Budget Statement

Motion to Take Note

Moved by

That this House takes note of the economy in the light of the Budget statement.

My Lords, last Wednesday, the Chancellor laid down a Budget that backed business and innovation and gave support to public services with the aim of levelling up the entire country. But in the course of a week, the world has changed. Many of the things that I will say will appear out of date, but we need to see beyond the hopefully short-term impact of this pandemic.

To start with coronavirus, the Budget set out the initial economic response, but this has quite rightly been overshadowed by a far more substantial package announced over the last few days. The initial plan included a £30 billion plan: to support the NHS needs in staff and the search for medicines; to support workers, with expanded guarantees for statutory sick pay; and to support businesses with a comprehensive and coherent package of tax reliefs and loans.

But with the worsening situation, the Chancellor has responded with further urgent action. He has expanded the amount that businesses can borrow from the new temporary coronavirus business interruption loan scheme from £1.2 million to £5 million. For those businesses affected most by essential distancing measures in the retail, hospitality and leisure sector, including shops, cinemas, restaurants, music venues, museums, art galleries, and theatres, the Government will, for this coming year, abolish their business rates altogether.

Alongside this, the Government are increasing grants to small businesses eligible for small business rate relief from £3,000 to £10,000. To cope with cash-flow problems, the Chancellor has announced a programme of loans and guarantees to support firms through the economic emergency. In total, he will make available an initial £330 billion of guarantees, equivalent to 15% of the UK’s GDP. These are extraordinary times and the Chancellor has responded at a scale to reflect this. The plan recognises that coronavirus will have a significant impact on our economy. This is a serious and sensible effort to make sure that the impact will be temporary.

This brings me to the growth forecasts. I recognise that the OBR’s calculations were completed before the full extent of the impact of coronavirus became as clear as it is now. But, even before coronavirus hit, we were facing a slowing world economy. When combined with the political uncertainty over the last few years, the OBR had trimmed our productivity forecast over the relevant period and slightly reduced forecast GDP growth, compared with the March 2019 forecast. This makes it all the more important that the Government act bravely and take decisions now for our future prosperity. Outside the coronavirus intervention, the Government are investing an additional £175 billion over the next five years in infrastructure and innovation. At the time, the OBR said that these plans could boost growth over the next two years by 0.5 percentage points. It had expected that half a million more people would be in work by 2025 and that wages would grow in real terms in every year of the forecast period. The OBR had forecast 1.4% for this year, increasing to 1.8% next year and then, for the rest of the forecast period, remaining on or around target.

My Lords, I thank the noble Lord for introducing this debate, in particular for his intelligent and pragmatic approach in addressing not only the Budget but the Statement made last night. I assume that he will be responding to questions from noble Lords on last night’s Statement as well as the Budget itself. I note that he nods as I say those words.

Our post-Budget debates are often interesting affairs, not least because an extra week or two allows for greater scrutiny of the famous Red Book. I expect that this one will be even more enlightening, even if for the wrong reasons. As the Chancellor acknowledged in his Statement last week, the Spring Budget took place against an unconventional political and economic backdrop. Not only was it delivered by a Chancellor who had not expected his promotion, but it came as the global Covid-19 pandemic required a series of extraordinary actions from the Government.

We have since had a supplementary economic Statement from the Chancellor in which he announced additional measures to assist some of the businesses that will be worst affected in the weeks and months ahead. I want to be clear: to a large extent we support the action being taken. There are areas where we have concerns, but we appreciate the spirit in which Ministers have approached this challenge. Many of my noble friends have been engaged in meetings with their opposite numbers in recent days and have been able to put forward concerns and suggestions, which appear to have been taken seriously.

Before turning to our analysis of the economy, I place on record our thanks to everybody across the UK who is working to minimise the wide-ranging effects of Covid-19. Our NHS workers are once again demonstrating their heroism in the face of unprecedented demand. Public health and other authorities are reacting swiftly and decisively. Many members of the public are supporting friends and neighbours, helping them navigate these most unusual times. We thank them for all their hard work and community spirit.

My Lords, Harold Wilson advised us that a week is a long time in politics. Never has that adage proved truer than in the seven days between the Budget and this debate. Today we face not only a public health crisis, but also a national and international economic emergency without parallel, something which I am afraid did not seem to be fully recognised in the speech from the Government Front Bench.

Having said that, we on these Benches welcome the proposals made by the Chancellor yesterday and pay tribute to the dedication of civil servants across Whitehall as they seek to protect the health and economic well-being of the nation. The Government will have our support as they tackle the crisis ahead. This is a time to come together. It is what the public will expect, and it is what we should all deliver. I hope that the Government respond to our questions and constructive suggestions in that spirit.

We need to address the immense challenges that we face through a number of different lenses. The first is around people, the second around supply chains and the third around demand. First and most important is people. As we speak, millions of people are facing the future with deep anxiety, because of not only the threat to their health, but also the threat to their livelihood. The Government’s announcement of mortgage holidays and government-backed loans, rate relief and grants to support business is welcome, but we must go much further in the coming days. We must address the concerns of those who are not owner-occupiers but in the rented sector, and, as the director-general of the CBI, Caroline Fairbairn, said today, our top priority must be to keep employees in work. It is critical to those individuals and to their ability to pay their bills and look after their families, but it is also essential to the economy. People are being laid off now and people’s businesses are going bust.

