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House of Lords

Wednesday, 12 November 2008.

The House met at three o'clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Newcastle): the CHAIRMAN OF COMMITTEES on the Woolsack.

Armed Forces: Compensation

Lord Selkirk of Douglas My Lords, I beg leave to ask the Question standing in my name. In doing so, I draw attention to my non-pecuniary interest in the Register of Interests.

The Question was as follows:

To ask Her Majesty’s Government whether, in any future review of levels of compensation awarded to service men and women who are disabled in the course of their duties, they will take into account differences between awards to civilians and to members of Her Majesty’s Armed Forces and the costs of continuing care and of housing adaptations.

Lord Tunnicliffe: My Lords, future reviews of the Armed Forces compensation scheme will not take account of levels of civilian awards as the scheme is being adjusted to recognise the special nature of current military service. Ours is a no-fault scheme and it is not necessary to prove negligence to receive an award. Awards do not include costs of continuing care or housing adaptations because these are provided separately through existing state benefits.

Lord Selkirk of Douglas: My Lords, while appreciating that improvements have been made and the opportunity for flexibility that a future review will bring, will the Minister bear in mind that with developments in medical science, there are many service men and women alive today who would not necessarily have survived in former conflicts, but who merit extremely high levels of compensation for continuing care as well as other needs as a result of the extreme nature of their injuries?

Lord Tunnicliffe: My Lords, the Armed Forces compensation scheme will be adjusted with respect to the lump sum before Christmas. The maximum award will double from £285,000 to £570,000. The issue of how servicemen are looked after when they leave the service is a matter for existing state benefits. Matters were brought together in Command Paper 7424, which is about how all departments look after families and veterans. The end of that document states:

“Every five years all Government departments and their Devolved Administrations will undertake a full review of progress ... The outcome of this review will be reported to ... the Prime Minister, the Defence Secretary. the First Ministers of Scotland and Wales ... and Northern Ireland ... it will be published”.

Lord Craig of Radley: My Lords, in the light of Cm 7424, does the Minister agree that, when the review of the treatment of servicemen who claim

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injury takes place, it should be for the Secretary of State to prove that they were not on duty and reject an award, rather than for the distressed serviceman to prove that he was on duty when injured?

Lord Tunnicliffe: My Lords, that will be part of the review in 2010 of the Armed Forces compensation scheme. We are sensitive to what we will learn from individual cases. We believe that the burden of proof required under the present scheme is fair but, if there have been difficulties in the five years, we will take that into account in reviewing the scheme.

Lord Ashley of Stoke: My Lords, does my noble friend agree that many service personnel are still getting much less than civilians for the same kind of disability, which cannot be right? Failure to hold a thorough review of the issue will lie with the Government and nobody else. There has to be an urgent review of all benefits for civilians and the armed services. Can my noble friend help on that?

Lord Tunnicliffe: My Lords, I am afraid I cannot. It is not appropriate to make a simple comparison between civilian awards and awards under the compensation scheme. An important point is that servicemen continue to have the right to bring an action against the Ministry of Defence in the civilian courts if they wish to prove appropriate negligence. It is a harsh and expensive proof. This scheme is a no-fault scheme. It is very generous in the amount paid for pain and suffering. It is a mechanical scheme that produces ongoing income throughout the life of the injured serviceman and, as I openly say, it looks to the state to provide for the serviceman’s housing and health needs in future. I believe it is a fair balance, but it will be reviewed in 2010.

Lord Lee of Trafford: My Lords, my understanding is that the DWP counts war pensions as income with only the first £10 of that pension disregarded when means-testing for benefits. The Royal British Legion is campaigning to have all war pensions disregarded when calculating means-tested benefits. Would acceptance of that not simplify the procedure and usefully improve the overall financial package for the war pensioner?

