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Lord Stevens of Ludgate: My Lords, I thank the noble Lord, Lord McIntosh for arranging this debate today. It is also a great pleasure to follow my noble friend Lord Northbrook.
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On the whole, I congratulate the Chancellor of the Exchequer on the accuracy of his economic forecasts. To forecast GNP growth to within 1 or 2 per cent is a pretty good achievement. Admittedly, the figures over his period as Chancellor have changed, but many of these were deliberate policy decisions. Despite the reservations expressed by myself, to most City journalists and economic commentators the economy has continued to expand much in line with the forecast by the Chancellor.
After all, the Chancellor's borrowing record is pretty poor. At this stage of the business cycle one would be entitled to expect the budget to be in surplus, not in deficit. Public spending as per EU rules is rising at 6 to 7 per cent, including tax credits, and in the third quarter of this year government expenditure accounted for two-thirds of economic growth. Our trade deficit is at record levels, and with the EU our exports are lower and imports higher at a time when sterling has weakened against the euro.
Let us look at some of the main economic commitments set out in the 1997 Labour Party election manifesto: The first is to raise the rate of economic growth. Growth has slowed in relation to the last years of the Conservative government, being below 3 per cent versus 3.2 per cent then, but there has been growth. The second is to achieve economic stability. This has probably been achieved, but let us not forget a 20 per cent fall in import prices offset by a 30 per cent increase in the cost of government services. However, inflation has been controlled. The third is to broaden the UK industrial base. Manufacturing is still declining, for example, textile production is down one-third. But I have to say that I doubt whether any government could have done any better. The world is changing at a rapid pace. The fourth is to keep the tax burden as low as possible. Tax is now 38.5 per cent against 35 per cent of GDP under the last Conservative government.
The fifth is to promote savingssave to invest, not to spend. Household savings are down from 10 per cent to 5 per cent. Personal debt levels have risen by 80 per cent in the past seven years and the economy is now much more sensitive to interest rate changes than previously. More than 80 per cent of the debt is on flexible rates.
"Relative" is not explained, but the Chancellor seems to be quite happy just to say that the UK is relatively better able. Let us examine that. It will cost taxpayers nearly £600 billion to pay unfunded pensions already promised to people on the public payroll. That is more than the
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national debt. The younger generation does not save for pensions and probably never has. They either need to spend their income or they choose to do so. The decline in the stock market and savings scandals have discouraged others, and most companies have closed defined benefit plans.
The UK stock market is one of the worst performing of the major European stock markets over recent years for the reasons clearly given by the noble Viscount, Lord Trenchard. However, the deficits in company pension schemes are not all of the Government's making. In the 1980s many companies took pension holidays, mine included, based on actuarial assumptions supported by accounting standards that have turned out to be a bit of a nonsense. For the average individual, it is too complicated and too risky to save for pensions. We must reverse the £5 billion raid on pension fund assets and make saving simpler and more tax effective.
The Chancellor talks about the need for 3 million more people to open bank accounts but, since one needs two utility bills to open one, how does he propose that those without their own accommodation do so? I would love to have an answer to that question.
Another point made in the manifesto is that there is too little investment. Increased investment is the key to future economic success. Growth slackened from 4 per cent in 199397 to 2.3 per cent in 19982002, although it is now rising.
A further point is early action to get people off welfare and into work. Our employment rate now, if you include those on benefit, is the same as most members of the EU. It is not lower. Even yesterday, the Minister for Work said that the Government have done almost nothing until recently, which is seven years later, to encourage people to return to work. However, the number of those in employment has consistently risen and the uncontrolled immigration policyif it can be called a policyhas undoubtedly helped to stimulate the economy.
Another manifesto point was to raise productivity. Limited progress has been achieved. We are still basically slipping down the league tables, but what about the future? The UK has dropped heavily down the world education league according to the Programme for International Student Assessment. The UK dropped in the past three years from fourth to 11th in science and from eighth to 18th in maths, which is not a great prospect for productivity improvement in the future. Where did we hear, "education, education, education"?
Another point is to cut red tape. The general view now is that red tape is costing the UK economy £100 million a year. Most recent reports on EU directives are interesting. The British Chambers of Commerce calculate that for every 100 pages of regulation coming from Brussels, our civil service adds another 234. Defra manages to turn a 1,167-word EU directive into more than 27,000 words. What encouragement is all that to business, and to small business in particular? The World Bank is reported as
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saying that seven of the top regulation cutting countries last year were European, but the UK was not one of them.
The Government keep on forming new bodies to review this, as we have just heard from the noble Lord, Lord McIntosh. Every day since 1997, 15 new regulations have come into effect. For every job lost last year in the private sector, two were created in the public sector. The best way to cut red tape is to reduce the number of people who do it. The Chancellor announced last summer that he would cut the civil service by 100,000 staff100,000 staff put on by him, incidentally. The Pre-Budget Report has a full page that tells us how 8,000 people have gone, but what about the 92,000 that have not? So far, he has relocated less than 4,000 of the 20,000 jobs in the Treasury relocation review published this summer.
"The myth that the solution to every problem is increased spending has been comprehensively dispelled under the Conservatives . . . The level of public spending is no longer the best measure of the effectiveness of government action in the public interest".
Enough said, I think. What encouragement is it for any business to hear from Treasury officials in a House of Commons committee that they did not know what a 40 per cent increase in their own department's running costs had been spent on?
Now to consider the Golden Rule, which most commentators think will be broken. The Chancellor's assumptions are just too optimistic. For example, he expects a growth in exports this year of 7 per cent against a growth of 2 per cent last year and zero the year before. He also expects a substantial increase in corporation tax revenue. The golden rules have already changed. While we, in our ignorance, thought that surpluses or deficits would be added up in billions of pounds and that, on this basis, the rule would be broken, the Treasury now states that the rule had always been perceived as a percentage of GDP. By doing this, of course, the earlier surpluses have a higher percentage.
The Chancellor agreed to a change in the way the Treasury calculates the depreciation of government assets, which cut several billion pounds off the current deficit. Lastly, the Chancellor could, in order to meet the rule, change the timing of the economic cycle by saying that there is more spare capacity in the economy than he originally thought. But does it really need to be met? Missing the rule slightly has no economic significance, but it still leaves the next government with an annual deficit of approximately £40 billion. The Chancellor has succeeded in turning a budget surplus into a deficit of 3 per cent of GDP, and that in a period of economic expansion. So much for the 1997 manifesto comment:
It says so at a time when other countries are flagrantly breaking the stability and growth pact, which even Mr Prodi regards as a nonsense. France and Germany are in breach of the growth pact after some sleight of hand (for example, bringing in future revenues earlyshades of Associated Fire Alarms some years ago), Greece is being sued by the European Commission for disguising its true deficit, and the Italian and Portuguese figures are generally regarded as unreliable.
Now the Europe Minister in another place is quoted as saying that entering the euro system is "economically irrelevant" and that Downing Street is "making a fetish" of the currency. I agree with him. Let us not make too much of a fetish of satisfying the European Union on our economic policies.
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