National Insurance Contributions (Employer Pensions Contributions) Bill
Baroness Neville-Rolfe Excerpts(1 day, 19 hours ago)
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Baroness Neville-Rolfe (Con)
My Lords, this Bill is deceptively small. It runs to just four pages of text and could be easily mistaken for something minor. But its consequences for working people and for long-term pension saving in particular are serious and far-reaching. We are talking about pensions, not other benefits, which the previous Government reformed.
There is a risk that the Bill’s impact will be misunderstood or dismissed as marginal, but it is neither. In simple terms, it introduces a £2,000 annual cap on the amount of pension saving that can be made through salary sacrifice without attracting national insurance. Above that cap, pension contributions are treated as earnings for national insurance purposes. Because of the way NICs work, employees earning below £50,270 will pay national insurance at 80% on the excess; those earning above that threshold will pay 2% on the excess. That is the policy, and the question for this House is who it really affects and what behaviour it is likely to change. I thank all noble Lords for staying late and look forward to their contributions.
The Government have repeatedly argued that this measure is targeted at those they describe as high earners. Page 2 of the Explanatory Notes makes it clear that this is the Government’s intention, and the fashionable Minister, Torsten Bell, has said that the Bill “protects ordinary workers”. He implicitly recognises that, for those on low incomes, salary sacrifice is the only way to build up a significant defined contribution pension fund.
But what is immediately obvious to the pension providers, employers and experts that we have spoken to is that this is not, in practice, a measure aimed at the highest earners. It hits people squarely in the middle of the income distribution, and in some cases below it. Those saving responsibly through salary sacrifice are most affected. They include younger professionals in high-cost cities and mid-career workers trying to make up pension shortfalls, typically earning between £30,000 and £60,000 a year. Given that the average UK salary is £37,430, it is difficult to see how people earning within this distribution can be credibly described as high earners. They are ordinary working people doing exactly what successive Governments have spent decades encouraging them to do: saving responsibly for retirement.
I will give the House a concrete example. Imagine a young professional who has just graduated and taken up a job in a city—London, Bristol or Manchester—earning £45,000 a year. They decide to do the responsible thing and save seriously for retirement, contributing £5,000 a year through salary sacrifice. Under the Bill, £3,000 of that saving is treated as earnings for national insurance purposes, and that individual will be paying more national insurance, not because their income has increased but because they are trying to secure a decent pension. This represents an additional hit of £240 a year for a young working person, coming on top of student loan repayments at a ridiculously high interest rate, tax, existing national insurance contributions and the high cost of living.
This raises a question for the Minister: quite how are the Government defining a high earner? A graduate in their 20s, living in London and living on £45,000 a year—£40,000 after sacrificing £5,000 for their pension—is not a high earner: not against average income, and certainly not in the context of where they are living. So where has the Treasury decided to draw that line? Unless the definition is clearly set out, it risks becoming a flexible and politically convenient threshold, capable of being shifted over time to suit the Treasury’s needs. Without a fixed and transparent definition, no group can be confident it will not be caught by provisions targeted at high earners.
The example I gave goes to the heart of one of our core concerns with the Bill, which is that the likely behavioural response it will generate risks undermining pensions adequacy. We already know that adequacy is a serious and unresolved problem. Auto-enrolment, introduced on a cross-party basis, has been a major success in bringing people into pension saving. But even so, the statutory minimum contribution of 8% is widely accepted as insufficient to deliver a decent retirement income for many people. The system relies on employers paying over the statutory minimum for their workers to be sufficiently funded in retirement. That is not a controversial point; it is the settled consensus of the pensions world.
The IFS report, Adequacy of Future Retirement Incomes: New Evidence for Private Sector Employees, clearly makes the point that despite the success of automatic enrolment, a large minority of private sector employees are not on track for an adequate retirement income and saving has become more challenging. It found that only 57% of private sector employees saving in defined contribution pensions are projected to hit the Pensions Commission’s target replacement rates, and around one-third of savers are not projected to achieve even the minimum retirement living standard defined by the Pensions and Lifetime Savings Association
Against that backdrop, discouraging additional pension saving is exactly the wrong policy response, yet that is precisely what the Bill does. Evidence published prior to the Budget suggested that nearly 40% of workers would reduce their pension saving if the benefits of salary sacrifice were capped, and the costs and complexities of the new system will almost certainly mean that employers reduce their salary sacrifice offerings altogether. That outcome is a foreseeable consequence of the policy design set out in the Bill.
The effects of the Bill will be felt not just immediately but deeply over time. Lower saving today means lower retirement income tomorrow and greater reliance on the state in future decades. At a time when we are rightly concerned about the long-term sustainability of the public finances, it is deeply troubling to introduce a measure that reduces pension saving, thus storing up higher costs for future Governments.
