Achieving Economic Growth

Bernard Jenkin Excerpts

Wednesday 18th May 2022 Commons Chamber

[Mr Clarke]

One has to set in context the action that each Government take against their particular situation and the particular economic options open to them, including the impact on taxes, of which we are acutely aware. This Government have consistently shown that we will rise to the challenge. Anyone who says that £22 billion is miserly is simply misreading the economic reality in a way that speaks volumes about the Labour party’s wider approach to budgeting responsibly and managing our public finances to protect the most vulnerable in society and the services on which they rely.

To return to the situation as it stands today, the Bank of England has said that it expects inflation to peak at just over 10% in the fourth quarter of this year, before returning to target over the following year. The reality is that high global energy prices and supply chain pressures are pushing up prices in economies across the world, including in the United Kingdom, and that has been significantly worsened by Russia’s invasion of Ukraine, which has injected so much uncertainty into the economic outlook.

We are monitoring the data very closely. I do not dispute that these challenges are a setback to our recovery and are having a significant impact on the cost of living, which was the subject of yesterday’s debate led by the Chancellor. However, last year’s strong rebound in growth put us in a good underlying economic position, with half a million more people on the payroll now than before the pandemic, and with GDP above pre-pandemic levels.

As we heard yesterday, the Chancellor understands the effect of inflation on households and is providing support worth £22 billion this year to ease those pressures. He will keep all those issues under close review and we will bring forward a programme of measures at such time as they will make the right difference in a targeted way, but we must be careful not to fuel the very challenges that we are working to overcome, be that inflation or the size of our public debt.

We will spend £83 billion on debt interest this year. We must, and we will, manage the public finances responsibly because we must not saddle future generations with our debt and because we want to reduce the burden of personal taxation.

[Sir Bernard Jenkin (Harwich and North Essex) (Con)]

Will the Chief Secretary to the Treasury confirm the nature of that £83 billion figure? Is it a cash demand on the Government, or is a substantial part of it rolled over so that we do not need to pay and it is merely attached to index-linked bonds?

[Mr Clarke]

Some of it falls due as cash payments and some of it is rolled over. The reality is that, when we are running an £83 billion interest payment on an annualised basis, we will not be in a position to maintain market confidence unless we set out a sustainable trajectory to address it. A sustainable solution cannot be to borrow our way out of the situation; it must be to grow our economy and to create high-skilled, high-waged jobs, and we have a comprehensive plan to do so. That is the choice we have made as a Government and it is absolutely the right one.

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[Alison Thewliss]

My hon. Friend makes an interesting suggestion because, of course, Northern Ireland has benefited from that.

Investment in our communities has taken a direct hit from the loss of European structural funds. The UK Government’s shared prosperity fund will see Scotland allocated £32 million in 2022, £55 million in 2023 and £125 million in 2024—but even that third year of funding will deliver less than Scotland received before Brexit.

[Sir Bernard Jenkin]

rose—

[Alison Thewliss]

If the hon. Member would like to explain to me why Scotland deserves less now than it had before Brexit, I will take his intervention.

[Sir Bernard Jenkin]

Would the hon. Lady like to explain to the House how much harder it would be for business and what it would do to living standards in Scotland if Scotland followed the SNP’s suggestion and left the United Kingdom, with a border across the middle of Great Britain?

[Alison Thewliss]

There are multiple benefits to Scotland being independent, and the greatest one would certainly be not having to live with policy choices made by this Government, for whom none of our people voted.

The Scottish Government have calculated that £162 million per year would be needed to replace the European regional development fund and European social fund, and that increases to £183 million per year when LEADER funding and the EU territorial co-operation programmes are added in. That means there is a significant shortfall for organisations and projects that are already operating with significant challenges from the pandemic and the cost of living crisis. Of course, many such organisations, which fund projects such as bridges and green infrastructure, and retrain those who have lost their job or are far from the labour market, were contributing significantly to economic growth. Without the money to replace them, the areas and people involved will struggle to make progress, just as Bloomberg suggests is already happening with the flawed Tory levelling-up fund.

Before the pandemic, investment was stagnant because of the drawn-out uncertainty of Brexit and an unnecessary commitment to leaving the customs union and the single market. The harm to the economy and to people’s pockets could have been lessened had different choices been made. There has been a lot of talk about the Northern Ireland protocol, but the reality is that Manufacturing Northern Ireland has found that the issue is largely with GB suppliers that are unwilling to send to Northern Ireland, while EU supply chains have recovered. There has been a 28% increase in sales with the EU and manufacturing jobs in Northern Ireland are now growing four times faster than the UK average.

The Bills mentioned in the Queen’s Speech do nothing to redress the damage caused by Brexit. James Withers from Scotland Food & Drink said:

“Had the war in Ukraine not happened, we were already facing energy bills rising, a world waking up from a pandemic…Brexit for sure has made nothing better, but has made a number of things a lot worse.”

