Autumn Statement 2023 Debate

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Department: HM Treasury
Wednesday 29th November 2023

(7 months, 4 weeks ago)

Lords Chamber
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Lord Eatwell Portrait Lord Eatwell (Lab)
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My Lords, I first welcome the noble Baroness to the Treasury Bench. She has a hard act to follow.

A couple of weeks ago, the Institute for Government and the Chartered Institute of Public Finance and Accountancy published a detailed 300-page analysis of the impact of the pandemic on nine public services, ranging over health and social care, education, local services, criminal justice and the police. The study first evaluated performance from 2010 to the eve of the pandemic, meaning that any change in quality of service over the first nine years of the Conservative Government could not be blamed on the pandemic or the war in Ukraine.

In eight out of nine areas of public service studied, performance was found to be worse in 2019 than in 2010. In four areas—general practice, hospitals, adult social care and prisons—performance was much worse. Only in schools was performance rated as better. Between 2019 and the present day, nothing at all has improved and eight of the nine major services have deteriorated yet further. Finally, as far as the next five years are concerned, while some services are predicted to stay at the same miserable level, others, including schools and criminal justice, face further decline.

So, will the Chancellor’s Autumn Statement proposals turn this decline around? The answer given by the OBR is clearly no. As tables A.l and A.2 of the OBR outlook make clear, current spending will grow very slowly, while investment in public services will suffer major cuts. The Chancellor’s one big public services announcement was to set a productivity target of a 0.5% increase per year. Productivity is an issue in many services, particularly in the courts and hospitals, but nothing in the Autumn Statement will significantly improve the situation. Indeed, the real-terms cuts to capital budgets ensure that public services will be left with a crumbling estate, insufficient equipment and inadequate IT systems.

But of course, the main focus of the Autumn Statement, as the noble Baroness made clear, was not public services but private sector growth. If significant economic growth is indeed achieved, the positive impact on public services might be considerable. The Autumn Statement commitment of £4.5 billion-worth of support for new industries sounds impressive—until you compare it with United States funding for green investments of $360 billion and European Union plans in excess of €200 billion.

Of course, the Government deserve congratulation that taxpayers’ money has secured the new Nissan investment, and we all hope for similar encouraging results from the investment summit held on Monday. But just as when unemployment rises, some people find new jobs, so these welcome investments must be viewed not as isolated events but in the context of the overall investment picture. The Chancellor’s primary measure to stimulate investment was his decision to make so-called full expensing permanent—a positive step. According to the OBR, this is expected to increase long-run potential output by “slightly below” 0.2% of GDP per annum. However, this positive impact is, according to the OBR, offset by the reduction in

“the public capital stock as a share of GDP”,

which

“would likely also have a material, negative impact on potential output”

over the forecast period.

Here, the OBR has, sotto voce, identified a fundamental error in the Government’s approach to investment and growth: their failure to recognise that public services are complementary to the efficiency of private sector investment. Private profitability requires a thriving public sector. For example, the deterioration in the health service has been a major contributor to the record 2.5 million people out of work due to ill health. If just half these people were in work, this would add a full 1 percentage point to GDP—five times greater than the impact of full expensing. Similarly, the lack of additional support for local government will impact spending on local infrastructure, transport and skills, increasing private sector costs of production, particularly for SMEs. The complementarity of public and private investment was very clear in 2010.

George Osborne’s austerity Budget killed a growing economy stone dead. This was not the immediate effect of his expenditure cuts, which took time; it was the immediate effect of his clear declaration of intent to cut public investment and cut the growth of demand. It was the vision of austerity, together with the reality of cuts, that killed off so much private investment. The Chancellor’s 110 measures to stimulate growth may be successful, but a fundamental problem is that they do not add up to a coherent policy. They are, in Churchill’s famous phrase, “a pudding without a theme”. An economy and society in which the popular estimation is that nothing works is not an attractive place for businesses to invest.

That is why Rachel Reeves’ commitment to large-scale investment in green technologies—the undoubted technologies of the future—is so important. This defining commitment will provide the theme and coherence this Autumn Statement lacks. It is also a long-term policy, a commitment to at least one Parliament—so different from the persistent chopping and changing of the last 13 years, and providing the stable policy confidence investors need. Of course, given the public sector scorched earth that a Labour Government will inherit, an ambitious green growth investment strategy will be a considerable challenge. But it is as nothing compared to the challenges faced by our parents and grandparents in 1945, when, in far worse circumstances, a Labour Government laid the public sector foundations for the next 25 years of transformative growth, under both Conservative and Labour Administrations.

