My speech in Lords

Jealousy is not a great emotion. It produces bitterness and unpleasantness. If it gets woven into politics, it usually ends up damaging the people and parties pursuing it, rather than helping them. I remember that a previous Government did not like grammar schools very much, and they decided that the parents of children in the surrounding area of a grammar school, where a big majority would not have children attending the grammar school, could be given a vote on the future of the grammar school. I think they thought that that would result in the abolition of grammar schools. However, when they held a vote, they discovered that the parents of pupils who had not got into the grammar school had no problem with the fact that very bright pupils had got into the grammar school; they saw that as a good for the wider society and the local community, not as a bad. There is a warning there.

We are fortunate in this country that we have some outstanding private sector schools, some of them very famous and well known. Some of them deliver a high quality of education. Labour will point out that they are able to do that partly because they have more income per pupil going into the school because they can charge much higher fees, and there is some truth in that. But there is also truth in the fact that the energy and the standards they set, and what they expect, also contributes  to their great success. So, when we have a great achievement like that, clever Governments want to build bridges, not create barriers. They wish to see how we can allow those well-endowed schools still to flourish, but also how more of us can benefit from that process.

My parents were not rich enough to send me to a private school, but I benefited from the fact that my local state primary put me in for a competitive examination to get a place in a direct grant school. I was fortunate enough to pass that exam, so I was able to attend as a day pupil with a free place what was primarily a boarding school paid for by richer parents who sent their children there. It worked harmoniously; we benefited from the exchanges between us, our different backgrounds, our different aptitudes and the different contributions we could make to that school.

A previous Government thought that that kind of thing was wrong, so the direct grant school idea disappeared and those schools had to become fully fee-paying schools or perish. Then there was the assisted places scheme, which was a similar kind of operation, and that too is an excellent idea, because it gives people from low-income backgrounds, who would respond well to the ethos of the school offering the place, that opportunity. Again, it blends the excellence of the private school with opportunity for those who can compete for the places.

Quite a lot of our great public schools, as endowment charities, are aware of their need to pursue wider charitable purposes in the educational area. So some of those great schools help the surrounding state schools by offering lectures and specialist tuition, organising joint events and being good members of the local community. Again, that is something we should value. Of course they should do that as charities, but it is there and it enriches the wider experience.

We have some extremely good state schools, and I am very proud that they should be there. But we also have some state schools that could do considerably better. That is where having both great state schools and some great private schools, which can act as mentors, guides or lighthouses to illuminate a better future, can be so valuable. The  Government should look again at the opportunity for social and educational enrichment that can come from more sharing of facilities, more joint venturing and more cross-feeding of good ideas from state sector to private sector and from private sector to state sector.

This unfortunate policy experiment that the Government have unleashed on private sector schools is very revealing about the wider debate on the impact of certain policy interventions. One of my persistent themes, as noble Lords have probably picked up, is that tax is usually very damaging and that it is usually something you impose to stop people doing things rather than to encourage them to do things. The Government decided to unleash three very big tax rises on these private schools: the VAT that we are describing, which directly has to be paid by the families of the pupils going there, as well as the very big hit on business rates and the very big hit on employee costs. Of course, the main item in a private school’s budget is employment, not just of the teachers but of all the support staff, some of whom are not that well paid. These jobs are at risk the higher you put up national insurance, along with the other two taxes.

We have seen, and have heard already in this debate, that the result of this treble tax attack has been a substantial number of school closures, as predicted. It is not good enough to say, “Well, there have been openings on the other side”, because we know that those openings are of different kinds of schools, often with different revenue streams including government money. You cannot get away from the fact that you have lost quite a lot of good schools, which just found the treble taxes too much.

We also know that some 33,000 places have had to be found in state schools as a result of the displacement. That is 33,000 families and individual pupils whose lives have been profoundly changed. It is not easy for a child to change school at an unusual time—other than when everybody is changing school, going from primary to secondary—because you lose all your friends. You go into a new school and maybe nobody wants to be friends with you, because groups of children can be cliquey and difficult. The Government seem totally insensitive to those kinds of issues. They think it is worth while to change the lives of 33,000 young people and their families for some greater good, which just seems to be the idea that they do not really like people being able to buy a decent education for their children.

