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Lord Lea of Crondall: My Lords, I thank my noble friend for allowing me to intervene before he sits down. His analysis was impeccable. He set out the problem of our rates being well out of line with those in the rest of Europe and of "hot money" coming to London and having these effects. I was waiting for a possible conversion on the road to Damascus. Perhaps that was too much to hope for. In parenthesis I would mention the red herring of the Bank of England and the European Bank. But is not the essential conclusion that most people would reach from hearing this impeccable analysis that it would be much better for our economy, given hot money and so forth, if we had an arrangement to bring interest rates much more into line with those in the rest of European Union?

Lord Shore of Stepney: My Lords, I rather expected my noble friend to make that point. It was made to some extent in the speech of the noble Lord, Lord

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Taverne, whose answer to the whole problem was for us to go plunging into joining the single currency so that we could enjoy the benefit of somewhat reduced interest rates. What a nonsense that is when you think about it. The nonsense is that if we have, as the Chancellor made plain in his Mais Lecture, an annual productivity gap against France and Germany of something like 1.2 to 1.4 per cent per annum, being in that situation in a few years' time--before we have raised our competitiveness to equal performance with France and Germany--would simply be a recipe for disaster.

8.22 p.m.

Lord Cavendish of Furness: My Lords, it is always stimulating to hear the noble Lord, Lord Shore of Stepney. I was not disappointed this time.

The gracious Speech opens with the assertion that the Government seek to modernise the country and its institutions. Sadly, I find little or nothing in what follows, or in what I have heard from the Minister, to suggest that the Government intend to do anything of the kind. The purpose of my intervention is to focus on some of the institutions that could be the target for reform and to demonstrate where and how they most conspicuously fail the citizen and the taxpayer.

Recent history points to the fact that there is not much argument between political parties as to the approximate volume of money needed to fund front-line services. Thus far, one has identified the consensus spoken of by the noble Earl, Lord Longford. Perhaps more accurately, there is an unspoken understanding in the modern world that, beyond a certain level of taxation, the Exchequer receipts begin to diminish and public expenditure is sensibly planned with that in mind.

There is, however, a widely held assumption, shared by the Government and by the noble Lord, Lord Taverne, speaking for the Liberal Democrats, that there exists an immutable relationship between the quality of a public service and its cost. Of course, as the vastly improved performance of industries coming out of state control has shown again and again, that assumption is wrong. Furthermore, in recent years the private sector has had to improve its performance in terms of the deal it offers to the shareholder, the customer and the workforce.

Since I remain cynical about the Government's real intentions, I might add that those of us who operate in the medium to small sector of industry have also had to shoulder a significant burden in terms of largely needless regulation. If we can do more with less, if we can make year-on-year gains through efficiency, I simply cannot understand why we have such low expectations of government, or why Ministers have such low expectations of themselves and their departments.

In the delivery of all public services, notwithstanding some obvious heroic successes, there are grotesque shortcomings, which could only begin to be addressed by a radicalism which I find wholly and utterly absent from the gracious Speech.

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If, as I believe, the political process in this country is becoming to a large extent discredited, and politicians are held in contempt, a significant contributory factor must be the degradation and decay of the institutions of government. If that is true, then Ministers past and present have to accept responsibility. It is Ministers, not officials, who cause these problems, and it is for Ministers to solve them.

Let us look at one area of national life. It must occur to any thoughtful person, as it has to a number of speakers in this debate, that it is a strange thing to be sure that, by any measurement, Britain is poorer than many, if not most, other industrial nations. The noble Baroness, Lady Sharp of Guildford, analysed with skill and authority the reasons for under-performance, although I reach rather different conclusions.

Of the reasons advanced for this sorry state of affairs, I find the most compelling one to be that we are less well educated. Why should that be so? Although I once served for some time on an LEA, I am not currently involved with education beyond the experience I have as an employer. I can tell the noble Lord, Lord Shore, that I am at present happily bucking the trend as a northern industrialist and still prospering in many markets around the world. From that perspective, it is clear to me that the education establishment fails comprehensively to understand how this country earns its keep.

Could it not at last be faced up to that providing good education for our young people, along with the welfare and health services that we all acknowledge are important, involves hugely complex and subtle executive functions? It requires financial and strategic sophistication which it seems to me is wholly at odds with current public sector management practice.

Yes, the institutions of government need radical reform, but what are we getting? What is the great modernising "big idea"? Sticking with education, we are getting a "learning and skills council". It will need to be better by several magnitudes than it sounds.

One sentence in the Queen's Speech caught my eye as being potentially significant; namely, that a Bill will be brought forward,

    "to introduce the latest accounting methods to improve value for money in Whitehall and generate more investment in public infrastructure and front line services".

If by "latest accounting methods" the Government mean that the Treasury is to learn the distinction between revenue and capital, the measure will deserve everyone's support.

I know that it is not new to joke about the absence of numeracy within the Treasury; but it has become a tired joke when a government institution speaks a financial language that no one else either speaks or understands. It may well be that Treasury folk are cleverer than anyone else on earth. But much good that does us if they bring us no closer to understanding the intricacies and subtleties of investment in the UK and round the world. If, for example, the Treasury views a new school or hospital as an inroad into current

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account rather than as a capital investment, Ministers are denied the means of knowing the true worth of what they can offer or deny the taxpayer.

It remains the case that a crucial Treasury tool in controlling expenditure is simply instructing and delaying payment of funds approved by Parliament. Again, for example, in another place £1 billion may be approved for, say, training. The Treasury sets about making sure that the money is difficult to find and therefore is not spent, and it regards that as a success.

