Economy: Growth

Lord Barnett Excerpts

Tuesday 29th January 2013 Lords Chamber

[Lord Barnett]

My Lords, like other noble Lords, I welcome and congratulate the noble Lord, Lord Deighton.  His predecessor, the noble Lord, Lord Sassoon, and I had many lively exchanges, and I am happy to tell him that although we disagreed most of the time, the noble Lord, Lord Sassoon, and I are now very good friends and we will share a meal shortly.

I agreed with the noble Lord, Lord Deighton, when he said that getting spending under control is difficult.  I spent five difficult years as Chief Secretary to the Treasury, and I know from my stress at that time how difficult those years were, so I sympathise with him very much indeed and hope he has a bit of success in that job.

I recognise all that the Government are trying to do on infrastructure and in other areas.  Unfortunately they have not yet had great success, according to the levels of GDP and growth that we have seen in the past two and a half years.  That said, the best hope is that in the forthcoming year we will not have a recession.  I am not one of those who like to think that a triple- dip recession is going to happen.  It may well amend the figures, as we have seen already.

Despite everything, borrowing has increased, as my noble friend Lord Eatwell pointed out.  Despite all the austerity that we have seen over the past nearly three years, borrowing has increased and little or no growth has come of it.  I am bound to ask, with all the Minister has told us and all that we have heard, what the Government are doing to get growth going. That is what everybody wants to hear now, not next year, not at the end of 20 or 30 years when we see HS2 going—I may not be around at the time.

Blaming the EU, the eurozone, the world, the snow and everything else does not help us.  There are two obvious reasons.  The first is the deficit reduction plan. It was inevitably bound to result, as my noble friend Lord Eatwell explained so clearly, in what we have.  Infrastructure has been promised.  Many Governments, not only my own but many others since, have failed to achieve it. The present Government are doing their best, and I understand that the noble Lord is now the Minister for Infrastructure, so I hope his plans will succeed, but when will they succeed?

We are told that much money has been put into infrastructure. One of the Minister’s first Written Answers to me told me about the £5.5 billion that the Chancellor had promised for infrastructure plans. It is worth quoting what he said. Unfortunately he has already learnt from Treasury officials, because I asked,

“how much of the £5.5 billion … has been spent”—

to date. His answer is worth repeating:

“The majority of the £5.5 billion of additional capital committed … was allocated”—

note “allocated” not “spent”—

“for 2013-14 and 2014-15. £70 million was allocated”—[Official Report, 22/01/13; col. WA189.]—

not spent—this year. That is what it is. When I asked about the spending, he said that he does not hold data about spending. Perhaps he will have a word with his officials and look more closely at the Answers he is given.

As a number of noble Lords have said in this debate, we have not yet seen the expenditure. That £5.5 billion was inside the deficit reduction plan. It is not extra. We have not had any extra. We have not even had the £5.5 billion yet, and I doubt that we are going to get it before 2015, certainly not if HS2 is an example.

I shall not repeat everything that has been said, because my noble friend Lord Eatwell said very concisely and well what is wrong with the whole situation. It is no use blaming anybody. I am not blaming the Government particularly. We should not listen to the chief economist of the IMF too closely. Perhaps we should listen to somebody else in the IMF who arrived fairly recently: the new lady in charge. The fact is that the chief economist of the IMF has told us what the Government should now be doing. The Governor of the Bank of England has even had some new ideas about new supply side measures, and on infrastructure we have even heard that the Deputy Prime Minister did not realise what the Government were doing for the past two and a half years. They did not exactly get on with the job of dealing with infrastructure or, indeed, anything else.

Why we do not have money being spent can be summed up by that Answer I have just quoted. It is not being spent, and that is the problem. There is no use talking about why we do not have growth when the money is not being spent today. I know that developing major infrastructure plans is difficult, and it is as much the previous Government’s fault as anybody else’s, but the fact is that we are where we are now, and this Government have unfortunately not been spending money on infrastructure now. With all the good intentions in the world, it has all been allocated, not spent.

