Pre-Budget Report 2009

My Lords, noble Lords will recall the story of Penelope. While waiting for Odysseus to return, she laboured by day to weave a robe but at night unravelled it and started again the following day. Our modern-day Penelope is the Chancellor of the Exchequer. He weaves his Budgets and PBRs by day, but by night they are unravelled. The only difference is that it is not the Chancellor who does the unravelling: they do it all by themselves, with a little help from the Institute for Fiscal Studies. Penelope’s objective, of course, was to avoid the undesirable suitors who pursued her. The Chancellor has no such excuse. No one lusts after the Chancellor and his plans for our economy. The subject matter of this debate is thoroughly depressing. Despite that, our debate has been excellent, and, as usual, my noble friend Lord James of Blackheath has managed to present a unique and humorous perspective on it. My noble friend Lord Lamont, whose experience as Chancellor of the Exchequer trumps the rest of us, opened for these Benches with a measured and comprehensive demolition of the PBR. My noble friends built on that foundation with many hard-hitting speeches. It is hard to know where to begin with this PBR. But let me get out of the way the vacuous Fiscal Responsibility Bill, which the Chancellor seems to believe will validate his economic stewardship. Having heard my noble friend Lord Renton, I shall now regard this as the Insecurity of the Chancellor Bill. It is the worst kind of window dressing and does not deserve to use up the few legislative days left in this Parliament. However, if the Government insist on bringing it to your Lordships’ House, all I can say is "Bring it on". The PBR confirmed that Britain is in the longest and deepest recession since the 1930s. We are the only country in the G20 still to be in recession. The Chancellor has finally faced reality with his negative growth forecast of 4.75 per cent for this year. This implies a roughly flat fourth quarter and it is clear that the recovery is not secure. I hope that the Benches opposite will now be silenced on their wearisome comparisons, which we have heard so often, with the economic record of the last period of Conservative government. Why is this country suffering more than the rest of the G20 or than most of the OECD? The answer is of course very simple: it now resides in No. 10 Downing Street. The delusions of a man who believed that he had abolished boom and bust and who engineered an economy built on debt, both public and private, took this country from an admired economy to one that is pitied abroad. We sincerely hope that our economy is now returning to growth, but building a set of financial forecasts from 2011 onwards on the back of a 3.5 per cent growth rate seems to us to lack prudence. If, as my noble friend Lord MacGregor pointed out, we do not achieve that growth, the appalling figures for the deficit and for debt, to which I shall come in a moment, will be commensurately worse. My noble friends Lady O’Cathain and Lord Eccles emphasised the need for private sector business growth, and the noble Baroness, Lady Valentine, and my noble friend Lord Trenchard reminded us that the financial sector remains an important part of the economy. My noble friend Lord Selsdon highlighted the need for the UK to be attractive to inward investors. However, did the PBR do anything for this? The PBR does not help British business or help growth; it harms it. The national insurance rises are quite simply a tax on jobs. We cannot think of a single policy more likely to be damaging than one that will choke off job creation as we come out of recession. As my noble friend Lord Northbrook pointed it, it has been roundly condemned by the CBI, and the business community is unanimous on this. As Miles Templeman of the Institute of Directors said: ""A further tax on jobs at a time like this is madness"." The additional national insurance starts to bite at around £20,000 of annual income, which is considerably less than average earnings. So we have the spectre of a Prime Minister trying desperately to wage a class war against the few in order to cling to power, while his Chancellor indulges in taxing the many. My party’s clear policy is to try to avoid the national insurance increases. We may well be too late for the first one but the second is firmly in our sights. Of course, the increase in national insurance will also make the task of controlling public expenditure harder because national insurance is also paid by local councils, schools and the NHS. In total, the public sector will have to absorb around £1.2 billion a year, and £450 million will come out of the NHS budget alone. I turn to the deficit. The Government have no plans to tackle this until the year after next. We believe that this is the wrong approach and that it should be tackled now. Of course we understand the view that acting too soon or too vigorously could damage the economic recovery. The noble Lord, Lord Radice, noted that my right honourable friend Mr David Cameron is fully aware of this, but we are encouraged by the fact that the Governor of the Bank of England, the CBI and the OECD, to name but a few, agree with us that the deficit should be reduced earlier and faster than the Government plan. The recent report from the Policy Exchange shows that early action can help the restoration of growth rather than choking it off. It is a judgment, and we think that the Government have got the judgment wrong. Importantly, the Government’s mañana strategy for the deficit means that an opportunity to calm the markets has been lost. Credit default swaps and gilt yields rose sharply again last week. The noble Lord, Lord Barnett, was sanguine about the UK's credit rating, but we agree with those who are now ringing the alarm bells, and this is not confined to the rating agencies. The deficit cannot be reduced without addressing public expenditure. The evidence is that deficits are best reduced by reducing expenditure more than increasing