Economy: Growth

Lord Skidelsky Excerpts

Thursday 31st March 2011 Lords Chamber

[Lord Skidelsky]

My Lords, I listened with great interest, as I am sure we all did, to the attractive maiden speech of the noble Lord, Lord Wood of Anfield. He comes to the House from a notable academic and policy-advising background—Magdalen College Oxford, then No. 10 Downing Street. He will bring to our deliberations a much needed blend of theoretical rigour, practical experience and social passion. We got a flavour of all three in his maiden speech and it is certain that they will give distinction to his future contributions to our debates. I join other noble Lords in thanking the noble Lord, Lord Hollick, for securing this debate.

My proposition is quite simple: there is too little demand in the economy for robust growth, and the Chancellor’s policy of taking demand out of the economy is exactly the reverse of what is needed. The squeeze in public spending seems bound to stay, but there are two ways in which we can try to increase growth in the economy despite the cuts.

The first, referred to by the noble Lords, Lord Hollick and Lord Newby, is to set up a national investment bank with a mandate to invest in green projects, transport infrastructure, social housing and export-oriented SMEs. A limited fiscal commitment of, say, £10 billion over four years would allow the new bank to spend, say, £100 billion over that period with conservative gearing, provided that it was allowed to borrow. That is the key point. The Chancellor has taken a small step in that direction by giving the go-ahead to the green bank, but that will be allowed to spend only £3 billion and it cannot borrow until 2015, and even then only if the Government’s debt reduction target is being met, which I doubt will be the case. The Chancellor has lost a big opportunity to scale up the original idea. A principal merit of my scheme is that a national investment bank could create a new class of bonds, long term but with a slightly higher yield than gilts, which would suit long-term investors. It would thus be a way of mobilising pension funds for investment in the long-term future of our economy.

My second point is that we need to rebalance the economy away from financial services towards high-value manufacturing and creative services, two things mentioned by previous speakers. The banks have a key role to play in this, but for that we need radical banking reform. That has scarcely been started. I therefore support Mervyn King’s championing of a British Glass-Steagall Act to split the banking system into commercial and investment banks. We need to avoid like the plague repeating the situation when the core commercial banks were so riddled with bad bets foisted on them by their investment-banking masters that they ran out of money to lend to households and businesses—the very people requiring support in a recession. That is quite apart from the enormous loans and debts with which they have saddled the taxpayer.

This is not just a matter of rebalancing British banking to serve the needs of the economy; it is a matter of rebalancing power in the economy to serve the needs of the British people. As things stand, the banks are the permanent government of the country, whichever party is in power. Unless we can break their power, I fear that all that issues from our political processes and what we are saying in this House today will be a lot of,

“sound and fury, signifying nothing”.