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UK Convergence Programme

Volume 797: debated on Tuesday 9 April 2019

Motion to Approve

Moved by

That this House approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, the 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 Government have a legal requirement to give the European Commission an update of the UK’s economic and budgetary position as part of our convergence programme. Given our decision to leave the European Union, some Members may find it odd that we are debating the UK’s convergence programme here today, but it is right to do so, because we continue to exercise our full membership of the EU until the point of our exit and because doing so is a legal requirement and one that we must therefore take seriously.

The document before us may look familiar. This is because substantial parts of its content are drawn from the Autumn Budget report and the OBR’s most recent economic and fiscal outlook. It is the content, not the convergence programme itself, that requires the approval of the House today.

I remind the House that although the UK participates in the stability and growth pact, which 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.

Let me provide a brief overview of the information we will set out in the UK’s convergence programme. Noble Lords should note that this does not represent new information; rather, it 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 in the Spring Statement.

The UK economy has been growing for nine consecutive years, with the longest unbroken quarterly growth run of any G7 economy. It has added 3.6 million jobs since 2010, has almost halved youth unemployment and has seen female participation in the workforce increase to record levels. The economy is now delivering the fastest rate of regular wage growth in over a decade. Despite the slower global economy, the OBR expects Britain to continue to grow in every year of the forecast period: at 1.2% this year, 1.4% in 2020 and 1.6% in each of the final three years. This represents cumulative nominal growth over the next five years that is slightly higher than the Budget forecast. The OBR forecasts 600,000 more jobs in our economy by 2023. There is positive news on pay too, with the OBR revising wage growth up to 3% or higher in every year.

The Government have made significant progress since 2010 in reducing the deficit, and in 2016-17 reduced the Maastricht treaty-defined deficit below the EU’s 3% limit for the first time since the financial crisis. The OBR forecasts it to fall below 2% of GDP in 2018-19 and below 1% in the final two years of the forecast period. At the Spring Statement, the OBR forecast that public sector net borrowing is expected to be £22.8 billion this year—£3 billion lower than forecast in November and £130 billion lower than in 2009-10.

We remain on track to meet both our fiscal targets early, with the cyclically adjusted deficit at 1.3% next year, falling to just 0.5% by 2023-24, and with headroom against our fiscal mandate in 2020-21 increasing from £15.4 billion at the Autumn Budget to £26.6 billion at the Spring Statement.

Less borrowing means less debt, which is now lower in every year of the forecast period than at the Budget, falling to 82.2% of GDP next year, then 79%, 74.9%, 74% and finally 73% in 2023-24. Our national debt is falling substantially for the first time in a generation.

While 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. We have made over £150 billion of new spending commitments since 2016, and the Chancellor announced in the Budget that the long but necessary squeeze on current public spending would come to an end at the upcoming spending review, setting out an indicative five-year path of 1.2% per annum real-terms increases in day-to-day spending on public services compared with real-terms cuts of 3% per annum at spending review 2010 and planned cuts of 1.3% in real terms per annum at spending review 2015.

We made our biggest choice on public spending to put the NHS first, in line with the Prime Minister’s announcement of £34 billion of additional funding per year by the end of the period—the single largest cash commitment ever made by a peacetime British Government—to support our long-term plan for the NHS. It will deliver improved cancer and mental healthcare, a transformation of GP services, more doctors, more nurses, and better outcomes for patients.

Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit the convergence programme to the Council of the European Union and the European Commission. 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, G20 and 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 subject to the acquis, 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, which I commend to the House.

My goodness. I thank the Minister for his statement. I think we can all agree that this is a bit of a paper exercise, as the UK is not a member of the euro. Therefore, no matter how we perform on our structural deficit, there are no enforcement measures that the EU or any part of it can take against the UK. He is also absolutely right that there is nothing new in any of these numbers; they are basically a cut and paste from the last Budget and the OBR forecast. The forecast is slightly differently defined from our deficit numbers, but the cyclically adjusted treaty deficit number actually rises slightly this year, so technically we are actually going into the excessive debt procedure, although probably only briefly. Again, that has no particular consequences.

I find this, like many other debates on the economy, to be utterly surreal, because we will have no idea how the economy will look until Brexit is sorted out. That is so fundamental to creating the terms on which we have to look forward. All that we know is that every forecast that HMT has done of the medium term, in any Brexit scenario, shows us to be significantly worse off than if we had remained in the EU. That includes getting absolutely wonderful and amazing free-trade deals all over the place.

