The following Answer to an Urgent Question was given in the House
of Commons on Monday 19 February.
“High inflation remains the biggest barrier to growth, which is
why halving it is still our top priority. Thanks to decisive
action supported by the Government, inflation has fallen from
over 11% to 4%. The Bank of England is forecasting that it will
fall to around 2% by early summer, in only a matter of months,
which is much faster than previously thought.
It is important to put all this in context. Just over a year ago,
the Bank of England was forecasting the longest recession in 100
years. That has not happened, and the British economy has proved
resilient in the face of unprecedented shocks. Forecasters,
including the Bank of England and the International Monetary
Fund, agree that growth will strengthen over the next few years,
with the IMF forecasting that we will grow faster than Japan,
Germany, France, Italy and many others, on average, over the next
five years. Wages have been higher than inflation for six months
in a row, unemployment remains very low, and we are backing
British business by delivering the biggest business tax cut in
modern British history and rewarding work by cutting taxes for
working people.
These are all reasons to be positive about the economy turning a
corner. If we stick to our plan, we can be confident of seeing
pressures reduce for families and of achieving healthy economic
growth. At the Autumn Statement, we unveiled 110 growth measures,
including unlocking £20 billion of business investment. This
includes a substantial labour market package, delivering a tax
cut to national insurance for 27 million people, as well as
reforming pensions and extending investment zones. The real risk
to economic growth and prosperity in this country is the fact
that the Labour party has no plan for growth—no plan at all.
While they may pretend that they have abandoned their £28 billion
pledge, they are still committed to their damaging 2030 energy
policy, which, as the leader of the Opposition has said, costs
£28 billion. All of us across this House know what that means:
higher taxes and lower growth with Labour”.
5.52pm
(Lab)
My Lords, the UK’s growth forecast was recently downgraded for
every single year for the next three years. Debt is set to
surpass £3 trillion for the first time ever. We are seeing the
biggest ever fall in living standards and the tax burden is set
to reach its highest ever level. Now, the ONS has confirmed that
Britain has fallen into recession, with GDP per capita falling in
every single quarter of the past year. Yet the Chancellor says,
“Our plan is working”. Was it part of the Government’s plan,
having spent 14 years in the economic slow lane, to now put our
economy into reverse?
The Parliamentary Secretary, HM Treasury () (Con)
I absolutely believe that our plan is working. It is critical
that we continue along the path that we have set out. One of the
biggest challenges we have faced in this country over recent
months is high inflation. That is the biggest barrier to growth
and that is why halving it is still our top priority. Thanks to
decisive action, supported by the Government, inflation has
fallen. If one looks at what happens when inflation falls, one
sees that interest rates can also fall, which will also mean that
growth will begin to rise. The noble Lord mentioned growth. It is
the case that the Government have very clear policies for growth.
Noble Lords will discuss them with me shortly, as we debate the
Finance Bill.
(LD)
My Lords, the Resolution Foundation has reported that GDP per
capita is now 4.2% below its path before the cost of living
crisis. That is the equivalent of a loss of nearly £1,500 per
household. The OBR has said that we are set to see the biggest
fall in living standards since 1950. Do the Government understand
that, for ordinary people, their plan is delivering real
day-to-day pain and often deprivation? Nothing she has said or
proposes to do changes that, as she will see if she looks at the
forecasts.
(Con)
What is absolutely clear is that the forecasts show that the UK
is forecast to grow, and very strongly. The IMF has forecast that
we are to grow faster than Japan, Germany, France and Italy over
the next five years. I absolutely accept that the economy has
seen some very significant challenges over recent years, with
global instability in Ukraine and in the Middle East, and the
legacy of Covid. I was a Minister throughout that period, and at
no time did I ever hear any ideas from the party opposite or the
Liberal Democrats that would have put the economy in a better
situation than it is in now. They called always for more
spending, for longer periods. We must fix the issues that
appeared, mostly due to external factors, which is exactly what
we are doing. The economy is turning a corner—indeed, it has
turned a corner, thanks to our decisive action.
(CB)
My Lords, the Minister referred to global headwinds. Would she
accept that an economy such as the United States has experienced
exactly the same headwinds? Instead of opening our newspapers and
reading that the Chancellor intends to give enormous universal
tax cuts on 6 March, would it not be more sensible for the
Government to acknowledge that the people who are hurting the
most from the cost of living crisis are the people at the bottom
lower income deciles? Those are the people who should be targeted
for assistance if there is any money going.
