The Economic Secretary to the Treasury (Bim Afolami) With
permission, Madam Deputy Speaker, I would like to make a statement
on the economy, following the release of inflation data by the
Office for National Statistics this morning and the conclusion of
the International Monetary Fund's annual article IV mission to the
UK on Tuesday. The ONS data released today shows that consumer
prices index inflation has fallen to 2.3%—a return to normal levels
last seen before the...Request free
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The Economic Secretary to the Treasury ()
With permission, Madam Deputy Speaker, I would like to make a
statement on the economy, following the release of inflation data
by the Office for National Statistics this morning and the
conclusion of the International Monetary Fund's annual article IV
mission to the UK on Tuesday.
The ONS data released today shows that consumer prices index
inflation has fallen to 2.3%—a return to normal levels last seen
before the pandemic and Russia's invasion of Ukraine. Earlier
this week, the IMF said that the UK economy is “approaching a
soft landing”. It upgraded its forecasts for UK growth in 2024,
having seen lower inflation accompanied by stronger than expected
growth in the first quarter. These developments are proof that
the Government's plan is working, the difficult decisions we have
taken are paying off and the UK economy really is beginning to
turn the corner.
Let me start with the inflation figures. When the Prime Minister
came to office less than two years ago, inflation was over 11%.
The fall to 2.3% means that we have seen the fastest fall in
inflation in nearly half a century. The UK now has a lower
inflation rate than the United States, France and Germany. Food
inflation is at its lowest level since November 2021, having
fallen for 13 consecutive months, and staples such as milk,
cheese and eggs are now cheaper than they were this time last
year, although there is more to do. Energy bills have also come
down, with the price cap for the typical annual bill now over 25%
lower than a year ago, although they are still above where they
were in 2021.
The fall in inflation has not happened by accident. The
Government have had to make difficult decisions to get us to this
point, as well as supporting the Bank of England as it has acted
to bring down inflation sustainably. We have reduced borrowing,
which is now forecast to fall in every year to 2028-29, and we
are acting to boost growth without generating inflation. We have
frozen fuel and alcohol duty, which the Office for Budget
Responsibility estimates will reduce inflation by 0.2% in this
financial year. Moreover, in the face of widespread pressure we
have reached fair pay deals for public sector workers, instead of
doing what the Labour party would have done: cave in to
inflation-busting pay demands. We must always remain vigilant
when it comes to inflation, but today's numbers show the benefits
of sticking to our plan. We know that recent years have not been
easy for people, but with wages having now grown faster than
inflation for 10 months in a row, families around the country
will start to see their money go further.
And we are doing more, because on this side of the House we
recognise that while the tax rises of recent years may have been
necessary at that time of crisis, they should not be permanent.
We will do the hard work to bring taxes back down, because we
know that to do so will lead to more growth for our economy. My
right hon. Friend the Chancellor has already delivered tax cuts
worth £900 for the average worker. Since 2010, the effective tax
paid by somebody on an average salary has fallen under
Conservative Governments from 24% to 19%. Combined with national
living wage increases, that means the after-tax income of
somebody on the lowest legally payable wage has gone up by 35% in
the same period. Labour's approach is different. All Labour
Governments since the 1970s have increased the tax burden in both
good times and bad. Given the fiscal rules Labour has set, the
only way for it to pay for its spending commitments would be to
raise taxes by considerably more than the £20 billion of tax
increases they have already outlined.
I will now turn to the IMF's annual article IV mission to the UK
and what it said about the Government's other economic priority,
beyond inflation, to deliver growth and opportunity for the whole
United Kingdom. The IMF's message was, overall, a positive one.
We have seen growth of 0.6% in the first quarter of this year
that is stronger and more broad-based than many independent
forecasters expected, and no other G7 country has grown faster in
the first quarter on a quarter-by-quarter basis. The IMF has
upgraded its forecast for the whole of this year from 0.5% to
0.7%, and in April said that the UK is expected to see the
fastest cumulative growth of any major European economy over the
next six years. That is partly the result of our focus on areas
that the IMF says are critical to delivering sustainable economic
growth: boosting jobs, boosting the labour supply and increasing
business investment.
We already have a proud record on jobs. The president of the CBI
recently described the UK as a job-creating factory. That is
because, over the last 14 years, we have built one of the most
flexible, dynamic labour markets in Europe. But we cannot take
that for granted and we cannot let the Labour party impose new
burdens on employers, which would turn a job-creating factory
into a French-style inflexible labour market. Unemployment in
France, as it so happens, is nearly double that of the United
Kingdom—indeed, not far off where it was in the UK under the last
Labour Government. We must not turn the clock back. The OBR
estimates that cuts in national insurance will bring the
equivalent of 200,000 more people into the workforce—enough to
fill nearly a quarter of the vacancies in our economy.
