Economy: Spring Statement

Lord Bates Excerpts

Thursday 15th March 2018 Lords Chamber

Moved by

[Lord Bates]

That this House takes note of the economy in the light of the Chancellor of the Exchequer’s Spring Statement.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, this debate, which I have the privilege of leading, represents two firsts. First, it is the first in a new format of Spring Statements, which represent a single fiscal event. This was announced by the Chancellor in 2016 and aims to restrict tax and spending announcements to a single event in the autumn, which will allow more time for consultation and for planning by businesses and families. Secondly, today we have the privilege of listening to the maiden speech of the right reverend Prelate the Bishop of Lincoln. I am looking forward to that contribution almost as much as my noble friend Lord Cormack, who is of course a champion in this place for all matters to do with the great city of Lincoln.

The Spring Statement reports on a Britain that continues to grow, to create jobs and to outperform expectations. It is the next step in the plan set out in the Autumn Budget to build a Britain that is fit for the future and an economy that works for everyone. Our economy has been resilient, beating expectations and growing for five years straight—this is a fundamental strength which can help build the economy to meet the challenges that lie ahead. The Office for Budget Responsibility forecast reflects continued robust performance and has revised up the outlook for the economy this year, with growth slightly higher in 2018 than previously expected. Employment continues to rise, and has now risen by 3 million since 2010, the equivalent of 1,000 people finding work every day. This progress has been shared across the UK: since 2010, all nations and regions have seen higher employment and lower unemployment. The lowest paid have seen their wages grow by almost 7% above inflation since April 2015, and the OBR expects inflation to fall over the next 12 months, meaning that real-wage growth is expected to increase over the course of the year.

This Statement points to our mission to repair the public finances, with debt set to fall from next year onwards. Thanks to the hard work of the British people, today’s forecast shows that our plan to get back to living within our means is working. The deficit has been cut by three-quarters: from a post-war high of 9.9% of GDP in 2009-10 to 2.3% in 2016-17, its lowest level since before the financial crisis. The OBR forecasts that, next year, debt will begin to fall and will continue to fall in every year of the forecast, the first sustained fall in debt for 17 years.

While this is good news, borrowing and debt remain too high. We need to keep debt falling: it leaves us vulnerable to future economic shocks; we spend about £50 billion a year on debt interest payments, which is more than the amount we spend on the police and the Armed Forces combined; and it is not fair on the next generation to foot the bill for our current spending. We continue to take a balanced approach to public spending by reducing the debt, investing in Britain’s future, reducing taxes for hard-working families and putting money into public services.

If the public finances continue to reflect the improvements seen in the Spring Statement and the economy continues to be on a strong footing, at Budget 2018 the Government would have the capacity to enable further increases in spending on our vital public services and the long-term investment in Britain’s future. At the Autumn Budget the Government announced £25 billion of spending, including £6.3 billion for our NHS, and supporting households and businesses by investing in the UK’s potential in the long and medium term. Next month, working families will see another increase in their personal tax allowance, inflation-busting increases in the national minimum wage and the national living wage, and a freeze on fuel duty.

I turn now to the specific OBR forecasts. The OBR delivered its second report of the fiscal year 2017-18 on Tuesday. It points to the fact that the economy grew by 1.7% in 2017, compared to the 1.5% forecast at the Budget. Forecast growth is unchanged in 2019-20 at 1.3%, before picking up to 1.4% in 2021 and 1.5% in 2022. The OBR also expects inflation—currently above target at 3%—to fall back to target over the next 12 months. Borrowing is now forecast to be £45.2 billion this year, £4.7 billion lower than was forecast in November last year, and £108 billion lower than in 2010.

The Spring Statement reflects and supports the Government’s balanced approach to public finances by getting our debt levels down to secure our economy against future shocks, and freeing up taxpayers’ money for our vital public services rather than servicing ever-greater debt interest.

Since the Autumn Statement 2016, £60 billion of new public spending has been committed to support our public services. These measures take public investment in schools, hospitals and infrastructure in this Parliament to its highest sustained level in 40 years. Our fiscal strategy is driven by a balanced approach which will ensure that this country has robust and enduring economic growth to prepare us for the future.

