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Economic Situation

Volume 824: debated on Thursday 13 October 2022

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Wednesday 12 October.

“The Chancellor of the Exchequer is in Washington, having meetings with the IMF. They are routine meetings that have been long scheduled, and are certainly not a cause for exuberance or overexcitement from the Opposition.

As we know, the world has faced surging energy prices since Putin’s illegal invasion of Ukraine. We have seen very high inflation across the western world, and we have seen a cycle of increasing interest rates across western economies as well—across many western economies. But let me reassure the House that the fundamentals of the United Kingdom’s economy remain resilient. Unemployment, at 3.5%, is the lowest it has been in my lifetime—and for the record, I was born in 1976. Economic growth last year, the calendar year 2021, was the highest of any G7 country—7.5%. Just yesterday the IMF forecast that economic growth, GDP growth, this current year in the UK would be at 3.6%—once again, for the second consecutive year, the highest of any G7 country, so our economy is in resilient condition.

But I know that many families are worried about the challenges we face, and that is why, just a few weeks ago—two or three weeks ago—we introduced the energy price guarantee. Families were genuinely fearful that they might face this winter energy bills of £3,000, £4,000, £5,000, £6,000 or even £7,000 per year, but that energy price guarantee will ensure that the average household sees energy prices no higher than £2,500 on average—not for six months, like the Labour plan, but for two years.

We also introduced a growth plan to get our economy growing, to see wages sustainably rising, to see good jobs created and to create a sustainable tax base to fund our public services. This Government have a growth plan; the Opposition have no plan.

We intend to do this in a way that is fiscally responsible, and that is why, on 31 October, in less than three weeks’ time, the Chancellor of the Exchequer will set out the medium-term fiscal plan, explaining to the House exactly how he will do that, and how we will continue the UK’s track record of having the highest growth in the G7, not just last year but this year as well.”

My Lords, it is hard to believe that so much damage has been caused in just 20 days. Rachel Reeves was right to refer to the mini-Budget, with its unfunded tax cuts, excessive borrowing and undermining of financial institutions as a bonfire. The Conservative Party have set it and our economy ablaze, with ordinary working people paying the price. Ultimately, this can be resolved only if the Government accept their role in creating this crisis, put the national interest before their pride and reverse the mini-Budget.

Overnight media reports suggest that the Prime Minister’s most senior advisers now agree with that assessment. When can we expect the Chancellor to complete the U-turn?

The noble Lord will not expect me to agree with much, or any, of what he says, because it was right that the Government took a very rapid step to support those in the lowest socioeconomic groups, particularly on the energy costs. In terms of the tax reductions, this is part of the plan, in line with the growth plan that will be announced on 31 October, which will kickstart the economy. It is absolutely right that this happens, given that growth has been lagging, having been on average about 2.5% between 1949 and 2007, just before the financial crash. Therefore, it is right that we should look to make some changes. We believe that these are the right changes and that they will benefit all in the long run.

My Lords, I have a very specific question. Given the turbulence in the financial markets, can the Minister, on the record, give an assurance to pensioners and future pensioners in defined benefit pension schemes that their pensions are safe, and that the Government will act if necessary to keep them safe?

There are two points to raise on this front. The pensions are confirmed. The decisions being taken by the Bank of England are enough to respond to the market turbulence by undertaking certain measures to restore ordinary market conditions. This will feed through to the pension funds, which are already adjusting their portfolios to balance between collateral-linked funds and cash-readiness.

My Lords, can my noble friend confirm that the Bank of England itself has played a role in what has been happening in the markets? Are there discussions between the Treasury and the independent Bank of England to urge it to extend, if necessary, the emergency measures that it has brought in, which are meant to expire tomorrow, to give the Chancellor an opportunity to restore confidence in the fiscal policy by 31 October with his Financial Statement and Budget Report? If this does not happen, the lack of action by the Bank of England that led to the currency turmoil the day before the mini-Budget, coupled with the loss of confidence in the Bank of England’s policy because it was about to unload £80 billion-worth of gilts in the market, will continue to unsettle the markets. The Bank of England needs to take some responsibility here.

