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House of Lords

Thursday, 24 March 2011.

11 am

Prayers-read by the Lord Bishop of Exeter.

English Language Learning


11.06 am

Asked By Lord Greaves

The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham): My Lords, the ability to speak English is important for playing an active role in society. Lack of English can be a factor in social exclusion and a barrier to the integration of migrants. English language skills allow individuals to realise their potential in education and in the workplace, to get on with others in their neighbourhoods, and to make informed decisions about health and other public services.

Lord Greaves: My Lords, I thank the Minister for that helpful reply. Today is a day of action in communities all around the country by people who are campaigning to save ESOL provision, which is threatened with big cuts. What meaning has the big society for people who cannot communicate with their neighbours or take part in their local community? In particular, restricting free ESOL classes to people on so-called "active benefits" will be disastrous for many people-for example, women who are full-time housewives in Asian households and who will lose their lifeline to the wider community. Will the Minister talk to the department responsible for these cuts, and does she think that that department is meddling in areas which it does not know much about?

Baroness Hanham: My Lords, in the current economic climate, different decisions have to be made on ESOL as well as on everything else. The Government are prioritising investment in training for unemployed people who are actively seeking work. We expect those who come from other countries to work in England, or their employers, to meet the cost of their English language courses. We will no longer fund ESOL in the workplace. On the division of responsibility between departments on this matter, I will make sure that the BIS aspect goes back to that department.

The Earl of Listowel: Does the Minister understand the deep concern of a head teacher of an outstanding primary school in inner-city Manchester, 80 per cent of whose intake is Somali children, that funding for its ESOL courses may be cut? Is she aware of the research that shows that what happens in the home-the support

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that parents give children in their education-is the single most important factor in achieving the best educational outcomes for them?

Baroness Hanham: My Lords, as far as I am aware, the education of children is not affected. Children are taught English in schools and will continue to be so taught despite this measure. The Department for Education, of course, is responsible for that.

Lord Tebbit: My Lords-

Baroness McIntosh of Hudnall: My Lords-

Lord Tebbit: Do sit down.

Noble Lords: Order!

Lord Tebbit: My Lords, does my noble friend not agree that the expression "English as a foreign language" is not quite correct? English is not a foreign language in this country.

Baroness Hanham: Yes, my Lords.

Baroness McIntosh of Hudnall: My Lords, I hope the Minister agrees that the remarks of the noble Lord, Lord Tebbit, do not entirely bear examination. However, while I largely agree with the remarks of the noble Lord, Lord Greaves, we in this country have a less than exemplary record in understanding the importance of learning other people's languages. Does she agree that, as part of the thrust towards getting people to learn our language, it would be good if we got better at learning theirs?

Baroness Hanham: My Lords, the thrust of the Question was about people learning English so that they could integrate into our country, not about whether the education system should ensure that we can speak languages elsewhere. I am conscious that throughout the House someone will speak anything from Mandarin to German to French; we would have a handful of interpreters if we asked for them.

Baroness Hussein-Ece: My Lords, I declare an interest as someone who learnt English as a second language at school. Can my noble friend comment on the impact these proposals will have on women and low-paid workers who will no longer be eligible for English classes? How does it sit with the constant call for people from ethnic minorities to integrate if they cannot access classes to learn English?

Baroness Hanham: My Lords, people not covered by the full ESOL subsidy will still be subsidised by 50 per cent for the course. I am sure that, where colleges of further education and training organisations identify people specifically able to go into work and learn in their communities, the other 50 per cent will be found. I appreciate that there are members of communities who have come to live in this country who find it difficult to access, but I am bound to say that there has always been that difficulty.

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Lord Hunt of Kings Heath: My Lords, I declare an interest as my wife is an assistant principal of a college that does extensive ESOL teaching and is impacted by the potential cut. Will the Minister look at the issue of women, particularly Asian women, in many of our major cities who will not be eligible for the full grant because they are not on active benefits? The noble Baroness has said that some of those women may be able to get access. Does she accept that the evidence so far is that thousands of women will not? Is she prepared to look at this matter again?

Baroness Hanham: My Lords, it is not entirely a matter for my department to look at this again. We are clear that people who are not on active benefits will get some support. I recognise that, as with any reduction in money, someone will not win out. However, the point about people who are in their homes and not accessing English as a second language is, I am afraid, covered by the 50 per cent reduction.

Lord Roberts of Llandudno: My Lords, as I address the Chamber in my second language, what provision is there, through the British Council or other overseas movements, to teach those who wish to come to the UK some basic English before they start on their journey?

Baroness Hanham: My Lords, under recent legislation, people who want to come here on tier 2 will have to speak English before they apply for a visa. English language tuition is widely available internationally, including through the British Council, and, as far as I am aware, there is no intention of changing that.

NHS: Reorganisation


11.14 am

Asked By Baroness Williams of Crosby

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe):My Lords, the Government published an impact assessment alongside the Health and Social Care Bill. This estimated the costs of the transition at £1.4 billion. Just over £1 billion was estimated to be as a result of redundancy. The £1 billion has not been split into redundancy and early retirement as these decisions will be made at a local level. The proposed reforms will save £1.7 billion per year from 2014-15 onwards.

Baroness Williams of Crosby: I thank my noble friend for that Answer, but I am aware that the National Audit Office, on the basis of its own surveys, has indicated a considerably higher figure. In an important article written by the professor of medical health at the Manchester Business School, the estimates are between £2 billion and £3 billion. Could my noble friend tell us the cost of the redundancies that have

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arisen from PCTs being brought to an end and people moving into the new consortia, and whether that figure is part of the figure that he has given to the House?

Earl Howe: My Lords, I would do best to refer my noble friend to the impact assessment, which provides a detailed breakdown of the figures that I have just given. I acknowledge that we have had to make assumptions in drawing up the impact assessment. Those can be challenged, and I am aware of the figures that my noble friend has referred to. But I do not believe that changing the figures-and they are bound to change in the nature of the exercise-will make a significant difference to the overall cost. The assumptions made in the modelling are based on the best available evidence that we have at the moment.

Baroness Thornton: Among many others, the Conservative MP Sarah Wollaston recently argued in the DailyTelegraph:

"I cannot see that it makes sense to foot the bill for redundancies for the entire middle layer of NHS management only to be re-employing many of them within a couple of years".

As the Minister has said, the Government's assessment of the redundancies varies between 600 and 1,200. Can I tempt the Minister to give us his best guess of how many of those redundant managers will be re-employed within the NHS within two years? Indeed, does the Minister think that this is an acceptable use of taxpayers' money?

Earl Howe: We expect that about 60 per cent of management and administrative staff currently employed in PCTs and strategic health authorities will transfer to the new GP consortia or the NHS commissioning board. Those are straight transfers. As for those who leave the service, we have included claw-back arrangements in the redundancy scheme so that, if any employee returns to work for the NHS in England within six months, they will be required to repay any unexpired element of their compensation.

Lord Walton of Detchant: Does the Minister accept that many members of the administrative staff of the NHS are acting as if the Bill were already in law? For instance, staff in the PCTs are melting away. It is crucially important that those who will be required to help to administer the GP consortia should be kept on. Equally, now that the Government accept that the NHS commissioning board will require some regional infrastructure to commission highly specialised services, what action are the Government taking to ensure that the experienced and dedicated staff involved in the regional strategic authorities who carry out those commissioning tasks will be kept on?

Earl Howe: I am very grateful for the noble Lord's question, because it gives me the opportunity to pay tribute to the skill and dedication of our managers and administrators in PCTs and strategic health authorities, whose skills we will most certainly need once the modernisation plans have been completed. We are clear that those who are able to provide these skills and can give us continuity into the new system are people we want to keep. We are encouraging them

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to stay and hope that they will. We are encouraging also the pathfinder consortia to engage with the PCTs to enable that to happen.

Baroness Jolly: My Lords-

Baroness Gardner of Parkes: Following the question from the noble Baroness, Lady Thornton, could I ask my noble friend more about this transfer? Does he recall that, in previous reorganisations of the health service, large numbers of people claimed redundancy payments and then got very favourable jobs afterwards? Does he not think that the six months that he mentioned as the claw-back period is probably not enough at a time when the health service is very stretched? Also, will he consider what the noble Lord, Lord Walton, said about reorganising some of those posts now to avoid that situation?

Earl Howe: My Lords, we are beginning to reorganise the system. Under current rules, we are enabled to do so. I understand my noble friend's particular point about the claw-back arrangements but there is perhaps a countervailing argument over what is fair and unfair in redundancy arrangements. In that sense, one cannot push the issue too far. Having said that, we are on track with the retirement scheme. We are seeing a deliberate and carefully managed process of reducing staff numbers at primary care trust level, leading up to the clustering of primary care trusts, which I am sure my noble friend knows about.

Lord Patel: My Lords, can the Minister say-

Baroness Jolly: My Lords-

Noble Lords: This side!

Lord Patel: Can the Minister say whether the Government have made any assessment of the transaction costs of the reform?

Earl Howe: I can tell the noble Lord, as I did before this Question began, that the transaction costs are not in my brief. However, we are in a different world now from the one we were in 10 or 15 years ago. We have a payment-by-results system which is well established. It is important to understand that the modernisation programme is not about competitive tendering, because it will streamline the whole process whereby providers to the health service will be enabled to offer their services to patients. It is not dependent on competitive tendering and the transaction costs should reflect that beneficially.

European Court of Human Rights


11.22 am

Asked By Lord Marlesford

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The Advocate-General for Scotland (Lord Wallace of Tankerness): My Lords, if a Chamber of the European Court of Human Rights gives a judgment against the United Kingdom, we may request referral of the case to the Grand Chamber. Grand Chamber judgments and Chamber judgments that have become final because there has been no request for referral, or because a request has been rejected, are binding on the parties and not subject to any further challenge.

Lord Marlesford: My Lords, I thank my noble and learned friend for that Answer. While we all obviously favour and support human rights, and endorse the role of the judiciary in supporting them, does he agree that the performance of the European Court of Human Rights has done little to enhance its reputation? Perhaps I may give him an example from an Answer given recently to the noble Lord, Lord Hylton, about seven people whom the previous Government sought to have extradited to the United States on terrorist accusations. This was between 2007 and 2009, and the European Court of Human Rights is still considering those cases. Is it really conceivable that it can take up to four years to consider such a case and is it surprising that, as a result, people are beginning to think that the European Court of Human Rights is weak on law but strong on politics?

Lord Wallace of Tankerness: My Lords, with the kind of cases that the European Court of Human Rights deals with, its judgments can inevitably be supported in some cases-as indeed they have been in many cases by the public-and not supported in others. On the point that my noble friend makes, the fact that there is a backlog of around 140,000 applications suggests that something is not working effectively. That is why the Government are committed to supporting and building on the process of court reform which is already under way in Strasbourg. As part of that reform process, the Government wish to see a strengthening of the principle of subsidiarity; that is, that the convention should principally be implemented at national level.

Lord Anderson of Swansea: My Lords, does the Minister agree that that backlog has been caused in part by Georgia and Russia flooding the court with applications and that there are new procedures in place to deal with it? Will he also confirm that we in the United Kingdom have an exemplary record, albeit with a delay in one case, in responding to judgments of the court and not seeking to pick and choose? If we now refuse to implement the judgment in respect of the rights for prisoners instead of negotiating to see what the best outcome is, what effect does he think that will have on serial defaulters such as Russia and Turkey when until now our record has been exemplary?

Lord Wallace of Tankerness: My Lords, the noble Lord makes an important point: this country's implementation of ECHR judgments has been very good and consistent with our obligation to respect and implement our international treaty obligations. He referred to the number of additional cases. The process that was started at Interlaken, where the United Kingdom was represented by the distinguished former

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Attorney-General, the noble and learned Baroness, Lady Scotland, is under way, and it is hoped that when Britain has the chairmanship of the Council of Europe for six months starting in November this year, we will be able to build on these reforms.

The Government's position on prisoner voting has been set out, but we have also requested that the court's judgment in the case of Greens and MT v UK should be referred to the Grand Chamber of the European Court. If the Grand Chamber agrees to the referral, it will look at the case again and issue its own judgment.

Lord Thomas of Gresford: My Lords, given that there are 250 applications to the Supreme Court for appeals in this country and 2,700 applications from the United Kingdom to the European Court, do the Government have any plans for having two or three more divisions of the Supreme Court in this country, perhaps sitting in Downing Street, to hear human rights cases as a court of final appeal, with full legal aid, and thus give some succour to the legal profession?

Lord Wallace of Tankerness: My Lords, I am not aware that the Government have any plans to set up such additional divisions of the Supreme Court, but I am sure that the point made by my noble friend will have been noted by the Ministry of Justice.

Lord Scott of Foscote: My Lords-

Baroness Scotland of Asthal: My Lords, following the work that we commenced in Interlaken, is there now a timetable for reform? What specific measures do Her Majesty's Government intend to take with others to ensure that the ECHR is as robust as we would all like it to be?

Lord Wallace of Tankerness: My Lords, as I have indicated, we hope that during the period of our chairmanship of the Council of Europe we will be able to take forward the reforms. All 47 members of the council believe that there ought to be reforms. We want to look at ways in which we can make the court more effective and efficient in dealing with the backlog and, as I have said, to reinforce the idea that the court's role should be a subsidiary one; namely, that member states should have the primary responsibility for protecting convention rights in their own country. We hope that we can make progress on that during our chairmanship.