(Con)
Obviously, I cannot comment on any potential tax cuts. I am sure
the noble Baroness will agree that the US has a very different
economic structure from the UK and tends to offer slightly less
support to those at the bottom end of the ladder. She mentioned
those who are the most vulnerable. Personal allowances have gone
up by 30% in real terms than in 2010. That means that 30% of
people now pay no tax. We are focusing our interventions on
people at the lower end of the income scale, but we are also
focusing them on growing business.
(Con)
Would my noble friend agree that comparisons with the United
States are not really appropriate, particularly given cheap
energy costs in the States due to fracking, which we do not have?
It might be better to compare us with European countries. Since
2010, the UK has had the fastest growth of any European G7
country—faster than Italy, Spain, Germany and France. Will she
welcome today’s news that the budget surplus for net borrowing,
excluding banks, shows a surplus for January of £16.76 billion,
and today’s announcement that the UK purchasing managers index
rose in January to 52.9? Rather than knocking the economy, let us
celebrate the good news.
(Con)
I agree with my noble friend—let us celebrate good news, and I
believe there will be more good news to come. He mentioned debt.
It is fair to reassure noble Lords that we are on track for debt
to fall as a share of the economy. Public sector net debt as a
percentage of GDP is expected to fall next year to the end of the
forecast. If one were to exclude Bank of England debt, it will
fall in the final year, and public sector net borrowing as a
percentage of GDP is forecast to fall every single year. We also
have the second-lowest debt as a share of GDP in the G7.
(Lab)
My Lords, the Minister talked about curbing inflation. The
Government have a very strange policy. I characterise it as
somebody who has an ailment and goes to see their doctor, who
dusts off a 100 year-old book in which, regardless of the reasons
for the ailment, the answer is the same remedy. Whether inflation
is caused by wage rises, inequalities or profiteering, it is the
same policy: we must increase interest rates and force ordinary
people to hand over their wealth to the banks. That is no policy,
because it causes other ailments. Will the Minister tell us what
other ailments have been caused by this remedy adopted by the
Government?
(Con)
As the noble Lord will know, interest rates are just one of the
levers that the Bank of England has to influence inflation. The
Government can also play a key role in tackling inflation —for
example, by ensuring that public sector pay awards are kept
within reasonable bounds.
(Lab)
Can I have another bite here? The Minister said that public
sector wages are within reasonable bounds, which suggests that
the Government think wage rises are inflationary. But that does
not apply to executive pay, profiteering, dividends or share
buybacks—are they not inflationary as well? If they are, why are
the Government not curbing them?
(Con)
The noble Lord well knows that inflation is caused by a vast
amount of different factors. When we announced our interventions
at the Autumn Statement, the OBR said that they were not
inflationary. That is another way in which the Government put
downward pressure on inflation. As we have seen, the proof is in
the pudding; we have gone from 11% in October 2022 to 4% in
January 2024.
of Knighton (CB)
My Lords, I am glad that the Minister feels encouraged by the
latest figures. Can she understand why some people who have
inflated mortgages feel they have them because of the antics of
and Kwasi Kwarteng—which is admittedly not the
responsibility of the noble Baroness?
(Con)
As the noble Lord will be aware, the reason interest rates are
particularly high is to control inflation. The Bank of England
now expects inflation to get back to the target of around 2% in
the early summer. If that can happen, then of course interest
rates would be able to come down.
(Con)
Will my noble friend consider a longer-term anti-inflationary
policy such as ensuring that the Monetary Policy Committee of the
Bank of England, and the governor, build into their forecasting
model a measure to take account of the growth in money supply
each year?
(Con)
I will take that idea back to the Bank of England.
(Con)
Does my noble friend agree that it is highly complimentary to
and to suggest that their
actions are responsible for interest rates in every country
around the world, which are broadly comparable to ours?
(Con)
As I think I said earlier on in answering this question, all
sorts of countries have faced the challenges that the UK has.
There have been a number of countries, over the second half of
2023—either in Q3 or Q4—that saw a small technical contraction in
their economy. Andrew Bailey, the Governor of the Bank of
England, believes that the technical recession may already be
over. I expect us to return to growth very soon.
