Economy: The Growth Plan 2022

Lord Razzall Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Razzall (LD)]

My Lords, I can answer the noble Lord’s question as to why a number of us are questioning this after 12 years of Tory government. After 12 years of Tory government, the UK economy is currently a basket case. First, our growth is forecast to be the worst in the G20 apart from Russia over the next 12 months. Secondly, we are the only G7 country whose economy has not recovered to pre-pandemic levels. Thirdly, our productivity is significantly worse than that of our major competitors. Fourthly, we have the damaging effects of Brexit.

What are the Government doing about it? We have learned a number of things from their recent announcements and comments from government hangers-on. First, apparently it is all Putin’s fault. If that is so, why are we doing worse than all our major competitors? Secondly, it was apparently perfectly satisfactory to make a significant fiscal statement without the usual verification of numbers by the OBR, so why were the Government surprised by the gilt market reaction? What is worse, we now know that the Chancellor had a draft report from the OBR on his desk on his first day in the office. He refused to publish it, presumably because it did not support his numbers, and now he has been forced to bring forward his fiscal statement and the OBR report, noticeably on Halloween day. Thirdly, apparently the Government will generate growth through tax cuts, as the noble Lord, Lord Howard, indicated. But however you describe it—Reaganomics, the Laffer curve or Donald Trump in 2017—there is no evidence that it works. As the noble and learned Lord, Lord Clarke, who is sadly not in his place, memorably said last week, it is the sort of thing tried by South American banana republics and it does not work.

I will not spend my time intruding on the private grief of the Government’s incompetence in the handling of the recent announcements—others have and will—but will confine myself to a number of questions to the Minister. First, will he explain why the Government are so set against a windfall tax on oil companies to help fund the extra borrowing necessary to protect householders from energy price rises? These excess profits are entirely a windfall and had no connection with management activity. All that will now happen, presumably, is that huge dividends will be paid to shareholders—mostly institutions resident outside the United Kingdom.

Secondly, do the Government accept that during the period after 1949, when growth averaged 2.5%, 2% of that came from productivity gains and 0.5% from increasing immigration? If the Government want growth, will they confirm that the latter will be acceptable to the Home Secretary?

Thirdly, if, as the Prime Minister says, all government policy should be to generate growth, there are a number of things that the Government could do to alleviate the damaging effects of Brexit. Will they take the advice of the noble Lord, Lord Frost, to negotiate improvements with the EU? For example, will they negotiate to help the shellfish producers who can no longer sell into Europe? Will they help the creative industries by helping the musicians who find it impossible to tour in Europe, therefore depriving us of substantial export revenue? Will they negotiate to help the many SMEs who have stopped selling to Europe because of pointless bureaucracy?

The economy is a disaster. Brexit has proved a disaster. The Government are a shambles. Surely it is time for this Government to go.

Budget Statement

Lord Razzall Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Razzall (LD)]

My Lords, it would be fair to say that there has been a mixed response to the Financial Statement. Noble Lords have made a number of criticisms; I would add three comments.

First, whatever the Chancellor’s justification, cutting air passenger duty for domestic flights in the context of COP 26 seems reminiscent of George Osborne’s ill-fated pasty tax. Secondly, to spend more money on a tax reduction for bankers than on the catch-up for schoolchildren seems ill-advised. Thirdly, following the Statement, independent forecasters now calculate that, by 2026, the average working person will be no better off in real terms than they were 30 years ago.

Of course, the Government blame the pandemic for much of their problems, but I fear the cat is now out of the bag, as revealed by OBR Blue Book. Brexit is much more to blame than the pandemic for our forecast economic position. The Government say that all economies are suffering, but page 7 of the executive summary in the OBR book states clearly that in the UK, unlike in other countries,

“supply bottlenecks have been exacerbated by changes in the migration and trading regimes following Brexit. Energy prices have soared, labour shortages have emerged in some occupations, and there have been blockages in some supply chains”.

Page 59 suggests that two-way trade with the EU has reduced by 15%, a large gap to be filled by trade outside the EU. This is where the OBR also says that the full effect of the referendum outcome has not yet come through.

Anyone who does not believe me should listen to Richard Hughes, the OBR chair, who gave an interview last week to the BBC in which he said that Brexit reduces UK GDP by 4% in total while the pandemic does so by only 2%, so Brexit has double the outcome for our economy of the pandemic, as the noble Lord, Lord Eatwell, said.

The dramatic effect of Brexit is illustrated also by the table of forecast GDP growth on page 50 of the OBR Blue Book. It gives a figure of 2.1% for 2023, then only 1.3% in 2024, 1.6% in 2025 and 1.7% in 2026. Where are the sunlit economic uplands that we were promised by the Prime Minister and others when we left the European Union?

