Connor MacDonald: From energy to employment, how Sunak can draw up a blueprint for prosperity

15 Mar

Connor MacDonald is Head of Economics and Social Policy at Policy Exchange.

Rishi Sunak could not have guessed what was in store for the economy when he became Chancellor a little over two years ago. One thing is certain now: he could be one of the most consequential chancellors in the post-war period.

Faced with Covid-19 and now a land war in Europe, Sunak now has to deliver a Spring Statement; what was once intended to be a smaller intervention has grown in importance in the face of yet another geopolitical crisis.

It is a reminder that an open and dynamic economy like ours is not immune from the vagaries of global economic circumstances. As the Chancellor put it succinctly, it is not in the power of the British Government to stop a nuclear power plant going offline in Germany, nor spikes in global energy markets.

Nevertheless, he will want to cushion the blow to British consumers and businesses.

The Treasury should not think that the inflationary pressures we are experiencing can be solved simply through fiscal restraint. Inflation appears to be driven mostly by a huge spike in energy and commodity prices, and the Bank of England will have to raise interest rates.

The Government should therefore think creatively about fiscal policy and use it as a tool to shield businesses and consumers from the worst effects of the cost-of-living crisis.

Ministers should not rely on monetary policy to ensure a benign macroeconomic environment, and indeed there may have been overreliance on this tool in the past. What is more, the Chancellor should not feel bound by the OBR forecasts to premature fiscal action, particularly tax rises.

As we have seen this past year, such projections can be remarkably pessimistic about the future of the public finances. Sunak should consider suspending the fiscal rules he put in place – these are not normal times.

The Chancellor has already announced £9 billion to assist households with their energy bills, and the price cap will hold this April. This may be enough in the current moment, though more will likely have to be done by Autumn. The Government should act urgently to encourage the development of other energy sources, including oil and gas (such as fracking), to reduce medium and long-term prices.

It should invest heavily in nuclear and energy storage. Energy resilience must become a British raison d’état.

Not only is the price of energy up sharply, commodities and food prices are increasing at pace, with some staples predicted to rise by 50 percent. More therefore needs to be done to help lower-income families, and those surviving purely on benefits, to deal with immediate pressures that have emerged from a war in Ukraine and new coronavirus measures imposed in China.

Again, these are not pressures from underlying problems in the British economy, and the Treasury should think of them in a similar way to how interventions to deal with Covid-19 were formulated.

The Chancellor also needs to address the tight labour market. The Government has to contend simultaneously with the lowest vacancy ratio in 50 years with a large participation gap; the Institute for Employment Studies suggests that there are 1.15 million more people out of the workforce than would be expected at the start of the pandemic.

Ministers should consider spending on new programmes to boost participation. For example, the gap between disabled and able-bodied people is widening. That should be addressed.

Sunak should also put resources towards integrating new Ukrainian refugees. We owe it to those fleeing war and to our own society to ensure that newcomers are integrated and that they can flourish in a dynamic economy.

There is of course the elephant in the room – the national insurance rise. The fact is that delaying or scrapping the increase now will help those at the very bottom little. Instead, the Government should raise cash transfers above the projected 3.1 per cent and, for those in the middle of the distribution, they should unfreeze the income tax and NIC allowance thresholds – perhaps even raising the NIC threshold too.

The Government’s energy support package also included direct funding to local councils. They should consider expanding this pot; as we saw in Covid-19, councils have been effective in delivering support to those who need it. Ministers should also consider cutting fuel duty and increasing the Energy Bills Rebate announced last month.

The national insurance rise is intended to fund current spending on healthcare, which is an expenditure that will not go away. By endorsing more temporary measures, the Chancellor will be able to deliver targeted help without leaving a long-term gap in finances.

The Spring Statement also needs to focus on the long-term drivers of productivity. Sunak noted in his Mais Lecture that British businesses spend only half of the European average on training, for example. Along the lines of the super-deduction for capital investment, he should consider a similar scheme for firms that invest in formal skills training, over and above current forms of relief.

The Chancellor could also help SMEs by defraying the full cost of training apprentices, which is currently the arrangement for candidates who have left care.

