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Far more important from the perspective of this debate, government debt at the time at which we had never had it so good stood at 122 per cent of annual GDP. Today, it stands at 47.5 per cent, allowing me to contend that the real problem is not with anticipated levels of government borrowing to support public investment—as an unrepentant socialist, I applaud that—but with the level of unsustainable private debt. At present, that stands at an unprecedented £1.4 trillion, which is £23,000 for every man, woman and child in this country. It is the highest personal debt figure per capita of any of the G7 nations and probably the highest in the world.
My purpose in straying into what is for me unfamiliar territory is simply to underline the affordable case for very significant levels of government investment in infrastructure—levels that, even a year ago, would have made most of your Lordships’ eyes water, and could have induced heart attacks among those ideologically opposed to large-scale government intervention.
Today, in common with my noble friends Lord Eatwell and Lady Kennedy, my single greatest fear is that anyone will be foolish enough to believe that the answer lies in turning the clock back and somehow returning things to the way they were in 2005 or 2006. As I said in a debate in this Chamber last year, a great deal of what was complacently celebrated as success in 2006 was illusory. Much of it has done enormous damage to the objective of what I would see, in every sense, as a sustainable society. In fact, to move forward with confidence and purpose, it will be necessary to all but reinvent ourselves and our entire approach to life, both as consumers and as citizens.
I started with one Prime Minister, Harold Macmillan. I will go back a little further. In January 1946, just across the square in Central Hall, Westminster, the very first meeting of the nascent United Nations took place. In his welcoming speech, the then Prime Minister, Clement Attlee, suggested to the delegates that they would succeed in their new venture only if they brought with them the,
- “same sense of urgency, the same self-sacrifice and the same willingness to subordinate sectional interests”,
with which they had fought the recent war. Of course, he was right; he would be just as right today.
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This is not a war. This is self-inflicted, but we are still going to have to get out of it in a very old-fashioned way, by digging inside ourselves and readdressing the basics, by seeking ways to improve our creativity and productivity, by saving more, by studying harder, by doing all the things that we always knew that we had to do but were somehow too ill informed, too complacent or simply too stupid to remember. Successive Governments must accept their share of the blame but, in the end, the truth is unavoidable. As individuals, we have behaved in ways that were mind-numbingly foolish for far too long. In doing so, we have succeeded in wrecking our economy and mortgaging the future of generations yet to be born.
In hindsight, we made any number of embarrassing misjudgments. We embraced globalisation without remembering that it was a two-way street. We could and should have taken the time to think it through. We could and should have been far smarter about crafting ways to cushion its more harmful effects and to share its benefits far more equitably. As the American commentator Bob Herbert recently put it in the New York Times:
“We were living in a dream world. The general public, and to a great extent the press, closed its eyes to the increasingly complex and baffling machinations of the financial industry, which kept screaming that oversight would ruin everything”.
If I seem a little angry, it is, rather like the noble Earl, Lord Caithness, with good reason. As the Minister may remember, for several months last year I was pressing for a very modest amendment to the then Energy Bill. All that I sought was the introduction of a public interest test in the event of significant mergers, takeovers or acquisitions in the energy sector. Why? Because even then you had to be wilfully stupid not to realise that any collapse of a major supplier in that sector would result in a public bail-out. Surely, I argued, if the public are to be the effective guarantor of last resort, they should be offered the security of knowing that the companies that supply their energy are adequately capitalised and run for the public good by decent and honourable people. Should not a reasonable set of checks and balances be in place to ensure that the regulator asked all the right questions and was unambiguously acting in the public interest?
A casual flick through Hansard will show that in Committee and at Report I was very politely swatted away with phrases that have since taken on an extremely hollow ring. “Disincentivising capital” was one. “Light touch” was another. If I were really cruel, I could go on at some length on the subject, but I shall not. All that ideological claptrap was based on the false and deadly assumption that protecting consumers and individual investors unduly limits profits and hinders financial innovation.
In fact, the reverse is true. Had processes been put in place to determine the impact on savers of inappropriate financial products and practices, the current crisis may well never have happened. I would be grateful if, in his reply, the Minister would give the House the benefit of his or the Government’s thoughts. Perhaps recent events have made him, like me, feel like Boxer the dray horse.
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“I do not understand any of it. I would not have believed that such things could happen on our farm. It must be due to some fault in ourselves”.
