Lord Young of Cookham
Main Page: Lord Young of Cookham (Conservative - Life peer)Autumn Statement: Economy
Lord Young of Cookham Excerpts
Lord Young of Cookham
To move that this House takes note of the economy in the light of the Autumn Statement.
Lord Young of Cookham (Con)
My Lords, I preface the debate with a personal reflection. The last time I spoke for the Government in a set-piece economic debate was more than 20 years ago. As Financial Secretary I wound up a debate in the other place on the unified Budget, which is what we had in those days. In the Speaker’s Chair were the noble Baroness, Lady Boothroyd, and then my noble friends Lady Fookes and Lord Naseby. Among the contributors to that debate were the Lord Speaker, my noble friends Lord Jopling and Lord Carrington of Fulham, my pair, the noble Lord, Lord Reid, and winding up for the Opposition was my then shadow, the noble Lord, Lord Darling.
I fear my peroration on that occasion contained exactly the sort of partisan language that this House deplores and which made me blush when I reread it:
“What this country now wants are solutions and not sound bites … policies and not pantomime … remedies and not rhetoric … goals and not gimmicks. What the people will get from the Conservatives are remedies, goals, policies and solutions. All they will get from the Opposition are sound bites, pantomime, rhetoric and gimmicks”.—[Official Report, Commons, 5/12/1994; col. 116.]
The young Treasury special adviser who helped Ministers craft their diatribes in those days was that current upholder of political impartiality, Speaker John Bercow. I am a reformed man, and I promise to do better at the end of this debate.
In the short time I have been in this House, I have been struck again and again by the expertise of those who speak in these economic debates. I know that noble Lords will have familiarised themselves with the details of both the OBR forecasts and the Autumn Statement made by the Chancellor. I do not propose a full run-through of the information and measures contained in it, but perhaps it would be helpful briefly to frame today’s debate by outlining some of its key themes, namely our fiscal discipline, our work to raise British productivity, our commitment to providing a competitive environment for business, and our determination to build an economy that works for all.
To begin, the Government remain resolute about maintaining fiscal discipline. This underpins our approach to both upholding market confidence in our economy and securing strong and stable public finances. Noble Lords will have studied the sobering forecasts from the OBR. These are, of course, independent forecasts, and the creation of the OBR in 2010 was an important step in enhancing the credibility and transparency of economic and fiscal forecasts in the UK. They recognise the uncertainty of this transitional period for the UK and predict a period of slower growth in consequence, combined with lower tax revenues.
It is in the light of these circumstances that we no longer seek to deliver a surplus in 2019-20. Nevertheless, we are continuing along the course that has already seen the deficit reduce by almost two-thirds over the last six years. The new draft charter for budget responsibility, which Parliament will need to approve, sets out that public finances are to be returned to balance as soon as possible in the next Parliament. By the end of this Parliament, cyclically adjusted borrowing must be below 2% of GDP and public sector net debt as a share of GDP must be falling. Welfare spending must also be capped by the Government and monitored by the OBR. It is a robust fiscal framework.
Just as we address the need to bring down the deficit, reduce debt and live within our means, so we must address a long-standing issue for our economy—one that we have examined on many occasions in this House, not least in September’s Economic Affairs Committee hearing. It is the need to raise UK productivity. Some of the statistics set out last Wednesday by my right honourable friend the Chancellor of the Exchequer bear repeating, showing as they do the scale of the challenge before us.
Our productivity is 30 percentage points behind countries such as the US and Germany and we lag other major economies like France and Italy too. So this Autumn Statement made an important contribution to raising our productivity by prioritising high-value investment in our infrastructure and innovation. One of the central announcements was the new national productivity investment fund, with £23 billion of extra spending. This additional capital has been well received in recent days. Indeed, last week the director of the IFS, Paul Johnson, said that this will take public sector net investment to well above the average of the last 30 years. To those who have said that this is a re-announcement of previous commitments I make it clear that this is indeed new funding—additional borrowing enabled by our record of fiscal responsibility.
