Economy: Spring Statement
(6 years, 9 months ago)
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Lord Bates
That this House takes note of the economy in the light of the Chancellor of the Exchequer’s Spring Statement.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, this debate, which I have the privilege of leading, represents two firsts. First, it is the first in a new format of Spring Statements, which represent a single fiscal event. This was announced by the Chancellor in 2016 and aims to restrict tax and spending announcements to a single event in the autumn, which will allow more time for consultation and for planning by businesses and families. Secondly, today we have the privilege of listening to the maiden speech of the right reverend Prelate the Bishop of Lincoln. I am looking forward to that contribution almost as much as my noble friend Lord Cormack, who is of course a champion in this place for all matters to do with the great city of Lincoln.
The Spring Statement reports on a Britain that continues to grow, to create jobs and to outperform expectations. It is the next step in the plan set out in the Autumn Budget to build a Britain that is fit for the future and an economy that works for everyone. Our economy has been resilient, beating expectations and growing for five years straight—this is a fundamental strength which can help build the economy to meet the challenges that lie ahead. The Office for Budget Responsibility forecast reflects continued robust performance and has revised up the outlook for the economy this year, with growth slightly higher in 2018 than previously expected. Employment continues to rise, and has now risen by 3 million since 2010, the equivalent of 1,000 people finding work every day. This progress has been shared across the UK: since 2010, all nations and regions have seen higher employment and lower unemployment. The lowest paid have seen their wages grow by almost 7% above inflation since April 2015, and the OBR expects inflation to fall over the next 12 months, meaning that real-wage growth is expected to increase over the course of the year.
This Statement points to our mission to repair the public finances, with debt set to fall from next year onwards. Thanks to the hard work of the British people, today’s forecast shows that our plan to get back to living within our means is working. The deficit has been cut by three-quarters: from a post-war high of 9.9% of GDP in 2009-10 to 2.3% in 2016-17, its lowest level since before the financial crisis. The OBR forecasts that, next year, debt will begin to fall and will continue to fall in every year of the forecast, the first sustained fall in debt for 17 years.
While this is good news, borrowing and debt remain too high. We need to keep debt falling: it leaves us vulnerable to future economic shocks; we spend about £50 billion a year on debt interest payments, which is more than the amount we spend on the police and the Armed Forces combined; and it is not fair on the next generation to foot the bill for our current spending. We continue to take a balanced approach to public spending by reducing the debt, investing in Britain’s future, reducing taxes for hard-working families and putting money into public services.
If the public finances continue to reflect the improvements seen in the Spring Statement and the economy continues to be on a strong footing, at Budget 2018 the Government would have the capacity to enable further increases in spending on our vital public services and the long-term investment in Britain’s future. At the Autumn Budget the Government announced £25 billion of spending, including £6.3 billion for our NHS, and supporting households and businesses by investing in the UK’s potential in the long and medium term. Next month, working families will see another increase in their personal tax allowance, inflation-busting increases in the national minimum wage and the national living wage, and a freeze on fuel duty.
I turn now to the specific OBR forecasts. The OBR delivered its second report of the fiscal year 2017-18 on Tuesday. It points to the fact that the economy grew by 1.7% in 2017, compared to the 1.5% forecast at the Budget. Forecast growth is unchanged in 2019-20 at 1.3%, before picking up to 1.4% in 2021 and 1.5% in 2022. The OBR also expects inflation—currently above target at 3%—to fall back to target over the next 12 months. Borrowing is now forecast to be £45.2 billion this year, £4.7 billion lower than was forecast in November last year, and £108 billion lower than in 2010.
The Spring Statement reflects and supports the Government’s balanced approach to public finances by getting our debt levels down to secure our economy against future shocks, and freeing up taxpayers’ money for our vital public services rather than servicing ever-greater debt interest.
Since the Autumn Statement 2016, £60 billion of new public spending has been committed to support our public services. These measures take public investment in schools, hospitals and infrastructure in this Parliament to its highest sustained level in 40 years. Our fiscal strategy is driven by a balanced approach which will ensure that this country has robust and enduring economic growth to prepare us for the future.
Our economy reflects the potential of markets to develop talent and create opportunity because free markets provide jobs for millions, create wealth and form the bedrock of our tax revenues that underpin our vital public services. We will continue to support British businesses and champion free enterprise and free trade around the world. In this respect the Chancellor announced in the Spring Statement that the Autumn Budget 2017 moved to triennial revaluations of business rates from 2022, and it was confirmed that we will be bringing forward the next revaluation to 2021, with triennial reviews starting from then onwards.
The persistent challenge of productivity was also addressed in the Spring Statement. Notwithstanding the strong productivity numbers in the past two quarters, the Chancellor launched a call for evidence to understand how we can boost the productivity of the UK’s least productive businesses, among other pressing issues. As part of the Government’s modern industrial strategy, announcements were made to ensure that Britain remains at the forefront of new technology such as high-speed broadband. The Chancellor announced the first allocations of a £190 million local full-fibre challenge fund announced in the autumn Budget and confirmed £25 million for the first 5G testbeds.
A central part of a thriving economy and business environment is, of course, the people who work within it. The Spring Statement also told us that the Government are prioritising skills and training so that people can access and capitalise on available opportunities. The Chancellor reiterated the commitment of over £500 million a year to T-levels, the most ambitious post-16 reforms in 70 years, and £50 million of support is available to employers to prepare for its rollout.
We are also undertaking the largest road-building programme since the 1970s and embarking on the largest investment in our railways since Victorian times. We are making solid progress on plans to deliver the Cambridge-Milton Keynes-Oxford corridor and we are devolving powers and budgets to elected mayors across the northern powerhouse and midlands engine. We are in negotiations for city deals with Stirling and Clackmannanshire, Tay Cities, Borderlands, north Wales, mid Wales and Belfast, and we have invited proposals from cities across England for the £814 million fund that was announced in the Budget to deliver on their local transport priorities as part of our plan to spread growth and opportunity across all parts of the United Kingdom, because we know that investment in critical economic infrastructure and skills feeds through into the productivity bottom line.
The Spring Statement echoed a commitment to tackle the challenges in the housing market, and the Chancellor has set out measures this week to help it happen—an investment programme of £44 billion to raise housing supply to 300,000 a year by the mid-2020s. The Chancellor announced new updates to the Government’s housing strategy. The Government will work with 44 authorities which have bid into the £4.1 billion housing infrastructure fund to unlock homes in areas of high demand. It was announced that the West Midlands has committed to deliver 215,000 homes by 2030-31, and London will receive an additional £1.7 billion to deliver a further 26,000 affordable homes, including homes for social rent. It is estimated that 60,000 first-time buyers have already benefited from the stamp duty relief introduced in last year’s Autumn Budget.
The Chancellor also reported progress on aspects of tax policy, including multiple tax consultations, both published and impending. We have published the consultation on improving the way in which the tax system supports self-funded training by employees and the self-employed, and the Chancellor has asked the ONS to look at developing a more sophisticated measure of human capital so that future investment can be better targeted. In the autumn the Government published a paper on taxing large digital businesses in the global economy, and the Spring Statement follows this up with a publication that explores potential solutions.
The Government published a consultation on the new VAT collection mechanism and a call for evidence on how to encourage digital payments while ensuring that cash remains available for those who need it. The call for evidence will also seek views on how the tax system or charges can reduce the amount of single-use plastic waste in our society. Further consultations have also been announced, including a call for evidence on whether the red diesel tax relief on non-road mobile machinery discourages the purchase of cleaner alternatives.
The Spring Statement sets out how, through targeted measures, we are restoring the UK’s public finances for the benefit of our economy, for our public services, for our taxpayers and to ensure that we have an economy which is fit for the future. I commend the Spring Statement to the House.
Lord Young of Norwood Green (Lab)
Why did the Minister omit the paragraph on page 8 of my report dealing with the commitment to delivering 3 million apprenticeship starts?
Lord Bates
I think the noble Lord may be confused. This is not a repeat of the Statement given in the other place earlier in the week. It is a new speech addressed to a specific debate. It is not a repetition of a Statement but is part of a debate on the state of the economy and the OBR. I hope that helps clarify the position. However, I will be happy to deal with that point when I wind up the debate.
Lord Haskel (Lab)
My Lords, I feel sorry for the Minister. It must be embarrassing having to speak to a Statement the words of which are largely irrelevant to most people’s concerns. The Chancellor speaks of light at the end of the tunnel. Stagnant wages have eroded the public belief that this light can lead to broad-based prosperity. People believe that all it now does is add to inequality.
The Treasury said that the Spring Statement is not a Budget but a response that it is obliged to make to updated OBR forecasts, so what is the point of this Statement? We need a Statement that speaks to public anxieties and insecurities. That is why we are here. We are not here to have a selective debate about many economic forecasts. For instance, the Chancellor spoke of improved productivity. He must have been referring to output per hour because output per worker is virtually unchanged.
What are all these anxieties and insecurities that we ought to be dealing with? First and foremost must be the crisis in public services, services delivered by Whitehall and, perhaps more importantly, those delivered by local authorities. We all know that austerity has left these services much reduced, with most local authorities—of all parties—in severe financial difficulties. This means that local government is facing an even bigger funding gap by 2020. Already it is unable to fulfil its statutory duty on nearly half the children’s services it has to provide. More than 1 million elderly people are living with their care needs unmet, and local authorities are finding it difficult to recruit staff because pay does not meet rising costs.
The public want to hear what the Government are going to do to end this crisis. Yes, local government can put up car parking charges and can keep more of business rates, but this is minor. It needs to be allowed to do things such as charge more on expensive properties or second homes, or be able to borrow more to build more council houses. Perhaps we will have to pay social insurance to help fund the care of the elderly. We may even have to have road pricing. We are a relatively low-taxed country and some forms of higher taxation may indeed be inevitable. We need solutions not debates.
Meanwhile, in April spending and social security cuts will affect 11 million families. Three-quarters of the scheduled welfare cuts have yet to take place. Small improvements reported in the Statement are not going to compensate. What we need in the Spring Statement are some ideas of how we are going to deal with this. For instance, do we really need a cut in the banking levy? The Chancellor wants to consult about VAT on internet sales and on tax paid by the big technology companies. We have been consulting on this, to my knowledge, for five years. What we want to know is what is to be done. The Chancellor wants to consult on terms of payment. To my knowledge, we have been consulting on this for 25 years. I ask the Minister: who else is there left to consult? We now have a Small Business Commissioner. It is his job to deal with this and stop companies delaying payments as a matter of policy to conserve their cash flow—companies such as Carillion which use this policy to conserve their cash and pay in 120 days. Again, it is action we need, not consultation.
The other major anxiety is about jobs. Real wages are falling because wage growth is lower than inflation. Yes, the GDP was higher than the 1.5% predicted but it still leaves wage earners worse off. Yes, there is growing employment but much of it is insecure. Good jobs demand new skills, new attitudes and new investment. Instead of just updating OBR figures, why cannot all these anxieties and all these consultations be given a lot more meaning and effect by putting them in the context of our industrial strategy? That strategy was designed to deal with these issues, to improve our productivity, our investment, our infrastructure and our skills.
Hundreds—perhaps thousands—of people responded to the Government’s Green Paper and helped contribute towards the industrial strategy that is intended to promote our economic growth and improve our standard of living and our quality of life. Yet the Statement is virtually silent on this. Instead of reporting on the OBR forecast, why do the Government not use the Spring Statement to give us a progress report on the industrial strategy? That would have a lot more meaning for people. This is what is relevant to people’s concerns, particularly at this time when it is becoming ever more apparent that, whatever the outcome of the negotiations, Brexit is going to make us worse off by knocking a couple of per cent off our GDP.
We have been told several times that the Chancellor needs to keep a reserve in case Brexit goes wrong. Of course, we all know the answer to that. The real problem is that the economy is not doing as well as it should. So can we please have more concentration on the industrial strategy and less on austerity, because one seems to be cancelling out the other? In this Statement there are no big ideas as to how we are going to deal with these problems. We need a Spring Statement that explains how we can maintain the fair society and the strong economy that we all seek.
