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As to the £2 billion tax raid that was mentioned by the noble Baroness and the noble Lord, Lord Northbrook, in May 2006 we announced our intention to convert the earnings-related state second pension into a flat rate top-up to the basic state pension, and the changes in the Budget earlier this year, because they increased the upper earnings limit, would have changed the originally conceived timeframe by which that would have been delivered. All these proposals do is take us back to where we were and where we expected to be.

Baroness Noakes: My Lords, will the noble Lord concede that the original proposals were framed so that the S2P levelling-out would coincide with the introduction of earnings indexation in relation to the basic state pension? That was very clearly stated, I believe, in the May 2006 document.

Lord McKenzie of Luton: My Lords, the proposal was that the earnings related would be phased out by 2030. To achieve that, if the upper earnings limit, with a normal uprating for inflation, had been where it was expected to be, it would have started in 2012. But because that upper earnings limit is increased, it needs to start in 2009. There is no change to where we expect to be and where we will end up.

The noble Lord, Lord Oakeshott, supported us on the capital gains tax changes. He reiterated his previously expressed view that the state pension should be subjected to a very substantial increase and we have dealt before with the significant costs that that would entail. He referred to levels of personal and corporate debt, as did the noble Lord, Lord Higgins, the noble Baroness, Lady Noakes, and the right reverend Prelate the Bishop of St Albans. The savings ratio is predicted to stabilise over the forecast period. Household net wealth has increased by 72 per cent since 1997 and total household assets are now worth £7.5 trillion. The stability in the economy, rising employment and rising real disposable incomes have influenced decisions about precautionary savings. The growth in total household debt is now at

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its lowest for five years, while growth in unsecured personal debt is now at its lowest for 13 years.

We should not be complacent about this and the Government have put in place the financial inclusion fund which will provide £130 million over the next three years. This will fund in part £47.5 million for face-to-face money advice services. More than 500 advisers are in post and more than 44,000 clients have been advised.

The noble Lords, Lord MacGregor, Lord Higgins, and Lord Stevens, and the noble Baroness, Lady Wilcox, referred to levels of government debt. The reality is that the Government are meeting their fiscal and sustainable investment rules. Public sector net debt was 36.7 per cent last year, a reduction from what was anticipated in the Pre-Budget Report—there was no mention of that from noble Lords opposite—and remains below 40 per cent throughout the forecast period. It is misleading to compare net debt in cash terms in different years because in cash terms the economy will have changed as well. What is important is debt as a share of GDP, the measure that the Government target in their sustainable investment rule. So debt is forecast to be lower as a share of the economy in 2013 at the end of the forecast period than it was in 1997-98—38.6 per cent against 41.3 per cent.

As to what is or is not included on the balance sheet, the Government have always been committed to using best practice accounting methods to construct the public accounts, as set out in the code for fiscal stability. It is simply not appropriate to add up the capital value of all PFI projects and put them on the net debt. That ignores the timing of the capital that is delivered under the deals and, indeed, it does not take account of debt that is repaid.

The noble Lord, Lord MacGregor, posed me three questions about local reorganisation. I can answer only the second, which was: will I bring it to the attention of the Chief Secretary? Yes, I will, and I will respond to the noble Lord on his other two points. With regard to Northern Rock and all that flows from it, he asked whether anyone was considering the role of rating agencies. The G7 has asked the Financial Stability Forum to look at a range of issues in response to recent global financial turbulence, one of which is the role of credit rating agencies and the use firms make of them. The final report is due in April 2008.

The noble Baroness, Lady Thomas, raised issues about the CAB and tax credits. The take-up of the child tax credits has risen from 79 per cent to 82 per cent with more than 90 per cent of the money available being claimed, and the take-up among those with incomes of less than £10,000 is now at 97 per cent. We recognise and acknowledge the important work that Citizens Advice does. It provides an important advice and representative service for many employees, which is why we provide more than £24 million of funding for Citizens Advice to cover core costs. That is not funding to local bureaux, which get their funding in a different way.

