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Baroness Nicholson of Winterbourne: My Lords, before the noble Earl sits down, since he pointed in my direction at some point in his speech, perhaps he will answer a small question. When he talks about continental Europe, does he exclude Eire from membership of the European Union or does he look both ways?
The Earl of Dartmouth: My Lords, I should be delighted to answer a very large question from the noble Baroness, not just a little question, which she asks with her customary charm. I am conscious of imposing on the good will of the House. I could have listed all 11 countries, 10 of which are in continental Europe and one of which is not. Continental Europe is simply a shorthand term for all 11 countries. But on another occasion, if the noble Baroness is in the Chamber, I shall enumerate all 11 countries, mentioning Eire first.
7.43 p.m.
Lord Alli: My Lords, I rise during the dinner hour to make my maiden speech on the Motion standing in the name of my noble friend Lord McIntosh about the Government's Economic and Fiscal Report and their Comprehensive Spending Review. I shall speak in support of the Government's actions in respect of those matters.
I was offered two main observations about your Lordships' House before being introduced last Tuesday. The first was that your Lordships' House is a friendly and extremely courteous place. I am pleased to say that I have found that to be so. The second observation was that your Lordships' House is a quiet place. Since I was introduced, it has certainly not been that. We have debated the Northern Ireland (Sentences) Bill, the National Minimum Wage Bill, the Scotland Bill and the Commons amendments to the Crime and Disorder Bill, which contained at least one issue of great interest to the press. I do not complain; I feel honoured.
As many of your Lordships will know, I cut my teeth in business. I run a large media company which I founded with two partners several years ago. I welcome the Government's stated economic objectives of,
- "high and stable levels of growth and employment, and sustainable public services, built from a platform of long term stability".
As a businessman and company director, I can say that a stable economic environment helps long-term planning and avoids short-term decision-making. I strongly endorse the measures which the Government have outlined towards achieving those objectives, some of which have already been implemented, particularly as many of those measures have been standard practice in business for many years.
As your Lordships know, the process of reform outlined by the Chancellor of the Exchequer took place through a two-stage process. I should like to pay particular tribute to the Chancellor for his achievements in relation to those reforms and both his Budgets.
First was the Economic and Fiscal Strategy Report, which was published on 11th June. That report set out the Government's four main objectives for fiscal and monetary reform: first, prudence and responsibility and the golden rule that over the cycle, current spending will be covered by revenues--for all business, that is an essential principle and for the business of government it is a good principle that is well heeded; secondly, redefining the role of government through spending priorities so that, where the Government should act, they do so vigorously and, where government interventions are unnecessary or restricted, they do not act at all; thirdly, not taking a dogmatic or ideological stance on publicly-owned assets but applying a new test to meet the public interest; and finally, investing for reform by linking departmental spending to the Government's modernisation and reform programme.
The report outlined also the underlying principles which underpin the Comprehensive Spending Review; namely, breaking the short-termist climate. Short-term decisions made by government or in a board room lead inevitably to long-term problems. I welcome the abolition of the annual spending round and its replacement with departmental plans and fixed budgets for three years. I welcome also the division between revenue and capital budgets, which for many companies has been standard practice for many years. I welcome also the promotion of new public/private partnerships to pay for the Government's investment programme. There are many people in the private sector who can help the Government to achieve their objectives while furthering their own commercial aims.
I welcome also the review's commitment to promoting opportunity and fairness and to providing efficient and modern public services. I also welcome the announcement of a substantial investment programme for our public services--£19 billion for education. Before the general election, the Prime Minister made clear that his top priority was education. As a board member of the Teacher Training Agency, the government organisation responsible for the recruitment and retention of teachers, I welcome the Government's commitment to education. Investment in education is not only an investment in our young people; it is an investment in the future of us all. Our young are our future. However, I accept that education is not only for the young.
Another area which I am particularly keen to highlight is investment in the arts, media and sport. I am also a member of the Government's Creative Industry Task Force. I welcome the extra £290 million announced last Friday by my right honourable friend the Secretary of State for Culture, Media and Sport. I pay particular tribute to the Secretary of State for securing that investment when so many before him have failed. All that extra investment in our public services is to be welcomed. The Government are to be congratulated.
Since this is my first opportunity to comment on the Government's economic policy, I should like, with the indulgence of your Lordships, to comment on one other reform. I welcome most strongly the Government's decision on independence for the Bank of England. Given that one's maiden speech is not supposed to be
controversial, I think it particularly appropriate to mention independence for the Bank of England since that courageous decision took the politics out of monetary policy.To conclude, I strongly support the Motion, for the reasons that I have outlined. I am gratified to have made my maiden speech. I can now get on with the job that I was appointed here to do. No, that is not to vote in the Lobby which the Government Chief Whip tells me to, although I shall certainly expect to, but my job is to call to account the executive, to scrutinise legislation and to contribute to the very high standard of debate in your Lordships' House.
7.49 p.m.
