Baroness Penn
Main Page: Baroness Penn (Conservative - Life peer)Covid-19: Economic Recovery
Baroness Penn Excerpts
Baroness Penn
That the Grand Committee takes note of the steps taken to protect jobs and livelihoods as the economy recovers from the COVID-19 pandemic.
Baroness Penn (Con)
My Lords, it is a privilege to introduce today’s debate on behalf of the Government. Given the challenges that the Government have faced this last year and that they continue to face, this is an important opportunity to review their approach to what we all understand has been a grave shock: a health emergency and an economic emergency. I am pleased to have this opportunity to debate and discuss the measures that we are introducing to protect jobs and livelihoods, as the economy recovers from the Covid-19 pandemic—as we are all determined it will.
The Government’s efforts to tackle the economic damage threatened by the pandemic have been broad and deep. A comprehensive and sustained economic shock was met with a comprehensive and sustained response, recognising the difficulties faced by individuals, families and businesses across the country. The Coronavirus Job Retention Scheme has helped to support over 11 million unique jobs since its inception and the Self-employment Income Support Scheme has supported a further 2.7 million people, with grants worth over £19 billion. Individuals and families have also benefited from increased welfare payments, a stay on repossession proceedings and mortgage holidays.
Support was given to renters through increases to the local housing allowance rates for universal credit and housing benefit recipients and an additional £500 million was made available to councils last year through the hardship fund grant to support households struggling to meet council tax payments. This money was used to provide recipients of local council tax support with a further £150 reduction in their bills. Government has delivered over £75 billion in guaranteed loans to more than 1.6 million businesses, as well as providing tax deferrals, grants and a business rates holiday worth over £10 billion.
In sum, the Government have taken unprecedented action to support our economy and public services in response to the pandemic. Taking into account the significant support announced at the 2020 spending review and this year’s Budget, the total financial support for the economy is over £350 billion across last year and this year, or around 17% of 2020 GDP. This includes £55 billion in 2021-22 to support the public service response to the pandemic.
All of this has made a very real and tangible difference. In fact, the Office for Budget Responsibility now expects the UK economy to recover to its pre-crisis level six months earlier than originally expected—by the end of the second rather than the fourth quarter of 2022. Meanwhile, unemployment is expected to peak at around 6.5% instead of the nearly 12% feared last summer. As the Resolution Foundation observed,
“This would be by far the lowest unemployment peak in any recent recession, despite this being the deepest downturn for 300 years.”
Our focus was on the preservation of jobs and livelihoods and that is what we have sought to deliver.
Looking forward, in response to the current restrictions and the Prime Minister’s road map to easing the public health measures, the Chancellor announced at the Budget an additional £65 billion of economic support. The furlough scheme has been extended until the end of September, support for the self-employed will also continue until then and we have extended eligibility so that those who completed a 2019-20 tax return by 2 March will qualify for the fourth and fifth self-employed grants, potentially reaching a further 600,000 people with support. At the same time, the fifth and final grant will include a turnover test to ensure that support is targeted at those who need it most.
The Budget maintained the universal credit uplift of £20 a week for a further six months, provided working tax credit claimants with the equivalent support over the same timeframe and increased the national living wage to £8.91 an hour. For the first time since it came into effect in 2016, the age threshold for the living wage has been lowered from 25 to 23 years old, giving a pay boost to more younger people.
At the Budget, the Government launched a new restart grant to help businesses reopen and get going again, worth up to £18,000 per business, and a new recovery loan scheme to replace earlier bounce-back loan schemes and coronavirus business interruption loans. To support the cash flow and viability of around 150,000 businesses and to protect over 2.4 million jobs in the hospitality and tourism sector, the Government have extended the temporary reduced rate of VAT at 5% to 30 September 2021. To help businesses manage the transition back to the standard rate, a 12.5% rate will then apply for a further six months, until 31 March 2022. The Budget also announced a three-month extension of the business rates holiday, followed by a 66% capped relief for the remainder of the year. This is worth £6 billion to businesses in the retail, hospitality and leisure sectors and nurseries.
The reality is that the Government have continued to deliver a package that is unprecedented in scope and scale and reflects the wider strategy for cautiously reopening the economy, as set out in the Government’s road map. As we follow the road map and lift restrictions, there are reasons for optimism. Overall, household balance sheets have strengthened, with household savings in 2020 as a whole almost £139 billion higher than in 2019. At the same time, while many firms have been hit hard by the pandemic, data on corporate deposits at banks suggests that, in aggregate, firms accumulated additional savings of close to £100 billion between March and December 2020. Of course, those additional savings do not reflect the reality for many families and businesses hardest hit by the pandemic, on which the Government must now focus their support.
