Budget Statement Debate

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Department: Cabinet Office
Wednesday 18th March 2020

(4 years, 2 months ago)

Lords Chamber
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Lord Hain Portrait Lord Hain (Lab)
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My Lords, I agree with what the noble Lords, Lord O’Neill and Lord Lamont, said, but by spending an extra £350 billion to deal with the dire consequences of the coronavirus and promising even more, Britain’s new Chancellor has blown a hole in all the dogma of the last 10 years of Tory austerity. Boris Johnson has been hailing the recent Budget as a cheerleader for the common citizen, targeted on left-behind towns in the Midlands and the north and making a clean break with the Cameron-May years of harsh austerity. But in reality, the Budget fell well short of the great Tory turnaround that his fan club believed it to be.

First, the Budget failed to undo 90%—I stress, 90%—of the damage done nationwide by an unnecessary decade during which George Osborne and Philip Hammond squeezed over £150 billion of spending power out of the economy. On top of the measly £12 billion of measures announced last week to deal with the coronavirus emergency, this Budget gave the economy only an £18 billion boost over two years, with the brakes coming on again in 2022. As singer Melanie Safka told her Woodstock audience in 1969, they are

“only putting in a little

To get rid of a lot that is wrong.”

Secondly, the big increases in public sector capital spending that the Chancellor announced caused many people to miss what is happening to the current public spending that pays for our public services. George Osborne’s first Budget in 2010 set the pattern for the next 10 years. He cut Labour’s public investment capital plans by £10 billion over five years but he cut Labour’s plans for current spending by over £80 billion. That is why 20,000 police jobs disappeared, the NHS in England is 40,000 nurses short today, and today’s social care budget is £12 billion lower than is needed to bring service standards back up to their 2010 levels. The numbers of elderly people needing care have rocketed in the meantime as the Conservatives have created a countrywide calamity of social care misery for the elderly. The Institute for Fiscal Studies reckons that outside of health, day-to-day spending on other public services is now only three-quarters of what it was under Labour in 2007, and that current spending per person for most public services will still be well below the 2010 levels in 2024.

Thirdly, George Osborne chose an 80%/20% split between public spending cuts and tax rises, meaning that Tory austerity fell overwhelmingly on our most vulnerable citizens and on vital social infrastructure. The new Chancellor led a “Getting it done” chorus, blithely ignoring the fact that growth, which had been slowing in each of the past five years, had come to a complete halt in the final quarter of 2019. It did the same in January of this year; UK GDP did not grow at all for four months. That is why the IFS describes the forecast growth rates for the British economy for the next five years as feeble, why it denies that the UK is in a robust position to cope with shocks such as the coronavirus catastrophe, and why it says that a failure to agree an orderly move to a free trade agreement with the European Union would badly weaken an already weak economy.

The Budget speech, cheered by the Tory Hooray Henrys, included a long-overdue and desperately needed increase in public investment, which they have spent the past 10 years resisting; an expanding budget deficit, which they spent a decade promising to cut; a national debt today that is double what it was before the global financial crisis—80% of GDP in 2020 under the Tories, against 36% in 2007 under Labour—and some crumbs of comfort for the neediest, to whom they have shown only a cold shoulder and frozen or cut benefits for years.

Bailing out Britain’s banks to avert financial collapse and ruin after the global credit crunch cost UK taxpayers cash outlays which alone peaked at £133 billion, according to a June 2013 parliamentary banking report. Allowing for cash outlays, government guarantees and Bank of England support, the potential cost to UK taxpayers of saving Britain’s banks had reached £1,162 billion by July 2012, or 10 times the annual cost of the NHS, according to the National Audit Office.

In 2008, the Government had to act within hours to save the economy from a collapsing banking system. In 2020, the Government had to act within days to save the economy from the virus crisis. The small group of cheerleaders on the Benches behind the Prime Minister have been forced to concede that urgent action to stave off disaster demands big decisions that only government can take, because only the state can provide the resources required in a national emergency like this.

Yesterday, the Chancellor was right to reject 10 years of Osborne austerity and to throw the power of the state at the gravest crisis we have faced in 80 years. It has been an unexpected learning experience for him and his party, and 10 years overdue. But if the sudden extra £350 billion to beat the coronavirus pandemic can be produced like a rabbit out of a hat in the last few days of government panic, the question is why appropriate extra public spending was not found from the very start of Conservative rule in 2010 to deal with the aftermath of the financial crisis, instead of plunging the country into 10 years of savage cuts—driven by neoliberal dogma and not necessity—which have gravely damaged the country’s capacity, including to fight this terrifying pandemic.

