Covid-19: Economy
(4 years, 6 months ago)
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Lord Eatwell
That the Virtual Proceedings do consider (1) the economic lessons learned from the COVID-19 pandemic, and (2) the measures necessary to repair the United Kingdom economy.
The Deputy Speaker (Lord Russell of Liverpool) (CB)
My Lords, Virtual Proceedings of the House will now resume. I remind Members that these proceedings are subject to parliamentary privilege and that what we say is available to the public both in Hansard and to those listening. I remind participating Members that their microphones will initially be set to mute and the broadcasting team will unmute their microphones shortly before we reach their place in the speakers’ list. Members may now need to accept an on-screen prompt to unmute their microphone. When Members have finished speaking, their microphone will again be set to mute.
The Virtual Proceedings on the Motion in the name of the noble Lord, Lord Eatwell, will now commence. This is a time-limited debate. The time is limited to three hours.
Lord Eatwell (Lab)
My Lords, to repair the UK economy, we must learn the lessons of the past dreadful months. The new normal cannot be the same as the old normal. We are today enduring the second major economic crisis in 12 years. The global financial crisis of 2008-9 saw UK income fall by 5% in one year, and the government deficit rise by £110 billion. In due course unemployment rose to 8%. This year the Bank of England expects GDP to fall by 14% in one year and the government deficit to rise by £250 billion. Unemployment will soar to 10% or more as the furlough scheme winds down; that is about 3.5 million people unemployed.
In 2008-9, thanks in no small part to the efforts of my noble friend Lord Darling, the financial system was stabilised, the decline in GDP was arrested and by the first half of 2010 the UK economy was growing at an annual rate of a little under 3%. We won the war; but we lost the peace. The coalition Government’s austerity budget of June 2010 killed the recovery stone dead.
The past 10 years have been the worst decade for the economy since the war. Productivity stagnated, real household income barely grew at all, inequality rose inexorably, local government and social services were starved of resources, and persistent underinvestment meant that the NHS had to take on the pandemic in a seriously weakened state. Now we are fighting a battle against Covid-19. Talk of a trade-off between beating the virus and boosting economic recovery is seriously mistaken. Without an effective lockdown or an effective “test and trace” system, the economy will not recover. With ineffective measures and many new cases every day, most people will stay at home. The idea of cash-strapped workers being forced back to work in unhealthy conditions is abhorrent. You cannot restart the economy without having the virus under control.
How, then, do we assess the cost of this disaster? The cost is not the £250 billion increase in the budget deficit. That is the financial consequence of government policy; it is not the economic cost to the British people. The real cost of the shutdown is the loss in real GDP, right now and in the medium-term future. It is the loss of the output of goods and services resulting from people being forced to stay at home, retail and hospitality being forced to close, airlines and factories falling idle, the collapse of companies that are vital parts of the supply chain, and so on.
A fall in output of 14% means that, on average, the income of every man, woman and child will go down by 14%. That is a cut of more than £4,500 in the disposable income of the average family this year. We all know that the cut will not be spread evenly, on average. Unless something is done, even greater costs will be borne by those who, through no fault of their own, have lost their jobs or lost their businesses—everyone whose source of income has disappeared. In these circumstances spending by the Government to sustain demand, support employment and enable firms to survive is not a cost to society at all. If the increase in the national debt reduces the loss of real GDP, that is an economic and social gain. It is not a cost; it is a benefit.
Of course, the Government’s financial measures will not be costless if they in turn have a reverse effect that leads to a reduction in GDP. Given the increase in national debt, the “deficit hawks” will demand a new austerity to pay for it all. They should be ignored. The deficit will fall steadily as production levels are restored. The debt-to-GDP ratio will likewise fall over the years ahead. Further austerity will just add to the terrible cost of the pandemic. Of greater concern is the likelihood of negative feedback from the financial services industry, enforcing bankruptcy, especially on small and medium-sized firms, and further depressing output.
Our financial sector places the highest premium on liquidity—on the ability to get its money back easily. Banking logic will be to foreclose on non-performing loans, forcing viable companies out of business. The measures that have been put in place by the Government to protect industry are a temporary band-aid. The loan schemes are loading up company balance sheets with debt. It is estimated that around half of them will default, deepening the recession. There is no path to recovery that is paved with bankruptcies.
As and when the economy does begin to recover, the Government will be faced with significant fiscal management challenges. It will need to relearn forgotten skills in managing tax-and-spend to secure the largest possible output and the flow of resources to where they are needed most. Carefully sustained demand pressure is needed to provide a profitable platform for reconstruction and recovery, and to leave space for the Bank of England to concentrate on the maintenance of financial stability. We must abandon the pretence that minimal interest rates and quantitative easing stimulate output. Instead, they wreck pension schemes, push up house prices and stimulate the Stock Exchange.
What have we learned about our economy and society in the past four months? We have learned that our NHS is not funded in a sustainable manner so that it can protect us. We have learned that our social care system is neglected, fragmented and underfunded. We have learned that the unemployment and benefits system is unable to safeguard livelihoods when incomes collapse unexpectedly, particularly for those in the gig economy or the self-employed. We have learned that malignant inequality is manifest not only in income, housing, and opportunity, but in death from the virus. We have learned that our system of government and politics fails to produce the co-operation needed to prepare us for the next crisis.
We have also learned the damaging consequences of current economic policies. Governments have steadily removed the regulations and norms that provide protection when the lifeblood of our society is threatened, whether that lifeblood is biological, environmental or economic. In the pursuit of short-term efficiency, we have created a world more easily prone to shocks, but with fewer buffers to cushion those shocks. Pandemics are today not just biological; they are economic and environmental too. In sum, we have learned that our economy and our society are not resilient. Resilience will require a new form of political economy.
Every company manager worth their salt has a disaster recovery plan prepared for his or her firm, but only the state can protect us against the consequences of systemic disasters. We learned that in the 2008 financial crisis, and we are learning it all over again today. We must begin by building resilient social services —notably, but not exclusively, the NHS and social care. That includes restoring the local public health system that has been disabled by the 60% cuts to local authority budgets in the past decade. The Government’s emergency grants cannot re-magic that sort of capacity overnight. No wonder it is proving so difficult to implement an effective test and trace system. Resilient social services will require well-trained, well-paid essential workers. Can the Minister explain why, when Britain was hit by the virus, the NHS was short of 50,000 nurses?
Ensuring a resilient labour force will require short-term and medium-term action. A recent report from the London School of Economics reveals that what it calls the “Covid generation” was already suffering falling real wages, fewer opportunities, and stagnant or declining living standards. Now that the crisis has drastically worsened economic and education inequality, young people are even less likely to climb the income ladder and less likely to fulfil their potential, regardless of their background. Are the Government prepared to introduce a job guarantee scheme for those facing long-term unemployment and catch-up tutoring for disadvantaged youngsters? The Bank of England is the backstop for the financial sector. Will the Minister tell us what will now be the employment backstop for Britain’s youth?
Rebuilding our economy will require a resilient financial system, by which I mean not just stable financial markets but a financial system that does its proper job in funding and supporting industry—supporting the production of the goods and services on which our standard of living depends.
All noble Lords will be painfully aware that the Government’s management of the pandemic compares very poorly with that of Germany. In Germany there have been around 7,500 deaths; in Britain there have been 50,000-plus. The economic comparisons are also disheartening. Similar amounts of government funds were provided in Britain and Germany to support small and medium-sized firms. In Germany the funds flowed readily; in Britain they did not. The reason was the superior German pipeline. The banking system there is accustomed to investing in industry, aided by public institutions. In the UK, the banking system proved once again that it is not up to the job.
What will the Government do to ensure that small and medium-sized industry can invest and grow, confident in the availability of the sustained, resilient financial support it needs? Does the Minister agree that what is needed at all levels of industry is not more debt but more equity? What principles would guide the Government to provide the equity support that British industry, large and small, desperately needs?
Of course, Britain is not alone in facing new economic challenges; the global health emergency is also a global economic emergency. Achieving a resilient Britain demands a resilient international trading system, but world trade is forecast to contract by 34% this year. The pandemic has exposed severe weaknesses in global production and trade, just as the crisis of 2008 exposed severe weaknesses in global financial markets. Countries are turning in on themselves. Facing a hostile United States, the WTO is falling apart, with its director-general resigning a year ahead of time. After the 2008 crisis, a massive international effort, led by Gordon Brown, put in place a regulatory system capable of stabilising international financial markets. How do the Government plan to rebuild Britain’s trading relationships in a more resilient manner?
Finally, we all must recognise that a resilient economy must be a sustainable economy. Just as the pandemic, serious though it is, is but a warning of other potential biological disasters to come, the floods of winter, the heatwaves of summer, the melting of the ice caps and the fires in Australia are but the warnings of environmental disasters to come. We are woefully unprepared. The pandemic is an alarm call—a warning that we must build a more resilient economy. That will not be easy to do or to sustain. Resilience will cost money, and the pressures of competitive markets and short-run economic efficiency will erode our commitment to prepare for the shocks that will occur, at some unknown date in the future.
We must forge a durable public and political consensus behind resilience, otherwise short-term economic priorities and electoral cycles will soon get in the way. As the emergency fades in the memory, the stocks of PPE will again be slowly whittled down, the NHS squeezed again, social care returned to being a national disgrace, local public health officials starved of resource and experts ignored, and inequality will be on the rise. This must not happen again. We must win the war, and this time we must win the peace.
Lord Horam (Con)
I think that there is a general acceptance that the Chancellor and the Treasury have risen to the challenge posed by the pandemic. I want to make two points.
At the moment, we are borrowing awesome amounts but it is not a unique situation. In 1950, as a result of our efforts in the Second World War, debt was 250% of GDP. That did not prevent Harold Macmillan building 300,000 houses a year in the mid-1950s or, in 1959, winning an election on the slogan “You’ve never had it so good”. In effect, the debt was quarantined—to use an apposite word—and was not repaid for another 60 years. We should do the same today.
There will come a time when tax rises are needed and, when it comes, I hope that we will devise a tax system that is fairer than the one we have at the moment—for example, with the taxation of capital gains and dividends as opposed to wages and salaries—but that point has not yet been reached. Indeed, I think that at the moment there is a case for tax reductions. For example, a temporary reduction in VAT to boost consumption should certainly be considered. I also think that we should relax the social distancing rules, as my noble friend Lord Lamont has suggested.
My final point is that I am very concerned about the post-industrial towns of the north, the Midlands, Wales, Scotland and Northern Ireland. I was born in one of them—Preston in Lancashire. They are proud towns with a proud history but they need help. I am referring to the levelling-up agenda, bringing them more skills and more infrastructure. Therefore, when the Minister winds up this debate, I want him, once again, to give a commitment that the levelling-up agenda will remain at the forefront of, and central to, our economic plans.
Lord Oates (LD)
My Lords, I am grateful to the noble Lord, Lord Eatwell, for the opportunity to debate the economic issues arising from Covid-19. I thank him for his excellent and powerful speech.
Sadly, through no fault of the noble Lord, for most of us this is a highly truncated opportunity in which we have just two minutes to attempt to discuss this enormous issue. This follows a debate on 30 April, when Peers were given one minute to debate the impact of Covid on people living in poverty. On12 May, we had just two minutes to discuss our future relationship with the European Union. Day after day, we have had similar speaking times which do not offer the slightest prospect of properly holding the Government to account. This is the dismal state at which the House of Lords has arrived. Despite repeated requests, 74 days after the lockdown began, the Government have failed to arrange a meaningful debate on the greatest crisis faced by this country since World War II. This is an astonishing state of affairs and, if we allow it to continue, the role of this House will be further diminished.
In the time that I have left, and on a more positive note, I welcome the early and decisive actions taken by the Chancellor to support the economy. Although there are some gaps in support, which my noble friends will highlight, his early action has undoubtedly made the lives of many better than they otherwise would have been. Nevertheless, the hardest part is likely to be in the next phase. It is estimated that between 1 million and 2 million people have already lost their jobs, and many more are likely to follow. In this context, will the Government urgently publish detailed plans for a job-rich economic recovery? In particular, can the Minister indicate if the Government intend to bring forward proposals for a nationwide programme to improve the energy efficiency of existing homes? This could provide tens of thousands of jobs and will be critical to meeting our net zero targets. Will the Government also look at urgent investment to accelerate research into cost-effective production of clean hydrogen, so that it can play an effective part in our decarbonisation plans?
This crisis reminds us how fragile is our control of the environment in which we live. We must use this timely reminder to inspire urgent and concrete action to tackle climate change and protect the future of generations to come.
