Budget Statement — House of Lords, 2017-12-04
Topic: Macroeconomics
Edward Timothy Razzall (Liberal Democrats, Centre to centre-left): My Lords, I am sure that all noble Lords would agree on the speech that the Chancellor of the Exchequer wishes that he could have made when he rose to his feet 10 days or so ago. In his dreams, he would have said that world growth is significantly benefiting the UK economy. In his dreams, he would have said that, as a result, company confidence has increased capital investment significantly in the UK. In his dreams, he would have said that there has been an improvement in the skills base driven in part by huge growth in apprenticeships, which is now feeding through to significant growth in productivity. Of course, he would also have said that the strong pound is reducing the inflation rate—and all those factors would be feeding through to stronger tax receipts. Sadly, noble Lords will be aware that quite the opposite is true On the basis of the OBR forecasts, which were set out in his Budget speech, productivity is now in the bottom quartile of all our economic competitors. The growth forecast is way below that of our competitors, with the OBR downgrading the 2021 GDP figures by £45 billion by comparison with the 2017 Budget estimates. The OBR indicates that tax receipts by 2021 will be £28 billion less than forecast On the Government’s own admission, a number of factors are applying to the British economy. The Government recognise that our workers lack the necessary technical skills. They recognise that infrastructure spend in the UK is not in the top 20 on World Economic Forum ratings and that R&D expenditure at 1% of GDP is below the OECD average of 2.4%, a figure that we are not aiming to reach until 2027. The Government recognise that the number of apprentices is falling. They say that that temporary fall is due to the introduction of the new procedures on the apprenticeship levy. Well, let us hope so Of course, there is some good news. Our creative industries are now worth £92 billion to the UK, which shows a 7.6% growth in 2015-16, twice the growth in the rest of the economy. The creative industries sector is probably bigger than our manufacturing sector, as a result. The drop in the exchange rate, as Brexiteers constantly remind us, has helped manufacturing exports—but, of course, the huge increase in import prices as a result of this drop is now starting to hit consumers, who face no real rise in their living standards for years. The Resolution Foundation says that it will see the largest squeeze on living standards for 60 years. As the noble Lord, Lord Tunnicliffe, has indicated, it is the poorest 20% of families who will be hit the hardest by this On the plus side, the corollary of poor productivity is a record high level of employment. It seems that, without any deliberate decision, we have sleepwalked into a world of low-paid jobs rather than improvement of skills and spend on R&D and infrastructure The Government’s big idea, I suppose, is the industrial strategy. It is a big idea of interventionist sector deals, which Tories traditionally baulk at—but, in this case, they are wilfully imprecise. Maybe the free market needs a strategic nudge from the Government, but a deliberate lack of detail in a chosen four industries— life sciences, construction, artificial intelligence and automotive—is worrying, and the arrangements with Nissan are, of course, still top secret. Nevertheless, we have to praise the industrial strategy. After all, its grandfather was the noble Lord, Lord Mandelson, its father was Vince Cable and its child is Mr Clark, so we cannot object to it across the Floor, but the proof obviously will be in the results There can be no doubt that the most challenging issue facing the British economy is Brexit. Without a successful Brexit, the business confidence and investment necessary to maintain our economy will not take place and it will continue to bump along the bottom as measured against all our economic competitors. We all know what industry wants: manufacturers want a tariff-free environment and a frictionless border. There are examples of that within Europe—for example, Sweden and Norway have an allegedly frictionless border. However, everybody knows that it is not entirely perfect. Companies such as the motor car manufacturers and Airbus want to move their components freely across borders in a tariff-free, frictionless environment. The finance industry wants to sell its services across Europe. The creative industries which, as I said, are now probably bigger than the manufacturing industry, want no restrictions on trade within Europe. Everybody wants the continuation of regulatory systems without necessarily establishing new structures employing tens of thousands of civil servants if we attempt to replicate what we have been used to in the European Union. Time is lacking. The banks have to make key decisions on whether they relocate some of their functions outside the United Kingdom. The car manufactures have to decide where they will source new models and companies such as Airbus have to decide where they will source the next generation of their planes. Therefore, the ball is very strongly in the Government’s court. Those who advocate a hard Brexit must recognise that if we do not have something equivalent to a single market and the customs union, the OBR forecasts are likely to be grossly optimistic.