Spending Round 2019

Lord Davies of Stamford Excerpts

Wednesday 25th September 2019 Lords Chamber

[Lord Davies of Stamford (Lab)]

My Lords, I want to make three points. The first is not about the spending review at all; in that, I shall be following a precedent already established in this debate. It seems to me extraordinary—completely mad—that we should summon Parliament because there is a major constitutional crisis and then for Parliament not to discuss it. We should not be talking about the spending review today; we should be having a debate on drawing the right lessons from the constitutional crisis. Ministerial Statements, in which Ministers can answer questions with well-prepared, brief, non-committal and necessarily limited responses, are no substitute; that is not a proper debate. We need a situation in which the feelings of the country can be expressed through Parliament about the traumatic experience we have been through. It is our greatest constitutional crisis—actually, our only constitutional crisis—since 1789. We should certainly pause and think about it.

If a visitor from Patagonia asked any of us what the British political system was about or consisted of, we should probably say at least two things: that we believe in the rule of law, which means that everybody is subject to the law and everybody is equal before the law; and that we have a parliamentary democracy. No one in this House would disagree with either of those two answers to that question. A couple of weeks ago, the Prime Minister put it about through Mr Cummings that he was not subject to the law—indeed, that he proposed to break it. That was unprecedented in our history. As for parliamentary democracy, it cannot exist if the executive branch feels that it wants to get rid of Parliament because it is a bit of a nuisance—simply to suspend Parliament by Prorogation for however long the Prime Minister of the day may want. That is not a parliamentary system; it is despotism with a purely ornamental parliament. There are lots of examples in history and in the present world of that sort of political system, but it is not one that any of us would want to identify with. But Mr Cummings was not putting around dark hints about that; the Prime Minister himself was committed to the idea of a Prorogation that we know now was illegal.

We have come very close to a precipice. I feel a wonderful sense of relief that we have not fallen over it, as we could well have done so without really being conscious of the political and constitutional consequences of what we were doing. It would have been very difficult to retrieve the position. That is my first comment, which has nothing to do with the spending round, as colleagues will have noticed.

Let me turn to the spending round. A classical way of making yourself popular in this life is spending a lot of money. If you can spend a lot of money at somebody else’s expense, you are doing very well. That is what the Government are doing, to try to create popularity. Of course, some of their causes are very good ones—defence, the NHS—so the Government are being quite successful, according to the opinion polls. I am, however, very frightened by the whole process. One of the two key figures has been mentioned already this afternoon: we are increasing public spending by 4% per annum. The whole House will be aware that the rate of growth of output in this country is not 4% or 1% but less than 1% per annum. Which of us would run a business or our family’s budget based on spending 4% more every year when one’s income is increasing by 1%? It can lead to only one outcome—a very difficult one. States do not go through the bankruptcy court, but we know from our experience in the 1970s what happens if we overspend.

Public debt in this country has now reached a frightening level. For 20 years before 2010, public debt was 40-something per cent of GDP; it varied between the low and the high 40s, but it always stayed in the 40s. It is now nearly 100%. That is an absolutely terrifying turnaround. Then you have a position where the Government are proposing now to go ahead with these spending plans, without any clear forecast of what the economic rate of growth will be. I totally agree with the comments that have already been made and I never make economic predictions, but it would be a brave man or woman who excluded the possibility of a recession in the event of a hard Brexit. There could be a recession in other circumstances as well; there is an awful lot of investment already flowing out of this country, which is extremely worrying. The Bank of America has moved hundreds of its staff, most of whom earn hundreds of thousands of euros every year, to Paris and installed them there. That is one small example, but there is a big loss of demand. There are people setting up in financial services in Amsterdam and Dublin in preparation, not just for a hard Brexit but for any Brexit. We are being very complacent at the moment and the Government are being utterly irresponsible in committing themselves to this level of spending without having the courage to answer the question about what they predict the rate of growth of the economy will be in the future.

My third point is about Brexit, but also about Brexit and public spending. The British public have been defrauded over Brexit in a number of contexts, not least over public spending. Many of the public were persuaded by Mr Johnson’s dishonest campaign that Brexit was a cash generator and that we would get lots cash out of Brussels, including £350 million a week—or whatever it was—for the health service. In fact, we now find that, far from being a cash generator, it is a very considerable consumer of cash. We are having to spend hundreds of millions subsidising Welsh farmers, particularly lamb farmers, who would otherwise go broke. We are spending billions on subsidising Scotland to protect it from some of the potential impact of Brexit. We are spending a lot of money in Northern Ireland for the same purpose. This includes overt bribes for the DUP, which, as the House knows, I deeply disapprove of. It is a form of corruption and nothing else, and nevertheless very expensive.

