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I offer a new Government my best wishes and my great hope, given the enormous challenges that they face, that in the national interest they will succeed. There is much of the new Government's inheritance of

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which we may all be proud: our social, creative and academic vitality as a nation; our tolerance; our ease with diversity; our renewed spirit of enterprise; and the improving performance of our public sector. However, 2010 will surely come to be seen as a year, alongside 1945 and 1979, when a new Government faced the aftermath of a cataclysm: in this instance, the most severe economic shock of our lifetimes.

The urgent task, as I think we almost all recognise, is the elimination over time of the deficit, our pressing need to return to a position where, across the economic cycle, we spend as a nation only what we earn and not what we can borrow. The politics of reducing that deficit will be severe and testing for the coalition. But it can be done; and it must be done. I have no doubt from my own experience of managing both in the public and the private sectors that the deficit can be eliminated with minimal material damage to critical public sector outcomes. Indeed, many private sector organisations, their very survival in question, have faced up to far bigger challenges and in shorter order. However, I do not minimise the particular challenges that the public sector will always present, not least the intensity of scrutiny and the readiness to protest of all the interests affected.

Lord Lea of Crondall: The noble Lord makes play of a very interesting point about the recession-related deficit-in other words, adjusted for the recession. Does he happen to know the current size of the recession-related deficit?

Lord Birt: Perhaps the noble Lord will allow me to move to the end of my remarks and hear my argument in full.

There will be, for there always are, some low hanging fruit for the Treasury to pocket. Government can, and no doubt will, cease doing some things that they do now, but the scalpel will prove a more useful tool than the axe. After a long and unprecedented period of increased public spending, conducting a detailed, painstaking analysis of how every part of the public sector can be more productive will be fruitful.

There will be overcapacity, poorly engineered processes and low utilisation, as well as opportunities for shared services, outsourcing and multiskilling. There will be places where labour costs at every level will be higher than in the market, where smarter procurement can bring benefits and where best practice is not universal. Moreover, no part of the public sector should be excluded from a concerted drive to promote improved productivity. There should be no sacred cows, as the noble Lord, Lord Lawson, said earlier. The Government will need a keen sense of what can be done quickly and what may take a little time. A four or five-year framework will be sensible, as the noble Lord, Lord Griffiths, observed. The new Government will discover that while Whitehall has been gradually acquiring in recent years many of the skills needed to oversee large institutions, projects and programmes, the financial skills necessary for the forensic examination of a vast cost base are not yet present in government and will need quickly to be assembled. The new Government will need to reach out into the market for some vital and not just financial

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skills, and it will need to invest in them if the deficit is to be cut with care. Sometimes you have to spend money to save money.

The other main challenge of the new Government is to restore the health and stability of the economy overall, about which many of your Lordships have spoken. An early and credible plan for cutting the deficit, accompanied by real political unity, will do much to put us back on the right road. But the main task here is to be certain that we have truly identified the causes of our difficulties, both at national and global level, and applied the right remedies. Here I have yet to be reassured. We are two years into the crisis, and still we hear an array of competing views on regulation from technical experts, and we have had world leaders-even in recent months-still bashing bankers rather than explaining how international institutions, nations, regulators, financial organisations, corporations and individuals could all have managed risk more prudently, averting reckless excess, and can manage risk more effectively in future. We appear far from unanimity.

There was an understandable general urge to grapple with how and why we embarked on the war in Iraq. It is not too late for a new Government to bring similar independent scrutiny to bear on the causes of, and the cures for, our current maladies, including the origins of our own structural deficit, which puts us closer to the bottom than the top of the league of virtue among comparable countries. Only on the foundation of a deep understanding and a cool appraisal of all our difficulties can a better future be built.

9.28 pm

Lord Brooke of Sutton Mandeville: My Lords, I shall come to my noble friend Lady Wilcox in a moment. First, once upon a time, the noble Lord, Lord Birt, and I used to meet across a table to discuss the 1994 White Paper on the BBC, and it is a pleasure to be linked consecutively with him once again.

