Autumn Statement: Economy
Debate between Lord Hunt of Chesterton and Lord Higgins
Lord Higgins (Con)
My Lords, it is a particular pleasure to follow the right reverend Prelate, not least because one of his distinguished predecessors as Bishop of Birmingham was a very good and kind friend to me when I was an undergraduate at Cambridge.
I am very glad that my noble friend Lord Young of Cookham has taken on the responsibility on the Front Bench. The House as a whole will benefit from his very considerable experience. He pointed out that he may not be as belligerent as he was in the Commons, but his expertise will be of benefit to us all.
No one can imagine that the new Chancellor of the Exchequer has anything like an easy task, given the immense problems with our poor productivity performance, the balance of payments and, not least, the overhanging shadow of Brexit. Then, of course, there is the continuing problem of the deficit. In response to some of the remarks made opposite, I am bound to say that the previous coalition Government and then the Conservative Government could not have continued to allow the deficit to go on and on as it was, living far beyond our means and putting an ever-increasing burden on future generations. The determination with which they tackled a very difficult problem was absolutely essential. Of course, it will remain a problem—and I will come to that in a moment.
We are at risk of separating monetary policy from fiscal policy in a rather dangerous way. Of course, the independence of the Bank of England is a good thing, but we do not really have any debate that brings the two things together. I have been critical in the past of the present Governor of the Bank of England. I thought his efforts at forward guidance were misled, and anyone who followed his advice immediately would probably have lost money. Having said that, he has acted admirably in warning of and reacting to the dangers of Brexit. The reason why Brexit immediately after the referendum did not work out as badly as might have been thought is to a significant extent the result of the action taken by the Governor of the Bank of England. But we should be clear that he is faced with a very real dilemma. He wants to keep interest rates down to stimulate the economy; on the other hand, the downward pressure of Brexit on the exchange rate and the inflation that that would generate means that he will have to put interest rates up. Taking those two things together, he has very limited room for manoeuvre, so fiscal policy is all the more important.
The crucial question we have all been debating is whether the Chancellor has made the right Budget judgment. We are indebted to the OBR for its report, in which it points out:
“With our underlying borrowing forecast higher—and policy decisions pushing the deficit up further—the Government’s three existing fiscal targets would all be missed by considerable margins”.
It then goes on to comment on the fact that the old fiscal mandate is clearly no longer appropriate. The Government therefore propose a new draft charter for budget responsibility, which will set out the situation now. That is clearly more relaxed than the previous situation, and I am sure it is the right judgment, but it is very difficult at this stage to know exactly what should happen as we go forward. Unfortunately, the OBR is no help on this because, when it asked the Government to indicate what “Brexit means Brexit” meant, alas, answer came there none. Nor did the Government give the OBR any indication about access to the single market on the one hand, and immigration on the other. There is a tendency for people to think there is a trade-off between the two, but for business, both are absolutely essential. Alas, the OBR has no idea what the Government’s position will be. Having some degree of fiscal relaxation is probably the wisest thing for the Chancellor to do in the present circumstances.
Given that I have been concerned with monetary as well as fiscal policy, perhaps I might mention that the new Chancellor, in co-operation with the governor, might at some stage want to indicate what will happen to the vast number of assets purchased as part of the quantitative easing programme. They are clearly never going to be reissued, because the maturity dates and rates of interest are not appropriate. They are hanging around in the bubble—that is the fashionable word—with no one doing anything about them. At some stage there ought to be clarification as to what we are going to do on that.
So we have a more relaxed fiscal policy, which I believe is the right approach. What I really welcome is the greater emphasis on investment in infrastructure with a view to increased productivity and, in particular, the proposed increase in expenditure on housing and roads. Nearly 20 years after I ceased to be a Member of Parliament for Worthing, at which stage it looked as though we were going to get an A27 bypass any minute, I still have hope that at some stage it will actually be built. I got stuck there for an hour the other night.
Lord Higgins
Well, that would be one idea—and, to some extent, we have done so. None the less, we will need to borrow to invest, and the problem with that is that it makes the deficit look bigger. But we do not actually define clearly the component parts of the deficit. Here, I am glad to have the support of the Liberal Benches. Borrowing because taxes are not enough or other items of expenditure are too much is not the same as borrowing to increase productivity and improve investment. Some time ago, some of my former constituents and I discussed subject of war loans, and I begin to wonder whether we should not finance this by issuing, say, housing bonds, just as we used to issue war loan bonds, so that we can distinguish clearly between those two different kinds of finance, and different parts of the deficit, which all come into it but are really very different in terms of impact.
We must all wish the Chancellor well. It is going to be a very difficult period ahead for him. The debate today has been extremely helpful and I am sure it will continue to progress. We must all consider this issue very clearly. Although today’s debate has been very sophisticated, I begin to wonder whether this is the ideal format for discussing the OBR’s statement. If we are going to say that we must have a totally new contract as far as the deficit is concerned, a debate in the Moses Room, with less pressure on time, might be more appropriate. Generally, I welcome the Chancellor’s statement. In the circumstances, and given the uncertainties created by Brexit, it is probably as good a shot at it as he could make.