Lord Barnett
Main Page: Lord Barnett (Labour - Life peer)Department Debates - View all Lord Barnett's debates with the HM Treasury
(13 years, 9 months ago)
Lords ChamberMy Lords, I am grateful to the noble Lord, Lord Sassoon, for his introduction to the Bill. In the Bill we are told that its purpose is to:
“Grant certain duties … and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance”.
I intend to address those broader issues. I hope that, while the noble Viscount, Lord Trenchard, feels the debate has been dull, I might be able to liven things up a little.
I begin by referring to the comments of my noble friend Lord Desai and the noble Lord, Lord Newby. In particular, my noble friend Lord Desai referred to the difficulties in which the Government have now found themselves over their policy of removing child benefit from those families in which one member is a higher-rate taxpayer. My noble friend suggests that child benefit be treated just as a general taxable benefit, and the current structure in which it is simply paid to the woman be changed. I remind him that when the late Barbara Castle introduced child benefit in the 1970s, she was insistent that it should go to the woman for fear that men might, as she said, spend the benefit on drink and gambling.
The Chancellor has said that any woman who lives in a household in which there is a higher rate taxpayer and does not declare the fact will be fined. I suggest a credible scenario to the Minister. Let us suppose that a grandmother, who is a higher rate taxpayer, on the death of her husband moves in with her daughter and young family who are in receipt of child benefit. What will then happen? Will the grandmother be fined if she does not tell her daughter that she is a higher rate taxpayer, or will the family lose its child benefit? This is hardly a family-friendly policy and a number of similar scenarios can be constructed which demonstrate that this change in the law has not been thought through.
The noble Lord, Lord Newby, referred to the changes in the making of tax policy. I have pleasure in following him in welcoming the Government’s changes in tax-making policy. I had the privilege of serving on the sub-committee of your Lordships’ Economic Affairs Committee which examined the Finance Bill. His proposal that its role be extended and that more technical resources be made available to it is a very good one which the Government should take seriously.
As I said just now, I wish to focus my remarks on the wider issues of the national debt. In doing so, I will return to comments made by Mr Bernanke and to the speech of the noble Lord, Lord Ryder. I also want to refer to the overall fiscal stance in the June Budget, of which the measures in this Bill are part of the practical emanation. Two slogans have dominated the presentation of the Budget and of the Government’s policies by the noble Lord and his government colleagues: first, that the budget deficit is, as Mr Cameron has put it on numerous occasions, a burden on our children; and, secondly—the point often made by the noble Lord, Lord Sassoon—that when the Government took office Britain was on the brink of bankruptcy. These two propositions provide the foundation on which the case for the Government’s policies on the national debt and deficit reduction is built, so they are worth examining in detail.
First, let us consider the proposition that the deficit, and the national debt which results, are a burden on our children. While the scale of the nation’s indebtedness is a constant theme of government statements, I cannot remember a single reference by the Government as regards to whom the debt is owed. The answer, as is clear in the data published by the Debt Management Office, is that most of government borrowing is from British lenders, predominantly insurance companies and pension funds but also local authorities and some individuals. In other words, the taxes that are raised to pay the interest on the debt and to repay the premium are raised from British taxpayers predominantly to pay to British taxpayers. The accumulation of debt simply defines a pattern of income redistribution; it does not in and of itself result in a loss of income to Britain as a whole,
What of the fate of our children? If we are placing a burden on our children, the policies pursued today would result in lower GDP per head in the future. But by their own admission, it is the Government’s own policies, not the deficit, that are lowering the growth rate of the British economy; and hence lowering future GDP per head. That is the real increase in the burden placed on our children by this Government as compared with the budget reduction plans advanced by my right honourable friend Alistair Darling. Had the Government stuck to Labour’s plans, our children would enjoy a higher income per head in the future. The loss of GDP growth that is the consequence of coalition policy is the clear and present cost of this Government. Indeed, it is the Government’s lack of any growth strategy that is most disturbing. Will the Minister confirm the story in the Financial Times this morning, which stated that the expected White Paper on growth has been,
“quietly dropped after George Osborne, the chancellor, decided he needed more time to draw up a coherent strategy”?
The report continues:
“The much-awaited growth white paper, which was originally scheduled for publication last month, has been downgraded to little more than a discussion document. Aides admitted the government did not have enough serious content to warrant a white paper”.
No serious content and no coherent strategy—that sums up the Government’s approach to growth in Britain.
There is one sense in which the deficit could be a burden on our children, and that is of the taxation necessary to pay interest or reduce the debt were to reduce the GDP’s rate of growth. No argument to that effect has been advanced by this Government. Let us follow that up. Taken to extremes, it is obvious that taxation can inhibit growth. If taxes were 100 per cent of income, then nobody would be prepared to work or invest, even if those taxes were subsequently redistributed as interest payments. So has the deficit threatened to push taxes so high that growth prospects are damaged? Among the G7 economies, the US, Canada and Japan have lower shares of taxation in GDP than us, but Germany, France and Italy all have higher tax rates, and all the Scandinavian countries have tax rates that are higher than the UK deficit—they could pay it off in one year, yet they still sustain respectable rates of growth.