Most of your Lordships' House will probably have heard before from others' lips what I am going to say next, but if only one noble Lord present tonight had never heard it before, he or she would alone make it worth saying again. It relates to the levee given by King George V in the palace in 1931, 80 years ago, when the sovereign asked Mr Jimmy Thomas, a member of his Cabinet, whether the international financial situation was really quite as serious as Mr Snowden, the Chancellor of the Exchequer, kept telling him. Mr Thomas replied, "King, it's that serious that if I were you I'd put the colonies in the wife's name". The message of the last Labour Chief Secretary, Mr Byrne, to his successor in the coalition, suggests that he might have given the same advice. Perhaps it is no coincidence that the Conservative gains in this election were the largest since those they achieved in the election of 1931. That is what the deficit does to you. The highest compliment that I can pay to my noble friend Lady Wilcox is that I have every confidence in her ability and that of my and her noble friends in the Treasury to sort it out without my direct help. Of course, we shall all very genuinely miss the noble Lord, Lord Myners, who was and is in all senses my former constituent.

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That has taken the first of my minutes. My remaining four will be devoted to four brief points or comments. First, after the deficit, on which debt interest is now taking more per annum than is spent in the Budget on schools' revenue expenditure, the challenge to the Government is unemployment, especially among the young-hence the references to growth.

It is a conventional commonplace that it is SMEs that now generate jobs. Once upon a time, almost 50 years ago, I joined a firm of 10 foreigners to open their business in this country. Fifty years later, that worldwide business is now the largest of its kind in the world still in private hands, so we must have done something right. But what I remember from that original period is Messrs Kaldor and Balogh, perhaps in the context of the SET, making me spend a weekend every month providing proof to the Inland Revenue that I needed to keep all our money in the business, which, as the man building the business, I knew perfectly well already. So my first plea to my noble friends on the Front Bench is that they reduce the burden of unnecessary tasks on entrepreneurs when they need their energy to justify and finance the creation of new jobs.

My second plea is similar. I was proud to serve on a Treasury team of four Ministers under my noble friend Lord Lawson, all of whom in due course reached the Cabinet, two of them reaching No. 11, one of them reaching No. 10, and who helped my noble friend to carry through the massive simplification in the tax system that he achieved. I do not place on the Labour Government the whole responsibility for dismantling that simplicity-though they must carry some, especially in dismantling changes that they had themselves created-but it is high time that we got that simplicity back, even if some of Labour's complications will make it harder. Simplicity in taxation makes it likely that people will take investment decisions, and better ones, for business reasons rather than for tax ones.

My third plea supports the coalition's desire to rebalance the economy. I agree with the noble Lord, Lord Bhattacharyya, on the abilities still inherent in British engineering, on which the noble Lord, Lord Broers, also spoke. Those firms that have survived have done so because they are world-class, which they owe substantially to their R&D investment in technology. I reiterate to the coalition as a whole the advice of my noble friend Lord Waldegrave of North Hill in yesterday's Times to the new Chief Secretary, my right honourable friend Mr Alexander. My noble friend was a distinguished Chief Secretary, and the first for over 30 years to have run a large spending department before he became Chief Secretary. A critical part of his advice yesterday was to keep a secret reserve in his hip pocket for subjects, like science, that departmental heads might not champion. I acknowledge that I speak as a former departmental Minister at a time when the Chief Secretary took precisely the opposite view.

Finally, a quiet word: the coalition should not believe everything that it reads in the papers, especially if it causes depression. As the first Viscount Slim said in the war, "No news is ever as good or as bad as it first appears". A noble Lord earlier in this debate referred to rural broadband. I live in Wiltshire, a county notorious for an atmospheric phenomenon

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called the Wiltshire banana. I live at the end of a lane two miles from the nearest shop. Two hundred yards from our house lives and works the highly respected automotive engineer who won the £25,000 prize given by the Mayor of London for a contemporary "Routemaster plus" design, but who relies on online engineering to design buses for Brazil and trucks for China. Until a year ago, half way-or 100 yards-between us lived another couple. They ran another successful service business reliant on high-speed broadband but could not afford to buy a first home in Britain so moved to France, partly because they could afford a first home there but also because, on technology, they believed the 18th-century English novelist who said, "They order these things better in France". It turns out that they do not, and rural France's broadband is much slower than Wiltshire's, endangering the whole of that couple's business and their decision to move. It is a crucial imperative for the coalition that it persuades our compatriots at all levels to believe in themselves. As I sit down, with sympathy, I encourage my noble friend Lord Henley to act on that advice at the end of this notable debate.

9.30 pm

The Earl of Caithness: My Lords, I, too, congratulate my noble friends on their appointment as Ministers, particularly my noble friend Lord Henley on going back into the job. I served with him in government some time ago; to see him back on the Front Bench is a delight. He has a difficult job at Defra. I hope that he will pay attention to what the coalition wants and that there should be no gold-plating. Defra has been notorious for gold-plating some of the many regulations.

