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Lord True
To move that the Virtual Proceedings do consider Her Majesty’s Government’s assessment of the medium-term economic and fiscal position as set out in the latest Budget document and the Office for Budget Responsibility’s most recent Economic and Fiscal Outlook and Fiscal Sustainability Report, which forms the basis of the United Kingdom’s Convergence Programme.
The Minister of State, Cabinet Office (Lord True) (Con)
My Lords, many noble Lords will be familiar with the purpose and provenance of this annual Motion and debate. Since 1999, in the days when we were members of the European Union, the Government were required to send an annual assessment of our economic and budgetary position to the European Union, following its consideration by Parliament. Known as the UK convergence programme, this is part of the stability and growth pact based in the Treaty on the Functioning of the European Union. It is also now important to reflect on and embrace the fact that the UK will be sending this economic assessment having left the European Union. This Government have honoured the promise we made to the British people in the 2019 general election and, after years of regrettable delay, we have delivered on the instruction that was given in the 2016 referendum.
The UK having left the European Union, some noble Lords may find it somewhat perplexing that I am bringing forward this Motion at all. However, as we are in the transition period, there is still a legal obligation under the terms of the withdrawal agreement to provide the European Commission with an update of the UK’s economic and budgetary position. However, the UK cannot be subject to any action or sanctions as a result of our participation, which will end once the transition period comes to an end. This is just one example of the kind of reporting back and accounting to the European Union that will become a thing of the past at the end of this year, when we are a fully independent and sovereign country.
I present this year’s assessment to the House today at an unprecedented and challenging moment for our country and people, and at a unique time in our history. The coronavirus pandemic is the biggest challenge we have faced in decades. For many, life as normal, and business as usual, is on hold. The sacrifices that the British people are making in observing social distancing measures are helping to protect the NHS and save lives, and we thank them all. However, there is clearly a financial and economic cost to bear. Our huge and unprecedented programme of support is therefore helping people and businesses around the country.
Having set out that context, I will now give a brief overview of the information we will provide in the assessment that makes up the UK’s convergence programme. This information is based on the Spring Budget report and the Office for Budget Responsibility’s most recent economic and fiscal outlook. It is this content, not the convergence programme itself, that I ask the House to take note of. Noble Lords should also note that this does not represent new information; rather, it captures the Government’s assessment of the UK’s medium-term economic and budgetary position, as we set out in the 2020 Spring Budget that the Chancellor of the Exchequer delivered almost seven weeks ago.
The Office for Budget Responsibility’s forecast confirmed that the Government delivered the Spring Budget within our fiscal rules. Since 2010, significant progress has been made to restore the public finances. By 2018-19, the deficit had been reduced by four-fifths—from 10.2% of GDP to 1.8%—and debt brought back under control. This careful management of the economy and public finances meant that the fundamentals of the United Kingdom economy going into the coronavirus pandemic were strong. This helped the Government to act in an unprecedented way, with measures to protect people’s jobs and incomes, to help businesses and to support the economy through this difficult period.
It is clear, however, that the impact on the economy as a result of coronavirus, and the Government’s unprecedented response to it, will lead to a significant increase in borrowing this year compared to the OBR’s forecast. Indeed, under the OBR’s coronavirus reference scenario, borrowing is expected to rise sharply this year, but fall back quickly in 2021-22 as temporary policy costs end and the economy recovers. While growth remained solid in 2019, as noble Lords would expect, growth in 2020 will be significantly below that of last year—although estimates are highly uncertain at this point. The consensus, both in government and among external economists, is that not taking the steps we have taken would have risked the impact of coronavirus leaving more permanent scars on our economy. As the OBR has said,
“the costs of inaction would certainly have been higher.”
In the Spring Budget, the Chancellor initiated the start of that unprecedented and wide-ranging economic response to the impact of coronavirus. The Budget itself made available £12 billion for temporary, timely and targeted measures to provide security and stability for people and businesses, which by itself represented a significant state intervention. That included, for example, a commitment to refund small businesses for two weeks of statutory sick pay, and waiving business rates for properties used for retail, leisure, hospitality and nurseries during the next financial year.
Since the Spring Budget and the accompanying OBR forecast, the UK, like many countries around the world, continues to face significant economic disruption. Noble Lords will know that in response, the Government have continued to build on the initial financial support package set out in the Spring Budget, for example through the Coronavirus Job Retention Scheme, the Self-employment Income Support Scheme and the Coronavirus Business Interruption Loan Scheme.
We are making great progress in getting much-needed support out to businesses to help manage their cash flows during this difficult time, with millions of pounds of loans and finance provided to hundreds of firms across the country. The Government are also deferring VAT payments for the next quarter, and UK VAT-registered businesses will not need to pay VAT alongside their normal VAT returns—an intervention by itself worth over £30 billion.
While the Spring Budget rightly focused on our immediate measures to respond to the coronavirus outbreak and support people and businesses in the short term, it also set out our medium and longer-term plans, which I will also briefly highlight. The Budget confirmed a significant funding package to deliver 50,000 more nurses, 6,000 more doctors and 6,000 more primary care professionals, and a change to NHS pension rules which means that NHS staff, including senior doctors, can work additional hours for the NHS without their annual allowance being reduced.
The Budget also included ambitious measures aimed at levelling up all regions of our country. For example, the Government will invest £500 billion in roads, railways, broadband, housing and research to level up opportunity across the whole of the United Kingdom. It set out a consultation on our new £3 billion national skills fund and a £1 billion investment to upgrade the further education college estate—measures designed to help young people get the skills they need for the high-paid, high-skilled jobs of the future. These are vital investments in our public services and our future that display the ambition of this Government and for a country free to forge its own path and shape our own destiny having left the European Union.
Now, the Government have clearly committed considerable resources to respond to the unprecedented coronavirus crisis. However, we have also committed to continuing negotiations on the future relationship with the European Union, which are being undertaken virtually. We look forward to negotiating constructively in the next round, which will begin on 11 May. Whatever the outcome of those negotiations—and we remain committed to a deal with a free trade agreement at its core—our position on extending the transition period is clear and unchanged. The transition period ends on 31 December this year, something enshrined in United Kingdom law.
I know some noble Lords are concerned about the impact of not extending the transition period. The fact is, extending the transition period would simply prolong the negotiations, bringing further uncertainty for businesses at a time when they need clarity. As the First Secretary of State said last week in the other place:
“Given the uncertainty and the problems and challenges coronavirus has highlighted for us and for our European friends ... we should focus on removing any additional uncertainty, do a deal by the end of the year and allow the UK and the European Union and all its member states to bounce back as we come through coronavirus.”—[Official Report, Commons, 29/4/20; cols. 317-18.]
An extension would also entail further payments into the EU budget and keep us bound by EU legislation at a time when we need full legislative and economic flexibility to manage the UK’s medium and longer-term response to the pandemic. We need to be able to design our own rules, in our best interests, to manage our response to coronavirus, including working closely with our European friends, without the constraints of following EU rules.
In the Spring Budget, as well as responding to the challenges posed by the coronavirus outbreak, the Government prepared this country for our longer-term recovery and prosperity. Having continued to improve the state of our public finances, we are well prepared to step up and provide unprecedented short-term and temporary financial support for people and businesses at this time of national emergency. As the Budget showed, we are also investing in our public services and infrastructure for the longer term, levelling up all regions of the UK, with the Budget setting out meaningful investment in our future productivity and our current public services, something that will be needed more than ever as we emerge from the coronavirus crisis.
Following this debate on the economic and budgetary assessment that forms the basis of the convergence programme, the Government will, for the last time, submit it to the Council of the European Union and the European Commission. I beg to move.
