Comprehensive Spending Review

Lord Tugendhat Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Tugendhat]

My Lords, like other noble Lords, I look forward to hearing the maiden speakers who are yet to come in the debate. I hope that they will not be put off by the length of the list and that they will contribute not only on this occasion but on many others when it is to be hoped that the speakers list will not be so long. It is also a great pleasure for me to follow my noble kinsman, the noble Lord, Lord Haskel. It is the first time I have had the opportunity to say that in this House and I am pleased to have been placed at this position in the pecking order. However, we will not be approaching the problems in hand from quite the same vantage point.

There can rarely have been an occasion when an incoming Government have moved so quickly and decisively to grapple with the country’s economic problems. They were right to do so: not because we were in the position of Greece or Ireland—we were not—but because the situation was running out of control and, after the denials and prevarications of the previous Government, any dawdling or delay could have provoked a crisis. In saying that, I am not referring to the noble Lord, Lord Myners, or even to the previous Chancellor of the Exchequer, Alistair Darling. I am of course referring to the previous Prime Minister. It was he who set the tone of his Government, and his denial of the nature of the problems facing the country meant that the incoming Government had to move quickly and decisively.

My noble friend Lord Lamont was right to draw attention to the deepening of the sovereign debt crisis in the eurozone. At the moment it is dormant, but it has certainly not gone away and no doubt we will have to deal with it again during the coming months. So this was a time for boldness and the Government have shown that. As a result, they have got themselves ahead of the markets. They do not have to worry about international confidence, their credit rating, or funding the deficit. This is a much better position to be in than not having done enough and being subject to speculation that they were going to have to come back and do more. There are, of course, as any army that advances very rapidly knows, dangers in getting ahead of the game. The question now is whether, in their determination to eliminate the structural deficit so quickly, they are putting growth and jobs at risk. By placing so much emphasis on this particular economic measure and fiscal consolidation as the means to achieve it, there is the question of whether it will stifle economic growth. In my opinion, there is such a danger. Faced with the protracted pain set out in the Chancellor’s programme, will companies now cut back on investment and hiring?

Banks, as we well know, are under attack for the low level of their corporate lending. But banks have not gone on strike. They are not lending because they do not want to lend. The reason they are not lending is that the value and volume of viable applications reaching them are not as high as we would like them to be. That is the problem. Consumers are also being affected. We are told that half a million public sector jobs will go. Many times that number of people will be fearing for their futures and cutting back on their household spending. That will be true not just in the public sector but also in those sections of the private sector that will be hit by the cutback in the public sector. The Governor of the Bank of England called recently in his speech in the Black Country for half a million jobs to be created in our export industries. How good that would be. I hope they are, but it is a big ask when times are so hard in so many of our principal export markets.

So, having got ahead of the game, established their credentials, ensured that their credit rating is secure and that the funding will be possible, I hope that the Government, by acting quickly and decisively, will take advantage of the room for manoeuvre that they have created. Room for manoeuvre is a precious commodity in economic policy-making and the Government now possess it. I believe that they should not now regard an arbitrary target of deficit reduction by means of fiscal consolidation as the be-all and end-all of their economic policy. Rather, they should be willing to calibrate that programme in accordance with the needs of the real economy, by which I mean growth and employment. When the record of this Government comes to be judged, it will be on the basis of those criteria. The debt reduction programme should contribute to that and not dominate their overall economic policy. It is through economic growth and high employment that tax revenue is generated and that benefits are held in check, and that can make a considerable contribution to the reduction of the deficit. This aspect of policy now needs to be given more emphasis. The speeches which the Prime Minister gave last week and the initiatives which he took show that he appreciates that. I believe that the Government have put themselves in a strong position and they deserve credit for that. They have room for manoeuvre and I hope they will show the pragmatism and flexibility that the economic situation will require.