The Brexiteers also promised us freedom to innovate and develop our scientific potential outside the European Union. Clearly, our continued participation in the European Union’s Horizon 2021-27 programme is a key part of our continued research and development programme, yet, although our participation was agreed in principle before Christmas, negotiations on a formal agreement have dragged on for months. Even Ukraine has beaten us to it. The president of the Royal Society, Sir Adrian Smith, has called for negotiators to stop treating the issue of research funding as a bargaining chip in other disputes with the European Union, and even Sir Bill Cash says that the delay is damaging UK businesses, although I suspect he blames the EU.

I can only assume that Brexiteers believe that there are other advantages for us of being outside Europe. As the OBR has clearly demonstrated, they are certainly not economic. I hope that the Minister will acknowledge this, although I doubt that he will.

Economic Update

Lord Razzall Excerpts

Tuesday 12th January 2021 Lords Chamber

[Lord Agnew of Oulton (Con) [V]]

I am not aware of a huge jump in inflation, as suggested by the noble Lord. Indeed, inflation remains extremely low. The pay freeze in the public sector was carefully targeted to ensure that those on the lowest earnings still received some protection.

[Lord Razzall (LD) [V]]

My Lords, what the Statement does not refer to—although the noble Lord, Lord Balfe, touched on it—is the amount of debt incurred to fund government spending since the start of the pandemic. Government debt is now in excess of £2 trillion, of which nearly 50% has been bought by the Bank of England. Do the Government take the view that the Bank of England can continue to fund significant purchase of government debt, thereby avoiding damaging tax increases so long as inflation and interest rates remain low, or does the Minister think the Government would prefer to return, when they can, to cuts in public spending?

[Lord Agnew of Oulton (Con) [V]]

My Lords, there is a balancing act here. We all absolutely accept the grave state of the government finances following this crisis, and we will be doing everything we can to bring the books back into balance; however, if that is done too quickly, it will cause greater suffering to those who are most vulnerable, and therefore we have to try to strike a balance. The optimum way out of this will be by economic growth, which is where we are putting a great deal of emphasis.

EU-UK Trade and Cooperation Agreement

Lord Razzall Excerpts

Friday 8th January 2021 Lords Chamber

[Lord Razzall (LD) [V]]

My Lords, sadly I cannot share the congratulatory tone of some colleagues on the Tory Benches regarding the recent trade deal. This deal is bad for jobs, bad for security and bad for our environment. The stark reality is that this is a much better deal for Europe than it is for us, for one fundamental reason which the Brexiteers have never really understood. As the noble Lord, Lord Horam, said, Europe benefits far more than we do from tariff-free trade in manufactured goods and farm products simply because they export far more to us than we do to them. The strength of our economy is much more in financial services, as noble Lords have said, the export of which is hardly left secure on the basis of this deal. But what is done is done and will not be undone in the foreseeable future.

Notwithstanding the Tory claims that they have got Brexit done, a huge amount of negotiation with our European partners remains. I only touch on a handful of issues. First, for manufacturers the biggest headache is the so-called rules of origin. Can the Minister confirm that the Government will now work through the new joint committees established by the deal to ease burdens on businesses wherever possible? Secondly, it is vital that our financial institutions can continue exporting services to Europe. Is the Minister satisfied that a satisfactory mutual understanding with the EU will be reached in March 2021 regarding regulatory equivalence, as provided for in the agreement? Financial services are not simply the product of banks and other financial institutions. The UK exports countless professional services to Europe. The largest, such as solicitors, accountants, architects and engineers, earn significant sums from Europe. All the deal does is provide a mechanism on which regulators can work together to establish mutual recognition of professional qualifications to enable professional services to be sold in Europe. Is the Minister satisfied that mutual recognition will proceed at pace?

As I said, this is a poor deal for the UK. Staying in would have been so much better, but surely the Minister must agree with Theresa May, in her retort to Keir Starmer in another place, that even her deal would have been better.

Spending Review 2020

Lord Razzall Excerpts

Thursday 3rd December 2020 Grand Committee

[Lord Razzall (LD)]

My Lords, two minutes is obviously a short time in which to deal with this significant Statement. Others have dealt with the absence of any reference to the effect of Brexit or, with outrage, mentioned the cuts to overseas aid. I want to spend my time on debt, which the Chancellor hardly touched on in his Statement.

The numbers are clear: at the end of October, government borrowing was just over £2 trillion. What the Chancellor did not say is that just under 50% of that—nearly £900 billion—is owned by the Bank of England, with interest payments obviously recycled to the Treasury. Since the start of the pandemic, 50% of government bonds issued to fund expenditure have been bought by the Bank of England. Noble Lords may think that this is rather a lot, but it is nothing compared with what is happening elsewhere. In the same period, the European Central Bank has purchased 70% of bonds issued by European Governments and the Bank of Japan has purchased 75% of Japanese Government debt issues.