Lord Livermore (Lab)
My Lords, the Covid-19 pandemic has created an unprecedented shock to the economy. In response, the Government’s fiscal policy measures are unparalleled. At 20% of GDP, it is the largest peacetime fiscal expansion in British history. Against this backdrop, the March Budget, just eight weeks ago, already feels like a plan for a different age, yet it was clear even then that the Chancellor presided over an economy with serious underlying weaknesses, presenting the worst average growth forecast on record and rapidly deteriorating public finances, with debt having doubled to £2 trillion, reaching nearly 80% of GDP.
The impact of coronavirus on the economy will be vast. The OBR has published an initial scenario in which GDP falls by 35% in the second quarter, unemployment rises by more than 2 million to 10%, government borrowing increases to £273 billion—the largest single-year deficit since the Second World War—and debt exceeds 100% of GDP. As the IFS has observed:
“These figures are predicated on … a swift recovery. Should the … economy fail to bounce back, the picture would worsen further.”
The Resolution Foundation has reflected this uncertainty with a range of forecasts depending on whether social distancing lasts for three, six, or 12 months. It estimates that GDP will fall this year by 10%, 20% or 24%, with unemployment rising to 2 million, 5 million or more than 7 million. In its three-month scenario, government borrowing reaches 11% of GDP, higher than during the financial crisis, 22% in its six-month scenario, higher than any point in peacetime, and 38% in its 12-month scenario—more than the UK has borrowed in any single year in history.
Faced even with economic consequences on this scale, the Government will apparently still end the Brexit transition period this year. There is a clear risk of no deal, which according to their own assessment would reduce GDP by 9% and, even if they achieve the free trade deal they are seeking, on their own figures this would reduce GDP by 6% compared to staying in the single market, putting additional strain on the economy, which is already under unparalleled pressure.
However severe the coming recession, policymakers will need to manage a protracted period of disruption to livelihoods and finances. There will be an urgent need to rebuild the economy and we will need a radically different approach to the past decade, when we saw the worst period of pay growth for 200 years.
In time, the Government will also need to begin restoring fiscal sustainability; again, we will need a very different approach to what has gone before. In the previous decade, while money was found to cut the top rate of tax and some of the richest families gained £1,000 a year, the poorest lost £3,000—15% of their income. The financial resilience of many families was undermined and our economy and public services were weakened, ill-prepared and ill-equipped for the storms ahead. Subsequent Budgets must move away from the failed strategy of the past and build a new social contract that is fit for the future.
Lord Wallace of Saltaire (LD)
My Lords, in last year’s debate on the government statement on economic convergence, my noble friend Lady Kramer said that it was “surreal” to debate the EU framework when the UK was leaving the EU. This year’s debate is far more surreal: we have now left; Boris Johnson has hardened the terms for a new economic relationship; it looks increasingly possible that no agreement will be reached; and the pandemic has disrupted the world economy.
Statements about the UK economy made before the end of February are no longer valid. The OBR warned that the projections it offered would be invalidated if Covid-19 affected Britain severely. Well, since then it has. The Treasury has abandoned its commitment to fiscal restraint—rightly, given the gravity of our situation. None of the statements we are considering placed much emphasis on the UK’s structural trade deficit or the impact on our economy of a further fall in our exchange rate. The collapse of our negotiations with the EU would worsen both.
The four priority states with which the Government hope to sign free trade agreements to compensate for the anticipated decline in trade with our immediate neighbours are the United States, Japan, Australia and New Zealand. New Zealand? At present, 0.2% of Britain’s exports flow to the 5 million New Zealanders. If we were to double our exports to New Zealand every year for the next five years, that would still leave us exporting less to them than we already do to Poland, Norway or Sweden—countries with which we will find it more difficult to trade in 2021. Is that a rational trade strategy?
Michael Gove has just announced a “customs academy” to train the extra 50,000 staff who will be needed to handle Britain’s trade with the EU after we have crashed out. So much for Vote Leave’s promises that leaving the EU would reduce the burdens on business.
In recent weeks, the Government have rediscovered respect for experts and evidence—at least on health, disease and epidemics—which Ministers from Boris Johnson and Michael Gove down had rubbished. On the economy, the Prime Minister and many of his advisers are still in a fantasy world. Iain Martin, in last Friday’s Times, even resurrected the Singapore-on-Thames illusion that a no-deal Britain could flourish as a service economy, without an important manufacturing sector.
We will not emerge successfully from this acute economic and social crisis unless our Government reconsider their priorities for our domestic economy and trading partners and carry the country with them as they rebuild. So far, I see little sign that they will do so.
Baroness Noakes (Con)
My Lords, let no one pretend that these Virtual Proceedings represent a meaningful opportunity to hold the Government to account. Until a couple of hours ago, we were told that we had just two minutes for Back-Bench speeches. Now it is a stunning three minutes. We have no opportunity at all to intervene. This is not accountability. This is a sham. The sooner we return to normal proceedings, without the excessive time-limiting that has been introduced, the better.
As it happens, the only thing I want to hold the Government to account on today is why on earth we are required to continue sending economic assessments to Brussels and why the Government have failed to repeal Section 5 of the 1993 Act. This Motion has always been a waste of time, as we have debated many times in the past. We have never had any interest in converging our economy with that of the EU; today, it is simply ludicrous. It is obvious that an assessment of our economy in the middle of a major global pandemic is, at best, an academic exercise. More importantly, as has been said, we have left the EU. The future trajectory of our economy may well be of interest to the EU, but we should not be involved in servile submissions to it.
This Motion would have been a waste of time even if the transition period were to be extended beyond 31 December this year. I am grateful to my noble friend the Minister for confirming that the Government remain resolute on no extension to that transition period. At one level, I just want to be done with these silly Motions but, more substantively, does the Minister agree that it would be massively to the UK’s disadvantage if, through an extension, we were exposed in any way to contributing to repairing the economic fallout from Covid-19 across the whole of Europe? Now is the time for the Government to concentrate on our own economy—nothing more, and nothing less.
Lord Hain (Lab)
My Lords, I hope that government talk of getting the economy back to normal will cease, because that was not a good place to be—with business investment abysmal, retail sales the worst for 25 years, productivity falling and economic growth low and slowing every year since 2014 until it finally fell to zero. Record UK employment masked widespread job insecurity, with nearly 1 million people struggling to survive on zero-hours contracts, over 1 million in temporary work or doing second jobs, and the number feeling insecure at work doubling from 6.5 million in 2010 to 13 million in 2013.
Ten years ago, the Government used the overhang from the global financial crisis, of increasing national debt and high government borrowing, as an excuse for austerity to remove £150 billion of spending power from the economy, 80% of it in public spending cuts and 20% in tax rises. But that austerity was never about balancing the budget and bringing down debt to be better prepared for a future crisis, as George Osborne and Philip Hammond have since claimed. It was ideologically driven to reduce the role of the state, leaving us grossly unprepared for precisely this kind of pandemic crisis.
The Government never spent enough on the NHS; the pandemic began with more patients than ever on waiting lists for treatment and A&E waiting times the worst on record. Britain has fewer than three doctors per thousand of our population, compared to more than four in Germany and nearly five in Norway. We have only 2.5 hospital beds per thousand people, against six in France and eight in Germany. It is as if the Government had chosen as the patron saint of the NHS Ethelred the Unready.
