“No I don’t believe he is”
Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/nhfPIqGWXk
— Sophy Ridge on Sunday (@RidgeOnSunday) April 10, 2022
John Glen is Economic Secretary to the Treasury and City Minister, and is MP for Salisbury.
When I was appointed Economic Secretary and City Minister in January 2018, the world looked very different to now. Back then, the fundamental trajectory of post-Brexit Britain was still contested across the country, and across the Conservative Party.
However, I have always been crystal clear in my conversations with Treasury officials that we had to deliver a Brexit for financial services that enabled us to remain global leaders in this industry. It therefore came as somewhat of a surprise to see Daniel Hannan argue on these pages last week, that he had been most disappointed by a failure to distance ourselves from the EU in financial services.
It’s important, right at the outset, to highlight that despite the numerous forecasts of woe – massive job losses, capital flight, loss of competitiveness – our financial services sector remains in robust health. Just last week, .
London scored 61 in analysis of 95 different metrics, ahead of New York (58) and Singapore (53), and far clear of other European centres which had been much talked about as future rivals. Frankfurt trailed in fourth place with a score of 45, while Paris was even lower down at 41.
the Chancellor outlined his vision for an open, technology embracing, green, and globally competitive industry. Having previously worked in financial services, he understands the importance of creating an agile and dynamic sector that works in tandem with a world-leading regulatory framework.
We are not interested in a race to the bottom, where we seek to attract the world’s best companies and nurture start-ups on the basis of creating a Wild West for financial services – judging success by how many regulations we have disposed of. The key to the future success of the industry is competitiveness. High standards and robust but reliable regulators enhance that and should not be framed as derailing our competitiveness agenda.
The Government’s response last year to ) showed very clearly how we plan to maximise the benefits of leaving the European Union. We are repealing all retained EU law and giving the domestic UK regulators, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), powers to regulate the financial services sector.
Following the the regulators’ action will be underpinned by a growth and competitiveness objective and clear accountability to our elected representatives at Westminster. This is not an EU-lite approach at all. We are pursuing the most fundamental reset and changes in our financial services architecture for many generations, and the Treasury is working at pace to develop the legislation needed to deliver these changes.
We have also had the Fintech and . This has led to prompt changes in listing rules and the setting up of a Centre for Finance, Innovation and Technology to drive further growth in FinTech across the UK. By avoiding complacency but responding to the findings of independent reviews Government is delivering a radical reform agenda and executing fundamental changes.
Many of the legacies of EU directives are embedded in cost structures and corporate thinking. Our job is to enable the swift rightsizing of such rules in a way that industry finds helpful (e.g. reforming the UK prospectus regime to make access to our deep capital markets easier; creating a new Long-Term Asset Fund structure to allow investors access to better returns or removing the Share Trading Obligation and Double Volume Cap to promote greater choice and better outcome for investors). We aim to do this in ways that minimise disruption and new costs as global growth opportunities abound.
It is a very exciting time to be the minister responsible for financial services. There is enormous opportunity across the UK, not just in London, especially with our innovative, world-leading fintech industry. Increased regulatory agility post-Brexit will also help us to better enable new prospects in cryptocurrency and blockchain. We have an ongoing leadership role to play in the Green Finance arena, and in wholesale markets we continue to move swiftly to maintain the UK’s status as a global financial centre and deliver for large and small UK companies, as well as international businesses who want to raise money and manage risk.
Domestically we intend to legislate imminently to secure access to cash for citizens up and down the country and introduce reforms to Credit Unions so more products can be offered – again building on a deep dialogue with that sector over recent years. I welcome the progress on the which will test whether No-Interest loans can sustainably provide a vital option for those excluded from credit.
We are most certainly living in an unprecedented moment of innovation in the industry, and the space and autonomy that Brexit has created will serve us well to continue capitalising on our unique financial services ecosystem and drive us forward in the years ahead.
David Willetts is President of the Resolution Foundation.
Conservatives don’t like putting up taxes and voters don’t like paying them. So it is not surprising there is an energetic campaign against the National Insurance increase. Should the Chancellor give ground to the critics?
One of the arguments, set out eloquently on ConservativeHome, is that we are having to pay higher taxes because the Government has decided to increase the size of the state, and it would be far better to shrink the state and abandon the tax rises.
But the main reason for the NI increase is to finance the cost of the NHS. That, in turn, is going up just because there are more old people, so public spending rises – even without any change in policy. Old people are heavy users of the NHS. It is very different from the demographic backdrop to the 1980s and 1990s when there were many fewer pensioners because of the low birth rates of the 1930s and the war years.
But now we are facing the healthcare and pensions costs of the post-war baby boom. And, however radically the Government reformed the NHS, it is hard to see pensioners being asked to pay for it, but that is what is driving the spending increases.
The Health Foundation estimates that funding for healthcare will have to rise in the next decade by over £60 billion just to maintain services in the face of these demographic pressures. We can try to offset these pressures by cutting other Government programmes; indeed, we have been doing that for a decade.
Whitehall-controlled day-to-day spending will have gone up by £111 billion between 2010 and 2024. An extraordinary £84 billion of that will have gone to the Department of Health and Social Care. We are reshaping the state so it is above all a mechanism for extracting money from young people to finance services and payment to older people who tend to vote – and vote Conservative.
This leads on to the objection that the levy is unfair on young taxpayers, especially as an increasing proportion of the money is to go to older people to protect more of their assets, and fund their health and social care. It is indeed a big problem that NI is not paid by pensioners, so if they are still working they take home more than a younger worker doing the same job.
The Treasury is very aware of his and for the first time extended this new supplementary rate of NI to pensioner earnings as well. It also covers income from dividends. But there are still other sources of income – from occupational pensions, for example – which do bear income tax but don’t pay this levy.
One obvious simplification of the tax system would be to merge NI with Income Tax, but the various exemptions from NI for pensioners have made this politically difficult. So I am relieved that at least the Chancellor has broadened the base of the new levy compared with traditional NI.
Even so there is still some validity in the argument that the Government is increasing taxes on earnings to protect old people’s assets. What we really need is a bold new Conservative programme for a property-owning democracy. We should reverse the decline in property ownership among young people. I hope to come back to this in a subsequent column.
As well as the generational problem, there is also the objection that the levy hits poor people, who are now facing the cost of living crisis. There is indeed a big hit to living standards looming. But the levy is a smaller part of this than the energy price rises. The NI rise will cost the average household £440. By contrast, average household energy bills are forecast to rise from £1,300 to £2,000. Moreover, the levy is not paid by the lowest income households. The Chancellor also increased the taper for Universal Credit so overall his budget boosted the incomes of many low income families whilst collecting more from the most affluent.
If the Chancellor has any fiscal room for manoeuvre now, he has much better means of easing the cost of living crisis than abandon the levy. Here it is. First introduce a radically improved Warm Homes Discount – increased by £300 and made available to 8.5 million families. Second, spread the costs of energy firm failure over a number of years. Third, temporarily transferring the social and environmental levies off energy bills. Combined this package would reduce energy bills by up to £545 a year at a cost of around £7.3 billion. This is much lower than the £12.7 billion cost from cancelling the rise in NI. It would also be much better targeted: more than half the benefits of postponing the NI levy accrue to the richest fifth of households.
