Economic Update

Lord Agnew of Oulton Excerpts

Tuesday 12th January 2021 Lords Chamber

[Baroness Kramer (LD) [V]]

The Chancellor has once again responded to a long-term economic crisis with only very short-term measures. The evidence from the Resolution Foundation of sharply growing inequalities is scary, frankly, as low-income families have to spend more to survive the pandemic. Will the Government at least make permanent the £20 uplift in universal credit?

Economic recovery cannot take hold before the summer even with a successful vaccine rollout, so will the Government now extend furlough, SEISS, the loan and various other support schemes at least to July, if not beyond?

Why have the Government continued to exclude 3 million of the self-employed from help, especially now that the Federation of Small Businesses has devised a scheme that avoids the risk of fraud? The FSB has also pointed to the recapitalisation crunch that could destroy businesses in 2021. Where is the long-term economic plan for recovery that businesses need to enable them to hang in, protect jobs, invest and grow again?

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con) [V]]

My Lords, I am grateful to the noble Lord, Lord Tunnicliffe, for his comments. I shall to try to address some of his points.

It is clear that the UK, along with the rest of the world, continues to face economic disruption in the wake of the Covid pandemic. No major economy has avoided a dramatic fall in its GDP in the past year. In the face of the significant and far-reaching impact of Covid, the Government’s priority has been to protect lives and livelihoods with a flexible and adaptable response. This response is one of the largest and most comprehensive in the world, totalling more than £280 billion since March. The IMF judges the UK’s initial response as being aggressive, effective and an excellent example of well-co-ordinated action.

While we should expect the economy to get worse before it gets better, as my right honourable friend the Chancellor said yesterday, there are reasons to be cautiously optimistic for the future. The peak of the unemployment rate is expected to be significantly lower than that estimated earlier in the crisis. The OBR has revised down its central scenario from 12% in July’s estimate to 7.5% in November’s estimate. The household savings ratio has reached its highest level since records began in 1963. The corporate sector cash buffers have improved, with large businesses making large net repayments every month since May. The furlough scheme has seen some 1.2 million employers and almost 10 million employees supported and has been extended until April to provide certainty during these difficult times. We have provided significant support to the creative industries through the £1.5 billion Culture Recovery Fund and to the hospitality industry, which I recognise has been severely impacted by the restrictions. It has also been supported by cash grants, loans, VAT reductions and deferrals, and business rate holidays.

The support for the self-employed has been unprecedented and among the most generous of schemes in the world. It has so far supported almost 3 million people at a cost of nearly £20 billion. As the Chancellor has said, sadly we are not able to save every job and business and, in recognition of this, have boosted the welfare system by £7.4 billion in 2021.

I thank the noble Lord for mentioning the vaccine, which represents a significant sign of hope and a path out of the coronavirus. Vaccine rollout is our most important economic lever and we have made available more than £6 billion to facilitate that. We have now administered more than 2.4 million vaccine doses across the UK. By 15 February, we aim to have offered a first vaccine dose to everyone in the top four priority groups identified by the Joint Committee on Vaccination and Immunisation.

The road ahead remains tough, with significant uncertainties. The Chancellor and this Government will continue to work to support individuals, businesses and public services during this time. As the Chancellor said yesterday, he will provide an update on the next stage of our economic response to coronavirus and the economic outlook for the rest of the country in the Budget on 3 March.

On retaining the uplift in universal credit, referred to by the noble Baroness, Lady Kramer, as with all responses so far in the crisis, we have tried to adapt to changing circumstances and this matter will be kept under continual review. In the same vein, we have extended furlough until April, it already having been extended from an earlier time, and we will continue to be alert to the state of the economy.

On the noble Baroness’s point about the self-employed and the Federation of Small Businesses, my right honourable friend the Chancellor said yesterday that he was considering the ideas put forward by the FSB.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

My Lords, we now come to the 30 minutes allocated for Back-Bench questions. I ask that questions and answers be brief so that I can call the maximum number of speakers.

