementation. Regulation that is blunt, where it should be precise or rigid, where it should be. Adaptive does not merely inconvenience firms, it actively distorts markets and harms the very consumers and stakeholders it was designed to protect. Good regulation is not light regulation. It is intelligent regulation. You are not the same and we should resist any conflation of them. The committee is right to call for regulators to provide clear guidance early and ensure their requirements are unambiguous from the outset. That is not a procedural nicety. It is a prerequisite for any regime that wishes to be taken seriously.
The second pillar is the recognition and removal of fragmentation. The committee identifies directly that additional complications arise from companies where their projects are overseen by multiple regulators. This is, in my view, one of the most underappreciated structural failures in our current regime. When multiple regulators operate across overlapping domains without adequate coordination, the result is not merely duplication, it is the creation of blind spots. Firms fall between the gaps, risks go unmonitored, and and the cumulative compliance burden on those caught across multiple regimes becomes, in practice, prohibitive. I hope the government will treat this not as a long term aspiration, but as an immediate operational priority.
The third pillar is transparent decision making, and this is where I really want to linger, because I think it is the main point. The committee's call for clear guidance connects directly to it. If regulators must provide clarity, if regulators must provide clarity early, the logical consequence is that they must also be transparent about how they will respond when things are unclear, contested or novel. Industry can absorb almost anything if it can plan for it. What it cannot absorb is uncertainty, and the inability to anticipate how a regulator will behave when firms face uncertainty. They do not take risks.
They comply, they overreport and they over resource. The waste embedded in that precautionary behaviour is vast and almost entirely invisible to those who design the system. But, and this is the point. I do not want us to lose sight of. Transparent decision making cannot be achieved by regulators alone. It requires government to do its part. Regulators cannot be transparent about how they will resolve conflicts between objectives. If government has never told them how those conflicts should be prioritised. That is a political responsibility, a strategic guidance and political cover that government provides or fails to provide.
Is the foundation on what on which regulatory transparency either stands or collapses. The committee calls on the government to play that role, and I believe that call deserves to be heard very clearly. I also want to commend the committee for drawing a distinction that previous reforms have consistently missed the difference between the cost of paperwork and the cost of compliance. Reducing the administrative burden of form filling is welcome, but it is a fraction of the real cost that firms bear when the system changes. The structural adaptations, the ongoing operational adjustments that regulation demands. If we.
On paperwork we are, to use a familiar phrase, looking for our keys under the lamppost. The committee has pointed us towards where the keys actually are. I look forward with great interest to hearing from the noble lady, the Minister, how the government intends to respond. The committee has done its work with rigour and purpose. I would like to commend them for that again. The question now is whether the response will match the ambition of the diagnosis.
First pillar is sophistication in design and efficiency. Efficiency in implementation. Regulation that is blunt, where it should be precise or rigid, where it should be. Adaptive does not merely inconvenience firms, it actively distorts markets and harms the very consumers and stakeholders it was designed to protect. Good regulation is not light regulation. It is intelligent regulation. You are not the same and we should resist any conflation of them. The committee is right to call for regulators to provide clear guidance early and ensure their requirements are unambiguous from the outset. That is not a procedural nicety. It is a prerequisite for any regime that wishes to be taken seriously.
The second pillar is the recognition and removal of fragmentation. The committee identifies directly that additional complications arise from companies where their projects are overseen by multiple regulators. This is, in my view, one of the most underappreciated structural failures in our current regime. When multiple regulators operate across overlapping domains without adequate coordination, the result is not merely duplication, it is the creation of blind spots. Firms fall between the gaps, risks go unmonitored, and and the cumulative compliance burden on those caught across multiple regimes becomes, in practice, prohibitive. I hope the government will treat this not as a long term aspiration, but as an immediate operational priority.
The third pillar is transparent decision making, and this is where I really want to linger, because I think it is the main point. The committee's call for clear guidance connects directly to it. If regulators must provide clarity, if regulators must provide clarity early, the logical consequence is that they must also be transparent about how they will respond when things are unclear, contested or novel. Industry can absorb almost anything if it can plan for it. What it cannot absorb is uncertainty, and the inability to anticipate how a regulator will behave when firms face uncertainty. They do not take risks.
They comply, they overreport and they over resource. The waste embedded in that precautionary behaviour is vast and almost entirely invisible to those who design the system. But, and this is the point. I do not want us to lose sight of. Transparent decision making cannot be achieved by regulators alone. It requires government to do its part. Regulators cannot be transparent about how they will resolve conflicts between objectives. If government has never told them how those conflicts should be prioritised. That is a political responsibility, a strategic guidance and political cover that government provides or fails to provide.
Is the foundation on what on which regulatory transparency either stands or collapses. The committee calls on the government to play that role, and I believe that call deserves to be heard very clearly. I also want to commend the committee for drawing a distinction that previous reforms have consistently missed the difference between the cost of paperwork and the cost of compliance. Reducing the administrative burden of form filling is welcome, but it is a fraction of the real cost that firms bear when the system changes. The structural adaptations, the ongoing operational adjustments that regulation demands. If we.
On paperwork we are, to use a familiar phrase, looking for our keys under the lamppost. The committee has pointed us towards where the keys actually are. I look forward with great interest to hearing from the noble lady, the Minister, how the government intends to respond. The committee has done its work with rigour and purpose. I would like to commend them for that again. The question now is whether the response will match the ambition of the diagnosis.
16:23
16:23
Speaker 4
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Speaker 4
My Lords, I too warmly congratulate the noble Baroness, Baroness Hayter, and her committee for this exceptional report. Now, having worked across public, private, corporate, not for profit sectors, I entirely concur with its central premise. Time is money. In my experience, unlocking growth is not about a lawless race to the bottom or having less regulation. It is about achieving consistency, interoperability, and efficiency. A confident approach from the regulators, not a defensive one , because global investors look for speed and predictability. And right now, bureaucratic silos and delays are costing the UK lost opportunities. So for me, two specific proposals in this committee's report highly resonate with me.
First, the call for a single front door for multi regulator projects. Breakthroughs like AI, medical tools or autonomous delivery drones do not fit into historical boxes. A single portal for concurrent assessment would instantly slash time to the market. Second, the focus on improving the pace of decision making via fast lanes . If a business has already cleared rigorous regulatory hurdles in trusted jurisdiction like Japan or the European Union, we should offer passported compliance, compliance. Re-inventing the wheel simply drives innovators overseas. So I welcome the draft proposals being discussed presently between the European Union and the UK on agri products that will eliminate lengthy checks at ports.
Trade and growth isn't just about tariffs, but also about trust and speedy flow of goods that will lead to growth. However, to truly support growth in a fast moving economy, we must also address the compounding weight of legacy rules. I recognise that automated sunset clauses are politically controversial, but I'm absolutely not. And I'm not absolutely suggesting a blanket eradication of laws. Instead, we should tie sunset clauses directly to digitalisation. As technology evolves, the administrative processes used to enforce regulation become rapidly obsolete. The government should mandate that digital compliance frameworks and administrative reporting requirements placed on businesses automatically expire after a certain time, maybe five years.
This would force the regulators to continually modernize their systems, strip away analog red tape and transition to leaner, data driven oversight. Finally, we must also recognize that opening up digital markets is itself a powerful, pro-growth policy. When we properly resource units like the CMA's digital market unit to curb market power of tech monopolies, we create the predictable, predictable level playing field that the smaller domestic innovators desperately need to scale up. So in conclusion, I wanted to ask the noble baroness, the Minister, an overarching question, given that the Ippr found that 79% of digital intensive UK firms view big tech dominance as a primary constraint on growth, will the government commit to a modernised, enforced strategy that pairs aggressive digital market competition with targeted sunset clauses on legacy administrative reporting, ensuring our regulatory state moves at the same speed as technological innovation.
First, the call for a single front door for multi regulator projects. Breakthroughs like AI, medical tools or autonomous delivery drones do not fit into historical boxes. A single portal for concurrent assessment would instantly slash time to the market. Second, the focus on improving the pace of decision making via fast lanes . If a business has already cleared rigorous regulatory hurdles in trusted jurisdiction like Japan or the European Union, we should offer passported compliance, compliance. Re-inventing the wheel simply drives innovators overseas. So I welcome the draft proposals being discussed presently between the European Union and the UK on agri products that will eliminate lengthy checks at ports.
Trade and growth isn't just about tariffs, but also about trust and speedy flow of goods that will lead to growth. However, to truly support growth in a fast moving economy, we must also address the compounding weight of legacy rules. I recognise that automated sunset clauses are politically controversial, but I'm absolutely not. And I'm not absolutely suggesting a blanket eradication of laws. Instead, we should tie sunset clauses directly to digitalisation. As technology evolves, the administrative processes used to enforce regulation become rapidly obsolete. The government should mandate that digital compliance frameworks and administrative reporting requirements placed on businesses automatically expire after a certain time, maybe five years.
This would force the regulators to continually modernize their systems, strip away analog red tape and transition to leaner, data driven oversight. Finally, we must also recognize that opening up digital markets is itself a powerful, pro-growth policy. When we properly resource units like the CMA's digital market unit to curb market power of tech monopolies, we create the predictable, predictable level playing field that the smaller domestic innovators desperately need to scale up. So in conclusion, I wanted to ask the noble baroness, the Minister, an overarching question, given that the Ippr found that 79% of digital intensive UK firms view big tech dominance as a primary constraint on growth, will the government commit to a modernised, enforced strategy that pairs aggressive digital market competition with targeted sunset clauses on legacy administrative reporting, ensuring our regulatory state moves at the same speed as technological innovation.
16:28
Speaker 8
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Speaker 8
My Lords, like other noble Lords, I warmly welcome this report from the Industry and Regulators Committee. I pay special tribute to the noble lady, Baroness Hayter, for her exemplary leadership in this area. As I know from other issues on which she and I work. She's a doughty campaigner and we are lucky that she's brought her skills to bear in this vital area of regulation. The title of the committee's report, Time is Money is Spot On, and nowhere is this more true than in digital markets, which the noble lady was just mentioning, where delay and inaction are not neutral.
Every day that the unaccountable big tech platforms go unchecked is another day in which they entrench their monopolies further and, frankly, pile up profits on the back of other people's labours. The recent issues surrounding meta, which was raised at our questions last week, is an excellent case in point. Last month it told every business with a Facebook or Instagram account that its new terms and conditions would allow them to scrape their websites with impunity. That was a huge threat to news publishers, and I declare my interest as deputy chairman of the Telegraph Media Group. That was almost existential.
Their message was, you pay to produce the news and we'll harvest it for free. The CMA deserves real credit for opening an investigation into this under the Competition Act 1998. But the truth is, it should not have to resort to a tool that can take many months to extract binding commitments. Or if meta does not accept that it is in the wrong and offer solutions years to reach a remedy. As the report says, and the noble lady powerfully underlined, speed is essential for effective regulation. The CMA has called meta a potential candidate for special market status designation under the Digital Markets Competition and Consumers Act, which would allow them to publish tailored, focused ex-ante requirements.
But potential is the problem word there. As far back as 2020, the CMA itself concluded that Facebook's market power warranted this regime. Yet meta is still not designated. Had it been, I doubt it would have attempted anything so brazen as it did last month. My Lords, the legislation, if applied, really does work because Google was designated under the regime as having special market status. Publishers can now withhold content from AI overviews without vanishing from search. That is the DMCA, a act at its best. Flexible, targeted remedies built firm by firm on the evidence. I believe this is far preferable to the blunt instrument of news promise proposed in the government's Media Green Paper, because what use is prominence if publishers have to withdraw their content?
Because the price of admission to a platform is having their content used as AI training material for free? That way lies commercial perdition. And indeed, my Lords, the end of a free press. Something I know that my noble friend Lord Hunt of Wirral believes strongly in my Lords, and this is very relevant to this excellent report. We need to ask why the CMA has not designated meta or other big tech services that extract excess profits from consumers and crowd out UK start ups. I don't think the fault lies with the CMA itself, which has done really good work under difficult circumstances.
The culprit, I fear, is the government's 2025 strategic steer to put inward investment front and centre. Yet the Ippr report Bottleneck Britain found that digital intensive UK businesses rank Big Tech's market power as the second biggest constraint on growth, finance and talent. So the government still has the priorities backwards, and I think the government should urgently change its direction, expressly backing the CMA to use the powers of Parliament that we gave it and resource it to match . A regulator facing the world's most valuable companies cannot do the job on a shoestring. The same question matters for the regulating for growth Bill, which the noble Lord, Viscount Chandos, raised.
What type of growth will it mandate? I hope it won't be the sugar rush of inward investment announcements of the sort that lets Big Tech off the hook. It should be growth felt by British businesses and citizens, powered by firms that scale and stay here. And the growth duty must never override regulator's core functions. There is little point in a £500 million sovereign AI fund if the CMA cannot regulate monopolies to swallow up potential UK tech champions. That bill, my Lords, also risks being lopsided. Ministers propose AI growth labs to exempt AI firms from regulation from regulation, potentially with sweeping Henry VII's powers to make those relaxations permanent.
Yet where a light touch rule would unlock massive growth for UK firms, they hold back AI crawlers, harvest content anonymously and ignore the wishes of content creators. The government should put bot transparency provisions into the regulating for growth bill. I'd like to press the noble lady, the Minister, on a number of points. First, will the government urgently issue a new strategic steer that backs the CMA to take on Big Tech with the resources. to second? Will the government ensure the regulating for growth bill focuses on growth that will be felt by UK citizens and businesses.
And third, will they put bot transparency provisions into the same legislation? Time is indeed money. My Lords and British firms, including our world class content creators, are paying for every day of delay.
Every day that the unaccountable big tech platforms go unchecked is another day in which they entrench their monopolies further and, frankly, pile up profits on the back of other people's labours. The recent issues surrounding meta, which was raised at our questions last week, is an excellent case in point. Last month it told every business with a Facebook or Instagram account that its new terms and conditions would allow them to scrape their websites with impunity. That was a huge threat to news publishers, and I declare my interest as deputy chairman of the Telegraph Media Group. That was almost existential.
Their message was, you pay to produce the news and we'll harvest it for free. The CMA deserves real credit for opening an investigation into this under the Competition Act 1998. But the truth is, it should not have to resort to a tool that can take many months to extract binding commitments. Or if meta does not accept that it is in the wrong and offer solutions years to reach a remedy. As the report says, and the noble lady powerfully underlined, speed is essential for effective regulation. The CMA has called meta a potential candidate for special market status designation under the Digital Markets Competition and Consumers Act, which would allow them to publish tailored, focused ex-ante requirements.
But potential is the problem word there. As far back as 2020, the CMA itself concluded that Facebook's market power warranted this regime. Yet meta is still not designated. Had it been, I doubt it would have attempted anything so brazen as it did last month. My Lords, the legislation, if applied, really does work because Google was designated under the regime as having special market status. Publishers can now withhold content from AI overviews without vanishing from search. That is the DMCA, a act at its best. Flexible, targeted remedies built firm by firm on the evidence. I believe this is far preferable to the blunt instrument of news promise proposed in the government's Media Green Paper, because what use is prominence if publishers have to withdraw their content?
Because the price of admission to a platform is having their content used as AI training material for free? That way lies commercial perdition. And indeed, my Lords, the end of a free press. Something I know that my noble friend Lord Hunt of Wirral believes strongly in my Lords, and this is very relevant to this excellent report. We need to ask why the CMA has not designated meta or other big tech services that extract excess profits from consumers and crowd out UK start ups. I don't think the fault lies with the CMA itself, which has done really good work under difficult circumstances.
The culprit, I fear, is the government's 2025 strategic steer to put inward investment front and centre. Yet the Ippr report Bottleneck Britain found that digital intensive UK businesses rank Big Tech's market power as the second biggest constraint on growth, finance and talent. So the government still has the priorities backwards, and I think the government should urgently change its direction, expressly backing the CMA to use the powers of Parliament that we gave it and resource it to match . A regulator facing the world's most valuable companies cannot do the job on a shoestring. The same question matters for the regulating for growth Bill, which the noble Lord, Viscount Chandos, raised.
What type of growth will it mandate? I hope it won't be the sugar rush of inward investment announcements of the sort that lets Big Tech off the hook. It should be growth felt by British businesses and citizens, powered by firms that scale and stay here. And the growth duty must never override regulator's core functions. There is little point in a £500 million sovereign AI fund if the CMA cannot regulate monopolies to swallow up potential UK tech champions. That bill, my Lords, also risks being lopsided. Ministers propose AI growth labs to exempt AI firms from regulation from regulation, potentially with sweeping Henry VII's powers to make those relaxations permanent.
Yet where a light touch rule would unlock massive growth for UK firms, they hold back AI crawlers, harvest content anonymously and ignore the wishes of content creators. The government should put bot transparency provisions into the regulating for growth bill. I'd like to press the noble lady, the Minister, on a number of points. First, will the government urgently issue a new strategic steer that backs the CMA to take on Big Tech with the resources. to second? Will the government ensure the regulating for growth bill focuses on growth that will be felt by UK citizens and businesses.
And third, will they put bot transparency provisions into the same legislation? Time is indeed money. My Lords and British firms, including our world class content creators, are paying for every day of delay.
16:34
Speaker 9
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Speaker 9
My Lords, I thank the noble Baroness, Lady Hayter of Kentish Town and the members of the Industry and Regulators Committee for their important report. Time is money how regulators can support growth. I declare my interest as interests. As director of AI and AI policy companies. The report makes a compelling point. Good regulation can encourage investment and innovation, but unnecessary complexity, uncertainty and delay can hold back economic growth. I want to focus particularly on artificial intelligence, because the committee heard direct evidence of how regulatory barriers can affect innovation in this sector. The committee heard from myocardium AI, a company developing AI technology to improve heart scans.
Its representative explained that the company's pilots were taking place overseas because establishing an initial pilot or equivalent regulatory sandbox was more difficult in the UK. Importantly, the same company emphasised that clinical safety must remain paramount and welcomed rigorous regulatory scrutiny. This example captures the challenge before us. We should not have to choose between innovation and public protection. We need a regulatory system that delivers. Britain has world class research and considerable technological talent, but scientific breakthroughs must be translated into products and services that improve people's lives and contribute to economic growth. The committee rightly recommends clearer regulatory guidance, faster decision making.
Its representative explained that the company's pilots were taking place overseas because establishing an initial pilot or equivalent regulatory sandbox was more difficult in the UK. Importantly, the same company emphasised that clinical safety must remain paramount and welcomed rigorous regulatory scrutiny. This example captures the challenge before us. We should not have to choose between innovation and public protection. We need a regulatory system that delivers. Britain has world class research and considerable technological talent, but scientific breakthroughs must be translated into products and services that improve people's lives and contribute to economic growth. The committee rightly recommends clearer regulatory guidance, faster decision making.
16:36
16:36
Speaker 9
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Speaker 9
Early engagement with businesses and greater use of regulatory sandboxes. These recommendations are particularly relevant to AI, where technology can develop faster than traditional regulatory processes. The committee also recognises the values of principles based and outcomes focused regulation, which can provide certainty while allowing flexibility for innovation. I welcome the government's proposal to introduce statutory sandbox powers through the forthcoming Regulatory Regulating for growth Bill. But sandboxes must provide practical results, not simply provide opportunities for experimentation. They should help regulators understand new technologies and give businesses clear guidance about the requirements they must meet. We must also ensure that smaller companies benefit.
The committee rightly cautions that paid for fast lanes could disadvantage businesses unable to afford them . Faster and more predictable regulatory decisions should benefit all applicants. I therefore ask my noble friend the minister, these two questions. First, how will the government ensure that smaller AI innovators can access early regulatory guidance and appropriate sandbox opportunities without compromising safety? Secondly, will the government establish clear, measurable expectations for regulatory decision making times so that businesses can invest and plan with greater confidence? My Lords, Britain's challenge is not simply to develop the technologies of tomorrow, but ensure that innovations developed here can be tested, adopted and scaled here.
Effective regulation should protect the public, while giving responsible innovators the certainty and confidence to succeed. That is how regulation can become an enabler of economic growth.
The committee rightly cautions that paid for fast lanes could disadvantage businesses unable to afford them . Faster and more predictable regulatory decisions should benefit all applicants. I therefore ask my noble friend the minister, these two questions. First, how will the government ensure that smaller AI innovators can access early regulatory guidance and appropriate sandbox opportunities without compromising safety? Secondly, will the government establish clear, measurable expectations for regulatory decision making times so that businesses can invest and plan with greater confidence? My Lords, Britain's challenge is not simply to develop the technologies of tomorrow, but ensure that innovations developed here can be tested, adopted and scaled here.
Effective regulation should protect the public, while giving responsible innovators the certainty and confidence to succeed. That is how regulation can become an enabler of economic growth.
16:38
Speaker 4
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Speaker 4
My Lords, I should begin by thanking our chair, the noble Lady, Baroness Hayter, for her excellent introduction to declare my interest as a member of the Committee. And also my interests are, as in my various organisations which are all regulated as set out in the members Interests. My Lords, the challenge with this topic is that, firstly, there are multiple types of regulator. At least four different types we heard in the inquiry. Economic. Such as Ofcom market, the CMA, Technical Health and Safety and Building Safety Regulator, for example, and systemic prudential risk regulators like the PRA.
So there are at least four types of regulators and there are multiple types of growth. Are we interested in short term growth or long term growth. Growth in GDP or growth in personal disposable income. I'm in danger of descending into a sort of Oxbridge exam question, rather than a five minute speech in your lordships house. So it is actually very hard to generalise, because when we talk about the relationship between regulators and growth, we have too many of both, both both things that we're trying to match together. I would, however, make one general point , and others have alluded to this with the honourable exception of competition regulators.
Regulators don't drive growth. Generally, regulators constrain growth. That doesn't mean that I am against regulators. It's absolutely clear through history that the absence of all regulation is extremely bad for humanity. Think child labour, think thalidomide crisis. It's not difficult to see why we need regulatory guardrails in every market. But generally too much regulation leads to lower growth. And the challenge is that well-meaning people and I think the noble Lord, Lord Chandos, is absolutely right. We are those those well-meaning people who add complexity and add cost in regulation if we're not very, very careful. So I'm extremely supportive of the government's 25% reduction in administrative costs.
But like other noble Lords, think that that really is the cherry on the cake rather than the actual cake itself in terms of reducing the costs. And I'd I'd refer noble lords to one of our witnesses, John Fingleton, who led the review into our the Costs of Nuclear programme. He said to us that not only are we the most expensive country in the world to build a nuclear power plant, but we're also the most expensive country in the world to build one mile of road, one mile of rail, one tunnel or one bridge. And that is not because of the admin costs, my Lords, the the the bat tunnel and the fish disco are not encumbered by admin.
It is the fundamental building of them that is the problem. So I would like to ask the noble lady, the Minister, as I'm sure she will update us on the. The progress on the 25% reduction in admin costs. What is the government's target to reduce the actual cost of regulatory compliance? Because unless we measure that and then target a reduction in it, I'm afraid, my Lords, inevitably regulation is actually hampering growth, not driving it. The second point I'd like to make other nobles have also explored, which is the overlapping regulation problem. As the noble Lord Willett knows well, most scientific discoveries these days come at the intersection of different branches of science.
I think the same is true of truly innovative businesses. They come at the intersection of different sectors and inevitably overlapping regulators. So we have to find a solution to the multiple regulatory problem which we heard in this inquiry. It was encouraging to know that Defra is running a pilot to do this, but I am afraid I've become very old and suspicious, my Lords. A pilot can go on for a very long time and never actually turn into something that scales. So I would really love to hear from the noble lady, the Minister. How is the Defra pilot getting on?
When will it extend to other departments and when will it extend regulators from multiple departments? Which is the real problem? And then the final point I'd like to focus on is the one regulator that does drive growth competition regulators, which my noble friend Lord black and the noble Baroness Gill has has commented on. Done well, competition regulation really does create the conditions for innovation and for growth. I absolutely no doubt that the regulation of large, dominant tech firms can unlock growth opportunities for British firms. It can increase choice and it can reduce prices for millions of consumers.
The problem is, as my noble friend Lord black has said, the CMA's strategic steer charges the CMA with prioritising pro-investment alongside pro-growth. And I think we have to be really quite suspicious of international tech companies promising inward investment in exchange for the absence of regulation. I think history shows that that does not drive growth, that just entrenches monopolies. So like other noble lords, I would really like to ask the noble lady, the Minister, when the CMA strategic steer will be updated and whether it will be updated to focus more on measures of growth as they affect actual British businesses and British consumers, rather than announcements of inward investment.
And with that, I can't finish without 30s on AI. I would also like to add my voice to ask the noble lady, the Minister, when we will be hearing from this government on how they intend to regulate AI. AI is a general purpose. Technology touches all four different types of regulation. There is undoubtedly long tail systemic prudential risk. With AI. There is definitely health and safety risk. There is definitely market competitive risk. And yet we keep being told that it is too early to regulate, which my Lords, I would really challenge, and I look forward to hearing the noble lady the Minister's answer.
So there are at least four types of regulators and there are multiple types of growth. Are we interested in short term growth or long term growth. Growth in GDP or growth in personal disposable income. I'm in danger of descending into a sort of Oxbridge exam question, rather than a five minute speech in your lordships house. So it is actually very hard to generalise, because when we talk about the relationship between regulators and growth, we have too many of both, both both things that we're trying to match together. I would, however, make one general point , and others have alluded to this with the honourable exception of competition regulators.
Regulators don't drive growth. Generally, regulators constrain growth. That doesn't mean that I am against regulators. It's absolutely clear through history that the absence of all regulation is extremely bad for humanity. Think child labour, think thalidomide crisis. It's not difficult to see why we need regulatory guardrails in every market. But generally too much regulation leads to lower growth. And the challenge is that well-meaning people and I think the noble Lord, Lord Chandos, is absolutely right. We are those those well-meaning people who add complexity and add cost in regulation if we're not very, very careful. So I'm extremely supportive of the government's 25% reduction in administrative costs.
But like other noble Lords, think that that really is the cherry on the cake rather than the actual cake itself in terms of reducing the costs. And I'd I'd refer noble lords to one of our witnesses, John Fingleton, who led the review into our the Costs of Nuclear programme. He said to us that not only are we the most expensive country in the world to build a nuclear power plant, but we're also the most expensive country in the world to build one mile of road, one mile of rail, one tunnel or one bridge. And that is not because of the admin costs, my Lords, the the the bat tunnel and the fish disco are not encumbered by admin.
It is the fundamental building of them that is the problem. So I would like to ask the noble lady, the Minister, as I'm sure she will update us on the. The progress on the 25% reduction in admin costs. What is the government's target to reduce the actual cost of regulatory compliance? Because unless we measure that and then target a reduction in it, I'm afraid, my Lords, inevitably regulation is actually hampering growth, not driving it. The second point I'd like to make other nobles have also explored, which is the overlapping regulation problem. As the noble Lord Willett knows well, most scientific discoveries these days come at the intersection of different branches of science.
I think the same is true of truly innovative businesses. They come at the intersection of different sectors and inevitably overlapping regulators. So we have to find a solution to the multiple regulatory problem which we heard in this inquiry. It was encouraging to know that Defra is running a pilot to do this, but I am afraid I've become very old and suspicious, my Lords. A pilot can go on for a very long time and never actually turn into something that scales. So I would really love to hear from the noble lady, the Minister. How is the Defra pilot getting on?
When will it extend to other departments and when will it extend regulators from multiple departments? Which is the real problem? And then the final point I'd like to focus on is the one regulator that does drive growth competition regulators, which my noble friend Lord black and the noble Baroness Gill has has commented on. Done well, competition regulation really does create the conditions for innovation and for growth. I absolutely no doubt that the regulation of large, dominant tech firms can unlock growth opportunities for British firms. It can increase choice and it can reduce prices for millions of consumers.
