Queen's Speech — Debate (3rd Day)

Part of the debate – in the House of Lords at 7:53 pm on 8th December 2008.

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Photo of Viscount Eccles Viscount Eccles Conservative 7:53 pm, 8th December 2008

My Lords, it is a great pleasure to follow the noble Lord, Lord Sheldon, because he clearly shows that there is a rich mixture of opinion in this House.

We have not been much good at forecasting lately. I wonder how much confidence we can have in present forecasts. After all, the noble Lord, Lord Mandelson, says that we are in unprecedented times and then prays in aid his experiences in the 1980s. That is no more helpful than the false antithesis between those who want to do something and those who allegedly do not.

During the build-up of the debt mountain the banks have been like children in a vast game of pass the parcel, storing away parcels of uncertain value and, when the music finally stopped, refusing to play with each other any more while they tried—unsuccessfully so far—to assess their losses, hardly daring, I suppose, to open many of their parcels.

At the same time Asia, particularly China, was building its mountain of United States Treasury bills to offset $500 billion of annual trade deficit, which has been a second trend going unsustainably in one direction. Meanwhile, we were also building two smaller mountains, the first being household and personal debt, the second rising public expenditure—for example, the rising cost of public sector pensions, topped up with the largely off-balance-sheet deferred PFI debt, which will cost more than £180 billion to repay with another £70 billion of repayments in the pipeline.

However, these irresponsibilities are not my theme. We are where we are, giving rise to the question: is there something so different about this crisis that past policies will not do what is required? Also, how are people reacting to the crisis and how will they behave? I hope we are close to an agreement that this crisis is quite unlike post-war recessions. The Pre-Budget Report recognises that action to stem inflation has usually triggered recession in the past 30 years or so. Inflation turns out to be irrelevant to this crisis. Nor did government action start it. Indeed, inaction bears the greater responsibility.

The report also spells out the difficulties of forecasting. Such phrases about future credit conditions as "will return to a new norm", qualified further with uncertain timing, show that the draftsmen knew that the past is an unreliable guide to the immediate future. This must be right. Then there is the Treasury trend line for growth, which has been in recent years 2.7 per cent. The way in which this has been achieved has proved unsustainable. It has depended to a significant degree on financial services and they in turn depended on the global economy. Yet the Pre-Budget Report claims that this recession will be shorter than the past two and that we will promptly return to our trend line and, indeed, better it in 2011. This judgment is redolent with uncertainty, depending on events about which in the short term we know little and on the success of actions taken by many other influential players in the global market on whom we rely since we will not get out of this crisis on our own.

It is too early to assess the degree of optimism built into the Pre-Budget Report but I do not doubt that it is overconfident in its predictions. It is, of course, the mention of confidence which leads naturally to the reactions and behaviour of people. What do people think? Few people are at all sure how this debt crisis came about. Not many people confidently understand derivatives, the securitisation of mortgages or the imbalances between Asia and America. They have been told that this is a global crisis started by the Americans, so presumably they will have to get us out of it again. With their healthy scepticism, people know that it is not sensible to expect their Government to be in control of global events. They were not able to handle the risks we were running and cannot now be expected to know either when or whether things will return more or less to the old norms or will move on in some quite different direction. It seems uncertain that the changes, which people are told will be good for everybody everywhere, are also the best for each and every United Kingdom household. Many people need to make decisions that cannot wait upon the renegotiation of global co-operation.

There are other differences; it is not only the global dimension. The population is much older than it was in previous recessions. The elderly have to be careful with their money. The savings ratio, which was 3.5 per cent in 2006, is now 0.5 per cent and shrinking. As the Treasury says, we can expect that additional spending power, as from the VAT reduction, will go half into spending and half into saving. What are people to make of the 20 pages in the Pre-Budget Report entitled "Delivering on Environmental Goals"? Surely this means that they should consume less.

Finally, nagging at many people will be the thought that it cannot have been 100 per cent the fault of the banks. If nobody looks to be sure to get us out of this crisis, we had better do as much as we can for ourselves. People are sure to wait to see what happens next. Will the banks strengthen their balance sheets? Indeed, how long will it be before they know the full extent of their losses? Will the moves to encourage spending make a significant difference, or will people and small businesses concentrate on saving? No one knows. We need more time to find out, at a time when we have been left with so little room to manoeuvre in our efforts to determine an outcome.

Come the 2009 Budget, the forecasts in front of us now will demand revision. We will not be going back to where we were, but on to somewhere quite different, which will encompass social as well as economic policy; and we are not at the moment in control of the journey.