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Lord Lea of Crondall: My Lords, I thank the noble Lord for giving way. Perhaps I may take an example in that great litany of burdens; the part-time workers directive. The noble Lord called it a burden but would it not be equally true to say that it enables employers to treat part-time workers as part of the labour force--and not before time?
Lord Northbrook: My Lords, I thank the noble Lord for his question. My point is whether or not the issue can be resolved on a more informal basis between employers and employees rather than having to be enshrined in legislation.
Moreover, further burdens are on the way, including waste electrical and electrical equipment directives and further reforms to parental leave. The cumulative cost of those regulations hit medium and small-sized businesses most, as confirmed by recent figures from the Institute of Chartered Accountants. The figures show that the costs to smaller businesses of complying with new legislation more than doubled between 1999 and 2000. As regards medium-sized businesses, the average cost of implementing new legislation rose from £1,700 in 1999 to £3,600 in 2000 and for smaller businesses from £4,700 to more than £8,000.
There is a major effect of this red-tape burden. The first is lower productivity. As has been stated, one of the DTI's main departmental aims is to raise productivity, but most experts accept that red tape on the scale introduced under Labour reduced productivity and investment. OECD statistics show that productivity increased at two-thirds the rate of 1992-97 during the four years since Labour came to power. As many speakers have said, the deceleration in Britain stood in marked contrast with America, where productivity rose. Output per worker is more than two-fifths higher in the USA and in France it is one-fifth higher.
Another effect of the red-tape burden, as mentioned by several speakers, is wasted office time. The secretary of the Institute of Chartered Accountants' Enterprise Group, Clive Lewis, stated in a press release last October:
Lord Haskel: My Lords, I thank the noble Lord for giving way. Did he have the opportunity of seeing the survey carried out by the CBI, which was published on 12th or 15th June, stating that a large number of firms are already carrying out these various directives?
Lord Northbrook: My Lords, I thank the noble Lord for his question. Again, my point is that if such a process is already happening can it not be done as a voluntary agreement rather than requiring legislation?
Reacting to the Labour Party's announcement of proposals to create a task force to consider how working parents can be given a legal right to request flexible hours, Davis Sears, deputy director of British Chambers of Commerce, said:
The first evaluation of the effect of the climate change levy shows that it added more than 0.9 per cent to industry's costs in April, according to the Office for National Statistics. Without the extra charge on business energy use, firms' costs would have risen by just 0.4 per cent during the month. But the levy implied a total rise of 1.3 per cent--more than three times as much.
The Engineering Employers' Federation estimates that some 2,300 enterprises that employ more than 1.3 million people will not have access to negotiated energy agreements with the Government and, as a result, will face new net costs of almost £100 million, even after a reduction--
Lord Northbrook: My Lords, I note the noble Earl's comment. The 2,300 companies are open to international competition and will be required to pay the levy in full, with damaging consequences for profitability and their ability to invest in energy-efficient measures.
The UK Steel Association estimates that the additional cost of the climate change levy will be £10 million per year per producer. It also states that the penalties are very heavy even for marginal non-compliance. There are inconsistencies in the way that tax operates and who is eligible.
The Government claim that the levy will be revenue-neutral across the UK, but the 0.3 per cent cut in national insurance contributions will be insufficient to offset the increased energy cost imposed by the climate change levy. The levy effectively favours labour-intensive companies at the expense of technology-intensive manufacturing industries. Many companies in the automotive sector will be badly hit because narrow eligibility criteria prevent them entering a negotiated agreement with the Government.
The Aluminium Federation has stated that, while its sector has been able to negotiate a more affordable CCL tax bill, it is still overly-bureaucratic and will damage the competitiveness of the industry against both competing materials and competitors in other European countries.
