The Economy

With permission, Madam Deputy Speaker, I would like to make a statement on the economy, following the release of inflation data by the Office for National Statistics this morning and the conclusion of the International Monetary Fund’s annual article IV mission to the UK on Tuesday.

The ONS data released today shows that consumer prices index inflation has fallen to 2.3%—a return to normal levels last seen before the pandemic and Russia’s invasion of Ukraine. Earlier this week, the IMF said that the UK economy is “approaching a soft landing”. It upgraded its forecasts for UK growth in 2024, having seen lower inflation accompanied by stronger than expected growth in the first quarter. These developments are proof that the Government’s plan is working, the difficult decisions we have taken are paying off and the UK economy really is beginning to turn the corner.

Let me start with the inflation figures. When the Prime Minister came to office less than two years ago, inflation was over 11%. The fall to 2.3% means that we have seen the fastest fall in inflation in nearly half a century. The UK now has a lower inflation rate than the United States, France and Germany. Food inflation is at its lowest level since November 2021, having fallen for 13 consecutive months, and staples such as milk, cheese and eggs are now cheaper than they were this time last year, although there is more to do. Energy bills have also come down, with the price cap for the typical annual bill now over 25% lower than a year ago, although they are still above where they were in 2021.

The fall in inflation has not happened by accident. The Government have had to make difficult decisions to get us to this point, as well as supporting the Bank of England as it has acted to bring down inflation sustainably. We have reduced borrowing, which is now forecast to fall in every year to 2028-29, and we are acting to boost growth without generating inflation. We have frozen fuel and alcohol duty, which the Office for Budget Responsibility estimates will reduce inflation by 0.2% in this financial year. Moreover, in the face of widespread pressure we have reached fair pay deals for public sector workers, instead of doing what the Labour party would have done: cave in to inflation-busting pay demands. We must always remain vigilant when it comes to inflation, but today’s numbers show the benefits of sticking to our plan. We know that recent years have not been easy for people, but with wages having now grown faster than inflation for 10 months in a row, families around the country will start to see their money go further.

And we are doing more, because on this side of the House we recognise that while the tax rises of recent years may have been necessary at that time of crisis, they should not be permanent. We will do the hard work to bring taxes back down, because we know that to do so will lead to more growth for our economy. My right hon. Friend the Chancellor has already delivered tax cuts worth £900 for the average worker. Since 2010, the effective tax paid by somebody on an average salary has fallen under Conservative Governments from 24% to 19%. Combined with national living wage increases, that means the after-tax income of somebody on the lowest legally payable wage has gone up by 35% in the same period. Labour’s approach is different. All Labour Governments since the 1970s have increased the tax burden in both good times and bad. Given the fiscal rules Labour has set, the only way for it to pay for its spending commitments would be to raise taxes by considerably more than the £20 billion of tax increases they have already outlined.

I will now turn to the IMF’s annual article IV mission to the UK and what it said about the Government’s other economic priority, beyond inflation, to deliver growth and opportunity for the whole United Kingdom. The IMF’s message was, overall, a positive one. We have seen growth of 0.6% in the first quarter of this year that is stronger and more broad-based than many independent forecasters expected, and no other G7 country has grown faster in the first quarter on a quarter-by-quarter basis. The IMF has upgraded its forecast for the whole of this year from 0.5% to 0.7%, and in April said that the UK is expected to see the fastest cumulative growth of any major European economy over the next six years. That is partly the result of our focus on areas that the IMF says are critical to delivering sustainable economic growth: boosting jobs, boosting the labour supply and increasing business investment.

We already have a proud record on jobs. The president of the CBI recently described the UK as a job-creating factory. That is because, over the last 14 years, we have built one of the most flexible, dynamic labour markets in Europe. But we cannot take that for granted and we cannot let the Labour party impose new burdens on employers, which would turn a job-creating factory into a French-style inflexible labour market. Unemployment in France, as it so happens, is nearly double that of the United Kingdom—indeed, not far off where it was in the UK under the last Labour Government. We must not turn the clock back. The OBR estimates that cuts in national insurance will bring the equivalent of 200,000 more people into the workforce—enough to fill nearly a quarter of the vacancies in our economy.

We are reforming welfare. Labour has said it is against welfare sanctions—fair enough, that is its position—but that will mean more people on our welfare rolls, not less. The reforms of the Secretary of State for Work and Pensions will help 1 million people move from welfare into work, at a cost of £2.5 billion. Meanwhile, the introduction of full expensing, the biggest business tax cut in decades, will boost business investment by £15 billion in the coming years and give this country the most generous capital allowances in the OECD.

