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Sir Michael Spicer (West Worcestershire): Given the circumstances of the departure from office of the right hon. Member for South Shields (Dr. Clark), he made an extraordinarily loyalist speech. If the Government's proposals for the House of Lords go through and it becomes an entirely appointed Chamber, the right hon. Gentleman will deserve his reward. If I were him, my only nagging worry would be the Prime Minister's attitude to his own party; although the Prime Minister has an aversion to the Conservative party, he has a far greater aversion to the Labour party. Judging from the reaction of Labour Back Benchers this afternoon, the feeling is mutual.
I have never thought of the Prime Minister as a closet Conservative, as some do. However, he is extremely fond of the Liberal Democrats, so it is not surprising that the thrust of the Queen's Speech should be so attractive to them. The right hon. Member for Yeovil (Mr. Ashdown) said that the Liberal Democrats approved of much of the Queen's Speech. He should have said that they approved of most of it, because that is what he really meant. He merely wanted to tinker with it, and go a little further here and there. Nothing in the Queen's Speech was fundamentally out of tune with the views of the Liberal Democrats. That is now par for the course.
Mr. Baker:
That is a gross misrepresentation of the comments of my right hon. Friend the Member for Yeovil (Mr. Ashdown). We do not disagree with much in the Queen's Speech, but we have made the point that a huge amount is missing from it--whether on the environment or whatever--and that is terribly important. We have great doubts about the value of the Queen's Speech for that reason.
Sir Michael Spicer:
No doubt, the Government will be listening to those pointers, and they will be followed up. I intended to show how that is likely to develop. When we boil it down, Liberal Democrat policy has two strands--the right hon. Gentleman said that there were six, but I think there are only two.
One strand is the party's policy towards Parliament, which is simply stated. It is to give itself more power through proportional representation, and then, in effect, to abolish Parliament. It is an inconsistent policy, but it would result in the break-up of the United Kingdom and, therefore, of this Parliament. Proportional representation would break up relationships with constituencies. The bits and pieces of what will be left after the power of the second Chamber to provide checks and balances has been broken up will be handed over to European institutions. That is the paradoxical basis of the Liberal Democrats' policy on the parliamentary side.
More interesting perhaps are the Government's policies on the economy and how they fit in with the instructions that are increasingly being issued to them by the Liberal Democrat party. One of the Government's key economic policies is to do away with old-style nationalisation, because it appeals too much to the old Labour party. With the agreement of the Liberal Democrats--I should be happy to debate the many examples of such agreement with them--the Government want to put in its place widespread, interventionist, regulatory policies. Those regulatory policies are much more widespread than people realise, and are mind-bogglingly extreme. Regulation is part of the theme of the Queen's Speech.
The Government have already adapted the regulatory institutions that they inherited--for gas, water and electricity--so that they manage those industries in some detail. Investment policy is now the job of the regulator in those three industries and the regulatory bodies have imposed tough rules on investment. The Queen's Speech promises much more. There is to be legislation to provide a
The Government were most explicit about the Financial Services Authority in the draft Bill on that subject which they published some months ago. Clause 70 of that draft Bill gives the FSA power to make its own rules as it goes along, including "conduct of business rules". That is quite extraordinary, because it is the first time that such permissive powers have been given to a regulatory body. Further clauses do not restrict the authority. It must accept certain representations, but there is no sign of the effect of those representations or of what the procedure will be. The FSA is to be accountable to nobody, except possibly the European Court of Human Rights, which is not a court of this Parliament.
The Treasury Select Committee, on which I have the honour to serve, as do some Labour Members present, recently passed a report. I am afraid that I was the only person who voted against the publication of the report. The Liberal Democrats support and like very much the part of the report that says:
The City of London and the nation should be quaking in their boots. Almost 10 per cent. of all foreign earnings--£170 billion a year--comes from foreign investments placed by the City of London, which, by most standards, has become the most successful financial centre
in the world, including New York. That is now to be put at risk. The regulatory strand of the Queen's Speech is one of the most worrying, because it shows that the Government's strategy is to control the minutiae of the economy right across the board. That would have been unimaginable until a year or so ago.
The Under-Secretary of State for International Development looks worried or puzzled--perhaps he does not understand. The major fields of economic activity in this country have regulatory bodies that control investment and prices, and make up their own rules as they go along. How can he not agree that that is pervasive and all-consuming? Perhaps I am being helpful to the Government, because I am re-establishing some contact between them and their Back Benchers, who may like this policy. When they realise what is going on, they may think that it is better than nationalisation. However, the Government cannot say that these regulatory bodies will be accountable to anyone, and certainly not to Parliament.
