Welfare Benefits Up-rating Bill

Debate between Lord Forsyth of Drumlean and Lord King of Bridgwater

Tuesday 19th March 2013 Lords Chamber

[Lord Forsyth of Drumlean]

The noble Lord seems to think that the reason why the economy is not growing is that the state is not large enough. How big does he want to the state to be? It is already taking nearly 50% of everything created by the Government and spending it, and that is not enough because they have to borrow on top of that.

If levels of taxation are high, which they are, and levels of regulation are high, we will not get the growth that is required. We need to constrain public expenditure to make room for the private sector to create wealth. Once we have a bigger cake, everyone can have a bigger slice, but if we try to proceed in this way we will end up with a smaller cake and those dependent on welfare benefits will be cruelly cheated. They will find their living standards destroyed by inflation, higher costs and the inability of the Government to finance the kind of programmes that Members opposite are prepared to say now that they would support, although they are not prepared to say so at a general election.

[Lord King of Bridgwater]

My Lords, I agree with a particular point that my noble friend has made and would like to add that the Bill has come forward on an especially interesting day. I refer to Cyprus. The warning is on the packet. There has been a certain amount of calm around, as though we had come through all our problems and were moving steadily forward into calm waters, and as though the eurozone was secure. The financial markets, with the euro increasing in value, may have had that illusion. However, it has all been blown away. I have not heard any recent news; I do not know whether there has been a decision yet about what Cyprus will do. We should remember that, at the moment, there is a very real risk. Clearly, people have been caught in Cyprus. If Portugal, Spain and Italy decide that this will be the European practice, people there may find that their savings and funds in their banks are not as secure as they had been assured they were. After all, everyone thought that there was a clear undertaking that below a certain level, around €100,000, their own bank accounts were at no risk. If that changes, we face a very serious situation.

There is complacency around, as I picked up from an article today by the chief economist of HSBC, as though with just a bit of going forward and a bit more luck we will be back on the old growth train and in the business that we were in before. What has been exposed is that over many years we have been living on borrowed money, on a construction boom in the financial services area and on public expenditure. Now that those have to be constrained, suddenly people are turning around and saying, “How, as a country, are we going to earn our living in future?”. We are finding that we have slipped in the leagues. In one of our most successful areas of overseas earnings, defence expenditure, we have now slipped a place and China has overtaken us. China is now taking away a number of the markets that our manufacturers used to serve extremely well. It is said that we hope to sell Typhoon to Oman, the UAE and one or two other countries, but the point has been made that its successor will be made in America, and that will be the end of one of our most successful overseas earnings. When you see where we earn our living in the world, we are not in a happy place.

That is why I very much agree with my noble friend Lord Forsyth. All of us in this House would like to say, “Let’s increase benefits. Let’s deal with all the hard cases and see how we can give people more money”. Look at the situation in Ireland, where benefits have been cut by, I think, 10%. There has been talk of cuts today but in fact we are taking about how big an increase the Government should impose, not an absolute cut in the amount. Other countries in Europe are cutting by 6%, 10% or 12% the actual amount that people are getting—what hardship that must represent.

This is not a pleasant speech to make. It is much more popular to say, “Let’s have some more benefit”. I say this against a background of a new situation that has suddenly come upon us: if this House—the unelected House of Lords—decides today to cut right through one of the decisions made as part of the prudent financial planning to find our way out of the problems that we are in, and if that triggers a loss of credibility in our national approach and the Government’s approach to tackling those serious problems, it will really be a problem for people on benefits if there is a run and we then find that the low interest rates that the Government have enjoyed for their substantial borrowing no longer apply.

I agree with my noble friend on this point. There is an illusion that somehow we are reducing our debt. We are not; we are reducing the rate at which the debt is increasing. One of the blessings that we have had is that at least we have been able to borrow at an extremely low rate because we had some credibility. If the House of Lords today kicks away one of the planks that help to shore up the credibility of a Government who have a plan to try to deal with our problems, and if those international interest rates are then demanded of the Government and the country when we try to borrow money, the problems that we will incur for all our people could be vastly greater. Look at the tragedies that exist now, such as the unemployment rates in Spain, which is 50% in certain age groups.

We have held things together so that we have a lower unemployment rate than the eurozone countries. There is so much that we have to hang on to. This is a dangerous time. I say seriously to your Lordships: do not tamper at this stage with this very difficult situation, at a time when we are least able to face it and when it could quite seriously endanger our whole economic structure. I do not think that people understand what a mess the world is in at present. There is a huge amount of complacency around. We are not by any means out of the woods yet, and it is our duty to ensure that we hold firm.

I intend to support my right honourable friend Iain Duncan Smith, whose commitment to this area I think we all admire enormously. He is doing the best that he can. He is agreeing to an increase in benefits for the most deserving people in this country, but not as large an increase as they might have hoped to see. That is the only realistic approach that can be taken at this time.