Because we have had so many debates on this issue, I am sure that the House will not mind if I am brief and will make just a few points. First, while I share the Government’s pleasure in our good employment numbers, I repeat that it is a lagging indicator, and I wish that HMT would take that on board. But rather more troubling, a recent piece of work by Aston University suggests that established businesses have been shedding employees in significant numbers for some time and that the slack has been taken up by start-ups.

I am delighted with start-ups, but we are all well aware that a start-up is far more volatile, and if we go into any period of recession or rough water it is exactly that start-up arena that will take some of the harshest blows. I had not anticipated that there was a threat to our employment numbers, but it looks to me as if we potentially have something here that the Government should take a very close look at.

Secondly, I want to raise the question of the very sharp drop in business investment. I want to make sure that we do not confuse business investment with oligarchs buying luxury properties in our major urban areas. That pumps the numbers up, but it is not the kind of investment that anybody in this House is particularly keen to see, particularly as it deprives local people of housing opportunities.

I want to pick up an issue that I have heard mentioned by a number of Brexiteers who have said that they all accept that the investment numbers have plunged but that that means that there is a wall of pent-up investment waiting for the moment we hear that Brexit has been settled. In the companies that I talk to—and I see many Members of this House who talk with companies on a regular basis—if you miss the investment cycle for a particular business, you have missed it. It is not held back and set aside for the UK; it goes elsewhere. Your next opportunity to try to access that money will be in the next investment cycle, which for many companies is five to seven years away. We have to be very serious about the impact of the drop in investment and of missing out on the variety of cycles.

The third problem that has to be addressed is our productivity problem. The Minister referred to this. Productivity is running at around 1.2%. Pre the financial crisis, it was more than 2%, and even then we did not think that was a terrific number. I do not care how you redefine productivity in services; you are not going to get from 1.2% to 2%. We have a problem, and it is better that we recognise it.

The Government are trying to tackle some of this through their industrial strategy, but as I read it the industrial strategy focuses very much on trying to get new cutting-edge technology into our tier-1 companies. Our tier-1 companies are fine on productivity. They are among the most productive companies across the globe. Our problem is that the structure of our economy has a very long tail of medium-sized and small companies, and they are hugely lagging in productivity. For them, productivity may be a matter of getting rid of a 10 year-old piece of equipment and replacing it with a three year-old piece of equipment. It is very different from trying to focus on cutting-edge new technology. There is nothing wrong with that, but if we want to deal with the productivity problem we had better start focusing on where the problem is. I recommend that very much to the Government.

All of that comes together and cumulates in our low growth rate. Yes, we have limped along with a low growth rate for many years, but frankly that is nothing to celebrate. The OBR anticipates that the good news will be that it will rise to about 1.5% in the medium term. Some of that may be undermined. The Purchasing Managers’ Index is showing a sharp drop in business confidence. We know from Ernst & Young that in reaction to potential Brexit at least £1 trillion in financial assets have already been moved to the EU 27 and people do not intend to bring them back in any circumstances. Ernst & Young has also confirmed that since March it has seen a steady increase in financial firms publicly committing to move people, assets and operations to the EU 27. When Ernst & Young reports, it is not giving us confidential information, only publicly declared information, so we know the problem is far more fundamental.

I challenge the Minister on his rosy description of additional funding for public services. Every public service seems to be falling apart, whether we are talking about schools, prisons, social care, the NHS or the welfare system with more children in poverty. We have some marginal spending increases starting to come through in the autumn, but it will take a long time even to catch up on that degree of damage and to get a turnaround, given the cuts which, particularly in the past few years, no longer attacked fat but got well into muscle and bone. I believe that there is wide demand to see something far more radical to bring public services up to the quality that we think is necessary.

I repeat my question earlier: for goodness’ sake, will the Government please take the borrowing for investment in infrastructure out of their deficit calculation? It had been out of the deficit calculation, but it was brought back in by George Osborne in 2015 for reasons that no one has ever been able to explain to me. It distorts the numbers, because obviously when interest rates are low you borrow to build infrastructure and treat it in a very different way, as capital expenditure, from day-to-day revenue spend. Indeed, if we had not had infrastructure in there, we would have been lighter on the public-spending numbers as well. Coming along with all of this we have the fourth industrial revolution, so the need to ramp up that investment in a very wide range of infrastructure is exceptionally acute.

