Spending Review 2020

Baroness Kramer Excerpts

Thursday 3rd December 2020 Grand Committee

[Baroness Kramer (LD) [V]]

My Lords, the OBR’s central scenario anticipates a contraction in the economy this year of 11.3% due to Covid, leading to a permanent economic scarring of 3%. Public sector net borrowing will reach 105% of GDP this year. However, it is the employment numbers, expected to peak at 7.5% next year, that will really shock the British public. Sadly, we have had a foretaste with the collapse of Arcadia and Debenhams, putting 25,000 jobs at risk and closing retailers that have underpinned town centres. Other retailers will follow, especially when the rent holiday ends.

We are in a transition. It is a time of dislocation, and the Government need to provide a soft landing. The noble Baroness, Lady Warsi, raised critical questions about mitigating the immediate impact of job losses. At the very least, furlough and related programmes need to be extended; other countries have promised support through 2021.

My colleagues and I have supported the Chancellor’s actions to pump money into the economy. Indeed, we cannot understand why 3 million self-employed people have been excluded from any kind of support. The noble Lord, Lord Haskel, made the point powerfully: it is a travesty that this spending review does nothing for the excluded.

My colleagues and I are shocked that the additional £20 a week in universal credit has not been locked into this spending review and the uplift has not been extended to legacy benefits, as was discussed by the right reverend Prelate the Bishop of Portsmouth. As others have said, the most economically fragile people do not know whether, overnight in March, they will lose 20% of their weekly income.

I also join my colleagues in calling for urgent action to support unpaid carers. I am really tired of hearing them praised but seeing them left to struggle. Many full-time carers rely on the carer’s allowance, which is only £67.25 a week. At the very least, they need a £20 uplift to match the uplift in universal credit.

This pattern of saying praise phrases but then actually doing harm applies to this Government’s behaviour to a large body of public sector workers, whose income is not just frozen but will actually shrink with inflation. As the Institute for Fiscal Studies has pointed out, the freeze saves the Government between £1 billion and £2 billion, which is pocket money compared to the £400 billion spent on the epidemic. The freeze reduces consumer spending, as pointed out by the noble Lord, Lord Goddard. It has to be pure politics—a deliberate kicking of public sector workers to please the Tory right.

Of course, the kicking is extended to local government. Many local authorities are close to breaking point with the added burdens of Covid, but the additional money offered to them in the spending review is largely a lift in the ceiling for local tax increases of 5%, as illustrated by the noble Lord, Lord Shipley, the noble Baroness, Lady Pinnock, and, indeed, the noble Baroness, Lady Eaton. The tax rises that the Government are avoiding they now start to dump on local authorities. Dumping the blame is the real story, especially as no true devolution goes with it.

As the IFS said, and as the noble Baroness, Lady Bennett, quoted, it was a pretty austere spending review—cutting spending plans by more than £10 billion next year and in subsequent years, with the pain falling largely on the unprotected departments. There will be no Covid-related spending after next year, nothing to deal with the demands of an ageing population on the NHS and social care, as discussed by the noble Lord, Lord Hunt, and little to match the retraining needs of a digital age.

What about the actual spending announcements? The big winner is defence. How much of that is for space projects and for OneWeb, the failed internet company purchased by the Government in their hope of rivalling Elon Musk and Jeff Bezos? It certainly does not raise this Government’s standing in the world, especially as it comes with their betrayal of their promise on overseas aid—a point powerfully made by the noble Baronesses, Lady Sheehan, Lady Warsi, Lady Uddin, Lady Ritchie and Lady Hayman, and the noble Lord, Lord Reid, Lord Hain, Lord Bhatia and Lord Sheikh, but perhaps most powerfully by my noble friend Lord Oates. Overseas aid is already reduced because our GDP is reduced, as the noble Lord, Lord Bourne, pointed out. This action removes another £3 billion just as developing countries are in need of more resources than ever to counter Covid. Like so many others, I truly respect the noble Baroness, Lady Sugg, and her decision to resign. She was a terrific Minister and she will be missed.

This spending review was hailed as a new dawn for green and infrastructure projects, but nearly every penny of capital spend is a reannouncement. I accept that public sector net investment will average twice that of recent years, but it has a lot of catching up to do. The green schemes funding especially, at £12 billion in total, is dwarfed by the equivalent commitments in Germany of £42 billion and France of £35 billion. It fails to meet our national ambitions, as pointed out by the noble Baronesses, Lady Hayman, Lady Randerson and Lady Boycott. I am shocked that the levelling-up fund requires money to be spent by the next election, and I hope that it will be free of the political interference of the towns fund. We need the best projects, not political bungs. I appreciate the points made by the noble Lords, Lord Liddle and Lord Bourne, on the need for devolution to use such funds effectively.

What the Government hate to confess is the role of Brexit in this whole bleak scenario. The economic scarring from Brexit—and that assumes a trade deal with the EU—is 4% permanent damage. No deal adds another 1.5% to 2% of permanent scarring, as the noble Lord, Lord Hain, made clear. In case the Minister mentions new trade deals, those are already built into the numbers. Brexit and Covid are a toxic combination, as the noble Lord, Lord Inglewood, described. Covid has crushed sectors such as hospitality, shop-based retail, leisure and transport. Brexit damages much of the rest of the economy, including financial services, manufacturing, life sciences, pharmaceuticals and agriculture—and, frankly, the creative industries are felled by both. If the Government do not pull their head out of the sand and understand the impact of economic Brexit, we will be in an appalling spiral.

Time is running out for this Government to get a grip. Interest rates are very low, largely thanks to £900 billion of QE by the Bank of England, but we have to remember that we are very susceptible to the slightest increase in interest rates. Productivity was at rock bottom even before Covid. New business investment fell sharply following the referendum and now has effectively disappeared. The severe depreciation in sterling since the Brexit referendum has given us wage and economic stagnation.

I will raise one very quick point at the behest of my noble friend Lord Sharkey. Medical research charities, which underpin so much research in this country, are in crisis due to Covid, with a shortfall of £310 million. Will they be allocated funds to cover the gap from the increase in research and innovation funding? If not, we will very likely lose not just the programmes but the scientists that make us a world leader in this field.

Other noble Lords have raised a range of critical issues, and done it brilliantly in two-minute speeches. The noble Baroness, Lady Humphreys, underscored the support crisis in Welsh farming; the noble Earl, Lord Clancarty, and my noble friend Lord McNally raised the challenges to the creative industries; and the noble Baroness, Lady Goudie, raised gender issues. Will the Minister at least write to answer those crucial questions and challenges if he cannot reply today?