Mr Withers also pointed to the labour market being in disarray. This UK Tory Government’s obsession with limiting immigration is causing untold harm to our growth prospects. Yesterday, the Office for National Statistics noted that around half a million people have left the labour market completely since start of the pandemic, and we do not know whether they will come back. Meanwhile, vacancies are running at a record high of 1.295 million. Who will fill these jobs? The Government have absolutely no answer to that. All these vacancies are already having an impact: surveys by the British Chambers of Commerce have found that companies cannot fulfil orders because of a lack of staff, as well as soaring material costs. Perpetuating the hostile environment is bad economics as well as morally dubious politics. It is not a recipe for growth: it is a recipe for self-inflicted economic catastrophe.

Precious little in the Queen’s Speech will help with the spiralling cost of living crisis and soaring energy prices. The April 2022 price cap was already 75% higher than one year ago. Miatta Fahnbulleh of the New Economics Foundation said that

“the government said its priority was…to help people with the cost of living crisis…Yet we had 38 bills that will barely have an impact on that agenda.”

Whether people are in work or out of work, the money in their pockets is being eroded every single day by inflation. The UK Tory Government could choose to put money into people’s pockets. They could introduce an emergency Budget to make sure that the least well-off—those who are really struggling, those who need support with their energy bills to get by—are supported. The SNP Government have uplifted the benefits in their control by 6%; there, again, the UK Tory Government lag behind. People are seeing the money that they receive eroded every single day.

The UK Government should be converting the £200 heat now, pay later loan into a grant. As the chief executive of ScottishPower has said, they should be increasing that grant substantially—he says to £1,000—to help people with their energy bills. Such is the magnitude of the increase in people’s costs. The UK Government should scrap the regressive national insurance tax hike, which is a tax on jobs at the worst possible time; reverse the £1,040 cut to universal credit; and support those on legacy benefits, who have seen very little from this Government. They should also introduce a real living wage—a living wage for all that people can actually live on—rather than their pretendy living wage, which is not even available to all ages, with age discrimination baked in. They should also look at removing VAT on energy bills, which is a significant cost.

The Government have been raking it in: additional money that they did not expect has come in through the taxation system, as set out in the spring statement, and that will increase every day as VAT receipts come in and inflation soars.

As a proportion of income, the rise in the cost of living for poorer families is nine times larger than it is for the richest 5%. Institute for Fiscal Studies figures suggest that although inflation today is at 9%, for the least well-off it is just shy of 11%. The impact of such inflation on people can sound a bit abstract when we talk about percentages here and there, but the Child Poverty Action Group has calculated that with inflation running at 9%, the value of someone’s universal credit falls by £790 per year. That is a lot of money to the people who receive that benefit and the Government should be doing more about it.

All the way through the supply chain—from those growing crops and those processing and transporting food, to those stacking it on the shelves, to those cooking their tea and putting it on the table—costs are increasing. Businesses are being pushed to the very limits to absorb the costs and it cannot continue for much longer.

When I watch Treasury Ministers in this place, it is hard for me to hide my frustration, because they have all the levers that my colleagues in Holyrood do not have, yet not one iota of the ambition or imagination. There is so much that they could do to invest in people and communities, to work towards the promise of COP26 and to build a fairer, more just and more equal society—to grow, but in a way that leaves no one behind. We cannot rely on the Conservatives or Labour—both are now Brexiteer parties—because Scotland wants to take its place in the world. We want to be part of something and to be connected, rather than to rely on the tiny ambitions of this Government. People in Scotland are yearning for a Government with the powers to do better by their people; I hope they will soon get the chance to vote for that in an independence referendum.

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[Sir Bernard Jenkin (Harwich and North Essex) (Con)]

It is appropriate that I am following the quite passionate speech by the hon. Member for Nottingham East (Nadia Whittome) about the conversion therapy Bill. I broadly welcome the Queen’s Speech and the Government’s legislative programme. I was always in favour of some kind of legislation about conversion therapy, but the more I have looked at the issue, the less and less happy I am that there should be such a Bill, not because I am in favour of conversion therapy, but because I cannot see that legislation is either necessary or desirable. I am ready to be proved wrong, but I can think of no coercive behaviour that it would ban that is not already illegal. This Bill will be used to stoke exactly the kind of bitter disputes about transsexuality that we need to resolve before we legislate next in this field. Again, I am happy to be proved wrong—let us see the Bill—but we could have done with some pre-legislative scrutiny of such a Bill.

[Richard Graham (Gloucester) (Con)]

Although conversion therapy and, indeed, hedgehogs are both fascinating subjects, in terms of achieving economic growth, does my hon. Friend agree that what the Government are doing on levelling-up funds and bringing investment that can act as a catalyst for further investment in great small cities such as Gloucester will help to create jobs, footfall and retail—all the things that people in our country value—in order to have the opportunities to bring about that growth?

