My Lords, the Budget Responsibility and National Audit Act dates back to 2011 and the days of the coalition. It required the Government to set out in the form of a charter their fiscal objectives, their policy for management of the national debt and the means to achieve those objectives —in other words, the fiscal mandate. Significantly, that first charter, which was put in place at a time when the economy was in crisis from the 2007-08 crash and with a deficit driven by both the crash and excessive public spending, set as its fiscal mandate a target to bring into balance the cyclically adjusted current budget in five years. As the helpful Library Note explains in some detail, the current budget was defined as the difference between government revenue and current expenditure and excluded quite explicitly investment spending.
When the Conservative Government came into power alone in 2015 they turned their back on that principle. Suddenly, eliminating the deficit required a surplus not in the current budget but in the overall budget, including investment spending. There was frankly an even more daft requirement, especially in our uncertain and fast-moving world, that public sector net debt should fall as a percentage of GDP in every year. The new fiscal mandate made no sense from day one, and if one needs more evidence, the Budget itself showed a really silly manipulation of planned capital spending, varying up and down in different years to meet deficit elimination dates. This version of the fiscal mandate has clearly constrained plans for investment in infrastructure, which this country desperately needs for growth, and it has denied the Government the chance to take advantage of incredibly low interest rates to finance that investment.
With Brexit that sort of fiscal mandate became untenable even to its creators and George Osborne junked it. I think we can say from their comments that the current Chancellor and PM have been glad to junk it too. But I am quite certain that at some point we will get a new fiscal mandate or something quite like it. The purpose of my Bill is to encourage all parts of this House to consider what principles should be embedded in any such mandate. Let me say first that with Brexit this is not going to be easy. At this point no one knows what Brexit will look like unless the Government wish to share more with us today. To say we have a vacuum in needed information is an understatement. I am a cynic and I cannot believe that the Government have failed to say more than “Brexit is Brexit”. But what we also cannot do is let the Government make decisions that shore up the economy in response to the immediate Brexit problems and ignore the long-term framework it requires.
I propose three principles in the Bill. The first relates to infrastructure. Clearly, the lesson has to be learned that no future fiscal mandate should ever again lead to perverse decisions to underinvest in infrastructure. While it may not be directly related, I am concerned that plans to empower the National Infrastructure Commission have now, I understand, been shelved. Infrastructure investment in the UK has been neglected for over a generation. The northern powerhouse has to be turned into a reality with major investment in HS3 or its variants and in interrail electrification. The Midlands engine requires major new transport links, as does every plan for growth in the south-west. While Londoners see major transport upgrades, population growth means that Crossrail 2 and Crossrail 3 are increasingly urgent.
In broadband we are well behind our competitors and all our plans are markedly unambitious. BT’s rollout plan relies on an outdated copper network, not fibre optics. The Government’s universal service obligation is for 10 megabits per second for 95% of people by 2017. By contrast, South Korea is rolling out 1 gigabit per second services already. At the top end it provides 10 gigabits.
In housing, we are all well aware that household formation means we need 300,000 new homes a year. I take that figure from the Economic Affairs Committee of this House in January 2016. In the last year to June we managed only 145,000 new houses and the rate of build is reported to be dropping. Government intervention and investment to overcome a broken housing market is vital. Without it, the quasi-oligopoly that is the housing construction industry will never deliver what we need.
In energy, we must reinvest in the renewables sector so hurt by earlier Budgets, but the Hinkley Point controversy, among its many issues, demonstrates that if we want some measure of control over major facilities we must be capable of investing in them ourselves.
Building public assets is also vital. London alone needs an additional 47,000 secondary school places in the next five years. Back in 2008 we spent £9.3 billion on capital expenditure in hospitals, but the NHS has secured commitments of only £5.8 billion a year for each of the next five years, despite evidence that the need is more acute than ever. I believe there is a growing consensus on the need to drastically up our investment in infrastructure, but let us reinforce it with the way we deal with the fiscal mandate.