Is it nevertheless the wrong time for any tax increases when the economy is still recovering from the enormous blow of the virus? But if anything it is bouncing back better than was feared. The better figures for public borrowing, which some are arguing show you don’t need the tax increase, are also evidence that the economy is growing fast enough to pay for this.
Borrowing is running rather lower than forecast – but it is still £147 billion this year so far and likely to come in at around £180 billion. With interest rates rising, the cost of this borrowing is going up. The Treasury always worries that if markets think the Government is never going to be able to raise taxes, the interest rates we pay would rise. There is some politics here as well – delay for a year or two and the hit is closer to the next election. Margaret Thatcher faced these arguments 40 years ago when the 364 economists warned against her tax rises in the 1981 budget, but that was the moment when the economy started to recover.
Then finally there is the most seductive argument of the lot – that tax rises actually cost revenues whereas tax cuts fund themselves by boosting economic growth and getting people to declare more of their income. It is true that there comes a point where increasing tax rates reduces totally revenues, but we are nowhere near that. The one apparent recent example is the increase in corporation tax revenues after the rate was cut, but this looks to have been driven more by the fall in business investment after the financial crash and then Brexit. The fall in investment boosted receipts as investment spend can be offset against corporation tax.
There is no prospect of funding today’s British state, shaped by Conservatives over the past decade or more, without increasing taxes. We can’t just keep on borrowing the money for our day-to-day spending on healthcare and pensions. We can certainly reform our taxes. We can also aim to reform the NHS to offset some of the costs from demographic pressures. But we cannot be the tax cutters we were in the 1980s because we are now an older country than we were then – and indeed it is older Tory voters who are the biggest beneficiaries of the reshaping of the state which has been the result.
Robert Halfon is MP for Harlow, a former Conservative Party Deputy Chairman, Chair of the Education Select Committee and President of Conservative Workers and Trade Unionists.
Last month, the Chancellor delivered a historic budget that cemented ambitions for a skills revolution.
I wish the new team leading the Department for Education every bit of luck. They have taken on some of the most profoundly important challenges as we begin to build back better.
‘Schools’ and ‘skills’ must be the two most important words in the Government’s vocabulary as we transform our education system. They are the key to delivering our mission of creating an economy that works for everyone.
Of course, we must retain our focus on education recovery. The pandemic has had an apocalyptic effect on the life chances of our young people. However, even before our schools closed their doors, there were signs that the education system was failing to support those most in need. Disadvantaged pupils were 18.4 months behind their better-off peers and the progress made on closing this attainment gap had come to a faltering halt.
But educational catch-up is not all. In order to meet our skills ambitions, education must adequately prepare pupils for the world of work. It is estimated that skills shortages in the UK are costing us £6.3 billion every year because previous governments have not given skills the priority they deserve. New Ministers have inherited an education system that is at odds with the demands of our modern economy.
Whenever I speak to employers and business leaders in my constituency, they say they want individuals with the knowledge required to do the job, but they also need to have strong skills, be good communicators, excellent problem-solvers and strong team players.
From Harlow to Huddersfield, local employers get the importance of skills. In towns like mine, there’s a strong vocational and skills culture: my constituents are proud of apprenticeships and skills, and what’s more, employers attach immense value on skills beyond academic qualifications. The Government’s own Employer Skills Survey reveals that academic qualifications are just one small part of today’s recruitment process. Employers across the country place the most value on technical, practical and so-called ‘soft’ skills.
Despite the name, these skills aren’t soft at all. Pupils need skills like resilience, financial education, oracy and teamwork to secure jobs and thrive in employment. In a recent survey of the UK labour market, looking at the data from 21 million job adverts, communication, planning and organisation skills were in the greatest demand from employers. In an increasingly digital world where AI is king, these skills will become even more important.
The keystone to education must be about providing young people with a ladder of opportunity so that they can go on to gain fulfilling employment, job security and prosperity for themselves and their families. Despite the fundamental link between education and employment, we currently give these skills scant attention in our education system.
But it does not have to be like this. Some schools are bucking the trend and blending knowledge with practical skills.
XP is an Outstanding-rated school in Doncaster. They recognise that knowledge and skills depend upon each other so they have tightly integrated project-based learning with an academically-rigorous curriculum. Recently, pupils embarked on a research project to better understand the relationship between Doncaster and the history of its rail industry. At the end, they published a book which has become the third highest-selling local book in the area.
School 21 is another Outstanding school which empowers young people to use their voice, developing oracy skills that employers see as invaluable. They give pupils the chance to give mini TED talks in front of large audiences to develop their confidence and public speaking skills. School 21 also offers pupils real-world learning placements where young people gain professional communication skills through work experience.
These schools are incredible examples of what is possible if schools focus their efforts on cultivating both the skills and knowledge that pupils need. However, they are remarkable exceptions, and not the rule. We need to do more to transform the education system to value skills as highly as knowledge.
First, the Government must double down our efforts to close the attainment gap, focusing additional support with laser precision to reach those most in need. To do this, the Government should review whether pupil premium funding is up to the task. The Education Select Committee heard from experts who said that the support base for pupil premium is too broad. We should reform pupil premium so that it concentrates on pupils in persistent poverty.
Second, we must reform the post-16 curriculum. All children deserve high expectations and a curriculum which stretches them. However, we must make sure that when we’re stretching pupils, it’s always with an eye on securing positive post-16 destinations, rather than idolising a narrow set of academic subjects.
The English Baccalaureate (EBacc) has led to a narrowing of the curriculum. Subjects like Design & Technology (D&T) and Computer Science are being squeezed out, with entrances for D&T GCSEs down by 65 per cent from 2010. The EBacc needs to be reformed to create a parity of esteem for vocational subjects alongside a rigorous academic offer.
Finally, we must take a renewed look at the assessment system. Our current system was created in a world where children left school at 16 and the skills they needed for life were very different. I propose that we move to a new system where children have the option at aged 18 to complete an International Baccalaureate, which focuses in equal measure on academic knowledge and skills.
The combination of skills and knowledge is not an unattainable ideal. In fact, it is the international standard. Over 150 countries and 5,000 schools already offer the International Baccalaureate. This qualification allows pupils to study a range of academic subjects alongside a skills-based project of their choice. If we want our young people to compete for the jobs of tomorrow, we need a similarly broad baccalaureate that obliterates the false dichotomy between vocational and academic achievement that has unfairly constrained our young people for decades.
The outgoing Schools Minister, Nick Gibb, advised his successors to push forward with a knowledge-based curriculum. In his article published a couple of months ago, he argued that our education system faced a battle between his traditionalist world view, and the ideology of progressives.
I have enormous respect for Gibb. During his time as Minster, he was a relentless champion of phonics, and through his hard work, the proportion of pupils passing Year 1 of phonics screening checks increased from 58 to 82 per cent in 2019.