Lord Harries of Pentregarth (CB)
My Lords, I do not believe that the economic lessons to be learned from this distressing time can be separated from wider social and moral issues. The economic health of the country depends significantly on the well-being of society. If people are feeling good about the society they live in, believe it to be fair and are proud to belong to it, this will feed into our economic policies and performance.
The most encouraging feature of this terrible time is the way in which key workers are being properly recognised and valued—first, of course, those in the NHS and in care homes, but also those who work in maintaining transport and other public services. We have experienced the essential nature of their work, but if its value is to be more than a clap once a week, it must take tangible and lasting form. Some in these sectors receive a reasonable reward for their work, but there are others who clearly do not. Care workers, for example, can be paid as little as £7 an hour. We have seen their devotion to duty in recent weeks: many have left their families to live with the residents of the home to cut down the risk of infection. The current national minimum wage is £8.75 an hour. However, the Living Wage Foundation calculates that a real living wage is £9.30 an hour, and £10.75 an hour in London. This is little enough for someone to live on and perhaps support a family. I believe that the Government should at least set a new benchmark of a real living wage, as opposed to simply a minimum wage.
Some inequalities in society are inevitable and may even be justified. What had eroded public confidence before the epidemic were the gross and growing inequalities, with some people receiving vast bonuses even when their companies were clearly failing. This undermines social solidarity. The well-being of a country depends significantly on people feeling confident that it is, in a rough and ready way, a fair one. We have heard that “we are all in it together” in combatting the virus. Let us have a future in which this is expressed in economic terms.
The Lord Bishop of Chelmsford
My Lords, I want to follow the noble Lord, Lord Harries, in speaking about vision. The word “economy” comes from two Greek words: “oikos”, meaning household, and “nomos”, meaning law. Its literal meaning is “the law of the household”. A good economy is meant to be like a well-run household, where things are shared fairly and where everyone is catered for according to their needs. In a family, it is unthinkable that some are fed while others go hungry. Moreover, each member gladly makes the sacrifices necessary to contribute to the whole. These ideas of a common good, belonging to each other and mutual responsibility were a unifying force in the post-war consensus that created the welfare state. They had their roots in Christian social teaching.
As has been said, our last crisis did not lead to such a vision. After the financial crash 12 years ago, the banks were bailed out with public money, but it was paid for by reducing public services. Now, correctly in my view, the Government are paying for citizens to be furloughed and for increased health measures, but we do not have the unifying vision which will help us rebuild our nation, nor the will to pay for it proportionately.
What can we learn from this crisis? First, we need something more than a safety net. A safety net is not a vision; it is a last resort. We need a vision for a society where everyone is raised up and where everyone recognises their responsibility to the whole, as in a household.
Covid-19 is not indiscriminate. It disproportionately affects the BAME community and the poor, it reduces opportunities for the young and it highlights deepening inequalities in our society. Wealthy people can work from home; poor people cannot. But Covid-19 is nothing compared with the environmental challenge the world faces. Simply getting the economy up and running in the next year might help balance the books, but it will be a disaster for the next generation. We need an economic reset that is based around the common good and the well-being of the planet: anything less will not be economical.
Lord Livermore (Lab)
My Lords, I thank my noble friend Lord Eatwell for securing this debate. I congratulate him on his wide-ranging opening speech. The Covid-19 pandemic has delivered a shock to economic activity, unprecedented in speed and severity. The OBR’s initial scenario sees GDP fall by 35% in the second quarter, unemployment rise by more than 2 million, government borrowing increase to £273 billion, and debt exceed 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 would fall this year by 10%, 20% or 24% respectively, with unemployment rising to 2 million, 5 million or over 7 million. Irrespective of how severe the coming recession turns out to be, this pandemic has exposed significant flaws in the UK economy. It has revealed deep inequalities, with the economic effects disproportionately experienced by the low paid and the young. It risks exacerbating them still further. Unemployment will be concentrated in the lowest-paid sectors. Those soon to leave school or to graduate will enter a very bleak labour market.
Addressing these inequalities will be key to building a stronger, fairer, post-crisis economy, with far greater resilience for the future. As we do so, we will need to see a radically different approach from that of the past decade, when we saw the slowest recovery for eight generations: living standards were undermined, public services weakened, and our welfare system underfunded. As the Government begin to restore fiscal sustainability, ensuring that the burden is borne fairly across society must be paramount. In the previous decade, while money was found to cut the top rate of tax, the poorest families had their incomes cut by more than 15%. As we repair our economy, we must learn the lessons of this crisis and of the past decade, so that we can build a new social contract, fit for the future.
Baroness Buscombe (Con)
My Lords, I thank the noble Lord, Lord Eatwell, for securing this debate. A key lesson to be learned is that we cannot just focus on “the science”. Our gateway to economic recovery is immediately to reduce the 2-metre distancing rule to 1 metre. We have just given the WHO another £75 million, while ignoring its 1-metre guideline. This is economic and cultural suicide. Nothing is viable unless we change this rule and take a proportionate, sensible and informed approach to risk.
The public sector has of course been largely untouched, with few job losses, pay cuts or furloughing. It is the private sector that has suffered, and it will take us to recovery through sheer hard work and taking risks. Luckily, many have found smart ways of continuing to function. Each day, people are turning to common sense. This is vital if we are to increase productivity and retain jobs. We must incentivise the private sector.
In that regard, I wholeheartedly support our Prime Minister’s pledge that, if China imposes its national security law upon Hong Kong, we shall change our immigration rules for the people of Hong Kong. We want the best and the brightest to come here, not least to help us to recover. However, this must be conditional. If we change our immigration rules, then as a matter of principle and respect for the private sector, which will probably bear the greatest fiscal burden going forward, we must also ensure that all those coming to reside in the UK pay the same levels of tax as the rest of us.
Will my noble friend the Minister therefore seek to clarify HMRC rules going forward to provide for equal treatment of UK taxpayers with all coming to reside here from Hong Kong and elsewhere in the world, so that they are treated as domiciled in the UK for inheritance tax, and as UK residents for income tax and capital gains tax? With respect, to fail in this now would be crass in the extreme.
Baroness Bowles of Berkhamsted (LD)
Pandemics, like wars, change the path of history. This one has not only put into focus where austerity went too far but also changed perception of the role of the state, both here and internationally. Already, there are serious and credible suggestions for a post-war type of investment, taking advantage of low or negative interest rates to invest faster and more than was envisaged pre-pandemic. We will not be the only ones doing this, which adds a competitiveness angle.
Strategic self-sufficiency should pay a greater part, bringing environmental benefit along with security. The pandemic has also taught us that personal space matters. Inadequate and high-density housing, over- crowded public transport and excessive commuting are all promoters of illness, lost productivity and social misery as well as spreaders in pandemics; this affects, and infects, everyone in the end, and so it must change.
More economic support for business will be necessary, but it must work in a distributed and reinforcing way. Last week, the FT reported that Rolls-Royce threatened to chop any supplier that cannot give it a 15% discount. The same article points out that big manufacturers demanding cuts from suppliers are simultaneously using their need to support the supply chain as one of their pleadings to Ministers. I hope that the Minister has spotted this hypocrisy, and that BEIS will make it clear that help is for sharing and that squeezing the pips out of supply chains, unreasonable discount demands and paying late will count against them.
Viscount Waverley (CB)
My Lords, achieving more with less should be the UK’s mantra, as well as not being overly reliant on ways of old, in order to counter recession and unemployment. Innovative digital platforms —in which I declare an interest—should be brought to the fore with particular emphasis on support for SMEs, which is where the greatest opportunities across all industries lie in opening new, or deepening existing, export markets. Supply and demand in emerging markets will be heavily competed for post Covid.
The emphasis should be on instilling a sense of transparency, in generating a team effort between the public and private sector and supporting networking organisations with possible mandatory membership to beef up multipliers, be it a chamber of commerce or trade association.
Our economy would be further protected by ensuring an across-the-board concerted effort to harness conducive official policy across all government departments in order to create the environment for operating to maximum national gain. Regional trade commissioners, the Prime Minister’s trade envoys and an agenda by the relevant bilateral APPGs must all play their role. These roles, including that of reviewing ambassador appointments, should be heavily scrutinised by Parliament.
Lord Darling of Roulanish (Lab)
My Lords, I start by referring the House to my interests as recorded in the register.
It is a pleasure to speak in this debate secured by the noble Lord, Lord Eatwell. I agree with everything that he said, particularly on the need to build resilience in this country and to point out that, at a time like this, the Government can do things that individuals and companies cannot do themselves—in particular, supporting the economy to get people back to work. That is what we did 10 years ago; that is why the economy started growing again in 2010.
I understand people’s concern about debt, but we have to look at it in the same way as we did in the aftermath of the Second World War. We will have to spend a lot of money to get our economy going and to preserve the fabric of our economy. We are now, in many ways, reaching the most difficult part of the economic policies that we need to look at. As the furlough schemes run out, I fear that unemployment will start to rise. The Government must do everything they can to stimulate the economy with things like cutting VAT, perhaps a scrappage scheme for cars and so on. All these measures and more will need to be addressed, as well as continuing support for companies, through grants and possibly taking equity or loans.
Critical to all this is to get the testing regime working. At the moment, the promises are not being met by reality. In far too many cases, delivery matters and the Government need to pay attention to that.
We must address the fact that people will lose their jobs as a result of this. We cannot allow ourselves to go back to the 1980s, when millions of people went on the dole queues and, frankly, many of them never came off. That scarred the whole country. That is why the Government now need to look at the measures they will take to retrain people, get people back into work and stimulate the economy, perhaps introducing measures that will help us to adjust to a lower-carbon economy.
The Government cannot just leave these things to chance; they need to act. It is very important that we concentrate on the delivery of these policies, because that will make the difference to whether we succeed in coming out of this in better shape than will otherwise be the case.
Lord Hunt of Wirral (Con)
My Lords, I declare my interests as set out in the register.
We have already learned brutal lessons from the pandemic. I have always been a one-nation politician, with a firm belief that we can realise our full potential as a nation only if we work together. But this crisis is putting our unity under tremendous strain. Many of the firms that are closed will never open again. Tens of thousands of them are, inevitably, heavily dependent upon physical interaction—as in a pub or restaurant, club or theatre.
Our theatres do so much to define who we are as a nation and as a society, so often giving a voice to those who are otherwise underrepresented or even not heard at all. They also contribute significantly to the economy, but in the months ahead they will need our help if they are to survive at all. I thank the noble Lord, Lord Kerslake, for having highlighted this key issue.
Even as we emerge from total lockdown, all employers will have to adapt, not only through social distancing but through improved ways of dealing with sickness and absence from work. This is a long-term challenge brought into sharp, short-term relief. I strongly commend to my noble friend the Minister the initiatives from GRiD, the Group Risk Development organisation, set up by the insurance sector to address these challenges.
Of course, free enterprise will have to be the principal driver of recovery, but it is none the less incumbent on all one-nation Conservatives to ensure that the public and private sectors now work together in partnership to build the necessary foundations for a stronger economy and a stronger society in the post-pandemic world.
Lord Chidgey (LD)
My Lords, since the start of the UK lockdown, the construction industry has been united in supporting the Government with advice and guidance assembled in a Green Paper for consultation. The paper identifies three phases: restart, after three months; reset, in the next year; and reinvent in 12 months- plus. Various construction industry sectors have been identified, including housing, social infrastructure and economic infrastructure, together with the bodies to take the work forward.
The UK Infrastructure Client Group, which includes all the major economic infrastructure clients, will lead the infrastructure strand of the reinvent programme. This work will be delivered by a secretariat provided by the Institution of Civil Engineers, in which I declare an interest as a fellow of that august body.
The Green Paper is the first stage and provides the vehicle on which to gather evidence. Realistically, the lockdown has had a major impact on the UK’s economy, with the potential for that impact to endure for many years, but it will also throw up opportunities to rationalise by making efficiencies and to implement measures that would have been brought in many years ago through a Keynesian need for economic stimulus to reboot the economy.
There will be a real temptation to turn the infrastructural lever in an unsophisticated way, but the overriding issue will be how we produce a plan that allows us to do both. In that regard, the Green Paper calls for evidence in several areas, including what other factors will determine attitudes to public life as we transition to a new normal. What other system changes driven by lessons from the lockdown can we expect to be important in the new normal? Are our assumptions of the new priorities for infrastructure correct and what other changes to infrastructure provision will be needed when based on those assumptions? Can we anticipate the Government’s response to these questions by 14 June, the date on which the consultation closes?
