Economy: Spring Statement

Debate between Lord Hodgson of Astley Abbotts and Baroness Kramer

Thursday 15th March 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I join in the welcome to the right reverend Prelate the Bishop of Lincoln. He is obviously supported by the noble Lord, Lord Cormack, and my noble friend Lord Taverne, but when he mentioned that the doorkeepers largely hail from Lincoln, that is when I knew we had a real power to be reckoned with in this House. We know where genuine authority lies. We very much appreciate his speech. He focused very much on a divided society, and that issue was picked up by others in this debate—the noble Lord, Lord O’Neill, was talking about the north/south divide, although the right reverend Prelate the Bishop of Lincoln reminded us that it is not just geographic, as those who struggle can very well be located in the south as well. This is timely in the context of this particular Statement.

I join with others—the noble Lord, Lord O’Neill, seemed to have had the same reaction to the trailers that came ahead of the Spring Statement—in saying that I had thought we were going to get some really super growth figures. Frankly, that should not have been so unexpected, because if we look at the markets that we export to, they were on steroids in 2017: the euro area grew at 2.5% and the US at 2.3%. I was genuinely quite shocked when the Chancellor announced that growth in 2017 had slowed from 1.9% in 2016 down to 1.7%—not quite as bad as expected in the autumn, but in light of this great global growth pretty difficult to explain. A falling performance when the going is good is really pretty extraordinary, quite frankly. But the forecasts for the future are worse. The noble Lord, Lord Skidelsky, described a stagnant and becalmed economy. The OBR is forecasting growth for the UK in 2018 at 1.5% and it drops after that, while in contrast the OECD, which released its numbers on the same day as the Spring Statement, forecast growth in 2018 as 2.9% for the US and 2.3% for the euro area.

I recognise that we have a productivity problem and an investment problem, but I disagree with the noble Lord, Lord Skidelsky, in one area. He basically suggested that the fundamental problems we have are not in any way related to Brexit. But I join with others—we heard from the noble Lords, Lord Livermore and Lord Higgins—in saying that, if it were not for Brexit, the capacity to draw investment into the UK would enable us certainly to improve growth and productivity. Brexit has now become that kind of barrier. We have seen it in the numbers—particularly foreign investment numbers in the course of this year. To me that is very significant. If I may pick up the point that the noble Lords, Lord Hodgson and Lord Freeman, and others made, we are at a point where we are entering a fourth industrial revolution, where everything will change, thanks to AI and robotics. That makes it the most crucial time to draw in that kind of investment. If you do not ride the change, you are left behind. The last thing we should be doing for our young people—in the Box or otherwise—is to let ourselves get left behind at this absolutely critical point in time. So I am exceedingly concerned.

If we turn more broadly and look at our population at large—you would not have known it from the Chancellor’s words—people are feeling pain. The day before the Spring Statement, we got the February numbers for UK consumer spending. Consumer spending fell in February by 1.1% year on year, declining for the ninth time in 10 months. Wages are stagnant—we are all aware of that—and inflation is running at over 3%, and it is making life for ordinary people exceedingly difficult. Frankly, a lot of that sits at the door of Brexit. Yes, it is part of a longer-term pattern of modest economic growth, but the inflation rates that we have seen really are Brexit in origin. The impact on people’s lives is very significant.

The right reverend Prelate the Bishop of Portsmouth, the noble Viscount, Lord Chandos, and others talked about the general suffering of the population at large, but the Chancellor did not really address public spending pressures very much in his Statement. There was a bit of a sense of light at the end of the tunnel and maybe we would be able to lift our foot off the austerity pedal a little at some point in future, but it seems to me that is completely out of kilter with the reality that we are facing. I argue that the pressures to increase funding in the public sector have simply become unavoidable. Just last week, the NAO, in its report Financial Sustainability of Local Authorities 2018, warned that 66.2% of local councils with social care responsibilities have now eaten heavily into their reserves. Social care is struggling in many parts of the country. The NHS is not coping; indeed, routine operations were cancelled for a whole month this winter. Schools are asking parents for money; the noble Lord, Lord Young, talked about the struggles that his local primary has, and they are repeated nationwide. My noble friend Lord Taverne, the noble Viscount, Lord Chandos, and others talked about the welfare cuts that are still to bite. We simply cannot continue in this vein.

