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Thirdly, we can expect the genuine liquidity of Asia and the Middle East, probably each about $1.5 trillion, to compensate for some of the toxic liquidity being destroyed in the West. China, where I was earlier this month, is starting to do so with the formation of the new China Investment Corporation, with its initial funding of $200 billion. It must be encouraged to invest that in real assets in the West. The growing domestic market in China will help to offset a recession in America.
Fourthly, we have to deflate the oil price bubble. There are two ways to do it. The first is by ceasing to bully and threaten Iran, and by leaving Iraq to sink or swim on its own, but at the same time imposing a genuine two-state solution on Israel-Palestine. The deal at present on the table is not viable. America must deal with both Palestinians and Israelis on a more equal footing. Syria could be crucial in persuading the Palestinians to come along. Western military support should be focused on Pakistan and Afghanistan, where the threat from Islamism is far more serious. The second way is for both America and Europe to announce a massive long-term plan to construct nuclear power plants. The oil market will soon get the message.
Fifthly, the Governments of France, Germany and Italy must restructure their unsustainable social systems. We see the problems that Sarkozy is having at the moment, as he tries to do it.
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Sixthly, the British Government must continue to cherish the City of London, which now provides some 13 per cent of our GDP, as an international base for financial operations. Three-quarters of the enterprises functioning there are foreign-owned, and 25 per cent of the 1 million who work there are foreign passport holders. This should mean, for example, restructuring of the tax rules to get rid of the absurd fiction, imposed by Her Majesty’s Revenue and Customs, that funds in practice managed from London are in theory managed in Bermuda, the Cayman Islands and other such places.
I see history as being driven by both tides and storms. It is sometimes difficult to distinguish between them. Most of the world’s economic tides today are favourable to stability and prosperity. Political tides are another matter. Storms do not usually change the tide although, when they do, it is sometimes in the opposite direction to that which was intended. The ultra-left cultural revolution actually set China on the road to capitalism.
The credit crisis is a storm. It will pass, but it will need careful handling to make sure that it does not turn into a political storm, and some long-term changes in practice and attitudes must be made.
7.12 pm
Lord Pendry: My Lords, I welcome the opportunity to take part in this debate. The House has already held a debate on education following the gracious Speech, and I am sure that all Members will agree that education is the most important part of a successful advance beyond the already-impressive economic policy pursued by this Government, as the Minister made clear in his opening remarks.
I shall refer specifically to the pressing need for an increase in skills throughout the UK. Its necessity was pointed out in the review of skills carried out by my noble friend Lord Leitch and reiterated by the Minister. I am heartened to see that the Government have taken on board the main recommendations of the review, especially in relation to increasing the skills of the workforce by making sure that employers get the trained staff that they need.
As the House of Lords Select Committee regretfully pointed out in its report, despite our successful economy, which is arguably the best in Europe, we lag behind many of our main competitors in skills. We have to face up to the fact that a large percentage of our workforce possesses low skills, but it is to the credit of this Government that, since 1997, they have done a great deal to rectify the record inherited from the previous Government. There is much more to be done, and the gracious Speech spelt out the Government’s determination to tackle the skills shortage.
The Education and Skills Bill takes forward the proposals outlined by my noble friend Lord Leitch on how to improve skills across the country, create a workforce with world-class skills levels and increase economic productivity across the board. The crucial role of sector skills councils is to give employers a voice and ensure that they are fully behind the
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The Government clearly recognise in the draft Apprenticeship Reform Bill the importance of on-the-job training on accredited apprenticeship courses, which gives people a real chance to further their career prospects. I have already mentioned the Government’s impressive record. We have recently been told by the Skills Minister, David Lammy, that, during the past 10 years, the number of apprenticeships has increased from 75,000 to more than 250,000.
In my area of Tameside, the council has provided modern apprenticeships to school leavers, enabling them to earn a wage and gain access to learning in a work placement, while studying for a qualification relevant to their chosen occupation. Young apprenticeships are being offered to students who are still at school. Through combined work placement and college training, they work towards a City & Guilds Level 2 certificate and an NVQ in business and administration Level 1. Tameside is rightly recognised as one of the leading authorities in Greater Manchester, and probably in the country, for running such schemes and it should be commended. It is not alone: many other local authorities are engaging in exciting and innovative apprenticeship schemes.
