Autumn Budget 2025

Baroness Kramer Excerpts

Thursday 4th December 2025 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding speakers, let me repeat the welcome to the right reverend Prelate the Bishop of Portsmouth and say how much we enjoyed his excellent maiden speech, which I will refer to later.

To the Government, let me say that I am not quite in the “Apocalypse Now” camp that I hear from the noble Lord, Lord Bridges, and some of his colleagues, but I really thought this was going to be—and needed to be—a Budget for growth. When we were in that period of endless announcements, U-turns, leaks, chaos, et cetera, I thought there would be a real surprise on Budget Day, that we would get that project, programme and vision that would drive forward growth. I was wrong.

As others have said, the OBR makes it clear that trend productivity growth is down, and we have no proper road map for dealing with it—the noble Lord, Lord Willetts, was eloquent on that point. The OECD has predicted that the UK will face headwinds from the Budget and will have the highest inflation rates in the G7. The noble Lord, Lord Rosenfield, spoke extensively on this issue. The Budget contained no compelling argument for investing in UK business. I wish the Government had listened to the noble Viscount, Lord Stansgate, who was calling for a real step change at this point, which is exactly what we need.

I agree that there were marginal but important measures in here that support upscaling—they were described by the noble Baronesses, Lady Moyo and Lady Penn, and, to some degree, by the noble Lord, Lord Ranger—focusing on AI.

These are not easy times for growth. Global headwinds are reducing global trade forecasts, which is not good news for the UK economy. That is exactly why my party is urging the Government to go immediately beyond their lackadaisical reset with the EU and push for a bespoke customs union. Those who do not think that Brexit is a blow that is battering our economy should go and talk extensively to business. It is not just the economists; it is the people on the ground daily who are dealing with the consequences. Of all times, this is not a time when we can indulge in the glow of insularity and exceptionalism.

My party, using work from Frontier Economics and the Commons Library, calculated that joining a customs union with the EU would deliver £25 billion in additional money to the Treasury. Frankly, that dwarfs every tax-raising measure in the Budget and off-sets far more than any spending cut that the Conservatives propose.

We heard concern about Brexit from the noble Lords, Lord Hollick, Lord Tyrie and Lord Brook of Alverthorpe. My noble friend Lord Razzall referred the Government to the Private Member’s Bill being brought forward by the honourable Member for Surrey Heath, which will give an opportunity to capture these issues.

I and my party strongly take the view—as my noble friends Lord Razzall and Lord Mohammed of Tinsley said—that the Government are absolutely right to lift the two-child benefit cap. I say to the noble Baroness, Lady Deech, and the noble Lords, Lord Bailey and Lord Massey, if a safety net is not for children, who is it for? We take the strong position that poverty undermines children, it does not raise them.

Similar views were expressed by the right reverend Prelates, the Bishop of Portsmouth and the Bishop of Manchester. I pick up the question introduced by the right reverend Prelate the Bishop of Portsmouth on where the funding will come from to guarantee SEND provision when it shifts from local authorities to central government. The noble Baroness, Lady Barran, raised that issue, and my noble friend Lord Mohammed of Tinsley stressed its importance. That means that we must have an important and strong answer on this from the Minister.

The decision to remove £150 from energy bills is welcome, but, as my noble friend Lord Razzall says, it is less adequate than the Lib Dem proposal. I say to the noble Baroness, Lady Griffin of Princethorpe, that we would not have been partly funding that by cutting programmes to tackle climate change, as the Government have chosen to do. We would have fully replaced that from central government resources.

When I first heard the Budget, like others—and the noble Lord, Lord Bilimoria, has just said this—I thought that huge relief would be given to the hospitality industry through the business rates system. We in our party have proposed a VAT cut, and some people implied that this was going to be the equivalent. But UKHospitality estimates that an average pub will pay £12,900 more in business rates over three years.

The noble Lord, Lord Freyberg, stressed similar pressures on grass-roots venues. This is a serious problem and I want to hear a proper answer from the Minister. In our case, we would have paid for the cuts in energy bills and VAT by pursuing the proposals of the IPPR for attacks on the windfall that major banks are making, not from their efforts but from the technicalities of QE and the reserves that they are keeping at the central bank. Why the Government have not seized that opportunity is beyond me. However, I give them credit for seizing the proposals pushed over and over by the noble Lord, Lord Foster, for a remote gambling tax, which has not just fundraising but moral outcomes.

