Lord Livermore
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The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, it is a privilege to open this Budget debate in your Lordships’ House, and to speak alongside so many distinguished and expert noble Lords. I look forward to listening to, and learning from, all the contributions today. We should perhaps spare a thought for the noble Lord, Lord Bridges of Headley, who, as speaker number 72, has to try to find something new to say. I do not doubt that he will succeed.
I take this opportunity to welcome the right reverend Prelate the Bishop of Portsmouth to your Lordships’ House. I very much look forward to his maiden speech.
Undeniably, this Budget has been dominated, even more than usual, by questions of process before, during and after it was delivered. There were months of speculation in advance. On the day of the Budget itself, the OBR made the serious error of releasing significant details before it was delivered and, shortly after the Budget, the OBR made the decision to publish the timeline of its forecasts. The OBR was clear in its evidence to the Treasury Select Committee this week that the Chancellor did not mislead, but I am sure that many noble Lords may, perfectly fairly, choose to focus on these questions today. In opening this debate, though, I will focus on the measures contained in this Budget and set them in the context of our wider strategy to build a stronger and more secure economy.
As noble Lords will know, we inherited an economy with serious flaws—with a crisis in our public services, a crisis in our public finances and a crisis in the cost of living. At the heart of this deep malaise had been a chronic lack of investment, both public and private, weighing down on growth and productivity. Private sector investment was the lowest in the G7, constrained by years of economic instability, a planning system that thwarted projects before they even began, a regulatory system tying businesses in red tape and a Brexit deal that cut Britain off from our largest market.
Public sector investment was no better and was even set to fall again, from 2.5% to 1.7% of GDP. That meant vital infrastructure projects constantly deferred, delayed or cancelled—roads, railways and energy projects that did not get built. Little wonder the IMF repeatedly warned that a lack of investment posed a major barrier to growth.
That is why, since day one in government, we have put increased investment at the heart of our growth strategy and made growth our number one priority. In our first Budget, last year, we changed the fiscal rules to enable and protect £120 billion of additional capital investment—the highest level in four decades—in housing, energy and transport: the infrastructure that Britain needs to grow. We have systematically begun to remove the barriers to investment faced by the private sector, with the biggest planning reforms in a generation; cutting the cost of regulation; investing in skills and apprenticeships, while reforming our visa system to attract the best global talent to Britain; pensions reform to release more capital for investment; and resetting our relationship with the EU.
All this and more is why, since the election, we have seen an additional £250 billion of private investment committed to the UK. It is why, in this Budget, the OBR upgraded Britain’s growth forecast for this year, from 1% to 1.5%. It is why we were the fastest-growing economy in the G7 for the first half of this year and are on course to be the second fastest for the year as a whole, and it is why, just this week, the OECD upgraded its prediction for Britain’s growth next year. But there is, clearly, much more to do.
Ahead of this Budget, the OBR looked back at the productivity performance of the previous decade and concluded that the chronically low levels of investment, together with the effects of Brexit and the pandemic, have weakened the economy by far more even than previously thought. This reappraisal of the productivity performance of the past has directly impacted its view of GDP going forward, driving lower growth forecasts for the remainder of the forecast period. The OBR has been clear that its review reflects not what this Government have done over the past 14 months but the legacy of the past 14 years. Nevertheless, it now falls to us to deal with the consequences.
This Budget continues that work, by taking three deliberate pro-growth choices. First, by choosing to maintain economic stability, getting inflation and interest rates down, we are giving businesses the confidence to invest and our economy the room to grow. Secondly, by choosing to reject austerity, we are protecting £120 billion of additional investment in growth-driving infrastructure. Thirdly, by choosing to back the fast-growing companies of the future, we are supporting the investment, innovation and economic dynamism that will increase growth in the next decade and beyond. Let me take each in turn.
The first pro-growth choice made by this Budget was to maintain economic stability. In the months leading up to the Budget, in countless conversations with business and investors, I heard repeatedly that the most important action the Government could take would be to reduce inflation, helping interest rates—already cut five times since the election—to continue to fall. A growing economy needs strong foundations of economic stability, with borrowing down, inflation down and investment up. So, because of this Budget, borrowing will fall as a share of GDP in every year of the forecast: from 4.5% in 2025-26 to 1.9% in 2030-31. Borrowing will fall more than in any other G7 economy. Net financial debt will be lower at the end of the forecast than it is today and the headroom against our stability rule will more than double to £21.7 billion.
