Budget Responsibility and National Audit (Fiscal Mandate) Bill [HL] Debate
Full Debate: Read Full DebateBaroness Kramer
Main Page: Baroness Kramer (Liberal Democrat - Life peer)Budget Responsibility and National Audit (Fiscal Mandate) Bill [HL]
Baroness Kramer Excerpts
Baroness Kramer (LD)
My Lords, the Budget Responsibility and National Audit Act dates back to 2011 and the days of the coalition. It required the Government to set out in the form of a charter their fiscal objectives, their policy for management of the national debt and the means to achieve those objectives —in other words, the fiscal mandate. Significantly, that first charter, which was put in place at a time when the economy was in crisis from the 2007-08 crash and with a deficit driven by both the crash and excessive public spending, set as its fiscal mandate a target to bring into balance the cyclically adjusted current budget in five years. As the helpful Library Note explains in some detail, the current budget was defined as the difference between government revenue and current expenditure and excluded quite explicitly investment spending.
When the Conservative Government came into power alone in 2015 they turned their back on that principle. Suddenly, eliminating the deficit required a surplus not in the current budget but in the overall budget, including investment spending. There was frankly an even more daft requirement, especially in our uncertain and fast-moving world, that public sector net debt should fall as a percentage of GDP in every year. The new fiscal mandate made no sense from day one, and if one needs more evidence, the Budget itself showed a really silly manipulation of planned capital spending, varying up and down in different years to meet deficit elimination dates. This version of the fiscal mandate has clearly constrained plans for investment in infrastructure, which this country desperately needs for growth, and it has denied the Government the chance to take advantage of incredibly low interest rates to finance that investment.
With Brexit that sort of fiscal mandate became untenable even to its creators and George Osborne junked it. I think we can say from their comments that the current Chancellor and PM have been glad to junk it too. But I am quite certain that at some point we will get a new fiscal mandate or something quite like it. The purpose of my Bill is to encourage all parts of this House to consider what principles should be embedded in any such mandate. Let me say first that with Brexit this is not going to be easy. At this point no one knows what Brexit will look like unless the Government wish to share more with us today. To say we have a vacuum in needed information is an understatement. I am a cynic and I cannot believe that the Government have failed to say more than “Brexit is Brexit”. But what we also cannot do is let the Government make decisions that shore up the economy in response to the immediate Brexit problems and ignore the long-term framework it requires.
I propose three principles in the Bill. The first relates to infrastructure. Clearly, the lesson has to be learned that no future fiscal mandate should ever again lead to perverse decisions to underinvest in infrastructure. While it may not be directly related, I am concerned that plans to empower the National Infrastructure Commission have now, I understand, been shelved. Infrastructure investment in the UK has been neglected for over a generation. The northern powerhouse has to be turned into a reality with major investment in HS3 or its variants and in interrail electrification. The Midlands engine requires major new transport links, as does every plan for growth in the south-west. While Londoners see major transport upgrades, population growth means that Crossrail 2 and Crossrail 3 are increasingly urgent.
In broadband we are well behind our competitors and all our plans are markedly unambitious. BT’s rollout plan relies on an outdated copper network, not fibre optics. The Government’s universal service obligation is for 10 megabits per second for 95% of people by 2017. By contrast, South Korea is rolling out 1 gigabit per second services already. At the top end it provides 10 gigabits.
In housing, we are all well aware that household formation means we need 300,000 new homes a year. I take that figure from the Economic Affairs Committee of this House in January 2016. In the last year to June we managed only 145,000 new houses and the rate of build is reported to be dropping. Government intervention and investment to overcome a broken housing market is vital. Without it, the quasi-oligopoly that is the housing construction industry will never deliver what we need.
In energy, we must reinvest in the renewables sector so hurt by earlier Budgets, but the Hinkley Point controversy, among its many issues, demonstrates that if we want some measure of control over major facilities we must be capable of investing in them ourselves.