Lord Howell of Guildford: My Lords, it falls to me to congratulate the noble Lord, Lord Alli, which I do most warmly. It was an excellent contribution. I can think of scarcely anything in it with which I disagree. That means that it must pass the standard test of non-controversiality, although one must always read the small print nowadays to work out exactly what is controversial. That is not the same as it used to be. The noble Lord speaks with great authority on these matters. He will be a huge asset to our debates. As he rightly said, the issues that we are discussing this evening in the two government documents--the Economic and Fiscal Report and the Comprehensive Spending Review--are matters which have been common practice in business almost forever. Some of us have been campaigning over many decades to see those perfectly sensible ideas incorporated, so far as possible, in the vastly more complex area of government.
Therefore, I repeat my sincere congratulations to the noble Lord. What I say to him is not just the natural form of words, although, as he will discover, everyone is quite uncannily polite to each other in this place most of the time. He has spoken a lot of excellent good sense.
I cannot resist commenting that it is a little odd that we should find ourselves debating such gigantic strategic issues in the dinner hour and not in "prime time", as in the world of television scheduling. I do not quite understand why. However, it is one of the features and consequences of the Maastricht Treaty that the Government have to gain the approval of both Houses for these proposals. I suppose that that is a small mercy and one of the better outcomes of the much-criticised and, in my view, deeply flawed Maastricht Treaty. It is very hard to cover these colossal issues in a few minutes. My remarks will be directed mainly to the technicalities of trying to lock in public spending for some years ahead and create what is called "a platform of stability", a "tough new regime", or all the other nice phrases with which one could not disagree. Indeed, they are like motherhood: they are excellent aspirations.
However, having said all that, I must strike a critical note. If one examines all the statements in the two documents, while the aspirations are excellent there is, in my book, a slightly old-fashioned tone about the whole approach and some signs of inexperience or, shall we say, total unawareness of what has happened in the past. This is not the first time that government have
attempted to cover this ground and produce such solutions to meet the ambitions which businessmen share by trying to bring more certainty into an uncertain world.The first criticism that I have to make is that extrapolating from the recent past is at the best of times a dangerous business, as indeed is assuming that things will always go on in the future as they have in the past. We must think of our economy operating in a global and not just a European context. It is operating under global forces which are very complex and very volatile. One can safely say, with no more controversy than that contained in the excellent maiden speech that we have just heard, that there never was a more dangerous time to assume that what went on before will go neatly on in a straight line into the future. It is never more likely that one will draw the wrong conclusions than if one attempts that sort of extrapolation and concludes that, because the economy has grown at such a rate during the past two or three years, it will carry on in exactly the same way.
The general argument against that kind of approach and that kind of economic modelling is now very strong and it arises from the globalisation of the economy. The predictability that economists used to need to make those models and make such assumptions and projections is just not there any more. Indeed, not even a market can absorb the vast complexity and quantity of information in the global economy in order to make safe judgments. Certainly planners in a national economy cannot do so. That really explains why no models are safe and why public interest in all this modelling--for example, the Swedish, the Japanese, the German, the French and all the Anglo-Saxon models--has declined and the credibility of economists (of whom I used to be one) has also slid down to zero. Economists are really not able to make sense of these conditions in the global economy. People sense that, when they try to predict such outcomes for even a few years ahead, they are not really on very sound ground.
That is one reason why I would question whether this is the right time to start locking in public expenditure plans for three years ahead as a government, however much businessmen may want it and however sensible it may sound. My second reason is more immediate; namely, the Asian turmoil. I know that there is a fashion for saying that it is all right here in Western Europe and in the transatlantic area--in other words: "We are all right as regards the Asian turmoil. After all, we don't export very much to Asia when all is said and done and, anyway, they are getting themselves straight again". That is a total and complete underestimate of what is happening in both the South-East Asian economies and on the Pacific Rim.
I have tried not to bore the House, but I did suggest to your Lordships some months ago--in fact, well before Christmas--that the Asian turmoil had only just begun; that it would get worse and would last for many years. I believe that more strongly today. Indeed, we are just about to enter a new and more horrific round of instability in the Asian economies which will have a far greater effect on the Western economies and on the British economy than mere export or import figures may
suggest. The yen will go down; the Chinese bubble which, in a way, is as bad as the Japanese bubble, will burst. The Chinese economy will get into increasing difficulties and be dragged down. There will be political difficulties there, which I believe will undermine the Hong Kong situation. All the economies struggling to get off the floor, without success at the moment--like Malaysia and Indonesia, which is on the verge of civil collapse--will fall back into the quagmire out of which they have been trying to struggle.Those developments will have colossal effects on our GDP projections; indeed, much greater than people realise. It will not only be a question of no export markets because they are already shrinking, as the poor Chinese are finding as their markets wither away; at the same time, there will be a considerable amount of cheaper imports coming in from Asia, although there is a constraint, in that many of the excellent, competitive Asian firms cannot get export finance or working capital at present. However, that may change.
The flow of capital and the savings coming in from Asia will wither, as has already begun to happen. However, more than that, investment and growth are about confidence and the sort of psychology of the promise and possibilities ahead. The Eastern promise has evaporated. The whole glittering hope of the past 10 years of growth and investment--in other words, the hope that, at the end of the corridor, even if it had risks, there was this shining area of the new Asia which could produce colossal returns for the more adventurous and those not too averse to risk-taking has gone. I give way to the noble Lord.
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