After the Second World War, Britain grew her way out of debt. The national debt-to-GDP ratio fell from its wartime high of 259% to a post-war low of 26% in 1990. In the past 50 years, we have had a budget surplus only six times: three of those under the last Labour Government and two under Margaret Thatcher. What brought the debt-to-GDP ratio down in the post-war period was not austerity but economic growth, spurred by massive public investment in housing and a huge investment in infrastructure—it had twice the share of GDP it has today. The NHS would not have been in peril of being overwhelmed had it not been starved of funds for so long; nor, so shamefully, would adult social care, cut by £7.7 billion these past 10 years. The old normal delivered a massively unfair deal to millions of ordinary citizens and left the economy ill-equipped to face the future. We need a new normal.
The Senior Deputy Speaker (Lord McFall of Alcluith)
I understand that the noble Lord, Lord Campbell of Pittenweem, is absent, so I call the noble Baroness, Lady Deech.
Baroness Deech (CB)
Reading the March OBR report on the economic and fiscal outlook put me in mind of the saying of my noble friend Lord King that:
“The lesson is that no amount of sophisticated statistical analysis is a match for the historical experience that ‘stuff happens’.”
Now we know that there was never a better time to leave the EU and to leave it wholly and quickly. Given the economic storm we are facing, extending the transition period will only extend uncertainty for the deals we hope to reach with the US, Australia and others. It will increase the chances that we get involved with the eurozone crisis and, if we extend the transition, we will not be able to take advantage of the legislative flexibility that we so desperately need in order to repair the economy.
During the virus crisis, we have seen member states of the EU adopt various forms of trade protectionism. There has been no EU common policy against the virus. We have seen not sharing or helping, but export restrictions being put on medical equipment. Turkey and China had to help out the worst-hit countries. Debt has not been shared between the wealthier northern countries and the poorer southern ones. We have seen procuring but not obtaining, and cherry-picking on one side of the tree only—dropping state aid rules for oneself but not others. We have seen countries closing borders when it suits, as a protection for their own nationals. In effect, the single market has not been working. China has been able to exploit the EU’s economic dependence on it to further assert political dominance and stop criticism of its record.
We have seen from the negotiations so far that Brussels wants to keep the UK in a captive position dressed up as a level playing field, for example, in relation to fishing. Right now, we have a negotiating advantage. If the EU wants a trade deal, it should agree one. We have seen it on the brink of falling apart. We need to take care of our own economy and put an end to the uncertainty that the remainers so favour. It is time to stop fighting that old battle. The country has spoken three times. We are better prepared for no deal than we were, in part because of the Covid-19 situation, and the economic hit we might take fades into insignificance compared with what we are suffering right now. I hope the Minister will reassure us that we will not be blown off course.
The Deputy Speaker (Viscount Ullswater) (Con)
My Lords, I have taken over as Deputy Speaker.
Lord Balfe (Con)
My Lords, as many will know, I was a firm believer that we should stay in the EU, but I also happen to believe in democracy. The British people gave a very clear answer last December and we now have to do the best we can with that. It is no good fighting yesterday’s battles.
As previous speakers have said, this report is of course largely a waste of time; it was never of much use, but in the fast-changing scenario we are now in, it is of very little use at all. However, one thing that recent history has demonstrated is that not only are we not ruled from Brussels; no one is. I am afraid that the Covid-19 crisis has revealed the weakness of the EU and the way in which national Governments have taken quite different decisions in their own national interest. I do not blame them for that, but we need a more realistic view of the EU. We need to realise that the main winner from the Covid-19 crisis in Europe is China—Beijing, in other words.
I hope that we will use our remaining time in dealing with the EU as a fact-finding exercise to find out exactly what member states are doing to combat the Covid-19 virus and, more importantly, how they are paying for it. My concern is that the countries of Europe are running up debts which will bankrupt them. We have to look at how much we can afford to put into the economy at this time. There is a general assumption in Brussels that the transition will end on 31 December. Officials do not believe that the British Government particularly want a deal and there is a school of thought, particularly in France, that if we can tear it all up, they will end up with a better deal than they will by negotiating one.
So, let us not imagine that everybody is lining up and saying, “Oh, we must have a deal with Britain—otherwise, everything will fall to bits.” A good group of people are saying, “The transition will end on 31 December and then we can start anew; we can negotiate a whole new series of things.” However, I disagree with the idea that we do not need to work together. We cannot retreat. We have to repair the economic fallout, not only in Britain but in the rest of western Europe—indeed, the whole of Europe. We will need to work together. Our neighbours’ problems are also our own. It is not for us to solve them financially, but it is for us to be concerned by them and to do our best to work with our EU partners even though we are outside the EU, just as Norway does.
Baroness Quin (Lab)
My Lords, in last year’s debate, my noble friend Lord Davies of Oldham said in winding up that
“we are not in normal times.”—[Official Report, 9/4/19; col. 463.]
He spoke of what he saw as the threat to our economy. I must say that his words seem even more apt in today’s dramatic circumstances.
In the short time available, I will limit myself to asking a couple of questions and raising a couple of issues to which I hope the Minister will be able to respond when he winds up. First, given that we have left the EU and that we will no longer be part of a freedom of movement system which I believe has brought benefits to our economy and our citizens over the years, I urge the Government to look at changing what seems to be their current approach to immigration. While we all hope that British people will be able to find jobs in our economy, in the post-Brexit world there are some sectors—particularly agriculture, the hospitality industry and, not least, our health and care sectors—where workers from outside will be necessary and, I hope, welcome. For example, the president of the National Farmers’ Union has talked of needing workers: from fruit-pickers on the one hand to specialised vets on the other. Yet, it seems to me that the Government’s talk of favouring “the brightest and best” and those with high earning capacity is much too rigid. We will need to be much more flexible in our immigration policy than the Home Secretary currently seems prepared to be.
Secondly, all the previous predictions by Conservative Governments in recent years have shown that being outside the single market will involve some harm to the economy, particularly if we leave without a deal. The worry is that this will come on top of Covid-19 and its aftermath. As ever, I am particularly concerned about my own part of the country, the north-east of England, which has had a greater dependence on EU exports than any other region in recent years. I hope the Government will stand by their commitment to levelling up across the country and tell us—perhaps the Minister could do so when winding up—what they are going to do for the north-east.
Finally, now that we are outside the EU and having to forge a new economic relationship with it, I urge the Government to be motivated not, as so often in the past, by political views within their own party, but solely by what they consider to be in the economic interests of our country and its people as we strive to move forward.
Baroness Northover (LD)
My Lords, the House of Commons did not even debate this assessment or vote on it. In fact, the Commons approved this without even seeing it as it was not published until yesterday. I am glad that the House of Lords is considering it.
The Budget and the OBR report on which it is based are, of course, very much out of date. Nevertheless, the Convergence document has just been produced. It notes:
“Early data releases suggest the short-term impact of Covid-19 on the global economy may be significantly larger than that of the global financial crisis.”
I note the word “short-term”.
The document states that the increase in borrowing is likely to be temporary. These findings assume a V-shaped bounce-back. That now looks highly unlikely, both in the United Kingdom and globally. There are therefore major implications for tax revenue and employment. Even when the lockdowns are lifted, certain industries will be affected long term. In China, it is noted that, whereas after the 2008 crash there was a problem with demand, now there is a problem with supply.
What we do when this pandemic is over will matter. We will have an economy to rebuild and a debt to address. People have drawn comparisons to the war, but closer comparisons surely need to be drawn to each post-war period. After the First World War, there was little co-operation and a financial crash with terrible consequences and the resultant rise of deadly populist movements. After the Second World War, a number of international organisations were set up. The Marshall plan was initiated for Germany. In the United Kingdom, the promises made during the war of a better, brighter future, including free healthcare, were largely delivered, though without social care.
