The Lord Speaker (Baroness Hayman): My Lords, I have to inform the House that the Clerk of the Parliaments has received a certificate from the clerk of Sheffield Crown Court informing him that the noble Lord, Lord Ahmed, having been convicted of dangerous driving, was sentenced on 25 February 2009 to 12 weeks imprisonment.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the UK economy faces exceptional challenges as a result of the global financial crisis. Supporting the economy through these difficult times will benefit not only current but future generations. While this means allowing borrowings to increase in the short term, the Pre-Budget Report sets a credible plan for fiscal consolidation, ensuring that, in the medium term, borrowing is low and debt is stable and falling as a proportion of GDP.
Baroness Perry of Southwark: My Lords, I thank the Minister for that optimistic reply, but I ask as a concerned grandparent what plans the Government have to avoid the possibility that our grandchildren will be left with a huge burden of taxation and ever-diminishing public services.
Lord Myners: My Lords, public borrowing as a percentage of GDP is the second lowest of the G7 countries. We have laid out a clear fiscal plan to move back to a cyclically adjusted balance once we are past this global economic crisis and eventually to return to the course which we were previously on of reducing debt as a percentage of GDP. In the mean time, we strike an appropriate balance between the current generation and the future generation. At 2.7 per cent of GDP, public expenditure and net investment will be the highest that they have been since 1977. Future generations will benefit from the investments being made now. It is only fair and proper that they should pay a contribution towards the investment from which they will benefit.
Baroness Noakes: My Lords, my noble friend asked a serious question about intergenerational equity. The level of current debt is forecast to rise to around 70 per cent of GDP. According to the ONS, by the time that we have added in the nationalised banks, it will be multiples of GDP. Can the Government say what is an appropriate amount of debt to bequeath to future generations?
Lord Myners: My Lords, the appropriate amount of debt will depend on where we are in the economic cycle. It is clearly sensible when we are in an economic crisis of a global nature that the public sector should be an important support of demand to bring the economy back into equilibrium. We shall not see wasted investment, wasted capital or wasted manpower. We shall move back towards a more sustainable fiscal position once this crisis is behind us. I have already addressed intergenerational benefit by reference to public sector net investment.
Lord Soley: My Lords, I understand why the opposition party might want to talk down the British economy, but can we not bear in mind that we do not know the extent and effect of any recovery that comes about and therefore we cannot know the nature of public debt in the future? Indeed, if the banks recover in the way that Northern Rock has done, it could be rather better than some of the more pessimistic forecasts. However, the reality is surely that doing nothing would have been even worse.
Lord Myners: My Lords, I completely agree with my noble friend. The consequences for the economy if we did not have the combined benefit of the fiscal stabilisers and the bringing forward of capital expenditure as announced in the PBR would be GDP growth this year that was at least 0.5 lower than would otherwise be achieved.
Lord Oakeshott of Seagrove Bay: My Lords, does the Minister accept that we on these Benches believe that it would be mad not to borrow for public investment at the moment, particularly in vital areas such as social housing and to avoid the building industry collapsing? Does he also accept that, if we let the economy fall even faster, as the Conservatives seem to imply we should, it would lead to vast swathes of British industry going bust and even more pressure on pension funds? That would be a very short-sighted view.
Baroness Greengross: My Lords, does the Minister not agree that young people going to university have been and continue to be particularly vulnerable to taking out large overdrafts and student loans, which have to be repaid at the very time when they should be putting aside money in pension schemes to pay for an ever-longer future? Should the management of debt be a compulsory subject to address this on the school and university curriculum?
Lord Myners: My Lords, the management of debt should be a compulsory subject for directors of banks, as well. There is clearly a continued need, as the noble Baroness cites, for improved understanding of debt and expenditure management, and there is an important place in the educational curriculum for helping people to develop their own skills and knowledge in the management of their finances.
Lord Roberts of Conwy: My Lords, will the Minister and his colleagues bear in mind the view expressed by the late Lord Jenkins of Hillhead in 1975 that when borrowing reached 60 per cent of GDP we would be at the frontier of social democracy and that, beyond that frontier, lay totalitarianism in one form or another? I am sure that the Minister and the rest of this House would say God forbid that that should happen in this country.
Lord Myners: My Lords, we would certainly not wish to see such an outcome, nor do we believe that it would occur. That is one reason why we are committed to reducing borrowing as a percentage of GDP once we are past this global crisis. We have set out very clear programmes and have said that the rate of growth for public expenditure will be lower. We have also identified already taxation increases that will be introduced at the appropriate time to ensure that we manage our debt in a sustainable and prudent manner.