While I retain a lot of admiration for his legacy at the Department for Education, I believe his article did not fully address the problems the education system is facing.
Nobody will benefit if the Conservative Party wastes our energy on fighting a straw man. We live in a world where we can, and should, equip young people with both knowledge and skills. If we neglect either one, we are setting our children up to fail.
Re-setting our education system to grapple with the demands of the modern economy will not lead to a worsening of school standards – it is the only way that we can achieve our skills ambition and level-up education for those who need it the most.
We promised to deliver a skills revolution. Now we need to make this promise a reality.
Dr Gerard Lyons is Senior Fellow at Policy Exchange.
The Chancellor was right to talk about an age of optimism. The clear message from this Budget is that the Government now needs to deliver upon pro-growth supply-side policies to help deliver it.
The good news is that the economy is recovering, public finances are improving and government borrowing is heading lower. It was also a Budget with a powerful message about the need to build a stronger economy, with a focus on innovation and investment.
The Chancellor described this Budget as being the foundation for stronger economic growth and sound public finances, yet he also said that credibility was built on what was done, not just on what was said. Therein lies his challenge.
The Chancellor’s desire is to reduce the size of the state and to cut taxes. Notably, he has recently raised taxes and the announcements in this Budget will prevent borrowing falling as much as it would have done. There was also a significant and welcome boost to departmental spending.
The immediate reaction to the Budget appears to have been a mix between positivity about such an accomplished performance and sensitivity about the high rate of tax and spend. Meanwhile, UK financial markets responded positively to news that future gilt issuance will be less than expected.
Yet, as we emerge from the pandemic, with many areas of the economy having been hit hard, it was right to focus on providing a stronger foundation for growth.
I am supportive of the 3.8 per cent per annum increase in departmental spending over this Parliament, showing that austerity is not a policy option, as reflected in a Policy Exchange report I co-authored last year, A Pro-Growth Economic Strategy.
While the economy and public finances may have turned the corner, both are still vulnerable to shocks, and this was reflected in the Chancellor’s focus on inflation so early on in his speech.
The current rise in inflation is unlikely to prove permanent, but it may persist for a year or two as opposed to passing-through quickly, not helped by the Bank of England’s stance to date. The persistence of inflation not only threatens a squeeze on living standards, but also, as the Chancellor alluded to, adds to borrowing costs if interest rates or borrowing yields rise.
While the economic forecasts of the Official for Budget Responsibility (OBR) are outside the Chancellor’s control, they tie his hands on policy and can impact his judgment call on the fiscal measures. If the forecasts are too pessimistic, they imply a greater proportion of the deficit is structural, adding to pressure on the Chancellor to squeeze spending, or hike taxes, as he did recently.
A lesson of the last six months is an important one, namely that the margin of error on budget projections is high, and that stronger economic growth can allow the public finances to improve significantly.
Indeed, the deficit over the first half of this fiscal year is already £43 billion better than forecast in March. This should allow pushback against any consensus calls for higher future taxes, and it reinforces the need to help incentivise the private sector to deliver stronger, future growth.
There was confirmation of a strong rebound in the economy this year, returning to its pre-crisis level around the turn of the year, with growth of 6.5 per cent this year and 6.0 per cent next. The issue is what happens thereafter.
The OBR remains cautious about any post-Brext growth dividend and thus the challenge, perhaps, for future policy is to show that is not the case. Growth is expected to decelerate to 2.1 per cent in 2023, followed by 1.3 per cent (2024), 1.6 per cent (2025) and 1.7 per cent in 2026.
Taking pride of place has to be employment. The furlough scheme was expensive, at £69 billion, but it prevented unemployment from reaching anywhere near the rates once feared at the start of the pandemic. Unemployment, according to the official forecasts, will peak at 5.4 per cent, not the initial 12 per cent feared.
Against this backdrop, the Chancellor felt he had both the room and the need to intervene. The Budget Red Book pointed to a sizeable 65 policy decisions that contained an expenditure or tax implication, including the measures announced in recent weeks such as the health and social care levy. Perhaps this is too much intervention.
There were many welcome measures including the reduction to the taper on universal credit that helps those on low income and a reform from a complex to a simple taxation of spirits. The Budget also laid some of the groundwork for the key joint political and policy areas of the green agenda, levelling up and higher wages.
The latter included confirmation by the Chancellor of his pre-Budget announcement of an increase in the national living wage and other measures to help people through the current cost of living squeeze. This move, though, particularly in the wake of the hike in national insurance reinforces the need to reduce future business costs, including tax and regulations, particularly for small firms.
The Chancellor’s help given to the British Business Bank, while welcome, does not address the scale of the financing challenge facing many small firms. The failure to reform business rates today, plus delaying the commitment by two years to the £22 billion research and development spending target were disappointing.
The net result was that this was a generous Budget. There will be a net boost of £3 billion in 2021/22 and of £25.3 billion in 2022/23, with boosts in future years too.
The Chancellor announced two new fiscal rules. These usually do not stand the test of time, although on this occasion it was welcome that the focus was on reducing debt to GDP, gradually over time. that particular focus makes sense. Debt to GDP, after peaking at 98.2 per cent in 2021/22 is expected to fall to 88 per cent by 2026/27.
The Chancellor had no white rabbits to pull out of the hat. Thus, having borrowed, taxed and spent, the challenge for him and for the Government is that there is a need to help force through change. That means in coming years reforming the economy and lowering taxes to galvanise the private sector and help deliver stronger sustainable growth.
Madam Deputy Speaker,
A year ago, in my first Budget, I announced our initial response to coronavirus.
What was originally thought to be a temporary disruption to our way of life has fundamentally altered it.
People are still being told to stay in their homes; businesses have been ordered to close; thousands of people are in hospital.
Much has changed.
But one thing has stayed the same.
I said I would do whatever it takes; I have done; and I will do so.
We have announced over £280 billion of support, protecting jobs, keeping businesses afloat, helping families get by.
Despite this unprecedented response, the damage coronavirus has done to our economy has been acute. Since March, over 700,000 people have lost their jobs.
Our economy has shrunk by 10% – the largest fall in over 300 years.
Our borrowing is the highest it has been outside of wartime.
It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation.
But we will recover.
This Budget meets the moment with a three-part plan to protect the jobs and livelihoods of the British people.
First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis.
Second, once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that.
And, third, in today’s Budget we begin the work of building our future economy.
Madam Deputy Speaker,
Today’s forecasts show that our response to coronavirus is working.
The Prime Minister last week set out our cautious but irreversible roadmap to ease restrictions whilst protecting the British people.
The NHS, deserving of immense praise, has had extraordinary success in vaccinating more than 20 million people across the United Kingdom.
And combined with our economic response, one of the most comprehensive and generous in the world, this means the Office for Budget Responsibility are now forecasting, in their words:
“A swifter and more sustained recovery” than they expected in November.