It would be a mistake to pretend that the Bill bears only on savers. Employers, especially small businesses, will be hit directly by higher costs, new administrative burdens and unpalatable choices about pay and pension provision. It comes at the worst possible time. Businesses are already struggling under the cumulative weight of this Government’s economic choices—minimum wage increases, punitive business rates, an expanding national insurance burden and an economy mired in prolonged stagnation.
Under the current system, salary sacrifice arrangements are a widely used mechanism through which employers support pension saving. They reduce employer NI liabilities, simplify administration and enable employers to offer more generous pension provision without increasing headline wages. The Bill fundamentally damages that settlement.
From April 2029, employers will be liable for employer national insurance contributions at 15% on any salary-sacrificed pension contributions above £2,000. That represents a direct increase in payroll costs for any organisation with meaningful take-up of salary sacrifice arrangements.
Let us imagine an employee aged 50 with a £40,000 salary, trying to make up a potential pension income shortfall before they retire by sacrificing £5,000 per year. Their £5,000 sacrifice is due to trigger national insurance on £3,000 of that amount, costing the employer an additional £450 and the employee £240 per year.
The Office for Budget Responsibility assumes that around three-quarters of those additional costs will be passed on to employees, either through lower wages or reduced employer pension contributions. But even with these anticipated changes in behaviour, employers will still bear substantial transitional costs, ongoing compliance burdens and reputational risks associated with scaling back on pensions.
Employers will also face new administrative and reporting requirements. To administer the £2,000 cliff edge, they will be required to track and report total salary-sacrificed pension contributions through payroll systems, calculate national insurance liabilities on any excess above the cap and communicate clearly with employees about changes to their take-home pay. While the three-year window will allow many to update their payroll software, the complexity should not be underestimated, particularly for smaller employers without sophisticated payroll infrastructure or for employees with more than one job, which is common in the SME sector.
Faced with these costs and complexities, it is entirely rational for employers to withdraw salary sacrifice. The result is likely to be less flexibility, fewer incentives to save, and weaker pension provision across the workforce, making the private sector even less competitive as compared with the generous defined benefit pension provision in the public sector.
This is not mere speculation by the Opposition. The OBR’s own revenue projections already assume significant behavioural change, and evidence suggests that employers are actively reassessing their pension strategies in anticipation of the Bill, meaning that it is increasingly likely that the OBR has been overgenerous in its estimations. At a time when successive Governments have encouraged employers to play a greater role in supporting retirement adequacy, often paying above the statutory minimum, the Bill risks pushing employers in precisely the opposite direction. Higher costs, greater complexity and weaker incentives are not a recipe for stronger workplace pensions, and there could even be a backlash against the Government as individual employees find it difficult to know whether they have hit the cap.
The Government argue that this is a modest measure necessary to raise revenue of £4.8 billion—and, I note cynically, to do so by the end of the forecast period in 2029-30, which is the horizon against which the Chancellor’s fiscal rules are judged. The revenue assumptions depend heavily on people not changing their behaviour, but the evidence suggests that they will. When incentives change, behaviour changes, by both individuals and employers. When behaviour changes, revenues fall, but the damage to pensions adequacy remains. The Bill risks achieving the worst of all worlds: reducing trust in the pensions system, a cap that disincentivises pension saving by responsible individuals, an increase in future dependency on the state, and a failure to deliver the long-term fiscal benefits the Government want.
Tax is a behavioural lever—a powerful one—and should not be considered independently of other pension priorities. The Government are legislating for these changes in isolation today, at a time when the Pension Schemes Bill and the Pensions Commission are likely to transform the whole pension environment. Is this really wise? I believe this House must scrutinise this Bill, its costings and any regulations made under its powers with the greatest of care.
Business Rates
Baroness Neville-Rolfe Excerpts(1 week ago)
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Baroness Neville-Rolfe (Con)
My Lords, here we are again, discussing yet another U-turn when the Government conclude, after public outrage at an announcement that they have made and after some tardy reflection, that perhaps they did not get matters right first time. What is offered here is not merely tardy but inadequate. It fails to grapple with the pressures now bearing down on small businesses across the country, especially from business rates.
It is essential that we look beyond the Treasury’s abstractions and confront the real-world consequences of the changes announced in the Budget, which remain even after this U-turn. Tina McKenzie of the Federation of Small Businesses has warned, following this latest announcement, that it simply proves that
“the Government repeatedly fails to recognise the difficulty that these businesses are in”.
I could not echo that more strongly. Andrew Goodacre, the chief executive of the British Independent Retailers Association, went further, describing the change as a “half-baked U-turn” and warning that independent retail is being “flushed down the U-bend”. He added, tellingly, that he could not recall a worse policy decision, cautioning that this poor decision was based on poor reasoning that will inevitably lead to more shop closures—and so on.