The Budget also took more direct action to cut inflation. We have taken £150 off energy bills, frozen rail fares for the first time in 30 years and extended the freeze on fuel duty. All these things together take 0.4% off inflation next year. To put that in context, it is the biggest near-term reduction in inflation due to government policy ever forecast by the OBR at a single fiscal event.
The second pro-growth choice the Budget made was to protect the £120 billion of additional capital investment that we have committed over the next five years, ruling out a return to the austerity of the past. The OBR has estimated the eventual long-term growth impact of this increase in capital investment as adding 1.4% to GDP. Cutting this and returning to austerity would be the worst thing we could do for growth—the very definition of short-termism. Yet that is precisely what previous Chancellors, with previous fiscal rules, have done.
In the years following the financial crisis, austerity took demand out of the economy when it was needed most, undermining investment in critical infrastructure, weakening productivity and choking off growth. Unlike today’s Conservative Party, we will not repeat the mistakes of the past: the exact mistakes that led to the productivity downgrade that we must now fix. Instead, our increased investment will deliver new roads, improved transport, new homes and new energy infrastructure. We are investing in the construction of Sizewell C. We are investing in the UK’s first small modular reactors at Wylfa and in the Lower Thames Crossing, the trans-Pennine route upgrade and Northern Powerhouse Rail.
The third pro-growth choice this Budget makes is to back the fastest-growing British companies of the future. The ScaleUp Institute described it as
“a budget for scaleups and those ambitious to scale”,
and it is right. The UK is a great place to start a business, but I have heard for too many years that our companies cannot scale at the same rate as their US peers. As a result, brilliant British businesses are either acquired, choose to go abroad to raise investment, or fail. We will change that. We will make the UK the best place to start, scale and stay, because we know that today’s fast-growing firms are tomorrow’s engine of jobs and growth.
By doubling the eligibility of our enterprise tax incentives, investing billions of pounds in research and development, and delivering reforms to boost the attractiveness of UK markets, we will ensure that these companies can access the capital and talent they need to succeed. For all businesses, large and small, we are maintaining the lowest headline corporation tax in the G7 and the most generous full plant and machinery capital allowances in the OECD. To incentivise private investment and encourage growth, we are also introducing a new 40% permanent first-year allowance for main-rate plant and machinery from July 2026.
In this Budget, we faced a choice: we could have made the reckless choice to abandon our fiscal rules and let borrowing and debt increase. Instead, we made the pro-growth choice to get borrowing, debt and inflation down, more than doubling our headroom. We could have made the irresponsible choice and returned to austerity, cutting public services and undermining capital investment. Instead, we made the pro-growth choice to protect the investment in Britain’s infrastructure to build a stronger, more secure economy, but these choices need to be paid for.
The previous Government froze personal tax thresholds from 2021 until 2028. This Budget maintains all income tax and equivalent national insurance thresholds at their current level for a further three years from 2028. I accept that maintaining these thresholds is a decision that will affect working people—the Chancellor said that last year; I said that last year, and I will not pretend otherwise now—but we have sought to keep their contribution as low as possible by making other fair and necessary reforms to the tax system.
A Blackpool terrace pays more council tax than a £10 million Westminster mansion, so we are introducing a high-value council tax surcharge on homes worth £2 million or more, while protecting those on low incomes. We are raising taxes on property, dividend and savings income, which currently face no equivalent of national insurance, by 2% at the basic and higher rates and by 2% at the additional rate for property and savings income. The cost of pension salary sacrifice was set to almost treble from £3 billion in 2017 to nearly £9 billion by the end of the decade, so we are capping the amount that can be salary-sacrificed into a pension without paying any employee or employer national insurance at £2,000, protecting low and middle earners while retaining in full pension tax relief worth over £70 billion a year.
