Budget Statement Debate

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Department: Cabinet Office
Wednesday 18th March 2020

(4 years, 2 months ago)

Lords Chamber
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Baroness Kramer Portrait Baroness Kramer (LD)
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My Lords, as the first of the wind-up speakers, I can say that I have never before spoken in a debate where there is a unanimous view. Unfortunately, that view is that we are in an economic emergency. It is quite extraordinary; these are not normal times. The usual test for any Budget, including the typical measures of fiscal prudence, are, frankly, out of the window. When the noble Lord, Lord Maude, accepts that as the appropriate view, the Government have to understand how strongly not just this House but almost anyone who has looked at the situation feels.

The Government and the Chancellor announced a huge and significant package yesterday to support the economy. That is genuinely welcome, but it is my view—and, I suspect, from listening to the House the view of many—that the Government are still clearly running behind events. Much more is needed, especially speed. My noble friend Lord Oates raised that issue, but we heard it again and again, including just now from the noble Lord, Lord Naseby. People need cash and they need it now.

Many of the programmes being proposed will struggle to deliver that kind of cash in any kind of timely manner. We have had proposals from the noble Lord, Lord O’Neill, for a people’s QE. The noble Lord, Lord Desai, joined the Green Party in proposing at least a temporary basic income, as did my noble friend Lord Bruce. We have had proposals from the noble Lord, Lord Leigh, that we use the PAYE system and from others that we use the national insurance system in a sort of reverse mode to get cash out rapidly. It will be challenging to use any system that is not already in place, because we need cash to flow in the next few days. Although there is fertile opportunity for new ideas and new thinking, at this point we need to use something that can absolutely deliver and be implemented very quickly, if not instantly.

I am concerned that the Government have put so much of their support for businesses into commercial paper—which is effectively QE—and bank loans. I hope that they understand that many businesses of every size in the severely impacted sectors will need years to repay the debt that they accumulate during this crisis. It is a crisis of not weeks, but at least months; it could run longer. Some will not be able to repay and others will find that the debt burden will completely compromise their ability to invest and grow when the crisis is over. I hope that we can hear from the Minister that there is a willingness to rethink that balance of loans to other kinds of direct support, perhaps not in the heat of this week, but certainly in the very immediate future.

However, none of the measures that have been announced will be a solution for the hardest-hit sectors. I know that the Government have said that they will step forward to deal with the problems of, for example, airlines and airports; their crisis is so extreme. We have to face the fact that taxpayer bailouts will be required. Deciding how much to protect shareholders at taxpayers’ expense will be genuinely difficult. As we look at those most vulnerable parts of the economy, may I ask the Minister about the wholesale financial markets? I am really concerned that we could have spillover risk into those markets. As we know, the consequences are very widespread when that happens. We have all said that insurance companies must step up to make good on business interruption insurance. I agree, but how resilient is the commercial insurance sector as a whole? Remember that the UK is an insurance provider to companies across the globe. Those consequences worry me a great deal and I hope that the Minister can say something.

Central counterparties, especially the clearing houses—obviously we have the London Clearing House locally—clear most of the world’s interest rate swaps. The current stock on a day-to-day basis is something in the range of $30 trillion-worth of swaps. How resilient are the CCPs in a crisis such as this?

I cannot believe that the collateral quality has not been compromised. Any kind of failure in CCPs will, frankly, make 2008 look like a picnic. I really would like some answers and some reassurance.

We all agree that companies need money quickly. The big companies will be able to get their money quickly, because the Bank of England can turn on its new commercial paper facility very fast. As we have said, it is a sort of QE equivalent. The noble Lord, Lord Adonis, said that perhaps we need to attach conditions to those commercial paper facilities to make sure that they are used to support jobs. I am not quite sure how we could do that, given the nature of the commercial paper market; if anybody can come up with innovative ideas on how to do that, I suspect a phone call to the regulator would be called for. It will be very hard to ensure that the money goes exactly where we want it to. That does not mean that we should not do it, but we need to be realistic. Smaller companies, however, will have to turn to the high street banks, and I do not understand how the usual hurdles and complex approval processes will be speeded up sufficiently. As we know, businesses need money now.

If I heard correctly, alternate lenders are not included in the Government’s loan guarantee scheme, but they are typically faster and more flexible than banks, and have become a significant component of lending to small businesses and, equally importantly, to the self-employed. During the coalition years, my colleague Sir Vince Cable was able to route money far more rapidly to small businesses and the self-employed through the alternate lenders. Will they be included in the scheme?

The grant scheme and business rates holidays for small businesses in retail, hospitality and leisure are crucial and welcome. However, I point out that the grant excludes many very small businesses in London—because the rateable value of London property is so high, they do not fall within the scope of the scheme. I hope we can get some comments from the Minister on that. As the Chancellor explained, these grants in their amount are targeted to make sure that small businesses can pay their rents. The money is not intended to also cover wages. Many businesses, not in the named sectors, are having similar problems and, frankly, there is nothing in the way of grants for them. Can the Minister respond to concerns on both those fronts?

Are measures being taken to make sure that big companies pay their supply chains properly? Their instinct in a crisis is to do quite otherwise. Can the payments regulator be given greater powers to force prompt payment?

The Government tell us that they are discussing employment support schemes with the trade unions and others, which is good. Will the Minister look at the proposal from my colleague Ed Davey to guarantee that every person made redundant will receive at least 20 days’ full pay, guaranteed by the Government? People are being laid off as we speak, and a message like that would make a dramatic impact; it is clear, simple and easy to understand.

