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Fiscal Outlook

My Lords, it is a great pleasure to speak after the noble Lord, Lord Burns, who brings so much experience and authority to his comments. They were extremely balanced and will be well received by all sides of the House.

My noble friend Lord Bridges set out his case with his customary clarity. The figures he gave speak for themselves. The rest of the world is now catching up with the warnings two years ago of our own Economic Affairs Committee. Not a day goes past at the moment without more evidence of the stresses and strains, not just in the bond markets but in the wider world of geopolitics, that are adding to the pressures and bringing closer some kind of reckoning.

Although I agree with my noble friend that the decisions the Government have chosen to take over the last two years—ducking cuts to the welfare budget and increasing taxes on business and employment—have made the problem worse, we on this side have to acknowledge that this is a problem that has been a long time in the making. Whereas in 1997, the Conservatives left office with a surplus—I repeat, a surplus—in 2024, the fiscal signs were already flashing red.

That brings me to the main point I would like to make today. It may seem slightly to one side, but I want to bring it to the discussion. Our fiscal and

economic problems are a consequence of structural political problems, and we will not be able to address them unless we also address the whole way in which our political system operates and our political classes have come to behave.

When I started working in government back in the 1980s, the basic operating model for politicians was something like this: the leadership worked out their overall vision and values, and then developed policies that were coherent with that vision. The job of politicians was to make an argument in favour of that vision and seek to persuade as many people as possible of the wisdom of a particular course of action. I am not arguing that this was universally applied, nor that there were not sometimes contradictions, but I do argue that the Government and Parliament were fundamentally transmission mechanisms and that their core job was to make an argument that was as coherent as possible.

We did not obsess over opinion polls. We did not carry out endless focus groups and taxpayer-funded market research. We did not, at bottom, think our job was to split the difference between competing interest groups. Contrast that with what we see today: incoherent and contradictory policy positions to please different lobby groups. For example, there is a drive on deregulation, on which I believe the Government are to be congratulated, but it sits alongside higher taxes on business, employment taxes on non-doms and laws to make it less attractive to hire workers. One set of measures is pro-investment but another is anti-investment. The result is incoherence.

In essence, we have moved the Government and Parliament from a transmission mechanism into one that is always on receive and sits on top of a giant lobbying system, where the plaudits go to the politician who can negotiate the next 24 hours most skilfully or take most plausibly some ludicrous line—ideally, while wearing a high-vis jacket or hard hat. So is it a surprise that our fiscal problems have compounded as our political system has become ever more performative? I remember my noble friend Lord Lamont once saying, “To govern is to choose”. More recently, we have had a Prime Minister who said, “I’m pro-cake and pro-eating it”.

Fortunately, we face a test that will show whether we have a political system that is indeed capable of being serious once again. What are we going to do about the pension triple lock? It is already clear that, in the circumstances we face, it is indefensible economically. But if, as a society, we believe in some kind of intergenerational fairness, it is clearly also indefensible morally. A policy that locks in the transmission of money from a declining number of young people to a growing number of relatively well-off older people—or, if you like, from our children to us—is not the path to a strong, balanced society.

I hope we can rise to this challenge, which applies to my Benches as much as it does to the Benches opposite. As my noble friend Lord Bridges said, we can either take steps ourselves to start sorting out the mess or wait to have change forced on us. I know which I prefer and which I believe is better for our democracy, but honesty about our fiscal situation

requires honesty in our politics. To restore seriousness to our fiscal position, we first need to restore seriousness to our politics.

12.39 pm