UK Economy: Growth, Inflation and Productivity

Lord Liddle Excerpts

Thursday 29th June 2023 Lords Chamber

[Lord Liddle (Lab)]

My Lords, I congratulate my noble friend Lord Eatwell on the brilliant clarity of his introduction to this debate. I also congratulate the noble Lord, Lord Sahota, who is a relatively new noble friend. I am not going to talk about Brexit, but I agree with virtually everything he said.

If we have a change of Government, which I am sure we will, it is clear that a Labour Government are going to inherit a situation of great economic difficulty, if not crisis. How do we deal with that? Robert Shrimsley had a very good column in the FT this morning about how to offer hope in this situation. One thing we have to do is to listen to a former Chancellor like the noble Lord, Lord Lamont. Inflation is a big problem, and a Labour Government will have to tackle it. I did not agree with everything he said, but on that fundamental point I think he is right. So how do we tackle inflation and do something to offer people hope as well?

I do not think there are any quick fixes. My life in politics started off with the Maudling boom, which led to the balance of payments difficulties that Harold Wilson had such difficulty grappling with. We then had the Barber boom, the second Wilson Government and the problems of very high inflation and all that. We had the Lawson boom at the end of the 1980s, which contributed to some of the difficulties that the noble Lord, Lord Lamont, had to grapple with. In a way, the Truss experiment was a repeat of that. The only thing is that in the intervening decades, the financial markets have got much quicker at reacting to problems.

It is very important that the Government do not think that they can break their own fiscal rules. They have to maintain the confidence of the financial markets if they are going to succeed. I am not an advocate of austerity—I think mistakes were made in the post-2010 period—but I am an advocate of stability. We have to prioritise stability.

If there is a parallel, it is when I first started working as an adviser for Tony Blair and Gordon Brown. It was in the 1992 Parliament, when the noble Lord, Lord Lamont, was Chancellor, and there was tremendous pressure from Back-Bench Labour MPs for us to support a great Keynesian expansion. Gordon stood out against that with absolute firmness and determination because he knew that that was not the way forward. I expect the same of Rachel Reeves, and I am very hopeful about that.

We have to somehow find a means of prioritising investment. In public services, the focus has to be on investing money now to save money in the medium to long term so that we reduce the pressure for further public spending increases. I can cite lots of examples where you could make a case: adult social care, the MacAlister report on children’s social care, education catch-up and making the NHS more community-focused and less hospital-focused. If we come up with those kinds of proposals, we have to have rigorous independent monitoring of them to ensure that their objectives are achieved and the targets met. We have to bring into government people with fresh ideas about how to run public services.

More importantly, we have to invest to grow. If we can find projects that produce a higher return than the borrowing we have to secure, it is logical to go ahead with them. However, at the same time, we have to find a way of meeting our debt rule in the medium to longer term. I support a modern industrial policy. We have to have policies that focus on competition; getting better access to the European single market; skills; R&D; and infrastructure. We also have to have a modern industrial policy that looks at sectors, such as the car industry, and sees what can be done to save them. Production has halved in the past three years; what are we going to do to save it? There seems to be a lack of urgency on the part of the present Government.

My final point is also on industrial policy. Again, it has to be rigorous. We have to have independent assessment of the investments we make; it cannot be done on the basis of ministerial favours and handouts. The next Labour Government should prioritise the policy of investing prudently in our future. That is how they will make a difference.