Other objectives are just as important, so my second principle for the fiscal mandate is intergenerational fairness. Anyone who has looked at government policy in the last couple of years can see that deficit reduction is falling exceptionally hard on the younger generation. Severe cuts in housing and other benefits have been targeted at the young. Young people are excluded from the new national living wage and there is talk of using the pupil premium—possibly the most successful programme ever in raising educational standards for all—to fund grammar schools. While I admit that Liberal Democrats often shy away from talking about tuition fees, our deal in the coalition explicitly included a commitment to grants for living costs for disadvantaged students, raising the starting point for loan repayments along with inflation and capping fees at £9,000, all of which this Government are now scrapping.
The plight of our young people goes much deeper. The Guardian calls it,
“the financial rout facing millennials … A combination of debt, joblessness, globalisation, demographics and rising house prices”.
Notably, this group is likely to be the biggest losers from Brexit. If they cannot get education and apprenticeship training across the EU, as they do increasingly today, they lose. If they cannot easily move around Europe for jobs, as they do today, they lose. If they cannot set up new enterprises that easily take advantage of the largest market in the world for goods and services, they lose. During the recession young adults suffered the most joblessness and the greatest wage compression of any group. The disposable incomes of young adults have lagged well behind those of the rest of society. The big costs in life—education, housing and securing a pension—all cost significantly more than they did for my generation.
Paul Johnson of the Institute for Fiscal Studies has said that he fears intergenerational inequality will fuel wider inequality in society because youngsters with rich parents will retain such an unfair advantage in the important years of early adulthood, and that,
“it’s become more and more important whether your parents happen to have a house”.
I know that this is not just a UK phenomenon—it affects most of the developed western economies—but that does not mean that we should not try to confront it ourselves. That issue of intergenerational fairness needs to inform our decisions on who carries the tax burden, how we shape public support and investment, and how we fashion opportunity. I am not listing answers here, but we must have the debate before we lock in another fiscal mandate, and intergenerational fairness must be a benchmark against which we test the functioning and the character of that fiscal mandate.
Lastly, the Bill proposes that the competitiveness of the UK economy is a third but no less important consideration. All too often the Government seem to believe that competitiveness is a race to the bottom in corporate taxes—a strategy that has been remarkably unsuccessful in increasing private investment, job skills or productivity. Indeed, we all know that the UK falls far behind its competitors in productivity. We have to change that through improved infrastructure, skilled people and significantly increased investment. We have heard the mantra of what is needed and the mandate must drive, not hinder, that.
In addition, what we have discussed in the past may not now be sufficient. I argue that the issue is changing and becoming both more acute and more complex because we are entering a time of great transition. Artificial intelligence, robotics and machine learning are moving into everyday reality. They are reshaping our companies and increasingly defining our economy, but we have yet to see the full impact on jobs and society. People who regard themselves as skilled will find that their jobs are redundant not in the distant future but in the near future. We must commit to keeping this country at the leading edge. Research and development in our universities, institutes and catapults has never been more vital—Brexit negotiators take note. Reskilling and lifelong learning, currently utterly neglected by the Government, are becoming essential.
Those of your Lordships who read August’s excellent POSTnote from the Parliamentary Office of Science and Technology will have seen its report on a 2014 survey of technology experts, which found that only half believe that technology will continue to create jobs at a similar or faster rate than it displaces them. That will be new and different. We have always assumed that technology creates more new jobs than it displaces but that is now under serious reconsideration. It is going to be extraordinarily challenging. We have to recognise that as we set up frameworks, of which the fiscal mandate is probably the most significant.
I regard this as an opening discussion. Brexit looms but more than Brexit matters. Brexit alone will not shape our future. Other, broader, long-term factors cannot be ignored. The next fiscal mandate has to recognise a far broader set of priorities than just deficit reduction, which has been its focus in the past and, frankly, has made it difficult for us to create the growth, prosperity and opportunities we need for the future. Infrastructure, intergenerational fairness and competitiveness are three factors that must not be ignored. I beg to move.
My Lords, I thank the noble Baroness, Lady Kramer, for introducing this Bill. It would amend the Budget Responsibility and National Audit Act 2011 by introducing the three factors that she spoke about: infrastructure; making sure,
“that the fiscal mandate does not have a substantially negative impact on intergenerational fairness”;
“that the economy of the United Kingdom remains competitive”.
