Budget Statement

Lord Horam Excerpts

Thursday 27th March 2014 Lords Chamber

[Lord Horam (Con)]

My Lords, I heard the speech of the noble Lord, Lord Desai, last year, and I greatly enjoyed it as he always talks with such wisdom. I enjoyed it even more this year. If one had to conduct a Desai test before Budgets, this one would definitely pass by comparison with some of the others. During his long career in politics and economics, the noble Lord, Lord Desai, founded the Centre for the Study of Global Governance. I do not know whether he would agree, but whether it is global governance or national governance, successful governance is always a balance between competence and fairness. One can reinforce the other.

If we look at the Budget from that point of view, it was a distinct success on the side of fairness. I echo what my noble friend Lord Sheikh said about raising the income tax threshold. That was one of the most significant things in the Budget and one of the top two or three priorities. Liberal Democrats claim great credit on this front, and I would give them a fair measure of credit, but none the less it was clearly a success, whoever claims it. When Labour left office people were paying income tax on £5,600 a year. It was scandalous that they paid income tax on such a low level of pay. The income tax threshold is now rising to £10,000 a year and from next year it will be £10,500. It cost £12 billion to make this change, which is undoubtedly a big ticket item by any standard, but it was the right thing to do.

The Chancellor has also accepted the Low Pay Unit’s recommendation for raising the minimum wage and is generally encouraging about the living wage. The noble Lord, Lord Haskel, mentioned that in his speech and I entirely agree with what he said. It is not just a matter of rewarding people for their restraint, which has been considerable in the past three or four years, but producing an economy that has an incentive for higher productivity. Subsidising low wages is no good at all in the long run. There may be some sort of consensus, at least on the Back Benches, about this issue. That is also an area in which the Government are absolutely on the right lines. Companies that are cash rich can certainly afford higher pay now. Given that inflation is less than 2%—1.7% on the latest reading—there should be no adverse effect on that.

With regard to competence, the Chancellor clearly was right to keep a firm grip on government spending. I recognise that there has been a lot of criticism of him over the past two or three years from what I call a Keynesian point of view. As someone who read economics at Cambridge when the influence of Keynes was very high in the late 1950s and early 1960s, I can well understand that point of view and where it is coming from. The noble Lord, Lord Hollick, made that point and others will no doubt do so. I see the noble Lord, Lord Skidelsky, in his place. As the biographer of Keynes, I defer entirely to him.

None the less, it is fair to make two points. First, as the noble Lord, Lord Desai, said, to some extent we are in a post-Keynesian situation. Things have moved on since Keynes was alive and doing his marvellous work in economics, for which we are all still greatly indebted. Secondly, the Chancellor has been extremely flexible. He has considered these points and has steered a middle course—a third way, if you like—between a classic Keynesian point of view and a non-Keynesian point of view. He has been flexible and sensible. The noble Lord, Lord Hollick, quoted Anatole Kaletsky as saying that the Chancellor is a stealth convert to Keynesianism. The Chancellor has proved able to learn from experience and reality and has provided a way forward which makes total sense to me. That is now history. We are now at the turning point. We have economic growth again and the question is how this can best be sustained. As I said, companies have cash in the bank, demand is increasing, which is what they need, and it is a good time to ramp up incentives to invest. Therefore, the Government’s approach is welcome.

As has been pointed out, we also need more public investment. We are a small and crowded island with strong democratic procedures in place. Therefore, it is always hideously difficult to get public investment going with any sense of urgency. However, I am sure that, given the background of the noble Lord, Lord Deighton, and his success in the Olympics, we have the right man in place to get public investment going.

In that context, as one who was born in north Lancashire and takes his title from that area, I am all in favour of fracking. I am certain that a sensible regime that both rewards the local communities that sit on top of the Bowland shale and allows the exploitation of gas and oil to proceed to the benefit of the economy and our economic security can be constructed. However, at the moment, mixed signals are coming from the Government about this. The Prime Minister is saying that it can be done quite quickly, possibly during the course of this year—there may be evidence on the ground—but the companies are saying something quite different and that we might not get a reasonable amount of production until the end of the decade. I would be grateful if the Minister could clarify the situation. It is important to have a good understanding of what is happening in this area.

Just as important as infrastructure are human skills and it is for that reason that I am strong supporter of what the Secretary of State for Education is doing. In all fairness, he is building on the work of the previous Labour Government in initiatives such as Teach First and the academy programme, but he is pushing forward with a vigour—some might say a ruthlessness, but a relentlessness anyway—that is, I hope, transformational. This is hugely important. It is just as important as infrastructure investment.

All that is very good but I must stress, as we have all done in different ways, that the economic recovery is fragile and there are some clear threats on the horizon. One, of course, concerns the economic measures which it may be necessary to take to deal with the political situation in Ukraine. Soft power should be used—I am right behind that—but it may come with a big economic penalty. It is an economic penalty we should pay, but it will none the less be there.

The second threat comes from deflation in the eurozone. Undoubtedly, the European Central Bank has done a good job in averting disaster and restoring a good measure of confidence. However, it now faces a much harder task in avoiding a prolonged period of Japanese-style deflation. If that materialises, we shall certainly suffer in the UK.

A further threat comes from the situation in China. For some years now, the Chinese economy has been propped up by debt-fuelled investment—I do not know what the noble Lord, Lord Desai, thinks about that—much of which has been squandered on speculative property ventures, useless infrastructure and excess manufacturing capacity. Now the day of reckoning is coming in China, I fear. There will be defaults of companies and credit will have to be reduced. That will have a considerable impact on the rate of growth of the Chinese economy, which will hurt us and the whole world.

Finally, we have our own imperfections. We are still not very good at exports; productivity is behind our rivals in Europe; and we are still too dependent on debt, rising house prices and domestic consumption. Therefore, there is undoubtedly a great deal to do. There is no room for complacency. The Budget has reinforced my view that the Government are heading in the right direction and I hope that they will keep to it.