Lord Neill of Bladen: My Lords, will the Minister comment on the position of the Supreme Court? So far he has talked about government action, but the Supreme Court said in 2009, in a case called Horncastle, that it can decide not to follow a decision of the court in rare cases where that court has failed to "appreciate or accommodate" particular aspects of our domestic process. In such a case the Supreme Court can refuse to follow it, giving reasons, in the hope that that will then be picked up in a subsequent judgment by the court in Strasbourg. Do the Government have a position on whether that is a satisfactory arrangement?

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Lord Wallace of Tankerness: I think that the specific case to which the noble and learned Lord refers has been heard by the Grand Chamber and a decision is awaited. The position under the Human Rights Act is that while our courts are not obliged to follow the precedent set, they must give proper consideration to it. In the more recent case of Pinnock, the Supreme Court indicated that it would generally follow Strasbourg's decisions unless there were good reasons for not doing so.

Human Trafficking: EU Directive


11.29 am

Asked By Baroness Royall of Blaisdon

The Minister of State, Home Office (Baroness Neville-Jones): My Lords, the Government received a range of representations, including from parliamentarians, members of the public and non-governmental organisations. We said, referring to the opt-in, that we would make a decision about the finalised text at the end of the process, rather than at the beginning of the drafting. This is what we have now done. The Minister for Immigration has written to the parliamentary scrutiny committees in both Houses, seeking their views on our intention to apply to opt in.

Baroness Royall of Blaisdon: My Lords, I am grateful to the Minister for that Answer. I pay tribute to the Government, who are doing the right thing, although I regret that it has taken too long. I also pay tribute to the Anti-Slavery International petition, women's groups and other campaigners, who have clearly brought to bear a great influence on the Government. The National Working Group for Sexually Exploited Young People has found that there are only 38 areas in the UK with a specialist service in place. What are the Government doing to ensure that there is effective intervention and consistent local delivery of these services around the country; and how will these nationally important functions be managed under the Government's proposed politicised policing framework, as set out in the Police Reform and Social Responsibility Bill?

Baroness Neville-Jones: I can hardly accept the last point made by the noble Baroness. As regards the quality of the services that the Government wish to see in place, there are certainly some excellent boroughs that can act as best practice models, including such places as Hillingdon. The Government's aim, obviously, is to ensure that all boroughs and local authorities operate at the level of best practice. There is constant consultation between the Government, local authorities and the NGOs involved to achieve that result.

Baroness Goudie: My Lords, I am very pleased that the Prime Minister has now done a U-turn and stated that human trafficking is a terrible crime. Will the

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Minister ask the Prime Minister whether he will put the issue on to the G8 and G20 agenda for November? As she knows, human trafficking is a now global issue and it should be on these international agendas. That is the only way in which we will see the end of it in our lifetime.

Baroness Neville-Jones: I do not think that the Prime Minister has made any kind of U-turn-he has made a very clear statement of the Government's position on the evils of human trafficking. I will take back the point about the desirability of having this on the G20 agenda.

Lord Boswell of Aynho: My Lords, will my noble friend also consider the extreme importance of effective police co-operation in dealing with this vile practice? I cite in particular the very constructive relationship that has been formed between the Metropolitan Police and the authorities in Romania. It is very important that people should understand that this is a matter not just of one or two criminals but of very organised gangs who are quite prepared to clean out the young people in a particular district in an exporting country and to disseminate them round the richer countries of the world, under their orders and making profits for their vile trade.

Baroness Neville-Jones: My noble friend is quite right: human trafficking is a concern for all constabularies. It is also a concern for the Serious and Organised Crime Agency, which operates internationally. He is right to say that this is a global issue. It is also a matter in which the police take a lead in our ports of immigration, most particularly in places such as Heathrow and St Pancras, ensuring that when there is suspicion that a child has been trafficked, the suspicion is picked up immediately and the arrangements to handle the case are put in place.

Baroness Massey of Darwen: My Lords, what discussions are ongoing between the Government and the organisations concerned with the trafficking of women and children into this country? How will the identification of the number of people trafficked, which is very vague, be improved? How will the Government tackle situations involving employment and housing, rather than just prosecuting people?

Baroness Neville-Jones: I think that the noble Baroness is referring to the desirability, with which the Government agree, of having, in effect, an end-to-end process in which one is able, through contacts abroad, to understand the systems for trafficking; to pick up the children being trafficked as and when they arrive in this country; and then to be able, with the local authority, to ensure that proper care is taken of them. That, in fact, is the Government's aim, and we are trying to bring together a system that ensures that that happens. We are in very close consultation with those NGOs that take a strong and constructive interest.

Baroness Hamwee: My Lords, I am sure that the Minister will agree that the end-to-end process must include healthcare. Many of the people who have been

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trafficked will have been very damaged by the process. What are the Government doing to support good healthcare for them?

Baroness Neville-Jones: The local authorities have overall responsibility if a child has been taken into care, and the local health authorities are involved in the process that they put in place.

The Lord Bishop of Exeter: My Lords, I am sure that the noble Baroness will be aware of the sterling work which has been undertaken by my friend the most reverend Primate the Archbishop of York in consistently pressing Her Majesty's Government to achieve a united front across Europe for tackling this evil of human trafficking. But is she also aware of the Tearfund report, Silent No More, which was launched this Monday at Lambeth Palace with the support of both Archbishops, and which highlights the largely untapped potential of the church in preventing and reducing the impact of sexual violence, and the associated task of improving attitudes to women in many parts of the world? Will she join me in welcoming and commending this important report?

Baroness Neville-Jones: I pay tribute to the very notable work done by the most reverend Primate the Archbishop of York. It gives me great pleasure to be able to welcome this church initiative.

Business of the House

Timing of Debates

11.37 am

Moved By Lord Strathclyde

Motion agreed.

Statutory Instruments

Membership Motion

11.37 am

Moved By The Chairman of Committees

Motion agreed.

Economy: Government Policies


11.37 am

Moved by Lord Lawson of Blaby

Lord Lawson of Blaby: My Lords, I look forward enormously to this debate. There is a glittering array of speakers and, indeed, there can be no Chamber anywhere in the world that possesses so much expertise

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and experience in the fields of economics and business as this House does. I welcome in particular, as I am sure we all do, the maiden speeches that we will hear from my noble friend Lady Stedman-Scott and the noble Lord, Lord Hussain.

Inevitably, this debate is likely to focus very much on yesterday's Budget, and that is what I intend to do in my opening remarks. I welcome the Budget for a number of reasons, the most important of which is that it has stuck-and my right honourable friend the Chancellor has been very firm about this-to what is commonly known as plan A. I am referring to the overriding need during the course of this Parliament to eliminate the structural budget deficit-the fiscal consolidation-or the cyclically adjusted fiscal deficit. As the highly respected Institute for Fiscal Studies has pointed out, in all the 34 countries of the OECD, only Ireland has a larger cyclically adjusted fiscal deficit than this country has. The cyclically adjusted fiscal deficit is that part of the deficit that is not due to the recession but is entirely due to the gross mismanagement of the public finances by the previous Government and by Mr Gordon Brown, in particular.

I congratulate the Chancellor, in difficult circumstances, on sticking to his guns on this central issue. It will be increasingly difficult over the next 12 months. We have a very difficult year ahead. The public expenditure cuts are only just beginning to take effect. There will be a great deal more unpopularity and many more problems than there have been already. There will be difficulties on a large scale with a number of public service trade unions. However, the Chancellor has to hold his nerve and go through it. The Budget yesterday is a sign that that is what he intends to do. In fiscal consolidation and in public expenditure cuts, he has set out to do the least that is needed economically. However, it is probably the most that is possible politically.

There is absolutely no need to hold back for fear of the fragility of the economy. It would be wholly wrong to do so. The world economy, and the British economy with it, is firmly on the recovery path. It is true that the recovery is slow, and is likely to continue to be so for the next 12 months. It is true that it will be bumpy, and that some quarters will be very uncomfortable. However, it is clear that the world economy is on a recovery path.

The Budget contained quite a few lollipops, as they were known in the Treasury in my day. Every Chancellor, including me, likes to put a few lollipops in his Budget. It is possible that there were rather too many in this Budget. Lollipops all have to be paid for and they also complicate the scene, whereas the Chancellor has rightly said that one of his watchwords will be simplification.

The lollipops are there for political reasons. I wonder whether there is not another approach that the Government could have adopted-and can still adopt-to a greater extent than they have so far. In the 1980s, we made a virtue of unpopularity. It carries a lot of conviction, because it happens to be true, if you say to people: "Look, no politician likes to be unpopular. We are politicians and we do not like to be unpopular. We would never do anything unpopular unless it was the

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right thing to do. We are doing it because it is necessary. We would far rather do popular things". I know that noble Lords opposite think that many of us on this side are crazed fanatics powered by ideology. That might be the way that the Labour Party works-I do not know the inside of the Labour Party and I am not particularly interested, either-but not only is it a wholly inaccurate description of the Conservative Party and of our Liberal Democrat allies and friends, but the public know that it is complete nonsense, so all that happens is that the Labour Party loses all credibility.

The Government are doing the right thing, even though it is unpopular and will continue to be so. The criticism from the faint-hearts often comes from those-there are many in the media, as well as on the Benches opposite-who are obsessed with trying to fine-tune the economic cycle. One cannot fine-tune the economic cycle. The overriding need in economic policy for any Government-and this is what this Government are doing-is to focus firmly on the medium and longer terms.

In this context, the priorities are twofold. Eliminating the structural deficit is absolutely essential, as I have already said and as my right honourable friend the Chancellor made abundantly clear. There is also the need to cut back the relative size of the state in order to achieve the maximum rate of growth of which this economy is capable. That is where the growth strategy comes in. Greater growth will lead to a larger public sector and more public services in the future.

However, in the short run, it is necessary for the state to be only of the size that the economy at the time can afford. That is the essential path to improved economic growth, which we all want to see. There is no growth button that any Government can push. Growth comes from industry and from the inherent creativity of mankind. Of course, we had growth long before we had activist Governments with activist economic policies. You have to remove impediments, as the Chancellor is doing. Many of these impediments have very well-meaning intentions behind them but they remain impediments and they have to be removed wherever possible.

The Budget identifies three areas in that context. The first is deregulation, the second is tax reduction and the third is tax reform. On deregulation, I welcome what was in the Budget yesterday, particularly the proposed deregulation of the planning system. That is a very serious impediment and deregulation in this regard is long overdue.

It is clear that tax reduction will have to wait. Because of the appalling fiscal position and deficit that this Government inherited, there is no scope for tax reduction at present, but it will have to come. I was very glad to hear my right honourable friend the Chancellor say that he wanted the,

That is quite a target. He has done well on the corporate tax side but, so far as concerns personal taxation, we have a very long way to go before we have the most competitive tax system in the G20. In fact, we are now well down the list. That is the context for his remarks about the 50 per cent top rate of income tax, which is way higher than that of most of our competitors in the G20. He saw it as temporary and is asking Her

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Majesty's Revenue and Customs to inquire into whether there is any increase in revenue from raising the top rate to 50 per cent. Clearly the implication must be that if the inquiry shows no significant increase, or even any increase, in revenue, he will bring it down. I welcome that.

I hope that my right honourable friend will also look at the experience of the 1980s. When I reduced the top rate of tax from 60 to 40 per cent in 1988, it brought about an increase in revenue, not a reduction. Not only that but I have been accused of being a socialist because, as a result of this, we found that the highest taxpayers-the richest people in the country-were contributing a larger share of the total income tax revenue than ever before. Therefore, I think that that should be studied, as well as the effects of increasing the top rate from 40 to 50 per cent.

On tax reform, the Chancellor enunciated some principles. Those principles were absolutely right and I welcome them. However, the main thing that he announced was the amalgamation of the national insurance contribution and income tax systems. This was widely trailed in the newspapers and was announced in the Budget yesterday. I say to the Minister, and through him my right honourable friend the Chancellor, "Don't go there." There is nothing new about it. The first time I was involved in it, at a distance, was when my successor as Financial Secretary to the Treasury, the late Nick Ridley, of whom so many of us in this House have very fond memories, was very interested in doing it. Therefore, when my noble friend Lord Howe was Chancellor, there was an inquiry into what was known as NICIT in the Treasury. Some people thought that it was called that because Nicholas Ridley was in favour of it, but in fact it was an acronym for national insurance contributions and income tax. NICIT was looked at then and, very wisely, nothing was done.

However, after the 1987 Budget, I decided that my next Budget in 1988 would be a major reform of personal taxation. I was very keen on NICIT so, for nearly a year starting immediately after my 1987 Budget, I instigated the most thorough investigation into NICIT by the Treasury and the Inland Revenue that there had ever been. I did not abort it until January 1988, shortly before the Budget, because I had high hopes of it, but it could have been the biggest elephant trap that you could fall into. I do not have time to explain why, but that is the fact. If the Minister and my right honourable friend the Chancellor would care to look at page 827 of the original version of my memoirs, they will find an admirable summary of the main reasons why they should not go there.

Many noble Lords wish to speak in this debate and I do not want to take my full time allowance, as we wish to hear all the other contributions. We all want the Government's policies to succeed. Inevitably, I understand that that is a problem for the party opposite, as it always is for Oppositions-there is nothing special about this Opposition. Oppositions tend to be slightly schizoid because they know that if the Government's policies are successful, that is good for the country, but that might also be good electorally for the party in office and they are not very happy about that-but that is their problem.