Lord Taverne (LD)
My Lords, what I find extraordinary about this Government is their complacency. I do not accuse the noble Lord, Lord Bates, of complacency, but I am surprised because I would not have expected it from Philip Hammond. He told us in his Spring Statement that we have now turned the corner and there is light at the end of the tunnel. However, as those two respected think tanks, the IFS and the Resolution Foundation, reveal, his plans reek of complacency. In the words of Paul Johnson, director of the IFS:
“The reality of the … fiscal challenges facing us ought to be at the very top of the news agenda”.
I suppose I should declare an interest, because in 1971 I was the first director of the IFS when it was launched. Indeed, I am proud to have acted as midwife to this infant, which has grown into such a formidable institution. I should also mention that in 1961 I was Member of Parliament for Lincoln and therefore I look forward with particular pleasure to the maiden speech of the right reverend Prelate the Bishop of Lincoln.
Let me refer to the findings of the Resolution Foundation, which was, after all founded by a very distinguished Conservative ex-Minister, the noble Lord, Lord Willetts, generally known as David “Two Brains” Willetts. It says that the plans of the Government depend profoundly on further deep cuts in public spending. There will be a further £2.5 billion of cuts to benefits for those of working age in the next financial year and even bigger cuts the year after. The poorest fifth of households will be the hardest hit. Will the Government be able to enforce such extreme hardships?
Indeed, I believe that there is more bad news in the pipeline—more bad Brexit news—than is generally expected. The Government still rely on proposals for a new trade deal that they hope to negotiate. These may bring temporary unity to the Conservative Party, but such proposals are almost certain to be rejected by the 27. For instance, in her Mansion House speech Mrs May suggested that in its new trade deal the UK should act on the EU’s behalf when goods are imported into the UK from the rest or the world and collect the EU tariffs and pass them on to Brussels. It would be a system that exists in no trade agreement anywhere else. When this was reasonably described as “magical thinking” by officials in Brussels, the alternative held out was the Government’s notorious plan for invisible, frictionless borders. Anyone who listened to or read the speeches in yesterday’s debate on Ireland, particularly the excellent speeches by the noble Lords, Lord Hain and Lord Patten, the noble Baroness, Lady Kennedy, and, especially, the noble and right reverend Lord, Lord Eames, must realise quite how hare-brained and damaging these proposals are. No one outside Britain regards them as credible.
In fact, without a dramatic U-turn by the Government, can they propose any trade deal that is realistic and has a chance of being acceptable to our EU partners? For that matter, how can there be a deal with Ireland if we stay outside the customs union, as the Government intend? If we stay outside, there is no way to avoid a hard border in Ireland and it is clear that the 26 will give their full support to Dublin. If it becomes more generally regarded as possible or likely that there may be no deal, the reactions in the market, the effect on the pound and on investment, will make our economic prospects infinitely worse. And this may come sooner rather than later: particularly in the case of financial services, the moment of truth may be nearer than we think. I recommend that people look at the speech of my noble friend Lady Kramer in the middle of the night in last Monday’s debate.
Lastly, I have another fundamental criticism of government policy. The burden of austerity has been borne by the public sector. Many speeches, including the speech of the noble Lord, Lord Haskel, have pointed out the extraordinary damage which austerity has caused, including the suffering by local authorities —in some cases spending has been cut by 50%. These cuts have materially reduced the quality of life in many sections of Britain, especially among the poorest. Yet the Government rule out any tax increases and persist in further devastating cuts in public spending. Already the taxes we pay as a percentage of GDP are 13% lower than in Germany, 17 % lower than in the Netherlands and 21 % lower than in France. All three have a higher standard of living than us and very much higher productivity. Lower taxes are not the path to more prosperity; they are more likely to be the way to a dysfunctional society. We spend a significantly lower percentage of GDP on health and social care than the Netherlands, France and Germany. Meanwhile, the NHS is heading for a crash, and will be further hit by EU nurses and doctors going home or no longer wanting to work in Britain, because of Brexit.
I am glad it is the policy of the Lib Dems to put 1p extra on income tax instead of further cuts in services. No one spoke a truer word—completely contrary to the philosophy of the Government—than the famous American lawyer Oliver Wendell Holmes, who said:
“Taxes are the price we pay for a civilised society.”
Lord Mawson (CB)
My Lords, I welcome the Chancellor of the Exchequer’s Spring Statement. It is certainly good news to hear that the UK economy has grown every year since 2010 and that the manufacturing sector is enjoying its longest unbroken run of growth for 50 years, adding 3 million jobs. This is all good news and rather a challenge to those who argue that this country does not have a future outside the European Union. The forecast by the OBR of more jobs, rising real wages, declining inflation, a falling deficit and a shrinking debt is all very good news and one wants to congratulate the Government on this achievement in this challenging time of change. The commitment of this Government to continue to deliver a balanced approach is right, and few of us who have run real businesses and organisations in the real world believe that throwing money at the problems of Britain in some of our poorest and most challenging communities will solve anything; it will make them poorer.
I welcome the Chancellor’s plan set out in August 2016 to back enterprise and unleash our creators and innovators, our inventors and discoverers—to embrace new technologies of the future and to tackle our long-standing productivity challenges. The Chancellor is surely right when he chooses to champion those who create the jobs and wealth on which our prosperity and our public services depend. The market is the only way to go if we want to provide jobs for millions of people and the tax revenues that underpin public services.
This is all fine, I agree, but in this digital age, the very nature of our economy is changing and, as an entrepreneur operating in local economies and real towns and cities in this country, I see every day that much of the machinery of government is not fit for purpose. Looking down into that machinery from No. 11 Downing Street, you see one thing. The OBR can quote whatever numbers it wants, but standing in the middle of that machinery, trying to make it work in practice and trying to run a SME in the middle of it, you see something altogether different. I suggest that the cellars of the Palace of Westminster, for those of us who have visited, are a helpful visual clue as to the machinery of the state I am talking about—machinery that SMEs are meant to make work. This machinery is in a terrible mess. It is full of short-term fixes carried out over many years and not fit for purpose in a modern digital economy.
In a modern digitised economy, in which small and dynamic SMEs will increasingly define our future economy, it is essential that the Civil Service and the organs of the state have a greater practical understanding of the day-to-day workings of small dynamic organisations and businesses, so that we do not undermine the life that is in them. We have a serious problem and we need to address it. The SME sector is a key part of our future economy and many SMEs are pulling their hair out at the bureaucratic demands that are landing every day on their desks.
There needs to be a far clearer grasp within government and the Civil Service of the cumulative effect on the practical day-to-day operations of SMEs of all this burgeoning bureaucracy we are generating. There was no mention of it in the Chancellor’s speech, I notice. Each piece of this bureaucracy on its own can seem very reasonable, but when you put it together the cumulative effect on a small organisation can feel debilitating and sap the life out of very good and committed people. Is anyone in government noticing and taking personal responsibility for these unintended practical consequences? Who is spending time in the cellar worrying about the machinery? Who is even interested because everything looks well above ground?
The Civil Service, in my experience, is made up of good, caring, clever and often impractical people whose culture is overly impressed by large organisations and reports; they often seem uninterested in practice. Large bureaucracies talk to bureaucracies. They speak the same language, but often seem to have little grasp of the realities of the day-to-day operations of small organisations. Having run a secondment programme for the Civil Service over a number of years, my colleagues and I have had an inside view of what this can look like. I thought it might be helpful to illustrate the issue in one very small SME that my family and I have a close involvement with. We thus see and feel the practical effects and impact of a wide range of government regulations arriving on the desk of a very small staff of people on a daily basis—people who are conscientious and want to follow the letter of the law, but increasingly find it challenging to do so. Stanton Guildhouse in Worcestershire is a small SME serving its local rural community through its offer of arts and educational classes. Here I must declare an interest. Its work has direct linkages with the work I founded at the Bromley by Bow Centre 35 years ago, where we now run 70 SMEs. This particular small rural SME also offers accommodation, meeting and conference facilities to families, charities, the public and business sectors from across the country in its Grade II-listed Manor House. It is a busy project with only one full-time member of staff and two part-time staff, and a small team of tutors. The turnover of the business last year was £139,000.
We count that today there are over 40 different regulations that directly demand attention from this small team of staff, many of them accompanied by complicated documents setting out terms and conditions and so on. To comply, we should ideally employ a lawyer, a health and safety consultant and an HR manager, which is completely unaffordable. Even things which hitherto were straightforward like opening a bank account, or working out whether a cleaner or art tutor working a few hours a week is self-employed or not, become major undertakings in themselves.
The part-time finance officer has alerted me to the impact of recycling rules and regulations on the day-to-day operation of the organisation, as well as the new regulations coming up the line, Making Tax Digital, which I understand is coming out in April 2019, after which all entities—initially those above the VAT limit—will have to file online. I am told the accounting community expects to do very well out of assisting clients with this change—clients who have never before had to register for online accounts other than via HMRC or the Charity Commission website. This is seen, I am led to understand, as a huge cloud hanging over SMEs and indeed the charitable sector.
A colleague of mine, a digital entrepreneur with a successful growing business working increasingly in new markets overseas, tells me that new data regulations will cost his business at least £15,000 per annum. He tells me that we might like to think the UK is the best environment to set up and grow a business and that we have less bureaucracy than our overseas competitors, but we are in real danger of this becoming an illusion—his words, not mine.
I make it clear that my colleagues and I are not against the regulation and modernisation of services. We have built very successful entrepreneurial businesses, and social and business innovation is our core business. However, we have a real concern about the cumulative effect and scale of all this regulatory activity emanating from the many different silos of government, and whether it is sustainable in the real world. The logic that seems to underpin all this activity concerns us. Government cannot control every aspect of human life, and experience suggests that the more it tries to do so, the less personal responsibility for all our actions there will be. There is a balance to be found here and we worry that the Chancellor and his colleagues are coming out on the wrong side of this equation. Grand words and large numbers are fine but ultimately it is about the detail, and for the SME sector this matters for hundreds of thousands of jobs and millions of pounds of productivity. All this regulatory activity in turn produces many extra practical tasks for a very small team on a daily basis, which both is impossible to service and in practice undermines the involvement and work of good people who want to run a successful business.
In an increasingly joined-up and integrated world, I wonder whether the Government need to invest more in innovation in this space. We need to explore how to reduce all the unnecessary duplication produced by what seem like increasingly out-of-date silos and explore more cross-cutting solutions. I know we all talk about this endlessly, but the time has now arrived, in this digital age, when we must increase the practical activity in this space. Withdrawing from the EU may provide us with an excellent opportunity to grasp this nettle. As I say, it is not so much the individual measures that are the issue but their cumulative effect on SMEs across the country. People are becoming fed up to the teeth of an impersonal machine over which no one seems to have any control.
I have a practical measure to propose and a question to put to the Minister. Why not send civil servants drafting legislation, and perhaps all members of the Better Regulation Task Force, to spend some time in small organisations and businesses, to get the view “up the telescope”. They could spend some time working out whether that art class is or is not VAT-exempt; whether the tutor is self-employed or not; if the insurance cover is correct; if all health and safety requirements have been met; if the class is accessible to all forms of disability, likewise the online advert; if the records on the computer are compliant with data regulations; whether we have everyone’s permission for the photos; whether the risk assessment is up to date, and so on, times 40—all for something potentially involving just 10 people and lasting two hours. This is ridiculous and no way to run an economy, micro or otherwise.
In recent months I have listened to numerous speeches from all sides of this Chamber, worrying away at this issue. As the country prepares to leave the EU, now is the time to grasp this nettle. I suggest that our economy will depend on it. If we want a new generation of entrepreneurs to rebuild our economy and give us and their children a future, I for one hope the next speech by the Chancellor will have something to say about this matter, about the unwieldy machinery of government in an internet age, a digital age that I thought was meant to make our lives much easier but is in danger of doing precisely the reverse as we continue to apply old out-of-date siloed mindsets to a digital environment that is all about the integration of services.
Lord Bishop of Lincoln (Maiden Speech)
My Lords, I thank those who have made me so welcome to your Lordships’ House, not least those who hail from Lincolnshire, including several proud doorkeepers who either live in the county or have served there in the armed services. We share a love for our historic county, the beauty of landscape and building, not least Lincoln Cathedral, about which noble Lords may have heard from the noble Lord, Lord Cormack; the pleasure of its food—I am a bigger man now than I was when I went there—and, most importantly, the rugged, independent-mindedness of its people. I also thank those who have said warm words of encouragement in this debate.
