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Unemployment is growing at the fastest rate ever and is likely, even on the Governments own figures, to rise well above 3 million, 40 per cent of whom are expected to be young people. Higher education is increasingly not an option; costs are spiralling while government cuts have reduced the number of higher education places available. Graduates who cannot find jobs are likely to find themselves swelling the ranks of those who are not in employment, education or training, which have already grown by 230,000 since 2000.
House repossessions continue to rise, with 75,000 expected this year. At the last count oneyes, onemortgage holder had been assisted by the overspun mortgage relief scheme. Child poverty has been rising, and figures which came out this morning show that it has risen even further. The Government have no policies at present that will mean that they will meet their target of cutting child poverty in half by 2010. That means that at least 600,000 children will continue to live in poverty. The right reverend Prelate the Bishop of Bradford, whose maiden speech we all enjoyed so much, referred to the problems that that will bring. Pensioners dependent on income from their small savings are struggling with the impact of minimal returns. These are all personal tragedies.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, we have enjoyed a frightfully good debate, which was thoroughly thought-provoking, in most cases was very well informed by people of great accomplishment and experience, and, with one exception, was conducted in a very good spirit. I thank the noble Lord, Lord Forsyth of Drumlean, for giving the House the opportunity to discuss such an important issue.
I apologise immediately to a number of those who have participated, particularly the noble Lords, Lord Reay, Lord Plant, Lord Broers and Lord Judd, and the noble Baroness, Lady Warwick; because of time
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I also welcome the right reverend Prelate the Bishop of Bradford and congratulate him on an excellent maiden speech. It was a speech full of sunshine and hope. I can imagine him sitting there in the grandstand at Valley Parade, looking out across the sunlit roofs of Bradford and celebrating the excess, or rather the success, of his community. To the extent that they were excesses, they would be good Yorkshire excesses, which would no doubt be slept off by the following morning.
Lord Myners: My Lords, as a supporter of Plymouth Argyle, I look forward to the opportunity of playing in the Championship against Bradford and being with the right reverend Prelate. He talked about the achievements in child poverty, the investment that we have made in education and the potential to invest for the future. He lifted our spirits. But, dear me, after that it became profoundly difficult when, time after time from the opposition Benches we heard a hint of a mean-spirited view. It is a view of society which pursues the narrow self-interest of the rich, the affluent and the prosperous, with little concern for those who are now struggling.
I heard a sequence of presentations which could be summarised as penny-wise and pound-foolishearly savings now but at huge cost for the future. I heard appeals for a reduction in the top rate of taxation, but I am not sure how Peers on the Conservative Back Benches will react to the unequivocal and clear statement from the noble Baroness, Lady Noakes, that the Conservative Party will support the 50p top rate of tax and will do nothing to remove that in the immediate term. I am sure that her colleagues in the other place will be pleased to know that she has stated that that is now the Conservative policy. I heard references to inheritance tax and to stamp duty
Lord Forsyth of Drumlean: My Lords, my noble friend said nothing of the kind. She said that we would get rid of it at the first available opportunity but that, because of the debt that the Ministers Government have run up, it might take a little time.
Lord Myners: My Lords, with all due respect to the noble Lord, Lord Forsyth, it is very difficult to square the contention that the tax will produce no proceeds with the fact that it cannot be avoided or removed. Clearly, the noble Baroness is of the view that it will contribute towards debt reduction, and the noble Lord, Lord Forsyth, seems to be affirming that case.
Baroness Noakes: My Lords, just let us clear this up. I outlined the view that has been expressed that it will raise nothing, or could even be negative. Clearly, that is one of the things that we will need to analyse when we are in power again and have access to further data. At the moment, I set out what we would expect to do once we got back into power.
Lord Myners: My Lords, in a debate in which we have been honoured by the presence of the noble Baroness, Lady Thatcher, we have just seen a fairly swift U-turn from the Conservative Front Bench on an issue of some importance.
