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Lord Marlesford: My Lords, yesterday, we spent quite a lot of time debating the international consequences of terrorism. Today, we are primarily talking about the economy. If it were not for the shadow of terrorism emanating from Islamic fundamentalism, I would feel pretty confident about the outlook for the economy of much of the world. The United States, fuelled by its normal boundless optimism and its incredible flexibility and with a second-term president who should be able to resist the forces of protectionism to which I fear that John Kerry would have succumbed, should in any case turn in a healthy economic growth rate this year and probably next year as well.

China, which I visited last week, is populated by the most entrepreneurial race in the world, bubbling with activity. I had the chance of spending one hour with the Central Party School in Peking which, on behalf of the Central Committee of the Communist Party, is seeking to ensure that the foundations of the thought of Marx and Mao can be adapted with "Chinese characteristics" to the real world of Deng's black and white cat. The one message that I received was that the Communist Party is united in a determination to continue the development of the market economy.

Even India, for so long a sleeping giant, plagued by that stultifying, almost Stalinist combination of socialism, bureaucracy and corruption, is beginning to stir. The old order, based on the wretched caste system, is breaking down and India is moving into the high-growth league.

Every epoch needs an engine for economic growth and it is clear to me that, today, that engine is in Asia. Sadly, of the great continents, only Africa remains something of an economic basket case. Despite all the help and advice from the rest of the world, every time that an economic dawn seems about to break, some African leader or would-be leader presses the self-destruct button and darkness once again descends on that continent. Russia, too, is a source of real worry. Although the Russian economy has been well fuelled by higher oil prices, the political and structural changes under an increasingly authoritarian leader must make us all pause for thought.
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Of course, Europe is of closest concern to us. When Donald Rumsfeld referred to old Europe, he was speaking in political terms, but his definition is even more relevant in economic terms. Although the euro-land economy has been performing lamentably, with a combination of sluggish or even negative growth in the past few years and intolerably high unemployment, I believe that the enlargement of the EU has brought a new dawn. Not only has French hegemony been destroyed, I hope for ever, but the great majority of the 10 new countries, as well as a number of the previous 15, have made clear that they want to be part of a thrusting and vibrant entrepreneurial Europe.

I caught a glimpse of that when I visited the three Baltic states with the All-Party Group on Arts and Heritage in September. Liberated from half a century of the most brutal Soviet rule, they are bursting to get going. So, I understand from many anecdotes, are former Warsaw Pact countries, including Bulgaria and Romania, which hope soon to join the EU. Britain, along with Italy and Spain, has been a leader in forming the new Europe with its Atlanticist outlook: a Europe of lower taxation, low employment costs and a smaller public sector. Unfortunately, following the Madrid bombing, Spain seems to have changed sides: another victory, I fear, for the Islamic terrorists.

The gracious Speech made much of the fight against terrorism and I shall refer only to the economic costs of it. There are three. First, the public spending cost of fighting it is considerable, especially in the USA, where it has contributed to a large budget deficit. I suggest that here too it may threaten the Chancellor's Budget arithmetic. When the noble Lord, Lord McIntosh, replies to the debate, he may be able to give us some estimate of the direct public spending cost of fighting terrorism.

The opportunity cost is almost certainly, at least in part, in denying help to those who most need it. I was very struck by the speech that we have just heard from the noble Lord, Lord Giddens. I very much agree with the underlying philosophy that he was expressing; whether our actual recipes would be the same I do not know. Michael Howard made a speech setting out his eight "I believes" a while ago. I would have added one, which is that I believe it is immoral to give taxpayers' money to people who do not need it at the expense of those who do. There is much scope for changes of policy along those lines. We could reduce some of the unacceptable levels of poverty to which the noble Lord referred.

Secondly, there is the effect of terrorism in disrupting trade and commerce. That is probably not measurable, but I am sure that it is considerable. We can all think of examples of it. Thirdly, there is the rise in oil prices. In economic terms, that is exactly the same as a tax increase. If an economy is fragile, a hike in oil prices can have a seriously deflationary effect.

In that connection, I should point out that the UK is now moving towards the end of being a net oil exporter. We have had an annual trade surplus in oil for many years. In 2003, it was more than £4 billion.
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But the quarterly balances have been slipping since the beginning of last year and very soon we may well lose that great advantage.

What can be done about the rise in oil prices? One answer is nuclear power, and I was very struck by the remarkably interesting speech of the noble Lord, Lord Hunt, who spoke of the possibilities of uniting nuclear fission with nuclear fusion. I do not pretend to understand the full implications, but it sounds to me as though, for the moment at any rate, in the timescale in which we need to act, we should probably stick with nuclear fission, while recognising that the reactors must be safe, that the waste must be properly disposed of—because, as the noble Lord pointed out, it lasts for very many years— and that the reactors must in due course be properly decommissioned.

France produces more than 80 per cent of its power by nuclear means. We produce less than 20 per cent, but consume about 25 per cent of our power as nuclear because we import electricity from France. Even China is recognising the importance of nuclear power. It plans to increase the number of nuclear power stations from the present nine to 40 by the year 2020. That would be a considerable help. We need that nuclear power not just to counter the high price of oil—to add to the supply of energy to help to reduce it—but, perhaps above all, for environmental reasons.

Sadly, Her Majesty's Government are dodging the nuclear issue—there was not a word on it in the gracious Speech—as is the United States, but, again, perhaps a second-term presidency should give us hope. I hope very much that the big oil companies—which, after all, increasingly refer to themselves as energy companies—may go into the generation of nuclear power, because they have the resources and the management capability, and it is in their own interests to do so.

The noble Lord, Lord Davies of Oldham, who opened the debate, made much of Britain's economic performance under the new Labour Government. The Government and the Chancellor are indeed due credit for their stewardship. That stewardship has been of the economic achievements of the person whom I see as the great revolutionary of the 20th century: my noble friend Lady Thatcher. It was she who dealt with the problem of over-mighty unions. It was she who encouraged the industrial restructuring that turned Britain from a smoke-stack economy to a service and high-tech economy, with, as the noble Lord, Lord Giddens, pointed out, no more than 18 per cent of our GDP coming from manufacturing. It was she who returned the utilities to private ownership, which, with the outstanding exception of the railways, has been a very considerable success. It was she who encouraged supply-side economics. She encouraged her first two Chancellors, my noble and learned friend Lord Howe and my noble friend Lord Lawson, to cut the top rate of income tax from no less than 98 per cent to 40 per cent. Adjusting for inflation, that would mean that anyone earning more than £80,000 would have been paying 98 per cent tax, rather than the present 40 per
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cent. It is to the credit of our present Prime Minister and the Chancellor that we still have that 40 per cent tax rate.

Further changes in tax policy are needed. There has been much talk about the problems of inheritance tax and housing. I note with great interest that Italy has completely abolished inheritance tax and gift tax. Perhaps even more surprisingly, the parliament of Sweden, a country not normally seen as being on that side of the equation, is currently considering government proposals to abolish inheritance tax and gift tax. I hope very much that the Government will give radical thought to the possibilities along those lines.

Britain is well placed, compared to many other countries, to benefit from world economic growth and to contribute towards it. I hope very much that, whoever is in power, we shall continue to play our part.

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