The problem is, as my noble friend Lord black has said, the CMA's strategic steer charges the CMA with prioritising pro-investment alongside pro-growth. And I think we have to be really quite suspicious of international tech companies promising inward investment in exchange for the absence of regulation. I think history shows that that does not drive growth, that just entrenches monopolies. So like other noble lords, I would really like to ask the noble lady, the Minister, when the CMA strategic steer will be updated and whether it will be updated to focus more on measures of growth as they affect actual British businesses and British consumers, rather than announcements of inward investment.
And with that, I can't finish without 30s on AI. I would also like to add my voice to ask the noble lady, the Minister, when we will be hearing from this government on how they intend to regulate AI. AI is a general purpose. Technology touches all four different types of regulation. There is undoubtedly long tail systemic prudential risk. With AI. There is definitely health and safety risk. There is definitely market competitive risk. And yet we keep being told that it is too early to regulate, which my Lords, I would really challenge, and I look forward to hearing the noble lady the Minister's answer.
16:44
16:44
Speaker 7
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Speaker 7
My Lords, I thank the Committee for its report, which is a response to the government's deregulation agenda. It lowers the guardrails on public protection and even protecting capitalists from themselves in the chase for economic growth. This project is really full of contradictions. The committee is absolutely right when it states that, and I quote, done well, regulation can boost consumer confidence and provide certainty for businesses to invest and innovate. End of quote. The banking crash, Grenfell Post Office and numerous other scandals have shown that regulation has not been done well, but instead now the regulations are hobble.
Regulators are hobbled with a growth objective. The report amplifies the government's claim that it wants to cut financial costs, but we also need to consider the social cost of not doing proper regulation. Consider the case of HBOs frauds, which date back to 2002 to 2007. Despite overwhelming evidence, the Serious Fraud Office, the Financial Services Authority, the Financial Conduct Authority and the City of London police refused to investigate. Eventually, the Thames Valley Police and Crime Commissioner decided to bring a case. In 2017, two former senior bankers and four corporate turnaround specialists were convicted of fraud and received a 47 years of prison sentence.
That did not prompt regulators to investigate or secure compensation for the victims. Successive ministers passed the buck to H. Boss owner, Lloyds Bank. In 2017, a Lloyds appointed Dame Linda Dobbs to investigate and prepare a report on the £1 billion worth of frauds. This day, despite the promise that the report would be published in 2018, to this day there has been no report, despite numerous questions in this House.
Ministers who are ultimate regulators won't answer questions and victims continue to suffer. There is little
Regulators are hobbled with a growth objective. The report amplifies the government's claim that it wants to cut financial costs, but we also need to consider the social cost of not doing proper regulation. Consider the case of HBOs frauds, which date back to 2002 to 2007. Despite overwhelming evidence, the Serious Fraud Office, the Financial Services Authority, the Financial Conduct Authority and the City of London police refused to investigate. Eventually, the Thames Valley Police and Crime Commissioner decided to bring a case. In 2017, two former senior bankers and four corporate turnaround specialists were convicted of fraud and received a 47 years of prison sentence.
That did not prompt regulators to investigate or secure compensation for the victims. Successive ministers passed the buck to H. Boss owner, Lloyds Bank. In 2017, a Lloyds appointed Dame Linda Dobbs to investigate and prepare a report on the £1 billion worth of frauds. This day, despite the promise that the report would be published in 2018, to this day there has been no report, despite numerous questions in this House.
Ministers who are ultimate regulators won't answer questions and victims continue to suffer. There is little
16:47
Speaker 10
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Speaker 10
There is little empirical evidence to show that regulators can combine public protection and the growth objectives. England's water regulators announce fines for illegal and antisocial practices and then to show obedience to the growth objectives. They quietly defer or waive the payment. Executives gaining from antisocial practices are neither fined nor prosecuted. This has neither engendered trust nor secured the required investment. The dash for growth has turned town centres into economic deserts. Private equity has destroyed city centres. Some 30,000 jobs at Poundland and its suppliers and its and its suppliers could really vanish because regulators simply wave through takeovers by private equity.
They don't really want to stop it. Big accounting firms routinely deliver dud audits after public exposure and pass the costs to clients in higher fees. The regulator that is Financial Reporting Council. In pursuit of the government's growth objective, is now reducing the number of audit quality inspections and will instead rely on self-certification of audit quality, a model that has been so successful in the water industry. Numerous leaks show that big accounting firms are key nodes in global flow of illicit finances. Nothing happens to them. Recently, BBC's Panorama programme looked at how Russian billionaire Roman Abramovich dodged taxes and moved moved his wealth to the British Virgin Islands.
I was asked to examine those documents and they show that Deloitte knowingly helped to falsify documents to hide Abramovich's wealth and help him evade taxes. One thing is certain no UK government will do anything to any big accounting firm. In the absence of effective regulation. Corruption, fraud and illicit financial flows will grow exponentially and harm the legitimate economy. The report raises the question of accountability but does not make recommendations which could improve public confidence, for example, by having consumer elected doctors on the boards of regulatory bodies or giving consumers the right to vote on the pay of directors of regulatory bodies.
That will concentrate a few minds that, won't it? We currently have regulators who are outside the freedom of information. Net regulators of insolvency and auditing are not subject to freedom of information laws. Why is that, Minister? Hopefully I will get some comment. We are now light years away from the Cadbury and Quaker capitalism in the era of predatory capitalism. Too many are willing to make a fast buck without facing any of the consequences. We need robust regulators to promote public confidence, and that should be their only objective. Promoting business growth is a matter for the ministers.
Thank you. my Lords.
They don't really want to stop it. Big accounting firms routinely deliver dud audits after public exposure and pass the costs to clients in higher fees. The regulator that is Financial Reporting Council. In pursuit of the government's growth objective, is now reducing the number of audit quality inspections and will instead rely on self-certification of audit quality, a model that has been so successful in the water industry. Numerous leaks show that big accounting firms are key nodes in global flow of illicit finances. Nothing happens to them. Recently, BBC's Panorama programme looked at how Russian billionaire Roman Abramovich dodged taxes and moved moved his wealth to the British Virgin Islands.
I was asked to examine those documents and they show that Deloitte knowingly helped to falsify documents to hide Abramovich's wealth and help him evade taxes. One thing is certain no UK government will do anything to any big accounting firm. In the absence of effective regulation. Corruption, fraud and illicit financial flows will grow exponentially and harm the legitimate economy. The report raises the question of accountability but does not make recommendations which could improve public confidence, for example, by having consumer elected doctors on the boards of regulatory bodies or giving consumers the right to vote on the pay of directors of regulatory bodies.
That will concentrate a few minds that, won't it? We currently have regulators who are outside the freedom of information. Net regulators of insolvency and auditing are not subject to freedom of information laws. Why is that, Minister? Hopefully I will get some comment. We are now light years away from the Cadbury and Quaker capitalism in the era of predatory capitalism. Too many are willing to make a fast buck without facing any of the consequences. We need robust regulators to promote public confidence, and that should be their only objective. Promoting business growth is a matter for the ministers.
Thank you. my Lords.
16:50
16:50
16:50
16:50
16:50
Speaker 8
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Speaker 8
Of the noble Baroness, Lady Hayter, nearly as much as the displeasure expressed by Lord seeker for financial regulation and regulators. Now, first off, I said on this committee and had not previously appreciated the full complexity of our regulatory system. 200 of them, or at least 200, possibly more and more added every week. And of these we heard that about 61 had real focus or responsibilities related to growth, and 20 of them had a real impact on getting the economy moving. Yet out of a third of that, 61 had not even discussed their shared responsibility to increase the national income at board level.
And that shocked me because it is our role today to remind them of our shared endeavour and their shared endeavour to make the nation richer. And it just so happens that we're not the only ones who think that action is needed. Over the weekend, The Times reported that number ten wants to improve regulatory oversight and boost local accountability to tackle out of control arm's length regulators. They're all in the firing line. We hear now, what struck me as I listened to the evidence was how fragile a regulator's commitment to growth can be. So much depends on the chief executive or chairman and their connections within government, and how effectively that commitment filters down to the case.
Officers who apply the regulations. Organization warm words at Downing Street growth summits count for nothing if the message doesn't filter down to the front line. And when the leaders are gone, the economic drive from the regulator can perish. It's fragile, and I think that's a problem. We heard, as my noble friend said about several different types of regulation economy, market professional, including doctors and accountants, the safety ones, the environmental and pollution ones, and social regulations, caring and educational sectors. It's a broad church. But in one memorable exchange of civil service, witness said that Trinity House was a regulator, but it had no impact on growth.
My Lords were an island nation. All our trade in goods and services often travels by sea. Safe, navigable waterways are crucial to growth. Every regulator has a part to play, even when its core purpose doesn't appear to be one for the economy, and the football regulator is a case in point. They're on the front line in more ways than one as well. Now we've spent considerable time discussing how to speed up regulation, not just for speed's sake, but to improve predictability and certainty. That's probably more important. We heard about sandboxes, the fast lanes, the pilots, the experiments, the counters, the distended time scales, and unpredictable decisions that increase risks and make projects hard to start, let alone finish.
Rather than laying these shortcuts over the system, might we just give everybody access to a good standard service for everyone? Is that too much to ask? AM I regret we could not examine foreign regulators more closely and compare our approach with that of our competitor nations? But we did hear of prospective foreign investors who gave up because as foreign nationals, they could not open a UK bank account. That is a regulatory failure. Good intentions producing harmful results. Once introduced for the best of intentions, there's little incentive to prune the regulatory bloat. Now Lord Willett, who is in his place, gave huge grounds for optimism, I felt, describing the efforts to enable delivery robots which, if I recall correctly, were subject to 19th century horseless carriage regulations that needed to be superseded.
His example showed how regulators could harness and enable new technology, including AI, which offers a tantalising prospect of turning a laggard into a leader. But his example showed why political leadership matters to cut through the obstacles. Delivery robots are just one example of how regulations in a past age or for a past age need updating. Perhaps universal sunset clauses mentioned by Baroness Gill, who's not in her place, might be a useful innovation here so that we always look forward, not always stuck in the past. Which brings us back to risk, especially political risk. We can't expect regulators and case officers in particular, to be flexible or in embrace new methods and technology without backing from Whitehall.
It's the case officer's livelihood and pension that's on the line. If ministers want growth, they must give the regulators the air cover to do the things differently. For all the warm words, I didn't get the sense it was a high priority for government. Yet that is what our nation needs. I was not convinced that the message has sunk in. When we listened to the minister. I saw little drive from the highest levels of government to ensure that the 61 bodies , referred to as being responsible for growth, needed to discuss it at board level, let alone in that wider landscape of over 200 other regulators.
It seems to me it takes more than a number ten summit to turn around. That computer says no culture. And to put it into focus, we all sympathise with our chair. When she had her bank account frozen by a misapplication of Pep rules and rules that assume everybody's a criminal. That is no way to build an economy. I'm not saying, of course, the noble lady has been exposed to criminal activity, but it's that approach that everyone needs to demonstrate their innocence rather than the presumption the other way round. I'm on sticky ground. I'm going to move quickly.
Look, we're in the slow lane of the global race. Clear timelines and predictable decisions combined with the realism and focus will unlock investment and get the economy moving. And that's going to generate savings, employment and taxes. Let's stop the imposition of new layers that undermine viability. And so we don't feel like we're weeding, wading through treacle. If our regulators make everything too difficult and too many others will conclude, the safest way to avoid mistakes is to do nothing.
And that's going to leave us all poorer.
And that shocked me because it is our role today to remind them of our shared endeavour and their shared endeavour to make the nation richer. And it just so happens that we're not the only ones who think that action is needed. Over the weekend, The Times reported that number ten wants to improve regulatory oversight and boost local accountability to tackle out of control arm's length regulators. They're all in the firing line. We hear now, what struck me as I listened to the evidence was how fragile a regulator's commitment to growth can be. So much depends on the chief executive or chairman and their connections within government, and how effectively that commitment filters down to the case.
Officers who apply the regulations. Organization warm words at Downing Street growth summits count for nothing if the message doesn't filter down to the front line. And when the leaders are gone, the economic drive from the regulator can perish. It's fragile, and I think that's a problem. We heard, as my noble friend said about several different types of regulation economy, market professional, including doctors and accountants, the safety ones, the environmental and pollution ones, and social regulations, caring and educational sectors. It's a broad church. But in one memorable exchange of civil service, witness said that Trinity House was a regulator, but it had no impact on growth.
My Lords were an island nation. All our trade in goods and services often travels by sea. Safe, navigable waterways are crucial to growth. Every regulator has a part to play, even when its core purpose doesn't appear to be one for the economy, and the football regulator is a case in point. They're on the front line in more ways than one as well. Now we've spent considerable time discussing how to speed up regulation, not just for speed's sake, but to improve predictability and certainty. That's probably more important. We heard about sandboxes, the fast lanes, the pilots, the experiments, the counters, the distended time scales, and unpredictable decisions that increase risks and make projects hard to start, let alone finish.
Rather than laying these shortcuts over the system, might we just give everybody access to a good standard service for everyone? Is that too much to ask? AM I regret we could not examine foreign regulators more closely and compare our approach with that of our competitor nations? But we did hear of prospective foreign investors who gave up because as foreign nationals, they could not open a UK bank account. That is a regulatory failure. Good intentions producing harmful results. Once introduced for the best of intentions, there's little incentive to prune the regulatory bloat. Now Lord Willett, who is in his place, gave huge grounds for optimism, I felt, describing the efforts to enable delivery robots which, if I recall correctly, were subject to 19th century horseless carriage regulations that needed to be superseded.
His example showed how regulators could harness and enable new technology, including AI, which offers a tantalising prospect of turning a laggard into a leader. But his example showed why political leadership matters to cut through the obstacles. Delivery robots are just one example of how regulations in a past age or for a past age need updating. Perhaps universal sunset clauses mentioned by Baroness Gill, who's not in her place, might be a useful innovation here so that we always look forward, not always stuck in the past. Which brings us back to risk, especially political risk. We can't expect regulators and case officers in particular, to be flexible or in embrace new methods and technology without backing from Whitehall.
It's the case officer's livelihood and pension that's on the line. If ministers want growth, they must give the regulators the air cover to do the things differently. For all the warm words, I didn't get the sense it was a high priority for government. Yet that is what our nation needs. I was not convinced that the message has sunk in. When we listened to the minister. I saw little drive from the highest levels of government to ensure that the 61 bodies , referred to as being responsible for growth, needed to discuss it at board level, let alone in that wider landscape of over 200 other regulators.
It seems to me it takes more than a number ten summit to turn around. That computer says no culture. And to put it into focus, we all sympathise with our chair. When she had her bank account frozen by a misapplication of Pep rules and rules that assume everybody's a criminal. That is no way to build an economy. I'm not saying, of course, the noble lady has been exposed to criminal activity, but it's that approach that everyone needs to demonstrate their innocence rather than the presumption the other way round. I'm on sticky ground. I'm going to move quickly.
Look, we're in the slow lane of the global race. Clear timelines and predictable decisions combined with the realism and focus will unlock investment and get the economy moving. And that's going to generate savings, employment and taxes. Let's stop the imposition of new layers that undermine viability. And so we don't feel like we're weeding, wading through treacle. If our regulators make everything too difficult and too many others will conclude, the safest way to avoid mistakes is to do nothing.
And that's going to leave us all poorer.
16:57
16:57
Speaker 11
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Speaker 11
I thought the government has stated that its number one mission is economic growth. Regulation can provide the stability that businesses and the economy need to thrive, or it can be a source of roadblocks that inhibit growth. The reality is current regulation is confusing, time consuming and costly to business. 47% of businesses reported in 2024 regulation was an obstacle to their success, an increase from 45% in 2022. 2 in 5 businesses felt that new post-Brexit regulatory arrangements were more challenging. 93% of businesses use some form of external support to assist in complying with regulation, and the mean amount .
Business spent on support was £10,745, compared to the 1100 in 2022. A regulatory system needs to be transparent, needs to be consistent and easy to understand, and unnecessary regulatory costs have, over time contributed to a less competitive, less attractive British economy for new investment. This country used to be a magnet for inward investment. Some suggest studies suggest that the impact of red tape regulatory costs could be as high as 3 to 4% of GDP. We're talking about over £70 billion over here. A regulatory system needs to encourage new investment and regulate only where necessary and acceptable to keep pace with innovation.
And despite campaigning Brexit as an opportunity to deregulate in the name of freedom and growth, the UK has done relatively little to diverge from EU regulations since, and the main reasons are that the lack of it would become more difficult to trade with the EU, a lack of clear strategy of how and when to diverge. The priority of other competing post-Brexit responsibilities. But there are some exceptions. If the banning of live animal exports, establishing new freeports and repealing the bankers bonus cap in March 2025, the Department for Business and Trade published the Regulation Action Plan, which many noble lords have spoken about, aiming to overhaul the regulatory system in order to increase economic growth and cut administrative costs by regulation of regulation by 25% by the end of Parliament.
It includes plans to merge or remove regulatory bodies, reform registration require regulators to increase transparency. The three main goals to tackle complexity and burden of regulation, reduce uncertainty across regulatory system and challenge excessive risk aversion. My Lords, the committee in May 2026, the Industry and Regulators Committee published the report we are debating Time is Money how regulators can support growth in the government's action plan, and I congratulate the noble lady, Baroness Hayter, and the members on the hard work they've put into this excellent report, and I just very quickly, I want to reiterate that the main conclusions of the report that the regulator's.
The main contribution can make in supporting investment and growth is to carry on their duties more efficiently. It's unclear what the broad aim of supporting growth means for individual regulators. The government hasn't said whether it wants regulators to tolerate more risk or just be more open to innovation. It's the government's responsibility with the noble lady, the minister agreed to provide strategic guidance with an explicit risk appetite for each regulator with political cover, where government wants a regulator to be more open to risk. Would the noble lady, the minister, agree with this? And it is likely that in order to prioritise economic growth, regulators will make trade offs with other responsibilities such as consumer competition or environmental protection.
The government needs to clarify the extent to which growth is prioritised, not leave this decision up to regulators, and the government may be focusing on the smaller cost of paperwork, rather than the larger cost of actually complying with self-regulation. So to cut administrative costs by 25% could be hit without businesses feeling any change. Committee rightly asked for estimates for the reduction of actual cost compliance. My Lords, as chair of the International Chamber of Commerce and in the UK and at the ICC and as the Regional Coordinator for the ICC Europe 35 countries, we in the UK and the ICC have been leading the charge on promoting digital trade.
Digital trade. Most people don't realise most trade today is paper based and that paper based trade, if it can be moved from paper based to digital saves, what takes three months to minutes saves billions of dollars billions of pounds. This is where regulation could come in. In helping to promote this, and with the UK actually being a role model for the rest of the world with the noble lady, the minister agree with this. And of course there are different perspectives on regulation. Let me give you an example. The government, of course, is talking about bringing down the costs.
The Lib Dems talk about support, cutting and consolidating regulation, particularly to promote trade with Europe. The conservatives talk about deregulation to encourage growth, repealing regulations surrounding net zero diversity and inclusion that the 2025 Employment Rights Act, which has brought extra regulation. The regulatory culture is far too cautious. According to the conservatives, the International Chamber of Commerce supports business self-regulation to build trust between businesses, consumers and the public and the CBI, the Confederation of British Industry, which I was president. They support recommendations for a small business taskforce. Corporate reporting reform. The test is now is delivery.
Businesses want to see that ambition translated quickly into meaningful reductions in the burdens they face, and the CBI recommends an outcomes based, principles led approach. My. My Lords, the. The report has also said a. Very well put by the Advertising Standards Authority that regulation needs to create stable, predictable frameworks that enable businesses to invest and innovate while protecting legitimate public interest and octopus energy. They say very clearly it is regulation that allowed a new company like octopus to come in, not just to gain top market share, but to do so by bringing quite a lot of innovative products.
So, my Lord, I conclude that the pace of regulation is often a problem, and we need to work on making it faster with the noble lady. The minister agree that this is a primary challenge. An AI that has been brought up needs to be addressed as well. And the only certainty in today's world is uncertainty and encouraging investment. Innovation and growth is a key part of the vision of the government's plan. And most witnesses to this report said regulators need to provide long term stability and predictability to encourage investment and enable companies to plan ahead.
Business spent on support was £10,745, compared to the 1100 in 2022. A regulatory system needs to be transparent, needs to be consistent and easy to understand, and unnecessary regulatory costs have, over time contributed to a less competitive, less attractive British economy for new investment. This country used to be a magnet for inward investment. Some suggest studies suggest that the impact of red tape regulatory costs could be as high as 3 to 4% of GDP. We're talking about over £70 billion over here. A regulatory system needs to encourage new investment and regulate only where necessary and acceptable to keep pace with innovation.
And despite campaigning Brexit as an opportunity to deregulate in the name of freedom and growth, the UK has done relatively little to diverge from EU regulations since, and the main reasons are that the lack of it would become more difficult to trade with the EU, a lack of clear strategy of how and when to diverge. The priority of other competing post-Brexit responsibilities. But there are some exceptions. If the banning of live animal exports, establishing new freeports and repealing the bankers bonus cap in March 2025, the Department for Business and Trade published the Regulation Action Plan, which many noble lords have spoken about, aiming to overhaul the regulatory system in order to increase economic growth and cut administrative costs by regulation of regulation by 25% by the end of Parliament.
It includes plans to merge or remove regulatory bodies, reform registration require regulators to increase transparency. The three main goals to tackle complexity and burden of regulation, reduce uncertainty across regulatory system and challenge excessive risk aversion. My Lords, the committee in May 2026, the Industry and Regulators Committee published the report we are debating Time is Money how regulators can support growth in the government's action plan, and I congratulate the noble lady, Baroness Hayter, and the members on the hard work they've put into this excellent report, and I just very quickly, I want to reiterate that the main conclusions of the report that the regulator's.
The main contribution can make in supporting investment and growth is to carry on their duties more efficiently. It's unclear what the broad aim of supporting growth means for individual regulators. The government hasn't said whether it wants regulators to tolerate more risk or just be more open to innovation. It's the government's responsibility with the noble lady, the minister agreed to provide strategic guidance with an explicit risk appetite for each regulator with political cover, where government wants a regulator to be more open to risk. Would the noble lady, the minister, agree with this? And it is likely that in order to prioritise economic growth, regulators will make trade offs with other responsibilities such as consumer competition or environmental protection.
The government needs to clarify the extent to which growth is prioritised, not leave this decision up to regulators, and the government may be focusing on the smaller cost of paperwork, rather than the larger cost of actually complying with self-regulation. So to cut administrative costs by 25% could be hit without businesses feeling any change. Committee rightly asked for estimates for the reduction of actual cost compliance. My Lords, as chair of the International Chamber of Commerce and in the UK and at the ICC and as the Regional Coordinator for the ICC Europe 35 countries, we in the UK and the ICC have been leading the charge on promoting digital trade.
Digital trade. Most people don't realise most trade today is paper based and that paper based trade, if it can be moved from paper based to digital saves, what takes three months to minutes saves billions of dollars billions of pounds. This is where regulation could come in. In helping to promote this, and with the UK actually being a role model for the rest of the world with the noble lady, the minister agree with this. And of course there are different perspectives on regulation. Let me give you an example. The government, of course, is talking about bringing down the costs.
The Lib Dems talk about support, cutting and consolidating regulation, particularly to promote trade with Europe. The conservatives talk about deregulation to encourage growth, repealing regulations surrounding net zero diversity and inclusion that the 2025 Employment Rights Act, which has brought extra regulation. The regulatory culture is far too cautious. According to the conservatives, the International Chamber of Commerce supports business self-regulation to build trust between businesses, consumers and the public and the CBI, the Confederation of British Industry, which I was president. They support recommendations for a small business taskforce. Corporate reporting reform. The test is now is delivery.
Businesses want to see that ambition translated quickly into meaningful reductions in the burdens they face, and the CBI recommends an outcomes based, principles led approach. My. My Lords, the. The report has also said a. Very well put by the Advertising Standards Authority that regulation needs to create stable, predictable frameworks that enable businesses to invest and innovate while protecting legitimate public interest and octopus energy. They say very clearly it is regulation that allowed a new company like octopus to come in, not just to gain top market share, but to do so by bringing quite a lot of innovative products.
So, my Lord, I conclude that the pace of regulation is often a problem, and we need to work on making it faster with the noble lady. The minister agree that this is a primary challenge. An AI that has been brought up needs to be addressed as well. And the only certainty in today's world is uncertainty and encouraging investment. Innovation and growth is a key part of the vision of the government's plan. And most witnesses to this report said regulators need to provide long term stability and predictability to encourage investment and enable companies to plan ahead.
17:03
17:03
Speaker 12
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Speaker 12
Like every other speaker this afternoon, I welcome this debate and thank the noble Baroness, Lady Hayter, for her chairing of the committee. Nobody here disputes the need for strong and effective regulation. It is, my Lords, through good regulation, that we gain confidence, protect the public and nurture the conditions needed for business to invest and grow. That said, however, what became apparently increasingly apparent throughout the process of our inquiry was the apparent lack of urgency in some regulatory processes and the insufficient appreciation of the very real fiscal consequences that come with delay. Firstly, dealing with the certainty and timelessness issue.
We know, as our chair has said, that time is money and that delays cause real economic costs. I therefore suggest that the single most important thing that business need from regulators is certainty, and they need this certainty delivered in a reasonable and predictable time frame. We know that up and down the UK companies are facing lengthy approval processes and we heard about them, and this uncertainty and delay is making it near impossible. Business investment race finance plan expansion, including the recruitment of new staff when they do not know when or even if they will get regulatory approval and when it may arise.
Thus, my Lords, it becomes a critical concern when considering major infrastructure projects with delays of even the smallest amount can translate into substantial additional financing costs. I draw the committee's attention to the evidence from Hoxton Farms. I find it particularly concerning that a British company indicated that it was likely to launch its products in Singapore or the United States well before the United Kingdom. In part, my Lords, this is because of a much clearer regulatory timeline abroad, and we heard about how they were kept informed all the time of where their application was. So they knew every day where they were going.
It's simply not good enough. These, my Lords, the United States, Singapore are well regulated countries. Why then are we so inferior in dealing with clarity and pace? I put it to your lordships that business do not demand immediate or even favourable answers. What they need is a clear process and confidence that the timetable will be honoured, and I hope that the ministers will take action. Given the grave consequences that this is having on holding back much needed investment and growth, our regulatory processes, my Lords, must allow for greater flexibility whilst appreciating regulation should and must uphold standards and safeguards.
I fear that there is a real danger that we are creating a process that is now so prescriptive that we are becoming void of having sufficient room for sensible human judgments. Times are changing, and in the time of innovation and technical advancement, we must accept that not every business or proposal will neatly into an established category. I think that, my Lords, the evidence that we heard in supporting of a principles based approach in which standards are protected. But businesses are given the flexibility to determine how these outcomes are achieved. And that is something I fully support for.
Surely, my Lords, the question must be about how a proposal meets the necessary standards, rather than whether it can follow precisely the same path of everything that has gone before. I would therefore be pleased to hear from the Minister if the government is indeed committed to achieving this greater proportionality and pragmatism that business requires. Turning briefly to innovation, I am concerned that our regulatory structures are lacking the forwardness and resources to keep up with the remarkable pace of change that we are going through with AI. As we've already heard, emerging industries and advanced tech are creating entirely new business models, and they are developing far faster than our regulatory frameworks.
It was clear from the evidence that regulators have a profound difficulty in dealing with something that is unfamiliar or that does not fit into a previously prescribed process. Would the minister agree that innovation, by its very definition, involves something different? And if so, how can we ensure that our regulators and our our regulators have the freedom to adapt? For my fear, this is of our regulators cannot keep pace with innovation. There is a genuine risk that the investment. And thus the jobs that come with investment will go elsewhere. So I am keen to hear how government plans to ensure that regulators are able to keep pace.
