Budget Statement — House of Lords, 2015-07-21
Topic: Macroeconomics
Terence Langley Higgins (Conservative, Centre-right): My Lords, in general over the past 50 years, it has been true that incoming Labour Governments have had a good economic inheritance and Conservative Governments have had a bad economic inheritance. Certainly, the incoming coalition Government had a quite appalling economic inheritance—so it is something of a relief to find ourselves now in a situation where we have an incoming Conservative Government and a reasonable inheritance. Of course, it is true that there is an enormous amount still to be done. None the less, employment is at record levels, and we are in a situation where there are higher wage settlements, but they are not yet inflationary. As my noble friend pointed out, business investment is rising, and so on. So we still have a very big job to do. As has been pointed out repeatedly, this is the first Budget from a Conservative Government for a long while. In some respects, it is not entirely a Conservative Government, which was reflected in the remarks of the noble Lord, Lord McFall, who succeeded me as chairman of the Treasury Committee in another place. If there is one piece of Conservative economic dogma that has been as clear as anything it is that there is a danger that setting a minimum wage is likely to reduce employment. Therefore, it is a bit of a surprise suddenly to find that we are not in favour of a minimum wage but we are now in favour of a living wage, and so on—and that is the centrepiece of the Chancellor’s proposals. None the less, we must recognise that, given the problem on the other side of the equation with welfare cuts, this was probably necessary for balance. We must hope that it works out; there are clearly some timing problems, but it is an interesting development The thing that is clearly Conservative is to say that we must live within our means and we must go on reducing the deficit. It is of course the case that the date by which we are supposed to be back in the black has moved back a year from 2018-19 to 2019-20. But there is still a massive amount to do. If one looks at the publication by the Treasury today on public expenditure and so on, we are going to borrow this year an extra £50 billion. We talk too readily about billions or even trillions. If we are talking of billions, it is in this case 75 followed by nine zeros. It is a very big increase in borrowing. None the less, it is hoped that we will reduce the borrowing over this Parliament, which is tremendously important for two reasons. First, we really cannot go on lumbering future generations with the kind of level of debt reflected by the trillions of pounds that we now have. Secondly, ever since we ran into the deficit problem as a result of overspending by the previous Government, we have been in the situation whereby the normal basis of economic management—if you are in a boom you increase the surplus and if you are in a recession you run a deficit—has simply not been possible. We have been concentrating on reducing the deficit, so the normal balance has not been a feasible means of managing fiscal policy. Consequently, a huge weight has been put on monetary policy. On the whole, while initially the MPC tended to concentrate on interest rates rather than on the quantity of money, the subsequent increase in quantitative easing and so on has saved us from the disaster that would otherwise have resulted, given that we could not use fiscal policy to balance the economy I say in passing that I hope the Governor of the Bank of England will be a bit more restrained in his forward guidance. The first two or three examples had to be changed in a very short period. Surely we would do better to leave it to the analysis across the board by all the experts in the matter so that we can take a balanced view Interest rates are going to go up and in my view, though the Bank of England apparently disputes this, there is a very real danger that people have taken on mortgages that they are not going to be able to finance once interest rates go up significantly. As a Member of Parliament I lived through a period when people would come in on a Friday night saying they were in negative equity. I dare say that the right reverend Prelates may also have experienced this, and it is not something that we want to see again. None the less, the approach that we are adopting at the moment is the right one I had the privilege of serving on an ad hoc Select Committee on Personal Service Companies. There was some dispute because the Treasury refused to send as a witness either the Treasury Minister or any officials. None the less we produced a report, and it is somewhat gratifying to find that in this Budget the proposals we made, without Treasury advice, seem almost entirely to have been accepted The other aspect that is somewhat worrying is the way in which so many areas are being ring-fenced with regard to future economic management. Saying that we are not going to change income tax, value added tax or national insurance and so on is probably going to be a serious problem by the end of the Parliament, and I think that in the event it will be recognised that it is not a realistic way of proceeding. It may be a reasonable way of going into an election, but when we come to the end of the Parliament it may well have to be changed Generally speaking, though, the outlook is good. My noble friend has rightly stressed that we have more to do, but we have more opportunities ahead of us than we have had for some time.