My Lords, it is always a great pleasure to follow my noble friend Lady Noakes, and I very much agree with her general theme and her closing remarks.
As I am going to say quite hard things in the context of what my noble friend said, let me stress that I would not for one moment underestimate the difficulty of reducing a deficit. I began that a very long time ago as a new Treasury Minister. We were an incoming Government determined to cut the deficit and, indeed, public expenditure and the size of the public sector. I was sent to see the new Secretary of State for Education, one Margaret Thatcher, who was basically in favour of cutting back the size of the public sector but not her department. I arrived with a long list of cuts, including eliminating the Open University. In the end, after a lot of haggling, I said, “Margaret, we’ll give you a deal. You can keep the Open University and make all the other cuts, or you can make all the other cuts and keep the Open University”. To my astonishment, she said, “I’ll keep the Open University”, so I got my cuts and we and the country got the Open University, which was probably the right decision. The reason I stress this point is because we have to be a great deal tougher than we are being.
I am worried by the constant repetition—it is once again in the Chancellor’s speech—that we have cut the deficit by one third. That means that we are continuing to borrow at two-thirds of the appalling rate at which
the previous Government were borrowing. I hope that we can get rid of that expression. It is interesting that it has not changed since this public expenditure round announcement. We are still saying the same mantra. I hope that we can get rid of it.
My concern is that in the light of that statement we can be complacent. We simply must not be complacent. There is nothing more important for the future of this country than getting the deficit down. I am a little worried about some of the presentational side of things. The public sector finance statistics have the heading, “Public sector net borrowing”. It ought to be, “Net extra borrowing”. We constantly hear figures from the Government that overlook the word “extra” when it ought to be there. There is also a very curious quirk in the figures. In the column for public sector debt, the figure is £1,103.6 billion in 2011, but in 2012 there appears to be a miraculous reduction. The statisticians evidently felt that they could not forecast the figure to the last decimal place so they moved the whole figure one place to the right. If you look down the column there suddenly appears to be an enormous reduction. Clearly they could not forecast it, but it is 10:1 that they would have got the last decimal point right if they tried. I hope that we can improve the statistics and that the Minister will bear that in mind.
In his speech, the Chancellor the Exchequer made two important points. First, he said:
“We act on behalf of everyone who knows that Britain has got to live within its means”,
but he did not go on to say, “but we are still not doing so”. We are nowhere near doing so. This is a matter of grave concern. He went on to say:
“we have always understood that the greatest unfairness was loading debts onto our children”,
from one generation to another. We are making a massive intergenerational change, and we are not dealing with it as much as we should.
As for the overall figures, there is a problem with cutting. The reality is that the previous Labour Government under Gordon Brown raised a series of benefits and other concessions which people now expect. However, he did not have the money to pay for them and neither do we. It is immensely difficult to try to claw back the benefits and increases in public expenditure that he introduced.
We are faced with cuts of £11.5 billion but are told that there is an increase in spending of, I think, £10.5 billion on the high-speed rail scheme, so we are only about £1 billion better off. I may have misunderstood the figures but that is my understanding of the position. Therefore, we are making very little progress. There is clearly a distinction between expenditure on investment and cuts, but we are not doing as much as we should in this regard.
In addition, extra one-off items are included in the cuts to the Post Office pension fund. We have the assets but do not make explicit allowance for the liabilities, so there again we have a problem. The same is true of the arrangements for transferring balances from the Bank of England with regard to quantitative easing. Neither of those provisions is likely to be repeated, at least not on the same scale. We have also gained £5 billion in efficiency savings, much of which
relates to public sector pay. I certainly welcome the provisions in the Statement on not awarding progressive pay increases simply on the basis of the length of someone’s employment.
I am also concerned about debt interest. The Chancellor laid great stress on the fact that we are paying £6 billion a year less to finance the debt. That is obviously a great advantage, but it rests on the proposition that interest rates will stay where they are. They might stay where they are for longer than we would like. We have only to look at the American experience to see that trying to unwind quantitative easing produces very emotional reactions in the markets. Therefore, low interest rates might be maintained, perhaps wrongly, for longer than we expect, but sooner or later they will have to go up. As for the public sector finance statistics, what assumption is made about interest rates when calculating the debt interest payments, which fluctuate widely? It would be helpful to know that. As I say, I do not underestimate for one minute how difficult this exercise is, but we need to renew our determination to reduce the deficit by substantially more than we are doing in the review.
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