Budget Resolutions

Ed Davey Excerpts

1st reading: House of Commons
Tuesday 28th November 2017 Commons Chamber

[Greg Clark]

I am happy to talk to the hon. Gentleman. He will know that we work closely with the life sciences sector. The industrial strategy published yesterday included an important life sciences sector deal in which all the companies are working closely with each other, local institutions, local leaders and the Government. I am happy in that context to meet him and have those discussions.

[Sir Edward Davey (Kingston and Surbiton) (LD)]

The Secretary of State talks about giving certainty to businesses and investors. Does he agree that the contracts for difference regime can be used to bring in zero-subsidy CfDs to give real certainty to people wanting to invest in our renewable energy? Will he commit to considering the case for zero-subsidy CfDs?

[Greg Clark]

Contracts for difference have brought down the price of renewable energy substantially. We have commissioned a review from Professor Dieter Helm—I know that the right hon. Gentleman knows him well—which has reported, and we will make our response to it. It would be wrong to pre-empt our consideration of that, but I hope that the right hon. Gentleman and others will give their thoughts on the Helm review. We have launched a consultation on that, as he knows.

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[Stewart Hosie (Dundee East) (SNP)]

It is always a pleasure to follow the right hon. and learned Member for Rushcliffe (Mr Clarke). I was struck by his discussion of his bus pass, state pension and winter heating allowance. It might be that the right hon. and learned Gentleman does not need these things, but if we begin to erode them and means test them, the problem is that those who do need them will not claim, and—I suppose this is an ideological position from the Scottish National party—we would then begin to erode social cohesion on other important matters.

I welcome much of what the Business Secretary says about the future economy, including on tackling long-term underinvestment in research and development, addressing the long tail of underproductive companies, recognising the importance of innovation, big data, the life sciences and the other sectoral areas he mentioned, and the absolute imperative for UK businesses to export more. However, the future economy cannot simply be about supporting new businesses with new products selling into new markets; it must also be about supporting businesses that are already here delivering for their customers, their shareholders and the economy, and particularly, as the right hon. and learned Member for Rushcliffe said, into the EU, which is a substantial market for the UK. So while I certainly welcome many of the specifics in the White Paper and what was said today, I make no apologies at all for talking about the impact of Brexit, which has the very real potential to undermine the good intentions of the plan.

I say that because the uncertainty created by the hard Tory Brexit plans is already harming the economy. The UK Government’s failure so far to secure a transitional deal is pushing many banks, in particular, and other companies to start looking to relocate to other parts of the EU for fear of being unable to trade freely there in April 2019. Indeed, the Bank of England has warned that 75,000 jobs might be at risk in the banking sector alone, and many of those may well move to the EU. It is vital that we remedy that, and do so quickly, as FinTech, which is mentioned in the White Paper, is undoubtedly one of the areas that ought to be able to make a positive contribution to the future economy of the UK. However, if we do not resolve this issue, meaning that banks’ head offices and decision-making functions go, I fear that FinTech and the ability to fund it will be subsequently reduced.

I also make no apology for saying that Brexit has the capacity to undermine the Chancellor’s plans for raising productivity, which we all agree will be vital if our future economy is to deliver success and prosperity for everyone across these islands. The UK is now at the bottom of the G7 for economic growth. The eurozone and other advanced economies are enjoying higher growth, as well as higher levels of consumer and business confidence. These plans and the money to be spent on them—some of the cash is substantial—might barely mitigate the damage of Brexit, rather than kick-starting the economy to power ahead, which we all hope they will do.

Let me put some flesh on the bones of that, because it is important. The OBR has slashed its forecasts for productivity, economic growth and pay growth. The new forecasts show that the economy is expected to grow at below its long-term trend of around 2% until well into the next decade. The downgraded OBR expectations lower significantly the predicted level of growth. Although the OBR previously said that growth would proceed at much the same pace as before the crisis, it has turned out to be much lower.

