Autumn Statement 2023

Lord Howell of Guildford Excerpts

Wednesday 29th November 2023 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I, too, welcome my noble friend’s arrival at the Treasury, in which, a long time ago, I served as an official. I shall try to find something nice to say about the Treasury, although frankly, it is not terribly easy. I told my noble friend before this debate that I hoped to touch on three questions, and she mentioned them in her excellent opening survey of the scene which we all heard a moment ago.

The first is about the overall policy in dealing with the inflation headline, the rate of inflation and the prospects. It is a sort of mantra of the Treasury, the Bank of England and lots of experts that all cuts in taxation are inflationary: you cannot cut taxation at this delicate and fragile time without raising the rate of inflation. I am not so sure about that. I got a very interesting note from the Library—of course, these figures must be treated with caution—which pointed out that about 28% of total public expenditure, which is about £340 billion, is indexed. In other words, it goes up when the inflation rate goes up and then comes down. That is out of a total of £1,222 billion. So presumably if we can get headline inflation down by one point, straightaway we will save £3.7 billion to £4 billion; by two points, £8 billion, and so on. It is a lot of money.

One therefore asks whether there are some areas where retail taxes being reduced can have an impact on headline inflation? If they can, then you are losing revenue, but you are also saving expenditure on a very large scale. I sometimes wonder whether the Treasury has worked out some of these things. The figures are very big indeed.

That is quite distinct from the other indexing point, of course, which is that higher interest rates immediately raise the amount that the Government have to pay in debt payments for their borrowings. These were running at £116 billion a year. I think they have come down a little, but it would be interesting to know, if my noble friend can provide the figures, what a one-point interest rate fall involves in reducing public expenditure. There is a sort of swings-and-roundabout element here that we do not hear very much about. I hope that my noble friend will talk a little more about it.

The cost of debt servicing is 5.2% of total public expenditure, which is a lot. That is 3.8% of GDP, so any increase in interest rates, which the Bank of England firmly says is to cut inflation, has a big inflationary element built into it as well. These things are not straightforward. Does the Bank of England take this into account? We never hear any statement of the kind that recognises that raising interest rates, which is said to be the necessary medicine for curbing inflation, has a huge inflationary punch in it. I have been given a figure that indicates that every 1% on the inflation rate and every 1% on interest rates costs the Treasury £26 billion. That is inflation, not deflation. These are very complex matters that tend to be pushed out of the debate.

Long ago, in the time of Ted Heath, he used to get very annoyed because he felt that the Bank of England and the Treasury were playing a “one-golf club game”. All they had in their golf bag was this one club which said, “Push up interest rates and push down all forms of government expenditure and that will somehow solve the inflation problem”. It does not work out quite that way. These things are not straightforward, so anything more on that would be very helpful.

My second point is that it is rather curious that missing from the Autumn Statement and the Green Book, which we have all been given, is a rather serious item. The Green Book says that the Government are focusing on five important areas, including education, rewarding hard work—we all want that—backing British business, world-class education, building domestic and sustainable energy, and other desirable aims. That is all very nice, but one enormous thing is missing. This is where our history gets a little distorted. In the Thatcher times, it was said that Mrs Thatcher and Geoffrey Howe were very keen on balancing the budget, and certainly Geoffrey Howe—my dear friend and a wonderful man—ran a very tight ship. However, that was not our priority. Our priority was trying to restore the balance in an unbalanced economy, which was grossly overweighted on the state side. Most of our giant industries were nationalised. Half of British industry was in the state sector, and we wished to pull the pendulum back to the middle and get a better balance between the state and the private sector. To that end, we concentrated on enormous efforts that had considerable success. We succeeded in rebalancing the economy in a less socialised way. We still wanted an efficient state sector of course, as the noble Lord, Lord Eatwell, said we must have; but we did not want a greedy public sector. That was the danger right from the start: that we were being sunk again and again by a huge, overexpanded and constantly growing public sector. The mechanism for bringing that down is a very important part of the story and, at the moment, it does not appear to be there.

Thirdly, my noble friend Lord Maude is reported to be advocating that, in order to get a tougher approach on public spending, we should split the Treasury between its various functions of being a bureau of the Budget and the ministry of economics. I would be interested to hear the Government’s view on that proposition, particularly as, if we are talking about public sector capital investment, that is always the orphan. If the investment comes from the public sector, it tends to be a leftover from current pressures and political demands on the budget. That is why a great deal of the infrastructure needed in this country is going to have to come from the private sector.

That was the third matter. I have a fourth one, in my last few seconds. Please can we pay serious attention to more democratic capitalism—that is, wider share ownership and wider involvement by everybody, rather than just the few, in the growth of assets? This is not a good advertisement for capitalism. Capitalism does work but it works best of all when it is democratised, even socialised. I note that the Chancellor is trying to expand people’s involvement in the stock market and asset ownership; we need a lot more of that. Can I have a comment from the Minister on that as well?