The Minister has said that he wishes to work with businesses but, in the face of this negative and consistent feedback from businesses themselves, especially from SMEs, it seems he has been unsuccessful in that aim. It is abundantly clear that the Statement addresses only a small fraction of the economic damage inflicted on businesses since the Government took office.
The inadequacy is not merely one of scale. The relief announced is, by the Government’s own design, temporary, so it is a sticking plaster applied to a deep and structural wound. One of the most persistent economic misunderstandings that this Government have displayed since assuming office is a failure to grasp what businesses actually need: clarity, consistency and certainty. Businesses do not want U-turns, short-lived reliefs, or promises trailed in briefings only to be withdrawn or reannounced days later, as we all saw before the Budget. This announcement exemplifies that failure in its entirety.
Worse still, everyone in the sector is saying that it is inadequate. If the Minister will not listen to His Majesty’s Opposition, perhaps he might listen to Labour Back- Benchers. Jim McMahon and Stella Creasy made the point that I am making in the other place just this week. When Parliament, publicans, business leaders and his own Back-Benchers are urging a reconsideration, what more is the Minister waiting for?
This is ultimately a question of credibility. Businesses do not measure that by press releases or promises of future strategies; they measure it by whether they can plan, invest and survive. What has been announced does not provide that certainty. It is limited in scope and temporary by design, and arrived only after external pressure became unsustainable. That is not how stable tax policy is made or how confidence is restored.
The truth is that confidence in hospitality and retail is fragile. We heard only this morning from Charlie Nunn, CEO of Lloyds Bank, that the sectors in question were having a challenging time. What assessment has the Treasury made of the number of such businesses that have already cancelled investment, reduced staffing or decided to close since the Budget because the Government have failed to provide clarity about their intentions?
If the Government truly wish to work with businesses, they must move beyond reactive concessions and bring forward a coherent, durable approach that treats the whole high street fairly and gives enterprises the certainty they need in order to grow. Until that happens, I fear this week’s announcement will be seen not as a solution but as an admission of failure.
The modest action on pubs is, of course, welcome, and a promise has been made to look at hotels, but will the Minister agree to look at rates for the wider retail, hospitality and leisure sectors before the next Budget? Thousands of shops, cafés, hotels, nightclubs, cinemas and theatres are still facing huge increases. The combination of higher taxes and rates, extra regulation and energy prices for business—four times those in the United States—is crippling these very sectors, and I hope the Minister will be able to promise some relief.
Baroness Kramer (LD)
My Lords, I start with perhaps a modicum of welcome because the combined impact of the Budget and the business rates revaluation prior to this announcement, frankly, left the pub industry on the verge of a crisis, with up to 50% of pubs under the threat of closure. Some relief has now been offered for many pubs, and I am glad that this lifeline has been extended to live music venues, which are the birthing ground of our very important music industry.
Do the Government recognise that the relief that they have just announced amounts roughly to only £1,650 per pub, which will still leave many in a critical financial hole? Do they recognise that pubs with a rateable value of over £100,000 are, in effect, not eligible, and that restaurants, cafés and soft-play areas—so many of those hospitality and leisure operations that lie at the heart of our high streets and communities—will get no relief from these changes whatsoever?
The chaos that has surrounded the announcement of the review—the change and uncertainty that has gone with it and the impact on the sector—surely points to the fact that we need to stop trying to fix the business rates system at the fringes. We need to take a proper step back and review the whole way in which business rates are structured, which, I would say, should head in the direction of land value. There is so much to be done around this area. It is time that the Government see that, rather than get into continuous messes by attempting to ameliorate a system that, frankly, is broken.
Do the Government also accept that the chaotic process that we have seen deeply underscores the need to include hospitality in the industrial strategy? At the very least, one would hope that the effect of that would be to force the Treasury to align tax policy with the economic goal of strengthening our high streets and our hospitality and leisure sectors, and to determine that they are a source of growth, not of constant crisis and constraint. Does the Minister accept that, until the Treasury gets aligned with that agenda, we will have constant issues like that? Frankly, that is not the best way to go.
Lord Livermore (Lab)
I cannot answer for the strategy of the party opposite—I am sure we would all like to know—but what matters most is that we get to the right policy and I believe that we have done so in this case.
Baroness Neville-Rolfe (Con)
My Lords, the Official Opposition have actually come forward with plans for the high street, which we would be very glad to share with the Minister as he does his high street review. I think we should have not only Lib Dem ideas but Conservative ideas. We have a new Opposition now. We are looking forward, not backwards. We are very keen to see the country grow and the high streets flourish.
