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. It is, of course, a particular pleasure given it is the first Budget of a Labour Government in 14 years. I take this opportunity to welcome the noble Baroness, Lady Penn, to her place and to welcome the noble Lord, Lord Booth-Smith, to your Lordships’ House. I very much look forward to his maiden speech. This was a Budget to fix the foundations; to restore stability by repairing the public finances; to rebuild our public services after years of neglect; to choose investment rather than decline; and to keep our promises to working people. It was a once-in-a-generation Budget, on a scale commensurate with the challenging inheritance we faced. That meant taking difficult decisions, but they were the right decisions. As a result of those decisions, we have now wiped the slate clean. We have created a foundation of stability on which we will take forward our agenda of growth and reform, delivering the mandate for change on which this Government were elected. Let me set out first the inheritance we faced. As noble Lords will know, on her arrival at the Treasury in July, the Chancellor was informed of a £22 billion black hole in the public finances—a series of commitments made by the previous Government which they did not fund and did not disclose. Ahead of this Budget, the independent Office for Budget Responsibility conducted a review into the circumstances surrounding a meeting it held with the Treasury on 8 February this year at which the Government were obliged to disclose all unfunded pressure against the reserve. The OBR’s review has established that at that point the previous Government concealed £9.5 billion. The OBR’s report states that they “did not provide the OBR with all information available”. It has made 10 recommendations to prevent this happening again, which we have accepted in full. Of course, at that point, the previous Government still had five months left in office, during which time they continued to amass unfunded commitments which they did not disclose. By the Spring Budget, Treasury records show these had reached £16.3 billion. By July, they had reached £22 billion. The Treasury has now provided to the OBR a line-by-line breakdown of these unfunded commitments —260 separate pressures that the previous Government did not fund and did not disclose. Neither did they budget for costs which they knew would materialise, including funding for compensation schemes for two terrible injustices. So, this Budget provides, for the first time, funding of £11.8 billion to compensate victims of the infected blood scandal and sets aside £1.8 billion to compensate victims of the Post Office Horizon scandal. However, the country did not just inherit broken public finances; it inherited broken public services too: NHS waiting lists at record levels, children in portakabins as school roofs crumbled, rivers filled with polluted waste. Yet since 2021, there had been no spending review—no detailed plans for departmental spending set out beyond this year. Faced with this reality, any responsible Chancellor would have to act. Some may argue otherwise: that we should have ignored the problems in the public finances. But that is the path of irresponsibility, the path chosen by the Liz Truss mini-Budget, when mortgage costs rose by £300 a month, for which working people are still paying the price. This Government’s number one commitment is economic and fiscal stability. That is why the very first Act we passed was the Budget Responsibility Act, strengthening the OBR, and why we have established robust fiscal rules. These fiscal rules put the public finances on a sustainable path while allowing a step change in investment to drive long-term growth. The first rule is the stability rule. This brings the current Budget into balance so we do not borrow to fund day-to-day spending. The significant fiscal consolidation over the course of this Parliament takes borrowing as a share of GDP from 4.5% to 2.1%, as we achieve the biggest current budget surplus in over 20 years. Over the past 14 years, borrowing averaged 5.6% of GDP; over this Parliament, it will average 2.6%. But while being tough on spending, we must create the space for investment. We inherited a situation where the UK is the only G7 country with private investment levels below 20% as a share of the economy, and we inherited plans where public investment was set to fall from 2.5% to 1.7% of GDP. As the IMF has said, more public investment is badly needed in the UK. So, the second fiscal rule is the investment rule. As set out in our manifesto, we will target debt falling as a share of the economy, which will be defined as “net financial debt”, a measure that has been published by the Office for National Statistics, and forecast by the Office for Budget Responsibility, since 2016. Net financial debt recognises that government investment delivers returns for the taxpayer by counting not just the costs of investment but the benefits too. Like our stability rule, the OBR has confirmed the investment rule will also be met two years early. To meet our stability rule, in the context of the hole in the public finances, the compensation schemes that were not funded and the need to avoid austerity in our public services, the Budget raises taxes by £40 billion. Of course, before any Government can consider changes to taxation, they must first ensure efficiency and reduce wasteful spending. The Budget set a 2% productivity target for all departments; it took steps to ensure welfare spending is more sustainable; and it ensured more people will pay the tax that they already owe. This Budget made another important choice: to keep the manifesto commitment we made to working people to not increase their income tax, their national insurance or VAT. And we went further, by freezing fuel duty and raising the national minimum and living wage. Compare that to the choice made by the previous Government, who froze income tax thresholds, costing working people nearly £30 billion. We could have extended that freeze, but that was not the choice we made. Instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again. However, this Budget does involve some very difficult choices. We will increase employers’ national insurance contributions by 1.2 percentage points to 15 % from April 2025 and reduce the secondary threshold from £9,100 to £5,000 per year. At the same time, to protect the smallest companies, we will increase the employment allowance from £5,000 to £10,500, meaning 865,000 employers will not pay any national insurance at all and over 1 million employers will now pay the same or less than they did before. The lower rate of capital gains tax will be increased from 10% to 18%, and the higher rate from 20% to 24%, meaning the UK will continue to have the lowest capital gains tax rate of any European G7 economy. We have maintained the lifetime limit for business asset disposal relief at £1 million to encourage entrepreneurs to invest