Covid-19: Economy — House of Lords, 2020-06-04
Topic: Macroeconomics
Christopher Fox (Liberal Democrats, Centre to centre-left): My Lords, I declare my interests as set out in the register. Today’s debate is timely and the noble Lord, Lord Eatwell, should be congratulated on securing it. Your Lordships’ contributions make it a difficult job to wind up this debate. The backdrop against which it is conducted is one of darkening economic storms. The Institute for Public Policy Research today issued a report predicting that greater than 1 million people will be "plunged into poverty" by the end of the year; included in that are some 200,000 children. This debate is a chance to tease out the Treasury’s thinking on the next steps, and those beyond, for our economy. I hope the Minister will be forthcoming First, looking back, noble Lords have mentioned Germany, which is held by many to have tackled the virus very well. What factors contributed to its relative success? We all know that Germany has a strong industrial base as a result of decades of public policy. Yet I believe I heard comments from the government podium implying that the Germans were somehow fortunate to have the private companies they needed to lead their testing programme. Countries make this kind of luck. Germany also has a well-organised regional administrative capacity through which to deliver its virus defence and recovery programme. This stands in contrast to the UK approach, not least on testing and our nascent plans for tracing The evidence shows that we are a country where public policy has for decades undermined our industrial capacity, and one with an uncontrollable urge to overcentralise. This is a country where local government has been drained of finance, belittled and undermined, and where the regions and nations are often ignored by Westminster. These chickens came home to roost during this crisis. Unless and until the Government undertake to sustain a meaningful industrial strategy, and do it in a devolved way, any economic recovery efforts will be severely hamstrung. Sadly, it is often the Treasury which is portrayed as an overwhelming influence against these two things. Can the Minister undertake to call off the centralising urges of the Treasury We have heard that there will be millions of jobs on the line. Today, Make UK, which represents 20,000 businesses, has told a Select Committee in the Commons that one in four manufacturing firms plan to cut jobs. For example in aerospace, Rolls-Royce announced 3,000 UK redundancies this week, with, of course, a knock-on effect to the supply chain. Elsewhere, today’s IHS Markit survey says that some 64% of building firms reported a drop in construction activity during May. Car showrooms have recently reopened but, not surprisingly, UK car production is down by about 99% However, some of the sectors that are suffering worst are made up of myriad SMEs. These include the hospitality, tourism, arts and creative sectors, as set out by my noble friend Lady Doocey and many others in their speeches. SMEs across the country—across the whole economy—are also the drivers of growth, while being key entry places for new people coming into work. For many of these businesses, further loans will not be the answer. The noble Lord, Lord Eatwell, is right to highlight the liquidity trap facing such businesses. Loading them up with debt will cause them to fail. The EU seems to be moving towards a grants system, so, in addition to the question of the noble Lord, Lord Eatwell, on possible equity injections, can the Minister tell your Lordships what the Government’s position is on grants—not just to public organisations, as noble Lords set out, but to private sector organisations The noble Lord, Lord Kerslake, and the noble Baroness, Lady Warwick of Undercliffe, spoke about stimulus programmes and focused on housing. Others not in this debate may be pinning their hopes on a consumer-led recovery. The German Government have agreed to a €130 billion fiscal stimulus, centred on a big cut in VAT. They also plan a €300 one-off children’s bonus payment. The aim of their package is to stimulate consumer demand, but given that we make so much less than the Germans a consumer-led recovery here is more likely to benefit Amazon than the UK economy. I would like to tease out from the Minister what the plans are for investing in a recovery. My noble friend Lord Razzall made a raft of suggestions, which I will not repeat, but can the Minister set out how the Treasury is approaching this issue The noble and right reverend Lord, Lord Harries, talked about social solidarity and was right to do so. It is extremely unfortunate that even some of those people retaining their jobs are doing so at the expense of having worse contracts than they had before the virus. Within that, we will almost certainly see an upsurge in the number of gig workers. During the crisis, many of us have been sustained by the services of today’s gig workers. The noble Lord, Lord Hendy, rightly pointed out that many of them are employed on very disadvantageous terms. To discourage this race to the bottom, Her Majesty’s Government need to send a message now. One way to start doing that is by implementing the Taylor review of modern working practices. Protection of gig workers and the implementation of decent conditions should now be a priority. The Taylor report contains a range of improvements that the Government have said they accept, yet it is gathering dust. Can the Minister undertake to talk to colleagues about implementing the Taylor review, and to come back to your Lordships’ House and report on his discussion Finally, there is our trading position in the world. The EU negotiations seem mired; indeed, the Bank of England is preparing for no deal. The US free trade agreement will lead to nothing before elections there. The Japanese negotiations may yield something sooner, and perhaps a fraction better than the deal we currently have under the EU’s umbrella. At the very best assumption, an EU-Canadian type of free trade agreement, which looks unlikely, would mean at least 5% of GDP being cut. Even if the noble Lord, Lord Lang, gets his dream deals with the US and Japan, those will struggle to recover as much as 1% of the GDP that we have lost. This is all on top of a double-digit hit on GDP from Covid-19. I am not calling to cancel Brexit—we have left the EU—but for any Government to allow the full effects of a no-deal Brexit on top of the economic shock of Covid is careless with people’s lives and prospects. As the noble Lord, Lord Low, and my noble friend Lord Shipley highlighted, there needs to be an extension to the transition period of two years to allow the Covid-19 pandemic to be managed strategically and carefully. Does the Minister agree that it is far more sensible to give ourselves time to get the best possible trading arrangements with the EU and other third countries before we shut the door on our favourable deal with the rest of Europe Briefly returning to industrial strategy, I fully endorse the comments of my noble friends Lord Oates and Lady Sheehan and others such as the noble Baroness, Lady Boycott. We must set out for a green, jobs-led recovery which also seeks the strategic self-sufficiency that my noble friend Lady Bowles mentioned. For a green, jobs-led economic strategy to work, it has to be consistent over many Parliaments. I know that the noble Lord, Lord Stevenson, who will speak after me, is enthusiastic in this regard and that he is a reasonable person, as we are on these Benches. There needs to be a cross-party agreement on the way forward to lock this into the future. Will the Minister go back to his colleagues and propose a cross-party approach to planning for this vital element of our future Using most conventional measures, the economy is at least overstretched if not bust. We will have many millions more unemployed people and still more underemployed people, and few jobs for young people. The most vulnerable will be hit hardest. Meanwhile, the climate emergency is accelerating, China and the US are completely polarising the global economy and we are about to put up the barriers to the EU. I look forward to hearing the Minister’s response.