My Lords, I agree wholeheartedly with what the noble Lord, Lord Borrie, has just said about the importance of competition. I shall concentrate my remarks on the statement in the gracious Speech that the Government's,
"overriding priority is to ensure the stability of the British economy".—[Hansard, 3/12/08; col. 1.]
First, however, I shall say a word or two about leaks and spin.
Controversy is raging at the other end of the building about alleged leaks from the Home Office, but virtually nothing seems to have been said about the extent to which the PBR and the Queen's Speech were published in the newspapers in great detail the day before they were announced. The convention was always that such important matters are announced first to Parliament. That does not appear to be the case at present. The gracious Speech says that the Government will strengthen the role of Parliament. They could begin by dealing first with what seemed to be leaks from the Government themselves. It is not true that the spin machine is infallible. I do not think that any Chancellor could have spent as much money as the Chancellor did the other day in the PBR and got the rotten set of headlines that he did the following day.
I turn to the more substantive issues. The Government's attitude to the stability of the economy is set out in the PBR, but their analysis is seriously flawed for this reason: there seems to be almost complete confusion in the Government's mind between interest rate policy and monetary policy. Indeed, the two are treated as virtually identical. There is, of course, a close relationship between them, but they are not the same. Interest rate policy is concerned with the price of money; monetary policy is concerned with the quantity of money. I am glad to see that I carry the Minister with me on this point.
The Government also seem to be under the impression in the PBR that the Bank of England has been given the authority to set interest rates independently. Would that that were so. It has been given independent authority to set just one interest rate. Again, I see that I carry the Minister with me. Alas, LIBOR makes it evident that what the Government say in the PBR is not the case. When Mr Brown transferred the responsibility for interest rate policy to the Bank of England, he clawed back to the Treasury the responsibility for debt management, which is crucial to the quantity of money that is generated.
As far as general economic policy is concerned, we are all Keynesians now. It is right that we should adopt Keynesian policies in normal circumstances and that, if there is a recession, we should take other stimulating fiscal measures in addition to the automatic stabilisers. Generally with Keynes, one starts from the position of a surplus. The trouble with the present recession is that this Government started with a massive deficit. That creates enormous problems for the operation of monetary policy and in particular for intergenerational transfers, as we are now transferring huge amounts from our present generation to future generations.
That being so, the important thing is to learn not only from Keynes but from Milton Friedman. The extraordinary thing is that one ought to concentrate on monetary policy as far as the quantity of money is concerned. One can search in vain throughout this enormous volume—at least, I have done so—to find any mention of what will happen to the money supply. Perhaps when the Minister winds up he will say what he thinks the pattern of money supply growth will be, because one cannot get this from the PBR.
What one can get is some startling figures about the extent to which the Government's net cash requirement, which used to be the PSBR, is likely to increase. It is set to rise from £59.3 billion—I love the precision of these figures—in the Budget of 2008 to £152.9 billion at the present time, or at least in the projection. That is an increase of £93.6 billion. The question that we must ask the Minister is: how will this be funded? There appears to be an extraordinary reliance on national savings, which seems to be rather inconsistent with the general government view that people should go out and spend. However, it is a trivial amount compared with the amount of Treasury bills that the Government propose to issue—from £5.8 billion to £14.53 billion—or the amount of gilts, from £80 billion to £146 billion. Who will fund this enormous deficit?
The crucial question is whether it will be funded from what in the jargon used to be known as the non-bank public. If it is, that will nullify the effect. It is inconceivable that one can fund this amount from the non-bank public without interest rates going up. One must look not only at the short-term rate, but also at what is happening to the yield curve. We have no idea at all from the PBR what the Government think is going to happen to the yield curve. The Minister is giving an indication, which may appear on television but unfortunately will not appear in the Official Report. One is seriously worried about this.
The recession clearly has to be dealt with and steps are being taken to do this, but at enormous cost. I believe that there is a danger, with inflation still above its target range, that we will seek to deal with the recession and then find, before we fully come out of it, that there are enormous inflationary pressures in the pipeline. We need to take a longer view than just asking how we get out of the recession. We have to get back to a situation of stability. It is clearly not the case that we are in a stable situation at the moment. I am not convinced that the path tracked by the Government will in fact, for the reason that I have mentioned, lead us back on to an even keel.