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On the economy, the essentially parasitic nature of finance capitalism stands revealed for all to see. The noble Lord, Lord Skidelsky, spoke in this debate last year of the emergence of an insolent and largely footloose financial aristocracy or plutocracy as a direct result of the dominance of the financial services sector in our economy. I am amazed that this has not led to a greater crisis of legitimacy, for the shamelessness of the bankers far outstrips that of the expenses scandal. I suppose that the expenses scandal was a handy diversion. At all events, the crisis is still playing out. The markets coming after the banks is one thing-and it was a close-run thing-but we ought always to have been able to get over the meltdown in the financial sector when the banks had their Governments standing behind them. However, when the markets come after Governments, where do we go then? Have we now reached the bedrock on which the whole system rests?
We are certainly in a difficult position. Governments have had to raid their treasuries to an alarming extent. Even so, people question whether they have done enough and suggest that more might still be necessary. At this point, it is important to say that Gordon Brown has been unfairly criticised. The structural deficit was a manageable 2.6 per cent of GDP in the second quarter of 2008 when the recession struck and no one can seriously doubt that it was necessary to throw the kitchen sink at the problem at that point. Even so, the recovery is still fragile and the scale of renewed lending half-hearted. That being so, it seems to me a brave decision to take £6.25 billion out of the economy in 2010-11. I understand the need to reassure the markets, but I think that we should avoid turning reassurance into appeasement by buying into doomsday scenarios predicated on imminent bankruptcy and accept that a more measured approach not only is viable but may actually be less damaging. With the recovery still so tentative, at 0.3 per cent of GDP in the first quarter of 2010, taking 0.45 per cent of GDP out now runs the real risk of plunging us back into recession. It will certainly mean more job losses. David Blanchflower puts the figure at 140,000 and it should not be imagined that this can all be done just by freezing vacancies. Then there is the effect of the multiplier, which means that more jobs are lost because of reduced spending
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It seems quite wrong that the ordinary citizen should be made to carry the can for bankers' recklessness. With 55 speakers and still not half way there, I can give only the headlines, but perhaps I may mention five things that seem blindingly obvious even to a non-economist. First, there needs to be structural change. Retail and speculative banking should be separated. There is perhaps more to this than meets the eye, but the last Government were insufficiently robust on it. Secondly, we need a transaction tax. The sight of the bond markets opening in the middle of election night so that they could bet on the result was a barefaced example of the insolence to which the noble Lord, Lord Skidelsky, referred. Thirdly, those responsible for the deficit should pay proportionately more. Bankers' bonuses, which amounted to £7 billion last year, should be subject to controls. Fourthly, contrary to what is frequently asserted, the UK has an internationally competitive tax regime. Taxation, particularly on high earnings, could afford to take more of the strain of deficit reduction. Finally, before general living standards are clobbered, it is imperative that big-ticket items should bear their fair share. I am glad that the defence review will include a wide-ranging review of Britain's role as an international policeman-on Trident, I incline more to the Lib-Dem wing of the coalition-and it may be that economic necessity will succeed where penal policy has failed in reducing the demand for prison places.
If the coalition cannot adopt a balanced approach to getting us out of our present difficulties-recognising that we are all in this together-it risks undermining legitimacy and fuelling a widespread sense of injustice and even social unrest.
6.50 pm
Lord Moynihan: My Lords, I warmly welcome the noble Baroness, Lady Wilcox, to her portfolio and congratulate both her and the ministerial team on the Front Bench today.
On the subjects of energy and environment raised by the Minister, I should like to address the specific question of the oil and gas business on the United Kingdom continental shelf, particularly in UKCS waters offshore, taking into account the recent Macondo oil well disaster and the loss of life in the Gulf of Mexico, and the previous disastrous Ixtoc 1 blow-out in 1979. In so doing I declare an interest: I have been a non-executive director of the Rowan group of companies based in Houston and today chair its HSE committee. Although we operate in the jack-up business, we are principally focused in natural gas, which is a very different market to the semi-submersible fleets used in ultra deep-water drilling such as BP's Macondo oil well in the gulf.
