It is a pleasure to follow the right hon. Member for Witham (Priti Patel), who made an interesting and thoughtful speech.
The backdrop of the autumn statement is an ongoing cost of living crisis and a flailing Government who cannot defend their appalling record in office and know that the general election is fast approaching. The fifth Tory Prime Minister in 13 years has had four relaunches in the past six weeks. He cannot decide whether he is the change candidate or continuity Cameron, he cancelled the northern leg of HS2 in Manchester, his King’s Speech was a visionless damp squib, and he has had to ditch an incompetent Home Secretary he should never have appointed in the first place.
The reality is that the Tories have delivered 13 years of chaos, incompetence and instability. They have made our country weaker, and working people are worse off. Taken together, these Tory Governments have delivered 25 tax rises since 2019. The last Prime Minister sacked the Treasury permanent secretary responsible for fiscal stability, crashed the economy and nearly melted down pension funds, and millions of people are paying higher mortgages and rents as a result.
Since the last election we have seen the highest increases in tax in any Parliament since records began and today’s announcements have not changed that reality. This Tory Government have cost each and every household in the UK a massive £4,000 in tax rises since 2010. Even after today’s tax cuts, the tax burden still reaches its highest level for 70 years. The Tories have delivered the worst economic growth since the 1920s and the worst performance for real wage growth since Napoleon crowned himself emperor.
Yet despite a tax burden running at a 70-year high and a debt which is the highest in peacetime, our public services are crumbling, our schools are riddled with reinforced autoclaved aerated concrete—RAAC—our rivers are full of sewage, and there are 7.8 million people on an NHS waiting list. The Tories in all their various iterations of Government have somehow managed to deliver the worst of both worlds: record high taxes and crumbling public services, and an ongoing cost of living crisis causing misery to millions.
To be fair, there have been some achievements. We have seen record levels of waste and fraud: a staggering £l00 billion of it in the last four years. My constituents are furious about this, and it is right and proper that my right hon. Friend the shadow Chancellor has pledged to set up a covid corruption commissioner to get some of these lost billions back.
It is good news that since March this year growth has been revised up slightly, inflation has halved—although is still high by G7 standards—and borrowing has been revised down. In other words, inflation is twice the target and growth is so modest it could be a rounding up error. The bad news is that the economy is barely growing, with ongoing risks of a recession, and despite what the Chancellor said in his autumn statement, the OBR has downgraded growth forecasts substantially for the next three years. Living standards are now due to be 3.5% lower in 2024-25 than pre-pandemic, the largest reduction in living standards since the 1950s.
Taxes are at record levels and the national debt is projected scarcely to fall at all, meaning soaring levels of debt interest spending to service it.
Higher tax receipts in nominal terms and borrowing coming in slightly below the expectations set in the March Budget have increased the so-called headroom the Chancellor has if he is to meet his fiscal rules. He has decided to spend all of it. The OBR points out that half of this so-called headroom comes from a fuel duty escalator that keeps being cancelled and which the right hon. Member for Witham has just perfectly reasonably argued ought to be cancelled next time. That means the headroom the Chancellor has just splashed around is cut in half by that one decision on fuel duty.
This apparent largesse of his also signals—he did not talk about this much—that public spending plans which were already very tight indeed are going to end up even tighter. As the OBR has pointed out in its assessment published this afternoon, this headroom is
“mainly a reflection of a £19.1 billion erosion in the real value of departmental spending.”
The Chancellor did not give us any indication that he was going to increase public spending in real terms to compensate for that, which means that already very difficult public service and departmental budgets will be squeezed further. The Institute for Fiscal Studies has calculated that the extra spending pressures imply real-terms cuts of 16% for unprotected Departments such as Justice and flat budgets in real terms for many of the rest, but the Chancellor has conveniently pushed that scarcely credible fiscal consolidation into the next Parliament, where it is safe to assume he will not be in the job or have to deliver it. It is a scorched earth policy that Julius Caesar would recognise.
The outlook for both growth and productivity is currently gloomy. The OBR forecasts a modest improvement this year, coupled with significant downgrades for the next three years. That is slightly more optimistic than the Bank of England forecast last month, which put the chances of a recession next year at 50-50, with the possibility of three quarters of zero growth. As members of the Monetary Policy Committee pointed out in evidence to the Treasury Committee yesterday, productivity growth since 2016 has been a dismal 6%, while the USA has achieved a 25% increase in the same period.
Falling so far below our competitors will simply lock in the stagflation we are already experiencing. There can be no prospect of sustainable growth in living standards and real wages without a significant improvement in our economy’s performance. Labour has long argued for a move to make full expensing of business investment permanent. The Chancellor condemned that as “irrespon-sibility from Labour” in the King’s Speech debate just eight days ago, so we welcome his damascene conversion today, which ends the uncertainty of the three-year cut-off period and the problems it was creating. We need to increase economic growth, and, despite the blind faith of the Conservative party, tax cuts do not do that; investment in equipment and people does. Labour’s green prosperity plan will put shovels in the ground and cranes in the sky, propelling us to net zero and transforming our infrastructure in every region, truly preparing us for the future.
Having spent most of the last year saying that tax cuts were irresponsible, the Chancellor has now decided to cut national insurance by 2p at a cost of around
£10 billion, spending that headroom created by higher nominal tax receipts because inflation is higher than expected. While inflation has halved, it is still very high in comparison with other G7 countries, and the Governor of the Bank of England told us yesterday in the Treasury Committee that he feared that the risks were on the upside, so there are considerable dangers in the Chancellor pursuing the strategy that he has decided on. The current Prime Minister’s decision to freeze tax thresholds for six years has been revealed as a stealth tax that is due to rake in £52 billion—one of the biggest tax grabs ever, as I think the right hon. Member for Witham said in her contribution.
The cut to national insurance does not unravel that tax grab. For most people, even after that modest cut to their national insurance contributions, their taxes will still go up next April. The OBR points out on page 11 of its executive summary that the tax changes
“reduce the tax burden by 0.7 per cent of GDP but it still rises in every year to a post-war high of 37.7 per cent of GDP by 2028-29. Income tax increases explain most of the increase in this forecast”,
and goes on to demonstrate that
“frozen thresholds result in nearly 4 million additional workers paying income tax, 3 million more moved to the higher rate, and 400,000 more paying the additional rate.”
Apparently, that is a tax-cutting Budget, in our Chancellor’s view—well, not in mine. Close to the end of the Parliament in which the Conservative party has raised the tax take by more than any of its predecessors, giving a tiny bit back at the end will make virtually no difference.
I am pleased that the Chancellor has decided to uprate benefits as normal despite the speculation that he would not do so, but benefits have already been cut a lot and have not kept pace with inflation. With that and other cuts since 2010, the poorest fifth of the income distribution have lost £2,700, as the Resolution Foundation has shown. The social security system is not generous: 73% of universal credit recipients are in food poverty—and by the way, food inflation is still at a punishing 10.1%. In my Wallasey constituency, there has been a 54% increase in the number of people needing to use food banks in the past year. The autumn statement has done nothing to address those concerns.
We need a change of Government away from the chaos, the in-fighting, the clown show. We need a serious Labour Government with a plan to grow our economy and prepare properly for the future. We need planning reforms to be delivered, not talked about; we need Labour’s green prosperity plan to get us to net zero and create good jobs; and we need a new deal for working people to ensure that work pays. And by the way, we also need a general election—the sooner, the better.
4.51 pm