That is the briefest of summaries of where we are and what the Government have already done. What matters now is our future recovery. The key to that recovery is growth. Our plan to build back better will drive economic growth by investing in infrastructure, skills and innovation. It tackles long-term problems so that we can deliver growth that creates high-quality jobs across the UK and strengthens the union, as well as achieving the people’s priorities: levelling up across the whole UK, supporting our transition to net zero and supporting our vision of a global Britain.
Economic recovery was the thinking behind other new measures announced in the Chancellor’s speech at Budget last month, including the super-deduction, which will allow companies to reduce their taxable profits by 130% of the cost of investment that they make in plants and machinery—equivalent to a 25p tax cut for every pound that they invest. Worth £25 billion over the two years it is in place, the super-deduction represents the biggest business tax cut in modern British history.
That is just the beginning. The Budget also announced the creation of the first ever UK infrastructure bank, headquartered in Leeds and tasked with investing across the United Kingdom in public and private projects to finance the green industrial revolution. The Budget accelerates that green industrial revolution in other ways too, including by funding new port infrastructure to construct a new generation of offshore wind projects in Teesside and Humberside. This is in addition to £12 billion of government investment to create and support green jobs as part of the Prime Minister’s Ten Point Plan for a Green Industrial Revolution.
As the country recovers from the pandemic, we will rely hugely on the enterprise and endeavours of our small businesses. Two new schemes—Help to Grow and Help to Grow: Digital—will help tens of thousands of small and medium-sized businesses get world-class management training and help them develop their digital skills by giving them free expert training and a 50% discount on new productivity-enhancing software. These are initiatives the Institute of Directors has called
“a big win for SMEs.”
We have also set out our plans to make the UK a scientific superpower—another means by which investment can help power our recovery. To support this ambition, the Government will invest £14.9 billion in R&D in 2021-22, meaning that UK government R&D spending is now at its highest level in four decades. We have also committed to providing £800 million by 2024-25 for the new Advanced Research and Invention Agency, ARIA, which is tasked with funding high-risk, high pay-off research and supporting ground-breaking discoveries which could transform people’s lives for the better.
Through our Plan for Jobs, the Government have provided unprecedented support to protect existing jobs, help people find work and support people in building new skills. For those who unfortunately lose their jobs, we are helping them to find new ones by doubling the number of work coaches and with additional tailored support such as the Kickstart scheme and Restart programme. So far, over 180,000 Kickstart jobs for young unemployed people have been approved by the scheme, and Restart will provide support to over 1 million unemployed people.
We are also doing what we can to make sure we have enough access to the talent that we need, both at home and abroad, through our apprenticeship and traineeship programmes, the lifetime skills guarantee, and the reforms we are making to our visa system to attract highly skilled migrants. We know that apprenticeships work, which is why the Chancellor has increased and extended the incentive payments for employers who hire a new apprentice. Employers who hire a new apprentice between 1 April and 30 September this year can now claim a payment of £3,000.
Crucially, our efforts to support an investment-led recovery target all four nations of the United Kingdom, with accelerated city and growth deals in Ayrshire, Argyll and Bute, and Falkirk, and three more in North Wales, Mid Wales and Swansea Bay, as well as funding support for the Holyhead hydrogen hub. Alongside these measures, our commitment to levelling up across the UK is reflected in the £4.8 billion levelling-up fund; more than a billion pounds for 45 new town deals; a £150 million fund to help communities across the United Kingdom take ownership of pubs, theatres, shops or local sports clubs at risk of loss; and in Her Majesty’s Treasury’s own commitment to open offices in Darlington to form a northern economic campus. This complements the inward investment that will be attracted through the announcement of eight new freeports in eight English regions, offering tax, customs and regulatory benefits, driving greater innovation and the creation of high-quality jobs.
Importantly, over time, once the economic recovery is secured, the Government will take the necessary steps to ensure the public finances are on a sustainable path. Given that the Government are providing businesses with over £100 billion of support to get through the pandemic, it is only fair and necessary to ask them to contribute to our recovery. That is why the Budget increased corporation tax to 25% from 2023, after which point the OBR has said recovery will be under way. The UK will still have the lowest corporation tax rate in the G7, and smaller companies who make less than £50,000 profit annually will be subject to only a 19% tax rate.
