Economy: The Growth Plan 2022

Lord Hannan of Kingsclere Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Hannan of Kingsclere (Con)]

My Lords, I am not sure we have fully grasped the magnitude of our predicament. You cannot place a complex modern economy into a cryogenic state and then just bring it out without damage. We spent maybe £400 billion—more, according to some estimates—on the pandemic and the associated lockdowns. We paid people for the better part of two years to stay home and we covered the difference by printing money. That creates a debt that has to be settled. There is no escaping the reckoning.

When I say that I do not think we have grasped it, I do not make this point in any partisan sense. I blame the then Prime Minister, who came to the Dispatch Box in another place and boasted of our massive fiscal firepower and preened himself on the fact that our furlough scheme was more generous than that of France, Germany or Ireland, just as much as I blame the leader of the Opposition, who opposed every loosening of the lockdown and now complains about inflation as though it was some act of God.

At the very beginning of this debate I think the noble Lord, Lord Newby, said that there was no need to act precipitately, but when we find ourselves in a hole this deep we have to act with urgency. Every aspect of the financial Statement, with the exception of the energy subsidy, was an attempt to stimulate growth. In the position we are in, we have to stab at every button and tug at every lever. The IR35 reforms, easier fracking, easier housebuilding, reform of financial services and of childcare—anything that brings prices down and stimulates economic growth.

Of course all these things are unpopular, at least in the short term. Human beings are change-averse. All the easy stuff has already been done—actually, quite a lot of the hard stuff has already been done—but we need to judge policies not by their popularity when polled in isolation but by the popularity of the outcome. Every privatisation was unpopular when it happened and most remained unpopular afterwards, yet people approved of the overall package because it led to rising living standards.

I have to say that this applies also to tax. I was very disappointed that, with a majority of 71 in another place, the Government were unable to push through a small simplification of our tax rates that would probably have been at worst fiscally neutral and more likely beneficial in a quite short period of time. As an aside, a number of people, starting with the noble Baroness, Lady Smith, and ending with the noble Lord, Lord Sikka, have spoken about trickle-down economics. To my knowledge, no one has ever advocated the idea that you enrich the poor by giving the rich more money to spend on their Lamborghinis or their art collections. The phrase “trickle down” was invented in the United States in the 1930s as a caricature of the policies supposedly pursued by the Coolidge Administration. If you type “trickle down” into Google, it will prompt you with “debunked”, “false” and “Reagan”, but you will not find a single person ever advocating it. It is an absolute fantasy, a leftist parody of how conservatives are supposed to think.

What we were trying to do in the Budget—it is very disappointing that we backed off at the first crackle of musket fire—was to set the incentives so that the whole economy would grow and we would get more revenue in with lower rates, something that even the IFS thought was feasible at that level. This is not a new idea.

I want to finish by agreeing with the fiscal analysis of my noble friend Lord Bridges of Headley. The idea that bringing tax back to the pre-pandemic level is creating some kind of skeletal, Randian state—a sort of libertarian attempt to end all government spending—is utter fantasy. We would gladly settle for the tax breaks that pertained in the Blair and Brown years; they would be a huge improvement on where we are now. However, we have only two ways out of this mess: we can either try to grow our economy so that the share taken by the state shrinks in proportionate terms or we can wait for an external correction by either the IMF or the market. There is no third option.