The OBR now expect the economy to return to its pre-covid level by the middle of next year – six months earlier than previously thought.
That means growth is faster, unemployment lower, wages higher, investment higher, household incomes higher.
But while our prospects are now stronger, coronavirus has done and is still doing profound damage.
And today’s forecasts make clear repairing the long-term damage will take time.
The OBR still expect that in five years’ time, because of coronavirus, our economy will be 3% smaller than it would have been.
Before I share the detail of the OBR’s forecasts, let me thank Richard Hughes and his team for their work.
The OBR forecast that our economy will grow this year by 4%, by 7.3% in 2022, then 1.7%, 1.6% and 1.7% in the last three years of the forecast.
And the OBR have said that our interventions to support jobs have worked.
In July last year, they expected unemployment to peak at 11.9%. Today, because of our interventions, they forecast a much lower peak: 6.5%.
That means 1.8 million fewer people are expected to be out of work than previously thought.
But every job lost is a tragedy, which is why protecting, creating and supporting jobs remains my highest priority.
So, Madam Deputy Speaker,
Let me turn straight away to the first part of this Budget’s plan: to protect the jobs and livelihoods of the British people through the remaining phase of this crisis.
First, the furlough scheme will be extended until the end of September.
For employees, there will be no change to the terms – they will continue to receive 80% of their salary, for hours not worked, until the scheme ends.
As businesses reopen, we’ll ask them to contribute alongside the taxpayer to the cost of paying their employees.
Nothing will change until July, when we will ask for a small contribution of just 10% and 20% in August and September.
The Government is proud of the furlough – one of the most generous schemes in the world, effectively protecting millions of people’s jobs and incomes.
Second, support for the self-employed will also continue until September with a fourth grant covering the period February to April, and a fifth and final grant from May onwards.
The fourth grant will provide three months of support at 80% of average trading profits.
For the fifth grant, people will continue to receive grants worth three months of average profits, with the system open for claims from late July.
But as the economy reopens over the summer, it is fair to target our support towards those most affected by the pandemic.
So people whose turnover has fallen by 30% or more will continue to receive the full 80% grant.
People whose turnover has fallen by less than 30% will therefore have less need of taxpayer support and will receive a 30% grant.
And I can also announce a major improvement in access to the self-employed scheme.
When the scheme was launched, the newly self-employed couldn’t qualify because they hadn’t all filed the 2019-20 tax return.
But as the tax return deadline has now passed, I can announce today that, provided they filed a tax return by midnight last night, over 600,000 more people, many of whom became self-employed last year can now claim the fourth and fifth grants.
Over the course of this crisis, we will have spent £33 billion supporting the self-employed; one of the most generous programmes for self-employed people anywhere in the world.
Third, we’re also extending our support for the lowest paid and most vulnerable.
To support low-income households, the Universal Credit uplift of £20 a week will continue for a further six months, well beyond the end of this national lockdown.
We’ll provide Working Tax Credit claimants with equivalent support for the next six months.
And Because of the way that system works operationally, we will need to do so with a one-off payment of £500.
And over the course of this year, as the economy begins to recover, we are shifting our resources and focus towards getting people into decent, well-paid jobs.
We reaffirm our commitment to end low pay, increasing the National Living Wage to £8.91 from April – an annual pay rise of almost £350 for someone working full time on the National Living Wage.
And My Right Honourable Friends the Education Secretary and the Work and Pensions Secretary, are taking action to give people the skills they need to get jobs or get better jobs:
The Restart programme – supporting over a million long term unemployed people.
The number of work coaches – doubled.
The Kickstart scheme – funding high quality jobs for over a quarter of a million young people.
The Prime Minister’s Lifetime Skills Guarantee – giving every adult the opportunity for a fully-funded Level 3 qualification.
And we want businesses to hire new apprentices so we’re paying them more to do it.
Today, I am doubling the incentive payments we give businesses to £3,000 – that’s for all new apprentice hires, of any age.
Alongside investing £126 million of new money to triple the number of traineeships we’re taking what works to get people into jobs and making it better.
Madam Deputy Speaker,
One of the hidden tragedies of lockdown has been the increase in domestic abuse.
So I’m announcing today an extra £19 million – on top of the £125 million we announced at the Spending Review – for domestic violence programmes to reduce the risk of reoffending, and to pilot a network of ‘Respite Rooms’ to provide specialist support for vulnerable homeless women.
To recognise the sacrifices made by so many women and men in the Armed Forces community, I’m providing an additional £10 million to support veterans with mental health needs.
And, on current plans, the funding to support survivors of the Thalidomide scandal runs out in 2023.
They deserve better than to have constant uncertainty about the future costs of their care.
So not only will I extend this funding with an initial down payment of around £40 million; I am today announcing a lifetime commitment, guaranteeing funding forever.
And let me thank the Thalidomide Trust and the Honourable Member for North Dorset for their leadership on this important issue.
As well as supporting people’s jobs, incomes, the lowest paid and most vulnerable, this Budget also protects businesses.
We’ve been providing businesses with direct cash grants through the recent restrictions. These grants come to an end in March.
I can announce today that we will provide a new Restart Grant in April, to help businesses reopen and get going again.
Non-essential retail businesses will open first, so they’ll receive grants of up to £6,000 per premises.
Hospitality and leisure businesses, including personal care and gyms, will open later, or be more impacted by restrictions when they do, so we’ll give them grants of up to £18,000.
That’s £5 billion of new grants; on top of the £20 billion we’ve already provided; taking our direct total cash support to business to £25 billion.
And I pay tribute to My Right Honourable Friend the Member for Romsey and Southampton North for highlighting the particular needs of the personal care sector.
And, with My Right Honourable Friend the Culture Secretary, we’re making available £700 million to support our incredible arts, culture and sporting institutions as they reopen;
Backing the United Kingdom and Ireland’s joint 2030 World Cup bid, launching a new approach to apprenticeships in the creative industries, and extending our £500 million film and TV production restart scheme.
Even with the new Restart Grants, some businesses will also need loans to see them through.
As the Bounce Back Loan and CBIL programmes come to an end, we’re introducing a new Recovery Loan Scheme to take their place.
Businesses of any size can apply for loans from £25,000 up to £10 million, through to the end of this year. And the government will provide a guarantee to lenders of 80%.
Last year, we provided an unprecedented 100% business rates holiday, in England, for all eligible businesses in the retail, hospitality and leisure sectors – a tax cut worth £10 billion.
This year, we’ll continue with the 100% business rates holiday for the first three months of the year, in other words, through to the end of June.
For the remaining nine months of the year, business rates will still be discounted by two thirds, up to a value of £2 million for closed businesses, with a lower cap for those who have been able to stay open.
A £6 billion tax cut for business.
One of the hardest hit sectors has been hospitality and tourism: 150,000 businesses that employ over 2.4 million people need our support.
To protect those jobs, I can confirm that the 5% reduced rate of VAT will be extended for six months to 30th September.
And even then, we won’t go straight back to the 20% rate.
