Finance Bill

My Lords, the financial deficit has to be addressed and it has to be reduced. The question, though, is whether the Budget and this Bill address the deficit in a rational and appropriate manner. The global recession of 2008 was the largest since the end of the Second World War. The global economy fell by 1 per cent, G7 economies by around 3 per cent and world trade by around 12 per cent. It started with a fall in confidence in the American financial system, which led to a collapse in confidence in markets around the world. Since we are a trading nation with a major financial sector, it was inevitable that we would feel the effects more than most. Despite the difficulties faced, the previous Government took the action to get this country out of the global recession, including steps to ensure that the banking system in this country did not collapse and that, through fiscal stimulus, the impact of the recession on jobs, on homes being repossessed and on businesses going into liquidation was considerably less than nearly all experts had predicted in the light of the depth of the global recession. Unemployment in this global recession is half what it was during the recession of the 1990s, repossessions are 40 per cent lower and company insolvencies are running at about a third of the rate reached in the 1990s recession. The growth figures for the second quarter of this year, published at the end of last week, show that growth in the first quarter—I think that was 0.3 per cent—has been comfortably surpassed in the second, with a figure of just over 1 per cent. In Germany and France, the figures are lower, while some eurozone countries are forecast to see negative growth this year. The issue is: what will be the impact of the Budget and this Bill on an economy that is beginning to grow its way out of global recession? The omens do not appear particularly good, with significant cuts to public sector jobs on top of reductions in domestic demand—likely under the pending increase in VAT. I was one of those who were sent a letter during the election campaign by Mr Nick Clegg who, under the heading: "““Your choice is between a … Liberal Democrat MP, or the Conservatives””," told me that: "““Another backbench Conservative MP will simply support VAT increases, an unfair tax rise which hits the poorest hardest, and support cuts in vital services””." I suppose, in fairness to Mr Clegg, he did not actually say in the letter that Liberal Democrats would not also support them. I suppose that it was just a clever, craftily-worded letter that implied that Liberal Democrats would not, but did not actually make such a commitment. Already, there are some worrying signs that the Government’s Budget may be putting in jeopardy the recovery in our economy that has been reflected in the growth figures for the past two quarters. If the deficit is cut too fast, output will probably fall and unemployment will rise. If other countries are doing the same, there will also be an adverse impact on the level of earnings and growth from our exports. Indeed, in Germany the Government are proposing a package of budget cuts and tax increases, which will certainly have an impact on their economy. According to the Bank of England, mortgage approvals fell in June, while the consumer confidence index fell and Rightmove has reported that house prices have been cut for the first time this year. In his opening comments the noble Lord, Lord Sassoon, quoted the Organisation for Economic Co-operation and Development. However, it has also said that it expects the UK recovery to be, "““too muted to result in strong job creation””," and went on to say that unemployment is, "““likely to recede only slowly””." In the light of the budget cuts, the International Monetary Fund has downgraded its forecast of UK growth. The Chartered Institute of Purchasing and Supply’s recent services survey showed that business expectations had dropped to a 15-month low, in the single biggest month-on-month fall ever recorded. Perhaps that is not surprising if we have a Government who spend their time talking down the state of the nation’s economy, promise over-the-top cuts in spending and appear to think our economy is in a similar position to that of Greece and other Mediterranean countries—a view, shall we say, not universally held. Our national debt as a proportion of GDP is below that of, for example, France, the United States and Japan. The previous Government’s deficit reduction plan projected that the deficit would be reduced by around £80 million over the next four years. The Office for Budget Responsibility has said that we were on course to deliver that. Part of the deficit was projected to be closed by the economy returning to growth and thus more in tax coming in and less in benefits going out. However, this Government’s Budget is going to have an adverse impact on growth as the Bank of England’s chief economist said, before going on to comment that for the next three, four, five years demand in the economy will be ““incredibly anaemic””. Even the Office for Budget Responsibility is acknowledging that extra taxes or spending cuts will be necessary to make up for lower growth as a result of the Budget. The Office for Budget Responsibility is very much a creature of the Government as it showed when very conveniently press releases on unemployment figures were moved forward to try to bail out the Prime Minister at Question Time after a leaked Treasury analysis did not quite portray the picture the Government would have wanted. That leaked Treasury analysis showed that the Budget would result in the loss of at least half a million public sector jobs and some 600,000 to 700,000 private sector jobs by the end of this Parliament since much private sector employment is dependent on public sector spending. The Office for Budget Responsibility then proceeded to tell us that the private sector would create about 2.5 million jobs by 2014 when, according to the Office for National Statistics, in the eight years prior to the start of the recession in early 2008 the private sector created a mere 1.6 million jobs at a time when the economy was doing extremely well. Now, of course, Sir Alan Budd is leaving with a certain degree of rapidity. He was the Government’s darling bud of May who failed to bloom in June and is now doing a bunk this month. Let us hope that the current apparent cosy relationship between the Government and the Office for Budget Responsibility is brought to an end. So why are the Government pursuing tax rises and spending cuts at a greater rate than is necessary and which puts the rate of recovery at risk and will make things even harder for the less well off? This is a coalition Government of shared values and shared philosophy and that certainly seems to be the case in the desire to minimise the role of both national and local government and effect a major reduction in public services spending. Yet all benefit from the services of central government and their agencies, and local government, but it is those on average incomes and below who benefit the most and will be adversely affected the most. It would not be politically very acceptable for this Government to say that that is what their version of the big society means to them—a substantial cutting back of the services provided by central government and their agencies and local government and from which so many benefit. Much easier then to overstate the country’s current adverse economic situation and use that as the smokescreen to make the cuts in public expenditure that are part and parcel of this Government’s concept of the big society, where power is retained in Whitehall but every effort is made to pass responsibility and accountability as far down the line as possible for the consequences of how that power is used to cut public services spending. As the Institute for Fiscal Studies has said: "““We are looking at the longest, deepest sustained period of cuts to public services spending at least since World War II””." As my noble friend Lord Lea of Crondall has commented, the institute also said that the Budget looked ““somewhat regressive””. It also referred to, "““the impact of the looming cuts to public services, which are likely to hit poorer households significantly harder than richer households””." Not quite the rosy picture of fairness that the noble Lord, Lord Sassoon, tried to portray. The Government claim that we are all in this together, although in what exactly they have never said. Let us just say that thanks to the Budget and this Finance Bill many people are in it rather more than some others and the dividing line appears to be how well off or otherwise people are at the moment. It certainly is not gloom everywhere; the leaders of Britain’s biggest companies have seen their pay and bonuses rise by an average of 5 per cent to more than £3 million over the past financial year, despite a drop in earnings per share. So that is one part of the all that certainly does not seem to be in this together. On top of the extent of the cuts to public services, the rise in VAT, which the previous Government reduced to stimulate the economy, the move from retail price indexation to consumer price indexation and the disproportionate impact of the measures on women and children, to name just three issues, will have much less of an impact on those at the top of the income bands than those lower down. The Budget takes a far higher percentage of income from the bottom 10 per cent than it does from the top 10 per cent. I hope that the Government will reflect further on this over the summer and at least privately admit, not that no deficit reduction is needed, but that they have gone over the top in the level, speed and nature of the cuts that they have made or are apparently proposing to make and reflect that fact in their decisions on the actual extent of spending cuts still to come. This is no time to take the sort of unnecessary risk with the economy that the coalition Government are taking by seeking to cut the deficit too far, too fast.