Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.Donate to our crowdfunder
My Lords, last Wednesday, the Chancellor laid down a Budget that backed business and innovation and gave support to public services with the aim of levelling up the entire country. But in the course of a week, the world has changed. Many of the things that I will say will appear out of date, but we need to see beyond the hopefully short-term impact of this pandemic.
To start with coronavirus, the Budget set out the initial economic response, but this has quite rightly been overshadowed by a far more substantial package announced over the last few days. The initial plan included a £30 billion plan: to support the NHS needs in staff and the search for medicines; to support workers, with expanded guarantees for statutory sick pay; and to support businesses with a comprehensive and coherent package of tax reliefs and loans.
But with the worsening situation, the Chancellor has responded with further urgent action. He has expanded the amount that businesses can borrow from the new temporary coronavirus business interruption loan scheme from £1.2 million to £5 million. For those businesses affected most by essential distancing measures in the retail, hospitality and leisure sector, including shops, cinemas, restaurants, music venues, museums, art galleries, and theatres, the Government will, for this coming year, abolish their business rates altogether.
Alongside this, the Government are increasing grants to small businesses eligible for small business rate relief from £3,000 to £10,000. To cope with cash-flow problems, the Chancellor has announced a programme of loans and guarantees to support firms through the economic emergency. In total, he will make available an initial £330 billion of guarantees, equivalent to 15% of the UK’s GDP. These are extraordinary times and the Chancellor has responded at a scale to reflect this. The plan recognises that coronavirus will have a significant impact on our economy. This is a serious and sensible effort to make sure that the impact will be temporary.
This brings me to the growth forecasts. I recognise that the OBR’s calculations were completed before the full extent of the impact of coronavirus became as clear as it is now. But, even before coronavirus hit, we were facing a slowing world economy. When combined with the political uncertainty over the last few years, the OBR had trimmed our productivity forecast over the relevant period and slightly reduced forecast GDP growth, compared with the March 2019 forecast. This makes it all the more important that the Government act bravely and take decisions now for our future prosperity. Outside the coronavirus intervention, the Government are investing an additional £175 billion over the next five years in infrastructure and innovation. At the time, the OBR said that these plans could boost growth over the next two years by 0.5 percentage points. It had expected that half a million more people would be in work by 2025 and that wages would grow in real terms in every year of the forecast period. The OBR had forecast 1.4% for this year, increasing to 1.8% next year and then, for the rest of the forecast period, remaining on or around target.
Let me turn to the fiscal forecasts. The impact of coronavirus, and the Government’s necessary response, will lead to a significant increase in borrowing. But we are equipped to manage this need. The hard work of the last 10 years has left our public finances in a strong place, with the deficit down from above 10% in 2009-10 to less than 2% last year. While borrowing will increase this year, we expect this spike to be temporary. As the OBR has said, the medium-term impact on borrowing will likely be limited. The Government were elected on a manifesto that promised to maintain fiscal prudence; we are doing everything we can to honour that while also facing down the immediate risks and planning for longer-term prosperity.
The Government’s plan for prosperity starts immediately by helping people with the cost of living. Changes to the national living wage, income tax and national insurance mean that someone working full-time on the minimum wage will be more than £5,200 a year better off than in 2010. The Chancellor also confirmed that, from January next year, there will be no VAT on any women’s sanitary products, fuel duty will remain frozen for another year, the planned rise in beer duty will be cancelled, and the Government will freeze duties for cider and wine drinkers as well. For only the second time in almost 20 years, that is every one of our alcohol duties frozen. This Government promised to cut taxes and the cost of living, and we are aiming to deliver on this.
Nothing helps more with the cost of living than putting more money into people’s pockets through a thriving private sector. The Chancellor gave his full backing to business with £130 million of new funding to extend start-up loans, £200 million for the British Business Bank to invest in scale-ups, £200 million for life sciences and £5 billion for new export loans for businesses.
This was a Budget that also showed support for business through the tax system. The research and development expenditure credit will be increased from 12% to 13%—a tax cut worth £2,400 on a typical R&D claim. The structures and buildings allowance will be increased from 2% to 3%, giving an extra £100,000 of relief for those investing in a building worth £10 million. To cut taxes on employment, the Government will increase the employment allowance by a third to £4,000. That is a tax cut, this April, for nearly half a million small businesses.