In summary, while the Government should be praised for cutting corporation tax and reforming capital gains tax for business assets, this good work has been undone by unhelpful extra taxes, such as the climate change levy and the burden of extra regulation which hinders company productivity. As a final comment, there would be a huge benefit if government Ministers and civil servants spent more time on secondment to businesses, both manufacturing and service. They would see exactly the effect of the extra regulatory policies and that would encourage them to cut back rather than expand red tape.
Lord Newby: My Lords, in the first economic debate of this Parliament I should begin by congratulating the noble Lord, Lord McIntosh, on retaining his position as the Government's spokesman in your Lordships' House on this and other matters. In the previous Parliament the noble Lord demonstrated his versatility in many ways. I believe that during the speech of the noble Lord, Lord Roll, the noble Lord, Lord McIntosh, was about to expand his repertoire by bursting into song. I hope that we shall have that pleasure during his wind-up speech.
I begin with the overall economic situation. I believe there is a consensus that the Government entered the election campaign with most of the economic indicators in a very positive state. To a certain extent, that was the result of their own doing; for example, the independence of the Bank of England helped. As the noble Lord, Lord Roll, said, it was also due partly to propitious external circumstances. The likelihood is that those external circumstances will be somewhat less propitious as one moves into this Parliament.
As we look around the world, we see that in Japan, for example, the prediction is that growth will be 1 per cent or less for a number of years to come. In the US, there are major uncertainties in a number of areas. Are we in for a "V", "U" or "W" in terms of growth over the coming months? Will the Bush tax cuts later in the year provide a stimulus to consumption or will over-borrowed consumers use them to rebalance their finances? How long can the US sustain a huge and growing balance of payments deficit, and what will be the consequences in the short term of the extremely high level of inventories which currently exist in US warehouses? There are many uncertainties. When we move to the euro-zone, we also see a fairly mixed picture, with sentiment in Germany looking particularly gloomy, with attendant consequences for the UK.
All these movements in the economic situation of the major trading countries and blocs are potentially damaging to the UK. While in many respects the economy is strong, as the noble Lord, Lord Hodgson, pointed out, at the moment there are major imbalances and, to a certain extent, we live in a two-economy economy. Over the past three years, the manufacturing sector has lost about 400,000 jobs, with a disproportionate effect in some of the more northern regions, yet in the service sector we see very significant skill shortages which begin to place increasing pressure on incomes and wages which, at their limit, appear to reach unsustainable levels. City firms now pay newly-qualified lawyers between £30,000 and £40,000 at the start of their careers. I do not believe that that kind of income is sustainable. To pick up a point made by the right reverend Prelate, I also believe that in the longer term the effect of such skill shortages and high wages in further increasing the already wide disparities in income will be potentially damaging to the coherence of our society.
To sum up on the overall economic situation, I do not believe there is a need to panic, but perhaps there is need to feel a little uneasy. This macro-economic picture must inform debate on the major economic and political issues that face us during this Parliament, of which I suggest there are two: the first is the possibility, or not, of our joining the euro; the second relates to the funding of public services.
As to the euro, in the very short period since the election we have already seen the price to be paid for uncertainty. First, within days of the election there was speculation that the Government might be readying themselves to grasp the nettle of quick euro entry. The sterling trade-weighted index fell by about 2.5 per cent which, incidentally, only rectified the rise in the index in the previous month. Although there was a good deal of concern about it, in absolute terms that was not a huge or unprecedented shift in the currency. However, when sterling falls by 2.5 per cent what happens is that within days the Chancellor has put the dampeners on speculation about euro entry in his Mansion House speech, by the typical Gordon Brown technique of using positive words in public but briefing negatively to the media in private. At the same time the Prime Minister briefs that any suggestion of an early announcement on the economic tests would lead to unacceptable sterling volatility over the summer. The pound obligingly then rose somewhat.
Therefore, the situation on euro entry is that the Government are committed in the next two years to an assessment of the five tests. They accept, or appear to accept, that sterling should fall before we enter. But they shy away from the first signs of the possible consequences of this fall in terms of inflation and possible increases in interest rates.