For many businesses, taking out a loan to meet the wage bill is not an option. Many small businesses operate on wafer-thin margins, and it makes no sense for them to rack up debt at a time when demand for their services has collapsed, or in many cases, where they are no longer able to provide them at all. Speed is of the essence. Cash flow over the next week or two will be critical. Businesses do not have the luxury to wait for loan or grant applications to be processed; they need help now.

My Lords, a Budget is social morality in numbers. Whatever we say we believe about the dignity of human beings and about the existence or otherwise of society, the reality of our belief is demonstrated by the way we act, and especially by the way we act with money. The crisis through which we are passing will change this nation in deep and unpredictable ways, as the noble Lord, Lord Oates, has just said. Like a nuclear explosion, the initial impact is colossal, but the fallout lasts for years and will shape us in ways we cannot even begin to predict at the moment.

The Budget and the extra package announced yesterday must be both adequate in amount and sufficient in their aims to ensure that this country emerges confident from overcoming the virus—positively better than before it began. We will overcome the virus. The noble Lord, Lord Tunnicliffe, commented that small groups all over the country are showing fresh signs of community spirit and collaboration, and it is from those small groups, through to the large-scale government measures, that things will change.

During a crisis, keeping the long-term direction is as important as tackling the short-term problem. The enormous package of short-term measures is, by its very size, sufficient to raise hope, and for that it is welcome. Fifteen per cent of GDP is a war Budget commitment. The obvious questions, which have already been raised, are: how will it be distributed and how will it be used effectively? If we are to put confidence as the aim and people at the centre, the distribution and the impact must be both swift enough and imaginative enough to maintain confidence right across the economy, not only in the big cities with their own self-sustaining economies, but in the myriad towns and smaller communities across the country.

For many of them, there has been decline for many years, particularly, as we all know, those on the coast and in remote areas. Covid-19 may well be the last straw for some. Even exceptionally beautiful and normally tourist-filled cities, such as Canterbury, with good pedestrianised city centres full of bars and restaurants, and with major chains and everything in between based there, have seen this decline. In the past 12 months in Canterbury, Debenhams has closed and the number of vacant stores is noticeably larger. This could be repeated across the country. Shutting down the hospitality industry, necessary though it is, will empty the city centre. The cathedral, in which I should probably declare an interest, with its 300 employees, is one of the largest private sector employers in east Kent. It has apprentices, people with unusual skills and many other workers, but it depends from week to week and month to month on the income from tourism. Its solvency protects much of the local economy. Its 2 million visitors a year are at the beating heart of what makes the east Kent economy work. The same could be said about so many other places, from Durham south. A local economy is people, and an ecosystem as well. It is a complex structure, and losing one bit leads to overall decline. The package that has been announced and the Budget must be used with the vision of preserving the most fragile parts of the system, or we will lose all.

My Lords, I welcomed the broad spirit and nature of the Chancellor’s Budget, much of which was, of course, designed before the realities of Covid-19. It was focused on a policy to significantly boost investment spending, so-called levelling up and giving proper attention to the northern powerhouse, all of which I hugely welcome. However, there have been events. The rest of my speech will be a brief, adapted form of an article I posted on Monday on the website of Chatham House, which I currently chair.

Linked to the call that Robin Niblett and Creon Butler of Chatham House and I made the day before—Sunday—for a global response to the Covid-19 pandemic, the case for a specific dramatic economic policy gesture from many policymakers across the world is prescient. This should involve most, if not all, G20 nations and should certainly have the same force as that led by Gordon Brown in 2008. We need some sort of income support for all our citizens, whether employees or employers, for the next two months. Perhaps one might call it, as I have done, truly a people’s QE— quantitative easing.

Both so-called modern monetary theory, MMT, and universal basic income, UBI, essentially owe their roots to the judgment that conventional economic policies have not been working, especially since 2008, in the way we are all trained to believe. At the core of these views is the notion of giving money to people, especially those on lower incomes, directly paid for by our central banks printing money. Until recently, I found myself having many doubts about, or not much sympathy with, these views, but, as a result of Covid-19, I have changed my mind.

This crisis is extraordinary in so far as it is both a colossal demand shock and perhaps an even bigger colossal supply shock. The crisis epicentre has apparently shifted from China, and perhaps much of the rest of Asia, to Europe and the United States. We cannot expect policies, however unconventional by pre-2008 standards, including the dramatic monetary steps announced by the Federal Reserve Board and other central banks, to put a floor under this crisis. We are consciously asking our people to stop going out, stop travelling and not go to their offices—in essence, curtailing most forms of normal economic life. The only ones not impacted are those who spend their entirety in cyberspace but even they have to buy some form of consumer goods, such as food, and, even if they order online, someone has to deliver it.

