Chancellor Rachel Reeves calls on UK pension schemes to invest more in the UK economy and deliver better returns for savers
Wants UK to learn lessons from ‘Canadian model’ ahead of meeting with major Canadian retirement funds
Reeves confirms first Mansion House address will focus on financial service sector’s role in delivering more investment and financing growth as work continues to fix foundations of the economy, rebuild Britain and make every part of the country better off
The Chancellor Rachel Reeves has called on pension funds to “learn lessons from the Canadian model and fire up the UK economy”.
The Chancellor hosted a roundtable with the so-called ‘Maple 8’ group of Canadian retirement funds in Toronto on Wednesday (7 August), who have invested billions of pounds in the UK economy in recent years.
She will urge the funds to continue backing Britain and take home lessons about how consolidation of pension schemes into larger funds can help drive investment in productive assets such as vital infrastructure and high-growth businesses.
The meeting is part of intensive industry engagement for the landmark review of pension fund investment announced last month to boost investment in the UK and deliver higher returns for people’s pension pots.
Also on the Chancellor’s agenda to deliver more investment and finance growth is the financial services sector, with Rachel Reeves confirming her first Mansion House address will set out how she will work in partnership with industry and regulators to deliver growth.
This will include delivering the stability the sector needs to grow, the support it needs to invest across the UK and reforms it needs to remain at the cutting-edge of new innovations and technologies.
Chancellor of the Exchequer Rachel Reeves said: “The size of Canadian pension schemes means they can invest far more in productive assets like vital infrastructure than ours do.
“I want British schemes to learn lessons from the Canadian model and fire up the UK economy, which would deliver better returns for savers and unlock billions of pounds of investment.
“We’re already beginning to see schemes announce plans to invest. That’s a vote of confidence in our work to fix the foundations of the economy, rebuild Britain and make every part of our country better off.”
Industry strongly welcomed the announcement of the pension fund investment review, with supportive comments made by groups such as Legal & General, the BVCA, Aviva, Barclays and Phoenix.
New investment vehicles have since been announced to channel pension fund money into infrastructure and the UK’s fastest growing companies. Last week Phoenix and Schroders launched their Future Growth Capital co-investment fund, which will invest up to £20 billion in the UK over the next decade.
Channelling more pension fund money will release investment demand and comes alongside measures to unlock supply through fixing the broken planning system, setting up a National Wealth Fund and the biggest overhaul of listings rules for the UK stock exchange.
On 19 March of this year, the Shadow Chancellor Rachel Reeves delivered the 36th Mais Lecture at Bayes Business School in London (writes Fraser of Allander Institute’s João Sousa).
This was an opportunity for Labour to set out their stall on economic policy, and Rachel Reeves used it as a chance to outline her proposed fiscal rules.
In doing so, she said: “[O]ur fiscal rules differ from the government’s. Their borrowing rule, which targets the overall deficit rather than the current deficit, creates a clear incentive to cut investment that will have long-run benefits for short-term gains.
“I reject that approach, and that is why our borrowing rule targets day-to-day spending. We will prioritise investment within a framework that would get debt falling as a share of GDP over the medium term.”
The borrowing rule currently in place that Rachel Reeves refers to is the supplementary target, which is defined in the Charter for Budget Responsibility, and which says that public sector net borrowing (PSNB) must be below 3% of GDP in the final year of the forecast period that the OBR projects. This is five years into the future, and so the current end is 2028-29 – but whenever the next forecast is, it will roll over to 2029-30.
Labour’s proposal means that will no longer use this rule and will instead make sure that it keeps the current budget in surplus in 2029-30, while maintaining the fiscal mandate – the rule that debt should be falling as a share of GDP in the final year of the forecast. This seems like it would be a clear dividing line in terms of macroeconomic policy.
The current forecasts for net borrowing and the current budget
The current budget deficit is simply defined as net borrowing excluding net investment. So in a formal sense, Rachel Reeves is right – her proposed rule does not formally limit investment. Though neither does the current one: it is perfectly possible for the government to meet the 3% borrowing rule with more or less investment.
Net borrowing is forecast by the OBR to be below 3% in every year of the forecast, and falling in every year. By 2028-29 – the year in which the rule was assessed in March – net borrowing was forecast to be 1.2%, and a full £43 billion lower than it would have had to be for the 3% threshold to be breached.
Chart 1: PSNB forecast and comparison with the borrowing rule
Source: OBR, FAI analysis
This ‘headroom’ appears very large in recent memory, and larger than the headroom any Chancellor left themselves since George Osborne in the 2014 Autumn Statement, and if that were the only constraint, it would mean there was significant room to increase spending borrowing without breaching that rule.
This ‘headroom’ against the 3% borrowing rule is also substantially larger than the one against Rachel Reeves’ favoured rule. But note that the current budget is already forecast to be in surplus by 2028-29 to the tune of £14 billion. This means that the current Government’s plans already meet Rachel Reeves’ rule, and this is likely to remain the case whatever happens. It’s not a particularly demanding rule to meet, mind: the UK ran a current budget surplus in 2018-19 and very small deficits in many other years of the 21st century.
Chart 2: Current budget deficit and comparison with the Labour-proposed current budget rule
Source: OBR, FAI analysis
In fact, on their own, meeting the two is pretty manageable. If these were the only rules, the Government could borrow an additional £30 billion a year for capital spending and still meet both rules – with a historically low cushion, but not dissimilar to Jeremy Hunt’s in the last few events.