What is the OBR’s role under the current charter? It is to produce five-year forecasts for the economy and public finances; to judge the Government’s performance against their fiscal targets—including, in its judgment, whether government policies have a better than 50:50 chance of meeting the fiscal targets; to scrutinise the Treasury’s costing of tax and welfare spending measures; to assess the long-term sustainability of the public finances; to assess the Government’s performance against the welfare cap; to produce a fiscal risk statement; and to produce forecasts of devolved taxes.
Let us look at the role of other fiscal watchdogs. Lars Calmfors was the chair of the Swedish Fiscal Policy Council. In Sweden, there is less ongoing contact between the fiscal council and the finance ministry. He argued that requiring the OBR to publish a forecast with the Budget makes it very difficult to,
“avoid behind-the-scenes ‘negotiations’ … with the Treasury”.
He concluded that,
“the most important lesson is this: one cannot have it both ways—the OBR cannot be both an independent watchdog and an in-house provider of input into the Treasury’s work”.
I wonder what the Government think of that. Other parallels can be drawn. The US Federal Reserve has a dual mandate of achieving price stability and full employment, whereas in the Bank of England the Monetary Policy Committee is purely focused on targeting inflation and achieving price stability. Which is the better option?
The current Governor of the Bank of England has dabbled in trying to look ahead. He had that great idea of forward guidance, which was very swiftly dropped as a ridiculous idea. He then made a pronouncement that we would start increasing interest rates the moment that unemployment fell below 7%. What a ridiculous statement: unemployment is now well below 7%, at 5%, and interest rates have in fact been dropped.
The Government have a new industrial strategy which is woven into the name of one of our departments—the Department for Business, Energy and Industrial Strategy. That reminds me of my days at Cambridge University, when we had the industrial society. We have moved on at Cambridge and now have the entrepreneurs’ society. Having an industrial strategy brings back Victorian images of the past, while the five-year plans remind me of India; in its socialist days, it had five-year plans. India, of course, has liberalised since 1991 and is the fastest-growing major economy in the world.
The deficit currently stands at around 4% of GDP while Britain’s debt share currently stands at 83% of GDP. In 2010, when the coalition Government took office during the financial crisis, there was no question but that the deficit was huge. It was over 10%, but that has been reduced drastically. One can then argue—we have debated this—whether the austerity policy of the former Chancellor, George Osborne, was good. In the cuts that took place to government departments while ring-fencing various areas including health, aid and schools, many departments’ budgets were slashed by 20%. Has the policy of trying to cut the welfare bill by £12 billion by 2019-20 worked? There was a very unfair move with the tax credits. We should never balance our books on the backs of the poor. Quite frankly, George Osborne failed to meet his own fiscal charter. His pledge to deliver a budget surplus has been suspended. In fact, Theresa May has now said that this aspiration is not likely to be fulfilled for at least another decade following Brexit. They have made an additional rod for their own back, following the Brexit vote, but the Brexiteers had no plan. It was claimed that £350 million a week being given to the European Union could instead be spent on the NHS. Many people, having been misled, voted to leave to save the NHS.
David Blanchflower, who was a member of the Monetary Policy Committee of the Bank of England, said:
“The problem is that many who voted leave thought this was all about immigration and EU rules, whereas in reality it was mostly about austerity. The Poles, the Czechs and the Hungarians came to the UK to work; they have higher employment rates than those born in the UK and pay far more into the system than they take out. It is clear that the rising number of immigrants has put pressure on public services but this was mostly because Osborne under-invested in services in order to shrink the state. They paid their taxes, but Slasher didn’t invest that money in new schools, houses and hospitals”.
According to the Guardian:
“When public finances are tight, the economic contribution made by migrants ought to be welcomed. But the climate of cuts allowed migrants to be blamed and Britain’s contribution to the EU—at £8bn”—
which is just over 1% of our public expenditure a year, a fact which was not highlighted by anyone during the campaign—is far,
“outweighed by our economic gains from membership—to take on disproportionate significance … Without investment, productivity is low; jobs are insecure”.
