The government on 25th November announced a pay pause for the public sector for 2021-22, excluding the NHS. The eight Pay review Boards that make independent recommendations on pay for almost half of the 5.5m workers in the public sector will be guided by this Ministerial policy. The thinking was influenced by the hit to earnings experienced by large sections of the private sector from lockdowns and closures, the cost bulge incurred by the public sector to offset some of the pandemic damage, and the fact that at April 2020 median weekly earnings were at £647 in the public sector compared to £567 in the private sector. The skill, training and ages of public sector employees are not the same as the private sector average which partly explains this divergence. The government said the lowest paid should be exempted from the freeze and get some rise. Local government will need to make its own judgement about what is appropriate and affordable for their own staff.

Some are writing in to say there should be a higher rise for NHS workers than the 1% the government is suggesting as the uplift for the various NHS pay rates. I agree that those NHS staff who responded with so much energy and dedication to the demands of treating CV 19 and handling the dangers of the pandemic deserve more than the nation’s thanks and applause at a time of general pay restraint. The right way to resolve this is for the Pay review Bodies for the NHS and for doctors to review the evidence. The Unions are putting in submissions for higher rises than the government has suggested for the Pay review bodies to consider.

The Pay Review Bodies provide independent advice based on a fuller understanding of current pay, the rewards for different categories of staff and the national context of pay for comparable activities. They will know the details of the junior doctor’s four year settlement in 2019. They will have before them the system of increments for experience that many health staff can enjoy, and the general context of promotion and training opportunities. NHS pay for any individual year on year is not just reliant on a percentage increase in the basic rates. I wish them well in coming to a good judgement on this difficult question. Whilst the government does not have to accept a Pay Body’s recommendations I would expect this government to give very serious consideration to the conclusions of these Pay reviews, given their sensitivity and the public mood. Anyone who feels strongly about this issue can of course write in to the Review Body if they think they have something useful to assist them in coming to their conclusion.

The government is right to spend substantially to offset the lockdowns and other anti pandemic measures, all the time they stop people working or prevent businesses trading. Once they do at last remove the regulations which damage jobs and the economy there should be a sharp fall in public spending and a large rise in tax revenues as the economy bounces back. The measures to help offset the anti virus actions are costed at a whopping £ 250 bn this year. There has also been a substantial revenue loss. Correcting both these adverse moves in the accounts will slash the deficit.

Given my worries about the balance of payments the government would be wise to reduce spending in foreign currencies.It is now seeking to reduce the overseas aid budget. Mrs May’s deal against my advice was weak on contributions to the EU so next year the UK is still budgeted in the Red Book to send £10 bn to them. This needs review, as it seems far too high given we have left. The government should review all public purchasing to see where there can be import substitution.If more the Public sector’s needs can be met from domestic supply it will Generate more jobs and offsetting tax revenue at home. Defence procurement, purchase of all trains and vehicles, food for public sector institutions and many other items could be shifted to more U.K. sourcing now are out of the EU.

Within the fast growing public capital spending plans rests the very expensive HS2 which remains a bad investment. The state also needs to grips with the huge railway subsidies and set out new timetables and service plans geared to our changed And reduced needs for train travel.

Let me have an other go at explaining why I think we should be more worried about the balance of payments deficit than about the state deficit which seems to attract all the attention.

The state deficit will be financed primarily by UK savers. It means the state can spend a bit more and individuals choose to spend a bit less as they save. The state can always repay the state debt as it is issued in pounds and the state through its Central Bank decides how many pounds to create. Usually the state just rolls the state debt over when it  matures. Of course I wish to see good value for  money spending on national priorities, and to leave plenty of room for personal and business consumption and investment. There is always a political argument to be had over the total tax take, tax rates, and the growth rate of personal real incomes. There are important arguments over how much the state can and should do, and how much is  best done through a competitive private sector.

The OBR forecasts a large balance of payments deficit of 6% of GDP. This will also need financing. It needs paying for in foreign currency, as it represents the excess of imports of goods and services over exports and the excess of payments abroad to incoming payments of dividends and interest. The two main ways in which it is paid for is through the sale of UK assets to foreign buyers, and the assumption of foreign debt by UK businesses and individuals.  These foreign debts cannot be repaid by the Bank of England creating the necessary foreign currency as it can only create pounds. The debts can only be rolled over if the lenders agree. If we sell too many of of our productive assets we may see an outflow of jobs and activity from the UK, as some of the foreign buyers want to buy UK capacity to reduce it or relocate it elsewhere. They may also wish to acquire great intellectual property in order to earn the rents and licence fees on that in some other jurisdiction.

