Economic Growth

Lord Hannan of Kingsclere Excerpts

Thursday 23rd January 2025 Lords Chamber

[Lord Hannan of Kingsclere (Con)]

My Lords, there is a group of Melanesian islands where supplies were dropped during the Second World War. When the war ended and the soldiers departed, a cult grew up on these islands. People thought that if they mimicked the behaviour of the soldiers who had been stationed there before 1945, the gods would start raining goods from the sky again, so they would light brands to show where the runways were and try and act like American soldiers, but, of course, the goodies did not come. That is what we literally mean by the phrase “cargo cult”.

A number of people, on all sides in politics and the media, seem to think that, if you keep going around saying “growth” and “investment”, and you wear pinstripe suits and spend time in City boardrooms, somehow growth will magically follow. But, of course, that is not how the world operates. Stimulating economic growth requires taking some difficult decisions. It is simple. It is not easy, but it is simple. The same formula works every time: you need free trade, light regulation and low spending.

But delivering those things is not so simple. Free trade should have been the easiest of the lot. When we reassumed control of our trade policy almost exactly five years ago to the day, we had the opportunity to raise our eyes to more distant horizons and rediscover our vocation as a global trading country. But, as became clear, not least in debates in this House, there was a terrific resistance even to doing trade deals with countries as friendly, as aligned to us and as similar to us in GDP as Australia and New Zealand. Although all sides use “trade”, like those Melanesian islanders, actually getting there when it means opening up our markets is altogether more challenging. Although I wish them every success, the Government will find that they have that same dynamic as they approach doing a trade deal with the United States. On paper it is easily done: USMCA standards are very similar to our CPTPP ones. In practice, doing a deal with Trump may be politically more challenging.

It is the same with deregulation. Everyone is in favour of deregulation; everyone talks about it. The Government have written to all the regulators and said, “What are you going to do?” Of course, the one answer that the regulators are not going to volunteer is, “We intend to do less”, “We intend to wind ourselves back”, or “We intend to dissolve ourselves altogether”. Warren Buffett used to say, “Don’t ask the barber whether you need a haircut”—I am not entirely sure what barbers and haircuts are, but I hear people talking about them. By the same token, it seems a strange thing to ask the regulators how to stimulate growth. What stimulates growth is having fewer regulators and less regulation. Again, that is easy to say, hard to deliver.

The toughest one, of course, is cuts in spending. My noble friend Lord Moynihan just last week published volume 2 of his book on how to achieve growth, where he shows with clear and pitiless statistical analysis that the key to growth is to get a larger private sector and a smaller state sector, and that the magic figure is around about a third. If you can get state-controlled spending to less than 33% of GDP, you are in a strong and growing economy. Of course, everyone will nod along again with that and, like the cargo cultists, they will say, “Yes, you know, we need a smaller, more efficient state, doing less but doing it better”. In practice, it is very difficult to get any meaningful cuts.

Both sides play games on this. On the right, people pretend that all manner of money can be got from foreign aid—which is this tiny sum in reality that is overspent again and again—and on the left there is something similar with wealth taxes. Both sides talk about waste and “cracking down on waste”, as though no one has ever thought of it or ever tried it before. The reality is that the vast increases in public spending have come in healthcare and in social security. Unless we are prepared to talk about restraining those budgets, we do not really mean it when we talk about cutting spending. In particular, if you drill down and ask, “Which bit of social security?”, it is pensions. I saw that even Vladimir Putin was not able to raise the pension age—it was the closest he ever came to falling from power—so I sympathise with any democratic Government trying to do it.

I will finish with a cheerful thought. Before we give up in horror and say, “It just can’t be done in a democracy”, or at least, “It can’t be done without a terrible 1976-style crisis”, almost all our problems in terms of the size of the state would be solved if we returned to the levels of state spending that we had in the early Blair years. I think there were a few Members opposite who were part of the Government then, and they will remember that it was perfectly comfortable—we were not living in some kind of Dickensian workshop. So, if we could just return to Blair spending levels, how difficult could that be?