Budget Statement

Lord Palumbo of Southwark Excerpts

Tuesday 14th March 2017 Lords Chamber

[Lord Palumbo of Southwark (LD)]

My Lords, if my memory serves me correctly, the noble Baroness used the word “cautious” in the very first sentence of her extremely eloquent opening speech and “prudent” in the second. She then went on to talk about the budget deficit being reduced by two-thirds. With respect, I am not entirely sure that it is apposite to juxtapose what has happened with the budget deficit with the words “prudent” and “cautious”.

The noble Baroness then went on to say that we were “within sight” of bringing public spending under control. The numbers have already been very well rehearsed, so I will not go into them again, but will make two points. The noble Baroness will no doubt recall her predecessors saying more or less exactly the same thing on numerous occasions, and of course she will also recall that exactly the opposite has happened. Indeed, with Brexit, Europe and other world problems, I am not sure that one can confidently say anything is within sight. The other point, of course, is the difference between balancing the budget and reducing debt.

The noble Baroness went on to describe the tax hike on the self-employed as “responsible and balanced”. Of course, it can be seen as such; alternatively, one could say that the responsible and balanced thing to do is to encourage our army of entrepreneurs as much as possible as we sail into the choppy waters of Brexit. There was then a very helpful section on the treatment of ISAs, dividends and business rates—all welcome relief. The noble Baroness described this tax treatment as “sustainable and fair”. Of course, again, it can be seen as such, but an alternative approach might be a wholesale look at our tax code, which the noble Lord, Lord Bilimoria, spoke about very eloquently, with a view to simplifying it and making it easier to do business, especially with Brexit on the horizon.

The noble Baroness then talked about the welcome £2 billion for local councils to take the pressure off the NHS. She will perhaps recall similar fractional tinkering at the edges of vast budgets—with very similar amounts, as a matter of fact—but somehow problems with welfare and health seem to persist. An alternative approach would be to recognise the need for a wider, more uncomfortable debate on the future of public spending. The noble Baroness went on to talk about the National Productivity Investment Fund, referencing £130 million for traffic pinch points to drive national productivity. The fund is a welcome development, but how it is used and driven is another thing. In reference to housing, which is of course part of infrastructure, the recent White Paper was excellent in its analysis but silent on radical solutions such as authorities selling land with existing consents. One hopes that the very encouraging investment in vocational education will be driven and effective.

The noble Baroness concluded by saying that the Budget dealt carefully and proportionately with the problems we face. This leads to the point I wish to make. I entirely understand the need for caution and to focus on Brexit. I also acknowledge the Chancellor’s reputation for competence, hard work and decency. But I have also found that sometimes, a slow and steady approach risks creating the every conditions one is seeking to avoid. The Chancellor’s job is not just to manage competently and to let borrowing and other events take their course, but to meet the problems of Brexit, health and welfare funding, and the national debt, with courage and determination, to put forward new ideas which inevitably involve risk while accepting that some will fail, to move the national debate forwards and help change its tone and direction, to show a bold spirit alongside his many other qualities, and to create a culture which allows for fresh thinking and new hope and brave decisions. All of this would be to embrace the challenge of his great office and would allow him to be recognised in years to come as a truly reforming Chancellor. I appeal to the noble Baroness to subtract caution and add a little more boldness to the Chancellor’s thinking.

Autumn Statement

Lord Palumbo of Southwark Excerpts

Thursday 3rd December 2015 Lords Chamber

[Lord Palumbo of Southwark (LD)]

Once again, my Lords, we meet to debate a Statement which consists of fractional tinkering, where a billion here and a billion there are magicked from thin air, where we know that none of it really adds up, makes sense or will come to pass, but there is no other way in western democratic politics. So I suggest an idea to the Minister for our next debate: no numbers. Instead, it should be a debate about what principles should guide our thinking. For example, do we believe that behaviour and consequences of behaviour should be connected? Fifty-nine thousand health appointments are missed daily in the UK and £16 billion is spent annually on conditions related to obesity. Should there be a financial sanction?

