Budget Statement — House of Lords, 2017-12-04
Topic: Macroeconomics
Lucy Neville-Rolfe (Conservative, Centre-right): I am among those who are thankful that the Chancellor resisted the many siren voices, heard again today, calling for a significant move away from so-called austerity. That is despite the fact that the OECD has forecast weakening economic growth, falling consumer confidence and even a collapse in private investment. I shall explain why I wish to concentrate, first, on the levels of the deficit and the national debt. Nearly 10 years after the financial convulsion of 2008, the annual deficit is still above the rate of growth in GDP—hence the debt is still increasing in real terms. The OBR expects debt to start falling in real terms from 2018-19, and even that partly relies on a reclassification of housing association liabilities. In 2017-18 debt is now predicted to peak at 86.5% of GDP What flows from these facts? First, if there should be another major economic convulsion in the next decade, we will be much worse placed than we were in 2008. Then, we were able to allow debt to increase from 40% of GDP to over 80%. However, it would be a very different matter to allow debt to increase by 40% of GDP from a base of over 80%. Indeed, it would be most imprudent. In short, we have used up much of our financial flexibility. The Bank of England has recently reminded us of these facts, not that we should need reminding. There is nothing complicated about it—the facts are there for all to see if they are willing to look There has been much hand-wringing in political circles about the so-called austerity of the last decade, but in truth policy has arguably been too lax. Certainly, there was more austerity in Ireland, where some really tough decisions were adopted. For example, public service pay was cut dramatically, not just frozen. In the UK, concessions to this and that interest in this and that Budget—the rabbits that the Chancellor of the day feels obliged to bring out of the Treasury hat—and the political pressures which lead to these should be seen against a sombre background Yet there are some obvious sources of revenue that have not been adopted. I confess to your Lordships that I benefit from at least one of them. In particular, because of my, sadly, advanced age, I do not pay national insurance on earnings from working, rather than savings or pensions. Why ever not? Everyone knows that in reality national insurance is just another income tax, and to allow unjustified exemptions is unwise. I cannot see that I, or others like me, should be treated more kindly than those who are younger We all know that, in the long run, increases in living standards depend on rising productivity, and that the West, and especially the UK, has a problem in this respect. The problem featured prominently in the OBR analysis and, I am very glad to say, in the Chancellor’s presentation. I have spoken before in this House about the beneficial impact on productivity of improved skills, housing and research, and I stand by all of that today. On Thursday I shall be leading a debate on regulation, which can be another productivity-killer, but today I will focus briefly in the time available on infrastructure and on the impact of immigration Improving infrastructure—that is, reducing travel times, expanding Heathrow, improving the provision of broadband and the like—is one vital way to improve productivity. The unfortunate fact is that most investigations suggest that as a country we invest less in improving infrastructure than many others do. Nevertheless—I disagree with the noble Baroness, Lady Randerson—some important steps have been taken to improve our infrastructure in recent years, and I particularly welcome the technology and innovation-linked measures in the Budget. Even so, the rate of movement on infrastructure seems to be rather slow. We decided fairly recently to go ahead with the third runway at Heathrow. If China had resolved similarly, diggers would now be on the ground, but I am told that the advance guard has not even arrived at Heathrow Traffic is a nightmare in too many parts of the UK. Noble Lords will remember the list of blackspots I have been collecting as I get about, often by chance in marginal constituencies. A fund was announced last year to eliminate traffic blockages. Has that got going properly? I fear not, and the Local Government Association tells me that cash-strapped councils, which might apply for smaller projects, which could reduce traffic and free up housing plots, find it too risky and too expensive to prepare the fancy applications needed to bid in this uncertain climate Speaking as a practical person, if there are institutional constraints on challenge funding that make it difficult for local authorities to bid—that is, which prevent our moving forward in a businesslike manner—they should be identified and proposals put forward to deal with the problem. The Chief Secretary was kind enough to say recently that she would look into this for me, and I very much hope that the Minister will have some better news today Finally, on immigration, it ought not to come as a big surprise if productivity stutters when large numbers of relatively unskilled people are constantly added to the population—a trend that continues as the Brexit process drags on. This supply of labour reduces the incentive for firms to invest in capital and training. I know from my experience in retail and the food supply chain that investing in capital and associated training is what shifts the productivity dial. You see that in sectors such as cars and lorries—the automotive sector—which is one of our most productive A proper immigration policy would place greater emphasis on skills. EU membership limits our ability to deal with this problem now, but not completely. We need to devise a satisfactory policy with a productivity focus, to be deployed rapidly post Brexit, and we need to do it now. Indeed, one of the opportunities of the difficult Brexit transition could be an increase in productivity after over a decade of flat-lining. This is because companies will start to invest capital— many are sitting on piles of cash because of current uncertainty—and develop the skills of our own workforce. In the meantime, we need to be honest and up to date about the size and location of our growing population. For years we have underestimated the scale of demographic change. This has made it impossible to forecast and build the right number of homes, the right number of hospitals, the right number of GP surgeries, the right number of schools and the right road, railway and broadband networks To conclude, I have concentrated on some difficult issues. My thesis is that, unfortunately, we have not faced up to these questions as fearlessly as we ought to have done. The background to this is that, especially with Brexit looming, the days of allowing wishful thinking are gone. It is time for reality.