Significantly, the Budget did not raise the rates of income tax, national insurance or VAT. Instead, it maintained personal tax thresholds on income tax, inheritance tax, the pensions lifetime allowance and the annual exempt amount in capital gains tax from 2022-23 until 2025-26—that is, four years. This is a universal, progressive and fair measure to fund public services and help rebuild our public finances.
It is thanks to people’s hard work and sacrifice, supported by the success of the initial stages of the vaccine rollout, that there is now a path to reopening the economy. But the Government are not complacent. We understand, just as noble Lords understand, that there is much more to do. Our approach will remain flexible. As measures to control the virus evolve, so will government support. We will continue to listen to the views of people across the political spectrum, we will continue to take action on a number of fronts, and we will continue to do what it takes to engender the economic recovery that the country needs.
Baroness Penn (Con)
My Lords, I thank all noble Lords for their thoughtful and insightful contributions to this debate. My noble friend Lady Noakes will be relieved to hear that, instead of repeating my Treasury brief, I shall use my time in closing this debate to address the many points raised by noble Lords.
A number of noble Lords, including my noble friends Lord Lilley and Lady Noakes, noted the unique nature of this economic crisis and the recovery—namely, that much of the economic shock was a consequence of government decisions taken to close aspects of our economy in response to the pandemic. While I suspect that there will not be a meeting of minds on the need for some of those lockdown measures, I hope that perhaps there will be more so on the need for the most recent lockdown to be our last and for the pathway out of the pandemic that we have set out to be a lasting and sustained one.
The noble Lord, Lord Bilimoria, asked about data rather than dates. He is right that we will be driven by the data. He asked whether that would allow us to go faster than the road map that we have set out. The challenge there is that the gap between each stage of the road map allows us to gather the data on the outcomes of each set of changes before taking the next step. So while we will be driven by the data, we also need the time for each set of changes to take place and to gather the data on them, so we will not be moving faster than the road map set out. We hope to continue to make good progress along that road map.
In the unique economic crisis that we face, the fact that it has been caused by government decisions has been reflected in the scale of support provided by the Government to those most affected. The fact that so many businesses had to shut their doors as a result of government action meant that there was an unprecedented case for government intervention to support them. Noble Lords are also right that, as we progress on the road map out of lockdown, that direct support provided to businesses and jobs can be tapered away. The focus must then be on the long-term drivers of growth in our economy and what comes next.
The first item on that list from my noble friends was for the Government to get further out of the way and to reduce the regulatory burden on business, in particular, on small and medium enterprises. My noble friend Lord Lilley raised some very interesting points on the speed of approvals for vaccines and ventilators and the broad impact of regulatory delay. The Government will certainly consider where and in what ways the pandemic led to improvements that can now be implemented on a more permanent basis. The Government will also continue their work to identify and act on opportunities for deregulation, including those as a consequence of Brexit, making sure that we have a regulatory system that works for the UK.
The noble Baroness, Lady Humphreys, spoke about business rates. While they are devolved in Wales, the Government have committed to fundamental review of the business rates system in England. The Treasury has published its interim report setting out a summary of responses to the call for evidence. Further policy development is currently taking place and the review will conclude in the autumn.
The noble Baroness, Lady Humphreys, also raised points about economic support for Wales and what needs to happen in Wales to support the economic recovery. Of course, the Budget was, and is, for the whole United Kingdom, and one strength of our response to the pandemic has been the continued UK-wide support that the Government have provided in the current circumstances. That continues with the extension of the Covid support schemes, including the reduction in VAT for the tourism and hospitality sectors and the £20 increase in universal credit. The steps that the Budget took towards investment-led recovery—such as the extended annual investment allowance, new schemes to raise SME productivity and the UK Infrastructure Bank—would also benefit Wales’s economic recovery, as would the UK-wide place-based schemes empowering communities to drive local priorities.
As I mentioned in my opening remarks, the Budget also made some targeted interventions to support the strengths and opportunities in Wales. Those include, for instance, the £4.8 million Holyhead hydrogen hub, the up to £30 million invested in the global centre of rail excellence, and three city and growth deals in Wales.
A number of noble Lords—including my noble friends Lady Noakes and Lord Hannan and the noble Lord, Lord Bilimoria—raised the issue of education, and in particular the quality of higher education and the impact of lockdown on it. The Government expect universities to maintain the quality and quantity of tuition. We seek to ensure that all students, regardless of their background, have the resources to study remotely. The Office for Students has made it clear that all higher education providers must continue to comply with registration conditions relating to quality and standards. That means ensuring that courses provide a high-quality academic experience; that students are supported and achieve good outcomes; and that standards are protected regardless of whether a provider is delivering its courses in person, through remote online learning or through a combination of the two. The Office for Students has published guidance on this for universities and will keep this under review that ensure that it remains relevant to the developing circumstances of the pandemic.
