Economy: The Growth Plan 2022

Lord Horam Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Horam (Con)]

My Lords, I first congratulate my noble friend Lady Neville-Rolfe on her elevation to the Government. We have fought many battles together in the past and I know how effective she will be.

The Chancellor has said that he wants to focus on growth and believes that cutting taxes is the way to achieve this. In support of this assertion, he points out that taxes in the UK are at their highest level for 70 years. That is indeed the case—but if one takes a wider view, the picture changes. In the UK, tax is 35% of GDP; in the eurozone, it is not 35% but 41%—significantly higher. Logically, therefore, if the Chancellor is right, Britain ought to have been growing faster than the eurozone countries for the last decade or so. It has not; we have grown at roughly the same rate as the eurozone countries. Also, speaking personally as an economist who has founded a very successful business, it is not my experience that the sort of tax change that he is proposing makes much difference to the level of entrepreneurship and growth. What businessmen want more than anything else is steadfastness and certainty.

There is also a big downside to cutting taxes. If you do it the wrong way—as the Government clearly did on this occasion—you get a reaction from the market that increases interest rates and mortgage rates and you take away far more than you have given in the income tax cuts. Moreover, once you get talking about tax cuts, you inevitably eventually talk about spending cuts. Now we are talking about possibly no indexation of benefits. That is absolutely wrong. There is a problem of absolute poverty in this country—as the right reverend Prelate the Bishop of Durham pointed out very eloquently—and we simply cannot make the people who are already poor even poorer. That is totally morally wrong. Also, if you cut taxes, the Government have less revenue, so how do we finance the extra spending on the NHS, social care, defence and security, the skills agenda, public expenditure, public infrastructure and all the rest?

Given the very excellent government proposals on the energy price guarantee, there was actually no need to have a Budget. If the Chancellor had been wiser, he would have postponed it until he could see what ensued and how clear the picture was. But he went rushing in and came a cropper. That is the situation that we are now in and the only way out of it is for the Government and the Chancellor to listen, learn and show some political common sense. I am glad to say that has begun. I entirely welcome the decision to bring forward the review by the Office for Budget Responsibility to 31 October; we will need more measures of that kind, and the sooner the better.

Office for Demographic Change Bill [HL]

Lord Horam Excerpts

2nd reading
Friday 4th March 2022 Lords Chamber

[Lord Horam (Con)]

My Lords, one reason I support my noble friend Lord Hodgson’s Bill is that it will encourage long-term thinking. He mentioned in his opening remarks “long-tail issues”, which is a common phrase in the insurance industry. In the epic contest between our western-style democracies and dictatorships, which we see playing out in the world, democracies are often said to suffer an inability to think long term, because of the frequency of general elections. They always look at short-term fixes for solutions. I believe this sort of agency could promote a more balanced approach, with more attention to longer-term issues that have a fundamental effect on quality of life in this country.

The second reason I support the Bill is that it will encourage us to look at the environmental, ecological and social factors, as well as the purely economic. I say that as an economist myself. As my noble friend Lord Hodgson said, life is not all about increasing gross domestic product and I fully concur.

Ministers have said in the past when discussing this issue that this proposal is covered by the activities of the Migration Advisory Committee. However, if you look at the members of that committee, you see that they are almost exclusively labour market economists. They look at skill factors—whether we have a shortage of lorry drivers, people with digital skills or care workers—and are not concerned with wider issues such as the beauty of our countryside, the space that we occupy and the ecological effects of population growth. So it is not an appropriate body to look at these issues, even though the Government have said in the past that it is. I have also talked to Professor Bell, chairman of the Migration Advisory Committee, who agrees that the remit is quite specific and limited.

My third reason for supporting the Bill is that we are a small country. Bill Bryson called his delightful travelogue of Britain Notes from a Small Island. When the Americans came over here in the Second World War, they had a briefing from their staff that said, “England—think South Carolina. It’s the same size.” Even today, South Carolina only has 10 million people. We have five or six times that number in England. If you look around the world, there are only four countries of a similar geographical size to our own that have a greater population: Taiwan, South Korea, Rwanda and Bangladesh.

