Pre-Budget Report 2009

My Lords, it is a pleasure to follow the noble Lord, Lord Lamont of Lerwick. He is an experienced politician and former Chancellor of the Exchequer, and his knowledge is viable and has been deployed to good effect this morning. The House is grateful to him. I share a lot of his analysis, but he is a hard act to follow. I am not an economic expert, but I think that I know enough about politics to recognise a problem when I see one. The United Kingdom is facing some serious problems—the noble Lord eloquently set out the extent of the difficulties a moment ago—and these and a combination of circumstances surround the events of the debt burden that the UK is now facing. The Copenhagen conference on climate change will also create difficulties of its own that will compound the financial circumstances that we are trying to address. Although some colleagues may consider this to be a second-order issue, the ageing of the United Kingdom population over 10, 15 or 20 years will also have an impact on some of the policy choices that we will have to make to get this right in the future. The dependency ratio—the number of people who are in active employment and/or of working age—will collapse from four per retired person to something in the region of two over that time frame, and we will have to address that as well. The public spending review will be less important than the next CSR decisions, and the decisions that the Government will have to take will tell a story that is different in tone from that of the Pre-Budget Statement of the past few days. If that was not enough of a problem, we face unique levels of public distrust of the political classes, of which your Lordships’ House is, unfortunately, part. This will make things more difficult. We need to provide the leadership that is necessary to persuade the country that we are all in this together. We must face up to the fact that the country is poorer and that the steps that we need to take to deal with that will be unpleasant. Any future misery will need to be fairly shared, which is much more difficult if there is a unique level of alienation from the political classes in the United Kingdom. If all that was not bad enough, there will be the complication of the looming election, which will be a distraction from some of the decisions that this country will have to take. I agree with the noble Lord, Lord Lamont, that we need to face up to the reality of the long-term future of the United Kingdom and to tell the truth about the extent of the difficulties. However, the tone of some of the documents that the Government have produced is so mixed with spin and presentational issues that it is difficult to know the exact extent of some of the problems. I regret that. When I first served in the House of Commons, in 1983, Treasury documents were harder to read but they certainly told an awful lot more about, and much more clearly, what the Treasury and the Government were trying to do. The presentational tone of some of the documents makes the situation harder to understand.. I agree that the Government’s handling of the short-term support package—which has been necessary to support the recovery; to promote business confidence, which is crucial to the economy; and to get the wealth creation and infrastructure issues right—has been done in a reasonably straightforward and sensible way. It was essential that it should be done. However, I agree with the noble Lord, Lord Lamont, that even if the short-term situation is dealt with—and we hope that it is—the Government’s long-term plans will not begin to properly address the situation in future.. We should have a period covering two or three CSRs—a six to 10-year period of recovery—and some of the Treasury documents refer to that. I do not think that the Government’s plans are credible or that the risk to our country’s credit rating is being addressed seriously enough. The growth forecasts are unrealistic and far too optimistic. Moreover, the causes of all of this—the incompetence of the central bankers and the inefficiency of the stock markets in reflecting real value—remain. We face tax increases and reductions in public services that we have not experienced in the recent past, certainly not in our lifetime, and those issues need to be addressed sooner rather than later. For the Treasury to refuse, delay or refrain from publishing its projections for annually managed expenditure only makes the debate more difficult. As has been said, it is ridiculous for the Chancellor of the Exchequer to try to hide behind the fact that it is all too uncertain at the moment and not safe to tell us the unvarnished truth. Uncertainty will be with us for a long time to come. If that is the defence mechanism for keeping the detailed figures to himself, that is not a safe basis on which to proceed. In the absence of definitive departmental figures, there is bound to be speculation of the kind that we have had from the Institute for Fiscal Studies, which is doing the best it can to make estimates of the coming cuts. If we are facing frozen budgets over the next three to six years and real-terms cuts of between 4 and 5 per cent, that is a serious problem which we need to start planning for now. If we do not, the future will be harder to handle. If all of that is not bad enough, the Fiscal Responsibility Bill is supposed to ensure and enshrine transparency, to put Parliament at the centre of planning and policy-making in future. How can Parliament possibly do that if it does not have such basic figures as the annually managed expenditure details, department by department? If we do not get those figures soon, it will be impossible to respond adequately to the extent of the difficulty. If anyone doubts that, I refer them to the excellent op-ed piece by Mr Martin Wolf in the Financial Times today. If the noble Lord, Lord Myners, has not yet read it, I hope he will leave the debate and go and do so, because it begins to capture the extent of the problem that we all face. The DWP’s White Paper, Achieving Full Employment, is encouraging because it tackles some of our deep-rooted unemployment problems. Although unemployment has not increased to the extent that we thought it might, there are still potential difficulties with unemployment rates. Some of the suggestions in the White Paper are very constructive. The ideas have been around for some time and I hope they will be promoted. In that regard, we should spend more time trying to work alongside employers. All activities in the recent past—the Flexible New Deal, for example—have been supply-side measures. We need now to support employers, and not just the big ones. The employer partnership schemes are welcome, but they are at a very high level. Small and medium-sized enterprises will struggle and need help. Our colleagues in the United States are experimenting successfully with tax credits for employers, particularly small-scale employers, to take on staff on a tapered basis. So there is an incentive for employers to do their bit. However, the White Paper’s proposals to make work pay, and to make sure that nobody is worse off by going into work, are very useful. The money guidance scheme which has been produced by the FSA is underfinanced. I was expecting more money from the industry to be allocated to it in the Pre-Budget Report, though there is a £5 million budget for the citizens advice bureaux. Money guidance will be very important in the next three to six years. I hope the Government will look at that and see whether more money can be put into it. Finally, I share an idea that I had on my way in this morning. I remember well the Treasury producing a document written by the noble Lord, Lord Grabiner, about the informal economy and the need for making sure that more people were brought out of the grey economy and into the legal economy. If we are now saying to people, "You will be at least £40 better off if you go back to work", it is a time for an amnesty for people operating outside the tax regimes in this country. It would be to the benefit of the Treasury if it revisited some of the recommendations of that report. That would pay handsome dividends and increase the tax take. I seriously suggest that the Minister should go back and look at that. We need more information before we can get to the crux of this matter. Mr Martin Wolf’s article in today’s Financial Times ends by saying that these are problems that politicians should not duck. I agree with that, as I hope the Government will. I hope they will provide the figures that the House needs to be able to make sure that we respond to what will be a very serious task in the next three or six to 10 years.