Budget Statement

Lord Lamont of Lerwick Excerpts

Wednesday 3rd November 2021 Grand Committee

[Lord Lamont of Lerwick (Con)]

My Lords, it is an extreme pleasure to follow the right reverend Prelate. I have always believed that the Bishops make a very valuable contribution to this House, which was exemplified in the wonderful speech we heard a few moments ago. She said that she would have a different perspective since she came here from the north-east; I hope she will carry back the message that there are many people here working hard for the ideals she articulated and expressed so well. I am sure she will be missed by not just her colleagues but all of us.

I agree with the noble Lord, Lord Fox, that this debate should have happened in the Chamber. I regret that. Be that as it may, Alistair Darling once observed that nobody could ever foresee the sort of situations that Chancellors of the Exchequer might have to deal with. That applies in spades to the present Chancellor, who could never have envisaged that he would have to deal first with an epidemic, then with its economic consequences—a very deep recession—and now a potential inflationary crisis.

There was some good news to be welcomed in the Chancellor’s speech. We had faster than expected growth, which validated the Bank of England’s forecast—slightly to my surprise. I will concentrate on the fiscal position. The good news there was that borrowing, which had been at 15% of GDP, or £320 billion, came down this year to 7.8% and will be 3.3% next year. These figures, if not normal, are at least getting into the territory of somewhere near normal. Similarly, the stock of debt figures did not max out at 100%, as some had been predicting, but at about 86%. However, I was puzzled—I would appreciate it if my noble friend Lord Agnew could comment on this—as to why the Chancellor quoted figures minus the Bank of England. Why should the stock of debt be quoted minus the Bank of England, when the Government choose to maintain all the time that they are not being financed by the Bank of England?

The Chancellor was helped not just by the £36 billion that he imposed in extra tax increases but by the £35 billion increase in revenues caused by the growth of the economy. He chose to split this between spending and, as was right, strengthening the fiscal position. The noble Lord, Lord Davies, whom we welcome back to his position on the Front Bench today, called this a very Conservative Budget. That was not what everybody thought; that was not the universal reception in the press. Indeed, the noble Lord, Lord Fox, hinted at that; I think one newspaper dubbed it “more Brown than Lawson”.

There seemed to be two Chancellors of the Exchequer speaking in the Budget speech: one who was enjoying trotting out all the spending and describing 800,000 playing fields being financed, and another at the very end of the peroration who was a bit doubtful about all this and expressed a degree of regret about it. At the end of his speech, he said that it was very important to recognise that government has limits. He said it should have limits. The point was very well made. Government expenditure last year reached 53% of GDP—an astonishing figure, well beyond what Roy Jenkins thought was compatible with a civilised and free society. That was 53% of GDP at a time when the tax revenues were only 36% or 37% of GDP, a gap of 17 percentage points. This year, the size of the state, if one wants to call it that, has been reduced back to 42% because of the growth in the economy, so the proportion taken up by public expenditure does not need to be permanent.

As the state grows, so does the tax burden. The noble Lord, Lord Fox, referred to this being the highest tax burden since the 1950s. The Chancellor of the Exchequer made it crystal clear that he was not entirely comfortable with the level of tax and wanted to see the tax burden going down by the end of the Parliament. I share that sentiment, but I think we have to recognise—there has been little recognition of this in some of the speeches we have heard—that we have been through a seismic series of events, which led to a massive fiscal hole. While Conservative MPs cheered the furlough and the bounce-back loans, one wondered where they thought the money would come from and how this would be financed, yet they expressed horror when the Chancellor had to impose taxes amounting to some £36 billion. I kept reading in newspaper accounts of the Budget that the Chancellor’s tax increases were the largest imposed since those of someone called Norman Lamont, so I had some sympathy for him and the situation he found himself in.

We have also to recognise that certain forces are driving up expenditure, whether we like it or not. These are primarily the demands of an ageing population, and of a health service dealing with the demands of an ageing population. The IFS has projected that, in a few years, the NHS could take 44% of programme expenditure. That has led, not for nothing, to people dubbing Britain as the NHS with a state attached to it.

It has to be noted that, while the Chancellor is taking these measures and announcing some big increases in expenditure, the survey period shows that taxes are going up as a proportion of GDP more than expenditure is. Also, our taxes are still below those of other European countries, by quite a long way. I think that only Ireland has tax levels below ours. Taxes and spending are high, perhaps too high as a percentage of GDP, but in the aftermath of a pandemic they can be justified over the short term.

I welcome the fiscal rules that the Government have announced. I hope that the Chancellor will send a copy to his neighbour in No. 10 Downing Street—it is important that he, as First Lord of the Treasury, observes them as well. I think that the Government face two challenges. The first is, as the noble Lord, Lord Fox, said, the rate of growth, which in the later years of the survey period will be below 2%. You cannot finance 3.8% growth in public expenditure on growth of 1.3% or 1.6%. The second is inflation. Many people are predicting that the 4% average inflation forecast by the Bank of England could be an underestimate, both because energy prices might go up and because supply chain interruptions might last into next year. All that will prove a big challenge to the Government. I applaud the fiscal consolidation in the Budget. The Chancellor has risen to one set of problems, but I fear that it is rather like getting to the top of the mountain and discovering that there is another mountain just beyond, which he has yet to climb.