Budget Statement

Lord Desai Excerpts

Wednesday 23rd March 2016 Grand Committee

[Lord Desai (Lab)]

My Lords, normally the Budget is a curiosity for around 24 hours, and by the next day everyone has forgotten about it and we carry on as normal. This is a unique Budget because it refuses to go away and it keeps changing its shape. I follow on from what my noble friend Lord Eatwell said. We would really like to know what the Budget is now. Which calculations are now prevalent since the Government blew a big hole in their own Budget?

The Order Paper suggests that the last business today is something that the noble Lord, Lord Ashton of Hyde, is going to do with the Budget under the European Communities Act. He said that the Government’s assessment is set out in the Budget report and Autumn Statement, but I do not know which Budget Statements he will be talking about, because what we have is now not true. I think that we are owed some kind of explanation.

What I next want to say is this. Given how many times the OBR has had to revise its forecasts, what that reflects is a great deal of uncertainty about the economy, especially when it comes to the numbers. Economics is one of those rare subjects where we do not even know quite what has happened in the past, let alone what will happen in the future, especially when considering the numbers around our real income. We were sure that we had a double-dip recession, but the diagrams suggest that there was no double-dip recession.

My proposal, although it might not be that constructive, is that in future the Government ought to produce fan diagrams of all their Budget calculations. They should show what they intend to spend, but they should also show what they do not quite know and produce their confidence interval both on revenue and on the spending side—in which case you cannot actually make point forecasts of the targets. Point forecasts of targets are just a nonsense. Any statistician will tell you that no such number is completely accurate; it has to have large errors around it. Something that the Government ought to examine, either with the OBR or without the OBR, is a more sophisticated approach, if I can call it that, to Budget making. Ultimately, accountants want numbers to balance, but I think one can say that the deficit would be either this or that or anywhere in between, because that is the best we can say—we cannot separate the numbers.

In the same direction of argument, I lost a lot of friends during the last Government by supporting the Chancellor because I thought he was doing quite well. After all, he was implementing my noble friend Lord Darling’s policies, and he was succeeding in that. Who can blame him? However, I think it was wrong of the Chancellor—I have said this before—to have a budget surplus as a target for the last year of his Government. Apart from anything else, when Roy Jenkins achieved a budget surplus we lost the next election, so having a budget surplus is not a popular policy. Apart from Roy Jenkins, the only other two Chancellors who have achieved a budget surplus are Nigel Lawson and Gordon Brown, but the surpluses were so tiny you could hardly see them without a microscope. This idea of achieving a surplus should be laid aside. The Chancellor’s job is to ensure that the economy prospers and people do not suffer very much. He should not worry about these narrowly defined targets of deficits and surpluses.

One question is worth discussing and perhaps the noble Lord can answer it—how will the Government fill the gap? My own view is that, since they have blown a hole in the Budget, they may have to come out with a slightly new set of calculations. I see that the Minister has a troubled face. If the Government had known that they could not cut off this £4 billion, would they not have raised the fuel duty? Not raising fuel duty is an immoral act, apart from anything else. When the price of oil fell, the Government of India gave only half the gain to the consumer and pocketed the other half. That is a perfectly sensible thing to do. There is no reason why the entire gain from the price cut should be passed on, given that there are other urgent tasks that the Chancellor has to perform. It would be perfectly normal to say, “We had to do something, and this was the least painful”. I declare an interest in that I do not have a car and have not had one for 50 years since I have lived in London. I have absolutely no sympathy with car drivers—I have slightly less with bicycles but I will not go into that. The action I have described would be doable.

The raising of the threshold for the 40% income tax payment was too generous. There was a time when we had inflation and fiscal drift, as it were, and people thought it was unfair that they should pay extra tax given that nominal incomes were rising but real incomes were not. We do not have high inflation, so I think that going from a £42,000 threshold to a £45,000 threshold—or whatever the Government have done—is far too generous. If they had decided to introduce this over two years or defer it, as with the corporation tax for big businesses, they could have clawed back some money that way.

I very much welcome the sugar tax. I am a friend of high taxes, and the sugar tax is a good thing. I definitely argued for it. Some soft drink producers have asked, “Why us? Why not introduce a chocolate tax?”. I thought that was a good idea and that we should levy the sugar tax on solids as well as liquids and have a progressive sugar tax which would claw back some money. I have argued before in your Lordships’ House that I prefer taxing consumption rather than taxing income because, if you tax people while they are having fun, they do not notice it. Therefore, it would be perfectly normal to introduce a more comprehensive sugar tax. I also welcome the fact that, after all these years of the Treasury not agreeing to a hypothecated tax, we now have hypothecated taxes. Hurrah! Long may we have a practice of saying that this particular tax is for this particular expenditure.

Finally, quite a lot of noble Lords have said that there is a need for infrastructure spending. Fiscal orthodoxy says that we cannot do that because the Budget numbers will go down. I have read Tom Bower’s book on Tony Blair. I think Gordon Brown invented PPP and built 80 hospitals and not a single number showed up in government debt. I think you have to find a similar trick: set up some nice corporations that will build affordable houses and do it in such a way that not a single number appears in the Budget. It cannot be difficult for the Treasury—it has done it before; it can do it again.