Autumn Statement — Motion to Take Note

– in the House of Lords at 11:48 am on 3 December 2015.

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Moved by Lord Carrington of Fulham

That this House takes note of the economy in the light of the Autumn Statement.

Photo of Lord Carrington of Fulham Lord Carrington of Fulham Conservative 11:49, 3 December 2015

My Lords, I am delighted to have the opportunity to introduce this debate on the economy, because there is now every sign that we are coming out of the economic black hole after the events of 2007 and 2008. As we know—and to paraphrase Napoleon Bonaparte—it is not enough to be a good Chancellor of the Exchequer, it is important to be a lucky one—although Chancellors on the whole create their own luck. I think it was a golfer who once said, “It is funny how the harder I work, the luckier I get”.

The economy is doing well, especially when compared with the other economies of the European Union. This is not to downplay the problems we face and will continue to face in the future. Now, our GDP growth rate is at 2.4% and coming back to the long-term trend growth rate. Unemployment is at 5.3%. The figure is possibly still too high, but very encouraging—particularly when coupled with the number of people in employment being at the highest-ever level of 31 million. We can at last say that we are now well on the way out of the economic mess caused by the last Labour Government’s belief that the good times would roll for ever.

It has been a long struggle and we are not out of the woods yet. We will not be until our main trading partners follow us on the road to recovery and—in deference to my noble friend the Minister—until the BRIC countries sort out their very real problems. But growth in the economy goes a long way towards solving our economic problems. It is from that growth that everything else flows.

However, our debt levels are still too high at 84% of GDP, after adjusting for housing association debt, and need to be urgently brought down. My right honourable friend the Chancellor of the Exchequer’s commitment to get the Government’s budget into surplus by the end of this Parliament is a noble one that looks like being achieved—just about. This is important because when the next recession comes, as surely it will, we will have to have the room to borrow to see us through the bad times. Fantasy claims to end boom and bust and the economic cycle always were a mirage.

The turnaround in our economy has come about not just by luck but by hard work and very tough decisions. Everyone likes spending money, especially other people’s money, and cutting government expenditure is a ghastly business. Everyone who has experienced poverty, or, indeed, seen poverty at close hand—possibly in their constituency advice surgery if they have spent time in the other place—will know that cutting the welfare budget is harrowing. So I was pleased that the tax credits have not been reduced. But there is a reason why the Government’s spending has to be reduced. As my right honourable friend John Redwood never ceases to point out, it has not been reduced in either money or real terms; it has just gone up by less than it might otherwise have done.

The reason it needs to be reduced is straightforward: real growth in our economy does not come from government expenditure but from businesses being able to thrive, earn profits, employ people and then pay taxes. Incidentally, the crackdown on large multinational corporations not paying tax is something we can all applaud, although making them pay their proper share will be more difficult than perhaps it is sometimes suggested.

In creating our luck with the economy, my right honourable friend the Chancellor of the Exchequer worked hard to create a business-friendly environment. Our corporation tax rate is one of the most attractive in the major economies and our incentives to entrepreneurs to invest and take risks are as good as or better than those of our competitors. It is for this reason, if no other, that I applaud the determination of the Government to reduce the proportion of GDP taken up by the state to about 35%—I think that 36.5% is the figure in the Blue Book—a level which a Labour Government under Clement Attlee also achieved. While 35% is better than 40% or 45%, in my view it is still too high. We should be aiming for 30%—a level where government expenditure will not crowd out private investment and initiative and will enable more of those seeking work to find it. We must never forget that we can help those in need only if our manufacturing and service industries are making profits and paying taxes.

However, the fact remains that the UK is, and will remain, a high-cost economy. Our wage rates will always be higher—and quite rightly so—than those of the latest emerging economies. Our costs of production will always be higher than those of countries with lower health and safety standards. Our energy costs will always be higher than those of countries that do not seem to care about either pollution or greenhouse gases. The problems of our steel industry are just the latest example of this fundamental reality.

However, what we do have in our workforce are some of the best, cleverest and hardest-working people. All they need is an excellent education, superb skills training and a society which looks after them and theirs when in need, with healthcare and care for the elderly being top priorities, to enable them to work and give of their best. That is why, even though I think increasing taxes on business is regrettable, I support the apprentice training levy on large companies.

Some 10 years ago I ran a company with the second-largest apprentice training scheme in the UK. The scheme took on young people from all backgrounds. Even those whom the education system had let down during their 11 or 12 years in school could be taught to read, write and do basic arithmetic, and then to read technical manuals, after some three months of remedial work. Why this should be so is an interesting question. Perhaps it was because we were better at teaching them than the schools; more likely, it was because there was a purpose to their learning and they were more eager to learn in a work environment with a defined goal.

Apprenticeships do work, and it was a tragedy that we lost them in the 1970s. I am old enough to remember that, when I first joined an engineering firm, large companies had extensive apprenticeship programmes of very high quality. It was the only way for those companies to bring forward the skilled technicians they desperately needed even then. One major reason that companies abandoned their apprentice training was that they found that their competitor companies, instead of training their own apprentices, poached the newly qualified technicians finishing their training. So for the levy to work we will need to set up the scheme so that the large firms paying for apprenticeships get a lot of the benefit from the trained young people, and ensure that the scheme is not seen as a way for large firms to pay so that smaller companies can get a highly trained workforce on the cheap.

So much of what we do on the economy is futurology. Many highly rated economists make a very good living by predicting the future and getting it wrong. Some of them are advising the Labour shadow Chancellor of the Exchequer as we speak. There is always uncertainty about how the economy will perform in the future. Of course, all predictions are statistically based. We are dealing with probabilities. So when the Office for Budget Responsibility finds £27 billion for Her Majesty’s Government to spend—or, indeed, to save—it is obviously a median of a statistical spread. It could be half as much or it could be one and a half times as much. However, as nice as an upward revision of the tax receipts is, it is not as important as the growth rate in the economy. I am glad, therefore, that my right honourable friend the Chancellor of the Exchequer has decided to spend this lucky windfall amount. Using it to make the pain of transforming our country into a high-wage, low-welfare economy less severe is the moral as well as the right choice.

There is one area where I was disappointed not to see progress in the Autumn Statement. We have a very complex tax system, both personal and corporate. The tax statutes expand and expand as Chancellor after Chancellor adds more complexity to encourage this and to stop that. I suggest that it is time for my right honourable friend the Chancellor to become the tax lawyers’ worst nightmare and, following in the footsteps of my noble friend Lord Lawson all those years ago, to make a concerted effort on simplifying the tax system. I realise that that would mean taking on the legal profession, the accountants and possibly the Treasury, not to mention HMRC, and so may not be possible. But he would make even more friends among small business people and the poor benighted personal taxpayer struggling with a complex and often incomprehensible series of forms.

So while we are not yet out of the economic hole dug by the last Labour Government, we are at last within striking distance of getting back into the sunshine. We must be careful not to say, “Job done” and relax our determination to create a high-skill, high-wage, very competitive international economy. This task will continue to present many challenges, regardless of whether or not we stay in the EU. I beg to move.

Photo of Lord McFall of Alcluith Lord McFall of Alcluith Labour 12:00, 3 December 2015

My Lords, it is a pleasure to follow the noble Lord, Lord Carrington, on the Autumn Statement. In the past year, we have had four Budgets and Autumn Statements but all they have done is to serve to confuse, not clarify. My first plea is: let us stop the nonsense of this plethora of set pieces for the Chancellor and go back to the time when there was one Budget per annum. Then we might have some sense in our debate.

On 27 November, the Autumn Statement gave the Chancellor an early Christmas present from Santa in the guise of the Office for Budget Responsibility. The figures from the last three months alone improved by £27 billion and, like a nervous gambler, the Chancellor has cashed in all his chips on this issue, despite the OBR saying that there is just over a 50% chance of the Government achieving their fiscal mandate. This was from a Chancellor who has consistently failed to achieve his borrowing targets. Seven months into this financial year he has already borrowed £54 billion, adding to the £1.5 trillion of national debt. He has failed not only his own targets but those of Alistair Darling, now my noble friend Lord Darling, who would have had £74 billion in his Budget this year—a target the Chancellor proclaimed at that time risked economic catastrophe. Yet we are in a much more difficult situation today.

At a Thursday breakfast at the Institute of Economic Affairs, I was on the panel along with quite a number of distinguished Conservatives, former Cabinet Ministers, Select Committee chairs and others. At the beginning of my speech, I asked, “Did anyone here understand the figures produced by the Chancellor yesterday in the Autumn Statement?”. Everyone said no, so I have a message for the OBR. I am aware that on 15 September, the Treasury Select Committee endorsed Robert Chote for a second term on the basis of his professional competence and personal independence. That is a judgment with which I fully concur, having known Robert for many years in that position and elsewhere, but I have a warning for him. The OBR’s integrity will be questioned if he allows the Chancellor to play his Budget games.

What is the solution to that? It is for the OBR to have a bit of courage and make the reports publicly available a decent time before the Autumn Statement. Then the whole of Parliament can have that opportunity to analyse them and there can be meaningful engagement and a sensible debate between Parliament and the Executive. The Office for Budget Responsibility has to show its teeth here. There is also the issue of data across departments. Those were the bane of my life when I was chairman of the Treasury Committee; I note that Paul Johnson has asked for that very point to be addressed. The OBR could do that and help to demystify the figures.

