EU: Budget Report

Lord Davies of Oldham Excerpts

Thursday 25th April 2013 Lords Chamber

[Lord McFall of Alcluith]

My Lords, in his manifesto defining the Mais lecture of February 2010, the Chancellor, just before he assumed office, announced a new macroeconomic and financial policy. He asserted that economic theory and, indeed, evidence suggested that tight fiscal policy would lead to recovery. He embraced the notion of austerity politics, and the imprimatur of both the Chancellor and the Prime Minister was very firmly on that phrase, “austerity politics”.

Three years later, what do we find? We find unemployment increasing, with youth unemployment of 1 million, which is unacceptably high, child poverty levels ballooning, and almost zero growth. Notwithstanding today’s announcement, even if we include that and accept that in the past 18 months we have seen growth of 0.4%, that works out at a miserable 0.066% growth per quarter—in other words, a percentage of growth equivalent to 66 out of 10,000, or virtually none at all.

When the Chancellor came into office, as others have said, he inherited an economy that was growing by 2.6%, from the third quarter of 2009 to the third quarter of 2010. Since that date, total growth has been 0.8%, solely down to the effect of the Olympics. As my noble friend has said, the markets have now turned against the Chancellor. The comments of Bill Gross of PIMCO, which has the biggest bond fund of $300 trillion, made it very clear that the austerity policy does not lead to growth in the short term. As he asserted, the Government need to spend money. He also said that it was a mistake to assume that the bond markets want severe fiscal belt-tightening.

Given that the Chancellor and the Prime Minister have sacrificed growth on the altar of despair for the past three years, we now need an urgent injection of confidence. Austerity was never going to work because when you are in politics, if you assert austerity and are devoid of hope, the people rightly assert that you are not on their side. Today, there needs to be a case for optimism.

Along with other Peers, the other evening I saw Ken Loach’s film, “The Spirit of ’45” about the period after the Second World War. At that time there were appalling economic and human circumstances. Debt as a percentage of GDP was 250%, compared to the 70% it is today as a result of the financial crisis, yet with that debt dreams were turned into reality for many millions of impoverished individuals. Can the Government today not embrace a modicum of the hope and spirit of 1945 and ensure that we offer people something in the future?

On the eve of the financial crisis in 2007, national public debt was 36%, the lowest ratio to GDP in the past 300 years, as was asserted by Martin Wolf in the Financial Times this week. When we look at the public spending figures under the Labour Government from 1997 to 2010, we find that it was 39.7% of GDP. Let us go back to 1979 to 1997 under the Conservative Government, when public spending was on average 43.3% of GDP. So it was 39.7% for the Labour Government and 43.3% for the Conservative Government. Those are powerful statistics that destroy the myth that spending by the Labour Government was out of control.

Now, when interest rates and the cost of government borrowing is at rock bottom, is the time to invest in infrastructure so that we get a 21st century that is fit for purpose. For the past four or so years, along with others, I have been advocating the establishment of a business investment bank. It would fill the current equity gap with longer repayment periods for viable businesses and help SMEs, which are starved of lending because of the private sector money famine. Wherever we go, SMEs tell us that they have this huge problem.

We have to look to the future. We should be looking at replicating the fantastic initiative of the Labour Government in 1969 when they set up the Open University, of which I am a proud graduate. We should be looking at a successor to that with a 21st-century UK digital university underpinned by superfast broadband and smart grids. It would cost one-third of the money that will be spent on HS2. Wiring everyone up would in the long term help social inclusion and income equality. We have to think big on that. Why do we not have an objective of ensuring that all university learning is put on the net? What would that mean? It would mean that every individual could walk through the digital gates of the finest universities from the privacy of their own home and hearth.

The future never has a big enough constituency. Those fighting for present gain almost always win out. At a time when the social contract in society is broken and when millions of people will have no gain for the foreseeable future and have considerable pain, there is a need to restart and rebuild that confidence by ensuring that we do not miss out in the future. As Heraclitus said, change is the only reality, and we know that in politics change is the law of life. The late US President John F Kennedy said that those who look only to the past or present are certain to miss the future. I suggest that by ditching the cruel hoax of austerity politics—austerity is a hoax because it has been proved that it does not work, and cruel because it hurts those who are already hurt most— we can make a start to ensure that we as a country and as individuals do not miss out in the future.

[Lord Davies of Oldham]

My Lords, this has been a most interesting debate and the Minister has a major task in replying to it. He has to address himself to the minutiae of parliamentary procedure and to the most philosophical aspects of the current policies of the Government.

On the question of procedure, I cannot understand why we did not have a speakers list for this debate. I agree with the noble Baroness, Lady Noakes, on this matter. I also understand why she does not see why these Motions are necessary anyway as far as Europe is concerned. My noble friend Lord Barnett did not doubt that the Motions might be necessary but on the whole found them so offensive that he would not vote for them if there was any question of a Division, which there is not going to be. This indicates that there are anxieties on all sides about the framework for this debate.

What is fundamental is the concern about where the economy is at the present time and what we are reporting to Europe about the state of the British economy. It is quite clear that every target that the Chancellor set himself in 2010 has been missed and that the timetable for recovery has already been elongated by several years. As my noble friend Lord Barnett indicated, it is now expected that it will be at least 2018 before the deficit will have been reduced.

At the very beginning, the Minister stated that one of his items would bring confidence. As in all economic debates about the position of the economy and the balance of payments, confidence is of great importance. The Chancellor chose one measurement of it, Britain’s AAA credit rating. We saw Moody’s going first and now Fitch has stripped away the AAA credit rating. What is reflected in that is a degree—if the Chancellor was right to put so much importance on them—of erosion of confidence. My noble friend Lord Barnett said that the reason for that is pessimism about growth. That issue was reflected, particularly on this side of the House, in every aspect of the debate.

My noble friend Lord Hollick identified another area in which confidence is being eroded. The intellectual support for the Chancellor’s policy put forward by Reinhart and Rogoff has been destroyed by the indications of the research and the propositions are inherently faulty. That intellectual prop having gone, what is in its place? My noble friend Lord Layard identified these issues with the greatest clarity. What there is is a commitment to a right-wing ideology that does not need too much in the way of intellectual support. After all, we have been through these issues before under Conservative Governments. It is about the creation of the virtues of the smaller state. In the Government’s drive towards creating the smaller state, which my noble friend Lord Layard identified has little to do with whether economic growth can be produced or whether we can tackle the fundamental issues of the economy, the price is being paid not by millionaires who are being cushioned by taxation relief but in increasing unemployment and low wages for those who are in employment. It is already recognised that wages will have dropped by 2.4% this last year. That is the cost to the people in work. Meanwhile, the Government have some figure of the number of jobs being created by the private sector. We know what a lot of these jobs are: they are concealed unemployment. They are part-time jobs that give no opportunity for people to work longer hours; part-time jobs on low pay in which people are still struggling—although in work—to make ends meet. Those people are paying the price for this Government’s policies.