The Government
“will drive economic growth to improve living standards and fund sustainable investment in public services. This will be underpinned by a responsible approach to the public finances, reducing debt while reforming and cutting taxes … Ministers will support the Bank of England to return inflation to its target.”
It is worth repeating these few words from the Queen’s Speech, at first so bland and uncontroversial but, on further consideration, highlighting the challenges and choices the Government must face.
Exactly whose living standards will the Government prioritise improving? Must any improvement for any income group await the promised economic growth? How will the Government strike a balance between investing in public services, reducing debt and cutting taxes? Apart from supporting the Bank of England, what will the Government do to reduce the rate of inflation and to mitigate its impact on the most vulnerable households? Neither the Conservative Government’s record nor the Bills proposed for this new Session of Parliament provides any encouragement that these challenges are being met or difficult choices made.
I look forward to the consideration of the UK Infrastructure Bank Bill, establishing a much-needed infrastructure bank to replace the funding provided by the Green Investment Bank and the European Investment Bank, as the noble Baroness, Lady Kramer, has already pointed out. The Minister—the noble Baroness, Lady Penn—said she looked forward to the new infrastructure bank being a long-lasting institution. Will the Minister who is winding up—the noble Lord, Lord Callanan—therefore explain why the Government decided to privatise the Green Investment Bank barely five years after its formation?
Although there are other Bills proposed in the economic sphere, as the noble Baroness, Lady Penn, set out, a former Conservative Minister quoted in the Financial Times last week hit the nail on the head in saying:
“There is only one bill that matters and that’s the finance bill”.
The macroeconomic framework is set by the Chancellor, the allocation of funds to departments is set by the Chancellor and the management of public finance is the responsibility of the Chancellor. So the Finance
Bill due towards the end of the year, and the day-to-day decisions by the Chancellor in the meantime, will define the Government’s answers to the big questions posed in the gracious Speech.
Before I join the noble Lord, Lord Forsyth, in speaking briefly about the Bank of England’s role in the control of inflation, I urge the Government, as he did, to at least restore the £20 per week universal credit uplift. The cost of living crisis is painful for many, but devastating for the lowest-income households, so many of which include people with disabilities.
The noble Lord, Lord Forsyth, delivered a forensic analysis of the Bank of England’s performance. As a member of the Economic Affairs Committee when it conducted its inquiry into quantitative easing, under his chairmanship, I very largely agree. My sense of caution is that we should not overestimate the contribution of quantitative easing and monetary policy to the acceleration of inflation. My noble friend Lord Wood of Anfield argued this better than I could. Quantitative tightening and further increases of interest rates are likely to be required to bring inflation back under control, but the Bank needs to tread carefully to avoid triggering a severe recession.
I am also cautious about the Government seeking, as is their wont, to shift all the blame to a so-called independent body. The noble Lord, Lord Forsyth, set out the aspects of the Bank of England’s governance where independence is honoured more in the breach. More than that, there is very strong evidence that there was day-to-day pressure at the start of the pandemic on the Governor of the Bank of England by the Chancellor to increase QE in line with the borrowing requirement, to which the noble Lord, Lord Forsyth, also referred. The Government’s ability to shift all the blame to the independent Bank is a little limited. Most of all, that independence must be restored and honoured in the pursuit of monetary policy and quantitative tightening.
5.16 pm