The Autumn Statement has been defined by asset sales, the taxation of banks and pensions—asset sales which are, by the way, larger than we had in the 1980s under Mrs Thatcher. The taxation of banks will penalise the challenger banks at the expense of the too-big-to-fail banks and, on pensions, the Treasury coffers have been increased but the long-term costs and the risks to individuals are being loaded. So the Chancellor has put short-term reform above long-term reform, as we can see in terms of intergenerational fairness. People aged 40 now earn significantly less than people who were aged 40 earned 10 years ago.

On housing, the Chancellor made the proclamation, “We are the builders”. If so, we are not very good at it because, today, the construction survey showed that housebuilding is at its weakest pace since June 2013 and that the rise in construction jobs is the worst since that date. It said that there were shortages in key materials, supply chain capacity and skill capability. These are the core issues a Chancellor should be focusing on. Instead, we have vanity statements and projects that hope to ease his path into No. 10. When I came in here, I was thinking, “What is the Autumn Statement?”. It is a bit like a satnav and, given that, we should hear an instruction: “Make a U-turn at the next exit and make it quickly”. I think we wait in hope, rather than expectation, for that.

Photo of Lord Shipley Lord Shipley Liberal Democrat Lords Spokesperson (Communities, Decentralisation and the Northern Powerhouse) 12:05, 3 December 2015

My Lords, I thank the noble Lord, Lord Carrington of Fulham, for enabling us to discuss the economy in the light of the Autumn Statement.

I am grateful, too, to the Local Government Association, of which I am a vice-president, for its briefing earlier this week on the impact of the spending review on local government, not least its ability to expand its work in promoting growth. I hope there will be further opportunities to debate those cuts when we receive details of the local government settlement, but there is one overriding principle that I want to emphasise at the outset.

No Government should attempt to balance the books on the backs of the poor. I am glad the Government now recognise that their approach has been out of balance, through trying to get too much from cuts and too little from tax, and with growth too restricted by fiscal tightening, as the OBR itself has indicated.

In the March Budget, there were to be real spending cuts of 14.8% in departmental budgets over the three years from 2016 to 2018. Those spending cuts are now 2.3%, which is welcome. But have the Government got a long-term economic plan? I understand they have a long-term economic ambition, but I am not convinced it is a plan; nor is it adequately explained why the state has to be reduced in size by quite so much, particularly when infrastructure spending remains low. Taking the northern powerhouse as an example, I see that £400 million has gone into a northern powerhouse investment fund, but why that sum of money as opposed to another sum? Is there a plan for what investment will take place and where? For example, how much will go to support Teesside?

As the noble Lord, Lord Carrington, said, we have growth, but we have unbalanced growth. Most of it is in services, not in manufacturing, which is slowly declining due to lowering demand from the rest of the world as well as the strong pound. Last year, we had a trade deficit of £35 billion—we have to export more. A few days ago, I read a ResPublica report which says that the Government must distinguish between productive investment which generates jobs across the country and unproductive investment such as foreign investment in the London property market. Manufacturing provides 30% of the jobs in sectors producing goods for export, and the ResPublica proposal on export hubs seems a good one.

Growth is partly derived from greater productivity and investment in areas such as training, research and development, and infrastructure. The apprenticeship levy is welcome, but further education is suffering a real-terms cut over the next four years. The chief executive of the Association of Colleges has stated:

“If post-19 education starts to vanish so do the future prospects of the millions of people who may need to retrain as they continue to work beyond retirement age, as well as unemployed people who need support to train for a new role”.

As for energy, decarbonisation is going to be a big market worldwide, and we need to be able to compete in it. It is a mistake to axe the £1 billion support for carbon capture and storage and it is a mistake to cut so much from renewable energy projects. I wonder what the Government’s reaction has been to the attack on their policies by so many of our blue chip companies, which say the scale of the budget-support cuts for renewable energy is risking UK businesses.

Having announced plans for 400,000 affordable homes from 2018-19, could the Government explain how those figures will be achieved given the lack of construction industry workers and skills? In addition, there is the 1% rent reduction for social housing each year for four years, which will restrict housing association borrowing. Would it not be a good idea to look again at a housing investment bank to get further growth in housebuilding?

Finally, why is it that we cannot build our own nuclear power stations and our own high-speed rail infrastructure rather than relying on the nationalised industries of China and France to help us? That seems to me to say a lot about our failures to invest adequately in infrastructure.

Photo of The Bishop of Portsmouth The Bishop of Portsmouth Bishop 12:09, 3 December 2015

My Lords, the Chancellor in his Statement in the other place described this as a Government who do big things. I begin by acknowledging with gratitude the big decision to retract the proposals to alter the tax credit thresholds and taper rate. I spoke from these Benches not many weeks ago when we were assured that the Chancellor was listening. It would be possible to say more about that journey of listening leading to this big decision, but that might be churlish. I simply welcome the announcement.

As decisions are taken to move the economy towards higher wages, lower benefits and lower taxes, we shall though continue to ask where the burdens and costs of transition—and there always costs of transition—are being borne. The Government’s aspirations are good ones; as people are helped and supported into good jobs at higher wage levels, it is crucial that work should be encouraged, when possible, alongside commitments to the young, the elderly, vulnerable and disabled people. I remain surprised—that is a restrained word—when marginal taper and withdrawal rates are considered an encouragement for benefit recipients, when they would be considered discouraging as marginal income tax rates.

There is much to welcome in the Autumn Statement. I welcome the rise in the state pension, as well as commitments to rail infrastructure improvements, particularly beyond the south-east, the retention of free entry to museums and galleries, and support for renovation of military museums, including the D-Day and Royal Marines museums in my own diocese of Portsmouth. However, time is short and I turn to some reservations.

In the pursuit of efficiency and cost-effectiveness, I appreciate that local services and provision are often easy targets. For instance, many of us committed to local communities are disappointed that the delivery of justice through our Crown, county and magistrates’ courts will be further removed and distanced from people. There are issues here of the visibility of justice as well as the costs involved in travelling to a smaller number of bigger, more distant courts. On a similar theme, few of us would criticise the increased spending on elite sport but, of course, provision for sport locally, particularly in schools, has taken a battering over some years in local communities.

I conclude with some comments about the proposals outlined by the Chancellor for increased stamp duty on additional properties. This is a matter which demands attention. Empty properties when people are inadequately housed or without housing are clearly wrong. However, these proposals are not without complexity. I apologise if I have missed further detail, but I ask the Government in the promised consultation on policy detail to bear two groups in mind. First, we need to encourage older people to move at the right time from a family home to something smaller, but that transition can be difficult enough for people who are ill, vulnerable or recently widowed, for instance, without the threat of a stamp duty penalty, if their sale and purchase do not precisely coincide. Secondly, and not without interest for the clergy of my diocese, I refer to those who occupy tied accommodation during employment or service as a condition of employment. Often on low or modest incomes, they seek what may technically be a second home to provide for their housing needs in retirement. There are complexities here.

Photo of Lord Wakeham Lord Wakeham Conservative 12:14, 3 December 2015

My Lords, it is a pleasure to follow the right reverend Prelate as I have just retired after 18 years as a trustee of HMS “Warrior”, right in the middle of his diocese, and I have had a very happy time doing that job.

I would like to say a word or two about the role of the House of Lords in the recent Autumn Statement. I listened at Question Time, although I am not too sure that Question Time is the best way of solving these problems when the proposals that we hope are going to come forth have not even been delivered. Nevertheless it is clear that recent events did not satisfy the Government, but nor did they give those opposed to the Government a very satisfactory way of expressing that opposition. As we all know, conventions are a big part of the House of Lords, but circumstances change and, necessarily, conventions need to change as well.

A myth seems to have emerged this year that the Chancellor was lucky and was able to adjust some of his earlier thinking on tax credits. In my view, it was not the Chancellor who was lucky but the House of Lords. If the Chancellor had not had revised estimates that enabled him to change his thinking, we would be faced with a serious difficulty as to what was the proper role for an unelected House of Lords. I fully recognise that many Peers felt strongly about what the House of Commons had passed but, if I may leave aside entirely for one minute the merits of the issue, it is simply not acceptable for the unelected House of Lords to seek to overrule a decision of the democratically elected House of Commons on a financial matter of that magnitude.

I also fully accept that our procedures are inadequate in dealing with secondary legislation. Indeed, 15 years ago my royal commission report proposed another way of dealing with these issues that gave the House of Lords a say but left the final decision to the democratically elected House of Commons. I ought to add that there are also a fair number of other proper procedural ways that could be thought of in which these matters could be dealt with more satisfactorily.

The House of Lords should have its say, but in the end financial matters are for the House of Commons. For the House of Lords to seek to overrule the House of Commons is a recipe for disaster. No democratically elected Government, whether Labour, Conservative, or Liberal, would stand for it. Indeed, this issue arose in a major way in 1909 when Mr Asquith’s Liberal Government took on the House of Lords. He won because the diehards backed off; they simply did not want an influx of 250 more Liberal Peers in the House. It was rumoured that the reason they did so was that many of them, Curzon included, had married rich American wives who were not prepared to see the peerage devalued in this way.

So what is the lesson from recent events for the House of Lords? To me, the way forward is clear. The Prime Minister has asked my noble friend Lord Strathclyde to look at these matters and suggest what we should do. That is a very constructive suggestion and I hope that all those Peers who have a view will engage with my noble friend to see if we can find a way forward that is acceptable for everyone.