Alongside this, we are making reforms so that our tax system keeps pace with a fast-changing economy by ensuring that motoring taxes cover electric vehicles via a new per mile levy; increasing taxes on online gaming and betting while protecting bingo halls and horseracing; and preventing some ride-sharing apps abusing a tax relief intended for coach tour operators to undercut black cabs. We are also supporting our high streets with permanently lower business rates for over 750,000 retail, hospitality and leisure properties, funded with higher rates for the most expensive properties, including warehouses used by online giants. These are fair choices, with increases in tax coming most from those households in the highest income decile. They are choices that underpin and enable our growth agenda of cutting borrowing and debt while refusing to cut investment.
On Monday, the Prime Minister set out the next phase of that growth strategy. First, we will reform the regulation of our nuclear industry to make it easier to invest and then extend that approach across our entire industrial strategy. Secondly, we will keep moving towards a closer trading relationship with the European Union. Thirdly, we will reform a failing welfare system. In the last five years of the previous Government, spending on welfare increased by £88 billion, yet we inherited a system where children could not afford to eat but taxpayers were asked to subsidise tax breaks on the lease of luxury cars. That is a broken system, and we are reforming it. Britain, one of the richest countries on earth, still has children growing up in poverty. A Labour Government will always fight the social injustice where children, through no fault of their own, go to bed hungry and cold, their life chances shrinking every day.
Poverty scars our society, but it scars our economy too. It drives down growth and productivity; it heaps pressure on already stretched public services. Children who grew up in poverty earn 25% less aged 30 than their peers. All this costs our economy an estimated £40 billion a year. I am proud to have worked for the previous Labour Government who cut child poverty by a million over a decade. I was angry when we had to watch the Conservative Government who succeeded us reverse all our progress and increase child poverty by 900,000, at terrible social and economic cost. Now, I am proud to be a member of a Government who, by scrapping the two-child limit, are lifting 450,000 children out of poverty in a single step. Combined with other steps we have already taken, including extending free school meals to more families, this Government will now be responsible for the largest reduction in child poverty ever achieved in a single Parliament.
I am proud too of what this Budget and this Chancellor have achieved: not just cutting child poverty but cutting energy bills by £150; cutting NHS waiting lists; cutting borrowing more than any other G7 country; cutting inflation; supporting further cuts to interest rates and rejecting austerity. These are the right choices for a stronger NHS, the right choices for investment, the right choices for business and for workers, and the right choices for Britain to continue building a stronger, more secure economy. I beg to move.
Lord Livermore (Lab)
My Lords, it is a pleasure to close this debate on the Budget this evening. I have enjoyed listening to all 73 contributions from noble Lords today. I congratulate the right reverend Prelate the Bishop of Portsmouth on his excellent maiden speech. I very much look forward to his further contributions to this House. I was struck particularly by one thing he said,
“to find what is good and to strengthen it”.
That must be right. Having sat through the debate this evening, though, I am aware that opinions may differ on how well we are achieving that in this Budget.
It is a privilege to speak in a debate with the noble Lord, Lord True—I do not often have that pleasure. My noble friends Lord Barber of Ainsdale and Lady Curran set out the record of the noble Lord’s Government that we inherited. The combined effect of austerity, Brexit and the Liz Truss mini-Budget was devastating to the economy. Had the economy grown by the average of other OECD countries over those 14 years, it would be more than £150 billion larger today. The previous Parliament was the worst ever for living standards. Inflation hit 11% and was above target for 33 months in a row. The UK had the lowest private investment levels in the whole of the G7. Productivity growth had entirely stalled, with output per worker growing more slowly than in nearly every other G7 country.
The need to deal with that inheritance is why we have made growth our number one priority. This Budget made pro-growth choices to get borrowing down, with increased headroom to cut the cost of living and get inflation down to support Britain’s fast-growing companies and, most of all, to protect the investment needed to support growth by avoiding a return to austerity. This is real substance, and these are real policies to get real growth and enable the British people to lead better lives in the years ahead.
As I said in opening the debate, this was a Budget dominated, even more so than usual, by process—before, during and after it was delivered. This was a point raised by the noble Lords, Lord True, Lord Rosenfield, Lord Kempsell, Lord Leigh of Hurley, and the noble Baronesses, Lady Neville-Rolfe, Lady Noakes and Lady Penn.