This goes back to something the Minister said as a throwaway. Borrowing will still be at £26 billion a year in 2022-23, but he said we want to live within our means. We all want to live within our means, but when we see a national debt of 87% on the treaty calculation, and when we see borrowing of £26 billion by 2022-23—the current account was supposed to be in balance or in surplus in 2015—I think we can say with some certainty that the Government have failed to deliver every single one of the targets they have set since they came to power, with a Tory Chancellor, in 2010.

[Sir Edward Davey]

Does the hon. Gentleman agree that the real story behind this Budget was the growth forecast, which will impact not only the borrowing he is talking about, but public spending and, frankly, the whole shape of the British economy and British society in the years ahead? Do we not need an urgent debate on how we really raise that growth rate? The industrial strategy was simply not up to that job, which is so tricky.

[Stewart Hosie]

I agree with the first part of that intervention entirely. The big story from the Budget was that the growth figures were marked down over the entire forecast period that productivity per head was almost halved for that period and that pay growth was marked down, which has an impact on real people. As for a debate, we have been having debates about the productivity conundrum and growth since before I was an MP, and given that I am now about 110, that was some time ago. I suspect that we need to look at the work that has gone into the White Paper. Let us get behind the things we can support and make suggestions when we can improve things—my goodness, there are some we can most certainly improve—but we do not need to go back to the drawing board again.

I think that each and every one of us, if given a blank piece of paper, would come up with broadly the same plan with regard to fairness about investment, infrastructure, education, and supporting R and D and exports. I do not think that there is anything particularly new there. The question for me is: can we deliver that this time, or will this be to no avail if Brexit undermines the potential of any of these plans?

[Stewart Hosie]

My hon. Friend is right. Every single assessment that we have seen, starting with the leaked Treasury document of a couple of years ago, says that the worst-case scenario—if there are tariffs, other regulatory barriers and an immediate reversion to World Trade Organisation rules—is a 10% hit on GDP, full stop, before we start. I do not understand why anyone—even Tories, and certainly the bulk of the Labour party—voted to come out of the customs union. That was an idiotic thing to do. If we must leave at all, we should look to have the closest possible formal links, so that we maintain as much trade as possible on current terms.

[Sir Edward Davey]

Will the hon. Gentleman give way?

[Stewart Hosie]

I will in a little while.

The Resolution Foundation has reported that productivity growth in the 10 years to 2020 will be the lowest for 200 years. As a result, we have the worst economic growth forecasts that the OBR has ever delivered. Equally importantly, the forecast for the UK’s balance of payments current account as a share of GDP has also been downgraded significantly due to a slowdown in business investment and the deterioration of the UK’s net trade balance. That is expected to be a whole 1% deeper in deficit this year and next, and for the following year a 2% fall is predicted compared with the spring forecast.

We know that this is not a new problem. The Tory plans for post-Brexit policy—trade is vital if the future economy plan is to work—are delusional. The Tories aim to leave the single market, but apparently want to keep all the benefits of the club, while creating this preposterous “Empire 2.0” nonsense and signing trade deals across the globe. However, as my hon. Friend the Member for Na h-Eileanan an Iar (Angus Brendan MacNeil) pointed out, the UK already has trade deals with almost 90 non-EU countries, besides the 31 other members of the European economic area, thanks to our membership of the single market and the customs union.

[Sir Edward Davey]

Will the hon. Gentleman give way now?

[Stewart Hosie]

In one second. These existing trade agreements will be vital if our economy is to thrive. I give way one more time.

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[Sir Edward Davey]

I am very grateful to the hon. Gentleman. I was trying to tee him up before. Given the growth forecast and the shocking impact that the situation will have on people’s incomes and the public finances, is not now the worst possible time to be leaving the European Union, the customs union and the single market? Is this not the most disastrous economic decision, given the economic forecasts?

