Autumn Statement: Economy

Lord Fox Excerpts

Tuesday 29th November 2016 Lords Chamber

[Lord Fox (LD)]

My Lords, I draw your Lordships’ attention to the interests registered in my name in GKN and Smiths Group, both of which are active in the UK economy.

The Chancellor of the Exchequer had a tough job in the other place last week. On the one hand, he had to avoid the trip-wires that had been set by his colleagues who consider every negative comment a betrayal of the true one spirit of Brexit. On the other hand, he was seriously constrained by reality—the reality of his situation and ours. So he pushed out the goals of his predecessor and tried to make the best of it, but there is no gloss shiny enough to hide the terrible prospects for public finances by the end of this Parliament because by the end of this Parliament a £220 billion Brexit-induced debt black hole looms for our country, and this from a Government who at the last election stood on economic probity.

It is hard to see how the return of real inflation can be avoid, not least as a result of the steepling fall in the value of the pound. Many external independent forecasters, some of whom have been referred to by the noble Lord, Lord Livermore, have made clear that its effects will keep millions of working people anchored firmly in an austerity lifestyle. The Prime Minister’s JAMs will be just about making the same as they were in 2008, which really is dreadful—a word used by some other commentators.

From a Liberal Democrat perspective, we were clear that, having thrown off Mr Osborne’s straitjacket, the Chancellor should have prioritised spending on the National Health Service with at least £4 billion of emergency funding. We also believe that he should have used his position, that Statement and his knowledge of the problems that we will face to affirm our commitment to remaining a part of the single market. On that point, perhaps the Minister will tell us whether the aide’s notes so publicly photographed, seemingly counting us out of the single market so soon, are true. If they are not, perhaps he can reassure the House that the Government have the objective of remaining in the single market, because I am sure he recognises the importance of this vital cog in our trading relationships. Given the opportunity of wiping the slate clean and starting again, the Chancellor has, I fear, made one or two bad choices in avoiding or ignoring our National Health Service and in avoiding the opportunity of affirming our commitment to the single market.

However, as the noble Lord, Lord Young, quite rightly pointed out, this House likes to take a balanced view, and I will take a balanced view. There were some positives, and I will talk about those now before talking about the industrial strategy to which these positives point. I will focus on two areas: the British Business Bank and the research and development part of the national productivity investment fund. First, I welcome the announcement of £400 million in additional funds for the British Business Bank—that should be a good thing—but with the proviso that the Minister confirms that this is additional money, over and above the £600 million or so of European Union investment that will be lost following Brexit. In other words, is this extra money or an inadequate patch for money the bank is going to lose?

Secondly, I turn to the research and development part of the national productivity investment fund. In terms of the fund itself, it is clear that there are huge elements of infrastructure which still need to be funded after this fund. It is a very small step in the direction of improving our national infrastructure, but it is good to recognise that this is an important cog in the productivity wheel, which we all hope can turn much more quickly. Research and development is a genuinely pleasing element in the Chancellor’s Statement, which recognises a real shift in the place that science and research, and hopefully the wider technology agenda, are going to have, and should have, in our industrial strategy. That is good, but there are loose ends. I will just go through a couple of them, but there are more elsewhere.

For example, how is the money going to be split? Some of the money will go to this new invention, the industrial strategy challenge fund, while some of it will go into innovation, applied science and research. Something from the Minister on how that will be split will give an idea of the Government’s priorities going forward. This is quite important because the Higher Education and Research Bill is shaking things up substantially around this whole element at the moment. As your Lordships know, it is proposed to bring the research councils and Innovate UK together. Some £425 million of extra funding will come next year, but the institution that I suspect has been designed to manage this will not have been invented. Could we have some explanation from the Minister as to how this is going to be achieved in the transition period, and an indication of whether he is confident that this can happen? I do not want to be too nerdish, but the Chancellor said that the industrial strategy challenge fund will be modelled on DARPA in the USA. This is a very grand objective, and I guess we should share it, but could the Minister explain what that really means in terms of the administration of the fund?

The Minister is right to point out that infrastructure and research and development are key areas of the industrial strategy. I think most of us had expected that the Green Paper would be published in conjunction with the Statement and were a bit disappointed that it was not forthcoming, so I am pleased to hear that it will come before the end of the year. Consultation is an important element of this, and we look forward to participating in that consultation, but it would be helpful if the Minister could tell us when he thinks the strategy will actually be in place and guiding all these other things which seem to be somewhat ahead of the horse at the moment.

In the meantime, as a short cut to this process and, hopefully, to help the Minister, here is where we think the industrial strategy should be heading and what it should seek to achieve. It has to be able to develop the skills that we need to take on a competitive world, and has to be able to create the situation where we have access to the talents of that creative world in a seamless and effective way. It needs to build on the highly successful green industrial revolution that was started in the last Parliament. It needs to put in place a plan that values and nurtures the industries where we are already world leaders or where we believe we can become so. It needs to deliver a world-beating research and development environment and foster true innovation. It needs to work to develop and enhance UK supply chains. Last but by no means least, as evidenced by my noble friend Lord Greaves’s Question at Question Time, we have to create a blueprint for regional development—the benefits of success must be spread more widely around our country. These measures are the basis upon which we think the industrial strategy should be judged, and the objectives that we think should be put in place.

The journey ahead will be rocky. I agree with the noble Lord on my right; it is going to be a tough time ahead. Brexit has not happened yet, but as we move nearer to it the economic outlook really will deteriorate —so much so that even the most seasoned expert deniers will start to recognise that there is a problem. In the financial Statement last week, the Chancellor could have made a vital infusion of funds into the National Health Service but chose not to. He could have committed the Brexit process to keeping the UK within the European single market but chose not to. We believe that that was poor judgment. On the plus side, he set out some plans towards the industrial strategy that we believe are the right thing to do. That industrial strategy is going to be vital. We have to get it right, and we will work with whoever we must to try to help that to happen. Once we have it, we will have to stick with it beyond the length of just one Parliament.