Budget Statement — House of Lords, 2015-07-21
Topic: Macroeconomics
James Palumbo (Liberal Democrats, Centre to centre-left): My Lords, in September 2007, George Osborne announced that a future Conservative Government would match Labour’s spending proposals. He promised real increases in spending on public services year after year. There was not the slightest mention of spending restraint. Just six months later, this position was completely reversed. Labour, he said, had failed to fix, "the roof when the sun was shining",—[Official Report, Commons, 13/3/08; col. 431.] and was to blame for everything which had gone wrong. In June 2010, the newly elected Chancellor opened his first Budget speech by saying: "This emergency Budget deals decisively with our country’s record debts".—[Official Report, Commons, 22/6/10; col. 166.] He promised to pay for the past and plan for the future, to eliminate the deficit within five years and that debt would peak at 70% of GDP in 2014. In the event, the deficit target was overshot by £165 billion and borrowing will rise to 80% of GDP in this financial year. As recently as March, the Chancellor promised he would run a surplus by 2019. Only four months later he announced that this had been pushed back—yet again, and for the fifth time—to 2020 and that the Government will borrow £18 billion more over the next five years than he had announced just four months ago I acknowledge that economic forecasting is as much art as science and that, five years on, the Chancellor is more experienced in a role for which he had no training. But there seems to be a gulf between rhetoric and reality. As a result, the opening words of the Chancellor’s July Statement— "This is a Budget that puts security first"—[Official Report, Commons, 8/7/15; col. 321.] do not fill me with hope. It is also difficult to reconcile this aim with the plethora of bribes offered by his party at the last election. Over the five-week campaign, it promised to increase health spending, give seven-day access to GPs, introduce postgraduate loans, raise the income tax threshold, offer starter homes at a discount, extend the Help To Buy scheme, create Help to Buy ISAs, offer social housing for sale, extend free childcare, raise the inheritance tax threshold, increase the 40p tax threshold and, absurdly, legislate against a rise in VAT, NI and income tax—I could go on. It seems that giveaways and democracy remain two sides of the same coin; and the means of paying for it all is, of course, debt. We should not forget that this is the Chancellor who doubled national debt from £700 billion to £1.4 trillion over the last Parliament. If he achieves a surplus in 2020, it will have taken a decade to register a single year in which this country is living within its means. I accept that whether to extend out the deficit is a matter of judgment. But how would we perform in the event of another recession, financial shock or other negative global event while saddled with these current levels of debt? So many risks remain: the rise in interest rates which has recently been signalled; the continuing fragility of the eurozone, not only in Greece but in countries such as Italy, France and Spain; the future of the euro itself; and a possible shock from China, Islamic terrorism, the problems in the Middle East and a resurgent Russia. With a majority Government, there was an opportunity in this Budget to take bold action to tackle Britain’s long-term problems and genuinely to put economic security first. But, as usual, politics got in the way, so there was a tweak here and a tinker there. The Chancellor did not reveal £12 billion of welfare cuts as expected, but just £7 billion, and large amounts of spending have been left untouched because of political expediency. As a result, total projected borrowing has increased by almost three times as much as welfare cuts In political terms, the Budget may have been a triumph in that the Chancellor has skilfully positioned his party in the centre ground and himself as its next leader. Politically, he gets a pat on the back but, economically, he gets a slap on the wrist, because the consequences may have far wider and more damaging implications for the British people.