[Stewart Hosie]

Of course, leaving the world’s most successful trade body and access to half a billion customers, tariff-free, would be an idiotic thing to do at any point. The fact that we are doing it now—and, more importantly, unprepared—is key. I will say a little more about that.

The existing trade agreements that are being discussed are vital if our economy is to thrive. The Government have suggested more support for exporters to new markets, but that seems to be at the expense of the trade routes that companies already have. To put some flesh on the bones of the last intervention, the EU accounts for 43% of the UK’s goods and services exports, and 54% of imports. The UK Government have failed in their intention of starting to negotiate the future economic relationship with the EU at the same time as negotiating the divorce settlement. The delays in the first phase of the negotiations are deeply worrying and undermine the plan. We risk approaching a Brexit deadline without having concluded negotiations, and without a transitional arrangement.

In case anyone is in any doubt about how our friends in the EU view this, Federica Mogherini has said:

“It is absolutely clear on the EU side that as long as a country is a member state of the EU, which is something that the UK is at the moment…there are no negotiations bilaterally on any trade agreement with third parties. This is in the treaties and this is valid for all member states as long as they remain member states until the very last day.”

We have heard all the rhetoric from the Trade Secretary, who has conceded that his staff do not have the ability to cut the deals. At the same time, the EU is continuing talks with multiple countries across the globe, including Australia and New Zealand, which many Members point to as post-Brexit allies. That means that we will be playing catch-up with the EU’s trade policy, and it will take years—possibly decades—simply to replicate the arrangements we already have, if we can even do that. Doing so is vital to the trading future of Scotland and the UK and to our future economy.

Another point to make about the EU concerns the free movement of people. Part of the plan is to attract the best and brightest. In my view, we must not just continue to attract them, but keep the ones we have. The 128,500 EU citizens employed in Scotland contribute some £4.2 billion to the Scottish economy. We must not send a signal to people—to those who are here, to those from the EU or around the world who want to come here, or to those who seek the collaborative partnerships in research and development contained in the plan—that the door is now closed. That would be catastrophic, whether it is said officially or that impression is given. It would add to the potential loss of 7% of gross value added to Aberdeen, of 6% to Edinburgh and of 5.5% to Glasgow—a £30 billion loss of GVA to the cities of the UK alone. We will therefore continue to defend Scotland’s economic interests now and in the future, and we will prioritise maintaining membership of the single market and the customs union for Scotland—and, so far as I am concerned, the free movement of people, on which this plan, to a large measure, is predicated.

I do, however, welcome much of what the Secretary of State has said alongside the publication of the industrial strategy, which aims to tackle the productivity slowdown and address the challenges and opportunities brought about by technological advance. We agree with many of the five foundations of productivity that he has laid out and many of the key policy areas that he has suggested, including raising R and D investment to 2.4% of GDP by 2027 and the increase in R and D tax credits rate to 12%, as well as the £725 million industrial strategy challenge fund.

We also welcome some of the smaller things, because although many of them are England-only or England and Wales-only, they are still good for the Secretary of State to do. They include the introduction of the T-levels, the additional money for maths, technical and digital education, and the £64 million for retraining. We welcome many investment announcements, including for infra- structure, broadband, energy and transport.

We would not disagree with the four main challenges—artificial intelligence and the data revolution; clean growth; mobility; and an ageing society—although I am rather at a loss to see how the Government can trumpet clean growth when they have refused for a decade or more to address the challenge of the imbalance in connectivity to the grid, which damages the potential of offshore wind in the north-west of Scotland. If the Government could finally resolve the imbalance, which means that a charge is paid by the Western Isles whereas central London receives a subsidy, there might be unequivocal support for the policy of clean growth.

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[Sir Edward Davey (Kingston and Surbiton) (LD)]

This Budget had one redeeming feature: it was honest. It was honest about the weak growth prospects and how weak our economy is. I hope that the whole House will reflect on these dismal forecasts, because they have dramatic implications for our economy, people’s livelihoods, public finances and services, and the way in which we debate the issue of the day—namely, Brexit.