Our economy reflects the potential of markets to develop talent and create opportunity because free markets provide jobs for millions, create wealth and form the bedrock of our tax revenues that underpin our vital public services. We will continue to support British businesses and champion free enterprise and free trade around the world. In this respect the Chancellor announced in the Spring Statement that the Autumn Budget 2017 moved to triennial revaluations of business rates from 2022, and it was confirmed that we will be bringing forward the next revaluation to 2021, with triennial reviews starting from then onwards.

The persistent challenge of productivity was also addressed in the Spring Statement. Notwithstanding the strong productivity numbers in the past two quarters, the Chancellor launched a call for evidence to understand how we can boost the productivity of the UK’s least productive businesses, among other pressing issues. As part of the Government’s modern industrial strategy, announcements were made to ensure that Britain remains at the forefront of new technology such as high-speed broadband. The Chancellor announced the first allocations of a £190 million local full-fibre challenge fund announced in the autumn Budget and confirmed £25 million for the first 5G testbeds.

A central part of a thriving economy and business environment is, of course, the people who work within it. The Spring Statement also told us that the Government are prioritising skills and training so that people can access and capitalise on available opportunities. The Chancellor reiterated the commitment of over £500 million a year to T-levels, the most ambitious post-16 reforms in 70 years, and £50 million of support is available to employers to prepare for its rollout.

We are also undertaking the largest road-building programme since the 1970s and embarking on the largest investment in our railways since Victorian times. We are making solid progress on plans to deliver the Cambridge-Milton Keynes-Oxford corridor and we are devolving powers and budgets to elected mayors across the northern powerhouse and midlands engine. We are in negotiations for city deals with Stirling and Clackmannanshire, Tay Cities, Borderlands, north Wales, mid Wales and Belfast, and we have invited proposals from cities across England for the £814 million fund that was announced in the Budget to deliver on their local transport priorities as part of our plan to spread growth and opportunity across all parts of the United Kingdom, because we know that investment in critical economic infrastructure and skills feeds through into the productivity bottom line.

The Spring Statement echoed a commitment to tackle the challenges in the housing market, and the Chancellor has set out measures this week to help it happen—an investment programme of £44 billion to raise housing supply to 300,000 a year by the mid-2020s. The Chancellor announced new updates to the Government’s housing strategy. The Government will work with 44 authorities which have bid into the £4.1 billion housing infrastructure fund to unlock homes in areas of high demand. It was announced that the West Midlands has committed to deliver 215,000 homes by 2030-31, and London will receive an additional £1.7 billion to deliver a further 26,000 affordable homes, including homes for social rent. It is estimated that 60,000 first-time buyers have already benefited from the stamp duty relief introduced in last year’s Autumn Budget.

The Chancellor also reported progress on aspects of tax policy, including multiple tax consultations, both published and impending. We have published the consultation on improving the way in which the tax system supports self-funded training by employees and the self-employed, and the Chancellor has asked the ONS to look at developing a more sophisticated measure of human capital so that future investment can be better targeted. In the autumn the Government published a paper on taxing large digital businesses in the global economy, and the Spring Statement follows this up with a publication that explores potential solutions.

The Government published a consultation on the new VAT collection mechanism and a call for evidence on how to encourage digital payments while ensuring that cash remains available for those who need it. The call for evidence will also seek views on how the tax system or charges can reduce the amount of single-use plastic waste in our society. Further consultations have also been announced, including a call for evidence on whether the red diesel tax relief on non-road mobile machinery discourages the purchase of cleaner alternatives.

The Spring Statement sets out how, through targeted measures, we are restoring the UK’s public finances for the benefit of our economy, for our public services, for our taxpayers and to ensure that we have an economy which is fit for the future. I commend the Spring Statement to the House.

[Lord Young of Norwood Green (Lab)]

Why did the Minister omit the paragraph on page 8 of my report dealing with the commitment to delivering 3 million apprenticeship starts?

