Economy: Deficit Reduction

Lord Low of Dalston Excerpts

Thursday 28th June 2012 Lords Chamber

[Lord Low of Dalston]

My Lords, the Minister has referred to the reduction of the deficit from 11% to 8% of GDP. However, is it not the case that the deficit on current spending has hardly changed over the course of the last year and that almost all the reduction in the total deficit has come from cuts in investment spending?

[Lord Sassoon]

No, my Lords, that is not correct. Last year, Government departments came in with underspends of some £6 billion—and that was certainly not all capital spending. What my right honourable friend the Chancellor was able to do this week by cutting fuel duty, putting £550 million back into the pockets of hard-working families, illustrates how we are able to use underspends and put them to very good use where they are most valuable to our people.

Debt

Lord Low of Dalston Excerpts

Tuesday 29th May 2012 Lords Chamber

[Baroness Randerson]

My Lords—

[Lord Low of Dalston]

My Lords—

[The Chancellor of the Duchy of Lancaster (Lord Strathclyde)]

My Lords, we have not heard from the Liberal Democrat Benches, so perhaps we can now.

--- Later in debate ---

[Lord Higgins]

My Lords—

[Lord Low of Dalston]

In the debate on the Queen’s Speech, the noble Lord assured the noble Lord, Lord Skidelsky, that sustainable recovery was already under way, as he has again said this morning in response to the noble Lord, Lord Barnett. How does he reconcile that with the fact that we are actually plunging deeper into recession? Is this recession denial?

[Lord Sassoon]

My Lords, if one looks, for example, at job creation over the two years since the election, the private sector has created more than 600,000 jobs at a time when some 400,000 public sector jobs have been lost. The latest figures show that unemployment is at a seven-month low. Of course we would like to see growth sustained and at a higher level, but we should not run down the very considerable achievements of the private sector in generating jobs and exports in the economy.

Queen’s Speech

Lord Low of Dalston Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Low of Dalston]

My Lords, I, too, congratulate our two maiden speakers, and have pleasure in adding my word of welcome to the House. I was astonished still to see a House of Lords reform Bill in the gracious Speech after the local election results. As the noble Lord, Lord Bilimoria, said earlier, a clearer case of fiddling while Rome burns it would be hard to imagine.

But to Rome burning, which is the matter in hand. It is hard to say anything that has not been said many times over here, but as there is little sign that the Government are listening it might just be worth saying again. We have heard about the enormity of the challenge facing the Government on taking office, and that is not denied, although there might be dispute about the reason for it. What is at issue is the right way of going about dealing with it. To begin with the unpalatable but ineluctable facts, the Government’s policy is not working. I am not just saying that as some kind of parti pris politician or economist; I am just saying what any fool knows.

After gathering momentum out of recession under the last Government, the economy has essentially seen no growth at all since the autumn of 2010. Output is still more than 4% below its peak in 2008 and probably will not regain that level until some time in 2014. This is a far longer period of depressed output even than the great depression. The official forecast at the time of the emergency Budget of June 2010 was that we would now be growing at over 2.5%, with unemployment falling sharply. Instead we see not just low growth but continued high deficits as well. Indeed, in the past year, the deficit on current spending hardly changed, with almost all reduction in the total deficit coming from cuts in investment spending. While the deficit may have edged down, however, net debt has risen from 43.5% of GDP in 2008-09 to 66% in 2011-12, and is set to reach 76% in 2015-16.

We have debated the Government’s economic policy on a number of occasions in this House over the last couple of years, and a number of your Lordships have been concerned to argue that it was unlikely to work, but they were forced to admit that they just did not know. Now, however, with the advent of double-dip recession, we do. I do not know whether the Minister will try to pretend otherwise this evening. However, if he does, we will know that he is just whistling in the dark for we have the advantage of a sort of controlled experiment on which to draw. While Europe has been following the path of fiscal contraction—most notably, of course, in the UK, with the recessionary consequences that we all know about—the USA has been applying a fiscal stimulus, with startlingly different results. People argue about the extent of the stimulus and just how startling the difference is, but that there has been a stimulus leading to growth of around 2% per annum is undeniable. Therefore, we have a clear correlation here: with contraction goes recession; with stimulus goes growth.

