Speech on Second Reading of Finance Bill

Speech text in full: 

Thank you Mr Deputy Speaker.

I have been involved in government budgets for over two decades, either as an economics journalist, a political adviser or chief executive of the British Bankers’ Association.

But this is my first speech in a Finance Bill second reading. And it is almost certainly the most surreal I will ever make.

Not just because it is virtually entirely virtual

But also because many of the measures announced in the Budget – as well as the fiscal projections – have been overtaken by events.

Since the Chancellor made his budget speech, he has announced the most comprehensive and generous package of measures to support businesses and individuals that any industrial country has made in this crisis.

As someone who has in the past been involved in launching business support schemes throughout the banking sector, I have to say I am amazed at the speed that these support packages have been launched.

The Chancellor and his Treasury team, including the Hon Member for Salisbury, have packed years’ worth of works into weeks. It is an extraordinary achievement.

But I still share the frustrations of others that the banks haven’t quite stepped up to the plate – things are moving faster now, I hope.

Many of my constituents are really hurting, individuals and companies, but many are also really appreciating the support that the government is giving.

And I think we all appreciate the new announcement today of the bounceback loans – that should really help the smallest businesses get quick access to the financing that they desperately need.

But even with all this support, the economic damage caused by this lockdown is deep – some forecasters are predicting the sharpest recession for a century or more.

As the Chancellor has made clear, he cannot save every business and every job.

But with this package of measures, most of the productive capacity of the economy should be preserved for when the economy bounces back, which it surely will.

We don’t know how long the lockdown will need to last, or to what degree it will cause permanent damage.

But we do know that the UK – and most other developed countries – will be left with vastly bigger national debts.

The Office of Budget Responsibility, in what was widely deemed an optimistic scenario, said that the national debt could rise to over 100% of GDP..

And this is why I wanted to speak tonight – to touch on our longer term economic strategy.

How do we deal with this huge public debt? What impact will it have on the government’s other plans – such as investing in infrastructure, levelling up, and becoming carbon neutral?

I have long been a believer in sound finance – that we should all strive in the long term to live within our means.

There is an inter-generational unfairness in one generation passing on their debts to another.

I believe in fixing the roof when the sun is shining.

But we are in the middle of the worst hurricane for a generation, and the roof has been blown off.

It is absolutely right the government is being so generous in support of the economy.

But how do we deal with the inevitable growth in national debt?

The traditional answer to this question is to raise taxes or cut expenditure, or a mixture of both.

But we’ve just had roughly a decade of so-called “austerity”. That was necessary to reduce the huge annual budget deficit – getting the government to live more within its means. Starting to patch up the roof.

But I think even the strongest advocates of austerity would agree that there will be very limited public appetite for another wave of it, and big question marks about the impact on growth.

When it comes to raising taxes, there are limits there also. According to the Office of Budget Responsibility in its budget forecast just now, taxation is already heading to its highest level for 50 years.

We know from decades of economic evidence that the risk of raising them further is that it slows economic growth – and that will make the national debt less affordable.

There is another solution: go for growth.

The national debt is large, but interest rates are so low it is actually surprisingly affordable. The debt interest to revenue ratio is below 4% and at the time of the budget was predicted to carry on falling.  

If there was ever a time for a country to reconcile itself to high debt, it is after an historic economic crisis with historically cheap borrowing costs.

The national debt is a ratio of absolute debt to GDP. We might not be able to get the national debt down that much, but an alternative is to focus on growing the GDP.

That will steadily make the national debt more affordable. If GDP growth is higher than the budget deficit, the national debt will go down.

After the economic shock we have had, we need a determined national focus on growth. We need to fire up the engines of the national economy.

That means pursuing supply side reforms, supporting free enterprise.  

Taking advantage of some of the opportunities we have from leaving the EU, pursuing trade and innovation.

Despite the crisis, we still have dynamic growth sectors such as fintech to biotech, as we have in South Cambridgeshire, where we are in many ways world leading. We must promote them.

We are combatting the coronavirus crisis now, and soon we will have to deal the consequences. This ambitious budget is a good place to start. I commend it to the house.