Queen’s Speech — House of Lords, 2015-06-04
Topic: Macroeconomics
Meghnad Desai (Labour, Centre-left): My Lords, I congratulate my noble friend Lord King of Lothbury on his joining the House and on his brilliant maiden speech. I think that we have known each other for more than 40 years, although I do not know the exact figure, so it is good to see him in this place I also welcome the Minister, the noble Lord, Lord O’Neill, who made a brilliant maiden speech, as we expected. When I saw him in the Royal Gallery I told him that we intend to give him a very hard time—and I think now is the time to start. Let me say to him first of all that he promised to cut red tape and save £10 billion. I have been here 24 years and I have heard that about 10 times. The gains are illusory and the red tape is seldom cut because the committee appointed to cut red tape does not care to meet as often as the Government would like. Therefore, red tape shall continue to be slashed and cut and we shall go on having fun along the way I have been a friend of austerity, much to many other friends’ dismay. I advocated it before the election of 2010 and I stick by that. The debate is no longer about whether or not we should have austerity but about the pace and the size. As the noble Lord, Lord Turnbull, said, he prefers my party’s time shape of austerity and deficit reduction to the Government’s, but we are no longer questioning that the deficit has to be reduced. That is at least one plus. I know that the OECD is saying that the deficit should not be reduced so rapidly, and so is the IMF. When those two agree, I really think something should be done. We have to doubt their advice. It is frequently wrong One thing that will determine the time shape of the deficit is not the economics but the politics. Since the Government are going to embark on this EU referendum saga, whatever the result will be—and I believe it will be a decision to stay—the Government’s trouble will start the day they win the referendum because their Back Benches will give them hell. I was here during the Major Government and I remember how much a Conservative Back-Bench rebellion can affect government performance. So I say to Ministers: do what you can do in the first two years and later your lives are not going to be comfortable That having been said, I add my words to the warnings other people have given. It is possible to believe six impossible things before breakfast and say many inconsistent things before the election, but once the election is won we ought to pause and say that this mad promise not to raise taxes—income tax, VAT and NIC—is not only irrational and fiscally irresponsible but unnecessary to implement. If the Government are going to implement this mad proposal, they will make their lives much more difficult than before. Again following the speech of the noble Lord, Lord Turnbull, and I think some other noble Lords said this as well, if we revalue properties across the UK—the challenge that the Thatcher Government flunked 30 years ago and we had the saga of the poll tax—the Government could promise to cut the rate of council tax and increase their revenue. That is a combination I do not normally offer to people. It is a real tax-cutting thing but just revalue properties and you will be able to harness the capital gains people have made over the number of years. You can even say, "Thanks to a Tory Government, people have got richer so we are going to tax them". That may actually reduce your burden I have a wheeze, a little scheme—it may or may not work—which is now that interest rates are so low, it will be possible for the Government to issue 100-year bonds like the Spanish Government have done at a 0.5% rate of interest or whatever and repay the existing debt, which has a much higher service charge. I do not know whether it is possible. Some experts may doubt it, but whatever the service charge of that debt is, and I think it is about 4% or 4.5%, you could reduce it much more and release some money for spending on good things such as HS2 or something like that. Maybe the Minister will put me down properly and tell me that my numbers are completely wrong I will say something about productivity. This is a snare and a delusion. When we had an economy largely producing solid things—in agriculture, manufacturing or even transport—it was possible to define productivity somewhat precisely. Then we had the sort of growth model where we all got hung up on productivity and total factory productivity and all that. That is no longer the economy we have—not only us, even the US economy is finding productivity growth low. The noble Lord, Lord O’Neill, said that there are statistical problems. They are not statistical, they are conceptual. If a large part of your economy is in services, there is no way of defining productivity. I do not know what the productivity is of a childcare worker or somebody who takes care of the elderly or a physical fitness instructor or your shopping manager or whatever it is. We really have to say that there are jobs which, even if we use the old classical terminology, are surplus-producing sectors and there are jobs that are welfare-enhancing. Only the surplus-producing sector can help productivity as normally defined, and the larger your welfare-enhancing labour force, the lower your productivity level and growth. That is a short lecture. I cannot take another 35 minutes with this Lastly, as my noble friend Lord Reid said, we may be on the verge of another big asset bubble and another crash. The merger and acquisition numbers are frightening. Again as my noble friend Lord Reid said, people are buying and selling existing equities and bonds but they are not investing in any new productive activity. This is a classic effect of a sort of Wicksellian cycle in which we have a very low interest rate and any profit rate would make it feasible to borrow. People are borrowing and buying equities back and forth. This will crash, no doubt, and I hope that when it does, the noble Lord, with his expertise in the financial markets, will be able to get us out of it.