It is clear that this is going to be an important issue for the Government and, in considering changes to our offshore oil and gas industry practice, I hope that in the light of the disaster we will all proceed with caution, consult widely and look to the industry as coalition partners when considering new measures for
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In this context, the US Government's announcement of a moratorium on the approval of all new offshore oil and gas drilling permits failed to take into account some crucial issues which should be the subject of our attention in the North Sea-namely, that shallow-water drilling involves well developed and simpler processes for the extraction of energy resources. Notably, it has surface blow-out preventers. Jack-ups and shallow rigs in shallow water employ blow-out preventers above the surface of the water. These surface BOPs, which are so critical to safety offshore, are accessible for constant inspection, maintenance and repair and in emergencies can be controlled either remotely or by physical or manual manipulation. Access to their positioning above the water is very different from when the blow-out preventer is 5,000 feet down under water.
In the North Sea we focus extensively on clean natural gas. Shallow-water drilling sites predominantly involve clean natural gas resources with fewer environmental risks. The distinction between oil and gas in developing policy on this front is important. Also in the North Sea, wells in the shallow-water regions are drilled in predictable and mature reservoirs, and the reservoirs of greatest concern to us are the high-pressure wells. On the subject of lower pressure in the North Sea, a large percentage of the shallow-water rigs require positive external stimulation to produce the flow of oil and gas, significantly limiting risk or loss of control.
However, some key issues require consideration by the Government if we are consistently to ensure that our offshore drilling activities strive for improved safety levels. All safety cases now need to be reviewed, as should the legal and reporting processes to which they currently conform. These should cover both proactive and reactive issues in the context of safety, health and the environment and always be live documents and up to date. Detailed consideration could also be given to the design, capability and efficiency of the blow-out preventers I have mentioned. Their failure was the common denominator in both the BP well disaster and the Ixtoc 1 blow-out in 1979.
The time is now right for well control equipment and control systems to be further regulated. The HSE requirement in our country of a full inspection of all equipment every five years is too long-for example, Saudi Arabia has a three-year process-and well control training and certification should be regularly reviewed. An independent audit of the training programmes of the International Association of Drilling Contractors would also be welcome. Above all, absolute clarity in drilling operations as to who controls the well and who should shut it in is essential; the driller not the operator should always be responsible in this area.
Some of the measures I have proposed today would add additional costs to drilling companies, but these costs are surely worth investing in so that the oil and
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In closing, I hope that BP's chief executive, Tony Hayward, will not be sacrificed on the altar of American political expediency. He is a leader of exceptional quality and has reacted with authority, expertise and perseverance to an unprecedented disaster in ultra deep water. I wish both him and his colleagues well in resolving the technical and environmental challenges ahead.
6.56 pm
Lord Truscott: My Lords, I, too, congratulate the Minister on her well deserved appointment. As Energy Minister in the former Department of Trade and Industry I had the privilege of working opposite the noble Baroness, Lady Wilcox, whose intelligence and tenacity I always admired.
Today I should like to address the issue of energy security, which was mentioned in the gracious Speech, and I look forward to seeing the proposed energy security and green economy Bill. I am pleased that it was included in the coalition Government's programme for government, although I am still not clear how Ofgem is supposed to guarantee energy supplies-it would require a very long reach indeed-and I look forward to being enlightened when the debate is wound up. I refer noble Lords to my relevant interests as laid out in the register of interests.
As I documented in my recent Royal United Services Institute report on energy security, the European Union is becoming increasingly dependent on Russian supplies of gas as its mature fields in places such as the North Sea basin face decline and depletion. Short-term boosts such as the current gas price and potentially plentiful supplies of LNG or shale gas will not alter this basic fact although they may mitigate its impact.
Russia, as one of the world's current three largest emitters of CO2, behind the US and China, is part of the climate change problem and so must be part of its solution. However, despite the recent passage of the new energy saving and energy efficiency law, the Russian Federation is one of the most energy intensive economies on earth, projected to approach the US as the world's top emitter by 2030.