Look at what the Office for Budget Responsibility’s growth figures really mean for ordinary people and their incomes. Compared to the Budget just a year ago, it means that people will be earning £687 less by 2021. Wages in 2021 will still be lower—still buying less—than they did in 2008. The IFS talks about the danger of losing two decades of earnings growth in the longest squeeze on living standards in more than 60 years. This is dramatic stuff. Guess who is going to have the worst of it? The poorest households—the Resolution Foundation says that the poorest 20% will be hit the hardest. That is just unacceptable.

Let us look at the implications for our public services. The details of the Budget show that public service spending will be 3.6% lower in 2022-23 than today. If we exclude the NHS, it will be more than 6% lower. What does that mean? It means that our schools, police services, councils and care services will face cuts not just this year, but next year and into the future. This is not about jam tomorrow. It is about maybe jam in six or seven years’ time.

That is something I am incredibly worried about in my constituency. Already our schools are under huge pressure. We are dealing with an £11 million deficit in our special needs budget alone, and when we see that this Budget had nothing for our schools, tackling that will be really difficult. In my constituency, and across London, we are also seeing crime up and police officer numbers down. The Budget will do nothing to tackle the criminals and to fight back against the big increase in crime.

What does the Budget mean for Brexit politics? It means that the Conservative Brexit is failing our economy and failing our country. People who voted leave thought they were voting for better wages because there would be less competition from immigrants. Their wages are going to be lower. They thought they were voting for more money for our public services, such as the NHS. They are going to get less. They thought they were voting for an economy that will be better than before. They were not—it will be worse.

I say to the right hon. and hon. Gentlemen on the Treasury Bench that it is time they thought again about Brexit. The OBR has told people the truth.

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[The Chief Secretary to the Treasury (Elizabeth Truss)]

We have had an excellent debate this afternoon. We heard my right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy lay out an optimistic vision for our industrial strategy. We heard my hon. Friends the Members for Banbury (Victoria Prentis), for Mansfield (Ben Bradley), for Dudley South (Mike Wood) and for Hitchin and Harpenden (Bim Afolami) and my hon. and learned Friend the Member for South East Cambridgeshire (Lucy Frazer) talking about the positive measures in the Budget on skills, housing and tax. We also heard the usual fiction and portents of doom from the Opposition.

I repudiate the Opposition’s predictions. Our destiny is not preordained. We have the power to shape the future and to boost our growth and productivity. If we want to know what high productivity looks like, we need look no further than our high-growth companies. When it comes to start-ups, we are world leading, with more than 650,000 companies founded in 2016 alone. We have more than twice the number of $1 billion tech companies than anywhere else in Europe. By enabling companies to grow and, even more, to start, we can make sure all people in this country benefit from our world leadership in areas such as driverless cars and artificial intelligence.

The real revolutionaries in this country are not sitting on the Opposition Front Bench clutching their iPads and looking up debt numbers, while denouncing enterprise; the real revolutionaries are the businesses across Britain that take risks, create jobs and improve our lives. They are the people who are delivering day out, day in for our country. This Budget is about liberating those businesses to achieve their ambitions and to deliver for our future, and it is about making sure that they have the people, the capital and the space to succeed.

Of course we want to attract the brightest and best to our country, which is why we are doubling the number of high-skilled visas that can be granted each year, but we also need to unleash the talents of our own people, both to help power the economy and to make sure they can share in the opportunities that enterprise brings. The fact is that the previous Labour Government let down our children and young people. They left Britain short of skills; they dumbed down the curriculum; they created rampant grade inflation; they failed on technical education; and they left office with rising youth unemployment.

When Labour left office, youth unemployment was at 20%, which is why we brought in higher standards for English and maths, new academies and free schools, and new T-levels. Under this Government, we have seen more apprenticeships and the lowest level of youth unemployment for 13 years. I suggest the Opposition engage with the facts.

