Finance Bill

Chris Coghlan Excerpts

2nd reading
Wednesday 27th November 2024 Commons Chamber

[Chris Coghlan (Dorking and Horley) (LD)]

It is a pleasure to speak in this debate as a member of the Treasury Committee. After suffering the highest fall in living standards since records began, the United Kingdom desperately needs economic growth, yet the OBR forecasts that the policies in the Government’s Finance Bill and Budget will have no impact on growth over the next five years. The recessionary impact of the tax rises, combined with a focus on current spending that crowds out the private sector, largely offsets the fiscal stimulus of one of the largest fiscal events in recent decades, and of borrowing an extra £32 billion a year.

There are potential upsides to the growth forecasts in the Budget, mainly from the impact of planning reform, but this Budget and Finance Bill are a missed opportunity for growth. That matters, because there are chronic structural problems in the British economy that we must address. Indeed, given that public sector net debt is now approaching 100% of GDP, the Government’s ability to borrow to invest in the future, or to cope with an unforeseen shock, is severely constrained.

Many Labour Members have spoken about the importance of public investment, which I agree with, so I would like to address the following points. Since the 2008 financial crash, the UK economy has been hampered by productivity growth collapsing to 0.6% per year—the second worst in the G7. Unless and until we solve the productivity crisis, the UK will not escape its downward economic spiral of higher taxes, an ageing population, ever crumbling public services and ever higher debt. A key cause of that is chronically low public and private investment. In 24 of the last 30 years, the UK has had the lowest total investment of any G7 economy, yet as the OBR testified, under the Budget, public investment will remain flat as a share of GDP, so the Budget is unlikely to help solve the productivity crisis. This is why the OBR is forecasting that for every £1 borrowed by the Government, the economy will grow by only 60p next year, and that these effects will reverse in five years.

[Mr Luke Charters (York Outer) (Lab)]

The hon. Gentleman knows that I hold him in high regard, but I am slightly perplexed because he welcomes this Government’s investment in public services, the NHS and so forth, yet his colleagues oppose many of the revenue raisers in this Finance Bill—and perhaps he does, too. Can he help me square that circle?

--- Later in debate ---

[Chris Coghlan]

As the hon. Member will know, the Liberal Democrats have alternative measures for raising those revenues, but my fundamental point is that, yes, I welcome public investment, but it is flat in the Budget; it is not enough, in my view, and furthermore, it is not focused on the right areas.

By contrast, economists have found that optimal forms of public investment are able to raise GDP by £1.50 for every £1 invested. The best public investments for raising economic growth are investments in intangible capital such as knowledge, research and development, patents and licenses. That can bring greater gains in productivity because knowledge can build on existing knowledge, and it can crowd in private investment, as it lowers the financial risk of participation for private investors.

Indeed, the most effective form of R&D is targeted on a specific goal. For example, the Kennedy Administration in the ’60s had stunning success in increasing US productivity and growth by having the very specific goal of the moon landings. I was excited to see that R&D to solve targeted problems was in the Budget, on page 76, but then I saw that of the £70 billion in spending in the Budget, only £25 million will be spent on the best type of R&D to drive economic growth. That is about double the budget of my local district council. That is not really appropriate for the world’s sixth-largest economy.

We stand on the cusp of a new industrial revolution in artificial intelligence, and this country has just one chance to gain the first mover advantage, and to harvest the productivity gains and growth that could result. Indeed, combined with innovations in the life sciences and climate technology, which are mentioned in the Budget, this could be our route out of this downward economic spiral, yet in the 164-page Budget, the words “artificial intelligence” appear once. I call on the Government to redouble their efforts on public investment and R&D, because I would like to live in a country that has the resources that it needs to provide opportunities for our citizens, and this Budget is a missed opportunity to do that.