Covid-19: Economy

Lord Davies of Stamford Excerpts

Thursday 4th June 2020 Lords Chamber

[Lord Davies of Stamford (Lab)]

My Lords, the first thing that we need to do in a situation of this kind is to make sure that we do not deceive ourselves about the reality that we face. This recession will be twice as deep as the one in 2008-09, which followed the collapse of Lehman Brothers, and I think that it will go on for a great deal longer, quite simply because a high proportion of our fellow citizens have lost earnings, jobs, businesses and capital. Their great concern for a number of years will be trying to build up again their savings and net worth, of which they have felt reasonably secure in the past. That means that consumption spending will be very restrained. I am afraid that it is unrealistic to expect the state simply to step in and replace that.

Even as we have this debate, we are passing the grim milestone of a public debt to GDP ratio of 100%. Earlier in the debate, the noble Lords, Lord Horam and Lord Darling, reminded us that we had even higher levels of debt after the Second World War. What they did not mention is that we got out of that through inflation in the 1950s, the 1960s and, in particular, the 1970s. I do not think that they are recommending that solution this time, but that was how we managed to erode the value of that debt. If we had not run it through inflation, I am not sure how we would have done so.

We also have the problem that general taxation—that is, if we increase taxes while deep in recession—will make the situation worse. That makes life difficult. We also have a troubling background of a failure of productivity in this country, which makes our economy’s long-term prospects not very rosy.

This is, therefore, a time for radical suggestions. Let me make two. The Bank of England should start to reissue consols, which were once the basis of public sector funding. Now is the time to do that, while interest rates are low. Secondly, now is the time to take the National Health Service out of the structure of public spending and taxation. We need to spend more money on the health service, not less, and we cannot do that if it is constrained in the straitjacket of public spending policy. We should do what the continentals have done. We should set up a national commission or, like the Germans, we should have non-profit-making health insurance companies fund it. Money would still need to be raised but it would be a health insurance premium, not a tax.