Economy: Budget Statement — House of Lords, 2018-11-13
Topic: Macroeconomics
Lucy Neville-Rolfe (Conservative, Centre-right): My Lords, I declare my interests in the register in a number of businesses that would benefit from a strong economy. As his predecessor on the Front Bench, I also express my sympathy for my noble friend the Minister in the testing task of responding to quite so many different concerns It is always difficult to know where to focus on these occasions and, in particular, whether to tackle the macroeconomic picture or microeconomics. Today I will devote myself to macroeconomics, with a couple of riders On the big picture, I want to lend my voice to those who say we are by no means out of the woods yet. The inheritance of the financial crisis and its dismal treatment by the then Labour Government lives on. Debt is now growing more slowly than GDP, albeit only just. However, we have not solved our fiscal problems; by declaring an early end to austerity and spending over £100 billion, the Chancellor has reduced his ability to cope with a crisis or a downturn. At the same time, he has promised another, tougher Budget if it is needed because of Brexit. If adopted, this would mean that we would have to impose expenditure cuts or increase taxes at a time when uncertainty will be rife and people will be blaming one another. This seems peculiar. What happened to prudence? A helpful Library Note tells us the worrying answer: the OBR expected debt to fall from the 2016-17 peak of 85.2 % of GDP to 83.8 % in the current financial year and then to 74.1% in 2023-24. Its graph shows that, as recently as 2001-02, debt was well below 30% of GDP. There is still a risk that overweening debt will cripple our grandchildren Our economic situation is comparatively weak and, to move on, I agree with the Red Book that the sustainable way to boost economic growth and prosperity is to increase productivity. The Chancellor chose to spend less time on this than usual, suggesting it had gone down the agenda. The truth is that, although there has been a slight ticking up recently, productivity has disappointed overall since the financial crisis and today’s ONS figures are a further wake-up call. The ONS statistical bulletin suggests that the usual spurt back to the trend rate of growth has not happened, perhaps because of a combination of hours per worker rising and weak output growth. My take is that it may also be due to a lack of the dynamism in new sectors such as we saw in information and financial services in the 1990s and in the noughties. Chapter 4 of the Red Book sets out most of the areas that can change the paradigm—innovation, investment, new technology, education and skills and regional growth—but it is bitty. On current plans, as paragraph 1.13 says, productivity growth is expected to be 0.9% in 2020 and 1.2% in 2023. The trouble is that this is poor by historic standards, and the international comparisons are not encouraging. So what do we need to do First, I would point to enterprise, ambition and focus. I am clear that we need a more supportive approach to enterprise in this country. Sadly, both parties often kick business, and the immediate response to a problem is often to announce further regulation. The impact on economic dynamism and the huge costs cut into profitability and raise consumer prices. This appears to be barely considered in many government circles. Impact assessments are largely ignored, and the section of the Red Book on regulation is all about new interventions and controls. We need a change of attitude and a supportive climate for enterprise, especially for smaller businesses. After all, it is the taxes paid by businesses and their employees that pay for schools, welfare, the NHS and the rest of it. All that said, the Conservatives, however bad, are never likely to challenge the anti-business sentiment of a Corbyn-led Labour Party Secondly, there is investment. The Government are right to continue to set aside money for R&D, for infrastructure—as was rightly emphasised by my noble friend Lord Gadhia in his interesting speech—and for tech investment, and to do this right across the UK, for example in the northern powerhouse. The new metropolitan mayors can also be a really dynamic force and use government funding to leverage private investment. Private investment is in the doldrums because of Brexit and the helpful increased allowances announced in the Budget might, I think, encourage a post-Brexit bounce as businesses begin to spend the money sitting on their balance sheets. However, I am a bit depressed about the time that it takes in government to spend investment money. Broadband rollout has been disappointingly slow, and I just hope that we do not see the same delays with full fibre to premises and 5G mobile. I would add that I believe we have, for generations, been bad at infrastructure planning. When I stand on a crowded Tube—an increasingly common experience—I think back to the clear cost-benefit numbers that I remember as a case study in the university library and being told that the Treasury was against the proposed construction of the Victoria line, which is now obviously so vital Thirdly, we come to education, skills and management. The biggest long-term driver of productivity growth and international competitiveness is education. We inherited a disastrous situation, but I am glad to see the improvement in many schools, especially in London, thanks to Teach First, the introduction of phonics and the dynamic of competition from free schools and academies. However, the international PISA scores of 70 countries recorded by the OECD are depressing. We are still stuck at 27th for maths, 21st for reading and a better 17th for science. I am particularly concerned about the weakness of vocational education. The apprenticeship levy was meant to usher in a new German or Swiss-style dawn, but in fact so far it has increased business costs and reduced overall numbers. Therefore, I was very glad to learn of the review by the Exchequer Secretary and the Minister for Apprenticeships. I ask the Government to learn from employers big and small how to make this work. For many, including the board on which I sit, the levy is just a tax Finally, I would like to say something about retail, where I spent the heart of my career. It is a job creator and gives young people the chance to be part of a team and reach their potential in ways never imagined. It is a wonderful engine for social mobility, as Sir Terry Leahy reminded some of us again last week in a speech celebrating 30 years of Retail Week—the legacy of its first editor, my noble friend Lady Wheatcroft The Budget was a disappointment for retailers because the unfairness of the rating system was not tackled. The £940 million-worth of relief over two years for rates paid by small businesses was of course extremely welcome, but it is not transformational. With a very uncertain consumer outlook—confirmed by weaker advertising sales—margins are under pressure, and I had hoped for a bigger initiative. I commend the Chancellor for proposing a tax on the digital companies that are wrecking the high street, but here again it is perhaps too low and too slow In conclusion, I return to my central message. The Budget was a risky one. Let us hope that my worries are unfounded.