There may be many other such things, but then there is the obscenity of spending £140 million, I believe, building a vast lorry park in Dover. This kind of expenditure does not yield a penny in increased output and it is not, under any circumstances, an investment. On the contrary, it is part of simply making our commerce —our external trade—more difficult and expensive. It is an anti-economic move and a way of spending money to deprive the public of future wealth, rather than spending money to try to enhance future wealth. It is a crazy policy, and one that involves, as I said, the defrauding of the British people, who were led to believe one thing about Brexit and are now, sadly and uncomfortably, discovering something very different.

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[Lord Liddle (Lab)]

My Lords, it is very enjoyable to hear the noble Lord, Lord Young, having the freedom of the Back Benches, and I hope we are going to hear far more from him in that capacity. We should, of course, be debating the great crisis we are facing in our nation’s affairs, but he was very pungent in his remarks on BBC News yesterday about what the Government should be doing, with which I agree.

This has actually been a very enjoyable debate. I would also like to say how much I enjoyed listening to my old friend, the noble Lord, Lord Horam—I learned a lot from him in his very long political career, particularly in the earlier stages—and he had a lot of interesting things to say.

The document we are discussing is very flimsy, and not backed up by any economic analysis from the OBR. The question is: does it represent a turning point in our attitudes to public spending and tax? Are we finally getting away from the policy of the last decade, which has basically been to hold public spending down below the rate of economic growth so we can achieve a gradual reduction in the ratio of debt to GDP when we think we can get away with that, but cutting taxes instead when we face political trouble? So the question is, are we moving away from that framework? Are we now accepting that both infrastructure investment and some types of social investment by the public sector make economic sense because they add to economic growth potential? One should not just be looking at the pure number of the deficit but should be asking oneself how much within the public spending envelope will add to growth potential and is therefore a sound investment.

Are we facing up—I think none of the political parties is--to the great demographic challenge we will face in the next 10 years?. According to the IFS and the Resolution Foundation, if we are to maintain present standards of pensions, health services and social care, tax as a proportion of GDP will have to rise by 5% because of the challenge of demography. I think that this is where the Government ought to open a public debate.

As we were discussing at the Labour conference in Brighton, the tax burden on the top 1% or 5% can certainly go up a bit; the broadest backs should bear the heaviest burdens. However, the fact is that we will not enjoy a decent quality of welfare state and public services in this country unless we can make the case to the public overall for a general increase in taxation. This is going to be difficult in an environment of Brexit—

[Lord Davies of Stamford]

I am listening to my noble friend with great attention—he is a great expert on these matters. As an alternative to increasing tax, would it not be possible to consider some compulsory universal insurance system, such as happens on the continent?

[Lord Liddle]

I would include compulsory social insurance or hypothecated taxes as part of the general remark that I made. However, we are going to have to find new ways of funding our welfare state because of the demographic challenge. This is going to be difficult if Brexit goes ahead because, even if we avoid no deal, which we have legislated against, the kind of medium-term deal that Boris Johnson has in mind—the Canada-plus, free trade agreement—is not the smooth Brexit that the economic forecasts of the OBR have relied upon. It is a much tougher, harder Brexit than the customs union and regulatory alignment that Mrs May was aiming for. It will have more serious economic consequences for the country, and I worry about that a great deal.

Of course, you could not possibly justify, as a result of Brexit, a temporary increase in the government deficit, but you can only do that for a time. We saw in the 1970s that there had to be an adjustment for the higher price of oil, and we saw after the 2008 financial crisis that there had to be an adjustment for the fact that the deficit had risen as a result of the cost of saving the financial system.

If that will be the case, who will bear the pain? The people who cannot afford to bear the pain, and the people whom this document completely neglects, are poor working families. There is nothing in this document to relieve the burden that they have faced in the last 10 years. This is a gross generational unfairness: I get a nice real-terms increase in my pension every year, but what do the young mother and her children get? They get their benefits frozen as a direct result of the Government’s policy.