Or could we have reached the point in the same book at which no one dares to speak their mind—at least not from the Dispatch Box? That would be tragic, because if there is one thing that the electorate are seeking, it is authenticity in their politicians and a far greater degree of truth in their dealings with one another. That is not the faux truth sought by sections of the media in the hope of winkling out the latest two-bit scandal, or the type of story that one of my favourite political commentators, Matthew d’Ancona, may have been referring to last month when he wrote, of the sensationalist media:
“This has nothing to do with guilt or innocence and everything to do with our 21st century political culture ... These same forces abhor stability. They feed on precisely the opposite: the twists, turns, sensations and careening shifts in political fortune that keep the story alive”.
At the very moment when we need Barack Obama to be a remarkable success, in exactly the same way that we needed Winston Churchill to be a success in May 1940, the carrion are already circling, in the hope that his fall from grace will sell a few more grubby newspapers. Angry? Yes, I am angry. Why would I or anyone else not be, if our dream is of a society that becomes more deeply human, more satisfying and more hopeful? Not much chance of that with a media environment that abhors stability.
In conclusion, anyone who has heard me speak in this Chamber over the past 11 years will know that I am almost obsessed with the fragility of British democracy and believe that we take far too much for granted. What have I learnt from these recent crises, both in the country and in your Lordships’ House? I have learnt that there is no democracy so strong that it is invulnerable to the greed and ambition of ill motivated men and women. I have been reminded that, to nurture and sustain democracy, its beneficiaries must serve also as its guardians. I think that that was essentially the point made earlier by the noble Viscount, Lord Eccles. It would be hard to blame the people of this country if, over the past week, they had come to the conclusion that this House was unworthy of that responsibility. The way in which parliamentarians of all parties, and both Houses, respond to the present crisis will offer a once-in-a-lifetime chance to prove that we have a political culture worth preserving.
1.02 pm
Lord James of Blackheath: My Lords, I was delighted when I saw the wording of today’s Motion from the noble Lord, Lord Eatwell, because it seemed to provide an opportunity to review an aspect of the present crisis that has not been properly discussed: how, when we emerge from this crisis, as in time we shall, will we restore morality and responsibility to the process of lending? I apply those phrases of concern to both borrowers and lenders, and it is to that subject that I will direct my comments today. I declare a couple of interests from the past. I worked for Lloyds Bank on
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I have now been working for 53 years. I went to work for the first time in the week when Jim Laker took 19 wickets to win the Ashes in 1956. I should have recognised then that life could only go downhill, and it has. I did not expect it to go quite this far downhill, but I suppose that Lloyds Bank would say the same, as I was working for it at the time. I have seen seven recessions in the course of my career—one every seven and a half years. I strongly believe that in every recession something that is done with good intent by the Government sows the seeds of the next recession. I commented on this for the first time in the Bradford & Bingley debate, when I said that the draconian hire purchase control orders that had been introduced by Mr Harold Wilson’s first Government, in October 1964, which required a 50 per cent deposit and 18 months to pay, had brought about the nationalisation and ultimate demise of the British motor industry. One can only hope sincerely that the present Government do a better job of running nationalised banks than Mr Wilson did of running a nationalised motor industry.
When we look at the consequences that flowed from that, we see that it was those seeds that led to our present catastrophe. People thought, “We have these dreadful control orders that have ruined the motor industry; we must never let this happen again”. The cross-party concern to do something about it—this is not a party-political point—led to the Consumer Credit Act 1974. We forget today that the Act effectively outlawed secured lending. That is where we destroyed the morality connection between lending and what you do with the money that you have borrowed. Instead of purchasing a direct asset and knowing, to paraphrase Oscar Wilde, the price of the thing and its value, we ended up knowing the price of it but not being concerned with its value. We could use the money not to buy intrinsic assets like motor cars and things that we needed to enhance our lives—“Take the waiting out of wanting” is a phrase that still makes me feel ill when I hear it today; instead, we could use the unsecured fountain of credit flowing from the banks to buy packets of white powder, set up a mistress or pay gambling debts. We have never recovered that connection and we have had a massive amount of borrowing, driven by rising house prices.
