UK Convergence Programme — House of Lords, 2019-04-09
Topic: Macroeconomics
Michael Bates (Conservative, Centre-right): My Lords, the Government have a legal requirement to give the European Commission an update of the UK’s economic and budgetary position as part of our convergence programme. Given our decision to leave the European Union, some Members may find it odd that we are debating the UK’s convergence programme here today, but it is right to do so, because we continue to exercise our full membership of the EU until the point of our exit and because doing so is a legal requirement and one that we must therefore take seriously The document before us may look familiar. This is because substantial parts of its content are drawn from the Autumn Budget report and the OBR’s most recent economic and fiscal outlook. It is the content, not the convergence programme itself, that requires the approval of the House today I remind the House that although the UK participates in the stability and growth pact, which requires convergence programmes to be submitted, by virtue of our protocol to the treaty opting out of the euro we are required only to "endeavour to avoid" excessive deficits. The UK cannot be subject to any action or sanctions as a result of our participation Let me provide a brief overview of the information we will set out in the UK’s convergence programme. Noble Lords should note that this does not represent new information; rather, it captures the Government’s assessment of the UK’s medium-term economic and budgetary position, as we set out in the Autumn Budget and again in the Spring Statement The UK economy has been growing for nine consecutive years, with the longest unbroken quarterly growth run of any G7 economy. It has added 3.6 million jobs since 2010, has almost halved youth unemployment and has seen female participation in the workforce increase to record levels. The economy is now delivering the fastest rate of regular wage growth in over a decade. Despite the slower global economy, the OBR expects Britain to continue to grow in every year of the forecast period: at 1.2% this year, 1.4% in 2020 and 1.6% in each of the final three years. This represents cumulative nominal growth over the next five years that is slightly higher than the Budget forecast. The OBR forecasts 600,000 more jobs in our economy by 2023. There is positive news on pay too, with the OBR revising wage growth up to 3% or higher in every year The Government have made significant progress since 2010 in reducing the deficit, and in 2016-17 reduced the Maastricht treaty-defined deficit below the EU’s 3% limit for the first time since the financial crisis. The OBR forecasts it to fall below 2% of GDP in 2018-19 and below 1% in the final two years of the forecast period. At the Spring Statement, the OBR forecast that public sector net borrowing is expected to be £22.8 billion this year—£3 billion lower than forecast in November and £130 billion lower than in 2009-10 We remain on track to meet both our fiscal targets early, with the cyclically adjusted deficit at 1.3% next year, falling to just 0.5% by 2023-24, and with headroom against our fiscal mandate in 2020-21 increasing from £15.4 billion at the Autumn Budget to £26.6 billion at the Spring Statement Less borrowing means less debt, which is now lower in every year of the forecast period than at the Budget, falling to 82.2% of GDP next year, then 79%, 74.9%, 74% and finally 73% in 2023-24. Our national debt is falling substantially for the first time in a generation While committed to getting debt falling, the Budget took a balanced approach to government spending, supporting households and businesses in the near term and investing in the UK’s economic potential in the medium term. We have made over £150 billion of new spending commitments since 2016, and the Chancellor announced in the Budget that the long but necessary squeeze on current public spending would come to an end at the upcoming spending review, setting out an indicative five-year path of 1.2% per annum real-terms increases in day-to-day spending on public services compared with real-terms cuts of 3% per annum at spending review 2010 and planned cuts of 1.3% in real terms per annum at spending review 2015 We made our biggest choice on public spending to put the NHS first, in line with the Prime Minister’s announcement of £34 billion of additional funding per year by the end of the period—the single largest cash commitment ever made by a peacetime British Government—to support our long-term plan for the NHS. It will deliver improved cancer and mental healthcare, a transformation of GP services, more doctors, more nurses, and better outcomes for patients Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit the convergence programme to the Council of the European Union and the European Commission. The submission of convergence programmes by non-euro area member states and stability programmes by euro area member states also provides a useful framework for co-ordinating fiscal policies. A degree of fiscal policy co-ordination across countries can be beneficial to ensuring a stable global economy, which is in the UK’s national 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 of course continue to have a deep interest in the economic stability and prosperity of our European friends and neighbours. So we will continue to play our part in this process while we remain subject to the acquis, and 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 that this House approves the economic and budgetary assessment that forms the basis of the convergence programme, which I commend to the House.