Pre-Budget Report 2006

My Lords, in the corporate world the average tenure of chief executives is five to seven years. The turnover of chief financial officers is even more frequent, at around every three to five years. After that, they tend to run out of ideas and their organisations need to be refreshed. I am sure that the Chancellor thinks that the Prime Minister has run out of steam in his near 10 years in office, but can the Chancellor see that he, too, has run out of ideas and that the Treasury could do with refreshment? Judging from the Chancellor’s performance in the Pre-Budget Report, it is clear that he does not see that. I wish to outline what we saw and heard in the Pre-Budget Report. My noble friends Lord MacGregor and Lord Northbrook have already made excellent speeches that covered much of the territory that I had planned to discuss, but, since those points were important, I shall make no apologies for repeating some of them. First, we saw the usual boasting about growth in the economy. We are completely used to the Chancellor ignoring the fact that the current run of growth started well before 1997 and not in 1997. We are pretty used to the fact that he relegates inconvenient facts, such as dropping the estimate of growth in 2008, to the small print of the report itself. But we cannot get used to him boasting about growth while the plain fact is that our current growth is at the bottom of the EU. It is below the OECD and world averages. Growth is a relative concept. It is no good growing at a slower rate than the rest of the world. We will become detached—to use the imagery of Polly Toynbee—from the caravan and get left behind if we do not accelerate our growth rate. Then we saw the usual fiddling of the figures. Idid not believe the rumours in the press suggesting that the Chancellor would change the golden rule parameters yet again. That is the fourth change, three of them involving the timing of the cycle. But, hey presto, the Chancellor decided that the golden rule meant that the cycle would end in a few months’ time, albeit with the smallest of margins. How convenient it was that the NAO was not asked to review this latest change, given its fairly damning comments about the lack of evidence that existed in the Treasury on previous decisions on the timing of the cycle. Even more convenient in the run-up to the next electionis the ability of the Chancellor to rely on a new, hypothetical cycle as well as new estimates of the trend-rated growth. This demonstrates the urgent need for independent oversight of the fiscal rules, as my party has long been advocating. I was pleased to note this afternoon that there appears to be an emerging consensus on that. The Chancellor swaggered and fiddled the figures, but he also ignored many of the real issues in the economy. He did not mention that unemployment—at one point 7 million—has been rising faster than anywhere else in the developed world. He certainly did not mention that unemployment in the 16 to 18 year-old range is 40 per cent higher than in 1997. He trumpeted the increase in employment, but the ONS more accurately describes the trend rate in employment as ““flat””, and any increases are modest compared with the increase in unemployment. Behind all these figures is the impact of immigration, a topic already raised by the noble Lord, Lord Newby. The Governor of the Bank of England recently noted the lack of reliable statistics on immigration. It is important to understand the impact of immigration on growth, employment and wage rates, and on demand for public services. I asked the Minister about this in our debate on the gracious Speech, but his reply was merely: "““The economic impact of migration from the new EU member states has been modest but broadly positive””.—[Official Report, 27/11/06; col. 635.]" At best, that was a partial answer. I ask the Minister again to set out what the Government are doing to understand the impact of all forms of immigration on our economy. We believe that we should be seeing the issue of immigration in terms of maximising the net benefit to the UK of GDP per capita, but if we have ropey statistics and an imperfect understanding of the mechanisms at work, we could be storing up trouble for the future. The Chancellor ignored unemployment issues. Another issue he ignored was the funding crisis in the NHS, which is having a serious impact on services. What did he say about that? Absolutely nothing. The Chancellor does not understand that pouring money into unreformed public services adds to, rather than solves, problems. He just turns his back on the problem. A further issue he ignored is the collapse of private sector pension provision, some of which is attributable directly to his annual £5 billion cash raid since 1997. The savings ratio is nearly one half of that in 1997. What did the Chancellor do in the Pre-Budget Report? He increased the rate of pension credit ahead of the rate of basic pension to ensure that as many old people as possible remained trapped in his prison of means-testing. In the small print he attacked alternatively secured pensions, a matter referred to by my noble friend Lord Northbrook, because they help people who have saved for a secure and prosperous retirement. State dependency coupled with the politics of envy is the hallmark of old-fashioned