Lord Kerslake (CB)
My Lords, I declare my interest as the chair of Peabody and my other interests as listed in the register.
The need to respond to the health emergency of Covid-19 has created an economic emergency. We can see the impact of the first emergency clearly, but the full impact of the second is only just beginning to be felt. Hopes of a rapid V-shaped recovery now seem very optimistic. We can expect economic activity to fall sharply, unemployment to rise sharply and particular groups and places to be disproportionately affected.
Given the high costs so far, the natural instinct of the Treasury will be to seek to rein in spending. Like the noble Lord, Lord Eatwell, in his excellent speech, I strongly urge the Government to resist that temptation. In a period of huge uncertainty, private investment and consumer spending will fall and only the state can provide confidence. Huge uncovered financial losses in both the public and the private sector also need to be made good, not least the dire situation of local government. In short, a major stimulus package will be essential to get the economy going again.
As the noble Lord, Lord Hunt, said, I have focused much of my concern on the cultural sector, but in my remaining moments I want to focus on another issue—the contribution of the housing sector to economic recovery. A housing and employment taskforce has been created by the charity Communities that Work, of which I am a member. It has set out four asks: first, to set up a COBRA for jobs; secondly, to develop employment services; thirdly, to support innovation; and, fourthly, to support young people in order to prevent a pandemic generation. What does the Minister believe can be done in the circumstances that we now face and what is his response to that task force?
Baroness Warwick of Undercliffe (Lab)
My Lords, the Covid pandemic has revealed some crucial economic realities that have been ignored for too long. One of those is the inability of the construction industry to respond quickly when demand slumps. Yet construction, and in particular housebuilding, could be a vital engine of economic recovery from this crisis.
Home ownership is something that the Government have championed and it is what most people aspire to, but undoubtedly, at least in the short term, we face a big rise in unemployment and an imminent recession. It is unlikely that many people will be able to afford to buy a home. We need a massive increase in affordable housebuilding, which can deliver a fast-acting, broad- based economic and social stimulus. We know from past economic downturns that investment in social housebuilding is counter-cyclical, which means that government investment can buy a lot of development. This in turn will provide ongoing work for the construction sector and SMEs in difficult times.
The pandemic has increased the challenges we face in housing. This is not just in the nationwide homelessness that the Government have taken initial steps to redress, but in the very areas where they hope to encourage more equal access to prosperity. Significant investment in social housing is key: we must build more homes. For such a programme, long-term certainty is required. If the Government have the vision to commit to a 10-year affordable housing fund, they could secure a long-term and sustainable economic recovery. Housing associations are ambitious to play their part in this recovery. A longer-term investment programme would give them the stability and confidence to deliver a new generation of high-quality, accessible and greener affordable homes to rent and to buy while rebuilding our economy. Will the Minister commit to doing this in this year’s spending review?
Lord Smith of Finsbury (Non-Afl)
My Lords, I should remind the House of my interests as set out in the register.
I want to make two brief points. First, I endorse what the noble Lord, Lord Hunt, touched on. One of the most important parts of our economy and our national life is the cultural sector and the creative arts, but they have been hit fiercely by the pandemic and the lockdown. This is especially true for the performing arts—theatre, music, dance and opera—which rely on large audiences for their income. It will be months before they can open up again. They are, quite simply, bleeding to death, yet they are vital to our well-being, to our intellectual and emotional life, to our standing in the world and to our economy. The Arts Council has provided some emergency relief. Furloughing has assisted, but there is a desperate need for further help. I urge the Government to bring forward a package of emergency support, because it is so urgently needed.
My second point is simple and echoes what the noble Lord, Lord Eatwell, said in his excellent opening remarks. As we begin to recover from the pandemic and we look at the state of the economy and the deficit that will have been incurred, austerity is not the answer. It was not the answer in 2010 either, but it happened and it delayed our recovery for years. Growth will be what lifts us up again and the Government should remember that in every waking moment as we confront the recession that this pandemic has brought.
Baroness Fookes (Con)
My Lords, as I want to talk about the plight of horticulture, I must first declare my interest as the chairman of the All-Party Parliamentary Gardening and Horticulture Group. The closing of garden centres came at the worst possible time because it was the peak time for sales and for the growing of plants. That has had a terrible impact on garden centres and all the nurseries that supply them. On the other hand, we need to sustain a stronger sector, not a weaker one, if we are to grow more of our own and so avoid the pernicious impact of pests and diseases from imported plants. We also need to sustain the Government’s ambitious plans for the environment, in particular the tree-planting project.
Unfortunately, the government support that is available does not fit well with the needs of horticulture. I will not go into that because there is no time to do so, but I want to commend the principle of the Dutch Government of providing 70% compensation for lost sales. A similar scheme in this country would do an immense amount to aid our struggling nursery and horticulture sector. I know that the Horticultural Trades Association is in negotiation with Defra for a similar stock compensation scheme, but it fears that that will founder because the UK has signed up to the EU restrictions on state aid. Why, one wonders, were the Netherlands able to get away with it? They have done so simply by invoking Article 107(2)(b) of the Treaty on the Functioning of the European Union, which allows Governments to give aid free of any restrictions in exceptional circumstances. Why cannot this Government do the same?
Baroness Sheehan (LD)
My Lords, I thank the noble Lord, Lord Eatwell, for this opportunity to look to the future, while reflecting on the ease with which economies built on measuring GDP with zero regard for the well-being of people or the planet have been shown to have zero resilience to a pandemic that was foretold but not acted on.
The world faces warnings from scientists of an even greater cataclysmic event, that of climate chaos, and this time we must act. A report in the Oxford Review of Economic Policy last month showed that a massive green economic stimulus post Covid-19 will lead to stronger, faster growth while reducing emissions and protecting jobs. However, Governments must send the right signals to industrialists and investors, not mixed messages.
That brings me to my Private Member’s Bill, the Petroleum (Amendment) Bill. Quite simply, it seeks to address the legislative anomaly that currently exists. The Petroleum Act 1998 as amended by the Infrastructure Act 2015 confers a duty on the Government, through the Oil and Gas Authority, to maximise revenues from petroleum. The so-called MER strategy means pumping up fossil fuels as fast as possible. At the same time, the Climate Change Act and the Paris agreement commit the Government to a target of net zero emissions.
It is time to eliminate that policy incoherence. However, the OGA consultation on MER currently under way focuses on perpetuating a declining industry, fails to appreciate the urgency of the change needed and does not recognise the need to protect jobs. This is not leading us to a brighter future; it is looking backwards to a time pre Covid-19.
The Earl of Clancarty (CB)
My Lords, as the noble Lord, Lord Smith, has done, I want to talk about the creative economy, which, because of Covid, is now in the kind of financial trouble that the Government and the public do not yet fully grasp. The National Theatre, the Old Vic, the Young Vic, Shakespeare’s Globe, the Royal Shakespeare Company, the Royal Opera House, Sadler’s Wells and the Southbank Centre are among those under threat, and some of them could enter administration before the end of the year unless financial help is at hand. Nuffield Southampton Theatres already has, and other regional theatres and many other arts organisations, both large and small, may well follow.
We urgently need emergency funding on the scale that Germany provided for its arts and creative industries over two months ago. That package was worth €50 billion, in a country where the state bears a significantly greater burden of the funding. It is good that the Arts Council is providing some emergency funds, although they will not in any conceivable way cover the scale of the problem, and it is a diversion of funding that was intended for new projects.
One of the lessons that we should learn from this is that the greatest vulnerability lies in the commercial component. In the case of theatres, museums and live music, the loss of ticket revenue is disastrous, and many private museums are also under threat of closure—and we have to add to this the fact that our theatres and music venues are going to be among the last out of the lockdown.
I applaud the setting up of a cultural renewal task force, but that should not be a substitute for new emergency funding or an excuse for delaying such help. The task force needs to be a vehicle for the targeting of such funding. In that sense, music, the book trade and local government are among those that also need representation.
From our great theatres and dance companies to individual performers, including authors, musicians and comedians, in the last few months we have enjoyed on YouTube, radio and TikTok wonderful performances entirely for free from those who are currently earning nothing. It is time that we gave back in a big way.
Lord Layard (Lab)
My Lords, the huge danger that we face is mass long-term unemployment. Once that takes root, it is extremely difficult to reduce it. It kills the human spirit but also of course costs the Exchequer a lot of money. However, there is a well-tested way to prevent it, which is an active labour market policy. Instead of paying people money for doing nothing, we pay employers to employ them to do something useful. That is what we did for young people under 25 after the financial crisis. It was called the young person’s guarantee. Once these young people were long-term unemployed, their benefits ceased and instead they were offered a guarantee of work at the rate of the job for at least 25 hours a week for at least six months. The jobs were with regular employers, the state paid the basic wage and the employers had to compete for access to the workers on these terms by offering meaningful jobs, including training. When the programme was evaluated, it was found to have raised the employability of those who went on it by at least a quarter, and the net cost to the Exchequer was under half the gross cost.
The crisis that we now face is much greater than after the financial crash. It is a crisis that, as we know, was rightly and deliberately created by the Government, and I think that puts an especial responsibility on the Government to the victims of the slump that they have created. That responsibility has to extend this time to people of all ages, so we need more than a young person’s guarantee: we need a guarantee to workers of all ages that they will not be left to drift into long-term unemployment. For any worker approaching a year’s unemployment, there should be a job guarantee and we should then support people’s incomes only through work, not through inactivity. To find the jobs that we need, the state should pay the minimum wage for at least 25 hours a week for the first six months that an employer employs an at-risk person.
This is not pie in the sky; we have decades of experience of it. I ask the Minister to meet with some labour market experts to discuss what should be done this time around.
Lord Choudrey (Con)
My Lords, I refer noble Lords to my entry in the register of interests. Do the Government plan to extend the life insurance scheme to the SME sector, and specifically to black and minority ethnic individuals employed in the SME sector who have been defined as key workers but are not covered by the current scheme?
People from the BAME community make up 14% of the UK’s population, and this is expected to increase to 18% by 2021. There is a huge body of evidence to suggest that BAME workers are being disproportionately impacted by Covid-19. Many factors contribute to this, but one of the main ones is the nature of the work performed. They are overrepresented in sectors that the Government have allowed to remain open, such as food retail, healthcare and transport. For example, they make up 44% of NHS staff, 70% of the workforce in public administration and education and 26% of workers in the transport sector. Some of these professions are covered by the Government’s life insurance scheme but others are not. I personally feel that these members of the BAME community are playing an essential role in keeping the country moving and are going above and beyond the call of duty in providing essential services to their local community in these unprecedented times.
The Government have already categorised them as essential workers. It necessarily follows that the Government must have considered including some if not all of these groups in the Government’s own life insurance scheme. Is the Minister able to shed any light on what was considered and whether anything is currently being considered?
I believe that when we look back on this episode in the years to come, this is an area that will be under the microscope. If it is economically viable to undertake this, I am sure it will be well received.
Baroness McIntosh of Hudnall (Lab)
My Lords, like others, I want to highlight the plight of the live performing arts. In doing so, I declare my interest as deputy chair of the Royal Shakespeare Company.
As some parts of the creative industries prepare to come tentatively back to life—film and television and some museums and galleries—organisations whose income depends entirely on audiences being physically present in their theatres or concert halls are facing the reality of being unable to resume anything approaching normal levels of activity before next spring. Most have found ingenious ways of presenting their work online and many are contributing significantly to home-schooling resources.
Sadly, however, all this rich creativity does not pay the bills; only audiences buying tickets for live events do that, and there is no economically viable way to practice social distancing inside a live performance venue. As has already been said, some important organisations, such as the Nuffield theatre in Southampton, have already gone into administration. Many others may follow, as the furlough scheme and other government support is withdrawn.
It would be easy to imagine that, while sad, these potential losses are not economically significant. That would be a mistake. Figures for 2018 from UK Theatre show that audiences totalled 34 million that year and that ticket sales were £1.28 billion, and that is before all the ancillary businesses that depend on theatre, such as hotels and restaurants, et cetera, are counted in. For example, the RSC is the second-largest employer in Stratford-upon-Avon and is worth tens of millions of pounds every year to the local economy. Its current absence is keenly felt. UK theatre is also a hugely important export and contributor to UK soft power. Will the Minister impress upon his colleagues this sector’s urgent need for targeted help before it is too late?
This is personal for me: theatre and music have been my entire professional life. I cannot be dispassionate, and none of us should be. As the song says, “You don’t know what you’ve got till it’s gone”.
