Budget Statement

Lord Desai Excerpts

Wednesday 18th March 2020 Lords Chamber

[Lord Desai (Lab)]

My Lords, the one joy of speaking in a Budget debate in your Lordships’ House is that social distancing is not a problem. I have been sitting here, not in spitting distance of anybody. However, let me say this: rejoice! We seldom have such a beautiful crisis. This crisis is not caused by anybody’s bad behaviour. It is not caused by debtors’ behaviour or dubious mortgage equities or bankers’ bonuses. It is a purely exogenous black swan shock, and it is so big that it is totally global. Of course, whoever originated it in the backstreets of Wuhan, its spread is due to globalisation—due to the ease of movement. In one sense this is in fact a great opportunity. I am sure that right now, Greta Thunberg is the happiest person in the whole world, because all flying has stopped and people have stopped travelling—they have to sit at home and do nothing. Wow! Climate change will finally be tackled if we go on like this.

Before I go on to weightier matters, we have had in this debate one specific radical idea, which was articulated by a number of noble Lords, including the noble Lords, Lord O’Neill and Lord Skidelsky, and of course it is also part of the Green Party’s programme. I declare an interest: I have been going on about a citizen’s income or basic income for well-nigh 30 years. This is the opportunity for us to institute a temporary citizen’s income. In a sense, given the supply shocks and all the uncertainty, we do not know who will be deprived of income and for how long. Instead of people worrying about sick pay—there are all sorts of things they should be worried about—a citizen’s income should be given to everyone on the electoral register. It need not be a large sum of money; I am always rather thrifty, so I would say £100 per week for everybody on the electoral register until such time as the Government decide that things have returned to sort of normal. Okay, if you want to make it £200, I do not mind—it is not my money.

With something like that, the universality is important. In universal credit, which is a disgrace—I will not go into that right now—there are too many side conditions that people have to satisfy to qualify for a benefit. That by itself ruins the good of the scheme. The thing about a basic income or citizen’s income is that everybody gets it by being a citizen; it is like the right to vote. Right now, it would do a tremendous amount for a lot of people at least to have pocket money—especially, for example, women who are not part of the labour force. Anybody who is not part of the labour force will still get it.

I urge the Government, since they are in a spending mood, to let the Chancellor come tomorrow and throw another £20 billion or whatever the sum is at this. That money will go a long way and will plug a gap in the system.

Having said that, let me say that British economic politics are a battle between either 35% or 45% of GDP being spent by the state. If you look at the data for the last 50 or 60 years, it goes between 35% and 45%. The Conservatives want to be near to 35% to 40% and Labour wants to go a little further, but there is not much in it. If your income is down, then the proportion is high, but actual expenditure is not very much. People go on about austerity, and my noble friend Lord Brooke challenged me to own up to the fact that I supported austerity—and I do. I was the only person in Parliament to sign a letter to the Sunday Times on that back in February 2010. I do not want to defend myself, because it is a hopeless task, but I would say that if you look at the Budget Red Book—tables 1.2, 1.3 and so on—the proportion of GDP spend between 2010 and 2020 was higher than 40% every year, and was higher than the proportion of GDP spent in the 10 years of the Blair Government. In a sense, these are proportions, so I am slightly cheating. If you look at the employment numbers in chart 1.3, employment has grown throughout, as the noble Lord, Lord Skidelsky, was saying, and we are right now in full employment—in the last year of austerity. Those numbers are to be taken with a pinch of salt.

I became a balanced-budget ayatollah way back when the Conservatives were in power and the noble Lord, Lord Lawson, gave a double mortgage concession after winning the election. I thought it was ridiculous; why should anybody give tax concessions after winning an election? You do it before. Anyway, then we had a recession. I believe in balanced budgets when balanced budgets are important and in deficits when deficits are important—horses for courses. I will not resile from that.

To return to the present crisis, we are back to Butskellism—thank God—and now it is a compromise where the Conservative Government are willing to spend money when there is the necessity to spend money. I had been saying before the coronavirus problem came up that this was a very good time to borrow money, because interest rates were low—so therefore borrow as much as you can at a low rate of interest. Interestingly —I think I have spoken for too long; I will sit down—we had excess savings in the global economy, and, with coronavirus, that excess saving will be mopped up by Governments. Perhaps we may reach equilibrium faster than we otherwise would have.

--- Later in debate ---

[Lord Agnew of Oulton]

I disagree that we have had needless, destructive austerity. For example, we have created some 3.5 million jobs over the past 10 years, and until this crisis hit us in the last few days we have seen steady growth in earnings over the last year to 18 months. We are probably never going to agree, I am afraid, but let us at least put our points of view on the record.