In those circumstances, we must look very carefully at how we use land. I noted that when the present Prime Minister was still a journalist for the Daily Telegraph, he wrote in an article on 25 October 2007:

“It is time that we had a grown-up discussion about the optimum quantity of human beings in this country, and on the planet. Do we really want the south-east of England, already the most densely populated country in Europe, to resemble a giant suburbia?”


“Hear, hear,” I say. We do not want that to happen, and we must work out policies which prevent it.

I will make one final suggestion to the Minister on this subject. The Prime Minister has tasked Mr Rees-Mogg in the other Chamber to come up with some ideas about the benefits of Brexit. I voted remain in the referendum but, none the less, I would like to see some of the benefits of Brexit brought forward. Might I suggest that building up an office for demographic change could feed into that, by essentially looking forward and giving a bit of vision to the whole area where this country is going, post Brexit? As Harry Perkins, the hero of former Labour MP Chris Mullin’s excellent novel, A Very British Coup, said, “We politicians spend a great deal of time looking at the ground. Just occasionally, we should gaze at the stars.” I think my noble friend is gazing at the stars here in a very illustrative and visionary way, and I agree with his Bill.

Budget Statement

Lord Horam Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Horam (Con)]

My Lords, the noble Lord, Lord Rooker, was absolutely right in his reference to the Rooker-Wise amendment in 1977. I remember it all too well, though I think that he fairly acknowledged that he and the late Audrey Wise only got it through with the help of the Opposition Treasury spokesman, then one Nigel Lawson, now my noble friend Lord Lawson.

Indeed, it is the case that there is no such luck today: no indexation of that kind has been made possible by the Government. I understand why and I think that the noble Lord may well understand why as well. The fact is that Britain has, for too long, been trying to get European levels of public service and welfare at US levels of taxation. The crunch has now come. The Government have given clear indication that they prioritise maintaining, and if possible improving, public services and are therefore prepared to put up taxation to the same extent.

That is fundamentally right, because of the point that the noble Lord, Lord Turnbull, has just made. He said that, at one time, he thought that as people got richer they would spend more of that money in their own private way. Indeed, the opposite is now happening, as he pointed out. As we get richer, we need more of the services that the public sector mainly provides: education, health, care, addressing issues such as climate change, as well as levelling up—particularly from this Government.

I certainly support the levelling-up agenda. I particularly admire what the Germans are doing for some of their towns such as Dresden, Weimar and Erfurt, which were knocked about a bit during the Second World War and then went through the GDR period. However, it costs money to do that. If we are going to do the same sorts of things for our northern towns, we will need to spend a lot of money to make those improvements.

That sort of improvement for the north and the midlands, the so-called levelling-up agenda, is also good for the south. As Boris Johnson, when he was a journalist—and he was Mayor of London before he became Prime Minister—said, do we really want the south of England to be endless suburbia from Charing Cross down to the south coast? No, we do not. If there is better balance in the country, that is good news for both ends of the country.

That means that taxation has had to rise. As has been endlessly pointed out since it happened, tax as a percentage of GDP is now going to be 36.2% at the end of this Parliament as opposed to 33.3% of GDP today. As my noble friend Lord Lamont pointed out, looking at it that way is purely insular. Look at what has happened across Europe: today, by comparison with our 33.3%, the average in Europe is 41%—hugely higher. In Germany it is 37.5%, in the Netherlands 39%, in Belgium 44% and in France, amazingly, 46%. Compare that with our 33%.