Lord Tunnicliffe: My Lords, that summary—that only £10 is disregarded—is quite correct. It is a harsh fact of life that, in determining means-tested benefits, virtually all sources of income are taken into account. That is what “means-tested” means. It is how society uses its limited resources to apply benefits to the most deserving cases. I cannot promise any review. I can see why the Royal British Legion would campaign for it, but we believe the balance is fair.

Bank of England: Interest Rates

3.06 pm

Lord Barnett asked Her Majesty’s Government:

Whether they plan to change the remit of the Bank of England regarding interest rates.

The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the Bank of England Act 1998 sets the objectives of the Bank in relation to monetary policy as, first, to maintain price stability and, subject

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to that, to support the economic policy of Her Majesty’s Government, including their objectives for growth and employment. The Chancellor last set the remit for the Monetary Policy Committee in the 2008 Budget and reiterated his full support in the Mais lecture.

Lord Barnett: My Lords, I thank my noble friend for that Answer. It is not very different from the ones I used to get from my noble friend Lord Davies of Oldham. Is my noble friend aware—I am sure that he is—that banks and building societies are still offering savers well over 6 per cent and therefore pressure on them to cut their interest rates further would be pretty meaningless? Does he accept that the main issue now is that commercial banks and building societies should be doing what the Government asked them to do; namely, because of the liquidity improvement that the Government have made, to lend to small businesses in particular? Does he recognise that the evidence is that they are not doing so? Apart from talking to them, what is he doing in the cases of banks where he has a direct interest and direct control?

Lord Myners: My Lords, I thank my noble friend for his warm comments about joined-up government and for noting that I am saying very much what my noble friend Lord Davies of Oldham would have said in reply to his Question. We have made it very clear that the banks that we assisted in capitalisation exercises will continue to be managed in the best interests of all their shareholders. We will not be directing them on the pricing of their products or services. However, we will be holding them to the commitments that they made to make funding available to small companies, hard-working families and needy borrowers over the next three years in accordance with the volumes of business that were available in 2007.

Lord Lawson of Blaby: My Lords, does the noble Lord agree that it is understandable that he should give the same answer to the same question? Indeed, the answer is absolutely correct. Does he also agree that the Bank of England has shown by the sharp reduction in interest rates recently that it is not inhibited from cutting interest rates—I hope that it will do so some more in the near future—despite the concern of the noble Lord, Lord Barnett? Does he also agree that, as is shown by the sharp fall in the exchange rate of sterling, the financial markets are extremely concerned about the prospects for the British economy in general, the fiscal position in particular and the underlying structural deficit, and that it would be disastrous if confidence were further knocked by a change in the remit of the Bank of England?

Lord Myners: My Lords, the announcement by the Monetary Policy Committee of its most recent change in interest rates has delivered interest rates at their lowest level since 1964. Since 1997, we have had low and stable interest rates—the standard deviation of interest rates has fallen by one-third compared with the average of the three previous decades. The global economy is facing very serious challenges, but we address those from a position of strength: low debt

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and—as was flagged today by the Bank of England—expectations of low inflation. We have an economy that has been working very close to full capacity, which is flexible and which will be capable of ensuring that we are competitive over the next few years, as the global economy faces a very significant challenge. We are confident that the UK economy, as a result of the competitiveness that our manufacturing industry now enjoys, will do particularly well in increasing its share of global manufacturing.

Lord Newby: My Lords, the Minister will be aware that the Bank of England Act allows the Treasury, in times of “extreme economic circumstances”, as the Act describes it, to give directions to the Bank of England and the Monetary Policy Committee on their remit. Why, given that the Chancellor clearly wanted interest rates reduced a number of weeks before they were reduced, was no such direction given four to six weeks ago? Will the Government bear that reserve power in mind in future if, as seems likely, we remain in extreme economic circumstances for the next year or so and the Bank of England is not perceived by the Government to be reducing interest rates as far as they would wish?

