Lord Myners
Main Page: Lord Myners (Crossbench - Life peer)
Lord Bates
That is a fair point but, in a sense, it does not really matter what the most distinguished economist in the room says about it or what the least distinguished economist in the room—me—says about it. Fitch’s preliminary assessment of the Budget was that,
“it sets out an ambitious deficit reduction path that, if delivered upon, will materially strengthen confidence in UK public finances and its ‘AAA’ status … Taken together, the specific measures announced today are substantial and enhance confidence in the outlook for UK public finances”.
Moody’s Investors Services has said that the UK Budget is “supportive” of the country’s AAA rating. There is that element of international confidence—
Lord Myners
I thank the noble Lord for allowing me to intervene. Is he quoting from the same credit rating agencies that played such a horrible part in the collapse of the banking system through their lack of foresight?
Lord Bates
I am quoting from the same rating agencies that rate government debt and sovereign debt around the world. That is what results in the prices of those debts being traded on the international money markets. The noble Lord, Lord Myners, knows better than anyone about the global flows of international finance. The rating levels are crucial to this, as we see when we look at the situation in Ireland. To stretch the small business analogy to its absolute limits, you can say that international confidence in the Government’s resolution to get to grips with the deficit is analogous to what many companies will have—
Lord Myners
My Lords, it is a pleasure and an honour to speak in a debate which saw the maiden contributions of the noble Lord, Lord Spicer, and the noble Baroness, Lady Browning. They both made excellent maiden speeches and will be considerable additions to House. They come with reputations as fine constituency MPs for Worcester and Honiton, and with specialist expertise in finance and health which will be of great benefit to the House. I crossed swords with the noble Baroness, as she now is, when I was a junior Treasury Minister. She called for my resignation on the grounds that I was slow in answering her letters. I inherited some 3,000 letters when I became a Minister, which I was told was a sign that my predecessor anticipated a forthcoming reshuffle.
The Minister told us that the Budget is tough but fair. Tough it certainly is; fair it is not. The Minister talked about the Budget being progressive but my noble friend Lord Lea of Crondall correctly pointed out that the only progressive elements in the Budget are those which the Government inherited from the previous Administration. As the Institute for Fiscal Studies shows, if you subtract that contribution to the Budget arithmetic from the Budget and the proposals in the Finance Bill, you will find that they are regressive rather than progressive. That trend will continue when we see the forthcoming spending review, to be announced in October. The Minister needs to be careful that he does not represent a Budget as being progressive when it is clearly not the intention of the Government that it should be progressive.
The Minister quoted from my contribution to our last debate on the economy. I stand by my words in that debate. I believe I was summarising what was known at one time as the golden rule, which is that recurrent expenditure by government should be matched by tax revenues through the economic cycle. I believe that that was a good policy. It was unfortunate that, for a period, it was placed in a form of suspension.
The challenge of working out a policy of keeping in balance recurrent expenditure and taxation requires one to look at things from a historic perspective. Therefore, there are always issues of judgment which will be challenging for Ministers. With hindsight, we were perhaps overly accommodating in the Budget strategy in the mid-1990s and failed to recognise the narrowing of the fiscal base. However, I believe that we were right to take the actions which we took once it became clear that the global economy was going into a significant recession, and to promote public expenditure to ensure that the worst effects were ameliorated. I also believe that the previous Administration provided absolutely the right global leadership at the G20 meeting in London in April.
The question the House has to ask itself is whether the Chancellor might now be making mistakes of judgment. The second quarter GDP figures suggest evidence of continuing improvement in economic activity. This is the third quarter during which economic growth has moved forward with developing momentum. Do these figures justify aggressive cutting? The Chancellor may well argue—indeed, he did so on Friday—that the strength of the economy provides further assurance for his programme of expenditure cutting. However, we need to recognise that this recovery is still very nascent. Consumer and business confidence are very low. We are seeing in both consumer and business behaviour a Ricardian equivalent as people again anticipate a setback in economic activity as a consequence of the policies the Government are taking. As a number of noble Lords have mentioned, including my noble friend Lord McFall, Ben Bernanke referred to unusual uncertainty being the prevailing condition in the global economy. That is clearly recognised as well in the minutes of the previous meeting of the Bank of England Monetary Policy Committee. I find it very surprising that the Monetary Policy Committee appears to be considering approaching the Treasury for further support for additional quantitative easing. My understanding is that in the third quarter of recovery it would be most surprising for the Bank of England to consider it necessary to have more quantitative easing. Therefore, I begin to ask myself whether the Bank of England is not concerned about the pace of expenditure cutting which the Government are pursuing, and is seeking to counteract that by a further programme of quantitative easing when we still do not know the true effect of existing quantitative easing.
