Lord Bates
That this House takes note of the economy in the light of the Spring Statement.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, the Chancellor gave his Spring Statement last week which showed that the economy remains robust, despite lingering uncertainty around Brexit. It has grown for nine consecutive years, creating 3.5 million new jobs since 2010, and is now delivering the fastest wage growth in over a decade.
The Office for Budget Responsibility expects growth to continue at a rate of 1.2% this year, 1.4% in 2020 and 1.6% for each of the following three years. It also expects to see 600,000 more new jobs and wage growth of 3% or higher—that is, above inflation—in every year of the forecast.
There was positive news on public finances as well. Borrowing this year will be just 1.1% of GDP, £3 billion lower than forecast at the Autumn Budget. This fall will continue, from £29.3 billion in 2019-20 to £13.5 billion in 2023-24, the lowest level in 22 years.
This means that we remain on track to meet our fiscal targets early, with the cyclically adjusted deficit at 1.3% next year, falling to just 0.5% by 2023-24, and with debt lower in every year than forecast at the Budget, falling to 82.2% of GDP next year, then 79%, 74.9%, 74% and, finally, 73% in 2023-24.
It increases headroom against our fiscal mandate in 2020-21 from £15.4 billion at the Autumn Budget to £26.6 billion today.
We have rebuilt the public finances since the shock of the financial crash and are now in a strong enough position to bring austerity to an end. Last year, the Prime Minister announced an additional £34 billion of funding per year for the NHS—the single largest cash commitment ever made by a peacetime British Government. In the most recent Budget, the Chancellor set out an indicative five-year path of 1.2% per annum real terms increases in day-to-day spending on our public services.
Later this year, the Chancellor will launch a three-year spending review before the Summer Recess to be concluded alongside the autumn Budget. It will set departmental budgets to reflect the public’s biggest priorities, such as schools, police and the environment, while maximising value for taxpayers’ money with discipline and a focus on high-quality outcomes. If we leave the EU with a deal, and secure an orderly transition to a future economic partnership, the Government will be able to reduce the level of fiscal headroom needed for no-deal planning, giving us real choices in the spending review.
Before then, however, some pressing challenges needed addressing. First, in response to head teachers’ rising concern that some girls are missing school due to an inability to afford sanitary products, the Chancellor announced the provision of free sanitary products in secondary schools and colleges in England to be rolled out during the next school year. Secondly, he announced a £100 million fund to tackle the recent surge in knife crime. It is a tragedy that, for too many, this money will arrive too late, but it will go some way towards meeting the challenges ahead.
Ahead of the spending review, the Home Secretary will work with the police to consider how best to prioritise resources, including newly funded manpower to ensure a lasting solution. Alongside support for public services, the Government have made sure to invest in infrastructure, skills and technology—the fundamentals that boost productivity and living standards. To supplement the largest ever investment in England’s strategic roads, the biggest rail investment programme since Victorian times, and a strategy for delivering a nationwide full-fibre network by 2023, the Chancellor made a series of further pledges. These included an announcement of up to £260 million for the borderlands growth deal.
But raising our productivity is not just about investing in physical capital; it is about investing in people too. To help small businesses take on more apprentices, the Government are accelerating the reforms announced in the Budget of 2018, bringing forward a £700 million package this April. We want to drive productivity across the income distribution, with the ultimate objective of ending low pay in the UK. So we have asked Professor Arin Dube, a world-leading expert in the field, to undertake a review of the latest international evidence on minimum wages to inform future national living wage policy after 2020. This study will support our extensive discussions with employer organisations and trade unions over the coming months.
