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Since we last debated these matters the gloom has deepened, and the economic pain has got worse and the forecasts gloomier. I remember the noble Lord, Lord Burns, saying last time that we are at that point in the cycle when pessimism reigns. It may be true that brave men buy but others demand that Governments take further action. I have a good deal of sympathy with those making the demands. They are suffering real pain, fearing for their futures, their jobs, their businesses and their houses.

It behoves us to look back over the last month to see how much has been done. First, we had the recapitalisation of the banks, which of course was before our debate. Since then we have had two rounds of interest rate cuts. I was among those who criticised the Bank of England for not having acted earlier, but we certainly cannot complain about its most recent actions. Interest rates have come down to levels not seen since Harold Macmillan was Prime Minister. We have also had the autumn Budget. Other countries from Europe to the Far East have taken action, although I must say that I wish the Germans had done more. In the United States, President-elect Obama is promising a major stimulus.

We should not underestimate the scale of what has been done. The British economy at present is like a patient. It may be flat on its back but it has been given a massive resuscitation. The combination of the measures that have been taken, which I largely support, will have a substantial impact in the sense of mitigating and shortening the recession. That will take time, of course, and I suspect that there will be a further deepening of the gloom and a worsening of the forecasts before improvement begins to show. I do not criticise the Government for what they have done. Rather I regret that because of the Prime Minister’s earlier profligacy when he was Chancellor, the present Chancellor has been so constrained in what he has been able to do. That, of course, is water under the bridge. We are where we are.

The priority now should be not on introducing major new measures but on reinforcing what has already been done so that the effects can work through the system as quickly as possible. Many noble Lords have made the point that the emphasis should now be on stimulating the credit markets, encouraging lending and getting the banks to do more. As Alan Duncan said in the Financial Times last week:

“We need bold steps to open channels of credit”.

David Cameron has come up with a proposal for a national loans guarantee scheme to guarantee new loans to businesses for a commercial insurance fee. That

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is the sort of idea that needs to be worked on. It is the kind of direction in which we ought to be going. I suspect that similar incentives may well be required for the mortgage market. My noble friend Lady Noakes made some similar comments from the Front Bench earlier.

That would be a much better approach than having the Government barking out conflicting orders to the banks about what they should be doing. At one moment the emphasis is on strengthening their balance sheets and repaying the assistance they have received but, as the noble Lord, Lord Skidelsky, and my noble friend Lord Trenchard said, the terms on which the banks have been recapitalised in this country are notably harsher than in some others. That may or may not be a good thing but the banks certainly have to take it into account in formulating their own policies. As others have pointed out, they have interest to pay on the one hand, which must be borne in mind when criticising them for some of their difficulties in lending money on the other.

The Government have produced a back-of-the-envelope scheme for helping householders in trouble, which is very laudable objective, but I suspect that it will be difficult to work out a scheme that will be effective. The Government criticise the banks for not passing on interest rate cuts in such a way that takes no account of the conditions in the interbank market or of the position of savers—a point raised by my noble friends Lady O’Cathain and Lord MacGregor. It is desirable for the Government to turn their attention to this matter. I am thinking particularly of those aged 50, 55 and above whose pension funds have been—I was going to say decimated, but that would be an understatement—ravaged and whose interest payments from banks and building societies have been sharply reduced. Far from stimulating the economy, that considerable section of the community will surely be battening down the hatches. The Government should seek to do something to help them for reasons of social justice, but also because it is important that that group should be able to contribute to our recovery. I have read that the Government are considering ideas for extending ISAs. If so, I hope that they will consider them further and come up with ideas that enable ISAs to be extended and, perhaps, for similar measures to be introduced that will assist that section of the community.

The British economy has suffered a large, novel and global shock. As a result of the Prime Minister’s profligacy when he was Chancellor, to which I have referred, the UK is in a less good position to confront this crisis than some other countries, but it is a world crisis, as Ministers have pointed out. It is going to be important that the measures that the Government take from now on, like those they took earlier, should as far as possible be co-ordinated with our partners in the European Union, the United States and beyond.

6.01 pm

Lord Broers: My Lords, I compliment the noble Lords, Lord Rooker and Lord Bhattacharyya, on their advocacy of the importance of engineering and

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technology to our economy. I strongly endorse what they said. Our economy will not recover without engineering and technology.

It is extraordinarily difficult to find a silver lining in the economic storm clouds that cover the sky today, but I think that I have found one, even if it is small. In August 2007, this House's Science and Technology Select Committee—I declare an interest as I was chairman of the committee at that time—published a report on personal internet security that contained a number of recommendations that we felt should have been accepted and acted upon rapidly. One was that the aspects of the voluntary Banking Code that relate to the way in which banks deal with fraud, especially with electronic fraud, should be made statutory. It was amazing to us that the Banking Code as a whole was voluntary, not statutory. The Government responded in October last year by rejecting that recommendation along with most of our other recommendations.