[Lord Balfe (Con)]

My Lords, I will quote from the Statement, where the Chancellor said:

“Across almost all areas of economic policy, we are providing comparable or greater support than all our international peers.”—[Official Report, Commons, 11/1/21; col. 23.]


We are supporting with borrowed money and using the inheritance of the country. When the Government cut back, as they inevitably will have to, they will be opposed and told that they should spend more. I will ask two questions. Do the Government have any perspective on getting back to a balanced budget? And have the Government factored in the possible impact of increases in interest rates on the amount they will have to pay back on all the money that has been borrowed?

[Lord Agnew of Oulton (Con) [V]]

The noble Lord asks very important questions. I am not in a position to give a date by which we will attempt to rebalance the budget, but I assure the noble Lord it is a very high priority. Indeed, on his second question, we are aware that we are able to borrow large sums of money at the moment because of the very low interest rates that will not necessarily remain, which re-emphasises the need to bring the budget back into balance as soon as possible.

[Lord O’Neill of Gatley (CB) [V]]

My Lords, I would like to, once more—I have done so before—compliment the Chancellor and the Treasury on their general agility in their policy response to this unpredictable, ongoing and, at times, devastating twist in the pandemic. I have two very brief questions. First, in view of the highly appropriate importance being attached to the speed of the vaccination programme, and the high level of personal savings that has built up, as the Chancellor acknowledged yesterday, has the Treasury undertaken—if it has not, perhaps it might consider doing so—exploring research that directly links the speed of vaccine rollout to business and consumer confidence in an effort to encourage more people to take the vaccine and to build confidence across our society? Secondly—this links to what has already been raised—are we to believe that, once more due to the severe complications brought about by the new variant, further specific policies on the crucial levelling-up agenda, which the Prime Minister and his Cabinet frequently refer to, are likely to be delayed again, and that the planned March Budget is likely to be yet another Covid-19 support-based event?

[Lord Agnew of Oulton (Con) [V]]

The first question, on the link between vaccination rate and economic confidence, is absolutely fundamental. I am not aware of specific research being done on that. If there is any, I will make the noble Lord aware of it. From my own interaction with businesses, there seems to be a strong sense that the two are intertwined, which is why we are putting so much emphasis on it.

I reassure my noble friend that the commitment to levelling up remains as strong as ever. We will be making a Statement in the next few days on our progress in moving civil servants out of London and into some of the areas that the noble Lord refers to. My right honourable friend the Chief Secretary has a large fund for levelling up, for which regions can bid, and that is moving forward as well.

[Viscount Chandos (Lab) [V]]

My Lords, the Economic Affairs Committee, of which I am a member, urged the Government in December to make the £20-a-week increase in basic universal credit permanent, as the noble Baroness, Lady Kramer, has done today. We may not be known for our footballing prowess, but the committee, chaired by the Minister’s noble friend Lord Forsyth, is hardly partisan. The Minister said that the Government were responsive to changing economic conditions, and these have only deteriorated since the committee’s report. Why does the Minister not commit now to this, thereby mitigating the deep anxiety of an inevitably increasing number of recipients, rather than prevaricate until only days before the scheduled expiry of the temporary increase?

[Lord Agnew of Oulton (Con) [V]]

As I said in my earlier comments to the noble Baroness, Lady Kramer, I am not able to give the commitment the noble Lord asks for. The Chancellor will give an economic update in his Budget on 3 March, and I am sure that this matter will be addressed then.

[Lord Fox (LD) [V]]

My Lords, in the self-congratulatory response of the noble Lord, Lord Agnew, he favourably mentioned the household savings ratio. As my noble friend said, this pandemic will hit poorest families hardest; they are already having their incomes squeezed, and they have no savings at all to see them through this. It is clear also that the most deprived in the UK are the least likely to self-isolate; given the current level of support, they simply cannot afford to. The poorest people in this country cannot afford to wait for a March Budget and, despite the Minister’s smug response, this Statement offers them nothing. So can the Minister explain why the Government are blind to the fact that adequately helping the poorest people in this country is not only right but vital in the national fight against Covid?