Some people will argue that, if you go to a higher level of taxation, you will adversely affect growth. Is that the case? There is no evidence for it. Growth rates across Europe over the last few years are almost identical between France, Germany and us; there is very little difference at all. There is therefore no evidence that a higher tax rate, within the sort of limits that we are talking about, necessarily adversely affects the rate of growth. In fact, to bring together—maybe to their surprise —my noble friend Lady Noakes and the noble Lord, Lord Eatwell, a factor that is important is the way in which you use the money that you have raised. That is crucial.

Despite what I have just said about the link between taxation and growth, I agree with the noble Lord, Lord Fox, that this is going to be a difficult year. As Paul Johnson from the Institute for Fiscal Studies, perhaps the best and most respected commentator on these matters—I always read him first, anyway—has pointed out, living standards are going to be hit by the increase in inflation for all sorts of reasons, including Brexit, Covid and energy prices, so we are going to have a difficult year. The Chancellor has sensibly opted to hold back some of the money that he could otherwise have spent or saved for use in this period. He therefore has some firepower to deal with any faltering of growth that may occur.

One area where I would be critical is that I do not think that we should have scrapped the £20 uplift in universal credit. I appreciate that the Chancellor has put in a taper, but only 38% of people who receive universal credit are in work. The remainder are out of work and they will lose substantially. The Treasury has said that it would cost a lot to keep the £20 uplift, but the fact is that the poor in this country are very poor and they face a bleak winter. I refer to the excellent speech by the right reverend Prelate the Bishop of Newcastle, in which she referred to the moral code. Archbishop Temple, while not putting in place any particular solutions because of his reluctance to get involved in the technicalities of how we deal with these things, referred to a moral code and, because of that, I think that he would have looked askance at the Government’s failure to keep the £20 extra for universal credit. It is a pity that they have done that; as a rich nation, we could and should have afforded it.

With that blemish, though, I none the less think that the Government’s overall strategy of meeting the extra spending that is necessary, and which will inevitably be followed by extra taxation, has been broadly right.

Budget Statement

Lord Horam Excerpts

Friday 12th March 2021 Lords Chamber

[Lord Horam (Con)]

I, too, warmly welcome our five new noble Lords. I was lucky enough to read economics at Cambridge in the late 1950s, when the influence of the late and great economist John Maynard Keynes and his followers was very high. I have always taken the view thereafter that the first rule of economics is, in all circumstances, to maximise real economic growth. As a politician, the second rule that I have always advocated—I think that Keynes would also have agreed with this—is to make the distribution of the rewards of growth as fair as practically possible. I therefore support the Budget because it has made some real progress in both these areas.

In particular, it began to deliver on the levelling-up agenda. The brutal truth is that several regions of the United Kingdom have now been overtaken in GDP per head by countries such as Slovenia, Poland and Lithuania, which spent decades under the rule of communism. Some people worry about the huge debt that we have piled up to achieve these ends; I do not. Currently, the public debt is about 100% of our annual GDP. If you look over the long history of the UK, that is not far from the average. Nor is there a big problem with financing it while we have an independent Bank of England, which can, in the end, just print the money. The only factor to keep a beady eye on, as the noble Lord, Lord Eatwell, pointed out, is inflation. That is certainly a threat.

My only doubt about the Budget is over the proposed rise in corporation tax, which is also a reservation on the part of the Office for Budget Responsibility. I appreciate that the Chancellor is giving a super-deduction of 130% for those who invest, but this will last only two years. He might have been better to leave the rate at 19%, which compares favourably with our major rivals. Alternatively, he might consider extending the super-deduction for the full Parliament. We have a steep hill to climb as a result of Covid and Brexit—a double whammy—but the Chancellor has had a good shot at getting to first base.

[The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)]

I call again the noble Lord, Lord Mair.