We in this House should remember that we are a revising Chamber, and in my view that means we should seek to help the Government and the House of Commons to implement their policies in a better way, not to try to inflict our views on them. If the House of Commons is sure of itself, our role is necessarily limited. If they are singing on an unclear note, however, that is the time when the House of Lords plays a very important part. I suggest that we engage very constructively with my noble friend and see if we can find sensible and agreed ways forward. I very much fear for the future if we do not address these and other issues constructively.

Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords) 12:20, 3 December 2015

My Lords, I say to the noble Lord, Lord Wakeham, that I have an American wife.

My noble friend Lord McFall spoke of a plethora of Chancellor’s Statements. He is absolutely right. In July, we were told to expect severe cuts in public spending; three months later, a small improvement in tax income is forecast, and this during an October which official figures show to be the worst for public finances in six years. The improvement is based not on healthy growth, as the noble Lord, Lord Shipley, pointed out, but, according to the OBR on rising consumer credit—but never mind. Multiply this small expected rise over five years, and we are £27 billion better off. Wonderful.

The noble Lord, Lord Carrington, calls this luck. I call it creative accounting. It is the kind of accounting that I remember contributing to the collapse of industrial giants such as ICI and GEC. It is the kind of accounting which eventually led to the creation of the Investor Forum and the Financial Reporting Council to watch over it. It is wrong, it is dangerous and it is short termist. I suspect that the Chancellor and the Minister know this and have used it as an excuse to slow down austerity, to slow it down to Labour’s speed, if you like. However, universal credit will eventually do what the intended cuts in tax credits tried to do, but later. Even so, some low-income couples with three children will lose out now, so will single parents with one child working part time on the national minimum living wage, and women are again disproportionally adversely affected by the cuts.

Is this balancing the books on the backs of the poor, as the noble Lord, Lord Shipley, suggested?

However, the noble Lord, Lord Carrington, and the right reverend Prelate told us to aim for a high skill, high pay, high tech, low welfare economy. How are we going to get there? In July, this journey was outlined by the Minister in the Government’s paper Fixing the Foundations: Creating a More Prosperous Nation. Well, I failed to find any mention of that in this Statement four months later. There is a passing mention of productivity on page 6 saying that it is growing, but we still lag behind most of our competitors. What the Chancellor did not say is that the OBR has revised down the growth in productivity next year and the year after that. So is that productivity paper history? Is it another victim of short termism? We must not let that happen. The Minister laughs. I think it is a serious matter because otherwise the rising national minimum wage will lead to serious job losses if it is not matched by rising productivity. If the route to increasing prosperity is productivity, surely the Statement should have said so.

The various changes should be put in the context of raising the nation’s productivity over the long term in the sense of the modern tangible and intangible world of work instead of in the context of short-term politics. For instance, the Autumn Statement commits to protecting the £4.7 billion science budget in real terms up to the end of the Parliament, but this needs to be within the culture of productivity to show that the culture is alive and well and that the state is engaging with industry in a positive way to rebalance the economy. This kind of government expenditure crowds in private investment; it does not crowd it out, as the noble Lord, Lord Carrington, suggested.

At the beginning of a five-year term, this Statement should have been forward looking. It should have been creative and pointed the way to a high wage, high skill, low welfare economy which unites us; it should have promoted productivity that in the long term is creative. Instead, the Government’s brand of austerity is short-term, divisive and destructive. What a lost opportunity.

Photo of Lord Ashton of Hyde Lord Ashton of Hyde Lord in Waiting (HM Household) (Whip)

My Lords, I gently remind the House that this is a time-limited debate. Every speaker so far has gone over time, so we will cut into the Minister’s reply.

Photo of Baroness Burt of Solihull Baroness Burt of Solihull Liberal Democrat Lords Spokesperson (Business, Innovation and Skills) 12:24, 3 December 2015

My Lords, I will do my best; so much to say, so little time to say it. I will confine my remarks this morning to just two issues: the green industry and further education, which, not surprisingly, were also chosen by my noble friend Lord Shipley.

On green industry, Liberal Democrats are seriously concerned about the cuts to DECC and the renewable energy sector, which compromise our progress towards decarbonisation and our ability to tackle climate change. I will give just three examples for brevity: the £700 million cut to the renewable heat incentive; the cuts to renewables, including solar and wind, have been reinforced; and the £1 billion from carbon capture, which will kill the industry. The Government are going backwards on progress made during the coalition, which saw a tripling of renewable electricity, the zero-carbon homes initiative, and of course the development of the Green Investment Bank, the principles of which were enshrined in our successful amendment earlier this week.

On FE, we are seeing a freeze in real terms, which equates to a £402 million reduction over the next four years. This is short-sighted. We already have huge skills shortages in this country and we need to be competitive in the world. This is yet another decision that will reduce the life chances of the young and which sits alongside the cuts in maintenance grants for the poorest students, who are being made to take out loans instead. We have yet to see what effect that will have on take-up. The reductions also mean that the number of colleges may reduce. In my own area, Birmingham, there are rumours that seven colleges are likely to be reduced to only two. This will mean longer travel times for most students but will also hurt the poorest most. It will certainly not mean better teaching—you would need investment for that.

What are we spending the FE funding on? The Government seem to have a mantra of 3 million apprenticeships, but what kind of apprenticeships will they be? Will they be higher apprenticeships or, in order to get the figures in, more along the mantra of, “Never mind the quality, feel the width”? HE funds are not just about apprenticeships. People who need English as a second language are desperate for training so that they can join the workforce. People need retraining throughout their lifetime, either because they have to change their jobs or because of the need for continuous professional development. Finally, we need lifelong learning in this country as much as anywhere else in the world to make a skilled, educated and civilised society—and I have done it in three minutes.

Photo of Lord Skidelsky Lord Skidelsky Crossbench 12:28, 3 December 2015

My Lords, four minutes is hardly long enough to have a properly developed argument or debate, so I will confine myself to a number of propositions that I hope might at least excite the interest of the noble Lord, Lord O’Neill.

The first proposition is that the Chancellor has failed to meet his deficit reduction targets. In 2010, he said that the deficit would be down to zero by now; this year he is set to borrow £70 billion, and the balancing is postponed for five years. To me the explanation is clear enough: the Chancellor’s policies depressed the growth of the economy, especially between 2010 and 2012, and therefore postponed the closing of the gap between spending and revenue. Perhaps the noble Lord, Lord O’Neill, will tell me why I am wrong.

Secondly, productivity, which was already low before the crash, has collapsed, as the noble Lord, Lord Shipley, pointed out. Between 1971 and 2007 productivity growth was fairly constant at between 2% and 3%. Since the crisis it has been closer to zero. Productivity growth did not collapse like this in previous cycles. The gap between our productivity and that of the rest of the G7 is now at the highest since records started in 1991. I have an explanation for this collapse, which is that recovery has produced a huge expansion of low-productivity jobs in retail, hospitality and suchlike, and that is the truth behind the much-vaunted recovery of employment. Does the noble Lord, Lord O’Neill, agree, and, if so, what do the Government propose to do to create that high-wage economy that Ministers constantly proclaim as their goal

Thirdly, investment, already inadequate, fell from 19% of GDP pre-crash to 15%, and it is still at the pre-crash level. A robust recovery would expect to see investment for a time exceed its pre-crash level. This has not happened. Why? I have an explanation. Money which would have gone into investment in a healthy recovery has gone into speculation. Investment is down, but we have had a wonderful boom in asset prices, including house prices, which has mightily benefited the rich. Does the noble Lord, Lord O’Neill, think that this is healthy?

Fourthly, instead of borrowing to modernise our infrastructure, the Chancellor has encouraged foreign money to do it, even if the foreign companies, such as Deutsche Bahn, are state-owned. Now, he and the Prime Minister have gone bananas over China. What effect is that going to have on our balance of payments and therefore on our ability to increase exports? We privatised lots of our own public utilities because we thought they wasted money; now, we sell them to foreign state-owned enterprises because we want to save money. Public enterprise is apparently good if it is not British.

Fifthly, the Chancellor plans to privatise the Green Investment Bank—one of Vince Cable’s achievements in the coalition—because,

“it is necessary to move the bank off the public balance sheet if it is to raise additional funding through borrowing”.

This is an absurd reason. If it makes economic sense for a privatised GIB to borrow, why not for the Government?

I feel sympathy for the Chancellor trying to balance his budget on the back of bogus Treasury accounts but, instead of challenging the Treasury’s accounting rules, the Chancellor has committed himself to running an overall surplus in normal times, just like Victorian Chancellors, who never borrowed for anything except defence.

Failure to meet his budget targets, low productivity, low wages, low investment, a bonanza for speculators, rising inequality and still more austerity to come: these are the Chancellor’s bequests to the British economy. They have brought enormous harm to the country and will continue to do so unless he finds the confidence to challenge the Treasury’s view. But there is not much time.

Photo of Baroness Noakes Baroness Noakes Conservative 12:32, 3 December 2015

My Lords, I congratulate my noble friend Lord Carrington on leading today’s debate on the Autumn Statement. It is a pleasure to follow the noble Lord, Lord Skidelsky. I always enjoy his glass-half-empty analyses of the Chancellor’s policies but I hope one day to hear a cheerful critique of them.

In one of George W Bush’s characteristic statements, he said of a budget:

“It’s clearly a budget. It’s got a lot of numbers in it”.

