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UK Convergence Programme

Volume 790: debated on Monday 16 April 2018

Motion to Approve

Moved by

That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, HM Government’s assessment of the medium term economic and fiscal position as set out in the latest Budget document and the Office for Budget Responsibility’s most recent Economic and Fiscal Outlook and Fiscal Sustainability Report, which forms the basis of the United Kingdom’s Convergence Programme.

My Lords, the legal requirement to give the European Commission an update of the UK’s economic and budgetary position—our convergence programme—means a welcome opportunity for a wider economic debate today.

In accordance with the outcome of the referendum, we are leaving the European Union and will make our own decisions, take control of things that matter to us, and seize every opportunity to build a stronger and fairer Britain. But, given our decision to leave, some Members may find it odd that we are debating the UK’s convergence programme here today. However, it is right that we do so, because we continue to exercise our full membership of the EU until our exit, and because doing so is a legal requirement that must be taken seriously.

I remind the House that the content of the convergence programme is drawn from the Government’s assessment of the UK’s economic and budgetary position. This assessment is based on the Autumn Budget report and the OBR’s most recent economic and fiscal outlook, and it is this content, not the convergence programme itself, that requires the approval of the House.

I also remind noble Lords that, although the UK participates in the stability and growth pact that requires convergence programmes to be submitted, by virtue of our protocol to the treaty opting out of the euro we are required only to “endeavour to avoid” excessive deficits. The UK cannot be subject to any action or sanctions as a result of our participation.

I will provide a brief overview of the information that we will set out in the UK’s convergence programme. Noble Lords should note that this does not represent new information but rather captures the Government’s assessment of the UK’s medium-term economic and budgetary position, as we set out in the Autumn Budget, and again recently in the Spring Statement.

The UK economy has been growing for five consecutive years. It has added 3 million jobs since 2010, and our manufacturing sector has enjoyed its longest unbroken run of growth in more than 50 years. Since April 2015, the wages of the lowest paid have risen by almost 7% above inflation. Growth remained solid in 2017, and at the Spring Statement the OBR revised up the outlook for the UK economy this year, with forecast growth in 2018 higher than it was in November. The OBR forecasts more jobs in every year of this Parliament, and over 500,000 more people in work by 2022. The OBR expects inflation to fall back to the Bank of England’s target rate over the next 12 months, meaning that real-wage growth is expected to be positive from the first quarter of 2018-19 and to increase steadily thereafter.

Since 2010, the Government have made significant progress in reducing the deficit; 2016-17 was the first year since the financial crisis in which the UK’s general government deficit was below the 3% Maastricht treaty limit, and in December of last year the European Council acknowledged this achievement by closing our excessive deficit procedure.

In the Spring Statement, the OBR forecast that public sector net borrowing is expected to be £45.2 billion this year—£4.7 billion lower than forecast in November and £108 billion lower than in 2009-10. As a percentage of GDP, public sector net borrowing is forecast to fall from 2.2% in 2017-18 to 1.8% this year. Borrowing is then forecast to continue falling, reaching 0.9% in 2022-23—its lowest level in more than two decades.

The OBR forecast that public sector net debt will peak at 85.6 % of GDP in 2017-18 and then fall as a share of GDP in every subsequent year. This is an important turning point for the public finances, with debt projected to fall as a share of GDP on a sustained basis for the first time in 17 years. Getting debt falling is important in order to enhance the UK’s economic resilience, improve financial sustainability and reduce the burden on future generations. The Government’s balanced approach to fiscal policy is underpinned by our fiscal rules. The OBR forecast that we will meet our targets both on structural borrowing and on getting debt falling two years early.

Although committed to getting debt falling, the Budget took a balanced approach to government spending, supporting households and businesses in the near term and investing in the UK’s economic potential in the medium term. That includes building the homes that our country needs to restore the dream of home ownership for a new generation. It includes helping young people across the country to get the skills they need for the high-paid, high-skilled jobs of the future, and it includes investing in cutting-edge technology and innovation so that Britain continues to be at the forefront of the global technology revolution.

Those three things will be at the heart of our efforts to finally address the country’s long-standing productivity challenges. The Government are working to strengthen our public services over the long term, too, in our determination to bring down the deficit and get the UK back to living within our means, as well as funding our public services for the long term through a fair and sustainable tax system. The Budget supported our world-class public services, including putting our NHS on a stronger, more sustainable footing.

Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit the programme to the Council of the European Union and the European Commission, with recommendations expected from the Commission in May. The submission of convergence programmes by non-euro area member states, and stability programmes by euro area member states, also provides a useful framework for co-ordinating fiscal policies. A degree of fiscal policy co-ordination across countries can be beneficial to ensuring a stable global economy, which is in the UK’s national interest. The UK has always taken part in international mechanisms for policy co-ordination such as the G7, the G20 and the OECD.