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On the electoral aspect, what is important is that this is, at bottom, what democracy is about. Democracy is a system that allows the Government of the day to do what they believe to be right and gives them a reasonable time in which to do it. At the end of the day, the people decide whether they should have a second innings. As we know from what is happening in much of the Arab world today, the essence of democracy is the ability of the people peacefully to eject a Government in whom they have no confidence. In this country, for many years, we have had an electoral system that fulfils that function better than any conceivable alternative would do, and that is an overwhelming reason for not changing it. I beg to move.

11.53 am

Lord Sugar: The House will be indebted to the noble Lord, Lord Lawson, for initiating this debate and for what he has said. He will recall that when he was Chancellor under the noble Baroness, Lady Thatcher, I was one of her blue-eyed boys. The young fellow from Hackney, who had done well, was a fine example of entrepreneurial spirit. She hauled me all over the place, displaying me as a prime example of what can be achieved. I was in and out of Downing Street more often than the window cleaners and possibly the noble Lord, Lord Lawson.

The thing is, people like me are a dying breed. When as a young man I went to a bank with my hand out, they thought I was part of a Morecambe and Wise team. "Do you have any collateral, a balance sheet, some history of profits?", they asked. "No", I replied. "Well then, clear off", was their response. Like many others, I realised at an early stage that if you want something, you have to get it yourself. My idea of government support was: you supply me hospitals, schools, a police force, roads to drive on and a good environment for me to do business in, and that will do me fine; but do not poke your nose into my business.

To reflect on the past 15 years or so, it has been customary for a person dressed in a nice pair of designer jeans and a nice blue blazer with a white open-collared shirt, a bottle of Evian in one hand and a wonderful Microsoft spreadsheet in the other, to walk into a bank, mention the word dotcom and walk out with £5 million. Those days, I am afraid, are over. We all know what went wrong there; and we also know what a mess the banks got into recently; but the penny has not dropped with some people. We still have in some cases an expectancy culture, where people still think that there should be money freely available to finance lost causes, poorly run companies or a whim of an idea.

When I was employed as an adviser to Her Majesty's Government last year, I had occasion to visit many small to medium-sized enterprises across the country and spoke to several thousand people. The most frequently asked question of me was, "What can this Government do to help my business?". My reply was not perceived as helpful. I told them, "Do not rely on any Government to assist you in running your business. You are people who have chosen to go into business, which is very enterprising, and I am pleased about that, but do not expect to get any advice from the Government about what products you should make, what ideas you should

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pursue, what services your business should provide or how you should market your products and generate income, because that is what you are supposed to do".

More recently, I have asked people, "Who is there in government able to dish out such advice? Just step back and look at them". Take, with the greatest respect, the current Business Secretary. He has never been in business or run a business. He has been an adviser or a politician all his life. He has never touched the coalface. Frankly, what does he know? It is this realism that brings me to my next point. In my opinion, the current Government are very good at window-dressing the demise of the economy by blaming it all on the banks. It is very convenient continually to repeat the same old broken record: "It's not our fault. It's the banks' fault; it's the previous Government's fault".

Let us take a look at that for a moment. True, the banks were irresponsible, and they have been told in no uncertain terms to get their act together. However, having told the banks to get their house in order, the current Government are constantly bleating that the banks are not being helpful in lending money to small businesses, whereas the message to the small business community should be one of realism in understanding that no one is going to lend money to a lost cause. The banks are now looking at the traditional criteria of showing some assets or having some historic record of profits before parting with their money. They are definitely open for business. That, I remind your Lordships, is how they make some of their money. In my recent seminars, I have received comments from some people along the lines of, "The bank has been outrageous. It has actually asked me to put up some collateral-my house, for example". Well, I am very sorry, but why not? Why should it take a risk on you if you are not prepared to take a risk on yourself?

In my capacity as a business adviser to the previous Government, I visited many Business Link centres, which I understand are funded in some way by government although I am not at all clear how. The cost of running these organisations was something in the region of £250 million per year. To be perfectly frank, apart from meeting a nice bunch of people, there was no real business advice dished out other than simple stuff you could pick up and learn for yourself by going on the internet. I urge the Government to redeploy money spent on these types of initiatives in other directions. As a simple example, there are so many empty premises around the country, large factories and warehouses, that can be converted and made into incubator factories. They could contain a core factory and a silo of workshops on the periphery. The core factory would be accessible to the individual businesses like satellites around a nucleus.

The noble Lord, Lord Lawson, said that sometimes you need to be unpopular. I think that the Government should come clean in their message to help small-to-medium-sized enterprises. You cannot on the one hand tell the banks, "You've been naughty by being irresponsible", and on the other hand say, "Go and be irresponsible again. Go and help lost causes". Give SMEs the facts of life. By all means be bold and be adventurous, but be realistic. Do not expect anybody in Whitehall to give you any hints and tips on how to

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do it because, basically, that is a case of the blind leading the blind. You are the business people, you are the ones with the ideas, and you are the ones who are going to drive your businesses forward, but regrettably, as with everything else in life, there are no free lunches.

All government can do is to provide a good business environment and assistance from HMRC-for example, export credit guarantees if you are successful enough to find an export customer, tax breaks for entrepreneurs who sell their businesses and tax deductions for investment in R&D. Here is the final point. To take advantage of the lollipops, as the noble Lord, Lord Lawson, called them, the wonderful tax incentives announced in yesterday's Budget, perhaps I may just bring everybody down to earth again by saying that to benefit from them, you have to make a profit first. How to do that is something on which this Government, and perhaps some others, have not been capable of advising.

Lord De Mauley: I remind noble Lords that speeches are limited to seven minutes.

12.02 pm

Lord Newby: My Lords, I congratulate the noble Lord, Lord Lawson, on getting such a timely debate on the Budget and economic policy-we normally debate these issues weeks after the event, so it is a pleasant change to be able to do it contemporaneously-and, like him, I look forward to hearing the maiden speeches in today's debate.

The big political and economic question is whether there should have been a plan B at this point: should the Government have changed their broad macroeconomic policy? It seems to me that the only circumstances in which such a change would have been justified would have been if there had been a major change in the outturn or the outlook for the British economy. The OBR report published yesterday makes it clear that although there has been a short-term downward revision in growth, and therefore a slight rise in borrowing in the short term, its assessment is that, over the medium term, the Government's plans are broadly in line to meet the targets set for the lifetime of the Parliament. Therefore, in my view, if the Government changed course, they would simple lose all credibility in economic policy-making.

Many commentators are asking, "Can't we just ease the pain? Can't we just spend a bit more?", as if it would be costless. There has been a lot of argument about whether, if the Government had taken a soft approach last summer, there would have been major problems with the credibility of sterling and the cost of government borrowing. The Opposition have said, "We are not like Greece, therefore the fact that Greece has to spend 12.5 per cent on borrowing is irrelevant". No, we are not like Greece, but we are not miles away from Spain's current position. It currently has to pay 5 per cent on government borrowing compared with our 3.5 per cent. That is a big difference. If this Government, or any Government, were seen not to be taking their fiscal responsibilities seriously, you could bet your bottom dollar that those rates would zoom up. That cannot be in the long-term interests of the British economy.

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I am looking forward to hearing the noble Lord, Lord Eatwell, explain the Opposition's view on how they would meet their commitments under the Fiscal Responsibility Act. So far, we have heard not one word from the Opposition about how they would approach the circumstances in which we now find ourselves.

Before turning to the growth agenda, the main subject of today's debate, I should like to say something about two issues. The first is tax avoidance. Broadly speaking, the Government's measures here are extremely welcome, from the big-ticket items down to the reduction in low-value consignment relief on VAT, a subject that we debated in your Lordships' House a couple of weeks ago. Less welcome, however, is the rather supine approach to non-doms. The Government's approach-basically to kick the issue into the long grass, as the predecessor Government did-is poor. A stronger approach should have been taken.

I should also like to probe slightly the Government's intention regarding high-value housing. We know that many people avoid paying stamp duty on their houses by putting them into an offshore trust. There is a rather ambiguous sentence in the Budget speech about making sure that people with high-value housing pay their fair share. Can the Minister say whether the Government intend to do something about the stamp duty loophole; and if they do not, will they give the issue further consideration?

As for growth, much will depend on the extent to which people in the private sector, particularly the manufacturing sector, feel confident about the environment in which they seek to do business. The mood among manufacturers-and I have just come from a conference of small businesses in the manufacturing sector-is much more buoyant than one might think from reading most of the commentary. The Budget contains a range of provisions-on, for example, the planning rules, business rate relief and the business angels plan-that will help the sector. I am particularly pleased to see the additional support for apprenticeships which will cover 40,000 unemployed young people, and the 100,000 work experience placements that the Government have announced, with highly credible large companies taking the lead in making them available.

There are two issues on which I can give only two cheers. The first is the green investment bank. It has taken a long time to get the bank up and running, but I welcome the fact that it now is, and that it will have £3 billion available for lending to this sector. It is a pity, however, that it will not be able to borrow for the lifetime of this Parliament. I know all about the accounting rules but, frankly, there are times when you have to bite the bullet and decide what really matters. I would not have thought it beyond the wit of the Treasury to explain in its various documents the extent to which the liabilities of the green investment bank are separate from other government liabilities, and therefore to make it perfectly clear that a green investment bank that is able to borrow is not incompatible with reducing the overall budget deficit.

Enterprise zones are the second issue on which I can give only two cheers. Ever since they were introduced their track record has been mixed. One can only hope

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the fact that the zone boundaries will be determined by the LEPs-and therefore likely to cover the parts of the region with very good growth prospects, given the location-will make them more cost-effective than they have been in the past.

The key constraint facing many businesses remains their ability to borrow. The banks claim that there is no demand. I know that many manufacturers can get working capital from the banks for neither love nor money, so I just hope that the Government will keep the banks' feet to the fire on the commitments that they have made but have yet to deliver on.

Finally, the challenge now is for the Government to implement this raft of measures and to keep listening to manufacturers in particular about further things to be done. The noble Lord, Lord Sugar, will be surprised to learn that the Secretary of State for Business, Innovation and Skills agrees with him to the extent that he understands that the Government cannot themselves generate growth, they can only create a climate in which entrepreneurs are encouraged to flourish. In my view, the Budget contains many positive steps in this direction, but there is much more to be done.

12.10 pm

Lord Brooke of Sutton Mandeville: My Lords, it is certainly a pleasure to follow my noble friend Lord Newby, and it is always a privilege and a pleasure to follow the lead of my noble friend Lord Lawson of Blaby, just as it was during the four years of his outstanding chancellorship at the Treasury. I was the only Treasury Minister in those four years never to have worked in the City, a condition that will infect my speech today, although in the Treasury's housekeeping role I could not have enjoyed more being on the Treasury Christmas card committee. My noble friend was its chairman and I was the only other member. He gave guidance and took the decisions, I did the work, and our cards were voted much the best of all the Finance Ministry Christmas cards in the European Union by the Commission in Brussels. My noble friend was in characteristically grand form today.

The Library briefing note is of its usual high standard, but I saw it only an hour and a quarter before the debate started, and I shall concentrate on the wider world than Whitehall and the City. However, I am wholly behind the present Chancellor's policies as laid out yesterday. When I was in the private sector 40 years ago, I would give up an annual day to sit at the feet of that polymath sage, Herman Kahn of the Hudson Institute, who was confident that the UK would survive in the post-industrial society because of its recognised global eminence in government, education and medicine. I am therefore particularly pleased about the Chancellor's backing for advanced manufacturing, for life sciences and for the creative industries, all of which play well to our national DNA.

We should all be grateful to my right honourable friend David Willetts, in my right honourable friend Vincent Cable's department, to his success in protecting the science base and the science budget, for reinforcing the finances of universities and for helping to secure the recent revision of student visa priorities and procedures. I smiled when earlier this week the Official

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Opposition claimed credit for having closed down 140 bogus institutions of further education, as if it was a badge of honour that after 13 years there should be 140 such institutions available to be closed down.

After a quarter of a century as the Member of Parliament for the most inner of inner city seats in the land, I no longer live in London except when attending your Lordships' House, and I observe the national economy from the far end of Wiltshire, a county with so long a history as to be a proxy for a national bellwether. Wiltshire has 40 per cent of the world's chalk grasslands-I repeat that that is a global figure-and so was a magnet for Bronze Age man since there were no trees to cut down. It was where Alfred the Great achieved his victory over the Danes at the battle of Ethandun in 878 on the downs above the great priority church at Edington. That was built on the medieval wool finances of west Wiltshire, the latter being why Bradford-on-Avon in its built environment has proportionately more listed buildings than any other place in England.

Until recently, Wiltshire had no higher education institutions other than the Royal Military College of Science at Shrivenham-we are, since Alfred, a very military county-but the Sarum Missal was a key text in the evolution of the Church of England; the spire of Salisbury Cathedral was the highest in Europe and a copy of Magna Carta sits in the chapter house; Wilton, just outside Salisbury, was the medieval capital of Wessex and the Wilton Diptych, now in the British Museum, is the earliest surviving painting in England. Scarcely a year goes by without new archaeological evidence emerging from the mysteries of Stonehenge and Silbury Hill. Advanced manufacturing, scientific research and online consultancy occur all over the county. As I said in an earlier debate, 200 yards from where I live is a small engineering firm that builds buses in Brazil and trucks in China, and won Boris Johnson's prize for the new Routemaster bus.