The difficulty is in getting debt falling
The reason why the Government is constrained much more than it would appear in the first place is that debt is barely on a falling path in the final year of the forecast. The underlying debt stock only has to rise by just under £9 billion for it to no longer fall – which is a minuscule difference, and also a historically very low level of cushion against economic shocks and forecast uncertainty.
As the chart below illustrates, it’s the debt rule rule that bites in any of the scenarios with additional capital investment – and therefore that is the real constraint on how much additional investment comes from this rule, not the current 3% rule or a hypothetical current budget rule. Changing from the borrowing rule to the ‘borrow-to-invest’ rule does nothing to change the fiscal space available to the Government so long as it remains committed to getting debt on a falling path by the end of the forecast.
Chart 3: Headroom against current and proposed fiscal rules in the OBR’s central forecast and for different scenarios of additional capital spending
Source: OBR, FAI analysis
Of course, it wouldn’t be the first time we saw a government play about with the timing and profile of capital spending to ensure that it increases earlier in the forecast, making it easier for indicators to be hit at the end. And it’s certainly something that we will be keeping an eye out for – not least because that’s the sort of tricks that seem to work in the short run, but actually are incredibly detrimental to the stability that Rachel Reeves claims she wants to instil.
Reading between the lines – could Labour be trying to wrest some fiscal room for manoeuvre?
It’s worth circling back to Rachel Reeves’ statement about the fiscal rules, both in what it says and what it doesn’t say.
It’s obvious what the current budget rule will be, which is for it to be in surplus. It’s less immediately clear that the debt metric used will be PSND ex BoE – the current metric chosen by Jeremy Hunt.
The choice of PSND ex BoE – or ‘underlying’ debt, as it’s often called by the Treasury – means that it creates an artificial barrier within the public sector in the National Accounts. For a large part of the 2010s, during expansions in quantitative easing, this benefitted the Treasury – it was much easier to get ‘underlying’ debt down by excluding the effects of the Bank’s policy.
Chart 4: PSND and PSND ex BoE as a share of GDP
Source: ONS
But that is no longer the case. With higher interest rate losses accumulating with quantitative tightening and the Treasury indemnifying the Bank for those losses through capital transfers, ‘underlying’ debt is now rising much faster than PSND.
PSND looks through these artificial intra-public sector boundaries, ignoring whether the Bank or the Treasury holds these liabilities – both are ultimately arms of the government, and therefore what matters is whether they reside in the public or private sector.
The situation regarding headroom against getting PSND falling as a share of GDP in the final year of the forecast is much healthier. As the chart below shows, an additional £20 billion in capital spending per year would see the PSND/GDP being met with roughly the same headroom that the ‘underlying’ debt rule is met currently.
Chart 5: Headroom against current/proposed fiscal rules and PSND falling in the OBR’s central forecast and for different scenarios of additional capital spending
Source: OBR, FAI analysis
Was Rachel Reeves leaving herself some room for this by not mentioned underlying debt anywhere in the Mais Lecture?
Yes, it’s a slightly different metric, but one that arguably is a better indicator of the state of the public finances – and a Chancellor would have no better time to institute this than at the start of a new Parliament with a change in the political weather.
The big political news of the week in Scotland was undoubtedly the further disputes about the Scottish Government’s troubled Deposit Return Scheme (writes Fraser of Allander Institute’s MAIRI SPOWAGE).
This followed the decision by the UK Government to allow the scheme in Scotland to proceed, granting a “temporary and limited” exemption from the Internal Market Act, but only if the Scottish scheme excluded glass – and therefore include PET plastic, aluminium and steel cans only.
The justification from the UK government’s point of view is that the exemption is temporary only until UK-wide schemes are introduced (planned to be in 2025); and that the exemption does not include glass because the scheme that the UK Government are planning to introduce does not include glass.
The Scottish Government have made it clear, through a statement by the responsible Minister Lorna Slater on Tuesday, that this may mean that the scheme as designed in Scotland is not viable. The SG are now examining the implications of how and if the scheme can proceed on this basis.
If the decision by the SG was to scrap the scheme, or even to proceed without glass, there are likely to be calls for significant compensation for the businesses who have invested money to comply with the scheme, including the glass elements.
This is not just an issue about DRS, or actually about Scotland. Wales had also planned to introduce a similar scheme, also including glass, and Mark Drakeford intervened yesterday to say that he would “dispute the use of the internal market for these purposes”, flagging that the UK Government had also initially planned to include glass in their scheme.
This row is now firmly in the area of constitutional grievance, with both the Welsh and Scottish Governments accusing the UK Government of meddling in devolved areas. We await to see how the Scottish Government will respond, but it is likely to include significant condemnation of the UK government no matter which course of action is chosen.
More questions over the cost of the National Care Service
While the fate of the National Care Service overall is uncertain, despite the new First Minister reiterating his commitment to the idea in recent weeks, there have been further exchanges between the Finance and Public Administration Committee at Holyrood and the Minister responsible Maree Todd.
In a letter published on Tuesday, the acting convener Michael Marra MSP has outlined the displeasure of the committee at not being given any more details of the costs of the scheme, given the formal role that this Committee has in scrutinising Financial Memorandums which accompany legislation and the fact they had formally requested more information after what they saw as an inadequate first draft.
A deadline of 21st June for the Minister to respond – watch this space for updates!
Scotland’s economy growing faster than the UK in recent months
This week the Scottish Government published monthly data for March, which also meant they published the first estimate of quarterly growth for Scotland. This showed that Scotland had grown 0.4% in the four months to March, compared to 0.1% for the UK as a whole.
This led to headlines saying “Scottish economy grows at four times rate of the UK” and the like.