There is an urgent need for EU member states to engage in coherent energy diplomacy. It is vital that the political and diplomatic status of energy security, which is closely related to climate, food and water security, is elevated to the top of the foreign policy and security agenda. Europe has woken up late to a new great game over energy. Playing out from central Asia to the Gulf of Guinea in capital cities and energy ministries, we are seeing producers pitted against consumers in a scramble to secure energy supplies.
suggests economist Joseph Stanislaw,
- "are still being written, but its broad outlines are already clear. It is no longer confined to Central Asia-as was the original Great Game of the 19th century, pitting the British and Russian empires against each other".
The Russia-Ukraine gas supply spats of 2006 and 2009 were a belated wake-up call to European politicians
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Europe's main gas suppliers are Russia, Norway and Algeria. Together they supply 84 per cent of gas imports into the EU. Russia is the most important single supplier. Oil and gas now account for 61 per cent of Europe's energy inputs. Left unchecked, projected rates of consumption would see energy dependency on non-European sources grow from 50 per cent in 2000 to 70 per cent by 2030. By 2030, 90 per cent of oil consumption would have to be met by imports; gas dependency would rise to 80 per cent, with projected imports from Russia expected to reach 60 per cent; and two-thirds of coal usage would be met from foreign sources. Russia has the largest proven gas reserves in the world and the second largest coal reserves, and it is the planet's second biggest exporter of crude oil.
Having first launched talks in October 2000, the EU and Russia have repeatedly attempted to establish an energy dialogue that will cement long-term Russian access to European consumer markets and European security of supply. This dialogue has struggled to advance.
In 2006, oil and gas accounted for nearly 50 per cent of Russian federal budget revenues, more than 60 per cent of exports and 30 per cent of GDP. Unlike Moscow's Commonwealth of Independent States' customers, the EU pays world prices for its Russian supplies. These have provided Russia with the bulk of its foreign exchange earnings. Europe also provides an important source of foreign investment in Russia and is an important market for expanding Russian companies.
However, Russia's refusal to ratify the energy charter treaty and the transit protocol, a set of international rules for investment and trade in the oil and gas sector, has undermined European confidence in Russian energy markets as a stable source of supply. This was compounded by the fallout from Russia's pricing war with Ukraine, which led to supply disruptions for downstream EU member states.
The best hope for the EU is to try to enshrine the principles of the ECT and transit protocol in a new partnership and co-operation agreement, whose tortuous negotiations have already restarted following the conflict in Georgia. Fears that Russia will seriously diversify away from the EU to other markets, principally China, look largely misplaced. Given Russia's reliance on European consumer markets, the ability of Moscow to use energy as a weapon is severely undermined.
Europe should continue to press for liberalism at home, but within a rubric structured on areas of mutual interest; that is, energy, trade and investment. It is in these areas that the EU will get Russia's attention and have most scope for shaping a pro-Western outlook. In this context, the EU should continue to support early Russian membership of the WTO and, later, the OECD to encourage Moscow to play by the international rules of the game, embracing market principles, free trade and reciprocal investment and legal rights.
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7.02 pm
Lord Marlesford: My Lords, in 1966, Iain Macleod said of George Brown:
"There is a society for being nice about Mr Brown and I pay my dues like everyone else".
Our Mr Brown's fame, if not his name, will endure, as has that of another in whose mouth ambition turned to ashes: the flawed hero of the Scottish Play.
However, Mr Brown did have two achievements. For the first eight years of his chancellorship, he was a prudent steward of the sound economic situation which he inherited in 1997. That had resulted from the radical changes made by the Chancellors of my noble friend Lady Thatcher: the shift to indirect taxation of my noble and learned friend Lord Howe and the 40 per cent top tax rate of my noble friend Lord Lawson. Mr Brown kept public spending on a tight leash. He thus contributed to Mr Blair's second and third election triumphs. We should perhaps forgive him a lot for starting so well. Secondly, he constructed a series of plausible excuses for keeping Britain out of the euro. It is an historic bequest.
But, today, a new cloud hangs over the world economy. The fatal internal contradiction of the euro has raised the spectre of sovereign debt default within the EU. A single currency requires economic management, and economic management is about more than monetary policy. It is now clear that countries sharing a single currency must be subject to an overall fiscal policy and thus a dimension of political union. Setting targets under the 1997 stability and growth pact is not enough.
