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Government Ministers are very keen on quoting an IMF report issued in May which comments on strong policies and policy frameworks over the past 10 yearsso keen, in fact, that the same quotation has been used nine times in Parliament over the past six months. It is extraordinary that no one appears to have read to the end of the page. The statement is not in fact limited to the three paragraphs published on the Treasury website but goes on to give the strongest warnings about breaching the 40 per cent public debt ceiling. Does the Minister agree with the IMFs assessment of the best way forward, and if he does, how can he justify the extraordinary fiscal loosening the Government have just undertaken? As my noble friend Lord Higgins said, how will it be funded?
As my noble friend Lady Noakes said, this Government have presided over the creation of the longest tax code in the world. It is chock full of reliefs and credits and, more recently, postponements and deferrals, which the Government hope will postpone the full effect of a Labour Government until after the next general election. Let me assure the Minister that nobody is fooled.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, it is my honour to bring todays portion of the debate on the humble Address to a close. I am sure that your Lordships will agree that we have enjoyed a spirited and productive discussion on the important subject of business and the economy. I thank my noble friend Lord Mandelson for opening the debate and for giving such a clear account of the comprehensive and judicious steps that the Government are taking in response to the global economic downturn and its consequences for us here in Britain.
I extend my thanks to all other noble Lords who have spoken for their very thoughtful contributions. In the space of 20 minutes I shall endeavour to respond to some 50 speeches. Frankly, it will be extraordinarily difficult to do that. To the extent that specific questions were asked that I do not cover in my speech, I will of course, on studying Hansard, ensure that they are answered in writing.
I say that particularly looking at the noble Baroness, Lady OCathain, who mentioned that we had not answered all the questions at the last economy debate. That was my first major debate in this House and I made a distinguishedly undistinguished contribution. For me, the only enjoyable part of the evening was when I wandered off to try to find somewhere to have something to eat and the noble Baroness and the noble Baroness, Lady Shephard, invited me to join themthey were most convivial and helpful company. That was a fine day. It was also the day when I first met the noble Lord, Lord Forsyth of Drumlean, whom I suspect I shall meet on many future occasions in the Chamber.
Before I answer the questions, I shall make a few observations of my own about the economy. We face some of the most challenging economic conditions for a century. Irresponsible lending decisions in the American mortgage markets and the packaging of those assets into non-transparent securities have infected financial institutions around the world. At the same time, the global economy has been heavily struck by volatility in the energy, food and commodity markets.
The euro area has been in recession since April. In Japan and Germany, GDP has already shrunk by 1 per cent in the past six months. We are forecasting 0.75 per cent GDP growth for the current year, although that growth will be achieved in the first six months of the year. In America, manufacturing output is falling at the fastest rate since 1982 and over 1.5 million jobs have been lost in the past six months. The Bank of England estimates that global bank losses could eventually exceed $3 trillion.
The UK economy faces these global challenges from a position of relative strength compared to the downturns of the past. Even today, employment remains near record levels. The claimant count, while rising, is 2 million below the level of the early 1990s. There are still today over half a million unfilled vacancies in the economy. The discipline imposed on public finances by the fiscal framework that this Government put in place has seen debt cut and borrowing reduced.
Between 1997 and 2007, borrowing peaked at just 3.3 per cent of GDP and ran at an annual average of only 1 per cent. Compare that to the previous 10 years, when borrowing peaked at 7.8 per cent of GDP and averaged 3.1 per cent. The noble Baroness, Lady Noakes, talks about the growth in debt as a percentage of GDP. It will increase, but it has increased in the past and we have reduced it in the past. The increase that we are projecting is precisely to address the effects of the global economic challenges on British families and British business. We are doing it from a position of relative strength. We are not doing it as we did in the recession of the 1980s, when interest rates were 17 per cent. We are not doing it as we did in the 1990s, when interest rates were 15 per cent. We are doing it against a backdrop of base rates of 2 per cent. That is evidence of stronger and more responsible economic management.
Government debt last year was among the lowest in the most advanced economies. The noble Lord, Lord Higgins, asked how we will finance our debt going forward. We do so from a position where the cost of
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I listened with great care to the opposition Front Bench. I heard little of substance; I thought that it was rather lacklustre. There were no ideas and nothing fresh to say. There were no answers to questions. The noble Lord, Lord De Mauley, did not even answer the question about pensions asked by the noble Lord, Lord Patten, on his own Back Benches. I am pleased to give the noble Lord the assurance that he sought, which is that we have no plan to adversely change the taxation of pensions. The noble Lord addressed that question to the government Benches; he also addressed it to his own Front Bench, from which he did not get a reply.