[Sir Bernard Jenkin]

I am most grateful to my hon. Friend for that intervention, but we should recognise that these issues of conversion therapy and transsexuality are very important to certain sections of society. They need to be addressed, but we need to be sure that we address them in the right way.

[Geraint Davies]

Will the hon. Gentleman give way?

[Sir Bernard Jenkin]

I will, but I do not want to give way too often because we are not time-limited.

[Geraint Davies]

Some years ago, I brought forward a Bill on the regulation of psychotherapists, which recommended banning conversion therapy. There was a conference that 100 conversion therapists attended, so this is a widespread and abhorrent practice. Does the hon. Gentleman agree that those who say that transsexuality should not be included seem to be those who think that people would go through the process of becoming a transwoman in order to rape another woman? There are a lot of male rapists out there. It seems to be a lot of effort for someone to have their head kicked in by other men. Transgender people should be included in the Bill.

[Sir Bernard Jenkin]

I had not intended to make a great speech about this subject. I note the point that the hon. Gentleman has made and I wish to move on.

I welcome the forthcoming legislation to protect the Belfast/Good Friday agreement. I say to the right hon. Member for Leeds Central (Hilary Benn), who spoke a few moments ago, that perhaps we agree a great deal about the future of the Northern Ireland protocol. The question is whether we can make it happen unless we have some legislation coming down the track as well, because the EU has not changed its mandate.

I want to concentrate today on much more immediate challenges. Covid supply chain disruption persists in many parts of the world, notably China, and now we have Russia’s dreadful war against Ukraine, which frankly has shattered the geopolitical order that we have become used to for decades. We all used to believe in what the Germans called, “Wandel durch Handel”—the mistaken faith that nations that trade together would never go to war with each other. President Putin has smashed that confidence.

Business and Governments are reducing their exposure to dependency on all autocratic regimes. That is throwing globalisation into reverse, creating massive price increases and shortages. Poorer nations are acting to keep their food affordable for their own people. For example, India has just banned wheat exports, following Indonesia, which banned palm oil exports. We have an acute, growing and potentially far greater energy supply crisis in Europe. Europe cannot continue to rely on supply from Russia. This crisis requires a vast reorganisation of Europe’s energy supply and trading arrangements, and this massive adjustment will take years and is unprecedented. Only major food and energy producers in the world, such as Canada and the US, will avoid the worst kind of recession.

At least the United Kingdom can produce some of our own gas and oil and can continue to expand renewables, but why are we pumping our surplus gas out to Europe this warm spring to fill EU storage capacity, when we should be filling our own? The Government shut it down, and we need to reopen our gas storage capacity as quickly as possible. I fervently hope that we can achieve net zero by 2050 without excessive cost. The Government are right to see gas as the essential transition fuel, but why import gas when we can produce our own more cheaply?

Meanwhile, we must all recognise the cost of living crisis—yes, crisis. Even before today’s shock rise in CPI to 9%, the Commons Library had given me striking projections for the effect of this crisis on households. The full-year cost of just energy and food prices will rise by well over £1,000 a year for the lowest 20% of households by income and by £1,500 a year for pensioner households. A summer package to rescue the most vulnerable households is needed to avoid real financial distress and personal anguish and to support the economic demand of the most vulnerable households, or we will be creating possibly a worse recession than is already expected.

I welcome the suggestion in The Times today that the Government are considering a package. The spring statement represented peacetime thinking. Like after the unforeseen covid crisis, the Treasury must adapt to this unexpected war in Europe and accept that this new global energy and economic crisis also requires a very substantial policy response. I have to say that is far greater than the £3 billion package that the Labour party has offered us, though I do not subscribe to the rest of its fiscal profligacy.

I suggest that the £20 uplift in universal credit should immediately be restored. The abolition of VAT on domestic fuel would abolish a regressive tax that hurts the poorest households the most. We can do that now we are outside the EU. The Government should abolish the green levies on energy bills and fund them from the Exchequer, as recommended by Professor Dieter Helm. The Government should provide pensioners and poorer families with the confidence they can afford to stay warm. We should double the warm home discount and treble the winter fuel payment.

This package would cost not £3 billion, but £13.5 billion from July in this current tax year, but that is still less than the recent tax increases we have seen, and it is about 0.6% of GDP and affordable. Now or later, we should also consider relief for middle-income households. The lower 40% of households will feel severe stress from energy and food costs alone. We could start reindexing tax thresholds, or more, and that would have the advantage of incentivising work and productivity.

I have watched Governments—and Oppositions, I think we saw it today—blindsided by their own commitment to outdated thinking and policies of the past. There is no excuse for another such episode. My right hon. Friend the Chief Secretary is right to sound cautious, but we can see what is coming, and I am confident that this Government will act as they must.