Queen’s Speech

Lord Low of Dalston Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Low of Dalston]

My Lords, I, too, congratulate our two maiden speakers, and have pleasure in adding my word of welcome to the House. I was astonished still to see a House of Lords reform Bill in the gracious Speech after the local election results. As the noble Lord, Lord Bilimoria, said earlier, a clearer case of fiddling while Rome burns it would be hard to imagine.

But to Rome burning, which is the matter in hand. It is hard to say anything that has not been said many times over here, but as there is little sign that the Government are listening it might just be worth saying again. We have heard about the enormity of the challenge facing the Government on taking office, and that is not denied, although there might be dispute about the reason for it. What is at issue is the right way of going about dealing with it. To begin with the unpalatable but ineluctable facts, the Government’s policy is not working. I am not just saying that as some kind of parti pris politician or economist; I am just saying what any fool knows.

After gathering momentum out of recession under the last Government, the economy has essentially seen no growth at all since the autumn of 2010. Output is still more than 4% below its peak in 2008 and probably will not regain that level until some time in 2014. This is a far longer period of depressed output even than the great depression. The official forecast at the time of the emergency Budget of June 2010 was that we would now be growing at over 2.5%, with unemployment falling sharply. Instead we see not just low growth but continued high deficits as well. Indeed, in the past year, the deficit on current spending hardly changed, with almost all reduction in the total deficit coming from cuts in investment spending. While the deficit may have edged down, however, net debt has risen from 43.5% of GDP in 2008-09 to 66% in 2011-12, and is set to reach 76% in 2015-16.

We have debated the Government’s economic policy on a number of occasions in this House over the last couple of years, and a number of your Lordships have been concerned to argue that it was unlikely to work, but they were forced to admit that they just did not know. Now, however, with the advent of double-dip recession, we do. I do not know whether the Minister will try to pretend otherwise this evening. However, if he does, we will know that he is just whistling in the dark for we have the advantage of a sort of controlled experiment on which to draw. While Europe has been following the path of fiscal contraction—most notably, of course, in the UK, with the recessionary consequences that we all know about—the USA has been applying a fiscal stimulus, with startlingly different results. People argue about the extent of the stimulus and just how startling the difference is, but that there has been a stimulus leading to growth of around 2% per annum is undeniable. Therefore, we have a clear correlation here: with contraction goes recession; with stimulus goes growth.

Last October, at Question Time, I put it to the noble Baroness, Lady Wilcox, that the Government had got their policies in the wrong order, and asked:

“Instead of pursuing deficit reduction in the short term and growth in the medium to longer term, should they not be pursuing growth in the short term and deficit reduction in the medium to longer term?”.—[Official Report, 11/10/2011; col. 1526.]

With different emphasis, everyone recognises this now and is calling for a greater degree of flexibility. Business is calling for it. Even the markets—the Government’s cover for doing nothing—are calling for it. In truth, the Government recognise it: hence the various plans for growth with which we have been regaled over the months, which have all come to naught and which are bound to come to naught while the Government go on pursuing their self-defeating policy—what the noble Lord, Lord Skidelsky, dubbed their insane policy a couple of Queen’s Speeches ago—of retrenchment and austerity, which is essentially antithetical to growth.

Indeed, the Chancellor has had to extend the horizon for reaching his deficit reduction target by two years and allow debt to rise by £150 billion: hence we now have the ultimate irony of the ratings agencies putting the UK on negative alert. Clearly, the Prime Minister has learnt nothing from his time as special adviser to the noble Lord, Lord Lamont, who, in his recovery budget of 1993, explicitly postponed fiscal retrenchment until growth had been given a chance to take hold. In fact, the Government did not start cutting the structural deficit at all until 1994-95, by which time the economy had been growing for 18 months—by then at a very healthy pace of over 3%.

The Government say that you cannot borrow and spend your way out of recession. It is usually said that you cannot do so at an individual level but that you can do so macroeconomically; actually, you might be able to at an individual level if you happened to strike lucky on the 3.30 or the lottery. However, at the macroeconomic level you can borrow to invest in jobs and growth—for some people, this is counterintuitive—thus creating a virtuous circle rather than the vicious one that we are in at the moment, with the bulk of the cuts still to bite and incalculable damage already being done to the fabric of our society. The National Institute of Economic and Social Research has calculated that at current very low rates of interest you could finance extremely cheaply—for example, with the revenue raised by the “pasty tax”—a £30 billion programme of infrastructure investment on things such as roads, schools and hospitals, which have been cut by half over the past three years and will be cut still further over the next two. What you cannot do is cut, tax and save your way out of recession.

I asked an economist friend why he thought that the Government kept pursuing this insane policy, and he replied, “Well, they like cutting, don’t they?”. This was rather confirmed by the noble Lord, Lord Sassoon, on 22 March, when he said:

“As the Government, we have to continue to reduce the burden of the state. If we do that, the economy will flourish”.—[Official Report, 22/3/12; col. 1031.]

So what takes the place of the state? Is it the big society? But that is being cut too and we should remember that it was the state that had to step in to remedy the inadequacy of the big society. The other possibility is that the PM and Chancellor have just painted themselves into a corner with their rhetoric about not spending your way out of recession. However, as we have seen, the markets are now calling for a more flexible approach and the agencies have put the UK on negative alert.

One thing that the Government are good at is fixing Labour with responsibility for the crisis, and we have heard more of that this afternoon. However, that debases the currency of debate. If the eurozone crisis has a part to play today, the global crash must be accorded a role in 2008. What is sauce for the goose is sauce for the gander, and the Government should admit that they would have had to do much the same as Labour or else we would all have gone under. It is disappointing that Labour has not made a more convincing fist of pointing the way to an alternative. Until it can, disillusion with the political process will grow and Mr Galloway will continue to find a ready ear for his message that what we are witnessing is a crisis of capitalism in which the poor are expected to carry the can for the greed and mismanagement of the capitalist class. The Greeks are indicating that they have had enough. Other countries will not be far behind. The zeitgeist is shifting as between austerity and growth.

I end with three predictions. First, the first quarter figures will be revised upwards to show that we are not in a double-dip recession. Secondly, the next three quarters will show zero growth, give or take. Thirdly, unless the Government change course pretty soon, they will be swept from power at the next election.