Economy — Debate

Part of the debate – in the House of Lords at 11:37 am on 7th May 2009.

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Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative 11:37 am, 7th May 2009

My Lords, it was a Conservative Government who put right the disgrace that Governments were unable to govern in this country because the trade unions were out of control, and I note that the legislation that was brought in by my right honourable friends has never been reversed by a subsequent Labour Government for it was in the interests of our economy.

I return to today. This Government have doubled public spending from £320 billion to £623 billion. Where did all the money go? The services are certainly not twice as good. There is waste everywhere. Further, we have seen the Government embark on a spending binge from the proceeds of an artificial boom created by the Government and the revenues from stamp duty and City bonuses. The revenue has gone now. What we are witnessing is a Government filling the black hole with borrowed money. The interest that will need to be paid on that money will soon be more than the entire education and defence budgets. That is before the inevitable increase in rates. The Government are running a bureaucracy to give tax credits to people paid more than £60,000 per year. It is no wonder that the Treasury Select Committee—that all-party committee—was yesterday forced to warn of the lack of restraint and control of public expenditure.

What do we have to show for all this public expenditure? There are now more than 5 million people on out-of-work benefits. The number of youngsters not in education, employment or training is higher than when Labour took office. Can you believe that? In 2000, it was one in eight; it is now one in seven. People on low incomes are paying effective marginal rates of tax of 90 per cent. The private equity millionaires, thanks to the changes that Gordon Brown made, are paying tax at less than 18 per cent. Borrowing is out of control and Treasury forecasts have the credibility of Billy Bunter's postal order.

In November, the Chancellor said that the economy would shrink by 1.5 per cent in 2009. Now he says that it will shrink by 3.5 per cent. The IMF says that it will shrink by 4.1 per cent. The Treasury Select Committee, to which I am extremely grateful this morning, has pointed out:

"Whilst it is possible that the Government will meet its growth forecasts, on the available evidence, this is an optimistic assumption".

And so say all of us. The Government are now planning to borrow over the next five years £269 billion more than they were planning to borrow only six months ago. They are depending on being able to sell more than £900 billion of government bonds. Who is going to buy them? Sterling has fallen out of bed thanks to this Government's incompetence. They will have doubled the national debt to £1.4 trillion, and that is before we take account of all the things that they have fiddled off the balance sheet. There is an urgent need for a plan to show how this debt will be paid back and how the public finances will be brought under control—another recommendation from the all-party Treasury Select Committee with which I very much agree.

Next year's borrowing will be the highest since the Second World War. The yield curve for sterling—one of the steepest—indicates that that borrowing will not be cheap. Borrowing is just tax deferred. In this case, however, the scale of it is such that our children will pay the tax, or, in the case of your Lordships' House, our grandchildren.

So there we have it. We have been reduced to stealing from our children by the Government. Gordon Brown has skipped on to the next generation. He started by stealing from the pensioners with his changes on the advance corporation tax for the pension funds, and now he is landing the children with the costs of his incompetence.

The Budget is the most remarkable that I have ever seen, and certainly the most dishonest. The Government say in the Budget that they have identified savings and waste. Well, if they have identified savings and waste, why are they leaving it until after the general election to deal with them? If there is waste there, it should be eliminated now. Why is it being left until after the election? They make incredible predictions about how the economy will suddenly burst into life in the year after the general election. They are now promising to take us back from bust to boom in two years. "Spend, spend, spend" before the election, but after the election £9 billion will be cut from planned expenditure with capital cuts of £11 billion.

From 2011, on the Government's own numbers, public spending grows by 0.7 per cent. I am sorry that he is not in his place, but the noble Lord, Lord Mandelson, with a Budget that proposes reducing the growth in public expenditure to 0.7 per cent, is going around the studios attacking the Conservatives for not saying where the cuts will be made in public services. It is for him to say where the cuts, which will be inevitable under the Government's own plans, will be made. We need a grown-up discussion, not Peter in never-neverland, and not everything on the never-never. We need to know how we are going to plan for our future public services and get our expenditure into balance.

Gordon Brown has certainly had to deal with a global crisis, but the Prime Minister played a key role in the origins of the banking crisis. At its heart is a regulatory failure and a failure of monetary policy. He sat there and watched as house prices went up by 25 per cent a year and did nothing except, of course, to remove housing from the measure of inflation, which helped to keep interest rates down even lower. The Governor of the Bank of England told the Economic Affairs Committee that he thought that that was a mistake. What a mistake it has proved to be. The Government boasted that they had ended boom and bust, and they encouraged the debt culture as he led by example. They wrecked supervision of the banking system by removing the Bank of England from that role.

Before somebody says that it is all very well to say that with hindsight, I came across a quote from my former colleague, the right honourable Peter Lilley, speaking in the debate on the Bank of England Act:

"With the removal of banking control to the Financial Services Authority ... it is difficult to see how ... the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse".

He went on to say:

"The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all".

Further, he said,

"the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day".—[Hansard, Commons, 11/11/97; cols. 731-32.]

There they were. They were warned by the Opposition what the consequences would be. No one listened and the result is that we must now all pay a price. The Prime Minister took away the safety barriers without consultation. He may vilify and blame the bankers now but he was all over them once. He gave James Crosby, the deputy chairman of the FSA, a knighthood. This is the chief executive of HBOS, who presided over a loan book which was 40 per cent housing and took equity stakes in the companies to which he lent money. He asked the same man to report on the housing crisis. Mr Fred Goodwin was invited to advise on task forces on credit unions and the New Deal. He was in and out of No. 10 and knighted for his services to banking. Mr Greenspan, who was responsible for cutting rates and for the monetary expansion at the heart of the global problem, was showered with honours and made a senior adviser to the Prime Minister.

If the Government are unable to pay their debts, they seem incapable of collecting them either. HMRC alone is owed a staggering £17.3 billion in outstanding tax, interest and penalties as of March last year and the number of debtors has increased from 13 million to 15.8 million. That is an increase of 22 per cent. The Government have also made £4.2 billion—yes, billion—worth of overpayments in benefits and tax credits. Just think of the loss of revenue but, more importantly, the misery that is causing as people are asked to pay it back. Last year, they wrote off £5.6 billion—more than the proceeds from raising the top rate of tax—in unpaid tax in 2007-08 alone.

We need an election now to deal with these problems instead of this Government who are playing for time and hoping, like Mr Micawber, that something will turn up. Today is 7 May. I know that the noble Lord, Lord West—I am sorry that he is not present—likes a flutter. I am willing to bet that exactly a year from now it will fall to David Cameron to sort out this mess left by a Labour Government. The country needs to understand the scale of the challenges he faces. Given the chance, I have no doubt that he will meet them. It is what Conservative Governments are for. I beg to move for Papers.