Pre-Budget Report 2009

My Lords, first, I would like to refer to what the noble Baroness, Lady Valentine, said about companies relocating. There is a serious risk that increased taxation will bring forward plans that many financial services companies have to relocate to the Far East anyway. There is a logic to that: if the economic growth in the world is to be in places such as China, India and the Pacific basin, one should perhaps be located in Singapore, for example. Raising the top tax rate to 50 per cent will be a tipping point for a number of companies that might be thinking of moving anyway. I think that that is extremely dangerous. I shall not delay the House for long. All I really want to talk about is quantitative easing: when is it going to end and what effect does it have on sovereign debt? On Monday, the noble Lord, Lord Barnett, obligingly raised the question of quantitative easing. He, of course, is concerned that quantitative easing is going to end too quickly, but I refer to the comments of the noble Lord, Lord Newby, who asked a supplementary question about when quantitative easing would end and what effect that would have on the bond markets. The noble Lord, Lord Myners, said that, ""the fact that quantitative easing will come to an end at some time is already priced into the markets".—[Official Report, 14/12/09; col. 1309.]" If he comes to consider that, I wonder whether he would hold to that view. The only debate, as far as I can make out, is whether quantitative easing is buying 90 per cent of government debt or, according to one of the business commentators in the papers last Sunday, 99 per cent of government debt. It strikes me that a market is composed of willing buyers and willing sellers, but it does not refer to an organisation that on the one hand is issuing debt and with the other is printing the money to buy the debt. Surely the price of gilts must be dominated by the Bank of England, if it is both the buyer and the seller of those bonds. Therefore, although I agree that 10-year gilts have risen from 3.6 per cent to 3.8 per cent, can we really be confident that that is a market rate for selling gilts when quantitative easing will at some stage have to come to an end? During Questions, the noble Lord, Lord Myners, said that it was not his job to say when quantitative easing would come to an end, but we must all agree that one day it will have to come to an end. Perhaps the noble Lord, Lord Newby, was not right to talk about February 2010. Perhaps it will be earlier—perhaps it will be in March or April—but it must come to an end at some stage. Perhaps the noble Lord, Lord Barnett, will have an opportunity to tell us when he thinks that quantitative easing should come to an end. As a former Chief Secretary to the Treasury, he will know the problems of inflation. If you go on printing money indefinitely, eventually, rather like in Zimbabwe or the Weimar Republic, you have to get a wheelbarrow and fill it with £50 notes to buy a loaf of bread at Tesco. Many of my noble friends have observed that inflation is rising at the moment. At 1.9 per cent, it is bumping up against the 2 per cent limit that the Bank of England’s Monetary Policy Committee is supposed to be adhering to. As my noble friend Lord Ryder observed, many inflationary pressures are coming along. Not many of us think that the price of crude oil is going to drop dramatically and we have the VAT rates going up. There are many inflationary pressures coming in, so, on the whole, prices are being forced up anyway. That surely indicates that interest rates will rise as well. Quantitative easing must come to an end. When the last issue of quantitative easing—£25 billion—was mentioned by the Bank of England, messages were issued at that stage that this was coming to an end and that quantitative easing was not going to be extended any further. To return to the point made by the noble Lord, Lord Newby, when it comes, who is going to buy those gilts? As my noble friend Lord MacGregor mentioned, 36 per cent of government debt is held by foreigners. I cannot quite understand why, as a foreigner, I would want to buy British gilts yielding 3.8 per cent for a 10-year gilt when I have seen a 25 per cent devaluation in sterling over the past year. I do not quite understand where the money is going to come from. Clearly, there is some demand from pension funds to buy our gilts, but a yield of 3.8 per cent seems seriously modest and not much of an incentive to buy the stuff. As my noble friend Lord Ryder said, surely a gilt strike is well on the way. We will have a serious funding problem and it seems to me that that may well come before the next general election. Serious problems are posed by the Pre-Budget Report, which has not grasped the problem of addressing our debt. I think that it is storing enormous problems for the near future, which may all come to a head before the next general election.