Since the Government response was so unacceptably complacent and dismissive, the committee conducted a follow-up report, which we debated in this Chamber a few weeks ago. In that debate, I again raised the issue of making the Banking Code statutory, as there were no signs of action by the Government. I was gratified a couple of weeks later by a letter written following the debate by the noble Lord, Lord Brett, to those who had spoken in it. He said that the Government intend to make the Banking Code statutory. Eureka! That is my faint silver lining. It is a little tarnished through being so overdue, but at last the Government have woken up to the need for statutory rather than voluntary regulation of the banking sector, if only in the face of an economic hurricane of unrecorded violence created as much by the lack of effective regulation as by the lack of appropriate indicators. I shall return to them in a minute.

The committee also asked that the Government rescind their recommendation that those who have been victims of credit card fraud should report it to their bank rather than to the police. The banks are not law-enforcement agents and are conflicted in issues of fraud. It is very often not in their interest to ask the police to investigate such crimes, and such evidence as exists suggests that they pass very few cases to the police. I discussed the question of evidence here on 10 October and will not repeat what I said. I am again thankful that there are signs that our point has now, at last, been recognised. A recent letter from Alan Campbell, Under-Secretary of State in the Home Office, to the noble Lord, Lord Sutherland, the current chairman of the Science and Technology Select Committee, told him that the Home Office has finally asked Her Majesty's Inspectorate of Constabulary to look into this matter.

Regulation and fraud prevention are matters that we are going to have to tackle in a much broader and more comprehensive manner. Technology is going to be central and important, but clever technology can be used by criminals and, almost worse, by those who may have honest intentions but lack understanding of what they are doing, as well as by those who have the task, to quote the second paragraph of the gracious Speech,

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It is going to be a race between the forces of intelligence and good and the forces of incompetence and evil. The very finest data-processing engineers will be needed to create the technologies of our regulatory systems and to work with economists to come up with appropriate metrics so that we do not find ourselves again in this incredible situation where the so-called experts totally fail to forecast the hurricane. These new systems will involve people with knowledge of advanced mathematics and, more essentially, intimate knowledge of the intricacies of large computing and communications systems. Major shifts in regulatory and law-enforcement resources will have to be made, and extensive training and research programmes will have to be put in place.

The electronic revolution has changed the world of finance completely, and many of the leaders of financial institutions have been found to lack even an elementary understanding of what those lower in their organisation were doing. Will the Minister reassure us that the Government have completely discarded their complacency about the security of our banking systems, which they maintained until a few months ago, and that they will find, for government at least, people better qualified to manage and police our financial systems?

6.06 pm

Lord Borrie: My Lords, on 22 October my noble friend the Secretary of State, who we are delighted to see leading this debate, made a Statement stressing the importance of small and medium-sized enterprises to the UK economy. The noble Lord, Lord Bilimoria, must have been pleased with it because, among other things, the Secretary of State stressed the need for small enterprises to receive prompt payment of moneys due to them. The Secretary of State indicated today, as well as on 22 October, that central government have a good record. They now aim to pay their suppliers as soon as possible, at the very latest within 10 days. The Government have indicated to other public bodies, such as local government and the National Health Service, that they should follow their lead.

However, too many private sector companies and too many big companies unfortunately make their suppliers wait for their money. Sometimes they even boast about it, or they used to. Some are imposing new terms and conditions on owners of small businesses. Last month, Tesco doubled the time it would deign to take to pay some suppliers from 30 to 60 days. The Federation of Small Businesses has sent me a letter from Alliance Boots, which owns the chain of chemists, providing for payments 75 days from the end of the month of invoice and for the application of a settlement discount—jolly nice that you are going to get a settlement, you see—of 2.5 per cent of the invoice value. As the FSB national chairman, Mr John Wright, said:

“Making small businesses wait 105 days for payment and charging them for the privilege of doing so is nothing short of outrageous ... it is shocking that large companies think it is acceptable to use them as an unofficial source of credit”.

Legislation was introduced—I remember it but not very well and not very clearly 10 years later—in the first year of the Labour Government, and it became the Late Payment of Commercial Debts (Interest)

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Act 1998, which enabled small businesses to charge interest of 8 per cent above the base rate on debts due from large businesses. It was well intentioned—it was meant to deter large companies from delaying unduly the payment of their debts—but many small businesses are pretty naturally afraid of using the legislation in case they lose important and valuable contracts. My question to Ministers is this: what about a role for public officials to enforce this legislation—trading standards officers, perhaps, who could act on behalf of several suppliers who are reluctant individually to sue and who are creditors of a major business that is delaying unduly the payment of its debts?