As folks who comment a lot on this sort of data, our heart sinks a little when seeing the growth figures being described like this. Yes, 0.4 is 4 times the size of 0.1. (Although to be technical, the figures are actually 0.13 and 0.36 – so not quite). But headlines like this somewhat exaggerate the meaning of such a difference in a quarterly figure and what it tells us about economic performance in Scotland vs the UK.
Digging under the data, the differences mainly come from the figures from March itself, where we see a contraction in the UK figure – driven by a contraction in consumer-facing services. It is really interesting to see these services in Scotland holding up a bit better, at least according to this first estimate of monthly growth.
Scotland
UK
Monthly growth to March
0.0%
-0.3%
Quarterly growth to March
0.4%
0.1%
Annual Growth to March
2.1%
1.9%
Growth since pre-pandemic level (Feb 2020)
1.2%
0.1%
Growth over the last 5 years
1.6%
2.6%
Growth over the last 10 years
9.8%
15.5%
If we look over the last year, Scotland still performs better – growing at 2.1% compared to 1.9% at the UK level. Although, we should all be aware that such differences could change as data get revised.
Over the longer term, we can see that growth in Scotland has been more muted – driven partly by the oil price shock in 2015/16, and also over the medium term in the differences in population growth in Scotland compared to the UK average.
We’ll continue to dig under these data to understand more about differential economic performance in Scotland and the UK!
Summer has definitely arrived over the last week, and I’m sure we won’t be the only ones cracking out the barbeque this weekend. Enjoy the sunshine (with the factor 50 on, of course)!
The outlook for Scotland’s budget in 2023-24 has undoubtedly been made more challenging due to factors wholly outwith the control of the Scottish Government, but there are decisions that Deputy First Minister John Swinney can make to ease the path ahead for Scotland, according to a report published yesterday by the Fraser of Allander Institute.
In its-pre Budget report, the University of Strathclyde-based Institute says that in the face of high inflation, the UK Government’s Autumn Statement provided some comfort with additional transfers that will more or less offset the impacts of inflation over the next two years.
The Scottish Government now needs to set out how it will use its significant devolved tax powers and whether to use them to generate more revenue for public services, including public sector workers.
The Resource Spending Review, published in May this year, provided a blueprint for spend over this parliament, but we have already seen deviations from planned spend in this financial year, and changing priorities may see further revisions when the draft Budget is set out on the 15 December.
The Fraser of Allander Institute’s annual pre-budget report, published today (12 December) examines the context to the budget and the key decisions facing the Scottish government in 2023-24.
Its findings include:
the economic situation has deteriorated markedly since the 2022-23 budget was presented, with high inflation set to eat away at living standards over the next two years.
the high inflation environment eroded the value of the Scottish Government’s budget in 2022-23 meaning that the present financial year’s budget is worth about £1bn less in real terms
Despite fears of cuts to the near-term budget, the announcements made by the UK Chancellor more or less offset the impacts of inflation on the Scottish budget in 2023-24 and 2024-25
the Scottish Government has significant devolved tax powers and therefore has decisions to make on Thursday about whether or not to use them to generate more revenue for public services.
Professor Mairi Spowage, Director of the Institute, said: “John Swinney is getting set to present his first budget in seven years, in what he has acknowledged is an unprecedentedly tricky time for the Scottish public finances.
“The challenges he has been dealing with for 2022-23 ease a bit for 2023-24: there was some additional money announced at the Autumn Statement which generated around a £1bn of consequentials, offsetting the inflationary pressures on the budget.
“But there are also flexibilities that the Deputy First Minister has for the next financial year that were not available to him for this year – the Scottish Government does have tax powers that could be used, if he wishes, to raise more revenue.”
Emma Congreve, Deputy Director, said: “In amongst all the headline-grabbing decisions, it will be important to take a step back to see how this Budget helps Scotland achieve its long term ambitions.
“We are expecting that the government will set out, clearly and transparently, the choices it has made and what the impact, both good and bad, will be for policy outcomes and the impacts on different groups.”
UK Government will provide a record £41 billion per year to the Scottish Government.
Scotland will also benefit from UK-wide support for people and businesses, green jobs and investment to level up opportunities.
Targeted funding will support local projects across Scotland, including road and infrastructure improvements, investment in local communities and funding for businesses.
The Chancellor today announced Barnett-based funding for the Scottish Government of £41 billion per year – delivering the largest annual funding settlement, in real terms, since devolution over 20 years ago. This includes a £4.6 billion per year spending boost – as part of a Budget and Spending Review that delivers a stronger economy for the whole of the UK.
Rishi Sunak set out a plan to deliver the priorities of the British people by investing in stronger public services, levelling up opportunity, driving business growth and helping working families with the cost of living.
As part of the significant spending plans, Scotland will receive an average of £41 billion per year in Barnett-based funding representing a 2.4% rise in the Scottish Government’s budget each year. The Scottish Government will now receive around £126 per person for every £100 per person of equivalent UK Government spending in England.
Chancellor of the Exchequer, Rishi Sunak said: “This is a budget for the whole of the UK. We’re focused on what matters most to the British people – the health of their loved ones, access to world-class public services, jobs for the future and tackling climate change.
“By providing record funding, the Scottish Government can tackle backlogs in the NHS and ensure people in Scotland get the support they need as we recover from the pandemic.
“The UK Government continues to level up opportunities across all parts of the UK, with investments in green jobs and high-speed internet access for thousands more homes in Scotland through Project Gigabit.
Scottish Secretary, Alister Jack said: “The Budget delivers for people in Scotland, and right across the UK.