Without swift and appropriate action and a significant contribution from fiscal policies, we would, of course, have experienced a much more significant depression over the past two years than was the case. We intervened to support the banks. I am pleased to note that the surplus which will arise to taxpayers as a consequence of that support continues to increase, as was evidenced last week by the first report from the Asset Protection Agency, which is now suggesting a further surplus for taxpayers of £5 billion. I look across at the noble Lord, Lord Forsyth of Drumlean, who is smiling as he used to ask me how much money was being lost by the taxpayer as a consequence of these interventions. My estimate is that, as a result of the interventions, the taxpayer has a net gain of the order of £15 billion. That is a huge amount resulting from the interventions that we took to support the banking system during a period of acute crisis—and we did so in a way that would deliver value to the taxpayer.
The Government of whom I was part had a plan to halve borrowing as a percentage of GDP over the next four years. We proposed to do that without an unmandated VAT rise and without placing at risk the recovery, the poor, the vulnerable, the unemployed or those who look to the state for assistance and encouragement during a time of global difficulty. This Bill is part of a hair-shirt Budget, but it is not a hair shirt which will be worn by those who buy their shirts in Jermyn Street.
The economy has considerable surplus capacity, as the noble Lord, Lord Skidelsky, observed. We have only to look at the unemployment figures to see that that is the case. Cutting public spending when the economy still has excess capacity and high unemployment is a most unwise thing to do. We as a Government were committed to reducing the deficit but in a way that recognised the risk of setback and was socially just in its implementation. Indeed, the deficit was already falling, as the Chancellor of the Exchequer forecast it would. The cuts the Government propose are borne not out of rigorous economic analysis or designed to produce a better outcome for public finances and the economy but out of political prejudice and a wish to contract the size of the state and its ability to support the wider community.
I have already mentioned declining consumer and business confidence. We also see a slowing in the US and European economy. The banking system is still in poor shape and last week’s EU stress testing will do nothing to restore confidence in it. However, UK banks are well capitalised and we will gain an important inheritance for society in the future as a result of the fiscal consequences of the intervention.
The net effect of the Government’s programmes amounts to a not inconsiderable risk to future economic activity. The first half of this year has seen economic growth picking up. An annualised rate of growth in the second quarter of nearly 4.5 per cent compares with the OBR forecast for this year of 1.2 per cent. Will the OBR issue a new forecast or does it only produce forecasts when asked by Treasury Ministers, and then at short notice if necessary to answer Questions in the other place?
My own view is that quarter 2 GDP figures will be the strongest quarter in 2010. Does the Minister expect economic activity to increase in momentum during the remainder of this year or does he share my view that the quarter 2 figure will be the highest reported? What will the Minister do if things begin to deteriorate and, as a number of noble Lords have suggested, the Government’s policies are seen to be contributing to an economic setback rather than a recovery?
As I have asked before, where does the Minister see the sources of growth for the future? The noble Lord, Lord Skidelsky, shares my view that the argument about squeezing out is simply not economically rational. It is difficult to reconcile the Government’s argument that the public sector is squeezing out private sector investment with the accumulation of a private sector surplus. Businessmen are not concerned about the deficit but with the Government’s withdrawal of support for the economy. The deficit is a consequence, not a cause, of excess capacity.
The Minister needs to address how we exploit comparative advantage. We compete with fast-growing, literate, numerate and young economies in the developing part of the world. Where are we going to compete? The noble Lord, Lord Bates, quoted from the millionaires’ favourite think tank, the World Economic Forum, to suggest that cutting taxes might be the obvious thing to do. We need to identify how we are going to compete effectively in economic terms in the future against these fast-growing economies, in particular those from the eastern part of the world. We need to invest in our workforce and in education and training. We should invest in infrastructure. As the noble Lord, Lord Skidelsky, said, now is the right time to do that because we have excess capacity. We should invest in facilitating the application of new technology and innovation but these are precisely the areas which the Government have picked out for early cuts. The Government are cutting on schools, innovation and technology, and universities. This is absolute nonsense and a huge risk to the economic performance of the country going forward.
I believe that the Office for Budget Responsibility is a commendable idea and it has my support. However, the concept has been damaged by its implementation. I welcome the involvement of the Treasury Select Committee in future appointments to the OBR. I know that the Minister will not make a commitment here in the House but does he believe that the decision that the Treasury Select Committee should have an involvement in appointments to the OBR should be extended to the Monetary Policy Committee and the Court of the Bank of England? If not, why has the OBR been picked out for special treatment and not these other, more important, entities? As my noble friend Lord Barnett pointed out, they have real powers, as opposed to those of the OBR, which are limited to forecasting and commenting on those forecasts.
