Economy: Budget Statement

Lord Fox Excerpts

Tuesday 13th November 2018 Lords Chamber

[Lord Fox (LD)]

My Lords, it will come as no surprise to hear that those of us on this Bench do not share the ebullience that the noble Lord, Lord Bates, displayed when describing the Budget. That is because, when we are out in our communities and back at home, we see a country that is very divided. We talk to people and they are extremely cynical about what goes on in this place. When you see the Budget, you can see why they have that cynicism.

Since the banking crisis, most people have seen their livelihoods eroded. While the very latest data shows that wages are at last exceeding inflation, the story of the last 10 years has been one of people’s spending power being eroded. This is particularly true for those working in the public sector. It is no good the noble Lord or the Chancellor relying on growth to get the Government out of that hole. The latest uptick in GDP more likely reflects—I apologise to Welsh, Scottish and Irish Peers in the House—England’s success at football than it does a major change in the economy. Overall, growth remains stubbornly low and holding below 2% in the next five years of the OBR’s forecast.

That has consequences. The Resolution Foundation—while not necessarily agreeing politically with the Conservative Party, it is a well-resourced, authoritative economic group—warns that day-to-day spending on things other than the NHS, overseas aid and defence will face real-term cuts of 3% per person by 2023. That is a huge consequence, yet even this dreadful prospect is overshadowed by the damaging impact that Brexit—if it happens—will have on the UK’s public finances. These costs could reach £80 billion per year in the event of no deal, some people say. To be honest, no one can estimate it, but we do know that it will cost many tens of billions of pounds. Meanwhile, as I have said, the underlying problem of the economy remains: the wealth gap, the difference between the richest and poorest in this country, which is widening. It has not been helped by the penny-pinching and debacle over universal credit; indeed, it has been hindered massively.

That brings us back to the mood of the nation. People feel that there has been no justice, and it is easy to see why. The acknowledged source of most of the problems arising from the crash was the banking industry, yet it enjoyed massive government bailouts and support to survive, with virtually no repercussions for its collective bad behaviour and certainly with no individuals really being brought to book. Indeed, there are signs that the banking industry is still finding innovative ways of storing up problems for the future, and the Bank of England has recently warned about toxic corporate loans. Meanwhile, in the wider corporate sector, executive remuneration is pushing all the wrong buttons for the rest of the country. Therefore, is it any wonder that voters are cynical? Should we be surprised when people whose pay rates have been frozen for so long feel sore, and can we really complain when collectively they tell us that politics is wrong and has a bad name?

Budgets are as much about theatre as they are about economics, and we saw some theatre last week. Often, what they achieve is as much an indication of the direction of travel as an indication of any major movements, and so it is with this one. The noble Lord, Lord Bates, should be congratulated on his optimism. His colleague the Chancellor generally has a well-deserved reputation for dullness but, among the spectacular ruins that we see in other elements of political life today, even Philip Hammond felt the need to shed his reputation, play politics and try to do more exciting things with his Budget. We have heard from the noble Lord, Lord Bates, some of the eye-catching things that were put forward.

Of course, the Chancellor’s real wriggle room was blunted by his boss’s promise of a birthday present for the NHS. Therefore, as the noble Baroness, Lady Smith, pointed out, he spent most of the borrowing improvements in the OBS’s forecast on the NHS, and I am sure that my noble friend Lady Jolly will say more about that later in the debate. As the noble Lord, Lord Bates, pointed out, the Chancellor has left the country with £15 billion of headroom against future borrowing targets, but I am sure that he will need much more than that if Brexit occurs.

However, it is not just healthcare by which we should judge this Budget or this Government. This and any other Government should be judged by a number of fundamental criteria, and those were touched on by the noble Baroness, Lady Smith. I propose three main touchstones for seeing how well a society is performing. I would judge it, first, on how well it equips its young people to embrace the future; secondly, on how well it looks after its elderly and frail; and, thirdly, on how safe and secure people feel in their homes and neighbourhoods. On all three counts, Her Majesty’s Government are failing.

I turn, first, to schools. As we heard, the Chancellor scattered some crumbs for schools but the minimal joy that that might have given them was banished by the throwaway phrase about “little extras”. That indicated just how little the Government grasp the financial plight that our schools are in, and just how little they understand that schools are looking not for treats but for money to pay their teachers and classroom assistants. The Budget does not address the unfunded pay rises, and even more pain is looming for our schools. The spectre of increased employer contributions for pensions next spring will create another financial black hole for many schools. I was speaking to a head teacher who has just been brought in to rescue a failing school. He is already looking at what he will have to do to meet the shortfall in his budget due to increased pension contributions. It will mean losing classroom assistants and possibly teachers. I ask the noble Lord to take that back to colleagues and to remember that a big issue is looming—one that we have not really seen yet because so many other things have been going on.

There are, of course, other crises in education. The funding of children with special educational needs is really important and has plunged a lot of our councils, if not all of them, deeper into the red. As with many elements of public expenditure, the Government are underfunding the local authorities while expecting them to bear the brunt and maintain—or enhance—levels of service. The Government do not seem to understand that this cannot go on for ever. They cannot do things with nothing.

The same is true in the care of older people. There is a crisis in social care. While the NHS did get a raise, social care did not get anything near the black hole of £2 billion that it faces. It is taking a cut every day. It is up to the Government of the day to lead on this issue and fund the care needed by people up and down the country now. The here and now of social care is that many people are suffering because the system is being bled of resources. It is no good just floating ideas for future possible solutions, having yet another inquiry, and not backing that up by embracing the problem and funding the solution today. I would like to hear what the Government will do today to address today’s problems.

The third measure was personal safety—in other words, policing. However the Government choose to judge themselves, they are not doing well on policing. It is going very badly, and this is not the fault of police officers. I know an officer in a response unit with a few years’ experience. To start with, his unit is short of 10 vehicles, which have been carted off to another region, so he already has one arm tied behind his back. Then, in addition to being asked to respond to incidents, he has been given eight cases and asked to clear those up in the meantime. This gives an indication of how front-line police officers are being stretched, and why many are considering their future in the force. Without changes, the police system is going to really collapse, and we have to do something about it. That is one anecdote, and many other police officers have similar anecdotes to tell. The situation in our police forces is not sustainable.

Those are the three factors by which we can judge a Government. Yet what does the Chancellor do? He gives a little money here and a little there, but then proposes tax cuts, which, as we have heard from the noble Baroness, Lady Smith, benefit the most well-off and not the poorest in this country. The Liberal Democrats would ensure that the wealthy paid their fair share. We have proposed alternatives that would help to fix the tax system. We would tax wealth and commercial land value, and would use that to invest in public services, schools and police. The commercial land value tax would also help hard-pressed local businesses.

At the outset, I said that a Budget indicates a direction of travel. This being the case, it is clear that the Government do not grasp the big issues facing people. In deciding to maintain cuts in corporation tax and in reducing personal tax for the most well-off in the country, the Government are rewarding the wrong people. It is the opposite of virtue signalling. Meanwhile, the majority of people are experiencing no or low growth—and sometimes falls—in their income. They are prey to catastrophically underinvested public services. This Budget, coupled with the spectre of Brexit looming over the horizon, just demonstrates that the Government have a tin ear to the real issues facing the United Kingdom.