We are in something of a moment of economic depression. This might be the calm before the storm, but in reality it is Brexit that will set the context, and I hope for goodness’ sake that we manage to make sure that we do not let that destroy our hard-won economy.

My Lords, I want to make a comment and ask a question of my noble friend. The comment—actually, I suppose it too is a question—is: is it not ironic that Britain never wished to join the single currency, yet we are probably the closest aligned to the Maastricht criteria that were set in 1992?

My question for my noble friend is as follows. The Government have been fined substantial sums of money over the years for late payments of the single farm payment and countryside stewardship schemes under the common agricultural policy. Only yesterday, the Rural Payments Agency announced that it is going to make bridging payments for the 2018 basic payment scheme claims and the countryside stewardship claims for 2018 advance payments. As we leave the EU and presumably will no longer face fines for late payments of farm support—in so far as they will continue to exist—what will the mechanism be, if Defra fails to ensure that the RPA makes the payments on time, to ensure that the payments are made in as timely a fashion as possible?

My Lords, as we look forward, it is increasingly difficult to match our view of the future macro economy with the micro economy. I would like to relate this to freedom of movement. Either it is true that a lot of the economy of the south-east is heavily involved in freedom of movement in Europe or it is not. In so far as it is true, everyone is holding their breath at the moment.

I shall give three or four examples of what happens at the moment. A fitter from Barnsley can work freely in Antwerp. A doctor from Guildford is able to work in Paris, her medical qualifications being automatically recognised. Estonian software coders can work in London. Retired teachers from Bromsgrove are able to live in Brittany and receive a pension. An oil engineer from Bergen can establish a business in Aberdeen. Lorry drivers from Wigan can deliver goods across the continent without the need for international driving permits. Injured in Malta, a holidaymaker from Belfast will have their hospital treatment covered by the NHS. Lastly—a subject close to the heart of the noble Baroness, Lady Bull—a violinist from London or Leipzig can catch a plane at short notice and work in either the next day.

I find it very difficult to know about the next few months, as we postpone the final decision and think about how freedom-of-movement issues relate to the other agenda. This is a problem of uncertainty. I ask the Minister to flag up the fact that we really need to have a cockshy at some of the key questions that have yet to be decided under the heading of freedom of movement. We know something about the social chapter of the Maastricht treaty and workers’ rights. We even know something about the way in which we can redistribute the macro picture from London to Lancashire, as it were—where I come from originally—so that savings on the EU budget might be redistributed more towards the Midlands, the north of England and so on.

I find it important to get some micro, as well as macro, thinking into these sorts of exercises in the Treasury. Otherwise, we might find that people are working on divergent assumptions about how this freedom of movement thing will work out. I cannot believe what some people in my own party say. It is not the leader’s policy, but there are some people who think we can just wave a magic wand and all the examples I have given will disappear and there will be no problem. Surely that cannot be the case. I think every cup of coffee I drink in London is served by somebody from Estonia. All of this relates to the economy. Will the Minister flag up how we will deal with this, as well as looking at the customs union and so on? That is very important, but it is not the only card game in town.

My Lords, I want to pick up on a point that the noble Baroness, Lady Kramer, made about financial services. I asked a Written Question on 27 February regarding what assessment the Government had made of the reduction in tax take that would arise from the actions taken by financial services businesses to enable their businesses to operate after Brexit.

The Minister was kind enough to respond, saying:

“The Government has published a detailed set of economic analysis on the long-term impacts of EU exit on the UK economy, its sectors, nations and regions and the public finances. The Chancellor will also be providing the independent OBR’s updated fiscal and economic forecasts at the Spring Statement on 13th March”.

In anticipation of finding the answer to my question, I ploughed through these analyses. You can imagine my surprise and disappointment when I was unable to find anything that answered it. I must have missed something, I assume.