What is happening on research?
“Collaboration across the continent has made Europe a powerhouse for science. Britain gained disproportionately from EU research funding. The loss of this funding creates a real gap”,
and will make productivity gains even harder to achieve.
“The referendum shows how far Britain’s economic failures have divided the country, but leaving the EU only makes them harder to address”.
And how are we going to direct the energy that we are putting into building the country,
“to make sure that future generations”—
as the noble Baroness, Lady Kramer, said—
“suffer as little as possible? … We are already hearing from lead Brexiters that their promises on using the released EU funds for the NHS don’t hold”.
The noble Baroness, Lady Kramer, said that,
“spending on infrastructure is investment and should not be included as day-to-day spending when considering eliminating the deficit”.—[Official Report, 25/5/16; col. 489.]
Do the Government agree?
HSBC thinks that Theresa May is now going to embark on a £50 billion infrastructure spending spree, scrapping George Osborne’s plan to abolish the budget deficit and borrowing the money while bond yields are at historic lows. In fact, Simon Wells at HSBC said:
“In the current environment, the case for public investment is compelling. Interest rates can’t go any lower, uncertainty is extreme and borrowing is cheap. Moreover there is evidence that fiscal multipliers (i.e., the GDP impact of fiscal stimulus) are larger when the economy is in a slump”.
Do the Government agree?
The Office for Budget Responsibility estimates that increases in investment spending give the largest immediate boost to the economy, followed by increases in spending on public services and benefits. The most effective tax cut is believed to be a temporary cut to VAT, such as the one introduced at the end of 2008.
Following the leave vote, forecasters have revised down their expectations for growth unanimously. Lower growth will lead to lower tax revenues and more pressure on benefit spending if unemployment starts to rise. These effects mean that borrowing is expected to be higher this year than the 2.9% of national income that was forecast by the Office for Budget Responsibility in March.
“For investment spending to work”—
as big infrastructure projects have been shelved, such as the nuclear project and HS2, over which there has been a big debate—
“‘shovel-ready projects’ are required, said Victoria Clarke, an economist at Investec. But Ms Clarke, who worked in the Treasury during the 2008 financial crisis, warned that ‘a lot of [those projects] were done previously?.?.?.?you don’t have a lot of decent projects ready to go’”.
Can the Government confirm that we have lots of projects ready to go?
Reducing corporation tax is excellent. To make all this work, we need a tax system that is fair and competitive and encourages employment, growth, wealth creation, inward investment, entrepreneurship and investment. Does our tax system at the moment fulfil those needs?
When it comes to immigration, we need good immigration. The UK is no longer a superpower, but we are a global power. America is the only great superpower left in the world and is growing stronger. The vice-chairman of the Federal Reserve, Stanley Fisher, has said:
“I believe it is a remarkable, and perhaps under-appreciated, achievement that the economy has returned to near-full employment in a relatively short time after the great recession, given the historical experience following a financial crisis”.
We have austerity that is leading to decisions on student funding, which the noble Baroness, Lady Kramer, spoke about, removing vast amounts of grant money and introducing loans that may be burdens on students for decades. There is a reduction in investment within towns and cities.
Then there is talk of improving school education. The Prime Minister has introduced this whole debate on the reintroduction of grammar schools. There are just over 160 grammar schools out of over 3,000 schools. There is no question but that grammar schools have been very effective in the past. Practically speaking, can grammar schools be implemented quickly? British private schools are the best in the world but fewer than 7% of our schoolchildren go to them. Why can we not have more of that for the state system?
When the coalition Government introduced the first charter, its fiscal mandate was based on these five-year forecasts, but it has just not been able to achieve them. As we have seen, those three targets are one by one not being achieved. Following the UK vote to leave the EU in 2016, George Osborne made a Statement suggesting that the Government’s fiscal targets may be withdrawn. Sure enough, now they have.
What we need more than anything is growth. Governments cannot cut their way to growth. I have run my own business; I built Cobra Beer from scratch. We went through ups and downs, but what I know is that you have to invest to grow. You cannot just grow by cutting costs all the time.
