Comprehensive Spending Review

Lord Low of Dalston Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Low of Dalston]

My Lords, I hope that the Minister will have got the message that we are beginning to get rather tired of the partisan rhetoric about train crashes and the like, to which we are habitually treated as a characterisation of the situation that the coalition faced on coming into office. Such rhetoric is, for one thing, exaggerated and, for another, quite wrong. I would expect a greater degree of clear-sighted objectivity from this House in considering the origins of our present difficulties, which clearly lie with the excesses of finance capitalism rather than with the Labour Government. It was Gordon Brown, not George Osborne, who brought us back from the brink. Gordon Brown may not have been a very good fox, but he was a pretty good hedgehog—noble Lords will remember that the fox knows many things but the hedgehog knows one big thing.

I have taken some trouble, with the help of the Library, to try to get an objective handle on our financial position, amid all the claims and counterclaims that are made. As always, it is not difficult to use the statistics selectively so people will refer to structural deficit or debt and use OECD and G7 countries as the comparator as best suits their argument. The most dispassionate assessment that I can make is that our structural deficit was larger than that of most OECD and G7 countries as we entered the recession and our level of public sector net debt was higher than that of most OECD but not most G7 countries—not the big ones. However, our total public sector borrowing requirement was a manageable 2.6 per cent of GDP, similar to that inherited from the previous Government, and the level of public sector net debt was actually lower. The level of indebtedness has since gone up sharply for what I would argue were unavoidable reasons—much more unavoidable than the measures contained in the comprehensive spending review.

Those measures are intended to reduce the debt, but the results of attempts to do the same thing by similar means in the 1920s and 1930s are not encouraging. Between 1919 and 1923, national debt rose from 135 per cent of GDP to 180 per cent; between 1929 and 1933, it rose from 160 per cent to 180 per cent. The OECD says that about half of fiscal contractions in the EU in the past 30 years have led to growth in the economy, and it cites Canada, Denmark and Ireland as examples—though Ireland might not provide such a good model at present. There was recovery following the fiscal contractions of 1931 and the early 1980s, but in a very good article in this week’s New Statesman, the noble Lord, Lord Skidelsky, argues persuasively that that had much more to do with the abandonment of the gold standard and the loosening in monetary policy than with fiscal consolidation.

Whatever view you take, it seems that the macroeconomic judgment of the CSR is just that—a judgment—and some would say it is a gamble. Whatever it is, the proposed measures are certainly not unavoidable. As the noble Lord, Lord Haskel, said, they put the interests of bankers, markets and the institutions of finance capital—what used to be referred to as the ruling class, although that perhaps makes me even more of a lefty than the noble Lord, Lord Haskel—before the interests of the ordinary citizens of this country. To be honest, it does not seem to me that Labour’s ideas are a whole lot better; I would describe them as “coalition-lite”. At all events, in circumstances when the harm done to the fabric of our society by the CSR is palpable and certain but its benefits are at best speculative, I agree with the noble Lord, Lord Haskel, that it is incumbent on the Government to search for an alternative strategy that subordinates the interests of the financial system to those of ordinary people.

The financial system is only a means, not an end. Instead of terrorising us with spectres of debt so that we forget our own interests, the Government should be demystifying the debt, a good part of which is owed only to ourselves in the form of pension funds and the like—as the noble Lord, Lord Foulkes, clearly demonstrated—and is not nearly as astronomical as we are asked to believe. At the end of the Second World War, according to the UK Debt Management Office, the national debt stood at 252 per cent of GDP, as opposed to a mere 50 per cent or so at present. That debt was paid off over a much longer period than is currently proposed and, during that period, we managed to implement the Beveridge reforms and found the National Health Service. That is the sort of framework in which we ought to seek the solution to our present difficulties.

Moving on from the strategy to the specifics of implementation, although a great deal could be said—I associate myself with the remarks of the noble Baroness, Lady Campbell, about the withdrawal of the mobility component of DLA from those in residential accommodation—I shall concentrate in the short time that I have left on the Government’s decision to limit contributory employment and support allowance to 12 months. I believe that that will cause great hardship. The Government’s decision fails to recognise three key points. First, those who have paid into the system through tax and national insurance have a right to expect that, if they become sick or disabled, the benefits system will support them as they come to terms with their impairment, gain access to rehabilitation services, retrain, learn new life skills and then move towards work. They paid in in the belief that they could rely on such support. The proposed change has not been consulted on and is a radical redrawing of the contract between the citizen and the state.

Secondly, it is completely arbitrary to say that everyone must find work within 12 months or lose a benefit for which they have contributed. Every individual is different in their journey towards work. Most important of all, there are simply not the jobs to enable everyone on ESA to get a job within 12 months. Since 2008, long-term unemployment has almost doubled to 797,000 while vacancies have fallen to 467,000. That leaves a deficit of 330,000 jobs. The impact is therefore clear. The Government will be means-testing large numbers of people on the work programme and ending their contributory ESA before they find work. Not only is that sadistically harsh, but it comes at completely the wrong time, as the noble Baroness, Lady Kennedy of The Shaws, has said. It is also self-defeating, and will completely undermine the welcome objectives set out in 21st Century Welfare, which, as the noble Baroness, Lady Hollis, has said, we all support. I will not be surprised if the time limiting of ESA, together with the changes to DLA and housing benefit contained in the CSR, come to be totemic symbols of coalition heartlessness such as the ending of free school milk in an earlier age.

Finally, the majority of the 1.5 million incapacity benefit claimants who are due to be migrated on to ESA over the next three years will face the same 12 month limit and means test. That is because the majority of those are expected to pass the new work capability assessment and be allocated to the work-related activity group. The vast majority of IB claimants have been on the benefit for five years or more, which means that they have complex needs in terms of making the journey back to work. Complex needs require time to address them; the time-limiting policy completely disregards that. Have the Government made any assessment of the proportion of claimants who will qualify for income-based support as they come off ESA? I should be grateful if the Minister could enlighten me.

The damaging and unjust consequences of time limiting ESA are just one of many reasons—the noble Baroness, Lady Hollis, has instanced a string of further examples of perversity—why the Government should seriously rethink the CSR. If they refuse to do so, I would not mind betting that they will be forced to do so in due course.