Pre-Budget Report 2009

My Lords, I suppose that one should not expect too much from any opposition of any political party in a pre-election period, as the noble Lord noted. He tried very hard not to make a party-political speech. Like him, I have made a few, when I was in government and in opposition. Nobody was listening and it was a total waste of time. It is a particular waste of time to do so in your Lordships' House, as we all know, but we still do it. I have listened very carefully to constructive comments on how we can get out of the problem we are discussing. The implied but not specified solution is, usually, massive cuts in public expenditure and/or increases in taxation. That is understandable given the size of our deficit. For my part, I apologise if I ever stray into party-political comments. I wish to deal with two major areas only: the banks and the deficit. I do not think that any political party at present, whether in government or opposition, could have avoided suggesting the tax that is proposed for banks, or something like it. It is quite impossible to avoid that. I am just sorry that the banks did not see fit to make it possible for the Government not to take any action. I think that President Obama said that the banks just did not get it. There is a larger number of banks in America, but the same applies in this country. But, more importantly, I hope that government policy will allow banks the freedom to manage themselves. I am sure that my noble friend Lord Myners will confirm this. He has always said that is the case, although he might be better at managing banks than some who are doing so. I do not want to see government too far involved in managing banks. I hope that when we no longer manage them, the Government, on behalf of taxpayers, will soon be able to sell their investment in the banks at a profit. I declare a modest interest in terms of being able to join in that. On the major issue of the large deficit that we face, I agree with the Government that it would be foolish to start cutting public expenditure or increasing taxes at this juncture when growth is as fragile as we see it to be. I note that the Government are planning not to cut public expenditure but rather to increase it by £31 billion in the coming year. I should be grateful if my noble friend could explain why it was thought necessary to increase public expenditure at that level in the coming year. I should have thought that a lesser figure would be more helpful and might have avoided the necessity to increase national insurance contributions. However, I note that the Opposition have not suggested that they would reverse that decision. I am sure that there will be increases in taxation in the near future, before, or certainly after, an election. So they will hurt. It is no use pretending that increasing taxes on only a modest number of people will get you the money you need, because it will not. Increasing taxes or cutting public expenditure will hurt lots of ordinary people. If we pretend otherwise, we are being dishonest. No particular party, as has been recognised, has been able to announce any details of what should be done in terms of detailed cuts in public expenditure, to which the noble Lord, Lord Lamont, referred. In any event, it would be wrong to be too specific until there is a clear idea of the level of economic growth that we can expect. The Government have forecast 3.5 per cent in the two years in question. The Governor of the Bank has forecast 4.1 per cent. Over the years, national and international forecasters very often have got their forecasts wrong. They do not talk about getting it wrong; they talk about revising their forecasts, as do governments and international commentators at the highest level constantly. For my part, even without giving the details, I accept that the Government mean it when they say that they are going to bring the deficit down to the percentage that is required. How precisely they will do it, they are unable to say. No one can say. An opposition cannot say, nor are they saying. In this debate and in other debates elsewhere, I have listened carefully to hear constructive comments on precisely what should be done, but I am afraid that I have not heard any. But some in the media and in the Opposition—I regret to say that I have heard this in one or two speeches today—are risking damaging our rating for servicing the borrowing. I recognise that there is a serious problem, as did the noble Lord, Lord MacGregor, who knows that I have the highest regard for him. He is risking, as are many others, the rating for servicing the borrowing. Recently, David Cameron was quoted as saying that a downgrade is, ""the greatest single risk to sustained economic recovery"." It is a major risk. The more that it is talked about, the greater the risk. I have looked carefully to see what rating organisations have in mind to do and how serious this risk is. Arnaud Marès, of the sovereign risk group at Moodys, said: ""Affordability is stretched to the limits of what is consistent with a top rating, but our assumption remains that a substantial margin for fiscal manoeuvre exists"." That quote is from Moodys; it is not from a politician. It is from the body which sets the rating. I am pleased to hear that the risk it sees is flexible enough to allow us to borrow at the triple-A rating. To talk otherwise is damaging and would be damaging to anyone who expects to be in government in a few months’ time. I hope that we can stop talking about the potential risk of downgrading our rating. For my part, the Government could go a little further in spelling out how they would proceed. I declare a past interest as Chief Secretary to the Treasury for five years. I spent most of that time cutting public expenditure. I regret to say that because it is not what I came into politics to do. When I am asked to give someone personal financial advice, I always say, "No, I am legally not allowed to give advice". I can only tell my noble friend what I would do if I were Chief Secretary today. I would like to see the Government set an eventual overall cut in public expenditure, department by department. on a percentage basis. It would have to be a large percentage to allow flexibility for the Chief Secretary who, when Cabinet has agreed that figure, could say to his opponent—I should say the Secretary of State concerned—who wants to spend the money that he cannot. In practice, he would be able to say, "I am sorry, Cabinet has agreed that you have to take the cut". That is what should be done. The best way to cut expenditure would be to leave it to departments. They should decide on their priorities. They have to make the cuts in expenditure. I would leave it to departments to decide how they would make their cuts. I recognise the need to ring-fence, but I hope that the ring-fencing is fairly light. Departments should be able to maintain, I hope, the servicing of those major areas of expenditure without being ring-fenced completely. I believe that spelling out the procedure in that way would help. But, on the whole, the Government have shown their determination to get borrowing down over a period of years. As I have indicated, they are not cutting expenditure. Even in the two years after next year, they are still planning increases in public expenditure of 0.8 per cent in real terms and not a cut. I should like to know from my noble friend whether that is purely because of ring-fencing or are the Government still not making the major cuts that might not be necessary if, for example, the 3.5 per cent growth did not occur, which I would regret to see? For the moment, I hope that the Government will proceed along the path that they are going, including even the so-called smarter cuts to achieve greater efficiency. The plain fact is that if you are spending £700 billion, there will be inefficiency. If the most efficient people in the world were spending as much as £700 billion, there would be bound to be potential for savings. Eleven billion pounds spent on the smarter procedure is petty cash in that context—much more could be found. I wish that I could propose a way in which to cut the deficit painlessly, but I cannot. I would love to hear someone in this debate tell me a way.