Last October, at Question Time, I put it to the noble Baroness, Lady Wilcox, that the Government had got their policies in the wrong order, and asked:

“Instead of pursuing deficit reduction in the short term and growth in the medium to longer term, should they not be pursuing growth in the short term and deficit reduction in the medium to longer term?”.—[Official Report, 11/10/2011; col. 1526.]

With different emphasis, everyone recognises this now and is calling for a greater degree of flexibility. Business is calling for it. Even the markets—the Government’s cover for doing nothing—are calling for it. In truth, the Government recognise it: hence the various plans for growth with which we have been regaled over the months, which have all come to naught and which are bound to come to naught while the Government go on pursuing their self-defeating policy—what the noble Lord, Lord Skidelsky, dubbed their insane policy a couple of Queen’s Speeches ago—of retrenchment and austerity, which is essentially antithetical to growth.

Indeed, the Chancellor has had to extend the horizon for reaching his deficit reduction target by two years and allow debt to rise by £150 billion: hence we now have the ultimate irony of the ratings agencies putting the UK on negative alert. Clearly, the Prime Minister has learnt nothing from his time as special adviser to the noble Lord, Lord Lamont, who, in his recovery budget of 1993, explicitly postponed fiscal retrenchment until growth had been given a chance to take hold. In fact, the Government did not start cutting the structural deficit at all until 1994-95, by which time the economy had been growing for 18 months—by then at a very healthy pace of over 3%.

The Government say that you cannot borrow and spend your way out of recession. It is usually said that you cannot do so at an individual level but that you can do so macroeconomically; actually, you might be able to at an individual level if you happened to strike lucky on the 3.30 or the lottery. However, at the macroeconomic level you can borrow to invest in jobs and growth—for some people, this is counterintuitive—thus creating a virtuous circle rather than the vicious one that we are in at the moment, with the bulk of the cuts still to bite and incalculable damage already being done to the fabric of our society. The National Institute of Economic and Social Research has calculated that at current very low rates of interest you could finance extremely cheaply—for example, with the revenue raised by the “pasty tax”—a £30 billion programme of infrastructure investment on things such as roads, schools and hospitals, which have been cut by half over the past three years and will be cut still further over the next two. What you cannot do is cut, tax and save your way out of recession.

I asked an economist friend why he thought that the Government kept pursuing this insane policy, and he replied, “Well, they like cutting, don’t they?”. This was rather confirmed by the noble Lord, Lord Sassoon, on 22 March, when he said:

“As the Government, we have to continue to reduce the burden of the state. If we do that, the economy will flourish”.—[Official Report, 22/3/12; col. 1031.]

So what takes the place of the state? Is it the big society? But that is being cut too and we should remember that it was the state that had to step in to remedy the inadequacy of the big society. The other possibility is that the PM and Chancellor have just painted themselves into a corner with their rhetoric about not spending your way out of recession. However, as we have seen, the markets are now calling for a more flexible approach and the agencies have put the UK on negative alert.

One thing that the Government are good at is fixing Labour with responsibility for the crisis, and we have heard more of that this afternoon. However, that debases the currency of debate. If the eurozone crisis has a part to play today, the global crash must be accorded a role in 2008. What is sauce for the goose is sauce for the gander, and the Government should admit that they would have had to do much the same as Labour or else we would all have gone under. It is disappointing that Labour has not made a more convincing fist of pointing the way to an alternative. Until it can, disillusion with the political process will grow and Mr Galloway will continue to find a ready ear for his message that what we are witnessing is a crisis of capitalism in which the poor are expected to carry the can for the greed and mismanagement of the capitalist class. The Greeks are indicating that they have had enough. Other countries will not be far behind. The zeitgeist is shifting as between austerity and growth.

