Alan Brown
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The Chief Secretary to the Treasury (Laura Trott)
It is a privilege to open the final day of debate on the Budget—a Budget with a plan to grow the economy, a plan for better public services and a plan to make work pay. Today’s debate is focused on a theme close to my heart: improving productivity. As some Members know, back in 2010, before I became a Member of Parliament, I worked for my noble Friend Lord Maude on an efficiency and reform agenda that saved the Government £14 billion a year by 2014. It captured everything from buying printer paper collectively to managing Government projects better and digitising services. That agenda not only cut costs but improved productivity.
Ahead of the pandemic, and under this Government, productivity in the private sector increased by an average of 0.7% a year between 2010 and 2019. [Interruption.] As I am sure Opposition Members will be interested to know, that contrasts starkly with the decline in public sector productivity by an average of 0.2% per annum between 1997 and 2009. Our success was entirely due to hard work behind the scenes and a relentless focus on output.
Alan Brown (Kilmarnock and Loudoun) (SNP)
Rather than cherry-picking statistics, will the Minister tell us what she thinks about the fact—confirmed by the House of Commons Library—that the UK has the lowest investment in the G7 and is the second worst performer in the G7, post-pandemic, in terms of economic growth?
Laura Trott
I will say to the hon. Gentleman that since 2010 we have grown faster than France, Germany and Italy, and we are predicted to do the same in the next five years.
It is no coincidence that between 2010 and 2019 the number of violent crimes and burglaries halved. Our reading standards in schools, which were previously behind those of France, Germany and Sweden, raced ahead. The latest technologies, such as the NHS app and virtual wards, are now used by patients across the country.
However, this is not a “once and done” situation. The effect of the pandemic on productivity was significant. Moreover, as Lord Maude has put it, the focus on productivity must
“never end. This will always be a work in progress. There never can be a steady state… The public, for whom public services exist, deserve nothing less.”
That is why this Conservative Chancellor is willing to invest once again to drive change.
The head of the National Audit Office has said that if we can improve public sector productivity, the size of the prize is tens of billions of pounds, and the Office for Budget Responsibility estimates that raising public sector productivity by 5% would be the equivalent of about £20 billion extra in funding.
Alan Brown
The Budget bakes in post-election cuts of between £19 billion and £20 billion, and the Institute for Fiscal Studies has said that there is a conspiracy of silence from both the Conservatives and the Labour party. The Labour party has committed to sticking with the Tories’ spending plans. On the conspiracy of silence, will Labour keep the £20 billion of departmental cuts, or will it raise funds to offset that?
Darren Jones
Two short answers: first, we are not sticking to the Conservatives’ spending plans and, secondly, the OBR forecasts Conservative party failure, not the success that the Labour party will bring to this country and the economy.
I know that Conservative Ministers do not like to think about their fourth Prime Minister since 2010, who only recently crashed the economy off the back of unfunded tax cuts, sending mortgage bills rocketing, but they really do not need to look back far in history to understand the risks of a £46 billion unfunded tax cut promise. They do not even need to ask their predecessors about the consequences of such risky behaviour, because the British people are still paying the price today for their economic vandalism through higher mortgage and rent costs every single month. Conservative Ministers need to look at themselves in the mirror and ask whether they have learned anything from the last 14 years in office. I have given just a few examples of confusion, delusion, denial and risk-taking with the economy, which prove that the biggest threat to the economy is the Conservative party.
Alan Brown (Kilmarnock and Loudoun) (SNP)
May I say to the hon. Member for Wakefield (Simon Lightwood) that there is no point in Labour Members banging on about unfunded Tory tax cuts, when Labour is not going to do anything different and says it will not reverse them?
Productivity is an almost abstract word that is bandied about all the time, but the one point of consensus is that the UK’s productivity rates lag behind those of comparable countries. We keep hearing pronouncements about the need to improve productivity, but nothing changes. The last Prime Minister—the one of just 45 days—believed that tax cuts, especially for the richest, somehow boost the economy and productivity. Despite that ideology, the Government never show how the rich getting richer boosts outcomes or increases manufacturing productivity, or how tax cuts for the richest transform the productivity of those paid the least, who are doing the real work. Productivity certainly is not boosted by trying to force the long-term sick or those with disabilities into jobs they are not suited for.