We’ll have an interim rate of 12.5% for another six months; not returning to the standard rate until April of next year.
In total, we’re cutting VAT next year by almost £5 billion.
Madam Deputy Speaker,
The housing sector supports over half a million jobs.
The cut in stamp duty I announced last summer has helped hundreds of thousands of people buy a home and supported the economy at a critical time.
But due to the sheer volume of transactions we’re seeing, many new purchases won’t complete in time for the end of March.
So I can announce today the £500,000 nil rate band will not end on the 31st of March, it will end on the 30th of June.
Then, to smooth the transition back to normal, the nil rate band will be £250,000, double its standard level, until the end of September – and we will only return to the usual level of £125,000 from October 1st.
Even with the stamp duty cut, there is still a significant barrier to people getting on the housing ladder – the cost of a deposit.
So I’m announcing today a new policy to stand behind homebuyers: a mortgage guarantee.
Lenders who provide mortgages to home buyers who can only afford a five percent deposit, will benefit from a government guarantee on those mortgages.
And I’m pleased to say that several of the country’s largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95% mortgages from next month, and I know more, including Virgin Money will follow shortly after.
A policy that gives people who can’t afford a big deposit the chance to buy their own home.
As the Prime Minister has said, we want to turn Generation Rent into Generation Buy.
So, Madam Deputy Speaker,
The furlough – extended to September.
Self-employed grants – extended to September.
Universal Credit uplift – extended to September.
More money to tackle domestic violence.
Bigger incentives to hire apprentices.
Higher grants to struggling businesses.
Extra funds for culture, arts and sport.
New loan schemes to finance businesses.
Kickstart, Restart, a Lifetime Skills Guarantee.
Business rates – cut.
VAT – cut.
Stamp duty – cut.
And a new mortgage guarantee.
The first part of a Budget that protects the jobs and livelihoods of the British people.
And, Madam Deputy Speaker,
As you can see, we’re going long, extending our support well beyond the end of the Roadmap…
…to accommodate even the most cautious view about the time it might take to exit the restrictions.
Let me summarise for the House the scale of our total fiscal response to coronavirus.
At this Budget we are announcing an additional £65 billion of measures over this year and next to support the economy in response to coronavirus.
Taking into account the significant support announced at the Spending Review 20, this means our total COVID support package, this year and next, is £352 billion.
Once you include the measures announced at Spring Budget last year, including the step change in capital investment, total fiscal support from this Government over this year and next amounts to £407 billion.
Coronavirus has caused one of the largest, most comprehensive and sustained economic shocks this country has ever faced.
And, by any objective analysis, this Government has delivered one of the largest, most comprehensive and sustained responses this country has ever seen.
So, Madam Deputy Speaker,
We’re using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people.
But the damage done by coronavirus, combined with a level of support unimaginable only twelve months ago, has created huge challenges for our public finances.
The OBR’s fiscal forecasts show that this year, we have borrowed a record amount: £355 billion.
That’s 17% of our national income, the highest level of borrowing since World War Two.
Next year, as we continue our unprecedented response to this crisis, borrowing is forecast to be £234 billion, 10.3% of GDP – an amount so large it has only one rival in recent history; this year.
Without corrective action, borrowing would continue at very high levels, leaving underlying debt rising indefinitely.
Instead, because of the steps I am taking today, borrowing falls to 4.5% of GDP in 22-23, 3.5% in 23-24, then 2.9% and 2.8% in the following two years.
And while underlying debt rises from 88.8% of GDP this year to 93.8% next year, it then peaks at 97.1% in 2023-24, before stabilising and falling slightly to 97% and 96.8% in the final two years of the forecast.
Let me explain why this matters.
The amount we’ve borrowed is comparable only with the amount we borrowed during the two world wars.
It is going to be the work of many governments, over many decades, to pay it back.
Just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked.
When crises come, we need to be able to act.
And we need the fiscal freedom to act.
A freedom that you only have if you start with public finances in a good and strong place.
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When the next crisis comes, we need to be able to act again.
And while our borrowing costs are affordable right now, interest rates and inflation may not stay low for ever; and just a 1% increase in both would cost us over £25 billion.
And as we have seen in the markets over the last few weeks, sovereign bond yields can rise sharply.
This Budget is not the time to set detailed fiscal rules, with precise targets and dates to achieve them by – I don’t believe that would be sensible.
But I do want to be honest about what I mean by sustainable public finances, and how I plan to achieve them. Our fiscal decisions are guided by three principles.
First, while it is right to help people and businesses through an acute crisis like this one, in normal times the state should not be borrowing to pay for everyday public spending.
Second, over the medium term, we cannot allow our debt to keep rising, and, given how high our debt now is, we need to pay close attention to its affordability.
And third, it is sensible to take advantage of lower interest rates to invest in capital projects that can drive our future growth.
So the question is how we achieve that; how we balance the extraordinary support we are providing to the economy right now, with the need to begin the work of fixing our public finances.
I have and always will be honest with the country about the challenges we face.
So I’m announcing today two measures to begin that work.
Let me take each in turn.
Madam Deputy Speaker,
Our response to coronavirus has been fair, with the poorest households benefiting the most from our interventions.
And our approach to fixing the public finances will be fair too, asking more of those people and businesses who can afford to contribute and protecting those who cannot.
So this government is not going to raise the rates of income tax, national insurance, or VAT.
Instead, our first step is to freeze personal tax thresholds.
We’ve nearly doubled the income tax personal allowance over the last decade, making it the most generous of any G20 country.
We will of course deliver our promise to increase it again next year to £12,570, but we will then keep it at this more generous level until April 2026.
The Higher Rate threshold will similarly be increased next year, to £50,270, and will then also remain at that level for the same period.
Nobody’s take home pay will be less than it is now, as a result of this policy.
But I want to be clear with all Members that this policy does remove the incremental benefit created had thresholds continued to increase with inflation.
We are not hiding it, I am here, explaining it to the House and it is in the Budget document in black and white. It is a tax policy that is progressive and fair.
And, I will also maintain, at their current levels, until April 2026:
The inheritance tax thresholds.
The pensions lifetime allowance.
The annual exempt amount in capital gains tax.
And, for two years from April 2022, the VAT registration threshold which, at £85,000, will remain more than twice as generous as the EU and OECD averages.
We’ll also tackle fraud in our covid schemes, with £100m to set up a new HMRC taskforce of around 1,000 investigators as well as new measures, and new investment in HMRC, to clamp down on tax avoidance and evasion.
The full details are set out in the Red Book.
Madam Deputy Speaker,
The government is providing businesses with over £100 billion of support to get through this pandemic, so it is fair and necessary to ask them to contribute to our recovery.
So the second step I am taking today is that in 2023, the rate of corporation tax, paid on company profits, will increase to 25%.
Even after this change the United Kingdom will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France.
We’re also introducing some crucial protections.
First, this new higher rate won’t take effect until April 2023, well after the point when the OBR expect the economy to have recovered.
And even then, because corporation tax is only charged on company profits, any struggling businesses will, by definition, be unaffected.