[Lord Bates]

I think the noble Lord may be confused. This is not a repeat of the Statement given in the other place earlier in the week. It is a new speech addressed to a specific debate. It is not a repetition of a Statement but is part of a debate on the state of the economy and the OBR. I hope that helps clarify the position. However, I will be happy to deal with that point when I wind up the debate.

--- Later in debate ---

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I sense that the opening part of the speech of the noble Lord, Lord Davies, might be the one area in which we find common agreement, on the majestic qualities and aesthetic beauty of Lincoln Cathedral, which is a great place to start. Again, in responding to this extraordinarily high-quality debate, I congratulate the right reverend Prelate the Bishop of Lincoln on his excellent contribution to it. As someone who hails from the same part of the world as he does, having been born in County Durham, I used to think that Durham Cathedral was the greatest cathedral on the planet, but even I was turned when I saw Lincoln Cathedral in all its splendour, particularly the facade. It was wonderful to hear his remarks, and I look forward to hearing many more.

This debate covered a number of areas, and I will try to summarise the key themes. There was a focus on the debt and the progress made in reducing the deficit; we are beginning to see a reduction in the debt. My noble friend Lord Higgins, whom I congratulate on his 54th contribution to a Budget debate, pointed to the fact that in absolute terms debt continues to rise. We referenced the percentage of GDP, which the OBR forecast shows is beginning to fall. My noble friends Lord Hodgson, Lord Higgins and Lord Freeman, and the noble Lords, Lord Mawson and Lord O’Neill, all made reference to the important element of continuing that effort to control spending, and said that rather than pitching it in terms of austerity, we should do so in terms of living within our means. The noble Baroness, Lady Kramer, also mentioned intergenerational fairness, which means ensuring that we hand on a legacy to our children which does not saddle them with the debt of the previous generation.

Public services featured significantly in the debate, and rightly so. The noble Lord, Lord Haskel, began by highlighting the importance of public services, as did the noble Lords, Lord Taverne and Lord Davies, the noble Viscount, Lord Chandos, and the noble Baroness, Lady Kramer. There was a strong focus on productivity, investment and technology, which the noble Lord, Lord Mawson, focused on, as did my noble friends Lord Hodgson and Lord Freeman. There was particular reference to skills, which was commented on by the noble Lord, Lord Young, and my noble friends Lord Freeman and Lord Hodgson; I will come back to that in a moment.

A variety of views were expressed on the OBR forecasts themselves. It was a bit of a teaching masterclass with the noble Lords, Lord Skidelsky and Lord O’Neill, as we listened to their explanations, and the noble Lord, Lord Livermore, gave his own interpretation of those statistics. However, everybody focused on them. The Chancellor said in his Statement that GDP growth statistics are not a target to be met. They were forecast to be beaten. We are very much in that mindset—just as when the forecast for last year, given as recently as November at 1.5%, was beaten, at 1.7%. We would like to believe that a lot of the changes announced will produce a better outcome.

Brexit featured large in the contributions of the noble Lords, Lord Taverne and Lord Higgins, and the noble Baroness, Lady Kramer. In a spirit of fairness, as Brexit has had so much airplay in your Lordships’ House, particularly this week, I am tempted to say that I may not dwell on it to the extent that they may wish—but I will certainly refer to it. There were some significant contributions both by the right reverend Prelates the Bishop of Lincoln and the Bishop of Portsmouth, and by the noble Viscount, Lord Chandos, about what I would term societal fairness, particularly with regard to young people and people living on welfare. I shall seek to cover some of those points.

Some of the points that I will not be able to address at this moment—I give notice that I shall write on these subjects—concern the review by the Office of Tax Simplification, which was raised by the noble Viscount, and the change in methodology and a paper announced by the Chief Secretary to the Treasury that might be forthcoming, which were mentioned by the noble Lord, Lord O’Neill. I will look into that matter and write to him, if I may.