This funding will be targeted at projects of high value to our economy that will deliver more opportunities and higher living standards for working people: improving the transport networks on which British people and businesses rely, establishing the digital infrastructure we need to support our growth and investing further in our research and development capacity. It will also contribute to meeting the long-standing challenge to deliver more homes, something this House explored in depth in the July report of the Economic Affairs Committee. Since its publication, the Government have launched the £3 billion homebuilding fund to unlock more than 200,000 houses. At the Autumn Statement last week, we announced that we will go further and invest an additional £5.3 billion in housing, including through investing in infrastructure to unlock land for homes and through additional investment in affordable housing.
We also announced that the Government will relax restrictions on affordable housing grant funding to allow a wider variety of tenures to be delivered. This responds directly to the committee’s recommendation that the Government should deliver a broader range of tenures, including homes for affordable rent. Increasing the supply of homes through measures such as these is something that my right honourable friend the Communities Secretary will be returning to in his forthcoming housing White Paper. That will also pick up on further themes of the Economic Affairs Committee report, including reforms to planning and the Government’s ambition for housing.
Let me turn to the third theme I outlined, which is our focus on not only making the UK an exceptional place to do business but also—and this is particularly pertinent given the period of adjustment we have entered into—providing additional certainty for our businesses. That is why we have recommitted to the business tax road map we have already set out. It means a tax regime for our businesses which is highly competitive: the often-cited example of corporation tax falling to 17% by 2020 is just one illustration of that. Our move to a single main fiscal event a year will mean a more stable tax environment for businesses as well as more time for them to prepare for the new tax year. We have already heard a number of businesses express the strongest support for this change.
There were, of course, a variety of other measures to support British businesses, but I will single out just two: the £400 million new investment in venture capital through the British Business Bank to help innovative businesses to scale up; and the doubling of the support that UK Export Finance can provide to exporters. This again reflects our determination to address the current account deficit we have so frequently discussed here.
The last theme I want to highlight from the Autumn Statement is that of making sure that people across our society share in the prosperity that economic growth brings to the country. Despite the forecasts of the OBR and despite the pressures we face on the public finances, this was an Autumn Statement that took further action to support people in their day-to-day lives and help their money go further. We confirmed, for example, that we will raise the personal allowance to £12,500 by the end of this Parliament, by which point it will have increased by more than 90% since 2010, taking millions of the lowest paid out of income tax altogether. We have also introduced a new savings bond, frozen fuel duty and banned letting agents’ charging fees for tenants.
There was an increase to the national living wage, which we introduced in April at £7.20 an hour to help over a million of the lowest-paid people. Last week’s announcement of its increase to £7.50 from April next year means the equivalent of a £500 a year pay rise for a full-time worker. We also helped around 3 million households by reducing the universal credit taper, which will further strengthen the incentives for people to increase the number of hours they work and earn their way out of financial insecurity and welfare dependency. Universal credit will be a distinct improvement on the previous system, tackling, as it will, the old issue whereby some people working more hours did not always end up with more income in their pockets. That focus on getting more people into work and supporting them to increase their earnings will remain a priority for this Government.
The employment rate has been growing faster in the UK since 2010 than in any other G7 country. In that period, unemployment has also fallen by 906,000 and wage growth has now outstripped inflation for two full years—the longest period of real wage growth since before the recession. It is also worth noting the OBR’s forecasts of wage growth of over 3% per annum from 2019 onwards, and real wage growth in every year of its forecast. It is also predicting that by 2021, living standards will be 2.8% higher than they are today.
Protecting and promoting jobs is a clear path to creating a sustained rise in living standards. Although employment is a key pillar of the Government’s economic priorities, it is of course only one part of building an economy that works for our entire society, including those who cannot or no longer work. We heard confirmation last week that there are no plans to introduce further welfare savings measures in this Parliament, beyond those already announced, and we continue to protect the most vulnerable disabled people by exempting disability benefits from the uprating freeze and benefit cap, with spending on disability benefits higher than in 2010 in every year to 2020. We will meet our commitments to pensioners set out for this Parliament. We should note that there are 100,000 fewer pensioners in relative poverty since 2010.