“The Scottish Government’s block grant, boosted by an additional £4.6 billion a year due to spending in England, means that the funding for the Scottish Government is the highest it has ever been.
“It demonstrates our commitment to level up right across the UK. The Budget ushers in an era of real devolution, ensuring money is spent on projects that matter most to people in Scotland.
“The UK Government made a clear commitment to maintain Scotland’s level of funding following the vote to leave the EU, and we have delivered on that promise. We are taking decisions in the UK rather than in Brussels and dealing directly with local authorities who know their communities best.
“From the Knoydart community pub, to Dumbarton town centre and the Granton Gasworks – all these projects will bring real, visible improvements for local communities. Special funding for Glasgow’s iconic Burrell Collection and Extreme E will help drive economic growth and jobs on the back of culture and tourism.
“The continuation of the freeze on spirit duty will be a boost to Scotland’s thriving whisky industry.
“Over the past 18 months the UK Government has been focused on protecting people’s livelihoods, their incomes, and their jobs. We now need to look to the future, to build a stronger economy for people in all parts of the UK.”
Targeted funding in Scotland
On top of the record funding for the Scottish Government, Scotland will benefit from the UK Government’s commitment to invest in people, jobs, communities and businesses. Targeted projects in Scotland include:
Over £200 million to be invested in Scotland to boost the post-pandemic recovery and enhance the Scottish economy, including:
£172 million of the Levelling Up Fund for 8 important projects including the redevelopment of Inverness Castle, the much-needed renovation of the Westfield Roundabout in Falkirk, and a new marketplace in Aberdeen City Centre.
Over £1.07 million of the Community Ownership Fund for five projects in Whithorn, Inverie, New Galloway, Kinloch Rannoch and Callander that are protecting valued community assets.
Providing £1.9 billion for farmers and land managers and £42.2 million to support fisheries.
Up to £1 million, to support the delivery of a ‘green’ formula E race showcasing Hebridean Green Hydrogen to a global audience.
Expanding the existing trade and investment hub in Edinburgh to grow trade for Scotland.
Up to £3 million to bring world-class art exhibitions to the Burrell Collection in the heart of Glasgow.
UK-Wide Support
As a result of our strong United Kingdom, Scotland will benefit from:
A 50% cut in domestic Air Passenger Duty for flights between England, Scotland, Wales and Northern Ireland and an additional £22.5 million of new funding in anticipation of the Union Connectivity
Review recommendations where we will work with the devolved administrations on improving UK-wide connectivity.
New funding for the British Business Bank to establish a £150 million fund in Scotland, helping Scottish businesses to get the financing they need.
The new £1.4 billion Global Britain Investment Fund which will support investment directly into Scotland.
A record £20 billion by 2024-25 in Research and Development supporting innovation in Scotland.
Confirmation that total funding will at a minimum match the size of EU Funds in Scotland, each year through the over £2.6bn UK Shared Prosperity Fund, which will invest in skills, people, businesses, and communities, including through ‘Multiply’, a new adult numeracy programme that will provide people across Scotland with essential numeracy skills.
An increase to the National Minimum Wage of £9.50 an hour, with young people and apprentices also seeing increases.
Freezes to fuel duty for the twelfth consecutive year and a freeze on Vehicle Excise Duty for heavy goods vehicles.
A freeze on alcohol duty, which will mean that whisky benefits from the lowest real terms tax rate since 1918.
BUDGET REACTION
Rachel Reeves MP, Labour’s Shadow Chancellor, responding to the Budget, said:Families struggling with the cost of living crisis, businesses hit by a supply chain crisis, those who rely on our schools and our hospitals and our police – they won’t recognise the world that the Chancellor is describing. They will think that he is living in a parallel universe.
The Chancellor in this budget, has decided to cut taxes for banks. So, Madame Deputy Speaker, at least the bankers on short haul flights sipping champagne will be cheering this budget today.
And the arrogance, after taking £6 billion out of the pockets of some of the poorest people in this country, expecting them to cheer today for £2 billion given to compensate.
In the long story of this Parliament, never has a Chancellor asked the British people to pay so much for so little.
Time and again today, the Chancellor compared the investments that he is making to the last decade. But who was in charge in this lost decade? They were.
So, let’s just reflect on the choices the Chancellor has made today – the highest sustained tax burden in peacetime.
And who is going to pay for it?
It’s not international giants like Amazon – the Chancellor has found a tax deduction for them. It’s not property speculators – they’ve already pocketed a stamp duty cut. And it’s clearly not the banks – even though bankers’ bonuses are set to hit a record high this year.
Instead, the Chancellor is loading the burden on working people. A National Insurance Tax rise – on working people. A Council Tax hike – on working people. And no support today for working people with VAT on their gas and electricity bills.
And what are working people getting in return? A record NHS waiting list, with no plan to clear it, no way to see a GP and still having to sell their home to pay for social care.
Community policing nowhere to be seen, a court backlog leaving victims without justice and almost every rape going unprosecuted.
A growing gap in results and opportunities between children at private and state schools. Soaring number of pupils in supersize classes and no serious plan to catch up on learning stolen by the virus. £2 million announced today – a pale imitation of the £15 billion catch up fund that the Prime Minister’s own education tsar said was needed. No wonder, Madame Deputy Speaker, that he resigned.
Now the Chancellor talks about world class public services. Tell that to a pensioner waiting for a hip operation. Tell that to a young woman waiting to go to court to get justice. Tell that to a mum and dad, waiting for their child the mental health support they need.