This is clearly an Autumn Statement—it has a lot of numbers in it—and indeed the accompanying report from the Office for Budgetary Responsibility has even more numbers. As we have already heard, the OBR’s numbers are particularly important because its forecast of higher tax revenues, in particular, has in effect allowed the Chancellor to increase government spending. However, the fact remains that in this Autumn Statement the Government continue to plan for annual deficits—albeit on a declining scale—until the last year of this Parliament.

One benefit of the steady growth which has been referred to is that public sector debt will fall as a percentage of GDP every year, but the end point will still have GDP at over 70%, which is an uncomfortable level. This is no austerity Autumn Statement. Expenditure will continue to go up every year. Lots of budgets continue to be protected. Of course, some departments will have to make tough choices but I have every expectation that efficiencies will be found. That is what the history of public sector management tells us.

I am sorry that the Government have again ignored one of the easiest ways to cut public sector costs: reshaping the bloated departmental structure of Whitehall. But I live in hope that one day they will see the light on this. The Government are on stronger ground on not hoarding assets. I particularly welcome the £4.5 billion-worth of land that has been identified for release and sale.

All this is sensible but not radical financial planning. The good news is that, if the forecasts are met, public expenditure will be comfortably below 40% of GDP at the end of the Parliament. Within that, importantly, welfare expenditure will fall to its lowest percentage for 30 years. I entirely agree with my noble friend Lord Carrington that we can certainly go a lot lower than 40% on public expenditure.

The Autumn Statement is not a place for major tax changes, although there are some in it, but importantly it is the back-drop to next year’s Budget. The Government have already announced their path to a low rate of corporation tax, at 18%. That is excellent, and one of the factors contributing to Britain rising up the international competitive league tables again—we are now sixth for ease of doing business. But there is a lot of work still to do on taxation. In particular, the top rate of tax at 45% is still too high. It is above the top rates in the US, the global average and the EU average—and it is no comfort that it is below Zimbabwe’s top rate.

We also have one of the highest rates of inheritance tax and the yield from other capital taxes is forecast to rise significantly in the coming years. I understand completely that the Government need to raise taxes to balance the books. But they also need to be careful that the cumulative impact does not drive out incentives for wealth creation. The Government are aiming, rightly, for a lower tax and higher growth economy, but there is a lurking danger of achieving the reverse.

I completely agree with my noble friend Lord Carrington that complexity in the tax system is a major problem. The Chancellor has not helped in this regard, having increased the length and complexity of the tax code. It is time that the Government devoted more attention to streamlining the tax system.

This was a welcome Autumn Statement, but, as ever, there is much still to do to.

Photo of Lord Judd Lord Judd Labour 12:38, 3 December 2015

My Lords, I thank the noble Lord, Lord Carrington, for having introduced this debate with what was, I thought, a very interesting speech. I would like to quote another important member of the Conservative Party, if indeed he has been reported accurately:

“Even if councils stopped filling in potholes, maintaining parks, closed all children’s centres, libraries, museums, leisure centres and turned off every street light they will not have saved enough money to plug the financial black hole they face by 2020. These local services which people cherish will have to be drastically scaled back or lost altogether as councils are increasingly forced to do more with less and protect life and death services, such as caring for the elderly and protecting children, already buckling under growing demand”.

Those are cautionary words indeed. We must note that he refers to the need to “protect” life and death services. Any age in which thoughts of wanting to enhance the services that are available to the elderly in their declining years seems to have been forgotten altogether.

I have said this before in debate and feel it very strongly: what has gone fundamentally wrong in our society—this is not a party-political point; it goes right across the parties—is that we have moved into an age in which the economy and society have become separated. I am convinced that if we are to have a strong, healthy Britain for the future, we have to get back to the concept that we are not just producing statistics on the economy but have to produce evidence of what is really happening in society in terms of its improvement and progress.

I had nine years as president of YMCA England. I was immensely interested by the housing programme for the young and vulnerable. Tremendous work was done. It was not just managing houses; everybody involved in that programme knew that they were dealing with people. And the people whom they were dealing with, by definition almost, needed care, attention, love and appropriate support and services. What is happening to all that under this fascination with the economy alone?

We see every day on our television the evidence of the anxiety and distress among our elderly friends, who find themselves uncertain as to where they are really going to finish their lives in old age. Is that really what we have achieved in 2015? Where is this social progress? I am not ashamed to say that I think that we should sometimes learn from our past. Although it may have had faults, we should revisit the concept of the department of economic affairs. The Treasury in that model has the discipline, but there would be another department which brought together all elements of society in trying to work to an agreed strategy, and to have a common aim and common objective towards which they were all contributing—trade unions, too. I commend to all parties a re-look at a department of economic affairs.

Photo of Lord Palumbo of Southwark Lord Palumbo of Southwark Liberal Democrat 12:41, 3 December 2015

Once again, my Lords, we meet to debate a Statement which consists of fractional tinkering, where a billion here and a billion there are magicked from thin air, where we know that none of it really adds up, makes sense or will come to pass, but there is no other way in western democratic politics. So I suggest an idea to the Minister for our next debate: no numbers. Instead, it should be a debate about what principles should guide our thinking. For example, do we believe that behaviour and consequences of behaviour should be connected? Fifty-nine thousand health appointments are missed daily in the UK and £16 billion is spent annually on conditions related to obesity. Should there be a financial sanction?

There are 11.2 million pensioners in the UK, including my esteemed uncle, who is sitting here today. Of these, 13% live in relative poverty, but millions are either comfortable or affluent. Yet all are entitled to the same benefits. Does means testing make sense? By 2020, health and welfare will account for 70% of total spending, including debt interest, and the country will have been in deficit for 19 years. Yet debate focuses on tax credits, a mere blink of a numerate eye in the overall budgetary quagmire. But it is good political sport and a distraction from unpleasant reality.

Last week, the Chancellor made great play of his housebuilding plans, echoing his rousing conference peroration: “We are the builders”. Since 2010, around 600,000 houses have been built, half the number needed. I shall not mention Heathrow or HS2. On any objective basis, the Conservatives are most emphatically not the builders. Yet in modern democratic politics, it is possible to say whatever you like. Throw in a few pictures of the Chancellor posing trimly in a hard hat and it is so.

This is the backdrop to our deliberations: another Statement, another wave of the magic wand, another declaration of triumphant success. It is a system where it is impossible to link behaviour with consequences of behaviour, where soundbites triumph over truth, where instead of saving the OBR windfall against a certain future recession it is used desperately to plug financial holes—like wattle on a monsooned mud hut—and where the Chancellor can stand on the steps of his metaphysical counting house and declare if he so chooses that the moon is made of cheese. Maybe the OBR would support even this contention.

This noble House is sometimes criticised for the fact that we are unelected, but perhaps this gives us the ability to debate the real issues. May the Minister summon the powers of his northern independent spirit to consider this idea.

Photo of Lord Horam Lord Horam Conservative 12:45, 3 December 2015

My Lords, I congratulate my noble friend Lord Carrington of Fulham on his excellent introduction to this short debate. If I can supply one small omission, it was Gary Player, the golfer, who said, “It’s funny, the more I practice the luckier I get”. My noble friend was commenting, of course, on the supposed luck of the £27 billion extra which the Office for Budget Responsibility discovered in the past few months. However, it was not luck. First, the Chancellor created the Office for Budget Responsibility—so it was an independent body which came up with this new figure—and, secondly, he has created the conditions in which the Office for Budget Responsibility could come up with such a figure. So, as my noble friend rightly pointed out, he deserved his luck.

As a consequence of that, we are exactly where a good, sensible Government should be. We have steady growth of roughly 2.5% per year and we are reducing the deficit in a steady, gradual way over the period of a Parliament. Whether we will achieve a small surplus at the end of this Parliament I rather doubt—the pressures on public spending are so great that, if we do not achieve that, I will not be bothered—but, none the less, we are heading in the right direction.

As someone who learnt his economics in Cambridge at the high point of Keynesian economic study, I am comfortable with a Chancellor who puts at the heart of the economy the need to keep economic growth going. That is the fundamental point of economic policy. If you get that right, most other things fall into place. I am not sure whether the noble Lord, Lord Skidelsky, who is a distinguished biographer of Keynes, will wholly agree with that because, as we know, no one economist ever agrees with another. None the less, I think that is the heart of the matter.

Let me put the central point of my short remarks to my noble friend Lord O’Neill of Gatley, who will be winding up shortly. This is a wonderful opportunity to invest in infrastructure and housing. Andrew Haldane, the chief economist at the Bank of England, pointed out that the Bank of England has worked out that interest rates are at their lowest since Babylonian times, 4,000 years ago. I hope the Bank of England’s historical research is rather better than its forecasting of interest rates but, if it is right, this is a unique opportunity for us to invest in the infrastructure and housing we so badly need.

On infrastructure, I am thinking of: obviously, HS2; more important in my view, as a northerner, HS3; more roads; as a former London MP, a third runway at Heathrow, please, for the sake of the London economy and others; power stations; and fracking. I was pleased to see in the review £1 billion extra for a shale gas sovereign wealth fund to help benefit local communities with the achievement of further fracking. That is good news. On housing, there is a vast gap to be filled. As the Chancellor said, one of the biggest social failures of our age is the failure to build enough housing. In particular, will the Government pay attention to low-cost rented social housing, which is as important as housing for people to buy?

All in all, this was a one-nation review, by a one-nation Conservative Chancellor, in a one-nation Conservative Government, and as a one-nation Conservative I applaud it.