The next part of the Government’s plan for prosperity is to invest in ideas, in brilliant scientists and in cutting-edge technologies that will shape the economies of the future. The Budget will increase investment in R&D to £22 billion a year, the fastest and largest increase in R&D spend ever. Detailed allocations of our new investment in ideas will be set out in the spending review, but the Budget gave us a flavour, including over £900 million in nuclear fusion, space and electric vehicles and at least £800 million in a new blue-skies funding agency to conceive the next world-changing technology. There is a further £800 million to establish two or more new carbon capture and storage clusters by 2030. This work will be needed to create the high-skilled, high-wage jobs of the future all around the country. It will also be needed to help us transition to a low-carbon economy with new green technologies.
The Budget has helped us on our journey to net zero by 2050. It will raise the climate change levy on gas, extend the climate change agreements scheme for energy-intensive industries for a further two years and introduce a new plastics packaging tax that will increase the use of recycled plastic in packaging by 40%. We are also abolishing the red diesel relief for all but a few specific sectors.
As well as taxing pollution, the Government will invest in and cut taxes on clean transport with a package of reforms to make it cheaper to buy zero or low-emissions cars, vans, motorbikes and taxis. We are providing £500 million to support the rollout of new rapid charging hubs so that drivers are never more than 30 miles from being able to charge up their car. Taken together, this Budget invests £1 billion in green transport solutions.
We are providing £640 million for a new nature for climate fund to plant around 30,000 hectares of trees—a forest larger than Birmingham—and to restore 35,000 hectares of peatland, all of which helps capture carbon. This Government intend to be the first in history to leave our natural environment in a better state than we found it, while making sure that we have the means to protect ourselves when the natural environment shows its power. The recent floods devastated homes and businesses across the country; the Budget made available £120 million immediately to repair defences damaged in the winter floods and £200 million of funding to local communities to build flood resilience, and we promised to double our investment in flood defences over the next six years to £5.2 billion.
This Government have spoken a great deal about levelling up. Last week’s Budget began to make the picture much clearer. Over the next five years, this Government will invest more than £600 billion in our economic infrastructure. Public net investment will, in real terms, be at its highest since 1955. The detail will come out at the spending review, but the Chancellor laid down a few guiding principles.
First, the Government will review the Treasury’s Green Book to make sure that economic decision-making reflects the economic geography of the country. Secondly, the Government will invest more in our nations, cities and towns. We are committing an extra £640 million for the Scottish Government, £360 million for the Welsh Government and £210 million for the Northern Ireland Executive. We are providing £242 million of funding for new city and growth deals. In addition, there will be a new devolution deal in West Yorkshire, with a directly elected mayor and a funding settlement of £4.2 billion. The Government are also investing £1.2 billion in local transport in 12 further cities, including Stoke, Preston, Derby, Nottingham and Southampton.
We are investing in broadband, railway and roads. We are committing £5 billion to get gigabit-capable broadband into the hardest-to-reach places. Work is starting on HS2. There is funding for the Manchester to Leeds leg of Northern Powerhouse Rail—the biggest ever investment in strategic roads and railway—and a new £2.5 billion pothole fund.
The Chancellor made it clear that we will boost public services, recognising them as the tools by which the Government can level up and spread opportunity. In education, the Budget provided funding for specialist 16-19 maths schools and £1.5 billion of new capital over five years to dramatically improve the condition of the FE college estate.
In housing, the Government extended the affordable homes programme with a new, multiyear settlement of £12 billion. We have confirmed nearly £650 million of funding to help rough sleepers into permanent accommodation and created a new building safety fund worth £1 billion to make sure that unsafe combustible cladding will be removed from every private and social residential building above 18 metres in height.
In health, we announced over £6 billion of new funding in this Parliament to support the NHS to deliver 50,000 more nurses, 50 million more GP surgery appointments and work to start on 40 new hospitals. We are backing all that up with extra funding for HMRC to clamp down on aggressive tax avoidance, evasion and non-compliance to make sure that we have the funds we need in the future. This all means that, by the end of the Parliament, day-to-day spending on public services will be £100 billion higher in cash terms than it is today.
This is a Budget delivered in difficult times, but one which will help the country meet the challenge of the coronavirus. When this disaster is behind us, it will lay the foundation for a new decade of regeneration