A component of Reeves’ green growth strategy is a long-term commitment to investment in and reform of the public services—reform that recognises not only service to the public but the support the public sector provides to business investment. The green investment programme will be a catalyst, defining Britain’s profitable investment future. It will herald a fundamental change in the way the British economy is managed: a fundamental reform that, as illustrated by the failure of this Autumn Statement, is desperately needed.

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Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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Is that genuinely funny or is it just performative?

It will not surprise noble Lords to learn that I did not agree with all the points raised, but there have been others that have truly piqued my interest and I will take them away for further consideration.

I will first set out the context, which was noted by my noble friend Lady Goldie in her very spirited speech for an “old bird”. It is very important to think about the context of where we are and where we have come from. There were some notable exceptions, because many noble Lords just glossed the past few years and said, “Oh, it’s all the Government’s fault”. I note that my noble friend Lady Lea gave an excellent speech, with a very authoritative analysis of where we are.

We have faced a global pandemic and global economic headwinds generated by Putin’s illegal war in Ukraine. As a result of those things, we have made decisions. Other countries did not make exactly the same decisions as us; therefore, they had a different experience. The decisions we took included the Covid support of over £350 billion, and the cost of living support to dampen the impact of rising bills has exceeded £100 billion. I invite noble Lords to recall these interventions, because I do not, in my years on the Front Bench in this House, recall any time when the Opposition Benches, in particular, argued against them. In fact, in nearly all cases, I seem to recall many saying that it was just not enough and that more needed to be done during Covid and the recent cost of living challenge.

Therefore, when noble Lords turn around and complain about various elements of the state of our economy, I say that we have not lived in usual times. That is why this Autumn Statement is a blueprint to get our debt down, to get business investment up, to get inflation controlled, output boosted and taxes cut; and this is an Autumn Statement plan for growth. I reassure my noble friend Lord Dobbs that economic growth is and will be at the heart of this Government’s plans, and that the Government will do more on tax cuts when the circumstances allow. I understand that my noble friend Lady Noakes will probably never be happy with what the Government propose and their speed for the interventions that she would like, but I hope that she appreciates that we are making steps in the right direction.

On a minority sport, I also welcome the support of the noble Lord, Lord O’Neill, for the devolution deals: they do not get enough love and, combined with good local scrutiny, can make huge differences to parts of the country. One has only to look at the West Midlands and the great mayor we have there.

Turning to a few of the issues raised and trying to deal with them, I turn to my noble friend Lord Dobbs and his comment about experts and forecasters. When I was quite young, I was an investment banker for many years. I am well aware that forecasts are rarely 100% right. They are forecasts; we know that. However, it is important that we have a framework for decision-making, so I agree with him that forecasts are not gospel. It might have been my noble friend Lady Lea who said that they can be both an art and a science, and of course they get slightly less certain the further out you get. However, we need a framework to make our decisions, and that is why it is really important that we forecast where we think the economy is going to be and that we have the OBR to check our thinking. It is an educated view—a snapshot in time—but one that I believe is useful.

My noble friend Lady Lawlor made some very good points about inflation and its contributing factors. She talked about the role of the Bank of England and mentioned the report on that. I have to confess that I have not yet read that report, but I intend to very soon. I have already brought it to the attention of my officials, and I look forward to debating the report in due course.

My noble friend Lord Northbrook asked why we did not stop QE sooner. Of course, decisions on the size of the APF, which means something that escapes me now—oh, I believe that it is the asset purchase fund—and the pace of purchases and sales are those of the independent Monetary Policy Committee, and the Government do not comment on MPC actions.

My noble friend Lord Howell talked about the impact of high interest rates on government debt payments, and my noble friend Lord Sherbourne of Didsbury also mentioned debt, the size of interest payments and the consequences of those high levels. That is why this Government are absolutely committed to getting debt down, so that the actual cash cost of the debt comes down too. I cannot speculate on bank rates, of course, but we feel that by 2028-29 underlying debt will be 92.8% of GDP.