Week after week, we have been standing outside clapping the NHS and essential workers. It will be very difficult for the Government not to address their needs. Can the noble Lord tell us the Government’s thinking? Does he agree that a further period of austerity brings huge social and political risk and that a different approach will be needed? As part of that, we need to look at our relationship with the EU. Clearly, we will not conclude adequate discussions with the EU by June, as it is required for all parliaments to approve the agreement; therefore, the transition must be extended. Surely the Government would not take the risk of crashing out and further damaging our economy and society at this time of crisis.
Baroness Falkner of Margravine (Non-Afl)
My Lords, I agree with other speakers that it is, indeed, a surreal experience to be speaking on government compliance with the SGP on a convergence programme, given that we are diverging from the EU, notwithstanding our obligations under the transition period. I also note that within the EU the SGP escape clause has been triggered, but that the EU insists that this should not suspend programme reporting. That seems slightly odd, given that no member state will be able to say with any certainty where it might be even by year end, never mind in the next three-year period. However, since the UK is complying, I shall make two general points.
The obvious point is that although we have left, the economic strength of our largest trading partner—its growth and prosperity—continues to be of huge significance to the UK economy and business. The EU, just like all economies, is throwing everything at dealing with Covid-19, but we simply do not know how that will play out in the peripheral economies of the eurozone. All we can do is hope that this emergency continues to be a health and economic emergency and does not turn into a financial crash as well; 2008 still hangs over us. Looking at the stock of non-performing loans on banks’ books, a Financial Times report yesterday shows that four of the top five banks making provisions for bad loans are UK institutions, so we need to be vigilant as the situation unfolds.
My second point has to do with the UK record in terms of deficit and debt criteria. When I took over as the chair of the EU Financial Affairs Sub-Committee, the UK was in excessive deficit procedure, for the perfectly understandable reason that our deficit and debt had rocketed during the financial crash of 2008. Although we were not subject to sanctions, due to Protocol 15, we were nevertheless subject to surveillance and had to demonstrate an endeavour to avoid an excessive government deficit. This was achieved and the UK returned to the preventive arm of the SGP, but the discipline of a deficit and debt target or range is an important one, as long as it is flexible and can adjust to emergencies to take account of automatic stabilisers.
My question to the Minister, in finishing, touches on the Government’s fiscal rules. While these are desirable in normal times, I have always disagreed with the straitjacket of PSNI not exceeding 3% of GDP, so will the Government rethink these rules in light of the current situation?
Lord Howard of Rising (Con)
My Lords, this debate is worthy of a Gilbert and Sullivan comic opera, but even those masters of the absurd could not have imagined anything quite as ridiculous as discussing convergence with an organisation that we are not a part of at a time when it is impossible to know the finances of either the UK or the European Union. Gilbert and Sullivan would have particularly enjoyed the added absurdity that the other place thought the matter so unimportant that it did not even bother to debate it, while this House’s debate has 22 speakers.
The countries of the EU are diverging rapidly. Economically, the majority of the EU is a mess. Political disintegration combined with economic meltdown has created such chaos in the EU that convergence is a fantasy. Today’s Motion is as divorced from reality as Monsieur Barnier’s negotiating. He struts about producing unrealistic conditions as if we were not a sovereign and independent nation. We have already left the European Union, although we have until 31 December to achieve a trade deal. I am grateful to the Minister for confirming that that is the final date for negotiating a deal. Can he confirm that only by that date being written in stone will a successful trade deal be achieved?
Lord Liddle (Lab)
My Lords, I want to follow on from where the noble Lord, Lord Balfe, ended in talking about the future importance of a Britain outside the European Union co-operating with our European friends and allies. I have been much saddened by this debate. Frankly, some of the speeches have demonstrated hatred—I would put it like that—of the European Union and no recognition of interdependence; that is, that we must live with our closest neighbours on the continent. I want an assurance from the noble Lord, Lord True. He said that the Government believe in European co-operation, but what are their practical plans for that to get us out of the present crisis?
Look at the number of different possibilities. First, we need macroeconomic co-operation. We need a repeat of what Gordon Brown did in 2008-09: working with our European partners on a co-ordinated fiscal stimulus. If you do not have that degree of co-ordination, fiscal stimulus is ineffective.
Secondly, we need to work closely with European countries on our research programmes, which have never been more important than during this health crisis. We need to strengthen research co-operation, not reduce it. This is vital for many British universities.
Thirdly, we need sectoral co-operation in key areas of our industry. For example, let us go back to the financial crisis again. The car industry was in a terrible mess then. It is in a terrible mess today. We had adopted, by agreement with several of our European friends, a system of car scrapping incentives. This could be done again with green new deal objectives in mind. We should work towards that to save the European car industry. Similarly, Airbus is absolutely fundamental to our manufacturing position in this country. What are we doing with France and Germany to guarantee the future of Airbus and its manufacturing in Great Britain?
One could go on with many other examples. We need practical European co-operation. Will we get it from the Government of the noble Lord, Lord True?
Lord Purvis of Tweed (LD)
My Lords, the Minister referred to the OBR report, as will I. He was keen to show the areas of progress. I understand that, and indeed that is all welcome, but he glossed over the areas where the OBR has flagged concerns, on debt in particular. We know that debt is likely to increase considerably and there will be consequences that we will have to manage well into the future. The Chancellor has already said that the self-employed will need to pay more tax in future to pay for the support package, and that will be unfair if done disproportionately.
Setting aside the Minister’s slightly tone-deaf rhetoric at the start of his speech about sovereignty at a time of global pandemic, the reality is that our economic life, our trade and our people will continue to be inextricably linked with our closest geographic and trading economic partners in Europe. The Minister celebrated what he described as being able to act free from the constraints of EU rules, as he put it, but the Government themselves chose to take part in the PPE procurement scheme and to operate under the customs system, and they themselves operated under the EU repatriation scheme. Why? Because it is now, as it has been, good sense for the British economy and our people to work seamlessly with our closest partners and neighbours—although of course the words “seamless” and “frictionless” are no longer used.
The Minister also neglected to reference the report on the future levels of GDP and the impact of other trade agreements and our EU relationship on productivity. Taking the fact that the UK has left the EU and will have its own migration policy, in March the OBR said:
“In broad terms, these imply that potential productivity will eventually be around 4 per cent lower than it otherwise would have been, mainly due to extra costs resulting from higher trade barriers and greater impediments to the exploitation of comparative advantage.”
The Government try to suggest that this fall will be offset by new trade with the USA. The Government themselves stated in their negotiation briefing earlier this year that a good deal with the USA would represent about £1 billion extra a year for our economy over 15 years—that is, 0.07% to 0.16% of positive GDP. Not many in this debate, other than perhaps the Minister or the noble Baroness, Lady Deech, believe that a 0.16% increase will offset a 4% fall. So what is the Government’s assessment of the net impact on future trade of all possible EU and other-country arrangements?
We remain unsure about the imminence of a comprehensive deal with Japan and Canada—and that is simply to prevent massive disruption, not to grow. This is not about fighting old battles, but we need the Government to be open now and tell us what they estimate the net impact on all productivity and trade will be. We simply will not be able to enter the battles of the future wearing an armour of self-deception, which has been too prevalent in this debate so far.
Lord Birt (CB)
My Lords, a disastrously infectious and pernicious virus has rendered obsolete both March’s Budget and February’s OBR outlook. That is because, as we know, every month that the lockdown continues we are losing around one-third of our GDP—the wealth that together we create, which finances our individual life choices and funds the NHS and every other public service. Without wealth creation, we are destined for public and private impoverishment. Around one-third of our workforce is now furloughed and an estimated 60% of our households have no savings. We cannot borrow for ever—or even for long—to fund the current massive shortfall in government revenues.
