Pre-Budget Report 2009

My Lords, I was struck at the beginning of this debate by the attitude of the noble Lord, Lord Myners, who produced his speech in what I can only describe as a remarkably sotto voce manner. He has obviously cheered up; perhaps that was because of the speech by my noble friend Lord James, or because of others. However, when I listened to his speech I wondered whether his sombre manner reflected his real view of the state of the economy. Perhaps he had finally realised that the green shoots that his colleague, the noble Baroness, Lady Vadera, saw at the beginning of the year have now turned to lifeless brown twigs. Indeed, the PBR attests to what my noble friend Lord Renton, if I may plagiarise him slightly, might have called electoral opportunism. Like a brown twig, it does not stand up to much pressure. Since the Chancellor of the Exchequer regularly nicks the best parts of the upratings statement, I hope that your Lordships will see it as fair game for me to talk about that in this debate. First, there is the issue of pensions, which has been mentioned. The much publicised and paraded 2.5 per cent rise in the basic state pension is a clear example of the Government’s desire to publish their manifesto a few months early. Not only is the 2.5 per cent the bare minimum by which the Government are allowed, by their own rules, to raise the pension—although they are of course not unaccustomed to breaking their own rules; the Prime Minister’s fiscal "golden rules" spring readily to mind—but the rise does not apply to all state pensions. The second state pension, the graduated pension and the £7 per week delayed retirement payment are just three of the areas, relied on by many pensioners, where pensions have in fact been frozen. When the Chancellor made his Pre-Budget Report, among the few winners were thought to be pensioners. Yet now the Green Book shows that they, along with millions of others, will have to pay for the fiscal mismanagement by the Government, as many of your Lordships have said. Equally, if, as the Chancellor himself has predicted, inflation rises to 3 per cent in the new year, even that small increase in the basic state pension will yield little tangible result for pensioners. Much of it, too, will be swallowed up by the increase in the rate of VAT, which happens on January 1, whereas the increases in the basic state pension and out-of-work benefits start only at the beginning of the next financial year. There was also the announcement in the PBR Statement that the Government will begin to count employer pension contributions as their employees’ income. What will be the results? First, it is inevitable that more people will creep over their tax thresholds. Secondly, it could well have the perverse effect of reducing the employer contributions. The result of that will inevitably be lower pension income in retirement for their former employees. One could also argue that those moving into the next tax bracket will, in effect, suffer from double taxation—something that all Governments have set their hearts against over the years. How can the Minister justify raiding pension funds in that way? On the subject of benefits, the social security policy set out in the upratings statement suggests an increased amount of electioneering in the making of social security policy. The centrepiece of the benefits element of the upratings statement was the supposed increase in areas of social security. Yet, as my noble friend Lord Lamont pointed out, the Government have admitted that this rise does not affect the baseline on which next October’s inflation rate will be used to calculate the 2010-11 benefit levels. Is this not the shortest of short-term measures, with the Government admitting that they have no plans to continue any increase beyond 2011? Is it perhaps something of an electoral coincidence that the Government have chosen not to put in any plans for funding beyond next year? This measure, perhaps most of all, demonstrates that the Pre-Budget Report that your Lordships are debating is overtly political. I am not enough of an economist to know whether the PBR is economically nonsensical, but I have my suspicions. Why have the Government chosen to stimulate the economy with this rise in social security benefits? Is it because the original method, by which I mean the reduction in the VAT rate, did not work out very well? Anyway, why do we have fiscal stimulation at all? What is really needed, as many noble Lords have said, is to cut the structural deficit. The Government have also guaranteed that anyone in work will be better off than if they were on benefits, a sentiment with which your Lordships cannot disagree. Yet neither in the Pre-Budget Report nor in the upratings statement is there any detail of the structure, method or cost entailed in achieving this. This is a good example to take from a report that has dodged the bullet in favour of attempting to create dividing lines between the Government and the Opposition. In fact, from 2011—when the Government’s further national insurance rise kicks in—there will be a de facto rise of 1 per cent because of the annual tax hike in the spring Budget. To back up what the noble Lord, Lord Bilimoria, said, what effect do Her Majesty’s Government believe that this has on employment, especially as past recessions have shown that unemployment continues to grow for some months after we have come out of recession? In short, the upratings statement is a perfect follow-up to the Pre Budget Report—an attempt to rectify 12 years of this Government’s economic policy with a paltry bundle of brown twigs. If the Government really believe in economic stimulus, not only is it a case of too little, too late, but it is also a serious misrepresentation of the actual freezes and cuts that the Government are planning to make in benefits and pensions. Like the 13-month reduction in VAT, the publicised rises in benefits and pensions seem destined not to have any real effect. It is a case of the Government giving with one hand only to immediately take away again with the other. No wonder they take pride in a fiscally neutral mini-Budget. The economic circumstances dictate a concrete policy in the area of social security; instead, the upratings statement has provided the country with empty political posturing, which is incomplete and ill timed and which the Government intend to go back on as soon as they can. The PBR reminds me of the words of Oscar Wilde, who wrote that, when he smelt flowers, he generally looked for a coffin.