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The Liberal Democrat proposals for fair taxation are extremely muddled. The Liberal Democrats are good-hearted people but they have not really thought this through. In order to take about 2 million people earning between £6,500 and £10,000 out of taxation, they are giving another 20 million people more money than they are giving to the people whom they really want to help. People earning above £10,000 will get £700 guaranteed, while people at the lower end of the scale will get somewhere near £700 at most. If you help only the 2 million lower paid, that will cost £1.5 billion, but taking this course would add another £15 billion of cost for those who do not deserve the extra money. That is not fair; it is regressive and expensive. There is a simple way of achieving something better, which is not to raise the personal allowance but to give people who earn between £6,500 and £10,000 a tax rebate. In that way, only those people would get a tax rebate, not the rest. I suggest an even better measure-I have written about this and I hope that it will appear in print very soon-which would be to abolish the personal allowance altogether and convert it into a tax credit. Everybody would get a tax credit equivalent to the basic rate of taxation times the personal allowance, which is £1,300 in today's figures. The advantage of that is that people who earn less than £6,500 who do not now pay tax would pay negative income tax and get a credit. In that way, you would help the really poor people through the taxation mechanism to a far greater extent than we are doing now.
It is a good idea to integrate income and capital gains in a single taxation framework. However, you should do that consistently. I suggest that the 20 per cent and 40 per cent rates be incorporated in the capital gains part of tax as well.
The noble Lord, Lord Higgins, decried the fact that the IMF has suggested that the zero rating of VAT be abolished. I proudly say that the IMF has at last seen the sense of what I was saying 17 years ago, for which I was sacked from the Labour Front Bench. That is not a bad lag for the IMF. I wish that the Government would catch up with the IMF and abolish zero VAT rating. If you are to cut the budget deficit and the
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7.48 pm
Lord Skidelsky: My Lords, I congratulate the Minister, the noble Baroness, Lady Wilcox, on her appointment to her important new responsibilities. I regret only having to turn my head to the left rather than the right to get the full flavour of the masterful performances of the noble Lord, Lord Myners, that I have come to expect and which, indeed, we got today.
In the Crimean War, it is said that Lord Raglan, a veteran of the Peninsular War, announced his plan of campaign to the assembled commanders by pointing to the map and saying, "We attack the French here", at which point an aide whispered to him, "Sir, the French are our allies". I trust that members of the coalition will not be afflicted by a similar cognitive dissonance.
The Government have already announced £6.2 billion of cuts, and further cost-cutting is promised in the emergency Budget of 25 June. Contrary to the noble Lord, Lord Desai, I believe that these will be real cuts if growth does not take place. That is why I would not make them until we have much firmer evidence of recovery than we have at the moment.
Why this stampede to austerity? The basic reason is a visceral, if vestigial, puritanism. We feel that more spending cannot be the answer to having spent too much already. Peter Oborne summed this up well in the Daily Mail. He said:
"Borrowing to save the economy is like trying to sober up a drunk by giving him a large whisky".
The Chancellor said much the same some six weeks after the collapse of Lehman Brothers. He said:
"Even a modest dose of Keynesian spending",
I have long argued that such propositions would be true if the economy was at full capacity. The boom is the time for belt-tightening. However, these propositions are not true for today. Everyone knows that output and employment are severely depressed. The OECD has calculated that the UK's output gap is 5 per cent. Does the noble Lord, Lord Henley, agree or not agree with that estimate?
In my judgment, we are experiencing a good, old-fashioned Keynesian demand-led recession, which requires a good, old-fashioned Keynesian response. As Nobel laureate Paul Krugman writes:
"Both textbook economics and experience say that slashing spending when you're still suffering from high unemployment is a really bad idea. Not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts".
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By what mechanism do the Government believe that cutting the deficit will promote recovery? The usual argument is that it will restore business confidence. Surely the best way to do that and to reduce the deficit is to increase total spending from the low level to which it has fallen. The projected deficit has already shrunk from £176 billion to £156 billion without any change of policy. It will continue decreasing gradually as the economy recovers, unemployment shrinks and revenues grow.
The way in which the stampede for austerity has built up is frightening. I have yet to find a single solid reason for cutting the deficit now, especially in view of the disaster threatening to overwhelm the eurozone. People talk about the need to pay attention to the psychology of the markets. However, no one who has made any money on the market believes for a moment that financial markets are capable of judging risk accurately. As Warren Buffett said:
"A pack of lemmings looks like a group of rugged individualists compared with Wall Street when it gets a concept in its teeth".