[Lord Agnew of Oulton (Con) [V]]

I would remind the noble Lord of the large number of interventions we have made which will substantially support the most vulnerable in society: support to renters to reduce the ability to force evictions; the mortgage holiday, which has been granted to 2.7 million people since last March; the support in the many individual programmes we have announced. All these are applicable to some of the poorest in our society. We are very aware of their vulnerability. I would gently remonstrate with the noble Lord that it was not a statement of self-congratulation when I was answering the noble Lord, Lord Tunnicliffe; it was merely a statement of what we have done over the last 10 months.

[The Lord Bishop of Birmingham [V]]

I am grateful for the much-appreciated provisions made by the Chancellor so far in this extreme crisis and for his honesty in outlining the significant harm already caused to the economy by the pandemic. Will the Minister reassure the House that, following these emergency measures, many of which have been outlined just now, there are plans and policies already being formed for a recovery? Would he indicate some of the economic and social principles that the Government will be applying in leading the recovery? In addition to the question from the noble Lord, Lord Balfe, will the inevitable need to rebalance the public finances not unfairly burden the poorest?

I have another question. Will the Minister draw on the wisdom of the Institute for Fiscal Studies Deaton review, which is seeking to understand the UK’s complex mix of unacceptable inequalities and how to alleviate them? It takes into account the hollowed-out jobs market and the need for more crucial investment in education, skills and vocational training, as our willing, talented and diverse population competes with dignity and enterprise in the global market.

[Lord Agnew of Oulton (Con) [V]]

The right reverend Prelate asks important questions. I can assure him that very active thinking is going on about how to come out of this awful event as quickly as possible. I will mention one or two examples. The Kickstart scheme is designed to support hundreds of thousands of newly and fully subsidised jobs for young people. By the end of December, 50,000 Kickstart jobs had already been created. Additionally, £2,000 is being paid for each new apprentice taken on. I mentioned in answer to an earlier question our levelling-up commitment and the funds behind that. Those again will go to the regions where some of the most vulnerable people in this country live.

[Lord McLoughlin (Con) [V]]

I much appreciate many of the financial decisions the Government have taken—at very short notice, in some cases. However, will the Government, in future, have more of a mind for those businesses and people who have been most directly affected by the rules and regulations that the Government have—correctly—felt it necessary to put on to businesses, and not give relief right across the board? We have seen some large supermarkets pay back their business rates, but not all of them. That needs now to be addressed in the future, so that help goes to those who have been most directly affected and suffered the most damage. We do not need, as the leader of the Opposition said yesterday, a council tax freeze across the country, which would affect people who have not had any problems as far as the Covid crisis is concerned.

[Lord Agnew of Oulton (Con) [V]]

It is right that we should always aim to get the help to the most vulnerable areas, but there is a trade-off between speed of policy announcement and execution and the complexity of creating the sort of flexibility my noble friend refers to. I take on board his comments on the return of the rate rebate by supermarkets. I think a continued public programme to call out any of the larger supermarkets that have not done that will put pressure on them, as most of us are their customers.

[Lord Singh of Wimbledon (CB) [V]]

My Lords, the Government are to be commended for their furlough schemes and economic packages to mitigate the devastating effects of the Covid pandemic. The Statement rightly acknowledges that things will probably get worse before they get better. Does the Minister agree that, in light of difficulties being experienced by our supermarkets, this applies also to possible benefits from our new economic independence—benefits taken for granted in the Statement?

--- Later in debate ---

[Lord Agnew of Oulton (Con) [V]]

I am not entirely sure what the noble Lord is referring to—perhaps to supply chain issues in the first few days of Brexit. If that is his question, I can assure him that all is being done to iron out these initial problems. Overall, the system has worked remarkably well when one considers the enormous change in operating procedures that businesses have had to bring about on an essentially cliff-edge basis.

[Lord Sikka (Lab) [V]]

My Lords, the Government have imposed pay freezes on public sector workers, and many others have received little or no financial support and are struggling to survive. However, they face the full and escalating costs of gas, electricity, water, broadband and even the funerals of their loved ones. What consideration have the Government given to freezing prices of these services to enable hard-pressed families to make ends meet?