We are reforming welfare. Labour has said it is against welfare
sanctions—fair enough, that is its position—but that will mean
more people on our welfare rolls, not less. The reforms of the
Secretary of State for Work and Pensions will help 1 million
people move from welfare into work, at a cost of £2.5 billion.
Meanwhile, the introduction of full expensing, the biggest
business tax cut in decades, will boost business investment by
£15 billion in the coming years and give this country the most
generous capital allowances in the OECD.
There is more to do, and the IMF is right to point out that
further bold reforms will be needed and that boosting growth and
productivity is the key challenge for the United Kingdom.
However, in the words of the IMF's managing director, the UK is
in a good place. Inflation is back to more normal levels, growth
is picking up, wages are rising and we are cutting taxes. The
plan is working, and the difficult decisions that have been taken
by the Government are starting to pay off. Now is not the time to
change course, because given Labour's policies on jobs, welfare
reform and tax, we know that the difference, if it is elected,
will be profound and damaging for every family in the
country.
1.20pm
(Hampstead and Kilburn)
(Lab)
I thank the Minister for advance sight of his statement.
Of course it is welcome that the rate of inflation is finally
slowing after three years of the Government missing every single
target, but the tone-deaf victory lap we are seeing from the
Government today will feel like a slap in the face to the British
people who, after 14 long years of Conservative chaos, are still
significantly worse off. While Conservative Ministers are popping
champagne corks over the rate of food price rises, the cost of
the typical family shop has gone up by nearly £1,000 since
2019—so those families will not be celebrating—and while the
Chancellor and the Prime Minister gaslight ordinary British
families by suggesting that the cost of living crisis is over,
the costs for a two-earner household are more than £150 a week
higher than they were before the last election.
The Minister claims that the economy has turned a corner, but in
reality the Conservatives' record on growth has been nothing
short of pitiful. If the UK economy had grown at the average rate
of the OECD in the last 14 years, it would now be £140 billion
larger—that is not just about lines on a graph; it would have
meant an additional £50 billion in tax revenues to invest in our
public services, and more money in working people's pockets.
I noted with interest that the Minister quoted selectively from
the IMF's report. In that report, which he cited so triumphantly,
the IMF confirmed that under the Conservatives the UK was
suffering from the lowest growth in the G7, and just this week
the IMF said that the longer-term growth prospects of the UK
“remain subdued”. This is the Conservative party's legacy: a
poorer Britain, working people worse off, and the public realm in
disarray. I think the Minister may also be slightly confused
about his Government's record on tax. On the Conservatives'
watch, the tax burden is the highest in 70 years, and under the
Prime Minister's tax plans households will, on average, be £870
worse off by 2028. Those are the statistics that the Minister
missed out.
In contrast to the Conservatives, who have consistently failed to
explain how they will pay for their £46 billion unfunded
commitment to abolish national insurance, we in the Labour party
have ensured that all our plans are fully costed. Let me also
make it clear that a Labour Government would not be celebrating
the inflation target finally being met for the first time in
years. We would not be doing a tone-deaf victory lap for
overseeing a decade and a half of stagnant growth. Instead, we
have pledged to deliver economic stability with tough spending
rules so that we can grow our economy and keep taxes, inflation
and mortgages as low as possible.
The choice at the next election is clear: five more years of
chaos with the Conservatives or stability with a changed Labour
party. That is why the Government are running scared. Time after
time, they have chosen to bottle it rather than go to the
country, but I hope that, today of all days, the Prime Minister
will do the right thing. It is time for this exhausted and
failing Government to step aside in the national interest, call
an election, and let the responsible party take charge.
Let me start by welcoming the shadow Minister's remarks, and by
saying that no one on the Government Benches—certainly not
me—feels that times are not still tough for many millions of
people. We are acutely aware of that, which is why we have worked
so hard over the last few years to make the difficult decisions
that are required for us to guide the country through the
difficulties wrought by covid, the biggest pandemic in 100 years,
and by the energy shock from the war in Ukraine. No one on this
side of the House minimises the difficulties that people have
gone through and that many are still going through.
