Budget Statement

Lord Horam Excerpts

Thursday 27th March 2014 Lords Chamber

[Lord Horam (Con)]

My Lords, I heard the speech of the noble Lord, Lord Desai, last year, and I greatly enjoyed it as he always talks with such wisdom. I enjoyed it even more this year. If one had to conduct a Desai test before Budgets, this one would definitely pass by comparison with some of the others. During his long career in politics and economics, the noble Lord, Lord Desai, founded the Centre for the Study of Global Governance. I do not know whether he would agree, but whether it is global governance or national governance, successful governance is always a balance between competence and fairness. One can reinforce the other.

If we look at the Budget from that point of view, it was a distinct success on the side of fairness. I echo what my noble friend Lord Sheikh said about raising the income tax threshold. That was one of the most significant things in the Budget and one of the top two or three priorities. Liberal Democrats claim great credit on this front, and I would give them a fair measure of credit, but none the less it was clearly a success, whoever claims it. When Labour left office people were paying income tax on £5,600 a year. It was scandalous that they paid income tax on such a low level of pay. The income tax threshold is now rising to £10,000 a year and from next year it will be £10,500. It cost £12 billion to make this change, which is undoubtedly a big ticket item by any standard, but it was the right thing to do.

The Chancellor has also accepted the Low Pay Unit’s recommendation for raising the minimum wage and is generally encouraging about the living wage. The noble Lord, Lord Haskel, mentioned that in his speech and I entirely agree with what he said. It is not just a matter of rewarding people for their restraint, which has been considerable in the past three or four years, but producing an economy that has an incentive for higher productivity. Subsidising low wages is no good at all in the long run. There may be some sort of consensus, at least on the Back Benches, about this issue. That is also an area in which the Government are absolutely on the right lines. Companies that are cash rich can certainly afford higher pay now. Given that inflation is less than 2%—1.7% on the latest reading—there should be no adverse effect on that.

With regard to competence, the Chancellor clearly was right to keep a firm grip on government spending. I recognise that there has been a lot of criticism of him over the past two or three years from what I call a Keynesian point of view. As someone who read economics at Cambridge when the influence of Keynes was very high in the late 1950s and early 1960s, I can well understand that point of view and where it is coming from. The noble Lord, Lord Hollick, made that point and others will no doubt do so. I see the noble Lord, Lord Skidelsky, in his place. As the biographer of Keynes, I defer entirely to him.

None the less, it is fair to make two points. First, as the noble Lord, Lord Desai, said, to some extent we are in a post-Keynesian situation. Things have moved on since Keynes was alive and doing his marvellous work in economics, for which we are all still greatly indebted. Secondly, the Chancellor has been extremely flexible. He has considered these points and has steered a middle course—a third way, if you like—between a classic Keynesian point of view and a non-Keynesian point of view. He has been flexible and sensible. The noble Lord, Lord Hollick, quoted Anatole Kaletsky as saying that the Chancellor is a stealth convert to Keynesianism. The Chancellor has proved able to learn from experience and reality and has provided a way forward which makes total sense to me. That is now history. We are now at the turning point. We have economic growth again and the question is how this can best be sustained. As I said, companies have cash in the bank, demand is increasing, which is what they need, and it is a good time to ramp up incentives to invest. Therefore, the Government’s approach is welcome.

As has been pointed out, we also need more public investment. We are a small and crowded island with strong democratic procedures in place. Therefore, it is always hideously difficult to get public investment going with any sense of urgency. However, I am sure that, given the background of the noble Lord, Lord Deighton, and his success in the Olympics, we have the right man in place to get public investment going.

In that context, as one who was born in north Lancashire and takes his title from that area, I am all in favour of fracking. I am certain that a sensible regime that both rewards the local communities that sit on top of the Bowland shale and allows the exploitation of gas and oil to proceed to the benefit of the economy and our economic security can be constructed. However, at the moment, mixed signals are coming from the Government about this. The Prime Minister is saying that it can be done quite quickly, possibly during the course of this year—there may be evidence on the ground—but the companies are saying something quite different and that we might not get a reasonable amount of production until the end of the decade. I would be grateful if the Minister could clarify the situation. It is important to have a good understanding of what is happening in this area.