Since last autumn, economic conditions have worsened here and in every country. A crisis that started in the developed economies has spread to emerging and developing countries. My noble friend Lord Lea of Crondall intervened to point out that this was a global issuean inconvenient truth as far as many were concerned when it came to the debate, as they were not willing to acknowledge that this was a global problem rather than a purely domestic challenge.
For the first time since the Second World War the world economy is expected to contract by 1.3 per cent, according to the IMF, while many of the biggest banks in the world have had to be rescued by their national Governments and a number of countries have approached the IMF and other international financial institutions for emergency support. These are quite exceptional circumstances. World trade is now falling at the sharpest rate since the Second World War and production has fallen in 54 out of the 57 largest economies. Manufacturing output in Germany, Japan and France has fallen by 20 per cent in the past year. That has nothing to do with policies pursued by this Government. This is a global phenomenon, the consequences of which we are managing successfully.
By the end of last year, the German economy had shrunk by more than 3 per cent; the Japanese economy by nearly 5 per cent; the UK economy by 2.3 per cent. On Monday, the European Commission published forecasts expecting the world economy to contract by 1.4 per cent this year, with the eurozone economy shrinking by 4 per cent. As an open economy, the second biggest exporter of services in the world and the eighth biggest exporter of goods, we are of course affected by the collapse in demand in other countries. But because of the unprecedented co-ordinated action at international level, and the measures that the Government announced in the PBR and more recently in the Budget, we are expecting a move for growth to resume towards the end of this year. I was encouraged by the comment of the noble Lord, Lord Butler, that he did not rule that out and that the pace of recovery could be quite rapid, given the circumstances that led to the downturn in global economic activity. I also took encouragement from a very wise, well informed and well expressed contribution by the noble Lord, Lord Lawson, in which he reminded us that the sun does rise in the mornings and that recessions do come to an end. I would have encouraged others in the House to resist the temptation to talk down Britain and the economy for political advantage, fearing that the recovery might come too soon for their own particular electoral purposes.
Baroness O'Cathain: My Lords, the noble Lord, Lord Myners, had a bit of a go at us for politicking, but he has done precisely the same thing. The reality is that not one person on our Benches wants to delay the recovery, believe you me, not by one second. It is wrong to imply that that is what we are doing for electoral purposes.
Lord Myners: My Lords, the Government recognise the importance of the banking system to ensuring that the economy begins to function effectively. That is why we have been doing, and will continue to do, everything possible to stabilise the financial system and restore confidence to the markets. I reassure the noble Lord, Lord Oakeshott, that I am not complacent about the need to address regulatory shortcomings. Our regulatory system did not perform as well as it should have done, but the regulatory systems elsewhere also failed to deliver to expectation.
The noble Lord, Lord Lawson, made a very informed contribution on Glass-Steagall and narrow and broad banking. I started some time ago with a view very similar to that of the noble Lord, and I know that he is informed by his experiences as a director of Barclays in the past. References were also made to the views of the Governor of the Bank of England on this point. If you look carefully, however, at what the governor said, you will see that he talked about finding the concept of narrow banks instinctively attractivehe saw it as an intellectually appealing argumentbut he then went on to talk about the realities and suggested that this model was altogether too simple. The right response is through strengthened regulation, increased capital requirement and appropriate allocation of liquidity against risks. We have conflated different forms of banking under a single institution, with a view that a single culture is appropriate. Our experience has shown that that is not the appropriate model to supervise, govern and regulate such institutions, but Glass-Steagall is not the answer to this particular problem.
Lord Lawson of Blaby: My Lords, the Minister slightly misrepresented what the Governor of the Bank of England said. The governor said that it is a very complex matter and deserves further investigation. Although it is very complex, however, it can be done and needs to be done. I deeply regret the fact that the Government are not prepared even to look into this seriously and that they just dismiss this out of hand, which is not what the governor has done.
