Norman Lamont – 2022 Speech on the Growth Plan (Baron Lamont of Lerwick)
The speech made by Norman Lamont, Baron Lamont of Lerwick, in the House of Lords on 11 October 2022.
My Lords, it is a personal pleasure to follow the noble Lord, Lord Burns, who always gave me very wise advice in the Treasury, just as he has to the House today. I also welcome my noble friend Lady Neville-Rolfe back to her position on the Front Bench. We have lost a doughty Back-Bencher but regained a formidable Minister.
I welcome many of the measures in the Government’s growth plan, particularly the radical deregulatory ones—IR35, the pensions cap and the planning reforms. Provided they can be delivered they are the sorts of measures that will make a real difference to our growth rate. I also welcome the energy price guarantee. It is a major intervention but, as the Minister said, one that, because of the death of the Queen, was not widely recognised and is still not widely known among the public. The package is very important not only for the relief it gives to hard-pressed consumers but economically, because of the 5% it knocks off the rate of inflation. This by itself could help to stave off a deep recession, as high energy prices can be both inflationary and deflationary.
However, it has to be recognised that the energy price guarantee is potentially a massive commitment and adds huge uncertainty to the borrowing figures. The Government’s support to consumers as a percentage of GDP, according to the Goethe Institut and Conservative Central Office, dwarfs that of other countries. It is, potentially, more than double that of Germany, which funded its package out of taxation. It was the hugeness of the money at stake, together with the absence of the OBR assessment of the cost of tax cuts, that produced the market reaction that it did. The Government also made something of a rod for their own back with some of the rhetoric that was carried forward from the leadership election about rejecting orthodoxy and the attacks on “bean counters” and people peddling “abacus economics”. I am sure it was not intended to, but it sounded very like a Conservative belief in the magic money tree. Since then, the Chancellor has emphasised that he believes in fiscal discipline and in a declining debt-to-GDP ratio.
Going for growth is a certainly laudable objective, but it has to be recognised that there can be a conflict between going for growth and getting inflation down. A stimulus to growth from unfunded tax cuts may mean that inflation stays higher for longer, and that could mean higher interest rates holding back growth. If fiscal and monetary policy point in opposite directions, the result is again likely to be higher interest rates and thus slower growth. So the stage is set for something of a battle between the Treasury and the Bank of England as the Government push for growth and the Bank raises interest rates to tame inflation.
This dilemma could of course be resolved if tax cuts always paid for themselves. That would be wonderful—we would never have to discuss taxation again—but as the noble Lord, Lord Burns, said, they do not always pay for themselves. It depends on whether the rates are set at confiscatory levels or, technically put, where precisely the rate is on the Laffer curve. Ronald Reagan’s tax cuts resulted in increased debt, a fact that he later acknowledged and regretted.
Fiscal responsibility is not the enemy of growth. It produces the stability that is essential for it. I welcome the fact that the Chancellor is drawing up a debt reduction plan and plans to bring forward the OBR assessment of that plan. It is very important that the plan set out is credible and does not consist of just easing the present fiscal rules or back-ending all the pain that is going to be necessary. If we do not face reality, reality is going to face us. Fortunately, the Chancellor has, I believe, the resolve and determination to face these challenges, and I wish him well.
