Economy: The Growth Plan 2022

Lord Skidelsky Excerpts

Monday 10th October 2022 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, the twin problems to which the mini-Budget was addressed were near-zero growth and a relentless rise in prices. I doubt whether it will do very much for the first—certainly not in time to offset the second. In the short run, what we face is not a growth crisis but an inflationary crisis and that, of course, also means a currency crisis.

What was the growth strategy? I think it was based on Reaganomics—the idea that unfunded tax cuts, by incentivising the wealthy to work hard and invest more, would pay for themselves. That was a sort of Laffer curve idea, which was very popular in the 1980s. The British Treasury never bought it; it always thought that tax cuts to encourage the wealthy would need to be complemented by welfare cuts to incentivise the poor to “get on their bikes”, in the famous phrase.

Well, that is the basis of growth orthodoxy but it is very insecure. There is no evidence that tax cuts for the rich speed up the real rate of economic growth. What they do encourage is speculation in financial assets and real estate. Also, there is no correlation between the rate of growth and the size of the public sector. So the growth strategy is very insecurely based. As the noble Lord, Lord Eatwell, pointed out earlier, public investment, not public ownership, has been the main growth engine since the war.

Apart from its intellectual incoherence, the Chancellor’s mini-Budget sets out to tackle the wrong problem. The problem, as Keynes wrote in 1939, is not how to get growth but

“how to pay for the war”.

We have blundered inadvertently into a war situation, and that creates war problems. A war economy is inherently inflationary: too much consumer demand, too little supply. This is our situation. Excess demand is easy enough to explain. For over a year, from 2020 to 2021, the Government paid a large chunk of the workforce to not work. Pent-up demand exploded before supply could catch up.

That is one part of it but, in addition, Russia’s invasion of Ukraine has produced big supply shortages, reflected in the near doubling of wholesale energy prices. They would have trebled had it not been for the energy price cap. How long can the Government go on capping prices without raising taxes? Is the Minister expecting energy supply in Europe to increase over the next few years? Is he expecting Saudi Arabia to increase rather than reduce supply? The important point in these questions is that, when debt costs are rising, the Government should be reducing and not increasing their borrowing.

Today, we are significantly less able to run a war economy than we were in 1940. We make fewer things, grow less food and are more dependent on foreign supplies. Extensive deindustrialisation since the 1980s has made our standard of living dependent on the City of London’s ability to finance our twin deficits—budget and current account—which are rising towards 10% of GDP. The City attracts capital into London to engage in financial investment. The energy crisis has blown a hole in the current account. Banks have indicated that a 10% current account deficit will be very difficult for the City to finance. The second factor depressing sterling is, of course, the very high rate of inflation.

We need a credible currency to maintain our standard of living and there is nothing in the strategy of the mini-Budget that guarantees that. What we need is a co-ordinated policy that can communicate a clear path forward.

United Kingdom Internal Market Bill

Lord Skidelsky Excerpts

2nd reading & 2nd reading (Hansard): House of Lords
Monday 19th October 2020 Lords Chamber

[Lord Skidelsky (CB) [V]]

My Lords, I join others in congratulating the noble Baroness, Lady Hayman of Ullock, on her excellent maiden speech.

I want to confine my remarks to Part 5 of the Bill. I find myself swayed by two completely opposite accusations of bad faith.  The Government accuse EU negotiators of bad faith in seeking to erect unreasonable customs barriers between Northern Ireland and the rest of the UK. Opponents of the Bill say that the bad faith is our own Government’s. The withdrawal agreement set up a joint committee to resolve trade issues. The Government have chosen not to use it.  So, as Ed Miliband argued in his powerful philippic in the other place, the Government were proposing to breach international law for bogus reasons. 

However, having reflected on all this, I cannot support the amendment to the Motion and would like to explain why. To my mind, international law is not the main issue. Never before, many noble Lords have said, have a British Government sought to break international law, but never before has Britain faced a problem of extricating itself from as complex a political, economic and legal structure as the European Union. Law, as the noble Lord, Lord Howell, explained, has to take account of political context, and as my hero, John Maynard Keynes, once said in answer to legal fundamentalists of his day:

“I want”—


lawyers—

“to devise means by which it will be lawful for me to go on being sensible in unforeseen conditions.” 

Noble Lords know very well that not every contingency can be foreseen.

So I ask noble Lords to judge the legislation before the House on three different grounds: sufficient reason, motive, and consequences. On the first, I agree with the argument that sufficient reason has not been established for the override of Part 5 at the Government’s discretion. However, by Amendment 66, the Government have agreed to obtain parliamentary approval before activating Part 5, and I think that is a reasonable compromise between those who think that Part 5 is unnecessary and those who think it is essential.

Secondly, I sympathise with the argument that the Government signed the agreement in bad faith in order to meet the Prime Minister’s political requirements. However, most noble Lords have ignored the argument that it was always going to require some bad faith and legal creativity—to coin a phrase—to make the Brexit decision consistent with the Good Friday agreement. When Ed Miliband said

“A competent Government would never have entered into a binding agreement with provisions they could not live with”,—[Official Report, Commons, 14/9/20; col. 52.]


I am afraid that he set the bar of competence much too high. Contrary to the view of the noble Baroness, Lady Humphreys, deliberate ambiguity has always been the hallmark of statecraft.

Finally, what will the consequences be? The legal fundamentalists say it will damage our ability to get an agreement, because it will damage trust in the Government’s word—a powerful argument. The pragmatists believe it will force the EU negotiators to come up with a workable exit formula. Time will tell whether the Government have calculated the balance of risks properly. My own feeling, contrary to much noble rhetoric, is that we are still largely in the world of posturing. That is the way the EU and many other international negotiations work: public posturing followed by a last-minute outbreak of common sense. I think that is the way it will turn out, and I do not want to do or say anything that will weaken the hands of our own negotiators.