Economy: Budget Statement

Lord Desai Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Desai]

My Lords, it is a great pleasure to take part in this debate on the Budget. When I came into the House 21 years ago, I was able to extract a concession from the then Government that the Budget would be discussed. I was proud to open the debate on the Budget from the Back Benches. That practice was discontinued in 1997, when my party came to power. I am glad that after a few years we have resumed this practice, and I hope it continues. Of course, I should add that we have had an excellent maiden speech from the noble Lord, Lord Heseltine. It was a treat to be able to listen to what I can only call a class act. We look forward to many more interventions from him.

I have been known to be partisan about the policy of a rapid elimination of the deficit. Indeed, before the election, I was one of the people who wrote the letter to the Sunday Times saying that a total elimination of the deficit within a Parliament was absolutely essential, so I make no question about the overall strategy that the Chancellor has adopted. Unlike many previous Chancellors who in two or three years attempted to deviate from the path they set for themselves, the present Chancellor has kept to that path at considerable cost to his popularity.

I am not going to dwell on matters of tax policy and so on as other people have spoken about that. I do not find it shocking that the Conservative Party benefits the rich and taxes the poor. What else is it for? That is what economists call rational expectations. That is what we expect to happen, so I regret that none of that shocks me. However, what does shock me—and I think nobody else has mentioned this so far—is that the Chancellor had an excellent opportunity to revive growth and has made a tactical blunder in not taking it.

So far, when we have mentioned plan B, or something like that, the Chancellor has correctly said that he cannot hatch a plan B or give more money to the green bank because if he does that the debt numbers will go up. I quite agree that he has set a path for five or six years, whatever it is, and has to stick to it. However, he earned himself a windfall of £28 billion from the Royal Mail pension transaction. I take the view that he should have spent this windfall in reviving the economy rather than salted it away repaying the debt. People may consider that that contradicts what I said before, but once the Chancellor has set a timescale of five or six years, and it has been approved by the market, he does not need to overegg the pudding. On the other hand, as the OBR points out, there is a one-in-four chance that 2012 will see a recession, a drop in growth. The OBR predictions of 0.8 per cent this year, 2 per cent next year and so on are all right, but they are not very exciting. If he had had the courage to take this £28 billion and put it into the economy—and I shall come to how I would put it into the economy—put it into the green bank, done an infrastructure project or whatever, he could have shown that he is doing something to get growth in the economy without affecting his long-run strategic plan to eliminate the deficit. This is a matter of choice. I would do it, he would not do it, but he is the Chancellor and I am not. However, he is missing a good opportunity that will not come again in the next three or four years.

Now £28 billion is okay, but it is not a large sum of money. One of the frustrating things about reading the Red Book and so on is that nowhere do you find the figure for the total GDP of the country. You have proportions and percentages and you have to divide one by the other to find out. I think it is roughly £1.7 trillion, give or take a few hundred billion, so £28 billion is around 1.5 per cent of GDP. It would be a good spending boost to give the economy—maybe in one year, maybe over two years—and if you admit that the multiplier is, I do not know, one and a half, you will be able to revive the economy to the extent of, say, £2 billion to £3 billion. That would be a high growth rate. If that came on top of the 0.8 per cent, you would have a 2 per cent-plus growth rate.

There was a choice for the Chancellor to make here. He has deliberately not made it. He mentioned in his Budget speech that he was not going to spend the £28 billion but he is going to repay the debt. If you look at the debt numbers given in the Budget, it gives him a slight advantage this year, but there is really not that much difference in the path to debt repayment. I would have liked the OBR, which has done an excellent job, to have tried out the stimulation effect on the economy if the Chancellor had taken the liberty of spending £28 billion this year.

Of course, some people may prefer to give it to the green bank. If the noble Lord, Lord Skidelsky, had been here, he would have argued once again for his investment bank. I would prefer something much quicker. Twenty-eight billion pounds is roughly £1,000 per household. Give every household a £1,000 Diamond Jubilee voucher on the condition that it cannot be saved; it has to be spent. If the Chancellor had done that, it would not only have tremendously lifted the doom and gloom from the economy and been a good celebration for the Diamond Jubilee, it would have been an excellent boost to growth. This would have been a win-win situation, instead of which the repayment of debt disappears somewhere in the footnotes of a table.

As the OBR has said, the Budget does not alter the growth path of the economy one tiny bit, so the repayment has brought no advantage to the Chancellor. He did not ask me, but had he guessed what I might say and done it before I said it, it would have been a tremendous boost to the economy. If there is any chance even now to recook the books and go back and forth, that would be a very good idea. It is desperately needed if we are to avoid what is very likely to be an output drop this year. There is sufficient excess capacity in the economy not to worry about inflation. A £28 billion boost would have been a good thing.

Finally, I welcome the idea that the Chancellor wants to float perpetual bonds, taking advantage of the lower interest rates. I only have one suggestion: they should be called Gideons.