There is more to do, and the IMF is right to point out that further bold reforms will be needed and that boosting growth and productivity is the key challenge for the United Kingdom. However, in the words of the IMF’s managing director, the UK is in a good place. Inflation is back to more normal levels, growth is picking up, wages are rising and we are cutting taxes. The plan is working, and the difficult decisions that have been taken by the Government are starting to pay off. Now is not the time to change course, because given Labour’s policies on jobs, welfare reform and tax, we know that the difference, if it is elected, will be profound and damaging for every family in the country.

I thank the Minister for advance sight of his statement.

Of course it is welcome that the rate of inflation is finally slowing after three years of the Government missing every single target, but the tone-deaf victory lap we are seeing from the Government today will feel like a slap in the face to the British people who, after 14 long years of Conservative chaos, are still significantly worse off. While Conservative Ministers are popping champagne corks over the rate of food price rises, the cost of the typical family shop has gone up by nearly £1,000 since 2019—so those families will not be celebrating—and while the Chancellor and the Prime Minister gaslight ordinary British families by suggesting that the cost of living crisis is over, the costs for a two-earner household are more than £150 a week higher than they were before the last election.

The Minister claims that the economy has turned a corner, but in reality the Conservatives’ record on growth has been nothing short of pitiful. If the UK economy had grown at the average rate of the OECD in the last 14 years, it would now be £140 billion larger—that is not just about lines on a graph; it would have meant an additional £50 billion in tax revenues to invest in our public services, and more money in working people’s pockets.

I noted with interest that the Minister quoted selectively from the IMF’s report. In that report, which he cited so triumphantly, the IMF confirmed that under the Conservatives the UK was suffering from the lowest growth in the G7, and just this week the IMF said that the longer-term growth prospects of the UK “remain subdued”. This is the Conservative party’s legacy: a poorer Britain, working people worse off, and the public realm in disarray. I think the Minister may also be slightly confused about his Government’s record on tax. On the Conservatives’ watch, the tax burden is the highest in 70 years, and under the Prime Minister’s tax plans households will, on average, be £870 worse off by 2028. Those are the statistics that the Minister missed out.

Let me start by welcoming the shadow Minister’s remarks, and by saying that no one on the Government Benches—certainly not me—feels that times are not still tough for many millions of people. We are acutely aware of that, which is why we have worked so hard over the last few years to make the difficult decisions that are required for us to guide the country through the difficulties wrought by covid, the biggest pandemic in 100 years, and by the energy shock from the war in Ukraine. No one on this side of the House minimises the difficulties that people have gone through and that many are still going through.

Let me pick up a couple of points of fact. The hon. Lady quoted the IMF, and she mentioned selective quotations. I am afraid that she wins the prize on that one: the IMF was very clear about the fact that over the next five or six years, the UK will be the fastest-growing country in the G7 apart from North America. She also mentioned confusion. I think that she and her party are the ones who are confused: they are confused on the question of taxes. We have scored Labour’s tax plans, and they amount to an extra £2,094 over four years for the average person. Labour Members say that they want to grow the economy, and they say that they are pro-business—at least, that is what they tell business people outside the House—but they are putting in place a workers plan, led by their deputy leader, that will impose 70 new regulations on small businesses, far more power for trade unions and day-one rights on employment, and will ban flexible working. It will damage many of the things that make small businesses in this country successful.

Let me end by saying this: if we want a Government who will cut inflation further and grow the economy, we should not increase borrowing and increase taxes like the Labour party.

I call the Chair of the Treasury Committee.

I welcome the Minister’s statement, which was crammed with useful facts and statistics. Yesterday, our Committee met representatives of the IMF in private, and we had a very interesting and informative discussion. As for yesterday’s report, the IMF points out that none of this good economic news would be happening had it not been for decisions made in previous Budgets. In particular, it states that the Government

“have delivered several helpful measures over the last three budgets…investment tax reliefs for businesses to boost investment, an expansion of childcare, and active labor market policies.”

This good news is not happening by accident; it is happening because a plan is in place, and the plan is working. Does the Minister agree?

I do agree, but let me draw attention to a specific point that is often ignored. The Chancellor’s decisions over the last two fiscal events have set the country up for growth in the future. My hon. Friend mentioned the policy on business expensing; that was a £10 billion tax cut for business. She mentioned childcare policies; those have helped millions of working families up and down the country. It is because of the cumulative effect of a series of important measures that we are able to stand up here today and say that while we are not there yet, the economy is starting to turn a corner.

I call the Scottish National party spokesman.

I, too, thank the Minister for advance sight of his statement.