Although we are leaving the EU, we will of course continue to have a deep interest in the economic stability and prosperity of our European friends and neighbours, so we will continue to play our part in this process while we remain an EU member, and in other international policy co-ordination processes once we have left the EU.

The Government are committed to ensuring that we act in full accordance with Section 5 of the European Communities (Amendment) Act 1993 and that this House approves the economic and budgetary assessment that forms the basis of the convergence programme. I beg to move.

My Lords, in a way this is a slightly poignant debate because, as the Minister has outlined, although the UK reports against the various economic benchmarks for the stability and growth pact, it is not required to take notice of any recommendations of the European Union that might follow from that but merely to promise that it will endeavour to avoid deficit. That is an example of one of the many ways in which the European Union accommodated the preferences of the UK and its desire to pursue some independence in certain areas, particularly the economic—greater than that enjoyed by other countries. It shows the mutual respect that framed the years in which we participated as a full and enthusiastic member of the European Union. When we consider how we have responded to the positive and creative ways of making sure that the most significant needs of the UK were always dealt with in a rational and reasonable way, it makes Brexit even sadder.

I just want to say a few words. Within the last few weeks we have had several debates on the economy, so rather than constantly repeat their content I want to make a couple of comments. The first is that I am concerned that the Government—weeks later—still have not recognised the significance of the very poor growth forecast for the UK that was presented by the OBR: 1.7% in this fiscal year, dropping to 1.5%. That is at a time when every one of our major export markets is absolutely going gangbusters, with growth in excess of 3%. Rather than take on board seriously the importance and relevance of responding to that issue, the Minister once again stands up and merely quotes reductions in deficit rather than dealing with the fundamental problems that we face.

Obviously some of those fundamental problems are around productivity. Again, the Government always cite the recent slight improvement in productivity. However, I remind the Government that, if they are minded to cite that again, it was caused by a drop in the number of hours worked—a very worrying warning sign—and not by improvements in output.

Today, again, we have reports on consumer spending, which continues to decline. Looking at the UK consumer spending index, I see that consumer spend declined by 2.1% year on year in March following a 1% year-on-year drop in February. Those are significant numbers, and they concern not just face-to-face spending—in other words, the high street retailers and shops. We know that there has been a shift from face-to-face spending to online spending, but now, for the first time, there is a significant fall in the online spending numbers as well. The Government have to take this very seriously, rather than simply assume that all is well and that the economy is in a positive state. We know from the many people we talk to that wage pressures are having a significant impact on individuals as they face inflation every time they go to the shops, and that the pressure on public spending has become completely intolerable.

Before I sit down, I will use this occasion to say once again that the Government have to tackle the lack of public spending in schools, in prisons and, above all, in the NHS and social care. This is the time to put in place a team to look at a dedicated tax to support the NHS and social care. If we do not start to do that soon, and to put in place the appropriate response to the needs of that critical service, we will find ourselves in a dire position.

Unfortunately, the Minister praised Brexit as the future for Britain, but we know from the Government’s own analysis—we have all gone and read it over in 100 Parliament Street and have heard it in other places —that the forecast is for the UK to function at a significantly lower level than it would have otherwise. We are looking at a dark economic situation, and for the Government to constantly present it as rosy takes away any confidence we can have that they will tackle these fundamental and underlying problems.

My Lords, we are holding this debate today in the context of weeks of key Brexit debates ahead. It seems odd to be debating a Motion on the issue of convergence as we embark on weeks of debate about how we will leave the EU. I will not make this speech Brexit heavy but focus on what the Motion asks us to approve.

The Motion asks us to approve the Autumn Budget 2017 report and the most recent OBR economic and fiscal outlook for the purposes of Section 5 of the European Communities (Amendment) Act 1993. This is made difficult because we cannot be confident about what the economy will look like this time next year when, according to the Government’s Brexit timetable, we will no longer be a member of the EU—and presumably will no longer be holding this yearly debate. It is also made difficult by a number of other concerns.

I do not share the Chancellor’s view of light at the end of the tunnel, nor do the households for whom the squeeze on incomes and living standards is a daily pressure. The OBR forecasts from March are marginally better in the short term, but they have revised forecast growth down in both 2021 and 2022 since the Autumn Statement. Amid such uncertainty in the face of leaving the EU, how can we expect these to be revised up at any point? Last year, growth in our economy was the lowest in the G7 and the slowest since 2012. In the last quarter of 2017, GDP growth was just 0.4%. That means that Britain was the slowest-growing major economy across 2017, behind both Italy and Japan. OBR forecasts predict growth will fall below even the weak 1.7% level that the Chancellor spent most of the Spring Statement boasting about. So we are looking at having 1.5% growth in 2022, 15 years after the financial crisis, which is absolutely nothing to boast about.

