UK Convergence Programme — House of Lords, 2017-04-24
Topic: Macroeconomics
Lucy Neville-Rolfe (Conservative, Centre-right): My Lords, the major political events of the past few weeks have been the calling of a general election and the triggering by the UK of Article 50 of the Lisbon treaty, giving notice of our withdrawal from the EU. Given that background, today’s debate, which stems from arrangements and rules in essence designed to ensure economic convergence among EU member states, might at first glance look a little odd. But the oddity, if it exists, is on the surface only, and there is good reason for submitting the 2016-17 convergence programme before us. Most importantly, there is the fact that, until we leave the EU, we have all the rights and obligations of a member state. Of course, we continue to exercise our rights of membership in this period, and the document before us, which explains UK economic policy, especially in relation to maintaining stability and bringing down the deficit, is one such obligation In practice, drafting the paper was relatively straightforward, since it is based on the Spring Budget report and the OBR’s most recent Economic and Fiscal Outlook. I am sure that noble Lords who have examined it will have seen much familiar content I should draw to the attention of noble Lords one detailed but vital point. It is the Government’s assessment of the UK’s economic and budgetary position, and not the convergence programme itself, that requires the approval of the House. There is one further point which I should stress now. It is that, as the UK is outside the eurozone, we cannot be subject to any sanctions under the EU fiscal rules encompassed in the stability and growth pact of which the convergence programme forms part It may be helpful to the House if I provide a brief overview of the information that we have set out in the UK’s convergence programme, even though much of this will be familiar. Perhaps the most pleasing point is that in March 2017 we were in a better position economically than many—indeed, most—had predicted. The IMF recently revised up its 2017 growth forecast for the UK by 0.5 percentage points and growth in the second half of 2016 was stronger than the OBR anticipated in the Autumn Statement. In fact, last year the UK grew faster than most other advanced major economies, with near record employment, too. The deficit has also been reduced. Overall public sector net borrowing as a percentage of GDP is predicted to fall from 3.8% last year to 2.6% this year. It is then forecast to be 2.9% in 2017-18 and to fall thereafter to 0.7% in 2021-22—its lowest level in two decades As a consequence of all this, we are forecast to meet the EU’s 3% stability and growth pact target this year, for the first time in almost a decade. Accordingly, the UK will cease to be subject to the EU’s excessive deficit procedure. Although we are leaving the EU, this is good news. We are within sight of bringing to a halt the increase in the national debt as a proportion of GDP. Nevertheless, at nearly 90% of GDP, the Government believe our debt level is too high. That is why they set out fiscal rules that combine the flexibility to support the economy if necessary in the near term with a long-term objective of returning the public finances to a sustainable position The OBR forecasts that business investment will remain subdued as we begin the period of negotiation with our EU friends and partners. It continues to judge that, in the medium term, growth will slow due to weaker growth in consumer demand as a consequence of a rise in inflation. Accordingly, putting the public finances in good order will remain vital for the foreseeable future, all the more so given that the deficit remains too high and that there is a range of risks in the global economy. That is why we are getting ourselves into a position of readiness to handle difficulties of any kind that might come our way Our fiscal rules, which enable us to do that, strike the right balance between reducing the deficit, maintaining flexibility and investing for the long term. Our Autumn Statement and Spring Budget set out our plans to build on recent economic growth and our strong employment record, and indeed to raise productivity, which has been disappointingly weak over a long period. We are taking action to improve skills, to give more children the chance to go to a good school, to support the care system and the NHS, to drive innovation and to invest in infrastructure and digital. We have consulted on a Green Paper about an industrial strategy aimed at delivering a high-skilled, productive, competitive economy that benefits people in all parts of the UK. Sound public finances are an absolute necessity to make this happen and to provide the level of public services we all wish to see. That is essentially what the convergence process is about To conclude, following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit it to the Council of the European Union and to the European Commission. Doing so also provides the EU with a useful framework for co-ordinating fiscal policies. A degree of fiscal policy co-ordination across countries can be beneficial to ensure a stable global economy, which is of course in our own interest. The UK has always taken part in international mechanisms for policy co-ordination, such as the G7, G20 and OECD. Although we are leaving the EU, we will continue to have a deep interest in the economic stability and prosperity of our European friends and neighbours. We will also continue to play our part in this process while we remain an EU member, and we will play our part in other international policy co-ordination processes once we have left the EU. The Government are committed to ensuring that we act in full accordance with Section 5 of the European Communities (Amendment) Act 1993, and I ask this House to approve the economic and budgetary assessment that forms the basis of the convergence programme. I beg to move.