My Lords, I strongly support the case for a fiscal stimulus; that goes without saying. I am bound to say that I would not have used £12.5 billion of the £20 billion-odd pounds on a 2.5 per cent VAT cut. I have a long list of other things that I would have liked to have done, but I will not spell them out at this hour. Having spent so long, sadly, in my position as Chief Secretary having to cut public expenditure, I would have loved to have had the opportunity to decide how to spend £12.5 billion differently from the way that the Government chose, on VAT.
However, the real question is whether the current fiscal stimulus will work. On that, I shall quote my favourite economist. With respect to my noble friend Lord Peston, I am not referring to him or to his son. I refer to Anatole Kaletsky, one of the few writers in the Times who I can agree with fairly regularly. He is worth quoting. He said:
"JK Galbraith, the author of ... a book that Mervyn King ... has been recommending to all his visitors ... said that there are two kinds of economists: those who don't know what will happen and those who don't know they don't know".
I don't know, and I know that I don't know. What everyone is doing these days is guessing—apart from the media, which is simply exaggerating any guesses. The plain fact is that the Chancellor had to make a forecast in his Pre-Budget Report. In his case, it is also a guess, but it is a Treasury guess. I cannot help thinking that his guess was just a little optimistic. On his forecast of figures, for this year—2008—it is not a guess, because we know pretty well what it is going to be. We will have two quarters of downturn, and even then the forecast is that we will have had growth this year of 0.75 per cent. The Treasury's guess for 2009 is that there will be a downturn of 0.75 per cent to 1.25 per cent. In 2010, the guess is that there will be growth of 1.5 per cent to 2 per cent. I hope that the guesses are right, but I suspect that that guesswork could well be wrong.
Even if it is wrong—even if it is 1 per cent or 2 per cent worse—my friends are surprised when I tell them that in practice we have had steady growth every single year of the past 16 years. If we have a downturn of even more than the Treasury has guessed, it would not be the catastrophe or disaster that the media would have us believe. Most people do not hear that; they only read the media headlines, which is 90 per cent the pops—even the Times, which is even worse at times on its guesswork and its exaggerated headlines.
Of course, whichever way we take the guesses, the situation is serious. It is particularly serious for those who are going to be unemployed, or for those businesses that are going to go bust in the next year. It will be very serious indeed. Apart from the fiscal stimulus, with which I strongly agree, bank lending is, if anything, even more important in current circumstances. I declare an interest as chairman of a small business and a major investor in it. My company does not need their money, as it happens. We are in the recycling industry, which is rather more growth-conscious than most. That is beside the point. Industry, and certainly small businesses, needs bank lending, and it is not clear to me how policies such as a statutory code will define where the lending should go. I had thought at one time, like the Opposition apparently are now proposing, that a guarantee to banks would be helpful, but you still have to say where you lend, and I do not see how a government guarantee of selective investing is going to be possible.
My main point is how on earth are the government directors who will be appointed to banks going to tell the bank boards what they are going to do? Presumably, they will be non-executive directors. The current non-executive directors, on something like £200,000 a year, have hardly been doing the job that a non-executive director should be doing with the banks. I doubt if they even knew or asked questions about derivatives or off-balance-sheet figures. What are we going to tell the banks' new government directors to do as a strategy to help more lending? When they finish that, we are going to have very high borrowing, whether the fiscal stimulus is used or not. The idea that no fiscal stimulus would result in lower borrowing is a nonsense. We all know that, because the recession would go on longer and deeper, more businesses would fail and more personal suffering would take place. There must be a repayment of the borrowing, and the Chancellor had to set it out. In fairness, he spread it over a number of years.
I make one other suggestion to him from my experience as Chief Secretary to the Treasury of five years where, as I said, I sadly had to spend most of my time cutting public expenditure, which was not what I came into politics to do. The Government tell us that they have found another £5 billion of efficiency saving. I say to the Government that if departments have accepted £5 billion, there is room for a lot more. I hope that they will not just settle at £5 billion. I can tell them some ways of doing that, but perhaps not now.
In conclusion, if there is a better alternative than what the Government are doing, I would like to hear it. I agree with what the noble Lord, Lord Skidelsky, said earlier—that the 20-odd billion pounds of fiscal stimulus may well not be enough. I hope that the Government can give me an assurance that in due course, they will, if necessary, find sources of increased capital expenditure in the public sector to boost borrowing even more, because if that is the only way of reducing suffering in the business sector and the personal sector, it would be well worth doing.