Let me pick up a couple of points of fact. The hon. Lady quoted
the IMF, and she mentioned selective quotations. I am afraid that
she wins the prize on that one: the IMF was very clear about the
fact that over the next five or six years, the UK will be the
fastest-growing country in the G7 apart from North America. She
also mentioned confusion. I think that she and her party are the
ones who are confused: they are confused on the question of
taxes. We have scored Labour's tax plans, and they amount to an
extra £2,094 over four years for the average person. Labour
Members say that they want to grow the economy, and they say that
they are pro-business—at least, that is what they tell business
people outside the House—but they are putting in place a workers
plan, led by their deputy leader, that will impose 70 new
regulations on small businesses, far more power for trade unions
and day-one rights on employment, and will ban flexible working.
It will damage many of the things that make small businesses in
this country successful.
Let me end by saying this: if we want a Government who will cut
inflation further and grow the economy, we should not increase
borrowing and increase taxes like the Labour party.
Madam Deputy Speaker (Dame )
I call the Chair of the Treasury Committee.
Dame (West Worcestershire)
(Con)
I welcome the Minister's statement, which was crammed with useful
facts and statistics. Yesterday, our Committee met
representatives of the IMF in private, and we had a very
interesting and informative discussion. As for yesterday's
report, the IMF points out that none of this good economic news
would be happening had it not been for decisions made in previous
Budgets. In particular, it states that the Government
“have delivered several helpful measures over the last three
budgets…investment tax reliefs for businesses to boost
investment, an expansion of childcare, and active labor market
policies.”
This good news is not happening by accident; it is happening
because a plan is in place, and the plan is working. Does the
Minister agree?
I do agree, but let me draw attention to a specific point that is
often ignored. The Chancellor's decisions over the last two
fiscal events have set the country up for growth in the future.
My hon. Friend mentioned the policy on business expensing; that
was a £10 billion tax cut for business. She mentioned childcare
policies; those have helped millions of working families up and
down the country. It is because of the cumulative effect of a
series of important measures that we are able to stand up here
today and say that while we are not there yet, the economy is
starting to turn a corner.
Madam Deputy Speaker
I call the Scottish National party spokesman.
(Glasgow East) (SNP)
I, too, thank the Minister for advance sight of his
statement.
The Government, understandably, would like to paint the latest
inflation figures as a win, but I think the House will forgive me
if I do not join them in their victory lap. The reality for
numerous households across Scotland, many of whom are continuing
to struggle, is that the cost of living crisis is far from over,
and people are still feeling the pinch in their pockets. Food
bank usage is skyrocketing, and mortgage rates are soaring. For
people in Scotland, that is the cost of living with
Westminster.
The inflation of the past three years has seen prices rise by 19%
when they should have risen by 6%. Of course, falling inflation
does not mean that those prices will now fall. With figures like
this, it is little surprise, is it not, that polling this week
showed that just 9% of people across the UK believe that the cost
of living crisis is over?
On Friday, I attended a food bank drive at Asda in Parkhead,
where residents were donating in their droves to Glasgow NE
Foodbank in recognition of the fact that many of their neighbours
simply cannot afford to eat. I have one simple question for the
Minister: does he not realise that today's statement, and all the
fantoosherie that goes with it, absolutely flies in the face of
the reality for many people who are still struggling today in
21st century Britain?
My response to the hon. Gentleman, whom I respect deeply, is
twofold. First, we are at an inflection point and the job is not
complete. We know that many millions of people are suffering,
which is why we are continuing to improve their incomes through
cutting their taxes. It is why we are continuing to make sure
that small businesses around this country can thrive, and why we
are continuing to put more money into our public services and,
indeed, to reduce inflation. We know that the job is not
done.
Secondly, many people have had to suffer as a result of the
difficult decisions that had to be taken over recent years
because of the generationally unique shocks that we saw. It has
been up to this Government to guide and help the country through
that, which is what we will continue to do in the weeks and
months ahead.
Sir (North Somerset) (Con)
Inflation is now lower than in France, Germany or the eurozone,
growth has been upgraded by the IMF, and Britain has become the
world's fourth biggest exporter, overtaking the Netherlands,
France and Germany. Employment is at a historically high level,
and the UK is the third biggest destination for inward investment
globally. On financial services investment, we are top,
attracting 108 projects last year, compared with France's 39 and
Germany's 38. I wonder whether my hon. Friend can correct me—or
did I miss the post-Brexit apocalypse that many, including the
Treasury, predicted?
My right hon. Friend has put that incredibly well. Very good
things have happened to our economy over recent months,
particularly in my own area of financial services. I would add
that many Members, on both sides of the House, were concerned
about the impact of Brexit on the British economy. As he
suggested, our record shows that this Government have been able
to guide the country through the post-Brexit period and towards
better times than ever.