Lord Razzall (LD)
My Lords, it is now commonplace to agree with the evidence of the Chancellor to the House of Lords Economic Affairs Committee that we are facing a recession like no other we have seen before, and that it is not obvious that there will be an immediate economic bounceback. The facts are stark. As other noble Lords have said, currently, the Government are paying 80% of wages of employees on the furlough scheme, which has now been extended to October, and this covers 35% of private sector employees. With the addition of grants to the self-employed, this will have cost £100 billion by the end of October—more than the average forecast spending on defence and transport. As noble Lords have said, when the Government stop making these payments, serious redundancies are bound to follow, with the Bank of England forecasting unemployment rising to at least 10%.
What should the Government do? They were inundated with suggestions from leading economists, many of which have merit, and I shall highlight a few. Many of these proposals are technical. The first is to align the lower national insurance threshold with income tax at £240 per week, rather than, as now, £169 for an employer and £183 for an employee. The second is to create a fund to hold the bailout loans, to take them off banks’ balance sheets, as suggested by Howard Davies the other day. The third is to manage 10-year gilt yields down to close to 0%, to make it cheaper for the Government to borrow.
Some of these proposals will require alterations to the way our banking system works. To kick-start the housing market, borrowing rules for homebuyers could be relaxed. The Green Investment Bank could be reactivated to promote a significant increase in green technologies. Some proposals will require a significant change in direction by the Government. With the large erosion of opportunities for our young people, now is the time for a massive focus on further education and apprenticeships. There is a major need to focus capital expenditure on infrastructure investment.
It is absolutely clear that Keynes is back: this will be no time for austerity, otherwise we will see more lost jobs, more lost income and the familiar consequences of unemployment and poverty—poorer health, a crumbling infrastructure, and rising crime and xenophobia. And for heaven’s sake, let us extend the Brexit transition period while all this is being sorted out.
Baroness Ritchie of Downpatrick (Non-Afl)
My Lords, this pandemic has revealed the deep levels of poverty and inequality that are entrenched in many communities. Many of these existed prior to the pandemic but are now more acute. There have been greater levels of dependence on food banks for essential food provisions. Like the noble Lord, Lord Eatwell, I agree that most of this entrenchment has taken place since the period of austerity in 2010. Many people are now off work or out of work through furloughing. Some might not return to work if there are redundancies as a result of a deep depression. We need a review of economic and social welfare strategies, to reduce inequalities and ensure better levels of sustainability. There needs also to be action on climate, but I believe that this pandemic provides the Government, the Opposition and the wider community with the means to address these issues.
In Northern Ireland, tourism is one of our principal industries, and there has been an 80% drop in spend. Again, I turn to my old chestnut: will the Government consider, as part of a review of economic strategy, a drop in VAT for tourism products and the temporary abolition of air passenger duty to ensure that—subject to social distancing and all the other caveats—we get an increase in our numbers of visitors, who can then enjoy the level of tourism and the products that we have available? That would do much to enhance our local economy and ensure a reduction in inequality, and therefore sustain local employment. I ask the Minister to look at those issues.
Baroness Verma (Con)
My Lords, I join all noble Lords in thanking the noble Lord, Lord Eatwell, for securing this debate and I refer to my interests in the register.
People across the globe are coming to terms with a new normal. As our markets are so interconnected, it will remain in all our interests to ensure that we strengthen our partnerships, as well as building resilience in those areas that have been identified as needing much more internal investment.
The Government’s decision to put in measures to protect jobs and support businesses has been very welcome. They have received global recognition for the enormous intervention that the Treasury has made to ensure, as far as possible, that the economy stays afloat. However, in welcoming these measures, I know that the critical work will be over the next several months, as employers work to build consumer confidence and workplaces adjust to the new norms.
Businesses that I have helped to navigate access to the Government’s support packages are now asking for support to see them over the new challenges that they will inevitably face. Will my noble friend say what plans they are looking at in fiscal terms, especially for the SME sector, to cut back on immediate burdens? That could include possible VAT holidays or reducing the VAT burden. Does he agree that in order to reinvigorate many of our city and town centres, measures to give businesses rates holidays or other incentives, for at least nine to 12 months, will greatly assist in supporting smaller businesses?
Among the lessons we have learned is the importance of ensuring that we still maintain critical manufacturing in our country, including the obvious protective medical wear that we so desperately needed. My city of Leicester was once at the heart of manufacturing clothing, but factories lay closed, with more than 10,000 workers at home. Will my noble friend therefore look at how, in the future, local businesses can help to support government responses and be included in all contingency planning?
Lord Low of Dalston (CB)
My Lords, will rushing to lift the lockdown hasten or postpone recovery? The Prime Minister seems to have started to lift the lockdown more quickly than most scientists would have advised. No doubt the reasons are mixed, but strong pressure seems to have come from the Treasury, concerned about the costs of furloughing and other income support measures, and anxious to see an increase in tax receipts from increased economic activity. However, the belief that the sooner we lift lockdown, the sooner we will all get back to work, may well be misplaced. Infection and death rates are still high: the R value is not much below 1, and we do not have a fully functioning test, trace and isolate regime in place. The danger is that infection rates will start to rise again, and we will not have the testing capacity to track and suppress new outbreaks.
In the event of a second wave, lockdown may have to be reimposed—or in any case people will choose not to go back to work and be unwilling to go out and spend, and the recovery will stall. Premature unlocking could well thus cost the Treasury and business more, not less. Much better, then, to delay a precipitate lifting of the lockdown for a few weeks, which would be sufficient to get infection rates down and put in place a test, trace and isolate regime capable of tracking and suppressing new outbreaks. Of course, no one can be sure how the virus will respond to raising the lockdown, or how people will behave in the event of a second wave, but arguably the risks of a second wave and a long, delayed recovery greatly outweigh those of a more cautious lockdown that will buy time for infection and death rates to come down and for test, trace and isolate to kick in.
The other thing to highlight is, of course, the interplay between Covid and Brexit. The big risk is that, under cover of our preoccupation with the pandemic and its economic impact, the Government will squander the opportunity of a trade deal with the 27 and default to what the ERG have always wanted: no trade deal and WTO rules by the beginning of next year. This would of course be an act of wilful self-harm when we need to do everything possible to stimulate post-Covid recovery, a point well illustrated by this week’s reminder from Nissan that its Sunderland plant will be unsustainable in the absence of a trade deal.
Lord Mann (Non-Afl)
Two minutes today, a minute previously—not enough time is being spent debating the economic crisis emerging around us. I propose to the Minister and the Government that, as there will be no summer holidays, we should cancel immediately the Summer Recess and hold a virtual House of Lords throughout the summer to give proper and effective time to such critical debates.
There has been much talk today of resilience and growth, but if we simply go back to the economy that we had before—where, for example, manufactured car parts crossed the channel 30 or 40 times—it will not be either economically competitive and sustainable or environmentally sustainable. Neither do we want to move into the new economy that is emerging, where we are run by Amazon and Facebook, with the taxpayer, in effect, cross-subsidising the operations of both—Amazon’s facilities and Facebook’s expanding infrastructure—with neither paying proper taxes back into our economy. It is an economy where London is the motor, with the vast majority of those running the motor commuting into London. That is not an economy sustainable for the future, nor is one where we are not self-reliant for our energy and our food. We need an entirely different kind of economy, which will need changes in planning law and taxation to allow for home-working and international competitiveness. Let us also have people’s quantitative easing, with the Bank of England buying government debt so that the country can get on its economic feet again.
Baroness Doocey (LD)
My Lords, we urgently need to repair the tourist economy, not least because no region or nation of the UK has less than 100,000 tourism-related employees. The combined £34 billion spent every year in poorer, rural and seaside areas is a significant transfer of wealth from better-off, urban areas. The £20 billion that tourism contributes to rural economies is only slightly less than the £24 billion contribution from agriculture.
I want to highlight two issues. First, we can already meet outdoors with up to six people from different households, and non-essential shops and amusement arcades will soon open, increasing the level of contact. Yet the Government are not reopening caravan parks, where families who have been in the same bubbles throughout the pandemic can holiday safely. Caravans themselves have to be, by law, six metres apart, so they are well prepared for people to holiday while keeping away from other families. Why not allow caravan parks to open?
Secondly, self-catering holiday businesses are really suffering. Most are micro-businesses, but those that operate as limited companies have found that the family is not eligible for self-employed support, while those that are sole traders have been told by HMRC that their revenue is the product not of work, but of property investment. Yet HMRC’s own rules for furnished holiday lettings say that self-catering properties made available for at least 210 days a year and let for 105 days are classified as trading businesses. There is a complete mix-up here and the Government really must resolve this problem as soon as possible. I hope the Minister will address both issues when he responds.
Baroness Stroud (Con)
Given the two-minute time limit, I will restrict my remarks to one lesson from Covid only. It is always easier to say what one would have done differently with the benefit of hindsight, but, as we emerge from the last few months, it is imperative that we take a step back without playing the blame game. Our number one lesson from Covid must be that we need to better prepare for future pandemics, which we all fully anticipate will come. Never again should we find ourselves in a position where our only option appears to be to shut down our economy, with the impact of a fall in GDP of nearly 13%, a rise in unemployment of potentially up to 10% and a deficit predicted to be the largest since the Second World War.
If a three-month lockdown can produce this sort of economic damage, then surely our number one lesson has to be to ensure that an alternative approach is available to us in future pandemics, which we know may well happen. To achieve this, we need an effective test and trace system, we need to put a ring of steel around our most vulnerable people and, to that point, we need a world-class health system of sufficient scale that does not need protecting but is equipped to care for those who need the greatest support and care. Then, if we want to reduce community contact, we can say to people that if they are able to work from home and drive their businesses’ productivity then do so, but if they cannot then go into work, with cafes and restaurants ready to adapt to takeaway and delivery as a natural part of their crisis business planning.
Stopping economic activity should not be our lever of first resort—or our only lever. This is people’s livelihoods, and we should not tear down in a matter of months what has taken years to build. We need to start thinking now about future pandemics.
Lord Boateng (Lab)
My Lords, Covid presents a triple whammy to the UK’s economic prospects: supply, demand and finance have all taken a hit. We need a comprehensive, funded plan for all sectors as our response. I want to focus on skills and manufacture and the importance of equity in our response across regions and all demographic communities. We cannot leave any part of our country behind, as has been the case in recovery from previous downturns, nor can we allow existing patterns of disadvantage—as experienced, not least, by Britain’s black and ethnic minority communities—to continue. There is already some evidence to suggest that BAME applicants face continued disadvantage in accessing existing government schemes for Covid-related assistance. How is central government ensuring this is not the case? Will the Minister tell us what data is being collected and whether the Race Disparity Unit in the Cabinet Office is working with HMT on this? It needs to.
On the wider issue of manufacture, the lesson is surely that we need a strategic industrial policy that supports manufacture in the UK not only for our large global market leaders, which need to be supported with access to capital, but for small and medium-sized enterprises. Where, in the past, we have been content to outsource our orders for PPE, ventilators and other essential equipment to overseas suppliers, we now surely need an active interventionist policy to support our domestic industrial base. This needs to be backed up by procurement policy that actively favours our domestic suppliers where our national interest dictates that it should. We hear about the new freedoms outside the EU; this is an opportunity to demonstrate that.
We know too that there are regional/sectoral variations, which have to be addressed. We need to support local initiatives, with local employees and trade unions coming together with the LEP network to address these issues in order to meet local needs, supported by central government funding. We must also recognise that we need a funding entity that is prepared not simply to hold loans but to convert them if necessary into equity stakes.
Underpinning all this is Make UK’s call for a national skills taskforce, so we have a workforce that is equipped to face the challenges going forward, with well-paid, meaningful jobs that serve this country’s interests and protect us as we go forward into the future.
The Deputy Speaker (Lord Palmer of Childs Hill) (LD)
I remind noble Lords of the two-minute speaking limit.
Lord Shipley (LD)
My Lords, it was reported yesterday that the US economy will take 10 years to recover from the pandemic—that is according to US government analysts. We know that something similar is likely for the UK. Our economy is in a state of shock, and it is estimated that Covid-19 could reduce GDP by well over 10%. To make matters worse, the Government seem intent on risking a no-deal Brexit, which could result in a further 5% long-term reduction in the UK’s GDP.
We are suffering from an acute lack of leadership as the Government pretend that they can solve both problems at the same time. They cannot. It is dangerous to expect British companies trying to save and restore their businesses in the wake of the pandemic, which is not over, to cope with the additional complexities of a new trade agreement—or no agreement at all—which would need to be implemented at very short notice. The Government should request an extension to the 31 December transition period deadline.