The right reverend Prelate the Bishop of St Albans challenged me about social morality and economic

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affairs and how easily they sit together, which is a highly relevant question. I do not believe that they cannot sit together, but it is important that we always think about not only social justice but the wider moral position of business undertakings. I understand the suggestion that there should be a gathering of senior bankers, philosophers and others, perhaps faith communities in the UK, to address how we have ended up where we are and where we are going, but the reality, as other noble Lords have said, is that this is an international issue.

We should also recognise that financial services play an important role for all advanced economies. They match savers to borrowers, help to manage risk, provide firms with the means to make and receive payment and allocate savings to productive investment. In my view there is nothing inherently evil or immoral about the financial system because it serves us as individual consumers.

The noble Lord, Lord Desai, talked about the complexity of the international banking system, which is absolutely right, and where we go from here with regard to Northern Rock. The Governor of the Bank of England has asked important questions about how central banks can exercise their financial stability responsibilities in today’s transparent global market. There are lessons to be learnt from recent events and it is right that we work with our international partners to address them. Specific action is being undertaken to address issues raised by the governor. A discussion paper on deposit protection addresses concerns about the compensation scheme and arrangements for handling the administration of banks. It will review the relevant regulations concerned with takeovers to assess whether they inappropriately frustrate rapid bank takeover. We are working through the Financial Stability Forum to reach a shared understanding of the ability for EU central banks to provide covert support to protect financial stability, and we will work with other member states to provide certainty if necessary.

The noble Viscount, Lord Eccles, gave us an interesting tale of his practical experience in dealing with mortgage finance. He asked why the regulatory system did not pick up Northern Rock. The bank’s reliance on wholesale funding and securitisation was known to the authorities and to the markets. That was not in itself a problem. The FSA explained to the Treasury Select Committee that it recognised Northern Rock as a “high impact” firm but it underestimated the risk of a complete freeze in critical wholesale markets. The FSA’s assessment was widely shared by market commentators and analysts and other banking regulators globally. The authority has acknowledged that we need to learn the lessons of the Northern Rock experience, and it is conducting a review—but also that we cannot, and do not, run a zero-risk regime.

The noble Lord, Lord Higgins, spoke about Northern Rock and asked about the consultation on the publication of the draft programme, and what had ensued from it. I do not have that data to hand; if meaningful data exist, I shall communicate them to noble Lords. He welcomed the unclaimed assets scheme, and I welcome his welcome. It was interesting

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to hear about his experiences in Switzerland. He talked about the need to be proactive in reuniting people with their accounts. Reunification is a central part of the scheme that is proposed. It dates back to 2005, when we made it clear that the first element of any scheme is successfully putting consumers in touch with their money. The Government welcome the banking and building society sector’s commitment to a major reuniting exercise ahead of the scheme’s launch, and they have written to the BBA, the BSA and National Savings to encourage them to work together to help consumers access their accounts more easily.

The noble Lord spoke a little about the Pensions Bill. He also asserted that the tripartite arrangement had failed. That is not a fair judgment. Nothing has emerged which fundamentally challenges that tripartite structure, but lessons can clearly be learnt from how it operated in practice.

The noble Lord, Lord Marlesford, took us on a wider journey in telling us where he thought the credit squeeze was heading and its international ramifications. He urged us to continue to cherish the City of London, which we should do. The noble Viscount, Lord Eccles, reiterated that sentiment. However, some of the noble Lord’s prescriptions in terms of foreign policy interactions are beyond the sole control of Her Majesty's Government.

The noble Lord, Lord Northbrook, talked about inflation and pressures on public sector pay. He was right, but we need to recognise the supreme importance of keeping in place the fiscal framework. It is that which has helped the stability on which our economic success rests. He also asked whether the Bank of England should not have provided liquidity for the market at an earlier stage. We believe not, because massive amounts of money would have been required if enough of that liquidity was to flow through to Northern Rock. In providing individual support, we did it the right way round. It is not for me to speculate what the bank is worth; I simply do not know.

I see that compulsory annuitisation is back on the agenda and look forward to some interesting debates about it. As we learnt on the previous occasion, taxation is a matter for the other place and not for your Lordships’ House—thankfully.