in their businesses. Business asset disposal relief will remain at 10% this year, before rising to 14% in April and to 18% from 2026-27, maintaining a significant gap compared to the higher rate of capital gains tax. The Budget also set out additional tax measures including introducing a new vaping products duty and measures on tobacco duty, vehicle excise duty, air passenger duty and alcohol duty, as well as making reforms to inheritance tax on pensions and on agricultural and business property. We also delivered on our commitments to abolish the non-dom tax regime, replacing it with a new residence-based scheme, introduced a fairer approach to the way carried interest is taxed as well as reforms to the stamp duty land tax surcharge for second homes and to the energy profits levy, and we introduced VAT on private school fees. There was no bigger failure of the previous Government than on growth. First, they introduced austerity, which choked off investment. Then their Brexit deal created new trade barriers equivalent to a 13% increase in tariffs for our manufacturing sector and a 21% increase in tariffs for our services sector, permanently reducing growth by 4%. Finally, the disastrous mini-Budget crashed the economy and sent inflation and interest rates soaring. Had the UK economy grown over the past 14 years at the average rate of other OECD economies, it would have been £171 billion larger. When the Bank of England cut interest rates last week, it forecast that the Budget would add 0.75% to growth next year and that unemployment will now fall. Over the course of this Parliament, the OBR says that growth will be largely unchanged, in the context of a Budget that had to take some very difficult decisions to clear up the mess that we inherited; and, over the longer term, the OBR says that this Budget will permanently increase GDP by 1.4%. The IMF has welcomed “the Budget’s focus on boosting growth through a needed increase in public investment”, but, of course, we need to go further and faster. That is why economic growth remains this Government’s central mission. We have set out extensive planning reforms, a new national wealth fund, new local growth plans and a modern industrial strategy. We have created Skills England and the new growth and skills levy. We will shortly publish the “Get Britain Working” White Paper to tackle inactivity, and the Chancellor will set out pension reforms in her Mansion House speech later this week—all of which will significantly boost growth and none of which are yet included in the OBR’s forecast. Our growth strategy must also, of course, be developed and delivered alongside business. We are very aware that we are asking business to contribute more and that impacts of the rise in employer national insurance will be felt beyond business, as the OBR has set out. We know that successful businesses depend on the skilled and healthy workforce that these funds aim to deliver. But most of all, we know—because they tell us—that businesses depend on the stability that this Budget, by repairing the public finances, provides. To ensure certainty, alongside the Budget we published a corporate tax road map, which confirms our commitment to cap the rate of corporation tax at 25%, the lowest in the G7. We are maintaining full expensing and the £1 million annual investment allowance, and continuing the current rates for research and development reliefs to drive innovation. We have announced permanently lower business rates for retail, hospitality and leisure properties. We have frozen the small business multiplier, extended the enterprise investment and venture capital trust schemes until 2035, and taken action on late payments and non-financial reporting burdens. Finally, we know that the significant new capital investment in transport and housing that this Budget delivers is vital for businesses to grow. The difficult decisions that this Budget takes are for a purpose: not just to repair our public finances but to rebuild our public services. In this, the first phase of the spending review, we have prioritised day-to-day funding towards delivering on our manifesto commitments. Day-to-day spending from 2024-25 onwards will now grow by 1.5% in real terms. In addition, the £100 billion of capital that we set out will drive growth across our country. To unlock the growth industries of the future, we will protect investment in research and development with more than £20 billion of funding. We are providing over £5 billion to progress our manifesto commitment to build 1.5 million homes. On transport, to help grow our economy across the north of England, we are investing in faster and more reliable services, including the trans-Pennine upgrade. We will deliver east-west rail to drive growth between Oxford, Milton Keynes and Cambridge, and we have committed the funding to begin tunnelling work for HS2 to run through to Euston station. To bring new jobs to Britain, the Budget funded 11 new green hydrogen projects across England, Scotland and Wales. We have also announced significant investment between government and business in carbon capture and storage. We are also increasing the core schools budget by £2.3 billion next year to support our pledge to hire thousands more teachers into key subjects, and we are tripling investment in breakfast clubs, putting them into thousands of schools. Of course, we are also beginning the work of fixing the NHS after years of neglect. Because of the difficult decisions that we have taken on tax, and because of our investment rule, the Budget announced that we are now able to provide a £22.6 billion increase in the NHS budget over two years. That is the largest real-terms growth in NHS spending, outside Covid years, since 2010. Because of this record injection of funding, the thousands of additional beds that it will secure and the reforms that we are delivering, we can now bring waiting lists down more quickly, moving towards our target for an 18-week waiting time, by delivering our manifesto commitment of 40,000 extra appointments every week. This Budget delivers on the mandate the British people gave this Government: to fix the foundations of our economy and deliver change. The choices we have made are the right choices. They are not the easy ones but the responsible ones: to repair the public finances, restore stability, rebuild our NHS, invest in the national interest and protect working people. There are, of course, different choices that could be made. Let us be clear, however: not to make the choices we made on tax would make it impossible to protect working people; not to support the funding for public services would mean cuts to schools and the NHS; and not to support our investment rule would mean delaying or cancelling thousands of projects delivering growth right across our country. We have made our choice: restoring stability, protecting working people, fixing the foundations of our economy, investing in our future and rebuilding Britain. I beg to move.