On the impact of no deal, the Government should heed the warnings of Nissan, which is keen to continue car production in Sunderland. Its global chief operating officer said yesterday morning that if the company is
“not getting the current tariffs, the business will not be sustainable.”
That is what everybody has to understand. Can the Minister say whether the Government understand that?
We have learned a lot from the impact of the pandemic, not least that we are too reliant on global supply chains and need to be more self-sufficient. I am thinking of more local food production to reduce dependency on imports; the supply of energy, where major investment in renewables would boost the economy; and more local manufacturing in areas that have been traditionally been manufacturing centres. Achieving all this needs the Government to think in terms of places and how they can be helped to produce more.
Baroness Finlay of Llandaff (CB)
My Lords, health and the economy are interdependent. Essential to infection control is PPE, which we import at eye-watering cost. Gowns are the second-most-used piece of PPE, after gloves, in healthcare. Of the £6.6 billion in pandemic costs to health and social care, £4 billion has been allocated for PPE to the end of July 2020. Wales alone has spent £136 million on 90 million items of PPE to date. The UK is using 10% of the total global production of PPE, and that will not decrease. In March, the WHO warned that 89 million medical masks, 76 million examination gloves and 1.6 million pairs of goggles would be required worldwide monthly.
Until 2020, the race to the bottom on price made Hubei province in China the manufacturing centre of PPE, yet in January, China imported 20 million surgical masks and respirators in 24 hours. Exports fell and international scrambles for PPE resulted. Here, our 2008 flu preparedness stockpile contained no gowns or visors. Apparently, almost two-thirds—21 million—of vital FFP3-standard masks were missing.
We must become resilient in our core needs. Our university fabric research can develop fibres and design quality gowns with low micro-organism transmission potential that are recyclable and fit women properly. Our universities teach and develop 3D printing, yet we do not have the infrastructure and experience for visor manufacture and distribution at scale. We rely on China’s manufacture of melt-blown and spun-bond polypropylene, and other crucial components of PPE, yet these supply chains are remarkably brittle, and the worldwide market for personal protective equipment is expected to grow at over 6% in the next five years. Will our economic recovery and security involve moves towards self-sufficiency in high-quality reusable medical consumables, their sterilisation and quality control? It must.
Lord Risby (Con)
My Lords, for a number of years I have been chairman of the Small Business Bureau, which works closely with the cross-party Genesis Initiative, supported by 115 trade associations. This afternoon, I will look at the SME sector specifically, which, pre-coronavirus, provided 60% of employment in the UK in 5.82 million businesses, with a turnover of £2.2 trillion.
I bring to your Lordships’ attention one clear measure to boost SME recovery: clamping down on late payment, which remains a scourge inhibiting cash flow. Pay UK has reported that late payment to SMEs before Covid-19 had risen steeply to £23.4 billion—up £10.4 billion from £13 billion owed in 2018. According to the Government’s payment practices website, 59% of the UK’s largest businesses pay their suppliers more than 30 days after invoices have been submitted. Nearly half report that 25% or more of the invoices they receive are not paid according to the terms agreed. If invoice payments are speeded up, the injection of cash flow into the economy will be a great boost.
I am fully aware that successive Governments have genuinely tried to deal with this problem and to ensure that government departments follow good practice. Indeed, before the onset of Covid-19, the Small Business Commissioner had begun to name and shame late-payers. However, can my noble friend urgently pick up the cudgels on this and make it a clear objective of government policy, as we all try to encourage necessary liquidity to get ourselves out of this economic crisis?
Viscount Chandos (Lab)
I draw the attention of your Lordships to my entries in the register of interests. I am from the Zhou Enlai school of analysis in thinking that it is too early to make a considered judgment of the economic lessons to be learned from the Covid-19 pandemic. However, it is not too early to suggest a few likely strands.
First, multilateralism is better than going it alone, and the Government have shown in their approach to vaccine and drug development that they are capable of acting multilaterally. That lesson should guide our economic strategy too. Secondly, “Keynes rules OK”, as a 1970s graffiti artist might have written—perhaps it was the noble Lord, Lord Russell. The Chancellor’s constructive response to the crisis demonstrates how misguided the previous coalition and Conservative Governments were in pursuing the policy of wholesale public expenditure cuts—another lesson that must not be ignored in the years to come, or the recovery will be elusive.
Thirdly, just-in-time supply chain and inventory management is totally unsuitable for the NHS, whether or not it is an acceptable risk for commercial manufacturing. The economy needs greater redundancy in the engineering sense in order to lessen redundancies in the employment sense.
Finally, the catastrophe in the social care system and the broader exacerbation of inequality resulting from the pandemic point to the urgent need to improve the position of those on lower incomes. Wages and salaries have fallen from 70% of GDP in the 1970s to under 60% now. In an era of unprecedentedly low, risk-free interest rates, the providers of capital can afford to see a rebalancing of the returns, to be divided between themselves and the providers of labour. Employers, trade unions and government, through regulation, all have a role to play in achieving this.
Lord Hussain (LD)
My Lords, my hometown, Luton, has also taken a severe economic hit from Covid-19. This has resulted in a devastating projected shortfall of more than £49 million in Luton Borough Council’s finances this year. As a matter of fact, Luton is the second worst-hit town in England.
The leader and the chief executive of Luton Borough Council have written a letter to the Prime Minister regarding this, a copy of which was forwarded to me. The letter points out that part of the commercial income increase is income through Luton Borough Council’s ownership of London Luton Airport. Luton Borough Council has invested heavily over the last six years to enable the doubling of the size of the airport to 18 million passengers. Last year, the airport delivered to Her Majesty’s Treasury around £116 million in air passenger duty alone. Covid-19 is decimating, and will continue to decimate, passenger numbers, with the operator currently forecasting an annualised reduction of at least 66% in 2020-21. With passenger numbers catastrophically impacted, the council’s airport company, London Luton Airport Ltd, is no longer receiving air passenger income. That makes it impossible to pass on dividends to the council, which relies heavily on them to fund many vital front-line services.
That will mean an in-year revenue reduction for Luton Borough Council of around £40 million in 2020-21. Taking into account the forecasted reduction in business rates, council tax, rents and fees and charges, there will be a shortfall of working capital in the region of £50 million in 2020-21. This shortfall will have a devastating effect on delivering our much-needed statutory services that protect and support the residents of Luton. Luton Borough Council is therefore urgently seeking emergency revenue funding from the Government of £50 million for 2020-21 in addition to the welcome Covid-19 response funding. Will the Minister support with sympathy Luton’s application to bridge this financial gap as a special case?
Lord Bourne of Aberystwyth (Con)
My Lords, I thank the noble Lord, Lord Eatwell, for introducing the debate so powerfully and seeking to address the towering challenges of the age. Like other noble Lords, I recognise the praiseworthy, decisive early action of the Chancellor, Rishi Sunak. Like my noble friend Lord Hunt of Wirral, I think that we need to move forward together, as one nation. In the limited time that I have, I will suggest some areas of action to my noble friend the Minister. I would be grateful for his comments and, hopefully, endorsement.
On education, many individuals, particularly those in deprived areas, have lost out on tuition. We need to make good the lost chances of youth. That is an area for action. Where redundancies have caused the loss of apprenticeships, people need a real chance to get a new role. The Government should move quickly towards an increase in online provision to build on the expertise of the Open University and other higher education institutions.
Green investment along with government money seems an obvious way to tackle decarbonisation, provide a green stimulus, provide jobs and provide government activity, building on COP 26 next year in Glasgow. That is important. We should use our G7 presidency similarly. Investment in housing is also needed to provide jobs and homes. As other noble Lords have done, I lend my support to strong action to protect our valuable cultural sector, which is vital to our national life, vital for jobs and vital for social and economic reasons. I hope that the Minister will endorse these areas in his response.
Lord Davies of Stamford (Lab)
My Lords, the first thing that we need to do in a situation of this kind is to make sure that we do not deceive ourselves about the reality that we face. This recession will be twice as deep as the one in 2008-09, which followed the collapse of Lehman Brothers, and I think that it will go on for a great deal longer, quite simply because a high proportion of our fellow citizens have lost earnings, jobs, businesses and capital. Their great concern for a number of years will be trying to build up again their savings and net worth, of which they have felt reasonably secure in the past. That means that consumption spending will be very restrained. I am afraid that it is unrealistic to expect the state simply to step in and replace that.
Even as we have this debate, we are passing the grim milestone of a public debt to GDP ratio of 100%. Earlier in the debate, the noble Lords, Lord Horam and Lord Darling, reminded us that we had even higher levels of debt after the Second World War. What they did not mention is that we got out of that through inflation in the 1950s, the 1960s and, in particular, the 1970s. I do not think that they are recommending that solution this time, but that was how we managed to erode the value of that debt. If we had not run it through inflation, I am not sure how we would have done so.
We also have the problem that general taxation—that is, if we increase taxes while deep in recession—will make the situation worse. That makes life difficult. We also have a troubling background of a failure of productivity in this country, which makes our economy’s long-term prospects not very rosy.
This is, therefore, a time for radical suggestions. Let me make two. The Bank of England should start to reissue consols, which were once the basis of public sector funding. Now is the time to do that, while interest rates are low. Secondly, now is the time to take the National Health Service out of the structure of public spending and taxation. We need to spend more money on the health service, not less, and we cannot do that if it is constrained in the straitjacket of public spending policy. We should do what the continentals have done. We should set up a national commission or, like the Germans, we should have non-profit-making health insurance companies fund it. Money would still need to be raised but it would be a health insurance premium, not a tax.
Baroness Bull (CB)
My Lords, the UK’s creative industries are a major economic asset: before Covid hit, they were generating more than £111 billion in GVA, growing at five times the rate of the UK economy, employing more than 2 million people and adding jobs at over three times the rate of the national average.
As other noble Lords have highlighted, this pandemic has demonstrated the sector’s value beyond the economic, with arts, culture and creativity sustaining and connecting us, giving us reasons to hope and supporting mental health and well-being. This is despite the sector being among those most affected by the pandemic. An ONS survey found that just 17% of arts and entertainment businesses were still operating, 42% of creative organisations say that income has dried up completely and 63% predict annual turnover will be cut by half by the end of the year. In line with the broader UK economy, 95% of creative enterprises are SMEs with fewer than nine employees. Studies have found that these microbusinesses are particularly vulnerable to the negative effects of this crisis.
The creative economy faces a specific challenge, in that a third of its workforce is self-employed, compared to 15% of the economy overall. Many operate as limited companies, taking taxable dividends alongside a small salary. This renders them ineligible for both the SEISS and the job retention scheme, despite losing 100% of their contracts overnight.
Creative, cultural and entertainment businesses face significant challenges to economic recovery, with the workforce decimated and income streams closed down. The sector will be among the last to come out of lockdown, given the impossibility of operating fully while social distancing is in place. Brexit and the loss of EU funding pots present additional challenges on the looming horizon. Can the Minister say when and how the UK shared prosperity fund will be allocated, given its role in replacing EU structural funds, which have been so vital to the infrastructure and local growth of the creative industries? Can he also say what the Government are doing to provide urgent support, tailored to the needs of the creative industries, so that they can be swiftly restored as a major driver of the UK’s cultural, social and economic success?
Baroness Penn (Con)
My Lords, I remind noble Lords of the time-limited nature of this debate and the limit for Back-Bench contributions at two minutes to allow the Minister to give the fullest possible response.
Lord Lamont of Lerwick (Con)
My Lords, I am not sure that the public are prepared for what we are about to face. Today’s headlines are about deaths and infections. In five months’ time they will all be about soaring unemployment, a shrunken economy and sky-scraping debt. This is not a typical recession caused by overheating, a rise in interest rates or the economic cycle. It is caused by the correct response of the Government to a pandemic which has led them to an administered freezing-down of parts of the economy. However, you cannot just put firms, which have overheads and costs, into deep freeze and expect them to emerge healthily later. When the restrictions are lifted, some companies will have been bankrupted, others will have become more indebted, and there will be less confidence and consumer spending.
I accept that deficits and a higher debt-to-GDP ratio will have to be accommodated for a period. We are fortunate that interest rates are low and in some cases negative, but this is not without risks. There could be a rise in real interest or a period of deflation, making debt more expensive. When politicians plead to support the economy, too often they mean only spending money. Spending money will happen, but it is not the only solution. Imposing restrictions has caused part of the economic challenge we face. Lifting those restrictions ought to be part of the solution as well.