With regard to the question of the level of sterling and its effect on interest rates, one does not have to want to join the euro to want the level of sterling to fall. If one wants the level of sterling to fall, the consequences flow, in terms of inflation and interest rates, whether or not one joins. Therefore, many people who seem to argue against joining the euro on the basis that it will lead to higher inflation rates, while at the same time arguing that we need to have a more competitive currency, are frankly living in Cloud-cuckoo-land.
I return to the Government. Against this background of vacillation, it is hardly surprising that Goldman Sachs, among many others, has concluded that the odds of a referendum on the euro being held in this Parliament are less than 50 per cent. I hope they are wrong. But I say this to the Government: if they believe that they can achieve exchange rate stability while giving unclear signals as to their real intentions on the euro, I fear they are in for an unpleasant surprise. Together with the noble Lords, Lord Lea and Lord Tomlinson, I, too, believe that we need a clear timetable for the assessment of the economic tests and for the referendum. Furthermore, on the assumption that the Government want to win the referendum, we need greater urgency in making the argument for British euro membership.
If the Chancellor's real intentions on euro entry are opaque and potentially damaging to the economy, the election and its aftermath has left us little clearer about Labour's long-term view on funding the welfare state. We said repeatedly during the election campaign that there were three choices: first, one can pay less tax and have poorer public services; secondly, we argued that if one wants an improved quality of public services, one needs a targeted and fair additional tax income to fund it. The Government, having cut public services to the bone, propose a short-term boost to expenditure, but appear curiously unwilling to grapple with how quality public services in the longer term might be provided.
I agree with the noble Lord, Lord Haskel, that a large majority voted for improved public services. But a number of major uncertainties remain about the Government's intentions in this area. First, they have been unclear about expenditure plans for the second half of this Parliament. Secondly, they have been unclear about what they will do if the growth rate and tax income fail to reach predictions. The only matter about tax policy on which the Government are clear is that if they find that they must raise taxes, they have ruled out the fairest method of so doing; namely, income tax. I am surprised that those noble Lords who have argued that the tax burden was too high on the lowest decile have not argued also that if taxes needed to be raised in the future, the fair way is through income tax.
Both the Government and the Official Opposition during the election shied away from the fundamental choice that we face: do we want a US or an EU level of public provision; and, if so, how is it to be funded? We have no doubt that the British people want a strong welfare state closer to the EU than the US model. We believe that they agree with us that it must be paid for by fair forms of taxation.
During the course of this Parliament, the Government will face the crunch on public service funding levels. Frankly, they will not solve their problems simply by introducing private sector providers at every opportunity and only investing in schools, hospitals and the transport sector by using the PPP model. Today's IPPR report makes that abundantly clear. Indeed, in London we are likely to see a real crisis in terms of the future funding and management of the Tube before the end of the summer That has been brought about entirely by the Government's ideological "attachment"--if I may use that word--to a structure and funding mechanism which threatens to make Railtrack look like a model of efficiency and safety.
In arguing, as we do, for a first-class welfare system, we accept that one cannot have ever-increasing tax levels. That means if one wants to improve education and health to European levels, one needs to look at the productivity agenda. We need to look also at other areas of expenditure. That is one of the reasons we advocated strongly the introduction of compulsory second pensions to ensure that the state is not faced with unacceptable expectations among the growing proportion of the population of pensionable age.
As an enthusiastic reader of the excellent book of the noble Lord, Lord Saatchi, I was slightly surprised by his speech. The noble Lord argued eloquently that what the state must do is bring forward--I think he called it--"independence day". That is the point at which one stops, in effect, paying taxes. He argued that if you pay a quarter of your income in tax, at present "independence day" is at the end of March. The noble Lord wants to bring that date to the middle of February or possibly to the beginning of February. That is an understandable claim to make. However, the noble Lord appeared to argue that the level of government expenditure is lower than it should be and suggested that in the previous Parliament the Government should have raised expenditure further. That seems completely to cut across what the noble Lord says in terms of reducing the level of taxation.