A relatively unknown provision of the Companies Act is a requirement that businesses specify their payment times in their annual reports to Companies House. Apparently, about 4,000 companies do that. Another 6,000 do not. The latter are acting illegally. Is it not someone’s responsibility to enforce it, and should it not be enforced?

If, as the Government say, small and medium-sized enterprises are vital to the UK economy, it is certainly vital that they are given ample scope to compete in the marketplace against established businesses. Established businesses must not be allowed to squeeze small businesses out of a market through cartels or other restrictive practices to prevent or distort competition. I was delighted when the Enterprise Act 2002 strengthened the law against anti-competitive mergers, takeovers and other restrictive practices. In the light of Her Majesty’s Government’s decision to override the view of the Office of Fair Trading that competition would be substantially reduced in the banking world through the recent takeover of HBOS by Lloyds TSB, I would certainly welcome reassurance that the promotion of competition is still a key part of government policy towards business. I know that my noble friend Lady Kingsmill agrees with me on that point.

At a time of recession, there is always a risk that Governments, or larger bodies such as the European Community, may jettison competition, free trade and the long-term public interest in favour of protectionism and promoting the interests of so-called national champions—a phrase that I am happy to say I have not heard much lately, but one never knows; it might re-emerge. In a downturn, it is more than ever vital that a strong competition regime that is strongly supported by government—whether it is a national regime or a regime at the level of Brussels—protects consumers and legitimate business, because competition helps to advance enterprise and innovation, to break down barriers to entry and to raise productivity. Businesses that disregard their legal obligations, to the detriment of consumers, must not be allowed to use their difficult economic circumstances, as they would argue, as an excuse.

6.13 pm

Lord Higgins: My Lords, I agree wholeheartedly with what the noble Lord, Lord Borrie, has just said about the importance of competition. I shall concentrate my remarks on the statement in the gracious Speech that the Government’s,

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First, however, I shall say a word or two about leaks and spin.

Controversy is raging at the other end of the building about alleged leaks from the Home Office, but virtually nothing seems to have been said about the extent to which the PBR and the Queen’s Speech were published in the newspapers in great detail the day before they were announced. The convention was always that such important matters are announced first to Parliament. That does not appear to be the case at present. The gracious Speech says that the Government will strengthen the role of Parliament. They could begin by dealing first with what seemed to be leaks from the Government themselves. It is not true that the spin machine is infallible. I do not think that any Chancellor could have spent as much money as the Chancellor did the other day in the PBR and got the rotten set of headlines that he did the following day.

I turn to the more substantive issues. The Government’s attitude to the stability of the economy is set out in the PBR, but their analysis is seriously flawed for this reason: there seems to be almost complete confusion in the Government’s mind between interest rate policy and monetary policy. Indeed, the two are treated as virtually identical. There is, of course, a close relationship between them, but they are not the same. Interest rate policy is concerned with the price of money; monetary policy is concerned with the quantity of money. I am glad to see that I carry the Minister with me on this point.

The Government also seem to be under the impression in the PBR that the Bank of England has been given the authority to set interest rates independently. Would that that were so. It has been given independent authority to set just one interest rate. Again, I see that I carry the Minister with me. Alas, LIBOR makes it evident that what the Government say in the PBR is not the case. When Mr Brown transferred the responsibility for interest rate policy to the Bank of England, he clawed back to the Treasury the responsibility for debt management, which is crucial to the quantity of money that is generated.

As far as general economic policy is concerned, we are all Keynesians now. It is right that we should adopt Keynesian policies in normal circumstances and that, if there is a recession, we should take other stimulating fiscal measures in addition to the automatic stabilisers. Generally with Keynes, one starts from the position of a surplus. The trouble with the present recession is that this Government started with a massive deficit. That creates enormous problems for the operation of monetary policy and in particular for intergenerational transfers, as we are now transferring huge amounts from our present generation to future generations.

That being so, the important thing is to learn not only from Keynes but from Milton Friedman. The extraordinary thing is that one ought to concentrate on monetary policy as far as the quantity of money is concerned. One can search in vain throughout this enormous volume—at least, I have done so—to find any mention of what will happen to the money supply. Perhaps when the Minister winds up he will say what he thinks the pattern of money supply growth will be, because one cannot get this from the PBR.

