Pre-Budget Report

My Lords, I am pleased to follow my noble friend Lord Blyth whose industrial experience is hugely respected in your Lordships’ House. This is my first chance to welcome the Minister to your Lordships’ House and I do so with great pleasure. His distinguished presence highlights the lack of talent available for key government posts in the other place. The Prime Minister and his colleagues claim that a global recession is solely responsible for our economic condition. This is a travesty of the truth and the markets know it. The Prime Minister created in Britain a debt boom, a housing boom and a spending boom. He splashed during the boom; his kitty was empty for the bust. By last July, well before the collapse in the markets, Britain’s public expenditure was out of control. Earlier, in March 2008, the Chancellor, in his Budget, forecast a £43 billion borrowing requirement for the year. Yet, after only six months, and before the collapse in the markets, it had reached £37.6 billion. These were the worst figures since 1946—so much for the fiscal sustainability to which the Minister referred earlier. The IMF warned the Government before the markets collapsed about the scale of their spending. Simultaneously, the EU Commission criticised the Government for encroaching the deficit allowed by the so-called Maastricht rules. Public finances were on course to register a record deficit even when the boom was in flow. Last July, before the markets collapsed, the Independent—hardly a Conservative chronicle—declared in an editorial: "““All the signs are that Mr Brown intends to spend very large amounts of taxpayers’ money in a doomed effort to save his political skin. … the Government has lost direction and has no plan other than a spending spree financed by borrowing on the never-never””." It is small wonder that spending was out of control before the collapse in the markets. After all, for eight—yes, eight—successive years under Messrs Brown and Darling, government expenditure has exceeded Treasury forecasts. I repeat, for eight years running government expenditure has exceeded Treasury forecasts. When making his PBR Statement in November, the Chancellor’s first duty was reassure investors and the markets that serious measures would be taken to restore financial rectitude as soon as circumstances allowed. Instead, the Chancellor, compounding his March folly, relied once more on political spin against, I sense, the advice of his Treasury officials. He predicted that the economy would start recovering in the third quarter of this year. This flabbergasted the markets because the IMF, the CBI, the NIESR and a host of other organisations had already reached opposite and more reliable conclusions. The Chancellor failed to construct a credible fiscal framework for his policies in the PBR in November. Consequently, sterling again came under pressure and, on the day after the Statement, even the Labour-tender Financial Times, so much loved by the noble Lord, Lord Barnett, said that, "““the Treasury has an uphill battle to regain trust that it will bring public borrowing back down to a sustainable level. Years of fudging and fiddling have already undermined their credibility””." That was the Financial Times the day after the PBR Statement. An ominous question mark hangs over Treasury public spending forecasts because, for eight successive years, it looks as though they have been twisted for political ends in the face of advice from officials. The result of the Chancellor’s fantasy finance is that the pound’s fall has been greater than at any stage since sterling left the gold standard in 1931. It is no surprise that the German Finance Minister, a social democrat, described Mr Brown’s economic policy as ““breathtaking”” and ““crass””. Nor is it a surprise that central bank governors, such as Mr Mersch of Luxembourg, raise eyebrows when lectured by the Prime Minister about saving the world. Of course, Mr Mersch knows, as do the other international investors and the markets, that it is not just the fecklessness in British public spending that occurred before the collapse in the markets but the growing list of off-balance-sheet items that imperil Britain’s present and future. PFIs, Northern Rock, Bradford & Bingley, Network Rail and the extra cost of net contributions to the EU are part of this debate. Our net contribution to the EU next year was to be £6.5 billion, but not any more. The collapse of sterling has added £3 billion to that figure, bringing it to £9.5 billion. Of course, there is also the question of public sector pensions, as well as age-related liabilities. They all undermine our ratings. Public sector pensions are the heaviest weight of our hidden millstones off balance sheet. In October, the independent Pensions Policy Institute published a report, which stated: "““It is often assumed that better pensions in the public sector make up for lower pay. Although a job-for-job type comparison of pay is difficult to make between private and public sectors””," the evidence suggests that pay in the public sector is not lower than pay in the private sector across the board. Gold-plated pensions are becoming indefensible, not least because Mr Brown has increased the number of people dependent for work on the public sector by nearly 1 million. We should remember that this was the same Mr Brown who raided private sector pensions. Annual annuities from public sector pensions are now about £17,000 a year, compared with about £1,100 per annum in the private sector. Let us not forget that in his own last Budget Mr Brown hid £45 billion of public sector pension costs. This was not an annual figure; it was an incremental increase in one single year. Last July, in the Second Reading of the Finance Bill in your Lordships’ House, before the collapse in the markets, I submitted that the reordering of our public finances would dominate the time of the next Prime Minister and Chancellor from the day they took office to the exclusion of much else. How they dealt with fiscal policy, I submitted, would define the scale of their success, and the events of the past few months have reinforced my argument. After the next general election, I look forward to the publication of a White Paper on the Government’s expenditure plans along the lines of the respected document produced by my noble and learned friend Lord Howe of Aberavon, who is in his place. This set out the true picture of the public finances and stated how my noble and learned friend intended to rectify the profligacy of his predecessors. Until such a document is published by a new Prime Minister and a new Chancellor, the market and international investors will lack trust in the figures provided by the British Government. I hope that Treasury officials are dusting off copies of my noble and learned friend’s 1979 White Paper. Only when another such document is published by a new Government, determined to set a credible framework for our public finances and dispensing with the scourge of spin, will faith be restored in the Ministers running our economy and in the august Treasury itself. As a former Minister in that department, I know how much its officials prefer to serve Ministers whose forecasts and pronouncements are accurate and can be respected by the markets.