I have been Bishop of Lincoln for over six years. My predecessor, Dr John Saxbee, is an expert in the work of the Danish theologian and philosopher Kierkegaard, one of whose most famous sayings is, “Life can only be understood backwards but it must be lived forwards”. Trying to understand my life backwards now, I can see that providentially much of who I was and what I did before coming to Lincoln in 2011 prepared me for the role that I now inhabit, and will inform and guide the contributions that I hope to make in your Lordships’ House.
I come from working-class roots in the former steel town of Consett in north-west Durham, a town that was only there because of the steelworks, the place where all the men in my family worked. I found faith and a vocation to the priesthood at the age of 13. It was a surprise to me—a surprise that has not exactly left me yet—that God was calling someone like me to be a priest. This vocation took me to south London, Hampshire and Portsmouth, where the journey back to my roots began. Portsmouth, although 350 miles south of Consett and a little warmer, has been described as a northern city on the south coast—a reminder that the north/south divide is as much a conceptual division as a crude geographical line. There I was able to begin to engage with issues of poverty, inequality and low educational attainment that reappear now where I currently serve.
My journey back to my roots—or, as we members of the north-eastern diaspora call it, “home”—continued with a national job in Church House, Westminster, overseeing the provision of ordained and lay ministry across the Church of England. That sensitised me to the challenges facing the communities and churches in areas on the edge such as the north-east itself, Cumbria, Cornwall, Herefordshire and of course Lincolnshire.
That brings me to where I am today and the role that I now play, and to the Chancellor’s Spring Statement. There are some things to welcome in what was announced —what has been called the light at the end of the tunnel: the modest improvement in economic forecasts and the prospect of an increase in spending on and investment in public services, which will be good news to the people of Lincolnshire, especially if what is devoted to Lincolnshire addresses the challenges that we actually face.
Lincolnshire is formed by its history and its geography. In the words of one recent book, we are “prisoners of geography”. The impact on Lincolnshire of 50% of its population living in sparse, rural settlements is huge. Size matters, and in Lincolnshire this is expressed in challenges faced by the health and education services, not to mention the threat that climate change poses to Lincolnshire, which the most reverend Primate the Archbishop of Canterbury sees in a recent book as having,
“significant bite not only for our generation but also for those as yet unborn”.
However, Lincolnshire is not all rural or flat fens. There are communities like Grimsby, Scunthorpe, Lincoln itself and Boston. In those areas that voted heavily in favour of Brexit, there are the usual challenges of urban life, and there are more to come when the full impact of welfare reform is experienced. Unless economic policy as articulated in the Statement is directed as much towards the interests of these communities as it is to the more prosperous corners of our country, we shall be failing in our duty to create a fairer and more integrated society. Already I see in those communities a sense of alienation from the metropolitan elite. In the typology of David Goodhart’s helpful book, the “somewheres” resent the “anywheres”, while the “anywheres” do not understand the values of the “'somewheres”.
This is not new. The Lincolnshire rising of 1537 and the Pilgrimage of Grace that followed, were obviously about first of all a commitment to the old religion, but perhaps also driven by the resentment that King Henry VIII and his commissioners were the rich elite from the south who had come to plunder their assets. The King made his views on Lincolnshire clear. The shire was, he said,
“the most brute and beastly of the whole realm”,
and he saw that the perpetrators of the rising were cruelly executed. In hoping to avoid a similar fate, it is none the less my sincere wish to be a small but proud voice for the successors of those good people of greater Lincolnshire in this place.
Lord Hodgson of Astley Abbotts (Con)
My Lords, the Members of the Bishops’ Bench in your Lordships’ House have a long record of making distinguished and distinctive contributions to our debates, and I think the speech we have just heard continues that tradition—not that I would have expected anything else from the right reverend Prelate, given his far-reaching personal, academic and pastoral background. This includes not just the wide-ranging work in the United Kingdom which he described; I am told on the highest authority that he is an exceptionally accurate sprinkler of holy water. He has a son and family living in Australia, which gives him a world dimension, and he himself studied in California, where he received a master’s degree in sacred theology. I hope I am not being irreverent, but I am surprised there are degrees in theology that are not sacred. Whatever the rights and wrongs of that, he has made a powerful contribution to our debate this afternoon, and I am sure that I speak for the whole House when I say that we look forward to hearing from him again soon.
As I turn to my own remarks, I need to draw the House’s attention to my entry in the register—my chairmanship of several companies. I also ought to remind the House that I am currently chairman of a Select Committee of your Lordships’ House looking into citizenship and civic engagement. It is not directly relevant to our debate today but some of the evidence we have received has informed the background to my remarks.
My noble friend on the Front Bench has taken a certain amount of incoming fire so I begin by offering congratulations to the Government on their overall economic performance. I do so, first, as regards the continuing reduction in the Government’s borrowing requirement, which at £37.7 billion in the 10 months to the end of January is the lowest since 2008. Secondly, they have created economic conditions where tax receipts continue to outperform expectations so that the next financial year looks as though we will run, excluding capital investment, an overall surplus.
However, we live in uncertain times for reasons that we have been debating long into the night and will continue to debate long into the night, so there is still work to be done with borrowings at over £40 billion and the net debt at £1.73 trillion—84.1% of our GDP. I support the Chancellor in his determination to continue a responsible fiscal policy. I have to say to the party opposite that I fear for our future if Mr Corbyn has a chance to plant his magic money tree, as I think that would undo all the hard work done in the past few years.
In my remaining remarks, I want to look to the future and for my noble friend to comment on progress in three particular areas. The first is what the Government call emerging tech, and particularly the area of artificial intelligence and robotics. Over the next 10 to 15 years AI and robotics will transform the way we live and the way we work. In 2015, 5.5 million consumer robots were sold and next year 40 million are expected. They will free us, as that tide comes along, from doing many tasks that are dull, dangerous and dirty. It will be a huge important worldwide wave of change and it is important that this country is in the vanguard of it. Perhaps my noble friend could update the House on the Treasury’s perspective on progress in that regard.
However, as is always the case, there is a downside. To date, robotics have tended to affect employment in manufacturing—the manufacture of things. The next wave will deal with services, and this country is very service-oriented. Financial services, insurance, auditors and paralegals will find that a large number of their jobs no longer exist in the new world. At a further lower level, humdrum jobs will disappear. Commentators say, “Yes, yes, yes”, but in agriculture, for example, where there is expected to be quite considerable employment, albeit lowly paid, we can see from YouTube that a machine in California is now starting to pick strawberries mechanically, and in Lincolnshire a machine can pick cabbages and lettuces. They are not commercial yet but they will become so. Therefore, the idea that there is a large level of unemployment in these areas in the future is mistaken.
The implications for our society are for many fewer jobs overall. This will be the first industrial revolution that destroys more jobs than it creates, and it will be a society that looks like an unbalanced hourglass in terms of work prospects: a small blob at the top for those who are successful, a long thin middle and another blob at the bottom for those able to do the humdrum jobs that cannot be mechanised. All this will cause stresses and strains on our social cohesion. It will be emphasised because, over the next 25 years, we will see an ineluctable drift in wealth from the West to the East. The rising economic powers of the next 25 years will be India, China, and south-east Asia. Whether we like it or not, we will be in a relatively slower part of the stream. That, too, will emphasise problems that we might have in this country. That is my first point.
My second point is how to do more to make sure that our existing resources—our people here—are better equipped to deal with these very challenging conditions. Of course, productivity has been our Achilles heel for as long as I can remember. There are things we can do to improve productivity. The first is training, and I welcome my noble friend’s emphasis in his opening remarks on the Government’s commitment to training—the apprenticeships programme and the T-training. It has always seemed to me that a well-trained technician is likely to have a more satisfactory, well-paid and fulfilling job than someone with a 2.2 in media studies.
There is a second challenge, which is about trying to get people to work, and it is a question of infrastructure. One of the companies I chair is in central Manchester. It is a small company, employing about 40 or 50 people. We take on about four or five every year. We can recruit people from Manchester but we find it extremely hard to recruit from Bolton, Blackburn and—dare I say it in the presence of the noble Lord, Lord Davies?—Oldham, because the travel-to-work times from those towns to Manchester are very high. People are not prepared to commit to a job that requires them to spend too much time travelling to work every day. For another company in Runcorn which I chair, the situation is even worse.
If my noble friend asks his officials to get out the social mobility report of November 2017 and turn to page 75, they will see that planned spending per head on transport in London is £1,943, but in the north-west it is £680—one-third—and it is even less in Yorkshire and Humberside. The Treasury needs to think about the generality and the particularity if we want to make serious inroads on the imbalance between London and the south-east and the rest of the country.
The third element of this is getting UK employers to understand the importance of recruiting members of the settled population. When I say “settled population”, I mean settled—it is not another word for white. I do not mind about racial background, religion or anything, just the settled population. Noble Lords will have read, as I have, hundreds of articles saying that we are crying out for engineers, but I meet young engineers—young men and women who have a 2.1 in engineering—who find it hard to get a job. When you ask why, they say it is because employers say that they have no experience. Of course, you cannot get experience without a job and you cannot get a job without experience, so they are hooked into this very difficult situation. It can be easier to hire someone from overseas—it is probably no more expensive; it is perhaps cheaper—who will have two or three years of practical experience thrown in. This issue of crowding out needs to be addressed. If overseas recruitment is the default option—for employers it is economic and rational to do that because they get better-quality employees for a lower price—it will have implications for our society.
This takes me to my last point. Against this challenging background, we need to consider the fact that our population continues to increase very fast. Some people have said, “With Brexit, that’s all over”. Well, it is down but it is still very high. Every single day in the year to 31 December 2017, on average, the population of this country went up by 1,196 people. That is a large village or a small town every week. Approximately 500 was natural increase—that is to say, the excess of births over deaths—with 500 from outside the EU and 250 from inside the EU, balanced by about 150 people from Britain going to live overseas. The ONS projection is that we will have another 7 million people here over the next 25 years. To house them, we will need three cities the size of Manchester—with all the ancillary services that go with that.
We have these three trends: a move to the East, resulting in our living standards growing, at best, more slowly; an AI robotics revolution, which will reduce—potentially dramatically—employment opportunities; and a rapidly increasing population. In my view, though I hope I am wrong, this all suggests challenges to our social cohesion and our community life. I say to my noble friend that only the Treasury is in the position to assess the impact of these trends. Every other department is bound by its silo mentality, its own bit of turf. When he comes to wind up, can he say whether these sorts of long-term strategic issues even register in the Treasury? What sort of intellectual horsepower is being deployed to them? If he is not able to say that this afternoon, perhaps he could write to all of us who have participated in the debate to explain how the Treasury sees these trends working out or, if it is the case, why it disagrees with them.
Lord Livermore (Lab)
My Lords, I add my congratulations to the right reverend Prelate the Bishop of Lincoln on his maiden speech. In his Spring Statement on Tuesday, the Chancellor devoted just 75 words to the UK’s departure from the European Union. Yet, concealed in his numbers, the consequences of Brexit now cast a dark cloud over the entire British economy. The Chancellor sought to present himself as the great optimist, dressing up the OBR’s latest growth forecasts in a positive light. Of course, the 0.1% increase for 2018 is indeed welcome, but what he did not mention was how much lower those growth forecasts now are because of Brexit. To quote the OBR:
“The vote to leave the European Union appears to have slowed the economy”.
The real picture is that, in each and every one of the next three years, economic growth will be significantly lower than the Government’s pre-referendum forecasts.
The Chancellor said that growth is now forecast to be 1.5% in 2018, 1.3% in 2019 and 1.3% in 2020. What he did not mention was that, before the referendum, the forecast for each of those years was 2.1%. In his Statement, the Chancellor described growth in the subsequent years, 2021 and 2022, as “picking up”. Yet, compared to his Autumn Statement, the growth forecasts for those two years have in fact been revised down to 1.4% and 1.5% respectively. The Chancellor also failed to mention that at no point since the Second World War have there ever been five consecutive years of GDP growth below 2%—until now. Neither did he mention that the UK economy is forecast to grow 24% slower than the economy of the euro area over the next five years. Nor did he say that, having been at the top of the G7 growth league before the referendum, Britain is now not just at the bottom of the G7 but bottom of the entire G20.