Of course government expenditure has to be controlled. Everyone understands that. We do it both in our businesses and in our private lives. But there is something unpleasant and immoral about a powerful government department, much given to second-guessing everyone and everything, preventing by any means at its disposal the payment of money voted by Parliament.

These may be small things, but cumulatively they discredit the whole process of government. If great and small companies can control expenditure, often in difficult circumstances, so too should government without resorting to pilfering from the taxpayer.

I like to believe that the standards of our Civil Service are as high as ever and that by and large the traditions by which it sets such store are sound. What has changed is the nature of our political class. I sense that Minister and official need to work together in an atmosphere of constructive tension. Minister needs to be able to challenge official based on his or her life experience. As it becomes harder and harder to find anyone in another place who has had a career outside politics, that crucial relationship between Minister and official is undermined, and it will become worse. Ministers rely increasingly on experts. Experts with their own narrow agendas, and often an inability to see where the balance of advantage lies, are almost invariably wrong. While it may be unfair to say that economists are always wrong, it is fair to say that no one knows which 50 per cent of economists are right and which are wrong.

Another unacceptable practice of government which Ministers allow, and which degrades the quality of advice that they receive, is the collusion between departments and agencies. I saw an example only last week when, representing a small fishery, I spoke to someone in the Environment Agency. The young scientist agreed with us about a course of action but said that it could not be promoted because it was against the Ministry of Agriculture. Here is collusion that smacks of dishonesty which now runs right through the government machine.

The prognosis is poor and solutions are elusive, but of one thing I am absolutely sure: the time has come when we must draw on the vast reservoir of energy and talent that is at present excluded from our public life for a myriad of reasons. How to do this requires radical thought and a massive cultural shift. This Government are not radical but wordy. In the opening sentence of the gracious Speech institutional failure is acknowledged. Having identified that reform is necessary to sustain vital services, they devote months

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of parliamentary time and a huge amount of energy to destroying the one institution which, by their own account, works perfectly well. New Labour is really old Labour recycled to win votes. It retains a vindictive streak and is more comfortable destroying than building. Politics to new Labour seem to be an end rather than a means to an end. In its lack of vision it looks prematurely old and reminds one of a sentence without a verb.

8.32 p.m.

Lord Harris of High Cross: My Lords, since there are not too many noble Lords present during the dinner hour I propose to start with a modest confession. After all, the noble Earl, Lord Longford, admitted that as a younger man he worked for the Conservative Party. My confession is that after 40 years as a professional economist, and 10 years into retirement, I no longer feel obliged to read all of the official statistics with which we are daily deluged. I now ignore most of the oft-revised figures for growth, investment and even taxes. To keep track of the Government's creative accounting, particularly their spending, could turn out to be a full-time job. The latest Gallup poll published in the Daily Telegraph was a good warning to the Government. It showed that 80 per cent of those asked agreed that Ministers tried to mislead the public with repeated talk of "new money".

I have an example of New Labour's modern maths which I picked up from a television programme the other day. Suppose that one wants to increase spending on education or the National Health Service by £15 billion over three years. One can easily turn that into £30 billion with the same figures. I understand that the optical illusion is achieved by taking an announced increase in the first year of £5 billion, then £10 billion in the second year and £15 billion in the third year. That is an increase of £15 billion over the three years. However, one adds the £5 billion, £10 billion and £15 billion to arrive at an increase of £30 billion.

If one plays the same trick on the Chancellor, whom I normally wish well, one can reinterpret his proud boast that he has held inflation down to 2 per cent a year over three years by accumulating the 2 per cent and saying that he is guilty of 6 per cent inflation over the three years; that is, 2 per cent, plus 2 per cent plus 2 per cent. I hope that the Government will try to resist these temptations.

Happily, I do not need to look at all of these statistics in order to congratulate New Labour on turning its back on the old inflationary ways when, as I remind the noble Lord, Lord Shore, prices rose by 10 and 20 per cent a year in the Heath-Wilson era. I positively rejoice when I hear the Chancellor endlessly repeat that we must never go back to the bad old days of the stop-go-boom-and-bust cycle. Unlike many of my friends in this House whom I respect, including the noble Lord, Lord Boardman, and the noble Baroness, Lady O'Cathain, I give Her Majesty's Government full marks for their conversion to stable money.

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For the third year running I offer a warm welcome from the Cross-Benches to that part of the gracious Speech that promises not just to curb inflation--we have had all that before--but to maintain a credible mechanism in the form of the independent Monetary Policy Committee to ensure a more stable monetary environment. In a moment I shall return to a rather uncomfortable lesson for the Chancellor from this success, because it conflicts with the instability of his frequent fiddling tax changes. For the moment I wish to be in constructive mode.

I fear that the noble Lord, Lord Shore, will be rather shocked if I argue the following proposal. At the present time, the Monetary Policy Committee has a central inflation target which, as a brave start, was set in 1997 at 2.5 per cent. On a short view, that is pretty good and is a lot better than we have had in the past. The question is whether it is really good enough for New Labour. Why do we not set an example to others and take a longer view? On the back of an envelope I have calculated that even at 2.5 per cent the value of every pound of saving would fall to about 12p over a full lifetime, which we all confidently expect in this place, of 80 to 84 years.

Thus, if the present Chancellor's salary and perks are worth, say, £100,000 a year, his unborn successor in the new millennium will require almost £1 million a year. I therefore suggest that the success of the Monetary Policy Committee should encourage the Government to consider shaving the 2.5 per cent target by half a per cent every second year, which would make it zero after 10 years. What confidence that would bespeak, what a boon for people on fixed incomes and what a boost for the lower interest rates which bothered the noble Lord, Lord Shore, but which would no longer carry a premium for the inflationary expectations which still have to be worked out of our system.

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