EU-UK Trade and Cooperation Agreement

Lord Horam Excerpts

Friday 8th January 2021 Lords Chamber

[Lord Horam (Con)]

My Lords, like most of us, I imagine, I was relieved when, in the end, there was a deal. But I am afraid that it is not a good deal for the UK. The European Union gets all that it wants on trade and we get nothing on services, which we all now know, relentlessly, are 80% of our economy. That could be serious for our financial services industry. At the moment, we are the financial centre for the European Union. Will the European Union tolerate having its main financial centre outside its ambit? I doubt it. It smells good business and, as a regulatory body, can put the squeeze on us, as was pointed out by the noble Lord, Lord Davies of Stamford. Billions of pounds of trade have already gone and thousands more jobs will follow.

My other concern is inward investment from overseas, where we have consistently outstripped Germany and France in the past. Will that maintain its present level if we are no longer an easy entrance to the European single market? It seems unlikely.

I am afraid that in business we are like a card player who has voluntarily discarded two top cards but still has to play the game, so we have to reinvent ourselves on the economy. As the noble Lord, Lord Bridges of Headley, said, we have to think through our new role. It can be done. We have a great deal going for us, as the noble Lord, Lord Butler of Brockwell, pointed out—I entirely agree with him. There are opportunities, and difficulties always cause opportunities, but let us not underestimate the size of the task that we have set ourselves.

Spending Review 2020

Lord Horam Excerpts

Thursday 3rd December 2020 Grand Committee

[Lord Horam (Con)]

My Lords, I agree with what the noble Lords, Lord Desai and Lord Razzall, said about debt. As an economist, I am a qualified supporter of what is called modern monetary theory. MMT says that the economic policy should balance the economy, not the budget. Worrying too much about deficits is a mistake. Thus, Rishi Sunak is entirely right to borrow mind-blowing amounts of money because the essential task is to keep the economy going. Fiscal hawks will say that this all our money and it has to be paid back. Well no, it is not actually all our money. A lot of it is the Government’s money, which they generate from the printing presses of the Bank of England. We need to offset this only if we run the economy too fast for its natural speed and thus produce inflation. Then, and only then, do we have the need to raise taxes to damp down demand.

The advantage of MMT is that it enables Governments to concentrate on what should be done to improve the economy and society, and not be perpetually bogged down in arguments about how to pay for it, which often prevents necessary action. Of course, the Government of the day have to make wise choices, and, to my mind, the levelling-up agenda should be top priority at the moment. Regional inequality in the UK is much the worst in western Europe. Also, sheer poverty needs urgent action. Even after all the billions spent on Covid, we still have some fiscal space to do the things that need to be done, so we should do them, though we should, of course, prioritise. I hope that the Government have the courage and judgment to follow this path.

Covid-19: Economy

Lord Horam Excerpts

Thursday 4th June 2020 Lords Chamber

[Lord Horam (Con)]

I think that there is a general acceptance that the Chancellor and the Treasury have risen to the challenge posed by the pandemic. I want to make two points.

At the moment, we are borrowing awesome amounts but it is not a unique situation. In 1950, as a result of our efforts in the Second World War, debt was 250% of GDP. That did not prevent Harold Macmillan building 300,000 houses a year in the mid-1950s or, in 1959, winning an election on the slogan “You’ve never had it so good”. In effect, the debt was quarantined—to use an apposite word—and was not repaid for another 60 years. We should do the same today.

There will come a time when tax rises are needed and, when it comes, I hope that we will devise a tax system that is fairer than the one we have at the moment—for example, with the taxation of capital gains and dividends as opposed to wages and salaries—but that point has not yet been reached. Indeed, I think that at the moment there is a case for tax reductions. For example, a temporary reduction in VAT to boost consumption should certainly be considered. I also think that we should relax the social distancing rules, as my noble friend Lord Lamont has suggested.

My final point is that I am very concerned about the post-industrial towns of the north, the Midlands, Wales, Scotland and Northern Ireland. I was born in one of them—Preston in Lancashire. They are proud towns with a proud history but they need help. I am referring to the levelling-up agenda, bringing them more skills and more infrastructure. Therefore, when the Minister winds up this debate, I want him, once again, to give a commitment that the levelling-up agenda will remain at the forefront of, and central to, our economic plans.