The other fine schemes that we have heard of are very good. The Funding for Lending scheme is a very good scheme, but again it is not being taken up to the degree required now for the obvious reason, which has been said, that there is not enough demand to force people to want to borrow. They are being told not to borrow. They should not borrow too much, and they are not willing to borrow. I wish all companies were like those that the noble Lord, Lord Wolfson, was speaking about. His company is highly successful. If every other company in the country was as successful as Next, we would be in a much better position than the one we are in today. Unfortunately, they are not, and they are not willing to borrow, whether guaranteed or not guaranteed. The Funding for Lending scheme is a very good scheme, and I hope it will eventually be hugely successful, but for the moment it is not. Others have been mentioned.

I have always had a great deal of respect for the noble Lord, Lord Heseltine. He did a great deal of work and produced a huge book. The Government support his plan, but he has said that even if all the bids that he advocates are in by this coming April, it will be 2015 before those schemes get off the ground, and I very much doubt whether those bids will be in by April this year. Unfortunately his schemes, although fine on paper, like everything else will not achieve what we require.

What are the other hopes for the economy? One “hope” is Mark Carney, the new Governor of the Bank of England. He said recently that he wants to see his target changed to nominal GDP. Some people do not appreciate that that does not mean dropping inflation but combining it with inflation. My noble friend Lord Peston and I tabled an amendment to the Financial Services Bill, which the noble Lord, Lord Newby, rejected, to delete the three little words in the Bank of England Act: “subject to that”. If the amendment had been accepted, the new Governor of the Bank of England would have had his powers immediately, but that was rejected.

Indeed, the noble Lord, Lord Newby, told us the other day that the Chancellor has rejected the new governor’s proposals, although he did not put it as bluntly as that. He said that they are not changing the target. If I may put it this way, they are typical Treasury words—as the noble Lord, Lord Deighton, is already learning—that do not answer the question. Have they dropped Mark Carney’s ideas? He did not say that they had not dropped them, just that they were keeping the same target. So we are stuck with it. My hope for Mr Carney is that he will ignore the target and just do it. The Chancellor cannot sack him because he is now the best in the world, as the Prime Minister has told us. He is unsackable, so my advice to Mr Carney, if he ever hears or reads it, is to ignore the target and just get on with the job of co-operating with the Chancellor and helping him to achieve what we all want to see—growth in the economy. As I said, that in no way means abandoning the idea of keeping inflation under control.

With or without the agreement of the Chancellor, I hope that the co-operation on monetary and fiscal policy that has been referred to will be achieved. I hope so, but I am not terribly hopeful. We are told that what the Government are doing now is because they cannot borrow any more, and that if the previous Government had not borrowed so much they would not be in this difficulty. In 2007-08 the previous Government themselves inherited a global financial catastrophe. It was not made in Downing Street. If the then Government had not borrowed, the present Government would have borrowed not only a huge debt but a recession as well—yet another recession. They saved that. The previous Government did at least leave them growth. That growth has gone and the debt is still there, so the inheritance is not the reason for a deficit reduction plan. Austerity is clearly not an answer. If nobody else can see it, I hope that Mark Carney can and will help the Chancellor to see it as well. The question remains for the Chancellor: what is he going to do about growth now? Is he going to spend any money? He has told us that he will not, that he cannot borrow any more.

In 2010, we were told that the Budget deficit reduction would be brought into balance in five years. The latest figure I have seen is from the Office for Budget Responsibility, which I am bound to say is not the greatest forecaster in the country on any list. The last I saw it was fifth out of 10. It is not my favourite forecaster, but it is the Chancellor’s favourite forecaster, and he said the annual Budget deficit will be down to 1.6% of GDP not in 2015 but in 2018. This was before the latest set of figures that we have seen, so if we are lucky it will be 2020 or beyond. I hope that long before then the Chancellor will be changed. We might even have one in the House of Lords, now that we can discuss these matters, so my noble friend could take over.

We have had lower growth for too long and we need to increase it. I hope, and it is only a hope, that the Chancellor, nearer to 2015, will see that he cannot go into another election with high borrowing and no growth and will do something to resist that policy and change it himself, if he is not changed.