Now I shall address some of the specific points raised. The noble Lords, Lord Young of Norwood Green and Lord Davies, spoke about the importance of schools. Even while repairing the public finances, the Government continue to protect the schools budget. The core schools budget is at a record high of around £41 billion, and in July the Government announced £1.3 billion in additional schools funding over the next two years.

The noble Baroness, Lady Kramer, spoke about the issues and challenges facing social care. The Government have given councils access to £9.4 billion more of dedicated funding for social care over the next three years, as a result of measures since 2015. The OBR says that the current forecast would leave local authorities in England with £20.2 billion of reserves at the end of 2020-21, which is £3.8 billion—25.3%—more than they had at the end of 2010-11.

The noble Viscount, Lord Chandos, spoke about inheritance tax. Moving to a recipient-based system for inheritance would not only, in our view, increase the complexity of tax but add to the administrative and compliance burdens. The OTS will review the tax to ensure that it is fit for purpose; the review will consider a range of simplification options.

Several noble Lords, including the noble Lord, Lord Davies, and the noble Baroness, Lady Kramer, referred to housing. The Autumn Budget of 2017 said that more than £15 billion of new financial support would be available for housing over the next five years, taking total financial support over the period to £44 billion. In February we announced £866 million-worth of successful housing infrastructure bids, which will deliver up to 200,000 homes in high-demand areas. We have doubled the size of the Housing Growth Partnership to £220 million, providing much-needed investment in small to medium-sized housebuilders, and the Government launched a consultation, under a revised National Planning Policy Framework, to ensure that more homes are built.

My noble friends Lord Freeman and Lord Hodgson, and the noble Lord, Lord Young, spoke about the importance of developing human capital in the context of the advance of technology and the fourth industrial revolution, in AI, that is coming down the track. These are very real challenges that we face. In the new economy we expect increased levels of automation, with some jobs changing. For example, tomorrow’s employers might start to pay more of a premium for general or technical competence rather than for traditional forms of educational attainment. We therefore need to ensure that we make the right investment in our people now so that everyone has the best start at school and continues to receive support and training throughout their working lives. With the support of the ONS, our analytical work will examine the nature of the skills that are valued by the labour market and look at labour market outcomes resulting from education so that we can take a more sophisticated approach going forward.

The right reverend Prelate the Bishop of Portsmouth made a profound point about the poorest in society. He will have heard me comment in my opening remarks about how the combination of the changes to the national living wage and tax thresholds is leading to some welcome and real wage increases for some of the lowest paid in our society. The Government are committed to taking action to help the most disadvantaged, with a focus on tackling the root causes of poverty, including workless households. The fact that there are 3 million more people in work and 950,000 fewer workless households and that 608,000 fewer children are living in workless households has to be, as the right reverend Prelate put it, a reason for hope for the future.

The noble Lord, Lord Skidelsky, focused on productivity and analysed it in some detail. Following the good practice of a student, I will read the Official Report and review what he said. We are very much of the view that productivity is, and has been for many years, one of the greatest challenges that our economy faces. There have been many debates and arguments about why that is so. Some have pointed to its reliance on services rather than manufacturing. As automation has increased, we have not seen the same growth in productivity as, say, the German economy. However, we are not in any sense complacent about this. That is why we set up the National Productivity Investment Fund. Some £31 billion has been made available for research and development—an area which my noble friend Lord Hodgson spoke about and which my noble friend Lord Freeman also mentioned. In digital, we have announced over £95 million for 13 locations as part of the £190 million Local Full Fibre Network Challenge Fund. Transport is another element that feeds into productivity.

I think we need to look at employment and take on board the performance of many other countries in the European Union in relation to GDP. For example, the unemployment rate in France is currently 9.5% and its youth unemployment rate is 22.4%. According to the OECD, in the third quarter of 2017 in the UK it was 4.2%.