To my mind, the single most important measure could be to take the two-metre rule down to 1.5 metres and look to abolish it in the longer term. I do not suggest going against the scientific advice, but the scientists should explain to us why we are different from other countries. The hospitality industry employs 3.2 million people. If we could get only some relief for it, that would save many jobs from going under. This is one simple thing that could be done to help the situation improve before it gets worse. It is an agonisingly difficult situation, but the sooner it is faced up to, the better.
Baroness Whitaker (Lab)
My Lords, I have three questions for the Minister about the measures we need to adopt. They go beyond the consequences of Covid-19 to use the opportunities it offers. First and most importantly, how will Her Majesty’s Government direct their economic advisers to address the climate emergency? How will they get to the position that all economic analysts model and forecast through the prism of mitigation of or adaptation to climate change? How can we bring in externalities from outside?
Secondly, how will economic analysis be framed to prioritise well-being? I follow the authors of The Spirit Level in asking economists to pay more attention to non-monetary elements of inequality, such as health, social problems and access to amenities, in the economy. They demonstrate that equality is conducive to a thriving economy. To those who say that some public goods cannot be priced and are outside the province of economics—literally invaluable—I point out that there have been ways of considering how we should compute values outside the cash economy at least since Mandeville’s The Fable of the Bees in 1723.
Thirdly, how will the Government ensure that citizens are party to economic environmental decisions? In this connection, will the Government now join the 88 nations which have ratified the Aarhus convention, which our former membership of the EU entitles us to do? We have experienced a high degree of public mistrust in political action. We need to repair this democratic deficit.
How should economic approaches adapt to the new world we shall find ourselves in so that we can use the opportunity to make it better?
Baroness Morgan of Cotes (Con)
My Lords, I have three points to raise. The first is about support for the cultural and creative industries, but that has already been very articulately outlined by noble Lords on all sides during this debate. I look forward to the Minister’s response on that matter. Of course we all want to restore our economy, but our cultural and creative sectors make our lives worth living. They are an important part of restoring our enjoyment in this country as much as of restoring the wider economy.
Secondly, as has already been outlined by noble Lords, a significant amount of debt will be owed by businesses and individuals. However, 9 million people in the UK were already estimated to be overindebted before this crisis started. I hope the Government will think very carefully about the ways in which they will recover debt. I draw noble Lords’ attention to the recent Centre for Social Justice report Collecting Dust, which advocates a debt management Bill. There have also been suggestions for ways in which government can collect its own debt, particularly local government collecting council tax. I think there will be campaigns to make sure that the letters sent to people who owe money under the Consumer Credit Act are reworded not to be overly ambitious in their enforcement.
My third point is on business rates and fiscal events. I praise the Government for their response in supporting jobs and SMEs in particular during this crisis, but the fact that one of the first things that had to be done was to suspend business rates for retail, hospitality and leisure businesses confirms yet again that the business rates system in this country is broken and unaffordable. If we want to build back better as a country, this is the time to look at this system once and for all to make sure that it is reformed so that it is affordable for businesses in future.
Lord Goddard of Stockport (LD)
According to the Institution of Civil Engineers, the construction industry is set to play a key role in restarting the economy and helping the nation recover from the impact of the crisis. If it is to facilitate these efforts, the Government need to help it weather the storm.
Jobs are coming under threat as the UK braces for a global recession due to Covid-19. In a year or so, with workloads significantly down, there will be a need to preserve skills to prevent future skills gaps and shortages in the industry. Socially valuable projects that are labour-intensive—particularly repair, maintenance and improvement work—will provide a stable pipeline of work while keeping people employed and creating a built environment fit for the future.
The noble Lord, Lord Bourne of Aberystwyth, made the point about apprentices. Would the Government consider suspending the apprenticeship levy indefinitely to provide immediate financial relief to construction employers, and implementing an apprenticeship guarantee?
Previously, there has been a tendency for the Government to focus on large-scale engineering projects that garner public attention but do not support large amounts of labour or a stable pipeline of work for the industry. In planning for future construction, would the Government recommend putting forward long-term, socially valuable projects that are labour intensive or keep more people in work? For instance, the energy performance of the UK’s existing housing stock must be improved if we are to achieve our long-term emissions targets.
The enhancement of UK housing stock to improve its energy efficiency would be a socially valuable project that would maintain and sustain employment. This type of work is intensive and equally spread geographically, making it an ideal project for employing the construction sector, supporting regional growth and getting the economy moving. I recognise that this is a complex task, but it would really reduce strain on the labour market and supply.
Baroness Boycott (CB)
My Lords, this is a once-in-a-lifetime chance for us to rebuild our economic future. Climate change carries on regardless of pandemics, with fires in Australia and California, rising sea levels, droughts and Arctic temperatures hitting over 20 degrees. Climate change is not a danger to come but a current danger, and if Covid has taught us anything it is that something that happens in one corner of the world can and will affect us all. Here in the UK we are largely sheltered, but even our temperate weather is changing. Just yesterday your Lordships’ House agreed on an SI to help our farmers struggling from too much rain and then too much sun.
This is our second chance to reset. The first, in 2008, was spectacularly squandered. Vast amounts of public money were spent reassembling an old economy of oil and gas; it ensured that the wealth remained in the hands of the rich. Anti-trust laws remain weak and, like weak trade laws, they allow climate-damaging businesses to flourish at the expense of us all. Additionally, the social inequalities deeply embedded in our society have been laid bare by this pandemic.
We need to decide who we support when we come out of lockdown. Do we support the fossil fuels and airlines or a more sustainable world? There is no realistic way to make air travel carbon neutral and we cannot make the fossil fuel industry pleasant to our environment, but we have choices. Green technology is standing by, ready and waiting; in many places it is already cheaper. We could travel, use our land and eat and consume in different ways. Plenty of these jobs are tailor-made for the young.
It sounds drastic, but this year we will have dropped our emissions by 5.5%, whereas we need to drop by 7.6%—but every survey I read says that people want change, and it should be for the Government to support them in this change and lead them forward to a better future. If we go backwards now, it will be completely right that our children and grandchildren should despise us.
Lord Haskel (Lab)
Noble Lords are right: the pandemic has clearly shown how the economy does not work for everyone and lacks resilience. Take the resilience of care homes. The largest group has a complex offshore ownership that receives excessive related-party payments, resulting in a debt level of £56,000 per resident. With the declining occupancy due to excess deaths, they are looking for rescue. Empty beds do not pay interest.
Similarly, as a result of non-payments and their excessive debt, some cut-price electricity suppliers have raised the possibility of groups of customers being cut off unless the regulator steps in with money. Their lack of resilience is a danger to us all.
I do not know what the Government are going to do, but as a condition will they introduce and accelerate a new industrial strategy to help deal with this—one based on purpose? I put it to the Minister that the Government would be pushing at an open door. Before the pandemic this idea was well developed, with institutions as diverse as BlackRock and the Local Authority Pension Fund Forum calling for it. We need a purpose that calls on companies to behave responsibly in employment, investment, risk, environment, taxation, training and research.
Will the Government use this opportunity to remove the risks I spoke of and stimulate a more purposeful economy that would create the fairer and more equal economy that many noble Lords have called for?
Lord Lang of Monkton (Con)
My Lords, I declare my interests as per the register. My right honourable friend the Chancellor is surely right to stress the urgency of getting his recovery plans under way as quickly as possible, as lockdown gradually becomes unlocked. He has a major challenge as he seeks to balance between borrowing, spending and taxation while retaining confidence in the stability of the public finances and seeking to liberate private enterprise.
It will be a rough ride. Business needs confidence to invest; we would prefer certainty. It is hard to guarantee that in the present circumstances, but one way in which the Government can help is by standing firmly behind their commitments to conclude Brexit by the end of this year. The pressure to extend negotiations for two more years with the Barnier blockade—incidentally, costing many billions of pounds or euros—must be resisted. We would like a good deal but, more than that, we need finality. We have already left the European Union, whose share of world trade has fallen from around 40% when we joined to around 15% now. Europe is the slowest-growing continent in the world. We cannot accept continued servitude to regulations. We should have no part in trade deals, continued membership of the common fisheries policy or the outreach of the European Court of Justice. That could mean leaving without a deal—not the best outcome, but one that could quickly be built on.
Anyway, WTO rules are very familiar to many, as most of our foreign trade is conducted in this way. Tariffs are low and falling, and I was glad to see my former department produce a commendable new UK global tariff, under which more than 60% of incoming goods will be zero rated. It is regulations and euro-bureaucracy, not tariffs, that damage trade.
Of course, the EU countries will remain important markets to us, and we to them, but we must also focus more urgently on the global scene. With trade deals with the US and Japan already in negotiation and membership of the Trans-Pacific Partnership beckoning, overseas trade is one of our routes to recovery post Covid-19.
Lord Empey (UUP)
My Lords, a number of colleagues have mentioned housing. However, there is a perverse government policy with regard to the application of VAT that applies in the housing market. It is environmentally and in many other ways more economic to encourage the development of social and other housing on brownfield sites where existing infrastructure is already in place. However, the way the VAT system works is that we incentivise people to build on greenfield sites, which is counterintuitive.
I have raised this issue in the past, and the Treasury’s argument has been that there would be refurbishments and renewals of brownfield properties, and therefore that there would be dead weight if the VAT were reduced or removed on brownfield work and refurbishments. However, we are in a new era now, and I believe the Treasury should revisit this. Removing that cost in redevelopment of brownfield sites, for commercial and particularly housing projects, could be a stimulus but would also help solve the housing problem, which is at the core of poverty and so many social and other issues.
Will the Minister examine the possibility of using the VAT system to encourage the redevelopment and refurbishment of properties on brownfield sites and not give an incentive to people to build on greenfield sites?
Lord Hendy (Lab)
My Lords, I thank my noble friend Lord Eatwell for this debate and his superb opening speech. The Covid crisis has revealed the wholesale failure of workplace law to protect workers. The plain and unambiguous requirements of the Control of Substances Hazardous to Health Regulations 2002 and the Personal Protective Equipment at Work Regulations 1992 have been flouted by many employers, not just in the NHS and this week in the House of Commons. The failure to enforce these laws is a disgrace and a tragedy. It is an affront to the rule of law.
Labour laws have also failed to ensure a decent income. We now realise how appallingly paid are our key workers, doctors excepted. The laws that should protect, do not. The gender pay gap remains at 17.3%. Some 25% of those entitled to the minimum wage are paid less than it. Statutory sick pay is a mere £95.85 a week. The wage share of GDP has fallen from 65.1% in 1976 to 49.2% in 2019. Some 9 million people live in poverty in a household in which at least one person is in paid work. Sir Michael Marmot reminded us that inequality of income means inequality of health and life expectancy. This week’s Public Health England report brings that fact starkly home in relation to coronavirus.
We need a whole new transformation of our labour laws, in which the voice of the workers must be heard. Above all, we need the reinstitution of sectoral collective bargaining, which was the way out of the crises after the First World War, the great depression and the Second World War.
Lord Lilley (Con)
My Lords, it is not clear how much lockdown has helped to control the pandemic, but it is absolutely certain that it has created the worst recession in 300 years. Unlike most previous recessions, this is the result of the suppression of output and not a collapse of demand. Indeed, there is substantial pent-up demand, so the remedy is not primarily Keynesian pump-priming. It is, first, to release the lockdown as speedily as possible to enable viable businesses to recover and resume production. Most important is the reduction of the social distancing rule from two metres to one metre and scrapping the absurd plans to quarantine all tourists, without which the hospitality and travel industries cannot survive.
However, not all businesses will be viable once the lockdown ends if the pattern of demand has changed permanently, so the second priority is to encourage and facilitate the growth of new businesses and expansion of existing firms. The most effective ways to do that are tax cuts designed to bring forward activity—for example, by increasing capital allowances so that instead of taxing companies when they invest, we do not tax them until their investments generate profits. There should also be time-limited cuts, so that companies have an incentive to invest and produce sooner rather than later.
Equally important is speeding up regulatory decision-making, without lowering standards, to enable businesses to go ahead with new projects. The key lesson of the pandemic has been that state regulatory bodies, which normally take months or years to reach decisions, can, under intense public and political pressure, take decisions in days or weeks instead of months and years. Wherever possible, regulators should be given tight deadlines to reach decisions and if they do not do so in time would be deemed to have given consent. Then businesses can get out and invest to bring an end to this recession.
