My Lords, it is always a pleasure to follow the noble Lord, Lord Bates, not least because I think his experience as a government Minister was a triumph of optimism in adverse circumstances.
It appeared it was becoming received wisdom that last week’s Budget marked the end of austerity and, worse than that, or more than that, the confirmation of the assertion that austerity was never actually required. It is argued by some—the noble Lord, Lord Hain, is not in his place—that it was a right-wing ideological choice which caused unnecessary hardship. I assert that that is contrary to any objective analysis of the facts of the past 12 years. In 2008, we had a global financial crash partly brought about by a combination of light and divided regulation and the creation of impenetrably complicated financial products riding a global market. The scale of that crash was such that it threatened the world economy. It plunged us into recession from which we have actually barely started to recover. Drastic, urgent action was required, and it is to the credit of the then Labour Government that they led a co-ordinated global approach by the world’s leading economies. Radical action was taken, and it was delivered, but there was a clear legacy. UK banks were more exposed than most, and the level of borrowing required to stop the rot led to an unsustainable current account deficit well in excess of 10%. So whoever won the 2010 election had to take strong action to bring the public finances under control. The manifestos of all the parties reflected that, although they seem to forget it. Labour, in particular, seems to have created an alternative narrative.
There is of course room to debate which measures were fairest and best and what was the right balance between tax, borrowing and spending, but to suggest that we did not have to do anything is simply preposterous and defying gravity. The fact is that the deficit was reduced to under 2% and, thanks to the Liberal Democrats, at the same the tax threshold was raised to £12,000, the triple lock was introduced to reinstate the real value of pensions, the Green Investment Bank was set up, the British Business Bank was established, we adopted an industrial strategy and we boosted research and skills through expanded apprenticeships. Frankly, I believe it was an era of calm and pragmatic government compared with the volatility we have suffered since.
Forward then from last week’s Budget to this week’s Statement. The Government have been forced to recognise the scale of the threat to the population, the NHS and the economy and have proposed record spending measures with more needed and likely to follow. Some of these measures are short term and will act as a palliative, others are longer term and many may prove irrelevant. What the Government call “wartime measures” introduced this week will immediately—indeed, have immediately—turned off the cash tap for thousands of businesses and social enterprises and millions of people, especially those working in the gig economy. I have seen emerging in this debate a recognition that now may be the time for something radical to be tried. It may be the time to look to a citizen’s income to give cash to everybody immediately to help alleviate their anxiety and deliver support to the economy. It is no good telling businesses to borrow money to maintain their activities if there are no customers, so people have to have money to spend, and while the social distancing is going on businesses have to have money to carry them through, but not money that will saddle them with unsustainable debt. As others have suggested, this can be done through the PAYE system or the benefits system; indeed, I suggest urgently that this is the time to do something really radical and forward-thinking.
At the same time, we have just had an announcement that schools will close across the UK from Friday until further notice. That will put further stress on young people facing the possibility of exams with no knowledge of how they are going to get through them, and a lack of teaching time to help them get the grades they need. As a very important aside—I speak on Northern Ireland issues for the Liberal Democrats—in the three years that the Province was without an Assembly or an Executive, the health service pretty well broke down. Waiting times were extended and staff were stressed out. What are the Government doing to ensure that Northern Ireland has the support that it needs in this weakened state to meet the crisis?
If you put all this together, it adds up to a sharp reversal of the current account deficit. The consequences will perforce shape the Budgets not only for the rest of this Parliament but beyond, as the Government will have to bring borrowing back under control. That will present a challenge for a Government who want to level up the regions. They have won seats off Labour, but those seats will expect better funding for local services and will not appreciate tax cuts for the well-off. It will present a further challenge—this is a really important point—if the consequences of the hard Brexit that the Government are chasing are to further depress an already traumatised economy and reduce tax revenues. Surely this is the moment to acknowledge that the forward trajectory does not need and cannot sustain a sharp disruption to our alignment with the European Union.
At the very least, it surely calls for an extension of the transition period so that we can concentrate on bringing Covid-19 under control before we conclude a future trade agreement, and we should certainly not cut ourselves off from health and security co-operation across the EU. Looking further ahead, we should also address the supply-side weaknesses and encourage investment in skills development in new sectors such as robotics, the digital economy, AI and, of course, climate change—from the sophisticated engineering for sustainable energy to the job-creating benefits of retrofitting older houses with low-carbon systems. Crashing on with the Cummings/Johnson disruption presents not just the economy but our whole society with a potential cataclysm that it may not be able to absorb, bringing about far-reaching and deeply damaging consequences for years to come. It is surely time to face reality.