Just recently, in the debate secured by my noble friend Lady McIntosh, I outlined some heartening signs of the resilience of the British economy over the past few months. I pointed to the smooth functioning of the financial markets, our near-record employment rate and strong retail sales. Friday’s estimates from the ONS also suggest solid growth in household consumption of 0.7% in the three months following the referendum. I also pointed to the huge votes of confidence we have seen from investors into this country such as SoftBank, GlaxoSmithKline, Nissan, Jaguar Land Rover, Apple, Facebook and Google. These are all reflections of some of the fundamental strengths of our economy.
No one can deny that we face a period of uncertainty as we negotiate our departure from the EU but we are in a strong position to meet any challenges ahead, as a result of the action the Government have taken since 2010. We will continue this approach, to support the well-being and prosperity of the British people, by steadying our public finances, backing our businesses to drive up growth and investing in a bright future for Britain. I beg to move.
Lord Young of Cookham
My Lords, it is presumptuous to try to distil more than 300 minutes of high-quality debate into an acceptable summary. There is a clear tension between, on one hand, doing a discourtesy to noble Lords by not addressing all the issues they raised and, on the other, testing their patience by going on for too long. I will try to get the balance right, but if I do not address the key issues that have been raised I will of course write to noble Lords.
I thank all those who have contributed today for bringing their knowledge and experience to bear, from academia, business and government, on the issues in the Autumn Statement. No one was sorrier than I was to see the noble Lord, Lord O’Neill, leave the Government, to which he made a hugely important contribution over the last two years. My presence at the Dispatch Box as a Whip shows that he is absolutely irreplaceable. His contribution was great, not only through his dedicated efforts to see global action to counter the threat of antimicrobial resistances, but also of course through his work as Commercial Secretary to the Treasury, particularly on rebalancing the economy, with his unswerving determination to ensure growth outside London and the south-east and the northern powerhouse. We heard his encouragement to go faster and be bolder this evening. Indeed, it is thanks to him that we have been able to give power and resources to our great cities.
One theme that ran through the debate concerned living standards and income distribution. This was touched on by the first speaker, the noble Lord, Lord Livermore. I agree with what he said about the need for a better-informed, tolerant, broad-minded discussion about immigration. Picking up something that the noble Lord, Lord Bilimoria, said, I think there is scope to reskill the indigenous population to reduce, if not eliminate entirely—I take that point—our dependence on inward migration. The noble Lord, Lord Livermore, raised the subject of income distribution. Living standards are at their highest ever level—3.3% higher than in 2010—and by 2021, as measured by real household disposable income per head, are forecast to be 2.8% higher than they are today, according to the OBR. That figure is different from some of the figures that other noble Lords used because they tended to use earnings growth, whereas our view is that real household disposable income is a better measurement of living standards.
The noble Baroness, Lady Hollis, and others developed the theme. Those who are migrated from legacy benefits to universal credit will receive transitional protection, so they will not experience any cash losses. Here there is a real risk of getting lost in a war of statistics on child poverty. The percentage of individuals and children in relative income poverty is lower than it was in 2009-10—there are some 100,000 fewer than in that year. Between 2010-11 and 2014-15 the percentage of families in the bottom half of the income distribution who were in work increased from 60.3% to 65.7%. In the year to April 2016, workers in the fifth income percentile saw wages grow by 6%, which was the highest growth at any point in the distribution. Of course, we have supported that with the national living wage. The noble Lord, Lord O’Neill, put it much more concisely by saying that income inequality is lower than it was 20 years ago. In fact, disposable income inequality is lower than it was in 2010 and close to the lowest levels since the mid-1980s. Of course, we need to do more but progress is being made.
