Autumn Budget 2024

Lord O'Neill of Gatley Excerpts

Monday 11th November 2024 Lords Chamber

[Lord O'Neill of Gatley (CB)]

My Lords, no pressure there then.

Let me first say, in contrast to the noble Lord, Lord Lamont, how pleased I am to see the Government shifting their rules to deliberately allow for greater public investment spending as a share of GDP. As a vocal advocate of such a move, I think it is highly welcome. Keeping it at 2.6% is a vast improvement over what otherwise would have been a further decline to 1.7%. In my view, there should now be an ambition to get towards 3.5%—closer to that of our developed country peers, most of which, unsurprisingly, have considerably higher productivity.

Whether the specific choice of PSNFL—“persnuffle” as it became known—or, more easily on the tongue, “net financial debt”, is the right new specific debt target is of secondary importance. In principle, it should allow for more ambitious public spending in terms of rewarding investments than the previous, quite stupid, rule.

Secondly—and here I have a bit more sympathy with aspects of what the noble Lord, Lord Lamont, said—what is more important, and in my view key, is not only the ambition but the mentality behind such investments and, in my judgment, the proper, credible guardrails to ensure that projects that come forward have independent, credible and transparent validation. In principle, I welcome the enhanced role for the new NISTA and the National Audit Office and also, presumably, more specifics so that the OBR can give more detailed macroanalysis of any such benefits. These institutions’ real skill sets used in this way will be much more fruitfully put to use.

Thirdly—and perhaps where the markets had somewhat of a brief wobble—it is important that the Government use these guardrails about what investments they choose to make.

Fourthly, I hope that the 10-year infrastructure plan that the Chancellor announced is to be presented in the spring will have gone through this new set of guardrails. I hope it will include projects that are much more likely to encourage the OBR to raise its forecast of the trend rate of growth of the economy. I can think of reasonably obvious ones—again in contrast to the noble Lord, Lord Lamont—such as early years education and preventive healthcare, including obesity, as well as more traditional things, my favourite being Northern Powerhouse Rail. However, it is not for me but for NISTA and the NAO to give their transparent and objective assessments of these benefits and then for the OBR to demonstrate the consequences for long-term growth, welfare and, of course, debt.

On a separate topic, fifthly and finally, and in contrast to widespread belief, of course the increase in employers’ national insurance will have its consequences for the labour markets along with the increase in the minimum wage. In my view, if this plays a role in encouraging companies to invest more in capital and to focus on higher-skilled labour, it might end up having more useful benefits for productivity and real wages than I hear across the widespread commentary.

We live in a very interesting time in the world and financial markets, yet again, especially with the US bond market watching what the returning President Trump is really going to do. This background will mean that our markets will reward credible, transparent, growth-boosting investments but will be less kind otherwise.

Autumn Statement 2023

Lord O'Neill of Gatley Excerpts

Wednesday 29th November 2023 Lords Chamber

[Lord O'Neill of Gatley (CB)]

My Lords, it also my pleasure to speak in this important debate and, as always, to hear such a vast array of different and generally extremely eloquent opinions, which somewhat intimidates me, despite my role in some of these issues in the past. In that regard, I also welcome the Minister to her new role. Having sat there myself once, I know that it is an interesting challenge.

Reflecting on some of the things that have been said already, I am still stuck in my mind, one week after the Autumn Statement, on aspects of the bizarre gaming that the system has got into. I am not quite sure whether this is what the noble Lord, Lord Dobbs, was reflecting on, but I will come back to that. At the same time, it included a number of measures that really are for economic geeks to wade through, particularly those with real expertise, notwithstanding economics being a miserable or social science. I am not sure if it was 110 measures that I would cite as particularly important. However, they are the ones that can think about the microeconomic issues of some of these so-called supply-side measures.

Indeed, the Chancellor made a point in his speech, and his follow-up media—as referenced by some others—of saying that the OBR had boosted its estimate of the trend rate of growth by an accumulated 0.5% because of the Spring Budget and what he announced last week. By the way, contrary to what the noble Baroness said just said before me, that is pretty miraculous for any country in the world to do if it turned out to be accurate, because long-term growth is driven by the nature of the labour force and its productivity.

However, I will also touch on two other things that have not yet been mentioned at all, I am pleased to say, and in this regard reflect my own current duties—or some of them—as reflected on the register. In my role as chair of the Northern Powerhouse Partnership and being involved in the whole northern powerhouse thing since it started, I really welcome the additional steps to give more mayoral powers to different areas and for a select few—so far—to have potential or theoretical access to the next spending review. I also welcome the news of a devolution deal for Hull and the East Riding after the endless years of struggle to get that through.

Also reflecting my role as chair of Northern Gritstone, the entity that is investing in start-ups coming out of northern universities, I greatly welcome the news of the enhanced powers and role for the patient capital arm of the British Business Bank, in fostering an even greater growth capital culture among our investing institutions—or perhaps a significantly greater culture. I ask the Minister in this regard if the requirement for them to repay a set amount of capital each year has indeed now be removed. If so, this should be of considerable help to giving more genuine aspiration for the BPC.

As touched on, the never-endingly discussed OBR, despite what I have just said, lowered its estimate of trend growth because of some of the underlying issues that cannot go away. However, slightly contrasting to the flavour of the speech by the noble Lord, Lord Dobbs, and almost an analogy with being thrown a favourable VAR decision, the OBR actually decided that things look about £30 billion-plus better than they did in the spring. Of course, in the game that I referred to at the start, this gave the leeway which the Chancellor exploited pretty well. I will not touch on some of the other complications of that, which others have touched on. However, it also means that, come next spring, a VAR decision might go in the opposite way. This would have some very interesting consequences for what would then happen, especially as relates to tax.

I also quickly add that despite the very passionate and often understandable pleas about lower taxes, the UK is the 20th country in the world in GDP per capita. More than half the other countries have considerably higher taxation levels than we do. What matters is how tax is used and how it is spent by the state.

In that regard, let me close with what is increasingly one of my hobbies, if not slight obsessions. I am encouraged by the focus on public sector investment by a number of other speakers. As I have said in this House on many occasions, the UK suffers deeply from poor productivity and low investment spending from both the public and private sectors. In my view, we should use an entity such as the OBR for what it is good at: focusing on things to do with the long-term growth trend and studying truly long-term things. I call for more powers for the OBR to have what it is good at and, in particular, instruction to scorecard regularly and analyse at least 20 of the biggest infra- structure projects that the independent infrastructure commission was set up for. If they turn out not to have multiplier economic benefits and lower debt, they should not happen; but if they do, why on earth are they not happening?

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.

Finance Bill

Lord O'Neill of Gatley Excerpts

Tuesday 13th September 2016 Lords Chamber

Moved by

[Lord O’Neill of Gatley]

That the Bill be read a second time.

[The Commercial Secretary to the Treasury (Lord O’Neill of Gatley) (Con)]

My Lords, the Finance Bill before us today covers a range of measures of real importance to the strength and growth of our economy. Broadly, they fall into three main categories: our work to help more people to save; our support for businesses; and the additional action we will take against those who avoid or evade taxes.

We consider the Bill against a very sound record of the Government’s economic achievement. The economy is now 7.7% larger than at its peak before the financial crisis. Employment has risen remarkably, up by 2.7 million since 2010, and the fiscal deficit as a share of GDP has been reduced by almost two-thirds.