The director of the Resolution Foundation said:
“Because it feels like old news the danger is we come to ignore quite how awful these economic forecasts are”.
The director of the IFS observed that these growth forecasts are,
“dreadful compared with what we thought in March 2016, dreadful by historical standards and dreadful compared with … the rest of the world”.
The Chancellor might describe himself as “particularly Tigger-like”, but it is doubtful that the British people will be enjoying themselves quite so much.
There were some other notable omissions from the Chancellor’s speech—on investment, trade, productivity and earnings. Investment is down in comparison with pre-referendum forecasts. The OBR noted that, by the end of 2017, business investment was almost 6% lower than the March 2016 forecast. The Bank of England has estimated that Brexit uncertainty has already lowered investment by between 3% and 4% and the OBR now expects investment growth to,
“remain subdued in the face of Brexit-related uncertainty”.
On trade, the OBR now believes that the negotiation of a new trading relationship with the EU will slow the pace of import and export growth over a 10-year period and it expects export growth to flatline by 2022. Productivity growth has also been downgraded yet again in every year from 2019 and is now even lower than the extraordinarily bad projections made at the time of the Autumn Statement. Earnings will now not return to their pre-financial crisis peak until 2025, leaving Britain barely halfway through a 17-year pay downturn. Lower growth, a weaker economy, poorer people—all direct consequences of Brexit, yet none of them mentioned by the Chancellor.
One set of figures that the Chancellor did focus on were the OBR’s updated fiscal forecasts, where he sought to talk up the Government’s performance on both borrowing and debt. In his Statement, he made reference to debt being revised down, although debt will still continue to rise from £1.74 trillion this year to £1.83 trillion next year and £1.88 trillion by 2020. Of course, when the previous Labour Government left office, the debt-to-GDP ratio stood at 57.1%, whereas this year it will be 85.6%.
On borrowing, the £4 billion improvement in this year’s deficit since the autumn is of course welcome. However, the improved forecasts only reverse one-third of last November’s enormous Brexit-induced borrowing downgrade and the structural deficit in 2019-20 is almost completely unchanged. As a result, the Chancellor remains a decade off meeting his target of eliminating the overall deficit and any hopes of an end to austerity are sadly misplaced. While the former Prime Minister and Chancellor congratulated each other on Twitter on the elimination of the current deficit, they were seemingly unaware of the misery that their policies had caused, with homelessness doubling and child poverty rising by over 1 million to the highest level since records began. Now, under this Chancellor, cuts to day-to-day spending are set to continue well into the next decade. Funding to local government will fall by a further 20% over the next two years and, as my noble friend Lord Haskel said, nearly 80% of the benefit cuts announced in 2015 are still to take effect.
In his speech, the Chancellor claimed to be building,
“a country that works for everyone”.—[Official Report, Commons, 13/03/18; col. 722.]
Yet as a result of the tax and benefit changes that this Government have made, the entire bottom half of the income distribution will now see their incomes fall. The second-poorest decile will lose £1,500 a year—a 10% fall—while the second-richest decile will gain £600, a 2% rise. The poorest working-age families with children will see an extraordinary 20% fall in their incomes, losing over £3,500 a year. Again, none of this was mentioned by the Chancellor. Throughout his Spring Statement, he seemed intent on concealing the damage done to our economy and the working families of this country.
We saw the exact same desire to conceal when the Government sought to avoid publishing their impact studies into the longer-term economic consequences of Brexit. These impact studies, finally published last week, show an even more significant cost of Brexit than we have seen so far. They show a 5% reduction in GDP from leaving the single market. They show new trade deals making up only 0.2% to 0.7% of that reduction. They show a devastating economic hit to every nation and region of the UK, with an 11% reduction in GDP in the north-east and an 8% reduction in both the north-west and the West Midlands. They show that leaving the single market would further increase borrowing by some £55 billion.
In his speech, the Chancellor speculated that the Labour Party could put at risk the recovery, threaten British jobs and burden the next generation, yet that is precisely what his own figures prove conclusively that his policies will do. Having seen the cost of Brexit so far and having commissioned their own Brexit impact studies, where the consequences are laid out in black and white, the Government have still chosen to pursue a policy that will demonstrably damage Britain’s economy. This is surely the first time that a Government have ever deliberately put aside the national economic interest and embarked instead on an economic policy that they know will make the country poorer. Why? Because this Government are now taking decisions not for the economic needs of the nation but for the ideological needs of the Conservative Party. As the economic costs of Brexit become clear and as we see the further devastating impact that the Government’s policy will have for decades to come, we must surely now ask: is this really the right path for our economy? Is this really the future that we want for our country?
Lord O'Neill of Gatley (CB)
My Lords, I, too, congratulate the right reverend Prelate the Bishop of Lincoln on his excellent maiden speech. By complete coincidence, I attended a wedding last Friday at which at least half of those present came from that proud county, so I can vouch that they appear to be a rather robust bunch.
With respect to the Spring Statement, I will make six—hopefully brief—points, two of which are questions. First, I congratulate the Chancellor on sticking to his commitment to only one annual fiscal event, not least to avoid the never-ending temptation of saying or doing something purely for the sake of it. I join other noble Lords in congratulating the Government more broadly on the ongoing positive fiscal progress. Far too frequently, the importance of eventually returning to some kind of fiscal health is underestimated in this place.
Secondly, I point out—others have touched on this but, to my slight surprise, it has not been specifically mentioned—that the OBR was surprisingly gloomy, contrary to general expectations in advance because of recent evidence. Although I suspect that, as I have just implied, things might not be as grim as it suggested, its justification does not lack credibility. In this regard, it would not be the worst of all outcomes if, yet again, it—and some of the rest of us—is pleasantly surprised in the autumn.
Thirdly, the OBR might easily be wrong. As David Smith highlighted in yesterday’s Times, if going forward the GDP growth that it suggests is as weak for the rest of the period, it will turn out to be worst extended period for 70 years. Is this realistic? Perhaps it is. But, beyond Brexit, it seems that there are some creeping better signs, not least the recent evidence of a pick-up in productivity. There are some credible reasons, some of which I have outlined in this place before, why this recent two-quarter improvement in productivity is not to be dismissed, as the OBR has done, and might persist. I do not have the time to highlight what they are, but I will no doubt return to them at some future date. If the OBR is wrong, the boost to public finances as well as the scope for material debt reduction, and for government investment spending, could be significant.
However, my fourth point is that the OBR might be right. If it is, the Government will have no choice but to take a bolder path on investment spending, both directly and indirectly.
Fifthly, in this regard, can the Minister respond to a question on the following? Recently, I participated in a conference on investment in the UK. At that event, the Chief Secretary to the Treasury said—this was very recently—that the Government would soon publish a paper on a new methodology for approval of investments, implicitly suggesting the possibility of allowing for broader productivity-enhancing analysis rather than the all-too-familiar rigid value-for-money approach that has long since dominated the thinking of many departments. That could be hugely important. When will that report be published?
Sixthly and lastly, in this vein, why are the Government so quiet and why have they become so apparently timid about their northern powerhouse and Midlands engine strategies, especially when, oddly, there is some evidence—albeit modest—that parts of this past strategy are working? The last time I spoke here, I highlighted the apparent strength of the north-west, notwithstanding some points touched on earlier, and, since then, the most recent data suggests that this is continuing. I would have thought that the Government would be rather proud of that and would want to pursue it more. Succeeding with both the broader, wider northern region, as well as the so-called Midlands engine, and sustaining the strength of the north-west would, among other things, help to deliver on some of the implicit core things that the OBR is so gloomy about and, most importantly, would result in a better future for the whole of the United Kingdom.
As it relates to the northern powerhouse, there are clear implementable policies, especially on transport infrastructure and education and skills, which the Government should embrace. While the transport asks require significant new central government fiscal action, the skills and education initiatives do not challenge the fiscal framework that much. As demonstrated by the recent proposals from the Northern Powerhouse Partnership, of which I am the vice-chair, these would be highly important to the education and skills challenges of the whole of the north and, for that matter, the Midlands, but would have very little impact on the Government’s overall fiscal framework, irrespective of whether the OBR is right or wrong. The Government need to rediscover their lust for these policies, some of which may have contributed to the tentative signs of some highly necessary and important regional rebalancing of the economy.
Lord Higgins (Con)
My Lords, I have long since forgotten how many Budget debates I have spoken in, but I have certainly spoken in every one since 1964, which is quite a long while. I have therefore got used to the annual Budget ritual, with the box outside No. 10, and so on. While I fully understand and accept the reasons which the Chancellor has put forward for changing our annual Budget arrangements, none the less I feel a little sentimental about the proposed changes.
We cannot go on calling it a “single fiscal event”; we should go on calling it a Budget in the autumn. I gather, from reading rather more closely what the Chancellor said, that it will continue to be known as a Budget. I also regret the fact that he will no longer publish the Red Book, which I always found a singularly convenient form of presentation, and I hope that he will reconsider that by the time we come to the autumn.
The Chancellor’s speech the other day sets out the record since 2010, which is good: the manufacturing sector is,
“enjoying its longest unbroken run of growth for 50 years”,
with 3 million extra jobs; every single region has,
“higher employment and lower unemployment than in 2010”;
and the wages of the lowest-paid workers are,
“up by almost 7% above inflation”.—[Official Report, Commons, 13/3/18; col. 717.]
All that is good, and the Chancellor is right to have stressed it. Similarly, the OBR forecasts predict more jobs, rising real wages, declining inflation and a falling deficit—and, the Chancellor says, a shrinking debt. It is not actually true that there will be a shrinking debt. My understanding is that clearly the national debt will continue to go up; that must be a slip by the draftsman who produced the Chancellor’s speech. It is essential to stress that we must continue to cut the deficit, for all the reasons that are well known—the effect on future generations, the strength of the economy, the fact that we have to pay large amounts of interest on the debt, and so on. I hope that we can take that point into account.
The OBR forecast in general is optimistic, although we shall have a number of particular problems. We hear talk of austerity all the time, but what that really means is that we are living within our means, and having to take the necessary measures to stay within our means—unlike Mr Gordon Brown, who managed to make everyone happy for a number of years simply by running up debts at a higher and higher level. We certainly do not want to see Mr Corbyn doing the same thing again.
Lord Skidelsky (CB)
I am sorry to interrupt the noble Lord, but does he not remember that the debt-to-GDP ratio came down for all the years of Brown’s chancellorship until 2008?
Lord Higgins
Conveniently or not, I happen to have forgotten that. At all events, let me consider what the noble Lord has just said.
I am glad to see that the noble Lord, Lord Livermore, who had disappeared for a moment, is now back in his place, because what I really wanted to say is that although I did not agree with every single word he said, I very much agree with what he said in general. The Chancellor missed an opportunity to spell out how much more difficult his task had been made by implementing the results of the referendum.
In my view the referendum has produced a disastrous situation. Someone said at the time that people did not vote for a lower standard of living—but that is precisely what they voted for, and it is precisely what they are going to get. That is very deplorable indeed. I agree with the noble Lord who said that it would be helpful if the Chancellor had spelled out the fact that, because of the effect of that vote, we are facing even bigger problems than we otherwise would have done.
It is important that we should not go for a very hard Brexit. We had a debate yesterday about what was going to happen, and we had to reappraise the position. We were saying that we needed a meaningful vote on the result of the negotiations, and there was a long debate about that. Unfortunately, we did not have an opportunity to vote on the place we should start from. The trouble is that the Government started by saying that we are going to withdraw from the customs union and the single market. That will be dangerous and damaging. Parliament really must take a strong position and say that we cannot go along with the implications of Brexit if it means that the living standards of our people will be lower. I think that we have a duty to say that we will not go along with this.
Therefore, as it stands, it is a good Budget but it is a far less good Budget than it would have been if we had not been dealing with the initial implications of Brexit. The situation will certainly be better if we do not continue along that route but instead take a revised view on where the Government should stand on the single market and the customs union.
I add only one point, which was made yesterday, about the Irish border. If we do not leave the customs union, we do not have a problem, and if we do leave the customs union, we do not have a solution. That is the reality. However, overall I welcome the proposed changes to our financial proceedings and debates, and I believe that this is as good a Budget as one can produce in circumstances which are much worse than they would have been if we had not had the result that we did in the referendum.
