My Lords, I am very grateful that I am following the good and noble Lord, Lord Giddens. The last time that he and I spoke in a debate he made some very kind remarks following my maiden speech. If I had spoken before him today he might have felt the need to rectify the remarks that he made on that occasion, although I hope not. I shall not follow him in his analysis of the governor’s speech, but I join him in complimenting the right reverend Prelate on his maiden speech today. The right reverend Prelate’s comments on the housing market—I shall say something about it as well—will bring comfort to many. It is very reassuring to know that he and his colleagues do so much good work not only in the housing sphere but in so many other spheres in this country. I am sure that it will be rectified and that we will benefit in future debates from the experience he has had.
I was in the other place for nearly 14 years and have spent 25 years in various businesses primarily in the north of England but in the north-east in particular. I have frequently thought that so many of those involved in politics—particularly in the other place, if I may be forgiven for saying so—considerably underestimate the importance of confidence in the business world and in business decisions. Therefore this very delicate flower needs to be nurtured and sustained. It is a very delicate flower and a very sensitive issue.
Those of us with long memories can think of other occasions when confidence was shattered and damage done as a result of events spiralling out of control. I think of the Millom Co-op in Cumbria going bust in 1969, which led to a run on co-operative societies throughout the country. I was very involved in the co-operative movement at the time. The situation led to something happening which people do not recognise today, when the Co-operative Building Society changed its name to the Nationwide Building Society. It had a profound impact on businesses. I have often thought of that occasion during the recent discussions about the Co-operative Group and the difficulties that the Co-operative Bank has been facing.
We also had the secondary banking crisis in 1974. I was working in the City at the time. It was a major banking crisis. The Bank of England launched a lifeboat to save many banks but it allowed some of them to go to the wall. That crisis had the potential to cause a run on the system of the sort that we have seen in more recent years. Then, of course, we saw Northern Rock all of a sudden undermining confidence and the start of a run. Before that situation could be controlled it almost spiralled out of control.
It was of fundamental importance for this Government to inspire confidence in what they were doing and to gain the market’s confidence. I would maintain from these Benches that my colleagues in government, not least the Chief Secretary to the Treasury, who has been primarily responsible for some of these matters, and the Deputy Prime Minister have made a major impact in maintaining the confidence of the markets. The Chancellor and the Government have made a difficult judgment which has had to be carried through and sustained over time, but it has led to that confidence. Apart from any other benefit, it has saved billions of pounds in interest on the debt which the Government have to sell on the markets. It has been crucial to get that judgment right. When one is in the sort of situation that the Government were in it is better to err on the side of caution rather than risk losing the confidence of the markets.
The Office of Budget Responsibility’s March outlook report stated that the Government remained on course to meet the fiscal mandate a year early in 2017-18. The underlying deficit in public sector net borrowing peaked at 11% of GDP in 2009-10, but the underlying deficit has fallen in cash terms and as a percentage of GDP for every year of this Parliament. The OBR reported that the deficit had fallen by more than a third by the end of last year. The deficit is forecast to have halved in the coming year from its post-crisis peak to reach 5.5% of GDP—£95.5 billion—which will be the first time in six years that annual public sector net borrowing will be below £100 billion.
According to the International Monetary Fund, between 2010 and 2013 the UK has reduced its structural deficit more than any other G7 country. If there is any question in anybody’s mind as to why the markets have confidence, one need only look at what the Government have achieved. This party on these Benches has paid a heavy political price for that austerity programme, but it was absolutely in the national interest that it should be carried through and sustained. I am proud to have been associated with what the Government have done on that front, which has led to the start of growth in the economy that we are seeing now.
The objective of long-term sustainable balanced recovery is still there. It is being sustained also by direct action by many departments, in particular Vince Cable’s department, with Vince Cable himself carrying through an industrial strategy that has underpinned the monetary policy and fiscal policy that the Government have pursued.
There has been support for public sector investment with green investment, the green bank, the business bank and the industrial strategy itself in many respects, with the training, innovation and technology strategy and the catapults. I could go through the whole range of things that that department and others have carried through, not least of which has been the work of the regional growth fund.
I was deputy chairman of the regional growth fund with the noble Lord, Lord Heseltine. That has had an enormous impact in regions such as the north-east in sustaining, in particular, smaller enterprises and getting investment in manufacturing going in a way that everyone in the country would like to see. The regional growth fund has been criticised for not getting money into the pockets of the businesses that have been awarded the money. It should be understood that this is not like other grant-giving bodies. If firms bid for grants, nothing is given until all the due diligence has been done and the contracts agreed. However the regional growth fund is a challenge fund where a conditional offer is made. The matter then has to go to due diligence and negotiation of the contract before the grants are given, which can take a very long time. Sometimes during the course of that negotiation and the due diligence being carried out it will be decided not to give the grant. That is the nature of a challenge fund of the regional growth fund-type. It is doing a magnificent job in the regions of this country and makes a very considerable impact, which has led to some of the jobs that have been created.
However, over the next five years this Government and the new one will have to make further judgments on public spending as the time to do so arises. We need to avoid getting involved, certainly on these Benches, in any “cold shower” economics—as in “Cold showers are good for you”. I refer to the masochists, who think that cutting is a virtue in itself. There is a balanced judgment to be made in sustaining the confidence of the markets, to which I referred, while at the same time ensuring that public services are protected and the weak and vulnerable are taken care of. That is a judgment that successive Governments will have to take—and there are going to be some very difficult judgments. If the party opposite ends up in office after the next general election, it will have to make some very difficult decisions on what to do about ring-fencing education and health—as will we, if we are in the same position as we are in at the moment. Anyone who looks at the public expenditure forecasts will see that, if they continue to be ring-fenced, they will be a massive proportion of public expenditure, which I believe is unsustainable. If that is the case, there are going to be some very big and difficult political decisions to be taken on what to do about education and health. I flag that up as something that a Government will have to do something about in the fairly near future.
Secondly, there is no national housing market, and some very misleading debate takes place on that issue. It is grossly misleading to talk about the average house price without taking into account all the regional differences in the country. According to Economic Research Council figures, across England and Wales house prices have increased by 6.7% over the past year, but remain about £10,000 below their peak price in late 2007. However—and I quote from my own experience—in the north-east, prices have increased by only 2.9% over the past year and actually fell in April, compared to March. Compared to their peak price, homes in the north-east are still £30,000 cheaper than they were in 2007. However, differences between the north-east and the national average are small when compared with the London market, where there has been an annual increase of 17% and prices are now £90,000 higher than at the previous peak of 2007.
I plead with those who want to start taking national policy decisions that will affect the markets outside London not to think that taking steps on the Help to Buy scheme is going to affect anything in central London. Frankly, I am not sure that there is much that the Government can do, unless it is a very radical policy, to affect the central London housing market anyway. How do you control overseas investors and the cash that is going in? You can control the mortgages and sustain the banking system, but you would find it very difficult to stop the money coming into the London housing market from the places from which it is coming in at the moment. That is one plea that I make. In future, these decisions will be extremely difficult if we are to sustain the confidence to which I referred.
I am delighted with how the gracious Speech has carried forward the economic policy measures of the past four years. I very much like the programme of legislation that is outlined in it, and very much commend it to the House.