My Lords, not for the first time when discussing these matters, we have had an extremely interesting debate which has been conducted in a sporting manner with a number of noble Lords also providing us with great humour. I thank all noble Lords for their excellent and insightful contributions. I was going to start by highlighting the concern of the noble Lord, Lord Desai, for my well-being as a result of the situation behind me, but my noble friend Lord Forsyth came to the rescue and explained the competition that I was facing today, so I do not need to do so.
I apologise in advance because, as is always the case, I will not be able to respond to the considerable diversity of topics which have been raised, but I will try my hardest to do so. Debating the full sweep of a Finance Bill is pretty challenging, as is trying to respond to all the points that have been raised. I will try, as I often do, to answer by topic—I have highlighted eight
which I will wade into shortly—rather than answering each noble Lord who offered specific remarks. Before I do so, I am particularly grateful to the noble Lord, Lord Hollick, and the members of his Finance Bill sub-committee for their substantial and insightful report on the draft Bill and, more broadly, for the superb work his committee does.
The first of the eight topics concerns the tax matters that the noble Lords, Lord Hollick, Lord Turnbull and Lord Kerr, and the noble Baroness, Lady Kramer, touched on probably more than most. Contrary to the flavour of some comments, the Office of Tax Simplification plays an important role in the tax policy-making process. Where its recommendations are taken forward, HMRC and HMT discuss them and their underlying rationale with the OTS and seek to involve it in developing their approach and some of the implementation. Many specific things were said the noble Lords and the noble Baroness—particularly the noble Lords, Lord Kerr and Lord Hollick—but I do not really have the time to address those. However, the OTS is an important advisory body. I should highlight that we expanded the number of people supporting that important work. That remains the full intention.
Moving to some broader issues that virtually everybody talked about, the second topic is the economy. Obviously, there is my own background: as everybody knows, I have been immersed in the never-ending challenges of trying to guess where any economy is going—at that moment in time as well as in the future. It is fair to say that at this exact moment, so far, the evidence of economic performance has been a little better than one might have expected. As a number of noble Lords pointed out, it may be far too premature to make too permanent a judgment on that. The noble Lord, Lord Darling, highlighted his directorship with Morgan Stanley, and I cannot resist saying that it and my own previous organisation are among the few that revised upwards their forecasts for the UK economy in the past couple of weeks. Of course, as always, we do not really know why there was such an apparently robust rebound in many indicators in August; we have no idea whether those will remain. Many noble Lords outlined all the various reasons why that would not necessarily be the case, but that is the situation, certainly in the near term, and I would not be overly surprised if a number of other independent organisations also adopted a slightly less negative tone.
Linked to the many interesting ideas about fiscal policy and the framework going forward—I listened carefully and took note of virtually all those ideas—among those who, as always but particularly in this environment, will have to think carefully is the OBR. The noble Lord, Lord Darling, did not have to live with the structure we were presented with in the OBR. Its assessment of the short and particularly the medium-term consequences of Brexit and, in parallel, of long-term productivity will have, as always, a significant bearing on the circumstances in which the Chancellor will be able to make his Autumn Statement.
I turn to my fourth topic: the fiscal policy framework and debts, on which a considerable number of comments were made and advice was given. Of course, due to the extraordinary and ongoing low levels of bond yields
here and elsewhere in the world, it is always tempting to undertake whatever form of infrastructure spending one might think of, be it big projects, small projects or otherwise. But one also has to think carefully about what sort of infrastructure spending is going to give cyclical boosts and what might give a more permanent boost to productivity.
I still do not have the answer to this and I have not been persuaded by others. We do not entirely know, even if the data were accurate—notwithstanding the very important comments of the noble Lord, Lord Desai—quite why productivity is apparently weak here and in many other parts of the world. But it is not entirely impossible that one consequence might be that the private sector is worried about the very large levels of public sector debt in many developed countries, and at some point there may be considerably higher taxes as a consequence of that—who knows?
