Economy Update — House of Lords, 2022-05-26
Topic: Macroeconomics
Joanna Penn (Conservative, Centre-right): My Lords, I thank the noble Lord, Lord Collins, and the noble Baroness, Lady Kramer, for their questions and for their welcome, I think, for the announcement made today. It is an important announcement, of significant scale, and it will mean a lot to people up and down the country who have been worrying about their energy bills in particular, as well as wider inflation, which I will come to Both noble Lords asked why now and what has changed. I say to them that three things have changed since the Spring Statement. First, the war in Ukraine has developed; we were at an early stage in the conflict then. Secondly, inflation expectations have unfortunately worsened since that time. Thirdly, we now have a much clearer idea of the likely level of the price cap in October. The noble Baroness said that anyone could predict what that would be, but there have actually been quite significant levels of volatility and I think it is right to have the best available information so that we can scale and target our support in the best possible way. That is exactly what we have done We have designed a windfall tax that will have significant allowances in it to encourage investment, while still, rightly, raising money that will go to households to support them with the cost of living. In waiting, we have been able to design that investment incentive in it and we also have a tax that will raise more money than the tax proposed by the opposite side, which they estimated to be about £3 billion—our estimates are about £5 billion. It has also allowed us to match the level of support that we intend to provide for the needs that people will have over the coming months. The lowest-income households, which the noble Lord, Lord Collins, rightly referred to in his questions, will receive around double the amount under the Government’s plans than in the plans set out by Labour Both noble Lords opposite asked about a VAT cut. A VAT cut on energy would provide, on average, support of around £120 per household. The basic support of a grant to every household of £400 is obviously much more substantial than that, but also, using a VAT cut would mean that more relief would go to those households which are, for the most part, the wealthiest, so I do not think it would be necessarily a well-targeted approach to the problems that we face The noble Lord asked when we will legislate for this new levy. The usual channels will, of course, discuss that, and we will bring forward legislation as soon as parliamentary time allows. However, we are clear that the levy starts from today, so there will not be an opportunity to avoid it from that perspective. He also asked about the gap in support for families while we look at what support can be put in place for the October increase in the price cap. Of course, when we knew the April figures and other estimates for the economy, we put more support in place: the national living wage has gone up, and most families have, I think, received their council tax rebate of £150 per household. We had previous cuts in the universal taper rate and an increase in the work allowance, and of course we announced the increase in national insurance thresholds I really have to correct the noble Baroness when it comes to national insurance. Yes, we have introduced the health and social care levy that will raise billions of pounds to pay for health and social care spending in years to come, but the increase in the NICs thresholds that will come in in July means that 70% of people will pay less in NICs next year than they would otherwise pay. I do not think it is right for people to get the impression that their pay packets are going to go down in July when they will go up. Also, in increasing thresholds while retaining that levy, we have had to take some difficult decisions that reflect our approach to fiscal responsibility, but we have done it in a targeted and quite redistributive way. I thought that was something that the Liberal Democrats might welcome, and I am disappointed that they still do not feel able to do so The noble Baroness talked about pressures beyond the increase in the cost of energy, and she is absolutely right. I have mentioned some of the action we have taken. We have introduced the fuel duty cut to help people with the cost of living. She talked about businesses needing support. We have introduced business rates relief and increased the investment allowance for businesses. We have NICs relief for small businesses employing low numbers of people, which is worth millions of pounds to many small businesses I think I have covered most of the points raised by noble Lords. I am glad they have welcomed the action. We have designed it very carefully to recognise that households across the country will be feeling the squeeze in months to come. There is some universal support, but those on the lowest incomes will struggle the most to meet those costs, so we have put in place extra support to help them where we can It is important that I close with one thing. The Government cannot meet the cost of living crisis and alleviate all the pain that people will feel over the coming months; I will never pretend that we can. We can put in place targeted interventions to help those least able to meet those rising costs, and that is exactly what we have done with our announcement today.