My noble friend Lord Truscott asked me to assure your Lordships' House that the country’s energy policy is in safe hands. This I do, and I pay tribute to the role that he played as Energy Minister in advancing us to where we are now. He made clear, as did my noble friend Lord O’Neill, his support for a new generation of nuclear power stations—the noble Lord, Lord Razzall, did not show quite the same enthusiasm from the Liberal Democrat Benches. We have already expressed our preliminary view that it would be in the public interest to allow the private sector to invest in new nuclear power stations. We have further stated that we will reach a conclusive view around the end of the year. That is why we have prepared contingent provisions for the Energy Bill which will ensure that developers put in place adequate funding to pay for the full cost of decommissioning and the full share of waste management.

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My noble friend Lord Truscott talked about climate change and security of supply, and asked whether they should be tackled together. He spoke, too, about the EU renewables target of 20 per cent. The Government fully recognise the need to tackle climate change and security of supply together. Measures which will tackle both challenges are in the Energy Bill. The 20 per cent target is EU-wide; it is not a target specifically for the UK. After a decision has been reached on each member state’s contribution to this target, we have committed to bring forward measures to meet our contribution.

My noble friend Lord Truscott again said that the Government need to do more on nuclear waste. On the topic of dealing with our nuclear waste legacy, we are actively tackling the problem. We have identified the best solution and accepted the recommendations of the Committee on Radioactive Waste Management for deep geological storage.

My noble friend Lord O’Neill again spoke with great authority on energy issues and my noble friend Lord Truscott spoke in favour of nuclear generation. He asked me specifically about the pay issue for nuclear inspectors. We recognise the important role that those experienced individuals will play if the programme goes ahead. I am pleased to say that recent discussions with Treasury colleagues have been productive and I am hopeful that the matter can be satisfactorily concluded in the very near future.

My noble friend also asked me about fuel poverty, on which the White Paper makes it clear that we would expect energy suppliers to match the best in the market on social programmes and, if they did not take sufficient action, we would consider legislation. We are working still with Ofgem and energy suppliers in that context, but I notice concerns about how the current operations are working in practice. He also said that he thought that the EU targets of 10 per cent renewables by 2010 were unrealistic. Our renewables targets are challenging, but we believe that they are realistic and remain committed to them. We are taking action to reach them, which is why we propose measures in the Energy Bill to improve the renewables obligation. Our modelling shows that they could treble renewable generation in the UK to about 15 per cent by 2015.

The noble Lord, Lord Kirkwood, said that we needed to do more on energy, and the energy White Paper sets out a comprehensive package of measures to improve energy efficiency in the UK.

My noble friend Lady Turner, with her great experience, talked on pensions and asked what would persuade people, particularly those who are not on high incomes with stretched family budgets, to save for retirement. I believe that we need the combination of employer contributions, tax relief, automatic enrolment and default funds in the scheme, so that individual choices about investment do not have to be made. That is certainly a collection of issues that would help—but I know that that is not the whole case, and that benefits are part of the discussion.

My noble friend Lady Hollis as ever produced a thoughtful analysis, which it is almost impossible to respond to in detail in the time available. She

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mentioned the debate that we had on class 3 national insurance contributions and the right to purchase prior years. The commitment that we made was that we would consider all the options in terms of the following principles: fairness, as any solution must help those most in need; affordability, as any solution must be affordable and sustainable; and simplicity, as it must be deliverable, simple to implement and understandable to those whom it would benefit. As my noble friend recognised, work has been done on that and continues to be done, and we hope that conclusions can be reached shortly.

My noble friend also made interesting observations about the role that equity release might play. Certainly, purchasing an equity release product can be a complex financial decision and individuals need to be sure that any product they purchase is right for them. Consumers need to make informed decisions and should seek independent financial advice. The FSA, as a result of this Government’s measures, now regulates mortgages and home reversion plans.

The noble Lord, Lord Cotter, asked about the Local Better Regulation Office and what it entailed. He asked whether it was simply another level of bureaucracy. We believe that the LBRO and other provisions in the Regulatory Enforcement and Sanctions Bill will provide benefits to business of up to £100 million in savings. The LBRO will bring in a more strategic and co-ordinated approach to regulatory enforcements. Two of the problems that were discovered with regulation were that there was inconsistency, particularly at local authority level, which needs to be tackled, and inappropriate enforcement mechanisms through the courts. Tackling those problems is included in the Bill.

