Autumn Statement

Lord Carrington of Fulham Excerpts

Thursday 3rd December 2015 Lords Chamber

Moved by

[Lord Carrington of Fulham]

That this House takes note of the economy in the light of the Autumn Statement.

[Lord Carrington of Fulham (Con)]

My Lords, I am delighted to have the opportunity to introduce this debate on the economy, because there is now every sign that we are coming out of the economic black hole after the events of 2007 and 2008. As we know—and to paraphrase Napoleon Bonaparte—it is not enough to be a good Chancellor of the Exchequer, it is important to be a lucky one—although Chancellors on the whole create their own luck. I think it was a golfer who once said, “It is funny how the harder I work, the luckier I get”.

The economy is doing well, especially when compared with the other economies of the European Union. This is not to downplay the problems we face and will continue to face in the future. Now, our GDP growth rate is at 2.4% and coming back to the long-term trend growth rate. Unemployment is at 5.3%. The figure is possibly still too high, but very encouraging—particularly when coupled with the number of people in employment being at the highest-ever level of 31 million. We can at last say that we are now well on the way out of the economic mess caused by the last Labour Government’s belief that the good times would roll for ever.

It has been a long struggle and we are not out of the woods yet. We will not be until our main trading partners follow us on the road to recovery and—in deference to my noble friend the Minister—until the BRIC countries sort out their very real problems. But growth in the economy goes a long way towards solving our economic problems. It is from that growth that everything else flows.

However, our debt levels are still too high at 84% of GDP, after adjusting for housing association debt, and need to be urgently brought down. My right honourable friend the Chancellor of the Exchequer’s commitment to get the Government’s budget into surplus by the end of this Parliament is a noble one that looks like being achieved—just about. This is important because when the next recession comes, as surely it will, we will have to have the room to borrow to see us through the bad times. Fantasy claims to end boom and bust and the economic cycle always were a mirage.

The turnaround in our economy has come about not just by luck but by hard work and very tough decisions. Everyone likes spending money, especially other people’s money, and cutting government expenditure is a ghastly business. Everyone who has experienced poverty, or, indeed, seen poverty at close hand—possibly in their constituency advice surgery if they have spent time in the other place—will know that cutting the welfare budget is harrowing. So I was pleased that the tax credits have not been reduced. But there is a reason why the Government’s spending has to be reduced. As my right honourable friend John Redwood never ceases to point out, it has not been reduced in either money or real terms; it has just gone up by less than it might otherwise have done.

The reason it needs to be reduced is straightforward: real growth in our economy does not come from government expenditure but from businesses being able to thrive, earn profits, employ people and then pay taxes. Incidentally, the crackdown on large multinational corporations not paying tax is something we can all applaud, although making them pay their proper share will be more difficult than perhaps it is sometimes suggested.

In creating our luck with the economy, my right honourable friend the Chancellor of the Exchequer worked hard to create a business-friendly environment. Our corporation tax rate is one of the most attractive in the major economies and our incentives to entrepreneurs to invest and take risks are as good as or better than those of our competitors. It is for this reason, if no other, that I applaud the determination of the Government to reduce the proportion of GDP taken up by the state to about 35%—I think that 36.5% is the figure in the Blue Book—a level which a Labour Government under Clement Attlee also achieved. While 35% is better than 40% or 45%, in my view it is still too high. We should be aiming for 30%—a level where government expenditure will not crowd out private investment and initiative and will enable more of those seeking work to find it. We must never forget that we can help those in need only if our manufacturing and service industries are making profits and paying taxes.

However, the fact remains that the UK is, and will remain, a high-cost economy. Our wage rates will always be higher—and quite rightly so—than those of the latest emerging economies. Our costs of production will always be higher than those of countries with lower health and safety standards. Our energy costs will always be higher than those of countries that do not seem to care about either pollution or greenhouse gases. The problems of our steel industry are just the latest example of this fundamental reality.