(Brent Central) (Lab)
Sometimes this House really is a theatre. The Minister has come
to the Dispatch Box all jubilant, but my constituents queue
outside food banks for hours, from nine o'clock in the morning
until nine o'clock at night. Prices are more expensive than when
the Tories first took office. This Government have had 14 years
and they have destroyed the economy. People are paying £250 more
a month on their mortgages, according to the Bank of England. I
cannot believe that the Minister is saying that things are going
to get better. Ultimately, I hope that, in a few hours, the Prime
Minister will be outside No. 10 and call a general election.
People can then make a choice and vote Labour.
My response is that this Parliament has seen an unprecedented hit
to people's living standards because of covid—a once-in-100-years
impact. Might I remind the House that this Government spent £450
billion in supporting the economy? We supported people through
programmes such as furlough, supported small businesses through
discretionary grants, and supported the NHS. There are so many
things that were opposed by the Opposition.
Labour Members mention borrowing and taxes. If it had been up to
them, we would have been in lockdown for longer. If it had been
up to them, we would have borrowed more. If it had been up to
them, they would not have made the decisions that we had to
make—tough decisions on public sector pay that meant that, by
working in partnership with the Bank of England, we could bring
inflation down. We are at an inflection point and not everything
is complete—we are not there yet—but the economy is starting to
turn a corner through the leadership of this Government.
Sir (Poole) (Con)
Over recent months, we have had a number of statistics on the
economy that have been unalloyed good news for this country. It
is good news that the economy is doing better, that inflation is
down, that growth is up and that trade is up. That makes us all
richer, and provides more jobs and employment, which should be
rejoiced in by everybody in this House, including the Opposition,
who might actually end up in government and inherit the benefits
of some of the things that this Government are doing. In truth, I
am always a little surprised by how miserable the Opposition get
when good news comes along.
My hon. Friend makes an important point about those on the Labour
Benches. I must admit that I disagree with him on one key point:
the idea that they might inherit this. We are not complete yet.
We know that the economy still needs to continue to turn and that
inflation needs to come down. We hope that that will lead to
falling interest rates in due course, and that the measures we
have put in place will come to fruition over the next
Parliament.
(North Ayrshire and Arran)
(SNP)
The UK economy is smaller now, and living standards are lower
now, than at the start of this Parliament—the first time this has
ever happened. Does the Minister agree that it is a sign of the
Tories' increasing desperation that they consider it a cause for
celebration that the UK economy has stopped shrinking? Growth is
still lower than in Europe, Asia, the Americas and Australia, and
we continue to pay the price of Brexit and Tory incompetence.
I am afraid I disagree with the hon. Lady on points of fact. I
have already set out so many statistics that show that things are
significantly improving in the economy, and at a faster rate than
that experienced by most of our competitors in Europe. I
completely disagree with her assessment.
(North East Bedfordshire)
(Con)
The Minister was right to update the House on the positive
progress that we are making with inflation; right to make the
point that people are continuing to find economic difficulties,
and that we need to stick with the Prime Minister's plan; right
to point out the terrible risks to the economy posed by the
Labour party's polices on labour markets and taxes; and right to
say that there have been external factors, and that policies to
tackle one-off external factors are different from one's policies
looking forward.
This Government have ended the period of quantitative easing, or
printing money, and moved to quantitative tightening, or paying
back money. The IMF's report says that, by 2025, the balance
sheet for the Bank of England should be settled. Will the
Minister look at the longer-range forecasts that the Office for
Budget Responsibility has put out, and see what flexibility they
provide for the Government to cut taxes or increase
expenditure?
I thank my hon. Friend for a characteristically thoughtful and
informed question. I will indeed look at what he said about the
Bank of England's balance sheet being settled by 2025, and I will
talk to him about that in due course.
(Newcastle upon Tyne Central) (Lab)
Like the Chancellor, the Minister likes to talk about the
difficult decisions that Conservative Administrations have made.
The cost of a family shop has risen by £1,000 since the last
election. The difficult decisions are the ones that families in
Newcastle have to make every time they go to a supermarket. Is it
not the case that the decisions that his party has chosen to
make—austerity, stealth taxes on working people, and crushing
growth out of the economy before crashing it altogether—are why
my constituents are worse off?
I am afraid I disagree with the hon. Lady. It is very important
that this House recognises and admits that, because there was a
once-in-a-generation pandemic that cost the Government over £400
billion in supporting people, it was necessary for the tax burden
to rise for a time to help pay for that. That was a difficult and
responsible decision. Now that we have moved into a period of
relative calm, there is choice about what we want the economy and
our fiscal position to look like over the medium term. On this
side of the House, we choose high business investment, high
growth and lower taxes on working people, whereas the Opposition
choose more union power, higher borrowing and higher taxes. I
think the British public are going to stick with us.