As we move forward, we are keeping the interests of businesses as a high priority, and that means giving them access to the best talent, including from overseas. From June, we will begin to abolish the need for paper landing cards at UK points of entry for citizens from the United States, Australia, New Zealand, Canada, Japan, Singapore and South Korea. They will be able to use e-gates at our airports and Eurostar terminals, alongside the EEA nationals who can already do so. From this autumn, we will completely exempt PhD-level roles from visa caps—a signal to the best and brightest across the world that we want them and welcome their expertise in the United Kingdom. Having the best people in Britain will help us remain at the forefront of the technology revolution that is transforming the global economy. To maintain our edge, the Chancellor announced a £79 million investment in a new super-computer to be hosted at Edinburgh University. We are also allocating £45 million of NPIF funding to the European Bioinformatics Institute and investing £81 million in a new extreme photonics centre in Oxfordshire.
Innovation requires careful handling by Governments, and a fair and forgiving regulatory environment. Nowhere is this more important than in the digital world, where we need to ensure a level playing field that fosters innovation, and where the giants pay their fair share. To this end, the Chancellor asked Professor Jason Furman, Barack Obama’s former chief economist, to review competition in the digital market. His report was published last week, and the Chancellor has already taken the first step in response, asking the Competition and Markets Authority to undertake a market study of the digital advertising market as soon as possible.
We must adapt to the challenges of a changing world, and that extends to the environment as much as the economy. Despite what some say, it is not the case that these are competing concerns. The UK’s 1,500 pollinator species, for example, deliver an estimated £680 million of annual value to the economy, making an obvious case for protecting the diversity of the natural world. Therefore, following consultation, the Government will use the forthcoming environment Bill to mandate biodiversity net gain for development in England, ensuring that the delivery of much-needed infrastructure is not at the expense of the birds and the bees, which help fill the air with song, and our plates with food.
Of course, climate change is our biggest environmental concern. The UK is already leading the world in this regard, reducing the carbon intensity of our economy faster than any other G20 country. Last week, the Chancellor set out plans that demonstrate a commitment to maintain this progress. First, we will publish a call for evidence on whether all passenger carriers should be required to offer genuinely additional carbon offsets, so that customers who want zero-carbon travel have that option. Secondly, we will help small businesses cut their carbon emissions and their energy bills, with a call for evidence on the business energy efficiency scheme. Thirdly, we will publish proposals to require an increased proportion of green gas in the grid, to advance decarbonisation of our mains gas supply. Finally, we will introduce a future homes standard, mandating the end of fossil-fuel heating systems in all new houses from 2025.
There will be many new houses. One of the Chancellor’s biggest motivations is to restore the dream of home ownership to millions of younger people. He has set out a five-year, £44 billion housing programme to raise annual housing supply to 300,000 by the mid-2020s. This Government have also abolished stamp duty for thousands of first-time buyers and introduced planning reform to release land in areas where the pressure is greatest. The Chancellor built on this further last week, announcing a new £3 billion affordable homes guarantee scheme to support delivery of around 30,000 affordable homes. In addition, he announced £717 million from the Housing Infrastructure Fund to unlock up to 37,000 new homes on sites in west London, Cheshire, Didcot and Cambridge, near some of the best jobs in the country.
It all means that we are stiffening the sinews of this economy. We are transforming our infrastructure, investing in innovation, and sharpening our skills. These are fundamentals of economic and personal growth, and it means that our grasp of the opportunities that lie ahead of us can be better met and reached. I commend this Statement to the House.
Lord Bates
My Lords, I thank all noble Lords who have participated in this debate, which will probably go down in history. The purpose of the Spring Statement was to focus attention on the autumn as the single fiscal event and to be a light-touch, mid-year Statement simply to update the OBR forecast. This Spring Statement might go down in history for the reason alluded to by the noble Lord, Lord Bilimoria: there was some other business on the day of the Spring Statement. I think we have now spent twice as long scrutinising the Spring Statement as the other place managed. It all heads down to that.
I want to be associated with some of the thanks expressed by noble Lords. The noble Lord, Lord Shipley, thanked the business managers who intervened and drew us out of the Moses Room into what I refer to as “Centre Court” to debate in the main Chamber. That has added to the number of contributions.