I know that another aspect will be drawn to my noble friend's attention. It was highlighted by this House's sub-committee on agriculture and the environment in discussing animal testing to try to get a level playing field across Europe. So often gold-plating is not necessary in the UK but Europe is not doing the same as us, which leads to added costs. My noble friend has a difficult challenge ahead with CAP reform. That has been talked about, but to try to undertake CAP reform in a period when one has to feed a growing world population will be an even harder job.

I shed absolutely no tears that we see the end of home information packs. I fought them tooth and nail all the way through the House. They were a complete waste of time and money by the Labour Government.

I notice that the coalition will,

"deliver an offshore electricity grid in order to support the development of a new generation of offshore wind power".

It says nothing about wave and tidal power. Can my noble friend say anything about the proposals for wave and tidal power, particularly those that will affect us in the north of Scotland on the Pentland Firth? The right reverend Prelate the Bishop of Liverpool talked about renewables in the north-west of England, but the north of Scotland is also an area where the grid system is absolutely vital to development.

I watched with interest the relief on the faces of those in the Labour Party as it lost power, knowing full well that it had landed the new Government with what is called, in rugby terms, the hospital pass. Yet

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again, a Conservative Government must pick up a worse financial situation than they handed on to a Labour Government, and this one is particularly bad.

Our Government want to make the banking system better,

"to serve business, not the other way round".

The words that are missing from that are "the individual". I do not think that the banking system serves the individual. However, I was delighted to read that the Government,

"will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way".

Many of your Lordships will know that I have been banging this drum since, I think, 1997, when I made a speech on the issue from these Benches when the Conservative Government were still in power. In 2008 I introduced the Safety Deposit Current Accounts Bill, which-if it had been agreed-would have saved the banking sector from some of the financial problems that it came into.

I am a great believer in separating the retail and investment sides of banking, but it is not an easy solution. It is fraught with difficulties and I wonder whether this Government have the determination to do it. Separating retail from investment banking means that in the retail banking system the depositors should retain control over their money. At the moment, as your Lordships will be aware, if you deposit money at the bank, it no longer belongs to you; it belongs to the bank. You become an unsecured creditor. This is the result not of government legislation but of court cases in the 1800s-in 1811 and 1848. If we are going to reform the banking system, let us not tinker with it but look at what the real problem is. The real problem is how the banks work. There has been much criticism today of greedy bankers and the lack of regulation. That is true to an extent but the real problem is that the banking system itself is wrong. That is what needs to be reformed.

The ownership of deposits must return to the person who made the deposit rather than to the bank. That will also affect the money supply and inflation. By and large, it is the banks that create inflation. My noble friend Lord Ryder was absolutely right to drum that into us. It is something that we must avoid. Separating retail from investment banking and getting the banks to hold money for their depositors and not use that money for gambling purposes will reduce the money supply and go a long way towards stopping inflation. That is a courageous and bold step if the Government will take it. I hope that they will, but I fear that they will not.

9.35 pm

Lord Giddens: My Lords, I think that I am number 47 in line to congratulate the noble Baroness, Lady Wilcox, on her excellent opening speech, to welcome the other new members of the government Front Bench and to congratulate my noble friend Lord Myners. I think that I am also about number 10 in line to offer comments on climate change and energy security. Since so many other noble Lords have spoken on this issue, I will keep my comments brief.

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I generally endorse the policy outlined by the Government as described in the coalition programme document and noted in the noble Baroness's speech. However, I should like to ask three or four questions or pose three or four problems. First, in the documentation that I have seen so far, the Copenhagen accord is not mentioned. What is the Government's view of it as a potential way forward in international negotiations? The Government say:

"We will work towards an ambitious global climate deal".

But how will they do that? What kind of climate deal do the Government have in mind?

Secondly, the Government are right to endorse feed-in tariffs and community-owned renewable energy schemes. However, it is impossible to see how one can have effective climate change and energy policy without a strongly interventionist state. The recent Ofgem report marks pretty much a volte-face in policy on the part of that organisation, recognising that a free-market approach to energy investment has major flaws. If the state has to play a fundamental role in climate change and energy policy, how will the Government reconcile that with their reservations about the state as outlined in other aspects of their policy programme?