I turn to public spending. Total managed expenditure as a share of GDP is forecast to be 37% in 2019-20. Is that achievable? Can we cut public expenditure to those levels? Is that realistic? Our net debt is 81% of GDP. That is higher than the average of most advanced economies, which is 73%. We talk about tax simplification but the Office of Tax Simplification is an oxymoron. Our tax gets more and more complicated.
There is one aspect that I would add to what the noble Baroness, Lady Kramer, has introduced in the Bill. Surely part of the responsibility should also be national security. We had this huge debate about spending 2% of GDP on defence, as required by NATO, which we now do, but national security is a huge imperative and that is not highlighted.
When it comes to productivity, which has been spoken about again, we are well below the OECD average. We underinvest in R&D and innovation. There is no question but that we underinvest well below the EU and OECD averages. In fact South Korea, which was mentioned by the noble Baroness, invests double what we in the UK do as a percentage of GDP.
I turn to universities. The noble Baroness said it has never been more vital to invest in universities, yet we have a situation now where investment in universities as a proportion of GDP is well below the EU and OECD averages. It is half of what the United States spends. We should be encouraging investment in higher education, including on attracting international students. Instead we have an immigration policy that includes international students within overall immigration statistics and treats them as immigrants. Numbers from India have halved over recent years, and countries such as Australia are saying, “Thank you for your immigration policies; more students from countries like India are coming to us”. We need more international students and academics to help our universities to excel.
Then we come to the area of how business models work. I make a comparison here using an article just published by the Harvard Business Review called “The Transformative Business Model”, written by Professor Christoph Loch, Professor Stelios Kavadias and Professor Kostas Ladas of the Cambridge Judge Business School, of whose advisory board I have just taken over as chair:
“Basically, a business model is a system whose various features interact, often in complex ways, to determine the company’s success”.
What is the most efficient way to allocate an organisation’s resources? One of them is to be agile and adaptive as an organisation, and then go from innovation to translation. Does our budget system actually achieve that? I am afraid to say that I do not think we achieve it; we do not have at all the balance between spending, a fair and competitive tax system and the targets. What the noble Baroness, Lady Kramer, is talking about is vital. We need to introduce these other aspects.
We need to put things in perspective. Ben Gummer MP came up with the idea of every taxpayer knowing what proportion of their taxes were spent on government spending when they paid their taxes. If you look at that pie chart, you will see that the smallest amount, 1% of GDP, goes on EU spending. That puts everything into perspective.
As Mrs May said:
“He uses the language of austerity; I call it living within our means. He talks about austerity, but actually it is about not saddling our children and grandchildren with significant debts in the years to come”.—[Official Report, Commons, 20/7/16; col. 818.]
I conclude by saying that I still believe we have one of the greatest and most adaptable economies and countries in the world, with 1% of the world population but the fifth largest economy in the world. We need to listen to this.
My Lords, I begin by welcoming the noble Lord, Lord Young, to our counsels. He has occupied significant roles in the other House, particularly as Chief Whip. Having served nearly a decade as a Deputy Chief Whip, I live in awe of Chief Whips. He will appreciate that Whips in this House have the chance to present their case. I am sure that we will all benefit from his contribution and I look forward to hearing what he says in response to this debate. I have no doubt that it will have robust content, and he will expect robust content from me in support of the Bill.
I congratulate the noble Baroness, Lady Kramer, on introducing the Bill and certainly support its main proposals. I recognise that the Liberal Democrat party has a fairly exiguous base in the other place, but it was nevertheless noticeable that when the shadow Chancellor introduced a Motion to similar effect in the Commons about the necessity of the Government producing a much more expansive remit of their position, the Liberal Democrats were not represented in full force. Even their leader was absent from the Division.
I am very glad that the noble Baroness has articulated so ably the importance of these issues today, because we are not pushing at an open door. The Prime Minister may have dropped one or two hints that things will not be quite as they were in the past, but I have seen no articulation from the Government of a significant change in economic strategy and await that development with obvious pessimism.
