As several noble Lords have said, this Finance Bill belongs to a previous era—not just the era of George Osborne’s chancellorship but also a past era in a more historical sense, one that began with our membership of the Common Market in the 1970s, was shaped largely by the Thatcher Government and ended with the vote for Brexit in June this year. With our exit from the European Union, Britain has to devise a new political economy from the European one that has shaped our destiny since the 1970s. I will talk about this and develop four or five brief themes. I am afraid I am not going to talk much about my noble friend Lord Hollick’s excellent report.
The first theme is the one referred to by my noble friend Lord Darling. It really is time to end the phoney war about where we are on the consequences of Brexit and what the Government’s policy now is. The Government have got to make some hard choices. They have to decide how much priority they give to the single market. They have to say whether they are prepared to contribute financially in order to get access to European markets and to common policies that are in our interests, such as those for research in our universities. They have to be clear whether they are prepared to accept being members of a market where the regulations are not going to be determined in Britain, because that will be the position. I hope that Mrs May will try to resolve some of these uncertainties in her speech at the Conservative Party conference. In the national interest, I hope that she makes clear that the overriding goal of the Brexit negotiations has to be to retain the maximum economic openness that our economy enjoys as a result of its membership of the European single market.
However, we have to do more than that. We have to try to explain better to people how the benefits of that openness can be shared in a fair and transparent way. I do not know whether something could be made of this in policy terms, but I have just been thinking of the many young people who come to work in Britain from the continent. It is clearly evident, as many economic studies have shown, that they make a very positive contribution to the Exchequer. Could the Government find a way of identifying and hypothecating that tax contribution in order to establish a migration impact fund which dealt with some of the social consequences and tensions that have resulted from free movement?
My second theme is that the Chancellor should launch, in his Autumn Statement, an ambitious public investment programme to address the loss of economic potential as a result of Brexit and the tail-off in
economic growth as a result of falling private investment. This should be targeted at new sources of growth and designed to correct the regional imbalances in the economy. We should set up a kind of office of public investment which verifies projects on the basis of their value for money. That would reassure people that borrowing money for these purposes was not wasteful spending, but would actually increase economic growth and, as a result, reduce the burden of our debt in the long term. We have to do something about public investment. In the last days of the Labour Government, under my noble friend Lord Darling, it was running at 3% of GDP. It is now well below 2%. It has got to go up: that has to be done.
My third theme is that this new investment programme needs to be part of a coherent, long-term economic plan. Yes, I use the word “plan”, which the Conservatives used so much in the general election campaign. We have to have a plan and a new industrial strategy, which the new Prime Minister has said she is committed to by changing the name of the BIS department. As I say, we have to have a plan and an industrial strategy. I do not think that that is too difficult to do. In fact, it is a logical fit with Brexit, because the Government have already committed themselves to examine the trading position of the British economy sector by sector. It is a relatively short step from that analysis for the Government to work with business sector by sector to identify strengths and weaknesses and threats and opportunities, and examine what positive help a Government can give to industry’s success. Therefore, I welcome the return of an industrial strategy and hope that it will be taken very seriously. I also hope that it will be backed up by resources and that the EU resources currently available for this purpose through the structural funds will not be abandoned but will actually be amplified by the new Government.
Fourthly, the Brexit vote was clearly a cry of pain from the left-behind in our society and a rejection of the elites. Business has to listen very carefully to that message. We have to find ways of re-legitimising the market economy and capitalism. In the post-war era, we thought that the worst excesses of capitalism had been tamed. Today, they have returned. It is terrible that the models of business that people think about in Britain are people such as Sir Philip Green at BHS and Mike Ashley of Sports Direct. What an example they set. Mrs May is very right to stress the need for better corporate governance. I certainly look forward to those proposals and hope that they have real substance.
We must also think about labour market flexibility. I have always been strongly in favour of labour market flexibility, but has it gone too far in Britain? The noble Lord, Lord O’Neill, mentioned the Government’s new skills funding approach. Surely, this is an opportunity to try to raise standards in areas such as hospitality, catering and social care, where one would hope that, by training people better and paying them higher wages, one could deal with some of the abuses—as I see it—of labour market flexibility, and the dependence of some employers and business models on the ready availability of low-skilled migrant labour.
My final point concerns our policy for sterling. I am not sure what I think about this, but we need a national debate on it. One of the clear consequences
of Brexit has been a fairly sizeable devaluation. This, of course, will represent in time a significant squeeze on real wages and living standards. Do the Government think that a fall in sterling is an inevitable consequence of Brexit? Do the authorities see a lower rate for sterling as a desirable thing in these circumstances? Should it go further? Should the exchange rate return in some way as an objective of government and Bank of England policy? The governor of the Bank has pointed out that, with our massive balance of payments deficit, we are dependent on the “kindness of strangers”, as he put it. However, one could ask legitimate questions about some of these foreign inflows. Of course, we welcome—everybody should do so—overseas direct investment. But are the flows that are coming in to finance M&A and property investment, particularly in London, desirable—and could we do something to throw grit in the wheels of those processes in order to make them less desirable? This is something that we need to think about.
There are many challenges with Brexit. As the noble Lord, Lord Kerr, said, the economy is entering a long period of grave uncertainty, and it is only through very bold government action that we can address this. I very much hope that the Government will prove up to the challenge.
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