UK Convergence Programme — House of Lords, 2018-04-16
Topic: Macroeconomics
Michael Bates (Conservative, Centre-right): My Lords, the legal requirement to give the European Commission an update of the UK’s economic and budgetary position—our convergence programme—means a welcome opportunity for a wider economic debate today In accordance with the outcome of the referendum, we are leaving the European Union and will make our own decisions, take control of things that matter to us, and seize every opportunity to build a stronger and fairer Britain. But, given our decision to leave, some Members may find it odd that we are debating the UK’s convergence programme here today. However, it is right that we do so, because we continue to exercise our full membership of the EU until our exit, and because doing so is a legal requirement that must be taken seriously I remind the House that the content of the convergence programme is drawn from the Government’s assessment of the UK’s economic and budgetary position. This assessment is based on the Autumn Budget report and the OBR’s most recent economic and fiscal outlook, and it is this content, not the convergence programme itself, that requires the approval of the House I also remind noble Lords that, although the UK participates in the stability and growth pact that 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 I will provide a brief overview of the information that we will set out in the UK’s convergence programme. Noble Lords should note that this does not represent new information but rather 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 recently in the Spring Statement The UK economy has been growing for five consecutive years. It has added 3 million jobs since 2010, and our manufacturing sector has enjoyed its longest unbroken run of growth in more than 50 years. Since April 2015, the wages of the lowest paid have risen by almost 7% above inflation. Growth remained solid in 2017, and at the Spring Statement the OBR revised up the outlook for the UK economy this year, with forecast growth in 2018 higher than it was in November. The OBR forecasts more jobs in every year of this Parliament, and over 500,000 more people in work by 2022. The OBR expects inflation to fall back to the Bank of England’s target rate over the next 12 months, meaning that real-wage growth is expected to be positive from the first quarter of 2018-19 and to increase steadily thereafter Since 2010, the Government have made significant progress in reducing the deficit; 2016-17 was the first year since the financial crisis in which the UK’s general government deficit was below the 3% Maastricht treaty limit, and in December of last year the European Council acknowledged this achievement by closing our excessive deficit procedure In the Spring Statement, the OBR forecast that public sector net borrowing is expected to be £45.2 billion this year—£4.7 billion lower than forecast in November and £108 billion lower than in 2009-10. As a percentage of GDP, public sector net borrowing is forecast to fall from 2.2% in 2017-18 to 1.8% this year. Borrowing is then forecast to continue falling, reaching 0.9% in 2022-23—its lowest level in more than two decades The OBR forecast that public sector net debt will peak at 85.6 % of GDP in 2017-18 and then fall as a share of GDP in every subsequent year. This is an important turning point for the public finances, with debt projected to fall as a share of GDP on a sustained basis for the first time in 17 years. Getting debt falling is important in order to enhance the UK’s economic resilience, improve financial sustainability and reduce the burden on future generations. The Government’s balanced approach to fiscal policy is underpinned by our fiscal rules. The OBR forecast that we will meet our targets both on structural borrowing and on getting debt falling two years early Although 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. That includes building the homes that our country needs to restore the dream of home ownership for a new generation. It includes helping young people across the country to get the skills they need for the high-paid, high-skilled jobs of the future, and it includes investing in cutting-edge technology and innovation so that Britain continues to be at the forefront of the global technology revolution Those three things will be at the heart of our efforts to finally address the country’s long-standing productivity challenges. The Government are working to strengthen our public services over the long term, too, in our determination to bring down the deficit and get the UK back to living within our means, as well as funding our public services for the long term through a fair and sustainable tax system. The Budget supported our world-class public services, including putting our NHS on a stronger, more sustainable footing Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit the programme to the Council of the European Union and the European Commission, with recommendations expected from the Commission in May. 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, the G20 and the 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 an EU member, 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. I beg to move.