I welcome the Government’s emphasis on employers and the focus on a demand-led skill system. I am pleased that sector skills councils are recognised as being at the heart of the solution. I hope that the reforms will mean that, for the first time, vocational education and training will be demand-led and that each student can look forward to better opportunities for employment when they enter the job market. I cannot think of a better incentive than that for young people to participate in education and training. However, I am concerned whether sector skills councils will be adequately resourced to do the job in hand and provide leadership to employers. They have been charged with leading the way in the reform of qualifications, but it is imperative that the Government ensure sufficient funding for the job to be carried out.
A question that must be asked is whether the publicly funded system will be responsive enough to employers’ needs. Employers in some sectors are finding that the qualifications available are not right for their industry, and the funding for the courses that are available is less than they would like.
One example that has been pointed out to me is training in the sport and leisure industry. I need hardly point out that that industry has a significant role to play in helping to build a stronger and fitter economy. It has the power to engage with people of all ages. As president of the Football Foundation and chair of the All-Party Sports Group, I am only too aware of the need for skilled professionals to work at all levels throughout the sport and leisure industries. This is a particular concern for me. We need football coaches, lifeguards, skilled fitness instructors, playworkers, outdoor adventure leaders and more. The Sector Skills Council for Active Leisure and Learning, SkillsActive,
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This is exactly the kind of employer-led direction to which many young people who may be considering leaving full-time education will be attracted. Employers in that industry are calling for people coming into the sector to have not simply to have the technical skills required, but better team-working skills, improved communication skills, better technical and practical skills, and improved customer-handling skills.
Through SkillsActive, employers in the active leisure and learning sector are coming together to invest in a key solution to the problem of skills shortages in the UK; namely, national skills academies. SkillsActive has been successful in the latest round of submissions for a National Skills Academy for the active leisure and learning sector, and hopes to provide a radical opportunity for the sector to meet the productivity challenge and increase participation in sport. The academy will ensure that all employers in that sector are linked to, and supported through, a single point of contact to identify the skills that are required. It will encourage many people to enter the industry and provide them with the right employability skills and motivation to work. It will provide employers with access to high-quality and cost-effective training and education for their new recruits and for the development of management skills for their existing workforce.
SkillsActive is also working to develop pathways for entry to the workforce. A sport and leisure diploma is being developed in consultation with employers, schools, colleges, training providers and other organisations in the sector, and aims to give young people a fully rounded qualification, combining theoretical and practical learning. Currently in the planning stages, the diploma is likely to be online by 2010 and a national entitlement by 2013.
The young apprenticeship for the sector is in sports management, leadership and coaching, supported by SkillsActive to allow 14 to 16 year-olds to combine academic studies with a blend of vocational qualifications and work placements to learn the skills required by employers. It is hoped that there will soon be one young apprenticeship partnership in sport in every county and there is a strong message that employers really want to engage in this programme. Skills passports are another innovation available to staff in the sector to allow employers to see what qualifications people have and need and to allow staff to move freely throughout the sector.
In conclusion, there is a great and obvious need for opportunities for young people in these skills sectors, and I urge the Government to take on board the views of employers and sector skills councils to ensure that the UK can be a nation with world-class skills by 2020.
7.22 pm
Lord Stevens of Ludgate: My Lords, what are the overall aspects of the Government’s economic policy? The decision to hand over the setting of interest rates to the Bank of England was a good one; the bank has done a fine job in delivering low inflation and stability
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Tax as a percentage of GDP has risen from 39 per cent to 42 per cent. In 1997, the balance of payments was in balance; now the deficit is more than £25 billion. If you take only half of those on benefit and add that to our unemployed, we have one of the highest rates of unemployment in Europe. We have had the lowest number working in manufacturing since records began in 1841—and it is still falling. Admittedly, globalisation has had a major impact, but we cannot go on reducing the private sector and increasing the government one. Government borrowing to finance the growth will be more than £30 billion this year. Public sector debt is now nearly 40 per cent of GDP, which ignores £20 billion for Network Rail and more than £160 billion for private sector finance, as well as more than £700 billion for public pensions not provided for.