Lord Myners: My Lords, I am grateful to the noble Lord, Lord Lawson, for that observationalbeit that it is one that I am now going to correct. The governor in his evidence to the Treasury Select Committee said that he found the concept of narrow banking instinctively attractive and that it had some real validity, but that the model would see deposits gravitate towards the broader bank, which would earn a higher ROE and would be able to pay higher rates of interest.
Lord Myners: In a moment, my Lords. We are producing a White Paper on banking regulation and the outlook for the financial sector immediately after purdah. We will not dismiss the concept of narrow banking in that, but rather debate and discuss it, and suggest why it is not appropriatea number of narrow banks were among the first to fail in America, for instanceand explain how we can draw on the strengths of the concept through a different formulation.
Lord Lawson of Blaby: My Lords, I promise the Minister that this will be the last time that I shall intervene in his very interesting wind-up speech. First, I was not alluding to the Governor of the Bank of Englands evidence to the Treasury Select Committee. I had in mind the important speech that he made on 17 March, in which he did not make that point; my summary was more accurate on the position that he took in that speech. Furthermore, the point about deposits is clearly invalid, much as I respect the governor, because only the narrow bank would be permitted to have retail deposits.
Let me carry on talking about banks and the financial system. As a result of the actions that we have taken since last autumn to prevent the collapse of the UK banking system and more generally to put the banking sector on a stronger footing, banks will be able to lend more to support commercial undertakings and to meet the needs of personal borrowers. For instance, the RBS is increasing its lending by £50 billion, Lloyds is increasing its lending by £28 billion and Northern Rock is increasing its lending by £14 billion.
The noble Lord, Lord James, always makes interesting interventions. I am aware of his preference for the London rules, but I believe that he understands why I think that they are no longer viable in the context of a more global banking system. However, I will speak again to the FSA about what it could be doing in this area. I do not propose to make any comments in response to his suggestion that, as a result of his meeting at Lloyds Bank, he believes that he has discovered evidence that Allied Irish and National Australia Bank are ripping off the system. If there is any malpractice, it must be a matter for the authorities to investigate.
Like the Government, the independent Bank of England has recognised the need to stimulate demand, so we now have the lowest interest rates on record. This is providing help now to those on variable rate mortgages and loans. Since October, over 4.5 million households with tracker mortgages have been saving £230 per month.
The noble Lord, Lord Lang, was the first of your Lordships to raise questions about quantitative easing. He asked a specific question about velocity. It is worth reminding the House that policies to manage the quantity of money in addition to the price of money were introduced specifically at the request of the MPC. The MPC has made further announcements today of its intention to continue working within the programmes and authorities given to it by the Chancellor of the Exchequer, which are intentionally broad in order not
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I am not in a position to reply to the question asked by the noble Lord, Lord Lang, about the impact on velocity. These things take time. Nobody expected to see for some time a discernible change in V, which is the most difficult of the factors in that equation to forecast. However, it is closely linked to confidence and, to the extent that we are seeing some recovery in confidence, that should lead to an improvement in velocity.
The noble Lord, Lord Ryder, referred to the governors anxiety about inflation. The Banks view is that CPI will return to the 2 per cent target in 2011. Clearly, the MPC is at the moment more focused on an undershooting of that target rather than an overshooting. I will not comment on whether the MPC needs to be renamed in order to meet the requirements of the Trade Descriptions Act.
The Chancellor also set out in the recent Budget further help for homeowners and for those who are prevented from taking their first steps on the housing ladder. That help has been welcomed and includes: the introduction of a scheme to guarantee securities backed by mortgages, which will ease the flow of mortgage finance; the extension of the stamp duty holiday until the end of this year; and an £80 million extension of the government shared equity scheme, which has received interest from more than 30,000 people since September.
Every major country has acted to stimulate demand in its economy through difficult times. So we have seen major fiscal boosts announced in the United States, China, Germany, France and Spain. The total fiscal support provided by G20 countries will amount to some $5 trillion. Here in the UK, the Government announced a £20 billion fiscal stimulus in November, including a temporary cut in VAT to 15 per centworth on average £260 per householdand we brought forward £3 billion-worth of capital spending on national infrastructure.