The speed and innovative times in which we live. I conclude by asking the government to take serious note of the concerns raised by businesses throughout this process, and to recognise that we urgently need culture. Culture in which regulatory delay is recognised as a serious economic consequence and a barrier to natural growth, as opposed to simply being an unavoidable feature of a rather dated administration. Can I thank my noble friend Baroness Hayter for securing this debate and for leading the. committee this distinction? I declare my interest as the chairman of Cranswick plc and as a director of Pret.
The committee's report predates my introduction into your lordships House by some months, but I hope my past experience will be useful to your deliberations now and into the future. Good regulation can enable growth. The challenge is not to suppose that we have to choose between effective regulation and economic growth. That is a false dichotomy. Regulators need to explicitly incorporate growth into their long and medium term plans. Some that might need the legal framework which established them, and set their terms of reference to be altered to include that purpose. Regulators will often hide their lack of enthusiasm for this topic.
Behind sometimes prescriptive legislation are some of those pieces of legislation now so out of step with our objectives that they need a fresh look? How many regulators have publicly reset their strategy since the government challenged them with the objective of prioritising growth in that new look at strategy? I suggest their partnership with the sector being regulated could provide some fresh, innovative ideas, always remembering the regulator's core purpose. The strategy should be simple, should be outcomes based and follow some core principles. As an ex regulator, I know that a well publicised strategic shift will be an empty promise unless followed by a change in the allocation of resources to meet the new objective.
The evidence of that would come in revised organisational structures and with realistic budgets to match their aims. Being clear about what won't be done and what will be done would be a bonus. Some regulators would work better. And with the grain of growth and their core purpose, if those organisations contain some more, some or more people with experience in the sector being regulated, working alongside career civil servants, the delivery of those strategic growth objectives has to be strictly measured and the results reported in a timely, transparent method. This accountability should include calculations of any consequent new admin burden, of course, but more importantly, the impact hopefully, growth on the sector being regulated.
This is often nuanced and properly risk based, but it is the absence of the data that frustrates many of those being regulated. Each regulator should be required to provide measures of the growth it has facilitated in a comply or explain mandatory framework. A word or two on pace. Delays are not harmless. One of the phrases business grows weary of hearing from regulators is. It takes as long as it takes. In the time taken for a regulator to review an innovation in this country, an international business has likely exported those jobs and investment elsewhere. Those of us with global business experience will be able to cite other nations who are able to fast track innovation investment by taking a proportionate, risk based approach.
An SME in the same situation might simply run out of cash. There are bound to be trade offs in conflict between growth and other objectives. I am clear that the regulator is not best to resolve those. Those need clear political direction. Government needs to set clear priorities. Regulators must make timely and proportionate decisions. My shorthand here is not light touch, but right touch. And businesses must have the clarity and confidence to invest and innovate. My Lords, I look positively in the expectation that this work continues to generate change in attitudes and behaviours of all those involved.
We know, as our chair has said, that time is money and that delays cause real economic costs. I therefore suggest that the single most important thing that business need from regulators is certainty, and they need this certainty delivered in a reasonable and predictable time frame. We know that up and down the UK companies are facing lengthy approval processes and we heard about them, and this uncertainty and delay is making it near impossible. Business investment race finance plan expansion, including the recruitment of new staff when they do not know when or even if they will get regulatory approval and when it may arise.
Thus, my Lords, it becomes a critical concern when considering major infrastructure projects with delays of even the smallest amount can translate into substantial additional financing costs. I draw the committee's attention to the evidence from Hoxton Farms. I find it particularly concerning that a British company indicated that it was likely to launch its products in Singapore or the United States well before the United Kingdom. In part, my Lords, this is because of a much clearer regulatory timeline abroad, and we heard about how they were kept informed all the time of where their application was. So they knew every day where they were going.
It's simply not good enough. These, my Lords, the United States, Singapore are well regulated countries. Why then are we so inferior in dealing with clarity and pace? I put it to your lordships that business do not demand immediate or even favourable answers. What they need is a clear process and confidence that the timetable will be honoured, and I hope that the ministers will take action. Given the grave consequences that this is having on holding back much needed investment and growth, our regulatory processes, my Lords, must allow for greater flexibility whilst appreciating regulation should and must uphold standards and safeguards.
I fear that there is a real danger that we are creating a process that is now so prescriptive that we are becoming void of having sufficient room for sensible human judgments. Times are changing, and in the time of innovation and technical advancement, we must accept that not every business or proposal will neatly into an established category. I think that, my Lords, the evidence that we heard in supporting of a principles based approach in which standards are protected. But businesses are given the flexibility to determine how these outcomes are achieved. And that is something I fully support for.
Surely, my Lords, the question must be about how a proposal meets the necessary standards, rather than whether it can follow precisely the same path of everything that has gone before. I would therefore be pleased to hear from the Minister if the government is indeed committed to achieving this greater proportionality and pragmatism that business requires. Turning briefly to innovation, I am concerned that our regulatory structures are lacking the forwardness and resources to keep up with the remarkable pace of change that we are going through with AI. As we've already heard, emerging industries and advanced tech are creating entirely new business models, and they are developing far faster than our regulatory frameworks.
It was clear from the evidence that regulators have a profound difficulty in dealing with something that is unfamiliar or that does not fit into a previously prescribed process. Would the minister agree that innovation, by its very definition, involves something different? And if so, how can we ensure that our regulators and our our regulators have the freedom to adapt? For my fear, this is of our regulators cannot keep pace with innovation. There is a genuine risk that the investment. And thus the jobs that come with investment will go elsewhere. So I am keen to hear how government plans to ensure that regulators are able to keep pace.
The speed and innovative times in which we live. I conclude by asking the government to take serious note of the concerns raised by businesses throughout this process, and to recognise that we urgently need culture. Culture in which regulatory delay is recognised as a serious economic consequence and a barrier to natural growth, as opposed to simply being an unavoidable feature of a rather dated administration. Can I thank my noble friend Baroness Hayter for securing this debate and for leading the. committee this distinction? I declare my interest as the chairman of Cranswick plc and as a director of Pret.
The committee's report predates my introduction into your lordships House by some months, but I hope my past experience will be useful to your deliberations now and into the future. Good regulation can enable growth. The challenge is not to suppose that we have to choose between effective regulation and economic growth. That is a false dichotomy. Regulators need to explicitly incorporate growth into their long and medium term plans. Some that might need the legal framework which established them, and set their terms of reference to be altered to include that purpose. Regulators will often hide their lack of enthusiasm for this topic.
Behind sometimes prescriptive legislation are some of those pieces of legislation now so out of step with our objectives that they need a fresh look? How many regulators have publicly reset their strategy since the government challenged them with the objective of prioritising growth in that new look at strategy? I suggest their partnership with the sector being regulated could provide some fresh, innovative ideas, always remembering the regulator's core purpose. The strategy should be simple, should be outcomes based and follow some core principles. As an ex regulator, I know that a well publicised strategic shift will be an empty promise unless followed by a change in the allocation of resources to meet the new objective.
The evidence of that would come in revised organisational structures and with realistic budgets to match their aims. Being clear about what won't be done and what will be done would be a bonus. Some regulators would work better. And with the grain of growth and their core purpose, if those organisations contain some more, some or more people with experience in the sector being regulated, working alongside career civil servants, the delivery of those strategic growth objectives has to be strictly measured and the results reported in a timely, transparent method. This accountability should include calculations of any consequent new admin burden, of course, but more importantly, the impact hopefully, growth on the sector being regulated.
This is often nuanced and properly risk based, but it is the absence of the data that frustrates many of those being regulated. Each regulator should be required to provide measures of the growth it has facilitated in a comply or explain mandatory framework. A word or two on pace. Delays are not harmless. One of the phrases business grows weary of hearing from regulators is. It takes as long as it takes. In the time taken for a regulator to review an innovation in this country, an international business has likely exported those jobs and investment elsewhere. Those of us with global business experience will be able to cite other nations who are able to fast track innovation investment by taking a proportionate, risk based approach.
An SME in the same situation might simply run out of cash. There are bound to be trade offs in conflict between growth and other objectives. I am clear that the regulator is not best to resolve those. Those need clear political direction. Government needs to set clear priorities. Regulators must make timely and proportionate decisions. My shorthand here is not light touch, but right touch. And businesses must have the clarity and confidence to invest and innovate. My Lords, I look positively in the expectation that this work continues to generate change in attitudes and behaviours of all those involved.
17:14
17:14
Speaker 6
-
Speaker 6
Congratulate the noble Baroness, Lady Hayter and her committee for this excellent and important report. I joined the committee after the report was written, so I cannot claim any credit for it, but I have spent the last few years on the receiving end of the system. It describes. I declare my interest to set out in the Register, in particular as founder of Marlowe Film Studios. Speaking towards the end of this debate, most of the substantive points have already been made, but there are three things from my own experience of engaging with regulators on the planning system over the last few years, which I would like to mention.
The first is the lack of accountability for delays. My experience has been that deadlines are set and then missed and missed again. And as far as I could tell, nothing happened as a result. If a business misses a regulator's deadline, there are consequences. When a regulator misses its own, there seem to be none. The government's response promises clearer approval targets and ministerial performance reviews, which I welcome. But I am not convinced that publishing targets alone will change much. What happens when those targets are repeatedly missed? I'd be grateful if the minister could explain how that accountability will work in practice.
The second is the problem of regulators overlapping with one another. I've seen how National Highways, the Environment Agency and Natural England, amongst others, can each operate to their own timetable, asking their own questions without anyone having the authority to bring them together and get things moving. The government has seven lead environmental regulator pilots underway, but these remain within Defra's remit, and the lead regulator can coordinate but cannot decide. Will the government extend this approach beyond Defra, and will the lead regulator actually have the authority to resolve disagreements? A single front door is a fine idea, provided there is somebody behind it with the authority to say yes.
My third point concerns risk. Robert Colville told the committee that nobody is promoted for approving a company that succeeds, but if something goes wrong, they may find themselves hauled before a select committee. I do not believe that officials I dealt with were deliberately obstructive. They were simply working within the system as it currently operates. Of course, regulators must protect the public and the environment and amongst other things. But surely it is for ministers. As others have said, rather than individual officials, to decide how those responsibilities should be balanced against economic growth, the government proposes a stronger growth , duty and statutory ministerial stairs.
But will ministers make clear what level of risk they are prepared to accept and stand behind officials when a decision proves controversial? My Lords, the committee has done a valuable job in identifying these problems. The government has accepted much of what it recommends. What matters now is whether that translates into real change. I hope the Minister can assure us that it will.
The first is the lack of accountability for delays. My experience has been that deadlines are set and then missed and missed again. And as far as I could tell, nothing happened as a result. If a business misses a regulator's deadline, there are consequences. When a regulator misses its own, there seem to be none. The government's response promises clearer approval targets and ministerial performance reviews, which I welcome. But I am not convinced that publishing targets alone will change much. What happens when those targets are repeatedly missed? I'd be grateful if the minister could explain how that accountability will work in practice.
The second is the problem of regulators overlapping with one another. I've seen how National Highways, the Environment Agency and Natural England, amongst others, can each operate to their own timetable, asking their own questions without anyone having the authority to bring them together and get things moving. The government has seven lead environmental regulator pilots underway, but these remain within Defra's remit, and the lead regulator can coordinate but cannot decide. Will the government extend this approach beyond Defra, and will the lead regulator actually have the authority to resolve disagreements? A single front door is a fine idea, provided there is somebody behind it with the authority to say yes.
My third point concerns risk. Robert Colville told the committee that nobody is promoted for approving a company that succeeds, but if something goes wrong, they may find themselves hauled before a select committee. I do not believe that officials I dealt with were deliberately obstructive. They were simply working within the system as it currently operates. Of course, regulators must protect the public and the environment and amongst other things. But surely it is for ministers. As others have said, rather than individual officials, to decide how those responsibilities should be balanced against economic growth, the government proposes a stronger growth , duty and statutory ministerial stairs.
But will ministers make clear what level of risk they are prepared to accept and stand behind officials when a decision proves controversial? My Lords, the committee has done a valuable job in identifying these problems. The government has accepted much of what it recommends. What matters now is whether that translates into real change. I hope the Minister can assure us that it will.
17:16
17:16
Speaker 13
-
Speaker 13
My Lords, I start by declaring my interest as a practising solicitor in the City of London and partner for the last 50 years in the commercial law firm DAC . Beachcroft and I start by joining all other members in congratulating and thanking the noble Baroness for moving this debate. Few, if any, members of this House can match her first hand experience of the world of regulation, and that experience is very evident in this excellent report. I also thank her, fellow members of the Industry and Regulators Committee, who together drafted a report that is certainly timely, even if it makes uncomfortable reading for Her Majesty's His Majesty's Government.
I think we benefited, in particular by members of the committee who have come not only to support but to make their own contributions. The noble Baroness Valentine, the noble Viscount, Lord Chandos, albeit just for a short period on the committee, but raised very important issues affecting AI, to which we'll return. Baroness Harding, my noble friend of Winscombe, my noble friend, Lord Fuller, my noble friend, Lord Rodney Lister, not only participated in producing this report, but have added to it today, and I'm pleased to follow my noble friend Lord Camoys, who quite rightly summarised in The gap the problems many have identified with delays, targets repeatedly missed, overlapping regulation.
And I'm not going to speak for long because the noble Baroness, the Minister, has so many questions to answer that we've got to give her the maximum time. But time is money and what a great title. I don't know who thought it up, but it's brilliant because this government has now had more than two years to deliver the growth that it promised would be its first and overriding message. It spent that time freely. But what it what has it delivered? I think remarkably little money in return. The committee's most striking finding is not merely that regulators have failed to support growth.
It is that the government and previous administrations have been guilty of. This, too, continues to send mixed, confusing and ambiguous signals to regulators about how a commitment to growth is to be balanced against all those other duties. It's a strange kind of mission whose commanders cannot describe the objective. And the noble Lord, Lord Bilimoria, I thought, set that out quite. What is. What is the objective? Ministers may now tell us. The answer is a new, clarified and strengthened growth duty under which designated regulators would actively promote economic growth. But history tells us, my Lords, that economic development and social development too, for that matter, will require, above all else, innovation.
In the introduction to the report, the committee observes that, and I quote, done well, regulation can boost consumer confidence and provide certainty for businesses to invest and innovate. That is certainly the case, but it is rarely, if ever, in the nature of a regulator actively to promote innovation, as this report notes. The primary statutory duties of regulators are generally linked to safety or consumer protection. Well, that is, I suppose, inherently risk averse or the key question is what is risk? I suppose in many ways, as a solicitor specialising in insurance and reinsurance, my whole life has been to identify and deal with risk.
But what is it? What is it if it is not, as the noble Baroness put it, benefit aversion. I think there's a real and present danger that poorly targeted, overzealous or simply inappropriate regulation, and serve to dampen, discourage or even stifle vital innovation. As the noble Lord, Lord, my noble friend Lord Willetts put it, and he chairs the Regulatory Innovation Office. He should know. I'm afraid innovation is very difficult to promote when faced with detailed , overlapping regulation. And as my noble friend Lord Lister put it, we are competing in a world where other jurisdictions are readily embracing our competitors and are giving them answers to the questions for which they still await answers from our own regulators.
All too often, innovation, investment and growth are fostered and encouraged , not by regulatory intervention, but by the absence of regulatory intervention. As the report notes, and again, I quote, it is not clear whether the government wants regulators to allow greater risks to be borne by consumers and businesses, or merely to be more open minded about new innovations. Well, many regulators already operate under the growth duty in the section 108 of the Deregulation Act 2015, which requires them to have regard to the desirability of promoting economic growth. Others, the FCA and the PRA, both of whom oversee an area of the economy that is vital to our economic well-being and place in the world, have growth as a secondary objective , subordinate to concerns about consumer protection and my noble friend Lord Ashcombe put a series of key points about how the situation could be improved by what I think he described as intelligent regulation.
Oh, let's hope that the noble Baroness, the Minister, has a clear, clear commitment in that direction. As the report points out, however, that regulatory of regulators, that regulator of regulators, the Competition and Markets Authority, has no formal growth duty. Again quoting the report, if it wishes to have a more meaningful impact, the government must provide strategic guidance to regulators that addresses how conflicts between objectives should be prioritized and must provide political cover where the government wants a regulator to be more open to risk. End of quote. Spot on. There, in a nutshell, is what we require of government.
Yet the government's proposed legislation and I join my noble friend, Lord Lord Black of Brentwood in asking those key questions. Is this legislation coming our way? Assuming a. No doubt we'll hear from the noble Baroness. It's apparently called regulating for growth. Bill, it rests on an implicit presumption that growth can be regulated into existence. When. The lesson of the recent decades is quite the opposite, namely, that innovation and growth can all too easily be regulated out of existence. What the country needs, and I think this came through in many of the speeches we've heard, is not more energetic regulation, but a serious programme of how to make regulation genuinely proportionate.
And I thought, my noble friend Lord Beckett, stressing, as we all do, the importance of free speech and free context, made the point that the Competition and Markets Authority has erred in the past by failing to protect those small business start ups that could grow and expand and become jewels in the crown of this great country, but have been swallowed up quickly by those large, mainly American conglomerates. And thus, where is the competition when these very large entities take over the market? Well, the other key question that's come through in the debate is test the government's commitment to reduce the administrative burden of regulation by 25%.
And my noble friend, Baroness Harding of Winscombe did talk very openly about how that target has to be reached. First of all, it must never be forgotten. The administrative burden is by no means the only or even the greatest burden that regulators impose on wealth creators. It is important, yes, and reducing it is important, too. But regulation goes far beyond the simple costs of ticking boxes and returning forms. In many ways, let us just try and look into the future and find a way of attracting that inward investment. So many speakers referred to, but never at the expense of allowing us in this country to take advantage of the brilliant brains that we have, which I saw for my self when I was cabinet Minister for science in that young 18 year old undergraduate from Cambridge on the CERN project, thought up the World Wide Web because he had to match index all that material coming from the Large Hadron Collider.
And let's not forget, we have one more Nobel Prizes in this country than the whole of the rest of Europe put together. So let's trust our innovators. Let's give them let's set them free from burdensome regulation. So I just hope, and I join my noble friend Lord Lister in saying we need certainty, clarify clarity and pace. Pace. That's actually the word that the noble Baroness used right at the start of this debate.
We want pace and we need answers. So over to you, noble Baroness, the Minister, to provide those answers now.
I think we benefited, in particular by members of the committee who have come not only to support but to make their own contributions. The noble Baroness Valentine, the noble Viscount, Lord Chandos, albeit just for a short period on the committee, but raised very important issues affecting AI, to which we'll return. Baroness Harding, my noble friend of Winscombe, my noble friend, Lord Fuller, my noble friend, Lord Rodney Lister, not only participated in producing this report, but have added to it today, and I'm pleased to follow my noble friend Lord Camoys, who quite rightly summarised in The gap the problems many have identified with delays, targets repeatedly missed, overlapping regulation.
And I'm not going to speak for long because the noble Baroness, the Minister, has so many questions to answer that we've got to give her the maximum time. But time is money and what a great title. I don't know who thought it up, but it's brilliant because this government has now had more than two years to deliver the growth that it promised would be its first and overriding message. It spent that time freely. But what it what has it delivered? I think remarkably little money in return. The committee's most striking finding is not merely that regulators have failed to support growth.
It is that the government and previous administrations have been guilty of. This, too, continues to send mixed, confusing and ambiguous signals to regulators about how a commitment to growth is to be balanced against all those other duties. It's a strange kind of mission whose commanders cannot describe the objective. And the noble Lord, Lord Bilimoria, I thought, set that out quite. What is. What is the objective? Ministers may now tell us. The answer is a new, clarified and strengthened growth duty under which designated regulators would actively promote economic growth. But history tells us, my Lords, that economic development and social development too, for that matter, will require, above all else, innovation.
In the introduction to the report, the committee observes that, and I quote, done well, regulation can boost consumer confidence and provide certainty for businesses to invest and innovate. That is certainly the case, but it is rarely, if ever, in the nature of a regulator actively to promote innovation, as this report notes. The primary statutory duties of regulators are generally linked to safety or consumer protection. Well, that is, I suppose, inherently risk averse or the key question is what is risk? I suppose in many ways, as a solicitor specialising in insurance and reinsurance, my whole life has been to identify and deal with risk.
But what is it? What is it if it is not, as the noble Baroness put it, benefit aversion. I think there's a real and present danger that poorly targeted, overzealous or simply inappropriate regulation, and serve to dampen, discourage or even stifle vital innovation. As the noble Lord, Lord, my noble friend Lord Willetts put it, and he chairs the Regulatory Innovation Office. He should know. I'm afraid innovation is very difficult to promote when faced with detailed , overlapping regulation. And as my noble friend Lord Lister put it, we are competing in a world where other jurisdictions are readily embracing our competitors and are giving them answers to the questions for which they still await answers from our own regulators.
All too often, innovation, investment and growth are fostered and encouraged , not by regulatory intervention, but by the absence of regulatory intervention. As the report notes, and again, I quote, it is not clear whether the government wants regulators to allow greater risks to be borne by consumers and businesses, or merely to be more open minded about new innovations. Well, many regulators already operate under the growth duty in the section 108 of the Deregulation Act 2015, which requires them to have regard to the desirability of promoting economic growth. Others, the FCA and the PRA, both of whom oversee an area of the economy that is vital to our economic well-being and place in the world, have growth as a secondary objective , subordinate to concerns about consumer protection and my noble friend Lord Ashcombe put a series of key points about how the situation could be improved by what I think he described as intelligent regulation.
Oh, let's hope that the noble Baroness, the Minister, has a clear, clear commitment in that direction. As the report points out, however, that regulatory of regulators, that regulator of regulators, the Competition and Markets Authority, has no formal growth duty. Again quoting the report, if it wishes to have a more meaningful impact, the government must provide strategic guidance to regulators that addresses how conflicts between objectives should be prioritized and must provide political cover where the government wants a regulator to be more open to risk. End of quote. Spot on. There, in a nutshell, is what we require of government.
Yet the government's proposed legislation and I join my noble friend, Lord Lord Black of Brentwood in asking those key questions. Is this legislation coming our way? Assuming a. No doubt we'll hear from the noble Baroness. It's apparently called regulating for growth. Bill, it rests on an implicit presumption that growth can be regulated into existence. When. The lesson of the recent decades is quite the opposite, namely, that innovation and growth can all too easily be regulated out of existence. What the country needs, and I think this came through in many of the speeches we've heard, is not more energetic regulation, but a serious programme of how to make regulation genuinely proportionate.
And I thought, my noble friend Lord Beckett, stressing, as we all do, the importance of free speech and free context, made the point that the Competition and Markets Authority has erred in the past by failing to protect those small business start ups that could grow and expand and become jewels in the crown of this great country, but have been swallowed up quickly by those large, mainly American conglomerates. And thus, where is the competition when these very large entities take over the market? Well, the other key question that's come through in the debate is test the government's commitment to reduce the administrative burden of regulation by 25%.
And my noble friend, Baroness Harding of Winscombe did talk very openly about how that target has to be reached. First of all, it must never be forgotten. The administrative burden is by no means the only or even the greatest burden that regulators impose on wealth creators. It is important, yes, and reducing it is important, too. But regulation goes far beyond the simple costs of ticking boxes and returning forms. In many ways, let us just try and look into the future and find a way of attracting that inward investment. So many speakers referred to, but never at the expense of allowing us in this country to take advantage of the brilliant brains that we have, which I saw for my self when I was cabinet Minister for science in that young 18 year old undergraduate from Cambridge on the CERN project, thought up the World Wide Web because he had to match index all that material coming from the Large Hadron Collider.
And let's not forget, we have one more Nobel Prizes in this country than the whole of the rest of Europe put together. So let's trust our innovators. Let's give them let's set them free from burdensome regulation. So I just hope, and I join my noble friend Lord Lister in saying we need certainty, clarify clarity and pace. Pace. That's actually the word that the noble Baroness used right at the start of this debate.
We want pace and we need answers. So over to you, noble Baroness, the Minister, to provide those answers now.
17:29
17:30
Speaker 14
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Speaker 14
My Lords, I am pleased to respond for the government and I join others in thanking my noble friend, Lady Hayter of Kentish Town for securing today's debate and for her leadership of the Industry and Regulators Committee's inquiry. And I also thank all the noble Lords who contributed to that report and also to their contribution earlier today, which have brought the combined expertise of so many here today. The committee's report, Time is Money Regulators Can Support Growth, provides a thoughtful and constructive examination of how regulation can better support investment, innovation and productivity. We agree with its central message effective regulation is essential to a strong economy, but unnecessary delay, duplication, complexity and uncertainty can deter investment and slow innovation.
My Lords, as we have heard today, regulation is not inherently a burden. Well-designed regulation protects consumers, workers, communities and the environment. It creates fair markets, builds public confidence, and gives businesses the certainty they need to make long term investments. Our objective is therefore not simply less regulation. It's better regulation. Regulation that is proportionate, predictable and effective, that keeps pace with technological and economic change, and that supports growth while maintaining essential protections. The noble Lord, Lord Ashcombe, asked what action we are taking reflective of the report. The committee rightly called for greater clarity about what supporting growth means for individual regulators.
We have acted on that recommendation. We have agreed 54 outcome focused growth goals with over with 12 key regulators. These translate the government's wider growth mission and industrial strategy into practical priorities tailored to each regulator's remit. The goals are supported by measurable, time bound results, an explanation of how their delivery is expected to support economic growth. Growth goals are currently published on the Regulated Performance Dashboard to improve transparency. The goals do do not direct individual regulatory decisions or undermine operational independence. Government sets the strategic direction. Regulators remain responsible for applying it independently in accordance with the law and their statutory duties, and through the Regulation Action Plan and the Regulator Efficiency and Reform Programme.
We are also tackling delays, duplication, fragmented processes and unclear guidance. We are working to improve digital services and enable businesses to provide information once rather than repeatedly, to public bodies. As the noble Lord, Lord Bilimoria and others have stressed today, timeliness is key and government and regulators have already made significant progress in speeding up regulatory processes. The Environment Agency has made its permitting service more efficient and transparent. It has cut its permitting queue by 1000 permits, backlogs in several categories and induced and introduced a tracked service that now supports more than 60 projects. It's also hit its target of responding to 95% of planning consultations within 21 days ahead of schedule, and has met it consistently since.
But that is clearly not enough, and we need to do more. Several noble Lords have understandably raised the balance between growth and vital protections. My noble friend, Viscount the noble Lord Chandos, put this very clearly. Let me be clear supporting growth does not mean lowering standards or accepting unacceptable risks to the public. Growth and high standards are not alternatives. Regulators must continue to fulfil their statutory responsibilities while ensuring those objectives are delivered proportionately and without unnecessary barriers to investment and innovation. The forthcoming regulating for growth Bill will strengthen the growth duty for key regulators. This will be supported by statutory ministerial economic growth steers tailored to different sectors, reflective of the points made today , that different sectors regulate very different industries and reporting requirements to strengthen accountability.
This responds to the call by my noble friend Baroness Hayter, for the government and many others today. For example, the noble Lord Bilimoria and the noble Lord Smith, my noble friend, the Lord Smith of Ranmore. For us to be clear on the government's priorities and risk appetite to allow regulators to make confident decisions, in particular in areas of innovation. Many noble Lords focused, quite crucially, on the importance of innovation and of creating a regulatory framework that supports our innovative UK businesses. The Bill will also introduce cross economy sandbox powers allowing innovative products, technologies and services to be tested safely.
Where existing legislation creates. The Regulatory Innovation Office, led so well by the noble Lord, Lord Willetts, who has led to many advances in equipping regulators, having discussions with them on how to regulate in this innovative space, and indeed has provided practical examples which can be taken forward in these in these formal sandboxes when we're able to legislate for them. Modern world is changing rapidly, and our legislative framework must be able to keep pace with innovation and technological advances. So I agree very much with those noble lords. For example, the noble Lord, Lord Lister, who exhorted us to update our laws to take account of this.