We and other western countries were slow to respond to the virus. We need a surer touch in emerging from the lockdown. We must first reduce new cases to low numbers, as Germany and New Zealand have done, and then we need a capability at scale to test, trace and isolate. South Korea—a nation our size—is the exemplar here, experiencing only 250 deaths. All the while, we must maintain a standby capability for fear of a second wave.
In emerging from the lockdown, we must recognise that every business is singular: with a unique mix of suppliers from home and abroad, a unique mix of customers, and a unique offer of products and services. Every business has been affected differently by the lockdown, and every business will have to design its own unique route out, consistent always with a tireless concern for the safety of its staff and customers.
Even then, world markets will be uncertain. China is back at work, but its consumers are not yet spending. The US has 30 million new jobless. This will remain an unsettled world until science can come to our rescue with a treatment or a vaccine. I fear that we will certainly and quite soon need a fresh OBR outlook and a new Budget. But in the meantime, we must do everything we can to put business back on its feet again. Back to work we really must go.
Viscount Trenchard (Con)
My Lords, I am grateful to my noble friend Lord True for introducing this rather odd debate today. It is indeed strange that the UK is still required to submit information on its medium-term economic and fiscal position to the EU, although we left the EU more than three months ago and the implementation period will end on 31 December this year, as the Prime Minister has made clear on many occasions. It is of course also strange that the Treasury has said that it will produce a convergence programme based on the spring 2020 Budget and on the OBR’s economic and fiscal reports. As noted by other noble Lords, all these economic plans are out of date in that they do not take account, or take only limited account, of the economic impact of the coronavirus pandemic.
I have spoken in this debate many times in the past, especially during the period when my noble friend Lady Noakes was a shadow Treasury Minister. I wanted therefore to participate in this debate for the last time.
To those who argue that the coronavirus pandemic provides a reason why the Government should move to amend the withdrawal agreement Act so as to make possible an extension to the implementation period beyond the end of this year, I say that the reverse is true. The additional challenges faced by the economy as a result of the pandemic make it all the more essential that we bring to an early end the present highly undesirable situation where we have left the EU formally but remain bound by all its laws and regulations, even though we no longer have any representatives in EU bodies and have no influence whatever on which regulations are adopted.
Can the Minister please explain why, just because we are currently operating virtually, we are now subject to extremely restrictive speaking time limits? This debate has never been time-limited before. Without wishing to belabour your Lordships, I would have liked a little more time to explain the reasons why I believe that our new independent trade policy will provide a much better platform for us to rebuild the economy and create a prosperous future for all our people. We will be a strong advocate for competitive free trade and a proportionate regulatory policy at the WTO, and an equally strong advocate for open, innovative financial markets such as IOSCO playing a greater part in building the right regulatory framework for our global marketplace, within which I believe the City of London will surely maintain and build further on its leading position.
Baroness Ritchie of Downpatrick (Non-Afl)
My Lords, both documents that we are taking note of today are now simply historical because they have been overtaken by the unprecedented circumstances of the coronavirus, which has dented our economy. Perhaps I may give an example of that in a Northern Ireland context.
Unemployment is predicted to rise to 10.5% this year, and many of those affected will be very young people—young graduates and young people leaving school—who will find themselves out of the door, having just been brought in through the door of employment. In fact, the economy is set to contract by between 7.5% and 10.5%, which is unacceptable. However, there are other issues that we have to take into account. The other shock to our economy is Brexit. I firmly believe that today the Minister has to tell us what plans there are on the far side of the coronavirus pandemic to underpin, develop and revive our economy.
As a remainer, I accept that we are leaving the European Union, but in relation to Brexit there are two outstanding burning issues that require resolution. The first is the transition period. Because of the coronavirus, there is insufficient time to deal with the trade agreement. For that reason, in spite of what the Minister said today and what the Government said last week, I urge the Government to extend the transition period. Secondly, the Government are not engaging properly with the European Union to obtain a good deal, and in that respect I cite the discussions that have been held on the transition.
I want to make another fundamental point. In February 2019, the European Union asked to be given offices in London, Edinburgh, Cardiff and Belfast. At the time, the Government promised that the EU would have permission to arrange that. The Ireland/Northern Ireland protocol requires the EU to have an office in Belfast to forge the technical details. However, I have received a Parliamentary Answer from a Minister, who has informed me that that will not be possible. That is outrageous. That office is needed to work out and fully implement the technical details of the protocol —for example, the question of unfettered access. Perhaps the Minister can respond to those issues today.
Lord Shipley (LD)
My Lords, eight weeks ago, several important announcements were made in the Budget about infrastructure investment. There was to be a significant rise in borrowing to fund this, to be paid for by future growth. That Budget was said to represent an end to austerity.
Just eight weeks later, the Government are paying the wages of 6 million people, with one in four employees in furlough. The Chancellor has said there is “no limit” to the funds available in the face of the OBR forecast that the economy could shrink by 35% in the second quarter and by 12.8% for 2020 as a whole. We now know that the Government might borrow £273 billion this year—the largest annual deficit since 1945. How do they plan to pay for this underpinning of our economy in the face of declining tax revenues? Will it be simply through anticipated growth?
I would like to ask the Minister three further questions. First, he referred to the Prime Minister’s promise of a levelling-up agenda for the whole country. I would like to suggest that this should mean investment in our domestic manufacturing base in the face of a likely decline in global supply chains, as well as the need for greater security of supply. Will the Government confirm that they will still rewrite the Green Book rules to help those places where growth and productivity are lower?
Secondly, we seem to be witnessing the closest working between the private and the public sectors since 1945. Does the Minister accept that government support must carry on after lockdown ends? Enabling the economy to recover will inevitably be a gradual process and, crucially, the Government must protect the job retention scheme beyond the end of June, otherwise it will become in effect become a scheme that just delays redundancies.
Thirdly, I should like to ask about Britain’s future debt levels, which will shortly stand at 95% of GDP. Coronavirus could well cause a reduction of 10% in our GDP and there is evidence that a no-deal Brexit could add an extra long-term loss of a further 5%. How will the Minister respond to this and does he accept that a no-deal Brexit is not in this country’s economic interests.
In conclusion, I have two further points. Will the Minister undertake to look at the merits of municipal bonds, which could help in the current situation, and might the Government consider allowing the state to take a bigger share of land value uplift when planning permission for housing is granted? If they did, I think that would help the public finances.
Baroness Bennett of Manor Castle (GP)
My Lords, the noble Lord, Lord Howard of Rising, commented that, given the context of this debate, it was surprising to see 22 speakers for it. However, as the noble Baroness, Lady Falkner of Margravine, and the noble Viscount, Lord Trenchard, said, there is a great hunger to make a democratic contribution to the nation’s discussion now, and that is why we are taking this opportunity.
The historical framework in which we are conducting this debate is both useful and informative. There is an EU requirement for member states to avoid excessive government deficits. Of course, in the age of Covid-19, what is considered excessive is changing very significantly. Behind this is something that is certainly often wheeled out in British political debate. It is known as the household fallacy—the idea that the national budget has to be managed as though it were a household budget, so that the pennies in and the pennies out have to match up. That was used to justify the ideological approach and the philosophy of austerity, which the noble Lord, Lord Hain, said was doing so much damage not only to our society in terms of poverty and inequality, but also to our preparedness to deal with the awful shock of the coronavirus. Does the Minister agree that the fallacy of household management being equivalent to national economic management is now dead, and can he assure me that the Government will not revive it?
As many noble Lords have said, we are in a huge phase of restructuring. I would like to quote from a letter to the Financial Times from Church Action for Tax Justice. It stated:
“The social contract is now being renegotiated.”
