Budget Statement

Lord Darling of Roulanish Excerpts

Wednesday 23rd March 2016 Grand Committee

[Lord Darling of Roulanish (Lab)]

My Lords, it is a pleasure to follow the noble Lord, Lord Price. We last met a few weeks ago sitting together at a dinner and I do not suppose for one moment that either of us expected to see each other again in this place, but that is life for you. I know, as do other noble Lords, that he was a very successful leader of an extremely successful British business. Perhaps I should declare an interest: there is a Waitrose just round the corner from us in Edinburgh and we have a loyalty card that we keep next to our Labour Party cards. I leave it to others to imagine which one has more use at the present time. I am not planning on giving up any of them.

I wish the noble Lord success in his job. I know, having met several trade Ministers, that the task is difficult, but I am sure that he will throw his wholehearted enthusiasm into the task and I wish him well on that. I particularly look forward to hearing what he might have to say over the next few weeks in relation to what is the biggest political event in this country, which is not the Budget but the referendum on our future membership of the European Union. I am sure that, as a Trade Minister, he will have plenty to say.

Perhaps I should draw attention to my entry in the Register of Lords’ Interests before proceeding further.

I want to talk today about two aspects of the Budget: the Chancellor’s deficit reduction target and infrastructure, which the Minister said so much about. In relation to the forecasts, we are in the interesting position that we are here discussing the Budget a week after its presentation to the House of Commons, but it is not quite the same Budget that the Chancellor presented—it changed quite dramatically over the weekend. I have to say that it has never been clear to me why the Chancellor has impaled himself on a target to break even in 2019-20 when there is no economic need to do so. I understand the politics behind it, but there is no economic need to do so—all the more given that the target that he set himself in 2010, when the coalition Government was formed, of eliminating the deficit by 2015 was missed by a mile.

As it so happened, what the Chancellor managed to achieve then was exactly what I set out in my last Budget—namely, to halve the budget deficit in a five-year period. I did that because I thought that was realistic, so I was not surprised that that was where the Chancellor ended up. You might have thought that, having got that one wrong, he would have given careful consideration as to whether he wanted to impale himself on a target that the OBR said he has a 50:50 chance of hitting—and that was before the political difficulties that have emerged within the Conservative Party over the past week.

Everybody knows that the figures presented in a Budget in the last three years of a forecast are never going to be the figures that are actually presented when those years come to pass, because so much changes even in stable times. We have seen—as the OBR said apropos the Chancellor’s spending predictions just before the general election last year—a rollercoaster as far as these figures are concerned. When you look at how the Chancellor hits his target in 2019-20, he does so by simply shifting about £10 billion of corporation tax receipts forward a couple of years in order to have a surplus. There is about £8 billion of unspecified public spending cuts in an election year. Is it really credible to believe that any Government will go into a general election saying that they will cut public spending by £8 billion? Governments of whichever political colour do not do that.

All this is being done simply to make the sums add up on this particular presentation. One has to contrast what the Chancellor had to say last week with what he was saying in the autumn, when the sun seemed to be shining with a vengeance, he had money to give away and he was able to buy off the tax credits revolt—which, by the way, has not gone away; it has simply been postponed and we will have to deal with it when it comes back in the future.

It is now becoming clear that we are in a position where we have numbers that we cannot rely on. I know something about fiscal targets, having had to deal with a situation where they could not be met, and I would say that what matters is whether Governments and outsiders believe that the targets are credible and will be met. Over the past couple of years or so, we have seen that these targets are a moveable feast. They are moving around so much that people will begin to doubt whether they can be relied upon in any meaningful way—and that is before we deal with the personal independence payment issue of £4 billion, which will have to be accounted for somewhere else.

My second point, lest anyone misunderstand me, is that I am very clear that it was necessary to bring down the deficit, but I am also clear why it happened in the first place. I understand the rhetoric of the Tory party; the noble Lord, Lord Borwick, who spoke previously and is no longer in his place appeared to be reading a Treasury hand-out on the subject. It has to be remembered, however, that the banking crash that our country and every other developed country in the world had to deal with was more profound and more lasting than anybody thought it would be. I remember saying that at the time—not that I got much gratitude for it. We are now living with the consequences.

I know that, if we had not taken the action that we did in 2008, there was every chance that we could have slipped into a catastrophic depression. It was not just us; the same action was taken by the Americans, by the Chinese and right across the world. Incidentally, it was supported by all parties in the House at the time, though they sometimes forget about that now. It was necessary to get the deficit down, but we had to do it in a way that was consistent with maintaining economic growth and was fair across the whole population. Others have said, and no doubt further contributors will make the point, that that is not happening in the way that it should.

On the question of welfare cuts, as the Committee may recall, I was Secretary of State for what was the Department of Social Security and then the Department for Work and Pensions for some four years, so I know something about how that department operates. There is a long history of Governments coming up with a new plan that is going to be much better and much fairer and save us money, but there is an equally long history of none of that happening. These plans are difficult to implement, and often they end up costing far more than was ever intended. Personal independence payments are an example of that. Clearly, the Treasury had an undertaking from the Secretary of State that he could deliver on these things, but he simply has not done so. It was not surprising that the Treasury was going to come back and ask for more.

