Finance Bill — House of Lords, 2020-07-17
Topic: Macroeconomics
George Young (Conservative, Centre-right): My Lords, I applaud my noble friend the Minister’s opening remarks, and the comments of my noble friend Lord Hunt I will make three points: one minute each. First, as it addresses the challenges that noble Lords have been talking about, the Government should make it clear that they are not bound by their manifesto commitments. One was: "We will not borrow to fund day-to-day spending," which is already out of the window. Another was that the national debt would be "lower at the end of the Parliament" It would be insanity to pursue that. On 16 June, when I asked whether the Government would review these manifesto commitments, my noble friend Lord True replied that "this Government are still fully committed to meeting all commitments made in the 2019 manifesto."—[Official Report, 16/6/20; col. 2046.] The opportunity should be taken at the end of this debate for my noble friend to clarify that remark and make it clear that the Government will not have their hands tied by those commitments My second, related point, is that at some point—not now—taxes will have to be raised, the difficult part referred to by my noble friend the Minister and others. I will ask your Lordships a pub quiz question: who made this statement "In principle, there is little economic difference between income and capital gains, and many people effectively have the option of choosing to a significant extent which to receive. And in so far as there is a difference, it is by no means clear why one should be taxed more heavily than the other. Taxing them at different rates distorts investment decisions and inevitably creates a major tax avoidance industry." It was my noble friend Lord Lawson, in his March 1988 Budget Statement; my noble friend Lord Lamont may have been Financial Secretary at that time. He went on to say: "In other words, I propose in future to apply the same rate of tax to income and capital gains alike."—[Official Report, Commons, 15/3/88; col. 1005.] That policy was subsequently watered down. If reintroduced, the IPPR estimates that it would raise £90 billion. It is worth another look Finally, along with other noble Lords, I spent 90 minutes on Zoom last week with Stephanie Kelton, author of The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. To those of us who learned economics in the 1960s, modern monetary theory is John Maynard Keynes on steroids. It asserts that there is no budgetary constraint on government spending, that we should not be fixated on debt and deficit, that the only constraints on government spending are the limits of real resources and the threat of inflation, and that we should aim at full employment. The new director of the OBR is moving in this direction with his work for the Resolution Foundation, asserting that we should stop worrying about national debt and instead focus on increasing net worth, looking at both sides of the balance sheet Although I have two economics degrees, I venture no comment on either of those theories, but will make this point. In the 1920s, we clung to an outdated economic theory. We stayed on the gold standard and did enormous harm to the country. A century later, we should avoid the same mistake. We should be open to fresh thinking that may help us navigate our way out of this crisis.