Lord Livermore (Lab)
I am sure the noble Baroness would like to look forwards and not backwards, but I am not sure the country shares that view. The country remembers the past 14 years and the damage that party opposite did to the economy, the public services and the fabric of our nation. As I said already, the noble Baroness cannot wriggle out of the fact that, had her party won the election, it would have ended this relief overnight entirely in 2025. It was in her plans—the plans that we inherited from her. If she now claims that she would have extended the relief, why did her party not say so and include it in their forecasts or projections? We have to take what her party says now with a huge pinch of salt. As I have said, the party opposite always supports the spending that we are doing but does not support a single one of the measures we are taking to raise the revenue for that spending. I suspect that its plans are equally uncosted.
Business Rates: Retail, Hospitality and Leisure
Baroness Neville-Rolfe Excerpts(2 weeks, 2 days ago)
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Baroness Neville-Rolfe (Con)
My Lords, we have more bad news this morning from the ONS on job numbers in hospitality. That makes it even more important that we receive clear answers to the following questions. Why did the Government not get the new rating arrangements right first time in the Budget, when we now know that they already had the relevant information on pubs from the Valuation Office Agency? Following briefing to the FT last week, not only pubs but also restaurants and hotels do not know where they stand from 1 April. This is agony for them. When will the Government make a clear statement of their intentions?
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
As the noble Baroness knows, and as I have said before, the previous revaluation was based on property values during the Covid pandemic, which meant that rateable values were much lower. That means that some businesses, including retail, hospitality and leisure venues, are now seeing an increase as a result of this valuation. At the Budget we therefore announced three elements of support at a total cost of £4.3 billion. We implemented transitional relief; we have capped the increase for any business whose value has increased so that they are no longer eligible for small business rates relief; and we have expanded the supporting small businesses scheme.
But, as the noble Baroness quite rightly says—and as I have acknowledged in your Lordships’ House before—the revaluation means that pubs and others will struggle in relation to the business rates applicable to them. That is why we are working with the sector to ensure that it gets the support it needs. Noble Lords will have heard what the Prime Minister and the Chancellor have both said on this in recent days. I will not add to that now or comment on speculation. When there are further comments to be made, I am sure I will be back here to discuss them with noble Lords.
Public Sector Productivity
Baroness Neville-Rolfe Excerpts(4 weeks, 1 day ago)
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Baroness Neville-Rolfe
To ask His Majesty’s Government what assessment they have made of the United Kingdom’s capacity to increase productivity, particularly in the public sector.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, in the decade from 2010, the UK economy saw the lowest productivity growth since the Napoleonic Wars. This led to the lowest growth in living standards ever recorded. This Government inherited a situation where public sector productivity was 5.6% below pre-pandemic levels. Reversing that performance is the number one mission of this Government. As part of our growth strategy, we have set out measures to increase productivity, including reforms to planning and skills, record levels of investment in R&D, new investment in transport connectivity, and a modern industrial strategy.
Baroness Neville-Rolfe (Con)
My Lords, here is another statistic: the ONS has reported that total public service productivity in the UK fell by 0.7% in Q2 of 2025 compared with the previous year and that healthcare productivity fell by 1.5% over the same period. Public service productivity continues to lag behind that of the private sector, yet this Government have overseen a surge in the number of civil servants, with many still working from home; inflationary public sector pay deals, without specific and direct productivity links of the kind that are common in business; more state-controlled activity; and more regulation and taxes on business. Does the Minister agree that this is actually eroding the prospect of UK per capita growth, which is essential for the success of the Government’s ambitions?
Lord Livermore (Lab)
I do not agree with that. On a point of fact, the noble Baroness mentions NHS productivity. The latest figures from the NHS show that NHS productivity has grown by 2.4% in April to July 2025 compared to the same period last year. Once again, the noble Baroness criticises the fact that we are seeking to pay the public sector workforce properly. She will be aware that a workforce that is efficient and well rewarded is essential to increasing productivity—she always talks about the need for increased productivity, but she never backs the measures that actually go to deliver it. I hope that the noble Baroness will recognise some of the measures that this Government are taking. At the spending review, the Government established a programme of public service reform to drive greater productivity. As part of that, the Office for Value for Money worked closely with departments to identify £14 billion of efficiencies. The noble Baroness did not mention that in her question. At the Budget, the Chancellor announced that we will deliver a further £2.8 billion of efficiencies and savings in 2028-2029.
Agricultural Property Relief and Business Property Relief
Baroness Neville-Rolfe Excerpts(4 weeks, 2 days ago)
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Baroness Neville-Rolfe (Con)
My Lords, the Government quietly announced over Christmas that the agricultural and business property reliefs threshold would increase from £1 million to £2.5 million. That change is welcome but it is plainly a U-turn, following well over a year of pressure from farmers, other family businesses and the Conservative Benches. First, does the Minister accept that this cruel delay caused unnecessary anxiety and real distress for the farming community and those operating family businesses across the country? Secondly, given that the harm was clear and the opposition sustained, why did the Government wait so long to act, which maximised the damage as families took important and irreversible decisions?