Lord Tomlinson: My Lords, does my noble friend agree that it is far better to increase debt now so that our grandchildren about whom we are all concerned will not have an economy that cannot afford to pay for healthcare, education, housing and all the things that we need? Is it not far better to increase debt now rather than so impoverish our economy that we will not be able to afford those things in future?
Lord Davies of Oldham: My Lords, all public bodies in receipt of government funding are bound by the principles set out in the HM Treasury publication Managing public money. This requires all public bodies to operate efficiently, economically and effectively and demonstrate value for money for the taxpayer at all times.
Baroness Byford: My Lords, is the Minister not then slightly concerned that quangos spend up to £1 billion a year on PR and other such publications? Could I draw to his attention the Rural Payments Agency, which spent £1.4 million last year but failed to pay the due owed to farmers and other people?
Lord Davies of Oldham: My Lords, the noble Baroness has drawn attention the Rural Payments Agency in the past, and I am pleased to record that the record is improving. On the more general issues, the noble Baroness will appreciate that quangos must have communications budgets so that they can inform the public about the services they provide. That essential expenditure is subject to the Comptroller and Auditor-General and, of course, to Parliament through Ministers.
Lord Tyler: My Lords, what specific guidance do the Government give to regional development agencies? Is the noble Lord aware that a recent ministerial reply indicated that the north-west RDA gets by on £20,000 over two years while London spends £461,000 and the south-west £706,000? Is it not clear that they are seeking to justify their existence because they think they might be scrapped? What guidance will he give to the new chairman of the south-west RDA to deal with this ridiculous situation?
Lord Davies of Oldham: My Lords, I am not at all surprised that the north-west comes out of that list well, and I am grateful to the noble Lord for identifying that. On the more general issues with regard to RDAs, of course, they face different problems in different parts of the country. Given his representation of part of Cornwall, he will be all too well aware just what a difficult situation the south-west regions economy is in. Therefore, I should have thought he would applaud the fact that the Government are giving as much support as possible in terms of resources to the regional development agency and, through it, to economic development.
Viscount Tenby: My Lords, I am sure the noble Lord is aware of the late Henry Fords aphorism that everybody knows that half of every advertising budget is wasted; the trouble is that they do not know which half. Given that these quangos have important messages to convey, they should have adequate budgets. But are those budgets overseen and controlled by people who are experts in this sphere, who can decide whether they are being spent wisely and efficiently?
Lord Davies of Oldham: My Lords, appointments to quangos go through a selection process of the utmost rigour. Noble Lords will recognise that people with very high qualifications apply to sit on quangos. The chairman and the board are responsible for its accounts. The Comptroller and Auditor General surveys the position. At the end of the day, Ministers are responsible for the action of quangos within the remit of their departments. That is the basis on which public accountability is best administered.
Lord Ryder of Wensum: My Lords, in view of the fact that there have been two parliamentary Written Answers in the other place recently connected with this subject, one of which admits that the Home Secretary has spent £2,000 of taxpayers money on improving her self-confidence, and given that the Secretary of State has spent £2 million of public money on improving his media performances, has the Minister any intention of following their example?
Lord Davies of Oldham: My Lords, tempting though the suggestion is, it could well be above my pay grade. I emphasise the obvious fact that there are constant criticisms of the fact that Members of Parliament who become Cabinet Ministers and Ministers of other ranks often have limited experience of managing matters.
Lord Davies of Oldham: That is at least as true of the previous Administration in the 1980s and 1990s as any I can think of. Therefore, I am sure that anything which enhances Ministers specific skills will be welcomed right across the House.
Baroness Howe of Idlicote: My Lords, although there may well be examples of misuse of communications campaigns, does the noble Lord agree that some such campaigns can be extremely valuable? I think particularly of the one that raises peoples awareness of signs of potential stroke. That has caught on extremely well and is doing excellent work.
Lord Davies of Oldham: My Lords, I am grateful to the noble Baroness for mentioning that. She has considerable experience of this work. It is important to recognise that communication is at times absolutely essential to the work of quangos as it enables the public to understand the issues more clearly and the help which the quango can give. I am grateful to the noble Baroness for the testimony she has given.
Lord Bates: My Lords, is the Minister aware that more than 60 central government bodies are actually hiring public affairs companies to lobby the Government themselves? At a time when businesses, families and households up and down the country are having to cut all unnecessary expenditure, is it not time that the Government took a lead on this subject and stopped the absurd practice of paying third parties to speak to the Government themselves?
