Economy — House of Lords, 2015-09-10
Topic: Macroeconomics
Terence O'Neill (Conservative, Centre-right): My Lords, as the noble Baroness, Lady Kramer, suggested, yet again we have had a very interesting debate this afternoon. For myself, it is particularly helpful that it is on many topics very specifically close to my role as a Minister. As was pointed out by a number of noble Lords, it is the second debate on closely related matters that we have had in two days. Whether the greater participation of noble Lords present here today than the one two days ago is a sign of the growing appetite for such discussions or the hour at which the earlier one took place—or some sporting event of that particular evening, or what is about to follow this debate—I shall leave others to ponder I was somewhat unsure as to quite what the noble Lord, Lord Haskel, might have had in mind with his very specific reference in the title of the debate to, "the British economy beyond austerity" Like others, I congratulate him on the content that he chose to focus on—on productivity. I heard the noble Lord describing what we are entering into as the age of productivity. Linked to the tone of what I have already said, I cannot resist the temptation to say that we must hope that the amount of discussion now taking place in this Chamber and the attention that we are giving the topic of productivity is itself a leading indicator of what may happen to productivity performance. I do not need to further remind the House that we had a specific discussion about productivity on Tuesday, and I encourage noble Lords, if they have time, to read the documents that are now available in the very likely event that I miss referring to all of those matters in my subsequent comments. I am conscious of the fact that our time is under intense pressure From what I have heard from noble Lords, there appears to be general recognition that some degree of deficit reduction and a focus on maintaining a lower level of debt has in the past been generally the right thing to do, even if not everybody signs up to exactly the same path. Coincidentally, I encourage noble Lords also to read, if they have the time, Chris Giles in today’s Financial Times. He has written a very topical piece linked to the comments made by many noble Lords about the ongoing performance of the fiscal accounts in view of policy and the economic recovery. In my judgment, the tone of that piece supports the general view that it has been correct and appropriate for fiscal policy to have been focused on deficit reduction. I was somewhat fearful before I listened to the noble Lord, Lord Haskel, that we would yet again end up having primarily a discussion about the appropriate stance of fiscal policy. While a number of noble Lords made some useful comments on that topic, the debate has been very rich and much broader Before I try to address the number of specific points raised and add some comments myself, I would also like to focus on the issue of austerity. Several noble Lords, notably my noble friends Lord Howell and Lord Selsdon, the noble Viscount, Lord Hanworth, the noble Lords, Lord Soley and Lord McFall, and the noble Baronesses, Lady Wall and Lady Kramer—I apologise if I have missed anyone out—tried to focus on the conceptual environment that we are in in the context of austerity. At the risk of sounding too much like I did in much of my previous life as an economist, it is important to remind noble Lords that, while our deficit is now less than half what it was at the peak of around 10% of GDP in 2010, and our debt to GDP ratio appears to be stabilising, it is at a very high level of 80% of GDP. In most standard economic textbooks, usually irrelevant of one’s political bias, it is generally expected and desirable to run fiscal surpluses in times of economic performance beyond what is generally regarded as the trend rate of economic growth. That is not least because it would mean that, for the inevitable moments when life becomes somewhat less favourable and economies turn down, there is an opportunity for fiscal policy to provide the additional help that one would hope would be there for monetary policy and other forms of intervention to try to ensure a recovery In that regard, let me highlight for noble Lords the fact that last year the UK economy grew by 3%, and I think I am right in saying that five of the past six consecutive quarters have experienced what would typically be regarded as above trend growth. Most independent estimates congregate around a figure of 2.4% of GDP in terms of our long-term trend, so I would encourage future discussions and debates about many of these topics to think about the stance of fiscal policy and the use of the word "austerity" in that context. That is because, as has been pointed out by a number of noble Lords and in the piece in the Financial Times that I referred to, it is not clear that the stance of fiscal policy either has stopped or is stopping the economy currently from growing above trend, and certainly there appears to be growing evidence, as the economy continues to expand, on whether the past stance, where fiscal policy was very definitively tightened, ultimately stopped the kind of recovery that we are now apparently enjoying But linked to the welcome introduction by the noble Lord, Lord Haskel, in my judgment it is important that the discussion should move on and focus on other things which are in themselves part of the productivity issue, as a number of noble Lords have already pointed out in welcome comments, but separately from the productivity issue are important in themselves to our economic future. I shall briefly summarise my thoughts on what are generally four areas: the performance of our external trade; investment; the so-called rebalancing of the economy; and, connecting back to the issue I shall start with, the topic of productivity. Before I do so, I must apologise because the sheer number of questions that were put in my direction means that of course I have no chance of answering them all, especially those that were particularly complicated, but I choose to answer two that I regard as being direct and simple The noble Lord, Lord Giddens, put to me a yes or no question on whether RBS is no longer too big to fail. I am going to be an economist and say that I will not give him a yes or no answer. What I will do is repeat what I think the Governor of the Bank of England has said, which is that the bank is now in a position where it can begin its return to the private sector. I think that that is what most observers, particularly those with expertise, have believed throughout the unfortunate years of the past is where it ultimately belongs.