I would imagine that the cost of those children transferring is around £300 million a year, applying a very rough multiple to the number of children. A Government who are very short of cash are not well advised to invent a policy that immediately imposes an additional £300 million a year of public spending. We wait to see how much extra revenue growth there has really been because, as we heard in the Scottish example, you can end up worse off when you take the balance of disappointing revenue into account with the extra costs.

One of the social consequences of imposing a tax on the schools, which means higher fees for parents to pay, is that many of the schools will not close but will change the people they educate. So we will see a pattern where these schools will be for very rich foreigners—that is, an export—and for very rich people at home, but all the other strivers who would like that are priced out of the market. Surely that is the opposite kind of social change to the one that Labour should want. It should not want the schools to be only for the children of billionaires or multimillionaires. Would it not be better if they reflected society more widely and offered education to a wider number in the community? So please, Government, think again. Understand that these schools can be a great bonus for our society.

I am quoting from the Chancellor of the Exchequer’s published letter to the governor of the Bank of England, sent on 17.9.26

The letter arises from the many phases of the Bank buying bonds at high prices to drive longer term interest rates down under Quantitative easing, and now reversing the policy under Quantitative tightening to get rid of the bonds it bought so badly.

This letter gives the Bank of England permission to tackle the losses and sales of bonds.

Quotes are in “ “ .

“The APF has been authorised by my predecessors to hold assets, primarily for monetary policy
purposes. In addition, and as set out below, I am today authorising a segregated portfolio of
APF gilts to be held for non-monetary policy purposes. Under the terms of the existing APF
indemnity, HM Treasury will continue to indemnify the Bank and the Bank of England Asset
Purchase Facility Fund (BEAPFF), so that any gains or losses arising out of, or in connection with,
the APF, including in relation to this segregated portfolio of APF gilts, are borne by HM Treasury.”

JR Chancellor here granting permission

“The MPC’s multi-year path for QT
I acknowledge the decision taken by the MPC to unwind the APF through an annual sales pace
of £20bn in purchase proceeds terms until gilts held for monetary policy purposes are fully
unwound by the end of 2034…….this is equivalent to an
average annual stock reduction of £46bn”

JR: this is a cut from £70 bn year to Sept 2026. Says he acknowledges but as he is paying the bills and as this affects the size of the APF which Chancellors have approved he could have approved.

“The Bank Executive’s strategy for backing banknotes
……
Given that the APF already holds gilts, and that the MPC intends to run its portfolio of APF gilts
held for monetary policy purposes to zero, I agree that it is appropriate for the Bank Executive
to set aside and retain a portion of the APF’s existing holdings to reflect anticipated banknotes
in circulation. This will avoid …….selling gilts as part of QT, which is the best outcome for
the taxpayer. I …..welcome that this avoids crystallising the upfront costs associated with
transferring the gilts across the Bank’s own balance sheet. £120bn of the longest-dated gilts
will therefore no longer be held for monetary policy purposes and so will not be unwound as
part of QT. “

JR important. this means the longest dated gilts   sitting on the biggest losses will now be held to maturity to avoid taking large losses.

“I am writing to agree to the proposed changes…..

The implementation of QT
As you note in your letter, officials have been developing a model whereby all APF active gilt
sales are conducted to the government and not to the market. HM Treasury would instruct the
DMO via the Debt Management Account to purchase the APF gilts that the Bank Executive is
selling in its implementation of the MPC’s multi-year plan. Sales would be conducted at market
prices and in a pre-defined manner…… The DMO would subsequently on-sell the
gilts to the National Loans Fund for cancellation. The indemnity arrangements between HM
Treasury and the Bank would continue unchanged. HM Treasury would in due course instruct
the DMO to issue a corresponding amount of debt to finance such APF purchases through the
annual financing remit.
This sales model, whilst leaving the overall supply of gilts to the market from the public sector
unchanged, would see a return to a single public sector supplier of gilts to the market. ……
We will review progress before April 2027 such that, subject to a final decision to proceed,
implementation could begin in a way that allows this to be incorporated into the DMO’s annual
financing remit, as set by HMT.“

JR Interpretation: If they do this it takes the pressure of sales off the market and gets Treasury to buy back the bonds where they already have to pay the losses. Great deal for the Bank which gets out if a very badly bought portfolio and some reduction in losses taken by Treasury.As this will be the Treasury doing the buying it clearly is the chancellor’s decision.

