Economy: Spring Statement

Lord O'Neill of Gatley Excerpts

Thursday 15th March 2018 Lords Chamber

[Lord O'Neill of Gatley (CB)]

My Lords, I, too, congratulate the right reverend Prelate the Bishop of Lincoln on his excellent maiden speech. By complete coincidence, I attended a wedding last Friday at which at least half of those present came from that proud county, so I can vouch that they appear to be a rather robust bunch.

With respect to the Spring Statement, I will make six—hopefully brief—points, two of which are questions. First, I congratulate the Chancellor on sticking to his commitment to only one annual fiscal event, not least to avoid the never-ending temptation of saying or doing something purely for the sake of it. I join other noble Lords in congratulating the Government more broadly on the ongoing positive fiscal progress. Far too frequently, the importance of eventually returning to some kind of fiscal health is underestimated in this place.

Secondly, I point out—others have touched on this but, to my slight surprise, it has not been specifically mentioned—that the OBR was surprisingly gloomy, contrary to general expectations in advance because of recent evidence. Although I suspect that, as I have just implied, things might not be as grim as it suggested, its justification does not lack credibility. In this regard, it would not be the worst of all outcomes if, yet again, it—and some of the rest of us—is pleasantly surprised in the autumn.

Thirdly, the OBR might easily be wrong. As David Smith highlighted in yesterday’s Times, if going forward the GDP growth that it suggests is as weak for the rest of the period, it will turn out to be worst extended period for 70 years. Is this realistic? Perhaps it is. But, beyond Brexit, it seems that there are some creeping better signs, not least the recent evidence of a pick-up in productivity. There are some credible reasons, some of which I have outlined in this place before, why this recent two-quarter improvement in productivity is not to be dismissed, as the OBR has done, and might persist. I do not have the time to highlight what they are, but I will no doubt return to them at some future date. If the OBR is wrong, the boost to public finances as well as the scope for material debt reduction, and for government investment spending, could be significant.

However, my fourth point is that the OBR might be right. If it is, the Government will have no choice but to take a bolder path on investment spending, both directly and indirectly.

Fifthly, in this regard, can the Minister respond to a question on the following? Recently, I participated in a conference on investment in the UK. At that event, the Chief Secretary to the Treasury said—this was very recently—that the Government would soon publish a paper on a new methodology for approval of investments, implicitly suggesting the possibility of allowing for broader productivity-enhancing analysis rather than the all-too-familiar rigid value-for-money approach that has long since dominated the thinking of many departments. That could be hugely important. When will that report be published?

Sixthly and lastly, in this vein, why are the Government so quiet and why have they become so apparently timid about their northern powerhouse and Midlands engine strategies, especially when, oddly, there is some evidence—albeit modest—that parts of this past strategy are working? The last time I spoke here, I highlighted the apparent strength of the north-west, notwithstanding some points touched on earlier, and, since then, the most recent data suggests that this is continuing. I would have thought that the Government would be rather proud of that and would want to pursue it more. Succeeding with both the broader, wider northern region, as well as the so-called Midlands engine, and sustaining the strength of the north-west would, among other things, help to deliver on some of the implicit core things that the OBR is so gloomy about and, most importantly, would result in a better future for the whole of the United Kingdom.

As it relates to the northern powerhouse, there are clear implementable policies, especially on transport infrastructure and education and skills, which the Government should embrace. While the transport asks require significant new central government fiscal action, the skills and education initiatives do not challenge the fiscal framework that much. As demonstrated by the recent proposals from the Northern Powerhouse Partnership, of which I am the vice-chair, these would be highly important to the education and skills challenges of the whole of the north and, for that matter, the Midlands, but would have very little impact on the Government’s overall fiscal framework, irrespective of whether the OBR is right or wrong. The Government need to rediscover their lust for these policies, some of which may have contributed to the tentative signs of some highly necessary and important regional rebalancing of the economy.