Recently, we had an excellent debate, initiated by the noble Lord, Lord Harrison, on the future of the motor industry, which still employs 910,000 people in this country. There is an opportunity here for the Government. They should look seriously at the repeal or suspension of the Consumer Credit Act 1974 and the reintroduction of the principle of secured lending. Think of the advantages. First, there would be a direct incentive for the banks to start lending again, on a secured basis, which would remove from the Government much of the responsibility for giving the guarantees that they are giving to the banks. Secondly, it would give a direct impetus to the stimulation of British manufacturing industry, which we desperately need. Thirdly, it would restore the morality of buying what you want in the certain knowledge of what it will cost,
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1.07 pm
Lord Newby: My Lords, I am grateful to the noble Lord, Lord Eatwell, for initiating this debate. I was not so grateful when he first tabled the Motion last week—an extremely busy week, with economic debates of various sorts—as I was rather looking forward to a day when we would not be foregathering to discuss the economy. But today’s debate has taken us beyond the ones we have had on what I was going to call the “sterile” details of the Banking Bill. That is a slight exaggeration, but not much of one. This has been a very interesting debate.
In many respects, all the speakers have coalesced around a common analysis. There is an acceptance that it is difficult to overestimate the scale of the downturn and the extent to which we will have to do things differently. There is, as many speakers have said, a growing consensus about the kind of society that we would like to see. Who said the following last week, for example, and who among today’s speakers would disagree with it?
“So this is what too many people see when they look at capitalism today. Markets without morality. Globalisation without competition. And wealth without fairness. It all adds up to capitalism without a conscience and we’ve got to put it right. Business helping to create a society that is greener, safer, fairer—and where opportunity is more equal. Business helping to create a society that is more family-friendly, where responsibility and power are decentralised, and where we value and build up the institutions of the public realm and civic society”.
Who said that? It was David Cameron.
The other area of consensus today is that we look to Barack Obama to lead in a way that we have not seen from America in recent times. The noble Viscount, Lord Eccles—somewhat surprisingly, I thought—said “God bless Obama”. The noble Lord, Lord Bates, talked about Obama’s success in instilling a sense of hope where otherwise there is fear. I do not want to break up the consensus we have seen up to now, so all I will say is that although Conservative policies attempt to a certain extent to reflect what David Cameron said, in terms of a fiscal stimulus they certainly do not, and in terms of supporting what Obama is trying to do, they also certainly do not. The Conservatives have a major job on their hands in seeking to reconcile the heady rhetoric with the backward-looking policies. The noble Lord, Lord Puttnam, talked about turning the clock back. Some of the rhetoric from the Conservatives in terms of fiscal stimulus has, to my mind, been seeking to do exactly that.
The noble Lord, Lord Eatwell, identified three major consequences of the downturn, the first of which is unemployment. We know that it is going to rise very significantly whatever steps the Government take in the short term. What is particularly depressing is that unemployment will rise most in those parts of the country which have traditionally had high levels of unemployment and where over the decades Governments
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The noble Lord, Lord Eatwell, talked about housing, particularly the threat of repossession, which is a major problem. An equal if not greater problem is that the housing sector is in almost total collapse. Large private builders borrowed huge sums and are literally on the verge of collapse. Almost every listed builder is in that situation. At the other end, the housing associations also borrowed huge sums to build mixed-use developments in which the private sector component was to fund social housing. Unfortunately they cannot sell the private sector component to fund the social housing one, so they, too, are in huge difficulties. Although this is not the day for a detailed debate on housing, I believe that the institutions through which we seek to manage particularly social housing are completely unfit for purpose. The Housing Corporation is slow and bureaucratic, and, as I say, the whole system is in real jeopardy. We need the impetus of a new institution to take a grip on the issue. The noble Lord, Lord Eatwell, talked about a special resolution regime for housing. Perhaps that is what I have in mind. We may need a new title for the proposal, but it is definitely required.
The noble Lord also talked about pensions, an immensely complicated issue. However, what is absolutely certain is that the private sector will not be able to afford the kind of pension provision that it has made in the past, and this will inevitably mean a growing disparity in pension provision between the private and the public sectors. As that is both politically and morally unsustainable, I fear that we will have to take a lot of hard decisions on pensions.
