Economy

Part of the debate – in the House of Lords at 8:35 pm on 3rd November 2008.

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Photo of Viscount Eccles Viscount Eccles Conservative 8:35 pm, 3rd November 2008

My Lords, I will concentrate on the short term. I suggest that the answer to the question, "How did we get into this crisis?", is only interesting as a guide to how and when we get out of it. Essentially, the crisis is Anglo-Saxon. It started in New York and London. Before we go any further, we should agree, I hope, that the Anglo-Saxon system has made a great contribution, since the mid-19th century, to the development of the world. Indeed, there has been no other system which has made anything like the same contribution. It has found its way through many excesses and it will find its way through this excess. Excess comes when testing the boundaries of innovation in the style of Ross and Brand.

It is far too soon to condemn the Anglo-Saxon system. Indeed the United States of America may find its way forward quite quickly. It has a large and flexible economy and has shown that it can recover rapidly in past times of trouble. The United Kingdom is not likely to be able to recover so quickly, but why? First, it is a matter of public confidence. The point has been made many times in this debate that the public need to be confident; if they are not confident they will not spend, but save. At the moment, the public are bemused, almost shocked, because they did not expect to be here and nor do they think that anyone else expected to be here. From 1997 the economy had only one way to go: better and better. That was good news and people like good news in the same way as they do not like bad news. House prices had only one way to go. What was wrong with a 125 per cent mortgage? Why not take the waiting out of wanting? Renegotiate the mortgage, switch credit-card providers, hence the high levels of household debt. It was a disastrous example of mistaken political leadership, arousing expectations that never would be fulfilled. It is no wonder that the public now have no confidence in what they are told.

Secondly, expenditure has consistently been called investment. This afternoon the Minister used the description "investment" at some point, but it is more prudent—a fashionable word at one time—to call it and treat it as current expenditure. True investment requires a financial return which is not available from NHS hospitals, nor from state schools. But worse, many of those projects—£60 billion of them—have been financed off balance sheet via PFIs, requiring taxpayers of the future to find some three times as much. What is the Government's calculation of the liability to be met year by year by the taxpayer over the next 30 years? There is no other way of repaying a hospital PFI project—UCLH cost £404 million—but by taxes. Hospitals in the NHS do not have a cash flow that provides them with an operating profit. Contrast that with the banks, which are now being told, probably quite rightly, that they should be transparent and should not finance things off their balance sheets without telling us the exact cost.

It is no wonder that public confidence is so low, yet it is a vital ingredient of recovery. It is time we tell things as they are and stop underrating the common sense of the people. The sum total of the position—public debt past, present, future; household debt; falling house prices; and fast falling activity in the economy—means that the United Kingdom is in the worst position in the G7, and disagreeing with that proposition is to be in denial. Where is our Keynesian room to manoeuvre? Are we not caught between introducing levels of spend and debt that will cause further falls in the pound or a long wait as our position unwinds? It is a pretence to say that we lead. Ideas we may have; room to manoeuvre is denied to us. As has been said several times in this debate, lowering interest rates is not a remedy that will act quickly. Are we left with only one way out—inflation? We were completely unprepared for this crisis. We cannot lead; we will have to follow, which will become clearer and clearer to the public, who have been misled for long enough.