The government has passed legislation giving it stronger powers to resist foreign takeovers of companies with important technology and capacity in the UK that we should wish to keep. The best way to keep more capacity and good ideas in the UK is to narrow the payments gap to reduce the need to sell assets to overseas buyers. It is an important part of national security and defence to have sufficient capability at home. This capability should not just be in weapons manufacture, but also in food and basic materials necessary during a time of crisis to  be easily accessible. The US is scrambling to restore rare earths capacity given the troubles with trade with China, reminding us there are things you need to do for yourself.

The Chancellor is calling for ideas on what new fiscal rules should be applied to the UK economy as it seeks to recover from the pandemic shock.

One of the surprises in the official figures released with the budget was to see the traditional table showing the next five years figures against the targets of the EU’s Growth and Stability Pact, with reference to the Maastricht Treaty levels. Whilst we were in  the EU the limitation of state debt to 60% of GDP and the annual deficit to 3% of GDP applied to us, though we did not face the same enforcement penalties as members of the Eurozone could face. Some people argued the Stability and Growth policy did not apply to us, yet we reported on it annually at the budget, sent in the necessary figures to the EU to monitor our budget and its conformity and had an annual debate about it in Parliament. I did not expect to see the report of these numbers to continue after we had left the EU. Previous Chancellors did guide the economy by seeking to get the deficit down so that state debt fell as a proportion of GDP, as the EU said.

The documents imply that some parts of official thinking believe this is still a good way to guide an economy. There is a concern to see state debt as  a percentage of GDP falling again, which is what we should do to comply with the Pact. I agree there should be some debt control as part of a  sensible strategy but there is no reason to think the 60% percentage of GDP figure for debt and the 3% deficit figure are the best or right ways to steer. There is an argument to say you should treat capital spending differently from day to day spending on public services. If the state is investing in an asset which will generate a positive return  that exceeds the government’s cost of borrowing there is less reason to restrict such spending. I think we need new fiscal rules based around boosting the growth rate and productivity, and distinguishing  between worthwhile investments and other public spending. I will return to this issue soon.

I was sent this from the Fishing Minister:

Love Seafood Campaign
The Trade and Cooperation Agreement has set a new relationship with the EU on fisheries. This marks an important step in the right direction. Over the course of the last year we’ve taken our independent seat at the Regional Fisheries Management Organisations, and reached a partnership agreement with Norway, our most important partner on fishing interests and with whom we have responsibility for shared stocks in the North Sea.
As we move forward, we are determined to do all that we can to support our coastal communities. As a nation, we should be eating more of the fish that we catch.
In the coming weeks, Defra and Seafish (the public body that supports the UK seafood industry) will be working together to deliver a UK-wide ‘Love Seafood’ campaign, featuring UK fish and shellfish.
The campaign will focus on increasing domestic consumption of UK seafood. It will promote species including: langoustines, crab, lobster, scallops, oysters, clams, mussels, squid, cuttlefish, turbot, plaice, sole and monkfish.
The campaign will run throughout March, and will feature in national and regional press titles. We see this as a first step, and part of our wider ambition to ensure greater domestic consumption of UK-caught seafood.

The OBR forecasts yesterday do not show a sufficiently sustained investment boost from the private sector. They also show a continuing high balance of payments deficit. The forecasts may be too pessimistic, but it does highlight an opportunity which the government could grasp.

The Chancellor rightly wants to lead a big investment revival. He is also making large sums available in public sector capital, and hybrid capital through joint financings. There are obvious opportunities in putting in more electricity capacity to cut our use of the interconnectors, substituting U.K. timber for imports for many uses, growing and catching more of our food and ensuring our defence orders are supplied from U.K. yards and factories. These are all areas where government intervenes and spends a lot giving it  influence.

