Budget Statement
Lord O'Neill of Gatley Excerpts(3 years, 2 months ago)
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Lord O’Neill of Gatley (CB) [V]
My Lords, I give my own congratulations to the noble Lord, Lord Khan of Burnley. I particularly welcome his passion and plea for more for the northern powerhouse. In view of the short time, I will make five specific points.
First, yet again this was not a normal Budget, as it was understandably geared towards Covid-related support. This makes it hard to assess the true economic priorities for this Government, especially as we are yet to see a multi-year spending review.
Secondly, however, I applaud the Chancellor’s general resistance to introducing too much fiscal restraint too early, and I commend his broad macro stance.
Thirdly, in contrast to some others, I also admire the decision to plan for an increase in corporate taxes. It has been obvious to me for years that the general Anglo-Saxon obsession with ever-lower corporate taxes, while it has boosted profits, has had no positive impact on investments. Also, given the political change in Washington, this move was savvy.
Fourthly, in the hope and on the assumption that the Autumn Statement will allow for thinking beyond Covid, I hope that the Government will again resist early fiscal restraint and give a much deeper and broader strategy around their intentions, especially on infrastructure, levelling-up and the northern powerhouse.
Fifthly and finally, in these extraordinary times with so much change happening, I also encourage the Chancellor to be even bolder in his general fiscal and monetary approach. He must seriously consider a truly transformational shift in accounting differently for investment and consumption spending, which would allow for much more genuinely ambitious investments. On monetary policy, in contrast to the noble Lord, Lord King, I believe that, given the volatility now appearing in the bond markets, the time has come for the Government to give the Bank of England a completely new approach and to formally adopt nominal GDP targeting to replace the de facto one that has emerged—not only to maintain but even to enhance its credibility.
Economic Update
Lord O'Neill of Gatley Excerpts(3 years, 4 months ago)
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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.
Economy
Lord O'Neill of Gatley Excerpts(3 years, 8 months ago)
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Lord Agnew of Oulton (Con)
I thank my noble friend for her questions. In short, I will write to her on the DWP’s policy on fraud checks for newly registered universal credit claimants. It suspended a number of the checks at the height of the crisis, but I am aware that it is going to reintroduce them. I do not have the date, so I will write to her. On us being a tax haven for dubious people, I share her concern. It perhaps takes a crisis such as the Covid crisis to focus minds, and I hope very much that we will taking much more assertive action.
Lord O’Neill of Gatley (CB) [V]
My Lords, I broadly compliment the proactive role played by the Treasury in response to this crisis, which has, sadly, been in marked contrast to the overall policy of the Government. Notwithstanding the sometimes confusing and certainly erratic policies of the Government, and possibly aided by the Treasury and the Bank of England, at least through mid-September the UK, perhaps surprisingly, appeared to be sharing in what some economists might describe as a V-shaped recovery through the third quarter. What will happen beyond this month and through the next quarter looks very uncertain, and the more pessimistic scenarios are not implausible. To avoid them may greatly depend on the introduction of a successful vaccine and a much more truly successful test and trace system.
But what I really want to speak about today is to inquire about the so-called levelling up agenda. Is there ever going to be anything beyond the endless rhetoric? The Government talk frequently and ambitiously about levelling up and the northern powerhouse agenda. They have done so since they were elected and have continued to do so despite Covid-19, yet they show no sign of this rhetoric being backed up by deed. They were close to presiding over a colossal levelling down in school education attainment, they repeatedly postposed plans for a spending review in which infrastructure spending is highlighted as being in the centre—
Baroness Penn (Con)
My Lords, I encourage questions to the Minister on the Statement.
Lord O’Neill of Gatley (CB) [V]
What is happening to this and the spending review as well as the much-talked-about Green Book review as well as the promised paper on devolution? Surely the ongoing consequences of this crisis suggest an even greater need for true levelling up rather than excuses and repeated delays.
Lord Agnew of Oulton (Con)
I can confirm to the noble Lord that levelling up is very much on the Government’s agenda. I am, as part of my portfolio, the Minister responsible for government property, and one thing that I have instituted is to ensure that no break clauses for major buildings in London are allowed to run over during the next three or four years to force the issue of moving staff out of London. In addition to that, I receive monthly all the job advertisements for senior civil servants, and I am continually pressing and challenging departments that do not advertise those jobs outside London. That is improving slowly.
In the Budget in March, we announced one of the largest infrastructure commitments since the war, with some £600 billion-worth of infrastructure, and I can confirm that a great deal of that will be going into areas which have been left behind in the past.