I invite the Minister to answer a question which I have now been asking him for several weeks: will any action be taken to ensure that those who leave the Office for Budget Responsibility are not allowed immediately to return to the private sector with all the knowledge that they have as a result of their sight of the Government’s economic forecasting and public accounts? I do not suggest for one minute that Sir Alan Budd or anyone else will misuse that information but I am certainly aware that the appearance of the possibility of so doing may further erode what is already a deeply damaged, although good, concept.
There is undoubtedly scope for cutting public expenditure but the proposed level of cuts is draconian. I am not sure that the Liberal Democrats fully understand the extent of those cuts but we have a Liberal Democrat, Mr Danny Alexander, leading the process. In some ways, I wonder whether there might be some method in the Prime Minister’s madness in putting a Liberal Democrat in that position. However, if we are to do this job, why do we not do it well? Why do we not have someone such as Mr Philip Hammond, Mr Michael Fallon or Mr John Redwood as the Chief Secretary to the Treasury, or even the noble Lord, Lord Forsyth of Drumlean, who would bring considerable experience rather than the inexperience and naivety of the present incumbent? I worry that Treasury officials have very little experience in the management of the exercise that they are contemplating, and I also worry that there is very little experience among the Treasury Front Bench in respect of public expenditure. I defer to the Minister, who has considerable business experience, but it is striking that no one else in the Treasury team with responsibility for budget management has any experience at all in business management or in dealing with the sorts of issues to which the noble Lord, Lord Bates, referred earlier.
Finally, I want to mention Dr Cable’s comments today on banking, which I thought were quite irresponsible. To suggest that we should give a financial incentive to bankers to lend against their best judgment borders on the reckless and ill behoves a Government who are supposed to believe in private enterprise. I ask the noble Lord to dissociate himself from Dr Cable’s comments in that respect and to make it clear that in his judgment the problems of bank lending are more to do with demand than supply. Furthermore, I ask him to make it clear that bonuses, on which the right honourable Dr Cable has again spoken, are the responsibility of shareholders rather than of the Secretary of State for business.
Lord Sassoon
I thank the noble Lord for that. But I did not say that the Treasury intervened at all in the workings of the MPC. It has a representative there to point out policy matters which the Treasury might be aware of or which it thinks the MPC might be aware of. That is not in any sense intervention in the way in which I think the noble Lord means it.
Lord Myners
I fear that the noble Lord is moving on from the OBR, so may I ask him again for a simple and straightforward answer? Are the members of the OBR going to be allowed to return to the hedge funds for which they previously worked immediately on leaving the OBR, or will they be subject to a period of purdah?
Lord Sassoon
I thank the noble Lord, although that was a different point from the one that he made previously; the point that he made in his speech was whether members of the OBR would have inside knowledge of the forecasts. The whole point about the OBR is that it will publish its forecasts transparently. I am not sure what the inside information is that the noble Lord is so concerned about.
Lord Myners
Perhaps I may help the Minister. In his evidence to the Treasury Select Committee, Sir Alan Budd said that he had seen confidential information which was not in the public domain—information which the Minister, given his past City career as a Swiss banker, would no doubt recognise as price-sensitive information.
Lord Sassoon
I look forward to seeing if and when the noble Lord, Lord Myners, returns to the City. There are accepted practices and terms for all who have worked in different parts of the public sector when they return to the City or elsewhere. Perhaps I may move on to talk about the new fiscal mandate.
Lord Sassoon
My Lords, I am not going to answer for judgments that are fundamentally for the Bank of England. It has a very clear monetary policy mandate, which is around keeping inflation low, and through the combination of monetary policy and confidence in the new Government’s fiscal stance we have seen that UK government borrowing rates have indeed remained low, and that the spread against the benchmark of the German Bund has indeed worked in the UK’s favour since the election. That goes to the heart of the nexus between monetary policy, low interest rates and keeping the flow of credit going to businesses and private individuals. I want to move on—
Lord Myners
The Minister spoke on the subject of capital gains tax. Can he confirm whether he stands by his statement, in introducing this debate, that the capital gains tax rate for those on standard-rate income tax will remain at a lower rate of 18 per cent and that a standard-rate taxpayer will not be required to pay a higher rate of capital gains tax?
Baroness Anelay of St Johns
My Lords, I appreciate the nature of the intervention by the noble Lord, Lord Myners, and the Minister has been generous in giving way. The House will understand that the guidance in the Companion is that speeches are normally not expected to exceed 20 minutes. I also understand that this is an unusual debate, because this House has a great interest in but is not permitted to return to this matter at a future stage. I therefore took, perhaps, a sole decision that matters ought to be allowed to continue so that noble Lords could intervene upon my noble friend. I should perhaps indicate that the patience of the House may soon be extinguished and I therefore advise my noble friend that although he may of course respond as he may feel appropriate to the intervention by the noble Lord, Lord Myners, he should then draw his remarks to a close.