And the Chancellor says today that he has realised what a difference early years spending makes. I would just say to the Chancellor, has he ever heard of the Sure Start programme that this Tory government has cut?
And why are we in this position? Why are British businesses being stifled by debt while Amazon gets tax deductions?
Why are working people being asked to pay more tax and put up with worse services?
Why are billions of pounds in taxpayer money being funnelled to friends and donors of the Conservative party while millions of families are having £20 a week taken off them?
Madame Deputy Speaker, why can’t Britain do better than this?
The Government will always blame others. It’s business’ fault, it’s the EU’s fault, it’s the public’s fault.
The global problems, the same old excuses. But the blunt reality is this – working people are being asked to pay more for less for three simple reasons:
Economic mismanagement,
An unfair tax system,
And wasteful spending.
Each of these problems is down to 11 years of Conservative failure and they shake their heads but the cuts to our public services have cut them to the bone. And while the Chancellor and the Prime Minister like to pretend they are different, the Budget they’ve delivered today will only make things worse.
The solution starts with growth. The Government is caught in a bind of its own making. Low growth inexorably leads to less money for public services, unless taxes rise.
Under the Conservatives, Britain has become a low growth economy. Let’s look at the last decade – the Tories have grown the economy at just 1.8 percent a year.
If we had grown at the same rate as other advanced economies, we could have spent over £30bn to invest in public services without needing to raise taxes.
Let’s compare this to the last Labour Government. Even taking into account the global financial crisis, Labour grew the economy much faster – 2.3 percent a year.
If the Tories matched our record, we would have spent £30bn more on public services without needing to raise taxes.
It could not be clearer. The Conservatives are now the party of high taxation, because the Conservatives are the party of low growth.
The Office for Budget Responsibility confirmed this today – that we will be back to anaemic growth. The OBR said that by the end of this Parliament, the UK economy will be growing by just 1.3%. Which is hardly the plan for growth that the Chancellor boasted about today, hardly a ringing endorsement of his announcements.
Under the Tory decade we have had ow growth and there’s not much growth to look forward to.
The economy has been weakened by the pandemic but also by the Government’s mishandling of it.
Responding to the virus has been a huge challenge. Governments around the world have taken on debt, but our situation is worse than other countries.
Worse, because our economy was already fragile going into the crisis. Too much inequality, too much insecure work, too little resilience in our public services.
And worse, because the Prime Minister dithered and delayed, against scientific advice – egged on by the Chancellor – we ended up facing harsher and longer restrictions than other countries.
So, as well as having the highest death toll in Europe, Britain suffered the worst economic hit of any major economy.
The Chancellor now boasts that we are growing faster than others, but that’s because we fell the furthest.
And whilst the US and others have already bounced back to pre-pandemic levels, the UK hasn’t. Our economy is set to be permanently weaker.
On top of all of that, the Government is now lurching from crisis to crisis. People avoiding journeys because they can’t fill up their petrol tank is not good for the economy. People spending less because the cost of the weekly shop has exploded is not good for the economy. And British exporters facing more barriers than their European competitors because of the deal that this government did is not good for the economy.
If this were a plan, it would be economic sabotage. When the Prime Minister isn’t blagging that this chaos is part of his cunning plan, he says he’s “not worried about inflation.”
Tell that to families struggling with rising gas and electricity bills, with rising prices of petrol at the pump and with rising food prices. He’s out of touch, he’s out of ideas and he’s left working people out of pocket.
Madame Deputy Speaker, Conservative mismanagement has made the fiscal situation tight. And when times are tight it’s even more important to ensure that taxes are fair, that taxpayers get value for money. But the Government fails on both fronts.
We have a grossly unfair tax system with the burden heaped on working people.
Successive budgets have raised council tax, income tax and now National Insurance. But taxes on those with the broadest shoulders, those who earn their income from stocks, shares, and property portfolios have been left largely untouched.
Businesses based on the high street are the lifeblood of our communities and often the first venture for entrepreneurs.
But despite what the Chancellor has said today, businesses will still be held back by punitive and unfair business rates. The Government has failed to tax online giants and watered-down global efforts to create a level playing field.
And just when we need every penny of public money to make a difference, we have a government that is the by-word for waste, cronyism and vanity projects.
We’ve had £37 billion for a test and trace system that the spending watchdog says, ‘treats taxpayers like an ATM cash machine’. A yacht for ministers, a fancy paint job for the Prime Minister’s plane and a TV studio for Conservative Party broadcasts, which seems to have morphed into the world’s most expensive home cinema.
£3.5bn of Government contracts awarded to friends and donors of the Conservative Party, a £190 million loan to a company employing the PMs former Chief of Staff, £30 million to the former Health Secretary’s pub landlord. And every single one of those cheques signed by the Chancellor.
And now he comes to ordinary working people and asks them to pay more. More than they have ever been asked to pay before and at the same time, to put up with worse public services. All because of his economic mismanagement, his unfair tax system and his wasteful spending.
There are of course some welcome measures in this budget today, as there are in any budget.
Labour welcomes the increase in the National Minimum Wage, though the Government needs to go further and faster. If they had backed Labour’s position of an immediate rise to at least £10 an hour then a full-time worker on the minimum wage would be in line for an extra £1,000 a year.
Ending the punitive public sector pay freeze is welcome, but we know how much this Chancellor likes his smoke and mirrors. So, we’ll be checking the books to make sure the money is there for a real terms pay rise.