Lastly, the noble Lord asked about the comprehensive spending review. I can confirm that 24 September was the deadline for all departments to submit their returns and their bids. We will be responding to that within the next couple of months.
Economy: Update
Lord O'Neill of Gatley Excerpts(4 years, 1 month ago)
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Lord Agnew of Oulton
I share my noble friend’s concern for these particular sectors, and I understand absolutely where she is coming from. It is worth reiterating the specific support which has already been made available. I refer to the 100% holiday for business rates which is estimated to be worth £11 billion just to English businesses, as well as the grant system. Some 203,000 properties are eligible for a £10,000 grant and 120,000 properties are eligible for a £25,000 grant which in aggregate comes to around £5 billion. I also refer to the bounce-back loans which were announced yesterday since they will be some which these businesses can take advantage of. However, I repeat that I share my noble friend’s concerns.
Lord O’Neill of Gatley (CB)
My Lords, I would like to thank and congratulate the Chancellor and his advisers in the Treasury for speed and agility of their economic policy response. I recall that in his response to our debate on 18 March, the Minister described my proposal for a version of a people’s QE as the most radical of any that had been proposed that day, yet within two days the Government announced what were essentially half of what I proposed, particularly that which related to the furloughing scheme. I have had, and continue to have, many concerns about aspects of the loan scheme which relate to a couple of questions which have already been asked by other noble Lords. Will the Minister consider taking back to the Chancellor and the Treasury the following idea and question?
Why not, as I proposed specifically that day, link the two together and make the business support conditional on not gaming the furloughing system, and, along with that, further consider replacing aspects of the loan-based system with something more grant or equity related, where the Government could take a secondary type of equity stake, which would allow for small businesses in particular to plan for this uncertain future—especially ones such as those in hospitality. For them, the idea of taking a loan when they read and hear that a vaccine could still be 18 months in the future would, generally speaking, be a completely undesirable option. However, for the Government to directly support them in a way other than encouraging debt would be likely to be much more substantive and less damaging to the long-term outlook for the economy.
Lord Agnew of Oulton
I thank the noble Lord for his question and indeed for his perspicacity in the statements he made on 18 March, and on them becoming policy very shortly afterwards. In that light, if the noble Lord would like to write to me with his ideas, I assure him that I will follow that up with the Chancellor of the Exchequer and see what more we can do. I completely agree that we will need a more flexible and nuanced system as we move into the next phase of this crisis.
Budget Statement
Lord O'Neill of Gatley Excerpts(4 years, 2 months ago)
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Lord O’Neill of Gatley (CB)
My Lords, I welcomed the broad spirit and nature of the Chancellor’s Budget, much of which was, of course, designed before the realities of Covid-19. It was focused on a policy to significantly boost investment spending, so-called levelling up and giving proper attention to the northern powerhouse, all of which I hugely welcome. However, there have been events. The rest of my speech will be a brief, adapted form of an article I posted on Monday on the website of Chatham House, which I currently chair.
Linked to the call that Robin Niblett and Creon Butler of Chatham House and I made the day before—Sunday—for a global response to the Covid-19 pandemic, the case for a specific dramatic economic policy gesture from many policymakers across the world is prescient. This should involve most, if not all, G20 nations and should certainly have the same force as that led by Gordon Brown in 2008. We need some sort of income support for all our citizens, whether employees or employers, for the next two months. Perhaps one might call it, as I have done, truly a people’s QE— quantitative easing.
Both so-called modern monetary theory, MMT, and universal basic income, UBI, essentially owe their roots to the judgment that conventional economic policies have not been working, especially since 2008, in the way we are all trained to believe. At the core of these views is the notion of giving money to people, especially those on lower incomes, directly paid for by our central banks printing money. Until recently, I found myself having many doubts about, or not much sympathy with, these views, but, as a result of Covid-19, I have changed my mind.
This crisis is extraordinary in so far as it is both a colossal demand shock and perhaps an even bigger colossal supply shock. The crisis epicentre has apparently shifted from China, and perhaps much of the rest of Asia, to Europe and the United States. We cannot expect policies, however unconventional by pre-2008 standards, including the dramatic monetary steps announced by the Federal Reserve Board and other central banks, to put a floor under this crisis. We are consciously asking our people to stop going out, stop travelling and not go to their offices—in essence, curtailing most forms of normal economic life. The only ones not impacted are those who spend their entirety in cyberspace but even they have to buy some form of consumer goods, such as food, and, even if they order online, someone has to deliver it.
