Budget Statement

Lord Davies of Oldham Excerpts

Wednesday 23rd March 2016 Grand Committee

[Lord Davies of Oldham (Lab)]

My Lords, my first duty is to congratulate the noble Lord, Lord Price, on his maiden speech. Had the Opposition had their way, it would have been made in the proper place, in the Chamber, but I hope that he will at least be encouraged by the reception that he has had today to engage in our next economic debate, which will be in the Chamber and which—I understand from the assurances of the Government—will not be too far off. I also could not miss this opportunity to thank him, on behalf of my wife, for opening a small store fairly close to our home. It is close enough for me to be trusted to go on my bike and get the light shopping; I would never be trusted with the more serious shopping that is done on other occasions—so I am grateful to him for that.

Turning to the Budget, what has been laid bare is the Chancellor’s failures over these years: even before the fiasco of the personal independence payment started to unravel, and even before Iain Duncan Smith wrote the first line of his resignation letter, this Budget revealed itself to be a shining example of what happens to an economy when it is deprived of investment. My noble friend Lord Eatwell opened the debate from these Benches by identifying with great accuracy and very fully just why we had suffered such low investment—of course, the cuts are the other feature of this economy which we deplore and which I will come on to in a moment—and just why these have been wasted years and we are doomed. They have been unsuccessful years; we have to remember, after all, that the Chancellor was going to clear his deficit this last year. It will take him twice as long as he said. He is going to go for a surplus almost as fictitious, I have no doubt, as the rate at which he was able to clear the deficit over the previous five years.

There is no doubt that there is only one crucial figure that has come out of the Budget: the Institute for Fiscal Studies emphasised very clearly and several key contributions in today’s debate have subscribed to the point—the noble Lord, Lord Skidelsky, devoted nearly the whole of his speech to it—that we have depressingly low productivity, which lies at the heart of our economic failure. If we are going to progress, it will not be by hitting the targets of a Chancellor who is continually having to row back from very short-term decisions; it will be by how we set about successfully improving productivity in this country. We know the Minister is well equipped to address this issue. We all recognise how difficult the issue is, but it is not helped when the whole direction of policy identified by the Chancellor seems to put such low store by this crucial issue.

The Institute for Fiscal Studies has said that if the OBR predictions on productivity and this low growth come to fruition, we should all be worried. It will lead to lower wages and living standards, not just lower tax revenue to the Treasury. This is lower wages and lower standards of living following on from six years in which the country has suffered from this position. It is also a reflection of the fact that growth is much lower than it ought to be. As my noble friend Lord Darling reminded us, it is lower than the position he achieved two years after the great recession.

As for the contributions which have emphasised how the Labour Government led us directly into these disasters, I cannot remember that it was a socialist Government in the United States under George Bush which produced the first stages of this catastrophe. I cannot recall the fact that the first bank to go down was British—it was American. Indeed, it was also the case that the economies of the whole of Europe fell into the same real decline at the time. So let us not have too much on those lines.

Of course, the Chancellor has just begun to recognise that there are external forces. He actually commented on the fact that there has been a slow-down in the world economy. He is not too confident about the rate of American expansion and he is very pessimistic about the Chinese position. That is just a reflection of a fact that we all know: our economy operates within a wider framework of the world economy, and that is why it is so important that the Budget should be accurate in its predictions and on its strategy. But, of course, this Budget has already unravelled in considerable detail.

The Office for Budget Responsibility has described the UK’s downgraded productivity as the most significant part of its report, and yet the Chancellor seems to be unable to pay attention to that fact. What does it mean in practice? How are people around the country experiencing low productivity? It means that they are going to earn less, they will see their living standards failing to improve, and they will be less likely to be in a job and to pursue a career which utilises their talents. Of course, the strain that is put upon families by these failures is quite enormous, as well as the strain on the economy as a whole.

Let us consider the factors which are crucial to driving productivity—the problem is plain to see. I will take one obvious example. The Government continually boast about their apprenticeship programme and the numbers involved. In many cases the programme is paying little regard to the concept of apprenticeships, which were always used in the British economy in the past. Someone is employed and trained by a company so that they can develop the capacities and skills to do the job for that company. Many of our current apprenticeships are just another word for internships—an introduction into a company and the possibility that one might sustain a role there. As for apprenticeships in more general terms, it is the case that an awful lot of youngsters are going into apprenticeships which are clearly below their educational level. People with degrees are taking up apprenticeships that provide work that is only to A-level standard. Others who have completed their sixth-form education are going into apprenticeships that we used to regard as very low-skilled opportunities indeed.