I say all this is because-and I understand that the Prime Minister would approve-Wessex is not only the first proper region outside the home counties but a classic tourism county. Although I cannot be sure of the background, the news from the Rialto is that the vibrant and ubiquitous Wessex travel agency, Bath Travel, has recently sold its single medium-haul aircraft, which was always seen off from the marvellously convenient airport at Bournemouth until his recent demise by its exuberant chairman, the late Philip Bath. He knew most of the passengers, and they knew the reliability of his service to exotic locations all round the Mediterranean, the Atlantic and eastern Europe. It might have had its last flight in its colours because of old age or because of the state of demand, but it is a great loss to those passengers and, in either circumstance, it is a classic case of family finance needing a return to normal conditions of credit.

Tourism is an activity that has dozens of component aspects. Successful tourism requires each part to play its part well, and good performance requires good morale. When I was in the private sector, I had as clients two major family firms that had come here during the depression, because Garfield Weston and Forrest Mars thought that England was a soft market

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and then proved it. There is much to be said for Warren Buffett's mantra that hard times represent good opportunities, but for our economy to benefit from them we need morale that makes us look on the bright side and enthusiastic leadership.

To return to London for a final footnote, I declare an interest as president of the British Art Market Federation, which employs 60,000 people directly, and another 60,000 indirectly, behind a turnover of nearly £8 billion. For generations, London's art market has been the second largest in the world, but it was reported last week that China last year overtook us, part of the reason being the commercial disadvantage from which the EU suffers through the unique application of droit de suite, or artists' copyright. The noble Lord, Lord Myners, who is taking part in the debate today, asked a Written Question about this, which was answered on Tuesday by my noble friend Lady Wilcox. I know that she was not seeking to mislead the House, but her Answer relied in part on admirable academic research conducted four years ago, whereas I know that her advisers at the Intellectual Property Office, a week before her Answer was given, had a copy of the British Art Market Federation's submission to the European Commission's current consultation on this subject, which is four years more up to date. It takes one back to Harold Macmillan's remark about looking up a train in last year's Bradshaw. This sector of the economy is not only sufficiently important but so great a British success story as to deserve, in a fast moving market, government being wholly up to date. I am not expecting a reply to this in my noble friend the Minister's winding-up speech, but I look forward to news of the Government's policy on these negative developments.

12.18 pm

Lord Hussain: My Lords, it gives me great pleasure to speak in your Lordships' House for the first time. I am grateful to all the staff of this House for their kindness and help, and to noble Lords from all sides who have been so welcoming. My special thanks go to my introducing Peers, my noble friends Lord Rennard and Lady Hussein-Ece, who have been extremely helpful to me.

I might be one of very few Peers who have experienced migration in the early part of their lives. I arrived in the UK with my family from Kashmir at the age of 14 to join my father who was working in Rochdale in the textile industry. One Member of this House once said that his father got on his bike to look for a job; mine got on a plane.

I left school at 16 to work to help my family. I did a variety of jobs-anything that would pay a wage to support my family. I struggled through the new way of life with everything from culture to language, and from religion to the British weather, being very different from what I left behind.

From my early days in the UK, I was engaged in many different local issues, beginning with leading a successful campaign for facilities for young people. I helped to set up a youth centre called the Kashmir Youth Project in Rochdale back in early 1980s, the first of its kind. It was officially opened by a Minister of the time, Sir David Trippier. That visit was followed

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by visits by many other Ministers and dignitaries, including His Royal Highness the Prince of Wales. The project provided several vocational training workshops, including on office skills, childcare, sewing, carpentry, electrical work and computers, as well as recreational facilities and an advice centre.

My passion for equality and fairness led me to be involved in the Community Relations Council in Rochdale, where I served for many years. In Luton, where I made my new home in 1993, I served on the management boards of various schools, the law centre and the local trade union council. I also led campaigns for the rights of oppressed people in many parts of the world, including Palestine, East Timor and, particularly, Kashmir, which is still waiting for the right of self-determination granted to it by the United Nations in 1948.

For many years I have fought extremists of religious and/or political views emerging from many different sides. I believe extremists not only divide our society but damage the very fabric of the multicultural and multi-religious society that we all enjoy. Hence it is the duty of every one of us to challenge this behaviour in order to prevent that from happening.

In 1996 I became an elected councillor for Luton borough; I was the first in my family to become involved in public life in the UK. In 2003 it was the war in Iraq that forced me to leave the Labour Party and join the Liberal Democrats, which proved to be a turning point in my life. In the following few years, I served on the local council as a portfolio holder, a deputy leader of the council, a parliamentary candidate twice, and finally I find myself here in your Lordships' House.

In my working life I have worked in many different fields, from textile manufacturing to banking and from insurance to community work. I have also worked for myself, as a small business person, for many years. This has given me an insight into the issues and problems, as well as the freedom and benefits, of small business people. My experience has given me an understanding of the importance of small businesses to the national economy. In my home town of Luton, around half the people in employment work for small firms employing fewer than 10 people. There is no reason to believe that in this respect Luton is different from any other towns in Britain.

The vital part that small businesses play in generating and maintaining employment must not be underestimated. In the history of British businesses there are hundreds, probably thousands, of stories of small businesses that have grown into very large ones, playing their part in the general well-being of our society, employing thousands of people and paying millions to the Treasury in taxes.

Small businesses depend on the ingenuity, enthusiasm, expertise and flexibility of their owners and workers. However, to grow into large ones they also need investment. Many of the small business owners that I talk to tell me that in order to get an investment loan from the bank they first have to prove that they do not need it. It is good to see that the Government have made a promising start on the process of re-educating the banks on their responsibilities to help small businesses to grow.

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The owners of some very small businesses tell me that they have extreme difficulty in running their businesses and acting as immigration officers at the same time to make sure that their employees have the right kind of paperwork to work in the United Kingdom, or they run the risk of being liable to heavy fines and/or imprisonment.

I am confident that, both in the measures that have already been announced and those under consideration, the Government recognise the critical part small businesses can play-and are eager to play-in setting our economy on the path to steady and sustainable growth.

12.24 pm

Lord King of Bridgwater: My Lords, it is a particular privilege for me to be the first to have the opportunity to congratulate the noble Lord, Lord Hussain, on his immaculate maiden speech. It combined exactly what the House likes to hear: a very interesting explanation of his background and experience, and then some very interesting thoughts on the situations that he has faced in the many varied activities in which he has been involved. I could not help thinking that he was almost a founder member of the big society, given the part that he has played both in Rochdale and in Luton, which makes it even easier for me to call him my noble friend. As he has been unsuccessful standing for election twice but has now been welcomed to these Benches, I hope that he will not have to stand for election again.

I was also pleased with the noble Lord's commercial experience of having run things. He has passed the Sugar test as someone who has actually run something. I plead guilty myself: I speak in this debate as somebody who has spent all my life, apart from my time in government, trying to run things in business. I endorse strongly what the noble Lord, Lord Sugar, said. Given my noble friend's particular background, the situation we face, the attempts to traduce the Muslim tradition in the world at present, and the need for people with the courage to speak out against some dangerous and evil people who are trying to mislead many of their community, he has a valuable part to play. I know that the House will listen with great interest to his further contributions, which we will certainly welcome.

I thank my noble friend Lord Lawson for the way in which he introduced the debate. I shall just repeat my previous remarks about elections: under a different form of House, I do not think that the House would have had the privilege-the day after the Budget-of having a debate led with the authority and experience that we had from my noble friend. However, I am afraid that I have just one comment, which is that I do not think that he is quite as good a Tory and exponent of Conservative economic policy as the noble Lord, Lord Sugar, but in other respects he was extremely good.

The debate is about the Government's policies to promote enterprise, growth and the fundamental rebalancing of the economy. In my judgment, that is most certainly needed. My concern is that it is tougher than many people think. An old adage is often quoted that the future is not what it used to be. A lot of people are going on as though we have had a bit of hiccup-a

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bit of a knock-but that we will be back on the old track. So why do we not have normal growth coming back? The situation is infinitely more difficult. We face a record budget deficit. I noticed that the Chancellor mentioned the risk of a continuing sovereign debt crisis. We go home last night and hear that the Prime Minister of Portugal has resigned and that there is a crisis meeting this evening in Brussels, which I understand our Prime Minister will attend. Under the arrangement introduced by Mr Alistair Darling at the end of the last Government, if there has to be a substantial drawing down of assistance for Portugal, the implication is that it could cost this country a further £3 billion. I do not think that was known at the time.

An interesting passage in the Chancellor's speech yesterday referred to the relative interest rates in various countries. He made the point that, although we have a deficit bigger than any of these countries, our interest rate is relatively comparable to that of Germany. As he said yesterday, it is half the rate payable in Portugal, a third of the rate of interest that Ireland has to pay, and a quarter of the rate that Greece has to pay. Of course, the figure for half the rate of Portugal is already out of date because I do not know what Portugal's rate will be now. If it has no Government there will have to be an election, so there will not be any Government for another two months and it cannot agree on any of the public expenditure cuts and improvements needed to stabilise its position.

We have to earn our living in this world. As Will Hutton said in an interesting article, the present faltering recovery could easily be blown off course by any major crisis. When we look at earning our living in the world and ask where our markets are going to be, we must look at the situation in the eurozone. Ireland is a much bigger customer of this country than many people realise. How good is Ireland's purchasing going to be? How good are our sales going to be to Ireland in the next year or two? Then there are Spain, Portugal, France and Italy. I am sorry if the catalogue goes on-I thought of marking my comments earlier by saying that anyone of a sensitive disposition ought to leave before I got too far into the difficulties that I see facing us. But of course we then have Japan. As we stand here today, we do not have any idea what will happen, with people running in and out of Tokyo. Is there or is there not a risk to the drinking water in Tokyo? How bad is that crisis going to be? Every day we see a different estimate of what the cost to Japan may be of the quite appalling disaster that has overcome that country.

Then there is the instability in north Africa and the Gulf-a part of the world of which I have had some experience. Those who would wish to see a change of Government and wish to see democracy introduced into many of these countries must also recognise what an appallingly difficult situation those new Governments will face. They will come in with a 50 per cent increase in food prices, and not only an increase but in many cases an acute shortage of food. They have increases in fuel prices as well and some very serious youth unemployment. That is the background against which there will be new, inexperienced Governments, and I do not give them a lot of chance to be enduring

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Governments who will be able to quickly establish the calm and stability that the market needs. It is against that background that I see the challenges that we face.

I used to sit in a school chapel under a poem by Sir Arthur Hugh Clough, which said:

"If hopes were dupes, fears may be liars".

I remember the final line, quoted without a stutter by King George VI in one of his Christmas messages when America came into the war. He said:

"In front the sun climbs slow, how slowly,But westward, look, the land is bright."

I think that that needs changing now, because in economic terms I am not sure that the westward does look so bright. Eastward, yes, I hope-with the opportunities that we have not seized as we should in India and in China-and southward as well. South America and Africa are areas and markets that are much more interesting now. There is an interesting times conference going on at the moment, with African leaders asking why Europe and Britain does not take more interest.

There are great challenges ahead and undoubtedly it will be very difficult. But Iain Macleod's first law of Budgets is that first impressions are usually wrong, and I have some hopes that, having seen this described as the most pro-growth Budget seen for a generation, we may at last slowly and in a most difficult situation start to climb out of the problems that we have inherited.

12.33 pm

Lord Renton of Mount Harry: My Lords, it is always a great pleasure to follow a speech by my noble friend, who I have known for many years. I do not disagree with him, either with the pessimism or the optimism. However, I want to talk about a different matter in my few minutes. Before I do that, I join in what he said about the noble Lord, Lord Hussain, and his speech. It was a very great pleasure to hear him, and it was particularly good to hear about his small business. I wish him every continuing success both in his business and here in the House of Lords.

The Times has an article today about the Chancellor's speech. The article said that the Chancellor has chosen the right sectors of the economy to dominate the world as London's financial services do: advanced manufacturing, life sciences and creative industries. It is on that subject that I should like to speak. There are some aspects of the Budget that very much fit in, particularly in relation to the workforce, with the comments that the Times makes. Here we have the need to create a more educated workforce that is the most flexible in Europe. The next paragraph says that youth unemployment rose by 100,000 between 2004 and 2008 and has risen by a further 250,000 since the start of the recession. That, of course, is extremely bad news. It has to change and has to be helped to change. But then we hear that the Government will find an additional 80,000 work experience places for young people, ensuring that up to 100,000 places will be available over the next two years. That is a very important statement in the context of the Budget, to which we may not have paid enough attention. I very much welcome that. It gets down to the case of the additional apprentices. I was told earlier today that Nissan has

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reported that in making cars in north-east England it employs more apprentices than all the other manufacturers in the area put together. Surely this is the time when manufacturers have to get back to the habit of employing young people-those aged between 16 and 18-who have everything to learn.

I also welcome very much what is in the Budget speech about the expansion of university technical colleges. That is extremely important if we are to be at the top of the world in the new production about which we are hoping. Here I say a word about my own local university, the University of Sussex, which was founded exactly 50 years ago to concentrate on arts and sciences-about 50:50. I was lucky enough to be on the council for 10 years. The noble Lord, Lord Briggs was the first vice-chancellor, and he very much developed the arts side of the university. Now we have a scientist as the vice-chancellor, Professor Farthing, who has turned the university back to being into science-exploring and trying to help by finding out new opportunities in the scientific world. In one of his recent reports, he said:

"Research expenditure at our university has grown over the past few years, leading to the employment of enormously skilled and talented individuals and the promise of substantial future economic impact as much of the research will be commercialised. Our programme has recently expanded to include internships in the environmental, engineering, finance and accounting, pharmaceutical and media sectors".

