Comprehensive Spending Review

Lord Eatwell Excerpts

Wednesday 20th October 2010 Lords Chamber

[Lord Eatwell]

My Lords, we must all be grateful to the noble Lord for expending the energy to repeat the long Statement that we have just heard. It may have appeared rather dull—a number of noble Lords on the Benches opposite fell asleep—but it is a massive gamble. The Government are gambling the jobs, homes and well-being of hundreds of thousands, perhaps millions, of the British people on the hope—fingers crossed—that this will be a price well worth paying; for, make no mistake about it, that is the bet that the Government are placing. They are staking the misery of thousands, and the serious weakening of major British industries and institutions, on the belief that this gamble will not only restore growth to the British economy but restore it at a greater rate than would have been the case if the economic measures embodied in the March Budget of my right honourable friend Alistair Darling were left in place. Can the Minister tell us how many jobs will be lost in this gamble, including not just the loss of public jobs—we know that that number is 500,000—but of private sector jobs, too? Or will he simply confirm that he does not know the answer to that question?

The key component of this gamble is the hope that private sector growth will step in to fill the jobs and income gap left by the Government’s withdrawal from economic responsibility. That was made clear at the time of the June Budget. As we have heard, the Chancellor made clear in the Statement that the Budget and this Statement have to be taken together to assess effectively the impact on the economy, so I refer to table C3 in the Budget 2010 document. There it is made clear that the contribution of government expenditure to growth over the next four years will be relentlessly negative in every year—it will reduce the growth rate of the economy. It is also made clear that the gap cannot be made up by consumer spending as unemployment rises and standards of living fall, so what are the Government betting on? In the Budget report they forecast that growing business investment will make a contribution to the growth of GDP three times greater than it did in the prosperous years 1999 to 2008. On top of that, the Government say that the contribution of investment in housing will be double that in the good times, and that the contribution of net trade will be positive, whereas it was negative in every year of the earlier period. That is pretty difficult to believe. The National Institute of Economic and Social Research does not believe that. Its July report, Prospects for the UK economy, found that government spending cuts will reduce potential growth below that expected from Alistair Darling’s policies in every year from 2011 to 2015. In updated projections published yesterday, the institute finds that the Government’s policies will result in yet lower growth and consequentially higher deficits than they forecast.

There in a nutshell is the gulf in economic policy between the Conservative Government and this side of the House. Our policy is to support growth and investment in order to cut the deficit; their policy is to cut the deficit, and hope. The House will recall that the Government displayed their gambling instincts in the Budget report by presenting various outcomes for the economy with probabilities attached—those fan diagrams that we heard so much of—but that device seems to have disappeared from Spending Review 2010. If we look at the probabilities that the Government put forward, the Chancellor argues in the Budget Statement that there is a 30 per cent probability, a one-in-three chance, that growth in 2015 will be zero. Given that the Government admit that such outcomes are not just possible but likely—a one-in-three chance—will the Minister confirm, as Mr Osborne stated at the weekend, that,

“we have to see this through, and the course which I set in the Budget is the one that we have to stick to”.

In other words, even though his own published statements recognise that his policy might be a disastrous failure, he will not change it. If the bet does not pay off and even more people are ruined than he currently contemplates, there will be no change of policy. There is no plan B.

This is being done, we are told, because the country is bankrupt and expenditure cuts are necessary to survive the “sovereign debt storm”. Will the Minister confirm that interest rates payable on UK debt fell throughout the “sovereign debt storm”, both before and after in-year spending cuts? Not only was the UK’s financial standing never at risk, sterling has become a safe-haven currency during eurozone difficulties. The truth is that the scale of today’s cuts has nothing to do with the overall fiscal position. The truth was revealed by the noble Lord, Lord Sassoon, in the Finance Bill debate in this House on 26 July this year. He said:

“we cannot afford a public sector of the size to which it had grown”.—[Official Report, 26/7/10; col. 1220.]

He also stated that there must be,

“a complete re-evaluation of the Government's role in providing public services”.—[Official Report, 26/7/10; col. 1217.]

That is what this spending review is all about. It is about an ideological commitment to cut the size of the public sector, and I give the noble Lord credit for being so honest to admit it.

Before turning to the scale of the cuts, I would be grateful if the noble Lord would help me with a rhetorical device that the Chancellor uses in his Statement. Whenever a spending increase is announced, it is announced in terms of a sum of money and, as is the way with these things when millions or billions of pounds are involved, it all sounds very impressive. However, when cuts are announced, they are announced as percentages—4 per cent here, 6 per cent there—so that they do not sound quite so bad. Will the noble Lord tell the House what a 7.1 per cent annual reduction in funding for local councils means in money terms? What do the 24 per cent cuts in the budgets of the Home Office and the Ministry of Justice actually mean in money terms? What do they mean in terms of access to justice and prompt justice for all? How much money is being taken from the Department for Business, Innovation and Skills in annual cuts? We are told not the actual figure but that there will be a reduction of 7.1 per cent a year—say, 30 per cent over the period of the review—in the budget of the department that is supposed to support growth and innovation in this country.

Turning to higher education, I declare an interest as a university teaching officer. I am sure that all sides will welcome the commitment to protect the science research budget in money terms, although the real value will inevitably be eroded by inflation. Will the noble Lord tell the House what is happening to the teaching budget in science and engineering? What will happen to the research and teaching budgets in the arts and humanities? As for the future of the planet, what is the money value of the 20 per cent-plus cut in the Department of Energy and Climate Change budget and of the 35 per cent cut in Defra funding? The Minister should not be shy and hide behind percentages but tell us the numbers.

The most important number is the figure for cuts in the welfare budget, because the Government have committed an intriguing sleight of hand. Some departmental budgets have been cut by less than was expected. The noble Lord was delighted to make fun of the Opposition when he referred to only 19 per cent cuts in departmental budgets. Some sweeteners have been added, too. How have those been paid for? They have been achieved by cutting the welfare budget. A complex series of changes was announced in the Statement. Have the Government made an impact assessment of the changes, many of which will impact on Britain's poorest and most vulnerable families? Will the Minister tell the House the overall money value of the cuts in welfare spending, and will he confirm that more is being cut from welfare spending than from all the departmental budgets added together?

All independent assessments have found that the Government's measures will reduce growth over the next five years. That reduced growth will reduce the real income of future generations. That is the real burden that this Government are imposing on our children. The burden will fall immediately on the next generation, including the 15 to 25 year-olds who are desperately looking for a job or a university place or just a chance.

Of course, the gamble may come off, and we all pray that it will. But should it not, this irresponsible approach to dealing with the aftermath of the international financial crisis will impose a loss of real income on generations to come. Today and in the future, Britain will be paying the price of this Government’s gamble.