He should also move to give business certainty by scrapping the corporation tax rise and the end of the super deduction announced for 2023. They should become permanent. Without the super deduction, the UK has a much less competitive tax environment, and a rise in the corporate tax rate would make us one of the least competitive in the OECD.

Sunak also mentioned in his Mais Lecture that he wants to beef up research and development spending and encourage more private spending. Hopefully the Spring Statement delivers on this, and in particular looks at ways to increase innovation diffusion (a metric on which Britain lags).

These supply-side measures will be expensive, but the OBR has indicated there is substantial fiscal room this year (about £20 billion). Given this space, the Chancellor should raise defence spending to at least three per cent of GDP, which would mean at least £12 billion more a year. This will return us to the level seen in the 1990s and further cement the UK’s place in the NATO alliance.

This does however raise the wider question of public service reform, which will be essential if Britain is to return to a stronger fiscal position. This Government has been too quiet on this front. If we are going to try to restart economic growth, the Chancellor must push his colleagues to embrace substantial reforms. An ever-larger state cannot itself justify increased taxation in the long-term.

Similarly, the Government should not sacrifice Levelling Up on the altar of current difficulties. It is in fact the weakness of so many parts of the UK economy that has left us relatively exposed to the current challenges. The Government’s devolution reforms should continue, as should its high levels of public sector net investment (the highest since the 1970s).

This moment has revealed the extent to which a chancellor is ultimately at the mercy of events, and reliant on the strength of economic fundamentals. That’s why, if Sunak is going to embark on new spending now, he should insist that his colleagues embrace a growth agenda, and aim to leverage private investment, rather than stifle it.

For example, it would do no one any good if a company wants to use the super-deduction to finance a new factory, only to be hamstrung by anti-growth planning rules. Similarly, sky high energy prices because we can’t build nuclear plants shouldn’t defeat a competitive corporate tax environment.

More than anything else, that needs to be the tone of this Spring Statement – that the temporary measures announced here will ultimately be followed by growth-oriented reforms. That is the best way to improve the fiscal situation, and the best way to avoid further tax rises.

The Chancellor has dealt with crisis before, now he must lay the foundations for prosperity in the midst of one.

Sanjoy Sen: Our current energy problems have been a long time in the making. It’s time for a rethink.

16 Feb

Sanjoy Sen is a chemical engineer. He contested Alyn & Deeside in the 2019 general election.

Energy is complex. Policymakers constantly wrestle with a trilemma of how to keep prices low, reduce emissions and maintain security of supply. All whilst demand soars (rising population, improved living standards) and new challenges emerge (electric vehicles, environmental legislation). It’s never going to be perfect.

But when the Chancellor has to sub you two hundred quid to keep the lights on, it might be time for a bit of a re-think. Our current energy problems have been a long time in the making and clearly can’t be fixed overnight.

But we do need to start by recognising what is and isn’t working. And coming up with some alternatives, both short- and long-term. The public needs this urgently – and our electoral fortunes depend on it.

Keeping prices low

By 2017, the concept of a price cap had morphed from Milibandian Marxist madness into sound conservatism – and my concern was that we weren’t levelling with the public. Generating energy and distributing it to every single home is an expensive business. Yet we were determined to keep daily utility costs cheaper than a take-out coffee – even whilst factoring in green levies.

The first consequence of promising to drive prices ever downwards was that there could never be a price point which the public would consider acceptable. Meanwhile, attempts to introduce apparent competition ended predictably: the numerous defunct businesses weren’t increasing our energy supply, they were simply buying others’ output and selling it on. Any market shock was always going to leave them exposed. And the price cap that drove them out of business is now meaningless to voters.

Tackling emissions

The most cost-effective means of delivering the low carbon power needed to meet Net Zero remains large-scale nuclear. (In fact, it’s also the best option even if you don’t much fancy Net Zero, as it delivers big, steady outputs without dependence on imported gas.) Sadly, the much-delayed, over-budget Hinkley Point C is fast becoming a textbook example of how not deliver it. The technology remains unsurprisingly problematic and its delivery lies in the hands of France and China, countries with whom we now enjoy dismal relations.