Building public assets is also vital. London alone needs an additional 47,000 secondary school places in the next five years. Back in 2008 we spent £9.3 billion on capital expenditure in hospitals, but the NHS has secured commitments of only £5.8 billion a year for each of the next five years, despite evidence that the need is more acute than ever. I believe there is a growing consensus on the need to drastically up our investment in infrastructure, but let us reinforce it with the way we deal with the fiscal mandate.
Other objectives are just as important, so my second principle for the fiscal mandate is intergenerational fairness. Anyone who has looked at government policy in the last couple of years can see that deficit reduction is falling exceptionally hard on the younger generation. Severe cuts in housing and other benefits have been targeted at the young. Young people are excluded from the new national living wage and there is talk of using the pupil premium—possibly the most successful programme ever in raising educational standards for all—to fund grammar schools. While I admit that Liberal Democrats often shy away from talking about tuition fees, our deal in the coalition explicitly included a commitment to grants for living costs for disadvantaged students, raising the starting point for loan repayments along with inflation and capping fees at £9,000, all of which this Government are now scrapping.
The plight of our young people goes much deeper. The Guardian calls it,
“the financial rout facing millennials … A combination of debt, joblessness, globalisation, demographics and rising house prices”.
Notably, this group is likely to be the biggest losers from Brexit. If they cannot get education and apprenticeship training across the EU, as they do increasingly today, they lose. If they cannot easily move around Europe for jobs, as they do today, they lose. If they cannot set up new enterprises that easily take advantage of the largest market in the world for goods and services, they lose. During the recession young adults suffered the most joblessness and the greatest wage compression of any group. The disposable incomes of young adults have lagged well behind those of the rest of society. The big costs in life—education, housing and securing a pension—all cost significantly more than they did for my generation.
Paul Johnson of the Institute for Fiscal Studies has said that he fears intergenerational inequality will fuel wider inequality in society because youngsters with rich parents will retain such an unfair advantage in the important years of early adulthood, and that,
“it’s become more and more important whether your parents happen to have a house”.
I know that this is not just a UK phenomenon—it affects most of the developed western economies—but that does not mean that we should not try to confront it ourselves. That issue of intergenerational fairness needs to inform our decisions on who carries the tax burden, how we shape public support and investment, and how we fashion opportunity. I am not listing answers here, but we must have the debate before we lock in another fiscal mandate, and intergenerational fairness must be a benchmark against which we test the functioning and the character of that fiscal mandate.
Lastly, the Bill proposes that the competitiveness of the UK economy is a third but no less important consideration. All too often the Government seem to believe that competitiveness is a race to the bottom in corporate taxes—a strategy that has been remarkably unsuccessful in increasing private investment, job skills or productivity. Indeed, we all know that the UK falls far behind its competitors in productivity. We have to change that through improved infrastructure, skilled people and significantly increased investment. We have heard the mantra of what is needed and the mandate must drive, not hinder, that.
In addition, what we have discussed in the past may not now be sufficient. I argue that the issue is changing and becoming both more acute and more complex because we are entering a time of great transition. Artificial intelligence, robotics and machine learning are moving into everyday reality. They are reshaping our companies and increasingly defining our economy, but we have yet to see the full impact on jobs and society. People who regard themselves as skilled will find that their jobs are redundant not in the distant future but in the near future. We must commit to keeping this country at the leading edge. Research and development in our universities, institutes and catapults has never been more vital—Brexit negotiators take note. Reskilling and lifelong learning, currently utterly neglected by the Government, are becoming essential.
Those of your Lordships who read August’s excellent POSTnote from the Parliamentary Office of Science and Technology will have seen its report on a 2014 survey of technology experts, which found that only half believe that technology will continue to create jobs at a similar or faster rate than it displaces them. That will be new and different. We have always assumed that technology creates more new jobs than it displaces but that is now under serious reconsideration. It is going to be extraordinarily challenging. We have to recognise that as we set up frameworks, of which the fiscal mandate is probably the most significant.
