Debate on the Address — House of Commons, 2022-05-10
Topic: Macroeconomics
John Alan Redwood (Conservative, Centre-right): I am glad that all three of us agree on this matter, and we can proceed on that basis So what do the Government need to do? My first recommendation to my right hon. Friend the Chancellor is that he needs to have a new framework for the conduct of our economic policy. We are still running on Maastricht-lite. We still think that the way in which to control the economy is to control the debt and the deficit. I have news for the Chancellor: if we get growth and inflation right, the debt and the deficit will come closer to taking care of themselves. If we get the growth right, we will have much less of a problem with the debt and the deficit In the last year, when the United Kingdom led the growth tables for the advanced world, an unremarkable thing happened. It seemed very remarkable to the Treasury, but it seemed unremarkable to me. The deficit came tumbling down. According to one set of figures—and they still keep changing—it came in at £90 billion below the Office for Budget Responsibility and Treasury forecast, because with more growth comes more activity, more incomes and more spending, so the Treasury can collect more VAT and income tax. It was mainly extra revenues that came in, because we had that faster growth In my view, the debt and the deficit matter but should be subsidiary. The two main aims of economic policy should be a 2% inflation target, embedded as a Government target as well as a control mechanism on the Bank of England, and a complementary 2% growth target—not that exacting in the context of 20th-century experience in the United Kingdom, but fairly challenging in the context of the current century’s experience because of the disfiguring effect of the big banking crash and great recession in the middle of its first two decades Let me deal first with inflation. Once it gets out of control, it is extremely damaging to everything. It ends up causing shortages on the shelves, lack of supply, businesses crashing, and people being thrown out of jobs. We do not want to get into the accelerating double-figure inflation that some countries have suffered all too much. Anyone who wants to see what happens with the playbook should look at what is happening in Turkey at the moment, and at what has happened, on a grotesque scale, in Venezuela, where the generous state kept printing and kept borrowing and ended up destroying more than half its national income and much of the potential of the oil industry, which used to pay for everything because it was nationalised and incompetently run Those extreme versions need to be ruled out, and of course the amount of money created needs to be controlled; you need to keep an eye on when you can afford to borrow in the public sector and how much. However, that is a second-order issue in comparison with promoting growth and inflation targets as the main aims. The inflation target cannot simply be delivered by a central bank. Unfortunately, the Bank of England made a policy error, to which I drew attention beforehand last year. I think that it went on printing money for longer than it should have, and that its policy was too loose for too long. I was fully behind its huge injection of money and ultra-low interest rates in the previous year because of the huge shock administered to the economy, but it now looks as though it made a mistake, which it has subsequently corrected. It should not overdo it, though. It is no longer printing any money in excess, it has put up interest rates on three separate occasions, and money growth is now much more constrained in our country; but the Government must also put their shoulder to the wheel to curb various types of inflation At present one of the inflationary factors hitting, in particular, the budgets of those in the lower income areas is the huge price inflation in energy and food. That is caused by supply shortages. We were already pretty short of energy in western Europe because of the policies being pursued and because of the lack of natural resources on the continent, where there is not any, or much, oil and gas outside the Netherlands. We were already very short of basic energy. Then, of course, the dreadful invasion of Ukraine came along and caused so much damage—most directly to the people there who have such dreadful shocks from it, but there has been a wider economic shock for the rest of us. As a result of policy, Russian oil and gas are being gradually withdrawn from our supply systems, so we have exacerbated the shortage, for understandable and good political reasons, to try to help Ukraine in its battle against the Russian invasion As for food, we see a shortage arising as markets are heralding the sad likelihood that there will not be a lot of crop coming out of Ukraine this year and that a big source of edible oils and of grains will not be producing and exporting in the way that the world market needs, so we see great price pressures there So there is a need to engage Government, and I am pleased to see that the Government are working towards energy self-sufficiency and more food production. Those are crucial as a response to what has just happened and as security for the future. If we want to keep inflation down in the future, the one thing we can rely on is producing more of our own energy and growing more of our own food, which will give us more control over the pricing, particularly with something like gas, which of course is traded on the world market only to the extent that there is either pipeline capacity or liquefied natural gas capacity, so a lot of the gas cannot be traded internationally. American gas cannot be sent to Europe in huge quantities because there is no pipeline, and there is a limited amount of LNG capacity. America has much lower gas prices—and nothing like the cost of living problem that we have with energy—as a result of producing a lot of its own gas and therefore having a domestic market that clears at a lower price than the current very spiked world gas prices. I trust that the Government will pursue greater national self-sufficiency in key areas, including not only basic energy and food—we can grow a lot more of our temperate food—but crucial technologies, which the Government are becoming increasingly sensitive about I trust that when the Government turn their mind to the detail of their energy legislation, they will use it to facilitate the production of more domestic oil and gas. I think there is more general agreement today, after the debates of recent months, on the proposition that we ought to re-enter the North sea and that, instead of overseeing a pretty rapid rundown in its output, we should go through a transitional period, maybe this decade, and get more oil and gas out of the North sea. That surely makes more sense. It makes green sense because the CO2 output created by burning our own gas is considerably less than that of the elaborate process of carrying it halfway round the world and having it compressed and decompressed so that it can travel as LNG. It is about half the CO2 generated More importantly from the point of view of levelling up and growth in our public finances, we would be paying the tax to ourselves. All gas and oil attracts massive taxation from the countries that have the good fortune to produce it. If we buy gas from Qatar—or when we were buying oil from Russia—we pay them a huge amount of tax, which is revenue that we could pay to ourselves if we developed more of our own production. Our own Treasury could then either spend it or give it back to us in some other form, such as a rebate or grant There is a more sensitive issue about onshore gas, and people are often rather opposed to that idea. I suggest that no landowner or council should be made to have onshore gas production if they do not want to. That would be a democratic decision over permissions and it would be a decision of those who have the land or property nearby as a result. I think that some areas would have it—suitably protected and environmentally tailored, as it could be. We already have some onshore oil and gas. Wych Farm, for example, is in a very beautiful part of the world and it produces oil quite happily onshore. The Government need to put into law a framework where landowners and communities that agree to participate in onshore oil and gas development should receive a participation in the royalty of some sorts, or free gas to consumers, or whatever.