And as nuclear has faltered, our dependence on alternatives has increased. Renewables clearly have a vital role to play and it is encouraging that the UK is world number one in offshore wind capacity with more to follow. But we need to reflect on whether such heavy reliance on intermittent sources is the most cost-effective and reliable solution, especially when energy storage and the hydrogen economy are still under development.

Security of supply

As I noted after COP26, Narendra Modi recognises the consequences for India of ditching cheap, domestic energy: unemployment and rising prices that disproportionately hit the poorest. Plus the political ramifications of over-dependence on imports. Would that EU leaders felt the same. Proudly shuttering their own generating capacity, their citizens’ energy supply has never been more precarious. Germany is conspicuously silent with Vladimir Putin’s hands on the NordStream gas taps as he surveys Ukraine.

Here in the UK, we might have been in a stronger position thanks to our domestic assets. But we needed to back the giant Cambo North Sea development when it came under fire. And closure of the Rough gas storage facility eliminated our ability to buffer against market spikes.

So, where next?

New policies require a change of mindset. The public have always prioritised the cost of living and job creation – even more so following recent price shocks and Covid. We need to get back to those priorities. And we need to remember where our support now is: banning a Cumbrian coal mine doesn’t gain us much in north London but approving it is likely to go down very well locally.

In the short term, we need to start backing domestic energy production again. The North Sea may be past its peak but viable reserves remain. Options for gas storage re-instatement should also be investigated. Critically, potential investors need to be reassured that the offshore sector enjoys unswerving government support. Far from a political liability, there is much to be gained here, especially with an SNP administration dependent upon Green support.

Longer term, we need to get big nuclear back on track quickly via a range of partners. Plans were shelved in Cumbria, Gloucestershire and Wales in 2019 but interest remains strong if government support exists – it’s time to get after these urgently. (But this time, let’s use some proven technology, please.) And looking further ahead, we need to keep backing Rolls-Royce in their development of Small Modular Reactors. If we’re going to do this, it’s going to need continued support, not a loss of heart if the first one doesn’t go exactly according to plan.

Just as we tackle our current problems, new ones will inevitably emerge. China dominates the battery supply chain, an increasing concern as transport becomes electrified. We already need to start thinking about sourcing domestic supplies (Cornish lithium) and the recycling of spent batteries to hedge against future supply issues. Energy policy doesn’t get any easier but we do need to keep re-assessing – and changing tack where necessary.

Robert Halfon: I’m as disappointed as anyone about parties in Number Ten. But it’s not the sole reason for our polling woes.

26 Jan

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.

Without a doubt, all of us feel disappointed, dismayed and let down by all the Downing Street parties that took place during the lockdowns. Whatever the Sue Gray inquiry says, nothing will change that.

But, to change a Government in the midst of a pandemic would be folly. The public would not respect us for this bloodletting. Especially as we are not yet over Covid. There is a cost of living crisis and Russia is on the verge of invading Ukraine.

I am not quite sure who the King Alfred the Great figure is that will step in to dramatically change our fortunes in the polls. Our problems are much deeper than just “partygate”.

But, what may make a difference is what the Government chooses to do next.

I call it the three rs: Response, Responsibility and Reset. How it responds to the anguish of the public, how it takes responsibility for what has gone on, but above all how it will reset to focus on the things that really matter to working people.

Instead of “operation red meat” there should be “operation cut the cost of living”, “operation affordable housing”, and “operation social justice”.

The last few months have sometimes seen the Conservatives acting in a Notting Hill sequel, with prioritisation focused on COP26, windmills and solar power rather than the issues affecting citizens much closer to home. It seems that on occasion the Government is more concerned with cycle lanes than looking after the white-van men and women who represent millions of small businesses and are the lifeblood of our local economies.

People across the country are worrying about feeding and clothing their families. We are seeing the price of petrol at an all-time high of £1.45 per litre, energy bills are rising by £200 per month and the cost of living has increased by 5.4 per cent. Is it any wonder the public are losing faith in us?

