Budget: Economic and Fiscal Outlook

Lord Wallace of Saltaire Excerpts

Tuesday 5th May 2020 Lords Chamber

[Lord Wallace of Saltaire (LD)]

My Lords, in last year’s debate on the government statement on economic convergence, my noble friend Lady Kramer said that it was “surreal” to debate the EU framework when the UK was leaving the EU. This year’s debate is far more surreal: we have now left; Boris Johnson has hardened the terms for a new economic relationship; it looks increasingly possible that no agreement will be reached; and the pandemic has disrupted the world economy.

Statements about the UK economy made before the end of February are no longer valid. The OBR warned that the projections it offered would be invalidated if Covid-19 affected Britain severely. Well, since then it has. The Treasury has abandoned its commitment to fiscal restraint—rightly, given the gravity of our situation. None of the statements we are considering placed much emphasis on the UK’s structural trade deficit or the impact on our economy of a further fall in our exchange rate. The collapse of our negotiations with the EU would worsen both.

The four priority states with which the Government hope to sign free trade agreements to compensate for the anticipated decline in trade with our immediate neighbours are the United States, Japan, Australia and New Zealand. New Zealand? At present, 0.2% of Britain’s exports flow to the 5 million New Zealanders. If we were to double our exports to New Zealand every year for the next five years, that would still leave us exporting less to them than we already do to Poland, Norway or Sweden—countries with which we will find it more difficult to trade in 2021. Is that a rational trade strategy?

Michael Gove has just announced a “customs academy” to train the extra 50,000 staff who will be needed to handle Britain’s trade with the EU after we have crashed out. So much for Vote Leave’s promises that leaving the EU would reduce the burdens on business.

In recent weeks, the Government have rediscovered respect for experts and evidence—at least on health, disease and epidemics—which Ministers from Boris Johnson and Michael Gove down had rubbished. On the economy, the Prime Minister and many of his advisers are still in a fantasy world. Iain Martin, in last Friday’s Times, even resurrected the Singapore-on-Thames illusion that a no-deal Britain could flourish as a service economy, without an important manufacturing sector.

We will not emerge successfully from this acute economic and social crisis unless our Government reconsider their priorities for our domestic economy and trading partners and carry the country with them as they rebuild. So far, I see little sign that they will do so.