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Pre-Budget Report 2007

My Lords, I am not sure whose spirits the noble Lord was whistling such a cheerful tune to keep up—obviously not the packed benches behind him. There are more people on this side. I salute the noble Lord who is loyally going to join in in support of the Minister. We have had some good economic news over the past decade or so. I shall pay tribute to that in a moment. One of the big problems is that trust in politicians generally, and I am afraid in this Government in particular, has declined very sharply in recent years. It is declining perhaps more sharply at the moment than at any time since 1997. I will illustrate that at the end of my remarks with one simple example, which we can all take on board. I believe that we are approaching something of a financial crisis for the Government. Growth estimates for next year have had to be reduced sharply to a shaky 2 per cent. As things always take longer when they are moving in a particular direction, I very much doubt whether 2009 will be better than 2008—unlike what the Minister has told us and unlike what the Treasury would like us to believe. Tax yields are likely to fall sharply, at least in the short run. The expenditure implications of Northern Rock are unclear, but could be significant in the overall budget arithmetic. The level of debt in the UK is worrying. Over 18 per cent of adults have unsecured debt of more than £10,000. Can the Minster give us what he regards as the key personal debt figures? To a Burkeian conservative such as myself, the main role of government should be to protect vulnerable groups from ill treatment or exploitation. In the economic field that obviously covers employees, consumers and investors. I suggest that the Government consider whether new methods are needed to protect borrowers from irresponsible and unscrupulous lenders. In this, I include particularly some bankers, credit card companies, mortgage companies, insurance companies, hire-purchase suppliers and sellers of financial instruments of all sorts. There is clearly scope for the problems of debt and borrowing to enter the school curriculum at an early age. I offer that thought to the Minister and the Government. Management of public debt lies at the heart of the Government’s economic policies. We should therefore reappraise the two rules which the noble Lord made much of—they are always made much of—and which, since 1997, have governed public finance in Britain: the golden rule and the sustainable investment rule. The present Prime Minister has never tired of trumpeting his success with the golden rule, which requires over the economic cycle borrowing only for investment rather than current spending. The sustainable investment rule says that the debt must be kept below 40 per cent of GDP. It is currently some 38 per cent of GDP, which leaves no great margin for error. In fact, it represents a mere £26 billion—the sort of figure, I am afraid, that people have been discussing in the context of Northern Rock alone. A really serious question is the extent to which off-balance-sheet liabilities of the Government arise. It is rather curious that at this particular time the same phrases which have become central to the world credit crisis apply to the Government’s own finances. The Centre for Policy Studies has estimated that if the public finance initiative liabilities, public sector liabilities and Network Rail debt were included in the debt, it would amount to £1.34 trillion—some 103.5 per cent of GDP, which is roughly the same as in Italy. Do the Government recognise or accept that figure? If not, what figure would they use instead? Are the Government worried about the growing rate of inflation? We had 14 successive years in which the inflation rate measured by the RPI did not reach 4 per cent. The situation started to deteriorate in 2006 and, as of now, the RPI is still above 4 per cent. I prefer the old retail prices index, which is how ordinary people observe the pound in their pocket because it includes housing costs. I believe that it is superior to the EU harmonised index of consumer prices introduced in December 2003, which is now targeted by the Bank of England and is currently 2.1 per cent—only half the level of the RPI. I should at once give credit where it is due to Mr Blair and his then Chancellor. Fortunately for the country and the Labour Party, they did not seek to reverse the crucial economic reforms introduced under my noble friend Lady Thatcher, who rolled socialism off the political map of Britain. Of course, a touchstone of the new incentive society, on which our economy depends, is the 40 per cent top tax rate, introduced by my noble friend Lord Lawson in his 1988 Budget. That, amazingly, has survived for 20 years. But, sadly, in so many other ways the economic policies of the Government are starting to unravel. It is not just the failure to get effective efficiency measures throughout Whitehall. That seems to be going in reverse, and we had an example of it today. It is not just the failure to stem the avalanche of Brussels regulations, always covered with 24-carat gold plate by the ladies and gentlemen in Whitehall, accompanied with a huge rise in British bureaucracy, which itself somewhat masks the true level of unemployment. And it is not just the failure to tackle the wholly unsustainable absurdity of continuing, to this day, to hire civil servants with an inflation-proofed pension at the absurdly young retirement age of 60. Even President Sarkozy is trying to tackle that one, and frankly we know how difficult it is to change anything in France when the mob gets going. The British are much more placid and, had we had real leadership over the question of the retirement age, much progress could have been made. The tax system is getting more and more complicated with well intentioned but inadequately prepared changes, such as those on CGT, announced in the pre-Budget statement. Sadly, the quality of British government is deteriorating. Perhaps I may end with an example which I believe exposes our new Prime Minister as both a negotiator and a man of his word. It is his announcement of the raising from £145 to £1,000 of the duty free allowance available to travellers. I shall simply quote from two of Mr Gordon Brown’s Budget speeches. On 16 March 2005, to loud cheers, he said: "““I have today written to the European Commission proposing that the tax-free limit on goods brought into the UK from outside the European Union should rise from £145 to £1,000””.—[Official Report, Commons, 16/3/05; col. 264.]—" The following year, on 22 March 2006, Mr Brown said: "““Last year, I proposed that the European Union should raise the duty free allowance for bringing goods into this country from outside the EU. This year, the European Commission has proposed to increase it from £145 to £340, but I am submitting proposals today for a further increase to £1,000””.—[Official Report, Commons, 22/3/06; col. 297.]" What is the duty free allowance today, two and a half years after Mr Brown’s first announcement and one and a half years after he repeated it? It remains at £145. I hope that a traveller who is challenged for going through the green channel with purchases worth £1,000 has the confidence to reply, ““The word of my Chancellor is good enough for me””. I just hope that it will be good enough for the courts as well.