The Bill will provide greater scope to test innovative approaches using real world world evidence to inform successful approach to inform how successful approaches should be implemented more widely. My my noble friend Baroness Hayter and Lord Chandos asked about the timing of the bill. This is set to be introduced in the current session of Parliament when parliamentary time allows. Because at present, when regulators and businesses identify a better approach. Existing legislation does not provide the ability to test this. In practice, primary legislation. As the noble my noble friend Baroness Hayter put her finger on, remains the appropriate route for many changes, but it does not offer the flexibility to test and respond at pace.
The question from the noble Lord, Lord Beck this is a cross-cutting framework, Bill, so it will not include any specific technologies or sector sector regulation. Overall, this is not deregulation by another name. Testing will take place under controlled conditions with appropriate safeguards. Criticisms suspend or end testing where necessary, and any lasting change will be subject to appropriate scrutiny. My noble friend Lord Nagaraju, whose observation we are acutely aware of the needs of smaller, innovative AI businesses to access these. It is part of the discussions we've been having with the Regulatory Innovation Office to date, and is something that we will continue to bear at front of mind.
My Lords, the committee was also right to emphasise that time matters. Slow or uncertain regulatory decisions impose real costs. They can delay investment, prevent products from reaching the market and make the United Kingdom a less attractive place in which to do business. We are increasing transparency through the Regulator Performance Dashboard, which brings together performance information for 16 key regulators and is being expanded to cover regulatory approvals. The noble Baroness, Baroness Valentine, asked about KPIs. We are also working with regulators to improve KPIs so that they measure genuine performance, including timeliness, quality, certainty and outcomes rather than activity alone.
We recognise that poorly designed KPIs can give the appearance of progress when there is not many noble lords. For example, Lord Fowler stressed the importance of actual change and the importance of this being felt through the whole of the regulator. Performance will be considered through reviews led by the Secretary of State and independent reviews, allowing underperformance to be challenged and targeted action to be agreed. The regulator, the regulator sponsors sponsorship Charter , also sets out the responsibilities of sponsor departments. My noble friend Lord Sikka is right that accountability is key. Accountability must extend through regulators, departments and government and ultimately to Parliament.
The ultimate test will be what businesses experience, where the decisions are faster and more predictable, where the processes are simpler, where the duplication is reduced and whether unnecessary barriers to investment are removed. A number of noble lords talked asked about the lead regulator model. We recognise there is more to do here. That complex and fragmented regulatory processes can add to delay and cost to major infrastructure projects, and that is why the lead environmental regulator, pilots, are testing how environmental regulators can provide clearer and earlier coordinated advice to developers. While the wider reforms are focused on improving regulatory approvals and reducing unnecessary duplication.
We are committed to learning from these pilots and taking forward the conclusions when they conclude. We respond to the noble Baroness Harding's question on progress on the administrative burden of regulation, which I do underline is, in addition to all of the other changes that we are making to improve regulatory decision making and regulatory transparency to reduce a. The effect on business. The government is committed to reducing the annual administrative burden of regulation to business by 25% over this Parliament. This is equivalent to £5.6 billion against a baseline of £22.4 billion. We have delivered or identified £2 billion in net addition, a net annual administrative burden savings, putting us over a third of the way towards the target.
The Chancellor has now also announced up to £640 million worth pounds of additional gross administrative savings for businesses in this budget, and we recognise that smaller firms feel regulatory complexity particularly acutely. The Small Business Regulatory Taskforce has made 15 practical recommendations, and we have accepted all but one. Regulation also does not stop at national borders. We will continue to pursue international regulatory cooperation and recognise to my noble friend Baroness Gill's point that the benefit of trusted overseas approvals doing so reduces unnecessary friction and benefits UK businesses and consumers, while preserving our ability to regulate in the national interest.
And I agree with the noble Lord, Lord Bilimoria, on the importance of digital digital trade to the United Kingdom, which is a feature of our trade strategy. My Lords, many noble lords, noble Lord, Lord black, my noble friend Baroness Gill and the noble Baroness, Baroness Harding, asked about digital markets and and AI. The government recognises the important role that competitive digital markets play in supporting innovation, investment, productivity and consumer choice. The UK economy, in its strategic steer to the CMA, the government set out how it expects the CMA to operate the digital markets regime independently, flexibly, proportionately and collaboratively, collaboratively to effectively unlock opportunities for growth across the UK, digital economy and wider economy.
The Secretary of State has made clear that the government is not issuing a new strategic steer to the questions. My noble friend Lord Chandos and other noble lords asked about our AI approach as. As the noble Lord, Lord Chandos highlighted, as did others, this is a general purpose technology, and the government's approach is principally that it is best regulated at the point of use. My Lords, the committee's report has made an important contribution to this agenda. The government agrees that regulators need clearer direction to transparency and stronger accountability. If they are to support growth effectively, we will judge success by outcomes simpler and more predictable regulation, faster decisions, stronger investment and innovation, and continued public confidence in the protections that regulation provides.
I again thank the noble Baroness, Lady Hayter, the members of the committee and all noble Lords who have contributed today. We will continue to work with Parliament, regulators, businesses and wider stakeholders to deliver a regulatory system that protects the public, commands confidence and supports sustainable economic growth across the United Kingdom.
My Lords, as we have heard today, regulation is not inherently a burden. Well-designed regulation protects consumers, workers, communities and the environment. It creates fair markets, builds public confidence, and gives businesses the certainty they need to make long term investments. Our objective is therefore not simply less regulation. It's better regulation. Regulation that is proportionate, predictable and effective, that keeps pace with technological and economic change, and that supports growth while maintaining essential protections. The noble Lord, Lord Ashcombe, asked what action we are taking reflective of the report. The committee rightly called for greater clarity about what supporting growth means for individual regulators.
We have acted on that recommendation. We have agreed 54 outcome focused growth goals with over with 12 key regulators. These translate the government's wider growth mission and industrial strategy into practical priorities tailored to each regulator's remit. The goals are supported by measurable, time bound results, an explanation of how their delivery is expected to support economic growth. Growth goals are currently published on the Regulated Performance Dashboard to improve transparency. The goals do do not direct individual regulatory decisions or undermine operational independence. Government sets the strategic direction. Regulators remain responsible for applying it independently in accordance with the law and their statutory duties, and through the Regulation Action Plan and the Regulator Efficiency and Reform Programme.
We are also tackling delays, duplication, fragmented processes and unclear guidance. We are working to improve digital services and enable businesses to provide information once rather than repeatedly, to public bodies. As the noble Lord, Lord Bilimoria and others have stressed today, timeliness is key and government and regulators have already made significant progress in speeding up regulatory processes. The Environment Agency has made its permitting service more efficient and transparent. It has cut its permitting queue by 1000 permits, backlogs in several categories and induced and introduced a tracked service that now supports more than 60 projects. It's also hit its target of responding to 95% of planning consultations within 21 days ahead of schedule, and has met it consistently since.
But that is clearly not enough, and we need to do more. Several noble Lords have understandably raised the balance between growth and vital protections. My noble friend, Viscount the noble Lord Chandos, put this very clearly. Let me be clear supporting growth does not mean lowering standards or accepting unacceptable risks to the public. Growth and high standards are not alternatives. Regulators must continue to fulfil their statutory responsibilities while ensuring those objectives are delivered proportionately and without unnecessary barriers to investment and innovation. The forthcoming regulating for growth Bill will strengthen the growth duty for key regulators. This will be supported by statutory ministerial economic growth steers tailored to different sectors, reflective of the points made today , that different sectors regulate very different industries and reporting requirements to strengthen accountability.
This responds to the call by my noble friend Baroness Hayter, for the government and many others today. For example, the noble Lord Bilimoria and the noble Lord Smith, my noble friend, the Lord Smith of Ranmore. For us to be clear on the government's priorities and risk appetite to allow regulators to make confident decisions, in particular in areas of innovation. Many noble Lords focused, quite crucially, on the importance of innovation and of creating a regulatory framework that supports our innovative UK businesses. The Bill will also introduce cross economy sandbox powers allowing innovative products, technologies and services to be tested safely.
Where existing legislation creates. The Regulatory Innovation Office, led so well by the noble Lord, Lord Willetts, who has led to many advances in equipping regulators, having discussions with them on how to regulate in this innovative space, and indeed has provided practical examples which can be taken forward in these in these formal sandboxes when we're able to legislate for them. Modern world is changing rapidly, and our legislative framework must be able to keep pace with innovation and technological advances. So I agree very much with those noble lords. For example, the noble Lord, Lord Lister, who exhorted us to update our laws to take account of this.
The Bill will provide greater scope to test innovative approaches using real world world evidence to inform successful approach to inform how successful approaches should be implemented more widely. My my noble friend Baroness Hayter and Lord Chandos asked about the timing of the bill. This is set to be introduced in the current session of Parliament when parliamentary time allows. Because at present, when regulators and businesses identify a better approach. Existing legislation does not provide the ability to test this. In practice, primary legislation. As the noble my noble friend Baroness Hayter put her finger on, remains the appropriate route for many changes, but it does not offer the flexibility to test and respond at pace.
The question from the noble Lord, Lord Beck this is a cross-cutting framework, Bill, so it will not include any specific technologies or sector sector regulation. Overall, this is not deregulation by another name. Testing will take place under controlled conditions with appropriate safeguards. Criticisms suspend or end testing where necessary, and any lasting change will be subject to appropriate scrutiny. My noble friend Lord Nagaraju, whose observation we are acutely aware of the needs of smaller, innovative AI businesses to access these. It is part of the discussions we've been having with the Regulatory Innovation Office to date, and is something that we will continue to bear at front of mind.
My Lords, the committee was also right to emphasise that time matters. Slow or uncertain regulatory decisions impose real costs. They can delay investment, prevent products from reaching the market and make the United Kingdom a less attractive place in which to do business. We are increasing transparency through the Regulator Performance Dashboard, which brings together performance information for 16 key regulators and is being expanded to cover regulatory approvals. The noble Baroness, Baroness Valentine, asked about KPIs. We are also working with regulators to improve KPIs so that they measure genuine performance, including timeliness, quality, certainty and outcomes rather than activity alone.
We recognise that poorly designed KPIs can give the appearance of progress when there is not many noble lords. For example, Lord Fowler stressed the importance of actual change and the importance of this being felt through the whole of the regulator. Performance will be considered through reviews led by the Secretary of State and independent reviews, allowing underperformance to be challenged and targeted action to be agreed. The regulator, the regulator sponsors sponsorship Charter , also sets out the responsibilities of sponsor departments. My noble friend Lord Sikka is right that accountability is key. Accountability must extend through regulators, departments and government and ultimately to Parliament.
The ultimate test will be what businesses experience, where the decisions are faster and more predictable, where the processes are simpler, where the duplication is reduced and whether unnecessary barriers to investment are removed. A number of noble lords talked asked about the lead regulator model. We recognise there is more to do here. That complex and fragmented regulatory processes can add to delay and cost to major infrastructure projects, and that is why the lead environmental regulator, pilots, are testing how environmental regulators can provide clearer and earlier coordinated advice to developers. While the wider reforms are focused on improving regulatory approvals and reducing unnecessary duplication.
We are committed to learning from these pilots and taking forward the conclusions when they conclude. We respond to the noble Baroness Harding's question on progress on the administrative burden of regulation, which I do underline is, in addition to all of the other changes that we are making to improve regulatory decision making and regulatory transparency to reduce a. The effect on business. The government is committed to reducing the annual administrative burden of regulation to business by 25% over this Parliament. This is equivalent to £5.6 billion against a baseline of £22.4 billion. We have delivered or identified £2 billion in net addition, a net annual administrative burden savings, putting us over a third of the way towards the target.
The Chancellor has now also announced up to £640 million worth pounds of additional gross administrative savings for businesses in this budget, and we recognise that smaller firms feel regulatory complexity particularly acutely. The Small Business Regulatory Taskforce has made 15 practical recommendations, and we have accepted all but one. Regulation also does not stop at national borders. We will continue to pursue international regulatory cooperation and recognise to my noble friend Baroness Gill's point that the benefit of trusted overseas approvals doing so reduces unnecessary friction and benefits UK businesses and consumers, while preserving our ability to regulate in the national interest.
And I agree with the noble Lord, Lord Bilimoria, on the importance of digital digital trade to the United Kingdom, which is a feature of our trade strategy. My Lords, many noble lords, noble Lord, Lord black, my noble friend Baroness Gill and the noble Baroness, Baroness Harding, asked about digital markets and and AI. The government recognises the important role that competitive digital markets play in supporting innovation, investment, productivity and consumer choice. The UK economy, in its strategic steer to the CMA, the government set out how it expects the CMA to operate the digital markets regime independently, flexibly, proportionately and collaboratively, collaboratively to effectively unlock opportunities for growth across the UK, digital economy and wider economy.
The Secretary of State has made clear that the government is not issuing a new strategic steer to the questions. My noble friend Lord Chandos and other noble lords asked about our AI approach as. As the noble Lord, Lord Chandos highlighted, as did others, this is a general purpose technology, and the government's approach is principally that it is best regulated at the point of use. My Lords, the committee's report has made an important contribution to this agenda. The government agrees that regulators need clearer direction to transparency and stronger accountability. If they are to support growth effectively, we will judge success by outcomes simpler and more predictable regulation, faster decisions, stronger investment and innovation, and continued public confidence in the protections that regulation provides.
I again thank the noble Baroness, Lady Hayter, the members of the committee and all noble Lords who have contributed today. We will continue to work with Parliament, regulators, businesses and wider stakeholders to deliver a regulatory system that protects the public, commands confidence and supports sustainable economic growth across the United Kingdom.
17:44
Speaker 1
-
Speaker 1
May I? I will try to do this briefly. I can see the team be is just arriving. Can I can I thank the Minister for for that reply and indeed thank all the speakers. I think she ought to take great comfort from how much agreement there was across. I know we haven't got any Liberal Democrats speaking, but across the House. I think there's been very strong commonality in our response. And particularly that regulation can't create growth. I think that Lord Lister's comment about infrastructure did point where that could be of advantage more broadly. I'm afraid I've been exchanging texts with the colleague, my the staff, and they think it's Lord Lister who came up with the title.
Time is money. Can we congratulate him for that? I'm not going to try and repeat everything except to say three. I think three things I made before and I apologize. One is that the the commonality was about the need for regulators to be able to respond rapidly to innovation and to provide the pace, the clarity, the certainty, and the predictability that business needs. I think it was a noble Lord, Lord Ashcombe, who used the word intelligent regulation, which maybe that can encompass it, but I think it was Baroness Harding who said, and all of this has to be in the interests of British business and the British public.
That's what that's really the core of what we're doing, of what we want to do. I think, though, that there are three questions, really to leave for, to take away with, which is that we mustn't lose, as my noble friend Viscount Chandos and also Lord Sikka said, need to protect consumers. These regulations did not grow. We do not have statutory regulation by accident. It was there for a purpose and we need to continue to protect that. Secondly, we do need political cover if we're going to ask regulators, regulators to become a little more chancy and to meet the challenge that the government and ourselves have given their way.
We also need to recognise the costs of poor regulation and be able I think this will fall to the government really, to enable them to respond to new technology. But there are certain things only the government can do, like a single front door. No one regulator can do that. Or indeed in. I think it's the word of my noble friend Baroness Gill. Deal with legacy rules. This falls to government and not to individual regulations. The other challenge really is that the existing growth duty, because this isn't new, has actually done very little to change regulators risk appetite because it added another duty.
They are going to have to make trade offs. And I think regulators and government respond to that. And and think about how to change the conflicting demands of their core regulatory responsibilities with with this and how they they they balance those new demands. Therefore, there are things for the government to do that individual regulators can't. And maybe I'm hoping that my committee members will agree with this. We can invite the noble, my noble friend, the Minister, to come to our Committee when the bill is published, and discuss how. Then we can move forward on that.
With that, May, I think everybody's contribution, and I think I formally move. Yes. And I move that we note the report.
Time is money. Can we congratulate him for that? I'm not going to try and repeat everything except to say three. I think three things I made before and I apologize. One is that the the commonality was about the need for regulators to be able to respond rapidly to innovation and to provide the pace, the clarity, the certainty, and the predictability that business needs. I think it was a noble Lord, Lord Ashcombe, who used the word intelligent regulation, which maybe that can encompass it, but I think it was Baroness Harding who said, and all of this has to be in the interests of British business and the British public.
That's what that's really the core of what we're doing, of what we want to do. I think, though, that there are three questions, really to leave for, to take away with, which is that we mustn't lose, as my noble friend Viscount Chandos and also Lord Sikka said, need to protect consumers. These regulations did not grow. We do not have statutory regulation by accident. It was there for a purpose and we need to continue to protect that. Secondly, we do need political cover if we're going to ask regulators, regulators to become a little more chancy and to meet the challenge that the government and ourselves have given their way.
We also need to recognise the costs of poor regulation and be able I think this will fall to the government really, to enable them to respond to new technology. But there are certain things only the government can do, like a single front door. No one regulator can do that. Or indeed in. I think it's the word of my noble friend Baroness Gill. Deal with legacy rules. This falls to government and not to individual regulations. The other challenge really is that the existing growth duty, because this isn't new, has actually done very little to change regulators risk appetite because it added another duty.
They are going to have to make trade offs. And I think regulators and government respond to that. And and think about how to change the conflicting demands of their core regulatory responsibilities with with this and how they they they balance those new demands. Therefore, there are things for the government to do that individual regulators can't. And maybe I'm hoping that my committee members will agree with this. We can invite the noble, my noble friend, the Minister, to come to our Committee when the bill is published, and discuss how. Then we can move forward on that.
With that, May, I think everybody's contribution, and I think I formally move. Yes. And I move that we note the report.
17:47
17:50
17:50
17:50
Speaker 16
-
Speaker 16
To move the motion standing in my name. This is the second occasion since being appointed chair of your Lordships Economic Affairs Committee, that I appear before you as something of an impostor. The report we are debating today was prepared under the guidance of my predecessor, Lord Wood of Anfield, and having done his bit in this role to save Britain from bankruptcy, he's now more than doing his bit in the Foreign Office under Ed Miliband. So we wish him well. It's also my pleasant duty to thank the officials who contributed so much to the report before you today.
Most of all the staff of the committee. Dervish Mukhtar, James Parkin, Neil Mellor and our clerk, Matthew Manning, whose balanced judgments sign shine through its pages. I'd also like to thank those who served on the committee when we took most of the evidence for this report, and have been rotated off since a particularly brutal eight members were removed at the new year, and I'd. Like to thank those members who have turned up to this debate. And I'd also like to thank the three current members of the committee, Lord Burns, Lord Razzall and Baroness Woolf, for participating in it today.
In preparing this report, we had the benefit of advice from two former permanent secretaries of the Treasury, Lord Burns and Lord Turnbull. And I'm glad to see that Lord Macpherson is speaking today as well. I mean, when outsiders criticised the House of Lords, what other institution in British life could boast that advice on its deliberations? Now, fiscal policy is at the heart of our politics. Two key facts about it. Despite that stand out and a rarely remarked upon. First, the OBR, the Office of Budget Responsibility last July projected that if one simply rolled forward present trends, debt as a share of GDP would be about 270% by the early 2070s.
Needless to say, witnesses in our inquiry were clear that that debt level could never, in practice, be achieved because the markets would never lend to the government. Well before that level was reached, the bond markets would have done their much maligned job. Especially as in Britain's case, unlike, say, Italy or Japan. As I think Mark Carney once said, we depend on the kindness of foreigners to fund our borrowing. Now, the 2000 and 70s may seem a long time away, but when I thought about it, they weren't particularly a long time away from me. I remember vividly when I first started working as a special adviser in the Callaghan government.
It was in the midst of the IMF crisis, and I was wondering whether my job would last more than a couple of months. So that was 50 years ago. The second key point that's rarely mentioned is that debt interest currently accounts for one in every 13th pound spent by the government. We spend more servicing our public debt than we do on either education or defence, and nearly half what we spend on health. These are enormous numbers. A few weeks ago, I introduced the debate on our report on the demographic challenges of an ageing society. I strongly support our new Prime Minister's ambitions for a radical reform of social care.
In my view, it's fundamental to a decent society, and I admire his courage in deciding to reform the triple lock in order to help pay for it. But we all know that social care is a huge commitment for the future. Also know we have huge, unavoidable, but as yet unfunded commitments on defence, which in a dangerous world we must simply meet. But in meeting those targets, let's remember that 270% figure which hangs over us on present trends. This is why the framework within which the government sets fiscal policy is an essential ingredient, ensuring that governments can set themselves on the path towards sustainable borrowing.
Our report looks at two elements of that framework. That is, the fiscal rules themselves, which chancellors loudly proclaim as non-negotiable. And the institution responsible for assessing the government's compliance with them. The office and much maligned office for Budget Responsibility. On the rules. My personal feeling is that chancellors protest too much. Yet there is some benefit to the government sticking to the existing rules. But the rules themselves have been shown to be eminently gameable. Debt is invariably shown to fall as a percentage of GDP in the final year of the plan. And the claim of sticking to the rules has limited value.
If the spending assumptions for the final years of the fiscal plan are extremely dubious, credibility. The risk of gaming was particularly high when the time scale for meeting the fiscal rules was set . At five years. Meeting the rules depended on spending assumptions five years ahead that were unspecified. The present government has, to its credit, and I. This my government and I support it. It has shifted to a three year rolling target to demonstrate falling. A falling public debt GDP ratio. I dare say Sir Humphrey would have described this as a brave decision. Because it means that from now on, the GDP, the commitment to lower the debt to GDP ratio is aligned with the government's three year public spending plans.
And in our case, they have to be decided next, next year. This year's Red book implies that the government's plans for unprotected departments other than defence and health would face real term cuts, some 2.5%, in order to meet that target. If I was a Labour backbencher in the Commons, which I'm glad I'm not, that commitment might cause me a few uneasy nights of lost sleep. But the whole approach to policy remains. Augustinian were promising to be fiscally prudent, but just not quite yet. The committee were also generally concerned with the relentless yearly focus on whether the government have met the short term rules for so-called headroom, and not on the long term trends, which are more important in report after report.
The OBR has clearly set out the trajectory for debt. It's manifestly unsustainable. But no one seems to take any notice. The government is ignoring this. We were concerned there is a lack of attention as a committee to the annual Fiscal Risks and Sustainability report that the OBR produces. Parliamentary time should be set aside to discussing the government's response to this report. Now, perhaps one reason for its reluctant to do so is the increasingly meagre content of the response the Treasury provides. Richard Hughes, who was the chairman of the OBR before. Unfortunately, he had to resign, noted that the government's response in 2017 was 136 pages of argument.
The most recent was 19 pages, and it was in the form of a written statement to Parliament, which of course was never debated. That isn't good enough for such a serious matter. Our committee will do what it can to draw greater attention to the Fiscal Risks and sustainability report. We'll invite the OBR and ministers to give evidence to our committee each year following the public. Its publication. The long term health of our economy turns on governments grappling with the issues. The OBR repeatedly highlights. On the OBR more generally, we do welcome the change in tone of the rhetoric, which was previously unfairly targeted at.
In contrast to some claims, they don't police government policy, they are merely an impartial judge of the government's compliance with rules that it imposes on itself. The government is always free to disagree with the OBR assessment and make its policy accordingly if it wants to. We also welcome the Obr's approach to forecasting. Projection is not. Prediction and confusion on this point underlies misguided attacks on their work. We heard of the frustration of some at the OBR not scoring, the impact of tax cuts or public investment on their growth numbers. But if the government believes in the value of a policy, genuinely believes in it, it should implement it.
Whether or not the OBR chooses to score it and not to do so because of their approach to scoring, would be to reveal a concern with meeting a metric, rather than promoting the actual wellbeing of the economy. The government should be making. Policy on the basis of its confident view of the economic fundamentals, not on the basis of what it thinks will lead to a narrowly passing rules it has imposed on itself. And particularly, this is a focus on headroom and how specific decisions of the OBR affect the result of the headroom calculation are a product of narrow margins between 2010 and early 2022, headroom averaged about 30 billion, and one might worry that headroom in this October's budget now falling to 15 billion.
We are returning to a world in which OBR decisions about scoring will again be politicised. These decisions should be dry matters more suited to footnotes in documents than headline news. The amounts we are considering are in terms of public spending and borrowing. Rounding errors compared to the government's total tax and revenue spending. And although we accept that buffers are there to be used in tough times, these buffers should frankly be arguably a lot greater than they are. So sadly, the fundamentals of our fiscal position remain difficult. And nothing in the budget last week suggests any meaningful change in the country's long term debt dynamics.
Now I'm expressing a personal view here. But of course, fiscal sustainability is not just a matter of the scale of public spending and taxation. Personally, I want the government to throw everything it can at growth. And in my book, that must include rejoining the European single market. I want a simpler, radically reformed tax and welfare system that removes the multiple disincentives to work that we've ended up with. And I would like to see a much sharper focus on public sector efficiency, where the public sector trade unions recognise that the only sustainable route to higher wages lies through greater public sector productivity.
The fact is, the public finances are on an unsustainable path. And apart from the government's brave decision on the triple lock, which I applaud. It's unclear how we're going to address this situation. I don't know. The Prime Minister says he's in favour of radical reform of our politics and electoral system, to bring more consensus to our politics. Maybe that's a fundamental change we'll have to see. I beg to move here.
Most of all the staff of the committee. Dervish Mukhtar, James Parkin, Neil Mellor and our clerk, Matthew Manning, whose balanced judgments sign shine through its pages. I'd also like to thank those who served on the committee when we took most of the evidence for this report, and have been rotated off since a particularly brutal eight members were removed at the new year, and I'd. Like to thank those members who have turned up to this debate. And I'd also like to thank the three current members of the committee, Lord Burns, Lord Razzall and Baroness Woolf, for participating in it today.
In preparing this report, we had the benefit of advice from two former permanent secretaries of the Treasury, Lord Burns and Lord Turnbull. And I'm glad to see that Lord Macpherson is speaking today as well. I mean, when outsiders criticised the House of Lords, what other institution in British life could boast that advice on its deliberations? Now, fiscal policy is at the heart of our politics. Two key facts about it. Despite that stand out and a rarely remarked upon. First, the OBR, the Office of Budget Responsibility last July projected that if one simply rolled forward present trends, debt as a share of GDP would be about 270% by the early 2070s.
Needless to say, witnesses in our inquiry were clear that that debt level could never, in practice, be achieved because the markets would never lend to the government. Well before that level was reached, the bond markets would have done their much maligned job. Especially as in Britain's case, unlike, say, Italy or Japan. As I think Mark Carney once said, we depend on the kindness of foreigners to fund our borrowing. Now, the 2000 and 70s may seem a long time away, but when I thought about it, they weren't particularly a long time away from me. I remember vividly when I first started working as a special adviser in the Callaghan government.
It was in the midst of the IMF crisis, and I was wondering whether my job would last more than a couple of months. So that was 50 years ago. The second key point that's rarely mentioned is that debt interest currently accounts for one in every 13th pound spent by the government. We spend more servicing our public debt than we do on either education or defence, and nearly half what we spend on health. These are enormous numbers. A few weeks ago, I introduced the debate on our report on the demographic challenges of an ageing society. I strongly support our new Prime Minister's ambitions for a radical reform of social care.
In my view, it's fundamental to a decent society, and I admire his courage in deciding to reform the triple lock in order to help pay for it. But we all know that social care is a huge commitment for the future. Also know we have huge, unavoidable, but as yet unfunded commitments on defence, which in a dangerous world we must simply meet. But in meeting those targets, let's remember that 270% figure which hangs over us on present trends. This is why the framework within which the government sets fiscal policy is an essential ingredient, ensuring that governments can set themselves on the path towards sustainable borrowing.
Our report looks at two elements of that framework. That is, the fiscal rules themselves, which chancellors loudly proclaim as non-negotiable. And the institution responsible for assessing the government's compliance with them. The office and much maligned office for Budget Responsibility. On the rules. My personal feeling is that chancellors protest too much. Yet there is some benefit to the government sticking to the existing rules. But the rules themselves have been shown to be eminently gameable. Debt is invariably shown to fall as a percentage of GDP in the final year of the plan. And the claim of sticking to the rules has limited value.