I regard this as an opening discussion. Brexit looms but more than Brexit matters. Brexit alone will not shape our future. Other, broader, long-term factors cannot be ignored. The next fiscal mandate has to recognise a far broader set of priorities than just deficit reduction, which has been its focus in the past and, frankly, has made it difficult for us to create the growth, prosperity and opportunities we need for the future. Infrastructure, intergenerational fairness and competitiveness are three factors that must not be ignored. I beg to move.
Baroness Kramer
My Lords, I thank all those who have spoken in this debate. Of the four of us who have spoken, three had no choice. However, the noble Lord, Lord Bilimoria, was a true volunteer. That makes him No. 1 in my book as a consequence. I very much value his contribution and the examples given of Sweden and the US taking a different approach to issues such as the fiscal mandate. That opens up our minds. He warned us against a Victorian vision of the economy and, in doing so, drew on his own experience as a very successful creator of a business. He very much urged the Government to take advantage of low interest rates to accelerate the commitment to infrastructure well beyond their current and original ambitions. I hope that the noble Lord, Lord Young, has taken this point on board.
I thank the noble Lord, Lord Davies of Oldham, very much for finding so much common ground. It is always good when views are shared across these Benches. I am sure he is right that we will confront these issues in the Autumn Statement in November, long before any Bill introduced as a Private Member’s Bill will have the opportunity to have any impact. On that score, I say “Cheeky” to the Minister for bringing in a quote from my good colleague, the noble Lord, Lord Beith. However, he too will recognise that this is an important mechanism for getting a debate on an issue that very often comes after an Autumn Statement, although it should come before it. I hope that the Government will create some opportunities in their own time for key issues like this to be considered, particularly in the context of Brexit, which creates a much more dynamic situation and means that many more things need to be considered by this House and the other place.
I particularly valued the contribution of the noble Lord, Lord Davies, to the discussion of what the Government describe as a switch to grammar schools, which for 90% of people is a return to secondary moderns. That gets very much lost in the discussion, and I hope that what he has said will be seen as something of a reprimand to the media, which have ignored the 90% who will never have the opportunity to participate in the quality of education that is now being identified for a limited few.
I am delighted to hear that the Government welcome the general principles that were laid out in my Bill, but we have some differences of interpretation. Many in this House, and many on the Minister’s own Benches, will find the commitments to infrastructure spending frankly unambitious, given the needs of the time. We face generations of underinvestment, and the Government need to look again at accelerating our commitment to dealing with that in these times of great economic uncertainty and challenge. He also explained that the change in the definition of a budget balance or surplus was driven by the Conservative 2015 manifesto. Just because one makes a foolish statement in a manifesto, that does not mean it then makes sense to put it into practice in government. The Government need to look again at something I know they themselves see as a pair of handcuffs; there is no reason why we should all suffer as a consequence of manifesto drafting.
When the Minister looked at generational fairness, he once again focused on making sure that the next generation does not have to carry the debts for its predecessor generations. I fully accept that. However, that is far too limited an understanding of what is happening to our younger generation, who are in the most extraordinary situation. When the Minister and I were young, we always knew that we could do better than our parents. We now have a generation for which that is exceedingly questionable. That issue must be addressed before we end up alienating those who will inherit not just the national debt we leave behind, but society, opportunity, the economy and so much else. That has to go much more centre-stage in the Government’s thinking.
On competition, the only thing the Minister mentioned was tax cutting. That indicates the narrowness of the Government’s definition of competition—“Have we cut corporate taxes?” Frankly, cutting corporate taxes may have made some companies happy but it certainly has not led them to invest more, to train more or to increase their productivity in any marked way. Therefore, we have to look at other strategies to achieve that goal, and we need to understand the limits of tax cutting and decide whether it is appropriate for our target.
I thank everybody for participating in this debate. These are topics that we will return to, whether in the context of this Bill or in other contexts. For me, this has been a very interesting first go around the subject and it has also provided a great opportunity to welcome the noble Lord, Lord Young, to his new role. I look forward to many more exchanges on these and similar issues, and I ask the House to give the Bill a Second Reading.