Autumn Statement: Economy

Baroness Kramer Excerpts

Tuesday 29th November 2016 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the wind-up speakers, I will say what an insightful debate this has been, with a great deal of food for thought. Of course, that makes winding up exceedingly difficult, so I thank your Lordships.

Almost every speaker today has focused to some degree on the extraordinary impact of Brexit on the OBR forecast, and looked at the before and the after. I will not repeat the numbers on the impact on growth and output, which have often been shared on the Floor today. However, I will pick one number, described by my colleague, my noble friend Lord Fox, as a Brexit black hole: the impact on public sector net debt. As many who read the Autumn Statement will be aware, the March forecast for 2019-20 for public sector net debt was £220 billion lower than the new November forecast. Some £100 billion of that was due to action by the Bank of England. I pick up that point in part to respond to the noble Lord, Lord Higgins, because I want to agree on the effectiveness and importance of the impact Governor Carney has had on stabilising the economy. That £100 billion is part of the stabilisation package to give long-term assurance that financial institutions will be in a secure position as a consequence of Brexit, but it is still a Brexit number. That, essentially, leaves another £120 billion, the bulk of which, one way or another, is due to the negative impacts of Brexit. We can see how that number has in many ways paralysed the Chancellor and limited his options. While in many ways I support the various spending commitments he has made, almost all of them are small and limited because he sees no room for manoeuvre, especially in trying to keep some capacity to deal with a worse outcome than that suggested by the OBR.

Speaker after speaker—the noble Lord, Lord Livermore, my noble friend Lord Fox, the noble Baroness, Lady Hollis, and many others—focused on the damage that this loss in growth and rising public sector net debt causes families. According to the OBR forecast—by the way, the OBR is more optimistic than many other bodies, such as the Bank of England—national income in 2020-21 will be down by over £30 billion, which is equivalent to more than £1,000 per household. There have been many quotes from the Institute for Fiscal Studies but the one that particularly struck me is the following:

“the outlook for living standards has deteriorated rather sharply since March. The OBR is forecasting both lower nominal wage growth … and higher inflation”.

The noble Lord, Lord Flight, who is not in his place, talks happily of the benefits of the collapse in the value of sterling, but it imports inflation, which will be borne by the least well off in our communities and those very families whom so many speakers have identified today. Real average earnings will be 3.7% lower in 2021 than was projected in March.

“To put it another way”,

says the IFS,

“around half of the wage growth projected for the next five years back in March is not now projected to happen”.

That is a serious and dire consequence for people who have been living through a long period of austerity. They include public workers, who are still facing a significant wage freeze, despite the fact that we now have high inflationary forecasts.

The Government will say to us, “We’ve adjusted the taper rate for universal credit and we’ve made a slight increase in the national living wage”. However, before they say that, I point out to them that the IFS has explained that they,

“pale into insignificance alongside the benefit and tax credit cuts announced last year”.

The right reverend Prelate the Bishop of Portsmouth could not have put it more eloquently, and we also heard the noble Baroness, Lady Donaghy, on the same issue: there really is no jam for the JAMs in this Autumn Statement. We have done a back-of-the-envelope calculation and it looks as though those who were facing a planned cut of about £2,000 a year under the changes in universal credit and the allowance benchmarks will get no more than a reduction of about £200 in that £2,000 cut, so the change is essentially quite marginal.

That tiny bit of jam is actually being paid for by families. So far in this debate no one has mentioned the whacking great increase that is coming in insurance premium tax. It is already set at 10%, which is way too high, but it will be rising to 12%. It is a tax that, above all, hits young people—millennials and young families. For the typical family, the IPT alone will bring an additional burden of £90 a year compared with 2015. It is the mechanism through which some of the ameliorations in the harsh welfare cuts are being financed. As we heard from the noble Lord, Lord O’Neill, who talked about intergenerational fairness, and a range of other speakers, of all the groups that need relief, not punishment, surely this group of millennials—young families and young people—should have been recognised in the Autumn Statement, but quite the reverse was true.

The only real nod to that group has been the ban on charging tenants for letting agents’ fees, which was mentioned by the noble Lord, Lord Whitty. I totally support that, but perhaps I may recommend to the Government that they support the excellent Private Member’s Bill which is already in this House, sponsored by my noble friend Lady Grender, because it tackles exactly this set of issues and would enable the Government to achieve quickly and without delay the goal of relieving those tenants of the burden of paying these fees. With this Bill there is an “immediately to hand” mechanism.

I, like others, am absolutely shocked that there was no mention in the Autumn Statement of additional funding for the NHS and social care. The issue was raised by my noble friend Lord Fox, and the noble Baronesses, Lady Warwick and Lady Donaghy, and a range of others. Scarcely a week ago, the NAO reported on the absolutely perilous state of NHS finances. I and my party have argued that, despite the fact that we are in such tough times, we need an immediate £4 billion injection—that means now, not in future years—including £1.3 billion ring-fenced to go directly to social care and delivered directly to local authorities, and £500 million ring-fenced for mental health. We are in a state of crisis. This is an emergency and it needs an immediate government reaction. Frankly, the Autumn Statement should have been that opportunity.