If the spending assumptions for the final years of the fiscal plan are extremely dubious, credibility. The risk of gaming was particularly high when the time scale for meeting the fiscal rules was set . At five years. Meeting the rules depended on spending assumptions five years ahead that were unspecified. The present government has, to its credit, and I. This my government and I support it. It has shifted to a three year rolling target to demonstrate falling. A falling public debt GDP ratio. I dare say Sir Humphrey would have described this as a brave decision. Because it means that from now on, the GDP, the commitment to lower the debt to GDP ratio is aligned with the government's three year public spending plans.
And in our case, they have to be decided next, next year. This year's Red book implies that the government's plans for unprotected departments other than defence and health would face real term cuts, some 2.5%, in order to meet that target. If I was a Labour backbencher in the Commons, which I'm glad I'm not, that commitment might cause me a few uneasy nights of lost sleep. But the whole approach to policy remains. Augustinian were promising to be fiscally prudent, but just not quite yet. The committee were also generally concerned with the relentless yearly focus on whether the government have met the short term rules for so-called headroom, and not on the long term trends, which are more important in report after report.
The OBR has clearly set out the trajectory for debt. It's manifestly unsustainable. But no one seems to take any notice. The government is ignoring this. We were concerned there is a lack of attention as a committee to the annual Fiscal Risks and Sustainability report that the OBR produces. Parliamentary time should be set aside to discussing the government's response to this report. Now, perhaps one reason for its reluctant to do so is the increasingly meagre content of the response the Treasury provides. Richard Hughes, who was the chairman of the OBR before. Unfortunately, he had to resign, noted that the government's response in 2017 was 136 pages of argument.
The most recent was 19 pages, and it was in the form of a written statement to Parliament, which of course was never debated. That isn't good enough for such a serious matter. Our committee will do what it can to draw greater attention to the Fiscal Risks and sustainability report. We'll invite the OBR and ministers to give evidence to our committee each year following the public. Its publication. The long term health of our economy turns on governments grappling with the issues. The OBR repeatedly highlights. On the OBR more generally, we do welcome the change in tone of the rhetoric, which was previously unfairly targeted at.
In contrast to some claims, they don't police government policy, they are merely an impartial judge of the government's compliance with rules that it imposes on itself. The government is always free to disagree with the OBR assessment and make its policy accordingly if it wants to. We also welcome the Obr's approach to forecasting. Projection is not. Prediction and confusion on this point underlies misguided attacks on their work. We heard of the frustration of some at the OBR not scoring, the impact of tax cuts or public investment on their growth numbers. But if the government believes in the value of a policy, genuinely believes in it, it should implement it.
Whether or not the OBR chooses to score it and not to do so because of their approach to scoring, would be to reveal a concern with meeting a metric, rather than promoting the actual wellbeing of the economy. The government should be making. Policy on the basis of its confident view of the economic fundamentals, not on the basis of what it thinks will lead to a narrowly passing rules it has imposed on itself. And particularly, this is a focus on headroom and how specific decisions of the OBR affect the result of the headroom calculation are a product of narrow margins between 2010 and early 2022, headroom averaged about 30 billion, and one might worry that headroom in this October's budget now falling to 15 billion.
We are returning to a world in which OBR decisions about scoring will again be politicised. These decisions should be dry matters more suited to footnotes in documents than headline news. The amounts we are considering are in terms of public spending and borrowing. Rounding errors compared to the government's total tax and revenue spending. And although we accept that buffers are there to be used in tough times, these buffers should frankly be arguably a lot greater than they are. So sadly, the fundamentals of our fiscal position remain difficult. And nothing in the budget last week suggests any meaningful change in the country's long term debt dynamics.
Now I'm expressing a personal view here. But of course, fiscal sustainability is not just a matter of the scale of public spending and taxation. Personally, I want the government to throw everything it can at growth. And in my book, that must include rejoining the European single market. I want a simpler, radically reformed tax and welfare system that removes the multiple disincentives to work that we've ended up with. And I would like to see a much sharper focus on public sector efficiency, where the public sector trade unions recognise that the only sustainable route to higher wages lies through greater public sector productivity.
The fact is, the public finances are on an unsustainable path. And apart from the government's brave decision on the triple lock, which I applaud. It's unclear how we're going to address this situation. I don't know. The Prime Minister says he's in favour of radical reform of our politics and electoral system, to bring more consensus to our politics. Maybe that's a fundamental change we'll have to see. I beg to move here.
18:05
18:06
Speaker 11
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Speaker 11
My Lords, I welcome this report. I congratulate all those who prepared it. I think it is very perceptive and very timely. I agree that the current fiscal rules system set up by the previous conservative government and extended and modified by this government, cannot possibly achieve its main aim, which should be to control debt. Five year target or a three year target doesn't really make very much difference. Some people thought that was a welcoming tightening, but the underlying truth is year three or year five never comes , and there is no pressure on the government to make sure that they do meet it, because by the time they get to that year, it's no longer year three.
So it no longer has a biting target. So it is clearly absurd. And I also agree with the committee saying that the Obr's role has to be that of an independent forecaster, that the government should be able to talk to it, but it shouldn't be bound by it. But obviously a good government would wish to explain why it disagreed, or it should explain how it intends to handle debt and deficit. If it doesn't like the figures that are being produced in in 2010, when this family of targets first started after the crash and the explosion of of debt and expenditure over the period of the banking crash, public spending total managed expenditure was 7.60 billion.
And this year, according to the latest forecast, it's going to be 1449 billion. That is an increase of 90% over those years. I can't remember a year until we got to a Labour government when I wasn't told we were cutting public spending, but the spending is up 90% in cash terms. And the inflation check from the Bank of England says that there was 62% inflation over that time period. And so there was a fairly substantial real increase. And that occurred in most years. Now, there were individual programmes that got cut and some priorities could not be pursued.
But it is difficult to see that we've had a rigorous set of controls over either spending or borrowing. And if we look at where these targets came from and they're ultimately derived from our Maastricht targets, which we were meant to obey when we remember of the European Union, they had, you may remember, two treaty driven targets that we were to keep debt at 60% of GDP or lower. Every country bar one, I think, broke that, including the United Kingdom. And so it was transposed into saying that as you're over 60%, you should start getting your your debt down towards the 60% target, which got transformed into our fiscal rules after we left.
And there was the 3% running deficit ceiling, which again, has been often broken. It was broken by us in our period of membership. And this government has revised and tightened that by saying that there should still be a 3% deficit ceiling, but that should only be to allow 3% of GDP borrowing for capital purposes, and that the aim should be to have a current balance. And I think that's a good amendment to a target that doesn't work. So I think where one needs to go from here is to say, as the committee does, that we are close to running out of money and running out of the patients of the people who lend us money to carry on spending at the rate we are doing now that we've had three big spending increases over the last 20 years, we had a very big spending increase over the banking crash with a big increase in debt.
We had a very big spending increase over Covid and post-COVID. I don't think enough was done to control the spending coming out of the Covid exceptional expenditure, and the extra borrowing was complicated. With a massive programme of quantitative easing. And of course, we've now had a very substantial policy decision to go for more spending and more borrowing by the incoming government in 2024. I think we would be much better off if, on a cross-party basis, we could agree. Two overarching aims for the UK economy, based on one of our targets at the moment and based on some of the American experience, and I think we should have as our aims, 2% inflation, 2% growth, so that all policy and Bank of England considerations recognise there can be trade offs to.
And we should embed the 2% inflation target on the government as well as on. On the Bank of England, because public sector costs and inflation and public sector costs are one of the main forces of inflation at the moment, and I think it should be taken much more seriously by the public sector. In the brief time I've got. I'd just like to mention two expensive quirks in our figures that I have highlighted, and I would like other people to get interested in. I find them fascinating, and I think they might be of use to those conducting public policy.
And the first is that Rachel Reeves has made a decision which I and my party condemned as being anti-jobs and anti vacancies of increasing National Insurance. But the the curious thing about it was, of course, that the bulk of the National insurance revenue has to be paid into the National Insurance Fund, and that is now accumulating a surplus of 12 billion extra each year and has a surplus of 100 billion already. So I'm not quite sure why she wanted a bigger surplus in the fund. And that has to be lent back to the government at base rate.
And the second funny money is the dreadful situation with the ownership of bonds by the Bank of England. And the latest OBR figure says that the losses are going to come down a bit. They think that now, from 2022, when losses started to today until 2033, the losses are going to be 228 billion. Can't we get that down a bit? My Lords.
So it no longer has a biting target. So it is clearly absurd. And I also agree with the committee saying that the Obr's role has to be that of an independent forecaster, that the government should be able to talk to it, but it shouldn't be bound by it. But obviously a good government would wish to explain why it disagreed, or it should explain how it intends to handle debt and deficit. If it doesn't like the figures that are being produced in in 2010, when this family of targets first started after the crash and the explosion of of debt and expenditure over the period of the banking crash, public spending total managed expenditure was 7.60 billion.
And this year, according to the latest forecast, it's going to be 1449 billion. That is an increase of 90% over those years. I can't remember a year until we got to a Labour government when I wasn't told we were cutting public spending, but the spending is up 90% in cash terms. And the inflation check from the Bank of England says that there was 62% inflation over that time period. And so there was a fairly substantial real increase. And that occurred in most years. Now, there were individual programmes that got cut and some priorities could not be pursued.
But it is difficult to see that we've had a rigorous set of controls over either spending or borrowing. And if we look at where these targets came from and they're ultimately derived from our Maastricht targets, which we were meant to obey when we remember of the European Union, they had, you may remember, two treaty driven targets that we were to keep debt at 60% of GDP or lower. Every country bar one, I think, broke that, including the United Kingdom. And so it was transposed into saying that as you're over 60%, you should start getting your your debt down towards the 60% target, which got transformed into our fiscal rules after we left.
And there was the 3% running deficit ceiling, which again, has been often broken. It was broken by us in our period of membership. And this government has revised and tightened that by saying that there should still be a 3% deficit ceiling, but that should only be to allow 3% of GDP borrowing for capital purposes, and that the aim should be to have a current balance. And I think that's a good amendment to a target that doesn't work. So I think where one needs to go from here is to say, as the committee does, that we are close to running out of money and running out of the patients of the people who lend us money to carry on spending at the rate we are doing now that we've had three big spending increases over the last 20 years, we had a very big spending increase over the banking crash with a big increase in debt.
We had a very big spending increase over Covid and post-COVID. I don't think enough was done to control the spending coming out of the Covid exceptional expenditure, and the extra borrowing was complicated. With a massive programme of quantitative easing. And of course, we've now had a very substantial policy decision to go for more spending and more borrowing by the incoming government in 2024. I think we would be much better off if, on a cross-party basis, we could agree. Two overarching aims for the UK economy, based on one of our targets at the moment and based on some of the American experience, and I think we should have as our aims, 2% inflation, 2% growth, so that all policy and Bank of England considerations recognise there can be trade offs to.
And we should embed the 2% inflation target on the government as well as on. On the Bank of England, because public sector costs and inflation and public sector costs are one of the main forces of inflation at the moment, and I think it should be taken much more seriously by the public sector. In the brief time I've got. I'd just like to mention two expensive quirks in our figures that I have highlighted, and I would like other people to get interested in. I find them fascinating, and I think they might be of use to those conducting public policy.
And the first is that Rachel Reeves has made a decision which I and my party condemned as being anti-jobs and anti vacancies of increasing National Insurance. But the the curious thing about it was, of course, that the bulk of the National insurance revenue has to be paid into the National Insurance Fund, and that is now accumulating a surplus of 12 billion extra each year and has a surplus of 100 billion already. So I'm not quite sure why she wanted a bigger surplus in the fund. And that has to be lent back to the government at base rate.
And the second funny money is the dreadful situation with the ownership of bonds by the Bank of England. And the latest OBR figure says that the losses are going to come down a bit. They think that now, from 2022, when losses started to today until 2033, the losses are going to be 228 billion. Can't we get that down a bit? My Lords.
18:12
Speaker 13
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Speaker 13
I would like to thank the noble Lord, Lord Liberal, for his introductory remarks again to report which he didn't contribute to, I don't think, at the at the time that we wrote it, as he mentioned, I was a member of the committee during the investigation. I would also like to thank the Lord, Lord Wood of Anfield for joining the committee during that period and wish him well in his new tasks, of course, and it's a great pleasure to follow the noble Lord. Lord Redwood and I agree with much of what he has said today. I'm also going to first discuss the role and budget making, and secondly, whether the fiscal rules are really helping.
First, the question of the OBR. The OBR has been getting a tough press recently from some quarters about its role, and I regret this and have to declare an interest as a past chair of the Oversight Committee of the OBR. Releasing the forecast early last year was clearly an embarrassing mistake, and anyone who has been involved in forecasting knows that all forecasting is difficult, particularly when we have a background, as we have had, of unexpected military conflicts. However, the OBR basically does what it's asked to do in the legislation, which set it up at budget time.
It produces forecasts. It offers an independent view of the impact of various budget measures, and it provides an opinion on whether the government will meet its own rules separate from the budget. It also gives its opinion on whether the long term fiscal outlook is sustainable . On present policies, which has already been mentioned, there is nothing to stop the government producing its own forecasts in parallel, it can dispute the longer term effect of policy measures. It can also change the fiscal rules, as we've seen it often do in the in the past. And the suggestion that the OBR somehow dominates the construction of the budget is simply not correct.
It is the government that sets the rules, and it's the government which sets the procedures. For me, the OBR value has been its real contribution to impartiality and transparency. It's published much more analytical information than before. It's shown much more of the workings of how it's reached its conclusions. And in addition, it undertakes a regular evaluation of its forecasts, providing a public record to all, even when they might be embarrassing. At the same time, we must acknowledge that the 2010 fiscal framework has not been enough to prevent a huge increase in the government's debt since 2010.
As Lord Redwood has pointed out, the crucial question, of course, is how much responsibility lies with the OBR, how much? With the various crises over the past 18 years, and how much the specific rules and policies that successful governments have chosen to follow. It's not a you know, there's no time to get into this today, but I would like to touch on the issue of fiscal rules. The committee's report highlights some weaknesses in the rules. The pattern is for the Post-budget forecasts to show the debt ratio stabilising or increasing in the first year or two, followed by a decline in the later years.
However, this improvement often relies on optimistic public expenditure figures set by the government, and the projected decline of the debt ratio doesn't happen. The debt ratio has been stuck at the present level now for some years. Personally, I am not a fan of short term budget rules. The word rule seems to me inappropriate in a world where the likely margin of error around the forecasts is large relative to the fiscal buffer, we don't have an inflation rule. We have a target. Why do we have budget rules? Rules are very difficult to set when there's so much global uncertainty, and the changes that take place inevitably generate suspicion that they are being made to give governments more discretion and room for manoeuvre.
Of course, governments need a strategy for fiscal policy. The committee's report argues for a greater focus on reducing the debt ratio over time, rather than the endless debate about rules and fiscal buffers, and this can only be achieved by bringing down the balance of current spending and income closer to zero. The OBR forecasts published last week does show a decline in the deficit, but the question remains will this be achieved in practice? Once again, the forecast for government spending appears ambitious. Even if it is accurate, the debt ratio is likely to be higher in the final year of the forecast than it was last year.
We now look forward to the forthcoming ten year plan. It's going to be another stab at setting out a plan for the future. It is very crucial to me that this next step also includes a compelling pathway to financial sustainability. By reducing the debt ratio.
First, the question of the OBR. The OBR has been getting a tough press recently from some quarters about its role, and I regret this and have to declare an interest as a past chair of the Oversight Committee of the OBR. Releasing the forecast early last year was clearly an embarrassing mistake, and anyone who has been involved in forecasting knows that all forecasting is difficult, particularly when we have a background, as we have had, of unexpected military conflicts. However, the OBR basically does what it's asked to do in the legislation, which set it up at budget time.
It produces forecasts. It offers an independent view of the impact of various budget measures, and it provides an opinion on whether the government will meet its own rules separate from the budget. It also gives its opinion on whether the long term fiscal outlook is sustainable . On present policies, which has already been mentioned, there is nothing to stop the government producing its own forecasts in parallel, it can dispute the longer term effect of policy measures. It can also change the fiscal rules, as we've seen it often do in the in the past. And the suggestion that the OBR somehow dominates the construction of the budget is simply not correct.
It is the government that sets the rules, and it's the government which sets the procedures. For me, the OBR value has been its real contribution to impartiality and transparency. It's published much more analytical information than before. It's shown much more of the workings of how it's reached its conclusions. And in addition, it undertakes a regular evaluation of its forecasts, providing a public record to all, even when they might be embarrassing. At the same time, we must acknowledge that the 2010 fiscal framework has not been enough to prevent a huge increase in the government's debt since 2010.
As Lord Redwood has pointed out, the crucial question, of course, is how much responsibility lies with the OBR, how much? With the various crises over the past 18 years, and how much the specific rules and policies that successful governments have chosen to follow. It's not a you know, there's no time to get into this today, but I would like to touch on the issue of fiscal rules. The committee's report highlights some weaknesses in the rules. The pattern is for the Post-budget forecasts to show the debt ratio stabilising or increasing in the first year or two, followed by a decline in the later years.
However, this improvement often relies on optimistic public expenditure figures set by the government, and the projected decline of the debt ratio doesn't happen. The debt ratio has been stuck at the present level now for some years. Personally, I am not a fan of short term budget rules. The word rule seems to me inappropriate in a world where the likely margin of error around the forecasts is large relative to the fiscal buffer, we don't have an inflation rule. We have a target. Why do we have budget rules? Rules are very difficult to set when there's so much global uncertainty, and the changes that take place inevitably generate suspicion that they are being made to give governments more discretion and room for manoeuvre.
Of course, governments need a strategy for fiscal policy. The committee's report argues for a greater focus on reducing the debt ratio over time, rather than the endless debate about rules and fiscal buffers, and this can only be achieved by bringing down the balance of current spending and income closer to zero. The OBR forecasts published last week does show a decline in the deficit, but the question remains will this be achieved in practice? Once again, the forecast for government spending appears ambitious. Even if it is accurate, the debt ratio is likely to be higher in the final year of the forecast than it was last year.
We now look forward to the forthcoming ten year plan. It's going to be another stab at setting out a plan for the future. It is very crucial to me that this next step also includes a compelling pathway to financial sustainability. By reducing the debt ratio.
18:17
Speaker 11
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Speaker 11
My Lords, I'm grateful to my noble friend Lord Liddle for securing this debate, introducing it so cogently, and congratulate him on his appointment as chair of the committee. The committee's report on fortifying the fiscal framework could not be more timely or important today. On the day of the US midterm elections might be a good time to to remember that President Trump promised in 2016 to eliminate the US national debt. Then around $17 trillion in recent months, it broke through the $40 trillion level. Around 130% of GDP. If the US had a fiscal framework, we can be confident that President Trump, Trump and Secretary percent would pay little or no attention to it.
But even if there's been intermittent nervousness in the US Treasury market, arguably caused predominantly by other factors, the US continues to be able to finance itself on internationally competitive terms. So who needs a fiscal framework ? The US? Fortunately or unfortunately is not a representative model in the light, inter alia, of the dollar's dominant position as the world's reserve currency. But why do we attach so much importance to a stable fiscal framework? Yes, of course, it's vital in maintaining confidence, international and domestic, to ensure that whatever the national borrowing requirement is, the Exchequer pays the lowest possible interest rates.
But it is also a framework for promoting intergenerational fairness, which I acknowledge needs nuanced analysis, but is an important and relevant consideration nonetheless. One of the most striking parts of the report is contained in its final pages, in the form of appendix four. It shows over 20 changes in fiscal rules since the global financial crisis in 2008. The report correctly acknowledges that the rules should not be set in stone for many decades, but also argues that moving the goalposts this much and this often does not generally engender the very confidence that is the central purpose of the exercise.
I will. My Lords, I will not take much more time, as I wish unequivocally to endorse the report's conclusions and recommendations. The welcome reduction of the rolling forecast period from five years to three years could, as the report recommends, usefully be amended further to include the requirement that debt at the end of the third year should be lower than in the first. I hope the government will reflect on this beyond the initial dead bat it has played. I welcome the support given by the committee to the role and performance of the OBR, as well as the appointment of Jonathan Haskel as chair after, inter alia, his distinguished tenure on the Bank of England Monetary Policy Committee.
I also endorse the support given for the new cycle of two forecasts and one fiscal event each year. Whether or not the gap between the forecasts could be evened out to some extent. Finally, I was struck by the evidence given by the economist and journalist Ben Zaranko advocating a broader assessment of financial resilience than the numerical level of headroom. As my noble friend Lord Liddle also argued in his introduction, the fiscal framework should not be overly mechanical in its interpretation and analysis, but the symbol of the financial responsibility and discipline pursued by the government if it's not too frivolous.
I'm reminded for film buffs from the Pirates of the Caribbean, where the pirates code is argued not so much the code, but guidelines. The government has made a strong start in stabilising the country's fiscal position. I disagree with the noble Lord, Lord Redwood, that we are anywhere nearing the point of being unable to cover our financing needs, and this report can further strengthen that position.
But even if there's been intermittent nervousness in the US Treasury market, arguably caused predominantly by other factors, the US continues to be able to finance itself on internationally competitive terms. So who needs a fiscal framework ? The US? Fortunately or unfortunately is not a representative model in the light, inter alia, of the dollar's dominant position as the world's reserve currency. But why do we attach so much importance to a stable fiscal framework? Yes, of course, it's vital in maintaining confidence, international and domestic, to ensure that whatever the national borrowing requirement is, the Exchequer pays the lowest possible interest rates.
But it is also a framework for promoting intergenerational fairness, which I acknowledge needs nuanced analysis, but is an important and relevant consideration nonetheless. One of the most striking parts of the report is contained in its final pages, in the form of appendix four. It shows over 20 changes in fiscal rules since the global financial crisis in 2008. The report correctly acknowledges that the rules should not be set in stone for many decades, but also argues that moving the goalposts this much and this often does not generally engender the very confidence that is the central purpose of the exercise.
I will. My Lords, I will not take much more time, as I wish unequivocally to endorse the report's conclusions and recommendations. The welcome reduction of the rolling forecast period from five years to three years could, as the report recommends, usefully be amended further to include the requirement that debt at the end of the third year should be lower than in the first. I hope the government will reflect on this beyond the initial dead bat it has played. I welcome the support given by the committee to the role and performance of the OBR, as well as the appointment of Jonathan Haskel as chair after, inter alia, his distinguished tenure on the Bank of England Monetary Policy Committee.
I also endorse the support given for the new cycle of two forecasts and one fiscal event each year. Whether or not the gap between the forecasts could be evened out to some extent. Finally, I was struck by the evidence given by the economist and journalist Ben Zaranko advocating a broader assessment of financial resilience than the numerical level of headroom. As my noble friend Lord Liddle also argued in his introduction, the fiscal framework should not be overly mechanical in its interpretation and analysis, but the symbol of the financial responsibility and discipline pursued by the government if it's not too frivolous.
I'm reminded for film buffs from the Pirates of the Caribbean, where the pirates code is argued not so much the code, but guidelines. The government has made a strong start in stabilising the country's fiscal position. I disagree with the noble Lord, Lord Redwood, that we are anywhere nearing the point of being unable to cover our financing needs, and this report can further strengthen that position.
18:22
Speaker 17
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Speaker 17
My Lords, as a member of the committee which produced this report, I would like to also express my gratitude to Lord wood and to the committee staff, and also to thank Lord Liddle for his excellent chairman of the committee and his opening remarks. Thank you. I want to make four points. First, when our committee decided to undertake this inquiry, the OBR was experiencing unprecedented levels of publicity and criticism. You would have thought that they were directly responsible for the country's challenging and deeply worrying fiscal situation, rather than analysts and messengers. A year later, after another budget, this seems no longer true.
If there were widespread attacks this year, I miss them. And I think that this is because in the meantime, and in no small part because of the Obr's work, far more people are aware of our ever growing national debt and the state of our public finances. However, while this growing recognition in Westminster and the country is welcome, we are not actually doing anything very significant about them. To quote the executive summary of the Obr's own October report and classically somewhat bland language, the UK's economic and fiscal position remain very challenging. Weak growth and government borrowing have, they point out, resulted in a sharp increase in government debt, while debt interest spending is expected to grow yet again by billions of pounds.
Observers of the budget regularly point out how bizarre it is that so much time and so much national attention goes on. Whether or not the Chancellor of the Exchequer is using up her or his headroom, which is an amount which is a tiny proportion of total public expenditure. But the reason for this is that we are in fact, in hock to the bond markets and in an unnecessary situation where small changes in interest rates are a major daily concern for the government because of their impact on total debt interest. My Lords, it is perfectly possible to reduce the national debt.
In 1946, after the Second World War. The national debt reached 252% of GDP, and by 2006 it was down to 36%. As our committee has argued in this report and in its previous 2024 report on debt, we really have to act. Thirdly, I would like to underline the hugely valuable work done by the OBR in producing its fiscal risks and sustainability reports. As we said in our report, they get far too little attention. But if you want actually to understand what is going on with the public finances, they are an essential source and I commend them to everybody.
Fourth, there is a concrete change which this government and future governments could make and should make, and which, in my personal view, is the single most important recommendation in this report. Namely, the government should set out an additional debt target which will show cumulative performance over three years, such that in normal times, debt in the third year is lower than in the first year, and which is easily monitored and very clearly understood by the general public. This has not been recent experience. This October's Economic and Fiscal outlook predicts that public sector net debt in 2029, as a percentage of GDP will again be significantly higher than forecast just six months ago.
We are also hardly the only people to observe that current and recent fiscal rules all too often allow ample room for gaming for debt target. As a former member of the Budget Responsibility Committee confirmed to us as a witness, you can have debt rising forever and still meet most of the targets that the government governments have set for themselves and observe their rules. The committee criticised this situation in 2024 and nothing happened. We called for change in this report and the government's response was the government has been clear that the fiscal rules are non-negotiable. End of subject.
Well, the rules may be non-negotiable, but it is beyond time for them to change and to be discussed publicly and widely. We need a cross-party commitment for our fiscal framework to include a clear, easily monitored commitment to ongoing debt reduction and sooner rather than later.
If there were widespread attacks this year, I miss them. And I think that this is because in the meantime, and in no small part because of the Obr's work, far more people are aware of our ever growing national debt and the state of our public finances. However, while this growing recognition in Westminster and the country is welcome, we are not actually doing anything very significant about them. To quote the executive summary of the Obr's own October report and classically somewhat bland language, the UK's economic and fiscal position remain very challenging. Weak growth and government borrowing have, they point out, resulted in a sharp increase in government debt, while debt interest spending is expected to grow yet again by billions of pounds.
Observers of the budget regularly point out how bizarre it is that so much time and so much national attention goes on. Whether or not the Chancellor of the Exchequer is using up her or his headroom, which is an amount which is a tiny proportion of total public expenditure. But the reason for this is that we are in fact, in hock to the bond markets and in an unnecessary situation where small changes in interest rates are a major daily concern for the government because of their impact on total debt interest. My Lords, it is perfectly possible to reduce the national debt.
In 1946, after the Second World War. The national debt reached 252% of GDP, and by 2006 it was down to 36%. As our committee has argued in this report and in its previous 2024 report on debt, we really have to act. Thirdly, I would like to underline the hugely valuable work done by the OBR in producing its fiscal risks and sustainability reports. As we said in our report, they get far too little attention. But if you want actually to understand what is going on with the public finances, they are an essential source and I commend them to everybody.
Fourth, there is a concrete change which this government and future governments could make and should make, and which, in my personal view, is the single most important recommendation in this report. Namely, the government should set out an additional debt target which will show cumulative performance over three years, such that in normal times, debt in the third year is lower than in the first year, and which is easily monitored and very clearly understood by the general public. This has not been recent experience. This October's Economic and Fiscal outlook predicts that public sector net debt in 2029, as a percentage of GDP will again be significantly higher than forecast just six months ago.
