To ask Her Majesty’s Government what assessment they have made of the forecasts for the economy included in the Bank of England’s Monetary Policy Report and Interim Financial Stability Report, published on 7 May.
The Question was considered in a Virtual Proceeding via video call.
My Lords, the Bank of England has specific statutory responsibilities for monetary policy and financial stability, as well as operational independence from the Government to carry out those responsibilities. The Monetary Policy Committee has constructed an illustrative economic scenario based on a set of stylised assumptions to inform its policy decisions. Given the committee’s operational independence, the Government seek to avoid commenting on its assessments and monetary policy decisions.
My Lords, I thank the noble Baroness for that reply. The Governor of the Bank of England, commenting on the MPC report, said that it would not be until the end of next summer that the economy would fully come back. Given that that sombre assessment was based on the assumption in the report that social distancing would be phased out between June and September, do the Government recognise that there are whole sectors of the economy—hospitality, accounting for 10% of the labour force; airlines and transport—that simply cannot operate profitably with social distancing? While we all understand why social distancing is necessary now, do the Government also recognise the awkward truth that we will not get back to where we were with a full recovery unless, as the MPC report assumes, we find at the appropriate time a way for social distancing to be phased out so that it does not become part of the so-called new normal?
In setting out this week their road map for the easing of the lockdown, the Government have stated that step 3 would not take place any earlier than 4 July. We will seek to reopen some of the remaining businesses, particularly those in hospitality and leisure, by finding ways for them to do so safely. However, we acknowledge that this will be difficult for some businesses. We will continue to be guided by the science and we will target economic support based on how we progress with the phased reopening.
My Lords, in the course of the Government’s efforts to mitigate the collapse of demand in the economy with their furloughing system and so forth, which I thoroughly approve of, they are accumulating a lot of debt. Before this crisis, we were fast approaching a level of public debt at 90% of GDP, which is unprecedentedly high. At the time of the collapse of Lehman Brothers 12 years ago, by comparison, we had a 60% public debt to GDP ratio, so with each crisis we are reducing our freedom of manoeuvre and our scope for absorbing shocks in the future. Against that background, do the Government have a notion of the maximum debt ratio which ought to be acceptable and which they can use as a discipline in planning the fiscal deficit in future? If so, will they say what that is?
The Government have set out their fiscal rules and continue to abide by them. With this pandemic, we face unprecedented economic circumstances. Our focus at the moment is on protecting health and jobs, and supporting businesses. As the OBR has made clear, the cost of inaction would be far higher.
My Lords, will the Minister explain how the V-shaped economic recovery contemplated by the OBR and the Bank of England is consistent with the collapse in global trade and growing protectionist sentiment? How do the Government square the UK’s need to grow exports with their calls for favouring British companies, extensive onshoring and shorter supply chains?
The Bank of England and the OBR have made it clear that what they have produced are scenarios rather than forecasts. The Bank of England’s scenario certainly took into account the effect of this pandemic on levels of global trade.
My Lords, the Bank’s report makes it clear that the construction sector has been hard-hit by the lockdown. It is vital to revive it, since it generates activity across the economy. Given that we have learned that regulators can, under public pressure to respond to the crisis, greatly accelerate their normal decision-making processes without sacrificing standards, will the Government urge all planning authorities to speed up decision-making on planning applications immediately so that we can get Britain building again?
We are keen that all planning decisions are made in a timely way. Construction is one of the sectors where we have provided Covid-secure guidance to allow people to get back to work, safe in the knowledge that they will be returning to safe workplaces.
My Lords, I draw attention to my declared interests. Economic and population health modelling has suggested that regular, routine and repeated testing for the SARS-CoV2 virus of the entire population, rather than just symptomatic individuals and their contacts, could facilitate mass labour participation and the necessary consumer behaviour required to maximise economic activity ahead of widespread vaccination. What assessment have Her Majesty’s Government made of this approach?
The Government are clear that “test, track, trace, isolate” will be a core part of the next phase of our response. We will seek to do this in different ways, and to learn lessons from previous pandemics and approaches in other countries. For example, we are using asymptomatic testing in health and care home settings to help reduce the spread of this disease.
My Lords, both the Bank of England and the OBR have forecast that unemployment will double to 2 million, highlighting the severe impact this crisis is having on those not covered by the Government’s job retention schemes. Will the Minister therefore commit to improving the generosity of universal credit and consider introducing the active labour market policies seen in other countries, including job search support and job guarantees for the young?
The Government have already improved the generosity of universal credit by £20 a week and raised the value of the local housing allowance. The best thing that we can do in getting people back to work is to get the virus under control and allow the economy to be open. We will of course continue to keep under review any further measures that we need to support people who have, sadly, lost their job during this crisis.