Covid-19: Economy - Motion to Consider

Part of the debate – in the House of Lords at 3:30 pm on 4th June 2020.

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Photo of Lord Agnew of Oulton Lord Agnew of Oulton Minister of State (HM Treasury), Minister of State (Cabinet Office) 3:30 pm, 4th June 2020

My Lords, I congratulate the noble Lord, Lord Eatwell, on his initiative in securing this debate. I am grateful for the opportunity to discuss this matter.

Noble Lords have spoken about the threat to our economy, how we have sought to protect it during this crisis and what we might seek to do afterwards. The coronavirus is the biggest threat that this country has faced in decades and this country is not alone. All over the world, we see the devastating impact of this invisible killer.

The Government’s action plan aims to slow the spread of the virus so that fewer people need hospital treatment at any one time, protecting the NHS’s ability to cope. That is the right thing to do, but people are also justifiably concerned about their livelihoods during this difficult time. We recognise the extreme disruption that the necessary actions are having on people’s lives, businesses and jobs. Just as we face a health emergency, so we face an economic emergency too. There can be no doubt about the seriousness of the situation. It is important that we are honest: it will have a very significant impact on our economy.

That is why the Government have announced unprecedented support for public services, individuals and businesses to protect against the current economic emergency. That includes the Coronavirus Job Retention Scheme, which has already helped businesses to keep millions of people in employment and has been extended until October, and the Self-employment Income Support Scheme, which benefits 95% of people who are mainly self-employed. To support firms and businesses through the crisis, the Government have announced unprecedented support, including government-backed loans for businesses of all sizes and grants for small businesses and highly innovative firms.

Through the Coronavirus Business Interruption Loan Scheme, over 45,000 facilities have been approved so far, worth more than £8.9 billion, and 700,000 loans, worth more than £21 billion, have been approved through the new bounce-back loans scheme, supporting the very smallest businesses. Over £10 billion-worth of grant payments have been made to over 800,000 business premises so far.

Further government support measures mean that almost half of all business properties in England will pay no business rates at all this year, notably in those sectors hardest hit by the lockdown, 2.3 million businesses have been offered a VAT deferral and up to 2 million employers will be able to access the statutory sick pay rebate. The Government are supporting people on low incomes or those who find themselves facing hardship through a significant package of temporary measures. That includes a £20 per week increase to the universal credit standard allowance and working tax credit basic element and an increase in the local housing allowance rates for universal credit and housing benefit claimants so that it covers the cheapest third of all local rents. Mortgage lenders are also offering a three-month payment holiday for those customers struggling with their finances as a result of the coronavirus.

Throughout the past few months, the Government have worked closely with the Bank of England, business groups, trade unions and many others around the country to develop these support measures. Taken together, these measures are protecting millions of people and businesses across the country through a set of economic interventions on a scale never previously attempted, and they are working. In developing our economic policy, the Government have listened to a wide range of evidence and views.

As the Chancellor said, it is premature to speculate about future public finances, budgets and the economy, but it is notable that the independent Office for Budget Responsibility and the Bank of England both agree that the actions that we have taken will help to mitigate the impact of the virus on our economy and that, without our package of measures, things would have been far worse. Not taking those steps would result in the temporary effects of the Covid-19 virus leaving permanent scars on our economy. Although we are spending unprecedented amounts, the consensus both in the Government and among external economists is that not spending at these levels would cause even more damage.

The work of the last 10 years in bringing borrowing and debt back under control has ensured that public finances are well placed to deal with the challenges posed by Covid-19. The overwhelming evidence indicates that British people and businesses are following the Government’s guidelines. Thanks to people’s hard work and sacrifice, and despite the tragic loss of life, the UK has slowed the spread of coronavirus. Our health system has not been overwhelmed.

Now we must begin to recover and eventually restore our way of life. The Government have set out a conditional road map for reopening certain economic activities, while continuing to suppress the Covid-19 outbreak. Our economic strategy will be closely co-ordinated with the public health strategy. As infection rates fall, we will take stock of the economy and public finances to make the right decisions for the circumstances in which we find ourselves.