taxation—which does seem to be the opposite of the Government's policy. My noble friend Lord Stewartby criticised the Chancellor's retreat from a long overdue Comprehensive Spending Review. It is reckless in the extreme to avoid the tough decisions which must be made on spending in the face of a budget deficit of nearly 13 per cent and a structural deficit of a whopping 9 per cent. As many noble Lords have pointed out, the Institute for Fiscal Studies has laid bare the cuts in public expenditure which lie behind the illusion of flat overall spending over the next four years. Stripping out social security, debt interest, costs and the like gives a reduction in departmental spending of around £36 billion over the period. Even if we accept at face value the Government’s efficiency targets, that still leaves £15 billion unaccounted for. But we should not accept those efficiency targets at face value, as today's NAO report on efficiency savings reminds us that the Government’s efficiency claims are rarely capable of surviving audit. If overseas development, health and education are protected, simple arithmetic says that cuts will have to be borne by the other budgets, such as defence and transport, as the noble Lord, Lord Newby, pointed out. None of this seems credible. But even as the ink was drying on the PBR, the Prime Minister was out and about in Europe committing another £1.5 billion of taxpayers' money for climate change. Can the Minister explain where that will come from? The task of balancing the books gets more difficult every day that the Government remain in power. The Minister often likes to make up stories about what my party would do if we were elected to govern next year. For example, let me remind him of what he said on 7 December in this House. He said that, ""it"—" that is, my party— ""will slash the number of people in teaching, slash the number of people in the National Health Service and slash the number of people in defence and security".—[Official Report, 7/12/09; col. 891.]" It is perfectly clear that the Minister has not a shred of evidence that my party will do what he said—at least I challenge him to produce that evidence. I do not expect him to apologise for his unsubstantiated slur, but I do ask him to give an assurance that his Government’s plans will not involve reductions in—to use his words—people in teaching, people in the National Health Service and people in defence and security. Given the background of the public expenditure projections, I put it to him that, even in the protected areas, he cannot give that absolute assurance. I shall not dwell overlong on debt. Debt rising to 78 per cent of GDP is, quite simply, appalling. Over the next four years, the Government now plan to borrow even more than they said they would borrow in the Budget. My noble friends Lord Hamilton and Lord Ryder have warned of the difficulties in financing this, especially when quantitative easing comes to an end, as it must, as was rightly pointed out. It is our view that if the Prime Minister, when he was Chancellor, had managed the economy with prudence and wisdom, we would have entered this recession with lower levels of debt and hence greater budgetary flexibility. Debt would still have risen in a recession, but we would have coped more easily with the crisis. The Institute for Fiscal Studies has demonstrated that, when the effects of an ageing population are taken into account, debt will remain high for a generation, and this is way beyond the 40 per cent that the Prime Minister used to lecture us on as being the prudent maximum. My noble friends have already given the depressing statistics on debt, and I shall not repeat them. I will, however, repeat the urgency of bringing the debt down. Every month that hard decisions are ducked compounds the pain for the future. My noble friend Lord Skelmersdale rightly exposed the Government’s policies towards pensions and benefits. We have become accustomed to the Government's cavalier approach to pensions ever since the ACT raid in 1997. What we find incredible is that the Government keep finding new ways to twist the knife. The further changes to defined benefit tax relief are so complicated that it took 113 pages of a booklet published last week to explain them. The one certain consequence is that those few remaining cheerleaders for defined benefit schemes in the private sector will give up the unequal task. At the same time, as my noble friend Lord MacGregor and the noble Lord, Lord Bilimoria, pointed out, the Government have failed to any real extent to deal with the unaffordability of public sector pensions. Taxpayers will not tolerate that. It was shocking to find in the small print of the Pre-Budget Report that the benefit increases announced by the Chancellor would be clawed back the following year. Even more shocking was the Government’s decision to defer the implementation of the personal account system, to which my noble friend Lord MacGregor referred. That decision is based entirely on fiscal considerations. Most of us thought that the Government had a genuine concern about pension saving by low and moderate earners. We bought into the consensus around the Turner commission on that basis. We now know the depths to which the Treasury will sink when scraping the barrel for money. This Pre-Budget Report ducks the difficult decisions about public spending and the deficit. Pain deferred is pain increased. The PBR has failed to give confidence to business. The tax on jobs will hit hard. If we cannot create jobs, we cannot begin to rebuild our economy or remedy the harm of unemployment, especially youth unemployment. The PBR did not give any cause for optimism or hope about an economic future. We hope that our party will be elected next year in order to clear up after yet another Labour economic mess. I hope that when the time comes, the electorate remember what my right honourable friend Mr George Osborne described in another place as the greatest of the golden rules: never trust a Labour Government with your money again.