We in the Labour Party are always positive about constructive ideas, and we are glad that this one has had a clear airing in the House, which is why I speak in support of the Bill. The noble Baroness will know only too well that we need a response and action somewhat earlier than the Bill is likely to provide, given its somewhat hazardous progress through this House—even more so when it gets to the other place. She will forgive me if I do not rely too much on the Bill for a government response to our economic travails. Action must be predicated in the Autumn Statement, which ought at least to indicate that the Chancellor will demolish the economic strategy which has obtained under the Conservative Administration over the past six years or so.
The Government have had three attempts to establish charters of Budget responsibility, which are part of that unforgettable concept, the long-term economic plan, a phrase which I think is destined for a quiet burial over the next few months. I cannot see too many government Back-Benchers in the other place, let alone in this rather more perceptive House of Lords, giving vent to the long-term economic plan if, as I predict, the Government seek to wriggle free of the present constraints which the noble Baroness identified so well. They have to move on that, because each of the charters of Budget responsibility have ended. Even the noble Lord, Lord Bilimoria, who is quite independent in his judgment on these matters from the Cross Benches, as we would expect, and gives us the benefit of a businessman’s perspective, indicated that there had been some failures in these attempts to develop an economic strategy. Only one principle has stood the test of time—and it is not that of reducing the deficit as intended, at the rate intended, or putting the economy on an even keel. What has obtained is austerity. I very much doubt that we will get an enormous change from that position.
The noble Baroness, Lady Kramer, invited the Government to revise their perspective and priorities in a dramatic way, in being concerned about economic competition and fairness between generations. My goodness me—I hope the Government recognise how we are treating one generation, the younger generation, unfairly. We are making higher education for them increasingly difficult, with tuition fees. We have this madcap idea to introduce secondary modern schools as rapidly as possible to define two-thirds of the population, if not more, as failures at the age of 11. Young people have seen a decrease in their earning power as a category over these years. That is unfair, and the Government need to recognise that unfairness in due course will cost them dear. I applaud the proposal made by the noble Baroness in her Bill that the Government should address themselves to inter-generational fairness.
I hope that the Government will be prepared to recognise that without growth we cannot be fair to our population, nor can we hope to reduce the debt successfully—and without growth we condemn our society to declining living standards. It is important that the Government recognise their record: for the vast bulk of the population, there has been no increase in living standards over the past seven years. As the noble Baroness, Lady Kramer, said, the key test is certainly investment. Of course, the Government emphasise the projects that they have under way. The trouble with the list of projects is that a very small number of them have actually had the shovel applied over the past few years; documents have been circulated rather than investment being carried out. That is why it is clear that the test of the Government over these next few years will be the extent to which they address their preoccupation with reducing government spending and the constant emphasis on austerity, and look to provide some optimism in our economy and the development of growth. Against that background, none of us underestimates the challenge presented to the Government by Brexit. We all recognise that, whereas stability and certainty help investment, a major shock such as that is bound to present the Government with an enormous challenge. They are going to be tested, but the test will not be on the reduction of debt at the end of those years but the extent to which the economy has been placed on a path towards growth.
I commend the Bill and look forward to the Minister’s response.
My Lords, we are all grateful to the noble Baroness, Lady Kramer, for introducing and speaking to her Bill and for giving us an opportunity to discuss how best we can secure the strength and stability of our economy. In this debate, we have heard a lot of helpful suggestions and ideas, which I know the Chancellor will want to take on board as he thinks about his Autumn Statement. I will try to deal with many of the points raised, but if I do not I will of course write. I am grateful to the noble Lord who has just spoken for his welcome. He may recall that we were once on the same side. In 1974, we were both in the parliamentary football team. I remember that I was, uncharacteristically, playing on the left wing but he was by far the most professional player on the team. I hope I enjoy encountering him 40 years later in a somewhat different capacity.
I turn to the three principles the noble Baroness has set out in her Bill and, on a consensual note, assure her that these are right at the heart of our economic policy. First, we share her enthusiasm for investment in the infrastructure we all rely on in our daily lives. We share her commitment to providing support and opportunities to young and old alike and we share her determination to ensure that our economy remains competitive in an increasingly competitive world economy. At the end of Clause 1—which the noble Baroness did not touch on—we also agree that it is sensible to consult independent experts as we develop our policies. On those broad objectives, there is not a cigarette paper between us.