As a first step, the Chancellor should reduce or get rid of the green levies which amount to 25 per cent of our energy costs as well as get rid of VAT on fuel. As Fair Fuel UK has demanded, there should be a pump watch regulator to stop greedy oil companies ripping off motorists at the petrol pumps – by failing to reduce pump prices, even when the international oil price falls.

Next, Michael Gove should face down the selfish Nimbies and build, build, build. We need a housing revolution. Over a million people live in overcrowded accommodation and young people are paying sky-high rents and can’t afford to buy a home. The Conservative Party has always been at its best when it promotes affordable housing and homeownership.

On Operation Social Justice, for Nadhim Zahawi, the emphasis must be on education and skills.

Why is it that white working-class boys and girls on free school meals underperform at all stages of the education system, compared to almost every other ethnic group? Or that disadvantaged pupils are 18 months behind their better-off peers by the time they reach 16? Or even that families with children with special educational needs wade through a treacle of unkind bureaucracy to try and get the right support they need?

The Education Secretary should set out a long-term plan for education with a secure funding settlement. Moreover, why not transform our offering to young people, by offering an apprenticeship to every person who wants one, provided they have the right qualifications.

Rather than speaking for the Notting Hill intelligentsia, with some imagination and vision, the Government could get back on track with the people’s priorities – and stand up for workers up and down the country, beginning by dramatically cutting the cost of living.

Perhaps then we will feel less let down.

Remember our councillors and activists on the ground

Last Saturday, loads of Harlow Conservative activists were busy delivering local election leaflets all around the constituency. Around the country many hardworking Conservative activists or volunteers would have been doing the same.

Yet in Westminster, we are letting all our members and volunteers down. Our first hurdle will be to ensure that we do not destroy the chances of these hard working councillors and activists in the May local elections. If we do badly – it will be all of us in Westminster and Whitehall that is to blame and no one else.

One thing is for sure, if we all continue to wash our dirty linen in public, and act out some kind of Balkanised civil war, the public will not look at Conservatives too kindly.

Is this kicking in the polls good for us?

Many times in my columns for ConservativeHome, I have tried to warn Conservatives against complacency, given the – albeit slow – upward trajectory of the Labour Party.

This may sound strange, but I am glad we are getting a kicking in the opinion polls – even if it is predominantly caused by all the shenanigans at Number 10. I hope our current poll ratings put to rest once and for all, any idea the next election is in the bag and that it will be a walkover.

Conservatives have a mountain to climb to regain the trust of the people and weaken the inevitable opposition cry of “time for a change”. 

Helen Barnard: Poverty is spiralling out of control in this country. It’s time for the Government to get a grip.

19 Jan

Helen Barnard is Associate Director at the Joseph Rowntree Foundation and Research and Policy Director at Pro Bono Economics.

With the current febrile political atmosphere, it’s easy to lose sight of the serious challenges facing the country. But the Government and the Conservative Party need to recover their focus and get to grips with these if they want to not only secure another election win, but fulfil their commitments to the country.

This week saw the publication of a new state of the nation report from the Joseph Rowntree Foundation. It lays bare a challenge that should be at the heart of this reset: the increasing number of children growing up in deep poverty.

Since 2012/13, poverty has been rising among both children and pensioners. Almost third of children how live in poverty, up by four percentage points. This is bad enough, but even more worrying is the fact that a rising proportion are living in deep poverty, with incomes so low as to be completely inadequate to cover the basics. 1.8 million children are in families trapped in this position – an increase of half a million between 2011-12 and 2019-20.

And for many, poverty is not a fleeting experience – the hardship and fear it causes can last for years. The report highlights large numbers of children in persistent poverty in the years running up to the pandemic. Around one in five children have lived on a low income for at least three of the four years between 2016 and 2019. For young children, living in a family that is going without the essentials is all they will ever have known.

Worst of all, the research finds that destitution – the very deepest poverty in the UK – has risen extremely sharply in recent years. 2.4 million people, including 500 000 children experienced destitution in 2019, a rise of more than a third since 2017.

