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Motion to Take Note (Continued)

Part of Comprehensive Spending Review – in the House of Lords at 8:44 pm on 1st November 2010.

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Photo of Lord Stewartby Lord Stewartby Conservative 8:44 pm, 1st November 2010

My Lords, I nearly forgot to get up, I was so interested in what the noble Lord, Lord Clark, had to say. It has been a very vigorous but extremely interesting debate. I have not prepared a speech of any length, which is a good thing, because much of it has already been said by my noble friends Lord Lamont, Lord Tugendhat and Lord Newby, so I just want to pick out some of the main themes of my rather attenuated speech.

There can be no doubt that the figures of deficit and interest charges have been at a dreadfully dangerous level. Interest is now at over £40 billion a year, which is much larger than the whole of the schools budget and the whole of the Ministry of Defence's expenditure. One cannot run the economics of a country on the basis that it can hold those levels of debt. The same is true of the scale of the structural deficit, which is over £100 billion, according to the Budget and CSR papers, so clearly tough measures were going to be necessary. There is no doubt that in a situation like this, making changes early is always going to be the right course, because if you leave problems to fester, they normally get worse in the process. I think the Chancellor has done right to see that immediate action was taken, and the CSR now sets out a way ahead after a very bruising period. I am afraid I cannot follow the noble Lords, Lord Myners and Lord Peston, in their defence of the state of the British economy that they bequeathed to their successors, but I thought it was a very bold attempt.

I cast my mind back to nearly 30 years ago and the 1981 Budget, because I think it contains some interesting matters that are relevant in any period of tight budgetary squeeze. I used to carry the then Chancellor's bags at that time, so I had to field a lot of representations from individual Back-Benchers who were not happy about the composition of the 1981 Budget, to put it mildly. Because the Chancellor was always so busy, I got fielded to talk to these people and it has made an indelible impression on me because that was a classic case of tax increases in a recession. It is a lesson which we would do well to remember today. One of the great moments in that period was a letter written to the Times by 364 academic economists, who said:

"Present policies will deepen the depression, erode the industrial base of our economy, and threaten its social and political stability".

Well, what happened? From the very moment they signed the letter, the economy turned and began a course of recovery. It made me feel that, although sometimes latent, there was a sort of energy in the British economy if it was left to get on with its work and not hindered by too many regulations or unattractive fiscal situations.

I have been concerned in recent weeks about the supposed "double-dip" recession that may be around the corner. I would be the first to say that there are many uncertainties in the economic world at the moment, not only in this country but abroad. The situation in many countries, particularly in Asia and the Far East, is much more serious, but you do not see much comment about it in this country. When I ask people what the case for the supposed double dip is, I do not get an answer. There has been much talk, but no explanation. People just toss in the double dip as if it was some shadowy possible event hanging over us.

This brings me back to my original point; there is a tendency to be pessimistic about our economic performance and potential. Just as the 364 economists gave an extremely pessimistic assessment of what the 1981 Budget would do to people, so there has been a pessimistic slant in the response to the CSR and the public reaction to it. Of course, two or three quarters of better GDP do not guarantee a strong recovery, but they are more likely to point to an improvement than a deterioration, so I was not surprised that the figures were a bit better than people had expected.

When we are asked where growth is coming from, I would give greater emphasis to something that has hardly been mentioned: investment by the corporate sector. The banks may not be lending very much because they cannot find decent borrowers. One of the reasons for that is that many of the people who were borrowers have strength in their own balance sheets to the point where the corporate sector has far more resources than are needed for the level of activity that is taking place. It could afford to do a lot more.

It is important in a recovery that companies should have confidence that there is stability and that there are further improvements to look forward to. There has been a reduction in corporate taxes and other measures to help businesses. The latest output figures are encouraging. There are other straws in the wind. Those in business whom I talk to or meet say that there are far more examples of companies looking for opportunities to do things, having sat on their hands for quite a long time. The noble Lord, Lord Knight, spoke about investment. That could be one of the stronger elements of recovery.

However, there is still a long way to go. The Government must hold their nerve in implementing the plans set out in the CSR in the face of the criticism and challenges that will certainly follow. I believe that they have the commitment and determination to do so and that the double-dippers may be disappointed. I have moved in the past few months from being moderately pessimistic to being moderately optimistic. I just hope that it will work out that way.