My Lords, I thank all noble Lords for the serial welcome. It was very kind of noble Lords to recognise the extraordinary work that went on to deliver the Olympic and Paralympic Games in the summer. That was a big team effort. In fact, many of the team are distributed around this Chamber. I appreciate all those kind words and receive them on behalf of a magnificent national effort.
I shall clear up a few housekeeping points. My name is pronounced Deighton, as in height, if you want the precedent for the English pronunciation, not as in weight. Thank you for pointing that out. There was also a suggestion that it would be useful to spend as much time as possible in the Treasury. The arrangement with my right honourable friend the Chancellor is that I should concentrate my time at the Treasury, which is why I will be supported very closely by my noble friend Lord Newby in this Chamber.
I found the debate highly stimulating. I will be able to do my job better for having listened to all the contributions. I shall leave this debate feeling hugely
positive, despite the many challenges that we face with our economy. I propose to make my comments not speaker by speaker but rather consistently against the most important themes in the debate. I shall begin with a review of what I think we heard about fiscal policy—the macroeconomic policy—and I shall then review monetary policy. I shall then talk about reform of the financial sector and finally I shall talk about the selection of things that we discussed that might generally fall into supply-side reforms, including all the discussion around infrastructure and capital projects. If I do not manage to address everybody’s points, I shall certainly write afterwards. I shall also try to focus my comments on what my noble friend Lady Kramer called “doing and delivering”. I think that is what I am here to do, so my focus will be on what we can accomplish rather than on the more esoteric elements of economic theory.
I thought there was a lot that was agreed on. The way I have always operated, particularly in business, is by finding the areas of collaboration and forging ahead on them rather than labouring on the areas of disagreement. However, with respect to fiscal policy, it seemed to me that there was one fundamental disagreement between us, at least in simple theory. I think it boiled down to a very simple question. Should we inject more demand into the economy to boost growth? It is a very fair question. It is quite extraordinary to me that nearly 40 years later we are still arguing about Keynesian economics, how effective monetary policy is and the size of the multiplier. I think that was in the first week. It also convinces me that I made the right choice not to be an academic economist. The debate does not seem to have moved on in those 40 years—we are still talking about the same things—so I am glad that I went out and did something, which I was probably better at because that was not going to work.
It all sounds very easy—we should just go out and borrow more, spend it, and hey presto everything is better. That feels an awful lot like the situation we found ourselves in between 2008 and 2010 when we overborrowed and overspent when the economy was right at the peak of its performance. There has been a lot of discussion about confidence. When deficit levels are at the levels they are, I do not think you reintroduce confidence into the economy by going back on a spending spree. It just does not make any sense to me. I have listened very carefully to what everybody is describing as plan B. I do not think plan B is a plausible alternative. How does it get financed? More borrowing. How does that stack up against the bond markets and interest rates? We have saved £33 billion by being able to borrow at lower rates than had been originally projected because of our success in winning the confidence of the markets. We do not want to lose that. It is absolutely critical.
It is also not entirely clear to me that there is such an enormous difference between us. We were unable to surface just how much extra money the alternative strategy would involve borrowing and whether that would make a huge difference. I was much more persuaded by the argument, which I think matches the analysis in the independent OBR, that the principal problem with demand has been external demand,
particularly the reduction in demand in the EU. The right strategy in the long term, which is part of the supply-side solution—my noble friend Lord Howell was very clear about that—is all the work being done to switch our focus in markets to the rest of the world— the so-called BRIC economies—where growth is actually occurring.
We also had a lot of discussion around the capital budget and whether it had increased since the original plans of the previous Government. I do not really want to argue about too many statistics because we have had a lot thrown both ways. Essentially the plan we have now is about £10 billion more than the previous Government’s original plan.
I accept the points made by the noble Lord, Lord Barnett, about when the money is being spent but we have to understand that capital spending and infrastructure spending are not, as the noble Lord, Lord Howell, said, a tap you turn on and off. There are long lead times. There are even longer lead times if you want to do this properly. A lot of this capital spending is not a panacea to solve a very short-term problem. In fact, thinking of it that way could create all sorts of difficulties and much more focus should be on ensuring that the projects that are mid-way through their gestation are now delivered into the economy in the right way. They are the ones that are going to have the immediate impact.
My noble friend Lord Lamont mentioned his concern about inflation. That was certainly one of the problems in 2011. The rise in commodity prices pushed our own inflation rate up, I think, above 5%. That had a significant impact on the cost of living. However, all the forecasters are looking at inflation stabilising over 2013-14 down towards the Bank of England’s target rate.
We have all referred to external agencies as supporters of our own cases. One side can produce the economists—the IMF. The other side can produce the chief executive. I could give a quote from the OECD that this is the right plan and we should stick to fiscal stability. We are all capable of producing people to support either argument. It just is not possible to bless your own strategy with the utterings of an external economist.
The noble Lord, Lord Desai, gave a very eloquent exposition of the long-term issues underlying the problems in the economy. I am not going to repeat that. I do not think that anybody particularly disagreed with much of it. However, I have a growth mentality and one of the things that attracted me to join this Government was that the Prime Minister and the Chancellor were very clear in their mandate to me. They said, “We need to deliver growth in this economy. We will support you to get that done in whichever way you can”. They convinced me that they were as committed to performance excellence as any of the other high performing organisations I have worked in. That is really what got me interested in doing this job. I was also very interested in the noble Lord’s comments on welfare. An absolutely key criterion in any of this has to be fairness. We can all argue about marginal decisions but I assure noble Lords that in my work at the Treasury the distribution effects of what we do are absolutely at the top of the criteria for assessing which measures we take.
On monetary policy, I was delighted to hear what I thought was pretty universal agreement that Mark Carney’s appointment was a good thing, if only because it speaks so highly of my right honourable friend the Chancellor’s recruiting skills. I was also a product of that although I was much cheaper.
We had a very interesting discussion about the impact of quantitative easing. Clearly, the noble Lord, Lord Eatwell, is less convinced about its current efficacy but I think we are all interested in what the new regime will have by way of new ideas. However, we should all be extremely cautious before we suggest that ditching the inflation target is the obvious alternative thing to do. That is far from clear and is certainly not the Treasury’s position. In answer to the question asked by the noble Lord, Lord Davies, I think that the Bank of England is paying 0.5% on the commercial bank reserves held by the central bank.
On banking reform—