Budget Statement — House of Lords, 2017-03-14
Topic: Macroeconomics
Meghnad Desai (Labour, Centre-left): My Lords, as the noble Baroness said, this is the last spring Budget. Miraculously, it will stretch into the autumn, because the legislation required to support the tax rises will not be done until autumn. We have a very nice Budget. I like Budgets that are dull, which pass without much notice and stretch out into infinity before we can deal with their consequences. From here on, I hope we will have autumn Budgets which will then go on into the spring to have their tax proposals implemented Our problem is that the era of high growth, which lasted from 1990 until about 2008, has gone for ever. It will not come back. All the thinking about spending and taxation is still stuck in the era when growth was robust and high. It will not happen, so we have to find some ways of economising or bring in high taxation. We cannot have a culture in which the self-employed, who are not a poor class, refuse to pay extra tax and make such a lot of noise that the Chancellor has to rethink. Only this morning there was news that the BBC encourages its highest-paid people to become self-employed rather than pay tax. That is the BBC—the paragon of virtue. We know that self-employment is a tax dodge and it has been since my friend Ken Livingstone became a company and started paying himself—a good socialist such as Ken Livingstone discovered 15 years ago that it paid to dodge taxes. We have to stop pretending that the self-employed are the backbone of society and guarantee growth. They are no such things. They are just tax dodgers. Tax dodgers ought to be treated like tax dodgers I welcome the fact the Chancellor abandoned his predecessor’s obsession with moving the Budget into surplus, but he is still obsessed with the debt problem. We went through this first with five years of coalition Government, where it was perhaps necessary to be severe about reducing the deficit, which had risen rather highly. It was quite clear that there was not going to be a sufficient multiplier from consumption spending to get growth going. That is fine, but now we have come to the stage where we really ought to ask a fundamental question: is the debt-to-GDP ratio a good indicator of anything? Debt is a stock and GDP is a flow. When you compare a stock to a flow there is no particularly ideal number at which you should stop. What you ought to compare is the cost of servicing the debt with the GDP. It so happens, as the noble Lord, Lord Gadhia, reminded us, that the cost of servicing the debt is 3%. It is one of the lowest costs that there is We have an ageing population and considerably high demands on social care and health. We ought to stop repeating this cliché that we are not going to burden our future generation with extra debt. What are you going to do about the present generation? Why are you burdening them with bad social care just because you do not want to burden the future generation, who are, if anything, going to be richer than us? We ought to seriously, fundamentally examine whether we should not have different fiscal rules to suit an ageing population in which there is a great reluctance to pay tax, but no reluctance to cut expenditure. It has been suggested, especially by the noble Lord, Lord Finkelstein, who is not here, that we hypothecate some tax revenue for financing the National Health Service. It is very difficult to find any real numbers in a Budget document; they are all percentages, but there are some real numbers in this one. It just so happens that the contribution made by national insurance to public sector receipts, £130 billion, is not too far away from what we spend on national health, £149 billion. We should think if not about a strict hypothecation then about a marriage of certain items of revenue and expenditure, and tailor our rising taxation to the rise in expenditure required. If we were to tie national insurance to financing national health, as was originally the idea—some people may remember—it would make sense to raise the national insurance target when the National Health Service needed it. That is a much better way of financing national health than any I can think of We have a productivity problem because the economy has moved to a low-growth path, but what will happen in the future will be much worse. If our productivity were enhanced by artificial intelligence and such things, the level of employment would be much lower and we would have very different problems in financing our welfare from those that we had previously. So watch out: more changes are coming.