The Bill was introduced in the other place before the referendum on our membership of the European Union. It is still too early to tell what the economic impact will be. While we are well-placed to take advantage of the opportunities that Brexit creates, there will be some difficult times ahead. Undoubtedly the consequences of the referendum will influence the context for economic policy in future years. I am sure that the Chancellor will take this into account in the Autumn Statement on 23 November, taking decisions in the light of the information that will be available at that point.

Before outlining the main measures in the Bill, I thank the Finance Bill Sub-Committee of the Economic Affairs Committee of this House. The sub-committee scrutinised the draft Finance Bill that the Government published in December, and its findings have been very helpful in a number of areas. I turn to some of the specific issues that the report raised. Noble Lords on the sub-committee may well wish to discuss these or others further, and I may return to some of these points at the end of the debate.

First, the report noted some concern over the consistency of the consultation processes. It is entirely appropriate and right that we are held to account for how the Government develop tax policy, but I note that the Government’s overall record here is actually quite positive. In 2010, we introduced the new tax policy-making process, which includes a cycle of consultation following Budget announcements and the publication of a draft Finance Bill following the Autumn Statement, before final legislation is brought forward. This has very much become the norm for most measures. It will never cover all measures—for example, when action against evasion necessitates announcements with immediate effect, or when government is responding rapidly to the fiscal and economic situation. None the less, I reassure the House that we share a belief in the benefits both to government and to practitioners in enabling better tax law.

The sub-committee also put forward the case for a road map for personal and savings tax. Officials noted in their evidence the constraints on this specific proposal. However, I hope that the business tax road map published at the last Budget, the approach taken to communications for the Making Tax Digital programme and the commitments on the headline rates of taxation all demonstrate the Government’s desire to provide clarity where feasible.

Finally, I note the sub-committee’s support for the Office of Tax Simplification and interest in its resourcing and arrangements. Since its introduction, there have been further discussions on these issues, and the Financial Secretary noted in the other place that agreement had been reached with the Treasury Select Committee on new arrangements for appointing future chairs. Therefore, I hope noble Lords will be reassured that we consider very seriously the points that were highlighted through their scrutiny.

Turning to the issue of personal tax, the Finance Bill takes another major step to reduce tax burdens on those in employment by raising the personal allowance to £11,500 in 2017-18. As a result, 1.3 million individuals will have been taken out of income tax altogether since 2015-16. The Finance Bill goes further by increasing the higher-rate threshold by £2,000 to £45,000 in 2017-18. By that date, a typical higher-rate taxpayer will pay over £1,000 less tax than they did in 2010-11.

Alongside supporting workers through lower taxes, the Government also want to reward savers. In the 2016 Budget, we announced a new lifetime ISA to give savers the flexibility to save towards a first home and retirement at the same time. This Finance Bill introduces a new personal savings allowance from April 2016 so that a basic-rate taxpayer will pay no tax on their savings income of up to £1,000 and higher-rate payers on up to £500. As a result, 95% of taxpayers will pay no income tax on savings. To ensure that support for savers remains well targeted, the Finance Bill reduces the lifetime allowance for the wealthiest pension savers to £1 million from April 2016. Taken together with the changes to the annual allowance and lifetime allowance over the last two Parliaments, the Government will save over £6 billion a year, while delivering a fair and sustainable system.

As part of the Government’s commitment to supporting home ownership and first-time buyers, higher rates of stamp duty land tax will be introduced on purchases of additional residential properties and £60 million of additional receipts will be provided to enable community-led housing developments where the impact of second homes is particularly acute.

Let us also look at how the Bill will support our businesses. It now well known that improving the UK’s productivity is a long-standing interest of mine, and one I am in a position to pursue in government as Commercial Secretary. Of course, a range of measures are needed to support productivity. A tax system that encourages business investment and growth is one, and the Finance Bill takes a number of important steps to secure this. Between 2010 and 2015, the Government cut the main rate of corporation tax from 28% to 20%. The Bill goes even further by cutting corporation tax to 17% in 2020, giving the UK the lowest rate of corporation tax in the G20. A decreasing corporation tax rate means that the Government must address the growing incentive for some people to set themselves up as a company to lower their tax bill. The Government are therefore modernising and simplifying the tax system by abolishing the dividend tax credit and replacing it with a new £5,000 tax-free dividend allowance. They will set the dividend tax rates at 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers. These changes will reform an outdated and complex system, while ensuring that 95% of all taxpayers will either gain from, or be unaffected by, the changes.

Supporting business also means encouraging investment into companies to help them access the capital they need to grow and create jobs. That is why the Bill cuts the higher rate of capital gains tax from 28% to 20% and the basic rate from 18% to 10%. It also extends entrepreneurs’ relief to longer-term external investors in unlisted companies.

An apprenticeship system which equips people with the quality of training that they and business need can make an important contribution to improving productivity, and addresses an area where the UK has historically underperformed, perhaps significantly. The Bill introduces an apprenticeship levy of 0.5% of an employer’s pay bill, where it exceeds £3 million from April 2017, to deliver 3 million apprenticeship starts by 2020. Employers will receive a 10% top-up to their monthly levy contributions in England for them to spend on apprenticeship training. In England, funding will be ring-fenced and put in the hands of employers to ensure that it delivers the training they need.

The Finance Bill delivers a radical package of reforms to provide £1 billion of support to the oil and gas industry. This sector supports around 375,000 jobs and has paid over £330 billion in production taxes to date. To ensure that the UK has one of the most competitive global oil and gas tax regimes, and to safeguard jobs and investment, the Finance Bill zero-rates petroleum revenue tax, halves the supplementary charge, and extends the investment and cluster area allowances.

Lastly, I will comment on the number of measures the Finance Bill contains to tackle tax evasion and avoidance—a priority for this Government that is rightly shared by many noble Lords, as well as the general public as a whole. First, the Government are stopping multinationals avoiding paying their fair share of UK tax. This Bill will introduce new rules to address hybrid mismatch arrangements whereby cross-border business structures are used to avoid tax or gain multiple tax deductions for the same expense. It will also tackle contrived arrangements relating to payments of royalties from the UK to countries with no tax treaties.

Secondly, the Finance Bill targets key areas of rapidly growing online VAT evasion by overseas sellers, online marketplaces and UK warehouses, which, alongside other measures in this area, will raise £875 million in tax over the next five years.

Thirdly, the Bill legislates to ensure that profits from the development of UK property are always subject to UK tax. This ensures that UK and overseas developers are on the same footing, and will raise £2.2 billion over the next five years.

Finally, the Bill introduces a new, tougher anti-offshore tax evasion regime. This includes a new criminal offence for tax evasion, new civil penalties for offshore tax evaders and new civil penalties for those who enable offshore tax evasion.

In conclusion, the Finance Bill before us will help more people to save, support businesses and take action against those who avoid or evade taxes. I beg to move.

--- Later in debate ---

[Lord O’Neill of Gatley]

My Lords, not for the first time when discussing these matters, we have had an extremely interesting debate which has been conducted in a sporting manner with a number of noble Lords also providing us with great humour. I thank all noble Lords for their excellent and insightful contributions. I was going to start by highlighting the concern of the noble Lord, Lord Desai, for my well-being as a result of the situation behind me, but my noble friend Lord Forsyth came to the rescue and explained the competition that I was facing today, so I do not need to do so.

