Pre-Budget Report 2009

My Lords, it has been a common practice with this Government’s Budgets and PBRs—especially those of the former Chancellor, the present Prime Minister—for the pundits, experts and commentators to look through all the small print for the hits, hurts and horrors that were concealed in the statement itself. After 24 hours, the statement then starts to fall apart. However, I have never known a Chancellor’s statement to be so rapidly and totally panned by just about everyone as this one has been. The criticism is universal, from the media to think-tanks and bodies such as the Institute for Fiscal Studies, to City economists, international observers, the rating agencies and so I could go on; it is a universally recognised as a purely political PBR. Like my noble friend Lord Lamont—I shall be following him in much of what I have to say—I actually have sympathy with the Chancellor. He has had to deal not only with an awful inheritance from the present Prime Minister, but—if rumours and leaks are correct—with a great difficulty with him even now in taking some further action. Of course, it was the Prime Minister who tried to pretend all through the summer that there was no need to cut government spending. Everyone, from the Governor of the Bank of England downwards, now knows that the measures taken are simply not enough. Even the tax proposals which affect most people, like the one on national insurance, have had their introduction postponed until after the election. There, was, however, one event 24 hours later. We now know from leaked Treasury documents, but not from the statements themselves, that overall departmental spending will be cut by 9.3 per cent over four years. Since then, we have also seen—my noble friend Lord Lamont referred to this—the IFS forecasts about non ring-fenced departmental spending. No wonder the Chancellor concealed that by postponing the Comprehensive Spending Review until after the election, leaving it to his successors. Will the Minister confirm that the IFS forecasts for cuts in non ring-fenced departments’ spending, to which my noble friend referred, are correct? One of the most telling reactions was in the gilt market, and among all the City economists advising on it. Gilt yields—that is, the cost of borrowing—rose, and even then most, including the rating agencies, held back on their judgments on the basis of waiting to see what is done after the election. I rarely quote my own speeches, but this morning I was reminding myself of what I said in the debate on the economy on 7 May this year. I said: ""My nightmare scenario, which I profoundly hope will not happen but is where the Government may be leading us, is what happens if the Debt Management Office fails to raise the huge sums in gilts that will be required"." I went on: ""At September 2008, overseas investors owned more than 36 per cent of all outstanding gilts, compared with less than 20 per cent 10 years earlier.".—[Official Report, 7/05/09; col. 685.]" Since May, the position has got worse. We can see that the rating agencies are suspending judgment but giving very clear warnings. Now, as the Minister knows, I have some criticisms of the rating agencies for the role that they played in rating banks and financial institutions, but it is nevertheless the case that those agencies are listened to in looking at the ratings of individual countries, and our triple-A rating is clearly under threat. We now know that the official government projection is for net government debt to grow to almost £1.5 trillion by 2014-15. Many of us in the House recall the period in 1976—my noble friend Lord Lamont referred to it and I am sure that the noble Lord, Lord Barnett, will particularly recall it—when the then Chancellor, the noble Lord, Lord Healey, had to come back from Heathrow to go to the IMF and bail us out. I believe that our debt position is now much worse than it was then. The cost of servicing debt is projected by the Government to be £63.7 billion by 2013. That is more than every other government spending department, so the cost of servicing the debt is the worst of all in terms of cost and size. But that is based on optimistic assumptions about economic growth. Earlier this year, the Chancellor got his assumptions about economic growth for this year badly wrong. It is bound to be affected by the serious delay in taking real action on government spending. It should have started by now. As the much listened-to Roger Bootle said, ""the forecast for 3.5% growth in 2011 and 2012 looks highly ambitious. If, as I suspect, growth turns out to be much weaker … then the borrowing numbers will be much higher"." Moving on to my second question to the Minister, I recognise that there are different repayment periods for gilts. I know that there is now much more emphasis on long-dated gilts, not least because of the pension fund requirements. However, for the amount of new gilts that must be raised in the forthcoming years, even on the Government’s own borrowing projections, what would be the impact on the cost of servicing the debt if there was, say, a 0.5 per cent interest rate increase above the Government’s current assumptions? I fear that the figures that the Government have put before us for the cost of servicing the debt are simply too low. I turn briefly to two other points. On pages 108 and 109 of the PBR, there is reference to the additional £3 billion of annual savings by 2012-13. Some of those were also contained in the "Smarter Government" Statement last week—in itself an admission that we have had "unsmart" government for 12 years. And no wonder. To cite the "Smarter Government" document, the additional £3 billion saving includes, ""at least £500 million by reducing duplication between organisations and streamlining"," what are euphemistically called "arm’s-length bodies". The document announces the rationalisation of more than 120 of these "arm’s-length bodies", which I think most of us would normally refer to as quangos and government agencies. There will be savings of £650 million from cuts of 50 per cent in consultancy spend, and 25 per cent in marketing and communications spend across government; £550 million from local government reducing the burdens of inspection, assessment and reporting requirements from across government; £140 million from reducing the costs of the senior Civil Service by up to 20 per cent; and £92 million from making more efficient use of funding available under the Rural Development Programme for England. We all know the fiasco in relation to the Rural Payments Agency, where well over £200 million in costs—I think the figure will be much greater than that—was caused by government policy in dealing with the inefficiency of that body. We can see a similar need to contain savings there. The interesting point about all of this is that it is a reflection of government mismanagement to date. In each of the areas I have quoted, the Government seek to make savings where they have themselves let spending rip over the years. Every single one of them has followed from government policy, and now they are having to cut back. We have already often debated how the Government have so badly damaged pensions in this country. However, one of the major planks of the Government’s pension policy—I want the Minister to respond to this point when he comes to wind up. Perhaps I may have the Minister’s attention for one second as I want to ask him a question about this. One of the major planks of the Government’s own pension policy, on which much time has already been spent, is the personal pension to be introduced in 2012. In fact, until it deteriorated in the context of pension policy, it was one of the positive aspects of that policy. However, page 85 of the Pre-Budget Report states: ""The government announces a change to the implementation of private pension reform, including to the timetable for employers joining the reform"." As I understand it—I should be grateful to know whether this is correct—that means that the personal pension policy will actually come in even later than 2012. If that is correct, it makes an even bigger shambles of the whole approach that the Government have taken to pensions. My questions are when and why. Why is there practically nothing in the PBR about public service pensions or accelerating the timetable for raising the pension age? Surely those areas should have been addressed now. To conclude, in order to be as brief as possible—there is much else I could say—just as Tony Blair will be most remembered by history for deceiving the country as to the reasons for taking us to war in Iraq, so, as this PBR yet again demonstrates, the present Prime Minister will be remembered as the Chancellor and Prime Minister whose profligacy left Britain’s economy the most vulnerable of all major economies when the international banking crisis hit us.