Milton Friedman, the economist so beloved of the right wing of the Tory party, always said that such action by central banks was dangerous because it would lead to crowding out the private sector, resulting in falling bond prices and rising inflation—but that has just not happened this time. Despite the fears raised by the Chancellor yesterday, does the Minister accept the possibility that, first, interest rates will remain low for the foreseeable future and, secondly, that the market for the sale of gilt-edged securities to pension funds and insurance companies, underpinned by Bank of England purchases, will remain strong? Does he accept that, if these conditions continue, it is just possible that the Government can continue to borrow to fund necessary spending until the economy recovers, without the need for damaging tax increases? What a bonanza that would be for all of us.

Finance Bill

Lord Razzall Excerpts

2nd reading & Committee negatived & 3rd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords & Committee negatived (Hansard) & Committee negatived (Hansard): House of Lords
Friday 17th July 2020 Lords Chamber

[Lord Razzall (LD) [V]]

My Lords, this is clearly our opportunity to comment on the Chancellor’s economic policy. He has an unenviable task. The unemployment forecast is grim, particularly for the under-25s, and a recent forecast for the manufacturing industry shows the cost of the pandemic at £37.5 billion and recovery postponed to 2022 at the earliest. Obviously I welcome the overall thrust of his actions. Keynes is back, and hopefully austerity is dead. But the job of an opposition party is to provide constructive criticism and to suggest alternatives.

First, the criticism. Will £1,000 per employee brought back from furlough really provide an incentive to employers? For example, if a company employs 20 people at £15,000 per annum and brings them back at a cost of £300,000 per annum, will a £20,000 payment provide a real incentive to bring them back?

There is admirable aspiration in the Chancellor’s proposals for young people, but the proposal that 16 to 24 year-olds should receive a minimum wage for six-month work placements requires 350,000 work placements. In reality, as I am sure the noble Lord, Lord Hain, would agree, there is no chance of business offering 350,000 work placements. A similar scheme, the Future Jobs Fund referred to by the noble Lord, Lord Livermore, introduced after the 2008 crisis, produced only 100,000 placements. If the Government are modelling themselves on Roosevelt’s 1930s New Deal, as Will Hutton has suggested, do we not need an organisation such as a national youth corps as an umbrella organisation to marshal placements? Otherwise, I fear these proposals will be more aspiration than reality.

I have three suggestions as additions to the Chancellor’s policy. First, why not raise the national insurance threshold to the level of the income tax threshold? That would provide an incentive for employers to take on staff and, obviously, would help the working poor. Secondly, we should establish an entity to take on the billions of pounds of toxic loans that will remain after the virus, as was done after the previous crisis and as is recommended by the leaders of all our major banks. Thirdly, there is Brexit. The government policy is clearly to crash out and blame Covid, but that will not work. In the current climate, will we really replace the European Union with China as a major trading partner and import chlorine-washed chicken from the United States as a price for a US trade deal? The only rational policy is to conduct negotiations to keep us as close as possible to the European Union, our largest trading partner. If we do not do that, I echo the comments made by a number of commentators on our Brexit policy, who have gone back to Enoch Powell’s infamous “rivers of blood” speech in a different context:

“Those whom the gods wish to destroy, they first make mad.”


Sadly, all of us will be the victims of this lunacy.

Covid-19: Economy

Lord Razzall Excerpts

Thursday 4th June 2020 Lords Chamber

[Lord Razzall (LD)]

My Lords, it is now commonplace to agree with the evidence of the Chancellor to the House of Lords Economic Affairs Committee that we are facing a recession like no other we have seen before, and that it is not obvious that there will be an immediate economic bounceback. The facts are stark. As other noble Lords have said, currently, the Government are paying 80% of wages of employees on the furlough scheme, which has now been extended to October, and this covers 35% of private sector employees. With the addition of grants to the self-employed, this will have cost £100 billion by the end of October—more than the average forecast spending on defence and transport. As noble Lords have said, when the Government stop making these payments, serious redundancies are bound to follow, with the Bank of England forecasting unemployment rising to at least 10%.

What should the Government do? They were inundated with suggestions from leading economists, many of which have merit, and I shall highlight a few. Many of these proposals are technical. The first is to align the lower national insurance threshold with income tax at £240 per week, rather than, as now, £169 for an employer and £183 for an employee. The second is to create a fund to hold the bailout loans, to take them off banks’ balance sheets, as suggested by Howard Davies the other day. The third is to manage 10-year gilt yields down to close to 0%, to make it cheaper for the Government to borrow.