We are also hardly the only people to observe that current and recent fiscal rules all too often allow ample room for gaming for debt target. As a former member of the Budget Responsibility Committee confirmed to us as a witness, you can have debt rising forever and still meet most of the targets that the government governments have set for themselves and observe their rules. The committee criticised this situation in 2024 and nothing happened. We called for change in this report and the government's response was the government has been clear that the fiscal rules are non-negotiable. End of subject.
Well, the rules may be non-negotiable, but it is beyond time for them to change and to be discussed publicly and widely. We need a cross-party commitment for our fiscal framework to include a clear, easily monitored commitment to ongoing debt reduction and sooner rather than later.
18:27
Speaker 18
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Speaker 18
My Lords, this is an extremely interesting subject and I thoroughly enjoyed the opening comments of the noble Lord Lord, without necessarily endorsing every single one of his points. Nevertheless, that's the way to start a good debate on this. I always find it difficult, a little difficult to suppress the feeling when we debate this subject, which we did in down in the chamber the other day as well, to suppress the feeling that we're tackling it from the wrong end. I'm told that total national debt is now either just about to pass, or has just passed the 3 trillion level.
That's a milestone 3 trillion, almost too big a number to write on a single piece of paper. And of course, that prospect holds out also the very, very expensive debt interest bill, which is coming in now, will be coming in for years to come. It should be falling, but it isn't. I think it was a the 18th century philosopher Adam Ferguson, who said that a nation that is burdened with a high debt and a higher debt is on the path to decline. He was a bit bit premature because he didn't quite work out that way in the succeeding century.
But that is, I think, the possibility that if we saddle ourselves with that kind of debt interest. Never mind about whether it's inhibiting growth or encouraging growth or even what it's doing to inflation, if that is one of the huge bills intruding on our national payments and government payments every year, which it is at the present, and getting bigger all the time, then we are in deep trouble. And to say that the budget, such as the one we've just had, is steady as she goes and hasn't worried the bond markets. That's not enough. We should.
That's to say steady as she goes. Where she's going is down, so it's steady as she sinks. That is what that is. What doing nothing or do nothing budget. And the one that fails to begin the path to halt this fantastic growth is doing. So there's no no opportunity, I think, for just ignoring the whole thing. Like the what's that movement in America? MMT is it modern monetary theory that says the whole thing is a is just a myth? That's not right. There are appalling prospects unless we get some sort of grip. And also, I think in the country as a whole, there is a sort of feeling that our full productive capacity is not being exploited, because we've got a lot of numbers that the economists have come up with a sort of new fiscal prism, rather than, as Keynes faced in the 1930s, and 40s about the need for a balanced budget, and pointed out that, in fact, if you departed from this, that prism, then there was possibilities of escape to higher living standards and a better balanced life for the citizens of this country.
Well, we're in the same position, sort of position now. And I, I was wondering why everyone was flocking to this play in the West End about Keynes's life. It's absolutely full impossible to get seats. And the answer is maybe they're looking for a new canes or canes would have to say in the face of this apparent imprisonment, which seems to bar us from breaking out and realising our full potential. My Lords, when it comes to saying, well, what do we do about it? There really are three broad sets of approaches that are worth considering three, three, three unburdening strategies.
The first is doing nothing very much, which is roughly what we are doing now, and hoping that inflation and growth, if any, will lift us out of debt through time. And we hope that the OBR or the nobody produce their two forecasts a year plus a single fiscal event, whatever that's meant to be, but not actually do anything in relation to affecting policy. The second strategy, which is related to it, is to talk about cuts. Yes, cuts and a new war on efficiency sort of language. We had in the last century under every government, from Ted Heath onwards, and promise to have a review next year.
I can't quite see the point of this review next year. We've been reviewing the possibilities on the efficiency side , and indeed of transferring her whole functions out of the public sector altogether. For 50 years now we've got my I've got filing cabinets full of suggestions and proposals worked out in enormous detail. There's no need for another review in the 1970s. We marshalled the 20 ablest brains we could in the nation to work out how they were going to manage waste and redefine objectives in every department, and they worked very hard. We chose them very carefully.
I have to say that after 18 months, every single one of them we brought into the government had left the government, and they left it because they found a complete wall of obstruction to everything they wanted to do. But we did it. We had a pamphlet, The new New Style of government it's called, which outlined this. It's already it's sitting there unused. My Lords, in the in my last 30s, I have to say this about transferring functions because that's the only way that it can be done. The only possible way for reducing the rate of growth of this colossal figure is through reducing functions, which will in turn reduce the numbers of civil servants, as we did from 800,000 to 500,000 in the 1970s and 80s and the functions of government, as we did on the industrial side.
The now has to be a list of new things I have in my hand. This list that anybody can put together for about 100 billion that could be taken off tomorrow morning. You don't need any reviews at all. It can be done. It can be done by a determined people. It can be done even with with parties in the House of Commons that disagree with everything. Some things can happen automatically. If anyone would like this list, I haven't got time to now. I can happily do so. So it's all around the corner. Reviews can wait for another day.
We can act now if we are serious about curbing this enormous growth of this enormous burden.
That's a milestone 3 trillion, almost too big a number to write on a single piece of paper. And of course, that prospect holds out also the very, very expensive debt interest bill, which is coming in now, will be coming in for years to come. It should be falling, but it isn't. I think it was a the 18th century philosopher Adam Ferguson, who said that a nation that is burdened with a high debt and a higher debt is on the path to decline. He was a bit bit premature because he didn't quite work out that way in the succeeding century.
But that is, I think, the possibility that if we saddle ourselves with that kind of debt interest. Never mind about whether it's inhibiting growth or encouraging growth or even what it's doing to inflation, if that is one of the huge bills intruding on our national payments and government payments every year, which it is at the present, and getting bigger all the time, then we are in deep trouble. And to say that the budget, such as the one we've just had, is steady as she goes and hasn't worried the bond markets. That's not enough. We should.
That's to say steady as she goes. Where she's going is down, so it's steady as she sinks. That is what that is. What doing nothing or do nothing budget. And the one that fails to begin the path to halt this fantastic growth is doing. So there's no no opportunity, I think, for just ignoring the whole thing. Like the what's that movement in America? MMT is it modern monetary theory that says the whole thing is a is just a myth? That's not right. There are appalling prospects unless we get some sort of grip. And also, I think in the country as a whole, there is a sort of feeling that our full productive capacity is not being exploited, because we've got a lot of numbers that the economists have come up with a sort of new fiscal prism, rather than, as Keynes faced in the 1930s, and 40s about the need for a balanced budget, and pointed out that, in fact, if you departed from this, that prism, then there was possibilities of escape to higher living standards and a better balanced life for the citizens of this country.
Well, we're in the same position, sort of position now. And I, I was wondering why everyone was flocking to this play in the West End about Keynes's life. It's absolutely full impossible to get seats. And the answer is maybe they're looking for a new canes or canes would have to say in the face of this apparent imprisonment, which seems to bar us from breaking out and realising our full potential. My Lords, when it comes to saying, well, what do we do about it? There really are three broad sets of approaches that are worth considering three, three, three unburdening strategies.
The first is doing nothing very much, which is roughly what we are doing now, and hoping that inflation and growth, if any, will lift us out of debt through time. And we hope that the OBR or the nobody produce their two forecasts a year plus a single fiscal event, whatever that's meant to be, but not actually do anything in relation to affecting policy. The second strategy, which is related to it, is to talk about cuts. Yes, cuts and a new war on efficiency sort of language. We had in the last century under every government, from Ted Heath onwards, and promise to have a review next year.
I can't quite see the point of this review next year. We've been reviewing the possibilities on the efficiency side , and indeed of transferring her whole functions out of the public sector altogether. For 50 years now we've got my I've got filing cabinets full of suggestions and proposals worked out in enormous detail. There's no need for another review in the 1970s. We marshalled the 20 ablest brains we could in the nation to work out how they were going to manage waste and redefine objectives in every department, and they worked very hard. We chose them very carefully.
I have to say that after 18 months, every single one of them we brought into the government had left the government, and they left it because they found a complete wall of obstruction to everything they wanted to do. But we did it. We had a pamphlet, The new New Style of government it's called, which outlined this. It's already it's sitting there unused. My Lords, in the in my last 30s, I have to say this about transferring functions because that's the only way that it can be done. The only possible way for reducing the rate of growth of this colossal figure is through reducing functions, which will in turn reduce the numbers of civil servants, as we did from 800,000 to 500,000 in the 1970s and 80s and the functions of government, as we did on the industrial side.
The now has to be a list of new things I have in my hand. This list that anybody can put together for about 100 billion that could be taken off tomorrow morning. You don't need any reviews at all. It can be done. It can be done by a determined people. It can be done even with with parties in the House of Commons that disagree with everything. Some things can happen automatically. If anyone would like this list, I haven't got time to now. I can happily do so. So it's all around the corner. Reviews can wait for another day.
We can act now if we are serious about curbing this enormous growth of this enormous burden.
18:34
Speaker 3
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Speaker 3
My Lords, fortifying the fiscal framework. The Economic Affairs Committee report this was done in April 2026 this year and summarizing it says the UK was on a path to unsustainable debt, and it's urging the government to introduce a rule to ensure debt falls in normal times and to commit to a larger fiscal buffer. The government's response is the rule strike an appropriate balance, and its fiscal buffer provides flexibility against future shocks. Surprise, surprise and I congratulate noble Lord, Lord Liddle. And I think Lord wood was the chair at the time and the members of the committee on their report.
And if you look at the fiscal headroom, this figure that was talked about £9.9 billion in March 2025, 21.7 billion in November, 2526, 23.6 billion in March 26th and 15,000,000,000 in 2930, according to the latest budget and the headroom. In context, the average buffer has been over £30 billion from 2010 until 2022, and the Obr's average forecast error is £54 billion, borrowing 4.4% of GDP in 2526, falling to 1.8% £1,818 billion higher this year than March's forecast, 65 billion over the period, and national debt is approaching 100% of GDP.
If you look at public sector and on the other measure, the Snfl, it's 83.2% debt. Interest is now £124 billion, £14 billion more than forecast in March, more than defence, policing and prisons combined. And it's forecast to go up to 147 billion by 2029 2030. And the tax burden is the highest on record at 38.5% of GDP. This is the highest since records began in 1948. And of course, the tax never ever matches. Spending. And spending is 44.3% of GDP in 2526. So there's this constant deficit and growth, of course, as we know, and this is surprising given the backdrop and the geopolitical situation and the challenges we're facing.
And the figures I've just quoted were still managing to grow at about 1% a year. So 1.2% this year, 1% next year, and cut from 1.6% because of the Iraq war and inflation, 2% target is now meant to peak at 3.8% in quarter one next year. And of course, gilt yields ten year gilts 5.32% on budget day, the highest in the G7, and 30 year gilts hit 6.04% on 7th October, the highest since January 1998. Greece borrows at a cheaper rate than we do as a country and the long term projection, I mean, this is the scary figure.
Debt is heading for 300% of GDP by 2070 576 on an unchanged policy. And that rule churn. There have been nine sets of rules since 2008, 28 since 1997, and the average rule since 2010 lasted just 1.8 years. My Lords, we're borrowing is concerned. We're scared about this 100% figure. And we should be, to put it into context, at the end of the Second World War, our borrowing was 250% of GDP. After a six year, brutal, horrible war, it reached 250%. It took from 1945 until 1963 to get it down to 100%. And then in the Gordon Brown years, it came down to 40%.
And now we're climbing back up to 100%. So the question for this committee is the fiscal rules and the office for Budget Responsibility. Now, we've done two major things in the in recent memory. One was the independence of the Bank of England, brought in by Gordon Brown, which I think most people would agree. Having an independent central bank is a good thing and is trusted by businesses trusted by the market. And the other thing was the Office of Budget Responsibility, which has been brought in, and is this Office of Budget Responsibility doing a good job?
Is it forecasting well enough and are the . The £54 billion of average forecast error is quite a frightening thing. But of course, the budget responsibility has had a pretty tricky time. For example, leaking its report before Rachel Reeves was at the despatch box, leading to a huge embarrassment, the resignation of its director and a new director coming in. So is the Office of Budget Responsibility a referee or is it a policeman? Is it a watchdog? Is it to be trusted? And I think on balance, we're all going to conclude that, yes, it should be there, but is it doing enough when it comes to dynamic scoring?
It was agreed that this probably wouldn't work. And the ownership of the budget responsibility independence is there to stay. So may I just conclude with this. Viscount Chandos spoke about US debt being 130% of GDP, $40 trillion. Their debt interest is higher than their defence, and the defence spending is almost $1 trillion, the highest in the world. And of course, it's got the dollar's reserve currency. Well, just the the bottom line is this when Liz Truss and Kwasi Kwarteng, in their budget on in 2022. 45 billion of tax cuts paid by extra borrowing with no OBR forecast led to disaster, with the bond markets absolutely reacting.
And James Carville, Bill Clinton's adviser in 1993, said I used to think if I were reincarnated, I would come back as a president or the pope or a 400 baseball batter. But now I want to come back as the bond market. You can intimidate everyone. It's good that we have the OBR. It's good that we have that independence and we must, must, must bring down taxes, bring down welfare spending, bring down borrowing, then generate growth that will generate the jobs that will pay for our public services.
And if you look at the fiscal headroom, this figure that was talked about £9.9 billion in March 2025, 21.7 billion in November, 2526, 23.6 billion in March 26th and 15,000,000,000 in 2930, according to the latest budget and the headroom. In context, the average buffer has been over £30 billion from 2010 until 2022, and the Obr's average forecast error is £54 billion, borrowing 4.4% of GDP in 2526, falling to 1.8% £1,818 billion higher this year than March's forecast, 65 billion over the period, and national debt is approaching 100% of GDP.
If you look at public sector and on the other measure, the Snfl, it's 83.2% debt. Interest is now £124 billion, £14 billion more than forecast in March, more than defence, policing and prisons combined. And it's forecast to go up to 147 billion by 2029 2030. And the tax burden is the highest on record at 38.5% of GDP. This is the highest since records began in 1948. And of course, the tax never ever matches. Spending. And spending is 44.3% of GDP in 2526. So there's this constant deficit and growth, of course, as we know, and this is surprising given the backdrop and the geopolitical situation and the challenges we're facing.
And the figures I've just quoted were still managing to grow at about 1% a year. So 1.2% this year, 1% next year, and cut from 1.6% because of the Iraq war and inflation, 2% target is now meant to peak at 3.8% in quarter one next year. And of course, gilt yields ten year gilts 5.32% on budget day, the highest in the G7, and 30 year gilts hit 6.04% on 7th October, the highest since January 1998. Greece borrows at a cheaper rate than we do as a country and the long term projection, I mean, this is the scary figure.
Debt is heading for 300% of GDP by 2070 576 on an unchanged policy. And that rule churn. There have been nine sets of rules since 2008, 28 since 1997, and the average rule since 2010 lasted just 1.8 years. My Lords, we're borrowing is concerned. We're scared about this 100% figure. And we should be, to put it into context, at the end of the Second World War, our borrowing was 250% of GDP. After a six year, brutal, horrible war, it reached 250%. It took from 1945 until 1963 to get it down to 100%. And then in the Gordon Brown years, it came down to 40%.
And now we're climbing back up to 100%. So the question for this committee is the fiscal rules and the office for Budget Responsibility. Now, we've done two major things in the in recent memory. One was the independence of the Bank of England, brought in by Gordon Brown, which I think most people would agree. Having an independent central bank is a good thing and is trusted by businesses trusted by the market. And the other thing was the Office of Budget Responsibility, which has been brought in, and is this Office of Budget Responsibility doing a good job?
Is it forecasting well enough and are the . The £54 billion of average forecast error is quite a frightening thing. But of course, the budget responsibility has had a pretty tricky time. For example, leaking its report before Rachel Reeves was at the despatch box, leading to a huge embarrassment, the resignation of its director and a new director coming in. So is the Office of Budget Responsibility a referee or is it a policeman? Is it a watchdog? Is it to be trusted? And I think on balance, we're all going to conclude that, yes, it should be there, but is it doing enough when it comes to dynamic scoring?
It was agreed that this probably wouldn't work. And the ownership of the budget responsibility independence is there to stay. So may I just conclude with this. Viscount Chandos spoke about US debt being 130% of GDP, $40 trillion. Their debt interest is higher than their defence, and the defence spending is almost $1 trillion, the highest in the world. And of course, it's got the dollar's reserve currency. Well, just the the bottom line is this when Liz Truss and Kwasi Kwarteng, in their budget on in 2022. 45 billion of tax cuts paid by extra borrowing with no OBR forecast led to disaster, with the bond markets absolutely reacting.
And James Carville, Bill Clinton's adviser in 1993, said I used to think if I were reincarnated, I would come back as a president or the pope or a 400 baseball batter. But now I want to come back as the bond market. You can intimidate everyone. It's good that we have the OBR. It's good that we have that independence and we must, must, must bring down taxes, bring down welfare spending, bring down borrowing, then generate growth that will generate the jobs that will pay for our public services.
18:40
18:40
18:40
Speaker 2
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Speaker 2
To congratulate the noble Lords. Little and would I and the Committee on a persuasive and thoughtful report. I must confess to having a love hate relationship with fiscal rules. Love, because I'm all in favor of fiscal rectitude. Hate. Because whatever rule is put in place, it is steadily subverted as governments become fixated at hitting the target while missing the point. Arguably, I'm the author of my own misfortune since I was Permanent Secretary of the Treasury. Treasury when five of the ten fiscal rule regimes so expertly catalogued by the committee were put in place. I recognize and share all the committee's criticisms of the rules, and last week's budget provides further proof of its analysis.
Borrowing and debt is higher in every year of the forecast compared to last year's budget, but nevertheless, the government meets the rules with broadly the same headroom. That is counterintuitive. I should be clear that that is not a criticism of the macro judgment of the Chancellor's budget. I thought that judgment was broadly correct, and I welcome the reception it has been given by the gilt market. I also welcome the strengthening of the framework in 2024. But the challenge of fiscal policy, as Lord little pointed out, is that spending and revenue levels are huge and subject to substantial forecasting error.
Left to my own devices, I would set a fiscal target of balancing the budget, or at least the current budget, year by year. But such a target would not lend itself to the current fiscal rules framework, which, without having a very large cushion. Indeed, fiscal targets therefore have to be set over the medium term. That means they have to be rolled forward year by year, and that provides endless scope for gaming, as just about everybody has pointed out. No doubt the rules can be further improved and the committee makes some good suggestions. But as I told successive chancellors, don't get mesmerised by the rules.
Meeting them on their own does not give you credibility, rather, focus on the substance. If you have a credible plan underpinned by credible tax and spending policies, the markets will reward you at the weekend. I ignored the noble Lord Heffer's advice and read The Last Prime Minister, but his book, Bank job, in which she argues that the OBR should be abolished. It's always important to expose yourself to different views and actually it is worth a read. It's only. It's quite short. But sadly I wasn't persuaded. The committee is right, in my view, to praise the role of the office for Budget Responsibility.
It's not the obr's fault if governments feel constrained. That is the inevitable consequence of sailing too close to the wind. The OBR will never get its forecast right. That is because no forecaster gets forecast right over and over again. But at least their forecasts are unbiased. Unlike the Treasury's of old. One of the many things I learned there is when governments assumed they had increased the trend rate of growth in the economy, they were invariably deluding themselves. Between 1945 and 2008, the British economy generally grew by 2.25% a year. Since then, it has grown much more slowly.
The Obr's latest forecast reflects that. Maybe it assumes the economy will grow too slowly, but it should attach a high bar to raising its view of the trend. Growth in productivity. As the committee advises, it should also attach a high bar to the dynamic scoring of policy measures. In my experience, it takes many years, even decades, for any structural reform to feed through to economic growth. I worry that chancellors and officials of late spend too much time trying to suppress the OBR to accept their views of the dynamic effects of policy changes. Again, they would be better advised to focus on the substance.
If the policies have a dynamic effect, they should regard that as a bonus. Finally, I'd like to endorse the committee's desire to upgrade the status of the Obr's Fiscal Risks and Sustainability report. You didn't have to be a genius to spot the demographic time bomb was finally exploded. Exploded. Indeed, I can remember working with in the Fila reviews in the 1980s, which were predicated on this demographic time bomb, but to set out its fiscal consequences so lucidly provides a service to a media and political class who have an uncanny knack of ignoring it. Anything Parliament can do to give it a higher profile should be warmly welcomed.
Borrowing and debt is higher in every year of the forecast compared to last year's budget, but nevertheless, the government meets the rules with broadly the same headroom. That is counterintuitive. I should be clear that that is not a criticism of the macro judgment of the Chancellor's budget. I thought that judgment was broadly correct, and I welcome the reception it has been given by the gilt market. I also welcome the strengthening of the framework in 2024. But the challenge of fiscal policy, as Lord little pointed out, is that spending and revenue levels are huge and subject to substantial forecasting error.
Left to my own devices, I would set a fiscal target of balancing the budget, or at least the current budget, year by year. But such a target would not lend itself to the current fiscal rules framework, which, without having a very large cushion. Indeed, fiscal targets therefore have to be set over the medium term. That means they have to be rolled forward year by year, and that provides endless scope for gaming, as just about everybody has pointed out. No doubt the rules can be further improved and the committee makes some good suggestions. But as I told successive chancellors, don't get mesmerised by the rules.
Meeting them on their own does not give you credibility, rather, focus on the substance. If you have a credible plan underpinned by credible tax and spending policies, the markets will reward you at the weekend. I ignored the noble Lord Heffer's advice and read The Last Prime Minister, but his book, Bank job, in which she argues that the OBR should be abolished. It's always important to expose yourself to different views and actually it is worth a read. It's only. It's quite short. But sadly I wasn't persuaded. The committee is right, in my view, to praise the role of the office for Budget Responsibility.
It's not the obr's fault if governments feel constrained. That is the inevitable consequence of sailing too close to the wind. The OBR will never get its forecast right. That is because no forecaster gets forecast right over and over again. But at least their forecasts are unbiased. Unlike the Treasury's of old. One of the many things I learned there is when governments assumed they had increased the trend rate of growth in the economy, they were invariably deluding themselves. Between 1945 and 2008, the British economy generally grew by 2.25% a year. Since then, it has grown much more slowly.
The Obr's latest forecast reflects that. Maybe it assumes the economy will grow too slowly, but it should attach a high bar to raising its view of the trend. Growth in productivity. As the committee advises, it should also attach a high bar to the dynamic scoring of policy measures. In my experience, it takes many years, even decades, for any structural reform to feed through to economic growth. I worry that chancellors and officials of late spend too much time trying to suppress the OBR to accept their views of the dynamic effects of policy changes. Again, they would be better advised to focus on the substance.
If the policies have a dynamic effect, they should regard that as a bonus. Finally, I'd like to endorse the committee's desire to upgrade the status of the Obr's Fiscal Risks and Sustainability report. You didn't have to be a genius to spot the demographic time bomb was finally exploded. Exploded. Indeed, I can remember working with in the Fila reviews in the 1980s, which were predicated on this demographic time bomb, but to set out its fiscal consequences so lucidly provides a service to a media and political class who have an uncanny knack of ignoring it. Anything Parliament can do to give it a higher profile should be warmly welcomed.
18:46
18:46
18:46
18:46
18:46
18:46
18:46
Speaker 2
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Speaker 2
Fiscal rules have focused mechanically on selected macroeconomic issues, but they have not been accompanied by social objectives such as targets or reduction in poverty or NHS waiting lists. The rules are suspended to support corporate welfare but not for human welfare. There were suspended after the 2007 and eight crash to save banks from their own follies, but are not suspended to save lives. Around 300,000 people a year die in England whilst waiting for a hospital appointment in 1948, when the NHS was launched, the government debt was 270% of
18:47
Speaker 11
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Speaker 11
In 1948, when the NHS was launched, the government debt was 270% of GDP. I can't recall our parents lamenting that the resources enable the entrepreneurial state to invest in infrastructure, biotechnology, information technology, aerospace and promote economic prosperity, which help the private sector to grow. By 1979, the debt declined to 42% and later on 36% by 2007. Now we have a phobia about debt being 94% of GDP. I guess the key question is what exactly is it used for? The constraints on government borrowing have forced privatisation of vital services and increased government costs. Public borrowing through the PFI has been undertaken to keep .
Within the fiscal rules. Every £1 of private investment has resulted in £6 of repayment from the public purse. Fiscal rules have reduced economic levers available to the state. It cannot easily nationalise water, as that would violate fiscal rules for the same reasons it can't nationalise energy and end profiteering, even though that is fuelling poverty. It cannot get rid of potholed roads, even though they impose extra costs on households and businesses. Because of the fiscal rules, elected governments cannot promise affordable housing, energy, safe roads and timely health care. Faith in democracy is the inevitable loss of fiscal rules.
Swathes of the NHS have been privatised because governments choose to follow the fiscal rules. Private sector makes whopping profits from it. Cataract surgery contracts handed by the NHS have profit margins of 32% to 43%, leaving less for frontline services. The committee's report seeks reduction in public debt, but it does not discuss the resulting social consequences. Just some examples. What would happen to social cohesion and businesses if, say, tomorrow or next year or next decade? £500 billion were to be removed from the economy? What would . How would savers get a risk free rate of return? What banks and building societies be forced to hold risky portfolios?
What might be the consequences? Would pound sterling still be regarded as a global premiere currency? For the last 30 years, the UK has been at or near the bottom of the OECD League for investment in productive assets. This has coincided with the rise of blunt fiscal rules which constrain public investment. The entrepreneurial state has been restructured as a guarantor of corporate profits. The private sector has not delivered the required investment. Public and private investment work best in tandem. But the fiscal rules have disabled that partnership. The report could have examined the fiscal rules through the lens of modern monetary theory, but it does not do so.
It could have asked questions about the composition of public debt, but it does not do so. So I have two questions for the Minister about the composition of this public debt. Firstly, why is the balance of the Bank of England's asset Purchase Facility included in the government's debt? The Treasury indemnifies the bank's losses. But the bank is solvent and it cannot go bankrupt. It can even create money as the 895 billion quantitative easing experience shows. In short, is the public debt grossly overstated? Second question why is the Bank of England paying interest on central bank reserves?
This is part of the Treasury's debt servicing cost. Over 100 billion has been paid in the last three years. The European Central Bank has adopted a tiered approach to managing the reserves, and has drastically reduced such payments. Under what circumstances would the Treasury do the same? I have asked these questions a number of times, but I've never received an answer to. To these questions, but I'm feeling lucky today and I'm sure Minister will add to that.
Within the fiscal rules. Every £1 of private investment has resulted in £6 of repayment from the public purse. Fiscal rules have reduced economic levers available to the state. It cannot easily nationalise water, as that would violate fiscal rules for the same reasons it can't nationalise energy and end profiteering, even though that is fuelling poverty. It cannot get rid of potholed roads, even though they impose extra costs on households and businesses. Because of the fiscal rules, elected governments cannot promise affordable housing, energy, safe roads and timely health care. Faith in democracy is the inevitable loss of fiscal rules.
Swathes of the NHS have been privatised because governments choose to follow the fiscal rules. Private sector makes whopping profits from it. Cataract surgery contracts handed by the NHS have profit margins of 32% to 43%, leaving less for frontline services. The committee's report seeks reduction in public debt, but it does not discuss the resulting social consequences. Just some examples. What would happen to social cohesion and businesses if, say, tomorrow or next year or next decade? £500 billion were to be removed from the economy? What would . How would savers get a risk free rate of return? What banks and building societies be forced to hold risky portfolios?