The point I end with is that if we can do that in Sussex, surely other universities should be following us into doing much the same. If we are to compete with the likes of India, China and Brazil, if we are to be at the top of the league, as the Chancellor put it yesterday, in advanced manufacturing or life sciences, we have to get closer to our universities and share with them the aim, the intelligence and the plans that will be necessary for us to be successful in the future manufacturing world. I regard that as a major but very important challenge, and I hope that universities will follow what my own university is doing at the moment.

12.40 pm

Lord McFall of Alcluith: My Lords, I am delighted to participate in this debate and I congratulate the noble Lord, Lord Lawson, on choosing it. Enterprise, growth and the fundamental rebuilding of the economy are very relevant. I congratulate the noble Lord, Lord Hussain, on an excellent speech and I wish him well in his future in the House. I draw the House's attention to the Register of Lords' Interests as I make my speech.

This Budget is fiscally neutral but it is a gamble on growth because the underlying assumption is that there will be an economic rebound to trend. In fact, we need a thumping 3 per cent growth by 2015 if we are to keep on course. We have heard the mantra, "It's the debt, stupid", but regarding our present situation and the growth objectives the distinctive feature is the amount of private debt which we have in the country. We have seen a conversion of private to sovereign debt within this crisis, which is why we are talking about Portugal, Ireland and other countries today. Indeed, PwC illustrated that by describing it as a debt time-bomb, where we have a £10 trillion barrier to overcome by 2015.

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Some people have stated that our having a public debt is to be celebrated, in the sense that Governments have intervened to save the private sector. While we should be mindfully relieved by that, we still have to attend to the issue of "too big to fail". If we do not attend to that, we are going to come back to a crisis in future so we have to be mighty thankful. We are going to live with these consequences for many years and ordinary people will be paying the price. They will have to pay off debt but also increase savings. I am very conscious of that as I undertake to look at occupational pensions over the next few years for the National Association of Pension Funds. There is no doubt that responsibility will be transferred to the individuals.

On enterprise, for me the economy needs a spare tyre. Adam Posen made that very point; we need it to lend to manufacturing, to small businesses and to infrastructure. We do not have that in our economy at the moment. I have been calling for a national investment bank for a number of years and I asked the previous Government about that issue. However, I noticed yesterday that Zac Goldsmith has expressed his dismay at the Government for not being bold enough on the green bank. We need to be bold on a national investment bank. The noble Lord, Lord Skidelsky, was saying in an article in the Financial Times the other day that we could have a limited fiscal commitment of £10 billion, with subscribed capital being drawn down over the next four years. That would allow the new bank to finance sufficient spend to more than offset the £87 billion of spending reductions planned before 2015. One thing I am certain of is that we need to be bold.

As the noble Lord, Lord Lawson, has noted, we need a fundamental rebalancing of the economy. If we are to make our way in the 21st century, we have to make things. We have to complement the giant, productive economies of China, India and the rest of Asia and we should not be beguiled by the arithmetical GDP figures. We need development in all areas of our country and GDP has to embrace social as well as economic criteria. We must preserve the social fabric, not rupture it. A generation of unemployed young people or a high number of unskilled people will not help finances in the long term. Having unemployment at 2.53 million at the moment, with almost 1 million young people aged 16 to 24 unemployed, is an inauspicious start.

I witnessed the destructive nature of unemployment on young people when I was a schoolteacher in Glasgow in the 1970s and 1980s. I was reminded of that at the weekend when visiting an old family friend, Mr Andrew McGroarty. He is aged 95 and has just lost his dear wife Agnes after 70 years of marriage. He is a deeply humble, gentle and spiritual man who has led an exemplary life. However, as we were talking last week he left me in no doubt with the force, the clarity and indeed the eloquence of his remarks about how socially destructive the unemployment was following the depression in the 1930s, when he was a young man. His was an authentic voice, warning of the perils of leaving families and communities to their bleak fate if the Government do not work for the

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common good. Those are wise words indeed. I finish by delving into history for the wise words of Lord Keynes, who said:

"I do not understand how universal bankruptcy can do any good or bring us nearer to prosperity".

That bankruptcy is not just a financial reference; it also affects people and society.

12.46 pm

Baroness Stedman-Scott: My Lords, if anybody had suggested to me 18 months ago that I would be standing here, having been ennobled and making my maiden speech, I would never have believed them. Some noble Lords are worried that I do not know my right from my left and that I may not be sitting on the correct Benches. I have to tell your Lordships that all my political ancestors were Tories. I only know this because a cousin of mine has done our family tree since my ennoblement, and no one was more surprised than I to find that 10 of my ancestors were MPs and two were Barons.

At the outset, I must thank my two sponsors, my noble friends Lady Fookes and Lord Freud. Special thanks must go to my noble friend Lady Fookes; she is my mentor, and her support and counsel have been invaluable to me in acclimatising to the House. I pay tribute to the professional and dedicated members of staff who serve this House. Their help has been much appreciated.

I joined the House with no special qualifications, save that I am the chief executive of an independent charity, Tomorrow's People. I hope that all your Lordships have heard of it; its mission is to help those furthest from the labour market to get and keep a job. If you can get somebody into a job, that is a good thing and if you can keep them there, that is a truly great thing. We work and support people on a one-to-one basis. We take them on an individual journey and their needs are at the heart of everything we do. In essence, we are more interested in their destiny than their history. Tomorrow's People has helped me to understand the issues faced by the long-term unemployed in this country and has given me and my colleagues an opportunity to find innovative solutions to their worklessness.

An example of that would be the work that we have done in doctors' surgeries-indeed, that was adopted by the previous Administration-as well as our work with whole families in which not one member has a job. I remember Dr Roy Macgregor, a GP, asking me what could be done about his "heart sink" patients. I have to confess that it was not a condition I had ever heard of. When I asked him what he meant, he told me, "There are people who come into my surgery and my heart sinks because I can do nothing for them. It is a job they need, not medication". There is no doubt that, for the majority, work is the best route out of poverty and that we need a vibrant economy to create the jobs that are so desperately needed.

I thank my noble friend Lord Lawson of Blaby for securing this important debate. I am sure that it will come as no surprise to your Lordships to know that there are whole families in this country in which no

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one is employed. Even in economically successful times, when levels of unemployment were comparatively low, there were still whole households where no member worked. The Office for National Statistics stated in 2009 that there were more than 3.1 million households where no one aged 16 or over was in employment. That is such a waste.

That is why I chose this debate in which to make my maiden speech. The health and vibrancy of our economy is crucial to creating the jobs that are needed. We have to ensure that there is innovation not only in identifying solutions to help people overcome the barriers and issues that they face but in the development of different forms of finance. After all, this all has to be paid for.

I draw noble Lords' attention to the bonds developed by Allia, where investors can make working capital available in the knowledge that they will be guaranteed to get it back, which I would think was a good thing, and also to the social impact bonds. Time prevents me from going into detail about these two bonds, but they should be given serious consideration. The need for us to help those furthest from the labour market is greater than it has ever been, and we are going to have to turn over every stone to find the resources to ensure that we can help these people in difficult times.

With jobs thin on the ground, it is imperative that we help those furthest from the labour market to manage their period of economic inactivity in such a way that they stay in good shape and can take advantage of the opportunity when it comes so that they are ready and can maximise what is given to them. There will be a cost to this-I understand that it has to be paid for-but the cost will be greater if we stand by and do nothing.

I look forward to working with all noble Lords in this House to try to achieve this, because none of us is as clever as all of us. On entering this House I received a card that read, "Some make it happen, some watch it happen and some ask, 'What happened?'". I know where I-and, I hope, all of us-stand in that respect.

12.51 pm

Baroness Hooper: My Lords, it is a great privilege and pleasure to be the first to congratulate my noble friend Lady Stedman-Scott on her first-class and heart-warming maiden speech. Given her family's political involvement in the past, which we now learn about, and her own background in volunteering, especially in relation to work with young people and employment services, most notably, as she has said, as chief executive of the Tomorrow's People Trust, my noble friend speaks with authority and has underlined the human element in a debate that up till now has concentrated rather on the dry economic facts. She brings a wealth of hands-on experience to enrich our debate today, and I feel sure that she will continue to do so on many occasions.

I turn to my own short contribution. I have listened with great interest to the well informed contributions from the many eminent speakers so far and accept that the main objective for the Government, as my noble friend Lord Lawson said at the outset, must be to eliminate the fiscal deficit. My own focus, however, will be on government policies to promote enterprise

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and growth in relation to trade. The CBI has emphasised the need to galvanise our export performance. My right honourable friend the Secretary of State for Trade, Innovation and Skills has explained how the Government intend to help small and medium-sized businesses to engage more in trade, and has pledged strongly to support efforts at both national and EU level to remove barriers to trade, particularly for SMEs. The recent White Paper, Trade and Investment for Growth, published a month ago, sets out the steps that the Government will use to achieve that. All this is good news so far as it goes.

However, I draw attention to a part of the world where these efforts will be well received. Latin America-I am glad that my noble friend Lord King of Bridgwater made reference to its importance-provides a huge market of over 500 million people, from Mexico in the north, through the tropical countries of Central America and South America to Cape Horn on the rim of Antarctica. The combined GDP of Latin America is equal to China's. It is a region rich in resources-oil, gas, gold, silver, copper and, not least, agricultural products.

The noble Viscount, Lord Montgomery of Alamein, called attention to all that potential in the debate that he introduced last June. Happily, the Government accepted the message. My right honourable friend William Hague acknowledged in his Canning lecture last November that not only does our country have a legacy of good will from the support given to the various independence movements 200 years ago in the days of George Canning but, over the centuries and years, British know-how, expertise and investment have gone into building railways, roads and banks, so there is a solid base on which to build.

The Foreign Secretary pointed out that at present UK exports to Latin America make up barely 1 per cent of all international exports to the region. He illustrated this by saying that we export more to Ireland than we do to the whole of Latin America. When I think of the efforts made over the years by a number of individuals and organisations to redress this balance, I am appalled. The Foreign Secretary, however, went on to say that in the past three years UK Trade and Investment has seen a 500 per cent increase in the number of British companies looking for help with the Brazilian market. Brazil, after all, is a leading BRIC, with a population of over 200 million.

What steps have been taken by the Government to promote this interest in Latin America, to make efforts to increase our trade with those countries and to meet the needs of SMEs? Furthermore, since trade and investment are not only bilateral but need a multilateral approach, what are the Government doing to press forward with the negotiations between the European Union and Mercosur, which comprises the southern-cone countries of Argentina, Brazil, Paraguay and Uruguay, and with the negotiations between the EU and the Andean region, which comprises Colombia, Ecuador, Peru and Bolivia? Those are countries with growth rates that most European countries must envy. What about the flourishing SICA countries of Central America? I look forward to hearing the Minister's reply and to listening to the remaining speakers on a considerable and prestigious list.

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12.57 pm

Lord Oakeshott of Seagrove Bay: My Lords, I welcome my noble friend Lord Hussain, who is sadly not in his seat at this moment. I found his speech fascinating and moving. I also congratulate the noble Baroness, Lady Stedman-Scott. I think that she is the big society in person.

I thank the noble Lord, Lord Lawson for introducing this debate. He has lost nothing of his focus or timing. Some of us on these Benches might possibly have drawn our breath in slightly to hear ourselves described as his allies and friends. He is certainly a friend, ever since we used to discuss politics over the dinner table together at Nuffield College, Oxford, in the early 1970s-I am much fatter than I was then, sadly, but at least he is much thinner-but allies? Up to a point, Lord Lawson.

I declare my interest as a pension fund manager for the past 35 years and as an entrepreneur for the past 25. I started my own business in one room with a partner and a secretary and I am still running it today. Our size has increased to eight employees so I welcome Vince Cable's pledge of no new regulations for the next three years.

I support the broad thrust of the Budget and the overriding need not to run risks with the markets while they have Britain over a barrel. On the day when Portugal's Government have just fallen, when Greece is staring down the barrel of default on its debt and with Greek bonds yielding 13 per cent, Irish bonds nudging double-figure yields and Spain, as my noble friend Lord Newby pointed out, looking shakier by the day, we must err on the side of caution. When you have been dumped with a mountain of debt from the disastrous Brown/Balls double act at the Treasury and you have to borrow tens of billions every year just to buy time, I am afraid that you have to tough it out while you trade your way out.

I remember that Roy Jenkins, when I worked for him, always told me how much he regretted the biggest mistake of his chancellorship when he took over from Jim Callaghan after devaluation in 1967. He did not cut as much as he should have initially and had the agony of having to go back for a second bite a year later.

I also support, as do all Liberal Democrats, the further substantial move towards taking the low-paid out of income tax. The pledge that we made at the election to take everyone earning less than £10,000 a year out of income tax was very powerful and an important reason why people voted for us. It is at the centre of the coalition agreement, which says:

"We will increase the personal allowance for income tax to help lower and middle income earners. We will announce in the first Budget a substantial increase in ... 2011".

We have now done that twice. We must press on to achieve the full goal over the period of this Parliament. If we do, it will be our proudest Liberal Democrat achievement in government, and will give millions of people a real reason to vote for us. Do not forget-you can vote Tory, Labour, Liberal Democrat, UKIP or Green, but what you cannot do at the next election is vote for the coalition.