I apologise in advance because, as is always the case, I will not be able to respond to the considerable diversity of topics which have been raised, but I will try my hardest to do so. Debating the full sweep of a Finance Bill is pretty challenging, as is trying to respond to all the points that have been raised. I will try, as I often do, to answer by topic—I have highlighted eight which I will wade into shortly—rather than answering each noble Lord who offered specific remarks. Before I do so, I am particularly grateful to the noble Lord, Lord Hollick, and the members of his Finance Bill sub-committee for their substantial and insightful report on the draft Bill and, more broadly, for the superb work his committee does.

The first of the eight topics concerns the tax matters that the noble Lords, Lord Hollick, Lord Turnbull and Lord Kerr, and the noble Baroness, Lady Kramer, touched on probably more than most. Contrary to the flavour of some comments, the Office of Tax Simplification plays an important role in the tax policy-making process. Where its recommendations are taken forward, HMRC and HMT discuss them and their underlying rationale with the OTS and seek to involve it in developing their approach and some of the implementation. Many specific things were said by the noble Lords and the noble Baroness—particularly the noble Lords, Lord Kerr and Lord Hollick—but I do not really have the time to address those. However, the OTS is an important advisory body. I should highlight that we expanded the number of people supporting that important work. That remains the full intention.

Moving to some broader issues that virtually everybody talked about, the second topic is the economy. Obviously, there is my own background: as everybody knows, I have been immersed in the never-ending challenges of trying to guess where any economy is going—at that moment in time as well as in the future. It is fair to say that at this exact moment, so far, the evidence of economic performance has been a little better than one might have expected. As a number of noble Lords pointed out, it may be far too premature to make too permanent a judgment on that. The noble Lord, Lord Darling, highlighted his directorship with Morgan Stanley, and I cannot resist saying that it and my own previous organisation are among the few that revised upwards their forecasts for the UK economy in the past couple of weeks. Of course, as always, we do not really know why there was such an apparently robust rebound in many indicators in August; we have no idea whether those will remain. Many noble Lords outlined all the various reasons why that would not necessarily be the case, but that is the situation, certainly in the near term, and I would not be overly surprised if a number of other independent organisations also adopted a slightly less negative tone.

Linked to the many interesting ideas about fiscal policy and the framework going forward—I listened carefully and took note of virtually all those ideas—among those who, as always but particularly in this environment, will have to think carefully is the OBR. The noble Lord, Lord Darling, did not have to live with the structure we were presented with in the OBR. Its assessment of the short and particularly the medium-term consequences of Brexit and, in parallel, of long-term productivity will have, as always, a significant bearing on the circumstances in which the Chancellor will be able to make his Autumn Statement.

I turn to my fourth topic: the fiscal policy framework and debts, on which a considerable number of comments were made and advice was given. Of course, due to the extraordinary and ongoing low levels of bond yields here and elsewhere in the world, it is always tempting to undertake whatever form of infrastructure spending one might think of, be it big projects, small projects or otherwise. But one also has to think carefully about what sort of infrastructure spending is going to give cyclical boosts and what might give a more permanent boost to productivity.

I still do not have the answer to this and I have not been persuaded by others. We do not entirely know, even if the data were accurate—notwithstanding the very important comments of the noble Lord, Lord Desai—quite why productivity is apparently weak here and in many other parts of the world. But it is not entirely impossible that one consequence might be that the private sector is worried about the very large levels of public sector debt in many developed countries, and at some point there may be considerably higher taxes as a consequence of that—who knows?

I will come on to this more specifically in a moment but as we have seen from the comments of both the Prime Minister and the Chancellor about the fiscal policy framework, one should be careful of anything that seems like a free lunch. The example of Japan is often discussed by continental European economies and many others—the indirect effect on productivity of the overhang of a long-term problem of high debt should not be dismissed entirely.

When it comes to the specific infrastructure goals, as I have said, both the Chancellor and the Prime Minister have made it reasonably clear that they see some scope for different ways of thinking about some of these issues. I suspect that in the Autumn Statement we will get a flavour of that. Obviously, given my own interests, I am heavily involved in trying to think through some of these things and how they may indeed help overall productivity and sustain growth, particularly with respect to some of our regional challenges.

I will touch quickly on two other issues before I sum up. A lot was said, not surprisingly, about trade and the single market. I am pretty sure that we will find out at the appropriate time—when the Prime Minister chooses—what our stance is on the single market and, indeed, many other complex related issues. We will all just have to be patient and wait for that to appear. But I would like to add something that reflects my own very considerable experience of thinking about international trade. As important as free trade deals are, one should not forget that the biggest drivers of trade between different countries and regions of the world are virtually always the levels and rates of change of domestic demand in one place relative to another. It is no surprise that the largest rates of growth of trade over the short, medium and long term are generally with those places that have the largest rates of domestic demand. That is not to diminish the scale of the challenge, but we should neither overly exaggerate nor ignore other factors that are very important for international trade.

I will briefly comment on sterling and monetary policy, which many people referred to. I am sure I do not need to remind your Lordships, but in so far as the Bank of England is given a mandate to achieve an inflation target, it is its independent role to choose what it does on monetary policy. Of course, it has to give some kind of consideration to fiscal policy, but it is its job to do what it thinks is right to achieve an inflation target of 2% over the medium term, unless that mandate is changed. Of course, the Government do not have a stance on sterling because we do not have a policy on it. It is typically a consequence of many factors, including particularly the policies that the Bank of England chooses.

Lastly, on productivity, I always welcome picking up on the experience and wisdom in our debates. There may continue to be considerable problems with measuring productivity; the noble Lord, Lord Desai, emphasised this and a couple of others touched on it. I do not have the time to go into this issue today, but considerable problems remain here and in many other places around the developed world in this regard. Notwithstanding the fact that we have seen a reasonably significant decline in the pound—when people talk about the scale of the decline, that is from where the pound was trading at midnight on the day of the referendum to where it is today; compared to where it was trading in the preceding weeks, the decline is not quite as big as people often say—it is important to look at a range of broader financial indicators. Interestingly, then, there are no signs that the financial markets seem to believe or be concerned that the UK’s productivity performance is as weak as the data appear to show, relative to the rest of the G7 countries. That could of course change within one minute of my saying that, but it continues to be the case and has been for many years.

That said, it may well be that, as important as productivity is, it should not be a goal in itself. A couple of noble Lords made some very interesting comments about this; again, the noble Lord, Lord Desai, highlighted this point. One thing that sometimes gets overlooked is that our productivity performance may seem as weak as the indicators show partly, if not largely, because of the remarkable flexibility that has come about in our labour market. It should not be forgotten—I have mentioned this before in debates—that the big surprise going back over the past six years is just how much job creation has occurred in this country. The way productivity is calculated perhaps explains in part why our productivity rates seem so weak. The way to deal with that, as a couple of your Lordships hinted at, is to act directly to make the labour market less flexible. However, there would of course be a consequence from doing that.

Let me quickly come to a close because I know that some of your Lordships are awaiting a further debate. I thank all noble Lords again for the quality of the debate, and the ideas and food for thought that many have provided in a number of areas. Despite what a couple of people said, I believe that, in time, we will be able to look back on the central measures in the Bill with some confidence, as being widely beneficial to helping sustain our economic performance, and allowing people and households to see that benefit. In that regard, I commend the Bill to the House.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time, and passed.