I end with three predictions. First, the first quarter figures will be revised upwards to show that we are not in a double-dip recession. Secondly, the next three quarters will show zero growth, give or take. Thirdly, unless the Government change course pretty soon, they will be swept from power at the next election.

Child Trust Fund

Lord Low of Dalston Excerpts

Monday 28th February 2011 Lords Chamber

[Lord Sassoon]

I am grateful to my noble friend, because we are working on that. We have been talking, for example, to potential junior ISA providers. They have been showing some interest, I am pleased to say, in contributing to a scheme in that way. We need to continue to work on that, but if any financial institutions, charities or other groups are interested in being part of that, we would be very pleased to discuss it with them.

[Lord Low of Dalston]

My Lords—

[Baroness Sherlock]

My Lords—

[Noble Lords]

Cross-Bench.

[Lord Low of Dalston]

The Minister will be aware of local authorities’ inconsistent fulfilment of their duties under the Children (Leaving Care) Act and the inconsistent provision, particularly as regards accommodation, made for children and young people leaving care. What will the Government now do to make good the deficiency in provision for that particularly vulnerable group, whose vulnerability is at its greatest at the point of leaving local authority care?

[Lord Sassoon]

My Lords, we are straying a bit from the Question and from my area of responsibility, but I appreciate that difficult issues are involved with those who are leaving care, which is why additional funding in the “children in care” line of the new local government formula is there to encourage local authorities to use the staying-put models of practice. From April 2011, we will be implementing provision in the Children and Young Persons Act 2008 that allows young people to resume entitlements to leaving care support up to the age of 25, where they take up education or training.

Comprehensive Spending Review

Lord Low of Dalston Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Low of Dalston]

My Lords, I hope that the Minister will have got the message that we are beginning to get rather tired of the partisan rhetoric about train crashes and the like, to which we are habitually treated as a characterisation of the situation that the coalition faced on coming into office. Such rhetoric is, for one thing, exaggerated and, for another, quite wrong. I would expect a greater degree of clear-sighted objectivity from this House in considering the origins of our present difficulties, which clearly lie with the excesses of finance capitalism rather than with the Labour Government. It was Gordon Brown, not George Osborne, who brought us back from the brink. Gordon Brown may not have been a very good fox, but he was a pretty good hedgehog—noble Lords will remember that the fox knows many things but the hedgehog knows one big thing.

I have taken some trouble, with the help of the Library, to try to get an objective handle on our financial position, amid all the claims and counterclaims that are made. As always, it is not difficult to use the statistics selectively so people will refer to structural deficit or debt and use OECD and G7 countries as the comparator as best suits their argument. The most dispassionate assessment that I can make is that our structural deficit was larger than that of most OECD and G7 countries as we entered the recession and our level of public sector net debt was higher than that of most OECD but not most G7 countries—not the big ones. However, our total public sector borrowing requirement was a manageable 2.6 per cent of GDP, similar to that inherited from the previous Government, and the level of public sector net debt was actually lower. The level of indebtedness has since gone up sharply for what I would argue were unavoidable reasons—much more unavoidable than the measures contained in the comprehensive spending review.

Those measures are intended to reduce the debt, but the results of attempts to do the same thing by similar means in the 1920s and 1930s are not encouraging. Between 1919 and 1923, national debt rose from 135 per cent of GDP to 180 per cent; between 1929 and 1933, it rose from 160 per cent to 180 per cent. The OECD says that about half of fiscal contractions in the EU in the past 30 years have led to growth in the economy, and it cites Canada, Denmark and Ireland as examples—though Ireland might not provide such a good model at present. There was recovery following the fiscal contractions of 1931 and the early 1980s, but in a very good article in this week’s New Statesman, the noble Lord, Lord Skidelsky, argues persuasively that that had much more to do with the abandonment of the gold standard and the loosening in monetary policy than with fiscal consolidation.

