Covid-19: Economic Recovery

Lord Horam Excerpts

Tuesday 20th April 2021 Grand Committee

[Lord Horam (Con)]

My Lords, macroeconomic policy is central to any discussion of jobs and livelihoods. I think the world economy is set for a very interesting period; many forecasters are predicting a roaring Twenties similar to the one following the Spanish flu in the 1920s, and they could be right. That is good news for the UK and jobs in the UK. As the Minister put it, there are certainly “reasons for optimism.”

We are particularly lucky that the Biden Administration have hit the ground running and initiated not one but two enormous stimuli. The first was a $1.9 trillion injection—what we call helicopter money—going straight into people’s pockets. This gives a wholly new and more favourable meaning to the phrase “the cheque is in the post.” A family on $145,000 a year gets $7,000 extra to spend. On top of this there is a second tranche, partly funded by increased taxes, to upgrade human and physical capital. Anyone who knows the USA very well would agree that that is necessary. The Federal Bank is further supporting this by committing to buying government bonds for the rest of the year to keep interest rates down.

The other bit of good news from the US is that President Biden is proposing a minimum global corporation tax. I agree that this will face a tough time in Congress but, if it comes to pass, it is estimated that the UK would stand to benefit to the tune of over £3 billion per year. This shows how much tax dodging is being done by international corporations. All of this shows the benefit to the world of having a sensible guy in the White House with economically literate advisers.

The US approach fits very well with what is called modern monetary theory, which has a lot to be said for it. MMT is not actually very modern. It was spelled out by American economist Abba Lerner at the same time as John Maynard Keynes, the greatest economist of all time, was doing his thinking in Cambridge. For today’s readers it is spelt out in a book called The Deficit Myth by Stephanie Kelton, and I hope that it is required reading in the Treasury. It says that the important thing is to balance the economy, not the budget. If you prioritise growth, you will get growth and be better able to pay off the deficit. If you prioritise cutting the deficit, you will lose growth and find it harder to bring down the deficit, as well as do social and economic damage.

MMT, despite having the same initials, is not a magic money tree. It recognises that if you ramp up demand too much, you will cause inflation. If that happens, you will have to increase taxes to take the steam out of the economy. So far, I am glad to say that the Chancellor has gone along with this vein of thinking and has been willing to spend without worrying too much about the budget deficit. Indeed, he has even received praise from Martin Wolf, the FT’s chief economic adviser, who spent the last 10 years criticising Conservative and coalition Governments. Martin Wolf made the point that, at the moment,

“it makes sense for the government to borrow to spend”.

As an old FT man myself, I am pleased that they are at last on board. The European Union, by the way, is a bit of a lagger on all this. Christine Lagarde, the current boss of the European Central Bank, has said that the eurozone should boost spending by 3.5% of GDP. I certainly hope that it follows her advice.

So the macroeconomic prospects are good and we can look forward, I think, to two or three years of strong economic growth, which is essential for jobs and living standards. The vital question, as always, is how the money will be spent. Everyone will have their own views on this, and many have been aired in this debate, but I will suggest two, and I hope that the Minister will comment on them.

The first is the relief of poverty. Poor people with few means have had a very tough time in this pandemic, and undoubtedly the number of people in poverty has increased. What this means is that we must get universal credit right. I was appalled to read that HMRC was trying to claw back money from people on UC who were accidentally overpaid, in some cases many years ago. This is absolutely deplorable, and I would like to know from the Minister what has been done to curb this distasteful practice. I note, by the way, the comment of the retiring chief constable of Merseyside, who said that increased crime was caused by increased poverty, and that if the Government were to give him an extra £5 million to spend, he would spend only £1 million on increasing policing and £4 million on trying to reduce poverty.

The second issue I will raise, which is vital for the future of jobs, is technical education. As an economist said in the Times only yesterday, it is time for apprenticeships to take centre stage. There must be a much bigger and better organised push by government to get companies to contribute more to workplace training. I heard what my noble friend Lady Penn said in her opening remarks, and I certainly hope that that will prove adequate. We do need something big and well organised. There should also be more support for the further education sector, which has not received the sort of attention we have lavished on universities. I totally agree with my noble friend Lady Noakes about degrees. The fact is that a thriving FE sector is not only a key to economic growth but utterly crucial to the levelling-up agenda that is at the heart of this Government’s approach to the economy.

So we are, in my view, at the beginning of a period of great opportunity, and I hope that this time we can get it right.