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Covid-19: Economic Recovery

My Lords, it is a privilege to introduce today’s debate on behalf of the Government. Given the challenges that the Government have faced this last year and that they continue to face, this is an important opportunity to review their approach to what we all understand has been a grave shock: a health emergency and an economic emergency. I am pleased to have this opportunity to debate and discuss the measures that we are introducing to protect jobs and livelihoods, as the economy recovers from the Covid-19 pandemic—as we are all determined it will.

The Government’s efforts to tackle the economic damage threatened by the pandemic have been broad and deep. A comprehensive and sustained economic shock was met with a comprehensive and sustained response, recognising the difficulties faced by individuals, families and businesses across the country. The Coronavirus Job Retention Scheme has helped to support over 11 million unique jobs since its inception and the Self-employment Income Support Scheme has supported a further 2.7 million people, with grants worth over £19 billion. Individuals and families have also benefited from increased welfare payments, a stay on repossession proceedings and mortgage holidays.

Support was given to renters through increases to the local housing allowance rates for universal credit and housing benefit recipients and an additional £500 million was made available to councils last year through the hardship fund grant to support households struggling to meet council tax payments. This money was used to provide recipients of local council tax support with a further £150 reduction in their bills. Government has delivered over £75 billion in guaranteed loans to more than 1.6 million businesses, as well as providing tax deferrals, grants and a business rates holiday worth over £10 billion.

In sum, the Government have taken unprecedented action to support our economy and public services in response to the pandemic. Taking into account the significant support announced at the 2020 spending review and this year’s Budget, the total financial support for the economy is over £350 billion across last year and this year, or around 17% of 2020 GDP. This includes £55 billion in 2021-22 to support the public service response to the pandemic.

All of this has made a very real and tangible difference. In fact, the Office for Budget Responsibility now expects the UK economy to recover to its pre-crisis level six months earlier than originally expected—by the end of the second rather than the fourth quarter of 2022. Meanwhile, unemployment is expected to peak at around 6.5% instead of the nearly 12% feared last summer. As the Resolution Foundation observed,

“This would be by far the lowest unemployment peak in any recent recession, despite this being the deepest downturn for 300 years.”

Our focus was on the preservation of jobs and livelihoods and that is what we have sought to deliver.

Looking forward, in response to the current restrictions and the Prime Minister’s road map to easing the public health measures, the Chancellor announced at the Budget an additional £65 billion of economic support. The furlough scheme has been extended until the end of September, support for the self-employed will also continue until then and we have extended eligibility so that those who completed a 2019-20 tax return by 2 March will qualify for the fourth and fifth self-employed grants, potentially reaching a further 600,000 people with support. At the same time, the fifth and final grant will include a turnover test to ensure that support is targeted at those who need it most.

The Budget maintained the universal credit uplift of £20 a week for a further six months, provided working tax credit claimants with the equivalent support over the same timeframe and increased the national living wage to £8.91 an hour. For the first time since it came into effect in 2016, the age threshold for the living wage has been lowered from 25 to 23 years old, giving a pay boost to more younger people.

At the Budget, the Government launched a new restart grant to help businesses reopen and get going again, worth up to £18,000 per business, and a new recovery loan scheme to replace earlier bounce-back loan schemes and coronavirus business interruption loans. To support the cash flow and viability of around 150,000 businesses and to protect over 2.4 million jobs in the hospitality and tourism sector, the Government have extended the temporary reduced rate of VAT at 5% to 30 September 2021. To help businesses manage the transition back to the standard rate, a 12.5% rate will then apply for a further six months, until 31 March 2022. The Budget also announced a three-month extension of the business rates holiday, followed by a 66% capped relief for the remainder of the year. This is worth £6 billion to businesses in the retail, hospitality and leisure sectors and nurseries.

The reality is that the Government have continued to deliver a package that is unprecedented in scope and scale and reflects the wider strategy for cautiously

reopening the economy, as set out in the Government’s road map. As we follow the road map and lift restrictions, there are reasons for optimism. Overall, household balance sheets have strengthened, with household savings in 2020 as a whole almost £139 billion higher than in 2019. At the same time, while many firms have been hit hard by the pandemic, data on corporate deposits at banks suggests that, in aggregate, firms accumulated additional savings of close to £100 billion between March and December 2020. Of course, those additional savings do not reflect the reality for many families and businesses hardest hit by the pandemic, on which the Government must now focus their support.

That is the briefest of summaries of where we are and what the Government have already done. What matters now is our future recovery. The key to that recovery is growth. Our plan to build back better will drive economic growth by investing in infrastructure, skills and innovation. It tackles long-term problems so that we can deliver growth that creates high-quality jobs across the UK and strengthens the union, as well as achieving the people’s priorities: levelling up across the whole UK, supporting our transition to net zero and supporting our vision of a global Britain.

