Financial Markets: Stability

Lord Desai Excerpts

Thursday 3rd November 2022 Lords Chamber

[Lord Desai (Non-Afl)]

My Lords, I thank the noble Lord, Lord Sharkey, for initiating this debate and the powers-that-be for holding it in the main Chamber and not shoving us off into the Moses Room. I have never enjoyed an economics debate in the Moses Room. It is much better in here.

We have already had three overlapping crises. First, we had come out of a pandemic, which had caused us to spend a lot of money and build up a deficit, but that was necessary. Secondly, as I said last time that we had a general economic debate in July, we are in a stagflation crisis as serious as the one we had in the 1970s. That crisis lasted 15 years and we have to take this crisis very seriously. It is partly the result of the Russia-Ukraine war, partly other things, but the shock of energy price rises is going to stay here and not go away any time soon. Thirdly, we had the desire on the part of the then Prime Minister, Liz Truss, to ignore all this and go for growth. I have lived here for nearly 60 years and as a professional economist I have never known any time when the British economy has not been going for growth—not actually getting it, but going for growth. Going for growth is the great thing. “How can we grow faster? How can we be like Germany or America?” That has cost us a lot. This is a very fragile economy. I remember the days of stop-go when the weakness of sterling was causing us a lot of problems and we could never get growth. Then we had the long battle about Europe and we finally Brexited. I think Brexit has done some damage, which the Government still do not admit, but the Office of Budget Responsibility was very clear how much Brexit has harmed us.

Given that these conditions were facing us, during the debate about the Conservative leadership it was quite clear that there were two views. One was of fiscal responsibility and the other was a dash for growth. I think the dash for growth won the support of the Conservative Party members.

The surprising thing about what happened then was the indecent haste with which the dash for growth was implemented. The new Prime Minister had plenty of time: unfortunately, because Her Majesty the Queen had died, Parliament was not sitting. She had a month or two to think about her policy. But no—she was in such a hurry I can only call it Maoist. Mao Zedong, when he became the leader of China, suddenly thought, “Within five years we are going to catch up with the UK in steel production”, and he totally ruined the economy. This economy can be ruined much faster than China’s, and that is what happened.

To propose tax cuts which are not properly funded was such an elementary mistake that it made the financial markets respectable and much loved in this country; for the first time, ordinary people thought, “Well, thank God for the financial markets, because this madness would have cost us a lot”. So in a sense it is quite right that the financial markets offer good advice to politicians: “Don’t do foolish things; try to do better”.

I do not have much time, but let me put it to the Government this way: do not start on the growth run. Please preserve our stability. There is plenty of time—this country is not going to go away. Right now, we are still suffering from the loss of skilled labour due to Brexit, and we need to take care of social care, the health service and so on. Conserve, preserve, and save the economy. We will have enough time to grow later.