Pre-Budget Report 2009

I note the comments of the noble Lord, Lord Lawson. I am advised that, as the noble Lord did not participate in the debate, I cannot reply specifically to him. However, I will do so through my summing up. I also note for my noble friend Lord Davies that I regard that as two minutes suspended from my 20-minute target. I did not make allowances for interventions. The noble Lord, Lord Lamont, referred to the Irish model. This was also picked up by the noble Lord, Lord Ryder of Wensum, and the noble Viscount, Lord Trenchard, among others. I find this a very unattractive model to propose at the moment. There will need to be real cuts in public expenditure; of that there is no doubt. There will need to be action taken to reduce the deficit. That action will need to be decisive and it will take time to have effect. There is a judgment call to be made about when the appropriate time is. It would be irresponsible, and would let down society and cause great damage to our economy, to move prematurely. The noble Viscount, Lord Eccles, asked whether the GDP forecasts that we have made represented the Treasury’s best estimate. They do; they are estimates in which we have a high degree of confidence. The Bank of England has led us to become comfortable with fan diagrams that show a range of outcomes; there are a range of outcomes here. However, our central estimate is below that of some groups of consensus estimates. We will see strong growth out of recession because of the capacity shortfall that my noble friend Lord Sheldon referred to. The noble Lord, Lord Kirkwood of Kirkhope, referred to our annual managed expenditure and whether these data should be disclosed at the moment. I think it is right that it should be disclosed as part of the Comprehensive Spending Review, and the Chancellor has made it clear that he will make the review as soon as he is comfortable that recovery is restored and that there is clearer visibility about the future. I respect his great knowledge in reaching that conclusion. I was delighted to hear the noble Lord’s comments about the DWP White Paper on employment and also noted his comments on money guidance. We have committed that at least 25 per cent of the funds released from dormant accounts will go into money guidance. There is a clear need to continue to support that area of expenditure to help people make better-informed decisions. I have already referred to the excellent speech by the noble Lord, Lord Bilimoria. I do not agree with everything that he says, but his contributions are always well argued and very thoughtful. The noble Lord asked what amount was lost in output as a result of the increase in NIC. Of course, the increase will not take place until 2011. It is not possible to answer that question because it requires you to do a factor analysis, holding everything else stable. It is also important to consider how the proceeds of NIC are spent. In practice, they tend to be spent on things which have an immediate impact on the economy. Tax is not something which is withdrawn from the economy; it is taken from the economy and put back in to the economy. Therefore, with the greatest respect, I do not think that I can provide an answer to that question. My noble friend Lord Radice reminded us of the chronic underinvestment in hospitals and schools that we inherited, and the vital need to increase public expenditure in order to address that underinvestment. We have done that, and that provides us with a background in which we can perhaps look with a little more comfort at having to cope with a difficult period in terms of public expenditure over the next few months. The noble Lord, Lord MacGregor of Pulham Market, drew on his considerable experience in business and economics in his contribution. He referred to the gilt market and to confidence, as did a number of noble Lords. The gilt market did soften a little after the PBR, but actually it was moving in line with most sovereign bond markets. There was a move out in credit default swaps for most sovereigns as well, so I am not sure that one should conclude that the movement in the gilt market was entirely due to the PBR. When the noble Lord, Lord Ryder, whose comments I always listen to with great care, was referring to the deterioration in the gilt market, he could only refer to yields now at their highest level since 2008, which shows us that we cannot go back very far. One has to remember that, at the moment, gilt yields are extremely low. Questions were asked about who the foreign purchasers of gilts might be—38 per cent was the figure given for foreign ownership of gilts. It is clear that foreign investors are very attracted by the gilt-edged market, and we are borrowing at rates which are historically extremely low. We also have a very good maturity spread in the gilt-edged market. We do not have a lot of short-term debt which is coming up for maturity. If you look at the maturity framework of the gilt-edged market, it is far more attractive than a number of other markets. On personal accounts, I assure the noble Baroness, Lady Noakes, that this has nothing to do with a fiscal adjustment. This is to take the pressure off business during a period of recovery; but we are committed to introducing auto-enrolment from the end of 2012 or the beginning of 2013. This is a programme with which I have a very strong identification. In addition to being chairman of the Low Pay Commission, as mentioned by one of the noble Lords earlier on, I was also chairman of the Personal Accounts Delivery Authority. There was a lot of talk about the increase in the level of debt in the economy, but I remind the House that we start from a very advantageous position. Even at the end of this period of extraordinary borrowing to keep the economy moving and to keep people in their employment and in their homes, borrowing as a percentage of GDP will still be below the G8 average. It is a great testament to the conservatism, caution and prudence of my right honourable friend the Prime Minister when he was Chancellor of the Exchequer that we go into this global recession from a position of such considerable strength, as the noble Lord, Lord Northbrook, reminded us when he quoted from the PBR. The noble Lord, Lord Stewartby, said that we had little room for manoeuvre, but I suggest that debt service costs at 3 per cent of GDP and a borrowing rate that is below that of our major competitor countries give us rather more room for manoeuvre than he suggests. However, I agree that it would be wrong for the Government ever to give the impression that borrowing is a free option. It absolutely is not a free option. We need to reduce the level of borrowing and to ensure that we do not burden future generations with excessive levels of debt. I am very grateful to my noble friend Lord Haskel for his reminder to the House of the PBR’s very positive reception by many in the business community because of its deferment of the SME tax-rate increases, the establishment of a patent box tax, the extension of the time to pay arrangement, and continued funding support. The noble Lord, Lord Newby, referred to credit from the banking sector. The House knows that I take a great interest in this. I am rather more persuaded that it is a function of a decline in demand rather than in the availability of supply. Historical experience and international comparisons also suggest that, at this point in the economy, demand for debt is lower. I am much more concerned about the cost and the terms of credit. As the House will know, a number of banks have now introduced customer charters, some of which are extraordinarily good in terms of the amount of detail that they provide. I am currently persuading Abbey National and HSBC to enter into similar charters. I agree that banking should not be politicised, but the banks need to recognise that they have responsibilities to the general public, and Mr Hester has already communicated to the Treasury his regret about the remarks that he is quoted as having made yesterday.