Viscount Chandos (Lab)
My Lords, I too congratulate the right reverend Prelate on his excellent maiden speech. I also thank the Minister for moonlighting from his DfID duties to introduce the debate. I should draw the attention of your Lordships’ House to my entries in the register.
A year ago I spoke in the debate on the Budget—possibly the last Spring Budget—and there were 39 speakers. This afternoon there are 14 or 15. Although projections and forecasting are difficult, as illustrated by the OBR, my calculation is that there has been a saving of a maximum of £7,500 as a result of the reduced number of speakers.
We have been invited to take note of the economy in the light of the Chancellor’s Spring Statement. The question is, which portrayal of the economy—the Chancellor’s sunlit uplands or the Office for Budget Responsibility’s darker valleys? And how does the Chancellor’s upbeat assessment relate to the other evidence that all your Lordships are exposed to: crises in local government, the NHS and the provision of care for the elderly?
The United Kingdom has the greatest regional inequality of any country in the EU, yet, as I watched the Chancellor make the Spring Statement, he gave the impression that the only question was whether the outlook was better on St George’s Hill or in Virginia Water. Just as the American President calls any inconvenient facts “fake news”, anyone who does not embrace the optimistic view of the Government has been dubbed Eeyore-ish, and the Chancellor—himself regarded as an Eeyore by his Brexit-enthusiast colleagues—has now proclaimed himself to be a veritable Tigger.
Even if this gentle banter feels rather less threatening than the President’s terminology, it strikes me as fundamentally trivialising important and, for millions of people, harrowing issues—squabbling over which costume in the nursery dressing box is whose, while rough sleeping, the use of food banks, child poverty and the cancellation of hospital procedures inexorably rise.
Seventy-five per cent of the welfare cuts introduced by the previous Conservative Chancellor in 2015 and not reversed by the current one are still to take effect, and the projections for public expenditure and borrowing in the period to 2020-21 are based on the assumption that these cuts are fully implemented.
I will leave it to future economic historians with longer perspective and greater objectivity to pass judgment on the Conservative and Conservative-led Governments’ measures over the past eight years to reduce the deficit arising from the consequences of the global financial crisis, but I will be surprised if a consensus conclusion does not suggest that the national finances could have been better strengthened through a significantly more equitable sharing of the burden. We cannot, however, rewrite history or easily reverse past actions, so the priority has to be to ensure that future policy does not continue to place such an unfair and intolerable burden on the least well-off. Whether or not the IFS’s projection of the need for a £30 billion to £40 billion increase in annual tax revenues by the mid-2020s proves to be in the right range, there is little doubt that, with all the changes, among other things, to the workforce and employment structures, radical changes to how taxation is raised fairly and effectively are essential.
Although the Chancellor announced 30 different consultations in the Spring Statement, many of these are pretty technical and of limited potential in terms of revenue raising, and some, even if welcome, such as fair payment of commercial suppliers and prompt payment by government, have no direct relevance to the Government’s requirement for funding.
There appear to be no signs of any deeper thinking by the Government about key areas of taxation, however difficult they may be, as the noble Lord, Lord Macpherson, as a former Permanent Secretary to the Treasury, has previously argued in your Lordships’ House, such as the reform of residential property taxation. Even if our departure from the EU has as benign an outcome as possible, we will not have prosperity and fairness without grasping such nettles.
I would like to conclude, therefore, by reverting to an issue that I raised a year ago in the debate on last year’s Budget Statement: the need to reform inheritance tax. Inheritance tax is not currently a substantial contributor to public funding—around £5 billion per annum, compared to, say, 10 times that for corporation tax, even at its currently discounted level—and the most ambitious realistic reform is unlikely on its own to substantially close a £30 billion funding gap. But it could, I believe, make a useful contribution to such a target, and, as importantly, reform could create a system widely seen as much fairer. In the context of the case for inheritance tax reform, Janan Ganesh wrote in the Financial Times:
“A country’s tax code is not just a mesh of rules and rates—it is a secular bible of moral signals”.
Although not included in the list of consultations, the Government have recently commissioned the Office of Tax Simplification to produce a review of aspects of inheritance tax. The scoping document, dated 15 February 2018, refers to,
“a review of a range of aspects of IHT and how it functions today, including its economic incidence, to identify simplification opportunities … The overall aim of the review will be to identify opportunities and develop recommendations for simplifying IHT from both a tax technical and an administrative standpoint”.
These Benches have asked for a fundamental review of inheritance tax for many years. My noble friend Lord Eatwell argued powerfully six years ago for a review which considered the taxation base shifting to the recipient of gifts and legacies rather than the donor or the estate. Inheritance tax was introduced by the noble Lord, Lord Lawson, who is not in his place, in substitution for the capital transfer tax regime, which embraced lifetime gifts, introduced in the 1970s by the late Lord Healey.
I therefore find the limited remit of the review, perhaps admittedly reflecting the narrow focus of the Office of Tax Simplification, very disappointing. That disappointment turns to acute concern once I have looked at the position of the chair of the OTS, the former Conservative Minister, Angela Knight. For 10 years, and for 15 months while serving as chair of the OTS, Ms Knight was a non-executive director of Brewin Dolphin, the private wealth manager. Indeed, before she was chief executive of the British Bankers’ Association, she was chief executive of the Association of Private Client Investment Managers and Stockbrokers. As I did last year when I spoke on this subject, I spent a few minutes on the internet, this time to look at Brewin Dolphin’s site. Their guide, How to reduce an inheritance tax bill, includes topics such as how pensions can be used as an estate planning tool, and the benefits of using trusts. It states:
“Many people think it is deeply unfair that the estate they have worked so hard to build up can potentially be subject to a 40% tax charge. Fortunately, there are lots of exemptions that can help mitigate the tax paid”.
The House of Commons Treasury Select Committee, in scrutinising Ms Knight’s appointment in January 2016, expressed concern about her potential conflicts of interest and recommended that she recuse herself from the consideration of any matters in which she had a conflict of interest. I ask the Minister, first, whether Ms Knight has recused herself and will continue to recuse herself in relation to the review of aspects of inheritance tax. Secondly, can the Minister say whether, in parallel with this limited review, the Government will conduct a wider-ranging review, as these Benches have argued?
Whether your Lordships rely on the OBR’s projections, the more pessimistic OECD ones or the more optimistic Bank of England ones, it is clear that the challenge of re-establishing a sustainable economy is huge. This is no time for tinkering; radical thinking is needed.
Lord Skidelsky
My Lords, in his Spring Statement, the Chancellor saw,
“light at the end of the tunnel”.—[Official Report, Commons, 13/3/18; col. 718.]
The light is pretty dim, and the tunnel has been much too long. The two are connected, the dimness of the light being largely the result of the length of the tunnel, as I shall try to demonstrate.
First, I have a question about the light. Real GDP is expected to grow by an average of 1.4% a year for the next five years. This is just over half of the trend rate of growth before the crash. GDP per head is expected to grow by under 1% a year in that period. This is a picture of a stagnant, becalmed economy. In the 1950s and 1960s, Britain was often called the sick man of Europe because its annual growth rate was a miserable 2.8% a year. Now we are promised half of that as the new normal. Note that it is by no means the new normal for other countries. The United States is expected to grow by 2.2% over the next three years, the eurozone by 2% and the rest of the world by 3.7%. So our new normal is actually quite a lot worse than the expected new normal of most of our trading partners. The noble Lord, Lord O’Neill, asked whether this pessimistic estimate is credible; possibly not. I am not a great fan of five-year growth forecasts. But what I would say is that it has nothing to do with Brexit. As the OBR made very clear, these poor economic prospects that it sees are rooted in structural problems in the British economy, which have been there for quite a long time.
The OBR characterises the British problem as one of lack of supply, stating that the main indicator of this is,
“stagnation in productivity … since the financial crisis”.
I do not disagree with that, but what is lacking from the analysis is how a demand-side shock produced by the financial crash morphed into a supply-side problem. That is an interesting point of analysis which is underresearched. The explanation lies in the Government’s reliance on a market-led recovery. We now have a labour market that works pretty much as the classical theory tells us it should; that is, very flexibly and with a trade-off between wage growth and employment growth. With this kind of labour market, the economy rapidly returns to full employment, but it is a low-productivity level of full employment that leads inexorably to a low-productivity trap.
Output per hour worked grew by 2.3% between 1998 and 2008. Since the crash, it has grown by 0.3%. The fall in productivity growth would have been even greater had not hours worked fallen somewhat. The OBR has therefore said, rightly, that,
“a revival in productivity growth is essential”,
to sustain even the 1.4% annual growth of GDP.
This requires a return to the pre-crash level of investment. Public investment as a share of GDP has fallen from 5% in the 1960s and 1970s to roughly 3.5% today. Instead of compensating for the fall in private investment after 2008, George Osborne cut the state’s investment programme as part of his austerity Budgets. Low productivity is a direct consequence of the austerity policy.
We have now entered the Chancellor’s long tunnel and need to ask why it has been so long. This is the Chancellor on “responsible budgeting”:
“First you work out what you can afford. Then you decide what your priorities are. And then you allocate between them”.
This is absolutely fine, except that what you can afford is not independent of what you can do. If you can do nothing, there is an absolute limit to what you can afford, but that is not true of government. Government can raise taxes and increase its borrowing. The Treasury view, echoed by the Chancellor, is that such measures cannot bring about a net increase in government revenue because they reduce private sector activity by an equivalent amount. That is the real meaning of that little moral tale that the Chancellor has advanced.
This is exactly the same as the old Treasury view of the 1920s. For example, Winston Churchill when he was Chancellor of the Exchequer said in 1929 that,
“very little additional employment and no permanent employment can in fact and as a general rule be created by State borrowing and State expenditure”.
We thought that Keynes had demolished that doctrine, but it has returned with a vengeance. Since 2010, the Treasury and the OBR have been united in the view that there has been little or no spare capacity in the economy and therefore no scope for fiscal expansion. Rather, the only contribution fiscal policy could make to recovery was to cut the deficit. This would restore confidence and bring about a rapid bounce-back in private spending and investment. That was the doctrine; as far as I know, it still is. In fact, as the Minister says, the deficit has been coming down, but at a much slower rate than expected or forecast. And because austerity has lengthened the tunnel, it has postponed the solution of the budgetary problem.
Every competent authority agrees that the austerity policy lengthened the tunnel by two to three years and made the average household at least £5,000 poorer than it would have been. In doing this, it reduced the capacity of the economy to produce output.
Is there nothing fiscal policy can now do to raise the growth rate? Is it true that there is no spare supply in the economy? I should like to make two observations on that. The OBR estimates that unemployment, which is expected to stay at just over 4% over the next five years, is at an equilibrium rate. That is, that any expansion of fiscal policy now will simply lead to inflation, not produce any extra employment.
Is that true? I doubt it. I do not believe that headline unemployment figures are a true measure of spare capacity in the economy. I would question the idea that 4.4% unemployment represents the equilibrium rate of unemployment in this country, for two reasons. First, 4.4% is an average. It disguises the fact that there is overheating in some parts of the economy and underheating in others. In the south-east, unemployment is down to 3%; in the north-east, it is nearly 6%.
Secondly, and more importantly in my view, the 4.4% disguises the extent of underemployment—people working less than they want to. In 2016, the International Labour Office estimated that 6% of those in employment wanted to work longer hours than they were allowed to. In the United Kingdom, there are 32 million in employment, and 6% of that is 2 million. If we add this number to the headline unemployment figures, we get 3.4 million. That is an underemployment rate of 10.4%, not 4.4%. That seems to me a more accurate measure of the extent of spare capacity.
To conclude, I think there is more spare capacity in the economy than the OBR believes to be the case. If I were in charge of the Treasury—many noble Lords might say, thank goodness you are not—I would loosen fiscal policy, expecting to create a demand draught, and I would want monetary policy tightened to any extent needed to repress inflation. We have the spare capacity. What we lack is spare imagination.
Lord Judd (Lab)
Before the noble Lord sits down—I am certainly not one of those who turns white at the thought of him as Chancellor of the Exchequer—does he agree that it is not just a matter of people being underemployed? It is much more complex than that because some are very highly employed but their working conditions in this country are atrocious.