There is little point in seeking to fine those who are going bust. They must either perish or be bailed out. In the euro area, the second is the only real option. The earlier arrogance of France and Germany, when they said that they were too big and important to be subject to the rules and escaped a fine, has not helped today.
For the smaller and more reactive countries, membership of the euro has merely masked reality from their Governments, the European Commission and indeed the international financial community. They have no interest policy to bother about, no exchange rate indicators of economic performance and little worry with inflation. They can borrow and spend to keep unemployment at bay. In Spain and Ireland, a property boom provided a mirage of prosperity. Italy has a subterranean economy, largely managed by criminals and protected by corrupt politicians. We may end up with a bi-valve Europe: the euro area with integrated economic management and the rest of us with much more economic sovereignty.
What is the lesson in all this? Surely it is that whether you are a family, a small business, a big bank or a Government, ultimate survival depends on prudent housekeeping. How right Mr Brown was to use repeatedly the word "prudence"; how wrong he was to abandon it. The top priority is now to reduce both the budget deficit and the government debt. We here must all help with ideas. Let me put in my pennyworth.
Some quangos are completely out of control. They need to be cut back drastically. Many have become irresponsible pressure groups. They waste taxpayers'
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The Civil Service needs tighter management. The economic outlook will ensure no shortage of good candidates for a tougher Civil Service. First, from now on, those hired should be pensionable at 65 rather than 60. Secondly, on fringe benefits, why, for example, should civil servants have an extra day of holiday after every bank holiday, known as privilege days?
Finally, I have a proposal to reduce unjustifiably high salaries paid to some in the public sector. Applications for posts where the pay level is expected to be above £100,000 should be submitted together with a sealed tender of salary wanted. Applicants would still state their case for getting the post and the selectors would draw up a final shortlist. At that stage, the sealed tenders of applicants would be opened and the selectors could take account of the salaries asked for by the candidates. I suggest that this could lead to some remarkable results.
Let us be clear. Wasteful public spending cannot keep an economy afloat. But it can sink it.
7.08 pm
Baroness Kennedy of The Shaws: My Lords, I, too, extend my warmest congratulations to new Ministers and wish them well in their roles.
Like others, I express concern at the policies that the new coalition Government are embracing to deal with the dire economic situation which our country faces. The financial crisis was the work of people in the financial sector who acted in their own self-interest without fear of either legal or economic reprisal. The most dangerous activities could have been stopped: securitisation, sub-prime mortgages, triple B mortgage bonds, collateralised debt obligations and off-balance sheet accounting. Undoubtedly there were people who were blinded by the murky convoluted signs of it and just did not understand what was going on. The regulatory agencies proved toothless, also unable to fathom half of the machinations. People who sat on boards never queried the madness of it, too fearful perhaps about looking foolish but happy to pocket their remuneration. Men were chairing banks who had no experience of banking and thought that running a bank was no different from heading a PR firm-and who boasted, socially, that banking was "such fun". Then there came the fall.
Some auditors need to account for their shameful failure to do any real accounting. Commercial lawyers also played disgraceful roles, pocketing fees for running their eyes over and signing off nefarious transactions. All these people were uninhibited by any moral scruples. People knew that the market was being rigged but
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Those who have suffered are inevitably those in the lower ranks of the banks. The financial sector ran wild under deregulation, bringing a crisis that is leading to remedies now in which the Government are invoking massive cuts which will fall on the shoulders of ordinary people. The call for debt reduction and massive cuts without first rebuilding the banking system carries the risk of taking us back into recession. We should be re-establishing strong growth and high employment. When people are employed, they buy things, and when people are buying things we are feeding our economy. When people become unemployed, they become a debt to the country, because we have to make sure that there are benefits at least to keep them out of some levels of poverty.
It is business as usual for the banking sector. The cuts and paying back of debts will inevitably fall disproportionately on the shoulders of ordinary people-those who work in hospitals, such as porters and nurses, as well as community centre workers, nursery school workers and so on. They are the people who will be confronted with unemployment and they will feel the greatest pain of swingeing cuts and reduction of services. My concern is that the new coalition Government will not be concerned enough about the whole issues of taxes and fairly sharing out responsibility for getting this country back into some sensible situation.
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