There was little acknowledgement from the opposition Front Bench of the global nature of the situation that we face and there was little empathy. We had to wait until the speeches of my noble friend Lord Barnett and the noble Lord, Lord Bates, to hear any concern expressed about the plight of people. The noble Lord, Lord Newby, spoke about the challenges facing people who risk losing their jobs and businesses, which are under threat. I heard nothing from the government Front Bench
Lord Myners: My Lords, I apologise; I heard nothing from the opposition Front Bench of concern for the plight of such people. Indeed, we heard the noble Lord, Lord De Mauley, refer to the extraordinary fiscal loosening. It is indeed an extraordinary fiscal loosening, which is designed to address the very problems that we face as a consequence of the difficulties in the global economy.
Quite frankly, the Conservative Front Bench finds itself between the Scylla and Charybdis of knowing what is necessaryknowing what needs to be doneand not wishing to acknowledge that that is the case, recognising in truth, I suspect, that they would plan to do little to help with this problem. Indeed, we see that from the observations of the vice-chairman of the Conservative Party, Mr Maples, who sits in another place, or those of Mr Redwood and Mr Lansley. Mr Maples has said that we must let the recession run its course and others have similarly said that we must accept a reduction in the standard of living. This is not what we as a Government plan to do. Perhaps the Conservative Benches were somewhat shaken by the announcement made over the weekend by President-elect Obama, which reinforced the view that what is needed is a global fiscal stimulus. Once again, we were to the fore in recommending that to major international institutions and other Governments.
The noble Baroness, Lady Noakes, said that our banking actions have done nothing for business. Let me say what they have done for business. A sound
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I was asked by the noble Baroness whether we have a plan B. We have a number of options which we regularly keep under review. We have seen evidence of that in our announcement of a programme of support to help mortgage holders who are experiencing difficulties in servicing their obligations. But we are confident that the actions that we have taken are the right ones to address the needs and requirements of today. I was also asked by the noble Baroness whether I thought that we had been damaged by not being in the euro. Defending something that we did not do is theoretically counterfactual. However, for the avoidance of doubt let me say that our choosing not to be in the euro was in my judgment the right thing to have done. If the noble Baroness was seeking to endorse that the Government have done the correct thing, I can confirm that I gratefully welcome her endorsement.
The noble Baroness told me that we should consider a national loans guarantee scheme. She advanced that idea on the basis that it would be novel, imaginative and appropriate for the times. I completely agree with her. That is precisely what we have done with our small business loan guarantee scheme, which is precisely the policy that Mr Cameron and Mr Osborne have alighted on at a rather late hour in the day.
The noble Lord, Lord Razzall, made a wise, sensitive and important series of observations. I want to pick up only one or two points. He quoted Angela Knight of the British Bankers Association as saying that the new capital that we had provided was not available for new lending. I am pleased to tell noble Lords that I met Angela Knight and a number of her members today and made it absolutely clear to her that that capital is available for new lending. It is there to support the banks in withstanding the inevitable write-offs which we know they will experience, while having sufficient capital to meet the needs of their business and private customers. This is not a new minimum requirement for sustained capital; rather, as I have said previously to noble Lords, it is an all-weather capital structure, designed to withstand the pressures that we know bank balance sheets will have to cope with over the next 12 months so that banks are adequately capitalised to perform their economic function. I made that very clear to Angela Knight today.
The noble Lord, Lord Razzall, also suggested that we should keep open more unorthodox measures. That was raised by one or two other Peers, including the noble Lord, Lord Higgins. I think that here we have in mind issues such as qualitative easing, which was also referred to by my noble friend Lord Layard. We listen to the advice that we receive from the Bank of England in these matters and, as I said, we rule nothing out and nothing in so far as concerns appropriate measures for the economy.
The noble Lord, Lord Razzall, asked whether we had a timetable for joining the euro. We do not but we have a process for establishing the conditions for joining. The timetable will follow as and when those conditions are deemed to be satisfied. He also asked whether we had a timetable for Dr Cable to become Chancellor of the Exchequer. I simply advise him that he will have to work far harder in electioneering before that becomes a real possibility.
I turn to some of the other points that were made in what, as I said, was a very informed debate. I should like to start, in particular, with issues surrounding innovation and skills. I was heartened by the fact that a number of noble Lordsmy noble friends Lord Rooker, Lord Haskel, Lord Bhattacharyya and Lady Kingsmill, the noble Lord, Lord Broers, the noble Baroness, Lady Sharp, and the noble Lord, Lord Clement-Jones, from a digital perspective, spoke about the importance of education and innovation. Going through this very tricky period, those are absolutely critical to the success of our economy. This Government support continued investment in R&D by both the private sector and government. Indeed, we recently published our first innovation report, and my noble friend Lord Drayson will be chairing a new Cabinet committee which will take specific interest in matters relating to innovation. Our excellence in science, engineering, knowledge and technology will be critical in driving forward economic growth. I am pleased to confirma point on which my noble friend Lord Haskel sought assurancethat we continue to support science and innovation.