Let me address those directly. Let me be clear that the Chancellor was completely honest and consistent with the public in everything she said. Professor David Miles, the acting head of the OBR, in his evidence to the Treasury Select Committee on Tuesday, confirmed that what the Chancellor said before the Budget had not been misleading. The Chancellor said before the Budget that her priorities were cutting the cost of living, NHS waiting lists, debt and borrowing. The Budget delivered on all those priorities.
The Chancellor was clear that a productivity review would mean lower tax receipts. The OBR confirmed they were £16 million lower. The Chancellor said she intended to build more headroom; she built more headroom to £21.7 billion. The Chancellor was clear in the summer that policy choices would need to be paid for. The Budget shows that those cost £6.9 billion. The Chancellor was clear that challenging decisions would be needed on tax and spending, and she froze thresholds for a further three years.
Let me be clear too that the Government are committed to the independence of the Office for Budget Responsibility and its role at the heart of economic and fiscal policy-making. The strength of that institution is a vital pillar in the Government’s commitment to economic stability. As noble Lords know, and as the noble Lord, Lord Rosenfield, for example, commented, the economic and fiscal outlook was accessed prematurely ahead of the Budget. That was a very serious leak of highly sensitive information. The OBR took full responsibility for this and conducted a review into what happened.
That report was published on Monday. Following that publication, as the noble Lord, Lord Dobbs, said, Richard Hughes, the chair of the OBR, resigned. The Chancellor has written to Mr Hughes to thank him for his many years of public service. I have previously put my own thanks on record in your Lordships’ House. That decision was a matter for Mr Hughes. The suggestion otherwise from the noble Baroness, Lady Neville-Rolfe, is categorically untrue. The noble Lord, Lord Tyrie, spoke rightly about future appointments being subject to approval by the Treasury Select Committee.
The noble Lord, Lord Lamont, criticised the impact of pre-Budget speculation, as did the noble Lords, Lord Hamilton of Epsom, Lord Macpherson of Earl’s Court and Lord True, and the noble Baronesses, Lady Neville-Rolfe and Lady Penn. Let me say clearly that we take the Budget process very seriously, and we put the utmost weight on Budget secrecy. As referred to by the noble Lord, Lord Kempsell, a leak inquiry is now under way into the FT reporting on the 13 November, with the full support of the Chancellor and the whole Treasury team.
The noble Baroness, Lady Penn, spoke about learning lessons. The Permanent Secretary to the Treasury will now conduct a review of the Treasury security processes to inform future fiscal events. We will also work closely with the OBR to ensure that robust security arrangements are in place before the spring forecast and for all future forecasts. The noble Lord, Lord Willetts, asked about the arrangements for the Spring Statement. As the Chancellor said in the Budget, to support just one fiscal event a year the OBR will not assess the margin against the fiscal rules in the spring and the Government will not make a fiscal response.
The noble Lord, Lord Macpherson, asked whether the Treasury still accepts his recommendations from 2013. The answer is yes, and I can tell him that the current Permanent Secretary to the Treasury referred to that review in an email he sent to all Treasury staff.
The noble Lord, Lord Skidelsky, spoke about the productivity puzzle. Much of the context of this Budget was the OBR supply-side review, as mentioned by the noble Lords, Lord Willetts and Lord Bridges of Headley, and my noble friend Lord Hollick. The OBR looked back at the productivity performance of the previous decade and concluded that the chronically low levels of investment, together with the effects of Brexit and the pandemic, have weakened the economy by far more even than previously thought. This reappraisal of the productivity performance of the past has directly impacted its view of GDP going forward, driving lower growth forecasts for the remainder of the forecast period. The noble Lord, Lord True, together with the noble Baronesses, Lady Neville-Rolfe and Lady Moyo, noted its impact on future growth forecasts. But they all ignored the fact that it was the verdict on the previous 14 years, not the previous 14 months.
