Finance (No. 3) Bill

Lord Higgins Excerpts

Monday 18th July 2011 Lords Chamber

[Lord Higgins]

My Lords, we are really having two separate but related debates: on the one hand, on the report of the Finance Bill Sub-committee on the Budget of 2011—I congratulate my noble friend Lord MacGregor and his committee on what they have produced—and, on the other hand, more generalised debate about the state of the economy.

I begin by commenting on what is said in the report of my noble friend Lord MacGregor. It refers to a new approach to tax policy-making involving the tax consultation framework. The idea that this is new is rather surprising. It is a very long time since I was involved in producing a draft set of clauses on VAT legislation. The more we can have consultation in advance of the tax proposals, the better. The other aspect of this side of things is the question of how the proposals, when they arrive, are considered. I was tempted to go back into the archives and look at the first report from the Select Committee on Procedure (Finance) for the Session of 1982 to 1983, which it so happened I chaired. It had a distinguished membership, including Mr Enoch Powell. The proposals that it brought forward are still relevant and particularly in the context of my noble friend’s Bill. Perhaps his committee might like to look at this report, which I think is very valuable and still relevant to our situation.

We said that there should be a division in the Finance Bill and that there should be a taxes management Bill, which would be introduced at the beginning of the Session. This would involve the mass of technical—I am inclined to say—junk, which appears in this massive document that we have in front of us this evening. The actual Finance Bill would be as far as possible only concerned with tax rates and the management side of them. There is a strong case for this division and, as we went to suggest, for a separate Bill if a new tax were being introduced. But, the present arrangement that we have with Finance Bills so far as scrutiny is concerned is not satisfactory. Perhaps my noble friend could tell us how many of the clauses in the Finance Bill were debated in detail in the Commons; it would be interesting to know. With this legislation, the Commons does not have the longstop that your Lordships have of being able to look at it, which they have for other legislation.

I turn now to the other aspect of the matter. I am becoming increasingly heretical over the idea that the case for absolute minimum rates of interest has been made. We ought to consider the considerable disadvantages of a hyper-low interest situation. My former constituents in Worthing living on fixed incomes, having been prudent all their lives and having saved, are being devastated by the low interest rates which they can now get. It is a major disincentive to saving, which is very important in the present context, not least in relation to the extent to which there are bank deposits which might enable the banks to lend more.

On the other side of the argument, this does mean that we have a lower exchange rate than we would otherwise have. This may be important as far economic growth is concerned but people are also being misled into believing that this hyper-low interest rate policy will go on indefinitely. A large number of people are taking out mortgages and borrowing on the expectation that interest rates will not go up further. This policy is being sustained only because the Bank of England has effectively given up any prospect of using interest rates to control inflation. That cannot go on indefinitely. There is bound to be a significant increase in interest rates, which could have devastating consequences. I am very concerned about that.

More particularly—this will not be news to the usual suspects in this debate—I am concerned about the way in which the Bank of England is preoccupied with the price of money—that is to say interest rates, and not the quantity of money. Fascinatingly, having thought at the weekend of what I might say today, I suddenly found on my desk this morning a report by the Institute of Directors on the big picture and on whether we are we making a big mistake. It stresses the importance of the money supply. It also—and this is interesting politically—says:

“There is a real risk of economic weakness as a result of the money supply”—

it means the lack of money supply—

“is mistakenly attributed to the Spending Review and tight fiscal policy”.

I recommend this report to your Lordships. It even goes on to refer to the monetary equation MV=PT which the noble Lord and I had exchanges about when he was a Minister. That shows its credentials are good.

In any event, it points out about the level of increase in the money supply that:

“Broad money growth is now the lowest it has been on a sustained basis since modern statistics were first compiled in their present form in 1963”.

Since 1963, we have not had such a low level of monetary growth. Whether you are a Keynesian, a Friedmanite or whatever, it cannot be the case that if money supply is falling over a sustained period, we find ourselves getting economic growth. We must consider very strongly indeed the case for further increases in the money supply—for quantitative easing, which was rightly introduced at that time by the noble Lord opposite—against the background of such low interest rates that are failing to stimulate the economy. I fear that there is a lack of overall comprehension of policy because of the way that things have been divided between the OBR, the Bank of England and the Treasury and because of the Chancellor not taking an overall view of the picture.