My Lords, I, too, thank the noble Lord, Lord Lawson, for introducing this debate and add my congratulations to those of others to the two maiden speakers who made such notable debuts in this debate.
I begin from a position where I feel much happier with the Government's language on the economy now than when we had our last big economic debate in November on the comprehensive spending review. I am delighted by the commitment to growth and by the measures that have been launched to give that commitment substance: the tax changes, the reforms to the planning system, the scrapping of regulations and so forth. This is a welcome change from the emphasis that was too much the case last year on cuts, cutting back and looking at everything through the prism of cuts. I warned then that I feared that the Government had perhaps swung too far towards austerity and that that would prejudice the health of the economy over the period of the Parliament. I pointed out that ultimately over the period of the Parliament, this Government will be judged by the criteria of growth and employment. I very much want them to be judged favourably by those two criteria and to have earned a favourable judgment. I do not want them to be found wanting.
I fear that events since the debate we had in November have gone some way to bear out the fears that I expressed at that time. We have had the fourth quarter fall in GDP and have the very high level of unemployment, which at 8 per cent is the highest level for 17 years and, as my noble friend Lord Griffiths pointed out, is at a particularly severe level for young people, with very dramatic and detrimental consequences for a great many individuals in that age group.
Against that, I argued that the Government's bravery in grasping the deficit nettle has enabled them to get ahead of the markets. No one now doubts the seriousness of the Government's commitment to cutting the deficit or their strength of purpose. They have therefore succeeded in gaining some room for manoeuvre, and I believe that they should take advantage of it. They should use it not just for the reasons that I have already given, substantial and powerful though they are, but because on top of them we now face far greater risks to the world economy than was the case at the end of last year, or at least when last we debated these matters. We have the ongoing events in the Middle East and North Africa, we have Japan and we have the continuing intractable problems in the eurozone, exemplified in today's papers by the news of the fall of the Portuguese Government.
In the autumn, the Governor of the Bank of England spoke of 500,000 jobs being created in our export industries. I wonder whether he would be willing to repeat that suggestion now. I think that the outlook for our exports and our major export markets is a great deal less good than it was then. All these things have occurred before the spending cuts and their consequential job losses in the private as well as in the public sector really begin to bite. They are nearly all still to come. At the same time, inflation is not just more than twice the target figure, it is continuing to accelerate.
This is a very dangerous and explosive mix: rising unemployment, rising prices and perhaps in the not-too-distant future rising mortgages, although I hope the Bank of England will heed the dangers of increasing interest rates in the present climate. In plain English, what this means is that a great many people in our country are going to suffer a lot of pain and anguish, and that is a prospect which we must take into account in assessing what the Government should be doing at present. I believe that economic policy is a matter of balance. A Government should have a clear direction and clear objectives, and I am delighted that this Government should have both of those things. But within that context, the priorities and the pace need to be varied from time to time to take account of changing circumstances. Failure to vary the pace and to vary to some extent the course and-we have seen this in the past, and some of us in this House go back to the Heath Government- failure to heed the warning signals can lead to smash ups and that dreaded term, the U-turn.
That is something that I very much hope that this Government will avoid and why I believe they should take advantage of the room for manoeuvre which they have earned in order to shift the balance somewhat back towards a modification of the cuts programme and an increase in capital spending. They should think again about both those factors. We have recently heard a great deal about the OECD. The Government should also take heed of the OECD's warning in its recent report that the large cuts in public expenditure being planned are a risk to long-term growth. I hope they will take account of these matters and that they will bear in mind the fact that it is not only through cuts that deficits are reduced. With more investment, there would be more employment. With more employment, there would be more consumer spending, and that in turn would lead to higher tax revenues.