Whatever view you take, it seems that the macroeconomic judgment of the CSR is just that—a judgment—and some would say it is a gamble. Whatever it is, the proposed measures are certainly not unavoidable. As the noble Lord, Lord Haskel, said, they put the interests of bankers, markets and the institutions of finance capital—what used to be referred to as the ruling class, although that perhaps makes me even more of a lefty than the noble Lord, Lord Haskel—before the interests of the ordinary citizens of this country. To be honest, it does not seem to me that Labour’s ideas are a whole lot better; I would describe them as “coalition-lite”. At all events, in circumstances when the harm done to the fabric of our society by the CSR is palpable and certain but its benefits are at best speculative, I agree with the noble Lord, Lord Haskel, that it is incumbent on the Government to search for an alternative strategy that subordinates the interests of the financial system to those of ordinary people.

The financial system is only a means, not an end. Instead of terrorising us with spectres of debt so that we forget our own interests, the Government should be demystifying the debt, a good part of which is owed only to ourselves in the form of pension funds and the like—as the noble Lord, Lord Foulkes, clearly demonstrated—and is not nearly as astronomical as we are asked to believe. At the end of the Second World War, according to the UK Debt Management Office, the national debt stood at 252 per cent of GDP, as opposed to a mere 50 per cent or so at present. That debt was paid off over a much longer period than is currently proposed and, during that period, we managed to implement the Beveridge reforms and found the National Health Service. That is the sort of framework in which we ought to seek the solution to our present difficulties.

Moving on from the strategy to the specifics of implementation, although a great deal could be said—I associate myself with the remarks of the noble Baroness, Lady Campbell, about the withdrawal of the mobility component of DLA from those in residential accommodation—I shall concentrate in the short time that I have left on the Government’s decision to limit contributory employment and support allowance to 12 months. I believe that that will cause great hardship. The Government’s decision fails to recognise three key points. First, those who have paid into the system through tax and national insurance have a right to expect that, if they become sick or disabled, the benefits system will support them as they come to terms with their impairment, gain access to rehabilitation services, retrain, learn new life skills and then move towards work. They paid in in the belief that they could rely on such support. The proposed change has not been consulted on and is a radical redrawing of the contract between the citizen and the state.

Secondly, it is completely arbitrary to say that everyone must find work within 12 months or lose a benefit for which they have contributed. Every individual is different in their journey towards work. Most important of all, there are simply not the jobs to enable everyone on ESA to get a job within 12 months. Since 2008, long-term unemployment has almost doubled to 797,000 while vacancies have fallen to 467,000. That leaves a deficit of 330,000 jobs. The impact is therefore clear. The Government will be means-testing large numbers of people on the work programme and ending their contributory ESA before they find work. Not only is that sadistically harsh, but it comes at completely the wrong time, as the noble Baroness, Lady Kennedy of The Shaws, has said. It is also self-defeating, and will completely undermine the welcome objectives set out in 21st Century Welfare, which, as the noble Baroness, Lady Hollis, has said, we all support. I will not be surprised if the time limiting of ESA, together with the changes to DLA and housing benefit contained in the CSR, come to be totemic symbols of coalition heartlessness such as the ending of free school milk in an earlier age.

Finally, the majority of the 1.5 million incapacity benefit claimants who are due to be migrated on to ESA over the next three years will face the same 12 month limit and means test. That is because the majority of those are expected to pass the new work capability assessment and be allocated to the work-related activity group. The vast majority of IB claimants have been on the benefit for five years or more, which means that they have complex needs in terms of making the journey back to work. Complex needs require time to address them; the time-limiting policy completely disregards that. Have the Government made any assessment of the proportion of claimants who will qualify for income-based support as they come off ESA? I should be grateful if the Minister could enlighten me.

The damaging and unjust consequences of time limiting ESA are just one of many reasons—the noble Baroness, Lady Hollis, has instanced a string of further examples of perversity—why the Government should seriously rethink the CSR. If they refuse to do so, I would not mind betting that they will be forced to do so in due course.