Economy: Productivity

Lord O'Neill of Gatley Excerpts

Monday 5th September 2016 Lords Chamber

[Lord Harrison]

To ask Her Majesty’s Government what plans they have to improve the United Kingdom’s productivity.

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)]

My Lords, UK productivity performance remains a fundamental challenge. The Government set out their approach to tackling the issue in their productivity plan, Fixing the Foundations. The Government have since introduced further measures that will help productivity growth—for example, the apprenticeship levy, proceeding with investments in UK infrastructure such as High Speed 2 and the biggest investment in road and rail for a generation.

[Lord Harrison (Lab)]

My Lords, given the Prime Minister’s welcome focus on our poor and parlous situation in regard to productivity in this country—we stand some 18 percentage points below the average of our rivals in the G7—what is the purpose of, and how will competitiveness and productivity be generated by, our leaving the single market within the context of Brexit?

[Lord O'Neill of Gatley]

My Lords, the decision to leave the EU was the result of a democratic question put to the people of this country—it was the result of that choice. What that means for the future of UK productivity remains to be determined. As I am sure many Members of the House are aware, in the past couple of weeks in particular there has been a somewhat surprising upbeat tone to some of our economic data. Among other things, this raises the possibility that productivity has not slipped any further or as much as many people may have thought.

[Baroness Burt of Solihull (LD)]

My Lords, one of the key drivers of productivity is the need for businesses to feel confident in the long-term prospects for their business and the economy. I am sure the whole House will welcome the news from the purchasing managers index today that the service sector is bouncing back from the disastrous post-Brexit figures. However, as the noble Lord has already mentioned, many businesses remain nervous about what Brexit will mean for them in the longer term. Does the Minister agree that, if companies are to invest in the capital infrastructure, training and recruitment needed to tackle the productivity challenge, they need to see a real strategy for Brexit beyond the Prime Minister’s platitude that “Brexit means Brexit”?

[Lord O'Neill of Gatley]

My Lords, private business needs to feel confident about many things in order to undertake further investment decisions, of which the latter part of what the noble Baroness asked may be one. However, a number of other factors are important. In that regard, it is interesting that the latest evidence on investment is not only slightly more encouraging than was the case last year but perhaps ahead of some expectations.

[Lord Hamilton of Epsom (Con)]

My Lords, can my noble friend confirm that one of the reasons for low productivity in the United Kingdom is the seemingly unlimited supply of immigrant labour which is keeping down wage rates? Does he agree that if we manage to limit immigration as a result of Brexit, our productivity might go up?

[Lord O'Neill of Gatley]

My Lords, I am not sure that I would agree with my noble friend’s assertion. However, I agree with the inference that many things lie behind our apparently low and disappointing productivity performance, which I spend far too many hours trying to wade into. If you look at this in the kind of detail that I do, it is interesting to note that, if you take away the negative contributions made in those areas such as finance about which people are usually the most critical, our productivity performance since the recession of nine years ago is not any worse than that of any other member of the G7. There are many reasons behind our apparent—and probably realistic—disappointing productivity performance.

[Lord Watts (Lab)]

My Lords, the Government have cut business taxes when at the same time many companies are now cash rich. However, they are failing to invest in plant or in their staff. Why is that?

[Lord O'Neill of Gatley]

My Lords, the noble Lord has raised an important and interesting question. It is something that I spend quite a lot of time trying to explore. It is a feature throughout the western world that levels of cash held by corporations, including in economies that might be perceived as being more successful than ours, are very high, but despite low interest rates and favourable tax rates, the reported amount of investment being undertaken by corporations in many parts of the developed world remains disappointing. We need to understand this further and when we know why, we must try to do more about it.

[Lord Davies of Stamford (Lab)]

My Lords, is it not the case that devaluation is the enemy of productivity because, for a time at least, it keeps in being inefficient firms whose factors of production would be better deployed elsewhere? Is it not also the case that one of the great drivers of productivity is competition, and therefore if we are serious about improving productivity in this country it would be crazy to leave the single market, whether or not we have to leave the European Union?

[Lord O'Neill of Gatley]

My Lords, most of the independent measures of competitiveness would actually rank the UK among the highest in the world. On the first part of the noble Lord’s question, there has not been any official devaluation of our currency. It was a consequence of what happened, and in the context of what I said earlier, it is interesting to note that in recent days the pound has recovered somewhat.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister is an honest man and he will recognise that we have had a chronic position with regards to balance of payments throughout the whole time that we have had a Conservative-led Government since 2010. He will also know that in this country the average Briton still takes five days to produce what the average Frenchman can produce in four days. In a period of increasing competition—as we are bound to find as we leave the European Community—how can we possibly make progress or expect to meet this competition with such appallingly low levels of productivity?

[Lord O'Neill of Gatley]

My Lords, I think I heard two questions from the noble Lord. I cannot resist saying that I seem to remember that the era of chronic balance of payments problems as described goes back to the 1960s, which precedes not only Conservative Governments; those of different colours were in town over that time. On the latter question, an important part of understanding the productivity issue in greater detail is that there is some evidence, which I have mentioned in the House before, that you have to be careful about bemoaning everything about our apparently low productivity performance because some of it is almost definitely the flip side of a very strong rate of employment. That is particularly the case in the context of making direct comparisons with France. It is an important point.

[Lord West of Spithead (Lab)]

My Lords, would the Minister agree that our complex warship-building capacity in this country cannot increase productivity unless it has a steady drum beat of orders? I have to say that, afloat on the Solent during the summer, I hardly saw a grey-funnel ship. How will we increase productivity unless we get a steady drum beat of orders so we can make investment?

[Lord O'Neill of Gatley]

Of all the aspects of the productivity challenge I have focused on, this is not one I have given that much attention to. I hope it is not necessary for us to go to war to do something about boosting our productivity performance.

Wales: Economic Investment Projects

Lord O'Neill of Gatley Excerpts

Tuesday 12th July 2016 Lords Chamber

[Lord Wigley]

To ask Her Majesty’s Government what discussions they have had with the Government of Wales in relation to the financing of economic investment projects in Wales from 2020 onwards.

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)]

My Lords, Ministers regularly meet to discuss issues relating to the economy of Wales. The role and ambition of the Welsh Government in economic investment in Wales is clearly important. They are responsible for a significant proportion of capital spending in Wales, with £8.7 billion of capital block grant funding up to 2020-21. Through the Wales Act 2014, they are gaining new tax and borrowing powers that can be used to further increase investment.

[Lord Wigley (PC)]

My Lords, with your indulgence, may I thank people in every party and of no party and in all parts of these islands for the warm support given to Wales in the recent Euro 2016 tournament? This is already bringing an economic spin-off for Wales by way of a surge in tourist inquiries.

As the Government are committed to delivering Brexit, will the Minister confirm that they will also honour the commitments on which the Brexit vote was secured, including the vow that the European structural funds from which Wales is currently benefiting will be fully replaced by UK Treasury funding?

[Lord O'Neill of Gatley]

My Lords, as a keen football supporter, let me also add my congratulations on the performance of Wales. I look forward to Manchester United signing some of those players. On the specific question from the noble Lord, that is a matter for the next Prime Minister. What has been committed to in the specific deals between this Government and the various places, particularly Cardiff city, will of course be stood behind.

