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Those who say that a line should be drawn under the fiasco that occurred and that it is time to move on should be ignored. It is altogether much too premature for that response. It is not enough to name and shame the guilty ones, for they should brought to book and punished. I suggest that it would be appropriate to send those guilty into exile to the island of St Helena. This would have the added advantage that, if they wanted visitors, their obscenely over-generous pensions could help finance the much-needed airport on the island, which has been postponed as a result of the recession they did so much to bring about.
However appalling the shortcomings of the regulators and bankers have proved, there is a wider intellectual context to be considered. In his recent Yale lecture, Mr. Lionel Barber, the distinguished editor of the Financial Times, has added much to our understanding in this regard. He asked how financial journalists failed, along with almost all observers, to predict the financial crisis. His analysis provides a number of reasons which I do not have time to rehearse, but a major conclusion of his was that,
One of the factors that contributed to this was predicted by Professor Wayne Parsons. In his pioneering book, The Power of the Financial Press, he argued, many years ago now, that public understanding was much better served by the press during that period in the 1960s and 1970s which saw the advent of economic journalists of the calibre of Sir Samuel Brittan, Peter Jay, Andrew Shonfield and Michael Shanks, who complemented the narrower reporting of City reporters. That cadre has now disappeared and the media have reverted largely to financial journalists, with their more blinkered horizons. There are exceptions, of course, of which Robert Peston and Gillian Tett are prime examples, but overall the press has been diminished by the demise of the economic editors.
Much, too, can be explained by the changing nature of the discipline of economics itself. I recall that, some 30 years ago, the noble Lord, Lord Dahrendorf, deplored the shift away from traditional political economy towards a new economic science, with all its mathematical pretensions. He is not in his place today, through illness, and I am sure noble Lords will want to send him their best wishes. The noble Lord was concerned that economic science would become so concentrated on developing sophisticated model-building that reality would be lost sight of, wisdom discounted and public
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Worse was to come. In the financial centres of the developed world, this led to a further mutation. Hordes of mathematicians, natural scientists, statisticians, computer scientists and engineers were employed to invent ever more devilish quantitative techniques. Except to those who contrived them, these innovations were largely incomprehensible. They induced a strong element of almost robotic remote controls that triggered a daily multitude of actions in response to new data or other changes. But they seemed to deliver the goods and were extraordinarily profitable. Huge salaries were paid to these modern alchemists and even bigger rewards to those company boards that engaged them, even though executive directors, and even more so non-executive ones, had little understanding of these new business tools and the wider implications of their extensive use. Heady techniques led inevitably to toxic assets and we now know what that led to. The essential point is that all the elements in the financial sector had adopted similar methodologies that made, in aggregate, for a vast monolith, rather than for a risk-spreading diversity, as Gillian Tett had warned. Whatever the power of these ingenious techniques in some narrow sense, they could not predict the future in a more macro sense and, in particular, they could not forecast their own demise, and that was to prove fatal.
What has to be done now to minimise the chances of a repeat fiasco? Tightening up regulation and legal requirements are all very well in themselves. More fundamentally, however, a radical refurbishment of the discipline of economics, in the form of a new political economy, is vital, together with a new culture of business ethics and corporate governance. Only then will the UK economy have an authentic context in which to operate.
Lord Marlesford: My Lords, I find it a little curious that in the debate we have 20 Conservative speakers, led by that astonishingly powerful speech of my noble friend, yet the Labour Party has only been able to put up eight people. That is despite having created hundreds of new Peers since 1997. I fear this reflects, yet again, the dying embers of the Government. They seem to have lost the will to survive.
I start by reminding the House of just how long it was before the Government started to take action to deal with the economic crisis. Like the banks, they were in denial for months. I am no financial guru yet by September 2007 it was obvious, even to me, how dark the clouds were behind the sub-prime situation. The day before Northern Rock first alerted the FSA that it was running out of money I noted:
The fatal assumption was that the capital outstanding on the pay-back date could simply be refinanced ... These loans were then manipulated into financial instruments which entered that most esoteric world of secondary markets ... The scale of the problem is hard to grasp ... Nor is it clear that the fallout from the original sub-prime crisis in America will be confined to the West.