I will come on to this more specifically in a moment but as we have seen from the comments of both the Prime Minister and the Chancellor about the fiscal policy framework, one should be careful of anything that seems like a free lunch. The example of Japan is often discussed by continental European economies and many others—the indirect effect on productivity of the overhang of a long-term problem of high debt should not be dismissed entirely.
When it comes to the specific infrastructure goals, as I have said, both the Chancellor and the Prime Minister have made it reasonably clear that they see some scope for different ways of thinking about some of these issues. I suspect that in the Autumn Statement we will get a flavour of that. Obviously, given my own interests, I am heavily involved in trying to think through some of these things and how they may indeed help overall productivity and sustain growth, particularly with respect to some of our regional challenges.
I will touch quickly on two other issues before I sum up. A lot was said, not surprisingly, about trade and the single market. I am pretty sure that we will find out at the appropriate time—when the Prime Minister chooses—what our stance is on the single market and, indeed, many other complex related issues. We will all just have to be patient and wait for that to appear. But I would like to add something that reflects my own very considerable experience of thinking about international trade. As important as free trade deals are, one should not forget that the biggest drivers of trade between different countries and regions of the world are virtually always the levels and rates of change of domestic demand in one place relative to another. It is no surprise that the largest rates of growth of trade over the short, medium and long term are generally with those places that have the largest rates of domestic demand. That is not to diminish the scale of the challenge, but we should neither overly exaggerate nor ignore other factors that are very important for international trade.
I will briefly comment on sterling and monetary policy, which many people referred to. I am sure I do not need to remind your Lordships, but in so far as the Bank of England is given a mandate to achieve an inflation target, it is its independent role to choose what it does on monetary policy. Of course, it has to
give some kind of consideration to fiscal policy, but it is its job to do what it thinks is right to achieve an inflation target of 2% over the medium term, unless that mandate is changed. Of course, the Government do not have a stance on sterling because we do not have a policy on it. It is typically a consequence of many factors, including particularly the policies that the Bank of England chooses.
Lastly, on productivity, I always welcome picking up on the experience and wisdom in our debates. There may continue to be considerable problems with measuring productivity; the noble Lord, Lord Desai, emphasised this and a couple of others touched on it. I do not have the time to go into this issue today, but considerable problems remain here and in many other places around the developed world in this regard. Notwithstanding the fact that we have seen a reasonably significant decline in the pound—when people talk about the scale of the decline, that is from where the pound was trading at midnight on the day of the referendum to where it is today; compared to where it was trading in the preceding weeks, the decline is not quite as big as people often say—it is important to look at a range of broader financial indicators. Interestingly, then, there are no signs that the financial markets seem to believe or be concerned that the UK’s productivity performance is as weak as the data appear to show, relative to the rest of the G7 countries. That could of course change within one minute of my saying that, but it continues to be the case and has been for many years.
That said, it may well be that, as important as productivity is, it should not be a goal in itself. A couple of noble Lords made some very interesting comments about this; again, the noble Lord, Lord Desai, highlighted this point. One thing that sometimes gets overlooked is that our productivity performance may seem as weak as the indicators show partly, if not largely, because of the remarkable flexibility that has come about in our labour market. It should not be forgotten—I have mentioned this before in debates—that the big surprise going back over the past six years is just how much job creation has occurred in this country. The way productivity is calculated perhaps explains in part why our productivity rates seem so weak. The way to deal with that, as a couple of your Lordships hinted at, is to act directly to make the labour market less flexible. However, there would of course be a consequence from doing that.
Let me quickly come to a close because I know that some of your Lordships are awaiting a further debate. I thank all noble Lords again for the quality of the debate, and the ideas and food for thought that many have provided in a number of areas. Despite what a couple of people said, I believe that, in time, we will be able to look back on the central measures in the Bill with some confidence, as being widely beneficial to helping sustain our economic performance, and allowing people and households to see that benefit. In that regard, I commend the Bill to the House.