I will. My Lords, first, I thank the noble Lord for his measured response and forensic questioning, which I shall do my very best to address in an entirely constructive fashion.
However, I want to set a bit of reality and context to the discussion about the economy. Clearly, there was lots of good news to report and we as a nation, across the parties, should welcome the recovery of the economy that we have seen in recent months. Growth is up: the OBR has just restated that the growth forecast for 2013 is up from 0.6% to 1.4%. For 2014 the forecast has been increased from 1.8% to 2.4%. The deficit is down. As a percentage of GDP in 2010 it was 11%; it will be 6.8% this year and will be at a small surplus in 2018-19.
The noble Lord makes much of the fact that some of the original projections in 2010 envisaged those targets being reached earlier. Of course, the two principal reasons that they were not were, first, that the depth of the crisis in 2008-10 proved to be much, much greater, with over 7% taken out of GDP, as we have just discovered. Secondly, the external circumstances surrounding the economy in the past three years, in particular the fact that the euro region was on the verge of having its currency broken up, put a damper on the economy. To find ourselves in this economic situation today, despite those prevailing winds, is a testimony to the strength of this Government’s economic strategy.
Surprise, surprise, there was no mention of employment, which sits at record levels, with the lowest proportion of workless households for the past 17 years and the creation of 1.4 million new private sector jobs. There were some interesting announcements in the Autumn Statement today, particularly around trying to help young people into those job opportunities: namely, the scrapping of national insurance contributions for under-21s and specific measures for Jobcentre Plus to deal with 16 and 17 year-olds, which are addressing something absolutely critical for the nation.
On inflation, let us talk a little about real wages. Of course, the reason that people are feeling the squeeze is the result of the significant collapse in the economy in 2008-10, from which we are trying to recover. That is the problem; that is why real wages fell sharply. Above-target inflation occurred through 2011-12 because of external influences, principally commodity prices and the oil price.
The good news is that inflation is now slowing down. It was at 2.2% in the previous quarter. The OBR says that we will hit our 2% target by 2016. So we see inflation coming down and earnings recovering.
But earnings do not tell the whole story. Total, real household disposable incomes have increased by 3.9% since the crisis, and that has been supported by government policy—for example, the increase in the personal allowance to £10,000, which will be coming through next year—as well as those strong employment levels.
Of course, the critical thing in this argument is that the only way to improve living standards is to grow the economy. There cannot be a cost-of-living strategy without an economic strategy. We have heard nothing from the Opposition about an economic strategy, which is not surprising because the one they were professing has been demonstrated to be a complete failure. The numbers I have just gone through show very clearly that you can have both a reduction in the deficit and a recovery in economic growth. It was the axiom of the opposition strategy that that just was not possible. The facts have demonstrated that it is.
I absolutely accept that there is still a lot to do. We are not at all complacent about the situation. It was a very deep recession. We are recovering from it effectively but still relatively slowly. Although on an international basis we are one of the strongest performing economies at the moment, there is still an enormous amount to do. Our deficit level is still far too high. Of course, the level of debt created by the accumulation of borrowing in order to finance the deficit leaves us in an exposed and unsustainable position unless we continue to bring it down. That is why the overall message in this Autumn Statement is the commitment to fiscal neutrality, even though the temptation to indulge in giveaways could, at the political level, be strong.
I admire the Chancellor’s discipline. Taking a grip of the long-term risks around pension costs is absolutely the right thing to do, to match pensions to longevity. Putting a constraint on the absolute size of the welfare bill—the part of our spending that was most out of control, among the many out-of-control elements of the previous regime—so that the Chancellor will have to come back to Parliament to be scrutinised if that significant part of our spending gets out of whack, is a very disciplined part of the equation. We will also continue to see a reduction in government spending at the margin—continuing to capture the underspends that we will see this year, which are a function of prudent financial management, but ensuring that year after year we continue with that efficiency drive to ensure that the state delivers its services in a reformed and efficient way.
The noble Lord said that the Chancellor mentioned neither productivity nor exports. With respect, that is not correct. He did refer to productivity and said that it is expected to increase in 2014-15 and 2015-16 as the economy recovers, which is in the OBR independent report, and that this will drive the cost-of-living recovery. He also talked about exports. If one looks at the balance of the recovery, it is consumer-led. Everybody accepts that. It is not surprising that it is consumer-led. Consumption is by far the biggest part of the economy. The OBR’s estimate is that business investment will recover strongly next year and the year after. Of course, everything that the Government are doing on the supply side of the economy is focused on supporting that.
The Chancellor absolutely said that exports were disappointing. The reason they are disappointing is that the markets into which we export, predominantly the European Union and the US, have been relatively weak through the period, which is why our efforts have been so focused on developing export markets in the faster-growing developing economies; hence the Prime Minister’s recent trip to China, for example. We are absolutely in tune with the requirement to improve the net trade balance.
I also draw noble Lords’ attention to the fact that at the heart of living standards recovery is the improvement in productivity that will come with the growth in the economy, but in the mean time this Government have been very attentive to supporting hard-working individuals, whether it is through the £50 improvement to energy bills, the freeze on fuel duty, the married couple’s allowance, free school meals for the up-to-seven year-olds and freezing rail fares in real terms. Those are just some of the examples of the measures.
There have been very targeted efforts to ease the burden on those who are feeling it most, including the most consistent and effective attack on tax avoidance that this country has ever seen, which is yielding considerable savings to the Exchequer that can be deployed against some of these targeted cost-of-living measures.
On the question of free markets, I am proud of the work that we did all together in this House to come up with the right answer on payday loans. I make no apologies for that. It was a really good example of the work that this House can do on a collaborative basis, and a specific example of the general work we are doing on banking reform.
It is hard to know where to start on the 2007-08 banking crisis. It was the regulatory regime that was the great revolutionary change of the previous Government; taking control away from the Bank of England, which meant that the regulatory system was quite unable to cope with what was happening. This of course led us, with the Financial Services (Banking Reform) Bill, to completely change the regulatory framework.