The Government, understandably, would like to paint the latest inflation figures as a win, but I think the House will forgive me if I do not join them in their victory lap. The reality for numerous households across Scotland, many of whom are continuing to struggle, is that the cost of living crisis is far from over, and people are still feeling the pinch in their pockets. Food bank usage is skyrocketing, and mortgage rates are soaring. For people in Scotland, that is the cost of living with Westminster.

The inflation of the past three years has seen prices rise by 19% when they should have risen by 6%. Of course, falling inflation does not mean that those prices will now fall. With figures like this, it is little surprise, is it not, that polling this week showed that just 9% of people across the UK believe that the cost of living crisis is over?

On Friday, I attended a food bank drive at Asda in Parkhead, where residents were donating in their droves to Glasgow NE Foodbank in recognition of the fact that many of their neighbours simply cannot afford to eat. I have one simple question for the Minister: does he not realise that today’s statement, and all the fantoosherie that goes with it, absolutely flies in the face of the reality for many people who are still struggling today in 21^st century Britain?

My response to the hon. Gentleman, whom I respect deeply, is twofold. First, we are at an inflection point and the job is not complete. We know that many millions of people are suffering, which is why we are continuing to improve their incomes through cutting their taxes. It is why we are continuing to make sure that small businesses around this country can thrive, and why we are continuing to put more money into our public services and, indeed, to reduce inflation. We know that the job is not done.

Secondly, many people have had to suffer as a result of the difficult decisions that had to be taken over recent years because of the generationally unique shocks that we saw. It has been up to this Government to guide and help the country through that, which is what we will continue to do in the weeks and months ahead.

Inflation is now lower than in France, Germany or the eurozone, growth has been upgraded by the IMF, and Britain has become the world’s fourth biggest exporter, overtaking the Netherlands, France and Germany. Employment is at a historically high level, and the UK is the third biggest destination for inward investment globally. On financial services investment, we are top, attracting 108 projects last year, compared with France’s 39 and Germany’s 38. I wonder whether my hon. Friend can correct me—or did I miss the post-Brexit apocalypse that many, including the Treasury, predicted?

My right hon. Friend has put that incredibly well. Very good things have happened to our economy over recent months, particularly in my own area of financial services. I would add that many Members, on both sides of the House, were concerned about the impact of Brexit on the British economy. As he suggested, our record shows that this Government have been able to guide the country through the post-Brexit period and towards better times than ever.

Sometimes this House really is a theatre. The Minister has come to the Dispatch Box all jubilant, but my constituents queue outside food banks for hours, from nine o’clock in the morning until nine o’clock at night. Prices are more expensive than when the Tories first took office. This Government have had 14 years and they have destroyed the economy. People are paying £250 more a month on their mortgages, according to the Bank of England. I cannot believe that the Minister is saying that things are going to get better. Ultimately, I hope that, in a few hours, the Prime Minister will be outside No. 10 and call a general election. People can then make a choice and vote Labour.

My response is that this Parliament has seen an unprecedented hit to people’s living standards because of covid—a once-in-100-years impact. Might I remind the House that this Government spent £450 billion in supporting the economy? We supported people through programmes such as furlough, supported small businesses through discretionary grants, and supported the NHS. There are so many things that were opposed by the Opposition.

Labour Members mention borrowing and taxes. If it had been up to them, we would have been in lockdown for longer. If it had been up to them, we would have borrowed more. If it had been up to them, they would not have made the decisions that we had to make—tough decisions on public sector pay that meant that, by working in partnership with the Bank of England, we could bring inflation down. We are at an inflection point and not everything is complete—we are not there yet—but the economy is starting to turn a corner through the leadership of this Government.

Over recent months, we have had a number of statistics on the economy that have been unalloyed good news for this country. It is good news that the economy is doing better, that inflation is down, that growth is up and that trade is up. That makes us all richer, and provides more jobs and employment, which should be rejoiced in by everybody in this House, including the Opposition, who might actually end up in government and inherit the benefits of some of the things that this Government are doing. In truth, I am always a little surprised by how miserable the Opposition get when good news comes along.

My hon. Friend makes an important point about those on the Labour Benches. I must admit that I disagree with him on one key point: the idea that they might inherit this. We are not complete yet. We know that the economy still needs to continue to turn and that inflation needs to come down. We hope that that will lead to falling interest rates in due course, and that the measures we have put in place will come to fruition over the next Parliament.

The UK economy is smaller now, and living standards are lower now, than at the start of this Parliament—the first time this has ever happened. Does the Minister agree that it is a sign of the Tories’ increasing desperation that they consider it a cause for celebration that the UK economy has stopped shrinking? Growth is still lower than in Europe, Asia, the Americas and Australia, and we continue to pay the price of Brexit and Tory incompetence.