Economy: Spring Statement

Lord Desai Excerpts

Thursday 31st March 2022 Grand Committee

[Lord Desai (Non-Afl)]

My Lords, from looking around, I think I am the last Back-Bench speaker.

Before I say anything about the Spring Statement, I want to make an ad hoc statement. This is nothing to do with the topic but I still want to say it: there is a rumour that we have some surplus stocks of PPE worth billions and it is going to be destroyed. I suggest to anyone who is present not to destroy it; it may not be good for clinical use, but it would be useful for lots and lots of poor people around the country. Food banks and all sorts of people can use it, so please do not destroy anything valuable that you may have bought for billions. That would be a great waste. I am sorry; I wanted to get that off my chest because I have been worrying about it all night.

I pay tribute to the Office for Budget Responsibility, a great innovation of George Osborne. We have to admire it because it has considerably improved our debates about the Budget. That being said, the Chancellor was very good when he faced the pandemic; he did very well. I know there was a lot of fraud and so on, but we will not go into that because he really did meet the challenge. He was willing to break the rules when he had to in order to protect livelihoods and lives.

Here, though, I think he missed the fact that we were in another very big emergency even before the Russian invasion of Ukraine. Energy prices were already rising before then, which was very much a repetition of the oil price rise in the 1970s. Almost 50 years after the first energy shock, we are going through another one. The OBR forecasts for the growth rate in the post-pandemic recovery are all fairly small. I reckon that we are in a stagflation cycle that is going to be very serious, not just for one year but for about five.

We are not prepared to face that crisis. There is still the idea that somehow we are going to become a low-tax, high-productivity, high-this and high-that country, but no one has actually sat down and told me how this economy can be low-tax when a lot of public expenditure has been built into people’s expectations. We have an ageing population and a huge deficit in the National Health Service. Despite the increase in national insurance contributions, we have not tackled the social care financing issue that Andrew Dilnot talked about. We thought we were being given the solution with the national insurance contribution increase. I will not even go into the fact that it could be regressive, but all that money is supposed to go towards the big NHS deficit so we are still left with a gaping deficit for social care expenditure. There are all sorts of other issues too: we need to upgrade universal credit because we have been robbing the poor to pay the rich, as usual, so we will have to correct that.

The idea that a Conservative Government would have to be a tax-cutting Government is a historical fallacy. The real heavy lifting during the Thatcher Government was done in the first five years, when Geoffrey Howe came and doubled the VAT rate from 8% to 15%. That was the way in which Mrs Thatcher tackled the problems in the economy. I know everyone thinks that money supply did the trick, but it did not; it was unemployment that did the trick. I have never been a monetarist so I am not worried about that.

I am not actually going to speak on the Spring Statement much, because everybody has said everything necessary. At some stage, the Government will need to have a serious think about how they are going to tackle the problem of paying for social care. As some have said, especially my friend the noble Lord, Lord Balfe—and I have proposed it myself—we have to do something about council tax. We will have to tax the unrealised capital gains of property owners and in such a way that they do not have to sell the property but just have to pay higher tax.

I have given this example before but will give it again. I recently sold the property in which I had been living for 17 years. The property had quadrupled in price but my council tax had not changed in 17 years. There was a lot of scope to get a lot of money from me while I was in situ as, had I been paying rent, my landlord would have steadily increased that rent for those 17 years.

Just as the noble Lord, Lord Sikka, said that we do not tax capital gains, we do not realise untaxed capital gains either. We are missing a great trick here, because you ought to tax things that are not painful for people to pay. When you tax current income from work, either through national insurance or income tax, people feel the pain but, if you tax them indirectly or through unrealised capital gains, they will not feel that pain. This economy will need a much fairer tax burden than it has rather than a higher tax burden.

I do not know whether noble Lords saw the recent letter in the Financial Times that said that the 10 happiest countries in the world, by some sort of calculation, are also the most taxed countries by rate of tax to GDP. Of course, they are all Scandinavian and north European. It is a fallacy to think that a low-tax economy will be a happy economy. Some people will be happy—the better off—but a lot will be miserable, because they will not have the welfare expenditure and other things that stave off poverty.

The danger of stagflation is very serious. If not now, very soon—maybe by next March—the Chancellor will have to renege on his promise to cut tax in 2024. He should never have made such a bet anyway. It will not be feasible to cut taxes in this decade, because the stagflation we face is very serious.

It is quite uncanny that the 1970s were the era of stagflation. If you go back to the 1920s, there was also bad news for the British economy then, because it turned into an economy of high unemployment before the great depression. I think we are going in 50-year cycles but I will not dwell on that. This stagflation crisis will not go away for at least the life of one more Government, so the Chancellor ought to sober up and stop thinking about low tax.