[Lord Agnew of Oulton (Con) [V]]

I am not aware of a huge jump in inflation, as suggested by the noble Lord. Indeed, inflation remains extremely low. The pay freeze in the public sector was carefully targeted to ensure that those on the lowest earnings still received some protection.

[Lord Razzall (LD) [V]]

My Lords, what the Statement does not refer to—although the noble Lord, Lord Balfe, touched on it—is the amount of debt incurred to fund government spending since the start of the pandemic. Government debt is now in excess of £2 trillion, of which nearly 50% has been bought by the Bank of England. Do the Government take the view that the Bank of England can continue to fund significant purchase of government debt, thereby avoiding damaging tax increases so long as inflation and interest rates remain low, or does the Minister think the Government would prefer to return, when they can, to cuts in public spending?

[Lord Agnew of Oulton (Con) [V]]

My Lords, there is a balancing act here. We all absolutely accept the grave state of the government finances following this crisis, and we will be doing everything we can to bring the books back into balance; however, if that is done too quickly, it will cause greater suffering to those who are most vulnerable, and therefore we have to try to strike a balance. The optimum way out of this will be by economic growth, which is where we are putting a great deal of emphasis.

[Lord Lancaster of Kimbolton (Con)]

My Lords, the £1.4 billion government-backed loan that easyJet announced yesterday demonstrates the perilous state of the aviation sector. Given that a higher tax rate does not always result in increased revenues, is it time to review the air passenger duty, partly to help stimulate demand but also partly, potentially, to increase revenues for the Exchequer?

[Lord Agnew of Oulton (Con) [V]]

My Lords, the Government are acutely aware of the challenging circumstances aviation is facing. The sector is able to draw on the unprecedented package of measures announced by the Chancellor, including schemes to raise capital, flexibilities with tax bills and the furlough scheme. The Government have committed to consult on aviation tax reform and will provide an update on the timing of this in due course.

[The Earl of Clancarty (CB)]

My Lords, in answer to a question I asked last week in this House, I was told that the Government were looking at whether the guidance in the Culture Recovery Fund might be changed to enable freelancers to benefit directly, as many freelancers have so far received no support at all. Can the Minister say anything more about this?

[Lord Agnew of Oulton (Con) [V]]

My Lords, I do not have an update on the response that the noble Earl received last week, but we will of course notify the House as soon as any is issued.

[Baroness Blackstone (Ind Lab)]

My Lords, it is clear that there are gaps in support, with some groups having had no help since the first lockdown began, which can only widen inequality. What is being done to change this and when will more support for these groups be provided?

[Lord Agnew of Oulton (Con) [V]]

My Lords, we have used such instruments as discretionary funding support for local authorities. We have just given an additional £500 million to enable them to fill gaps, for example, in the small business community, where hardship is being experienced. We remain alert to any other pockets of the economy where we feel we may be able to assist.

[Lord Dodds of Duncairn (DUP) [V]]

My Lords, the Government’s economic measures to get through the pandemic are very welcome but, as has just been said, there are people who have been excluded and their situation needs to be addressed at a national level. In his Statement, the Chancellor also talked of the certainty for businesses as a result of the trade deal with the EU. Unfortunately, it does not look that way in Northern Ireland at the moment, where the detrimental economic effects of the Northern Ireland protocol are all too evident, as we warned. The Government must urgently come to solutions or this will have a big impact on our economic recovery, including invoking article 16 of the Northern Ireland protocol as required, to smooth the way for frictionless trade and commerce to continue between Great Britain and Northern Ireland. Can the Minister update your Lordships’ House on steps that will be taken in the coming days to fulfil the promises made by the Prime Minister on this issue?

[Lord Agnew of Oulton (Con) [V]]

The Government do not accept that the approach the noble Lord is suggesting is the right one. We have put in place the trader support scheme in Northern Ireland, which I had some responsibility for; some 28,000 businesses have registered for it, including more than 12,500 in Northern Ireland, and 23,000 of those are in a ready-to-trade state. Only last weekend, we managed to move 1,000 lorries across from GB into Northern Ireland; that was after the end of the in-flight concession, which was a big concession, essentially saying that goods were already in transit out of the EU at the point of delivery into Northern Ireland. That has worked smoothly. We will, of course, see problems over the next few weeks as people adjust to a very new system, but I am confident that we will be able to reduce the friction substantially over the weeks and months ahead.