I have left out some detail and various affirmations of Bank’s independence over monetary  policy so it is clear this is the Chancellor signing off and approving a sales and QT programme, restating Treasury liability  for the whole thing.

The Bank now acknowledges that its sales of bonds at losses has driven up interest rates a bit more.These changes will relieve a little of the pressures on UK debt.

We now can see this government’s priorities. It is revealing to see how they wish to waste their limited supply of political capital.

1. Stop rich people giving money to rival political parties

2. Impose thousands of asylum seekers on small villages, overriding local opinion and Council planning powers.

3. Press on with give away of Chagos

4. Make more concessions to the  EU against UK interests without getting anything back we want

5. Continuing the big increase in benefits for life for young people,removing the need for them to look for a job

6.Increasing the tax take from petrol and diesel by insisting on full VAT on the higher oil price, making the cost of living crisis worse

7. Accelerating the closure of our oil and gas industry by banning exploration, delaying production decisions on proven reserves and imposing penal tax levels

8. Failing to follow up the announcement of the end of rough sleeping with plans to impose a national solution in a policy area where Mayors and Councils have powers

9. Failure to explain how they will get to defence spending at 3% of GDP by 2030, the amount the Chancellor said was essential.

10. The failure to smash the gangs or stop the boats.

The Bank of England decided this week to get rid of £100bn of bonds over the next year, £20bn more than last. I agree they should not buy more bonds to replace the ones that mature, like the ECB. I strongly disagree with their aggressive policy of selling bonds at big losses which would lose us less money if they held them to maturity. They have notched up £24 bn of losses, all paid for by the Treasury , this year since April. They have provided no good reason why they do this.

Maybe they want to qualify as one of the worst bond managers in the world. They certainly paid sky high prices for the bonds when rates were near zero. They then hiked rates and sold bonds to force the prices down so they could make colossal losses. They defend the rate rises on the good grounds they needed to do that for monetary policy purposes, as their bond buying and low rates had proved very inflationary. They tell us selling the bonds has little impact on anything, so why do it?

It is difficult to believe what they say. They say buying the bonds at ultra high prices was essential to buttress the economy and help output, but apparently selling them does not do the opposite! Buying stimulates, selling does  nothing!

They say their sales, large and low priced as they are, does not depress the market. Of course it does. They point out the prices do not particularly dip on the days of the sales. That is because the sales have been well heralded in advance and are carried out to a stated timetable, so they are in the price. Last autumn when they first announced a big £80 bn bond reduction programme it was followed by bond meltdown, exacerbated by the LDI collapse it helped trigger. The Bank had to reverse policy and buy bonds again to stabilise the market. This showed Bank buying and selling has a big impact as they are the dominant presence in this market.

The public finances ex Bank of England are badly damaged by the extent of the losses, which the needless selling makes worse. As the Bank does not think the sales make any difference, why do them when their balance sheet will come down as the bonds mature? More likely these sales have raised longer term interest rates, have weakened bond prices further and very visibly have worsened the public spending and borrowing figures ex Bank of England.  Why do other MPs ignore £24 bn of losses so far this year with so many more to come?

Statement of balances

These accounts are produced annually for the National Insurance fund. Many of the people commenting on the State Retirement fund seem unaware of this structure. Most the so called benefits paid out by the Fund  are the   State Retirement Pension entitlements, based on people’s age and past NI contributions.(97%).

The government Actuary makes an annual appraisal of solvency, with five year forecasts. His 2026 Report stated there is likely to  be a surplus  of tax revenue over spending every year from 2026-7 to 2030-31, a five year run. The fund needs to keep a substantial working cash balance to pay  pensions. This is likely to be over £100 bn this year and rising.He thinks the accumulated surplus will reach £160 bn  2030-31.

The Treasury has to make payments to the Fund if the Actuary judges it to need them, last required ten years ago. The Treasury may not take surplus money out to spend elsewhere without a change of law or Parliamentary approval to do so .

A proportion of National Insurance, currently £35 bn, is sent to the NHS every year and not transferred into the Fund. Increasing  the proportion of NICs taken in this way would also need a law change. I am setting this out as so many people debating NIC s seem unaware of the special treatment and their special purpose, which is to pay pensions  based on contributions.