What might be the consequences? Would pound sterling still be regarded as a global premiere currency? For the last 30 years, the UK has been at or near the bottom of the OECD League for investment in productive assets. This has coincided with the rise of blunt fiscal rules which constrain public investment. The entrepreneurial state has been restructured as a guarantor of corporate profits. The private sector has not delivered the required investment. Public and private investment work best in tandem. But the fiscal rules have disabled that partnership. The report could have examined the fiscal rules through the lens of modern monetary theory, but it does not do so.
It could have asked questions about the composition of public debt, but it does not do so. So I have two questions for the Minister about the composition of this public debt. Firstly, why is the balance of the Bank of England's asset Purchase Facility included in the government's debt? The Treasury indemnifies the bank's losses. But the bank is solvent and it cannot go bankrupt. It can even create money as the 895 billion quantitative easing experience shows. In short, is the public debt grossly overstated? Second question why is the Bank of England paying interest on central bank reserves?
This is part of the Treasury's debt servicing cost. Over 100 billion has been paid in the last three years. The European Central Bank has adopted a tiered approach to managing the reserves, and has drastically reduced such payments. Under what circumstances would the Treasury do the same? I have asked these questions a number of times, but I've never received an answer to. To these questions, but I'm feeling lucky today and I'm sure Minister will add to that.
18:52
Speaker 7
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Speaker 7
My Lords, it was a pleasure and a privilege to have sat on the Economic Affairs Committee to interrogate the effectiveness of our fiscal rules under the astute chairmanship of Lord Wood of Anfield. And just a year before this report we. The Committee had, before our brutal reputation, conducted an inquiry into the sustainability of our national debt, entitled, somewhat fancifully, National Debt. It's time for tough decisions. Since when? My Lords, I regret to say, there has been an almost complete absence of tough decisions on the fiscal front, and Chancellor Healey's muted budget was, I'm afraid, yet another example of procrastination.
Back ending a whole host of decisions on spending in the next 3 to 4 years, which history shows are never or very rarely fulfilled. Now, my Lords, we have a new term breathing space, a period in which we'll do as little as possible to address our addiction to borrowing in a low growth economy, but keep just within the fiscal rules. And therein lies the problem with our fiscal architecture. It allows for rolling forecasts, targets three years out. Admittedly an improvement on the pre-existing five year rule, but it ignores the cumulative impact of our deficit financing and thus allows our debt to grow and grow.
And our track record on debt is deeply disturbing. Having breached £3 trillion, as we just heard, it has tripled in size over the past 15 years. In spite of, or perhaps because of our fiscal architecture. And the committee's report also points out, quite correctly, that there's an excessive focus on short term rule compliance and insufficient attention paid to longer term trends. As the obr's much maligned long term forecast of debt approaching 270% of GDP by the middle of the 2070s has highlighted. I have sympathy for the OBR, particularly after last year's pitch rolling and kite flying exercises by the Treasury.
But the truth is that when chancellors operate with such little headroom now down to £15 billion, their margin for error is tiny. When taking the difference between around 1.5 trillion of both tax and spending by the end of the forecast period. My Lords, my background is private, not public sector. Firstly, as an entrepreneur seeking to raise debt and to attract investment, and lastly, on the other side of the table, as an investor seeking to lend and invest in start ups and scale ups, the debt and equity financing that goes into loss making companies is judged on their ability to grow revenues at a faster pace than costs, and ultimately to generate profits on a sustainable basis.
And as investors, we pay special attention to what we call fantasy hockey sticks resulting from excessive optimism. I was reminded of that when reading the Obr's latest economic and fiscal outlook. And the OBR does have a history of bias. It's a history of optimism bias, both in terms of budget deficits and borrowing requirements. Now the OBR is projecting that borrowing will fall from last year's 134 billion to 133 billion in FY 27. This year, it will then apparently fall steadily over the next four years, down to 67 billion in FY 31. An inverted hockey stick, if you like, but no more credible.
And that's assuming the government makes unspecified but substantial real cuts in spending, which likened to fiction by the former chair of the OBR during our national debt inquiry. Remember, these cuts have to be achieved despite the five D headwinds. And to remind you, that's demography, ageing society dependency, soaring benefits bill, defence programme to increase by 40% over the next 8 to 9 years. Decarbonisation and the fifth D, which has now become the most menacing of all debt as in debt interest, which has grown from 40 billion to 120 billion this year. And Will warns the OBR, quote, structurally settle at between 160 to 190 billion in the 2030s.
So my rule is if our national economy was treated as a private company, not a sovereign entity, the bond markets would not just be charging us a premium for lending, they would very likely pull up the drawbridge altogether, as there is no credible plan to get us back into surplus. The hope is that AI will positively impact productivity. That's a hope and it's not a strategy. I do agree that rules have their place, and they provide us with guardrails that say that we can show the bond markets some level of fiscal discipline that enables us to go on borrowing and piling up national debt, but ultimately, we can only reduce the debt, let alone our servicing costs, by delivering real GDP growth per capita over a sustained period.
But that cannot happen if you keep increasing borrowing, as well as raising the tax burden to ever higher percentage percentages of GDP. My Lord, fiscal rules without economic growth are to an extent a sticking plasters that enable us to go on tapping the bond markets for finance as we continue to generate huge budget deficits.
Back ending a whole host of decisions on spending in the next 3 to 4 years, which history shows are never or very rarely fulfilled. Now, my Lords, we have a new term breathing space, a period in which we'll do as little as possible to address our addiction to borrowing in a low growth economy, but keep just within the fiscal rules. And therein lies the problem with our fiscal architecture. It allows for rolling forecasts, targets three years out. Admittedly an improvement on the pre-existing five year rule, but it ignores the cumulative impact of our deficit financing and thus allows our debt to grow and grow.
And our track record on debt is deeply disturbing. Having breached £3 trillion, as we just heard, it has tripled in size over the past 15 years. In spite of, or perhaps because of our fiscal architecture. And the committee's report also points out, quite correctly, that there's an excessive focus on short term rule compliance and insufficient attention paid to longer term trends. As the obr's much maligned long term forecast of debt approaching 270% of GDP by the middle of the 2070s has highlighted. I have sympathy for the OBR, particularly after last year's pitch rolling and kite flying exercises by the Treasury.
But the truth is that when chancellors operate with such little headroom now down to £15 billion, their margin for error is tiny. When taking the difference between around 1.5 trillion of both tax and spending by the end of the forecast period. My Lords, my background is private, not public sector. Firstly, as an entrepreneur seeking to raise debt and to attract investment, and lastly, on the other side of the table, as an investor seeking to lend and invest in start ups and scale ups, the debt and equity financing that goes into loss making companies is judged on their ability to grow revenues at a faster pace than costs, and ultimately to generate profits on a sustainable basis.
And as investors, we pay special attention to what we call fantasy hockey sticks resulting from excessive optimism. I was reminded of that when reading the Obr's latest economic and fiscal outlook. And the OBR does have a history of bias. It's a history of optimism bias, both in terms of budget deficits and borrowing requirements. Now the OBR is projecting that borrowing will fall from last year's 134 billion to 133 billion in FY 27. This year, it will then apparently fall steadily over the next four years, down to 67 billion in FY 31. An inverted hockey stick, if you like, but no more credible.
And that's assuming the government makes unspecified but substantial real cuts in spending, which likened to fiction by the former chair of the OBR during our national debt inquiry. Remember, these cuts have to be achieved despite the five D headwinds. And to remind you, that's demography, ageing society dependency, soaring benefits bill, defence programme to increase by 40% over the next 8 to 9 years. Decarbonisation and the fifth D, which has now become the most menacing of all debt as in debt interest, which has grown from 40 billion to 120 billion this year. And Will warns the OBR, quote, structurally settle at between 160 to 190 billion in the 2030s.
So my rule is if our national economy was treated as a private company, not a sovereign entity, the bond markets would not just be charging us a premium for lending, they would very likely pull up the drawbridge altogether, as there is no credible plan to get us back into surplus. The hope is that AI will positively impact productivity. That's a hope and it's not a strategy. I do agree that rules have their place, and they provide us with guardrails that say that we can show the bond markets some level of fiscal discipline that enables us to go on borrowing and piling up national debt, but ultimately, we can only reduce the debt, let alone our servicing costs, by delivering real GDP growth per capita over a sustained period.
But that cannot happen if you keep increasing borrowing, as well as raising the tax burden to ever higher percentage percentages of GDP. My Lord, fiscal rules without economic growth are to an extent a sticking plasters that enable us to go on tapping the bond markets for finance as we continue to generate huge budget deficits.
18:58
Speaker 8
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Speaker 8
My Lords, I think without conceit, as a member of the committee, I believe this is an important and timely report. At its heart lies a fundamental question . Is the UK's current fiscal framework sufficiently robust to ensure the long term sustainability of our public finances? The committee's conclusion is concerning. It warns that the UK is on a path towards unsustainable levels of public debt, that the existing fiscal rules, despite successive successive revisions, do not provide sufficient assurance that debt will fall over the long term. I believe that the report deserves serious consideration, because fiscal credibility is not simply about meeting targets in an individual budget.
The answer, I believe, to Lord seeker's comments is that fiscal credibility is about establishing confidence that the government can. The government can maintain public finances responsibly, withstand economic shocks, and protect future generations from an excessive tax burden. Now, first, let me address the effectiveness of the current fiscal rules. The committee identifies a significant weakness. As people have said in the existing framework. Under the current arrangements, the government is required to demonstrate that debt is falling as a proportion of GDP by the third year of rolling forecast. However, this does not necessarily mean that debt is falling over the longer term.
Indeed, the committee highlights the government could technically meet its fiscal targets. While the overall level of debt continues to increase. This raises an important question about the credibility and effectiveness of fiscal rules. Rules should not simply be designed to demonstrate compliance at a particular point of time. They should ensure that public debt is placed on a genuinely sustainable downward trajectory. The committee therefore recommends, as people have indicated, an additional debt target requiring debt in the third year of the forecast period to be lower than in the first year. And I support the principle behind this recommendation.
Fiscal rules must focus on the underlying direction of public finances, rather than short term improvements that may prove temporary. Secondly, the report raises important concerns about fiscal headroom. The government's relatively small fiscal buffer buffer leaves limited room for manoeuvre when economic forecasts change or unexpected pressures emerge. We know that economic forecasts are inherently uncertain, and when the fiscal buffer is too small, even relatively modest changes in economic conditions can force difficult decisions about taxation and public spending, and the government obviously has not helped in the recent budget by lowering the estimated fiscal buffer from 25 billion before the budget to 15 billion.
The committee, therefore, recommends that the government commit to maintaining a substantially larger fiscal buffer, reflecting the unavoidable uncertainties in economic forecasting, and I support that recommendation. In addition, I don't think anyone has really touched on this. Fiscal headroom should not be treated as money available for immediate spending commitments. It should provide genuine protection against economic shocks and unforeseen circumstances. Thirdly, I'd like to highlight the importance of stability and credibility in fiscal policy. One of the report's central concerns is the repeated modification of fiscal rules by successive governments. Frequent changes risk undermining confidence among investors, financial markets and the wider public.
A credible fiscal framework must provide predictability. Businesses need confidence when making long term investment decisions, while international investors need insurance assurance that the UK remains committed to responsible economic management. No doubt Liz Truss talked about that in her book. This does not mean fiscal rules should never change. Economic circumstances evolve and governments must retain the flexibility to respond. However, changes should be carefully considered, evidence based and subject to meaningful consultation. The committee is right to argue that further changes should follow a comprehensive consultation process, rather than being driven by short term political considerations. Now, a number of Lords have touched on the role of the Office of Budget Responsibility.
The OBR provides independent economic and fiscal forecasts and assesses the government's performance against its fiscal rules. Its independence is. Its independence is absolutely essential to maintaining transparency and accountability. The committee rightly supports retaining responsibility for economic and fiscal forecasts with the OBR. It also recommends maintaining two forecasts each year, while adjusting the timing of the spring forecast to create a more balanced interval between forecasting exercises. I particularly welcome the emphasis on strengthening corporate co-operation between the Treasury and the OBR while preserving the latter's independence. Independent scrutiny should not be seen as an obstacle to government policy.
Rather, it should help ensure that policy decisions are informed by realistic economic assessments. Finally, we must consider the wider implications for economic growth. The UK's public finances face considerable long term pressures, including an ageing population, rising demands on public services, defence commitments and the transition towards net zero. At the same time, weak productivity growth and the burden of debt interest payments constrain the government's ability to invest in the economy. We must therefore strike the right balance between fiscal discipline and productive investment. A strong fiscal framework should not simply focus on reducing borrowing. It should also support sustainable economic growth, encourage investment and ensure that future generations are not left with an unsustainable debt burden.
My Lords, the government has responded to the committee's recommendations by defending its existing rules and arguing that its reforms provide an appropriate balance between fiscal discipline and flexibility. I would argue that the government should remain open to the committee's proposals, particularly on debt reduction and maintaining a large fiscal Boro buffer. To conclude, the central message of the report is straightforward fiscal responsibility must be measured not simply by whether a government meets its targets today, but whether it leaves the country's public finances stronger and more sustainable tomorrow.
The answer, I believe, to Lord seeker's comments is that fiscal credibility is about establishing confidence that the government can. The government can maintain public finances responsibly, withstand economic shocks, and protect future generations from an excessive tax burden. Now, first, let me address the effectiveness of the current fiscal rules. The committee identifies a significant weakness. As people have said in the existing framework. Under the current arrangements, the government is required to demonstrate that debt is falling as a proportion of GDP by the third year of rolling forecast. However, this does not necessarily mean that debt is falling over the longer term.
Indeed, the committee highlights the government could technically meet its fiscal targets. While the overall level of debt continues to increase. This raises an important question about the credibility and effectiveness of fiscal rules. Rules should not simply be designed to demonstrate compliance at a particular point of time. They should ensure that public debt is placed on a genuinely sustainable downward trajectory. The committee therefore recommends, as people have indicated, an additional debt target requiring debt in the third year of the forecast period to be lower than in the first year. And I support the principle behind this recommendation.
Fiscal rules must focus on the underlying direction of public finances, rather than short term improvements that may prove temporary. Secondly, the report raises important concerns about fiscal headroom. The government's relatively small fiscal buffer buffer leaves limited room for manoeuvre when economic forecasts change or unexpected pressures emerge. We know that economic forecasts are inherently uncertain, and when the fiscal buffer is too small, even relatively modest changes in economic conditions can force difficult decisions about taxation and public spending, and the government obviously has not helped in the recent budget by lowering the estimated fiscal buffer from 25 billion before the budget to 15 billion.
The committee, therefore, recommends that the government commit to maintaining a substantially larger fiscal buffer, reflecting the unavoidable uncertainties in economic forecasting, and I support that recommendation. In addition, I don't think anyone has really touched on this. Fiscal headroom should not be treated as money available for immediate spending commitments. It should provide genuine protection against economic shocks and unforeseen circumstances. Thirdly, I'd like to highlight the importance of stability and credibility in fiscal policy. One of the report's central concerns is the repeated modification of fiscal rules by successive governments. Frequent changes risk undermining confidence among investors, financial markets and the wider public.
A credible fiscal framework must provide predictability. Businesses need confidence when making long term investment decisions, while international investors need insurance assurance that the UK remains committed to responsible economic management. No doubt Liz Truss talked about that in her book. This does not mean fiscal rules should never change. Economic circumstances evolve and governments must retain the flexibility to respond. However, changes should be carefully considered, evidence based and subject to meaningful consultation. The committee is right to argue that further changes should follow a comprehensive consultation process, rather than being driven by short term political considerations. Now, a number of Lords have touched on the role of the Office of Budget Responsibility.
The OBR provides independent economic and fiscal forecasts and assesses the government's performance against its fiscal rules. Its independence is. Its independence is absolutely essential to maintaining transparency and accountability. The committee rightly supports retaining responsibility for economic and fiscal forecasts with the OBR. It also recommends maintaining two forecasts each year, while adjusting the timing of the spring forecast to create a more balanced interval between forecasting exercises. I particularly welcome the emphasis on strengthening corporate co-operation between the Treasury and the OBR while preserving the latter's independence. Independent scrutiny should not be seen as an obstacle to government policy.
Rather, it should help ensure that policy decisions are informed by realistic economic assessments. Finally, we must consider the wider implications for economic growth. The UK's public finances face considerable long term pressures, including an ageing population, rising demands on public services, defence commitments and the transition towards net zero. At the same time, weak productivity growth and the burden of debt interest payments constrain the government's ability to invest in the economy. We must therefore strike the right balance between fiscal discipline and productive investment. A strong fiscal framework should not simply focus on reducing borrowing. It should also support sustainable economic growth, encourage investment and ensure that future generations are not left with an unsustainable debt burden.
My Lords, the government has responded to the committee's recommendations by defending its existing rules and arguing that its reforms provide an appropriate balance between fiscal discipline and flexibility. I would argue that the government should remain open to the committee's proposals, particularly on debt reduction and maintaining a large fiscal Boro buffer. To conclude, the central message of the report is straightforward fiscal responsibility must be measured not simply by whether a government meets its targets today, but whether it leaves the country's public finances stronger and more sustainable tomorrow.
19:05
Speaker 17
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Speaker 17
My Lords, I want to begin by thanking the Economic Affairs Committee for producing this excellent report. And the noble Lord, Lord Riddell Liddle, for his enjoyable and historically focused introduction. As he said, we're lucky to have two permanent secretaries, Lord Burns and and Lord Macpherson speaking in the debate. I also want to pay tribute to the noble Lord, Lord Wood of Anfield, for his work in chairing the committee and congratulate him on the positive start he's made as Foreign Office minister. I look forward to the Minister's response to the interesting points made by my noble friend, Lord Redwood.
Different macroeconomic targets 2% inflation and 2% growth. And on the quirks he identified on National Insurance funding and the ownership of bonds by the Bank of England, a theme that was also picked up by Lord Sikka. Her Majesty's Opposition broadly support the report's conclusions, and this debate is exceptionally timely, coming as it does in the immediate aftermath of an unsatisfactory budget. So let's quickly come to the essence of the matter, which is to be found in the final paragraph of the report summary I quote. On current tax and spending settings, the UK is on a path to unsustainable debt levels.
There we have it. Starkly put, a noble Lords may ask how has the position been affected by the recent budget? The answer not much. This budget can only be described as a missed opportunity. However, since the necessary decisions have been put off yet again, the position has deteriorated somewhat since the committee's report was drafted. In short, the recent budget presented 108 tinkerings to the Commons. While probably the most pressing, ominous shadow facing us as a country went unaddressed because when the markets decide, as at some unknown time, they will. That enough is enough and the prospect of debt being repaid eventually has become too small to countenance.
Ten year plans and other gimmicks will not cut the mustard. Very unpleasant things happen. Just look at the experience of another Healey Denis, the right hon. Lord Healey in 1976, with the level of national debt close to 100% of GDP. A responsible government would be planning to move as quickly as possible to a position of surplus, not making an excuse for doing nothing about it. My right hon. Friend, Lord Howe of Guildford , pointed out, quoted the 3 trillion debt figure on this point, and that was echoed by the noble Lord Londesborough, who said it trebled over the last 15 years.
But I turn to two lesser but still important matters. The first is the committee's conclusion, echoed in discussion that the current debt rules can be gained as noble Lords will know, the existing rule requires debt to fall as a proportion of GDP. Only in the final year of a yodeling rolling forecast that debt can rise substantially in the preceding years, while the government continues to promise a reduction as the forecast period moves forward. This may never materialise. In other words, a government can comply with its fiscal rules year after year, even as the national debt continues to rise.
The committee recommended an additional debt target requiring debt in the third year of the forecast to be lower than in the first. This is an interesting and sensible proposal. Wondering warranting serious consideration as the noble Lord, Lord Russell already said. The government has rejected this recommendation, and I'd be grateful if the Minister could explain why. How does the government consider that the present debt rule provides a meaningful guarantee of fiscal discipline? When it is possible to meet that rule without achieving a genuine reduction in debt over the forecast period? The current system is satisfied if you predict a fall, rather than measuring one that has actually taken place, resulting in an upward spiral.
Is that the government's plan? I'd add that the OBR unlikely to go along with this indefinitely, and I agree that Jonathan Haskel will be a respected new chair, and I'm sure we all miss his father, Lord Haskel. I agree with the noble Lord, Lord Chandos, that the long list of changes in the fiscal rules and appendix four is unsettling. I remember presenting a similar annex to our Built Environment Committee report on demand for housing, but that listed the large number of housing ministers. They've been. But these long lists do are worrying. A further risk arises from the growing use of public financial institutions.
Under the government's chosen debt measure, borrowing can appear less burdensome where it creates a corresponding financial asset. Ministers must ensure that puffins, like the British Business Bank, do not become a means of moving. Borrowing outside the effective constraint of the fiscal rule, leaving the public exposed to the risk of future losses. My second point concerns the so-called fiscal headroom. The current budget rule requires receipts to cover day to day public spending, with a deficit of no more than 0.5% of GDP permitted in 20 2930. Once that year becomes the third year of the forecast, the current budget must be forecast to be in surplus in the third year of the forecast period.
Fiscal headroom is the estimated margin by which the government is forecast to meet that rule. It's intended to provide some protection against adverse changes in the economy, higher spending, low tax receipts and the ordinary uncertainty inherent in forecasting. Of course, if there were a serious plan to reduce the deficit over over time, this would be of less importance. But for now, it's important. Following the budget, the government now has just £15 billion of headroom, down from 24 billion in the spring forecast, which Lord radical also supported. Also, that's contrary to the recommendation in the report, paragraph 40 of the report, which Lord Razzall also supported.
Indeed, the OBR estimate that the government has only a 56% probability of meeting that rule. I find that extraordinary. We face a time of considerable economic and geopolitical uncertainty, while the government has left itself with a margin for error, which could be eliminated by a relatively modest deterioration in the forecast. The OBR has noted, for example, that a one percentage point change in gilt yields and bank rate expectations across the forecast could change medium term borrowing by approximately £16 billion. That single risk is greater than the government's entire 15 billion margin against the current budget rule.
Further, the government's forecasts assumes that the extraordinary post-pandemic growth in health related benefit caseloads will moderate significantly. The OBR forecasts that annual spending on health and disability benefits will nevertheless rise from 86,000,000,000 in 2025 26 to 120 billion in 2030 132, increase of almost 35 billion under its central forecast. But if incapacity and disability coast caseloads continue to rise at their post-pandemic rates, the OBR estimates that welfare spending in 2030 132 will be approximately £25 billion higher than in its central forecast. That additional expenditure is for one year alone. The fact is that just one assumption in one department could eliminate the headroom the Chancellor has left himself.
Nor is welfare the only area of concern we have growing commitments to defence. Considerable pressures across our health and social care system, and a prison and justice system which requires substantial investment to meet its existing obligations. These are not remote or unforeseeable possibilities and that, to me, is the central problem. If our fiscal rules could be breached by the continuation of existing spending trends and ordinary forecasting revision, or relatively modest economic shock, what confidence can we have that these rules are being met today? Which brings me to the wider economic picture presented in the budget.
The OBR forecast wage growth of just 1.2% this year and 1.1% next year, with no real earnings growth in either 2027 or 2028. This is too low. I agree with Lord Liddle that we need a simpler tax and welfare system, and we need to do more on public sector productivity. However, I don't agree that we should reopen Brexit, ushering years more of uncertain certainty for business and citizens. My Lords, the situation is worrying. So. So can I give you 1 or 2? Can I give the committee 1 or 2 more figures? Borrowing remains at approximately 133 billion this financial year.
Debt is expected to reach around 97% of GDP, and the tax burden is forecast to reach a record 38.6% of GDP. As we heard from the noble Lord, Lord Bilimoria. Meanwhile, the cost of servicing government debt has risen from £39 billion in 2019 20 to 100 and 9,000,000,000 in 20 2526, and is forecast to reach 160,000,000,004.2% of GDP by 2030 132. These are enormous sums increasingly being spent on servicing debt. They are burdens on our children, grandchildren and later generations. That is a reason indeed , for a greater focus on the Obr's annual report and Sustainability report, as recommended by the committee.
The noble Lord, Lord Riddell and Lord Miller Mora drew our attention to the enormous figure for the 2070s. If markets were allowed to allow that, and the noble lady, Baroness Wolf of Dulwich and the noble Lord, Lord Macpherson rightly praised this annual report by the OBR, it should be given more profile. I very much agree with that. Despite the historically high level of taxation, as I said earlier, the budget contains no plans to reduce the deficit. That is why I welcome the committee's emphasis upon the long term sustainability of the public finances, rather than simply considering the government's compliance with an arbitrary target in a particular year.
Fiscal rules matter, independent forecasting matters and the credibility of our public finances matter enormously, not simply our financial markets, but to every household and every business. We all know why government are not dealing properly with this huge challenge is because their backbenchers will not face up to the actions necessary to do so. Committee has so effectively demonstrated meeting the rules on paper is no substitute for achieving those objectives in practice. I fear that the budget has illustrated precisely the weaknesses which this excellent report identifies. We will return to that in our debate next week, and by then I will have seen the Cains play mentioned by my noble friend.
Different macroeconomic targets 2% inflation and 2% growth. And on the quirks he identified on National Insurance funding and the ownership of bonds by the Bank of England, a theme that was also picked up by Lord Sikka. Her Majesty's Opposition broadly support the report's conclusions, and this debate is exceptionally timely, coming as it does in the immediate aftermath of an unsatisfactory budget. So let's quickly come to the essence of the matter, which is to be found in the final paragraph of the report summary I quote. On current tax and spending settings, the UK is on a path to unsustainable debt levels.
There we have it. Starkly put, a noble Lords may ask how has the position been affected by the recent budget? The answer not much. This budget can only be described as a missed opportunity. However, since the necessary decisions have been put off yet again, the position has deteriorated somewhat since the committee's report was drafted. In short, the recent budget presented 108 tinkerings to the Commons. While probably the most pressing, ominous shadow facing us as a country went unaddressed because when the markets decide, as at some unknown time, they will. That enough is enough and the prospect of debt being repaid eventually has become too small to countenance.
Ten year plans and other gimmicks will not cut the mustard. Very unpleasant things happen. Just look at the experience of another Healey Denis, the right hon. Lord Healey in 1976, with the level of national debt close to 100% of GDP. A responsible government would be planning to move as quickly as possible to a position of surplus, not making an excuse for doing nothing about it. My right hon. Friend, Lord Howe of Guildford , pointed out, quoted the 3 trillion debt figure on this point, and that was echoed by the noble Lord Londesborough, who said it trebled over the last 15 years.
But I turn to two lesser but still important matters. The first is the committee's conclusion, echoed in discussion that the current debt rules can be gained as noble Lords will know, the existing rule requires debt to fall as a proportion of GDP. Only in the final year of a yodeling rolling forecast that debt can rise substantially in the preceding years, while the government continues to promise a reduction as the forecast period moves forward. This may never materialise. In other words, a government can comply with its fiscal rules year after year, even as the national debt continues to rise.
The committee recommended an additional debt target requiring debt in the third year of the forecast to be lower than in the first. This is an interesting and sensible proposal. Wondering warranting serious consideration as the noble Lord, Lord Russell already said. The government has rejected this recommendation, and I'd be grateful if the Minister could explain why. How does the government consider that the present debt rule provides a meaningful guarantee of fiscal discipline? When it is possible to meet that rule without achieving a genuine reduction in debt over the forecast period? The current system is satisfied if you predict a fall, rather than measuring one that has actually taken place, resulting in an upward spiral.
Is that the government's plan? I'd add that the OBR unlikely to go along with this indefinitely, and I agree that Jonathan Haskel will be a respected new chair, and I'm sure we all miss his father, Lord Haskel. I agree with the noble Lord, Lord Chandos, that the long list of changes in the fiscal rules and appendix four is unsettling. I remember presenting a similar annex to our Built Environment Committee report on demand for housing, but that listed the large number of housing ministers. They've been. But these long lists do are worrying. A further risk arises from the growing use of public financial institutions.