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
I am grateful to the noble Baroness. May I first take this opportunity to wish her a belated happy birthday for the weekend just past?
I am grateful to the noble Baroness for her support for the measures that we announced shortly before Christmas. It is absolutely right that, following the reforms to the reliefs that we announced in the Budget in 2024, the Government consulted about the reforms with the farming community, as she says, and with family businesses. We have now carefully considered this feedback and have acted, and that was the right thing to do. We have acted to protect more family farms and family-owned businesses, while maintaining a core principle that more valuable agricultural and business assets should make a greater contribution.
OBR: Resignation of Chair
Baroness Neville-Rolfe Excerpts(1 month, 4 weeks ago)
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Baroness Neville-Rolfe (Con)
My Lords, more and more information is emerging about the unfortunate decisions that individuals took during those weeks of pre-Budget speculation. Inspired by leaks from No. 10 and No. 11, stocks were sold, money was taken out of pensions, jobs were destroyed in hospitality and elsewhere, and hard workers and entrepreneurs left the UK to avoid rumoured exit taxes. There is a case for either an open pre-Budget process or a traditional purdah arrangement. There is absolutely no case for setting the rules in one way and acting in another. Will the Minister take that message home to his ministerial colleagues?
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
I am grateful to the noble Baroness for her question and the points that she made. I should say very clearly that we take the Budget process extremely seriously and put the utmost weight on Budget secrecy. She will know that a leak inquiry is now under way, with the full support of the Chancellor and the whole Treasury team. She will also know that the Permanent Secretary to the Treasury will conduct a review of the Treasury’s security processes to inform future fiscal events. We will, of course, also work closely with the OBR to ensure that robust security arrangements are in place before the spring forecast and for all future forecasts. On the other points that the noble Baroness raises, she will be aware that the FCA has now written to the Treasury Select Committee confirming that it has not commenced an enforcement investigation.
Autumn Budget 2025
Baroness Neville-Rolfe Excerpts(2 months ago)
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Baroness Neville-Rolfe (Con)
My Lords, I also welcome the right reverend Prelate the Bishop of Portsmouth and look forward to his maiden speech and working constructively with him in the months and years ahead.
We have all had a few days to consider last week’s Budget, and the conclusion that the vast majority of commentators have reached is, unfortunately for our country, decidedly negative. The one welcome and significant aspect is the slight increase in fiscal headroom from its low level last year, but this has been clouded over by the flow of misinformation in the run-up to the Budget. The negative aspects are numerous. I turn first to the most disappointing area.
When Labour took power, they constantly assured us that growth was their number one priority. Less than 18 months later, growth as an objective has virtually disappeared. There are few pro-growth measures in the Budget but many that will hinder growth, and there were scant mentions of the subject in the Chancellor’s speech. It seemed that growth had served its political purpose and could be cast aside. The Prime Minister tried to correct this on Monday in an unusual post-Budget speech, but he did not dispel fears that growth would become less of a priority. Since then, the OECD has warned that growth will be sluggish and that UK inflation will remain the highest of the G7 countries this year.
The Minister has said today, in an attempt to talk more about growth, that there is clearly much more to do on growth, and I agree. For growth, we need business and consumer confidence, both private and public investment, a tax system with the right incentives and supply side reforms to lift the burden of regulation. The Prime Minister is promising the latter, but the Government’s actions do not match the rhetoric.
I turn next to the extraordinary pre-Budget shenanigans, which lasted many weeks. Before the Budget was delivered, vast swathes of it, indeed pretty much all of it, were trailed, briefed out, withdrawn and then re-briefed by the Government themselves. What purpose all this activity was meant to serve is mysterious. What is clear is that the whole process, counter to all norms and indeed the rules, was contrary to the national interest. As one illustration, Andy Haldane, the former chief economist of the Bank of England, was explicit in saying:
“One of the reasons we had a very weak growth number … is … Budget speculation”.
That speculation was initiated and carried out by the Government themselves.
On process, the OBR’s view of the Government’s breaking of budgetary conventions is set out clearly for us all to see on page one of its report, in the beautifully understated yet lethal prose of the UK mandarinate led by Richard Hughes. We all suspect that he was eased out as much because he authored it as because of the admittedly serious leak of the OBR document on Budget Day, but I shall quote it so we can all enjoy the performance. Describing the production of its forecast, the OBR says:
“Given the unusual volume of speculation on the subject prior to the publication of this--
report—
“the Chair has taken the unusual step of writing to the Chair of the Commons Treasury Committee to set out the facts concerning the evolution of our forecast over the course of the past four months”.
