Economy

Lord Low of Dalston Excerpts

Thursday 10th September 2015 Lords Chamber

[Lord Low of Dalston (CB)]

My Lords, I thank the noble Lord, Lord Haskel, for introducing this important debate on a subject that must be on all our minds: what kind of state the economy will be in once we get beyond this damaging austerity—not that the prospect seems all that imminent.

I say “damaging austerity”, but not everybody seems to see it that way. Some people—let us not be mealy-mouthed about this: the Chancellor and his acolytes—far from seeing austerity as a bad thing, or at best a regrettable necessity, seem to see it as a good thing. As the noble Lord, Lord Turnbull, said the other day, they seem to relish the opportunity to shrink the state back to levels not seen since the 1950s, except perhaps for a time at the end of the last period of Conservative government in the 1990s, with public expenditure set to fall to just over 36% of GDP by the end of this Parliament.

In contrast with the noble Lord, Lord Howell, I wish to take issue with this perspective and maintain that public expenditure, properly managed and controlled, is a good thing. It has been responsible for the vast improvement in the welfare of our citizens over the last 100 to 150 years. It has made major inroads into Beveridge’s giant evils of squalor, ignorance, want, idleness and disease. To take just a few examples at random, it has given us old age pensions, compensation for industrial injury, great improvements in access and provision for disabled people, a flourishing of the arts and much more besides.

One good thing to have come out of the Labour leadership election is that it has brought discussion of an economic policy aimed at combating austerity, rather than imposing it, into the mainstream. More than 40 economists wrote to the Observer in support of Corbynomics and 55 to the Financial Times against, which I suppose just goes to confirm that, however many economists you put end to end, they would never reach a conclusion. But the important point is that there is a discussion. In passing, one thing economists do seem to agree about is the wrong-headedness of the Chancellor’s plans for permanent Budget surpluses. To me, as a non-economist, it seems that the Corbynistas are getting the best of the argument.

The charge against Corbyn was summed up in a New Statesman editorial in the issue of 20 August to 27 August, as,

“the policy of a ‘people’s quantitative easing’ would risk rampant inflation and is not a sustainable means of financing infrastructure programmes”.

Let us take that in bite-sized chunks. “People’s QE” is rather disparagingly referred to as “printing money”. It is, but that is no different from what the Bank of England has been doing for the last few years. As regards rampant inflation, this policy might contribute to inflation in the longer term but that is not a risk at the moment with interest rates still at record lows in a very lukewarm recovery.

As regards this policy not being,

“a sustainable means of financing infrastructure programmes”,

the operative word here is “sustainable”. QE is probably not a sustainable means of financing infrastructure programmes in the longer term for the reason just stated, as well as Bank of England independence, but it might kick-start the process. However, this would probably not be necessary as Corbyn has other proposals for funding infrastructure investment—namely, a national investment bank.

There is discussion among Corbyn supporters on whether conventional borrowing would not be a more appropriate way of capitalising a national investment bank. These are matters of emphasis which can probably be resolved. The important point is that even the 55 economists critical of Corbynomics agree that, at this time of very low interest rates, much-needed public investment can be financed by conventional borrowing.

The time limits have not left much time to talk about the key question posed by this debate—namely, what awaits us post austerity. I fear that the answer is not very encouraging. This is one of the most fragile recoveries in history. Fuelled by ballooning household debt, it contains the seeds of its own destruction. What happens when interest rates rise? Another crash, but that is likely to be only a staging post in a self-reinforcing downward spiral, and the Chinese slow-down is not going to help either.

The demise of capitalism has oft been predicted, but it has shown itself to be remarkably resilient. The future of capitalism is a subject for another debate, but there must be a question about how long we can continue to rely on this resilience.