Lord Davies of Oldham: My Lords, if the quality of information which comes to the Government is enhanced by such strategies, that is obviously a defence for them because government can only be carried out well when it is well informed of the problems of the nation and responds accurately. I hope the noble Lord will recognise that fact.
Lord Elton: My Lords, the Minister has apparently accepted the estimate of my noble friend that these bodies spend between them some £1 billion on communications. Can he tell us what they spend in total?
Lord Davies of Oldham: Well, my Lords, the quangos are responsible to each department for their spending, the total of which appears in public documents. There is no one in the House who does not recognise that a vast range of these public bodies do excellent work. There have been two increases in expenditure over the past 18 months; one relates to expenditure on the learning and skills councils and the development of training, which is absolutely critical in this downturn and economic crisis; the other significant increase in expenditure relates to the development of the Olympic Games and that is, of course, also within the overall budget.
The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, we should be fair to our next questioner. We are in the 16th minute.
To ask Her Majestys Government what steps they are taking to improve the standards of corporate governance and ethical behaviour in United Kingdom business, especially in the financial services sector.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the Government are committed to promoting high standards of corporate governance and ethical behaviour. Therefore, as part of our review of the supervision of financial institutions, Sir David Walker has been commissioned to undertake a review of corporate governance of UK banks. Sir Davids review will examine board management of risk, incentives to manage risk in bank remuneration policies, the competences needed on bank boards, board practices and structures, and the role played by institutional investors.
Lord Smith of Clifton: My Lords, I am grateful for that Answer, but of course Sir David will report at the end of the year and, in the mean time, I ask for the Ministers views. Given that the Companies Act 2006 further specified duties on directors and that Sir Ken Macdonald, the former DPP, this week called for the prosecution of directors who have ignored those rules, how many prosecutions are under way? Secondly, what are the Government doing to enhance the role of internal management on the boards of major companies so that there is direct access to the board, particularly the non-executive directors? Finally, will the Minister provide funds for a special cadre of speech therapists to teach bankers how to pronounce the word sorry?
Lord Myners: My Lords, there were three questions. I cannot answer the noble Lords first question about the number of directors who are being prosecuted for breach of the Companies Act, but I shall obtain that information and write to him. I should make it clear that, to the extent that there have been breaches of legislation in respect of the management of banks, or indeed any other form of incorporated body, I wholly endorse and support pursuing the correct procedure of such matters through the courts. That would be a matter for the prosecuting authorities, the Financial Services Authority or whichever agency it fell under. Securing broader access for employees to boards is, in part, up to the boards. If boards rely on the information that they receive from a small number of executive directors and do not make appropriate inquiry elsewhere in the company, do not visit the factory floor, do not sit in the canteen and do not listen to what is said, they will not be as informed as they otherwise could have been. I do not think that this is a matter for law; it could be a matter for code, and David Walker will look at that. I am hopeful that he will produce an earlier report of some of his conclusions, perhaps in interim form. I have no comment to make on speech therapy.
Lord Barnett: My Lords, does my noble friend accept that it is unethical behaviour for banks to pay bonuses in current circumstances? Is it true, as reported in the Financial Times yesterday, that some of the companies that are 100 per cent controlled and some that are virtually 100 per cent controlled by the taxpayer are planning to evade the issue by approving bonuses to be paid in cash in a year or two? If that is true, will he try to stop it under his own provisions?
Lord Myners: My Lords, a wide range of people employed in the private and public sectors are given rewards for performance. We must be careful not to demonise this concept. It is a matter of proportionality and of correctly rewarding the right type of performance. What went wrong with the banks was that bonuses were frequently paid for illusory gains. I was told the famous story about a transaction between two banks, which both banks booked as an immediate profit on execution of the transaction and presumably paid bonuses for. We need to stop that sort of thing. It is not a question of evading restrictions on bonuses by deferring payment. Part of this is good process to ensure that an early indication of bonus can be subject to clawback in the event that subsequent information suggests that the original gains were not as first realised. The answer is well designed schemes that are alert to unintended consequences, transparent and clearly explained to the owners of businesses.
Lord Elystan-Morgan: My Lords, does the Minister accept that those bankers who have recklessly exposed their investors money have come very near to committing moral theft? In so far as the criminal law boundary is concerned, Section 6 of the Theft Act 1968 stipulates that a person who intends to deal with the property of another as if it were his own to dispose of, regardless of that persons rights, commits an act that is tantamount to theft.
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