The Chancellor has agreed to more funds for capital spending, and I support that thoroughly. The largest item within that offering is the national productivity investment fund of £23 billion over five years. However, a number of noble Lords, including the noble Lord, Lord Bilimoria, pointed out that when you divide £23 billion by five, it is not really such a big number. There are then various scatterings of other investment throughout the Autumn Statement. It is a very good example of how constrained the Chancellor feels. However, he is making a commitment to additional funding for infrastructure and long-term investment, and I say to the noble Lord, Lord Higgins, that I desperately hope that this reflects a change in Treasury thinking, even though it has not been said out loud. Long-term investment in capital expenditure needs to be on an entirely different set of tram tracks from the management of the current account. It is a different consideration with a different set of issues, as I have been arguing for years. The noble Lord, Lord O’Neill, who is in his place, is quite sympathetic to the view that the current account and the associated deficit should be considered completely differently. I wonder whether we are now beginning to see that in the Treasury’s thinking—I hope that is true.

I am still unclear as to whether all the spending is new spending. I point out the £1.8 billion allocation from the local growth fund that was announced in all these numbers. I remember announcing that, as did various other Ministers back in the coalition years, when we set the spending allocation until 2021. Therefore, it may not all be entirely true, but I am glad that there is some new money in there.

As we have heard from speaker after speaker, if we are to increase our productivity as a nation, we have to increase our capacity to invest and deliver on an even greater scale. This morning, I was at a rail conference. Frankly, everyone agrees that, everywhere, the rail network is out of capacity—and that is just one sector of the economy. In the coalition days, it was quite difficult to deliver new infrastructure projects rapidly because the analytical work and the planning had not been done. However, on project after project that is now in place. Skills are short and there are still organisational problems, but we should be able to start delivering on a far greater scale than we have been able to in past years. Surely the Government should be looking at that, for the variety of reasons that were given in this debate.

I want to pick up on the point that we must not neglect the regional element in all of this. The noble Lord, Lord O’Neill, talked about the northern powerhouse and the noble Lord, Lord Jones, talked about the Midlands engine. Other noble Lords talked about the south-west and many other parts of the country. All that remains essential and needs to be captured within this more significant investment. We need a complete step change in this area, and we have to regard the Autumn Statement as only a minor downpayment on this essential investment. I have one question for the Minister. I am unclear whether any of this money is replacing the money that is now being lost from the European Investment Bank, which, as he will know, is now reluctant to fund any UK project with a life longer than two years.

On reading the Chancellor’s Statement, you would think that we were going to build more houses. However, I recommend that noble Lords read the OBR forecast, which makes it clear that, thanks to the changes in the funding for housing associations, 13,000 fewer houses are forecast to be built over the next five years. The money for 40,000 new affordable homes is too little to make up the shortfall. This is, frankly, dire. Those points were made by the noble Baroness, Lady Warwick, and the noble Lord, Lord Hunt. Let me call yet again for the Chancellor to uncap local authority borrowing for homebuilding purposes. Housing is becoming a national emergency and he must put local councils, as the bodies most able to deliver affordable homes quickly, back into homebuilding in a significant way—of course working with housing associations, which are so important to local delivery. But we have to get the capacity back on stream and very quickly.

It is really quite shocking, to pick up the point made by the noble Lords, Lord Hunt and Lord Fox, that the Chancellor has no investment money for our cutting-edge green energy industries. We are going to lose our world leadership in that area without even a fight unless we deal with its need for significant investment now. There is money for ultra-low emission vehicles—an issue very close to my heart—but I can tell noble Lords from experience in the coalition years that it is below the amount needed to deliver us dominance in this new technology.

Some noble Lords will say that some of the measures I have called for require more money, and that is true. I have always been opposed to the cuts we have seen in capital gains tax, but even more, I cannot understand why the Chancellor, at a time of real fiscal pressure, has confirmed future cuts in corporation tax to 17%, well below the current 20%. He must know—and I say this to many on the other side of the House, including the noble Baroness, Lady Noakes, and the noble Lords, Lord Flight and Lord Suri—that almost no corporation large or small has been asking for further reductions. He will also know that we now have long experience that cutting tax rates, particularly below the 20% mark, does not tempt companies to invest or grow. To make matters worse, he has confirmed that corporation tax may go even lower. In a race to the bottom, he has seconded the Prime Minister’s promise always to have the lowest corporation tax in the OECD—in other words, confirming this Government’s self-identification as the largest tax haven of any developed country. I wish him good luck in trying to find friends to do a trade deal when that is what is promised.

I have never known the OBR’s forecasts to be so uncertain. I disagree with the noble Lord, Lord O’Neill, on this, because often there are what pundits call unknown unknowns. We have never been in a situation of so many known unknowns. There are so many issues of such uncertainty, on such scale, and I can understand that that makes all this difficult. But in that circumstance, the Government’s continuing refusal to give any guidance on where they are taking Brexit is making life fraught, and not for us—who cares about us?—but for the companies that are the foundation of our economy. Even the public are now worried, with sharp drops in confidence in the future in all but the oldest age groups. No experienced negotiator buys for one minute the idea that complete silence is necessary or even sensible for a strong negotiating hand. That leaves us with the feeling that the Government say nothing because they have not a clue what they are going to do. That is more worrying than almost any other feature. I call on the Government to shift the dial, have that conversation and declare where they intend to lead this country, rather than meandering rudderless, as they are tending to do right now.