socialism, and that is what we saw in the Pre-Budget Report. Another regular feature of the Chancellor’s statements is the re-announcement of past decisions dressed up as new ones. We had a few of those, such as the £1 billion of research moneys that were already available. We also saw his old trick of the apparent promise of new money, not backed up in the small print. This year’s big lie, as has already been referred to, is about education. The Chancellor played to his Back-Bench gallery by pretending that there would be an increase in education capital investment. He talked about £36 billion, but, as the devastating analysis of the Institute for Fiscal Studies shows, only £0.1 billion was new money. The increased direct payments to schools, which are a drop in the ocean of educational spending, are for one year only. I was going to ask the Minister how the Chancellor expects head teachers to plan and manage on that basis, but I realised that the Chancellor has absolutely no idea what planning and management in public services is about. That is part of the problem. The Chancellor’s well worn tricks of borrowing and taxing yet again feature in the Pre-Budget Report. Another £7 billion of borrowing has been added since the Budget, and the tax bill goes up by around £2.2 billion a year. Nearly half of that is the increase in air passenger duty, which, as has been pointed out, is a revenue-raiser rather than a genuine switch to green taxes. The noble Lords, Lord Barnett and Lord Newby, got that absolutely right. The verdict of Ed Matthews, of Friends of the Earth, perhaps says it all: "““I would give him probably one out of 10 … I think it’s pretty feeble””." Most of the rest of the tax hikes basically hit business in one way or another. The Chancellor continues to ignore the calls from the business community that our tax rates, once among the most competitive in the world, are now among the least competitive. The Chancellor also ignores the fact that his tax and tax credit structures result in more than 2 million people experiencing marginal withdrawal rates of over 60 per cent. A recent Joseph Rowntree report found that work incentives are worse now than they were in 1997, especially for those moving from low-paid or part-time work. The Chancellor has created welfare dependency stretching well beyond the poor. This PBR did nothing to reverse those trends. The PBR also did nothing to stop the decline in living standards that a recent report by Capital Economics has shown. All the measures of inflation are rising and are the highest since 1997. Wage increases are now running well behind the inflation experienced by people on low incomes. Pensioners are experiencing cost increases of nearly 9 per cent, which is roughly two and a half times the rate of their pension increase. Lastly, the Chancellor said: "““I have also considered representations for a third fiscal rule which would require us to cut spending by £28 billion this year alone. This is a choice for Britain I reject””." Will the Minister explain which bizarre third fiscal rule the Chancellor was referring to, and how he calculated the £28 billion? He usually uses the term““a third fiscal rule”” to refer to our own policy of prospectively sharing the proceeds of growth. Will the Minister confirm that, if the Chancellor was referring to that, his own figures have expenditure growing by 1.9 per cent in real terms over the period to 2011-12 and that 1.9 per cent growth is less than the growth rate of the economy over that period? Does that not amount to sharing the proceeds of growth, as the Institute for Fiscal Studies concluded? I will summarise my charge sheet. The Chancellor brags and fiddles the figures; he ignores the real issues facing the country, and claims more than he actually delivers. The truth is that the Chancellor taxes and borrows a lot, while pouring the proceeds into unreformed public services and the creation of welfare dependency. He then has the cheek to misrepresent our own policies, while following them to the letter. The Treasury certainly needs a new leader—but, equally, our country does not need someone who behaves like the Chancellor in No. 10. We are debating the Pre-Budget Report in the context of the annual report that we have to make to the EU on our public finances. As I have often remarked, this is a meaningless report, since we are not part of the euro-zone. The one thing for which I have consistently praised the Chancellor is his ability to keep our membership off the agenda. The noble Lord, Lord Barnett, asked today about the complexity of a referendum on the euro, but it is really very simple; it is a question of yes or no. It is not a question of working out the complexities of the five tests, if indeed they are at root complex. If the noble Lord has difficulties on that yes or no question, I will be happy to help him with the answer when the time comes—if, indeed, it ever does. The European Commission’s latest economic forecasts are that the UK’s structural deficit is larger than that of any other large EU country, including Italy. What is the Government’s response? Do they think that it is a largely irrelevant commentary by a not especially relevant body, or that the views of the European Commission on our economy actually matter? If they do, how will we see the Government respond?