Spring Statement — House of Lords, 2019-03-20
Topic: Macroeconomics
John Davies (Labour, Centre-left): My Lords, it is a pleasure to follow the noble Lord. What he said about the transfer of businesses from the City to the European Union is absolutely right, and very worrying indeed. It is a very extraordinary situation today, something that I have never seen before or even dreamed of. Governments all over the world, generally speaking, like to present themselves as enhancing by virtue of their wise policies the prosperity and incomes of their citizens. Today in this country we face the fact that the Government admit, very honestly—I pay tribute to their transparency in making this quite public and not hiding it—that their policies are directly bringing about a very substantial reduction in our national income, from 6% to 11% depending on which part of the country you live in. It has never happened before that we have had such a massive reduction in our income, even during the 1973 oil crisis, which I remember very well. It has certainly never happened before that a Government have had to quantify the negative impact of their own policies in this dramatic way The Government have found that it is very easy to destroy value in life and to destroy income. We are currently in the largest and purest single market in the world—purest in the sense that there are the minimum number of obstacles to trade. If you leave a large market, what happens? You lose all its benefits. A large market gives you a much greater opportunity for specialisation, competition and economies of scale. Those are the drivers of productivity. If we are interested in productivity increases in this country—we ought to be, because several participants have reminded the House how we have a chronic problem with our productivity—it is impossible to imagine anything more damaging than leaving the single market We have generated a great deal of uncertainty. Everybody in financial or business circles knows that uncertainty is a risk. If risk rises, the cost of capital rises. If the cost of capital rises, investment automatically falls. We have heard it referred to several times this evening, although no one dwelt on the point, that investment spending in this country has fallen over four quarters consistently every year. That is an extraordinarily serious situation. I do not think that anyone who knows the first thing about economics could fail to be extremely worried about what that says about the temperature of the patient and the prospects for our economy and prosperity. Something very urgently needs to be done. Then there is an aspect that the noble Lord and other colleagues have referred to, although no one has taken it up to the extent to which it deserves to be emphasised. There has been a very distinct movement of businesses out of this country, particularly in manufacturing. The Government are aware of that, and they have responded by trying to bribe—perhaps I should say providing subsidies to—the companies concerned. The Government know all about the Japanese motor industry, but you cannot subsidise everybody because one person’s subsidy is another’s tax rise. That really has not worked. As far as I can see, the Government have not taken any notice of the warning they have had from EADS, which is of course now called Airbus—a key figure in British manufacturing. It would be very worrying if it moved to the continent, as it could well do and as it has said it could Then there is financial services, which the noble Lord referred to. I was particularly worried to see that Bank of America, the biggest bank in the world, has decided to move its European operations elsewhere. I think that the trading is going to Paris and the other operations to Dublin. Ernst & Young has been referred to once or twice. Together with Deloitte and KPMG, it is the largest accountancy firm in this country and one of the largest in the world. Of course, these days it does not spend most of its time doing audits. It is in a very big way in corporate finance, management consultancy, and, indeed, consultancy to Governments. The British taxpayer pays an enormous amount to these companies. Ernst & Young is leaving London as well. Goodness knows how many high-powered jobs earning more than £100,000 a year—real prosperity—is being shifted in this way as we speak day by day. Of course, if finally we do leave—some people are desperately hoping we find a way to avoid leaving, although they do not want to take a final decision until they have to—I am afraid there will be quite an exodus and we will suffer from it greatly. It could be that the Government’s projections will actually be proved too optimistic. This is extremely worrying What is to be done about it? If there is a problem one should always ask oneself what the solution is. Clearly, the solution is to allow the British public to take a view on the present situation and all the policies the Government are pursuing, all of which involve costs of some kind or another and none at all involve gains. There are no benefits. There are no gains. The other day I dealt with the problem of the Government keeping on saying that there are gains because there are going to be opportunities for new trade deals around the world. I think I demonstrated to the House that that is complete illusion Day after day over the last 12 months we have been debating here the problems we will have with leaving Euratom, the European Medicines Agency, Europol and the other security institutions involving automatic transfer of information from British police forces to continental police and intelligence forces and vice versa. They are enormously important. We need to turn to the British public and say: "You are now in a position to make your own balance sheet. You can see whether you think it is a good idea or not". If the British public are allowed to take a second, more informed look at this matter—all of us on all sides of the debate must be more informed as a result of what has happened over the last two years—I think a whole dam of investment that is being held back would be released and we would greatly benefit If that does not happen, the Government have some much less attractive choices. We certainly will need some kind of countercyclical stimulus. Most participants in the debate this evening have urged a fiscal stimulus. The noble Lord, Lord Macpherson, and my noble friend Lord Hain spoke in favour of that. I ask them to hesitate a little before they come to that final conclusion. The history in this country of discretionary stabilisation through fiscal measures is not a happy one. Generally speaking, by the time the bureaucracy has got its act together, gone through all the planning inquiries, gone through all the tendering procedures that it has to do, the world has moved on and the cycle has turned. All the public spending contributes perhaps to overheating in the next economic phase, destabilising the economy rather than stabilising it Unless the Treasury is convinced that it has solved this problem—I see no evidence of that at all—I would be very hesitant indeed at placing the main burden for countercyclical stabilisation on fiscal measures of that kind. Nor can you use tax reductions. Cutting income tax or VAT is a very good way of stimulating consumer demand but that would be very irresponsible. Anybody knows that no Government can put those taxes up within sight of a general election or within two or three years of a general election. They would not be put up when they needed to be, so that would not be an honest or an effective policy to pursue. It is very dishonest and very irresponsible, in my view—not that anybody has actually suggested it, I am glad to say What remains is to rely on the Bank of England—on the Monetary Policy Committee. The noble Lord, Lord Macpherson, was concerned about inflation if monetary policy is relaxed in any way. We are so far from inflation at the moment. All the pressures are contractionary so I do not think that we should worry too much about that. If perhaps because of a concentration of increases in prices—because we were imposing new tariffs on ourselves—momentarily the inflation rate goes above 2%, the Bank of England MPC will always write a letter to the Treasury to explain it. I think that explanation would be accepted by the markets in present circumstances. I would be very cautious indeed about going down the fiscal route unless there are some assurances for the problems I have just listed We obviously have to do something and must try to restore some confidence in this country. At the moment I would say that almost any kind of fiscal or monetary stimulation would be relatively ineffective. We would need an awful lot of it to achieve any result because the confidence factor is lacking. It is lacking above all because the Government are so incompetent and the Prime Minister has now become worldwide a kind of legend of incompetence. In our country’s interest none of us should allow it to continue for too long.