Labour also welcomes the Government’s decision to reduce the Universal Credit taper rate, as we have consistently called for. But the system has got so far out of whack that even after this reduction, working people on universal credit still face a higher marginal tax rate than the Prime Minister. And those unable to work – through no fault of their own – still face losing over £1000 a year. And for families who go out to work everyday but don’t get government benefits, on an average wage, who have to fill up their car with petrol to get to work, who do that weekly shop and who see their gas and electricity prices go up – this budget today does absolutely nothing for them.
We have a cost-of-living crisis.
The Government has no coherent plan to help families to cope with rising energy prices. Whilst we welcome the action taken today on Universal Credit, millions will struggle to pay the bills this winter.
The Government has done nothing to help people with their gas and electricity bills with that cut in VAT receipts as Labour has called for. A cut that is possible because we are outside the European Union and can be funded by the extra VAT receipts that have been experienced in the last few months.
Working people are left out in the cold while the Government hammers them with tax rises.
National Insurance is a regressive tax on working people, it is a tax on jobs.
Under the Chancellor’s plans, a landlord renting out dozens of properties won’t pay a penny more. But their tenants, in work, will face tax rises of hundreds of pounds a year. And he is failing to tackle another huge issue of the day. Adapting to climate change.
Adapting to climate change presents opportunities – more Jobs, lower bills and cleaner air. But only if we act now and at scale. According to the OBR, failure to act will mean public sector debt explodes later, to nearly 300% of GDP.
The only way to be a prudent and responsible Chancellor is to be a Green Chancellor. To invest in the transition to a zero-carbon economy and give British businesses a head-start in the industries of the future.
But with no mention of climate in his conference speech and the most passing of references today, we are burdened with a Chancellor unwilling to meet the challenges we face.
Homeowners are left to face the costs of insulation on their own, industries like steel and hydrogen are in a global race without the support they need and the Chancellor is promoting domestic flights over high speed rail int he week before COP26.
It is because of this Chancellor that in the very week we try and persuade other countries to reduce emissions, this Government can’t even confirm it will meet its 2035 climate reduction target.
Madame Deputy Speaker, everywhere working people look at the moment they see prices going up and shortages on the shelves. But this Budget did nothing to address their fears.
Household budgets are being stretched thinner than ever but this Budget did nothing to deal with the spiralling cost of living. It is a shocking missed opportunity by a government that is completely out of touch.
There is an alternative. Labour would scrap the business rates and replace it with something much better by ensuring online giants pay their fair share. That’s what being pro-business looks like.
We wouldn’t put up National Insurance for working people, we would ensure those with the broadest shoulders pay their share. That’s what being on the side of working people looks like.
We’d end the £1.7 billion subsidy the Government gives private schools and put it straight into local state schools. That’s what being on the side of working families looks like.
We’d deliver a climate investment pledge – £28bn every year for the rest of the decade. That’s Giga-factories to build batteries for electric vehicles, a thriving hydrogen industry and retrofitting, so we keep homes warm and get energy bills down. That’s what real action on climate change looks like.
This country deserves better but they’ll never get it under this Chancellor who gives with one hand but takes so much more with the other.
The truth is this – what you get with these two is a classic con game. It’s like one of those pickpocketing operations you see in crowded places. The Prime Minister is the front man – distracting people with his wild promises. All the while, his Chancellor dips his hand in their pocket. It all seems like fun and games until you walk away and realise your purse has been lifted.
But people are getting wise to them. Every month they feel the pinch. They are tired of the smoke and mirrors, of the bluster, of the false dawns, of the promises of jam tomorrow.
Labour would put working people first. We’d use the power of government and the skill of business to ensure that the next generation of quality jobs are created right here, in Britain.
We’d tax fairly, spend wisely and after a decade of faltering growth, we’d get Britain’s economy firing on all cylinders.
That is what a Labour budget would have done today.
Edinburgh Pentlands SNP MSP Gordon MacDonald said that the Tory UK Government’s budget makes it clear that “independence is the only way to give Edinburgh a fair recovery from the pandemic.”
Gordon MacDonald said that the budget, described by the head of the Institute for Fiscal Studies as “actually awful” for living standards, is failing the people of Scotland by failing to tackle the cost of living crisis, the Brexit crisis and the climate crisis whilst the Tory Government prioritise cuts to the cost of champagne and giving tax breaks to bankers.
The Edinburgh Pentlands MSP said: “What the Tory UK Government has outlined today does not meet the ambition needed to build a fair and sustainable recovery and to tackle the cost of living crisis.
“It’s painfully clear that there will be no fair recovery from the pandemic under Westminster control.
“This Tory budget fails Scotland as a whole and doesn’t go anywhere near supporting people in Edinburgh, who are being hit by an energy crisis, a Brexit crisis, labour shortages and an inflation crisis under Westminster control.
“The UK Government budget is leaving families in Edinburgh hundreds of pounds worse off next year due to Tory cuts, tax hikes and the soaring cost of Brexit.
“It’s little wonder that, in May’s election, the people of Scotland voted overwhelmingly for a different future when they gave the SNP the highest share of the vote since the dawn of devolution and a clear mandate for an independence referendum – Independence is the only way to keep Scotland safe from Tory cuts.”
“The chancellor admitted that we will have zero pay growth across the economy next year. And he has no plan to get real wages rising for everyone after an eleven year pay squeeze, with average real pay growth over the next four years predicted to be just 0.3 per cent.
“He should have announced fair pay deals for whole industries, negotiated with unions, designed to get pay and productivity rising in every sector.
“Families face a triple whammy of a £1,000 universal credit cut, tax hikes and fast-rising energy and food bills. All the while wages across the economy stand still.”
