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Queen’s Speech

My Lords, I shall take as the basis of my contribution what the gracious Speech said. It stated: ""As economic recovery is established, my Government will reduce the budget deficit and ensure that national debt is on a sustainable path. Legislation will be brought forward to halve the deficit"." It is important to read those words carefully. The first phrase, ""As economic recovery is established"," is important because, as the noble Lord, Lord Skidelsky, said in his speech, which was brilliant as usual, we cannot prematurely stop the recovery being established. The problem with economics is not just that you are conducting policy while looking in the rear-view mirror; the problem is that a rear-view mirror does not actually exist. We do not know not only what the future will bring but what the past was like, because we do not know whether, in the third quarter of 2009, output has reduced by 0.4 per cent. Caution is very much to be exercised, therefore, because we are not yet out of the woods. There is not only a problem of establishing the recovery—and I think that the Government have done many things that will establish a recovery—but we will have to be sure that we can some day catch up after the permanent loss of output caused by the recession. There is a lot of talk about going for growth, this way or that way, but I urge caution in two areas. First, we should be sure that the recovery is established. The risks of inflation are less likely than the risks of deflation. Secondly, sooner or later we have to give a signal, when the time comes, that we will establish a sustainable path on which to reduce the deficit. I remind the party opposite that when they were in a similar situation in 1992, the budget deficit was £24 billion. The noble Lord, Lord Lamont, was the Chancellor of the Exchequer. I was sitting in the Peers Gallery with Lord Cockfield when the Chancellor proposed that the budget deficit should be enhanced to £26 billion. I remember that Lord Cockfield sighed and shook his head. But that was the correct situation at the time. The Conservatives should also remember that in the 1990s, after the decision to reduce it, the deficit increased. The party opposite increased it to an unsustainable ratio in relation to GDP, and the Labour Government reduced it. My right honourable friend the Prime Minister, then Chancellor of the Exchequer, made the largest repayment of debt in living memory. We have delivered 10 years—41 quarters—of sustained growth, which is a record for any UK Government. However, when a recession occurs and the financial system does not function, you have to do drastic things, and we have done such things. I emphasise that the path that we lay down to reduce the deficit must be not only sustainable but credible. Credibility is a problem for every Government, because, given their powers, they are tempted to renege on their promises. In a democracy, the political pressures are always to spend more and tax less. Therefore, we have to find a way of making our deficit predictions and our timetable credible. I have a suggestion. This Government divested themselves of the power to intervene on interest rates and entrusted the power to make such decisions to the Monetary Policy Committee of the Bank of England under a legislative framework. The problem with fiscal policy is that it is difficult to establish a superior authority outside Parliament that can place a check on the Government. I suggest, therefore, that since your Lordships’ House does not have a power to tax but is part of the legislature, it should set up a committee that would be similar to a fiscal responsibility body and be able to tell another place and the Chancellor whether what they are doing is consistent with legislation. The committee should also be able to stop future Governments misbehaving, which they are always tempted to do. Along the way, we will have to put up taxes and cut spending. There is no other way. No one should believe that any tax-cutting miracle shown on any Laffer curve will generate sufficient revenue to tackle the deficit. If you do, you will undermine the market’s confidence in the credibility of your stance. I should also say that, from the point of view of equity, a number of spending items are unjust. My pet concern is tuition fees for undergraduates. Subsidy for undergraduate education has no justification whatever. I have said again and again that British students should pay what foreign students pay—£10,000. That is the only sustainable fee, and we should immediately adopt that. There is no reason why students in a rich country should be subsidised for receiving higher education. If there is money to spare, it should go to research, which is starved of money. As my noble friend Lord Bhattacharyya and the noble Lord, Lord Patten, said, we need good funding for research. I shall stop there. There is a lot more to say, but I have said enough.