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 Sikka Portrait Lord Sikka (Lab)
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My Lords, the Budget is further evidence of the Government’s war on low and middle-income families. The 2p reduction in national insurance delivers zero benefit to 19 million adults whose annual income is less than £12,570. The two-child benefit cap continues and removes around £3,000 a year from some of the poorest families. Wages continue to be taxed at a much higher rate than capital gains, dividends or income from speculative ventures. The freezing of income tax and national insurance thresholds means that, by 2028-29, another 4 million people will be paying income tax; 3 million more will pay tax at the higher rate of 40%; and 400,000 more will end up paying tax at 45%.

The Minister referred to economic growth. Despite economic growth since 2010, the average real wage has returned to the 2007 level and the Resolution Foundation estimates that the average household will be £1,900 poorer by January 2025 than in December 2019. The Government have to remember that, in the absence of good purchasing power for the masses, the economy cannot be rejuvenated—they simply have not learned that lesson over the last 14 years.

The Government’s failures have caused huge growth in poverty. Malnutrition, scurvy and rickets have returned to the UK, and people are actually dying. Between 2012 and 2018, some 335,000 people died from government- imposed austerity—that is the excess deaths according to a paper published in a refereed scholarly journal. We had a debate in this House and I never got a decent reply from the Minister. The Government’s response is to cut real public spending by another £19 billion, which means that public sector wages will be cut, hitting women the hardest as they form the majority of the public sector workforce. Can the Minister explain why the Chancellor’s Statement is not accompanied by an impact assessment showing how many more people will die as a direct or indirect result of the Government’s policies?

On economic growth, the Government offer absolutely no vision. Despite a decade of low inflation, low interest rates and low corporation tax, and numerous incentives, the private sector has failed to invest adequately in productive assets. In the OECD table of 38 countries, the UK is ranked 35th. The private sector will not invest because people do not have good enough purchasing power, and the Government have starved the public sector of investment, which then fuels private sector activity. So the Government are not really offering to increase public sector investment.

Last week the Deputy Governor of the Bank of England told the Treasury Committee that Brexit “has chilled business investment”. It has grown by less than 1% a year in real terms since Brexit. The Government have offered absolutely no answer to Brexit woes, though they have now belatedly offered £4.5 billion for investment in advanced manufacturing, as the Minister said, over the next five years. That shows hardly any ambition. I give the example of investment in the semiconductor industry: the US has offered a package of $50 billion; China, $40 billion; India, $10 billion; and the UK, £1 billion, or $1.2 billion. That is no vision of any kind whatever.

I have some specific questions for the Minister about the public debt, which she referred to in her speech. Nearly £1 trillion of quantitative easing has pushed up asset prices and enriched a few. One study has shown that QE boosted the wealth of the richest 10% of households by between £128,000 and £322,000 per household. Instead of squeezing the poor and public services, the Government could have clawed back this gift to the richest. Can the Minister explain why the gains arising from QE have not been clawed back?

Public debt under the Conservatives has soared from around £1 trillion, or 65% of GDP, in May 2010 to £1.79 trillion, or 79% of GDP, just before the pandemic. The latest figure is £2.64 trillion, or 97.8% of GDP. What does this public debt actually consist of? Ministers have never explained. I can see no rationale whatever for treating quantitative easing balance as part of the public debt, especially as the Government hold equivalent gilts and bonds. In any case, QE is an intrastate transaction between the Bank of England and the Treasury, and the consolidated effect is zero. Can the Minister explain how much of the QE is included in the public debt amount, and why?

Through the QE, the Government have enriched speculators by pushing up the price of gilts and corporate bonds, but they are now selling them at a loss. Can the Minister explain why, as part of quantitative tightening, the Government are selling securities at a loss, how much has been lost, and why the public purse is being held responsible for that loss? The Government are also paying interest to commercial banks on what are called central bank reserves, which are created as a result of QE. Can the Minister explain why this interest is being paid on the money that has been created by the state and given away freely? How much has been paid so far, and when will the Government stop this practice? It is akin to a farmer growing carrots and giving them away, then when he wishes to have one or two carrots back he offers interest to those who will return a carrot. That is exactly what the Government are doing, and it is a crazy policy. I hope the Minister will be able to give a detailed reply to each of my questions.