In a press conference on 30 April, the Prime Minister said that he has never liked the term “austerity”. Can the Minister tell me that it is not just the term that the Government do not like, but that they have abandoned the whole approach? Will they use their financial position to rebuild a better world, rather than going back to where we were?
As many noble Lords have said, this debate has to be considered in the context of Brexit. I want to congratulate the Government on an issue that I was pushing on at the beginning of March and was rebuffed about. I said that I believed that we are now signing up to something akin to membership of the early warning and response system for health in Europe. On this, it would seem that the Government agree that co-operation and working together makes sense. However, we are fast approaching an enormous challenge as regards the environment, agriculture, aviation and fisheries. In the context of Brexit, we have to set up whole new systems. Coming back to where I started, how can we do that democratically when it is so difficult for full democratic debate to take place in your Lordships’ House and elsewhere?
Baroness McIntosh of Pickering (Con)
My Lords, I welcome this debate. I found my noble friend Lord True’s introduction extremely interesting. I hope that the Government will commit to comment annually on their convergence programme in the form of a similar report. I will focus on where we are as measured by government deficit and debt, the long-term interest rate and exchange rate fluctuations. I will also look at—not just in the way that the noble Baroness, Lady Bennett, has done—the extreme challenges coming up, for Defra in particular, of food supply, environmental protection, global warming and climate change.
This week, we are celebrating the third anniversary of delivering competition in the provision of water supplies to business customers. One of the unintended consequences of Covid-19 has been that many businesses are simply not operating and are therefore not in a position to pay for their water supply. It is a matter of great regret and sadness that there will, undoubtedly, be potential for the failure of a number of water companies. The legislation at the time did not tackle the problem of exiting the sector. Ofwat is committed to looking into this, but possibly not before 2021. In addition to the significant economic disruption which has already been identified in the reports to which my noble friend Lord True referred, there are other consequences, unintended and unforeseen, of which the Government might wish to take note.
I will also reference the Financial Times. In an article in early April, the Governor of the Bank of England pledged not to slip into permanent monetary financing of government policy. He went further, stating that the central bank—the Bank of England—would not engage in permanent monetary financing. In his opening remarks, my noble friend specifically outlined the Government’s Covid-19 expenditure, which has continued, and indeed grown, since the Budget earlier this year. What measures have the Government identified, and intend to take, to support businesses and individuals, if—as in relation to business failures in the water sector —they require such support beyond the period to which my noble friend referred?
Viscount Chandos (Lab)
My Lords, the Government’s assessment, the Minister and many other noble Lords who have spoken this afternoon acknowledge the certainty of a very high—possibly record—level of deficit this year, of over £200 billion. As the noble Baroness, Lady Northover, has argued, it is very uncertain that the recovery will be as swift as many people hope, and possibly not as swift as the OBR is assuming. Against this background, the Government must not fetishise the level of deficit, based on economic illiteracy, unlike the devastating period since 2010, as my noble friend Lord Hain has highlighted. There should be a gradual glide path of reducing deficits, but with a prioritisation of essential public expenditure.
We must of course look for increases in tax. Does the Minister agree that there is overwhelming evidence that those increases in taxation should come on capital and, in particular, that the natural time for that is when capital is transferred between generations, both in life and on death?
The single most important factor in economic recovery is the earliest possible introduction of a vaccine, as has been so cogently argued by Sir Jeremy Farrar, the director of the Wellcome Trust. I welcome the UK Government’s commitment, as part of the global effort, to the funding of accelerated research and the production and distribution of vaccines, as well as of therapeutics and diagnostics. The Wellcome Trust’s COVID-Zero initiative is encouraging global business and philanthropic contributions, and it is to be welcomed.
I have one question for the Minister in this respect. Although equality of access to vaccines is vital to our national interest, can he confirm that the funding that we are committing does not come from DfID’s ODA budget and will not be taken as part of our 0.7% commitment to international aid under the international development Act of 2015?
Baroness Kramer (LD)
My Lords, I shall begin by picking up a point made by my noble friend Lady Northover and reinforced by the noble Viscount, Lord Chandos: this is not going to be a V-shaped economic recovery. There will not be a rapid bounceback to the normality of pre Covid-19. The noble Lord, Lord Birt, was very clear in describing the global crisis that has occurred and the impact on developed and not-developed economies. The OBR took none of that into consideration when it put together its forecast. The challenge for the Government now is to prevent an L-shaped economic disaster. They can do that, but only if they take the right actions.
Much of this debate has underscored that there is overwhelming support for the Government’s willingness to pour money into minimising the damage to the UK economy, and I applaud that. But the money needs to get into the hands of businesses, and we have a pipeline that remains stuck. The banks were always going to be a problem. The CBILS original framework programme has £300 billion for support for companies, but something like only £4 billion, £5 billion or £6 billion has actually been released. The Government need to redouble efforts to bring in alternative lenders.
As the economy opens up again—my noble friend Lord Shipley made this point—support for businesses cannot be stopped at a sudden cliff edge. The furlough scheme in particular will need to be pulled back gradually, or even firms with a viable future will make many workers permanently redundant because they do not have the cash and they do not want to take on additional debt. Frankly, neither our economy nor our society can afford the long-term unemployment of so many people. I recommend to the Government the “safe to return to work” scheme proposed yesterday by a number of my colleagues.
Even under an optimistic scenario, many people will not have a job to go back to. Self-employment will be an important route for them. As we go into rebuilding the economy, innovation will be key, and independent contractors are vital in driving innovation. We need this Government to stop presuming that self-employment is primarily a tax evasion scheme. They need to understand the critical role of self-employment and to provide a fair framework for future self-employment that engages with paying tax, which should not be avoided, and provides self-employed people with proper employment rights, or recognises where they do not have those rights.
We have had too much change during this period of Covid for the economy to return to the shape of 2019. This is our opportunity, as well as our responsibility, to build a new economy. I believe the Government’s dilemma is how much to let market forces decide the shape of that new economy, and how much the Government themselves and the public at large shape that economic change. I argue that the public now have little tolerance for a capitalism that does not embed social responsibility. There is a new respect for low-paid workers, a new understanding of the privations of being on benefits and a deeper admiration for so many of our public services. The public will also not forgive any Government who ignore the need to avoid future disasters. That includes pandemics, of course, but I put climate change into that category as well. I believe the public now understand the need to prepare, plan and act. We need a green recovery.
I also join those who feel that the Government cannot play fast and loose with fiscal management. The noble Baroness, Lady McIntosh, touched on some of these points. She made it clear that the Bank of England will not endlessly print money. My noble friend Lord Purvis and others underscored that debt can be a burden that we have to deal with. I hope there is not an implication in the statements of the noble Baroness, Lady Bennett, that we can simply build public sector net debt constantly and continue to carry it, no matter its level.
So far, this Government have treated tax increases as anathema. Some people had suggestions of taxes that could potentially be increased, but the underlying principle that it should be the broadest shoulders that carry those increases is surely something we all ought to be able to agree on, even if we spend time discussing the exact shape of that.
This is a time of global crisis. It is a truism, but we all hang together or we all hang separately. If we need time to work out our relationship with the European Union, we need to take that time. If, within the timeframe of the year end, we cannot negotiate decent rollover free trade agreements or new free trade agreements with countries that are all preoccupied with Covid—they may have intended to negotiate rapidly with us, but that has to be down at the bottom of the list for most of those economies today—surely we ought to ask for the additional time to allow that to happen. The point my noble friend Lord Purvis made was so overlooked, certainly by the Minister, and by the noble Baronesses, Lady Noakes and Lady Deech. All the new free trade agreements, even if they were to come on tap—and remember that they are embedded in the OBR forecast; the assumption is that they will be negotiated successfully —make nothing more than a marginal contribution to our future GDP and growth.
