Peers quiz government on government management of the economy

Baroness Smith of Basildon, Labour’s leader in the House of Lords, said ‘real harm’ to the economy has already been inflicted by chancellors Kwasi Kwarteng and Jeremy Hunt, and ‘the medicine on offer is even more pain for businesses, households and families across the country’. Smith worries about public services now threatened with additional painful cuts and for peoples’ hopes and aspirations as they are priced out of buying their first homes, renewing their mortgages or finding a rental property on a tightened budget. She finds it ‘utterly disgraceful’ that the Government silenced the OBR during Kwasi Kwarteng’s time as Chancellor at the ‘very time it would have been of most help.’ She asked if the Treasury is assessing the likely number of property repossessions in the coming months, as the Bank of England is doing. And she asked when the Treasury’s review of energy prices is likely to conclude and whether the Government still not committing to extending the windfall tax on the excess profits of energy firms.

Lord Newby, Lib Dem leader in the Lords, criticised the lack of contrition or apology or acknowledgement from the Chancellor that the only reason we have a crisis is that the Government “acted with breathtaking irresponsibility and in the amazingly naive belief that the markets would believe that future shortfalls in government finances could be met by completely implausible projections for future growth in GDP.” He suggested the crisis had demonstrated that no government can buck the markets “simply by a combination of bluster and chutzpah”. Newby suggested there are rumours that the Government are revisiting the possibility of a windfall tax on the oil and gas producers to produce ‘real revenue’, which he said is long overdue.

Responding for the Government, the Leader of the House of Lords, Lord True, said major parts of the Government’s package to help people remain in being, to help the most vulnerable people. True said the pricing of mortgages is a commercial decision for lenders, in which government does not intervene. But he said the Treasury is regularly in contact with mortgage lenders on all aspects of their mortgage business. True argued that interest rates and mortgage rates have been rising since last autumn in response to global trends, such as Russia’s invasion of Ukraine, and the US Federal Reserve has been raising its base rate since March 2022.

On Newby’s point about a windfall tax, True said: “I must point out that a windfall tax is a one-off tax. However, as I said yesterday, there is already a tax levy on the income of energy companies. That already exists, having been introduced by this Government.” He also said the pensions triple lock will stand and that that will give a great deal of reassurance.

Lord Liddle, Labour, said if this crisis is all a global crisis, why was the gilt market’s immediate reaction to Chancellor Kwarteng’s Statement to increase long-term interest rates in this country to higher levels than they are for Italy and Greece? Lord True replied that there are grave inflationary problems and problems with interest rates across Europe.

Lord Fox, Lib Dem, wondered what the plan is for growth because until about a week ago, the whole Cabinet and most of the Conservative Lords opposite were proclaiming that the only way to deliver growth was through a whole suite of tax cuts. We now know that almost all those tax cuts have been reversed, he said. Lord True said the Government ‘will continue to go for growth’ by cutting the tax burden that would have taken place with the national insurance tax rise, launching investment zones, introducing minimum service levels for transport services shortly in Great Britain and accelerating infrastructure projects across the country. They would also “undertake the complex patchwork of restrictions and EU-derived law”.

Baroness Lister of Burtersett, Labour, said many of the most vulnerable people in society rely on social security and the inflation rate they face is actually higher than the 10 per cent announced on the day of this debate. Given this, there is a strong case for the Government to announce now that they will uprate benefits in line with inflation to reduce the anxiety, said Baroness Lister. Lord True claimed the issue of uprating benefits and other aspects of government spending are ‘being considered in totality’ and the Work and Pensions Secretary is conducting her annual review of benefits.

Lord Cromwell, Crossbencher, cited an article in the Financial Times that suggests that a future Government of any complexion will simply be a creature of the bond markets and not the other way round.

Baroness Kramer, Lib Dem, remarked that even with the list of ‘flimsy’ growth measures True described, Goldman Sachs forecast a one per cent drop in output in the UK next year, which means a recession.

Lord Young of Cookham, Conservative, observed that, in the 1980s, Lord Lawson aligned capital gains tax and income tax, and said there was no justification whatsoever in capital gains tax being less than income tax. He suggested reintroducing ‘that progressive Conservative policy’ would save some £14 billion. Lord True said he would not be drawn on anything in relation to what may be in the medium-term fiscal plan.

Baroness Bennett of Manor Castle, Green Party, said the new economic advisory council is inappropriate because it represents just a tiny, politically privileged part of the UK economy.

The full session is here.

By Hamant Verma, CIOT Senior External Relations Officer