Lord Bates
Yes, we should thank the noble Lord, Lord Foulkes, in his absence, for making that plea, which the business managers were able to accommodate. I also wish to associate myself with my noble friend Lord Wakeham’s generous tribute to my good friend, colleague and mentor on the Front Bench, my noble friend Lord Young. I had not realised they were celebrating 45 years. I associate myself with my noble friend Lord Wakeham’s generous remarks to my noble friend about his service in both Houses.
I shall try to provide some taxonomy of the contributions, which ranged very widely but more or less settled down in the following areas. The first was, unsurprisingly, Brexit. I began repeating the Spring Statement by referring to what the Chancellor said about Brexit: it is dominating thinking not only in this place but in business. The noble Lords, Lord Tunnicliffe, Lord Davies of Stamford, Lord Davies of Oldham and Lord Bilimoria, the noble Viscount, Lord Chandos, my noble friends Lord Gadhia and Lord Northbrook, and the noble Baroness, Lady Kramer, made points about that headwind. The only area of difference between us is that we say that the opposition parties hold it within their gift to dispel that cloud of uncertainty by backing the deal before us, but matters are unfolding. If there is any news to report I hope that a Box note will make its way along to me.
There was—I shall not overegg it—support for and recognition of the progress which has been made, notwithstanding the uncertainty. We enjoyed the noble Lord, Lord Macpherson, describing Treasury civil servants having to deal with disappointment, and I am sure that was enjoyed within my earshot. The reality is that this Statement was able to unfold some positive news about levels of debt, employment and the general fiscal situation. The noble Lords, Lord Macpherson, Lord Wakeham and Lord Northbrook, referred to the positivity. Even the right reverend Prelate the Bishop of Chester—
Lord Bates
I am sorry—delete “even” from the record. The right reverend Prelate the Bishop of Chester, whose point about housing I will come back to in a minute, referred to it. The noble Lords, Lord Leigh, Lord Gadhia, Lord Bilimoria and Lord Suri, recognised that progress had been made despite the headwinds. It is absolutely right that we recognise that that progress has been made because British business and enterprise up and down the country—and around the world—is making a Herculean effort, creating jobs, wealth and buoyant tax revenues. These revenues are coming into the Exchequer, giving us the opportunity to look at them.
Across most of the contributions, there was a focus on public services and public spending. As I mentioned, the spending review will be in the summer and conclude in time for the Budget for the autumn, which will rely on it. Contributions effectively broke down into four areas. The noble Lords, Lord Macpherson and Lord Hain, and the noble Earl, Lord Listowel, referred to social care. The noble Lords, Lord Tunnicliffe and Lord Bilimoria, referred to policing, and the noble Lord, Lord Scriven, alluded to the tragic knife crime situation in Sheffield. The right reverend Prelate the Bishop of Chester, the noble Lord, Lord Wakeham, and the noble Baroness, Lady Thornhill, referred to housing. The noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, addressed local government finance.
Two other areas, which were grouped together, were the challenges of the changing nature of tax revenue and collection. The attraction of statutory land tax, which the noble Lord, Lord Wakeham, referred to, is that it is very easy to collect. The changing nature of tax is making collecting tax more challenging. The noble Lord, Lord Wakeham, the noble Earl, Lord Lytton, my noble friend Lord Leigh and the noble Viscount, Lord Chandos, referred to that challenge and ways to address it. Coupled with that is business confidence, which the noble Lords, Lord Gadhia, Lord Suri, Lord Northbrook and Lord Davies, referred to.
I will use the bulk of my time to address the questions raised as a result of those contributions. Several noble Lords asked how the Brexit dividend might be funded. The OBR’s Spring Statement forecast that business investment is weak. The noble Baroness, Lady Kramer, referred to that, and we acknowledge that in the near term. However, as uncertainty wanes, it picks up to 2.3% in 2020 and grows stronger at this pace from 2021 onwards. GDP growth is forecast to be 1.2% in 2019 before picking up to 1.4% in 2020 and 1.6% from 2021 onwards.
The noble Lords, Lord Tunnicliffe and Lord Hain, as well as several others, referred to infrastructure. We have increased the National Productivity Investment Fund to £37 billion to support key infrastructure up and down the country. Public investment is at its highest sustained level in 40 years.
