Economy: Growth

Lord Higgins Excerpts

Tuesday 29th January 2013 Lords Chamber

[Lord Higgins]

My Lords, it is always a pleasure to follow the noble Lord, Lord Bilimoria, because he always introduces an element of optimism in what has otherwise been a pretty grim debate. Like everyone who has spoken, I congratulate the Minister on his appointment and wish him well. I certainly share the views of those who congratulated him also on his role in the most successful Olympic and Paralympic Games ever. I particularly urge him not simply to be a government spokesman in this House but to take an active role in his department. This is not always easy, particularly regarding financial matters, where this House is inhibited in some respects. However, the issue is important because we now have not only a generation of professional politicians in the other place, but we are getting pretty close to a generation of professional Ministers, and an injection of more realism from these Benches on those who are serving as Ministers would be welcome.

One of the curiosities of the present situation is that we have to put the question of growth, investment and so on in the overall economic context. It is true, as all Cambridge economists would say—there are more around the Chamber—that it is difficult not only for economists to forecast the future but to forecast where you are. This is certainly true at the moment because we have the strange situation where we appear to have an economy that we are told is about to have a third dip but, at the same time, the stock market is not doing at all badly and employment is increasing rapidly. The answer to this is probably to be found in the fact that wage inflation is virtually non-existent and it would seem almost that the unions have come to the view that they should go more for an increase in employment, rather than sustaining their members’ living standards. This clearly has serious implications for what might happen in the future, but none the less, this appears to be the case. The trouble is—as the noble Lord, Lord Skidelsky, pointed out—that the implication of that is that productivity is actually going down in the circumstances I have just described, at a time when we certainly, as an economy, want to have productivity going up. Therefore, the answer has to be that we must do something important to encourage aggregate demand.

Perhaps I might add just one other word in reply to the comments of my noble friend on the Front Bench. He actually referred to a “national infrastructure plan”. Those who have been in this place or another place for a long while have nasty echoes of George Brown and his ill-fated national plan, but I am not clear whether my noble friend will find that this has capital initial letters in Hansard. Perhaps he might clarify whether it is his intention that it should do so. There may be some argument for such an approach in the present circumstances with regard to infrastructure, but it is absolutely clear that the Government must continue to press on with their deficit reduction plan.

I am now rather puzzled by the position of the Labour Party. We were told originally, “Well, the Government are doing it too fast and too soon”—the implication being that something ought to be done. It was clearly the case that one could not go on as one was going on at the time when we came into power. What is the position now? The noble Lord, Lord Eatwell, with his usual reference to Keynesian multipliers and so on, seems to be saying that we should now take fiscal measures to stimulate the economy. In other words, he is saying that we should not cut the deficit but go on increasing it even more. He shakes his head; in that case, I am not clear where he stands on this issue. What does he want to do about the deficit? It is not apparent what he wants to do about the deficit, and whether it involves the multiplier as well. We look forward to some clarification in the wind-up speeches from the Front Bench.

The trouble is that if it is not possible to do it by fiscal measures one has to find other means of doing so, and lowering interest rates further is clearly not a possibility. Therefore, one inevitably has to resort to the question of quantitative easing. I share the qualms expressed by my noble friend Lord Lang and others about the effect of this on pension funds. The Treasury Committee is now, I gather, going to carry out a full report into quantitative easing, which will be helpful, but it does not seem to me that there is much alternative for the moment. It is certain that its impact is diminishing, but it seems to have some stimulating effect at the present time, which is something that we need in present circumstances.

Having said that, I am concerned about the fact that our monetary policy is confused and divided between the Treasury and the great Gordon Brown’s invention, the Monetary Policy Committee—a very unaccountable body. I am not at all clear that monetary policy is operating as it should. Until the innovation of quantitative easing, it was not a monetary policy at all: it was a Monetary Policy Committee without a monetary policy. All it had was an interest rate policy involving one interest rate. We are not clear as to how responsibility for overall economic management is divided between the Governor of the Bank of England—now incoming—and the Monetary Policy Committee on the one hand and the Treasury on the other. It is not clear to what extent there is a degree of co-ordination and—as I pointed out as the legislation was going through—they are working on two different forecasts. That is an extraordinary situation to find ourselves in. Having said that, I think it is important that we should continue to cut, but cuts must be made in a sensible way. Yesterday at Question Time, the issue came up about what is happening in south London, and the protests going on there on a large scale because of the proposal to downgrade the maternity unit at Lewisham Hospital. I have an interest in this, because my daughter was born in Lewisham Hospital. We went there because of its high reputation. Even more remarkably, her son was also born in that hospital because events happened much more rapidly than was expected; she had to drive 60 miles to get to the hospital and she and the baby arrived there at the same time. The hospital responded magnificently. To downgrade that hospital now would be a really appalling example of how not to do cuts—cuts made simply because another part of the NHS had overspent. It would be better to fire the people who overspent rather than affect Lewisham Hospital. I have digressed—but I am merely saying that I have a qualification in respect of my views on cuts. The cuts must be sensible and well judged.

On infrastructure, I would like to make two points. First, there is absolutely no point in having totally uneconomic infrastructure projects. In this context, whatever the political arguments may be on global warming and so on, to have a structure where the cost of the investment is to be met by imposing higher costs on existing consumers—some of whom may be dead before the new wind farms come in—is not a sensible way of proceeding. I am sure that my noble friend on the Front Bench, with his knowledge of microeconomics, will accept that if the pricing policy was right in the first place, loading the cost of the investment on top of that is certainly not going to give an optimum solution. But that tendency not to carry out a normal investment appraisal but to put the costs on the existing consumers appears to be happening with our normal, rather than high speed, railways. The regulators seem to have changed their view on what is the right way in which to make investment proposals in these large infrastructure areas. I hope that my noble friend in the Treasury will look carefully as to whether the regulators are really doing the job in this respect that they ought to do.

I gather that the Treasury Committee—of which I was chair for many years—has just made a report on the mini-Budget Statement. It says that it is important that the Chancellor should not create uncertainty with regard to his determination to reduce the deficit. I believe that that is the situation that ought to be avoided; it is important that we should remain resolute. At some stage, obviously, it will be possible to reverse the present policy, but that time has not come yet if we want to get growth in the economy.