Budget Statement — House of Lords, 2015-03-25
Topic: Macroeconomics
Dick Taverne (Liberal Democrats, Centre to centre-left): My Lords, it is a long time since I spoke in an economic debate. My reason for speaking today is my deep disappointment with the Budget. I respect George Osborne, who does not normally seek cheap popularity. He has depth and stamina and is not a PR man, unlike some other senior figures in the Government. But his Budget boasted about our economic success. If one looks at the record, one will see that boasting reveals a certain degree of complacency. At one time, I was a non-executive director of some major companies. I found the companies that kept declaring how excellent they were to be generally mediocre. The really good British companies were self-critical and concentrated on improving their weaknesses, not on boasting about their strengths In fact, our economic record since the crash of 2007 has not been brilliant. There has been progress, but our recent recovery is based on some very shaky foundations. Perhaps the most serious deficit we face is a huge trade deficit, which means that we depend precariously on the inflow of hot money. According to the IMF, the current account deficit is some $120 billion, the largest of any OECD country and three times that of France, with which Osborne compared us so unfavourably. The inflow of hot money, that is excluding capital for portfolio investment in companies and property, is some $210 billion. Our dependence on this fickle form of capital is greater than that of any other major country and it could flow out very rapidly. For example, after the election we are committed to a referendum, and polls show that there is a real chance of Brexit. That could be an economic disaster. Why can we not pay our way? Because we are not competitive. Indeed, we are pretty well bottom of the league of major countries in the growth of productivity—on which, in the end, as many speakers have mentioned, prosperity depends. Our GDP per head is still 0.5% below what it was in 2007. Productivity has recovered much faster in the United States, Germany, Japan and—please note, Mr Osborne—in France Furthermore, the monstrous inequalities in today’s Britain have increased. More people are in jobs, that is true, and unemployment has fallen—good—but at the cost of a major decline in wages, the biggest in more than 100 years. There is now some recovery, but it is very slow. At the same time, top executive pay has been rising by more than 10% a year while wages have suffered For that, there is no justification, moral or economic. Inequality does not improve growth or productivity, and of course it undermines a good society. Two of the most important books that I have read in the past decade are The Spirit Level, by Wilkinson and Pickett, and Capital in the Twenty-first Century, by Piketty. The first shows that the most unequal countries are also the most socially dysfunctional. Piketty traces the rise and fall and rise of inequality in the United States, Britain, France and Germany and explains that it is due to the fact that generally, return on capital grows faster than the growth of GDP. Hence, the owners of capital, the rich, grow richer. He also shows that the post-war years, when, through progressive policies, inequalities were reduced in all those countries, were also the years of fastest economic growth. So much for the need to pay chief executive officers and bankers millions a year so that we can be better off or to pay bankers huge bonuses to stop those who helped to bring about the crash being recruited abroad for their unique skills Conservatives favour shrinking the state and tax cuts. Tax cuts mean crippling public services. Apart from anything else, it is foolish for Mr Cameron to pledge no VAT rise. He could reasonably say that he sees no present need for an increase in VAT and has no present plans for it, but why tie his hands with solemn pledges when he does not know what crises may be ahead Anyway, it may be unfashionable, but in my belief, in present circumstances tax cuts should be the lowest priority of policy. I am with that great American lawyer Oliver Wendell Holmes. He not only dominated the Supreme Court for 20 years after his appointment at the age of 72—which is a good example for those of us of riper years—but declared that paying taxes is the price for a civilised society. Amen to that.