Budget Resolutions

George Freeman Excerpts

Wednesday 30th October 2024 Commons Chamber

[George Freeman (Mid Norfolk) (Con)]

It is a great pleasure to follow the hon. Member for Birmingham Edgbaston (Preet Kaur Gill). It is also an honour and a pleasure, after 14 years, to be able to rise as a free man—free to speak on the Opposition Benches liberated from the tyranny of the Whips’ handouts that are being so beautifully read from the Labour Benches, and from the tyranny of desperate ambition to get on to the Front Bench. I want to speak today, after 14 years on and off the Front Bench, about the state of the public finances. I shall speak much more in sorrow than in anger, not to score party political points but to share reflections on the real depth of the crisis this country faces in our structural deficits and the challenge that this Chancellor, this country and this Parliament face in tackling it.

As a former Minister for life science, for fusion, for quantum and for space, I am delighted to have been elected by, I think, the House to the Science, Innovation and Technology Committee. I am also chair of the parliamentary and scientific committee—the oldest all-party group—and chair of the APPG on science and technology in agriculture. I am also proudly and gladly pleased to declare my entry in the Register of Members’ Financial Interests. I am trying to repair my finances—I carry too much debt, like this country—by working with some great British companies to help them to raise money in the international markets and to grow. That is what this country has to do to get itself out of debt as well.

I want to say three things this afternoon: something about the real nature of the crisis in our public finances; something about why I so deeply believe the innovation economy is the only way to get us out of this doom loop spiral of structural deficit and debt; and something about my poor constituents in Mid Norfolk and the effect of this Budget on them. Tempting though it is to stand up and accuse the Labour Government of causing all the ills of the world, and to take no responsibility for them, I want to do the opposite and suggest that this Parliament and this country have for the last 25 years been failing to grapple seriously enough with the deep nature of structural deficit in our broken public finances.

I remember, when I was newly elected in 2010, having a brilliant briefing from Robert Chote and Paul Johnson of the Institute for Fiscal Studies, and having the structural deficit properly explained to me. That has stayed with me, and it is worth sharing for the benefit of those listening to this debate. Traditionally, all Governments in this country tax and spend. They earn money every year from tax revenues and then spend it. In some years, the economic cycle turns down, so we do not cut spending; we borrow a bit to maintain our spending and then repay it when the economic cycle turns. Occasionally in the cycle, we run deficits. The structural deficit is that bit of the public finances that means that, even when the economy is growing—even when it is growing at 2% or 3%—we are running a deficit, because there are bits of the economy that are constantly swallowing more money than we are capable of earning.

When we took office in 2010, debt interest was effectively the fourth biggest Department of state. We had a serious crisis on our hands. Looking back, if we are honest, new Labour did not pay enough attention to deep reform of our public finances during the “Cool Britannia” years of Gordon Brown and Tony Blair. In the 2007-08 crash, that Government unleashed £700 billion of borrowing and quantitative easing. We can argue about whether that was the right thing to do, but it drove huge asset price inflation and left us with huge debts.

The coalition tried to get us out of that debt with austerity, on which I think the country was with us for the first two or three years before feeling that we had overdone it. Yes, we had that crash, the disruption of Brexit, a terrible once-in-a-century pandemic and a war in Ukraine—we had £700 billion of QE, £400 billion of pandemic relief and £40 billion of cost of living relief—but we have effectively come back to where we were in 2010, facing a structural deficit and flashing red lights in the public finances. I call it the bonfire in the basement of the British economy. Even when the economy is growing, even when we see Canary Wharf on the drive from Norfolk, the unseen bonfire in the basement eats away at the economy’s resilience and sustainability. That should worry all of us involved in public policy, and I have a sneaking feeling that the public understand this.

The people I spoke to on the doorstep during the election were not economists or seasoned political observers but, after observing successive Governments fail, their common sense told them that there is a deep problem in the state. I suggest that much of the political volatility in recent years comes from an inability, including in my own party, to be honest about the scale of the problem. I think the Brexit revolution was driven by deep anger and resentment not just at Brussels, but at the failure of this country’s political economy. People outside the golden triangle felt left behind by their own Government, their own country and their own model of growth.