In formulating this road map, the Government have considered: the country’s long-term economic future, which could be harmed by people being out of jobs and by insolvencies; the sustainability of public finances, so that the Government can pay for public services, including the healthcare response; and the UK’s international economic competitiveness. Ultimately, a strong economy is the best way to protect people’s jobs and ensure that the Government can fund the country’s vital public services.

I will pick up on comments made by noble Lords. I will not name each noble Lord individually in the interests of time, and if I am not able to address all of the points raised, I will write at the conclusion of the debate.

The noble Lord, Lord Eatwell, and others raised the issue of public sector spending and investment in the NHS. The Government have backed the NHS during this crisis with more than £16 billion for the Covid-19 response fund, which has gone towards public services, including the NHS and local groups involved in the fight against coronavirus. But beyond that, the NHS settlement committed in January last year provided one of the largest tax increases in public services since the Second World War—an additional £34 billion a year by 2023-24. The 2019 spending round confirmed the Government’s commitment to the NHS with £139 billion for health budgets in 2021. The Budget provided over £6 billion of further funding to strengthen the NHS in England and pay for vital services. That will improve people’s health, reaffirming the Government commitment to health and social care.

The new life assurance scheme for front-line NHS and social care workers recognises the increased risks faced by these staff in the crisis during the course of their essential and life-saving work and the need to encourage retired doctors and nurses to fill staff shortages and boost service capacity. The Government will continue to review the support provided to key workers on the front line.

On the matter of reopening the economy, the Government have a carefully planned timetable for lifting restrictions. This is a difficult balancing act. The timetable depends on successfully controlling the spread of the virus. If the evidence shows that sufficient progress is not being made in controlling the virus, lifting restrictions may have to be delayed.

Social distancing is again a matter of strong debate. It is absolutely vital for controlling the virus, but we need to keep that debate alive. The criteria are reviewed every three weeks and are driven by the latest available data analysis and scientific advice.

In terms of business support, the Government continue to work closely with businesses and sector leads to monitor the impact of Covid-19 across the whole economy. The Chancellor recognises the challenges that businesses face and is focused on taking the necessary steps to support a strong and sustainable recovery. He will publish such plans in due course. As I have already said, to support firms and businesses through the crisis, the Government have announced unprecedented levels of support, including government-backed loans for businesses of all sizes and grants for small businesses and highly innovative firms.

On the equity side, our new future fund provides loans that convert into equity to high-growth companies that can raise equivalent match funding. The Government are aware of proposals around equity investment. For some companies, further debt may not be the right answer, but the private sector should be the first port of call for businesses seeking new equity investment. The Government will keep the policy under review and vigorously test any proposals for their value for money.

On the culture and performing arts sectors, we have set up a task force to work with industry representatives to develop safe ways for industries to reopen at the earliest point that it is safe to do so. The Government completely recognise the contribution that the culture, leisure and entertainment sectors make and how they have been particularly affected by the crisis. Theatres and performing arts institutions can benefit from the range of support schemes that have already been introduced, including the CJRS and business loans. There is a task force for recreation and leisure, led by the Culture Secretary. It covers all industries relating to tourism and culture, including libraries, entertainment and sport. The task force first met on 22 May and is meeting every week.

On the construction and housing sector, the Government have committed to building at least 1 million more homes by the end of this Parliament, continuing progress towards our target of delivering 300,000 additional homes every year, on average, by the mid-2020s. Over 240,000 additional homes were delivered in 2018-19, the highest level for the last 32 years, representing a 65% increase since 2009-10. The Government plan to publish very shortly a comprehensive list of planned government procurement linked to the delivery of infrastructure and construction projects for the financial year 2020-21.

Turning to the insurance sector, the Government are working closely with the FCA to ensure that the rules are being upheld during this crisis. They recognise that businesses that do not have appropriate insurance cover will require support from elsewhere. As such, businesses should explore the full package of support.

Going further into the recovery, as the Chancellor has said, it is premature to speculate about the future public finances. First and foremost, we are thinking about protecting people’s health and jobs and supporting businesses.