The second strand of the Government's policy that is warmly supported by the Liberal Democrats--indeed, they say that they invented it, and perhaps they did--is to build a massive wall between the instruments of fiscal policy and those of monetary policy. By handing over control of monetary policy to the Bank of England, they have stripped Parliament--with the rare exception of the Treasury Select Committee, which is allowed to ask the Chancellor and the Governor of the Bank of England questions about those matters from time to time--of its power to hold accountable the body that governs our monetary policy.
The effect of that on the economy is potentially disastrous and, I hope, will be disastrous for the Labour Government. For the time being, the Government have been given a reprieve. The Government proudly announced unfunded expenditure plans of £40 billion over the next three years. The deficit has already been revised by £11 billion in the recent budgetary statement. The Government make great play of having been brave in the past two years, but they have merely applied Conservative policies on expenditure. Now that they are swimming on their own, the real Labour Government are having to revise the deficit projections almost weekly. It is now up to £11 billion, and no doubt it will go beyond that in the next few weeks.
Recently, all that has--so far--been accompanied by a fall in interest rates. In that sense, there has been a reprieve; Labour Members have breathed a sigh of relief, and the problem appears to have gone away. However, we should not bet on that continuing to be the case. The Government have, among other things, made it the law of the land that the Bank of England shall comply with a 2.5 per cent. inflation rate target.
My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said earlier that we should not believe everything that the Bank says. The point is that those people now run the economy, and, if they believe what they say, that is good enough in terms of what economic policy is to be. A cursory flip through the Bank's inflation report reveals very quickly that, in the Bank's view, inflation is just around the corner. On page ii, the report states:
The Bank rather slides over one point. I hope that, when the Governor comes to see us the day after tomorrow, we shall probe him on this. I refer to the extent to which the Bank, in its calculations, has taken into account the effect of the Government's unwise, unfunded new spending plans, to which the report makes only a cursory allusion.
Given all those pressures, the likelihood of the Government's economic policy ending in tears is rather greater than it appears at first glance. The Government--in the Queen's Speech, they said again how proud they were of this--have isolated monetary policy aimed at controlling inflation from fiscal policy that is likely to increase inflation. The effect may well be economically disastrous.
It is because the Prime Minister, in particular--but also those whom he appoints--does not trust his own party that the Government have done what they have done to the Bank of England. It is a happy coincidence that they have pleased the Liberals in the process. That is also why the Government are sidling up to the Liberals on a daily basis. It can be felt across the Chamber. The questioning that takes place between the right hon. Member for Yeovil and the Prime Minister is almost a charade. There is an electricity between them.
The Prime Minister has embarked on a policy that he knows will end in tears in his own party, and, in so doing, has sown the seeds of his own destruction. That bodes badly for him, unless the Prime Minister decides to cross the Floor and join the Liberals--which is always a prospect, and may be the Prime Minister's fantasy. The Labour party is becoming increasingly restless, as was evident to us today. Labour Members have accused us of talking among ourselves, but the talking that was going on among them while the Prime Minister was speaking had to be heard to be believed.
"fair basis for water charging in England and Wales."
The regulatory bodies are to control not only investment, but pricing. One could argue that there is not much left of a business to run if the control of pricing and investment has been given to a regulatory body. There must be an element of independence. That is appealing to the Liberal Democrats. I do not know whether it appeals to the real Labour party, but I suspect that, as it does not involve nationalisation, it does not appeal to it very much.
"We recommend that the Treasury examine whether legislation or further rules are necessary to define what is meant by policyholders' 'reasonable expectations'".
That related to the mis-selling of pension policies. The regulators can set their own rules, and can set prices and investment. Their job is also to give everyone total protection. The philosophy is that everyone should invest with total protection, and if they do not have total protection, heavy penalties can be imposed.
"The outlook for inflation continues to depend upon developments in the labour market."
The next sentence tells us that the labour market "remains tight". Later, the Bank says:
"Downside risks to inflation from weaker growth than in the central projection are largely balanced by upside risks, which include the possibilities of a more rapid fall in the exchange rate and of past money growth creating upward pressure on prices."
On the next page, the report says that monetary growth has been increasing recently, and gives the M4 figure. On the basis of bank lending figures, the growth has been even faster.
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