The lecture I received in 2010 from Robert Chote and Paul Johnson is just as relevant today. Four things drive the structural deficit. The first is debt interest. There was an inflation surge because of the war in Ukraine, but we have been lucky that the markets have generally not punished us for borrowing too much. Second is welfare bills. The coalition implemented very painful reforms to stop the rise of the welfare bill. We did not cut the welfare budget; we just stopped its rise. Third is public sector pensions. Again, there were some very painful reforms, not to cut the costs but to prevent them from booming and bankrupting the public finances.

Those are all significant issues, but the biggest one, by far, is healthcare. The structural cost of healthcare in our ageing economy, with increasingly expensive medicines and an NHS designed for the 1940s rather than the 21st century, is in danger of bankrupting itself and the public finances. I am on record as saying, and I will repeat it, that the Health Secretary’s honesty is a breath of fresh air. The NHS has not been broken by a lack of Tory funding—we have all poured money into the NHS—but the problem is that the model is not fit for the 21st century.

Much more in sorrow than in anger, I suggest that we need to start this debate by being profoundly honest about the real nature of the problem. The truth is that we cannot cut, borrow, tax or spend our way out of a debt crisis, and successive Governments have tried and failed.

I speak as a card-carrying supporter of industrial strategy, of increased R&D spending and of getting the country out of its current spiral and into a higher-growth model. I want to cheer much of this Budget, and perhaps there will be more to cheer when we read the Red Book tomorrow, but I am worried.

[Chi Onwurah (Newcastle upon Tyne Central and West) (Lab)]

I thank the hon. Gentleman, my fellow member of the Science, Innovation and Technology Committee, for giving way. He knows that R&D funding is vital to driving innovation, productivity and future growth and prosperity. Does he agree that we should welcome the commitment to protecting core R&D funding, as well as the specific investment in high-tech areas such as automotive, aerospace and clean energy? Does he agree that the Committee looks forward to examining the detail of the Budget to see its impact on science and technology in every Department and across the country?

--- Later in debate ---

[George Freeman]

I thank the hon. Lady for her intervention and for her chairmanship of our Select Committee. I welcome bits of the Budget, including the £20 billion commitment. My right hon. Friend the Member for Richmond and Northallerton (Rishi Sunak), the former Prime Minister, and I secured an historic commitment to raise R&D investment to £20 billion when he was Chancellor, and I heard the Government ringfencing that amount today. I support the notion of an industrial strategy, as long as that does not involve earnest committees of Whitehall mandarins far away from the innovators, entrepreneurs and people on the ground. I support the wealth fund and the Mansion House reforms, but I have sincere concerns about the message that today’s Budget sends about innovators, entrepreneurs, wealth creators and businesses. They are the people who turn great science into great businesses that drive growth.

Let me talk about why the innovation economy is key. If we want to get out of debt, the innovation economy provides the only model of growth that will deliver the productivity increases we so urgently need. It will reduce our reliance on the low-wage labour that has been completely built into the service economy, which has dominated this country since the 1980s and since the Tony Blair and Gordon Brown years of “Cool Britannia”. That model was based on letting London boom and pulling in cheap labour, which drove an immigration crisis that my party got itself twisted up about and that put huge pressure on our public services. We have to get away from that model of growth, and move to a model of growth led by innovation, with higher skilled jobs, much greater efficiency and productivity.

Sectors are growing in this country that could attract billions of pounds of investment from all over the world. There is a wall of capital to invest in agritech, clean tech, fusion energy, satellite manufacturing—I could go on—and all the sectors where we are strong. That is the part of the economy that we should focus on, and it is the only bit of the economy that drives genuine regeneration. The sustainable levelling up is happening in Glasgow through the satellite manufacturing economy, in Edinburgh through quantum computing, in Newcastle through data, in Leeds through digital health and in Norwich through agritech. The R&D economy is the best mechanism for driving that levelling up and regeneration, and creating the opportunity society we all need. We cannot have an innovation economy without an opportunity society. I would go as far as saying that we cannot have an opportunity society without an innovation economy. That is key if we want to tackle the problem of debt.

[Nesil Caliskan]

Does the hon. Gentleman agree that supporting skills and employment is key to creating the sort of economic growth he talks about? Getting young people on a pathway to training and receiving the skills they need to secure jobs is critical.

