Budget Statement

Lord Higgins Excerpts

Thursday 27th March 2014 Lords Chamber

[Lord Higgins (Con)]

My Lords, it is often said of my former constituency of Worthing that people go there to die and forget what they came for, and there is some considerable truth in that. Many people have come to Worthing to retire, and many of them have provided for their retirement by saving and have been extremely prudent. It has therefore been quite heartbreaking for them to find themselves in the situation that has existed for the past five years or so, and I do not understand how some of them have continued to exist, given the appallingly low rate of return which they have had on their savings.

We understand very well why it has been necessary to deal with the problems of economic management. You cannot take the fiscal measures you would like to take because of the deficit, and therefore you have to resort to monetary measures, so interest rates have been as low. But none the less we have tended to ignore the effect which these low interest rates have had both on pensioners and on savings. Therefore, I believe that this Budget is the Budget they have been waiting for. At long last, something is being done to help them. Some of the measures are quite direct: the abolition of the 10% rate on savings income and the introduction of a pension bond which will give a rate of return significantly higher than market rates.

The overall Budget is extremely imaginative. I was very surprised by one of the BBC commentators who said that it will be seen as a run-of-the-mill Budget. I think it will be a Budget that many people will remember as an extraordinarily imaginative Budget, given the fact that the Chancellor has virtually nothing to give away. He has taken steps, particularly in the annuities market, that will give people a great deal more freedom. In that respect, I shall make one point. There has been some suggestion that people in final salary schemes—the few schemes that survived Gordon Brown’s effect on final salary schemes—should switch into a defined contribution scheme and take advantage of the Budget. That would be wrong. They would do much better to stay where they are in the final salary scheme. On that side of things, the Chancellor has been very helpful.

There are other measures, for example the doubling of the investment allowance, which will certainly aid the recovery of the economy. I feel bound to say that, welcome though it is, much of the investment coming in is from overseas, and we still find ourselves in a situation where investment from domestic sources, despite the huge cash balances flushing around the economy at the moment, is not really coming. At all events, the investment allowances will help.

The coalition Government’s overwhelming priority—and I pay tribute to the fact that they have been unanimous on this—has been to reduce the deficit. As I have pointed out on previous occasions, saying we have cut it by a third means that we are still borrowing at two-thirds of the appalling rate of the previous Government, with a huge increase in underlying debt, which has been referred to by a number of other speakers. Although we have not made progress as fast as we would have liked, we are moving towards the deficit having been reduced by 50%. The target for abolishing the deficit has moved back but is, none the less, coming into sight.

What I really welcome is the statement made by my noble friend this afternoon, which I do not think anyone else has made from the ministerial Bench. He said that what we have to do is not to move towards reducing the deficit but towards a surplus, because that is the only way in which we will reduce the total actual debt, rather than the deficit, which will be inherited by our children.

Other aspects of the issue are relevant. The savings ratio, in particular, has been referred to. As was pointed out in the OBR report, it has fallen to 5% from 7.2% in 2012. To some extent, that change reflects increased borrowing and expenditure, which has led to part of the recovery over the past year or so. The savings ratio is beginning to go up again, but again the measures in the Budget will help to increase the savings ratio. That will be very important if we are to have the resources we need for further investment in the economy.

Some aspects of the present situation still remain puzzling and paradoxical, such as the way in which employment has stood up, and increased remarkably well, but productivity has not moved. Obviously, we must move to a situation in which productivity also goes up, as a number of noble Lords have referred to.

I will make one other point. I am still completely puzzled as to why the Treasury works off one economic forecast and the Bank of England off another—the latest OBR report even has a diagram that shows the way in which they diverge. Some unanimity of view on that in government would be appropriate. I worry that the monetary policy under Gordon Brown’s much praised measures, which I always had doubts about, is in the hands of the Bank of England and the fiscal side is in the hands of the Treasury. It is not the least bit clear—this came up in a Question from the noble Lord, Lord Barnett, the other day—who is responsible for co-ordinating the two, and that is important.

None the less, the measures that have been taken by the Bank of England are to be welcomed. We have found a situation in which QE has played a useful role. At long last the Bank got away from the Monetary Policy Committee’s obsession with interest rates rather than the price and supply of money, and is taking more action on that side of things.

In that context I will take up a point made by the noble Lord, Lord Myners, who I see is not in his place but who made a very good speech earlier. The idea that somehow we will have to sell off the gilt-edged securities which have been purchased by the Bank of England as part of QE is, it seems to me, quite absurd. There is no reason to suppose that the rates, terms and duration of the debt that we bought then will still be appropriate at the point where we sell it off. It would clearly be much more sensible simply to issue fresh debt which is appropriate in terms of its structure. It is important that we should move towards more co-ordination of fiscal and monetary policy.

Finally, there is a very good analysis of the output gap in the OBR report. We are moving gradually towards eliminating that gap, but it is extremely difficult to know what it is because we do not know how much productive capacity has been destroyed in the course of the crisis from which we are just emerging. None the less, I am sure that it is right gradually to move towards a point where the output gap is closed and we can go on to a sustainable long-term growth rate, rather than mopping up excess capacity.

Overall, the strategy is paying off. If I may mix a metaphor, while we are some way short of Winston Churchill’s “sunlit uplands”, none the less it is very important that the Government stand firm and stick to the course to which they have set. We are making progress and we must continue to be determined in dealing with the deficit, getting things on an even keel and rebalancing the economy in the way in which a number of noble friends and noble Members have suggested today.