Lord Fox (LD)
My Lords, I declare my interests as set out in the register. Today’s debate is timely and the noble Lord, Lord Eatwell, should be congratulated on securing it. Your Lordships’ contributions make it a difficult job to wind up this debate. The backdrop against which it is conducted is one of darkening economic storms. The Institute for Public Policy Research today issued a report predicting that greater than 1 million people will be “plunged into poverty” by the end of the year; included in that are some 200,000 children. This debate is a chance to tease out the Treasury’s thinking on the next steps, and those beyond, for our economy. I hope the Minister will be forthcoming.
First, looking back, noble Lords have mentioned Germany, which is held by many to have tackled the virus very well. What factors contributed to its relative success? We all know that Germany has a strong industrial base as a result of decades of public policy. Yet I believe I heard comments from the government podium implying that the Germans were somehow fortunate to have the private companies they needed to lead their testing programme. Countries make this kind of luck. Germany also has a well-organised regional administrative capacity through which to deliver its virus defence and recovery programme. This stands in contrast to the UK approach, not least on testing and our nascent plans for tracing.
The evidence shows that we are a country where public policy has for decades undermined our industrial capacity, and one with an uncontrollable urge to overcentralise. This is a country where local government has been drained of finance, belittled and undermined, and where the regions and nations are often ignored by Westminster. These chickens came home to roost during this crisis. Unless and until the Government undertake to sustain a meaningful industrial strategy, and do it in a devolved way, any economic recovery efforts will be severely hamstrung. Sadly, it is often the Treasury which is portrayed as an overwhelming influence against these two things. Can the Minister undertake to call off the centralising urges of the Treasury?
We have heard that there will be millions of jobs on the line. Today, Make UK, which represents 20,000 businesses, has told a Select Committee in the Commons that one in four manufacturing firms plan to cut jobs. For example in aerospace, Rolls-Royce announced 3,000 UK redundancies this week, with, of course, a knock-on effect to the supply chain. Elsewhere, today’s IHS Markit survey says that some 64% of building firms reported a drop in construction activity during May. Car showrooms have recently reopened but, not surprisingly, UK car production is down by about 99%.
However, some of the sectors that are suffering worst are made up of myriad SMEs. These include the hospitality, tourism, arts and creative sectors, as set out by my noble friend Lady Doocey and many others in their speeches. SMEs across the country—across the whole economy—are also the drivers of growth, while being key entry places for new people coming into work. For many of these businesses, further loans will not be the answer. The noble Lord, Lord Eatwell, is right to highlight the liquidity trap facing such businesses. Loading them up with debt will cause them to fail. The EU seems to be moving towards a grants system, so, in addition to the question of the noble Lord, Lord Eatwell, on possible equity injections, can the Minister tell your Lordships what the Government’s position is on grants—not just to public organisations, as noble Lords set out, but to private sector organisations?
The noble Lord, Lord Kerslake, and the noble Baroness, Lady Warwick of Undercliffe, spoke about stimulus programmes and focused on housing. Others not in this debate may be pinning their hopes on a consumer-led recovery. The German Government have agreed to a €130 billion fiscal stimulus, centred on a big cut in VAT. They also plan a €300 one-off children’s bonus payment. The aim of their package is to stimulate consumer demand, but given that we make so much less than the Germans a consumer-led recovery here is more likely to benefit Amazon than the UK economy. I would like to tease out from the Minister what the plans are for investing in a recovery. My noble friend Lord Razzall made a raft of suggestions, which I will not repeat, but can the Minister set out how the Treasury is approaching this issue?
The noble and right reverend Lord, Lord Harries, talked about social solidarity and was right to do so. It is extremely unfortunate that even some of those people retaining their jobs are doing so at the expense of having worse contracts than they had before the virus. Within that, we will almost certainly see an upsurge in the number of gig workers. During the crisis, many of us have been sustained by the services of today’s gig workers. The noble Lord, Lord Hendy, rightly pointed out that many of them are employed on very disadvantageous terms. To discourage this race to the bottom, Her Majesty’s Government need to send a message now. One way to start doing that is by implementing the Taylor review of modern working practices. Protection of gig workers and the implementation of decent conditions should now be a priority. The Taylor report contains a range of improvements that the Government have said they accept, yet it is gathering dust. Can the Minister undertake to talk to colleagues about implementing the Taylor review, and to come back to your Lordships’ House and report on his discussion?
Finally, there is our trading position in the world. The EU negotiations seem mired; indeed, the Bank of England is preparing for no deal. The US free trade agreement will lead to nothing before elections there. The Japanese negotiations may yield something sooner, and perhaps a fraction better than the deal we currently have under the EU’s umbrella. At the very best assumption, an EU-Canadian type of free trade agreement, which looks unlikely, would mean at least 5% of GDP being cut. Even if the noble Lord, Lord Lang, gets his dream deals with the US and Japan, those will struggle to recover as much as 1% of the GDP that we have lost. This is all on top of a double-digit hit on GDP from Covid-19.
I am not calling to cancel Brexit—we have left the EU—but for any Government to allow the full effects of a no-deal Brexit on top of the economic shock of Covid is careless with people’s lives and prospects. As the noble Lord, Lord Low, and my noble friend Lord Shipley highlighted, there needs to be an extension to the transition period of two years to allow the Covid-19 pandemic to be managed strategically and carefully. Does the Minister agree that it is far more sensible to give ourselves time to get the best possible trading arrangements with the EU and other third countries before we shut the door on our favourable deal with the rest of Europe?
Briefly returning to industrial strategy, I fully endorse the comments of my noble friends Lord Oates and Lady Sheehan and others such as the noble Baroness, Lady Boycott. We must set out for a green, jobs-led recovery which also seeks the strategic self-sufficiency that my noble friend Lady Bowles mentioned. For a green, jobs-led economic strategy to work, it has to be consistent over many Parliaments. I know that the noble Lord, Lord Stevenson, who will speak after me, is enthusiastic in this regard and that he is a reasonable person, as we are on these Benches. There needs to be a cross-party agreement on the way forward to lock this into the future. Will the Minister go back to his colleagues and propose a cross-party approach to planning for this vital element of our future?
Using most conventional measures, the economy is at least overstretched if not bust. We will have many millions more unemployed people and still more underemployed people, and few jobs for young people. The most vulnerable will be hit hardest. Meanwhile, the climate emergency is accelerating, China and the US are completely polarising the global economy and we are about to put up the barriers to the EU. I look forward to hearing the Minister’s response.
Lord Stevenson of Balmacara (Lab)
My Lords, I congratulate my noble friend Lord Eatwell on securing this debate and delivering a masterful speech. I thank all those who have contributed. Two minutes is a ridiculously short time in which to express a fully rounded argument, but taken in the round we have covered a lot of ground and we anticipate a proper response from the Minister, perhaps backed up with letters if they are required.
My noble friend Lord Chandos said that it might be too early to draw lessons from this pandemic, but we already have a long list of issues that we need to address. Local government is starved of funds and responsibilities. Our NHS is brilliant, but not funded sustainability. Our social care system is neglected, fragmented and underfunded. The benefits system cannot cope when incomes drop unexpectedly, particularly for those in the gig economy or who are self-employed. Inequality is hard-wired into our society. In pursuit of a false goal of freedom from red tape, we have winnowed away the good regulatory base that is the foundation of all strong societies. Wages in our lower-income deciles are too low. We need to do something about the living wage. Our tax system is not fair. Productivity has stuck again and that is not capable of being resolved. Housing seems out of sync with needs, and we need to improve the treatment of those who face unmanageable personal debt. So we have a long list of starting points, not all of which we have covered in this debate, but which give us food for thought.
Yet ironically, as my noble friend Lord Darling reminded us, the crisis has also revealed the true power of the state. Joseph Stiglitz said recently:
“when we face a crisis like an epidemic or a hurricane, we turn to government, because we know that such events demand collective action”.
The urgency with which the Government have acted so far demonstrates how their response to an emergency can be swift, decisive and at scale—for example, the furlough scheme, which now supports nearly 9 million people—but more is required as we move to the recovery stage. This has led some, such as the right reverend Prelate the Bishop of Chelmsford, to suggest that an entirely new approach may be necessary, perhaps something as radical and far-seeing as the Beveridge report of the 1940s, with its call for a country to unite in the aftermath of war and to legislate for all to employ gainful employment, adequate housing, access to educational opportunity, free healthcare and an adequate income. The language used nearly 80 years ago may be archaic but Beveridge’s aims remain appropriate, albeit that today we would need to add a sixth aim: to provide a cleaner, more sustainable economy.
We are fast approaching the point where the focus of the Treasury’s efforts has to change from ameliorating supply shock to boosting demand. As the pandemic eases, and assuming we do not suffer a second or subsequent waves, how will we persuade people to spend more than they do at present on goods and services? To do that, people have to trust the Government and believe that they are not just winging it. They have to feel secure about their income and employment, and certain that spending on immediate necessities today is not going to tip them into unmanageable debt tomorrow. Consumer confidence is vital for the economy, as well as for its own sake. According to Which?, in normal circumstances consumers spend more than £110 billion per month, which is around 60% of total GDP. We do not want to turn this great pause into a great depression.
At heart it seems simple enough: the Government need to consult widely and come up with a comprehensive rescue plan to drive up demand and reduce business uncertainty for the long term—a strategy which focuses on sustainable, high-quality job creation and long-term growth significantly above recent trend levels. They also have to secure the confidence of consumers and avoid any hint of austerity, which can only make things worse.
There are important choices to be made here. For example, writing recently in the Times, the most reverend Primate the Archbishop of Canterbury said:
“There must not be a short-term fix and then simply a return to normal. We need a vision for the psychological, emotional, social and financial consequences. We must see the hope of a new way of living together.”
The Countryside Alliance says that while we must support those communities and services worst impacted —several noble Lords highlighted the problems of the creative industries, the hospitality sector and tourism—we must ensure that no part of the UK is left behind, especially seaside and rural areas. One of the persistent failures of Governments so far is to deliver on plans to provide gigabit-capable broadband to rural businesses and residents by 2025, as promised in the last general election manifesto. Can the Minister confirm that that is still the Government’s aim?
Recent polling suggests that the public also want something else. They do not want the economy simply to return us to where we were pre-pandemic; they want a new deal, with growing support for a green new deal. Voices are growing on all sides for the Government’s economic recovery plan to reflect the UK’s climate goals. Earlier this week, almost 200 chief executives from companies including HSBC, National Grid and BP signed a letter to the Prime Minister which said that
“Efforts to rescue and repair the economy in response to the current crisis can and should be aligned with the UK’s legislated target of net zero emissions by 2050 at the latest.”
Can the Minister confirm that the recovery package is in planning and that it will look beyond shovel-ready projects and be focused on long-term investment in green industries to secure the recovery? Can we look forward to an army of workers planting trees, rewilding our countryside, insulating our existing housing stock and office buildings and working on green technologies? What about a scrappage scheme focused on switching private and public transport to electric vehicles? Such a package, taken together, could provide people—particularly in rural areas and those entering the labour force this year—with much-needed job security after this period of turmoil, and benefit everyone’s financial security through lower energy bills.
The current public investment in our economy is unprecedented, but does the Minister agree that such investments should be used to return benefit to the public good? Will we follow the lead given by other countries and ensure that any government support to private companies should be in the form of equity or grants? If it is equity, does he accept that there is a case for such support to be contingent on legally enforceable commitments for companies to reduce energy-intensive activity and achieve stretching zero-carbon targets?
Finally, as my noble friend Lord Eatwell said, the pandemic has exposed severe weaknesses in global production and trade. Countries are turning in on themselves, and we know that cannot be a good thing. Twelve years ago, major international efforts led by Gordon Brown stabilised international financial markets. Now we need a resilient, co-operative, international trading system, lest Britain becomes marooned alone in a hostile post-Brexit world.
Coronavirus has cruelly exposed global inequality, so different priorities for trade need to reflect a reoriented world. A sustainable trade policy could focus on securing opportunities for all sizes of businesses, human and employment rights, consumer interests and climate protection for the long term. How does the Minister see this playing out in the UK?
We need to use this opportunity to commission a Beveridge moment, and thinking on that should start soon, but we also need an immediate demand stimulus and a longer-term plan, under which the Government will work with all parts of society to secure the recovery based on a green new deal which shares the benefits of cleaner inputs and more sustainable outputs for the benefit of us all.
The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)
My Lords, I congratulate the noble Lord, Lord Eatwell, on his initiative in securing this debate. I am grateful for the opportunity to discuss this matter.
Noble Lords have spoken about the threat to our economy, how we have sought to protect it during this crisis and what we might seek to do afterwards. The coronavirus is the biggest threat that this country has faced in decades and this country is not alone. All over the world, we see the devastating impact of this invisible killer.