However, what we do have in our workforce are some of the best, cleverest and hardest-working people. All they need is an excellent education, superb skills training and a society which looks after them and theirs when in need, with healthcare and care for the elderly being top priorities, to enable them to work and give of their best. That is why, even though I think increasing taxes on business is regrettable, I support the apprentice training levy on large companies.

Some 10 years ago I ran a company with the second-largest apprentice training scheme in the UK. The scheme took on young people from all backgrounds. Even those whom the education system had let down during their 11 or 12 years in school could be taught to read, write and do basic arithmetic, and then to read technical manuals, after some three months of remedial work. Why this should be so is an interesting question. Perhaps it was because we were better at teaching them than the schools; more likely, it was because there was a purpose to their learning and they were more eager to learn in a work environment with a defined goal.

Apprenticeships do work, and it was a tragedy that we lost them in the 1970s. I am old enough to remember that, when I first joined an engineering firm, large companies had extensive apprenticeship programmes of very high quality. It was the only way for those companies to bring forward the skilled technicians they desperately needed even then. One major reason that companies abandoned their apprentice training was that they found that their competitor companies, instead of training their own apprentices, poached the newly qualified technicians finishing their training. So for the levy to work we will need to set up the scheme so that the large firms paying for apprenticeships get a lot of the benefit from the trained young people, and ensure that the scheme is not seen as a way for large firms to pay so that smaller companies can get a highly trained workforce on the cheap.

So much of what we do on the economy is futurology. Many highly rated economists make a very good living by predicting the future and getting it wrong. Some of them are advising the Labour shadow Chancellor of the Exchequer as we speak. There is always uncertainty about how the economy will perform in the future. Of course, all predictions are statistically based. We are dealing with probabilities. So when the Office for Budget Responsibility finds £27 billion for Her Majesty’s Government to spend—or, indeed, to save—it is obviously a median of a statistical spread. It could be half as much or it could be one and a half times as much. However, as nice as an upward revision of the tax receipts is, it is not as important as the growth rate in the economy. I am glad, therefore, that my right honourable friend the Chancellor of the Exchequer has decided to spend this lucky windfall amount. Using it to make the pain of transforming our country into a high-wage, low-welfare economy less severe is the moral as well as the right choice.

There is one area where I was disappointed not to see progress in the Autumn Statement. We have a very complex tax system, both personal and corporate. The tax statutes expand and expand as Chancellor after Chancellor adds more complexity to encourage this and to stop that. I suggest that it is time for my right honourable friend the Chancellor to become the tax lawyers’ worst nightmare and, following in the footsteps of my noble friend Lord Lawson all those years ago, to make a concerted effort on simplifying the tax system. I realise that that would mean taking on the legal profession, the accountants and possibly the Treasury, not to mention HMRC, and so may not be possible. But he would make even more friends among small business people and the poor benighted personal taxpayer struggling with a complex and often incomprehensible series of forms.

So while we are not yet out of the economic hole dug by the last Labour Government, we are at last within striking distance of getting back into the sunshine. We must be careful not to say, “Job done” and relax our determination to create a high-skill, high-wage, very competitive international economy. This task will continue to present many challenges, regardless of whether or not we stay in the EU. I beg to move.

--- Later in debate ---

[Lord Carrington of Fulham]

My Lords, in the few seconds remaining of this debate, it behoves me just to thank my noble friend the Minister and all other Peers who have participated in what has been an excellent debate that has highlighted the issues very effectively. I think that any outside observer will have been rather surprised by the degree of commonality and agreement across the Benches. Of course, there are big differences: the biggest difference, perhaps, is between those who wish to spend the money before we earn it and those who wish to earn it and then spend it. Nevertheless, the analysis was very similar from all participants, to whom I am most grateful.

I do not intend to mention any particular contributions but will just pick up on something said by one or two noble Lords: the quality of debate in our economic debates here is so much higher than it is in the other place that it is a shame that we do not have more of them. With that, I beg to move.

Motion agreed.