On the universal credit taper cut, she added:
“Workers on universal credit should always have been able to keep more of their wages. This change does not make up for the £1,000 per year cut to universal credit, and does not help those on universal credit who cannot work.”
Centre for Cities’ Chief Executive Andrew Carter said:“Raising the National Living Wage is a quick win for the levelling up agenda and will have the biggest impact in the places that are crucial to the Prime Minister winning the next election. Four of the five places where the most people will benefit are in the North.
“While a pay increase is good news for people struggling with the cost of living crisis, it does not address the reasons why they live on low pay in the first place: a lack of well-paid jobs in their local area.
“We’ve seen today the beginnings of a plan focused on skills, innovation and infrastructure to address this, but turning it from rhetoric to reality will depend on ministers’ willingness to work with metro mayors and councils on delivering it.
“I am now looking to the delayed Levelling Up White Paper to set out how this will happen.”
Katie Schmuecker, Deputy Director of Policy & Partnerships at JRF said:“This is a tale of two Budgets for families on low incomes.
“For those in work, the change to the taper rate and work allowance, alongside the National Living Wage increase, are very positive steps, allowing low-paid workers to keep more of what they earn. Together these measures improve our social security system for working families and demonstrate a serious intent to turn the tide on the pre-pandemic trend of rising in-work poverty.
“But the reality is that millions of people who are unable to work or looking for work will not benefit from these changes. The Chancellor’s decision to ignore them today as the cost of living rises risks deepening poverty among this group, who now have the lowest main rate of out-of-work support in real terms since around 1990.
“Among the people in our society who cannot work are cancer patients, people with disabilities and those caring for young children or elderly parents.
“Their energy bills and weekly shop are going up like everyone else’s and they face immediate hardship, hunger and debt in the months ahead. The Chancellor had an opportunity to support families on the lowest incomes to weather the storm ahead, and he did not take it.”
New analysis by the independent Joseph Rowntree Foundation reveals that the rising cost of living wipes out much of the financial gain some families will receive from the Universal Credit changes announced today.
Weekly incomes and Costs for 2022/23
Family 1: single adult, no children, not working
Family 2: single parent, with one young child (assume age 5), part-time 16 hours per week
Family 3: couple with two young children (assume 7 and 5). One FT worker
Family 4: single parent, with one young child (assume age 5), full-time 35 hours per week
Family 5: Couple with two young children (assume 7 and 5). 1 FT worker (35 hours), 1 PT worker (16 hours)
Weekly income before new announcements
£77
£278
£433
£333
£489
Weekly gain from taper rate and work allowance
£0
£8
£19
£19
£31
Total loss from higher cost of living due to…
-£13
-£16
-£23
-£18
-£24
1) increase in energy prices
-£7
-£7
-£7
-£7
-£7
2) overall cost of living increase
-£6
-£8
-£13
-£8
-£13
3) increase in National Insurance and impact of inflation on earnings
£0
-£1
-£3
-£3
-£4
Overall weekly gain or loss after measures and cost of living
-£13
-£8
-£4
£1
£7
Note all five families lost £20-a-week in October 2021, due to the cut in the Universal Credit Standard Allowance, so all are worse-off than they would have been in September 2021. All workers are assumed to be paid at the National Living Wage rate, so benefit from its increase.
Peter Kelly,Director of the Poverty Alliance, said: “It is a shameful, unjust decision that makes the Chancellor’s rhetoric about ‘levelling up’ seem as empty as the pockets of the hundreds of thousands of people swept into poverty as a result.”
Diet is at the heart of beef’s race to net zero, according to respected Dr Karen Beauchemin, a federal scientist in Canada and an international authority on Green House Gas (GHG) emissions from livestock farming.
Seaweeds, fat from crushed oilseed rape and feed additives have all been part of a practical research programme she and her colleagues are carrying out, looking at both feeding and breeding to make the economics and environmental commitment stack up for beef producers.
“The goals of economic and environmental sustainability go hand-in-hand in beef farming and are complementary,” she says. “We have discovered multiple methods of reducing methane emissions in beef production, but the number one way is still to improve overall efficiency whether that’s through more kilograms reared per cow or improved grass utilisation.”
The studies have shown that methane is a direct result of the amount and quality of food, and in this week’s QMS podcast, Dr Beauchemin, who has worked in animal nutrition for over 30 years, looks at diet-related strategies that can be used to reduce methane emission patterns, and achieving the balance for producers to make cumulative gains.
“The research shows that methane emissions are highest when diets are higher in fibre, such as grass or silage, but this can be mitigated by cutting silage earlier to minimise the starch levels.
“And, although by feeding concentrates and grains producers can reduce emissions, we don’t want to overfeed these to beef cattle as their unique ability is to digest highly fibrous feeds like grass that cannot be consumed by humans and make use of that energy to produce food that can be.”
In Canada, consumers have been paying a carbon tax since 2019, $20/tonne soon to rise to $170/tonne, but it is not currently applicable on agricultural products.
There is pressure from the retailers, however, and the Canadian beef industry has introduced a low carbon beef framework to allow retailers to source from producers who are working to reduce their environmental impact.
The “badge” on the supermarket shelf is more than GHGs, however, explains Dr Beauchemin. It includes land use, water management, animal welfare and a healthy work environment.
On the challenges of consumer perception of livestock production on the environment, she adds: “Cattle do produce GHGs but they are producing food. With cars we’re talking about fossil fuels that are extracted from the earth and the CO2 emissions emitted are in the atmosphere for a long time.