Mr (Old Bexley and Sidcup)
(Con)
The latest UK economic data is welcome news, with inflation
falling again, real wages rising and the UK forecast to grow
faster than many of its peers. The International Monetary Fund is
now recommending that the Bank of England cut interest rates, and
I agree. What does the Minister think of the IMF's view?
As my hon. Friend knows, it is for the Monetary Policy Committee
of the Bank of England to determine the policy on interest rates,
but we hope that working in partnership with the Bank of England
to cut inflation will mean that at some point later in the year
interest rates will start to come down, as the IMF has suggested,
as a result of inflation being at target.
(Vauxhall)
(Lab/Co-op)
In response to the Minister's last reply, even if interest rates
are cut later this year, that will not make an impact for a
number of my constituents in Vauxhall. According to the Bank of
England, people have seen their mortgage and rent go up by over
£240 a month, as my hon. Friend the Member for Brent Central
() said. Over 10.1 million people
are falling behind on their bills, according to research by Stop
the Squeeze. The Resolution Foundation has found that annual
bills in 2024 are now 67% higher in real terms than in 2021. This
is not a time to celebrate. I know that, at my advice surgery in
a week's time, my constituents are going to come to me raising
these issues. The fact is that they cannot afford to heat their
home or keep up with their bills. Yes, these statistics may look
good, but will the Minister accept that for real people this is
another slap in the face?
What I will certainly accept is that there are millions of people
in this country for whom the cost of living crisis is still real.
That is why we are taking the action that we are taking. That is
why working people—[Interruption.] As a result of cutting
national insurance, a person on an average salary is £900 better
off than they would have been a year ago. That is why we are
focusing hard on making sure we bring down borrowing, rather than
increase borrowing as planned by the Labour party. What I would
say to the hon. Lady's constituents if I were to speak to them at
her surgery is that the economy is on the right track, that we
are at the point where the economy is starting to turn the corner
and that, if they go with Labour's leadership, things are going
to get a lot worse. That is why we need to keep on the plan that
we have set out.
Dr (Penrith and The Border)
(Con)
I thank the Minister for the encouraging economic update. It is
so disappointing when we get good news on the economy and it is
talked down by the Opposition. Inflation coming down to 2.3%
really shows that the economic plan from this Government is
working. With national insurance reductions, pensions increases,
boosting jobs and a growing economy, does he agree that it is
only the Conservatives that can be trusted to manage the economy
soundly?
I agree with my hon. Friend, who is a fantastic champion for his
constituents in this House, as everybody in this House knows. The
only thing I would add to what he has said is that we on this
side of the House know what it is to take responsible decisions
and take them for the long term.
(Bracknell) (Con)
Given the global macro-shocks faced during this Parliament,
particularly the pandemic and the Russian invasion of Ukraine, it
is quite remarkable that we have got inflation back down to 2.3%.
It is testament to good fiscal policy, and we are leading the way
within the G7. Does the Minister agree that, for those
constituents living in Bracknell Forest who want low inflation,
higher employment, higher wages and higher growth, sticking to
the plan is absolutely the right thing to do?
My hon. Friend is a brilliant champion for Bracknell Forest, a
part of the country that I know well, and I completely agree with
his remarks.
(Stoke-on-Trent South)
(Con)
This positive economic news is extremely welcome, and I have also
welcomed the action taken by the Government to reduce the amount
of tax on working families. Given this positive economic outlook,
will my hon. Friend speak to the Chancellor about increasing the
personal tax allowance, particularly to help working families but
also to take more pensioners out of paying tax?
As my hon. Friend knows, the Chancellor keeps all taxes under
review. I will ensure that he has heard my hon. Friend's comments
and pleas.
Sir (Christchurch) (Con)
Does my hon. Friend accept that today's good news would have been
even better if the Government had implemented the public sector
exit payments restrictions that were legislated for in 2016 and
were the subject of a consultation that ended 17 months ago, in
respect of which they are apparently unable to agree a response?
Surely the Government should be able to do something about this
and save the £2 billion that this has so far cost. Is not this an
example of a proposal being sabotaged by the civil service?
I have been in correspondence with my hon. Friend a few months
ago on this very question, and I would be happy to engage with
him on it again.
Madam Deputy Speaker (Dame )
I thank the Minister for his statement.
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