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 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.