[Lord Thomas of Gresford (LD)]

My Lords, if I could put a figure on it, £0.5 billion a year of EU investment funds are coming to Wales. Surely the Government will take note of the fact that those who were in favour of Brexit said it was “our” money, and not EU money. Perhaps we can have some of “our” money in the future. Will the Minister guarantee that?

[Lord O'Neill of Gatley]

My Lords, I suspect that this will be a rather repetitious session. It will be a decision for the new Prime Minister. Wales is not the only place in the United Kingdom that is in this position, and there are many others that we have to consider.

[Lord Lansley (Con)]

My Lords, my noble friend will recall that in the last Parliament we legislated for access to infrastructure investment so that projects could have access to the Government’s capacity to borrow at relatively very low rates. Can he tell us to what extent Wales has been able to access that facility for projects in Wales?

[Lord O'Neill of Gatley]

My Lords, as I mentioned in my opening statement, the legislation that is currently being discussed in the other place makes provision for the Welsh Government to use income taxes to give themselves a lot more leeway to spend and invest in the way that they see fit.

[Lord Anderson of Swansea (Lab)]

My Lords, one of the major investment projects in Wales is the Swansea lagoon, which is pending and has been delayed on a number of occasions. Can the Minister indicate whether there will be further delays to this valuable project?

[Lord O'Neill of Gatley]

My Lords, I have two quick answers. First, there are many investment projects that have, in principle, been committed to all over the United Kingdom, not just in Wales. Secondly, I am unaware of any specific delay on anything that has been agreed with respect to the Swansea tidal lagoon plant.

[Lord Elystan-Morgan (CB)]

My Lords, does the Minister recollect that, when the devolution legislation was going through Parliament about 20 years ago, solemn undertakings were given by the Government of the day, with regard to concordances between the Government and the Welsh Assembly, which were to operate in those fields which had not been transferred? Can he tell the House whether those bodies are alive and active, and if so, will they play their full part in preserving the rights and the interests of the land and nation of Wales in this context?

[Lord O'Neill of Gatley]

My Lords, my simple answer is no, I cannot tell the noble Lord because I am not entirely sure what he is specifically referring to. I also point out—I look forward to discussions with the new Welsh Economy Minister—that the scope for devolution inside Wales greatly depends on decisions for them rather than us here in Whitehall.

[Lord Kinnock (Lab)]

My Lords, I ask the Minister a question to which he can provide an answer because he is not under today’s usual restrictions. In recent years, Wales has benefited significantly from loans at very low cost from the European Investment Bank. Participation in the work of that bank is not necessarily confined to members of the European Union. Can the Minister assure me that he and his colleagues in the Government will strive to ensure that the best possible conditions are achieved so that there is continuity of flow of investment—crucially needed in Wales, as demonstrated in Swansea University—in future years, regardless of our status in relation to the European Union?

[Lord O'Neill of Gatley]

My Lords, I thank the noble Lord for pointing out the specific legal status of the EIB for those unfamiliar with it. It is the case that any change to the EIB’s shareholder structure or lending activity is a decision for member states. It is important that we pursue discussions because, as I am sure the noble Lord is aware, lending in the UK right now is at record levels, covering more than 30 different projects.

[Lord Davies of Oldham (Lab)]

My Lords, leading Brexiteers such as Michael Gove and Chris Grayling made it quite clear that Wales, as others, would benefit from the decision to leave the European Community. Can the Minister assure us that, given that Wales benefited from a surplus of £245 million a year from Europe, the Welsh will not be sold short by future decisions of the Government?

[Lord O'Neill of Gatley]

My Lords, the third repetition of the day. That specific issue will be a choice for the new Prime Minister. Many other parts of the United Kingdom are facing a similar challenge.

Supply and Appropriation (Main Estimates) Bill

Lord O'Neill of Gatley Excerpts

Tuesday 12th July 2016 Lords Chamber

Moved by

[Lord O’Neill of Gatley]

That the Bill be read a second time.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Surplus Target: Corporation Tax

Lord O'Neill of Gatley Excerpts

Monday 4th July 2016 Lords Chamber

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley)]

My Lords, I shall now repeat as a Statement the Answer to an Urgent Question made by the Chancellor in the other place.

“Mr Speaker, I have always sought to level with the British people about the economic challenges we now face, but to mix that realism with reassurance that we can rise to those challenges. The financial contingency plans that the Governor of the Bank of England and I put in place have proved effective to date. Financial markets have adjusted, but I can report today that they have shown no signs of disorder.

The next task is to be ready to respond to the developments in the real economy. This will require a supreme national effort. Here are the five steps we should now take. First, we need to look to support demand and make sure credit flows freely in our economy. The governor said on Friday that,

“some monetary policy easing will likely be required over the summer”.

Thanks to the reforms that I have introduced, the independent Bank has the tools it needs to act against the cycle and support lending in the economy. The Financial Policy Committee will publish its decisions tomorrow, and we stand ready in the Treasury to act in concert with the Bank should more need to be done to support funding for lending.

The second part of our national effort must be to maintain Britain’s fiscal credibility. Eight years ago, people questioned Britain’s ability to pay its way in the world. Eight years later, British gilts are seen as a safe haven and funding costs have fallen to record lows. We should maintain the fiscal consolidation measures we have announced, but our rules were always explicit that in the face of what the charter calls a “significant negative shock”, we should allow the automatic stabilisers to operate. With the consensus of economic forecasters now lowering the forecast growth for the UK next year from close to 2% to 0.4%, that we will do. We have to be realistic that the target for a surplus is unlikely to be achieved in 2019-20. The OBR will conduct a formal assessment when it produces a new independent forecast in the autumn, and then we will have a clear idea of what additional measures are required to maintain fiscal credibility.

Thirdly, we should broadcast loud and clear the message that Britain remains the best place in the world to do business. Over the past six years, I have reduced Britain’s corporation tax from 28% to 20% today and 17% in the future. I did that at the same time as taking difficult decisions elsewhere to balance the books. In my view, the strongest signal we could send to the world that Britain, after this referendum, is open to the world and ready to do business would be to cut corporation tax still further. We should aim for a rate of 15%, and preferably lower, because if you are pro-business, you are pro-jobs, pro-living standards and pro-working people.

Fourthly, the referendum result revealed a deep-seated feeling of disfranchisement in too many of our communities, especially in the Midlands and the north of England. As I said in Manchester on Friday, devolving power and building a northern powerhouse is the right response, and we need to double down on those efforts. We will have new elected mayors, and new transport and science investments, and projects such as HS2 and HS3 are more necessary than ever. Once both parties have determined who their new leaders will be, we should take the decision quickly on where to build a new runway in the south-east. Britain cannot be open to the world if we cannot fly there.

Fifthly and finally, while we must seek the best possible terms of trade in goods and services, including financial services, with our European neighbours, now is the time also to redouble our efforts to promote trade with the rest of the world. I have already spoken to my US counterparts. Later this month I will travel to China to build on our important new partnership.

This is a blueprint to meet our economic challenge. Nothing positive will come from looking back in anger. We must lift our eyes to the horizon ahead and make the best of what is to come”.