The Government’s action plan aims to slow the spread of the virus so that fewer people need hospital treatment at any one time, protecting the NHS’s ability to cope. That is the right thing to do, but people are also justifiably concerned about their livelihoods during this difficult time. We recognise the extreme disruption that the necessary actions are having on people’s lives, businesses and jobs. Just as we face a health emergency, so we face an economic emergency too. There can be no doubt about the seriousness of the situation. It is important that we are honest: it will have a very significant impact on our economy.
That is why the Government have announced unprecedented support for public services, individuals and businesses to protect against the current economic emergency. That includes the Coronavirus Job Retention Scheme, which has already helped businesses to keep millions of people in employment and has been extended until October, and the Self-employment Income Support Scheme, which benefits 95% of people who are mainly self-employed. To support firms and businesses through the crisis, the Government have announced unprecedented support, including government-backed loans for businesses of all sizes and grants for small businesses and highly innovative firms.
Through the Coronavirus Business Interruption Loan Scheme, over 45,000 facilities have been approved so far, worth more than £8.9 billion, and 700,000 loans, worth more than £21 billion, have been approved through the new bounce-back loans scheme, supporting the very smallest businesses. Over £10 billion-worth of grant payments have been made to over 800,000 business premises so far.
Further government support measures mean that almost half of all business properties in England will pay no business rates at all this year, notably in those sectors hardest hit by the lockdown, 2.3 million businesses have been offered a VAT deferral and up to 2 million employers will be able to access the statutory sick pay rebate. The Government are supporting people on low incomes or those who find themselves facing hardship through a significant package of temporary measures. That includes a £20 per week increase to the universal credit standard allowance and working tax credit basic element and an increase in the local housing allowance rates for universal credit and housing benefit claimants so that it covers the cheapest third of all local rents. Mortgage lenders are also offering a three-month payment holiday for those customers struggling with their finances as a result of the coronavirus.
Throughout the past few months, the Government have worked closely with the Bank of England, business groups, trade unions and many others around the country to develop these support measures. Taken together, these measures are protecting millions of people and businesses across the country through a set of economic interventions on a scale never previously attempted, and they are working. In developing our economic policy, the Government have listened to a wide range of evidence and views.
As the Chancellor said, it is premature to speculate about future public finances, budgets and the economy, but it is notable that the independent Office for Budget Responsibility and the Bank of England both agree that the actions that we have taken will help to mitigate the impact of the virus on our economy and that, without our package of measures, things would have been far worse. Not taking those steps would result in the temporary effects of the Covid-19 virus leaving permanent scars on our economy. Although we are spending unprecedented amounts, the consensus both in the Government and among external economists is that not spending at these levels would cause even more damage.
The work of the last 10 years in bringing borrowing and debt back under control has ensured that public finances are well placed to deal with the challenges posed by Covid-19. The overwhelming evidence indicates that British people and businesses are following the Government’s guidelines. Thanks to people’s hard work and sacrifice, and despite the tragic loss of life, the UK has slowed the spread of coronavirus. Our health system has not been overwhelmed.
Now we must begin to recover and eventually restore our way of life. The Government have set out a conditional road map for reopening certain economic activities, while continuing to suppress the Covid-19 outbreak. Our economic strategy will be closely co-ordinated with the public health strategy. As infection rates fall, we will take stock of the economy and public finances to make the right decisions for the circumstances in which we find ourselves.
In formulating this road map, the Government have considered: the country’s long-term economic future, which could be harmed by people being out of jobs and by insolvencies; the sustainability of public finances, so that the Government can pay for public services, including the healthcare response; and the UK’s international economic competitiveness. Ultimately, a strong economy is the best way to protect people’s jobs and ensure that the Government can fund the country’s vital public services.
I will pick up on comments made by noble Lords. I will not name each noble Lord individually in the interests of time, and if I am not able to address all of the points raised, I will write at the conclusion of the debate.
The noble Lord, Lord Eatwell, and others raised the issue of public sector spending and investment in the NHS. The Government have backed the NHS during this crisis with more than £16 billion for the Covid-19 response fund, which has gone towards public services, including the NHS and local groups involved in the fight against coronavirus. But beyond that, the NHS settlement committed in January last year provided one of the largest tax increases in public services since the Second World War—an additional £34 billion a year by 2023-24. The 2019 spending round confirmed the Government’s commitment to the NHS with £139 billion for health budgets in 2021. The Budget provided over £6 billion of further funding to strengthen the NHS in England and pay for vital services. That will improve people’s health, reaffirming the Government commitment to health and social care.
The new life assurance scheme for front-line NHS and social care workers recognises the increased risks faced by these staff in the crisis during the course of their essential and life-saving work and the need to encourage retired doctors and nurses to fill staff shortages and boost service capacity. The Government will continue to review the support provided to key workers on the front line.
On the matter of reopening the economy, the Government have a carefully planned timetable for lifting restrictions. This is a difficult balancing act. The timetable depends on successfully controlling the spread of the virus. If the evidence shows that sufficient progress is not being made in controlling the virus, lifting restrictions may have to be delayed.
Social distancing is again a matter of strong debate. It is absolutely vital for controlling the virus, but we need to keep that debate alive. The criteria are reviewed every three weeks and are driven by the latest available data analysis and scientific advice.
In terms of business support, the Government continue to work closely with businesses and sector leads to monitor the impact of Covid-19 across the whole economy. The Chancellor recognises the challenges that businesses face and is focused on taking the necessary steps to support a strong and sustainable recovery. He will publish such plans in due course. As I have already said, to support firms and businesses through the crisis, the Government have announced unprecedented levels of support, including government-backed loans for businesses of all sizes and grants for small businesses and highly innovative firms.
On the equity side, our new future fund provides loans that convert into equity to high-growth companies that can raise equivalent match funding. The Government are aware of proposals around equity investment. For some companies, further debt may not be the right answer, but the private sector should be the first port of call for businesses seeking new equity investment. The Government will keep the policy under review and vigorously test any proposals for their value for money.
On the culture and performing arts sectors, we have set up a task force to work with industry representatives to develop safe ways for industries to reopen at the earliest point that it is safe to do so. The Government completely recognise the contribution that the culture, leisure and entertainment sectors make and how they have been particularly affected by the crisis. Theatres and performing arts institutions can benefit from the range of support schemes that have already been introduced, including the CJRS and business loans. There is a task force for recreation and leisure, led by the Culture Secretary. It covers all industries relating to tourism and culture, including libraries, entertainment and sport. The task force first met on 22 May and is meeting every week.
On the construction and housing sector, the Government have committed to building at least 1 million more homes by the end of this Parliament, continuing progress towards our target of delivering 300,000 additional homes every year, on average, by the mid-2020s. Over 240,000 additional homes were delivered in 2018-19, the highest level for the last 32 years, representing a 65% increase since 2009-10. The Government plan to publish very shortly a comprehensive list of planned government procurement linked to the delivery of infrastructure and construction projects for the financial year 2020-21.
Turning to the insurance sector, the Government are working closely with the FCA to ensure that the rules are being upheld during this crisis. They recognise that businesses that do not have appropriate insurance cover will require support from elsewhere. As such, businesses should explore the full package of support.
Going further into the recovery, as the Chancellor has said, it is premature to speculate about the future public finances. First and foremost, we are thinking about protecting people’s health and jobs and supporting businesses.
A number of noble Lords mentioned VAT. We have already deferred VAT for businesses during the crisis, so UK VAT-registered businesses will not need to pay any VAT that is due alongside their normal VAT return from 20 March through to the end of June—a deferral worth over £30 billion or 1.5% of GDP.
My noble friend Lady Buscombe asked about the tax status of foreign nationals. The statutory residency test determines an individual’s residency status when they move between countries and ensures that they know whether or not they are resident when they spend time in the UK, and thus whether they should correctly pay UK taxes. Nationality has no bearing on the tax that an individual pays. An individual who moves permanently to live in the UK will pay tax on their worldwide income and gains, just as any other UK resident does. The UK has a special tax regime for individuals whose permanent homes are outside the UK—referred to as non-domiciles—but when they are UK-resident, they will pay UK tax on all their UK income and gains.
A number of noble Lords raised the issue of low pay. Low-paid workers will benefit from the April 2020 increase in the national living wage, which represents an increase of over £930 in the annual earnings of a full-time worker on the national living wage, equivalent to a total increase in annual earnings of over £3,600 since the introduction of the national living wage in April 2018. We have also taken a large number of people out of income tax thresholds over the last 10 years. That has always been a priority for this Government.
A number of noble Lords raised the need for a green recovery. The Government completely agree. The Budget reinforced the UK’s strong track record in this area. Announcements included £640 million for tree planting and peatland restoration, over £1 billion of further support for ultra-low emission vehicles, and at least a doubling of the funding for energy, innovation and tax measures to encourage greater energy efficiency and to reduce plastic waste, among other things. We recognise the importance of a strong economy in supporting the transition to net-zero emissions and will continue the UK’s leadership in clean growth. The Government have announced unprecedented support for public services, workers and businesses to protect against the current economic emergency.
On hydrogen, we have announced £120 million to explore opportunities in energy efficiency. We are extending support to 2028 at the current level of the energy company obligation scheme funding, with £6 billion of investment to improve energy efficiency. It is also worth noting that coal emissions have fallen by nearly 80% in the last decade, and carbon emissions have fallen in the last seven consecutive years. According to some measures, in 2019, our emissions had fallen back to the level they were at in 1888.
Levelling up was raised by several noble Lords. Despite the immediate challenges facing the UK, we are still absolutely committed to bringing prosperity to the whole country. The Civil Service has, for example, committed to move over 20,000 jobs out of London, and that process has begun. We have identified 15 hubs around the country to which civil servants will move. These will become hubs for good-quality jobs in the future.
Well-being is already part of the Treasury Green Book and it took a more prominent role following the 2018 updates. The Government are mindful of the evidence of how previous recessions have impacted health outcomes. The unprecedented support for public services plays to this point. In developing our economic policy, the Government have listened to a wide range of evidence on this.
A number of noble Lords raised the issue of EU exit. We will not extend the transition period, as it would simply defer the moment at which we were in charge of our own destiny. The Government believe that there is time to strike a deal based on free trade and friendly co-operation. We are looking for an agreement largely like the one that the EU has agreed with other countries. Therefore, we cannot see why it should be so complicated.
On trade, during the crisis, G7 and G20 Finance Ministers have released statements committing to do whatever is needed to restore confidence and economic growth, including supporting trade ministries’ efforts to address disruptions in international trade and supply chains. We are continuing to strengthen our trade relationships around the world. For example, last month, the Secretary of State for Trade launched the first round of trade negotiations with the US.
The range of contributions that we have heard here today demonstrates what a broad and complex issue this is. Through the measures they have taken, the Government have sought not only to protect people’s health and livelihoods, and to shield the most vulnerable in our society, but to preserve the productive power of our economy in order to bring about a swift and lasting recovery from this crisis. The Government will continue to act on the basis of scientific advice, and they will continue to listen to the voices of employers and business, trade unions and others as we navigate our way through the crisis and back towards a future of growth and opportunity.
I finish by thanking all noble Lords for their contributions, but especially the noble Lord for securing this valuable debate.
Lord Eatwell
My Lords, I am grateful to all noble Lords who have contributed to this debate. There were so many interesting, albeit short, interventions. I have one major comment, but first, I express concern at the Minister’s use, three times, of the phrase “sustainable public finances”. That sounds very comfortable, but it is the weasel word for austerity. Whenever anyone hears that phrase, the alarm bells should ring.
My general comment is that what many noble Lords looked for was vision—a vision of a resilient economy. In the public sector, that is easy to define. It means building up what the noble Viscount, Lord Chandos, called “redundancies”, meaning the excess capacity to respond to emergencies such as the one that we are suffering at the moment. However, in the private sector, it means a regulatory framework which ensures that private firms sustain the level of capacity which will enable them to respond effectively to major crises. In the financial sector, stress tests are required, and those stress tests test redundancies; they test the capacity to respond to major shocks. We need a wider view of resilience and redundancy—in that specific use of the word—to ensure that in our economic future, we can deal with the major biological, environmental and occasionally economic shocks that will inevitably come.
I thank the Minister for his summing up and look forward to hearing his response to my questions. Thank you.
The Deputy Speaker (Lord Rogan) (UUP)
My Lords, the Virtual Proceedings will now adjourn until a convenient point after 4.30 pm for the Question for Short Debate in the name of the noble Baroness, Lady Anelay of St Johns.