“Unusual” indeed—it is a devastating indictment of Treasury Ministers’ behaviour over the Budget period by those in the best position to judge the facts. Anyone who thinks this is insignificant should just look at the turmoil on the bond markets between 4 November and the day of the Budget—a gift for hedge funds and investment banks, with small investors and more conservative funds left out. Indeed, savers were frightened into withdrawing record amounts from the stock market over the last few months.
The Chancellor and the Prime Minister fought the last general election with a promise of minimal tax rises. The Labour Party has now increased taxes by £40 billion and £26 billion in successive Budgets, taking the total projected burden to 38% of GDP by 2030, an all-time high. It promised that any tax increases would spare working people. So how has that fared? Badly is the answer, if we consider the freeze in income tax thresholds, or the new tax on dividends and landlords, or last year’s huge employer national insurance increase, which in time reduced pay. The hikes in IHT on family businesses, farms and pension savings, which affect many working people, are still to bite. The Chancellor has delivered a Budget not for working people, not for the country, but for the good of her party and her political career.
Last week, the Chancellor refused to rule out future tax rises. The OBR has said that this uncertainty is harming and will continue to harm our economy. It says on page 6 of the report:
“We expect quarterly growth to pick up only gradually in the near term as … domestic business and consumer confidence remains subdued, including in anticipation of further tax rises”.
But why this fear of tax rises? It is because, just over a year ago, the Chancellor told business leaders at the CBI conference that:
“We’ve put our public finances back on a firm footing. Public services now need to live within their means because I’m really clear, I’m not coming back with more borrowing or more taxes”.
She is in the happy position of providing numerous powerful quotes—for the Opposition.
The Chancellor is shoring up problems for later. Many of the tax rises, notably the increases in thresholds, only kick in between 2028 and 2031. The fall in borrowing depends on this tax tail. Is it realistic to think that this will actually happen in an election year? I think not.
It would be remiss of me not to mention SMEs. What was in it for them? There was a small positive on apprenticeships, but meagre and previously announced reforms to EMI schemes, VCTs and listing reliefs, massive new pressures on payroll from the threshold freezes, minimum wage hikes and salary sacrifice cap, a tourist tax, which will dampen demand, and a hideous mix-up over business rates which will lead to the closure of pubs and hotels.
More than 5 million people are now receiving out-of-work benefits with no work-related requirements. Since October 2024, the number of people in payrolled employment has fallen by 180,000. Yet instead of tackling this, the Government have chosen measures that make it worse. The Chancellor has raised the costs of employing people, raised personal taxes and weakened incentives to work. It is no surprise that the OBR now forecasts that unemployment in 2026 will be 240,000 higher than it expected in March. The decision to scrap the two-child limit compounds this failure. Evidence from the Centre for Social Justice shows that removing the cap interacts with the expansion of health and disability benefits to create benefit entitlements that, for many households, exceed typical earnings by a wide margin. In taxing people and businesses to make it more lucrative to stay at home and not contribute at all, the Government have not only produced an unfair Budget but produced one for benefits street, as the leader of the Opposition has shown us with such energy and verve.
What about our national debt, which is now approaching 100% of GDP? Dealing with this is vital, as in 2025-26 the OBR expects debt interest—yes, interest—to total over £110 billion. Of course, the underlying debt has been accrued over many years. Unfortunately, we do not have a strong plan to reduce it. This is not helped by the fact that we now pay more interest on debt than any OECD country bar Iceland and at a rate higher than that paid during the premiership of Liz Truss, whom the Government are quick to criticise.
The Government have pledged to raise defence spending to 3.5% by 2035, yet the executive director of the Henry Jackson Society has said that the Budget
“talks up defence investment, but the numbers … don’t match the rhetoric … the OBR shows a £32 billion black hole under its 3.5 per cent defence pledge”.
If we want to understand the real effects of this Budget on our economy, we need look no further than the OBR. Its verdict is crystal-clear: the Government’s choices have not improved the economic outlook but made it worse. The OBR has downgraded the UK’s rate of growth in productivity to 1% per annum and, because of decisions taken in the Budget, it states that this package will have
“no significant impact on output”
now, and not even by 2030. Inflation will be higher for longer; unemployment is forecast to rise; increases in household disposable income will collapse from 3% to 0.25% per annum; mortgage costs will rise; the real rate of return on investment by business has been downgraded; the forecast for business investment has been cut once again; public sector net debt rises in most years of the forecast; and a sharp fall in additions to housing stock is expected. Compared to March, the picture is even bleaker: potential output is down, productivity is down, real GDP is down, corporate profits are down and inflation is up.