Similarly, with the work on universal credit, I looked at this in 1998 when I first became Secretary of State for that department because, like everybody else, I thought, “Surely there must be a better, simpler way of dealing with all these things”. The answer is, “Yes, there is”, provided that two things happen. First, the Treasury must give you enough money to buy out all the losers. If the Treasury does not do that, there will be losers, and we all know that you will hear an awful lot more from the losers, who in many cases will be losing quite substantial sums of money, than those who actually gain. The only time that you can do that is on a rising economic tide, and that is why I was able to consider that in 1998.

Secondly—this is, actually, in some ways equally difficult—you need an IT system that can deliver the universal credit. As everyone who has looked at the IT systems in the DWP will know, there are at least four different systems, which were designed at different times for different reasons and are not very good at talking to each other. You cannot run a single benefit that needs to draw information from sources that are not compatible. Again, that needs not just money but know-how, and no British Government have a good record on that. I fear that universal credit will be years behind schedule, will not be delivered in anything like the way that the Government intended and will be another thing that will come back and bite this Government. I suspect that, unfortunately, there will be others who will suffer as well, if this is not looked at. You need a grasp of detail in that department, and I just wonder who was attempting to grasp the detail at the time—it is very curious.

I also wonder how it was possible to score the savings from PIP, because you can only do that if it is government policy, whereas over the weekend it was not clear at all whether it was the policy—you cannot have it both ways. That is very odd indeed, but perhaps we will hear what happened, if not immediately, in someone’s memoirs in years to come.

On the question of infrastructure, let me say right at the start that I very much welcome all the announcements that the Chancellor has made on the expansion of roads and railways over the last six years—not least because I announced many of them myself when I was Secretary of State for Transport. That perhaps illustrates the problem, because announcing these things is very easy. Indeed, if we could add to GDP for every announcement made, our economy would be motoring at the moment. We are overflowing with announcements, but we are not overflowing with actual spades in the ground and progress.

However—I point this out, because I was a member of the Government at the time—we can actually do it: Crossrail is nearing completion. We signed that off, and it is now being delivered. It took 20 years and was put forward in the teeth of Treasury opposition, until one day the ex-Secretary of State for Transport arrived in the Treasury and said that, no, he would not overturn the decision previously made by the Secretary of State. That is being delivered. The west coast main line has also been delivered, and has made huge differences.

However, if you look at what has been announced over the past few years, road after road has been announced and has not been built; the Midland main line out of St Pancras has been announced, but it is now on hold. So I look at all these northern powerhouse announcements with a degree of scepticism, especially when a lot of the announcements are about money for a feasibility study. Feasibility studies are very easy to announce, but they do not always—actually, in some cases, seldom—result in a tunnel or road being built.

I publicly said a number of years ago that I think HS2 is misguided, and I wholeheartedly endorse the conclusions of the Economic Affairs Committee of this House that the case has simply not been made. What we desperately need instead is to be spending money on what is wrongly described as HS3—the roads and rail links from the north of England to the east of England. That was identified in 2005, but it has not been acted upon. If the Government are going to do it, we need to do it now. The noble Lord, Lord Adonis, is doing a very good job bringing forward these proposals, but we need a delivery mechanism to make sure that they actually happen. Otherwise, when we are debating a Budget in 10 years’ time, we will simply be saying the same things.

Two big infrastructure projects perhaps illustrate the difficulties we have. The first is Heathrow. In 2003, the then Government published a White Paper which said that we should build a third runway at Heathrow. That was 13 years ago, the project is on hold, nothing will be said before the referendum, and by that time we will no doubt be into a leadership contest and we know what the stakes are there—I am not optimistic. However, in the mean time, this country’s future depends upon us having good air links to other parts of the world, and I still believe that Heathrow is the right solution. I know that it is controversial, but we need to act on it.

The other example is nuclear power. Again, in 2006 the Government published a White Paper that advocated a mix of energy sources, and that has been endorsed by successive Governments. The nearest we have got to building a new nuclear power station is Hinkley B. This may run counter to my whole argument so far in relation to delivery, but we seem to have entered into a deal with the French and Chinese Governments, because EDF is the French Government and the Chinese company we are dealing with is the Chinese Government. We will be paying two to three times more for the electricity this thing will produce than what we currently pay, and we are using a design which, once again in the great annals of nuclear history, appears to be breaking new ground rather than using existing technology. Perhaps as a country we need to ask ourselves, “Aren’t there cases where the Government, which is underwriting this risk anyway, might as well do these things itself and take on that risk rather than trying to price a risk which is pretty difficult to price and passing it on to consumers in the future?”. I say that having been a member of a Government who endorsed PFI and who were very happy to do deals with the private sector. However, no one can possibly say that a nuclear power station is an economic proposition—it is not. If we want it, we will have to ask ourselves whether it might be better, cheaper and quicker to do it ourselves.

I will leave it to others to deal with a broader critique of this Budget. I will say only that growth in our economy is welcome; I still think it is fragile but as I said at the very start, the biggest threat to our recovery is the prospect of us leaving the European Union. However, that is for another day.