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Lord Newby: My Lords, today we are in for a typically wide-ranging Queen's Speech debate, which I am sure will be greatly enhanced by the five maiden speeches to which we look forward. I want to concentrate on economic policy and my noble friends will deal with transport and issues under the remit of the Department for Culture, Media and Sport. On the legislation that falls under the Treasury and the DTI, we on these Benches are likely to be broadly sympathetic to those measures, although, no doubt, there will be specific issues on which we shall wish to disagree with the Government.
My question on the legislation is, "How much will we see before a possible election in May?". Will we, for example, see the quick introduction of a Bill in respect of the Inland Revenue and Her Majesty's Customs and Excise, and will we see the quick introduction of a Bill to deal with consumer credit? I could not forbear chuckling slightly at the reference to the draft Bill on company law. Such a Bill has been promised year in and year out, and we are now to have a draft Bill before an election—certainly no legislation before an election. There is an issue about delivery on some big reform issues, particularly when the legislation stems from the Department of Trade and Industry, whose track record in that respect is poor.
Will the Minister also comment on a report in today's Financial Times about possible amendments to the Financial Services and Markets Act 2000 to change the regulatory framework for investment companies in the light of the splits scandal? Could he tell us a little more about the Government's plans in that area and the possible timetable for the introduction of legislation?
I would like to talk about three matters: first, the overall macro-economic situation; secondly, the uneven pattern of regional growth in Britain; and thirdly, the view of the Government and, in particular, the Chancellor about conducting economic relations with the EU.
First, on macro-economic policy and the overall macro-economic position, there is universal agreement that we are entering choppier waters. In recent years, economic growth has been fuelled principally by growth in consumer spending which, in turn, has been based on rapidly rising house prices, rocketing equity withdrawal, and a more general rapid expansion of credit. This period is clearly coming to an end. Retail sales figures last month were down 0.4 per cent, and house prices are now falling—the question is, how far and how fast?
Those trends will, of course, have an impact on the rate of growth, but will have an even greater impact on government finances. In this financial year, it is already looking as though the Government will miss their targets for revenue generation. As we have debated before, and as the noble Baroness, Lady Noakes, has pointed out, that has serious implications for the golden rule.
As I said when we last discussed the issue, there is widespread scepticism about the methodology under which the rule is calculated and increasing scepticism that it can be kept in this cycle—far less the next. There is also the prospect of entering the next cycle with large
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deficits and, therefore, the prospect of significant belt tightening at some point in the next cycle, if the rule is not to be breached.
I have argued before that we should have an independent assessment of the methodology which underpins the rule and of the assumptions made by the Treasury to underpin the Budget judgment. I was pleased to see, therefore, that since we last discussed the issue your Lordships' Select Committee on Economic Affairs made a broadly similar recommendation in its report published on 11 November. It stated that,
"we respond more positively to the idea of having an independent assessment by experts of whether fiscal policy is being conducted within the fiscal framework. We think that either there should be a body like the Council of Economic Advisors in the US, or parliamentary scrutiny of these macroeconomic issues should be increased. It would be premature to make a firm recommendation to set up such a body before more work has been undertaken to examine its feasibility and advantages, but we do recommend that the Treasury undertakes such a review".
Will the Minister give an undertaking today that the Treasury will conduct such a review?
The purpose of such a body would be to reinforce a stable macro-economic climate, which everyone agrees is essential for a successful economy in the medium to long term. It is also important that growth across the UK is evenly spread. Indeed, the Government have committed themselves to reducing the gap in growth rates between the regions.
However, in reality, the Government's policy decisions in this area are at best contradictory and in some respects positively counter-productive. As always, the Government cannot be faulted for rhetoric. In one of the obscure documents on devolving decision making published at the time of the Budget, the Chancellor talks lyrically about the end of the era in which the man in Whitehall knows best and about moving,
"allowing each nation, region and locality the freedom, flexibility and funding to exploit their indigenous sources of growth".
Since that wonderful rhetoric, we have seen two examples of how the Government have completely failed to match the words by the reality. Both failures arguably fall more at the door of the Deputy Prime Minister than that of the Chancellor; but they are failures none the less. The first relates to regional assemblies. The failure to win the north-east regional assembly referendum reflects a failure by the Government to be prepared to devolve real powers. They came forward with such timid proposals that their proponents simply did not have enough in the shop window to persuade voters that they were worth the bother. The collapse of the assemblies will, in reality, give greater power to unelected Government Offices in the regions who look first to London rather than to the region for policy guidance.