There were many interesting contributions on the economy. The noble Lord, Lord Skidelsky, took us back to the days of Ramsay MacDonald and a fiscal policy move which, in his judgment and the judgment of history, was too modest. He also stressed the need for fiscal and monetary policy to act hand in hand. We are taking the appropriate steps to ensure that we have a co-ordinated fiscal and monetary policy.
Although several others followed, the noble Lord, Lord Skidelsky, was the first Member of the House to question whether the terms of the banking recapitalisation were penal. I believe that the noble Viscount, Lord Trenchard, spoke to this, as did the noble Lord, Lord Tugendhat. I do not think they were penal. The terms that we made available to those banks that took equity investment from the Government were judged by most people to have been rather better than those available in the marketplace. But it was not our wish to penalise. We wanted to ensure that in providing support to banks through capital, liquidity and funding, we did so on an arms-length basis which reflected good value for taxpayers.
There was much talk about regulation and banking. My noble friend Lord Thomas of Macclesfield spoke with passion and conviction about mutuality and behavioural shortcomings in our banking institutions. We recognise that cultures were in place at a number of the worlds leading banks that were simply inappropriate for organisations that should be inherently prudent and cautious in their management of risk and their
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The noble Lord, Lord Low of Dalston, asked whether I would confirm whether there would be an inquiry into the banking crisis. I am happy to make it clear that I did not say that there should be such an inquiry. I said in response to my noble friend Lord Lea that if the FSA judged it appropriate there should be an inquiry into any leak that might have taken place around the bank capitalisation. A careful study of Hansard will show that to be the case.
The noble Lord, Lord Oakeshott, referred to issues around Ireland and the Irish banks. There is an important difference between the Irish and Icelandic banks, which he compared. The Irish banks already have all their deposits guaranteed by the Government of Ireland. As a full member of the EU Ireland has access to the ECB. We note his observations and take a deep and significant interest in the quality of banks from throughout the world which operate in the United Kingdom.
The noble Lord, Lord Tugendhat, made a particularly fine contribution and I welcome his observation that we should not underestimate the scale of the actions that have already been taken. The comprehensive programme that we have introduced was one in which he clearly saw good value. The noble Lord, Lord Barnett, observed that when it came to cutting expenditure, you should always ask for more than you are offered. I am sure that that is a good piece of guidance, but I remind him that we have made significant efficiency gains under the programme established by Sir Peter Gershon. Ministers believe that there is still more improvement in terms of efficiency of payment and procurement of services by the Government.
I was much taken by the interest shown by noble Lords about the plight of small businesses. The noble Lord, Lord Bilimoria, started us focusing on that and there were welcome contributions from the noble Lords, Lord MacGregor and Lord Wakeham, and the noble Earl, Lord Courtown. Noble Lords can rest assured that we share the noble Earls view that small businesses are the engine of the economy. That is one of the reasons why we have put an extra £1 billion of funding behind guarantees for bank support for businesses, plus an extra £1 billion that will come from the EIB, and tax deferment and VAT delays to ensure that small companies are in a good position to cope with challenging times.
We are doing further work on banking regulation and look forward to the report that we have commissioned from the noble Lord, Lord Turner, the chairman of the FSA, with his views on how banking regulation can be improved. We have no current plans to introduce
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There were many contributions on pensions. I do not think I can do fair duty to the important points that were made, except to say that we heard again the old canard that the Government had raided pensions. That is simply not true. The noble Lord, Lord De Mauley, encourages us to read to the bottom of the page. I encourage noble Lords on the Conservative Benches to read to bottom of the page that the abolition of the ACT claw-back, which was not supported by any logical reason, was accompanied by a reduction in corporation tax, which has been to the benefit of British industry ever since. It is worth noting that the stock market rose on the day after and for the next three years, which is a strong endorsement of the fact that it was a pro-business move. To portray this Government as raiding pension funds is simply at odds with the facts.
My noble friend Lady Hollis made a wonderful contribution, challenging in style and content, on an issue about which she knows so much. It falls outside my departmental brief, so I rather inadequately say that I will make every effort to draw her words to the attention of the Secretary of State for the Department for Work and Pensions and my noble friend Lord McKenzie, and ensure that they are fully exposed to the logic that she advances, which I found well articulated, for allowing access to lump sums. I believe that others will have an interest in understanding it as well.
The noble Lord, Lord Patten, made an important contribution about annuity purchases at 75. That also falls outside my departmental brief, although I am advised that there is some flexibility and some exemptions around the 75 limit. If I cannot give him a satisfactory response, I have given him a clear answer to his question about our policies on the taxation of pensions.
I am conscious that I could and should refer to the contributions made by many other noble Lords, but with the indulgence of your Lordships' House, I propose to handle them in writing. This has been an extremely good debate. I am impressed and delighted to have been part of it. This is the first time that I have closed for the Government, and noble Lords set me an extraordinarily difficult job, as the quality of the debate and the range of contributions were so extraordinary. I commend this part of the gracious Speech to your Lordships' House.
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