Finance Bill

My Lords, the Select Committee report is clear in language and piercing in thought. I shall not delay your Lordships for long. I want to make two brief points. First, I am pleased that the new Statistics Authority is assessing the way in which inflation and consumer prices are reported, because damaging confusion has arisen in this sphere. I am sure that the new chairman and deputy chairman of the authority—the admirable duo of Sir Michael Scholar and the noble Lord, Lord Rowe-Beddoe—will clarify the picture soon. I hope that they will persuade the Government to put the Bank of England statistics under the wing of their new authority. Unless they do so, the effectiveness of the new body will be weaker. My second and more substantive point relates to the state of public finances. I echo the views of my noble friend Lord Forsyth. I find it astonishing that the Minister has come to the House this morning without even mentioning in his opening remarks the state of government spending. In March, the Prime Minister and the Chancellor should have acknowledged the arduous times ahead. Instead, they gave forecasts so clumsy as to distort every edge of reason. The National Institute of Economic and Social Research and the Institute for Fiscal Studies have demonstrated beyond doubt the scale and gravity of the Government’s problem with public expenditure. The NIESR predicted that the economic slowdown would slice tax revenues by at least £8 billion and stamp duty by £3 billion. The IFS has forecast a budget deficit for next year of well over £40 billion. Indeed, I think that this is a conservative estimate. Michael Saunders, the chief economist of Citigroup, reckons that the deficit could be as high as £80 billion or 5 per cent of GDP. The IFS has also revealed that, in the years 1979 to 1997, the public sector spent 30 per cent of growth in national output, leaving 70 per cent for the private sector. The corresponding figures for 1997 to 2007, according to the IFS, were 46 per cent for the public sector and a mere 54 per cent for the private sector. That is a dangerous ratio for a liberal market economy. The budget deficit will soon breach another of the Government’s key fiscal principles—the so-called sustainable investment rule. In addition, the EU Maastricht rule on the ceiling for deficits, set at 3 per cent of GDP, has already been broken at 3.3 per cent. If the report referred to by my noble friend Lord Forsyth in today’s Financial Times is to be believed, the Government, having broken all their fiscal rules, are now intent on rewriting them. This would be a shameful act and should be condemned by us all. Government borrowing is way ahead of where it was last year and where it was forecast to be this year. The Chancellor’s fiscal targets will be missed by a wide margin and, of course, all this excludes the off-balance-sheet debt, including Northern Rock and PFIs, which mask the even more serious nature of our public finances. The Government can curb public spending, reform taxes, dampen the growth of money supply or a mixture of all three. A sound Chancellor—Roy Jenkins—took this necessary action, but I doubt the willingness or resolve of Mr Darling. I am sure that he will continue to swell borrowing to the longer-term detriment of the economy. Indeed, this is signalled clearly in today’s press. In the end, however, either the Government will be compelled by events to put our public finances in order or, more likely, the task of tackling the gravity of the deficit will be left to the next Administration. Treasury officials should be dusting off copies of a short White Paper published in November 1979 under the auspices of my noble and learned friend Lord Howe of Aberavon, to whom my noble friend Lord Stewartby was PPS at the time. The White Paper, entitled The Government’s Expenditure Plans 1980-81, showed the results of that first scrutiny of public finances. Opening with the statement that, "““public expenditure is at the heart of Britain’s present economic difficulties””," it set out the Government’s three central objectives. The first was to bring down the rate of inflation by reducing the growth of the money supply and by controlling government borrowing. The second was to restore incentives by holding down and, if possible, reducing taxes, particularly on income. The third was to plan for spending that could be compatible with the objectives on borrowing and taxation, with a realistic assessment of the prospects for economic growth. My belief is that the early years of the next Administration’s term of office will be dominated by restoring order to our public finances. With this in mind, I urge the opposition Front Bench in the other place to study the 1979 White Paper and to consider whether its present policy on public spending is in the nation’s best interests. Yesterday, Mr Cameron suggested that in government he would establish an independent panel to advise on fiscal policy. I need to see more details of this idea. Meanwhile, I remain convinced that fiscal policy cannot and should not be subcontracted. Its creation and execution are the responsibilities of the residents of Downing Street. The reordering of our public finances will overwhelmingly dominate the time of the next Prime Minister and Chancellor from the day they take office, to the exclusion of much else. How they deal with fiscal policy will define the scale of their success.