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The other key point in how we will fund this is to give priority to increasing the personal allowance over other tax cuts, including cuts to inheritance tax. That is just as well. Do noble Lords remember the great triumph of the present Chancellor, George Osborne, at the Tory conference two or three years ago, when he announced that he would make big cuts in inheritance tax, funded by a new levy on non-doms? When the Minister replies, he might remind us of how much George Osborne claimed that levy would raise. In practice, last year 5,600 non-doms paid the £30,000 charge, raising the magnificent sum of £168 million. You do not get much of an inheritance tax cut from that.

In the coalition agreement we also promised to focus on tax avoidance, including detailed development of Liberal Democrat proposals. The Treasury has developed our proposals, but why has it ignored them? On non-doms, I am afraid the Chancellor has bottled out, just like Gordon Brown. What is particularly distasteful is the announcement that there will be no further change in non-dom taxation over the course of this Parliament, which is exactly what the previous Government did. The Guardian today rightly points out that there has been a "big sigh of relief" from people advising non-doms. Sean Drury, the international mobility partner at PWC said:

"I am checking the temperature with my senior non-dom clients but I think that ultimately there will be a big sigh of relief ... It could have been worse".

That says it all. For rich non-doms, £30,000 a year is a flea bite and £50,000 a year is a minor irritant. They will be laughing all the way to the Caymans.

On stamp duty, the Chancellor's speech highlighted correctly the problem of abuse. Everyone who knows the property market in this country knows that precious few properties worth more than £5 million ever show up in the Land Registry with proper stamp duty having been paid when they change hands. However, the Budget speech highlighted the problem but offered no solution. We Liberal Democrats can; it was in our manifesto and was quite clear. The abuse is simple. Rich people hide their houses behind a company cloak, so stamp duty is payable at 0.5 per cent when they change hands, rather than at 4 per cent or-from 1 April-5 per cent on properties worth more than £1 million. That is what honest taxpayers have to find when they move. Therefore, we say: just strip away the sham companies and charge the full stamp duty on the underlying property value. What is the Treasury waiting for?

The Chancellor must stick to the course he has set, but it will be far easier if the country believes we are all in it together. That must include the non-doms and the super-rich, who are still paying nowhere near their fair share.

1.04 pm

Lord Higgins: My Lords, I join those who congratulated my noble friend Lord Lawson on obtaining this debate, and particularly on his sense of timing. As he rightly says, we are able to debate in the context of the Budget, which we do not normally have the chance to do the day after the Budget has been delivered. I welcome what my noble friend Lord

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Lawson described as the "lollipops". Given the context of a neutral Budget, the Chancellor has been very imaginative in that respect, particularly with regard to the proposals for charitable giving in relation to inheritance tax. That will be of great importance, particularly to the arts.

I also welcome very much the fact that we have suddenly reverted to a Red Book after years of glossy magazines-the printing of which costs huge sums of money-produced by the previous Government. I also welcome the analysis of the Office for Budget Responsibility. When we debated this with my noble friend on the Front Bench, no one mentioned that the OBR would need the full details of the Budget in advance of its being delivered. The traditional view in the Treasury was always that the overall picture ought to be confined to Treasury Ministers, the Permanent Secretary and, if he was lucky, the Prime Minister. There is no doubt that this arrangement increases the risk of leaks, which may of course be market-sensitive. None the less, the innovation of having these forecasts is a considerable advantage.

This debate is largely concerned with economic growth. There is dreadful confusion over what we mean by economic growth. We must make a distinction between a situation where there is excess capacity in the economy, as there is now as a result of recent crises, and the Government utilising that capacity, which in turn produces economic growth-a matter for demand management-and economic growth in the sense that we seek to increase the underlying productive potential of the economy. It is very important to keep the two separate. I have to say that the Red Book constantly confuses them. As far as the second situation-the underlying growth in potential for the economy-is concerned, the Chancellor has introduced several measures that will be very helpful.

I will say something about the other aspect: the extent to which the demand management of the economy enables us to utilise some of the resources that are being wasted at present. It is important to put this into context. I am particularly concerned about the lack of co-ordination between fiscal and monetary policy. Mr Gordon Brown did several things that we now see very clearly were mistakes, such as-certainly-his tax on pensions, which wrecked the previous system of defined benefit schemes in the private sector. Then there was the tripartite agreement, which everyone now agrees was a mistake.

His giving independence to the Bank of England has, on the whole, been reviewed as a good thing, but I have never taken the view that what he introduced was a good thing. It was not the case that he gave control over monetary policy to the Bank of England. He gave control of interest policy to the Bank of England and relied then on a single interest rate in the Bank of England, which was clearly inadequate as there are many different interest rates. The effect has been that until quite recently, with the introduction of so-called quantitative easing, the Bank of England has been concerned not with monetary policy, in the sense of the supply of money, but only with interest rate policy.

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I am concerned by the Red Book's executive summary. Under the heading "A Strong and Stable Economy", it states:

It is quite apparent, and has been for a considerable time, that the way that the Bank of England is handling these matters is not producing price stability. We are way above the target range. Therefore we need, at the very least, to revise the Bank of England's terms of reference if we are to avoid that.

Secondly, I want to take up a particularly important point at the heart of the present political debate-whether the measures being taken to reduce the deficit are happening too fast. The leader of the Opposition in the House of Commons stressed this point very heavily indeed. He thought that the policy was too fast and too tough. One has only to look at the final page of the Red Book and the penultimate table, which includes the current forecast and takes into account all the Chancellor's Budget proposals, to see that although it is true that cyclically adjusted net borrowing will reduce in percentage terms, that is the effect of the cycle. It is the effect of what I referred to earlier-taking measures that will enable you to mop up the productive capacity which at present is being wasted. However, in the March forecast and the absolute figures at the bottom line of the table, it is absolutely clear that net debt goes on increasing, despite the measures that the Chancellor has taken and despite the effect that the OBR thinks the cuts will have over the period until 2014-15.

Therefore, what the Chancellor is doing is the absolute minimum required to deal with the deficit. If one were to delay those measures as the Labour Party proposes-although we have no clear idea of what it is really proposing in that respect-we would find ourselves in a crucial situation that continues to deteriorate. If we were to delay more, the deficit would go on increasing for a very long time. It does that even on the Chancellor's proposals. However, it would be far worse-and absolutely disastrous internationally in economic terms, as noble Lords have said-if we were not to go ahead on the basis that the Chancellor has outlined.

1.13 pm

Baroness Valentine: My Lords, I congratulate the noble Lord, Lord Lawson, on securing this timely debate. I declare that I am chief executive of London First, a not-for-profit business membership organisation seeking to improve London's competitiveness.

My contribution comes in the form of a "SWOT"-strengths, weaknesses, opportunities and threats-although I have taken the liberty of reordering it into a "TSWO". First, however, I should like to test the meaning of the phrase "rebalancing the economy". Rebalancing can mean relatively less activity in the south-east and relatively more in the north, or relatively less activity in the public sector and more in business, or it can mean relatively less activity in financial services and more in green industries. However, ahead of rebalancing must surely come growth, to deal with our immediate debt problem. I am pro more growth in the north, but alongside, not instead of, growth in the

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30 per cent more productive south. I am pro growth in the private sector, but we need to cut government spending as well. I am pro green industries, but also pro financial services that provide a million jobs across the country and currently contribute substantially more. If growth is our priority, our main challenge is international competitiveness. The UK needs to maximise its helping from the global banquet at the same time as the Government start to rebalance the shrinking pie of UK government spending.

I start with the threats. In the West, Germany and France compete with the UK for car design and production, creative services and high-tech innovation. London competes with New York for investment in global HQs, as it does for global deals in financial and associated markets. In the East, South Korea and Russia are increasingly competitive; and Shanghai, Singapore and Mumbai are also after London's lunch. In the most recent Z/Yen Global Financial Centres Index, Shanghai, for instance, rose seven places from a year earlier to fifth place overall.

Of course the UK has many strengths. We speak the world's favourite trading language, are in a convenient time zone, have stable legal and political systems and a heritage of openness to other cultures. Our membership of the EU brings a market of 600 million consumers. London is the preferred destination for Chinese investors as they seek to develop trading links with Europe and the US, while American investors see the UK as a bridgehead to Europe and the Middle East.

However, our weaknesses are of our own making. New immigration rules risk hassle and delay for valuable international professionals and students. Chinese tourists, who spent over $40 billion last year, are spending millions of euros in Galeries Lafayette, Paris, rather than pounds on tea in Fortnum's, Piccadilly. Why? It is because only 110,000 were prepared to tackle our clunky visa application system. Heathrow is full, but government seems content for aviation policy to drift. New nuclear generation may be a difficult subject post-Fukushima, but we must address genuine concerns about energy capacity.

Our top rate of tax of 52 per cent, when national insurance is added, is the highest of the world's 10 leading financial centres, and is now higher than in Germany and France-traditional tax-hungry regimes. I welcome the Chancellor's acknowledgement that this is a temporary tax measure. I trust that the newly announced review of its effectiveness will take account of lost revenue from those who have chosen not to work in London as a result.

However, opportunities remain. In a time of global turmoil the UK is a stable and trustworthy regime. It can signal a competitive approach on tax, and stand by it. It can export expertise to the rapidly growing economies of the Far East. It can invest in its infrastructure; and, of course, we have the opportunity to showcase the UK at the Olympics next year.

Let me give the Minister some simple, specific ideas. First, minimise the bureaucracy of new immigration rules and simplify Chinese tourist visa applications. Secondly, as suggested in the Conservative manifesto, appoint a Minister to Brussels to influence emerging regulation, such as financial supervision and labour

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law, which have a disproportionate effect on the UK. Thirdly, tackle the 180,000 migrants who have overstayed their visas and crack down on bogus colleges, but look after and welcome legitimate international students, who will be tomorrow's leaders.

In summary, let us not adopt the horseracing practice of handicapping winners, especially when younger colts are accelerating on the rails. Instead of bashing bankers, we should encourage creative, dynamic people-bankers, architects, restaurateurs or computer game developers-to set up and grow businesses here. The Government called yesterday a Budget for growth, but I remember so-called Budgets for prudence which proved to be anything but that. It is not the intention or the rhetoric that counts, but the action and the implementation.

1.18 pm

Lord Griffiths of Fforestfach: My Lords, it is a great pleasure to follow the noble Baroness, Lady Valentine, who has done so much to increase prosperity and jobs in this great city of ours. It is also a great pleasure to take part in a debate secured by the noble Lord, Lord Lawson, who has had such a distinguished record as Chancellor, and who is raising important issues in this debate. I should like to make three points.

The first is that I am delighted that the Chancellor has stuck with the medium-term fiscal strategy that he introduced in his first Budget last summer-namely, achieving a current balance in the public sector and ensuring that, by 2015-16, national debt as a percentage of GDP will fall.

The Budget recognises the pain that people are going through, but at the same time it is a Budget of hope. In 2009, output fell in this country by 4.9 per cent. In 2010, it rose by 1.3 per cent. This year, it is set to rise by 1.7 per cent. Between 2012 and 2016, it will go up by between 2.5 and 3 per cent. We are gradually recovering in the cycle; we will go above trend and then come back down to just over 2 per cent. This prediction of the Chancellor is based on two perfectly reasonable assumptions. The first is that the trend rate of growth of just over 2 per cent is based on long-term factors. Politicians cannot manipulate the trend rate of growth in the way that they can change taxes or government expenditure. The trend rate of growth depends on long-term factors such as trend productivity growth, the trend growth in average hours worked or demographic factors. Secondly, exports are growing at an annual rate of 15 per cent. The intentions of business investment look very good.

I spend most of my working life in the City of London. At the time of the Budget last summer, I felt that many people in this country did not realise what a knife edge we were on, and how easily, if we had ducked having a very tough medium-term financial strategy, we could have been in the same position as Ireland, Portugal and Spain.

I have one concern that has not been much mentioned in this debate: inflation, which at present is persistently above target. As somebody who has been thinking about the British economy ever since I started teaching at the LSE in 1965, I am sceptical about whether one

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can explain a rate of inflation that is consistently above target simply by reference to external factors such as indirect taxes, excise duties or the price of oil. I agree with the noble Lord, Lord Higgins, that when inflation seems to be permanently at twice our target rate, money and credit must be brought under control. No one wants to raise interest rates, but if that is the only way to make sure that inflation does not eat away at the core of our economy, they will have to be raised.

I welcome what the Budget says about deregulation and about encouraging enterprise. This takes me back a few decades to when I worked in No. 10. Regulation is crucial to a modern economy, but it is also a tax and it can be a dead hand on small business. The Plan for Growth, which I tried to read when I woke up early this ,morning comes forward with no fewer than 145 measures that the Government will take to implement a programme. It then adds:

"This list of areas is by no means exhaustive".

I am all in favour of enterprise and deregulation, but who owns the 145 measures, and who will be accountable for their implementation? It looks like a huge wish list. The Government urgently need to prioritise, reduce the list to half a dozen things, then try relentlessly to make sure that they are implemented.

My third point concerns youth unemployment and training. I said that the Government recognise pain but offer hope. The greatest pain is felt by young people who leave school or university and have no jobs. There is nothing more dispiriting. Youth unemployment is not far off 1 million. The Government say that they will introduce 50,000 new apprenticeships and 100,000 work experience placements, expand university technical college programmes and introduce a new work programme. That is all fantastic, but it will take time and will require extreme concentration by the Government to ensure that it happens. It is easy to say things but not deliver.

In conclusion, this is a credible Budget in difficult circumstances. I am delighted that the Chancellor has stuck to plan A and is introducing greater deregulation and enterprise. I would like strategy to be more focused and I would like him to make job creation and youth training a priority for young people who are suffering.

