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The take-up of new digital platforms is, by and large, faster in the UK than anywhere else in Europe. We are what might be called a nation of early adopters.
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Project Kangaroo, a proposed largely free online television platform created by the BBC, Channel 4 and ITV, is where many of us would part company with the Competition Commission, which gave it the thumbs-down in its interpretation of EU competition policy, for example. On the other hand, the BBC proposals for local video services, subject to an Ofcom market impact assessment, fall the other side of the line.
I was extremely interested by and agreed with many of the comments made by the noble Lord, Lord Carter, in his maiden speech. He recognised that consolidation—what might be called critical mass—was sometimes necessary for UK producers to deliver high-quality content. Children’s television is an important and immediate case in point. There are many dedicated channels, such as Nickelodeon and Nick Jr., which deliver high-quality US-originated programmes. However, parents tell us in surveys that they want more UK content for their children and not just on the BBC. Do we simply leave it to the market or do we try to stimulate UK programme content? One of the solutions put forward is for specific support through the tax system for children’s television production in the UK. The UK games industry, recently highlighted by a NESTA report, is also an important case in point. If we can fashion a sensible, acceptable approach to film production in the UK, why not for other creative industries, such as games and children’s television, which suffer the same issues of US cultural dominance?
There is too little time today to cover other important aspects of the creative industries, particularly the area of copyright and licensing. However, the Gowers review certainly did not get it completely right on copyright. We need to amend the UK Licensing Act 2003 to encourage more live music and there are many other aspects where we need to benefit artists.
The Government, too, need to be creative in the way in which they adopt solutions to difficult problems. I am sure that no lack of creativity can be laid at the door of the Secretary of State or the Minister—or, indeed, the noble Lord, Lord Carter of Barnes. I do not expect them to respond in detail to these points today, but I hope that they will give them serious consideration as part of the process of drawing up the digital Britain report.
6.29 pm
Lord Paul: My Lords, I should like to say a few words about the reality on the ground of the manufacturing industry. I declare my interest as chairman of Caparo Group, a company engaged in the manufacturing of engineering products.
The problem of sub-prime lending in the United States, compounded by the irresponsible lending by some of the world’s biggest banks, has brought the
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As well as the EEF figures, I have experienced this in Caparo. While I do not operate the business—I am a non-executive chairman—it is managed by my son, Angad, who is chief executive. As a father and founder of the company, I am pained to see the struggle that the Caparo family go through every day to ensure that the company keeps its head above water and remains robust.
The results to the end of August were strong. They were helped by the relative strength of the euro. Since then, European economies have weakened and almost all customers, whether in the automotive sector or any other sector that Caparo serves, have been hit hard. The situation in the fourth quarter is almost as though all activity has stopped as people try to burn through their inventory in order to conserve cash, also without much success. Of course, there is the added struggle that companies have with pension costs as a result of the recent fall in stock market values.
There remain some reasons for hope. First, manufacturing has been through massive change and is far more resilient these days. Secondly, the Government have provided strong and determined leadership. There is no doubt in my mind that, after a decade as Chancellor, my right honourable friend the Prime Minister has the experience, ability and passion to lead us through these difficult times. He has already shown his commitment and determination.
Moreover, business welcomes many of the measures announced in the recent Pre-Budget Report and the Queen’s Speech. Governments tend to focus on the big companies and sectors, but small and medium-sized enterprises remain the economic lifeblood of this country. SMEs welcome the delay announced in the PBR to the planned rise in the small companies’ rate of corporation tax, recent proposals on export credit guarantees and the small business finance scheme. However, all business will be concerned by the proposed increase in national insurance contributions.
I suggest that the help available to SMEs should be made on the basis of a company as an entity. Any company owned by a larger group but operating as a separate entity should be entitled to the same help as an independent SME. Otherwise, we are hastening the demise of those subsidiary companies, as they will not be able to compete and the tendency of any group is to close subsidiaries that cannot remain competitive.
