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Lord Newby: My Lords, in at least two respects, the Chancellor has been true to form with the Pre-Budget Report. I refer first to the sheer volume of material that has been produced. In addition to the 250 pages of the main document, noble Lords will, no doubt, like me, have staggered under the great bulk of other documents produced on the same day. I wonder whether the Chancellor regularly watches "Yes, Minister". It reminds me of the marvellous episode in which a key increase in Permanent Secretaries' salaries was buried in the 75th annexe of a series of documents several inches thick which Ministers were being expected to approve on the trot. I wonder what nuggets there are in some of the other documents we have not yet had time to read, far less debate. No doubt, we will all be enlivening our Christmases by reading them.
The Chancellor made the Statement with absolute certainty regarding every assertion. He is very fond, as we know, of setting economic tests for matters European. I have 10 tests which I suggest the Commission might apply to aspects of this Pre-Budget Report in order to assess the credibility and robustness of the assumptions the Chancellor makes.
First, as a number of noble Lords have said, the Chancellor states that the deficit on the current Budget will be £12.5 billion this year. Two thirds of the way through the year, it is already some £17 billion, and most commentators expect it to be significantly greater rather than smaller by the end of the year. The noble Viscount, Lord Trenchard, mentioned the IFS estimate of a deficit of £23 billion. This week the British Chambers of Commerce suggested that it might be £20.4 billion. Either way, only the Chancellor and his Treasury officials believe that it will be anything near as low as £12.5 billion.
The second issue is tax take. There are a number of severe question marks against the assumptions, but I think that the corporation tax take projections take
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the biscuit, as the noble Viscount, Lord Trenchard, mentioned. They assume, as he said, that for this year, the take will be 25.5 per cent higher than for last yeartwice the level of increase we have seen so far this year, so there is a long way to go. They also assume that this will rise to a staggering £41.3 billion in 2005. That is not just staggering, it is incredible.
Looking forward, I hope that the Commission will look very seriously at the third issue, the Chancellor's growth forecast for next year. He predicts growth of between 3 and 3.5 per centagain, significantly higher than many other forecasters. Again, the British Chambers of Commerce this week suggested that it would be 2.4 per centvery significantly less.
Let us look at where this growth might come from, because there is a series of other uncertainties and questions in the fourth area of consumer expenditure. In the next year, will consumer expenditure be the motor of growth as it was this year and last year? Consumer expenditure fell in October, and with static or falling house prices, my view is that it is likely to be static or falling in the medium term.
The sixth issue is export growth. As the noble Lord, Lord Stevens of Ludgate, pointed out, the Chancellor is assuming a 7 per cent growth in 2005 against export markets growing by 8 per cent. Yet in this year, export markets grew by 9 per cent, but our exports will grow by only 2 per cent. Somehow, the Chancellor expects a very significant change to take place in our ability to export between this year and next. However, October's trade figures bring the first 10 months to a shortfall of £48.8 billion, the worst since records began in 1697.
The Chancellor is rightly proud of some aspects of our economic performance, and tends to refer back to how we are doing better than when records first began. Amazingly, the trade deficit, or the trade situation, has escaped his eagle gaze. But the trade deficit is now equivalent to 5.5 per cent of our GDP, almost as big a proportion as in the US. We worry about the US trade deficit. Over the past decade, we have hardly worried at all about our trade deficit, but as it is growing significantly, year on year, I fear we may need to start worrying about it again.
It is a particular worry to me that the Government appear not to be putting the effort into promoting trade in the fastest growing markets. Our European partners, France and Germany, have been sending their Prime Ministers to China with huge trade delegations in recent times. I believe that the Chancellor has never been to China, yet it is a massive potential market which, all the evidence suggests, Britain is doing relatively little to develop.
My seventh question for the Commission is about exchange rate volatility. This is not discussed in the Pre-Budget Report. Do the Government have a view on whether exchange rates matter? The fall in the dollar will almost certainly depress export opportunities further.
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There are also signs that the flow of Far Eastern funds into the US may be reversing with the euro-zone and sterling being seen as better opportunities against the falling dollar. So the degree of volatility we have seen up to now is, I suspect, far from coming to an end.
My eighth concern relates to inward investment, which we have discussed in your Lordships' House a number of times. The latest figures show a further fall, so we now have a pattern of falling inward investment over a number of years. I suspect that the noble Viscount, Lord Trenchard, will put this down to growing red tape, bureaucracy and high taxation. I also suggest that the fact that we are not in the euro-zone might also be relevant.
My ninth thought relates to the risks associated with the rise in household borrowing. The Bank of England warned this week that the continuing rapid rise in household borrowing poses a potential threat to the economy in the longer term. It is now 140 per cent of income. It is a higher level of borrowing than in the US, for example, and much of Europe. Unsecured borrowing is rising particularly rapidly. This appears to be a risk. Does the Chancellor agree?
My final area of uncertainty relates to efficiency savings, on which the Chancellor places great store. The question is whether these are real. Of the £2 billion allegedly saved so far through efficiency savings, apparently 40 per cent has been saved because IT projects have been delayed. How is that an efficiency saving? According to John Oughton, it is an efficiency saving because it has avoided cost overruns. This is wonderful logicLewis Carroll is alive and living in the efficiency unit.
Further proposals for efficiency and their definitions look equally dodgy. I particularly like the idea that if the MoD reduces the number of submarines and patrol vessels in operation, that counts as an efficiency saving. The Commission might like to have a look at that.
If there are all these risks, how should they best be assessed? As far as the Government's tax and expenditure is concerned, as your Lordships know, we have proposed introducing a new requirement on the National Audit Office to review them. I am delighted that the Conservatives have belatedly come to the same conclusion and I hope that the Minister does not repeat his canard that the NAO can do that already. He knows that the NAO audits only a few carefully selected variablescarefully selected by the Governmentand leaves most of the contentious issues untouched. Given the particular uncertainties about the future of corporation tax take, it would be appropriate for the Chancellor to ask the NAO to look at corporation tax assumptions in the next Budget. I hope that he will do that.
I have a further suggestion for the Chancellor which I hope that he will pass on to his Treasury colleagues. The Government are in the process of introducing operating and financial reviews for all quoted companies, with the purpose of enabling shareholders and other stakeholders to assess the companies' strategies and potential to succeed. The OFRs will require companies to list the
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risks they face that could jeopardise their plans. The Chancellor, by contrast, almost completely ignores the risks associated with his policies. To listen to the Pre-Budget Report, noble Lords would think that he lived in a risk-free sunlit upland. The one paragraph on risk in the Pre-Budget Report refers only to risks caused by rising oil prices and comes to the satisfying conclusion that the downside risks may well be balanced by offsetting benefits.
As we are clearly facing such significant risks, I suggest that the Chancellor introduce a proper risk assessment into the Budget Report next spring. If he does not know where to start, I suggest that he looks at the Accounting Standard Board's exposure draft on the reporting standard for the operating and financial review.
The noble Lord, Lord McKenzie of Luton, asked me a specific question about the council tax. I hope that we will have the opportunity to discuss council tax again as part of the debate of the noble Lord, Lord Blackwell, on taxation in early January, not least because I would like to probe with him why the Chancellor decided to make a panic raid on a whole raft of departmental budgets to inject £1 billion into local council expenditure next year in order to avoid an electorally disastrous increase in council tax.
There are clearly growing uncertainties facing the economy and the Government's taxation estimates. The Chancellor would be doing a great service by acknowledging the uncertainties rather than, as in this document, ignoring them.
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