Autumn Statement

Lord Taverne Excerpts

Thursday 3rd December 2015 Lords Chamber

[Lord Taverne (LD)]

My Lords, the Chancellor’s strategy, as confirmed in the Autumn Statement, is to shrink the state and turn Britain into a low tax, low spending economy, with a public sector reduced to 36% —the lowest in the European Union. I fear that there will be austerity in many ways more devastating than during the coalition years. This will affect local government, universities and education generally, but especially further education, as the noble Lord, Lord Shipley, pointed out. Tax credits, which imposed a considerable burden on the lowest paid, have not, in effect, been abandoned; they have been postponed. Inequality will increase—with what consequences? As Wilkinson and Pickett showed in The Spirit Level, a low tax, low public spending state is a recipe for a dysfunctional state. We will emulate all the worst characteristics of the United States.

It is all justified because, Mr Osborne claims, we must balance the books as a way to faster economic growth. Low-tax economies do not grow faster than higher-spending ones. Piketty’s meticulous record of the rise and fall and rise of inequality in France, Britain, Germany and the United States showed that, in the post-Second World War period until the Reagan-Thatcher era began—a period known as les trente glorieuses, during which inequality was reduced, not only in Europe but also in the United States—economic growth was in fact higher than in the days of inequality.

Conservatives have stressed the growth we have achieved, but I fear that our recovery is somewhat fragile. We have a huge trade deficit which has been financed by the inflow of hot money. We have increased our dependency on the financial sector and the Government have failed to rebalance the economy. The financial sector is very vulnerable to a renewed credit crunch—which is far from unlikely.

As the noble Lord, Lord Skidelsky, pointed out, we have not increased productivity. Mr Osborne’s policy of shrinking the state will not improve productivity. More equal, higher-tax European countries have higher productivity per hour not only than Britain but also the United States which depends for growth on immigration. Growing inequality in Britain means fewer youngsters from poorer families will go to university, worsening the shortage in skills. A sense of unfairness in industry, because of the huge inequalities of pay, militates against teamwork and trust—vital factors in productivity.

Further, Mr Osborne seems to believe “private investment good, public investment bad”. He now lumps public and private expenditure together as part of public spending. Public spending funds research and development which is too long term for private companies.

As the noble Lord, Lord Skidelsky, pointed out, the Government’s economic policy is a return to Victorian values. The Victorians believed in the moral virtue of balancing the books. It is a return to Ricardo and Montagu Norman and Herbert Hoover. It is as if Keynes had never lived.