Little of what the Government have done over the past 20 months has helped to save Britain, let alone the world. Unfortunately, the Government have not had the benefit of the noble Lord, Lord Myners, for very long. It was only in October that he was lured from the pinnacles of the private sector on to the middle rungs of the ministerial ladder.
What is needed now is a firm strategy which takes advantage of the crisis to move forward. It seems to me that the Chinese Government have such a strategyit is based on strengthwhile the British Government flap and gasp like a fish out of water. China has faced up to the problem from day one. It decided what it needed to do and what it could do, and is doing it.
In the West, we had the dramatic exposure of the illusion of prosperity fuelled by an orgy of consumer borrowing, with the lenders conspiring in a cocktail of greed, negligence and dishonesty, unchecked by naive and incompetent regulators.
I believe that the early cuts in interest rates were the wrong answer to a credit crunch. They suggested the possibility of a quick and painless fix. They have crucified savers. Do the Government recognise the extent to which they have spread poverty by the interest rate cuts? Do noble Lords realise that the rate of interest on the Post Office Instant Saver account, very much something for the less well-off, is 0.1 per cent? Think of what that has done to peoples incomes. Most importantly by, the cuts have used up the ammunition in the monetary weapon. It should have been kept to counter the fall in demand when the consumer woke up to what was happening.
I want to sound an alarm over the huge reservoir of toxic debt on credit cards. The credit card is a convenient and cheap way of running your financial life, provided you settle your debt each month, otherwise you start paying interest at rates which would normally be regarded as more appropriate to loan sharks than respectable financial institutions. For example, Egg is currently charging 16.9 per cent on overdue credit card debt, and our beloved Post Office MasterCard 19.9 per cent.
The interest-bearing credit card debt in Britain is vast. Let us just take the total unsecured lending in Britain today. It is £232 billion, of which nearly a quarter is on Britain's 67 million credit cards. That level of debt on credit cards has more than doubled, in real terms, since 1997. According to the British Bankers Association, the credit card interest-bearing debt is now £47 billion. That is over 3 per cent of GDP, or more than £780 for every person living in Britain. Worryingly, credit card debt is falling very slowly.
Therefore, I propose a new regulatory regime for credit cards. It would be under the FSA and would be largely self-policing. It might however be necessary to set up a central register of all credit cards in issue. First, credit card companies would have to do due diligence before issuing any credit card, so they would have to insist on the details of any credit cards already held. Secondly, no young personwe will determine the age laterwould be allowed more than one credit card. Thirdly and most importantly, every debit balance on a card would have to be cleared at
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The key to my proposal is that unless a credit card company could demonstrate that it had complied with the rules it would not be entitled to recover the outstanding debt from the cardholder. That would make them sit up and take notice.
I suspect much of this credit card debt is toxic to both borrower and lender. As unemployment rises, there will be growing distress, and because credit cards are at the sharp edge of consumer expenditure I fear it will hit those least able to bear it.
Lord Reay: My Lords, I shall concentrate on a narrow field, perhaps a narrow byway, but if we want this country to emerge as soon as possible from recession and compete once again with some success on world markets, we must, it seems obvious, not burden our businesses with unnecessary costs, nor encourage, on any substantial scale, the wasteful use of scarce capital.
There are many ways in which that can and has been done, but in no field more spectacularly than that of energy. The current fashionable pursuit of so-called renewable energy must rank as one of the most lunatic policies ever adopted by western Governments. The point is that we face a looming energy crisis, as one quarter of our existing power stations face closure in the next few years largely as a result of the need to comply with existing EU environmental legislation. This imposes of necessity a huge demand on capital.
The pursuit of renewables is a distraction from that imperative. The expansion of renewables today means the expansion of wind power. However, wind power is inefficient. Even in this country, windier than some, government figures show that the load factorthat is, the percentage of what would be produced by turbinesover a year if running at full capacity, even of offshore wind turbinesbarely rises above 27 per cent. For between 55 and 110 days a year, depending on where they are sited, wind turbines are idle, the wind being too weak or, more rarely, too strong to power them.