A number of noble Lords mentioned VAT. We have already deferred VAT for businesses during the crisis, so UK VAT-registered businesses will not need to pay any VAT that is due alongside their normal VAT return from 20 March through to the end of June—a deferral worth over £30 billion or 1.5% of GDP.

My noble friend Lady Buscombe asked about the tax status of foreign nationals. The statutory residency test determines an individual’s residency status when they move between countries and ensures that they know whether or not they are resident when they spend time in the UK, and thus whether they should correctly pay UK taxes. Nationality has no bearing on the tax that an individual pays. An individual who moves permanently to live in the UK will pay tax on their worldwide income and gains, just as any other UK resident does. The UK has a special tax regime for individuals whose permanent homes are outside the UK—referred to as non-domiciles—but when they are UK-resident, they will pay UK tax on all their UK income and gains.

A number of noble Lords raised the issue of low pay. Low-paid workers will benefit from the April 2020 increase in the national living wage, which represents an increase of over £930 in the annual earnings of a full-time worker on the national living wage, equivalent to a total increase in annual earnings of over £3,600 since the introduction of the national living wage in April 2018. We have also taken a large number of people out of income tax thresholds over the last 10 years. That has always been a priority for this Government.

A number of noble Lords raised the need for a green recovery. The Government completely agree. The Budget reinforced the UK’s strong track record in this area. Announcements included £640 million for tree planting and peatland restoration, over £1 billion of further support for ultra-low emission vehicles, and at least a doubling of the funding for energy, innovation and tax measures to encourage greater energy efficiency and to reduce plastic waste, among other things. We recognise the importance of a strong economy in supporting the transition to net-zero emissions and will continue the UK’s leadership in clean growth. The Government have announced unprecedented support for public services, workers and businesses to protect against the current economic emergency.

On hydrogen, we have announced £120 million to explore opportunities in energy efficiency. We are extending support to 2028 at the current level of the energy company obligation scheme funding, with £6 billion of investment to improve energy efficiency. It is also worth noting that coal emissions have fallen by nearly 80% in the last decade, and carbon emissions have fallen in the last seven consecutive years. According to some measures, in 2019, our emissions had fallen back to the level they were at in 1888.

Levelling up was raised by several noble Lords. Despite the immediate challenges facing the UK, we are still absolutely committed to bringing prosperity to the whole country. The Civil Service has, for example, committed to move over 20,000 jobs out of London, and that process has begun. We have identified 15 hubs around the country to which civil servants will move. These will become hubs for good-quality jobs in the future.

Well-being is already part of the Treasury Green Book and it took a more prominent role following the 2018 updates. The Government are mindful of the evidence of how previous recessions have impacted health outcomes. The unprecedented support for public services plays to this point. In developing our economic policy, the Government have listened to a wide range of evidence on this.

A number of noble Lords raised the issue of EU exit. We will not extend the transition period, as it would simply defer the moment at which we were in charge of our own destiny. The Government believe that there is time to strike a deal based on free trade and friendly co-operation. We are looking for an agreement largely like the one that the EU has agreed with other countries. Therefore, we cannot see why it should be so complicated.

On trade, during the crisis, G7 and G20 Finance Ministers have released statements committing to do whatever is needed to restore confidence and economic growth, including supporting trade ministries’ efforts to address disruptions in international trade and supply chains. We are continuing to strengthen our trade relationships around the world. For example, last month, the Secretary of State for Trade launched the first round of trade negotiations with the US.

The range of contributions that we have heard here today demonstrates what a broad and complex issue this is. Through the measures they have taken, the Government have sought not only to protect people’s health and livelihoods, and to shield the most vulnerable in our society, but to preserve the productive power of our economy in order to bring about a swift and lasting recovery from this crisis. The Government will continue to act on the basis of scientific advice, and they will continue to listen to the voices of employers and business, trade unions and others as we navigate our way through the crisis and back towards a future of growth and opportunity.

I finish by thanking all noble Lords for their contributions, but especially the noble Lord for securing this valuable debate.