Second, I’m protecting small businesses with profits of £50,000 or less, by creating a Small Profits Rate, maintained at the current rate of 19%.
This means around 70% of companies – 1.4 million businesses – will be completely unaffected.
And third, we will introduce a taper above £50,000, so that only businesses with profits of a quarter of a million or greater will be taxed at the full 25% rate.
That means only 10% of all companies will pay the full higher rate.
So yes, it’s a tax rise on company profits. But only on the larger, more profitable companies. And only in two years’ time.
And I wanted to announce this now because I think for business, certainty matters.
For the next two years, I’m also making the tax treatment of losses significantly more generous by allowing businesses to carry back losses of up to £2 million for three years providing a significant cash flow benefit. This means companies can now claim additional tax refunds of up to £760,000.
And because of the current 8% bank surcharge, the implied overall tax rate for banks would be too high. So we will review the surcharge, to make sure the combined rate of tax on the United Kingdom banking sector doesn’t increase significantly from its current level and to make sure this important industry remains internationally competitive.
Madam Deputy Speaker,
These are significant decisions to have taken.
Decisions no Chancellor wants to make.
I recognise they might not be popular.
But they are honest.
And let’s consider the alternatives.
The first is to do nothing.
To leave our deficit problem untreated.
Our debt problem for someone else in future to deal with.
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And Nor do I believe it can be the way of a responsible Chancellor.
Another alternative would be to try to find all the savings we need from public spending.
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The only other alternative would be to increase the rates of tax on working people – but I don’t believe that would be right either.
So I believe our approach, while bold, is compatible with our duty as a fiscally responsible and business friendly government.
This is the right choice and I’m confident it will command public assent.
I have one final announcement on business tax.
With the lowest corporation tax in the G7, and a new, small profits rate, the United Kingdom will have a pro-business tax regime.
But we need to do even more to encourage businesses to invest right now.
Business investment creates jobs, lifts growth, spurs innovation and drives productivity.
For decades we’ve lagged behind our international peers.
Right now, while many businesses are struggling, others have been able to build up significant cash reserves.
We need to unlock that investment; we need an investment-led recovery.
So today I can announce the ‘Super Deduction’.
For the next two years, when companies invest, they can reduce their taxable profits* not just by a proportion of the cost of that investment, as they do now or even by 100% of their cost, the so-called full expensing some have called for, with the Super Deduction they can now reduce their taxable profits by 130% of the cost.
Let me give the House an example.
Under the existing rules, a construction firm buying £10 million of new equipment could reduce their taxable income, in the year they invest, by just £2.6 million.
With the Super Deduction, they can now reduce it by £13 million.
We’ve never tried this before in our country.
The OBR have said it will boost business investment by 10%; around £20 billion more per year.
It makes our tax regime for business investment truly world-leading, lifting us from 30th in the OECD, to 1st. And, worth £25 billion during the two-years it is in place this will be the biggest business tax cut in modern British history.
Bold, unprecedented action.
To get companies investing.
And driving our economic recovery.
Madam Deputy Speaker,
Let me now turn to duties.
This is a tough time for hospitality.
So I can confirm that the planned increases in duties for:
Spirits like scotch whisky.
And beer, will all be cancelled.
All alcohol duties frozen for the second year in a row – only the third time in two decades.
And right now, to keep the cost of living low, I’m not prepared to increase the cost of a tank of fuel. So the planned increase in fuel duty is also cancelled.
Madam Deputy Speaker,
This Budget protects the jobs and livelihoods of the British people.
This Budget is honest about the challenges facing our public finances, and how we will begin to fix them. And this Budget does one other thing:
It lays the foundations of our future economy – the third part of our plan.
If we want a better future economy, we have to make it happen.
We have to do things that have never been done before.
The world is not going to be any less competitive after coronavirus.
So it’s not enough to have some general desire to grow the economy.
We need a real commitment to green growth.
It’s not enough to have a general desire to increase productivity.
We need a real commitment to give every business, large or small, the opportunity to grow, innovate and succeed. It’s not enough to have a general desire to create jobs.
We need a real commitment to create jobs where people are and change the economic geography of this country.
And we can’t strengthen our domestic economy without remaining a global, outward-looking nation.
This future economy won’t be created in any one Budget, but today we lay the foundations.
Madam Deputy Speaker,
Our future economy needs investment in green industries across the United Kingdom. So I can announce today the first ever UK Infrastructure Bank.
Located in Leeds, the Bank will invest across the United Kingdom in public and private projects to finance the green industrial revolution.
Beginning this spring, it will have an initial capitalisation of £12 billion and we expect it to support at least £40 billion of total investment in infrastructure.
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Offshore wind is an innovative industry where the United Kingdom already has a global competitive advantage. So we’re funding new port infrastructure to build the next generation of offshore wind projects in Teesside and Humberside.
And in November I announced we would launch a world-leading Sovereign Green Bond.
Today we’re going further, announcing a new, retail savings product to give all United Kingdom savers the chance to support green projects…
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We’ve also asked Dame Clara Furse to establish a new group to position the City as the global leader for voluntary, high quality carbon offset markets.
And underpinning all of this will be an updated monetary policy remit for the Bank of England. It reaffirms their 2% target.
But now, it will also reflect the importance of environmental sustainability and the transition to net zero.
Madam Deputy Speaker,
Our future economy will also address our productivity problem and support small businesses.
Too often smaller firms don’t have the time or resources to acquire the extra skills and training they need to be more efficient, more digital, and more productive.
Thanks to Be the Business, we have made a good start at supporting these firms.
Today, the Business Secretary and I are going further with a new set of UK-wide schemes: Help to Grow.
First, Help to Grow: Management will help tens of thousands of small and medium sized businesses get world-class management training.
Dozens of business schools across the United Kingdom will offer a new executive development programme with mentoring and peer learning, and government will contribute 90% of the cost.
A real commitment to learn more, make more and earn more.
Second, Help to Grow: Digital.
With the pandemic, many businesses have moved online. This has been a challenge. But we want to turn it into an opportunity.
We’re going to help small businesses develop digital skills by giving them free expert training and a 50% discount on new productivity-enhancing software, worth up to £5,000 each.
Both programmes will commence by the autumn; and I’d urge interested businesses to register today on Gov.UK/HelpToGrow.
A real commitment to help over a hundred thousand businesses become more innovative, more competitive and more profitable.
Madam Deputy Speaker,
A future economy requires us to be at the forefront of the next scientific and technological revolutions.
Becoming a scientific superpower is something we can be; I don’t think that’s hubristic or unrealistic.
Our incredible vaccination programme has shown the world what this country is capable of.
So I’m providing an extra £1.6 billion today to continue the rollout and improve our future preparedness.
And I want to make the United Kingdom the best place in the world for high growth, innovative companies.
So I’m launching two wide-ranging consultations today: to make sure our research and development tax reliefs – and our Enterprise Management Incentives – are internationally competitive.