The noble Lord, Lord Bilimoria, and the noble Earl, Lord Lytton, referred to Making Tax Digital—indeed, the noble Lord, Lord Wakeham, focused on that and the noble Lord, Lord Hain, touched on it. Research now shows the high level of awareness among business and tax professionals: eight out of 10 businesses were aware at the end of last year and over 80% of those had already started preparing. Of VAT returns, 98% are already done online.
The disguised remuneration loan charge was raised quite extensively, by my noble friend Lord Northbrook; by the noble Lord, Lord Wakeham, on behalf of the noble Lord, Lord Forsyth; and by the noble Baroness, Lady Kramer, with her work on the all-party parliamentary group. Disguised remuneration schemes are and always were contrived tax avoidance. It is not normal or reasonable to be paid loans that are not repaid in practice; my noble friend Lord Wakeham was right in his sage advice on that, as in so much other advice he has given over the years. It is the individual’s responsibility to ensure the accuracy of his or her tax return. HMRC is pursuing the promoters of disguised remuneration schemes and has been investigating over 100 promoters. In the last year, HMRC has taken litigation action against 10 scheme promoters.
I turn to universal credit and welfare, which the right reverend Prelate the Bishop of Chester referred to and the noble Lord, Lord Shipley—
Baroness Kramer
This really is an important point on the loan charge. Regarding the action that the Minister said HMRC had taken against scheme promoters, I do not believe that any of those schemes was a loan charge scheme. Those are schemes generally, but one of the complaints is that no action has been taken against the promoters of loan charge arrangements.
Lord Bates
I am afraid that I do not have the answer to that. Your Lordships may recall that, after the Autumn Statement, I ended up having to write extensively on loan charges. We know that officials at the Treasury are used to dealing with disappointments and I am afraid we may have to write again on the issue to deal with that point.
On welfare, as the noble Earl, Lord Listowel mentioned, work is the best route out of poverty. I thank him for the recognition that he gave to the incredible growth in the number of people—three and a half million more—in work, and a million fewer people in workless households. These are substantial social changes happening around the country and we believe that that is the best route out of poverty. Changes to the welfare system have ensured that work pays. There is a strong safety net for people who need it, while making the system fair for taxpayers.
The noble Lords, Lord Tunnicliffe, Lord Scriven and Lord Bilimoria, all raised the issue of serious violence. Police forces are already due to receive an additional £970 million from April. Police and crime commissioners have committed to using this funding to recruit and train an extra 2,800 police officers. In addition, the Chancellor announced a package of £100 million additional funding. Of this, £80 million is new funding, which takes the total additional funding for policing this year to in excess of £1 billion.
The noble Lords, Lord Hain and Lord Bilimoria, the noble Baroness, Lady Thornhill, and the noble Earl, Lord Lytton, referred to business rates. We are providing up-front support worth over £1 billion for high streets through the new retail discount, reducing bills by one-third for up to 90% of retail property for two years, starting from 1 April 2019.
On housing, further progress has been made in implementing the Budget to achieve our ambition of 300,000 homes. I hope that the right reverend Prelate the Bishop of Chester will not called upon from his retirement home in Scotland to eat his cassock—that prospect will add extra zest to our ambition to meet the target—but £717 million from the £5.5 billion Housing Infrastructure Fund to unlock 37,000 homes is a good step in that direction; there will be £250 million for 13,000 homes at Old Oak Common in London, and there are other schemes in Cambridge.
The noble Lord, Lord Wakeham made a serious point about the tax gap. While we recognise that there is a long way to go, we have one of the lowest tax gaps on record. It has fallen from 7.3% in 2005-06 to 5.7% in 2016-17.
We heard a considerable number of contributions on the very important issue of health and social care, which featured significantly in the Autumn Budget as well as in the Spring Statement last year.