Why have the Government not raised the digital tax from 2% to 10%? It applies to the mega seven digital companies. Frankly, I just do not understand. These are serial tax avoiders par excellence. Our own UK digital companies are disadvantaged by their gaming of the tax system. That absolutely matters if we push on digital and AI.

Let me address the main proposals in the Budget, which raised most of the additional £26 billion in taxation and take tax levels in this country to unprecedented highs. Taxes will have gone up by £67 billion since the first freezing of tax thresholds. Labour is responsible for £13 billion of those taxes and, oh my, the Conservatives are responsible for £54 billion of those taxes. When I hear them talking as though they are a low-tax party, I wish that they would go back and look at what they did. Freezing thresholds is one of the worst ways to increase taxes on ordinary people. The noble Baroness, Lady Thornton, raised the question of the impact on women, and I hope that the Government will answer that.

It is true that many people do not realise what is happening until it is too late, a point made by the noble Lord, Lord Burns. However, we now face the extraordinary prospect that a quarter of employees will be in the high-rate tax bracket by 2030-31, not because they have become more prosperous but simply because their wages are rising just to cover inflation. The OBR forecast relies on inflation staying higher for longer, as the noble Baroness, Lady Neville-Rolfe, said. The Government hope, because their additional spending is front-loaded and the tax increases are back-loaded, that people will have not caught on that, by 2030-31, they will be paying some £1,400 more in tax. We will have had nine years of threshold freezing.

The other major tax-raiser comes from changes to the salary sacrifice scheme of some £4.7 billion. I am concerned, and I heard the same concern from the noble Lord, Lord Hollick, that, combined with the changes to pensions in the last Budget, we are going to see a move away from pension saving and long-term investment by the wage-earning middle. The consequences of that are not good for growth. I ask the Government to get a grip on this issue. They are trying to get more auto-enrolled pensions—which is a very small part of the market covered by the Mansion House compact—into UK investing, but the big part of the market is now essentially being discouraged.

I refer to the comments made by my noble friend Lady Bowles on government procurement of innovation. That is a serious issue and I hope the Government take it on board. It is much wider than the narrow issue that it is sometimes treated as.

The so-called mansion tax will raise only £400 million and likely much less, but in London the revaluation of bands F, G and H will hit social housing. The mansion tax does not but the revaluation does. Can the Minister confirm that? The answer is that the whole of council tax needs a complete rethink—I agree with the noble Lord, Lord Campbell-Savours, on that.

The timing of the taxing per mile of EVs seems perverse, when we need to accelerate the switch from petrol to diesel. I assume, along with the noble Lord, Lord Young, that this is the beginning of an evolution into road pricing. Why on earth were we not given a tax road map on this issue? Without that map, we will begin to see people become inhibited about buying EVs, perhaps unnecessarily. A road map should have accompanied a significant change on this scale.

I have one small comment—perhaps it is not so small—on the loan charge. I thought that the Government’s seeming acceptance of the McCann review, even if it did not deal with pre-2010 and already settled cases, would largely provide a resolution to this appalling mire. Then I realised that the discount that the Government are now going to use is capped at £70,000, leaving some 20% of those with open cases still absolutely in the mire. These are people who might once have been high earners but now typically are retired on modest incomes. So little more was needed for this nightmare to be resolved. I do not understand why the Government did not take that next step.

Lastly, the Government, as necessary, increased the fiscal headroom to £21.7 billion. We called loudly for such a change. I am slightly taken aback that one-third of the increase in the headroom relies on public sector efficiency savings on, frankly, a heroic scale. The noble Lords, Lord Willetts, Lord Wood and Lord Eatwell, and the noble Baroness, Lady Shawcross-Wolfson, talked about how questionable future public sector savings are, particularly on the scale included in the forecast. The markets have calmed for now, but they will not stay calm if we do not see that efficiency come through and if we do not see growth.

Meanwhile, as I wind and finish, the public sector and local government are still on their knees. Ordinary people are still struggling every day with the cost of living. Businesses’ appetite to invest is still muted. There really is only one way to make a step change out of this mess, and I am going to go back to where I started: will the Government please now accelerate the process of resurrecting a bespoke EU customs union relationship so that we can look forward to a future with resource and choice, and without facing the kinds of constraints that are evident in this Budget?