And, My Right Honourable Friend the Home Secretary knows that a scientific superpower needs scientific superstars so together we’re announcing ambitious, visa reforms aimed at highly skilled migrants, including:
A new unsponsored points-based visa to attract the best and most promising international talent in science, research and tech.
New, improved visa processes for scale-ups and entrepreneurs.
And radically simplified bureaucracy for high skilled visa applications.
Now as well as support for innovation and access to talent, high growth firms need access to capital.
To do that, we’re taking steps to give the pensions industry more flexibility to unlock billions of pounds from pension funds into innovative new ventures launching a new Future Fund Breakthrough, to help fill the scale-up funding gapand changing the rules to encourage more companies to list here.
Let me thank Lord Hill for leading this landmark review, the FCA will be consulting on his proposals very shortly.
Madam Deputy Speaker,
Our future economy depends on remaining a United Kingdom.
Millions of families and businesses in Scotland, Wales and Northern Ireland have contributed to and benefitted from our coronavirus response.
And central to that has been a Treasury that acts for the whole United Kingdom.
That’s not a political point, it’s an undeniable truth.
The majority of today’s Budget measures will apply directly to people in all four nations of the United Kingdom. And I’m taking further specific steps, with:
Three accelerated Scottish City and Growth Deals in Ayrshire, Argyll and Bute, and Falkirk;
Three more in North Wales, Mid Wales, and Swansea Bay;
And funding for the Holyhead hydrogen hub.
The Global Centre of Rail Excellence in Neath Port Talbot.
The Aberdeen Energy Transition Zone.
As well as the Global Underwater Hub and the North Sea transition deal.
Along with the first allocations of the £400m New Deal for Northern Ireland.
And through the Barnett formula, the decisions I’m taking in this Budget also increase the funding for the devolved administrations, by:
£1.2 billion in Scotland;
£740 million in Wales;
And £410 million for the Northern Ireland executive.
And Madam Deputy Speaker,
Our future economy demands a different economic geography.
If we are serious about wanting to level up, that starts with the institutions of economic power.
Few institutions are more powerful than the one I am enormously privileged to lead – the Treasury.
Along with the other critical economic departments, including BEIS, DIT, and MHCLG, we will establish a new economic campus in Darlington.
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Redrawing our economic map means rebalancing our economic investment.
I have already revised the Treasury’s Green Book; and set out the highest sustained levels of public investment across the United Kingdom since the 1970s.
But we can go further.
I’m announcing today over a billion for 45 new Towns Deals.
From Castleford to Clay Cross; Rochdale to Rowley Regis; and Whitby to Wolverhampton.
And let me pay tribute to local leaders like the brilliant Mayor for the West Midlands, Andy Street, who are making the case for investment in their area.
We’re also creating a £150 million fund, to help communities across the United Kingdom take ownership of pubs, theatres, shops, or local sports clubs at risk of loss – putting more power in the hands of local people.
And I am launching the first round of the Levelling Up Fund today, inviting applications from local areas across the United Kingdom.
And I’m grateful to My Right Honourable Friends the Transport Secretary and the Communities Secretary for their support on this crucial initiative.
Madam Deputy Speaker,
I have one final announcement that exemplifies the future economy.
A policy on a scale we’ve never done before;
A policy to bring investment, trade, and, most importantly, jobs, right across this country.
To replace the industries of the past with green, innovative, fast growing new businesses.
To encourage free trade and reinforce our position as an outward-looking, trading nation, open to the world. A policy we can only pursue now we’re outside the European Union:
Freeports are special economic zones with different rules to make it easier and cheaper to do business. They’re well-established internationally, but we’re taking a unique approach.
Our Freeports will have:
Simpler planning – to allow businesses to build;
Infrastructure funding – to improve transport links;
Cheaper customs – with favourable tariffs, VAT or duties;
And lower taxes – with tax breaks to encourage construction, private investment and job creation. An unprecedented economic boost across the United Kingdom.
Freeports will be a truly UK-wide policy – and we’ll work constructively with the Scottish, Welsh and Northern Irish administrations.
Today, I can announce the eight freeport locations in England:
East Midlands Airport.
Felixstowe and Harwich.
Liverpool City Region.
Eight new Freeports in eight English regions unlocking billions of pounds of private sector investment, generating trade and jobs up and down the country.
I commend Members from across the House for their campaigning…
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Madam Deputy Speaker,
Let’s take just one of those places – Teesside.
In the past, it was known for its success in industries like steel.
Now, when I look to the future of Teesside I see old industrial sites being used to capture and store carbon. Vaccines being manufactured.
Offshore wind turbines creating clean energy for the rest of the country.
All located within a Freeport with the Treasury just down the road and the UK Infrastructure Bank only an hour away.
I see innovative, fast-growing businesses hiring local people into decent, well-paid, green jobs.
I see people designing, manufacturing and exporting incredible new products and services.
I see people putting down roots in places they are proud to call home.
I see a people optimistic and ambitious for their future.
That, Madam Deputy Speaker, is the future economy of this country.
And so, whilst this last year has been a test unlike any other, that which we are, we are.
The fundamentals of our character as a people have not changed.
Still determined. Still generous. Still fair.
That’s what got us through the last year; it’s what will guide us through the next decade and beyond.
This time last year we set out to deliver on the promises we made to the British people.
But the most important promise was implicit and, in truth, is made by every government, irrespective of their politics.
And that is to do what must be done, when the danger is imminent, and when no one else can.
Today we set out a plan to protect the jobs and livelihoods of the British people, but the promises that underpin that plan, remain unchanged from those we pledged ourselves to twelve long months ago.
To unite and lead.
To level up.
To create a world class education system.
To keep our streets safe.
To keep our NHS strong.
To support the most vulnerable.
To reform and improve public services.
To grow the economy.
To spread prosperity.
To extend the awesome power of opportunity to all corners of the United Kingdom.
And, yes to be honest and fair in all that we do.
Madam Deputy Speaker.
An important moment is upon us.
A moment of challenge and of change.
Of difficulties, yes, but of possibilities too.
This is a Budget that meets that moment.
And I commend it to the House.
Christian Wakeford is MP for Bury South.
As the MP for Bury South, in the so-called “Red Wall”, I have no doubt about the need to drive down emissions.
I am a supporter of our Conservative manifesto commitment to Net Zero by 2050, and like many of my colleagues in Parliament, my focus is on finding practical and affordable policies which will allow us to live more sustainably.
Some have recently questioned our Net Zero commitments, but poll after poll shows increasing public concern over the environment and a desire for faster action.
85 per cent of the British public are concerned about climate change, while the environment is now the third biggest priority for the public, behind healthcare and the economy, with 33 per cent saying it’s the most important issue.
In my constituency, I held a pre-COP26 “environment forum” for local people. It was a great opportunity to hear their views, concerns and hopes about our efforts to tackle climate change.
However, throughout the forum it was highlighted that government of all levels is notoriously bad at working cross department and this leads to either duplicated working or watered down and overcomplicated projects.