I argue that if Covid teaches us anything, it is that we have to build co-operation, not nationalism. I heard that strongly from the noble Lord, Lord Liddle. The point was made by the noble Baroness, Lady Falkner, who underscored that our economic future is always tied into the economic success of the European Union as our major market.
I was troubled by the number of times the noble Lord, Lord True, used the word “own”—it was “own” and again “own”. The noble Baroness, Lady Noakes, picked up on this so much. If we all think “own”, and that is the framework in which we operate, tragedies such as Covid will have huge, long-term, undermining consequences—not only for our economy but for the global economy. We cannot exempt ourselves from that just by focusing on “own”.
Lord Tunnicliffe (Lab)
My Lords, a number of noble Lords have called this debate surreal, ludicrous and “Gilbert and Sullivan”. As Treasury spokesman for the Opposition, I must apologise for causing it to happen. We have found year on year that this debate comes at a useful time, and we can use it to discuss the whole economy. Noble Lords did not have to volunteer for this debate if they did not think it was useful.
The debate has, surprisingly, involved quite a lot of concern about Brexit, which has been the preponderant theme. There has been much talk about how wonderful and invigorating it might be, but overall very few feel that Brexit will be positive in economic terms. With Covid-19, the problems of negotiating it are really quite frightening. Conversely, the need to co-operate with our neighbours in this crisis is most important.
There has been discussion on this, and the Government have restated their commitment to leave the Common Market and end the transition period at the end of December this year. I, like many others, feel that this would be disastrous. The idea that we can negotiate a sensible deal in this time is unreal. The only real probability of leaving on 31 December is that we will leave without a deal at all.
There has been considerable debate about the economy, but it is unfortunate that there has not been more concentration on what I would loosely call the economic infrastructure of the country. We have to worry about saving companies, both the SMEs and the strategic sectors such as aviation and steel that, once lost, would be very difficult to rebuild. The whole task of the future has to be much more holistic than we have seen so far. I agree with the number of noble Lords who have said that we should not aim to go back to where we were; we have to pursue policies which are different and more holistic and which involve considerable innovation. We cannot assume that we will enter another devastating period of austerity, as we have had since 2010.
Turning to the technicalities of the Motion, we have to submit a statement to the EU that was circulated to us yesterday—the 2019-20 convergence programme for the United Kingdom. However, as I understand it, all we are formally approving is the input into the document. The document comes from Budget 2020—HC 121—and the two OBR documents.
I turn first to the Budget half of this. It is no longer credible. Great chunks of the Budget will not happen, in terms of both revenue, which will be damaged severely by the virus, and the expenditure that has been necessary to make sure the economy does not collapse. The virus and the Chancellor have changed things. We support what has been done so far, but it is becoming clear that problems with the design and performance of many of the existing programmes are reducing their take-up. The efficacy of these programmes will be essential in the dealing with the impact of the crisis on jobs and incomes.
The Labour Party has three tests for the economic response to the coronavirus: keeping people in work, getting cash to struggling businesses, and preventing additional poverty through changes to social security. We believe that international co-ordination needs to be rapidly increased, with the Treasury leading on extensive co-ordination with the IMF, the G20 and EU policymakers. It was good to see that a global conference was recently held on these issues, but unfortunate that the US and China did not take part. It will be interesting to know what further plans the Government have to pursue this sort of conference.
We call on the Government to act urgently to protect jobs and incomes by preventing even more people being made redundant, by acting on those employers who continue to refuse to furlough affected workers. We need to fix blockages in the business loans scheme so that businesses can access the support that they desperately need. The bounce-back loans are clearly a first step but there is a considerable gap in those schemes, with the larger loans being much more difficult and, it is feared, not arriving in time. We need to clarify urgently the situation for those currently excluded from the Government’s self-employment and furlough schemes.
We should turn universal credit advances into grants and consider additional changes to improve universal credit. We should make all workers, including the low-paid, eligible for statutory sick pay and increase its level. We should spearhead international co-ordination to prevent worldwide spillovers in financial systems caused by the crisis. We should make public the proposed exit strategy to ensure that economic measures remain appropriate in protecting the long-term future of business and workers. It is the long term we need to worry about, as well as the short term. Finally, we need to reflect on the fact that key workers’ hourly wages are 8% lower on average than those of other employees. As we recover from this pandemic, we must ensure that key workers are never again left overlooked and underpaid.
Turning back to the Budget, while I accept that the issues have inevitably changed, I would like to be assured by the Minister that the spending parts of the Budget designed to take us out of austerity will still take place. The Government announced a £27 billion programme with unprecedented investment in urban transport, including £4.2 billion for a five-year integrated transport settlement for eight city regions, on top of £1 billion allocated to shovel-ready transport. There were also commitments to funding a shared rural network, with £5 billion for a gigabit broadband rollout in the hardest-to-reach areas, record funding of £5.2 billion for flood defences between 2021 and 2027, and a £10.9 billion increase in housing investment to support a commitment to build at least 1 million new homes by the end of the Parliament. The Government are also investing £1.5 billion in new capital spending for further education colleges and £2.5 billion for a national skills fund. All these things are in the Budget. Can the Minister assure me that they remain commitments and will be delivered as part of the end of austerity, in our looking forward to a brighter future?
Lord True
My Lords, it is customary to say that a debate has been very wide-ranging; this certainly has been that. One thing that has come out of this outstanding debate—many who spoke put forward very fruitful and interesting ideas—is the question of accountability. It was first raised by my noble friend Lady Noakes, but the noble Baroness, Lady Bennett, and my noble friends Lady McIntosh and Lord Trenchard all referred to the difficulties in conducting parliamentary business and scrutiny in the present circumstances. As I said earlier in response to another Question, it is not for me to manage the detail of the arrangements that are put in place by the House authorities and which are agreed through the usual channels. There is certainly no lack of willingness on the part of the Government or Ministers to face Parliament and answer to Parliament on such questions. As has come out forcefully in the debate, these are unique and exceptional circumstances, in which we are forced to operate remotely in this way.
Of course, I share the hope of all those who spoke that, in time, it will be possible to relax the constraints on the management of our business so that accountability will not only continue but be strengthened. I note that it is certainly not easy to respond to a detailed and complex debate from one’s back room with no access to the Box or information. I assure all noble Lords who have spoken that where I am unable to answer detailed questions in detail, we will seek to ensure that such answers are given.
There was a dichotomy between noble Lords on both sides of the argument, if there are two sides to the argument. Some were impatient that we were still having this debate, and some felt that it was a signal that we needed to maintain and continue our institutional links to the European Union in some way. That divide in and difference of opinion ran through the debate. We are obliged to have this debate and provide this information to the Commission under our treaty obligations. It is certainly not the United Kingdom’s position not to carry out the obligations into which it has entered.
It is true that, by the end of the year, we will be a fully independent country; this will happen regardless of what occurs in the negotiations ahead. It is not true that this in any sense reflects, as the noble Lord, Lord Liddle, said, a hatred of what the Prime Minister always rightly calls our European friends. We are, and always will be, a European nation and those nations always will be our friends. I repudiate the view that there is hatred towards any other country or people in the European Union. We are looking for a relationship that is grounded in precedent and respects the autonomy of decision-making on both sides. We have not asked for a special or bespoke deal.
Indeed, our proposals build on the EU’s original offer of a Canada-style deal and reflect the type of free trade agreement that should be entirely achievable this year between sovereign states. The precedents are based on previous deals that the EU has done. In no way is that vision incompatible with having a close relationship with the EU. We will continue to co-operate with the nations of the European Union, as we are doing on coronavirus, and with a wider family and comity of nations. As was referred to in the debate, only this week my right honourable friend the Prime Minister initiated international action in the face of the virus.