The Government also recognise the challenges faced by businesses. Measures announced in the Pre-Budget Report have delivered £3 billion to improve business cash flow, complemented by £2 billion in lending support. Since October, nearly 40,000 businesses have had a free health check from the Governments Business Link advice service, helping them to access credit and defer tax. Since November, more than 100,000 businesses have deferred payment of almost £2 billion of tax under the HMRC Business Payment Support Service.
To further support business through the downturn, the Budget announced £3 billion to improve business cash flow and encourage future investment, up to
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It is worth remembering that the UK is the sixth largest manufacturer in the world. Although manufacturing output as a whole was down 14 per cent on a year earlier, by February 2009 government support in the UK and globally should bolster the manufacturing sector, and that will respond to the very strong and well argued case from my noble friend Lord Haskel for the pursuit of a balanced economy. By supporting businesses and households in this way in both the short and medium term, we can ensure that Britain is in the best possible position to take advantage of the upturn when it comes.
Of course, these measures put new pressures on the Exchequer, and they come at a time when our automatic stabilisers are working to full effecttax receipts are falling and demands on social support are rising. However, the Government know how fundamental sound public finances are to a countrys economic prospects, and we remain committed to keeping the public finances on a sustainable path over the medium term.
The noble Lord, Lord Ryder, referred to borrowings over the next two years as a percentage of GDP being very high in relation to other countries but he did not refer to the starting pointthat our borrowing as a percentage of GDP within the G8 countries is very much at the favourable end. Therefore, although the borrowings will be high over the next two or three yearsand we have no shame about thatwe start from the point where borrowings as a percentage of GDP are the lowest in the G8 with the exception of Canada.
Changing economic conditions mean that further fiscal consolidation is appropriate. The UK is not alone in having to do thisa number of other EU member states announced consolidation packages. We believe it is fair that this consolidation should focus on those who are best placed to contribute. Therefore, last months Budget set out new income tax measures which will affect only those with incomes above £100,000. It is only fair that these individuals with the highest 2 per cent of incomes make a fair contribution, reflecting the fact that their incomes have grown by twice the national average over the past 10 years. The two income groups that have enjoyed the greatest relative benefit over the past 10 years are, first, the very lowest paid, as a consequence of our national minimum wage and credits and benefits which have gone to the most poor, insecure and vulnerable in society, and, secondly, the most richthe top 2 per cent. It is only appropriate to call on that second group to make their contribution to meeting the need to support the economy, British industry and British families.
Protecting tax revenue is a crucial element of consolidation, so we are cracking down on tax fraud. We are putting in place new measures to send a clear signal that cheating on tax is wrong, to deter people from doing it, to reassure those who pay the right tax and to encourage those who do not to come forward.
Some people say that we cannot afford to take action to stimulate the economy but the truth is that we cannot afford not to. Inaction of the type that we saw during the recessions of the 1980s and 1990s left entire generations to fend for themselves. Thousands were allowed to slip into the kind of long-term unemployment that can leave scars on communities.
The noble Lord, Lord Newby, captured the essence of the argument that spending money now to support British business, businessmen, families, individuals and pensioners will have a lower cost than doing nothing and seeing a decline in the economy as a consequence. To avoid repeating the mistakes of the past, the Government are delivering extra support for people through Jobcentre Plus, to pensioners through enhanced payments, as announced in the PBR, and extra support to business.
The noble Baroness, Lady OCathain, spoke of the need to talk in simple terms about what we are doing in economic management. The financial crisis has caused a steep and synchronised global downturn. Global economic developments will have a profound effect on the fiscal position of many countries, including the UK, with debt likely to rise significantly in all advanced economies. Every economy will see public debt increased. The Government have made a judgment on the appropriate pace of consolidation on the public finances, taking account of the uncertainty around prospects for the economy, the need to support the economy during the early stages of recovery and the need to deliver sustainable public finances.
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