Just as important as infrastructure are human skills and it is for that reason that I am strong supporter of what the Secretary of State for Education is doing. In all fairness, he is building on the work of the previous Labour Government in initiatives such as Teach First and the academy programme, but he is pushing forward with a vigour—some might say a ruthlessness, but a relentlessness anyway—that is, I hope, transformational. This is hugely important. It is just as important as infrastructure investment.

All that is very good but I must stress, as we have all done in different ways, that the economic recovery is fragile and there are some clear threats on the horizon. One, of course, concerns the economic measures which it may be necessary to take to deal with the political situation in Ukraine. Soft power should be used—I am right behind that—but it may come with a big economic penalty. It is an economic penalty we should pay, but it will none the less be there.

The second threat comes from deflation in the eurozone. Undoubtedly, the European Central Bank has done a good job in averting disaster and restoring a good measure of confidence. However, it now faces a much harder task in avoiding a prolonged period of Japanese-style deflation. If that materialises, we shall certainly suffer in the UK.

A further threat comes from the situation in China. For some years now, the Chinese economy has been propped up by debt-fuelled investment—I do not know what the noble Lord, Lord Desai, thinks about that—much of which has been squandered on speculative property ventures, useless infrastructure and excess manufacturing capacity. Now the day of reckoning is coming in China, I fear. There will be defaults of companies and credit will have to be reduced. That will have a considerable impact on the rate of growth of the Chinese economy, which will hurt us and the whole world.

Finally, we have our own imperfections. We are still not very good at exports; productivity is behind our rivals in Europe; and we are still too dependent on debt, rising house prices and domestic consumption. Therefore, there is undoubtedly a great deal to do. There is no room for complacency. The Budget has reinforced my view that the Government are heading in the right direction and I hope that they will keep to it.

Economy: Inflation

Lord Horam Excerpts

Tuesday 11th March 2014 Lords Chamber

Asked by

[Lord Horam]

To ask Her Majesty’s Government what assessment they have made of the latest report of the Office for National Statistics on the consumer prices index and its impact on household budgets.

[Lord Newby (LD)]

My Lords, the consumer prices index measure of inflation decreased on an annual basis to 1.9% in January 2012 from 2% in December. This is the lowest rate since November 2009, which is good news for families and businesses. In its December economic and fiscal outlook, the Office for Budget Responsibility forecast average nominal earnings growth to rise more rapidly than CPI inflation this year.

[Lord Horam (Con)]

I wonder whether my noble friend saw the excellent speech by the chairman of the Engineering Employers’ Federation last week in which he said that he thought now was a good time for employers to give a good wage increase to their employees to make up for the restraint they had exercised during the years of Labour’s great recession. Does he agree with this sentiment? Does he further agree that it would be even more excellent news if, in the Budget next week, the Chancellor thought it fit to raise, once again, the income tax threshold, thus reinforcing our commitment to the low paid?

[Lord Newby]

My Lords, I agree with the EEF on the desirability of wage increases, particularly for those on lower incomes and not only, as has happened all too frequently in recent years, for those on the board. I also agree that raising the income tax threshold further is an excellent way of helping people on modest incomes and I hope that we can do more of it.

Families: Cost of Living

Lord Horam Excerpts

Thursday 31st October 2013 Lords Chamber

[Lord Horam (Con)]

I, too, congratulate the noble Baroness on having brought about this debate. She made a thoughtful speech because she acknowledged in her introduction that these are global trends. Whether you look at America, Canada or this side of the Atlantic in Germany, France or Britain, inequality has increased over the past 10 years. People on low incomes and middle incomes have been squeezed and in many instances their standard of living has reduced over long periods. The noble Lord, Lord Monks, also made an issue of the balance between profit and labour. That has in many cases gone the wrong way. I agree that there would have been a reason for that if investment had been as high as we would have liked it to be but obviously that has not happened, and that changing balance is an important part of what has gone wrong in the past few years for all sorts of reasons.

However, as the noble Baroness, Lady Prosser, said, tackling these big issues is difficult for any Government, whether they are Labour, Conservative or coalition. None the less, we have to be positive. There is no point in sitting back and letting all this flow over our heads. We have to do what we can. In that respect, the initiative by the leader of the Opposition, Mr Miliband, at his party conference was notable and certainly made a big political impact, if nothing else. Sadly, I am afraid that such an initiative is unlikely to bring the relief to ordinary people that they would hope for. In particular, the truth is that if there were to be a 20-month freeze it would be easy for companies to get around that, either by increasing their prices in anticipation of the freeze or, if it happened, looking at their situation and increasing their prices afterwards by more than they would otherwise have done. So the net effect over quite a short period may not be much different from what it would have been anyway. I am afraid that that is the difficulty of introducing freezes of that kind.