There are 11.2 million pensioners in the UK, including my esteemed uncle, who is sitting here today. Of these, 13% live in relative poverty, but millions are either comfortable or affluent. Yet all are entitled to the same benefits. Does means testing make sense? By 2020, health and welfare will account for 70% of total spending, including debt interest, and the country will have been in deficit for 19 years. Yet debate focuses on tax credits, a mere blink of a numerate eye in the overall budgetary quagmire. But it is good political sport and a distraction from unpleasant reality.

Last week, the Chancellor made great play of his housebuilding plans, echoing his rousing conference peroration: “We are the builders”. Since 2010, around 600,000 houses have been built, half the number needed. I shall not mention Heathrow or HS2. On any objective basis, the Conservatives are most emphatically not the builders. Yet in modern democratic politics, it is possible to say whatever you like. Throw in a few pictures of the Chancellor posing trimly in a hard hat and it is so.

This is the backdrop to our deliberations: another Statement, another wave of the magic wand, another declaration of triumphant success. It is a system where it is impossible to link behaviour with consequences of behaviour, where soundbites triumph over truth, where instead of saving the OBR windfall against a certain future recession it is used desperately to plug financial holes—like wattle on a monsooned mud hut—and where the Chancellor can stand on the steps of his metaphysical counting house and declare if he so chooses that the moon is made of cheese. Maybe the OBR would support even this contention.

This noble House is sometimes criticised for the fact that we are unelected, but perhaps this gives us the ability to debate the real issues. May the Minister summon the powers of his northern independent spirit to consider this idea.

Budget Statement

Lord Palumbo of Southwark Excerpts

Tuesday 21st July 2015 Lords Chamber

[Lord Palumbo of Southwark (LD)]

My Lords, in September 2007, George Osborne announced that a future Conservative Government would match Labour’s spending proposals. He promised real increases in spending on public services year after year. There was not the slightest mention of spending restraint. Just six months later, this position was completely reversed. Labour, he said, had failed to fix,

“the roof when the sun was shining”,—[Official Report, Commons, 13/3/08; col. 431.]

and was to blame for everything which had gone wrong. In June 2010, the newly elected Chancellor opened his first Budget speech by saying:

“This emergency Budget deals decisively with our country’s record debts”.—[Official Report, Commons, 22/6/10; col. 166.]

He promised to pay for the past and plan for the future, to eliminate the deficit within five years and that debt would peak at 70% of GDP in 2014. In the event, the deficit target was overshot by £165 billion and borrowing will rise to 80% of GDP in this financial year. As recently as March, the Chancellor promised he would run a surplus by 2019. Only four months later he announced that this had been pushed back—yet again, and for the fifth time—to 2020 and that the Government will borrow £18 billion more over the next five years than he had announced just four months ago.

I acknowledge that economic forecasting is as much art as science and that, five years on, the Chancellor is more experienced in a role for which he had no training. But there seems to be a gulf between rhetoric and reality. As a result, the opening words of the Chancellor’s July Statement—

“This is a Budget that puts security first”—[Official Report, Commons, 8/7/15; col. 321.]

do not fill me with hope. It is also difficult to reconcile this aim with the plethora of bribes offered by his party at the last election. Over the five-week campaign, it promised to increase health spending, give seven-day access to GPs, introduce postgraduate loans, raise the income tax threshold, offer starter homes at a discount, extend the Help To Buy scheme, create Help to Buy ISAs, offer social housing for sale, extend free childcare, raise the inheritance tax threshold, increase the 40p tax threshold and, absurdly, legislate against a rise in VAT, NI and income tax—I could go on. It seems that giveaways and democracy remain two sides of the same coin; and the means of paying for it all is, of course, debt. We should not forget that this is the Chancellor who doubled national debt from £700 billion to £1.4 trillion over the last Parliament. If he achieves a surplus in 2020, it will have taken a decade to register a single year in which this country is living within its means.