Over the last three years, we have given councils access to around £10 billion of dedicated additional funding for adult social care. This includes £240 million this year and next for adult social care so that people can leave hospital when they are ready, and £410 million next year for councils to use to improve social care for older people, people with disabilities and children. This was announced in the Autumn Budget of 2018. The offer of the noble Earl, Lord Listowel, for us to see the incredible work done by many involved in social care and health visitors is one that many will want to take up.
I was immensely grateful to my noble friend Lord Leigh, for summarising a lot of the very positive, good news around, as did my noble friends Lord Suri and Lord Northbrook. My noble friend Lord Leigh spoke particularly about the measurement of productivity, and I think he is on to a point here. We had a discussion about this after the last Autumn Budget, and that was one of the conversations that led to the commissioning of Professor Sir Charles Bean to undertake an independent review of UK economic statistics to find out, among many things, whether that point about how financial services are treated and whether their full value is considered is right. To help address challenges, the Treasury has today provided the ONS with £16 million of funding so that we can continue to have world-leading statistics that capture what is happening in the modern economy.
The noble Baroness, Lady Thornhill, talked about the funding of local government. I recognise the experience that she draws on when she does that. The Budget of 2018 and the 2019-20 local government finance settlement delivered a real-terms increase in core spending power for local authorities in 2019-20. We expect authorities to receive final funding allocations in the normal timetable. Councils in England can access more than £200 billion for local services from 2015 to 2020. The 2019 spending review will be launched in the summer and conclude in the autumn and will no doubt receive many representations.
I am sorry about not addressing the point made by the noble Viscount, Lord Chandos, about student loans. I remember answering an Urgent Question at the time of the last debate and I thank him for that. This will be taken up in the Augar review. In the Spring Statement, the Chancellor of the Exchequer announced that the post-18 education and funding review will conclude at the spending review, so that will be in the summer. This is a delay from the original timetable, in part due to the decision by the ONS to change how student loans are accounted for in public expenditure. That will be covered in the review.
The noble Lord, Lord Shipley, mentioned the importance of the northern powerhouse. That is crucially important: we have seen spending of more than £13 billion—the largest in history—in the northern powerhouse. We hail from the same area of Tyne and Wear and we have all rejoiced at the increase in infrastructure there, including the Tyne and Wear metro upgrade, which will make a very big difference.
The noble Lord, Lord Bilimoria, asked whether we would have the necessary money in the event of no deal. The Chancellor has been clear that leaving without a deal would mean significant disruption in the short and medium term, and a smaller economy in the long term. However, he also laid out ways in which it is possible for the Government to prepare us, including holding a £26.6 billion headroom against our borrowing target.
I again thank noble Lords for their contributions. Several noble Lords referred to investment into the UK. I want to put some points on the record, which noble Lords might have touched on. We need to remember that Forbes magazine, which knows a thing or two about business, surveyed 153 economies to find out which was the best country in the world for business investment. It arrived at the UK in 2018—and again in 2019; it is the number one place for investment. That is backed up not just in a survey but with the significant increase in overseas investment between 2016 and 2017—the last numbers available were announced just last year.
Lord Bates
I am on a roll. Can I go a little further with the good news before we get reminded that every silver lining has a cloud wrapped around it? There was a £149 billion, or 12.6%, increase in the stock of overseas investment in the UK. It is now the third-largest in the world and the largest in Europe. London is the top city for property investment, not way past when, but in 2018. It was £16.2 billion compared with £12 billion in Paris and £8.4 billion in Hong Kong. Exports are at near-record levels and have risen more than 50% since 2010. They rose by £17 billion last year.
We have many challenges in this country and face many headwinds, but one of the things we can all have confidence in is that the world has confidence in this country. We should have more confidence in ourselves. I commend the Statement to the House.
Baroness Kramer
I do not want to entirely ruin what the Minister is saying. I know that the noble Lord, Lord Leigh, knows exactly what I will say in this particular instance. The Minister is quite right that a lot of the investment in the UK is property development. It is overseas moguls buying very expensive properties in London and elsewhere. If that is removed from the numbers, I am afraid that the picture is exceedingly different.