Most of these people are not people who do not work. They are not, to use that horrible language, scroungers; they are people who work the living daylights out of themselves, sometimes with two or three jobs, in order to meet the family budget. This squeeze on working families is having a dreadful impact. The Resolution Foundation, one of the best independent think tanks of the past few years, suggests that we will have something like 1.5 million children in poverty— 37% of all children—if we continue on our present policy path on tax credits, universal credit and the rate of benefits. That is unacceptable. Even in the period that we are talking about, there is a 4.1% increase in departmental expenditure in the coming year but further cuts in benefits are going on. It cannot continue. I notice in Cumbria the dreadful impact that is having on the ground. We have a great increase in demand for our children’s services, from parents who cannot cope with bringing up their children themselves, and the costs of our children’s services are rising dramatically. This will become as big a challenge as social care unless we address it.

The big question is: is this a turning point? I hope that the noble Lord, Lord Duncan, from his new position will be able to say positively that the policies of the past nine years have been abandoned.

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[Lord Cormack]

You have not heard what I have to say yet!

As I was listening to the noble Lord, Lord Liddle, I could not help but remember a speech that I heard at my first State Opening of Parliament way back in 1970. The Address was moved by the then John Nott, later Sir John Nott, and he made a remark that has always stuck in my mind: he said that the real poor of the 20th century are those without hope. You can repeat that statement and advance the century, because it is still those who have no hope—who do not feel that they have a future—who are the real poor. I very much hope that the various promises made in this document, unsubstantiated in some ways as it is, can be carried forward and expanded.

I really want to talk about something else, because this is an extraordinarily artificial debate. The noble Lord, Lord Davies of Stamford, hit the nail on the head in his opening remarks. Here we are, back from a brief September session that was, it turns out, illegally brought to a close. I am very glad that, like the Leader of the Opposition, I boycotted what turns out to have been not the Prorogation ceremony. We are now in the middle of a constitutional crisis, the like of which this country has not seen for a very long time indeed. I am not sure I would go back to 1789, with the noble Lord, Lord Davies—

[Lord Davies of Stamford]

I said 1689.

[Lord Cormack]

The noble Lord actually said 1789, but we will not bandy this across the Chamber. One could say that 1911-12 was a great constitutional crisis. However one looks at it, and whatever one’s views of the decision that was unanimously reached yesterday, I do not think that anybody can deny that this is a great constitutional crisis. I pay tribute to the Justices of the Supreme Court. I think that they did indeed act without fear or favour; they were not taking sides on the Brexit issue. They were ruling—and I say this with some feeling of embarrassment and shame—on the conduct of a Conservative Prime Minister who should not have played fast and loose with Parliament and who should not have sent us packing on 9 September, having himself even said that he might keep us here until 12 September. I believe that the matters we have been discussing today, in an unsatisfactory form, through Statements and now this debate, illustrate the fact that there is indeed an agenda that would have kept us more than busy for most of the five weeks. Now we still do not know what is going to happen. I imagine that there will be a short and perfectly proper Prorogation in a couple of weeks, followed by a state opening and a Queen’s Speech on 14 October. However, we do not even know for certain whether that is going to happen. We have an extraordinary situation: a Government who are in a significant minority and discussing financial plans and promises that they do not know whether they will be able to discharge.

No one wishes the Prime Minister greater success in reaching a deal than I do. As I made public on many occasions, I would have accepted the deal that Prime Minister May achieved, all those months ago. I very much hope that we can have a deal and that we can be out on 31 October, much as I will greatly regret that, because this long saga has to be brought to a close. The fact is that Parliament has now decreed—rightly, in my view; I strongly supported the Benn Act, as it is now called—that we should not leave without a deal. What I have been concerned about this afternoon, in answers to two Statements delivered by my noble friend Lord Callanan, is that he has not come absolutely clean, by saying what will happen if, on 31 October, the deal has not been concluded. I hope that the Leader of the House will be able to do so in a few moments’ time. Parliament has decreed that it should be concluded before we come out. Having had one constitutional crisis because of the way in which the generally accepted rules of Prorogation were neglected, we do not want another crisis because an Act passed in Parliament through both Houses is ignored. I hope that, tonight or before we rise tomorrow—though we are of course back next week—we will have a clear and unequivocal statement. I would appeal to the Prime Minister, though I do not suppose that he will necessarily read—