Economy: Growth

Lord Foster of Bishop Auckland Excerpts

Thursday 21st June 2012 Lords Chamber

[Baroness Kramer]

My Lords, this has been an extraordinary and very moving day. I suspect that many of us heard the speech of Aung San Suu Kyi and share the same reaction to it: namely, that we were listening to something very special being spoken by an extraordinary, charismatic person in a way that was both moving and powerful. That probably makes it difficult for us to speak in this debate in a sense. However, I suspect that we are also encouraged by the virtues that she underscored in her speech: namely, the importance of democracy and of the parliamentary process. We can comfort ourselves that in speaking today we are sharing that philosophy.

My colleagues and I sought to initiate this debate as the issue of growth is so important. I was delighted to see the list of speakers, each of whom has a great deal to contribute in putting forward ideas and suggesting priorities and ways in which to tackle this extraordinarily difficult issue for our economy.

The background to the debate is that in 2010 the coalition inherited a badly damaged economy. The previous Government had built their boom on the back of tax revenues pumped up by false profits from the banks—a bubble that burst in 2008—and on the back of consumer spending pumped up by excessive consumer credit and a huge bubble in asset prices, particularly house prices. I remember that in the other place my colleague Vince Cable pressed the need to deal with excessive public and private debt but was generally treated with some scorn. However, public spending spiralled out of control in around 2004. Even before the bank crisis struck, the UK had the highest budget deficit in the G7. The country had no cushion at all with which to deal with any economic shocks, and the shock came spectacularly in 2008. I think most would argue that devaluation of the pound and ongoing public overspending helped to provide an initial cushion, but by the 2010 general election the UK was on track to have the highest deficit in the G20 and Liam Byrne was not kidding when he left that note saying, “There is no money left”.

However, the fundamentals were worse. According to The Plan for Growth, under various Governments the UK had,

“stopped saving, investing and exporting”.

Savings rates had declined to some of the lowest in the developed world. Manufacturing had fallen sharply as a share of the economy. The UK’s share of the global exports market had declined, largely due to our inability to succeed in exporting to high-growth markets. Some of your Lordships have often remarked with astonishment that Belgium exports more to China than we do. Only 6.5% of our exports are to the BRIC countries. The economy had become dangerously unbalanced by both sector and geography. It was far too dependent on financial services, far too weak as regards manufacturing and economic prosperity was concentrated largely in London and the south-east.

Since then we have made some progress. The Government have taken a grip on the structural side of the deficit, using both tax increases and spending cuts. The talk is of austerity but the truth is a far more measured pace of deficit management. In some ways it suits my Conservative colleagues and the Labour opposition to overegg the reality of the rate at which the deficit is being tackled. We will not see deficit reduction in real terms until 2014 at the earliest. It is quite a measured programme and, ironically, if you were to look at the Labour programme outlined by Alistair Darling and the current programme laid out by George Osborne, you would not find a significant difference. I understand that it suits the parties to highlight the difference, but the reality is that we are moving in a fairly measured way.

It also pleases me that the burden has fallen most on the wealthiest 20%, as it should do. A good example is that while corporate tax has been cut to competitive rates, the starting point of income tax has been increased to take more than a million low earners out of tax altogether. This Government have put forward numerous schemes for growth, which include a boost to the enterprise investment scheme, enterprise zones, a doubling of apprenticeships to revive our skill base, £1 billion committed to the Youth Contract, £1.4 million invested in the regional growth fund, half a million pounds invested in the Growing Places Fund, and investment in the green investment bank that will reach £3 billion in this Parliament. The list is long and I suspect that I can rely on the Minister in his closing speech to add significantly more detail to it. The financial markets have responded and shown sufficient faith that long-term borrowing for the UK has fallen to lows unheard of in recent history. Most recently, one is looking at a rate of something between 1.5% and 1.7% for long-term borrowing.

Unemployment has been an ongoing concern, especially youth unemployment, and I suspect that Tuesday’s report of improvement, especially in the full-time jobs figures, will have pleased all noble Lords. I quote Brendan Barber of the TUC who said that it was,

“some long overdue good news”.

However, much more remains to be done, and it would be sad if we became in any way complacent. Whatever the outcome of the euro crisis, it will continue to be a drag on our economy for some time to come.

Like others, in responding to the issues that have been created in our economy, I have been interested to look at lessons from the 1930s. Recovery from the 1930s recession was not based on fiscal stimulus; and I say that because sometimes there is a myth that fiscal stimulus was the answer. That did not really occur until rearmament in the second half of the 1930s. Instead, devaluation and cheap money were key to recovery. In the UK, they led to a surge in housing construction. That strikes me as a useful lesson. Fiscal discipline has allowed the Bank of England room to use monetary policy, with significant QE so far, and I hope there will be more to come.

[Lord Foster of Bishop Auckland]

I am most grateful to the noble Baroness for giving way, but what is rearmament but public expenditure spent on arms, which creates jobs in the private sector?

[Baroness Northover]

Perhaps I may point out that we have a strictly time-limited debate; and if the noble Lord wishes to raise some points, perhaps he may seek to speak in the gap, and they can be answered in due course.