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Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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A medal? I am going to come up with a medal. She is going to get it, because she came up with a plan. Of course, her plan was more taxes—but we knew that was going to happen, so that is okay. There was one other person who came up with a plan for how to pay for this increased public spending, and that was the noble Viscount, Lord Hanworth. He said to ditch the tax cuts. So there were two people. Everybody else just wanted to increase spending, and therein lies the problem.

Looking in more detail at some of the public spending that noble Lords were concerned about—and obviously I can reflect some of these concerns as well—the noble Baroness, Lady Pinnock, called for additional funding for councils so that essential services could continue. The Government stand behind councils up and down the country. The 2023-24 local government finance settlement provides councils with a 9% increase in core spending power in total, making available almost £5 billion in additional resources. It should be noted that local councils can also raise funds from local taxpayers for local services.

Personally, I live in Kingston-upon-Thames, which all noble Lords well know has a Liberal Democrat council—and my word, my council tax is eye-watering. I think it is one of the highest in the country. What makes me slightly laugh about this is that, despite having some of the highest council tax in the country, the Liberal Democrats have closed the swimming pool. The noble Baroness, Lady Pinnock, is very concerned about swimming pools. I suggest that she go to Kingston-upon-Thames and get them to open it again. There is not a lot of happiness around that.

Public spending also needs to be efficient and not greedy, as noted by my noble friend Lord Howell. It is really important that we set public spending on sustainable trajectories, delivering high-quality public services effectively and efficiently. This is why my honourable friend the Chief Secretary is leading an ambitious public sector productivity review. I hope that my noble friend Lord Sherbourne will share his thoughts with her, because we need to reimagine the way that government delivers public services. So often we fall into the trap where the amount of money put into something equates directly to its outputs. That would never happen in the private sector. It just does not happen. Outputs can be independent of the money that one puts in, and it is very important that, within the public sector, we get that and we try to do that.

I take on board the comments made by the noble Lord, Lord Lee of Trafford, about the 60,000 civil staff in defence. My former Secretary of State is now the Defence Secretary; I know him well, and I am fairly sure that he will already have looked at this in great detail, but I will nudge him in case he has not.

The noble Lord, Lord Macpherson, asked to what extent the Autumn Statement was informed by the OBR’s report on fiscal risks and sustainability. That report did inform the Autumn Statement, as I am sure the noble Lord thought I would say. The Government’s agreement to respond at a subsequent fiscal event establishes this feedback loop, which demonstrates the Government’s commitment to thoroughly assessing and actively mitigating fiscal risks.

The noble Lord, Lord Sikka, asked a question I was a little surprised by; I thought he may have known this, but perhaps it is not well known. He asked about the inclusion of QE in public debt. The UK’s fiscal rules target public sector net debt. This metric excludes the Bank of England and all its subsidiaries, including the asset purchase facility. This changed in 2021 as it was felt that excluding the Bank of England’s contributions to public sector net debt through the valuation effects associated with its quantitative easing programme and term funding schemes better reflected the impact of government decisions.

I will write to noble Lords on MoJ funding and the maintenance of schools. I want to talk about the cost of living because the amount of support that the Government have given, and will continue to give, is not fully recognised. There has been some good feedback about the local housing allowance rates going up, and not enough noble Lords welcomed where we are on the national living wage.

Lord Sikka Portrait Lord Sikka (Lab)
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Can the Minister tell the House how much of QE is included in the public debt now? Why is it the case that, when the left hand of government transacts with the right, the Treasury with the central bank, it somehow creates debt?

Baroness Vere of Norbiton Portrait Baroness Vere of Norbiton (Con)
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I will probably write to the noble Lord with clarity on that, because I would like to make a little progress.

A number of noble Lords tried to pull out one element of the Autumn Statement and made the point that it will benefit rich people more than poor. One cannot look at one measure in isolation. The Government have conducted extensive assessment of the policies announced both in this Autumn Statement and in previous years. It shows that, across all government decisions dating back to the 2019 spending round, the combined impact of tax, welfare and public services spending measures has benefited the lowest-income households the most.