Of course, the transfer payments demanded by a budget deficit can be an unwanted restraint on other government spending policies. However, the core issue here is balance—which mixture of spending and taxation will secure the best long-term growth of GDP per head for our children? The Government’s slogan-driven policy does not just get the balance wrong, it does not even recognise that there is a balance to be struck.
What of the other pillar of Government sloganeering —the claim that the UK was on the “brink of bankruptcy”. The noble Lord has used this expression so many times that he must be able to tell your Lordships exactly what he means by it. Does he mean that the UK was about to run out of cash, as the Greek Government were? If so, how does he account for the ready supply of cash dispensed in the Bank of England’s programme of quantitative easing? Does he mean that the UK had difficulty funding its bond sales? If so, he should look at the Debt Management Office data which show that not a single gilts auction this year has been less than 40 per cent oversubscribed, and many were 100 per cent oversubscribed. Or is he referring to speculation about Britain being downgraded by the ratings agencies from its triple-A status? Would these ratings agencies to which the Government pay so much attention be the same clowns who told us that securitised subprime mortgages were as safe as Uncle Sam? Given their track record, are these agencies the sort of people who the Government listen to when shaping the economic future of the British people?
Before the Minister replies on the issue of being on the brink of bankruptcy—and I am sure he will reply in detail since that is a favourite expression of his—would he care to reflect on the words of Ms Rachel Lomax, who was, until recently, Deputy Governor of the Bank of England? Speaking in the City just a couple of weeks ago she said that the
“crisis conjured up by George Osborne”
was a “straw man”—a misrepresentation of the true position. She added,
“It's just not true. We weren't on the brink of bankruptcy”.
None of what I have said should be taken in any way to suggest that somehow deficits do not matter. I am arguing that they are simply part of the balance by which the Government seek to secure the best possible performance of the economy. An important part of that balance—
I have a Question next Monday on this specific point about bankruptcy, on which I hope we will all have an opportunity to comment. Is my noble friend aware of what the Conservative chairman of the Treasury Select Committee said regarding the exaggerated nonsense—a massive exaggeration—about bankruptcy? In a massive understatement of the real situation he defined it as being “slightly over the top”.
“A massive exaggeration” is a rather balanced statement from a Conservative Member of Parliament, and is balanced nicely by Ms Lomax’s statement, “It’s just not true”.
An important part of seeking balance in the economy is to avoid the slogan-driven hysteria that has characterised economic policy-making under this Government. It is not just that basing policy on slogans can lead to seriously unbalanced policies, but that slogans themselves can seriously damage economic performance. Words used by government Ministers to describe the economy include “shattered”, “busted”, and, of course, “on the brink of bankruptcy”. They have done this over and over again, which can lead to a serious loss of confidence in fragile international financial markets. There is increasing evidence that business and investor confidence has fallen, damaging investment prospects in Britain. Has the noble Lord noticed the conclusions of the latest monitor of UK business confidence for the fourth quarter of 2010, published by the Institute of Chartered Accountants in England and Wales? It states:
“The decline in the Confidence Index has accelerated this quarter, partly reflecting ongoing uncertainty about the path of the UK economy over the coming years ... Business leaders are becoming less sure about the UK's economic prospects for 2011 and beyond”.
That is the impact of this Government's slogan-driven policies.
We on this side of the House have argued for an economic policy based on a balanced appraisal of the relative contributions of fiscal policy and growth in restoring public finances after the ravages of the recession. We support the position taken by the head of the Federal Reserve System, Mr Ben Bernanke, to whom the noble Lord, Lord Ryder, referred. Commenting last Friday on the destructive grip of austerity policies, Mr Bernanke called for,
“a fiscal programme that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits”.
Those words describe the economic measures put in place by Alistair Darling. They were a measured and considered response to our current economic woes and the very antithesis of the Government's slogan-driven hysteria.
My Lords, the noble Lord, Lord Myners, is a master at selective quoting of the evidence. There has been a marginal widening of the spread over the 10-year Treasury, and there has been a significant narrowing against the 10-year bond, which is a much better comparator, and against all the other comparators that I look at on a daily basis. I am very happy to go on answering the noble Lord's questions on this point for as long as he would like, but the predominant evidence suggests that not only have spreads narrowed against the comparators but the price of CDSs on UK gilts has fallen considerably as others have gone up. That is proof that people get the message that we have the growth policies in place. It extends to cutting the deficit, low interest rates, tax policy, the focus on investment in infrastructure in a very tight spending review, the attack on regulation, and I could go on. Whether we shall have White Papers, Green Papers or discussion documents, there has been a very full suite of growth policies and there is plenty more to come.
As to whether I should explain what I mean by the brink of bankruptcy, the noble Lord, Lord Barnett, has already stepped in to point out what I was going to point out: that he has already tabled a Question for oral answer. He has got to the front of the queue, and I do not want to be discourteous to him. He will receive a considered answer.
I have no objection whatever if the Minister has a better definition than he has given so far.
For the time being, I refer the noble Lord to the first edition of the Oxford English Dictionary, volume 1, part 2, under “B”, which was printed some time in 1888. That is quite a good starting point. We shall return to that in answer to his Question in a few days’ time.