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What one can get is some startling figures about the extent to which the Government’s net cash requirement, which used to be the PSBR, is likely to increase. It is set to rise from £59.3 billion—I love the precision of these figures—in the Budget of 2008 to £152.9 billion at the present time, or at least in the projection. That is an increase of £93.6 billion. The question that we must ask the Minister is: how will this be funded? There appears to be an extraordinary reliance on national savings, which seems to be rather inconsistent with the general government view that people should go out and spend. However, it is a trivial amount compared with the amount of Treasury bills that the Government propose to issue—from £5.8 billion to £14.53 billion—or the amount of gilts, from £80 billion to £146 billion. Who will fund this enormous deficit?

The crucial question is whether it will be funded from what in the jargon used to be known as the non-bank public. If it is, that will nullify the effect. It is inconceivable that one can fund this amount from the non-bank public without interest rates going up. One must look not only at the short-term rate, but also at what is happening to the yield curve. We have no idea at all from the PBR what the Government think is going to happen to the yield curve. The Minister is giving an indication, which may appear on television but unfortunately will not appear in the Official Report. One is seriously worried about this.

The recession clearly has to be dealt with and steps are being taken to do this, but at enormous cost. I believe that there is a danger, with inflation still above its target range, that we will seek to deal with the recession and then find, before we fully come out of it, that there are enormous inflationary pressures in the pipeline. We need to take a longer view than just asking how we get out of the recession. We have to get back to a situation of stability. It is clearly not the case that we are in a stable situation at the moment. I am not convinced that the path tracked by the Government will in fact, for the reason that I have mentioned, lead us back on to an even keel.

6.21 pm

Lord Clement-Jones: My Lords, I welcome the opportunity today to raise a number of issues, mainly from the standpoint of the economic future of our creative industries and tourism. In that context, I welcome the new role for the noble Lord, Lord Carter of Barnes, as a Minister in both the DCMS and DBERR, which is a clear recognition that discussion of policy for the future of our creative industries must be shared by those two departments.

Inevitably, much of the discussion now in the creative and allied industries is dominated by the need to make policy in the context of a recession, whether this means the impact on ITV’s PSB commitments of falling advertising revenue, the future of Channel 4 in a similar context, falling recorded music revenues, falling revenues for tourism and heritage or the significant adjustments that need to be made to Olympic planning to allow for the fall in sports sponsorship and the difficulty in raising commercial finance.

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I turn first to the Queen’s Speech. A looming recession did not necessarily mean that important legislation in the heritage field needed to be squeezed out of the parliamentary timetable. Is parliamentary time now rationed by the credit crunch? There is great disappointment in the heritage sector at the failure to bring forward the heritage protection Bill. We have had the pre-legislative scrutiny of the draft Bill by the Culture, Media and Sport Select Committee and the government response. After eight years of preparation, it was time to bring this forward. If and when the Bill does return, however, I hope that the Government will take on board many of the improvements that have been suggested by the Culture, Media and Sport Committee, in particular the recommendation that the protection of historic ships should take a greater priority in the Bill. Many historic ships are fast disappearing into scrapyards because they lack proper protection.

The lack of the new heritage protection Bill is disappointing not only because of its intrinsic worth, but because of the importance of heritage protection, including world heritage sites, to our tourism industry. The Government need to better reflect in their policies the value of tourism and travel to the British economy. Tourism is one of the UK’s largest industries. Measured by conventional accounting, it is the fifth largest industry in the UK. Over 2 million jobs are sustained by tourism activity in the UK and the industry employs more people than are employed in construction or transport.

However, there are some worrying indicators. The UK share of world tourism has declined in recent years. The tourism deficit—the UK balance of payments in tourism—continues to worsen. Domestic tourism is also declining and the latest figures in September show that inbound tourism has dropped heavily. Yet in the face of this the Government have drastically cut the budget of Visit Britain and of tourism promotion, even before the tourism framework review has been completed. Small and medium-sized companies, which the Government claim to be keen to help through this recession, make up 90 per cent of the tourism sector. Will the Government at last acknowledge that the budget for the promotional activities of Visit Britain must be increased if this vital sector of the economy and the small businesses within it are to survive and prosper?

Let us look at other aspects of economic activity more clearly related to the creative industries. Digital Britain will be the subject of the report by the noble Lord, Lord Carter, due next spring, on which he has recently written to a number of noble Lords explaining the timetable. I welcome his intention to take a strategic look at how a creative digital UK economy can make a major contribution in the future, in terms, as he recently put it, of both the plumbing and the poetry—the technology and the content. I hope that he will take on board a few of the suggestions put forward by me today and by my noble friend Lady Bonham-Carter in the debate on Thursday.

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