That is why politicians and public officials have a particular responsibility not to try to second-guess the financial markets by threatening disaster if certain policies are not followed. They do not know what the financial markets will think and, by playing up the risk of default or inflation, they can create a dangerous self-fulfilling prophesy-exactly the type of momentum that they do not want. If the markets believe what the Chancellor has been saying for the past year or so, they might make it impossible for him to eat his own words.
It is a tragedy that the very financial system that has recently been bailed out by the taxpayer is treated as the arbiter of fiscal policy-using the very deficits and debt that they have foisted on us as the pretext for savage fiscal cuts in recession. Regrettably, I do not agree with the noble Lord, Lord Lawson, that deficit reduction should take precedence over any other policies, but I agree with a famous predecessor of his, Winston Churchill, who, as Chancellor of the Exchequer, said:
"I would rather see finance less proud and industry more content".
7.54 pm
Viscount Eccles: My Lords, the noble Lord, Lord Skidelsky, has entertained us with much the same thesis on a number of occasions, but I wonder whether he does not exaggerate. He talks about the age of austerity; I suppose that he is referring to £6.25 billion of expenditure cuts, but the previous Government were, if I remember rightly, going to make £5 billion in efficiency savings. I suppose that economists would tell us that there is not really very much difference in outcome between cuts and efficiency. We will always live with economic uncertainty, but the question is: how capable are we of dealing with that uncertainty? All that we know for certain is that our economy is some 10 per cent smaller than it would have been if matters had proceeded smoothly, and that our structural deficit is unsustainably high. It may well be best if the pace of the deficit reduction was contingent on the pace of economic recovery. However, recovery first and debt management second is not a viable choice. It is always necessary for the two to proceed in tandem.
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The Bank of England's view of the near future re-emphasises the uncertainties. A 2 per cent central position between inflation and growth is so widespread between nil and 5 per cent that it amounts almost to a "don't know". In a period of such uncertainty, a mechanistic and one-solution analysis is of very limited use. The most favoured and oft-repeated parallel is the 1930s, because it is Keynes of 1936 who gets the star billing. I will not speculate upon how different his General Theory would be if written today. However, he would certainly take into account very differing circumstances-the most striking of which are the welfare state and the rise in per capita income which, in real terms and taking some account of lifestyle changes, is more than three times what it was in the 1930s. The economy of today is therefore radically different from that of the 1930s. Who, we might ask, is expecting Jarrow marches or some repeat of George Orwell's The Road to Wigan Pier?
The underlying strength of today's economy, its relative wealth and our welfare state mean that we can face up with flexibility to the judgments that need to be made as events take their course in a global economy. Our economy, even at a time of fragile growth, provides the room to take action and then to see how the unknown balance between economic recovery, indebtedness and inflation develops. We need to find out how much better we can do when the responsibility for finding solutions is shared between the centre and the many institutions which serve the people. We need to see how people react to changing circumstances. Many will solve their own problems.
The coalition is committed to fairness-equity between all members of our society-as we find our way back to economic and fiscal stability. I strongly support the test of fairness and carefully assessing public reaction. Despite the extraordinary mess which we are in and despite the absurdly centralised and bureaucratic mistrust of the people that we inherit, we will be agreeably surprised by the response to tough decisions and we will be able to promote fairness. I strongly support an increase in the personal allowance. It is right to replace the mechanistic, top-down and money-throwing recent past with freedom, fairness and responsibility.
7.59 pm
Lord Hunt of Chesterton: My Lords, I, too, congratulate the coalition on its pragmatic pro-European and pro-nuclear policy. I am still waiting to see a European flag flying over our Parliament, as it does over others in Europe-although some Lib Dems believe in that. There were many good points in the speech of the noble Baroness, Lady Wilcox. It was a very green speech, and I look forward to seeing her influence in future.
I will comment on the points made in the Queen's Speech about manmade climate change and economic recovery. Both are serious tasks, but there has been something missing in today's debate. I say to noble Lords that the huge government investments in the UK in the past 13 years have had a dramatic impact on the environments of the most depressed areas. That money was extremely well spent, and we should recognise that. I saw much of this in the recent election campaign in the West Midlands.
