Economy: Spring Statement

Lord Hain Excerpts

Thursday 31st March 2022 Grand Committee

[Lord Hain (Lab)]

My Lords, it is a pleasure to follow the noble Lord, Lord Bourne, who was a respected Minister in this House. When he stepped down, I and many others on a cross-party basis were very disappointed. He is also respected in Wales for his service there. I agree with the point he made on Northern Ireland and, having been the Secretary of State for Northern Ireland, which is in a very unstable state at the present time—politically and in other ways—I hope the Minister will respond to that.

I take issue with one of the points the noble Lord made about debt and point out that debt following the Covid crisis was just half what it was after the Second World War, expressed in the usual way as a percentage of GDP. That being the case, what did we do after the Second World War with that huge debt which came from fighting Hitler? We built the National Health Service, we invested in a welfare state, built millions of houses and we had growth on a scale which compares much more favourably to that which we have had over the last 10 or 12 years. I would be grateful if he would bear that in mind.

Paul Johnson of the Institute for Fiscal Studies has summarised the British economy’s pre-pandemic performance under Conservative Governments since 2010 as

“a long period of feeble growth”.

Sadly, the Spring Statement heralds a return to that debilitating trend. The Office for Budget Responsibility expects growth this year to be half what it was last year, to halve again next year, and to flatline thereafter. The OBR also foresees the biggest fall in British living standards for 60 years. These are awful prospects.

The key to real recovery and to managing Britain’s public finances is to help the economy grow. Yet the Chancellor’s response to possible recession, coupled with a cost of living crisis, already announced tax rises and the war in Ukraine, is not to invest but to cut public spending, and to do so at the very moment that the Bank of England is raising interest rates.

We are in today’s difficult position because Tory Chancellors spent a decade stopping the economy from growing. The Office for Budget Responsibility has acknowledged that between 2010 and 2019 Tory Chancellors delivered “fiscal tightening” equivalent to nearly 9% of GDP, meaning that they slashed total spending in the economy by a huge amount—£220 billion in today’s figures. They did so primarily by public spending cuts which formed 82% of the total Tory squeeze, with tax rises responsible for the remaining 18%.

In the 1990s, with Ken Clarke, now the noble and learned Lord, Lord Clarke, at the Treasury, the fiscal squeeze was shared about equally between public spending cuts and tax rises. Since 2010, Tory austerity has fallen overwhelmingly on cuts in public services, public investment, and public sector pay: a £180 billion public spending squeeze. This is the source of today’s unprecedented National Health Service staff shortages, unparalleled waiting lists, and a social care crisis; all were there before—this is important—and not just after the Covid pandemic. They could have been avoided by fully funding the NHS and by investing in adult social care. Instead, Tory Chancellors subjected Britain to a decade of austerity in pursuit of debt and deficit targets, none of which was ever met. This was not just socially callous; it was economically illiterate. History shows that an expanding economy can live comfortably with a significant level of public borrowing. It is when economies stop growing that budget deficits begin to balloon and debt burdens become difficult.

Yet what is Chancellor Rishi Sunak’s top priority? To make space for pre-election tax cuts by letting inflation erode the real value of October’s public spending plans. Public sector budgets no longer stretch as far as he promised back then, and public sector workers face even deeper real-term pay cuts. The real growth in public services in 2022 planned last October could have been protected by raising spending by £4 billion, but the Chancellor did nothing.

The Treasury is also stifling new policy initiatives by refusing financial backing. Just when renewable energy should be a top priority, Treasury traditionalists are trying to rein in the Government’s green ambitions lest they involve extra public spending. Meanwhile, the Government’s levelling-up pledges have turned into empty promises of jam tomorrow. Their White Paper was not accompanied by even a post-dated cheque, let alone a credible funding plan—more unfunded Tory promises.

It is difficult to take seriously the Chancellor’s talk about the Tories having a “sacred duty” to

“leave the public finances strong”

and his vow to “always balance the books”. He invokes the spirit of Margaret Thatcher but forgets that no Tory leader delivered more budget deficits than Mrs Thatcher: 10 in her 12 years in power. Only two of the previous nine Tory Chancellors ever ran a budget surplus: Tony Barber once in the 1970s and Nigel Lawson, as he then was, twice in the 1980s. That leaves 29 budget deficits in 32 years in office. So much for the Tories’ “sacred duty” to balance the budget.

It has taken a pandemic and war in Europe to prove what a vital role the state plays in protecting society from harm, promoting the common good and defending our freedoms. All that could have been helped by boosting economic growth and putting funding for public services first. In today’s worrying domestic economic climate and dangerous international situation, pre-election tax cuts should have had no place on any Chancellor’s priority list. Public investment, including in security and defence, should have.