Economic recovery was the thinking behind other new measures announced in the Chancellor’s speech at Budget last month, including the super-deduction, which will allow companies to reduce their taxable profits by 130% of the cost of investment that they make in plants and machinery—equivalent to a 25p tax cut for every pound that they invest. Worth £25 billion over the two years it is in place, the super-deduction represents the biggest business tax cut in modern British history.

That is just the beginning. The Budget also announced the creation of the first ever UK infrastructure bank, headquartered in Leeds and tasked with investing across the United Kingdom in public and private projects to finance the green industrial revolution. The Budget accelerates that green industrial revolution in other ways too, including by funding new port infrastructure to construct a new generation of offshore wind projects in Teesside and Humberside. This is in addition to £12 billion of government investment to create and support green jobs as part of the Prime Minister’s Ten Point Plan for a Green Industrial Revolution.

As the country recovers from the pandemic, we will rely hugely on the enterprise and endeavours of our small businesses. Two new schemes—Help to Grow and Help to Grow: Digital—will help tens of thousands of small and medium-sized businesses get world-class management training and help them develop their digital skills by giving them free expert training and a 50% discount on new productivity-enhancing software. These are initiatives the Institute of Directors has called

“a big win for SMEs.”

We have also set out our plans to make the UK a scientific superpower—another means by which investment can help power our recovery. To support this ambition, the Government will invest £14.9 billion in R&D in 2021-22, meaning that UK government R&D spending is now at its highest level in four

decades. We have also committed to providing £800 million by 2024-25 for the new Advanced Research and Invention Agency, ARIA, which is tasked with funding high-risk, high pay-off research and supporting ground-breaking discoveries which could transform people’s lives for the better.

Through our Plan for Jobs, the Government have provided unprecedented support to protect existing jobs, help people find work and support people in building new skills. For those who unfortunately lose their jobs, we are helping them to find new ones by doubling the number of work coaches and with additional tailored support such as the Kickstart scheme and Restart programme. So far, over 180,000 Kickstart jobs for young unemployed people have been approved by the scheme, and Restart will provide support to over 1 million unemployed people.

We are also doing what we can to make sure we have enough access to the talent that we need, both at home and abroad, through our apprenticeship and traineeship programmes, the lifetime skills guarantee, and the reforms we are making to our visa system to attract highly skilled migrants. We know that apprenticeships work, which is why the Chancellor has increased and extended the incentive payments for employers who hire a new apprentice. Employers who hire a new apprentice between 1 April and 30 September this year can now claim a payment of £3,000.

Crucially, our efforts to support an investment-led recovery target all four nations of the United Kingdom, with accelerated city and growth deals in Ayrshire, Argyll and Bute, and Falkirk, and three more in North Wales, Mid Wales and Swansea Bay, as well as funding support for the Holyhead hydrogen hub. Alongside these measures, our commitment to levelling up across the UK is reflected in the £4.8 billion levelling-up fund; more than a billion pounds for 45 new town deals; 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; and in Her Majesty’s Treasury’s own commitment to open offices in Darlington to form a northern economic campus. This complements the inward investment that will be attracted through the announcement of eight new freeports in eight English regions, offering tax, customs and regulatory benefits, driving greater innovation and the creation of high-quality jobs.

Importantly, over time, once the economic recovery is secured, the Government will take the necessary steps to ensure the public finances are on a sustainable path. Given that the Government are providing businesses with over £100 billion of support to get through the pandemic, it is only fair and necessary to ask them to contribute to our recovery. That is why the Budget increased corporation tax to 25% from 2023, after which point the OBR has said recovery will be under way. The UK will still have the lowest corporation tax rate in the G7, and smaller companies who make less than £50,000 profit annually will be subject to only a 19% tax rate.

Significantly, the Budget did not raise the rates of income tax, national insurance or VAT. Instead, it maintained personal tax thresholds on income tax, inheritance tax, the pensions lifetime allowance and the annual exempt amount in capital gains tax from

2022-23 until 2025-26—that is, four years. This is a universal, progressive and fair measure to fund public services and help rebuild our public finances.

It is thanks to people’s hard work and sacrifice, supported by the success of the initial stages of the vaccine rollout, that there is now a path to reopening the economy. But the Government are not complacent. We understand, just as noble Lords understand, that there is much more to do. Our approach will remain flexible. As measures to control the virus evolve, so will government support. We will continue to listen to the views of people across the political spectrum, we will continue to take action on a number of fronts, and we will continue to do what it takes to engender the economic recovery that the country needs.

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