I heard what my noble friend Lady Tyler said. I prefer to look at the green subsidies, but not because we want to change them in any way. All three parties have, quite rightly, had a part to play in bringing in green subsidies to produce decarbonisation and to contribute to dealing with climate change. However, as my noble friend rightly pointed out, the way they are now weighted on gas and electricity prices means that they hit the poorest hardest, because those prices are regressive, whereas taxation is progressive. If a way could be found of shifting some of that burden from prices to taxes, we would make progress. I have no knowledge of what the Government may do but I know that not only Simon Hughes but the Prime Minister made a point about this. Much though I like my right honourable friend Mr Hughes, I think it is more important that the Prime Minister takes this on board and I am glad that he has. I hope that some progress can be made in this very delicate area.

When it comes to looking at the sustained effect on gas and electricity prices, one should also look at a well regulated competitive situation. I stress good regulation, as well as good competition, as both together are needed. I think that it was the managing director of Ovo Energy, Mr Fitzpatrick, who said precisely that to the Select Committee in the other place—that sometimes the “six”, as they are called, look like a rather cosy cartel which is immune to competitive good practice. People coming into the industry need to have that competitive good practice so as to make the energy companies bring down their costs and thus their prices. Those two arguments should be looked at by the Government, as we want to make a sustained impact on this problem.

I would point out to the Opposition that the Government, as my noble friend Lady Tyler said, have done quite a lot to keep down prices and costs for ordinary people. For example, mortgages have been at their lowest ever rates. The average bill for energy prices is £1,500 a year—a very high level for the average household—but mortgages are obviously even higher. They are a huge cost in many people’s budgets, and keeping them down has been a massive achievement by this Government.

Council tax has been frozen. My own borough of Hammersmith and Fulham has brought down its council tax charges three years in a row without any reduction in the quality of public services. That is a huge achievement by a Conservative council. The Government have also cancelled planned rises in fuel duty three years in a row. Fuel duty now stands at 13p per litre less than it would otherwise have been. The noble Baroness, Lady Tyler, mentioned childcare. That has been something on which the Government have honed in, and I am glad to say that the Labour Party is also talking about it. As a grandfather who occasionally looks after five grandchildren, I am aware that the cost of childcare is a real issue. I think that we should pay attention to that and be glad that the Government are doing so.

As was said earlier, we have also raised the tax threshold and are in the course of raising it further, so there will be help from April onwards. The lowest point of the threshold will be £10,000 a year, bringing a saving of about £705 to the average family. Frankly, that is a terrific saving. Therefore, there is help, and I am glad about that.

Again, I make the point to the Opposition that, as a result of all these measures that have been brought in under the coalition Government, inequality has in fact reduced. The fall in the income of the top 20% of the population has been 6.8%, whereas the income of the bottom 20% of the population has risen by 6.9%, I am talking about income, not living standards, and I accept that prices have gone up even more. The noble Lord, Lord Davies of Oldham—a good friend of mine—made the point the other day in Question Time that inequality was in the DNA of the Conservative Party. I am afraid that inequality was in the DNA of the Labour Party when it was in power: the Gini coefficient, which is the acknowledged measure of inequality, reached its highest point ever in our history under a Labour Government. Now, we are becoming more equal because of the measures that a Conservative Government are taking. I do not think that we will take any lectures from him or anybody else on inequality. In practice, the Labour Party talks a lot about equality but the Conservative Party has delivered more equality than the Labour Government ever did.

Obviously there is a big political battle going on but I will close by saying that we need to be positive, as the noble Baroness said, and do what we can to help low-paid families and people facing tough times at the moment. I agree with all those, including the noble Lord, Lord Monks, who said that there should be strenuous efforts to make the Low Pay Commission work effectively. A lot of work needs to be done in that area. The minimum wage is £6.31 and the London living wage is £8.55; there is a big gap between the two. I am talking about London only at the moment. We need to home in on this issue and make sure that people’s cost of living is reduced by as much as possible and that they have the income to cover it. There is hope but we must be positive. I am pleased that this debate has taken place as it has raised an issue that is important to every family in the land.