Lord Myners: My Lords, the Government are not of the view that we are in extreme economic circumstances and therefore would not have given direction to the Bank of England in that respect. The challenges that we are facing are the same ones being faced by the whole developed world. We are delighted to see co-ordinated action being taken and pleased to see that the Prime Minister this weekend in Washington will continue to use his efforts to ensure that global action is taken to address the downturn in economic production and output that we are currently experiencing worldwide.

Lord Saatchi: My Lords, is it not rather unfair on the Bank of England that it is routinely condemned these days for being what I think they call behind the curve, by which people mean slow, late, unprepared, and so on? Is it not true that it is like a top general who has been given the wrong orders? Does not the fault lie, as the questions of the noble Lords, Lord Barnett and Lord Newby, imply, with the legislation that created the independent Bank of England, and in particular with Section 11, which concerns the remit? That asks the Bank of England to concentrate exclusively on inflation as the be-all and end-all of economic policy. Do we not now know that it is possible to have what the Bank of England called, contrary to what the Minister said, the largest financial crisis in human history, which has occurred during a period of low inflation? Does not that mean that there must be more to it than Section 11 suggests?

Lord Myners: My Lords, I shall endeavour to be brief in my reply to the noble Lord, Lord Saatchi. Since the independence of the Bank of England was established in 1997, we have enjoyed an unparalleled period of sustained economic growth and low inflation. That is not what I would judge to be being behind the

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curve; I judge that to be a commendable achievement by the Government and the Monetary Policy Committee of the Bank of England. The outlook is that those policies and practices will continue to be highly effective. The Government do not interfere or intervene in the decision-making of the MPC and will not do so. I draw the attention of the noble Lord, Lord Saatchi, to the IMF report in 2008, which could not have been stronger in its endorsement of the achievements of the Monetary Policy Committee, stating that it should not in any way be amended.

Lord Dykes: My Lords, in view of the Prime Minister’s forthright comments on the need for the banks to be disciplined about credit card charges in view of the reduction in the base rate, will the Minister confirm that the Government will follow that policy to insist that the banks behave properly vis-Ã -vis credit card borrowers?

Lord Myners: My Lords, the Government have made it clear that they expect bankers to behave responsibly.

Lord Harrison: My Lords, will my noble friend remind the noble Lord, Lord Saatchi, that in his first reply he made it clear that the statutes of the Bank of England say that once price stability has been established, growth and employment are proper considerations for the banks?

Lord Myners: My Lords, it is worth emphasising that experience has shown us that stability of prices are an essential precondition for economic growth, prosperity and fairness. These two objectives are not in conflict; one is a precondition of the other.

Unemployment

3.15 pm

Lord Roberts of Conwy asked Her Majesty’s Government:

How the rate of unemployment in the United Kingdom in October 2008 compares with the rate in October 1997.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): My Lords, the latest unemployment figures, which were released today, show a jobseeker’s allowance claimant rate of 3 per cent for October 2008 and an ILO unemployment rate of 5.8 per cent for July to September 2008. This compares to a claimant rate in October 1997 of 4.9 per cent and an ILO unemployment rate in September to November 1997—the quarter centred on October—of 6.6 per cent. The unemployment figures for September to November 2008 will be available in January 2009.

Lord Roberts of Conwy: My Lords, I think that we are all aware of the worsening situation as regards unemployment. When do the Government expect last

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week’s 1.5 per cent interest rate cut to have a beneficial effect on the 1.5 per cent contraction in the economy, which both the IMF and the Bank of England expect next year? Is it not absolutely clear that targeted tax cuts or stimuli are now urgently needed if the relentless rise in unemployment is to be arrested?