This review has had both a fiscal and a growth impact. In terms of fiscal policy, because of this Budget, borrowing will fall as a share of GDP in every year of the forecast, from 4.5% in 2025-26 to 1.9% in 2030-31. Borrowing will fall more quickly than in any other G7 economy. Despite what the noble Lord, Lord Bridges of Headley, said, net financial debt will be lower at the end of this forecast than it is today. The headroom against our stability rule will more than double to £21.7 billion—this was supported, I think, by the noble Lords, Lord Lamont, Lord Willetts and Lord Macpherson of Earl’s Court, and my noble friends Lord Wood of Anfield and Lord Hollick.
The Budget also took more direct action to cut inflation. We have taken £150 off energy bills, frozen rail fares for the first time in 30 years and extended the freeze on fuel duty. All these things together take 0.4% off inflation. In answer to the noble Lord, Lord Bridges of Headley, to put that in context, it is the biggest near-term reduction in inflation due to government policy ever forecast by the OBR at a single fiscal event.
Some noble Lords said consolidation was back-loaded, including the noble Baroness, Lady Morrissey, and the noble Lords, Lord Macpherson of Earl’s Court and Lord True. I do not accept that. In the Budget, we doubled the headroom to the stability rule to £21.7 billion. We have also set out a credible and front-loaded consolidation plan that is working. Borrowing this year is set to be the lowest for six years and falls in every year of the forecast, from 4.5% of GDP this year to 3% of GDP in 2027-28, and to 1.9% in 2030-31. In answer to the noble Baroness, Lady Shawcross-Wolfson, we will deliver a further £2.8 billion in efficiencies and savings in 2028-29, rising to £5 billion in 2030, on top of almost £14 billion announced at the spending review.
My noble friend Lord Sikka spoke about the distributional impact of this Budget. The Government’s distributional analysis shows tax, welfare and public service spending decisions taken from the autumn Budget 2024 onwards are progressive and benefit households in the lowest income deciles the most. The increases in tax are concentrated on the highest-income households. On average, all but the richest 10% of households will benefit from policy decisions in 2028-29.
The right reverend Prelate spoke passionately about children with special educational needs, joined by the noble Baronesses, Lady Barran, Lady Noakes and Lady Kramer, and the noble Lords, Lord Mohammed of Tinsley and Lord True. We know and have long said that the system is in need of reform to, first and foremost, support children and families effectively. The OBR has based its estimate on unreformed pressures. It has not accounted for planned reforms to deliver a sustainable SEND system that works better for children and families. The detail of this will be set out in our reform plan early in the new year. The OBR has only used mainstream schools as an indicative example, whereas the Government have confirmed that residual SEND pressures will be absorbed within the overall Government DEL budget from 2028-29 onwards. The Government will not make final decisions until reform plans are confirmed and Budgets from 2028-29 onwards remain subject to the spending review in 2027.
Several noble Lords, including the noble Lords, Lord True and Lord Hodgson of Astley Abbotts, the noble and gallant Lord, Lord Craig of Radley, and the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, spoke about defence spending. The UK will spend 2.6% of GDP on defence spending by April 2027. The Government have set an ambition to spend 3% of GDP on defence in the next Parliament, when economic and fiscal conditions allow. Changes to the defence spending envelope will be considered at the next spending review in 2027.
The noble Lord, Lord Freyberg, spoke about the creative industries, and I agree with him on their importance to the economy. We have made creative industries central to our industrial strategy and he is right that the new discretionary power to introduce a visitor levy would allow local leaders to drive growth in their regions.
Turning now to growth, I disagree with the noble Baroness, Lady Penn, about the importance that we place on growth. It is without question our number one priority. My noble friends Lord Barber of Ainsdale and Lord Pitkeathley of Camden Town said that, in this Budget, the OBR upgraded Britain’s growth forecast for this year from 1% to 1.5%. We were the fastest-growing economy in the G7 for the first half of this year and we are on course to be the second-fastest for the year as a whole. Just this week, the OECD upgraded its prediction for Britain’s growth next year. Just last week, following the Budget, JPMorgan announced a $10 billion investment in Britain to build its new landmark tower in Canary Wharf. CEO and chair Jamie Dimon said:
“The UK government’s priority of economic growth has been a critical factor in helping us make this decision”.