The cost-of-living crisis is rightly at the top of the political agenda and is likely to stay there. Higher prices in the shops and massive increases in energy bills will undoubtedly feel challenging for many people across the country. But it is those who are already struggling to afford the basics or are teetering on the brink of hardship and debt, who should be our priority.

In 2019, the Conservative manifesto promised to reduce child poverty. On January 5 this year the Prime Minister said that “the Government is determined” to “support the poorest people”. These are the right commitments, but we are already seeing signs that the dire situation laid out in this report is getting worse.

In many places, charities are bearing the brunt of the escalating crisis. A survey before last Christmas found that three quarters of charity leaders were worried staff were at risk of burnout. They had already seen demand rising and expected pressure to build further into this year. Crisis estimates that over 200,000 families are experiencing homelessness. Food banks are recording record rises in demand. We hear about families unable to afford beds for their children. There was recently a news story about a family who had to move a lightbulb around their temporary home because they couldn’t afford more than one.

The situation was made worse by the Chancellor’s decision in last Autumn’s Budget to cut social security support for those out of work to the lowest level in 30 years. It was hugely encouraging to see him invest in Universal Credit and boost help for workers on low incomes. However, the choice to direct that additional funding solely towards those able to work has left large numbers of the very poorest families unable to keep up with bills and horribly exposed to the price rises to come.

In the short term, the Government needs to step in and protect those facing the greatest hardship over the next few months, as inflation climbs to six per cent and energy bills rise by between 40 and 50 per cent. Energy bill hikes will affect large parts of the country, but for those on middle incomes, they will only take up around six per cent of their income.

By contrast, low-income households will be spending nearly a fifth of their income on energy, with some on the lowest incomes finding over half of their cash eaten up by energy costs. With budgets already stretched beyond coping, many will have no choice but to stay cold and go hungry. Targeting additional support towards those facing the greatest hardship (for instance through a one-off grant for all those on Universal Credit, legacy benefits and Pension Credit) would be a far better use of public money than a thinly spread VAT cut.

Just as importantly, we must get to grips with the underlying drivers of rising and deepening poverty. Over the last decade, we have largely succeeded in getting those who can work into jobs. But too many of those jobs have not protected people from poverty. This is not just about the level of hourly pay – workers at high risk of poverty are often stuck in part time and insecure jobs. Using the promised Employment Bill to increase job security for those at the bottom of the labour market would be a significant step forward. Opening up better quality, better paid jobs to people who need to work part time would massively boost the prospects of disabled people, parents and carers.

Reducing costs is just as important as boosting incomes. A million private renters are stuck paying rents they can’t afford and thus far polices to increase home ownership and make renting more affordable have failed to help. Investing in social housing could free 600,000 people from poverty, as well as rebooting a genuine pathway to ownership for those on low incomes. Tackling high energy costs is harder, but better regulation of the energy market (with Ofgem’s failures starkly set out in this Citizen’s Advice report), increasing the UK’s storage facilities and going further and faster on energy efficiency measures would all help.

And we must revisit the question of the adequacy of support for those who cannot work or can only work a low number of hours. As Baroness Stroud argued after the Universal Credit cut last Autumn – “as well as rewarding work, our welfare system must always protect society’s most vulnerable.” It cannot be right that we have allowed our social security system to be eroded so far that it traps disabled people, carers and children in such hardship.

Dominic Raab: For too long, victims have been let down by the criminal justice system. Today’s proposals will change that.

9 Dec

Dominic Raab is Deputy Prime Minister and Justice Secretary.

When I first met Emily Hunt, she told me her heart-rending experience of how she had been let down as a victim. In 2015, she reported that she feared that she had been drugged and then raped.

Police officers told her to give up her clothes as evidence, despite having nothing else to wear. She was asked to surrender her mobile phone, without knowing when she would get it back. She was offered scant support, and had no idea of what she could reasonably expect from the different criminal justice agencies.

No victim should be made to feel like that. We appointed Emily as an independent adviser to the Government as a mark of how serious we are about doing better for victims – and I recognise that we have a long way to go.