My noble friend Lord Pendry talked about the skills of the workforce, a very significant contribution. I can say that spending on adult skills and apprenticeships will rise to £5.3 billion a year by 2010-11, allowing for good progress against the Leitch world-class ambitions in the CSR period. What runs through a lot of what we are doing in welfare reform, recognising that work is the best route to get people out of poverty as well as being good for one’s health, is a recognition that we need to help those who do not have the skills to access the job opportunities that exist.

The noble Lord, Lord Stevens, took a pretty dim view of the Government’s handling of the economy, and I would not agree with that. He also talked about the failure of the tripartite system. I believe that I have set out our views on that. I do not accept that the Government have destroyed pensions. The debates we have had have shown that changes in longevity and what has happened to asset returns are key to that. We also talked about borrowing and GDP.

The noble Lord, Lord Kirkwood, talked about equity and poverty. I agree entirely that there is much to do if we are truly to eliminate poverty within the United Kingdom and more widely. I believe that we have made a good start. The benefit simplification programme certainly needs to take root and make progress. His observation on whether 13 weeks is

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sustainable in terms of jobs was very interesting. It is at odds with what was said in the report that we received.

My noble friend Lord Berkeley talked about energy efficiency and the need for energy-efficiency measures in the domestic sector. The White Paper announced a number of measures to help improve domestic energy efficiency. I do not have time to go through them now. I hope he will forgive me; I will write to him later.

The noble Lord, Lord Razzall, talked about impact assessments and said they should be required for every new regulation. The Government already publish impact assessments for all legislation and regulations with significant impacts on business. It is not for absolutely every one but for every one that could have a significant impact on business. They have recently reviewed the whole approach to impact assessment, bringing more focus and accountability to how they are drawn up. The noble Lord referred to the right to request flexible working and said that it should extend to all employees. The Government do not take a blanket approach to regulation in that manner and are mindful of the effect on business. The success of the right to request flexible working has been due to its targeted nature. We first introduced the right to request for parents with children under six and then extended it to carers. We are now extending it to parents of older children. It has worked and I think that our approach has been important in that.

The noble Baroness, Lady Wilcox, challenged us on the renewables target. I should reiterate that the United Kingdom remains committed to the EU renewables target, contrary to media reports. She cited the oft-cited figure of £55 billion as the cost of regulation. That is an unfair figure. It includes the cost, for example, of the national minimum wage. It is not the cost of administering regulation; it is the consequence of it. If the noble Baroness wants to challenge whether we should be encouraging the national minimum wage, and if that is still the Conservative Party policy, then that would be an interesting development. She also said that for security of supply we need to invest in new infrastructure. The private sector stands ready to invest billions in the new energy infrastructure needed to ensure security of supply, and the Energy Bill will update the regulatory framework providing clarity to investors and allowing investment to take place.

This has been an extremely interesting and worthwhile debate; indeed I expected no less. There has been a general theme running through the issues before us and one that the Government remain committed to—that of ensuring that every person in this country benefits from the unprecedented economic growth and prosperity that we have seen over the past decade; that we foster and encourage that growth; and that we sustain these opportunities not just for ourselves but for future generations. That has quite properly raised expectations and aspirations for full employment and a society in which no child, working-age adult or pensioner should live in poverty.

The specific measures before us today will give a further boost to our determination to tackle child

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poverty, ensure that there is fairness and justice in the workplace, build on the pensions settlement to provide enhanced security for tomorrow’s pensioners and channel dormant funds to support our communities and young people today. They will improve the framework for protection of depositors and improve confidence in our financial system, and recognise that we do not have to sacrifice prosperity and business efficiency to maintain effective regulation undertaken on behalf of us all. They address the crucial challenges of ensuring clean, secure and affordable energy supplies for current and future generations, and enable us to play our full

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part in Europe. As my noble friend Lord Haskel said, taken together they have a moral thread—fairness, consideration for the future, promoting a framework within which individuals and their families can flourish, and underpinning it all, the vital importance of a successful, stable economy. I look forward to our detailed consideration of these matters as the programme unfolds and commend these measures to the House.

On Question, Motion agreed to nemine dissentiente; the said Address to be presented to Her Majesty by the Lord Chamberlain.

House adjourned at 9.31 pm.

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