In this speech Lord Bilimoria discusses the effect of the June 2016 referendum result and the Government’s positions in the Autumn Statement. With regard to everything he argues that the Government needs to be braver.
Autumn Statement: Economy
29 November 2016
Moved by: Lord Young
To move that this House takes note of the economy in the light of the Autumn Statement.
My Lords, straight after the European Union referendum vote the pound plummeted 20%. It is now 15% below where it was. This was a clear sign from the whole world of no confidence in the result. It was a clear sign that the world unanimously does not want us to leave the European Union and of the worry about the uncertainty ahead.
Of course, the Brexiteers rallied round and said that the lower pound would help exports. From Cobra Beer’s point of view, yes, it will help our exports—we have exported to 40 countries. But as a country we are net importers; even with the European Union, it is 45% exports to 55% imports. Some 50% of the produce we buy from supermarkets is in some way or another imported. Supermarket prices have already gone up and will go up by a minimum of 5% to 8%. The other factor is that, although a lower price helps exports for manufacturers, for many manufacturers on average 30% of their components are imported.
Interest rates and inflation will probably go up. We have heard about the £122 billion black hole over the next five years, including £59 billion from the result of the referendum. Borrowing will go up to 90% of GDP, with a slower GDP growth rate ahead. There has been a complete change from this country being, and giving the impression of being, open and outward looking, to giving the impression of being a country that is closed and inward looking from the rest of the world’s point of view. We are the second-largest recipient of inward investment in the world, yet we have a completely imbalanced economy. From being 30% of GDP in the 1970s, manufacturing is now 10%— high-quality though it is. We do not have a target like that of a country such as India to increase manufacturing from 16% of GDP to 25%—but manufacturing creates jobs and is great for innovation.
On that note, I welcome the Government’s announcement of £2 billion a year for R&D and innovation over the next five years. Hooray. This is amazing; this is fantastic. However, let us put it into context. I have said time and again that when it comes to R&D and innovation, we underinvest compared with other countries, the EU and OECD, let alone the USA. Let us put £2 billion a year in context. We spend 1.7% of our GDP on R&D and innovation. Germany and the United States spend 2.8%. To spend just that extra 1% would mean spending £23 billion more a year—10 times more than the £2 billion—just to catch up in pro-rata terms with the United States and Germany. Does the Minister acknowledge that? The EU average is 2% of GDP and at 1.7% we are well below that. We will have to put in much more than £2 billion a year.
This is one of the keys to increasing our productivity. The other key to increasing our productivity, of which there is no mention in the Autumn Statement, is our universities, which are the best in the world, along with those of the United States. Cambridge University—I declare an interest as chair of the advisory board of the Cambridge Judge Business School—has won more Nobel prizes, almost 100, than any other university in the world, and yet there is no mention of universities in the Autumn Statement. Our investment as a proportion of GDP is well below the EU average, well below the OECD average, half that of America, and then we wonder why our productivity is not as high as it should be. I will go further when I talk about our Prime Minister and her visit to India.
We need to invest in our scale-up companies and encourage entrepreneurship. London is one of the most entrepreneurial cities in the world today. Investment in the Autumn Statement amounting to £1 billion is good, but I would say that it is a drop in the ocean. Will the Minister clarify the wonderful news that the UK is going to ratify the EU patent system?
The other thing the Autumn Statement does not do is put overall government spending into context. Our net contribution to the EU is £8 billion. Do people realise—did the people who believed the “£350 million a week, let’s put into the NHS” on the bus realise—that our net contribution to the EU of £8 billion is barely 1% of our annual government spending of £800 billion? On a pie chart you cannot even have a line that shows that, it is so thin. Why can we not put things into context?
I applaud the Autumn Statement continuing the reduction in corporation tax to 17%. This will make us more attractive for inward investment and encourage wealth creation. Already we have seen that lowering that tax rate has increased corporation tax receipts. On the other hand, there was nothing there to reduce employers’ national insurance, which I call a tax on jobs. If we reduce that, we will help job creation and help SMEs in particular. Also, the Government could do much more to increase exports. For example, there could be tax incentives to export: there are none at the moment.
There is another crucial issue that the Autumn Statement has not addressed. As the Minister said, we have less than 5% unemployment and the highest rate of employment in living memory—but this is in spite of 3 million people from the European Union working over here in the UK, as well as people from outside the European Union. Yet there is a target to reduce net migration to less than 100,000. How will we continue to manage? Where are we going to get the workers from? I do not think that the Autumn Statement addresses that at all.
Immigration is a big issue. Since Tony Blair removed exit checks at our borders in 1998 we have lost control of our borders. We have no idea, at the moment, how many people have overstayed, or about the number of illegal immigrants. The Autumn Statement should have invested in implementing visible exit checks at our ports and airports to give us control of our borders. International students are still treated as immigrants and included in the net migration figures, although the public very clearly do not wish to see that, and we have no target to increase the number of international students at all.