The OfS is also monitoring the overall position at sector level, for example through the polling of students’ views, and, where appropriate, and in response to issues raised through this monitoring, it will issue further advice to the sector.
A number of noble Lords, including my noble friends Lord Lancaster and Lord Horam, raised the issue of further education, vocational training and retraining for people to skill themselves for the new jobs of the future. The Government have done quite a bit in this area in recent years to encourage more flexible learning, including greater support for part-time learners through maintenance support and removing restrictions that had prevented students being loan-funded for part-time STEM undergraduate degrees if they had qualifications at the wrong level. The Government have also provided greater incentives for providers of accelerated degrees and introduced degree apprenticeships.
However, we want to do much more, and we want to take more radical steps in this area. That is why the Prime Minister has announced plans to introduce a lifelong loan entitlement as part of the lifetime skills guarantee. This will give people the opportunity to train, retrain and upskill throughout their lives to respond to the changing skills needs and employment patterns that the economy will present.
My noble friend Lord Lancaster asked specifically about the list of level 3 qualifications that the Government will support. The Government will keep that list under review to ensure that it continues to reflect the needs of employers.
The noble Baroness, Lady Wheatcroft, and my noble friend Lord Vaizey asked about the future fund and its operation. The future fund has been incredibly successful. It has provided between £125,000 and £5 million of government funding through convertible loans to high-growth companies, with third-party investors needing to match fund at least the government contribution on each loan. To update noble Lords, as of 25 March, 1,236 companies have applied for the future fund and £1.2 billion-worth of funding has been issued.
My noble friend Lord Lancaster asked about the cost of a potential default on the business support loans provided during the pandemic. The default estimates for the Covid loan schemes are preliminary and speculative given the current level of economic uncertainty. The estimated credit losses do not take account of our pay as you grow options for bounce-back loans, which give businesses more time to repay and can help to reduce defaults.
On duty free, which was raised by the noble Baroness, Lady Wheatcroft, and my noble friend Lord Vaizey, outbound duty-free sales have been extended to EU-bound passengers for the first time in 20 years. This is a significant boost to all airports and rail terminals in England, Scotland and Wales, and smaller regional airports and rail hubs. However, duty free on arrival could undermine the UK high street and run counter to public health objectives, so the decision has been taken not to apply that currently.
My noble friends Lady Hooper and Lady Noakes made important points around both UK trade and foreign direct investment. The setting up of the Department for International Trade and the considerable success that it has had since its establishment show the importance of FDI and exporting to our economy, as well as the increased focus and emphasis that the UK will continue to place on them as part of our future economic success. However, I do not propose to settle the bet that seems to have formed between two noble Lords in the debate on the current FDI statistics; I will leave them to settle that themselves.
The noble Earl, Lord Clancarty, and my noble friend Lord Vaizey raised the creative industries. They will be familiar with the considerable support that the Government have put in place for the creative industries. We know that it has been a particularly challenging time for those who work in these industries. That is why, as I said in my opening remarks, one of the changes that we made to the Self-employment Income Support Scheme was to extend the eligibility to those who completed a tax return for the 2019-20 year, which could make an extra 600,000 people eligible for it. In the Budget, the Government also extended the support that they are providing to the events sector, with £600 million to support local and national arts, culture and sports institutions as they reopen.
On plans for reopening and mass events, the Government have committed in their road map to explore when and how larger crowd sizes can be accommodated. The events research programme, which is under way now, is conducting a number of pilot events to build evidence on the risks associated with transmission routes, the characteristics of events and surrounding activities, and the extent to which mitigation measures can effectively address these. The first of these was held at the Crucible over the weekend. Sadly, I was not there and only watching on the television. Evidence from these pilot events will be used to inform the Government’s decision on returning full audiences to venues and increasing event capacity in time for step 4 of the road map in June.
The noble Earl, Lord Clancarty, asked me a number of other specific questions on the creative industries sector. I would be happy to write to him on those.