The needless and damaging increase in NI Contributions by Reeves means the Actuary forecasts a surplus as high as £160 bn by the end of the decade.

My Lords, the Conservative Government were swept from power, first because they did not deliver on immigration control in the way that they promised but, secondly, because they presided over a very major surge in inflation in the early 2020s, which had been brought about by excessive spending, excessive borrowing, the deliberate repression of interest rates and the artificial creation of very large sums of money by the Bank of England. Like many, I supported the first very substantial injections into the economy when lockdown was first announced. Lockdown took a lot of activity and income out of the economy and a very major offset was needed. However, I became increasingly critical and impatient in the recovery period because the Government and the Bank of England did not seem to understand that we were into recovery and carried on with excessive borrowing, excessive spending and excessive money creation. I and others told them that it was bound to be inflationary, but much of the great British economic establishment was slow to see that and the result was a nasty cost of living crunch that did damage to the electorate and drove the Conservatives from power in a perfectly understandable way.

By 2024, however, the Conservative Government had got much better control of the economy and, for the first six months of 2024, under Conservative direction, the inflation rate came back down to the 2% target. For those six months, it was the fastest-growing economy of the G7. The Government set out a five-year plan in their 2024 Spring Budget, as always, which had entirely credible figures to show the deficit and therefore the borrowings coming down year by year to reassure bond markets. Under the Conservatives, of course, it was considerably cheaper than it is today for the Government to borrow because there was a bit more credibility in the medium-term prospects for controlling borrowing than there is today.

I think the fairest thing to do to try and analyse where we are, because I want the Government to succeed and I think they need to consider very carefully where they are when framing their next Budget. Let us compare the plans of the outgoing Conservative Government in the 2024 Budget for 2027-28 with those of this Government. Let us concentrate on 2027-28 because that is when the new Prime Minister and his new Chancellor can make any changes they like. They have inherited the current year and have chosen not to make many changes, just a few incidental, very small increases in spending. They have basically lived with the Reeves/Starmer construction of this year, but let us hope they think carefully about what they want to do for 2027-28.

What have they inherited from Reeves and Starmer? Well, in two Budgets, Reeves and Starmer increased taxes by £66 billion by policy changes—there is also, of course, a much bigger increase in taxes from fiscal drag and inflation—and for 2027-28 they suggested that they wanted to borrow £97 billion more than the outgoing Conservative Government had planned to do. The Conservatives were planning to borrow £50 billion in 2027-28, and the current Government inherits £147 billion of planned borrowing. There is then the level of spending: the Reeves/Starmer Government added £145 billion extra spending for 2027-28 compared with the £97 billion extra that the Conservatives were planning for that year. So spending will be £242 bn up. The total package is to borrow a lot more, tax a lot more and spend a great deal more.

Looking at the economic performance of the last two years, we see that this has not been a benign policy mixture for the economy. Unemployment has gone up and inflation has gone up, not entirely because of world events in the Middle East, but also driven by public sector costs where there has been a very big increase in public sector wages. I have no problem with paying people in the public sector more, but there should be productivity gains to help pay for it, and those have been sadly lacking. We have seen the Government stumbling to maintain tax revenues at the more elevated levels because they have triggered what in the 1970s was called a brain drain. A lot of talented people and a lot of people with wealth have decided that they want to make their lives or to make their investments elsewhere, which is a considerable concern. I have no problem with wanting to tax the rich more than everybody else, because they have the money to tax, but if you overdo it they do not stay to pay the money you wish to raise from them and then everybody else has to pay rather more. You lose those easier amounts you can get if you tax the rich in a sensible and internationally competitive way.

As has been made very clear by my noble friend Lord Bridges, the Government has to take action on spending. I do not think higher taxation is going to help get the Government out of this, given that they have ruled out the main taxes on most people. They would have to target the wealthy, the energetic, the people who work harder rather more than anybody else. More of that would do damage to growth and would mean less revenue rather than more, so they have to find public expenditure reductions that can start to bring the budget into a proper shape.

I do not share the view of those who think we should pick on the pensioners or the disabled to make particular sacrifices at this juncture. Those who are genuinely disabled need our proper financial support and I think both parties were right to promise the triple lock in the election and should keep to their word. There are many easier targets, which I have often mentioned, but which time does not permit me to handle today. My party has set out a very good set of cuts for the benefits bill to start us off.