The reality is that increased productivity stems from good planning and strategic investment. The Chancellor’s decision to make full expensing permanent at the autumn statement might drive forward investment but, even so, there are still questions to be asked about how the UK went into recession. Indeed, despite what the Government always tell us about global factors that affect all other countries, such as the war in Ukraine or global inflation rates, the reality is that within the G7, the UK is only outperforming Germany in GDP growth compared with pre-pandemic levels. Over a four-year period, the UK’s GDP growth—at just 1%—is a third of the eurozone, and miles behind US growth at 8.2%.
Of course, it is no coincidence that the US has its Inflation Reduction Act or that the eurozone is covered by the EU’s green deal industrial plan. It is no coincidence either that the UK has the lowest levels of investment in the G7—further proof that the Government should be providing schemes and investment to counter the EU and US measures. Instead we heard from UK Ministers at the time the blasé attitude that these other countries were simply playing catch-up with the UK. It was blinkered British exceptionalism at its worst. Indeed, the Government still do not recognise that they have fallen further behind; not only that, but they failed to listen to renewable energy developers about the strike rate for offshore wind being too low in the last contracts for difference auction, which has lost investment in renewable energy and thrown the 2030 deployment targets into doubt.
Until the failure of auction round 5 for offshore wind, the contracts for difference process was at least a success for deployment of renewable energy. However, it still represented missed opportunities for UK-based supply chain development, for investment to be targeted at UK manufacturing and for increased UK productivity. Instead, the UK Government made it a race to the bottom in terms of price, so we saw billions of pounds of investment offshored in that process. The Government hid behind EU directives but now, post Brexit, the procurement strategy still does not sufficiently incentivise local content.
On Brexit, being outside the single market and the customs union—completing additional paperwork and products undergoing additional checks—clearly affects productivity. The OBR has confirmed that the UK is still on track to see a 4% hit to GDP and a 15% reduction in EU trade as a result of Brexit. Goldman Sachs estimates that Brexit has cost the UK 5% in GDP against comparable countries, so it is undeniable that Brexit is a large contributing factor to the UK’s performance within the G7—another issue completely avoided by Labour in today’s debate.
Greater investment is required in infrastructure, but the Budget did not allocate additional capital moneys. Indeed, the Scottish Government’s capital budget is suffering a cut of close to 20% in real terms this year; yet somehow the Scottish Tories demand ever more construction—ever more deployment from the Scottish Government—while standing by as Westminster slashes our budget. That said, the Scottish Tories now see at first hand the Westminster respect agenda, as their wishes were overridden by the extension of the windfall tax. That is a further £1.5 billion of revenue from Scotland that is not being used for reinvestment. It is not propping up Scotland’s capital budget; it has been used for a tax cut. That is shameful—and yet, we are supposed to doff our cap and be grateful for £300 million of additional Barnett consequentials.
We know, though, that cuts to the Scottish Government are coming down the line, given the £19 billion of departmental cuts associated with the autumn statement and now baked into this Budget. Of course, as was pointed out earlier, Labour is effectively sticking to the Tories’ spending rules, so Labour will introduce austerity 2.0 if it comes into power. It is no wonder that the IFS says there is a “conspiracy of silence” from both Labour and the Tories on the scale of cuts coming down the line.
One cut that has been delivered is to the higher rate of capital gains for property sales. There has been enough analysis to show that charging capital gains tax at the equivalent rate of income tax would realise an additional £10 billion to £15 billion for the Treasury, yet somehow we are meant to believe that lowering the upper rate will magically bring in more money. It defies logic.
Labour likes to talk about Norway and the taxes it raises from the North sea. I like to talk about Norway, too, and the fact that it has a $1.5 trillion sovereign wealth fund, which is the biggest in the world. We look at Norway as what we might have been. It is not a change of Government that we need at Westminster—
Alan Brown
I thank the hon. Lady for giving way. I asked earlier about what the Institute for Fiscal Studies has called a conspiracy of silence from both Labour and the Conservatives. Is Labour sticking with the baked-in £20 billion of future departmental cuts that are in the Budget, and if not, how is Labour going to pay for that?
Bim Afolami
This is great fun, Mr Deputy Speaker. I say to the shadow Chief Secretary that we have been very clear about this. We have cut national insurance by a third in the last two fiscal events. It is our long-term ambition to do so and to eliminate this double taxation on work. If Labour Members do not believe that we should eliminate this double taxation, they should say so.
Bim Afolami
No, I will not give way. I wish to make some progress.