At present, as many as three in five victims do not even report crimes they suffer, and a third withdraw from a prosecution before justice is done. This is morally wrong. But, when victims drop out of the system, it also has a debilitating effect on our ability to bring criminals to justice. So, today, I am setting out plans for a Victims’ Law – so their voice is heard, and they see justice done. Our aim is to make sure victims feel that their interests are at the heart of the criminal justice system, rather than peripheral to some remote and alienating process.

At the Budget, I agreed with the Chancellor to increase support for victim and witness services from £134.5 million last year to £185 million per year by the end of this Parliament.

Earlier this year, we passed the Domestic Abuse Act to put more protection into law for the two million people who suffer violence and abuse in their homes each year.

And we have rolled out pre-recorded cross-examination and re-examination for vulnerable witnesses – known as Section 28 – to make the experience of giving evidence to the courts less daunting.

Now, we must go further. So, under our plans, we will roll out Section 28 nationwide as soon as possible for the victims of rape and other serious sexual offences, to give more victims the option to testify outside the intimidating glare of the courtroom.

Next, we’re increasing transparency by introducing criminal justice scorecards. The national and adult rape scorecards, which I am publishing today for the first time, give us a more detailed picture of how the different criminal justice agencies are performing. In the New Year, we’ll follow up with local scorecards so you, the public, can see the performance in each area of the country.

Scorecards will shine a light on the things that really matter to victims, like how long it takes for cases to be investigated, charged, and make it to court. It will help identify failings – across the system, and in different areas – that enable us to spread best practice across the country.

Data will help, but ultimately vulnerable victims need to know what support they’ll receive, and how to hold the system to account. So, with that extra transparency the scorecards will bring, we will enshrine in law what victims can expect, and improve accountability – so that when something does go wrong, victims know it will be fixed.

For example, it is reasonable to expect prosecutors to meet directly with victims in serious cases before they decide whether to charge a suspect, and then again before the case goes to trial. I also want to strengthen the role of victims in the Parole Board’s decision-making in relation to their assailant.

Next, we want the collective voice of victims to be heard more consistently through community impact statements. When crimes like anti-social behaviour, which can blight whole neighbourhoods, are considered by a court, the views of the local community should be properly taken into account.

Many victims have said that the Victims’ Code is just not taken seriously by the various criminal justice agencies. So, we will look at how to strengthen redress, including through disciplinary action, complaints procedures and inspection regimes – and reinforce the role of Police and Crime Commissioners, to help tackle problems in their local area.

As well as punishing criminals robustly, I want them to do more to recognise the suffering they inflict on victims. So, we will raise the victim surcharge that offenders pay as part of their sentence. We will invest the proceeds in services that directly support victims – including the independent sexual and domestic violence advisers, who support victims and help them stay engaged in the criminal justice process.

Our proposals will make sure that the voice of victims is heard, they get the support they need, and the criminal justice system takes greater responsibility for instilling in victims the confidence to support the aims we all share in bringing criminals to justice. It will deliver for some of the most vulnerable in our society, as we build back a safer, stronger and fairer country after the pandemic.

Robert Halfon: Skills shortages cost the UK billions a year. Re-setting our education system can change this – and boost pupils’ prospects.

17 Nov

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.

Gerard Lyons: The Budget. It was right for the Chancellor to focus on providing a stronger foundation for growth.

28 Oct

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, hhas 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 controlthey tie his hands on policy and can impact his judgment call on the fiscal measures. If the forecasts are too pessimisticthey 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 interveneThe 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 levyPerhaps 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.

“Our response to Coronavirus is working.” The Chancellor’s statement. Full text.

27 Oct

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.

Creating jobs.

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.

Wine.

Cider.

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.

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.

Humber.

Liverpool City Region.

Plymouth.

Solent.

Thames.

And Teesside.

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.

Chris Skidmore: For the UK to become a global science superpower, the Chancellor must set out a clear plan this week

26 Oct

Chris Skidmore MP was Science and Research Minister between 2018-2020 and co-author of Britannia Unchained.  