I accept that whether to extend out the deficit is a matter of judgment. But how would we perform in the event of another recession, financial shock or other negative global event while saddled with these current levels of debt? So many risks remain: the rise in interest rates which has recently been signalled; the continuing fragility of the eurozone, not only in Greece but in countries such as Italy, France and Spain; the future of the euro itself; and a possible shock from China, Islamic terrorism, the problems in the Middle East and a resurgent Russia. With a majority Government, there was an opportunity in this Budget to take bold action to tackle Britain’s long-term problems and genuinely to put economic security first. But, as usual, politics got in the way, so there was a tweak here and a tinker there. The Chancellor did not reveal £12 billion of welfare cuts as expected, but just £7 billion, and large amounts of spending have been left untouched because of political expediency. As a result, total projected borrowing has increased by almost three times as much as welfare cuts.

In political terms, the Budget may have been a triumph in that the Chancellor has skilfully positioned his party in the centre ground and himself as its next leader. Politically, he gets a pat on the back but, economically, he gets a slap on the wrist, because the consequences may have far wider and more damaging implications for the British people.

Autumn Statement

Lord Palumbo of Southwark Excerpts

Thursday 4th December 2014 Lords Chamber

[Lord Palumbo of Southwark (LD)]

I add my congratulations to the noble Lord, Lord Rose, on his excellent maiden speech. We look forward to his future muscular contribution.

The Autumn Statement goes like this: the Chancellor stands up and says what a wonderful job he has done; the Opposition respond with a ritualistic attack. There is no sanction for the Government having missed all their targets. The “would-be Prime Minister” is not dismissed for showing basic economic illiteracy and the Prime Minister is not censured for his previous comment, “We are paying down Britain’s debts”.

Let us look at some of the promises made versus the outcomes achieved. We were promised a deficit of £35 billion this year; it is £100 billion. We were told that debt would fall to 67% of GDP next year; now the OBR tells us that it will be over 80%. At last the welfare beast was going to be slain with £19 billion of promised savings; instead spending this year will be the same in real terms as in 2010. We were promised that there would be restraint in public spending; this year it is 42.5% of GDP, higher than Alistair Darling planned in his final Budget, and next year it will be £732 billion which, accounting for inflation, is almost exactly the same as in 2010. Any one of these failures would be instantly sackable events in the private sector but bear no immediate penalty in democratic politics. As a businessman, it seems to me that in the political world there is a disconnect between words and deeds.

We can debate the Autumn Statement all we like but the reality of our country’s financial situation is this: government debt is now £1.4 trillion, double its level in 2010; unfunded pensions are double this amount; bank debt is even more; and private sector debt—mortgages, households, business—adds another layer. Then there is debt—off-balance sheet/private finance initiative—which politicians like to pretend is not debt, even though it really is. On any basis, our debts are 600% of GDP. This makes us one of the most indebted countries in the world.

Given this, it might be worth looking at the system which has produced these results. It strikes me that the skills a politician needs to succeed in a democracy are increasingly irrelevant to those required to run a country. In a media-obsessed world, voters want politicians with good personal appearance, likeability and communication skills and, of course, who promise nice things. In what way are these connected to running a country? What the country needs are skills in getting things done, managing people, finance and economics and, most of all, total honesty, the basis for solving all problems.

However, I do feel a certain sympathy for my colleagues in the other place. As we all know, in a modern democracy it is impossible to speak hard truths and get elected. For example, we all sense that the extra £2 billion which the Chancellor has promised for the NHS will not solve its long-term problems. It needs wholesale reform, but who dares say so? To say so risks the accusation of failing to support the NHS, or worse, of advocating its privatisation. This is the great hypocrisy of our times. People complain about the dishonesty of politicians, yet any politician who spoke the truth would be annihilated in the polls. “All truth is good”, goes the proverb, “but not all truth is good to say”. This is what Jean-Claude Juncker meant when he said, “We know what to do, but we don’t know how to get re-elected once we’ve done it”.