The noble Lord, Lord Leigh, asked for faster action. I think some of the points he made on liquidity and the relaxing of insolvency laws were well made. I will certainly take those back to the Treasury. If he has any more information on that, I would certainly be interested to learn about it.

In relation to entrepreneurs’ relief, the noble Lord, Lord Leigh, and the noble Baroness, Lady Finn, were disappointed that we had increased the tax rate. But it is worth pointing out that the capital gains rate is 20% and it was reduced from 28% in 2016. It is hardly a rapacious rate of tax. I would be surprised if that put entrepreneurs off. We all have to pay our share of tax.

The noble Baroness, Lady Jones, said we were tinkering around the edges. But to announce within four days 15% of GDP as a bailout to the economy—I just do not accept that that is tinkering around the edges. As I said when I quoted the Chancellor at the beginning, we will continue to do more. This is a very fast-moving story and we are not going to sit idly by.

It was a rare moment of sunshine to hear from the noble Lord, Lord Bates. I share some of his optimism. Perhaps I am foolish and your Lordships will be able to berate me in six months’ time, but I think we will come through this as a stronger society. I think that sometimes an event such as this gives people pause for consideration about how things work. I am not as gloomy as many noble Lords were in the debate today. Indeed, just as I sat down earlier, I had a text from someone who says that there is already a possible vaccine being tested in Japan. I have no idea, but I think we have a good chance of finding a vaccine sooner than in previous outbreaks because the science has moved on so quickly. I read two weeks ago that they had already decoded the DNA of this virus within a few weeks of it becoming known in China. Last time with SARS and so on, this took months. I am probably putting my credibility on the line here, but a little bit of sunshine cannot go amiss.

The noble Lords, Lord Bruce and Lord Adonis, were worried about the EU. I gently and quietly remind them that we had a general election which put this absolutely fair and square to the electorate and, against the wishes of the vast majority of this House, and indeed many in the Commons, they gave a resounding thumbs up to what we were trying to do. What is going to happen now, I have no idea. But I do not think it should be used as an excuse to try to get us back into the EU.

The noble Lord, Lord Adonis, also asked about international co-operation. Of course, this will be extremely important. I hope he is reassured by our changes to the emergency government structure, which were announced yesterday. We have created four strands: health and social care; public services; economic; and international. We are very aware that this needs international co-operation. We have to be realistic, though, that in the next few weeks countries are going to be looking out for themselves. That is the brutal reality when supply chains have been broken and we are not able to get the things we want because other countries will want to keep them. Likewise with the closing of borders—that is an extraordinary thing for the EU to have done. That goes against all its principles, but it has reacted in a perfectly rational way. We have to accept that that is going to be the case over the next few weeks, but I think there will be a mammoth effort to come up with a vaccine and that will be a worldwide endeavour so I remain optimistic that it will prevail.

The noble Baroness, Lady Falkner, worried about prudent levels of debt and—like the noble Lord, Lord Skidelsky—that there is no free lunch. The noble Baroness, Lady Kramer, raised this at the end when summing up. We will just have to see what happens. I am not trying to duck the question. As a person about half my age said to me a few years ago—

[Lord Desai]

There is this obsession with debt levels and the ratio of debt to GDP, which is a mistake because debt is a stock and income is a flow. The thing to do is to compare income with the cost of servicing the debt. If the cost of servicing the debt is reasonable, we should borrow. Everybody who holds a mortgage knows that it is a large proportion of their income, but if you can service the mortgage you are all right.

[Lord Agnew of Oulton]

I do not fully agree with the noble Lord. Most people who have a mortgage do not increase the amount of the mortgage every year when they get a pay rise. A country needs to be mindful of that and not do the same.

A number of noble Lords, including the right reverend Prelate the Bishop of Rochester, the noble Lord, Lord Razzall, and the noble Baroness, Lady Lister, are worrying about social care. It is perhaps worth just summarising some of the things we have done over the last year or so. Over the last three years, between 2017-18 and 2019-20, we have cumulatively given councils access to up to £10 billion of dedicated additional funding for adult social care; we are increasing the funding of that next year.

The noble Baroness, Lady Bennett, talked about the bailout of the banks in 2008 and 2010 as though we should not have done it. It is worth just putting it back on the record that if we had not done it, the whole system would have ground to a halt. We would have been plunged back into the dark ages, which would have been great for our carbon but not for the millions of people who rely on a functioning economy.