[Lord Tunnicliffe (Lab)]

My Lords, I will make four quick points. Does this announcement not show a woeful lack of contingency planning? How could any reasonable man who threatened a £30 billion punishment Budget a few weeks ago turn round today and say that what is needed is a corporation tax giveaway? Why was this announcement not made to Parliament and accompanied by a proper OBR appraisal? Given last week’s abandonment of the 2020 surplus, of which we approve, how can the Chancellor claim to be maintaining the UK’s financial credibility? Has a single target he has set since 2010 been met? Why has the Chancellor started a negotiation with the EU by declaring a tax dumping war? As the former World Trade Organization chief Pascal Lamy said,

“if you want a proper balanced, win-win relationship in the future, starting with tax competition is not the right way psychologically to prepare this negotiation”.

[Lord O'Neill of Gatley]

My Lords, in the interests of time, I shall try to be brief. In the framework that has existed over the past six years there has been a well-identified escape clause in the event that GDP is foreseen to go below 1% for four consecutive quarters. That is the circumstance in which our decision within the country last week has left us, hence the Chancellor’s Statement. On corporation tax, it is intended and recommended that that is an appropriate response to show to the world at large that Britain remains open for business.

[Lord Newby (LD)]

My Lords, I will pursue the response the noble Lord just gave. First, the week before the referendum result the Chancellor talked about an emergency Budget; now he is talking about a tax giveaway. Are any fiscal rules still in place? Secondly, the aim is to reduce corporation tax to at least 15%. Current government plans are to reduce it to 17% by 2020. By what year does the Chancellor intend that a 15% rate might be introduced? Finally, does the Minister accept that there will now be immediate problems for many small and medium-sized businesses, which will see many of their purchasers’ decisions put on hold while we have this tremendous uncertainty in the economy? Will he therefore ask the Chancellor to provide a line of funding to the British Business Bank to provide lending, overdraft facilities and other support to small and medium-sized businesses, particularly innovative companies, which, frankly, simply will not be around to receive any corporation tax benefits in years to come unless they are given support now?

[Lord O'Neill of Gatley]

My Lords, in repeating the Chancellor’s Statement I clearly said that tomorrow the Financial Policy Committee will report on its recommendations and the Treasury remains in a position to act on whatever advice is given with respect to support for whatever area of business—small, large or otherwise—that may or may not require additional help. On corporation tax, as I also said, that is a recommendation of an appropriate policy response in the event of the decision we have made to send a message to the world that Britain remains open for business. I imagine that a specific policy will be put in place in line with the Autumn Statement plan as envisaged previously, once we have a new Prime Minister in place.

[Lord Higgins (Con)]

My Lords, it is fortunate that the Chancellor has remained in post, since it would have created enormous trauma in financial markets if not only the Prime Minister but the Chancellor had decided that he would not continue to deal with the immense problems we face. Can I ask two simple questions? First, as far as the corporation tax cut is concerned, will my noble friend tell us—I am sure he ought to do so—whether the Treasury estimates that this will increase or decrease revenue in the immediate future? Secondly, as far as the abandonment—I think that is the right word—of the target on the deficit reduction is concerned, that is clearly necessary to have greater flexibility in fiscal policy, but does he agree that it is essential that none the less the long-term objective of reducing the deficit is maintained?

[Lord O'Neill of Gatley]

My Lords, in response to my noble friend’s question, let me repeat that the fiscal charter, including all its rules, allowed specifically that if an external shock—in this case one that we essentially brought upon ourselves—would result in a four-quarter basis GDP forecast of less than 1% the framework could be adjusted. That is the environment in which the Chancellor made his comments in the other place, and that is what I am repeating here. With respect to the comments on corporation tax that are receiving so much attention, the Treasury will—as it always does—indicate what any cost or benefits revenue-wise or otherwise might be as and when a specific policy proposal is brought to Parliament.

[Lord Davies of Stamford (Lab)]

May I correct the noble Lord? Brexit was not an external shock. It was an internal shock. It was a policy shock. Does the noble Lord think it is serious that we have lost our AAA credit rating? What is his estimate of the increase in borrowing costs we will face as a result of that?

[Lord O'Neill of Gatley]

My Lords, I notice to my right some noble Lords with strong views on and experience of these kinds of events. Let me just reflect on my own judgments, including some from my past life. Let me also quickly state that in the last week our long-term borrowing costs have gone down. It is the job in terms of policy to focus on doing what is right in the circumstances. I do not believe that we should react to or be excessively focused on what a rating agency may say one way or another. It is important that we do the right thing.

[Lord Forsyth of Drumlean (Con)]

My Lords, can my noble friend help those people in the country who might be a bit puzzled as to why the Chancellor said a few days before the referendum that if we voted to leave the European Union interest rates and taxes would have to go up? Now we are faced with the proposition that taxes should be cut and interest rates might go down. Why did that strange transformation take place over such a short time in the Treasury?

[Lord O'Neill of Gatley]

My Lords, forecasts are forecasts and I have spent a considerable part of my life having that dubious challenge. We are dealing with an outcome as opposed to a forecast. From what I remember of the specifics, I do not remember a statement that interest rates “will” rise, I thought it was more that they “could” rise. Importantly, while the Chancellor has responded with the appropriate flexibility for the new circumstances we may find ourselves in, based on what the OBR comes up with in its new forecasts for the Autumn Statement, it may well be that there are still difficult choices to be made.

[Lord Wrigglesworth (LD)]

My Lords, is it not clear that the Government are not going to meet their borrowing targets? The Chancellor has said that. Is it not ludicrous against that background to be announcing today that there is going to be a cut in corporation tax costing £4 billion to the Exchequer? Can the Minister tell us what the position is going to be in the autumn? We will have a new Prime Minister, a new Chancellor of the Exchequer and a new OBR forecast. Can he guarantee that this announcement today will ever be carried out?

[Lord O'Neill of Gatley]

My Lords, I could give a very brief answer and say, “No, I can’t tell you what is going to happen in the autumn”. It is pretty hard these days to tell people what is going to happen next week.

[A noble Lord]

Tomorrow even.

[Lord O'Neill of Gatley]

Or tomorrow even. The process by which the Government’s fiscal position is influenced by the forecasts of the independent OBR is one of the few things that do not appear to have changed in the past week or so. That will set out the circumstances in which fiscal policy choices will be made by a new Prime Minister and the team under them.

[Lord Desai (Lab)]

My Lords, the Chancellor mentioned in his Answer disenfranchised people in the north and elsewhere. Will he give some thought to the idea that now is not the time to cut taxes, which may lead to loss of revenue, but to increase expenditure inasmuch as the fiscal charter allows us to break rules as long as we break them in the right way?

[Lord O'Neill of Gatley]

My Lords, I was very pleased to hear the Chancellor refer to that. We will indeed endeavour to put even more effort into rebalancing the economy of this country, including in the north, in the Midlands and possibly in other parts of the country as well.

Economy: Overseas Trade Deficit

Lord O'Neill of Gatley Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord Haskel]

To ask Her Majesty’s Government what steps they are taking to reduce the United Kingdom’s deficit on the balance of payments in overseas trade.

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)]

My Lords, changes in investment income are driving the UK’s current account deficit. This has greatly reflected Britain’s attractiveness as a destination for investors. In 2014-15, UKTI provided support for 1,610 of the 1,988 FDI projects in the UK. Government efforts are continuing to help reach the Government’s £1.5 trillion target by 2020. However, the Government’s commitment to eliminating the budget deficit should help to narrow the current account deficit, as forecast by the OBR.