This is important. The financial services industry is a significant part of our tax base, contributing around £72 billion or 12% of the total annually. My question is not theoretical; I am asking about actions that have already been taken. A study by New Financial has identified 275 firms that have stated that they are moving parts of their businesses out of the country. Only a small number of those firms have said what they are moving, but already the figures are very large: banks have moved or are moving some £800 billion in assets from the UK to the EU, insurance firms are moving tens of billions in assets, and asset managers have transferred more than £65 billion in funds. That £800 billion in bank assets is nearly 10% of the UK banking system. The final tally is likely to be much higher; there are suggestions that more than £1.5 trillion in assets has already been moved.

Studies also suggest that at least 7,000 financial services jobs have already been moved. That does not include the new jobs created in other countries that would have been created here but for Brexit. New Financial expects the headline numbers to increase significantly in the next few years as local regulators across the EU require firms to increase the substance of their local operations. They have also identified hundreds of firms that they think will have to move something somewhere to retain access to EU markets, but which have not yet done so.

It is inevitable that these moves will have an impact on the UK’s annual tax take in the current tax year, and that impact will continue and increase. Given the importance of the financial services industry to our tax yield, could the Minister now answer my earlier question and tell us how much of that £72 billion we are going to lose? Could he also tell us to what extent that has been taken into account in the Budget?

My Lords, I will follow up briefly on the comments made by the noble Lord, Lord Lea, a moment ago on the performance of the economy and the existing disparity. The efficiency of an economy clearly depends on overall capacity, capacity utilisation and labour productivity and efficiency. When we have as great a disparity as we have at present between the economy of south-east England and the economy elsewhere, clearly, diseconomies will happen. These could well be seriously exacerbated by the consequences of a no-deal Brexit. We are particularly concerned about sectors such as the Welsh tourist industry, where much of the labour is imported from continental Europe. If there is a cut-off it could affect our capacity to deliver.

There clearly needs to be a strategy for the post-Brexit period that addresses the efficiency of the overall economy but also that disparity. Bringing up the poorer-performing areas nearer to the average would clearly be in everybody’s interest. In that context, another factor for us in Wales is the loss of the EU structural funds, which will bite after 2020. That is a very serious loss. We are still waiting for a categorical confirmation from the Government that there will be a full replacement of that, not just to 2020 but ongoing thereafter. Without it, it will be impossible to get the economic restructuring we need.

My Lords, I welcome the overall thrust of the statement made by my noble friend. It seeks to demonstrate that our seeming political meltdown over Brexit is not matched by an economic meltdown. This was brought home to me recently when I participated in a panel with the former Italian Prime Minister, Matteo Renzi, and the former Greek Prime Minister, George Papandreou. While they were able to have some fun at our country’s expense because of our Brexit impasse, I was able to take some reassurance from the fact that the UK’s sovereign credit rating is six notches above Italy’s and 11 notches above Greece’s. Does my noble friend agree that we need to do everything in our power to protect and safeguard the benefits of the fiscal consolidation that has been so hard won since the beginning of 2010 and which he referred to earlier in remarks he made in response to a Question from the noble Lord, Lord Hunt of Wirral?

My Lords, I was somewhat taken aback by the Minister’s opening statement. I of course recognise that the process we are involved in is a largely technical one with a very short duration so far as the United Kingdom is concerned when we leave the European Union, but the Minister addressed himself to issues as if this extraordinary word “Brexit” had never been coined and the phenomenon had never existed. Every single question that has come subsequently related somewhere to the impact of Brexit. I hope the Minister will reply to these questions in full, because his opening statement dwelled on the sunny uplands and what he regarded as favourable forecasts at present. I do not find the OBR’s forecast on where growth is at present and where it will be in three years’ time as a particularly favourable position. Indeed, it is a lower figure than that which obtained over 30 years or so prior to 2010. I am amazed that the Minister seems to think the Government are on the high road to success with this rather deplorable figure, starting at 1.2%.

The noble Lord, Lord Vaux, indicated that there are real dangers of assets being transferred and the capacity of the British economy reduced during these Brexit developments. There was a great deal of commentary about the fact that that would happen and we should not be at all surprised that we are getting increasing evidence of it happening. Yet the Minister presented this document—this response to Europe—as if we were pretty well in steady state and the economy was easy to analyse and forecast.

In fairness to the OBR, it made it quite clear that this is a notoriously difficult time to present forecasts of any validity. Yet none of this seemed to cloud the Minister’s position in his opening statement. I hope the questions and points that have been made lead him to respond fully to the situation. After all, he knows that we are right at the bottom of the league table on productivity, and have been for most of the Conservative Government’s time in office—since 2010. All sorts of strategies have been presented that would go towards improving our productivity, but we are still doing very poorly. It is therefore no small wonder that we have problems with growth and competition.