Related to this, the noble Lord, Lord Bilimoria, asked about the role of vaccine passports or certification, or Covid certification, in the Government’s plans to reopen. On 5 April, we updated publicly on the progress that we have made on four reviews that we established during the road map. One of them is looking at Covid status certification. We believe that Covid status certification could have an important role to play, both domestically and internationally, as a temporary measure. Certification could potentially play a role in settings such as mass events, festivals or sporting events—or where large numbers of people are brought together in close proximity. Equally, the Government believe that there are some settings, such as essential public services, public transport and essential shops, where Covid status certification should never be required, in order to ensure access for all. The NHS is working on providing individuals with the means to demonstrate their Covid status through digital and non-digital routes.
A number of noble Lords, including the noble Baroness, Lady Wheatcroft, and my noble friends Lady McIntosh of Pickering and Lady Gardner of Parkes, raised the question of the pandemic’s impact on women. The Government recognise that this pandemic has had very different impacts on different sectors of society, and we have tried to tailor and frame our response taking that into account. Of course, we have done a huge amount in this area, and we will continue to do more, including putting in place more support for childcare and to help those who have been furloughed but who eventually lose their jobs back into the jobs market through personal coaching, work coaches and the opportunity to retrain and reskill.
My noble friend Lord Griffiths raised the important issue of youth unemployment, proposing a single Minister to tackle the issue. While I cannot comment on that, I reassure him of the Government’s commitment to taking youth unemployment seriously. I think that we have seen in the latest figures that young people have been disproportionately hit in so many ways by this pandemic, including in the jobs market. This is why we have put in place very specific support, including through the Kickstart scheme, to address youth unemployment—we have put that support in early, and it continues. I disagree with the noble Lord, Lord Tunnicliffe, on the scale of some of the programmes that we have put in place and whether they are designed to meet the task ahead of us. They are quite unprecedented in what we are seeking to do. The Government have been clear that early and large-scale action on this issue is our priority, to prevent the kind of scarring effects that you can see for young people.
My noble friend Lord Griffiths also prompted an interesting discussion about monetary policy and quantitative easing. He may not be surprised to hear me say that monetary policy is a matter for the Bank of England, but, of course, where instruments involve unconventional interventions in specific markets or activities, the MPC is also required to work with the Government to ensure appropriate governance and accountability. I reassure my noble friend on his point about inflation. The remit of the Bank of England Monetary Policy Committee is still that target for inflation, which we have to keep in mind as we look at the measures that we have in place to support our economic recovery.
I am afraid I am probably also going to disappoint the noble Lord, Lord Lea, not only in not settling his bet but on the prospect of a ministry for the labour market. The Department for Work and Pensions is doing a sterling job in the support it has ramped up during the pandemic, in having universal credit operate really effectively to support those who have seen their income change, in doubling work coaches, in the scaling up of support, in the real focus on getting people back into work and in giving them the support they need. We are well placed with our machinery of government in terms of the support we are giving.
My noble friend Lord Shinkwin raised the incredibly important issue of support for disabled people, who have been disproportionately hit by the pandemic. I will write to him on some of the specific points he raised on the Government’s strategy on this issue. I will also write to my noble friend Lady McIntosh of Pickering on the specific action we are taking to support rural communities. For example, we are investing in broadband with a specific focus on improving connectivity for those communities, but I am sure there is a lot more to say in response to her question, so I will write to her on that issue and on her question on Horizon funding.
Finally, on the questions asked by the noble Lord, Lord Tunnicliffe, the Government will continue to work with all those they can to support our economic recovery. The scale and record of the Government’s actions speak of a Government who are prepared to put in investment and support to support people and their livelihoods during the unprecedented time we have had with the pandemic. I disagree with him about a lack of comprehensive support. We have put in wide-ranging measures, such as the job retention scheme and the self-employed scheme. The self-employed scheme is almost unreplicated around the world. It is a very difficult thing to do and has involved some difficult decisions to determine the eligibility criteria. It was important to do it because of the effect of government decisions on people’s livelihoods.
I also disagree with the noble Lord a bit about not learning some of the lessons as we have gone through this. For example, I talked about expanding eligibility for the self-employed scheme where we have been able to do so while balancing the need to reassure ourselves on the use of taxpayers’ money. That does not mean that we will stop the process of learning and reviewing the policies we are undertaking and our future plans. That is the spirit in which we want to approach the emergence from the pandemic, the future economic recovery and the economic growth that we now plan to see.
I am sure there is a number of other points that I have not managed to address in my response to noble Lords in this wide-ranging debate. I will write to noble Lords on them.
I close by thanking noble Lords for participating in this debate. We are in unprecedented economic times and it is important to take the opportunity to discuss our response, the immediate support, our vision for the economy of the future and how the Government can support it and enable and empower others to chart that future for themselves.