[George Freeman]

I completely agree and the hon. Lady makes an important point. I was the Minister that covered that agenda. The science superpower piece is about our being a bigger player in the world, attracting billions into the country and using our science and research to solve global challenges. Our science ecosystem is not yet set up to do that—that is not even what it thinks it is there to do. The innovation economy piece is about using the science engine to drive economic advantage in this country through the catapult network, greater industrial R&D, investment in skills, ensuring we train the workforce for tomorrow’s industries, procurement and regulation, and supporting innovation clusters. Skills are key to that.

In that context, a Budget is an opportunity, but the Chancellor has missed the fact that to drive the innovation economy, we need entrepreneurs, innovators, and people who will take a risk and create a business. That does not happen in the Treasury or, dare I say it, in my beloved old Department for Science, Innovation and Technology. It does not happen in Whitehall. Our job is to create the conditions for innovation to flourish.

I fear that the signal that has gone out from today’s Budget is that although we have had a change of Government, we have not had a change in the core narrative. It feels to me as though Treasury orthodoxy has been reasserted. We will balance the books by making cuts, taxing existing wealth and chasing harder and harder after growth, but what we will see is growth down, inflation up, borrowing up, mortgages up and taxes up. We need to send a big signal that this country is open for business.

The hon. Member for Birmingham Edgbaston (Preet Kaur Gill) made an interesting point about the global investment summit, which we set up and which is now called the international investment summit. It is good news that that money is coming in, but I have to say that, in 30 years in the innovation economy, I have never seen so many people decide that they are going to sell their businesses and leave the country than I have over the past three or four months. The Government thought that they were playing a clever political trick of rolling the pitch, so that, on Budget day, the news would not be so politically damaging. However, they have misunderstood how mobile capital and talent are in the global economy.

We need people to want to come to this country. Often they want—I did not—to put their children into independent schools. They want to make money here. They want to build businesses here. We need to attract them. We have no right to just assume that they will come. If we are to build an innovation economy, we need a tax regime that is fair. No one wants this to be the home of Russian money-laundering, international criminals and abuse of the non-dom system, but we have to build an economy that is attractive for innovators.

We also need to better connect the City to our science, research, technology and innovation sector. It is shocking to me, and it should be to this House, that, in 1997, 73% of the £3 trillion-odd held in the City—our money that is invested in pensions—went into equities, 53% of which went into UK equities. That figure today is just under 4%. In the past 25 years, we have seen the most extraordinary globalisation, digitalisation and indexation of the City. The City has not been encouraged by successive Governments, and has not itself been investing actively in the productive businesses of this country. We have seen a hollowing out in the City of its commitment to support British industry and British companies, and it is an accelerating model. In every month over the past four years, we have seen a net outflow of investment in UK equities.

I hugely support the work that the fantastic Parliamentary Secretary, His Majesty's Treasury, the hon. Member for Wycombe (Emma Reynolds) is doing on taking forward our Mansion House reforms. We must better connect our capital in the City of London to our productive innovation economy. I am not for a minute suggesting that everyone’s pension should go into one biotech company—quite the opposite—but if we connect some of that money with our innovation economy, we will unlock tens of billions of private money—our money—to drive growth in this country. At the moment, we incubate world-class businesses and then watch the Australian and Canadian pension funds buy them, or American investors buy them out and float them.

I worry about today’s inheritance tax and capital gains tax announcements. We will find that the devil is in the detail when we read the Red Book tomorrow. If we kill the engine that drives the people who create the companies of tomorrow, we will end up with a big science investment and not enough actual innovation in the economy.

To close, I want speak briefly about the issues in Mid Norfolk. It is a rural, sparse, disconnected place—it is something of a backwater—in the middle of East Anglia with poor traditional access. I am afraid that today’s Budget will hit the two key groups in my constituency. Many pensioners have been hit by the winter fuel changes, and huge damage has been inflicted on the small businesses on the high street, including the hospitality businesses and the pubs. They were looking for relief—not just a penny off beer duty but real relief for businesses out in rural areas. The agricultural property relief hit will damage the rural economy of Mid Norfolk. I hope that when we read the Red Book we will see some better news, but my fear is that we have a change in Government, but all too little change in our economic orthodoxy. Just like a company, this country is running out of cash. We need to unlock much more innovative and enterprising models of economic growth.