To give a flavour of the kind of challenge that we are now in, data published at the weekend shows that on most measures the Chinese economy probably fell by about 20% year on year in February alone. That equates to taking off something close to $3 trillion worth of GDP in a month. We in the UK, and much of the rest of the Western world, are adopting or have adopted some version of that same policy in March. It would be not at all surprising if we did not do something bolder, and the economic consequences will not be so far different from those in China.
As a result, markets are correctly worrying about a complete collapse of economic activity and with it a collapse of companies, not just their earnings. In my view, an expansion of central banks’ balance sheets in the way that has been done since 2008 is not going to do anything to help to arrest this, especially unless we go beyond just trying to underline the security of our banks, although that is still important. What is needed in the current circumstances are steps to make us believe with high confidence that if we take the advice of our medical experts, especially if we self-isolate and deliberately restrict our incomes or have them deliberately restricted for us, then this will be made good by our Governments. As I have said, in essence we need smart, persuasive people’s QE and quickly.
Having discussed this idea with a couple of economic experts I know, I realise that there are of course some challenges in the implementation of such an idea. For example, I gather that in the US it is probably currently illegal for the Federal Reserve Board to directly transfer cash to individuals or companies, and that could be true here and elsewhere. In my view, though, that is easily surmounted by our fiscal authorities by issuing a special bond, the proceeds of which could be transferred in the manner that I have suggested to both individuals and business owners, and our central banks could easily finance such bonds. It is also the case that such a step may encourage both the perception and the actuality of central bank independence, but I now find myself among those who argue that central banks can operate such independence only if done wisely and when needed.
Others may argue, in the spirit of the equality debate, that any income support should be targeted primarily if not entirely at those on very low incomes, while higher earners or large businesses should be given none or very little. I can sympathise with such spirits, but in my view that ignores the centrality and scale of this particular economic shock. All our cafes, pubs, restaurants, airlines—where do you stop?—indeed, all our businesses are currently at accelerating genuine risk of not being able to survive, and of course all these organisations are enormous employers of people on any kind of income.
As I have tried to say, it is also the case that time is of the essence. We need our policymakers to act on something like this as soon as possible—ideally in the next 24 hours—otherwise many of the transmission mechanisms that we have become accustomed to for the whole of our lives are going to be challenged. We need some kind of smart people’s QE now.
Lord Davies of Stamford (Lab)
Is it not the case that what is really alarming here is that the collapse of consumer demand is likely to last for a very long time and that there is going to be a substantial negative-wealth effect, given that people will have been out of jobs while their businesses and indeed the stock market has collapsed? People will require years to build up their savings again to where they were before. That means that for a very long time there is going to be a substantial shortage of demand from the consumer sector.
Lord O’Neill of Gatley
My Lords, my frank answer is that I do not know, but the longer that we delay an imaginative and forceful response, the risk of what the noble Lord has just described will rise. The whole reason why I am suggesting such a very unconventional and dramatic policy approach now is to stop exactly the kind of things that he is suggesting. If we give all our people confidence that they can essentially have something close to an eight-week paid holiday, and there is no reason for any employer to lay any of them off permanently or for those employers to worry about their income, that should give the confidence for us to allow what has been done so well in Asia to be fully done here, and get this virus behind us.
Lord Agnew of Oulton
My Lords, we have had an insightful debate today and I am most grateful for the many contributions that have been made. I draw some comfort that, in these difficult times, our great democracy shows itself at its best, with some innovative ideas. I hope to tease out some of those in my response.
I will come to the points raised in turn. Many of course related to the coronavirus, so it is right to quickly restate our response. Coronavirus will, in the short term, have a profound impact on this country and, as the Chancellor said yesterday, it is an economic emergency as much as a medical and health emergency. Inevitably, workers will have to leave work to recover, businesses will struggle to access some goods, and consumer spending will slow. Supply and demand will both take a hit. This is an enormous economic shock and it sets a challenge that we must all rise to.
In the Budget, the Chancellor laid down an initial £30 billion package, and this week, in response to the fast-moving situation, he went further, supplementing that package with a range of extraordinary measures, including £330 billion of loans to help firms cope with their cash-flow problems. The Budget we have debated will likely for ever be remembered as the coronavirus Budget. But it was a Budget of more besides: one that laid down a blueprint for a new decade of infrastructure and scientific investment. This will lead to an improvement in productivity, which is the soundest way to improve living standards in the long term.
I turn to some of the points raised by noble Lords. The noble Lord, Lord Tunnicliffe, and several other noble Lords asked whether we are going far enough. Can we go further, and should we? They included the noble Lords, Lord Northbrook, Lord Stevenson and Lord Oates, and my noble friends Lord Lamont and Lady Finn. I thought it might be useful to quote some of the comments made by the Chancellor of the Exchequer last night, because I hope they will give some reassurance. He said:
“I want to reassure every British citizen, this government will give you all the tools you need to get through this. We will support jobs, we will support incomes, we will support businesses, and we will help you protect your loved ones. We will do whatever it takes.”