The economy needs to work better for young people, for households, and of course for our regions. For young people, of course, the Budget merely continues a most depressing scenario. The Chancellor said last week and reiterated yesterday that the Budget was designed to put the next generation first. That is a somewhat late conversion given that the Government have spent the last six years undermining, overlooking and at times even demonising young people. Look at their programme not only in terms of apprenticeships but also in terms of educational opportunities. Further education colleges, which are meant to be crucial to the development of skills in our young people, are closing down. Many of them are facing bankruptcy. Yet the Government dare to suggest that they are offering to young people greater opportunities. This is an appalling track record.

Young people have been hardest hit by the Government’s dismal record on home ownership. Many know that they will not have the earning power to come anywhere near the deposit level required to make their first step on to the housing ladder. As has been well demonstrated, the Government’s new lifetime ISA will have limited appeal for many people for whom saving at the rate envisaged is not something they can aspire to. What is the Minister’s response to the OBR analysis which states that the new ISA is likely to push up the price of housing and, in so far as it works at all, increase demand against provision which is already part of a most depressing bubble? It is a reflection of the fact that asset bubbles are one of the characteristics of this economy and it is why we remain so very vulnerable. I would be interested to hear from the Minister whether the Treasury has done any analysis about the number of people who think the new ISA will assist them. I put to him that, once one takes into account the amount that many young people have to spend on essential living costs, on rent and on paying off debt, there is not much for them to put aside for saving.

This is also a Budget which is detrimental to households. The Resolution Foundation has found that, by 2020, the poorest 30% of households are set to lose around £565 a year, while the richest 30% of households are set to gain around £280 a year. How can the Chancellor justify this distribution of resource? Has he not come to terms with the gross disparity in incomes and growing inequality that are the feature of the western world? Of course, it shows in our companies; we have all seen the statistics. We know the enormous difference between what is earned by the person on the shop floor and what is earned by those in the boardroom —and particularly the chief executive of a company. And yet the Chancellor has found ways to ensure that those who have resources should be blessed by him and that those who are poorly off get little out of this Budget.

In the last Parliament, cuts to tax credits and benefits meant that low-income households with children were the biggest losers—and the Chancellor had to learn his lesson about that in terms of fairness. This time, we have had it with regard to the disabled. How on earth can the country have confidence in a Chancellor with a record like this?

The Institute for Fiscal Studies has stated that the Government’s tax and benefits changes have resulted in significant losses for those of working age, especially those with children in the bottom half of the income distribution. The Budget does little to break the country’s reliance on household debt as a source of growth, and we know how insecure that base is in terms of the economy as a whole. Let us consider rising levels of household debt alongside the increase in the number of people in insecure employment—and zero-hours is insecure employment all right; it means that the employer tells you the number of hours that you are going to work during a set period, with no guarantee attached beyond it. How can people make intelligent decisions about their very limited resources against a background of such crucial uncertainty?

Finally, on the regional economy and infrastructure, my noble friends have already identified in this debate how many infrastructure projects there are—my noble friend Lord Darling stated that we are still thinking about starting up on projects which he signed off in their origins a decade ago.

Many worthy projects have been identified but so little has been achieved. After all, the biggest single achievement is Crossrail, which was started more than a decade ago by a Labour Government. When it comes to London Heathrow, we cannot make up our mind year after year. We cannot get a decision from the Government. I know the difficulties arising from the politics surrounding Heathrow, but we all know that the south-east must have some increase in airport capacity. However, all we get is dither. Meanwhile, in the north of England—the so-called northern powerhouse —the Government reel off a whole string of wonderfully attractive—even essential—infrastructure projects, but there is no date attached to any of them. Indeed, High Speed 2 will take a decade to get as far as Birmingham. That does not have much to do with a northern powerhouse.

It is also clear that when it comes to the actual distribution of real resources, the northern powerhouse has not made much of an impact on the Government. What we see in local government allocations of resources is that the wealthier counties of the south-east get the lion’s share while the authorities in the north, with their colossal problems in terms of the communities they serve, receive much less. Therefore, it will not do to say that this Chancellor has a grip on the nation’s finances and he knows where he is going. He has missed every target he set in 2010, and some of them by a country mile. The only target we can guarantee that this Chancellor—if he stays in office—is likely to achieve is to reduce government expenditure as a percentage of GNP to below 40%, because if there is one target which an ideologically committed right-wing Government have, it is to reduce the role of the state, essential though it is to some of these big infrastructure projects. That is how they mark out a good society. However, as the right reverend Prelate the Bishop of Portsmouth argued, we should have a concept of morality in what we do. It cannot be right that this Budget increases inequality in our society. It rewards the wealthy and condemns the less well-off to an uncertain position and limited resources. That is why we are critical of it.