Budget: Economic and Fiscal Outlook

Baroness Falkner of Margravine Excerpts

Tuesday 5th May 2020 Lords Chamber

[Baroness Falkner of Margravine (Non-Afl)]

My Lords, I agree with other speakers that it is, indeed, a surreal experience to be speaking on government compliance with the SGP on a convergence programme, given that we are diverging from the EU, notwithstanding our obligations under the transition period. I also note that within the EU the SGP escape clause has been triggered, but that the EU insists that this should not suspend programme reporting. That seems slightly odd, given that no member state will be able to say with any certainty where it might be even by year end, never mind in the next three-year period. However, since the UK is complying, I shall make two general points.

The obvious point is that although we have left, the economic strength of our largest trading partner—its growth and prosperity—continues to be of huge significance to the UK economy and business. The EU, just like all economies, is throwing everything at dealing with Covid-19, but we simply do not know how that will play out in the peripheral economies of the eurozone. All we can do is hope that this emergency continues to be a health and economic emergency and does not turn into a financial crash as well; 2008 still hangs over us. Looking at the stock of non-performing loans on banks’ books, a Financial Times report yesterday shows that four of the top five banks making provisions for bad loans are UK institutions, so we need to be vigilant as the situation unfolds.

My second point has to do with the UK record in terms of deficit and debt criteria. When I took over as the chair of the EU Financial Affairs Sub-Committee, the UK was in excessive deficit procedure, for the perfectly understandable reason that our deficit and debt had rocketed during the financial crash of 2008. Although we were not subject to sanctions, due to Protocol 15, we were nevertheless subject to surveillance and had to demonstrate an endeavour to avoid an excessive government deficit. This was achieved and the UK returned to the preventive arm of the SGP, but the discipline of a deficit and debt target or range is an important one, as long as it is flexible and can adjust to emergencies to take account of automatic stabilisers.

My question to the Minister, in finishing, touches on the Government’s fiscal rules. While these are desirable in normal times, I have always disagreed with the straitjacket of PSNI not exceeding 3% of GDP, so will the Government rethink these rules in light of the current situation?