Under the government's chosen debt measure, borrowing can appear less burdensome where it creates a corresponding financial asset. Ministers must ensure that puffins, like the British Business Bank, do not become a means of moving. Borrowing outside the effective constraint of the fiscal rule, leaving the public exposed to the risk of future losses. My second point concerns the so-called fiscal headroom. The current budget rule requires receipts to cover day to day public spending, with a deficit of no more than 0.5% of GDP permitted in 20 2930. Once that year becomes the third year of the forecast, the current budget must be forecast to be in surplus in the third year of the forecast period.
Fiscal headroom is the estimated margin by which the government is forecast to meet that rule. It's intended to provide some protection against adverse changes in the economy, higher spending, low tax receipts and the ordinary uncertainty inherent in forecasting. Of course, if there were a serious plan to reduce the deficit over over time, this would be of less importance. But for now, it's important. Following the budget, the government now has just £15 billion of headroom, down from 24 billion in the spring forecast, which Lord radical also supported. Also, that's contrary to the recommendation in the report, paragraph 40 of the report, which Lord Razzall also supported.
Indeed, the OBR estimate that the government has only a 56% probability of meeting that rule. I find that extraordinary. We face a time of considerable economic and geopolitical uncertainty, while the government has left itself with a margin for error, which could be eliminated by a relatively modest deterioration in the forecast. The OBR has noted, for example, that a one percentage point change in gilt yields and bank rate expectations across the forecast could change medium term borrowing by approximately £16 billion. That single risk is greater than the government's entire 15 billion margin against the current budget rule.
Further, the government's forecasts assumes that the extraordinary post-pandemic growth in health related benefit caseloads will moderate significantly. The OBR forecasts that annual spending on health and disability benefits will nevertheless rise from 86,000,000,000 in 2025 26 to 120 billion in 2030 132, increase of almost 35 billion under its central forecast. But if incapacity and disability coast caseloads continue to rise at their post-pandemic rates, the OBR estimates that welfare spending in 2030 132 will be approximately £25 billion higher than in its central forecast. That additional expenditure is for one year alone. The fact is that just one assumption in one department could eliminate the headroom the Chancellor has left himself.
Nor is welfare the only area of concern we have growing commitments to defence. Considerable pressures across our health and social care system, and a prison and justice system which requires substantial investment to meet its existing obligations. These are not remote or unforeseeable possibilities and that, to me, is the central problem. If our fiscal rules could be breached by the continuation of existing spending trends and ordinary forecasting revision, or relatively modest economic shock, what confidence can we have that these rules are being met today? Which brings me to the wider economic picture presented in the budget.
The OBR forecast wage growth of just 1.2% this year and 1.1% next year, with no real earnings growth in either 2027 or 2028. This is too low. I agree with Lord Liddle that we need a simpler tax and welfare system, and we need to do more on public sector productivity. However, I don't agree that we should reopen Brexit, ushering years more of uncertain certainty for business and citizens. My Lords, the situation is worrying. So. So can I give you 1 or 2? Can I give the committee 1 or 2 more figures? Borrowing remains at approximately 133 billion this financial year.
Debt is expected to reach around 97% of GDP, and the tax burden is forecast to reach a record 38.6% of GDP. As we heard from the noble Lord, Lord Bilimoria. Meanwhile, the cost of servicing government debt has risen from £39 billion in 2019 20 to 100 and 9,000,000,000 in 20 2526, and is forecast to reach 160,000,000,004.2% of GDP by 2030 132. These are enormous sums increasingly being spent on servicing debt. They are burdens on our children, grandchildren and later generations. That is a reason indeed , for a greater focus on the Obr's annual report and Sustainability report, as recommended by the committee.
The noble Lord, Lord Riddell and Lord Miller Mora drew our attention to the enormous figure for the 2070s. If markets were allowed to allow that, and the noble lady, Baroness Wolf of Dulwich and the noble Lord, Lord Macpherson rightly praised this annual report by the OBR, it should be given more profile. I very much agree with that. Despite the historically high level of taxation, as I said earlier, the budget contains no plans to reduce the deficit. That is why I welcome the committee's emphasis upon the long term sustainability of the public finances, rather than simply considering the government's compliance with an arbitrary target in a particular year.
Fiscal rules matter, independent forecasting matters and the credibility of our public finances matter enormously, not simply our financial markets, but to every household and every business. We all know why government are not dealing properly with this huge challenge is because their backbenchers will not face up to the actions necessary to do so. Committee has so effectively demonstrated meeting the rules on paper is no substitute for achieving those objectives in practice. I fear that the budget has illustrated precisely the weaknesses which this excellent report identifies. We will return to that in our debate next week, and by then I will have seen the Cains play mentioned by my noble friend.
19:17
Speaker 19
-
Speaker 19
My Lords, it is a pleasure to respond to this debate on the Economic Affairs Committee report on the fiscal framework, and to do so alongside so many distinguished and noble Lords. To have Lord Burns and Lord Macpherson, with their experience talking at this debate is a real treat, and I thank all the noble Lords for their thoughtful and considered contribution during today's debate, and, of course, congratulate the Economic Affairs Committee on the report, in particular to its first chair, my noble friend Lord Wood of Anfield and the committee's current chair, my noble friend Lord Liddle, for his opening speech and his for his chairmanship of the Committee.
I also would like to thank the members of the Committee, past and present, and the Committee staff for the producing the report, and it does raise important questions about fiscal rules, the role of the office for Budget Responsibility and the long term sustainability of the public finances, and I have studied the findings, along with officials across the Treasury, and look forward to continuing to work with the Committee. In my role as Treasury Lords minister. Indeed, I've actually studied the report more often than you might imagine, because when I was appointed a minister in the summer, I asked civil servants to put together a package of documents which they thought would be particularly informative, including on the fiscal rules, and that your report was amongst that bundle is, I think, testament to the seriousness in which it is held.
But, my Lords, before I address the substance of the report, I think I should just say a few words about the wider economic context and also the budget that took place last week, since it has been raised a number of times. And look, I want not to address the particular political points that have been made. If we want to look at the graph of when the debt of this country was built up and mapped that against the administration, we can, if we want to look at the time when Britain had to start paying a premium, we can do that to.
I set that aside, and I'd like to talk about the budget set. Of course, against the backdrop of global economic storms, and the Chancellor has made clear we can't wish those storms away. Indeed, we must set a course to steer through them. That is why both the Prime Minister and the Chancellor have been clear that fiscal responsibility will underwrite every promise that the government makes. And in this budget, we met our fiscal rules for the first time since 2022. We are meeting fiscal rules, which are assessed in the third year of the forecast, with borrowing falling across the Parliament.
And despite the warning from forecasters that our economy would slow down, Britain has shown some real resilience. The OBR upgrading the UK's growth forecast this year to 1.2% a in the first part of this year. Indeed, one swallow doesn't make a summer, but we were at the top of the G7 productivity, up by 2.2% last year, compared to an average growth of 0.5% between 2015 and 2024, and the whole economy, investment and business investment have grown more in this parliament so far than they did in the entire last one. Nevertheless, debt and deficit is a big and considerable issue and a I would say people have said that there is not enough will and not enough evidence that a debt and deficit are being kept under control, but I would note that earlier this month, the IMF forecast our deficit would be the lowest in the G7 by 2029.
They also said that the UK, I quote, now stands out as a country where action to reduce the debt and deficit have been taken decisively. Now, look, I know concerns have been raised a a about this, quite rightly. It's an important thing to be thinking about. But for Lord Londesborough to a. The noble Lord Londesborough to say that this is just a fantasy hockey stick. I mean, he is in disagreement with Kristalina Georgieva on that one. But look, this is certainly not to claim that everything is rosy, but I think it does show that this government takes fiscal discipline seriously.
Indeed, we believe it is a sine qua non for steering through these difficult times. But let me return to the report where I think we find a considerable degree of consensus. I mean, first of all, we all believe that fiscal rules are indeed quite important. I think even the my noble friend Lord Sikka would think they are important though would want a social report on their a a a effect. But the . The report suggests some reform covers five areas the control of debt and whether a new debt rule is required. The adequacy of headroom, fiscal rules and whether a new ones are are needed and how they should be agreed.
Fiscal forecasting and the critical. The independence of the OBR and then long term sustainability. Let me try and take each of those in turn, beginning with debt. My Lords, as I have already set out, this government met the fiscal rules at the budget last week, and for the first time for this government, they were assessed in the third year of the forecast. The second fiscal rule. The investment rule ensures that government debt, defined as public sector net financial liabilities per Snuffle. I discovered this is called when I got this job. It must be falling as a percentage of the GDP.
We are meeting this rule with a headroom of £24 billion in 2930, so that will be lower at the end of the forecast than now. But I do accept a number of noble lords, starting with Lord Redwood asking, but isn't this just always jam tomorrow? And and therefore, don't we need something that tightens a fiscal rule? And indeed, the committee's report proposes that the government should set out an additional debt target, which would show cumulative performance over three years. And now, look, I understand that. But the government's position is that the design of the fiscal rules needs to strike an appropriate balance between maintaining a clear medium term anchor and allowing near term adjustments in response to changing economic conditions before the three year target.
Similarly, the committee's report raises concerns that debt can rise while the fiscal rule is still met and targeting a reduction in the path of debt rather than a debt level allows the space to respond to near term. But targeting a reduction allows space to respond to near term shocks and return debt to a sustainable path. To be clear, all the statistics and all the measures that we are looking at are fully transparent from the independent records. Outsiders in particular, this committee can see how debt is evolving over time, and these are important numbers and appropriate that the government is questioned on them.
But it is another, bigger step to say that a new fiscal rule, therefore needs to be introduced. The fiscal rules just set a minimum target, and the OBR forecast shows that debt stabilises in 2009, before falling in the following year. Look, it is supported by the fact that the level of borrowing falls across the. For the forecast to 1.8% of GDP by the end of the forecast. After having already fallen by 0.7% of GDP last year. This may not be Saint Augustine that we are in entirely holy yet, but it does kind of feel that there are things happening a a here and look, Lord little and others said, with the fiscal rules that you've got, perhaps it's possible to game them.
But look, the IMF, they are independent. They are serious. International observers have noted our consolidation plans, underpinned by our rules, stand out compared to peers. The UK is actually one country where action to reduce debt and deficit has been taken decisively. So it's not clear to me that a new debt rule is needed, though the figure may be an important one to be looking at as regards the fiscal rules, the committee's report makes three further recommendations. The first relates to the frequency of changes in the fiscal rules. The second argues that fuller consultation before fiscal rule changes are made, and the third calls for an additional fixed rule.
Rather than using the rolling rules alone. As regards the frequency of changes, I think we have consensus on that. A it's been pointed out that in the past, fiscal rules have often had a very short lifetime. Indeed, we have stuck a to a the rules for three budgets and there are no plans to change them. As regarding consultation on the rules, I think there's some skepticism that this would be done better through a broad political grouping, rather that it is right that the fiscal rules are set by the Chancellor in line with the government's priorities and fiscal strategy, consistent with manifesto promises.
So the government's economic priorities and fiscal strategy are, are, are set out a, a, a in the manifesto before the general election. However, as regards consultation, of course, the government regularly engages relevant stakeholders and experts, as well as those from other countries. And fiscal rules were legislated through the Charter of Budget Responsibility, providing a full opportunity for debate and scrutiny. The third. This issue about rolling and fixed rules, as noble Lords will be aware from this fiscal rule, from this fiscal year, the fiscal rules target the third year of the forecast, which binds near term decisions while still providing some space for macroeconomic adjustment.
It also links the three year spending plans to the three year. Sorry also links to the three year spending plans of government departments, and therefore we believe that rolling rules provide the government with the flexibility to respond appropriately to adverse shocks in the near term and allow time for public finances to recover while maintaining a clear medium term anchor with a fixed rule as the target grows nearer, adjustments in in year of savings or tax rises become more challenging and potentially economically damaging. A rolling target instead provides a medium term anchor to support stability and sustainable public finances.
Let me then come to headroom. Headroom is needed to absorb the impact of economic shocks. This is what a buffer is for to be used when needed before being rebuilt when conditions allow. The conflict in the Middle East has driven up borrowing costs all around the world, broadly in line with the. For. For the UK, with the G7 average, all a. G7 companies have seen borrowing costs rise. We are forecast that cost will be about £14 billion a year in extra government debt interest. The last budget, the headroom, was 2025. Headroom was 21.7 million.
It's now 15 billion for 2930 before rising to 22 in 2030, a 31. So some of the a a increase in borrowing costs has been absorbed in the budget and a, a, a we feel that the right level, both as a matter of contingency and also as a matter of challenge , to make sure that the government sticks to its fiscal consolidation. As regards forecasts and the OBR, the report on the government, I think, are in entire agreement as to the importance of the OBR and the critical role they play. As Lord Burns said, it's the government who sets the rules and the procedures.
But the OBR is an independent, a adjudicator on what those plans look like. My Lords, the committee's report argues that requiring two OBR forecasts a year creates unnecessary policy volatility. The UK has a long standing practice of having two official forecasts per year actually predates the OBR, and we value the Obr's role in ensuring economic and fiscal transparency, and it will continue to publish two forecasts a year in line with best practice internationally and in line with the recommendation made by the IMF. The OBR now only assesses the fiscal rules once per year in the budget.
This aims to create a more predictable framework, strengthen stability and give business and households certainty about the future. Let me then turn to the question of the long term fiscal sustainability. The Obr's recent Fiscal Risks and Sustainability report confirms the need to boost growth and maintain sustainable public finances. That is what the government is committed to do to to doing. And it also shows, and I think some of the figures have been quoted, that if you did, if there was no change from the assumptions that they've made today, and you do this over a long period of time, then that goes out very high indeed.
The report, I think, says on a path to unsustainable debt levels, but I think one can overlook the government taking action to think about this, to bring down borrowing over the long term, including, for example, the announcing the electric vehicle excise duty, which is necessary to replace the taxes on petrol, which I think might have been part of the a a projections that you were looking at. And I think we mentioned it a a from April 2030, the government will adjust the triple lock, another big long term effect on what the long term future will look like.
But that reform ensures that the state pension is sustainable, protecting pensioners today and today's workers when they are pensioners. So the observations of the committee are understood. But these actions show that they have been taken on board by the government. The charter for Budget Responsibility, this government updated to reform the fiscal framework, ensures that fiscal sustainability will remain central to the Treasury's objectives for fiscal policy. We will continue to consider a wide range of metrics to inform a full assessment of the sustainability of public finances , and as a result of our 2024 reforms, the OBR will also continue to report on the long term impact of capital investment and government policies in its forecasts.
But fiscal stability is an ongoing process. Constructive criticism is welcome. Indeed, it was part of the briefing for a new minister in the Treasury. So, my Lords, may I once again sincerely thank the Economic Affairs Committee for their work on this important report. The government shares the committee's overriding commitment to fiscal responsibility and to ensuring that the fiscal framework continues to operate effectively. The challenges to the fiscal outlook set out by the OBR last week demonstrate why this position is necessary, because it's only by delivering sustainable public finances that we can maintain resilience in the face of global shocks.
I look forward to continuing to engage with the committee as we take forward the measures in this budget, including through the upcoming ten year, ten year plan and the spending Review. Thank you very much.
I also would like to thank the members of the Committee, past and present, and the Committee staff for the producing the report, and it does raise important questions about fiscal rules, the role of the office for Budget Responsibility and the long term sustainability of the public finances, and I have studied the findings, along with officials across the Treasury, and look forward to continuing to work with the Committee. In my role as Treasury Lords minister. Indeed, I've actually studied the report more often than you might imagine, because when I was appointed a minister in the summer, I asked civil servants to put together a package of documents which they thought would be particularly informative, including on the fiscal rules, and that your report was amongst that bundle is, I think, testament to the seriousness in which it is held.
But, my Lords, before I address the substance of the report, I think I should just say a few words about the wider economic context and also the budget that took place last week, since it has been raised a number of times. And look, I want not to address the particular political points that have been made. If we want to look at the graph of when the debt of this country was built up and mapped that against the administration, we can, if we want to look at the time when Britain had to start paying a premium, we can do that to.
I set that aside, and I'd like to talk about the budget set. Of course, against the backdrop of global economic storms, and the Chancellor has made clear we can't wish those storms away. Indeed, we must set a course to steer through them. That is why both the Prime Minister and the Chancellor have been clear that fiscal responsibility will underwrite every promise that the government makes. And in this budget, we met our fiscal rules for the first time since 2022. We are meeting fiscal rules, which are assessed in the third year of the forecast, with borrowing falling across the Parliament.
And despite the warning from forecasters that our economy would slow down, Britain has shown some real resilience. The OBR upgrading the UK's growth forecast this year to 1.2% a in the first part of this year. Indeed, one swallow doesn't make a summer, but we were at the top of the G7 productivity, up by 2.2% last year, compared to an average growth of 0.5% between 2015 and 2024, and the whole economy, investment and business investment have grown more in this parliament so far than they did in the entire last one. Nevertheless, debt and deficit is a big and considerable issue and a I would say people have said that there is not enough will and not enough evidence that a debt and deficit are being kept under control, but I would note that earlier this month, the IMF forecast our deficit would be the lowest in the G7 by 2029.
They also said that the UK, I quote, now stands out as a country where action to reduce the debt and deficit have been taken decisively. Now, look, I know concerns have been raised a a about this, quite rightly. It's an important thing to be thinking about. But for Lord Londesborough to a. The noble Lord Londesborough to say that this is just a fantasy hockey stick. I mean, he is in disagreement with Kristalina Georgieva on that one. But look, this is certainly not to claim that everything is rosy, but I think it does show that this government takes fiscal discipline seriously.
Indeed, we believe it is a sine qua non for steering through these difficult times. But let me return to the report where I think we find a considerable degree of consensus. I mean, first of all, we all believe that fiscal rules are indeed quite important. I think even the my noble friend Lord Sikka would think they are important though would want a social report on their a a a effect. But the . The report suggests some reform covers five areas the control of debt and whether a new debt rule is required. The adequacy of headroom, fiscal rules and whether a new ones are are needed and how they should be agreed.
Fiscal forecasting and the critical. The independence of the OBR and then long term sustainability. Let me try and take each of those in turn, beginning with debt. My Lords, as I have already set out, this government met the fiscal rules at the budget last week, and for the first time for this government, they were assessed in the third year of the forecast. The second fiscal rule. The investment rule ensures that government debt, defined as public sector net financial liabilities per Snuffle. I discovered this is called when I got this job. It must be falling as a percentage of the GDP.
We are meeting this rule with a headroom of £24 billion in 2930, so that will be lower at the end of the forecast than now. But I do accept a number of noble lords, starting with Lord Redwood asking, but isn't this just always jam tomorrow? And and therefore, don't we need something that tightens a fiscal rule? And indeed, the committee's report proposes that the government should set out an additional debt target, which would show cumulative performance over three years. And now, look, I understand that. But the government's position is that the design of the fiscal rules needs to strike an appropriate balance between maintaining a clear medium term anchor and allowing near term adjustments in response to changing economic conditions before the three year target.
Similarly, the committee's report raises concerns that debt can rise while the fiscal rule is still met and targeting a reduction in the path of debt rather than a debt level allows the space to respond to near term. But targeting a reduction allows space to respond to near term shocks and return debt to a sustainable path. To be clear, all the statistics and all the measures that we are looking at are fully transparent from the independent records. Outsiders in particular, this committee can see how debt is evolving over time, and these are important numbers and appropriate that the government is questioned on them.
But it is another, bigger step to say that a new fiscal rule, therefore needs to be introduced. The fiscal rules just set a minimum target, and the OBR forecast shows that debt stabilises in 2009, before falling in the following year. Look, it is supported by the fact that the level of borrowing falls across the. For the forecast to 1.8% of GDP by the end of the forecast. After having already fallen by 0.7% of GDP last year. This may not be Saint Augustine that we are in entirely holy yet, but it does kind of feel that there are things happening a a here and look, Lord little and others said, with the fiscal rules that you've got, perhaps it's possible to game them.
But look, the IMF, they are independent. They are serious. International observers have noted our consolidation plans, underpinned by our rules, stand out compared to peers. The UK is actually one country where action to reduce debt and deficit has been taken decisively. So it's not clear to me that a new debt rule is needed, though the figure may be an important one to be looking at as regards the fiscal rules, the committee's report makes three further recommendations. The first relates to the frequency of changes in the fiscal rules. The second argues that fuller consultation before fiscal rule changes are made, and the third calls for an additional fixed rule.
Rather than using the rolling rules alone. As regards the frequency of changes, I think we have consensus on that. A it's been pointed out that in the past, fiscal rules have often had a very short lifetime. Indeed, we have stuck a to a the rules for three budgets and there are no plans to change them. As regarding consultation on the rules, I think there's some skepticism that this would be done better through a broad political grouping, rather that it is right that the fiscal rules are set by the Chancellor in line with the government's priorities and fiscal strategy, consistent with manifesto promises.
So the government's economic priorities and fiscal strategy are, are, are set out a, a, a in the manifesto before the general election. However, as regards consultation, of course, the government regularly engages relevant stakeholders and experts, as well as those from other countries. And fiscal rules were legislated through the Charter of Budget Responsibility, providing a full opportunity for debate and scrutiny. The third. This issue about rolling and fixed rules, as noble Lords will be aware from this fiscal rule, from this fiscal year, the fiscal rules target the third year of the forecast, which binds near term decisions while still providing some space for macroeconomic adjustment.
It also links the three year spending plans to the three year. Sorry also links to the three year spending plans of government departments, and therefore we believe that rolling rules provide the government with the flexibility to respond appropriately to adverse shocks in the near term and allow time for public finances to recover while maintaining a clear medium term anchor with a fixed rule as the target grows nearer, adjustments in in year of savings or tax rises become more challenging and potentially economically damaging. A rolling target instead provides a medium term anchor to support stability and sustainable public finances.
Let me then come to headroom. Headroom is needed to absorb the impact of economic shocks. This is what a buffer is for to be used when needed before being rebuilt when conditions allow. The conflict in the Middle East has driven up borrowing costs all around the world, broadly in line with the. For. For the UK, with the G7 average, all a. G7 companies have seen borrowing costs rise. We are forecast that cost will be about £14 billion a year in extra government debt interest. The last budget, the headroom, was 2025. Headroom was 21.7 million.
It's now 15 billion for 2930 before rising to 22 in 2030, a 31. So some of the a a increase in borrowing costs has been absorbed in the budget and a, a, a we feel that the right level, both as a matter of contingency and also as a matter of challenge , to make sure that the government sticks to its fiscal consolidation. As regards forecasts and the OBR, the report on the government, I think, are in entire agreement as to the importance of the OBR and the critical role they play. As Lord Burns said, it's the government who sets the rules and the procedures.
But the OBR is an independent, a adjudicator on what those plans look like. My Lords, the committee's report argues that requiring two OBR forecasts a year creates unnecessary policy volatility. The UK has a long standing practice of having two official forecasts per year actually predates the OBR, and we value the Obr's role in ensuring economic and fiscal transparency, and it will continue to publish two forecasts a year in line with best practice internationally and in line with the recommendation made by the IMF. The OBR now only assesses the fiscal rules once per year in the budget.
This aims to create a more predictable framework, strengthen stability and give business and households certainty about the future. Let me then turn to the question of the long term fiscal sustainability. The Obr's recent Fiscal Risks and Sustainability report confirms the need to boost growth and maintain sustainable public finances. That is what the government is committed to do to to doing. And it also shows, and I think some of the figures have been quoted, that if you did, if there was no change from the assumptions that they've made today, and you do this over a long period of time, then that goes out very high indeed.
The report, I think, says on a path to unsustainable debt levels, but I think one can overlook the government taking action to think about this, to bring down borrowing over the long term, including, for example, the announcing the electric vehicle excise duty, which is necessary to replace the taxes on petrol, which I think might have been part of the a a projections that you were looking at. And I think we mentioned it a a from April 2030, the government will adjust the triple lock, another big long term effect on what the long term future will look like.
But that reform ensures that the state pension is sustainable, protecting pensioners today and today's workers when they are pensioners. So the observations of the committee are understood. But these actions show that they have been taken on board by the government. The charter for Budget Responsibility, this government updated to reform the fiscal framework, ensures that fiscal sustainability will remain central to the Treasury's objectives for fiscal policy. We will continue to consider a wide range of metrics to inform a full assessment of the sustainability of public finances , and as a result of our 2024 reforms, the OBR will also continue to report on the long term impact of capital investment and government policies in its forecasts.
But fiscal stability is an ongoing process. Constructive criticism is welcome. Indeed, it was part of the briefing for a new minister in the Treasury. So, my Lords, may I once again sincerely thank the Economic Affairs Committee for their work on this important report. The government shares the committee's overriding commitment to fiscal responsibility and to ensuring that the fiscal framework continues to operate effectively. The challenges to the fiscal outlook set out by the OBR last week demonstrate why this position is necessary, because it's only by delivering sustainable public finances that we can maintain resilience in the face of global shocks.
I look forward to continuing to engage with the committee as we take forward the measures in this budget, including through the upcoming ten year, ten year plan and the spending Review. Thank you very much.
19:36
19:36
Speaker 8
-
Speaker 8
I'd like. to thank the Minister. for an excellent response to the committee's report. I'd also like to thank all the members who've contributed, who all have had something very interesting to say. Which isn't what you often get in the House of Lords. But every contribution has has been great interest. Now, I'm not going to talk for long , because I can see that Lord Wilson of Sedgefield over there will be glaring at me about how we have to terminate this debate. However, I would just like to say one thing about fiscal rules. In the 1990s, when Labour was trying to make itself credible on the Gordon Brown and Tony Blair.
I remember having long discussions with Brown and with Ed Balls. About what? About the fiscal rules. And there was this wonderful, simple idea that that we came up with , that we will only borrow to invest. And I think that's a good rule. And obviously you need to take account of Keynesian fluctuations in the economy and all that. You have to. Perhaps some social investment is justified, but you have to be careful that it doesn't become a means of just extra borrowing. But I think only borrow to invest is a good principle. And I do disagree very strongly with my noble friend Lord Sikka, who seems to think that you can get away with 300% borrowing to GDP or something of that kind.
I don't know what is. Well, what I'd say to him, my kind of social democracy and the reason I supported toughness in the only borrowing to invest was because I learnt from Sweden the most successful social democratic country in Europe, which had always pursued a fiscally responsible policy, except for a period in the 1990s when they got it very badly wrong. And they knew they'd got it badly wrong. And the truth is that if you get into a fiscal mess and you have a crisis, it's precisely the working people who you claim to defend, who suffer most.
And that is the myth of the left, which is wrong. And we have to have a sensible approach to these questions. And with that, I move.
I remember having long discussions with Brown and with Ed Balls. About what? About the fiscal rules. And there was this wonderful, simple idea that that we came up with , that we will only borrow to invest. And I think that's a good rule. And obviously you need to take account of Keynesian fluctuations in the economy and all that. You have to. Perhaps some social investment is justified, but you have to be careful that it doesn't become a means of just extra borrowing. But I think only borrow to invest is a good principle. And I do disagree very strongly with my noble friend Lord Sikka, who seems to think that you can get away with 300% borrowing to GDP or something of that kind.
I don't know what is. Well, what I'd say to him, my kind of social democracy and the reason I supported toughness in the only borrowing to invest was because I learnt from Sweden the most successful social democratic country in Europe, which had always pursued a fiscally responsible policy, except for a period in the 1990s when they got it very badly wrong. And they knew they'd got it badly wrong. And the truth is that if you get into a fiscal mess and you have a crisis, it's precisely the working people who you claim to defend, who suffer most.
And that is the myth of the left, which is wrong. And we have to have a sensible approach to these questions. And with that, I move.
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Speaker 11
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Speaker 11
The noble Lords, which will go in Hansard on my reply, will not, if I respond privately. I have no point mentioned 300% debt at all. I don't know who the noble Lord was listening to. I reminded the house that was 270% when the NHS was created in 1948, and that brought us to the war. I think the noble Lord.
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