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The big question is whether the CSR07 moneys will be spent any more wisely than any of the previous CSR settlements. We know that public sector efficiency has gone backwards during the years of high spending. We know also that we have not bought enough with the taxpayers’ money poured into public services. In education, 40 per cent of 11 year-olds are unable to read, write or add up properly, and only a similar percentage get five good GCSEs. In the NHS, we have frightening levels of hospital-acquired infections; local hospitals are facing increasing threats of closure; and the Government have bungled pay settlements. Our crime rates are among the worst in the world, and rising, with prisons bursting at the seams because of inadequate planning. Despite massive increases in benefits, child poverty has been rising and the Government are missing their targets by miles. We can see nothing in the PBR or CSR which makes us think that money will be spent any better in the future. Indeed, the Prime Minister seems to be leading moves away from public service reform, which might make a difference, back towards the central, stateist policies which have never delivered.
The Motion before us is that this House “takes note with approval” of the Government’s PBR assessment. For these Benches, I am happy to take note of the PBR assessment, but I cannot bring myself to do so “with approval”.
8.13 pm
Lord Davies of Oldham: My Lords, I am grateful to all noble Lords who have spoken in this debate. I was grateful for the generous welcome for my presence of the noble Lord, Lord Newby, and even for the rather less enthusiastic welcome from the noble Baroness. I regret that this is not my second debate on the economy and that I was not able to participate last week, but the noble Baroness will have to reconcile herself to the fact that there is much talent on the Treasury Bench and that many people are eager to participate in the major debates, whereas the Queen’s Speech offers only a limited number of opportunities.
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I rather regret the fact that she regards the debate as not being timely. The straightforward fact is that we are under an obligation to produce a response to Europe by the end of November. Due to our budgetary arrangements, we receive dispensation from time to time to present our report to Europe later than the November deadline, but in circumstances where we have produced our Pre-Budget Report, it would look quite extraordinary if we did not meet our obligations by putting it before both Houses and presenting it to Europe in good time. That is why this debate is taking place now. I hope that the House will recognise that it is an advantage for the Government to be in good standing with Europe by meeting the timetable, not least because the report is a contribution to the overall strategy which the European Union pursues with regard to the economies of the member countries. The more we are able to co-operate in those terms, the better are the returns for the United Kingdom.
I greatly welcomed the fact that the first contributor to the debate was the noble Lord, Lord Marlesford, who never fails to entertain the House with his insights into the economy. We all know his long record of participation in these economic debates and his distinguished record as an economic commentator before he arrived in this House. He and those on his Benches were perhaps overly pessimistic about the present situation. We must of course counsel some anxiety about international circumstances which present some challenges, but the British economy is strongly positioned to cope with such fluctuations. The noble Lord suggested that one of the great problems was that we have massive public and private debt. He was of course right that individual households have considerable debts—we can gross them up to the figure of £1.4 billion which he mentioned. It is also the case that households have increasing personal assets. The personal assets of households in the United Kingdom have increased by 72 per cent over the past 10 years. We must remember that when we are talking about the difficulties.
I will not follow the noble Lord, Lord Newby, down the road of discussing Northern Rock. He will forgive me for saying sufficient unto yesterday is the participation thereof. He will also recognise that when we look at the issues with regard to Northern Rock as with household debt we seek to identify those areas that are real securities against those where there is exposure. All I am suggesting to the noble Lord, Lord Marlesford, is that he is probably being somewhat unfair with regard to households when he grosses up personal debt, produces a substantial figure and suggests that that should make our flesh creep.
With regard to this situation, he generously said that the Government had maintained an income tax rate, which has now obtained over nearly two decades—a consistency that I know he applauds. The noble Lord, Lord Newby, was more explicit in congratulating the Government, but at the same time he will recognise that there is also some advantage in consistency with
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The noble Lord, Lord Newby, mentioned second home owners, who are the beneficiaries of this and might not be regarded as the most significant people to benefit. We will have a debate on these matters, but it does not alter the fact that when it comes to the issue of taxation with regard to business, the Government have adopted an intelligent and responsible approach. I reassure the noble Lord, Lord Newby, that we will not keel over in the face of industry pressure with regard to our proposals, but we are prepared to listen to the industry and business case. It is only right that a Government who are interested in the prosperity of our enterprise economy should do so. The Chancellor has given enough illustrations of that.
I was very grateful to my noble friend Lord Haskel; the sole contributor from my own Benches.
A noble Lord: He is in the Chair.
Lord Davies of Oldham: My Lords, I hope that my noble friend will forgive me. I had completely forgotten his elevation at this juncture in the debate so that he is actually presiding over our affairs. In that case, I shall be even more solicitous in praising him for his contribution earlier this evening. He is absolutely right. He identified the strength of the Government's position with regard to the business economy. It is far too easy for others to paint a gloomy picture when a great deal about the real economy is working very constructively indeed. I know that he is well versed and has spoken most recently in debates about the enormously significant role that we are playing in improving the skills agenda, particularly in increasing the role of science in our society and by the work of my noble friend Lord Sainsbury in contributing to the strengthening of our economy against fluctuations that confront us, as undoubtedly they will.