The Chancellor asked the country for trust; the OBR has told us why she does not deserve it. She promised a plan for growth; the forecasts show stagnation, contraction and diminishing prospects for working people. She promised to protect households; the evidence shows higher taxes, lower incomes and rising mortgage costs. She promised to support business; the OBR shows investment down, profits down and confidence falling. She promised to repair the public finances, yet debt rises in almost every year of the forecast.
The Minister again claimed that our economic problems are all the fault of the last Government. I simply say that it is time he accepted responsibility for his and his colleagues’ failures. After all the noise, all the speculation, all the briefs and counterbriefs, we are left with this unavoidable truth: this Budget does not meet the moment. Our country deserves better than that.
OBR Forecasts
Baroness Neville-Rolfe Excerpts(2 months ago)
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Baroness Neville-Rolfe (Con)
My Lords, I begin by noting the resignation of Richard Hughes from his position as chair of the OBR and thank him for his service in that role, which he has occupied since 2020. We in the Opposition will carefully study the contents of the report that has been issued today into the highly regrettable early release of the economic and fiscal outlook. We welcome the seriousness with which the OBR has treated this matter.
We expect those in positions of power to act with transparency, openness and integrity. The only person who has shown any integrity in this process has demonstrated it by resigning. Perhaps the Chancellor might want to follow his example.
We must not let today’s report be a convenient distraction from the matter we are discussing, namely the accusations that the Chancellor misled the Cabinet, the markets and the public in the run-up to the Budget. On 4 November, three weeks before the Budget, the Chancellor held an extraordinary press conference to warn that a downgrade in the public finances meant that taxes would have to rise. She pointed to a supposed collapse in productivity and said this had consequences for working people and for the public finances too. No one compelled her to make that announcement. She chose to do so. She signalled openly that she was preparing to break the Labour manifesto by raising the basic rate of income tax, presenting this as unavoidable.
Yet we know that the picture she painted was not the full truth. There was a sin of omission. What she did not tell the public, Parliament or even her own Cabinet was that the public finances had actually improved. Higher than expected tax receipts had offset most of the productivity downgrade. By 31 October, four days before her press conference, the OBR had informed her that she in fact had a £4.2 billion surplus against the main fiscal rule and not a black hole. The omission of material fiscal information during the most sensitive period of the economic calendar is extraordinarily serious. The OBR was so concerned by the misconceptions circulating before Budget day that its chair took the highly unusual step of writing publicly to the Treasury Select Committee to correct the record. He confirmed that the Chancellor had been informed as early as 17 September that improved tax revenues largely wiped out the productivity downgrade. Yet on 4 November she chose to speak only of gloom, and working families, savers and businesses all made decisions as a result. People judged their financial futures based on those statements. The markets reacted; journalists reported. Those words and the briefings and selective leaks that followed came from the Chancellor, her officials and her Government, and they were incomplete, confusing and misleading. They came on top of weeks of U-turns, backtracking, redrafting and contradictory briefings. I think I have recalled this chaos in earlier debates.
What makes the whole saga even more inexplicable is this: if the Chancellor genuinely wanted more fiscal headroom, if she wanted to raise taxes in the name of prudence, then why on earth did she not simply say so? Instead, we had misreporting, mixed messages and false presentations of the facts, and for what? There is no obvious strategy, no coherent political rationale and no fiscal logic. It simply looks like serious, consequential incompetence at the very top of the Treasury. Let us be clear: this would be unacceptable at any time, but in the run-up to a Budget, when the markets are watching with greater intensity than at any other point, when households and businesses make real decisions based on what they believe the Government are telling them, when the entire country waits to hear how their taxes will be collected and their money will be spent, this is unforgivable.
In the light of the chaos the Government have created around this Budget, can the Minister answer three simple questions? Can he confirm that the Chancellor was aware of a £4.2 billion surplus against the main fiscal rule on 31 October? Can he tell the House, if the Chancellor wanted to increase tax to improve headroom and fund extra spending on welfare, as he suggested, why she did not simply say so in her scene-setting speech? Finally, will the Government finally subject themselves to an investigation by the Financial Conduct Authority and the Permanent Secretary to the Treasury into possible market abuse by all those in No. 10 and at the Treasury who would have had access to relevant confidential information? If the Government have nothing to hide, they will have nothing to fear from such an investigation.
Baroness Kramer (LD)
My Lords, this really has been a bit of an omnishambles with announcements, scene-setting musings, U-turns, misstatements and leaks—speculation that, for a time at least, spooked the markets, raising interest rates on government debt and causing such uncertainty that businesses and individuals delayed or abandoned decisions. We in this House have felt for the Minister, who has tried to hold the line by refusing to speculate despite being inveigled by pretty much all of us to try to make him do so. Frankly, all around him, others were simply flying kites.