We are well aware that big decisions are being taken which threaten our economy. The decline in the German economy may give us some comparative advantage, in that for a short period we have had a slightly more secure position. But its decline is overwhelmingly in the manufacturing industry, where we have the greatest difficulty presenting any real competition, and in the motor industry. What solace is that meant to bring to the Minister, given that he is about to be part of the process whereby we cast ourselves on to the international trade situation, while busy disentangling ourselves from our strongest economy—the European one? The two largest economies are pursuing policies of protection and are concerned about the development of trade. So it will not do.

I understand the Minister’s point that as far as Europe is concerned, in past years this particular requirement has been treated in a fairly light-hearted fashion in this House. So it should be, in normal times. However, we are not in normal times. We are in times of very real strategic threat to our economy. It will not do for the Minister to think that one can ignore the small aberration of Brexit at present because the economy is under good guidance. After all, he knows better than most of us here how crucial the financial services are—to the Treasury in terms of receipts and to our economy in terms of employment. Therefore, when it is identified that there are clear cases of the financial services transferring their assets from the UK elsewhere, we ought to be worried.

I ask that in his summing up, the Minister replies to each contribution that has been made. Each focused on the important dimension of anxiety about the economy, yet the noble Lord was busy glossing over this in an opening statement which looked as if he was more concerned with “The Wizard of Oz” than with the real economy.

My Lords, the Minister told the House that we are going to have 1.6% growth. I imagine that this is because of lack of investment and low productivity. If we had 2% growth, we would then be faced with inflation, but that word did not appear in the Minister’s statement. If we do do better than 1.6% growth, are we going to have to deal with inflation? What are the Government going to do about that?

Noble Lords have asked some very specific questions. I will follow the injunction of the noble Lord, Lord Davies, and seek to address them as best I can. If my noble friend Lady McIntosh and the noble Lord, Lord Vaux, would allow me the courtesy of writing to them in more detail on their specific points, I will certainly do so. I accept what the noble Lord, Lord Davies, said: we can all agree that we are not in normal times. My noble friend Lord Gadhia made an insightful point when he talked about the difference between what is happening in the political realm—which is not normal—and in the economic realm, which is really remarkable given the headwinds and uncertainty which the economy is facing at present. That confirms the great strength of our entrepreneurial businesses and enterprises and the incredible work that the people in them are doing. This gives us real hope for the future.

I was invited to address the Brexit issue head on; a convergence debate about the European Union seems a pretty good place to do that but I do not want to spend too much time on this. From the Government’s point of view, it is clear: if we had had our way, the withdrawal agreement would have been agreed by Parliament in December. We would now be into an implementation period where lots of the issues about free movement, to which the noble Lord, Lord Lea, referred, would have been addressed. We would also be working our way through into a deep and meaningful—

The Minister makes a very interesting point. He is confirming that everything is to play for in the discussion in the coming months about the future relationship. By that I mean that nothing is ruled in and nothing is ruled out on all these matters concerning freedom of movement, et cetera. A lot of people are getting concerned that the Government may have lost the plot.

The accusation was made that the Government were somehow not addressing the issue of Brexit. Responding on behalf of the Government—which I am entitled to do—we believe we have negotiated a good withdrawal agreement. We have a good and fair financial settlement and a political framework which holds out the real possibility of a strong, deep relationship with our European friends and neighbours that can enable our world-class businesses and entrepreneurs to continue to work.

The noble Baroness, Lady Kramer, made a point about business investment. She asked whether the falls in business investment were explainable as purely related to Brexit or whether there was something more structural in the economy. She almost pre-empted my response—perhaps because we have had many of these debates in the past—which is that any decline in business investment in the OBR forecast is of course concerning to the Government: business investment is critical to addressing the types of productivity concerns that were raised earlier. Without investment, we cannot hope to address those concerns, and I take on board all her points, but the forecast period seems to confirm that while we have had two years of a relatively small drop in business investment, that is against the background of businesses currently sitting on historically high cash reserves. Therefore, the OBR forecasts that that will pick up to a stronger growth of plus 2.3% in 2020 and continue to grow at this stronger pace in 2021 and onwards. That seems to suggest that business investment is linked to the political issue of the hour and the uncertainty that stems therefrom.

