Pre-Budget Report

My Lords, Lord Keynes was addressing a group of bankers and asked them to raise their hand if they had ever printed more notes than their gold represented. A forest of hands went up. Keynes foresaw that there are times, like the present economic crisis, when Governments have no alternative but to create artificial wealth to replace at least some of the overvalued wealth that created the problem in the first place. As other noble Lords have mentioned, it is an excellent thing that we are not in the euro. It enables us to do what we want to do to the benefit of our economy. In a paper-currency world, money is credit and credit is money. Credit is given on the assumption that its value and more will be recovered. I am sure your Lordships are aware that when a bank raises £1 billion in capital, it is in a position to lend £10 billion worth of credit, and does, on the assumption that it will not all be called for at the same time and it is confident that the risk is spread. The key word is ““confidence”” and the gearing effect of credit relies on confidence. Conversely, if the collateral that underpinned that credit decision suddenly disappears, we have a situation, like today, where the ungearing is dramatic and liquidity, the life blood of economic activity, is massively drained from the system. We witness a colossal reduction of credit, due not only to the sub-prime losses of the worldwide overvaluation of property but also the destruction of collateral consequent to the collapse of share prices—a double whammy of a self-feeding collapse in confidence. Under these circumstances, it is perfectly right and proper to put back by quantitative easing, or ““printing money””—call it what you will—the essential life blood of liquidity to prevent the patient from haemorrhaging to death. The velocity of circulation, the heartbeat of the patient, has to be kept going. Professor Milton Friedman, the arch-monetarist whom I had the privilege of meeting, suggested using aircraft to sprinkle the country with bucket-loads of notes. The concept of printing money is abhorrent but 10 years of deflation would be far worse, as the great slumps of the 1920s and 1930s showed. In the 18th century, in an effort to cure the patient’s malady, doctors got it all wrong by bleeding a person already haemorrhaging. This is not the time to make the situation worse by cutting back, other than by the elimination of waste. It is the time for pumping liquidity back into the system, the art being to recognise that, as the economy recovers, interest rates will need to be raised in good time to prevent the patient overheating. National Governments are understandably afraid of doing this in case the international finger of scorn is pointed at them, and we have partly witnessed this by a run on the pound. However, if it is done on a global scale, as Keynes broadly suggested, everyone is in the same boat. We should reflate simultaneously with the EU, but that is unlikely. To update Keynes’s concept, the group of 20, shortly to meet, should authorise the IMF to issue loans to member countries of up to 5, 6 or 7 per cent of their GNP. Such loans could carry 2 per cent interest over 30 years. These, in turn, would be lent on by national Treasuries to their own banks, enabling them to lend at, say, 4 per cent interest to their clients. Anyone who cannot afford to borrow at 4 per cent or thereabouts should not borrow at all. Today, as has been well said, it is not the cost of money that is the problem but the lack of it. Using such a system, over 30 years the principal will have been repaid as interest and the IMF could quietly write off the loan in the same manner as it currently writes off loans to third-world countries. Either way, it is essential to print money at this stage and it is excellent to see that Mr Ben Bernanke is pursuing this line in the United States. We should follow in unison with others. Like the USA, we should be putting money into infrastructure improvements, most of which would be of long-term economic benefit. It was crazy to cancel the aircraft carrier orders at this stage, and expenditure on desperately needed road repairs would have an immediate beneficial effect. Economic fashions come and go, and very few look watertight 10 years after they are implemented. One should be humble with any prognosis. As Keynes said, one should pronounce on economic matters with a contrite heart. However, the current concept that we have to reduce interest rates to near zero is a complete fallacy. The unintended consequences of so doing will in fact negate any possible benefit, as low interest rates in Japan over a decade clearly illustrated. That did not lead to Japan's recovery; it led, partly through the financial ““carry trade””, to cheap money for the rest of the world and a virtually stagnant economy in Japan. Consumers are simply not encouraged to spend their life savings if they get no interest on them; they conserve their battered wealth. There is confusion caused by two contradictory policies: first, a desire for very cheap money to enable the banks to repair their balances; and, secondly, a wish to increase personal consumption, as shown by the Government's VAT cut. But the last thing any Government should do is turn off the expenditure of tens of millions of savers and pensioners who rely on the dividend interest from their savings. It will, of course, also decimate charitable giving, and the work of many charities will cease because they too heavily rely on dividend flow. The concept that we have to have low interest rates to prevent deflation simply does not stand up against the realities of a pound that has depreciated 25 to 30 per cent against the dollar and the euro, and where, before long, our import prices are bound to rise and inflation will be compounded by the reimposition of the VAT that has been cut. The Shadow Monetary Policy Committee, an august body of academics, thought that interest rates had been cut enough to 2.5 per cent. I hope that the Bank of England and the Treasury between them will reconsider the damaging and unintended consequences of the existing level and further cuts. I come to the primary purpose of this debate: our financial relationship with Europe. Recent parliamentary Questions have shown that our membership, after all rebates, costs us at least £4 billion a year, apart from the appalling inefficiencies that the ever-growing burden of EU regulations brings to this economy. The French, needless to say, are substantial beneficiaries. Our contribution of £4 billion a year is a lot of money, and many of the rebates we get are for purposes that our own Treasury would not dream of sanctioning. So the real loss to this country, in net terms, is considerably more. However, this pales into insignificance against the unquantifiable cost of unnecessary regulations, which bring a huge additional burden: it must be tens of billions of pounds a year. To name but four of the culprits, there are the working time directive, the chemicals directive, the height at work directive and the pesticides directive. Now there is even compulsory holiday pay for people who have been on sick leave for up to five years, there is a limit on doctors’ working hours, and electronic implants are to be compulsorily put into Britain’s 10 million sheep. All these things, like the premature closing down of our coal power stations just when we need them, chisel away and do real economic damage to our flexible economy. It was not as if we could do anything about it, anything to rectify it in any way. Here, Parliament, through its scrutiny committees, has tried to influence that legislation, but its work has been almost totally ignored. Hundreds of recommendations have been made to improve EU legislation and the hard fact is that our scrutiny committees have been wasting their time. Frustratingly, there is no satisfactory way of rectifying that regulation. This democratic safety valve simply does not work. Your Lordships will recall that the American War of Independence was triggered on the slogan, ““No taxation without representation””. Today we have the equivalent: ““Regulation without rectification””. Increasingly, our citizens in the front line of business do not like it and we ignore their rumbling discontent at our peril. Our blind and damaging conformity to EU regulations is like an army marching over the cliff because no one has the courage to question the command. Idealism is a wonderful thing, but blind idealism is damaging this country beyond belief. Day by day and week by week we witness the economy of this country being impoverished by the endless attrition caused by unnecessary EU regulations. Few in Westminster are really aware of what is going on; the political class lives above it all. Eagles seldom know of the habits of moles. I love my country and I hate to see it ruined by bureaucratic nonsenses imposed by non-elected, totally impractical officials. The denial of the means of rectification is a denial of sovereignty, and without sovereignty democracy cannot exist. We really must re-examine our financial and wider relationships with the EU.