I agree with the noble Lord, Lord Skidelsky, that the Conservatives' argument surely must be that if the Government want to reduce taxation and the proportion of GDP in the longer term, they must come up with interesting proposals for private provision in terms of health and education. We would oppose it; but we would welcome that debate, not least because we believe that we could win it.
With regard to the legislative programme for the Session ahead, the major feature today has been the enterprise Bill. We welcome many of its individual proposals; for example, the depoliticising of competition decisions and the simplification of VAT for small businesses. However, we believe that a number of problems will remain in the Government's enterprise agenda. There has been much debate, for example, about the regulatory burden. We on these Benches agree that the regulatory burden should be reduced and that the tax system needs to be simplified radically.
The one area where I disagree with the noble Baroness, Lady Noakes, relates to a number of the regulations which already exist, not least some of the European employment regulations about which the noble Lord, Lord Lea, spoke. Furthermore, the electrical equipment directive, which seeks to introduce a degree of sustainability into the production and disposal of electrical white goods, seems to be a welcome additional piece of regulation. But the problem that we have in this country is the gold-plated way in which many regulations are introduced. The simplification of VAT--admittedly, VAT is a tax rather than a regulation, but it is the same principle--could have been done 25 years ago if we had followed the French model when VAT was introduced. Instead we have a gold-plated tax system in terms of small businesses. The same applies to many other directives and regulatory measures. I believe that a much lighter touch in terms of implementation would reduce a great deal of the excessive burden on business .
Another area where the Government's objectives appear to be working against each other is that although the Chancellor is very keen to set up a regional venture capital fund in each region to improve enterprise and productivity, the Government have
On the productivity comparisons with the US where, as noble Lords have said, we do particularly badly, there is widespread acceptance, as the noble Lord, Lord Layard, pointed out, that a major contribution to this good performance in the US is the fact that it has a large single market with a single currency. Sadly, that is not an argument for UK euro-entry that we ever hear from the Chancellor.
Finally, our approach to the media Bill will be somewhat more reserved. We want to look very carefully at its effects on the degree of competition in the media industry. The sight of a somewhat vulpine Mr Murdoch emerging from Downing Street within hours of the election makes us believe that we need to be particularly vigilant in that area.
There are some big challenges facing the Government in this Parliament. They will require boldness and self-confidence to resolve. But a mere two weeks after the election, boldness and self-confidence seem sadly lacking. The heady atmosphere which greeted the Government's election in 1997 is wholly absent. There is a clear and ongoing rift between the occupants of Nos 10 and 11 Downing Street. There is a worrying uncertainty about the direction in which the Government wish to take the major public services in the longer term. More generally, there is a disappointing timidity in the Government's ambitions for Britain.
Lord Higgins: My Lords, I join with the noble Lord, Lord Newby, in welcoming the noble Lord, Lord McIntosh, to his previous place on the Government Front Bench. For a long while we have both admired his versatility. We look forward with interest in how he applies himself to the first reference by the noble Lord, Lord Newby, which if I understood it correctly, was that the Government's inheritance from the last parliament is rather less favourable than that which they had from the previous Conservative government.
I join also with all those who have welcomed the noble Baroness, Lady Hollis, to the Front Bench. We have always admired her great expertise in the area of social security. We welcome her back under an assumed title; namely, the Minister for Work and Pensions rather than social security. That is a pretty pointlss change. I am not at all clear why there is the reference to work rather than having the very traditional expression "employment" if we have to cover the fact that that is now a responsibility being taken over by the new department. As the noble Earl, Lord Russell, pointed out, the noble Baroness has
I begin in a rather traditional way--which was also true of the right reverend Prelate the Bishop of Southwark--in commenting on what was not in the gracious Speech. That is normally the case. People say that there are various things which they would have liked included. I would have particularly liked to see included the limit on annuities being taken at the age of 75. That is a matter on which your Lordships have voted in favour on several occasions. Obviously, there should be protection as regards people not becoming dependent on social security benefits. Perhaps the Minister can confirm whether it will be possible to cover that by way of amendment, if necessary, in the welfare reform Bill.