[Lord Lilley (Con)]

My Lords, one lesson of the pandemic is that in a crisis, government bodies, from the MRHA authorising vaccines to local authorities authorising pavement cafes, can take decisions in a fraction of the time they used to. Given the importance of encouraging the growth of existing businesses and the creation of new ones, will my noble friend put pressure on all government bodies to accelerate decision-making, by requiring them to publish the times they take to make decisions and by setting times after which approval will automatically be deemed to be given?

[Lord Agnew of Oulton (Con) [V]]

I very strongly support my noble friend’s views on this. We have seen some remarkable decision-making across government over the last few months, at a much faster rate than normal, and I encourage my noble friend to keep up his campaign to remind people of what is possible. In my own oversight of HMRC border-readiness, I used a simple mantra, which is that it does not take any longer to make a decision than not to make a decision, and it was remarkable how quickly decisions were made. I hope very much that we can continue with that philosophy.

[Lord Loomba (CB) [V]]

My Lords, I welcome the Chancellor’s timely update on our economy and the large amount of support he has given to businesses across all sectors throughout the country. As we are all too aware, we have a challenging time ahead balancing the books. Can the Minister say what steps are being taken to ensure that businesses inappropriately claiming financial assistance pay it back?

[Lord Agnew of Oulton (Con) [V]]

We are aware of the possibility of wrongdoing by businesses and the claiming of grants that were not legitimately theirs but, as I said on an earlier question, the priority was to get the money out quickly to the overwhelming numbers of people who deserved it. Some 1.4 million bounce-back loans were approved, worth over £43 billion; on CBILS, there were 82,000 loans worth £19 billion. There will undoubtedly have been wrongdoing in that. I assure the noble Lord that we are active in our efforts to clamp down on any wrongdoing.

[Lord Berkeley (Lab) [V]]

My Lords, I live in the Isles of Scilly. We were very grateful for the support the Government gave to the lifeline services to the mainland in the first lockdown, but now, apparently, nothing is available to keep them going during winter. We are at risk of companies having to stop services, and we will have no freight and very few passengers. Can the Government explain why they have not given any more support to these companies? Or will they wait until they go bust, and then what will they do?

[Lord Agnew of Oulton (Con) [V]]

My Lords, we expect to provide over £3 billion-worth of support to local authorities over the next year, on top of the support we have already given. For example, over Christmas we provided the £1,000 Christmas support payment to wet-led pubs in tiers that were subject to lockdown. I feel the noble Lord might be being a little harsh; there has been a great deal of intervention to support local authorities and small businesses.

[Lord Flight (Con) [V]]

My Lords, I congratulate the Government and the Treasury on a remarkably quick response through very large programmes of financing. I have a simple question: we see different figures of the impact on the economy, but what was the net UK economy contraction during the calendar year 2020 and what is the forecast contraction for the calendar year 2021?

[Lord Agnew of Oulton (Con) [V]]

My Lords, I do not have those figures to hand, but there will be ongoing economic Statements and my right honourable friend the Chancellor will address this in his Budget in a few weeks’ time. It is perhaps worth pointing out international comparisons; the way the ONS uses data here has had a detrimental impact on how it has reported on the shrinkage of our economy, because it considers outputs instead of inputs on things such as the salaries of teachers and other civil servants, who were not necessarily working because of the crisis but were still being paid. There will be more information on this, particularly in the Budget.

[Viscount Waverley (CB)]

My Lords, noting the expected but regrettable economic downturn, is it not excellent economic news that Unite has suspended strike action at Rolls-Royce at Barnoldswick, saving 350 jobs? Hurrah to that. But how will the Government address the challenge, talking more in UK terms rather than taking a four-separate-nations approach, of how we will unite the four kingdoms to speak with one voice on economic priorities and an implementation strategy?