Lord Skidelsky
I completely agree. If you want to get a comprehensive view of what underemployment consists of, that would be a very important factor. I was just citing the most convenient measure we have, which is the measure of the International Labour Office: people who want to work more hours than they are allowed
The Lord Bishop of Portsmouth
My Lords, my first duty today is one of great joy: to welcome on behalf of this Bench, and I am sure the whole House, the right reverend Prelate the Bishop of Lincoln, and to congratulate him on a fine maiden contribution. Its quality was no surprise to me. He is remembered with great respect in the Diocese of Portsmouth, which I now serve and where my colleague and friend was parish priest and archdeacon. I know that his erstwhile congregation in Petersfield was delighted that he was able to visit them last year.
I know, too, that serving in Lincoln is a particular delight for him, not just because the diocese is full of wonderful people, but because his grandfather played football for Lincoln City. As a Black Country boy and lifelong supporter of Wolverhampton Wanderers, I understand the ups, which I am presently enjoying, and the more frequent downs of being a football fan, but I strongly suspect that playing and indeed supporting Lincoln City demands a very special kind of fortitude, resilience and above all hope. That, I also know, is the state of mind with which 18,000 ever-hopeful souls travel to Fratton Park, Portsmouth, of a Saturday. I applaud that, because hope is of course central to Christianity, anchored as it is in our sure and present hope in Christ.
The Chancellor’s Spring Statement was certainly characterised by hopefulness. In his own words, he is “positively Tigger-like” about our prospects, yet I cannot help but recall that Tigger’s boundless optimism does not match the facts before him. Tigger might even be accused of wishful thinking. As we have heard repeatedly, the Chancellor spoke about seeing light at the end of the tunnel. That, I think, was in relation to managing the deficit. If we achieve that then he held out the possibility that more money might become available for hard-pressed public services. That is an “if” of some considerable magnitude, and it is before we consider what sort of impact relatively modest increases would actually have, let alone the impact of the vast unknown unknowns of Brexit. Moreover, it relies on assumptions about the short term; the medium-term figures for the economy are less hopeful by a country mile, with the OBR expecting UK growth between 2017 and 2022 to be a full quarter, 24%, slower than growth in the euro area.
Furthermore, it is hard to see where the light at the end of the tunnel is for many people already struggling to make ends meet. The Chancellor said that wages were going up for those on the lowest incomes, but forecasts for pay and living standards are terrible. The OBR now expects pay to grow next year, albeit by only 0.4%. It does not expect any real pay growth ever above 1% a year during the forecast period, nor does it anticipate it reaching pre-crisis levels until 2025. Household incomes are little better—forecast to grow below 1% a year right through to 2023, leaving average incomes in 2021 £1,400 lower than forecast just two years ago, in March 2016. That is against a backdrop of significant cuts to working-age benefits yet to be implemented.
This is grim stuff. The facts and figures are stark, but it is on the impact for people, their well-being and dignity that we should properly concentrate. Some 1 million food parcels are given out by food banks every week. In my see city of Portsmouth, a quarter of children live in poverty. On the Isle of Wight, the figure nudges towards 30%. In some areas of the nation the numbers are worse.
I fear I risk sounding like one of the doom-laden prophets of the Old Testament, but I am, in fact, ever hopeful. Some of the consultations announced on Tuesday promised much, if they can be delivered, in terms of securing our tax base, not least by making companies that for all intents and purposes earn here pay tax here; that is a matter of simple justice. So too with the call for evidence on how we can achieve very necessary increases in productivity: the fact that we are only now calling for evidence does not suggest that we should expect to see anything concrete any time soon on what is a very pressing matter.
I am, however, as hopeful as any Lincoln City supporter. I hope that the commendable decision to return to a single Budget each year will result in properly worked out policies to ensure that work does not just pay but pays well enough to ensure a decent standard of living, as it should. That is truly a hope we can all embrace. I hope that business will be enabled to create secure jobs, that public services will have the resources they need to provide the services we want and, perhaps especially, that those who are vulnerable will be treated with decency and compassion. I hope that there is indeed light at the end of the tunnel, but we continue to travel this very long tunnel towards a light spotted at some unspecified distance ahead. I hope the end is close, but, with regret, I question whether the possibility of small increases in public expenditure, alongside depressed growth and flat-lining pay, offers much hope to the millions already struggling to make ends meet.
Lord Freeman (Con)
My Lords, I add my congratulations to those expressed earlier to the right reverend Prelate the Bishop of Lincoln on his most excellent speech. I speak for the Back Benches and for many of my colleagues when I say that he is most welcome.
I want to devote my brief remarks to one issue that I feel very strongly about, and of which I know the Chancellor is well aware: the need to improve productivity in our economy. Improvements there will, in turn, improve the living standards of our population. That is why, for the first time in my memory, a Chancellor has devoted a significant part of an important speech to dealing with the issue of productivity.
The Chancellor rightly referred to our UK companies being in the vanguard of the technological revolution. That is the key to improving productivity. He also emphasised that our industrial and commercial productivity could be and should be improved. My noble friend Lord Hodgson referred to the importance of productivity improvements for generating more wealth for our community and, most importantly, for the efficiency of our businesses. The Chancellor outlined certain initiatives that have already been introduced and new additional initiatives which I believe will be most welcome. For example, there has been a big increase in research and development expenditure over the past four decades, under both parties. That has contributed to some improvement in productivity, particularly industrial productivity.
Expenditure alone, however, will not be sufficient. People must have the skills to capitalise on new technologies. How can we improve those skills across the board? Technical education is one of the key means by which we can improve productivity, and I am pleased that the Government have committed more than £500 million per year to improving technology levels for schoolchildren over the age of 16 and those going on to higher education. I am led to believe that, next month, £50 million will be available to help employers prepare for the rollout of T-levels—for those who do not realise what that means, it means technical-level—and to help them prepare those who are working for a placement for training. Also to be fully introduced, at a cost of some £25 million, is a construction skills fund for 30 construction skills training centres around the country. I look forward to their being named, and I am extremely pleased about the announcement.
The Department for Education has lead responsibility for the skills revolution, especially technical education, and T-level training in digital and construction skills has already been introduced. However, I hope that this initiative—perhaps the Minister will have an opportunity to comment briefly on this—will be expanded much more widely and as soon as possible. It has been supported by companies, including Rolls-Royce and Fujitsu in particular. These skills will be taught from 2020 across the country.
This week the Chancellor stated that the Government will launch a call for evidence to understand how best they can help the UK’s least productive businesses learn from and catch up with the most productive. He also said that £31 billion was going to fund infrastructure, R&D and housing through the national productivity investment fund. That is warmly to be welcomed.
I strongly support these initiatives and congratulate the Chancellor—which I hope my noble friend on the Front Bench will communicate to him—on his strong support and guidance. When these programmes are implemented, productivity certainly should, and will, improve.
Lord Young of Norwood Green
My Lords, I apologise to the Minister if I did not understand the nuance and nature of this debate, especially as he seemed to quote 90% of the Statement. Nevertheless, I recognise its nature now and I am grateful for his willingness to respond on the issue of apprenticeships.
I too congratulate the right reverend Prelate the Bishop of Lincoln on giving us one of the lesser inscrutable quotations from Kierkegaard about whether you are living your life forward or backward; I understood that one. On looking at the Bill team, it reminded me that the challenge for young people today is to feel confident about their future, and the challenge for the older generation is to make it clear that we understand their concerns, whether they are about jobs, housing or even—if they are thinking that far ahead—their pensions.
I congratulate the noble Lord, Lord Higgins—who has contributed to every such debate since 1964—on his enthusiasm. However, he said that people precisely voted for a reduction in their standard of living but, with respect, I do not think that they did. There was a confused range of views about what people voted for, but when they saw an advertisement on a bus saying that there would be an extra £350 million going into the health service every week, perhaps they can be forgiven for being confused about what they were voting for.
As to the Chancellor’s Tigger-like enthusiasm at the moment and his remark that there is light at the end of the tunnel: we all know what people say about light at the end of the tunnel—it often signals that there is a train coming. Whatever our thoughts on Brexit, we know that train is coming and that it will have an impact.
I congratulate the right reverend Prelate the Bishop of Portsmouth on reminding the House about taxation, productivity, food parcels and so on. What stuck with me when he reached the end of his speech was that we wanted an economy where people felt that work paid and that their jobs were secure. That is another huge challenge.
To be positive—I like to try to be positive—I recognise and welcome the Government’s understanding of the importance of skills. Of course, the noble Lord, Lord Freeman, reminded us of the £500 million for T-levels. My concern about T-levels is that when I talk to employers and educationalists, they are concerned about the way they are being introduced and about the future of existing qualifications, whether they are City & Guilds, BTEC, HND or HNC. Getting it right, not just in introducing it, will be crucial but I welcome the focus on vocational skills.
I think it was the noble Lord, Lord Hodgson, who told us that even if you got a 2.1 degree in engineering you still might find it difficult to get a job. That ought to make us reflect on the huge amount of money we are spending on higher education. Given that they have three or even four years, surely there should be an obligation on universities to ensure that work experience and the ability to find a job at the end of a degree course is a key component. People are paying £9,000 plus a year for that experience. We have got it wrong in weighting everything towards higher education. I think the pendulum should swing back towards technical and vocational education, because as we know, that is where so many of the skills are required. It is not an either/or choice, as I have said on many occasions.
I welcome the commitment to 3 million apprenticeships by 2020, but as many of us in this Chamber have said, it is about not just the number but getting the quality of apprenticeships right. The recent announcement that a major training provider, learndirect, went belly-up is not good. We have some challenges. Of course, I welcome what is being done for SMEs but my experience of talking to a range of SMEs is that they still feel that the apprenticeship levy is too complicated. If we do not get past that concern we will not achieve what we all want to achieve: to create good-quality apprenticeships that are perceived by potential apprentices and their parents and teachers as a worthwhile career route. I also welcome the fact that we are going to have a more sophisticated measure of human capital; that is absolutely required.
There was a dire prediction by the noble Lord, Lord Hodgson, regarding the effect of artificial intelligence. I have enough trouble with my own intelligence in knowing whether he is right or wrong; I suspect that the answer lies somewhere in the middle. The plea I make relates to my declared interest as the chairman of the board of governors of my local primary school. We spent quite a few hours recently looking at our three-year budget. The task for us is to try to manage a deficit. We are getting to the point now where, although we are trying to protect teaching, we have cut everything else to the bone. That is a really serious problem not just for my school but for a range of schools. I see it as a special problem for primary schools, because the cost of remedying the situation for them if we do not get it right is much greater, as we know. The school of which I am chairman of the board of governors is a very diverse school in what is not the wealthiest of neighbourhoods; nevertheless, we are still achieving good results. My concern is that if the Chancellor does not recognise in his forthcoming Budget the need to do something about the education budget, the outlook for our next generation of young people will be very serious
I hope that the Minister can reassure me regarding the concerns I have expressed about T-levels, SMEs and apprenticeships.
Baroness Kramer (LD)
My Lords, I join in the welcome to the right reverend Prelate the Bishop of Lincoln. He is obviously supported by the noble Lord, Lord Cormack, and my noble friend Lord Taverne, but when he mentioned that the doorkeepers largely hail from Lincoln, that is when I knew we had a real power to be reckoned with in this House. We know where genuine authority lies. We very much appreciate his speech. He focused very much on a divided society, and that issue was picked up by others in this debate—the noble Lord, Lord O’Neill, was talking about the north/south divide, although the right reverend Prelate the Bishop of Lincoln reminded us that it is not just geographic, as those who struggle can very well be located in the south as well. This is timely in the context of this particular Statement.
I join with others—the noble Lord, Lord O’Neill, seemed to have had the same reaction to the trailers that came ahead of the Spring Statement—in saying that I had thought we were going to get some really super growth figures. Frankly, that should not have been so unexpected, because if we look at the markets that we export to, they were on steroids in 2017: the euro area grew at 2.5% and the US at 2.3%. I was genuinely quite shocked when the Chancellor announced that growth in 2017 had slowed from 1.9% in 2016 down to 1.7%—not quite as bad as expected in the autumn, but in light of this great global growth pretty difficult to explain. A falling performance when the going is good is really pretty extraordinary, quite frankly. But the forecasts for the future are worse. The noble Lord, Lord Skidelsky, described a stagnant and becalmed economy. The OBR is forecasting growth for the UK in 2018 at 1.5% and it drops after that, while in contrast the OECD, which released its numbers on the same day as the Spring Statement, forecast growth in 2018 as 2.9% for the US and 2.3% for the euro area.