Turning to some of the specific points that were raised, the noble Lord, Lord Wigley, talked about the replacement of the structural funds, particularly the situation in Wales. This issue will be considered by the Government as part of the spending review, and we have also announced that there will be other measures. Just in the same way as payments from the common agricultural policy will be replaced, there will be mechanisms, through the growth fund, to provide resources that will match those. The details have not yet been set out; they are a matter for the spending review but they will be forthcoming.

The noble Baroness, Lady Kramer, and the noble Lords, Lord Davies and Lord Lea, talked about productivity. We recognise that productivity is a long-term challenge and that the UK has lagged behind other major advanced economies. All developed countries have experienced sluggish growth. We are tackling the problem head on, investing more than half a trillion pounds in capital investment, cutting taxes for businesses, improving access to finance and reforming technical education, all of which are key drivers of productivity. Many of these policies, including those on education, finance and tax, benefit all sizes of businesses.

The noble Lord, Lord Vaux, asked what the Government are doing about financial services jobs and assets leaving the UK. We are in frequent contact with firms and regulators regarding planning. I pay tribute to the work of my honourable friend John Glen, Minister for the City and Economic Secretary to the Treasury, who has been meeting the financial services industry very regularly regarding its planning. Firms using the passport recognise that steps to legal certainty regarding the future remain and are contingent in the case of no deal. We have carried out extensive preparations to minimise disruption for UK households and businesses. As the Bank of England’s Financial Policy Committee set out, the UK’s banking system is strong enough to continue to serve the UK. An implementation period is the most effective way of ensuring a smooth and orderly exit, but I take on board, on reflection, the inadequacy of my Answer on 28 February: I will try to do better in writing next time.

My noble friend Lady McIntosh raised the issue of the UK being fined. The UK cannot be fined or sanctioned by the EU in any way under the stability and growth pact we are discussing here today. I think her point related to the Rural Payments Agency and single farm payments: again, I will follow up on that and get back to her. The noble Baroness, Lady Kramer, asked about the excessive deficit procedure—the treaty deficit. I remind her that since 2016-17, the Government have met the annual government deficit condition of the Maastricht treaty that the deficit does not exceed 3%, as I mentioned earlier. Although the OBR’s profile for the treaty deficit does increase slightly in 2019-20, there is a sustained fall from that year on until the end of the forecast period.

The noble Lord, Lord Davies, the noble Baroness, Lady Kramer, and a number of other noble Lords mentioned the spending review. With the announcements made in the 2018 Budget, confirmed in the Spring Statement, day-to-day departmental spending will grow on average by 1.2% in real terms in each year of the forecast period. This is the first period since 2010. In addition, public sector net investment is set to reach levels not sustained since 40 years before that date.

I was hoping to turn over the page and find an answer to the noble Lord’s point on inflation and productivity. I am looking for some inspiration from behind me—or perhaps the noble Lord can help me with this. I seem to remember from my economics studies that there is a basic curve—I cannot remember its precise name—

I thought it was a J curve; I think the J curve is non-inflationary employment growth, and the Laffer curve might be the other one. However, I will take a break there in case I am completely shot down on that—I am not saying it is one or the other.

It is a point that increasing growth feeds through into inflation, just as the historical view was that if you fell below 5% unemployment, the tightening of the labour market would feed through into wage inflation. That we have not seen. Although it is now below 4%, CPI inflation is still at about 1.9%. We are within that constraint. If I can get the exact model from our wizards in the Treasury, I will write in answer to that and other points, and reassure the noble Lord. Perhaps he is about to give me the answer to his own question.

Why does the Minister not write to me? It is very difficult. Statements such as the one he just made compartmentalise the economy. Inflation takes it all into account. That is why I raised the point, because the Minister did not mention it in his first statement.

I am very happy to put it in writing. Also, should the noble Lord be familiar with anyone serving on the Monetary Policy Committee of the Bank of England, I am quite sure they would have the answer completely to hand.

I thank noble Lords for the debate. I am sorry I was not able to answer some of their detailed points; I will put them in a letter, copy it to noble Lords who took part in the debate and place a copy in the Library.

Motion agreed.