Economy: Government Policies

Lord Griffiths of Fforestfach Excerpts

Thursday 24th March 2011 Lords Chamber

[Lord Griffiths of Fforestfach]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Valentine, who has done so much to increase prosperity and jobs in this great city of ours. It is also a great pleasure to take part in a debate secured by the noble Lord, Lord Lawson, who has had such a distinguished record as Chancellor, and who is raising important issues in this debate. I should like to make three points.

The first is that I am delighted that the Chancellor has stuck with the medium-term fiscal strategy that he introduced in his first Budget last summer—namely, achieving a current balance in the public sector and ensuring that, by 2015-16, national debt as a percentage of GDP will fall.

The Budget recognises the pain that people are going through, but at the same time it is a Budget of hope. In 2009, output fell in this country by 4.9 per cent. In 2010, it rose by 1.3 per cent. This year, it is set to rise by 1.7 per cent. Between 2012 and 2016, it will go up by between 2.5 and 3 per cent. We are gradually recovering in the cycle; we will go above trend and then come back down to just over 2 per cent. This prediction of the Chancellor is based on two perfectly reasonable assumptions. The first is that the trend rate of growth of just over 2 per cent is based on long-term factors. Politicians cannot manipulate the trend rate of growth in the way that they can change taxes or government expenditure. The trend rate of growth depends on long-term factors such as trend productivity growth, the trend growth in average hours worked or demographic factors. Secondly, exports are growing at an annual rate of 15 per cent. The intentions of business investment look very good.

I spend most of my working life in the City of London. At the time of the Budget last summer, I felt that many people in this country did not realise what a knife edge we were on, and how easily, if we had ducked having a very tough medium-term financial strategy, we could have been in the same position as Ireland, Portugal and Spain.

I have one concern that has not been much mentioned in this debate: inflation, which at present is persistently above target. As somebody who has been thinking about the British economy ever since I started teaching at the LSE in 1965, I am sceptical about whether one can explain a rate of inflation that is consistently above target simply by reference to external factors such as indirect taxes, excise duties or the price of oil. I agree with the noble Lord, Lord Higgins, that when inflation seems to be permanently at twice our target rate, money and credit must be brought under control. No one wants to raise interest rates, but if that is the only way to make sure that inflation does not eat away at the core of our economy, they will have to be raised.

I welcome what the Budget says about deregulation and about encouraging enterprise. This takes me back a few decades to when I worked in No. 10. Regulation is crucial to a modern economy, but it is also a tax and it can be a dead hand on small business. The Plan for Growth, which I tried to read when I woke up early this ,morning comes forward with no fewer than 145 measures that the Government will take to implement a programme. It then adds:

“This list of areas is by no means exhaustive”.

I am all in favour of enterprise and deregulation, but who owns the 145 measures, and who will be accountable for their implementation? It looks like a huge wish list. The Government urgently need to prioritise, reduce the list to half a dozen things, then try relentlessly to make sure that they are implemented.

My third point concerns youth unemployment and training. I said that the Government recognise pain but offer hope. The greatest pain is felt by young people who leave school or university and have no jobs. There is nothing more dispiriting. Youth unemployment is not far off 1 million. The Government say that they will introduce 50,000 new apprenticeships and 100,000 work experience placements, expand university technical college programmes and introduce a new work programme. That is all fantastic, but it will take time and will require extreme concentration by the Government to ensure that it happens. It is easy to say things but not deliver.

In conclusion, this is a credible Budget in difficult circumstances. I am delighted that the Chancellor has stuck to plan A and is introducing greater deregulation and enterprise. I would like strategy to be more focused and I would like him to make job creation and youth training a priority for young people who are suffering.