My hon. Friends the Members for St Ives (Derek Thomas), for Broxtowe (Darren Henry), and for North West Norfolk (James Wild) saw the wisdom and the importance of cutting national insurance by a third and what that means for ordinary people. From April this year, we will have taken a third off, which means £900 a year for the average worker. Some Opposition Members sniffed at that. They do not think that that is very much money. We know that, for millions of people across the country, that will make a huge difference to their lives, and we are very proud to support it.
Over and above the national insurance cuts, this Budget sets out a plan that rewards hard-working families. A lifetime of work should support the job of a lifetime: being a parent. For too long, hard-working parents have been unfairly penalised by our tax system—I am very glad that the hon. Member for Richmond Park (Sarah Olney) from the Liberal Democrats recognised that and supported our plans. That is why we are raising the child benefit threshold to £60,000 and increasing the level at which the support is completely withdrawn to £80,000. This is not done out of some ideological fancy. We are doing it because it will encourage growth in the labour market and generate an increase in work hours equivalent to around 10,000 people entering the workforce full time. So this one act on childcare that the Chancellor has put forward will save nearly half a million families an average of around £1,300 per annum in addition to the national insurance cuts.
We also want to support those who make a career out of childcare, which is why, building on our announcement at the last Budget to extend 30 hours of free childcare a week to all children aged nine months and older of working parents, my right hon. Friend the Chancellor said that the Government will guarantee the hourly rate to ensure that private childcare providers can step up to deliver this offer.
Secondly, as many Members across the House have noted, this is a Budget for long-term growth. Growth means more opportunity. Growth means greater prosperity for families and firms. And, yes, growth means higher funding for our public services.
Alan Brown
The Minister knows full well that the autumn statement had £20 billion of future cuts to public services and this Budget bakes it in. The Institute for Fiscal Studies has called it a conspiracy of silence from both Labour and the Conservatives. He talks about long-term growth and an increase in public services, but will he come clean about that £20 billion cut and what the Government will do about it?
Bim Afolami
I thank the hon. Gentleman for that point. If he looks in the Red Book, he will see that the forecast for the next spending review period is that real-terms spending on public services—the whole House should hear this, because I have heard lots of discussion from Opposition Members about cuts and slashing—will go up every year by 1% in addition to inflation. We are building on a stable foundation for that growth. Against the backdrop of economic uncertainty, business investment—one of the chronic difficulties for our economy for generations—grew last year, and will be about 11% of our GDP this year.
At the Budget, we outlined next steps on the autumn statement’s £4.5 billion funding package for strategic manufacturing, which many Members mentioned, particularly the hon. Member for Birmingham, Edgbaston (Preet Kaur Gill). That delivers the next stage of expansion for our high-growth industries.
To complement that, we are committed to ensuring the UK has the most attractive investment tax regime of any G7 or large European country. We have the lowest corporation tax rate in the G7. At the autumn statement, to complement that support for business and for growth, we announced that we would introduce permanent full expensing, which allows companies to claim, in the first year, 100% capital allowances on qualifying investments. At this Budget, the Chancellor confirmed that draft legislation on extending full expensing further to assets for leasing will be published shortly. I am very glad that my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) and the hon. Member for Gordon (Richard Thomson) supported that investment.
The theme of today’s debate—improving productivity—was barely mentioned by Opposition Members. I echo what the Chief Secretary to the Treasury, my right hon. Friend the Member for Sevenoaks (Laura Trott), said in her opening speech: when it comes to our public services, what the public care about is whether their services improve. That means focusing on outcomes, not just inputs. Opposition Members are very, very fond of talking about inputs and how there are apparently there are all these cuts—this slashing and burning of public services—but they are not very fond of talking about our productivity plan and how we are investing to improve outcomes. I will tell you a secret, Mr Deputy Speaker: the reason they are not fond of it is that they know it would upset their union paymasters. That is why they do not want to talk about it. They do not believe in better public services, which would mean better value for money for the taxpayer, because they do not believe in better value for money. They do not believe in better support for frontline workers to actually do their jobs properly because they just want more money for their union paymasters. They do not believe in better results. They talk the talk but refuse to walk the walk, because they do not understand what it is to take any tough decisions.
I agree with something that the hon. Member for Ilford South (Sam Tarry) said. He said that we cannot cut our way to prosperity, and I agree. That is why we are investing in our productivity plan and investing comprehensively in the NHS, as my hon. Friend the Member for Watford (Dean Russell) set out compassionately and powerfully.