The Prime Minister went to India and spoke about trade deals. A good way to speak about trade deals is to focus on tariffs and ignore the movement of people. The week before we went to India, the minimum salary for IT workers in India—one of India’s main services exports to the UK and elsewhere—was increased by 50%. That makes India less competitive. Then, when the Prime Minister was in India, she spoke about the return of Indians who have overstayed here. That went down like a lead balloon.
There were 35 university leaders, along with Jo Johnson, the Universities Minister, who were there at the same time as the Prime Minister. She did not even meet the university leaders. She did not mention higher education or international students once, and yet Prime Minister Narendra Modi, one of the most powerful people in the world, very humbly said that the mobility of young Indians and their ability to be educated abroad was really important to India. In fact, the Indian Cabinet Minister of Commerce and Industry went so far as to say, “We thought that our relationship with the UK was close. We now realise it is merely transactional”. This is not going to help the future. International students bring in £14 billion to our economy, directly and indirectly. Once again, this was not addressed at all in the Autumn Statement. This is such a huge earner —50% higher than the aid that we give every year.
There could be more increases in capital allowances to encourage investment. The Statement did not have anything on that. We need a positive, welcoming attitude to immigration—skilled, non-skilled, across the board. We need people in hospitality: in the curry restaurant industry that we supply, 98.6% of the restaurants have a huge skills shortage because they cannot bring over chefs from south Asia. The pub industry has a shortage of chefs. We had a debate recently on the NHS and the care sector: 130,000 people from the EU alone work in the NHS and the care sector, yet the debate on immigration in the build-up to the referendum and afterwards has been, “Migrants are a burden on this country. Migrants are a burden on the public sector”. How would the public sector exist without the immigrant workforce? Over 30% of doctors are foreign; in some areas, such as paediatrics and obstetrics, it is over 50%. Migrant workers put in five times more than they take out. They contribute to our economy, they contribute to our taxes, they pay for our public services—and they are called a burden on our economy. The very sad thing for the JAMs—a horrible term for people who are “just about managing” —is that, sadly, many of those who voted for Brexit will be the ones who will be hit so badly by it, as the noble Baroness, Lady Hollis, just said.
We are in only the foothills of the Brexit situation. There is hard Brexit, soft Brexit—we need a smart Brexit, if it is going to happen at all, because a hard Brexit would be absolute folly. We have a budget deficit, we have a fiscal deficit, we have a current account deficit, we have 90% of debt—oh, and the good news of £23 billion of infrastructure investment. I think that is excellent. That will really help this country, including in broadband and with Crossrail, which is fantastic.
But there is a negative approach to business. There is a Green Paper on corporate governance. But on the whole, the government rhetoric has tarred all business with the bad eggs that exist. The few bad eggs have tarred all hard-working SMEs and businesses, including FTSE 100 businesses. We need to encourage the right values but also appreciate that Britain actually has some of the best corporate governance and business practices in the world. The noble Lord, Lord Wakeham, spoke about stamp duty being too high. If it is too high, it will stifle sales. If you stifle sales, you will reduce your tax receipts. In many areas, housing sales have come to a standstill. We need to provide confidence to consumers, business and the rest of the world, because many countries, such as India, look upon the UK as the headquarters of the EU, and they need to continue to do that. If we lose passporting rights in financial services, it will be disastrous.
The other good news in the Autumn Statement is that public spending is coming down to 40% of GDP. It had hit nearly 50%. That was unaffordable; 40% is much more affordable. The Autumn Statement did not mention it but it assumed that our defence spending will carry on being 2%, in agreement with the NATO commitment, which is wonderful news.
Before I conclude, let us consider the NHS. We know that in 2015 the NHS recorded its largest deficit: over £2.4 billion. Yet there was no mention in the 72 pages of the Autumn Statement of the words “NHS”, “mental health”, “public health” or “social care”. I ask the Minister: why was the NHS missing, taking into account that it needs more money? We spend less as a percentage of our GDP on health compared with many of our European counterparts. Of the original 15 EU countries, we are the 13th in healthcare spending. Figures released recently show that we come 25th in the EU for doctors per 1,000 people: we have 2.8 and the EU average is 3.5. On hospital beds per 1,000 people, we are 25th with 2.7: the EU average is 5.2.
On the reduction in funding from the EU for research and development, the vice-chancellor of Cambridge University, Sir Leszek Borysiewicz, said:
“More worrying than the loss of revenue is the damage to the networks of collaboration on which world-class science depends today”.
As Martin Wolf said,
“nothing can disguise the reality that Brexit is likely to make a UK economy already blighted by low and stagnant productivity still weaker … The UK is likely to be poorer than it would have been if it had not made the decision to exit the EU”.
As the poet Robert Frost said, there are,
“miles to go before I sleep”.
We are in the foothills of this wretched referendum. The motto of the Duke of Wellington’s regiment was “Fortune favours the brave”. If we are to deal with this uncertainty in the years ahead, the Government have not been anywhere near bold enough. They need to be much braver.