[Lord Haskel (Lab)]

I thank the Minister for that reply, which of course is entirely consistent with government policy over the last five years—funding the deficit by inward investment—but the problem is that it is not working. The current account deficit has become larger in each of the last five years and now stands at a record level of 7% of GDP. Are the Government going to continue with this failed policy or are they going to change it before the deficit becomes unsustainable?

[Lord O'Neill of Gatley]

My Lords, I emphasise, as I tried to do in my opening comments, that the current account deterioration is not being driven by a deterioration in the trade deficit. In fact, our trade deficit has been relatively stable at around 2% of GDP for the last seven years.

[Lord Leigh of Hurley (Con)]

My Lords, the Minister is right to say that the deficit is caused by the imbalance in FDI. Does he agree that the way to address this is to encourage industry to divert investments away from low-yield FDI into high-yield areas, such as China, which currently represents less than 1% of our overseas investments abroad?

[Lord O'Neill of Gatley]

I am very grateful for the accurate suggestion by my noble friend Lord Leigh as to what is really going on below the data. I emphasise—as, rather generously, Ernst & Young did yesterday in a very important report—that the recent deterioration is due to the growing attractiveness of the United Kingdom, especially areas outside London, in the minds of investors all over the world. Narrowing this deficit requires us to invest more in other places in the world that give a higher return.

[Baroness Kramer (LD)]

I wonder whether the Minister has seen today’s FT interview with the director-general of the WTO, in which he explains that, if we were to leave the EU, the UK would be required to put tariffs on imports from all 58 countries with which the EU has trade arrangements, and they in turn would be required to put a surcharge on UK exports. This is not an area where we will have a choice. We cannot say, “We’re not charging duties here”. That would be impossible and illegal. Hence, would the Minister recommend that Brexiters take note of the damage they could cause?

[Lord O'Neill of Gatley]

My Lords, I thought that I had read the Financial Times thoroughly this morning but I missed that particular piece. If we want to reduce our current account deficit by reducing our attractiveness to foreign investment, we need to be very careful on 23 June.

[Lord Lawson of Blaby (Con)]

My Lords—

--- Later in debate ---

[Lord Pearson of Rannoch]

Do the Government accept that, according to their own Pink Book, we have had a growing trade deficit with the EU for the last five years totalling some £358 billion but a growing surplus with the rest of the world of £61 billion? Does not this also mean that the EU has many more jobs dependent on its free trade with us than we do on our free trade with it, which will therefore be in its interest to continue if we come to leave the European Union itself?

[Lord O'Neill of Gatley]

My Lords, the numbers that the noble Lord referred to in the Pink Book are broadly accurate but I do not share his interpretation of them. As shown in the timely piece from EY yesterday, the number of jobs being created by foreign direct investment in the UK is substantial.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister is extraordinarily complacent. Does he not recognise that the deficit on goods and services is the largest since the post-war recession of 2008, which affected the country so adversely? He is indicating that the Government have got matters in hand, but in fact we are approaching catastrophe as far as these figures are concerned.

[Lord O'Neill of Gatley]

My Lords, I hate to be a statistical nerd about these things, but I am staring at the data. Last year, our overall trade balance as a share of GDP was minus 0.20%. In 2010, it was minus 2.8%. As I said a few minutes ago, the trade deficit today is smaller than it has been for 10 years.

[Lord Lawson of Blaby]

My Lords, in the context of inward investment, to which my noble friend rightly referred and which is in fact the driver of this, did he have time in his busy life to read the story in Le Monde a few days ago? It was reported that the important French internet company Valtech is waiting for the outcome of the referendum and, in the event of Brexit, proposes to move its headquarters from Luxembourg to London.

[Lord O'Neill of Gatley]

My Lords, I like to think that my talents are spreading as the years go by but I am not yet capable of reading a French newspaper and so have not read that particular story.

[Viscount Hanworth (Lab)]

My Lords, it is clear that the only way in which to mend the balance of payments is to increase substantially our exports of manufactured goods. For our goods to become saleable abroad, the value of the pound must be reduced. If nothing is done to overcome the balance of payments problem, it is inevitable that the pound will eventually plummet. Can the Minister envisage a more orderly way of reducing the value of the pound?

[Lord O'Neill of Gatley]

My Lords, it is time for repetition again: our trade balance is smaller than it has been at any time in the past 10 years. It has been stable at around 2% of GDP. The deterioration of the current account, which has been significant in the past two years, is due to a growing imbalance in the so-called investment account.

Queen’s Speech

Lord O'Neill of Gatley Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord King of Bridgwater]

, as amended on Monday 23 May

That an humble Address be presented to Her Majesty as follows:

“Most Gracious Sovereign—We, Your Majesty’s most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament, but regret that the gracious Speech did not include a bill to protect the National Health Service from the Transatlantic Trade and Investment Partnership”.

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)]

My Lords, it is a privilege to open this debate following Her Majesty’s gracious Speech last week. I thank in advance my noble friend Lord Ahmad of Wimbledon, who will be wrapping up the debate later today.

It has been a year since I had the honour of joining Her Majesty’s Government. In fact, it was the occasion of Her Majesty’s Speech that allowed me to deliver my maiden speech before noble Lords last year. That day, I spoke of my determination to put an end to the underperformance and wasted talents of our towns and cities beyond the capital, especially in the north. I said that I wanted to help the UK make the most of our relationships with the most important emerging economies across the globe. I also said that I would be continuing the work I started before I joined the Government to establish how the world ought to respond to the stark threat posed by antimicrobial resistance.

The rise of superbugs resistant to our current drugs is a huge problem, and one that is getting worse. If we do nothing, the human and economic costs will be dreadful indeed. In fact, as we have shown in our review, by 2050 superbugs could kill 10 million people a year—the equivalent of someone dying every three seconds. I am delighted to inform noble Lords that we published the recommendations of this review last week, setting out not only the areas where we need to take action but how we can pay for it. So on all these fronts, without doubt it has been a busy year for me.

The views of your Lordships—including at times robust ones—have been of considerable assistance to me throughout, because the issues that we have debated and discussed in this House are ones of genuine complexity. As noble Lords will be aware, there are no silver-bullet responses to such critical questions as how best we can strengthen our economy and plan ahead for the future. So I look forward to the discussions we will have over the course of today, and indeed this year.

I now turn to the measures set out by Her Majesty the Queen last week to reflect the determination of this Government to follow an economic plan that will lay the groundwork for the long-term good of the country. For me, there are three main parts to that plan. First, we need to strengthen our economy to guard against future shocks. To do this we must not only bring public finances under control but address some of the more persistent and enduring challenges we have faced in the UK, such as low productivity growth and our current account deficit, which I touched on earlier.

Secondly, we need to make the right investment choices now to keep our economy growing over the coming years and decades. Thirdly, we must continue to do more to give everyone in this country the opportunity to do well at all stages of their lives and in all parts of the UK.

Today we have the chance to take a broad look at the Government’s plans to achieve these three aims, particularly during the next legislative session, as we look at some of the measures being taken forward by the Treasury, the Department for Transport, the Department of Energy and Climate Change, the Department for Environment, Food and Rural Affairs, and the Department for Communities and Local Government.