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I declare my interests as a former professor of climate change, and the director of a small consulting company. As to the remarks of the noble Lord, Lord Marlesford-I am sorry that he is not in his place-I was a senior civil servant and I always flew economy class. Not all civil servants travel first class.
The rise in global temperatures during this century is a very serious matter. Several climate centres, including the Met Office, the Danish met office and the Chinese met office are predicting that the result at the end of the century will be nearer 4 degrees than the 2-degree target agreed at Copenhagen. It would be possible to keep to the last figure only if worldwide carbon emissions stopped growing. Because of the complexity of climate change science and policy-as the noble Lord, Lord Lawson, emphasised-we must have more open discussion. Scientific and engineering aspects must be considered. The Royal Society and others now advocate that.
Policies to deal with the situation must be international and realistic. However, they probably cannot be based on a Kyoto-style global agreement, as we saw at Copenhagen. One might compare the UK's ambitious plan to reduce emissions by 80 per cent by 2050 with China, which has stated in many public remarks that while its energy may be more efficient it will double emissions by 2050. Nevertheless, as the noble Baroness, Lady Wilcox, said, the UK must collaborate and trade with all countries of the world, particularly those which are rapidly industrialising. One way in which we can do that is through our development of nuclear power, and through R&D into future technology. I part company slightly with the interesting remarks of the right reverend Prelate the Bishop of Liverpool in believing that future nuclear technology will enable us to eliminate waste. An article in the New Scientist explains this.
As the EEC Commissioner for Climate Change recently commented when she came to London, carbon trading is now operating as an important aspect of making industry more efficient and stimulating energy emission reduction. In China, there are about five or six centres. There are others in the north-east states of America, and on its west coast. This may be one way in which we will find practical methods for reducing emissions. These should also be complemented by policies in the cities of the world. They are the areas where there is a maximum usage of energy, and policies have begun in London and around the world. We heard last night from the mayor of Mexico City, who was visiting London, about its remarkable policies, working with other cities. Policies to reduce carbon emissions can be similar to those for reducing air pollution, which is a major issue for people living in the cities of the world.
The Government should also, in the most cost-effective way, not only negotiate with other Governments and encourage cities, but work with United Nations specialised agencies, which are continuing. They were given leave to continue by the Copenhagen meeting. The World Meteorological Organisation is monitoring the climate. The Food and Agriculture Organisation is working on forestry. The International Maritime Organisation, the other side of the
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I will also comment on the work of the Department for Business, Innovation and Skills, which we have been discussing this afternoon. These three strands come together in government policies for research in industry, which the noble Lord, Lord Broers, emphasised. High-tech companies in the UK have made many comments about the importance of maintaining the taxation policies of the previous Labour Government, to provide tax relief for research in industry. Again I declare an interest as director of such a company. For example, a professor of chemistry at Cambridge explained how this had been essential for the establishment of several companies.
Another aspect of the previous taxation policy was to provide much better maternity benefits to companies through the taxation policy. This has enabled women to have much longer and more successful careers in high-tech companies. I am sure that the noble Baroness, Lady Wilcox, will approve. Finally, I again approved of other remarks that she made because they so departed from the policy of the Minister of her party in the 1990s. When I expressed the need to use government purchasing power to develop technology, a very senior Minister in the Major Government said that that was something that they did in France. I am glad that that is something that they now do in England: good luck to them.
8.05 pm
Lord Smith of Clifton: My Lords, I thank my noble friend Lady Wilcox for introducing today's debate on the gracious Speech. She is the Minister dealing with business in this House, and I congratulate her on that and wish her well. Indeed, she and her portfolio are both highly relevant to the topic I will discuss today; namely, the role of women and their representation on the boards of major companies.
The previous Government ignored the issue, despite the strong efforts of Harriet Harman, who deserves much credit. When he was a Minister at the Treasury, the noble Lord, Lord Myners-I am sorry that he is not in his place-dismissed the idea of legislation in this area when I put it to him. I admired him greatly for most of his time as a Minister and said so; but where he fell down badly was in refusing point blank to look seriously at the paucity of women directors. In mitigation, he boasted that, when chairman of Marks and Spencer, he had the highest proportion of women board members of any large company. However, most of them were non-executive directors; and that record does not absolve him from the wrong judgment that he made in office.
