Budget Statement

Lord Flight Excerpts

Thursday 21st March 2013 Lords Chamber

[Lord Flight]

My Lords, I believe that this will go down as a successful Budget politically, particularly within the narrow scope for manoeuvre that the Chancellor had. It is perhaps correct that it should have been broadly an unexciting Budget. The one key initiative is the help to buy scheme, which seems to be somewhat the Neville Chamberlain strategy. As the noble Baroness, Lady Kramer, has pointed out, in the 1930s the economy was very much got going by the increase in housebuilding; indeed, few people realise that the most successful period of growth in the 20th century was 1935-40, when the British economy grew at 4% per annum compound. I point out that Chamberlain also addressed the other key problems of the time in that he cut public sector pay, which had got out of line with private sector pay, and he cut taxes substantially as well, generating demand without overborrowing. Perhaps there is a little more to learn from that period. However, these initiatives will have to be managed extremely carefully. They smack slightly of the Clinton measures that caused the housing bubble and all the trouble thereafter to the banking system.

My preference would be, if it were possible, to accelerate the infrastructure projects which the noble Lord, Lord Deighton, is appointed to manage, and I am sure that he will do extremely efficiently. Within the plan, there is about £200 million of investment in roads and other infrastructure and £200 million needed for power generation. That is massive scope to have infrastructure investment that will get the economy moving, but we have to get rid of the planning and environmental red tape, which is delaying that. I am convinced that there is the money for them. We have seen developments such as the recent Qatar involvement, but I am amused to learn that even the new road between Edinburgh and Glasgow is being financed by the Agricultural Bank of China, which has set up in this country to do business in that area.

We have to realise that the fundamental problem is less the banking explosion and more that Gordon Brown created a more than £100 million structural deficit. He relied on frothy income from an overheated financial sector and embarked on spending when there was not regular, sustainable tax income to finance it. We are stuck with that problem, caused by deliberate overspending, rather more than we are the parallel problems of the banking system.

Together with that was the policy of allowing people to borrow more and more. I remember asking Gordon Brown when he was Chancellor of the Exchequer whether he was concerned about the fact that consumer debt was far too high per person—about £18,000 per couple—and that house prices had gone up too much. His reply was that increasing individual indebtedness was fine because people could afford to service more debt. We have ended up with not only the public sector but the private sector overborrowed. The idea that you can stimulate growth by still more spending is, to my mind, a path to ruin. This economy cannot be turned into a growth economy by yet more consumer debt and more consumer spending.

It is clear that growth must come from either an increase in exports or an increase in capital investment. The scope for exports clearly lies with the BRICs and the Commonwealth. I welcome the Government’s initiatives, but a lot more could be done to improve our trade. We are lucky to have the Commonwealth relationship, which many have ignored or thought little of it, but those countries are substantial conduits to improve trade. There is clearly little scope in the eurozone; the economies are paralysed by the euro. Even if there is no collapse, the problem is not going to be mended easily.

As for the private sector here, in my view, we have an attractive tax regime and we have, broadly, to leave it to private sector companies to invest as and when they are ready. The private sector has built up massive cash reserves over the past three years. Even companies in the small and medium-sized sector have built up about £180 billion in cash reserves. The corporate sector has the money when the time is right for it to invest.

I understand but am slightly cautious about the case for using currency depreciation and higher inflation to ease the problems of overindebtedness, which is clearly what is happening. That needs to be watched very carefully or it could get out of control and worsen the situation. At least, as a result, we are now highly competitive internationally as well as taxwise. There is a huge incentive for companies to come here and do their business from here.

I end by pointing out that the private sector has already done a lot better than people realise. Let us look at the movements since 2010. Taking account of the reduction in the public sector and the significant downturn in North Sea oil output, the private sector has grown by about 4%. That is partly where the extra 1 million jobs have come from. I know that a lot of high-tech business in this country is starting to do very well indeed. I believe that the predictions for the private sector over the next year will turn out to be overcautious. I detect a significant pickup. Of course, North Sea oil output is about to turn in the opposite direction. We may be surprised by an upside to economic growth over the next year.

Overall, the potential is there. The Chancellor has been responsible and, as I said at the beginning, I believe that this will be seen as a politically successful Budget.