My Lords, I congratulate my noble friend Lady Wilcox on her speech and on her appointment. I am sorry that she is not in her place. I assume that she has gone back to the department to make sure that Mr Vince Cable stays on the straight and narrow. We are relying on her to do that.
Looking back over the period of the Labour Government, one thing is absolutely clear; namely, that Mr Gordon Brown inherited the best economic situation ever inherited by a Chancellor of the Exchequer. As the former Prime Minister, he leaves behind the worst economic situation that we have probably ever faced. It is therefore crucial that we should proceed on cutting the deficit as soon as possible.
In that context, it is important to cut out wasteful expenditure. At a time when the Prime Minister is saying that we need to cut the size of the House of Commons to save cash, it seems to me that to move towards an elected and inevitably paid House of Lords is going in exactly the wrong direction. All that we would get in exchange would be a second-class House, which would not be as expert or as representative in terms of gender and race, and which would be whipped more and less able to defend the situation if the Government were to take excessive measures on human rights or whatever. I hope that we will avoid that increase in expenditure. It is not true, as Mr Clegg has said, that it would increase democracy. We already have 100 per cent democracy embodied in the House of Commons. Splitting it between the two Houses would reduce its effectiveness rather than increase it.
On taxation, I was very worried a few weeks ago when the IMF announced that the British indirect taxation system should be changed and that the zero rating on the most essential items for households should be eliminated and that they should be taxed. It is doubtful whether the IMF has any real expertise in this. Many years ago, I was involved in formulating the original VAT structure and had the difficult task of steering the whole legislation through the House of Commons. We spent an immense amount of time making sure that the structure of the tax was right. Over a period of two and a half years we published draft clauses, had pre-legislative consultation and had elaborate debates in the House of Commons. That produced the tax we now have. Whatever the Chancellor feels he has to do on the rate of VAT-when I was dealing with it it was at 10 per cent, but it may yet go to 20 per cent-he should not change the structure, which I believe is the best that we could have.
It is widely anticipated that capital gains tax will go up. If we are not to have a tax, because of inflationary gains, which is really a tax on wealth rather than a tax on a real capital gain, it is crucial that we should have either indexation or a tapering system, which existed under the previous arrangement before the Labour Government cut the rate. I am very worried that a number of people, particularly pensioners, may be taking mistaken decisions because they think that their gains will be taxed with no relief, and that then they will find out after the Budget that it was a mistake. I hope that the Treasury will indicate that there will be tapering or index relief so that people do not take mistaken decisions.
It would be very pleasant to have a long discussion on monetary policy, but I am running out time. As I have said to the noble Lord, Lord Myners, on many occasions when our positions were reversed, it is crucial that we should have a clear policy on funding. It is extraordinary, but not generally understood, that the policy of quantitative easing has not led to any significant increase in the money supply. I am glad that I, as usual, have the assent of the noble Lord, Lord Myners. It would be very sad to lose him from the Front Bench. The Labour Government were immensely fortunate to have him as an expert during the banking crisis. Goodness knows what would have happened if he had not been there. We need a clear establishment of a situation where the funding policy is known. My very strong view is that the Debt Management Office should be returned to the Bank of England. We would then get a coherent attitude on monetary policy, which we have not had because the Debt Management Office has been frustrating the actions of the Bank of England on quantitative easing. If we do not have a steady growth in the money supply, we will not get the growth in the economy, which is essential. Monetary policy has to be linked with the fiscal policy and the policy of cuts on expenditure and increases in taxation.