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On the Queen’s Speech, one of the most pressing issues facing business is getting the banks to start lending again. Many companies have reported the withdrawal of, or changes to, their credit or overdraft facilities at very short notice. However, Caparo’s experience with its main banker, Barclays, has been very good. My chief executive tells me that the bank has been helpful and understanding. I hope that no noble Lord is a director of Barclays in case it changes its mind after my speech.
I hope that the Banking Bill will end the uncertainty surrounding lending terms and conditions. However, the problem of how to ensure that we keep finance flowing to business while allowing banks to assess risk and take commercial decisions, remains. There is no easy answer, but perhaps it is time to set up an industrial development bank with a majority of real manufacturers on its board. There is increasing difficulty in accessing credit insurance. Many companies have recently lost their cover and are ending up with stock that they cannot sell. Business needs good regulations and fewer of them to cap the burdens of red tape. While we must avoid a return to central planning or bail-out of failing industries, the Government have a role to play and it is time for them to play strongly.
To conclude, the UK still has a manufacturing base of which we can be proud. The Government have taken steps to address some of the short-term challenges that we face, but issues still remain. Manufacturing must continue to play a key role in the economic future of the United Kingdom. It is high time that the Government listened more to the people who run manufacturing industry.
6.36 pm
Lord Marlesford: My Lords, I was delighted when the Minister made a most important announcement in his speech. I shall quote his words with precision, because they are so important. He referred to,
The last time a Minister admitted that nuclear power is a renewable was when the noble Lord, Lord Sainsbury, said it, but he was made to renege. However, the noble Lord, Lord Mandelson, is much too powerful a figure to be made to slide away like that.
I suppose that my problem is that I spend so long observing politics that I do not really do party politics, which has always enabled me to be rather a fan of the noble Lord, Lord Mandelson. He strengthens and enlivens any Cabinet that he joins, however briefly. I salute him for being the main architect of new Labour. Years ago someone asked me, “What is this new Labour thingy?”. I said: “It is very simple. It is a Labour Government with a Conservative Prime Minister”. Unfortunately, things may have changed since then.
How the mighty have fallen. There can be few whose reputation has fallen quite as far and as fast as that of Alan Greenspan, chairman of the Fed for 19 years, to 2006. When I read his autobiography, The Age of Turbulence, published three months before the sub-prime bubble burst, I noted that he said:
“I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk ... But I believed then, as now, that the benefits of broadened home ownership are worth the risk”.
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At any rate, Mr Greenspan had the grace to apologise. On 23 October, in congressional testimony, he said:
“I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works”.
The chairman, Henry Waxman, said:
“In other words, you found that your view of the world, your ideology, was not right, it was not working”.
“Precisely ... that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well”.
The then Chancellor of the Exchequer, Mr Gordon Brown, recommended that Mr Greenspan should receive an honorary KBE for his contribution to world economic stability—and he got it.
As the realities of politics and economics crowd in, few of them lift the spirits. Overall, there is a deeply disturbing glimmer of recognition that for many the prosperity of the last decade is being revealed as a debt incurred for perhaps the next decade. The real problem is a widespread reluctance to face the realities which stem from the credit crunch.
First, it is still not clear for many companies, including some which are widely regarded as soundly managed, what liabilities they face, whether as a result of toxic assets, underwriting commitments, hedging positions or cash flow problems, especially those companies—in the American auto industry, for example—which now find that demand for their products has evaporated. People are asking: how much more is to emerge? Secondly, consumers have about-turned, and as unemployment rises they will march ever faster in the new direction. Thirdly, businesses will not invest, even if they can raise the funds to do so, unless they can see a profitable result from their investment—a point made earlier by the noble Lord, Lord Skidelsky. It is, as my noble friend Lord Wakeham said, only in marginal cases that interest rates are really a relevant consideration. Fourthly, the housing market will not recover until house prices have fallen to a level at which buying a house makes sense. House values are already well below the prices of the few houses that are still being sold. Fifthly, stock markets will not recover until there is a prospect of profit growth. Sixthly, and finally, exchange rates will continue to trend towards relative purchasing power, although sovereign solvency could become an overriding factor. I was interested that reference was made to the solvency of Ireland and Iceland, which I am afraid could be at risk.
