My Lords, this is a Budget of our times, overshadowed by the interminable uncertainty of Brexit, which hangs over the economy like a dark cloud. Understandably, it is a Budget designed to offend no one and to avoid at all costs controversial votes in Parliament. It is hard to object to the measures; indeed, some of them are very sensible. I welcome the increase in resources for the National Health Service, the focus on public investment—in particular, in the roads programme—funding for the pensions dashboard and the careful and considered way in which the Government are going about preparing a digital services tax.
In passing, I should say that I agree with my noble friend, or rather the noble Lord, Lord Wakeham—he should be a friend; I want to make that clear—who made a good point about stamp duty. Stamp duty is an extraordinarily inefficient tax. It taxes mobility and transactions. This country should have followed the fine example of Ireland, which used the crisis to reduce stamp duty rates and introduce a sensible, self-assessed property tax.
It is the macroeconomic stance that I want to focus on today. We are now nine years into a recovery. The economy is at full employment. Last year was the first year since 2001 when public debt fell as a percentage of national income. Even this year, public debt will be a mere 1.5% of GDP below its peak. By way of comparison, by this point in the recovery after the 1991 recession, public debt was 8.6 percentage points below its peak.
The one thing that I learnt from 30 years at the Treasury is that, when the forecasts give you a fiscal windfall, it is imprudent to spend all of it. As Robert Chote, the chairman of the Office for Budgetary Responsibility, has said,
“what the sofa gives, the sofa can easily take away”.
But spending the windfall is what the Government have chosen to do. Next year, the Chancellor will spend some £11 billion of the £12 billion windfall. By 2022-23, he plans to spend £18.8 billion of a windfall of £18.2 billion. I question this decision for two reasons, the first structural and the second cyclical.
It is over the next decade when the long-predicted demographic time bomb finally arrives. Sound fiscal principles suggest that Britain should have followed Germany’s example and reduced the national debt now the better for future generations to shoulder the burden when spending pressures increase. To use the phrase much beloved by a previous Prime Minister, we should be fixing the roof while the sun is shining. If there is an economic downturn, the probability of which increases with each year of growth, the Government will need all the firepower available to support economic activity. If the debt level is still more than 80% and rising, their room for manoeuvre will be pitifully small.
Looking at the numbers, I see two things which make the public finances even more vulnerable. First, the revenue forecast looks difficult to sustain. This year, taxes and national insurance are projected to be 34.6% of national income. That is the highest tax take since 1969-70. I congratulate the Chancellor and Her Majesty’s Revenue and Customs on getting so much revenue in, but history suggests that such a high tax take will be difficult to sustain.
Secondly, the spending settlement for the NHS looks like the bare minimum necessary to keep the service on an even keel. The Government have yet to provide for long-term care for the medium term. They have provided extra resources for the Ministry of Defence only over this year and next. They have heralded the end of austerity, but if they are to continue to protect health, schools, the triple lock and overseas aid while providing more resources for the MoD, there is not enough in the spending projections to cover the programmes which are really coming under pressure: the police, the Prison Service and local services. At some point, the NHS will be back for more; it always is.
I encourage the Government to prepare for such an event by initiating a debate on the balance of spending and taxation in an ageing society. In my view, the triple lock uprating formula for the basic state pension is unsustainable and the case for a hypothecated tax for health and social care remains compelling. But it needs to be one which everybody pays. The elderly have had a very good run over the last 20 years. I should declare an interest: I am due to receive my free bus pass in eight months’ time. It is time for us older people to share more of the burden.
Another worry I have about the macroeconomic stance is the Bank of England’s ultra-loose monetary policy. Quantitative easing worked initially, but it is like heroin: to have any impact, the Bank needs to inject more and more money into the system. QE has distorted asset prices and, despite the Bank’s protestations, it has helped the haves over the have-nots. I am surprised that the Bank has not yet signalled its withdrawal: it has missed an elementary trick by insisting on reinvesting the proceeds of debt as it matures. Had it allowed the quantity of QE slowly to run off as debt matured, monetary policy would be in a much more sensible place. As it is, we have an expansionary fiscal and monetary policy when the economy least needs it. Both the Treasury and the Bank of England have little to fall back on if the economy stalls.
I shall finish with a few words on the Budget process itself. Here, I have great sympathy with the Treasury: in a world of considerable uncertainty I can understand why the Prime Minister and the Chancellor would want to leave decisions to the last possible moment. It was ever thus. I recall sitting in a room over in the House of Commons with John Major and Ken Clarke. John Major was arguing that we should remove VAT on fuel from the Budget which Ken Clarke was due to give the next day. I had to bring the discussion to a halt by saying that it was too late—the Red Book was already printed. Now that we have the independent Office for Budget Responsibility, it is important that that institution is given the time necessary to cost proposals and feed that into the fiscal forecast. I am troubled that the OBR points, on page 2 of its report, to,
“repeated failures to observe the forecast timetable”,
agreed with the Treasury. I note that the OBR will be seeking assurance that this will not be repeated at fiscal events. I wish them well, though I am not optimistic. I would be grateful if the Minister would tell the House whether the Chancellor or the Treasury have yet given that assurance.