We must have action for the self-employed and those working in the gig economy. Frankly, I do not understand why we have not heard measures that will tackle this sector. Employment support allowance and universal credit will never keep most families afloat. The fragility of self-employment should have been tackled long ago; we need successful, flexible working in the 21st century.

I will say one good thing for the Government: at least they have listened to the urgings of many in this House—the noble Lord, Lord Forsyth, who is not in his place, has been an absolute star on this—and agreed to delay for a year their changes to IR35. I hope that they use that year to have a complete rethink, and drop those plans to pursue reforms that deal with employment rights and not just tax revenues in the self-employed sector.

The Government simply must use this opportunity to remedy the two greatest travesties within universal credit. First, the five-week wait is intolerable. I know from talking to people who are dealing with this that paying back the five-week advance loan, even with a longer repayment period, leaves people living for months at just above destitution. The most reverend Primate the Archbishop of Canterbury and the noble Baroness, Lady Lister, made very powerful points about that. Secondly, the right reverend Prelate the Bishop of Rochester underscored that the two-child benefit cap has to be removed. Many families will be turning to universal credit for the first time in the Covid-19 crisis, and will be horrified that the two-child cap on benefit levels does not enable larger families to put a proper meal on the table. That is quite deliberate and by policy. Indeed, with so many children dependent on free school meals in order to eat, we will need an emergency scheme when schools close, as many people speaking today have underscored.

There are many other gaps, such as renters and food banks. The noble Lord, Lord Naseby, highlighted the crisis for many charities and not-for-profits, while homeless people cannot be left on the streets but equally cannot be put into dormitory-like hostels. Perhaps the most crucial gap, which others such as my noble friend Lord Razzall and the noble Baroness, Lady Lister, have addressed, is social care. Where was social care either in the Budget or in yesterday’s announcement? Even Jeremy Hunt now admits that social care was slashed too far by the Conservatives, but in this pandemic social care is carrying out the critical task of caring for our most vulnerable while underresourced and with no built-in resilience. The Government must step forward.

I have a few comments about what happens after the crisis—because the Covid-19 pandemic will end. I very much take note of the comments from the noble Lord, Lord Skidelsky, and the noble Baroness, Lady Falkner: we are going to have to start paying. This is the first time when I have heard the noble Lord, Lord Skidelsky, use words that translate to, “There is no magic money tree”. This will have to be paid for. We will be a nation in debt. Businesses will be in debt, individuals will be in debt and the Government will be in more debt than ever. The Government were already planning to allow public sector net debt to soar. I support the additional spending, but refusing to raise taxes in the Budget struck me as extraordinarily irresponsible.

The noble Lord, Lord Livermore, has highlighted the weakness that runs through much of our economy. We will have to rebuild our fiscal position, and that is going to be exceptionally difficult. It is going to require a real willingness to tax as well as borrow. As far as I can see, we are going to have to consider a completely new framework in future because the underlying economy is weak. The noble Lord, Lord Livermore, and my noble friend Lord Bruce, were clear that growth was already forecast to be at an abysmal running rate of 1.5%, held back by friction in trade with the EU and the loss of freedom of movement. The OBR forecast demonstrates that new trade deals with the US and others add so little to the economy that they hardly even register in the numbers. Productivity growth is limping at 0.3%, and all the planned infrastructure and skills investment in the Budget is not forecast to return productivity to its historic—and even then underwhelming—level of 2% until 2030. Business investment was forecast to be continually weak, and that was before coronavirus. Interest rates were low already, so there is very little cushion for further cuts. QE has been pushed pretty much to its limits and we have now had to take it even further. We face huge costs to tackle climate change because the timetable cannot slacken if we are to avert a catastrophic crisis. Regional disparities are stark. Infrastructure, public services and welfare are underfunded.

This is not a good picture, and it is the reason why I have to say to the noble Lord, Lord Bates, that of course we have to splash the cash now, but we really need to be careful about painting a false picture of the future because that will lead us to poor decision-making. I understand why the Government want to talk about light and joy as soon as the virus passes through because they want to keep up confidence, but we in this House have to be realistic. Every economy on the globe is going to be impacted by Covid-19 so I hope that inside the Government some sober minds are coming to grips with the longer-term reality. This is going to require very substantial new thinking, new frameworks and new directions, and I am delighted that this House will have an opportunity to contribute to that.

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Lord Agnew of Oulton Portrait Lord Agnew of Oulton
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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—

Baroness Kramer Portrait Baroness Kramer
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I should have said this when I spoke, so I apologise. While we have very low interest rates, because of QE a heck of a lot of that debt is being held by the Bank of England, so in a sense it is almost circular. It is not quite as benign as it looks on the surface.

Lord Agnew of Oulton Portrait Lord Agnew of Oulton
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I do not like debt at all, so I accept what the noble Baroness says. We have also not had a proper drains-up on the impact of the original QE 10 or 12 years ago. It seems to have enriched the rich—those with assets—but what did those at the bottom end of society get out of it? Also, the question no one has ever been able to answer is: what happened to all the money? Did it stay in the British economy? One figure I was given is that at least a third of it just disappeared completely. So I am certainly not in favour of another one of those kinds of QE.

Turning to the noble Lord, Lord Hain, I am afraid that there is not a lot I can agree with in his statements. He seems to think that there is a magic money tree, and seems to have forgotten that we inherited a budget deficit of 10% in 2010. As a huge Europhile, he seems to forget that the EU has a 3% ceiling on its budget deficit levels. We have had to bring that down, and it is one of the reasons why we have more flexibility in the current days to do some of the dramatic things that have been announced by the Chancellor.