Tax Increases

Question

11:38:00

Asked by

To ask His Majesty’s Government, following the decision not to proceed with changes to Personal Independence Payments, whether they have plans to increase taxes as a consequence.

My Lords, the OBR will produce a new forecast in the autumn before the annual Budget, and the Chancellor will take decisions based on that forecast. We will set out our fiscal plans at the Budget in the usual way.

I am grateful to the Minister for that Answer. It is very clear, following recent events, that this Government are not going to make any meaningful reform of the welfare system and save any money, despite saying that the system is broken. They have said they are not going to touch their existing spending plans, so that means tax rises are coming, as we predicted. In her Budget speech, the Chancellor said that it was the Government’s policy not to freeze tax thresholds any longer from 2028-29 because that would hurt working people, and that from 2028-29 thresholds will continue to be uprated. To be clear, I am not asking the Minister to write future Budgets today. I am simply asking him to repeat from the Dispatch Box that those words of the Chancellor’s remain the Government’s policy.

The noble Lord is absolutely correct that there are financial consequences to the decisions that have been taken, but he will not be surprised to know that I will not speculate on the next Budget now. We will do things in the usual way. The Chancellor will ask the OBR to produce a new forecast in the autumn before the annual Budget and will take decisions based on that forecast. We will set out our fiscal plans at the Budget in the usual way.

My Lords, in all our discussions of tax and spend, we very rarely address the third pillar—the state of the gilts market. Was the Minister as taken aback as I was to read in the OBR report that, at the end of June, the UK tenure bond yield had the third-highest borrowing cost of any advanced economy except for New Zealand and Iceland? With the withdrawal of pension funds from demanding treasuries as we come to the end of defined benefit plans, there seems to be no plan in place to expand the investor base. The United States is using stablecoin to increase the appetite to take up US treasuries. This is essential, so are the UK Government pursuing any such strategies?

The noble Baroness knows that I will not comment on specific financial market movements, but I will write to her on stablecoin if that is okay with her.

My Lords, we have just heard that the benefits system is broken. Can the Minister remind us who broke it? Is this not a case of having to clear up the mess that they left?

My noble friend is absolutely right to point out the mess that we inherited and why so many difficult decisions had to be taken. He is right to point to the mess they left us in the welfare system; I think we had the highest proportion of people not working and were the only country in the G7 where worklessness had not returned to where it was pre pandemic. We also had to clear up a mess in the public finances, which is why, as he rightly says, we have had to take so many difficult decisions.

My Lords, in answering his noble friend, the Minister seems to have forgotten that the cost of servicing debt is higher now than it was at the worst time under the last Conservative Government. Surely he must take responsibility for that. His Government have been in power for a year.

Why does the noble Baroness think the UK has such a high stock of debt? Is it because her Government doubled the national debt? Yes, it is.

My Lords, I was very struck by the article in the Times the other day by Paul Johnson, former leader of the Institute for Fiscal Studies, in which he said that we have an entirely illusory debate about tax and spend. There are calls from a substantial number of newspapers and at least one political party for tax cuts, but nobody ever says where they will fall or what our spending parameters are. This Government have made a commitment to raise our defence spending by over 1% of GDP, which I assume that all the major parties support. That means that tax rises are likelier than tax cuts, unless there are severe cuts elsewhere—for example, in pensions. Could the Government not make some attempt to reach an agreement among the parties such that, when discussing taxes rising and falling, we also discuss what the spending priorities are and what cuts may necessarily be possible?

In the spending review, the Government set out our spending plans and a fully funded path to spending 2.6% of GDP on defence. We have an ambition to increase it to 3% in the next Parliament, as the noble Lord knows. I will not speculate on the next Budget now. As I have said, there will be an OBR forecast in the autumn before the annual Budget and we will make decisions based on it, in the usual way.

My Lords, just for clarification, the Minister said that the Government have an ambition to raise defence spending to 3% of GDP in the next Parliament. My understanding is that the Prime Minister has committed the UK to increasing it to 3.5% by 2035. Could the Minister please clarify?

It is 3% in the next Parliament. I think those commitments are for the Parliament after next.

My Lords, with rather delicate timing, the OBR published its Fiscal Risks and Sustainability report on Tuesday. It used the word “daunting” for our fiscal sustainability outlook. It expects health-related outflows to fall a little, not overall but towards the levels of a few years ago. How will the Government explain to the OBR the positioning of the outlook for personal independence payments?

The OBR is aware of the Government’s policy. It is for it to certify the costings of that policy in its next forecast. As I have said, we will ask it for that forecast in time for the annual Budget and make decisions based on that.

My Lords, as this seems to be a free-for-all on putting forward our economic theories, could we ban discussions of tax cuts and rises and instead look at tax simplification? There is an excellent article in this week’s New Statesman—a magazine that I read assiduously every week—that regurgitates the excellent work by Paul Johnson, who has been mentioned. It points out that we have one of the longest tax codes in the world. George Osborne was undone by a pasty tax. Surely this Minister can see to it that we can tax an ice cream cone properly and really simplify taxes, which would have a huge impact on business confidence.

I am grateful to the noble Lord for his question. It is not for me to ban conversations about tax rises or cuts, but I understand what he says about tax simplification and will take his thoughts about ice cream cones back to my colleagues in the Treasury.

My Lords, is it not the case that we have a serious long-term question here, beyond what the Chancellor will do in the next year? We have underlying pressures on defence and demography, on top of which we have the reforms on disabilities and SEND in schools that the previous Government introduced, which have led to rocketing bills that something has to be done about at some stage. Will the Government therefore engage in a long-term debate about how we finance the welfare state, which most of the British population strongly adhere to?

My noble friend is right to point out the long-standing and long-term challenges that we face in fiscal policy. As the noble Lord opposite said, the OBR set out some long-standing economic realities in its fiscal risks report this week. That is why it is so important that we are committed to ensuring stability in the economy through our fiscal rules. My noble friend mentioned special educational needs. He is absolutely right that, right now, the system is not working; less than half of education, health and care plans are issued within the 20-week deadline and only 22% of children with special educational needs are reaching the expected levels in maths and English. We absolutely need to deliver better support for vulnerable children and their parents, which is why we will set out wider plans for SEND reform later this year as part of the upcoming schools White Paper. On the longer-term debate that my noble friend talks about, I am always more than happy to discuss those issues with him.

My Lords, does the Minister accept that there is a point when higher tax rates lead to lower government revenues? We heard an example from my noble friend Lord Leigh in the last Question that the Minister dealt with about non-doms provoking some companies to change their domicile or listing. There will come a point when it causes people to retire early, emigrate or work differently. If he accepts that there is such a point, how close does he think we have got to it?

The noble Lord is just talking about the revenue maximisation point. We are past that, for example, on tobacco taxes, as a deliberate government policy. Of course it exists; I do not think it is particularly novel.