The progress of the negotiations was referred to by a number of noble Lords. We have had two full and constructive negotiating rounds, with a full range of discussions covering all the issues. We have made it clear that we are determined to regain our independence but that does not in any way reduce our commitment to high standards in all areas. I assure those noble Lords who referred to wishing to see a better world after we come out of this crisis—I share that aspiration—that our commitment is to high standards. No matter what happens, the United Kingdom will continue to champion high standards for products and in human rights, as well as for many other important principles.
However, we will not accept a relationship that restricts domestic democratic debate or enforces the supremacy of EU law—here I agree with the noble Baroness, Lady Deech, and my noble friends Lord Howard of Rising and Lady Noakes, who were among those who spoke on this.
There is promising convergence, and there is no reason why progress should not continue in the core areas. There is progress on a free trade agreement, for example on goods, services and trade, and also on related issues such as energy, transport and civil nuclear co-operation. However, as some noble Lords acknowledged, there are differences of principle in other areas. For example, we will, frankly, not make progress on the so-called level playing field and the governance provisions until the EU drops its insistence on imposing conditions on the UK which are not found in other trade agreements and which do not take account of the fact that we are an independent coastal state. We now need to move forward in a constructive fashion, and we look forward to negotiating constructively in the next round, which begins on 11 May.
A number of speakers touched on the question of extending the transition period. As I said in my opening speech, the Government’s policy on this remains unchanged—as a number of noble Lords asked that it should. Others asked that it should not, but it does remain unchanged. Our view is that extending the transition period would simply delay the moment at which we achieve what the British people asked for, namely economic and political independence of decision-making. It would prolong the negotiations and thereby also prolong uncertainty for businesses and citizens alike. As was pointed out in the debate, it would also mean making further payments into the EU budget.
The coronavirus crisis has demonstrated that nation states will take and use the freedoms afforded to them to make the best response to the conditions that appertain in their own nations at the right time and in the right way. That does not mean that international co-operation and exchange of opinion does not remain important.
The underlying theme of this debate has been that the coronavirus pandemic is the greatest challenge that we have faced in decades. It is certainly true that the changes that have come upon the Government—specifically, on the economy and the country—since the emergence of coronavirus have obviously meant a dramatic reappraisal and response to the conditions that were in place at the time of the first Spring Budget. I welcome the general support that there has been for the action that my right honourable friend the Chancellor of the Exchequer took in the early stages of this crisis.
The noble Baroness, Lady Kramer, made some good and reasonable points on the need to encourage innovation and support, and the importance of self-employed people. She also referred to perceived difficulties with the Coronavirus Business Interruption Loan Scheme. The House will have seen that the Chancellor of the Exchequer responded to that by introducing it for the smallest businesses. I agree with the noble Baroness and the noble Lord, Lord Birt, that the unique range, variety and difference of small businesses is something which is sometimes hard for us all to grasp. They are absolutely fundamental. My right honourable friend has responded with the bounce-back loan scheme which is already proving to be swifter and is responding very well to the demands of many small businesses. It is no source of apology or shame that, once an unprecedented measure is introduced—with the best of good will and with the aspiration that we will do whatever it takes to bring British business and the British people through this crisis—it is found in the course of events that improvements and modifications can be made to the scheme. The introduction of the bounce-back scheme is such a thing, and I can assure the House that the Chancellor and the Government will keep all eventualities under review as the crisis unfolds.
Engagement with business was referred to by a number of those who spoke. Of course, the Government are involved in intense discussion with business and the trade unions about the ongoing response to the coronavirus crisis. That will also be true, of course, in relation to the ending of the transition period at the end of the year. We recognise the challenges that businesses are facing in light of the Covid-19 pandemic, and we remain determined to stand behind them at all times throughout this critical period. We know and recognise that responding to the pandemic is the principal focus for many businesses right now, as it is for the Government, but we stand ready to engage with and support businesses on the required changes for the end of the transition period in the coming weeks and months.
Noble Lords—including the noble Lords, Lord Livermore and Lord Hain, and the noble Baroness, Lady Quin—asked about economic analysis. They rightly referred to many challenges facing the economy, and the fact that new assessments will need to be made in the weeks and months ahead. Indeed, that is why, in relation to European developments, we will in time want to stimulate and capture the widest possible range of analysis from economists, academics, businesses and civil society. As has been announced, we will in time be throwing open the question to the wider analytical community to help inform the Government and the country with the widest possible range of models, data and perspectives.
The noble Lord, Lord Tunnicliffe, who was kind enough to speak to me earlier, asked some specific questions about infrastructure, as did the noble Baroness, Lady Quin, and the noble Lord, Lord Purvis of Tweed. Capital and infrastructure investment is and remains vital. I referred in my opening speech to some of programmes that the noble Lord, Lord Tunnicliffe, referred to in his speech. The Government intend to set out further detail of our plans, as well as our longer-term ambitions, in the national infrastructure strategy and in the comprehensive spending review in due course, taking our response to Covid-19 into account.
I do not know whether this is a Gilbert and Sullivan debate—I am not sure whether I am Gilbert or Sullivan in this matter—but it is certainly taking place in exceptional, unprecedented and fast-moving circumstances in which, as a number of those who have spoken pointed out, many of the forecasts made before Covid was heard of vitally need to be reassessed. That is why it is difficult to give precise answers to a number of the points that have been raised, but, clearly, the Chancellor of the Exchequer is watching the situation and will come forward with proposals.
There are some difficulties with this virtual system, but I will deal with one or two detailed questions that were raised. On the fiscal rules, referred to by the noble Baroness, Lady Falkner, the Chancellor of the Exchequer will address that point in due course in the manner that I have described.
The noble Lord, Lord Shipley, and the noble Baroness, Lady Quin, referred to the north-east. The Government’s levelling-up proposals remain a core objective of the Boris Johnson Government and they will continue to dictate and guide policy, whatever the circumstances in the future.
The noble Lord, Lord Shipley, raised a couple of detailed points—or at least he commended some tax ideas, as did the noble Viscount, Lord Chandos. I cannot make promises or commit the Government to follow any of the proposals, but they will lie on the record and no doubt can be considered by those who follow our affairs.
As one speaker said—I think it was the noble Baroness, Lady Deech—stuff happens, and this is peculiarly unpleasant stuff. It has made the timing of this debate doubly odd. I am sure that my Treasury colleagues will not thank me for saying this, but I had great sympathy with the aspiration expressed in the debate that this great House, while it has no power in the matter of finance, should have the opportunity to debate from time to time economic forecasts and the economic position of this country. If this particular prop is disappearing into history, I am sure that it is something that the usual channels will consider in the months and years to come.
In March, the Chancellor delivered what was recognised by many at the time as a historic Budget. It responded to the unprecedented health and financial emergency that we face, but it also set out to reduce our budget, preserve fiscal flexibility and invest in Britain’s future. As we emerge out of the coronavirus crisis and, as the Prime Minister has said, we start to fire up the engines of our economy once again, our view is that the economy will come back stronger than ever.
With the transition period coming to an end on 31 December this year—whether we have a Canada-type deal or an Australia-type deal—we will aim to write a new chapter for the United Kingdom and, echoing what was said in the debate, I hope that we will be a country that is not only stronger but fairer, and being independent and sovereign will not stand against either of those objectives. That is the basis of the convergence programme that we will present to the European Union.
I am very grateful to those who have spoken in the debate and for the spirit in which they have done so. On this basis, I am pleased to commend the Motion to the House.