On that theme, the noble Earl, Lord Listowel—in some ways the conscience of the House—raised a number of issues about care leavers and homelessness. I will pass his remarks about early years funding on to the relevant Ministers and accept gratefully his generous suggestion that I should write to him on some of the other issues.
The theme of intergenerational inequality was raised by the right reverend Prelate the Bishop of Portsmouth and others. To put that in perspective, pensioners have lost what used to be the age allowance, which they got when they reached a certain age. That has been abolished. Of course, people have to wait longer and will have to wait even longer before they get the state retirement pension and lower interest rates have tended to disadvantage pensioners and help younger people. It is not entirely a one-way equation.
We had a number of comments about the OBR and its forecasts. The noble Lord, Lord O’Neill, and the noble Baroness, Lady Noakes, indicated that the OBR forecast might be too pessimistic and there were reasons for being optimistic. I think my noble friend Lord Suri also came from that camp. The noble Lord, Lord Desai, suggested that we should use the OBR forecast to front-load the borrowing while interest rates were still low. I take the point but that sits uneasily with the Government’s objective to reduce indebtedness.
The noble Lord, Lord Whitty, and my noble friend Lord Higgins both agreed with the action taken by the Monetary Policy Committee. I think the noble Baroness, Lady Kramer, also made the point that the action which it took post the referendum decision has enabled the economy to be more resilient than it otherwise would have been. My noble friend Lord Higgins raised the serious issue of the interface between fiscal and monetary policy—the one being in the hands of the independent MPC and the other being in the hands of the Government—and asked what would happen when quantitative easing unwound. The answer is: the sale or reinvestment of gilts in the asset purchase facility is a matter for the MPC but the Bank of England has stated that it will have due regard to the Government’s debt management objectives in the event that it decides to sell the assets.
If I were to pick out two speeches that people outside should read—of course they should read all the speeches—they would be the contributions of the noble Lords, Lord Hennessy and Lord Taverne. The noble Lord, Lord Hennessy, stood back and put the issue of national planning in perspective. He reminded noble Lords of my own modest role in the 1960s, when I worked for the National Economic Development Office on the national plan, which turned out to be a notional plan rather than national because the economy could not sustain the public sector investment that was predicated. His was a stand-alone and distinctive contribution. The noble Lord, Lord Taverne, again stood back and asked a relevant constitutional question about the future of Brexit. Mercifully, he answered it himself in his final sentence; I shall not risk my career by going down that path. Nor shall I irritate noble Lords by repeating the Government’s line to take on the single market, on Brexit, on running commentaries and everything else. However, those two contributions were very important. On the point made by the noble Lord, Lord Hennessy, I hope that this industrial strategy will have learned the lessons from the previous ones that he mentioned. It is about creating the conditions for winners to emerge and grow, rather than picking winners.
We then moved on to what was perhaps the most interesting contrast between the two sides of the debate: whether we should borrow more or less. A range of noble Lords from the Opposition Benches including the noble Lord, Lord Hain, and the noble Viscount, Lord Hanworth, wanted more borrowing. More borrowing would reverse the progress which the Government have made in getting it down to a manageable level. I listened to some of the gloomy forecasts made by noble Lords opposite; so far, the performance of the country has confounded all forecasts. Indeed, over the weekend the OECD uprated its forecast for the UK economy for next year. Counterbalancing those who wanted us to borrow more we had my noble friends Lord Northbrook, Lord Leigh, Lady Vere, Lady Noakes and Lord Flight, who thought that Keynesianism had perhaps gone as far as it should. Noble Lords on this side were arguing for prudence rather than for more borrowing.
The answer to “Why should we not borrow more?” is that the deficit reached 10.1% following the financial crisis and, despite our reducing borrowing as a share of GDP by almost two-thirds, at 4% it still remains too high. Public sector net debt, which is forecast to reach 90.2% of GDP in 2017-18, is also eye-watering, as some of my noble friends mentioned. We are trying to have a new fiscal framework that gets it down to a manageable level.