Despite what the noble Lord, Lord Horam, called for, my noble friend Lord Hollick spoke about the importance of protecting the additional capital spending that we have allocated to the economy. The noble Lord, Lord Lamont, said that the previous Government had to deal with the aftermath of the financial crisis. Of course he is right, but I would contend that they did so in exactly the wrong way, by taking demand out of the economy at exactly the worst moment. The very worst thing that we could do now for growth would be to follow the Conservative Party recommendation and return to austerity, cutting investment just as previous Chancellors with previous fiscal rules have done. We will not repeat those mistakes of the past: the exact mistakes that led to the productivity downgrade that we must now fix.
This Government are committed to delivering growth in every nation and region of the UK. My noble friend Lady Griffin of Princethorpe specifically spoke about growth between northern city regions, and I absolutely agree with her. It is precisely why we have committed to the northern growth corridor, including Northern Powerhouse Rail, to boost connectivity and access to markets across the north. More widely, this Budget transfers significant new fiscal powers into the hands of local leaders.
The noble Lord, Lord Razzall, and the noble Baroness, Lady Kramer, spoke about the importance to growth of moving closer to the European Union. As they know, I agree. The noble Lord, Lord Tyrie, also supported this point, as did my noble friend Lord Brooke. The Prime Minister said the same in his speech on Monday this week.
The noble Baroness, Lady Moyo, and the noble Lord, Lord Harrington of Watford, are right to say that there is much more to do elsewhere, and they rightly identified the importance of reducing energy costs for businesses, which must of course be a priority.
My noble friend Lady Warwick of Undercliffe spoke about housing and asked specifically about social rent convergence. The Government remain committed to implementing social rent convergence, but we must take the time to get the details right and take into account the benefits to the supply and quality of social affordable housing, the impact on rent payers and affordability. We will respond to the consultation on this issue in full and announce a decision about how social rent convergence will be implemented in January. My noble friend also asked about supported housing; as she mentioned, the Government will shortly publish a new cross-government homelessness strategy. I cannot speculate on the contents of that right now, but we will be working closely with mayors and local councils to get us back on track to ending homelessness.
My noble friend Lady Thornton raised co-operatives. The Government are progressing a number of measures to support the growth of the mutual sector, including modernising the Building Societies Act. We have endorsed the industry-led Mutual and Co-operative Sector Business Council, and the Department for Business and Trade has announced a call for evidence, which will explore business support for co-operatives.
Several noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord de Clifford and Lord Razzall, spoke about the importance of small businesses. I agree with all of them on the importance of small businesses to the economy. As my noble friend Lady Carberry of Muswell Hill said, for small and medium-sized businesses the Budget supports high streets, with permanently lower tax rates for 750,000 retail and hospitality properties. It backs entrepreneurs by doubling eligibility for tax breaks that make it easier for fast-growing start-ups to scale and stay in the UK, makes the training for under-25 apprenticeships completely free for SMEs, and maintains the lowest rate of corporation tax in the G7.
The noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Bilimoria and Lord Razzall, spoke specifically about pubs. Most pubs are protected by a £4.3 billion business rate support package, capping bills and saving a typical independent pub £4,800 next year, compared to what it would pay without intervention. The Government have also cut the business rates tax rate paid by small retail, hospitality and leisure properties to the lowest level since 1990-91.
My noble friends Lord Hollick and Lady Curran mentioned the importance of apprenticeships, particularly given the infrastructure commitments that we have made—a point also mentioned by the noble Lord, Lord Harrington, and I pay tribute to his work at Make UK. The Government are making more than £1.5 billion available over the spending review period for investment in employment and skills support. This includes £725 million for the growth and skills levy, to help support apprenticeships for young people and 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.
My noble friend Lady Curran spoke about the importance of growth in Scotland, and I will of course look carefully at the report she mentions. The Budget invests in Scotland’s economic potential, supporting Scotland’s energy industry, driving up economic growth across Scotland and investing in the important projects that she mentioned.