My noble friend was the only contributor this evening—I stand correction if I am wrong—to introduce that other dimension to which we must all have great regard: climate change. There is no doubt that it presents a significant challenge, but the Government are leading from the front on that issue. The whole House will recognise how much progress we have made with regard to the Kyoto targets, how fertile we are in ideas that promote a low-carbon economy and our intention to lead Europe in those terms. That does not alter the fact that this is a challenging agenda. I accept the point made by my noble friend that there is an element of acceleration in the air because of recent scientific insights beyond the Stern report. We must have due regard to that. It is certainly a challenge to which we need to respond.
On the question of the public aspect of debt to which the noble Lords, Lord Marlesford and Lord Northbrook, referred, it can sometimes be construed that everything to do with PFI means that you gross
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The noble Lord, Lord Northbrook, gave a somewhat pessimistic perspective on the economy, although he would no doubt portray it as a realistic one. He is of course right that we have challenging times ahead. None of us can look at aspects of the American economy without recognising that we will have to adjust against that perspective. He first said that he did not like our index on inflation, but it is the international index—a comparator that we have with other countries, which therefore makes comparison with us internationally valid. He will also recognise the difficulty with the other measure of inflation; every time the Bank of England puts up interest rates in order to manage the economy, it automatically pushes up inflation because the other measure of that is the mortgage rate built into its actual index. Now, that is a real weakness of that other index, but while one must have due regard for the burdens that households have to bear when people pay mortgages on their housing, I assure him that when the Government use their index of inflation it is for the best reasons of international comparison. I hope that the noble Lord will accept that dimension.
Baroness Noakes: My Lords, the Minister makes a stout defence of the use of CPI as the Government’s favoured measure, but said that it excluded certain items that are within the ordinary costs of individuals. Can he explain why the Government used that measure in their wage discussions with public sector employees?
Lord Davies of Oldham: Well, my Lords, we have one measure of inflation, which is the standard for the nation. I understand the enormous enthusiasm that the noble Baroness is presenting for the low paid worker, although—as with that enormous concern for pensioners and others with low incomes to whom she also referred—it was conspicuously absent when her party was in power. That is in the wake of the fact that her proudest boast this evening is that the Conservatives have introduced a proposal for helping millionaires with their taxation position. The noble Baroness cannot, on the one hand, boast of her wonderful achievement on that issue but, on the other hand, say that the Conservatives’ real interests are others in the economy whom they consider equally deserving.
Lord Northbrook: My Lords, my point was: how can public sector employees be expected to be bound by the CPI when their cost of living is based on the
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Lord Davies of Oldham: My Lords, those figures are of course those of the noble Lord and not the Government. However, we clearly stressed to public sector workers that—as the noble Lord will recognise—there is a trade-off between the people employed in the public sector, the investment that we are able to make there, and the amount that we are able to pay public sector workers. His noble friend referred to that when, in glancing at the National Health Service budget, she grudgingly recognised the enormous advances that the Government have made. The noble Baroness probably did not cover the last decade because she was grudging about the reduction in its present position as opposed to that of previous years.
Now, there is a fine analysis: a party that could not conceivably have matched the investment that we have made in the National Health Service regrets that we are reducing somewhat on the very substantial inputs that we have made over more than half a decade, and laments it while, at the same time, talking of bungled pay arrangements. I presume that what the noble Baroness meant is that some workers in the National Health Service got more than they actually deserved. The noble Lord is now berating me because he thinks that they are not getting enough. Well, such are the contradictions in some of the representations made this evening, but we are to expect that. One of the
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In this debate we have been concerned to present what represents, in fact, a very strong position for the British economy. I do not accept the excessive degree of pessimism that is being expressed about the immediate future. However, I accept the warnings that are being issued that the international economic climate will not be as benign as it has been in the recent past. That is certainly so. But, as the noble Baroness asked herself when she made her contribution, the question is whether the economy is in a position strong and resilient enough to meet the challenges that lie ahead. If we look at all the international comparators, we can see that we are in a strong position. Does that mean that we can expect to have the same rates of growth next year and the year after that as we have enjoyed in recent years? No—that is why we have scaled down projected rates of growth. We have taken into account the fact that the international climate is more challenging. What we are sure of is that we can present to the European Community a management of the economy which shows how judicious and intelligent investment in public services, born of taxation that is well judged to encourage the enterprise part of the economy, has resulted in circumstances in which the Government can put their case with confidence.
On Question, Motion agreed to.
- House adjourned at 8.32 pm.
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