The noble Lord, Lord Skidelsky, talked about the OBR in somewhat disparaging terms but I hope he would agree that it is better to have the OBR doing forecasts than the Government doing them, which is what used to happen. It is independent and there is greater transparency and, I think, credibility in the economic and fiscal forecasts on which policy is based by having the OBR. It regularly publishes comprehensive forecast evaluation reports, in which it examines its own errors and models. The latest report was published in October.
My noble friend Lady Noakes was cautious about whether the national productivity improvement fund would achieve its objectives. I hope that it will identify the bottlenecks and areas where the economy is underperforming, enabling us to make faster progress. The NPIF was welcomed by, among others, the noble Lord, Lord Bilimoria.
My noble friend Lady Vere argued for a culture change in the whole of society to drive up productivity. My noble friend Lady Noakes made the point that the Government do not create productivity, but we do create the environment for businesses to increase it. The OBR expects productivity growth to increase over the forecast horizon and average 1.5% a year between 2015 and 2020.
Many noble Lords commented on R&D spending, including the noble Lords, Lord Bilimoria and Lord Kakkar. We recognise that the UK is a world leader in science and the most productive country for research in the G7, but levels of innovation are lower in the wider economy. The R&D spending that we have announced seeks to combat this and maximise our research base. It will now increase by around 20% in this Parliament—the biggest increase in any Parliament since records began in 1979. I will write to the noble Lord, Lord Kakkar, on the specific questions he raised about the distribution and timing of decisions on R&D.
The noble Lord, Lord Fox, asked what the industrial strategy challenge fund would look like. Further details will be set out in the Budget next year. Many of our Autumn Statement measures, including the NPIF, will form part of the industrial strategy. We await that with interest.
Perhaps the most expensive speech of the evening came from the noble Lord, Lord Jones, who had at his fingertips some shovel-ready schemes in Wales and the north-east. I will certainly see that those bids are passed on to the relevant Ministers.
There were other requests for regional funding. The right reverend Prelate the Bishop of Birmingham asked what we had done in the Autumn Statement for the Midlands. The answer is that there is £5 million of development funding for the Midlands rail hub, which is a programme of rail upgrades in and around central Birmingham. Local enterprise partnerships in the Midlands will receive up to £392 million of growth-deal funding. On devolution, which the right reverend Prelate raised, we are committed to devolving powers to support local areas to address productivity barriers.
A number of noble Lords mentioned housing, including the noble Lord, Lord Whitty, and the noble Baroness, Lady Warwick. I preferred the tone deployed by the noble Baroness, Lady Warwick, in her contribution rather than the more grudging contribution of the noble Lord, Lord Whitty. It is worth putting on record that net housing supply increased by 11% last year to almost 190,000 homes, the highest supply for eight years. If you multiply 190,000 by five, you are almost at the 1 million homes that the Government have set themselves as a target.
The noble Baroness, Lady Warwick, said that what we had done was an important step in the right direction. Like her, I pay tribute to the work of the housing association movement, which has responded to a wide range of challenges, from reduced grant funding to rent caps and all the rest. I welcome what my noble friend Lord Horam said about the change of emphasis in housing. I think Gavin Barwell is doing a first-rate job with that portfolio. He has moved the dial a little bit to switch emphasis away from the exclusive promotion of home ownership towards a more balanced portfolio of renting. Housing associations do not just build houses; they build communities, run training schemes and do home improvements.
During the debate, some noble Lords suggested that there was lots of money waiting to be invested in infrastructure. Housing associations are for ever raising bonds and private finance. To my knowledge, that has historically been a very good investment—so if sovereign growth funds are looking for areas in which to invest, I am sure that housing associations would be very pleased to have a dialogue with them. As I said a moment ago, we are committed to delivering affordable homes of a variety of tenures to support a wide range of people in different circumstances, at different stages of their lives, and we recognise that home ownership is not possible for everybody.