Picking up on some of the points she made in her speech, the noble Baroness did less than justice to the progress that the Government have made and are continuing to make on the three topics of her Bill. On infrastructure, there are challenges ahead but we have made good progress since 2010 with more than a quarter of a trillion pounds invested in the past six years and 3,000 projects completed across the country, including dozens of major road and local transport schemes. The noble Baroness should be congratulated on her role in contributing to this when she was Minister for Transport. We have seen 3.5 million premises get access to superfast broadband for the first time ever; 175,000 homes better protected from floods; and, crucially, 700,000 new homes built since 2010, with housing completions at an eight-year high. So we have made progress to date, but we have a long way to go. Some £100 billion is committed to infrastructure over the course of this Parliament, including the biggest investment in transport in generations. HS2, a project the noble Baroness strongly supports, is part of that. Then there is £8 billion over the next five years to build an extra 400,000 affordable homes.
Intergenerational fairness is already in the charter: it is one of the first objectives in Chapter 3.1, so to some extent that particular amendment is redundant. The crucial way we help the younger generation is to pay down the national debt, not allow it to pile up and just pass it on to the next generation to deal with. That is why we have worked so hard to cut the deficit from its highest in our peacetime history by almost two-thirds.
On the younger generation, challenges lie ahead, too. However, we have raised the school-leaving age to 18 and have seen record university application rates from young people, including those from disadvantaged backgrounds. We are committed to delivering 3 million apprenticeship starts by 2020 and we are helping more young people to save for their futures through the lifetime ISA.
The third element of the noble Baroness’s Bill is economic competitiveness, where progress has been and is being made. We have cut corporation tax to 20% and will take it further, to 17%, while at the same time cutting business rates and employer national insurance contributions. As I said, we are in agreement. The noble Baroness put a slightly different complexion from mine on what we have done to date, and I hope mine has put it in a better perspective. She started her speech by pointing out the change in objective in fiscal policy in that capital spending is now included in the target. This was also mentioned by the noble Lord, Lord Bilimoria. That was a manifesto commitment by my party. We said that we,
“will ensure that in normal economic times, when the economy is growing, the government will always run a surplus in order to reduce our national debt and keep our economy secure”.
That was incorporated in the draft charter and then the 2015 charter, and endorsed by the House of Commons on 14 October. However, as the noble Baroness will know, it is qualified by the significant negative-shock provision, whereby, if real GDP growth of less than 1% on a rolling four-quarter basis happens, that discharges the immediate obligation. If one looks at the August inflation report of the Bank of England, forecasting growth of 0.8% next year, it looks as if the negative-shock provision will be activated. The Chancellor has made it clear that he is no longer pursuing the objective of headline surplus by the end of this Parliament, consistent with the provisions that I have just read out, and he will plan to set out future plans in the Autumn Statement.
The noble Lord, Lord Bilimoria, spoke about the independence of the OBR. The Budget Responsibility Committee of the OBR makes all its judgments in its forecasts independently and confirms this at the publication of every forecast. The OBR’s independent forecasts for the UK economy and public finances allow the Government to fit fiscal policy to a central forecast rather than changing the forecast to suit fiscal plans, which is what used to happen.
I turn to the principal area of disagreement I have with the noble Baroness, which is whether we need primary legislation to achieve her objectives. It so happens that yesterday I replied to my first debate in the House of Lords in the Moses Room. The QSD in the name of my noble friend Lord Framlingham concerned the need to stem the flood of legislation. During that debate, representatives of all three parties united to beg for restraint in introducing legislation. I can do no better than quote from the noble Baroness’s noble friend Lord Beith, who spoke in that debate. He said:
“As a Liberal Democrat, I believe that some degree of restraint is needed when you decide to bring in new laws … You should not bring in laws because you have to be seen to do something”.
He went on:
“Before we start, we should ask: is there anything this Bill can do that cannot be done at least as well under existing law? That is the primary question we should always ask”.—[Official Report, 8/9/16; cols. GC 209-10.]
