Queen’s Speech

Lord Marlesford Excerpts

Thursday 5th June 2014 Lords Chamber

[Lord Marlesford (Con)]

My Lords, I suggest to the Opposition Front Bench that the continuing message from the opinion polls, as confirmed by the results of the European Parliament elections a couple of weeks ago, is that criticism from Mr Miliband or Mr Balls of how the Government have handled the economy is very unconvincing.

The Chancellor has taken us out of the recession. That is what matters. Britain is growing at 3.3%, the same as Germany and much more than the USA. Socialist France, under the disastrous M Hollande, who is, in some ways, as weird as Mr Miliband, is growing at a derisory 0.1%. Italy is still in recession. Even with Germany to help it, the eurozone is making only 0.8% growth, while the rate in Britain is 3.3%. Unemployment, on the ILO basis, in the last quarter of 2013 was 7.1% in Britain while the rate in the eurozone was 12%, with France at 10.8%, Italy at 12.7% and Spain at a horrific 25%. The US rate is 7% and in Germany it is an enviable 5.1%. Net borrowing has been greatly reduced from 11% of GDP during Labour’s last year in office to 6.6% in 2013-14. However, not surprisingly, net debt—that is, the total government borrowing—is still far too high at 76% of GDP, well above the comparable Maastricht 60% target. We had been well below the Maastricht limit for more than 30 years until Gordon Brown so unwisely took the brakes off the economy. Inflation, the monster we must never forget, is not on the horizon but is never off the map. In 2010, using the old RPI, which I believe to be a much better indicator than the CPI, it was 4.8% and is currently 2.5%.

All this, of course, involved a period of austerity, with most of us seeing our take-home earnings falling in real terms over the past four years. Mr Miliband says that all this could have been achieved without the pain of austerity. Indeed, he implies that he would take the brakes off again. That reminds me of the story of Columbus and the egg. When Columbus came back from discovering America, the King of Spain gave him a great banquet and everyone praised him. Some of the courtiers were rather jealous. They said, “We could have done that, too. Why all this praise for Columbus?”. Columbus—after dinner, admittedly—took an egg and asked, “Can anybody balance this egg on its end?”. They all tried and of course could not do so. He tapped the bottom of the egg until it was nice and flat, and made it stand on its end. They all said, “We could have done that”. “Yes”, he said, “when I had shown you how”.

Having given priority to the views of Mr Miliband, let me come on to the advice we are getting from the EU on how we should run our economy. When I read it, I was reminded of the remark of the great Clement Attlee to Harold Laski when he was at his most loquacious:

“A period of silence on your part would be welcome”.

I would make one point on the EU and tax. Following the European Parliament elections, the Commission really must face up to the impracticality of the financial transaction tax unless it is operated on a global basis. Sub-Committee A of the EU Committee, which I am about to leave after four stimulating years under the excellent chairmanship of the noble Lord, Lord Harrison, spent many months pointing out that the FTT was potentially deeply damaging to Britain’s position as Europe’s financial centre. London is one of the three great financial centres of the world, along with New York and Hong Kong. Now that there is diminishing support for the FTT, it should be abandoned and there should be a focus on introducing a workable stamp duty.

I want to mention one particular worry over the economy—the amount of toxic debt that still lurks. I want to take one item only as an example: the level of credit card debt that has overrun. It is not the debt that you and I pay off each month, but what is not being paid off and is therefore subject to very high rates of interest—anything between 16% and 26%. On the whole, few people can afford to borrow at such rates. Certainly, the sort of people who use credit cards to do so cannot afford it. It is basically unsecured debt and is therefore highly toxic. The last time the banks sold off this debt to the debt collectors they received between 8p and 12p in the pound for it. The level of that debt is currently more than £57 billion—more than £1,000 for every adult in the UK. It is also more than 20% of the market cap of all five big banks put together. In terms of stress tests on banks, we are talking serious money. Let us be clear that this consumer debt is completely different from mortgage debt, which is, to a large extent, secured by the houses on which it is made. The percentage growth in overrun credit card debt is interesting. It had been in single figures until the middle 1990s. It increased to 13% by the start of 1995, it increased hugely to 25% a year later and it has only recently started to come down again. Actually, it is beginning to creep up again. There is, for me, an unsolved mystery in the difference between the monthly figures published by the British Bankers’ Association and those published by the Bank of England. I am trying to discover the reasons.

Finally, I turn to the issue of how to deal with the taxation of residential property. One way not to do it is through the mansion tax proposals, so unwisely postulated by Dr Cable before he had begun to work out how to do it, and foolishly picked up by Mr Miliband. If Mr Miliband were to read the memoirs of the noble Lord, Lord Healey, he would see a warning on how not to introduce a wealth tax until you have worked out the details. Noble Lords will remember that Mr Healey tried to introduce a wealth tax in the 1970s. A lot of obstacles appeared and the proposal was referred to a Commons Select Committee, which said that the scheme could not work—and Mr Healey wisely abandoned it.

However, we all accept that although council tax was an excellent replacement for the disastrous poll tax, it has been hugely overtaken by the housing boom. To have eight bands, A to H, based on April 1991 house values, with top band H representing houses worth more than £320,000, is wholly inadequate when so many properties are making millions. There is an understandable and justifiable demand for those with much more expensive houses to pay a higher rate of tax of some form or other. I propose a completely new set of bands that could be called I to P, with the lower band, I, representing houses below a value of £500,000. The bands would then increase: from £500,000 to £1 million, from £1 million to £2 million, from £2 million to £5 million, from £5 million to £10 million, from £10 million to £15 million, from £15 million to £20 million, and over £20 million. One could have much higher rates of council tax on that basis. The key would be not to impose the new rates on all houses now because there would be, first, the gigantic problem of revaluation and, secondly, all the anachronisms of people who have lived for a long time in a house that is much more valuable than they would now be able to afford. There would be an element of retrospection in that. I suggest that the new bands, from the moment they were approved by Parliament, would apply to all subsequent domestic property acquisitions. They would be based on actual market prices, not arguable notional prices based on what district valuers think properties are worth. They find it difficult enough even to work out inheritance tax, let alone value every house. One would use the figures reported to the registrar, and people would know what they were in for when they bought a house. The system would not be retrospective; it would be workable and the sooner we introduce it, the better.