Public Expenditure: Review of Commitments

Lord Eatwell Excerpts

Thursday 17th June 2010 Lords Chamber

[Lord Eatwell]

My Lords, I am most grateful to the noble Lord for repeating the Statement on spending cuts. I am sure that it was not a happy thing for him to do and I am grateful to him for having done it.

Let us first deal with a major red herring. Everyone is against waste. If some government spending is wasteful, it should be cut. But if it is necessary to maintain overall demand in the economy, the money released should be spent on something useful. Demand really is central to this deficit-and-cuts debate. Businesses need the prospect of growing demand to encourage them to invest and innovate. The falling pound earlier this year stimulated demand for tradable goods, as I remember the noble Lord acknowledged last week.

In 2009, there was a massive withdrawal of demand by the private sector. Households and businesses increased their savings by a whole 10 per cent of GDP in one year. The increased savings could not be channelled back through the financial sector, which was desperately cutting lending to rebuild shattered balance sheets. Fortunately, the Government raised net spending, the deficit, by around 9 per cent of GDP, offsetting much of the decline in private sector demand. But now the Government seem determined to remove demand from the economy.

The central question that the noble Lord must answer is: where then is the demand coming from? It will not come from Europe where Governments are cutting as well. The slide in the pound against the euro has in the past couple of months been reversed. It will not come from households where there is increasing unemployment and the fear of unemployment will tend to increase the savings rate. It will not come from firms. How will the expenditure of firms be stimulated? It will not be by monetary policy. Interest rates can hardly go any lower. Are we to have more quantitative easing? I think not. The question of whether these cuts will simply lead to a decline in output and greater unemployment is central to consideration of the validity of the policy as a whole. Will the Office for Budget Responsibility be publishing an assessment of the impact of these cuts on economic output and employment?

I do not want to go through all the specific cuts set out by the noble Lord, which would be painful for both of us. But the Statement refers regularly to total lifetime cost. What was the discount rate used in the assessment of total lifetime cost?

Turning to the specific cuts, there seems to be an almost obsessive attack on education and skills. Schools for the future, the capital funds of universities and other skills programmes are to be reviewed. It is most extraordinary. We have just had the debate from the noble Lord, Lord Sugar, when the Government asserted their commitment to the development of skills. It is most extraordinary to find that there will be so many cuts in skills.

There are the significant cuts to the MoD search and rescue helicopter programme. Given the emphasis which noble Lords throughout the House have placed on the need for military helicopters—obviously, those in theatre, but also the search and rescue ones which may be released to go to theatre—this seems to be an extraordinary element undermining our Armed Forces.

Finally, as a Wiltshireman, perhaps I may say how sad I am to see that the Stonehenge project has again been abandoned. When will this degradation of one of our greatest national monuments stop? Why are we allowing it to continue?