The distinction between a recession and a depression is not precise. It is a matter of degree and how long it lasts. We now know that, in the US, the recession started in December 2007, only four months after the sub-prime bubble burst. What is clear is that the psychology of the consumer has a lot to do with it. Consumers do not understand economics, and they do not trust politicians to know the truth, let alone to tell it. They do listen to what they hear and they do observe what they see, and although they may react to everything to a small degree—special offers in shops may induce them to purchase, while rising electricity prices may encourage them to switch off the lights—it takes a long time and a lot of bad or good news to
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I want to refer particularly to one other area of risk: credit card risk. It has already been referred to by the noble Lord, Lord Broers, who made the most interesting references to some aspects of electronic supervision. We need a completely new approach to the regulation of credit cards, and we need in particular to establish a national database of credit card holders. Far too many people are given credit cards that for their own good they should not have. But credit card debt is also, of course, a wonderful way of enabling the banks to charge very high rates of interest. The APR is always quoted, but most people do not have the slightest idea what that acronym means. It should be a requirement that the actual percentage of interest is made clear. Customers should be told, “This is the rate of interest that you will pay”. I have with me an invitation to take up a loan which arrived just two days ago from an outfit called Provident Personal Credit. At the bottom it states: “Typical APR 189.2 per cent”. That is not going to encourage anyone who understands what it means.
I want to make an optimistic point. The biggest plus in the world economy at the moment is the fall in oil prices. It is the equivalent of a big tax cut. How long it will go on for, I do not know. The Saudis would like to see the price go back to $75 a barrel, but the drop has been a huge benefit and we have to hope that market competition means that the reduction is passed on to consumers as rapidly as possible. It is far greater than a lot of what the Chancellor has done.
I am afraid that I would diagnose Mr Darling as suffering from lagophthalmia. I do not expect everyone to know what that is. It refers to the vision of the hare which, although an interesting and charming creature, cannot see in front of itself. As my noble friend Lord MacGregor pointed out, it is mad to cut VAT by 2.5 per cent—at great cost—when the shops are cutting prices by 10, 15 and 20 per cent. I hope that we will recover. I believe that the capitalist system, with its technological vigour, will in due course come to the rescue of the world economy.
6.44 pm
Lord Low of Dalston: My Lords, I have not had the pleasure of listening to a speech by the noble Lord, Lord Marlesford, before, but coming in at No. 25 on the list, it was an absolute delight and I hope that I have the pleasure of hearing him many more times. I was not able to attend the debate on the economy held on 3 November because I was in Weimar watching a performance of “Götterdämmerung”, which your Lordships may consider a not inappropriate backdrop for contemplating the current economic situation. I am therefore glad to be able to take part in the debate today.
I do not apologise for straying from my usual territory of social policy and mixing it with the big beasts of the economy in your Lordships’ House. The global economic turmoil is, after global warming, the greatest challenge facing mankind today. I am not an economist, but it seems incumbent on us as concerned
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In a recent lecture, the noble and learned Lord, Lord Howe of Aberavon, spoke of the 30-year timescale against which major shifts in our thinking about the economy are measured. We are now at one of those watersheds, this time marking the end of a phase of unrestrained free-market capitalism. We have been working up to this for some time, of course, and it is tempting to understand it in terms of corporate greed; think of Enron. But it is also systemic in that the accumulation of massive reserves of foreign exchange in emerging markets brought interest rates, and hence the return on conventional investments, down to historic lows. Financial institutions lobbied for deregulation to enable them to deal in ever more complex securities in search of higher yields. Borrowing was cheap and banks borrowed heavily to fund their investments and leverage up returns. On 3 November, the noble Lord, Lord Lawson, spoke of a Gresham’s law of lending whereby imprudent lending drove out prudent lending as banks sought to protect their market share to the point where the process collapsed under its own weight. So we have the proverbial race to the bottom, which does not just operate between banks in the same street but also between markets in different financial centres.