Photo of Lord Bilimoria Lord Bilimoria Crossbench 12:49, 3 December 2015

My Lords, Britain has less than 1% of the world’s population and represents just 4% of the world’s GDP, and yet it makes up 7% of the world’s welfare spending. There is no question that the Budget deficit needs to be cut and that the Chancellor needs to balance the books, even if this has meant cuts of well over 20% in some departments, as we saw in the Statement. Yet now the British economy is growing faster than any other G7 economy, with low rates of unemployment and high employment, and projections which show that the growing economy will produce more tax receipts, allowing the Government to invest in the crucial means to make us more productive and innovative. I thank the noble Lord, Lord Carrington, for initiating this debate, and I could not agree with him more about tax simplification—in fact, I often say that the Office of Tax Simplification is an oxymoron.

I turn first to higher education, which is one of the jewels in this nation’s crown. The decision to allow part-time students to access maintenance, as well as the protection of science budgets in real terms, is an excellent one. The Government are finally moving in the right direction with regard to our universities. For decades we have underinvested in R&D, well below the OECD, EU and United States averages, but now there is a financial boost going towards Innovate UK and the UK’s network of world-leading Catapult centres. Investment is being made into promoting exports through UKTI. We see investment in our aerospace industries and other advanced manufacturing industries. Here I applaud the Chancellor’s decision to provide extra support for postgraduate students, who are a vital part of boosting productivity in this country.

As we have heard from the noble Baroness, Lady Noakes, by maintaining a historically low rate of corporation tax, the Chancellor has supported a business-friendly Britain, but as an entrepreneur and businessman of course I think that the top rate of income tax should fall back from 45% to 40%. If it did so, that would make us more competitive. Also, capital gains tax should be reduced from 28% to 18%, which is where it was. This week I spoke at the launch of ResPublica’s excellent report, Make or Break. It is all about encouraging manufacturing in the UK. During his visit to the UK in November the Indian Prime Minister, Narendra Modi, spoke of his “Make in India” initiative. India has a target to increase manufacturing as a percentage of GDP from 16% to 25%. Does the noble Lord, Lord O’Neill, agree that we in Britain should have a target to increase manufacturing from 10% of GDP, where it is today?

Furthermore, and more important, the Chancellor has understood our recommendations on military and defence spending. The warnings have been there since SDSR 2010, in which the scaling back of spending on defence and security, I believe, damaged our capabilities in those areas. On top of that, when it comes to security in the dangerous world we are living in, dismissing the idea of cuts to police forces is excellent news.

In full, this is an excellent review of the public finances. While it is right to continue to make the cuts that will make us more efficient as an economy, it is also essential to use the UK’s advantageous position to invest in helping the economy to grow. No business can grow by cutting alone; businesses can become more efficient by making cuts, but they also have to invest to grow. These are all steps in the right direction. However, this is dependent on a continuing increase in tax receipts and on net interest payments being low. If interest rates go up, it will be more difficult for the Chancellor to continue down this path.

Moreover, let us not forget that this was made possible by the Chancellor finding an extra £27 billion. The noble Lord, Lord Horam, talked about luck. Well, my best definition of luck is when determination meets opportunity. What is brilliant is that we must not forget that forecasts can be very badly wrong.

Robert Chote, the director of the OBR, said that his organisation had predicted growth to be six times stronger between 2010 and 2012 than the official figures suggested was the real case.

I would like to conclude by saying that I am so glad that the Chancellor has made the decision to reverse his planned cuts on tax credits. While the media and the noble Lord, Lord McFall, may have branded the Chancellor as having committed a dreaded U-turn, let us not forget, with all due respect to the noble Lord, Lord Wakeham, that without the actions of this House, the mistakes the Chancellor would have made would now be mistakes enshrined in law. That is no better reminder of the importance of this House when carefully considering legislation, and as the check and balance and guardian of the nation. Steve Jobs, the founder of Apple, said that,

“changing your mind is a sign of intelligence”.

Clearly, we have a very intelligent Chancellor. I now also name him as “the listening Chancellor”. Thank you, Chancellor.

Photo of Lord Cavendish of Furness Lord Cavendish of Furness Conservative 12:53, 3 December 2015

My Lords, as other noble Lords have done, I commend my noble friend on securing this debate and on introducing it with such thought and clarity. This afternoon I will draw attention to various aspects of the Autumn Statement and to do so largely through the prism of my own experience of living for most of my working life in south Cumbria. Accordingly, I declare a personal interest. Although I have surrendered the chairmanship of my family group of SME companies to my elder daughter, I remain involved and I refer noble Lords to the register of interests.

Not of direct interest to me but very well received in Cumbria as a whole was the announcement of the new Carlisle enterprise zone. It may well be that a number of northern noble Lords have campaigned for this. It is my understanding that the honourable Member for Carlisle, Mr John Stevenson, played a prominent part in winning this prize for the county. It is good news.

I was personally pleased by a number of announcements relating to housing, the fiscal treatment of the SME sector and much else. However, it remains the case that the SMEs still suffer disproportionately from the burden of regulation. I am happy to give credit to the Government for seeking with commendable rigour to address this problem. I join other noble Lords in the plea to finally address the simplification of tax—which, again, imposes on SMEs very badly.

I suppose that I have read thousands of column inches on the Chancellor’s Autumn Statement. There is the usual analysis of winners and losers. Two of the commonest themes are how lucky the Chancellor is with the economy and the OBR’s reading of it, and secondly, what a risk he takes with the windfall we taxpayers have handed him. On the first, I can say only that if the economy had worsened over the period I would have been surprised to hear his critics putting this down to bad luck. As to the risks he takes, he appears to have a greater confidence in our ability to grow the economy than do some of the commentariat. While I confess that his action took me by surprise,

I share his confidence in the future. I cannot remember in my working lifetime there being so much excitement—in the north of England at least—and a sense of purpose in the SME sector, or, in my layman’s reading of the world, the economy in general.

History and politics are full of examples of people being handed a poisoned chalice. Some of us felt that it was a novel approach on the part of Mr Gordon Brown to poison the chalice just at the point when he was seizing it. If it turns out to be true that my right honourable friend the Chancellor of the Exchequer has in mind employment beyond his present job, I hardly think that he will want to make the same mistake.

On winners and losers, risks or the lack of them, fairness or otherwise, as the dust settles the commentators may conclude that the Autumn Statement was inconsequential. They would be wrong. An important feature of the Autumn Statement that has attracted almost no comment at all is that it is as much a statement of values and ideas as it is about the country’s finances. Here is why. I warmly welcome the general thrust of the Government’s policies towards devolution. We will never be a country at ease with ourselves until local men and women are once more accountable for the delivery of the services that our communities need and deserve. Now the opportunity really does seem to be at hand when it will genuinely be in the interests of local people to participate again. The rebirth of civic life is truly an exciting prospect and one that we should all support.

Those of us who have earned a living in the private sector have long known and understood that there is always scope to do more for less. All of us who have come through recessions have had to cut our cloth at one time or another. By contrast, the public sector and the trade unions have always insisted that any and all reduction in public spending must have a corresponding diminution in output. To their enormous credit, the Government, as far as I am aware for the first time ever, have exploded this myth. Under this Administration the state has got smaller.

I see that I am out of time, so I will finish by saying that there are other things that the noble Lord, Lord Judd, mentioned in terms of values and ideas. Our growth compares well with that of other economies. Our potential for exerting soft power remains significant. There is a radicalism in this Statement that repudiates the perception of national decline. With the Chancellor announcing additional resources for the Foreign Office, the Armed Forces, national security, the arts and other things, we have changed gear. I reflect that we are regaining some of our former influence, in a civilised way: not pushing others around, not grandstanding among nations, but positioning ourselves to defend our long-cherished freedoms and to grow and to build an economy that enriches all people and protects with a generosity of spirit those least able to fend for themselves.

Photo of Lord Macdonald of Tradeston Lord Macdonald of Tradeston Labour 12:58, 3 December 2015

My Lords, I, too, thank the noble Lord, Lord Carrington, for his introduction to the debate. As a time-served marine fitter, I identify with his comments on apprenticeships, on which I now hope to build.

In his Autumn Statement, the Chancellor announced an apprenticeship levy of 0.5% to be paid by companies with payrolls of more than £3 million per annum, effective from April 2017. It is estimated that this levy will raise £12 billion during this Parliament and help to fund the training of 3 million apprentices.

The Government say that only 2% of UK companies will pay the levy, getting vouchers to offset the cost of training the apprentices in return. The initial reaction of leading employer organisations was to complain that the levy was just another payroll tax on top of the increased cost of pension provision last year and the national living wage which is to be paid next year. By contrast, the response from the Trades Union Congress was positive. I, too, welcome the creation of an institute of apprenticeships to set rigorous standards and monitor the use of levy moneys. This institute is to be independent of Government, with a publicly appointed board of business leaders. I look forward to this businesslike board challenging the Government’s view that 25% of levy moneys would be spent on administration. This new institute will be crucially important to the success of the new apprenticeship system. In appointing board members, the Government should therefore ensure that the practical workplace experience of millions of trade union members is properly represented.

At a CBI conference this week for leaders of medium-sized businesses, the main concern of 36% of those attending was the difficulty in attracting skilled staff, particularly in the engineering and tech sectors. No doubt this helps to explain why most of the delegates reportedly welcomed the apprenticeship levy. The Minister will be aware that the present policy on apprenticeships is widely criticised for putting quantity before quality of training, as the noble Baroness, Lady Burt, mentioned.

