Debate on the Address

My Lords, I want to say a few words on the economy. I start by referring to the commission of the noble Lord, Lord Forsyth. I mentioned this to the noble Lord, who said that he is sorry he cannot be here today due to an important engagement outside. Of course, we all understand. The report is rather more serious than some of the comments about it have been. In particular, I refer to what it said about the level of taxation and its effect on the economy. Although I doubt whether the noble Lord, Lord Forsyth, was too upset about the headlines he received—he probably welcomed them—he did not talk about a £20 billion tax cut next year, but rather over the whole of a Parliament. One would not have gleaned that from reading the media headlines. I should complain on the noble Lord’s behalf that the media got it so wrong but, as I say, he will not mind. Of course, I still disagree with what the noble Lord said, not only about the economic aspect to which I shall refer in a moment, but also about the unfairness of his tax proposals, which I hope to refer to on another occasion. His economic points were important. One, which is made constantly, is that tax cuts improve economic growth and tax increases, of course, reduce it. In his report, the noble Lord quoted in aid some serious surveys and reports by the OECD. He did not, in citing four small countries with successful economic growth, choose any large countries to talk about, for one good reason: many large countries have not had the level of economic growth that he—and I—would have liked to see. I was surprised that the noble Lord did not tell us how well the OECD countries had done until I checked and found that the OECD average economic growth over the past 10 years was 2.4 per cent. In the UK, with its high levels of taxation, it averages 2.5 per cent. I find that 2.5 per cent too low; I would like it see it much higher. To put it kindly to the noble Lord, Lord Forsyth, of whom I am fond, the case for tax cuts bringing about economic growth is, shall I say, not proven. Tax increases may be a factor, but they are not the main one. We have had lower growth than we could have achieved for another reason, to which I shall come in a moment. I do not often speak kindly of government policy, but in four successive quarters the Government have achieved an unchanged UK GDP growth record of 0.7 per cent per quarter: 2.8 per cent annually. That is a considerable record and achievement, for which the next Prime Minister, Gordon Brown, deserves our congratulations. The noble Baroness, Lady Noakes, could not find it in her to congratulate the Chancellor—which I understand perfectly well—because she thought it better to refer to the level of public debt, taxes being too high and the £100 billion that had gone from pension funds. She spoke for only 12 minutes but could not find an extra few minutes to explain precisely what she would do to improve that situation. No doubt she will on another occasion. By international standards, economic growth of 2.5 per cent deserves congratulations, but what did the 2.8 per cent increase of the past four quarters achieve? It achieved the decision of the MPC—the Monetary Policy Committee of the Bank of England—that it was much too high and to increase interest rates. The main remit of the MPC is inflation. In that, it has achieved great success and I congratulate it. However, as it regularly states in its inflation report, it has another remit. It is told in those famous three words that, ““subject to that””, it should consider the Government’s economic policy for higher and stable growth and higher employment. I guess—well, it is more than a guess, it is a certainty—that the MPC gives very little consideration to anything other than inflation. The governor of the Bank of the England, like successive governors of the Bank of England, has a horror of sending a letter to the Chancellor of the Exchequer saying that the committee has gone 1 per cent above its remit of 2 per cent inflation. I would rather have 1 per cent more inflation and an average rate of economic growth of more than 2.5 per cent, but that is not the view of the governor of the Bank of England and a majority of the members of the Monetary Policy Committee. The MPC has a greater impact on economic growth than any of the tax increases we have seen or any tax cuts that might be recommended by the Forsyth commission, or, eventually, by any Government formed by the Opposition. The front page of the summary of the Stern report states that there is a unique challenge for economics. The noble Lord, Lord Newby, who I am sorry is not in his place, said that there is a consensus about the Stern report. That consensus must be that hardly anybody has read its 700 pages, which is perfectly understandable. I am not sure how many people have read the 30-page summary. The plain fact is, as the Stern report initially states: "““No one can predict the consequences of climate change with complete certainty””." Of course, we then get headlines about the economic forecasts in the Stern report. Stern can be critical of the media because the headlines were not exactly what the report stated, although he should have known better about what he was likely to get from media headlines. However, it is worth quoting what the summary on page 10 states: "““Economic forecasting over just a few years is a difficult and imprecise task””." The report goes on to state that analysis requires us to look over 50, 100 or 200 years and that economic forecasting ““requires caution and humility””. But it then proceeds to make a forecast. The media took that forecast and gave it as a certainty. The report gives the average expected cost of climate change as 1 per cent of GDP, not next year, but in 50 years’ time, and tells us to be cautious and have some humility about economic forecasts. It then goes on to state that, by 2100, we shall see some rise and some fall in growth but has already that stated we should not look at forecasts for more than a year or so ahead. When we reach 2100—and I am sure that many of us will—we will know how right the Stern report was. It refers to the greater uncertainty because of the costs of seeking more innovative methods of mitigation. We all know how much technological innovation we have seen in the past 50 years. Are we to suppose that there will be none in the next 50? That is what makes me sceptical, to put it mildly, of the Stern report. The report very fairly and clearly sets out the problems that will be created, but says nothing about what will happen because, as it tells us, it cannot. I sum up by saying that we need to do as much as possible relating to the dangers of climate change, of which the Stern report speaks so eloquently. We must do everything we can here in the UK, although if we were all as good as David Cameron and put windmills on our roofs, it would not make a blind bit of difference because we need the rest of the world to do the same, in spades. Future levels of UK economic growth will not be affected by climate change or tax. They will be affected by sensible and serious government policies and by not having an MPC that sees its remit too narrowly. Indeed, my recommendation, which I hope my noble friend Lord McKenzie will pass on, is that the Chancellor of Exchequer thinks again about the remit of the Monetary Policy Committee and thinks about changing it a bit.