Spending Review 2020

Lord Razzall Excerpts

Thursday 3rd December 2020 Grand Committee

[Lord Razzall (LD)]

My Lords, two minutes is obviously a short time in which to deal with this significant Statement. Others have dealt with the absence of any reference to the effect of Brexit or, with outrage, mentioned the cuts to overseas aid. I want to spend my time on debt, which the Chancellor hardly touched on in his Statement.

The numbers are clear: at the end of October, government borrowing was just over £2 trillion. What the Chancellor did not say is that just under 50% of that—nearly £900 billion—is owned by the Bank of England, with interest payments obviously recycled to the Treasury. Since the start of the pandemic, 50% of government bonds issued to fund expenditure have been bought by the Bank of England. Noble Lords may think that this is rather a lot, but it is nothing compared with what is happening elsewhere. In the same period, the European Central Bank has purchased 70% of bonds issued by European Governments and the Bank of Japan has purchased 75% of Japanese Government debt issues.

Milton Friedman, the economist so beloved of the right wing of the Tory party, always said that such action by central banks was dangerous because it would lead to crowding out the private sector, resulting in falling bond prices and rising inflation—but that has just not happened this time. Despite the fears raised by the Chancellor yesterday, does the Minister accept the possibility that, first, interest rates will remain low for the foreseeable future and, secondly, that the market for the sale of gilt-edged securities to pension funds and insurance companies, underpinned by Bank of England purchases, will remain strong? Does he accept that, if these conditions continue, it is just possible that the Government can continue to borrow to fund necessary spending until the economy recovers, without the need for damaging tax increases? What a bonanza that would be for all of us.