Moreover, this absence of wind is very likely to coincide with periods of extreme cold, or, in the summer, extreme heat, when electricity demand surges. Therefore, when the demand is greatest, the supply is weakest. The consequence is that wind power needs to be almost fully backed up by conventional power stations if the country is not to suffer power failures when one of those moments arises, as it regularly does, when the wind fails at a moment of peak demand.
Therefore, as the House of Lords Economics Affairs Committee concluded in its report published last year on TheEconomics of Renewable Energy, wind power is an additional capacity, an optional extra, unlikely ever to permit a single conventional power station to close or avoid the need for one to be built. The House of Lords report concluded that the expansion of renewable energy would result in roughly twice the amount of new installed electricity capacity being required than if it was not being expanded.
The capital construction costs of installing wind power far exceed the costs of installing conventional power when they are measured in terms of the electricity they can deliver over a year. It has been estimated that per delivered megawatt the capital cost of wind is three to five times the cost of nuclear, 10 times the cost of gas and 15 times the cost of coal. This can perhaps be understood when it is realised that a nuclear station like Sizewell B can produce in a year as much electricity as 4,000 wind turbines. Nor should the cost be ignored of the new transmission lines required to transport the electricity from the uplands where it is produced, to the south and south-east where it is required; a cost that Ofgem has estimated at £17 billion.
Of course, no capital investment would be forthcoming to enable the Government to achieve their renewable energy targets without subsidies. The cost of these currently runs at some £1.4 billion a year, the majority being paid for by the all-too-unwitting consumer. If the Governments renewable targets were to be met, this would rise to some £6 billion per annumenough to build two nuclear power stationsand a cumulative total by 2020 of some £32 billion. Government figures indicate that that this would increase the proportion of consumers electricity bills that will be accounted for by renewable subsidies to 32 per cent for individuals and no less than 55 per cent for business users. These subsidies, of course, completely distort the market. They also have other disastrous effects, one of which is the industrialisation of those beautiful upland landscapes throughout the United Kingdom that attract visitors from all over the world, thereby threatening to undermine our tourist industry, one of our most successful foreign exchange earners and otherwise poised to enjoy a successful future.
Of course, the dream of wind power is fired by the vision of a cost-free, carbon-free fuel, but if you want carbon-free fuel, the choice should be nuclear. Nuclear power supplies the French with approaching 80 per cent of their electricity, as a result of which their per capita carbon emissions are not much more than two-thirds of those of this country. Germany, by contrast, has carbon emission levels above our own. Indeed, Germany is carpeted with some 20,000 wind turbines, almost 10 times the level in this country to date, yet has never managed to produce more than 5 per cent of its annual electricity requirement from wind. What a trivial return that has given them for all their investment.
So why must we persist in the pursuit of what I have previously called in this House the will o the wisp of wind power? Faced as we are with the need to find the capital for an enormous rebuild of conventional power stations, can we afford to more than double that amount, perhaps much more than double that amountI have seen an estimate of £200 billion all toldand to do so by increasing consumers electricity bills by 30 per cent to 50 per cent? Will this not hasten the day when this country slips down the worlds economic rankings?
My party shows every sign of being likely to gain office next year, but I can spot very few signs of it being about to adopt sensible energy policies. Having
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Lord Lea of Crondall: My Lords, the noble Lord, Lord Marlesford referred to the paucity of Labour Members on these Benches. I do not blame them. They knew that this would be a political game, that the noble Lord, Lord Forsyth, would give us another chapter of the Forsyth saga and that it would turn the economy into a political football: full stop, go home. Some of us have come here to maybe put the record straight, but I do not think that this is a sensible way to spend a Thursday.
The most interesting part of the debate was between the noble Lords, Lord Lamont and Lord Lawson. I am sorry that neither of them is in their place, but they will have to see me later if they do not think that I have got this right. The noble Lord, Lord Lamont, referred to the crisis being co-authored by the USA and Britain. He could have been President Sarkozy in his implicit characterisation of this crisis being one of Anglo-Saxon capitalism. The noble Lord, Lord Lawson, said that any idea of this being largely an international crisis ignored the fact that we had signs of leveraging going wrong and of bank lending and mortgages being made too easyall very good. I must have been Rip Van Winkle and missed about 30 years and just woken up; it is rather ironic that, where I was, whenever the question of tighter regulation in financial services came up, the Conservative Party was complaining bitterly about it. Future historians will need to dig down and produce chapter and verse on all that.