I will start with the very foundation of our strategy for the future: the Government’s work to fix the public finances. There has been clear progress to date. The deficit as a share of GDP was at its post-war peak in 2009-10. The independent OBR currently forecasts that the deficit will be eliminated by 2019-20, so the UK can go into the 2020s with a surplus. However, despite the considerable deficit reduction achieved, our debt to GDP ratio still stands at a very high level—indeed, its highest level since the late 1960s—at 83.7% of GDP. Reducing this figure is important, and therefore aiming for a surplus remains the most sensible fiscal policy to prepare for the inevitable future economic shocks that will come our way.

This Government have repeatedly stated their commitment to making sure that we live within our means. That is why spending has been reduced to 40% of our GDP in 2015-16, compared to 45% in 2010-11. Welfare savings of £12 billion are being delivered, and a further £3.5 billion of efficiency savings will be made by 2019-2020 to make sure that the public get the highest possible value from every pound that is spent.

But while it is important to keep spending under control, that is only one part of a sensible economic plan for any country, ours included. On its own it is no guarantee of long-term security and prosperity. It is equally critical that we invest where investment is needed, and put the policies in place now that will unlock growth in the future. Indeed, we are accelerating capital expenditure of £1.5 billion to make sure that the public start to see the benefits of our investment somewhat earlier. We are also legislating to put the independent National Infrastructure Commission on a statutory basis. This will play a crucial role in setting out a clear vision of the future infrastructure needed to ensure that our economy is fit for 2050.

Beyond that, it is also worth summarising the main ways in which the Government are investing in the future. First, we are rebalancing the economy. Your Lordships will know by now, I hope, how strongly I believe in the importance of rebalancing our economy, so it will come as no surprise when I turn first to our plans to develop the northern powerhouse and the Midlands engine for growth, because I am clear that accelerating regional growth is one of the best policies to deliver game-changing benefits to the entire UK. That is why we are so focused on the north and Midlands.

We are making record levels of investment in the transport networks of these regions: over £18 billion in this Parliament. Let me add—I touched on this earlier in Oral Questions—that there are increasing signs of overseas private investment in infrastructure in those regions of the UK. We are also setting aside well over £0.5 billion to help small and medium-sized businesses. We are creating more enterprise zones, which have already attracted thousands of jobs and more than £1 billion in private sector investment. We are funding new flood defence schemes and improvements in educational attainment.

Secondly, I will touch on devolution, which is closely associated with this.

[Baroness Jowell (Lab)]

On the Minister’s point about educational attainment, does he accept that readiness for school in young children is one of the key indicators of subsequent achievement? Does he share my concern that, last September, 40% of children starting primary school for the first time were deemed to be unready for school? That is the most likely predictor of subsequent educational failure. Will he share with your Lordships’ House how he intends to address that as part of the wider commitment to maximising educational attainment?

[Lord O'Neill of Gatley]

My Lords, the noble Baroness raises a very interesting point which should perhaps be discussed later or looked at in a separate debate in this House. I would say that there are considerable data about many challenges here. Specifically as it relates to the northern powerhouse, for example, an interesting oddity in contradiction to that piece of evidence is that primary school attainment in places such as the north is not so dissimilar to that in London and the south-east. It is at the secondary level of education where the relative gap emerges. That is a topic worthy of considerable discussion in this and the other place.

Let me return to the issue of devolution. It is important not just in terms of what we spend or how we spend it but what we do to give local leaders more influence, along with greater accountability. Your Lordships will have followed the historic devolution deals and will know of my great personal involvement in them. We are very proud of that over the past 12 months in cities across the UK. At its highest level, that means that we are introducing elected mayors, including in my own home city area of Greater Manchester. Elected mayors are important because they provide the accountability needed if the fullest level of devolution is to be granted. This remains the Government’s direction of travel. The local growth and jobs Bill will allow the local government sector to retain 100% of its business rates to boost growth in local areas, with the Greater London Authority, Liverpool and Manchester piloting the way forward.

Transport is another essential way to prepare for future growth: making sure that we have the transport infrastructure in place that will support and enable it. In this Session, we will see the passage of the HS2 Bill through this House, following its receipt of a resounding majority in the other place.

Passenger demand for rail has more than doubled since privatisation in the 1990s, and it has risen even faster on certain popular intercity routes. So by linking London with the major cities of the north and Midlands, and freeing up considerable capacity on the existing rail network, HS2 will give us the space that we need to meet growing travel demand, which could not be possible through upgrades to existing lines alone. We have also given the green light to dramatically improving train journeys between Leeds and Manchester.

We will improve our buses through the Bus Services Bill. This will tie into our devolution agenda by giving more powers to local authorities to set the standards of service in their areas, as well as better informing passengers. Lastly, the modern transport Bill could change the face of transport both for the individual person and for our businesses. Whether that is the development of commercial spaceports, getting driverless cars on the road, or enabling deliveries by drones, this is a Bill which will support the emergence of exciting, cutting-edge technologies.

As I also mentioned, it will all be about helping people to get on in their lives. That is the final aim that I would like to touch on. From childhood, through their working lives and on to retirement, our aim is ultimately to help British people to get on in their lives. That means building our economy based on lower taxes, helping people to take home more of what they earn. That is why, of course, the personal allowance has been increased to £11,500 and the higher rate threshold will rise to £45,000 in 2017. Over the course of this Parliament, those measures will take over 1 million taxpayers out of income tax, and will see over 500,000 fewer people paying the higher rate.

This year also saw the national living wage come into effect, which will benefit over 1 million workers, with a full-time national minimum wage worker earning £900 more a year. We also want to provide better choice and flexibility over saving, as well as more incentives to do so. The lifetime savings Bill will introduce the lifetime ISA to help young people in this country to save for their future. It will also bring in another important government-backed savings scheme, help to save, designed to help people on low income save for a rainy day.

Her Majesty’s Speech also outlined our commitment to investing more in the health of our young people. Sugar consumption is a major factor in childhood obesity, and our soft drinks industry levy will mean more funding to support things that will help, not harm, young people, whether that means more money for physical education in schools, or getting children to have a nutritious start to the day at a breakfast club.

Lack of housing remains an important issue for people in this country, and we are investing billions in housing over the next few years, including in what will be the most ambitious affordable housing programme since the 1970s. The neighbourhood planning and infrastructure Bill will also be a crucial reform to building new homes, not only speeding up the planning process but giving local areas more of a say about planning decisions that will affect their neighbourhoods.

We also want people to have more rights as customers. That is why the better markets Bill will introduce legislation that will not only open up our markets and boost competition, but also give people more power and choice to switch between, for example, energy providers, as well as more protection when things go wrong.

Finally, as noble Lords will be aware, grass-roots charities often perform a vital role in extending the support and help people need to get on in life. To support them in raising the most money they can to do this, we will be reforming the gift aid small donations scheme through our small charitable donations Bill, making it easier for new charities, as well as smaller charities, to get the funding that they deserve.

In conclusion, we will continue to take action to ensure security, sustainability and strength in our economy for the long term. That rests, without doubt, on our work to control public spending, but it is equally dependent on the success of our work to rebalance the economy, put in place the infrastructure we will need in the future and help people get on in life. The legislative programme for the next parliamentary Session, as Her Majesty’s gracious Speech set out, represents important steps forward in achieving these aims. I look forward to hearing noble Lords’ comments and views on them throughout today’s debate.