We are announcing even more in this Budget. We are tripling the number of computer science teachers and, as my hon. Friend the Member for Chelmsford (Vicky Ford) pointed out, we are giving schools £600 for every additional student studying maths A-level or core maths, the most valuable qualifications in the jobs market. We are learning from the best in the world, and I am delighted that my right hon. Friend the Minister for School Standards is here today because he championed the Shanghai and Singapore maths mastery programme that we are rolling out to a further 3,000 schools. We are also making sure that adults already in jobs have the opportunity to improve their skills through the national retraining scheme.

The Government know that private investment in high-growth businesses benefits us all through new technology, higher living standards and more jobs. This year, a record £2 billion was invested in FinTech alone. This Budget builds on that success by unlocking more than £20 billion of investment to finance growth in innovative firms. As my hon. Friend the Member for Mid Norfolk (George Freeman) said, £1 billion is also being invested in the life sciences sector.

We also want to make it easier for brilliant women founders to access capital. Research shows that, when making identical pitches, women are half as likely to secure early-stage investment, despite investors who invest in female-led businesses being, on average, more successful. We have asked the British Business Bank to look at that so we can see more brilliant women founders and start-ups getting that investment.

Finally, these high-potential businesses need space to grow and high-quality infrastructure. We are making it easier for businesses to expand their operations through new planning freedom and manufacturing zones. We are also investing a huge amount in infrastructure. As my hon. Friend the Member for Saffron Walden (Mrs Badenoch) pointed out, this Budget includes the highest amount any Government have spent as a proportion of GDP on economic infrastructure for 40 years. How can the Opposition talk about a lack of investment in infrastructure, given that this is the highest for 40 years? It is much higher than anything that happened under the previous Labour Government. This spending includes plans for the Oxford-Milton Keynes-Cambridge corridor and for the northern powerhouse. [Interruption.] Let me say to the Opposition that we are investing £337 million in a new fleet of trains for the Tyne and Wear Metro, and £300 million to ensure HS2 can accommodate future northern and midlands rail services. We are also creating a £1.7 billion transforming cities fund, which will give our great cities the investment they need, and they will be able to invest in local trams or light rail systems as they see fit.

[Sir Edward Davey]

Does the right hon. Lady agree that British companies—our new entrepreneurial companies —would like a nice big market to sell their goods to, on our doorstep?

[Elizabeth Truss]

Absolutely, which is why our focus is on getting the best possible deal in the Brexit negotiations. Maintaining a tight grip on Government finances is, as my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) pointed out, vital for any Government, and Opposition Front Benchers would do well to look at that when they are considering—[Interruption.] I see that the shadow Chancellor is on his iPad looking up what the—[Interruption.] I can help him out without an iPad. His plans would mean an additional half a trillion pounds-worth of debt. If hon. Members want to know how much extra interest the British public would have to pay every year, I can tell them that it is £7 billion. I do not need an iPad to know that.

This Government are prioritising our country’s long-term growth prospects. We are investing in the infrastructure and in the skills that our country needs to succeed. Whatever the Opposition say, it is not politicians or Whitehall that will turbo-charge our economy and bring the growth and improved living standards we all want; it is the enterprises up and down the country that are going to deliver that. The Opposition want to tax new industry to the hilt or, even worse, to run it themselves. I cannot think of a more scary prospect for businesses across Britain. We take the opposite view; we want to unleash enterprise and to make sure that businesses have the people, space and the conditions to succeed. This is a Budget that recognises where the true value of our economy is created. It is not through issuing blank cheques that we cannot afford, but by making sure that our enterprises have the skills, talent and space that they need to grow and to ensure that all our citizens benefit from our powerhouse future. That is why the House should support the Budget in the Lobby tonight.

Question put and agreed to.

Resolved,

That income tax is charged for the tax year 2018-19.

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.