Finance Bill — House of Lords, 2020-07-17
Topic: Macroeconomics
Spencer Livermore (Labour, Centre-left): My Lords, this Finance Bill gives effect to the tax measures announced in the Chancellor’s Spring Budget. Although just four months ago, that already feels like a Budget from a different age. The subsequent Covid-19 pandemic created an unprecedented shock to the economy and the Government’s policy response was unparalleled. At 20% of GDP, it was the largest peacetime fiscal expansion in British history. Now, in his summer economic update, the Chancellor has continued to accept that he needs to intervene to support the economy by announcing an additional £30 billion of measures that bring the total cost of economic support, according to the Office for Budget Responsibility, to £192 billion, with a further £122 billion spent on loans and deferred taxes since the start of this crisis. Government borrowing is now on course to reach more than £350 billion this year. At an estimated 18% of GDP, the deficit will be twice the size reached during the 2008 global financial crisis The UK economy was already exceptionally weak before this pandemic, recording its worst ever average annual growth forecast in the Spring Budget. Going forward, the impact of coronavirus will be vast. This is the deepest recession in history; the economy could contract more this year than in any year since 1706. This week’s monthly GDP data show a steeper decline in March and a slower pickup in May than had been expected, leaving the economy still 25% smaller than before this crisis began. Now, as well as the UK recording the highest excess death rate in the world, Britain is also forecast to suffer the worst recession of any country in the G7 Against this backdrop of a pandemic-induced recession, the Government have decided that the end of this year is the right time to end the transition period, imposing a red-tape bill on British business of between £7 billion and £13 billion a year. The Government’s paucity of ambition in seeking only a free trade deal, and focusing solely on tariff reduction for goods trade—when modern trade is dominated by supply chains and Britain’s strength lies in services—means that even if they achieve the deal they seek we will still see a reduction in GDP of some 6.7%, compared to staying in the single market. This puts further pressure on business, the economy and the public finances at a time of already unprecedented economic disruption This week’s Fiscal Sustainability Report from the Office for Budget Responsibility highlights the risk of huge job losses from this pandemic unless we see further government action. It estimates that 15% of furloughed workers will lose their jobs, meaning that unemployment would peak at 12%—some 4 million people—by the end of this year. The Labour Party has consistently argued that the furlough scheme must now evolve to deliver sectoral-specific support, targeting help where it is needed most, supporting employment in industries that are viable in the long term and protecting our country’s economic capacity for the future. Instead, the Chancellor announced in his economic update that the furlough scheme will be wound down in October, replacing it with a much less generous and very poorly targeted jobs retention bonus. The risk now is that billions of pounds will be spent on a policy that does very little to protect jobs The Institute for Fiscal Studies has warned that a majority of this money will go to jobs that would "have been returned from furlough anyway" while the Resolution Foundation argues that "the deadweight in the scheme will be large" while "the scale and temporary nature of the bonus means" that it will have no "major impact on employment". The Resolution Foundation went on to conclude that this lack of further action on jobs leaves the Chancellor risking higher unemployment this autumn The temporary cut in stamp duty, also announced by the Chancellor, raises further questions about the Government’s willingness to target support on the areas that need it most. He announced about the first £500,000 of residential property purchases would be stamp duty-exempt for the next nine months—a measure we are also debating today. All measures which help to get the economy moving are of course welcome and, at a cost of £3.8 billion, it is a very significant revenue giveaway. But the main beneficiaries will be buyers of costlier properties in London and the south-east. The average buyer in London will be more than £14,000 better off, while the average buyer in the north-east will gain nothing The threshold increase also temporarily removes one of the few advantages that young people had in the housing market, while doing almost nothing to help first-time buyers. By including second-home buyers and buy-to-let investors, this measure will cost an additional £1.3 billion. It is surely right that we examine whether this delivers value for money, or whether these funds could be better spent supporting much-needed genuinely affordable and social housing The Chancellor’s announcement of targeted VAT cuts on hospitality, leisure and tourism are of course welcome, when local businesses are desperately in need of that support, as is the kick-start scheme to create jobs for young people, particularly since young workers have been among those hardest hit by this crisis so far. This policy is almost an exact replica of the Future Jobs Fund, introduced during the global financial crisis and previously cancelled by this Government. The scale of job creation required will be a major delivery challenge, requiring many jobs to be created by local authorities decimated by a decade of cuts. In a signal of a potential return to such austerity, the Chancellor warned in his statement last week: "Over the medium term, we must, and we will, put our public finances back on a sustainable footing."—[Official Report, Commons, 8/7/20; col. 974.] Before this crisis, public finances were already rapidly deteriorating, with debt having doubled to £2 trillion and being set to reach nearly 80% of GDP. If the Chancellor now decides to increase taxes before the recovery, or to cut public services, he risks damaging demand and inhibiting the growth that our economy and public finances desperately need. The Chancellor must also ensure that the distribution of any such measures is borne more fairly than in the previous decade, when money was found to reduce the top rate of income tax while the incomes of the poorest in society were cut by some 15% Ultimately, very few of the measures announced by the Chancellor so far will make a significant difference if people are unwilling, or unable, to leave their homes in the months ahead. The British economy is being held back, not because families are waiting for £10 off their restaurant bill but because they are still worried for their health. The Government were too slow into lockdown, too slow on track and trace and are now too slow on saving jobs. They have damaged public confidence and, in turn, harmed consumer demand. Only when the Government have in place an exit strategy that generates confidence will they be able to genuinely address the huge challenges that our country and economy must now confront.