I have a particular point for the noble Lord, Lord McIntosh. In the previous administration we had an interesting Bill on government resources and accountancy. We moved a number of amendments which the Government did not accept. They set up a committee under the noble Lord, Lord Sharman, who has produced an excellent report. The Treasury missed its chance because it waited many years to produce the Bill but it did not contain everything that was needed. I hope that such a Bill will meet with general approval, given that the noble Lord, Lord Sharman, has now recommended the amendments which we proposed and which the Government rejected. We hope that those amendments can be included at an early stage.
I had not anticipated as fully as perhaps I should have the extent to which this debate would be dominated by the question of the euro. I rather assumed that that would be a matter for Thursday's debate. No doubt my noble friend Lord Howe will cover a number of its aspects although it may well be that it should not be regarded as foreign affairs but part of economic policy.
Therefore, I make one or two comments of my own in anticipation of that debate. The issue was first raised by the noble Lord, Lord Roll. Like many younger economists I have always regarded him as something of a hero in terms of economic analysis. It was very good indeed to hear his views this evening. He concluded by saying, I believe, that he thought that eventually we would join the euro. That was clearly not sufficient for the noble Lord, Lord Lea of Crondall, who seemed dissatisfied with the speech of the Chancellor of the Exchequer to the bankers in the City of London a few days ago and urged more rapid action in that regard.
I had a great deal of sympathy for the intervention of the noble Lord, Lord McCarthy, during that speech. He made the crucial point that joining the euro is irrevocable. We have to realise that we would be giving up for all time the major means of adjusting for the movements in costs and prices and that the larger the area becomes, the greater the increase in the strains on the system. No doubt this debate will continue although it has been fairly wide ranging this afternoon. One will need to take into account the extent to which the present euroland could take the strain of the addition of an economy of the size of the United Kingdom.
The noble Lord, Lord Layard, was clearly also an enthusiast in this area. I was a little unclear. I believe that he used the expression that "demand management" was going to solve all our problems. The reality is that many of those who have argued for our joining the euro--particularly Japanese companies which invest in this country which are anyway going to have to make adjustments between at least two exchange rates--are really saying that they want a more competitive sterling exchange rate rather than it being a question of joining the euro. The two issues have become quite significantly interlinked, which they are. No doubt we shall discover in subsequent debates how the noble Lord, Lord Layard, proposes that the sterling exchange rate should be adjusted. I bear in mind the statement made by the then Prime Minister, Mrs Thatcher, to Mr Lawson that one could not buck the market.
As regards the points made by the noble Lord, Lord Roll, about the Bank of England, we also have to consider that it does not have an exchange rate target although we may be reassured by the fact that in a recent speech Sir Edward George said that he was praying for the euro. By that I take him to mean that he prayed that it would increase in value. At all events, it has not been a tremendous success until now. It is a matter which will be returned to in the debate on Thursday. I hope that nothing I have said is inconsistent with what my noble friend may say. What worries me is that he was taught at Cambridge by Lord Kaldor, whereas I was taught by Sir Dennis Robertson. They did differ.
As regards the Opposition in this Parliament, we shall continue to scrutinise this Government's legislation with great care. I believe that we may reasonably claim as regards these subjects that in the previous parliament, with some connivance with the noble Baroness, Lady Hollis, we did a good job on the social security fraud legislation and child support. We look forward to continuing that approach, not least because it appears that the other place will be programmed like mad and we shall have the job of sorting out the drafting problems in government legislation. We look forward to that task.
