Budget Statement

Lord O'Neill of Gatley Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord O'Neill of Gatley (CB)]

My Lords, it is quite a remarkable pleasure and an honour to welcome the noble Baroness, Lady Moyo, to this House, and to speak immediately after her excellent maiden speech. I am not sure whether the noble Baroness remembers this, but we once shared a nice dinner in Knightsbridge. I would never have imagined that I would be stood here welcoming that particular colleague, or any colleague, to this House, but here we both are—me and the noble Baroness, Lady Moyo of Knightsbridge—and it is a huge delight to do so. As she has beautifully demonstrated, I can assure the House that the noble Baroness will bring some fresh insights into aspects of how the world works, or does not work, to add to the already rich vein that is so present in this place. Because I reached out to inform a couple of our ex-colleagues, I know that many of them will be extremely proud of Dambisa, and, again, I welcome her to this place.

Before I make a few comments about the Budget, which I will return to at the end, I thought I might point out that, yet again, a fiscal event is taking place against the background of quite a bit of chaos in global financial markets. In that sense, much of what I shall reflect on and much of what has been said already, or may follow, might not be as immediately relevant if some of these events are not stabilised by the sharp minds of our global policymakers who are increasingly experienced at these far too frequently reoccurring events.

As to the Budget, first, as was very clearly pointed out by the noble Lord, Lord Eatwell, but also recognised in some ways, to their credit, by the Chancellor and by his immediate predecessor, the now Prime Minister, our weak growth performance is primarily due to a very poor investment performance, as well as, I might add, net trade. Unfortunately, I still do not see much ambition in the Government’s own direct investment plans, as the noble Lord, Lord Eatwell, suggested, to match this important recognition. There is still a persistent belief that the primary way to boost investment is to have the right investments for the private sector, and that this is all that is needed.

As I shall come on to, and as has been touched on by some prominent commentators in today’s media, the Government are still significantly constrained by their own narrow vision of credible fiscal rules. While on the one hand this is not entirely surprising, given the utter fiasco of last autumn, we do need to break out of the same old somewhat tired thinking. I call on this or any future Government to be more imaginative, while retaining credibility with financial markets, in creating a much more sophisticated modern framework to approach government investment spending and fiscal rules. Asking the OBR itself, as well as other independent bodies, as to the most credible path to achieve both of these seems to me to be as inevitable as it is necessary. Perhaps it will require another Government in the future to take these steps.

In this regard, I shall touch on the really important challenges that the noble Lord, Lord Bridges, just suggested for more debate about the kind of growth that we might want to see, and the role of the state. I agree with this challenge, but what I think his excellent idea suggests, and perhaps misses, is the crucial distinction between government investment spending—which, if aimed correctly, would boost future growth—and the Government’s persistent focus on current or maintenance spending. This self-imposed constraint aside, I find myself, a bit surprisingly given how easy I have found it to criticise Budgets of the past few years, welcoming much of the broad flavour of the policies announced yesterday to boost the supply side of the economy.

In particular, although it is with a caveat, I welcome the measures to try to boost investment spending by specifically claiming allowances for genuine investment spending, as opposed to the never-ending, nonsensical obsession with the level of corporation tax that too many retain. This is a sign, in my view, that at least some policymakers are finally living in the real world. Sadly, as the noble Lord, Lord Eatwell, pointed out, the limited duration of this policy, itself constrained by the arbitrary fiscal debt rule, will, along with the fact that there may be a change of Government within two years, limit its otherwise potentially huge positive potential.

Thirdly, noble Lords will not be surprised that I highly welcome the significantly tweaked investment zones. While the analogy to Canary Wharf is in some ways slightly unfortunate, the zones have the potential to be so much more, in my view. The reconcentration on large metropolitan areas is hugely welcome, as is using the strength of our excellent universities as the focal point for this initiative. This is consistent with the broad goals of Northern Gritstone, which I am proud to chair. It also links to the whole journey of devolution, which is a sign of a Government who finally get it—perhaps for the first time in a number of years.

Also in this regard, the detailed framework for a so-called trail-blazer devolution deal, announced for both Greater Manchester and the West Midlands, is a huge step up in the art of the possible for devolution. I truly hope that the Government will genuinely follow through on this, that other electoral mayoral areas around the country develop the same ambition as GM and the West Midlands and that future Governments take this further.

Fourthly, while these initiatives and others, such as those on skills and education, are aimed at boosting productivity, the measures aimed at boosting labour force participation, especially childcare support, are also to be welcomed. It is probably far too early to judge whether the precise numbers chosen are likely to succeed in changing the incentives of those currently outside the labour force, but they are obvious and critical areas that needed attention and I congratulate the Ministers involved for that intent.

Given that, since the financial crisis of 2008, we have experienced extremely weak productivity growth and, since 2019 and Covid, a worrying decline in labour force participation—as others have already pointed out—this is the first Budget in some time that is aimed at genuine supply-side measures, and I hope it has some seriousness attached to it. If we could adopt more ambition, as I touched on at the start, on the fiscal rules framework and the Government’s own long-term investment spending, as well as a more serious plan for the post-Brexit global trade environment—including, as the noble Baroness, Lady Moyo, so beautifully said in her maiden speech, with the big emerging nations—then perhaps the future might not be quite as bleak as it otherwise seemed it would.

In closing, I thank the Government, and the Treasury in particular, and the Bank of England for their speed and awareness in reacting to the sudden chaos that erupted late last week around Silicon Valley Bank. If they had not been so speedy, the discussion that we are having today would have been very different. That needs to be recognised.