10 years ago, I was sat around a cramped room in Westminster with four members of the Cabinet – the current Foreign, Home, Business and Justice Secretaries. We had recently launched our first book, After the Coalition at Conservative Party Conference, which attempted to chart a course away from what seemed like endless compromise with our Liberal Democrat partners.

Now we were planning a second – not on domestic policy, but instead on how Britain risked missing out on the huge transformational changes on the international stage, if we did not begin to chart our own course as a nation that looked to Asia and other emerging economies for lessons on how to deliver future economic growth. Rather than accept a diminishing role for the UK, why not begin to invest in a strategy that could maintain our international influence?

So Britannia Unchained was born, as each of us decided upon a chapter we would write. I chose what seemed an obvious and essential narrative: the need for the UK to take science, R&D and innovation seriously. By 2011, government investment in science had basically flatlined, while our investment in research and development as a proportion of overall GDP had slipped backwards, to an embarrassing 1.6 per cent of our total national spend.

Meanwhile, other nations such as the US and China had bold plans to be reaching three per cent and above, spurred on in part to the emerging science and tech powerhouses of South Korea and Israel, who were spending around 4.5 per cent of their expenditure on investment in the technologies of the future.

As a result, both nations had transformed their economies from largely agrarian to high-tech within a few decades, bringing in international private investment while at the same time becoming global leaders in electronics, computers and communications. Establishing clusters of high-tech businesses where none had existed before, this investment in R&D resulted in an entire upskilling of their populations, making them some of the most educated in the world.

It shouldn’t be hard to see, I argued then, the importance of why investing in research and science effectively was the same as investing in your future success as a nation in a century dominated by technological change. We could be another Israel or South Korea too – but only if we took a long term and strategic vision of where we wanted the UK to be. We had some of the best universities and researchers in the world, particularly in the life sciences, but they were managing to achieve extraordinary results with little money.

That needed to change. Fast forward seven years, and as Science and Research Minister, I had the opportunity to make that investment, securing the Government’s manifesto commitment to raise its spending on R&D from £12 billion a year to £22 billion by 2025.

In turn, this had the potential to leverage in additional private research investments from international companies into the UK, thanks to the establishment of R&D tax credits, ideally to the tune of around £70 billion a year – allowing the UK to finally reach around 2.4 per cent of its GDP being spent on science and research by 2027, a target set back in 2017. Even with this investment, the UK would only sit in the middling league of the OECD average, watching as other nations continued to pull ahead.

The UK could still be another Israel or South Korea, if we set ourselves a strategy and stuck to it. But that most important commodity of all in politics, time itself, is slipping away. The Spending Review is Boris Johnson’s last chance to deliver a successful vision for increased investment in R&D. The money promised in 2019 has yet to materialise, and if there is not a clear plan from the Chancellor this week, then the Prime Minister’s vision of the UK as a ‘global science superpower’ would have been torn up by the Treasury.

And with but days until the UK takes the leadership of the international stage at COP26 in Glasgow, expectations are set that it will be investment in new renewable technologies, nuclear power and innovation in carbon emissions reductions that can deliver net zero by 2050. None of this can happen without the UK stepping up to make investments in research, which is desperately needed.

The alternative is that we slip not only further behind in the global race, watching as South Korea, Japan or China disappear over the horizon, we will start to go in the wrong direction: researchers and companies choosing to place their faith elsewhere, in countries that recognise the integral purpose of science to future economic growth.

2021 has demonstrated the incredible potential that science, research and development has not only to transform lives, but to save lives also: the UK has been rightly praised for its early investment in its vaccine programme, which was made possible thanks to our life sciences industry and high levels of existing R&D spend. To paraphrase Isaac Newton, we are standing on the shoulder of giants, of those generations before who made those strategic choices to invest in pharma in the UK.

What we cannot afford to do is to end 2021 by not continuing to place our faith in research and development, the investment for which must flow. As I wrote back in Britannia Unchained a decade ago, we can build a new future for the UK by recognising that future should be grounded in innovation and research. That future, and the Prime Minister’s vision of the UK as that science superpower, risks being lost this week if we do not act now.