The result is that, by the time of the next election, the only achievement of the Government in England in enhancing regional decision making will be limited to the establishment of the regional development agencies,
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which, although they do valuable work, have no say in the bulk of government expenditure in the region and—despite the regional chambers—lack the democratic cover to give them real clout. Their performance is, I think, generally agreed to be patchy.
The second failure relates to the Government's plans for additional housing, with their concentration of huge housing development in the south-east. Those plans have been rightly attacked on sustainability grounds, with substantial fears expressed about the ability of the infrastructure of the region to cope with the increased development. These fears include the fact that there is already unacceptable traffic congestion, a shortage of affordable housing, and a strain on natural resources and the quality of the environment, all of which will get worse.
The proposals have also been attacked on economic development grounds. The IPPR has argued convincingly that the argument that more growth is needed to match our continental counterparts simply is not borne out by the evidence. The south-east is already doing as well or better than other European regions with major centres of commerce. It also argues that the south does not have an overheated labour market, nor does its future lie to a greater extent than elsewhere in the knowledge economy.
The real problems with the south-east's economy are the disparities of growth and employment in the region. London, for example, persistently has one of the highest unemployment rates in England. Those disparities will simply not be significantly addressed by the Deputy Prime Minister's plans. The Chancellor at least seems to accept that there is a problem with the plans. In a speech in Newcastle upon Tyne last month, he argued in favour of balanced economic growth and against a situation in which we have,
"unemployment and emigration and under-use of resources in one part of the country and congestion and overcrowding and huge inflationary pressures in the other".
I agree. The Government, however, need to decide what their priorities are. At present, their regional policy—to the extent that it exists—will widen the prosperity gap between poorer and wealthier regions, not close it.
The final area, which I shall address briefly, is Europe. We on these Benches, like everyone I am sure in the House, support the Lisbon agenda but disagree almost entirely with the Chancellor's chosen method of promoting it across the EU; namely, by hectoring, patronising exhortations to be more like the UK, instead of engaging in a constructive way at the formative stages of policy development.
As the CBI said in its recent report on promoting the financial services sector:
"in championing the financial sector has been something of a curate's egg in recent years. It has, on many occasions, secured 'good wins' on behalf of the financial sector around the negotiating table in Brussels. But these are often reactionary, and focused on retrieving situations where the UK is on the back foot. The financial sector would benefit from the government taking a more proactive approach to setting the agenda in the EU".
The position of the UK, as a non-euro member, on exerting influence on economic and financial issues is hardly strong in any event. As long as the Chancellor seeks to achieve success by brute force rather than by early, positive engagement with the issues, he will continue to sell the UK short in Europe.
A classic example of this misguided approach was to be seen last week. The Chancellor berated the rest of the EU for discriminating against the UK on public procurement contracts. He vowed to challenge the other finance ministers to do better. He went to an ECOFIN meeting, but left early, presumably before he had had a chance to tell them to do better, to come back to London to see the US Treasury Secretary. Of course it was something of a novelty that he turned up to an ECOFIN meeting at all, but it would be difficult to devise a form of behaviour less likely to influence EU opinion in the direction he claims he wants.
The Chancellor's increasingly Euro-sceptic noises are also helping to turn business opinion against the EU, which will make it more difficult to win a referendum on the EU constitution, far less a referendum on the euro. There is a view at the higher reaches of the Treasury even yet that, once a referendum comes and the Chancellor endorses a "yes" vote, a grateful nation will automatically follow suit. If only life were so simple. It is not.
The Chancellor has gloried—I would not go so far as to say "gloated"—in his stewardship of the economy to date. Yet, even leaving aside likely macro-economic problems ahead, his approach to regional policy on the one hand and European policy on the other is at best patchy. A sound economy does not just depend on action inside the Treasury itself, it requires a framework which leads decision makers at all levels to take decisions to reinforce the macro-economic stance. That has simply not happened. The Queen's Speech is silent on those issues. The Chancellor has much to be silent about.
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