My noble friend Lord Jones of Penybont, who is far more expert in this matter than I am, spoke about the importance of growth in Wales. As he said, we are supporting the Wales energy industry by announcing that Wylfa will pioneer the UK’s first small modular reactor, supporting up to 3,000 jobs. We are also investing to deliver growth in Wales by establishing AI growth zones in north and south Wales, each backed with £5 million investment in local AI adoption and skills.
I turn to tax, which of course so many noble Lords mentioned in the debate. We faced a choice at the Budget. We could have made the reckless choice to abandon our fiscal rules and let borrowing and debt increase, but instead we made the pro-growth choice to get borrowing, debt and inflation down, more than doubling our headroom. We could have made the irresponsible choice and returned to austerity, cutting public services and undermining capital investment. Instead, we made the pro-growth choice to protect the investment in Britain’s infrastructure to build a stronger and more secure economy. But, as I said at the outset, these choices do need to be paid for.
The noble Baroness, Lady Neville-Rolfe, raised the impact of that on working people, as did several other noble Lords during the course of this debate. The Chancellor made very clear in her Budget how much maintaining the tax thresholds at their current level would impact working people. We have sought to minimise this by establishing certain other necessary tax reforms.
Several noble Lords touched on the subject of tax reform, including initially the noble Lord, Lord Burns, who was supported by my noble friends Lord Wood of Anfield, Lord Eatwell and Lord Hollick. I recognise that perhaps this Budget has not gone as far as they would have liked, but we have made a start on reforming some important tax reliefs within the system.
My noble friend Lord Davies of Brixton asked about the impact of tax thresholds on pensioners paying tax on their state pension. We gave a clear commitment to this in the Budget. We are now exploring the best way to achieve it and will set out more detail early next year.
My noble friend Lady Thornton raised the impact of the Budget on women. Increases in the national minimum wage, for example, will benefit women more. To answer her specific point, alongside the Finance Bill, impact assessments will be published in relation to each individual measure and their impacts on women.
My noble friend Lord Campbell-Savours spoke about the high value council tax surcharge, a point which was also raised by the noble Baroness, Lady Kramer. The Valuation Office will identify homes which will need to pay the surcharge through a targeted revaluation. The new charge will ensure that those with the most valuable properties pay their fair share.
Several noble Lords mentioned the impact of salary sacrifice measures, including my noble friend Lord Hollick and the noble Lord, Lord de Clifford, who expressed some concern about it. I agree with my noble friend Lord Davies of Brixton that the measures are proportionate. The Government rightly provide generous tax relief for people paying into a pension, relieving income tax on all contributions. This Budget makes no changes to those reliefs or to the tax-free lump sum. Salary sacrifice for pensions, which was intended to be a small part of our pensions system, is now forecast to nearly treble in cost from under £3 billion to £8 billion in 2030, with the most benefit going to higher earners.
The noble Lord, Lord Elliott of Mickle Fell, spoke about non-dom reforms. I have justified this policy in the past, so I will not do so again now.
I was pleased to see the issue about low-value imports that the noble Lord, Lord Leigh of Hurley, has campaigned on for so long make progress. I know he expressed concern about how long this is taking. We will do what we can to speed up the implementation of the reforms, for which the noble Lord has called.
The noble Lord, Lord Young of Cookham, spoke expertly about electric VED. I believe I was correct in saying that we are not introducing road pricing, since electric VED does not mean that motorists will be charged based on when or where they drive, nor will there be any new national charges to drive on specific roads. Electric VED only requires a vehicle’s mileage to be estimated.
I am grateful to several noble Lords, including the noble Lords, Lord Leigh of Hurley and Lord Massey of Hampstead, and the noble Baroness, Lady Penn, for their support for the further scale-up measures that we introduced as well as for expanding the enterprise management incentives, the enterprise investment scheme and the venture capital trust investment limits. I will happily take away the suggestions from the noble Lord, Lord Leigh, as to how we might go further in that regard.
I am also grateful to my noble friend Lord Stansgate for what he said in support of the measures to help ensure that the fastest-growing businesses in our country start, scale and stay, particularly by backing breakthrough technologies and regional clusters with £7 billion of UKRI funding and a new £130 million growth catalyst fund to help frontier firms scale.