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Lord Agnew of Oulton Portrait Lord Agnew of Oulton
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I do not like debt at all, so I accept what the noble Baroness says. We have also not had a proper drains-up on the impact of the original QE 10 or 12 years ago. It seems to have enriched the rich—those with assets—but what did those at the bottom end of society get out of it? Also, the question no one has ever been able to answer is: what happened to all the money? Did it stay in the British economy? One figure I was given is that at least a third of it just disappeared completely. So I am certainly not in favour of another one of those kinds of QE.

Turning to the noble Lord, Lord Hain, I am afraid that there is not a lot I can agree with in his statements. He seems to think that there is a magic money tree, and seems to have forgotten that we inherited a budget deficit of 10% in 2010. As a huge Europhile, he seems to forget that the EU has a 3% ceiling on its budget deficit levels. We have had to bring that down, and it is one of the reasons why we have more flexibility in the current days to do some of the dramatic things that have been announced by the Chancellor.

Lord Hain Portrait Lord Hain
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I do not believe in a magic money tree. I believe in Keynesian, investment-driven economics, which is what we should have been doing for the past 10 years instead of this needless, destructive austerity.

Lord Agnew of Oulton Portrait Lord Agnew of Oulton
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I disagree that we have had needless, destructive austerity. For example, we have created some 3.5 million jobs over the past 10 years, and until this crisis hit us in the last few days we have seen steady growth in earnings over the last year to 18 months. We are probably never going to agree, I am afraid, but let us at least put our points of view on the record.

The noble Lord, Lord Leigh, asked for faster action. I think some of the points he made on liquidity and the relaxing of insolvency laws were well made. I will certainly take those back to the Treasury. If he has any more information on that, I would certainly be interested to learn about it.

In relation to entrepreneurs’ relief, the noble Lord, Lord Leigh, and the noble Baroness, Lady Finn, were disappointed that we had increased the tax rate. But it is worth pointing out that the capital gains rate is 20% and it was reduced from 28% in 2016. It is hardly a rapacious rate of tax. I would be surprised if that put entrepreneurs off. We all have to pay our share of tax.

The noble Baroness, Lady Jones, said we were tinkering around the edges. But to announce within four days 15% of GDP as a bailout to the economy—I just do not accept that that is tinkering around the edges. As I said when I quoted the Chancellor at the beginning, we will continue to do more. This is a very fast-moving story and we are not going to sit idly by.

It was a rare moment of sunshine to hear from the noble Lord, Lord Bates. I share some of his optimism. Perhaps I am foolish and your Lordships will be able to berate me in six months’ time, but I think we will come through this as a stronger society. I think that sometimes an event such as this gives people pause for consideration about how things work. I am not as gloomy as many noble Lords were in the debate today. Indeed, just as I sat down earlier, I had a text from someone who says that there is already a possible vaccine being tested in Japan. I have no idea, but I think we have a good chance of finding a vaccine sooner than in previous outbreaks because the science has moved on so quickly. I read two weeks ago that they had already decoded the DNA of this virus within a few weeks of it becoming known in China. Last time with SARS and so on, this took months. I am probably putting my credibility on the line here, but a little bit of sunshine cannot go amiss.

The noble Lords, Lord Bruce and Lord Adonis, were worried about the EU. I gently and quietly remind them that we had a general election which put this absolutely fair and square to the electorate and, against the wishes of the vast majority of this House, and indeed many in the Commons, they gave a resounding thumbs up to what we were trying to do. What is going to happen now, I have no idea. But I do not think it should be used as an excuse to try to get us back into the EU.

The noble Lord, Lord Adonis, also asked about international co-operation. Of course, this will be extremely important. I hope he is reassured by our changes to the emergency government structure, which were announced yesterday. We have created four strands: health and social care; public services; economic; and international. We are very aware that this needs international co-operation. We have to be realistic, though, that in the next few weeks countries are going to be looking out for themselves. That is the brutal reality when supply chains have been broken and we are not able to get the things we want because other countries will want to keep them. Likewise with the closing of borders—that is an extraordinary thing for the EU to have done. That goes against all its principles, but it has reacted in a perfectly rational way. We have to accept that that is going to be the case over the next few weeks, but I think there will be a mammoth effort to come up with a vaccine and that will be a worldwide endeavour so I remain optimistic that it will prevail.

The noble Baroness, Lady Falkner, worried about prudent levels of debt and—like the noble Lord, Lord Skidelsky—that there is no free lunch. The noble Baroness, Lady Kramer, raised this at the end when summing up. We will just have to see what happens. I am not trying to duck the question. As a person about half my age said to me a few years ago—