Lord Livermore (Lab)

I am very happy to check that point and I shall write to the noble Lord. The measures set out in the Government’s Charter for Budget Responsibility implement many of the recommendations in the committee’s report and provide important guard-rails to ensure that capital spending is good value for money and drives growth in our economy. The IMF has called these important reforms to strengthen the fiscal framework. They include a commitment to hold one major fiscal event each year, giving families and businesses stability and certainty on upcoming tax and spending changes. The noble Lord, Lord King, suggested moving to just one forecast, a point echoed by the noble Lord, Lord Macpherson. We introduced the fiscal lock through the Budget Responsibility Act, ensuring all major fiscal announcements are subject to an independent assessment by the OBR. Spending reviews must now take place every two years, setting departmental budgets for a minimum of three years. According to the IMF, this will “improve the credibility of the medium-term fiscal framework”. The Government have accepted all 10 recommendations in the OBR’s review of the March 2024 forecast for departmental expenditure limits, to ensure that no future Government can conceal unfunded spending pressures from the OBR, as the previous Government did. The committee’s report sets out a number of recommendations relating to the nature of UK debt and how it is managed. The report argues—and the noble Lord, Lord Bridges, made clear—that it is the trajectory of debt, rather than the level, which should be the principal consideration when assessing debt sustainability and that debt levels become unsustainable if there is an insufficient buffer to absorb future economic shocks. The Government agree with this analysis, which is why the Chancellor rebuilt in full the buffer against the fiscal rules at the Spring Statement—which was mentioned by the noble Lords, Lord Bridges and Lord Burns, and the noble Baroness, Lady Manzoor—and why our investment rule requires net financial debt to be falling in 2029-30. Building this resilience is key to protecting the UK against global shocks. The committee’s report recognises that the UK is not currently an outlier in the overall stock of debt but notes the relatively high share of index-linked gilts. Issuing index-linked gilts has historically brought cost advantages, and analysis shows direct savings of around £90 billion in total from the issuance of index-linked gilts. However, it is right that the Government keep the proportion of index-linked gilts under review to balance the benefits and risks. Separately, the noble Lords, Lord Razzall, Lord Lamont, Lord Forsyth, Lord Macpherson and Lord Weir, noted that the report argues that quantitative easing has increased the sensitivity of government borrowing costs to short-term movements in interest rates. However, it remains the case that the average maturity of the Government’s wholesale debt continues to be consistently longer than the average across the G7 group of advanced economies. This helps to limit how quickly changes in interest rates affect debt interest costs. Other countries also face significant effects because of quantitative easing. Quantitative easing is now unwinding, which will increase the effective maturity of the UK’s debt, all else being equal. The last concern raised by the committee in this section of the report relates to the UK’s reliance on debt purchases by overseas investors, which my noble friend Lord Liddle and the noble Lord, Lord Forsyth, mentioned. The Government deliberately maintain a varied gilt-issuance strategy, to promote a well-diversified investor base. Overseas investors help maintain a diversity of gilt investors, keeping demand for UK debt strong and ensuring that the Government are not overly reliant on any one type of investor. The committee’s report covers the longer-term challenges of getting debt to fall—the noble Lord, Lord Bridges, referred to these as the “Ds”. These include the impact that demographic shifts, such as an ageing population and a rising dependency ratio, will have on the public finances, as my noble friends Lord Davies of Brixton and Lord Browne of Ladyton said. The Government recognise these challenges, including the rising cost of care, which is set to double in the next 20 years alone. That is why, for example, we have established an independent commission, led by the noble Baroness, Lady Casey, to develop a new national care service, able to meet the needs of older and disabled people into the 21st century. We are taking immediate action to stabilise the care sector and invest in prevention, carers and care workers. Other spending pressures discussed in the report include migration, the green transition and defence. The noble Lord, Lord Macpherson, made an interesting suggestion about debating annually the OBR’s fiscal sustainability report. On migration, the report concludes that high net migration cannot be the solution to debt sustainability, as many noble Lords mentioned today. The Government’s position remains that we value the contribution that legal migration makes to our country, and will continue to strike a balance between ensuring that we have access to the skills that we need, while encouraging businesses to invest in the domestic workforce. Further detail will be set out in the forthcoming immigration White Paper. The noble Lords, Lord Horam and Lord Weir, mentioned the green transition. The Government believe that early and ambitious climate action is vital to delivering long-term economic growth and enabling a cost-effective transition to net zero. As the Chancellor said earlier this year: “Net zero is the industrial opportunity of the 21st century, and Britain must lead the way”. On that point, I agree with the comments made by the noble Baroness, Lady Kramer. The noble Lords, Lord Forsyth and Lord Tugendhat, and my noble friend Lord Browne of Ladyton spoke about defence spending. The committee’s report was published before the Government’s announcement that defence spending will rise to 2.5% of GDP next year, which represents the biggest sustained increase in defence spending since the Cold War. This new funding, delivered within our fiscal rules, will deliver the stability that underpins economic growth and unlock prosperity for working people, through new jobs and opportunities. Finally, the report considers the impact of productivity improvements in the context of the projected rise in government expenditure. The Government’s view is that tackling the UK’s historic weak productivity performance is central to delivering higher economic growth. The OBR estimates, for example, that every 0.1% increase in productivity growth will reduce the rise in the debt-to-GDP ratio by 25 percentage points over the next 50 years. It is for these reasons that we are pushing ahead with vital reforms to cut waste and bureaucracy, including in the planning system, and to make the state leaner and more efficient. I once again sincerely thank and congratulate the Economic Affairs Committee on its work on this important report. The Government share the committee’s view that tough decisions are required to put debt on a sustainable path. That is why in the Budget last October we fixed the foundations of our economy and, at the Spring Statement this May, took the action needed to meet our fiscal rules, even when they were tested. The global instability we have seen over recent weeks demonstrates why this approach was necessary. It is only by delivering sustainable public finances that we can maintain resilience in the face of global shocks. The approach we are taking will continue to put debt on a sustainable path. It will provide certainty to families and businesses in an ever-changing world, and it will generate the long-term investment we need to grow our economy.