I agree with a lot of what the noble Baroness, Lady Bowles of Berkhamsted, spoke so passionately about on the need for procurement reforms.
The noble Lords, Lord Lamont of Lerwick and Lord Bridges of Headley, and the noble Baroness, Lady Penn, spoke about the impact on living standards. As they will know, real household disposable income fell by 1.8% in the last Parliament, making it the only Parliament since records began in which living standards fell. This fall has already been reversed. RHDI per capita was £800 higher in the first year of this Parliament compared with the final year of the previous Parliament. The OBR forecasts growth to continue, with RHDI per capita projected to grow by 2.9% over this Parliament. It also forecasts that, as a result of the action taken by this Government, RHDI per capita will grow by a further 0.2 percentage points in 2026-27.
Many noble Lords spoke about the importance of tackling welfare reform, including the noble Lords, Lord Burns, Lord Willetts, Lord de Clifford, Lord Saatchi and Lord Hamilton of Epsom, and the noble Baronesses, Lady Coffey, Lady Stedman-Scott and Lady Shawcross-Wolfson. Last year, we delivered the largest fraud and error package in recent history, saving £4.3 billion in 2029-30. This Budget goes further to ensure that our welfare system is sustainable for the long term. It increases face-to-face assessments for health benefits and offers 18 to 21 year-olds who have been on universal credit and looking for work for 18 months paying work, instead of benefits. It ensures that people living abroad can no longer buy a state pension on the cheap and reforms the Motability scheme’s tax reliefs, saving the taxpayer over £1 billion across five years.
Our new youth guarantee will also offer 18 to 20 year-olds paid work rather than benefits and we will examine extending it, as my noble friend Lord Rook asked. We recognise the need to do more, which is why the Government will continue to look at other reforms, including through the Timms review, the Milburn review and the Pensions Commission.
As my noble friend Lord Rook said, we have raised taxes on gambling companies and launched a crackdown on tax evasion to pay for the scrapping of the two-child limit. I am still amazed that the party opposite opposed these measures, when three-quarters of households impacted by this change have at least one parent or carer in work. Reducing child poverty is not only a moral imperative but an investment in the country’s future. Under the Conservatives, child poverty rose by 900,000, yet they still oppose the action we are taking to tackle child poverty.
The cost to the economy of child poverty is some £40 billion a year. It damages the life chances of the children affected and it hits growth, because children who grow up in poverty earn 25% less aged 30 than those who do not. The right reverend Prelate the Bishop of Portsmouth described how 50% of children in one of his wards live in poverty. Removing the two-child limit will lift 450,000 children out of poverty in the final year of this Parliament, yet the noble Baroness, Lady Neville-Rolfe, on behalf of the Official Opposition, opposed it. When combined with other measures announced this year, it will lift around 550,000 children out of poverty. The noble Baroness, Lady Coffey, asked about this measurement: it is relative child poverty after housing costs.
The noble Lord, Lord Bird, spoke rightly about the intergenerational nature of poverty and said that we should prevent poverty in the first place. Child poverty makes it harder for children to get on in life and it hurts our economy in the long term. Reducing child poverty will help to increase educational outcomes and attainment, and therefore improve economic outcomes.
Finally, my noble friend Lady Pitkeathley also spoke passionately about carers. As my noble friend said, 26,000 carers will now have their overpayment debt written off or reimbursed.
We will continue to rebuild the economy after 14 years of failure from the party opposite. Where they delivered the slowest projected growth in the G7, our growth in the first half of this year was the fastest in the G7. Where they presided over the worst Parliament ever for living standards, living standards have already increased by 2.1% since the election. Where they oversaw the worst pay growth in a century, real wages grew more in the first 10 months of this Government than in the first 10 years of the previous Government, and where they continually cut capital spending and deterred investment, we are investing for the long term, with £120 billion extra over the next five years.
Now, in this Budget, we are going further: not just cutting child poverty but cutting energy bills by £150; cutting NHS waiting lists; cutting borrowing faster than any other G7 country; cutting inflation and supporting further cuts in interest rates. This is a Budget that rejects austerity, a Budget for a stronger, more secure economy, and a Budget for a Britain built for all.