I recognise that we have a productivity problem and an investment problem, but I disagree with the noble Lord, Lord Skidelsky, in one area. He basically suggested that the fundamental problems we have are not in any way related to Brexit. But I join with others—we heard from the noble Lords, Lord Livermore and Lord Higgins—in saying that, if it were not for Brexit, the capacity to draw investment into the UK would enable us certainly to improve growth and productivity. Brexit has now become that kind of barrier. We have seen it in the numbers—particularly foreign investment numbers in the course of this year. To me that is very significant. If I may pick up the point that the noble Lords, Lord Hodgson and Lord Freeman, and others made, we are at a point where we are entering a fourth industrial revolution, where everything will change, thanks to AI and robotics. That makes it the most crucial time to draw in that kind of investment. If you do not ride the change, you are left behind. The last thing we should be doing for our young people—in the Box or otherwise—is to let ourselves get left behind at this absolutely critical point in time. So I am exceedingly concerned.
If we turn more broadly and look at our population at large—you would not have known it from the Chancellor’s words—people are feeling pain. The day before the Spring Statement, we got the February numbers for UK consumer spending. Consumer spending fell in February by 1.1% year on year, declining for the ninth time in 10 months. Wages are stagnant—we are all aware of that—and inflation is running at over 3%, and it is making life for ordinary people exceedingly difficult. Frankly, a lot of that sits at the door of Brexit. Yes, it is part of a longer-term pattern of modest economic growth, but the inflation rates that we have seen really are Brexit in origin. The impact on people’s lives is very significant.
The right reverend Prelate the Bishop of Portsmouth, the noble Viscount, Lord Chandos, and others talked about the general suffering of the population at large, but the Chancellor did not really address public spending pressures very much in his Statement. There was a bit of a sense of light at the end of the tunnel and maybe we would be able to lift our foot off the austerity pedal a little at some point in future, but it seems to me that is completely out of kilter with the reality that we are facing. I argue that the pressures to increase funding in the public sector have simply become unavoidable. Just last week, the NAO, in its report Financial Sustainability of Local Authorities 2018, warned that 66.2% of local councils with social care responsibilities have now eaten heavily into their reserves. Social care is struggling in many parts of the country. The NHS is not coping; indeed, routine operations were cancelled for a whole month this winter. Schools are asking parents for money; the noble Lord, Lord Young, talked about the struggles that his local primary has, and they are repeated nationwide. My noble friend Lord Taverne, the noble Viscount, Lord Chandos, and others talked about the welfare cuts that are still to bite. We simply cannot continue in this vein.
Even though the Chancellor now anticipates that day-to-day spending will come into balance in 2019, which is of course good news, it is very far from salvation. As the IFS said following the Chancellor’s speech, borrowing is only down to pre-crisis levels, at 2% of national income, but debt is twice its 2008 levels. Realistically, this is the time when we absolutely have to look at raising taxes. At the very least, we need to reverse the cuts since 2015 in corporation tax—which surely could have been left at 20%; I do not believe a penny below that has encouraged any company to put more money into any investment—and reverse the cuts in capital gains and inheritance tax, which would give us a bit of breathing space.
However, I argue that the NHS and social care are now such a funding challenge that they require a more radical solution. I very much regret that none of the many studies that the Chancellor announced this week included an assessment of a dedicated NHS and social care tax, which, frankly, looks like the only way to put these key services on a sound footing long term. Since a new structure takes time, my party is calling, as my noble friend Lord Taverne said, for a penny-in-the-pound increase on income tax to provide £6 billion this year to prevent another near-term crisis in the NHS and social care.
I also very much regret that the Government failed to consider giving local authorities the powers to become major builders of affordable and social homes. The Government are making some movement on housing but not at the scale required, certainly to deliver social and affordable housing, and again those pressures are becoming completely unsustainable. I believe it was the noble Viscount, Lord Chandos, who talked about the homeless problem that we have; we have all seen it develop. However, that is only a minor symptom of a much broader and deeper problem that has to be tackled. We know that, given those kinds of powers and the ability to go out and borrow, local authorities can deliver the kind of housing that we need because they have done so in the past. This is the time to take off the ideological cap, recognise that the housing market is fundamentally broken and empower local authorities to deliver the kinds of houses that we definitely need.
I join others in being glad that the Chancellor is looking once again at the apprenticeship levy. That is a really messed-up piece of policy, and I hope very much that we can read in the Chancellor’s words that he is going to sort out the nonsense. For small companies, and I talk to many of them, it has simply turned into a tax, not a mechanism to deliver either training or apprenticeships. In the same way, I join others in being glad that we are getting another look at late payments, but this time could we have a solution rather than another report?
I support the Government’s decision to find a more effective way to tax digital companies, perhaps on their revenues rather than their profits. It is an outrage to see large, successful companies essentially paying very little tax. However, I think the Chancellor’s proposal is too narrow. It really should be almost just a first step. Big brand companies such as Starbucks can outwit the tax system just as well as Google. A fundamental part of the problem is that we do not know how to deal with the value of things like brands and intellectual property, but that is the shape of so many companies of the future. We have to crack that problem now, or we will find ourselves without any effective tax base. I hope that the accounting profession will get wrapped into this, frankly. In the scandal of the collapse of Carillion, a big part was the completely inadequate pricing of the value of contracts and good will by the accounting firms, so that the company looked artificially healthy when it was crumbling. Others should investigate who should have known what and when, but it is all part of the same issue.
I also regret that the Chancellor did not take this, as he was doing so many studies, as an opportunity to look at intergenerational fairness. We really have a very unbalanced tax system. Each working person is now supporting 1.7 people and the number is rapidly headed to 1.9 people. That is unsustainable. The noble Lord, Lord Hodgson, talked as if we have too many people, but the problem is the shape of our demographics. We are desperately short of working-age people. That is one of the reasons why cutting back on immigration is particularly ironic at this time.
Lord Hodgson of Astley Abbotts
The issue is also that we are not prepared to employ older people. Once you are past 55, you are on the scrap-heap. A great deal more could be done. We have done a lot of work in other areas of prejudice, but ageism is a prejudice we have yet to tackle.
Baroness Kramer
My Lords, around this House we can see many people who might mistakenly be classed as older but who can demonstrate that they have a great deal to contribute. We may want to do it in a different way, with part-time work and different opportunities. I agree that employers are unimaginative. But it does not get us away from the problem; if we hit a dependency ratio of 1.9, we are not functional as an economy. I cannot see any way, without rational immigration, of doing it.
We have a sluggish economy with fundamental problems of productivity and investment. We have public services that are often on the brink of break-down. We lack key pieces of infrastructure, especially affordable and social housing. Our national debt remains high. Ordinary people are feeling the pinch of stagnant wages and high inflation, and our young people are carrying an unwarranted burden. Frankly, there could not be a worse time for Brexit, with all the additional costs that it places on businesses and a future in which the economy and our businesses have less access to both markets and talent.
I join those around the House who take the view that, until we make up our minds that we need to be in the single market and the customs union, we frankly do not have much of a hope of seeing a substantial reversal in the kind of economic patterns that were embedded in the OBR report. I was as astonished as others that the Chancellor felt that he must be “Tiggerish”. It made me think that life in Cabinet must be pretty dreadful if, when you present a report like this on an OBR statement, you find yourself happy.
Lord Davies of Oldham (Lab)
My Lords, this has been an interesting debate, distinguished by the contribution of the right reverend Prelate the Bishop of Lincoln, in his maiden speech, and we look forward to him continuing to contribute to our deliberations often in the future. My only link with Lincoln was when I was concerned 20-odd years ago with my party’s higher education policy. I must say that you cannot go to Lincoln without seeing the majestic cathedral and think that it is the only structure worth concentrating on. What was being proposed in Lincoln then was the university, in what seemed to be a green and muddy flatland down by the river. Lincoln University developed with extraordinary rapidity. It is an enormous tribute to the people of Lincoln that they developed their university to real status in a very short time. I, for one, visit the cathedral when I am there, but I always go to have a look at the university as well.
The Minister introduced the debate in his usual equable and optimistic manner. He treated the House in his opening speech to a description of the economy, but I am afraid that it reinforced the theme of several speeches in this debate: the Government seem to be guilty of the most extraordinary complacency. He suggested that the recovery is in fact at hand. Let me say that, if it is, it will still be the longest recovery from recession since the 1920s—so not a great deal to boast about there. Also, as several noble Lords who contributed to the debate indicated, we are by no means sure that the problem is over. After all, we all remember that the previous Chancellor expected to create a surplus by 2020. We do not get too much talk now from the Government about surpluses, as far as the financial position is concerned. Further, as has been emphasised by so many speakers, growth last year still kept us firmly in the relegation zone, at the bottom of the G7. Last year was the lowest since 2012, and the OBR has of course forecast that, in 2020 and 2022, the situation will deteriorate. So that is some recovery for the economy.
The Government have missed every target that they have set themselves in the last decade for the rate of reduction of the deficit and we are all aware of the consequences of that. Behind it all, of course, this gave the justification for austerity. The consequences of austerity have been disastrous for our people and also for our economy. The austerity programme, forged over these last seven or eight years, has only begun the question of clearing the deficit, but it has created so many problems in our public services. In a real sense, our society has seen the transfer of the problems of indebtedness from the Exchequer to our public services. The difference between the two is that the impact of public services upon ordinary people is so much greater.
The National Health Service will end this year £16 billion in deficit. There are 100,000 jobs in the National Health Service that are not being filled because there are not the resources to do so. The crime rate increases, yet the number of police officers is cut by 21,500. The number of firefighters has been cut by 850. Our Prison and Probation Service is on the brink of crisis. I should think that there is not a single Member of this House who does not shudder when we learn of what is going wrong in our prisons. The mark of a civilised society is surely that it ensures that prisons are a place for the rehabilitation of people, rather than a deterioration in their perspective on society.
In education, we have had the first cut of the per capita payment to schools ever. That is a very drastic thing. It makes the position almost unmanageable for the heads and other figures in schools. In addition to that, of course, we understand that, under social welfare, there are now proposals to end free dinners for tens of thousands of children from poor families. Surely at times the Government must wonder whether they look vindictive towards poor families who are dependent on society. These poor families are often wage earners who, in the jobs they do, do not earn enough—or earn regularly enough—to sustain the family budget.
Of course, local government is in crisis. Most of us know our own local authorities quite well, but I have to say, my ears were pinned back when the television announced that the local authority causing the greatest upset to the Government is Northamptonshire, followed not long afterwards by Surrey—authorities we automatically assume have a massive Conservative influence and a great commitment to loyalty to the Government. Yet Northamptonshire is saying, “We cannot continue with the resources made available to us by the Government”.
It is quite clear that this crisis is due to spread. We have not had the full range of social security cuts yet. Universal credit has already cut social security provision significantly but we all know that there is a great deal more to come in terms of the impoverishment of certain sections of our community. As far as adult social care is concerned, can anybody be unaware of the problems facing the elderly as they near the time when they cannot look after themselves? People have no obvious recourse to any support that will ensure that their last days are passed in some degree of comfort.
I want to say something about housing. I know the Minister has said, “We don’t have to look at the Spring Statement on housing because the Government will move smoothly into action shortly afterwards”. My heavens, the Government have a lot of movement to make. We have rising homelessness in our society. We are one of the richest countries in Europe. One of the richest cities in Europe—London—has seen significant increases in people sleeping rough. Of course, what has been brought out in this debate so strongly is that living standards have fallen over this period. Real wages have fallen by 0.5% since the end of 2017 and are lower now than in 2010.
Can anyone conceive of a Government being buoyant about their position when the broad mass of the wage-earning public are seeing their standards of living fall? Surely the Government have to respond to these very acute problems. I appreciated the speech of the noble Lord, Lord Mawson, when he talked about the digital economy and the problems facing small entrepreneurs. There is no doubt that we need to see small entrepreneurs flourish. They are an extremely important part of the economy. However, if the challenges being presented to them are not just those of developing their business but challenges posed by the Exchequer and Her Majesty’s Revenue and Customs, we have worries ahead of us.