Lord McKenzie of Luton: My Lords, I guess that the Government will present their own forecasts in the Pre-Budget Report, which I understand is due soon. We do not predict what is likely to happen to unemployment rates, although the DWP is clearly focused on ensuring that it has the capacity to deal with changes that the current environment might engender. We have just heard from my noble friend about the measures that have already been taken, given the global economic crisis that we face in this country and around the world, to capitalise the banks and to enhance liquidity in the banking system. In addition, particular help for small businesses has been announced in recent weeks, as well as support for families. We await with interest the PBR, which, as I said, we expect shortly. I should perhaps comment on David Cameron’s announcements yesterday on the proposals, which I think it is right to say were not greeted with overriding acclaim. However, the issue of further incentives and stimuli will be addressed in the PBR.

Lord Davies of Coity: My Lords, I think that we all recognise the difficulties that we are experiencing as a result of the global economic downturn. Unemployment will rise. We do not like it, but we have to understand it. It strikes me that we need to make realistic comparisons. How many people are in employment now compared with in 1997? How does today’s unemployment compare with that of the 1980s? Finally, what does the Minister think the Opposition would do if they were in power?

Lord McKenzie of Luton: My Lords, in relation to the last question, I prefer not to deal with hypotheticals. On my noble friend’s specific questions, employment levels now, compared to 1997, are up by about 3 million. On unemployment levels, the claimant count is at about 980,000. In the 1980s and 1990s, that figure reached something like 3 million. The key lesson to learn from the past is that, in challenging economic times, we should not abandon people who become unemployed and put them on the scrapheap; we should continue to have active labour market policies. At the moment, Jobcentre Plus is keenly geared up to do that.

Lord Rix: My Lords, is the Minister aware that, when this Government came into office in 1997, only one adult in 10 with a learning disability was in paid employment? Unhappily, 11 years later, that figure still applies in spite of all the disability legislation that has gone through this House and the other place. Despite the looming recession, what can the Government do to encourage employers to improve on that figure, bearing in mind that there is much specialist support available to make this possible?

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Lord McKenzie of Luton: My Lords, the noble Lord raises an important point. If one looks at the overall employment rate and its composition, one sees that disabled people, lone parents and ethnic minorities do not reach the average rate that applies for the rest of the economy. It is certainly right to say that people with learning disabilities have not made the progress that we would wish. That emphasises to me the need to continue to reinforce and entrench those active labour market policies to make sure that we engage with employers through local employment partnerships and city strategies and encourage them to take advantage of the funding streams that are available. In these challenging times, we should not take our foot off the pedal of those important and progressive reforms.

Lord Oakeshott of Seagrove Bay: My Lords, when unemployment is shooting up by 50,000 a month, will the Minister explain to his noble friend sitting next to him that that is not an economy running anywhere near full capacity? I used to know a chap called Paul Myners who knew what he was talking about. I do not know what is in the Treasury water. Perhaps a search party could be sent out for him because the complacency of his answers was unbelievable. Do the Government realise that there is every chance that they will be fighting the next election with 3 million unemployed?

Lord McKenzie of Luton: My Lords, I do not know where that figure of 3 million unemployed comes from; it seems to be speculation on the part of the noble Lord. I am delighted that my noble friend Lord Myners has joined the government Front Bench. I spent a little time before my noble friend Lord Davies struggling with Treasury issues; my noble friend Lord Myners deals with them with ease and expertise. On capacity, we should bear in mind the fact that a dynamic labour market is operating. We look at the net changes—those are the figures reported—but over the past month, for example, some 270,000 people have gone on to jobseeker’s allowance and 230,000 have come off, while every day something like 10,000 vacancies are notified to Jobcentre Plus. A lot is happening out there.

Lord Skelmersdale: My Lords, does the Minister accept that he is responsible for answering questions on activities that have happened on this Government’s watch? He mentioned 980,000-odd people claiming jobseeker’s allowance. In fact, the figure is almost 1,000 more than that. Is that not the highest figure since spring 2001?

Lord McKenzie of Luton: My Lords, the figure certainly has gone up in recent months, as we have readily acknowledged, but it is significantly below the levels that we inherited in 1997. Something like a million people have come off income-related benefits over the period of this Government.

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