A recent Ofsted investigation, Apprenticeships: Developing Skills for Future Prosperity, reported that increased apprenticeships numbers were not well matched to the skills most needed. One-third of skills providers visited by Ofsted were judged not to provide high-quality training. There was also a lack of collaboration between providers and employers. Too few 16 to 18 year-olds were starting an apprenticeship, with too many places going to those over 25. Ofsted’s chief inspector, Sir Michael Wilshaw, concluded,

“Despite the increase in numbers, very few apprenticeships are delivering the professional, up-to-date skills in the sectors that need them most”.

While welcoming the apprenticeship levy, we now need more detail on how the new arrangements will work. Can the Minister tell the House if key sectors with skills shortages, such as engineering, construction and the digital economy, will be given highest priority? How will the new institute for apprenticeships relate to the Skills Funding Agency, an executive agency with an annual budget of £3.7 billion? Will SMEs have access to levy moneys, as well as to the existing apprenticeship pot of the Skills Funding Agency?

Photo of Lord Taverne Lord Taverne Liberal Democrat 1:02, 3 December 2015

My Lords, the Chancellor’s strategy, as confirmed in the Autumn Statement, is to shrink the state and turn Britain into a low tax, low spending economy, with a public sector reduced to 36%

—the lowest in the European Union. I fear that there will be austerity in many ways more devastating than during the coalition years. This will affect local government, universities and education generally, but especially further education, as the noble Lord, Lord Shipley, pointed out. Tax credits, which imposed a considerable burden on the lowest paid, have not, in effect, been abandoned; they have been postponed. Inequality will increase—with what consequences? As Wilkinson and Pickett showed in

The Spirit Level

, a low tax, low public spending state is a recipe for a dysfunctional state. We will emulate all the worst characteristics of the United States.

It is all justified because, Mr Osborne claims, we must balance the books as a way to faster economic growth. Low tax economies do not grow faster than higher spending ones. Piketty’s meticulous record of the rise and fall and rise of inequality in France, Britain, Germany and the United States showed that, in the post-Second World War period until the Reagan-Thatcher era began—a period known as les trente glorieuses, during which inequality was reduced, not only in Europe but also in the United States—economic growth was in fact higher than in the days of inequality.

Conservatives have stressed the growth we have achieved, but I fear that our recovery is somewhat fragile. We have a huge trade deficit which has been financed by the inflow of hot money. We have increased our dependency on the financial sector and the Government have failed to rebalance the economy. The financial sector is very vulnerable to a renewed credit crunch—which is far from unlikely.

As the noble Lord, Lord Skidelsky, pointed out, we have not increased productivity. Mr Osborne’s policy of shrinking the state will not improve productivity. More equal, higher tax European countries have higher productivity per hour not only than Britain but also the United States which depends for growth on immigration. Growing inequality in Britain means fewer youngsters from poorer families will go to university, worsening the shortage in skills. A sense of unfairness in industry, because of the huge inequalities of pay, militates against teamwork and trust—vital factors in productivity.

Further, Mr Osborne seems to believe “private investment good, public investment bad”. He now lumps public and private expenditure together as part of public spending. Public spending funds research and development which is too long term for private companies.

As the noble Lord, Lord Skidelsky, pointed out, the Government’s economic policy is a return to Victorian values. The Victorians believed in the moral virtue of balancing the books. It is a return to Ricardo and Montagu Norman and Herbert Hoover. It is as if Keynes had never lived.

Photo of Lord Young of Cookham Lord Young of Cookham Conservative 1:06, 3 December 2015

My Lords, I join other noble Lords in commending the excellent speech by my noble friend Lord Carrington in introducing this debate. I, too, welcome the broad thrust of the Autumn Statement. If I had two general comments to make, one would be on the absence of measures to deal with the balance of trade, which remains worryingly in deficit. Secondly, as other noble Lords have mentioned, there is an absence of measures directly to deal with productivity which has got to improve dramatically if we are to remain competitive in world markets.

In the time available, and as a former Housing Minister, I want to focus on the Chancellor’s welcome proposals to double the housing budget—fixing the foundations, as it were, while the sun is shining. The Government are broadening the definition of affordable housing to include accommodation for sale as well as accommodation for rent. This brings home ownership within the reach of more people through shared ownership, help with deposits and interest payments and by obliging developers to sell at a discount. There is much to be said for this change of emphasis, as home ownership is the preferred tenure of most people. This policy may, in the long run, be more cost effective. As my noble friend Lord Horam said, for many people the only answer is social housing for rent. My proposition to the Chancellor, therefore, is that these welcome measures to promote home ownership should, in the first instance, be focused on current tenants of social housing whose circumstances have improved and for whom home ownership is now a realistic proposition. By bringing home ownership to them, it frees up a re-let in social housing for rent for those in need.

I have a proposal for the Government on buy to let, on which the Chancellor had some proposals in his Autumn Statement. I understand why this section of the market has come under criticism during the past few years. In its defence, if one looks at the housing market during the past 15 years, the only section that has actually worked is the private sector for rent. Social housing for rent has been depressed, as has market housing for sale, so the private sector has provided accommodation for those who could not afford to buy but who did not qualify for social housing for rent. However, with all the fiscal and monetary changes that lie ahead, this sector faces turbulence and I should like to make a suggestion to the Minister to bring stability and resilience to this section of the housing market.

The financial institutions in this country, unlike those abroad, have never invested in market accommodation for rent. They have equities, gilts, commercial properties and fixed interest stock, but they have never invested in residential accommodation. Historically, this would have been a very good investment as part of a balanced portfolio. I believe they should now establish an investment trust to which buy-to-let landlords could sell their properties in return for shares. This would ensure that those landlords would continue to have exposure to the private rental market and possibly defer capital gains tax liability until such time as they disposed of their shares. Their tenants could remain in place, avoiding turbulence for them, and the properties could then be managed by social landlords who, of course, have good experience of managing rental properties. I believe that this would promote the transition on a voluntary basis to a more stable, better managed market rented sector. I would be grateful if the Minister replying would share this proposal with his opposite numbers in DCLG.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 1:10, 3 December 2015

My Lords, as the first of the winding-up speeches, I should say how much I appreciate the extraordinary quality and range of this debate. I, too, will be fascinated to hear the Minister’s response. As I know that we are under time pressure, I will try to speak a little faster than I otherwise would and I hope that noble Lords will forgive me if I do not cover all the points that have been raised.

There were some underlying themes in everything that we heard. One, sadly, was uncertainty and another was unanswered questions. If the Minister cannot answer those questions today, I hope very much that he will provide further information to the House later. As the noble Lord, Lord Carrington, said in his opening speech—this point was picked up by many other speakers—the Chancellor was able to take advantage of better forecasts from the OBR to step back from his planned tax credits cuts and give rather more money to infrastructure. I am glad that he did so. However, at best, that is a 50:50 forecast. The Chancellor has now pinioned himself and put impossible hurdles in place with his fiscal charter, which inhibits him raising the traditional kinds of taxes that could be levied if a forecast were to go wrong, and has tied himself to a commitment to a surplus. Again, that would normally give a Chancellor flexibility. So how will he cope with shocks to the system? We have the Syrian situation at the moment, and none of us is bold enough to say that we can guarantee that there will be no shocks over the next five years. The Budget seemed to me to take away virtually all flexibility.

However, the Chancellor gave himself additional flexibility with some very significant tax raising. I focus on one aspect which has not been mentioned today—namely, that we are in effect looking at a 4% increase in council tax, which has been frozen for a number of years. Uncertainty surrounds that strategy because it requires councils to agree to raise their taxes in a general sense by 2%. All these figures are fully absorbed in the forecasts that we have seen. That assumes a 2% increase on the part of every single council. Many councils will not do that because they are ideologically opposed to it. Others will look to their local populations and say that people cannot afford an increase in council tax. Yet others are afraid of the election consequences of increasing council tax, so we have a serious set of issues there. An additional 2% hypothecated to social care is supposedly the answer to the very serious shortfall that we face in adult social care. Once again, will councils be willing to do that? How many of them will be willing to do it? The councils with the most vulnerable elderly have the most limited council tax base, so in cash terms their 2% surely cannot meet the requirements of their adult social care services.

Councils have been given additional flexibility over the business rate. I totally approve of passing on that flexibility but, again, councils which already have a very strong business base and are able to benefit from increasing the business rate probably least need that additional income. However, highly deprived councils tend not to have much opportunity to raise additional funds through increasing the business rate. Therefore, it is completely unclear how equalisation between councils will now work. Without that clarity, it is very difficult to understand what publicly provided local services will be available, and how we can achieve the standards that we all want.

I was very glad to see additional money in the Budget being awarded to infrastructure. We have said that the time to borrow to feed infrastructure is when interest rates are low, and we have seen the Chancellor act on this. We need to make up for a generation of underinvestment in a wide range of key infrastructure areas. However, the Government are cutting the very departments which manage that infrastructure. Having been in the Department for Transport and observed that Network Rail, for example, has no shortage of capital but great difficulty managing its projects, I question whether cuts in operating budgets will enable critically needed infrastructure to be delivered.

A number of noble Lords have said that people need skills for us to achieve growth. Not increasing the cash settlement for FE has to be a serious problem. Apprenticeships and further education go hand in hand. To increase the funding of one without doing so for the other will surely lead to underlying problems. Every business person that I talk to repeats the constant mantra, “Skills, skills, skills”, when explaining the difficulties they face in expanding their businesses. I am sure that the Minister has the same experience.