The big paradox today is that, with the prospect of youth unemployment, inequality and all the problems of our societyregionally, sociologically and in many other waysthe logical pendulum swing at this time would have been towards more social democracy, but a Labour Government have inherited this Anglo-Saxon capitalist crisis. This is demonstrated, totally convincingly, in a wonderful book by a Financial Times journalist, Gillian Tett, Fools Gold. I will give noble Lords the flavour of a couple of paragraphs as I go along. It is not a Morning Star journalist saying this, but it is characteristic: By early 2006 ... contractsthe collateralised debt contracts
The Financial Times has been right on the mark by conducting over the past four or five weeks a review of the future of capitalism. I have heard none of that from the Conservative Benches. I am not surprised: that is where their money comes from and where their heart lies. The one Conservative leader who ever questioned this religion, 40 years ago, was Ted Heath, for whom many of us in the trade union movement had a high regard; that will not improve his reputation in Conservative ranks, either. He described the Lonrho affairI think it was, I have not checkedas demonstrating the unacceptable face of capitalism.
It would be refreshing if any Conservative spokesman today, knowing where their money comes fromthat is the sort of language we had about the trade unions, so they might like a little repaymentwould ever criticise our capitalist system, which I call outrider capitalism. It is not the socially accountable capitalism that the Financial Times is looking for, and certainly not a capitalism which has no regard for the level of inequality. I heard nothing from the noble Lords, Lord Lawson and Lord Lamontand I would not even expect to hear it from the noble Lord, Lord Forsythabout the growing inequality in our society. The bottom to top ratio has gone from 10, to 20, to 30, to 40, to 50, to 60, to 70, to 80, to 90, and is probably going up again. That could cause a huge social crisis in our country. The Labour Government have done what they can to encourage young peoples entry into employment when they leave full-time education. However, the rise in unemployment resulting from the collapse of the capitalist Anglo-Saxon model will produce great problems for all of us.
The real debate ought to be about the future of capitalism. A banker said on the radio the other day, The banks finances will improve because most of the stuff which will go wrong will fall on the taxpayer. That is the doctrine; I am on the other side of the argument.
I want to focus my remarks on London and I declare my interest as chief executive of London First. London is a highly successful world city and the engine of the UK's economy but it is fuelled by professional and financial services, two of the sectors hit hardest by the recession. Therefore, I welcome the recent reports from the Chancellor's high-level group designed to improve their long-term competitiveness.
Sir Michael Snyder chaired a review of professional services, which noted that the legal profession alone contributes 1.5 per cent of UK GDP. Harmonised international accounting standards might lack glamour but are vital to our success. If the UK is a bridge between Europe and America, we have the most to lose if these economic tectonic plates drift apart.
The second financial services group, chaired by Sir Win Bischoff, reports today. I look forward to its findings and to a more closely co-ordinated and
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Spending must take much of the strain but we need to be strengthening, not weakening, our economically productive infrastructure. In the previous recession, the previous Government ducked funding Crossrail, with the result that the Tube has become ever more stretched. As any squash-nosed, toe-trodden rush-hour commuter knows, we desperately need the modernisation of the Tube and Crossrail. Delaying either will undermine the capital.
Reductions in spending demand real efficiency savings, achieving better outcomes for less but also doing fewer things. I applaud one example and offer one suggestion. First, the new chief executive of the London Development Agency, Peter Rogers, has cut one in three of the LDA's staff and £11 million from its £40 million overhead. The public sector can deliver radical reform when there is the will.
Secondly, the Government have announced an additional £1.7 billion to help get people back into work. Separately, they have stated their aspiration to devolve some of this task from Jobcentre Plus to the private and third sectors. Surely the Government should use this new money to meet their own ambition.
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