Is it not the case that what is really alarming here is that the collapse of consumer demand is likely to last for a very long time and that there is going to be a substantial negative-wealth effect, given that people will have been out of jobs while their businesses and indeed the stock market has collapsed? People will require years to build up their savings again to where they were before. That means that for a very long time there is going to be a substantial shortage of demand from the consumer sector.

My Lords, my frank answer is that I do not know, but the longer that we delay an imaginative and forceful response, the risk of what the noble Lord has just described will rise. The whole reason why I am suggesting such a very unconventional and dramatic policy approach now is to stop exactly the kind of things that he is suggesting. If we give all our people confidence that they can essentially have something close to an eight-week paid holiday, and there is no reason for any employer to lay any of them off permanently or for those employers to worry about their income, that should give the confidence for us to allow what has been done so well in Asia to be fully done here, and get this virus behind us.

My Lords, it is a pleasure to follow the noble Lord, Lord O’Neill, and I intend to agree with much of what he said.

As the noble Lord, Lord Oates, said in his excellent speech, the Budget on 11 March now seems an eternity away. It was a challenge for anyone to deliver a Budget in those circumstances, but to do it when you have only been in office for a very few weeks was very challenging indeed. I strongly commend the boldness of the Chancellor’s measures.

To many people, the world economy must resemble a slow-motion apocalypse. As the noble Lord, Lord O’Neill, said, we have simultaneously both a supply and a demand shock. This was originally a health crisis, but the measures that Governments worldwide are forced to take to combat it add to the economic problems and to the crisis. The Chancellor of the Exchequer said that we will get through this. Of course we will, but there could be long-term damage to the world economy. In the last quarter of last year, the world economy was already teetering on the verge of recession; figures for Germany, Italy, Japan, China and the UK indicate that. A longer-term consequence might be a degree of de-globalisation, which I would regret. There are products that might have been launched that may never be. As a result of the measures yesterday, there will be loans to be repaid, which will be a big burden on the corporate sector, which in many countries in the world was already highly leveraged.

The world is not necessarily going to go back to exactly where it was before. People talk about a V-shaped recovery but it could be a U-shaped one or indeed L-shaped. People’s behaviour is going to change from what it was before. It may be that younger people will go back to how they behaved before but older people will behave differently.

The Chancellor was quite right to take advantage of low interest rates to invest in infrastructure, and for the package generally. The UK can now borrow for 30 years at less than 1%, so in real terms lenders are actually paying the borrowers for the privilege of lending. Of course people are sometimes inclined to argue that that is not without risk—for example, if we move into a period of deflation.

My Lords, as many have already observed, this Budget comes in extraordinarily unusual circumstances, and in relation to the issues around Covid-19, subsequent to the Budget announcement, the Chancellor has brought forward a number of measures which have been largely well received, and no doubt others will need to follow. While voluntary action in our communities will form much of the day-to-day response to those who are the most vulnerable and potentially isolated across our nation, the sustaining of public services and of businesses is vital for both our social and economic well-being; other speakers have already begun to address some of those issues.

Following the most reverend Primate the Archbishop of Canterbury is always a risky business, and other noble Lords have already spoken with considerable knowledge of these matters, so I shall focus my remarks on one or two specific issues and areas which were already matters of concern, and where that concern is perhaps greater because of the circumstances in which we now find ourselves.

On children and young people, I hugely welcome the long-overdue extension of higher-rate housing benefit for care leavers until the age of 25, thus giving stability in their accommodation beyond their 22nd birthday. This is something that the Church of England organisation the Children’s Society and other charities have campaigned for over some time, and it is most welcome. Also welcome is the £2.5 million for research on family hubs. However, what is not in the provisions of the Budget or subsequent provisions is sufficient funding to address the urgent need for every child to achieve a good start in life, and that is becoming more urgent in the light of the current circumstances.

The Resolution Foundation has calculated that child poverty will continue to rise, with the equivalent of an extra 1 million children living in poverty by 2023-24, while the child poverty rate in working households, which averaged 20% over the seven years between 2006-07 and 2013-14, is projected to rise to 29% by 2023-24. A simple start could have been made by removing the two-child limit, about which the right reverend Prelate the Bishop of Durham and others have spoken in your Lordships’ House. That is not only a social good, it is an economic one because it is about the financial capacity of those families who are among the most vulnerable in our society. Points have also been made about the issues around consumer demand and so forth, which plays into that agenda.

I turn now to social care more widely. As has been mentioned, we await the details about the full and ambitious plan for addressing the social care crisis which the Prime Minister promised from the steps of Downing Street. The £1 billion promised in last year’s spending review is welcome but, not least in the new circumstances, it does not come close to what is needed. For example, families are still realising assets in order to pay the care costs of an elderly relative. While I am personally happy that my own mother can be supported in care from the proceeds of the sale of her house, others are less able to do that and there is an overall negative effect on the economy from that approach when, for example, working families are eating into their own resources to support an elderly relative. The knock-on effects of that on future generations are very considerable. A sensible long-term plan, including financial provision, is essential and overdue. I know that that is a huge ask, but as a society we need it.