The Treasury is working with the Bank of England to monitor the implementation of the operations that the Bank has decided to undertake and the potential risks that it may pose, as well as continuing to monitor wider market conditions. It is thought that the announcements on Wednesday 28 September and the very recent ones on Monday 10 October and Tuesday 11 October will allow enough to be done. As I say, this is to settle the markets and to ensure that there is an orderly exit, as planned, from this Friday.

My Lords, I make no apology for continuing the points raised by the noble Baronesses from different sides of the House. Yesterday, there was a headline in the Times, “Threat to pension funds”. Today, a headline in the Daily Express is “Doom loop Friday—will BoE governor Andrew Bailey let financial system collapse tomorrow?”. So far this has been a crisis of liquidity. However, earlier in the week, the Bank of England told us that

“self-reinforcing ‘firesale’ dynamics pose a material risk to UK financial stability.”

This is what the Daily Express refers to as the “doom loop”, and the point about it is that you do not know how deep it will go. Therefore, it raises the issue of a threat to solvency and hence to members’ benefits. The problem is that I doubt the ability of the Bank of England, with its mixed messaging, the Pensions Regulator and the PPF, to sort this out. Is it not the Government’s responsibility and a reversal of their mini-Budget the only way to solve it?

I probably answered the noble Lord’s question earlier by stating, as an observation, what the Bank has done. I mentioned the announcements made on those three dates. The Bank has also announced that it will stand ready to increase the size of its daily auctions to ensure that there is sufficient capacity for gilt purchases ahead of this Friday. It continues to work with the liability-driven investment funds and pension funds as they continue to build their financial resilience ahead of the end of the Bank’s intervention. This is very much as an observation about behavioural change and there are signs that this is working.

My Lords, the Minister has many times referred to growth. I am sure that the Government recognise that for that growth to come, private sector companies must have the confidence to invest in their businesses and deliver that growth. For that investment to come, it requires a stable economic situation. Would the Minister describe the current economy and economic situation as stable?

The detailed plans will be announced on 31 October so, picking up on what the noble Lord has said, there are five key areas where the detail is needed on what we are planning to do on growth. Obviously, just to pick up from the noble Lord’s experience, increasing private sector investment is critical, as are getting more people into work with the right skills, getting the housing market moving, improving infrastructure and accelerating delivery of major priority infrastructure projects. I could go on. This is what we are about. It is all to do with getting growth going and, as the Prime Minister has said, expanding the pie.

My Lords, I congratulate my noble friend on twice playing a very straight bat on a very sticky wicket this morning. Will he convey to the Chancellor that it is really important that, on 31 October, we have announcements that stabilise things and give people proper encouragement and confidence? The present chaos cannot be allowed to continue.

I agree with my noble friend. We have already said that the announcement of the medium-term fiscal plan on 31 October will be accompanied by the independent OBR assessment of the economic and fiscal outlook. Much work is going on. My noble friend need not be reminded that this was originally going to be on 23 November; it has been deliberately brought forward to 31 October to provide further stability about what we are looking to do.

My Lords, the Government assured us that co-ordinated international action would undermine Russia’s economy and protect ours. Why then is today’s rouble stronger than in any almost any recent period? On 15 April, at the beginning of the immediate crisis, there were 105 roubles to the pound; today there are 70 to the pound. Currencies do not normally strengthen when economies are under pressure or under attack. What is the explanation?

I wish I could give the noble Lord a full explanation for that. I have no information on the Russian rouble in my file. I just take this opportunity to say, as I think I said earlier, that there is strong resilience in the UK economy. The fundamentals of the economy remain sound in this country. I mentioned that unemployment is close to its lowest level for 50 years. I just finish by saying that the latest forecast for UK growth, over 2021, 2022 and 2023, is 11.7%.