Even though the Chancellor now anticipates that day-to-day spending will come into balance in 2019, which is of course good news, it is very far from salvation. As the IFS said following the Chancellor’s speech, borrowing is only down to pre-crisis levels, at 2% of national income, but debt is twice its 2008 levels. Realistically, this is the time when we absolutely have to look at raising taxes. At the very least, we need to reverse the cuts since 2015 in corporation tax—which surely could have been left at 20%; I do not believe a penny below that has encouraged any company to put more money into any investment—and reverse the cuts in capital gains and inheritance tax, which would give us a bit of breathing space.

However, I argue that the NHS and social care are now such a funding challenge that they require a more radical solution. I very much regret that none of the many studies that the Chancellor announced this week included an assessment of a dedicated NHS and social care tax, which, frankly, looks like the only way to put these key services on a sound footing long term. Since a new structure takes time, my party is calling, as my noble friend Lord Taverne said, for a penny-in-the-pound increase on income tax to provide £6 billion this year to prevent another near-term crisis in the NHS and social care.

I also very much regret that the Government failed to consider giving local authorities the powers to become major builders of affordable and social homes. The Government are making some movement on housing but not at the scale required, certainly to deliver social and affordable housing, and again those pressures are becoming completely unsustainable. I believe it was the noble Viscount, Lord Chandos, who talked about the homeless problem that we have; we have all seen it develop. However, that is only a minor symptom of a much broader and deeper problem that has to be tackled. We know that, given those kinds of powers and the ability to go out and borrow, local authorities can deliver the kind of housing that we need because they have done so in the past. This is the time to take off the ideological cap, recognise that the housing market is fundamentally broken and empower local authorities to deliver the kinds of houses that we definitely need.

I join others in being glad that the Chancellor is looking once again at the apprenticeship levy. That is a really messed-up piece of policy, and I hope very much that we can read in the Chancellor’s words that he is going to sort out the nonsense. For small companies, and I talk to many of them, it has simply turned into a tax, not a mechanism to deliver either training or apprenticeships. In the same way, I join others in being glad that we are getting another look at late payments, but this time could we have a solution rather than another report?

I support the Government’s decision to find a more effective way to tax digital companies, perhaps on their revenues rather than their profits. It is an outrage to see large, successful companies essentially paying very little tax. However, I think the Chancellor’s proposal is too narrow. It really should be almost just a first step. Big brand companies such as Starbucks can outwit the tax system just as well as Google. A fundamental part of the problem is that we do not know how to deal with the value of things like brands and intellectual property, but that is the shape of so many companies of the future. We have to crack that problem now, or we will find ourselves without any effective tax base. I hope that the accounting profession will get wrapped into this, frankly. In the scandal of the collapse of Carillion, a big part was the completely inadequate pricing of the value of contracts and good will by the accounting firms, so that the company looked artificially healthy when it was crumbling. Others should investigate who should have known what and when, but it is all part of the same issue.

I also regret that the Chancellor did not take this, as he was doing so many studies, as an opportunity to look at intergenerational fairness. We really have a very unbalanced tax system. Each working person is now supporting 1.7 people and the number is rapidly headed to 1.9 people. That is unsustainable. The noble Lord, Lord Hodgson, talked as if we have too many people, but the problem is the shape of our demographics. We are desperately short of working-age people. That is one of the reasons why cutting back on immigration is particularly ironic at this time.

[Lord Hodgson of Astley Abbotts]

The issue is also that we are not prepared to employ older people. Once you are past 55, you are on the scrap-heap. A great deal more could be done. We have done a lot of work in other areas of prejudice, but ageism is a prejudice we have yet to tackle.

[Baroness Kramer]

My Lords, around this House we can see many people who might mistakenly be classed as older but who can demonstrate that they have a great deal to contribute. We may want to do it in a different way, with part-time work and different opportunities. I agree that employers are unimaginative. But it does not get us away from the problem; if we hit a dependency ratio of 1.9, we are not functional as an economy. I cannot see any way, without rational immigration, of doing it.

We have a sluggish economy with fundamental problems of productivity and investment. We have public services that are often on the brink of break-down. We lack key pieces of infrastructure, especially affordable and social housing. Our national debt remains high. Ordinary people are feeling the pinch of stagnant wages and high inflation, and our young people are carrying an unwarranted burden. Frankly, there could not be a worse time for Brexit, with all the additional costs that it places on businesses and a future in which the economy and our businesses have less access to both markets and talent.

I join those around the House who take the view that, until we make up our minds that we need to be in the single market and the customs union, we frankly do not have much of a hope of seeing a substantial reversal in the kind of economic patterns that were embedded in the OBR report. I was as astonished as others that the Chancellor felt that he must be “Tiggerish”. It made me think that life in Cabinet must be pretty dreadful if, when you present a report like this on an OBR statement, you find yourself happy.