This will only hold back the action they want to see. The suggestion of having someone oversee action on climate change, from a cross-departmental basis, was regarded as efficient and sensible.
My constituents are right. It’s clear that we will need a senior Cabinet Minister for Net Zero to oversee this transition – working directly with the Prime Minister and the Chancellor. Every sector must become more sustainable – and government has a big role to play in setting the right framework.
You only have to look at the example of housing. According to Green Alliance, whose Net Zero Policy Tracker comes out this month, homes account for 16 per cent of greenhouse gas emissions in the UK and require substantial reductions. We need joined-up policy to ensure home decarbonisation is fair, whether it is on retrofitting old houses or building standards for new homes.
The Future Homes Standard, for example, should be brought forward from 2025 to ensure new homes built today are the greenest they can be. Not only will it be better for the homeowner, it will also save the Treasury and taxpayer money in the long-run, cutting out the need to subsidise expensive retrofitting down the line. A Minister for Net Zero could ensure our transition to a more sustainable economy is as quick and efficient as possible.
Currently, Alok Sharma, who is doing a brilliant job as President Designate of COP26, sits around the decision-making table as a Minister in the Cabinet Office.
This adds extra weight to the Government’s green credentials and demonstrates that we are taking our climate conference hosting responsibilities seriously. But after COP26, he could be out of a job and there is a danger that the impetus generated by hosting the UN climate change conference will be lost.
As part of our COP26 legacy, a Cabinet Minister for Net Zero can show the world how to lead cross-government action on the matter. They can also help knock heads together within government and act as both a convener and an elected spokesperson.
Not only that, they will be answerable to Parliament, providing extra scrutiny and coverage of the most pressing and challenging issue we face as we build back better from the pandemic. My constituents approve – and I hope the Government will too.
Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.
What is the biggest challenge currently facing the UK’s jobs market? Not “mass unemployment,” as was feared as Covid-19 ravaged and lockdowns closed businesses last year. No, the concern today – according to the Governor of the Bank of England – is labour shortages.
Last Thursday, Andrew Bailey said, “The challenge of avoiding a steep rise in unemployment has been replaced by that of ensuring a flow of labour into jobs. I want to emphasise that this is a crucial challenge.” This is acknowledgement of one of the pains of what I call the “reallocation economy.”
In spring 2020, the furlough scheme was designed to avert mass layoffs and protect job relationships until things reopened. The idea was that government social insurance to pay wages would help firms “bridge” through a temporary shutdown, allowing them to retain workers and so protecting the productive capacity of the economy. Last spring, as many as 8.9 million jobs had wages subsidised by the taxpayer at the peak.
The Chancellor, and most pundits, will say it worked, albeit lasting longer than expected. Official unemployment peaked just 5.2 per cent last year, against 14.8 per cent in the United States. Now, with furlough winding down, just 1.1 to 1.6 million are left on the scheme, and with almost half of these on “flexible furloughs.”
Though many of these subsidised jobs may be non-viable as support ends, the Treasury will look at the huge 862,000 vacancies in the country and think: we have avoided a jobs disaster and now have a clear glidepath back to full employment.
So what’s the problem? Well, you can’t just “pause” an economy for a year in a world of ever-changing preferences, demands, and technologies. Research already showed larger job changes between sectors and occupations up until January than seen in the Great Recession.
It seems likely Covid-19 will have lasting effects on our preferences, where and how we want to work, and where we are able to travel too. As our lives re-normalise, this and a bounceback in service industries will see many workers temporarily finding themselves in the “wrong” jobs given new trends, or in the wrong places, and or with the wrong skills.
The result of this will be an extended period of teething problems as labour markets adjust to these new realities. There’s always substantial churn in jobs anyway, as workers and activities are reallocated over time. But this change is likely to be far more dramatic given the partial freeze of much of the economy. Rigidities in wages and an unwillingness to move risk creating temporary shortages and wage and price volatility along the way.
To be sure, this seems a better problem than mass unemployment. But Bailey is right: it’s a headwind to growth. Reallocation is a process, and often a slow one. Businesses have to attract and train new workers. Workers have to search for roles. People or firms have to move locations. And companies have to decide whether to risk taking on permanent new employees or undertaking new investments. All this limits the productive capacity of the economy.
The U.S. experienced some of these challenges with its earlier reopening. Leisure and hospitality saw particularly severe shortages of available workers through summer, due to ongoing worries about Covid-19, generous government benefits to the unemployed, and people reassessing their work ambitions.
Average hourly wages surged in these sectors and are still 10 per cent up on February 2020 as labour supply failed to meet growing demand. Businesses paid big signing-on bonuses and raised wages to entice workers to them, but that hasn’t always been enough to fulfil consumer needs: some restaurants couldn’t profitably open every day.
There’s suggestive evidence of similar difficulties in the UK. A British Chamber of Commerce survey for Q2 found that as a growing number of businesses sought to hire again, 70 per cent were having difficulties finding staff, with figures as high as 82 per cent and 76 per cent in construction and hotels and catering.
ONS data for June shows 102,000 vacancies in accommodation and food services–its highest ever recorded level. Pubs and restaurants had to pay temporary workers much higher wages and bonuses to get staff in June. The number of vacancies is surging too in arts, entertainment and recreation and real estate.
Many other factors will contribute to this reallocation challenge than just reopening services though. Surveys show the pandemic has led to a broader “rethinking” by the public about their work roles–perhaps unsurprising given the disruption we’ve seen.
An Aviva poll found 60 per cent of workers say they intend to “learn new skills, gain qualifications or change their career” due to the pandemic. It’s been well-documented that large numbers of young people have opted for extended stints in higher education too. Only a fraction of all this will need to occur for large shifts in local and sector labour supplies.
Other workers are willing to stay with employers, but demanding “let me work from home or I’ll quit.” Nick Bloom’s research suggests a modal desire from office workers for two to three days home working per week. As businesses experiment, some workers will not be happy with their arrangements and move on, while companies must decide whether to adjust to these preferences by widening the geographical net on remote hiring.
Any permanent shift in where work occurs as things crystallise will have sharp consequences for the spatial location of city’s service industries, such as eateries, entertainment, and bars, as well as reductions in demand for inner-city office cleaning, security, and delivery. The process of these support and service workers finding new roles, moving, and re-training will take time too.
Now when politicians hear the word “economic challenge,” their instinct is to dream up a policy to “deal with it.” And after over a year of subsidising jobs, it will be tempting for the Chancellor and Prime Minister to consider incentives, nudges, and public statements to try to force a return to the economy of February 2020, or else to devise new laws to entrench what workers want (see the new demands for a “right” to flexible working).
But beyond removing furlough and other policies that delay reallocation, the Government has no special insight about what’s best for the long-term. How to get the right workers to the right places will only be “addressed” by the experimentation and coordination that comes from market activity, and the reaction to the signals of profitability, wages, and prices.
Though relief helped avert mass layoffs, we will see a hangover as the economy adjusts to new realities. Not because “relief” was or is inadequate, but because the crisis has disrupted so much.