The noble Lord, Lord Oates, asked about grants for small businesses—only those that were already paying rates. Matters like this will be put under urgent consideration. It is my understanding that they will not be restricted, but I will certainly write to him to confirm that, and put a copy in the record.
The most reverend Primate the Archbishop of Canterbury raised a number of issues. Perhaps the most important and relevant one, given the announcement that has come during this debate, was that of school closures. I do not have any more detail on that, other than on the one area of free school meals. I have been given a statement, which says simply that we will give schools the flexibility to provide meals or vouchers to children eligible for free school meals. Some schools already doing this, and we will reimburse the costs. I hope that that will provide some reassurance.
On the most reverend Primate’s comments regarding small towns and the decline of retail there, they have been hit particularly hard.
I think we all understand that retail has gone through the most extraordinary revolution over the last 15 years. Part of the levelling-up programme and the commitments in our Budget were to try to get out to some of these poor communities and to inject some more energy and infrastructure into them. One of the initiatives which I am personally involved in is encouraging civil servants to move out of London over the next seven to 10 years. This is an enormous opportunity, because we have a staff turnover rate of about 10% to 12%, and indeed it is higher in London, so there is a real opportunity to do this. I am also the Minister for the Government Property estate, so one of the things I have done is to ensure that break clauses are activated on London leases so that we do not have foot-drag by some departments that do not really want to move out of London. However, I can assure your Lordships that this is an important personal commitment because it is a win for everybody, and it will help some of these towns. For example, I live near Yarmouth, which is a classic example of an area of deprivation.
The noble Lord, Lord O’Neill, brought forward the most dramatic proposals today, supported by the noble Lords, Lord Razzall, Lord Bruce, Lord Adonis, and Lord Desai, and the noble Baroness, Lady Bennett—whether you call it “people’s QE” or “minimum basic income”. These are all dramatic ideas, and I am sure that we will hear a lot more about them over the next days and weeks. We have to acknowledge that already in this country we have moved quite a long way towards a minimum basic income, when you think of the minimum wage and what it was even 10 years ago. Indeed, I would say, to the discredit of my own party, that we objected to the introduction of the minimum wage back in 1997, but I believe it was one of the best things that the Labour Government of the day ever did. We have accelerated the increase of the minimum wage over the last few years. In particular, there will be a 6% increase in April. Therefore, that is the start of the journey towards a minimum basic income. We already have working tax credits and, while I know that universal credit is not loved in this Chamber, it is trying to give that kind of opportunity and safety net to those on lower incomes.
However, we also have to remember that all this has to be paid for, as the noble Lord, Lord Skidelsky, said. We already have the top 1% of earners paying something like 29% of all income tax, and we just have to square the circle. Therefore, while I very much recommend and encourage the debate that the noble Lord, Lord O’Neill, suggests, we have to work out how it will work. Maybe, as he suggests, it will be for a few weeks, so that people have that certainty—but, again, one of my other concerns is the hoarding of the cash.
Lord O’Neill of Gatley
I apologise—I am not sure of the appropriate convention. We do not have weeks to have this debate; we need to act now.
Lord Agnew of Oulton
It is worth reassuring the noble Lord that we have acted pretty quickly. When you think where we have come over the last six or seven days, I do not believe there is any example in the history of modern government where a Government have reacted as quickly as we have. However, I take on board the challenge, and the noble Lord knows his way around the Treasury better than I do, so I am sure he will use his influence.
My noble friend Lord Lamont quite rightly makes the point that our borrowing costs are again at a 300-year low and that this provides opportunities. Indeed, with the current rate of inflation, we are borrowing at a cost below inflation, which provides some palliative to the very difficult situation that we face. That has partly reassured the Chancellor in his recent announcements. What will happen? The noble Lord, Lord Skidelsky, thinks that we could end up—
G20 Summit
Lord O'Neill of Gatley Excerpts(4 years, 10 months ago)
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Lord O'Neill of Gatley (CB)
My Lords, it is a pleasure as well as an honour briefly to speak in this debate. I congratulate the noble Lord, Lord Howell, on securing it and join others in commending the tremendous work that he has conducted in his committee. I can only hope that his example is taken up in the commitment of others and that, in the spirit of some comments already made and a couple that I shall now reflect on, it pushes our country on to be more thoughtful and bold on the global stage.
