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Economy — Question

– in the House of Lords at 2:52 pm on 21st April 2009.

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Photo of The Earl of Caithness The Earl of Caithness Conservative 2:52 pm, 21st April 2009

To ask Her Majesty's Government what assessment they have made of the extent to which Government policy has contributed to the current economic situation.

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury

My Lords, the Chancellor of the Exchequer will make a Statement on the 2009 Budget at 12.30 pm tomorrow. As normal, the Budget will include forecasts for the UK and world economies, incorporating all relevant factors.

Photo of The Earl of Caithness The Earl of Caithness Conservative

My Lords, given the complete mess that the Treasury made of last year's forecasts—it expected a budget deficit of 2 per cent of GDP when it is more likely to be 10 per cent, and expected economic growth of at least 2.5 per cent when in fact it is likely to be minus 3.5 per cent—would the Minister agree with the OECD that half of our problems were structural and related to government policy and nothing to do with the worldwide recession? What are the Government going to do about that?

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury

My Lords, my right honourable friend the Chancellor of the Exchequer will give a detailed analysis of the situation in the world and domestic economies when he makes his Budget presentation tomorrow. We are in the midst of a truly extraordinary global recession. For the first time in 60 years, the IMF has forecast a net reduction in added value for global economic activity. This problem is not confined to one country; it is a global problem. That is why the Prime Minister, in his chairmanship of the G20, led a global solution.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

My Lords, on the basis that the noble Earl is looking for a statistical answer to his Question, would my noble friend not agree that a more reasonable estimate of blame would be 10 per cent for Her Majesty's Government and 90 per cent for national and multinational banks and financial institutions?

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury

My Lords, there is a spurious accuracy to my noble friend's data. However, he has put his finger on the fact that the problem that we have in the global economy at the moment is inextricably linked to the contraction of credit as a consequence of the difficulties that the world's major banks have found themselves in. That is why this problem is not limited to the United Kingdom, but is global. Restoring the banks' ability to lend through recapitalisation, managing their damaged assets, strengthening their funding and making liquidity available is at the heart of the programme that not only have we followed in this country but has been followed by other countries which have seen the wisdom of the action that we have taken.

Photo of Lord Lawson of Blaby Lord Lawson of Blaby Conservative

My Lords, will the Minister explain to simple-minded folk like me how it is that when the British economy was expanding, at a time when the whole world economy was expanding, that was entirely to do with the success of the British Government; but now that the British economy is contracting rather faster than most of the world in a contracting world economy, it is nothing to do with us but is entirely to do with the world?

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury

My Lords, the noble Lord, Lord Lawson, knows that I am new to the world of politics, so it is perhaps harder for me to find an easy answer to that question than it would be for many others who have come to this House from the other place. But let us look at the facts. Over the 10 years to 1996, GDP per capita in the UK was the lowest in the G7. Over the following 10 years, it was the second highest in the G7. Since 1997, which was an important year, as no doubt the noble Lord remembers, UK real GDP per capita has increased by more than any other G7 economy. That was a tribute to the masterful management of the economy by my right honourable friend who was the Chancellor in those days, who is now our Prime Minister.

Photo of Lord Newby Lord Newby Spokesperson for the Treasury

My Lords, I am sure that everyone in the House accepts that there is a global recession. Does the Minister accept that a number of contributory factors are home-grown, such as the lax regulation of banks and building societies over a number of years, the ratcheting up of budget deficits during the boom and the Government extolling ever higher and excessive pay levels for top corporate executives? Does he further accept that if the Government were to accept even a small proportion of the responsibility for some of these things, they might be in a better position to argue convincingly for recovery?

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury

My Lords, the noble Lord, Lord Newby, identifies a number of contributory factors to the problems that the global economy currently faces. We can take some encouragement from the fact that our debt as a percentage of GDP is the second lowest in the G7 countries, which means that we are in a strong position to be able to support the fiscal stimulus that we are now applying to support British business, British pensioners and British families in coping with a global problem.

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury

My Lords, we are sorry to see that the noble Lord, Lord Desai, is not in his place today. Does the Minister agree with his noble friend that the warnings of the IMF that the UK economy was the least well prepared are now ringing true and that the Prime Minister's reputation for sound economics was destroyed even before the recession?

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury

My Lords, I note that my noble friend Lord Desai is publishing a novel. No doubt he was reaching out for any opportunity for publicity and he could not possibly let slip the chance to write an article for the Evening Standard. I read that article with interest. The noble Lord, Lord Desai, clearly has considerable art and skill in the act of fiction.

Photo of Lord Hamilton of Epsom Lord Hamilton of Epsom Conservative

My Lords, does the Minister accept that one of the less masterful elements of managing the economy has been the astronomical growth in personal borrowing? Have the Government learnt any lessons from this, and is there anything that they would have done differently, with the advantage of hindsight?

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury

My Lords, the report by the noble Lord, Lord Turner, referred to the increase in leverage in this economy and elsewhere. That has been picked up by the G20 meeting and by the work of the Financial Stability Forum, which referred to macroprudential requirements to reduce the growth in debt and leverage in economies going forward. That action is now receiving a great deal of attention, and perhaps it should have received more attention in the past than it did.

Photo of Lord Lang of Monkton Lord Lang of Monkton Conservative

My Lords, as the last Chancellor of the Exchequer got his borrowing forecasts wrong by ever widening margins in almost every year that he held that office, and as his successor got his wrong by even wider margins in the Pre-Budget Report and his first Budget, why should we believe a word that either of them say tomorrow about future forecasts?

Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury

My Lords, on the extent to which the previous Chancellor of the Exchequer got his borrowing forecasts wrong, it was because the economy was so buoyant that he was able to borrow more. His borrowings as a percentage of GDP were very close to forecast, and I am sure that the skills of the Treasury will continue to be available to his successor, my right honourable friend the Chancellor. We will see his forecasts tomorrow, and receive them with the support and encouragement needed to provide the confidence that is essential to take us out of this global recession toward a prosperous future.