Economy: Credit Rating

Lord Higgins Excerpts

Monday 25th February 2013 Lords Chamber

[Lord Higgins]

My Lords, does my noble friend accept that we were supposed to have this Urgent Question much earlier in our proceedings, and that if this does not happen the Whips should rise and say what is going on?

As far as the substance is concerned, does my noble friend agree that it is absolutely crucial that the Government should continue with their existing policy? The reality is that they have not managed to reduce the deficit as fast as we would have liked. The Labour Party is saying that the reduction is being done too quickly and by too much, but clearly the reason why we have had this reassessment of our position is that it has not been done as quickly as international opinion might feel would have been appropriate.

If we are going to take this attitude, it is essential that aggregate demand should be maintained. In that instance, a further increase in quantitative easing would be appropriate. However, we are in some danger of having economic management split between an unaccountable Monetary Policy Committee and the Treasury. Perhaps this point also should be taken into account.

[Lord Deighton]

I thank my noble friend for those observations. As for the timing of the Statement, I think that it was simply a matter of the earlier session not finishing on time. I, too, have been here for an hour and a quarter ready to talk about this Question.

On the economic substance, my noble friend raises a number of extremely important points. I do not think that we can evaluate the current economic situation in terms of a direct trade-off between growth and fiscal consolidation. The essence of the situation that we find ourselves in is that fiscal consolidation is an absolute prerequisite for recovery and for the confidence of the markets which allows us to borrow to finance this extremely high deficit. My noble friend is right that an array of other policy weapons is available to prosecute a growth agenda. That includes multiple supply-side reforms to make our economy more efficient, and the Government are fully embarked on those. An activist monetary policy plays an important part, but—I agree—within a constraint of managing very carefully any inflationary risk.