On the issue of the OBR, Richard Hughes has taken the honourable step of resigning. Like others, I agree that he is very much the embodiment of a dedicated civil servant and has contributed much to the economic welfare of this country. Can the Government tell us, now that they recognise the seriousness of the breach, whether it is possible that attempts to access this information actually rise to the level of criminality? Are we looking at a possible issue around that? Also, is the security review being extended to other entities at arm’s length from the Government that might also have significant information but not the security that is necessary?
On the Chancellor, we need to understand much better why statements about tax receipts were omitted from the discussion on 4 November. This sits within the context of the omnishambles that I described. I am very concerned, for the future, that this form of extreme kite-flying—not just on this Budget; we have certainly seen it on earlier Budgets—has become so normalised that it has, in effect, killed off purdah. I am not sure that that is good for either the economy or how the markets behave.
In that case, will the Government recognise that they need to overhaul the whole Budget process? In the Swedish example, the Parliament gets to debate the Government’s Budget before it is set in stone, to propose alternatives and to make amendments; that is then followed by a period of scrutiny and accountability. Will the Government now bring forward a new approach to this process—one that enhances accuracy and transparency and properly restores both public trust and the role of Parliament?
Budget: Small and Medium-sized Businesses
Baroness Neville-Rolfe Excerpts(2 months, 1 week ago)
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Lord Livermore (Lab)
I am grateful to my noble friend for her support for what we announced yesterday in terms of apprenticeships. We are investing £1.5 billion over the spending review period for investment in employment and skills support, including £725 million for the growth and skills levy to help support apprenticeships for young people and to fully fund SME apprenticeships for under-25s. We will also introduce new reforms to simplify the apprenticeship system and make it more efficient when short courses are introduced from April 2026.
Baroness Neville-Rolfe (Con)
My Lords, as someone who champions SMEs and regularly has my amendments rejected by the Government, I welcome some of what the Minister has set out. It will, however, be offset by the increase in dividend tax, which has been mentioned, and the negative effect of wider tax increases. Our main disappointment with the Budget, as has already been said, is the disappearance of growth as the principal objective, with no significant positive impact by 2030 according to the OBR. Does he agree that this neglect is particularly bad for SMEs, and can he answer the two questions on the overall impact of the Budget on SMEs now?
Lord Livermore (Lab)
I am grateful to the noble Baroness for her question. No, I do not accept that the Budget is bad overall for growth and for SMEs. As I have said, the OBR has upgraded Britain’s growth forecast for this year from 1% to 1.5%. The noble Baroness’s policy of going back to austerity and cutting spending by £47 billion would be exactly the wrong thing to do at this point for growth. We need to maintain investment in our economy. In this Budget, we are cutting inflation, cutting borrowing every year of the forecast and keeping interest rates down. We are maintaining higher levels of public investment for decades, building houses, roads, railways and energy infrastructure, and backing our fastest-growing companies. She mentioned growth. She may have seen this morning that JP Morgan, the global investment bank, announced a $10 billion investment in the UK with its intention to build its new landmark tower in London. Jamie Dimon, the CEO, said:
“The UK Government's priority of economic growth has been a critical factor in helping us make this decision”.
Forthcoming Fiscal Changes
Baroness Neville-Rolfe Excerpts(2 months, 1 week ago)
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Lord Livermore (Lab)
As the noble Earl knows, alongside the Budget tomorrow, the Office for Budget Responsibility will set out the conclusions of its review of the supply side of the UK economy. I will not pre-empt those conclusions, but it is likely that the OBR will downgrade its historic assessment of the UK’s productivity and find that the productivity performance we inherited from the last Government is weaker than previously thought. The causes of this economic under- performance are well understood: austerity, Brexit and the Liz Truss mini-Budget have left deep scars on the British economy that are still felt today.
Baroness Neville-Rolfe (Con)
My Lords, one of the main objectives of the Treasury, as stated on its own website, is to:
“Ensure the stability of the macro-economic environment”.
Few people believe that this stability objective has been achieved in recent weeks, which have instead been characterised by presentational chaos. As my question is not a Budget question, does the Minister agree?
Lord Livermore (Lab)
The noble Baroness talks about stability and chaos; let us talk about 14 years of chaos. First, there was austerity, which took demand out of the economy at exactly the wrong moment, cutting investment and undermining the economy’s ability to grow. Then we saw a disastrous and tragically misjudged Brexit deal, which imposed new trade barriers equivalent to a 13% increase in tariffs for manufacturing and a 20% increase in tariffs for services, reducing total trade intensity by 15% and permanently reducing GDP by 4 percentage points. Finally, the Liz Truss mini- Budget crashed the economy and sent mortgages soaring by £300 a month. We on this side will take no lessons from the party opposite on how to manage the economy.