Economy: Public Finances

Lord Newby Excerpts

Tuesday 24th March 2015 Lords Chamber

[Lord Vinson]

To ask Her Majesty’s Government, further to the Written Answer by Lord Deighton on 13 February (HL 4675), what plans they have to reduce the deficit and to make the public more aware of the effect on living standards of the United Kingdom’s debt servicing costs, which are currently £766 per annum per person or £1,841 per household.

[Lord Newby (LD)]

My Lords, the Office for Budget Responsibility forecasts that this year the Government will cut the deficit in half as a percentage of GDP from its post-war peak in 2009-10. It is forecast to fall every following year, reaching a surplus in 2018-19. The Government set out in the Budget document that reducing debt as a share of GDP will help to control debt interest and reduce the burden of these costs on future generations.

[Lord Vinson (Con)]

I thank the Minister for his very sagacious reply. Does he agree that, if the public were more aware of our huge national indebtedness, they would be more receptive to the need to put it right? So when he is a Minister in the next Government, will he ensure that every effort is made to encourage the nation to save more, export more, import less and reduce subsidies generally, not least the £14 billion a year net that we give to the European Union, which should be treated as overseas aid?

[Lord Newby]

My Lords, I thank the noble Lord for his optimism about my future career prospects. I agree with what he says about savings in particular. That is why the Chancellor announced at the Budget a new personal savings allowance of up to £1,000 for basic rate taxpayers, more flexibility in the operation of ISAs and a new Help to Buy ISA for first-time homebuyers.

[Lord Davies of Oldham (Lab)]

My Lords, is the Minister aware that Labour has today made a clear pledge to the British people that in government we will not raise the rate of VAT nor extend its coverage? Will the Minister, close as he is to the Chancellor, give a similar pledge to my party; or will the coalition parties follow the pattern of 2010, with the Liberals warning of a VAT tax bombshell and the Tories staying silent—and, in the weeks after, in coalition, increasing VAT from 17.5% to 20%?

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[Lord Newby]

My Lords, any commitment by the Labour Party would have a lot more credibility if we had even the vaguest clue as to how it was going to get the deficit down.

[Lord Bilimoria (CB)]

Would the Minister agree that one reason for the credit crunch and the financial crisis seven years ago was the prolonged low rate of interest of 5% a year? Now that the Government have extortionate debt servicing costs at a 0.5% base rate, what plans do they have when interest rates go up, as they will? How will they service those costs, and at what rate are they borrowing for long-term debt at the moment?

[Lord Newby]

My Lords, one of the main reasons why we need to get debt under control is that the long-term borrowing costs are very significant. Whatever the interest rate, even with current low rates of interest, we are spending 2.5% of GDP per annum on servicing it, significantly more than we spend on the aid budget. Because interest rates are low and because we have a very credible economic policy, we have been able to borrow long term at low interest rates—but none the less we need to get the debt down because we want to get the borrowing costs down.

[Lord Deben (Con)]

Does my noble friend accept that the Government’s change of heart, which has meant that every taxpayer now has a proper breakdown of where their tax goes, is an enormous advantage? If you read it carefully, you see that the cost of our membership of the European Union is extremely small, very good value and that is where we should stay.

[Lord Newby]

I completely agree with the noble Lord.

[Lord Grocott (Lab)]

In the interests of clarity, when the Minister refers to the Budget, is he referring to the George Osborne Budget or the Danny Alexander Budget?

[Lord Newby]

My Lords, I was referring to the Government’s Budget.

[The Earl of Listowel (CB)]

My Lords, does the Minister agree that the public should also keep in mind the fact that nearly half of local government spending is on adult social care and the care of children, and that includes 14.63% on children? While local government has risen to the challenges to its funding over recent years, there is real concern that it cannot take much more.

[Lord Newby]

My Lords, the way in which we ensure that local government and all other aspects of government are funded effectively and appropriately is by having a very strong, thriving, sustainable economy. The fact that our growth rate is the highest among the G7, unemployment is down and employment is up, is the biggest long-term guarantor of a sustainable funding basis for local government and, indeed, all other forms of government expenditure.

[Lord Lea of Crondall (Lab)]

My Lords, the noble Lord, Lord Vinson, mentioned exports as if they were doing rather well. I do not think that they were mentioned in the Budget but does the Minister agree that our trade balance is a disaster, as is our productivity, which has not grown at all since 2010? Would not the Government be better served by looking at these fundamental factors in the real economy?

[Lord Newby]

My Lords, last month’s trade figures were the best for 15 years. No doubt the noble Lord would say that that is not good enough. However, we have spent more money more effectively through UKTI in building up our trade with less traditional countries such as China. Further support was given to that in the Budget.

[Lord McFall of Alcluith (Lab)]

My Lords, in 2010 the Government inherited £786 billion of debt. Five years later that figure is now £1,540 billion—almost double. The Chancellor in his Budget said that the Government were paying the debt down. Was he telling the truth?

[Lord Newby]

My Lords, it is no secret that this Government have borrowed over half a trillion pounds as we have slowly got to grips with the mess we inherited. Debt has come down by about 1% of GDP for each year we have been in government—the level of consolidation that the IMF says is most appropriate in these sorts of circumstances.