Pre-Budget Report 2009

My Lords, I start by reminding the noble Lord, Lord Lamont, that the Pre-Budget report was started not as he described but in order that, instead of having to wait until April for the annual Budget, at Christmas there would be an indication of the direction in which the Government intended to take the economy; a kind of indication of direction of travel. Therefore, at the risk of being old fashioned, I will look at the PBR in that way. So what is the direction? What are the priorities? How do the Government view the current situation? Yes, there is a big deficit gap to close and many figures have been quoted. It is easy to be selective when discussing Britain’s debt—there is the real market and there are the secondary markets—and we have to take care that we do not talk down Britain by quoting the secondary markets instead of the real market, a point made by my noble friend Lord Barnett. I also remind noble Lords that the reason we have the deficit is not because of mismanagement. Without good management we would have had a full-blown depression instead of a recession, and we can deal with a recession by a combination of growth, cuts in public spending and tax increases. Of these, surely it is best to encourage growth. To take away this encouragement too early would serve only to put the emphasis on taxes and cuts. Is this what noble Lords want? It is certainly not what I want. It is an eminently sensible policy to achieve a 50 per cent reduction in the deficit by 2013, as has been described. It will cause less pain for the vulnerable and the better off will carry a greater burden, but that is what I understand as a fairer society. I compliment the Government on sticking to the principle of fairness. Pensions are a good example of this. Unexpectedly, I will get a basic pension increase of 4 per cent in real terms but my SERPS will be frozen, as the noble Lord, Lord Northbrook, pointed out. That is my bit of pain. I am not the only pensioner in the Chamber and I hope other noble Lords will join me in thanking the Government for a generous increase in our basic pension. As the Minister explained, the services that are most important to the least well off are to be protected—schools, health, Sure Start, incentives for people to stay in their home, overseas aid. This direction of travel shows that, at least on this side of the House, we know how normal people live. We are trying to deal with the deficit in a humane and fair way and we are trying to avoid injustice. In return, all we get is criticism—or is it just adversarial politics, as the noble Lord, Lord Renton, suggested? I also welcome the direction of travel for business. The Government are continuing to help and encourage the real economy in these hard times. Not only are the banks are being pressed to lend, but they have come up with half a billion for their customers’ capital growths and they are rolling over another half a billion to finance guarantees. The Government are putting up their own contributions to capital ventures and to strategic investment funds. Some of the schemes are working well; some not so well. However, while bankers’ bonuses are being taxed more, the tax on profits from patents is being reduced. The noble Lord, Lord Bilimoria, said that we have lost our sense of priorities. This incentive shows exactly where our priorities lie. Deferring a planned rise in small company corporation tax and extending indefinitely the Revenue and Customs time-to-pay scheme were all welcomed by business organisations which are usually reluctant to praise the Government. Most people in business who I meet welcome the continuing policy of turning away from special favours to the financial sector to more support and encouragement for the real economy. I am sure that this is the right direction of travel because it is becoming more and more clear that the huge, opaque, global network of financial trading referred to by the Prime Minister and President Sarkozy in their recent article in the Wall Street Journal is the next bubble that has to be tackled. It has the same characteristics as the last one. The world’s actual production of goods and services is leveraged 73 times in financial trading. Nation states are the lenders of last resort to banks with so-called assets 10 or 15 times the gross national product of goods and services of the nation states. In addition, it is now becoming apparent that while the crisis has reduced profitability, the buy-out funds continue to load debt on the companies they control in order to pay dividends to themselves. They also trade in that debt. Is there not something rather worrying and familiar about all this? It is no wonder that presidents and Prime Ministers are joining us, Britain, to try to break this up. In spite of all the scepticism that greeted the 50 per cent tax on bonuses, the idea is being taken up in other countries—and quite right, too. Of course it makes sense to keep the money in the business to build up the capital instead of relying on yet more debt. The noble Lord, Lord Selsdon, proposed quite an interesting alternative: that those bankers who accept the bonus should lose their membership of the MCC. There is a problem for the tax avoidance industry. The threat is that this highly leveraged and opaque trading will move out of London if it is made more transparent, more regulated, more manageable and more taxed. There has been quite a bit of talk about aspirations. I could not help noticing the contrast in aspirations between financial sector and the real economy. Our high ambitions for the real economy—our science, our technology, our skills, our manufacturing and our infrastructure—mean that we are trying to win a race to the top. What are our ambitions for the financial sector? They are taxation and regulation. That means, as far as that sector is concerned, we are engaged in a race to the bottom. What a contrast. The noble Viscount, Lord Trenchard, was worried about business leaving London. I wonder whether he heard the BBC on 7 December. It was reported by its correspondent in Washington that Wall Street bankers were so incensed at the current banking regulations in the United States that they were threatening to move to London—one lot moving out and one lot moving in. I know that my noble friend the Minister is a past chair of the Low Pay Commission, so I am not sure how relevant his experience will be, but I hope that, with one lot moving out and one lot moving in, he will ensure that staff at City jobcentres are suitably prepared. For noble Lords to blame the Government’s 50 per cent tax for this exodus is naive. Some now argue that western financial markets are mature and that future growth lies in Asia or Latin America. One major fund manager came out of retirement to start a business in Hong Kong, reflecting the advice given to trustees of pension funds to buy Asian funds. People will move to where the growth is. As a result, instead of being concentrated in London and New York, the financial services business will become much more evenly spread out. It is just a fact of economic life. I hope that the Government will continue in the same direction of travel and move even further along the road in the Budget next April. I hope that they will convert the funds which help productive industry into longer term institutions that do not end when the funds are fully drawn down. I hope that they will continue the tax on bank bonuses beyond April and add to it a Tobin tax, so that the size of the financial sector becomes less threatening. This crisis has cost the banks a lot of their social mandate. They will lose even more public support if this matter of the bonuses is not treated sensibly. In the end, they may be forced to make the split about which the noble Lord, Lord Renton, spoke and separate their trading business from their service business so as to give the service side an opportunity to win back the public support which it will definitely need. I hope that the Government will be sure-footed and continue in the same direction, with their care for the wider social and economic consequences of their actions. I hope that they will continue building up and talking up confidence in the real economy. With the improving ability of banks to raise capital from the markets and their increasing stability, I hope that the Minister will soon be able to tell us that the potential impact on the public finances of this intervention will be such that we can start getting the taxpayer’s money back from the banks. We would all welcome that, and what a good Christmas present for next year it would be.