I am grateful to my noble friend Lord Young for his comments on training and apprentices. He did not bring in the broader issue that an important part of training—and of the relationship between the education system and the training provided by employers—is the role of further education. But this Government have slashed the provision of further education in this country and are now apparently reliant on employers to provide the necessary breadth and skills to the apprenticeships they develop.
I have no doubt that the Minister will meet many of the challenges presented by this debate and that he will do his very best to give a response to all the issues raised. I have left out Brexit; I am not at all sure that we can at this stage address to the Government the challenge on the position of Brexit in circumstances where so much is so totally uncertain. We all know the hesitations of the OBR in producing forecasts on Brexit. However, the Minister has to face the facts: no one in this debate today who expressed a position on Brexit has said, “Let’s go and make this situation more difficult”.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, I sense that the opening part of the speech of the noble Lord, Lord Davies, might be the one area in which we find common agreement, on the majestic qualities and aesthetic beauty of Lincoln Cathedral, which is a great place to start. Again, in responding to this extraordinarily high-quality debate, I congratulate the right reverend Prelate the Bishop of Lincoln on his excellent contribution to it. As someone who hails from the same part of the world as he does, having been born in County Durham, I used to think that Durham Cathedral was the greatest cathedral on the planet, but even I was turned when I saw Lincoln Cathedral in all its splendour, particularly the facade. It was wonderful to hear his remarks, and I look forward to hearing many more.
This debate covered a number of areas, and I will try to summarise the key themes. There was a focus on the debt and the progress made in reducing the deficit; we are beginning to see a reduction in the debt. My noble friend Lord Higgins, whom I congratulate on his 54th contribution to a Budget debate, pointed to the fact that in absolute terms debt continues to rise. We referenced the percentage of GDP, which the OBR forecast shows is beginning to fall. My noble friends Lord Hodgson, Lord Higgins and Lord Freeman, and the noble Lords, Lord Mawson and Lord O’Neill, all made reference to the important element of continuing that effort to control spending, and said that rather than pitching it in terms of austerity, we should do so in terms of living within our means. The noble Baroness, Lady Kramer, also mentioned intergenerational fairness, which means ensuring that we hand on a legacy to our children which does not saddle them with the debt of the previous generation.
Public services featured significantly in the debate, and rightly so. The noble Lord, Lord Haskel, began by highlighting the importance of public services, as did the noble Lords, Lord Taverne and Lord Davies, the noble Viscount, Lord Chandos, and the noble Baroness, Lady Kramer. There was a strong focus on productivity, investment and technology, which the noble Lord, Lord Mawson, focused on, as did my noble friends Lord Hodgson and Lord Freeman. There was particular reference to skills, which was commented on by the noble Lord, Lord Young, and my noble friends Lord Freeman and Lord Hodgson; I will come back to that in a moment.
A variety of views were expressed on the OBR forecasts themselves. It was a bit of a teaching masterclass with the noble Lords, Lord Skidelsky and Lord O’Neill, as we listened to their explanations, and the noble Lord, Lord Livermore, gave his own interpretation of those statistics. However, everybody focused on them. The Chancellor said in his Statement that GDP growth statistics are not a target to be met. They were forecast to be beaten. We are very much in that mindset—just as when the forecast for last year, given as recently as November at 1.5%, was beaten, at 1.7%. We would like to believe that a lot of the changes announced will produce a better outcome.
Brexit featured large in the contributions of the noble Lords, Lord Taverne and Lord Higgins, and the noble Baroness, Lady Kramer. In a spirit of fairness, as Brexit has had so much airplay in your Lordships’ House, particularly this week, I am tempted to say that I may not dwell on it to the extent that they may wish—but I will certainly refer to it. There were some significant contributions both by the right reverend Prelates the Bishop of Lincoln and the Bishop of Portsmouth, and by the noble Viscount, Lord Chandos, about what I would term societal fairness, particularly with regard to young people and people living on welfare. I shall seek to cover some of those points.
Some of the points that I will not be able to address at this moment—I give notice that I shall write on these subjects—concern the review by the Office of Tax Simplification, which was raised by the noble Viscount, and the change in methodology and a paper announced by the Chief Secretary to the Treasury that might be forthcoming, which were mentioned by the noble Lord, Lord O’Neill. I will look into that matter and write to him, if I may.
Now I shall address some of the specific points raised. The noble Lords, Lord Young of Norwood Green and Lord Davies, spoke about the importance of schools. Even while repairing the public finances, the Government continue to protect the schools budget. The core schools budget is at a record high of around £41 billion, and in July the Government announced £1.3 billion in additional schools funding over the next two years.
The noble Baroness, Lady Kramer, spoke about the issues and challenges facing social care. The Government have given councils access to £9.4 billion more of dedicated funding for social care over the next three years, as a result of measures since 2015. The OBR says that the current forecast would leave local authorities in England with £20.2 billion of reserves at the end of 2020-21, which is £3.8 billion—25.3%—more than they had at the end of 2010-11.
The noble Viscount, Lord Chandos, spoke about inheritance tax. Moving to a recipient-based system for inheritance would not only, in our view, increase the complexity of tax but add to the administrative and compliance burdens. The OTS will review the tax to ensure that it is fit for purpose; the review will consider a range of simplification options.
Several noble Lords, including the noble Lord, Lord Davies, and the noble Baroness, Lady Kramer, referred to housing. The Autumn Budget of 2017 said that more than £15 billion of new financial support would be available for housing over the next five years, taking total financial support over the period to £44 billion. In February we announced £866 million-worth of successful housing infrastructure bids, which will deliver up to 200,000 homes in high-demand areas. We have doubled the size of the Housing Growth Partnership to £220 million, providing much-needed investment in small to medium-sized housebuilders, and the Government launched a consultation, under a revised National Planning Policy Framework, to ensure that more homes are built.
My noble friends Lord Freeman and Lord Hodgson, and the noble Lord, Lord Young, spoke about the importance of developing human capital in the context of the advance of technology and the fourth industrial revolution, in AI, that is coming down the track. These are very real challenges that we face. In the new economy we expect increased levels of automation, with some jobs changing. For example, tomorrow’s employers might start to pay more of a premium for general or technical competence rather than for traditional forms of educational attainment. We therefore need to ensure that we make the right investment in our people now so that everyone has the best start at school and continues to receive support and training throughout their working lives. With the support of the ONS, our analytical work will examine the nature of the skills that are valued by the labour market and look at labour market outcomes resulting from education so that we can take a more sophisticated approach going forward.
The right reverend Prelate the Bishop of Portsmouth made a profound point about the poorest in society. He will have heard me comment in my opening remarks about how the combination of the changes to the national living wage and tax thresholds is leading to some welcome and real wage increases for some of the lowest paid in our society. The Government are committed to taking action to help the most disadvantaged, with a focus on tackling the root causes of poverty, including workless households. The fact that there are 3 million more people in work and 950,000 fewer workless households and that 608,000 fewer children are living in workless households has to be, as the right reverend Prelate put it, a reason for hope for the future.
The noble Lord, Lord Skidelsky, focused on productivity and analysed it in some detail. Following the good practice of a student, I will read the Official Report and review what he said. We are very much of the view that productivity is, and has been for many years, one of the greatest challenges that our economy faces. There have been many debates and arguments about why that is so. Some have pointed to its reliance on services rather than manufacturing. As automation has increased, we have not seen the same growth in productivity as, say, the German economy. However, we are not in any sense complacent about this. That is why we set up the National Productivity Investment Fund. Some £31 billion has been made available for research and development—an area which my noble friend Lord Hodgson spoke about and which my noble friend Lord Freeman also mentioned. In digital, we have announced over £95 million for 13 locations as part of the £190 million Local Full Fibre Network Challenge Fund. Transport is another element that feeds into productivity.
I think we need to look at employment and take on board the performance of many other countries in the European Union in relation to GDP. For example, the unemployment rate in France is currently 9.5% and its youth unemployment rate is 22.4%. According to the OECD, in the third quarter of 2017 in the UK it was 4.2%.
The noble Lord, Lord O’Neill, who did so much during his time as a Treasury Minister to advance the northern powerhouse, was right to challenge us not to be timid about the advances that have been made there—due, in not insignificant part, to his efforts in and leadership of that initiative. In the past year we have seen an extra £8 billion added to the north’s economy, with growth and productivity rising at a faster rate there than in London and faster than the UK average. The north’s economy is now worth £316 billion —bigger than that of Norway, Sweden, Austria or Belgium. Last year, as an average, we saw employment in the northern powerhouse area rise at a faster rate than in England. There are now over 400,000 more people in work in the north than in 2010, and the number of claimants of unemployment benefit in the north has decreased by 40% over the same period. Most crucially, as regards transport, where he urged us to do more—several noble Lords referred to this—by 2020 we will have invested over £13 billion to improve transport in the northern powerhouse area. That is more than any other Government in history. I hope that will go some way to address some of the concerns referred to by my noble friend Lord Hodgson.
The noble Lord, Lord Mawson, gave an inspirational address, viewing the economy from the perspective of the entrepreneur. I pay tribute to the work that he has done in Bromley-by-Bow, and certainly in the Lee Valley. He has turned that area of London into one of the most exciting areas, particularly as regards technology around Shoreditch, which holds huge potential for the future of this country. It is instructive that business investment remains strong. It increased by 2.2% in 2016 and forecasts show that it will grow by 1.7% in 2018. I believe that technology investment, certainly in London, is at its highest level ever, which is to be welcomed, with companies such as Apple, Facebook and Bloomberg locating their offices here.
My noble friend Lord Hodgson asked about artificial intelligence and technology. New technologies have the potential to drive economic growth in the UK. We believe they are not something we should be fearful of but that we should ensure that we have the skills and the investment to take advantage of them when they arrive.
The noble Lord, Lord Haskel, asked for an update on the industrial strategy. There will be regular updates on our progress towards the grand challenges set out in the industrial strategy, though this was, of course, not the primary purpose of the Spring Statement. The noble Lord also questioned the quality of jobs. Over three-quarters of the growth in employment since 2010 and nearly all the net increase in employment in the last year has been full-time work, and the proportion of full-time jobs that are low paid is at its lowest level in at least 20 years.
The noble Lord, Lord Young, and the noble Baroness, Lady Kramer, spoke about the apprenticeship levy. There have been over 1.2 million apprenticeship starts since May 2015. We remain committed to delivering 3 million apprenticeship starts in England by 2020. We recognise, however, that this is a significant period of change for employers. As they have two years to spend their levy funds, businesses are taking their time to plan ahead and grow in a controlled way. On the overview, next month, working families will see another increase in their personal allowance, above inflation increases in the national minimum wage and the national living wage and a freeze on fuel duty, which we believe will feed through into some of the poorest areas of the country. The right reverend Prelate the Bishop of Lincoln referenced the north-east of England. Since 2010, there have been 78,000 more people in work in the north-east and 18,800 more businesses, and the north-east has seen the second-fastest growth in median gross weekly earnings since 2010, which is plus 13.8%.
As the Chancellor told us in the Spring Statement this week, this Government are delivering on their plan, which is firmly grounded in a balanced approach. It is not all about controlling finances and not all about investment but is a combination of both. We are seeing large investments, particularly in critical economic infrastructure. That has to be the right thing to do, while combining fiscal discipline with strategic investment in our economy and public services. The OBR forecasts more jobs, rising wages, declining inflation and a falling deficit. That has to be welcomed.
When we look for reasons for hope—I refer back to the speech by the noble Lord, Lord Mawson, who talked about giving people hope for life after Brexit— one area of hope could come in the shape of Forbes magazine, which undertook its annual survey of the best places in the world to do business. Out of 153 economies in the world, of the best places to do business in 2018—not historically, but in 2018—the UK was ranked number one. That is what real business is thinking. That is what Boeing is thinking when it sets up operations in Sheffield, that is what Toyota is thinking when it invests in its plants, and that is what other investors are thinking when they come to this country. We share their confidence in the prospects for this economy. While this review and these forecasts present a challenge, we believe that there is real cause for hope and that we can see a better future for the people of this country as we make a success of Brexit going forward.
Motion agreed.