The noble Lord, Lord O’Neill, who did so much during his time as a Treasury Minister to advance the northern powerhouse, was right to challenge us not to be timid about the advances that have been made there—due, in not insignificant part, to his efforts in and leadership of that initiative. In the past year we have seen an extra £8 billion added to the north’s economy, with growth and productivity rising at a faster rate there than in London and faster than the UK average. The north’s economy is now worth £316 billion —bigger than that of Norway, Sweden, Austria or Belgium. Last year, as an average, we saw employment in the northern powerhouse area rise at a faster rate than in England. There are now over 400,000 more people in work in the north than in 2010, and the number of claimants of unemployment benefit in the north has decreased by 40% over the same period. Most crucially, as regards transport, where he urged us to do more—several noble Lords referred to this—by 2020 we will have invested over £13 billion to improve transport in the northern powerhouse area. That is more than any other Government in history. I hope that will go some way to address some of the concerns referred to by my noble friend Lord Hodgson.

The noble Lord, Lord Mawson, gave an inspirational address, viewing the economy from the perspective of the entrepreneur. I pay tribute to the work that he has done in Bromley-by-Bow, and certainly in the Lee Valley. He has turned that area of London into one of the most exciting areas, particularly as regards technology around Shoreditch, which holds huge potential for the future of this country. It is instructive that business investment remains strong. It increased by 2.2% in 2016 and forecasts show that it will grow by 1.7% in 2018. I believe that technology investment, certainly in London, is at its highest level ever, which is to be welcomed, with companies such as Apple, Facebook and Bloomberg locating their offices here.

My noble friend Lord Hodgson asked about artificial intelligence and technology. New technologies have the potential to drive economic growth in the UK. We believe they are not something we should be fearful of but that we should ensure that we have the skills and the investment to take advantage of them when they arrive.

The noble Lord, Lord Haskel, asked for an update on the industrial strategy. There will be regular updates on our progress towards the grand challenges set out in the industrial strategy, though this was, of course, not the primary purpose of the Spring Statement. The noble Lord also questioned the quality of jobs. Over three-quarters of the growth in employment since 2010 and nearly all the net increase in employment in the last year has been full-time work, and the proportion of full-time jobs that are low paid is at its lowest level in at least 20 years.

The noble Lord, Lord Young, and the noble Baroness, Lady Kramer, spoke about the apprenticeship levy. There have been over 1.2 million apprenticeship starts since May 2015. We remain committed to delivering 3 million apprenticeship starts in England by 2020. We recognise, however, that this is a significant period of change for employers. As they have two years to spend their levy funds, businesses are taking their time to plan ahead and grow in a controlled way. On the overview, next month, working families will see another increase in their personal allowance, above inflation increases in the national minimum wage and the national living wage and a freeze on fuel duty, which we believe will feed through into some of the poorest areas of the country. The right reverend Prelate the Bishop of Lincoln referenced the north-east of England. Since 2010, there have been 78,000 more people in work in the north-east and 18,800 more businesses, and the north-east has seen the second-fastest growth in median gross weekly earnings since 2010, which is plus 13.8%.

As the Chancellor told us in the Spring Statement this week, this Government are delivering on their plan, which is firmly grounded in a balanced approach. It is not all about controlling finances and not all about investment but is a combination of both. We are seeing large investments, particularly in critical economic infrastructure. That has to be the right thing to do, while combining fiscal discipline with strategic investment in our economy and public services. The OBR forecasts more jobs, rising wages, declining inflation and a falling deficit. That has to be welcomed.

When we look for reasons for hope—I refer back to the speech by the noble Lord, Lord Mawson, who talked about giving people hope for life after Brexit— one area of hope could come in the shape of Forbes magazine, which undertook its annual survey of the best places in the world to do business. Out of 153 economies in the world, of the best places to do business in 2018—not historically, but in 2018—the UK was ranked number one. That is what real business is thinking. That is what Boeing is thinking when it sets up operations in Sheffield, that is what Toyota is thinking when it invests in its plants, and that is what other investors are thinking when they come to this country. We share their confidence in the prospects for this economy. While this review and these forecasts present a challenge, we believe that there is real cause for hope and that we can see a better future for the people of this country as we make a success of Brexit going forward.

Motion agreed.

House adjourned at 5.36 pm.