My Lords, it is a great pleasure to follow my Whip, especially when I agreed with almost everything they said. The Government’s priority in the gracious Speech—strengthening growth and easing the cost of living—is something I think we would all agree with. It means better housing, better public services, making a reality—not simply an aspiration—of levelling up, reducing inflation and helping the cost of living.
However, two requirements underline those noble objectives. The first is that we must bring inflation back down to 2% and endorse 2% as the Government’s target. We have all heard stories of so many families who are really struggling, trying to help their children and themselves just to bring food to the table because of inflation. Inflation is clearly painful, but it is more than just a painful economic shock. Inflation is a corrosive force in our society. It creates suspicion, distrust and social conflict. It creates a blame culture. People think that the local corner shop is just jacking prices to do them down. What about the electricity companies, Shell and BP and the supermarkets: why is Waitrose increasing prices more than Aldi and Lidl? It is a very bad culture if we go down that road.
The Bank of England has had something of a hammering today. Frankly, I have been surprised at the ferocity of the attack on it and, as a result, I have changed my speech. I believe the Bank was right in 2020 to slash interest rates to 0.1% and increase monetary growth to finance the furlough scheme, support the NHS and offer credit to business. Unfortunately, last year, the Bank made a policy error and continued with easy-money policy. Back in August 2020, I wrote an article in the public domain, “The Spectre of Inflation”. You could see then that we were creating too much money for the supply available. I followed it up last year with four articles criticising the Bank for not raising interest rates.
However, the Bank had a point in its reluctance to raise rates. The pandemic was an extraordinary event. The uncertainty over how much unemployment was disguised by furlough was important. Other central banks, such as the Fed, were advocating exactly what the Bank of England was, and hardly anyone on the Bank’s staff had lived through the inflation of the 1970s. The last thing we need at present is for monetary policy to be politicised and the governor and institution of the Bank of England to be kicked around like a political football. The Bank knows more than anyone else that it made a mistake last year and, in future, there will be an occasion to evaluate what went wrong. Now our attention should be focused on how we strengthen the resolve of the Bank to take the action necessary to get inflation down. As the saying goes, there is no gain without pain. Reducing inflation is not rocket science. The Bank has done it before. It did it in 2008 and 2011, and it did it in the 1970s, but reducing inflation will be painful. For this, the Treasury has responsibility to see that the burden is shared equitably and, frankly, that the burden is shared before inflation is under control.
My second point—I do not have the time to develop it—is that if we are to get growth, it cannot be engineered in 18 months; it is a longer-term challenge and requires lower taxes and reduced regulation. The Chancellor is clearly in a very difficult position—there are so many demands on public spending—but unless we can really get taxes down in the medium term to restore confidence, we will not see the priorities that the Government wish to see in the Queen’s Speech.
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