As expected the OBR cut their forecast of borrowing in the year to March 2021. They have lopped £39bn off the total compared to the November forecast and may still find their figure a bit high with only one month left to go. In contrast they have raised their borrowing forecast for 2021-22, partly to reflect the extension of measures announced in  the budget to cushion  some of the effects of continuing lock downs and social distancing policies. They wisely stress the difficulties of forecasting given the big impact lock down policies have on jobs and business. They rightly draw attention to the fall in debt interest thanks to low interest rates and the purchase of state debt by the state owned Bank of England. It seems to me premature to form a view of what might be needed to control the deficit in a few years time when it is so clear that the deficit is massively swelled by the impact of anti pandemic spending and some loss of tax revenue from less output and income. As their figures confirm it will take a vigorous recovery to get the deficit down, but only a good recovery can straighten out the public finances.

So the budget needs to  be judged by how big an impact will it have on that recovery?  My questions include

1. When will the Freeports be up and running? Will the areas demarked be substantial? How generous will the tax and tariff reductions be? I strongly support a Freeport led recovery but to be effective they need to be available soon, to be given good incentives  and cover substantial areas. There are some proposals in  the Red Book with issues still to settle.
2. How will the supercharged investment allowances work? What is the net effect on a potential inward investor of the improved allowance against the higher CT rate stated to come in in 2023?
3. What more will the government do to back the self employed and small business, as they will be crucial to recovery given their flexibility and enterprise?
4. What plans does the government have to address the issue of productivity performance, which affects the longer term growth rate?

I will develop these and related themes tomorrow as part of the budget debate.

There have been many mini  budgets over the last year. Never have the official figures for the outlook changed so drastically so rapidly, as forecasters rushed to bring their estimates in line with the big lurches in activity created by anti pandemic policies. Today we await new forecasts from the Office of Budget Responsibility. We should do so remembering that they like all  forecasters were of course hopelessly wrong footed by the arrival of the virus. They will  now  find it difficult to gauge the pace of recovery and the sustainability of gr0wth against an uncertain health policy background and given the damage done to many businesses shut down by lockdown. In an economy where a 0.5% variation in growth was a big movement prior to CV 19 we have gone to a world where a 5% variation is modest.

The lack of clarity and reliability in the forecasts provides a good reason why this is not the budget to raise taxes to tackle the deficit, as the authorities have no reliable idea of what the underlying deficit will be once we are out of lockdown and into recovery. Some are suggesting there is a gap of £40bn or even £60bn that needs filling by tax rises. Yet the forecast budget deficit for 2020-21 is £400bn or ten times the alleged underlying gap. Let us assume this forecast was too high and the 2020-21 deficit comes in lower than that. Who can say what the 2021-22 deficit will be when we need to know how fast the recovery will be in 2021-2. What we do know – or should know – is the bulk of the deficit this year is the result of the pandemic. It comes from a collapse of tax revenues as many people and businesses are  not at work earning wages and profits . There was ab ig fall in VAT on everything from  eating out to travel.  It comes from a huge surge in pandemic related spending on everything from furlough through the self employed scheme, small business loans to the train subsidies and vaccine costs. As soon as we get out of lockdown most of the extra costs of the pandemic will fall away, and there will be a surge of tax revenue.

What we can also say is that were the Treasury to impose new taxes and higher tax rates on the economy now, or even propose such changes  for later this year, it will slow the recovery before it has properly begun. It will prolong the need for special measures spending, and lower the tax take. It will damage confidence at the very moment we need to encourage businesses back to work. Small businesses and the self employed include many who are approaching retirement who could decide not to bother to reopen. It includes people who were not earning a good sum prior to lockdown who might decide it was no longer worth the struggle. The brightest and most energetic will of course  be able to reopen and succeed even with tax rises, but we need a more democratic small business and self employment policy that helps the many who provide a good local service but who are  not going to be able to battle against heavy odds stacked against them by an overtaxing government.

Question:
To ask the Secretary of State for Health and Social Care, how much bed capacity has been reduced by to improve infection control in hospitals in England during the covid-19 outbreak. (156227)

Tabled on: 22 February 2021

Answer:
Edward Argar:

The latest data shows that the average daily number of beds open overnight in Quarter 3 2020/21 was 121,524 compared to 128,326 in Quarter 3 2019/20.

Hospitals continue to flex their bed capacity as part of planning to meet the demand from both elective and emergency streams. We are working hard with trusts to maximise the number of open beds while maintaining safe care through the pandemic.

The answer was submitted on 02 Mar 2021 at 12:35.