Of course, we can do all the things the noble Baroness wants under the existing law. I could not have put the case against proceeding with primary legislation better myself. Therefore, it is the Government’s position that while we back the spirit of the Bill, we do not see the need to legislate for what we are already committed to doing, and what, indeed, any subsequent Government should also do for the greater good of the country.
Having said that, it would be churlish to sit down before congratulating the noble Baroness and all those who have taken part in this debate on their very helpful contributions on a vital subject.
My Lords, I thank all those who have spoken in this debate. Of the four of us who have spoken, three had no choice. However, the noble Lord, Lord Bilimoria, was a true volunteer. That makes him No. 1 in my book as a consequence. I very much value his contribution and the examples given of Sweden and the US taking a different approach to issues such as the fiscal mandate. That opens up our minds. He warned us against a Victorian vision of the economy and, in doing so, drew on his own experience as a very successful creator of a business. He very much urged the Government to take advantage of low interest rates to accelerate the commitment to infrastructure well beyond their current and original ambitions. I hope that the noble Lord, Lord Young, has taken this point on board.
I thank the noble Lord, Lord Davies of Oldham, very much for finding so much common ground. It is always good when views are shared across these Benches. I am sure he is right that we will confront these issues in the Autumn Statement in November, long before any Bill introduced as a Private Member’s Bill will have the opportunity to have any impact. On that score, I say “Cheeky” to the Minister for bringing in a quote from my good colleague, the noble Lord, Lord Beith. However, he too will recognise that this is an important mechanism for getting a debate on an issue that very often comes after an Autumn Statement, although it should come before it. I hope that the Government will create some opportunities in their own time for key issues like this to be considered, particularly in the context of Brexit, which creates a much more dynamic situation and means that many more things need to be considered by this House and the other place.
I particularly valued the contribution of the noble Lord, Lord Davies, to the discussion of what the Government describe as a switch to grammar schools, which for 90% of people is a return to secondary moderns. That gets very much lost in the discussion, and I hope that what he has said will be seen as something of a reprimand to the media, which have ignored the 90% who will never have the opportunity to participate in the quality of education that is now being identified for a limited few.
I am delighted to hear that the Government welcome the general principles that were laid out in my Bill, but we have some differences of interpretation. Many in this House, and many on the Minister’s own Benches, will find the commitments to infrastructure spending frankly unambitious, given the needs of the time. We face generations of underinvestment, and the Government need to look again at accelerating our commitment to dealing with that in these times of great economic uncertainty and challenge. He also explained that the change in the definition of a budget balance or surplus was driven by the Conservative 2015 manifesto. Just because one makes a foolish statement in a manifesto, that does not mean it then makes sense to put it into practice in government. The Government need to look again at something I know they themselves see as a pair of handcuffs; there is no reason why we should all suffer as a consequence of manifesto drafting.
When the Minister looked at generational fairness, he once again focused on making sure that the next generation does not have to carry the debts for its predecessor generations. I fully accept that. However, that is far too limited an understanding of what is happening to our younger generation, who are in the most extraordinary situation. When the Minister and I were young, we always knew that we could do better than our parents. We now have a generation for which that is exceedingly questionable. That issue must be addressed before we end up alienating those who will inherit not just the national debt we leave behind, but society, opportunity, the economy and so much else. That has to go much more centre-stage in the Government’s thinking.
On competition, the only thing the Minister mentioned was tax cutting. That indicates the narrowness of the Government’s definition of competition—“Have we cut corporate taxes?” Frankly, cutting corporate taxes may have made some companies happy but it certainly has not led them to invest more, to train more or to increase their productivity in any marked way. Therefore, we have to look at other strategies to achieve that goal, and we need to understand the limits of tax cutting and decide whether it is appropriate for our target.
I thank everybody for participating in this debate. These are topics that we will return to, whether in the context of this Bill or in other contexts. For me, this has been a very interesting first go around the subject and it has also provided a great opportunity to welcome the noble Lord, Lord Young, to his new role. I look forward to many more exchanges on these and similar issues, and I ask the House to give the Bill a Second Reading.
Bill read a second time and committed to a Committee of the Whole House.
House adjourned at 2.59 pm.