We have also talked about the importance of business investment, but look what is happening in the renewables sector. The green economy has gone from being an also-ran in this country in pre-coalition days to becoming a major industry in which British companies were becoming leaders. This country was becoming a leader in producing construction materials to deliver zero-carbon homes. That policy has been scuppered by the abandonment of the zero-carbon regulations. This country was also becoming an absolute leader in carbon capture and storage, a technology required by the entire world, including China. There was huge appetite for that product, which was built up following investment in that sector. However, it has been completely scuppered. I have had calls—as other noble Lords may have done—from people financing renewable energy projects with not a penny of subsidy, where the investment has all been pulled in the last two and a half weeks because there is now so much political risk and uncertainty in this sector. I have talked with a wide variety of investors and banks who are saying that it is now impossible to get that money for renewable infrastructure because the Government are seen as being gratuitously anti-green and the political risk is now becoming a serious premium in an industry which was underpinning growth in this country.

We have heard many good speeches on a wide variety of issues. I hope that the Minister will pick up the reference to the importance of rental housing. Obviously, we want people to be able to purchase their homes and I support a lot of the Government’s strategies in that field, but social rental housing is absolutely critical for the 9 million people who rent and the 1.6 million who are on the waiting list for social housing. It is particularly important for young people. If we cannot house our young people at the beginning of their careers, surely the ability to expand growth and for them to make an effective commitment is exceedingly limited. I ask the Government to look at those intergenerational issues to better understand the issues of young people who have to build their lives.

Photo of Lord Davies of Oldham Lord Davies of Oldham Shadow Spokesperson (Treasury) 1:18, 3 December 2015

My Lords, this has been an excellent debate. We thank the noble Lord, Lord Carrington, for introducing it. I think it was Gary Player who said that the more he practised, the luckier he got. I am not sure that I can attribute those virtues to the Chancellor, but certainly we are very grateful to the noble Lord, Lord Carrington, for both securing this debate and for his introductory speech which kicked off the issues in a very interesting and able way.

The Government have long boasted of their long-term economic plan but have proved themselves quite incapable of sustaining it. The House will recall that the Government now propose to put the accounts into surplus by 2020. My noble friend Lord McFall indicated that the OBR thinks that the Chancellor has a 50% chance of meeting that objective. But since the Chancellor also promised to have eliminated the deficit by this year, it is really rather difficult for many of us to sustain his credibility when it comes to managing this economy. As my noble friend Lord Haskel indicated, there seemed to be elements of creative accounting with regard to the Government’s expectations and predictions for how their long-term economic plan was meant to work out.

Of course, the Autumn Statement was notable rather less for anything to do with planning and rather more for some pretty sharp U-turns—welcome, of course, but little credit to the Chancellor. The pressures that built up from the public and the professionals about the potential cut-backs in policing in these dangerous times, when already 17,000 officers have been lost to the force over recent years, were pressures that the Chancellor eventually succumbed to.

The other U-turn was occasioned by this House, to its everlasting credit. I heard what the noble Lord, Lord Wakeham, said. There is much to debate on this. I know that my side will conduct themselves as constructively as possible in those discussions but let the noble Lord, Lord Wakeham, be under no illusion. The Government start off on the wrong foot. Six hundred years of Conservative majority in this House ought to make them rather wary of seeking to reverse a majority against them at the first serious instance. I hope we will have some constructive discussions on that but they are not going to be easy ones.

The Government still intend to savage the welfare budget, even though they have abandoned their position on tax credits. The projected cuts to universal credit over the next five years indicate that the Government are still victimising the poor. As the noble Lord, Lord Shipley, said, why is it that the poor are meant to pay the price of the problems that the Government face? It used to be the shirkers, those who were on benefits. Now, because the Government have extended the cuts to those who do not have enough to live on but actually work, we do not hear quite so much of that argument. It is quite clear that the problem for so many of the poor is that they are in badly paid jobs which cannot sustain their living standards, and there are far too many people in jobs who would welcome longer hours but cannot secure them. That helps to ensure that their living standards are very low.

It is also the case that productivity is heading downwards. If the Chancellor really is intent on concentrating on the longer term, rather than the immediate, short-term needs of the economy, he ought to address himself much more forcefully and effectively towards productivity, which remains a great weakness of the British economy. We are still substantially behind other countries in the G7. The forecast is that productivity will actually head downwards over the next few years. The Government have got a great deal to do.

If the Government can guarantee that their levy will produce a greater number of highly valuable apprenticeships in industry, that is certainly a step in the right direction. But up until now they have been preoccupied with counting the number of apprenticeships rather than evaluating their worth. In the mean time, in another aspect of the skills economy, the Government are bent upon destroying those forces which could help to improve our skills. Further education, the unprotected part of education, has already taken a very substantial number of cuts in its provision and is due to take more under this Government, who guarantee only cash increases rather than real-terms sustainability. It means, as was indicated in the debate, that we may well see a number of our colleges close at a time when they ought to be providing the skills that are needed.

It is so obvious that to effectively expand the construction industry, we ought to expand it on the basis of British skilled workers. From what one can see at the present time, if the Government really are going to improve the question of housing—the noble Lord, Lord Young, pressed on this and indicated areas in which they could address themselves to fresh possibilities—they have to get themselves out of a position where they preside over the worst housing record for nearly a century. At the moment the industry looks to foreign skills. That is why the OBR has indicated that, of the very substantial number of jobs that will be created in our economy over the next five years, a great deal will go to those who immigrate into this country. What kind of world are the Government living in if they are ensuring that employers still look abroad for skills while the nation is greatly concerned about the opportunities for our own people and the overall level of immigration? I hope that the Minister will address himself to the fact that there appear to be predictions of 1.5 million more jobs being created but immigration going up by 925,000. The Government certainly have to answer this case. If they have this long-term economic plan, it ought not to be difficult for them to address these issues rather than concentrate on the issues which largely preoccupy them.

Of course, we all recognise not just the weakness of provision in social security but the real worries with regard to the health service, particularly the fact that the health service is dogged by hospitals being unable to place in social care those patients who are ready to leave hospital because of the devastating impact on social care of the cuts that the Government are enforcing. That situation is predicted to get worse so I hope the

Minister will respond to the issues I have raised, which embellish the questions that the noble Lord, Lord Skidelsky, asked of the Minister—in only a four-minute speech. I used a rather longer speech last time to ask similar questions. I was not entirely satisfied with the answers. Perhaps I will have greater luck today.

I will finish with one obvious point. Austerity is not mandatory. It is not an economic necessity. It is a political choice and this Government persist in this choice and ask others to pay the price. That is why 3 million people who are in work are actually underemployed because of the kinds of jobs they can get. As for rebalancing the economy, manufacturing employment dropped by 10% over this last period. The Government have done absolutely nothing about the catastrophe of the steel industry. You would think that a right-wing, capitalist Government could not ever do anything about industry because their tenets are that they must do for success. Tell that to President Obama—the American car industry was in the most desperate straits and the federal state bailed it out. British industry looks for greater support from this Government than anything that is on the horizon.

Photo of Lord O'Neill of Gatley Lord O'Neill of Gatley The Commercial Secretary to the Treasury 1:29, 3 December 2015

My Lords, once again, we have had a very healthy debate on the Autumn Statement, as we have before on economic and fiscal policy. Today there have been quite a lot of very valuable insights and thoughts about economic matters and finance. As I have done before, I thank all Members of the House for their excellent contributions. I am reminded of my maiden Statement, which I recall coincided with my dear and noble friend Lord King saying that the standard of debate in this place was, according to his vast experience, considerably higher than that of the other place. I have not had that other experience but each time I come here to discuss economic and financial matters, I can only echo that sentiment.

Let me quickly move on by making an apology to all your Lordships. As we have heard, we are on a very tight schedule and, if I am looking at the clock correctly, I have probably not much more than 15 minutes to respond to many of these interesting ideas. I will try to respond thematically as opposed to my preferred customary style, which is to respond to each noble Lord or noble Baroness individually. I will not be able to do that but I shall try to respond specifically to my noble friend Lord Carrington, the noble Lord, Lord Davies, and the noble Baroness, Lady Kramer. I will refer to others in the context of thematic issues.

Quickly moving forward, last week’s spending review and Autumn Statement presented by the Chancellor was an important fiscal event, one of the most important of recent times. In the spirit of what the noble Lord, Lord McFall, said—I will touch back on this in a second—it was particularly important because it was the spending review as well as the Autumn Statement, and it set forth in detail the path of public spending for the duration of the Parliament. As noted by some in this regard, we remain on track to achieve an overall surplus by the end of 2019-20—which, if it occurs, would be the first surplus since the turn of the millennium and of the century. As was also touched on—I shall come back to this—with stronger economic figures than anticipated we can do this while borrowing less, investing more in long-term capital spending on our infrastructure and smoothing the transition to a lower-welfare, higher-wage economy.

I turn to the thematic context. There are three broad areas, with sub-categories to some specifics. First, with respect to the background global environment within which the Autumn Statement was presented, my noble friend Lord Carrington set some of the scene in his wonderful opening remarks. I cannot resist an attempt at humour. He made reference to a number of supposedly highly-rated economists frequently getting their forecasts wrong. He made a comment soon after about the BRICs, so I trust that he was not referring to my past life in that regard. I should follow that by saying that I had remarked in a joke in that previous life that I might have ended up regarding them as ICs as opposed to BRICs, in view of the particular problems of Brazil and Russia.