I want to make six brief points. First, the G20 meeting in Osaka took place against a background of many high-frequency indicators suggesting an ongoing slowdown in the world economy. Four out of five indicators that have a particularly good cyclical track record are all softening: Germany’s Ifo leading indicator, as it is known; the US ISM survey of manufacturing; the sub-components of that same index for new orders and inventories; and Korean exports—South Korea is the first country to report its export data every month and does so on the first day of the month referring to the month before. The data for June, published a week ago, show a sharp weakening in exports—a bellwether of what is going on in world trade. The fifth, US weekly jobless claims, is the only indicator that continues to be strong, but if the others carry on in the same way, that will soon no longer be the case.
Secondly, fortunately the G20 statement did acknowledge downside risks to the world economy, which was a relief, not least given that that was its original expertise. Of course, as we have heard, the Trump announcement of a truce—for now—in the trade war with China was also a relief. However, as others have commented, it is not clear that there was anything at the G20 meeting, with the possible exception of increased expectations, yet again, of policy burdens falling on major central banks to do more to help economic growth. That in itself, in my opinion, is a growing concern, as it is now becoming almost an addiction.
Thirdly, as said quite correctly by others, the G20 itself is the most representative body to deal with the many complex social challenges of the world, as well as the macroeconomic ones we have heard some reference to. Indeed, I applauded its emergence way back in 2008, seven years after I first wrote about the so-called BRIC concept, in an article that actually tried to show that we needed a much better form of global economic governance, even if it would be more complicated. With the G20, in principle, we have it. It is much more sensible, as I believe others have mentioned, than the very outdated G7, but it needs to start doing something.
Fourthly, as we see in many of the paragraphs in the leaders’ statement, it is not clear that the G20 is doing anything any longer beyond publishing statements of recognition and showing awareness of what much of the world is talking about. Beyond accounting for itself more regularly, perhaps a separate problem is its sheer size. A couple of noble Lords commented on the exclusion of certain obvious countries, but another part of the problem, which the noble Lord, Lord Grocott, talked amusingly about, may be that there are too many. I have long believed that within the current G20 perhaps we need, separately, a new G7, which would, in my opinion, definitely include China, probably India, and perhaps Brazil and Russia, and then, of course, the US and Japan and, instead of many individual European countries, the EU.
Fifthly, noble Lords will notice that I did not mention the UK. The UK would understandably want to be part of such a narrow group, if such circumstances ever came around. Given our history and what we have still in principle in terms of values, we could be an eighth; but we need to demonstrate that we have something powerful that would help the world move forward and become a better place. That in itself partly relies on the Government having a clear and powerful vision for post-Brexit Britain and the world.
Sixthly and lastly, I want to end specifically on the topic of antimicrobial resistance, or AMR, which luckily no one else has yet mentioned. I was relieved that paragraph 33 referred to this huge challenge and I remain proud that the review I chaired under David Cameron played its part in getting the topic on the agenda in 2015, with increased focus in 2016. I take this opportunity to pay tribute to the dedication of a number of civil servants who I know worked tirelessly to ensure that this statement appeared. I am irritated, and to some extent alarmed, by what I have picked up about the attempts by some G20 countries to downplay the focus on this issue, including some that claim to share the UK’s championing of this issue in recent years. This in itself highlights, as could many other examples, the weakness of the current G20 operational style: G20 leaders need to urgently change this game-playing approach. In this instance, the so-called market failure in the market for antibiotics is getting dramatically worse. The solutions my review highlighted have been broadly supported by many of those few who analyse these things, but as of yet, we just have words: no incentives or moneys are coming from the G20 or the pharma industry. As we showed getting on for three years ago, if we do not address this, along with the other challenges that need to be met, we will have 10 million people a year dying by 2050. The G20 needs action and not just pleasant words.
It is also important that our next Prime Minister, whoever it is, the Chancellor, Foreign Secretary and the rest of the Cabinet get back to start talking about these things powerfully and regularly, as they have done in the past—not least, as one of the many symbols they could give of what global Britain actually is.
I will finish, and I apologise for going over by 30 seconds—
Baroness Stedman-Scott (Con)
Perhaps the noble Lord could bring his remarks to a conclusion.
Lord O'Neill of Gatley
To echo the words and spirit of the noble Lords, Lord Howell and Lord Grocott, it is exceptionally important that the UK be on the front foot at the G20, with thought and serious attention. As a final thought in the spirit of the interesting comments of the noble Lord, Lord Hannay, perhaps the UK can itself outline ways in which the G20 can start monitoring and measuring what it says at meetings.