I made my next point on the last occasion on which I spoke during the debates on the gracious Speech. It is important that these issues are announced to Parliament. It was quite appalling that last Monday, only three days before the gracious Speech, the Chancellor of the Exchequer should have made what
Having said that, I do not totally object to some of the Chancellor's proposals; for example, those on capital gains tax and competition policy. Over the years, we on the Conservative Benches have been in favour of a more rigorous competition policy and have sought from time to time to improve it. The noble Lord, Lord Borrie, who has more expertise in this area than anyone else I can think of, drew attention to some serious problems. He made an important point about the distinction between civil and criminal actions and whether what is proposed is likely to be a more effective means of carrying out competition policy. The noble Lord made a number of other important points.
My noble friends Lady Noakes and Lord Northbrook referred to the Labour Government's abysmal record on increasing competitiveness. The British Chambers of Commerce stated that the costs brought about by red tape have increased by around £15 billion. The noble Baroness, Lady Hollis, will know that in debate after debate on Bills in the social security field my noble friends and I have stressed--I refer in particular to my noble friend Lord Astor of Hever--the increased burden being placed on business. That has inevitably affected British competitiveness. According to the CBI, taxes on business increased by more than £26 billion. Since 1997 we have fallen from ninth to nineteenth place in the league table of international competitiveness or, as my noble friend Lady Noakes pointed out, using the analysis of the World Economic Forum, we have fallen from fourth place to ninth.
The overall effect of the measures taken by the Chancellor and the Government has been to reduce rather than to increase our competitiveness. The British Chambers of Commerce is now publishing a "burdens barometer". It sets out a number of the issues involved and the way in which IRS 35 and so on are reducing competitiveness rather than increasing it. Those are serious matters. The measures introduced by the Chancellor will not be sufficient to offset the changes which the Government have already made. The Chancellor has an appalling tendency to complicate matters. The proposed change in capital gains tax is an example. There has been an endless stream of tax credits; for example, the working families' tax credit.
I shall say a few words about the social security aspects of some of these matters. I turn first to the issue of pensions and in particular to corporate and company pensions. As always, I declare an interest as the chairman of a company pension fund. The Government's policies on company pensions have had a serious effect. I refer in particular to the notorious £5 billion change in advance corporation tax. It was not fully understood at the time but is
We should be proud of company pensions. The funding of company pensions in this country is greater than the funding of all company pensions in the rest of Europe. Yet, having constantly paid lip service to the importance of company pensions, the Government clobbered pension funds. However, as Mr David Smith pointed out in an important article in the Sunday Times on 22nd April, it was unnecessary. The Government's policy, oddly, has been to increase taxation and tax revenues massively without a corresponding increase in public expenditure. It is an extraordinary situation. The Government have massively repaid the national debt. Not surprisingly perhaps, that was not set out in their 1997 election manifesto. It would be even more surprising if it had appeared in their recent manifesto because that process will be reversed, as my noble friend Lord Saatchi pointed out in his opening remarks.
I shall say a few words about pensions more generally and refer in particular to stakeholder pensions. The noble Baroness, Lady Hollis, will recall that during our debates on stakeholder pensions the Government said that they would seek to arrange for a "decision tree" to be published so that people could understand whether they should invest in the stakeholder pension. What has been produced is unsatisfactory. It has not extended into alternative investments; for example, ISAs or AVCs. I hope that the position can be improved. The crucial point is whether the stakeholder pension is a sound investment given that the Government's proposal on the minimum income guarantee is that it should increase in line with earnings. As Mr Frank Field so memorably pointed out, it is possible that people may invest in a stakeholder pension and then find that they get nothing in return.
To give the Government credit, they have sought to cover that point by the Pension Credit Bill. The gracious Speech states that legislation will be introduced for a new tax credit scheme and that it will include a pension credit as well. I am not clear whether there will be two separate Bills. Perhaps the Minister will say whether the main Bill will subsume the Bill on pension credits.
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