Everyone seems to be in favour of rebalancing the economy, and I absolutely agree that what is good for the City is not necessarily good for the UK. Equally, however, the City will be part of the solution, just as it has been a large part of the problem. Let us look at what we do best. I turn to the old economic question of where we have comparative advantage. The answer is that it still is in financial services, despite all the problems. We have not only a sophisticated financial services system, despite its many flaws and unacceptable
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However, we must also expend much more effort in encouraging our children and young people to believe that the highest attainment one can reach in life is not necessarily to be a banker. I know of children from poor backgrounds who have been the best in their class, the best in their school and the best at university, and what is it that they aspire to? They want to work for Lehman Brothers. I know of one individual, the pride of his family, who did that; he is not there any more, of course. To me it is a sadness that he thought that working for Lehman Brothers was the best thing you could possibly do in life. Part of the rebalancing should be to promote other forms of occupation where the contribution one can make is rather larger than even as a merchant banker.
Today’s debate has demonstrated what a wide range of issues we are going to have to fundamentally re-examine. I look forward to contributing in the months ahead to debates in your Lordships' House on those revisions and reviews.
1.17 pm
Baroness Noakes: My Lords, like other noble Lords, I congratulate the noble Lord, Lord Eatwell, on securing this debate. I do not want to damage the noble Lord’s reputation with his Benches, but I have to say that for the second time this week I agree with quite a lot of what he has said. I also agree with the noble Lord, Lord Newby, that we have had an interesting debate on the economy which has introduced some new angles that I was not expecting. I single out the contributions of my noble friends Lord Caithness and Lord James for their lateral thinking.
As the noble Lord, Lord Newby, said, it was only last week that we had a debate on the Pre-Budget Report and gave a good airing to the Government’s economic policies. I will not repeat what I said then at length, save to say that we believe that many of our economic woes are of the Government’s own making. We enter the current crisis with one of the largest structural budget deficits in the industrial world, and we have done less since 1997 to reduce debt and borrowing than most other countries. The IMF, the OECD and the EU have all in their own ways warned that countries like ours, which have entered the recession with shaky public finances, do not have the same range of opportunities available in terms of action to stimulate their economies compared with those countries with healthier economies.
I start here because our weak position reduces the Government’s scope for action. The cost of the Pre-Budget Report, including its fiscal stimulus, is a massive expansion of debt to more than £1 trillion, which as the Institute for Fiscal Studies has pointed out, could take until 2030 to unwind and will involve tax hikes or expenditure reductions of £20 billion. The noble Lord, Lord Eatwell, suggested that my honourable friend George Osborne has advocated a balanced Budget, which he has not done for the short term. We accept that the automatic stabilisers will increase debt in the short term, but we do say that because we have a weak economy, we have
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Lord Newby: My Lords, I am sorry to interrupt the noble Baroness. Can she explain how a stimulus is funded by a cut in expenditure?
Baroness Noakes: Yes, my Lords, because there is wasteful expenditure. We have never suggested cutting front-line services but we have said that there is waste. I challenge any noble Lord to say that there is no waste in public expenditure that cannot be cut out.
Lord Peston: My Lords, the noble Baroness was not asked whether there was any waste; she was asked to outline an economic analysis that explains how cutting waste finances an expansionary public expenditure policy. I know of no economics that could possibly lead her to that conclusion.
Baroness Noakes: My Lords, I shall have to give the noble Lord a private version of how we would do that. We shall arrange a seminar for the noble Lord, Lord Peston.
As I was saying, we are in line with Germany which accompanied its fiscal stimulus with a constitutional amendment to ensure that it reduced its debt. We are with Germany on that.
The VAT cut was supposed to be the centrepiece of the fiscal stimulus but it has had no discernible effect on retail sales. It is not even clear that it is always being passed on, especially by retailers who have price point policies that cannot accommodate reductions of 2.1276 per cent, which is what the reduction amounts to. It is difficult to see what is happening on the ground with the acceleration of capital expenditure. There are many stories of projects being frozen, not accelerated.
Oxford Economics produced a report on the impact of the fiscal stimulus. It shows an initial positive impact on GDP of 0.4 per cent in 2009, but this is more than outweighed as both VAT and capital spending unwind from 2010 and the tax rises and national insurance increases already announced start to bite from 2011.
Its analysis is even worse for jobs. It calculates that the fiscal stimulus will save 35,000 jobs—which is a drop in the ocean because we are losing more than that monthly at the moment—but the package in the PBR then produces a reduction in employment of 200,000, and that is on top of the natural effect of the recession. This is why many commentators are now talking about unemployment going well over 3 million.
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