1.25 pm

Lord Haskel: My Lords, I, too, thank the noble Lord, Lord Lawson, for giving us the opportunity for an early debate on the Budget. The noble Lord urged the Chancellor to make a virtue out of unpopularity. His noble friends on the Lib Dem Benches must be confused, because they have the unpopularity without the virtue. As usual, we will have to wait for some time to see if the Chancellor's aspirations contribute to growth, and what will be the impact of the small print.

I will deal with one small aspect of the Budget, for the results of which we will not have to wait. Before I do, I congratulate the noble Lord, Lord Hussain. I am sorry that he is not in his place, because I see him as a kindred spirit. I, too, am an immigrant who built up a business. Mine was in Yorkshire rather than Rochdale. I, too, passed the Alan Sugar test: I put my house on the line. I say to the noble Lord, Lord King-I am sorry that he has just gone out-that I, like my noble

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friend Lord McFall, see business and industry as part of society. That is why I am on these Benches, not on those. The separation of business and society concerns me. I have never known a time when the two were more divided. Sadly, this is a time of hostility between them.

The cause is not difficult to find. We have seen extravagant pay deals, not only for bankers but for other executives. The noble Lord, Lord Oakeshott, spoke of tax avoidance. Businessmen move their businesses around the world to pay less tax. Martin Sorrell of WPP said on the radio this morning that now that he has got his way, he will move his business back. All this gives the impression that a business is just a money-making machine for a few lucky people-so much for the idea that we are all in this together and are all sharing the pain. Andrew Whitty, the chief executive of GlaxoSmithKline, one of our major corporations, strongly warned against this last week. I say, good for him.

However, the Budget seems to indicate that the separation of business and society is what the Government want. Does it matter? It does, because in today's business world it is from this interface that much growth and innovation come. We see this in the new ways in which we communicate with each other-and there is a lot more to come. There are new ways of keeping healthier, new and better ways of learning, new and imaginative ways of living a greener lifestyle, and new ways of harnessing our experiences as we go through life. Venture capitalists in America call this the experience economy. The Government are looking for innovative ways in which business can deliver public services-cutting back the state, as the noble Lord, Lord Lawson, put it. Surely it is from this interface between business and society that the new ideas will come, yet the Government's actions are going in the opposite direction.

Perhaps I may give a couple of examples. One is apprenticeships. Youth unemployment is a social problem crying out to be tackled and it is one where business can play an important part. The noble Lords, Lord Renton and Lord Griffiths, spoke about this. The Prime Minister said that we want to make all young people,

So why are the Government not doing something for all young unemployed people instead of speaking about 40,000 or 50,000 apprenticeships? Only one firm in 10 offers apprenticeships. Yes, we are told that there will be new technical colleges, but society is going to have to carry the pain of the resentment of the many who are left out.

Many noble Lords have welcomed the fact that planning restrictions are to be eased. This is the very procedure that protects society but the Government have chosen to listen to the special pleading of business. The problem with planning is the inefficient way in which it is managed. Yes, that could well be improved by localising it but councils have been told in this Budget to come down firmly on the side of business.

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How they may deal with this apparent contradiction in terms is a mystery to me, but it only reinforces the divisions.

The Budget is going to reduce red tape. Wonderful. Every Government in every Budget have promised to do that. However, the purpose of regulation is also to protect society, to ensure that we have clean water, clean air, safe food, safe transport, and protection for our children and old people. The way to cut regulation is not just to listen to the special pleading of business about the things that they find burdensome but to remove the regulations which no longer serve society. There are plenty of those. Until this attitude is changed to one that combines the interests of business and society, the promised bonfire of regulations will continue to be a damp squib.

We are told that our public servants stand in the way of innovation and that our deficit is caused by a bloated public sector. Yes, our Civil Service probably does need restructuring and modernising, but why is this not done by showing dynamic leadership and by modernising the way that the public service works with new structures, new equipment and new models? Then, those involved will want to make it happen. But no. The Government choose to demotivate and demoralise the very people who are going to have to implement their new policies and the result is yet more division.

Given the limited things that the Government can do, why are they cutting off this promising area of jobs and growth, or can this just be left to the market? Certainly in the past 20 years standards of living have risen and businesses have grown. Perhaps much of that was based on the credit boom, on the devaluation of sterling, and on North Sea oil, which the Government are milking again, but at least business and society shared the benefits. However, now that has come to an end and it cannot be repeated. The world has moved on to a place where innovation, new jobs and new businesses have as much of a social ingredient as a technical and scientific one. Surely sensitive and sensible involvement from the Government and regulators will help to speed up this kind of innovation and growth, moving it along. However, I am afraid that I see no signs of that in the Budget or, indeed, elsewhere in the economic policies of this Government.

1.33 pm

Lord Northbrook: My Lords, like other noble Lords, I am grateful to the noble Lord, Lord Lawson, for initiating this debate. Before I move on to discuss the very important issues that my noble friend raises, I should like to congratulate the Chancellor on his vigorous approach in tackling the appalling legacy of the Budget deficit left to us by the last Labour Government. This had to be the first economic priority after the election. His deficit reduction policies have been approved by a whole range of organisations and individuals including the IMF; the European Commission; the OECD; Fitch, the rating agency; and Timothy Geithner, the US Treasury Secretary. This is all in contrast to the last Labour Government's legacy.

I noted with interest the wise words of the noble Lord, Lord Myners, in his interview with the Guardian in August last year, when he reflected that the Labour

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Government had abandoned fiscal responsibility, that the former Prime Minister "grew to forget" the golden rule, and that Labour ran large deficits in the middle part of the last decade when the economy was clearly running at full capacity, that the party needed to come clean on what cuts it would make, and that it needed to prove once again that it is a credible party of economic management. The noble Lord criticised the current shadow Chancellor. He said:

"I don't agree with Ed Balls. I do think the Labour party has to wrestle with the fact that it tends to leave office with large deficits. And I think its licence to govern is weakened-and it would be weakened in the future-if it could not produce credible arguments to show that it is capable of sound economic management through the cycle".

The Chancellor, having set out his fiscal policy, can now concentrate on promoting enterprise and growth. His key message was that he was boosting manufacturing, growth and jobs by cutting taxes for businesses and entrepreneurs, scrapping burdensome regulations, radically reforming the planning system, investing in science and innovation, and providing more support for young people with 50,000 apprenticeships and 100,000 work experience places. I will look at most of these areas in turn.

First, I shall focus on the help for business. I welcome the extra reduction in corporation taxes for large companies from April 2011, the reforms to the foreign profits legislation, the announcement of new enterprise zones and the proposed low rate of corporation tax for offshore finance companies. That will all be good news for larger businesses. Also, the Chancellor has dealt a very generous hand to VCTs and EIS investors, increasing the tax relief and the amount of investment while rightly warning against abuse of the rules. The slight improvement in the capital allowance regime for short-term assets is good news. I also welcome the relaxation of the rules for non-doms, allowing them to offset tax on money remitted here to invest in the UK.

Those positive aspects of the Budget far outweigh the negative ones for a few sectors of the economy. Terry Scuoler, chief executive of EEF, the manufacturers' organisation, while praising the Budget in the main, said that,

The Financial Times today has also pointed out that the medium-sized oil companies will suffer from the new output levy:

"Britain's offshore oil and gas industry is one of the biggest losers in the Budget, with industry representatives warning the surprise increase in the tax on production would not only deter investment in the North Sea but could also raise dependence on imports".

In the banking sector, banks such as HSBC might be more inclined to move their headquarters overseas after yet another levy. Nor do I see much help for unincorporated smaller businesses on the tax front. Although they might benefit from scrapping existing regulation and easier planning laws, there is little assistance for them elsewhere-except in the R&D area, which I shall come to-particularly if they are in

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the manufacturing sector. New employment laws will come into force later this year, which might hinder companies taking on staff.

I move on to the subject of regulation. The Chancellor unveiled a series of useful measures, scrapping existing regulation that costs businesses £350 million a year and a moratorium on new domestic regulation for firms with fewer than 10 employees. However, the approach to regulation remains ad hoc, unfocused and, in the long run, in danger of being unsuccessful. The Government need to do three things: first, stem the flow of new regulation; secondly, rationalise existing regulation and eliminate barriers to competition and innovation; and, thirdly, reduce the costs of compliance. Without that strategic cross-departmental approach, the regulatory regime, rather than our growth rate, will keep growing.

In support of my view, I refer to the second report of the Regulatory Policy Committee issued in February this year. This committee advises the Business Secretary and is charged with reducing unnecessary regulations. It reviewed no fewer than 189 impact assessments in the last quarter of 2010. Of those 189, 57 were EU-sourced and 132 were from Whitehall. The RPC concluded that no fewer than 44 per cent of the impact assessments that it scrutinised were inadequate. It does not split the inadequacy between Whitehall and Brussels. In fact, its report is far less useful than it might have been, but at least it highlights that the tide of new regulation is even higher under this Government than the last.

Next, I come on to the proposed reforms of the planning system. These radical reforms to planning and regulation are to support economic development, including a presumption in favour of sustainable development. However, I ask the Minister how this change to the planning system squares with the current coalition policy of local plans?

Moving on to the area of science and innovation, I applaud the decision to support innovation and manufacturing with an additional £100 million this year for new science facilities and an increase in the SME rate of research and development tax credit over the next two years.

Overall, I welcome the 2011 Budget. The Chancellor has a difficult hand to play and no money in the kitty. His message is clear: Britain is open for business and it has produced major incentives to companies and individuals to create wealth, which I believe is the right approach for the future growth of the UK economy.

1.40 pm

Baroness Kramer: My Lords, I suspect that when we look back on this Budget in a few years' time, two measures will stand out: the Chancellor's commitment to raising the tax threshold, a commitment to fairness even at a time of tackling a major deficit and a significant economic crisis; and the green investment bank. The bank will start slowly, but in 20 years' time when we look back it will be seen as key to achieving a response to climate change, which, as I think almost everyone in the House is aware, is an absolute imperative.

I am very supportive of yesterday's Budget, but in my speech I will raise some of the issues that were not tackled and ask the Government to look at them

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seriously. As the noble Lord, Lord Griffiths, who is not in his place, said earlier, we have a challenge to rebound to trend growth and then to sustain trend growth. For any developed country, growth at that pace is a significant challenge. We do not have the potential that countries such as India or China have, with relatively low GDP per capita, to accelerate growth beyond trend, and it requires many things being done correctly.

One of the issues that was not addressed in the Budget is capital accumulation. Without that in place, it is very hard to see how we achieve sustained growth. In plain English, capital accumulation is essentially savings. I think that the savings rate in this country-others will correct me-runs at about 2 per cent of GDP, and most economists would say that it needs to be about 10 per cent of GDP for there to be sustained trend growth. I know that that is difficult. People have wrestled with the issue of how to persuade people to focus less on immediate consumption and more on long-term savings. Without that in place, achieving successful growth in the economy over the long term will be a challenge and, rather than duck that, we have to address it head on.

My second issue is about infrastructure, which was hardly tackled in the Budget. There were some measures to invest in various rail improvements and I know that elsewhere transport investments are going ahead. Essentially, one pillar of economic growth that the Government can provide is infrastructure and, traditionally, we have spectacularly failed to do that in this country. We have allowed much of our infrastructure to fall into decay. I raise the possibility that we keep continuing at that pace partly because of the way in which we measure growth. We constantly use GDP, which, as this House will know, has no depreciation in it. Any depletion of resources is not reflected in GDP and gives us a distorted sense of what, in many ways, is happening to our infrastructure.

I have a very quick example, but I am not an economist so others may correct me. If you look at growth between the two troughs of the Thatcher period, you will see that growth was averaging about 1.7 per cent, but I am told by economists that, if you remove from that number the depletion of oil and gas in the North Sea-a non-renewable resource-growth would have looked pretty flat at zero. In other words, we were achieving that by what looked like fundamental growth but it was in fact usage of a depleting resource. We have not included that in the way in which we tackle our thinking. Surely now is the time to make that change.

Gordon Brown attempted to do it in many senses by the golden rule, but that became abused politically. The privatisation of utilities was a mechanism to get around some of that, and PFI, under the last Government, was probably the most expensive way to carry out investment into projects and infrastructure. Again, it circumvented some of the issues. I ask that we consider tackling this issue head on.

The noble Lord, Lord Sugar, raised the issue of credit and said that you cannot ask banks to lend to inappropriate companies and inappropriate projects. I do not think anyone in the House would expect them

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to do that. I say to the noble Lord, Lord Sugar, that when he began his business and went to British banks and was turned away, I suspect that if he had gone to a bank in Germany or in the United States he would have had a very different response. The high street banks in this country have lost the people, the skill base or the willingness of the institutions to carry out risk assessment, to look at a proposal or a project, to begin to understand a would-be entrepreneur and to recognise whether there is a business there for which they can provide financial support and in which they can participate.

All that has largely been discarded for a much more mechanistic and inexpensive way of assessing any request for a loan from a small business, especially from a micro or a new business, that ticks a number of boxes in a fairly superficial way and does not carry out the kind of skilled risk assessment that there used to be in the past. We have lost our Captain Mainwarings and, to be straightforward about it, it seems to be very difficult to spark the new ventures that everyone here sees as essential to underpin growth in the economy again. Banks will be required to lend 15 per cent more, but we cannot let them get away with lending just to medium-sized well established companies to meet their quota; we have to get them to do the work with the micro and new businesses or make them finance someone else to do it.