This Government have missed every deficit target they have set themselves. Public sector borrowing is still higher than forecast a year ago, and debt is over £700 billion higher than when the Tories came to power. George Osborne’s target for a 2020 surplus is a distant memory. The Government may be quick to point to productivity growth. However, we know from the OBR outlook that stronger productivity has in fact reflected the fall in average hours worked in the second half of 2017, as the noble Baroness, Lady Kramer, said, rather than stronger output. The OBR forecasts in November actually revised down productivity and business investment every year for the next five years. We are lagging behind the rest of Europe, with the productivity gap between us and other G7 countries the widest it has been since 1991.

This Government are failing to support working people. We have an economy running on low pay and insecure employment. Some 60% of people in poverty in the UK live in households where someone is in work. Clearly something is wrong here. The Government say that the economy is growing, but the UK is the only major nation in which wages have fallen at the same time. Wages are still below their level in 2010 and wage growth is being outstripped by inflation. The IFS has said that real average earnings are expected to grow by just 3.5% over the next five years, meaning that their level in 2022-23 would be similar to 2007-08. The OBR has said that real earnings growth over the next five years is expected to remain subdued, averaging just 0.7% a year. Growth in real household disposable income per person is expected to average only 0.4% a year. The national living wage was once again revised down. It will not hit the £9 per hour that the Tories originally promised. In the Spring Statement, it was projected to be just £8.57.

The Government’s headline figures on the deficit exist only because debt is being pushed on to local councils, schools and hospitals. Our public services are suffering a government onslaught. National Health Service trusts will end this financial year £1 billion in deficit. Doctors and nurses are struggling and being asked to do more, while 100,000 NHS posts go unfilled. Recorded crime is rising, yet the Government have cut the number of police officers by 21,500 and the number of firefighters by more than 8,500. Our prison and probation services are in dangerous crisis, and yet another prison riot has been reported today.

This Government are responsible for the first real-terms per capita cut in school funding in 20 years and are today trying to deprive 1 million children of a decent school dinner. They have trebled student fees to £9,000 and abolished the maintenance grant, meaning that the average working class student leaves university heavily in debt. Local government will face a funding gap of £5.8 billion by 2020 and is drawing down more reserves. More children are being taken into care, yet children’s services alone are facing a £2 billion funding gap by 2020, while more than 1 million of our elderly people are living with their care needs unmet.

After eight years of failure on housing, from rising homelessness to falling home ownership, the Government have no plan to fix the housing crisis. Statistics released just before the Spring Statement reveal that housebuilding has still not recovered even to pre-crisis levels. The OBR was not able to adjust its forecast on housebuilding as a result of any policies in the Budget.

The Spring Statement missed an opportunity to prepare our economy for Brexit and was a missed opportunity to invest in the services that we as a country will rely on increasingly in the post-Brexit future. The Chancellor may have kept his promise of no new fiscal policies, but that means that struggling families with low pay facing benefit cuts to free school meals will have to wait until the autumn for any kind of relief. I am not sure that they can afford to wait that long.

My Lords, the noble Baroness rightly pointed out that we have had a few of these debates. They tend to come down to a debate between the optimists and the pessimists, and I have to say that the Government and indeed I myself are very much in the optimistic territory on this. We believe that we can make a success of Brexit and that our best days are ahead of us. The forecasts which are made are not targets to be met but are there to be beaten. Evidence of that is in the OBR forecast last year, which was mentioned in the debate, and the Autumn Budget. The forecast for growth was 1.5%, but the actual outturn in growth was 1.8%, which is welcome and something we want to see continue to happen.

The noble Lord, Lord Tunnicliffe, accused us of failing to support working people. Well, there are a lot more working people around whom we are supporting with jobs. There are some 3 million additional jobs in the economy, and that level of employment is likely to increase over the period of the OBR forecast, so there is a significant amount going on.

The noble Lord also challenged whether we are doing enough on housing. The whole point and thrust of the Spring Statement and the Autumn Budget was in the housing area. I am sure that my noble friend Lord Young, who is of course a specialist in this matter and in his place on the Front Bench, is longing to leap to the Dispatch Box to correct the record on what incredible things we are doing to give people an opportunity to have a stake in the future.

The economy is 16.7% larger than it was in 2010, and the IFS has said that, by the end of this Parliament, government plans will see public investment increase to its highest sustained level in 40 years. As the noble Baroness almost anticipated that I would say, we have announced a £31 billion national productivity investment fund to tackle our productivity challenge head on, and we are seeing some encouraging signs in that area. Ultimately, while the people who have confidence in the economy may not be found on the Opposition Benches, they can be found in companies like Toyota, which has said that it will build the next generation of its Auris hatchback in Derbyshire; BMW, which has said that it will build a fully electric version of the Mini in Oxford; Boeing, which will open its first European factory in Sheffield; and Dyson, which has announced that it is to begin work on a second technology campus.

We on this side certainly take a positive view of the underlying strength of the economy, while not diminishing the challenges we face. They were set out in the Autumn Budget and expanded upon in the Spring Statement, and they are contained in the convergence document which is being presented to your Lordships’ House today and which I have no hesitation in commending for approval, should noble Lords so wish.

Motion agreed.