Budget Statement — House of Lords, 2017-12-04
Topic: Macroeconomics
James Palumbo (Liberal Democrats, Centre to centre-left): My Lords, once again we meet to debate the Chancellor’s offering of ritualistic cliché and fractional tinkering around the edges of vast, intractable problems—this time exacerbated by the need to save his job, the high drama of Brexit and the existential threat of a Marxist Government. We were offered such insights as: "We are at a turning point in our history, and we resolve to look forwards, not backwards … to seize the opportunities ahead of us".—[Official Report, Commons, 22/11/17; col. 1060.] This was accompanied by a series of safety-first measures. The climax was a pyrotechnic display of policies to kick-start the housing market. But when the smoke cleared, one was left oddly dissatisfied—and, of course, the measures will not have the promised effect Noble Lords will recall promises, written in blood, to balance the books by 2015, to increase productivity, to slay the welfare beast and, yes, even to boost housing. Perhaps Budgets should begin with a scorecard, independently produced, showing promises made versus outcomes achieved. Of the many truths in politics, one stands out: the Budget will not change much. So it might be worth pausing to examine the economic background to this predicament We are now almost 10 years into the biggest exercise in monetary easing in history, one which was meant to turbocharge growth on the back of healthy inflation. Instead, relative to the trillions which have been spent, growth has been anaemic; and worse, the yield curve no longer exists. Noble Lords will recall 10-year rates at 10%, but now they are barely 2%, and negative in some places, while a quarter of a percentage point shift in rates is front-page news The Chancellor got one thing right: "The world is on the brink of a technological revolution"—[Official Report, Commons, 22/11/17; col. 1046], he announced. But he left it at that. He failed to craft a Budget through the prism of this truth. Instead, and as ever, it was a tweak here and a tinker there We need to step back and accept that a lot of what we learned at school no longer applies and that new technology is acting as a massive deflationary force, as the noble Lord, Lord Haskel, referenced with Just Eat. Margins everywhere are collapsing. Look at financial services and the effects of AI. I have seen this first hand. I recently sold a business after it was disintermediated by technology, and my new business is disrupting the office market, which at last is facing technology’s sharp edge. Today, as soon as an inefficiency is spotted, a young genius moves in for the kill like a "Blue Planet" predator, disintermediating, disrupting, driving down margins. Uber, Amazon, Spotify, Deliveroo, Airbnb, Google, Netflix—all devastating deflationary forces which disenfranchise the real economy. They are moving so fast that the combination of easy money and fractional tinkering will have no effect Ten years post 2008 and the measures which were then necessary, our direction of travel is clear. Look at our debt mountain, the toxic by-product of democracy’s largesse. In moments of lesser terror, we feel in our gut that we are living in a new paradigm—that the old rules no longer apply, that the edifice of confident promises will one day shatter and that something has to give. Even since the Budget, RBS has announced job losses due to technology, and Morgan Stanley has reported on the effect of a Corbyn Government on the economy and sterling. Clearly, we need remedies beyond cliché and tinkering. Yet to suggest we legislate for no deficits; require estates to contribute to old-age care; means test the winter fuel allowance—as the noble Baroness, Lady Bakewell, eloquently suggested—free TV licences and bus passes; require drug, alcohol, smoking and food abusers to contribute to their medical care, or charge for missed GP appointments, would be electoral suicide. Any proposal advocating the need for personal responsibility is anathema in current-day politics As a result, the Budget is designed to satisfy short-term needs and deal with urgent political imperatives rather than meet the reality of current economics and build a platform for long-term stability. Still, the time of ritualistic cliché and fractional tinkering may be drawing to a close.