As my time is running out, I have one last comment-on localism. It seems to me that one of the best things that the enterprise zones can say to local authorities is, "Ease up on planning regulations and in return any growth in the business rate will go directly to you". This seems to be the first time that we are reconnecting local authorities with business development within their own communities. The fact that the business rate goes to central government has removed every incentive. In the past, we had local authorities engaging with local businesses and local people who drove forward development, particularly of new and small businesses. We need that re-engagement. I ask again that the Government look at that issue.

1.48 pm

Viscount Trenchard: My Lords, I am grateful to my noble friend Lord Lawson of Blaby for introducing the debate. Your Lordships' House is indeed fortunate to have this debate on the day following the Budget. In recent weeks and months your Lordships have spent an inordinate amount of time discussing tinkering with the constitution rather than concentrating on important, urgent matters such as the subject of my noble friend's Motion. It is good that we have an opportunity to redress the balance today.

I declare an interest in that I am employed by Mizuho International, the investment banking arm of the Mizuho Financial Group of Japan, but I speak in your Lordships' House in my personal capacity. Nevertheless, my employment circumstances-the fact that I also serve as a director of an investment company whose manager's ultimate holding company is Prudential Financial of the United States and as a director of a chemical manufacturing company on Teesside, whose ultimate holding company is the Lotte Group of Korea,

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provide me with a basis to judge how attractive the United Kingdom is seen as a centre for investment by major foreign, financial and industrial groups. They will certainly welcome the Chancellor's decision to reduce the tax burden on controlled foreign companies.

My noble friend's Motion calls attention to,

I believe that, in referring to rebalancing the economy, my noble friend means to rein in the bloated public sector in order to create the resurgence that we need in the private sector. The policies pursued by the previous Government produced more than 1 million new mainly unproductive jobs in the public sector but saw the loss of 1.7 million jobs in our already depleted manufacturing sector.

There are those who talk about rebalancing the economy between the financial and manufacturing sectors. They believe that the economy is a zero-sum game and that a withdrawal of resources from our flagship financial sector will assist the creation of a larger and more profitable manufacturing and industrial sector. I think that the reverse is the case. In order to nurture and build on our manufacturing base, it is essential to protect and preserve London's position as the leading global financial centre to ensure that innovative companies can obtain the funds that they need to grow; and that personal and corporate tax rates are low enough not to counterbalance the United Kingdom's other natural advantages over rival investment centres.

During the 11 years for which I worked for Kleinwort Benson in Japan, I was able to encourage Japanese companies to invest in the United Kingdom because of our relatively low tax rates, our sound and stable political system, a reliable accounting system, a respected legal system based on common law and our relatively benign regulatory regime. All those relative advantages have now been compromised to a greater or lesser extent.

The Chancellor's announcement that he will ask HMRC to find out the truth as to whether the application for the 50 per cent tax band is revenue-positive is welcome. The top rate will actually be 52 per cent from next month, and it is probably already counterproductive. It makes it too expensive for international companies to base their most talented employees in this country and adversely affects the competitiveness of our markets. However, I cannot help wondering whether HMRC's study will be entirely objective. Far too much time and resources are now being wasted on the interplay between market participants and regulators. More importance is now placed on that than on the interaction between lenders and their clients. Senior executives of banks cancel meetings with their clients in order to be available at all times for the FSA, which is now overstepping the mark through its unwarranted incursions into matters such as the composition of subsidiary boards of directors and its unreasonably tough interpretation of capital adequacy rules.

I have some sympathy for the FSA, because besides its dismemberment it has been subjugated to the three new European level regulatory bodies: the EPA, the ESMA and the EOPA. I deeply regret that the previous

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Government acquiesced in the subordination of our regulatory regime to Brussels. The consequences, including the unnecessary and inappropriate regulation of hedge funds and, indeed, all alternative investment companies, are already having a negative effect on the promotion of enterprise and innovation in the financial sector, limiting the dispersal of risk among multiple players small enough to fail.

Financial markets are global, not European, and the new regulatory regime definitely hinders the City in playing the role that it should have in the promotion of cracks and enterprise in the wider economy. Do the Government fully understand just how serious the problem is, and what steps does my noble friend intend to take to mitigate its damaging consequences?

It is also crucial to ensure that the other formerly attractive features of United Kingdom markets are preserved and protected during a period when higher than optimum taxes need to be applied. I do not argue that lessons did not need to be learnt from the financial crisis, but bankers have been forced unfairly to take a disproportionate part of the blame. There is no evidence that we need more intrusive and more specific regulation. Rather, too much regulation lulls market participants into a false sense of security and tends to absolve them from responsibility for their actions. Will my noble friend bring his influence to bear on the Chancellor and persuade him to reverse the unfair attempt to exclude the banks from the welcome reduction in corporation tax through a further increase in the bank levy? That will do nothing to enable the banks to increase lending to SMEs, and it will have a negative effect on the competitiveness of British banks and of London as a financial centre.

Time does not permit me to comment on many of the other positive measures in the Budget. However, I ask the Minister two further questions. First, will he tell the House whether and when the Government will restore the personal allowance to all taxpayers, thus removing the disincentive caused by the 64 per cent effective band, which is of course widened by £1,200 by the new £600 increase in the personal allowance? Secondly, welcome though the 2 per cent reduction in corporation tax certainly is, will he set out a timetable for its further reduction to 20 per cent-or even the 15 per cent advocated by the Institute of Directors?

All in all, I congratulate the Chancellor on his pragmatic and courageous response to the critically high public sector deficit produced by the profligate and uncontrolled public spending policies pursued by the previous Government. The Chancellor is right to stick to his guns.

1.56 pm

Lord Hodgson of Astley Abbotts: My Lords, I, too, thank my noble friend for giving us the opportunity to debate this important topic today.

With the passing of time, the reality of the economic record and performance of the previous Labour Government becomes clearer. Having inherited a decent economic situation in 1997, it is a pretty depressing story. To be sure, there were some nuggets amid the dross-the decision to stay out of the euro and handing over the setting of interest rates to the Bank of England-

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but the underlying theme was that the man in government, whether central or local, knows best. Complexity was piled on complexity, needing armies of enforcers. Measures were so complex that they often missed their target. They were presided over by a man who claimed that he had abolished boom and bust-hubris indeed.

Today, one of the most amazing features is the collective amnesia that seems to have overtaken the Labour Party on that whole matter. As the noble Lord, Lord King of Bridgwater, reminded us, the perilous situation in which we remain appears to the Labour Party to be nothing to do with its record in government but merely the result of a malign alliance between sub-prime mortgages in the US and rapacious bankers elsewhere in the world.

For me, the most depressing statistic of the past 12 years-here I echo my noble friend Lord Trenchard-has been the shift in employment from the private to the public sector. As my noble friend told us, more than 1 million jobs went out of the productive economy into the state sector, so that there are now parts of the country in which 40 per cent or even 50 per cent of the people employed are employed by the state. That trend leads to madness and is certainly no way to build a prosperous Britain.

I particularly welcome the Chancellor's efforts to rebalance the economy by stimulating private sector economic activity. It is true that because, as his Labour predecessor told him when he took office, there is no money, these measures are necessarily modest, but cuts in corporation tax, extending EIS tax relief, relief for small businesses from further regulation and so on are all very welcome.

Although the Government can set the mood and prime the pump, reviving the economy will need a much greater contribution from the private sector banks than there is at present. Here I follow my noble friend Lord Newby. When he winds up the debate, my noble friend will reply that the banks have promised to lend an additional £190 billion to SMEs. That is quite true, but stating the quantum is not the whole answer. The equally important issues are, first, the process by which the funding is obtained, secondly, the time it takes to complete it and, thirdly, to whom it is being offered.

The past few years have seen the end of what has been called relationship banking for SMEs. In prior years, the bank manager would get to know his customer over a period of years and would have a certain amount of latitude on extending credit facilities on his own initiative. Certainly his assessment of the credit-worthiness and likely success of the borrower would be taken into account in any lending decision. That is no longer the case. Now it is all down to credit scoring. The credit committee knows nothing about the business. It does not know whether the applicant has been a customer of the bank for five minutes or 50 years; it is all down to the credit score. In effect, the relationship manager in most of these banks now fulfils a function akin to the speak-your-weight machine that you find on a seaside pier.

Then there is speed. SMEs are time constrained. They do not always plan ahead as well as they should, so speed of response is very important. While it is true

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that the banks have made some progress in this regard since the darkest days of 2009, there is more to be done. Then there is the question of which firms will get the funding. Let me illustrate with a practical example. A firm of my acquaintance needs occasional short-term funding for one to seven days, usually of about £1 million. It is well secured and is therefore low risk. The firm decided that, in order to allow for a margin of error, the application to the bank should be for a credit facility of £2 million. You may imagine its surprise when the credit facility offered was £5 million and a covering note suggested that the bank would happily entertain a request for £10 million. Inquiries revealed that this lending would qualify to be part of the bank's contribution to the £190 billion and because it was very low risk, so the higher the amount it could attribute to it, the better. I hope that my noble friend will monitor carefully not just the quantum of lending but the process by which it is made available and its destination.

This promise by the banks, like the Chancellor's Budget, addresses the short-term tactical challenges. Looking further ahead, if we are truly to rebalance the economy, there will need to be much higher capital investments by SMEs in the future than in the past. This will require the availability of longer-term funding facilities than envisaged by the £190 billion pot. That in turn poses a challenge to the banks under the matching liquidity provisions envisaged by the Basel 3 proposals. I trust that the Government are keeping this longer-term issue firmly in mind as they navigate their way through the choppy short-term seas.

2.02 pm

Lord Tugendhat: My Lords, I, too, thank the noble Lord, Lord Lawson, for introducing this debate and add my congratulations to those of others to the two maiden speakers who made such notable debuts in this debate.

I begin from a position where I feel much happier with the Government's language on the economy now than when we had our last big economic debate in November on the comprehensive spending review. I am delighted by the commitment to growth and by the measures that have been launched to give that commitment substance: the tax changes, the reforms to the planning system, the scrapping of regulations and so forth. This is a welcome change from the emphasis that was too much the case last year on cuts, cutting back and looking at everything through the prism of cuts. I warned then that I feared that the Government had perhaps swung too far towards austerity and that that would prejudice the health of the economy over the period of the Parliament. I pointed out that ultimately over the period of the Parliament, this Government will be judged by the criteria of growth and employment. I very much want them to be judged favourably by those two criteria and to have earned a favourable judgment. I do not want them to be found wanting.

I fear that events since the debate we had in November have gone some way to bear out the fears that I expressed at that time. We have had the fourth quarter fall in GDP and have the very high level of unemployment, which at 8 per cent is the highest level for 17 years and,

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as my noble friend Lord Griffiths pointed out, is at a particularly severe level for young people, with very dramatic and detrimental consequences for a great many individuals in that age group.

Against that, I argued that the Government's bravery in grasping the deficit nettle has enabled them to get ahead of the markets. No one now doubts the seriousness of the Government's commitment to cutting the deficit or their strength of purpose. They have therefore succeeded in gaining some room for manoeuvre, and I believe that they should take advantage of it. They should use it not just for the reasons that I have already given, substantial and powerful though they are, but because on top of them we now face far greater risks to the world economy than was the case at the end of last year, or at least when last we debated these matters. We have the ongoing events in the Middle East and North Africa, we have Japan and we have the continuing intractable problems in the eurozone, exemplified in today's papers by the news of the fall of the Portuguese Government.

In the autumn, the Governor of the Bank of England spoke of 500,000 jobs being created in our export industries. I wonder whether he would be willing to repeat that suggestion now. I think that the outlook for our exports and our major export markets is a great deal less good than it was then. All these things have occurred before the spending cuts and their consequential job losses in the private as well as in the public sector really begin to bite. They are nearly all still to come. At the same time, inflation is not just more than twice the target figure, it is continuing to accelerate.

This is a very dangerous and explosive mix: rising unemployment, rising prices and perhaps in the not-too-distant future rising mortgages, although I hope the Bank of England will heed the dangers of increasing interest rates in the present climate. In plain English, what this means is that a great many people in our country are going to suffer a lot of pain and anguish, and that is a prospect which we must take into account in assessing what the Government should be doing at present. I believe that economic policy is a matter of balance. A Government should have a clear direction and clear objectives, and I am delighted that this Government should have both of those things. But within that context, the priorities and the pace need to be varied from time to time to take account of changing circumstances. Failure to vary the pace and to vary to some extent the course and-we have seen this in the past, and some of us in this House go back to the Heath Government-failure to heed the warning signals can lead to smash ups and that dreaded term, the U-turn.

That is something that I very much hope that this Government will avoid and why I believe they should take advantage of the room for manoeuvre which they have earned in order to shift the balance somewhat back towards a modification of the cuts programme and an increase in capital spending. They should think again about both those factors. We have recently heard a great deal about the OECD. The Government should also take heed of the OECD's warning in its recent report that the large cuts in public expenditure being

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planned are a risk to long-term growth. I hope they will take account of these matters and that they will bear in mind the fact that it is not only through cuts that deficits are reduced. With more investment, there would be more employment. With more employment, there would be more consumer spending, and that in turn would lead to higher tax revenues.

2.09 pm

Lord McKenzie of Luton: My Lords, it is a particular pleasure to follow the noble Lord, Lord Tugendhat, particularly given the contribution that he has just delivered. I should like to offer my congratulations to the noble Baroness, Lady Stedman-Scott, and a fellow Lutonian, the noble Lord, Lord Hussain, on their excellent maiden speeches.

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