Some of these proposals will require alterations to the way our banking system works. To kick-start the housing market, borrowing rules for homebuyers could be relaxed. The Green Investment Bank could be reactivated to promote a significant increase in green technologies. Some proposals will require a significant change in direction by the Government. With the large erosion of opportunities for our young people, now is the time for a massive focus on further education and apprenticeships. There is a major need to focus capital expenditure on infrastructure investment.

It is absolutely clear that Keynes is back: this will be no time for austerity, otherwise we will see more lost jobs, more lost income and the familiar consequences of unemployment and poverty—poorer health, a crumbling infrastructure, and rising crime and xenophobia. And for heaven’s sake, let us extend the Brexit transition period while all this is being sorted out.

Budget Statement

Lord Razzall Excerpts

Wednesday 18th March 2020 Lords Chamber

[Lord Razzall (LD)]

My Lords, while thanking the Minister for introducing this important debate, I share the concern of my noble friend Lord Oates that the noble Lord seems to have delivered a speech that he would have delivered last Wednesday, without realising that the economy has moved on since then. As he has raised the issue of the Budget, I will touch for a moment on the criticisms that we have from these Benches. Clearly, the Chancellor had an extremely difficult hand, as growth rates have been revised down very significantly; we would say quite often that that was as a result of Brexit. Although that might be disputed, that was so even before the effects of the virus. I will make three brief criticisms before moving on to the wider issues.

First, there was no real mention of adult social care, which is one of the real issues facing the country. I would be grateful if the Minister could indicate, when he replies, what the Government are going to do about that. Secondly, as my noble friend Lord Oates indicated and as was said on the Labour Benches, there were rather disappointing statements about climate change. Personally, I think it was a great mistake not to take advantage of the significant drop in oil prices to remove the cap on fuel duty, which would be much less noticed by the consumer. Thirdly, the issue of shifting resources to the north seems to have been rather understated. As David Aaronovitch said in the Times last week, the policy seems to be simply to build more roads to the north so that people can get there.

However, as a number of noble Lords have indicated, the Budget has really passed us by now. We are really dealing with the statement of the Chancellor on the impact of the virus on our budget and his guaranteeing of loans of up to £300 billion, which is 15% of GDP. This is obviously unprecedented. As my noble friend Lord Oates indicated, from these Benches we welcome those proposals. But as the noble Lords, Lord O’Neill and Lord Lamont, asked, will this be enough? As we all know, following the Prime Minister’s statement on Monday, the leisure industry has seen a catastrophic fall in its revenues. Without immediate action, there will be bankruptcies of businesses, which will never recover. My concern is that if £300 billion is to be lent by the banks, the bureaucratic process for people to obtain those loans will be very slow. For many people, this will be too late. It will be too late for the self-employed and for workers on zero-hours contracts, who are laid off and today have no money.

I know that the Chancellor is considering further steps. The CBI is advocating a VAT freeze and the reversal of national insurance to provide immediate payment to business but I would go further, rather like the noble Lords, Lord O’Neill and Lord Lamont. I am glad that the noble Lord, Lord Lamont, raised the phrase “helicopter money”. I like that phrase because it was coined by the guru of the right wing of the Tory party, Milton Friedman, who, when asked what he would do if there were another depression, said that the Federal Reserve should hire helicopters and drop dollar bills over every town in the United States, hence the phrase “helicopter money”.

The paying of—whatever we like to call it—a citizens’ dividend or business dividend has a reasonable pedigree. Ben Bernanke, the Federal Reserve governor in 2002, said that he would do that to combat deflation, defining deflation as a side-effect of a collapse in aggregate demand, which we are clearly heading for. Japan tried it in 1999, with some success. Australia in 2009 gave 950 Australian dollars to 8.7 million people earning less than 100,000 Australian dollars, and was one of the few countries to avoid recession; and Hong Kong has tried it in recent weeks, with a payment of 10,000 Hong Kong dollars to every Hong Kong citizen. I accept that probably just giving that sort of dividend to every individual might not be sufficient, and there would have to be a decision as to how you split that between business and individuals. However, I share the views of the noble Lords, Lord O’Neill and Lord Lamont, that this could be essential. The argument against it has always been that it is hugely inflationary. However, with the economy facing low growth or a recession, I submit that that is a risk worth taking.

At least coronavirus has enabled the Chancellor to avoid the trap set by his right-wing Brexiteers, who were advocating the creation of a Singapore-on-Thames following Brexit, with drastic cuts in public expenditure and significant deregulation. You obviously cannot deal with coronavirus and promote growth in towns that have voted Tory in the north and Midlands while cutting public expenditure and taxes. Therefore, at least the crisis has prevented the disaster for us of the creation of a Singapore-on-Thames. As a colleague said to me the other day, “With a crisis like this, everyone’s a Keynesian now”.