My Lords, I am delighted on this side of the House to follow my noble friend Lord Thomas's fine remarks. Like him, I congratulate the Government on their handling of this extremely serious crisis. As we know, they have led the world in handling the banking aspects of the crisis and have been resolute and clear on the need for increasing fiscal deficits. Since the Opposition do not consider that acceptable, I shall concentrate my remarks on fiscal policy: first, the rationale for deficits and increased borrowing; secondly, the composition of the increased government expenditure; and, thirdly, the longer-term future of government expenditure within the PBR.
We have, of course, an exceptionally severe crisis, more complicated than any that we have had since the war. We have only one thing on our side: the depreciating currency. Otherwise, very little can help us, any more than any other country in a worldwide crisis. The problem everywhere is sustaining the level of spending, which is why it is not helpful to talk about the need for increased saving in the short run. The ideal, as the Prime Minister has said so many times, would be a worldwide expenditure reflation where every country would gain from the expansion in every other country.
It is encouraging that Mr Obama is now talking about an injection of 3 per cent of GDP, a serious sum. The European Commission has been talking about 1.5 per cent. Yet the Opposition are saying that these deficits, which would be unfunded, cannot work even though they have worldwide support. Instead, they have said that the deficits will simply force up the rate of interest that the Government must pay on their debts. There is absolutely no reason why that should follow. There is currently a worldwide glut of savings looking for safe places to go, which is one reason why the long-term interest rates on British government debt are currently falling. Of course, we have the lowest debt ratio of the G7 countries.
In any case, if it became difficult to fund the deficit from the private sector, it is perfectly respectable for the Government to borrow from the Bank of England. Printing money in a slump is a totally respectable policy. Of course, eventually, when the private demand for liquidity starts coming down, you must reduce the supply of money and the bank must mop up the excess supply of money by selling the government bonds that it previously bought in the immediate crisis. However, that time comes only after the crisis is over.
I have some specific points on the composition of the fiscal reflation. The Government's policy is to cut VAT and bring forward capital expenditure, but they have also shown great wisdom in giving extra money to Jobcentre Plus. There could be no bigger mistake than giving up on welfare to work in this crisis. That would lead only to a ballooning of long-term unemployment, as we saw in the early and middle 1980s when the noble Baroness, Lady Thatcher, abolished the requirement for unemployed people to sign on at jobcentres. These are the kind of mistakes that we must absolutely avoid.
In that connection, speaking as a labour economist, I warn the Leader of the Opposition that we know that, if you want to stimulate employers to employ long-term unemployed people, it is much less effective to do that through tax relief than through some well administered system of financial inducement in the hands of Jobcentre Plus. That is a worldwide fact well established in the experience of many countries.
I come back to the other issues to do with expenditure. The Government are mainly bringing forward physical capital expenditure, but I understand that they are also now considering bringing forward some human capital expenditure, which I would very much welcome. I mention two candidates. One is the guaranteed apprenticeship, which the Secretary of State mentioned. At present, this is scheduled to come in in 2013. Why not bring it forward to 2011? The second is the help given to people suffering from depression and anxiety, whose number will inevitably grow as a result of the recession. The Government are committed to implementing NICE guidelines for that unfortunate group of people by 2013. Why not bring that forward to 2011?
As regards the long-term future of government expenditure, by 2013 the Government aim to return the share of government expenditure in GDP to the same level as in 2008, which will mean that from 2011 government expenditure will have to grow very much less than national income. I wonder whether that will be a viable policy. We know that the demand for health, education, social services and the police grows faster than income. This is a worldwide experience. That is what people want as their income rises. On top of that we have a new factor in the labour market arising from the impending decline of the financial services sector. That sector has grown and over the past 20 years has been a major competitor with the public services for labour. It will now shrink—in my view, permanently. If at the same time there is a big public demand for skilled labour to deliver smaller class sizes, better healthcare, better social workers and more police, it seems at least possible that public pressure will force the Government to increase expenditure on public services at a faster rate than is allowed for in the PBR.
I wonder how we are to achieve our climate change commitments without more green taxes. However, that is speculation as regards the future. For now, we can only praise the Government for the way in which they have tackled this crisis. I sympathise with what the noble Lord, Lord Skidelsky, said. We may find that we have to do more by way of reflation than we have allowed for in our plans, as Mr Obama is planning to do. However, we have made an excellent start.