I will touch briefly on welfare reforms. I am grateful to my noble friend Lord Jackson for his support for these reforms. We want to see people who can work be able to work; we are absolutely willing to provide support for them.

The right reverend Prelate the Bishop of Manchester mentioned mental health. I agree with him that we must confront this issue in our country. It remains a priority for the Government. Alongside other recent mental health interventions, the back to work plan includes nearly £800 million over five years to expand talking therapies for those with mild or moderate conditions, as well as individual placements and support to be delivered within community mental health schemes for those with more serious conditions.

I will write to noble Lords on a couple of other things. I come back to growth because it is undeniable that growth in many developed nations has been difficult. Since 2010, when this Government first came to power, the UK has grown faster than many of its competitors, including France, Germany, Italy, Spain and Japan. Would I like to see us grow even faster than we currently are? Absolutely—indeed, the growth trajectory is on an upward trend after the first two years. The noble Lord, Lord Livermore, did not quite get to those numbers but they are higher, peaking at 2% a year. This Autumn Statement is focused on creating sustainable growth without adding to inflation or overall borrowing. It is sensible supply-side interventions that boost business investment.

This is in stark contrast to the plans set out by the party opposite, such as they are. It is not clear to me which parts of the Autumn Statement the Labour Party actively oppose or would do substantially differently, and the noble Lord, Lord Livermore, has not enlightened me. So not only do we have a cut-and-paste shadow Chancellor; it seems we have a cut-and-paste shadow Exchequer Secretary too. It is worth reflecting on the much-vaunted flagship Labour spending policy of £28 billion. For clarity, that is £28 billion per year. In the absence of significant tax rises or substantial cuts to public spending—and only the former is in the traditional Labour playbook—this £28 billion per year will just add to our national debt, piling pressure on future generations and busting through fiscal rules. As I said, this Conservative Autumn Statement is about sensible supply-side reforms to support British businesses and boost productivity.

The noble Lord, Lord Howarth, asked whether full expensing represents value for money. The Government have prioritised the business tax cut as a targeted way to support businesses which invest. It does this by reducing the cost of capital for UK companies. This policy will drive 0.1% GDP growth in the next five years, increasing to slightly below 0.2% in the long run. Whereas the benefits of the policy will grow over time, the costs will reduce. Full expensing brings forward relief that would otherwise be claimed over decades, meaning that the costs are highest in the policy’s introduction.

The noble Lord, Lord Londesborough, talked about a productivity council. The Government take a range of advice on matters of growth and productivity from all sorts of organisations, including public sector organisations such as the National Infrastructure Commission and the Competition and Markets Authority, but also from academics, think tanks and businesses. While I respect his idea, at the moment we will probably not take it forward.

There was some interesting comment around the pension reforms. The noble Lord, Lord Davies, welcomed the proposals. He asked for the timing of implementation of changes to retired benefit schemes. This will become clearer when the consultation period has completed. I will write on the second question about pensions, because I am conscious that I will imminently run out of time.

My noble friend Lord Northbrook and the noble Lord, Lord Lee of Trafford, asked why the Government are not bringing back the VAT retail export scheme. The Government continue to accept representations from industry regarding the tourist tax and are considering all returns carefully. It is about providing very robust evidence on this. At the moment, we feel that it is a little lacking.

The noble Baroness, Lady Featherstone, talked about the creative industries. There is a large number of specific asks for a very specific sector, so I will certainly write.

It is also worth noting some of the more general discussions that noble Lords had today, and I hope will continue to have in the future. There were considerations around the size and shape of the state, the amount of contributions that should come from taxpayers, and, from the noble Lord, Lord O’Neill, public versus private sector investment. My noble friend Lord Willetts talked about the shape of the state. These are things to mull on, definitely. They will not change government policy today or in the near future but are really important issues that should be debated.

I second what my noble friend Lady Noakes said about regulation. We need to look at regulation as our economy develops. It is most helpful for the Government when noble Lords can go into specifics. I am always very happy to hear about specific regulations that we feel are not fit for purpose and which need to be improved.

Also, to my noble friend Lady Noakes, on the 100-plus measures, I say that the details can be found in the “Policy Decisions” chapter of the Autumn Statement document.