The noble Baroness asked me whether the terms of reference of the National Infrastructure Commission might be varied. I will certainly take that up in the appropriate quarters. She wanted freedom for housing associations to set their own rent levels. That is a big ask, with housing benefit implications for the Government. Given the large sums of money the Government have invested in housing, I think they will continue to have an interest in the return that society gets from that investment.
A number of noble Lords understandably expressed concern about social care and health. On social care, it is worth making the point again that there is a new social care precept that enables local authorities to increase council tax by 2%. That raised £380 million in the first year—and it is cumulative: you can do 2% on 2% on 2%. By 2019-20, the cumulative total raised will be £2 billion, which is a sizeable sum.
We will also have the new social care fund from April next year, which will rise to £1.5 billion in 2019-20. That will be rolled into the better care fund, a single-pool block of money that local authorities and the health service can draw on in order to break down the iron curtain between health and social care.
I was asked this evening for £4 billion of extra money for the NHS, but the noble Baroness will understand that it is not within my capability to give that. We have delivered what the NHS asked for under the five-year forward view—and, as it asked, we front-loaded it.
Some of my noble friends expressed impatience about the 45% higher rate of tax. We have to honour our manifesto commitments about the personal allowance and the 40% rate before we look at that—although I take on board my noble friend Lord Lawson’s initiative, mentioned by my noble friend Lady Noakes.
The noble Baroness, Lady Hollis, mentioned pension tax relief. That has been cut back quite sharply in recent Budgets, and I think that there was a further reduction in the Autumn Statement of the amount that those drawing on their pots can pop in—so action is being taken there. The noble Baroness, Lady Donaghy, raised a point about the self-employed and HMRC and DWP, and of course I will pursue that.
A number of noble Lords raised IPT: insurance premium tax. It is a tax on insurers and it is up to them to decide whether and how to pass the cost on to consumers. We are working with the industry to make improvements. For example, we are taking action to clamp down on minor fraudulent exaggerated whiplash claims, which add significant costs to motor premiums. Insurers have committed to pass the savings on to consumers, which should save drivers an average of £40 per year. They will also benefit from other measures, including the cut in corporation tax. I do not have the specific figure that I was asked for about the impact on millennials.
The right reverend Prelate the Bishop of Portsmouth welcomed the LIBOR fines going to service charities. The noble Lord, Lord Bilimoria, welcomed the reduction in corporation tax, although the noble Baroness, Lady Kramer, was not quite so keen. My noble friend Lord Leigh made the point that something he suggested three years ago has now happened—so perhaps what he suggested today will be in a future Budget in three years’ time. I note what he said about the diverted profits tax, which in his view ought to raise a larger sum of money than it does.
The noble Viscount, Lord Hanworth, repeated to some extent a debate we had about exchange rates. The Government do not think that we should have a view on the exchange rate; we will simply have to agree to disagree on that. The noble Lord, Lord Lea of Crondall, asked about our share of exports. It has trended downwards as emerging countries have entered the world economy and pushed up their share.
On procedural issues, my noble friend Lord Wakeham and others, including the noble Lord, Lord Whitty, and my noble friend Lord Suri, welcomed the move from two events a year to having one unified Budget. My noble friend Lord Wakeham, as a former Chief Whip and former Leader of the House, made the point about the business management advantages of starting in the autumn in order to get it through.
My noble friend Lord Higgins asked about having a debate in the Moses Room. That is a matter for the usual channels—I see two of them here, one on each side, and they will both have heard that. My noble friends Lord Flight and Lord Northbrook raised some issues about stamp duty, and I will write to them on that.
Many of the things we have looked at today are ongoing challenges—whether securing the public finances, addressing the productivity gap or supporting the most vulnerable as effectively as possible. I thank all noble Lords who have contributed today. It has been a thought-provoking debate, and I have enjoyed listening to the vast knowledge and wisdom which has been shared. If a consensus has not emerged, I hope that even our grudging opponents might agree that the Government have gone some way in the Autumn Statement to ensuring that Britain has a brighter future, and I echo the optimism with which my noble friend Lord Flight ended his speech.