The noble Lord, Lord Livermore, whom I have not yet congratulated on his new role as shadow Exchequer Secretary—so that is all good news—talked a lot about the tax burden, and I hope I was able to demonstrate in my opening remarks why the tax burden is necessarily high, because we must pay off the debt that we had to accumulate, given the economic circumstances that we were in. He said that he did not think this was a tax-cutting budget, but the OBR has confirmed that decisions made by the Chancellor in this Autumn Statement reduce the tax by 0.7% of GDP—which is a tax cut. I am confused, but I am sure we will sort all that out.

Lord Eatwell Portrait Lord Eatwell (Lab)
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The Minister just made a mistake. What the OBR argued is that the cut in national insurance means that taxes have risen less rapidly than they would have done otherwise, but that they have risen none the less.

Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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The noble Lord is exactly right. But the counterfactual is what happened before the Autumn Statement. People are, in general, paying less than they would have done previously. Yes? Okay. We got there in the end.

Lord Eatwell Portrait Lord Eatwell (Lab)
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People are paying more. In other words, the Minister is arguing a case for cuts in taxation. This is not a cut in taxation; it is a reduction in the rate at which taxes are increasing, but they are increasing none the less.

Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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We are both correct.

The noble Lord, Lord Macpherson, asked whether it was the Government’s policy now to favour national insurance reductions over income tax reductions. I think I can say yes. It certainly was true for the Autumn Statement—so, for this moment in time, I think I am covered.

A couple of noble Lords mentioned inheritance tax: my noble friends Lord Northbrook and Lord Balfe. I can assure noble Lords that more than 93% of estates are forecast to have no liability in each year up to and including 2028-29. Those that do are very important in contributing to public finances and in helping to fund vital public services. However, as all noble Lords know, the Government keep all taxes under review, including inheritance tax. That also goes for the stamp duty suggestions mentioned by my noble friend Lord Willetts and the fuel duty suggestions from the noble Baroness, Lady Bennett.

I turn now to public spending. Many noble Lords called for increased public spending during this debate. I would read out the names, but it is actually nearly all noble Lords, apart from notable exceptions on the Benches behind me. Those who called for more public spending included the noble Baronesses, Lady Pinnock, Lady Featherstone, Lady Bennett and Lady Meacher; the noble Lords, Lord Howarth, Lord Macpherson and Lord Thomas; the noble Viscount, Lord Hanworth, and the right reverend Prelate the Bishop of Manchester. The list is extraordinary. However, on the list of noble Lords who came up with a plan for how to pay for those spending increases—a medal goes to the noble Baroness, Lady Bennett. She did come up with a medal.

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Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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I will go away and see what we can do. I said over 100 because it is now much more than 110. There are a lot of measures, and I will see what I can do to get together some sort of list.

Lord Eatwell Portrait Lord Eatwell (Lab)
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Can I support the noble Baroness, Lady Noakes, in her request? It would be enormously helpful if the Minister would commit herself to provide an annotated list of the 110 measures and place it in the Library.

Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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As I said to my noble friend Lady Noakes, I will do my best.

It is worth spending some time on my noble friend Lord Harrington’s review. I am enormously grateful for his work. This is an area in which he has great interest and, indeed, great expertise. His speech today added colour to his thinking set out in the report; I know that all noble Lords will be keen to see it, and I hope will be able to speak to him about his conclusions. The Government have accepted all the headline recommendations and, as a result, are establishing a new ministerial investment group and backing it with additional resources for the Office for Investment. I have worked with the Office for Investment; it is very good and works across government, pulling together all the bits of government one needs to make a successful strategic investment. I have some minority-sport questions on EIS and VCT on which I will have to write, important though they are.

I believe I should conclude. The measures in the Autumn Statement are important and bold, and rightly so. As a country we find ourselves in a moment when inflation is reducing, borrowing is reducing, and growth is improving. The measures announced by the Chancellor last week will support efforts to boost business investment in the UK, and they will help businesses of all sizes to spend more of their money on the things that bring them success: premises, people, ideas and products. Our measures will get thousands of people working and reward them with better pay. By delivering for the British people, we will see economic growth leading to increased prosperity and well-being for all.