Budget Statement

Lord McFall of Alcluith Excerpts

Wednesday 23rd March 2016 Grand Committee

[Lord McFall of Alcluith (Lab)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Higgins, and others. First, I congratulate the noble Lord, Lord Price, on his excellent maiden speech—I do not think he is in his place at the moment—and on his wise stewardship of John Lewis and Waitrose over many years. It is an example of an outstanding business. Like others, I have a vested interest because a Waitrose has opened in Helensburgh in my former constituency. I hope that this message reaches the noble Lord because the supermarket has a two-hour parking waiting limit. My family say that that was totally unsuitable for my wife, who loves to go and meet her friends there. If the noble Lord, Lord Price, could intervene to ensure that her car is not clamped after two hours, it would do me very well.

I congratulate the noble Baroness, Lady Knight, not only on her speech but on her sterling service in Parliament from 1966 to 1997. I shared more than a decade with her in the House of Commons. She was always pithy and relevant in her comments, sometimes rather controversial—but we will leave out the controversial aspects today because it is a lovely day. She served her constituents and Parliament exceedingly well. I think that she is in the record books as being the first Member of Parliament to be succeeded by another woman Member of Parliament for her constituency, so I offer her many congratulations on that, too.

I made a speech on the Autumn Statement in December, just over four months ago, and said then that,

“we have had four Budgets and Autumn Statements but all they have done is to serve to confuse, not clarify. My first plea is: let us stop the nonsense of this plethora of set pieces for the Chancellor and go back to the time when there was one Budget per annum. Then we might have some sense in our debate”.—[Official Report, 3/12/15; col. 1209.]

If the Chancellor had listened to that, we would not have got into the jam that we are in today. My prescience on the matter might best be described as the unimportance of being correct.

One of my favourite authors is Joan Didion, the American author. She wrote a stunning and very moving book, The Year of Magical Thinking—I do not know whether any of your Lordships have read it, but it is a fantastic book. It is focused on the story of a year spent wishing. I thought of the title of that book when we had this Budget because the Chancellor did not get even one week of thinking or wishing as a result of it before the Budget dissolved. Some of his own colleagues have called it nothing other than a fiddler’s charter.

I have been thinking about the Budget in terms of being a customer of a bank, where I would put the moneys into thousands rather than the billions that the Government mentioned. I would walk into my bank and ask the bank manager for £55,000, which is the black hole in the Government’s figures at the moment. But I would tell him, “By the way, I’m giving away £4,000 of that £55,000. And, by the way, my income over the next five years is reducing because the economy is getting smaller. And, by the way, I’ll not be working as hard because my productivity will be down”. That is what the OBR has told us. I feel that a wise bank manager would show me the door pretty readily.

My noble friend Lord Darling has asked already in an excellent speech who would believe that a £21.4 billion deficit in 2018-19 could become a £10.4 billion surplus in 2019-20. Contrary to all recent history, the Chancellor would be inflicting an incredibly painful fiscal tightening one year before an election. It does not make sense. By the way, the national debt at that point is estimated to be £2 trillion. It is okay if the national debt increases when the economy is increasing, but the economy is decreasing. Here we have a debt of £870 billion which the Government inherited from the Labour Government in 2010 which has now increased by 130% to £2 trillion. The IFS is very clear that the economy was £18 billion smaller than expected in 2015. It went on to say that if the forecasts for economic growth and productivity from a few months ago in the Budget are correct,

“we should all be very worried”.

So there is lower wage growth and a smaller economy, and productivity is bombing. In terms of productivity, the ONS is clear that the current estimates suggest that the absence of productivity growth in the seven years since 2007 is unprecedented in the post-war period. That would be okay if it was predicated on sound economic forecasts, but the £3.5 billion tax breaks for small business and higher personal allowances for income tax are based on what the OBR calls “highly uncertain” projected revenues from tax-avoidance measures.

These are measures to collect tax from those funnelling cash into tax havens. The Government estimate for that was £1.05 billion, but the OBR has said that there is a £780 million shortfall because just over £200 million has been collected with 80% of the estimate being uncollected. I suggest that noble Lords would not organise a day at the seaside for their local community club on that basis because if you got to the seaside, you would certainly be hitchhiking on the way back as a result. In the space of four months from November, a £27 billion windfall has become a £56 billion black hole. As Robert Chote of the OBR said,

“for every pound the chancellor found down the back of the sofa in November, he has lost two pounds this time”.

Mention has been made of the fiscal rules. Two out of three have been broken. The welfare cap was broken last year. The rule for debt to be falling every year as a share of national income has been broken. It is only obeyed by the Chancellor bending the rules on corporation tax with a one-off batch of payments in 2019-20. Policy decisions, not changes in economic forecasts, will increase borrowing by £7.5 billion in 2017-18 and by £4.8 billion in 2018-19. Then, magically, policy decisions in 2019-20 will reduce borrowing by £13.9 billion. That wipes out the £13.4 billion deterioration in the underlying public finances created by the OBR’s less optimistic economic forecasts.

The Chancellor should have known better because he unwisely criticised the previous Chancellor, my noble friend Lord Darling, in 2010 when the Labour Government introduced their fiscal rule. What the Chancellor said then is worthy of repeating. First of all, he declared that it was the “biggest load of nonsense”. Secondly, he declared that it was vacuous and irrelevant. He had the temerity to quote Willem Buiter of the MPC. I know the Minister knows him very well. Willem Buiter said

“Fiscal responsibility acts are instruments of the fiscally irresponsible to con the public”.

The Chancellor has well and truly conned the public today as a result of that.

The Chancellor’s forecasts rely not on strong growth in the economy but on strong growth in household debt and a buoyant housing market given a further boost by government subsidies. Having warned about the consequences of debt-fuelled growth, the Chancellor is now relying on it. The OBR expects household debt to continue to rise over this Parliament, and in 2020 the household debt to income ratio will exceed its previous peak of around 164%, close to the peak at the 2007 financial crisis. My question for the Minister is this: is this level of debt sustainable in an environment of possible rising interest rates?

This is against the background of a 4.4% savings ratio in the third quarter of 2015. The last time it was so low was when we heard “Blowing in the Wind”—yes, in 1963, when Bob Dylan released his famous song. That sums up precisely what the Chancellor is doing. He is blowing in the wind and his own party is generating a hurricane for him coming from within his Cabinet.

The noble Lord, Lord Higgins, mentioned my successor, Andrew Tyrie. He was scathing in his speech on the Budget last week about the balanced budget rule. In fact, he said quite clearly that this Government’s record is worse than that of any other previous Government. He pointed—this is my last point—to the profound weakness of the banking system.

In the past couple of months I have had the privilege to chair sessions with Martin Wolf, John Kay, Philip Augar and Mervyn King, when he launched his book The End of Alchemy in Glasgow just last week. I have also had discussions with the noble Lord, Lord Skidelsky. To sum up the situation, there is a weak banking infrastructure and these learned individuals are telling us that the Government have sold the pass on reforming the banking system. At best, Martin Wolf has said, it is the old system with a few bells on it. The question now, they say, is that if and when the next financial crisis comes—and no doubt it will come at some time—we have to hope that we have individuals who can tackle the problems correctly and quickly. At the moment, the Government have stood back and the political impetus to change the system has gone. We need to change the system because it is not serving the best interests of the country. I could refer to my successor’s remarks on the Budget last week when he said that the issue of small businesses and banking is still a huge one. Long-term strategic interests are being ignored but, more importantly, the contemporary issues regarding business and growth still have to be addressed. With that in mind, I hope that the Minister will respond to those comments.