So our politics is stuck: benefits, votes, debt. Europe has 7% of the world’s population but 50% of its welfare spending. Is this sustainable? What happens if it is not? Over the past 50 years, voters have been given ever more benefits and public services. But here is the great paradox of our time—nobody is happy. People today loathe politicians—we can see it all around us and in other European countries—but no one questions the system in which politicians operate. People hate the practice but never question the theory. I wonder whether one day the Autumn Statement and tit-for-tat debate which follows will be held to serve no purpose, politicians will be held to account in the world of financial reality rather than that of electoral politics, it will not be possible to miss targets or spin figures, cliché and ritualistic attack will no longer be acceptable, and excellence, ability to deliver and doing things properly are held to be the greater virtues. Let us hope that, should that time come, it will not be too late.

Budget Statement

Lord Palumbo of Southwark Excerpts

Thursday 27th March 2014 Lords Chamber

[Lord Palumbo of Southwark (LD)]

My Lords, there is a scene in Quentin Tarantino’s film “Pulp Fiction” in which the heroine collapses into a drugs overdose. Dramatic action is needed, so the hero stabs her heart with an adrenaline shot. Between 1986 and 2008, the banking system overdosed. Bankers were out of control; politicians failed to regulate the system. The result, as your Lordships know, was a financial heart attack. Since then, the system has had continuous doses of adrenaline to its heart via quantitative easing.

Recent economic data appear to show a recovery. As we have heard, the economy is growing, the deficit is down, inflation is improving and employment is rising. We seem to be on the road to recovery, but the recovery is modest relative to the amount of financial medicine which has been administered. GDP is still 1% lower than at its pre-crisis peak. Five years into the recoveries of the 1980s and 1990s, it had risen by 15% and 19%. We also now have the new phenomenon of underemployment, and wages continue to fall year on year. As a result, household debt remains high and money lenders are busy.

In other words, the financial adrenaline has not really worked as expected. Although progress has been made, the patient is not yet out of the recovery room. Why? As several noble Lords have already so eloquently explained, people seem frightened to invest long-term or in improving productivity. Exports are poor. Instead, money has gone on consumption: share buybacks and housing. As a result, those markets have inflated and housing is now unaffordable in certain parts of London. The situation is compounded by interest rates at 0.5%. In contrast, the recoveries of the 1980s and 1990s started with average rates of 9% and 13% respectively. A low base rate is another form of emergency medicine. Like quantitative easing, it cannot be sustained. At some stage, rates will have to normalise. What will happen to mortgage holders and small businesses then?

As your Lordships know, economics is both art and science; there are many views. Some believe that we are now in a phase of stagnation similar to that suffered by Japan over the past 25 years—the Japanification of the UK. As a businessman trained to look at the downside, it may be worth briefly exploring that scenario. The intersection where politics meets economics provides a good starting point. How does the way we conduct politics affect the economic decisions that we take?

I have three points for your Lordships’ consideration. First, there is the difficulty that politicians face in speaking plainly about the choices before us. That is because the short-term demands of modern democratic politics outweigh the need to plan long-term in economics. Political careers are short; economic issues are not. Secondly, I would cite the adversarial nature of our politics. PMQs makes for good viewing but it is unclear exactly what it achieves. We have seen how political rancour in the United States has threatened economic stability. The third issue is the lack of expertise in certain areas within the system and the political difficulty of hiring high-level professionals on private-sector-type pay packages.

I believe that voters sense those issues, particularly the tension between the promises that politicians make and their ability to deliver. It is perhaps this which accounts for the disquiet with certain aspects of our system.

There are no easy answers. However, in the event of a stagnation, it may be necessary to reconsider the way that we conduct our politics. I wonder whether a policy of “hiring the best” might lead to big changes in procurement, infrastructure, reform of our tax code and bringing housing development forward. I know that reform of the confrontational political system is anathema to many—but perhaps a circular debating Chamber would lead to a more thoughtful exchange. Would a modernised form of royal commission help solve the great imponderables of the long-term future of the NHS and of the welfare and pensions systems? What of other benefits in this redrawn landscape, such as the extinction of political cliché? Imagine our world free of the words “change”, “fairness” and “one nation”.

Another film by Quentin Tarantino depicts people adapting to their circumstances in times of war. That is what our leaders did a century ago to fight the Great War. Perhaps the battlefield ahead is economic, not military. In that event, we may need to reshape our politics to meet this challenge.