Economic Update

Lord Newby Excerpts

Wednesday 19th October 2022 Lords Chamber

[Lord Newby (LD)]

My Lords, when I think of the noble Lord, Lord True, a number of words normally spring to mind. However, the word which springs to mind today is not normally on that list—it is “sympathy”. I have great sympathy for the noble Lord having to defend the Government’s action on their fiscal policy as he is being asked to answer questions on the most comprehensive government U-turn in his and most of our political lives. Never mind the Prime Minister: I am sure he must have been inclined to hide under his desk. But we are extremely grateful to him that he chose not to do so.

To read or listen to the Chancellor’s Statement, you would think that the screeching reversals of policy which it contains had nothing to do with the actions of the Government themselves—actions they took only three weeks ago. The Statement stresses the necessity of there being “trust and confidence” in the national finances. It acknowledges that trust and confidence have evaporated. It therefore reverses virtually all the tax changes announced on 23 September that had not already been reversed and then says that “decisions of eye-watering difficulty” will still be needed to restore economic stability.

There is no acknowledgement that the only reason the Statement was necessary and the only reason there was a collapse in trust and confidence was because of the actions of the Government. There was no contrition or apology. Instead, as the noble Baroness pointed out, there was the ludicrous suggestion that the only reason why we have a crisis is that the 23 September Statement was not accompanied by a forecast from the Office for Budget Responsibility—one which, incidentally, the OBR offered to produce and the Government refused.

In fact, the only reason we have a crisis is that the Government acted with breathtaking irresponsibility and in the amazingly naive belief that the markets would believe that future shortfalls in government finances could be met by completely implausible projections for future growth in GDP. What the crisis has demonstrated is that the markets are not as naive as the Government and that no Government can buck the markets simply by a combination of bluster and chutzpah.

The silver lining is that, for the foreseeable future, no UK Government, inspired by either right-wing or, for that matter, left-wing ideology, will dare to try to pull the same trick again. But in the short term we are faced with the eye-wateringly difficult decisions which the Chancellor is set to announce on 31 October. It looks as though these decisions will concentrate on public expenditure cuts. There is some suggestion that the Government are revisiting the possibility of a windfall tax on the oil and gas producers to produce real revenue, which is long overdue. But that is only a small part; the main thing will be big cuts in public expenditure.

There is a whole range of questions relating to these possible cuts which I would like to put to the noble Lord. I would like to ask whether benefits will be uprated in line with inflation rather than earnings. I would like to ask about the future of social care provision. I would like to ask about possible further cuts to overseas aid. I would like to ask what level of support the Government will be able to provide for energy bills beyond next April, and what the consequences of the withdrawal of support will be on the level of inflation. I would also like to ask which infrastructure projects will be culled and, in particular, whether the Prime Minister is still committed to the creation of a new railway line across the Pennines. But I realise that there is no point asking those questions today, because the noble Lord will reply simply that everything is currently on the table and I will have to wait until 31 October and, in the case of the longer-term support for energy bills, until the Treasury review is complete.

So instead of asking those questions, I will ask him simply this. What precedent is there for a British Prime Minister being forced to completely reverse the core elements of her programme and remaining in office? What mandate do the Government have for implementing swingeing public expenditure cuts precipitated by their own incompetence? And why do they not now do the decent thing, namely resign and let the people choose who they want to sort out this mess?

[The Lord Privy Seal (Lord True) (Con)]

My Lords, if the call for my resignation was an expression of Liberal Democrat sympathy, I am very grateful for it, but I cannot oblige the noble Lord.

Noble Lords know the situation outside the United Kingdom—I was also asked about the United Kingdom and will come on to that directly. The noble Baroness opposite agreed that there are global issues related to interest rates. I do not think that, in such an intelligent House as this, we should pretend that the issue of rising interest rates across the world is something somehow confected in the City of Westminster. These are grave problems which people are not used to dealing with, having had low interest rates for a number of years, but they are problems that we will have to discuss and address in a mature way.

The noble Baroness talked about inheriting a mess. I have to say—I can share this with my Liberal Democrat colleagues—that I think the 2010 coalition Government knew a lot about inheriting an economic mess after the party opposite had driven the economy literally into the ground.

On undoing everything, which was another point that the noble Baroness made, major parts of the Government’s package to help people—I underline that—remain in being, in particular to help the most vulnerable people. I said yesterday in our brief exchanges that we have already reversed the national insurance increase, which I think was welcome, for workers and businesses across the country—I think the Labour Party was in support of that—and we are just about to discuss a major package to help people with energy bills.

I am asked about the energy review, and it is true that my right honourable friend the Chancellor said that we were going forward and would be looking at whether the forward-looking support on energy could be better focused on the most vulnerable households and those least able to pay—I believe that the parties opposite thought that help should be focused on the most vulnerable and those least able to pay. That review will continue; obviously, I cannot give a precise date for its outcome, but it will issue well in time to deliver for people a sense of what they will be in going forward. However, this winter, in the midst of the crisis, the extraordinary degree of help that the Prime Minister announced immediately on her becoming Prime Minister will go ahead, and it is important that that is not forgotten.

On mortgage rates, I apologise if I referred to a personal case; I always try to see every policy in every part of government not in a personal way but in the way it affects people—that is how you wisely make policy, not necessarily always from think tank documents. As the noble Baroness knows, the pricing of mortgages is a commercial decision for lenders, in which government does not intervene. However, the Treasury is regularly in contact with mortgage lenders on all aspects of their mortgage business to understand their position and the current lending conditions, including, recently, at the former Chancellor’s round table with retail and challenger banks on 6 October.

I repeat that interest rates and mortgage rates have been rising since last autumn in response to global trends, which include—but obviously not exclusively—as my noble friend Lord Forsyth pointed out yesterday, Putin’s illegal invasion of Ukraine. It is not just here in the UK, as I said at the outset of this response; the US Federal Reserve has been raising its base rate since March 2022. I recognise that the Government have a responsibility to provide stability for markets, including for mortgages, and that was one of the reasons why we have taken immediate action, as we have, to ensure the UK’s economic stability and provide confidence in the Government’s commitment to fiscal discipline.

Those of us who remember the terrible inflation rates of the 1970s will never forget its impact on families and businesses, and we well understand that families across the country are struggling with rising prices and higher energy bills. I repeat that this Government will prioritise help for the most vulnerable while delivering wider economic stability and driving long-term growth to help everyone.

On energy, I referred to the energy price package for the winter, which will go ahead.

I must point out that a windfall tax is a one-off tax. However, as I said yesterday, there is already a tax levy on the income of energy companies. That already exists, having been introduced by this Government.

On public spending, as the noble Lord, Lord Newby, said, a Statement will be made shortly by my right honourable friend the Chancellor, and the noble Lord knows that I cannot anticipate that. I can say, as my right honourable friend the Prime Minister said today, that the pensions triple lock will stand. I think that will give a great deal of reassurance to many noble Lords and to those following our debate.

I think my time is up but if I have not answered any questions, particularly on the point about repossessions which the noble Baroness made, I will write to noble Lords. I am sure that those factors will be taken into account by my right honourable friend, but I will get a response on that.