“Methane from animals is part of a biological cycle. We have energy trapped in plants by photosynthesis, those plants are converted by animals into energy that goes into producing meat and milk for human consumption. The methane emitted in this system is short lived – it is broken down in about 12 years.
“Also, the animals are maintained on pasture and those pastures are sequestering carbon or have sequestered carbon, so they have large reserves. We have to be careful with comparing the emissions from animal production with fossil fuels.”
While there is a lot of interest in using breeding to improve feed efficiency, Dr Beauchemin focuses on diet over genetics. She has been very involved in the commercial-scale study of 3-NOP, a feed additive from manufacturer DSM which inhibits methane in the rumen.
In collaboration with several teams including experts in large-scale methane measurement, feedlot nutrition and health consultants, the results from 15,000 cattle have shown that it can reduce methane in a forage-based diet by up to 25% and by 80% in a feedlot finishing diet.
The podcast series is available through Apple Podcast, Buzzsprout, and Spotify, as well as via the Quality Meat Scotland website and social channels.
‘Rarely have so many words been used to answer so little’
Scottish Secretary Alistair Carmichael says the independence white paper is a ‘wish list not a price list’ and has called on the Scottish Government to share their figures for the cost of independence with the Scottish people.
Meanwhile First Minister Alex Salmond has said that enhanced childcare entitlement, one of the key commitments of the independence mission statement, would only be possible in an independent Scotland.
MSPs will debate the white paper at Holyrood this afternoon.
The 670 page independence white paper provides no answers on crucial questions like currency, pensions and the cost of independence, Scottish Secretary Alistair Carmichael said.
‘Rarely have so many words been used to answer so little’, said Mr Carmichael following the publication of the paper.
He also expressed disappointment that the Scottish Government had deliberately sought to ignore the uncertainties and difficulties of independence. He said it was astonishing that the Scottish Government had refused to put a price tag on independence even though their private cabinet paper had discussed costs.
Mr Carmichael said: “This was their chance to level with people. They have chosen a different path and people will judge them on that.
“For years we have been promised that all the answers on independence would be in the white paper. The big day has finally arrived and we have 670 pages that leaves us none the wiser on crucial questions such as currency, pensions and the cost of independence. Rarely have so many words been used to answer so little.
“People will draw their own conclusions that the Scottish Government have deliberately sought to ignore the uncertainties and difficulties of independence. We are simply expected to believe that everything will be perfect after we leave the UK. We are asked to accept that ending a 300 year United Kingdom will be straightforward. We are told it will all be alright on the night.
“We know that the terms of independence would need to be negotiated with many countries including the rest of the UK and the EU. An honest assessment of the challenges and uncertainties of leaving the UK would have seriously helped the debate between now and September. Instead we have been given a wish with no price list. Today was their chance to level with people. They have chosen a different path and people in Scotland will judge them on that.
“It is astonishing that the Scottish Government can sit in private discussing the costs of independence and then refuse to share those figure with the Scottish people. John Swinney’s leaked paper said it would cost £600m every year to run an independent tax system but today we saw nothing about that.
“It looks more and more like the Scottish Government will continue to keep these things private. If they had convincing answers then today really would have been the day to share them with everyone. From now until September 18th we will keep making the positive case for the UK. It works well for Scotland. It gives us the best of both worlds. It offers us a better future. We will fight hard to preserve it against those who have been obsessed with independence for their entire political lives but now seek to disguise it.”
‘transformational change in childcare’
Improved childcare entitlements is one of the most eye-catching sections in the white paper – and would be very popular – but some critics have suggested that the Scottish Government could act now to improve childcare and need not wait for independence.
The Scottish Government says families will save up to an estimated £4,600 per child, per year under plans to extend childcare to every child from the age of one. The proposed entitlement in an independent Scotland is for 30 hours of childcare each week – the same number of hours as a child in school.
The move would benefit around 240,000 children, 212,000 families and has the additional benefit of allowing more women to return to work by removing the barrier of childcare costs.
Implementation would be phased and the proposal will see the workforce expand in line with the hours, creating up to 35,000 jobs in the childcare sector, mainly for women.
The Holyrood government says independence offers the opportunity to bring in this proposal as tax revenues generated by more women returning to work will stay in Scotland. Under devolution, increases in tax revenues – and savings from reduced benefits claims – go to Westminster.
Speaking ahead of a debate on ‘Scotland’s Future – Your Guide to an Independent Scotland’ in the Scottish Parliament, First Minister Alex Salmond said:
“Independence would enable us to bring about a transformational change in childcare. The early years are the most crucial years in a child’s development. Our plan will provide high quality childcare that is both flexible and affordable for parents.
“Our current childcare costs are lower than the rest of the UK but every working family with children knows it is a real burden on the family finances. Improving access to quality childcare will not just benefit children – it will help many more women into work.
“At the moment, without all the powers of independence, we have managed to prioritise childcare and are increasing the number of hours from 412.5 to 600.
“Independence offers us the powers to go much further. If we matched, for example, the female labour market participation of Sweden, this would generate an extra £700 million in tax revenue. As we progressively expand childcare, the tax revenue generated would pay for further expansion. Without independence, however, that revenue would leave Scotland, go to Westminster and not be available to fund the further expansion we need.
“With independence, we would keep this revenue here in Scotland to reinvest it in childcare for all, a model we know from countries such as Netherlands works well for children’s development, female participation in the labour market and the wider economy.
“This transformational change in childcare will help give children the best start in life, allow parents to choose to work without worrying about costs and create up to 35,000 new jobs. This is just one of the many opportunities to make Scotland a fairer, more prosperous country through independence.”