For some strange reason, none of those figures is in the borrowing figures. Does that mean that the banks caught up in the sub-prime crisis do not need to take account of any of their outstanding guarantees? Just as European tax and borrowing levels are falling, ours are rising—and rising as we approach an economic slowdown.
Then we come to the restrictions imposed by Brussels. The Italian Prime Minister, Mr Prodi, a well-known pro-European, has rushed through an emergency decree authorising the deportation of thousands of Romanians, even though the Italian magistrates’ association has pointed out that it is a breach of EU law, which clearly states that EU countries can deport each other’s citizens only on an individual, one-by-one basis. Mass deportations are illegal. The UK studiously plays it by the rules, or maybe its gold-plated interpretation of them, but should we also, to reduce the economic burden on the state, be deporting those immigrants en masse who claim benefits without contributing and are here illegally?
Then we come to Northern Rock and the first run on a bank for nearly 150 years, which severely damaged the UK’s record of economic and financial competence. These episodes normally occur in third-world countries. It is a sorry story of the failure of the regulatory authorities, reorganised under the Government when the Bank of England was given independence, but more importantly of the board and the independent—or perhaps more appropriately non-executive—directors. While they basked in the unsustainable growth of Northern Rock, its business model had already proved faulty. As early as 2004, Northern Rock, having been caught out by higher interest rates, told its investors that half its loans would be met by retail deposits, yet when it collapsed, only one-quarter were matched.
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Where were the regulators? The Bank of England failed to step in early enough as the lender of last resort, perhaps influenced by its over-reaction to the last crisis—BCCI—in 1991, when at least one bank was forced by the Bank of England into arranging a facility that it did not need and did not use. The bank may have been nervous of becoming involved until the situation made it inevitable. However, it then stated that EC regulations prevented its intervention, although that was subsequently denied by Brussels. That is UK gold-plating again, perhaps.
The primary blame for this affair lies with a board that lacked the vision to see the inadequacies of its financial model and the Chancellor, who devised the financial regulations, falling between two stools, and lastly the regulators. It is somewhat surprising to say the least that the board has not resigned or been asked to when the Government are providing £20 billion plus of funding. The repercussions of Northern Rock are now, with the sub-prime problems, working their way through our economy, and have created much more nervousness than might otherwise be the case. Add to this the fact that the financial services industry makes such a substantial contribution to our economy and one can appreciate the damage that Northern Rock has done.
The biggest horror, of course, relates to the public finances. It is difficult to comprehend how much government spending has gone up. In 1997, it was £320 billion; it is now £580 billion. The absurdity of throwing all that cash at unreformed public services in the face of falling productivity and gross waste of resources is amazing. The unhealthy state of public finances should be regarded, as one eminent economist has put it, as a major achievement of irresponsible mismanagement. Look at the Galileo project, which cost maybe £10 billion. The UK contributes 17 per cent of the cost, which is decided by majority voting in Brussels, and two-thirds of those voting on this expenditure make no contribution to the cost. Frankly, this is absurd. In 2003, when we went into deficit, the Chancellor said that we would be in credit by 2004. In 2004, with a larger deficit, he said that we would be in credit by 2006. In 2007—and I need say no more.
Look at the fiasco of tax credits. To claim them, there is a 60-page booklet and then a 12-page form. The cost is £15 billion a year. The NHS spends £100 billion a year, up three times since 1997, and even now we are sacking staff and closing hospitals. The Prime Minister’s sanction of a £20 billion computer system for the NHS is a shambles and miles over budget. Tony Blair’s pledge to improve state schools so much, to use his words, that parents no longer feel the need to go private, are belied by recent figures showing that a growing proportion of families are paying to educate their children outside the state system. In almost one-third of towns and cities, more than one in 10 children attends a private school. That increase is in spite of a near 50 per cent rise in fees over the past five years. Even Labour MPs—very courageously—are saying that Mr Blair failed in his objective.