But there has been greed. Something that has been insufficiently remarked upon, although the noble Lord, Lord Smith of Clifton, did touch on it, is the lengthening queue of class actions building up against major financial institutions for knowingly misrepresenting the state of their finances. Merrill Lynch has already made a multimillion-dollar settlement with the State of Massachusetts when faced with the state’s evidence that the company had sold supposedly super-safe products which collapsed the minute the credit crunch arrived.
There is also a 75-year timescale which measures the time it takes to forget the lessons we have learnt in the past. We have been here before, and the Glass-Steagall Act was passed in 1933 to make sure that commercial banking was kept quite separate from investment banking, to prevent a recurrence of precisely the kind of crisis we are experiencing today. That lesson needs to be relearnt in a way that cannot be forgotten in the future.
That is the background, and here are my propositions. First, we need an inquiry, and I would include in it issues of corporate governance, to which the noble Lord, Lord Smith, referred. We understand what has happened in general terms but we need the ethnographic detail. On 3 November, a number of noble Lords thought they heard the Minister commit to a full
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Secondly, we need to strengthen regulation, especially banking supervision. In particular, we need to ensure that the core banking system is strong enough for non-core institutions to be allowed to fail if they act imprudently to avoid costly moral hazard. Regulation needs to be internationally co-ordinated and we need to avoid a lurch from too little to too much regulation in order not to stifle all initiative, which is at the heart of a dynamic economy.
Thirdly, we will need to ditch the economic policy paradigm of the past 30 years. On 3 November, the noble Lord, Lord Smith, said that he did not know which economic thinker was likely to be in the ascendant going forward but that it was unlikely to be Milton Friedman. I would say that Keynes was probably due for a revaluation. The noble Lord, Lord Desai, surprisingly, continues to pin his faith on free markets. That is all very well in normal times—I have said that we do not want to regulate the market to the point of stifling initiative—but in times like these, if we leave everything to the market, we risk killing the patient before the cure kicks in.
Fourthly, the role of the state needs to be reappraised. Social democratic interventionism would appear to be the paradigm of choice for the circumstances in which we find ourselves.
Fifthly, as Gavyn Davies said recently, a number of players bear some responsibility for what has happened but the important thing is to understand, not play the blame game—although, of course, I exempt from that anyone found guilty of fraud. The action taken by the authorities in being much more interventionist sooner has probably ensured that a 1929-style depression will be avoided. The level of public debt is sustainable in the short term, especially as we enter a recession. As Peter Morici of the Maryland School of Business said recently, economists, both on the right and the left, admit we need a stimulus package and “a darn big one”. Anyone who says otherwise risks being ranked along with Herbert Hoover. But, again, it needs to be co-ordinated internationally. Will it work? The jury is out. There is still a great deal of de-leveraging to unwind. More may be needed. But we can safely pump more money into the system, certainly in the short term, while the banks are still not lending. If we do not, there may not be a long term.
6.53 pm
Baroness Hollis of Heigham: My Lords, I should like to follow up on some points made about savers. In the UK, unlike in Europe, our homes and our pensions have been our savings. With full employment, that has been a sensible way to distribute income from working years to retirement; it is not sensible when, as now, you need those savings to cope with the financial turmoil of the next few years, debt, repossession, unemployment and, sadly, probably family disaster. We have to rethink pensions.
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Pensions have been designed by men in 40-year full-time waged work for other men in 40-year full-time waged work; they simply do not fit the lives still of most women, the finances of the low paid or the expectations of the young. Think of their features. DC schemes require you to start young and save continuously even though half of all women stop pension contributions when they have children. Men do not, of course. You are expected, on a rising income, to put sufficient aside, yet women’s earnings peak at about 30, men at 45. Even with personal accounts, contributions have to be very low to be affordable—and thus attractive—if they are not accessible because they are locked away, but then they may not spring you off income-related benefits, which makes their return less attractive still.
Above all, industry tells us that pensions are locked away for 40 years even though most women and many men will today suffer far more financial turbulence during their working lives than in retirement. People need both rainy-day savings and a pension. If they are low paid, they cannot usually afford both and so, conflicted, they often build neither. I fear, alas, that the savings gateway will not help much.
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