Queen’s Speech

Lord Razzall Excerpts

Thursday 5th June 2014 Lords Chamber

[Lord Razzall (LD)]

My Lords, I think it is common ground on all sides of your Lordships’ House that this was a gracious Speech that was very short, with only 11 Bills promised to add to the three or four being carried over from the previous Session. I listened with interest to the noble Lord, Lord Adonis, but did not quite follow his analogy of this being a Thomas the Tank Engine speech. I was sorry that he did not use the attack used by a number of his friends from another place, which I much preferred. They referred to it as being a zombie speech from a zombie Government. Of course, the people who have put that into the mouths of their spokesmen do not really understand what zombies are: although zombies may well be the living dead, they are also immortal.

I am surprised that the Labour Party has chosen to attack this speech for being very short because the only shorter Queen’s Speech in living memory was in the run-up to the 2010 election. There were even fewer Bills promised by Labour at that stage but of course they also had their problems with the coalition between the Blairites and the Brownites. I welcome a short gracious Speech because, to me, good government is not just about legislation. We can all remember the 21 or so law and order Bills that the Labour Party brought in during the 13 years when it was in power but do we think that any one of those had any effect on the crime statistics? Indeed, I have long come to the conclusion that the purpose of a detailed legislative programme is to keep idle hands busy in the House of Commons.

For my part, rather like the noble Lord, Lord Adonis, I propose not to concentrate on the Bills set out in the gracious Speech but to take a look at the current state of the British economy and perhaps to describe what I see as some of the pitfalls ahead. Notwithstanding the noble Lord’s reservations, there can be no doubt that the UK economy is on the mend. Output is growing at its fastest rate since before the financial crash, unemployment is falling as new jobs are created and inflation is back below the Bank of England target. However, for politicians, like most people in your Lordships’ House, the issues are both political and economic.

First, on the political, for the two coalition parties the challenge is very clear. As a result of the Fixed-term Parliaments Act, we now know the date of the next general election, which will be on the first Thursday of May 2015. To do well in that election, both our parties need to demonstrate that the economic policies of the coalition are working and that a return to a Labour Government would put the economic recovery at risk. The coalition has of course been successful in persuading the electorate that the financial crisis in 2008 was the result of the Labour Government’s profligacy. This is obviously slightly unfair as it ignores the effect of the sub-prime mortgage collapse in the United States, notwithstanding the reservations of the noble Lord, Lord Forsyth. However, the success of the arguments made by the coalition is demonstrated by polling figures that have consistently shown that the Government are better trusted to manage the economy than Labour. Of course, Labour has not been helped by the refusal of the shadow Chancellor, Ed Balls, to show any remorse for Labour’s period of economic stewardship.

The second recent political argument has been over spending plans for the five years after 2015. The legacy inherited by the coalition in 2010 was a double whammy of an unsustainable deficit of government spending over income and a crippling government debt burden. George Osborne and Danny Alexander, the two key Treasury Ministers, have committed their respective parties to further steps to eliminate the deficit and reduce debt after 2015, although naturally there are disagreements to come between the two parties as to how in practice this would be achieved. In the mix of tax increases and spending cuts, the Tories will be more likely to avoid the former whereas the Liberal Democrats will not wish to rely solely on the latter. However, the two parties are united in opposition to Ed Balls’s recent proposals, which appear to concentrate solely on deficit reduction, ignoring the debt burden.

Inevitably, the political positions of the coalition will not succeed unless the economic recovery continues for the next 12 months, and this is where the economic arguments are relevant. Will the coalition parties be able to claim that the economy has recovered on their watch? As the noble Lord, Lord Deighton, and I have indicated, the portents are good. The polls are indicating a surge in the economic confidence of both business and the consumer. Surveys by the employer organisations indicate a significant increase in proposals to invest, and clearly the Government claim some credit for the increase in growth. The noble Lord, Lord Deighton, has rightly described the plans for which he has responsibility in infrastructure spending. I have said before that I have often thought that government policy in this area is rather,

“analogous to a swan, sailing serenely on while declaring that there was no alternative to the austerity programme but underneath the water the legs are paddling furiously to create initiatives to promote economic activity: infrastructure spending, with Crossrail the largest infrastructure scheme in Europe; the regional growth fund; the Green Investment Bank and the business bank; the development of an industrial strategy by the Department for Business, Innovation and Skills, with concentration on key areas of industry; and the stimulation of the housing market by the Help to Buy scheme”. [Official Report, 27/3/14; col. 608.]

The overwhelming factor at the moment, though, has been the return of what Keynes described as “animal spirits”. No one—no economist, and certainly no politician—quite knows why, over the centuries, consumers have suddenly lost confidence in the economy in which they live, thereby triggering a downturn in economic activity. However, there can be no doubt that the process has been now been reversed in the United Kingdom. As the Bank of England has pointed out recently, the tell-tale sign is the fall in the amount of cash held in ISA accounts—I prefer my pronunciation —which was £2.8 billion in April, the largest monthly fall since ISAs were first introduced in 1999. This cash is currently finding its way into property, equities and the high street.

So what are the risks to our economic recovery? First, as a recent CBI survey indicates, there has been a significant change in business attitude. Business now believes that the biggest threat is political risk. As John Cridland, the director-general of the CBI, has said:

“The UK now has more stable economic foundations, and political risks must not jeopardise this”.

The political risks are obvious. First, whatever one’s view about Scottish independence, there can be no doubt that were the vote to be yes, this would have a disruptive effect on the British economy even if it were only in the short term. Secondly, there is a political risk in what seems to be increased competition in anti-business rhetoric coming from all sides of the political argument as we approach the election, of which I suppose the best example has been Labour’s proposal for an energy freeze which, rightly or wrongly, is clearly having an impact on ongoing investment in the energy field.

Then we come to the political risks of Europe. A number of my colleagues and I have for some time been arguing that there is a significant risk to the growth of our economy if multinational companies form the view that we are going to come out of Europe in 2017. The motor car industry is obviously a classic example, and last year for the first time we exported more cars than we imported. Do we really think that investment in the motor car industry will be continued if people really feel that we are going to come out of the European Union?

Whatever views may be on our role in the European Union, there is no doubt that a recession in the eurozone would seriously damage our economic prospects. There seems to be a serious possibility of Europe spinning down the sort of inflationary spiral which affected Japan for 20 or 25 years. I hope the whole House will agree that in this context the intervention this week by the European Commission with a prescription for UK economic policy—the Times called it,

“a breathtakingly obtuse invitation to tax more and spend more … from the architects of the eurozone’s slump to the leaders of Europe’s fastest growing-economy”—

was totally inappropriate. Indeed, one might assume that the officials who wrote that were in the pay of UKIP, in the same way that I always assumed Arthur Scargill was in the pay of Central Office in Millbank.

Let me return the compliment to the European Commission, certainly to the ECB. I very much hope that today Mr Draghi—who may well already have done so but had not by the time this debate started—will cut the key ECB benchmark interest rate and will stop draining cash out of the banking system by sterilising bond purchases through weekly market operations. This would ultimately create €165 billion of extra money in Europe. This would be better than straightforward quantitative easing, which could be challenged in the German Constitutional Court and would in practice drive down German and French borrowing costs the most, which is not where the drive down needs to take place. I hope Mr Draghi takes this advice, if has not already done so.