At this stage, as we come towards the end of 2015, the ongoing evidence about the cyclical state of the world economy, as well as some of it structurally, is a little different in my view from the general view out there. While of course the world is slowing—or, let me emphasise, showing signs of slowing compared to expectations—I would draw attention to three or four things that are a little different.

First, and in slight contrast to something that my noble friend Lord Carrington said, in the year to date the biggest source of positive surprise comes from the eurozone area. Having seen the most up-to-date data in the monthly manufacturing and purchasing managers’ indexes around the world, which we have had in the last couple of days, some of the strongest data are coming out of the Eurozone—notably from Germany but, rather encouragingly given some of the structural issues, also from Spain and Italy. Secondly, in that regard, I draw your Lordships’ attention to the fact that the eurozone purchasing managers’ index is stronger than that of the United States. The USA’s own purchasing managers’ index, in its latest indications, is now weaker than that of many of the rest of the G7 countries, such as ourselves and much of continental Europe.

Thirdly, in the context of my attempt at humour about the BRICs, while China continues to show signs of slowing, very importantly for our priorities there is just as clear evidence that domestic consumption and its own services industry continue to increase their share of GDP rather rapidly. There is not much evidence of a significant slowing among Chinese consumers, which is an important, ongoing and positive thing for the rest of the world, including the UK, which wants to engage by providing things to their consumers. That strongly justifies our active engagement and many noble Lords here are aware of my strong involvement in that.

Fourthly, in this regard, I will mention that many other so-called emerging economies still have considerable challenges, a large number of which are in my view probably more cyclical in nature than structural. They relate to the intensity of the decline of commodity prices. Importantly, as the flipside to that, there remains an important source of ongoing support for real disposable incomes in many commodity-importing countries, ourselves included.

The second area, which I will touch on quickly, is the policy environment against that background and in particular the framework and role of the OBR, which many noble Lords touched on. Within that second area on policy, I have a couple of thoughts about the OBR. I will touch initially on the interesting suggestion made by the noble Lord, Lord McFall, about the OBR releasing its latest ideas earlier than has hitherto been possible. It would be very difficult for it to do that, not least because it is given a large amount of sensitive evidence about policy considerations that would dramatically impinge on the Government’s thinking in the lead-up to actual policy decisions.

However, I believe that yesterday, Robert Chope and the OBR were due to appear at the Treasury Select Committee, which was shifted for obvious reasons but will, I am sure, happen very soon. I imagine that many of the questions that the noble Lord, Lord McFall, the noble Baroness, Lady Kramer, and others touched on will come up on that occasion. If they do not, I am sure that there will be an opportunity for them to pursue those questions further. Having said that, the OBR is of course independent of government and it is its rightful role to come up with new suggestions on the relationship of the economy and the fiscal position, given its mandate.

Finally with respect to the OBR, while my own observations are that it has revised down slightly its forecast of productivity, as touched on by the noble Lord, Lord Haskel, interestingly it has also revised higher its forecast for investment. Importantly, going forward, its own forecasts remain on the more conservative end among many highly respected domestic forecasters. As a number of noble Lords have pointed out, while it is true that there could be risks to the downside as a result of its changes, equally, it could be just as vulnerable to being positively surprised again, as it clearly has been given those changes. I finish on this subject by pointing out that from what I can understand, of the £27 billion change that it made, £18 billion of it was due to the change in its modelling of the relationship between nominal GDP and various forms of tax revenue, particularly VAT, while £9 billion was due to its own revised higher estimates of the economy.

Sticking with this second theme of policy, yet again, a number of noble Lords offered very contrasting views about the appropriate stance for fiscal policy, which is not surprising in view of the nature of this place and the understandable biases that some Members may have. All I would say in this context is that, the spirit of the Autumn Statement is that fiscal policy—whatever the justified underlying stance—is less restrictive as of last week than had previously been believed by many. Several noble Lords have been particularly critical about the supposedly tough stance on fiscal policy. Although Members of this place may have their own judgments on that, which may be valid in principle, fiscal policy is certainly not as restrictive as they might have thought a week ago.

I will finish this part of my closing comments by taking this back to where I started. The Chancellor for some time now has been talking about policy in the context of both our national and our economic security. I was very pleased to have discovered how policy was going a couple of days before the announcement, as, in my judgment, against the background of such uncertainties around the world, it is probably appropriate that our stance on fiscal policy, within the flexibility we have been afforded, should be less stringent than we had otherwise planned for it to be. That gives us more internal momentum against the background of those never-ending, swirling uncertainties that unfortunately seem to be so prevalent.

The specific points that were made covered many areas, including the apprenticeship levy, and skills and productivity, which I will touch on together. They also related to investment spending and further education colleges. Separately, there were some very interesting ideas about energy policy, housing and the role of manufacturing. The noble Lord, Lord Palumbo, made some very interesting suggestions with respect to discussing broader principles and tempted me to live up to what I think he suggested was my independent northern spirit. I can never resist such a temptation, so I look forward to rising to that challenge whenever it comes.

The broad issue that links at least half those thematic points and that the noble Lord, Lord Davies, spent a lot of time on, is productivity. The noble Lord, Lord Haskel, also touched on this in some of his comments. Although the Chancellor did not use the word productivity in the Autumn Statement as much as he may have done previously in the summer Budget, I suggest to noble Lords that, on the contrary, there continues to be a strong focus on the important role of productivity. I will respond to some of the specific comments of the noble Lord, Lord Davies, as I have tried to do in recent discussions. Although our productivity level has been weak, and is significantly lower than the levels of our main partners among the developed countries, the evidence from the past year or so is that ours has improved slightly more than had been the case, and that the gap is not quite as big as it was.

I would not want to jump from that to immediately say that this is a consequence of the 92-page document that we published with the summer Budget, because some of that data relate to before then—and of course, one swallow does not make a spring—but it seems to me that there are some signs of slight improvements at the margins of the data that are available to make judgments about. More importantly, there are a number of ongoing policy developments—which there was more focus on—including some that relate to the specific points that were made.

I will respond to points about skills, further education colleges and the apprenticeship levy together. The apprenticeship levy, which has been described by some as a back-door tax, is, as I have discussed here before, part of a conscious decision to try to encourage our corporate world to have a greater influence on and a greater obligation towards trying to sow the seeds of much stronger skills for today, tomorrow, and the medium-term and long-term future. It is only the largest employers that are likely to have to pay much and, in the event that they take up the challenge to its fullest, they will be more than recompensed for their endeavours. The desire is that, in the context of the apprenticeship plan, they will influence the nature of qualifications coming out of further education colleges and perhaps influence how those might develop further.

I would link FE itself with the goals for skills and apprenticeships. We need to strengthen the quality of the qualifications that come out of our further education colleges and get away from the focus just on the amount of money that is being spent or not. We need to ensure that the people who come out of those institutions have the right qualities and skills to cope in an increasingly competitive world. In my judgment, the real thrust of policy in the past six months in this regard has been about making it a priority to raise the standards of the qualifications that come out of further education colleges. If successful, that will play a critical role in moving towards raising the broad scope of the skills challenge, which a number of Members of the House have touched on and which, again, I have made significant reference to in the past.

Establishing manufacturing targets sounds like a very eye-catching thing to do. The noble Lord, Lord Bilimoria, mentioned this, but I know from my own association with the I in BRICs in the past that it would be absolutely remarkable if India got half way to achieving that kind of target. It is not clear to me that it would be particularly smart to try and suggest that an economy as sophisticated and diverse as ours has some defined target for manufacturing as a share of GDP, not least because the interplay between high value-added manufacturing and services is a lot more sophisticated and complex than it once was, and you do not want to choke off one at the expense of the other.

What is clear in a broader sense is that we want to encourage an environment that creates more higher-value-added jobs that allow us to keep our head above water and compete in an endlessly changing world with lots of challenges, whether they are service jobs or manufacturing jobs. The focus on wages and the high-wage, low-welfare economy is at the core of this, together with a number of very specific initiatives, which again I directly relate to productivity. The northern powerhouse, the Midlands engine and the devolution of powers and decision-making to local authorities in those areas are critical in this.

Because of my shortened time, I will finish by saying thank you to all noble Lords who I have not had the chance to specifically answer. Although considerable challenges from overseas remain, as well as our own long-term internal challenges, it seems that Britain is in a fundamentally stronger place than it was five or six years ago. This Autumn Statement and spending review set out how we will achieve the next steps of our economic recovery, and I commend it to your Lordships.

Photo of Lord Carrington of Fulham Lord Carrington of Fulham Conservative 1:49, 3 December 2015

My Lords, in the few seconds remaining of this debate, it behoves me just to thank my noble friend the Minister and all other Peers who have participated in what has been an excellent debate that has highlighted the issues very effectively. I think that any outside observer will have been rather surprised by the degree of commonality and agreement across the Benches. Of course, there are big differences: the biggest difference, perhaps, is between those who wish to spend the money before we earn it and those who wish to earn it and then spend it. Nevertheless, the analysis was very similar from all participants, to whom I am most grateful.

I do not intend to mention any particular contributions, but will just pick up on something said by one or two noble Lords: the quality of debate in our economic debates here is so much higher than it is in the other place that it is a shame that we do not have more of them. With that, I beg to move.

Motion agreed.