Thirdly, the Government say, in my view quite rightly:

"We will introduce a floor price for carbon".

But how will this be achieved and where will that floor price initially be set?

Fourthly and finally, as is well known, the Liberal Democrat partners to the coalition were originally bluntly opposed to investment in nuclear power. An agreement has been reached about such investment based on the premise that it can go ahead so long as no public investment or support is involved. EDF seems to agree that it can go ahead on that basis and invest in nuclear power stations. However, what will happen if that is not the case and public support is needed for an effective investment in nuclear power stations to go ahead?

9.39 pm

Lord Plumb: My Lords, I join the other 47 speakers in offering my congratulations and good wishes to my noble friends Lady Wilcox and Lord Henley. She made a cracking opening in this debate and I do not think that any of us would envy my noble friend Lord Henley winding up this wide-ranging, but extremely important, debate. I also thank the noble Lord, Lord Myners, for his contribution on the economy and financial matters over the past year. It has been interesting to share some of the concerns with him.

Many farmers were encouraged by the statement in the Conservative Party manifesto promising to prioritise research and development, and to develop a long-term strategic agenda across the food chain that reflects the importance of raising production sustainably. It is worth quoting some interesting research carried out at Humboldt University of Berlin. It calculated that 35 million hectares of land outside Europe is needed, equivalent to twice the area of United Kingdom land that produces food, to meet the needs of a population of 9 billion people. It also claimed that the food needs of the world can be met only when the richer countries produce more, not less, as is often argued.

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Sadly, as we have already heard, our starting point for growth is lower than it should be. We are importing some £32 billion worth of food, compared with exports of £13 billion. Those are the most recent figures, which will have changed with currency ratios. In addition, 40,000 cattle each year are slaughtered as a result of bovine TB, at a cost of some £100 million.

Regarding the Bills mentioned in the gracious Speech, it is essential that the proposed cuts of £162 million and budget savings do not harm competitiveness. I hope that the Minister will be in a position to tell your Lordships how Defra can reduce spending without hindering a forward-looking farming industry.

While food security should have priority, there will be three Bills of significance to which I shall refer-the energy security and green economy Bill, the decentralisation and localism Bill and the public bodies reform Bill. These are all important Bills. The encouraging signals to deliver greater levels of low-carbon energy generation will increase investor confidence in renewables, whereby farmers and growers can play a major role.

Revision of the feed-in tariff incentive for small and medium-sized anaerobic digestion plants is a key element, and planners must take note and act without delay on the contribution that they make when dealing with waste for the production of energy from waste products, including food, that currently pour into infill sites. Waste is power and could be the focus of energy policy. Energy from wind farms can be variable, but energy from waste is base-load power. Power from biofuels will continue to be commercially important for heavy vehicle transport in the foreseeable future.

On decentralisation and localism, the consequence of a commitment to abolish RDAs is something that a lot of people would say "Hear, hear" to. Creating local enterprise partnerships raises questions on the seven-year programme due to end in 2013. That programme is worth £3.9 billion and is part of the common agricultural policy. It should also be considered within the context of the future of the CAP, which we will debate in the future. The programme aims to support and promote sustainable farming, forestry and food sectors and brings wider benefit for the economy and the environment. I hope that the Minister can comment on these matters, but there is also concern as to whether returning decision powers for rural housing and planning to local councils will work. The question is: will the guidance to local authorities be robust or will localism prevail?

Public bodies and quangos are likely to be a target for financial cuts, which is understandable. However, it is important to target cuts that do not undermine food production. Farming is expected to operate like any other business where workers are protected by minimum wage legislation; so why maintain the Agricultural Wages Board? Cutting it would save some £500,000 per year; and I would include some of Defra's quangos, such as the communications and policy departments.

Despite these problems, there are encouraging signs of an increased understanding of the connection between food and farming, which has led to a greater desire for fair trade both overseas and at home.

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Support systems for agriculture now rightly recognise the farmer as not only the essential food producer but also the custodian of our biodiverse countryside.

On Sunday 13 June, many people throughout the country will have the chance to visit farms. On Farm Sunday, farms will be open to visits by people who wish to see what happens on a farm and how food is produced, and also to learn about environmental policies.

In future, when we debate the developments that are needed and the CAP, we should embrace one word: "simplification".

9.45 pm

Lord Rana: My Lords, I, too, add my best wishes and congratulations to the ministerial team. They have a challenging job ahead.

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