[Lord Agnew of Oulton (Con) [V]]

I share the noble Viscount’s view that we need to talk more of a single nation. I fear we will hear more of this up to the devolved elections over the next few months, but I hope that, after that, we can get back to speaking more as a single country.

[Lord Moynihan (Con) [V]]

My Lords, I welcome the £4.6 billion in grants announced for the retail, hospitality and leisure sectors, as well as the sports winter survival loan package of last November, which covered 11 major spectator sports. Will my noble friend ask his colleagues to turn their attention to the community sports and recreation sector, whose clubs and community centres are currently on their knees, so that, when safe, they can be opened up as soon as possible, to enhance the physical and mental health of the nation, with at least some financial oxygen in essential life-support grants and loans?

[Lord Agnew of Oulton (Con) [V]]

I share the noble Lord’s concern about all these institutions that have been forced to shut down. We all very much look forward to the moment when they can reopen, which is why so much emphasis is being placed on the rapid rollout of the vaccine.

[Lord Empey (UUP) [V]]

My noble friend has referred to the economic difficulties Northern Ireland will face being separated in some way from its principal single market. However, the biggest challenge we face here is that his right honourable friend the Secretary of State announced a few days ago to the world that there was no border in the Irish Sea. This provoked a response of ridicule and anger in equal measure. How can we start a recovery if our representative in the Cabinet cannot even admit the practical situation that businesspeople face every day? Can my noble friend prevail on him at least to acknowledge the realities on the ground?

[Lord Agnew of Oulton (Con) [V]]

My noble friend raises important points. As I mentioned earlier, we are a few days into an enormous change in how trade operates across GB and the EU, and across GB and NI, but I reiterate the Government’s absolute commitment to keep the friction between GB and NI to an absolute minimum. We are doing everything we can to do that. I ask my noble friend to bear with us, because there will be a learning process over the next few weeks.

[Baroness McIntosh of Pickering (Con) [V]]

My Lords, the night-time economy contributes, in its heyday, over £66 billion per annum in revenue and employs 8% of the workforce—a disproportionate number of whom are young people, helping motivate them and often launching them on a career. Will my noble friend look carefully at what specific long-term help can be given to all businesses in the night-time economy, not just bars, nightclubs, restaurants and street vendors but also those that advise them—marketing companies, record labels, agents, managers, PR companies, taxicabs and newsagents—to enable those which are not facing ruin in the meantime to bounce back sustainably?

[Lord Agnew of Oulton (Con) [V]]

The noble Baroness raises a very important point. I share her concern for this sector because, as she quite rightly says, it is not just about bars and clubs but our cultural heartland—theatres and everything that goes with it. I reassure her that this is very much on the Government’s mind and will be addressed as we come out of this crisis.

[Baroness Altmann (Con) [V]]

My Lords, I congratulate the Government on their rapid reactions but reiterate my concerns about relying so much on debt and QE to try to sustain growth. Given the extraordinary widening of wealth inequality entailed by QE asset purchases, disadvantaging the poorer, younger citizens, would the Government welcome the Bank the England now considering a people’s QE when creating further additional funds to boost growth directly, as well as contributing to levelling up rather than continuing to distort capital markets, undermine pension funding and help the wealthiest?

[Lord Agnew of Oulton (Con) [V]]

The noble Baroness will know that the Government are not in favour of a people’s QE. The QE that has happened this year has been more effective than the QE in the 2008-09 crisis; at least in this situation the money has gone directly into our economy to solve and help the problem, whereas in 2008-09, as far as anyone has ever been able to explain it to me, at least half the money left the country. We are learning, but there is a great deal of nervousness about something such as a people’s QE, because being able to print money without any comeback is almost too good to be true. Indeed, at the weekend, I bought a book by Ray Dalio on debt crises in history to try to understand more about this, because I feel we need to be very cautious about borrowing more and more money.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

My Lords, the time allowed for this Statement has now elapsed. I apologise to the noble Lords, Lord Walney and Lord Holmes of Richmond, that we did not have time for their questions.