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In the mean time, Tolley’s yellow tax book is up from 4,500 to 10,000 pages. However, one piece of simplification to be welcomed in principle—and here I disagree with some noble Lords who spoke earlier—is a single rate of capital gains tax of 18 per cent. We have complained for years that it is too complicated; now that it is greatly simplified, we are getting complaints that it is an 80 per cent increase for some. Speaking for myself, it is a 55 per cent decrease; as I used to pay 98 per cent capital gains tax it is a huge decrease. So I do not think that 18 per cent, although I wish it was lower, is unreasonable. What I do think the Government need to do is to make some better and well thought-out provisional arrangements. We asked for simplification and we have got it. We should not complain about it now that we have got it.
Finally, let us look at what Labour said in its 1997 manifesto. It said:
As I mentioned, public spending has risen from £320 billion to £580 billion. Since 2001, spending has increased at 7 per cent per annum, vastly in excess of the growth in GNP. In 1997, new Labour said that public finances under a Conservative Government which were heading for a surplus “remain weak”. There is now a structural borrowing requirement of more than £30 billion. What does new Labour call that? And that is after taking £100 billion from private sector pension funds and ruining a wonderful provision for old age that was almost unique in Europe.
So congratulations to the Government on 10 years’ GDP growth—but at what cost, and what happens now? Unfortunately I do not have time for that, but it is going to be tough, with 20 per cent of household income going on debt repayments. Long gone are the days when the previous Prime Minister took the credit for the record level of the Financial Times share index. When it hit a new peak in 2000, it was all due to good government—a level which has never been achieved since. It this the market’s judgment on the Government's economic performance?
7.32 pm
Lord O'Neill of Clackmannan: My Lords, I am happy to follow the noble Lord, Lord Stevens, but I will not go down the same route; I intend to talk largely about energy, an area in which I have interests which have been declared related to the nuclear industry and related matters.
As the noble Lord, Lord Jones, said in opening the debate, we have in this Queen's Speech three Bills—on climate change, energy and planning—that should enable the energy industries in this country to start making a clear and targeted contribution to reducing CO2 emissions. Before today’s debate we had the Statement from the noble Lord, Lord Rooker, on the Climate Change Bill. Although there are differences of opinion about the targets which should be set and the frequency with which they should be reviewed, in the early stages it is premature to be unduly specific. I agree with the remarks made earlier by the noble Lord, Lord Truscott, that some of the targets imposed by Europe are totally unrealistic. I have
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What I do find rather depressing is the sectarianism of certain elements of the so-called Green movement which are prepared to frustrate this legislation because they see it as paving the road for the replacement of nuclear power. They choose to oppose the legislation while at the same time denying access to a number of renewable schemes, particularly wind and the like, which are presently being clogged up in the planning system—not always because of the system itself but sometimes because of the gutlessness of some local authorities which will not grasp the nettle of taking on board their responsibility, a responsibility which is sometimes seen in very short-sighted terms. There were several farms in my former constituency which wanted to have a complex of windmills that would have not only assisted in electricity generation but provided a revenue stream to enable the farm businesses to sustain the land for which they were initially established. It was frustrating to have to listen to the bleating of what some have perhaps politically incorrectly called the “white settlers”—the weekenders who come down and like the view but do not realise that farmers and farm workers are doing the business the other five, six or almost seven days of the week to maintain those views and keep the place going.
We have to recognise that those who seek to oppose the planning legislation are in danger of throwing a number of babies out with the bathwater. The fact that people are unhappy about nuclear power does not give them the right to deny us access to all forms of alternative energy which require extended or rigorous planning supervision and consideration.
I should like briefly to talk about the nuclear question. I am conscious that it is a delicate subject and that Ministers’ every utterance—perhaps some of them should have thought about this earlier—is being scrutinised by those who wish to seek refuge in the courts once a decision is announced. A number of us can read between the lines and see that the Government are prepared to do something about replacing the nuclear capability in this country. I use the word “replace” because I do not think that it is helpful to start talking in terms of 20 per cent or 40 per cent. Indeed, in the 1990s, when I had responsibility for energy policy in another place, I very quickly discovered that as soon as you put your money on any kind of energy source for any period of time you immediately get it wrong.
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