The noble Lord is reported as intending to undergo theological training: not the usual form of hedge-betting that former financiers practise, but one that might start a trend. Who knows? The partners of Goldman Sachs may end up doing God's work after all. Theological training will give the noble Lord an opportunity for reflection, after which I hope he will be converted to the full and equal participation of women in the
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It is a sign of progress, I hope, that in the course of the past few months, there has been some evidence of a growing awareness of the necessity of securing more women as directors. In March, the noble Lord, Lord Davies, then Minister for Trade and Investment, wrote to the chairmen of the FTSE 100 companies urging them to appoint more women directors. On 8 March, in answering a Question posed by the noble Baroness, Lady Howe of Idlicote, he agreed that,
- "it is not acceptable that 25 per cent of the FTSE 100 companies do not have women on their boards".-[Official Report, 8/3/10; col. 6.]
He added that the Financial Reporting Council would be instructed to ask companies the reasons for this lack, and to name and shame them.
It is quite disgraceful that women make up only 5.2 per cent of executive directors of the FTSE 100 companies. Though it was not mentioned specifically in the Queen's Speech, this initiative is being maintained by the new coalition Government. The Financial Reporting Council, under its new chair, the noble Baroness, Lady Hogg, is to review its code to require companies to have regard to diversity in their main board appointments. I wish her well in her new post, because she will have her work cut out.
Before the general election, it was reported in the Financial Times on 3 May that the Conservative equalities manifesto proposed that half the long-lists for directorships would have to be women; that directorships would have to be publicly advertised; and that any company with less than a third of women members would have to state in its annual report what steps it was taking to remedy the situation. These are much bolder commitments than those of the previous Government, and are to be welcomed as far as they go-which is still not far enough if the UK is to catch up with international best practice. Norway has been the outstanding pioneer in tackling this problem. It legislated to require companies to have women as 40 per cent of their directors by this year. In fact, the target was met in 2008. Spain has followed suit. France is going further in insisting that 50 per cent of company boards are composed of females by 2015. This is the kind of progress that is required; the imposition of quotas to be met by specific dates is the only way to remove the glass ceiling. Predictably enough, the Institute of Directors is already bleating about the proposed very modest changes to the FRC code. Ruth Sealy, deputy director of the International Centre for Women Leaders, has said:
"Nobody likes the idea of quotas, as it isn't meritocratic. Yet meritocracy only works with a level playing field. It isn't level in the UK".
Male chauvinism is especially at work in the financial services sector. A recent survey of Oxford undergraduates revealed that women respondents regarded the City, and particularly the banks, as "unethical" and as having,
A month later, the Treasury Select Committee validated these opinions as reflecting current reality. The committee
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The question has been asked whether more women in senior positions would have prevented the current crisis. That cannot be easily answered, although there is some evidence that companies with the largest numbers of women directors in the United States are among the most prosperous. But women could hardly have done worse than the men who caused the crisis. However, that is not the point, which is that women should have the same opportunities to participate in senior corporate positions-it is hoped in ensuring success, but also in sharing the blame when failures occur.
I urge my right honourable friend Theresa May, the Home Secretary, who is also the Minister for Women, together with my honourable friend Lynne Featherstone, the Equalities Minister, to press hard for boardroom equality. They should ensure that the coalition Government, with their gross preponderance of men, follow the FRC code. The Queen's Speech in 2011 should spell out how the Government intend to rectify the position and by when. I trust that the Minister, in winding up, will be able to reassure me on this point.
8.11 pm
The Duke of Montrose: My Lords, Parliament now has a coalition, which, with any luck, will guide the policies of the United Kingdom for the next five years. As noble Lords will be aware, one critical event in this period will be the next revision of the common agricultural policy.
I declare my interests as a farmer and a livestock rearer. I should like to say how encouraged I was to hear the right reverend Prelate the Bishop of Wakefield raising some of the issues that affect the industry. In fact, as one of the Government's purposes is, I believe, to encourage business and manufacturing outside the south-east of the United Kingdom, they could bear in mind that agriculture has a part to play.
Strange as it may seem, the founding principles of the CAP are, in my opinion, still valid. These were: to increase agricultural productivity by promoting technological progress and efficiency; to ensure a fair standard of living for the agricultural community; to stabilise markets; and to ensure availability of supplies. The new factor that we have woken up to is that the CAP must also protect and enhance the environment. This is being achieved by the transfer of financial support within the budget from what is known as Pillar 1 to Pillar 2. Part of the Government's task will be to see that this is carried out equitably across all our partners in Europe.
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